UNCTAD Report proposes ways to reform international investment agreement system
Systematic reform of the international investment agreement regime is pressing. In its newly launched World Investment Report 20151 UNCTAD says that policymakers should reform the system to promote sustainable development and bring coherence to the almost 3,300 agreements currently in existence.
“The case for reform is clear,” UNCTAD Secretary-General Mukhisa Kituyi said. “Countries have for many years, indeed decades, chosen to enter into these agreements for good reasons, to attract much needed investment through better legal predictability and enforcement of property rights for investors. At the same time, we are now faced with a global patchwork of agreements. The agreements have also had a number of unintended and sometimes far-reaching consequences for the right, of developed and developing countries alike, to regulate. ‘Old style’ international investment agreements have increasingly come to a dead end. Reform should make the global network of international investment agreements better fit the needs and realities of today and tomorrow.”
In the report, UNCTAD highlights that treaties between two or more countries that address cross-border investment – international investment agreements – can excessively and, at times, unintentionally limit the regulatory space of the contracting parties to achieve public policy and development objectives. Their mechanism for settlement of disputes likewise suffers from a growing crisis of legitimacy. The UNCTAD report underlines how countries could use the agreements more effectively as tools for investment promotion and facilitation, and identify responsibilities to put on investors in return for the protections they get from the agreements.
In the report, UNCTAD argues that the process of reform of international investment agreements needs to be synchronized at the national, bilateral, regional and multilateral levels.
“Reform should be guided by the goal of more effectively harnessing international investment agreements for sustainable and inclusive development, focusing on key reform areas, and following a multi-level, systematic and inclusive approach,” Dr. Kituyi said. “Only a common approach will deliver an international investment agreement regime in which stability, clarity and predictability help achieve the objectives of all stakeholders.”
Given the huge number of existing international investment agreements, the report argues that the best way to make the regime work for sustainable development is to collectively reform it, thereby avoiding even greater fragmentation, preferably within a multilateral support structure of global reach. As the United Nations body specializing in trade, investment and development, UNCTAD can provide the necessary backstopping for international investment agreement reform through policy analysis, coordination, managing the interaction with other bodies of law, technical assistance and consensus-building.
UNCTAD says that reform efforts for international investment agreements should aim at addressing five challenges. The World Investment Report 2015 presents numerous policy options for meeting them:
1. Safeguarding the right to regulate in the public interest so that limits on State sovereignty imposed by international investment agreements do not constrain public policymaking: Options include clarifying or circumscribing provisions such as most favoured nation treatment, fair and equitable treatment, indirect expropriation, remedies and compensation, as well as including exceptions for public policies or national security, for example.
2. Reforming investment dispute settlement to address the crisis in legitimacy of the current system: Options include reforming the existing mechanism of ad hoc arbitration for investor–State dispute settlement, while keeping its basic structure, or replacing the existing investor–State dispute settlement system. The former can be done by fixing the existing mechanism (e.g. by improving the arbitration process, limiting investors’ access and using filters) or by adding new elements (e.g. building in effective alternative dispute resolution or introducing an appeals facility). Should countries wish to replace the current investor–State dispute settlement system, they could do so by creating a standing international investment court or by relying on State–State and/or domestic dispute resolution.
3. Expanding investment promotion and facilitation in international investment agreements: Options include inward and outward investment promotion provisions (i.e. host and home country measures), joint investment promotion provisions, including an ombudsperson for investment facilitation, and regional compacts.
4. Ensuring responsible investment to maximize the positive impact and minimize the negative effects of foreign investment: Options include adding clauses on the “not lowering of standards” and establishing provisions on investor responsibilities, such as clauses on compliance with domestic laws and on corporate social responsibility.
5. Enhancing the systemic consistency of the international investment agreement regime to overcome gaps and overlaps, and establish coherent investment relationships: Options include improving the coherence of the international investment agreement regime, consolidating and streamlining the international investment agreement network, managing the interaction between these agreements and other bodies of international law, and linking international investment agreement reform to domestic policy agendas.
UNCTAD’s World Investment Report 2015 presents the latest trends in foreign direct investment and provides key economic data and analysis for policymakers. The report focuses on the fiscal contribution of transnational corporations in developing countries and the interaction between international tax and investment policies, highlighting the need for a synergistic approach. It also focuses on the need to reform the regime of international investment agreements by providing an action plan for such reform.