Pros and Cons of BITs for Developing Countries

Transcription

1 Pros and Cons of BITs for Developing Countries Manuel F Montes Institute of Policy Studies Colombo, 7 November 2016

2 PROS PROS o Developing countries need for foreign investment o BITs as ONE strategy CONS o Fiscal costs of arbitration mechanisms o Restriction of regulatory policy for public objectives Trends Reforming the system 2

3 Pros and Cons of BITs - PROS Developing countries need for foreign investment Protection from expropriation o Reliability of domestic legal system o Access to redress from host state arbitrary actions Import commercial arbitration rules and procedures one party state and the other party the foreign investor 3

4 Pros and Cons of BITs - PROS Increase in investment flows Evidence weak : Sauvant and Saks 2009 FDI flows are highly concentrated o But BITs makes country a contender o Improve domestic legal system? No. Direct evidence interviews of foreign investors and political risk insurance providers Casual evidence Brazil, S Africa, China 4

5 Pros and Cons of BITs - CONS Fiscal costs o Cost of arbitration Undermine domestic legal system and its development Regulatory chill 5

6 Developing countries as FDI destination Source: UNCTAD

7 Developing countries FDI and share Source: UNCTAD

8 Top FDI Hosts, 2013 and 2014 Source: UNCTAD

9 Investment treaties, new and cumulative Source: UNCTAD

10 Country BITs In Force* Gini Portugal Spain France Italy Greece Turkey Georgia Ukraine Belarus Lithuania Latvia Estonia Finland Norway Sweden United Kingdom Denmark Poland Slovakia Hungary Moldova Romania Bulgaria Macedonia Albania Montenegro Serbia Bosnia and Herzegovina Croatia Slovenia Hungary Austria Czech Republic Germany Switzerland Netherlands Belgium Cyprus Armenia Azerbaijan Iceland Luxembourg Russian Federation Malta BITs in force Europe 10 BITs in force UK 94 Netherlands 91 France 96 Switzerland 115 Czech Rep. 77 Russia - 57 Hungary - 56

11 BITs in force - Africa Country BITs In Force* Gini Egypt Morocco South Africa Ethiopia Sudan Nigeria Senegal Mozambique Guinea Mauritania 7 38 DR Congo Mali 6 33 Gabon Cameroon 9 39 Uganda Congo Kenya Namibia Côte d'ivoire Magadascar Bostwana United Republic of Tanzania 6 35 Angola 4 55 Rwanda 4 59 Burundi Malawi Niger Central Republic of Africa Liberia Egypt 72 South Africa 17 Morocco 46

12 BITs in force Latin America Country BITs In Force* Gini Argentina Chile Uruguay Brazil 0 52 Paraguay Bolivia Peru Ecuador Colombia 5 56 Venezuela Guyana 4 35 Panama Costa Rica Nicaragua Honduras 9 55 El Salvador Guatemala Mexico Dominican Republic Barbados 9 47 Argentina 55 Chile 37 Venezuela 27 Mexico 29 12

13 Known ISDS cases, new and cumulative Source: UNCTAD

14 ISDS: South America, Eastern Europe, SSA Source: South Centre forthcoming 14

15 Known ISDS: Sectoral allocation, role of extractive industries Source: South Centre forthcoming 15

16 ISDS: Beauty contest, most sued states 16

17 ISDS: Home states of claimants 17

18 ISDS: Distribution of known outcomes 18

19 ISDS: Distribution of known outcomes Cases decided on basis of merit 19

20 Investor protection in international governance 1. Severe imbalance in rights and responsibilities between investors and states 2. Vague treaty provisions 3. Conflicts of interest in dispute process 4. Chill effect on public policy 20

21 Imbalances in rights/responsibilities Definition and scope of investment o Deposits, trademarks, debt, portfolio positions in the local stock market National treatment Pre-establishment rights Fair and equitable treatment Expropriation, including indirect Survival clause 21

22 Commercial rules: compensation for damage for breach of contract Monetary awards have become large Payable with compounded interest for delayed payment 2014: o Russia-Yukos $50 billion o Venezuela-Exxon $1.6 b (incl. interest) 2012: o Ecuador-Occidental Petroleum $1.7 b (incl. interest) 2010 o Ecuador-Chevron $0.7 b Combined Ecuador penalties equal to 3.3% of GDP 22

23 Litigation outcomes High cost of litigation o $58 million two Philippine cases Awards and settlement o Settlement most probably payment of compensation by state Not all host countries equal in susceptibility to dispute action Transparency of procedure and outcome 23

24 Restricting social policy space Black empowerment policies in South Africa Minimum wage policies in Egypt Land reform in Zimbabwe Water provision in Bolivia Environmental policy in Mexico Other cases o Tobacco control in Uruguay and Australia o Debt restructuring in Argentina 24

25 Other dimensions of inequality Foreign investor privileges not available to indigenous investors o Exemption from capital controls in a balance of payments crisis if all investments are protected o Plus ISDS threat to influence policy and legislation o Performance measures exemptions wider than TRIMs (eg. local hiring requirements) Redress beyond the domestic legal system o India 2G telecommunications case Promotion of a business model based on litigation o Treaty shopping (thru MFN clauses) 25

26 Chilling effect on regulatory and social policy Environmental regulations and clean-up requirements in extractive industries Cancellation of contracts o Punitive awards, even when state justified to cancel contracts o Non-awarding of contracts violation of legitimate expectations of bidders and investors 26

27 Reforming the system Withdrawal from NAFTA-style BITs, substituted by protection under domestic law o Venezuela, Ecuador Bolivia renounce ICSID o South Africa Alternative (non-us-type) model provisions o based on promotion, not protection o state-to-state dispute resolution o exhaustion of domestic remedies o recognizing regulatory rights of states in the public interest and introducing investor obligations o Brazil, India, Indonesia 27

28 Reforming the system Restricting what is protected investment Restricting what kind of investors are protected o Requirement of registration o Requirement of concrete business activity in home state Existing treaties have undesirable features protected by year survival clauses 28

29 Thank you Tel: Fax: South Centre Chemin du Champ d'anier 17 C.P Geneva 19 Switzerland Source: South Centre forthcoming 29

30 Slide 1 International o Policy Space 30