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Anna Joubin-Bret, Senior Legal AdviserDivision on Investment

UNCTAD

Recent Trends in foreign direct investment (FDI) and international investment agreements

WORKSHOP ON KEY SUBSTANTIVE ISSUES RELEVANT TO THE ANALYSIS AND NEGOTIATION OF BILATERAL INVESTMENT TREATIES

Organized jointly by

the Secretariat of the United Nations Conference on Trade and Development (UNCTAD), and the Department of International Economic Affairs, Ministry of Foreign Affairs of Thailand

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Trends in FDI

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Key messages: FDI trends and prospects

Global foreign direct investment (FDI) flows rose moderately to $1.24 trillion in 2010, but were still 15 per cent below their pre-crisis average.

For the first time, developing and transition economies together attracted more than half of global FDI flows.

Some of the poorest regions continued to see declines in FDI flows.

International production is expanding.

State-owned TNCs are an important emerging source of FDI.

UNCTAD estimates that global FDI will recover to its pre-crisis level in 2011, increasing to $1.4–1.6 trillion, and approach its 2007 peak in 2013.

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Global FDI inflows rose moderately in 2010, but were still 15 per cent below their pre-crisis average

Billi

on

s of

dollars

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For the first time, developing and transition economies together attracted more than half of global FDI flows

Developing countries: $574 billion, 12% increase Developed: $602 billion, 0.2% decline Transition (South-East Europe and the CIS): $68 billion, 5% decline

Bil

lion

s of

doll

ars

In 2010

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FDI flows to major emerging markets (East and South-East Asia and Latin America) rose strongly, while flows to some of the poorest regions (LDCs, LLDCs, SIDS and Africa) continued to

decline

(Billions of dollars)

Bil

lion

s of

doll

ars

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Outward FDI from developing and transition economies reached record highs, with most of their investment directed towards other

countries in the South

Per

cen

t

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Top 10 home and host countries for FDI

(Billions of dollars)

FDI outflows

FDI inflows

Note: The number in bracket after the name of the country refers to the ranking in 2009.

(Billions of dollars)

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Thailand FDI flows in 2009(million of dollars)

• Total Inward FDI: 4 492• Total Outward FDI: 2 182

Primary 559 - 4

Agriculture and hunting 7 -

Mining and quarrying 551 - 4

Secondary 3 886 171

Food products and beverages 170 - 17

Textiles 51 98

Coke, petroleum products and nuclear fuel 196 - 7

Chemicals and chemical products 286 52

Non-metallic mineral products 10 - 2

Metal and metal products 33 1

Machinery and equipment 2 419 27

Electrical and electronic equipment 91 - 63

Tertiary - 203 2 014

Construction 22 36

Trade 327 317

Finance -1 065 942

Financial Intermediation 1 944

Business activities 728 94

Real estate 728 94

Inflows Outflows

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Trends in IIAs

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Core Elements in international investment agreements (IIAs)

Preamble Definitions (investment/investor) Admission and establishment Core standards of protection:

Principle of fair and equitable treatmentPrinciple of non-discrimination (NT/MFN)ExpropriationTransfer of funds

Dispute settlement

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Bilateral investment treaties (BITs)

Free trade agreements / economic partnership agreements with investment provisions (FTAs/EPAs)

Regional integration agreements (EU, ECOWAS, CARICOM, MERCOSUR, COMESA, Arab investment agreement, ASEAN)

Multilateral agreements dealing with investment (GATS, TRIMs, TRIPs)

The network of International Investment Agreements (IIAs)

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Thailand's IIA Network

• 39 BITs

• 62 DTTs

• 23 other IIAs (including ASEAN agreements and ASEAN +1 FTAs)

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A. Bilateral Investment Treaties

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The network of BITs continues to grow, there are now over 2600 BITs

0

20

40

60

80

100

120

140

160

180

200

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

BIT

s an

nual

0

500

1000

1500

2000

2500

3000

BIT

s cu

mm

ulat

ive

BITs Annual BITs cumulative

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The top ten signatories of BITs in the world, January 2010

0 20 40 60 80 100 120 140 160

Korea, Republic of

Italy

Belgium and Luxembourg

Netherlands

Egypt

France

United Kingdom

Switzerland

China

Germany

Number of BITs

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Increased sophistication and complexity

• United States and Canadian model BITs (2004)

• Tend to be increasingly sophisticated in content

• Clarifying in greater detail the meaning of a number of standard clauses

• Putting more emphasis on the protection of national security, health, safety, the environment, and labour rights

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B. Free Trade Agreements

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B. Free Trade Agreements with Investment Chapters

International investment rules are increasingly being formulated as part of agreements that encompass a broader range of issues (including trade, services, competition, intellectual property)

Regional integration with investment disciplines: ASEAN investment liberalization and protection

The total number of such economic agreements with investment provisions exceeded 290, as of end 2009

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Over 300 economic cooperation agreements with investment provisions

0

50

100

150

200

250

300

350

1957 – 1967 1968 – 1978 1979 – 1989 1990 – 2000 2001 – 2009

Nu

mb

er o

f II

As

(oth

er t

han

BIT

s an

d D

TT

s)

By period Cumulative

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Multiple overlapping FTAs with investment provisions

• IIAs proliferate at all levels•Constituting a complex system of multi-layered and multi-faceted investment rules

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Recent developments in investor-State dispute

settlement

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The increase in IIAs has been paralleled by an increase in investor-State disputes

In 2010, at least 25 new cases were filed, bringing the total number of known treaty-based cases to 390

Of the total 390 known disputes:• 245 were filed with ICSID (or the ICSID Additional Facility)• 109 under the United Nations Commission on International

Trade Law (UNCITRAL) arbitration rules• 19 with the Stockholm Chamber of Commerce• six with the International Chamber of Commerce and four

were ad hoc. • One further case was filed with the Cairo Regional Centre

for International Commercial Arbitration.• In six cases, the applicable arbitration rules are unknown

so far. Thailand: 1 case - Walter Bau v. Thailand, UNCITRAL (Germany/Thailand BIT).

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Some disputes in 2010…

• In Latin and Central America, Bolivia and Venezuela responded to three new claims each as a result of nationalization measures aiming at strengthening state control over strategic sectors.

• Uruguay is responding to its first claim arising from consumer protection legislation involving marketing restrictions and labeling requirements of cigarettes

• In Central Asia, Kazakhstan and Turkmenistan responded to two new cases each relating to energy and power facilities and construction projects

• In Africa, Zimbabwe responded to two new cases relating to timber processing and commercial farms while Tanzania faced one new case dealing with a power purchase agreement.

• In Europe, Lithuania, Romania and Slovakia responded to a new case each relating to alcohol industry, press distribution and claims arising out of alleged reversal of health insurance policy.

• Canada faced one NAFTA case dealing with an investment in a pulp and paper mill.

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Known investment treaty arbitrations (cumulative and newly instituted cases

0

5

10

15

20

25

30

35

40

45

50

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

An

nu

al

nu

mb

er

of

cases

0

50

100

150

200

250

300

350

400

450

Cu

mu

lati

ve n

um

ber

of

cases

ICSID Non-ICSID All cases cumulative

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Known investment treaty claims, by defendants

0 10 20 30 40 50 60

Egypt

Poland

Ukraine

United States

Canada

Venezuela

Ecuador

Czech Republic

Mexico

Argentina

Number of cases

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international investment agreements ininvestment treaty arbitrations, end 2009

ASEAN 2%

NAFTA5% Energy Charter Treaty

7%

CAFTA2%

Bilateral investment treaties 84%

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Key issues and challenges

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Developing countries and economies in transition often lack the necessary human resources to negotiate agreements that appropriately reflect their interests and needs

Risk of overlapping and sometimes conflicting commitments in IIAs (always keep in mind national investment laws)

How to strengthen the development dimension of IIAs (investment promotion V.S. investment protection)

Many capital importing countries becoming capital exporters: implications with regard to their negotiation position in IIAs. These countries now have to attract inward FDI, but also protect their own investors abroad

Result: developing countries and economies in transition need to ensure policy coherence between their various international investment commitments, including those at the national level.

This entails coherence with national strategies on investment and how it can contribute to sustainable development.

Challenges

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Overarching principles

• Investment in sustainable development• Policy coherence• Good governance• Policy making dynamics• Balanced rights and obligations• Right to regulate• Openness to investment• Investment protection• Corporate responsibility• Outward investment• International cooperation

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Thank you

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