Anna Joubin-Bret, Senior Legal AdviserDivision on InvestmentUNCTADRecent Trends in foreign direct investment (FDI) and international investment agreementsWORKSHOP ON KEY SUBSTANTIVE ISSUES RELEVANT TO THE ANALYSIS AND NEGOTIATION OF BILATERAL INVESTMENT TREATIES Organized jointly bythe Secretariat of the United Nations Conference on Trade and Development (UNCTAD), and the Department of International Economic Affairs, Ministry of Foreign Affairs of Thailand

Trends in FDI

Key messages: FDI trends and prospectsGlobal 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 $1.41.6 trillion, and approach its 2007 peak in 2013.

*Global FDI inflows rose moderately in 2010, but were still 15 per cent below their pre-crisis averageBillions of dollars

*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% declineBillions of dollarsIn 2010

*

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)Billions of dollars

*Outward FDI from developing and transition economies reached record highs, with most of their investment directed towards other countries in the SouthPer cent

* Top 10 home and host countries for FDI (Billions of dollars)FDI outflowsFDI inflowsNote: The number in bracket after the name of the country refers to the ranking in 2009.(Billions of dollars)

Thailand FDI flows in 2009(million of dollars) Total Inward FDI: 4 492Total Outward FDI: 2 182InflowsOutflows

Trends in IIAs

Core Elements in international investment agreements (IIAs)PreambleDefinitions (investment/investor)Admission and establishmentCore standards of protection:Principle of fair and equitable treatmentPrinciple of non-discrimination (NT/MFN)ExpropriationTransfer of fundsDispute settlement

The network of International Investment Agreements (IIAs)

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)

Thailand's IIA Network39 BITs

62 DTTs

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

A. Bilateral Investment Treaties

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

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

Chart1

89

94

95

98

101

102

104

117

125

135

Sheet1

Korea, Republic of89

Italy94

Belgium and Luxembourg95

Netherlands98

DataEgypt101

DataFrance102

DataUnited Kingdom104

DataSwitzerland117

DataChina125

DataGermany135

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Increased sophistication and complexityUnited 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

B. Free Trade Agreements

B. Free Trade Agreements with Investment ChaptersInternational 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

Over 300 economic cooperation agreements with investment provisions

Chart1

55

611

1627

103130

157287

By period

Cumulative

Number of IIAs (other than BITs and DTTs)

Sheet1

1957 19671968 19781979 19891990 20002001 2009

By period5616103157

Cumulative51127130287

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&A

Page &P

By period

Cumulative

Number of IIAs (other than BITs and DTTs)

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Multiple overlapping FTAs with investment provisions IIAs proliferate at all levelsConstituting a complex system of multi-layered and multi-faceted investment rules

Recent developments in investor-State dispute settlement

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 rules19 with the Stockholm Chamber of Commercesix 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).

Some disputes in 2010In 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.

Known investment treaty arbitrations (cumulative and newly instituted cases

Known investment treaty claims, by defendantsNumber of cases

Chart1

10

11

14

14

15

15

16

18

19

51

Sheet4

CountryCasesEgypt10

Poland11

Ukraine14

United States14

Canada15

Venezuela15

Ecuador16

Czech Republic18

Mexico19

Argentina51

Russian Federation9

Kazakhstan9

India9

Bolivia9

Turkey8

Romania8

Unknown7

Georgia7

Slovak Republic5

Moldova, Republic of5

Jordan5

Hungary5

Peru4

Mongolia4

Costa Rica4

Zimbabwe3

Turkmenistan3

Sri Lanka3

Paraguay3

Pakistan3

Lithuania3

Lebanon3

Guatemala3

Estonia3

El Salvador3

Congo, Democratic Republic of3

Chile3

Algeria3

Yemen2

Uzbekistan2

United Arab Emirates2

Slovenia2

Philippines2

Morocco2

Malaysia2

Macedonia2

Latvia2

Kyrgyz Republic2

Ghana2

Germany2

Dominican Republic2

Croatia2

Burundi2

Azerbaijan2

Albania2

Viet Nam1

Uruguay1

United Kingdom1

Tunisia1

Trinidad and Tobago1

Thailand1

Tanzania, United Republic of1

Tanzania1

Spain1

South Africa1

Slovak1

Serbia1

Senegal1

Saudi Arabia1

Portugal1

Panama1

Nigeria1

Nicaragua1

Myanmar1

Kyrgyzstan1

Kazakhstan1

Iran1

Indonesia1

Hungary1

Guyana1

Grenada1

Gabon1

France1

Congo, Democratic Republic of (former Republic of Zaire)1

Cambodia1

Bulgaria1

Bosnia and Herzegovina1

Belize1

Bangladesh1

Bangladesh1

Armenia1

Total207

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ctynum

Zimbabwe1

Zimbabwe1

Zimbabwe1

Yemen1

Yemen1

Viet Nam1

Venezuela1

Venezuela1

Venezuela1

Venezuela1

Venezuela1

Venezuela1

Venezuela1

Venezuela1

Venezuela1

Venezuela1

Venezuela1

Venezuela1

Venezuela1

Venezuela1

Venezuela1

Uzbekistan1

Uzbekistan1

Uruguay1

Unknown1

Unknown1

Unknown1

Unknown1

Unknown1

Unknown1

Unknown1

United States1

United States1

United States1

United States1

United States1

United States1

United States1

United States1

United States1

United States1

United States1

United States1

United States1

United States1

United Kingdom1

United Arab Emirates1

United Arab Emirates1

Ukraine1

Ukraine1

Ukraine1

Ukraine1

Ukraine1

Ukraine1

Ukraine1

Ukraine1

Ukraine1

Ukraine1

Ukraine1

Ukraine1

Ukraine1

Ukraine1

Turkmenistan1

Turkmenistan1

Turkmenistan1

Turkey1

Turkey1

Turkey1

Turkey1

Turkey1

Turkey1

Turkey1

Turkey1

Tunisia1

Trinidad and Tobago1

Thailand1

Tanzania, United Republic of1

Tanzania1

Sri Lanka1

Sri Lanka1

Sri Lanka1

Spain1

South Africa1

Slovenia1

Slovenia1

Slovak Republic1

Slovak Republic1

Slovak Republic1

Slovak Republic1

Slovak Republic1

Slovak1

Serbia1

Senegal1

Saudi Arabia1

Russian Federation1

Russian Federation1

Russian Federation1

Russian Federation1

Russian Federation1

Russian Federation1

Russian Federation1

Russian Federation1

Russian Federation1

Romania1

Romania1

Romania1

Romania1

Romania1

Romania1

Romania1

Romania1

Portugal1

Poland1

Poland1

Poland1

Poland1

Poland1

Poland1

Poland1

Poland1

Poland1

Poland1

Poland1

Philippines1

Philippines1

Peru1

Peru1

Peru1

Peru1

Paraguay1

Paraguay1

Paraguay1

Panama1

Pakistan1

Pakistan1

Pakistan1

Nigeria1

Nicaragua1

Myanmar1

Morocco1

Morocco1

Mongolia1

Mongolia1

Mongolia1

Mongolia1

Moldova, Republic of1

Moldova, Republic of1

Moldova, Republic of1

Moldova, Republic of1

Moldova, Republic of1

Mexico1

Mexico1

Mexico1

Mexico1

Mexico1

Mexico1

Mexico1

Mexico1

Mexico1

Mexico1

Mexico1

Mexico1

Mexico1

Mexico1

Mexico1

Mexico1

Mexico1

Mexico1

Mexico1

Malaysia1

Malaysia1

Macedonia1

Macedonia1

Lithuania1

Lithuania1

Lithuania1

Lebanon1

Lebanon1

Lebanon1

Latvia1

Latvia1

Kyrgyzstan1

Kyrgyz Republic1

Kyrgyz Republic1

Kazakhstan1

Kazakhstan1

Kazakhstan1

Kazakhstan1

Kazakhstan1

Kazakhstan1

Kazakhstan1

Kazakhstan1

Kazakhstan1

Kazakhstan1

Jordan1

Jordan1

Jordan1

Jordan1

Jordan1

Iran1

Indonesia1

India1

India1

India1

India1

India1

India1

India1

India1

India1

Hungary1

Hungary1

Hungary1

Hungary1

Hungary1

Hungary1

Guyana1

Guatemala1

Guatemala1

Guatemala1

Grenada1

Ghana1

Ghana1

Germany1

Germany1

Georgia1

Georgia1

Georgia1

Georgia1

Georgia1

Georgia1

Georgia1

Gabon1

France/United Kingdom1

Estonia1

Estonia1

Estonia1

El Salvador1

El Salvador1

El Salvador1

Egypt1

Egypt1

Egypt1

Egypt1

Egypt1

Egypt1

Egypt1

Egypt1

Egypt1

Egypt1

Ecuador1

Ecuador1

Ecuador1

Ecuador1

Ecuador1

Ecuador1

Ecuador1

Ecuador1

Ecuador1

Ecuador1

Ecuador1

Ecuador1

Ecuador1

Ecuador1

Ecuador1

Ecuador1

Dominican Republic1

Dominican Republic1

Czech Republic1

Czech Republic1

Czech Republic1

Czech Republic1

Czech Republic1

Czech Republic1

Czech Republic1

Czech Republic1

Czech Republic1

Czech Republic1

Czech Republic1

Czech Republic1

Czech Republic1

Czech Republic1

Czech Republic1

Czech Republic1

Czech Republic1

Czech Republic1

Croatia1

Croatia1

Costa Rica1

Costa Rica1

Costa Rica1

Costa Rica1

Congo, Democratic Republic of (former Republic of Zaire)1

Congo, Democratic Republic of1

Congo, Democratic Republic of1

Congo, Democratic Republic of1

Chile1

Chile1

Chile1

Canada1

Canada1

Canada1

Canada1

Canada1

Canada1

Canada1

Canada1

Canada1

Canada1

Canada1

Canada1

Canada1

Canada1

Canada1

Cambodia1

Burundi1

Burundi1

Bulgaria1

Bosnia and Herzegovina1

Bolivia1

Bolivia1

Bolivia1

Bolivia1

Bolivia1

Bolivia1

Bolivia1

Bolivia1

Bolivia1

Belize1

Bangladesh1

Bangladesh1

Azerbaijan1

Azerbaijan1

Armenia1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Argentina1

Algeria1

Algeria1

Algeria1

Albania1

Albania1

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international investment agreements ininvestment treaty arbitrations, end 2009

Chart1

1.5

1.5

5

7

85

NAFTA5%

Energy Charter Treaty 7%

Bilateral investment treaties 84%

Sheet1

CAFTA1.5

ASEAN1.5

ALENA5

Trait sur la Charte de l'Energie7

Trait bilatral d'investissement85

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0

0

0

0

0

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Key issues and challenges

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

Overarching principles

Investment in sustainable developmentPolicy coherenceGood governancePolicy making dynamicsBalanced rights and obligationsRight to regulateOpenness to investmentInvestment protectionCorporate responsibilityOutward investmentInternational cooperation

Thank you

www.unctad.org/iia

World Investment Report 2009World Investment Report 2009World Investment Report 2009World Investment Report 2009World Investment Report 20091) The preamble does not create rights and obligations, but they are relevent for the general interpretation of the treaty. Usually the parties reafirm their desire to enhance economic cooperation, to promote and to protect investment.2) The scope of application determines the object to which the BIT shall aplly. Definitions, therefore, are important to know for example what constitutes an investment and what constitutes an investor. 3) Admission of investment. Typically, BITs provide for the admission of investment of nationals and companies of the other contracting party, but only in accordance with the law of the host country. That means that in most BITs FDI projects should still be approved by a specific ministry or authority despite the existence of the BIT. The admission of investment facilitates the entry of investment. 4) Standards of treatment. BITs use two different standards that are directed at preventing discirminatory treatment to investments made by a contracting party: the most-favoured-nation treatment and the national treatment. MFN standard guarantees that investment of one contracting party will be treated no less favourably than investment by nationals or companies of any third country. This also means that if one party gives any special advantage to investment from a third party, it must grant that same advantage to its treaty partner. 6) Expropriation. Many developed countries (especially in the 1960s and 1970s) signed BITs primarly to protect their investments abroad against the risk of expropriation or nationalization. BITs specifically prohibit the expropriation unless it is done for the public good and accompanied by fair and prompt compensation7) Free transfer of funds. Most BITs guarantee the free transfer of all payments related to an investment. The timely transfer of income is important to foreign investors to benefit from their projects and to meet their obligations vis a vis sharholders. It should be noted that the sudden repatriation of large profits made by foreign investors can have adverse effect on the host countries. 8) Dispute Settelment. BITs provide for provisions for the settelment of investment disputes. This is of critical importance because such provisions ensure that the standards of treatment and protection granted by a treaty are effectively enforced. Under dispute settelment provisions, the investor can bring a claim against the host country for violating any of the BIT provisions. The dispute can be submitted either to a domestic court or to international arbitration such as ICSID (the foreign investor would usually prefer international arbitration).

The network of international investment agreements is composed of bilateral treaties for the promotion and protection of investment (or bilateral investment treaties) there are over 2500 BITs worldwide, free trade agreements with investment chapters and regional integration agreements (250 such agreements), as well as various multilateral agreements that contain a commitment to liberalize, protect and/or promote investment.

In this presentation I will focus first on bilateral investment treaties and free trade agreements with investment provisions. As you can see from the chart, during 2005, 74 new BITs were concluded. This brought the total number of BITs to 2,466.

Please note that the number of BITs concluded per year has been steadily declining.

Developed countries seeking to protect their investments abroad continue to be the largest concluders of BITs. Seven of the top 10 countries with the most BITs signed are developed countries.

However, China is the country with the second highest number of BITs concluded, and Egypt ranks 6th.

Some new generation BITs and BIT models have deviated from the traditional open-ended asset-based definition of investment in order no to cover assets that are not really intended by the Parties to be covered investments (non-economic activities). Clarify the meaning of provisions dealing with absolute standards of protection, in particular, the meaning of minimum standard of treatment in accordance with international law and the concept of indirect expropriation. New generation BIT models include annexes specifying guidelines and criteria to determine whether in a particular situation an indirect expropriation.The protection of health, safety, the environment, and the promotion of internationally recognized labor rights are areas on which the new generation of BITs include specific language generally aimed at clarifying that the investment protection and liberalization objectives of investment agreements cannot be pursued at the expense of these other key public policy objectives.

Another tool to attract and protect investments are free trade agreements, the new FTAs increasingly encompass investment provisions and are therefore counted as investment instruments. They cover not only trade and investment but also services, IPRs and other disciplines. Most active countries in the conclusion of such comprehensive FTAs are the U.S., Australia, Japan, Chile and Singapore. As mentioned earlier, the number of such agreements exceeded 230 by the end of 2005.

By the end of 2007, at least 250 such economic agreements with investment provisions had been concluded.Among the most important recent trends is the further proliferation of international investment agreements at bilateral, regional and interregional levels. This has resulted in a "spaghetti bowl" of IIAs. The existing system of such multi-layered and multi-faceted international investment rules is becoming increasingly complex.

Examples of investment promotion measures: (a) transparency and exchange of investment-related information; (b) fostering linkages between foreign investors and domestic companies; (c) capacity-building and technical assistance; (d) granting of investment insurance; (e) encouragement of transfer of technology; (f) easing informal investment obstacles; (g) joint investment promotion activities; (h) access to capital; (i) financial and fiscal incentives; and (j) the setting up of an institutional mechanism to coordinate the respective measures.