Entry of Foreign Investments: Convergence of International Trade and Investment Law?
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Entry of Foreign Investments: Convergence of International Trade and Investment Law? Murilo Otávio Lubambo de Melo Thesis submitted for the degree of Doctor of Philosophy – PhD University College London – UCL Faculty of Laws 2019 1 2 Declaration I, Murilo Otávio Lubambo de Melo, confirm that the work presented is my own. Where information has been derived from other sources, I confirm that this has been indicated in the thesis. ___________________________________ 3 Thesis Abstract The thesis analyses how public international law regulates the entry of foreign investors and investments into states. It explores the various legal concepts and techniques to limit the freedom of states to accept investments and regulate their access, employed in different regimes of international law. These are: international trade law – mainly illustrated by the WTO (World Trade Organisation) agreements, in particular, the General Agreement on Trade in Services (GATS), and preferential trade agreements (PTAs) – and international investment law (IIL) – scattered through a network of bilateral investment treaties (BITs). The thesis concludes that there are signs that the international rules regulating the entry of investments in services are converging in several levels of alignment and treaty making. Convergence means a reduction of non-shared legal and systemic characteristics or an increase in shared characteristics. Several factors support this conclusion: the progressive incorporation in treaties of establishment rights for investors, that is, commitments by states to allow foreign investments under certain conditions; the narrowing-down of investor-state dispute settlement clauses dealing with entry, which makes IIL systemically closer to international trade law regarding dispute settlement; the hidden liberalising power that flows from the broad interaction of the most-favoured-nation (MFN) clauses in the GATS and IIL with entry provisions; and, the incorporation of concepts and techniques from the international trade law world into investment chapters of larger international economic agreements, such as the GATS absolute standard of market access and its system of exceptions and justifications. These converging signs are considered a natural evolution of the rules given that trade and investment sometimes represent complementary market access strategies in the context of global value chains. The thesis suggests that this move towards convergence may bring about more effectiveness to the rules by attaining the goal of investment liberalisation balanced with the safeguard of regulatory space. 4 Impact Statement The thesis has an important impact on public policy design and on the improvement of domestic laws and treaties. The knowledge base of the thesis spans through two complex and technical regimes of international law, generally scattered in different areas of professional expertise (international trade law and international investment law). This means that the thesis has an appeal to both international investment arbitration professionals, who are engaged in the legal practice of investment law, and international trade practitioners, who work with WTO law and national trade laws. Furthermore, the doctrinal aspect of the thesis is an invaluable source for arbitrators and panel and WTO Appellate Body members as it provides the grounds for the interpretation of several treaty provisions in dispute settlement claims. Officials of international organisations – such as WTO, UNCTAD, OECD and World Bank – could equally resort to the thesis to inform their activities, such as writing reports, carrying out projects and providing secretariat or negotiation support to member states. Most importantly, the insights presented in the thesis could be put to immediate beneficial use. It offers a repertoire of legal solutions that can be used by governments to set and guide their domestic and international policy-making activities. There is an array of organised knowledge that can be used to engage with or influence government ministers and high officials in the definition of the major and minor aspects of state’s policies on the entry of investments. Besides, it has also an incremental impact. As international law evolves slowly, the conclusions can provide the basis for changes in international economic governance for decades. Non-governmental organisations and policy research institutes can resort to the critical inputs offered by the thesis in their analyses and position papers on the long-term discussion of the regulation of investments and international economic governance in general. Specialist or mainstream media can benefit from the public engagement generated by the thesis to fine-tune and nuance the public discourse. Inside academia, the topics covered and the framework of analysis can provide the grounds for research-based teaching and for the redesign of curriculum in both undergraduate and graduate levels. LLB (Bachelor of Laws) and LLM (Master of Laws) courses in trade and investment law can profit extensively from the materials. The range of issues covered may sustain a publication agenda for the next three years, either in scholarly journals or in a book format. The thesis opens up an avenue for further scholarship in the field, especially in the areas that were not fully addressed. PhD researchers can build upon the insights to further develop the research into the convergence and divergence debate in international economic law. Apart from public and private international law, the thesis may have an impact on related academic disciplines, such as international political economy and international institutional economics. 5 Acknowledgements Many contributed to the completion of this thesis and this research project funded by the CAPES Foundation. At Yale University, Susan Rose-Ackerman and David Grewal kindly hosted me as an exchange scholar and introduced me to other researchers and students. At the WTO, Gabrielle Marceau, Victor do Prado, Mark Koulen, Robert Teh, Claudia Locatelli and John Hancock took the time to guide me through my fellowship. At UCL, my co-PhD friends helped me throughout the intellectual journey. Amber Darr aided in the revision. Ioannis Lianos, Ugljesa Grusic and Alex Mills gave me invaluable advice and teaching opportunities. The chapters benefitted from constructive discussions with Todd Weiller, Jürgen Kurtz, Katia Fach-Gómez, Malcolm Langford, Szilárd Gáspár Szilágyi, José Alvarez, Laurence Boisson de Chazournes, Julian Scheu, Jarrod Wong, Jason Yackee, Nicolás Perrone, Panagiotis Delimatsis and Ines Willemyns. My examiners, Joanne Scott and Joost Pauwelyn, provided me with indispensable comments, criticism and encouragement. I had the good fortune of having two primary supervisors, Prof Piet Eeckhout and Martins Paparinskis, which meant double supervision and raised expectations. They were not only present throughout the entire four years of research but also fully attentive to all my enquiries and needs. Finally, and most importantly, to my family and dear friends, my deepest gratitude. Errors and omissions remain my own. 6 Dedication To Ericka and to my parents, Miguel and Cátia. 7 TABLE OF CONTENTS INTRODUCTION ........................................................................................................... 13 a. CONTEXT 13 b. INTERPLAY BETWEEN INTERNATIONAL TRADE AND INVESTMENT LAW: LITERATURE OVERVIEW 16 c. CONCEPTUAL FRAMEWORK AND QUESTION 20 d. ROADMAP AND CONTRIBUTION 26 PART A – REGULATION OF ENTRY BY INTERNATIONAL ECONOMIC LAW .......... 31 CHAPTER I – REGULATION OF ENTRY BY INTERNATIONAL INVESTMENT LAW. 31 a. ADMISSION 31 i. General International Law ............................................................................................. 31 ii. Typical Clauses ............................................................................................................ 35 iii. Rescuing an Interpretation ............................................................................................ 38 iv. Unlawful Requirements and Corruption ......................................................................... 42 b. ESTABLISHMENT 44 i. Concept of Establishment and US Model BIT ................................................................ 44 ii. Contingent Standards: NAFTA and other IIAs ............................................................... 48 iii. Non-Discrimination: Particularities of Entry Cases? ....................................................... 53 iv. Return of Establishment Rights ..................................................................................... 57 c. CONCLUSION 62 CHAPTER II – REGULATION OF ENTRY BY INTERNATIONAL TRADE LAW .......... 64 a. SERVICES: WTO REGULATION 64 i. Commercial Presence ................................................................................................... 64 ii. Re-evaluating Market Access for Investments in Services ............................................. 68 iii. National Treatment: Likeness and Investors .................................................................. 72 iv. Non-Discrimination on Entry: Potential Investors? ......................................................... 77 b. TRENDS: NEW TRADE AND INVESTMENT AGREEMENTS 81 i. CPTPP: Attempt to Invest ............................................................................................. 81 ii. Extending Market Access and Common Flexibilities ...................................................... 83 iii. International Negotiations: