BRICS INTERNATIONAL INVESTMENT REGIME FROM THE PERSPECTIVE OF FOREIGN INVESTMENT PROTECTION
Galina Kuzina University of Amsterdam | July 201
BRICS international investment regime from the perspective of foreign investment protection Galina Kuzina Student no.10866108 Master International and European Law, Trade and Investment. University of Amsterdam Thesis Supervisor: Esther Kentin
1 Table of contents.
List of Abbreviations ...... 3
Introduction ...... 4
I Growth potential of BRICS as a legal entity...... 6 1.1. Origin and objectives of BRICS nations...... 7 1.2. Institutional standing of BRICS...... 9
II. International and domestic legal instruments for the investment protection in BRICS countries...... 11 2.1. Protection clauses in the model bilateral investment treaties of Brazil, Russia, India, China and South Africa...... 11 2.2. Investment guarantees in preferential trade and investment agreements of Brazil, Russia, India, China and South Africa...... 18 2.3. Different approaches to foreign investment protection in national policy of BRICS countries. 28
III. Dispute Settlement and Enforceability of contractual protection provisions in BRICS countries...... 33
Conclusion...... 40
Bibliography...... 42
2 LIST OF ABBREVIATIONS
ASEAN Association of Southeast Asian Nations BIT Bilateral Investment Treaty BRICS Brazil Russia India China South Africa CECA Comprehensive Economic Cooperation Agreement between India and Malaysia CIETAC China International Economic and Trade Arbitration Commission CIFA Agreements on Cooperation and Investment Facilitation CJEU Court of Justice of the European Union COMESA Common Market for Eastern and Southern Africa ECT Energy Charter Treaty EEU Eurasian Economic Union EU European Union FDI Foreign Direct Investments FTA Free Trade Agreement IBSA India, Brazil, South Africa ICC International Chamber of Commerce ICDR International Centre for Dispute Resolution ICJ International Court of Justice ICSID International Centre for the Settlement of Investment Disputes/Convention on the Settlement of Investment Disputes between States and Nationals of Other States IIA International Investment Agreement LCIA London Court of International Arbitration LMAA London Maritime Arbitrators Association NAFTA North American Free Trade Agreement OECD Organization for Economic Co-operation and Development PTIA Preferential Trade and Investment Agreement SAARC South Asian Association for regional cooperation SADC Southern African Development Community SCC Stockholm Chamber of Commerce UNCITRAL United Nations Commission on International Trade Law UNCTAD United Nations Conference on Trade and Development WTO World Trade Organization
3 INTRODUCTION
Globalization and increased influence of developed countries enables Brazil, Russia, India, China and South Africa (BRICS) as a vocal representative of the developing world to change the present allocation of international governance. 1 One of the main objectives of BRICS nations is a joint improvement of the international trade and investment environment for the creation of a more equitable international economic order. 2 Large emerging countries have increased their abilities to attract foreign capital and become more important in the global economy, as their abilities to attract foreign capital affect international economic law and policy.3 According to the 2014 annual United Nations Conference on Trade and Development (UNCTAD) report, transition economies experienced a significant rise in Foreign Direct Investments (FDI) inflows up to the 2013, reaching an estimated record level of US$126 billion.4 Brazil, being the main recipient of foreign investments in South America, received US$ 62,5billion in 2014 thus decreasing its last year rate to 2,3 %.5 According to the UNCTAD report, FDI to Russia in 2014 dropped by 70% to an estimated US$19 billion. The regional conflict, sanctions on Russia, and negative growth prospects deterred foreign investors from investing in the region.6 Latest UNCTAD investment trend monitor recorded a surge of FDI inflows to India, increasing by about 26% in 2014 to an estimated US$35 billion, despite macroeconomic uncertainties and financial risks.7 China was the largest FDI recipient in the world in 2014, with inflows of an estimated $128 billion – to both the financial and non- financial sectors.8 South Africa, according to UNCTAD, FDI flows to South Africa reached US$56.3b in 2013, an increase of 6.8% on the previous year. 9 BRICS play an important role in the current pattern of global investment.10 The increased ability of developing countries to attract FDI has been growing significantly over time, which makes it one of the most striking features in the global economy. Is there a sufficient legal framework for monitoring these huge inflows of foreign capital?
1 By the developed superpowers author meant seven major advanced economies (G7) as reported by the International Monetary Fund: Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. 2 Joint Statement of the BRIC Countries’ Leaders Yekaterinburg, Russia, June 16, 2009. Para. 5. Available at: http://www.brics.utoronto.ca/docs/090616-leaders.html. 3 UNCTAD (2014) World Investment report. 4 UNCTAD (2014) Global investment trends monitor No. 15. 5 UNCTAD (2014) Regional factsheets: Latin America and Caribbean. 6 UNCTAD (2015) Global investment trends monitor No. 18. 7 UNCTAD (2015) Global investment trends monitor No. 18. 8 UNCTAD (2015) Global investment trends monitor No. 18. 9 UNCTAD (2015) Global investment trends monitor No. 18. 10 UNCTAD (2013) Global Investment trends monitor. Special edition: ‘The rise of BRICS FDI and Africa’. 4 On the issue of investor protection and investment arbitration, China is the only BRICS country that is member of the International Centre for Settlement of Investment Disputes (ICSID). The international institution under the protection of the World Bank, whose primary purpose is to provide facilities for conciliation and arbitration of international investment disputes. China signed the ICSID convention in 1990 and the agreement entered into force in 1993. Russia signed the ICSID convention in June 16, 1992, but had not complete the ratification process. Other members of BRICS have not signed the ICSID convention, and subsequently cannot refer to the ICSID convention or use its dispute settlement mechanism.11 Regarding the investment guarantees incorporated in the model bilateral agreements, India along with South Africa presently review their existing bilateral investment treaties and question the rationale of such agreements. Brazil, inspite of its abortive attempts to ratify the Bilateral Investment Treaty (BIT) 1990,12 recently signed and ratified new generation BITs with four developing countries.13 Russia is a party to 73 BITs, most of which contain a dispute resolution clause, limiting jurisdiction of arbitral tribunals to hear disputes over the fact of expropriation.14 Another country with a large number of bilateral investment agreements is China. The Asian BRICS member has signed 145 BITs to promote the internationalization of investment regimes. Adversely, it maintains a strict national protection policy and reluctantance to include MFN provision in its investment treaties. Ministers of external relations at the 6th BRICS Summit agreed to build a common approach for further improvements to international investment agreements including their dispute settlement mechanisms. 15 Moreover, according to the Ufa declaration of the 7th BRICS Summit, members have adopted economic partnership strategies that would be the key guideline for expanding trade and investment, manufacturing and minerals processing, energy, agricultural cooperation, science, technology and innovation among the countries.16
11 Malik M., The ICSID club: list of Members and non-members. Biicl Investment treaty forum 2007. 12 Between 1994-1999 Brazil signed, but not ratified BITs with: Portugal (9 February, 1994), Chile (22 March, 1994), United Kingdom (19 July, 1994), Switzerland (11 November, 1994), France (21 March, 1994), Germany (21 September, 1995). The following BITs were signed but not sent to the National Congress: Finland (28 March, 1995), Italy (3 April, 1995), Denmark (4 May, 1995), Venezuela (4 July, 1995), the Republic of Korea (1 September, 1995), Cuba (26 June, 1997), the Netherlands (25 November, 1998), Belgium and Luxembourg (6 January, 1999). In addition, at the regional level, the Protocol of Colonia (17 January, 1994) and the Protocol of Buenos Aires (5 August, 1994). 13 Brazil- Angola CIFA (2015); Brazil –Malawi CIFA(2015); Brazil- Mexico CIFA ( 2015); Brazil- Angola CIFA (2015); Brazil- Mozambique CIFA (2015). 14 Information is available at: http://investmentpolicyhub.unctad.org/IIA/CountryBits/175 15 Ministerial declaration at the VI Summit, Fortaleza, 2014 is available at: http://brics6.itamaraty.gov.br/category- english/21-documents/227-brics-perspective-on-international-investment-agreements 16 Ufa Declaration, 9 July 2015 is available at: http://mea.gov.in/Uploads/PublicationDocs/25448_Declaration_eng.pdf
5 This research objects to make an evaluative and comparative study of the legal treatment of FDI in Brazil, China, Russia, India and South Africa by answering the following research question: Is a common approach in investment protection regime feasible for BRICS? Such an inquiry has important implications for understanding the BRICS’ common investment policy and requires the research of international legal instruments as well as the national investment policy of each country. This study focused extensively on the evolution of the national investment policy and international bilateral and multilateral agreements of BRICS countries. Furthermore, I refer to the evaluative analysis of investor-state dispute settlement mechanisms, relying on relevant cases of Russia, India, China and South Africa. These conceptions will be investigated in turn. The first chapter of this paper will scrutinize initial origins of BRICS, its objectives and institutional standing. The second chapter of this paper will address investment guarantees included in model BITs; analyze the conceptual difference of protective provisions incorporated in Preferential Trade and Investment Agreements (PTIAs), signed by BRICS members. The third subsection of the second chapter will focus on the divergent approaches in national investment policy of BRICS members. The third chapter of the thesis will examine practical applications of the investment protection provisions based on the case studies of international tribunals and the efficiency of enforcement regulations in BRICS states. In conclusion, this paper will attempt to indicate perspectives of a convergent investment regime within BRICS.
I GROWTH POTENTIAL OF BRICS AS A LEGAL ENTITY.
Significant growth in the economic importance of Brazil, Russia, India, China and South Africa and the expansion of their influence beyond their traditional geographical backyards makes BRICS one of the pivotal multilateral forums for international cooperation. One of the principal features of the BRICS institutional structure is its diplomatic approach to solving and approaching established objectives. BRICS bodies play a supportive role, and members refer to them only when they have an immediate interest in solving certain issues.17 From this perspective, BRICS could be compared with South-South dialogue forum IBSA, consisting of India, Brazil, South Africa.18
17 Grant C., Russia ,China and Global Governance. London: Centre for European Reform. p. 8. 18IBSA is a dialogue forum that includes three members of BRICS. Author is of the opinion that comparison with IBSA would be the most sufficient, but also note the importance of other dialogue forums such as GATT, OCSE, G20, G7 that have a similar institutional structure. Objectives and goals of IBSA see at: http://www.ibsa- trilateral.org/about-ibsa/background. 6 1.1. ORIGIN AND OBJECTIVES OF BRICS NATIONS.
BRICS, unlike other international institutions was not established on the basis of multilateral agreements nor was it a product of diplomatic negotiations. The BRIC(S) acronym was firstly formulated by private analysts at Goldman Sachs a decade ago and currently has attracted considerable attention as BRICS represents the membership of the most prominent emerging and developing countries at the G20 forum.19 It is important to mention, that BRICS serves complementary, rather than a substitute role to other international organizations. BRICS is distinct from regional economic integration organizations like the North American Free Trade Agreement (NAFTA), the European Union (EU) and the Association of Southeast Asian Nations (ASEAN) and must overcome the inconvenience of geographical distance. Some scholars even suggest, it would seem more sensible to group Brazil with Argentina, Mexico, Chile, Colombia, or Venezuela; India with Pakistan and Bangladesh; and so forth.20 In that sense, it may be argued that territorial borders should serve as a decisive feature for establishing the entity.21 The distinctive feature of BRICS is its globalism that represents the largest emerging economies in each region outside the Western world. After the enlargement of the entity to South Africa, the total population of all members from different continents amounts to 3 billon people.22 I could identify BRICS as a diplomatic entity that attempts to leverage the weight of raising powers through the collective action. The other view on the interpretation of BRICS as a new political international organization with a revisionist challenge to the global order seems quite blunt.23 In any case, BRICS is a useful grouping for members to share and learn from one another’s development experiences, with impressive partnership carrying out cooperation initiatives in more than thirty areas between members. The overall existence of BRICS represents a new approach on international cooperation and enhanced capacity of the developing countries in international politics.24
19 Wilson D. and Purushothaman R. Dreaming with BRICs: The Path to 2050. Global Economics Paper no. 99. New York: Goldman Sachs; O’Neill J. The World Needs Better Economic BRICs. Global Economics Paper no. 66. New York: Goldman Sachs. 20 Armijo, L, E.The BRICs countries (Brazil, Russia, India, and China) as analytical category: mirage or insight?. Asian Perspective. p.9. 21 IBSA, though presenting with three large economies located at different continents, successfully completing its objectives to promote the South-South dialogue and elaborate the joint positions on significant matters of international relations. 22 Sanya Declaration of The Heads of State and Government April 14, 2011 is available at: http://www.brics.utoronto.ca/docs/110414-leaders.html 23 Baru, S. BRICS in Search of Cement. Business Standard (Delhi), April 18; Matovska, M, Trajkoska, J and Siljanovska. Z "The impact of BRICS from economic, legal and political aspect in the international community. European Scientific Journal. 24 Example of political cooperation could be presented by the joint statement of foreign ministers of BRICS 7 From the first meeting of members during the Summit of G8 in Japan25, where the initial leaders of BRIC countries agreed to continue to coordinate their moves in the key economic issues, this format of casual interaction still remains important. At the Heads of State meeting in Sanya, the acronym BRIC transformed into BRICS and strengthens its horizons into African continent. 26 Brazilian President Lula da Silva authorized the inception of the new global economic geography.27 Though BRICS includes totally different countries with separate histories, cultural heritages, political and economic systems, all the members are the biggest and the most powerful countries in their region, have a huge domestic market and consumption. These features unite BRICS countries in main areas of cooperation in finance, investments, trade, education, agriculture, health, science, technology and others. All five members have a reasonable interest in protecting their internal and external sovereign autonomy vis-à-vis western developed countries. This legitimate dissatisfaction and common features of the largest economies may be considered as starting points of BRICS unification. 28 BRICS countries share the strong antipathy to external interventionism of developed world into the internal policy of developing countries and least developing countries.29 In the Joint statement of the Heads of State and government of the second summit of BRIC(S), leaders stressed the importance of the sustainable development and original paths of developing countries, independent from western influence.30 All the members have demonstrated impressive continental and global reach in terms of their diplomatic profile. BRICS countries repeatedly confirmed the efficiency of their cooperation that favors the formation of a harmonious world with economic stability. The BRICS label seems to have strengthened each country’s status as a dynamic and emerging power with a growing role in global affairs.31 Considering the declarations, agreements and action plans of BRICs and BRICS summits, as well as ministerial declarations, statements and press releases from representatives of the
countries that was issued to ensure that Russia will not be excluded from the Brisbane G20 Summit in 2014 available at: http://www.dfa.gov.za/docs/2014/brics0324.html. 25 The 34th G8 summit was held 7-9 July 2008 in Toyako, Japan. 26 Sanya Declaration of The Heads of State and Government April 14, 2011 available at: http://www.brics.utoronto.ca/docs/110414-leaders.html; When South Africa was invited to join the group O’Neill criticized the decision. But at a conference in South Africa in 2013 he changed his mind available at: http://finweek.com/2013/04/10/oneill- positive-about-sas outlook/. 27 Quoted in P. Escobar, ‘The BRIC post-Washington consensus’, Asia Times, 17 April; available at: http://www.atimes.com/atimes/Central_Asia/LD17Ag01.html 28 Stuenkel O, “The Financial Crisis, Contested Legitimacy, and the Genesis of Intra-BRICS Cooperation”, Global Governance, 19, pp. 611-630. 29 Ibid. 30 2nd BRIC Summit of Heads of State and Government: Joint Statement Brasília, April 15, 2010 available at: http://www.brics.utoronto.ca/docs/100415-leaders.html. 31 African Journal of Political Science and International Relations Vol. 7(7), October, 2013 p. 312 8 Member States,32 certain common approaches on a number of issues could be distinguished: 1) BRICS maintains a dialogue regarding international economic and financial matters, including the reformation and principal transformation of global financial institutions.33 2) BRICS grouping aims at the enhancement of developing countries’ impact on the global international trade and investment environment, including facilitation of trade and investment regime between the BRICS countries. Forum has initiated implementation of innovative methods of non – regional cooperation by institutional and regulative improvement of national markets.34 3) Another important objective in the cooperation of BRICS countries considers issues of international humanitarian assistance, mutual coordination in reduction of natural disaster risks, poverty, famine, social inequality and fighting against terrorism.35 4) Valuable place among the cooperation objectives of BRICS members holds the extension of scientific and educational standards aiming to enlarge fundamental research and advanced technologies.36 Understanding the core objectives of BRICS is important for the evaluation of implementation mechanism and examination of institutional structure. The members of BRICS share the views on international political economy, trade and investment cooperation, educational and scientific standardization. BRICS is primarily focused on broad economic reforms and the restructuring of the global financial architecture. An Agreement establishing the New Development Bank (NDB) that was signed by head of states at the 6th BRICS Summit represents an implementation of the members’ common approach.37
1.2. INSTITUTIONAL STANDING OF BRICS.
The institutional framework of BRICS is based on the flexible model of IBSA – dialogue forum that includes three BRICS members. IBSA was established in 2003 and formalized by the Brasilia Declaration to fulfill long-lasting goals of bringing the voices of developing world together and deepen the ties in various areas of coordination.38 Just like IBSA, BRICS keeps an open and flexible structure. The grouping functions without permanent non-plenary organs and
32 BRICS official documents, available at: http://www.brics.utoronto.ca/docs/ 33 BRICS Think Tanks Council came up with initiatives to form a “Framework of BRICS Closer Economic Partnership” and a “BRICS Economic Cooperation Strategy”. 34 Cooperation Agreement on Innovation within the BRICS Interbank Cooperation Mechanism (16.07.2014). 35 eThekwini Declaration 27.03.2013 of the V BRICS Summit. 36 Cape Town Declaration of the Science, Technology and Innovation Ministerial Meeting( 10.02.2014) 37 Agreement on the New Development Bank 15.07.2014 see at: http://brics6.itamaraty.gov.br/media2/press- releases/219-agreement-on-the-new-development-bank-fortaleza-july-15 38 Brasilia Declaration of 6 June 2003 available at: http://ibsa.nic.in/brasil_declaration.htm 9 does not have a headquarters or a permanent executive secretariat. The highest consultations are presented by annual summits of the head of the states and government, where they discuss key topics in accordance with the agenda that is introduced by the hosting state. In order to fulfill justified objectives in common policy and deepen internal cooperation between the members, there are also ministerial conferences and meetings that focus on problem issues within each ministry’s competence.39 The development of the BRICS agenda has multiplied the number of meetings of ministers, showing that co-operation is spreading to other areas besides politics, such as trade, finance, agriculture, health and culture. The first official BRIC summit was held in Yekaterinburg (June 2009), with subsequent meetings in Brasilia, Brasil (April 2010), Sanya, China (April 2011), New Delhi, India (March 2012), Durban, South Africa (March 2013), Fortaleza, Brazil (July 2014) and Ufa, Russia (July 2015). BRICS countries are tempting to dismiss the opinion that they are just a loose association of states with sovereign, and sometimes even divergent interests.40 The establishment of the executive permanent organs of the association, based on the conferred mandate could act on the conviction that it is in their best joint interests to restructure informal multilateral machinery to international organization with own legal personality. The Russian Foreign Minister Sergei Lavrov said in 2012 that the process of further institutionalization of BRICS is a perspective and developing step that will eventually lead to the creation of an international organization.41 The Fortaleza Agreement has laid the legal grounds for establishing independent New Development Bank that is based on sound banking principles and aimed to active mobilization of national resources in BRICS and other emerging and developing economies. 42 The foundation of the independent financial institution is a response to failed attempts to increase the influence of developing countries in the International Monetary Fund (IMF) and World Bank.43 In addition, there are dynamic consultations on the creation of internal consolidating rating agency within BRICS that will offer reserve funds to help ease short-term balance-of- payments pressure. These first attempts of the relatively new international entity could be marked as a turning point for the institutional standing of BRICS, which may transfer a
39 BRICS and IBSA both have established sector cooperation with the objective of deepening the mutual knowledge and exploring common points of interest in sector and represent South-South dialogue 40 This was highlighted in 2012 when the BRICS failed to mount a united campaign for either the Nigerian or the Colombian candidate against the ultimately successful US nominee for president of the World Bank. Ramesh Thakur, “Wealth and Power Trump Good Governance,” Australian, 18 April 2012. 41 The interview of the Minister of Foreign Affairs of Russia S.V. Lavrov to the International Affairs journal Russian diplomacy and challenges of the 21st century to available at: http://www.mid.ru/bdomp/brp_4.nsf/e78a48070f128a7b43256999005bcbb3/0ba48b6d0169152644257a830046f855 !Opendocument 42 Agreement on the New Development Bank 15.07.2014 available at: http://brics6.itamaraty.gov.br/media2/press- releases/219-agreement-on-the-new-development-bank-fortaleza-july-15 43 Author meat non-implementation of the 2010 International Monetary Fund (IMF) decision –making reforms. 10 countervailing economic grouping to a powerful international organization. The increasingly confident BRICS’ recent calls for institutionalization show the factual potential for fulfillment of the declared aims that, in addition with G20 cooperation, can better protect their interests.
II. INTERNATIONAL AND DOMESTIC LEGAL INSTRUMENTS FOR THE INVESTMENT PROTECTION IN BRICS COUNTRIES.
The second chapter of the research will consider certain legal and policy aspects of foreign investment protection for each of the five BRICS countries. Firstly I will discern different approaches of investment protection under the model BITs of every member of BRICS. Then I will examine investment protection clauses and Investor-State Dispute Settlement (ISDS) mechanisms provided in Preferential Trade and Investment Agreements (PTIA) of BRICS members. The last subparagraph of this chapter will present the content analysis of the heterogeneous national legal policies and their historical and economic rationale.
2.1. PROTECTION CLAUSES IN THE MODEL BILATERAL INVESTMENT TREATIES OF BRAZIL,
RUSSIA, INDIA, CHINA AND SOUTH AFRICA.
Investment protection clauses under the model BITs of every BRICS member have similarities as well as differences that have to be scrutinized and compared regarding the development and evolutionary standards of the country. Globalization and significant spread of multinational companies worldwide derive an increasing role of BITs that establish the general rules of investors and investments treatment. Countries, while concluding BITs, pursue two main purposes: to encourage and to protect foreign investments. Noteworthy, there is no consensus among economic scholars concerning the direct impact of BITs on the inflow of foreign capital. While some authors are strongly positive about the influence of investment protection under BITs, especially between developed and developing countries,44 others conclude that BITs are only a compound of aggregated investment policy, and could not be economically estimated in isolation from the national investment regime.45 Brazil until recently was the only country that did not have any BIT in force.46( Pic 1) The
44 Salacuse, Jeswald W.Emerging Global Regime for Investment, Harvard International Law Journal. 45 Hallward-Driemeier, M.. Do bilateral investment treaties attract foreign direct investment? Only a bit and they could bite. Only a Bit And They Could Bite. World Bank Policy Research Working Paper 3121 (2003). 46 Between 1994-1999 Brazil signed, but not ratified BITs with: Portugal (9 February, 1994), Chile (22 March, 1994), United Kingdom (19 July, 1994), Switzerland (11 November, 1994), France (21 March, 1994), Germany (21 September, 1995). The following BITs were signed but not sent to the National Congress: Finland (28 March, 11 raise of liberalization policy towards foreign capital in Latin America caused a surge of BITs in the beginning of 1990. Brazil had followed the lead and established a national agency for formatting the framework for a model BIT, signaling the rest of the world of its new more favorable and receptive approach to the international investments. Under non-ratified treaty between Finland and Brazil foreign investors were guaranteed standard investment protection clauses, such as fair and equitable treatment, protection from unlawful expropriation, national treatment, most favorable nation treatment, freedom to transfer means and funds and even included umbrella clause and a post-entry protection of the investments that have been already made in the territory of one of the contracting party. 47 Despite of the model BIT flexibility and Pic 1. Brazil non-ratified 1990 BITs perceptiveness towards foreign investments, all the promulgated treaties with European countries, Venezuela, South Korea, Cuba and Chile were blocked in the Congress of Brazil as they might have had a negative impact on the state and its national sovereignty.48 Since then, the largest economy in South America refrained from seeking bilateral initiatives. However, an increasing level of awareness regarding investment protection and demands of the Brazilian investment exporters encouraged Brazilian government to start a promotion of new bilateral investment policy, signing Pic 2. Brazil new BITs 2015
Agreements on Cooperation and Investment Facilitation (CIFA) with Angola, Malawi, Mexico and Mozambique.49 (Pic 2) Though these new generation BITs have not yet been ratified by Brazilian Congress, there is a strong presumption to believe that the process will not take long.50 Concerning the substance of investment protection in the new BITs, there are noticeable differences with the first model
1995), Italy (3 April, 1995), Denmark (4 May, 1995), Venezuela (4 July, 1995), the Republic of Korea (1 September, 1995), Cuba (26 June, 1997), the Netherlands (25 November, 1998), Belgium and Luxembourg (6 January, 1999). In addition, at the regional level, the Protocol of Colonia (17 January, 1994) and the Protocol of Buenos Aires (5 August, 1994). In 2015 Brazil signed 2 Cooperation Agreement and Investment Facilitation with Angola and Mozambique. 47 Art. 3, 4, 5, 6, 7 of Brazil - Finland BIT (1995) is available at: http://investmentpolicyhub.unctad.org/Download/TreatyFile/508 48 Wei, D. Bilateral investment treaties: an empirical analysis of the practices of Brazil and China. European journal of Law and Economics. p.670-672 49 Information from the Brazilian Ministry of Foreign Affairs is available at: http://www.itamaraty.gov.br/index.php?option=com_tags&view=tag&id=644-acordo-de-cooperacao-e-facilitacao- de-investimentos&lang=pt-BR#acord-invest 50 Based on the introductory statements of Ministry of Foreign Affairs that accompany BITs with Angola (2015) and Mozambique (2015). 12 BIT regime. Under the new regime, foreign investors are not guaranteed fair and equitable treatment and they are not protected from the government restrictive measures. Also, there are numerous exceptions regarding the MFN and national treatment clauses.51 Regarding the dispute settlement mechanisms, newly concluded BITs prescribe parties to refer to the Joint committee that consists of government representatives from both parties in order to resolve the dispute by peaceful means.52 If the committee would not be able to resolve the case, parties may resort to arbitration mechanisms that would be chosen by the Joint committee. 53 Bilateral investment negotiating policy in Brazil is strategically delineated for developing countries, with weaker economies, which are unlikely to adversely or negatively affect the Latin American state. According to the official information of the Brazil Ministry of Foreign Affairs, in the nearest future CIFA would be signed with South Africa, Algeria, Morocco, and Tunisia.54 Russia, in contrast, has concluded, in total 73 bilateral investment agreements, of which 54 are currently in force.55 (Pic. 3) These include BITs signed by the Soviet Union (USSR), of which Russia is the legal successor. 56 Russia has ratified BITs with all other members of BRICS, except for Brazil.57 Regarding the difference in investment policy approaches of Russia and its predecessor, it is worth to notice that Russia has used miscellaneous models of BITs as templates for negotiations with third countries. In 1987, the USSR had adopted a model BIT,58 on the basis of which, seven BITs are presently in force. 59 This model agreement includes standard investment protection clauses that apply to maritime zone: fair and equitable treatment, full protection and security Pic. 3 Russia BITs guarantees, MFN and national treatment,
51 Art. 11.1; 11.6 of the Brazil- Mozambique BIT; Art. 11.5; 14.2 of the Angola BIT. 52 Art. 15.2 of the Brazil- Mozambique BIT. 53 Art. 15.6 of the Brazil- Mozambique BIT. 54 54 Information from the Brazilian Ministry of Foreign Affairs available at: http://www.itamaraty.gov.br/index.php?option=com_tags&view=tag&id=644-acordo-de-cooperacao-e-facilitacao- de-investimentos&lang=pt-BR#acord-invest 55 BITs selection by jurisdiction available at: http://www.kluwerarbitration.com/CommonUI/BITs.aspx?country=Russian%20Federation 56 See for example: BIT Austria (1990/1991), Belgium- Luxemburg EU (1991), Canada (1991), Finland (1991), France (1991), Germany (1991), United Kingdom (1991). 57 BITs with China (2009), India (1996), South Africa (2000). 58 Resolution of the Council of Ministers of the USSR of 27 November 1987, No 1353, ‘On Conclusion between the Government of the USSR and Governments of Foreign States of Agreements on Reciprocal Protection of Investments’, available at:
60 Art. 3 of Russia (USSR) – France BIT (1989). 61 Art. 4(3) of Russia (USSR) – France BIT ( 1989). 62 See for example Russia (USSR) - Canada BIT ( 1989/1991) available at: http://investmentpolicyhub.unctad.org/Download/TreatyFile/632 63 Government Resolution of 11 June 1992, No 395, ‘On Conclusion between the Government of the Russian Federation and Governments of Foreign States of Agreements on Promotion and Reciprocal Protection of Investments’, available at
72 Ajay Kr. Sharma, A Critique of the Indian FDI Law and Policy: Problems & Solutions, 2(1) NLUJ Law Review 30 (2013) 73 See at: http://investmentpolicyhub.unctad.org/IIA/CountryBits/96 74 OECD Convention on the Protection of Foreign Property In 1962 the OECD ... OECD in 1967 (1967 Draft OECD Convention). 75 "Vodafone Treaty Claim on Backburner," Global Arbitration Review, Aug. 23, 2013. 76 Draft Indian Model Bilateral Treaty is available at: https://mygov.in/sites/default/files/master_image/Model%20Text%20for%20the%20Indian%20Bilateral%20Invest ment%20Treaty.pdf 77 OAE- India BIT( 2013) was signed on 12.12.2013 despite the official statement of Mr. Meena to postpone all ongoing BIT negotiations till the review process is complete. 78 Art. 9 of Model Text for the Indian Bilateral Investment Treaty. 79 Art. 10 of Model Text for the Indian Bilateral Investment Treaty. 80 Art. 14. 4 of Model Text for the Indian Bilateral Investment Treaty. 15 force. 81 (Pic. 5) The majority of these agreements have been negotiated with developing countries, reflecting China’s interest in strengthening diplomatic ties with those countries. China has a bilateral agreement with Russia (2009), India (2007) and South Africa (1998). Also, China negotiated a trilateral investment agreement with Japan and Korea in 2012.82 Throughout the 1980s, China adopted a restrictive BIT policy that expelled national treatment provision and was quite reluctant to grant any preferentiality to foreign investors. However, there are a number of BITs from this period that include a qualified national treatment provision and currently remain in force.83 The first model BIT also provides for qualified MFN treatment, fair and equitable treatment, prohibition of unlawful expropriation and a free transfer of funds.84 Fairly restrictive policy of the investment regime changed into liberal pro-investor policy in the 1990s. China initiated a gradual shift towards stronger provisions for substantive and procedural guarantees for foreign investors. Chinese model BIT of the second phase has broadened the scope of national treatment to developing countries and enhanced MFN treatment to dispute settlement. 85 These changes in international investment regime took place with simultaneous administrative liberal reforms Pic. 5 China BITs that simplified the investment admission process. After the accession of the WTO, Chinese approach towards international investment-treaty- making has been progressed and a third generation of Chinese BITs has come to the fore. With this new phase of model BIT development, China gradually introduced a number of liberal treaty innovations. Among such innovations is an obligation to comply with WTO commitments. 86 Although, the enhanced MFN treatment extends to other international agreements concluded between the parties before and after the conclusion of the treaty.87 The analysis of individual standard provisions of Chinese BITs reveals a gradual yet decisive policy change towards stronger and more comprehensive substantive and procedural investment protection. This shows that China enhances the level of legal protection in accordance with international standards. However, China still attempts to protect its domestic
81 According to: http://investmentpolicyhub.unctad.org/IIA/CountryBits/42?type=c#iiaInnerMenu 82 China-Japan-Korea trilateral investment agreement. (2014). 83 China-Austria(1986), China-Denmark (1985), China- Italy(1987), China- Norway (1985), China- Sweden( 1982), China –UK (1986). 84 Art. 2(1),(2), 3 (1), 4 China- Sweden BIT (1982). 85 China-Botswana (2000), China-Iran (2000), China-Jordan (2001), China-Trinidad (2002), China- Côte d’Ivoire (2002), China-Guyana (2003), China-Djibouti (2003), China-Benin (2004), China-Uganda (2004), China-Russia (2006), and China-Mexico (2008). 86 Art. 3(4) China-Russia BIT( 2009). 87 Art. 10 China- Russia BIT (2009); Art. 7 of BLEU- China BIT (2005) 16 investors, while signing and ratifying bilateral agreements, the State always reserve a right to act in accordance with rules and formalities of Chinese law.88 The inclusion of South Africa into BRICS signified an important step in the development of the grouping and contributed to its global structure with a stronger capacity to speak on behalf of the developing countries. South Africa’s BIT-program has begun in the early 1990s. In the post-apartheid period South Africa has negotiated more than 40 bilateral treaties designed to promote and protect foreign investments. 89 (Pic. 6) The state has a bilateral investment agreement with two other members of BRICS – Russia (2000) and China (1998). Policy makers decided to use the broad British model investment treaty as the starting point for South African model BIT. The protection provisions contained in these agreements include duties to pay market value compensation in case of expropriation, national emergency, revolt, insurrection, riot or other similar events in the territory of the other Party.90 South Africa has launched the reviewing program in 2010 to modernize and strengthen the country’s investment regime.91 According to the South African government, all first generation BITs, which South Africa signed shortly after the democratic transition in 1994, many of which have now reached their termination date, should be reviewed with a view to termination, and possible renegotiation on the basis of a new Model BIT.92 South Africa had already given a notice of termination BITs with Germany, Switzerland, the Netherlands, with BLEU and Spain. Moreover, South Africa stated that the new model investment agreement is an issue for the discussion at BRICS ministerial conference. 93 The government of South Africa decided to refrain from entering into any new BITs and suggested that domestic legislation might replace BITs in order to appropriately balance investor protection with other public interest goals. Based on its review program, South African government released the draft Promotion and Protection of Investment Bill on November 1, 2013 that will be discussed further.94 Comparing the investment protection under the model BITs of the BRICS members, there are certain conclusions that Pic. 6 South Africa BIT
88 Protocol to the BIT BLEU-China Ad Article 5. (2005) 89 The information is available at: http://investmentpolicyhub.unctad.org/IIA/CountryBits/195 90 Art. 4(1), 5(1), (2), 10(1) South Africa- Czech republic BIT (1998). 91 Information from South African Ministry of Trade and Industry, available at: http://www.thedti.gov.za/editmedia.jsp?id=2504 92 Ibid. 93 Joint Communique Following Meeting of BRICS Trade Ministers in Duhan is available at: http://english.mofcom.gov.cn/article/newsrelease/significantnews/201303/20130300070292.shtml 94 Promotion and protection of investment Bill, 2013 Invitation for the public to comment is available at: http://www.tralac.org/files/2013/11/Promotion-and-protection-of- investment-bill-2013-Invitation-for-public- comment.pdf. 17 should be made. The picture on BRICS and BITs shows distinct approaches on content and substance of treaties that serves as a result of different economical, social and historical perspectives of the members. Model bilateral treaties should not be formatted in the same way for all the emerging economies. Brazil receives substantial amounts of foreign investment even though it does it have any BIT in force.95 New bilateral investment negotiating policy in Brazil is strategically delineated for non–developed countries, with weaker economies, which are unlikely to adversely or negatively affect the Latin American state. South Africa has terminated its treaties with EU countries and reviews its bilateral investment regime promoting domestic legislation that aims to protect investor rights while safeguarding domestic policy space. On the same line, India tends to preserve its national interests in certain spheres of economy and reviews BITs protective provisions that were challenged in investment tribunals. China holds a reluctant policy towards the inclusion of MFN treatment through its three model variations of investment agreements. Russia could be considered as one of the BRICS members that keeps its flexible pro-investment position through all the history of investment negotiations, broadening the scope of protection provisions whilst tempting to be more attractive for foreign capitalists.
2.2. INVESTMENT GUARANTEES IN PREFERENTIAL TRADE AND INVESTMENT AGREEMENTS OF
BRAZIL, RUSSIA, INDIA, CHINA AND SOUTH AFRICA.
Do BRICS members join the approach towards PTIAs that go beyond the investment rules found in model BITs? Some scholars argue that PTIAs provide a distinct framework for negotiating investment rules that result in the inclusion of provisions that go beyond the set of rules usually found in BITs.96 The others come to the conclusion that generally PTIAs do not improve on existing BITs with respect to protection of investment, but by adding the market access dimension and by regrouping trade and investment provisions under the same agreement signed for an indeterminate period, they offer a better package of disciplines for investors.97 According to the UNCTAD report, investment protection arrangements included in PTIAs can better respond to the needs of today’s economic realities, where international trade and investment are increasingly interconnected.98 The argument was supported by the conclusive
95 BITs with Angola, Mozambique, Mexico and Malawi have not yet been ratified. 96 Baetens, F, Preferential trade and investment agreements and the trade/investment divide : is the whole more than the sum of its parts?, in: R. Hofmann / S. Schill / C. Tams (eds.). 97 Miroudot, S., Investment, in: J.-P. Chauffour / J.-C. Maur (eds.), Preferential trade agreement policies for development : a handbook, Washington, DC: World Bank. P. 320. 98 UNCTAD (United Nations Conference on Trade and Development (2012): World investment report 2012 : 18 empirical study that compares BITs and PTIAs and finds more positive impact of market- access provisions in PTIAs.99 This interesting observation derives from the negotiating aspect of these two types of arrangements. BITs are usually negotiated without being subject to a larger public debate, whereas the negotiation and ratification of PTIAs tend to be highly flexible and include preferential conditions concerning the historical and economic developments of certain contracting party that go beyond model investment protection provisions. Developing countries have been actively engaged in negotiating and concluding preferential trade arrangements that has an increasing consideration to services and investment aspects. Among BRICS countries, Brazil has been the least engaged in PTIAs, with only four agreements that contain investment provisions.100 This fact is mainly flow out from the national policy that aims to preserve Brazil’s domination on local and regional markets. Brazil is a founding member of the Southern Common Market (MERCOSUR), which is a free trade zone whose full members include Argentina, Paraguay, Uruguay, Venezuela and Brazil. In addition, through its participation in MERCOSUR, Brazil has preferential trade agreements in force with: Bolivia, Chile, Colombia, Ecuador and Venezuela, Cuba, Egypt, India, Mexico and Peru. (Pic. 7) The substantive provisions on investments included in PTIA are broadly specified in MERCOSUR Protocols for the Promotion and Reciprocal Protection of Investments Pic. 7 Brazil PTIAs within members and with third countries.101 For the purposes of economic integration, promotion and protection of investments, the treaties provide for fair and equitable treatment, MFN and national treatment, free transfer of funds, prohibition of unlawful direct and indirect expropriation.102 The MFN treatment extends to all future investment agreements with investors from the contracting parties.103 In addition to the above-mentioned guarantees, Buenos Aires investment protocol provides for the
towards a new generation of investment policies : annex, Geneva: United Nations. P.86. 99 Berger, A, Do trade and investment agreements lead to more FDI? : accounting for key provisions inside the black box, in: International Economics and Economic Policy (April 2012 ). 100 Brazil- US Agreement on trade and economic cooperation (2011); MERCOSUR Colombia-Ecuador-Venezuela complementation agreement (2004/2005); Brazil- EC Cooperation Agreement (1992/1995); Latin America integration association treaty ( 1980/1981). 101 Protocol of Colonia for the Promotion and Reciprocal Protection of Investments in the Mercosur (Colonial Protocol), 17 January 1994. Intrazone; Protocol of Buenos Aires for the Promotion and Protection of Investments Coming from Non-MERCOSUR State Parties (Buenos Aires protocol), 5 august 1994. Extrazone. 102 Art. 3(1), 3(2), 4(1), 5 Colonia Protocol and Art. 2(B),(C),(D),(E) of Buenos Aires Protocol. 103 Art. 7 of Colonia Protocol. 19 recognition of the investment substitution in a host state.104 In the Annex to Colonia Protocol, MERCOSUR members made some reservations to the national treatment obligation. Brazil has made exceptions to the following areas: exploration and mining of minerals; development of hydraulic energy; health care; radio and television broadcasting and other telecommunication services; leasing of rural property; participation in the system of financial, insurance, social security and capitalization intermediation; construction, ownership and coastal and interior shipping and government procurement. In the event a dispute arises between an investor from a third state and a MERCOSUR member state, friendly consultations are required at the outset of any dispute. If the dispute would not be settled within a reasonable time, at the request of investor the dispute may be submitted to one of the two alternatives: to competent courts of the member state in whose territory the investment was made or to international ad hoc arbitration.105 Noteworthy, the two Protocols for the Promotion and Reciprocal Protection of Investments that have been negotiated and signed by MECOSUR members, have not been ratified by Brazil. One of the main objections to ratification was the investor-state arbitration mechanism provided in these two protocols.106 Brazil, as a global but relatively small member of international inward investments, has opted for giving priority to the multilateral track through its membership in MERCOSUR, rather then preferential trade and investment agreements with separate partners. Latest preferential agreement has been signed with Egypt in 2010 after three rounds of negotiations,107 whereas the negotiations about PTIA with EU are still pending.108
104 Art. 2( F) of Buenos Aires Protocol. 105 Art. 2 G(1) of the Buenos Aires Protocol. 106 Jean Kalicki, Suzana Medeiros Investment Arbitration in Brazil Revisiting Brazil’s Traditional Reluctance Towards ICSID, BITs and Investor-State Arbitration, Volume 24, Issue 3. 107 The Free Trade Agreement between MERCOSUR and the Arab Republic of Egypt is available at: http://en.reingex.com/MERCOSUR-Egypt-FTA.shtml 108 European commission web site: http://ec.europa.eu/trade/policy/countries-and-regions/regions/mercosur/ 20 Russia is a party to several regional and multilateral instruments relating to the regulation of investment mostly with strategically important partners.109(Pic. 8) In 1994, Russia has signed, but never formally ratified the ECT, a multilateral agreement covering energy-related trade and investment. 110 According to the preamble of the treaty, it ensures the protection of foreign energy investments based on the principle of non- discrimination. By accepting the Treaty, a state takes on the obligation to extend national treatment, MFN treatment to nationals and legal Pic. 8 Russia PTIA entities of other signatory states that have invested in its energy sector. The ECT promotes FDI in the energy sector by protecting foreign investors against discrimination, expropriation, losses resulting from strife, transfer restrictions, and the breach of individual investment contracts. It also contains an efficient mechanism for dispute resolution that includes investor-state arbitration and state-state arbitration.111 On 20 August 2009, Russia officially notified the ECT Depositary that it did not intend to become a Contracting Party and cancelled its observer status.112 In accordance with Article 45(3)(b) of the ECT charter, such notification results in Russia’s termination of its provisional application of the ECT, however investments, which have been made in the period of provisional application (1994-2009), continue to be protected under the ECT until October 18, 2029.113 Except for being the signatory of the ECT charter, Russia is a member of newly formed Eurasian Economic Union (EEU), which provides the freedom of goods, freedom of services, capital and labor force, establishment and implementation of investment activities and coherent currency market.114 The EEU Treaty is the result of a codification of the existing regulatory- legal framework Eurasian integration consisting of over a hundred international treaties signed between 1995 and 2012.115 From the investor protection perspective, Protocol 16 of the EEU Agreement includes
109 Treaty on Eurasian Economic Union (2014); Belarus-Kazahstan0Russia Agreement on Services and Investment (2012); Eurasian Investment Agreement (2008); EC-Russia PCA (1997). 110 The Energy Charter Treaty (ECT) and the Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) were both signed on 17 December 1994. 111 Art. 10(1); 12; 13(1);16 of ECT. 112 The information is available at: http://www.encharter.org/index.php?id=414 113 Yukos Universal Ltd. v. Russian Federation, Interim Award on Jurisdiction and Admissibility, PCA Case No. AA 227, 30 November 2009. 114 Treaty on the Eurasian Economic Union (2014) is available at: https://docs.eaeunion.org/ru- ru/Pages/DisplayDocument.aspx?s=bef9c798-3978-42f3-9ef2-d0fb3d53b75f&w=632c7868-4ee2-4b21-bc64- 1995328e6ef3&l=540294ae-c3c9-4511-9bf8-aaf5d6e0d169&EntityID=3610 115 The first treaty that laid down the basis of economic integration between Commonwealth Independent Countries was the Agreement on the Customs Union between Russia and Belarus. (January 6, 1995). 21 certain investor protection provisions, as well as provisions governing the settlement of any investment disputes that may arise in the EEU. These provisions are broadly similar to the provisions found in Russian model BIT.116 The EEU Agreement stipulates that its provisions apply to all investments made by the investors of the member states on or after 16 December 1991.117 The EEU Agreement generally provides that investors from the Contracting states and their investments should receive fair and equitable treatment, MFN and national treatment while operating in another EEU member state.118 However, the EEU Agreement reserves a right of the host state to limit the investment activity of investors on its territory in accordance with its national legislation.119 Under the EEU Agreement, investors should be compensated for losses caused by civil disturbance, national emergence situation or any other similar circumstances occurring in the territory of the host member state.120 The agreement prohibits unlawful direct or indirect expropriation, nationalization or any other measure having a similar effect.121 It is noteworthy that, unlike the Russian model BIT,122 the expropriation clause of the EEU Agreement explicitly prohibits both direct and indirect expropriation, which means that investors should also be protected against measures taken by member states that, while not expressly expropriatory in nature, have an equivalent impact on investors and their investments. Where an expropriation (direct or indirect) does occur, the EEU Agreement details how compensation should be made to the affected investor. In addition to the economic integration between the signatory parties of EEU, it aims to increase the investment policy cooperation with non-members. In the joint statement of MERCOSUR summit held in Argentine in 2014, the members declared that they intent to develop cooperation with the EEU and perceive the EEU as an important partner.123 This intention may lead to further integration, particularly in the investment protection policy. EEU agreement also includes provisions governing investor-state dispute settlement. According to the Additional investment protocol to the EEU Treaty, all disputes arising from investments need to be solved by means of negotiation within six month.124 If the dispute could not be solved within this period, an investor may choose to submit a claim to competent
116 Investor’s protection provisions of Russian Model BIT 2001 were analyzed at pp.9-10. 117 Par. 65 of the Annex №16 to the Agreement of EEU. 118 Par.. 68-70 of the Annex №16 to the Agreement of EEU. 119 Par. 73 of the Annex №16 to the Agreement of EEU. In the fair and equitable treatment provision is more limited that the one in the Russian model BIT, which provides for a “full protection and security” standard. 120 Par. 77-78 of the Annex №16 to the Agreement of EEU. 121 Par. 79 of the Annex №16 to the Agreement of EEU. 122 See art. 4 of Russia- China BIT (2006). 123 Interview of Argentine Ambassador to Russia Pablo Anselmo Tettamanti is available at: http://asbarez.com/131589/iran-seeks-trade-agreement-with-eurasian-union/ 124 Par. 84 -85 of the Annex №16 to the Agreement of EEU. 22 courts of a host state, to the International Court under the Chamber of Commerce of agreed State, to the international ad hoc tribunal established under UNCITRAL rules or to the ICSID tribunal under the Additional Facility rules. On May 29, 2015 EEU has signed its first Free Trade Agreement (FTA) with Vietnam that covers most fields of commerce and investment, including e-commerce, environmental protection, finance and banking.125 India has signed 13 PTIAs with Malaysia (2013); Chili (2005), Thailand (2003); framework agreements with: Gulf Cooperation Council, 126 ASEAN, 127 BIMSTEC, 128 MERCOSUR,; comprehensive Economic Partnership agreements with Korea (2010), Japan (2011), Singapore (2005). Also, India, along with Sri Lanka, Bangladesh, Bhutan, Maldives, Nepal and Pakistan are the initial members of SAARC grouping that aims to economic, social and technical cooperation among the Pic. 9 India PTIAs members.129(Pic. 9) Investment protection provisions are explicitly specified in recently signed Agreement on Investment under the FTA between ASEAN and India.130 The ASEAN Investment Agreement provides that investors from the Contracting states and their investments should receive a national treatment from the national regional and local governments only if they are in a ‘like circumstances’. 131 Moreover, Article 3 of the Agreement includes a list of reservations to national treatment with a provisional right to make further restrictions.132 The Agreement also establishes that the concepts of fair and equitable treatment and full protection and security have to be in accordance with the minimum standards of customary international law. 133 Noteworthy, the model Indian BIT does not refer to any standards of equitable treatment.134 The ASEAN investment Agreement serves to strengthen cooperation in investment, improve
125 Free Trade Agreement Between the Eurasian Economic Union and Its Member States of the One Part and the Socialist Republic of Viet Nam of the Other Part. May 29, 2015. 126 The Cooperation Council for the Arab States (1981): United Arab Emirates, Bahrain, Saudi Arabia, Kuwait, Qatar, and Oman. 127 Association of Southeast Asian Nations is an major Asian alliance (1967) comprising of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. 128 Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (1997) comprising of Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka, Thailand. 129 Recitals of the SAARC charter (1985). 130 Agreement on Investment under the Framework Agreement on Comprehensive Economic Cooperation between the Association of Southeast Asian Nations and the Republic of India (2014). 131 Art. 3(4) of the Agreement on Investment under the Framework Agreement on Comprehensive Economic Cooperation between the Association of Southeast Asian Nations and the Republic of India (2014). 132 Art. 4 of the Agreement on Investment under the Framework Agreement on Comprehensive Economic Cooperation between the Association of Southeast Asian Nations and the Republic of India (2014). 133 Art. 7 of the Agreement on Investment under the Framework Agreement on Comprehensive Economic Cooperation between the Association of Southeast Asian Nations and the Republic of India (2014). 134 Art. 3(2) of Model Indian BIT is available at: http://finmin.nic.in/the_ministry/dept_eco_affairs/icsection/Indian%20Model%20Text%20BIPA.asp?pageid=2 23 transparency of investment rules and regulations, and provide for the protection of investments that are much broader and more specified than the guarantees included in the model Indian BIT. This conclusion flows from the provisions of the Agreement that regulates activities for promotion and facilitation of bilateral investments,135 special and differential treatment to the newer ASEAN Member States under this Agreement.136 ASEAN Agreement specifies that any dispute arising out of an alleged breach of any rights conferred by the Agreement with respect to investments shall, as far as possible, be settled by parties amicably. However, the Agreement does not cover disputes that have already been settled by judicial or administrative institutions or where the investor holds the same as disputing party nationality.137 If an investment dispute has not been resolved within 180 days of the request for consultations and negotiations, the disputing investor may submit a claim to alternative forums. The investor may choose between arbitration in accordance with ICSID Additional Facility rules, international ad hoc arbitral tribunal established under UNCITRAL rules, proceedings in the courts or administrative tribunals of the disputing party or another arbitral institutions agreed between parties. The European Union and India has launched negotiations PTIA in June 2007. However, no further progress regarding the Treaty has been achieved since then.138 China, has started quite actively negotiated PTAs after its accession to the WTO.139 To this day, China has signed PTA with Australia (2015), Switzerland (2014), Iceland (2014), Peru (2010), New Zealand (2008), Singapore (2009), Pakistan (2007), Chili (2006); framework agreements with Taiwan (2010), Australia (2003) and ASEAN (2003); Partnership Agreements with Macao (2004) and Hong Kong (2003); Trade and Cooperation Agreement with EU (1985) and Investment Agreements with Japan and Korea (2014) and ASEAN (2010). With respect to investment rules, China has been flexible and responsive to the model texts proposed by the respective partner countries, with the only restriction to foreign investment admission areas. Only 7 out of 17 PTAs include comprehensive and genuine investment rules.140 (Pic.10)
135 Art. 17-18 of the Agreement on Investment under the Framework Agreement on Comprehensive Economic Cooperation between the Association of Southeast Asian Nations and the Republic of India (2014). 136 Art. 16 of the Agreement on Investment under the Framework Agreement on Comprehensive Economic Cooperation between the Association of Southeast Asian Nations and the Republic of India (2014). 137 Art. 20 of the Agreement on Investment under the Framework Agreement on Comprehensive Economic Cooperation between the Association of Southeast Asian Nations and the Republic of India (2014). 138 Official information form Indian Ministry of Commerce and Industry website is available at: http://commerce.nic.in/trade/international_ta_current_details.asp 139 China acceded WTO 11 December 2001. 140 PTIAs with Pakistan (2006), New Zealand (2008), Peru (2009),ASEAN (2009),APTA (2009) and Trilateral Investment Agreement with Japan and Korea (2014). 24 PTIA with Pakistan provides higher level of legal protection than China-Pakistan BIT.141 However, compared to present China’s model BIT, the Pakistan PTIA offered nothing that go beyond its guarantees, therefore this PTA could not be considered as a BIT plus agreement, but more as a politicized arrangement of economic cooperation enhancement. The investment provisions of China-New Zealand PTIA includes a number of innovations in terms of legal language, which was absent from most of China’s second generation BITs. China-New Zealand PTA was a starting point of China’s new international investment policy-making. In terms of investment liberalization, the New Zealand PTIA includes one innovative feature that has not been included in any BIT as of yet, namely the freedom of transfers relating to the pre-establishment phase of an investment BIT. Also, it specifies a qualified fair and equitable treatment clause with a reference to commonly accepted rules of international law, 142 procedure-limited MFN clause 143 and special exceptions for preservation security and public interests of the contracting parties.144 In case a dispute arises, investor may fill a request for consultations and negotiations in order to settle the dispute amicably. If the dispute cannot be settled within 6 months, it may be submitted by the choice of investor to Pic. 10 China PTIAs arbitration or conciliation under ICSID or arbitration under UNCITRAL.145 Ratification of China-ASEAN investment agreement on 15 August 2009 was the last step in the process of constituting ASEAN- China Free Trade Area (ACFTA). The China-ASEAN investment agreement provides comprehensive rules for investment protection and facilitation, but add nothing to the existing third generation model BIT regime. For ASEAN countries, the main rationale of having a comprehensive investment agreement – in addition to the existing 10 BITs they had signed with China –is to open up the Chinese market for investments.146 Apart from the sensitive issue of market-access provisions, the text of the China-ASEAN PTA is a proof of China’s flexible approach to PTIA negotiations. Disputes between an investor and the Contracting State are limited to State’s breach of national treatment, MFN treatment, expropriation, compensation and repatriation of profits that
141 China-Pakistan BIT (1989) . 142 Art. 143(1) of China- New Zealand PTA (2008). 143 Art. 139(2) of China-New Zealand PTA (2008). 144 Chapter 17 of China-New Zealand PTA (2008). 145 Art. 153 of China-New Zealand PTA (2008). 146 Brunei(2000 signed, not in force), Cambodia(2000), Viet Nam (1993), Lao (1993), Malaysia (1990), Indonesia (1995), Myanmar (2002), Philippines (1995), Singapore (1986), Thailand( 1985). 25 caused loss or damage to the investor in relation to his investments.147 The dispute should be resolved through consultations within six month from the date of written request for consultations and negotiations. An investor has a choice between different dispute settlement forums: competent courts or tribunals of the disputing party, ICSID tribunal, providing that both Home and Host States are parties to the ICSID Convention, ICSID Additional Facility Rules if only one party is a party to ICSID Convention, arbitration under UNCITRAL rules or to the other arbitral institution agreed by parties. Fork-in-the-road provision of China-ASEAN PTIA provides an opportunity to submit the same case that has been submitted to national court to the international tribunal. This option is possible only if investor has withdrawn the case before the final judgment has been reached.148 For China, PTIAs are not the tool to introduce new and innovative investment rules, as is the case with other countries. BITs and PTIAs are two sides of the same coin. China has been defensive with regard to commitments that go beyond the level of investment liberalization found in Chinese BITs. According to the European Commission, China and EU have launched a negotiation of comprehensive Investment Agreement that reflects to provide a strong protection to investors and their investments.149 South Africa’s PTIA policy focuses on a consolidation of economic relations within the African region. Through the Southern African Customs Union (SACU)150 and the Southern African Development Community (SADC),151 South Africa is a signature to EU-SADC Interim Economic Partnership Agreement (2009); SACU-US Trade, investment and development cooperative agreement (2008); EFTA-SACU FTA (2008). Also, South Africa has signed Agreement Concerning the Development of Trade and Investment Relations with US (1999); EU (2004); Canada (1998). (Pic. 11) SADC Protocol on Finance and Investment includes extensive provisions on foreign investment protections.152 The Agreement establishes the framework for predictable investment climate, providing guarantees for fair and equitable as well as MFN treatment to the investors
147 Art. 14 of Agreement on Investment of the Framework Agreement on Comprehensive Economic Cooperation between the Association of Southeast Asian Nations and the People’s Republic of China (2008). 148 Art. 14(5) of Agreement on Investment of the Framework Agreement on Comprehensive Economic Cooperation between the Association of Southeast Asian Nations and the People’s Republic of China (2008); in the case of Indonesia, Philippines, Thailand, and Viet Nam, once the investor has submitted the dispute to the institution it should be final. 149 European Commission Press Release Database is available at: http://europa.eu/rapid/press-release_IP-14- 33_en.htm 150 SACU is the oldest Customs Union in the world (1969) with a membership of South Africa, Botswana, Lesotho, Namibia and Swaziland. 151 Southern African Development Community (1980) – intergovernmental organization. The Member States are Angola, Botswana, the Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, United Republic of Tanzania, Zambia and Zimbabwe SADC headquarters are located in Gaborone, Botswana. 152 Chapter 2 and Annex 1 to SADC Protocol on Finance and Investment (2006/2010). 26 from third states. 153 However, Member States have a right to limit these provisions in accordance with national laws and grant preferential treatment to qualified investments and investors in order to achieve national development objectives.154 The SADC Protocol specifies the role of investment promotion agencies, which carry out their functions by increasing awareness of the investment incentives, opportunities, legislation, practices, major events affecting investments and other relevant activities through regular exchange of information.155 SADC Protocol stipulates that investor-State dispute settlement should be resolved within six month with mandatory execution of local remedies. Parties may agree to submit their dispute to SADC tribunal; ICSID center or ad hoc international tribunal established under the UNCITRAL rules. Noteworthy, Protocol stipulates that both parties have to agree on arbitral forum, which guarantees certain amount of rights to the host state. South Africa, contrary to other BRICS members, acceded to PTIA with North American countries and EU. That accession creates unbalanced investment regime in South Africa that places obligations primarily on State while reserving extensive 156 Pic. 11 South Africa PTIA rights for foreign investors. To summarize the points of present subparagraph, I would like to state that BRICS members share the common interest in respect of the investor’s protection within PTIAs. Though some members have a number of cooperation and investment agreements and others only few, establishment of trustworthy investment protection is an issue of mutual interest. ISDS mechanisms included in almost every agreement of BRICS members generally provide for mandatory negotiations and alternative variability for investment arbitration tribunals and governing law. BRICS countries have determined and maintain solid trade and investment relations with developed and developing countries within their regions. The only exception is South Africa that expanses its international investment policy to developed countries of North America and EU. Nevertheless, recently African Union Commission has identified a need to align the investment protocols adopted by Africa’s sub regional organizations in order to harness investment flows to African strategic economic objectives.157 The implementation of important initiative, namely a setting of a joint mechanism for equity investments in infrastructure projects in BRICS countries has been negotiated and agreed on the 7th BRICS
153 Art. 5, 6(1), 6(2) of the Annex 1 to SADC Protocol on Finance and Investment (2006/2010). 154 Art. 7(1) of the Annex 1 to SADC Protocol on Finance and Investment (2006/2010). 155 Art. 23(c) of the Annex 1 to SADC Protocol on Finance and Investment (2006/2010). 156 South Africa, Africa, and International Investment Agreements (Policy Brief No. 22 ) p.29 157 Ibid. 27 Summit. 158 Under the Agreement, the parties will work together to identify and finance infrastructure projects that will improve trade, economic and investment cooperation between BRICS countries. This impulse would encourage trade and investment links, sharing policy practices on trade and investment, promoting initiatives to support institution building of the grouping.
2.3. DIFFERENT APPROACHES TO FOREIGN INVESTMENT PROTECTION IN NATIONAL POLICY
OF BRICS COUNTRIES.
Investment protection provisions included in BITs and PTIAs would not be full-fledged without a legitimate domestic policy. Brazilian government actively advances national policies to protect foreign investors. Foreign investments are generally governed by Law No. 4,131(Foreign Capital Law).159 In addition, Federal Brazilian Constitution provides for equal legal treatment for national and foreign capital invested in Brazil, and prohibits all forms of discrimination not explicitly foreseen in the law. 160 Moreover, the Constitution indicates general prohibition of unreasonable expropriation without fair and just compensation.161 The only requirement for foreign-owned companies is to register their investments and reinvestments of profits through the Central Bank’s Foreign Capital Registry, as set out by Central Bank Resolution 3844.162 Brasilian Central Bank issues a certificate of registration, reflecting the amount invested in foreign currency and its equivalent in national currency. Such certificate is necessary and obligatory for future remittances of profit abroad, repatriation of capital invested and registration of reinvestment of profits. Certain restrictions do apply to sectors considered strategic, such as mining, healthcare and hydrocarbons, at the same time, foreign investors are eligible for almost all available incentives for national investors and have special incentives. 163 According to the established legal framework, foreign investments in Brazil are welcome, as long as they do not contravene local policy regarding foreign investment and national security. As discussed above, Brazil is not a party to any international treaty that gives a broad consent to investor-state arbitration. Brazil’s national law likewise
158 Ufa Declaration, 9 July 2015 is available at: http://mea.gov.in/Uploads/PublicationDocs/25448_Declaration_eng.pdf 159 As further regulated and put into effect by Decree No. 55,762 of 17 February 1965, as amended. 160 Art. 172 of the Brazilian Federal Constitution states that “the law shall regulate, based on national interests, foreign capital investments, shall encourage reinvestments, and shall regulate the remittance of profits.” 161 Art. 5 ( XXIV) of the Brazilian Federal Constitution. 162 Resolution 3844 of March 23, 2010 is available at: %http://www.bcb.gov.br/?EXCHANGEREGUL 163 Brazilian Trade and Investment Promotion Agency programs is available at: http://www.apexbrasil.com.br/meet- brazilian-agreements 28 does not provide investors access to investor-state arbitration. In light of this reality, a question that inevitably arises is whether an investor would at least be able to bring an international arbitration against the Brazilian state or its subdivisions based on an arbitration clause contained in a contract signed with a state entity. The latest OECD report shows declining figures in foreign investments and projects to pick up in 2016 as activity accelerates and some of the previous risks are being addressed.164 FDI in Russia are regulated by the Law No. 160-FZ, July 9, 1999, On Foreign Investment in the Russian Federation ( Foreign Investment Law) 165 and Law No. 57-FZ, on Foreign Investment in Business Entities of Strategic Importance for National Defense and National Security (Strategic Entities Law). 166 The Foreign Investment Law provides for national treatment with a possible exception for the purposes of protecting constitutional system, morals, health, rights and lawful interests of others, national defense and state security.167 Also, foreign investors are granted full and equitable treatment and entitled to reimbursement for the loss caused by unlawful actions of the government. In case of nationalization, foreign investor will be provided with the compensation amount to the value of assets.168 Noteworthy, Russian national investment policy includes additional protection from the unfavorable legislation changes. For instance, indexation of import custom duties, increase of federal taxes that may dramatically impact the foreign investor will be compensated.169 According to the Art.6 of the Strategic Entities Law, there is a number of business activities of strategic importance that
170 limited from the full international participation. There are special benefits for the priority investment projects offered by Russian government and additional privileges that are granted by local and regional authorities. These incentives include enhanced consultation mechanisms with international business, including the consultations within the Foreign Investment Advisory
Council, whose members are CEOs of large companies. Latest OECD Economic report predict negative consequences for productivity and potential growth in the absence of effective implementation of reforms improving the environment for
164 OECD Brazil Economic forecast summary (June 2015). 165 Federal Law of the Russian Federation No. 160-FZ of July 9, 1999 on Foreign Investment in Russian Federation as amended 05.05.2014. 166 Federal Law of the Russian Federation No. 57-FZ of April 29, 2008 on Procedures for Foreign Investments in the Business Entities of Strategic Importance for Russian National Defense and State Security as amended 18.11.2014. 167 Art. 4 of the Foreign Investment Law. 168 Art. 8 of the Foreign Investment Law. 169 Art. 9 of the Foreign Investment Law. 170 Among strategic activities, where foreign investors’ participation could not be above 25 % are: aviation, TV and radio broadcasting, manufacturing ammunition and components; trading weapons and military equipment, nuclear and radiation, hydro-meteorological processes and others. 29 doing business, boosting investment activity dependent on public support.171 At the same time, OECD appreciates liberalization of Russian legislation on foreign investment that is in compliance with OECD standards.172 Indian government has put in place a policy framework on Foreign Direct Investment and issues every six month a Circular on Consolidated FDI Policy, to capture and keep pace with the regulatory changes. 173 The Reserve Bank of India issues the procedural instructions, Circulars are pronounced by Ministerial Press releases. Thus, regulatory framework for FDI consists of Acts, Regulations, Press Notes, Press Releases, Clarifications, etc.174 According to the regulations, a non-resident can freely invest in India, subject to the FDI Policy. Investment activities of foreign investors are restricted in areas of agricultural, real estate and construction, trading in transferable development rights, atomic energy, gambling and betting and others.175 The new government has liberalized areas previously closed for foreign investment in any substantial manner, such as defense and railway infrastructure and extends the opportunities of foreign investors. Some of the investment schemes presently available to non-resident Indians include the facility to invest up to 100 percent equity with full benefits of repatriation of capital invested and income accruing thereon in high priority industries, such as software industries, cotton textiles, rubber machinery, plastic machinery and others. 176 Apart from formulating attractive policies for investors, the Ministry of Commerce and Industry also provides guidance to the investors regarding with infrastructure availability, market structure.177 OECD economic report suggests that Indian FDI statistics are notoriously volatile, but a decline has been visible in recent years. India has made great strides in reducing FDI restrictions over the past 15 years and there is a sufficient and very functional scheme for foreign capital, which liberalizes year after year.178 Nonetheless, the remaining restrictions are considerable. In order to achieve the desirable gross, Indian government should ease foreign equity restrictions, accelerate approval of necessary norms and guarantee investors with tax rulings. China has gradually set up structural and functional legal framework in order to create a favorable investment environment and to promote foreign investments. Currently inbound foreign investments are regulated by three major sets of rules that correspond to three general
171 OECD Economic Forecast Summary (June 2015). 172 OECD Economic policy Reforms 2015: going for growth. ( June 2015). 173 Consolidated FDI Policy Circular of 2015 [FDI Policy Circular] 12 May 2015. 174 List of the regulations and notifications is available at: https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=7355&Mode=0 175 As per Notification no. FEMA 1/2000-RB dated May 3, 2000 176 Annexure-III to the Statement on Industrial Policy 1991 is available at:: http://dipp.nic.in/English/Policies/Industrial_policy_statement.pdf 177 Investment Guidelines are available at: http://www.investindia.gov.in/investment-policies/ 178 India investment policy brief ( November 2014). 30 modes of foreign involvement in Chinese market.179 All the types of entities are under strict regulatory regime that is built on a case-by-case approval system. Under the current foreign investment regulatory regime, a foreign-invested enterprise, regardless of its scale, investment amount and industry, will require governmental approval from cradle to crave, including its incorporation, liquidation, increase or decrease of capital or share transfer. These regulations have played an important role for the establishment of a sound legal system on foreign investment, but the main issue was the fact that they were released at different times to address different concerns, leading to a lack of coordination and even conflicts between the different regulations. New liberalization approach has started in 2015, when the Chinese Ministry of Commerce published a draft of the new Foreign Investment Law. 180 The draft explicitly provides that three Chinese foreign investment regulations will be terminated upon its inception with three years transition period.181 The new act intends to abolish all the differences between the legal regulations of foreign investments and to integrate them into the Company Law, which applies to domestic companies.182 One of the most important features of the Foreign Investment Law is a total abundance of presently comprehensive approval procedure for all international investors that equalize domestic and foreign treatment.183 The new law specifies that foreign investments will receive national treatment, except for investment that falls under the ‘negative list’ of business activities.184 The restrictive areas are subject to national security review that has a judicial immunity clause to the effect that the decisions of the review cannot be appealed or subject to administrative review.185 Concerning the protection provisions, the draft provides for reasonable compensation in case of expropriation, requisition, and abuse of state power. 186 Transparency and effective control are the key issues of a new investment policy. Art. 115 of the draft provides foreign investors with a right to participate in the formulation process of national laws, right to establish commerce chambers or associations and guarantees publicity of all the decisions, laws and regulations. The draft also provides that disputes arising from investments may be resolved through negotiation, mediation, lodging
179 The law of P.R.C. on Chinese-Foreign Equity Joint Ventures and its implementation regulations; The law of P.R.C. on Chinese-Foreign Contractual Joint Ventures and its implementation regulations; The law of P.R.C. on Wholly Foreign-Owned Enterprise and its implementation regulations. 180 Draft Foreign Investment Law of the People's Republic of China is available at: https://www.uschina.org/china- hub/english-translation-draft-foreign-investment-law 181 Art. 170 of the Draft Foreign Investment Law of the People's Republic of China. 182 Company Law of the People's Republic of China (Revised in 2013) is available at: http://www.fdi.gov.cn/1800000121_39_4814_0_7.html 183 Art. 6 of the draft Foreign Investment Law of the People's Republic of China. 184 Special Administrative Measures (Negative List) on Foreign Investment Access into the China carve 139 restricted areas. 185 Art. 73 of the draft Foreign Investment Law of the People's Republic of China. 186 Art. 111-113 of Draft Foreign Investment Law of the People's Republic of China. 31 complaint, arbitration or litigation in accordance with Chinese laws and regulations.187 Also, the Foreign Investment Law includes elaborated information reporting system that satisfies main objectives of Chinese investment policy.188 The new law is not planned to enter into force before 2016, however even now it creates expectations of innovative commercial arrangements and more possibilities for foreign investors in the Chinese capital markets. According to the OECD reports China has made an impressive progress in developing a regulatory framework to attract and promote investment over the past three decades, though challenges remain.189 South Africa is considerably less powerful country compared to its BRICS partners and it is no longer Africa’s largest economy. 190 Attraction of foreign capital to the destroyed by apartheid country, was a core issue of South African government. In 1994, the Government announced a long-term plan for the gradual lifting of foreign exchange controls. The work of inter-ministerial group on incorporation, codification and interpretation of core international law concepts developed into the publication of the draft Bill on the Promotion and Protection of Investment.191 The Bill does not make a distinction between national and foreign investors, therefore the same level of obligations and guarantees applies equally to both.192 Interestingly to notice that the act grants national treatment protection only to those investors that are in the ‘like circumstances.’ Explicit specification of this condition may be considered as derogation from the protective clause. 193 In case of expropriation, investors are no longer assured of compensation at full market value, as it was in a model BIT, but guaranteed the compensation that must reflect an equitable balance between the public interest and the interests of those affected. 194 The Bill carves out certain measures that are not fall under the definition of expropriation, thus leaving domestic and foreign investors without any compensation.195 The Draft Bill was published shortly after South Africa decided to unilaterally terminate its bilateral investment treaties with a number of European countries.196 The termination of South Africa's BITs, however, does not mean the termination of all investment protection obligations and mechanisms for existing investors. All existing investors would continue to be protected by
187 Art. 117-125 of the draft Foreign Investment Law of the People's Republic of China. 188 Art. 147-148 of the draft Foreign Investment Law of the People's Republic of China. 189 OECD (2003), OECD (2006) and OECD (2008). 190 In the beginning of April Nigeria has declared itself the biggest economy in Africa as a result of applying other methodology for the measurement of GDP. 191 Promotion and protection of investment Bill, 2013 Invitation for the public to comment is available at: http://www.tralac.org/files/2013/11/Promotion-and-protection-of- investment-bill-2013-Invitation-for-public- comment.pdf. 192 Art. 4(1),6(1) of the Draft of Promotion and protection of investment Bill, 2013. 193 Art. 6(4) of the Draft of Promotion and protection of investment Bill, 2013. 194 Art. 8(3) of the Draft of Promotion and protection of investment Bill, 2013. 195 Art. 8(2) of the Draft of Promotion and protection of investment Bill, 2013 196 See at pp. 14-15. 32 the "sunset clauses" contained in the majority of BITs, which usually have a sunset period of between 10 to 20 years.197 The Bill has passed through the final stage of the Parliamentary procedure and now has to be approved by the President to enter into force and grant protection to those investors that are not protected neither by BITs nor PTIAs. Although South Africa has clearly acknowledged the importance of FDI in its broad macroeconomic policies, there is presently no specific FDI policy and regulation dealing with foreign investment. Foreign investors, once established in South Africa, benefit from legal protection of property rights. Private rights are fully protected under the Constitution and property may only be expropriated pursuant to specific constitutional provisions: expropriations may only be executed on grounds of public policy or national interest and expropriated parties have a right to compensation for the material damage caused, which is established by mutual agreement and in terms of the law.198 According to the OECD report, South Africa is receptive to foreign investment and has made a good progress in addressing the constraint on sustained economic growth imposed by apartheid social and economic policies. Foreign investments are treated in essentially the same way as domestic investments, and receive national treatment for various investment incentives, tax allowances, and trade regulations.199 Furthermore, OECD concludes that where restrictions or limitations exist, these are not unusual, even among OECD adherents as these are recognized in the Codes and are necessary for specific sectors to function optimally. To summarize the observations on specific approaches to foreign investment protection in national policy, I can state that different approaches of BRICS members would not hamper a prescribed common investment regime. Every member of BRICS bring its investment regulations in compliance with OECD standards on effective investment policy that is based on respect for the rule of law, quality regulation, transparency and openness and integrity.
III. DISPUTE SETTLEMENT AND ENFORCEABILITY OF CONTRACTUAL PROTECTION PROVISIONS IN BRICS COUNTRIES.
The highest investment protection standards will not be efficient without the possibility of its settlement and enforcement. One of the most distinguishing options for the validity of investment guarantees provided in the bilateral, multilateral investment treaties and national laws will always be ISDS mechanisms and the enforceability of legitimately rendered awards. The investment agreements provide the possibility for investors to bring the matter before
197 For example, art. 13(3) of South Africa-Germany BIT(1995). 198 South Africa Constitution. Act No. 108 of 1996 Article 25 (2) and (3). 199 OECD-South Africa investment policy dialogue. Self-assessment of South Africa’s investment regime in relation to the OECD Codes of Liberalisation and the principle of National Treatment 2014. 33 specialized investment tribunals that set up under international rules on arbitration. Many investment agreements impose on investors a requirement to consult/negotiate with a host State before bringing the claim to arbitration; however, they rarely spell out consequences of an investor’s failure to meet this obligation.200 Investor-state disputes in many instances remain confidential. It is therefore difficult to make a complete assessment of this aspect. Nevertheless, a number of studies by UNCTAD and ICSID have examined claims and awards across a large number of ISDS.201 Brazilian Arbitration Act 202 provides a legal framework of arbitration relevant to the internationally accepted standards of arbitration. Parties of a dispute granted the autonomy to select the law that governs the arbitration proceeding, which may be conducted ad hoc or under the administration of any domestic or international arbitration institutions, such as the ICDR, the ICC or the LCIA. However, these rights are granted to investors in commercial arbitration. Brazil’s national law does not provide investors access to investor-state arbitration. As from 2015 Brazil is a party to the lately signed BITs that include uncontested investor-state dispute settlement mechanism through the Joint committee.203 Currently available information does not allow making certain observations concerning the investor-state dispute settlement case law. Procedure of recognition and enforcement of internationally rendered award in Brazil are governed by Convention of Panama, 204 Convention of Montevideo, 205 the New York Convention and Brazilian Arbitration Act. The Brazilian Arbitration Act reflects an influence of the UNCITRAL Model Law on Commercial Arbitration and the New York Convention, but at the same time contains specific features that harmonize Brazil's legislation with modern trends in arbitration. Under the Brazilian law, international award may be recognized only after receiving a homologation of the Supreme Federal Court upon a request of interested party.206 However, all awards issued within the Brazilian territory are considered to be domestic awards irrespective of foreign element. Article 10 of the Brazilian Arbitration Act sets forth the mandatory requirements for a valid and enforceable arbitral agreement. Agreement must specify the subject matter submitted to arbitration, the place where the arbitral award is to be rendered, as well as description and address of the parties and arbitrators (or arbitral
200 Art. 8(1) of Russia- China BIT(2008); Art. 2(H) of Colonia Protocol. 201 UNCTAD, IIA Issues Note N°1, February 2015, Recent trends in IIAs and ISDS; UNCTAD database of ISDS cases available at: http://unctad.org/en/Pages/DIAE/ISDS.aspx 202 Law № 9307, 23 September 1996 is available at: http://cbar.org.br/site/eng/brazilian-legislation/law-9-307-96- english/ 203 Art. 13(6) of Brazil- Malawi ICFA. 204 Inter-American Convention of 1975 on International Commercial Arbitration. 205 Inter-American Convention of 1979 on Extraterritorial Validity of Foreign Judgments and Arbitral Awards. 206 Art. 35-37 of the Brazilian Arbitration Act. 34 institution). Doubts as to whether an arbitral agreement has fulfilled such requirements will usually be interpreted in the most favorable manner to uphold the agreement Russian legislation provides that disputes arising in connection with investments, could be resolved in accordance with international treaties at Russian courts or international arbitration courts.207 There are quite some international investment cases against Russia that challenge country’s obligations under international treaties. In the case Renta 4 S.V.S.A., et al. v. The Russian Federation, 208 arbitrators of the Stockholm Chamber of Commerce (SCC) tribunal concluded that Russia's actions on ostensible collection of taxes constitute expiratory measures, which fall within Article 6 of Spain-Russia BIT. The tribunal further stated that the liquidation auctions were aimed to an unlawful confiscation. The tribunal ordered the respondent to make an immediate compensation that have to be in consonance with the customary international law standard for recovery in the event of lawful expropriation. In another case Vladimir Berschader and Michael Berschader v. Russian Federation, 209 SCC Tribunal dismissed Belgian investors’ claim on jurisdictional grounds. The tribunal based its conclusions on a reasonable interpretation of the Treaty text that do not compass indirect investment by the definition of "investment". Accordingly, the investments relied upon by Belgian investor had not constituted qualifying investments and had not encompassed by the arbitration clause of the treaty. Recognition and enforcement of foreign awards are set in ICAA, the Arbitrazh Procedure Code, 210 European Convention on International Commercial Arbitration, 211 the Moscow Convention on the Settlement by Arbitration of Civil Law Disputes Arising from Relations of Economic, Scientific and Technical Cooperation,212 and the New York Convention. Russia has been a signatory to the New York Convention since 1960 and is among the countries that have a ‘territorial’ reservation to it.213 Finally, Russia is a party to the Washington Convention on the Settlement of Investment Disputes though this Convention has not been ratified.214
207 Art. 10 of the Federal Law of the Russian Federation No. 160-FZ of July 9, 1999 on Foreign Investment in Russian Federation as amended 05.05.2014. 208 Renta 4 S.V.S.A., et al. v. The Russian Federation (SCC Case No. 24/2007) 209 Vladimir Berschader and Michael Berschader v. Russian Federation (SCC Case No. 080/2004) 210 Arbitration Procedural Code of the Russian Federation No. 95-FZ of July 24, 2002 (as amended). 211 European Convention on International Commercial Arbitration of 1961 Done at Geneva, April 21, 1961 United Nations, Treaty Series , vol. 484, p. 364 No. 7041 (1963-1964). 212 Moscow Convention on the Settlement by Arbitration of Civil Law Disputes Arising from Relations of Economic, Scientific and Technical Cooperation (1972) is available at: http://arbitrations.ru/userfiles/file/Law/Treaty/Moscow%20Convention.pdf. 213 The reciprocal-treatment reservation was made by different countries and include almost the same text: The Union of Soviet Socialist Republics will apply the pro-visions of this Convention in respect of arbitral awards made in the territories of non-contracting States only to the extent to which they grant reciprocal treatment. 214 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States - International Centre for Settlement Of Investment Disputes, Washington 1965. 35 Arbitration and Conciliation Act is a main legal source for investment arbitration in India.215 The 1996 Act is based on the UNCITRAL Model Law on International Arbitration, and applied both to international and domestic arbitration. Being a common law jurisdiction country, the law in India is mainly developed by way of precedential Court rulings. India faced an adverse award under its investment treaty obligations in the case White Industries Australia Limited v. The Republic of India.216 Australian investor relied upon the MFN clause in the Australia–India and alleged that Indian government breached the provision of ‘effective means’ included in the India–Kuwait treaty. Appointed ad hoc tribunal concluded that though India has not denied investor’s right to justice, inability to hear White's jurisdictional appeal for over five years amounts to undue delay and constitutes a breach of the MFN treatment. Further the tribunal has determined that none of the four New York Convention grounds for resisting enforcement of the award support such an outcome, the tribunal concludes that the Award is enforceable under the laws of India. Following the decision in the White Industries case, India has been threatened with a number of investment arbitration proceedings by investors from different jurisdictions.217 Foreign awards that are sought be enforced in India cannot be challenged on merits in Indian courts. A party that is seeking to challenge the award of Indian court has to prove certain facts, whereas for the international awards there are only grounds for non-enforcement.218 India is a signatory to the New York convention with ‘territorial and commercial reservations’.219 The requirements for the application under the Arbitration and Conciliation Act are the standard ones. An applicant has to submit an original award and arbitration agreement enclosed to a written application.220 The conditions for enforcement of a foreign award under the Act stem from Article V of the New York Convention with further elucidations of public policy. According to the Article 48(2) of the Arbitration And Conciliation Act, for the avoidance of doubt, public policy may be breached when it is induced or affected by fraud or corruption. This narrow approach of Indian lawmakers could flow from the willingness to restrict government’s involvement and attract more foreign investments. Chinese Arbitration Law provides comprehensive legal framework for investment
215 The Arbitration And Conciliation Act, 1996 is available at: http://www.wipo.int/wipolex/en/details.jsp?id=8581 216 White Industries Australia Limited v. The Republic of India, Final Award. 30 Nov 2011.UNCITRAL 217 Deutsche Telekom v. India(2013); Vodafone International Holdings BV v. India(2014);Louis Dreyfus Armateurs SAS v. The Republic of India(2014); Khaitan Holdings Mauritius Limited v. India(2014). 218 Art. 48 and 34 of the Arbitration And Conciliation Act, 1996. 219 Two reservations that were made by India to the New York Convention: the Government of India declare that they will apply the Convention to the recognition and enforcement of awards made only in the territory of a State, party to this Convention. They further declare that they will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the law of India." 220 Art. 47 of the Arbitration And Conciliation Act, 1996. 36 arbitration and enforcement of awards. 221 In contrast with other BRICS courtiers, Chinese Arbitral Law is not descend from the UNCITRAL Model law and includes authentic rules and requirements for arbitration. In order to initiate a procedure in a competent court, The Law requires parties to have a valid arbitration agreement, with a specification concerning the matters of arbitration and arbitration institution; otherwise, their ad hoc arbitration agreement may be void. 222 Also, Chinese Arbitration Law establishes the requirements for claimant’s application and the particularities that must be included therein.223 In case of non-compliance with the conditions for acceptance, the court will inform party of its rejection of the application and explain the reasons for rejection within five days from the date of receipt.224 Despite the fact that China has been a signatory to ICSID Convention since 1993, there are only two registered cases against the country.225 The first investment treaty claim was submitted to the ICSID by Malaysian investor in the case Ekran Berhad v. People’s Republic of China. But within just two months, on July 22, 2011, the proceeding was suspended pursuant to the agreement between the parties. The other ICSID case, Ansung Housing Co., Ltd. v. People’s Republic of China was registered on 4 November 2014 and is still pending. The South Korean investor brought a claim pursuant to the China–Republic of Korea BIT. In the claim, investor challenged the provision of BIT as he has been deprived of the use and enjoyment of his investment and his investment plans have been frustrated. Recognition and enforcement of foreign awards are governed by the Arbitration Law, Civil Procedure Code,226 the New York Convention and ICSID convention.227China has ratified the New York Convention in 1987 with ‘territorial and commercial reservations’. 228 The incidence was extended to Hong Kong in 1997 and to the Macau on 19 July 2005.229 As a result, arbitral awards made in China, Macao and Hong Kong can be enforced in any of the 155
221 Arbitration Law of the People's Republic of China (promulgated by Order No. 31 of the President of the People's Republic of China on August 31, 1994) 222 Art. 18 of the Arbitration Law of the People's Republic of China. 223 Art. 21-23 of the Arbitration Law of the People's Republic of China. 224 Art. 24 of the Arbitration Law of the People's Republic of China. 225Ekran Berhad v. People’s Republic of China (ICSID Case No. ARB/11/15); Ansung Housing Co., Ltd. v. People’s Republic of China (ICSID Case No. ARB/14/25). 226 Part four of the Civil Procedure Law of the People's Republic of China. Adopted at the Fourth Session of the Seventh National People's Congress on April 9, 1991 and promulgated by Order No. 44 of the President of the People's Republic of China on April 9, 1991 is available at: http://www.china.org.cn/english/government/207343.htm. 227 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States - International Centre for Settlement Of Investment Disputes, Washington 1965; International Centre for Settlement of Investment Disputes (ICSID) 228 The People's Republic of China will apply the Convention, only on the basis of reciprocity, to the recognition and enforcement of arbitral awards made in the territory of another Contracting State; The People's Republic of China will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the People's Republic of China. 229 Information is available at: http://www.newyorkconvention.org/contracting-states/list-of-contracting-states 37 member states of the Convention, and awards from the Convention countries may be enforced in each of these jurisdictions. China is the only member of BRICS that acceded to the ICSID convention, which provides a self-contained system for investor-state dispute settlement, including standard clauses, detailed procedural rules, and institutional support. 230 However, joining the convention itself does not constitute the agreement to grant a jurisdiction to ICSID. China restricted admissible disputes to those, resulting from expropriation and nationalization.231 According to the Art. 54 of the ICSID Convention, each Contracting State shall recognize an award and establish domestic law enforcement mechanism for ICSID awards. The party, seeking to enforce the foreign award shall directly apply to competent national court. 232 According to Article 215 of the Civil Procedure Law, an application for enforcement of the award has to be submitted within two years upon the effectiveness of the award. Art. 268 of The Civil Procedure Law specifies grounds for non-enforcement of international awards without any refinement regarding the automatic validity of ICSID awards. China has not enacted any specific legislation to comply with the ICSID Convention’s recognition and enforcement obligations, making its compliance with these obligations uncertain.233 There are also a small number of cases regarding the recognition of other tribunal’s awards. In the case First Investment Corp (Marshall Island) v. People’s Republic of China, Supreme People's Court refused the enforcement of LMAA award. The court upheld respondent’s objectives regarding the incorrect composition of the arbitral tribunal and void subject matter of the dispute that lay outside the agreement. Serious defects in the arbitral procedure constitutes grounds for non – enforcement according to art. V(1)(b), (c) and (d) of the New York Convention. Due to the deficiency of foreign arbitral cases against China, it is hardly possible to give a conclusion on the investment protection enforceability. I am of the opinion that China needs to enact legislation that will govern the procedure of international treaty incorporation and specifically provide rules for the execution of an ISCID award as anticipated by the ISCID Convention. Substantive and procedural provisions of arbitration law in South Africa are governed by the Arbitration of 1965 (the Act).234 According to the Act, which is stem from the 1950 English
230 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States - International Centre for Settlement Of Investment Disputes, Washington 1965. International Centre for Settlement of Investment Disputes (ICSID). 231 ISCID, Contracting States and Measure Taken by Them for the Purpose of the Convention (Sept., 2014). 232 Art. 238 and 269 of the Civil Procedure Law of the People's Republic of China (2012). 233 Julian Ku, ‘The Enforcement of ICSID Awards in the People’s Republic of China’ (2013) 38 6 (1) Contemp. Asia Arb.J. 31 p.39. 234 Arbitration Act 1965 (Act No. 42 of 1965) is available at: http://www.wipo.int/edocs/lexdocs/laws/en/za/za062en.pdf 38 Arbitration Act, 235 there is no distinction between domestic and international arbitration proceedings. Parties are free to choose a governing law, select arbitrators and challenge them. Arbitration Act limits the time for handing down the award to four months. Rendered award should be final and could not be appealed, unless an arbitration agreement provides otherwise.236 There are only few cases, concerning the investment protection under South African international investment agreements. In the case Piero Foresti, Laura de Carli and others v. Republic of South Africa 237 investors relied on provisions of Italy- South Africa BIT and Belgium-Luxemburg-South Africa BIT. They claimed that South African restrictive policy had amounted to expropriation as a violation of South Africa’s international obligations under its BITs. The case caused active public interest, numerous non-disputing parties filled petitions and provided amicus curiae to the tribunal. However, the case was dismissed after the investors dropped their claims and agreed the conditions with South Africa. Enforcement of foreign awards in South Africa is governed by the New York Convention, which country acceded in 1976.238 Contrary to other BRICS countries, South Africa has not made any reservations to the Convention. The foreign arbitral awards may be recognized upon the written application of interested party with enclosed original of the foreign arbitral award and arbitration agreement, duly authenticated. 239 A foreign arbitral award will generally be recognized and enforced. An applicant is required to prove that the dispute was submitted to arbitration according to the terms of an arbitration agreement, an arbitrator was appointed and that there was a valid award in terms of reference.240 South African Arbitration law is currently following its slow path to improvements. In July 1998, the South African Law Commission presented a report on an International Arbitration Act for South Africa, 241 where it recommended adopting the UNCITRAL Model Law for international commercial arbitrations. The Law Commission suggested that the consolidate statute should deal extensively with the recognition and enforcement of foreign judgments, while protecting the interests of South African citizens, and that it should be effective in achieving its objectives. However these far-reaching recommendations regarding international and domestic arbitration have not yet been implemented. The implementation of these
235 English Arbitration Act 1950 is available at: http://www.legislation.gov.uk/ukpga/Geo6/14/27/contents 236 Art. 28 of the Arbitration Act 1965. 237 Piero Foresti, Laura de Carli and others v. Republic of South Africa (ICSID Case No. ARB(AF)/07/1) 238 The information is available at:: http://www.newyorkconvention.org/contracting-states/list-of-contracting-states 239 The Recognition and Enforcement of Foreign Arbitral Awards Act of 1977, implemented provisions of the New York Convention is available at: http://www.justice.gov.za/legislation/acts/1977-040.pdf 240 Art. 4 of the Recognition and Enforcement of Foreign Arbitral Awards Act of 1977. 241 South African Law Commission Report on an International Arbitration Act for South Africa, 1998 is available at: http://www.justice.gov.za/salrc/reports/r_prj94_july1998.pdf 39 suggestions would contribute to the growth and development of South Africa as a significant regional arbitration center. Substantive and procedural provisions of arbitration law in BRICS countries vary non- significantly as they mainly based on the UNCITRAL Model Law. Every nation realizes that it has to respect its obligations under its international investment agreements to maintain investors’ confidence and remain a part of the international business community. The analysis of ISDS cases of BRICS countries shows the possibility of foreign investors to rely on feasible protective provisions and successfully challenge them in the different investment settlement forums. Though countries are at different stages of compliance with Law Commission’s and OECD recommendations, there are positive approaches in national substantive law regarding the investment guarantees and significant numbers of rendered decisions that are consistent with requirements of binding international conventions.
CONCLUSION.
When four economically powerful States at the Yekaterinburg summit in 2009 issued a common statement in order to promote a coordination and cooperation and commit a reform of international financial institutions, it was hardly possible to believe that these objectives would be achieved. Meanwhile, significant growth in the economic standing of Brazil, Russia, India, China and South Africa and the expansion of their influence beyond their traditional geographical backyards makes BRICS one of the pivotal multilateral forums for interstate cooperation. Though BRICS is compound of totally different countries with separate histories, cultural heritages, political, economic and legal systems, they have common interests regarding the enrichment of emerging market economies. BRICS countries have similar interests and trajectories when it comes to economics and have proven that they can collaborate in this area. Through its annual summits, ministerial conferences and head of states meetings, BRICS deepen internal collaboration between the members and provide for joint cooperation in economic, social and cultural development, political coherence while implementing a solid legal basis. The establishment of independent New Development Bank constituted a turning point for the institutional standing of BRICS and marked a significant reaction in a world society. All the BRICS members have developed and implemented, with greater or lesser effectiveness, policies to encourage the entry of capital linked to the different strategies of their development. A common point between the BRICS members is their commitment to attracting 40 investment within a policy of incorporating new technologies, they pursue to encourage and to protect investments. Noteworthy, these purposes could be reached by different ways. Investment policy of the country may gradually change through its history from liberally open to modestly reserved and vice versa (South Africa, China). The country that used to be an enthusiastic signatory of BITs and PTIAs may switch its investment policy to termination and review of existing BITs (South Africa, India). Some countries decide to opt for a pro-national approach while concluding their international investment agreements (Brazil, South Africa and India). Others, in contrary, open the borders for foreign capital inflow and erase all the differences between investors, meanwhile providing comprehensive substantive and procedural investment protection (Russia, China). Generally, BRICS countries have determined and maintain solid trade and investment relations with developing countries from the same region. Foreign investors are granted a broad number of guarantees under the international treaties and national legislation with reasonable exceptions on business activities of strategic importance that are limited from the foreign capital involvement. On the other hand, there are also special benefits for the priority investment projects such as tax reductions, social contribution rates, guidance to the investors regarding infrastructure availability, federal and regional subsidies. ISDS mechanisms included in almost every investment agreement of BRICS members generally provide for mandatory negotiations and alternative variability for investment arbitration tribunals and governing law. Foreign investors could rely on protective provisions contained in investment treaties and generally successfully enforce rendered awards in BRICS jurisdictions. All the members set forth that recognition and enforcement will be valid upon the written application that includes authenticated award and original arbitration agreement to the competent court and enforceable arbitral agreement. Every country has limited reasons for the refusal of international award that mainly stems from grounds indicated in the New York Convention. Recent new liberalization approaches and compliance with OECD recommendations, signalize a gradual shift to favorable investment conditions in the BRICS countries. In my view, BRICS investment cooperation will follow an incremental path. The countries have begun to unite in areas of consensus, setting more sensitive issues to the side until a solid economic foundation is in place. In the next few decades, they are likely to maintain this status quo and perhaps cooperate loosely on particular issues. Leaders of BRICS members at the 7th Summit in Ufa declared that acceleration of mutual investment cooperation is one of the most important areas of coordination. Members aim to strengthen the dialogue between on BRICS countries’ domestic investment policy and
41 approaches to investment agreements. The implementation of important initiative, namely, to set up a joint mechanism for equity investments in infrastructure projects, signifies an adherence of BRICS members to their objects and particularly, to the establishment of common investment regime.
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