International Investment Law

WTO's proposed Investment Facilitation Agreement

Fifteen WTO members have initiated preliminary talks on an IFA within the WTO, highlighting the interconnected
nature of international trade and investment and their multiplicative effect on global growth. Two of the
submissions from these countries are collective proposals; one is from "Friends of Investment Facilitation for
Development", which has organised a workshop on trade and investment in the WTO on March 20, 2017, and the
other is from "MIKTA," which has also organised a workshop on trade and investment. FIFD's proposal seeks to
initiate a free-flowing, informal debate on investment facilitation within the WTO, and it invites participation from
all WTO Members. Improving regulatory openness and predictability, streamlining and speeding up administrative
procedures, strengthening international cooperation, and addressing the requirements of developing countries are all
topics that could be discussed during the debate. The proposal makes it clear that IFA will not deal with contentious
topics like investor-state dispute settlement, market access, or investment protection (ISDS).1 While acknowledging
the dynamic link between trade, investment, and development and the need for more coherence between trade and
investment policy, the MIKTA proposal urges that talks at WTO should add value to the relevant work in other
venues such as the G 20, APEC, UNCTAD, and OECD. "FDI is a vital source of funding to close the $2.5 trillion
development investment gap to achieve sustainable development goals" and "with the right policy settings,
recognising the trade investment nexus, investment can advance inclusive, broad-based growth, promote and enable
sustainable development and responsible business conduct" are two key statements on the relationship between
investment and development. The MIKTA proposal, like the FIFD proposal before it, urges that delicate topics like
ISDS and investor protections be kept out of IFA. There is an emphasis on the many WTO agreements, including
the Easter text agreements, the Trade Related Investment Measures Agreement, the Agreement on Subsidies and
Countervailing Measures, and the Agreement on Government Procurement.2

Piecemeal investment is covered by the terms of the Procurement (easter text agreement). Interestingly, it hints how
the term "investment" will likely be treated in IFA by stating that "TRIPS regulations are applicable to the legal
environment affecting foreign investment." Prior to this, the World Trade Organization (WTO) did not connect
TRIPS with financial investments. IIAs, which have a broad definition of investment, have already recognised this
connection, though.

Russia, China, Argentina, and Brazil have all submitted ideas, with Russia and China submitting separate plans and
Argentina and Brazil submitting a combined proposal. Information on the planned IFA's core components is

1
“Jurgen Kurtz, ‘The WTO and International Investment Law: Converging Systems’ 1 (2016) CUP.”
2
“Rudolf Adlung and Hamid Mamdouh, ‘Plurilateral Trade Agreements: An Escape Route for the WTO?’ [2017] WTO Working Paper
ERSD-2017-03 1, 16.”
expanded upon in these three proposals. IFA would include "the collection of policy measures and actions targeted
at making it simpler for investors to establish, maintain, and increase their investment in host nations and to
conduct their day-to-day operations," as stated in the Argentine and Brazilian proposal. The following are the key
features of IFA, as derived from the aforementioned three concepts.3
1. IFA's reach is expansive, including capital expenditures for both manufacturing and service
provision.
2. Openness: WTO members must report any laws pertaining to investment policy to the organisation
in order to ensure that all investment matters are treated fairly and openly. Investors and other
interested parties should be given a chance to weigh in on proposed investment policies.
3. A uniform set of criteria for processing and assessing investment proposals would be established to
provide a stable, predictable, and efficient environment for investors.
4. Investors in the host countries would use a centralised online portal, or "single window," to
communicate with the many government agencies they need to interact with.
5. A national point of contact, or ombudsman, would be established. They promise to give potential
backers every piece of data they need. Disputes between Members can be avoided if national focal
points from different nations work together.
6. Fees and other costs incurred by investors during the application process should be disclosed to the
public and be in line with the real cost of services provided by the relevant authorities.
7. Topic is that of investors' values and standards. Members could propose that investors follow a set of
guidelines for ethical behaviour in the workplace. The adoption of these guidelines and benchmarks
by investors would be entirely discretionary.
8. Developing and least developed countries (LDCs) would be treated differently than more developed
nations because of the unique challenges they face in terms of economic growth and development.
However, LDCs will be strongly urged to carry out their IFA-related responsibilities despite not
being obligated to do so.
9. The goal of this technical support is to help developing nations and LDCs improve their institutional
and regulatory frameworks so that they can better attract foreign investment.
10. Members' Regulatory Independence will be Safeguarded.

3
Ibid.
The Impact of Overseas Investment on Economic Growth
The term "growth" can have a variety of different meanings depending on who you ask. Just increasing a country's
GDP is enough for some people. They aren't too worried about how economic expansion would affect people or the
planet. For others, it is progress toward better health, education, and economic conditions for all people.
Developing the world's poor in a way that "meets the demands of the present without sacrificing the ability of
future generations to meet their own needs" is at the heart of the more modern notion of development, which
emphasises sustainability. The expansion of the economy is a basic tenet of every theory of progress.
The progress of economies relies heavily on the development and dissemination of useful knowledge. It
encompasses both explicit (research and development, design, and process engineering) and implicit (management,
organisation, inter-firm, and international linkages) forms of expertise. Productive knowledge is essential in both
cutting-edge high-tech sectors and time-honored primary sector pursuits. Increased economic growth is made
possible by the investment of capital in the creation of new knowledge and technologies. Foreign Direct Investment
(FDI) is viewed as having a considerably better impact than domestic investment since it includes a combination of
capital, technology, know-how, management, organisational, and marketing abilities in addition to the more
traditional investment components. In terms of 'associated advantages,' Multinational Corporations (MNCs), the
primary source of FDI, are in a far stronger position than domestic enterprises. So, a country's productive
knowledge base is likely to grow more quickly when it welcomes FDI, especially if the country is a developing
LDC.

The elements that influence the dynamics of the link between investment and development differ from country to
country. Foreign direct investment (FDI) has the potential to introduce advanced technologies, better management
and marketing practises, augment human skills, and secure market access for host country products in addition to
supplementing domestic capital for countries that use FDI as a means of enhancing their base of productive
knowledge, which we call host countries.4 However, FPI will only serve as a supplement to domestic capital and
does not come with the same benefits as FDI. Foreign direct investment (FDI) is therefore seen as a desirable
source of money, especially for those nations which are 'catching up' in growth.

The reason for the investment is what sets FDI apart from FPI. The foreign investor in FDI would have a long-term
stake in the direct investment company, as is made explicit by the OECD Benchmark Definition of FDI, the
generally accepted definition of FDI. This often, if not always, ends in the former having some say over the latter's
operations or even a majority share in its management. Foreign investors or multinational corporations (MNCs) can
improve the management of a domestic company by exerting pressure on them to make more profitable choices.
Nonetheless, the OECD (2008) notes, with regard to the inspiration behind FPI, "Earnings from the purchase and
4
Ibid.
selling of securities, rather than from any involvement in, or expectation of control over, the operation of the
businesses or other entities whose assets make up the investor's portfolio.

Financial backers aren't looking to build lasting connections. The primary factor in deciding whether or not to buy
or sell their securities is the rate of return on their assets ". Foreign Direct Investment (as opposed to portfolio
investment) has the connotation of having a 'lasting interest' in an enterprise, as stated in the FDI Policy of India.
The proliferation of Bilateral Investment Treaties followed the failure of wealthy countries to negotiate a
multilateral treaty regulating international investment (BITs). In 1959, Germany and Pakistan signed the first BIT.
There were 371 BITs at the end of the 1980s, 1862 by the end of the 1990s, and 2,950 at the start of 2017.
Investment is defined broadly under BITs, and the agreements include protections for national treatment, most-
favored-nation treatment, fair and equitable treatment, reasonable and effective compensation following
expropriation, the ability to repatriate earnings, and investor-state dispute settlement (ISDS). Most of these accords
were signed between industrialised and developing nations, or between the host and guest nations. They have
severely restricted the ability of host governments to regulate investors, including the use of performance
requirement schemes. According to the US Department of State, "circumstances in which performance obligations
can be imposed" must be strictly regulated as one of the fundamental principles of BITs. The need for altering the
governance of IIAs has emerged in response to the ISDS process, which has been mired in a 'legitimacy crisis' as a
result of its lack of transparency, inconsistency in the interpretation of the same clause by different tribunals, and
lack of grounds for appeal. The push for reforms gathered traction as industrialised countries also became targets of
ISDS cases.5 The debt crisis of the 1980s put pressure on developing countries to sign BITs because they knew
foreign direct investment (FDI) was preferable to debt-inducing borrowings. They also believed that bilateral
agreements would put them in a better position to protect policy flexibility than multilateral ones.

However, research shows that IIAs and FDI inflows are not directly correlated with one another. Studies by
UNCTAD (1998) and Rose Ackerman & Tobin (2005) indicate no connection between IIAs and FDI. Despite the
absence of a BIT, the United States remains China's largest investor. He notes that Japan, a significant source of
foreign direct investment, has only four IIAs. Studies suggest that a stable business environment is crucial for
luring FDI, and IIAs are at best a supplementary measure in this regard rather than a replacement. ISDS lawsuits
force host governments to pay a hefty price, even when the benefits of IIAs were, at best, dubious. Investors who
put in less than $10 million were awarded $905 million in compensation from Libya. Almost the entirety of
Ecuador's 2015 social welfare budget, $1.1 billion, was used to pay off a US investor.6

5
“Martin Khor, The ‘Singapore Issues’ in the WTO: Evolution and Implications for Developing Countries (Third World Network 2007).”
6
Ibid
As a result of the difficulties posed by BITs, many developing nations, including India, Indonesia, South Africa,
Bolivia, and Ecuador, have cancelled or renegotiated many of the BITs they had previously signed. With the goal of
promoting the public interest and preventing it from granting larger substantive rights to foreign investors in the US
than have been provided to US investors in the US under the constitution of the US, the US revised its model BIT
in 2012. 7To solve the legitimacy crisis confronting the ISDS in IIAs, the European Commission (EC) proposed an
Investment Court System (ICS) in 2015 to replace the ISDS; this proposal became the basis for an amendment to
the investment chapter of the EU-Ester text agreement.

7
Ibid.