CARICOM AGREEMENTS ON CARICOM AGREEMENTS ON INVESTMENT: INVESTMENT:

POTENTIAL TREATY SHOPPING POTENTIAL TREATY SHOPPING AND CONSISTENCY ISSUESAND CONSISTENCY ISSUES

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AND CONSISTENCY ISSUESAND CONSISTENCY ISSUES

Dr Chantal OnonaiwuTrade Policy & Legal Specialist

Caribbean Regional Negotiating Machinery

OverviewOverview

� Potential for ‘treaty shopping’ in relation to CARICOM agreements on investment

� Incoherence within CARICOM countries’ network of IIAsIIAs

� Incoherence between the IIAs of CARICOM countries

� Overlapping agreements between the same contracting parties

� Significance of policy incoherence

� Approaches to addressing incoherence within the network of IIAs

Potential for Treaty ShoppingPotential for Treaty Shopping

� Foreign investors may shop for a ‘home country of convenience’, i.e. seek home countries that have treaties with host countries where investments are to be made.

� The potential for such treaty-shopping exists in relation to many CARICOM agreements on investment because they do not contain a ‘denial of benefits’ clause.they do not contain a ‘denial of benefits’ clause.

� Most agreements that exclude a ‘denial of benefits’ clause guarantee only protection of investment after establishment.

� However, some BITs that grant access rights do not include a ‘denial of benefits’ clause.� Barbados’ and Trinidad & Tobago’s BITs with Canada

Potential for Treaty ShoppingPotential for Treaty Shopping

� However, some CARICOM agreements extend benefits only to investors that have a substantial link to the home country.� Under the Revised Treaty of Chaguaramas, legal entities constituted under the laws of a Member State enjoy the right of establishment only if they carry on “substantial business activity” within CARICOM and are substantially owned and effectively controlled by CARICOM nationalswithin CARICOM and are substantially owned and effectively controlled by CARICOM nationals.

� BITs with the US allow a Party to deny the benefits of the treaty to companies that have no “substantial business activities” in the other Party.

� Under the CARIFORUM-EC EPA, an entity set up under the laws of an EU Member State or a CARIFORUM State qualifies as an investor of that State only if it engages in “substantive business operations” in that State.

Incoherence within the Network of IIAs Incoherence within the Network of IIAs

� Given that CARICOM countries typically do not have a model agreement that constitutes the basis for negotiation of their investment agreements, there is incoherence between the IIAs that they have concluded.

� A single CARICOM country may be bound by several investment agreements concluded with the same treaty partner at the bilateral level, as part of a regional grouping, or at the multilateral level. � There are some inconsistencies between these overlapping agreements

Incoherence between IIAs Incoherence between IIAs

� The same country may have IIAs that protect only established investment and others that also grant access rights � Trinidad & Tobago’s BITs with the US and Canada liberalize investment while its BITs with the UK and Germany include only guarantees of protection after investment is established guarantees of protection after investment is established

� Some IIAs utilize a “top down” approach to investment liberalization, while others utilize a gradual “bottom up” approach� Under the BITs that grant access rights, a “top down” approach is used. Under the EPA, CARIFORUM States used a “bottom up” approach to scheduling market access and national treatment commitments on commercial presence in services activities

Incoherence between IIAs Incoherence between IIAs

� Some CARICOM bilateral trade agreements contain investment protection chapters while others contain only framework provisions on investment� CARICOM’s FTAs with Costa Rica and the Dominican Republic include investment chapters and CARICOM and Cuba have include investment chapters and CARICOM and Cuba have concluded an agreement on the reciprocal promotion and protection of investment

� CARICOM’s agreements with Colombia and Venezuela include only framework provisions

Incoherence between IIAs Incoherence between IIAs

� There are differences with respect to how IIAs address the same issue � Jamaica’s BIT with the US prohibits the imposition of certain performance requirements on investors while its BITs with European countries and China do not include specific provisions on performance requirementsperformance requirements

� Trinidad & Tobago’s BITs with Canada, China, Germany and the US include provisions on the temporary entry of persons in connection with an investment, while its BITs with Korea, Mexico and the UK do not.

Incoherence between Overlapping AgreementsIncoherence between Overlapping Agreements

� The parties’ BIT may be limited to protection of established investments while their FTA may include market access guarantees for foreign investors� Jamaica’s BITs with EU Member States guarantee protection of investment after establishment. The EPA includes market access commitments for commercial presences and investorscommitments for commercial presences and investors

� The EPA includes obligations concerning the behaviour of investors and the maintenance of environmental and social standards that are absent from the BITS between CARICOM countries and EU Member States

Incoherence between Overlapping AgreementsIncoherence between Overlapping Agreements

� Provisions in overlapping agreements may be contradictory� Jamaica’s BIT with Germany includes an unconditional guarantee of the free transfer of payments in connection with an investment. However, the EPA allows the host state to impose temporary transfer restrictions under certain circumstances.transfer restrictions under certain circumstances.

� Multiple dispute settlement provisions may apply to the same dispute

� Under the CARICOM-Cuba investment agreement, ISDS is available in relation to disputes concerning the obligation not to impose performance requirements prohibited by the TRIMS Agreement. Under the TRIMS Agreement, only State-to-State dispute settlement is available.

Significance of Policy Incoherence Significance of Policy Incoherence

� Differences in treatment embodied in different IIAs may not be reflected in underlying domestic legislation� National laws tend to treat foreign investors equally, irrespective of their nationality

� Those charged with implementing the agreements may be unaware of the inconsistencies among the agreements

Approaches to addressing Policy Incoherence Approaches to addressing Policy Incoherence

� Encouraging greater coherence through individual IIA negotiations

� The effectiveness of this approach will depend on the bargaining strength of CARICOM countries in the negotiations

� ‘Preservation of rights’ clauses or clauses that resolve � ‘Preservation of rights’ clauses or clauses that resolve inconsistencies

� The scope of such clauses in CARICOM IIAs varies

� Some cover provisions of international law, the host country’s domestic law and agreements between the investor and host country.

� Others are limited to some of those categories

Approaches to addressing Policy Incoherence Approaches to addressing Policy Incoherence

� Recourse to the rules of the Vienna Convention on the Law of Treaties on the application of successive treaties relating to the same subject-matter

THANK YOUTHANK YOUchantal.ononaiwu@crnm.orgchantal.ononaiwu@crnm.org

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