U n i t e d n at i o n s C o n f e r e n C e o n t r a d e a n d d e v e l o p m e n t
Development
Framework ForInvestment
Sustainable
olicyP
www.unctad.org/ipfsdJoin us at:
UNCTAD
UN
ITED
NATIO
NS
Inv
es
tm
en
t P
olic
y F
ra
mew
or
k F
or
Su
sta
ina
ble D
ev
elo
pm
en
t
Investment Policy Framework for Sustainable Developmentii
Note
The Division on Investment and Enterprise of UNCTAD is a global centre of excellence dealing with issues related to investment and enterprise development in the United Nations System. It builds on three-and-a-half decades of experience and international expertise in research and policy analysis, fosters intergovernmental consensus-building, and provides technical assistance to developing countries.
The terms country/economy as used in this Report also refer, as appropriate, to territories or areas; the designations employed and the presentation of the material do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. In addition, the designations of country groups are intended solely for statistical or analytical convenience and do not necessarily express a judgment about the stage of development reached by a particular country or area in the development process. The major country groupings used in this Report follow the classification of the United Nations Statistical Office. These are:
Developed countries: the member countries of the OECD (other than Chile, Mexico, the Republic of Korea and Turkey), plus the new European Union member countries which are not OECD members (Bulgaria, Cyprus, Latvia, Lithuania, Malta and Romania), plus Andorra, Bermuda, Liechtenstein, Monaco and San Marino.
Transition economies: South-East Europe and the Commonwealth of Independent States.
Developing economies: in general all economies not specified above. For statistical purposes, the data for China do not include those for Hong Kong Special Administrative Region (Hong Kong SAR), Macao Special Administrative Region (Macao SAR) and Taiwan Province of China.
Reference to companies and their activities should not be construed as an endorsement by UNCTAD of those companies or their activities.
The boundaries and names shown and designations used on the maps presented in this publication do not imply official endorsement or acceptance by the United Nations.
The following symbols have been used in the tables:
• Two dots (..) indicate that data are not available or are not separately reported. Rows in tables have been omitted in those cases where no data are available for any of the elements in the row.
• A dash (–) indicates that the item is equal to zero or its value is negligible.
• A blank in a table indicates that the item is not applicable, unless otherwise indicated.
• A slash (/) between dates representing years, e.g., 1994/95, indicates a financial year.
• Use of a dash (–) between dates representing years, e.g. 1994–1995, signifies the full period involved, including the beginning and end years.
• Reference to “dollars” ($) means United States dollars, unless otherwise indicated.
• Annual rates of growth or change, unless otherwise stated, refer to annual compound rates.
Details and percentages in tables do not necessarily add to totals because of rounding.
The material contained in this study may be freely quoted with appropriate acknowledgement.
iii
At a time of persistent crises and pressing social and environmental challenges, harnessing economic growth for sustainable and inclusive development is more important than ever. Investment is a primary driver of such growth. Mobilizing investment and ensuring that it contributes to sustainable development objectives is therefore a priority for all countries and for developing countries in particular.
Against this background, a new generation of investment policies is emerging, pursuing a broader and more intricate development policy agenda, while building or maintaining a generally favourable investment climate. “New generation” investment policies place inclusive growth and sustainable development at the heart of efforts to attract and benefit from investment. Although these concepts are not new in and by themselves, to date they have not been systematically integrated in mainstream investment policymaking. “New generation” investment policies aim to operationalize sustainable development in concrete measures and mechanisms at the national and international level, and at the level of policy making and implementation.
Broadly, “new generation” investment policies strive to:
• create synergies with wider economic development goals or industrial policies, and achieve seamless integration in development strategies;
• foster responsible investor behavior and incorporate principles of corporate social responsibility (CSR);
• ensure policy effectiveness in their design and implementation and in the institutional environment within which they operate.
To help policymakers address the challenges posed by this new agenda, this report takes a fresh look at investment policymaking, and does so by taking a systemic approach, examining the universe of national and international policies through the lens of today’s key investment policy challenges. It explicitly focuses on the development dimension, and presents a comprehensive Investment Policy Framework for Sustainable Development (IPFSD).
The IPFSD consists of a set of Core Principles for investment policymaking, guidelines for national investment policies, and guidance for policymakers on how to engage in the international investment policy regime, in the form of options for the design and use of international investment agreements (IIAs).
The IPFSD is built on the experience of UNCTAD and other organizations in designing investment policies for development, and it incorporates lessons learned on what policies and measures work well, or not so well, under what circumstances. It represents the best endeavour by the UNCTAD secretariat, in collaboration with numerous international experts and investment stakeholders. It is the result of collective wisdom.
It is hoped that the IPFSD may serve as a reference for policymakers in formulating national investment policies and in negotiating investment agreements or revising existing ones. It can also serve as the basis for capacity building on investment policy and for UNCTAD’s technical assistance work. And it may come to act as a point of convergence for international cooperation on investment issues.
The IPFSD has been designed as a “living document”. UNCTAD will continuously update its contents based on feedback from its numerous policy forums and from its work in the field, and it will provide a platform for “open sourcing” of best practice investment policies.
Towards a New Generation of Investment Policies
Preface
Investment Policy Framework for Sustainable Developmentiv
Acknowledgements
UNCTAD’s Investment Policy Framework for Sustainable Development (IPFSD) was prepared by a team led by James Zhan. The team members included Richard Bolwijn, Quentin Dupriez, Joachim Karl, Sergey Ripinsky, Elisabeth Türk, and Jörg Weber. Wolfgang Alschner, Anna-Lisa Brahms, Hamed El Kady, Diana Rosert and Thomas van Giffen also contributed to the work.
At various stages of preparation, in particular during a series of expert group meetings organized to discuss drafts of the framework, the team benefited from comments and inputs received from Michael Addo, Yuki Arai, Nathalie Bernasconi, Jeremy Clegg, Zachary Douglas, Roberto Echandi, Lorraine Eden, Alejandro Faya, Stephen Gelb, Robert Howse, Christine Kaufmann, Jan Kleinheisterkamp, John Kline, Markus Krajewski, Arvind Mayaram, Yuki Arai, Kate Miles, Ted Moran, Peter Muchlinski,
Rajneesh Narula, Federico Ortino, Joost Pauwelyn, Stephan Schill, Andrea Saldarriaga, Karl Sauvant, Pierre Sauvé, Jorge Vinuales, Stephen Young, and Zbigniew Zimny. Comments were also received from numerous UNCTAD colleagues, including Kiyoshi Adachi, Chantal Dupasquier, Torbjörn Fredriksson, Masataka Fujita, Hafiz Mirza, Fiorina Mugione, Paul Wessendorp, Richard Kozul-Wright and colleagues from the Division on Globalization and Development Strategies and the Division on International Trade and Commodities.
The IPFSD benefited from review and discussion at several intergovernmental meetings, including the International Investment Agreements Conference and the Ministerial Round Table at the World Investment Forum 2012 (WIF2012) and UNCTAD XIII in Doha, Qatar.
v
Table of Contents
Preface: Towards a New Generation of Investment Policies ..........................................................iii
Acknowledgements .............................................................................................................................iv
Introduction: Investment Policy Framework for Sustainable Development .................................. 1
I. A “New Generation” of Investment Policies .............................................................................. 3
1. The changing investment policy environment ......................................................................... 3
2. Key investment policy challenges ........................................................................................... 6
3. Addressing the challenges: UNCTAD’s Investment Policy Framework
for Sustainable Development ................................................................................................... 8
II. Core Principles for Investment Policymaking .......................................................................... 10
1. Scope and objectives of the Core Principles ........................................................................ 10
2. Core Principles for Investment Policymaking for Sustainable Development ......................... 11
3. Annotations to the Core Principles ......................................................................................... 11
III. National Investment Policy Guidelines .................................................................................... 15
1. Grounding investment policy in development strategy .......................................................... 15
2. Designing policies for responsible investment and sustainable development ....................... 20
3. Implementation and institutional mechanisms for policy effectiveness ................................. 22
4. The IPFSD’s national policy guidelines .................................................................................. 25
IV. Elements of International Investment Agreements: Policy Options ...................................... 36
1. Defining the role of IIAs in countries’ development strategy and investment policy.............. 36
2. Negotiating sustainable-development-friendly IIAs ............................................................... 39
3. IIA elements: policy options ................................................................................................... 43
4. Implementation and institutional mechanisms for policy effectiveness ................................. 64
V. The Way Forward ........................................................................................................................ 65
1
The policy environment for cross-border investment is subject to constant change. At the national level, governments continue to adopt investment policy measures (at a rate of around 150 annually over the past decade according to UNCTAD’s monitoring of such measures), not to speak of countless measures taken every year that influence the overall business environment for investors. At the international level, new investment agreements have been concluded at a rate of more than one per week for the past few years. At the level of “soft law”, the universe of codes and standards that govern the behavior of corporate investors also continues to expand.
Over the last two decades, as more and more governments have come to realize the crucial role of private investment, including FDI, in fuelling economic growth and development, great strides have been made to improve both national and international investment policies. Very significant efforts have been made by governments in developing countries in particular, often aided by the international development community through policy frameworks, model treaties and technical assistance (such as UNCTAD’s Investment Policy Reviews). A lot of experience has been gained and documented that now helps policymakers identify measures that work well, or less well, under what circumstances and in what context.
Despite the progress made, and despite the lessons learned, important questions remain unanswered for policymakers. Some perceived or acknowledged shortcomings in investment policy regimes are addressed only partially, or not at all, by existing models and frameworks intended to support policymakers.
This report takes a fresh look at investment policymaking – focusing on direct private investment in productive assets (i.e. excluding
other capital flows which should be addressed by the financial system and policies) – by taking a systemic approach that examines the universe of national and international policies through the lens of today’s key investment policy challenges. It also aims explicitly to strengthen the development dimension of investment policies, and presents a comprehensive Investment Policy Framework for Sustainable Development (IPFSD).
Encouragement to pick up this gauntlet comes from discussions with senior policymakers in numerous forums, including at UNCTAD’s biennial World Investment Forum; at its Commission on Investment, Enterprise and Development; and at its regular intergovernmental expert group meetings on investment and enterprise. It also stems from discussions with academics and business advisors in UNCTAD’s round tables on investment policy, and from UNCTAD’s technical assistance work with developing countries. Further encouragement has emerged from other important policy platforms, most notably the G-20, which in its Seoul Declaration in 2010 and the accompanying Multi-Year Action Plan for Development specifically refers to the need to strengthen the sustainable development dimension of national and international investment policies.
The IPFSD also comes at a time when many other investment stakeholders are putting forward suggestions for the future of investment policymaking. At UNCTAD’s 2012 World Investment Forum the International Chamber of Commerce (ICC) launched its contribution in the form of (revised) Guidelines for International Investment. The OECD has announced its intention to start work on an update of its policy framework for investment. The recently adopted European Union-United States Statement on Shared Principles for International Investment and the release of the new
Investment Policy Framework for Sustainable Development
Introduction
Investment Policy Framework for Sustainable Development2
United States’ model BIT are also testimony of policy dynamism. These developments appear to signal a window of opportunity to strengthen the sustainable development dimension of investment policies.
The remainder of this report first details the drivers of change in the investment policy environment – introducing a “new generation” of investment policies – and the challenges that need to be addressed in a comprehensive IPFSD (chapter I). It then proposes a set of Core Principles for investment policymaking,
which serve as “design criteria” for national and international investment policies (chapter II). Chapter III presents a framework for national investment policy. Chapter IV focuses on IIAs and translates the Core Principles into options for the formulation and negotiation of such instruments, with a particular focus on development-friendly options. The final chapter looks at the way forward, suggesting how policymakers and the international development community could make use of the IPFSD, and how it could be further improved.
I. A “New Generation” of Investment Policies 3
I. A “New Generation” of Investment Policies
1. The changing investment policy environment
Investment policy is not made in a vacuum. It is made in a political and economic context that, at the global and regional levels, has been buffeted in recent years by a series of crises in the areas of finance, food security and the environment, and that faces persistent global imbalances and social challenges, especially with regard to poverty alleviation. These crises and challenges are having profound effects on the way policy is shaped at the global level. First, the economic and financial crisis has accentuated a longer-term shift in economic weight from developed countries to emerging markets. Global challenges such as food security and climate change, where developing country engagement is an indispensable prerequisite for any viable solution, have further added to a greater role for those countries in global policymaking. Second, the financial crisis in particular has boosted the role of governments in the economy, both in the developed and the developing world. Third, the nature of the challenges, which no country can address in isolation, makes better international coordination imperative. And fourth, the global political and economic context and the challenges that need to be addressed – with social and environmental concerns taking center stage – are leading policymakers to reflect on an emerging new development paradigm that places inclusive and sustainable development goals on the same footing as economic growth and development goals.
Trends in investment policy naturally mirror these developments.
There have been fundamental changes in the investment and investor landscape.
Developing countries and economies in transition are now primary FDI destinations, and their importance as FDI recipients continues to increase. In 2010, for the first time, developing countries received more than half of global FDI flows – in part as a result of the fall in investment in developed countries. This increases the opportunities, but also multiplies the stakes, for strategic investment
targeting, promotion and protection policies in developing countries.
Emerging economies have not only become important recipients of FDI, they are increasingly large investors themselves, with their share in world outflows approaching 30 per cent. While these countries might previously have been more concerned with the pressure they faced to provide protection for investments made by others, they now also consider the security and treatment of their own investors’ interests abroad.
There are also new types of investors on the scene. State-owned enterprises (SOEs) are becoming important FDI players; UNCTAD counted some 650 multinational SOEs in 2010, operating about 8,500 foreign affiliates (WIR11). Although SOEs account for only 1 per cent of the total number of multinational enterprises, their overseas investments amount to roughly 11 per cent of global FDI flows. Sovereign wealth funds (SWFs), similarly, are gaining importance as FDI players. Their total FDI stock amounted to some $110 billion in 2011, and their overseas investments make up less than 1 per cent of global FDI flows. But with total assets under management of $4-5 trillion, the scope for further direct investment in productive assets is significant.
Clearly the patterns and types of investment of these new players (in terms of home and host countries and in terms of investors) are different, and so are their policy priorities. Furthermore, it is necessary to be vigilant concerning waning support for open investment climates in developed market economies in the face of competition from increasingly active developing-country investors.
Governments are playing a greater role in the economy and are giving more direction to investment policy.
Governments have become decidedly less reticent in regulating and steering the economy. More and more governments are moving away from the hands-off approach to economic growth and development that prevailed previously.1 Industrial policies and industrial development strategies are proliferating in developing and developed countries
Investment Policy Framework for Sustainable Development4
alike (WIR11). These strategies often contain elements of targeted investment promotion or restriction, increasing the importance of integrated and coherent development and investment policies.
Governments are also becoming more active in their efforts to integrate domestic companies into global value chains (GVCs). They promote such integration through local capacity building, technological upgrading and investment promotion activities, such as matchmaking or the establishment of special economic zones. Expectations of governments’ promotion efforts have become higher as they increasingly focus on the quality – and not only on the quantity – of investment.
Fears and, to some extent, evidence of a job-less (or job-poor) recovery in many regions are also adding pressure on governments to look for “the right types” of investment, and to adopt measures to maximize the job-creation impact of investment. In developed countries, such fears have at times sparked debate on whether and how to discourage domestic companies from investing abroad or to promote the repatriation of foreign investment back home. In developing countries, the same fears are fuelling the debate on whether investment is bringing enough jobs for the poor and is sufficiently inclusive.
A stronger role of the State also manifests itself with regard to other sustainability issues. New social and environmental regulations are being introduced or existing rules reinforced – all of which has implications for investment. In addition to regulatory activities, governments are increasing efforts to promote actively the move towards sustainable development, for example through the encouragement of low-carbon FDI. They are also placing more emphasis on corporate responsibility by promoting the adoption of private codes of corporate conduct.
The trend for policymakers to intervene more in the economy and, to an extent, to steer investment activity, is visible in the constantly increasing share of regulatory and restrictive policies in total investment policy measures over the last five years. This trend reflects, in part, a renewed realism about the economic and social costs of unregulated market forces but it also gives rise to concerns that an accumulation of regulatory activities may
gradually increase the risk of over-regulation or investment protectionism that hinders inward and outward FDI (see box 1).
There is a greater need for global coordination on investment policy.
The need to address common sustainable development challenges and to respond effectively to global economic and financial turmoil to avoid future crises, has instigated calls for new models of global economic governance. In the area of investment, there are compelling reasons for such improved international coordination. It could help keep protectionist tendencies and discriminatory treatment of foreign investors in check. Further, in a world in which governments increasingly “compete” for their preferred types of investment it could help avoid a “race to the bottom” in regulatory standards or a ‘race to the top’ in incentives.
A number of specific investment issues accentuate the need for better global coordination on investment policy as, by their nature, they can be addressed effectively only in a cooperative manner. For one, better international coordination would help overcome coherence problems posed by the highly atomized system of IIAs, consisting of more than 3,100 core treaties (i.e. bilateral investment treaties (BITs) and other agreements with investment provisions). Another example where policymakers are increasingly engaged in international dialogue is international tax cooperation. Unsustainable levels of public deficits and sovereign debt have made governments far more sensitive to tax avoidance, manipulative transfer pricing, tax havens and similar options available to multinational firms to unduly reduce their tax obligations in host and home countries.
Other, non-financial, global challenges also require better coordination on investment, as witnessed by efforts to promote green investment in support of environmentally friendly growth, and international collaboration on investment in agriculture to help improve food security (WIR09, WIR10).
A new generation of investment policies is emerging.
As a result of the developments described above, a new generation of investment policies is emerging, pursuing a broader and more intricate development policy agenda within a framework that seeks to
I. A “New Generation” of Investment Policies 5
Box 1. Defining Investment Protectionism
Despite the fact that international policy forums at the highest level (e.g. the G202) frequently make reference to “investment protectionism”, there is no universally agreed definition of the term. Different schools of thought take different approaches.
Broadly, protectionist measures related to investment would include: (1) measures directed at foreign investors that explicitly or “de facto” discriminate against them (i.e. treating them differently from domestic investors) and that are designed to prevent or discourage them from investing in, or staying in, the country. And (2) measures directed at domestic companies that require them to repatriate assets or operations to the home country or that discourage new investments abroad.3 In this context, “measures” refer to national regulatory measures, but also include the application of administrative procedures or, even less tangible, political pressure.
The above reasoning ignores any possible justification of investment protectionism – i.e. measures may be motivated by legitimate policy concerns such as the protection of national security, public health or environmental objectives, or a desire to increase the contribution of FDI to economic development. It also does not refer to any assessment of proportionality of measures relative to such legitimate policy concerns. Nor does it attempt to assess the legality of relevant measures under any applicable international normative framework (whether investment-specific, i.e. international investment agreements; trade-related, e.g. WTO rules; or otherwise). Disregarding these considerations is analogous to the situation in trade, where a tariff may be applied to imports for legitimate policy reasons and may be legal under WTO rules, but is often still considered a protectionist measure.
From a development perspective this approach is clearly unsatisfactory: measures taken for legitimate public policy objectives, relevant and proportional to those objectives and taken in compliance with relevant international instruments, should not be considered protectionist. The challenge lies in defining the boundaries of legitimacy, relevance and proportionality, in order to distinguish between measures taken in good faith for the public good and measures with underlying discriminatory objectives.
For many policymakers the term “protectionism” has a negative connotation. The lack of a common language among policymakers and the investment community – one country’s protectionism is another country’s industrial policy – is not helpful to efforts to maintain an international investment policy environment that aims to balance openness and pursuit of the public good while minimizing potentially harmful distortionary effects on investment flows.
Source: UNCTAD.
maintain a generally favourable investment climate. This new generation of investment policies has been in the making for some time, and is reflected in the dichotomy in policy directions over the last few years – with simultaneous moves to further liberalize investment regimes and promote foreign investment, on the one hand, and to regulate investment in pursuit of public policy objectives on the other. It reflects the recognition that liberalization, if it is to generate sustainable development outcomes, has to be accompanied – if not preceded – by the establishment of proper regulatory and institutional frameworks. The key policy challenge is to strike the right balance between regulation and openness (Epilogue WIR10).
“New generation” investment policies place inclusive growth and sustainable development at the heart of efforts to attract and benefit from investment.
Sustainable development issues – including environmental, social and poverty alleviation concerns – as well as investor responsibility in these areas, are not “new” in and by themselves. However, to date, the myriad of solutions and options developed over the years to address sustainable development concerns have not been part and parcel of mainstream investment policymaking, and the international consensus on sustainable development is not reflected in it. “New generation” investment policies aim to systematically integrate sustainable development and operationalize it in concrete measures and mechanisms at the national and international level, and at the level of policy making and implementation.
Broadly, “new generation” investment policies are characterized by (i) a recognition of the role of investment as a primary driver of economic growth
Investment Policy Framework for Sustainable Development6
Table 1. National investment policy challenges
Integrating investment policy in development strategy
• Channeling investment to areas key for the build-up of productive capacity and international competitiveness
• Ensuring coherence with the host of policy areas geared towards overall development objectives
Incorporating sustainable development objectives in investment policy
• Maximizing positive and minimizing negative impacts of investment• Fostering responsible investor behaviour
Ensuring investment policy relevance and effectiveness
• Building stronger institutions to implement investment policy• Measuring the sustainable development impact of investment
and development and the consequent realization that investment policies are a central part of development strategies; and (ii) a desire to pursue sustainable development through responsible investment, placing social and environmental goals on the same footing as economic growth and development objectives. Furthermore, (iii) a shared recognition of the need to promote responsible investment as a cornerstone of economic growth and job creation is giving renewed impetus to efforts to resolve, in a comprehensive manner, long-standing issues and shortcomings of investment policy that may hamper policy effectiveness and risk causing uncertainty for investors. These three broad aspects of “new generation” investment policies translate into specific investment policy challenges at the national and international levels.
2. Key investment policy challenges
At the national level, key investment policy challenges are (table 1):
• To connect the investment policy framework to an overall development strategy or industrial development policy that works in the context of national economies, and to ensure coherence with other policy areas, including overall private sector or enterprise development, and policies in support of technological advancement, international trade and job creation. “New generation” investment policies increasingly incorporate targeted
objectives to channel investment to areas key for economic or industrial development and for the build-up, maintenance and improvement of productive capacity and international competitiveness.
• To ensure that investment supports sustainable development and inclusiveness objectives. Investment policymaking will focus increasingly on qualitative aspects of investment. Because the behaviour of firms, including international investors, with respect to social and environmental issues is driven in part by corporate responsibility standards developed outside the traditional regulatory realm, one aspect of this challenge is finding the right balance between regulatory and private sector initiatives. A focus on sustainable development objectives also implies that investment policy puts increasing emphasis on the promotion of specific types of investment, e.g. ‘green investments’ and ‘low-carbon investment’ (WIR10).
• To ensure continued investment policy relevance and effectiveness, building stronger institutions to implement investment policy and to manage investment policy dynamically, especially by measuring the sustainable development impact of policies and responding to changes in the policy environment. With the greater role that governments are assuming in
I. A “New Generation” of Investment Policies 7
Table 2. International investment policy challenges
Strengthening the development dimension of IIAs
• Safeguarding policy space for sustainable development needs• Making investment promotion provisions more concrete and consistent with sustainable
development objectives
Balancing rights and obligations of states and investors
• Reflecting investor responsibilities in IIAs• Learning from and building on CSR principles
Managing the systemic complexity of the IIA regime
• Dealing with gaps, overlaps and inconsistencies in IIA coverage and content and resolving institutional and dispute settlement issues
• Ensuring effective interaction and coherence with other public policies (e.g. climate change, labour) and systems (e.g. trading, financial)
steering investment to support sustainable development objectives, and with the selective departure from an open and liberal approach to investment, comes greater responsibility on the part of policymakers to ensure the effectiveness of their measures, especially where such measures imply restrictions on the freedom of economic actors or outlays of public funds (e.g. in the case of incentives or the establishment of special economic zones).
Similarly, at the international level, the changing investment policy environment is giving rise to three broad challenges (table 2):
• To strengthen the development dimension of the international investment policy regime. In the policy debate this development dimension principally encompasses two aspects:
− Policymakers in some countries, especially those seeking to implement industrial development strategies and targeted investment measures, have found that IIAs can unduly constrain national economic development policymaking.
− Many policymakers have observed that IIAs are focused almost exclusively on protecting investors and do not do enough to promote investment for development.
• To adjust the balance between the rights and obligations of States and investors, making
it more even. IIAs currently do not set out any obligations on the part of investors in return for the protection rights they are granted. Negotiators could consider including obligations for investors to comply with national laws of the host country. In addition, and parallel to the debate at the level of national policies, corporate responsibility initiatives, standards and guidelines for the behaviour of international investors increasingly shape the investment policy landscape. Such standards could serve as an indirect way to add the sustainable development dimension to the international investment policy landscape, although there are concerns among developing countries that they may also act as barriers to investment and trade.
• To resolve issues stemming from the increasing complexity of the international investment policy regime. The current regime is a system of thousands of treaties (mostly bilateral investment treaties, free trade agreements with investment provisions, and regional agreements), many ongoing negotiations and multiple dispute-settlement mechanisms, which nevertheless offers protection to only two-thirds of global FDI stock, and which covers only one-fifth of bilateral investment relationships (WIR 11). Most governments continue to participate in
Investment Policy Framework for Sustainable Development8
Figure 1. Structure and components of the IPFSD
Core Principles“Design criteria” for investment
policies and for the other IPFSD components
National investmentpolicy guidelines
Concrete guidance for policymakers on how to formulate investment policies and regulations and on how to ensure their effectiveness
IIA elements: policy options
Clause-by-clause options for negotiators to strengthen the sustainable development dimension of IIAs
the process of adding ever more agreements to the system, despite the fact that many are not fully satisfied with its overall design. It has a number of systemic problems, including gaps, overlaps and inconsistencies in coverage and content; ambiguities in treaty interpretation by arbitral tribunals; onerous arbitration procedures and unpredictability of arbitration awards. Also, the “interconnect” between international investment policies and other policy areas such as trade, finance, competition or environmental (e.g. climate change) policies, is absent.
3. Addressing the challenges: UNCTAD’s Investment Policy Framework for Sustainable Development
To address the challenges discussed in the previous section, UNCTAD proposes a comprehensive Investment Policy Framework for Sustainable Development (IPFSD), consisting of a set of Core Principles for investment policymaking, guidelines for national investment policies, and guidance for policymakers on how to engage in the international investment policy regime, in the form of options for the design and use of IIAs (figure 1 and box 2). These build on the experience and lessons learned of UNCTAD and other organizations in
designing investment policies for development. By consolidating good practices, the IPFSD also attempts to establish a benchmark for assessing the quality of a country’s policy environment for foreign investment – taking into account that one single policy framework cannot address the specific investment policy challenges of individual countries (see boxes 4, 6 and 7 on the need for custom-designed investment policy advice).
Although there are a number of existing international instruments that provide guidance to investment policymakers,4 UNCTAD’s IPFSD distinguishes itself in several ways. First, it is meant as a comprehensive instrument dealing with all aspects of national and international investment policymaking. Second, it puts a particular emphasis on the relationship between foreign investment and sustainable development, advocating a balanced approach between the pursuit of purely economic growth objectives by means of investment liberalization and promotion, on the one hand, and the need to protect people and the environment, on the other hand. Third, it underscores the interests of developing countries in investment policy making. Fourth, it is neither a legally binding text nor a voluntary undertaking between States, but expert guidance by an international organization, leaving national policymakers free to “adapt and adopt” as appropriate.
I. A “New Generation” of Investment Policies 9
Box 2. Scope of the IPFSD
This box addresses a number of key questions relating to the scope, coverage and target audience of the IPFSD:
What policies are covered by the IPFSD?The IPFSD is meant to provide guidance on investment policies, with a particular focus on foreign direct investment (FDI). This includes policies with regard to the establishment, treatment and promotion of investment. In addition, a comprehensive IPFSD needs to look beyond investment policies per se and include investment-related aspects of other policy areas.
Does the IPFSD deal with national and international investment policies? Investment policies and related policy areas covered by the IPFSD comprise national and international policies, as coherence between the two is fundamental.
Does the IPFSD cover domestic and foreign investment? The IPFSD’s focus on FDI is evident in sections on, for example, the entry and establishment of investment, the promotion of outward investment and the chapter on international investment policies. However, many of the guidelines in the chapter on national investment policies have relevance for domestic investment as well.
Does the IPFSD consider portfolio investment? The IPFSD focuses on direct investment in productive assets. Portfolio investment is considered only where explicitly stated in the context of IIAs, which in many cases extend coverage beyond direct investment.
Is the IPFSD concerned with inward and outward investment? The IPFSD primarily offers policy advice for countries where the investment – domestic or foreign – is made, as this is typically the principal concern of investment policies. However, the IPFSD does not ignore the fact that policies with regard to outward investment may also be part of a country’s development strategy.
Is the IPFSD addressed to policymakers from developing and developed countries? The addressees of the IPFSD are, in principle, both developing and developed countries. It has been designed with the particular objective to assist the former in the design of investment policies in support of sustainable development objectives, but is equally relevant for developed countries.
Does the IPFSD focus on the attraction of investment or on its impact?The policy guidelines of the IPFSD serve a dual purpose. On the one hand, they intend to assist governments in improving the attractiveness of their countries as investment locations. To this end, they contain specific recommendations concerning the institutional set-up, the general business climate and the treatment of investors. On the other hand, they also provide guidance on how countries can maximize the sustainable development benefits from investment, in particular foreign investment.
Source: UNCTAD.
Investment Policy Framework for Sustainable Development10
Box 3. The origins of the Core Principles in international law
The Core Principles can be traced back to a wide range of existing bodies of international law, treaties and declarations.
The UN Charter (Article 55) promotes, inter alia, the goal of economic and social progress and development. The UN Millennium Development Goals call for a Global Partnership for Development. In particular, its Goal 8 (Target 12) encourages the further development of an open, rule-based, predictable, non-discriminatory trading and financial system, which includes a commitment to good governance, development, and poverty reduction, both nationally and internationally – concepts that apply equally to the investment system. The “Monterrey Consensus” of the UN Conference on Financing for Development of 2002 acknowledges that countries need to continue their efforts to achieve a transparent, stable and predictable investment climate, with proper contract enforcement and respect for property rights, embedded in sound macroeconomic policies and institutions that allow businesses, both domestic and international, to operate efficiently and profitably and with maximum development impact. The UN Johannesburg Plan of Implementation of September 2002, following up on the “Rio Declaration”, calls for the formulation and elaboration of national strategies for sustainable development, which integrate economic, social and environmental aspects. The 4th UN Conference on LDCs in May 2011 adopted the Istanbul Programme of Action for the LDCs 2011-2020 with a strong focus on productive capacity-building and structural transformation as core elements to achieve more robust, balanced, equitable, and sustainable growth and sustainable development. Finally, the 2012 UNCTAD XIII Conference – as well as previous UNCTAD Conferences – recognized the role of FDI in the development process and called on countries to design policies aimed at enhancing the impact of foreign investment on sustainable development and inclusive growth, while underlining the importance of stable, predictable and enabling investment climates.
Several other international instruments relate to individual Core Principles. They comprise, in particular, the Universal Declaration of Human Rights and the UN Guiding Principles on Business and Human Rights, the Convention on the Establishment of the Multilateral Investment Guarantee Agency, the World Bank Guidelines on the Treatment of Foreign Direct Investment, the UN Global Compact, the OECD Guidelines for Multinational Enterprises and the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, and several WTO-related agreements, including the GATS, the TRIMs Agreement and the Agreement on Government Procurement.
Source: UNCTAD.
II. Core Principles for Investment Policymaking
1. Scope and objectives of the Core Principles
The Core Principles for investment policymaking aim to guide the development of national and international investment policies. To this end, they translate the challenges of investment policymaking into a set of “design criteria” for investment policies. Taking the challenges discussed in the previous chapter as the starting point, they call for integrating investment policy in overall development strategies, enhancing sustainable development as part of investment policies, balancing rights and obligations of States and investors in the context of investment protection and promotion, including CSR into investment policymaking, and encouraging international cooperation on investment-related challenges.
The Core Principles are not a set of rules per se. They are an integral part of the IPFSD, as set out in this report, which attempts to convert them, collectively and individually, into a concrete set of policy guidelines
for national investment policymakers and for negotiators of IIAs (chapters III and IV). As such, they do not always follow the traditional “policy areas” of a national investment policy framework, nor the usual articles of IIAs.
The Core Principles are grouped as follows:• Principle 1 states the overarching objective of
investment policymaking.• Principles 2, 3 and 4 relate to the general process
of policy development and the policymaking environment as relevant for investment policies.
• Principles 5 through 10 address the specifics of investment policymaking.
• Principle 11 refers to cooperation in investment-related matters at the international level.
The design of the Core Principles has been inspired by various sources of international law and politics. Some of these instruments have importance for the entire set of the Core Principles as they relate – to various degrees – to sustainable development. Several other international instruments relate to individual Core Principles (see box 3).
II. Core Principles for Investment Policymaking 11
2. Core Principles for investment policymaking for sustainable development
Area Core Principles
1 Investment for sustainable development
• The overarching objective of investment policymaking is to promote investment for inclusive growth and sustainable development.
2 Policy coherence • Investment policies should be grounded in a country’s overall development strategy. All policies that impact on investment should be coherent and synergetic at both the national and international level.
3 Public governance and institutions
• Investment policies should be developed involving all stakeholders, and embedded in an institutional framework based on the rule of law that adheres to high standards of public governance and ensures predictable, efficient and transparent procedures for investors.
4 Dynamic policymaking • Investment policies should be regularly reviewed for effectiveness and relevance and adapted to changing development dynamics.
5 Balanced rights and obligations
• Investment policies should be balanced in setting out rights and obligations of States and investors in the interest of development for all.
6 Right to regulate • Each country has the sovereign right to establish entry and operational conditions for foreign investment, subject to international commitments, in the interest of the public good and to minimize potential negative effects.
7 Openness to investment • In line with each country’s development strategy, investment policy should establish open, stable and predictable entry conditions for investment.
8 Investment protection and treatment
• Investment policies should provide adequate protection to established investors. The treatment of established investors should be non-discriminatory in nature.
9 Investment promotion and facilitation
• Policies for investment promotion and facilitation should be aligned with sustainable development goals and designed to minimize the risk of harmful competition for investment.
10 Corporate governance and responsibility
• Investment policies should promote and facilitate the adoption of and compliance with best international practices of corporate social responsibility and good corporate governance.
11 International cooperation
• The international community should cooperate to address shared investment-for-development policy challenges, particularly in least developed countries. Collective efforts should also be made to avoid investment protectionism.
3. Annotations to the Core Principles
Principle 1: Investment for sustainable development
This overarching principle defines the overall objective of the Investment Policy Framework for Sustainable Development. It recognizes the need to promote investment not only for economic growth as such, but for growth that benefits all, including
the poorest. It also calls for the mainstreaming of sustainable development issues – i.e. development that meets the needs of the present without compromising the ability of future generations to meet theirs – in investment policymaking, both at the national and international levels.
Principle 2: Policy coherence
This principle recognizes that investment is a means to an end, and that investment policy should thus be
Investment Policy Framework for Sustainable Development12
integrated in an overarching development strategy. It also acknowledges that success in attracting and benefiting from investment depends not only on investment policy “stricto sensu” (i.e. entry and establishment rules, treatment and protection) but on a host of investment-related policy areas ranging from tax to trade to environmental and labour market policies. It recognizes that these policy areas interact with each other and that there is consequently a need for a coherent overall approach to make them conducive to sustainable development and to achieve synergies. The same considerations apply with respect to the interaction between national investment policies and international investment rulemaking. Successful experiences with investment for development often involved the establishment of special agencies with a specific mandate to coordinate the work of different ministries, government units and policy areas, including the negotiation of IIAs.
Principle 3: Public governance and institutions
The concept of good public governance refers to the efficiency and effectiveness of government services, including such aspects as accountability, predictability, clarity, transparency, fairness, rule of law, and the absence of corruption. This principle recognizes the importance of good public governance as a key factor in creating an environment conducive to attracting investment. It also stresses the significance of a participatory approach to policy development as a basic ingredient of investment policies aimed at inclusive growth and fairness for all. The element of transparency is especially important, as in and by itself it tends to facilitate dialogue between public and private sector stakeholders, including companies, organized labour and non-governmental organizations (NGOs).
Principle 4: Dynamic policymaking
This principle recognizes that national and international investment policies need flexibility to adapt to changing circumstances, while recognizing that a favourable investment climate requires stability and predictability. For one, different policies are needed at different development stages. New factors may emerge on the domestic policy scene, including government changes, social pressures or
environmental degradation. International dynamics can have an impact on national investment policies as well, including through regional integration or through international competition for the attraction of specific types of foreign investment. The increasing role of emerging economies as outward investors and their corresponding desire better to protect their companies abroad drives change in investment policies as well.
The dynamics of investment policies also imply a need for countries continuously to assess the effectiveness of existing instruments. If these do not achieve the desired results in terms of economic and social development, or do so at too high a cost, they may need to be revised.
Principle 5: Balanced rights and obligations
Investment policies need to serve two potentially conflicting purposes. On the one hand, they have to create attractive conditions for foreign investors. To this end, investment policies include features of investment liberalization, protection, promotion and facilitation. On the other hand, the overall regulatory framework of the host country has to ensure that any negative social or environmental effects are minimized. More regulation may also be warranted to find appropriate responses to crises (e.g. financial crisis, food crisis, climate change).
Against this background, this core principle suggests that the investment climate and policies of a country should be “balanced” as regards the overall treatment of foreign investors. Where and how to strike this balance is basically an issue for the domestic law of host countries and therefore requires adequate local capacities. International policies vis-à-vis foreign investors likewise play a role and – if not carefully designed – might tilt the balance in favour of those investors. The principle does not mean that each individual investment-related regulation of a host country would have to be balanced.
Principle 6: Right to regulate
The right to regulate is an expression of a country’s sovereignty. Regulation includes both the general legal and administrative framework of host countries as well as sector- or industry-specific rules. It also entails effective implementation of rules, including
II. Core Principles for Investment Policymaking 13
the enforcement of rights. Regulation is not only a State right, but also a necessity. Without an adequate regulatory framework, a country will not be attractive for foreign investors, because such investors seek clarity, stability and predictability of investment conditions in the host country.
The authority to regulate can, under certain circumstances, be ceded to an international body to make rules for groups of states. It can be subject to international obligations that countries undertake; with regard to the treatment of foreign investors this often takes place at the bilateral or regional level. International commitments thus reduce “policy space”. This principle advocates that countries maintain sufficient policy space to regulate for the public good.
Principle 7: Openness to investment
This principle considers a welcoming investment climate, with transparent and predictable entry conditions and procedures, a precondition for attracting foreign investment conducive for sustainable development. The term “openness” is not limited to formal openness as expressed in a country’s investment framework and, possibly, in entry rights granted in IIAs. Equally important is the absence of informal investment barriers, such as burdensome, unclear and non-transparent administrative procedures. At the same time, the principle recognizes that countries have legitimate reasons to limit openness to foreign investment, for instance in the context of their national development strategies or for national security reasons.
In addition, the issue of “openness” reaches beyond the establishment of an investment. Trade openness can be of crucial importance, too; in particular, when the investment significantly depends on imports or exports.
Principle 8: Investment protection
This principle acknowledges that investment protection, although only one among many determinants of foreign investment, can be an important policy tool for the attraction of investment. It therefore closely interacts with the principle on investment promotion and facilitation (Principle 9). It has a national and an international component. Core elements of protection at the
national level include, inter alia, the rule of the law, the principle of freedom of contract and access to courts. Key components of investment protection frequently found in IIAs comprise the principle of non-discrimination (national treatment and most-favoured nation treatment), fair and equitable treatment, protection in case of expropriation, provisions on movement of capital, and effective dispute settlement.
Principle 9: Investment promotion and facilitation
Most countries have set up promotion schemes to attract and facilitate foreign investment. Promotion and facilitation measures often include the granting of fiscal or financial incentives, the establishment of special economic zones or “one-stop shops”. Many countries have also set up special investment promotion agencies (IPAs) to target foreign investors, offer matchmaking services and provide aftercare.
The principle contains two key components. First, it stipulates that in their efforts to improve the investment climate, countries should not compromise sustainable development goals, for instance by lowering regulatory standards on social or environmental issues, or by offering incentives that annul a large part of the economic benefit of the investment for the host country. Second, the principle acknowledges that, as more and more countries seek to boost investment and target specific types of investment, the risk of harmful competition for investment increases; i.e. a race to the regulatory bottom or a race to the top of incentives (with negative social and environmental consequences or escalating commitments of public funds). Investment policies should be designed to minimize this risk. This underlines the importance of international coordination (see Principle 11 below).
Principle 10: Corporate governance and responsibility
This principle recognizes that corporate governance and CSR standards are increasingly shaping investment policy at the national and international levels. This development is reflected in the proliferation of standards, including several intergovernmental organization standards of the United Nations, the ILO, the IFC and the OECD, providing guidance on fundamental CSR issues;5
Investment Policy Framework for Sustainable Development14
dozens of multi-stakeholder initiatives; hundreds of industry association codes; and thousands of individual company codes (WIR11). Most recently, the UN Human Rights Council adopted a resolution endorsing the Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises.
CSR standards are voluntary in nature and so exist as a unique dimension of “soft law”. The principle calls on governments to actively promote CSR standards and to monitor compliance with them. Promotion also includes the option to adopt existing CSR standards as part of regulatory initiatives, turning voluntary standards into mandatory requirements.
Principle 11: International cooperation
This principle considers that investment policies touch upon a number of issues that would benefit from more international cooperation. The principle also advocates that particular efforts should be made to encourage foreign investment in LDCs.
Home countries can support outward investment conducive to sustainable development. For a long time, developed countries have provided investment guarantees against certain political risks in the host country or offered loans to companies investing abroad. The Multilateral Investment Guarantee Agency (MIGA) provides investment insurance at the international level. The principle builds upon examples of countries that have started to condition the granting of investment guarantees on an assessment of social and environmental impacts.
The importance of international cooperation also grows as more and more countries make use of targeted investment promotion policies. Better international coordination is called for to avoid a global race to the bottom in regulatory standards, or a race to the top in incentives, and to avoid a return of protectionist tendencies.
More international coordination, in particular at the regional level, can also help to create synergies so as to realize investment projects that would be too complex and expensive for one country alone. Another policy area that would benefit from more international cooperation is investment in sensitive sectors. For example, recent concerns about possible land grabs and the crowding out of local farmers by foreign investors have resulted in the development by the FAO, UNCTAD, the World Bank and IFAD of Principles for Responsible Investment in Agriculture (PRAI).
* * *
Some Core Principles relate to a specific investment policy area (e.g. openness to investment, investment protection and promotion, corporate governance and social responsibility) and can therefore relatively easily be traced to specific guidelines and options in the national and international parts of the framework. Other Core Principles (e.g. on public governance and institutions, balanced rights and obligations, the right to regulate) are important for investment policymaking as a whole. As a consequence, they are reflected in guidelines dispersed across the entire range of relevant policy issues covered by the framework.
The Core Principles interact with each other. The individual principles and corresponding guidelines therefore must not be applied and interpreted in isolation. In particular, Principle 1 – as the overarching rule within the policy framework – has relevance for all subsequent principles. Integrating investment policies into sustainable development strategies requires a coherent policy framework. Good public governance is needed in its design and implementation. Sustainable development is an ongoing challenge, which underlines the importance of policymaking dynamics. And an IPFSD needs to comprise elements of investment regulation and corporate governance, on the one hand, and openness, protection and promotion, on the other hand, thereby contributing to an investment climate with balanced rights and obligations for investors.
III. National Investment Policy Guidelines 15
III. National Investment Policy Guidelines
This chapter translates the Core Principles for investment policymaking into concrete guidelines at the national level, with a view to addressing the policy challenges discussed in chapter I. To address these policy challenges – ensuring that investment policy is coherent with other policy areas supporting a country’s overall development strategy; enhancing the sustainable development impact of investment and promoting responsible investment; and improving policy effectiveness, while maintaining an attractive investment climate – this chapter, including the detailed policy guidelines it contains, argues for policy action at three levels:
1. At the strategic level, policymakers should ground investment policy in a broad road map for economic growth and sustainable development – such as those set out in formal economic or industrial development strategies in many countries.
2. At the normative level, through the setting of rules and regulations, on investment and in a range of other policy areas, policymakers can promote and regulate investment that is geared towards sustainable development goals.
3. At the administrative level, through appropriate implementation and institutional mechanisms, policymakers can ensure continued relevance and effectiveness of investment policies.
The following sections will look at each of these levels in turn.
1. Grounding investment policy in development strategy
Many countries have elaborated explicit development strategies that set out an action plan to achieve economic and social objectives and to strengthen international competitiveness. These strategies will vary by country, depending on their stage of development, their domestic endowments and individual preferences, and depending on the degree to which the political and economic system allows or requires the participation of the
State in economic planning. Because investment is a key driver of economic growth, a prerequisite for the build-up of productive capacity and an enabler of industrial development and upgrading, investment policy must be an integrated part of such development strategies (see box 4).
Defining the role of public, private, domestic and foreign direct investment
Mobilizing investment for sustainable development remains a major challenge for developing countries, particularly for LDCs. Given the often huge development financing gaps in these countries, foreign investment can provide a necessary complement to domestic investment, and it can be particularly beneficial when it interacts in a synergetic way with domestic public and private investment. Agriculture, infrastructure and climate change-related investments, among others, hold significant potential for mutually beneficial interaction between foreign and domestic, and public and private investment. For example, public-private partnerships (PPPs) have become important avenues for infrastructure development in developing countries, although experience has shown that high-quality regulatory and institutional settings are critical to ensure the development benefits of such infrastructure PPPs (WIR08).
Given the specific development contributions that can be expected from investment – private and public, domestic and foreign – policymakers should consider carefully what role each type can play in the context of their development strategies. In particular the opportunities and needs for foreign investment – intended as direct investment in productive assets (i.e. excluding portfolio investment) – differ from country to country, as does the willingness to open sectors and industries to foreign investors. Examples include the improvement of infrastructure, investment in skills and education, investments to secure food supply, or investments in other specific industries that are of crucial importance for a country.
Even looking at the role of foreign investment per se policymakers should be aware of different types, each with distinct development impacts.
Investment Policy Framework for Sustainable Development16
Box 4. Integrating Investment Policy in Development Strategy:UNCTAD’s Investment Policy Reviews
UNCTAD’s Investment Policy Review (IPR) program was launched in 1999 in response to growing demand from member States for advice on FDI policy. The IPRs aim to provide an independent and objective evaluation of the policy, regulatory and institutional environment for FDI and to propose customized recommendations to governments to attract and benefit from increased flows of FDI. To date IPRs have been undertaken for 34 countries, including 17 developing countries, 4 transition economies and 13 LDCs, of which 5 in post-conflict situations (box table 1).
Box table 1. Beneficiaries of the UNCTAD IPR program, 1999 – 2011
Categories Countries
Developing countries Algeria, Botswana, Colombia, Dominican Republic, Ecuador, Egypt, El Salvador, Ghana, Guatemala, Kenya, Mauritius, Morocco, Mongolia, Nigeria, Peru, Sri Lanka, Viet Nam
Transition economies Belarus, The FYR of Macedonia, Republic of Moldova, Uzbekistan
Least Developed Countries
Benin, Burkina Faso, Burundi, Ethiopia, Lesotho, Mauritania, Mozambique, Nepal, Rwanda, Sierra Leone, United Republic of Tanzania, Uganda, Zambia
UNCTAD coordinates its IPR activities with the work of other development partners (including other UN agencies such as the UNDP and UNIDO, the OECD, the World Bank, national and regional development banks, local development institutions and NGOs) in order to create synergies.
IPRs are carried out through a structured process, starting with (i) a formal request from the national government to UNCTAD expressing commitment to policy reforms; (ii) preparation of the IPR advisory report and its presentation at a national workshop where government and national stakeholders review findings; (iii) intergovernmental peer review and sharing of best practices in investment policy in Geneva; (iv) implementation and follow-up technical assistance and capacity building; and (v) preparation of an implementation assessment and additional follow-up actions.
Substantively, key areas of recommendations common to nearly all IPRs conducted to date include: (i) Defining the strategic role of investment (and in particular FDI) in countries’ development strategies; (ii) Reforming investment laws and regulations; (iii) Designing policies and measures for attracting and benefitting from FDI; and (iv) Addressing institutional issues related to FDI promotion and facilitation.
A number of case-specific areas for recommendations or themes have included privatizations, the promotion of investment in target industries, promotion and facilitation of infrastructure investment, private sector development initiatives and business linkages, skill building and technology transfer, and regional cooperation initiatives.
Recently, the IPR approach has been strengthened further with the inclusion of sections on specific priority industries, containing a quantitative assessment of the potential for investment in those industries and the potential development impact of investment through such indicators as value added, employment generation, and export generation, with a view to helping governments attract and negotiate higher value added types of investment.
Source: UNCTAD; www.unctad.org/diae/ipr.
Greenfield investment has different impacts than investment driven by mergers and acquisitions (M&As). The former will generally imply a greater immediate contribution to productive capacity and job creation; the latter may bring benefits such as technology upgrading or access to international markets (or survival in case of troubled acquisition targets), but may also have negative effects (e.g. on employment in case of restructurings). Similarly, efficiency-seeking investments will have different development impacts than market-seeking
investments, both with potential positive and negative contributions. And foreign investment also comes in different financial guises: FDI does not always imply an influx of physical capital (e.g. reinvested earnings), nor does it always translate into actual capital expenditures for the build-up of productive assets (e.g. retained earnings) and can sometimes behave in a manner not dissimilar to portfolio investment.
Furthermore, the role of foreign investors and multinational firms in an economy is not limited
III. National Investment Policy Guidelines 17
to FDI. They can also contribute to economic development through non-equity modes of international production (NEMs), such as contract manufacturing, services outsourcing, licensing, franchising or contract farming. Because this form of involvement is based on a contractual relation between the foreign company and domestic business partners, it requires that the host country has sufficiently qualified local entrepreneurs, which calls for coordinated policies on investment, enterprise development and human resource development (WIR11).
A key aspect in defining the role of investment in economic growth and development strategies is the need for calibrated policies to stimulate job creation and to maximize the job content of investment, both quantitatively and qualitatively. This has become especially urgent in light of the cumulative employment losses during the global financial crisis, and the relatively low job content of economic growth since, leading to a global employment deficit estimated at over 200 million workers.6
Harnessing investment for productive capacity building and enhancing international competitiveness
The potential contribution of foreign investment to building or reinforcing local productive capacities should guide investment policy and targeting efforts. This is particularly important where investment is intended to play a central role in industrial upgrading and structural transformation in developing economies. The most crucial aspects of productive capacity building include human resources and skills development, technology and know-how, infrastructure development, and enterprise development.
Human resources and skills. Human resources development is a crucial determinant of a country’s long-term economic prospects. In addition, the availability of skilled, trainable and productive labour at competitive costs is a major magnet for efficiency-seeking foreign investors. As such, education and human resource development policy should be considered a key complement to investment policy. Particular care should be given to matching skills needs and skills development, including in terms of
vocational and technical training. Vocational training that prepares trainees for jobs involving manual or practical activities related to a specific trade or occupation is a key policy tool, for instance, to enhance the capacity of local suppliers.
As economies develop, skills needs and job opportunities evolve, making a constant adaptation and upgrading of education and human development policies a necessity. The latter are essential not just to provide the necessary skills to investors, but more crucially to ensure that the population can gain access to decent work opportunities.
FDI – as well as NEMs – are particularly sensitive to the availability of local skills, which can frequently be a “make or break” factor in investment location decisions. Where local skills are partially lacking, foreign and national investors may wish to rely on expatriate workers to fill the gaps. Although particular care should be paid to promoting employment by nationals and to protecting national security, countries have a lot to gain from enabling investors to tap foreign skills readily and easily where needed. Well-crafted immigration and labour policies have had demonstrated benefits in countries that have allowed foreign skills to complement and fertilize those created locally. Knowledge spillovers also occur through international employees. An adequate degree of openness in granting work permits to skilled foreign workers is therefore important not only to facilitate investments that may otherwise not materialize for lack of skills, but also to support and complement the national human resource development policy through education.
Technology and know-how. An important policy task is to encourage the dissemination of technology. For example, governments can promote technology clusters that promote R&D in a particular industry and that can help upgrading industrial activities by bringing together technology firms, suppliers and research institutes. Disseminating and facilitating the acquisition of technology can also improve the involvement of domestic producers in GVCs (e.g. call centers, business processing operations or contract farming).
Appropriate protection of intellectual property rights is an important policy tool because it is often a
Investment Policy Framework for Sustainable Development18
precondition for international investors to disclose technology to licensees in developing countries, especially in areas involving easily imitable technologies (e.g. software, pharmaceuticals), and hence can affect chances of attracting equity investments (e.g. joint ventures) or non-equity modes of involvement (e.g. licensing). At the same time the level of protection should be commensurate with the level of a country’s development and conducive to the development of its technological capacities. It can be a means of encouraging independent research activities by local companies, because businesses are more likely to invest resources in R&D and technological upgrading if their innovations are protected.
Infrastructure. The development of domestic infrastructure may necessitate investments of such magnitude that it is impossible for domestic companies to undertake them alone. Infrastructure development may also require certain technological skills and know-how, which domestic firms do not have (e.g. telecommunication, energy, exploration of natural resources in remote areas). Likewise, the move to a low-carbon economy will often necessitate bringing in the technological capacities of foreign investors.
Most developing countries, especially LDCs, continue to suffer from vast deficiencies in infrastructure, in particular electricity, water and transport, and to a lesser extent telecommunications. Following technological progress and changes in regulatory attitudes, many countries have succeeded in introducing private (foreign) investment and competition in what used to be public sector monopolies, e.g. mobile telecommunications or power generation.
Given the potential contribution of FDI to build high-quality infrastructure, countries should consider the extent to which certain sectors or sub-sectors could be opened to (foreign) private investment, and under what conditions – balancing considerations of public service provision, affordability and accessibility. National security-related concerns with regard to the liberalization of critical infrastructure can be taken care of by screening procedures. A clear vision of what is doable and desirable socially, technically and from a business perspective is
essential given the dependence of economic growth on infrastructure development.
All too many developing countries have attempted to privatize infrastructure or public services only to fail or achieve less than optimal outcomes.7
Governments need to develop not only a clear assessment of what can be achieved and at what costs, but also a comprehensive understanding of the complex technicalities involved in infrastructure investments and their long-term implications in terms of cost, quality, availability and affordability of services. A sound legal framework to guide concessions, management contracts and all forms of public-private partnerships is a key piece in the infrastructure development and investment strategies (WIR08).
Enterprise development. Domestic enterprise development is a key transfer mechanism for the development benefits of investment to materialize. At the same time, especially for foreign investors, the presence of viable local enterprise is a crucial determinant for further investment and for partnerships in NEMs. A comprehensive discussion of policy options to foster domestic entrepreneurial development – including in areas such as the regulatory environment, access to finance, education and training, and technological development – can be found in UNCTAD’s Entrepreneurship Policy Framework (box 5).
Enterprise development policies aimed at enhancing the benefits from investment focus on building capacity to absorb and adapt technology and know-how, to cooperate with multinational firms, and to compete internationally.
Another important policy task is the promotion of linkages and spillover effects between foreign investment and domestic enterprises (WIR01). Policy coordination is needed to ensure that investment promotion is targeted to those industries that could have the biggest impact in terms of creating backward and forward linkages and contribute not just to direct, but also to indirect employment creation. At the same time, policymakers in developing countries need to address the risk of foreign investment impeding domestic enterprise development by crowding out local firms, especially SMEs. Industrial policies may
III. National Investment Policy Guidelines 19
Box 5. UNCTAD’s Entrepreneurship Policy Framework
Entrepreneurship is vital for economic growth and development. The creation of new business entities generates value added, fiscal revenues, employment and innovation, and is an essential ingredient for the development of a vibrant small- and medium-sized business sector. It has the potential to contribute to specific sustainable development objectives, such as the employment of women, young people or disadvantaged groups. Entrepreneurship development can also contribute to structural transformation and building new industries, including the development of eco-friendly economic activities.
UNCTAD’s Entrepreneurship Policy Framework (EPF) aims to support developing-country policymakers in the design of initiatives, measures and institutions to promote entrepreneurship. It sets out a structured framework of relevant policy areas, embedded in an overall entrepreneurship strategy, which helps guide policymakers through the process of creating an environment that facilitates the emergence of start-ups, as well as the growth and expansion of new enterprises.
The EPF recognizes that in designing entrepreneurship policy “one size does not fit all”. Although the national economic and social context and the specific development challenges faced by a country will largely determine the overall approach to entrepreneurship development, UNCTAD has identified six priority areas that have a direct impact on entrepreneurial activity (box figure 1). In each area the EPF suggests policy options and recommended actions.
Box figure 1. Key components of UNCTAD’s Entrepreneurship Policy Framework
The EPF further proposes checklists and numerous references in the form of good practices and case studies. The case studies are intended to equip policy makers with implementable options to create the most conducive and supportive environment for entrepreneurs. The EPF includes a user guide, a step-by-step approach to developing entrepreneurship policy, and contains a set of indicators that can measure progress. An on-line inventory of good practices in entrepreneurship development, available on UNCTAD’s web-site, completes the EPF. This online inventory will provide an opportunity for all stakeholders to contribute cases, examples, comments and suggestions, as a basis for the inclusive development of future entrepreneurship policies.
Source: UNCTAD; www.unctad.org/diae/epf.
1
2 3 4 5 6
Formulating national entrepreneurship strategy
Optimizing the regulatory
environment
Enhancing entrepreneurship
education and skills
Facilitating technology
exchange and innovation
Improving access to finance
Promoting awareness and
networking
play a role in protecting infant industries or other sensitive industries with respect to which host countries see a need to limit foreign access.
In the long run, enterprise development is essential for host countries to improve international competitiveness. Promotion efforts should therefore not be limited to low value-added activities within international value chains, but gradually seek to move to higher-value added segments. This is
crucial for remaining competitive once developing countries lose their low labour cost advantage. However, switching from labour-intensive low-value activities to more capital-intensive higher value production methods may raise unemployment in the transition phase and thus calls for vigilant labour market and social policies. This confirms the important dynamic dimension of investment and enterprise development strategies, calling for regular reviews and adaptation of policy instruments.
Investment Policy Framework for Sustainable Development20
Ensuring coherence between investment policies and other policy areas geared towards overall development objectives
The interaction between investment policy and other elements of a country’s overall economic development and growth strategy – including human resource development, infrastructure, technology, enterprise development, and others – is complex. It is critical that government authorities work coherently towards the common national objective of sustainable development and inclusive growth, and seek to create synergies. This requires coordination at the earliest stages of policy design, as well as the involvement of relevant stakeholders, including the investor community and civil society.
2. Designing policies for responsible investment and sustainable development
From a development perspective, FDI is more than a flow of capital that can stimulate economic growth. It comprises a package of assets that includes long-term capital, technology, market access, skills and know-how (WIR99). As such, it can contribute to sustainable development by providing financial resources where such resources are often scarce; generating employment (WIR94); strengthening export capacities (WIR02); transferring skills and disseminating technology; adding to GDP through investment and value added, both directly and indirectly; and generating fiscal revenues. In addition, FDI can support industrial diversification and upgrading, or the upgrading of agricultural productivity (WIR09) and the build up of productive capacity, including infrastructure (WIR08). Importantly, it can contribute to local enterprise development through linkages with suppliers (WIR01) and by providing access to GVCs (WIR11) – the growing importance of GVCs can have an important pro-poor dynamic to the extent that marginalized communities and small suppliers can integrate into global or regional value chains as producers, suppliers or providers of goods and services.
These positive development impacts of FDI do not always materialize automatically. And the effect of FDI can also be negative in each of the impact areas listed above. For example, it can lead
to outflows of financial resources in the form of repatriated earnings or fees; it can, under certain circumstances, crowd out domestic investment and domestic enterprise (WIR97); it can at times reduce employment by introducing more efficient work practices or through restructurings (WIR94, WIR00), or jobs created may be unstable due to the footloose nature of some investment types; it can increase imports more than exports (or yield limited net export gains), e.g. in case of investment operations requiring intermediate inputs or for market-seeking investments (WIR02, WIR11); technology dissemination might not take place, or only at high cost (e.g. through licensing fees) (WIR11), and local technological development may be slowed down; skills transfers may be limited by the nature of jobs created; fiscal gains may be limited by tax avoidance schemes available to international investors, including transfer pricing; and so forth.
The balance of potential positive and negative development contributions of FDI is proof that investment policy matters in order to maximize the positive and minimize the negative impacts. Reaping the development benefits from investment requires not only an enabling policy framework that combines elements of investment promotion and regulation and that provides clear, unequivocal and transparent rules for the entry and operation of foreign investors (see box 6), it also requires adequate regulation to minimize any risks associated with investment.
The host of different impact types listed above indicates that such regulations need to cover a broad range of policy areas beyond investment policies per se, such as trade, taxation, intellectual property, competition, labour market regulation, environmental policies and access to land. The coverage of such a multitude of different policy areas confirms the need for consistency and coherence in policymaking across government.
Fostering sustainable development and inclusive growth through investment requires a balance of promotion and regulation. On the promotion side, attracting low-carbon investment, for example, may imply the need to set up new policy frameworks for a nascent renewable energy sector, which may also require government assistance in the start-up
III. National Investment Policy Guidelines 21
Box 6. Designing Sound Investment Rules and Procedures:UNCTAD’s Investment Facilitation Compact
UNCTAD’s Investment Facilitation Compact combines a number of programs aimed at assisting developing countries in strengthening their policy and institutional framework for attracting and retaining foreign investment, and in developing a regulatory climate in which investors can thrive.
The UNCTAD-ICC Investment Guides aim to provide accurate and up-to-date information on regulatory conditions in participating countries (as well as on the investment climate and emerging investment opportunities). They are prepared in collaboration with governments, national chambers of commerce and investors and are distributed by investment promotion agencies, foreign missions and other government departments, as well as by the International Chamber of Commerce.
The guides aim to provide a reliable source of third-party information for investors looking to invest in countries that are rarely covered by commercial publishers. They highlight often under-reported economic and investment policy reform efforts, including fiscal incentives, regional integration, easier access to land, establishment of alternative dispute settlement mechanisms, simplified border procedures, facilitation of permits and licenses and laws enabling private investment in power generation and infrastructure. Because the guides are produced through a collaborative process they also build capacities of governments to promote investment opportunities and understand investors’ needs.
UNCTAD’s Business Facilitation program aims to help developing countries build a regulatory and institutional environment that facilitates investment and business start-ups. It works through a methodology that first provides full transparency on existing rules and procedures for investors; it does so by offering online detailed, practical and up-to-date descriptions of the steps investors have to follow for procedures such as business or investment registration, license and permit issuance, payment of taxes, or obtaining work permits. Once full transparency has been created, the program helps governments simplify procedures by identifying unnecessary steps or developing alternatives.
The program promotes good governance by increasing the awareness of administrative rules and procedures, establishing the conditions for a balanced dialogue between the users of the public services, including investors, and civil servants. It also sets a basis for regional or international harmonization of rules by facilitating the exchange of good practices among countries.
Individual programs within the Investment Facilitation Compact have to date been undertaken in more than 35 countries and regions, with a strong focus on LDCs (box table 1).
Box table 1. Beneficiaries of selected programs of UNCTAD’s Investment Facilitation Compact
Categories Countries/regions
Investment Guides Bangladesh, Benin, Bhutan, Burkina Faso, Cambodia, Comoros, East African Community, Ethiopia, Kenya, Lao PDR, Mali, Morocco, Oriental Region of Morocco, Mauritania, Mozambique, Nepal, Rwanda, Tanzania, Silk Road Region, Uganda, Uzbekistan, Zambia
Business Facilitation Benin, Burkina Faso, Cape Verde, Cameroon, Colombia, Comoros, Costa Rica, El Salvador, Guatemala, Mali, Nicaragua, Togo, Russian Federation (City of Moscow), Rwanda, Viet Nam
Source: UNCTAD; www.unctad.org; www.theiguides.org; www.eregulations.org.
phase, be it through tax incentives or measures aimed at creating a market (WIR10). Encouraging investment in sectors that are crucial for the poor may imply building sound regulatory frameworks and facilitation of responsible investment in agriculture (including contract farming), as agriculture continues to be the main source of income in many developing countries (WIR09).
At the same time, on the regulatory side, sustainability considerations should be a key consideration when deciding on the granting of investment incentives. The short-term advantages of an investment need to be weighed against the potential long-term environmental effects. And the sensitive issue of access to land requires careful balancing of the rights and obligation of agricultural investors. For many developing countries, it is a
Investment Policy Framework for Sustainable Development22
key challenge to strengthen such environmental and social protection while maintaining an attractive investment climate.
Sustainability issues should also be a main consideration in investment contracts between the host country and individual investors. Such contracts can be a means to commit investors to environmental or social standards beyond the level established by the host country’s general legislation, taking into account international standards and best practices.
While laws and regulations are the basis of investor responsibility, voluntary CSR initiatives and standards have proliferated in recent years, and they are increasingly influencing corporate practices, behaviour and investment decisions. Governments can build on them to complement the regulatory framework and maximize the development benefits of investment (WIR11).
Because CSR initiatives and voluntary standards are a relatively new area that is developing quickly and in many directions, the management of their policy implications is a challenge for many developing countries. In particular, the potential interactions between soft law and hard law can be complex, and the value of standards difficult to extract for lack of monitoring capacity and limited comparability. A number of areas can benefit from the encouragement of CSR initiatives and the voluntary dissemination of standards; for example, they can be used to promote responsible investment and business behaviour (including the avoidance of corrupt business practices), and they can play an important role in promoting low-carbon and environmentally sound investment. Care needs to be taken to avoid these standards becoming undue barriers to trade and investment flows.
3. Implementation and institutional mechanisms for policy effectiveness
Investment policy and regulations must be adequately enforced by impartial, competent and efficient public institutions, which is as important for policy effectiveness as policy design itself. Policies to address implementation issues should be an integral part of the investment strategy and should strive to achieve both integrity across government
and regulatory institutions and a service orientation where warranted. As a widely accepted best-practice principle, regulatory agencies should be free of political pressure and have significant independence, subject to clear reporting guidelines and accountability to elected officials or representatives. These principles are particularly relevant for investors in institutions including courts and judiciary systems; sectoral regulators (e.g. electricity, transport, telecommunications, banking); customs; tax administration or revenue authority; investment promotion agency; and licensing bodies.
As stated in the fourth Core Principle, managing investment policy dynamically is of fundamental importance to ensure the continued relevance and effectiveness of policy measures. Revisions in investment policy may be driven by changes in strategy – itself caused by adaptations in the overall development strategy – or by external factors and changing circumstances. Countries require different investment policies at different stages of development, policies may need to take into account those in neighbouring countries, and be cognizant of trade patterns or evolving relative shares of sectors and industry in the economy. Policy design and implementation is a continuous process of fine-tuning and adaptation to changing needs and circumstances.
Beyond such adaptations, investment policy may also need adjustment where individual measures, entire policy areas, or the overall investment policy regime is deemed not to achieve the intended objectives, or to do so at a cost higher than intended. Understanding when this is the case, understanding it in time for corrective action to be taken, and understanding the reasons for the failure of measures to have the desired effect, is the essence of measuring policy effectiveness.
A significant body of academic literature exists on methodologies for evaluating policy effectiveness. Specifically in the area of investment policy, there are three objective difficulties associated with the measurement of policy effectiveness:
• It is often difficult to assess the effectiveness of discrete investment policy measures, such as the provision of incentives, let alone the effectiveness of the overall investment policy
III. National Investment Policy Guidelines 23
framework. Many exogenous factors and investment determinants beyond policy drive the investment attraction performance of a country – e.g. market size and growth, the presence of natural resources, the quality of basic infrastructure, labour productivity, and many others (see UNCTAD’s Investment Potential Index).
• Investment policy effectiveness measures should also provide an indication of the extent to which policies help realize the benefits from investment and maximize its development impact. However, it is often difficult to find solid evidence for the discrete impact on various dimensions of investment, let alone for the impact of the policies that led to that investment or that guide the behaviour of investors.
• Much of the impact of investment policies and thus their effectiveness depends on the way such policies are applied, and on the capabilities of institutions charged with the implementation and enforcement of policies and measures, rules and regulations.
Given these objective difficulties in measuring the effectiveness of investment policies, and to ensure that potentially important policy changes are not delayed by complex analyses of the impact of individual measures, policymakers may be guided by a few simplifying rules in evaluating the effectiveness of their policies:
• Investment policy should be based on a set of explicitly formulated policy objectives with clear priorities, a time frame for achieving them, and the principal measures intended to support the objectives. These objectives should be the principal yardstick for measuring policy effectiveness.
• The detailed quantitative (and therefore complex) measurement of the effectiveness of individual policy measures should focus principally on those measures that are most costly to implement, such as investment incentives.
• Assessment of progress in policy implementation and verification of the application of rules and regulations at all
administrative levels is at least as important as the measurement of policy effectiveness. A review process should be put in place to ensure that policies are correctly implemented as a part of the assessment of policy effectiveness.
Goals and objectives for investment policy, as set out in a formal investment strategy in many countries, should be SMART:8
• Specific: they should break down objectives for investment attraction and impact for priority industries or activities as identified in the development strategy.
• Measurable: investment goals and objectives should identify a focused set of quantifiable indicators.
• Attainable: as part of investment policy development, policymakers should compare investment attraction and investment impact with peer countries to inform realistic target setting.
• Relevant: objectives (and relevant indicators) should relate to impacts that can be ascribed to investment (and by implication investment policy), to the greatest extent possible filtered for ‘general development strategy’ impacts.
• Time-bound: objectives should fall within a variety of time frames. Even though broad development and investment-related objectives are of a long-term nature (e.g. 10-20 years), intermediate and specific objectives should refer to managerially and politically relevant time frames, e.g. 3-4 years. In addition, short-term benchmarks should be set within shorter time periods (a few quarters or a year) to ensure effective progress and implementation.
Objectives of investment policy should ideally include a number of quantifiable goals for both the attraction of investment and the impact of investment. To measure policy effectiveness for the attraction of investment, UNCTAD’s Investment Potential and Performance Matrix can be a useful tool. This matrix compares countries with their peers, plotting investment inflows against potential based on a standardized set of economic determinants, thereby providing a proxy for the effect of policy determinants.
Investment Policy Framework for Sustainable Development24
Table 3. Possible indicators for the definition of investment impact objectives and the measurement of policy effectiveness
Area Indicators Details and examples
Economic Value Added
1. Total value added • Gross output (GDP contribution) of the new/additional economic activity resulting from the investment (direct and induced)
2. Value of capital formation • Contribution to GFCF
3. Total and net export generation • Total export generation; net export generation (net of imports) is also captured by the value added indicator
4. Number of formal business entities • Number of businesses in the value chain supported by the investment; this is a proxy for entrepreneurial development and expansion of the formal (tax-paying) economy
5. Total fiscal revenues • Total fiscal take from the economic activity resulting from the investment, through all forms of taxation
Job creation 6. Employment (number) • Total number of jobs generated by the investment, both direct and induced (value chain view), dependent and self-employed
7. Wages • Total household income generated, direct and induced
8. Typologies of employee skill levels • Number of jobs generated, by ILO job-type, as a proxy for job quality and technology-levels (including technology transfer)
Sustainable development
9. Labour impact indicators • Employment of women (and comparable pay) and of disadvantaged groups• Skills upgrading, training provided • Health and safety effects, occupational injuries
10. Social impact indicators • Number of families lifted out of poverty, wages above subsistence level • Expansion of goods and services offered, access to and affordability of basic goods and
services
11. Environmental impact indicators • GHG emissions, carbon off-set/credits, carbon credit revenues• Energy and water consumption/efficiency hazardous materials• Enterprise development in eco-sectors
12. Development impact indicators • Development of local resources• Technology transfer
Source: “Indicators for measuring and maximizing economic value added and job creation arising from private sector investment in value chains”, Report to the G20 Cannes Summit, November 2011; produced by an inter-agency working group coordinated by UNCTAD. UNCTAD has included this methodology in its technical assistance work on investment policy, see box 4.
Similarly, for the measurement of policy effectiveness in terms of impact, UNCTAD’s Investment Contribution Index may be a starting point. Also important is the choice of impact indicators. Policymakers should use a focused set of key indicators that are the most direct expression of the core development contributions of private investments, including direct contributions to GDP growth through additional value added, capital formation and export generation; entrepreneurial development and development of the formal sector and tax base; and job creation. The indicators could also address labour, social, environmental and development sustainability aspects.
The impact indicator methodology developed for the G-20 Development Working Group by UNCTAD, in collaboration with other agencies, may provide guidance to policymakers on the choice of indicators of investment impact and, by extension, of investment policy effectiveness (see table 3). The indicator framework, which has been tested in a number of developing countries, is meant to serve as a tool that countries can adapt and adopt in accordance with their national economic development priorities and strategies. At early stages of development, pure GDP contribution and job creation impacts may be more relevant; at more advanced stages, quality of employment and technology contributions may gain relevance.
III. National Investment Policy Guidelines 25
Table 4. Structure of the National Investment Policy Guidelines
Investment and sustainable development strategy
• Integrating investment policy in sustainable development strategy• Maximizing the contribution of investment to productive capacity building and international
competitiveness
Investment regulation and promotion
• Designing investment-specific policies regarding:– Establishment and operations– Treatment and protection of investments– Investor responsibilities– Investment promotion and facilitation
Investment-related policy areas
• Ensuring coherence with other policy areas, including: trade, taxation, intellectual property, competition, labour market regulation, access to land, corporate responsibility and governance, environmental protection, and infrastructure and public-private partnerships
Investment policy effectiveness
• Building effective public institutions to implement investment policy• Measuring investment policy effectiveness and feeding back lessons learned into new rounds
of policymaking
4. The IPFSD’s national policy guidelines
The national investment policy guidelines are organized in four sections, starting from the strategic level, which aims to ensure integration of investment policy in overall development strategy, moving to investment policy ‘stricto sensu’, to investment-related policy areas such as trade, taxation, labour and environmental regulations, and intellectual property policies, to conclude with a section on investment policy effectiveness (table 4).
While the national guidelines in the IPFSD are meant to establish a generally applicable setting for investment-related policymaking, it cannot provide a “one-size-fits-all” solution for all economies. Countries have different development strategies and any policy guide must acknowledge these
divergences. Governments may have different perceptions about which industries to promote and in what manner, and what role foreign investors should play in this context. Social, cultural, geographical and historical differences play a role as well. Furthermore, the investment climate of each country has its individual strengths and weaknesses; therefore, policies aimed at building upon existing strengths and reducing perceived deficiencies will differ. Thus investment policies need to be fine-tuned based on specific economic contexts, sectoral investment priorities and development issues faced by individual countries. The IPFSD’s national investment policy guidelines establish a basic framework. Other tools are available to complement the basic framework with customized best practice advice (box 7).
Investment Policy Framework for Sustainable Development26
Box 7. Investment Policy advice to “adapt and adopt”: UNCTAD’s Series on Best Practices in Investment for Development
As with UNCTAD’s IPR approach (see box 4), in which each IPR is custom-designed for relevance in the specific context of individual countries, the UNCTAD work program on Best Practices in Investment for Development acknowledges that one size does not fit all.
The program consists of a series of studies on investment policies tailored to:
– specific sectors of the economy (e.g. infrastructure, natural resources,…);
– specific development situations (e.g. small economies, post-conflict economies,…);
– specific development issues (e.g. capacity building, linkages,…).
The program aims to build an inventory of best policy practices in order to provide a reference framework for policy makers in developing countries through concrete examples that can be adapted to their national context. Each study therefore looks at one or two specific country case studies from which lessons can be drawn on good investment policy practices related to the theme of the study. The following studies are currently available:
– How to Utilize FDI to Improve Transport Infrastructure: Roads – Lessons from Australia and Peru;
– How to Utilize FDI to Improve Transport Infrastructure: Ports – Lessons from Nigeria;
– How to Utilize FDI to Improve Infrastructure: Electricity – Lessons from Chile and New Zealand;
– How to Attract and Benefit from FDI in Mining – Lessons from Canada and Chile;
– How to Attract and Benefit from FDI in Small Countries – Lessons from Estonia and Jamaica;
– How Post-Conflict Countries can Attract and Benefit from FDI – Lessons from Croatia and Mozambique;
– How to Integrate FDI and Skill Development – Lessons from Canada and Singapore;
– How to Create and Benefit from FDI-SME Linkages – Lessons from Malaysia and Singapore;
– How to Prevent and Manage Investor-State Disputes – Lessons from Peru.
Source: UNCTAD; www.unctad.org.
III. National Investment Policy Guidelines 27U
NC
TAD
Inve
stm
ent
Pol
icy
Fram
ewor
k fo
r Sus
tain
able
Dev
elop
men
t
Nat
iona
l in
vest
men
t po
licy
guid
elin
es
Sec
tio
nsS
ub-s
ecti
ons
Po
licy
Gui
del
ines
1In
vest
men
t an
d
sust
aina
ble
d
evel
op
men
t st
rate
gy
1.1
Str
ateg
ic
inve
stm
ent
po
licy
pri
ori
ties
1.1.
1In
vest
men
t po
licy
shou
ld b
e ge
ared
tow
ards
the
rea
lizat
ion
of n
atio
nal
sust
aina
ble
deve
lopm
ent
goal
s an
d gr
ound
ed i
n a
coun
try’
s ov
eral
l dev
elop
men
t str
ateg
y. It
sho
uld
set o
ut s
trat
egic
prio
ritie
s, in
clud
ing:
- In
vest
men
t in
spec
ific
econ
omic
act
iviti
es, e
.g. a
s an
inte
gral
par
t of a
n in
dust
rial d
evel
opm
ent s
trat
egy.
- A
reas
for
mut
ual r
einf
orce
men
t of p
ublic
and
priv
ate
inve
stm
ent (
incl
udin
g a
fram
ewor
k fo
r pu
blic
-priv
ate
part
ners
hips
).-
Inve
stm
ent t
hat m
akes
a s
igni
fican
t dev
elop
men
t con
trib
utio
n by
cre
atin
g de
cent
wor
k op
port
uniti
es, e
nhan
cing
sus
tain
abilit
y,
and/
or b
y ex
pand
ing
and
qual
itativ
ely
impr
ovin
g pr
oduc
tive
capa
city
(see
1.2
) and
inte
rnat
iona
l com
petit
iven
ess.
Inve
stm
ent
polic
y pr
iorit
ies
shou
ld b
e ba
sed
on a
thor
ough
ana
lysi
s of
the
coun
try’
s co
mpa
rativ
e ad
vant
ages
and
dev
elop
men
t cha
lleng
es
and
oppo
rtun
ities
, and
sho
uld
addr
ess
key
bott
lene
cks
for
attr
actin
g FD
I. 1.
1.2
Str
ateg
ic in
vest
men
t pol
icy
prio
ritie
s m
ay b
e ef
fect
ivel
y fo
rmal
ized
in a
pub
lishe
d do
cum
ent (
e.g.
inv
estm
ent s
trat
egy)
, mak
ing
expl
icit
the
inte
nded
role
of p
rivat
e an
d fo
reig
n in
vest
men
t in
the
coun
try’
s su
stai
nabl
e de
velo
pmen
t str
ateg
y an
d de
velo
pmen
t pr
iorit
ies,
and
pro
vidi
ng a
cle
ar s
igna
l to
both
inve
stor
s an
d st
akeh
olde
rs in
volv
ed in
inve
stm
ent p
olic
ymak
ing.
1.2
Inve
stm
ent
po
licy
cohe
renc
e fo
r p
rod
ucti
ve c
apac
ity
bui
ldin
gH
uman
reso
urce
de
velo
pmen
t1.
2.1
The
pote
ntia
l for
job
crea
tion
and
skills
tra
nsfe
r sh
ould
be
one
of t
he c
riter
ia f
or d
eter
min
ing
inve
stm
ent
prio
ritie
s. T
akin
g in
to
acco
unt
the
mut
ually
rei
nfor
cing
link
bet
wee
n hu
man
res
ourc
e de
velo
pmen
t (H
RD
) and
inve
stm
ent,
inve
stm
ent
polic
y sh
ould
in
form
HR
D p
olic
y to
prio
ritiz
e sk
ill bu
ildin
g in
are
as c
ruci
al fo
r dev
elop
men
t prio
ritie
s, w
heth
er te
chni
cal,
voca
tiona
l, m
anag
eria
l or
ent
repr
eneu
rial s
kills
.Te
chno
logy
and
kn
ow-h
ow1.
2.2
The
pote
ntia
l for
the
tra
nsfe
r of
app
ropr
iate
tec
hnol
ogie
s an
d th
e di
ssem
inat
ion
of k
now
-how
sho
uld
be o
ne o
f the
crit
eria
for
dete
rmin
ing
inve
stm
ent p
riorit
ies,
and
sho
uld
be p
rom
oted
thro
ugh
adeq
uate
inve
stm
ent-
rela
ted
polic
ies,
incl
udin
g ta
xatio
n an
d in
telle
ctua
l pro
pert
y.In
frast
ruct
ure
1.2.
3Th
e po
tent
ial f
or in
frast
ruct
ure
deve
lopm
ent
thro
ugh
FDI,
in p
artic
ular
und
er P
PP
s, s
houl
d be
an
inte
gral
par
t of
inve
stm
ent
polic
y. I
nfra
stru
ctur
e de
velo
pmen
t pol
icie
s sh
ould
giv
e du
e co
nsid
erat
ion
to b
asic
infra
stru
ctur
e ar
eas
cruc
ial f
or th
e bu
ildin
g of
pr
oduc
tive
capa
citie
s, in
clud
ing
utilit
ies,
road
s, s
ea-
and
airp
orts
or
indu
stria
l par
ks, i
n lin
e w
ith in
vest
men
t prio
ritie
s.1.
2.4
A s
peci
fic re
gula
tory
fram
ewor
k fo
r PP
Ps
shou
ld b
e in
pla
ce to
ens
ure
that
inve
stor
-Sta
te p
artn
ersh
ips
serv
e th
e pu
blic
inte
rest
(s
ee a
lso
sect
ion
3.9
belo
w).
Ent
erpr
ise
deve
lopm
ent
1.2.
5Th
e po
tent
ial f
or F
DI t
o ge
nera
te b
usin
ess
linka
ges
and
to s
timul
ate
loca
l ent
erpr
ise
deve
lopm
ent
shou
ld b
e a
key
crite
rion
in
defin
ing
inve
stm
ent
polic
y an
d pr
iorit
ies
for
FDI a
ttra
ctio
n. E
nter
pris
e de
velo
pmen
t an
d bu
sine
ss fa
cilit
atio
n po
licie
s (in
clud
ing
acce
ss t
o fin
ance
) sh
ould
pro
mot
e en
trep
rene
uria
l act
ivity
whe
re s
uch
activ
ity y
ield
s pa
rtic
ular
ly s
igni
fican
t be
nefit
s th
roug
h lin
kage
s an
d ac
ts a
s a
cruc
ial l
ocat
iona
l det
erm
inan
t for
targ
eted
fore
ign
inve
stm
ents
.
2In
vest
men
t re
gul
atio
n an
d
pro
mo
tio
n
2.1
Ent
ry,
esta
blis
hmen
t an
d o
per
atio
ns o
f fo
reig
n in
vest
ors
Pol
icy
stat
emen
t on
FDI a
nd d
egre
e of
op
enne
ss
2.1.
1In
vest
men
t po
licy
bene
fits
from
a c
lear
mes
sage
tow
ards
the
int
erna
tiona
l bu
sine
ss c
omm
unity
on
FDI
(e.g
. in
a c
ount
ry’s
in
vest
men
t st
rate
gy o
r la
w o
n fo
reig
n in
vest
men
t, w
here
the
se e
xist
). A
ttra
ctin
g hi
gh le
vels
of
dive
rse
and
bene
ficia
l FD
I cal
ls
for
a ge
nera
l pol
icy
of o
penn
ess
and
avoi
danc
e of
inve
stm
ent p
rote
ctio
nism
, sub
ject
to q
ualifi
catio
ns a
nd s
elec
tive
rest
rictio
ns
to a
ddre
ss c
ount
ry-s
peci
fic d
evel
opm
ent
need
s an
d po
licy
conc
erns
, su
ch a
s re
gard
ing
the
prov
isio
n of
pub
lic g
oods
or
the
cont
rol o
ver
stra
tegi
c in
dust
ries
and
criti
cal i
nfra
stru
ctur
e.
Investment Policy Framework for Sustainable Development28S
ecti
ons
Sub
-sec
tio
nsP
olic
y G
uid
elin
es
Inve
stm
ent
reg
ulat
ion
and
p
rom
oti
on
(con
tinue
d)
Scr
eeni
ng a
nd e
ntry
re
stric
tions
2.1.
2O
wne
rshi
p re
stric
tions
or l
imita
tions
on
the
entr
y of
fore
ign
inve
stm
ent,
in fu
ll ac
cord
ance
with
cou
ntrie
s’ ri
ght t
o re
gula
te, s
houl
d be
just
ified
by
legi
timat
e na
tiona
l pol
icy
obje
ctiv
es a
nd s
houl
d no
t be
influ
ence
d by
spe
cial
inte
rest
s. T
hey
are
best
lim
ited
to a
fe
w e
xplic
itly
stat
ed a
ims,
incl
udin
g:-
prot
ectin
g th
e na
tiona
l inte
rest
, nat
iona
l sec
urity
, con
trol o
ver n
atur
al re
sour
ces,
crit
ical
infra
stru
ctur
e, p
ublic
hea
lth, t
he e
nviro
nmen
t; or
- pr
omot
ing
natio
nal d
evel
opm
ent o
bjec
tives
in a
ccor
danc
e w
ith a
pub
lishe
d de
velo
pmen
t str
ateg
y or
inve
stm
ent s
trat
egy.
Suc
h re
stric
tions
nee
d to
be
in c
onfo
rmity
with
inte
rnat
iona
l com
mitm
ents
.2.
1.3
Res
tric
tions
on
fore
ign
owne
rshi
p in
spe
cific
ind
ustr
ies
or e
cono
mic
act
iviti
es s
houl
d be
cle
arly
spe
cifie
d; a
lis
t of
spe
cific
in
dust
ries
whe
re r
estr
ictio
ns (e
.g. p
rohi
bitio
ns, l
imita
tions
) app
ly h
as t
he a
dvan
tage
of a
chie
ving
suc
h cl
arity
whi
le p
rese
rvin
g a
polic
y of
gen
eral
ope
nnes
s to
FD
I.2.
1.4
A p
erio
dic
revi
ew s
houl
d ta
ke p
lace
of a
ny o
wne
rshi
p re
stric
tions
and
of t
he le
vel o
f ow
ners
hip
caps
to
eval
uate
whe
ther
the
y re
mai
n th
e m
ost a
ppro
pria
te a
nd c
ost-
effe
ctiv
e m
etho
d to
ens
ure
thes
e ob
ject
ives
.2.
1.5
Scr
eeni
ng p
roce
dure
s fo
r inv
estm
ent e
ntry
and
est
ablis
hmen
t, w
here
app
licab
le, s
houl
d be
con
duct
ed fo
llow
ing
pre-
esta
blis
hed
obje
ctiv
e cr
iteria
.P
rope
rty
regi
stra
tion
2.1.
6In
vest
ors
shou
ld b
e ab
le t
o re
gist
er o
wne
rshi
p of
or
title
s to
land
and
oth
er f
orm
s of
pro
pert
y se
cure
ly, e
ffect
ivel
y an
d tim
ely,
in
clud
ing
in o
rder
to
faci
litat
e ac
cess
to
debt
fina
nce,
bea
ring
in m
ind
spec
ific
deve
lopm
ent
chal
leng
es in
thi
s re
gard
(see
als
o 3.
6 be
low
). Fr
eedo
m o
f op
erat
ions
2.1.
7G
over
nmen
ts s
houl
d av
oid
dire
ct o
r in
dire
ct in
trus
ions
in b
usin
ess
man
agem
ent
and
resp
ect
the
freed
om o
f op
erat
ions
of
priv
ate
com
pani
es,
subj
ect
to c
ompl
ianc
e w
ith d
omes
tic la
ws.
Thi
s in
clud
es t
he fr
eedo
m o
f inv
esto
rs t
o de
cide
whe
ther
the
y w
ant t
o in
vest
at h
ome
or a
broa
d.
Per
form
ance
re
quire
men
ts2.
1.8
Per
form
ance
req
uire
men
ts a
nd r
elat
ed o
pera
tiona
l con
stra
ints
sho
uld
be u
sed
spar
ingl
y an
d on
ly t
o th
e ex
tent
tha
t th
ey a
re
nece
ssar
y to
ach
ieve
legi
timat
e pu
blic
pol
icy
purp
oses
. The
y ne
ed to
be
in c
ompl
ianc
e w
ith in
tern
atio
nal o
blig
atio
ns a
nd w
ould
ty
pica
lly b
e im
pose
d pr
inci
pally
as
cond
ition
s fo
r sp
ecia
l priv
ilege
s, in
clud
ing
fisca
l or
finan
cial
ince
ntiv
es.
2.2
Trea
tmen
t an
d
pro
tect
ion
of
inve
sto
rsTr
eatm
ent u
nder
the
rule
of l
aw2.
2.1
Est
ablis
hed
inve
stor
s an
d in
vest
men
ts, f
orei
gn o
r do
mes
tic, s
houl
d be
gra
nted
trea
tmen
t tha
t is
base
d on
the
rule
of l
aw.
Cor
e st
anda
rds
of
trea
tmen
t2.
2.2
As
a ge
nera
l prin
cipl
e, fo
reig
n in
vest
ors
and
inve
stm
ents
sho
uld
not b
e di
scrim
inat
ed a
gain
st v
is-à
-vis
nat
iona
l inv
esto
rs in
the
post
-est
ablis
hmen
t pha
se a
nd in
the
cond
uct o
f the
ir bu
sine
ss o
pera
tions
. Whe
re d
evel
opm
ent o
bjec
tives
requ
ire p
olic
ies
that
di
stin
guis
h be
twee
n fo
reig
n an
d do
mes
tic in
vest
men
t, th
ese
shou
ld b
e lim
ited,
tran
spar
ent a
nd p
erio
dica
lly re
view
ed fo
r effi
cacy
ag
ains
t tho
se o
bjec
tives
. The
y ne
ed to
be
in li
ne w
ith in
tern
atio
nal c
omm
itmen
ts, i
nclu
ding
RE
IOs.
2.2.
3W
hile
rec
ogni
zing
tha
t co
untr
ies
have
not
onl
y th
e rig
ht b
ut t
he d
uty
to r
egul
ate,
reg
ulat
ory
chan
ges
shou
ld t
ake
into
acc
ount
th
e ne
ed to
ens
ure
stab
ility
and
pred
icta
bilit
y of
the
inve
stm
ent c
limat
e.Tr
ansf
er o
f fun
ds2.
2.4
Whe
re t
he le
vel o
f de
velo
pmen
t or
mac
ro-e
cono
mic
con
side
ratio
ns w
arra
nt r
estr
ictio
ns o
n th
e tr
ansf
er o
f ca
pita
l, co
untr
ies
shou
ld s
eek
to t
reat
FD
I-re
late
d tr
ansa
ctio
ns d
iffer
ently
fro
m o
ther
(pa
rtic
ular
ly s
hort
-ter
m)
capi
tal
acco
unt
tran
sact
ions
. C
ount
ries
shou
ld g
uara
ntee
the
freed
om to
tran
sfer
and
repa
tria
te c
apita
l rel
ated
to in
vest
men
ts in
pro
duct
ive
asse
ts, s
ubje
ct to
re
port
ing
requ
irem
ents
(inc
ludi
ng to
figh
t mon
ey la
unde
ring)
and
prio
r co
mpl
ianc
e w
ith ta
x ob
ligat
ions
, and
sub
ject
to p
oten
tial
tem
pora
ry re
stric
tions
due
to b
alan
ce o
f pay
men
t cris
es a
nd in
com
plia
nce
with
inte
rnat
iona
l law
. Con
trol
s sh
ould
be
perio
dica
lly
revi
ewed
for
effic
acy.
III. National Investment Policy Guidelines 29S
ecti
ons
Sub
-sec
tio
nsP
olic
y G
uid
elin
es
Inve
stm
ent
reg
ulat
ion
and
p
rom
oti
on
(con
tinue
d)
2.2.
5C
ount
ries
shou
ld g
uara
ntee
the
fre
e co
nver
tibilit
y of
the
ir cu
rren
cy f
or c
urre
nt a
ccou
nt t
rans
actio
ns,
incl
udin
g FD
I-re
late
d ea
rnin
gs a
nd d
ivid
ends
, int
eres
ts, r
oyal
ties
and
othe
rs. A
ny r
estr
ictio
n to
con
vert
ibilit
y fo
r cu
rren
t ac
coun
t tr
ansa
ctio
ns s
houl
d be
in a
ccor
danc
e w
ith e
xist
ing
inte
rnat
iona
l obl
igat
ions
and
flex
ibilit
ies,
in p
artic
ular
the
IMF
Art
icle
s of
Agr
eem
ent.
Con
trac
t en
forc
emen
t and
di
sput
e se
ttle
men
t
2.2.
6A
ll in
vest
ors
shou
ld b
e en
title
d to
equ
al t
reat
men
t in
the
enf
orce
men
t of
con
trac
ts.
Mec
hani
sms
and
proc
eedi
ngs
for
the
enfo
rcem
ent o
f con
trac
ts s
houl
d be
tim
ely,
effi
cien
t and
effe
ctiv
e, a
nd a
vaila
ble
to a
ll in
vest
ors
so a
s to
dul
y op
erat
e un
der
the
rule
of l
aw.
Inve
stm
ent c
ontr
acts
2.2.
7S
tate
s sh
ould
hon
our t
heir
oblig
atio
ns d
eriv
ing
from
inve
stm
ent c
ontr
acts
with
inve
stor
s, u
nles
s th
ey c
an in
voke
a fu
ndam
enta
l ch
ange
of c
ircum
stan
ces
or o
ther
legi
timat
e re
ason
s in
acc
orda
nce
with
nat
iona
l and
inte
rnat
iona
l law
.E
xpro
pria
tion
2.2.
8W
hen
war
rant
ed f
or l
egiti
mat
e pu
blic
pol
icy
purp
oses
, ex
prop
riatio
ns o
r na
tiona
lizat
ion
shou
ld b
e un
dert
aken
in
a no
n-di
scrim
inat
ory
man
ner
and
conf
orm
to
the
prin
cipl
e of
due
pro
cess
of l
aw,
and
com
pens
atio
n sh
ould
be
prov
ided
. D
ecis
ions
sh
ould
be
open
to re
cour
se a
nd re
view
s to
avo
id a
rbitr
arin
ess.
Inte
rnat
iona
l co
mm
itmen
ts2.
2.9
Gov
ernm
ent
shou
ld a
ssig
n ex
plic
it re
spon
sibi
lity
and
acco
unta
bilit
y fo
r th
e im
plem
enta
tion
and
perio
dic
revi
ew o
f m
easu
res
to e
nsur
e ef
fect
ive
com
plia
nce
with
com
mitm
ents
und
er II
As.
Str
ong
alte
rnat
ive
disp
ute
reso
lutio
n (A
DR
) mec
hani
sms
can
be
effe
ctiv
e m
eans
to a
void
inte
rnat
iona
l arb
itrat
ion
of d
ispu
tes.
2.3
Inve
sto
r o
blig
atio
nsR
espo
nsib
le
inve
stm
ent
2.3.
1In
vest
ors’
firs
t and
fore
mos
t obl
igat
ion
is to
com
ply
with
a h
ost c
ount
ry’s
law
s an
d re
gula
tions
. Thi
s ob
ligat
ion
shou
ld a
pply
and
be
enf
orce
d in
disc
rimin
atel
y to
nat
iona
l and
fore
ign
inve
stor
s, a
s sh
ould
san
ctio
ns fo
r no
n-co
mpl
ianc
e.S
tand
ards
2.3.
2G
over
nmen
ts s
houl
d en
cour
age
adhe
renc
e to
int
erna
tiona
l st
anda
rds
of r
espo
nsib
le i
nves
tmen
t an
d co
des
of c
ondu
ct b
y fo
reig
n in
vest
ors.
Sta
ndar
ds w
hich
may
ser
ve a
s re
fere
nce
incl
ude
the
ILO
Tri-
part
ite D
ecla
ratio
n, t
he O
EC
D G
uide
lines
for
M
ultin
atio
nal E
nter
pris
es,
the
UN
CTA
D,
FAO
IFA
D a
nd W
orld
Ban
k P
rinci
ples
for
Res
pons
ible
Agr
icul
tura
l Inv
estm
ent,
the
UN
G
uidi
ng P
rinci
ples
on
Bus
ines
s an
d H
uman
Rig
hts
and
othe
rs. I
n ad
ditio
n, c
ount
ries
may
wis
h to
tran
slat
e so
ft ru
les
into
nat
iona
l le
gisl
atio
n.
2.4
Pro
mo
tio
n an
d
faci
litat
ion
of
inve
stm
ent
Inve
stm
ent a
utho
rity
and
inve
stm
ent
prom
otio
n ag
ency
2.4.
1E
xplic
it re
spon
sibi
lity
and
acco
unta
bilit
y sh
ould
be
assi
gned
to a
n in
vest
men
t pro
mot
ion
agen
cy (I
PA) t
o en
cour
age
inve
stm
ent
and
to a
ssis
t in
vest
ors
in c
ompl
ying
with
adm
inis
trat
ive
and
proc
edur
al r
equi
rem
ents
with
a v
iew
tow
ards
fac
ilitat
ing
thei
r es
tabl
ishm
ent,
oper
atio
n an
d de
velo
pmen
t.2.
4.2
The
mis
sion
, ob
ject
ives
and
str
uctu
re o
f th
e IP
A s
houl
d be
gro
unde
d in
nat
iona
l inv
estm
ent
polic
y ob
ject
ives
and
reg
ular
ly
revi
ewed
. The
cor
e fu
nctio
ns o
f IPA
s sh
ould
incl
ude
imag
e bu
ildin
g, ta
rget
ing,
faci
litat
ion,
afte
rcar
e an
d ad
voca
cy.
2.4.
3A
s th
e pr
ime
inte
rface
bet
wee
n G
over
nmen
t and
inve
stor
s, IP
As
shou
ld s
uppo
rt e
ffort
s to
impr
ove
the
gene
ral b
usin
ess
clim
ate
and
elim
inat
e re
d ta
pe.
2.4.
4W
here
scr
eeni
ng o
r pre
limin
ary
appr
oval
are
impo
sed
on fo
reig
n in
vest
ors,
resp
onsi
bilit
y an
d ac
coun
tabi
lity
for s
uch
proc
edur
es
shou
ld b
e cl
early
sep
arat
e fro
m in
vest
men
t pro
mot
ion
and
faci
litat
ion
func
tions
in o
rder
to a
void
pot
entia
l con
flict
s of
inte
rest
.2.
4.5
IPA
s sh
ould
be
in a
pos
ition
to re
solv
e cr
oss-
min
iste
rial i
ssue
s th
roug
h its
form
al a
nd in
form
al c
hann
els
of c
omm
unic
atio
n, a
nd
by r
epor
ting
at a
suf
ficie
ntly
hig
h le
vel o
f G
over
nmen
t. Its
gov
erna
nce
shou
ld b
e en
sure
d th
roug
h an
ope
ratio
nal b
oard
tha
t in
clud
es m
embe
rs fr
om re
leva
nt m
inis
trie
s an
d fro
m th
e pr
ivat
e se
ctor
.2.
4.6
The
effe
ctiv
enes
s of
the
IPA
in a
ttra
ctin
g in
vest
men
t sh
ould
be
perio
dica
lly r
evie
wed
aga
inst
inve
stm
ent
polic
y ob
ject
ives
. The
ef
ficie
ncy
of th
e IP
A a
nd it
s w
orki
ng m
etho
ds s
houl
d al
so b
e re
view
ed in
ligh
t of i
nter
natio
nal b
est p
ract
ice.
Investment Policy Framework for Sustainable Development30S
ecti
ons
Sub
-sec
tio
nsP
olic
y G
uid
elin
es
Inve
stm
ent
reg
ulat
ion
and
p
rom
oti
on
(con
tinue
d)
2.4.
7Th
e w
ork
of n
atio
nal a
nd s
ub-n
atio
nal I
PAs,
as
wel
l as
that
of
auth
oriti
es p
rom
otin
g in
vest
men
t in
spe
cial
eco
nom
ic z
ones
, sh
ould
be
clos
ely
coor
dina
ted
to e
nsur
e m
axim
um e
ffici
ency
and
effe
ctiv
enes
s.2.
4.8
Bei
ng a
t the
cor
e of
Gov
ernm
ent e
ffort
s to
pro
mot
e an
d fa
cilit
ate
inve
stm
ent,
the
IPA
sho
uld
esta
blis
h cl
ose
wor
king
rela
tions
hips
(in
clud
ing
thro
ugh
seco
ndm
ent
of s
taff)
with
reg
ulat
ory
agen
cies
dea
ling
dire
ctly
with
inve
stor
s. It
sho
uld
seek
to
prom
ote
a cl
ient
-orie
nted
att
itude
in p
ublic
adm
inis
trat
ion.
It m
ay e
nlis
t the
dip
lom
atic
ser
vice
to s
tren
gthe
n ov
erse
as p
rom
otio
n ef
fort
s.In
vest
men
t in
cent
ives
and
gu
aran
tees
2.4.
9In
vest
men
t inc
entiv
es, i
n w
hate
ver f
orm
(fisc
al, fi
nanc
ial o
r oth
er),
shou
ld b
e ca
refu
lly a
sses
sed
in te
rms
of lo
ng-t
erm
cos
ts a
nd
bene
fits
prio
r to
impl
emen
tatio
n, g
ivin
g du
e co
nsid
erat
ion
to p
oten
tial d
isto
rtio
n ef
fect
s. T
he c
osts
and
ben
efits
of
ince
ntiv
es
shou
ld b
e pe
riodi
cally
revi
ewed
and
thei
r ef
fect
iven
ess
in a
chie
ving
the
desi
red
obje
ctiv
es th
orou
ghly
eva
luat
ed.
2.4.
10W
here
inv
estm
ent
ince
ntiv
es a
re g
rant
ed t
o su
ppor
t na
scen
t in
dust
ries,
sel
f-su
stai
ned
viab
ility
(i.e.
with
out
the
need
for
in
cent
ives
) sh
ould
be
the
ultim
ate
goal
so
as t
o av
oid
subs
idiz
ing
non-
viab
le in
dust
ries
at t
he e
xpen
se o
f th
e ec
onom
y as
a
who
le.
A p
hase
-out
per
iod
built
in t
he in
cent
ive
stru
ctur
e is
goo
d pr
actic
e, w
ithou
t pr
eclu
ding
per
man
ent
tax
mea
sure
s to
ad
dres
s po
sitiv
e or
neg
ativ
e ex
tern
aliti
es.
2.4.
11Th
e ra
tiona
le a
nd ju
stifi
catio
n fo
r inv
estm
ent i
ncen
tives
sho
uld
be d
irect
ly a
nd e
xplic
itly
deriv
ed fr
om th
e co
untr
y’s
deve
lopm
ent
stra
tegy
. The
ir ef
fect
iven
ess
for a
chie
ving
the
obje
ctiv
es s
houl
d be
fully
ass
esse
d be
fore
ado
ptio
n, in
clud
ing
thro
ugh
inte
rnat
iona
l co
mpa
rabi
lity.
2.4.
12Th
e gr
antin
g an
d ad
min
istr
atio
n of
ince
ntiv
es s
houl
d be
the
resp
onsi
bilit
y of
an
inde
pend
ent e
ntity
or m
inis
try
that
doe
s no
t hav
e co
nflic
ting
obje
ctiv
es o
r pe
rform
ance
targ
ets
for
inve
stm
ent a
ttra
ctio
n.2.
4.13
Env
ironm
enta
l, la
bour
and
oth
er r
egul
ator
y st
anda
rds
shou
ld n
ot b
e lo
wer
ed a
s a
mea
ns t
o at
trac
t in
vest
men
t, or
to
com
pete
fo
r in
vest
men
t in
a “r
egul
ator
y ra
ce to
the
bott
om”.
2.4.
14In
vest
men
t inc
entiv
es s
houl
d be
gra
nted
on
the
basi
s of
a s
et o
f pre
-det
erm
ined
, obj
ectiv
e, c
lear
and
tran
spar
ent c
riter
ia. T
hey
shou
ld b
e of
fere
d on
a n
on-d
iscr
imin
ator
y ba
sis
to p
roje
cts
fulfi
lling
thes
e cr
iteria
. C
ompl
ianc
e w
ith t
he c
riter
ia (
perfo
rman
ce
requ
irem
ents
) sho
uld
be m
onito
red
on a
regu
lar
basi
s as
a c
ondi
tion
to b
enefi
t fro
m th
e in
cent
ives
.2.
4.15
Inve
stm
ent i
ncen
tives
ove
r and
abo
ve p
re-d
efine
d in
cent
ives
mus
t be
show
n to
mak
e an
exc
eptio
nal c
ontr
ibut
ion
to d
evel
opm
ent
obje
ctiv
es, a
nd a
dditi
onal
requ
irem
ents
sho
uld
be a
ttac
hed,
incl
udin
g w
ith a
vie
w to
avo
idin
g a
“rac
e to
the
top
of in
cent
ives
”.2.
4.16
Inve
stm
ent
ince
ntiv
es o
ffere
d by
sub
-nat
iona
l ent
ities
whi
ch h
ave
the
disc
retio
n to
gra
nt in
cent
ives
ove
r an
d ab
ove
the
pre-
defin
ed li
mits
, sho
uld
be c
oord
inat
ed b
y a
cent
ral i
nves
tmen
t aut
horit
y to
avo
id in
vest
ors
“sho
ppin
g ar
ound
”.P
rom
otio
n of
bu
sine
ss li
nkag
es
and
spillo
vers
2.4.
17A
s bu
sine
ss li
nkag
es b
etw
een
fore
ign
inve
stor
s an
d na
tiona
l com
pani
es d
o no
t alw
ays
deve
lop
natu
rally
, Gov
ernm
ents
and
IPA
s sh
ould
act
ivel
y nu
rtur
e an
d fa
cilit
ate
them
. U
ndue
intr
usio
n in
bus
ines
s pa
rtne
rshi
ps s
houl
d be
avo
ided
as
mut
ually
ben
efici
al
and
sust
aina
ble
linka
ges
cann
ot b
e m
anda
ted.
2.4.
18M
easu
res
that
Gov
ernm
ents
sho
uld
cons
ider
to p
rom
ote
linka
ges
incl
ude:
(1) d
irect
inte
rmed
iatio
n be
twee
n na
tiona
l and
fore
ign
inve
stor
s to
clo
se in
form
atio
n ga
ps; (
2) s
uppo
rt (fi
nanc
ial a
nd o
ther
) to
natio
nal c
ompa
nies
for p
roce
ss o
r tec
hnol
ogy
upgr
adin
g;
(3)
sele
ctiv
e FD
I ta
rget
ing;
(4)
est
ablis
hmen
t of
nat
iona
l nor
ms
and
stan
dard
s, a
long
the
line
s of
inte
rnat
iona
l one
s (e
.g I
SO
st
anda
rds)
; and
(5) i
ncen
tives
for
fore
ign
inve
stor
s to
ass
ist i
n up
grad
ing
of lo
cal S
ME
s an
d pr
omot
ion
of e
ntre
pren
eurs
hip.
2.4.
19M
anda
tory
pra
ctic
es to
pro
mot
e lin
kage
s, s
uch
as jo
int-
vent
ure
requ
irem
ents
, sho
uld
be u
sed
spar
ingl
y an
d ca
refu
lly c
onsi
dere
d to
avo
id u
nint
ende
d ad
vers
e ef
fect
s.2.
4.20
Exp
licit
resp
onsi
bilit
y an
d ac
coun
tabi
lity
shou
ld b
e as
sign
ed to
the
inve
stm
ent a
utho
rity
or IP
A to
nur
ture
and
pro
mot
e bu
sine
ss
linka
ges
esta
blis
hed
by fo
reig
n in
vest
ors
as p
art o
f its
afte
rcar
e m
anda
te.
2.4.
21S
peci
fic p
olic
ies
shou
ld e
ncou
rage
bus
ines
ses
to o
ffer t
rain
ing
to e
mpl
oyee
s in
ski
ll ar
eas
deem
ed c
ruci
al in
the
coun
try’
s po
licy
on h
uman
reso
urce
dev
elop
men
t, in
clud
ing
thro
ugh
perfo
rman
ce re
quire
men
ts li
nked
to in
vest
men
t inc
entiv
es.
III. National Investment Policy Guidelines 31S
ecti
ons
Sub
-sec
tio
nsP
olic
y G
uid
elin
es
3In
vest
men
t-re
late
d
po
licie
s
3.1
Trad
e p
olic
yIn
tern
atio
nal t
rade
ag
reem
ents
3.1.
1A
cces
s to
glo
bal
mar
kets
is
esse
ntia
l fo
r re
sour
ce-
and
effic
ienc
y-se
ekin
g fo
reig
n in
vest
ors,
and
the
siz
e of
loc
al/r
egio
nal
mar
kets
is e
qual
ly im
port
ant f
or m
arke
t-se
ekin
g in
vest
ors.
Act
ive
part
icip
atio
n in
inte
rnat
iona
l tra
de a
gree
men
ts (i
n pa
rtic
ular
the
WTO
) and
enh
ance
d in
tegr
atio
n at
the
reg
iona
l lev
el s
houl
d be
con
side
red
an in
tegr
al p
art
of d
evel
opm
ent
stra
tegy
and
a k
ey
fact
or in
pro
mot
ing
inve
stm
ent.
Trad
e re
stric
tion
and
prom
otio
n3.
1.2
Trad
e po
licie
s, in
clud
ing
tarif
fs a
nd n
on-t
ariff
bar
riers
, an
d tr
ade
prom
otio
n/fa
cilit
atio
n m
easu
res
(e.g
. ex
port
fina
nce,
impo
rt
insu
ranc
e sc
hem
es, s
uppo
rt to
obt
ain
com
plia
nce
with
inte
rnat
iona
l sta
ndar
ds a
nd n
orm
s) c
an s
elec
tivel
y pr
omot
e or
dis
cour
age
inve
stm
ent i
n sp
ecifi
c in
dust
ries.
The
y sh
ould
be
defin
ed in
line
with
(ind
ustr
ial)
deve
lopm
ent o
bjec
tives
and
inve
stm
ent p
olic
y.C
usto
ms
and
bord
er
proc
edur
es3.
1.3
Com
plia
nce
cost
s an
d ef
ficie
ncy
of b
orde
r pr
oced
ures
sho
uld
be p
erio
dica
lly b
ench
mar
ked
agai
nst
inte
rnat
iona
l bes
t pr
actic
e an
d sh
ould
avo
id a
s m
uch
as p
ossi
ble
form
ing
an o
bsta
cle
to t
he a
ttra
ctio
n of
exp
ort-
orie
nted
inve
stm
ent
or in
vest
men
t th
at
relie
s on
impo
rts
of in
term
edia
te g
oods
.
3.2
Tax
po
licy
Cor
pora
te ta
xatio
n3.
2.1
A p
erio
dic
revi
ew, i
nclu
ding
inte
rnat
iona
l ben
chm
arki
ng, o
f cor
pora
te ta
xatio
n (a
nd fi
scal
ince
ntiv
es) f
or e
ffect
iven
ess,
cos
ts a
nd
bene
fits
shou
ld b
e an
inte
gral
par
t of i
nves
tmen
t pol
icy.
Rev
iew
s sh
ould
con
side
r cos
ts li
nked
to th
e st
ruct
ure
of th
e ta
x re
gim
e,
incl
udin
g (1
) adm
inis
trat
ive
and
com
plia
nce
cost
s fo
r in
vest
ors,
(2) a
dmin
istr
ativ
e an
d m
onito
ring
cost
s fo
r th
e ta
x au
thor
ities
, an
d (3
) for
gone
reve
nue
linke
d to
tax
evas
ion
and/
or ta
x en
gine
erin
g.3.
2.2
Und
ue c
ompl
exity
of i
ncom
e ta
x la
w a
nd r
egul
atio
ns s
houl
d be
avo
ided
and
the
y sh
ould
be
acco
mpa
nied
by
clea
r gu
idel
ines
, as
tran
spar
ency
, pre
dict
abilit
y an
d im
part
ialit
y of
the
tax
regi
me
are
esse
ntia
l for
all
inve
stor
s, fo
reig
n an
d na
tiona
l alik
e.3.
2.3
The
tax
syst
em s
houl
d te
nd to
neu
tral
ity in
its
trea
tmen
t of d
omes
tic a
nd fo
reig
n in
vest
ors.
Fi
scal
ince
ntiv
es3.
2.4
In li
ne w
ith a
cou
ntry
’s d
evel
opm
ent s
trat
egy,
ince
ntiv
es c
an b
e us
ed fo
r the
enc
oura
gem
ent o
f inv
estm
ent i
n sp
ecifi
c in
dust
ries
or in
ord
er t
o ac
hiev
e sp
ecifi
c ob
ject
ives
(e.g
. reg
iona
l dev
elop
men
t, jo
b cr
eatio
n, s
kills
upg
radi
ng, t
echn
olog
y di
ssem
inat
ion)
. Fi
scal
ince
ntiv
es fo
r inv
esto
rs s
houl
d no
t by
natu
re s
eek
to c
ompe
nsat
e fo
r an
unat
trac
tive
or in
appr
opria
te g
ener
al ta
x re
gim
e.3.
2.5
The
gene
ral c
orpo
rate
inco
me
tax
regi
me
shou
ld b
e th
e no
rm a
nd n
ot th
e ex
cept
ion
and
prol
ifera
tion
of ta
x in
cent
ives
sho
uld
be
avoi
ded
as th
ey q
uick
ly le
ad to
dis
tort
ions
, gen
erat
e un
inte
nded
tax
avoi
danc
e op
port
uniti
es, b
ecom
e di
fficu
lt to
mon
itor,
crea
te
adm
inis
trat
ive
cost
s an
d m
ay e
nd u
p pr
otec
ting
spec
ial i
nter
ests
at t
he e
xpen
se o
f the
gen
eral
pub
lic.
Tran
sfer
pric
ing
and
inte
rnat
iona
l co
oper
atio
n
3.2.
6W
ell-e
stab
lishe
d an
d cl
early
defi
ned
tran
sfer
pric
ing
rule
s ar
e es
sent
ial t
o m
inim
ize
tax
engi
neer
ing
and
tax
evas
ion.
Dev
elop
ing
coun
trie
s ca
n bu
ild o
n in
tern
atio
nal b
est p
ract
ices
. Int
erna
tiona
l coo
pera
tion
betw
een
tax
auth
oriti
es is
key
to fi
ght m
anip
ulat
ive
tran
sfer
pric
ing
prac
tices
.D
oubl
e ta
xatio
n tr
eatie
s3.
2.7
Dou
ble
taxa
tion
trea
ties
are
an e
ffect
ive
tool
to p
rom
ote
inw
ard
and
outw
ard
FDI.
Dev
elop
ing
coun
trie
s sh
ould
car
eful
ly n
egot
iate
su
ch tr
eatie
s to
ens
ure
that
the
prin
cipl
e of
“ta
xatio
n at
the
sour
ce”
prev
ails
. 3.
2.8
A c
ount
ry’s
inte
rnat
iona
l tax
tre
aty
netw
ork
shou
ld fo
cus
on m
ajor
cou
ntrie
s of
orig
in fo
r th
e ty
pes
of in
vest
men
t pr
iorit
ized
in
its in
vest
men
t pol
icy.
3.3
Inte
llect
ual p
rop
erty
3.3.
1La
ws
and
regu
latio
ns fo
r th
e pr
otec
tion
of in
telle
ctua
l pro
pert
y rig
hts
and
mec
hani
sms
for
thei
r en
forc
emen
t sh
ould
mee
t th
e ne
ed o
f pr
ospe
ctiv
e in
vest
ors
(esp
ecia
lly w
here
inv
estm
ent
polic
y ai
ms
to a
ttra
ct i
nves
tmen
t in
IP
-sen
sitiv
e in
dust
ries)
and
en
cour
age
inno
vatio
n an
d in
vest
men
t by
dom
estic
and
for
eign
firm
s, w
hile
pro
vidi
ng f
or s
anct
ions
aga
inst
the
abu
se b
y IP
R
hold
ers
of IP
rig
hts
(e.g
. the
exe
rcis
e of
IP r
ight
s in
a m
anne
r th
at p
reve
nts
the
emer
genc
e of
legi
timat
e co
mpe
ting
desi
gns
or
tech
nolo
gies
) and
allo
win
g fo
r th
e pu
rsui
t of
the
pub
lic g
ood.
As
natio
nal i
nves
tors
are
fre
quen
tly le
ss a
war
e of
the
ir IP
rig
hts
they
sho
uld
be s
ensi
tized
on
the
issu
e.
Investment Policy Framework for Sustainable Development32S
ecti
ons
Sub
-sec
tio
nsP
olic
y G
uid
elin
es
Inve
stm
ent-
rela
ted
p
olic
ies
(con
tinue
d)
3.3.
2D
evel
opin
g co
untr
ies
are
enco
urag
ed t
o in
tegr
ate
the
flexi
bilit
ies
in IP
pro
tect
ion
gran
ted
unde
r in
tern
atio
nal t
reat
ies,
incl
udin
g th
e W
TO’s
TR
IPS
agr
eem
ent,
into
nat
iona
l leg
isla
tion
and
cons
ider
the
exte
nt to
whi
ch th
ese
flexi
bilit
ies
can
crea
te o
ppor
tuni
ties
for
inve
stm
ent a
ttra
ctio
n (e
.g. i
n th
e pr
oduc
tion
of p
harm
aceu
tical
s).
3.4
Co
mp
etit
ion
po
licy
Com
petit
ion
law
s an
d re
gula
tions
Coo
rdin
atio
n of
inve
st-
men
t and
com
petit
ion
auth
oriti
es
M&
As
and
priv
atiz
atio
ns
3.4.
1
3.4.
2
3.4.
3
3.4.
4
3.4.
5
Com
petit
ion
law
s an
d re
gula
tions
, co
verin
g pr
actic
es i
n re
stra
int
of c
ompe
titio
n, a
buse
of
mar
ket
pow
er a
nd e
cono
mic
co
ncen
trat
ion
toge
ther
with
effe
ctiv
e m
onito
ring
and
enfo
rcem
ent
mec
hani
sms,
are
ess
entia
l to
rea
p th
e be
nefit
s fro
m
inve
stm
ent a
nd s
houl
d pr
ovid
e fa
ir ru
les
and
a le
vel p
layi
ng fi
eld
for
all i
nves
tors
, for
eign
and
dom
estic
.In
vest
men
t pol
icy
mak
ers
shou
ld c
oope
rate
clo
sely
with
com
petit
ion
auth
oriti
es, w
ith a
vie
w to
add
ress
ing
any
anti-
com
petit
ive
prac
tices
by
incu
mbe
nt e
nter
pris
es t
hat
may
inhi
bit
inve
stm
ent.
Par
ticul
ar a
tten
tion
shou
ld b
e pa
id t
o pr
iorit
y in
dust
ries
and
inve
stm
ent t
ypes
.W
here
inve
stm
ent p
olic
y pu
rsue
s ob
ject
ives
for
sect
ors
that
may
be
cons
ider
ed to
fall
unde
r a
publ
ic s
ervi
ces
oblig
atio
n or
for
regu
late
d se
ctor
s (e
.g. p
ublic
tran
spor
t, ut
ilitie
s, te
leco
mm
unic
atio
ns),
com
petit
ion
auth
oriti
es s
houl
d be
act
ivel
y in
volv
ed in
the
shap
ing
of re
leva
nt p
olic
ies
and
mea
sure
s, c
oord
inat
ing
clos
ely
with
sec
tora
l reg
ulat
ors.
Com
petit
ion
law
s an
d de
cisi
ons
rela
ted
to M
&A
s, a
s w
ell a
s th
e po
licy
fram
ewor
k fo
r priv
atiz
atio
ns, s
houl
d su
ppor
t dev
elop
men
t st
rate
gy a
nd i
nves
tmen
t po
licy
obje
ctiv
es,
and
shou
ld e
nsur
e co
ntin
ued
attr
activ
enes
s of
the
rel
evan
t se
ctor
for
fur
ther
in
vest
men
t by
avoi
ding
mar
ket e
xclu
sivi
ty a
nd p
reve
ntin
g ab
use
of d
omin
ant m
arke
t pow
er.
Clo
se c
oord
inat
ion
betw
een
com
petit
ion
auth
oriti
es in
nei
ghbo
urin
g co
untr
ies
shou
ld b
e pu
rsue
d in
cas
e of
cro
ss-b
orde
r M&
As,
pa
rtic
ular
ly in
sm
all e
cono
mie
s.
3.5
Lab
our
mar
ket
reg
ulat
ion
Bal
anci
ng la
bour
m
arke
t flex
ibilit
y an
d pr
otec
tion
of e
mpl
oyee
s
3.5.
1La
bour
mar
ket r
egul
atio
ns s
houl
d su
ppor
t job
cre
atio
n ob
ject
ives
in in
vest
men
t pol
icy,
incl
udin
g th
roug
h an
app
ropr
iate
deg
ree
of la
bour
mar
ket fl
exib
ility.
At t
he s
ame
time,
em
ploy
ees
shou
ld b
e pr
otec
ted
from
abu
sive
labo
ur p
ract
ices
.
Cor
e la
bour
st
anda
rds
3.5.
2C
ount
ries
need
to
guar
ante
e in
tern
atio
nally
rec
ogni
zed
core
labo
ur s
tand
ards
, in
part
icul
ar r
egar
ding
chi
ld la
bour
, the
rig
ht fo
r co
llect
ive
repr
esen
tatio
n an
d ot
her
core
pro
tect
ions
as
guar
ante
ed b
y th
e IL
O c
onve
ntio
ns t
he c
ount
ry is
a p
arty
to.
Effe
ctiv
e m
echa
nism
s to
pro
mot
e co
re la
bour
sta
ndar
ds s
houl
d be
put
in p
lace
and
app
lied
equa
lly to
fore
ign
and
dom
estic
firm
s.A
djus
tmen
t cos
ts o
f in
vest
men
t pol
icy
3.5.
3A
djus
tmen
t co
sts
or fr
ictio
n ca
used
by
shift
ing
prod
uctiv
e ca
paci
ty a
nd e
mpl
oym
ent
to p
riorit
y in
vest
men
t ar
eas,
indu
strie
s or
ac
tiviti
es a
s pe
r in
vest
men
t po
licy
shou
ld b
e ad
dres
sed
both
in la
bour
mar
ket
polic
ies
(e.g
. re
-tra
inin
g, s
ocia
l sup
port
) and
in
inve
stm
ent p
olic
y (e
.g. e
ncou
ragi
ng in
vest
ors
to h
elp
ease
tran
sitio
n co
sts)
.H
iring
of i
nter
natio
nal
staf
f3.
5.4
Exp
atria
te s
taff
can
at ti
mes
be
criti
cal t
o th
e su
cces
s of
indi
vidu
al in
vest
men
t pro
ject
s. L
abou
r pol
icy
and/
or im
mig
ratio
n po
licy
shou
ld a
void
und
uly
rest
rictin
g or
del
ayin
g th
e em
ploy
men
t of
for
eign
per
sonn
el,
incl
udin
g in
ski
lled
trad
es/a
rtis
an jo
bs,
by
inve
stor
s in
ord
er n
ot to
hin
der t
he b
uild
-up
of p
rodu
ctiv
e ca
paci
ty. A
t the
sam
e tim
e, e
mpl
oym
ent o
ppor
tuni
ties
for n
atio
nals
in
jobs
they
can
ade
quat
ely
fill s
houl
d be
pro
mot
ed.
3.5.
5Tr
ansf
er o
f sk
ills f
rom
exp
atria
te s
taff
to n
atio
nals
sho
uld
be a
ctiv
ely
enco
urag
ed,
incl
udin
g th
roug
h te
chni
cal a
nd v
ocat
iona
l tr
aini
ng re
quire
men
ts a
t the
com
pany
leve
l whe
neve
r exp
atria
tes
are
empl
oyed
. The
use
of f
orei
gn e
mpl
oyee
s in
ski
lled
trad
es/
artis
an jo
bs m
ay b
e tim
e-bo
und
in o
rder
to e
ncou
rage
fore
ign
inve
sted
firm
s to
est
ablis
h lo
cal l
inka
ges.
III. National Investment Policy Guidelines 33S
ecti
ons
Sub
-sec
tio
nsP
olic
y G
uid
elin
es
Inve
stm
ent-
rela
ted
p
olic
ies
(con
tinue
d)
3.6
Acc
ess
to la
ndTi
tles
3.6.
1M
ore
than
the
nat
ure
of la
nd t
itles
(fu
ll ow
ners
hip,
long
-ter
m le
ase,
land
-use
rig
hts
or o
ther
), pr
edic
tabi
lity
and
secu
rity
are
para
mou
nt f
or in
vest
ors.
Gov
ernm
ents
sho
uld
aim
to
ease
acc
ess
to la
nd t
itles
, ad
equa
tely
reg
iste
r an
d pr
otec
t th
em,
and
guar
ante
e st
abilit
y. D
evel
opin
g an
d pr
oper
ly a
dmin
iste
ring
a na
tiona
l cad
astr
e sy
stem
can
be
an e
ffect
ive
tool
to
enco
urag
e in
vest
men
t.3.
6.2
Full
owne
rshi
p of
land
or
trad
able
land
titl
es c
an h
elp
com
pani
es s
ecur
e fin
anci
ng f
or in
vest
men
t, as
land
can
be
used
as
colla
tera
l. Tr
ansf
erab
le ti
tles
shou
ld b
e en
cour
aged
whe
re s
peci
fic c
ount
ry c
ircum
stan
ces
do n
ot p
reve
nt th
is o
ptio
n.
Agr
icul
tura
l lan
d3.
6.3
Fore
ign
owne
rshi
p or
use
r tit
les
over
agr
icul
tura
l la
nd i
s pa
rtic
ular
ly s
ensi
tive
in m
ost
coun
trie
s, i
n pa
rtic
ular
tho
se w
ith
larg
e ru
ral p
opul
atio
ns a
nd w
here
foo
d se
curit
y is
an
issu
e. G
over
nmen
ts s
houl
d pa
y pa
rtic
ular
car
e in
put
ting
in p
lace
and
en
forc
ing
regu
latio
ns t
o pr
otec
t th
e lo
ng-t
erm
nat
iona
l int
eres
t an
d no
t co
mpr
omis
e it
for
shor
t-te
rm g
ains
by
spec
ial i
nter
est
grou
ps. A
dher
ence
to
the
UN
CTA
D, F
AO
, IFA
D, a
nd W
orld
Ban
k P
rinci
ples
for
Res
pons
ible
Agr
icul
tura
l Inv
estm
ent
shou
ld b
e en
cour
aged
.In
dust
rial l
and
and
indu
stria
l par
ks3.
6.4
The
deve
lopm
ent
of in
dust
rial,
tech
nolo
gy o
r se
rvic
es p
arks
as
publ
ic-p
rivat
e pa
rtne
rshi
ps h
as w
orke
d w
ell i
n a
num
ber
of
coun
trie
s an
d ca
n be
an
effe
ctiv
e to
ol to
faci
litat
e ac
cess
to fu
lly-s
ervi
ced
land
by
(fore
ign)
inve
stor
s.
3.7
Cor
pora
te re
spon
si-
bilit
y an
d go
vern
ance
CS
R s
tand
ards
3.7.
1G
over
nmen
ts s
houl
d en
cour
age
com
plia
nce
with
hig
h st
anda
rds
of re
spon
sibl
e in
vest
men
t and
cor
pora
te b
ehav
iour
, inc
ludi
ng
thro
ugh:
(1)
cap
acity
bui
ldin
g an
d te
chni
cal
assi
stan
ce t
o lo
cal
indu
stry
to
impr
ove
thei
r ab
ility
to a
cces
s m
arke
ts o
r w
ork
with
inve
stor
s th
at p
refe
r or
req
uire
cer
tified
pro
duct
s; (2
) pub
lic p
rocu
rem
ent
crite
ria;
(3) i
ncor
pora
ting
exis
ting
stan
dard
s in
to
regu
lato
ry in
itiat
ives
, and
/or
turn
ing
volu
ntar
y st
anda
rds
(sof
t law
) int
o re
gula
tion
(har
d la
w).
Cor
pora
te
gove
rnan
ce3.
7.2
Cou
ntrie
s sh
ould
aim
to a
dopt
inte
rnat
iona
l sta
ndar
ds o
f cor
pora
te g
over
nanc
e fo
r lar
ge fo
rmal
bus
ines
ses
unde
r the
ir co
mpa
ny
law
or
com
mer
cial
cod
e, i
n pa
rtic
ular
: (1
) pr
otec
tion
of m
inor
ity s
hare
hold
ers;
(2)
tra
nspa
renc
y an
d di
sclo
sure
on
a tim
ely,
re
liabl
e an
d re
leva
nt b
asis
; (3)
ext
erna
l aud
iting
of a
ccou
nts;
and
(4) a
dopt
ion
of h
igh
stan
dard
s an
d co
des
of g
ood
prac
tices
on
corr
uptio
n, h
ealth
, env
ironm
ent,
and
safe
ty is
sues
. The
OE
CD
Prin
cipl
es o
f Cor
pora
te G
over
nanc
e an
d th
e U
NC
TAD
Gui
danc
e on
Goo
d P
ract
ices
in C
orpo
rate
Gov
erna
nce
Dis
clos
ure
may
ser
ve a
s gu
idan
ce.
Rep
ortin
g st
anda
rds
3.7.
3C
orpo
rate
rep
ortin
g st
anda
rds
shou
ld p
rovi
de f
or d
iscl
osur
e by
for
eign
-con
trol
led
firm
s on
loc
al o
wne
rshi
p an
d co
ntro
l st
ruct
ures
, fina
nces
and
ope
ratio
ns, a
nd h
ealth
, saf
ety,
soc
ial a
nd e
nviro
nmen
tal i
mpa
cts,
follo
win
g in
tern
atio
nal b
est p
ract
ice.
R
ecom
men
datio
ns b
y th
e U
NC
TAD
Inte
rgov
ernm
enta
l Wor
king
Gro
up o
f Exp
erts
on
Inte
rnat
iona
l Sta
ndar
ds o
f Acc
ount
ing
and
Rep
ortin
g (IS
AR
) may
ser
ve a
s gu
idan
ce.
3.8
Env
iron
men
tal p
olic
yE
nviro
nmen
tal
impa
ct o
f inv
estm
ent
3.8.
1E
nviro
nmen
tal i
mpa
ct a
sses
smen
ts (E
IA) s
houl
d be
par
t of i
nves
tmen
t pol
icie
s; it
is u
sefu
l to
clas
sify
pro
ject
s ba
sed
on a
num
ber
of p
re-d
efine
d cr
iteria
, in
clud
ing
sect
or,
natu
re,
size
and
loca
tion
to p
lace
mor
e st
ringe
nt o
r le
ss s
trin
gent
req
uire
men
ts o
n pr
elim
inar
y en
viro
nmen
tal i
mpa
ct a
sses
smen
ts (o
r ab
senc
e th
ereo
f).3.
8.2
Env
ironm
enta
l no
rms,
inc
ludi
ng E
IA r
equi
rem
ents
, sh
ould
be
tran
spar
ent,
non-
disc
rimin
ator
y vi
s-à-
vis
fore
ign
inve
stor
s,
pred
icta
ble
and
stab
le;
Gov
ernm
ents
sho
uld
ensu
re t
hat
envi
ronm
enta
l lic
ensi
ng p
roce
dure
s ar
e co
nduc
ted
with
out
undu
e de
lay
and
in fu
ll te
chni
cal o
bjec
tivity
.E
nviro
nmen
tal
dum
ping
3.8.
3Fo
reig
n in
vest
ors
shou
ld b
e en
cour
aged
to
adhe
re t
o in
tern
atio
nal s
tand
ards
of
envi
ronm
enta
l pro
tect
ion
and
com
mitt
ed n
ot
to e
ngag
e in
env
ironm
enta
l dum
ping
; in
spec
ific
case
s (e
.g. m
inin
g or
oil
extr
actio
n), G
over
nmen
ts m
ay w
ish
to le
gally
req
uire
in
tern
atio
nal b
est p
ract
ices
(inc
ludi
ng th
e us
e of
tech
nolo
gies
) to
be s
tric
tly a
dher
ed to
.
Investment Policy Framework for Sustainable Development34
Sec
tio
nsS
ub-s
ecti
ons
Po
licy
Gui
del
ines
Inve
stm
ent-
rela
ted
p
olic
ies
(con
tinue
d)
3.9
Infr
astr
uctu
re,
conc
essi
oni
ng a
nd
PP
P p
olic
ies
Ope
ning
in
frast
ruct
ure
sect
ors
to in
vest
ors
3.9.
1G
iven
the
pote
ntia
l con
trib
utio
n of
priv
ate
inve
stm
ent t
o bu
ildin
g hi
gh-q
ualit
y in
frast
ruct
ure,
cou
ntrie
s sh
ould
con
side
r the
ext
ent
to w
hich
bas
ic in
frast
ruct
ure
sect
ors
can
be o
pene
d to
dom
estic
and
fore
ign
priv
ate
inve
stm
ent,
and
unde
r w
hat c
ondi
tions
.
3.9.
2In
sec
tors
ope
ned
to p
rivat
e in
vest
men
t, ca
refu
l effo
rts
shou
ld g
o in
to id
entif
ying
spe
cific
pro
ject
s to
be
take
n up
by
priv
ate
inve
stor
s. S
hort
lists
of
proj
ects
for
con
cess
ioni
ng a
re a
use
ful
tool
, an
d G
over
nmen
ts s
houl
d in
itial
ly f
ocus
on
proj
ects
of
mod
erat
e co
mpl
exity
, whe
re c
omm
erci
al g
ains
are
eas
ier t
o re
aliz
e fo
r inv
esto
rs, a
nd w
here
the
soci
o-ec
onom
ic g
ains
are
cle
arly
m
easu
rabl
e.C
once
ssio
ning
rul
es
and
regu
latio
ns3.
9.3
Follo
win
g st
rate
gic
deci
sion
s on
whi
ch s
ecto
rs t
o op
en t
o pr
ivat
e in
vest
men
t, G
over
nmen
ts s
houl
d pu
t in
pla
ce a
car
eful
ly
craf
ted
lega
l fra
mew
ork
for
conc
essi
on c
ontr
acts
and
pub
lic-p
rivat
e pa
rtne
rshi
ps.
Giv
en t
he lo
ng-t
erm
nat
ure
of c
once
ssio
n ag
reem
ents
in
infra
stru
ctur
e, t
he l
egal
fra
mew
ork
shou
ld p
rovi
de s
igni
fican
t as
sura
nces
to
inve
stor
s, i
nclu
ding
reg
ardi
ng
cont
ract
ual t
erm
s an
d th
eir
enfo
rcem
ent,
and
prop
erty
rig
hts.
3.9.
4Th
e le
gal f
ram
ewor
k fo
r co
nces
sion
con
trac
ts n
eeds
to
adeq
uate
ly p
rote
ct t
he lo
ng-t
erm
nat
iona
l int
eres
t an
d co
nsum
ers,
en
surin
g ad
equa
te s
harin
g of
ris
ks b
etw
een
the
priv
ate
and
publ
ic p
artn
ers.
Com
petit
ive
outc
omes
3.9.
5W
here
ver
poss
ible
, co
nces
sion
ing
to p
rivat
e in
vest
ors
shou
ld a
im t
o in
trod
uce
com
petit
ion
so a
s no
t to
rep
lace
a p
ublic
m
onop
oly
with
a p
rivat
e on
e. P
laci
ng n
atur
al m
onop
olie
s un
der p
rivat
e co
nces
sion
sho
uld
be li
mite
d to
cas
es w
here
it in
crea
ses
effic
ienc
y an
d th
e de
liver
y of
ser
vice
s. P
uttin
g in
pla
ce a
ppro
pria
te c
ompe
titio
n an
d se
ctor
al r
egul
atio
ns s
houl
d be
con
side
red
a pr
e-re
quis
ite fo
r th
e su
cces
sful
con
cess
ioni
ng o
f inf
rast
ruct
ure
serv
ices
.In
stitu
tiona
l fra
mew
ork
for
conc
essi
onin
g an
d P
PP
s
3.9.
6G
iven
the
com
plex
ity o
f co
ntra
ctua
l ter
ms
invo
lved
in la
rge
infra
stru
ctur
e co
nces
sion
s, s
tron
g in
stitu
tions
nee
d to
be
put
in
plac
e fir
st in
ord
er t
o ac
hiev
e de
sira
ble
outc
omes
; in
add
ition
to
stre
ngth
enin
g se
ctor
al r
egul
ator
s, c
ount
ries
shou
ld c
onsi
der
the
esta
blis
hmen
t of a
ded
icat
ed P
PP
uni
t.
4In
vest
men
t p
olic
y ef
fect
iven
ess
4.1
Pub
lic g
ove
rnan
ce
and
inst
itut
ions
From
fram
ewor
k to
im
plem
enta
tion
4.1.
1In
the
im
plem
enta
tion
of i
nves
tmen
t po
licie
s G
over
nmen
ts s
houl
d st
rive
to a
chie
ve:
(1)
inte
grity
and
im
part
ialit
y ac
ross
G
over
nmen
t and
inde
pend
ence
of r
egul
ator
y in
stitu
tions
, sub
ject
to c
lear
repo
rtin
g lin
es a
nd a
ccou
ntab
ility
to e
lect
ed o
ffici
als;
(2
) tra
nspa
renc
y an
d pr
edic
tabi
lity
for
inve
stor
s; (3
) a s
ervi
ce-o
rient
atio
n to
war
ds in
vest
ors,
whe
re w
arra
nted
.In
ter-
agen
cy
coop
erat
ion
4.1.
2C
lose
coo
pera
tion
and
form
al c
omm
unic
atio
n ch
anne
ls s
houl
d be
in
plac
e be
twee
n in
stitu
tions
and
age
ncie
s de
alin
g w
ith
inve
stor
s. T
he IP
A s
houl
d pl
ay a
coo
rdin
atin
g ro
le g
iven
its
com
preh
ensi
ve p
ersp
ectiv
e on
issu
es c
onfro
ntin
g in
vest
ors.
Ant
i-cor
rupt
ion
effo
rts
4.1.
3G
over
nmen
ts s
houl
d ad
opt e
ffect
ive
anti-
corr
uptio
n le
gisl
atio
n an
d fig
ht c
orru
ptio
n w
ith a
ppro
pria
te a
dmin
istr
ativ
e, in
stitu
tiona
l an
d ju
dici
al m
eans
, for
whi
ch in
tern
atio
nal b
est p
ract
ices
sho
uld
serv
e as
gui
danc
e. In
vest
ors
shou
ld b
e he
ld to
adh
ere
to g
ood
corp
orat
e go
vern
ance
prin
cipl
es, w
hich
incl
ude
refra
inin
g fro
m p
ayin
g br
ibes
and
den
ounc
ing
corr
upt p
ract
ices
.
IV. Elements of International Investment Agreements: Policy Options 35
Sec
tio
nsS
ub-s
ecti
ons
Po
licy
Gui
del
ines
Inve
stm
ent
po
licy
effe
ctiv
enes
s(c
ontin
ued
)
4.2
Dyn
amic
pol
icy
deve
lopm
ent
4.2.
1P
olic
y de
sign
an
d im
plem
enta
tion
is
a co
ntin
uous
pr
oces
s of
fin
e-tu
ning
an
d ad
apta
tion
to
chan
ging
ne
eds
and
circ
umst
ance
s. P
erio
dic
revi
ew (
ever
y 3-
4 ye
ars)
of
perfo
rman
ce a
gain
st o
bjec
tives
sho
uld
take
pla
ce,
with
a v
iew
to:
-
verif
ying
con
tinue
d co
here
nce
of in
vest
men
t pol
icy
with
ove
rall
deve
lopm
ent s
trat
egy
- as
sess
ing
inve
stm
ent p
olic
y ef
fect
iven
ess
agai
nst o
bjec
tives
thro
ugh
a fo
cuse
d se
t of i
ndic
ator
s-
iden
tifyi
ng a
nd a
ddre
ssin
g un
derly
ing
caus
es o
f und
erpe
rform
ance
- ev
alua
ting
“ret
urn
on in
vest
men
t” o
f the
mor
e co
stly
inve
stm
ent p
olic
y m
easu
res
(e.g
. inc
entiv
es).
4.3
Mea
surin
g in
vest
men
t po
licy
effe
ctiv
enes
s4.
3.1
Obj
ectiv
es f
or in
vest
men
t po
licy
shou
ld b
e th
e ya
rd s
tick
for
mea
sure
men
t of
pol
icy
effe
ctiv
enes
s. (
Whe
re c
ount
ries
have
a
form
al in
vest
men
t str
ateg
y it
shou
ld s
et o
ut s
uch
obje
ctiv
es, s
ee 1
.1 a
bove
.) Th
ey s
houl
d br
eak
dow
n ob
ject
ives
for i
nves
tmen
t at
trac
tion
and
deve
lopm
ent
impa
ct,
and
set
clea
r pr
iorit
ies.
Per
form
ance
(esp
ecia
lly in
ter
ms
of in
vest
men
t at
trac
tion)
sho
uld
be b
ench
mar
ked
agai
nst p
eers
.
4.3.
2In
dica
tors
for
obje
ctiv
es re
late
d to
the
attr
actio
n of
inve
stm
ent m
ay in
clud
e:
- in
vest
men
t infl
ows
(tota
l, by
indu
stry
, act
ivity
,…),
- in
vest
men
t flow
s as
a s
hare
of g
ross
out
put a
nd c
apita
l for
mat
ion
(idem
), -
gree
nfiel
d in
vest
men
t as
a sh
are
of to
tal i
nves
tmen
t, -
posi
tioni
ng o
n U
NC
TAD
’s “
inve
stm
ent p
oten
tial/p
erfo
rman
ce m
atrix
”.
4.3.
3In
dica
tors
for
obje
ctiv
es re
late
d to
the
impa
ct o
f inv
estm
ent m
ay in
clud
e:
- va
lue
adde
d of
inve
stm
ent a
ctiv
ity,
- va
lue
of c
apita
l for
mat
ion,
-
expo
rt g
ener
atio
n,
- co
ntrib
utio
n to
the
crea
tion
of fo
rmal
bus
ines
s en
titie
s,
- fis
cal r
even
ues,
-
empl
oym
ent g
ener
atio
n an
d w
age
cont
ribut
ion,
-
tech
nolo
gy a
nd s
kills
con
trib
utio
n (e
.g. a
s m
easu
red
thro
ugh
the
skill-
type
s of
jobs
cre
ated
),
- so
cial
and
env
ironm
enta
l mea
sure
s,-
posi
tioni
ng o
n U
NC
TAD
’s “
inve
stm
ent c
ontr
ibut
ion
mat
rix”.
Investment Policy Framework for Sustainable Development36
IV. Elements of International Investment Agreements: Policy Options
The guidance on international investment policies set out in this chapter aims to translate the Core Principles into concrete options for policymakers, with a view to addressing today’s investment policy challenges. While national investment policymakers address these challenges through rules, regulations, institutions and initiatives, at the international level policy is translated through a complex web of treaties (including, principally, bilateral investment treaties, free trade agreements with investment provisions, economic partnership agreements and regional agreements).9 As discussed in chapter I, the complexity of that web, which leads to gaps, overlaps and inconsistencies in the system of IIAs, is itself one of the challenges to be addressed. The other is the need to strengthen the development dimension of IIAs, balancing the rights and obligations of States and investors, ensuring sufficient policy space for sustainable development policies and making investment promotion provisions more concrete and aligned with sustainable development objectives.
International investment policy challenges must be addressed at three levels:
1. When formulating their strategic approach to international engagement on investment, policymakers need to embed international investment policymaking into their countries’ development strategies. This involves managing the interaction between IIAs and national policies (e.g. ensuring that IIAs support industrial policies (WIR11)) and that between IIAs and other international policies or agreements (e.g. ensuring that IIAs do not contradict international environmental agreements (WIR10) or human rights obligations). The overall objective is to ensure coherence between IIAs and sustainable development needs.
2. In the detailed design of provisions in investment agreements between countries, policymakers need to incorporate sustainable development considerations, addressing concerns related to policy space (e.g.,
through reservations and exceptions), balanced rights and obligations of States and investors (e.g., through encouraging compliance with CSR standards), and effective investment promotion (e.g., through home-country measures).
3. Multilateral consensus building on investment policy, in turn, can help address some of the systemic challenges stemming from the multi-layered and multi-faceted nature of the IIA regime, including the gaps, overlaps and inconsistencies in the system, its multiple dispute resolution mechanisms, and its piecemeal and erratic expansion.
This chapter, therefore, first discusses how policymakers can strategically engage in the international investment regime at different levels and in different ways in the interest of sustainable development. It then provides a set of options for the detailed design of IIAs. The final chapter of this report (chapter V) will suggest an avenue for further consensus building and international cooperation on investment policy.
UNCTAD’s proposed options for addressing the challenges described above come at a time when a multitude of investment stakeholders are putting forward suggestions for the future of IIA policymaking. With the recently adopted European Union-United States Statement on Shared Principles for International Investment, the revision of the International Chamber of Commerce (ICC) Guidelines for International Investment, and the release of the new United States model BIT, IIA policymaking is in one of its more dynamic evolutionary stages, providing a window of opportunity to strengthen the sustainable development dimension of IIAs.
1. Defining the role of IIAs in countries’ development strategy and investment policy
International investment instruments are an integral part of investment policymaking that supports investment promotion objectives but that can
IV. Elements of International Investment Agreements: Policy Options 37
also constrain investment and development policymaking. As a promotion tool, IIAs complement national rules and regulations by offering additional assurances to foreign investors concerning the protection of their investments and the stability, transparency and predictability of the national policy framework. As to the constraints, these could take many forms: they could limit options for developing countries in the formulation of development strategies that might call for differential treatment of investors, e.g. industrial policies (see WIR11); or they could hinder policymaking in general, including for sustainable development objectives, where investors could perceive new measures as unfavourable to their interests and resort to IIA-defined dispute settlement procedures outside the normal domestic legal process.
Given such potential constraints on policymaking, it is important to ensure the coherence of IIAs with other economic policies (e.g. trade, industrial, technology, infrastructure or enterprise policies that aim at building productive capacity and strengthening countries’ competitiveness) as well as with non-economic policies (e.g. environmental, social, health or cultural policies).10 Policymakers should carefully set out an agenda for international engagement and negotiation on investment (including the revision and renegotiation of existing agreements).
When considering the pros and cons of engaging in IIAs, policymakers should have a clear understanding of what IIAs can and cannot achieve.
• IIAs can, by adding an international dimension to investment protection and by fostering stability, predictability and transparency, reinforce investor confidence and thus promote investment. From an investor’s perspective, IIAs essentially act as an insurance policy, especially important for investments in countries with unfavourable country-risk ratings.
• IIAs can promote investment in other ways beyond granting investor protection. Some IIAs include commitments on the part of home countries to promote outward investment or to engage in collaborative initiatives for this purpose (although this is currently a small minority of treaties).11
• IIAs can help to build and advertise a more attractive investment climate. By establishing international commitments, they can foster good governance and facilitate or support domestic reforms.
• On the other hand, IIAs alone cannot turn a bad domestic investment climate into a good one and they cannot guarantee the inflow of foreign investment. There is no mono-causal link between the conclusion of an IIA and FDI inflows; IIAs play a complementary role among many determinants that drive firms’ investment decisions.12 Most importantly, IIAs cannot be a substitute for domestic policies and a sound national regulatory framework for investment.
Host countries’ engagement in the current IIA system may not be solely driven by a clear and explicit design that grounds their treaties in a solid development purpose, but rather influenced by the negotiation goals of their treaty partners or other non-economic considerations.13 As such, there is a risk that IIAs, in number and substance, become largely a vehicle for the protection of interests of investors and home countries without giving due consideration to the development concerns of developing countries. Not surprisingly, a detailed analysis of the substance of model treaties of major outward investing countries shows that, on average, treaty provisions are heavily skewed towards providing a high level of protection, with limited concessions to development aspects that can be a trade-off against investor protection (i.e. leaving countries more policy space generally implies granting less protection to investors). This trade-off suggests that there may be an inherent development challenge in IIAs: developing countries with the most unfavourable risk ratings are most in need of the protecting qualities of IIAs to attract investment, but they are generally also the countries most in need of flexibility (or policy space) for specific development policies.
Moreover, not only low-income developing countries may experience IIAs as a straightjacket, but also higher income countries, and even developed market economies, are sometimes faced with unexpected consequences of their own treaties. As more and more countries with sound and credible
Investment Policy Framework for Sustainable Development38
domestic legal systems and stable investment climates continue to conclude IIAs granting high levels of investor protection, they risk being confronted themselves with investor-State dispute settlement (ISDS) rules originally intended to shield their investors abroad. This risk is exacerbated by the changing investor landscape, in which more and more developing countries, against whose policies the IIA protective shield was originally directed, are becoming important outward investors in their own right, turning the tables on the original developed country IIA demandeurs. Spelling out the underlying drivers and objectives of a country’s approach to IIAs thus becomes important not only for developing countries, but also for developed ones.
In addition to taking into account the development purpose of IIAs, in defining their agenda for international engagement and negotiation on investment, IIA policymakers should:
• Consider the type of agreements to prioritize, and whether to go for dedicated agreements on investment or for investment provisions integrated in broader agreements, e.g. covering also trade, competition and/or other policy areas. The latter option provides for comprehensive treatment of inter-related issues in different policy areas. It also recognizes the strong interaction between trade and investment and the blurring boundaries between the two (due to the phenomenon of non-equity modes of international production; see WIR11), as well as the FDI and trade inducing effect of enlarged markets.
• Consider whether to pursue international engagement on investment policy in the context of regional economic cooperation or integration or through bilateral agreements. For smaller developing countries, with limited potential to attract market-seeking investment in their own right, opportunities for regional integration and collaboration on investment policy, particularly when combined with potentially FDI-inducing regional trade integration (UNCTAD 2009), may well take priority over other types of investment agreements. The benefits of this approach may be largest when combined with technical
assistance and efforts towards regulatory cooperation and institution building.
• Set priorities – where countries pursue bilateral collaboration on investment – in terms of treaty partners (i.e. prioritize the most important home countries of international investors in sectors that are key in the country’s development strategy and where foreign involvement is desired).
Furthermore, international engagement on investment policy should recognize that international agreements interact with each other and with other bodies of international law. Policymakers should be aware, for example, that commitments made to some treaty partners may easily filter through to others through most-favoured nation (MFN) clauses, with possibly unintended consequences. Commitments may clash, or hard-won concessions in a negotiation (e.g. on policy space for performance requirements) may be undone through prior or subsequent treaties.
Finally, a particularly sensitive policy issue is whether to include liberalization commitments in IIAs by granting pre-establishment rights to foreign investors. Most IIAs grant protection to investments from the moment they are established in the host State; the host country thus retains discretion with respect to the admission of foreign investors to its market. However, in recent years an increasing number of IIAs include provisions that apply in the pre-establishment phase of investment, contributing to a more open environment for investment, at the cost of a lower degree of discretion in regulating entry matters domestically. When granting pre-establishment rights, managing the interaction between international and national policies is particularly crucial: policymakers can use IIAs to bind – at the international level – the degree of openness granted in domestic laws; or they can use IIA negotiations as a driving force for change, fostering greater openness at the national level (WIR04).14 Granting pre-establishment rights also adds new complexities to the interaction between agreements. For example, a question may arise whether an unqualified MFN clause of a pre-establishment IIA could allow investors to enforce host countries’ obligations under the WTO GATS agreement through ISDS.15
IV. Elements of International Investment Agreements: Policy Options 39
The following section, which discusses how today’s investment policy challenges can be addressed in the content and detailed provisions of IIAs, covers both pre- and post-establishment issues. Policymakers have so far mostly opted for agreements limited to the post-establishment phase of investment; where they opt for pre-establishment coverage, numerous tools are available to calibrate obligations in line with their countries’ specific needs.
2. Negotiating sustainable-development-friendly IIAs
Addressing sustainable development challenges through the detailed design of provisions in investment agreements principally implies four areas of evolution in treaty-making practice. Such change can be promoted either by including new elements and clauses into IIAs, or by taking a fresh approach to existing, traditional elements.
1. Incorporating concrete commitments to promote and facilitate investment for sustainable development: Currently, IIAs mostly promote foreign investment only indirectly through the granting of investment protection – i.e. obligations on the part of host countries – and do not contain commitments by home countries to promote responsible investment. Most treaties include hortatory language on encouraging investment in preambles or non-binding provisions on investment promotion. Options to improve the investment promotion aspect of treaties include concrete facilitation mechanisms (information sharing, investment promotion forums), outward investment promotion schemes (insurance and guarantees), technical assistance and capacity-building initiatives targeted at sustainable investment, supported by appropriate institutional arrangements for long-term cooperation.
2. Balancing State commitments with investor obligations and promoting responsible investment: Most IIAs currently provide for State obligations but do not specify investor obligations or responsibilities. Legally binding obligations on companies and individuals are stipulated by national law but are absent in international treaties, which traditionally do
not apply to private parties directly.16 However, there are examples where IIAs impose obligations on investors (e.g. COMESA Investment Agreement of 200717) or where international conventions establish criminal responsibility of individuals (e.g. the Rome Statute of the International Criminal Court). These examples, together with the changes in the understanding of the nature and functions of international law, would suggest that international treaties can, in principle, impose obligations on private parties.18 While stopping short of framing IIAs so as to impose outright obligations on investors, a few options may merit consideration.
For example, IIAs could include a requirement for investors to comply with investment-related national laws of the host State when making and operating an investment, and even at the post-operations stage (e.g., environmental clean-up), provided that such laws conform to the host country’s international obligations, including those in the IIA.19 Such an investor obligation could be the basis for further stipulating in the IIA the consequences of an investor’s failure to comply with domestic laws, such as the right of host States to make a counter-claim in ISDS proceedings with the investor.
In addition, IIAs could refer to commonly recognized international standards (e.g. the UN Guidelines on Business and Human Rights). This would not only help balance State commitments with investor obligations but also support the spread of CSR standards – which are becoming an ever more important feature of the investment policy landscape (WIR11). Options for treaty language in this regard could range from commitments to promote best international CSR standards to ensuring that tribunals consider an investor’s compliance with CSR standards when deciding an ISDS case.
3. Ensuring an appropriate balance between protection commitments and regulatory space for development: IIAs protect foreign investment by committing host country governments to grant certain
Investment Policy Framework for Sustainable Development40
standards of treatment and protection to foreign investors; it is the very nature of an IIA’s standards of protection, and the attendant stabilizing effect, to place limits on government regulatory freedom. For example, where host governments aim to differentiate between domestic and foreign investors, or require specific corporate behaviour, they would be constrained by IIA provisions on non-discrimination or on performance requirements. In addition, to the extent that foreign investors perceive domestic policy changes to negatively affect their expectations, they may challenge them under IIAs by starting arbitration proceedings against host States. Countries can safeguard some policy space by carefully crafting the structure of IIAs and by clarifying the scope and meaning of particularly vague treaty provisions such as the fair and equitable treatment standard and expropriation as well as by using specific flexibility mechanisms such as general or national security exceptions and reservations. More recent IIA models, such as the one adopted by the United States in 2004, offer examples in this regard. The right balance between protecting foreign investment and maintaining policy space for domestic regulation should flow from each country’s development strategy, ensuring that flexibility mechanisms do not erode a principal objective of IIAs – their potentially investment enhancing effect.
4. Shielding host countries from unjustified liabilities and high procedural costs: Most IIAs reinforce their investment protection provisions by allowing investors directly to pursue relief through investor-State dispute settlement (ISDS). The strength of IIAs in granting protection to foreign investors has become increasingly evident through the number of ISDS cases brought over the last decade, most of which are directed at developing countries. Host countries have faced claims of up to $114 billion20 and awards of up to $867 million.21 Added to these financial liabilities are the costs of procedures, all together putting a significant burden on defending countries and
exacerbating the concerns related to policy space. Host countries – both developed and developing – have experienced that the possibility of bringing ISDS claims can be used by foreign investors in unanticipated ways. A number of recent cases have challenged measures adopted in the public interest (e.g. measures to promote social equity, foster environmental protection or protect public health), and show that the borderline between protection from political risk and undue interference with legitimate domestic polices is becoming increasingly blurred. Shielding countries from unjustified liabilities and excessive procedural costs through treaty design thus involves looking at options both in ISDS provisions themselves and in the scope and application of substantive clauses (see below).
These areas of evolution are also relevant for “pre-establishment IIAs”, i.e. agreements that – in addition to protecting established investors – contain binding rules regarding the establishment of new investments. While a growing number of countries opt for the pre-establishment approach, it is crucial to ensure that any market opening through IIAs is in line with host countries’ development strategies. Relevant provisions opt for selective liberalization, containing numerous exceptions and reservations designed to protect a country from over-committing and/or ensuring flexibilities in the relevant treaty obligations (see box 8).
These four types of evolution in current treaty practice filter through to specific clauses in different ways. The following are examples of how this would work, focusing on some of the key provisions of current treaty practice – scope and definition, national treatment, most-favoured nation treatment, fair and equitable treatment, expropriation and ISDS. In addition to shaping specific clauses, sustainable development concerns can also be addressed individually, e.g. through special and differential treatment (SDT), a key aspect of the multilateral trading system but largely unknown in IIA practice (see box 9).
• Scope and Definition: An IIA’s coverage determines the investments/investors that
IV. Elements of International Investment Agreements: Policy Options 41
Box 8. Pre-establishment commitments in IIAs
Pre-establishment IIAs signal that a country is generally committed to an open investment environment, although the fact that a country “only” concludes post-establishment IIAs does not necessarily mean that it follows a restrictive FDI policy. Also, pre-establishment commitments in IIAs do not necessarily have to mirror the actual degree of openness of an economy. Establishment rights in IIAs can remain below this level or go beyond it, i.e. IIAs can be used to open up hitherto closed industries to foreign investors.
Pre-establishment IIAs typically operate by extending national treatment and MFN treatment to the “establishment, acquisition and expansion” of investments. This prevents each contracting party from treating investors from the other contracting party less favourably than it treats its own investors and/or investors from other countries in these matters.
Properly defining the scope of pre-establishment commitments is key. The two main mechanisms are the positive and negative listing of sectors/industries. Under the latter, investors benefit from pre-establishment commitments in all industries except in those that are explicitly excluded. The negative-list approach is more demanding in terms of resources: it requires a thorough audit of existing domestic policies. In addition, under a negative-list approach and in the absence of specific reservations, a country commits to openness also in those sectors/activities, which, at the time the IIA is signed, may not yet exist in the country, or where regulatory frameworks are still evolving. In contrast, a positive-list approach offers selective liberalization by way of drawing up a list of industries in which investors will enjoy pre-establishment rights. Another, more limited method is to include a positive list of “committed” industries and complement it by a list of reservations preserving certain measures or aspects in those industries (“hybrid”, or GATS-type approach).
Pre-establishment treaties display a range of options – typically through country-specific reservations – for preserving policy flexibility even in “committed” industries (see the IPFSD IIA-elements table, Part B, on pre-establishment options).
Source: UNCTAD.
benefit from the protection offered by the IIA. Past disputes have demonstrated the potential of IIAs to be interpreted broadly, so as to apply to types of transactions that were originally not envisaged to benefit from the IIA (such as government debt securities).22 When negotiating an IIA with a stronger sustainable development dimension, it may thus be appropriate to safeguard policy space and exclude some types of financial transactions (e.g. portfolio investment or short-term, speculative financial flows) from a treaty’s scope and to focus application of the treaty to those types of investment that the contracting parties wish to attract (e.g. direct investment in productive assets).
Whether IIAs should exclude portfolio investment is a policy choice that has been subject to intense debate. Portfolio investment can make a contribution to development by providing financial capital. However, the sometimes volatile nature of portfolio investment flows can be damaging. At the practical level, portfolio and direct investment are often difficult to differentiate, both in
terms of identifying relevant financial flows of either type, and in terms of targeted policy instruments.
It may also be appropriate to exclude from a treaty’s scope specific areas of public policy or specific (sensitive) economic sectors. Or, in order to limit liability and to avoid “treaty shopping” and “roundtrip investment”, it may be appropriate to confine application to genuine investors from the contracting parties, excluding investments that are only channelled through legal entities based in the contracting parties.
• National Treatment (NT): National treatment protects foreign investors against discrimination vis-à-vis comparable domestic investors, with a view to ensuring a “level playing field”. Non-discriminatory treatment is generally considered conducive to good governance and is, in principle, enshrined in many countries’ domestic regulatory frameworks. Nevertheless, even if national treatment is provided under domestic legislation, countries may be reluctant to “lock in” all aspects of their domestic regulatory
Investment Policy Framework for Sustainable Development42
Box 9. Special and differential treatment (SDT) and IIAs
A large number of IIAs are concluded between developed and developing countries. SDT gives legal expression to the special needs and concerns of developing countries and/or least developed countries in international (economic) agreements. It is based on the notion that treaty parties at different stages of development should not necessarily be bound by the same obligations.
Expression of the principle can be found in a multilateral context in over 145 provisions of WTO agreements23
essentially i) granting less onerous obligations to developing countries – either permanently or temporarily; and/or ii) imposing special obligations on developed countries vis-à-vis developing countries.24 Over time, SDT has found its way into other aspects of international relations, most prominently international environmental law, including the climate change framework.
Thus far, SDT has largely been absent from IIAs. Despite incorporating the general concepts of policy space and flexibility for development, IIAs – being mostly of a bilateral nature – are based on legal symmetry and reciprocity, meaning that the rights and obligations of the parties are generally the same. Moreover, IIAs typically do not deal with pre-establishment/market access issues, for which SDT considerations are particularly relevant.
Exceptionally, however, the COMESA Investment Agreement contains an SDT clarification with respect to the fair and equitable treatment standard: “For greater certainty, Member States understand that different Member States have different forms of administrative, legislative and judicial systems and that Member States at different levels of development may not achieve the same standards at the same time.”25
Reinvigorating SDT with a view to making IIAs work better for sustainable development could take a number of forms. For example, lower levels of obligations for developing countries could be achieved through i) development-focused exceptions from obligations/commitments; ii) best endeavour commitments for developing countries; iii) asymmetrically phased implementation timetables with longer time frames for developing countries; or iv) a development-oriented interpretation of treaty obligations by arbitral tribunals. Best endeavour commitments by more advanced countries could, for example, relate to: i) technical assistance and training (e.g. assisting in the handling of ISDS cases or when putting in place appropriate domestic regulatory systems to ensure compliance with obligations); ii) promotion of the transfer/dissemination of technology; iii) support and advice for companies from developing countries (e.g. to become outward investors or adopt CSR standards); iv) investment promotion (e.g. provide outward investment incentives such as investment guarantees, tax breaks).
While SDT remains largely absent from IIAs, negotiators could consider adding SDT elements, offering a further promising tool for making IIAs more sustainable-development-friendly, particularly for least-developed and low-income countries.
Source: UNCTAD.
framework at the international level (e.g. private sector development initiatives, including regulatory, financial or fiscal incentives) and, depending on their development strategy, States may wish to afford preferential treatment to national investors/investments as part of industrial development policies or for other reasons. In such cases, negotiators could circumscribe the scope of national treatment clauses and/or allow for derogations (e.g. through the lodging of reservations excluding sectors, policy areas or specific measures from its application (see WIR11)).
• Most-Favoured-Nation (MFN) Treatment: MFN clauses aim to prevent discrimination between
comparable investors of different foreign nationality. The meaning of such treatment has been subject to diverging and unanticipated interpretations by tribunals. Several arbitral decisions interpreted MFN as allowing investors to invoke more investor-friendly language from treaties between the respondent State and a third country, thereby effectively sidelining the “base” treaty (i.e. the actual treaty between the investor’s home and host country on the basis of which the case was brought). This practice can be seen in a positive light as “upward harmonization” of IIA standards or in a negative one as “cherry picking” best clauses from different treaties, endangering individual treaty bargains. MFN treatment
IV. Elements of International Investment Agreements: Policy Options 43
needs to be carefully considered, particularly in light of countries’ growing networks of IIAs with different obligations and agreements including pre-establishment issues. To avoid misinterpretation, IIAs have started explicitly to exclude dispute settlement issues as well as obligations undertaken in treaties with third States from the scope of the MFN obligation. Other options include limiting the clause’s reach through country-specific reservations.
• Fair and Equitable Treatment (FET): The obligation to accord fair and equitable treatment to foreign investments appears in the great majority of IIAs. Investors (claimants) have frequently – and with considerable success – invoked it in ISDS. There is a great deal of uncertainty concerning the precise meaning of the concept, because the notions of “fairness” and “equity” do not connote a clear set of legal prescriptions in international investment law and allow for a significant degree of subjective judgment. Some tribunals have read an extensive list of disciplines into the FET clause, which are taxing on any State, but especially on developing and least-developed countries; lack of clarity persists regarding the appropriate threshold of liability. The use of FET to protect investors’ legitimate expectations can indirectly restrict countries’ ability to change investment-related policies or to introduce new policies – including those for the public good – that may have a negative impact on individual foreign investors. Options to reduce uncertainty regarding States’ liabilities and to preserve policy space include qualifying or clarifying the FET clause, including by way of an exhaustive list of State obligations under FET, or even considering omitting it.
• Expropriation: An expropriation provision protects foreign investors/investments against dispossession or confiscation of their property by the host country without compensation. As most IIAs also prohibit indirect expropriation (i.e. apply to regulatory takings), and as some arbitral tribunals have tended to interpret this broadly (i.e. including legitimate regulatory measures in the pursuit of the public interest), the expropriation clause has the potential to pose undue constraints on a State’s regulatory
capacity. To avoid this, policymakers could clarify the notion of indirect expropriation and introduce criteria to distinguish between indirect expropriation and legitimate regulation that does not require compensation.
• Investor-State Dispute Settlement (ISDS): Originally, the system of international investor-State arbitration was conceived as an effective tool to enforce foreign investors’ rights. It offered direct access to international arbitration for investors to avoid national courts of host countries and to solve disputes in a neutral forum that was expected to be cheap, fast, and flexible. It was meant to provide finality and enforceability, and to depoliticise disputes. While some of these advantages remain valid, the ISDS system has more recently displayed serious shortcomings (e.g. inconsistent and unintended interpretations of clauses, unanticipated uses of the system by investors, challenges against policy measures taken in the public interest, costly and lengthy procedures, limited or no transparency), undermining its legitimacy. While some ISDS concerns can be addressed effectively only through a broader approach requiring international collaboration, negotiators can go some way to improving the institutional and procedural aspects of ISDS and to limiting liability and the risk of becoming embroiled in costly procedures. They can do so by qualifying the scope of consent given to ISDS, promoting the use of alternative dispute resolution (ADR) methods, increasing transparency of procedures, encouraging arbitral tribunals to take into account standards of investor behaviour when settling investor-State disputes, limiting resort to ISDS and increasing the role of domestic judicial systems, providing for the possibility of counterclaims by States, or even refraining from offering ISDS.26
3. IIA elements: policy optionsThe IPFSD table on IIA-elements (see page 47-62) contains a comprehensive compilation of policy options available to IIA negotiators, including options to operationalize sustainable development objectives (also see table 5). The
Investment Policy Framework for Sustainable Development44
options include both mainstream IIA provisions as well as more idiosyncratic treaty language used by fewer countries. In some instances, the IPFSD IIA-elements table contains new suggestions by UNCTAD.27
As a comprehensive set of policy options, the IPFSD IIA-elements table aims to represent two different approaches on the design of IIAs. At one side of the spectrum is the school of thought that prefers IIAs with straightforward provisions focusing on investment protection and limiting clarifications and qualifications to the minimum. At the other side, a comprehensive approach to investment policymaking adds a host of considerations – including on sustainable development – in the wording of IIA clauses.
The objective of the IPFSD IIA-elements table is to provide policymakers with an overview of options for designing an IIA. It offers a broad menu from which IIA negotiators can pick and choose. This table is not meant to identify preferred options for IIA negotiators or to go so far as to suggest a model IIA. However, the table briefly comments on the various drafting possibilities with regard to each IIA provision and highlights – where appropriate – their implications for sustainable development. It is hoped that these explanations will help IIA negotiators identify those drafting options that best suit their countries’ needs, preferences and objectives.
The IPFSD IIA-elements table includes various options that could be particularly supportive of sustainable development. Examples are:
• Including a carefully crafted scope and definitions clause that excludes portfolio, short-term or speculative investments from treaty coverage.
• Formulating an FET clause as an exhaustive list of State obligations (e.g. not to (i) deny justice in judicial or administrative procedures, (ii) treat investors in a manifestly arbitrary manner, (iii) flagrantly violate due process, etc.).
• Clarifying – to the extent possible – the distinction between legitimate regulatory activity and regulatory takings (indirect expropriations) giving rise to compensation.
• Limiting the Full Protection and Security (FPS) provision to “physical” security and protection only and specifying that protection shall be commensurate with the country’s level of development.
• Limiting the scope of a transfer of funds clause by providing an exhaustive list of covered payments/transfers; including exceptions in case of serious balance-of-payments difficulties; and conditioning the transfer right on the investor’s compliance with its fiscal and other transfer-related obligations in the host country.
• Including carefully crafted exceptions to protect human rights, health, core labour standards and the environment, with well working checks and balances, so as to guarantee policy space while avoiding abuse.
• Considering, in light of the quality of the host country’s administrative and judicial system, the option of “no ISDS” or of designing the dispute settlement clause to make ISDS the last resort (e.g. after exhaustion of local remedies and ADR).
• Establishing an institutional set-up that makes the IIA adaptable to changing development contexts and major unanticipated developments (e.g. ad hoc committees to assess the effectiveness of the agreement and to further improve its implementation through amendments or interpretations).
The IPFSD IIA-elements table recognizes that specific policy objectives can be pursued by different treaty elements, thereby inviting treaty drafters to choose their “best-fit” combination. For example, a country that wishes to preserve regulatory space for policies aimed at ensuring access to essential services can opt for (i) excluding investments in essential services from the scope of the treaty; (ii) excluding essential services policies from the scope of specific provisions (e.g. national treatment); (iii) scheduling reservations (for national treatment or the prohibition of performance requirements) for specific (existing and/or future) essential services policies; (iv) including access to essential services as a legitimate policy objective in the IIA’s general exceptions; or (v) referring to the importance of ensuring access to essential services in the preamble of the agreement.
IV. Elements of International Investment Agreements: Policy Options 45
Table 5. Policy options to operationalize sustainable development objectives in IIAs
Options Mechanisms Examples
Adjusting existing/ common provisionsto make them more sustainable-development-friendly through clauses that:• safeguard policy
space • limit State liability
Hortatory language
- Preamble: stating that attracting responsible foreign investment that fosters sustainable development is one of the key objectives of the treaty.
Clarifications - Expropriation: specifying that non-discriminatory good faith regulations pursuing public policy objectives do not constitute indirect expropriation.
- FET: including an exhaustive list of State obligations.
Qualifications/ limitations
- Scope and definition: requiring covered investments to fulfill specific characteristics, e.g., positive development impact on the host country.
Reservations/ carve-outs
- Country-specific reservations to NT, MFN or pre-establishment obligations, carving out policy measures (e.g. subsidies), policy areas (e.g. policies on minorities, indigenous communities) or sectors (e.g. social services).
Exclusions from coverage/exceptions
- Scope and definition: excluding portfolio, short-term or speculative investments from treaty coverage.
- General exception for domestic regulatory measures that aim to pursue legitimate public policy objectives.
Omissions - Omit FET, umbrella clause.
Adding new provisions or new, stronger paragraphs within provisions for sustainable development purposes to:• balance investor
rights and responsibilities
• promote responsible investment
• strengthen home-country support
Investor obligations and responsibilities
- Requirement that investors comply with host State laws at both the entry and the post-entry stage of an investment.
- Encouragement to investors to comply with universal principles or to observe applicable CSR standards.
Institutional set-up for sustainable development impact
- Institutional set-up under which State parties cooperate to e.g. review the functioning of the IIA or issue interpretations of IIA clauses.
- Call for cooperation between the Parties to promote observance of applicable CSR standards.
Home-country measures to promote responsible investment
- Encouragement to offer incentives for sustainable-development-friendly outward investment; investor compliance with applicable CSR standards may be an additional condition.
- Technical assistance provisions to facilitate the implementation of the IIA and to maximize its sustainable development impact, including through capacity building on investment promotion and facilitation.
Introducing Special and Differential Treatment for the less developed Party – with effect on both existing and new provisions – to:• calibrate
the level of obligations to the country’s level of development
Lower levels of obligations
- Pre-establishment commitments that cover fewer economic activities.
Development-focused exceptions from obligations/commitments
- Reservations, carving out sensitive development related areas, issues or measures.
Best endeavour commitments
- FET, NT commitments that are not legally binding.
Asymmetric implementation timetables
- Phase-in of obligations, including pre-establishment, NT, MFN, performance requirements, transfer of funds and transparency.
Source: UNCTAD.
Investment Policy Framework for Sustainable Development46
The IPFSD IIA-elements table likewise reflects that negotiators can determine the normative intensity of IIA provisions: they can ensure the legally binding and enforceable nature of some obligations while at the same time resorting to hortatory, best endeavour language for others. These choices can help negotiators design a level of protection best suited to the specific circumstances of negotiating partners and in line with the need for proper balancing between investment protection and policy space for sustainable development.
The ultimate shape of an IIA is the result of a specific combination of options that exist in respect of each IIA provision. It is this blend that determines where on a spectrum between utmost investor protection and maximum policy flexibility a particular IIA is located. The same holds true for the IIA’s impact on sustainable development. Combinations of and interactions between IIA provisions can take a number of forms:
• Interaction between a treaty’s scope/definitions and the obligations it establishes for the contracting parties: An agreement’s “protective strength” stems not only from the substantive and procedural standards of protection it offers to investors, but also from the breadth and variety of categories of investors and investments it covers (i.e. that benefit from the standards of protection offered by the IIA). Hence, when designing a particular IIA and calibrating the degree of protection it grants, negotiators can use different combinations of the two. For example, (i) a broad open-ended definition of investment could be combined with few substantive obligations, or with obligations formulated in a manner reducing their “bite”; or (ii) a narrow definition of investment (e.g. covering direct investments in a few priority sectors only) could be combined with more expansive protections such as an unqualified FET standard or the prohibition of numerous performance requirements.
• Interaction between protection-oriented clauses: Some IIAs combine narrowly drafted clauses in some areas with “broad” provisions in others. An example is the combination between a carefully circumscribed
expropriation clause and an unqualified FET provision. Another option is to limit the impact of ISDS by either formulating substantive standards of protection as best endeavour (i.e. hortatory) clauses, or by precluding the use of ISDS in respect of particularly vague treaty articles, such as the FET standard.28 Under such scenarios, protective standards may still have a good-governance-enhancing effect on host countries’ regulatory framework, while reducing the risk to be drawn into ISDS. Consideration also has to be given to the interaction with the MFN provision: with the inclusion of a “broad” MFN clause, investors may be tempted to circumvent “weak” protection clauses by relying on more protective (i.e. “stronger”) clauses in treaties with third parties.
• Interaction between protection and exceptions: Strong protection clauses and effective flexibilities for contracting parties are not mutually exclusive; rather, the combination of the two helps achieve a balanced agreement that meets the needs of different investment stakeholders. For example, an IIA can combine “strong” substantive protection (e.g. non-discrimination, capital transfer guarantees) with “strong” exceptions (e.g. national security exceptions or general exceptions to protect essential public policy objectives).29
The policy options presented in the IPFSD IIA-elements table are grounded in the Core Principles. For example, (i) the principle of investment protection directly manifests itself in IIA clauses on FET, non-discrimination, capital transfer, protection in case of expropriation or protection from strife; (ii) the principle of good governance is reflected, amongst others, in IIA clauses that aim at increasing host State’s transparency regarding laws and regulations or in IIA clauses that foster transparency by the foreign investor vis-à-vis the host State; (iii) the right to regulate principle is reflected, amongst others, in IIA clauses stating that investments need to be in accordance with the host country’s laws, allowing countries to lodge reservations (including for future policies); clarifying and circumscribing the content of indirect expropriation or general exceptions.
IV. Elements of International Investment Agreements: Policy Options 47
UNCTAD’s Investment Policy Framework for Sustainable Development
Elements of International Investment Agreements: Policy OptionsSummary of contents
Sections Description
Part A. Post-establishment
1 Preamble … sets out objectives of the treaty and the intentions of the Contracting Parties
2 Treaty scope… defines the investment and investors protected under the treaty and its temporal application
3 Admission … governs entry of investments into the host State
4Standards of treatment and protection
… prescribe the treatment, protection and rights which host States are required to accord foreign investors/investments
5 Public policy exceptions ... permit public policy measures, otherwise inconsistent with the treaty, to be taken under specified, exceptional circumstances
6 Dispute settlement… governs settlement of disputes between the Contracting Parties and those between foreign investors and host States
7Investor obligations and responsibilities
… promote compliance by investors with domestic and/or international norms at the entry and operation stage
8Relationship to other agreements
… establishes a hierarchy in case of competing international norms
9Not lowering of standards clause
… discourages Contracting Parties from attracting investment through the relaxation of labour or environmental standards
10 Investment promotion… aims to encourage foreign investment through additional means beyond investment protection provisions in IIAs
11 Institutional set-up … establishes an institutional platform for collaboration between the Contracting Parties
12 Final provisions … define the duration of the treaty, including its possible prolongation
Part B. Pre-establishment
1 Pre-establishment obligations … govern establishment of foreign investments in the host State
Part C. Special and Differential Treatment (SDT)
1 Asymmetrical obligations … enable imposition of less onerous obligations on a less developed Contracting Party
2 Additional tools … encourage positive contributions by a more developed Contracting Party
Investment Policy Framework for Sustainable Development48U
NC
TA
D’s
Inve
stm
ent
Policy
Fra
mew
ork
for
Susta
inable
Deve
lopm
ent
Pol
icy
opti
ons
for
IIA
sPar
t A
. Pos
t-es
tabl
ishm
ent
The
diffe
rent
sec
tions
of t
he ta
ble,
sta
rtin
g w
ith th
e pr
eam
ble
and
clos
ing
with
the
final
pro
visi
ons,
follo
w th
e or
der
of a
rtic
les
as c
omm
only
foun
d in
IIA
s. W
here
pos
sibl
e, th
e po
licy
optio
ns a
re
orga
nize
d al
ong
a sc
ale
rang
ing
from
i) th
e m
ost i
nves
tor-
frien
dly
or m
ost p
rote
ctiv
e to
ii) t
he o
ptio
ns p
rovi
ding
mor
e fle
xibi
lity
to th
e S
tate
, bal
ance
and
/or
lega
l pre
cisi
on. I
n so
me
sect
ions
, tw
o or
m
ore
polic
y op
tions
can
be
com
bine
d.
Sec
tio
nsP
olic
y o
pti
ons
fo
r in
tern
atio
nal i
nves
tmen
t ag
reem
ents
(IIA
s)
Sus
tain
able
dev
elo
pm
ent
(SD
) im
plic
atio
ns
1P
ream
ble
…
set
s ou
t ob
ject
ives
of
the
trea
ty a
nd
the
inte
ntio
ns
of th
e C
ontr
actin
g P
artie
s
1.1.
0R
efer
to
the
obje
ctiv
e of
cre
atin
g an
d m
aint
aini
ng f
avou
rabl
e co
nditi
ons
for
inve
stm
ent
and
inte
nsify
ing
econ
omic
coo
pera
tion
betw
een
the
Par
ties.
Th
e tr
eaty
pr
eam
ble
does
no
t se
t ou
t bi
ndin
g ob
ligat
ions
bu
t pl
ays
a si
gnifi
cant
role
in in
terp
retin
g su
bsta
ntiv
e IIA
pro
visi
ons.
Whe
n a
prea
mbl
e re
fers
to
th
e cr
eatio
n of
“a
st
able
fra
mew
ork
for
inve
stm
ents
” or
“fa
vour
able
con
ditio
ns f
or in
vest
men
ts”
as t
he s
ole
aim
of
the
trea
ty (i
.e.
if th
e IIA
onl
y re
fers
to
thos
e ob
ject
ives
), tr
ibun
als
will
tend
to
reso
lve
inte
rpre
tive
unce
rtai
ntie
s in
fav
our
of in
vest
ors.
In c
ontr
ast,
whe
re a
pr
eam
ble
com
plem
ents
inve
stm
ent p
rom
otio
n an
d pr
otec
tion
obje
ctiv
es w
ith
othe
r ob
ject
ives
suc
h as
SD
, th
e M
illenn
ium
Dev
elop
men
t G
oals
(MD
Gs)
or
the
Con
trac
ting
Par
ties’
rig
ht t
o re
gula
te,
this
can
lea
d to
mor
e ba
lanc
ed
inte
rpre
tatio
ns a
nd f
oste
r co
here
nce
betw
een
diffe
rent
pol
icy
obje
ctiv
es/
bodi
es o
f law
.
1.1.
1C
larif
y th
at th
e P
artie
s co
nclu
de th
is II
A w
ith a
vie
w to
-
attr
actin
g an
d fo
ster
ing
resp
onsi
ble
inw
ard
and
outw
ard
fore
ign
inve
stm
ent
that
co
ntrib
utes
to S
D-
pro
mot
ing
good
gov
erna
nce
.1.
1.2
Cla
rify
that
the
inve
stor
pro
tect
ion
obje
ctiv
es s
hall
not
over
ride
Sta
tes’
rig
ht t
o re
gula
te
in th
e pu
blic
inte
rest
as
wel
l as
with
resp
ect t
o ce
rtai
n im
port
ant p
olic
y go
als,
suc
h as
:-
SD
- pr
otec
tion
of h
uman
rig
hts
- m
aint
enan
ce o
f hea
lth, l
abou
r an
d/or
env
ironm
enta
l sta
ndar
ds-
corp
orat
e so
cial
resp
onsi
bilit
y an
d go
od c
orpo
rate
gov
erna
nce.
1.1.
3In
dica
te
that
th
e pr
omot
ion
and
prot
ectio
n of
in
vest
men
ts
shou
ld
be
purs
ued
in
com
plia
nce
with
the
Par
ties’
obl
igat
ions
und
er in
tern
atio
nal la
w in
clud
ing
in p
artic
ular
thei
r ob
ligat
ions
with
resp
ect t
o hu
man
righ
ts, l
abou
r rig
hts
and
prot
ectio
n of
the
envi
ronm
ent.
2Tr
eaty
sco
pe
2.1
Defi
niti
on
of
inve
stm
ent
… s
ets
out
the
type
s of
in
vest
men
t co
vere
d by
the
trea
ty
2.1.
0O
ffer
cove
rage
of
any
tang
ible
and
int
angi
ble
asse
ts i
n th
e ho
st S
tate
(th
roug
h an
illu
stra
tive/
open
-end
ed li
st),
dire
ctly
or
indi
rect
ly o
wne
d/co
ntro
lled
by c
over
ed in
vest
ors.
A t
radi
tiona
l op
en-e
nded
defi
nitio
n of
“in
vest
men
t” g
rant
s pr
otec
tion
to a
ll ty
pes
of a
sset
s. I
t m
ay h
ave
the
stro
nges
t at
trac
tion
effe
ct b
ut c
an e
nd
up c
over
ing
econ
omic
tra
nsac
tions
not
con
tem
plat
ed b
y th
e P
artie
s or
in
vest
men
ts/a
sset
s w
ith q
uest
iona
ble
SD
con
trib
utio
n. I
t m
ay a
lso
expo
se
Sta
tes
to u
nexp
ecte
d lia
bilit
ies.
Sta
tes
may
wan
t to
tai
lor
thei
r de
finiti
on o
f in
vest
men
t to
tar
get
asse
ts
cond
uciv
e to
SD
by
gran
ting
prot
ectio
n on
ly t
o in
vest
men
ts t
hat
brin
g co
ncre
te b
enefi
ts t
o th
e ho
st c
ount
ry,
e.g.
lon
g-te
rm c
apita
l co
mm
itmen
t, em
ploy
men
t ge
nera
tion
etc.
To
that
effe
ct,
the
Par
ties
may
wis
h to
dev
elop
cr
iteria
for
deve
lopm
ent-
frien
dly
inve
stm
ents
.
A t
reat
y m
ay f
urth
er s
peci
fical
ly e
xclu
de c
erta
in t
ypes
of
asse
ts f
rom
the
de
finiti
on o
f “in
vest
men
t” (e
.g. p
ortfo
lio in
vest
men
t – w
hich
can
incl
ude
shor
t-te
rm a
nd s
pecu
lativ
e in
vest
men
ts –
inte
llect
ual p
rope
rty
right
s th
at a
re n
ot
prot
ecte
d un
der
dom
estic
legi
slat
ion)
.
2.1.
1C
ompi
le a
n ex
haus
tive
list o
f cov
ered
inve
stm
ents
and
/or e
xclu
de s
peci
fic ty
pes
of a
sset
s fro
m c
over
age,
e.g
.:
- po
rtfo
lio in
vest
men
t-
sove
reig
n de
bt in
stru
men
ts-
com
mer
cial
con
trac
ts fo
r th
e sa
le o
f goo
ds o
r se
rvic
es-
asse
ts fo
r no
n-bu
sine
ss p
urpo
ses
- in
telle
ctua
l pro
pert
y rig
hts
not p
rote
cted
und
er d
omes
tic la
w.
2.1.
2R
equi
re in
vest
men
ts to
fulfi
l spe
cific
cha
ract
eris
tics,
e.g
. tha
t the
inve
stm
ent:
- in
volv
es c
omm
itmen
t of c
apita
l, ex
pect
atio
n of
pro
fit a
nd a
ssum
ptio
n of
ris
k-
invo
lves
ass
ets
acqu
ired
for
the
purp
ose
of e
stab
lishi
ng la
stin
g ec
onom
ic re
latio
ns-
mus
t be
mad
e in
“ac
cord
ance
with
hos
t cou
ntry
law
s an
d re
gula
tions
” -
deliv
ers
a po
sitiv
e de
velo
pmen
t im
pact
on
the
host
cou
ntry
(i.e
. Par
ties
coul
d lis
t spe
cific
cr
iteria
acc
ordi
ng to
thei
r ne
eds
and
expe
ctat
ions
).
IV. Elements of International Investment Agreements: Policy Options 49
2.2
Defi
niti
on
of
inve
sto
r …
set
s ou
t th
e ty
pes
of in
vest
ors
prot
ecte
d un
der
the
trea
ty
2.2.
0O
ffer
cove
rage
of
any
natu
ral a
nd le
gal p
erso
ns o
rigin
atin
g fro
m t
he o
ther
Con
trac
ting
Par
ty.
With
res
pect
to
lega
l ent
ities
, co
ver
all t
hose
est
ablis
hed
in t
he o
ther
Con
trac
ting
Par
ty.
A b
road
defi
nitio
n of
“in
vest
or”
can
resu
lt in
una
ntic
ipat
ed o
r un
inte
nded
co
vera
ge o
f per
sons
(nat
ural
or l
egal
). Fo
r exa
mpl
e, if
a tr
eaty
det
erm
ines
the
natio
nalit
y of
a le
gal e
ntity
sol
ely
on t
he b
asis
of
the
plac
e of
inco
rpor
atio
n,
it cr
eate
s op
port
uniti
es f
or t
reat
y sh
oppi
ng o
r fre
e rid
ing
by i
nves
tors
not
co
ncei
ved
to b
e be
nefic
iarie
s (e
.g. a
third
-cou
ntry
/hos
t-co
untr
y in
vest
or m
ay
chan
nel it
s in
vest
men
t thr
ough
a “m
ailb
ox” c
ompa
ny e
stab
lishe
d in
the
terr
itory
of
a P
arty
, in
ord
er t
o ob
tain
tre
aty
prot
ectio
n).
A r
elat
ed s
et o
f iss
ues
aris
es
with
res
pect
to
dual
nat
iona
ls w
here
one
nat
iona
lity
is t
hat
of t
he h
ost
Sta
te.
Ther
e ar
e va
rious
opt
ions
to
narr
ow t
he r
ange
of
cove
red
pers
ons.
For
ex
ampl
e, t
o el
imin
ate
the
risk
of a
buse
and
enh
ance
leg
al p
redi
ctab
ility,
a
trea
ty m
ay a
dd a
req
uire
men
t th
at a
com
pany
mus
t ha
ve it
s se
at in
the
ho
me
Sta
te a
nd c
arry
out
rea
l eco
nom
ic a
ctiv
ities
the
re.
An
alte
rnat
ive
is t
o su
pple
men
t the
cou
ntry
-of-
inco
rpor
atio
n ap
proa
ch to
det
erm
inin
g na
tiona
lity
of a
com
pany
with
a d
enia
l-of-
bene
fits
clau
se.
2.2.
1E
xclu
de c
erta
in c
ateg
orie
s of
nat
ural
or
lega
l per
sons
from
trea
ty c
over
age,
e.g
.:-
inve
stor
s w
ith d
oubl
e na
tiona
lity
(of w
hich
one
is th
e ho
st c
ount
ry n
atio
nalit
y)
- pe
rman
ent r
esid
ents
of t
he h
ost c
ount
ry-
lega
l ent
ities
that
do
not h
ave
thei
r sea
t or a
ny re
al e
cono
mic
act
ivity
in th
e ho
me
coun
try.
2.2.
2In
clud
e a
deni
al-o
f-be
nefit
s cl
ause
tha
t en
able
s th
e ho
st S
tate
to
deny
tre
aty
prot
ectio
n to
:-
lega
l ent
ities
that
are
ow
ned/
cont
rolle
d by
third
-cou
ntry
nat
iona
ls o
r hos
t Sta
te n
atio
nals
an
d th
at d
o no
t hav
e re
al e
cono
mic
act
ivity
in th
e of
the
hom
e P
arty
(“m
ailb
ox” c
ompa
nies
) -
lega
l ent
ities
ow
ned/
cont
rolle
d by
inve
stor
s fro
m c
ount
ries
with
whi
ch th
e ho
st c
ount
ry
does
not
hav
e di
plom
atic
rel
atio
ns o
r th
ose
coun
trie
s th
at a
re s
ubje
ct t
o an
eco
nom
ic
emba
rgo.
2.3
Exc
lusi
ons
fr
om
the
sc
op
e …
car
ve o
ut
spec
ific
polic
y ar
eas
and/
or
indu
strie
s fro
m
the
scop
e of
th
e tr
eaty
2.3.
0N
o ex
clus
ions
.Th
e br
oade
r a
trea
ty’s
sc
ope,
th
e w
ider
its
pr
otec
tive
effe
ct
and
its
pote
ntia
l co
ntrib
utio
n to
th
e at
trac
tion
of
fore
ign
inve
stm
ent.
How
ever
, a
broa
d tr
eaty
al
so
redu
ces
a ho
st
Sta
te’s
po
licy
spac
e an
d fle
xibi
lity
and
ultim
atel
y he
ight
ens
its
expo
sure
to
in
vest
ors’
cl
aim
s.
Sta
tes
can
tailo
r th
e sc
ope
of
the
agre
emen
t to
m
eet
the
coun
try’
s S
D
agen
da.
By
carv
ing
out
spec
ific
polic
y ar
eas
and
sect
ors/
indu
strie
s fro
m
trea
ty
cove
rage
, S
tate
s pr
eser
ve fl
exib
ility
to im
plem
ent
natio
nal p
olic
ies,
suc
h as
in
dust
rial p
olic
ies
(e.g
. to
gra
nt p
refe
rent
ial t
reat
men
t to
dom
estic
inve
stor
s or
to
impo
se p
erfo
rman
ce r
equi
rem
ents
), or
to
ensu
re a
cces
s to
ess
entia
l/pu
blic
ser
vice
s.
2.3.
1E
xclu
de s
peci
fic p
olic
y ar
eas
from
trea
ty c
over
age,
e.g
.:-
subs
idie
s an
d gr
ants
- pu
blic
pro
cure
men
t-
taxa
tion.
2.3.
2E
xclu
de s
peci
fic s
ecto
rs a
nd in
dust
ries
from
trea
ty c
over
age,
e.g
.:-
esse
ntia
l soc
ial s
ervi
ces
(e.g
. hea
lth, e
duca
tion)
- sp
ecifi
c se
nsiti
ve in
dust
ries
(e.g
. cu
ltura
l ind
ustr
ies,
fish
erie
s, n
ucle
ar e
nerg
y, d
efen
ce
indu
stry
, nat
ural
reso
urce
s).
2.4
Tem
po
ral
sco
pe
… d
eter
min
es
whe
ther
the
trea
ty a
pplie
s to
inve
stm
ents
an
d/or
m
easu
res
pre-
datin
g th
e tr
eaty
2.4.
0E
xten
d th
e tr
eaty
sco
pe t
o in
vest
men
ts e
stab
lishe
d bo
th b
efor
e an
d af
ter
the
trea
ty’s
en
try
into
forc
e.Th
e tr
eaty
’s s
cope
will
be w
ides
t if i
ts a
pplic
atio
n is
ext
ende
d to
all i
nves
tmen
ts,
rega
rdle
ss o
f th
e tim
e of
the
ir es
tabl
ishm
ent
in t
he h
ost
Sta
te.
Ano
ther
ap
proa
ch i
s to
exc
lude
alre
ady
“att
ract
ed”
(i.e.
pre
-tre
aty)
inv
estm
ents
: it
coul
d be
see
n as
pre
vent
ing
free-
ridin
g by
“ol
d” in
vest
ors
but
at t
he s
ame
time
wou
ld r
esul
t in
dis
crim
inat
ion
betw
een
“old
” an
d “n
ew”
inve
stm
ents
. M
oreo
ver,
this
can
cre
ate
unce
rtai
nty
with
resp
ect t
o re
-inve
stm
ents
by
“old
” in
vest
ors.
2.4.
1Li
mit
tem
pora
l sco
pe t
o in
vest
men
ts m
ade
afte
r th
e co
nclu
sion
/ent
ry in
to f
orce
of
the
trea
ty.
2.4.
2C
larif
y th
at th
e tr
eaty
sha
ll no
t allo
w II
A c
laim
s ar
isin
g ou
t of a
ny S
tate
act
s w
hich
cea
sed
to e
xist
prio
r to
the
IIA’
s en
try
into
forc
e, e
ven
thou
gh it
may
stil
l hav
e an
ong
oing
effe
ct
on th
e in
vest
or.
2.4.
3C
larif
y th
at t
he t
reat
y sh
all
not
allo
w I
IA c
laim
s ba
sed
on m
easu
res
adop
ted
prio
r to
co
nclu
sion
of t
he tr
eaty
.
Pol
icym
aker
s sh
ould
con
side
r th
e ef
fect
of t
he tr
eaty
on
Sta
te a
cts,
ado
pted
pr
ior
to t
he t
reat
y’s
entr
y in
to f
orce
, bu
t w
ith a
las
ting
effe
ct:
«con
tinui
ng»
brea
ches
(e.
g. m
aint
enan
ce o
f an
ear
lier
legi
slat
ive
prov
isio
n w
hich
com
es
into
con
flict
with
tre
aty
oblig
atio
ns),
indi
vidu
al a
cts
who
se e
ffect
s co
ntin
ue
over
tim
e (e
.g.
effe
ct o
f a
dire
ct e
xpro
pria
tion
on t
he f
orm
er o
wne
r of
the
as
set)
and
“com
posi
te”
acts
, i.e
. a s
erie
s of
act
ions
or o
mis
sion
s w
hich
, tak
en
toge
ther
, ar
e w
rong
ful.
It is
use
ful
to p
rovi
de a
dditi
onal
lan
guag
e to
cla
rify
whe
ther
the
trea
ty w
ould
cov
er o
r ex
clud
e su
ch la
stin
g ac
ts o
r ef
fect
s.
Sec
tio
nsP
olic
y o
pti
ons
fo
r in
tern
atio
nal i
nves
tmen
t ag
reem
ents
(IIA
s)
Sus
tain
able
dev
elo
pm
ent
(SD
) im
plic
atio
ns
Investment Policy Framework for Sustainable Development50
An
expr
ess
prov
isio
n th
at p
recl
udes
app
licat
ion
of t
he t
reat
y to
act
s th
at
ceas
ed t
o ex
ist
befo
re t
he t
reat
y’s
entr
y in
to f
orce
wou
ld e
nhan
ce l
egal
ce
rtai
nty,
esp
ecia
lly w
ith r
egar
d to
the
per
iod
betw
een
the
date
of
the
trea
ty’s
sig
natu
re a
nd it
s en
try
into
forc
e. T
his
appr
oach
wou
ld n
ever
thel
ess
keep
ope
n to
cha
lleng
e th
ose
prio
r la
ws
and
regu
latio
ns t
hat
com
e in
to
cont
radi
ctio
n w
ith t
he n
ew t
reat
y on
ce it
ent
ers
into
for
ce.
An
alte
rnat
ive
is
to a
pply
the
trea
ty o
nly
to th
ose
mea
sure
s th
at a
re a
dopt
ed a
fter
the
trea
ty’s
en
try
into
for
ce:
this
wou
ld a
utom
atic
ally
pre
clud
e al
l of
the
Sta
te’s
ear
lier
non-
conf
orm
ing
mea
sure
s fro
m b
eing
cha
lleng
ed (e
.g.,
pref
eren
tial t
reat
men
t to
dom
estic
inv
esto
rs i
n a
part
icul
ar i
ndus
try
in v
iola
tion
of t
he N
atio
nal
Trea
tmen
t ob
ligat
ion)
, el
imin
atin
g th
e ne
ed t
o id
entif
y an
d sc
hedu
le s
uch
mea
sure
s in
divi
dual
ly.
3A
dm
issi
on
…
gov
ern
en
try
inve
stm
ents
in
to th
e ho
st
Sta
te (s
ee a
lso
“P
art B
: Pre
-es
tabl
ism
ent”
)
3.1.
0P
rovi
de
that
inve
stm
ents
are
ad
mitt
ed in
acc
ord
ance
with
do
mes
tic la
ws
of
the
ho
st S
tate
.
Mos
t IIA
s pr
ovid
e fo
r ad
mis
sion
of
inve
stm
ents
in
acco
rdan
ce w
ith t
he
host
Sta
te’s
nat
iona
l la
ws.
Thu
s, u
nlik
e in
the
tre
atie
s th
at b
elon
g to
the
“p
re-e
stab
lishm
ent”
typ
e, i
n th
is c
ase
Sta
tes
do n
ot g
ive
any
inte
rnat
iona
l gu
aran
tees
of
adm
issi
on a
nd c
an c
hang
e re
leva
nt d
omes
tic l
aws
as t
hey
deem
app
ropr
iate
. How
ever
, the
pro
mis
e to
adm
it in
vest
men
ts in
acc
orda
nce
with
dom
estic
law
stil
l has
a c
erta
in v
alue
as
it af
ford
s pr
otec
tion
to in
vest
ors
in c
ase
a ho
st S
tate
refu
ses
adm
issi
on in
con
trad
ictio
n or
by
disr
egar
ding
its
inte
rnal
law
s.
3.1.
1N
o cl
ause
.
4S
tand
ard
s o
f tr
eatm
ent
and
pro
tect
ion
4.1
Nat
iona
l tr
eatm
ent
(NT
) …
pro
tect
s fo
reig
n in
vest
ors/
inve
stm
ents
ag
ains
t di
scrim
inat
ion
vis-
à-vi
s do
mes
tic
inve
stor
s
4.1.
0P
rohi
bit
less
fav
oura
ble
trea
tmen
t of
cov
ered
for
eign
inv
esto
rs/in
vest
men
ts v
is-à
-vis
co
mpa
rabl
e do
mes
tic in
vest
ors/
inve
stm
ents
, with
out r
estr
ictio
ns o
r qu
alifi
catio
ns.
NT
guar
ante
es f
orei
gn i
nves
tors
a l
evel
-pla
ying
fiel
d vi
s-à-
vis
com
para
ble
dom
estic
in
vest
ors
and
is
gene
rally
co
nsid
ered
co
nduc
ive
to
good
go
vern
ance
. 4.
1.1
Circ
umsc
ribe
the
scop
e of
the
NT
clau
se (
for
both
/all
Con
trac
ting
Par
ties)
, no
ting
that
it,
e.g
.:-
subo
rdin
ates
the
right
of N
T to
a h
ost c
ount
ry’s
dom
estic
law
s-
rese
rves
the
right
of e
ach
Par
ty to
der
ogat
e fro
m N
T-
does
not
app
ly to
cer
tain
pol
icy
area
s (e
.g. s
ubsi
dies
, gov
ernm
ent p
rocu
rem
ent).
Yet
unde
r so
me
circ
umst
ance
s, a
nd in
acc
orda
nce
with
the
ir S
D s
trat
egie
s,
Sta
tes
may
wan
t to
be
able
to
acco
rd p
refe
rent
ial
trea
tmen
t to
nat
iona
l in
vest
ors/
inve
stm
ents
(e.
g. t
hrou
gh t
empo
rary
gra
nts
or s
ubsi
dies
) w
ithou
t ex
tend
ing
the
sam
e be
nefit
s to
for
eign
-ow
ned
com
pani
es.
In t
his
case
, N
T pr
ovis
ions
nee
d to
allo
w fl
exib
ility
to re
gula
te fo
r S
D g
oals
.
4.1.
2In
clud
e co
untr
y-sp
ecifi
c re
serv
atio
ns to
NT,
e.g
. car
ve-o
ut:
-
cert
ain
polic
ies/
mea
sure
s (e
.g.
subs
idie
s an
d gr
ants
, go
vern
men
t pr
ocur
emen
t, m
easu
res
rega
rdin
g go
vern
men
t bon
ds)
- sp
ecifi
c se
ctor
s/in
dust
ries
whe
re th
e ho
st c
ount
ries
wis
h to
pre
serv
e th
e rig
ht to
favo
ur
dom
estic
inve
stor
s-
cert
ain
polic
y ar
eas
(e.g
. iss
ues
rela
ted
to m
inor
ities
, rur
al p
opul
atio
ns, m
argi
naliz
ed o
r in
dige
nous
com
mun
ities
)-
mea
sure
s re
late
d to
com
pani
es o
f a s
peci
fic s
ize
(e.g
. SM
Es)
.
For
exam
ple,
co
untr
ies
with
a
nasc
ent/
emer
ging
re
gula
tory
fra
mew
ork
that
are
rel
ucta
nt t
o re
scin
d th
e rig
ht t
o di
scrim
inat
e in
fav
our
of d
omes
tic
inve
stor
s ca
n m
ake
the
NT
oblig
atio
n “s
ubje
ct t
o th
eir
dom
estic
law
s an
d re
gula
tions
”. T
his
appr
oach
giv
es f
ull
flexi
bilit
y to
gra
nt p
refe
rent
ial
(e.g
. di
ffere
ntia
ted)
trea
tmen
t to
dom
estic
inve
stor
s as
long
as
this
is in
acc
orda
nce
with
the
coun
try’
s le
gisl
atio
n. H
owev
er, s
uch
a si
gnifi
cant
lim
itatio
n to
the
NT
oblig
atio
n m
ay b
e pe
rcei
ved
as a
dis
ince
ntiv
e to
fore
ign
inve
stor
s. E
ven
mor
e so
, om
ittin
g th
e N
T cl
ause
fro
m t
he t
reat
y m
ay s
igni
fican
tly u
nder
min
e its
pr
otec
tive
valu
e.4.
1.3
Om
it N
T cl
ause
.Th
ere
can
be a
mid
dle
grou
nd b
etw
een
full
polic
y fre
edom
, on
the
one
hand
, an
d a
rigid
gua
rant
ee o
f non
-dis
crim
inat
ion,
on
the
othe
r. Fo
r exa
mpl
e, S
tate
s m
ay e
xem
pt s
peci
fic p
olic
y ar
eas
or m
easu
res
as w
ell a
s se
nsiti
ve o
r vi
tal
econ
omic
sec
tors
/indu
strie
s fro
m th
e sc
ope
of th
e ob
ligat
ion
in o
rder
to m
eet
both
cur
rent
and
futu
re re
gula
tory
or p
ublic
-pol
icy
need
s su
ch a
s ad
dres
sing
m
arke
t fa
ilure
s (th
is c
an b
e do
ne e
ither
as
an e
xcep
tion
appl
icab
le t
o bo
th
Con
trac
ting
Par
ties
or a
s a
coun
try-
spec
ific
rese
rvat
ion)
.
Sec
tio
nsP
olic
y o
pti
ons
fo
r in
tern
atio
nal i
nves
tmen
t ag
reem
ents
(IIA
s)
Sus
tain
able
dev
elo
pm
ent
(SD
) im
plic
atio
ns
IV. Elements of International Investment Agreements: Policy Options 51
4.2
Mo
st-
favo
ured
na
tio
n (M
FN)
trea
tmen
t …
pro
tect
s fo
reig
n in
vest
ors/
inve
stm
ents
ag
ains
t di
scrim
inat
ion
vis-
à-vi
s ot
her
fore
ign
inve
stor
s
4.2.
0P
rohi
bit l
ess
favo
urab
le tr
eatm
ent o
f cov
ered
inve
stor
s/in
vest
men
ts v
is-à
-vis
com
para
ble
inve
stor
s/in
vest
men
ts o
f any
third
cou
ntry
.Th
e M
FN p
rovi
sion
ens
ures
a le
vel-p
layi
ng fi
eld
bet
wee
n in
vest
ors
from
the
IIA
hom
e co
untr
y an
d c
omp
arab
le in
vest
ors
from
any
thi
rd c
ount
ry.
How
ever
, co
mp
etin
g ob
ject
ives
and
im
plic
atio
ns m
ay c
ome
into
pla
y w
hen
des
igni
ng
an M
FN c
laus
e. W
hile
an
MFN
cla
use
may
be
used
to
ensu
re u
pw
ard
ha
rmon
izat
ion
of I
IA t
reat
y st
and
ard
s, it
can
als
o re
sult
in t
he u
nant
icip
ated
in
corp
orat
ion
of s
tron
ger
inve
stor
rig
hts
from
IIA
s w
ith t
hird
cou
ntrie
s an
d
com
plic
ate
cons
ciou
s tr
eaty
des
ign.
Thi
s is
par
ticul
arly
the
cas
e if
the
MFN
cl
ause
ex
tend
s to
p
re-e
stab
lishm
ent
issu
es
or
whe
n th
e tr
eaty
in
clud
es
care
fully
bal
ance
d p
rovi
sion
s th
at c
ould
be
rend
ered
inef
fect
ive
by
an o
verly
b
road
MFN
cla
use.
An
exam
ple
of t
he la
tter
are
rec
ent
arb
itral
dec
isio
ns t
hat
have
rea
d t
he M
FN
oblig
atio
n as
allo
win
g in
vest
ors
to in
voke
mor
e in
vest
or-f
riend
ly p
rovi
sion
s fro
m
third
tre
atie
s, e
.g.
to in
corp
orat
e st
and
ard
s no
t in
clud
ed in
the
bas
e tr
eaty
, to
b
enefi
t fro
m h
ighe
r p
rote
ctio
n st
and
ard
s co
mp
ared
to
the
ones
fou
nd in
the
b
ase
trea
ty o
r to
circ
umve
nt p
roce
dur
al (
ISD
S-r
elat
ed)
req
uire
men
ts i
n th
e b
ase
trea
ty.
Sho
uld
a c
ount
ry w
ish
to p
recl
ude
the
MFN
cla
use
from
ap
ply
ing
to a
ny
rele
vant
int
erna
tiona
l ag
reem
ent,
it
can
do
so b
y ex
clud
ing
spec
ific
typ
es
of i
nstr
umen
ts f
rom
the
sco
pe
of t
he M
FN c
laus
e (s
ee s
ectio
n 4.
2.1)
or,
in
a b
road
er m
anne
r, b
y re
stric
ting
the
scop
e of
the
MFN
cla
use
to d
omes
tic
trea
tmen
t (s
ee s
ectio
n 4.
2.2)
. C
arvi
ng o
ut c
erta
in s
ecto
rs/in
dus
trie
s or
pol
icy
mea
sure
s th
roug
h co
untr
y-sp
ecifi
c re
serv
atio
ns, c
ater
ing
for
bot
h cu
rren
t and
fu
ture
reg
ulat
ory
need
s, is
an
add
ition
al t
ool t
hat
allo
ws
man
agin
g th
e sc
ope
of t
he M
FN c
laus
e in
a m
anne
r ta
rget
ed t
o th
e sp
ecifi
c ne
eds
of in
div
idua
l IIA
P
artie
s.
4.2.
1Li
mit
the
appl
icat
ion
of t
he M
FN c
laus
e, n
otin
g th
at M
FN d
oes
not
appl
y to
mor
e fa
vour
able
trea
tmen
t gra
nted
to th
ird-c
ount
ry in
vest
ors
unde
r, e.
g.:
- E
cono
mic
inte
grat
ion
agre
emen
ts-
Dou
ble
taxa
tion
trea
ties
- IIA
s co
nclu
ded
prio
r to
(and
/or a
fter)
the
conc
lusi
on o
f the
IIA
in q
uest
ion
(e.g
. if t
he la
tter
co
ntai
ns r
ules
that
are
less
favo
urab
le to
inve
stor
s, a
s co
mpa
red
to e
arlie
r IIA
s)-
ISD
S c
laus
es /
pro
cedu
ral r
ight
s.
4.2.
2Li
mit
the
appl
icat
ion
of th
e M
FN c
laus
e to
trea
tmen
t acc
orde
d to
fore
ign
inve
stor
s un
der
dom
estic
law
s, re
gula
tions
, adm
inis
trat
ive
prac
tices
and
de
fact
o tr
eatm
ent.
4.2.
3In
clud
e co
untr
y-sp
ecifi
c re
serv
atio
ns to
MFN
, e.g
. car
ve o
ut:
- ce
rtai
n po
licie
s/m
easu
res
(e.g
. sub
sidi
es, e
tc.)
- sp
ecifi
c se
ctor
s/in
dust
ries
- ce
rtai
n po
licy
area
s (e
.g. i
ssue
s re
late
d to
min
oriti
es, r
ural
pop
ulat
ions
, mar
gina
lized
or
indi
geno
us c
omm
uniti
es)
4.3
Fair
and
eq
uita
ble
tr
eatm
ent
(FE
T)
... p
rote
cts
fo
reig
n in
vest
ors/
inve
stm
ents
ag
ains
t, e.
g. d
enia
l of
just
ice,
ar
bitr
ary
and
abus
ive
trea
tmen
t
4.3.
0G
ive
an u
nqua
lified
com
mitm
ent t
o tr
eat f
orei
gn in
vest
ors/
inve
stm
ents
“fa
irly
and
equi
tabl
y”.
FET
is a
crit
ical
sta
ndar
d of
tre
atm
ent:
whi
le it
is c
onsi
dere
d to
hel
p at
trac
t fo
reig
n in
vest
ors
and
fost
er g
ood
gove
rnan
ce i
n th
e ho
st S
tate
, al
mos
t al
l cl
aim
s br
ough
t to
date
by
inve
stor
s ag
ains
t Sta
tes
have
incl
uded
an
alle
gatio
n of
the
brea
ch o
f thi
s al
l-enc
ompa
ssin
g st
anda
rd o
f pro
tect
ion.
Thro
ugh
an u
nqua
lified
pro
mis
e to
tre
at i
nves
tors
“fa
irly
and
equi
tabl
y”,
a co
untr
y pr
ovid
es m
axim
um p
rote
ctio
n fo
r in
vest
ors
but
also
ris
ks p
osin
g lim
its o
n its
pol
icy
spac
e, r
aisi
ng it
s ex
posu
re to
fore
ign
inve
stor
s’ c
laim
s an
d re
sulti
ng fi
nanc
ial
liabi
litie
s. S
ome
of t
hese
im
plic
atio
ns s
tem
fro
m t
he f
act
that
the
re is
a g
reat
dea
l of
unce
rtai
nty
conc
erni
ng t
he p
reci
se m
eani
ng o
f th
e co
ncep
t, be
caus
e th
e no
tions
of “f
airn
ess”
and
“eq
uity
” do
not
con
note
a
clea
r se
t of
lega
l pre
scrip
tions
and
are
ope
n to
sub
ject
ive
inte
rpre
tatio
ns.
A p
artic
ular
ly p
robl
emat
ic i
ssue
con
cern
s th
e us
e of
the
FE
T st
anda
rd t
o pr
otec
t in
vest
ors
“legi
timat
e ex
pect
atio
ns”,
whi
ch m
ay r
estr
ict
the
abilit
y of
co
untr
ies
to c
hang
e po
licie
s or
to in
trod
uce
new
pol
icie
s th
at -
whi
le p
ursu
ing
SD
obj
ectiv
es -
may
hav
e a
nega
tive
impa
ct o
n fo
reig
n in
vest
ors.
S
ever
al o
ptio
ns e
xist
to a
ddre
ss th
e de
ficie
ncie
s of
unq
ualifi
ed F
ET
stan
dard
, ea
ch w
ith i
ts p
ros
and
cons
. Th
e re
fere
nce
to c
usto
mar
y in
tern
atio
nal
law
m
ay r
aise
the
thr
esho
ld o
f S
tate
liab
ility
and
help
to
pres
erve
Sta
tes’
abi
lity
to a
dapt
pub
lic p
olic
ies
in l
ight
of
chan
ging
obj
ectiv
es (
exce
pt w
hen
thes
e m
easu
res
cons
titut
e m
anife
stly
arb
itrar
y co
nduc
t th
at a
mou
nts
to e
greg
ious
m
istr
eatm
ent o
f for
eign
inve
stor
s), b
ut th
e ex
act c
onto
urs
of M
ST/
CIL
rem
ain
elus
ive.
An
omis
sion
of
the
FET
clau
se w
ould
red
uce
Sta
tes’
exp
osur
e to
in
vest
or c
laim
s, b
ut fo
reig
n in
vest
ors
may
per
ceiv
e th
e co
untr
y as
not
offe
ring
a so
und
and
relia
ble
inve
stm
ent c
limat
e. A
noth
er s
olut
ion
wou
ld b
e to
repl
ace
the
gene
ral F
ET
clau
se w
ith a
n ex
haus
tive
list
of m
ore
spec
ific
oblig
atio
ns.
Whi
le a
gree
ing
on s
uch
a lis
t m
ay t
urn
out
to b
e a
chal
leng
ing
ende
avou
r, its
ex
haus
tive
natu
re
wou
ld
help
av
oid
unan
ticip
ated
an
d fa
r-re
achi
ng
inte
rpre
tatio
ns b
y tr
ibun
als.
4.3.
1Q
ualif
y th
e FE
T st
anda
rd b
y re
fere
nce
to:
- m
inim
um s
tand
ard
of tr
eatm
ent o
f alie
ns u
nder
cus
tom
ary
inte
rnat
iona
l law
(MS
T/C
IL)
- in
tern
atio
nal l
aw o
r pr
inci
ples
of i
nter
natio
nal l
aw.
4.3.
2In
clud
e an
exh
aust
ive
list o
f Sta
te o
blig
atio
ns u
nder
FE
T, e
.g. o
blig
atio
n no
t to
- de
ny ju
stic
e in
judi
cial
or
adm
inis
trat
ive
proc
eedi
ngs
- tr
eat i
nves
tors
in a
man
ifest
ly a
rbitr
ary
man
ner
- fla
gran
tly v
iola
te d
ue p
roce
ss-
enga
ge i
n m
anife
stly
abu
sive
tre
atm
ent
invo
lvin
g co
ntin
uous
, un
just
ified
coe
rcio
n or
ha
rass
men
t-
infri
nge
inve
stor
s’ l
egiti
mat
e ex
pect
atio
ns b
ased
on
inve
stm
ent-
indu
cing
rep
rese
nta-
tions
or
mea
sure
s.
4.3.
3C
larif
y (w
ith a
vie
w to
giv
ing
inte
rpre
tativ
e gu
idan
ce to
arb
itral
trib
unal
s) th
at:
- th
e FE
T cl
ause
doe
s no
t pr
eclu
de S
tate
s fro
m a
dopt
ing
good
faith
reg
ulat
ory
or o
ther
m
easu
res
that
pur
sue
legi
timat
e po
licy
obje
ctiv
es-
the
inve
stor
’s c
ondu
ct (
incl
udin
g th
e ob
serv
ance
of
univ
ersa
lly r
ecog
nize
d st
anda
rds,
se
e se
ctio
n 7)
is re
leva
nt in
det
erm
inin
g w
heth
er th
e FE
T st
anda
rd h
as b
een
brea
ched
-
the
coun
try’
s le
vel o
f dev
elop
men
t is
rele
vant
in d
eter
min
ing
whe
ther
the
FET
stan
dard
ha
s be
en b
reac
hed
- a
brea
ch o
f an
othe
r pr
ovis
ion
of t
he II
A o
r of
ano
ther
inte
rnat
iona
l agr
eem
ent
cann
ot
esta
blis
h a
clai
m fo
r br
each
of t
he c
laus
e.
4.3.
4O
mit
FET
clau
se.
Sec
tio
nsP
olic
y o
pti
ons
fo
r in
tern
atio
nal i
nves
tmen
t ag
reem
ents
(IIA
s)
Sus
tain
able
dev
elo
pm
ent
(SD
) im
plic
atio
ns
Investment Policy Framework for Sustainable Development52
4.4
Full
pro
tect
ion
and
sec
urit
y (F
PS
) …
requ
ires
host
Sta
tes
to e
xerc
ise
due
dilig
ence
in
pro
tect
ing
fore
ign
inve
stm
ents
4.4.
0In
clud
e a
guar
ante
e to
pro
vide
inve
stor
s/in
vest
men
ts fu
ll pr
otec
tion
and
secu
rity.
Mos
t IIA
s in
clud
e a
guar
ante
e of
ful
l pr
otec
tion
and
secu
rity
(FP
S),
whi
ch
is g
ener
ally
reg
arde
d as
cod
ifyin
g cu
stom
ary
inte
rnat
iona
l la
w o
blig
atio
ns
to g
rant
a c
erta
in le
vel o
f po
lice
prot
ectio
n an
d ph
ysic
al s
ecur
ity.
How
ever
, so
me
trib
unal
s m
ay in
terp
ret t
he F
PS
obl
igat
ion
so a
s to
cov
er m
ore
than
just
po
lice
prot
ectio
n: if
FP
S is
und
erst
ood
to in
clud
e ec
onom
ic,
lega
l and
oth
er
prot
ectio
n an
d se
curit
y, it
can
con
stra
in g
over
nmen
t reg
ulat
ory
prer
ogat
ives
, in
clud
ing
for
SD
obj
ectiv
es.
P
olic
ymak
ers
may
fol
low
a r
ecen
t tr
end
to q
ualif
y th
e FP
S s
tand
ard
by
expl
icitl
y lin
king
it to
cus
tom
ary
inte
rnat
iona
l law
or i
nclu
ding
a d
efini
tion
of th
e st
anda
rd c
larif
ying
tha
t it
is li
mite
d to
“ph
ysic
al”
secu
rity.
Thi
s w
ould
pro
vide
pr
edic
tabi
lity
and
prev
ent
expa
nsiv
e in
terp
reta
tions
tha
t w
ould
con
stra
in
regu
lato
ry p
rero
gativ
es.
4.4.
1C
larif
y th
e FP
S c
laus
e by
:
- sp
ecify
ing
that
the
stan
dard
refe
rs to
“ph
ysic
al”
secu
rity
and
prot
ectio
n-
linki
ng it
to
cust
omar
y in
tern
atio
nal l
aw (e
.g. s
peci
fyin
g th
at t
his
oblig
atio
n do
es n
ot g
o be
yond
wha
t is
requ
ired
by C
IL)
- pr
ovid
ing
that
the
expe
cted
leve
l of p
olic
e pr
otec
tion
shou
ld b
e co
mm
ensu
rate
with
the
leve
l of d
evel
opm
ent o
f the
cou
ntry
’s p
olic
e an
d se
curit
y fo
rces
.
4.4.
2O
mit
FPS
cla
use.
4.5
Exp
rop
riat
ion
…
pro
tect
s fo
reig
n in
vest
ors
in c
ase
of
disp
osse
ssio
n of
thei
r in
vest
men
ts
by th
e ho
st
coun
try
4.5.
0P
rovi
de th
at a
n ex
prop
riatio
n m
ust c
ompl
y w
ith/r
espe
ct fo
ur c
ondi
tions
: pub
lic p
urpo
se,
non-
disc
rimin
atio
n, d
ue p
roce
ss a
nd p
aym
ent o
f com
pens
atio
n.A
n ex
prop
riatio
n pr
ovis
ion
is a
fun
dam
enta
l el
emen
t of
an
IIA.
IIAs
with
ex
prop
riatio
n cl
ause
s do
not
take
aw
ay S
tate
s’ r
ight
to e
xpro
pria
te p
rope
rty,
bu
t p
rote
ct i
nves
tors
aga
inst
arb
itrar
y or
unc
ompe
nsat
ed e
xpro
pria
tions
, co
ntrib
utin
g to
a s
tabl
e an
d pr
edic
tabl
e le
gal f
ram
ewor
k, c
ondu
cive
to fo
reig
n in
vest
men
t.
IIA p
rovi
sion
s ty
pica
lly c
over
“ind
irect
” exp
ropr
iatio
n, w
hich
refe
rs to
regu
lato
ry
taki
ngs,
cre
epin
g ex
prop
riatio
n an
d ac
ts “
tant
amou
nt t
o” o
r “e
quiv
alen
t to
” ex
prop
riatio
n. S
uch
prov
isio
ns h
ave
been
use
d to
cha
lleng
e ge
nera
l re
gula
tions
with
an
alle
ged
nega
tive
effe
ct o
n th
e va
lue
of a
n in
vest
men
t. Th
is r
aise
s th
e qu
estio
n of
the
pro
per
bord
erlin
e be
twee
n ex
prop
riatio
n an
d le
gitim
ate
publ
ic p
olic
y m
akin
g (e
.g.
envi
ronm
enta
l, so
cial
or
heal
th
regu
latio
ns).
To a
void
und
ue c
onst
rain
ts o
n a
Sta
te’s
pre
roga
tive
to r
egul
ate
in t
he p
ublic
in
tere
st, a
n IIA
may
set
out
gen
eral
crit
eria
for S
tate
act
s th
at m
ay (o
r may
not
) be
con
side
red
an in
dire
ct e
xpro
pria
tion.
Whi
le t
his
does
not
exc
lude
liab
ility
risks
alto
geth
er, i
t allo
ws
for
bett
er b
alan
cing
of i
nves
tor
and
Sta
te in
tere
sts.
Th
e st
anda
rd o
f co
mpe
nsat
ion
for
law
ful e
xpro
pria
tion
is a
noth
er im
port
ant
aspe
ct.
The
use
of t
erm
s su
ch a
s “a
ppro
pria
te”,
“ju
st”
or “
fair”
in r
elat
ion
to
com
pens
atio
n gi
ves
room
for
flex
ibilit
y in
the
cal
cula
tion
of c
ompe
nsat
ion.
S
tate
s m
ay fi
nd i
t be
nefic
ial
to p
rovi
de f
urth
er g
uida
nce
to a
rbitr
ator
s on
ho
w to
cal
cula
te c
ompe
nsat
ion
and
clar
ify w
hat f
acto
rs s
houl
d be
take
n in
to
acco
unt.
4.5.
1Li
mit
prot
ectio
n in
cas
e of
indi
rect
exp
ropr
iatio
n (re
gula
tory
taki
ng) b
y-
esta
blis
hing
crit
eria
that
nee
d to
be
met
for
indi
rect
exp
ropr
iatio
n to
be
foun
d-
defin
ing
in g
ener
al t
erm
s w
hat
mea
sure
s do
not
con
stitu
te in
dire
ct e
xpro
pria
tion
(non
-di
scrim
inat
ory
good
faith
regu
latio
ns re
latin
g to
pub
lic h
ealth
and
saf
ety,
pro
tect
ion
of th
e en
viro
nmen
t, et
c.)
- cl
arify
ing
that
cer
tain
spe
cific
mea
sure
s do
not
con
stitu
te a
n in
dire
ct e
xpro
pria
tion
(e.g
. co
mpu
lsor
y lic
ensi
ng in
com
plia
nce
with
WTO
rul
es).
4.5.
2S
peci
fy th
e co
mpe
nsat
ion
to b
e pa
id in
cas
e of
law
ful e
xpro
pria
tion:
-
appr
opria
te, j
ust o
r eq
uita
ble
com
pens
atio
n-
prom
pt,
adeq
uate
and
effe
ctiv
e co
mpe
nsat
ion,
i.e.
full
mar
ket
valu
e of
the
inve
stm
ent
(“H
ull f
orm
ula”
).4.
5.3
Cla
rify
that
only
exp
rop
riatio
ns
vio
latin
g a
ny
of
the
thre
e su
bst
antiv
e co
nditi
ons
(pub
lic p
urpo
se, n
on-d
iscr
imin
atio
n, d
ue p
roce
ss),
enta
il fu
ll re
para
tion.
4.6
Pro
tect
ion
fro
m s
trife
…
pro
tect
s in
vest
ors
in
case
of l
osse
s in
curr
ed a
s a
resu
lt of
arm
ed
confl
ict o
r ci
vil
strif
e
4.6.
0G
rant
non
-dis
crim
inat
ory
(i.e.
NT,
MFN
) tr
eatm
ent
with
res
pect
to
rest
itutio
n/co
mpe
n-sa
tion
in c
ase
of a
rmed
con
flict
or
civi
l str
ife.
IIAs
ofte
n co
ntai
n a
clau
se o
n co
mpe
nsat
ion
for
loss
es i
ncur
red
unde
r sp
ecifi
c ci
rcum
stan
ces,
suc
h as
arm
ed c
onfli
ct o
r ci
vil s
trife
. Som
e co
untr
ies
have
exp
ande
d th
e co
vera
ge o
f suc
h a
clau
se b
y in
clud
ing
com
pens
atio
n in
ca
se o
f nat
ural
dis
aste
rs o
r for
ce m
ajeu
re s
ituat
ions
. Suc
h a
broa
d ap
proa
ch
incr
ease
s th
e ris
k fo
r a
Sta
te t
o fa
ce fi
nanc
ial l
iabi
litie
s ar
isin
g ou
t of
IS
DS
cl
aim
s fo
r ev
ents
out
side
of t
he S
tate
’s c
ontr
ol.
Mos
t IIA
s on
ly c
onfe
r a
rela
tive
right
to
com
pens
atio
n on
for
eign
inve
stor
s,
mea
ning
that
a h
ost c
ount
ry u
nder
take
s to
com
pens
ate
cove
red
inve
stor
s in
a
man
ner
at le
ast e
quiv
alen
t to
com
para
ble
host
Sta
te n
atio
nals
or
inve
stor
s fro
m t
hird
cou
ntrie
s. S
ome
IIAs
prov
ide
an a
bsol
ute
right
to
com
pens
atio
n ob
ligin
g a
Sta
te t
o re
stitu
te o
r pa
y fo
r ce
rtai
n ty
pes
of l
osse
s (e
.g.
thos
e ca
used
by
the
requ
isiti
onin
g of
the
ir pr
oper
ty b
y go
vern
men
t fo
rces
or
auth
oriti
es).
The
latt
er a
ppro
ach
is m
ore
burd
enso
me
for
host
Sta
tes
but
prov
ides
a h
ighe
r le
vel o
f pro
tect
ion
to in
vest
ors.
4.6.
1G
uara
ntee
– u
nder
cer
tain
circ
umst
ance
s –
com
pens
atio
n in
cas
e of
loss
es in
curr
ed a
s a
resu
lt of
arm
ed c
onfli
ct o
r ci
vil s
trife
as
an a
bsol
ute
right
(e.g
. by
req
uirin
g re
ason
able
co
mpe
nsat
ion)
.
4.6.
2D
efine
civ
il st
rife
as n
ot in
clud
ing
“act
s of
God
”, n
atur
al d
isas
ters
or
forc
e m
ajeu
re.
4.6.
3O
mit
prot
ectio
n-fro
m-s
trife
cla
use.
Sec
tio
nsP
olic
y o
pti
ons
fo
r in
tern
atio
nal i
nves
tmen
t ag
reem
ents
(IIA
s)
Sus
tain
able
dev
elo
pm
ent
(SD
) im
plic
atio
ns
IV. Elements of International Investment Agreements: Policy Options 53
4.7
Tran
sfer
of
fund
s …
gra
nts
the
right
to fr
ee
mov
emen
t of
inve
stm
ent-
rela
ted
finan
cial
flow
s in
to a
nd o
ut
of th
e ho
st
coun
try
4.7.
0G
rant
fore
ign
inve
stor
s th
e rig
ht to
free
ly tr
ansf
er a
ny in
vest
men
t-re
late
d fu
nds
(e.g
. op
en e
nded
list
) int
o an
d ou
t of t
he h
ost c
ount
ry.
IIAs
virt
ually
alw
ays
cont
ain
a cl
ause
reg
ardi
ng in
vest
men
t-re
late
d tr
ansf
ers.
Th
e ob
ject
ive
is t
o en
sure
tha
t a
fore
ign
inve
stor
can
mak
e fre
e us
e of
in
vest
ed c
apita
l, re
turn
s on
inv
estm
ent
and
othe
r pa
ymen
ts r
elat
ed t
o th
e es
tabl
ishm
ent,
oper
atio
n or
dis
posa
l of a
n in
vest
men
t.
How
ever
, an
unq
ualifi
ed t
rans
fer-
of-f
unds
pro
visi
on s
igni
fican
tly r
educ
es a
ho
st c
ount
ry’s
abi
lity
to d
eal w
ith s
udde
n an
d m
assi
ve o
utflo
ws
or in
flow
s of
cap
ital,
bala
nce-
of-p
aym
ents
(BoP
) diffi
culti
es a
nd o
ther
mac
roec
onom
ic
prob
lem
s. A
n ex
cept
ion
incr
easi
ngly
fou
nd i
n re
cent
IIA
s al
low
s S
tate
s to
im
pose
res
tric
tions
on
the
free
tran
sfer
of
fund
s in
spe
cific
circ
umst
ance
s,
usua
lly q
ualifi
ed b
y ch
ecks
and
bal
ance
s (s
afeg
uard
s) t
o pr
even
t m
isus
e.
Cou
ntrie
s m
ay a
lso
need
to
rese
rve
thei
r rig
ht t
o re
stric
t tr
ansf
ers
if th
is is
re
quire
d fo
r th
e en
forc
emen
t of
the
Par
ty’s
law
s (e
.g.
to p
reve
nt f
raud
on
cred
itors
etc
.), a
gain
with
che
cks
and
bala
nces
to p
reve
nt a
buse
.
4.7.
1P
rovi
de a
n ex
haus
tive
list o
f typ
es o
f qua
lifyi
ng tr
ansf
ers.
4.7.
2In
clud
e ex
cept
ions
(e.g
. tem
pora
ry d
erog
atio
ns):
- in
the
eve
nt o
f ser
ious
bal
ance
-of-
paym
ents
and
ext
erna
l fina
ncia
l diffi
culti
es o
r th
reat
th
ereo
f-
whe
re m
ovem
ents
of
fund
s ca
use
or t
hrea
ten
to c
ause
ser
ious
diffi
culti
es in
mac
ro-
econ
omic
man
agem
ent,
in p
artic
ular
, rel
ated
to m
onet
ary
and
exch
ange
rat
e po
licie
s.C
ondi
tion
thes
e ex
cept
ions
to
prev
ent
thei
r ab
use
(e.g
. app
licat
ion
in li
ne w
ith IM
F ru
les
and
resp
ectin
g co
nditi
ons
of t
empo
ralit
y, e
quity
, no
n-di
scrim
inat
ion,
goo
d fa
ith a
nd
prop
ortio
nalit
y).
4.7.
3R
eser
ve t
he r
ight
of
host
Sta
tes
to r
estr
ict
an in
vest
or’s
tra
nsfe
r of
fun
ds in
con
nect
ion
with
the
cou
ntry
’s (e
quita
ble,
non
-dis
crim
inat
ory,
and
goo
d fa
ith a
pplic
atio
n of
its)
law
s,
rela
ting
to, e
.g.:
- fi
scal
obl
igat
ions
of t
he in
vest
or/in
vest
men
t in
the
host
cou
ntry
- re
port
ing
requ
irem
ents
in re
latio
n to
cur
renc
y tr
ansf
ers
- ba
nkru
ptcy
, ins
olve
ncy,
or
the
prot
ectio
n of
the
right
s of
cre
dito
rs-
issu
ing,
trad
ing,
or
deal
ing
in s
ecur
ities
, fut
ures
, opt
ions
, or
deriv
ativ
es-
crim
inal
or
pena
l offe
nces
(e.g
. im
posi
ng c
rimin
al p
enal
ties)
- pr
even
tion
of m
oney
laun
derin
g-
com
plia
nce
with
ord
ers
or ju
dgm
ents
in ju
dici
al o
r ad
min
istr
ativ
e pr
ocee
ding
s.
4.8
Tran
spar
ency
…
fost
ers
acce
ss to
in
form
atio
n
4.8.
0R
equi
re C
ontr
actin
g P
artie
s to
pro
mpt
ly p
ublis
h do
cum
ents
whi
ch m
ay a
ffect
cov
ered
in
vest
men
ts, i
nclu
ding
e.g
. -
law
s an
d re
gula
tions
- pr
oced
ures
/adm
inis
trat
ive
rulin
gs o
f gen
eral
app
licat
ion
- IIA
s.
Som
e IIA
s in
clud
e a
clau
se r
equi
ring
coun
trie
s to
pro
mpt
ly p
ublis
h la
ws
and
regu
latio
ns.
Pro
vidi
ng i
nves
tors
(pr
ospe
ctiv
e an
d es
tabl
ishe
d on
es)
with
ac
cess
to
such
inf
orm
atio
n im
prov
es a
cou
ntry
’s i
nves
tmen
t cl
imat
e. T
his
mig
ht,
how
ever
, al
so p
ose
adm
inis
trat
ive
diffi
culti
es f
or s
ome
coun
trie
s th
at
do n
ot h
ave
the
hum
an r
esou
rces
and
tec
hnol
ogic
al in
frast
ruct
ure
requ
ired.
Th
e tr
eaty
may
inco
rpor
ate
com
mitm
ents
to
prov
ide
tech
nica
l ass
ista
nce
to
deve
lopi
ng c
ount
ries
to s
uppo
rt im
plem
enta
tion.
The
adm
inis
trat
ive
burd
en
impo
sed
by t
rans
pare
ncy
oblig
atio
ns c
ould
be
less
ened
by
usin
g ph
rase
s su
ch a
s “t
o th
e ex
tent
pos
sibl
e”.
The
few
IIA
s th
at c
onta
in s
o-ca
lled
“prio
r-co
mm
ent
proc
edur
es”
requ
ire a
n ev
en h
ighe
r le
vel o
f ac
tion
by g
over
nmen
ts a
nd m
ay e
xpos
e S
tate
s to
lob-
byin
g an
d pr
essu
re in
the
proc
ess
of d
evel
opin
g th
ose
law
s.
Tran
spar
ency
obl
igat
ions
are
ofte
n ex
clud
ed f
rom
the
sco
pe o
f IS
DS
(se
e 6.
2.4)
. Th
ey c
an s
till b
e us
eful
, gi
ven
that
any
rel
ated
pro
blem
s ca
n be
dis
-cu
ssed
on
a S
tate
-Sta
te le
vel a
nd a
ddre
ssed
thro
ugh
tech
nica
l ass
ista
nce.
Tran
spar
ency
pro
visi
ons
gene
rally
do
not
incl
ude
any
refe
renc
e to
tra
nspa
-re
ncy
oblig
atio
ns a
pplic
able
to
inve
stor
s. T
his
cont
ribut
es t
o th
e pe
rcep
tion
that
IIA
s la
ck i)
cor
pora
te g
over
nanc
e en
hanc
ing
feat
ures
; an
d ii)
bal
ance
in
the
right
s an
d ob
ligat
ions
. IIA
s co
uld
enco
urag
e S
tate
s to
str
engt
hen
dom
es-
tic t
rans
pare
ncy
requ
irem
ents
(e.
g. in
clud
ing
mec
hani
sms
for
due
dilig
ence
pr
oced
ures
).
4.8.
1R
equi
re c
ount
ries
to g
rant
inve
stm
ent-
rela
ted
info
rmat
ion
upon
requ
est.
4.8.
2R
equi
re c
ount
ries
to p
ublis
h in
adv
ance
mea
sure
s th
at th
ey p
ropo
se to
ado
pt re
gard
ing
mat
ters
co
vere
d by
th
e IIA
an
d to
pr
ovid
e a
reas
onab
le
oppo
rtun
ity
for
affe
cted
st
akeh
olde
rs (i
nves
tors
) to
com
men
t (pr
ior-
com
men
t pro
cedu
res)
.4.
8.3
Exp
licitl
y re
serv
e ho
st S
tate
s’ r
ight
s an
d/or
enc
oura
ge S
tate
Par
ties
- to
impl
emen
t pol
icie
s pl
acin
g tr
ansp
aren
cy a
nd d
iscl
osur
e re
quire
men
ts o
n in
vest
ors
- to
see
k in
form
atio
n fro
m a
pot
entia
l (or
alre
ady
esta
blis
hed)
inve
stor
or
its h
ome
Sta
te-
to m
ake
rele
vant
info
rmat
ion
avai
labl
e to
the
publ
icQ
ualif
y w
ith a
n ob
ligat
ion
upon
the
Sta
te to
pro
tect
con
fiden
tial i
nfor
mat
ion.
4.8.
4N
o cl
ause
.
Sec
tio
nsP
olic
y o
pti
ons
fo
r in
tern
atio
nal i
nves
tmen
t ag
reem
ents
(IIA
s)
Sus
tain
able
dev
elo
pm
ent
(SD
) im
plic
atio
ns
Investment Policy Framework for Sustainable Development54
4.9
Per
form
ance
re
qui
rem
ents
…
regu
late
th
e ex
tent
to
whi
ch h
ost
Sta
tes
can
impo
se c
erta
in
oper
atio
nal
cond
ition
s on
fore
ign
inve
stor
s/in
vest
men
ts
4.9.
0P
recl
ude
Con
trac
ting
Par
ties
from
pla
cing
tra
de-r
elat
ed p
erfo
rman
ce r
equi
rem
ents
(e.g
. lo
cal c
onte
nt re
quire
men
ts) o
n in
vest
men
ts o
pera
ting
in th
e go
ods
sect
or (i
n ac
cord
ance
w
ith/in
corp
orat
ing
the
WTO
TR
IMs
Agr
eem
ent).
Per
form
ance
req
uire
men
ts (
PR
s) r
efer
to
the
impo
sitio
n of
con
ditio
ns o
n bu
sine
sses
lim
iting
the
ir ec
onom
ic c
hoic
es a
nd m
anag
eria
l dis
cret
ion
(e.g
. re
quire
men
ts to
use
loca
lly p
rodu
ced
inpu
ts o
r to
expo
rt a
cer
tain
per
cent
age
of
prod
uctio
n).
Whi
le
PR
s m
ay
be
cons
ider
ed
as
crea
ting
econ
omic
in
effic
ienc
ies,
the
y ca
n al
so b
e a
pote
ntia
lly i
mpo
rtan
t to
ol f
or i
ndus
tria
l or
ot
her e
cono
mic
dev
elop
men
t pol
icie
s. F
rom
the
tran
sfer
of t
echn
olog
y to
the
empl
oym
ent
of lo
cal w
orke
rs,
PR
s ca
n he
lp m
ater
ializ
e ex
pect
ed s
pill-
over
ef
fect
s fro
m fo
reig
n in
vest
men
t.
Thus
, to
rea
p th
e fu
ll be
nefit
s of
for
eign
inve
stm
ent
and
to a
lign
inve
stm
ent
polic
y w
ith S
D o
bjec
tives
, po
licym
aker
s ne
ed t
o ca
refu
lly c
onsi
der
the
need
fo
r po
licy
flexi
bilit
y w
hen
devi
sing
cla
uses
on
PR
s. T
his
is im
port
ant,
even
if
the
IIA s
impl
y re
fers
to th
e W
TO T
RIM
s A
gree
men
t (be
caus
e ev
en th
ough
this
do
es n
ot a
dd a
ny n
ew o
blig
atio
ns o
n S
tate
s w
ho a
re a
lso
WTO
mem
bers
, the
in
corp
orat
ion
of T
RIM
s in
to a
n IIA
giv
es in
vest
ors
the
oppo
rtun
ity t
o di
rect
ly
chal
leng
e a
TRIM
s vi
olat
ion
thro
ugh
ISD
S).
It is
par
ticul
arly
impo
rtan
t w
hen
cons
ider
ing
the
proh
ibiti
on o
f an
ext
ensi
ve li
st o
f P
Rs
beyo
nd T
RIM
s (e
.g.
requ
irem
ents
to
tran
sfer
tec
hnol
ogy
or e
mpl
oy lo
cal w
orke
rs).
The
rele
vant
ex
cept
ions
and
res
erva
tions
sho
uld
be c
onsi
dere
d fro
m t
he p
oint
of
view
of
bot
h cu
rren
t an
d fu
ture
reg
ulat
ory
need
s. F
inal
ly, e
ven
if th
e IIA
doe
s no
t co
ntai
n a
clau
se e
xplic
itly
rulin
g ou
t P
Rs,
the
NT
clau
se w
ould
pro
hibi
t th
e di
scrim
inat
ory
impo
sitio
n of
PR
s on
fore
ign
inve
stor
s on
ly.
4.9.
1P
recl
ude
Con
trac
ting
Par
ties
from
pla
cing
per
form
ance
req
uire
men
ts o
n in
vest
men
ts,
beyo
nd tr
ade-
rela
ted
ones
, e.g
. req
uire
men
ts to
tran
sfer
tech
nolo
gy, t
o ac
hiev
e a
cert
ain
leve
l of R
&D
ope
ratio
ns o
r to
em
ploy
a c
erta
in p
erce
ntag
e of
loca
l per
sonn
el (T
RIM
s +
).
4.9.
2P
recl
ude
Con
trac
ting
Par
ties
from
impo
sing
per
form
ance
req
uire
men
ts u
nles
s th
ey a
re
linke
d to
the
gran
ting
of in
cent
ives
(usu
ally
in c
ombi
natio
n w
ith th
e ab
ove
TRIM
s +
opt
ion)
.
4.9.
3In
clud
e co
untr
y-sp
ecifi
c re
serv
atio
ns to
the
TRIM
s+ o
blig
atio
n, e
.g. c
arvi
ng o
ut:
- ce
rtai
n po
licie
s/m
easu
res
(e.g
. sub
sidi
es)
- sp
ecifi
c se
ctor
s/in
dust
ries
(e.g
. ba
nkin
g,
defe
nce,
fis
herie
s,
fore
stry
, tr
ansp
ort,
infra
stru
ctur
e, s
ocia
l ser
vice
s)-
cert
ain
polic
y ar
eas
(e.g
. iss
ues
rela
ted
to m
inor
ities
, rur
al p
opul
atio
ns, m
argi
naliz
ed o
r in
dige
nous
com
mun
ities
)-
mea
sure
s re
late
d to
com
pani
es o
f a s
peci
fic s
ize
(e.g
. SM
Es)
.4.
9.4
No
clau
se p
rohi
bitin
g im
posi
tion
of p
erfo
rman
ce re
quire
men
ts
4.10
«Um
bre
lla»
clau
se
… e
stab
lishe
s a
com
mitm
ent
on th
e pa
rt o
f th
e ho
st S
tate
to
resp
ect i
ts
oblig
atio
ns
rega
rdin
g sp
ecifi
c in
vest
men
ts
(incl
udin
g in
in
vest
men
t co
ntra
cts)
4.10
.0In
clud
e a
clau
se t
hat
requ
ires
each
Par
ty t
o ob
serv
e an
y ob
ligat
ion
(e.g
. co
ntra
ctua
l) w
hich
it h
as a
ssum
ed w
ith re
spec
t to
an in
vest
men
t of a
cov
ered
inve
stor
.A
n “u
mbr
ella
” cl
ause
requ
ires
a ho
st S
tate
to re
spec
t any
obl
igat
ion
assu
med
by
it
with
reg
ard
to a
spe
cific
inv
estm
ent
(for
exam
ple,
in
an i
nves
tmen
t co
ntra
ct).
The
clau
se th
us b
rings
con
trac
tual
and
oth
er in
divi
dual
obl
igat
ions
un
der
the
“um
brel
la”
of t
he II
A, m
akin
g th
em p
oten
tially
enf
orce
able
thr
ough
IS
DS
. B
y su
bjec
ting
cont
ract
ual
vito
latio
ns t
o IIA
arb
itrat
ion
an u
mbr
ella
cl
ause
the
refo
re m
akes
it
even
mor
e im
port
ant
for
coun
trie
s to
hav
e th
e te
chni
cal c
apac
ity t
o ca
refu
lly c
raft
the
resp
ectiv
e co
ntra
ctua
l arr
ange
men
ts
(e.g
. whe
n th
ey e
nter
into
inve
stm
ent o
r co
nces
sion
con
trac
ts).
4.10
.1C
larif
y th
at a
bre
ach
of t
he “
umbr
ella
” cl
ause
may
onl
y re
sult
from
an
exer
cise
of
sove
reig
n po
wer
s by
a g
over
nmen
t (i.
e. n
ot a
n or
dina
ry b
reac
h of
con
trac
t by
the
Sta
te)
and
that
dis
pute
s ar
isin
g fro
m s
uch
brea
ches
sha
ll be
set
tled
in th
e fo
rum
pre
scrib
ed b
y th
e co
ntra
ct.
4.10
.2In
trod
uce
a “t
wo-
way
” um
brel
la c
laus
e th
at r
equi
res
both
the
Sta
te a
nd t
he in
vest
or t
o ob
serv
e th
eir
spec
ific
oblig
atio
ns re
late
d to
the
inve
stm
ent.
4.10
.3N
o “u
mbr
ella
” cl
ause
.Th
e m
ain
diffi
culti
es w
ith “
umbr
ella
” cl
ause
s ar
e th
at t
hey
(1)
effe
ctiv
ely
expa
nd t
he s
cope
of
the
IIA b
y in
corp
orat
ing
non-
trea
ty o
blig
atio
ns o
f th
e ho
st S
tate
into
the
tre
aty,
whi
ch m
ay in
crea
se t
he r
isk
of b
eing
fac
ed w
ith
cost
ly le
gal p
roce
edin
gs, a
nd (2
) hav
e gi
ven
rise
to c
onfli
ctin
g in
terp
reta
tions
by
inve
stor
-Sta
te tr
ibun
als
resu
lting
in a
hig
h de
gree
of u
npre
dict
abilit
y.
One
way
of
solv
ing
thes
e pr
oble
ms
– fo
llow
ed b
y m
any
coun
trie
s –
wou
ld
be t
o om
it th
e “u
mbr
ella
” cl
ause
from
the
ir IIA
s. T
his
mea
ns t
hat
an in
vest
or
part
y to
an
inve
stm
ent
cont
ract
wou
ld a
lway
s ha
ve t
o sh
ow a
bre
ach
of a
n IIA
obl
igat
ion,
and
not
a b
reac
h of
the
con
trac
t. A
ltern
ativ
ely,
a c
ount
ry m
ay
clar
ify th
e sc
ope
of th
e um
brel
la c
laus
e an
d th
e co
mpe
tent
dis
pute
set
tlem
ent
foru
m t
o av
oid
confl
ictin
g in
terp
reta
tions
. Fi
nally
, th
ere
is a
n op
tion
to m
ake
the
umbr
ella
cla
use
wor
k bo
th w
ays,
tha
t is
, to
use
it to
inco
rpor
ate
into
the
IIA
not
onl
y a
Sta
te’s
obl
igat
ions
but
als
o th
ose
of a
n in
vest
or,
whi
ch w
ould
gi
ve S
tate
s an
opp
ortu
nity
to
brin
g co
unte
rcla
ims
agai
nst
inve
stor
s in
the
re
leva
nt IS
DS
pro
ceed
ings
.
Sec
tio
nsP
olic
y o
pti
ons
fo
r in
tern
atio
nal i
nves
tmen
t ag
reem
ents
(IIA
s)
Sus
tain
able
dev
elo
pm
ent
(SD
) im
plic
atio
ns
IV. Elements of International Investment Agreements: Policy Options 55
4.11
Per
sonn
el
and
sta
ffing
…
faci
litat
es
the
entr
y,
sojo
urn
and
empl
oym
ent
of fo
reig
n pe
rson
nel
4.11
.0P
rovi
de f
or t
he f
acilit
atio
n of
ent
ry,
sojo
urn
and
issu
ing
of w
ork
perm
its f
or n
atio
nals
of
one
Par
ty (
or i
ndiv
idua
ls r
egar
dles
s of
nat
iona
lity)
int
o th
e te
rrito
ry o
f th
e ot
her
Par
ty
for
purp
oses
rel
atin
g to
an
inve
stm
ent,
subj
ect
to n
atio
nal i
mm
igra
tion
and
othe
r la
ws,
co
verin
g:-
all p
erso
nnel
, inc
ludi
ng fa
milie
s-
only
sen
ior
man
agem
ent a
nd k
ey p
erso
nnel
.
Faci
litat
ing
the
entr
y an
d so
jour
n of
for
eign
em
ploy
ees
and
the
right
to
hire
ex
patr
iate
per
sonn
el (
incl
udin
g se
nior
man
agem
ent
and
mem
bers
of
the
boar
d of
dire
ctor
s) c
an h
elp
to a
ttra
ct fo
reig
n in
vest
men
t.
At t
he s
ame
time
thes
e pr
ovis
ions
inte
ract
with
hos
t Sta
te’s
imm
igra
tion
law
s -
a pa
rtic
ular
ly s
ensi
tive
area
of p
olic
y m
akin
g. It
is im
port
ant t
hat h
ost S
tate
s re
tain
con
trol
ove
r th
eir
imm
igra
tion
polic
ies
or e
nsur
e co
here
nce
betw
een
rele
vant
inte
rnat
iona
l and
nat
iona
l reg
ulat
ions
.
Mor
eove
r, S
tate
s m
ay w
ish
to e
ncou
rage
SD
-rel
ated
spi
ll-ov
ers
such
as
empl
oym
ent
for
dom
estic
or
indi
geno
us w
orke
rs a
nd t
rickl
e-do
wn
effe
cts
with
resp
ect t
o te
chno
logi
cal k
now
ledg
e (e
.g. b
y re
quiri
ng fo
reig
n in
vest
men
ts
to e
mpl
oy i
ndig
enou
s pe
rson
nel
or b
y lim
iting
the
num
ber
of e
xpat
riate
pe
rson
nel w
orki
ng fo
r th
e in
vest
or).
Car
eful
ly c
hoos
ing
the
right
nor
mat
ive
inte
nsity
(e.g
. opt
ing
for
a be
st-e
ffort
s ap
proa
ch),
and
othe
r m
echa
nism
s fo
r pr
eser
ving
flex
ibilit
y (e
.g.
ensu
ring
the
prio
rity
of n
atio
nal l
aws)
are
key
.
4.11
.1E
nsur
e th
e rig
ht o
f in
vest
ors
to m
ake
appo
intm
ents
to
seni
or m
anag
emen
t po
sitio
ns
with
out r
egar
d to
nat
iona
lity.
4.11
.2In
clud
e co
untr
y-sp
ecifi
c re
serv
atio
ns
to
the
seni
or-m
anag
emen
t ob
ligat
ion
(sec
tion
4.11
.1),
e.g.
car
ve o
ut:
- ce
rtai
n po
licie
s/m
easu
res
- sp
ecifi
c se
ctor
s/in
dust
ries
- ce
rtai
n po
licy
area
s (m
inor
ities
, ind
igen
ous
com
mun
ities
)-
mea
sure
s re
late
d to
com
pani
es o
f a s
peci
fic s
ize.
4.11
.3N
o cl
ause
.
5P
ublic
po
licy
exce
pti
ons
...
per
mit
publ
ic p
olic
y m
easu
res,
ot
herw
ise
inco
nsis
tent
w
ith th
e tr
eaty
, to
be
take
n un
der
spec
ified
, ex
cept
iona
l ci
rcum
stan
ces
5.1.
0N
o pu
blic
pol
icy
exce
ptio
ns.
To d
ate
few
IIA
s in
clud
e pu
blic
pol
icy
exce
ptio
ns.
How
ever
, m
ore
rece
nt
trea
ties
incr
easi
ngly
rea
ffirm
Sta
tes’
rig
ht t
o re
gula
te in
the
pub
lic in
tere
st b
y in
trod
ucin
g ge
nera
l exc
eptio
ns. S
uch
prov
isio
ns m
ake
IIAs
mor
e co
nduc
ive
to
SD
goa
ls,
fost
er c
oher
ence
bet
wee
n IIA
s an
d ot
her
publ
ic p
olic
y ob
ject
ives
, an
d re
duce
Sta
tes’
exp
osur
e to
cla
ims
aris
ing
from
any
con
flict
tha
t m
ay
occu
r be
twee
n th
e in
tere
sts
of a
for
eign
inv
esto
r an
d th
e pr
omot
ion
and
prot
ectio
n of
legi
timat
e pu
blic
-inte
rest
obj
ectiv
es.
Exc
eptio
ns a
llow
for m
easu
res,
oth
erw
ise
proh
ibite
d by
the
agre
emen
t, to
be
take
n un
der
spec
ified
circ
umst
ance
s. G
ener
al e
xcep
tions
iden
tify
the
polic
y ar
eas
for
whi
ch fl
exib
ility
is to
be
pres
erve
d.
A n
umbe
r of
fea
ture
s de
term
ine
how
eas
y or
diffi
cult
it is
for
a S
tate
to
use
an e
xcep
tion.
To
avoi
d re
view
of
the
rele
vant
mea
sure
by
a co
urt
or a
tr
ibun
al,
the
gene
ral e
xcep
tion
can
be m
ade
self-
judg
ing
(i.e.
the
nec
essi
ty/
appr
opria
tene
ss
of
the
mea
sure
is
ju
dged
on
ly
by
the
invo
king
S
tate
its
elf).
Thi
s ap
proa
ch g
ives
a w
ide
mar
gin
of d
iscr
etio
n to
Sta
tes,
red
uces
le
gal c
erta
inty
for
inve
stor
s an
d po
tent
ially
ope
ns p
ossi
bilit
ies
for
abus
e. I
n co
ntra
st,
exce
ptio
ns d
esig
ned
as n
ot s
elf-
judg
ing
impl
y th
at i
n ca
se o
f a
disp
ute,
a c
ourt
or
trib
unal
will
be a
ble
to d
eter
min
e w
heth
er t
he m
easu
re in
qu
estio
n is
allo
wed
by
the
exce
ptio
n.
In o
rder
to fa
cilit
ate
the
use
of e
xcep
tions
by
Sta
tes,
the
prov
isio
n m
ay a
djus
t th
e re
quire
d lin
k be
twee
n th
e m
easu
re a
nd t
he a
llege
d po
licy
obje
ctiv
e pu
rsue
d by
this
mea
sure
. For
exa
mpl
e, in
stea
d of
pro
vidi
ng th
at th
e m
easu
re
mus
t be
“nec
essa
ry”
to a
chie
ve th
e po
licy
obje
ctiv
e, th
e IIA
cou
ld re
quire
that
th
e m
easu
re b
e “r
elat
ed”
to th
e po
licy
obje
ctiv
e.
Fina
lly,
in o
rder
to
prev
ent
abus
e of
exc
eptio
ns,
it is
use
ful
to c
larif
y th
at
“exc
eptio
nal”
mea
sure
s m
ust
be a
pplie
d in
a n
on-a
rbitr
ary
man
ner
and
not
as d
isgu
ised
inve
stm
ent p
rote
ctio
nism
.
5.1.
1In
clud
e ex
cept
ions
for
nat
iona
l se
curit
y m
easu
res
and/
or m
easu
res
rela
ted
to t
he
mai
nten
ance
of i
nter
natio
nal p
eace
and
sec
urity
:-
form
ulat
e th
e ex
cept
ion
as n
ot s
elf-
judg
ing
(can
be
subj
ect t
o ar
bitr
al re
view
)-
form
ulat
e th
e ex
cept
ion
as s
elf-
judg
ing.
5.1.
2B
road
en t
he e
xcep
tion
by c
larif
ying
tha
t na
tiona
l se
curit
y m
ay e
ncom
pass
eco
nom
ic
secu
rity.
5.1.
3Li
mit
the
exce
ptio
n by
spe
cify
ing:
-
that
the
exc
eptio
n on
ly r
elat
es t
o ce
rtai
n ty
pes
of m
easu
res,
e.g
. th
ose
rela
ting
to
traf
ficki
ng in
arm
s or
nuc
lear
non
-pro
lifer
atio
n; o
r tak
en in
pur
suan
ce o
f Sta
tes’
obl
igat
ions
un
der
the
UN
Cha
rter
for
the
mai
nten
ance
of i
nter
natio
nal p
eace
and
sec
urity
- th
at it
onl
y ap
plie
s in
tim
es o
f w
ar o
r ar
med
con
flict
or
an e
mer
genc
y in
inte
rnat
iona
l re
latio
ns.
5.1.
4In
clud
e ex
cept
ions
for d
omes
tic re
gula
tory
mea
sure
s th
at a
im to
pur
sue
legi
timat
e pu
blic
po
licy
obje
ctiv
es, e
.g. t
o:-
prot
ect h
uman
rig
hts
- pr
otec
t pub
lic h
ealth
- pr
eser
ve th
e en
viro
nmen
t (e.
g. b
iodi
vers
ity, c
limat
e ch
ange
)-
prot
ect p
ublic
mor
als
or m
aint
ain
publ
ic o
rder
-
pres
erve
cul
tura
l and
/or
lingu
istic
div
ersi
ty-
ensu
re c
ompl
ianc
e w
ith la
ws
and
regu
latio
ns th
at a
re n
ot in
cons
iste
nt w
ith th
e tr
eaty
- al
low
for
prud
entia
l mea
sure
s (e
.g. t
o pr
eser
ve th
e in
tegr
ity a
nd s
tabi
lity
of th
e fin
anci
al
syst
em)
- en
sure
the
prov
isio
n of
ess
entia
l soc
ial s
ervi
ces
(e.g
. hea
lth, e
duca
tion,
wat
er s
uppl
y)-
allo
w f
or b
road
er s
afeg
uard
s, i
nclu
ding
on
deve
lopm
enta
l gr
ound
s (to
add
ress
hos
t co
untr
ies’
trad
e, fi
nanc
ial a
nd d
evel
opm
enta
l nee
ds)
- pr
even
t tax
eva
sion
- pr
otec
t na
tiona
l tr
easu
res
of a
rtis
tic,
hist
oric
or
arch
aeol
ogic
al v
alue
(or
“cu
ltura
l he
ritag
e”).
Sec
tio
nsP
olic
y o
pti
ons
fo
r in
tern
atio
nal i
nves
tmen
t ag
reem
ents
(IIA
s)
Sus
tain
able
dev
elo
pm
ent
(SD
) im
plic
atio
ns
Investment Policy Framework for Sustainable Development56
5.1.
5P
reve
nt a
buse
of t
he e
xcep
tions
by
host
Sta
tes:
-
prov
ide
that
«ex
cept
iona
l» m
easu
res
shal
l not
be
appl
ied
in a
man
ner
that
w
ould
con
stitu
te a
rbitr
ary
or u
njus
tifiab
le d
iscr
imin
atio
n be
twee
n in
vest
men
ts o
r in
vest
ors,
or
a di
sgui
sed
rest
rictio
n on
inte
rnat
iona
l tra
de o
r in
vest
men
t-
choo
se th
e ap
prop
riate
thre
shol
d w
hich
an
“exc
eptio
nal”
mea
sure
mus
t mee
t, e.
g. th
e m
easu
re m
ust
be “
nece
ssar
y” (i
ndis
pens
able
) to
achi
eve
the
alle
ged
polic
y ob
ject
ive,
or
be “
rela
ted”
(mak
ing
a co
ntrib
utio
n) to
this
pol
icy
obje
ctiv
e.
6D
isp
ute
sett
lem
ent
6.1
Sta
te-S
tate
...
gov
erns
di
sput
e se
ttle
men
t be
twee
n th
e C
ontr
actin
g P
artie
s
6.1.
0E
stab
lish
that
any
unr
esol
ved
IIA-r
elat
ed d
ispu
tes
can
be s
ubm
itted
to
Sta
te-S
tate
di
sput
e se
ttle
men
t (ar
bitr
atio
n).
To d
ate,
Sta
te-S
tate
arb
itrat
ions
und
er I
IAs
have
bee
n ve
ry r
are.
Thi
s is
a
natu
ral c
onse
quen
ce o
f in
clud
ing
ISD
S in
to I
IAs
(and
inve
stor
s th
emse
lves
ta
king
hos
t S
tate
s to
arb
itrat
ion)
to
com
plem
ent
the
syst
em o
f di
plom
atic
pr
otec
tion.
How
ever
, if a
que
stio
n ab
out t
he m
eani
ng o
f a s
peci
fic II
A o
blig
atio
n ar
ises
, and
th
e C
ontr
actin
g P
artie
s fa
il to
reso
lve
the
unce
rtai
nty
thro
ugh
cons
ulta
tions
, a
Sta
te-S
tate
arb
itrat
ion
can
be a
use
ful m
echa
nism
to
clar
ify it
. In
this
sen
se,
Sta
te-S
tate
pro
cedu
res
reta
in th
eir
“sup
port
ive”
func
tion
for
ISD
S.
6.1.
1P
rovi
de a
n op
tion
or re
quire
that
the
Sta
tes
enga
ge in
prio
r con
sulta
tions
and
neg
otia
tions
an
d/or
reso
rt to
con
cilia
tion
or m
edia
tion.
6.2
Inve
sto
r-S
tate
…
pro
vide
s fo
reig
n in
vest
ors
with
ac
cess
to
inte
rnat
iona
l ar
bitr
atio
n to
reso
lve
inve
stm
ent-
rela
ted
disp
utes
with
th
e ho
st S
tate
6.2.
0G
rant
inve
stor
s th
e rig
ht to
brin
g an
y in
vest
men
t-re
late
d di
sput
e w
ith th
e ho
st c
ount
ry to
in
tern
atio
nal a
rbitr
atio
n.IS
DS
allo
ws
fore
ign
inve
stor
s to
sue
a h
ost
Sta
te if
the
latt
er v
iola
tes
its II
A
oblig
atio
ns.
Mos
t IIA
s al
low
inv
esto
rs t
o by
pass
dom
estic
cou
rts
of h
ost
Sta
tes
and
brin
g in
tern
atio
nal a
rbitr
atio
n pr
ocee
ding
s (e
.g. t
o co
nstit
ute
an a
d ho
c 3-
pers
on tr
ibun
al, m
ost o
ften
at IC
SID
or u
nder
the
UN
CIT
RA
L ar
bitr
atio
n ru
les)
. Th
e go
al is
to
take
the
dis
pute
out
of t
he d
omes
tic s
pher
e, t
o en
sure
in
depe
nden
ce a
nd im
part
ialit
y of
the
arb
itrat
ors,
spe
ed a
nd e
ffect
iven
ess
of
the
proc
ess
and
final
ity a
nd e
nfor
ceab
ility
of a
rbitr
al a
war
ds.
As
the
num
ber
of IS
DS
cas
es in
crea
ses,
que
stio
ns h
ave
aris
en w
ith r
egar
d to
the
effe
ctiv
enes
s an
d th
e S
D im
plic
atio
ns o
f IS
DS
. Man
y IS
DS
pro
cedu
res
are
very
exp
ensi
ve a
nd o
ften
take
sev
eral
yea
rs t
o re
solv
e. I
SD
S c
ases
in
crea
sing
ly
chal
leng
e do
mes
tic
regu
lato
ry
mea
sure
s im
plem
ente
d fo
r pu
blic
pol
icy
obje
ctiv
es.
Alm
ost
all
ISD
S c
ases
lea
d to
the
bre
ak d
own
of
the
rela
tions
hip
betw
een
the
inve
stor
and
the
hos
t S
tate
. D
ue t
o th
e la
ck
of a
sin
gle,
uni
fied
mec
hani
sm,
diffe
rent
trib
unal
s ha
ve i
ssue
d di
verg
ent
inte
rpre
tatio
ns o
f sim
ilarly
wor
ded
trea
ty p
rovi
sion
s, re
sulti
ng in
con
trad
icto
ry
outc
omes
of
case
s in
volv
ing
iden
tical
/sim
ilar
fact
s an
d/or
tre
aty
lang
uage
. M
any
ISD
S p
roce
edin
gs a
re c
ondu
cted
con
fiden
tially
, w
hich
has
rai
sed
conc
erns
whe
n tr
ibun
als
addr
ess
mat
ters
of p
ublic
pol
icy.
A n
umbe
r of
pol
icy
optio
ns a
re a
vaila
ble
to d
eal w
ith t
hese
pro
blem
s. If
the
C
ontr
actin
g P
artie
s co
nsid
er e
ach
othe
r’s ju
dici
al s
yste
ms
to b
e ef
fect
ive
and
effic
ient
, IS
DS
can
be
omitt
ed fr
om t
heir
IIA a
ltoge
ther
. The
Par
ties
may
als
o ch
oose
to s
ubje
ct o
nly
the
mos
t fun
dam
enta
l IIA
pro
tect
ions
to IS
DS
(e.g
. the
pr
otec
tion
agai
nst
unco
mpe
nsat
ed e
xpro
pria
tion)
, re
serv
e th
e rig
ht t
o gi
ve
cons
ent t
o ar
bitr
atio
n on
a c
ase-
by-c
ase
basi
s or
min
imiz
e S
tate
s’ e
xpos
ure
to I
SD
S b
y ot
her
mea
ns (
e.g.
by
rem
ovin
g ce
rtai
n ar
eas
from
its
pur
view
, in
trod
ucin
g lim
itatio
n pe
riods
). P
artie
s m
ay a
lso
cons
ider
pro
mot
ing
the
use
of a
ltern
ativ
e di
sput
e re
solu
tion
(AD
R) m
etho
ds, s
uch
as c
onci
liatio
n an
d m
edia
tion.
If e
mpl
oyed
at
the
early
st
ages
of a
dis
pute
, AD
R c
an h
elp
to p
reve
nt e
scal
atio
n of
the
confl
ict,
6.2.
1D
efine
the
rang
e of
dis
pute
s th
at c
an b
e su
bjec
t to
ISD
S:
- an
y in
vest
men
t-re
late
d di
sput
es (
rega
rdle
ss o
f th
e le
gal
basi
s fo
r a
clai
m,
be i
t IIA
, co
ntra
ct, d
omes
tic la
w o
r ot
her)
-
disp
utes
aris
ing
from
spe
cific
ally
lis
ted
inst
rum
ents
(e.
g. I
IAs,
con
trac
ts,
inve
stm
ent
auth
oris
atio
ns/li
cens
es)
- di
sput
es re
gard
ing
IIA v
iola
tions
onl
y-
Sta
tes’
cou
nter
clai
ms.
6.2.
2P
rom
ote
the
use
of a
ltern
ativ
e di
sput
e re
solu
tion
(AD
R) m
etho
ds-
enco
urag
e re
sort
to c
onci
liatio
n (e
.g. I
CS
ID o
r UN
CIT
RA
L co
ncilia
tion
rule
s) o
r med
iatio
n-
agre
e to
coo
pera
te in
dev
elop
ing
disp
ute
prev
entio
n m
echa
nism
s (in
clud
ing
by c
reat
ing
inve
stm
ent o
mbu
dsm
en o
r “o
mbu
ds”
offic
es).
6.2.
3C
larif
y th
at in
vest
ors
can
only
reso
rt to
inte
rnat
iona
l arb
itrat
ion
- af
ter l
ocal
rem
edie
s ha
ve b
een
exha
uste
d or
a m
anife
st in
effe
ctiv
enes
s/bi
as o
f dom
estic
co
urts
has
bee
n de
mon
stra
ted
- if
the
inve
stor
agr
ees
not t
o br
ing
(“fo
rk-in
-the
-roa
d”),
or u
nder
take
s to
dis
cont
inue
(“no
U
-tur
n”),
the
sam
e ca
se in
ano
ther
foru
m
- w
ithin
a li
mita
tion
perio
d, in
ord
er to
pre
vent
cla
ims
resu
lting
from
«ol
d» m
easu
res
(e.g
. cl
aim
has
to b
e br
ough
t with
in th
ree
year
s)-
with
resp
ect t
o cl
aim
s th
at a
rose
afte
r th
e tr
eaty
’s e
ntry
into
forc
e (s
ee s
ectio
n 2.
4).
6.2.
4Li
mit
Sta
tes’
exp
osur
e to
ISD
S, e
.g.:
- cl
arify
that
cer
tain
trea
ty p
rovi
sion
s an
d/or
sen
sitiv
e ar
eas
are
excl
uded
from
ISD
S, e
.g.
natio
nal s
ecur
ity is
sues
, in
clud
ing
revi
ew o
f in
com
ing
inve
stm
ents
; m
easu
res
to p
rote
ct
the
envi
ronm
ent,
heal
th a
nd h
uman
rig
hts;
pru
dent
ial
mea
sure
s; m
easu
res
rela
ting
to
tran
sfer
of
fund
s (o
r re
spec
tive
IIA p
rovi
sion
s);
tax
mea
sure
s th
at d
o no
t am
ount
to
expr
opria
tion;
IIA
pro
visi
ons
on tr
ansp
aren
cy-
spec
ify o
nly
thos
e is
sues
/pro
visi
ons
to w
hich
IS
DS
sho
uld
appl
y (e
.g.
only
to
the
expr
opria
tion
prov
isio
n).
Sec
tio
nsP
olic
y o
pti
ons
fo
r in
tern
atio
nal i
nves
tmen
t ag
reem
ents
(IIA
s)
Sus
tain
able
dev
elo
pm
ent
(SD
) im
plic
atio
ns
IV. Elements of International Investment Agreements: Policy Options 57
6.2.
5R
eser
ve S
tate
’s c
onse
nt t
o ar
bitr
atio
n, s
o th
at i
t w
ould
be
give
n se
para
tely
for
eac
h sp
ecifi
c di
sput
e.pr
eser
ve
the
inve
stm
ent
rela
tions
hip,
an
d fin
d a
wor
kabl
e co
mm
on-
sens
e so
lutio
n in
a f
aste
r, ch
eape
r an
d m
ore
flexi
ble
man
ner.
As
part
of
the
IIA r
ebal
anci
ng,
a tr
eaty
may
ref
er t
o th
e po
ssib
ility
of S
tate
s br
ingi
ng
coun
terc
laim
s fo
r in
vest
ors’
non
-com
plia
nce
with
the
hos
t S
tate
’s n
atio
nal
law
s (s
ectio
n 7.
1.1)
or
brea
ch o
f inv
esto
r’s s
peci
fic o
blig
atio
ns u
nder
take
n in
re
latio
n to
its
inve
stm
ent (
sect
ion
4.10
.3).
6.2.
6O
mit
inve
stor
-Sta
te a
rbitr
atio
n (i.
e. d
o no
t co
nsen
t to
inv
esto
r-S
tate
arb
itrat
ion
in t
he
trea
ty) a
nd n
omin
ate
host
Sta
te’s
dom
estic
cou
rts
as th
e ap
prop
riate
foru
m.
6.3
ISD
S
inst
itut
ions
an
d
pro
ced
ures
…
pro
pose
im
prov
emen
ts
of a
n in
stitu
tiona
l an
d pr
oced
ural
na
ture
6.3.
0Im
prov
e th
e in
stitu
tiona
l set
-up
of IS
DS
, e.g
.:Th
e in
stitu
tiona
l set
-up
of th
e IS
DS
sys
tem
is th
e ca
use
of n
umer
ous
conc
erns
in
clud
ing
perc
eive
d la
ck o
f le
gitim
acy,
inc
onsi
sten
t de
cisi
ons,
sec
recy
or
part
icip
ator
y ch
alle
nges
for
deve
lopi
ng c
ount
ries.
IIA p
olic
ymak
ers
can
impr
ove
the
inst
itutio
nal s
et-u
p of
IS
DS
in t
he t
reat
y.
An
appe
llate
mec
hani
sm c
ould
con
trib
ute
to m
ore
cohe
rent
int
erpr
etat
ion
and
fost
er t
rust
in t
he s
yste
m. E
nhan
ced
tran
spar
ency
of I
SD
S c
laim
s co
uld
enab
le b
road
er a
nd i
nfor
med
pub
lic d
ebat
e as
wel
l as
a m
ore
adeq
uate
re
pres
enta
tion
of s
take
hold
er i
nter
ests
, pr
even
t no
n-tr
ansp
aren
t de
als
and
stim
ulat
e ba
lanc
ed a
nd w
ell-r
easo
ned
arbi
tral
dec
isio
ns.
Pro
cedu
ral i
mpr
ovem
ents
suc
h as
sim
plifi
ed d
ispo
sals
of
«friv
olou
s» c
laim
s,
cons
olid
atio
n of
cla
ims
and
caps
on
arbi
trat
or fe
es, c
ould
hel
p st
ream
line
the
arbi
tral
pro
cess
and
mak
e it
less
exp
ensi
ve a
nd m
ore
effe
ctiv
e. A
ref
eren
ce
to c
usto
mar
y in
tern
atio
nal l
aw a
s co
ntro
lling
inte
rpre
tatio
n of
the
IIA, c
oupl
ed
with
a p
ossi
bilit
y fo
r th
e S
tate
Par
ties
to i
ssue
joi
nt i
nter
pret
atio
ns,
wou
ld
ensu
re a
com
mon
inte
rpre
tativ
e fra
mew
ork
and
the
abilit
y of
the
con
trac
ting
Sta
tes
to in
fluen
ce th
is p
roce
ss, t
here
by li
miti
ng th
e di
scre
tion
of a
rbitr
ator
s.
- co
nsid
er a
sys
tem
with
per
man
ent
or q
uasi
-per
man
ent
arbi
trat
ors
and/
or a
n ap
pella
te
mec
hani
sm-
fost
er a
cces
sibi
lity
of d
ocum
ents
(e.g
. in
form
atio
n ab
out
the
case
, pa
rty
subm
issi
ons,
de
cisi
ons
and
othe
r re
leva
nt d
ocum
ents
)-
fost
er p
ublic
par
ticip
atio
n (e
.g. a
mic
us c
uria
e an
d pu
blic
hea
rings
)-
spec
ify t
hat
disp
utes
con
cern
ing
cert
ain
sens
itive
pol
icy
area
s, s
uch
as t
ax a
nd/o
r pr
uden
tial m
easu
res,
sha
ll be
sub
mitt
ed to
the
com
pete
nt a
utho
ritie
s of
the
Par
ties
for
a pr
elim
inar
y jo
int d
eter
min
atio
n of
whe
ther
they
are
in b
reac
h of
the
trea
ty-
cons
ider
coo
pera
tion
on t
rain
ing
and
assi
stan
ce f
or a
dequ
ate
Sta
te r
epre
sent
atio
n in
in
vest
or-S
tate
dis
pute
s, in
clud
ing
thro
ugh
esta
blis
hing
an
inve
stm
ent a
dvis
ory
cent
re.
6.3.
1A
dd fe
atur
es th
at w
ould
impr
ove
the
arbi
tral
pro
cess
, e.g
.:
- m
echa
nism
for
prom
pt/s
impl
ified
dis
posa
l of “
frivo
lous
” cl
aim
s-
mec
hani
sm fo
r co
nsol
idat
ion
of c
laim
s-
requ
irem
ent
to i
nter
pret
the
IIA
in
acco
rdan
ce w
ith c
usto
mar
y in
tern
atio
nal
law
(as
co
difie
d in
the
Vie
nna
Con
vent
ion
on th
e La
w o
f Tre
atie
s)-
mec
hani
sm f
or jo
int
inte
rpre
tatio
n of
the
tre
aty
by t
he P
artie
s in
cas
e of
am
bigu
ities
-
caps
on
arbi
trat
or fe
es.
6.4
Rem
edie
s an
d
com
pen
sati
on
… d
eter
min
es
rem
edie
s av
aila
ble
in c
ase
of
trea
ty b
reac
h an
d gi
ves
guid
ance
on
com
pens
atio
n
6.4.
0N
o cl
ause
.M
ost
IIAs
are
sile
nt o
n th
e is
sue
of r
emed
ies
and
com
pens
atio
n. I
n th
eory
th
is p
erm
its a
rbitr
al t
ribun
als
to a
pply
any
rem
edy
they
dee
m a
ppro
pria
te,
incl
udin
g, f
or e
xam
ple,
an
orde
r to
the
cou
ntry
to
mod
ify o
r an
nul i
ts la
w o
r re
gula
tion.
Rem
edie
s of
the
latt
er ty
pe c
ould
und
uly
intr
ude
into
the
sove
reig
n sp
here
of a
Sta
te a
nd im
pede
its
polic
y-m
akin
g po
wer
s; t
hus,
Par
ties
to a
n IIA
may
con
side
r lim
iting
ava
ilabl
e re
med
ies
to m
onet
ary
com
pens
atio
n an
d re
stitu
tion
of p
rope
rty
(or
com
pens
atio
n on
ly).
As
rega
rds
the
amou
nt o
f com
pens
atio
n fo
r a tr
eaty
bre
ach,
inte
rnat
iona
l law
re
quire
s co
mpe
nsat
ion
to b
e “f
ull”,
whi
ch m
ay in
clud
e m
oral
dam
ages
, lo
ss
of fu
ture
pro
fits
and
cons
eque
ntia
l dam
ages
.
Sta
tes
may
find
it b
enefi
cial
to
prov
ide
guid
ance
to
arbi
trat
ors
on a
pplic
able
re
med
ies
and,
sim
ilar
to t
he c
ase
of e
xpro
pria
tion
abov
e, o
n ca
lcul
atio
n of
co
mpe
nsat
ion.
If th
e C
ontr
actin
g P
artie
s be
lieve
that
cer
tain
type
s of
dam
ages
sh
ould
not
be
reco
vera
ble
by in
vest
ors
(e.g
. pun
itive
or m
oral
dam
ages
), th
ey
can
expl
icitl
y ru
le th
em o
ut in
thei
r IIA
. The
y ca
n al
so re
stric
t rec
over
abilit
y of
fu
ture
pro
fits
and
prov
ide
that
com
pens
atio
n sh
ould
cov
er a
cla
iman
t’s d
irect
lo
sses
and
not
exc
eed
the
capi
tal i
nves
ted
plus
inte
rest
. How
ever
, suc
h ru
les
may
be
seen
as
unde
rmin
ing
the
prot
ectiv
e qu
ality
of t
he II
A.
6.4.
1Li
mit
avai
labl
e re
med
ies
to m
onet
ary
com
pens
atio
n an
d re
stitu
tion
of p
rope
rty
(or
to
com
pens
atio
n on
ly).
6.4.
2P
rovi
de t
hat
the
amou
nt o
f com
pens
atio
n sh
all b
e eq
uita
ble
in li
ght
of c
ircum
stan
ces
of
the
case
and
set
out
spe
cific
rul
es o
n co
mpe
nsat
ion
for
a tr
eaty
bre
ach,
e.g
.:-
excl
ude
reco
vera
bilit
y of
pun
itive
and
/or
mor
al d
amag
es-
limit
reco
vera
bilit
y of
lost
pro
fits
(up
to th
e da
te o
f aw
ard)
- en
sure
that
the
amou
nt is
com
men
sura
te w
ith th
e co
untr
y’s
leve
l of d
evel
opm
ent.
Sec
tio
nsP
olic
y o
pti
ons
fo
r in
tern
atio
nal i
nves
tmen
t ag
reem
ents
(IIA
s)
Sus
tain
able
dev
elo
pm
ent
(SD
) im
plic
atio
ns
Investment Policy Framework for Sustainable Development58
7In
vest
or
ob
ligat
ions
an
d r
es-
po
nsib
iliti
es
… p
rom
ote
com
plia
nce
by
inve
stor
s w
ith
dom
estic
and
/or
inte
rnat
iona
l no
rms
at th
e en
try
and
oper
atio
n st
age
7.1.
0N
o cl
ause
.M
ost
IIAs
only
set
out
obl
igat
ions
for
Sta
tes.
To
corr
ect
this
asy
mm
etry
, an
IIA
cou
ld a
lso
set o
ut in
vest
or o
blig
atio
ns/r
espo
nsib
ilitie
s. N
otin
g th
e ev
olvi
ng
view
s on
the
cap
acity
of
inte
rnat
iona
l law
to
impo
se o
blig
atio
ns o
n pr
ivat
e pa
rtie
s, II
A p
olic
ymak
ers
coul
d co
nsid
er a
num
ber
of o
ptio
ns,
each
with
its
adva
ntag
es a
nd d
isad
vant
ages
.
Thes
e IP
FSD
opt
ions
(i)
cond
ition
tre
aty
prot
ectio
n up
on c
erta
in i
nves
tor
beha
viou
r; (
ii) r
aise
the
obl
igat
ion
to c
ompl
y w
ith d
omes
tic l
aws
to t
he
inte
rnat
iona
l lev
el (i
ncre
asin
g its
rele
vanc
e in
arb
itrat
ion)
; and
(iii)
take
a b
est-
ende
avou
r ap
proa
ch t
o un
iver
sally
rec
ogni
sed
stan
dard
s or
app
licab
le C
SR
st
anda
rds.
A fa
r-re
achi
ng o
ptio
n is
to
incl
ude
an o
blig
atio
n fo
r in
vest
ors
to c
ompl
y w
ith
law
s an
d re
gula
tions
of t
he h
ost S
tate
at b
oth,
the
entr
y an
d po
st-e
ntry
sta
ge.
Whi
le i
nves
tors
’ ob
serv
ance
of
dom
estic
law
s ca
n ge
nera
lly b
e en
forc
ed
thro
ugh
natio
nal c
ourt
s, in
clud
ing
this
obl
igat
ion
in a
n IIA
cou
ld fu
rthe
r im
prov
e m
eans
to e
nsur
e co
mpl
ianc
e (e
.g. b
y w
ay o
f den
ying
trea
ty p
rote
ctio
n to
non
-co
mpl
ying
inve
stor
s or
giv
ing
Sta
tes
a rig
ht t
o br
ing
coun
terc
laim
s in
IS
DS
pr
ocee
ding
s).
Cha
lleng
es m
ay a
rise
from
the
fac
t th
at d
omes
tic l
aws
are
usua
lly d
irect
ed a
t loc
al e
nter
pris
es a
s op
pose
d to
thos
e w
ho o
wn
or c
ontr
ol
them
and
from
the
nee
d to
ens
ure
that
min
or/t
echn
ical
vio
latio
ns s
houl
d no
t le
ad to
com
plet
e de
nial
of t
reat
y be
nefit
s. A
lso,
the
elev
atio
n to
a tr
eaty
leve
l of
the
obl
igat
ion
to c
ompl
y w
ith d
omes
tic la
w s
houl
d no
t af
fect
the
gen
eral
pr
inci
ple
that
dom
estic
law
s m
ust n
ot b
e co
ntra
ry to
a c
ount
ry’s
inte
rnat
iona
l ob
ligat
ions
- th
is c
an b
e m
ade
expl
icit
in o
ptio
n 7.
1.1
(e.g
. by
spec
ifyin
g th
at
rele
vant
dom
estic
law
s m
ust n
ot b
e in
cons
iste
nt w
ith th
e IIA
and
inte
rnat
iona
l la
w).
Ano
ther
opt
ion
is t
o pr
omot
e re
spon
sibl
e in
vest
men
t th
roug
h IIA
lang
uage
th
at e
ncou
rage
s in
vest
ors
to c
ompl
y w
ith r
elev
ant
univ
ersa
l pr
inci
ples
or
with
app
licab
le C
SR
sta
ndar
ds.
Suc
h a
best
-end
eavo
ur c
laus
e w
ould
be
give
n ad
ditio
nal w
eigh
t if
the
trea
ty in
stru
cts
trib
unal
s to
tak
e in
to a
ccou
nt
inve
stor
s’ c
ompl
ianc
e w
ith r
elev
ant
prin
cipl
es a
nd s
tand
ards
whe
n de
cidi
ng
inve
stor
s’ IS
DS
cla
ims.
Giv
en th
e m
ultit
ude
of e
xist
ing
CS
R s
tand
ards
, it m
ay
be u
sefu
l to
refe
r to
spe
cific
doc
umen
ts s
uch
as th
e U
N G
loba
l Com
pact
.
7.1.
1R
equi
re t
hat
inve
stor
s co
mpl
y w
ith h
ost
Sta
te la
ws
at b
oth
the
entr
y an
d th
e po
st-e
ntry
st
age
of a
n in
vest
men
t. E
stab
lish
sanc
tions
for
non-
com
plia
nce:
- de
ny tr
eaty
pro
tect
ion
to in
vest
men
ts m
ade
in v
iola
tion
of th
e ho
st S
tate
law
- de
ny tr
eaty
pro
tect
ion
to in
vest
men
ts o
pera
ting
in v
iola
tion
of th
ose
host
Sta
te la
ws
that
re
flect
inte
rnat
iona
l leg
ally
bin
ding
obl
igat
ions
(e.g
. cor
e la
bour
sta
ndar
ds, a
nti-c
orru
ptio
n,
envi
ronm
ent c
onve
ntio
ns) a
nd o
ther
law
s as
iden
tified
by
the
Con
trac
ting
Par
ties
- pr
ovid
e fo
r Sta
tes’
righ
t to
brin
g co
unte
rcla
ims
in IS
DS
aris
ing
from
inve
stor
s’ v
iola
tions
of
hos
t Sta
te la
w.
7.1.
2E
ncou
rage
inve
stor
s to
com
ply
with
uni
vers
ally
rec
ogni
zed
stan
dard
s su
ch a
s th
e IL
O
Trip
artit
e M
NE
Dec
lara
tion
and
the
UN
Gui
ding
Prin
cipl
es o
n B
usin
ess
and
Hum
an
Rig
hts,
and
to c
arry
out
cor
pora
te d
ue d
iligen
ce re
latin
g to
eco
nom
ic d
evel
opm
ent,
soci
al
and
envi
ronm
enta
l ris
ks.
Pro
vide
tha
t no
n-co
mpl
ianc
e m
ay b
e co
nsid
ered
by
a tr
ibun
al w
hen
inte
rpre
ting
and
appl
ying
tre
aty
prot
ectio
ns (
e.g.
FE
T) o
r de
term
inin
g th
e am
ount
of
com
pens
atio
n du
e to
the
inve
stor
.7.
1.3
Enc
oura
ge in
vest
ors
to o
bser
ve a
pplic
able
CS
R s
tand
ards
:-
with
out s
peci
fyin
g th
e re
leva
nt C
SR
sta
ndar
ds
- by
giv
ing
a lis
t of r
elev
ant C
SR
sta
ndar
ds (e
.g. i
n an
ann
ex)
- by
spe
lling
out t
he c
onte
nt o
f rel
evan
t CS
R s
tand
ards
(e.g
. as
best
end
eavo
ur c
laus
es).
Pro
vide
tha
t no
n-ob
serv
ance
may
be
cons
ider
ed b
y a
trib
unal
whe
n in
terp
retin
g an
d ap
plyi
ng t
reat
y pr
otec
tions
(e.
g. F
ET)
or
dete
rmin
ing
the
amou
nt o
f co
mpe
nsat
ion
due
to th
e in
vest
or.
7.1.
4C
all
for
coop
erat
ion
betw
een
the
Par
ties
to p
rom
ote
obse
rvan
ce o
f ap
plic
able
CS
R
stan
dard
s, e
.g. b
y-
supp
ortin
g th
e de
velo
pmen
t of v
olun
tary
sta
ndar
ds-
build
ing
loca
l ind
ustr
ies’
cap
acity
for
the
upta
ke o
f vol
unta
ry s
tand
ards
- co
nsid
erin
g in
vest
ors’
ado
ptio
n/co
mpl
ianc
e w
ith v
olun
tary
sta
ndar
ds w
hen
enga
ging
in
pub
lic p
rocu
rem
ent
- co
nditi
onin
g th
e gr
antin
g of
ince
ntiv
es o
n th
e ob
serv
ance
of C
SR
sta
ndar
ds-
prom
otin
g th
e up
take
of C
SR
-rel
ated
rep
ortin
g (e
.g.
in t
he c
onte
xt o
f sto
ck e
xcha
nge
listin
g ru
les)
.7.
1.5
Enc
oura
ge h
ome
coun
trie
s to
con
ditio
n th
e gr
antin
g of
out
war
d in
vest
men
t pr
omot
ion
ince
ntiv
es
on a
n in
vest
or’s
soc
ially
and
env
ironm
enta
lly s
usta
inab
le b
ehav
iour
(see
als
o 10
.1.1
on
inve
stm
ent p
rom
otio
n).
8R
elat
ions
hip
to
oth
er
agre
emen
ts
… e
stab
lishe
s a
hier
arch
y in
cas
e of
co
mpe
ting
inte
rnat
iona
l no
rms
8.1.
0N
o cl
ause
.IIA
s us
ually
pro
vide
tha
t m
ore
favo
urab
le t
reat
men
t of
inv
esto
rs g
rant
ed
unde
r an
othe
r in
tern
atio
nal
trea
ty (
e.g.
a m
ultil
ater
al t
reat
y to
whi
ch b
oth
IIAs
sign
ator
ies
are
Par
ties)
wou
ld t
ake
prec
eden
ce.
It is
muc
h le
ss u
sual
to
add
ress
a r
elat
ions
hip
betw
een
an I
IA a
nd a
tre
aty
that
gov
erns
a
diffe
rent
pol
icy
area
(e.
g. p
rote
ctio
n of
env
ironm
ent,
hum
an r
ight
s, e
tc.).
A
ddre
ssin
g th
is is
sue
wou
ld h
elp
arbi
tral
trib
unal
s to
take
into
acc
ount
thes
e ot
her
inte
rnat
iona
l co
mm
itmen
ts i
n or
der
to e
nsur
e, a
s m
uch
as p
ossi
ble,
ha
rmon
ious
inte
rpre
tatio
n of
IIA
pro
visi
ons
and
see
them
as
part
of
gene
ral
inte
rnat
iona
l law
.
8.1.
1S
tipul
ate
that
if a
noth
er in
tern
atio
nal t
reat
y, t
o w
hich
the
con
trac
ting
Sta
tes
are
part
ies,
pr
ovid
es f
or m
ore
favo
urab
le t
reat
men
t of
inve
stor
s/in
vest
men
ts,
that
oth
er t
reat
y sh
all
prev
ail i
n th
e re
leva
nt p
art.
8.2.
0S
tipul
ate
that
in
case
of
a co
nflic
t be
twee
n th
e IIA
and
a h
ost
Sta
te’s
int
erna
tiona
l co
mm
itmen
ts,
such
co
nflic
ts
shou
ld
be
reso
lved
in
ac
cord
ance
w
ith
cust
omar
y in
tern
atio
nal la
w, i
nclu
ding
with
refe
renc
e to
the
Vie
nna
Con
vent
ion
on th
e La
w o
f Tre
atie
s.8.
2.1
Stip
ulat
e th
at i
n ca
se o
f a
confl
ict
betw
een
the
IIA a
nd a
hos
t S
tate
’s i
nter
natio
nal
com
mitm
ents
und
er a
mul
tilat
eral
agr
eem
ent i
n an
othe
r pol
icy
area
, suc
h as
env
ironm
ent
and
publ
ic h
ealth
, the
latt
er s
hall
prev
ail.
Sec
tio
nsP
olic
y o
pti
ons
fo
r in
tern
atio
nal i
nves
tmen
t ag
reem
ents
(IIA
s)
Sus
tain
able
dev
elo
pm
ent
(SD
) im
plic
atio
ns
IV. Elements of International Investment Agreements: Policy Options 59
9N
ot
low
erin
g
of
stan
dar
ds
clau
se
…
disc
oura
ges
Con
trac
ting
Par
ties
from
at
trac
ting
inve
stm
ent
thro
ugh
the
rela
xatio
n of
labo
ur o
r en
viro
nmen
tal
stan
dard
s
9.1.
0N
o cl
ause
.Th
ere
is a
con
cern
tha
t in
tern
atio
nal c
ompe
titio
n fo
r fo
reig
n in
vest
men
t m
ay
lead
som
e co
untr
ies
to lo
wer
the
ir en
viro
nmen
tal,
hum
an r
ight
s an
d la
bour
st
anda
rds
and
that
thi
s co
uld
lead
to
a “r
ace
to t
he b
otto
m”
in t
erm
s of
re
gula
tory
sta
ndar
ds.
Som
e re
cent
IIA
s in
clud
e la
ngua
ge t
o ad
dres
s th
is c
once
rn.
“Not
low
erin
g st
anda
rds”
pro
visi
ons,
for
exa
mpl
e, p
rohi
bit
or d
isco
urag
e ho
st S
tate
s to
co
mpr
omis
e on
env
ironm
enta
l an
d la
bour
pro
tect
ion
for
the
purp
ose
of
attr
actin
g fo
reig
n in
vest
men
t. In
doi
ng s
o, t
he II
A g
oes
beyo
nd it
s tr
aditi
onal
ro
le o
f inv
estm
ent p
rote
ctio
n an
d pu
rsue
s th
e go
al o
f mai
ntai
ning
a re
gula
tory
fra
mew
ork
that
wou
ld b
e co
nduc
ive
to S
D.
Whi
le c
urre
nt II
As
ofte
n ex
clud
e “n
ot lo
wer
ing
stan
dard
s” c
laus
es fr
om IS
DS
or
dis
pute
set
tlem
ent a
s su
ch, i
t may
be
bene
ficia
l to
fost
er c
onsu
ltatio
ns o
n th
is is
sue,
incl
udin
g th
roug
h in
stitu
tiona
l mec
hani
sms,
so
as t
o en
sure
tha
t th
e cl
ause
will
effe
ctiv
ely
be im
plem
ente
d.
9.1.
1In
clud
e en
viro
nmen
tal,
hum
an r
ight
s an
d la
bour
cla
uses
that
- in
clud
e a
com
mitm
ent
to r
efra
in f
rom
rel
axin
g do
mes
tic e
nviro
nmen
tal
and
labo
ur
legi
slat
ion
to e
ncou
rage
inve
stm
ent
(exp
ress
ed a
s a
bind
ing
oblig
atio
n or
as
a so
ft la
w
clau
se)
- re
affir
m c
omm
itmen
ts u
nder
, e.g
. int
erna
tiona
l env
ironm
enta
l agr
eem
ents
or w
ith re
gard
to
inte
rnat
iona
l hea
lth s
tand
ards
, int
erna
tiona
lly re
cogn
ized
labo
ur ri
ghts
or h
uman
righ
ts.
9.1.
2E
ncou
rage
coo
pera
tion
betw
een
trea
ty P
artie
s to
pro
vide
enh
ance
d en
viro
nmen
tal,
hum
an r
ight
s an
d la
bour
pro
tect
ion
and
hold
exp
ert c
onsu
ltatio
ns o
n su
ch m
atte
rs.
10In
vest
men
t p
rom
oti
on
… a
ims
to
enco
urag
e fo
reig
n in
vest
men
t th
roug
h ad
ditio
nal
mea
ns b
eyon
d in
vest
men
t pr
otec
tion
prov
isio
ns in
IIA
s
10.1
.0N
o cl
ause
.W
hile
ho
st
Sta
tes
conc
lude
IIA
s to
at
trac
t de
velo
pmen
t-en
hanc
ing
inve
stm
ent,
the
inve
stm
ent
enha
ncin
g ef
fect
of
IIA
s is
m
ostly
in
dire
ct
(thro
ugh
the
prot
ectio
n of
fere
d to
fo
reig
n in
vest
ors)
. O
nly
a fe
w
IIAs
incl
ude
spec
ial
prom
otio
nal
prov
isio
ns
to
enco
urag
e in
vest
men
t flo
ws
and
incr
ease
in
vest
ors’
aw
aren
ess
of
inve
stm
ent
oppo
rtun
ities
(e
.g.
by
exch
angi
ng
info
rmat
ion
or
join
t in
vest
men
t-pr
omot
ion
activ
ities
). C
reat
ing
a jo
int c
omm
ittee
resp
onsi
ble
for i
nves
tmen
t pro
mot
ion
may
hel
p to
op
erat
iona
lize
the
rele
vant
pro
visi
ons.
Thr
ough
thes
e co
mm
ittee
s, th
e P
artie
s ca
n se
t up
an
agen
da,
orga
nize
and
mon
itor
the
agre
ed a
ctiv
ities
and
tak
e co
rrec
tive
mea
sure
s if
nece
ssar
y. T
he “
prom
otio
nal”
prov
isio
ns a
re “
soft”
(u
nenf
orce
able
), an
d th
eir u
ltim
ate
usef
ulne
ss la
rgel
y de
pend
s on
the
will
and
actio
n of
the
Par
ties.
The
mec
hani
sm o
f sub
roga
tion
supp
orts
inve
stm
ent
prom
otio
n by
ens
urin
g th
e ef
fect
ive
func
tioni
ng o
f in
vest
men
t in
sura
nce
sche
mes
mai
ntai
ned
by
hom
e S
tate
s, o
r the
ir re
spec
tive
agen
cies
, to
supp
ort t
heir
outw
ard
FDI.
If th
e in
sure
r cov
ers
the
loss
es s
uffe
red
by a
n in
vest
or in
the
host
Sta
te, i
t acq
uire
s th
e in
vest
or’s
righ
t to
brin
g a
clai
m a
nd m
ay e
xerc
ise
it to
the
sam
e ex
tent
as,
pr
evio
usly,
the
inve
stor
. Sub
roga
tion
mak
es it
pos
sibl
e fo
r the
insu
rer t
o be
a
dire
ct b
enefi
ciar
y of
any
com
pens
atio
n by
the
host
Sta
te to
whi
ch th
e in
vest
or
wou
ld h
ave
been
ent
itled
.
10.1
.1E
stab
lish
prov
isio
ns
enco
urag
ing
inve
stm
ent
flow
s,
with
a
spec
ial
emph
asis
on
th
ose
whi
ch a
re m
ost
bene
ficia
l in
light
of
a co
untr
y’s
deve
lopm
ent
stra
tegy
. P
ossi
ble
mec
hani
sms
incl
ude,
e.g
.:-
enco
urag
e ho
me
coun
trie
s to
pro
vide
out
war
d in
vest
men
t in
cent
ives
, e.
g. in
vest
men
t gu
aran
tees
, po
ssib
ly c
ondi
tione
d on
the
SD
enh
anci
ng e
ffect
of
the
inve
stm
ent
and
inve
stor
s’ c
ompl
ianc
e w
ith u
nive
rsal
prin
cipl
es a
nd a
pplic
able
CS
R s
tand
ards
- or
gani
se
join
t in
vest
men
t pr
omot
ion
activ
ities
su
ch
as
exhi
bitio
ns,
conf
eren
ces,
se
min
ars
and
outr
each
pro
gram
mes
- ex
chan
ge in
form
atio
n on
inve
stm
ent o
ppor
tuni
ties
- en
sure
regu
lar
cons
ulta
tions
bet
wee
n in
vest
men
t pro
mot
ion
agen
cies
- pr
ovid
e te
chni
cal a
ssis
tanc
e pr
ogra
mm
es t
o de
velo
ping
hos
t co
untr
ies
to fa
cilit
ate
FDI
flow
s-
stre
ngth
en p
rom
otio
n ac
tiviti
es th
roug
h IIA
s’ in
stitu
tiona
l set
up
(see
11.
1.1
belo
w).
10.1
.2In
clud
e a
subr
ogat
ion
clau
se.
Sec
tio
nsP
olic
y o
pti
ons
fo
r in
tern
atio
nal i
nves
tmen
t ag
reem
ents
(IIA
s)
Sus
tain
able
dev
elo
pm
ent
(SD
) im
plic
atio
ns
Investment Policy Framework for Sustainable Development60
11In
stit
utio
nal
set-
up
…es
tabl
ishe
s an
inte
rnat
iona
l pl
atfo
rm
colla
bora
tion
betw
een
the
Con
trac
ting
Par
ties
11.1
.0N
o cl
ause
.W
hile
cou
ntrie
s ha
ve c
oncl
uded
num
erou
s IIA
s, g
ener
ally,
ther
e ha
s be
en li
ttle
fo
llow
-up
to e
nsur
e th
at II
As
are
prop
erly
impl
emen
ted
and
kept
up-
to-d
ate.
Rec
ent
IIAs
have
sta
rted
to
incl
ude
prov
isio
ns f
or p
erm
anen
t in
stitu
tiona
l ar
rang
emen
ts t
hat
perfo
rm a
num
ber
of s
peci
fic f
unct
ions
. Fo
r ex
ampl
e,
agre
ed in
terp
reta
tion
can
help
ens
ure
cons
iste
ncy
in a
rbitr
al a
war
ds. S
imila
rly,
delib
erat
ions
can
ens
ure
info
rmed
dec
isio
n m
akin
g on
fur
ther
inv
estm
ent
liber
aliz
atio
n, o
r pr
olon
ging
or
amen
ding
IIA
s. A
ll of
thi
s ca
n he
lp m
axim
ize
the
cont
ribut
ion
of II
As
to S
D,
for
exam
ple,
by
mon
itorin
g th
e de
velo
pmen
t im
plic
atio
ns o
f IIA
s an
d by
eng
agin
g in
dis
pute
pre
vent
ion
activ
ities
and
CS
R
prom
otio
n.
A c
lear
tre
aty
man
date
fac
ilitat
es t
he im
plem
enta
tion
of t
he li
sted
act
iviti
es.
Furt
herm
ore,
it p
rovi
des
a fo
rum
to
reac
h ou
t to
oth
er r
elev
ant
inve
stm
ent
stak
ehol
ders
in
clud
ing
inve
stor
s,
loca
l co
mm
unity
re
pres
enta
tives
an
d ac
adem
ia.
11.1
.1S
et u
p an
inst
itutio
nal f
ram
ewor
k un
der
whi
ch th
e P
artie
s (a
nd, w
here
rel
evan
t, ot
her
IIA
stak
ehol
ders
suc
h as
inv
esto
rs,
loca
l co
mm
unity
rep
rese
ntat
ives
etc
.) sh
all
coop
erat
e an
d ho
ld m
eetin
gs f
rom
tim
e to
tim
e, t
o fo
ster
the
im
plem
enta
tion
of t
he a
gree
men
t w
ith a
vie
w t
o m
axim
isin
g its
con
trib
utio
n to
SD
. M
ore
spec
ifica
lly,
this
can
inc
lude
a
com
mitm
ent t
o:
- is
sue
inte
rpre
tatio
ns o
f IIA
cla
uses
- re
view
the
func
tioni
ng o
f the
IIA
- di
scus
s an
d ag
ree
upon
mod
ifica
tion
of c
omm
itmen
ts (i
n lin
e w
ith s
peci
al p
roce
dure
s)
and
faci
litat
e ad
apta
tion
of II
As
to t
he e
volv
ing
SD
pol
icie
s of
Sta
te P
artie
s, e
.g. t
hrou
gh
rene
gotia
tion
- or
gani
ze a
nd r
evie
w in
vest
men
t pr
omot
ion
activ
ities
, in
clud
ing
by in
volv
ing
inve
stm
ent
prom
otio
n ag
enci
es,
exch
angi
ng i
nfor
mat
ion
on i
nves
tmen
t op
port
uniti
es,
orga
nizi
ng
sem
inar
s on
inve
stm
ent p
rom
otio
n-
disc
uss
the
impl
emen
tatio
n of
th
e ag
reem
ent,
incl
udin
g by
ad
dres
sing
sp
ecifi
c bo
ttle
neck
s, in
form
al b
arrie
rs, r
ed ta
pe a
nd re
solu
tion
of in
vest
men
t dis
pute
s-
regu
larly
rev
iew
Par
ties’
com
plia
nce
with
the
agr
eem
ent’s
not
-low
erin
g st
anda
rds
clau
ses
- pr
ovid
e te
chni
cal
assi
stan
ce t
o de
velo
ping
Con
trac
ting
Par
ties
to e
nabl
e th
em t
o en
gage
in th
e in
stitu
tiona
lized
follo
w-u
p to
the
trea
ty-
iden
tify/
upda
te
rele
vant
C
SR
st
anda
rds
and
orga
nize
ac
tiviti
es
to
prom
ote
thei
r ob
serv
ance
.
12Fi
nal
pro
visi
ons
…
defi
ne th
e du
ratio
n of
th
e tr
eaty
and
its
pos
sibl
e pr
olon
gatio
n
12.1
.0S
peci
fy t
he t
empo
ral a
pplic
atio
n of
the
tre
aty
(e.g
. 10
or
20 y
ears
) with
qua
si-a
utom
atic
re
new
al (t
he tr
eaty
is re
new
ed u
nles
s on
e of
the
Par
ties
notifi
es th
e ot
her(s
) of i
ts in
tent
ion
to te
rmin
ate)
.
Ther
e is
an
emer
ging
con
cern
abo
ut a
ging
trea
ty n
etw
orks
that
may
eve
ntua
lly
be u
nsui
tabl
e fo
r ch
angi
ng e
cono
mic
rea
litie
s, n
ovel
or
emer
ging
for
ms
of
inve
stm
ent
and
new
reg
ulat
ory
chal
leng
es.
This
par
tly r
esul
ts f
rom
the
fac
t th
at I
IAs
ofte
n pr
ovid
e fo
r a
fixed
per
iod
of d
urat
ion
and
quas
i-aut
omat
ic
rene
wal
(in
an a
ttem
pt to
pro
vide
a s
tabl
e in
vest
men
t reg
ime)
.
An
alte
rnat
ive
wou
ld b
e to
pro
vide
for
rene
wal
if b
oth
Par
ties
expl
icitl
y ag
ree
to it
in w
ritin
g af
ter a
join
t rev
iew
of t
he tr
eaty
and
an
asse
ssm
ent o
f its
impa
ct
on F
DI
flow
s an
d an
y at
tend
ant
deve
lopm
ent
impl
icat
ions
. Th
is e
xerc
ise
wou
ld h
elp
to a
sses
s w
heth
er t
he t
reat
y is
stil
l ne
eded
and
whe
ther
any
am
endm
ents
are
requ
ired.
Ano
ther
issu
e co
ncer
ns th
e pr
otec
tion
of in
vest
ors
afte
r th
e IIA
’s te
rmin
atio
n.
An
IIA m
ay i
nclu
de a
“su
rviv
al”
clau
se,
whi
ch e
ffect
ivel
y lo
cks
in t
reat
y st
anda
rds
for
a nu
mbe
r of
yea
rs a
fter
the
trea
ty i
s te
rmin
ated
. W
hile
it
prov
ides
lon
ger-
term
leg
al s
ecur
ity f
or i
nves
tors
, w
hich
may
be
nece
ssar
y fo
r in
vest
ors
with
lon
g-te
rm p
roje
cts
invo
lvin
g su
bsta
ntia
l co
mm
itmen
t of
ca
pita
l (e.
g. in
the
ext
ract
ive
indu
strie
s), i
t m
ay li
mit
Sta
tes’
abi
lity
to r
egul
ate
thei
r ec
onom
ies
in a
ccor
danc
e w
ith n
ew r
ealit
ies
(esp
ecia
lly i
f th
e tr
eaty
’s
prov
isio
ns d
o no
t gr
ant
suffi
cien
t po
licy
flexi
bilit
y).
Neg
otia
tors
may
opt
for
a
bala
nced
sol
utio
n by
ens
urin
g th
at th
e “s
urvi
val”
clau
se is
not
ove
rly lo
ng.
12.1
.1S
tate
a s
peci
fic d
urat
ion
of t
he t
reat
y bu
t st
ipul
ate
that
ren
ewal
is b
ased
on
a w
ritte
n ag
reem
ent o
f bot
h P
artie
s on
the
basi
s of
a (j
oint
) inf
orm
ed re
view
of t
he II
A.
12.1
.2In
clud
e a
“sur
viva
l” cl
ause
whi
ch g
uara
ntee
s th
at in
cas
e of
uni
late
ral t
erm
inat
ion
of t
he
trea
ty, i
t will
rem
ain
in e
ffect
for
a nu
mbe
r of
yea
rs a
fter
the
term
inat
ion
of th
e tr
eaty
(e.g
. fo
r ano
ther
5, 1
0 or
15
year
s) w
ith re
spec
t to
inve
stm
ents
, mad
e pr
ior t
o th
e te
rmin
atio
n.12
.1.3
Do
not s
peci
fy m
inim
um in
itial
tem
pora
l dur
atio
n bu
t allo
w fo
r te
rmin
atio
n of
the
trea
ty a
t an
y tim
e up
on th
e no
tifica
tion
of e
ither
Par
ty.
Sec
tio
nsP
olic
y o
pti
ons
fo
r in
tern
atio
nal i
nves
tmen
t ag
reem
ents
(IIA
s)
Sus
tain
able
dev
elo
pm
ent
(SD
) im
plic
atio
ns
IV. Elements of International Investment Agreements: Policy Options 61U
NC
TA
D’s
Inve
stm
ent
Policy
Fra
mew
ork
for
Susta
inable
Deve
lopm
ent
Pol
icy
opti
ons
for
IIA
sPar
t B
. Pre
-est
ablis
hm
ent
Pol
icy
optio
ns in
Par
t B a
re s
uppl
emen
tary
to th
ose
in P
art A
and
can
be
used
by
coun
trie
s w
ishi
ng to
ext
end
thei
r IIA
to p
re-e
stab
lishm
ent m
atte
rs. A
s in
Par
t A, p
olic
y op
tions
are
org
aniz
ed fr
om m
ost
inve
stor
-frie
ndly
(i.e
. hig
hest
leve
l of l
iber
aliz
atio
n) to
the
optio
ns p
rovi
ding
few
er e
stab
lishm
ent r
ight
s an
d m
ore
flexi
bilit
y to
the
pros
pect
ive
host
Sta
te.
Sec
tio
nsP
olic
y o
pti
ons
fo
r in
tern
atio
nal i
nves
tmen
t ag
reem
ents
(IIA
s)
Sus
tain
able
dev
elo
pm
ent
(SD
) im
plic
atio
ns
1P
re-e
stab
-lis
hmen
t o
blig
atio
ns
… g
over
n es
tabl
ishm
ent
of fo
reig
n in
vest
men
ts in
th
e ho
st S
tate
1.1.
0G
rant
the
rig
ht o
f es
tabl
ishm
ent,
subj
ect
to r
estr
ictio
ns o
n pu
blic
pol
icy
grou
nds
(EU
Tre
aty
appr
oach
).M
ost
IIAs
gran
t pr
otec
tion
to i
nves
tors
and
the
ir in
vest
men
ts
only
afte
r th
eir
esta
blis
hmen
t in
the
hos
t S
tate
; th
e ho
st c
ount
ry
thus
ret
ains
ful
l re
gula
tory
fre
edom
as
rega
rds
the
adm
issi
on o
f fo
reig
n in
vest
ors
to it
s te
rrito
ry.
For
exam
ple,
it c
an im
pose
lim
its
on f
orei
gn o
wne
rshi
p of
dom
estic
com
pani
es o
r as
sets
, ap
ply
scre
enin
g pr
oced
ures
and
blo
ck a
cqui
sitio
ns fo
r ind
ustr
ial o
r oth
er
polic
y re
ason
s (e
.g. n
atio
nal s
ecur
ity).
How
ever
, in
rec
ent
year
s an
inc
reas
ing
num
ber
of I
IAs
incl
ude
prov
isio
ns th
at a
pply
at t
he p
re-e
stab
lishm
ent p
hase
of i
nves
tmen
t, w
ith th
e ai
m o
f lib
eral
izin
g ac
cess
for i
nves
tors
from
the
othe
r Par
ty.
This
is u
sual
ly a
chie
ved
by (i
) pro
hibi
ting
coun
trie
s to
impo
se c
erta
in
rest
rictio
ns
on
mar
ket
acce
ss
(quo
tas,
m
onop
olie
s,
excl
usiv
e rig
hts
and
othe
rs),
(ii) p
rohi
bitin
g co
untr
ies
to d
iscr
imin
ate
agai
nst
cove
red
inve
stor
s at
the
stag
e of
est
ablis
hmen
t and
acq
uisi
tion
of
inve
stm
ents
, or
(iii)
usin
g bo
th a
ppro
ache
s co
ncur
rent
ly.
It is
an
impo
rtan
t po
licy
choi
ce t
o de
cide
whe
ther
to
exte
nd t
he
IIA t
o pr
e-es
tabl
ishm
ent
mat
ters
and
, if s
o, t
o fin
d a
right
bal
ance
be
twee
n bi
ndin
g in
tern
atio
nal c
omm
itmen
ts a
nd d
omes
tic p
olic
y fle
xibi
lity.
The
firs
t ste
p is
to c
hoos
e be
twee
n th
e po
sitiv
e- a
nd th
e ne
gativ
e-lis
t ap
proa
ch t
o id
entif
ying
ind
ustr
ies
in w
hich
the
pre
-es
tabl
ishm
ent
right
s w
ill be
gra
nted
. Th
e fo
rmer
offe
rs s
elec
tive
liber
aliz
atio
n by
way
of
draw
ing
up a
“po
sitiv
e lis
t” o
f in
dust
ries
in w
hich
inve
stor
s w
ill en
joy
pre-
esta
blis
hmen
t rig
hts.
Und
er t
he
latt
er, i
nves
tors
ben
efit f
rom
pre
-est
ablis
hmen
t com
mitm
ents
in a
ll in
dust
ries
exce
pt in
thos
e th
at a
re e
xplic
itly
excl
uded
.
The
nega
tive-
list
appr
oach
is
m
ore
dem
andi
ng
in
term
s of
re
sour
ces:
it re
quire
s a
thor
ough
aud
it of
exi
stin
g do
mes
tic p
olic
ies.
In
add
ition
, un
der
a ne
gativ
e-lis
t ap
proa
ch a
nd i
n th
e ab
senc
e of
spe
cific
res
erva
tions
, a
coun
try
com
mits
to
open
ness
als
o in
th
ose
sect
ors/
activ
ities
, w
hich
, at
the
tim
e an
IIA
is
sign
ed,
do
not
yet
exis
t or
whe
re t
he r
egul
ator
y fra
mew
orks
are
stil
l evo
lvin
g.
Gen
eral
ly, w
hen
aim
ing
to p
rese
rve
regu
lato
ry s
pace
, m
akin
g co
mm
itmen
ts o
n a
posi
tive-
list
basi
s is
con
side
red
to b
e sa
fer.
Pro
perly
man
agin
g a
nega
tive-
list
appr
oach
req
uire
s co
untr
ies
to
have
i) a
sop
hist
icat
ed d
omes
tic re
gula
tory
regi
me
and
ii) s
uffic
ient
in
stitu
tiona
l ca
paci
ty f
or p
rope
rly d
esig
ning
and
neg
otia
ting
the
sche
dulin
g of
libe
raliz
atio
n co
mm
itmen
ts. I
n ei
ther
cas
e m
ost
IIAs
incl
ude
a lis
t of
res
erva
tions
pre
serv
ing
spec
ific
non-
conf
orm
ing
mea
sure
s (“
hybr
id”
appr
oach
).
1.1.
1U
nder
take
to re
frain
from
impo
sing
spe
cific
rest
rictio
ns, i
nclu
ding
of a
non
-dis
crim
inat
ory
natu
re, o
n th
e es
tabl
ishm
ent i
n th
e ho
st S
tate
’s m
arke
t (G
ATS
app
roac
h), s
uch
as:
- lim
itatio
ns o
n th
e pa
rtic
ipat
ion
of fo
reig
n ca
pita
l in
term
s of
max
imum
per
cent
age
limits
on
fore
ign
shar
ehol
ding
- lim
itatio
ns o
n th
e nu
mbe
r of
est
ablis
hmen
ts (q
uota
s, m
onop
olie
s, e
xclu
sive
rig
hts)
- lim
itatio
ns o
n th
e to
tal v
alue
of t
rans
actio
ns o
r as
sets
.1.
1.2
Ext
end
natio
nal t
reat
men
t and
/or M
FN tr
eatm
ent t
o fo
reig
n in
vest
ors
with
resp
ect t
o “e
stab
lishm
ent,
acqu
isiti
on a
nd e
xpan
sion
” of
inve
stm
ents
, i.e
. pro
hibi
t di
scrim
inat
ion
vis-
à-vi
s do
mes
tic in
vest
ors
and/
or in
vest
ors
from
thi
rd c
ount
ries,
sub
ject
to
exce
ptio
ns a
nd r
eser
vatio
ns (
sect
ions
1.1
.3 a
nd
1.1.
4 be
low
).1.
1.3
Und
erta
ke p
re-e
stab
lishm
ent
com
mitm
ents
onl
y w
ith r
espe
ct t
o se
ctor
s/in
dust
ries
spec
ifica
lly
men
tione
d (p
ositi
ve li
st) o
r to
all
sect
ors/
indu
strie
s ex
cept
thos
e sp
ecifi
cally
exc
lude
d (n
egat
ive
list)
or c
ombi
ning
the
two
(“hy
brid
”). C
ount
ry-s
peci
fic re
serv
atio
ns m
ay c
arve
out
, as
nece
ssar
y, e
.g.:
- ex
istin
g m
easu
res
that
pr
ovid
e pr
efer
entia
l rig
hts
of
esta
blis
hmen
t to
do
mes
tic
inve
stor
s or
inv
esto
rs f
rom
cer
tain
thi
rd c
ount
ries
(e.g
. on
the
bas
is o
f pr
efer
entia
l tr
ade
and
inve
stm
ent
agre
emen
ts)
- ex
istin
g m
easu
res/
law
s th
at w
ould
oth
erw
ise
be i
ncon
sist
ent
with
the
new
ly c
oncl
uded
tre
aty
(gra
ndfa
ther
ing)
- se
ctor
s/in
dust
ries
whe
re t
he P
arty
wis
hes
to r
etai
n fu
ll di
scre
tion
on e
stab
lishm
ent,
incl
udin
g fu
ture
rest
rictiv
e m
easu
res
- sp
ecifi
c pr
oced
ures
suc
h as
inve
stm
ent s
cree
ning
or
an e
cono
mic
nee
ds te
st (E
NT)
.1.
1.4
Pre
serv
e ad
ditio
nal
polic
y fle
xibi
lity
on p
re-e
stab
lishm
ent
issu
es,
with
res
pect
to
“com
mitt
ed”
(lock
ed-in
) sec
tors
e.g
.:-
pres
erve
the
right
of a
Par
ty to
ado
pt n
ew n
on-c
onfo
rmin
g m
easu
res
in th
e fu
ture
, as
long
as
they
do
not
“af
fect
the
over
all l
evel
of c
omm
itmen
ts o
f tha
t Par
ty u
nder
the
Agr
eem
ent”
- in
clud
e a
wid
e “c
atch
-all”
rese
rvat
ion
into
the
sche
dule
, e.g
. tha
t est
ablis
hmen
t is
“sub
ject
to th
e re
quire
men
t tha
t no
obje
ctio
n fo
r re
ason
s of
nat
iona
l eco
nom
y is
mad
e”.
1.1.
5R
educ
e no
rmat
ive
inte
nsity
of p
re-e
stab
lishm
ent c
omm
itmen
ts e
.g.:
- po
stpo
ne t
he e
ntry
into
for
ce o
f pr
e-es
tabl
ishm
ent
oblig
atio
ns u
ntil
the
date
whe
n th
e P
artie
s ag
ree
on c
over
ed s
ecto
rs/m
easu
res
- ag
ree
to u
nder
take
neg
otia
tions
on
pre-
esta
blis
hmen
t at a
futu
re d
ate
- ex
clud
e pr
e-es
tabl
ishm
ent d
isci
plin
es fr
om d
ispu
te s
ettle
men
t pro
visi
ons
or s
ubje
ct th
em to
S
tate
-Sta
te d
ispu
te s
ettle
men
t onl
y-
use
“bes
t effo
rts”
, as
oppo
sed
to le
gally
bin
ding
, lan
guag
e.
Investment Policy Framework for Sustainable Development62
Sec
tio
nsP
olic
y o
pti
ons
fo
r in
tern
atio
nal i
nves
tmen
t ag
reem
ents
(IIA
s)
Sus
tain
able
dev
elo
pm
ent
(SD
) im
plic
atio
ns
1.1.
6P
rese
rve
polic
y fle
xibi
lity
on p
re-e
stab
lishm
ent i
ssue
s by
car
eful
ly c
rafti
ng re
leva
nt g
ener
al p
rovi
sion
s of
the
IIA, e
.g.:
The
need
for
rese
rvat
ions
and
«sa
fety
val
ves»
is a
rgua
bly
grea
test
if
a co
untr
y op
ts f
or t
he n
egat
ive
list.
From
a S
D p
ersp
ectiv
e, it
m
ay b
e pr
uden
t to
con
side
r ex
clud
ing
cert
ain
sub-
indu
strie
s or
gr
andf
athe
ring
spec
ific
non-
conf
orm
ing
mea
sure
s,
rese
rvin
g th
e rig
ht t
o ch
ange
the
cou
ntry
’s c
omm
itmen
ts u
nder
spe
cifie
d co
nditi
ons
or c
hoos
e th
e rig
ht le
vel o
f th
e no
rmat
ive
inte
nsity
of
com
mitm
ents
.
- sp
ecify
ing
the
scop
e an
d co
vera
ge o
f the
trea
ty (s
ee s
ectio
n 2.
3 of
Par
t A)
- in
clud
ing
gen
eral
and
nat
iona
l sec
urity
exc
eptio
ns (s
ee s
ectio
n 5
of P
art A
).1.
1.7
Pro
vide
that
adm
issi
on o
f inv
estm
ents
is in
acc
orda
nce
with
dom
estic
law
s of
the
host
Sta
te.
IV. Elements of International Investment Agreements: Policy Options 63U
NC
TA
D’s
Inve
stm
ent
Policy
Fra
mew
ork
for
Susta
inable
Deve
lopm
ent
Pol
icy
opti
ons
for
IIA
sPar
t C
. Spe
cial
and
Diffe
renti
al T
reat
men
t (S
DT)
SD
T pr
ovis
ions
cou
ld b
e an
opt
ion
whe
re C
ontr
actin
g P
artie
s to
an
IIA h
ave
sign
ifica
ntly
diff
eren
t lev
els
of d
evel
opm
ent,
espe
cial
ly w
hen
one
of th
e P
artie
s is
a le
ast-
deve
lope
d co
untr
y. S
DT
pres
uppo
ses
that
a tr
eaty
can
be
built
asy
mm
etric
ally,
i.e.
trea
ty o
blig
atio
ns m
ay d
iffer
bet
wee
n th
e C
ontr
actin
g P
artie
s.
Sec
tio
nsP
olic
y o
pti
ons
fo
r in
tern
atio
nal i
nves
tmen
t ag
reem
ents
(IIA
s)
Sus
tain
able
dev
elo
pm
ent
(SD
) im
plic
atio
ns
1A
sym
met
rica
l o
blig
atio
ns
… e
nabl
e im
posi
tion
of
less
one
rous
ob
ligat
ions
on
a le
ss d
evel
oped
P
arty
1.1.
0D
elay
ed im
ple
men
tati
on
of
ob
ligat
ions
Intr
oduc
e a
timet
able
for
impl
emen
tatio
n of
IIA
com
mitm
ents
with
long
er t
ime-
fram
es f
or a
le
ss d
evel
oped
Par
ty. C
ould
be
used
for,
e.g.
:-
pre-
esta
blis
hmen
t obl
igat
ions
- na
tiona
l tre
atm
ent
- tr
ansf
er o
f fun
ds-
perfo
rman
ce re
quire
men
ts-
tran
spar
ency
- in
vest
or-S
tate
dis
pute
set
tlem
ent.
SD
T pr
ovis
ions
giv
e ex
pres
sion
to
the
spec
ial n
eeds
and
con
cern
s of
de
velo
ping
and
par
ticul
arly
leas
t-de
velo
ped
coun
trie
s (L
DC
s).
Larg
ely
abse
nt f
rom
exi
stin
g IIA
s, t
his
prin
cipl
e is
exp
ress
ed i
n nu
mer
ous
prov
isio
ns o
f th
e W
TO a
gree
men
ts a
nd h
as f
ound
its
way
into
oth
er
aspe
cts
of in
tern
atio
nal l
aw s
uch
as t
he in
tern
atio
nal c
limat
e ch
ange
fra
mew
ork.
SD
T m
ay b
e ne
cess
ary
in o
rder
to
ensu
re t
hat
a le
ss
deve
lope
d P
arty
to a
trea
ty d
oes
not u
nder
take
obl
igat
ions
that
wou
ld
be t
oo b
urde
nsom
e to
com
ply
with
or
cont
rary
to
its d
evel
opm
ent
stra
tegy
.
Ther
e ar
e di
ffere
nt w
ays
to m
ake
an I
IA a
sym
met
rical
and
to
refle
ct
spec
ial n
eeds
of l
ess
deve
lope
d P
artie
s; m
oreo
ver,
seve
ral S
DT
optio
ns
can
be c
ombi
ned
in t
he s
ame
trea
ty.
For
exam
ple,
it
can
esta
blis
h lo
nger
pha
se-in
per
iods
for
pre
-est
ablis
hmen
t ob
ligat
ions
, co
untr
y-sp
ecifi
c ca
rve-
outs
from
the
pro
hibi
tion
of p
erfo
rman
ce r
equi
rem
ents
, be
st-e
ndea
vour
obl
igat
ions
with
resp
ect t
o tr
ansp
aren
cy, a
nd a
ccou
nt
for
the
leve
l of d
evel
opm
ent i
n th
e FE
T pr
ovis
ion.
1.1.
1R
educ
ed n
orm
ativ
e in
tens
ity
Rep
lace
bin
ding
obl
igat
ions
with
bes
t-en
deav
our
oblig
atio
ns f
or a
les
s de
velo
ped
Par
ty.
Cou
ld b
e us
ed fo
r, e.
g.:
- pr
e-es
tabl
ishm
ent o
blig
atio
ns-
natio
nal t
reat
men
t -
perfo
rman
ce re
quire
men
ts-
tran
spar
ency
.
1.1.
2R
eser
vati
ons
Incl
ude
coun
try-
spec
ific
rese
rvat
ions
fro
m g
ener
al o
blig
atio
ns,
e.g.
car
ving
out
sen
sitiv
e se
ctor
s, p
olic
y ar
eas
or e
nter
pris
es o
f spe
cific
siz
e (e
.g. S
ME
s). C
ould
be
used
for,
e.g.
:-
pre-
esta
blis
hmen
t obl
igat
ions
- na
tiona
l tre
atm
ent
- M
FN tr
eatm
ent
- pe
rform
ance
requ
irem
ents
- pe
rson
nel a
nd s
taffi
ng (s
enio
r m
anag
emen
t).
1.1.
3D
evel
op
men
t-fr
iend
ly in
terp
reta
tio
nP
rom
ote
inte
rpre
tatio
n of
pro
tect
ion
stan
dard
s th
at ta
kes
into
acc
ount
Sta
tes’
diff
eren
t lev
el
of d
evel
opm
ent.
Cou
ld b
e us
ed fo
r, e.
g.:
- fa
ir an
d eq
uita
ble
trea
tmen
t-
full
prot
ectio
n an
d se
curit
y-
amou
nt o
f com
pens
atio
n aw
arde
d.
2A
dd
itio
nal
too
ls
… e
ncou
rage
po
sitiv
e co
ntrib
utio
ns
by a
mor
e de
velo
ped
Par
ty
2.1.
0Te
chni
cal a
ssis
tanc
eU
nder
take
a (
best
-end
eavo
ur)
oblig
atio
n to
pro
vide
tec
hnic
al a
ssis
tanc
e to
im
plem
ent
IIA
oblig
atio
ns a
nd fa
cilit
ate
FDI fl
ows.
SD
T ca
n al
so
man
ifest
its
elf
in
spec
ial
oblig
atio
ns
for
the
mor
e de
velo
ped
Con
trac
ting
Par
ty.
Thes
e ar
e m
eant
to
oper
atio
naliz
e th
e IIA
, so
tha
t it
perfo
rms
its F
DI-
prom
otin
g fu
nctio
n an
d, i
f ne
cess
ary,
to
hel
p th
e le
ss d
evel
oped
Par
ty i
mpl
emen
t ce
rtai
n IIA
obl
igat
ions
. In
clud
ing
such
pro
visi
ons
in t
he t
reat
y, e
ven
in a
non
-bin
ding
man
ner,
wou
ld p
rovi
de a
man
date
to th
e m
ore
deve
lope
d pa
rtne
r to
put i
n pl
ace
rele
vant
tech
nica
l-ass
ista
nce
and
prom
otio
n ac
tiviti
es.
2.1.
1In
vest
men
t p
rom
oti
on
Pro
vide
inve
stm
ent i
ncen
tives
to o
utw
ard
FDI s
uch
as in
vest
men
t gua
rant
ees.
Sec
tio
nsP
olic
y o
pti
ons
fo
r in
tern
atio
nal i
nves
tmen
t ag
reem
ents
(IIA
s)
Sus
tain
able
dev
elo
pm
ent
(SD
) im
plic
atio
ns
1.1.
6P
rese
rve
polic
y fle
xibi
lity
on p
re-e
stab
lishm
ent i
ssue
s by
car
eful
ly c
rafti
ng re
leva
nt g
ener
al p
rovi
sion
s of
the
IIA, e
.g.:
The
need
for
rese
rvat
ions
and
«sa
fety
val
ves»
is a
rgua
bly
grea
test
if
a co
untr
y op
ts f
or t
he n
egat
ive
list.
From
a S
D p
ersp
ectiv
e, it
m
ay b
e pr
uden
t to
con
side
r ex
clud
ing
cert
ain
sub-
indu
strie
s or
gr
andf
athe
ring
spec
ific
non-
conf
orm
ing
mea
sure
s,
rese
rvin
g th
e rig
ht t
o ch
ange
the
cou
ntry
’s c
omm
itmen
ts u
nder
spe
cifie
d co
nditi
ons
or c
hoos
e th
e rig
ht le
vel o
f th
e no
rmat
ive
inte
nsity
of
com
mitm
ents
.
- sp
ecify
ing
the
scop
e an
d co
vera
ge o
f the
trea
ty (s
ee s
ectio
n 2.
3 of
Par
t A)
- in
clud
ing
gen
eral
and
nat
iona
l sec
urity
exc
eptio
ns (s
ee s
ectio
n 5
of P
art A
).1.
1.7
Pro
vide
that
adm
issi
on o
f inv
estm
ents
is in
acc
orda
nce
with
dom
estic
law
s of
the
host
Sta
te.
Investment Policy Framework for Sustainable Development64
4. Implementation and institutional mechanisms for policy effectiveness
Implementation of IIAs at the national level entails:
• Completing the ratification process. This may vary from a few months to several years, depending on the countries involved and the concrete issues at stake. The distinction between the conclusion of an agreement and its entry into force is important, since the legal rights and obligations deriving from it do not become effective before the treaty has entered into force. The time lag between the conclusion of an IIA and its entry into force may therefore have implications, for both foreign investors and their respective host countries.
• Bringing national laws and practices into conformity with treaty commitments. As with any other international treaty, care needs to be taken that the international obligations arising from the IIA are properly translated into national laws and regulations, and depending on the scope of the IIA, e.g. with regard to transparency obligations, also into the administrative practices of the countries involved.
• Disseminating information about IIA obligations. Informing and training ministries, government agencies and local authorities on the implications of IIAs for their conduct in regulatory and administrative processes is important so as to avoid other arms of the government causing conflicts with treaty commitments and thus giving rise to investor grievances, which if unresolved could lead to arbitral disputes.
• Preventing disputes, including through ADR mechanisms. This may involve the establishment of adequate institutional mechanisms to prevent disputes from emerging and avoid the breach of contracts and treaties on the part of government agencies. This involves assuring that the State and various government agencies take account of the legal obligations made under investment agreements when enacting laws and implementing policy measures, and establishing a system to identify more easily potential areas where disputes with investors can arise, and to respond to the disputes where and when they emerge.
• Managing disputes that may arise under IIAs. If dispute prevention efforts fail, States need to be prepared to engage effectively and efficiently in managing the disputes from beginning to end. This involves setting up the required mechanisms to take action in case of the receipt of a notice of arbitration, to handle the case, and ultimately to bring it to a conclusion, including possibly through settlement.
• Establishing a review mechanism to verify periodically the extent to which the IIA contributes to achieving expected results in terms of investment attraction and enhancing sustainable development – while keeping in mind that there is no mono-causal link between concluding an IIA and investment flows.
Moreover, because national and international investment policy must be considered in an integrated manner, and both need to evolve with a country’s changing circumstances, countries have to assess continuously the suitability of their policy choices with regard to key elements of investment protection and promotion, updating model treaties and renegotiating existing IIAs.
Undertaking these implementation and follow-up efforts effectively and efficiently can be burdensome for developing countries, especially the least developed, because they often lack the required institutional capabilities or financial and human resources. Similarly, they often face challenges when it comes to analyzing ex ante the scope of obligations into which they are entering when they conclude an IIA, and the economic and social implications of the commitments contained in IIAs.
This underlines the importance of capacity-building technical cooperation to help developing countries in assessing various policy options before entering into new agreements and subsequently to assist them in implementing their commitments. IIAs can include relevant provisions to this end, including setting up institutional frameworks under which the contracting parties (and, where appropriate and relevant, other IIA stakeholders such as investors or civil society) can review progress in the implementation of IIA commitments, with a view to maximizing their contribution to sustainable development. International organizations can also play an important capacity building role.
V. The way forward 65
V. The Way Forward
A new generation of investment policies is emerging, pursuing a broader and more intricate development policy agenda within a framework that seeks to maintain a generally favourable investment climate. “New generation” investment policies recognize that investment is a primary driver of economic growth and development, and seek to give investment policy a more prominent place in development strategy. They recognize that investment must be responsible, as a prerequisite for inclusive and sustainable development. And in the design of “new generation” investment policies policymakers seek to address long-standing shortcomings of investment policy in a comprehensive manner in order to ensure policy effectiveness and build a stable investment climate.
This report has painted the contours of a new investment policy framework for sustainable development. The Core Principles set out the design criteria for investment policies. The national investment policy guidelines suggest how to ensure integration of investment policy with development strategy, how to ensure policy coherence and design investment policies in support of sustainable development, and how to improve policy effectiveness. The policy options for key elements of IIAs provide guidance to IIA negotiators for the drafting of sustainable-development-friendly agreements; they form the first comprehensive overview of the myriad of options available to them in this respect.
In developing the IPFSD, UNCTAD has had the benefit of a significant body of existing work and experience on the topic. UNCTAD itself has carried out more than 30 investment policy reviews (IPRs) in developing countries over the years (box 4), analyzed in detail investment regulations in numerous countries for the purpose of investment facilitation (box 6), and produced many publications on best practices in investment policy (box 7), including in the WIR series. Other agencies have a similar track record, notably the OECD and the World Bank, various regional organizations, and a number of NGOs. In defining an IPFSD, this report has attempted to harness the best of existing
work on investment policies, investment policy frameworks, guidelines and models, and to build on experience in the field in their implementation.
The IPFSD is not a negotiated text or an undertaking between States. It is an initiative by the UNCTAD secretariat, representing expert guidance for policymakers by an international organization, leaving national policymakers free to “adapt and adopt” as appropriate.
It is hoped that the IPFSD may serve as a key point of reference for policymakers in formulating national investment policies and in negotiating or reviewing IIAs. It may also serve as a reference for policymakers in areas as diverse as trade, competition, industrial policy, environmental policy, or any other field where investment plays an important role. The IPFSD can also serve as the basis for capacity building on investment policy. And it may come to act as a point of convergence for international cooperation on investment issues.
In its current form the IPFSD has gone through numerous consultations, comprehensively and by individual parts, with expert academics and practitioners. It is UNCTAD’s intention to provide a platform for further consultation and discussion with all investment stakeholders, including policymakers, the international development community, investors, business associations, labour unions, and relevant NGOs and interest groups. To allow for further improvements resulting from such consultations, the IPFSD has been designed as a “living document”.
The dynamic nature of investment policymaking adds to the rationale for such an approach, in particular for the specific investment policy guidelines. The continuous need to respond to newly emerging challenges with regard to foreign investment makes it mandatory to review and, where necessary, modify these guidelines from time to time. Thus, from UNCTAD’s perspective, while the IPFSD will serve to inform the investment policy debate and to guide technical assistance work in the field, new insights from that work will feed back into it.
Investment Policy Framework for Sustainable Development66
The IPFSD thus provides a point of reference and a common language for debate and cooperation on national and international investment policies. UNCTAD will add the infrastructure for such cooperation, not only through its numerous policy forums on investment, but also by providing a platform for “open sourcing” of best practice investment policies through its website, as a basis for the inclusive development of future investment policies with the participation of all.30
Notes1 Many successful developing countries maintained
a significant level of government influence over the direction of economic growth and development throughout; see Development-led globalization: Towards sustainable and inclusive development paths, Report of the Secretary-General of UNCTAD to UNCTAD XIII.
2 The G-20, in its 2010 Seoul declaration, asked international organizations (specifically, UNCTAD, WTO and OECD) to monitor the phenomenon of investment protectionism.
3 See Sauvant , K.P. (2009). “FDI Protectionism Is on the Rise.” World Bank Policy Research Working Paper 5052.
4 For example, the World Bank’s Guidelines on the Treatment of Foreign Direct Investment, the OECD’s Policy Framework for Investment (PFI), and instruments developed by various regional organizations and NGOs.
5 These include, inter alia, the UN Global Compact, the UN Guiding Principles on Business and Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, the IFC’s Sustainability Framework and the OECD Guidelines for Multinational Enterprises.
6 See ILO Global Employment Trends 2012, available on www.ilo.org.
7 See, for example, “Promoting investment for development: Best practices in strengthening investment in basic infrastructure in developing countries,” note by the UNCTAD secretariat to the Investment, Enterprise and Development Commission, May 2011, TD/B/C.II/14, www.unctad.org.
8 Based on Doran, G. T. (1981). “There’s a S.M.A.R.T. way to write management’s goals and objectives.” Management Review, 70 (11 AMA FORUM); 35-36.
9 The universe of “core IIAs” principally consists of BITs and other agreements that contain provisions on investment, so-called “other IIAs”. Examples of the latter include free trade agreements (FTAs) or economic partnership agreements (EPAs). As
regards their substantive obligations, “other IIAs”, usually fall into one of three categories: IIAs including obligations commonly found in BITs; agreements with limited investment-related provisions; and IIAs focusing on investment cooperation and/or providing for future negotiating mandate on investment. In addition to “core IIAs”, there are numerous other legal instruments that matter for foreign investment, including double taxation treaties (DTTs).
10 Examples include the interaction between IIAs and other bodies of international law or policy in the field of public health (e.g. the World Health Organization Framework Convention on Tobacco Control, WHO FCTC), environment (e.g. the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes) or human rights (e.g. International Covenant on Economic, Social and Cultural Rights), to name a few. In the context of ensuring coherence between investment protection and climate change, WIR10 suggested a “multilateral declaration” clarifying that IIAs do not constrain climate change measures enacted in good faith.
11 In some countries the existence of an IIA is a prerequisite for the granting of investment guarantees.
12 This impact is generally stronger in the case of preferential trade and investment agreements (PTIAs) than with regards to BITs. See “The Role of International Investment Agreements in Attracting Foreign Direct Investment to Developing Countries,” UNCTAD Series on International Investment Policies for Development, December 2009; www.unctad.org. For a full discussion of FDI determinants, see WIR98.
13 See also Skovgaard Poulsen, Lauge N. and Aisbett, Emma (2011) “When the Claim Hits: Bilateral Investment Treaties and Bounded Rational Learning.” Crawford School Research Paper No. 5.
14 As discussed in WIR04, interaction can be either autonomous-liberalization-led or IIA-driven, or anywhere in-between.
15 Related are questions of forum-choice, double incorporation, dual liability and re-litigation of issues, all of which call for a careful consideration of how to manage the overlaps between agreements. See also Babette Ancery (2011), “Applying Provisions of Outside Trade Agreements in Investor-State Arbitration through the MFN-clause.” TDB, 8 (3).
16 This is in line with the traditional view of international law, as governing relations between its subjects, primarily between States. Accordingly, it is impossible for an international treaty to impose obligations on private actors (investors), which are not parties to the treaty (even though they are under the jurisdiction of the respective contracting parties).
V. The way forward 67
17 Article 13 “Investor Obligation” provides: “COMESA investors and their investments shall comply with all applicable domestic measures of the Member State in which their investment is made.”
18 In fact, in the course of the past century, international law has been moving away from the traditional, strict view towards including, where appropriate, non-State actors into its sphere. See, e.g., A. Bianchi (ed.) (2009), “Non-State Actors and International Law.” (Ashgate, Dartmouth).
19 Also the 2012 Revision of the International Chamber of Commerce (ICC) Guidelines for International Investment refer to investors’ obligations to comply with the laws and regulations of the host State at all times and, in particular, to their obligation to comply with national and international labour laws, even where these are not effectively enforced by the host State.
20 The aggregate amount of compensation sought by the three claimants constituting the majority shareholders of former Yukos Oil Company in the ongoing arbitration proceedings against Russia. See Hulley Enterprises Limited (Cyprus) v. The Russian Federation, PCA Case No. AA 226; Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case No. AA 227; Veteran Petroleum Limited (Cyprus) v. The Russian Federation, PCA Case No. AA 228.
21 Ceskoslovenska Obchodni Banka (CSOB) v. The Slovak Republic, ICSID Case No. ARB/97/4, Final Award, 29 December 2004. The case was brought by CSOB on the basis of consent to arbitration contained in the 1992 BIT between the Czech Republic and the Slovak Republic. The findings on liability and damages were based on the underlying contract and Czech law. For more information on ISDS consult http://www.unctad.org/iia-dbcases/cases.aspx.
22 For details, see UNCTAD (2011) “Sovereign Debt Restructuring and International Investment Agreements.” IIA Issues Note, No.2, www.unctad.org, Abaclat and others v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility, 4 August 2011.
23 Nottage, Hunter (2003), Trade and Competition in the WTO: Pondering the Applicability of Special and Differential Treatment, Journal of International Economic Law, 6(1), p.28.
24 Based on six categories as identified in WTO (2000) “Implementation of Special and Differential Treatment Provisions in WTO Agreements and Decisions,” Note by Secretariat, WT/COMTD/W/77, 25 October 2000, available at www.wto.org. More recently, also the Doha Ministerial Declaration (2001) reaffirmed SDT as an integral part of the multilateral trade regime.
25 COMESA Investment Agreement (2007), Article 14(3).
26 Any comprehensive effort to reform the ISDS regime would also have to go beyond IIA clauses, and address other rules, including those for conducting international arbitrations (e.g. ICSID or UNCITRAL).
27 Experience with ISDS has revealed numerous instances of unclear or ambiguous clauses that risk being interpreted in an unanticipated and broad manner. Therefore the table includes options to clarify. However, these clarifications should not be used by arbitrators to interpret earlier clauses that lack clarifications in broad and open-ended manner.
28 Absence of ISDS – and hence of the possibility to be subject to financial liabilities arising from ISDS – may make it easier for countries to agree to certain standards of protections.
29 Similarly, one can combine far-reaching liberalization or protection clauses with a possibility to lodge reservations (e.g. for pre- and post-establishment clauses, and for existing and future measures). See “Preserving Flexibility in IIAs: The Use of Reservations”, UNCTAD Series on International Investment Policies for Development, June 2006; www.unctad.org.
30 Interested stakeholders and experts are invited to provide feedback and suggestions through the dedicated UNCTAD IPFSD website, at www.unctad.org/IPFSD.