World Trade Organization - Organisation Mondiale du Commerce

WT/WGTI/W/22

RESTRICTED

World Trade Organization WT/WGTI/W/22

26 January 1998

(98-0269)

Working Group on the Relationship between Trade and Investment

BILATERAL, REGIONAL, PLURILATERAL AND MULTILATERAL AGREEMENTS

Note by the Secretariat

Table of Contents

I. INTRODUCTION 1

II. BILATERAL AGREEMENTS 2

II.1 Treaties of Friendship, Commerce and Navigation 2

II.2 Bilateral treaties for the promotion and protection of foreign investment 3

II.3 Bilateral free trade agreements 7

II.4 Other relevant bilateral agreements 7

III. REGIONAL AND PLURILATERAL AGREEMENTS 7

III.1 Provisions on investment adopted in the context of regional and plurilateral trade and economic integration and cooperation agreements 7

III.1.1 Rules on right of establishment and free movement of capital 8

III.1.2 Rules building on treatment and protection principles of bilateral investment treaties 12

III.1.3 Rules on investment from third countries 20

III.1.4 Rules on status of regional enterprises and cooperative arrangements 21

III.2 Investment rules established in a context dedicated to investment 22

IV. MULTILATERAL AGREEMENTS 24

IV.1 Instruments containing substantive norms 24

IV.2 Dispute settlement 26

IV.3 Investment insurance 27

I. INTRODUCTION

At the meeting held on 6 and 7 October 1997, the Working Group requested the Secretariat to prepare a factual overview of existing bilateral, regional, plurilateral and multilateral agreements, referred to in the second indent of Item III of the Checklist of Issues Suggested for Study. In response to this request, the present note identifies the main existing intergovernmental agreements and their main features. The texts of most of the agreements discussed in this note can be found in the UNCTAD publication, International Investment Instruments: A Compendium, Vols. I-III (1996). For more detailed comparative and historical analyses, see, for example, the introduction to Volume I of the UNCTAD Compendium; Organization of American States, Trade Unit, Investment Agreements in the Western Hemisphere: A Compendium (Washington D.C., May 1997); UNCTAD, World Investment Report 1996: Investment, Trade and International Policy Arrangements, Chapters V and VI; T.L. Brewer and S. Young, "Investment Policies in Multilateral and Regional Agreements: A Comparative Analysis", in Transnational Corporations, Vol. 5, No.1, April 1996, pp.9-35; A.A. Fatouros (Ed.), Transnational Corporations: The International Legal Framework, United Nations Library on Transnational Corporations (London and New York, Routledge for the United Nations, 1994) Vol. 20; "Surveys of Existing Instruments" in ICSID Review - Foreign Investment Law Journal, Vol. 7, No. 2, Fall 1992. For the purpose of this note, the term "agreements" covers both instruments of a legally binding nature and instruments of a non-legally binding nature.

The note addresses bilateral agreements in Section II, regional and plurilateral agreements in Section III and multilateral agreements in Section IV. In view of the substantial increase in recent years of the number of bilateral treaties for the promotion and protection of investment, Section II is devoted, in large part, to an overview of the principal provisions commonly found in such treaties. The structure of Section III is designed to take into account the different contexts in which rules on investment have been adopted at regional and plurilateral levels. Thus, a distinction is made between investment provisions adopted as part of a wider process of trade and economic integration or cooperation, on the one hand, and provisions adopted in a context dedicated to investment, on the other. Section IV distinguishes between multilateral instruments containing substantive norms, instruments dealing with dispute settlement and instruments dealing with investment insurance. It does not address WTO provisions relevant to investment, which have been the subject of a separate Secretariat note submitted to the Working Group in May 1997 (document No. 2988).

II. BILATERAL AGREEMENTS

II.1 Treaties of Friendship, Commerce and Navigation

Matters relating to the entry and treatment of foreign nationals were historically dealt with in Treaties of Friendship, Commerce and Navigation ("FCN treaties") as part of a wide range of provisions on bilateral economic, cultural and political cooperation. Post-World War II FCN treaties are distinguishable from earlier FCN treaties by their greater emphasis on foreign investment, as a result of the application of provisions on entry and treatment of foreign nationals not only to natural persons but also to companies. No new FCN treaties have been concluded since the 1960s. The extent to which the large number of such treaties that remain in force continues to be operationally relevant to current investment relations between countries is somewhat unclear, especially given that some of them date back to the 19th century. See, for example, the list of FCN treaties in force between member States of the European Community and third countries published in an annex to the European Union Council Decision 97/351/EC of 2 June 1997 authorizing the automatic renewal or continuation in force of provisions governing matters covered by the common commercial policy contained in the friendship, trade and navigation treaties and trade agreements concluded between member States and third countries. Official Journal of the European Communities, No. L 151, 10 June 1997, p.24 Some FCN treaties concluded in the 1940s and 1950s, including treaties concluded by the United States with Japan and with a number of countries in Europe, have been referred to in recent domestic judicial proceedings and international dispute settlement. For example, the "ELSI" case decided by the International Court of Justice in 1989 involved a claim by the United States that Italy had breached certain obligations under its FCN Treaty with the United States. Elettronica S.p.A. (ELSI), Judgment, I.C.J. Reports 1989, p.15 II.2 Bilateral treaties for the promotion and protection of foreign investment

Bilateral treaties for the promotion and protection of foreign investment ("bilateral investment treaties") can be regarded as the historical successor to FCN treaties, from which they differ principally by their exclusive focus on, and more detailed treatment of, foreign investment. While bilateral investment treaties have been concluded since the late 1950s, their widespread use by countries in all regions is a very recent phenomenon. The number of such treaties increased from less than 400 at the beginning of the 1990s to some 1,330 in January 1997, when 162 countries were parties to bilateral investment treaties. See UNCTAD World Investment Report 1997, annex table B.10 for a list of the number of bilateral investment treaties concluded by individual countries by partner country/region. The majority of these treaties are between a developed country, on the one hand, and a developing country or economy in transition, on the other, but the proportion of bilateral investment treaties concluded between developing countries and between developing countries and countries in transition is increasing. According to the data contained in the UNCTAD World Investment Report 1997, the countries with the largest number of bilateral investment treaties are Germany (111), the United Kingdom (87), Romania (82), Switzerland (81), China (80), France (74), the Netherlands (58), Poland (58), Italy (53), the Republic of Korea (49), Argentina (44), Egypt (43), Hungary (43), Turkey (42), Belgium-Luxembourg (40), Malaysia (40), the United States (39), Denmark (38), Ukraine (38), Bulgaria (37) Spain (37), Chile (36), Indonesia (35), Sweden (35) and Viet Nam (32). Unlike FCN treaties, bilateral investment treaties have rarely been concluded between developed countries.

Bilateral investment treaties The texts of bilateral investment treaties can be found in a loose-leaf collection published by ICSID, Investment Promotion and Protection Treaties. The UNCTAD Compendium, Volume III, reproduces model bilateral investment treaties used by some countries. are characterized by a basic similarity in their structure and substantive coverage. Core elements found in all such treaties deal with scope of application, admission of investment, general standards of treatment, standards of treatment on specific matters and dispute settlement. Comparative studies of the content of these treaties See, for example, Organization of American States, Trade Unit, op.cit.; UNCTAD, Bilateral investment treaties and their relevance to a possible multilateral framework on investment: issues and questions, TD/B/COM.2/EM.1/2, 21 March 1997; R. Dolzer and M. Stevens, Bilateral Investment Treaties (The Hague, Boston, New York, 1995); United Nations Centre on Transnational Corporations and International Chamber of Commerce, Bilateral Investment Treaties 1959-1991 (New York, United Nations, 1992); M.I. Khalil, "Treatment of Foreign Investment in Bilateral Investment Treaties", ICSID Review - Foreign Investment Law Journal, Vol. 7, No. 2, Fall 1992, pp.339-383. Document WT/WGTI/W/21 includes a report on an UNCTAD expert meeting on bilateral investment treaties held in May 1997. A comprehensive study of bilateral investment treaties by UNCTAD is forthcoming. reveal areas of substantial convergence, for example regarding the adoption of a wide definition of the term "investment", as well as notable differences, for example regarding the applicability of national treatment and MFN treatment standards with respect to the admission of foreign investment and the coverage of performance requirements.

A characteristic feature of bilateral investment treaties is the use of a broad, open-ended definition of the term "investment". A typical definition states that "investment means every kind of asset" Bilateral investment treaties of the United States use the expression "every kind of investment"., followed by an illustrative list which includes traditional property rights, rights in companies, claims to money and titles to performance, intellectual property rights, and concessions and similar rights. In some bilateral investment treaties, the scope of the investments covered has been expressly limited to investments made in accordance with the domestic law of the host state or to investments approved or duly registered by the host state. A related aspect of the scope of application of a bilateral investment treaty concerns the definition of the natural and legal persons who will be considered as investors of a party and thus enjoy the protection of the treaty. Regarding natural persons, the treaties typically apply to the nationals of the parties, as defined in the domestic legislation of each party. On the more complex question of when companies and other legal entities are to be regarded as investors of a party, there are considerable differences between the treaties with respect to whether they rely on: (1) place of incorporation; (2) the location of the registered office or seat; or (3) the nationality of the ownership or controlling interest. Regarding the application in time of bilateral investment treaties, some earlier treaties exclude investments made prior to their entry into force but the more recent treaties apply to investments made before or after their entry into force. However, disputes which have arisen before the entry into force of a bilateral investment treaty are always explicitly excluded from the treaty. The initial duration of a bilateral investment treaty is typically a period of ten or 15 years. In most cases, it is stipulated that, after the termination of the treaty, its provisions will continue to be effective during a specified period of time to investments made during the time the treaty was in force.

Two main approaches exist in bilateral investment treaties regarding the admission of foreign investment. The vast majority of such treaties contain a provision requiring each party to encourage and create favourable conditions for investors of the other party to make investments in its territory and to admit such investments, subject to its domestic laws and regulations, and in some cases, policies. Consequently, these treaties do not limit a party's ability to apply restrictive measures with respect to the admission of foreign investment provided for in (existing or future) domestic legislation. By contrast, most bilateral investment treaties of the United States and some recent treaties concluded by Canada require application of MFN and national treatment standards in respect of both establishment and subsequent treatment of investments, subject to the ability of the parties to make or maintain exceptions in sectors or matters specified in an annex to the treaty.

Standards of treatment of foreign investment contained in bilateral investment treaties are usually classified into general standards and standards relating to specific matters. General standards of treatment usually require the parties to accord covered investments fair and equitable treatment and full or constant protection and security, and to refrain from impairing by unreasonable or discriminatory measures the management, maintenance, use, enjoyment or disposal of covered investments. In some cases, these standards have been combined with a reference to treatment as required by international law. In addition, although a number of such treaties only provide for MFN treatment, most bilateral investment treaties require that both MFN and national treatment be accorded. The MFN obligation is in most cases subject to an exception for treatment accorded to third states by virtue of regional economic integration agreements and agreements in the field of taxation. In some cases, reference has also been made to international agreements concluded in the framework of GATT/WTO. Thus, for example, the bilateral investment treaty between Canada and Trinidad and Tobago (1995) exempts from the MFN obligation treatment accorded to third countries pursuant to any existing or future bilateral agreement "negotiated within the framework of the GATT or its successor organization and liberalizing trade in services". The bilateral investment treaty between the United States and Jamaica (1994) exempts from MFN treatment advantages accorded to nationals or companies of any third country by virtue of "that Party's binding obligations under any multilateral international agreement under the framework of the General Agreement on Tariffs and Trade". As previously noted, in the majority of treaties, these MFN and national treatment standards only apply to the treatment of investment once it has been admitted. Other differences between bilateral investment treaties regarding the content of the MFN and national treatment standards pertain to the extent to which they provide for exceptions with respect to specific measures or sectors, whether they apply only to investments or to both investments and investors, and whether they are qualified by the expression "in like situations".

Specific treatment standards commonly contained in bilateral investment treaties deal with expropriation, transfer of funds related to investments, and compensation for losses due to armed conflict, civil strife and similar circumstances. Virtually all treaties prohibit direct or indirect expropriation of covered investments, except if the expropriation takes place for a public purpose, on a non-discriminatory basis, under due process of law and against payment of compensation which must meet certain conditions regarding its amount, form and time of payment. Provisions on transfer of funds obligate parties to allow investors to make free transfers of payments related to investments. They normally specify the types of payments covered by the freedom of transfer and contain requirements regarding the currency and the time of the transfer. This right of free transfer is often unqualified but in some cases it is subject to limitations, for example, regarding measures taken in case of balance-ofpayments difficulties or measures pursuant to income tax legislation. A limitation of this right of transfer can also result from references made in some treaties to the rights of the parties under the IMF Articles of Agreement. With regard to losses suffered by investors due to armed conflict, civil strife or similar circumstances, the treaties provide for national treatment and MFN treatment to be accorded to foreign investors in respect of any indemnification or compensation paid for such losses. Some treaties also contain a specific requirement for payment of compensation if in these circumstances a foreign investor suffers losses due to the requisitioning or destruction of property by the forces or authorities of a party.

Many bilateral investment treaties obligate each party to observe any obligation it may have entered into with regard to investments of nationals or companies of the other party. In addition, there is normally a provision to the effect that the treaty does not derogate from rules of domestic law or international obligations which accord more favourable treatment to an investor than the treatment provided for in the treaty.

Most bilateral investment treaties contain a subrogation clause requiring that, if a party or an agency of a party makes a payment to one of its nationals or companies pursuant to an investment insurance scheme, the other party shall recognize the assignment of the rights of that national or company to the party or its agency. Bilateral investment treaties of the United States do not contain this subrogation clause. Instead, the United States deals with this matter in separate "investment incentive agreements" with third countries. Another clause related to investment insurance found in most treaties precludes a party from raising as a defence in a dispute settlement proceeding the fact that an investor has been indemnified under a investment insurance scheme of the other party. The relationship between investment insurance schemes and bilateral investment treaties goes beyond these specific provisions insofar as a number of countries which operate investment insurance schemes make the eligibility of an investment project for coverage under such schemes conditional on the existence of a bilateral investment agreement with the third country in question.

Apart from the above-mentioned themes which are typically addressed in bilateral investment treaties, some bilateral investment treaties, notably those concluded by the United States and some recent treaties concluded by Canada, also deal with performance requirements The performance requirements prohibited by these treaties include requirements with respect to local content, trade balancing, export performance, transfer of technology and in some cases, research and development. The prohibition of such requirements applies to both goods and services., the right of temporary entry and stay of managerial personnel in connection with the establishment and management of an investment, and the right of foreign investors to hire key personnel of their choice regardless of their nationality.

Bilateral investment treaties often contain exceptions to the application of their provisions in specific sectors or measures. Examples of matters which are sometimes the subject of specific exceptions are taxation, subsidies and intellectual property. Bilateral investment treaties of the United States usually provide that the MFN/national treatment obligation does not apply to procedures provided in multilateral agreements concluded under the auspices of the World Intellectual Property Organization relating to the acquisition or maintenance of intellectual property rights. The bilateral investment treaty between Canada and Trinidad and Tobago (1995) allows each Party to derogate from the MFN and national treatment requirements in regard to intellectual property in a manner that is consistent with the Uruguay Round Final Act. The bilateral investment treaty between Hong Kong, China and Japan (1997) states that, notwithstanding the inclusion of intellectual property in the definition of investment, nothing in this agreement shall be construed so as to derogate from the rights and obligations of the parties under international agreements relating to intellectual property rights to which they are parties. Exceptions of a general nature found in some treaties pertain to measures necessary for the maintenance of public order, the fulfilment of a party's obligations with respect to the maintenance of international peace or security or the protection of a party's security interests. Some treaties also allow a party to deny the benefits of the treaty to a company incorporated under the laws of another party and owned or controlled by investors of a third country if that company has no substantial business activities in the territory of the other party or is owned or controlled by investors from a third country with which the first party does not maintain normal economic relations.

Dispute settlement rules in bilateral investment treaties typically provide that disputes between the parties on the interpretation or application of the treaty which the parties have been unable to resolve through diplomatic means shall at the request of either party be submitted to binding ad hoc arbitration Unlike earlier FCN treaties, bilateral investment treaties generally do not provide for the submission of disputes to the International Court of Justice. However, most treaties envisage a role of the International Court of Justice in the appointment of arbitrators. in accordance with specific rules laid down in each treaty with regard to the constitution of the arbitration tribunal, its rules of procedure, liability for costs and the law to be applied. Bilateral investment treaties also contain procedures which enable foreign investors to resort to international arbitration in a dispute with the government of a host country. With respect to the procedures for arbitration of such disputes, reference is normally made to institutional arbitral regimes that have been established in other contexts. Thus, a majority of bilateral investment treaties provide for arbitration of investor-state disputes in accordance with the Convention on the Settlement of Investment Disputes between States and Nationals of Other States ("ICSID Convention") See infra, Section IV.2. In many cases, the treaties also mention the possibility of arbitration under the ICSID Additional Facility, which is available in cases where one of the parties is not a Contracting Party or a national of a Contracting Party to the ICSID Convention. but other arbitration rules and procedures, such as the arbitration rules of the United Nations Commission on International Trade Law and the International Chamber of Commerce have also been used. An important distinction regarding investor-state arbitration clauses in bilateral investment treaties is that between treaties in which the parties express their advance, unqualified consent to recourse to international arbitration by an investor of the other party and treaties in which a specific expression of consent by a party in a given case is necessary in order for an investor to be able to refer a dispute to international arbitration. Other differences that have been noted with regard to investor-state arbitration clauses in bilateral investment treaties relate to matters such as the scope of the disputes which can be referred to international arbitration and whether or not resort to international arbitration and resort to domestic courts are mutually exclusive.

The experience with dispute settlement mechanisms of bilateral investment treaties is rather limited. It would appear that no intergovernmental arbitration proceedings have been initiated under such treaties and that only two decisions have been rendered by ICSID tribunals in proceedings initiated pursuant to investor-state arbitration clauses of bilateral investment treaties. See Asian Agricultural Products LTD. (AAPL) v. Republic of Sri Lanka, International Legal Materials, Vol. 30 (1991) p.577 and American Manufacturing & Trading, Inc. v. Republic of Zaire, International Legal Materials, Vol. 36 (1997) p.531.

II.3 Bilateral free trade agreements

Provisions on investment in the Free Trade Agreement between Mexico and Costa Rica (1994) and the Free Trade Agreement between Mexico and Bolivia (1994) closely resemble the investment rules contained in the Treaty on Free Trade between Columbia, Mexico and Venezuela. Infra, paragraphs 38 and 39 The Free Trade Agreement between Canada and Chile (1996) contains investment provisions which are nearly identical to those of Chapter 11 of the North American Free Trade Agreement. Infra, paragraphs 32-36. A notable difference between the Canada-Chile Free Trade Agreement and the investment provisions of the NAFTA is the inclusion in the former agreement of provisions permitting Chile to derogate from the provisions on free transfer of funds in order to preserve the stability of its currency.

II.4 Other relevant bilateral agreements

Of particular importance among other bilateral treaties relevant to investment are the more than 1,500 bilateral treaties for the avoidance of double taxation. The aim of such treaties is to avoid or mitigate the effects of international double taxation, which can occur when income falls within the fiscal jurisdiction of both the host country, as the source country where the income is earned, and the home country, as the country of residence of the beneficiary of the income. The treaties allocate taxation rights between source and residence countries and provide for cooperation, exchange of information and dispute settlement. Model bilateral tax treaties have been adopted by the Organization for Economic Cooperation and Development and the United Nations. Provisions on investment promotion in a number of bilateral, regional and plurilateral investment agreements contain commitments regarding the conclusion of such tax treaties between the parties. Other relevant bilateral treaties include agreements in the fields of judicial assistance, antitrust cooperation and science and technology cooperation.

III. REGIONAL AND PLURILATERAL AGREEMENTS

Certain agreements between the European Community and third countries which strictly speaking could be regarded as bilateral agreements are included in this section because of the number of countries involved.

A distinction can be made between provisions on investment adopted in the context of regional and plurilateral trade and economic integration and cooperation agreements, on the one hand, (Section III.1) and separate rules established in a context exclusively dedicated to the treatment of investment matters, on the other (Section III.2).

III.1 Provisions on investment adopted in the context of regional and plurilateral trade and economic integration and cooperation agreements

Rules on investment have been related to wider processes of trade and economic integration and cooperation in various ways. A number of agreements contain rules which aim at the removal of restrictions on right of establishment and movement of capital (Section III.1.1) while other agreements lay down rules on the admission and treatment of investment which are inspired by standards originally developed in bilateral investment treaties (Section III.1.2). Although in most agreements investment provisions apply only to the mutual relations between the parties, a few agreements provide for a degree of harmonization of investment policies towards third countries (Section III.1.3). Finally, some agreements contain rules on the status of transnational, regional enterprises or on cooperative arrangements between enterprises (Section III.1.4).

III.1.1 Rules on right of establishment and free movement of capital

The Treaty Establishing the European Community (1957) addresses investment primarily through provisions on freedom of establishment and free movement of capital in Title III of the Treaty (Free Movement of Persons, Services and Capital). In June 1997, the European Commission issued a Communication of the Commission on Certain Legal Aspects Concerning Intra-EU Investment (97/C 220/06), which sets forth the Commission's views on the interpretation of the EC Treaty rules on establishment and capital movements. Official Journal of the European Communities, No. C 220, 19 July 1997, p.15 Article 52 prohibits restrictions on the freedom of establishment of nationals of a member State in the territory of another member State and on the setting up of agencies, branches or subsidiaries by nationals of any member State established in the territory of any member State. The reference in the original text to the progressive abolition of restrictions on the right of establishment in the course of the transitional period was deleted and replaced by the concept of prohibition in amendments made by the recent Treaty of Amsterdam. Official Journal of the European Communities, No. C 340, 10 November 1997, p.61 Freedom of establishment includes the right to take up and pursue activities as self-employed persons and to set up and manage undertakings under the conditions laid down for its nationals by the law of the country where such establishment is effected. By virtue of Article 58, this right of establishment also applies to companies or firms formed in accordance with the law of a member State and having their registered office, central administration or principal place of business within the Community. Article 221 requires member States to accord nationals of the other member States the same treatment as their own nationals as regards participation in the capital of companies or firms within the meaning of Article 58. The rules on freedom of establishment are not applicable to activities connected with the exercise of official authority (Article 55) and are subject to exceptions on grounds of public policy, public security or public health (Article 56). Since the end of the transitional period on 31 December 1969, Article 52 has been directly applicable in the sense that it can be invoked by individuals before the nationals courts of member States. EC Treaty rules on freedom of establishment are not only addressed to the member States but also require the adoption of measures by the Community institutions with respect to a wide range of matters specified in Articles 54 and 57 in order to facilitate the implementation of the freedom of establishment. Pursuant to these provisions, directives have been adopted inter alia with respect to standards in specific sectors, company law, government procurement, and the mutual recognition and acceptance of diplomas, certificates and other evidence of formal qualifications.

With respect to movement of capital, Article 73(b) of the EC Treaty, which was added by the 1992 Treaty on European Union, provides for the prohibition as of 1 January 1994 of restrictions on movements of capital and payments between the member States and between the member States and third countries. Capital movements covered by this provision include direct investments, defined as investments of all kinds which serve to establish or to maintain lasting and direct links between the person providing the capital and the undertaking to which the capital is made available in order to carry on an economic activity. This general prohibition is subject to "grandfather" and transition clauses in respect of certain existing restrictions, exceptions (e.g. relating to taxation and prudential measures) and a safeguard clause applicable in case of difficulties for the operation of economic and monetary union caused by capital movements to or from third countries.

The Agreement on the European Economic Area (1992) includes provisions on freedom of establishment and movement of capital which are basically identical to those of the EC Treaty and also incorporates relevant secondary EC legislation in these fields.

The Europe Agreements concluded in the early and mid-1990s between the European Community and its member States on the one hand, and Central and Eastern European countries on the other Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, the Slovak Republic and Slovenia, provide for national treatment with regard to the establishment and operation of companies and nationals. See, for example, Article 44 of the Europe Agreement establishing an association between the European Communities and their member States, of the one part, and the Republic of Hungary, of the other part (1993) and Article 45 of the Europe Agreement establishing an association between the European Communities and their member States, of the one part, and the Czech Republic, of the other part (1994). This obligation applies to member States of the European Community immediately upon the entry into force of the Agreement but is subject to transition periods in the case of the Central and Eastern European countries, particularly with respect to the establishment of Community companies and nationals. The term "establishment" is defined in each of these Agreements as meaning, as regards nationals, the right to take up and pursue economic activities as self-employed persons and to set up and manage undertakings and, as regards companies, the right to take up and pursue economic activities by means of the setting up and management of subsidiaries, branches and agencies. Exceptions and limitations pertain to sectors or matters specified in annexes to each Agreement, certain transport sectors, measures justified on grounds of public policy, public security or public health and activities which in the territory of each Party are connected with the exercise of official authority. A Party may also apply non-discriminatory regulatory measures to the establishment and operation of companies and nationals of another Party, including, with respect to financial services, measures necessary for the conduct of its monetary policy or justified on prudential grounds, and may apply particular rules to branches and agencies of companies of another Party operating in its territory which are not incorporated in its territory. During a transition period, the Central and Eastern European countries may take safeguard measures in specific industries. The association council established under each of these Agreements is required to take the necessary steps to provide for the mutual recognition of qualifications in order to make it easier for nationals of one Party to take up and pursue regulated professional services in the territory of the other Party. The rules on establishment in these Agreements include provisions allowing a national or company of a Party to employ in the territory of another Party certain key personnel who are nationals of the first Party.

Also relevant to investment are the provisions of the Europe Agreements on movement of capital. Thus, for example, Article 60 of the Europe Agreement with Hungary requires the Parties to ensure, from the entry into force of the Agreement, the free movement of capital relating to direct investments made in companies formed in accordance with the laws of the host state and investments made in accordance with the provisions of this Agreement on establishment, the liquidation or repatriation of such investments, and of any profit stemming therefrom.

The Partnership and Cooperation Agreement between the European Communities and their member States, of the one part, and the Russian Federation, of the other part, (1994) Entered into force in December 1997. Similar Partnership and Cooperation Agreements were concluded during the period 1994-1996 by the Community and its member States with Ukraine, Kazakhstan, Kyrgyzstan, Moldova, Belarus, Georgia, Armenia, Azerbaijan and Uzbekistan. mentions as one of its objectives the creation of the necessary conditions for bringing about freedom of establishment of companies, of cross-border trade in services and capital movements. The concept of "establishment" is defined to mean the right of Community companies or Russian companies to take up economic activities by means of the setting up of subsidiaries and branches in Russia or in the Community, respectively. Thus, establishment in the sense of the right of nationals of one Party to take up and pursue economic activities as self-employed persons in the territory of another Party is not covered by this Agreement. Article 28 requires the Parties to grant to each other MFN treatment with regard to the conditions affecting the establishment of companies in their territories; the better of national treatment In the case of the Community and its member States: "treatment no less favourable than that granted to other Community Companies". and MFN treatment in respect of the operation of subsidiaries of the other Party in their territories, subject to reservations listed in annexes to the Agreement; and MFN treatment in respect of the operation of branches of companies of the other Party in their territories. With regard to banking and insurance services, special provisions are set forth in annexes to the Agreement governing the establishment of Community companies in Russia. The Agreement contains a commitment of the Parties to consider at a future stage the possibility of granting national treatment in respect of the establishment and, where not so foreseen in the Agreement, the operation of each other's companies in their territories (Article 33) and to endeavour to avoid taking any measures or actions which render the conditions for establishment and operation of each other's companies more restrictive than the situation existing on the day preceding the date of signature of the Agreement (Article 34). In the latter regard, the Agreement provides for examination within the Cooperation Council established under this Agreement of measures introduced by a Party since the signature of the Agreement which affect the establishment or operation of companies of the other Party. Article 32 obligates each Party to allow each other's companies to employ key personnel who are nationals of the other Party. Safeguards and exceptions in respect of these rules on establishment and operation of companies pertain to prudential measures, measures to ensure the integrity and stability of the financial system, certain transport services, commitments entered into under economic integration agreements, measures justified on grounds of public policy, public security or public health and activities connected with the exercise of official authority.

In the context of rules on movement of capital, the Agreement obligates the Parties to ensure the free movement of capital between residents of the Community and Russia in the form of direct investment made in companies formed in accordance with the laws of the host country and investments made in accordance with the provisions of the Agreement on establishment, the transfer abroad of such investment and any profit stemming therefrom (Article 52).

The Treaty Establishing the Caribbean Community (1973) Member States are Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines and Trinidad and Tobago., as amended by a Protocol adopted in July 1997, prohibits the introduction by member States of any new restrictions relating to the right of establishment of nationals of other member States (Article 35b). The right of establishment includes the right to engage in non-wage earning activities of a commercial, industrial, professional or artisanal nature and to create and manage economic enterprises. Member States are required to remove restrictions on the right of establishment of nationals of other member States, including restrictions on the setting up of agencies, branches or subsidiaries by nationals of a member State in the territory of another member State (Article 35c). The removal of these restrictions is to take place in accordance with a programme to be determined by the Council for Trade and Economic Development identifying the activities in respect of which the right of establishment shall not apply and setting out the conditions, stages and time-frames for the removal of these restrictions (Articles 35c and d). Other measures to be adopted by the Community institutions in this connection include the development of common standards and measures for accreditation or when necessary for the mutual recognition of diplomas, certificates and other evidence of qualifications of the nationals of member States in order to facilitate access to, and engagement in, non-wage earning activities in the Community and the coordination of legislative and administrative requirements of member States for the conduct of non-wage earning activities in the Community (Article 35e). The Protocol also provides for prohibitions on the introduction of new restrictions, and requires the removal of existing restrictions on free movement of services and capital (Articles 36 and 37). These provisions on establishment, services and capital are not applicable to activities involving the exercise of governmental authority and are subject to certain general exceptions and safeguard clauses, including for balance-of-payments difficulties and difficulties of a sectoral or regional nature. In addition, member States are allowed to determine that the public interest requires the exclusion or restriction of the right of establishment in any industry or in a particular sector of an industry. There is also a procedure whereby a member State may apply to the Community Council for a waiver of its obligations under the provisions of this Protocol.

The Treaty Establishing the African Economic Community (1991) Signatories are the members of the Organization of African Unity. and the Treaty Establishing the Common Market for Eastern and Southern Africa (COMESA) (1993) The signatories of the COMESA Treaty are Angola, Burundi, Congo, Democratic Republic of, Comoros, Eritrea, Ethiopia, Kenya, Lesotho, Malawi, Mauritius, Rwanda, Sudan, Swaziland, Tanzania, Uganda and Zimbabwe. The COMESA Treaty has superseded the Treaty for the Establishment of the Preferential Trade Area for Eastern and Southern Africa concluded in 1982. It entered into force in December 1994. include among their objectives the removal among member States of obstacles to the free movement of capital and the right of residence and establishment. See, respectively Article 4(2)(i) of the Treaty Establishing the African Economic Community and Article 4(4)(c) and 4(6)(e) of the COMESA Treaty. In respect of movement of capital, these treaties provide that member States shall ensure the free movement of capital through the elimination of restrictions on the transfer of capital funds between member States in accordance with a timetable to be determined by the Councils of Ministers established under these treaties. Article 45 of the Treaty Establishing the African Economic Community and Article 81 of the COMESA Treaty. The latter provision also requires member States to ensure that the citizens of and persons resident in the member States are allowed to acquire stocks, shares and other securities or to invest in enterprises in the territories of the other member States; and to encourage cross border trade in government securities such as treasury bills, development and loan stocks within the Common market. The conclusion of additional protocols is envisaged with respect to the right of residence and right of establishment. Article 43 of the AEC Treaty and Article 164 of the COMESA Treaty

The Revised Treaty of the Economic Community of West African States (ECOWAS) (1993) Benin, Burkina Faso, Cape Verde, Côte d'Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo includes among its objectives the establishment of a common market involving inter alia the removal of obstacles to the free movement of persons, goods, services and capital, and to the right of residence and establishment (Article 3(2)) and commits member States to undertake to achieve the removal of these obstacles within five years following the creation of the envisaged customs union (Article 55). According to Article 35 of the ECOWAS Treaty, the customs union shall be established by the year 2000. With respect to capital movements, Article 53 provides for the establishment of a Capital Issues Committee which shall inter alia ensure the unimpeded flow of capital among the member States through the removal of controls on the transfer of capital in accordance with a timetable determined by the ECOWAS Council of Ministers and ensure that nationals of a member State are given the opportunity of acquiring stocks, shares and other securities or otherwise of investing in enterprises in the territories of other member States. The Treaty Establishing the Economic and Monetary Union of West Africa (1996) Member States are Benin, Burkina Faso, Côte d'Ivoire, Mali, Niger, Senegal and Togo. provides for freedom of nationals of one member State to provide services in the territory of another member State and proscribes restrictions on movement of capital.

III.1.2 Rules building on treatment and protection principles of bilateral investment treaties

In the framework of the Association of South East Asian Nations (ASEAN), an Agreement Among the Governments of Brunei Darussalam, the Republic of Indonesia, Malaysia, the Republic of the Philippines, the Republic of Singapore and the Kingdom of Thailand for the Promotion and Protection of Investments was concluded in 1987. The Agreement adopts the wide definition of investment common to bilateral investment treaties but its applicability is limited to "investments which are specifically approved in writing and registered by the host country and upon such conditions as it deems fit for the purposes of this Agreement" (Article II). In respect of the admission of investments of investors of another Contracting Party, the Agreement requires that each Contracting Party, in a manner consistent with its national objectives, encourage and create favourable conditions in its territory for investments from the other Contracting Parties (Article III). General treatment standards contained in Articles III and IV provide that Contracting Parties shall accord fair and equitable treatment and full protection and security to investments from other Contracting Parties; observe any obligation arising from particular commitments entered into with regard to specific investments of nationals or companies of the other Contracting Parties; and refrain from impairing by unjustified or discriminatory measures the management, maintenance, use, enjoyment, extension, disposition or liquidation of investments from other Contracting Parties. While the Agreement requires MFN treatment to be accorded to investments made by investors of other Contracting Parties, national treatment is a subject for bilateral negotiations between Contracting Parties (Article IV). Amendments made in 1996 introduced provisions on simplification of investment procedures and approval processes and on transparency of investment laws and regulations.

Other substantive provisions of this Agreement deal with expropriation, compensation for losses due to the outbreak of hostilities or a state of emergency, repatriation of capital and earnings and subrogation. Taxation matters are exempted from the scope of the Agreement. With respect to dispute settlement, Article X sets forth procedures for international arbitration of disputes between a Contracting Party and a national or company of another Contracting Party. Such disputes may be referred to any arbitration procedure agreed upon by the parties, including arbitration under the ICSID rules, UNCITRAL rules, the regional centre for arbitration at Kuala Lumpur or any other regional centre for arbitration in ASEAN. If there is no such agreement between the parties, an ad hoc arbitration tribunal is to be formed. The original Agreement provided that disputes between Contracting Parties were to be submitted to ASEAN Economic Ministers for resolution. Amendments made in 1996 replaced this reference to ASEAN Economic Ministers as the forum for intergovernmental dispute settlement with a reference to the ASEAN Dispute Settlement Mechanism.

The North American Free Trade Agreement (NAFTA) (1992) contains generic provisions on investment in Chapter 11. In addition to Chapter 11, provisions on investment are contained in Chapter 14 on financial services, Chapter 15 on competition, monopolies and state enterprises, and Chapter 16 on temporary entry for business persons. "Investment" is defined in Article 1139 through a broad list of assets along with a negative list of certain claims to money, including claims arising from commercial transactions, which are not considered to be investments. Each Party is required to accord the better of national treatment and MFN treatment to investors of another Party, and to investments of investors of another Party, with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments (Articles 1102-1104). This obligation is qualified by the Parties' ability to lodge country-specific reservations listed in annexes to the Agreement Article 1108 allows for such country-specific reservations with regard to: (1) existing non-conforming measures maintained by a Party at the federal, state or local level, as set out in that Party's Schedule to Annex I or III to the Agreement; (2) any measure that a Party maintains or adopts with respect to specified sectors, subsectors or activities, as set out in its Schedule to Annex II; and (3) treatment accorded by a Party pursuant to specified agreements or with respect to sectors, as set out in its Schedule to Annex IV. and is subject to certain exceptions with respect to government procurement, subsidies and intellectual property. With respect to intellectual property, the national treatment and MFN obligations do not apply to any measure that is an exception to, or derogation from, the obligations under the national treatment article of the NAFTA Chapter on intellectual property, as specifically provided for in that article. Minimum standards of treatment in Article 1105 require each Party to accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security, and non-discriminatory treatment with respect to measures a Party adopts or maintains relating to losses suffered by investments in its territory owing to armed conflict or civil strife.

The provisions of the NAFTA concerning performance requirements apply to both investments of investors of a Party and investments of investors of a non-Party. Article 1106(1) proscribes the imposition or enforcement of mandatory requirements and the enforcement of any undertakings or commitments: (1) to export a given level or percentage of goods or services; (2) to achieve a given level or percentage of domestic content; (3) to purchase, use or accord a preference to goods produced or services provided in the territory of a Party or to purchase goods or services from persons in its territory; (4) to relate the volume or value of imports to the volume or value of exports or to the amount of foreign exchange inflows associated with investment; (5) to restrict sales of goods or services produced or provided by an investment in a Party's territory by relating such sales to the volume or value of exports or foreign exchange earnings of the investment; (6) to transfer technology, a production process or other proprietary knowledge; and (7) to act as the exclusive supplier of the goods produced or services provided by an investment to a specific region or world market. With the exception of the first and the last two requirements, these requirements are also prohibited if applied as conditions for the receipt of an advantage (Article 1106(2)). The provisions on performance requirements are subject to various qualifications and limitations. First, Article 1106(3) states that the prohibition of certain requirements as conditions for the receipt of an advantage is not to be construed as preventing a Party from conditioning the receipt or continued receipt of an advantage on compliance with a requirement to locate production, provide a service, train or employ workers, construct or expand particular facilities, or carry out research and development in its territory. Second, Article 1106(6) provides for an exception to the prohibition of some of the performance requirements mentioned in 1106(1) and (2) for measures necessary to secure compliance with laws and regulations which are not inconsistent with the provisions of the NAFTA; measures to protect human, animal or plant life or health; or measures necessary for the conservation of living or non-living exhaustible natural resources. Third, Parties have been allowed to lodge country-specific reservations under Article 1108 in relation to the obligations of Article 1106. Finally, Article 1108(8) provides that certain prohibitions in Article 1106 do not apply to qualification requirements for goods or services with respect to export promotion and foreign aid programmes, government procurement, and requirements imposed by an importing Party relating to the content of goods necessary to qualify for preferential tariffs or preferential quotas. NAFTA Article 1107 prohibits a Party from requiring that an enterprise of that Party that is an investment of an investor of another Party appoint individuals of any particular nationality to senior management positions. Parties have been allowed to make country-specific reservations in accordance with Article 1108 in respect of this prohibition. A Party may require, however, that a majority of the board of directors, or any committee thereof, of an enterprise of that Party that is an investment of an investor of another Party be of a particular nationality or resident in the territory of that Party, provided that the requirement does not materially impair the ability of the investor to exercise control over its investment.

With respect to transfers, the NAFTA not only obligates Parties to permit all transfers relating to an investment of an investor of another Party to be made freely and without delay, but also proscribes the imposition of requirements on an investor of a Party to transfer income, earnings, profits or other amounts derived from, or attributable to, investments in the territory of another Party (Article 1109). Direct or indirect nationalization or expropriation of investments of an investor of another Party and measures tantamount to nationalization or expropriation are prohibited by Article 1110, except for a public purpose, on a non-discriminatory basis, in accordance with due process of law and the minimum standards of treatment set forth in Article 1105, and on payment of compensation in accordance with specified criteria. Pursuant to Article 1110(7), these provisions on expropriation and compensation do not apply to the issuance of compulsory licences granted in relation to intellectual property rights, or to the revocation, limitation or creation of intellectual property rights, to the extent that such issuance, revocation, limitation or creation is consistent with the provisions of the NAFTA Chapter on intellectual property. Article 1111 permits a Party to adopt or maintain measures prescribing special formalities in connection with the establishment of an investment, such as a requirement that investments be legally constituted under the laws or regulations of a Party, and measures regarding the provision of routine information by investors for informational or statistical purposes. Article 1113 permits a Party to deny in certain circumstances the benefits of Chapter 11 to an investor of another Party that is owned or controlled by investors of a non-Party. Finally, Article 1114 allows each Party to apply any measures otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental concerns. It also provides that the Parties recognize that it is inappropriate to encourage investment by relaxing domestic health, safety or environmental measures and that Parties should not waive or otherwise derogate from such measures in order to attract or retain investment in their territories.

Apart from exceptions specifically provided for in Chapter 11, the investment provisions of NAFTA are also qualified by certain general exceptions which appear in NAFTA Chapter 21 with regard to measures taken on grounds of national security, taxation and measures taken in case of balance-of-payments difficulties and by an annex relating to cultural industries.

NAFTA Articles 1115-1138 provide for international arbitration of disputes between a Party and an investor of another Party. An investor may submit to international arbitration, on its own behalf or on behalf of an enterprise of another Party that is a juridical person that the investor owns or controls, directly or indirectly, a claim that another Party has breached an obligation under Chapter 11 or under certain provisions of the chapter on monopolies and state enterprises and that the investor has incurred loss or damage by reason of, or arising out of, that breach. The ability of an investor to submit a matter to international arbitration is qualified by certain limitations. Thus, claims may only be submitted within three years after the date on which the investor or the enterprise acquired, or should have acquired, knowledge of the alleged breach and knowledge that the investor or enterprise has incurred loss or damage. Certain matters are specifically excluded from the investor-state arbitration mechanism. A procedural limitation arises from the requirement that an investor may in principle submit a claim to arbitration only if the investor waives the right to initiate or continue proceedings before an administrative tribunal or court with respect to the measure at issue in the request for arbitration. Article 1122 contains the unconditional consent of the Parties to the submission of a claim to arbitration. The investor can elect to proceed under the ICSID Convention, the Additional Facility Rules of ICSID or the UNCITRAL Arbitration Rules. Detailed rules are contained in these provisions on matters such as the constitution of arbitral tribunals, consolidation of claims, applicable law, nature of remedies, and finality and enforcement of arbitral awards.

The Colonia Protocol on Reciprocal Promotion and Protection of Investments within MERCOSUR, adopted in 1994, covers investments of investors of one MERCOSUR member State in the territory of another MERCOSUR member State. It provides that each Contracting Party shall accord national treatment and MFN treatment in respect of the admission of investments of investors of another Contracting Party (Article 2). An Annex to the Protocol identifies for each Contracting Party specific sectors in which it may maintain limited, temporary exceptions to this obligation, requires Contracting Parties to make all efforts to eliminate these exceptions as soon as possible, and provides for periodic consultations to monitor the process of their elimination. With respect to the treatment of investment once admitted, Article 3 of the Protocol requires the Contracting Parties to accord fair and equitable treatment and full legal protection; to refrain from impairing the management, maintenance, use, enjoyment or disposal of investments through unjustified or discriminatory measures; and to accord national treatment and MFN treatment. With regard to the national treatment and MFN obligation, the Annex contains a reservation by Brazil relating to government procurement. This Article also prohibits the imposition of requirements regarding the export of goods, the purchase of goods or services from domestic sources and any other similar requirements. The Annex provides that Argentina and Brazil reserve the right to maintain temporary exceptions to this prohibition regarding performance requirements in the automotive sector. Article 4 prohibits nationalization or expropriation of covered investments, except for a public purpose, on a non-discriminatory basis, and in accordance with due process of law and lays down requirements regarding the standard and method of calculation of the amount of payment of compensation. It also requires that national treatment and MFN treatment be accorded to covered investments in relation to measures taken with respect to indemnification or compensation for losses suffered owing to war, other armed conflict or internal disorder. In addition, the Protocol provides for freedom of transfers related to investments (Article 5). Disputes between the Contracting Parties on the interpretation and application of the Protocol are to be submitted to dispute settlement procedures established in the Protocol of Brasilia for the Settlement of Disputes, concluded in 1991 or of any successor to this instrument. The Protocol allows for the submission of disputes between a Contracting Party and an investor of another Contracting Party to international arbitration under the ICSID Convention, the ICSID Additional Facility Rules or to ad hoc arbitration in accordance with the UNCITRAL arbitration rules.

The Treaty on Free Trade between Colombia, Mexico and Venezuela (1994) This Treaty entered into force in January 1995. contains rules on investment in Chapter XVII. These rules apply to measures adopted or maintained by a party with respect to financial services only to the extent expressly provided for in the Chapter on financial services. "Investment" is defined as "resources transferred to the national territory of one Party or reinvested therein by investors of the other Party", followed by an illustrative list. Credit and debt transactions are specifically excluded. By virtue of Article 17-03, Parties are required to accord national treatment and MFN treatment to investors of another Party and their investments, subject to an exception for treatment accorded pursuant to bilateral agreements for the avoidance of double taxation The Treaty provides for a commitment of the Parties to initiate between themselves bilateral negotiations for the conclusion of agreements on the avoidance of double taxation. and to the right of each Party to impose special formalities in connection with the establishment of an investment and to impose information requirements. The Treaty envisages the conclusion of an additional Protocol containing lists of sectors and subsectors in which each Party may maintain or adopt measures not conforming to these national treatment and MFN treatment obligations (Article 17-06). The possibility to make country-specific reservations also applies to the provisions on performance requirements. Article 17-04 prohibits performance requirements, whether imposed on a mandatory basis or linked to an advantage, relating to: (1) the purchase or use by an enterprise of goods of national origin or from national sources; (2) limitations on the purchase or use of imported goods by an enterprise to an amount related to the volume or value of local goods exported by the enterprise; (3) restrictions on imports of goods used by an enterprise in its local production and limitations on access by the enterprise to foreign exchange to an amount related to the foreign exchange imputable to the enterprise; and (4) restrictions on the exportation or the sale for exportation of goods by an enterprise. There are exceptions to some of these prohibitions with respect to requirements for the qualification of goods for export promotion programmes; the purchases or use by a party or by a state enterprise; and requirements imposed by an importing Party with respect to the content required for goods in order to qualify for preferential tariffs or duties. Moreover, it is stated that nothing in this article shall be construed to prevent a Party from imposing, with regard to any investment in its territory, requirements to locate production, generate jobs, train workers or carry out research and development. If a Party considers that a performance requirement applied by another Party and not covered by this prohibition adversely affects the flow of trade or constitutes a significant barrier to investment, it may refer the matter to the Commission established under this Treaty which may recommend to the Party in question that it suspend the requirement. With regard to employment and enterprise management, Article 17-05 provides that limits on the number or proportion of foreigners that may work in an enterprise or perform managerial or administrative duties under the laws of each Party may in no case prevent or hinder an investor from exercising control over its investment.

Article 17-07 of this Treaty provides for free transfers of funds relating to investments, subject to certain qualifications and exceptions, including in the event of exceptional or serious balance-of-payments difficulties. Direct or indirect expropriation and nationalization of investments of investors of another Party and measures tantamount to expropriation or nationalization are prohibited by Article 17-08, except for a public purpose, on a non-discriminatory basis, in accordance with due process of law and on payment of compensation in accordance with specified criteria. The investment rules of this Treaty also prohibit the exercise of extraterritorial jurisdiction by a Party to investments of investors of a Party that are constituted and organized under the laws and regulations of another Party (Article 17-12) and the elimination or waiver of domestic health, safety or environmental measures in order to attract investment (Article 17-13). General exceptions to the provisions of this Chapter relate to measures taken on grounds of national security or public order and measures taken pursuant to a Party's criminal law (Article 17-02). In addition, a Party may deny the benefits of this Chapter to an investor that is an enterprise of another Party if such investor is owned or controlled by investors of a non-Party and the enterprise has no substantial business activity in the territory of the Party under whose laws it is constituted or organized (Article 17-11). The Treaty allows an investor of a Party, on its own account or on behalf of an enterprise that it owns or controls, to submit to international arbitration a claim that another Party has breached an obligation under Chapter XVII, provided that the investor has incurred loss or damage as result of such a breach (Articles 17-16 - 17-24). Such a claim may be submitted to arbitration under the ICSID Convention, the ICSID Additional Facility Rules, where applicable, or the UNCITRAL Arbitration Rules. Certain matters, including measures taken by a Party under the national security and public order exceptions, are excluded from the scope of this investor-state arbitration mechanism. Submission of a claim to international arbitration and initiation of proceedings before domestic courts are mutually exclusive. Specific provisions are set forth regarding timing of the submission of a claim to arbitration, consolidation of procedures, applicable law, nature of remedies that may be recommended by an arbitral tribunal, finality and enforcement of arbitral awards.

The Energy Charter Treaty (ECT) (1994) The ECT has been signed by Albania, Armenia, Australia, Austria, Azerbaijan, Belarus, Belgium, Bosnia-Herzegovina, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, European Communities, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Kazakhstan, Kyrgyzstan, Latvia, Liechtenstein, Lithuania, Luxembourg, FYR Macedonia, Malta, Moldova, Netherlands, Norway, Poland, Portugal, Romania, the Russian Federation, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Tajikistan, Turkey, Turkmenistan, Ukraine, United Kingdom and Uzbekistan. As a consequence of the deposit of the 30th instrument of ratification on 16 January 1998, the ECT will enter into force on 16 April 1998. aims at the establishment of a legal framework to promote long-term cooperation in the energy field. It contains provisions on trade in energy materials and products, competition, transit, transfer of technology, access to capital, investment promotion and protection, sovereignty over energy resources, environmental aspects, transparency, taxation, state and privileged enterprises and dispute settlement. Part III of the ECT (Articles 10-17) deals with investment promotion and protection. The definition of the term "investment" in Article 1 is comparable to the definitions found in bilateral investment treaties but the scope of the ECT is limited to investments which are "associated with an economic activity in the energy sector". Article 10 lays down certain general obligations regarding the treatment of investments of investors of other Contracting Parties. It provides that each Contracting Party shall encourage and create stable, equitable, favourable and transparent conditions for investors of other Contracting Parties to make investments in its area; accord fair and equitable treatment and the most constant protection and security to investments of investors of other Contracting Parties; refrain from impairing by unreasonable or discriminatory measures the management, maintenance, use, enjoyment or disposal of such investments; accord treatment which shall be no less favourable than that required by international law, including treaty obligations An Understanding adopted as part of the Final Act of the ECT Conference explains that this reference to treaty obligations does not include decisions of international organizations and treaties which entered into force before 1 January 1970.; and observe any obligation it has entered into with an investor or an investment of an investor of any other Contracting Party. With regard to national treatment and MFN treatment, this Article distinguishes between the treatment of established investments and the admission of investments. Regarding the treatment of established investments, Article 10(7) requires Contracting Parties to accord the better of national treatment and MFN treatment to investments of investors of other Contracting Parties and their related activities, including management, maintenance, use, enjoyment or disposal. This obligation does not apply to intellectual property ECT Article 10(10) states that the treatment of intellectual property "shall be as specified in the corresponding provisions of the applicable international agreements for the protection of Intellectual Property rights to which the respective Contracting Parties are parties". and grants and other forms of financial assistance and contracts for energy technology. Regarding the admission of investments of investors of other Contracting Parties, the ECT provides that Contracting Parties "shall endeavour" to accord the better of national treatment and MFN treatment to investors of other Contracting Parties and envisages the negotiation of a supplementary treaty which shall, subject to the conditions to be laid down therein, oblige each Contracting Party to accord such treatment in respect of the admission of investment (Article 10(2) and (4)). The supplementary treaty will also deal with privatization and demonopolization and with the modalities of application of the national treatment and MFN obligations of Article 10(7) to grants or other financial assistance and contracts for energy technology research and development. Article 10(4) provides for the conclusion of this supplementary treaty not later than 1 January 1998. According to information provided by the Energy Charter Secretariat, most outstanding issues relating to this supplementary treaty were resolved at meetings held in December 1997.

With respect to key personnel, Article 11 of the ECT provides that each Contracting Party shall, subject to its laws and regulations relating to entry and stay of natural persons, examine in good faith requests by investors of other Contracting Parties or their key personnel to enter and stay temporarily in its area, and shall permit investors of other Contracting Parties and their investments to employ any key person of their choice. In the event of losses suffered by an investor owing to war or other armed conflict, state of national emergency, civil disturbance or similar circumstances, Contracting Parties are obligated to accord to investors of other Contracting Parties the better of national treatment and MFN treatment as regards restitution, indemnification, compensation or other settlement. A minimum standard of prompt, effective and adequate restitution or compensation applies to situations in which losses are due to the requisitioning or destruction of an investment by the authorities or forces of a Contracting Party (Article 12). ECT Article 13 prohibits nationalization, expropriation and measures having equivalent effect, except where such expropriatory measures are taken for a purpose which is in the public interest, on a non-discriminatory basis, carried out under due process of law and accompanied by the payment of prompt adequate and effective compensation. Obligations of Contracting Parties regarding the free transfer of funds related to investments are set forth in Article 13.

Contracting Parties may under certain circumstances deny the benefits of Part III of the ECT to investors of other Contracting Parties, for example, in case of a legal entity organized under the laws of another Contracting Party which is owned or controlled by nationals or citizens of a third state and which has no substantial business activity in the area of the Contracting Party in which it is organized (Article 14). Transition provisions in Article 32 of the ECT allow certain countries to delay full compliance with certain provisions of Part III. The investment provisions in Part III are also subject to exceptions relating to taxation (Article 21), general exceptions, including for measures taken on grounds of national security and public order (Article 24), and an exception for regional economic integration agreements (Article 25).

Article 5 in Part II of the ECT ("Commerce") contains rules on trade-related investment measures which essentially incorporate the provisions of the WTO Agreement on Trade-Related Investment Measures. Thus, Article 5(1) of the ECT prohibits the application of any trade-related investment measure which is inconsistent with the provisions of Articles III or XI of the GATT. Article 5(3) stipulates that this prohibition is not to be construed to prevent a Contracting Party from applying the trade-related investment measures described in Article 5(2) as a condition for eligibility for export promotion, foreign aid, government procurement or preferential tariff or quota programmes. The list of measures covered by this prohibition in Article 5(2) is similar to the list contained in the annex to the Agreement on Trade-Related Investment Measures. An annex to the ECT lays down a mechanism for the notification and phase-out of trade-related investment measures that are inconsistent with Article 5. The transition period for the phase-out of these measures will start on the date of entry into force of the ECT.

Dispute settlement mechanisms in the ECT provide for arbitration of intergovernmental disputes concerning the application or interpretation of the ECT (Article 27) and arbitration of disputes between a Contracting Party and an investor of another Contracting Party concerning an alleged breach by the former of an obligation under Part III (Article 26 ). In the latter regard, the investor can choose between arbitration under the ICSID Convention, arbitration in accordance with the UNCITRAL arbitration rules, or arbitration under the Arbitration Institute of the Stockholm Chamber of Commerce. Article 26 explicitly provides for the advance, unconditional consent of Contracting Parties to the submission of such a dispute to international arbitration but permits certain limitations to this unconditional consent in the case of Contracting Parties listed in annexes to the ECT. Annex ID lists Contracting Parties which do not consent to international arbitration of a dispute if the investor has previously submitted the dispute to a domestic court. Annex IA lists Contracting Parties which do not consent to international arbitration of disputes involving the provision in Article 10 concerning the observance by a Contracting Party of obligations entered into with respect to an investor or an investment. The arbitration mechanism contained in Article 27 of the ECT for the settlement of disputes between Contracting Parties is not applicable to disputes concerning Article 5 unless the Contracting Parties so agree (Article 29). However, Article 10(11) allows for the invocation of the investor-state arbitration procedure of Article 26 in regard to the application of trade-related investment measures inconsistent with Article 5.

Rules regarding investment promotion and protection set forth in Articles 158-162 of the COMESA Treaty Supra, paragraph 28 require the member States to: (a) accord fair and equitable treatment to private investors; (b) adopt a programme for the promotion of cross-border investment; (c) create and maintain a predictable, transparent and secure investment climate; (d) remove administrative, fiscal and legal restrictions to intra-Common Market investment; and (e) accelerate the deregulation of the investment process. Subject to the accepted principle of public interest, member States are required to refrain from nationalizing or expropriating private investment and to pay adequate compensation in the event private investment is nationalized or expropriated. The Treaty also defines rights of private investors with respect to transfers of investment-related funds and requires member States to conclude between themselves agreements on the avoidance of double taxation and to take steps to accede to multilateral investment agreements, notably the ICSID and MIGA Conventions.

A number of regional and plurilateral agreements exist which, instead of directly incorporating the full range of investment protection and dispute settlement provisions typically found in bilateral investment treaties, envisage the conclusion of such bilateral treaties between the parties. An example of this approach is the Fourth ACP (Lomé) Convention. Chapter 3 of this Convention, which is part of Title III on development finance cooperation, sets forth general principles regarding the treatment of foreign investment, such as the requirement to accord fair and equitable treatment, and envisages that more specific regulation of policies on foreign investment will be dealt with through the negotiation of bilateral agreements between the Contracting Parties. With a view to facilitating the negotiation of such agreements, a Joint Declaration in Annex LIII of the Convention provides that the Contracting Parties will undertake a study of the main clauses of a model bilateral investment agreement. In this connection, a statement on Investment Protection Principles in the ACP States was adopted by the European Community in November 1992. Various recent agreements of the European Community with third countries also refer to the possible conclusion of bilateral investment treaties between member States of the European Community and the third countries in question. In addition to the Europe Agreements and the Partnership and Cooperation Agreements, references to the future conclusion of bilateral investment treaties appear in, for example, the Cooperation Agreement between the European Community and the Kingdom of Nepal (1995), Article 10; the Interregional Framework Cooperation Agreement between the European Community and its Member States, of the one part, and the Southern Common Market and its Party States, of the other part (1995), Article 12, and the Framework Cooperation Agreement leading ultimately to the establishment of a political and economic association between the European Community and its Member States, of the one part, and the Republic of Chile, of the other part (1996), Article 15.

In the context of the Asia-Pacific Economic Cooperation (APEC), norms of a legally non-binding nature relating to the admission, treatment and protection of foreign investment have been adopted in the APEC Non-Binding Investment Principles (1994). Principles of a general nature state that Member economies will ensure transparency with respect to laws, regulations and policies affecting foreign investment; extend MFN treatment to investors from any economy with respect to the establishment, expansion and operation of their investments; and accord national treatment to foreign investors in relation to the establishment, expansion, operation and protection of foreign investment, with exceptions as provided for in domestic laws, regulations and policies. More specific Principles provide that Member economies will not relax health, safety and environmental regulations as an incentive to encourage foreign investment; minimize the use of performance requirements that distort or limit expansion of trade and investment; and permit the temporary entry and sojourn of key personnel for the purpose of engaging in activities connected with foreign investment, subject to relevant laws and regulations. Member economies will not expropriate foreign investments or take measures that have a similar effect, except for a public purpose, on a non-discriminatory basis, in accordance with the laws of each economy and principles of international law, and against the prompt payment of adequate and effective compensation, and will further liberalize towards the goals of the free and prompt transfer of funds related to foreign investments in freely convertible currency. Member economies will also endeavour to avoid double taxation. On dispute settlement, the Principles state that Members accept that disputes arising in connection with a foreign investment will be settled promptly through consultations and negotiations between the parties to the dispute or, failing this, through procedures for arbitration in accordance with Members' international commitments or through other arbitration procedures acceptable to both parties. With regard to investor behaviour, the Principles provide that acceptance of foreign investments is facilitated when foreign investors abide by the host economy's laws, regulations, administrative guidelines and policies. Finally, the Principles state that Member economies accept that regulatory and institutional barriers to the outflow of investment will be minimized.

III.1.3 Rules on investment from third countries

In the context of the Andean Community Member States are Bolivia, Colombia, Ecuador, Peru and Venezuela., rules aiming at the harmonization of investment policies of member countries towards investment from third countries were first adopted in 1970. The currently applicable regime appears in Decision 291 of the Commission of the Cartagena Agreement Common Code for the Treatment of Foreign Capital and on Trademarks, Patents, Licences and Royalties (1991). This Decision provides that foreign investors shall have the same rights and obligations as national investors, except as otherwise provided in the legislation of each member country, and eliminates the previously existing requirement to subject foreign investment to an authorization procedure. It also removes restrictions contained in the previous rules on the transfer of funds by obligating member countries to permit foreign investors and subregional investors to remit abroad in convertible currency the verified net profits derived from foreign direct investment and the proceeds from the sale or liquidation of such investment. A third important change effected by the Decision is the removal of restrictions on access of products produced by foreign enterprises to the benefits from the trade liberalization under the Cartagena Agreement. Prior to the adoption of this Decision, such products could benefit from this trade liberalization only if the foreign enterprise undertook to convert into a joint or national enterprise. Aside from these provisions on rights and obligations of foreign investors, the Decision contains rules requiring the registration of contracts for imports of technology and prohibiting the inclusion of certain kinds of restrictive clauses in such contracts.

In August 1994, Member States of the MERCOSUR adopted a Protocol on Promotion and Protection of Investments from States not Parties to MERCOSUR. The States Parties to this Protocol undertake not to accord to investments of investors of third countries more favourable treatment than that provided for in the Protocol. Each State Party is required to promote investments from third countries and to admit them in conformity with its domestic laws and regulations. In respect of the treatment of established investments, the Protocol lays down general standards of treatment which are similar to those contained in the Colonia Protocol, except that the States Parties enjoy discretion to decide whether or not to accord national treatment and MFN treatment to established investments of investors of third countries. States Parties to the Protocol may not extend to investors of third countries treatment, preferences or privileges accorded under regional trade and integration agreements or agreements in the field of taxation. The Protocol contains no provisions on performance requirements. Provisions on expropriation, compensation for losses and transfer of funds are comparable but in some cases less detailed than the corresponding provisions of the Colonia Protocol. International arbitration is provided for in regard to the settlement of disputes between a State Party and a third state which has not been settled by diplomatic means. The Protocol allows investors of third countries to submit a dispute with a State Party to international arbitration before an ad hoc arbitral tribunal or in the framework of an international arbitration institution.

As noted previously, the Treaty Establishing the European Community, as amended by the 1992 Treaty on European Union, contains a prohibition of restrictions on movement of capital and payments which applies not only to transactions between member States but also to transactions between member States and third countries.

III.1.4 Rules on status of regional enterprises and cooperative arrangements

Several regional agreements aim at fostering cooperation between firms of member States by establishing a special legal regime for the formation of a regional, transnational form of business enterprises or for cooperative arrangements between enterprises from the member States. For example, the Uniform Code on Andean Multinational Enterprises established by Decision 292 of the Commission of the Cartagena Agreement provides for the formation of Andean Multinational Enterprises. One of the conditions for the creation of such an enterprise is that capital contributions by national investors of two or more member countries must make up more than 60 per cent of the capital of the enterprise. Among the privileges which the Decision requires member countries to grant to such enterprises are national treatment with respect to government procurement, export incentives and taxation, the right to participate in economic sectors reserved for national companies, the right to open branches in any member country, and the right of free transfer of funds related to investments. The Basic Agreement on the ASEAN Industrial Cooperation Scheme (AICO Scheme) was concluded by members of ASEAN in 1996 to promote joint manufacturing industrial activities between ASEAN-based companies. This Agreement supersedes two other ASEAN agreements in the field of industrial cooperation, namely the Basic Agreement on ASEAN Industrial Joint Ventures (1987) and the Memorandum of Understanding on the Brand-to-Brand Complementation Scheme (1988). It provides for privileges in the form of preferential tariff treatment, local content accreditation and other non-tariff incentives for products produced or used in cooperative arrangements involving companies from different ASEAN countries. In order to qualify for participation in this scheme, companies must be incorporated and operating in any ASEAN country, have a minimum of 30 per cent national equity and undertake resource sharing, industrial complementation or industrial cooperation activities. The COMESA Treaty (1993) contains a commitment of Member States to promote and encourage the establishment of multinational industrial enterprises as part of provisions on cooperation in industrial development. In the context of the European Community, the adoption of a Council Regulation to establish a statute of a European Company has been suggested on several occasions since the 1970s but so far no action has been taken on this matter.

III.2 Investment rules established in a context dedicated to investment

In the framework of the Organization for Economic Cooperation and Development (OECD), Codes of Liberalisation of Capital Movements and Current Invisible Operations were adopted in 1961 as legally binding decisions of the OECD Council which obligate member countries to progressively liberalize between one another restrictions on movements of capital movements and current account transactions. The item relating to direct investment "Direct investment" is defined in the Code as "investment for the purpose of establishing lasting economic relations with an undertaking such as, in particular, investments which give the possibility of exercising an effective influence on the management thereof ... by means of ... creation or extension of a wholly-owned enterprise, subsidiary or branch, acquisition of full ownership of an existing enterprise; participation in a new or existing enterprise; or a loan of five years or longer". in the Annexes to the Capital Movements Code was amended in 1984 to include an obligation to accord national treatment with regard to the establishment of such investment. The amendment provides that: "The authorities of Members shall not maintain or introduce: regulations or practices applying to the granting of licences, concessions, or similar authorizations, including conditions or requirements attaching to such authorizations and affecting the operation of enterprises, that raise special barriers or limitations with respect to non-resident, (as compared to resident) investors, and that have the intent or the effect of significantly impeding inward direct investment by non-residents." The Codes allow for country-specific reservations and contain temporary derogations, including in the event of adverse balance-of-payments developments, and exceptions for measures taken on grounds of public order and security, measures taken pursuant to obligations under existing multilateral agreements and measures applied by members forming part of special customs or monetary systems. The implementation of the Codes by individual member countries is reviewed in the OECD Committee on Capital Movements and Invisible Transactions.

While the Codes of Liberalisation govern the entry of investment, a separate OECD National Treatment Instrument deals with the treatment of investment after its admission. This National Treatment Instrument is one of four components of a non-legally binding Declaration on International Investment and Multinational Enterprises (1976). The Declaration was most recently revised in 1991. See OECD, The OECD Declaration and Decisions on International Investment and Multinational Enterprises - 1991 Review (Paris, 1992). It provides that member countries should, consistent with their needs to maintain public order, to protect their essential security interests and to fulfil commitments relating to international peace and security, accord to enterprises operating in their territories and owned or controlled directly or indirectly by nationals of another member country treatment consistent with international law and no less favourable than that accorded in like situations to domestic enterprises. The OECD publication, National Treatment For Foreign-Controlled Enterprises (Paris, 1993) discusses the interpretation of the national treatment commitment and contains lists of measures notified by OECD member countries as exceptions to national treatment or for transparency purposes. Several non-OECD member countries recently adhered to this National Treatment Instrument. Notification and examination of exceptions to this national treatment commitment take place in the context of the OECD Committee on International Investment and Multinational Enterprises in accordance with procedures adopted in 1991.

The second component of the OECD Declaration on International Investment and Multinational Enterprises is the Guidelines for Multinational Enterprises, which lay down non-legally enforceable standards for the activities of multinational enterprises operating in different member countries. The Guidelines address matters of a general nature, such as the need to take fully into account policy objectives of member countries, to favour close cooperation with the local community and business interests, and to refrain from bribery and improper political activity, and set forth more specific standards pertaining to disclosure of information, competition, financing, taxation, employment and industrial relations, environmental protection, and science and technology. An OECD Council Decision taken in 1991 requires member countries to establish national contact points for undertaking promotional activities, handling inquiries and for discussions with the parties concerned on matters related to the Guidelines. The third component of the Declaration contains a commitment of member countries to cooperate in order to avoid or minimize the imposition of conflicting requirements on multinational enterprises. In this connection, it sets forth considerations to be taken into account by member countries when contemplating the adoption of measures which may conflict with legal requirements or established policies of other member countries and provides for notification and consultation. Finally, the Declaration urges member countries to give due weight to the interests of other member countries affected by investment incentives and disincentives and to endeavour to make such measures as transparent as possible. The OECD Committee on International Investment and Multinational Enterprises is the forum for discussion of the implementation of the Guidelines for Multinational Enterprises and for consultations on conflicting requirements and investment incentives and disincentives.

A Unified Agreement for the Investment of Arab Capital in the Arab States was concluded in 1980 by member States of the league of Arab States. The Agreement entered into force in 1981 and has been ratified by all member States of the Arab League except Algeria and the Comoros. It lays down minimum standards for the treatment of Arab investors, including non-discrimination, freedom to make transfers related to investments, protection against expropriatory measures and right of entry and residence of investors and their employees. Disputes arising under this Agreement between member States or between a member State and an investor may be submitted to conciliation, ad hoc arbitration or to an Arab Investment Court established under the Agreement. The Agreement also stipulates that the Inter-Arab Investment Guarantee Corporation, which was established in 1971, shall provide insurance for investments made pursuant to the Agreement.

The Agreement on Promotion, Protection and Guarantee of Investments among Member States of the Organization of the Islamic Conference (1981) This Agreement entered into force in 1986. requires Contracting Parties to admit investments by nationals of other Contracting Parties "in the fields permitted for investments in accordance with their laws", to accord such investments adequate protection and security, and to accord MFN treatment to established investors (Article 7). The MFN obligation is subject to several exceptions, including regional integration and taxation agreements. The Agreement prohibits expropriation of investments, except if expropriation occurs in the public interest in accordance with the law, without discrimination, on prompt payment of adequate and effective compensation in accordance with the laws of the host state regulating such compensation and on condition that the investor has the right to contest the measure of expropriation in the competent court of the host state (Article 10), and obliges Contracting Parties to guarantee free transfers relating to investments within specified periods of time (Article 11). With respect to dispute settlement, the Agreement provides for conciliation and ad hoc arbitration (Article 17). Resort to domestic courts pursuant to Article 16 and resort to arbitration pursuant to Article 17 are mutually exclusive. While most of the Agreement's provisions deal with the treatment of foreign investors, it also includes a provision setting forth certain obligations of investors. Article 9 stipulates that investors shall be bound by the laws and regulations in force in the host state, shall refrain from acts that may disturb public order or morals or that may be prejudicial to the public interest, and shall refrain from exercising restrictive practices and from trying to achieve gains through unlawful means. An investment insurance scheme, which was envisaged in Article 15 of this Agreement, was created in 1992 when members of the Islamic Organization concluded the Articles of Agreement of the Islamic Corporation for the Insurance of Investment and Export Credit. Investment insurance can be provided under this Agreement in respect of non-commercial risks relating to losses resulting from restrictions on currency transfers, expropriation and similar measures, breach of contract, and war and civil disturbance.

IV. MULTILATERAL AGREEMENTS

IV.1 Instruments containing substantive norms

Substantive norms for the treatment of foreign investment are contained in the World Bank Guidelines on the Treatment of Foreign Direct Investment. These Guidelines, which are not legally binding, were developed in the World Bank Group following a request in April 1991 by the IMF-World Bank Development Committee for the preparation of a report on "an overall legal framework which would embody the essential legal principles so as to promote foreign direct investment" and were "called to the attention" of the members of the World Bank Group by the Development Committee in September 1992. A detailed explanation of the Guidelines is contained in the accompanying Report to the Development Committee on the Legal Framework for the Treatment of Foreign Investment. See International Legal Materials, Vol. 31 (1992), p.1368. The Guidelines comprise five sections. The first Guideline explains that the Guidelines are intended to be used by members as a complement to applicable bilateral and multilateral treaties and other international instruments and as a possible source on which national legislation governing private foreign investment may draw. They apply to existing and new investments established and operating as bona fide private foreign investments in full conformity with the laws and regulations of the host state and are based on the general premise that equal treatment of investors in similar circumstances and free competition among them are prerequisites of a positive investment environment. The second Guideline, while recognizing the right of each State to make regulations governing the admission of investments, encourages States to facilitate the admission of investments by nationals of other States and to adopt an approach of open admission, possibly subject to a restricted list of investments, which are either prohibited or require screening and licensing, as being more effective than an approach involving the imposition of performance requirements as a condition for the admission of foreign investment. By way of exceptions to this preferred approach, a State may refuse admission of foreign investment on grounds of national security or in respect of sectors reserved by the law of a State to its nationals on account of the State's economic development objectives or the strict exigencies of its national interest.

The treatment of established foreign investments is the subject of the third Guideline, which contains recommendations regarding fair and equitable treatment, national treatment, full protection and security, MFN treatment Subject to an exception for customs unions and free trade area agreements, the prompt issuance of licences and permits and the prompt granting of concessions, authorization of the employment of foreign personnel, freedom to make transfers relating to investments With respect to transfers relating to the liquidation or sale of investments, the Guideline provides that in exceptional cases where States face foreign exchange stringencies such transfers may be made in instalments within a period which will be as short as possible and will not in any case exceed five years from the date of liquidation or sale., and prevention and control of corrupt business practices. This Guideline also urges caution in respect of the use of investment incentives Guideline III(9) states:

Nothing in this Guideline suggests that a State should provide foreign investors with tax exemptions or other fiscal incentives. Where such incentives are deemed to be justified by the State, they may to the extent possible be automatically granted, directly linked to the type of activity to be encouraged and equally extended to national investors in similar circumstances. Competition among States in providing such incentives, especially tax exemptions, is not recommended. Reasonable and stable tax rates are deemed to provide a better incentive than exemptions followed by uncertain or excessive rates. and encourages developed and capital surplus States to adopt appropriate measures to facilitate investment flows to developing countries, including taxation agreements, investment guarantees and technical assistance. The fourth Guideline provides that a State may not expropriate or otherwise take in whole or in part a foreign private investment in its territory or take measures having similar effects, except where this is done in accordance with applicable legal procedures, in pursuance in good faith of a public purpose, without discrimination on the basis of nationality and against payment of appropriate compensation. It defines "appropriate" as "adequate, effective and prompt" and sets forth specific criteria for determining the conformity of the payment of compensation with each of these three standards. These provisions on expropriation and compensation also apply to the unilateral termination or alteration by a state of a contract with a foreign investor for other than commercial reasons. The Guideline allows for exceptions to the requirements regarding payment of compensation if investments are expropriated as a sanction for a violation of the host state's laws or regulations, as determined by a court of law, and in case of comprehensive, non-discriminatory nationalizations effected in the process of large-scale social reforms under exceptional circumstances of revolution, war and similar exigencies. The fifth Guideline recommends that disputes between private foreign investors and host states be settled through negotiations between them, and failing this, through national courts or through other agreed mechanisms, including conciliation and binding independent arbitration. In the latter regard, each State is encouraged to accept the settlement of such disputes through arbitration under the ICSID Convention, if it is a party to that Convention, or the ICSID Additional Facility Rules, if it is not a party to that Convention.

The ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy was adopted in 1977 and took effect in 1978. The Declaration contains principles recommended to governments, employers' and workers' organizations of home and host countries and to multinational enterprises. These principles pertain to general policies, employment, training, conditions of work and life and industrial relations. In 1986, the ILO adopted a procedure for the examination of disputes concerning the application of the Tripartite Declaration.

Matters related to foreign investment, including standards concerning expropriation and compensation, have been the subject of a number of resolutions adopted by the General Assembly of the United Nations in the 1960s and 1970s. Resolution 1803 (XVII): Permanent Sovereignty over Natural Resources (1962); Resolution 3202 (S-VI): Programme of Action on the Establishment of a New International Economic Order (1974); and Resolution 3281 (XXIX): Charter of Economic Rights and Duties of States (1974) In 1980, the General Assembly adopted the Set of Multilaterally Agreed Principles and Rules for the Control of Restrictive Business Practices.

IV.2 Dispute settlement While this section only covers instruments of an intergovernmental nature, it should be noted that international investment agreements sometimes allow for arbitration under rules established in the context of non-governmental entities, such as the International Chamber of Commerce.

The Convention on the Settlement of Investment Disputes between States and Nationals of Other States, concluded in 1965 The Convention entered into force in 1966. It has been accepted by 129 States. (ICSID Convention), established an International Centre for Settlement of Investment Disputes under the aegis of the World Bank to provide facilities for the resolution of disputes between States and foreign investors. The Convention contains provisions on the functions, organization and jurisdiction of the Centre and on procedures for conciliation and arbitration proceedings. While the Centre performs various administrative functions, for example with respect to the initiation of proceedings, the actual conciliation and arbitration proceedings are conducted by conciliation commissions and arbitral tribunals which are constituted for each specific dispute. Acceptance of the ICSID Convention does not by itself imply an obligation for a Contracting State to accept the jurisdiction of the Centre as the dispute settlement mechanisms provided for in the Convention apply only to disputes which the parties have consented in writing to submit to the Centre (Article 25). This required consent in writing can be expressed in specific arbitration agreements or arbitration clauses in contracts between states and foreign investors but can also result on the part of host governments from unilateral commitments in foreign investment laws and from arbitration clauses in international investment agreements. As noted previously, references to dispute settlement under the ICSID Convention appear in a large number of bilateral, regional and plurilateral investment agreements.

While the task of a conciliation Commission established under the ICSID Convention is to clarify the issues in dispute between the parties and to endeavour to bring about agreement between them upon mutually acceptable terms, an arbitral tribunal is to decide a dispute in accordance with rules of law. Article 42 of the Convention provides that the arbitral tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties and that, in the absence of such agreement, it shall apply the law of the Contracting State party to the dispute (including its rules on conflict of laws) and such rules of international law as may be applicable. Consent to arbitration under the ICSID Convention is deemed to exclude recourse to any other remedy (Article 26). In addition, a home state of an investor is in principle precluded from giving diplomatic protection or bringing an international claim, in respect of a dispute which one of its nationals and another Contracting State have consented to submit to arbitration under the Convention (Article 27). Arbitral wards are binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in the Convention itself. This refers to the provisions in Articles 50-52 of the Convention on interpretation, revision and annulment of awards. Moreover, each Contracting State is required to recognize an arbitral award rendered pursuant to the Convention as binding and enforce the pecuniary obligations imposed by that award within its territory as if it were a final judgement of a court in that State (Article 53).

To date, 43 disputes have been submitted for resolution under the ICSID Convention, involving 40 arbitration cases and three conciliation cases. Two disputes were recently referred for arbitration under the ICSID Additional Facility Rules which were adopted in 1978 to allow ICSID to administer disputes falling outside the scope of the ICSID Convention, including disputes where one of the parties is not a Contracting State or a national of a Contracting State. Twelve cases are currently pending before the Centre. The majority of the other cases have been settled by agreements between the parties. Resort to ICSID has become more frequent in recent years. The ICSID secretariat has observed that two thirds of all cases brought before the Centre have been initiated since the mid-1980s and considers that this increase in case load is explained in large measure by the recent proliferation of investment treaties which contain provisions for recourse to ICSID. WT/WGTI/W/5, p.20. A list of investment disputes registered by ICSID in the period January 1993April 1997 is reproduced on pp.20-26 of the same document. This is also evidenced by the fact that four out of six disputes registered by ICSID in fiscal year 1997 were referred to the Centre on the basis of arbitration clauses of investment treaties, including the NAFTA.

Arbitration Rules and Conciliation Rules of the United Nations Commission on International Trade Law, adopted in 1976 and 1980, respectively, aim to facilitate the conduct of commercial dispute resolution by providing internationally accepted procedural norms which can be used by parties to a dispute in the context of ad hoc arbitration or conciliation. Unlike the ICSID Convention, they do not establish an institutional mechanism and are not specifically designed for use in disputes between states and foreign investors. Although the primary significance of these rules lies in their contribution to the international harmonization of rules for arbitration and conciliation of commercial disputes, several recent investment agreements, including NAFTA and the Energy Charter Treaty, provide for ad hoc arbitration pursuant to the UNCITRAL rules as one of the methods for the resolution of investor-state disputes.

The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (New York Convention) The Convention entered into force in 1959 and has been accepted by 106 States. provides for the recognition and enforcement in the territory of one Contracting State of arbitral awards made in the territory of another Contracting State. It not only requires Contracting States to recognize and enforce foreign arbitral awards (Article III) but also to recognize a written agreement to submit a dispute to arbitration, which entails an obligation for national courts of Contracting States not to intervene in such a dispute (Article II). The Convention specifies the method for obtaining recognition and enforcement of awards (Article IV) and defines several grounds on which such recognition and enforcement may be refused (Article V). Investor-state arbitration clauses of a number of international investment agreements explicitly refer to the New York Convention so as to ensure the ability of parties to obtain recognition and enforcement of arbitral awards.

IV.3 Investment insurance

The Convention Establishing the Multilateral Investment Guarantee Agency (MIGA Convention) (1985) The MIGA Convention entered into force in 1988. As of December 1997, there were 143 Contracting States. aims to facilitate foreign investment flows to developing countries by providing a multilateral investment insurance scheme against non-commercial risks in developing countries as a complement to national, regional and private investment insurance schemes. Investment guarantees may be issued by MIGA against losses resulting from restrictions on currency transfers, expropriation and similar measures, breach of contract by a host country government, and war and civil disturbance. In addition to providing direct insurance, MIGA also cooperates with national and regional investment insurance entities through reinsurance and coinsurance arrangements. The Convention provides that, in guaranteeing an investment, MIGA must satisfy itself as to the economic soundness of the investment and its contribution to the development of the host country; compliance of the investment with the host country's laws and regulations; consistency of the investment with the declared development objectives and priorities of the host country; and the investment conditions in the host country, including the availability of fair and equitable treatment and legal protection for the investment. With respect to the last condition, MIGA's Operational Regulations explain that an investment will be regarded as having adequate legal protection if it is protected under the terms of a bilateral investment treaty between the host country and the home country of the investor. In the absence of such a treaty, the existence of adequate legal protection should be ascertained in the light of the consistency of the law and practice of the host country with international law. Apart from the provision of investment guarantees, the Convention requires MIGA to undertake activities with respect to investment promotion. These include research, activities to promote investment opportunities in developing member countries, technical assistance to improve the investment conditions in individual members, the encouragement of the amicable settlement of disputes between investors and host countries and the promotion of the conclusion of bilateral investment treaties among members. Detailed factual information on investment guarantees issued by MIGA and on MIGA's investment promotion activities was provided by the representative of the World Bank at the first meeting of the Working Group. See document WT/WGTI/W/5, pp.11-16.

__________