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Investment Policy Blog

IPAs have a role to play not only in identifying regulatory and administrative barriers to investment and in helping investors overcome those barriers, but also in pushing or leading efforts to break down barriers (e.g. by simplifying rules and procedures).

See also National Investment Policy Guidelines: Article 2. Investment regulation and promotion

Federico Ortino Posted on 14 June 2012, at 5:01 PM

In identifying the role of IPAs vis-a-vis regulatory and administrative barriers, it is crucial to define the notion of a regulatory/administrative barrier. Potentially, a regulatory barrier may be any law or regulation but I suspect that IPAs should not simply be aimed at identifying and 'breaking down' any such laws or regulation. Or should it? If not, then, what is a regulatory or administrative barrier that needs to be broken down? Is it just a matter of simplifying rules and procedures? Or is it one of identifying those barriers that discriminate against foreign investment, or more generally barriers that are arbitrary, irrational or ineffective?

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Jorge Vinuales [ The Graduate Institute, Geneva ] Posted on 16 June 2012, at 12:39 PM

One point that has received little elaboration is the scope of investment treaties. The requirement appearing in some of them that investments be made in accordance with domestic law has been given little effect by tribunals (mostly where there is a glaring breach of domestic law which could well be covered by more extreme defences such as ordre public international). Yet, this is an important clause. This 'gateway' to the use of the treaty should be given proper effect and investment agencies could like the protection of the treaty to an investment license. This investment license could, in turn, be conditioned on the respect of some minimal requirements arising not only from investment law but from other common sense sources, such as the prior conduct of an environmental impact assessment. When these different requirements are not coordinated investors are unclear of what they should be doing to fall under the protection of the treaty and host States often get into trouble. It is however important that these clauses (and, as a result, the domestic processes that are relevant to it) be given a proper place. No one would have expected such an expansive interpretation of clauses such as 'umbrella clauses' or 'MFN'. A similar elaboration has yet to be made for 'in accordance with domestic law' clauses. One which strikes a satisfactory balance between legal certainty and regulatory duties.

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Claudia Salgado [ PhD Student, IHEID ] Posted on 16 July 2012, at 3:43 PM

I agree with Jorge Viñuales. IIAs containing the “investments in accordance with the host state laws” clause emphasize that the enjoyment of the investor’s rights under the IIA, including the dispute settlement mechanism, is subject to the compliance of the municipal laws, regulations and administrative procedures, mainly at the admission stage of the investment. In this context, investment agencies play a fundamental role in providing a transparent and clear framework for the admission and establishment of investments. Otherwise, the lack of clarity of the legal and regulatory framework may be attributable to the host state, and hence the investor may be justified from the inobservance of the laws and regulations of the host State. Further, the lack of clarity and transparency may even be considered a breach of treaty provisions, such as FET (i. e. Occidental Exploration and Production Company v. The Republic of Ecuador, LCIA Case No UN 3467, IIC 202 (2004), Award 01 July 2004, § 184).

Additionally, states, through investment agencies, may exercise their sovereign right to accept and to regulate the entry of foreign investment into their territories, or to refuse it. Domestic laws and regulations may impose some operational requirements, screening procedures, limitations or restrictions on the sectors and activities to be invested by foreigners according to the economic and political policies of the host state.

On the other hand, I would say that IIAs that do not contain the “in accordance with the law” clause still require the investor to comply with the host state laws during the admission and the whole existence of the investment. Indeed, this is an implicit obligation that has been developed the past few decades with the aim that investors, moreover if they are multinationals, conduct themselves in accordance with the proper standards and observing fundamental principles which are generally embodied in the host state laws, and therefore are considered municipal law. For instance, in Plama Consortium Limited v. Republic of Bulgaria the arbitral tribunal considered that even if the Energy Charter Treaty does not contain a provision requiring an investment to be in conformity with a particular law, investments that violate national laws and general international law cannot be protected (Plama Consortium Limited v. Republic of Bulgaria, Award, 27 August 2008, § 138).

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Alejandro Faya [ Ministry of Economy ] Posted on 20 June 2012, at 3:17 AM

IPA’s have a very important role in identifying regulatory and administrative burdens, assuming they have a constant interaction with investors and get fresh and reliable inputs from their soft-landing and aftercare activities. However, it seems to me that the regulatory reform process (better and stronger regulation when needed, no regulation where it does not accomplish a specific public policy goal and in general diminishing the costs of compliance of bureaucratic filings and requirements), according to best international practices, is not the main responsibility of an IPA, but of a “regulatory oversight body” with full political support so it can exert strong powers over other governmental entities and regulators (those applying the “burdens”). The IPA, of course, should be one of the relevant entities and should be given a role in the overall process. Ex-ante tools (transparency, public consultation and cost-benefit mandatory analysis for instance) should also be used (in all levels) in order not to create new burdens.

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