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Policy Options for International Investment Agreements

This section contains the policy options for international investment agreements of the IPFSD. Users are invited to provide comments, suggestions, alternative drafting options or best practice experiences by clicking on "comment" at any level, i.e. sections, sub-sections or individual options. You can access the annotations to the policy options for international investment agreements by following the link below or download the complete annotations to the IPFSD.
  • Part A. Post-establishment
    The different sections of the table, starting with the preamble and closing with the final provisions, follow the order of articles as commonly found in IIAs. Where possible, the policy options are organized along a scale ranging from i) the most investor-friendly or most protective to ii) the options granting more flexibility to the State, balance and/or legal precision. In some sections, two or more policy options can be combined.
  • 1. Preamble
    … sets out objectives of the treaty and the intentions of the Contracting Parties
    • 1.1.0
      Refer to the objective of creating and maintaining favourable conditions for investment and intensifying economic cooperation between the Parties.
    • 1.1.1
      Clarify that the Parties conclude this IIA with a view to - attracting and fostering responsible inward and outward foreign investment that contributes to SD - promoting good governance.
    • 1.1.2
      Clarify that the investor protection objectives shall not override States' right to regulate in the public interest as well as with respect to certain important policy goals, such as: - SD - protection of human rights - maintenance of health, labour and/or environmental standards - corporate social responsibility and good corporate governance.
    • 1.1.3
      Indicate that the promotion and protection of investments should be pursued in compliance with the Parties' obligations under international law including in particular their obligations with respect to human rights, labour rights and protection of the environment.
    • Sustainable development (SD) implications
      The treaty preamble does not set out binding obligations but plays a significant role in interpreting substantive IIA provisions. When a preamble refers to the creation of “a stable framework for investments” or “favourable conditions for investments” as the sole aim of the treaty (i.e. if the IIA only refers to those objectives), tribunals will tend to resolve interpretive uncertainties in favour of investors. In contrast, where a preamble complements investment promotion and protection objectives with other objectives such as SD, the Millennium Development Goals (MDGs) or the Contracting Parties’ right to regulate, this can lead to more balanced interpretations and foster coherence between different policy objectives/bodies of law.
  • 2. Treaty scope
    … defines the investment and investors protected under the treaty and its temporal application
    • 2.1 Definition of investment
      … sets out the types of investment covered by the treaty
      • 2.1.0
        Offer coverage of any tangible and intangible assets in the host State (through an illustrative/open-ended list), directly or indirectly owned/controlled by covered investors.
      • 2.1.1
        Compile an exhaustive list of covered investments and/or exclude specific types of assets from coverage, e.g.: - portfolio investment - sovereign debt instruments - commercial contracts for the sale of goods or services - assets for non-business purposes - intellectual property rights not protected under domestic law.
      • 2.1.2
        Require investments to fulfil specific characteristics, e.g. that the investment: - involves commitment of capital, expectation of profit and assumption of risk - involves assets acquired for the purpose of establishing lasting economic relations - must be made in "accordance with host country laws and regulations" - delivers a positive development impact on the host country (i.e. Parties could list specific criteria according to their needs and expectations).
      • Sustainable development (SD) implications
        A traditional open-ended definition of “investment” grants protection to all types of assets. It may have the strongest attraction effect but can end up covering economic transactions not contemplated by the Parties or investments/assets with questionable SD contribution. It may also expose States to unexpected liabilities. States may want to tailor their definition of investment to target assets conducive to SD by granting protection only to investments that bring concrete benefits to the host country, e.g. long-term capital commitment, employment generation etc. To that effect, the Parties may wish to develop criteria for development-friendly investments. A treaty may further specifically exclude certain types of assets from the definition of "investment" (e.g. portfolio investment - which can include short-term and speculative investments - or intellectual property rights that are not protected under domestic legislation).
    • 2.2 Definition of investor
      … sets out the types of investors protected under the treaty
      • 2.2.0
        Offer coverage of any natural and legal persons originating from the other Contracting Party. With respect to legal entities, cover all those established in the other Contracting Party.
      • 2.2.1
        Exclude certain categories of natural or legal persons from treaty coverage, e.g.: - investors with double nationality (of which one is the host country nationality) - permanent residents of the host country - legal entities that do not have their seat or any real economic activity in the home country.
      • 2.2.2.
        Include a denial-of-benefits clause that enables the host State to deny treaty protection to: - legal entities that are owned/controlled by third-country nationals or host State nationals and that do not have real economic activity in the home Party ("mailbox" companies) - legal entities owned/controlled by investors from countries with which the host country does not have diplomatic relations or those countries that are subject to an economic embargo.
      • Sustainable development (SD) implications
        A broad definition of “investor” can result in unanticipated or unintended coverage of persons (natural or legal). For example, if a treaty determines the nationality of a legal entity solely on the basis of the place of incorporation, it creates opportunities for treaty shopping or free riding by investors not conceived to be beneficiaries (e.g. a third-country/host-country investor may channel its investment through a “mailbox” company established in the territory of a Party, in order to obtain treaty protection). A related set of issues arises with respect to dual nationals where one nationality is that of the host State. There are various options to narrow the range of covered persons. For example, to eliminate the risk of abuse and enhance legal predictability, a treaty may add a requirement that a company must have its seat in the home State and carry out real economic activities there. An alternative is to supplement the country-of-incorporation approach to determining nationality of a company with a denial-of-benefits clause.
    • 2.3 Exclusions from the scope
      … carve out specific policy areas and/or industries from the scope of the treaty
      • 2.3.0
        No exclusions.
      • 2.3.1
        Exclude specific policy areas from treaty coverage, e.g.: - subsidies and grants - public procurement - taxation.
      • 2.3.2
        Exclude specific sectors and industries from treaty coverage, e.g.: - essential social services (e.g. health, education) - specific sensitive industries (e.g. cultural industries, fisheries, nuclear energy, defence industry, natural resources).
      • Sustainable development (SD) implications
        The broader a treaty's scope, the wider its protective effect and its potential contribution to the attraction of foreign investment. However, a broad treaty also reduces a host State's policy space and flexibility and ultimately heightens its exposure to investors' claims. States can tailor the scope of the agreement to meet the country's SD agenda. By carving out specific policy areas and sectors/industries from treaty coverage, States preserve flexibility to implement national policies, such as industrial policies (e.g. to grant preferential treatment to domestic investors or to impose performance requirements), or to ensure access to essential/public services.
    • 2.4 Temporal scope
      … determines whether the treaty applies to investments and/or measures pre-dating the treaty
      • 2.4.0
        Extend the treaty scope to investments established both before and after the treaty's entry into force.
      • 2.4.1
        Limit temporal scope to investments made after the conclusion/entry into force of the treaty.
      • 2.4.2
        Clarify that the treaty shall not allow IIA claims arising out of any State acts which ceased to exist prior to the IIA's entry into force, even though it may still have an ongoing effect on the investor.
      • 2.4.3
        Clarify that the treaty shall not allow IIA claims based on measures adopted prior to conclusion of the treaty.
      • Sustainable development (SD) implications
        The treaty's scope will be widest if its application is extended to all investments, regardless of the time of their establishment in the host State. Another approach is to exclude already "attracted" (i.e. pre-treaty) investments: it could be seen as preventing free-riding by "old" investors but at the same time would result in discrimination between "old" and "new" investments. Moreover, this can create uncertainty with respect to re-investments by "old" investors. Policymakers should consider the effect of the treaty on State acts, adopted prior to the treaty's entry into force, but with a lasting effect: "continuing" breaches (e.g. maintenance of an earlier legislative provision which comes into conflict with treaty obligations), individual acts whose effects continue over time (e.g. effect of a direct expropriation on the former owner of the asset) and “composite” acts, i.e. a series of actions or omissions which, taken together, are wrongful. It is useful to provide additional language to clarify whether the treaty would cover or exclude such lasting acts or effects. An express provision that precludes application of the treaty to acts that ceased to exist before the treaty’s entry into force would enhance legal certainty, especially with regard to the period between the date of the treaty’s signature and its entry into force. This approach would nevertheless keep open to challenge those prior laws and regulations that come into contradiction with the new treaty once it enters into force. An alternative is to apply the treaty only to those measures that are adopted after the treaty's entry into force: this would automatically preclude all of the State’s earlier non-conforming measures from being challenged (e.g. preferential treatment to domestic investors in a particular industry in violation of the National Treatment obligation), eliminating the need to identify and schedule such measures individually.
  • 3. Admission
    … governs entry of investments into the host State (see also "Part B: Pre-establishment")
    • 3.1.0
      Provide that investments are admitted in accordance with domestic laws of the host State.
    • 3.1.1
      No clause.
    • Sustainable development (SD) implications
      Most IIAs provide for admission of investments in accordance with the host State's national laws. Thus, unlike in the treaties that belong to the "pre-establishment" type, in this case States do not give any international guarantees of admission and can change relevant domestic laws as they deem appropriate. However, the promise to admit investments in accordance with domestic law still has a certain value as it affords protection to investors in case a host State refuses admission in contradiction or by disregarding its internal laws.
  • 4. Standards of treatment and protection
    … prescribe the treatment, protection and rights which host States are required to accord foreign investors/investments
    • 4.1 National treatment (NT)
      … protects foreign investors/investments against discrimination vis-à-vis domestic investors
      • 4.1.0
        Prohibit less favourable treatment of covered foreign investors/investments vis-à-vis comparable domestic investors/investments, without restrictions or qualifications.
      • 4.1.1
        Circumscribe the scope of the NT clause (for both/all Contracting Parties), noting that it, e.g.: - subordinates the right of NT to a host country's domestic laws - reserves the right of each Party to derogate from NT - does not apply to certain policy areas (e.g. subsidies, government procurement).
      • 4.1.2
        Include country-specific reservations to NT, e.g. carve-out: - certain policies/measures (e.g. subsidies and grants, government procurement, measures regarding government bonds) - specific sectors/industries where the host countries wish to preserve the right to favour domestic investors - certain policy areas (e.g. issues related to minorities, rural populations, marginalized or indigenous communities) - measures related to companies of a specific size (e.g. SMEs).
      • 4.1.3
        Omit NT clause.
      • Sustainable development (SD) implications
        NT guarantees foreign investors a level-playing field vis-à-vis comparable domestic investors and is generally considered conducive to good governance. Yet under some circumstances, and in accordance with their SD strategies, States may want to be able to accord preferential treatment to national investors/investments (e.g. through temporary grants or subsidies) without extending the same benefits to foreign-owned companies. In this case, NT provisions need to allow flexibility to regulate for SD goals. For example, countries with a nascent/emerging regulatory framework that are reluctant to rescind the right to discriminate in favour of domestic investors can make the NT obligation “subject to their domestic laws and regulations”. This approach gives full flexibility to grant preferential (e.g. differentiated) treatment to domestic investors as long as this is in accordance with the country's legislation. However, such a significant limitation to the NT obligation may be perceived as a disincentive to foreign investors. Even more so, omitting the NT clause from the treaty may significantly undermine its protective value. There can be a middle ground between full policy freedom, on the one hand, and a rigid guarantee of non-discrimination, on the other. For example, States may exempt specific policy areas or measures as well as sensitive or vital economic sectors/industries from the scope of the obligation in order to meet both current and future regulatory or public-policy needs such as addressing market failures (this can be done either as an exception applicable to both Contracting Parties or as a country-specific reservation).
    • 4.2 Most-favoured nation (MFN) treatment
      … protects foreign investors/investments against discrimination vis-à-vis other foreign investors
      • 4.2.0
        Prohibit less favourable treatment of covered investors/investments vis-à-vis comparable investors/investments of any third country.
      • 4.2.1
        Limit the application of the MFN clause, noting that MFN does not apply to more favourable treatment granted to third-country investors under, e.g.: - Economic integration agreements - Double taxation treaties - IIAs concluded prior to (and/or after) the conclusion of the IIA in question (e.g. if the latter contains rules that are less favourable to investors, as compared to earlier IIAs) - ISDS clauses / procedural rights.
      • 4.2.2
        Limit the application of the MFN clause to treatment accorded to foreign investors under domestic laws, regulations, administrative practices and de facto treatment.
      • 4.2.3
        Include country-specific reservations to MFN, e.g. carve out: - certain policies/measures (e.g. subsidies, etc.) - specific sectors/industries - certain policy areas (e.g. issues related to minorities, rural populations, marginalized or indigenous communities).
      • Sustainable development (SD) implications
        The MFN provision ensures a level-playing field between investors from the IIA home country and comparable investors from any third country. However, competing objectives and implications may come into play when designing an MFN clause. While an MFN clause may be used to ensure upward harmonization of IIA treaty standards, it can also result in the unanticipated incorporation of stronger investor rights from IIAs with third countries and complicate conscious treaty design. This is particularly the case if the MFN clause extends to pre-establishment issues or when the treaty includes carefully balanced provisions that could be rendered ineffective by an overly broad MFN clause. An example of the latter are recent arbitral decisions that have read the MFN obligation as allowing investors to invoke more investor-friendly provisions from third treaties, e.g. to incorporate standards not included in the base treaty, to benefit from higher protection standards compared to the ones found in the base treaty or to circumvent procedural (ISDS-related) requirements in the base treaty. Should a country wish to preclude the MFN clause from applying to any relevant international agreement, it can do so by excluding specific types of instruments from the scope of the MFN clause (see section 4.2.1) or, in a broader manner, by restricting the scope of the MFN clause to domestic treatment (see section 4.2.2). Carving out certain sectors/industries or policy measures through country-specific reservations, catering for both current and future regulatory needs, is an additional tool that allows managing the scope of the MFN clause in a manner targeted to the specific needs of individual IIA Parties.
    • 4.3 Fair and equitable treatment (FET)
      ... protects foreign investors/investments against, e.g. denial of justice, arbitrary and abusive treatment
      • 4.3.0
        Give an unqualified promise to treat foreign investors/investments "fairly and equitably".
      • 4.3.1
        Qualify the FET standard by reference to: - minimum standard of treatment of aliens under customary international law (MST/CIL) - international law or principles of international law.
      • 4.3.2
        Include an exhaustive list of State obligations under FET, e.g. obligation not to - deny justice in judicial or administrative proceedings - treat investors in a manifestly arbitrary manner - flagrantly violate due process - engage in manifestly abusive treatment involving continuous, unjustified coercion or harassment - infringe investors' legitimate expectations based on investment-inducing representations or measures.
      • 4.3.3
        Clarify (with a view to giving interpretative guidance to arbitral tribunals) that: - the FET clause does not preclude States from adopting good faith regulatory or other measures that pursue legitimate policy objectives - the investor’s conduct (including the observance of universally recognized standards, see section 7) is relevant in determining whether the FET standard has been breached - the country’s level of development is relevant in determining whether the FET standard has been breached - a breach of another provision of the IIA or of another international agreement cannot establish a claim for breach of the clause.
      • 4.3.4
        Omit FET clause.
      • Sustainable development (SD) implications
        FET is a critical standard of treatment: while it is considered to help attract foreign investors and foster good governance in the host State, almost all claims brought to date by investors against States have included an allegation of the breach of this all-encompassing standard of protection. Through an unqualified promise to treat investors "fairly and equitably", a country provides maximum protection for investors but also risks posing limits on its policy space, raising its exposure to foreign investors' claims and resulting financial liabilities. Some of these implications stem from the fact that there is a great deal of uncertainty concerning the precise meaning of the concept, because the notions of “fairness” and “equity” do not connote a clear set of legal prescriptions and are open to subjective interpretations. A particularly problematic issue concerns the use of the FET standard to protect investors’ "legitimate expectations", which may restrict the ability of countries to change policies or to introduce new policies that - while pursuing SD objectives - may have a negative impact on foreign investors. Several options exist to address the deficiencies of unqualified FET standard, each with its pros and cons. The reference to customary international law may raise the threshold of State liability and help to preserve States' ability to adapt public policies in light of changing objectives (except when these measures constitute manifestly arbitrary conduct that amounts to egregious mistreatment of foreign investors), but the exact contours of MST/CIL remain elusive. An omission of the FET clause would reduce States' exposure to investor claims, but foreign investors may perceive the country as not offering a sound and reliable investment climate. Another solution would be to replace the general FET clause with an exhaustive list of more specific obligations. While agreeing on such a list may turn out to be a challenging endeavour, its exhaustive nature would help avoid unanticipated and far-reaching interpretations by tribunals.
    • 4.4 Full protection and security (FPS)
      … requires host States to exercise due diligence in protecting foreign investments
      • 4.4.0
        Include a guarantee to provide investors/investments full protection and security.
      • 4.4.1
        Clarify the FPS clause by: - specifying that the standard refers to "physical" security and protection - linking it to customary international law (e.g. specifying that this obligation does not go beyond what is required by CIL) - providing that the expected level of police protection should be commensurate with the level of development of the country's police and security forces.
      • 4.4.2
        Omit FPS clause.
      • Sustainable development (SD) implications
        Most IIAs include a guarantee of full protection and security (FPS), which is generally regarded as codifying customary international law obligations to grant a certain level of police protection and physical security. However, some tribunals may interpret the FPS obligation so as to cover more than just police protection: if FPS is understood to include economic, legal and other protection and security, it can constrain government regulatory prerogatives, including for SD objectives. Policymakers may follow a recent trend to qualify the FPS standard by explicitly linking it to customary international law or including a definition of the standard clarifying that it is limited to “physical” security. This would provide predictability and prevent expansive interpretations that would constrain regulatory prerogatives.
    • 4.5 Expropriation
      … protects foreign investors in case of dispossession of their investments by the host country
      • 4.5.0
        Provide that an expropriation must comply with/respect four conditions: public purpose, non-discrimination, due process and payment of compensation.
      • 4.5.1
        Limit protection in case of indirect expropriation (regulatory taking) - establishing criteria that need to be met for indirect expropriation to be found - defining in general terms what measures do not constitute indirect expropriation (non-discriminatory good faith regulations relating to public health and safety, protection of the environment, etc.) - clarifying that certain specific measures do not constitute an indirect expropriation (e.g. compulsory licensing in compliance with WTO rules).
      • 4.5.2
        Specify the compensation to be paid in case of lawful expropriation: - appropriate, just or equitable compensation - prompt, adequate and effective compensation, i.e. full market value of the investment ("Hull formula").
      • 4.5.3
        Clarify that only expropriations violating any of the three substantive conditions (public purpose, non-discrimination, due process), entail full reparation.
      • Sustainable development (SD) implications
        An expropriation provision is a fundamental element of an IIA. IIAs with expropriation clauses do not take away States’ right to expropriate property, but protect investors against arbitrary or uncompensated expropriations, contributing to a stable and predictable legal framework, conducive to foreign investment. IIA provisions typically cover "indirect" expropriation, which refers to regulatory takings, creeping expropriation and acts "tantamount to" or "equivalent to" expropriation. Such provisions have been used to challenge general regulations with an alleged negative effect on the value of an investment. This raises the question of the proper borderline between expropriation and legitimate public policy making (e.g. environmental, social or health regulations). To avoid undue constraints on a State's prerogative to regulate in the public interest, an IIA may set out general criteria for State acts that may (or may not) be considered an indirect expropriation. While this does not exclude liability risks altogether, it allows for better balancing of investor and State interests. The standard of compensation for lawful expropriation is another important aspect. The use of terms such as "appropriate", "just" or "fair" in relation to compensation gives room for flexibility in the calculation of compensation. States may find it beneficial to provide further guidance to arbitrators on how to calculate compensation and clarify what factors should be taken into account.
    • 4.6 Protection from strife
      … protects investors in case of losses incurred as a result of armed conflict or civil strife
      • 4.6.0
        Grant non-discriminatory (i.e. NT, MFN) treatment with respect to restitution/compensation in case of armed conflict or civil strife.
      • 4.6.1
        Guarantee - under certain circumstances - compensation in case of losses incurred as a result of armed conflict or civil strife as an absolute right (e.g. by requiring reasonable compensation).
      • 4.6.2
        Define civil strife as not including "acts of God", natural disasters or force majeure.
      • 4.6.3
        Omit protection-from-strife clause.
      • Sustainable development (SD) implications
        IIAs often contain a clause on compensation for losses incurred under specific circumstances, such as armed conflict or civil strife. Some countries have expanded the coverage of such a clause by including compensation in case of natural disasters or force majeure situations. Such a broad approach increases the risk for a State to face financial liabilities arising out of ISDS claims for events outside of the State’s control. Most IIAs only confer a relative right to compensation on foreign investor, meaning that a host country undertakes to compensate covered investors in a manner at least equivalent to comparable host State nationals or investors from third countries. Some IIAs provide an absolute right to compensation obliging a State to restitute or pay for certain types of losses (e.g. those caused by the requisitioning of their property by government forces or authorities). The latter approach is more burdensome for host States but provides a higher level of protection to investors.
    • 4.7 Transfer of funds
      … grants the right to free movement of investment-related financial flows into and out of the host country
      • 4.7.0
        Grant foreign investors the right to freely transfer any investment-related funds (e.g. open ended list) into and out of the host country.
      • 4.7.1
        Provide an exhaustive list of types of qualifying transfers.
      • 4.7.2
        Include exceptions (e.g. temporary derogations): - in the event of serious balance-of-payments and external financial difficulties or threat thereof - where movements of funds cause or threaten to cause serious difficulties in macroeconomic management, in particular, related to monetary and exchange rate policies. Condition these exceptions to prevent their abuse (e.g. application in line with IMF rules and respecting conditions of temporality, equity, non-discrimination, good faith and proportionality).
      • 4.7.3
        Reserve the right of host States to restrict an investor’s transfer of funds in connection with the country’s (equitable, non-discriminatory, and good faith application of its) laws, relating to, e.g.: - fiscal obligations of the investor/investment in the host country - reporting requirements in relation to currency transfers - bankruptcy, insolvency, or the protection of the rights of creditors - issuing, trading, or dealing in securities, futures, options, or derivatives - criminal or penal offences (e.g. imposing criminal penalties) - prevention of money laundering - compliance with orders or judgments in judicial or administrative proceedings.
      • Sustainable development (SD) implications
        IIAs virtually always contain a clause regarding investment-related transfers. The objective is to ensure that a foreign investor can make free use of invested capital, returns on investment and other payments related to the establishment, operation or disposal of an investment. However, an unqualified transfer-of-funds provision significantly reduces a host country's ability to deal with sudden and massive outflows or inflows of capital, balance-of-payments (BoP) difficulties and other macroeconomic problems. An exception increasingly found in recent IIAs allows States to impose restrictions on the free transfer of funds in specific circumstances, usually qualified by checks and balances (safeguards) to prevent misuse. Countries may also need to reserve their right to restrict transfers if this is required for the enforcement of the Party's laws (e.g. to prevent fraud on creditors etc.), again with checks and balances to prevent abuse.
    • 4.8 Transparency
      … fosters access to information
      • 4.8.0
        Require Contracting Parties to promptly publish documents which may affect covered investments, including e.g. - laws and regulations - procedures/administrative rulings of general application - IIAs.
      • 4.8.1
        Require countries to grant information upon request.
      • 4.8.2
        Require countries to publish in advance measures that they propose to adopt regarding matters covered by the IIA and to provide a reasonable opportunity for affected stakeholders (investors) to comment (prior-comment procedures).
      • 4.8.3
        Explicitly reserve host States' rights and/or encourage State Parties - to implement policies placing transparency and disclosure requirements on investors - to seek information from a potential (or already established) investor or its home State - to make relevant information available to the public Qualify with an obligation upon the State to protect confidential information.
      • 4.8.4
        No clause.
      • Sustainable development (SD) implications
        Some IIAs include a clause requiring countries to promptly publish laws and regulations. Providing investors (prospective and established ones) with access to such information improves a country's investment climate. This might, however, also pose administrative difficulties for some countries that do not have the human resources and technological infrastructure required. The treaty may incorporate commitments to provide technical assistance to developing countries to support implementation. The administrative burden imposed by transparency obligations could be lessened by using phrases such as "to the extent possible". The few IIAs that contain so-called "prior-comment procedures" require an even higher level of action by governments and may expose States to lobbying and pressure in the process of developing those laws. Transparency obligations are often excluded from the scope of ISDS (see 6.2.4). They can still be useful, given that any related problems can be discussed on a State-State level and addressed through technical assistance. Transparency provisions generally do not include any reference to transparency obligations applicable to investors. This contributes to the perception that IIAs lack i) corporate governance enhancing features; and ii) balance in the rights and obligations. IIAs could encourage States to strengthen domestic transparency requirements (e.g. including mechanisms for due diligence procedures).
    • 4.9 Performance requirements
      … regulate the extent to which host States can impose certain operational conditions on foreign investors/investments
      • 4.9.0
        Preclude Contracting Parties from placing trade-related performance requirements (e.g. local content requirements) on investments operating in the goods sector (in accordance with/incorporating the WTO TRIMs Agreement).
      • 4.9.1
        Preclude Contracting Parties from placing performance requirements on investments, beyond trade-related ones, e.g. requirements to transfer technology, to achieve a certain level of R&D operations or to employ a certain percentage of local personnel (TRIMs +).
      • 4.9.2
        Preclude Contracting Parties from imposing performance requirements unless they are linked to the granting of incentives (usually in combination with above TRIMs + option).
      • 4.9.3
        Include country-specific reservations to the TRIMs+ obligation, e.g. carving out: - certain policies/measures (e.g. subsidies) - specific sectors (e.g. banking, defence, fisheries, forestry, transport and infrastructure, social services) - certain policy areas (e.g. issues related to minorities, rural populations, marginalized or indigenous communities) - measures related to companies of a specific size (e.g. SMEs).
      • 4.9.4
        No clause prohibiting imposition of performance requirements.
      • Sustainable development (SD) implications
        Performance requirements (PRs) refer to the imposition of conditions on businesses limiting their economic choices and managerial discretion (e.g. requirements to use locally produced inputs or to export a certain percentage of production). While PRs may be considered as creating economic inefficiencies, they can also be a potentially important tool for industrial or other economic development policies. From the transfer of technology to the employment of local workers, PRs can help materialize expected spill-over effects from foreign investment. Thus, to reap the full benefits of foreign investment and to align investment policy with SD objectives, policymakers need to carefully consider the need for policy flexibility when devising clauses on PRs. This is important, even if the IIA simply refers to the WTO TRIMs Agreement (because even though this does not add any new obligations on States who are also WTO members, the incorporation of TRIMs into an IIA gives investors the opportunity to directly challenge a TRIMs violation through ISDS). It is particularly important when considering the prohibition of an extensive list of PRs beyond TRIMs (e.g. requirements to transfer technology or employ local workers). The relevant exceptions and reservations should be considered from the point of view of both current and future regulatory needs. Finally, even if the IIA does not contain a clause explicitly ruling out PRs, the NT clause would prohibit the discriminatory imposition of PRs on foreign investors only.
    • 4.10 "Umbrella" clause
      … establishes a commitment on the part of the host State to respect its obligations regarding specific investments (including in investment contracts)
      • 4.10.0
        Include a clause that requires each Party to observe any obligation (e.g. contractual) which it has assumed with respect to an investment of a covered investor.
      • 4.10.1
        Clarify that a breach of the "umbrella" clause may only result from an exercise of sovereign powers by a government (i.e. not an ordinary breach of contract by the State) and that disputes arising from such breaches shall be settled in the forum prescribed by the contract.
      • 4.10.2
        Introduce a "two-way" umbrella clause that requires both the State and the investor to observe their specific obligations related to the investment.
      • 4.10.3
        No "umbrella" clause.
      • Sustainable development (SD) implications
        An “umbrella” clause requires a host State to respect any obligation assumed by it with regard to a specific investment (for example, in an investment contract). The clause thus brings contractual and other individual obligations under the “umbrella” of the IIA, making them potentially enforceable through ISDS. By subjecting contractual violations to IIA arbitration an umbrella clause therefore makes it even more important for countries to have the technical capacity to carefully craft the respective contractual arrangements (e.g. when they enter into investment or concession contracts). The main difficulties with “umbrella” clauses are that they (1) effectively expand the scope of the IIA by incorporating non-treaty obligations of the host State into the treaty, which may increase the risk of being faced with costly legal proceedings, and (2) have given rise to conflicting interpretations by investor-State tribunals resulting in a high degree of unpredictability. One way of solving these problems – followed by many countries – would be to omit the "umbrella" clause from their IIAs. This means that an investor party to an investment contract would always have to show a breach of an IIA obligation, and not a breach of the contract. Alternatively, a country may clarify the scope of the umbrella clause and the competent dispute settlement forum to avoid conflicting interpretations. Finally, there is an option to make the umbrella clause work both ways, that is, to use it to incorporate into the IIA not only a State's obligations but also those of an investor, which would give States an opportunity to bring counterclaims against investors in the relevant ISDS proceedings.
    • 4.11 Personnel and staffing
      … facilitates the entry, sojourn and employment of foreign personnel
      • 4.11.0
        Provide for the facilitation of entry, sojourn and issuing of work permits for nationals of one Party (or individuals regardless of nationality) into the territory of the other Party for purposes relating to an investment, subject to national immigration and other laws, covering: - all personnel, including families - only senior management and key personnel.
      • 4.11.1
        Ensure the right of investors to make appointments to senior management positions without regard to nationality.
      • 4.11.2
        Include country-specific reservations to the senior-management obligation (section 4.11.1), e.g. carve out: - certain policies/measures - specific sectors/industries - certain policy areas (minorities, indigenous communities) - measures related to companies of a specific size.
      • 4.11.3
        No clause.
      • Sustainable development (SD) implications
        Facilitating the entry and sojourn of foreign employees and the right to hire expatriate personnel (including senior management and members of the board of directors) can help to attract foreign investment. At the same time these provisions interact with host State’s immigration laws - a particularly sensitive area of policy making. It is important that host States retain control over their immigration policies or ensure coherence between relevant international and national regulations. Moreover, States may wish to encourage SD-related spill-overs such as employment for domestic or indigenous workers and trickle-down effects with respect to technological knowledge (e.g. by requiring foreign investments to employ indigenous personnel or by limiting the number of expatriate personnel working for the investor). Carefully choosing the right normative intensity (e.g. opting for a best-efforts approach), and other mechanisms for preserving flexibility (e.g. ensuring the priority of national laws) are key.
  • 5. Public policy exceptions
    ... permit public policy measures, otherwise inconsistent with the treaty, to be taken under specified, exceptional circumstances
    • 5.1.0
      No public policy exceptions.
    • 5.1.1
      Include exceptions for national security measures and/or measures related to the maintenance of international peace and security: - formulate the exception as not self-judging (can be subject to arbitral review) - formulate the exception as self-judging.
    • 5.1.2
      Broaden the exception by clarifying that national security may encompass economic security.
    • 5.1.3
      Limit the exception by specifying: - that the exception only relates to certain types of measures, e.g. those relating to trafficking in arms or nuclear non-proliferation; or taken in pursuance of States' obligations under the UN Charter for the maintenance of international peace and security - that it only applies in times of war or armed conflict or an emergency in international relations.
    • 5.1.4
      Include exceptions for domestic regulatory measures that aim to pursue legitimate public policy objectives, e.g. to: - protect human rights - protect public health - preserve the environment (e.g. biodiversity, climate change) - protect public morals or maintain public order - preserve cultural and/or linguistic diversity - ensure compliance with laws and regulations that are not inconsistent with the treaty - allow for prudential measures (e.g. to preserve the integrity and stability of the financial system) - ensure the provision of essential social services (e.g. health, education, water supply) - allow for broader safeguards, including on developmental grounds (to address host countries' trade, financial and developmental needs) - prevent tax evasion - protect national treasures of artistic, historic or archaeological value (or "cultural heritage").
    • 5.1.5
      Prevent abuse of the exceptions by host States: - provide that "exceptional" measures shall not be applied in a manner that would constitute arbitrary or unjustifiable discrimination between investments or investors, or a disguised restriction on international trade or investment - choose the appropriate threshold which an "exceptional" measure must meet, e.g. the measure must be “necessary” (indispensable) to achieve the alleged policy objective, or be “related” (making a contribution) to this policy objective.
    • Sustainable development (SD) implications
      To date few IIAs include public policy exceptions. However, more recent treaties increasingly reaffirm States’ right to regulate in the public interest by introducing general exceptions. Such provisions make IIAs more conducive to SD goals, foster coherence between IIAs and other public policy objectives, and reduce States’ exposure to claims arising from any conflict that may occur between the interests of a foreign investor and the promotion and protection of legitimate public-interest objectives. Exceptions allow for measures - otherwise prohibited by the agreement - to be taken under specified circumstances. General exceptions identify the policy areas for which flexibility is to be preserved. A number of features determine how easy or difficult it is for a State to use an exception. To avoid review of the relevant measure by a court or a tribunal, the general exception can be made self-judging (i.e. the necessity/appropriateness of the measure is judged only by the invoking State itself). This approach gives a wide margin of discretion to States, reduces legal certainty for investors and potentially opens possibilities for abuse. In contrast, exceptions designed as not self-judging imply that in case of a dispute, a court or tribunal will be able to determine whether the measure in question is allowed by the exception. In order to facilitate the use of exceptions by States, the provision may adjust the required link between the measure and the alleged policy objective pursued by this measure. For example, instead of providing that the measure must be “necessary” to achieve the policy objective, the IIA could require that the measure be "related" to the policy objective. Finally, in order to prevent abuse of exceptions, it is useful to clarify that "exceptional" measures must be applied in a non-arbitrary manner and not as disguised investment protectionism.
  • 6. Dispute settlement
    … governs settlement of disputes between the Contracting Parties and those between foreign investors and host States
    • 6.1 State-State
      ... governs dispute settlement between the Contracting Parties
      • 6.1.0
        Establish that any unresolved IIA-related disputes can be submitted to State-State dispute settlement (arbitration).
      • 6.1.1
        Provide an option or require that the States engage in prior consultations and negotiations and/or resort to conciliation or mediation.
      • Sustainable development (SD) implications
        To date, State-State arbitrations under IIAs have been very rare. This is a natural consequence of including ISDS into IIAs (and investors themselves taking host States to arbitration) to complement the system of diplomatic protection. However, if a question about the meaning of a specific IIA obligation arises, and the Contracting Parties fail to resolve the uncertainty through consultations, a State-State arbitration can be a useful mechanism to clarify it. In this sense, State-State procedures retain their “supportive” function for ISDS.
    • 6.2 Investor-State
      … provides foreign investors with access to international arbitration to resolve investment-related disputes with the host State
      • 6.2.0
        Grant investors the right to bring any investment-related dispute with the host country to international arbitration.
      • 6.2.1
        Define the range of disputes that can be subject to ISDS: - any investment-related disputes (regardless of the legal basis for a claim, be it IIA, contracts, domestic law or other) - disputes arising from specifically listed instruments (e.g. IIAs, contract, investment authorisations/licenses) - disputes regarding IIA violations only - States' counterclaims.
      • 6.2.2
        Promote the use of alternative dispute resolution (ADR) methods - encourage resort to conciliation (e.g. ICSID or UNCITRAL conciliation rules) or mediation - agree to cooperate in developing dispute prevention mechanisms (including by creating investment ombudsmen or “ombuds” offices).
      • 6.2.3
        Clarify that investors can only resort to international arbitration - after local remedies have been exhausted or a manifest ineffectiveness/bias of domestic courts has been demonstrated - if the investor agrees not to bring ("fork-in-the-road"), or undertakes to discontinue ("no U-turn"), the same case in another forum - within a limitation period, in order to prevent claims resulting from "old" measures (e.g. claim has to be brought within three years) - with respect to claims that arose after the treaty's entry into force (see section 2.4).
      • 6.2.4
        Limit States' exposure to ISDS, e.g.: - clarify that certain treaty provisions and/or sensitive areas are excluded from ISDS, e.g. national security issues, including review of incoming investments; measures to protect the environment, health and human rights; prudential measures; measures relating to transfer of funds (or respective IIA provisions); tax measures that do not amount to expropriation; IIA provisions on transparency - specify only those issues/provisions to which ISDS should apply (e.g. only to the expropriation provision).
      • 6.2.5
        Reserve State's consent to arbitration, so that it would be given separately for each specific dispute.
      • 6.2.6
        Omit investor-State arbitration (i.e. do not consent to investor-State arbitration in the treaty) and nominate host State's domestic courts as the appropriate forum.
      • Sustainable development (SD) implications
        ISDS allows foreign investors to sue a host State if the latter violates its IIA obligations. Most IIAs allow investors to bypass domestic courts of host States and bring international arbitration proceedings (e.g. to constitute an ad hoc 3-person tribunal, most often at ICSID or under the UNCITRAL arbitration rules). The goal is to take the dispute out of the domestic sphere, to ensure independence and impartiality of the arbitrators, speed and effectiveness of the process and finality and enforceability of arbitral awards. As the number of ISDS cases increases, questions have arisen with regard to the effectiveness and the SD implications of ISDS. Many ISDS procedures are very expensive and often take several years to resolve. ISDS cases increasingly challenge domestic regulatory measures implemented for public policy objectives. Almost all ISDS cases lead to the break down of the relationship between the investor and the host State. Due to the lack of a single, unified mechanism, different tribunals have issued divergent interpretations of similarly worded treaty provisions, resulting in contradictory outcomes of cases involving identical/similar facts and/or treaty language. Many ISDS proceedings are conducted confidentially, which has raised concerns when tribunals address matters of public policy. A number of policy options are available to deal with these problems. If the Contracting Parties consider each other's judicial systems to be effective and efficient, ISDS can be omitted from their IIA altogether. The Parties may also choose to subject only the most fundamental IIA protections to ISDS (e.g. the protection against uncompensated expropriation), reserve the right to give consent to arbitration on a case-by-case basis or minimize States’ exposure to ISDS by other means (e.g. by removing certain areas from its purview, introducing limitation periods). Parties may also consider promoting the use of alternative dispute resolution (ADR) methods, such as conciliation and mediation. If employed at the early stages of a dispute, ADR can help to prevent escalation of the conflict, preserve the investment relationship, and find a workable common-sense solution in a faster, cheaper and more flexible manner. As part of the IIA rebalancing, a treaty may refer to the possibility of States bringing counterclaims for investors’ non-compliance with the host State’s national laws (section 7.1.1) or breach of investor’s specific obligations undertaken in relation to its investment (section 4.10.3).
    • 6.3 ISDS institutions and procedures
      … propose improvements of an institutional and procedural nature
      • 6.3.0
        Improve the institutional set-up of ISDS, e.g.: - consider a system with permanent or quasi-permanent arbitrators and/or an appellate mechanism - foster accessibility of documents (e.g. information about the case, party submissions, decisions and other relevant documents) - foster public participation (e.g. amicus curiae and public hearings) - specify that disputes concerning certain sensitive policy areas, such as tax and/or prudential measures, shall be submitted to the competent authorities of the Parties for a preliminary joint determination of whether they are in breach of the treaty - consider cooperation on training and assistance for adequate State representation in investor-State disputes, including through establishing an investment advisory centre.
      • 6.3.1
        Add features that would improve the arbitral process, e.g.: - mechanism for prompt/simplified disposal of "frivolous" claims - mechanism for consolidation of claims - requirement to interpret the IIA in accordance with customary international law (as codified in the Vienna Convention on the Law of Treaties) - mechanism for joint interpretation of the treaty by the Parties in case of ambiguities - caps on arbitrator fees.
      • Sustainable development (SD) implications
        The institutional set-up of the ISDS system is the cause of numerous concerns including perceived lack of legitimacy, inconsistent decisions, secrecy or participatory challenges for developing countries. IIA policymakers can improve the institutional set-up of ISDS in the treaty. An appellate mechanism could contribute to more coherent interpretation and foster trust in the system. Enhanced transparency of ISDS claims could enable broader and informed public debate as well as a more adequate representation of stakeholder interests, prevent non-transparent deals and stimulate balanced and well-reasoned arbitral decisions. Procedural improvements such as simplified disposals of "frivolous" claims, consolidation of claims and caps on arbitrator fees, could help streamline the arbitral process and make it less expensive and more effective. A reference to customary international law as controlling interpretation of the IIA, coupled with a possibility for the State Parties to issue joint interpretations, would ensure a common interpretative framework and the ability of the contracting States to influence this process, thereby limiting the discretion of arbitrators.
    • 6.4 Remedies and compensation
      … determines remedies available in case of treaty breach and gives guidance on monetary compensation
      • 6.4.0
        No clause.
      • 6.4.1
        Limit available remedies to monetary compensation and restitution of property (or to compensation only).
      • 6.4.2
        Provide that the amount of compensation shall be equitable in light of circumstances of the case and set out specific rules on compensation for a treaty breach, e.g.: - exclude recoverability of punitive and/or moral damages - limit recoverability of lost profits (up to the date of award) - ensure that the amount is commensurate with the country's level of development.
      • Sustainable development (SD) implications
        Most IIAs are silent on the issue of remedies and compensation. In theory this permits arbitral tribunals to apply any remedy they deem appropriate, including, for example, an order to the country to modify or annul its law or regulation. Remedies of the latter type could unduly intrude into the sovereign sphere of a State and impede its policy-making powers; thus, Parties to an IIA may consider limiting available remedies to monetary compensation and restitution of property (or compensation only). As regards the amount of compensation for a treaty breach, international law requires compensation to be “full”, which may include moral damages, loss of future profits and consequential damages. States may find it beneficial to provide guidance to arbitrators on applicable remedies and, similar to the case of expropriation above, on calculation of compensation. If the Contracting Parties believe that certain types of damages should not be recoverable by investors (e.g. punitive or moral damages), they can explicitly rule them out in their IIA. They can also restrict recoverability of future profits and provide that compensation should cover a claimant’s direct losses and not exceed the capital invested plus interest. However, such rules may be seen as undermining the protective quality of the IIA.
  • 7. Investor obligations and responsibilities
    … promote compliance by investors with domestic and/or international norms at the entry and operation stage
    • 7.1.0
      No clause.
    • 7.1.1
      Require that investors comply with host State laws at both the entry and the post-entry stage of an investment. Establish sanctions for non-compliance: - deny treaty protection to investments made in violation of the host State law - deny treaty protection to investments operating in violation of those host State laws that reflect international legally binding obligations (e.g. core labour standards, anti-corruption, environment conventions) and other laws as identified by the Contracting Parties - provide for States' right to bring counterclaims in ISDS arising from investors' violations of host State law.
    • 7.1.2
      Encourage investors to comply with universally recognized standards such as the ILO Tripartite MNE Declaration and the UN Guiding Principles on Business and Human Rights, and to carry out corporate due diligence relating to economic development, social and environmental risks. Provide that non-compliance may be considered by a tribunal when interpreting and applying treaty protections (e.g. FET) or determining the amount of compensation due to the investor.
    • 7.1.3
      Encourage investors to observe applicable CSR standards: - without specifying the relevant CSR standards - by giving a list of relevant CSR standards (e.g. in an annex) - by spelling out the content of relevant CSR standards (e.g. as best endeavour clauses). Provide that non-observance may be considered by a tribunal when interpreting and applying treaty protections (e.g. FET) or determining the amount of compensation due to the investor.
    • 7.1.4
      Call for cooperation between the Parties to promote observance of applicable CSR standards, e.g. by - supporting the development of voluntary standards - building local industries' capacity for the uptake of voluntary standards - considering investors’ adoption/compliance with voluntary standards when engaging in public procurement - conditioning the granting of incentives on the observance of CSR standards - promoting the uptake of CSR-related reporting (e.g. in the context of stock exchange listing rules).
    • 7.1.5
      Encourage home countries to condition the granting of outward investment promotion incentives on an investor's socially and environmentally sustainable behaviour (see also 10.1.1 on investment promotion).
    • Sustainable development (SD) implications
      Most IIAs only set out obligations for States. To correct this asymmetry, an IIA could also set out investor obligations/responsibilities. Noting the evolving views on the capacity of international law to impose obligations on private parties, IIA policymakers could consider a number of options, each with its advantages and disadvantages. These IPFSD options (i) condition treaty protection upon certain investor behaviour; (ii) raise the obligation to comply with domestic laws to the international level (increasing its relevance in arbitration); and (iii) take a best-endeavour approach to universally recognised standards or applicable CSR standards. A far-reaching option is to include an obligation for investors to comply with laws and regulations of the host State at both, the entry and post-entry stage. While investors’ observance of domestic laws can generally be enforced through national courts, including this obligation in an IIA could further improve means to ensure compliance (e.g. by way of denying treaty protection to non-complying investors or giving States a right to bring counterclaims in ISDS proceedings). Challenges may arise from the fact that domestic laws are usually directed at local enterprises as opposed to those who own or control them and from the need to ensure that minor/technical violations should not lead to complete denial of treaty benefits. Also, the elevation to a treaty level of the obligation to comply with domestic law should not affect the general principle that domestic laws must not be contrary to a country’s international obligations - this can be made explicit in option 7.1.1 (e.g. by specifying that relevant domestic laws must be not inconsistent with the IIA and international law). Another option is to promote responsible investment through IIA language that encourages investors to comply with relevant universal principles or with applicable CSR standards. Such a best-endeavour clause would be given additional weight if the treaty instructs tribunals to take into account investors’ compliance with relevant principles and standards when deciding investors’ ISDS claims. Given the multitude of existing CSR standards, it may be useful to refer to specific documents such as the UN Global Compact.
  • 8. Relationship to other agreements
    … establishes a hierarchy in case of competing international norms
    • 8.1.0
      No clause.
    • 8.1.1
      Stipulate that if another international treaty, to which the contracting States are parties, provides for more favourable treatment of investors/investments, that other treaty shall prevail in the relevant part.
    • 8.1.2
      Stipulate that in case of a conflict between the IIA and a host State's international commitments, such conflicts should be resolved in accordance with customary international law, including with reference to the Vienna Convention on the Law of Treaties.
    • 8.1.3
      Stipulate that in case of a conflict between the IIA and a host State's international commitments under a multilateral agreement in another policy area, such as environment and public health, the latter shall prevail.
    • Sustainable development (SD) implications
      IIAs usually provide that more favourable treatment of investors granted under another international treaty (e.g. a multilateral treaty to which both IIAs signatories are Parties) would take precedence. It is much less usual to address a relationship between an IIA and a treaty that governs a different policy area (e.g. protection of environment, human rights, etc.). Addressing this issue would help arbitral tribunals to take into account these other international commitments in order to ensure, as much as possible, harmonious interpretation of IIA provisions and see them as part of general international law.
  • 9. Not lowering of standards clause
    … discourages Contracting Parties from attracting investment through the relaxation of labour or environmental standards
    • 9.1.0
      No clause.
    • 9.1.1
      Include environmental, human rights and labour clauses that - include a commitment to refrain from relaxing domestic environmental and labour legislation to encourage investment (expressed as a binding obligation or as a soft law clause) - reaffirm commitments under, e.g. international environmental agreements or with regard to international health standards, internationally recognized labour rights or human rights.
    • 9.1.2
      Encourage cooperation between treaty Parties to provide enhanced environmental, human rights and labour protection and hold expert consultations on such matters.
    • Sustainable development (SD) implications
      There is a concern that international competition for foreign investment may lead some countries to lower their environmental, human rights and labour standards and that this could lead to a “race to the bottom” in terms of regulatory standards. Some recent IIAs include language to address this concern. “Not lowering standards” provisions, for example, prohibit or discourage host States to compromise on environmental and labour protection for the purpose of attracting foreign investment. In doing so, the IIA goes beyond its traditional role of investment protection and pursues the goal of maintaining a regulatory framework that would be conducive to SD. While current IIAs often exclude "not lowering standards" clauses from ISDS or dispute settlement as such, it may be beneficial to foster consultations on this issue, including through institutional mechanisms, so as to ensure that the clause will effectively be implemented.
  • 10. Investment promotion
    … aims to encourage foreign investment through additional means beyond investment protection provisions in IIAs
    • 10.1.0
      No clause.
    • 10.1.1
      Establish provisions encouraging investment flows, with a special emphasis on those which are most beneficial in light of a country's development strategy. Possible mechanisms include, e.g.: - encourage home countries to provide outward investment incentives, e.g. investment guarantees, possibly conditioned on the SD enhancing effect of the investment and investors' compliance with universal principles and applicable CSR standards - organise joint investment promotion activities such as exhibitions, conferences, seminars and outreach programmes - exchange information on investment opportunities - ensure regular consultations between investment promotion agencies - provide technical assistance programmes to developing host countries to facilitate FDI flows - strengthen promotion activities through IIAs' institutional set up (see 11.1.1 below).
    • 10.1.2
      Include a subrogation clause.
    • Sustainable development (SD) implications
      While host States conclude IIAs to attract development-enhancing investment, the investment enhancing effect of IIAs is mostly indirect (through the protection offered to foreign investors). Only a few IIAs include special promotional provisions to encourage investment flows and increase investors' awareness of investment opportunities (e.g. by exchanging information or joint investment-promotion activities). Creating a joint committee responsible for investment promotion may help to operationalize the relevant provisions. Through these committees, the Parties can set up an agenda, organize and monitor the agreed activities and take corrective measures if necessary. The “promotional” provisions are “soft” (unenforceable), and their ultimate usefulness largely depends on the will and action of the Parties. The mechanism of subrogation supports investment promotion by ensuring the effective functioning of investment insurance schemes maintained by home States, or their respective agencies, to support their outward FDI. If the insurer covers the losses suffered by an investor in the host State, it acquires the investor's right to bring a claim and may exercise it to the same extent as, previously, the investor. Subrogation makes it possible for the insurer to be a direct beneficiary of any compensation by the host State to which the investor would have been entitled.
  • 11. Institutional set-up
    … establishes an institutional platform for collaboration between the Contracting Parties
    • 11.1.0
      No clause.
    • 11.1.1
      Set up an institutional framework under which the Parties (and, where relevant, other IIA stakeholders such as investors, local community representatives etc.) shall cooperate and hold meetings from time to time, to foster the implementation of the agreement with a view to maximising its contribution to SD. More specifically, this can include a commitment to: - issue interpretations of IIA clauses - review the functioning of the IIA - discuss and agree upon modification of commitments (in line with special procedures) and facilitate adaptation of IIAs to the evolving SD policies of State Parties, e.g. through renegotiation - organize and review investment promotion activities, including by involving investment promotion agencies, exchanging information on investment opportunities, organizing seminars on investment promotion - discuss the implementation of the agreement, including by addressing specific bottlenecks, informal barriers, red tape and resolution of investment disputes - regularly review Parties' compliance with the agreement's not-lowering standards clauses - provide technical assistance to developing Contracting Parties to enable them to engage in the institutionalized follow-up to the treaty - identify/update relevant CSR standards and organize activities to promote their observance.
    • Sustainable development (SD) implications
      While countries have concluded numerous IIAs, generally, there has been little follow-up to ensure that IIAs are properly implemented and kept up-to-date. Recent IIAs have started to include provisions for permanent institutional arrangements that perform a number of specific functions. For example, agreed interpretation can help ensure consistency in arbitral awards. Similarly, deliberations can ensure informed decision making on further investment liberalization, or prolonging or amending IIAs. All of this can help maximize the contribution of IIAs to SD, for example, by monitoring the development implications of IIAs and by engaging in dispute prevention activities and CSR promotion. A clear treaty mandate facilitates the implementation of the listed activities. Furthermore, it provides a forum to reach out to other relevant investment stakeholders including investors, local community representatives and academia.
  • 12. Final provisions
    … define the duration of the treaty, including its possible prolongation
    • 12.1.0
      Specify the temporal application of the treaty (e.g. 10 or 20 years) with quasi-automatic renewal (the treaty is renewed unless one of the Parties notifies the other(s) of its intention to terminate)
    • 12.1.1
      State a specific duration of the treaty but stipulate that renewal is based on a written agreement of both Parties on the basis of a (joint) informed review of the IIA.
    • 12.1.2
      Include a "survival" clause which guarantees that in case of unilateral termination of the treaty, it will remain in effect for a number of years after the termination of the treaty (e.g. for another 5, 10 or 15 years) with respect to investments, made prior to the termination.
    • 12.1.3
      Do not specify minimum initial temporal duration but allow for termination of the treaty at any time upon the notification of either Party.
    • Sustainable development (SD) implications
      There is an emerging concern about aging treaty networks that may eventually be unsuitable for changing economic realities, novel or emerging forms of investment and new regulatory challenges. This partly results from the fact that IIAs often provide for a fixed period of duration and quasi-automatic renewal (in an attempt to provide a stable investment regime). An alternative would be to provide for renewal if both Parties explicitly agree to it in writing after a joint review of the treaty and an assessment of its impact on FDI flows and any attendant development implications. This exercise would help to assess whether the treaty is still needed and whether any amendments are required. Another issue concerns the protection of investors after the IIA’s termination. An IIA may include a “survival” clause, which effectively locks in treaty standards for a number of years after the treaty is terminated. While it provides longer-term legal security for investors, which may be necessary for investors with long-term projects involving substantial commitment of capital (e.g. in the extractive industries), it may limit States' ability to regulate their economies in accordance with new realities (especially if the treaty’s provisions do not grant sufficient policy flexibility). Negotiators may opt for a balanced solution by ensuring that the “survival” clause is not overly long.
  • Part B. Pre-establishment
    Policy options in Part B are supplementary to those in Part A and can be used by countries wishing to extend their IIA to pre-establishment matters. As in Part A, policy options are organized from most investor-friendly (i.e. highest level of liberalization) to the options providing fewer establishment rights and more flexibility to the prospective host State.
  • 1. Pre-establishment obligations
    … govern establishment of foreign investments in the host State
    • 1.1.0
      Grant the right of establishment, subject to restrictions on public policy grounds (EU Treaty approach).
    • 1.1.1
      Undertake to refrain from imposing specific restrictions, including of a non-discriminatory nature, on the establishment in the host State's market (GATS approach), such as: - limitations on the participation of foreign capital in terms of maximum percentage limits on foreign shareholding - limitations on the number of establishments (quotas, monopolies, exclusive rights) - limitations on the total value of transactions or assets.
    • 1.1.2
      Extend national treatment and/or MFN treatment to foreign investors with respect to "establishment, acquisition and expansion" of investments, i.e. prohibit discrimination vis-à-vis domestic investors and/or investors from third countries, subject to exceptions and reservations (sections 1.1.3 and 1.1.4 below).
    • 1.1.3
      Undertake pre-establishment commitments only with respect to sectors/industries specifically mentioned (positive list) or to all sectors/industries except those specifically excluded (negative list) or combining the two ("hybrid"). Country-specific reservations may carve out, as necessary, e.g.: - existing measures that provide preferential rights of establishment to domestic investors or investors from certain third countries (e.g. on the basis of preferential trade and investment agreements) - existing measures/laws that would otherwise be inconsistent with the newly concluded treaty (grandfathering) - sectors/industries where the Party wishes to retain full discretion on establishment, including future restrictive measures - specific procedures such as investment screening or an economic needs test (ENT).
    • 1.1.4
      Preserve additional policy flexibility on pre-establishment issues, with respect to "committed" (locked-in) sectors e.g.: - preserve the right of a Party to adopt new non-conforming measures in the future, as long as they do not "affect the overall level of commitments of that Party under the Agreement” - include a wide “catch-all” reservation into the schedule, e.g. that establishment is "subject to the requirement that no objection for reasons of national economy is made".
    • 1.1.5
      Reduce normative intensity of pre-establishment commitments e.g.: - postpone the entry into force of pre-establishment obligations until the date when the Parties agree on covered sectors/measures - agree to undertake negotiations on pre-establishment at a future date - exclude pre-establishment disciplines from dispute settlement provisions or subject them to State-State dispute settlement only - use "best efforts", as opposed to legally binding, language.
    • 1.1.6
      Preserve policy flexibility on pre-establishment issues by carefully crafting relevant general provisions of the IIA, e.g.: - specifying the scope and coverage of the treaty (see section 2.3 of Part A) - including general and national security exceptions (see section 5 of Part A).
    • 1.1.7
      Provide that admission of investments is in accordance with domestic laws of the host State.
    • Sustainable development (SD) implications
      Most IIAs grant protection to investors and their investments only after their establishment in the host State; the host country thus retains full regulatory freedom as regards the admission of foreign investors to its territory. For example, it can impose limits on foreign ownership of domestic companies or assets, apply screening procedures and block acquisitions for industrial or other policy reasons (e.g. national security). However, in recent years an increasing number of IIAs include provisions that apply at the pre-establishment phase of investment, with the aim of liberalizing access for investors from the other Party. This is usually achieved by (i) prohibiting countries to impose certain restrictions on market access (quotas, monopolies, exclusive rights and others), (ii) prohibiting countries to discriminate against covered investors at the stage of establishment and acquisition of investments, or (iii) using both approaches concurrently. It is an important policy choice to decide whether to extend the IIA to pre-establishment matters and, if so, to find a right balance between binding international commitments and domestic policy flexibility. The first step is to choose between the positive- and the negative-list approach to identifying industries in which the pre-establishment rights will be granted. The former offers selective liberalization by way of drawing up a “positive list” of industries in which investors will enjoy pre-establishment rights. Under the latter, investors benefit from pre-establishment commitments in all industries except in those that are explicitly excluded. The negative-list approach is more demanding in terms of resources: it requires a thorough audit of existing domestic policies. In addition, under a negative-list approach and in the absence of specific reservations, a country commits to openness also in those sectors/activities, which, at the time an IIA is signed, do not yet exist or where the regulatory frameworks are still evolving. Generally, when aiming to preserve regulatory space, making commitments on a positive-list basis is considered to be safer. Properly managing a negative-list approach requires countries to have i) a sophisticated domestic regulatory regime and ii) sufficient institutional capacity for properly designing and negotiating the scheduling of liberalization commitments. In either case most IIAs include a list of reservations preserving specific non-conforming measures ("hybrid" approach). The need for reservations and "safety valves" is arguably greatest if a country opts for the negative list. From a SD perspective, it may be prudent to consider excluding certain sub-industries or grandfathering specific non-conforming measures, reserving the right to change the country's commitments under specified conditions or choose the right level of the normative intensity of commitments.
  • Part C. Special and Differential Treatment (SDT)
    SDT provisions could be an option where Contracting Parties to an IIA have significantly different levels of development, especially when one of the Parties is a least-developed country. SDT presupposes that a treaty can be built asymmetrically, i.e. treaty obligations may differ between the Contracting Parties.
  • 1. Asymmetrical obligations
    … enable imposition of less onerous obligations on a less developed Party
    • 1.1.0 Delayed implementation of obligations
      Introduce a timetable for implementation of IIA commitments with longer time-frames for a less developed Party. Could be used for, e.g.: - pre-establishment obligations - national treatment - transfer of funds - performance requirements - transparency - investor-State dispute settlement.
    • 1.1.1 Reduced normative intensity
      Replace binding obligations with best-endeavour obligations for a less developed Party. Could be used for, e.g.: - pre-establishment obligations - national treatment - performance requirements - transparency.
    • 1.1.2 Reservations
      Include country-specific reservations from general obligations, e.g. carving out sensitive sectors, policy areas or enterprises of specific size (e.g. SMEs). Could be used for, e.g.: - pre-establishment obligations - national treatment - MFN treatment - performance requirements - personnel and staffing (senior management).
    • 1.1.3 Development-friendly interpretation
      Promote interpretation of protection standards that takes into account States' different level of development. Could be used for, e.g.: - fair and equitable treatment - full protection and security - amount of compensation awarded.
    • Sustainable development (SD) implications
      SDT provisions give expression to the special needs and concerns of developing and particularly least-developed countries (LDCs). Largely absent from existing IIAs, this principle is expressed in numerous provisions of the WTO agreements and has found its way into other aspects of international law such as the international climate change framework. SDT may be necessary in order to ensure that a less developed Party to a treaty does not undertake obligations that would be too burdensome to comply with or contrary to its development strategy. There are different ways to make an IIA asymmetrical and to reflect special needs of less developed Parties; moreover, several SDT options can be combined in the same treaty. For example, it can establish longer phase-in periods for pre-establishment obligations, country-specific carve-outs from the prohibition of performance requirements, best-endeavour obligations with respect to transparency, and account for the level of development in the FET provision.
  • 2. Additional tools
    … encourage positive contributions by a more developed Party
    • 2.1.0 Technical assistance
      Undertake a (best-endeavour) obligation to provide technical assistance to implement IIA obligations and facilitate FDI flows.
    • 2.1.1 Investment promotion
      Provide investment incentives to outward FDI such as investment guarantees.
    • Sustainable development (SD) implications
      SDT can also manifest itself in special obligations for the more developed Contracting Party. These are meant to operationalize the IIA, so that it performs its FDI-promoting function and, if necessary, to help the less developed Party implement certain IIA obligations. Including such provisions in the treaty, even in a non-binding manner, would provide a mandate to the more developed partner to put in place relevant technical-assistance and promotion activities.