The International Investment Law and Policy Regime: Challenges and Options
International investment—more specifically, foreign direct investment (FDI)—has become the most important vehicle to bring goods and services to foreign markets. In addition, FDI integrates the national production systems of individual countries and is in the process of creating an integrated international production system, the productive core of the globalising world economy. Against the background of the salient features of FDI and the emerging integrated international production system, this paper seeks to do three things—one, to discuss the evolution of national FDI policies; two, to review challenges for the international investment law and policy regime; and, three, to identify options on how some of these challenges can be met. The discussion is broader than focusing on priority issues only; rather, it covers a range of issues that may eventually need to be addressed. The emphasis is on the international governance of international investment in the globalising world economy, which so far has taken place through a myriad of mostly bilateral investment treaties (BITs). The resulting regime—which increasingly sets the parameters for domestic policy-making on international investment—has developed rapidly, remains in flux, and needs to be improved to maintain its effectiveness and legitimacy.
National (as well as international) policy-making regarding MNEs and their international investment takes place in the context of sets of tensions for governments seeking to attract FDI and benefit from it as much as possible, and minimise any negative effects. Hence, national policies regarding FDI, and the international regulatory framework within which national policies are formulated, are of key importance for host countries, and they can conflict with the goals of MNEs to maximise their international competitiveness and global profits. In the 1990s, countries began to establish investment promotion agencies with the specific brief to attract as much FDI as possible. Since the turn of this century, however, national approaches in both developed countries and emerging markets towards incoming FDI have become more nuanced. Achieving the right balance has become a key challenge for countries, and it is one that emerging markets, especially with regard to outward FDI by their firms, increasingly need to consider.
A defining characteristic of the investment regime is that investors have a private right to action when seeking redress, under the investor-state dispute-settlement (ISDS) mechanism enshrined in the majority of IIAs. From the perspective of international investors, this is a strong and positive feature of the investment regime, but it entails considerable risks for host country governments. A topical and urgent question is whether appeals mechanisms for current ad-hoc tribunals, a world investment court as a standing first-instance tribunal making the decision in any dispute settlement case, or a combination of both should be established. Institutionalising dispute settlement in this manner would be a major step towards improving the investment regime. Difficult as it is to improve the current dispute settlement mechanism, embarking on a process of examining how this could be done, with a view towards bringing a better mechanism into being, would send a strong signal that governments recognise that the ISDS mechanism would benefit from improvement.
An independent Advisory Centre on International Investment Law would help to establish a level playing field by providing administrative and legal assistance to respondents that face investor claims and are themselves not in a position to defend themselves adequately. The WTO experience provides useful inspiration. An Advisory Centre on International Investment Law—which would suitably complement a reform of the ISDS mechanism—could do the same thing for the international investment regime. Related questions could be pursued in a working group consisting of representatives from principal stakeholders. It could be serviced by an NGO with a track record of work on the international trading system. It could, hopefully, also draw on the experience of intergovernmental organisations with an interest in this subject.
The growing criticism of the investment regime suggests that a new balance is required. This begins with the objectives of IIAs, more and more of which recognise, in their preambles, objectives other than protection, as well as the right to regulate. It also includes the continuing demand that foreign investors, like domestic investors, have responsibilities too, and not only host countries. Unless the regime can be made more holistic, reflecting in a balanced manner the interests of all principal stakeholders and defining the relationships between foreign investors and governments in general, it risks losing its legitimacy in the longer run.
There is also the question whether the ideal approach would be to have one instrument that defined the relationships between governments and international investors—a universal framework on international investment that, in a coherent and transparent manner, would provide the predictability and stability that long-term investment needs. If a truly universal framework is considered out of reach at this time, one might want to consider whether a plurilateral framework on international investment could serve as a first step in that direction.
Concluding, the paper suggests that it would be desirable to launch an informal but inclusive confidence-, consensus- and bridge-building process on how the international investment law and policy regime can be improved. Such a process could seek to identify systematically the strengths and weaknesses of the current regime and discuss how to deal with them. It could also consider a number of the issues that were discussed as not being FDI/international investment proper, as many of them are intimately linked to it. It would have to be an inclusive process and hence involve the principal stakeholders to ensure that main interests are taken into account.
Tag: Bilateral Investment Treaties, Competition Policy, Dispute Settlement, Diversification & Competitiveness, International Investment Agreement, Investment Protection, Multinational Enterprise, Regional/Bilateral/Plurilateral, Regulation, Regulatory Systems Coherence, Services, State Owned Enterprises, System Legitimacy