ATTRACTING INVESTMENT FOR

REGIONAL INTEGRATION

Brendan Berne, Assistant Secretary

Investment and Economic Branch

Outline

Objectives of negotiating investment articles in

international agreements

– outline the objectives of negotiating international investment

agreements

Investment-related articles

– explore some of the key Articles of modern investment

agreements, based on Australia’s FTA practice

OBJECTIVES OF NEGOTIATIONS

Investment articles in international agreements

Negotiating international agreements

Governments that sign international investment agreements:– agree to limit their regulatory powers

– guarantee certain treatment of investments

Why would a government wish to enter into such an agreement?

By the end of 2012:– 2,900 international investment

agreements in force

– Australia party to 21 FTAs and BITs

Domestic Businesses

Domestic Regulators

Broader Public

What are those benefits?

Investment agreements

– can provide a stable, predictable, and transparent framework for

attracting investment and maximising its benefits

– predictability and transparency

– country specific goals

attract foreign investment

strengthen domestic regulatory framework

protect own investors abroad

set regional and international norms

liberalise the investment environment

ARTICLES

Investment related articles in international agreements

Investment-related Articles

General principles

– comprehensive investment agreements tend to:

• provide broad coverage of investment activities

– pre-establishment and post-establishment phases of investment

• cover ‘four pillars’

– protection

– promotion

– facilitation

– liberalisation

• build on existing agreements

Overview of an investment agreement

Definitions

Substantive treatment obligations (core disciplines):

Liberalisation commitments: MFN National Treatment Market Access

Protections: MST Transfer Domestic RegulationExpropriation

ExceptionsReservations /

Non-Conforming Measures (NCMs)

Administrative provisions

Non-discrimination Obligations

National Treatment and MFN

– commitments are central to modern investment agreements

– core obligations

– date back to earliest investment agreements

Example

– Treaty of Peace, Friendship, Commerce and Navigation signed

by Brunei and the United States on 23 June 1850

Article II provides that the citizens of each state shall enjoy “all the

privileges and advantages with respect to commerce or otherwise,

which are now or which may hereafter be granted to the Citizens or

Subjects of the most favoured nation.”

Korea-Australia FTA (KAFTA)

ARTICLE 11.4: MOST-FAVOURED-NATION TREATMENT

1. Each Party shall accord to investors of the other Party treatment no less favourable than that it accords, in like circumstances, to investors of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments in its territory.

2. Each Party shall accord to covered investments treatment no less favourable than that it accords, in like circumstances, to investments in its territory of investors of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments.

Korea-Australia FTA (KAFTA)

ARTICLE 11.3: NATIONAL TREATMENT

1. Each Party shall accord to investors of the other Party treatment no less favourable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments in its territory.

2. Each Party shall accord to covered investments treatment no less favourable than that it accords, in like circumstances, to investments in its territory of its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.

Reservations

Need to maintain appropriate reservations

– against the core non-discrimination disciplines

• NT, MFN, SMBD, PRs

Two approaches to scheduling measures that do not

comply

– Positive list:

• list the commitments that the host country makes for each sector

– Negative list:

• list the restrictions (non-conforming measures or reservations) that

the host country reserves the right to retain for each sector

Positive List: MAFTASector or

Sub-SectorLimitations on Market Access

Limitations on National Treatment

Additional Commitments

II. SECTOR SPECIFIC COMMITMENTS

Urban planning services

CPC 86741

1) None.

2) None.

3) Only through a locally incorporated joint organisation with Malaysian registered town planners. The aggregate foreign equity shall not exceed 30 per cent and to register with the Board of Town Planners Malaysia.

Establishment of such joint-venture corporation is only for duration necessary to complete the services contract.

1) None.

2) None.

3) Unbound.

Negative List: Australia-Chile FTA (Annex I)

Sector: Transport Services

Obligations Concerned: National Treatment (Articles 9.3 and 10.3) Local Presence (Article 9.6)

Level of Government: Central

Source of Measure: Trade Practices Act 1974 (Cth)

Description: Cross-Border Trade in Services and Investment

Every ocean carrier who provides international liner cargo shipping services to or from Australia must, at all times, be represented by a natural person who is resident in Australia.

Only Australian flag operators may apply to the Australian Competition and Consumer Commission to examine whether conference members, and non-conference operators with substantial market power, are hindering other shipping operators from engaging efficiently in the provision of outward liner cargo services to an extent that is reasonable.

Negative List: Australia-Chile FTA (Annex II)

Sector: Education services

Obligations Concerned: National Treatment (Articles 9.3 and 10.3)

Most-Favoured-Nation Treatment (Articles 9.4 and 10.4)

Local Presence (Article 9.6)

Performance Requirements (Article 10.7)

Senior Management and Boards of Directors (Article 10.8)

Description: Cross-Border Trade in Services and Investment

Australia reserves the right to adopt or maintain any measure with respect to primary education.

What should we do?

Australia’s strong preference to:

– adopt a comprehensive negative list approach to scheduling

• single schedule covering both investment and services

– minimise the number of NCMs and reservations

– negotiate ‘living Agreements’ that capture progressive

liberalisation as occurs

Core protections

Protecting investors from losses due to

armed conflict or civil strife

Avoiding expropriation without prompt,

adequate and effective compensation

Treat investments in line with internationally accepted minimum

standards of treatment

Restricting the imposition of performance requirements

Guaranteeing an investor’s right to

transfer capital and profits

Core protections

Example

– US-Brunei Treaty of Peace, Friendship, Commerce and

Navigation 1850

– Article III stipulates that citizens of the United States shall

“…enjoy full and complete protection and security for themselves

and for any property which they may so acquire in future, or

which they may have acquired already, before the date of the

present convention.”

Korea-Australia FTA (KAFTA)

ARTICLE 11.5: MINIMUM STANDARD OF TREATMENT

1. Each Party shall accord to covered investments treatment in accordance with the customary international law minimum standard of treatment of aliens, including fair and equitable treatment and full protection and security.

2. For greater certainty, paragraph 1 prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to covered investments. The concepts of “fair and equitable treatment” and “full protection and security” shall not require treatment in addition to or beyond that which is required by that standard, and shall not create additional substantive rights. The obligation in paragraph 1 to provide:

(a) “fair and equitable treatment” includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world; and

(b) “full protection and security” requires each Party to provide the level of police protection required under customary international law.

3. A determination that there has been a breach of another provision of this Agreement, or of a separate international agreement, shall not establish that there has been a breach of this Article.

Malaysia-Australia FTA (MAFTA)

ARTICLE 12.10: TREATMENT IN CASE OF STRIFE

Each Party shall accord to investors of the other Party, and to covered investments, with respect to measures it adopts or maintains relating to losses suffered by investments in its territory owing to armed conflict, civil strife or state of emergency, treatment no less favourable than that it accords, in like circumstances, to:

(a) its own investors and their investments; and

(b) investors of a non-Party and their investments.

ASEAN-Australia-New Zealand FTA (AANZFTA)

ARTICLE 9: EXPROPRIATION AND COMPENSATION (EXTRACT)

1. A Party shall not expropriate or nationalise a covered investment either directly or through measures equivalent to expropriation or nationalisation (expropriation), except:

(a) for a public purpose;

(b) in a non-discriminatory manner;

(c) on payment of prompt, adequate, and effective compensation; and

(d) in accordance with due process of law.

2. The compensation referred to in Paragraph 1(c) shall:

(a) be paid without delay;

(b) be equivalent to the fair market value of the expropriated investment at the time when or immediately before the expropriation was publicly announced*, or when the expropriation occurred, whichever is applicable;

(c) not reflect any change in value because the intended expropriation had become known earlier; and

(d) be effectively realisable and freely transferable between the territories of the Parties.

Exceptions

Australia supports appropriate

exceptions to the disciplines

– ensure a balance between

commitments to investors and

government’s ability to regulate

Examples

– safeguard measures in the case of

balance of payments crises

– taxation measures

– safeguard essential security

interests

– secure compliance with laws and

regulations that are not

inconsistent with the Agreement

– protect legitimate public welfare

objectives, such as public health,

safety, and the environment.

QUESTIONS?