CAPÍTULO III: MIXTURA DE INGREDIENTES EN LA ACCIÓN PÚBLICA: LOS
3.4 Los desafíos para la acción pública
1. What is an “Investment” ?
The definition of an "investment” is crucial in a multilateral investment treaty because it determines its scope of application and its normative content.
The Guidelines do not define “foreign”, “direct”, “investment” or “investor". The instrument lacks definitions because it was not intended to restrict the application of the Guidelines or the nature of the investors, which would benefit from them.i Also, at the time of the Guideline’s preparation and adoption it did not seem to be necessary to specify key terms because it was apparent that they would be non-binding, serving as a set of guiding principles.
Nearly all investment treaties, such as BITs, RIAs and some multilateral agreements, however, contain a more or less clear definition of what an “investment” is. Before considering these definitions in detail, we need to outline briefly which transactions are not "investments”.
Investments need to be distinguished from trade transactions. The latter are usually carried out in the form of transborder flows of goods or services. Their main feature is that goods or services, sold by a manufacturer or service provider in one State, are purchased by traders or users in another State. The essential difference between foreign investments and transborder trade transactions is that the former necessarily involve a continuing relationship between the foreign investor and the host State.^ Foreign investment usually has a much deeper impact on the local economy, as the investor is an active participant in the economic and often in the political processes of the host country.^
There is a wide variety of definitions of an “investment”. Some national investment laws are silent on this matter.^ Others describe an “investment” as "capital in terms of money or any
1 ) Shihata, Legal Treatm ent o f Foreign Investment: The World Bank Guidelines (Dordrecht, Boston, London: Martinus Nijhoff Publishers, 1993), 68.
2 ) Sornarajah, The Intem ational Law on Foreign Investment, 7. 3 ) / b / d .
4 ) Foreign Investment Act of Namibia, 1990, which does define “foreign assets", but lacks a definition of “investment” although this term is subsequently used in the instrument.
type of assets.’’^ Recent codes incorporate precise definitions very similar to those contained in most BITs.6
Model BITs, by contrast, are nearly identical and clearly define “investment”. The model BITs of China, the UK, Germany, Chile and Switzerland determine “investment” as every kind of asset, in particular:
1. moveable and immovable property as well as any other rights
in rem,
such as servitudes, mortgages, liens, pledges and usufructs;^2. shares, parts or any other kind of participation in companies;8 3. claims to money or to any performance having an economic value;^
4. copyrights, industrial property rights (such as patents, utility models, industrial designs or models, trade or service marks, trade names, indications of origin), know-how and goodwill;^^
5 ) Law on Foreign Investment in Vietnam as amended, 1996, Art. 2(1). ® ) Law on Foreign Investment in Albania, 1993, Art. 1(3).
7 ) Swiss model BIT, 1995 (Swiss model BIT), Art. 1(2)(a). Compare: German model BIT, 1991 (German model BIT), Art. 1(1 )(a) with the same wording as the Swiss model BIT except for “servitudes” and “usufructs", which are not included in the German model BIT. Article 1(a)(1) of the UK model BIT, 1991 (UK model BIT) is the same as Art. 1(1 )(a) of the German model BIT except for “any other rights in rem ” which in the UK model BIT reads: “any other property rights”. Article 1(1 )(a) of the Chinese model BIT is the sam e as Art. 1(a)(i) of the UK model BIT without the words “any” and “liens”. Article 1(2)(a) of the Chilean model BIT is identical to Art. 1(a)(1) of the UK model BIT. The Swiss, German, UK, Chinese and Chilean model BITs referred to are published by UNCTAD. See: UNCTAD,
Intemational Investment Instruments: A Compendium, Vol. Ill - Regional Integration, Bilateral and Non-govem m ental Instruments (New York and Geneva: UN, 1996), UN Doc. U N C T AD /D T C l/30( Vol. 111 ), at pp. 177, 1 6 7 ,1 8 5 ,1 5 1 and 143 respectively.
8 ) Swiss model BIT, Art 1(2)(b). The German model BIT in Art. 1(1)(b) reads: “shares of companies and other kinds of interest in companies." Article 1(2)(b) of the Chilean model BIT states: “shares, debentures and any other kind of participation in companies”, while Art. 1(a)(ii) of the UK model refers to “shares in and stock and debentures of a company and any other form of participation in a company”. The Chinese model BIT includes in Art. 1(1 )(b) “shares, stock and any other kind of participation in companies”.
9 ) Swiss model BIT, Art. 1(2)(c). Article 1(1 )(c) of the German model BIT slightly modifies this wording to “claims to money which have been used to create an economic value or claims to any performance having an economic value”. Article 1(2)(c) of the Chilean model BIT is identical to Art. 1(2)(c) of the Swiss model BIT except for “loans or other”, which is added at the beginning of the Article. Article 1(1 )(c) of the Chinese model BIT is the sam e as Art. 1(2)(c) of the Swiss model BIT and Art. 1(a)(iii) of the UK model BIT refers to “claims to money or any performance under contract having a financial value”.
10 ) Swiss model BIT, Art. 1(2)(d). The relevant provision in the UK model BIT includes: “intellectual property rights, goodwill, technical process and know-how”. Article 1(1 )(d) of the Chinese model BIT covers “copyrights, industrial property, know-how and technological process". Article 1(1 )(d) of the Chilean model BIT refers to all assets listed in Art. 1(a)(iv) of the UK model BIT plus “industrial property rights, including copyrights, patents, trademarks, trade names”. The German model BIT includes in Art. 1(1 )(d) “intellectual property rights, in particular copyrights, patents, utility-model patents, registered designs, trademarks, trade names, trade and business secrets, technical process, know-how and goodwill”.
5. concessions under public law, including concessions to search for, extract or exploit natural resources as well as other rights given by law, by contract or by
concession of the authority in accordance with the law/i
In addition to these five categories of assets, US BITs include a sixth type of investments, namely “rights conferred pursuant to law, such as licenses and permits.”''^ Other model BITs follow the “five category definition", but differ in certain d e t a ils J ^ Countries usually attempt to
modify their model BITs as little as possible when negotiating real BITs. Many BITs in force therefore define an “investment” as the model BIT of one of the Contracting Parties.''^
While model BITs and BITs in force incorporate a rather standardised definition of an “investment”, RIAs differ in their approach to specifying the term. A reason for this is that it is easier to agree upon such a key term in a treaty between two parties, rather than between three or more States. Descriptions of an “investment” in RIAs range from “all assets (including everything that can be evaluated in monetary terms)... moveable, immovable, in cash, in kind, tangible...rights and claims...net profits...and the undivided shares and intangible r i g h t s ” , to definitions very similar to those contained in model BITs."*® A few RIAs embrace extremely detailed and carefully drafted lists of specific assets constituting an “investment.”^^
Finally, some multilateral treaties define an “investment”. They are comparable to RIAs as regards the enormous range of solutions they offer. Early instruments, for instance the ICC
) Swiss model BIT, Art. 1(2)(e). Compare: the UK model BIT in Art. 1(a)(v) refers to “business concessions conferred by law or under contract, including concessions to search for, cultivate, extract or exploit natural resources”. Article 1(2)(e) of the Chilean model BIT is identical to Art. 1(a)(v) of the UK model BIT without the word “business”. The Chinese model BIT in Art. 1(1 )(e) contains the same provision as the Chilean model BIT without the words “cultivate” and “extract”. Finally, Art. 1(1 )(e) of the German model BIT is tantamount to Art. 1(a)(v) of the UK model BIT except for the words “by law or under contract", which the Germ an model BIT replaces with “under public law”.
12 ) US model BIT, 1994 (US model BIT), Art. I(d)(vi), UNCTAD, Intemational Investment Instmments: A
Compendium, Vol. Ill - Regional Integration, Bilateral and Non-govem m ental Instruments, 195.
13 ) See, e.g., the three versions of the AALCC model BIT, Art. 1(a), UN CTAD , Intem ational Investment Instruments: A Compendium, Vol. Ill - Regional Integration, Biiateral and Non-govem m ental Instruments, 115.
1^ ) See: e.g.. Agreement for the Promotion and Protection of Investment between the UK and India, dated March 14, 1994, Art. 1(b) is identical to Art. 1(a) of the UK model BIT and Treaty Concerning the Encouragement and Reciprocal Protection of Investment between the US and Jordan, dated July 2, 1997, adopts in Art. 1(d) the “six category definition” of an “investment” as drafted in the US model BIT.
15 ) Agreem ent on the Promotion, Protection and Guarantee of Investment Among Mem ber States of the Organisation of the Islamic Conference, Arts. 4-5.
16 ) The definition of an “investment" in Art. 1(3) of the Agreement on the Promotion and Protection of Investment between the ASEAN Countries is identical to the definition contained in Art. 1(a) of the UK model BIT, except for certain intellectual property rights, where the UK model BIT seems to be wider than the ASEAN Agreement.
17 ) See: North American Free Trade Agreement, Art. 1139 and Art. 1721(2). 34
Code of Fair Treatment for Foreign Investments, cover only typical assets, such as real property, commercial and financial enterprises, company shares and private and public loans."'® Recent proposals, by contrast, embody a much more detailed list of assets constituting an "investment".
The ICSID Convention does not define the term mainly because it was not intended to limit its scope, and thereby cause unnecessary jurisdictional problems.^® As parties always have to consent to proceedings under this convention,2i there was no need to give a precise definition of an "investment”.22 Parties may thus specify the term themselves within certain objective limits. ICSID lacks, for instance, jurisdiction over disputes obviously not related to an investment, even if disputing parties agree that their transaction constitutes an “investment”. Such a conflict may, for example, arise out of the sale of goods.2® This limitation of ICSID’s jurisdiction is reflected in Art. 36(3) of the ICSID Convention. It allows the Centre’s Secretary General to refuse to register a request for ICSID arbitration if the dispute “is manifestly outside the jurisdiction of the Centre". In practice, ICSID tribunals tend to interpret an “investment dispute" as required by Art. 25(1) of the ICSID Convention rather broadly, giving the express agreement of parties great weight as to what is an “investment’’.24
Fedax N.V. vs. Venezuela^^
was the first case before an ICSID tribunal in which the jurisdiction of the Centre was challenged on the ground that the underlying transaction^8 ) ICC Code of Fair Treatm ent for Foreign Investments, Art. 2. Unlike the draft MAI the ICC Code did not, for instance, include intellectual property rights and contractual rights other than those under loan agreements into its definition of an “investment”.
19 ) Draft Multilateral Agreement on Investment (version: February 1 4 ,1 9 9 8 ), Sec. Il(1)(2) defining an investment as: (i) an enterprise (being a legal person or any other entity constituted or organised under the applicable law of the Contracting Party, whether or nor for profit, and whether private or government owned or controlled, and including a corporation, trust, partnership, sole proprietorship, branch, joint venture, association or organisation); (ii) shares, stocks or other forms of equity participation in an enterprise, and rights derived therefrom; (iii) bonds, debentures, loans and other forms of debt, and rights derived therefrom; (iv) rights under contracts, including turnkey, construction, management, production or revenue-sharing contracts; (v) claims to money and claims to performance; (vi) intellectual property rights; (vii) rights conferred pursuant to law or contract such as concessions, licenses, authorisations, and permits; (viii) any other tangible and intangible, moveable and immovable property, and any related property rights, such as leases, mortgages, liens and pledges.
20 ) Gopal, “International Centre for Settlement of Investment Disputes” (1982) 14 Case W est.Res.J.lnt’I.L. 591 at 599.
21 ) ICSID Convention, Art. 25(1). For more details on this requirement, see infra: chapter B V 3b(ii).
22 ) Amerasinghe, “The International Centre for Settlement of Investment Disputes and Development Through the Multinational Corporation” (1976) 9 Van.J.Transnat’I.L. 793 at 804. For a critical view on this lack of definition in the ICSID Convention, see: Gopal, International Centre for Settlement o f Investment Disputes, 599-600.
23 ) Hirsch, The Arbitration Mechanism o f the International Centre for the Settlem ent o f Investment Disputes (London, Dordrecht, Boston: Martinus Nijhoff Publishers, 1993), 59-60. For a more comprehensive list of transactions not considered to be an “investment” under the ICSID Convention, see: Szasz, “A Practical Guide to the Convention on Settlement of Investment Disputes” (1968) 1 Cornell Int’I.L.J. 1 at 14-15.
24 ) Alcoa Minerals o f Jamaica Inc. vs. Jam aica (Jurisdiction) [1975] 4 YB Com.Arb. 206 at 207 (excerpt). 25) (Jurisdiction) [1997] 3 7 ILM 1378.
was not an “investment”. The arbitrators confirmed in this case that a loan may be an “investment” within ICSID’s jurisdiction. The purchase of promissory notes, which are evidence of the loan, therefore also qualifies as an “investment” under Art. 25(1 ).26 The
ad hoc
committee annulling theAmco^^
award rejected the argument of Indonesia that the initial ICSID tribunal had exceeded its competence because the conflict did not constitute an “investment dispute”. Indonesia and Amco had arguedinter alia
about the legitimacy of a military intervention of the Indonesian army and police, interfering in the operation of a hotel set up and managed by Amco.The
ad hoc
committee held that these specific activities constituted an integral part of the entirecontroversy over Amco’s investment in Indonesia and could not be separated from it.^s
These few examples prove that there is no uniform description of an "investment”. How should a future multilateral investment treaty best define this term? It will be essential that the definition serves the purpose of the agreement.^s The Convention aims at encouraging international investment flows. This objective needs to be reflected in a broad definition, considering the variety of modern forms which an “investment” may take. The definition should go beyond traditional concepts of property and explicitly include assets which are not easily recognised as an "investment”, such as industrial property rights and goodwill,3o business secrets, licenses, permits and certain contractual rights, particularly those to exploit natural resources. These assets, with their inherent potential to earn revenue in the future, often have an enormous economic value far exceeding the monetary worth of properties, traditionally termed “investment”,
e.g.
goods, real estate, shares or other ownership interests in an enterprise.The definition of an “investment” has to utilise language which is flexible enough to extend the scope of the Convention to new forms of investment. They may emerge in the future and should be covered by the treaty without making re-negotiation of the agreement necessary.^i This feature is particularly important because the concept of “investment” evolves over time and is not a fixed and unchangeable set of assets.
2 6 ) / M , 1384.
27 ) Amco Asia Corporation and Others (Amco) vs. Indonesia (Annulment) [1986] 8 9 ILR 514.
28 ) W . , 535.
29 ) For more details on the purpose of the Convention, see supra: chapter A II.
30 ) The concept of goodwill as a separate property right is a more recent development. Earlier publications indicate that goodwill cannot be a separate right of its own, unrelated to an enterprise. See: White, Nationalisation o f Foreign Property [London: Stevens & Sons Ltd., 1961), 49.
31 ) UNCTAD, Series on Issues in International Investment Agreements: Scope and Definition (Geneva: UN, 1999), 62. UN Doc.UN CTA D/ITE/IIT/11(Vol.ll).
The definition ought to ensure that trade transactions are excluded. An investment Convention which regulates trade transactions is likely to cause unnecessary duplication of or even conflict with other multilateral treaties on trade, such as the WTO Agreement or any of its related instruments. For instance, the WTO system addresses inter-State disputes in the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). The DSU provides for a certain scheme of inter-State dispute resolution. This regime differs considerably from the arrangements for inter-State dispute settlement suggested for the C o n v e n tio n .32 If an
inter-State dispute on a trade-related issue arose, the dispute settlement provisions of the DSU and the investment agreement would co n flict.3 3
However, it will be crucial to find the appropriate balance between a wide, flexible, broad and illustrative list of assets, which constitute an “investment” on the one hand, and the exclusion of non-investment transactions on the other. To determine the borderline between these objectives requires a high degree of sophistication and foresight from the drafters. There will never be a single definition of an “investment” for all contexts. But model BITs and the draft MAI may very well serve as a starting point for the most difficult task of defining the term in the Convention.
2. When is an Investment “Foreign” and “Direct” ?