DEUS OTIOSUS»

34

Shareholding less than 10%, bonds are regarded as portfolio investment See Krishan D., ‘A Notion of ICSID Investment’ in Weiler T. J. G. (eds), Investment Treaty Arbitration: A Debate and Discussion (Juris Publishing 2008) 16.

35

Sornarajah M., The International Law on Foreign Investment (Cambridge University Press 2010) 227.

36

Dekastros maintains that the ‘conceptualisation of investment and the outer limits should be determined by the marketplace, indicating that portfolio investment should be contained in the definition of ‘investment’. See Dekastros M., ‘Portfolio Investment: Reconceptualising the Notion of Investment under the ICSID Convention’ (2013) 14 The Journal of World Investment and Trade 319.

37

For instance, the US-Argentina BIT describes ‘investment’ as ‘a company or shares of stock or other interests in a company or interests in the assets thereof’. France model BIT (Article 1 Definitions) stipulates that the term ‘investment’ means every kind of assets, such as goods, rights and interests of whatever nature. For a comprehensive analysis of the definition of investment in IITs, see OECD, International Investment Law: Understanding Concepts and Tracking Innovations (OECD 2008); Malik M., ‘Definition of Investment in International Investment Agreements’ (The International Institute for Sustainable Development Best Practices Series 2009) available at http://www.iisd.org/pdf/2009/best_practices_bulletin_1.pdf, accessed 16 July 2013.

38

IIL researchers have made efforts to explore the tension between the environment and foreign investments from various aspects. Generally, research focuses on expropriation with the aim to draw a line between regulatory environmental measures and expropriation. This research will use a chapter to explore this area. In the meanwhile, research also refers to the states’ regulatory power under the treaty context of the fair equitable treatment (e.g. Moshe H., ‘Between Fair and Equitable Treatment and Stabilization Clause: Stable Legal Environment and Regulatory Change in International Investment Law’ (2011) 12(6) Journal of World Investment and Trade 783), through treaty interpretation (e.g. Benedetto S. D., International Investment Law and the Environment (Edward Elgar Publisher 2013), and through due process and stability requirements (e.g. Viñuales J. E., Foreign Investment and the Environment in International Law (Cambridge University Press 2012) 337).

FDI is regarded as ‘direct foreign investment’,39 which refers to either the process of investments or the assets in investments. FDI is defined as an economic concept, but its definition has also been explored in IIL. Both FDI and other types of international investment, for instance, PI are included in and protected widely by some IITs. However, this research explores environmental protection in IIL and the environmental concerns are not related to all forms of investments

.

The definition of investment is not unchangeable. Schreuer argues that it is not realistic to reach a world-wide accepted definition of investment because IITs define investment differently.40 But Schreuer concludes some general features of investment under the ICSID framework. Despite the ‘typical features’, the ICSID tribunals reach different conclusions according to different cases. For instance, the Malaysian Historical Salvors SND tribunal maintained that some ‘domain decided cases’ such as Salini, Joy Mining, Jan de Nul, Patrick Mitchell and Mihaly have contributed to the interpretation of investment under ICSID 25 (1) (the definition of investment in ICSID) from different angles.41 In this regard, the job of defining investment is endless because tribunals will always add or delete some elements to the definition of investment when new cases occur.

The definitions of FDI have been changing. Salacuse holds that ‘lawyers, arbitrators, economists, financiers and business executives may define investment in different ways’ even though ‘(most) treaties adopt an asset-based definition of investment’.42 Starting from the aspect of technology, Graham and Spaulding demonstrate that the definition of FDI has been broadened and is expanding.43 Looking at the changes over time, for example, FDI mainly referred to the capital movement in the nineteenth century and it began to embrace the technology transfer and service supply in the mid-twentieth century.44 Campos and Kinoshita maintain that FDI is expanding technology to wider

39

Colebrook P., Going International (McGraw-Hill Book Enterprise Ltd. 1912); Sethi S. P., ‘Political Risk Analysis and Direct Foreign Investment: Some Problems of Definition and Measurement’ (1986) 28(2) California Management Review 19.

40 _{Schreuer C., The ICSID Convention: A Commentary (Cambridge University Press 2001) 138-140.} 41

The Salini award contributes to the definition of investment by carrying out four criteria; the Mihaly award discusses whether pre-contractual expenditure should be involved in defining investment. See Malaysian Historical Salvors SND, BHD v. Malaysia, award on Jurisdiction of 17 May 2007 (ICSID Case No. ARB/05/10) 56-64.

42

Salacuse J. W., The Law of Investment Treaties (Oxford University Press 2009) 29.

43 _{For instance, with the growth of intellectual property and software technology, fixtures, machinery and}

buildings, which were the basic elements of FDI in the past, are in less need now. Also, the direct control is loosening because of the emergence of indirect FDI. Graham J. P. and Spaulding R. B., ‘Understanding Foreign

Direct Investment (FDI)’ (2011) available at

http://www.going-global.com/articles/understanding_foreign_direct_investment.htm, accessed 24 November 2011.

44

UNCTAD, International Investment Agreements 2004:Key Issues (United Nations Conference on Trade and Development 2005)114-116.

areas and technology transfer is more crucial to FDI.45 The World Bank Guidelines on the Treatment of Foreign Direct Investment also defines FDI to include the managerial skills and technology.46 From a legal and political perspective, the definitions of FDI are changing as well. For instance, the UNCTAD demonstrates that the capital-movement-oriented instruments would define FDI in a way towards removing obstacles to investment, while definitions of FDI in the protection-oriented instruments would focus on the safeguard of investors’ interests. In addition, the host countries which need long-term investments are prone to take measures to attract FDI. Consequently, such definitions of FDI would embrace fewer restrictions on foreign investments.

The definitions of FDI change under the comprehensive influence of all the factors including time, economy, legislation and politics, and such a trend is clearly demonstrated in the historical development of FDI. After the era of colonialism, the definition of FDI tended to include the nationalism factors, in which more states’ regulatory powers were involved. Indeed, the birth of the doctrine of permanent sovereignty over natural resources illustrated such a trend.47 The underlying reason could be the need of the newly established states to launch their domestic markets and to improve their domestic economic order. The political needs for state’ regulatory power over investments and the economic needs for the recovery from colonialism were therefore the causes promoting nationalism in the definition of FDI.

When it comes to the late twentieth century, with the global promotion of free markets, especially with the fierce competition among the developing countries to attract FDI, the definition of FDI presents a trend of liberalization. For instance, according to the Enterprises Tax Law of China, the general tax rate

45

Nauro F. C. and Yuko K., Foreign Direct Investment and Structural Reforms: Evidence from Eastern Europe and Latin America, (International Monetary Fund 2008) 3, 18.

46

In the World Bank Guidelines on the Treatment of Foreign Direct Investment (TFDI), FDI is identified through the aim and impact on economic development. The TFDI evaluates FDI to improve the long term economic efficiency of host states by transferring capital, management skills and technology, by competition and by the enhancement of market access. See World Bank, World bank Guidelines on the Treatment of Foreign Direct Investment (World Bank 1999) (‘Recognizing that a greater flow of foreign direct investment brings substantial benefits to bear on the world economy and on the economies of developing countries in particular, in terms of improving the long term efficiency of the host country through greater competition, transfer of capital, technology and managerial skills and enhancement of market access and in terms of the expansion of international trade’); furthermore, the TFDI encourages members to advocate FDI from other states in the forms of capital, technology and managerial skill transfer. In this way, technology and managerial skill are included in FDI. Article 2.1 of the World Bank Guidelines on the Treatment of Foreign Direct Investment (‘Each State will encourage nationals of other States to invest capital, technology and managerial skill in territory and, to that end, is expected to admit such investments in accordance with the following provisions’).

47

Cambou D. and Smis S., ‘Permanent Sovereignty Over Natural Resources From A Human Rights Perspective: Natural Resources Exploitation And Indigenous Peoples’ Rights In The Arctic’ (2013) 22(1) Michigan State International Law Review 347; Miranda L. A., ‘The Role of International Law in Intrastate Natural Resource Allocation: Sovereignty, Human Rights, and Peoples-Based Development’ (2012) 45 Vanderbilt Journal of Transnational Law 785.

for the domestic enterprises was 25%, while the rate of foreign enterprises was 20%.48 Although the tax law did not focus on FDI, 5% lower tax rate provided preferential treatment to foreign investors. Sornarajah affirms that the protection towards investment and the liberalization in the entry of investment can usually be found in the BITs at that time.49 Schill holds the similar opinion and argues that IITs should aim to provide protection to foreign investment, but not to impose too much restriction.50

Successive economic crises spread all over the globe and some were caused by the sudden withdrawal of investment.51 Therefore, both developing and developed countries began to reconsider the role FDI, although the developed countries are reluctant to change their FDI policies because of the existing interests and the influence from the MNEs. In this situation, the definition of FDI changed again to accommodate more restrictions on FDI. For instance, some countries have abandoned the flexible protection mechanisms to regulate the sovereignty wealth funds. As a result, ‘the treaties the developed states drafted to protect the foreign investment of their nationals will soon come to haunt them.’52