INVESTMENT
AGREEMENTS: POSITIVE AND NEGATIVE IMPACTS ON HOST COUNTRIES. MONGOLIAN
PERSPECTIVE
by: Unentugs Shagdar
2010.10.01. Mongolian National and International Arbitration (MNAC)
I would like to draw your attention to the Investment Agreements: Positive and Negative Impacts on Host Countries. Mongolian Perspective.
Bilateral Investment Treaties
A bilateral investment treaty is an agreement between two countries
dealing with the treatment of investment by individuals or companies from
either party to the treaty, in the territory of the other party to the treaty
setting out from of dispute settlement available to parties when disputes arise
between nationals of one party (Home State) and other party (Host State)[1]. The
first Bilateral Investment Treaty was signed on 25 November 1959, between
Pakistan and Germany, and entered into force on 28 November 1962[2].
In the decades that followed, BITs were the most popular
and dominant legal facility for the regulation and protection of foreign
investments. Those treaties are characterized by special investment rules of
highly sophisticated and elaborate character.
Especially during the 1990s, there was a stark
proliferation of BITs. As of 1 January 2002, some 2099 BITs were in force.
According to the figures of the UNCTAD World Investment Report 2004, the number
of BITs increased fivefold from 450 in 1990, to 2250 in the year 2000. Between
1994 and 1996 in average approximately 200 treaties per annum were concluded.
These numbers are impressive since only 450 BITs were concluded in the
thirty-one years between 1959 and 1990[3].
The end of the Cold War appears to be the main reason for
this proliferation in the 1990s[4].
Additional reasons were the economic stagnation in many developing countries
(African and Latin Americans), and the growing realization that encouragement
of foreign direct investment would contribute to national welfare and growth in
such countries. By the end of 1999, out of the total 1857 BITs, the structure
of contracting parties appeared to be as follows[5]: For
example
- 737 BITs (ca.38%) were concluded between developed and
developing countries – compared with 260 treaties or 68% at the end of 1989;
- 476 BITs (ca.26%) existed between developing countries –
compared with 40 treaties or 10% at the end of 1989.
Effects of Bilateral Investment Treaties
Many of the BITs seem to follow the same pattern and
include similar features, although their quality varies. Normally, such BITs
regulate important and contentious – tending subjects such as the investment,
treatment of foreign investors and investment, expropriation and
nationalization, transfers of currency, and the Settlement of Investment Disputes[6].
The effect of BITs must be considered ambivalent. On one
hand, experience with BITs suggests that the amount of foreign direct
investment flowing to developing countries is largely determined by factors
other than investment agreements[7]. In
addition, an increasing number of BITs were likely to lead to less transparency
and higher operating costs borne on an investor, particularly on small and
medium-size enterprises.
On the other hand, where a bilateral investment treaty
covers an investment, the specific applicable law will be clear, though there
may still be significant room for differences in interpretation of the terms of
such bilateral agreement[8].
At least the BIT furnishes investor, depending on size and
credibility, is even given the possibility to influence its government in
negotiating the BIT achieving more favourable conditions depending on structure
and intention of the investment.
If the two
countries can use the‘re-discussion’ opportunity to clarify and fine-tune some
of the key provisions of the ISDS proceedings, it may in fact contribute to the
establishment of the workable and reliable proceedings of investment
arbitrations between the two countries in the future. As have been widely
observed in recent investment disputes, many investment arbitrations are raised
because of the ‘ambiguity’ of the BIT at issue and also determined by the ‘ambiguity’
of the BIT. This phenomenon underscores the importance of having treaty texts
as clearly drafted as possible and as practically designed as possible[9].
Furthermore, the ambivalence in the effect of BITs results
from the attempt to reach the balance inherent in a foreign investment, a
balance which is envisaged by the Home and Host State who are party to a BIT, viz, how to attacking and protect FDI
without damaging the host states domestic economies, foreign exchange savings
and natural (mining etc.) resources. Resolving this conflict in a counter
balancing manner is one major obstacle and aim of BITs.
Bilateral investment treaties always cover future
investment; only a few also extend the coverage to investment at the time the
treaty was made[10].
Initially, BITs were concluded between a developed and a
developing country, usually at the initiative of the developed country. The
developed country - typically a capital exporting country - entered into a BIT
with a developing country - typically a capital importing country - in order to
secure additional and higher standards of legal protection and guarantees for
the investments of its firms than those offered under national laws. The
developing country, on the other hand, would sign a BIT as one of the elements
of a favourable climate to attract foreign investors[11].
Bilateral Investment
Treaties signed by Mongolia
Mongolia has concluded the Bilateral Investment Treaties
with 43 countries[12] (of
which 37 have entered into force) a listed below.
Table Bilateral Investment Treaty
Reporter
|
Partner
|
Date of Signature
|
Date of entry
into force
|
|
1.
|
Mongolia
|
Austria
|
19-May-01
|
1-May-02
|
2.
|
Belarus
|
28-May-01
|
1-Dec-01
|
|
3.
|
Belgium and Luxembourg
|
3-Mar-92
|
15-Apr-04
|
|
4.
|
Bulgaria
|
6-Jun-00
|
-----
|
|
5.
|
China
|
25-Aug-91
|
1-Nov-93
|
|
6.
|
Croatia
|
8-Aug-06
|
-----
|
|
7.
|
Cuba
|
26-Mar-99
|
18-Oct-00
|
|
8.
|
Czech Republic
|
13-Feb-98
|
7-May-99
|
|
9.
|
Denmark
|
13-Mar-95
|
2-Apr-96
|
|
10.
|
Egypt
|
27-Apr-04
|
25-Jan-05
|
|
11.
|
Finland
|
15-May-07
|
19-Jun-08
|
|
12.
|
France
|
8-Nov-91
|
22-Dec-93
|
|
13.
|
Germany
|
26-Jun-91
|
23-Jun-96
|
|
14.
|
Hungary
|
13-Sep-94
|
6-Mar-96
|
|
15.
|
India
|
3-Jan-01
|
29-Apr-02
|
|
16.
|
Indonesia
|
4-Mar-97
|
13-Apr-99
|
|
17.
|
Israel
|
25-Nov-03
|
2-Sep-04
|
|
18.
|
Italy
|
15-Jan-93
|
1-Sep-95
|
|
19.
|
Japan
|
15-Feb-01
|
24-Mar-02
|
|
20.
|
Kazakhstan
|
2-Dec-94
|
3-Mar-95
|
|
21.
|
Korea, DPR
|
10-Nov-03
|
------
|
|
22.
|
Korea, Republic of
|
28-Mar-91
|
30-Apr-91
|
|
23.
|
Kuwait
|
15-Mar-98
|
1-May-00
|
|
24.
|
Kyrgyzstan
|
5-Dec-99
|
-----
|
|
25.
|
Laos PDR
|
3-Mar-94
|
29-Dec-94
|
|
26.
|
Lithuania
|
27-Jun-03
|
3-May-04
|
|
27.
|
Malaysia
|
27-Jul-95
|
14-Jan-96
|
|
28.
|
Netherlands
|
9-Mar-95
|
1-Jun-96
|
|
29.
|
Philippines
|
1-Sep-00
|
1-Nov-01
|
|
30.
|
Poland
|
8-Nov-95
|
26-Mar-96
|
|
31.
|
Qatar
|
29-Nov-07
|
-----
|
|
32.
|
Romania
|
6-Nov-95
|
15-Aug-96
|
|
33.
|
Russian Federation
|
29-Nov-95
|
26-Feb-06
|
|
34.
|
Singapore
|
24-Jul-95
|
7-Jan-96
|
|
35.
|
Sweden
|
20-Oct-03
|
1-Jun-04
|
|
36.
|
Switzerland
|
29-Jan-97
|
9-Sep-99
|
|
37.
|
Tajikistan
|
20-Mar-09
|
16-Sep-09
|
|
38.
|
Turkey
|
16-Mar-98
|
22-May-00
|
|
39.
|
Ukraine
|
5-Nov-92
|
5-Nov-92
|
|
40.
|
United Arab Emirates
|
21-Feb-01
|
-----
|
|
41.
|
United Kingdom
|
4-Oct-91
|
4-Oct-91
|
|
42.
|
United States
|
6-Oct-94
|
4-Jan-97
|
|
43.
|
Vietnam
|
17-Apr-00
|
13-Dec-01
|
Source: ICSID
and UNCTAD database;
In the first Bilateral Investment Treaty between Mongolia
and Republic of Korea concluded on March 28, 1991, and entered into force on 30
April 1991. Article 9 set forth method of investment disputes between a
Contracting Party and an Investor of the Other Contracting Party. It provides
that:
“If
any dispute cannot be settled within six (6) months from the date either Party
requested amicable settlement, it shall, upon request of either the investor or
the Contracting Party, be submitted to the International for the Settlement of
Investment Disputes established by the Washington Convention of 18 March 1965
on the Settlement of Investment Disputes between States and Nationals of other
States, on condition that the Mongolian becomes a party to this
Convention".
Until that moment the dispute shall be submitted to
conciliation or arbitration procedure to
be mutually agreed upon
on the basis
of the Washington Convention. Nothing in this Article
shall be construed to prevent the parties to the dispute
from agreeing upon
any other form
of arbitration or
dispute settlement which they mutually prefer and agree best suits their
needs.
Article 10 set forth method of disputes between
settlements of disputes between the Contracting Parties. It provides that:
“If a dispute between the Contracting Parties
cannot be settled after six (6) months, it shall, upon requests either
Contracting Party, be submitted to an arbitral tribunal.”
There is no
provision about the dispute
between foreign investors
and government of host state. Article 5 only stipulated that the
host state cannot expropriate or nationalize the foreign investment except for
the public benefit.
There are similar regulations in the BITs between Mongolia
and China[13], United States[14],
Netherlands[15], Italy[16],
Japan[17],
Hungary[18],
Indonesia[19], Austria[20].
In BIT between Mongolia and Republic of United States done
on January 1997, we can see the foreign investors' direct participation in
dispute settlement.
It provides that: Article
6(2) set forth that first the dispute raised between the sides of investor and
government of host state, they should try to settle it amicably by means of
conciliation, and dispute about compensation of expropriation, if cannot be
settled within six months through amicable procedure, the foreign investor can
require to settlement the dispute before tribunal established by reference to
ICSJD convention proceedings.
Here the provision gave a possibility of enlargement of
dispute scope to the compensation of expropriation. This reflected the
flexibility and the further enlarge application of the Washington Convention in
Mongolia.
In the BIT between Mongolia and Saudi Arabia done on March
21, 1998 was provided that:
“If
the dispute cannot be settled in six months according to the measure section 1,
the dispute will be submitted to court with jurisdiction of the host country,
dispute raise because of amount of compensation of expropriation submitted to
arbitration under the ICSID convention done on March 8. 1999
In the BITs between Mongolia and Cuba, India, Laos,
Romania, which contracting states of the ICSID Convention, the provision about
dispute between the foreign investor and the host country set, forth: “When
dispute relates to amount of compensation from expropriation, if any measure
failed during one year, either party can ask for arbitration. The Treaty should
make their own procedure, they can refer to rules of ICSID and applied law
should be law of host state (including rules of conflict), or This Treaty on
principle of international law accepted by both states to the Treaty”.
From these provisions we can find Mongolia applies the
ICSID mechanism not only to the member states of the ICSID Convention but also
to non-member states. At the same time in all these BIT Mongolia guaranteed
foreign investors that their investment will not be expropriated or nationalized
except for public benefit, and further if the expropriation does happens then
the investor will be appropriately compensated.
Multilateral International Conventions
Multilateral investment rules are scattered among different
legal instruments[21].
Such rules can be part of bilateral treaties, regional investment treaties,
multilateral treaties or even the Agreement. Together, they form an
international investment framework[22].
The most sophisticated and advanced level and compendium of binding
multilateral investment rules would be the agreement. In fact, certain binding
multilateral investment rules were already negotiated and adopted during recent
decades. However, these rules are limited to certain issues (such as Natural
Resources), scattered within an agreement predominantly dealing with other
matters[23]
(e.g. the agreement on Trade-Related Intellectually Property Rights, the TRIPS
Agreement, or the Global Agreement on Trade in Services, the GATS Agreement, or
of non-binding character.
The difficulties in negotiating the agreement are evident not
only from the high number of negotiating parties, but many other circumstances,
for example, the increased number of issues to be debated and possible changes
in government policy of those parties[24].
More participating parties, depending on their economical
situation and interest, mean a greater amount of diverting stances and an
unevenly balanced emphasis on various investment topics. The greater number of
parties increases the likelihood of frustrating and time-consuming changes in
negotiation policies and even failure of negotiations as seen most recently
with MAI and Doha-Round negotiations. Nevertheless, such an extended
negotiation forum also has decisive advantages that will be introduced later[25].
As of 2003, multilateral investment rules existed within
twenty-eight legal instruments[26].
They complement the content of the already existing melting pot of rules
contained in bilateral and regional investment agreements. Fifteen of these
multilateral instruments were of non-binding character and three had not been
adopted yet. Three of the adopted instruments only had model status. One
binding instrument was not adopted yet. Thus, nine multilateral instruments
were actually both adopted and of binding character. The adopted and binding
instruments (including adopted models) –which do not have the complete content
as the contemplated agreements have-were:
·
The United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Award (adopted in 1958);
·
The World Bank Convention on the Settlement
of Investment Disputes between States and Nationals of the States (adopted in
1965);
·
The Model of Arbitration Rules of the United
Nations Commission on International Trade Law (adopted in 1976);
·
The United Nations Model Double Taxation
Convention between Developed and Developing Countries (adopted in 2000);
·
The World Bank Convention Establishing the
Multilateral Investment Guarantee Agency (adopted in 1985);
·
The Permanent Court of Arbitration Optional
Rules for Arbitrating Disputes between two Parties of which only one is a State
(adopted in 1993);
·
The Agreement on Trade-Related Investment
Measures (adopted in 1994);
·
The General Agreement on Trade in Services
(adopted in 1994);
·
The Agreement on Trade-Related Aspects of
Intellectual Property Rights (adopted in 1994);
·
The World Trade Organization’s Fourth
Protocol to the General Agreement on Trade in Services on Basic
Telecommunications Services (adopted in 1997);
·
The World Trade Organization’s Fifth Protocol
to the General Agreement on Trade in Services on Financial Services (adopted in
1997).
A closer look at these instruments reveals three elements (or
developments), which are rather striking.
First, seven of the twelve instruments originate in the
1990s, but before that time period only one instrument was adopted. As already
explained above with regard to regional investment treaties, this proliferation
seems to have been mainly caused by the end of the Cold War period and the
succeeding accelerating international investment activities that followed. Such
development also negates the argument that the high increase of bilateral
treaties in the 1990s makes multilateral investment rules superfluous.
Secondly, the adopted legal instruments and models for
multilateral and models for multilateral investment rules seem to belong
predominantly to three forums – the United Nations (particularly UNCTAD[27]),
the WTO and the World Bank. These forums have been dealing with investment
issues on a less intensive basis since their existence. Thus, it must be
acknowledged that these forums have the greatest competencies and are most
experienced in negotiating, adopting and even enforcing such rules. This
assessment may lead to the conclusion that these forums are also the best
candidates for negotiating and hosting the Agreement.
And finally, six, hence fifty percent, of the aforementioned
multilateral binding instruments were adopted within the framework of the WTO,
emphasizing that the WTO can be considered the most favoured and advanced
multilateral forum for (binding) multilateral investment rules[28].
Although, these WTO rules are limited in scope and sector, their existence
alone, in a forum that has 151 Member States (August 2007), must be seen as
success and a potentially solid basis for further for negotiations.
Multilateral International Conventions in Mongolia
As of October 24 1994 the Mongolia has adopted the 1958 New
York Convention on Recognition and Enforcement of Foreign Arbitral Award[29]. The
major catalyst for the development of an international arbitration regime was
the adoption of New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards 1958. The New York Convention continues to set standard
requirements for a successful international arbitration process[30].
The convention provides for international recognition of
agreements and awards by national courts. The success of the Convention is well
illustrated by three factors. First, over 147 countries are party to the
Convention[31].
Secondly, for purpose of interpreting and applying the New
York Convention, it is now common for the courts of one country to look to the
decisions of other foreign national courts to see how specific provisions have
been interpreted and applied. While these national court decisions are not
automatically binding, such applications of the development if international
arbitration practice and law which is increasingly of significant influence on
parties, arbitrators and national courts, regardless of nationality.
Thirdly, and this follows from the above two points, it is
now generally accepted that agreements to arbitrate and arbitration awards will
be enforced by the courts of most countries which are party to the New York
Convention. Upholding arbitration agreements and awards is an absolute
prerequisite if international arbitration is to succeed and the New York
Convention has provided the framework for this success.
The New York Convention was followed by a series of
Bilateral and Multilateral Conventions.
They had varied purposes and were directed generally to different areas of
international business. None of these conventions, with the exception of the
ICSID Convention, have achieved anything like the level of success of the New
York Convention.
There are number of international and regional conventions
related to arbitration. These include the European Convention on International
Commercial Arbitration 1961, Washington Convention on the Settlement of
Investment Disputes between States and National of other States 1965, European
Convention Providing a Uniform law on Arbitration 1966, Settlement by
Arbitration of Civil Law Disputes Resulting From Economic Scientific and
Technical Co-operation 1972, Inter-American Convention on International
Commercial Arbitration 1975, MERCOSUR Agreement in International Commercial
Arbitration 1998, Amman Arab Convention on Commercial Arbitration 1987, Treaty establishing
OHADA, 1993.
After a long time of consideration and along with domestic
situation and international economic environment improvement, Mongolia signed
the ICSID Convention on May 28, 1996[32].
Once Mongolia ratified the ICSID Convention, Mongolia made
such notification to the Centre that pursuant to Article 1(2) of the
Convention, the Centre shall be to provide facilities for conciliation and
arbitration of investment disputes between Contracting States and nationals of
other Contracting States.
From then on, foreign investors can apply the mechanism of
the ICSID Convention for claim of compensation resulting from expropriation and
nationalization against Mongolian government.
[1] Unentugs Shagdar, Investment Agreements: Positive and Negative Impacts on Host Countries. Mongolian Perspective, The National Arbitration
Journal, Mongolian National Arbitration Press; Ulaanbaatar, 2010;
[2]Marcus Peter, Multilateral Rules on Cross-Border Investment and the World Trade Organization, Nomos-Verlagsgesellschaft, Baden-Baden, Germany (2009), p.44
[2]Marcus Peter, Multilateral Rules on Cross-Border Investment and the World Trade Organization, Nomos-Verlagsgesellschaft, Baden-Baden, Germany (2009), p.44
Rudolf Dolizer and ChristophSchreuer, Principles
of International Investment Law, Oxford University Press, (2008) p.46
[3]
UNCTAD, World Investment Report, World
Investment report, United Nations, New York (2004) 8.
[4] Unentugs Shagdar, Mongolian investment legal environment,
Seoul National University Press and Yale University Press, 2012.
[7]UNCTAD,
World Investment Report 2004, United
Nations, New York (2004) xvii.
[8]Beveridge,F.C.
and E.M.Graham, Needed: New international
rules for foreign direct investment under international investment law –Towards
international disciplines, Juris Publishing, Manchester University Press
(200) p.1-237
[9][In many countries,
the ISDS mechanism has become one of the most important issues in any BIT
discussion and negotiation.] See: Professor Jaemin Lee, Back
on the Negotiating Table Again? –Recalibrating Provisions of the Korea-U.S. FTA
ISDS Proceedings through a Prospective “Amendment”, Meiji University,
October 25, 2013., Seoul National University Law Foundation, № 2014/7 (2014), at 198.
[10]Karl,J.,
On the way to Multilateral investment rules – Some recent policy issues,
Foreign investment law review journal, volume 19 (2003) issue 2, 1-29
[11]UNCTAD, Bilateral Investment treaties 1959-1999,
United Nations, New York and Geneva, (2000) p.1
[12]
ICSID and UNCTAD database, Full list
of Bilateral Investment Agreements concluded, 1 June 2013, Available at: http://unctad.org/Sections/dite_pcbb/docs/bits_mongolia.pdf; and https://icsid.worldbank.org/ICSID/
[13]
China-Mongolian BIT, 1993, Art 8. Available at: http://www.mongolchamber.mn; www.unentogs.blogspot.com
[14]US-Mongolian
BIT, 1997, Art 6. Available at: http://www.mongolchamber.mn;
www.unentogs.blogspot.com
[21]Vocke,M. Investment implications of selected WTO
Agreements and the Proposed Multilateral Agreement on Investment, IMF
Working paper, volume 60 (1997) p.32
[22] Wallace, C.D., The Legal Environment for a Multilateral
Framework on Investment and the Potential Role of the WTO, Journal of WTO,
volume 3 (2002), No.2 p.289
[23]Dattu,R.
A Journey from Havana to Paris: the Fifty
Year Quest for the elusive Multilateral agreement on investment, Fordham
international law journal, volume 24 (2000) p.275
[24]Malanczuk,P.
State to State and Investor to State dispute Settlement in the OECD Draft
Multilateral Investment agreement, in Multilateral Regulation of investment,
eds.E.C.Nieuwenhuys and M.M.T.A. Brus, Kluwer law international Hague (2001)
p.137
[25]Marcus
Peter, Multilateral Rules on Cross-Border
Investment and the World Trade Organization, Nomos-Verlagsgesellschaft,
Baden-Baden, Germany (2009), p.53
[26]World Investment
Report 2003, 208. Such instruments
either are resolution of the UN General Assembly and UN codes of conduct,
conventions and guidelines of the World Bank, one ILO declaration, and diverse
WTO Agreements and related protocols.
[27]Seid,S.H.
Global Regulation of Foreign Direct
Investment, Ashgate Publishing Limited, Burlington (2002) p.1-276.
[28]Dattu,R.
A Journey from Havana to Paris: the Fifty
Year Quest for the elusive Multilateral agreement on investment, Fordham
international law journal, volume 24 (2000) p.315; Supra note 38; Brittan,L. Building on the Singapore Ministeral:
Trade, Investment and Competition, in The Urugay Round and Beyond: Essays in
Honour of Arthur Dunkel, edJ.Bhagwati, Springer Verlag, Berlin (1998) p.265-277
[30]
UNCITRAL’s database, Available at: http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html
[31]
The International Trade Centre's (ITC) database, New York Arbitration Convention, List of Contracting States,
Available at: http://www.newyorkconvention.org/contracting-states/list-of-contracting-states
[32] ICSID’s database, List of contracting states and
other signatories of the convention ,as of April 11, 2014, Available
at:
