FIPAs - Rosemont looks here at the Foreign Investment Protection and Promotion Agreements and thier role in safeguarding foreign investments and the prevention of risks inherent in developing countries.
The FIPA is an international treaty born through International Conventions for a renewable period of 10 to 20 years, which imposes a certain number of rules on the treatment of foreign investors. Bilateral agreements between two countries aim at the promotion and protection of investments.
The objective of these agreements is to ensure an environment conducive to investment by providing legal stability, clear terms, effective dispute settlement and uniformity of norms, a fairer and more equitable treatment of investment, an obligation to ensure full security of the investment, national treatment of the investment, a most-favored-nation norm, and a prohibition against expropriating the investor without fair, immediate and effective compensation.
The content of investment protection agreements
| National treatment and most-favored-nation treatment: each contracting party shall afford investors of the other country treatment no less favorable than that which the latter has accorded to its own investors or to investors of the most favored nation. Investors benefit from the most favorable treatment. |
| Fair and equitable treatment: It is a matter of treating the investment according to the rules of domestic and international law, taking into account the legitimate interests of the investor under international law. |
| Full Security: The host State has an obligation to take all necessary and necessary measures to protect the investment from destruction and dispossession, even by third parties. |
| Expropritaion: Nationalization, for example, is the expropriation of an entire sector. It shall be lawful only subject to public interest, non-discrimination and compensation. |
| Prompt, adequate and effective compensation: The agreement provides the conditions for expropriation, including an adequate value which must take account of the statistical value and the loss of profit resulting from such expropriation. |
| Free transfer: Each contracting party grants to investors of the other contracting party the free transfer of funds related to their investments, initial capital, income, payments, etc. |
Bilateral agreements
These treaties include a norm dealing with fair and equitable treatment.
According to the OECD, if such norm is included in most bilateral investment treaties, it is not always mentioned in treaties concluded by certain countries (eg in certain treaties signed by Pakistan, Saudi Arabia and Singapore).
These features are not widespread even in countries that have traditionally been in favor of national control of foreign investment. Thus, bilateral investment treaties between Chile and China, and between Peru and Thailand, Bulgaria and Ghana, and between the United Arab Emirates and Malaysia, include the norm of fair and equitable treatment.
The arbitration
At the General Assembly of 10 December 2014, under the "United Nations Convention on Transparency in Investor-State Arbitration and Treaty-based States", the United Nations called on governments and economic integration organizations to apply transparency in investor-state arbitration under the investment treaties.
If the dispute cannot be settled within a reasonable time (eg in the treaty between the Congo and Mauritius took 6 months) the investor has three options he may submit the dispute to the competent courts or to an arbitral tribunal established in accordance with Regulation UNCITRAL Arbitration Committee or the International Center for Settlement of Investment Disputes between States (ICSID).
International arbitration tribunals are subject to constraints of efficiency and discretion. The composition of such courts is often three arbitrators, two chosen by the parties and the third selected by agreement between the two arbitrators. This private tribunal has a mandate in international law which allows a real neutrality.
The impact on Foreign Direct Investment Flows (FDI)
According to the Banque de France and UNCTAD, the flow of French FDI has increased by € 4 billion in 2015, reaching € 33 billion. Investing abroad for a national company provides access to new markets, securing resources, and acquiring new technologies. These agreements make it possible to limit the risks of an FDI, unstable legal institutions, possible expropriation, political instability.
2,400 treaties are in force worldwide, including 99 agreements between France and third countries. The Lisbon Treaty of 2009 highlighted a common trade policy of the European Union. The European Union has exclusive competence to negotiate future investment protection agreements while applying the "grand fathering" norm for previous treaties.
A concrete example: FIPA in Africa
Following the signing of this investment protection agreement between Côte d’Ivoire and Mauritius, an Ivorian delegation visited Mauritius in search of investors. For example, some Mauritian funds are looking for economic diversification and wish to participate in the development of the Grand Bassam computer park.
Another example is the FIPA between the Government of Mauritius and the Government of Madagascar signed on April 6, 2004 valid for 10 years:
“DESIRING to strengthen economic relations, in particular with regard to Mauritian investments in the Republic of Madagascar and Madagascar and Malagasy investments in the Republic of Mauritius;
RECOGNIZING that an Agreement encouraging and protecting such investments is likely to stimulate private economic initiative as well as flows of capital and technology between the two countries,”
Each Party undertakes to promote cooperation by encouraging and protecting investments made by investors of the other Contracting Party.
The Articles of the said agreement reproduce the above-mentioned standards/ norm : Article 3 "Fair and equitable treatment", Article 4 "National treatment and most-favored-nation treatment", Article 5 "Expropriation and compensation", Article 6 Compensation for losses resulting Wars and conflicts.
Focus on Article 6:
"Investors of one Contracting Party who suffer, as a result of a war or other armed conflict, from a revolution, a state of national emergency, revolt, insurrection or terrorist act, related to investments made in the territory of the other Contracting Party, shall be accorded by the latter Contracting Party, in respect of restitution, damage, Interest, compensation or other compensation, treatment not less favorable than that accorded to investors of that Contracting Party or to investors of any other third State, in any case the treatment which is most favorable to the investors concerned. ".
What this article says is that in the event of a political reversal in a fragile country, investors are assured that foreign companies will be compensated in the same way as local companies, avoiding "expropriation unfavorable to the foreign investor".
Or Article 10: "Settlement of disputes between an investor and a contracting party" (Mauritius or Madagascar):
a). The solution advocated in the first place is the out-of-court settlement.
b). If the dispute is not settled within one year, the investor may by a request choose to submit the dispute to an arbitration body in the contracting territory, or to judicial proceedings in the territory of the Contracting Party, at the option of the investor, or to an arbitration procedure of the International Center for Investment Regulations (ICSID) in accordance with the text of the Convention to that effect signed on 18 May 1965.
In conclusion, these various agreements enable the safeguarding of foreign investments and the prevention of risks inherent in developing countries.
Rosemont International companies provide assistance to businesses undertaking international trade. For further information on this subject please contact Patricia Cressot at p.cressot@monoeci.com