Title
IISD Model International Agreement on Investment for Sustainable Development
Preamble
The Parties,
Seeking to promote sustainable development at the national, regional and global levels;
Understanding sustainable development as being development that meets the needs of the present with- out compromising the ability of future generations to meet their own needs, and recognizing the contri- bution of the 1992 Rio Declaration on Environment and Development, the 2002 World Summit on Sustainable Development and the Millennium Development Goals to our understanding of sustainable development;
Recognizing that the promotion of sustainable investments is critical for the further development of national and global economies, as well as for the pursuit of national and global objectives for sustainable development;
Understanding further that the promotion of such investments requires cooperative efforts of investors, host governments and home governments;
Recognizing the development of protections for foreign investors in international law to date;
Affirming the progressive development of international law and policy on the relationships between multi-national enterprises and host governments as seen in such international instruments as the ILO Tripartite Declaration on Multinational Enterprises and Social Policy; the OECD Guidelines for Multinational Enterprises; and the United Nations' Norms and Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights;
Seeking an overall balance of rights and obligations in international investment between investors, host countries and home countries; and
Recognizing that an international investment agreement should reflect the basic principles of transparency, accountability and legitimacy for all participants in foreign investment processes,
Have agreed as follows:
Body
Part 1. General Provisions
Article 1. Objective
The objective of this Agreement is to promote foreign investment that supports sustainable development, in particular in developing and least-developed countries.
Article 2. Definitions
(A) "company" means any entity constituted or organized under the applicable law of the home or host state, whether or not for profit, and whether privately or governmentally owned or controlled;
(B) "national" of a Party means a natural person who is a national of that Party under its applicable law;
(C) "investment" means:
i) a company;
ii) shares, stock and other forms of equity participation in a company, and bonds, debentures and other forms of debt interests in a company;
iii) contractual rights, such as under turnkey, construction or management contracts, production or revenue-sharing contracts, concessions or other similar contracts;
iv) tangible property, including real property; and intangible property, including rights, such as leases, mortgages, hypothecs, liens and pledges on real property;
v) rights conferred pursuant to law, such as licences and permits provided that
a) such investments are not in the nature of portfolio investments which shall not be covered by this Agreement;
b) that there is a significant (1) physical presence of the investment in the host state;
c) that the investment in the host state is made in accordance with the laws of that host state;
d) the investment is part or all of a business or commercial operation (2); and
e) the investment is made by an investor as defined herein.
For greater certainty, an investment does not include: market share, whether or not it is based on foreign-origin trade; claims to money deriving solely from commercial contracts for the sale of goods and services to or from the territory of a Party to the territory of another country, or a loan to a Party or to a State enterprise; a bank letter of credit; or the extension of credit in connection with a commercial transaction, such as trade financing.
(D) "investor" is a national or company of a home State Party that makes, or is making, an investment into the territory of another Party;
(E) "international investment agreements" means any bilateral or regional Agreement in force that contains provisions for the protection of foreign investment or provisions that also set out rights and responsibilities of foreign investors, host states and/or home states relating to foreign investment; and includes parts, chapters or sections of integrated trade and investment agreements;
(F) "ICSID Convention" means the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, done at Washington, March 18, 1965;
(G) "Centre" means the International Centre for Settlement of Investment Disputes established by the ICSID Convention;
(H) "measures" includes any legal, administrative, legislative, judicial or policy decision that is taken by the host state, directly relating to and affecting an investment in the territory of the host state, but does not include measures in draft form;
(I) "home state" means the state declared by the investor and accepted by the host state as such in accordance with the following rules:
i) A foreign investor shall promptly choose its home state based on its principal place of business or a major centre of effective and sustained links with the home state economy and from where effective control over the investment is exercised (3), and shall notify the host state of its home state.
ii) Where an investor changes in relation to an investment, it shall so notify the host state and identify the home state of the new investor, based on its principal place of business or a major centre of actual operations closely related to the investment.
iii) Subject to prior notification and consultation with the investor at the time notice is received, a Party may, within 90 days of such notice, deny the benefits of this Agreement to an investor of another Party that does not meet the requirements of Paragraphs A or B, or if investors of a non-Party own or control the enterprise and has no substantial business activities in the territory of the Party under whose law it is constituted or organized.
iv) For greater certainty, an investor may not declare its home state to be a Party where it is an enterprise of such Party but where it has no substantial business activities in the territory of that Party and per- sons of a non-Party, or of the putative host state own or control the enterprise.
v) Where an investor has its corporate headquarters or its principal place of business in a State Party to this Agreement, that state shall be deemed to be the home state for purposes of this Agreement where the preceding paragraphs have not led to another accepted choice (4).
The selection of home state is for the purposes of this Agreement only.
(I) "host state" is the state where the investment is located.
Article 3. Scope of Coverage
(A) Subject to Paragraphs (D)-(F), this Agreement applies to all investments by an investor, whether the investment is made before or after the entry into force of this Agreement.
(B) Subject to Paragraphs (D)-(F), this Agreement applies to any measure adopted or maintained by a Party after the entry into force of this Agreement by a governmental authority of the host state.
(C) Subject to Paragraphs (D)-(F), this Agreement applies to measures taken by government authorities at the national, state, provincial or municipal level of government of a Party.
(D) This Agreement does not create retroactive obligations or responsibilities for investors. Investors who are not in compliance with ongoing obligations and responsibilities shall seek to enter into compliance as soon as possible, and within 12 months of the entry into force of this Agreement.
(E) Pre-establishment rights
i) Notwithstanding any other provision, nothing in this Agreement should be interpreted so as to create a right of establishment for potential investors in a potential home state.
ii) Parties wishing to list sectors in which they have, under their domestic law, removed barriers to foreign investors, including in services sectors, may list these in Annex E to this Agreement. Any conditions or limitations on the right to establishment of foreign investors in the listed sectors shall be listed at the same time. (5)
iii) Investors in sectors listed in Annex E, or otherwise seeking to make an investment they have a legal right to make, shall, subject to the limitations or conditions also set out in Annex E or in domestic law, then be covered by the provisions of this Agreement for acts related to the establishment or acquisition of an investment.
iv) States may amend their lists in Annex E, including any conditions, at their discretion, subject to the preservation of rights for an investor pursuant to this Agreement who has commenced the process of establishing an investment or who has established an investment.
(F) Notwithstanding any other provision of this Agreement, this Agreement does not apply to any investments that are made before or after the entry into force of this Agreement, or to measures adopted or maintained by a Party, as follows:
i) Sectors: For investments in any economic sectors in a host state listed in Annex C, including service sectors, and the Articles listed in Annex C with that list.
ii) Non-conforming measures: The application of any measures, or specific provisions of measures, including at a non-national level, not conforming to this Agreement that are listed in Annex D. All municipal measures in effect at the entry into force of this Agreement shall be deemed to be included in Annex D by reference to this Paragraph.
iii) Non-conforming measures amendments: The continuation of, or any amendments or other alterations to, measures or specific provisions of measures listed in Annex D, providing that such continuation, amendment or alteration shall not create any greater degree of non-conformity than the measure presently exhibits.
except that the vested rights of pre-existing investors and their investments pursuant to prior international investment agreements, and arising in any sector or in relation to any measure falling within this Paragraph, shall continue to apply for the duration of the extinguishment period in such agreements (6), and providing that Article 8 of this Agreement shall apply to all investments.
Article 4. Denial of Benefits
1. A Party may deny the benefits of this Agreement to an investor of another Party that is an enterprise of such Party and to investments of such investor if investors of a non-Party own or control the enterprise and the denying Party:
A) does not maintain diplomatic relations with the non-Party; or
B) adopts or maintains measures with respect to the non-Party that prohibit transactions with the enterprise or that would be violated or circumvented if the benefits of this Agreement were accorded to the enterprise or to its investments.
2. A Party may deny the benefits of this Agreement to an investor of another Party that is an enterprise of such other Party and to investments of that investor if the enterprise has no substantial business activities in the territory of the other Party and persons of a non-Party, or of the denying Party, own or control the enterprise.
Part 2. Standards of Treatment of Foreign Investors
Part 2 begins the articulation of the six categories of rights and obligations set out in this text: investor rights and obligations; host state rights and obligations; and home state rights and obligations. The investor rights are a refinement of the ongoing development of international law in this field. Host state obligations are, similarly, a refinement of ongoing developments. Host state rights, investor obligations, and home state rights and obligations have rarely seen any articulation in existing investment agreements, but some precedent is drawn on from broader economic cooperation agreements. Part 2 addresses investor rights, Parts 3-6 cover the remaining sets of complementary rights and obligations. They are NOT hierarchical in nature, however, all Parts having to be read in a manner that creates consistency among them as opposed to a hierarchy.
It can be argued that an actual treaty might not be drafted in such a structured format, which does necessitate some duplication. However, IISD believes it is better left this way for present purposes so that the issues and approaches can be fully understood.
Article 5. National Treatment
(A) Each Party shall accord to investors of another Party treatment no less favourable than that it accords, in like circumstances, to its own investors with respect to the management, conduct, operation, expansion and sale or other disposition of investments. Where a foreign investor may, under domestic law, establish an investment, this Article shall apply to the extent it is not inconsistent with such domestic law relating to the establishment or acquisition of investments.
(B) Each Party shall accord to investments of investors of another Party treatment no less favourable than that it accords, in like circumstances, to investments of its own investors with respect to the, management, conduct, operation, expansion and sale or other disposition of investments.
(C) Measures taken in accordance with government procurement policies specifically for the purchase of goods or services by any level of government shall not be considered a breach of this Article.
(D) The treatment accorded by a Party under Paragraphs (A) and (B) means, with respect to a non-national level of government, treatment no less favourable than that government accords, in like circumstances, to investors and to investments within the jurisdiction of the government in question.
(E) For greater certainty, the concept of "in like circumstances" requires an overall examination, on a case-by-case basis, of all the circumstances of an investment, including, inter alia:
a) its effects on third persons and the local community;
b) its effects upon the local, regional or national environment, or the global commons (7);
c) the sector the investor is in;
d) the aim of a measure of concern;
e) the regulatory process generally applied in relation to a measure of concern; and
f) other factors directly relating to the investment or investor in relation to the measure of concern.
The examination shall not be limited to or biased toward any one factor.
Article 6. Most-favoured-nation Treatment
(A) This Article applies to:
a) all measures of a Party covered by the Agreement, and
a) to the substantive provisions (8) of other international agreements relating to investment that enter into force after this Agreement has entered into force.
(B) Each Party shall accord to investors of another Party treatment no less favourable than that it accords, in like circumstances, to investors of any other Party or of a non-Party with respect to the management, conduct, operation, expansion, sale or other disposition of investments. Where a foreign investor of a Party or non-Party may, under domestic law, establish an investment, this provision shall apply to the extent it is not inconsistent with such domestic law relating to the establishment or acquisition of investments.
(C) Each Party shall accord to investments of investors of another Party treatment no less favourable than that it accords, in like circumstances, to investments of investors of any other Party or of a non-Party with respect to the management, conduct, operation, expansion, sale or other disposition of investments.
(D) Each Party shall accord to investors of another Party, and to investments of investors of another Party, the better of the treatment required by this Article and the national treatment obligation.
(E) Paragraphs (B)-(D) do not oblige one Party to extend to the investors of another Party the benefit of any treatment, preference or privilege contained in
i) any existing or future customs union, free trade area, common market, any international environmental agreement to which the investor's home state is not a Party, or
ii) any international agreement or arrangement relating wholly or mainly to taxation or any domestic legislation relating wholly or mainly to taxation.
(F) Paragraphs (C)-(E) of Article 5 apply, mutatis mutandis, to the present Article.
Article 7. Minimum International Standards
(A) Each Party shall accord to investors or their investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security. This obligation shall be understood to be consistent with the obligation of host states, in particular under Article 19 of this Agreement.
(B) Paragraph (A) prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to investments. The concepts of "fair and equitable treatment"and "full protection and security" are included within this standard, and do not create additional substantive rights.
(C) Each Party shall accord to investors and investments non-discriminatory treatment with respect to measures it adopts or maintains relating to losses suffered by investments in its territory owing to armed conflict or civil strife.
(D) Notwithstanding Paragraph (C), if an investor of a Party, in the situations referred to in that Paragraph, suffers a loss in the territory of the other Party resulting from:
i) requisitioning of its investment or part thereof by the latter's forces or authorities; or
ii) destruction of its investment or part thereof by the latter's forces or authorities,
which was not required by the necessity of the situation, the latter Party shall provide the investor restitution or compensation, which in either case shall be prompt, adequate and effective, and, with respect to compensation, shall be in readily convertible form.
Part 2. Standards of Treatment of Foreign Investors
Article 8. Expropriation
(A) No Party may directly or indirectly nationalize or expropriate an investment in its territory ("expropriation"), except:
i) for a public purpose;
ii) on a nondiscriminatory basis;
iii) in accordance with due process of law; and
iv) on payment of compensation in accordance with Paragraphs (B)-(F).
(B) Appropriate compensation shall normally be equivalent to the fair market value of the expropriated investment immediately before the expropriation took place ("date of expropriation"), and shall not reflect any change in value occurring because the intended expropriation had become known earlier. Valuation criteria shall include going concern value, asset value including declared tax value of tangible property, and other criteria, as appropriate, to determine fair market value. Compensation may be adjusted to reflect aggravating conduct by an investor or conduct that does not seek to mitigate damages.
(C) Compensation shall be paid without delay and be fully realizable.
(D) If payment is made in a G7 currency, compensation shall include interest at a commercially reasonable rate for that currency from the date of expropriation until the date of actual payment.
(E) If a Party elects to pay in a currency other than a G7 currency, the amount paid on the date of payment, if converted into a G7 currency at the market rate of exchange prevailing on that date, shall be no less than if the amount of compensation owed on the date of expropriation had been converted into that G7 currency at the market rate of exchange prevailing on that date, and interest had accrued at a commercially reasonable rate for that G7 currency from the date of expropriation until the date of payment.
(F) On payment, compensation shall be freely transferable. Awards that are significantly burdensome on a host state may be paid yearly over a period of three years or such other period as agreed by the Parties, subject to interest at the rate established by agreement of the disputants or by a tribunal.
(G) This Article does not apply to the issuance of compulsory licences granted in relation to intellectual property rights, or to the revocation, limitation or creation of intellectual property rights, to the extent that such issuance, revocation, limitation or creation is consistent with applicable international agreements on intellectual property.
(H) A non-discriminatory measure of general application shall not be considered an expropriation of a debt security or loan covered by this Agreement solely on the ground that the measure imposes costs on the debtor that cause it to default on the debt.
(I) Consistent with the right of states to regulate and the customary international law principles on police powers, bona fide, non-discriminatory regulatory measures taken by a Party that are designed and applied to protect or enhance legitimate public welfare objectives, such as public health, safety and the environment, do not constitute an indirect expropriation under this Article (9).
Article 9. Senior Management and Boards of Directors
(A) No Party may require that an investment appoint to senior management positions individuals of any particular nationality.
(B) A Party may require that a majority of the board of directors, or any committee thereof, of an investment, be of a particular nationality, or resident in the territory of the Party, provided that the requirement does not materially impair the ability of the investor to exercise control over its investment.
(C) Subject to generally applicable rules of entry, no Party may unduly restrict or prevent the cross-border movement of senior management and members of the boards of directors of an investment.
Article 10. Transfers of Assets
(A) Each Party shall permit all transfers relating to an investment to be made freely and without delay. Such transfers include:
i) profits, dividends, interest, capital gains, royalty payments, management fees, technical assistance and other fees, returns in kind, physical assets and other amounts derived from the investment;
ii) proceeds from the sale of all or any part of the investment or from the partial or complete liquidation of the investment;
iii) payments made under a contract entered into by the investor, or its investment, including payments made pursuant to a loan agreement;
iv) payments made pursuant to Article 8; and
v) payments arising under any dispute settlement process.
(B) Each Party shall permit transfers to be made in a freely usable currency at the market rate of exchange prevailing on the date of transfer with respect to spot transactions in the currency to be transferred.
(C) Notwithstanding Paragraphs (A) and (B), a Party may prevent a transfer through the equitable, non-discriminatory and good faith application of its laws relating to:
i) bankruptcy, insolvency or the protection of the rights of creditors;
ii) issuing, trading or dealing in securities;
iii) criminal or penal offenses;
iv) reports of transfers of currency or other monetary instruments; or
v) ensuring the satisfaction of judgments in adjudicatory proceedings.
(D) Notwithstanding Paragraph (B), a Party may restrict transfers or returns in kind in circumstances where it could otherwise restrict such transfers under this Agreement.
Part 3. Obligations and Duties of Investors and Investments
Article 11. General Obligations
(A) Investments are subject to the laws and regulations of the Host State.
(B) Investors and investments must comply with the host state measures prescribing the formalities of establishing an investment, and accept host state jurisdiction with respect to the investment.
(C) Investors and investments shall strive, through their management policies and practices, to contribute to the development objectives of the host states and the local levels of government where the investment is located.
(D) An investor shall provide such information to a potential host State Party as that Party may require concerning the investment in question for purposes of decision-making in relation to that investment or solely for statistical purposes. The Party shall protect any confidential business information from any disclosure that would prejudice the competitive position of the investor or the investment. Nothing in this Paragraph shall be construed to prevent a Party from otherwise obtaining or disclosing information in connection with the equitable and good faith application of its domestic law.