A host State`s consent to ICSID arbitration may be contained in national investment laws, an investment treaty or an investment agreement. ICSID is an autonomous system that provides for enforcement in Contracting States. It derives its authority from its status as an institution of the World Bank. International law is an area of international law that deals primarily with the treatment of investments by States and the settlement of investor-State disputes. A state can enact investment laws that offer some treatment to investors. Such legislation could guarantee exemption from tax regimes or provide for a specific tax regime for investors in a particular sector of the economy. However, investors may fear that any protection contained in the law will be revoked by a subsequent government. The main investment dispute settlement mechanism is the International Centre for Settlement of Investment Disputes (ICSID). ICSID was established under the 1965 ICSID Convention (also known as the Washington Convention).
It has been ratified by more than 150 States. The first case before ICSID was in 1972. Since 2000, case registration has increased significantly. It is important for investors to take into account issues of application and State immunity when entering into investment contracts with States. The ICSID Convention provides that a party`s consent to arbitration prevents it from invoking immunity in order to prevent the conduct of the arbitration. Therefore, a careful reading of the underlying treaty and any applicable investment agreement is necessary. Freezing clauses are among the most frequently adopted stabilisation clauses. They are intended to freeze national legislation concerning the investor for the duration of his investment. The clauses generally provide that the legislation adopted under the investment contract is not binding on the investor.
Clauses of this type have recently lost popularity. The International Monetary Fund (“IMF”) defines foreign direct investment (“FDI”) as “cross-border investments” in which an investor who “resides in one economy has significant control or influence over the management of a business located in another economy.” IMF, Balance of Payments and International Investment Position Manual 100 (6th edition 2009). The leading position of direct investor distinguishes foreign direct investment, an active form of investment, portfolio investment, a passive form. Invisibility clauses stipulate that a host government cannot unilaterally nationalize a project or modify an investment contract. Changes require the consent of the investor. An investor can conclude an investment contract with a host country. Examples of such contracts in the extractive industries are concession contracts and production sharing contracts, where investors have certain protections to invest in the exploitation of a state`s natural resources. The investment contract can protect investors from changes in law or regulation that harm their interests. However, the effectiveness of these clauses in the light of State measures may vary. The question of who is an investor has also arisen in many disputes.
In order to benefit from the protection of an investment contract, an investor must demonstrate that he falls within the categories of investors defined in the contract in question. Often, the key question will be whether the investor has the necessary nationality to be entitled to protection. This is a problem, especially for corporate investors. Over the past three decades, foreign direct investment has increased worldwide. Governments committed to economic liberalization have encouraged investors to inject capital into their economies. Investors have taken advantage of favourable tax and political conditions to invest in new countries and regions. Similarly, a provision on national treatment requires the host State to accord foreign investors equivalent treatment to entities that are nationals of the host State. However, the ICSID Convention does not contain any provision that has the effect of revoking a host member State`s right to sovereign immunity. Parties entering into investment contracts should ensure that they benefit from a waiver of the sovereign immunity of the host State. In any event, there are few examples of successful awards against States. In some cases, states have voluntarily recognized rewards, but there are significant practical barriers to law enforcement. The identification of state property outside the state itself is problematic.
When such assets are identified, sovereign immunity issues are often raised to oppose the execution of state-owned assets abroad. International law also regulates foreign direct investment. Sources of international law include multilateral treaties, bilateral investment treaties (“BITs”), customary international law and judicial decisions. Multilateral treaties such as the Agreement on Trade-Related Investment Measures (with respect to trade in goods) and the Agreement on Trade-Related Aspects of Intellectual Property (with respect to intellectual property) harmonize different national laws. .