Moderated by Vi Chief, Vlasta Macku, and Professor Felipe Muñoz from the University of Chile, the conference attracted experts from the university and the government, in particular Mario Benavente of the Ministry of Foreign Affairs and Eduardo Bobadilla of the Ministry of Economy.

Joubin-Bret began by looking at investment issues in the context of growing global investment flows, tracing the quantitative and qualitative evolution of these agreements. The second part of her presentation concentrated on cases of investor-state disputes in Latin America.

She said FDI into Latin America and the Caribbean grew by a record 36 percent in 2007, with the bulk of investment going to countries such as Mexico and Brazil. Chile, with more than 50 agreements that pursue both investment liberalization and investor protection, was also successful in attracting foreign investors.

Bobadilla, concerned about future investment negotiations, wondered whether Chile should pursue separate Bilateral Trade Agreements (BITs) or Free Trade Agreements (FTAs) with separate investment chapters, the latter possibly allowing concessions in one area to be used to gain in other areas of the same agreement.

Joubin-Bret said that both types of agreements should be considered, but drew the attention to the fact that in a number of cases, foreign investors (and their lawyers) try to use investment provisions in FTAs for cases that are primarily not related to investment but trade (e.g. trans-boundary movement of dangerous products) or intellectual property rights.

“There are advantages and disadvantages of having BITs or FTAs,” Joubin-Bret said. “If the country is only concerned with investment protection, BITs may serve better. If, however, the country pursues broader objectives, FTAs may be a more appropriate instrument to use.”

Benavente brought up the issue of intraregional investment and country investment outflows, citing a recent study that shows Chilean investment abroad has increased, accounting for USD 46 billion and involving approximately 1,000 Chilean enterprises, which invest 80 percent of those funds into the region - Argentina, Brazil, Peru and recently also the United States.

But because regulatory framework for investment in the region has been changing since 2000, with different countries adopting different policies , Chilean investors encounter three groups of problems: (a) disparity between the texts of the agreements and their practical application, which results in corruption; (b) application of limited sectoral incentives; and (c) inefficiency of intra-regional dispute settlement mechanisms associated with political considerations about relations with the countries concerned.
 

For more information:

• Presentation by Anna Joubin-Bret
   

IIAs and Latin America

• The international legal framework concerning investment has three main objectives: liberalization of investment flows; protection of foreign investors, and promotion of investment.

• The trend observed in recent years is towards a greater liberalization of investment flows (reduction of barriers to entry), as well as an increased protection of foreign investors. This trend is reflected in both national policies and the treatment of investment issues in international agreements.

• Different types of international investment agreements (IIAs) are suited to achieve particular goals. The main objective of bilateral investment agreements (BITs) is to protect and promote investment, whereas inclusion of investment in free trade agreements (FTAs, such as those of the EU) has a broader purpose of liberalization of investment flows. Some agreements (for instance those concluded by Chile) pursue simultaneously the objectives of liberalization and protection.

• The investment frameworks evolve in a situation of growing investment flows worldwide and an increased competition between countries to attract investors. Global investment flows peaked in 2007; a slowdown is expected for 2008.

• The impact of IIAs on attracting investment is not clear-cut and varies as a function of the type of agreement. Agreements aiming at liberalization of investment flows have a greater impact in this regard than BITs whose main objective is to protect investment. Overall, IIAs produce indirect legal effects as the fact that investment is protected may act as a factor of investment promotion.

• The web of investment agreements is very fragmented. Consequently, the agreements do not provide more clarity and security for investors and are also difficult to manage for host country governments. The almost 2,600 BITs in place to-date were concluded at different points of time, in different settings and with different objectives and content. Some agreements are perceived as being mainly used by developed countries to protect their investors abroad, some were concluded by developing countries to support broader political goals of increased cooperation with other countries. There are countries with more than 100 agreements, as well as some that have concluded none.

• In Latin America, Argentina has the highest number of BITs, almost 60, followed by Chile with over 50 of them, and Peru and Mexico (around 30). On the other side, there is Brazil with 14 agreements concluded but none ratified and hence, none in effect. The trend (followed in particular by Mexico and Chile) is to shift from BITs to the inclusion of investment chapters into broader FTAs. This pattern follows developments in the world where the number of FTAs with investment provisions has increased exponentially, in particular since the second half of 1990s and 2000 - there are currently 240 such agreements in effect worldwide.

• The number of cases of investor-state disputes grew considerably in Latin America since the year 2000, partly due to the more than 40 cases concerning Argentina following the crisis 2001-2002. Disputes concerned all economic sectors - primary, secondary and tertiary.

• Currently, there are 99 open or concluded cases against Latin American countries. The highest number relates to Argentina (although the growth in the number of new cases is only moderate), followed by Mexico and Ecuador. Venezuela has recently registered an increase in the number of cases.

• The amounts of compensations requested by foreign investors are enormous and even though the courts have only granted about one sixth of these amounts (about USD 1 billion in the case of concluded Latin American cases), it still means a considerable loss for the governments of funds that could have been used for more productive purposes. Argentina had to pay the most - about USD 900 million. In the still pending cases, investors claim compensations of more than USD 11 billion.

• The growing number of investor-state dispute cases triggered a reflection in the countries of the region about the costs and benefits of concluding IIAs. The conclusions vary among countries. Mexico concluded that the benefits associated with NAFTA membership outweigh the costs of the several million USD that the country had to pay in compensations to foreign investors. Other countries that only recently signed FTAs with the US and now start facing dispute cases are getting increasingly concerned about the costs - the cost of lawyers to defend a country's interest in the court can amount to millions of USD (in recent cases of Ecuador it was USD 15 million, for Bulgaria USD 20 million). In Ecuador and Bolivia, this led to a discussion about the internal investment policies and the legitimacy of the entire investment system.

• There are four types of countries in the world with regard to their position on investment agreements:
(a) European countries - they do not consider themselves affected by and are not concerned about the agreements
(b) US, Canada, Mexico, Chile, Singapore, Japan, Australia, New Zealand - they revised their model BITs or FTAs to improve the predictability and clarity of these agreements for their investors and also to protect themselves against cases that may be raised against them by investors from other countries
(c) Countries that started signing the agreements from the beginning of 1960s - they now try to re-negotiate the agreements in order to improve protection of their investors, and also to enhance consistency among the various agreements that they have concluded in the past
(d) Countries that decided to stop signing the agreements or denounced the agreements that they had signed previously - among such countries are Venezuela, Ecuador and Bolivia, for instance.