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World Bank: Report to the Development Committee and Guidelines on the Treatment of Foreign Direct Investment

Published online by Cambridge University Press:  27 February 2017

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Reports
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International Legal Materials , Volume 31 , Issue 6 , November 1992 , pp. 1363 - 1384
Copyright
Copyright © American Society of International Law 1992

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References

* [The Introductory Note was prepared for International Legal Materials by Seymour J. Rubin, Senior Consultant to the American Society of International Law. The Report and Guidelines are reproduced with permission from Legal Framework for the Treatment of Foreign Investment (Volume II: Guidelines). (Washington, D.C.: The International Bank for Reconstruction and Development The World Bank, 1992).]

* Original members of the working group included Ibrahim F.I. Shihata, Vice President and General Counsel, World Bank, José E. Camacho, Vice President and General Counsel, International Finance Corporation (IFC) and Luis Dodero, General Counsel, MIGA. In fact, the work-ing group also included Daoud L. Khairallah, Deputy General Counsel, IFC and benefited from the assistance of the staff of the International Centre for Settlement of Investment Disputes (ICSID), in particular Antonio R. Parra, Legal Adviser, ICSID. Bertrand P. Marchais, Senior Counsel, MIGA, also contributed to the work of the group.

1 Report by the President of the Forty-sixth Session of the General Assembly, July 23, 1992.

2 UNCTC, International Arrangements and Agreements Relating to Transnational Corporations: International Framework for Transnational Corporations—Report of the Secretary-General, UN. Doc. E/C. 10/1992/8, para. 24 (Feb. 18, 1992) (hereinafter UNCTC Report). In addition, in 1976 the members of OECD adopted Guidelines for Multinational Enterprises which laid down standards for the activities of such enterprises. See, Annex 1 to Declaration of June 21, 1976 by Governments of OECD Member Countries on International Investment and Multinational Enterprises, in OECD, The OECD Declaration and Decisions on International In vestment and Multinational Enterprises: Basic Texts 9 (1992).

3 See, Section 2 of Guideline I of the guidelines attached to this report. As indicated in the commentary on that section (at infra,para. 15 ), this principle is often reflected in existing multilateral instruments on the treatment of foreign investment, such as the Lomé IV Convention and the draft UNCTC Code of Conduct on Transnational Corporations.

4 Section 5 of Guideline II.

5 Section 8 of Guideline III.

6 IBRD Debt and International Finance Division, Financial Flows to Developing Countries: Current Developments, March 1992 at 9.

7 IFC, Trends in Private Investment in Developing Countries, 1992 Edition at 2 (by Guy P. Pfeffermann and Andrea Madarassy).

8 See IBRD, Global Economic Prospects and the Developing Countries 38-39 and table 3.5 (1991).

9 UNCTC Report, supra, note 2, para

10 See Shihata, Factors Influencing the Flow of Foreign Investment and the Relevance of a Multilateral Guarantee Scheme, 21 The International Lawyer 671 (1987); MIGA and Foreign Investment (1988); and Promotion of Foreign Direct Investment—A General Account, with Particular Reference to the Role of the World Bank Group, 6 ICSID Review—Foreign Investment Law Journal 484 (1991). See also, IFC, supra, note 7, at 5-6; Mody and Srinavasan, Trends and Determinants of Foreign Direct Investment: An Empirical Analysis of U.S. Investment Abroad (World Bank Working Paper, Dec. 1991).

11 UNCTC Report, supra, note 2, para. 34.

12 These studies are reprinted in World Bank Group, Legal Framework for the Treatment of Foreign Investment, Vol. 1. They are the bases for the generalizations in the present report about bilateral investment treaties, multilateral instruments, national investment codes, and international arbitral awards and scholarly writings

13 Compare, Article 13(c) of the MIGA Convention which opens the possibility of equating local nationals to foreign investors eligible for the Agency's guarantee where the local nationals are investors transferring to the host country assets from abroad.

14 Paragraph 408 of the IMF Balance of Payments Manual (4th ed. 1977) defines direct in vestment as “investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor, the investor's purpose being to have an effective voice in the management of the enterprise.”

15 For example, many bilateral investment treaties define covered investments as including “every kind of asset.” Under the MIGA Convention (art. 12), investments eligible for the Agency's guarantee potentially include virtually any “medium-or long-term form of investment.” In the ICSID Convention (art. 25(1)), which like the guidelines takes the broadest approach, the term “investment” is purposely undefined.

16 In potentially accommodating these various forms of investment and investors, the guidelines may be compared to the MIGA Convention (at arts. 12 and 13) and MIGA's Opera tional Regulations (at paras. 1.01-1.19).

17 Similarly, under the ICSID Convention (art. 25), States parties may include agencies and subdivisions of States, and nationals of States may include juridical as well as natural persons from States. (Under general international law, a dual national who has the nationalities of the host State and another State or States is considered a national ofthe host State unless it agrees to treat him differently.)

18 See, Shihata, Factors Influencing the Flow of Foreign Investment and the Relevance of a Multilateral Guarantee Scheme, supra, note 10.

19 See, e.g., Mahmassani, The Legal Framework for Investment in Poland, 3 ICSID Review—Foreign Investment Law Journal 286, 297 (1988).

20 In their investment laws also. States uniformly reserve to themselves the ultimate decision on the admission of foreign investments.

21 See, e.g., Pogany, Recent Developments Relating to Foreign Investment in Hungary, 6 ICSID Review—Foreign Investment Law Journal 114 (1991).

22 Compare, Wilde, Investment Policies and Investment Promotion in the Mineral Industries, 6 ICSID Review—Foreign Investment Law Journal 94, 112 (1991).

23 It can in this connection be noted that the scope of some bilateral investment treaties is explicitly extended to cover activities associated with investments as well as investments themselves.

24 See text accompanying supra, note 19.

25 The latter exceptions include exchange restrictions in effect when a country became a member of the IMF and maintained as transitional arrangements and restrictions approved by the IMF. For details, see Silard, Exchange Controls and External Indebtedness; Are the Bretton Woods Concepts Still Workable?—A Perspective from the International Monetary Fund, 7 Houston journal of Internationa] Law 53 (1984).

26 Reinvestment of investment amounts is encouraged by, inter alia, the MIGA Convention (art. 12(c)(ii)) to avoid negative effects on the balance of payments of the host country

27 See also, the paper on Resource Flows to Developing Countries prepared by World Bank and IMF staff for submission to the Development Committee in September 1992.

28 See, e.g. Dolzer, Indirect Expropriation of Alien Property, 1 ICSID Review—Foreign Investment Law Journal 41 (1986).

29 A similar precision regarding good faith is included in a provision (para. 1.36) of MIGA's Operational Regulations on the expropriation risk.

30 On the experience in international arbitrations in this respect, see in particular Friedland and Wong, Measuring Damages for the Deprivation of Income-Producing Assets: ICSID Case Studies, 6 ICSID Review-Foreign Investment Law Journal 400 (1991).

31 See fourth study in Legal Framework for the Treatment of Foreign Investment, Vol. I, supra note 12, at 146. See also Westberg. International Transactions and Claims Involving Government Parties—Case Law of the Iran-U.S. Claims Tribunals 252 (1991); Amerasinghe, Issues of Compensation for the Taking of Alien Property in the Light of Recent Cases and Practice, 4 International and Comparative Law Quarterly 22 (1992).

32 See Chorzow Factory Case, PCIJ Ser. A, No. 17, 1928, at 51; Amoco International Finance Corporation v. Iran, 15 Iran-US. C.T.R., at 238.

33 See de Laubadère, 2 Traité des Contrats Administratis 556 and 1327 (1984). The same principle has been reflected in a recent ICSID award.

34 Compare supra paras. 31 and 33.

35 See, e.g., American Law Institute, Restatement (Third) of Foreign Relations Law 712 cmt. (1987) (suggesting that “[i]n exceptional circumstances, some deviation from the standard of [full] compensation” might be justified, and mentioning in this context takings of alien property “during war or similar exigency”); 1 Oppcnheim, International Law 352 (8th ed. Lauterpacht 1955) (suggesting that, “in cases in which fundamental changes in the political system and economic structure of the State or far-reaching social reforms entail interference, on a laree scale with private property..., [i]t is probable that, consistently with legal principle, [the] solution must be sought in the granting of partial compensation”). See also other writers cited in Legal Framework for the Treatment of Foreign Investment, Vol. I, supra note 12, at 142.

36 See, e.g., Lillich, Lump Sum Agreements, 8 Encyclopedia of Public International Law 367 (1985) (referring to “the nearly 200 lump sum agreements” that home and host States have negotiated since the Second World War, under which host States have, in settlement of claims occasioned by war, nationalization programs, revolutions, etc., paid fixed amounts to home States for distribution among claimants).

37 See, e.g., Redfem and Hunter, Law and Practice of International Commercial Arbitration 213-25 (2d. ed. 1991).

38 See ICSID Convention at arts. 14(1) and 40(2); Shihata, The Experience of ICSID in the Selection of Arbitrators, 6 News fiom ICSID, No. 1, at 4 (1989). For general descriptions of ICSID and ICSID arbitration, see, e.g., Broches, Arbitration Under the ICSID Convention (ICSID publication, 1991); Shihata, Towards a Greater Depoliticization of Investment Disputes: The Roles of ICSID and MIGA (ICSID publication, 1992); and Paulsson, ICSID's Achievements and Prospects, 6 ICSID Review-Foreign Investment Law Journal 380 (1991).