Foreign Investment in a Post-Conflict Environment

in The Journal of World Investment & Trade
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Foreign Investment in a Post-Conflict Environment

in The Journal of World Investment & Trade

References

  • This paper refers to post-conflict states in general terms, that is, states which have begun rebuilding from prolonged civil, armed conflict between at least two parties, one of which is (or affiliated with) the government of a state. 2 RUDOLPH DOLZER & CHRISTOPH SCHREUER, PRINCIPLES OF INTERNATIONAL INVESTMENT LAW 3 (2008). 3 Measures to Attract Fm: Investment Promotion, Incentives and Policy Intervention, ECONOMIC AND POLITICAL WEEKLY, at 1, available at http://w-ww.ips.org.sg/pub/pa kishen_Mcasurcs%20to%2OAttract%20FDI.pdf Uan. 3, 2004). 4 Id. at 1. See also Policy Framework for Investment, OECD (2006) at 7 (noting that "[p]rivate investment expands an economy's productive capacity, drives job creation and income growth, and in the case of international investment, is a conduit for the local diffusion of technological and enterprise expertise and spurs domestic investment, including through the creation of local supplier linkages."); MIGA in Post-Conflict Affected Countries 7 (April 2003), available at http://www.miga.org/documents/post conflict.pdf (noting that "FDI brings three main benefits: (1) attracting needed capital, spurring production, and generating employment in local industries; (2) providing a powerful "demonstration effect," encouraging private investors to remain, rather than flee and also sending a strong signal to global investors that the country is a suitable investment destination; (3) transferring new skills and technology from foreign companies to the local populace."); Speech by U.T. Isayev, General Director, Foreign Investment Agency of the Kyrgyz Republic, at Challenges to Economies in Transition Stabilization, Growth, and Governance International Conference in Honor of the Fifth Anniversary of the Kyrgyz Som "Session VII: Foreign Investment During the Transition: How to Attract It, and How to Make the Best Use of It," (May 27, 1998) available at http://www.imf.org/extemal/np/eu2/kyrgyz/pdf/isayev.pdf.

  • s For example, a host state may be in breach of a stabilization clause contained in a contract with a foreign investor if the host state seeks to later enact environmental regulations which adversely affects the foreign investor. 6 Policy Framework for Investment, supra note 4 (discussing, in the context of promoting investment, investment policy; investment promotion and facilitation; trade policy; competition policy; tax policy; corporate governance; policies for promoting responsible business conduct; human resource development; infrastructure and financial sector development, and; public governance). 7 John Hewko, Foreign Direct Investment in Transitional Economies: Does the Rule of Law Matter?, EAST EuRO. CONST. REV. (Fall 2002/Winter 2003) at 73, available at http://www.law.nyu.edu/eecr/voll 1_12num4_1/special/ hewko.pdf

  • 8 Id. 9 Id. at 76. 10 Roshan, available at http://www.roshan.af. 11 Shining a Light, ECONOMIST, March 8, 2007. About Roshan, available at http://www.roshan.aflweb/?page_id=2. See also Shining a Light, supra note 11. 13 Shining a Light, supra note 11. r^ Telecommunications and Internet Policy (Final Working Draft), Islamic Transitional Government of Afghanistan, Ministry of Communications, November 2003, available at http://www.mcit.gov.af/Documents/ PoliciesandLaws/ Afghanistan%20Telecom%20poIicy-English.pdf See also Jim Phelps et al., Middle Eastern Law, 38 INT'L LAW. 703, 708 (2004) (stating "One of the most successful commercial ventures in post-conflict Afghanistan has been the area of wireless communications.... The Afghan government, with the assistance of the World Bank, enacted a new telecommunications policy and has been reforming this area of law and regulation to attract new wireless and landline carriers."). 15 Phelps, supra note 14, at 708. 16 shining a Light, supra note 11. 1 . 17 MICA in Post-Conflict Affected Countries, supra note 4, at 9.

  • 18 Id. 11 See Hewko, supra note 7, at 74-75. 20 Id. at 76. 21 Hcwko, supra note 7, at 78. 22 MK;A in Post-Conflict Affected Countries, supra note 4, at 7. 23 See generally, } an PAULSSON, DENIAL OF Justice IN INTERNATIONAL LAW (2005). 24 See Kenneth Vandevelde, The Political Economy of a Bilateral Investment Treaty, 92 AJ.I.L. 621, 631 (1998). For information on BITS generally, see R1JDOLF DC7LZER & MARGRETE STEVENS, BILATERAL INVESTMENT TREATIES (1995).

  • zs Vandevelde, supra note 24, at 631. 26 See infra for discussion on Iraq's investment law and constitution providing such protections. 27 See, e.g., Aguaytia Energy LLC v. Peru, ICSID Case No. ARB/06/13, Award (Nov. 28, 2008) § 72, available at http://www.investmentclaims.com (in which the Tribunal decided that pursuant to the arbitration agreement contained in the relevant contract and the ICSID Convention, the applicable rules of law were those of Peru and "such rules of international law as applicable."). However, for the purposes of the dispute in Aguaytia the Tribunal found that because Peruvian law and international law led to the same conclusions "for the resolution of this dispute [the Tribunal] need not look beyond Peruvian law." Id, § 74. See also Duke Energy International Peru Investments No I, Ltd v. Peru, ICSID Case No. ARB/03/28, Award (July 25, 2008) § 144, available at http://www.investmentclaims.com (in which the Tribunal decided a contractual dispute where Peruvian law was the law chosen by the parties. The Tribunal noted that international law was also applicable pursuant to rule 42(1) of the ICSID Convention.) The Tribunal decided that "it does not need to address the thorny issue of the content of the minimum standard of treatment" in customary international law, because "the elements that Claimant has argued are part of the international law principles that should be implied as independent guarantees into the DEi Bermuda LSA overlap entirely, in the Tribunal's view, with the protections provided to Claimant under the DEI Bermuda LSA as interpreted under Article 42(1) of the ICSID Convention." Id., § 280. 28 For example Judge Schwebel notes: "The phenomenon of how and when provisions of treaties binding only on the parties to those treaties may seep into general international law and thus bind the international community as a whole is subtle and elusive. It is nevertheless a process known to international law. It is the process of which some 2,200 bilateral investment treaties are the contemporary exemplar." Stephen M. Schwebel, The Reshaping of the International Law of Foreign Investment by Concordant Bilateral Investment Treaties, in LAW IN THE SERVICE OF HUMAN DIGNITY: ESSAYS IN HONOUR OF FLORENTINO FELICIANO (Steve Chamovitz, Debra Steger

  • and Peter van den Bosche eds. 2005). Similarly, but more explicitly, Andreas Lowenfeld argues that "[g]iven the large web or BITS covering every continent and countries from the First, Second, and the Third World, a fair inference might be drawn that, taken together, the Bilateral Investment Treaties are now evidence of Customary International Law, applicable even when a given situation or controversy is not explicitly governed by a treaty." ANDREAS LOWENFELD, INTERNATIONAL ECONOMIC LAW 486 (2002). On the other hand, Dolzer and Schreuer have been hesitant to state that the law is settled on this point: "one doctrinal issue that has arisen in discussion pertains to the impact of more than 2,500 treaties on the evolution of customary international law .... [Gliven the vagaries of international economic relations, the reference to customary law in some treaties and the patchwork of the current net of treaties with its remaining gaps, it would be entirely premature to declare that the ongoing controversies on the state of customary law will not occupy foreign offices, judges, and arbitrators in the future." DOLZER & SCHREUER, supra note 2, at 17. 29 See, e.g., Republic of Guinea v. Democratic Republic of Congo, Icj, Preliminary Objections (May 24, 2007), available at http://www.icj-cij.org/docket/files/103/13856.pdf. The scope of investors that a state can protect through exercising diplomatic protection is more limited than those investors that are often covered under BITS. For example, in Barcelona Traction, Light and Power Company, Limited (New Application: 1962) (Belgium v. Spain), IC.J. Rep. 1970, Judgment (Feb. 5, 1970), the Court refused to allow Belgium to make a claim on behalf of Belgian nationals who owned shares in a Canadian company (Barcelona Traction, Light and Power Company Limited) against Spain, the country alleged to have done damage to the company. These concerns relating to standing would not likely have been an issue if the shareholders had direct recourse against Spain under an applicable BIT. See, e.g., Azurix Corp. v. Argentine Republic, Decision on Jurisdiction, ICSID Case No. ARB/Ol/12, 43 I.L.M. 259 (December 8, 2003); CAM Gas Transmission Company v. Tlie Republic of Argentina, ICSID Case No. Arab/01/8, Decision of the Tribunal on Objections to Jurisdiction, 42 I.L.M. 788 (July 17, 2003). j° Optic, Doing Business Witb Us, availa6le at http://www.opic.gov. 3t Multilateral Investment Guarantee Agency, available at http://www.miga.org/. 32 Alex Khachaturian, Note, "Are We In Good Hands?" 7 he Adeguacy of American and Multilateral Political Risk Insurance Programs in Fostering International Development, 38 CONN. L. REV. 1041, 1062 (2006). Additionally, the premiums for private insurance tend to be much higher while not inspiring the level of confidence of protection that MIGA offers.

  • 11 Id. at 1043. 11 Paul E. Comcaux & N. Stephen Kinsella, Reducing Political Risk in Developing Countries: Bilateral Investment Treaties, Stabilization Clauses, and MicA & Opic Investment Insurance, 1 N.Y.L. Sctl. J. INT'L & Comp. L. 1, 4 (1994). 3s Convention Establishing the Multilateral Investment Guarantee Agency, done nt Seoul on Oct. 11, 1985, entered into force Apr. 12, 1988, Art. 11, 1508 U.N.T.S. 99, available at http://www.miga.org/ (hereinafter "MIGA Convention"). See also Rod Morris, Taking the Risk: Protecting Your Clients witlt Political Risk Insurance and the Overseas Private Investment Corporation, Inns.]., May 17, 2004, http://www.insurancejournal.com/magazines/west/ 2004/05/017 /fcatures/ 42711.htm; MIC;A Guarantees Overview, MIGA Websitc, available at http://www.miga.org/ guarantecs/index sv.cfin. 30 MIGA Convention, supra note 35, Art. 12. Id. Arts. 14, 15. 3" MIGA in Post-Conflict Affected Countries, supra note 4, at 3. 3v Id. 40 MlGA Convention, supra note 35, Art. 23 (a). 41 rid. Art. 23(a) (i)-(iii). Qz Id. Art. 23(b) (i)-(iii). ;3 Afghanistan Investment Guarantee Facility, MIGA Website, available at http://www.miga.org/documents/ IGGafghan.pdf. 44 Id.

  • 45Id. In the case of loans, MIGA may insure up to 95% of the principal plus an additional 135% of the initial principal amount to cover interest. For other forms of equity investment, MIGA may insure up to 90% of the total value of the investment. Id. ^� "Iraq signs MIGA Convention," MIGA Websitc, available at http://www.miga.org/news/index_sv. cfm?aid= 1625. 4� Id. To become a member of MIGA, Iraq must complete the ratification process and make an initial capital contribution to MIGA. Id. 4a See generally, LOUIS T. WELLS ANI) RAFIQ AHMEI), MAKINC: INVESTMENT SAFE (2007), for a discussion of case studies, particularly in Indonesia, where investments went awry due to physical insecurity. av Measures to Attract FIJI, supra note 3, at 14. The Other Iraq, FOREIGN Direct INVESTMENT MAGAZINE, available at http://www.fdimagazine.com/ news/fullstory.php/aid/1554. s' MIGA in Post-Conflict Affected Countries, supra note 4, at 5. 52 Id. at 5, 7. 53 Id. at 7. 54 Id. at 9. 55 Id.

  • 56 The Slippery Business of Oil, THE ECONOMIST, June 28, 2008 at 55. 57 Id. 58 Id. 59 Now Basra Basks: Iraq's Commercial Capital is at Last Ready for Revival, FINANCIAL TIMES, Sept. 2, 2008. Id. 61 Id. 62 rd. 3 "How can I hire? My business is stagnating," FIrrArrCIAL TIMES, Sept. 2, 2008. 64 Id. 65 Id. 66 Id.

  • (,7Id. 68 Transparency International 2008 Corruption Perceptions Index, available at http://www.transparency.org/ news_room/in_focus/2008/cpi2008/cpi 2008_table. 69 Kabul Seeks Foreign Funds to Take on Corruption, FINANCIAL Ttrvt>a, Oct. 12, 2008. 70 Id. 71 Bert Denolf, 'The Impact of Corruption on Foreign Direct Investment, 9 J. WOttLD INVEST. & TRADE 249, 254 (June 2008). �= Id. at 261-262 (summarizing several studies done on this point). See also Shang-Jin Wci, How Taxinq is Corruption on International Investors?, 82 Rev. ECON. AND STAT. 82, 1 (2000); Beata K. Smarzynska and Shang-Jin Wei, Corruption and Cross-Border Investment: Firm-Level Eiidetice, Brookings Institution Working Paper, available at http://www.brookings.edu/ - / media/Files/rclpapersI2002/0816macroeconomics - wei/20020816. pdf; Joel Hellman, Geraint Jones, & Daniel Kaufmann, Are Foreign Investors and Multinationals Engaging in Corrupt Practices in Transition Economies?, TRANSITION, May-July 2000 at 4. �3 Denolf, supra note 71, at 262. 74 Id. �5 Madalene O'Donnell, Corruption: A Rule of Law Agenda?, in CIVIL WARS AND THE RULE OF LAW 225, 228 (Agnes Hurwitz and Rcyko Huang eds. 2008).

  • TheOtherIraq,supra note 50. Seegenerally, Colette Rausch & Vivienne O'Connor, Model Codes: Laying the Foundations of the Rule of Law, in CIVIL WARS AND THE RULE OF LAW 115 (Agn25 Hurwitz & Reyko Huang eds. 2008). 78 O'Donnell, supra note 75 at 229. Id. It should be noted that "(AJdministrative law governs all agencies typically operating under the executive and charged with the 'day-to-day minutiae of governing.'" Id. at 229 (quoting WILLIAM Fox, UNDERSTANDING Administrative LAW 6 (4th ed. 2000)). 80 O'Donnell, supra note 75, at 239. 81 Id. at 245. s2 United Nations Convention against Corruption, done at New York on Oct. 31, 2003, entered into force Dec. 14, 2005), G.A. res. 58/4, UN Doc. A/58/422 (2003). See also OECD Doc. No. DAFFE/IME/BR(97)20 (Dec. 17, 1997); Council ofEurope Criminal Law Convention on Corruption, done at Strasbourg on Jan. 27, 1999, entered into force Jan. 7, 2002, CETS No. 173; Council for Europe Civil Law Convention on Corruption, done at Strasbourg on Apr. 11, 1999, entered into force Jan. 11, 2003, CETS No. 174; The Inter-American Convention against Corruption, done at Caracas on Mar. 29, 1996, entered into force Mar. 6, 1997, available at http://www.oas.org/ juridico/english/Treaties/b-58.html. a3 Foreign Corrupt Practices Act of 1977, 15 U.S.C. § 78dd-2 (2007). It should be noted that foreign firms and persons who take any act in furtherance of a corrupt payment to a foreign official while in the United States can also be held liable under the FcFA, § 78dd-3.

  • X4 Ice Case No. 3916, in SIGVARD JAPVIN & YVES DEPAINS, COLLECTION OF Ice APBITRAL AWARDS 1974-1985, 507, 511 (1994) (where the Tribunal stated "Even if, in certain countries or during certain times, the corruption of public officials is a generally accepted practice in business relations; if one takes the point of vicw of good government or that of commercial ethics it would be impossible to close one's eyes to the destructive effect of such damaging practices."). as yvorld Duty Free Company Ltd. v. Republic of Kenya, ICSID Case No. Alts/00/7, Award (Oct. 4, 2006), available at http://ita.law.uvic.ca/. ab Id., § 157. See also Ice Case No. 1110, ARe. INT'I, Vol. 10, No. 3, (1994) at 294 (confirming the existence of a transnational public policy against corruption). a� Toby Dodge, Stale Collapse and the Rise of Identity Politics, in IRAQ: PKEVENTINC: A NEW GENERATION C)F CoNELICT (Markus E. Bouillon, et al. eds. 2007) 26, 29. 88 Id. at 29. X9 Id.

  • 9o Id. Id. at 30. vz Abdel Salam Sidahmed, Islamism, Nationalism, and Sectarianism, in IRAQ: PREVENTING A NEW GENERATION OF CONFLICT (Markus E. Bouillon et al. eds. 2007) 79. Additionally, the Coalition Provisional Authority ("CPA") contributed to the "sectarianization" of Iraqi politics by: (1) initiating the de-Baathification process, which wiped out an entire managerial class and (2) adopting sectarian criteria to fill political posts. Id. y3 Id. at 82. y4 Dodge, supra note 87 at 31, 32; Sidahmed, supra note 92, at 77 (stating that the Iraqi insurgency is a response to a series of "Western offensives" against the Arab-Islamic world). 95 Sidahmed, supra note 92 at 78. 96 Nicholas "Fink" Haysom, Forging an Inclusive and Enduring Social Contract, in IRAQ: PREVENTING A NEW GENERATION OF CoNELICr (Markus E. Bouillon, David M. Malone & Ben Rowswell eds. 2007) 150. Ronald D. Rotunda, Irag, Oil and Democracy, Cato Institute (Apr. 23, 2004), available at http://www.cato.org/pub display.php?pub id=2623. 9a Rouala Khalaf and Steve Negus, Forbidden Fields: Oil Groups Circle the Prize of Iraq's Vast Reserves, FINANCIAL TIMES, Mar. 19, 2008. w Id. Ioo Richard A. Oppel, Jr., After the War: The Occupation; LJ.S. Seeking Foreign Investment for Iraq, N.Y. TIMES, Aug. 28, 2003.

  • 101 2007 Investment Climate Statement- Iraq, U.S. Department of State, available at http://www.statc.gov/e/ eeb/ifd/2007/80708.htm. 102 Oppel, supra note 100. 103 Rotunda, supra note 97. '°^ 2007 Investment Clirnate Statement - Iraq, supra note 101. Foreign investment in oil is excluded from this law. Timothy B. Mills, President, American Chamber of Commerce, Presentation at Rebuild Iraq Conference in Amman, Jordan, Rebuild Iraq 2007: Iraq Trade and Commerce: Exploring the Future, Capturing the Opportunities?, available at www.rebuild-iraq-expo.com/ppt/dayl/04.lra.LTrade_and - Commerce.ppt. 105 Id. Foreign investment in oil is excluded from this law. '06 Council of Ministers - Oil and Energy Committee, Republic oflraq, Draft Iraq Oil and Gas Law, Feb. 15, 2007, available at http://www.iraqrevenuewatch.org/documents/oil_law_cnglish_20070306.pdf. Under the Draft Law, the Federal Oil & Gas Council is responsible for: enacting Federal petroleum policies and exploration plans, creating designs for developing field and pipeline plans, and ensuring that petroleum resources are discovered and developed. But this law has not yet been finalized. Steven Mufson, Iraq Struggles to Finish Oil Law, WASH. POST, Jan. 24, 2007, available at http://www.washingtonpost.corn/wp-dyn/contcnt/articlc/2007/Ol/23/ AR2007012301534.heml. 107 2007 Investment Climate Statement - Iraq, supra note 101. lOX Id. 109 Id. too Id. -

  • 111 Id. n2 Id. t Id. � Arab Convention on Commercial Arbitration, done at Amman on Apr. 14, 1987, entered il1toforceJune 25, 1992, in INTERNATIONAL, HANDBOOK ON COMMERCIAL ARBITRATION, Suppl. 17 O. Paulsson, ed. Jan. 1994). 111 Id. Art. 2. 116 Riyadh Arab Convention on Judicial Cooperation, done at Riyadh on Apr. 6, 1983, entered into force Oct. 30, 1985, in ABDUL HAMID EL-AF117AB, ARBITAATION WITH THE ARAB COUNTRIES (2nd ed. Dec. 1998). 117 Id. Art. 37. 1)8 Id. Art. 37 (e). m Convention on Recognition and Enforcement of Foreign Arbitral Awards, done at New York on June 10, 1958, entered into force June 7, 1959, available at http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/ NYConvention.httnl. t2° Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, done at Washington D.C. on Mar. 18, 1965, entered into force Oct. 14, 1966, available at http://icsid.worldbank.org. tzt Protocol Between the Government of the State of Kuwait and the Republic of Iraq on the Promotion of the Movement of Capital and Investment Between the Two Countries, done at Kuwait on Oct. 25, 1964. This Treaty does however require that disputes relating to the interpretation of the Treaty that cannot be resolved by negotiation between the contracting parties be referred to arbitration. Id. Art. 7(1). 122 Iraq, The Investment Law No. (13) of 2006; Saleh Majid, Iraq Arbitration Law, available at http://www.iraqilawconsultant.com/downloads/Iraq%20Arbitration%20Law%20 - 2006.pdf.

  • tzs Iraq, supra note 122, Art. 27; Majid, supra note 122, at 3, 11. 124 Majid, supra note 122, at 3. tzs Id. at 3-4. Article 704 of the Iraqi Civil Code of 1951 describes matters which are capable of being compromised as those "capable of being disposed of for valuable consideration, and they must be defined or known." Id. at 4. Public policy or criminal matters are not arbitrable, but disputes related to financial consequences or damages may be subject to arbitration. Id. 126 Id. at 4. 127 Id. at 4. tza Id. at 6-7. tz9 Id. at 7. t3° Id. at 8-9. tst 2007 Investment Climate Statemcnt - Iraq, supra note 101. In addition, Kurdistan's investment law treats foreign and domestic investors the same. Law no. (4) of 2006, Law of Investment in Kurdistan Region - Iraq, Art. (3), http://www.ekrp.org/files/docs/InvestmentLaw en.pdf. 132 Id. 133 Id. tsa Id.

  • Iraqi Constitution, Art. 111, http://www.uniraq.org/documents/iraqi_constitution.pdf; Brendan O'Leary, Federalizing Natural Resources, 117 IRAC2: PREVENTINC: A NEW GENERATION OF CONFLICT (Markus E. Bouillon, David M. Malone & Ben Rowswell eds. 2007) 194. 136 Iraqi Constitution, supra note 135, Arts. 110, 115; O'Leary, supra note 135, at 194. 137 Id. 138 O'Leary, supra note 135, at 195. 139 Khalaf & Negus, supra note 98. 140 Id. m Id. 142 Id. 143 Id. 144 Id.

  • 145 Id. 146 Iraqi Constitution, supra note 135, Art. 111. 147 Id., Art. 112. 148 O'Leary, supra note 135, at 195.

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