International investment agreement

An International Investment Agreement (IIA) is a type of treaty between countries that addresses issues relevant to cross-border investments, usually for the purpose of protection, promotion and liberalization of such investments. Most IIAs cover foreign direct investment (FDI) and portfolio investment, but some exclude the latter. Countries concluding IIAs commit themselves to adhere to specific standards on the treatment of foreign investments within their territory. IIAs further define procedures for the resolution of disputes should these commitments not be met. The most common types of IIAs are Bilateral Investment Treaties (BITs) and Preferential Trade and Investment Agreements (PTIAs). International Taxation Agreements and Double Taxation Treaties (DTTs) are also considered as IIAs, as taxation commonly has an important impact on foreign investment. An International Investment Agreement (IIA) is a type of treaty between countries that addresses issues relevant to cross-border investments, usually for the purpose of protection, promotion and liberalization of such investments. Most IIAs cover foreign direct investment (FDI) and portfolio investment, but some exclude the latter. Countries concluding IIAs commit themselves to adhere to specific standards on the treatment of foreign investments within their territory. IIAs further define procedures for the resolution of disputes should these commitments not be met. The most common types of IIAs are Bilateral Investment Treaties (BITs) and Preferential Trade and Investment Agreements (PTIAs). International Taxation Agreements and Double Taxation Treaties (DTTs) are also considered as IIAs, as taxation commonly has an important impact on foreign investment. Bilateral investment treaties deal primarily with the admission, treatment and protection of foreign investment. They usually cover investments by enterprises or individuals of one country in the territory of its treaty partner. Preferential Trade and Investment Agreements are treaties among countries on cooperation in economic and trade areas. Usually they cover a broader set of issues and are concluded at bilateral or regional levels. In order to classify as IIAs, PTIAs must include, among other content, specific provisions on foreign investment. International taxation agreements deal primarily with the issue of double taxation in international financial activities (e.g., regulating taxes on income, assets or financial transactions). They are commonly concluded bilaterally, though some agreements also involve a larger number of countries. Countries conclude IIAs primarily for the protection and, indirectly, promotion of foreign investment, and increasingly also for the purpose of liberalization of such investment. IIAs offer companies and individuals from contracting parties increased security and certainty under international law when they invest or set up a business in other countries party to the agreement. The reduction of the investment risk flowing from an IIA is meant to encourage companies and individuals to invest in the country that concluded the IIA. Allowing foreign investors to settle disputes with the host country through international arbitration, rather than only the host country’s domestic courts, is an important aspect in this context. Typical provisions found in BITs and PTIAs are clauses on the standards of protection and treatment of foreign investments, usually addressing issues such as fair and equitable treatment, full protection and security, national treatment, and most-favored nation treatment. Provisions on compensation for losses incurred by foreign investors as a result of expropriation or due to war and strife usually also form a core part of such agreements. Most IIAs additionally regulate the cross-border transfer of funds in connection with foreign investments. Contrary to investment protection, provisions on investment promotion are rarely formally included in IIAs, and if so such provisions usually remain non-binding. Nevertheless, the assumption is that the enhanced protection formally offered to foreign investors through an IIA will encourage and promote cross-border investments. The benefits that increased foreign investment can bring about are important for developing countries that aim at using foreign investment and IIAs as tools to enhance their economic development. BITs and some PTIAs also include a provision on investor-State dispute settlement. Usually this gives investors the right to submit a case to an international arbitral tribunal when a dispute with the host country arises. Common venues through which arbitration is sought are the International Centre for Settlement of Investment Disputes (ICSID), the United Nations Commission on International Trade Law (UNCITRAL) and the International Chamber of Commerce (ICC).