Part II Substantive Issues, Ch.7 Admission and Establishment
Ignacio Gómez-Palacio, Peter T Muchlinski
Edited By: Peter T Muchlinski, Federico Ortino, Christoph Schreuer
- Investment — National treatment — General principles of international law — International investment law — Host state nationality
(1) Admission, Establishment, and Market Access 229
(2) Policy Considerations: Host Country and Investor Interests 232
(3) Rights of Admission and Establishment under National Investment Laws 236
(4) Rights of Admission and Establishment under IIAs 239
(5) Balancing Admission and Establishment and Regulatory Discretion 250
Concluding Remarks 256
(p. 228) The admission of investments and the ‘right of establishment’ concern each country's sovereign right to regulate the entry of foreign direct investment (FDI). This right is based on the state's control of its territory, which carries the attendant right to exclude aliens from that territory. That right is absolute and can only be restricted by international agreement. Thus, this is an area of law in which positive investor rights of entry and establishment arise by way of an exception to the general rule of international law. As a result, states have a wide discretion over whether and how far to admit investors into the national economy and market.
The admission of FDI has a significant impact on the national and regional economy and other matters of concern for the country. According to UNCTAD,
states have sought to control the entry and establishment of foreign investors as a means of preserving national economic policy goals, national security, public health and safety, public morals and serving other important issues of public policy …. Therefore, such controls represent an expression of sovereignty and of economic self-determination, whereby Governments will judge FDI in the light of the developmental priorities of their countries rather than on the basis of the perceived interests of foreign investors.1
At the same time, as noted in the introductory chapter, the process of globalization is putting pressure on host countries to provide an ‘open door’ to foreign investors, resulting in an overall trend towards liberalization of admission and establishment conditions. For example, the UNCTAD World Investment Report 2005 notes that, in 2004, a total of 271 measures were adopted by 102 economies of which the vast majority (87%) tended to make conditions more favourable for foreign companies to enter and to operate.2 Equally, countries that seek to encourage foreign investment may restrict their wide area of discretion through international treaties, by the inclusion of a clause embodying rights of entry and establishment for foreign investors.3
However, in more recent years, this trend has been challenged. While the general trend towards further liberalization has continued in 2005–6 in Latin America, more restrictive laws have been passed in a number of countries, mainly in the natural resources sector, as in Venezuela, Chile and Bolivia, or as a result of economic emergency measures, as in the case of Argentina.4 Equally, Russia has introduced sectoral restrictions,5 while Thailand has also proposed a more restrictive (p. 229) foreign investment law.6 Among developed countries, concern over foreign takeovers has also become more commonplace especially in the EU member countries.7 Accordingly, there is now a degree of unease over a ‘backlash’ towards uncontrolled admission and establishment by foreign investors and talk of a ‘new protectionism’ among politicians.8 Thus it should not be assumed that a more open approach to admission and establishment conditions is here to stay, even where international agreements appear to protect it.
Against this background, the present chapter will outline the major legal and policy issues that the development of rights to admission and establishment raise under international law. The chapter begins with an assessment of the meaning of the terms ‘admission’ and ‘establishment’ as well as the related term ‘market access’. It goes on to consider various interests of the host country and the investor that inform the development of legal responses in this field. It continues with a review of the major trends in admission and establishment provisions in national laws and in international investment agreements (IIAs). As regards the international dimension, this study relies to a great extent on the significant work done in this regard by UNCTAD and seeks to update that work in the light of more recent developments.9 Finally, by way of conclusion, it will seek to relate the foregoing discussion to the wider policy issues raised in the introductory chapter.
At the outset, these three concepts need to be distinguished. They are often used interchangeably. This is apt to lead to confusion as to the precise scope of the right of an investor to enter and to do business in the host country, where such a right is (p. 230) actually granted. Admission is not the same as establishment or market access. They all refer to distinctive ways in which an investor can interact with the host country. The key to understanding these differences lies in the duration of the proposed investment.
FDI is generally looked upon as creating a long-term relationship between the investor and the host state and it is coupled with the notion of a lasting interest, in part influenced by the realities of the ongoing presence of the investor. However where FDI is seen as a short-term commitment, then a clear separation can be made, between the right of admission—which deals only with the right of entry, that is, the rules set for admission—and the right of establishment—which deals with the way the activity of the investor will take place over the duration of the investment and also with the protection of the type of presence that may be permitted.10
Following from the above, where the investor seeks a short-term presence in the host country market, temporary admission may be sufficient for the duration of a specific project or transaction. Where the investor seeks a longer-term investment, then some form of more permanent admission would be required. Here a distinction can be made between a permanent right of market access and a right to permanent establishment. The former will allow the investor to do business in the host state, but without the grant of a right to set up a permanent business presence. Market access rights may be sufficient where the investor is primarily involved in regular cross-border trade in goods or services, or where business is carried out by way of electronic transactions, obviating the need for a permanent presence in the host state.11
Where some form of permanent business presence is preferred by the investor, a full right of establishment may be required. According to UNCTAD, this
ensures that a foreign national, whether a natural or legal person, has the right to enter the host state and set up an office, agency, branch or subsidiary (as the case may be) possibly subject to limitations justified on grounds of national security, public health and safety or other public policy grounds … Thus the right to establishment entails not only a right to carry out business transactions in the host state but also the right to set up a permanent business presence there.12
(p. 231) The right of establishment takes a number of different forms, from investing through a representative office, to the use of an agency or branch, or the incorporation of a subsidiary. These generally have different tax and other regulatory consequences which the investor will need to consider when determining the form that the investment will take. In addition, under certain national laws the legal form of the establishment will be mandated. Thus, for example, Ghana requires the incorporation of a local company as part of the registration process for the investment.13 In addition, the right may be made subject to certain legal obligations on the investor and/or the investment. In particular, the host country may impose performance requirements as a condition of entry.14 More recently the practice has emerged, particularly in relation to major infrastructure and utility projects, to organize the investment by way of public private partnership (PPP) arrangements.15 Furthermore, the right of establishment may be supplemented with access to investment incentives.16 The policy reasons for such variations and adaptations of the right to establishment will be considered in Section 2 below.
The right of establishment is in essence a non-discrimination standard. Depending on the nature and scope of any applicable IIA, this right will require equality of treatment between different foreign investors under the most-favoured-nation standard (MFN) and as between foreign and domestic investors under the national treatment standard. As will be seen below, certain IIAs extend these non-discrimination standards to the pre-entry stage, thereby ensuring equality of competitive conditions for market entry and establishment. At this stage, the non-discrimination standard protects the foreign investor against wasting costs and alternative investment opportunities in the hope of securing access to the host state market, only to find its way barred by reason of preferential treatment for domestic, or other foreign, investors. Once the investment is established, all IIAs will protect its subsequent treatment in accordance with the non-discrimination standard.17
Regarding the interaction between the concepts of admission, establishment, and market access, it follows from the above that where the investment is short-term, and does not require a significant commercial presence in the host country, a right of admission will suffice. For example, a portfolio investment in a local company References(p. 232) may not require the investor to set up a permanent establishment in order to make the investment or to oversee its operation. Equally, where the investor is mainly concerned with the cross-border provision of goods and/or services, a right of admission will be necessary, as where the investor needs permission to trade in the national market or to enter a licensing or distribution agreement with a local enterprise, but without the need for a permanent establishment. Arguably, this is not in fact a proper case of investment but of trade. Nonetheless, it is proper to include this example as investment and trade are often complementary techniques employed by multinational enterprises (MNEs) as part of their market entry strategies.18 However, where a long-term direct investment is made, involving not only the transfer of capital into the host country but also the transfer of productive assets that remain under the control of the investor, then the rights of admission and establishment need to work together to ensure the effective initiation of the investment. Indeed, much will depend also on the scope of the definition of investments which the national law or IIA, which grants rights of admission and establishment, applies. Thus a broad asset-based definition will cover most types of investment, regardless of the need for permanent establishment or even actual commercial presence in the host country, while narrower definitions, focused on the nature of the enterprise undertaken in the host country, may restrict these rights only to investments undertaken through a permanent establishment involving actual commercial presence in the host country.19
The investor and the host country (together with the active or passive position of the investor's government) enter, from the outset, into a relationship with the potential References(p. 233) for a clash of conflicting interests. Both parties seek the highest possible revenues and benefits. Both the investor and the host state are in need of something the other party possesses. The investor holds capital, technical knowledge, distribution channels, and the like. The host state has infrastructure, geographic position, natural resources, technical skills, low-cost labour, or an attractive domestic market. The point of entry is the moment when these specific negotiating advantages will serve to inform the bargaining process between the investor and the host country. The outcome of that process will to a large extent determine the nature of the admission and/or establishment rights that the investor will enjoy.
In this context, the priorities of the host country stem from the fact that, regardless of its level of economic development, inward direct investment may be needed to supply new capital, technology, goods or services that no locally based firm can supply at equivalent or lower cost.20 Thus, host states will generally encourage the entry of firms that can bring these factors into the economy.21 However, host states will wish to guard against some of the difficulties that can result if inward direct investment is permitted. These may involve concerns over the ‘crowding out’ of local competitors faced with the presence of more efficient foreign firms, the need to encourage technological and other ‘spillovers’ from the foreign investor to local firms, the building of local linkages to the investment and the general effects of the investment on jobs, exports, and longer-term economic development.22 Thus, conditions may be imposed on the entry of a foreign firm. These may relate to the legal form that the local enterprise must take, the level, if any, of local ownership in the new enterprise, and any performance requirements that the enterprise must fulfil, regarding, for example, import levels, technology and skills transfer, job levels, export levels, or long-term investment strategy. Alternatively, foreign firms may be prohibited completely from certain sensitive sectors of the host economy or permitted to invest only through joint ventures with a local partner. Apart from entry requirements, the host may impose measures to ensure adequate revenue from the investment by way of taxation. It will also normally subject the local affiliate of the MNE to the general system of business regulation in force within the host state, including competition, company, labour, and intellectual property law.
By contrast, the interests of the investor will depend to a large extent on the motives underlying the decision to invest in the host country in question.23 To understand this point more fully, it is necessary to distinguish four different types of international investment: natural resource-seeking, market-seeking, (p. 234) efficiency-seeking, and strategic asset-seeking investment.24 The first is strongly based on locational factors as the distribution of natural resources is uneven across countries and regions. However, other locational factors, such as infrastructure development and regulatory conditions, may affect the firm's decision to invest. Here the extent of the need to access the resource deposit will be key in determining the relative bargaining power between the host country and the investor. If the need on the part of the investor is high, then the host country will have a strong position from which to impose conditions for entry and establishment. On the other hand, the investor will have a strong position given its control over extractive technology and access to global distribution systems for the resource in question.
Market-seeking investment aims to supply a significant foreign market through local production or service provision that replaces importation. The investment may grow over time and in turn begin to export to third markets where the location offers strategic trade advantages to the MNE. It may also change in nature and composition as the life cycle of the product evolves. Here the MNE will be in a strong bargaining position where demand for its products or services is high and cannot be met by local provision alone. On the other hand, the host country can hold out for favourable terms of entry given its ability to exclude the investor from the market, assuming that it has not committed itself to any treaty-based rights of entry and establishment concluded with the home country of the MNE.
Efficiency-seeking FDI aims to enhance the competitiveness of the firm by allowing for a more cost-effective cross-border integration of production. It has the effect of increasing intra-firm trade as it involves a rationalization of the MNE's operations and increased specialization at the affiliate level. In the contemporary investment climate, the key efficiency-enhancing locational advantages appear to be knowledge driven, rather than the low wage advantages that earlier theories identified.25 Where a host country possesses such advantages, it is unlikely to bar the entry of foreign investors who may enhance the knowledge, specific advantages of the host country in this regard. In addition, where the efficiency factor consists of low wages, the possibility of new employment being brought into the economy by foreign investors is likely to lead to an ‘open door’ policy. The history of the economic development of the so-called ‘Asian Tiger’ economies is the best example of this trend.
Finally, strategic asset-seeking investment enhances competitiveness by accessing the knowledge-based assets of the investment location. This can be done by establishing new plants, or by acquisition of, or alliance with, local firms. The key (p. 235) factor is for the MNE to tap into the local innovation system and thereby enhance its technological efficiency. This may lead to the establishment of R&D facilities outside the home country. Again this situation is likely to lead to an ‘open door’ approach as the mutual gains for the host country and the investor may be considerable, especially if R&D is relocated to the host. Such investment is more likely to occur in developed host countries, though some newly industrializing countries are now also becoming favoured locations. As the structure of international production changes, in certain industries a process of ‘fragmentation’ of production is observable.26 This arises as a result of MNEs taking advantage of differences in production and communication costs and skills to relocate processes and functions across countries. This has allowed some developing countries without a strong R&D base to leapfrog to production in high-technology industries such as electronics.27 As a consequence, these countries have been able to attract R&D investment to take advantage of the need to locate such activities close to the site of production and of locally educated science-trained personnel who can be employed for R&D functions in new technologies even in the absence of industrial experience.28 Examples include Singapore and more recently China. However, the vast majority of developing countries are not in a position to achieve this as they lack the required local capabilities.29
The effects of such investment choices by MNEs have tended towards the creation of FDI ‘clusters’ around locations offering the correct mix of locational advantages for the enhancement of firm competitiveness. The major practical effect of this process has been the increasing global integration of production between localized innovation clusters, allowing for possible spillovers of knowledge across borders between such clusters.30 In addition, this has given rise to policy developments that concentrate on the enhancement of the attractiveness of a location as an innovation cluster, whether through incentives and performance requirements or through wider support policies such as infrastructure improvement and training and skills enhancement.
As noted in the introduction to this chapter, most national laws relating to FDI have tended towards a liberalization of investment conditions, including rights of admission and establishment. However, even in the most open economies controls and restrictions on entry by foreign investors will be found. In particular, many countries will seek to protect vital national interests by means of such restrictions. Thus, restrictions on foreign participation will be common in the areas of defence, strategic sectors such as transport and utilities, and in culturally or socially sensitive sectors such as the media or tourism.31
Such sensitive sectors may be specifically identified in national FDI laws by means of recognizing them in negative or positive lists. The former approach lists sectors excluded from foreign participation. For example, under the Nigerian Enterprises Promotion (Repeal) Decree of 1995,32 a non-Nigerian may invest and participate in the operation of any enterprise in Nigeria, except the petroleum industry or industries included in the ‘negative list’ in section 32 of the Decree.33 The latter approach lists sectors open to such participation. This was the approach taken in older investment control laws such as the earlier Nigerian Enterprises Promotion Acts passed in References(p. 237) 1972, 1977, and 1989.34 The Thai Foreign Business Act also uses a system of negative and positive lists.35 However, this approach is no longer followed by most national FDI laws, which tend to have a simplified registration procedure and no sectoral controls.
The delimitation of the scope of admission and establishment for foreign investors is a first step in a country's position vis-à-vis the right of entry of FDI, one which varies depending on many factors that relate to its size, economy, population, geographical location, and the like. Such restrictions may in turn be echoed in applicable IIAs. For example, in the US and Canadian model BITs, negative lists of exclusions will form part of the agreement and will serve to define the scope of the right of entry and establishment guaranteed under the non-discrimination provisions of the agreement.36 More recently, cultural exceptions are increasingly becoming a topic of concern, with some countries making exceptions to foreign investment in such industries under not only national laws but also IIAs.37 On the other hand, as will be noted below, most BITs do not have a positive right of entry and establishment coupled with a negative list of exceptions. Rather, the prevailing approach in such agreements is to make admission and establishment subject to the requirements of the local law of the host country.
Apart from sectoral restrictions, national laws may place limits on foreign shareholdings in national companies,38 or require the investor to enter into a compulsory joint venture with domestic state agencies or entrepreneurs.39 Furthermore, References(p. 238) regulations regarding the right of admission and establishment may introduce a discretionary ‘screening’ mechanism.40 ‘Screening laws’ involve the case-by-case review of proposed foreign investments by a specialized public authority in the host country that is charged with the task of establishing whether or not a given proposal is in accordance with the economic and/or social policies of the host state. ‘Screening’ procedures are often established in association with restrictive regimes regulating the ownership and control of foreign investments. On the other hand, ‘screening’ may be used as the sole technique of regulation, unaccompanied by any statutory requirements concerning permissible limits of foreign ownership and/or control, and be aimed only at ensuring official scrutiny and approval of proposed investments. In many cases, the ‘screening’ process will empower the reviewing authority, or the minister or government department to which it is answerable, to impose operational conditions, usually referred to as performance requirements, upon the investor as the price for approval. These may include requirements concerning local sourcing of inputs, export requirements, local personnel employment quotas, and capital requirements. The latter are illustrated under Chile Decree Law 600 Foreign Investment Statute.41
Where such requirements produce trade-distorting effects, they may fall foul of the WTO Agreement on Trade Related Investment Measures (TRIMs), which requires WTO members to prohibit certain types of performance requirements that have such effects. The TRIMs Agreement identifies two groups of TRIMs that offend GATT 1994 in an Illustrative List that is annexed to the Agreement. The first consists of TRIMs that offend the national treatment principle in Article III(4). These TRIMs either require the purchase or use by an enterprise of locally produced products or impose import restrictions on the enterprise that relate the amount of imports References(p. 239) permitted to the volume or value of local products exported by it.42 Secondly, the TRIMs Agreement lists other TRIMs that are equivalent to quantitative restrictions prohibited by Article XI(1) of the GATT. These include: restrictions on the importation by an enterprise of products used in or related to its local production whether generally or in proportion to the amount that it exports; the achievement of such import restrictions by limiting the enterprise's access to foreign exchange; export requirements whether specified in relation to certain products, the volume or value of products, or as a proportion of local production.43
The ‘screening’ of foreign investments is one of the most widely used techniques for controlling the entry and establishment of MNE's in host states.44 This approach has been favoured by states that welcome foreign-owned and controlled investments, but which are concerned about the loss of economic sovereignty or adverse economic consequences that may accompany such investments in particular cases. Both economically advanced and developing countries have adopted ‘screening laws’. More recently, some countries, particularly in Africa, have been replacing screening laws with laws that require only the registration of the foreign investment in the appropriate legal form, coupled with a possible minimum capital investment requirement.45
It has already been noted that, under general international law, states have the unlimited right to exclude foreign nationals and companies from entering their territory. There is no international standard requiring states to adopt an ‘open door’ to inward direct investment.46 On the other hand, states are free to set the limits of permissible entry in their national laws as they see fit. Thus states are free to agree to provisions in IIAs securing access to their territory by investors from another References(p. 240) contracting party. In this regard, two main models of agreements are emerging: a ‘controlled entry’ model that reserves the right of the host state to regulate the entry of foreign investments into its territory and a ‘full liberalization’ model that extends the non-discrimination standard (both national treatment and most-favoured-nation (MFN) treatment) in the agreement to the pre-entry stage of the investment.47 While these models remain the most significant in contemporary treaty practice, certain other approaches, highlighted by UNCTAD in its leading study, need to be considered. These emerge from the approach to market access taken in the WTO GATS Agreement, the treatment of the right to establishment in the European Community (EC), and the use of regional industrialization devices in economic integration agreements among groups of certain developing countries.48
(a) The Controlled Entry Model
This approach preserves in full the host country's right to regulate the admission and establishment of foreign investors in accordance with its laws and regulations. This position basically relies on the affirmation of state sovereignty over economic decision-making. It may be an adequate solution for governments uncertain about the benefits of an ‘open door’ approach to admission and establishment. Countries vary in their willingness to protect domestic and infant industries and entrepreneurs. Natural resources and land may be subject to controls and restrictions. Government and private monopolies may be protected (especially in the case of countries dependent on a single natural resource). Thus, there may be significant policy reasons for retaining full discretion over entry and establishment in various sectors.49
The majority of BITs follow a ‘controlled entry’ approach. Therefore, the application of the treaty to an investment is made conditional on its being approved in accordance with the laws and regulations of the host state.50 For example, the References(p. 241) Jamaica Model BIT states, in Article 2.2 that ‘[e]ach Contracting Party shall admit such investments subject to its laws and regulations’.51 Similarly the Indonesian Model BIT asserts, in Article II:1 ‘Either Contracting Party shall encourage and create favourable conditions for investors of the other Contracting Party to invest in its territory, and shall admit such capital in accordance with its laws and regulations’.52 Similar provisions may be found in some regional agreements concluded between groups of developing countries.53 The effect of such provisions is twofold: first, they allow the host country to apply its foreign investment admission and screening procedures and to determine whether the proposed investment is suitable for admission, and to place such conditions upon entry as are required under national laws; secondly, they allow for the application of differential treatment as between different foreign investors and domestic and foreign investors in accordance with discriminatory provisions in national laws and regulations that apply at the point of entry.54 This is because the non-discrimination standard applies only to post-entry treatment in BITs adopting the controlled entry approach.55
Historically, the controlled entry model was favoured by the developing countries that supported the adoption of the New International Economic Order (NIEO) in the 1970s. A significant early example was the Andean Foreign Investment Code, contained in Decision 24 of the Commission of the Cartagena Accord of 21 December 1970.56 The Andean Code introduced a restrictive screening and technology transfer control regime for the regulation of foreign investments in the sub-region. The consensus upon which the original Code was based proved to be fragile and short-lived, with a number of the member countries distancing themselves from its terms in References(p. 242) their national laws and policies.57 In the circumstances, Decision 24 was becoming a dead letter. It had to be fundamentally revised. The result was Commission Decision 220.58 This Decision substantially liberalized the terms of Decision 24.59 Decision 220 was replaced by Decision 291 in 1991.60 This effectively abandoned any common policy on foreign investment. As regards standards of treatment, by Article 2 of Decision 291, ‘foreign investors shall have the same rights and obligations as pertain to national investors, except as otherwise provided in the legislation of each Member Country’. Thus it is now for the national laws of each Member Country to determine the extent to which foreign investors shall be admitted. A similar preference for the controlled entry model was evident in UN instruments that emerged from the NIEO debates. Thus, United Nations General Assembly Resolution 3281 (XXIX) the Charter of Economic Rights and Duties of States, preserves national discretion in dealing with foreign investment.61 Equally, the Draft United Nations Code of Conduct on Transnational Corporations recognized the need for controls based on considerations of economic and social development.62
(b) The Full Liberalization Model
This approach offers the best access to markets, resources, and opportunities for multinational enterprises and other foreign investors interested in the locational advantages of the host country.63 It allows for investment decisions to be made on References(p. 243) purely economic grounds as it obviates the existence of discretionary regulatory mechanisms that may prohibit entry or offer it only on conditions that reduce the overall value of the investment to the investor. This approach offers combined-national-treatment/most-favoured-nation-treatment to investors at the pre-entry stage. This allows foreign investors to choose the best of these treatments. The benefits are significant in that the competitive conditions for all investors, whether foreign or domestic, are equalized. However, as noted in relation to national FDI laws, IIAs espousing the full liberalization approach will also use a negative list of exceptions. A significant consequence of this technique is that all sectors not included in the negative list (ie where FDI is allowed to invest) remain permanently open. It is not possible to claw back open sectors into controlled entry. Thus IIAs taking this approach involve a ‘standstill’ on further controls over inward FDI.
Each Party shall accord to investors of the other Party treatment no less favourable than it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.67
This is followed by Article 3(2), which extends the same protection to investments, and Article 4(1) and (2) which cover, respectively, the MFN protection of investors and investments. These provisions make entry to the host state subject to the principle of non-discrimination, and, to that extent, represent a restriction on the host state's sovereign power to regulate the entry of foreign investors. However, the application of this principle is subject to the right of the host state to exclude certain sectors from foreign investment.68 Therefore, the US Model accepts restrictions on entry, provided they are applied in a manner that does not discriminate against US investors.69 Under the Russian Federation-US BIT, the contracting states agreed that, for a period of five years, the Russian Federation would be able to require permission for large-scale investments that exceed the threshold amount in the Russian Federation Law on Foreign Investments of 4 July 1991, provided that this power was not used to limit competition or to discourage investment by US companies and nationals.70
The extension of full non-discrimination protection to the pre-entry stage is not without its problems. Indeed, this was one of the issues that helped to stall the negotiations over the MAI.71 Establishment is also covered in the draft Supplementary Agreement to the Energy Charter Treaty (ECT). Given the policy-sensitive nature of natural resource extraction, particularly its relation to the inherent right of peoples to enjoy and utilize fully and freely their natural wealth and resources,72 the negotiations on the ECT did not result in the adoption of a full right of establishment. References(p. 245) Instead, an interim solution was arrived at. Thus Article 10(2) of the ECT has established a non-legally binding ‘best efforts’ clause for contracting parties to grant foreign investors non-discriminatory treatment concerning the making of their investments. In addition, Article 10(5) introduces a ‘standstill’ on new restrictions for foreign investors and a commitment progressively to reduce remaining restrictions (‘rollback’). Furthermore, Article 10(6) allows the contracting parties to make at any time a legally binding voluntary commitment to grant foreign investors non-discriminatory treatment with regard to the making of an investment. Moreover, Article 10(4) provides for negotiations on the extension of the non-discrimination principle to the pre-establishment phase by means of a Supplementary Treaty. These negotiations began in 1995. Negotiations were suspended in 2002, pending the outcome of discussions over a multilateral framework on investment in the WTO, but have not been resumed.73
(c) Other Approaches
As noted in the introduction to this section, apart from the two main models of admission and establishment provisions in contemporary IIAs, three further approaches were identified by UNCTAD in its study of admission and establishment provisions in IIAs.74 These arise from regional economic integration agreements, including the EC Treaty, and the WTO GATS Agreement. Thus they represent specific legal responses to particular policy goals, resulting in distinctive types of admission and establishment regimes. Each is examined in turn.
(i) The GATS-type ‘Positive List’ Approach
The General Agreement on Trade in Services (GATS) contains a right of establishment.75 By Article I thereof, trade in services is defined as the supply of a service inter alia through the commercial presence of a service supplier of one member in the territory of any other member.76 Furthermore, by Article XXVIII(d) ‘commercial References(p. 246) presence’ is defined as meaning ‘any type of business or professional establishment, including through (i) the constitution, acquisition or maintenance of a juridical person, or (ii) the creation or maintenance of a branch or a representative office within the territory of a Party for the purpose of supplying a service’. This definition is consistent with the existence of a right of establishment. Such a right will exist where a member of the GATS makes specific commitments on market access under Article XVI of the GATS. Article XVI goes on to state that, in sectors where the member undertakes market access commitments, it is prohibited from imposing certain listed limitations on the supply of services, unless it expressly specifies that it retains such limitations. These limitations include measures that would affect access through inter alia direct investment. Thus, in the absence of express reservation, the member cannot restrict or require specific types of legal entity or joint venture through which a service could be provided, nor impose limits for the participation of foreign capital drawn up in terms of limits on maximum foreign shareholding or total value of individual or aggregate foreign investment.77
The wording of Article XVI makes clear that the receiving state is entirely free in determining the extent of its market access commitments, and that it may expressly reserve powers to limit the mode of supply; there is no general obligation to remove all barriers concerning the entry and establishment of service-providing firms. Each member of GATS is obliged to do no more than set out the specific market access commitments that it is prepared to undertake in a schedule drawn up in accordance with Article XX of the GATS. Thereafter, members shall enter into subsequent rounds of negotiations with a view to achieving progressively higher levels of liberalization.78
This approach has been termed the ‘GATS-type positive list’ or ‘bottom-up’ approach to investment liberalization. It contrasts with the NAFTA-style ‘negative list’ or ‘top down’ approach, which was described earlier, and which is also used in the OECD Liberalisation Codes.79 There is a continuing debate over which approach References(p. 247) is better. Countries committed to progressive liberalization argue that a positive commitment to liberalization, coupled with a ‘negative list’ of exceptions, is more likely to result in actual liberalization of entry and establishment conditions. On the other hand, developing countries, in particular, have favoured the GATS-type approach on the ground that it allows for a more considered and gradual process of liberalization, which the ‘negative list’ approach does not, as this requires an ex ante determination of which sectors should be excluded from the pressures of open competition with foreign investors. Such a calculation may be impossible to make at the time of entering into an international agreement, especially for a country with limited resources to assess the competitive condition of its economic sectors. By contrast, the ‘positive list’ approach does not put immediate pressure on the country to make choices as to exclusions from rights of entry and establishment. Rather, the host country can wait and see which of its sectors evolves to a position where it can be opened to competition from foreign investors.80 Thus, by adopting this approach, the GATS stops short of guaranteeing rights of establishment in all cases, and leaves a wide margin of discretion to the members. Indeed, a blanket abolition of national controls over services would have been impossible to negotiate. Consequently, a slower, progressive approach to liberalization has been adopted by all the participating states.
(ii) The EC-type ‘Right to Establishment’
Companies or firms82 formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the References(p. 248) Community shall, for the purposes of this chapter, be treated in the same way as natural persons who are nationals of Member States.
The right of establishment, as it applies to companies and firms, includes, ‘the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 48,83 under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of the chapter relating to capital’.84 Article 55 of the EEC Treaty extends Article 48 to the provision of services, ensuring that companies can also benefit from the freedoms accorded in that area to natural persons. Article 48 suggests two possible routes into another member state: first, the establishment of a new company, or the transfer of an existing company, from one member state to another, known as ‘primary establishment’; secondly, the establishment of an office, branch, or subsidiary in another member state, termed ‘secondary establishment’.85 In each case, the member states must not impose obstacles to the freedom of establishment such as for example, differential tax treatment or other advantages, that are granted to local investors but not to those from another member state.
Where a company seeks to enter a host member state through secondary establishment methods, it must show a real and continuous link with the economy of a member state to qualify as a beneficiary of this right.86 Thus entry into a mere contractual arrangement in the host member state will not suffice in the absence of an established place of business.87 However, more recent case-law from the ECJ accepts that a company can be set up in any member state, regardless of whether it pursues economic activity there, even if the main purpose of such establishment is to avoid more onerous regulatory requirements in the member state where the economic activity is actually carried out.88 The only circumstances where this will not References(p. 249) be allowed is where the establishment in another member state is designed improperly to circumvent the national legislation of the country in which the business in fact operates, or where some fraud or abuse is involved.89 This development allows for a degree of regulatory arbitrage for investors between the company, and other laws, regulating establishment in the EU member states.
It is clear from Articles 48 and 55 of the EC Treaty that the right to establishment and the right to provide services in another member state can only be enjoyed by a company formed in accordance with the law of a member state and having its registered office, central administration, or principal place of business within the Community. This is wide enough to cover the EC-based subsidiaries of non-EC parent companies. However, the EC Treaty does not guarantee these rights to companies that have no legally recognized EC presence in the sense of Article 48. Therefore, it is not possible for, say, a US- or Japanese-based company to invoke the EC Treaty if it is denied access to the economy of a member state whether for the purpose of establishing a place of business or for the provision of cross-border services. In the absence of a common Community policy on inward investment from outside the EC, individual member states retain discretion over their policy towards investors from outside the EC.90 In general, the member states of the EC espouse an ‘open door’ to non-EC investors, so there should be little real disadvantage to such investors.
Other regional economic organizations have also followed the EC-type right of establishment model, though there is no developed case-law as in the EC to interpret the scope and content of these provisions.91 Examples include The Treaty Establishing the Caribbean Community (CARICOM Treaty),92 The Agreement on Arab Economic Unity (AEU Agreement—1964),93the ECOWAS Revised Treaty of 1993,94 and the ASEAN Framework Agreement on the ASEAN Investment Area of 1998.95
References(p. 250) (iii) Regional Industrialization and Admission and Establishment
The process of progressive regional industrialization within regional groupings of developing countries has produced a commonly pursued policy directed at establishing a supranational form of business organization, the purpose of which is to augment regional economic development. Under this model, two or more members of a region establish an MNE and mutually grant special rights of admission and establishment, such as national treatment. First initiated by the Agreement on Andean Sub-Regional Integration, the ‘Cartagena Agreement’,96 this model benefits from greater know-how and capital resources, reducing nationalism in favour of economies of scale, which can serve larger markets. Theoretically, it relies on production factors readily available to the MNE in the region (which is not always the case). According to Article 1(f) the Cartagena Agreement, ‘For the purposes of this Code, an Andean Multinational Enterprise shall be a company fulfilling the following requirements: The sub-regional majority of the capital must be reflected in the technical, administrative, financial and commercial management of the company in the judgment of the corresponding national competent entity’.97 Similarly, the Community Investment Code of the Economic Community of the Great Lakes Countries (CEPGL—1982) provides a scheme for the promotion of joint and community enterprises enjoying the freedom to form and invest capital in the territory of a member state.98 A similar policy has been followed in the Agreement for the Establishment of a Regime for CARICOM Enterprises (CARICOM—1987).99
The preceding discussion has shown that at the level of both national laws and international agreements, there is considerable variation in the nature and extent of References(p. 251) rights of admission and establishment for foreign investors. As noted in the introduction to this chapter, while the dominant trend in national laws has been towards liberalization, this is now showing signs of some revision, with a minority of countries beginning to reconsider the extent to which they are willing to give investors a free rein in their country. This affects not only the question of how investors are going to be treated upon entry but also how much freedom of action they will enjoy after entry. The latter will depend to a great extent on the manner in which host countries conduct their admission and establishment policies, as these will, to a large extent, determine the scope of the investors' post-entry freedom of action.
At the international level, while the majority of IIAs still retain a controlled entry approach, the full liberalization model is gaining ground, especially in bilateral FTAs with investment provisions. The question arises: given the gradual acceptance of pre-entry rights of non-discriminatory admission and establishment, how far will such international developments control developments under national laws? The acceptance of a positive right of entry and establishment under an IIA or FTA with investment provisions is, in effect, a restriction of state sovereignty in the field of admission of aliens and results in a voluntary exclusion of national regulatory discretion. This assumes that the free entry of any investor is desirable and so does not require control.
Such a policy outcome is not necessarily for the best in all cases. For example, the proposed takeover, in 2006, of the UK's biggest gas supplier, Centrica, the owner of British Gas, by the Russian state-controlled gas monopoly, Gazprom, raised concerns in government circles.100 It led the then Secretary of State for Trade and Industry, Alan Johnson, to consider passing a statutory instrument under section 58 of the Enterprise Act 2002 to control bids in the energy supply industry that might threaten energy security.101 This revelation prompted a critical response from Gazprom, which threatened to divert supplies to other customers, and made the Secretary of State appear inconsistent as he had been a vocal critic of other EC member states that had sought to control foreign bids.102 The matter was put to rest by the then Prime Minister, Tony Blair, who pledged that any future bid by Gazprom would be handled in the normal way by the independent competition authorities.103 This case has prompted significant discussion over the real limits of a commitment to liberalization in relation to foreign takeovers of UK firms. That concerns over Gazprom were aired should come as no surprise. On New Year's Day 2006, Russia suspended gas supplies to the Ukraine. Earlier, Vladimir Putin, the Russian President, removed the old management and brought in his own supporters, making References(p. 252) the company even closer to the heart of the Russian state.104 Whether Gazprom acts as a truly independent commercial entity may be open to question. In such circumstances, it may be unwise to consider any bid purely on economic grounds.
The case of Gazprom gives rise to a wider issue. Might it not be relevant to take into account the economic, social, and political culture from which foreign investors come? Companies from authoritarian or undemocratic states, or those from corrupt states, with little or no tradition of corporate accountability and transparency, may bring with them a tradition of bad corporate practice which may undermine effective and open regulation. Surely there is a case for some form of review of these practices in the public interest, especially in relation to bids in sensitive sectors. The narrow logic of market efficiency can appear very inadequate when it comes to such questions, questions that are central to the efficient and honest administration of a market economy. It may be easier to review this matter at the stage of entry than allowing the investor to benefit from open entry and live with the possibility of corporate malpractice thereafter. Equally, social issues, such as employment effects and regional effects, have not lost their importance and, as noted earlier, certain cultural industries may warrant protection. It may be the case that, in practice, some kind of ‘public interest' review needs to occur.105 The political pressure for this may become irresistible in the future.
A second concern arising from the effect of admission and establishment guarantees in IIAs is that such a commitment binds future governments that did not sign the IIA or FTA in question to uphold rights of admission and establishment even if such an ‘open door’ approach is not seen to be in the public interest by subsequent administrations. This raises the question of responsiveness to changes in national policy and whether general controls over pre-entry discretion over admission and establishment are ultimately legitimate, especially where that change of policy is sanctioned by popular approval. In this connection, it is necessary to bear in mind the nature of national procedures for the conclusion of international treaties and whether IIAs in particular have been adopted in accordance with the required constitutional procedures. In some countries, BITs are given the force of national law. For example, by Article 157 of the Sri Lankan Constitution, BITs are given the force of law in Sri Lanka, and no executive or administrative action can be taken in contravention of the treaty, save in the interests of national security.106 However, in many countries, IIAs are only binding as international legal obligations. This References(p. 253) raises the possibility that a conflict could arise between the market-opening provisions of an IIA and inconsistent subsequent laws that seek to control admission and establishment.
This raises the further question of whether existing legal approaches to admission and establishment offer a good policy choice for host countries. In this regard, retaining the controlled entry approach may prove more satisfactory from the perspective of preserving a state's right to regulate admission and establishment. It has the virtue of preserving national policy space by making entry and establishment conditional on the processes of national law as applied at the pre-entry stage. Here the applicable IIA does not seek to control state sovereignty over admission of aliens and defers to national law and practice. That said, the controlled entry model is at odds with the push towards liberalization and market access rights that is a logical concomitant of the rise of global production chains operated by multinational enterprises, which was highlighted in the introductory chapter.
There is little doubt that the full liberalization approach is better suited to these imperatives. It opens up the host country to investment and allows for a reduction of regulatory barriers to entry and establishment, thereby making the decision to invest a more efficiency-led decision which tends to enhance economic welfare. This is particularly the case in the contemporary economy where technical change is faster, internationally integrated production systems are the norm, and FDI is the dominant form of technology transfer.107 However, there may be good policy reasons for restricting the entry of foreign investors for a number of reasons.108 First, in a developing country context, it may be necessary to protect infant domestic entrepreneurship against overwhelming foreign competition which could drive local entrepreneurs into less complex activities or to those with lower foreign presence, perhaps by selling local facilities to foreign entrants. Of course, it is necessary not to over-protect and risk creating a permanently uncompetitive local industry, but, with attention being paid to this issue, a degree of protection may result in highly competitive new local industries, as in the case of the Republic of Korea or Taiwan. Secondly, local firms may be better at deepening local technological knowledge, disseminating it within the host economy and creating local spillover effects, given a greater commitment to their country than foreign investors might show. Thirdly, foreign investors may be ‘footloose’ and their activities may need to be carefully scrutinized on entry to ensure that their investment will last and make an enduring contribution to the local economy. Finally, foreign investors may need to be controlled as a result of their tendency to respond to outside factors, such as international markets, parent company decisions, and home country concerns.
Such concerns should not be overstated and they have been used to justify protectionist policies in host countries which act to the detriment of consumers and to References(p. 254) the development of an efficient economy. However, they are not unreal concerns. Thus, the question remains how to ensure a balance between rights of admission and establishment and rights to regulate if a positive commitment to the extension of such rights has been made by the host country in an IIA. A number of alternatives present themselves.
First, the full liberalization model already contains an exception device in the form of the negative list. Its merits relative to the selective liberalization approach of the GATS-type positive list mechanism have already been discussed briefly above. Here the effects of the negative list approach on national policy space will be considered. The major result of this approach is to exclude the non-discrimination standard at the pre-entry stage from a pre-selected list of sectors. This will have the effect of freezing the negative list and preventing other sectors from being added unless all other parties consent.109 It may also discourage the progressive liberalization of listed sectors as the political cost of doing so may be too great at the national level. So, paradoxically, a negative list may act as a de facto brake on progressive liberalization. It also carries with it the risk, as noted earlier, of omitting sectors that the host country did not feel needed protection at the time of the conclusion of the treaty. Subsequent changes in market conditions or political circumstances could then demand a degree of protection which would be unlawful under the treaty. Thus, the negative list approach may be inflexible in its results and could lead to a backlash against the treaty if it is perceived as an illegitimate restriction on the right of the host country government to respond to changed circumstances and to control foreign entry into an open sector. A final risk is that too many sectors are excluded and so the commitment to liberalization in the treaty is weak or effectively non-existent. In this regard, as noted above, the positive list approach may in fact give more flexibility as it does not require an ex ante analysis of the competitive situation of major sectors of the economy but allows for a gradual liberalization of those sectors deemed sufficiently competitive to be exposed to competition from foreign investors.
Without prejudice to the general approach of free admission recommended in Section 3 above, a State may, as an exception, refuse admission to a proposed investment:
(a) which is considered, in the opinion of the State, inconsistent with clearly defined requirements of national security; or
(b) which belongs to sectors reserved by the law of the State to its nationals on account of the State's economic development objectives or the strict exigencies of its national interest.112
References(p. 256) Such an exception is not normally found in IIAs. In relation to the full liberalization approach, any sectors so reserved under national laws should be entered into the negative list. This was the approach taken, for example, by Mexico when concluding the NAFTA. Its schedules reflect closely the restrictions and exclusions of foreign investors contained in the 1993 foreign investment law.113
The preceding discussion has shown that the international legal principles applicable to rights of admission and establishment ultimately depend on an exercise of state discretion: only where the host country agrees by way of a treaty obligation will such rights come into existence. There is no customary international law right of entry and establishment. Furthermore, the continuing dominant trend in IIA practice has been to retain a controlled entry model and not to extend positive rights of entry and establishment.
On the other hand, there are sound policy reasons why a host country may wish to open up its economy and to reinforce this by way of binding international obligations. Indeed, a rising trend in recent years has been towards the conclusion of such obligations in IIAs. These include BITs concluded with Western hemisphere countries and bilateral FTAs with investment provisions. This may indicate where future policy developments lie. Indeed, it could be said that the main reason for the continued dominance of the controlled entry model is inertia. Many agreements following this approach were concluded some years ago, mainly with European capital-exporting countries. They have not yet been replaced. More recent agreements, such as those with the USA or Canada, which did not conclude BITs until the 1980s, or the recent FTAs may therefore be a better indication of current practice in the field. That said, the recent moves towards more restrictive national laws and regulations, could, if more widely adopted, lead to a reinforcement of the controlled entry approach. Thus, the future development of this area of international investment law is not as settled as might be imagined.
References(p. 257) Select Bibliography
- Biersteker, TJ, Multinationals, the State, and Control of the Nigerian Economy (Princeton, Princeton University Press, 1987)
- Blumberg, Phillip I, Strasser, Kurt A, Georgakopoulos, Nicholas L and Gouvin, Eric J, Blumberg on Corporate Groups (New York, Aspen Publishers, 2nd edn, 2005)
- Conklin, David, and Lecraw, Donald, ‘Restrictions on Foreign Ownership during 1984–1994: Developments and Alternative policies’, 6(1) Transnational Corporations 1 (1997)
- Dicken, Peter, Global Shift: Reshaping the Global Economic Map of the 21st Century (London, Sage Publications, 5th edn, 2007)
- Esquirol, JL ‘Foreign Investment: Revision of the Andean Foreign Investment Code’, 29 Harv Int'l LJ 169 (1988)
- Horton, S ‘Peru and ANCOM: A Study in the Disintegration of a Common Market’, 17 Texas Int'l LJ 39 (1982) at 45–7
- Juillard, Patrick, ‘Freedom of Establishment, Freedom of Capital Movements, and Freedom of Investment’, 15 ICSID Rev—FILJ 322 (2000)
- Karl, Joachim, ‘The Competence for Foreign Direct Investment—New Powers for the European Union?’, 5 JWIT 413 (2004)
- Laviec, JP, Protection et Promotion des Investissements: Etude de Droit International Economique (Paris, Presses Universitaires de France, 1985)
- Likosky, Michael B, Law Infrastructure and Human Rights (Cambridge, Cambridge University Press, 2006)
- Looijsteijn-Clearie, Anne, ‘Centros Ltd—A Complete U-Turn in the Right of Establishment for Companies?’, 49 ICLQ 621 (2000)
- Megwa, S ‘Foreign Direct Investment Climate in Nigeria: The Changing Law and Development Policies’, 21 Colum J Transnat'l L 487 (1983)
- __ , ‘The Rise and Fall of the Multilateral Agreement on Investment: Where Now?’ 34 Int'l Law 1033 (2000) at 1048
- Muchlinski, Peter T, Multinational Enterprises and the Law (Oxford, Oxford University Press, 2nd edn, 2007)
- Osunbor, O ‘Nigeria's Investment Laws and the State's Control of Multinationals’, 3 ICSID Rev—FILJ 38 (1988)
- Pattison, JE ‘The United States-Egypt Bilateral Investment Treaty: A Prototype for Future Negotiation’, 16 Cornell Int'l J 305 (1983)
- Pollan, Thomas, The Legal Framework for the Admission of FDI (Utrecht, Eleven International Publishing, 2006)
- Preziosi, A ‘The Andean Pact's Foreign Investment Code Decision 220: An Agreement to Disagree’, 20 U Miami Inter-Am L Rev 649 (1989)
- Rodger, Barry J, ‘UK Merger Control Policies: the Public Interest and Reform’, 21 ECLR 24 (2000)
- Rugman, Alan, and Verbeke, Alain, ‘Location Competitiveness and the Multinational Enterprise’, in Alan M Rugman and Thomas L Brewer (eds), The Oxford Handbook of International Business (Oxford, Oxford University Press, 2003)
- Sassen, Saskia, ‘The Locational and Institutional Embeddedness of the Global Economy’, in George A Berman, Matthias Herdegen, and Peter L Lindseth (eds), Transatlantic Regulatory Co-operation: Legal Problems and Political Prospects (Oxford, Oxford University Press, 2000)
- (p. 258) Shihata, Ibrahim FI, ‘Recent Trends Relating to Entry of Foreign Direct Investment’ 9 ICSID Rev-FILJ 47 (1994)
- Sornarajah, M, The International Law on Foreign Investment (Cambridge, Cambridge University Press, 2nd edn, 2004)
- __ , International Investment Agreements: A Compendium Vol II (New York and Geneva, United Nations, 1996)
- __ , World Investment Report 1999 (New York and Geneva, United Nations, 1999)
- UNCTAD, Admission and Establishment, Series on issues an international investment agreements (New York and Geneva, United Nations, 1999)
- __ , International Investment Agreements: Flexibility for Development, Series on issues in international investment agreements (New York and Geneva, United Nations, 2000)
- __ , Host Country Operational Measures, Series on issues in international investment agreements (New York and Geneva, United Nations, 2001)
- __ , World Investment Report 2003 (New York and Geneva, United Nations, 2003)
- __ , World Investment Report 2006 (New York and Geneva, United Nations, 2006)
5 See Federal Law on Foreign Investment in the Russian Federation, 9 July 1999: 39 ILM 894 (2000). ‘Russia to Set Controls on Foreign Investment’, Financial Times, 3 March 2006, p 6. ‘Russia Restricts Foreign Bids’, Financial Times, 11 February 2005, p 1.
6 Thailand, The Ministry of Commerce, The Foreign Business Act Amendment: A Brief Explanation, 19 January 2007, available at <http://www.dbd.go.th/eng/FBA-explanation%20sheet%2019%20Jan%2007%20Rev4.pdf> and ‘Thais may Redraw Law on Foreign Ownership’ Financial Times, 28 December 2006, at 5.
8 See eg the speech of Nicolas Sarkozy reported in Martin Arnold, ‘Sarkozy Aims to Block Foreign Takeovers’, FT.Com, 29 March 2007, available at <http://www.ft.com/cms/s/4269a51a-de15-11db-afa7-000b5df10621.html>.
9 See UNCTAD, above n 1 and UNCTAD, World Investment Report 2003 (New York and Geneva, United Nations, 2003) ch IV. Professor Muchlinski is the author of the manuscript that forms the basis of the 1999 UNCTAD study. See too Thomas Pollan, The Legal Framework for the Admission of FDI (Utrecht, Eleven International Publishing, 2006), which also seeks to update the UNCTAD analysis.
10 Patrick Juillard, in response to Dr Ibrahim Shihata's article on FDI entry (see above n 4), addresses the differences between ‘freedom of establishment’, ‘freedom of capital movement’ and ‘freedom of investment’: Patrick Juillard, ‘Freedom of Establishment, Freedom of Capital Movements, and Freedom of Investment’, 15 ICSID Rev-FILJ 322 (2000). While this chapter identifies these concepts as ‘rights’, Juillard addresses them as ‘freedoms’, and, further, concentrates on the concept of ‘freedom of investment’. In his view, this concept is problematic. First, it depends on what is defined as ‘investment’ for which there is no accepted single definition. Secondly, the word ‘investment’ appears in many international instruments with differing purposes. See further Schlemmer, ch 2 above. Juillard also warns of the dangers of reading these concepts as interchangeable, though they do have correlations, as will be discussed further below. In the present authors' opinion, whether one refers to ‘rights’ or ‘freedoms’ in this context makes little difference in practice. Where an international agreement, or national law, offers investors the ability to enter and/or to become established in the national market, whether this is described as a ‘right’ or ‘freedom’ appears to be of little legal consequence.
13 See Ghana Investment Promotion Centre Act 1994 (Act 478 of 1994) ss 21, 22, available at <http://www.gipc.org.gh/IPA_Information.asp?hdnGroupID=4&hdnLevelID=4>.
14 On the nature and definition of performance requirements and their treatment under international investment agreements, see UNCTAD, Host Country Operational Measures, Series on issues in international investment agreements (New York and Geneva, United Nations, 2001). See too UNCTAD, Foreign Direct Investment and Performance Requirements: New Evidence from Selected Countries (New York and Geneva, United Nations, 2003) chs II-V covering Chile, India, Malaysia, and South Africa.
18 Indeed, some of the recent investment cases under the NAFTA may be seen as essentially trade cases concerning discriminatory denial of market access opportunities. See eg SDMyers v Canada UNCITRAL Award of 12 November 2000, available at <http://www.naftaclaims.com> or 40 ILM 1408 (2001) and Pope and Talbot v Canada, Award on the Merits of Phase 2, 10 April 2001, available at <http://www.naftacliams.com>.
19 See further Schlemmer, ch 2 above; UNCTAD, Scope and Definition (New York and Geneva, United Nations, 1999) and UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Rulemaking (New York and Geneva, United Nations, 2007) at 7–13. It is common to exclude certain assets from the benefits of an agreement, such as short-term contracts or portfolio investment. This can be performed by narrowing the definition to cases of direct investments only.
24 See Alan Rugman and Alain Verbeke, ‘Location Competitiveness and the Multinational Enterprise’, in Alan M Rugman and Thomas L Brewer, The Oxford Handbook of International Business (Oxford, Oxford University Press, 2003) 150 at 158–60, on which this paragraph draws.
25 See Rugman and Verbeke, above n 24. This is not to say that low wages are irrelevant in investment decisions. Much depends on the nature of the industry involved. More mature low technology industries will still see wage differentials as an important locational factor.
29 Ibid at 111–16. UNCTAD has drawn up an ‘Innovation Capability Index’ which ranks countries according to their capability in absorbing R&D activity. The weakest regions are South Asia, in particular Pakistan and Sri Lanka, and Sub-Saharan Africa. See further ibid ch IV for more detailed analysis of R&D investment trends in developing countries.
30 See Rugman and Verbeke, above n 24 at 171–2. See too Peter Dicken, Global Shift: Reshaping the Global Economic Map of the 21st Century (London, Sage Publications, 5th edn, 2007) ch 8, Saskia Sassen, ‘The Locational and Institutional Embeddedness of the Global Economy’, in George A Berman, Matthias Herdegen and Peter L Lindseth, Transatlantic Regulatory Co-operation: Legal Problems and Political Prospects (Oxford, Oxford University Press, 2000) 47. Sassen notes that this process also creates centres of command and control around the main financial centres of the world.
31 See David Conklin and Donald Lecraw, ‘Restrictions on Foreign Ownership during 1984–1994: Developments and Alternative Policies’, 6(1) Transnational Corporations 1 (1997). On US restrictions, see Phillip I Blumberg, Kurt A Strasser, Nicholas L Georgakopoulos, and Eric J Gouvin, Blumberg on Corporate Groups (New York, Aspen Publishers, 2nd edn, 2005) vol 4. ch 152. US Federal laws restrict foreign investment in the following sectors: public broadcasting and telecommunications, coastal and internal shipping, internal air traffic (though liberalization is being considered), minerals exploitation on public lands, and atomic energy. Until recently state banking laws prohibited alien ownership or control of banks, although Washington State still maintains such restrictions. See too US, Canadian, and Mexican reservations to the North American Free Trade Agreement: 32 ILM 605 at 704–80 (1993) For example, current restrictions prohibit more than a 25% foreign holding of voting stock in a US airline: Federal Aviation Act 1958 Pub L No. 85–726 72 Stat 766 (1958) 49 USC ss 40101 ff (2003).
32 Decree No. 16 of 16 January 1995, see ICSID, Investment Laws of the World Vol. VI (Dobbs Ferry, NY, Oceana Publications) Release 2001–1 Nigeria (June 2001) or the Nigerian Investment Promotion Commission (NIPC) website at <http://www.nipc-nigeria.org>.
33 Ibid ss 17, 18. In addition, the screening requirements of the old legislation were abolished and replaced with a registration requirement: see s 20 as amended by s 4 of Decree No. 32 of 30 September 1998 (available in ICSID, ibid or the NIPC website, ibid). However, a foreign investor must incorporate a local company in accordance with Nigerian companies' legislation to obtain a valid registration: s 19 as amended by s 3 of Decree No. 32. The industries included in the negative list under s 32 are: arms production, production and dealing in narcotic and psychotropic drugs, production of military and paramilitary wares and accoutrement, and ‘such other items as the Federal Executive Council may, from time to time, determine’. The NIPC website lists only the first two in the list.
34 Nigerian Enterprises Promotion Act 1972 (No. 4 of 1972)  Official Gazette Fed Rep Nig 123 A11 (Supp Part A); Nigerian Enterprises Promotion Act 1977 (No. 3 of 1977); Nigerian Enterprises Promotion Act 1989 (No. 54 of 1989)  Official Gazette Fed Rep Nig 76 A809 (Supp Part A); CAP 303 Laws of the Federation of Nigeria Vol 23 (rev edn, 1990). For analysis of the 1972 and 1977 Decrees see: S Megwa, ‘Foreign Direct Investment Climate in Nigeria: The Changing Law and Development Policies’ 21 Colum J Transnat'l L 487 (1983); O Osunbor, ‘Nigeria's Investment Laws and the State's Control of Multinationals’, 3 ICSID Rev-FILJ 38 (1988); TJ Biersteker, Multinationals, the State, and Control of the Nigerian Economy (Princeton, Princeton University Press 1987). For the background to the 1989 Act see: Nigerian Federal Ministry of Industries, Industrial Policy of Nigeria (Policies, Incentives, Guidelines and Industrial Framework) (January 1989) 41–5.
35 Foreign Business Act BE 2542 (1999); see <http://www.dbd.go.th/eng/law/fba_e1999.phtml>.
36 An example of this approach can be shown in the US-Republic of Azerbaijan BIT (signed in 1997, following the 1994 US prototype BIT). The USA sets the following areas as exceptions from national treatment and most-favoured-nation treatment: fisheries; air and maritime transport, and related activities; banking, securities, and other financial services; and one-way satellite transmissions of Direct-to-Home (DTH) and Direct Broadcast Satellite (DBS) television services and of digital audio services. The Republic of Azerbaijan establishes the following areas as exceptions from national treatment and most-favoured-nation treatment: banking, securities, and other financial services. See too Canada-Costa Rica BIT 1998: both in UNCTAD 2007, above n 19 at 23.
37 For example, Mexico's concern for education as a cultural matter influenced its reservation on national treatment in NAFTA (Annex I-M-25). The cultural exception proposed in the draft Multilateral Agreement on Investment (MAI) was one of the unresolved issues that led to the eventual breakdown of the negotiations: see PT Muchlinski, ‘The Rise and Fall of the Multilateral Agreement on Investment: Where Now?’ 34 Int'l Law 1033 at 1048 (2000).
39 Ibid at 201–13. Mexico's position in certain sectors under NAFTA, such as fishing on the high seas, coastal fishing, and fresh water fishing, whereby the reservation establishes: ‘with respect to an enterprise established or to be established in the territory of Mexico … investors of another Party or their investments may only own, directly or indirectly, up to 49 percent of the ownership interest in such an enterprise’. See Mexico Foreign Investment Law 1993 Art 7. See further Muchlinski, above n 7 at 202–4.
40 See Muchlinski, ibid at 201–2, on which the next paragraph is based.
41 ‘Foreign investment authorizations shall be evidenced in a contract executed by means of a public deed and subscribes, on the one part, by the President of the Foreign Investment Committee on behalf of the Chilean State should the investment require the agreement of said Committee or, should this not be applicable, by the Executive vice-president and, on the other part, by the persons contributing the foreign capital, hereinafter called “foreign investors” to all effects of this Decree Law. The contracts shall state the term within which the foreign investor may bring in the capital. This term shall not exceed 8 years for mining investments and 3 years for all others. The Foreign Investment Committee, however, by unanimous agreement of its members, may extend this limit up to twelve years in the case of mining investments, when previous exploration is required, depending on their nature and estimated duration thereof; in the case of investments in industrial and non-mining extractive projects for amounts not less than US$ 50,000,000—United States dollars or its equivalent in other foreign currencies—the Committee may extend the term up to eight years when the nature of the project so requires it.’ Art 3 (published in the Official Gazette on 16 December 1993), available at <http://www.foreigninvestment.cl/pdf/dl600_eng.PDF>.
43 Ibid Art 2 and Annex para 2.
45 See eg the Nigerian Decree of 1995 cited at n 32 above and Ghana Investment Promotion Centre Act 478 of 29 August 1994: ICSID, Investment Laws of the World (Dobbs Ferry, NY, Oceana, Oxford University Press) Vol III Release 95–3 (June 1995), also available at <http://www.gipc.org.gh/IPA_Information.asp?hdnGroupID=4&hdnLevelID=4>.
48 UNCTAD, in its study on Admission and Establishment, above n 1, identifies five models of admission and establishment clauses: investment control, which corresponds to the controlled entry approach in the text, selective liberalization, based on the GATs-type ‘opt-in’ sectoral liberalization approach, the regional industrialization programme approach, based on certain developing country regional integration agreements, the mutual national treatment approach of the EU, and the combined national treatment MFN approach, which corresponds to the full liberalization approach in the text. See too Pollan, above n 10 at ch 4 who uses a modified version of the UNCTAD classification.
50 See examples cited in UNCTAD 2007, above n 19 at 21–2. See too Asian African Legal Consultative Committee (AALCC) Model BIT ‘Model A’ Art 3, which states inter alia that ‘[e]ach Contracting Party shall determine the mode and manner in which investments are to be received in its territory’. ‘Model B’ is more restrictive of investor's rights of entry in that its Art 3 makes the screening of investment proposals by the host country a mandatory treaty requirement, see 23 ILM 237 (1984) or UNCTAD, International Investment Agreements: A Compendium Vol III (New York and Geneva, United Nations, 1996) at 115.
53 See eg Agreement between the Caribbean Community (CARICOM), acting on behalf of the Governments of Antigua and Barbuda, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, St Kitts and Nevis, Saint Lucia, St Vincent and the Grenadines, Suriname, and Trinidad and Tobago, and the Government of the Republic of Costa Rica: ‘1. Each Party shall encourage and create favourable conditions in its territory for investments of the other Party, and shall admit such investments in accordance with its laws and regulations. 2. Once a Party has admitted an investment in its territory, it shall provide, in accordance with its laws and regulations, all necessary permits related to such investments.’ Art X.03. UNCTAD, International Investment Agreements: A Compendium Vol. XIV (New York and Geneva, United Nations, 2005) at 203.
55 The non-discrimination standard consists of the most-favoured-nation standard (MFN), which ensures no less favourable treatment as between foreign investors of different nationalities and the national treatment standard, which ensures no less favourable treatment as between domestic and foreign investors. See further Todd Grierson Weiler and lan A Laird, ch 8 below.
56 The full title of the Code is ‘The Common Regime of Treatment of Foreign Capital and of Trademarks, Patents, Licences, and Royalties’. An English translation appears in 11 ILM 126 (1972). The final amended version of Decision 24, as of 30 November 1976, appears in 16 ILM 138 (1977). The following paragraph is taken from Muchlinski, above n 7 at 657–8.
57 See S Horton, ‘Peru and ANCOM: A Study in the Disintegration of a Common Market’, 17 Texas Int'l LJ 39 (1982) at 45–7; Comment: ‘Chile's Rejection of the Andean Common Market Regulation of Foreign Investment’, 16 Colum J Transnat'l L 138 (1977); ‘Introductory Note’ to the Venezuelan Foreign Investment and Licensing Regulations and Related Documents of 1986–7 by John R Pate, 26 ILM 760 (1987).
58 English version 27 ILM 974 (1988). For analysis, see A Preziosi, ‘The Andean Pact's Foreign Investment Code Decision 220: An Agreement to Disagree’, 20 U Miami Inter-Am L Rev 649 (1989); JL Esquirol, ‘Foreign Investment: Revision of the Andean Foreign Investment Code’, 29 Harv Int'l LJ 169 (1988).
61 ‘Each state has the right: (a) to regulate an exercise authority over foreign investment, within its national jurisdiction in accordance with its laws and regulations and in conformity with its national objectives and priorities. No State shall be compelled to grant preferential treatment to foreign investment.’ United Nations General Assembly Resolution 3281 (XXIX) the Charter of Economic Rights and Duties of States Art 2(2) (adopted on 12 December 1974) available at <http://www.unctad.org/sections/dite/iia/docs/Compendium//en/6%20volume%201.pdf>.
62 ‘States have the right to regulate the entry and establishment of transnational corporations including determining the role that such corporations may play in economic and social development and prohibiting or limiting the extent of their presence in specific sectors.’ Draft United Nations Code of Conduct on Transnational Corporations Art 47 available at <http://www.unctad.org/sections/ dite/iia/docs/Compendium//en/13%20volume%201.pdf>.
‘Each Party shall accord to investors of another Party treatment no less favourable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments’ (Art 1102.1). This treatment is also granted to ‘investments’ (Art 1102.2). Art 1103 provides most-favoured-nation treatment, again to investors and investments, further stating in Art 1104 a guarantee to apply the better of said treatments. ‘Each Party shall accord to investors of another Party treatment no less favourable than that it accords, in like circumstances, to investors of any other Party or of a non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments’ (Art 1103.1). This treatment is also granted to ‘investments’ (Art 1103.2). ‘Each Party shall accord to investors of another Party and to investments of investors of another Party the better of the treatment required by Articles 1102 and 1103’ (Art 1104). ‘Articles 1102, 1103, 1106 and 1107 do not apply to: (a) any existing non-conforming measure that is maintained by (i) a Party at the federal level, as set out in its Schedule to Annex I or III, (ii) a state or province, for two years after the date of entry into force of this Agreement, and thereafter as set out by a Party in its Schedule to Annex I in accordance with paragraph 2, or (iii) a local government; (b) the continuation or prompt renewal of any non- conforming measure referred to in subparagraph (a); or (c) an amendment to any non-conforming measure referred to in subparagraph (a) to the extent that the amendment does not decrease the conformity of the measure, as it existed immediately before the amendment, with Articles 1102, 1103, 1106 and 1107. 2. Each Party may set out in its Schedule to Annex I, within two years of the date of entry into force of this Agreement, any existing non-conforming measure maintained by a state or province, not including a local government. 3. Articles 1102, 1103, 1106 and 1107 do not apply to any measure that a Party adopts or maintains with respect to sectors, sub-sectors or activities, as set out in its Schedule to Annex II. 4. No Party may, under any measure adopted after the date of entry into force of this Agreement and covered by its Schedule to Annex II, require an investor of another Party, by reason of its nationality, to sell or otherwise dispose of an investment existing at the time the measure becomes effective. 5. Articles 1102 and 1103 do not apply to any measure that is an exception to, or derogation from, the obligations under Article 1703 (Intellectual Property—National Treatment) as specifically provided for in that Article. 6. Article 1103 does not apply to treatment accorded by a Party pursuant to agreements, or with respect to sectors, set out in its Schedule to Annex IV. 7. Articles 1102, 1103 and 1107 do not apply to: (a) procurement by a Party or a state enterprise; or (b) subsidies or grants provided by a Party or a state enterprise, including government-supported loans, guarantees and insurance.’ NAFTA Art 1108. See <http://www.unctad.org/sections/dite/iia/docs/Compendium//en/60%20volume%203.pdf>.
65 These tend to involve NAFTA signatories but also more recently occur between developing non-NAFTA countries: Examples include FTAs between Canada-Chile, Mexico-Singapore, Mexico-El Salvador, Guatemala, and Honduras; US-Vietnam on Trade Relations, the New Zealand-Singapore Agreement on a Closer Economic Relationship, and the Singapore-Japan New Age Economic Partnership Agreement, all available at <http://www.unctad.org/iia> and see UNCTAD 2007, above n 19 at 79. See too Pollan above n 9 at 82–5.
67 44 ILM 268 (2005) at 217, also available at <http://ustr.gov/assets/World_Regions?Americas/South_America/asset_upload_file440_6728.pdf>.
68 See ibid Art 14(2).
69 Note JE Pattison's discussion of the US-Egypt BIT in this respect: Pattison, ‘The United States-Egypt Bilateral Investment Treaty: A Prototype for Future Negotiation’, 16 Cornell Int'l. 305 (1983) at 318–19. Pattison is critical of the broad exclusion of industries from the treaty which, in his opinion, created a substantial void in the protection offered. The current version of this treaty retains these exceptions: US-Egypt BIT Supplementary Protocol of 11 March 1986 para 3, available at <http://www.unctad.org/sections/dite/iia/docs/bits/us_egypt.pdf>.
73 See further the Energy Charter Treaty Secretariat (1998), Draft Supplementary Treaty to the Energy Charter Treaty, available at <http://www.encharter.org/fileadmin/user_upload/document/SP_draft_text.pdf>.
75 GATT Doc MTN/FA II-A1B; 33 ILM 44 (1994), available at <http://www.wto.org>. This section is taken from Muchlinski, above n 7 at 253–4. The same approach to market access in services has been adopted in The Economic Partnership, Political Coordination and Cooperation Agreement between the European Community and its Member States of the One Part and the United Mexican States of the Other Part (2000) Title II ‘Trade in Services’, Chapter I ‘General Provisions’, Article 4 ‘Market Access’ available at <http://www.unctad.org/templates/webflyer.asp?docid=1592&intItemID=2323&lang=1&mode=toc>.
76 Ibid Art 1(c).
77 Ibid Art XVI (2)(e)–(f).
78 Ibid Art XIX(1).
79 Code on the Liberalisation of Current Invisible Operations (OECD/C(61)95) (hereinafter Invisibles Code); Code on the Liberalisation of Capital Movements (OECD/C(61)96) (hereinafter Capital Movements Code). The Codes are regularly updated by Decisions of the OECD Council to reflect all changes in the positions of Members. The updated Codes are periodically republished. The current editions at the time of writing are Invisibles Code (September 2004) and Capital Movements Code (October 2005), to which all subsequent references pertain. Both are available at <http://www.oecd.org/document/63/0,2340,en_2649_34887_1826559_1_1_1_1,00.html>. For background to the Codes see: OECD, OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations User's Guide (Paris, OECD 2003), available at <http://www.oecd.org/document/63/0,2340,en_2649_34887_1826559_1_1_1_1,00.html>; Forty Years' Experience with the OECD Code of Liberalisation of Capital Movements (Paris, OECD, October 2002), summary and conclusions available for download at the above website reference. In 1984, the Capital Movements Code was extended to include the right of establishment. Thus Annex A continues: ‘The authorities of the Members shall not maintain or introduce: Regulations or practices applying to the granting of licences, concessions, or similar authorisations, including conditions or requirements attaching to such authorisations and affecting the operations of enterprises, that raise special barriers or limitations with respect to non-resident (as compared to resident) investors, and that have the intent or the effect of preventing or significantly impeding inward direct investment by non-residents’.
80 See further World Investment Report 2003, above n 9 at 148–9; UNCTAD, International Investment Agreements: Flexibility for Development, Series on issues in international investment agreements (New York and Geneva, United Nations, 2000) at 60–4.
82 Art 48 goes on to define ‘companies or firms’ as ‘companies or firms constituted under civil or commercial law, including co-operative societies, and other legal persons governed by public or private law, save those which are non-profit making’.
88 See Centros Ltd v Erhvervs-OG Selskabsstyrelsen, Case C-212/97  2 CMLR 551. Two Danish nationals had incorporated a company in England, but carried on the substantive business of the company in Denmark. The Danish authorities refused to register the Danish branch of the company on the ground that this arrangement sought to circumvent Danish rules concerning the paying up of a minimum capital, as would be required of a principal establishment. The ECJ held that this was in breach of Arts 43 and 48 even though the Danish authorities argued that the regulatory requirements were necessary to protect creditors and other contracting parties. See for analysis: Anne Looijsteijn-Clearie, ‘Centros Ltd—A Complete U-Turn in the Right of Establishment for Companies?’, 49 ICLQ 621 (2000). See too Kamer van Koophandel en Fabrieken voor Amsterdam v Inspire Art Ltd, Case C-167/01  3 CMLR 937; Uberseering BV v Nordic Construction Company Baumanagement GmbH (NCC), Case C-208/00  1 CMLR 1.
89 Centros, ibid at para 24.
90 A common inward investment policy can be adopted under Art 57 of the EC Treaty. Such a policy was advocated by Art III.217 of the Draft Treaty Establishing a Constitution for Europe (Luxembourg, Office for Official Publications of the European Communities, 2003). For analysis see Joachim Karl, ‘The Competence for Foreign Direct Investment—New Powers for the European Union?’, 5 JWIT 413 (2004). See now the Treaty of Lisbon Art 2(158) creating a new Art 188C of the EC Treaty, giving the Community exclusive competence in foreign investment: OJ  C306/91 or <http://www.eur-lex.europa.eu/JOHtml.do?uri=OJ: C:2007:306:SOM:EN:HTML>.
92 See the Revised CARICOM Treaty 2001 Chapter Three ‘Establishment, Services Capital and Movement of Community Nationals’ at <http://www.caricom.org/jsp/community/revised_treaty-text.pdf>.
93 It provides for ‘… freedom of movement of persons and capital … and exercise of economic activities … for nationals of member States; and seeks economic unity among Arab League States’ (Art 1), available at <http://www.unctad.org/sections/dite/iia/docs/Compendium//en/55%20volume% 203.pdf.
94 Arts 3(2) and 55 which commit member states to the removal of obstacles to the right to establishment within five years of the creation of a customs union between them: <http://www.ecowas.int/>.
95 This commits the member states to the introduction of full national treatment for investors from the region by 2010 subject to the exceptions provided for in the Agreement (Art 4(6) ), available at <http://www.aseansec.org/6466.htm>.
98 Community Investment Code of the Economic Community of the Great Lakes Countries (CEPGL—1982) entered into force 4 October 1987, see UNCTAD, International Investment Agreements: A Compendium Vol II (New York and Geneva, United Nations, 1996) 251.
99 The idea behind CARICOM is the establishment of a single market and economy among its members. Other examples are the Protocol Amending the Treaty Establishing the Caribbean Community (Protocol III: Industrial Policy—1999); and the Revised Treaty of the Economic Community of West African States (Revised ECOWAS Treaty—1993), available at <http://www.unctad.org/sections/dite/iia/docs/Compendium//en/40%20volume%202.pdf>.
104 See Arkady Ostrovsky, ‘Energy of the State: How Gazprom Acts as a Lever in Putin's Power Play’, Financial Times, 14 March 2006, p 13. Terry Macalister, ‘Gazprom: No Bid for British Gas Owner Yet’, The Guardian, 27 April 2006, p 27.
105 See Barry J Rodger, ‘UK Merger Control Policies: The Public Interest and Reform’ 21 ECLR 24 (2000); Larry Elliott, ‘This Takeover Free-for-All is just Not Delivering the Goods’, The Guardian, 30 March 2006, p 33.
108 Ibid at 104–5, on which the following account draws.
1. Subject to the requirement that such measures are not applied in a manner that would constitute arbitrary or unjustifiable discrimination between investments or between investors, or a disguised restriction on international trade or investment, nothing in this Agreement shall be construed to prevent a Party from adopting or enforcing measures necessary:
(b) to ensure compliance with laws and regulations that are not inconsistent with the provisions of this Agreement; or
(a) the protection of investors, depositors, financial market participants, policy-holders, policy-claimants, or persons to whom a fiduciary duty is owed by a financial institution;
(b) the maintenance of the safety, soundness, integrity or financial responsibility of financial institutions; and
3. Nothing in this Agreement shall apply to non-discriminatory measures of general application taken by any public entity in pursuit of monetary and related credit policies or exchange rate policies. This paragraph shall not affect a Party's obligations under Article 7 (Performance Requirements) or Article 14 (Transfer of Funds).
(i) relating to the traffic in arms, ammunition and implements of war and to such traffic and transactions in other goods, materials, services and technology undertaken directly or indirectly for the purpose of supplying a military or other security establishment,
5. Nothing in this Agreement shall be construed to require a Party to furnish or allow access to information the disclosure of which would impede law enforcement or would be contrary to the Party's law protecting Cabinet confidences, personal privacy or the confidentiality of the financial affairs and accounts of individual customers of financial institutions.
7. Any measure adopted by a Party in conformity with a decision adopted by the World Trade Organization pursuant to Article IX:3 of the WTO Agreement shall be deemed to be also in conformity with this Agreement. An investor purporting to act pursuant to Section C of this Agreement may not claim that such a conforming measure is in breach of this Agreement.’
113 On which see Muchlinski, above n 7 at 202–4. However, the relationship between the Mexican foreign investment law and NAFTA is more complex than it seems. NAFTA itself referred to the 1973 Mexican FDI law, which was repealed on 28 December 1993 when the 1993 law came into force. NAFTA came into force on 1 January 1994. The 1993 law has been amended in 1995, 1996, 1998, 1999, and 2006 so as to liberalize specific sectors of the economy to allow for FDI participation.