The Emerging Legal Concept of Investment

Penn State International Law Review Volume 27 Number 3 Penn State International Law Review Article 11 5-1-2009 The Emerging Legal Concept of Investment Mary E. Hiscock Follow this and additional works at: http://elibrary.law.psu.edu/psilr Part of the International Law Commons Recommended Citation Hiscock, Mary E. (2009) "The Emerging Legal Concept of Investment," Penn State International Law Review: Vol. 27: No. 3, Article 11. Available at: http://elibrary.law.psu.edu/psilr/vol27/iss3/11 This Article is brought to you for free and open access by Penn State Law eLibrary. It has been accepted for inclusion in Penn State International Law Review by an authorized administrator of Penn State Law eLibrary. For more information, please contact . The Emerging Legal Concept of Investment Mary E. Hiscock* I. INTRODUCTION In May 2007, an arbitrator not far from Singapore had to resolve a dispute between a salvage company and the government of Malaysia.' The company had entered into a contract to salvage a cargo of Chinese porcelain from a British ship that had sunk in the Straits of Malacca in 1817. The dispute turned on the amount payable to the salvage company under the terms of that contract. One might have thought that this was an everyday dispute that would be settled by a summary proceeding in a local court for the recovery of debt. It became an international investment dispute, however, alleged to be an international wrong as a breach of a treaty between the governments of the United Kingdom and Malaysia,2 and settled by an arbitration established under yet another international treaty. 3 How can this be? What does international law consider to be an investment? The answer to this question is important both to determine whether there has been a contravention of an investment regime, and also to determine whether and where jurisdiction exists for the settlement of any dispute. The context of this paper is the current range of investment regulation regimes in Asia, but the issues are universal. Investment regulation in Asia is governed by multiple layers of legal norms, many of * Emeritus Professor Mary E. Hiscock, Bond University, Australia. An earlier version of this paper was given to the 5th Conference of the Asian Law Institute, Singapore, May 22, 2008. 1. See Malaysian Historical Salvors Sdn, Bhd v. Gov't of Malay., ICISD Case No. ARB/05/10 (May 17, 2007). Note that annulment proceedings for this award began on Mar. 31, 2008. See International Centre for Settlement of Investment Disputes ("ICSID"), Case Details, http://icsid.worldbank.org (last visited Feb. 1, 2009). 2. See Agreement Between the Government of the United Kingdom of Great Britain & Northern Ireland & the Government of Malayasia for the Promotion and Protection of Investments, U.K.-Malay., May 21, 1981. 3. See Convention on Settlement of Inv. Disputes Between States & Nationals of Other States, Mar. 18, 1965, 4 I.L.M. 524. PENN STATE INTERNATIONAL LAW REVIEW [Vol. 27:3,4 which are external to the host State of the investment. These norms deal with both aspects of the issue: definition and dispute resolution. There have been relevant multilateral government regimes since 1995. The General Agreement on Trade in Services ("GATS") was an extension of regulation from goods to services and, although the supply of services does not always amount to investment, some does.4 Trade Related Investment Measures ("TRIMS") codified earlier jurisprudence on how trade in goods can impact on investment regulation. Both emanated from the World Trade Organisation ("WTO").5 There are also multilateral regional trade agreements 6 that must comply with the regime of the WTO Agreements,7 such as the ASEAN Free Trade Area (2003) and the North American Free Trade Agreement ("NAFTA") (1992). There is also a proliferation of older-style bilateral investment agreements 8 as well as the newer mode of preferential trade agreements 4. This relationship is discussed further below in note 5. 5. GATS and TRIMS are part of the Marrakesh Agreement 1994, which establishes the WTO and constitutes a single treaty undertaking for members of the WTO. See Agreement Establishing the World Trade Organization, Apr. 15, 1994. There is a unified dispute resolution regime for any breach of the Agreement, the Understanding on Dispute Settlement ("DSU"). See id. at Annex 2. 6. More than 40 percent of the total number of regional trade agreements have been made since 2000. Mexico, Chile, Singapore, the United States, and Australia have been the most active states. The European Free Trade Association ("EFTA"), the European Union ("EU"), and the Association of Southeast Asian Nations ("ASEAN") are the most active country groups. According to the Asian Development Bank, as of December 2007, 220 active agreements have been notified to the WTO; there are a further 71 that have not been so notified, which cover East Asia, Oceania, and South Asia; a further 50 agreements have been proposed. See http://aric.adb.org/2/php. 7. See Gen. Agreement on Tariffs & Trade, art. XXIV, Apr. 15, 1994; see also Agreement Establishing the World Trade Organization, Annex 2, art. V, Apr. 15, 1994. These requirements apply to developing countries with less rigour than to developed countries. See, e.g., Agreement Establishing the World Trade Organization, Annex 2, art. V(3), Apr. 15, 1994. 8. By the end of 2006, there were 2,651 such treaties, of which 110 had been renegotiated. See UNITED NATIONS CONFERENCE ON TRADE & DEVELOPMENT, INVESTORSTATE DISPUTE SETTLEMENT AND IMPACT ON INVESTMENT RULEMAKING 3 (2007), available at http://www.unctad.org/iia. Despite their reciprocal nature, these treaties have always disproportionately benefited capital exporters. See Jeswald W. Salacuse, BIT by BIT: The Growth of Bilateral Investment Treaties and their Impact on Foreign Investment in Developing Countries 24 INT'L LAW. 655, 662 (1990). Issues also arise from the older BITs for some EU members, notably Austria and Sweden, currently before the European Court of Justice to determine whether the BIT obligations are incompatible with their obligations as members of the EU. See Advocate GeneralSides with European Commission in its Bid to Have European Court of Justice declare Austria & Sweden in Violation of EU Law for Failure to Remedy "Incompatibility" of Earlier BITs & EU Law, INVESTMENT ARB. REP., July 16, 2008, at 8-10, available at www.iareporter.com. The Advocate-General has delivered opinions that they are incompatible. See id. 2009] THE EMERGING LEGAL CONCEPT OF INVESTMENT between States 9 . There are national laws, regulations, policies and guidelines, and courses of governmental conduct. As measures, these must comply with WTO obligations and with any treaty obligations. Finally, States frequently enter into contracts with investment implications. Each type of treaty or measure has its own description or definition of the covered investment, and its own method of dea (...truncated)