11.1 Introduction
Brazil is often discussed as an outlier case in international investment law. Most developing states, which ratified their bilateral investment treaties (BITs), incurred, at times unwittingly, constraints on their policy space being susceptible to investor–state disputes. Fortuitously, Brazil left unratified all fourteen of the BITs it signed in the 1990sFootnote 1 and, as a result, managed to remain outside of the dominant regime of international investment law, now synonymous with neoliberalism.Footnote 2 Importantly, as is often highlighted, despite abstaining from the dominant regime, Brazil maintained a relatively high rank among the top global foreign direct investment (FDI) recipient states since the 1990s, and since the 2000s, it also saw a rise in its outbound FDI figures.Footnote 3
Within the context of the movement of revisions and reforms of traditional BITs, or what the United Nations Conference on Trade and Development (UNCTAD) referred to as the “re-orientation era,” Brazil launched negotiations for an Agreement on Cooperation and Facilitation of Investments (ACFI).Footnote 4 The genesis of the ACFI is closely connected to inter alia the position of Brazil, at the time, as an emerging exporter of FDI. Since it has been first proposed in 2013, the agreement has, however, been adapted rather flexibly to various bilateral and plurilateral partnerships.
Besides being a prominent and evidently successful global outlier that worked toward an alternative regulatory framework for FDI, Brazil’s agreements have also innovated by emphasizing and solidifying the concept of “facilitation” as the driving force behind investment regulation. Nonetheless, there remains doubt about what “facilitation” measures specifically mean, as well as their precise role in international agreements.Footnote 5 No less controversial is the distinctiveness of investment facilitation measures from those related to “investment cooperation” – the two invoked dimensions of the ACFI. While ACFIs are clearly not about investment protection, it remains to be clarified what investment “cooperation,” “facilitation,” and “promotion” entail and how they differ.Footnote 6
In this chapter, we describe the experience of Brazil and its treaty practice, along with how it developed governance mechanisms and institutions to implement the facilitation and cooperation commitments undertaken in its ACFIs. Using the Brazilian example, we aim at illustrating how those abstract concepts may work in practice.
In addition to Introduction and Conclusion, the chapter is divided into three other sections. In Section 11.2, we briefly describe the Brazilian experience with the ACFI since 2013, progressing from bilateral to plurilateral negotiations. In Section 11.3, we invoke the three-pillar framework of the ACFIs to illustrate how it is expected to coordinate with Brazil’s domestic governance structure on investment cooperation and facilitation. Section 11.4 then details the domestic implementation of the agreement and its supporting institutions. To do so, we describe the recent institutional reforms in Brazil designed to effectively accommodate such principles and measures. We then conclude the chapter discussing possible challenges for domestic governance structures for states participating in the plurilateral negotiation at the WTO on an Investment Facilitation for Development (IFD) Agreement and some final observations on the Brazilian experience.
11.2 Brazil: From Bilateral to Plurilateral Negotiations
As of November 2022, Brazil has signed more than 15 ACFIs with countries across multiple regions and keeps pursuing new partners.Footnote 7 Being a proponent of a regulatory approach that favors investment facilitation over investment protection, Brazil also led, along with China and other G20 countries, the launch of multilateral negotiations at the WTO. In this section, we briefly describe the most noteworthy shifts in ACFIs concluded by Brazil since 2013, the purpose being to highlight the comprehensiveness of the facilitation and cooperation measures and their increasing clarification.
With a model agreement finalized in 2013, Brazil signed its first set of ACFIs in 2015 with six developing states from Africa and Latin America.Footnote 8 It subsequently went on to sign a further seven agreements, the latest one being in 2020 with India. The number of successful negotiations and the diversity in the partner states suggests “interoperability” and an “intrinsic appeal” of the ACFI framework.Footnote 9 Brazil’s ACFIs have been viewed as a pragmatic and necessary response to its changing dynamics during the mid-2000s, wherein Brazil’s proportion of outward FDI was expanding and Brazilian firms were increasingly internationalizing. In fact, around the time the initial ACFIs were signed with Southeast African states such as Malawi and Mozambique, Brazilian firms, including both private and state-owned enterprises, had ongoing investment projects present within the same region.Footnote 10
Discussions of the historical context of the ACFI framework’s conception tend to broadly focus on two main periods: first, the mid- to late 1990s, and second, the early 2010s.Footnote 11
In the former period, like many other developing states, Brazil’s economy saw significant liberalization and its foreign service negotiated and signed several “traditionally drafted” BITs with largely capital-exporting member states of the Organisation for Economic Co-operation and Development (OECD).Footnote 12 Despite their negotiation and signing, as previously mentioned, none of these BITs achieved ratification and were eventually withdrawn from the Brazilian Congress by President Fernando Henrique Cardoso. While the set of conditions that led to this result were complex,Footnote 13 a key factor that is often credited with preventing Brazil being subject to BIT obligations was a “resistance”Footnote 14 from inter alia an influential minority within the Brazilian legislature that eventually “forced President Cardoso to withdraw” the BITs in December 2002.Footnote 15 Instead, Brazil successfully employed alternative legal solutions (such as contractual arbitration clauses in state contracts, arbitration law reforms, double taxation treaties, constitutionally guaranteed national treatment, and provisions allowing repatriation of funds) to provide sufficient protections to incentivize foreign investors while catering to its domestic concerns.Footnote 16
In the latter period, the early 2010, it is important to consider three key conditions that had immense consequences for the nature of the ACFI frameworks eventual formulation:
First, Brazil’s economy had seen greater internationalization and the emergence of a new constituency of Brazilian multinational corporations,Footnote 17 the interests of whom added momentum to the domestic demand for rules that are also “investor-friendly.”Footnote 18
Second, by the early 2010s, enough investor–state arbitration cases had taken place for there to be a sufficient body of literature discussing and establishing the system’s risks and flaws, validating Brazil’s earlier decision from the 1990s. This also included the determination of an unclear, dubious statistical relation between the existence of bilateral investment treaties with investor–state arbitration clauses and incoming FDI.Footnote 19
As a result, in 2012, the Council of Ministers of the Brazilian Chamber of Foreign Trade (CAMEX) granted a formal mandate to the Technical Group for Strategic Studies on Foreign Trade, a moment regarded as “the zenith of the process”,Footnote 20 to develop an entirely new type of investment agreement, crafted according to Brazil’s sovereign needs and in consultation of the Brazilian private sector.Footnote 21 So far, Brazil had been an “attentive bystander”Footnote 22 of the traditional BIT regime.
Third, Brazilian officials were also gaining their own experiences and building technical expertise in international state–state cooperation and dispute settlement at the WTO and MERCOSUR levels.Footnote 23 Such timely experiences of Brazilian diplomacy were drawn from and contributed to state preferences, thereby cross-fertilizing the nature of the ACFI model’s development.Footnote 24 In fact, it has been suggested that the adoption in an investment agreement of the very term “facilitation” was itself “a clear inspiration”Footnote 25 from the WTO’s 2013 adoption of the Trade Facilitation Agreement, which also contained facilitation measures, albeit in a different context.
The concrete result of these two highly consequential periods and the entailing “process of policy learning”Footnote 26 was the 2013 approval by CAMEX of the first draft ACFI to be negotiated with Malawi, Mozambique, and Angola. This result also marked the emergence of Brazil as a “laboratory for legal innovation” that chose “a revolutionary path”Footnote 27 and introduced the ACFI model being motivated by pragmatism and the “ideal of more balanced relations between the parties and players benefitting from the agreement.”Footnote 28
With the ACFI model being in place, the subsequent treaty practice conducted by Brazil during the following five-year period led to the conclusion and signing of thirteen agreements, with the latest one being with India in 2020.Footnote 29 Across this period, Brazil’s treaty practice may be seen as having taken four discernible paths.
The first such path is concentrated in sub-Saharan African states and includes Mozambique, Angola, and Malawi, each of whom signed ACFIs with Brazil in 2015, the initial one being Mozambique on March 30, 2015. Classified as least developed countries, these three treaty partners are largely net importers of capital in relation to Brazil, and hence, any disputes are most likely to be concerning investments made by Brazilian parties. The cooperation dimension in the text of these treaties is noteworthy and evidenced in the detailed thematic agenda in the annexure of each agreement. It is also remarkable that the agreements involving these partners do only allow for a party to unilaterally initiate state–state arbitral proceedings if an investment dispute is not successfully resolved via a Joint Committee dispute prevention procedures.Footnote 30
This feature is contrary to what is observed in the agreements entailed in Brazil’s second (and most fruitful) treatymaking period, which focused on its fellow Latin American states, specifically Chile, Colombia, and Mexico in 2015, along with Surinam, Guyana, and Ecuador in 2018 and 2019.Footnote 31 These ACFIs also saw considerable influences from other investment agreement negotiations in Latin America that, at the time, ran in parallel, such as the 2016 Brazil–Peru Economic and Trade Expansion Agreement, which contained an investment chapter, and the 2017 Intra-MERCOSUR Cooperation and Facilitation Investment Protocol, which contained, for example, clauses preserving the state’s right to regulate toward combating corruption and issues related to the environment, labor affairs, and public health. Together with the broader movements of BIT reforms and old BIT provisions (mainly the nondiscrimination clauses), such agreements influenced Brazil’s approach toward ACFIs.
The third and relatively recent path toward that Brazil’s treaty practice has seen success in the MENA region (including Ethiopia in 2018 and Morocco and the United Arab Emirates (the UAE) in 2019) and most recently, in India.Footnote 32 Within this group, the Brazil–India treaty has attracted the most attention, given the comparably large size of both economies and the individual prior attempts of both treaty partners at reformulating the traditional BIT models to better suit their needs as developing states.Footnote 33 The treaty itself, while containing some features in line with the Indian model (such as exclusion of an MFN clause and inclusion of specific wordings for security exceptions and investor obligations), is “certainly more tilted towards the Brazilian approach.”Footnote 34
This tilt is evident in the agreement giving center stage to investment facilitation and dispute prevention, unlike the Indian model agreement, which narrowly focused on specific strands of investment protection standards, permitting investor–state dispute settlement via international arbitration only once the investor has exhausted domestic legal remedies, that too for at least five years.Footnote 35 Nonetheless, it has been argued that the Brazil–India ACFI “represents a strong, original contribution to the safeguard of the right to regulate”Footnote 36 and that overall, Brazilian ACFIs have “improved with time through the progressive narrowing and strengthening of their jurisdictional, substantial, public policy and dispute resolution clauses.”Footnote 37
Of course, for a dualistic state such as Brazil, until international treaties that are intended to be binding are fully ratified and attain legal force, their value remains largely academic. Under Brazil’s national constitution, the president’s power to conclude international treaties, while exclusive, is nonetheless subject to mandatory approval by the Brazilian federal legislature, that is, the National Congress.Footnote 38 According to Brazil’s National Confederation of Industry (CNI), this process, on average, takes four and a half years.Footnote 39 To date, four agreements with ACFIs provisions (those signed with Angola, Chile, Mexico, and MERCOSUR countries) have completed the process and are in force, with 6 of the 15 agreements signed from 2018 to 2020 (Ecuador, Guyana, India, Morocco, Peru, and the UAE) currently under process with Brazil’s legislature and five (Colombia, Ethiopia, Malawi, Mozambique, and Surinam) awaiting ratification by treaty partners.Footnote 40
Concurrent with its later bilateral treaty practice, Brazil’s economic diplomacy also moved onto engaging in several plurilateral fora to promote the adoption of investment facilitation as a regulatory approach. For example, under the BRICS forum, although investment facilitation had occurred previously in conjunction with trade facilitation in 2014,Footnote 41 it was in 2017 that its member states, including Brazil, established an “Outline for Investment Facilitation,” an initiative aimed at facilitating intra-BRICS investments and featuring voluntary good practices that have much in common with Brazil’s ACFI model. These include the establishment or designation of a Direct Investment Ombudsperson (DIO) or a National Focal Point, a single-window system, and of guidelines on investor responsibilities and ethical business practices.Footnote 42 A second prominent example of this has been the signing of the MERCOSUR Protocol on Investment Cooperation and Facilitation in 2017.Footnote 43 Signed by Argentina, Brazil, Paraguay, and Uruguay, the protocol was significantly influenced by the ACFI model, including most of its key features such as transparency, state–state dispute prevention procedures, and national DIOs. Such influence has been regarded as “regionalization of the Brazilian model.”Footnote 44
Most prominent, however, has been Brazil’s participation and indeed leadership at the WTO with regard to building awareness and consensus on investment facilitation.Footnote 45 Together with China, Argentina, Colombia, Hong Kong SAR, Mexico, Nigeria, and Pakistan, on April 21, 2017, Brazil created the informal group “Friends of Investment Facilitation for Development” (FIFD) in the WTO. The aim was to launch a WTO Informal Dialogue on Investment Facilitation for Development.Footnote 46 On April 26, 2017, Brazil circulated in cosponsorship with Argentina the document “Possible Elements of a WTO Instrument on Investment Facilitation.” This Communication emphasized the need to incorporate regulations in both service and non-service sectors, avoid controversial issues, and include incremental implementation provisions along with special and differential treatment (SDT) clauses, and it summarized a list of thirteen “Possible Elements of a WTO Instrument on Investment Facilitation.”Footnote 47 The Brazilian–Argentine paper helped provide a stable basis for the talks, supporting delegations to systematize key elements and progressively deepen their understanding on investment facilitation.Footnote 48
On December 13, 2017, Brazil and sixty-nine other countries signed the Joint Ministerial Statement on Investment Facilitation for Development, right on the last day of the WTO’s 11th Ministerial Conference (MC11). Furthermore, in January 2018, Brazil was the first country to submit a complete draft proposal to offer a “concrete illustration of a possible WTO multilateral framework.”Footnote 49 The leadership role by Brazil clarifies that the draft proposal is not intended to serve as a negotiating text, but rather is meant to serve as a “concrete illustration” of what an agreement on investment facilitation could look like.
More recently, a third Joint Statement on Investment Facilitation for Development, endorsed by over 110 members,Footnote 50 was issued on December 10, 2021, in which the signatories stated their aim to conclude the text negotiations by the end of 2022 and their determination to further intensify outreach efforts. Such a document contributed to giving direction and consistency to the negotiations, consolidating the Brazilian vision of investment facilitation and building more confidence among reticent members. Brazil, notably, brought to the table the lessons learnt from its bilateral efforts and its national implementation process, and several of the provisions of the Brazilian draft are part of the informal consolidated text even today.
This means that the evolution of the Brazilian participation in the WTO alongside the country’s innovative take on investment agreements may have a direct influence on the IFD Agreement. The intrinsic appeal of the ACFI archetype has been confirmed in the last years. However, the alleged ACFI archetype flexibility – under the interoperability concept linking a diversity of provision – is still to be confirmed.Footnote 51 Yet its high dependency on the structure of domestic policies and institutions may pose further challenges to the international arena, as further exemplified in Section 11.4.
11.3 ACFI Pillars – Cooperation and Facilitation Governance
As previously described, the resultant agreement template for ACFIs, centered around cooperation and facilitation that dismissed the traditional protection-based approach, has been both authentically Brazilian and objectively innovative in the international landscape of state approaches to international investment law.Footnote 52 Such innovativeness expresses itself through the focus on more practically managing” foreign investment relations, preserving regulatory autonomy, and preventing investment disputes. ACFIs also adopt a relatively long-term perspective as compared to traditional BITs and do not aim to not only increase FDI flows but also foster a consistent and structured dialogue and cooperation between parties. In the following text, we provide a brief description of the main rationale behind the ACFI structure connecting the facilitation and cooperation action to the bodies designed for the governance of the agreement. In Section 11.4, we describe that dynamic between these notions and Brazil’s domestic-level institutional structures.
Essentially, the ACFI framework consists of three key pillars: (1) risk mitigation provisions, (2) a thematic agenda with special commitments between the parties, and (3) an institutional governance agenda.Footnote 53
11.3.1 Risk Mitigation
As a whole, the provisions in the Brazilian ACFI model create a framework that aims to mitigate potential risks involved for both state parties and foreign investors. It does so in four ways:
First, the main principle of the agreement concerns transparency. All Brazilian ACFIs contain a specific clause relating to transparency, but more importantly, almost all provisions of the agreement consider transparency as the guiding principle for accessibility, predictability, and consistency of investment regulation and policies. More recently, ACFIs also include the availability of information and channels of communication electronically, in part linked to the transparency pledge.Footnote 54 Other principles were also part of the language of the first agreements but not yet explicitly drafted in such a way. These were the provisions on nondiscrimination and the right to regulate, which were later incorporated in special clauses as risk mitigation strategies.Footnote 55 Specific rules on the right to regulate were also added, such as on tax and macroprudential measures, along with security exceptions.
Second, drafting of the substantive content of the ACFIs excludes certain typical investment protection standards such as fair and equitable treatment, full protection and security, and indirect expropriation. The ACFI model is known for not being about protection of investors. Although it does explicitly provide for the prohibition of direct expropriations, it recognizes public interest exceptions as far as they are conducted in a nondiscriminatory way, in accordance with due process of law and, most importantly, with payment of effective compensation.Footnote 56 Compensation rules, on the other hand, also consider cases of potential balance of payments limitations of one of the parties.Footnote 57
Third, the ACFIs also aim at preventing the potential risk of socially detrimental effects of incoming FDI that may be contrary to a state’s sustainable development goals. Risk mitigation therefore also serves the benefit of the state parties of the agreement and not only of the investor. On that note, since the first ACFI was signed in 2014, Brazil has consistently included corporate social responsibility (CSR) clauses encouraging foreign investors to respect human rights and environmental laws.Footnote 58 Also, since the second wave of agreements signed as from 2018 with other Latin American countries, the ACFIs have demarcated key areas of domestic regulatory space (such as relating to sustainable development goals and the protection of human, plant, and animal lives) for state parties and incorporated anti-corruption and anti-bribery clauses.Footnote 59
Last but not least, the backbone of risk mitigation is to prevent investment disputes. Such dispute prevention in the ACFIs operates at three levels of escalation, mobilizing both domestic and the agreement institutional structures. It initially consists of an investment ombudsperson to conduct consultations and negotiations, then with a Joint Committee that effectively functions in a mediatory role, and finally with state–state arbitration as a last resort. Although not all claims can be brought to the level of arbitration, it is expected that they all can receive institutional support, as in the previous levels.Footnote 60
Risk mitigation provisions are associated with both cooperation and facilitation measures, as they mobilize either unilateral actions by the state parties to facilitate investment flows or they may also allow for joint action by them through cooperation structures. In our view, facilitation and cooperation actions in the risk mitigation measures are closely linked, if one is the cause, the other may be the consequence, and vice versa. As a result, efforts to distinguish them are mostly theoretical at this point.
11.3.2 Thematic Agenda
A second pillar of the ACFI framework consists of thematic agendas for bilateral negotiations by state parties on special issues or commitments beyond the main agreement that cater to their specific and subjective domestic demands of the respective parties. Such negotiations under thematic agendas may lead to supplementary agreements or schedules that address subjects such as transfer of funds, visa proceedings, technical and environmental licenses or certifications, technology transfer conditions, capacity building, and other development-oriented domestic matters. Thematic agendas emphasize constant coordination between state parties and allow them to tailor the ACFI according to their changing development needs. In case of developing economies, special rules on such topics may constitute major ground-level obstacles for foreign investors.
The thematic agendas are occasionally named working agendas, in the sense that they are expected to be revised and complemented periodically. This allows ACFIs to be as such, “living” or dynamic agreements that may evolve even after the signing and conclusion of the original main agreement. The institutional bodies are in charge of monitoring the thematic agenda and their periodical review, as described here. Accordingly, thematic agendas are strongly associated with the cooperation dimension of the ACFIs, as they depend on joint efforts by the parties to convene on their priorities to facilitate investment flows.
The thematic agendas may serve to improve the cooperation between the parties and strengthen the infrastructure that enables the facilitation of investments. If in the earlier agreements, the thematic agenda started with a detailed list of topics as an Annexure to the agreement, it later lost its precision to broadly refer to areas for cooperation.Footnote 61 Furthermore, in the case of the last ACFI signed in 2020 by Brazil and India, one article of the agreement includes a best effort clause for the parties to further work on the thematic cooperation.Footnote 62 This trend admittedly challenges the role of having the thematic agenda as a pillar of the ACFI, in particular the cooperation dimension of the agreement.
11.3.3 Institutional Governance
The third pillar of the ACFI is the institutional governance structure. A significant part of the agreements is devoted to defining this governance framework. The ACFI creates two distinct institutions to run the agreement, promoting regular information exchange, preventing disputes, and, if a dispute may yet arise, mediating and facilitating negotiations toward an amicable settlement of the dispute, without recourse to state–state arbitration.
The first such institution consists of an ombudsperson (or focal point), a centralized mechanism appointed by each party to receive and analyze queries and demands from investors and subsequently to coordinate with various state entities or with other focal points to provide a concrete solution in return. Inspired by a similar South Korean policy,Footnote 63 the ACFI’s DIO as an institutional structure has the mandate to foster a healthy business environment and provide an effective means for foreign investors to overcome regulatory challenges in their host state, while maintaining their investment. The DIO is also known as the single-window or one-stop shop for investors operating in the other state party territory to access information and settle its grievances.Footnote 64 This is the operational backbone of facilitation in the ACFI model. And, as exemplified with the Brazilian case in Section 11.4, although it is part of the agreement, it will always depend on each state party effort to have this institutional-level working properly.
The second distinct institution provided for by the ACFI framework is a single joint committee consisting of representatives of both state parties. Such a committee is tasked with, above all, allowing for state–state level cooperation, including supervising the implementation of the agreement, sharing information about investment opportunities, and coordinating agendas for cooperation. Part of its work is guided by reports and recommendation of the focal points, through the adequate coordinating bodies at the national level (see illustrative examples in Section 11.4). The joint committee is also the locus for dispute prevention, aiming at resolving possible disagreements related to bilateral investments in an amicable manner. Its recommendations to settle investment-related disputes, however, are nonbinding, so if it were so that the parties to the dispute are not satisfied with the report, they may then move, as a last resort, onto state–state arbitration.
In addition to the bodies created to coordinate the actions between the parties and further development and supervision of the agreement, increasingly the ACFIs signed by Brazil have defined the main guidance for any arbitral tribunal established to resolve disputes between the parties. Such agreements decide upon the constitution of the tribunals, the profile of the arbitrators, the applicable rules of procedure, and also the costs incurred by the parties.Footnote 65 The ACFI Brazil–India was the first one to detail a Code of Conduct for Arbitrators, as Annex II to the agreement.
11.4 Governance at the Domestic Level: Implementation of Facilitation Institutions and Cooperation Support
One of the anchors of the ACFI is the domestic structure to implement measures related to investment facilitation and cooperation. In that sense, countries that have signed ACFIs need to designate an institution to both serve and implement the cooperation and facilitation measures.
In such an institutional structure, the main body is the direct investment ombudsperson. This is the body that is meant to respond to two of the main purposes of the agreement: (1) transparency and (2) exchange of information. The DIO also responds as a single window to queries of both national and foreign investors, and it coordinates with other national bodies and its counterparts in other states.
It is also understood that the role of the DIO may support the prevention of any doubts and complaints of investors and the state parties of the agreement. This is the sole domestic body that all ACFI agreements request the parties to implement domestically. The national DIOs in the bilateral agreements coordinate with the bilateral joint committees, composed of representatives of the parties to the agreement.
However, in the Brazilian context, there are also other bodies that support and amplify the role of the DIO, with which the DIO coordinates its actions. In the next sections, we first provide a brief description about the creation and implementation of the DIO in the Brazilian context and then provide an overview of the bodies that support its activities, as well as those of the joint committee.
11.4.1 The Direct Investment Ombudsperson (DIO): Objectives and Flow of Work
As previously mentioned, the national DIOs are part of ACFI commitments, being incorporated in the institutional governance chapters. The ambition here is to have just one agency responsible for supporting investors from the other party in its territory – thereby, its co-denomination as the focal point.
After signing the initial few ACFIs since March 2015 but before the entry into force of the same,Footnote 66 the direct investment ombudsperson system was created within the Brazilian government structure in September 2016.Footnote 67 And as part of the text of the first agreement signed with Angola, Brazil had appointed the Brazilian Chamber of Foreign Trade (known by the acronym CAMEX) to perform the role of the DIO.Footnote 68 Since then, the rules of procedure of the Brazilian DIO have been revised, but it still maintains its position in the CAMEX system.Footnote 69
According to the recent reforms in the structure of Brazilian central public administration,Footnote 70 CAMEX is a collegiate body currently placed in the structure of the Ministry of Economy, composed of eight other collegiate members and an executive secretary. Among the collegiate is the National Committee of Investment (known as CONINV), that is, the central body for foreign investment facilitation policymaking in Brazil and for encouraging and facilitating Brazilian investments abroad.Footnote 71 Such structure is further detailed in Section 4.b as supportive agencies to the national DIO.
According to the texts of the ACFIs signed by Brazil, the main responsibility of the national DIO is to provide relevant information to foreign investors from the other party of the agreement. Domestic regulations in Brazil have extended that responsibility to include two other groups of interest. First, in 2016, it had already allocated the responsibility of coordination with its counterparts in supporting Brazilian investors with consultations and questions. Second, in reforming the national DIO rules of procedure in 2019, the regulation extended the work of the institution to other consultations and questions from and about non-ACFI parties.Footnote 72 That regulation benefited both nationals from Brazil and foreign investors from countries with which Brazil still does not have an ACFI.
The national DIO is often compared with the Korean Foreign Investment Ombudsman, as it was inspired from the experience of the latter.Footnote 73 However, the main functions and their institutional environment of the Brazilian and the Korean ombudsmen are somehow different. In the case of Brazil, the DIO was created as a single window to operate at two levels: in direct contact with investors and in coordination with other relevant domestic agencies. Its work concerning investors’ interest is linked to the mandate of (1) providing information on relevant legislative and regulatory issues, favoring transparency in investment legislation and procedures, and (2) addressing complaints or grievances regarding measures affecting investors and their investments, whether in the form of law, regulation, rule, procedure, decision, administrative ruling, or any other form, with a view to preventing disputes.Footnote 74
The second dimension of activities of the DIO is about (1) its coordination with public agencies responsible for topics concerning investments at the federal, state, and municipal levels in Brazil that may cause doubts or uncertainties among investors or that bring difficulties to a particular investment situation; and (2) connected with those doubts and difficulties of investors that the ombudsman is also in charge of recommending to the competent authorities, as and when appropriate, measures to improve the investment environment.Footnote 75
As described, although most of the mandate of the Brazilian DIO concerns aftercare – such as the Korean one – it also includes some information support, along with a coordinating role. In this respect, it is interesting to note the diversity of institutional structures and mandates that can result from bilateral and/or plurilateral negotiations on investment facilitation. Again, the main commonality should be the one-stop agency, operating preferably as a single electronic window.Footnote 76
The ACFI already provides the type of information that may be requested from the DIO. They include regulatory conditions for investments, relevant public policies and their legal framework, customs procedures and tax regimes, government procurement, public concessions and public–private partnerships, social and labor legislation and requirements, immigration law, and land regulation. The Rules of Procedure of the DIO in Brazil, updated in 2020, also list the topics and main areas of regulation about which the DIO is expected to be consulted.Footnote 77
Considering the importance of building trust between the DIO and the investor, both the international agreements and domestic regulations on investment facilitation have devoted clear provisions to the treatment of protected information and the responsibilities of public officials in accessing them.Footnote 78 A second concern for investors is about the efficiency of the proceedings. It is understood that a singular structure allows for supporting the investor in charge of responding to demands within a short time. The domestic regulation has detailed the maximum of time for responses from the DIO to request and inquiries from investors. The time period for requests of information is twenty days, extendable by no more than ten days; and, in case of inquiries, the time limit is of ninety days, extendable once to an equal period of ninety days.Footnote 79 In Figure 11.1, we provide a simplified flowchart for the requests and inquiries before the DIO.
Figure 11.1 The DIO request and inquiry systems.
According to the World Bank, up to October 2020, the DIO received a total of 19 cases, 8 consultations, and 11 investor’s grievances.Footnote 80 Eighteen of the cases were solved and one was still pending. Most of those requests and inquiries were about tax and labor legislation. This is not surprising as Brazil is under a process of deep macroeconomic reforms since 2017 when Congress approved a major Labour and Employment Reform and in 2019 its Pension System reform. The Tax System reform is expected to be the next in line.Footnote 81
As it is illustrated in Figure 11.2, the DIO can be supported by three consulting groups: (1) the Investment Grievance Mechanism (IGM), (2) the Domestic Focal Points Network, and (3) the Advisory Group. The IGM is the ordinary support for the work of the DIO either in replying to requests for information or in addressing grievances from investors. The Domestic Network is composed of other focal points in different bodies of the state bureaucracy, at the federal, state, and municipal levels.Footnote 82 This network is expected to be triggered frequently and be ready to answer information requests in no more than fifteen days. The relevant focal points of the networks can also be invoked to answer inquiries about corresponding legislation and conflict with rules and requested actions, as well as about specific cases, including in conjunction with the IGM. The Advisory Group, in its turn, is the supervising agency of the work of the DIO and is composed of representatives from different ministries and bodies of the Ministry of Economy that will consider the necessary adjustments and recommendations for legal and/or administrative changes in investment regulations and procedures.Footnote 83
Figure 11.2 The supportive structure to the Brazilian DIO.
Note: About the colored boxes: The bodies of the Ministry of Economy are in gray. CAMEX collegiates are in orange; CAMEX committees are in blue; the DIO mechanisms are in rose; a separate institution of the Brazilian government working on investment promotion is in green.
Developing such institutional architecture is complex, especially in a large economy with a federal system of government. The DIO office since its establishment in 2016 has been fully operational, and it has also developed the designated institutional coordination at the domestic level. Going forward, its main priorities at that level involve (1) increasing partnerships and strengthening collaboration among public agencies at the subnational levels; (2) building the capacity of other relevant government agencies at the federal level; (3) guaranteeing the monitoring and evaluation framework to measure impact, based on the experience of IGM and the network of focal points; and furthermore (4) putting in action the IGM and the Advisory Group, based on concrete situations in the future.
11.4.2 CAMEX and the Supportive Structure to the DIO
In addition to the direct assistance bodies to the National DIO, there are other bodies of the Brazilian public administration that also deal with investment policies. They are, to varying degrees, connected to the work of the DIO. The most relevant ones are illustrated in Figure 11.2.
Right above the DIO is the Secretariat of Foreign Investments (acronym in Portuguese, SINVE), which is the direct administrative support to the DIO, performing the operational activities for all requests and inquiries to investors (see Figure 11.1). This Secretariat, based on its experience, is also in charge of proposing better regulatory practices to facilitate investments in the country and of recommending new measures by the CONINV to facilitate inbound and outbound investments. In addition to that, SINVE coordinates the IWG-NPC.
The IWG-NPC is the national contact point to handle inquiries and to promote the resolutions of alleged nonobservance of the OECD Guidelines for Multinationals. Brazil adopted the Guidelines in 1997, but the IWG-NPC was finally institutionalized in 2010.Footnote 84 Since then, this body has been active in assisting enterprises through mediation and conciliation with their stakeholders and civil society groups to implement the OECD Guidelines in Brazil.Footnote 85 It is understood that IWG-NPC may help implement investor responsibilities as defined in the ACFI.Footnote 86 Such coordination is built through requests of information to the IWG-NPC in Brazil by CONINV and through biannual reports of the IWG-NPC to this committee. Just as the OECD Guidelines, corporate social responsibility clauses in the ACFIs and those related to the respect to labor, environment, and human rights regulation are voluntary in nature. The processes then tend to be more a naming-and-shaming system for foreign investors, and an alert to the authorities to potentially address the issues at the political and strategic levels.Footnote 87
The CONINV, in turn, is the first level of guidance and evaluation of public policies and actions related to both inbound and outbound investments in Brazil. Right after the creation of the DIO in 2016, the CONINV was established as an interministerial body to coordinate the actions toward investments and to coordinate the technical bodies working in the field.Footnote 88 The Committee has the role of intermediating the work of technical bodies – the blue boxes of the organization chart in Figure 11.1– with the strategic actions at the political level. This is also the forum for coordination with the private sector and with subnational entities for the promotion of investments.
CONINV is composed of Secretariat-level representatives who are assisted by a Technical Group of public servants from the ministries and agencies that are part of CONINV. This group has to meet at least bimonthly and to report to CONINV that will meet every six months. Public officials from the current Ministry of Economy report that both the Technical Group and the CONINV have followed that agenda.Footnote 89
CONINV reports then to both the CAMEX Executive Committee (GECEX) and the Council on Trade Strategy (CEC). These are two strategic bodies of the CAMEX structure which address the broader public policy of investments in Brazil, aiming at increasing the productivity and competitiveness of the Brazilian economy. The Council of Trade Strategy receives the recommendations from GECEX for a decision on strategic actions, including those connected to international negotiations.Footnote 90 This is a Ministers-level body that meets biannually or upon request of the President. As such, GECEX, which meets at least once a month, coordinates among the lower level of ministers’ representatives the daily routine.
In addition to those agencies, it is worth mentioning the Brazilian Trade and Investment Promotion Agency (known by the acronym in Portuguese APEX). This is the oldest structure in the institutional design for investments promotion in Brazil. APEX is placed in the structure of the Ministry of Foreign Affairs, and it has been considered as part of the investment cooperation and facilitation system by the regulation of the main bodies operating in the system.Footnote 91
11.4.3 Coupling the Domestic Governance and the ACFI Governance
The institutional structure of Brazil’s ACFI domestic governance was designed after the signing of the agreements by Brazil and so were created reflexively in accordance with the same. As previously mentioned, APEX and with the IWG-NPC were the sole domestic agencies exclusively focused on investments before 2016. We can then identify that the actions for facilitation and cooperation – in spite of their gray zones – are somehow distributed among the national agencies in tandem with the ACFI’s two major bodies (the joint committee and the DIOs).
In Figure 11.3, we couple the domestic organization chart and the international institutional governance structures in order to illustrate the cooperation and facilitation actions, from the Brazilian institutional design.
Figure 11.3 Cooperation and facilitation coordination among domestic and international institutional governance structures.
As the concepts of cooperation and facilitation overlap in practice, we can see that the works from the more technical and administrative perspectives of the facilitation bodies (in blue) bring the inputs for cooperation at the strategic and political levels. The purpose being that the political level would be able to respond more efficiently to the needed reforms and revisions appointed by the ground-level experiences of investors and concerned groups together with the technical groups that expect to facilitate the investment process.
It is important to consider that most of the institutional reform and the pairing of the national and international levels still need to be tested in practice. This will require time, as well as investment flows from and to countries with which Brazil has signed the ACFI and others.
The same structure applied to bilateral relations is also expected to be in action to plurilateral agreements, such as the intra-Mercosur, the Mercosur and agreements, and the negotiations at the WTO level.
11.5 Conclusion
During the international investment’s regimes “Era of Re-orientation,”Footnote 92 Brazil launched a new framework agreement for regulating foreign investment focusing on cooperation and facilitation of investments. This framework not only shifted the focus from investment protection to investment promotion and cooperation as alternative perspectives, but it also contested one of the main pillars of BITs governance: the investor–state arbitration system. In doing so, the ACFIs decided upon new language, the exclusion of certain clauses, and in adding new legal safeguards to international investment agreements. In addition, a new governance structure was designed to promote continuous coordination among the parties, along with risk mitigation and dispute prevention. The fact that there is no single standard or model agreement for the ACFI, but rather an interoperable framework, has raised reservations about the potential of this new framework.
Sections 11.2 and 11.3 of this chapter aimed at highlighting the brief history of those negotiations and the flexibility of the content of the agreements. The purpose was to highlight the adaptability of the ACFI, according to the parties, but also the building up process for new rules. Since Brazil has increased the number of agreements it has signed, proposing the framework to nontraditional economic partners of the country, it is noticeable that the cooperation agenda became less operative and that the ACFI is increasingly focused on the functioning of the institutional governance of the agreements.
Section 11.4 has described in detail the reforms in the Brazilian state bureaucracy to accommodate the principles and structures of the ACFI. Most of the reforms have been taken in the last seven years, and they were adjusted to the reforms taken in 2019 when President Bolsonaro took office. Given the two central governance structures of the ACFIs – the DIO and the joint committees, the former should be part of institutions already in place, all referenced in the ACFI texts. Then, most of the innovation is expected to take place in the implementation of the single-window system. In the case of Brazil, Figure 11.1 details the processes of request and inquiry. Its functioning has been amplified to any investor, including non-ACFI origin, and is somewhat active. In the case of Brazil, then, the DIO became central to the facilitation processes to investors. Additionally, there has been an effort to integrate other support agencies and to connect them, as illustrated by Figure 11.2, mainly around SINVE and CONINV. Furthermore, the interplay of those two agencies in connecting the national and the international levels are essential for the good performance of the ACFI in Brazil.
A second feature in the governance structure of the ACFI is the joint committee. However, this may be a bottleneck within the governance structure. Such structure is composed of representatives of the ACFI parties and depends upon a certain level of political commitment.Footnote 93 The joint committees are the pivot system for cooperation and risk mitigation, and in case of any complaint of an investor of the parties, this is the first mandatory step to take. So, coordinating at the diplomatic level is crucial. Taking into account that a plurilateral agreement is under negotiation at the WTO, the implementation of a contact point at that level may favor the centralization of such coordination.
It is still too early to make a proper evaluation of the ACFI as a stimulus for cooperation and facilitation for investments but may be considered a promising model when compared to the wider scheme of proposals submitted so far. Even if not yet a model, at least the ACFI framework, its contestations and proposals, as well as the experience of implementing a facilitation system in a middle-power country as Brazil may serve as inspiration in the continuous reorientation of the investment regime.
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