2.1 Introduction
Capital flows from foreign direct investment (FDI) can play an essential role in building and strengthening productive capacity and export growth, including developmental objectives such as technology and skills transfer, employment generation, higher wages, and poverty eradication.Footnote 1 Given the substantial investment gap in reaching the Sustainable Development Goals (SDGs),Footnote 2 it would be highly desirable if FDI flows rose considerably in key areas critical for achieving the SDGs, particularly in developing countries and least developed countries (LDCs).
However, the need for FDI does not mean there is consensus on promoting, facilitating, or protecting foreign investments or if international instruments are fit for purpose. Instead of a multilateral treaty, today, we have a network of more than 3,000 international investment agreements (IIAs), including bilateral investment treaties (BITs) and preferential trade agreements (PTAs) with investment chapters. In recent years, these treaties have been heavily contested, concerning the protection they provide to foreign investors, mainly through the mechanism of investor–state dispute settlement (ISDS).Footnote 3
The importance of investment for promoting development in connection to trade has been recognized for a long time, but efforts in this regard have a troubled history. Time and again, World Trade Organization (WTO) members have asserted the need to foster global development and inclusive growth through the intertwining of trade and investment. Still, no measures have culminated into a concrete investment agreement within the WTO framework.Footnote 4 The WTO already established a permanent working group on investment at its first Ministerial Conference held in Singapore in 1996. However, after several disagreements, Member States dropped investment from the Doha Development Agenda at the December 2003 Ministerial Conference held in Cancun.Footnote 5
Nowadays, investment is back on the WTO’s agenda on the specific topic of ‘investment facilitation’. Discussions started in 2015 in other international organizations and political platforms, like the E15 Initiative,Footnote 6 the Organisation for Economic Co-operation and Development (OECD),Footnote 7 the G20,Footnote 8 and the United Nations Conference on Trade and Development (UNCTAD).Footnote 9 In April 2017, the so-called Friends of Investment Facilitation for Development (FIFD) proposed an Informal WTO Dialogue on Investment Facilitation for Development (IFD).Footnote 10
On 13 December 2017, seventy WTO members made a call for an IFD Agreement on the margins of the 11th Ministerial Conference, held in Buenos Aires.Footnote 11 In a second joint statement on November 22, 2019, in the aftermath of the Shanghai informal ministerial meeting, ninety-eight WTO members committed to intensifying work on an IFD Agreement and working toward a concrete outcome at the 12th WTO Ministerial Conference.Footnote 12
Over the past years, WTO members have engaged in ‘structured discussions’ for a potential negotiation of an IFD Agreement as part of a Joint Statement Initiative (JSI). Several documents came out from that discussion including (a) a compendium of text-based examples of investment facilitation measures;Footnote 13 (b) a ‘Working Document’, which focuses on areas of convergence emerging from those discussions; (c) a ‘Streamlined Text’, based on the Working Document was circulated in January 2020, aiming to help members to develop elements and specific provisions of an IFD Agreement; and (d) an ‘Informal Consolidated Text’, based on the Streamlined Text and WTO members’ proposals.Footnote 14 In addition, at the meeting held on November 27, 2020, participating members reviewed new drafting suggestions (‘Revised Draft Text’) on a number of provisions of the Informal Consolidated Text, on which there was collective interest and convergence.Footnote 15
Formal negotiations on a multilateral agreement intending to achieve a concrete outcome began on September 25, 2020.Footnote 16 At a new round of talks on April 19 and 23, 2021, delegations started working on the so-called ‘Easter Text’, which brought together in one single text the two working documents used for the discussions (namely, the Informal Consolidated Text and the Revised Draft Text).Footnote 17
It is important to note that several of these documents are not open to the public. For example, the Informal Consolidated Text was made available in April 2020 but only restricted to WTO members.Footnote 18 An early version of the Easter Text (April 12, 2021)Footnote 19 and a revised version (July 23, 2021)Footnote 20 were leaked online. The ‘Draft IFD Agreement’ was a restricted document sent to all WTO members on October 27, 2021. The negotiation was supposed to continue in the 12th Ministerial Conference scheduled for November 30 to December 3, 2021, in Geneva but was suspended due to COVID-19 concerns. Text-based negotiations of the IFD Agreement were concluded in July 2023, and a final revised version was circulated in November 2023. The IFDA text was made publicly available only on 25 February 2024, at the WTO’s 13th ministerial conference in Abu Dhabi,Footnote 21 although it had also been informally leaked before.Footnote 22 The text is now endorsed by 125 members from different regions of the world, representing three-quarters of the WTO membership. This includes over eighty-five developing countries, among which twenty-five are LDCs.Footnote 23
Some countries have been early supporters of the negotiation of the IFD Agreement. Brazil, China, Germany, Russia, Argentina, and the MIKTA (Mexico, Indonesia, South Korea, Turkey, and Australia) have supported an investment facilitation agreement in the G20Footnote 24 and later at the WTOFootnote 25 Brazil submitted a comprehensive proposal for an agreement on investment facilitation to the WTO in February 2018, including provisions to improve transparency, predictability, and efficiency of regulatory and administrative investment policies and measures.Footnote 26
Advances on a potential agreement at the WTO do not make investment facilitation less controversial. Although investment is generally seen as desirable among developing countries, there is no consensus concerning the need for an international instrument on investment facilitation,Footnote 27 its actual content, and implications concerning regulatory space in strategic sectors.Footnote 28 Developing large economies, like South Africa and India are not part of the JSI and disagree with multilateral binding rules on investment facilitation under the WTO’s aegis.Footnote 29 Turkey withdrew from the IFDA talks in early 2023, citing among its objections that the agreement does not define ‘investment’ and lacks clarity on how the provisions relate to other WTO agreements.Footnote 30
During the WTO’s 13th ministerial conference, India announced it opposed a decision to attach the investment facilitation agreement on the grounds there was no consensus.Footnote 31 It was speculated that South Africa and Türkiye would make a similar statement, but that did not materialize.Footnote 32 Subsequently, India reiterated that given the lack of consensus, any issue related to investment facilitation should be out of the WTO agenda.Footnote 33
Likewise, some nongovernmental organizations (NGOs) see risks in bringing investment facilitation into the WTO, as other controversial issues could arise later, including investor protection and ISDS.Footnote 34
Although it was initially reported that the United States was opposed to the negotiation process, in practice, that country has not acted against the initiative and has just refrained from participating in it and does not have systemic objections to it.Footnote 35
But how do these negotiations differ from existing IIAs? Is there an added value of the IFD Agreement compared to existing IIAs? This chapter will provide some guidance in answering those questions. First, we will identify the main elements of investment facilitation. Then, we will review existing IIAs that include investment facilitation provisions, identifying convergence and differences with the IFD Agreement. To close, we discuss whether an IFD Agreement has added value compared to existing IIAs and potential avenues for innovation in the current negotiations.
2.2 The Expansive Notion of Investment Facilitation
Although investment facilitation is now at the center stage, there is no precise definition of what we understand when discussing facilitating investment. Investment facilitation is an expansive notion, not always well-defined and sometimes confused with investment promotion or retention. The lines between attracting, facilitating, and retaining are sometimes blurred because they are a continuum, rather than discrete phases. There are some slightly different approaches to the content of investment facilitation across various institutions like the OECD, the G20, UNCTAD, and the World Bank.
The OECD distinguishes between two different investment phases: promotion and facilitation. One is about attracting potential investors to a country or a region as an investment destination. The other is making it easy for investors who have selected a place to invest in establishing or expanding their existing investments.Footnote 36 Investment facilitation starts at the pre-establishment phase when an investor shows interest in a specific location or has decided to reinvest, thereby providing investors with a transparent, predictable, and efficient regulatory and administrative framework while maximizing investment benefits. For the OECD, investment facilitation also encompasses investment retention, as keeping existing investors satisfied equally depends on the investment policy framework’s quality, transparency, consistency, and predictability. OECD’s perspective is that even though many investment promotion agencies (IPAs) are key investment facilitation players, this issue goes beyond the work of IPAs, and a ‘whole-of-government’ approach is needed.Footnote 37
In 2016, the G20 Trade Ministers endorsed their ‘Guiding Principles for Global Investment Policymaking’ to foster an open, transparent, and conductive global policy environment for investment. Two elements seem to be central to investment facilitation in these principles: transparency and observation of international best practices. Facilitation efforts should promote transparency and be conducive to establishing, conducting, and expanding investors’ businesses. At the same time, investment policies should encourage and facilitate the observance by investors of international best practices and applicable instruments of responsible business conduct and corporate governance, focusing on high-quality and responsible investment.Footnote 38 In October 2021, in the ‘Rome Declaration’, the G20 leaders recognized the importance of sound, predictable, and transparent domestic regulatory frameworks for trade in services and investment. In addition, they underscored the importance of fair competition to ensure a level playing field to foster a favorable investment environment.Footnote 39
According to the UNCTAD’s Global Action Menu for Investment Facilitation, investment facilitation involves policies and actions to make it easier for foreign investors to establish or expand their investments and conduct their day-to-day business. The UNCTAD differentiates investment facilitation from investment promotion, which encourages a particular location as an investment destination and is, thus, country-specific and competitive.Footnote 40 In the UNCTAD’s view, key investment facilitation concepts include one-stop shops, transparency, and dispute prevention. There is no explicit mention of investment retention as part of investment facilitation. However, it considers one of its action lines to maintain regular consultation and effective dialogue with investment stakeholders to identify and address issues encountered by investors and affected communities.Footnote 41
For the World Bank, investment facilitation makes it easier for investors to establish, conduct, and expand their existing investments in host countries. Facilitating investment is part of the entire life cycle of the investment process, which includes attraction, entry and establishment, retention/expansion, and linkages with the local economy.Footnote 42 Investment facilitation is seen as a stage of investment promotion that seeks to convert investor interest into an investment decision. It is different from ‘investor outreach’, which aims to generate interest, and ‘investor servicing’, which helps investors implement investment decisions.Footnote 43
Even though the confines between investment promotion and investment facilitation are sometimes blurry, one can find some common elements to all definitions referred to earlier. Thus, investment facilitation can be understood as a set of measures mainly concerned with ‘improving the transparency and predictability of investment frameworks, streamlining procedures related to foreign investors, enhancing coordination and cooperation, and identifying potential issues early to avoid investment grievances or address them quickly when they do arise’.Footnote 44 Moreover, investment facilitation activities involve both host and home countries through inward and outward investment facilitation measures.
Some policy instruments encompass different investment phases. For example, investment promotion activities may enhance the ease of doing business (e.g., through an effective one-stop investment promotion agency). Moreover, most investment facilitation initiatives are also attraction and promotional tools. But in other cases, policy instruments are distinctive and aimed explicitly at a specific investment phase. That is the case, for example, of the use of proactive policies to attract FDI, such as tax incentives to promote investment, streamlining procedures of investment applications, and the use of aftercare instruments for investment retention. As several measures could fit into investment promotion and facilitation activities, this chapter does not frame each measure under these two concepts separately.
2.3 Investment Facilitation Provisions in Existing IIAs
IIAs do not generally include investment facilitation provisions, focusing on promotion and protection rules through substantive standards and procedural mechanisms, notably ISDS.
Investment facilitation has been associated with or even believed to derive from trade facilitation, which first became a WTO topic at the 1996 Ministerial Conference.Footnote 45 However, the reality is such provisions in IIAs pre-date that conference. The earliest one seems to be in the Netherlands–Pakistan BIT (1998), which considers facilitating direct contacts, information exchange, and the elaboration of programs to promote economic and technological cooperation and investment.Footnote 46
Between 1996 and 2013 – the conclusion date of the Trade Facilitation Agreement (TFA) at the Bali Ministerial conference – a few agreements concluded by China, Japan, and ASEAN included investment facilitation provisions. Since then, several IIAs have had such provisions, but sometimes, they do not go beyond the name’s mere use without a concrete description of facilitation activities. Brazilian Agreements on Cooperation and Facilitation of Investments (ACFIs) concluded since 2015 are noteworthy, as they include detailed clauses on investment facilitation, which is also a core objective of those treaties.Footnote 47
When included, investment facilitation provisions are usually of general scope, and few are limited to a specific sector. For example, the Japan–Indonesia Economic Partnership Agreement (JIEPA) supports Japanese investors’ investment in Indonesia’s energy and mineral resource sectors.Footnote 48 The European Communities (EC) Partnership and Cooperation Agreements (PCA) with Azerbaijan and Uzbekistan underscore the necessity of promoting investment in the energy sector, mining and raw materials, telecommunications, and postal services.Footnote 49 In such cases, one can wonder why facilitation efforts should be concentrated on a few priority areasFootnote 50 and the rationale of a unidirectional policy.Footnote 51
To identify investment facilitation provisions in existing IIAs, we have used the Electronic Database of Investment Treaties (EDIT).Footnote 52 We mapped both the provisions that explicitly refer to investment facilitation or similar terms (e.g., ‘facilitation of investment’) and those including some keywords and expressions directly connected to that notion (see Figure 2.1).Footnote 53
Figure 2.1 IIAs with explicit investment facilitation provisions.
The number of concluded IIAs with explicit investment facilitation provisions is still low (85 treaties in total, 47 in force), but the number of treaties with this feature almost doubled in 2019 and 2020. However, fewer were concluded in 2021 and 2022. In 2023, at least five IIAs included explicit investment facilitation provisions.Footnote 54 A previous study in 2018 identified only thirty-five IIAs with such provisions overall.Footnote 55
But that number increases substantially if we also include other elements of investment facilitation that do not use that denomination in this mapping. We find these elements in older agreements, like provisions on transparency and entry and sojourn of personnel. The number of IIAs with investment facilitation elements could be considerably larger if all PTA chapters were considered (including transparency, regulatory convergence, business competitiveness, and facilitation chapters).
The exact content of investment facilitation provisions in IIAs is diverse. However, after examining both the IIAs with explicit provisions on investment facilitation and those that include elements of it but are not labeled as such, we can recognize at least twelve different categories.Footnote 56
2.3.1 Improving the Investment Climate
The World Bank defines the investment climate as a ‘set of location-specific factors shaping the opportunities and incentives for firms to invest productively, create jobs, and expand’.Footnote 57
When featured in IIAs, these provisions are usually of general scope and limited by domestic law.Footnote 58 They include commitments to facilitate investment conditions, like openness and competitivity,Footnote 59 stability,Footnote 60 transparency, and a predictable investment regime.Footnote 61
However, some agreements are more explicit in defining what is needed to establish a favorable climate for private investment, primarily through better investment protection conditions, capital transfer, and information exchange on investment opportunities.Footnote 62 In addition, certain IIAs also include forward-looking provisions, like the periodical review of the treaty, creating a more open investment environment,Footnote 63 or strengthening databases on all forms of investment policy formulations.Footnote 64
The new EU–Organisation of African, Caribbean and Pacific States (OACPS) Partnership Agreement that will replace the Cotonou Agreement includes provisions on investment climate. The Parties undertake to mobilize sustainable and responsible investment to enhance inclusive and sustainable economic growth and development. To that end, they shall establish a conducive investment climate, which attracts domestic and foreign investment and maintains the right to regulate through transparent, predictable, and efficient regulatory, administrative, and policy frameworks. Furthermore, the Parties agree on the importance of providing legal certainty and adequate protection to established investments, the treatment of which shall be nondiscriminatory in nature and shall include effective dispute prevention and resolution mechanisms, in line with their respective strategies. In that regard, they reaffirm the importance of concluding international investment agreements that fully preserve their sovereign right to regulate investment for legitimate public policy purposes.Footnote 65
According to the Africa Regional Protocol of the same agreement, regulatory frameworks for investment shall be open, transparent, and clear, with protection for property rights, land rights, and intellectual property rights.Footnote 66
2.3.2 Simplifying and Speeding up Investment-Related Administrative Procedures
Some IIAs include specific commitments on the removal of bureaucratic impediments to investment.Footnote 67 The OECD calls these provisions ‘policy advocacy’, identifying bottlenecks in the investment climate and providing government recommendations.Footnote 68
A couple of Brazilian ACFIs have provisions on the right of administrative review or appeal of decisions.Footnote 69 In one of them, this process must be according to the level of development and available resources at the Parties’ disposal.Footnote 70 Some treaties also contemplate simplifying procedures for investment applications and approvals.Footnote 71 Certain agreements further establish clear and uniform standards and procedures for examining and approving investment applications, including a reasonable time frame, making available information that has been omitted from an incomplete application, and providing an opportunity for correction.Footnote 72 Finally, some add the principles of keeping administrative costs at the lowest.Footnote 73
Under the new EU–OACPS Partnership Agreement, the Parties agree to facilitate investment through legislation, regulations, and policies to reduce regulatory and administrative barriers and avoid harmful competition for investment. They also agree that such measures shall be developed transparently and made publicly available to encourage public–private dialogue and provide the opportunity for all stakeholders to participate.Footnote 74 Furthermore, according to the Africa Regional Protocol of the same agreement, the Parties shall improve national and regional regulatory frameworks, simplify business regulations and processes, reduce and streamline administrative formalities, reinforce cooperation, and build capacities to implement effective competition policies.Footnote 75
There is disagreement regarding whether this type of facilitation is desirable. For some, streamlining and simplifying procedures for investment applications and approvals could help increase investment in countries with duplicative and burdensome regulatory requirements for starting or operating a company. For others, these requirements may be crucial for ensuring the development of projects with input from interested and affected communities.Footnote 76
2.3.3 Facilitation of Investment Permits
In several IIAs, when a Contracting Party admits an investment of an investor of another Contracting Party in its territory, the former shall grant the necessary permits to realize such an investment.Footnote 77
However, the facilitation of investment permits does not always mean the same. In some agreements, a mandatory obligation (‘shall grant’) is ‘appropriate’, ‘necessary’,Footnote 78 or pursuant to its legislation.Footnote 79 In others, it is only a ‘best efforts’ commitment (‘shall endeavor to grant’).Footnote 80
It is important to recall that this provision has been the subject of disputes between the investor and the host state. For example, in MTD v. Chile, the tribunal decided that to the extent that an application for a permit meets the law’s requirements, the state should grant such permits to the investor. Such provisions ‘do not entitle an investor to a change of the normative framework of the country where it invests. All that an investor may expect is that the law be applied’.Footnote 81
2.3.4 Movement of Business Persons (MBP)
EDIT has identified 1,244 IIAs with provisions on entry and sojourn of personnel, including 1,076 BITs, usually subject to domestic laws (see Figure 2.2).Footnote 82
Figure 2.2 Entry and sojourn provisions in IIAs.
Several IIAs include provisions facilitating the required permits for the activities of senior personnel, consultants, or other qualified experts engaged by investors of the other Contracting Party, either in general terms or concerning entry, residence, work, and travel permits.Footnote 83 These provisions are sometimes mandatory,Footnote 84 usually with qualifiers such as ‘necessary’,Footnote 85 ‘where appropriate’,Footnote 86 ‘as required’,Footnote 87 and ‘in conformity with domestic laws’.Footnote 88 Another standard qualifier is that such employees are ‘key personnel’ (e.g., management, specialists, and intra-corporate transferee) and employed exclusively by foreign companies or their branches.Footnote 89
Often, this type of provision is only a best efforts commitment, where parties endeavor, whenever necessary, to grant the permits required in connection with the activities of consultants or experts engaged by investors of the other party.Footnote 90 For example, early Brazilian ACFIs include programs on visa proceedings as part of their bilateral facilitation agendas.Footnote 91 In the FTA with Chile, parties commit to expeditious processing of complete applications for migratory formalities. Within a reasonable time frame, notify the request’s status and its outcome.Footnote 92
2.3.5 Transparency of Investment Measures
Transparency measures are not new in investment treaties. Several IIAs include transparency commitments that can be considered part of investment facilitation activities.Footnote 93 EDIT has identified at least 580 IIAs with such provisions, mainly obligations directed at States to publish laws and regulations (‘regulatory transparency’),Footnote 94 including 380 BITs. In addition, according to the DESTA database, over 111 PTAs have horizontal chapters on transparency,Footnote 95 and an increasing number include chapters on regulatory convergence.Footnote 96 As a result, the number of treaties, including transparency commitments, has increased over the years (see Figure 2.3).
Figure 2.3 Transparency provisions in IIAs.
Traditionally, IIAs with transparency provisions consider ‘horizontal obligations’, like the publication of regulations concerning or affecting foreign investment, exchange of investment information, including investment laws,Footnote 97 regulations, policies and procedures,Footnote 98 and eventually administrative rulings/practices.Footnote 99 In some agreements, these commitments extend to existing or future special formalities connected to investments.Footnote 100 In addition, these agreements usually exclude from transparency commitments the disclosure of confidential or proprietary information or allow access to any data, which would impede law enforcement, be contrary to the legislation on public access to documents, or prejudice the legitimate commercial interests of particular investors.Footnote 101
Certain agreements include a more detailed exchange of information commitments on topics such as statistical information on the market for goods and services, governmental procurement and public concessions, social and labor requirements, data on specific economic sectors or segments, regional projects and understandings on investment, and information on public–private partnerships.Footnote 102 However, only some IIAs provide that the exchange of information shall regularly occur between the relevant state agencies based on reciprocity and that nonconfidential information may be published periodically.Footnote 103
Some agreements provide for the exchange of information on the effects that laws and other legal acts may have on investmentsFootnote 104 (extended in some cases to decisions, administrative practices, procedures, and politics)Footnote 105 or experiences in the design and implementation of sectoral legislation.Footnote 106
2.3.6 Capacity Building on Investment Issues
Few IIAs include investment facilitation provisions focused on general measures of investment capacity buildingFootnote 107 or specifically for domestic investment promotion agencies. For example, these activities may facilitate technology transfer in cross-border investment.Footnote 108
In some agreements, capacity building focuses on one specific topic: the negotiation and conclusion of agreements for promoting and protecting investment.Footnote 109 The Cotonou Agreement between the EU and the African, Caribbean and Pacific Group of States (ACP) even provided an overview of the content of such a model agreement, including provisions on fair and equitable treatment, most-favored-nation treatment, protection against expropriation, transfer of capitals and profits, and ISDS.Footnote 110 In other agreements, technical assistance aimed to facilitate negotiations and implement an investment chapter with the EU.Footnote 111
According to the new EU–OACPS Partnership Agreement, the Parties agree to support the necessary economic and institutional reforms and policies that are grounded in a country’s overall development strategy and that are coherent and synergistic at the national, regional, and international levels, with a view to creating a conducive environment for sustainable investment and facilitating the development of a dynamic, viable, and competitive private sector.Footnote 112 Although it is not explicitly mentioned, one can understand that the support is likely to be from the EU to ACP countries.
2.3.7 Investment Financing
Very few IIAs include provisions on investment facilitation through direct financing of investment projects. One of them is the Cotonou Agreement, which implemented its investment financing commitments in 2003, through an Investment Facility. The European Investment Bank (EIB) has managed the Investment Facility in the ACP region since it began in 2003 with a broad range of flexible risk-bearing instruments.Footnote 113
The ACP Investment Facility aimed to reduce poverty by creating jobs and sustainable growth. In addition to senior and intermediate loans, the EIB carries out equity and quasi-equity investments, junior and subordinated loans, providing guarantees, interest rate subsidies, and technical assistance. Since the revolving fund began operating in 2003, over 80 percent of the allocations have gone to the private sector.Footnote 114 To support the preparation and implementation of the projects it finances, the EIB also provides grants, interest rate subsidies, and technical assistance to its borrowers and final beneficiaries.Footnote 115 The Investment Facility’s average budget reached €95 million for 2014–2020 compared with just over €40 million for the previous period (2003–2013).Footnote 116 The most benefited sectors from the Investment Facility are energy, water sewage, transport, financial services, and telecommunications.
A separate section of the Investment Facility under the name of ‘Impact Financing Envelope’ was used for higher-impact projects with more significant risks and higher returns, reaching private sector operations beyond the traditional risk levels but having a sizeable developmental impact.Footnote 117
The EU and the ACP States signed the Cotonou Agreement in 2000 for a twenty-year duration. It was initially due to expire in February 2020 but postponed until the end of 2020, as negotiations on a future replacement agreement were still underway.Footnote 118 Annex II of the new EU–OACPS Partnership Agreement does not retain the Investment Facility explicitly. However, it states that the EIB and ‘any subsidiary of the EIB’ may pursue financing activities using loans, bonds, guarantees, equity, quasi-equity, or any other financing instruments and provide financing technical assistance.Footnote 119 According to the EIB Annual Report, the ACP Investment Facility was extended to provide a bridge to the next financing mandate.Footnote 120
In any case, under the same agreement, the Parties shall cooperate to establish sound financial systems to mobilize investment for sustainable projects. Furthermore, they shall take measures to support investment by increasing access to financing through technical assistance, grants, guarantees, and innovative financial instruments to mitigate risk, boost investor confidence, and leverage private and public sources of finance.Footnote 121
Some have argued that it would seem pertinent to preserve the Investment Facility and Impact Financing Envelope’s innovative mechanisms unless they are replaced by even more effective instruments and are further developed.Footnote 122
2.3.8 Insurance Programs
Most OECD countries have national agencies that provide domestic companies with export credit and political risk insurance, which started in the late 1950s. At that time, Germany, Japan, and the United States began offering insurance programs to foreign investors against noncommercial risks.Footnote 123 The largest among these agencies include United States’ Development Finance Corporation (DFC), Japanese Nippon Export Investment Insurance (NEXI), China Export & Credit Insurance Corporation (SINOSURE), Belgian Export Credit Agency (CREDENDO), Export Development Canada (EDC), United Kingdom’s Export Credits Guarantee Department (ECGD), Compagnie Française d’Assurance pour le Commerce Extérieur (COFACE), and Export Finance Australia.Footnote 124 Other countries have delegated their investment guarantee scheme management to private companies. For example, Germany has mandated PricewaterhouseCoopers (PwC) for that purpose.Footnote 125
These insurance schemes can include requirements to ensure that the guaranteed FDI fulfils the host country’s sustainable and developmental objectives.Footnote 126 However, the possibility of facilitating investment using these insurance tools is primarily absent from IIAs, with some notable exceptions, such as the Economic Community of West African States (ECOWAS) Supplementary Act on Investment and the Nigeria-Morocco BIT.Footnote 127 Some Brazilian ACFIs mention that wherever possible, each party shall promote their respective public and private financial agents responsible for the technical assessment of risk and the adoption of loans, credits, guarantees, and insurance related to investments in the other party’s territory.Footnote 128
2.3.9 Pre-establishment Investor Services
Certain IIAs include provisions to support prospective investors to facilitate their establishment. For example, some ASEAN agreements provide for one-stop investment centers or investment advisory services in host countries to provide assistance and advisory services to the other member states’ business communities.Footnote 129
According to the new EU–OACPS Partnership Agreement, the Parties shall support measures that bridge gaps in foreign investors’ knowledge of local investment conditions, promote business contacts and information networks, and facilitate joint investments and joint ventures.Footnote 130
On occasions, IIAs complement these services with the home state’s obligations, which shall inform host states about the form and extent of available assistance given to their outward investors, depending on the size and type of different investments.Footnote 131
Some authors have questioned the benefits of having a single-window system for investors. Singh points out that unlike trade facilitation, where few agencies dealing with cross-border trade and customs compliance are involved, investment facilitation requires cooperation from many agencies at all government levels, raising critical challenges in the implementation process. ‘One-stop shops may not be effective in countries where setting up a business requires approvals from national, regional and local authorities that may not cooperate in implementing binding commitments under a multilateral agreement’.Footnote 132
2.3.10 Post-Establishment Investor Aftercare
Some IIAs include ‘aftercare’ provisions, meaning measures aimed to retain established companies and encourage reinvestment by assisting investors in the challenges they face after establishing in the host country. The OECD suggests that these aftercare measures should focus on investors with a high developmental impact and strong records of responsible business conduct.Footnote 133
Aftercare measures are diverse and include several mechanisms that promote institutional investment governance. They may consist of parties’ direct exchange of views or consultations to settle problems relating to investment,Footnote 134 the establishment of a focal point or ‘ombudsperson’, acting as a facilitator between the government and the private sector, or a forum or technical channels to communicate, prevent, and manage disputes with specific agencies.Footnote 135 For example, in all Brazilian ACFIs, focal points shall prevent disputes and facilitate their resolution in coordination and cooperation with relevant government authorities and private entities.Footnote 136
2.3.11 Relations with Investors and the Private Sector
Certain IIAs include facilitation activities to establish a more specific relationship with investors and the private sector, in general, which are considered to be relevant stakeholders.
These activities include, among others, the consultation with the business community on investment matters,Footnote 137 the support for joint business councils between home and host states,Footnote 138 and the organization of symposiums, seminars, and other activities beneficial to investments,Footnote 139 as well as fostering common investment promotion activities or technical cooperation in mutually agreed sectors.Footnote 140 Recognizing its critical role in investment, almost all Brazilian ACFIs – with the notable exception of India’s treaty – include a provision on the interaction with the private sector, with commitments to disseminate general information on investment, regulatory frameworks, and business opportunities.Footnote 141
According to the Africa Regional Protocol of the OACPS Partnership Agreement, Parties shall encourage public–private dialogues and provide all stakeholders with the opportunity to participate, ensuring that private sector perspectives are taken into account to reduce investment risks and address obstacles to sustainable investment while prioritizing investment-climate reform agendas.Footnote 142
Another angle of the relation with the private sector are corporate social responsibility (CSR) practices and responsible business conduct (RBC) provisions.Footnote 143
Several IIAs include CSR and RBC provisions. According to EDIT, at least 118 IIAs have CSR provisions (including 45 BITs) and 27 IIAs have RBC provisions (including 12 BITs). But except for the Brazilian IIAs, those agreements do not explicitly link CSR or RBC and investment facilitation. In the new EU–OACPS Partnership Agreement, the Parties recognize the importance of responsible investment by the relevant actors as a means to achieving long-term sustainable economic, social, and environmental value. Therefore, Parties should promote CSR practices and RBC, including internationally recognized implementation guidelines, standards, and applicable instruments that guide investors, governments, and other actors to implement them as a complement to national laws and other applicable legislation.Footnote 144
Some NGOs have criticized investment facilitation activities for strengthening stakeholder cooperation and consultation. In practice, they could become investors and home states’ opportunities to pressure host countries, for example, with unlimited information requests.Footnote 145
2.3.12 Institutional Arrangements
IIAs, including investment facilitation provisions, regularly consider carrying out investment facilitation activities through direct consultation or cooperation between the contracting parties.Footnote 146 Some agreements give investment facility tasks to treaty bodies, primarily created in the agreement. For example, the Japan–Malaysia FTA (2005), established as one of the Sub-Committees on Investment functions, discusses investment facilitation-related issues.Footnote 147 ECOWAS calls for creating regional structures to implement the Community rules in promoting and facilitating investments.Footnote 148 In the Canada–Peru FTA (2008), the Committee on Investment shall encourage cooperation and facilitate joint initiatives, addressing investment facilitation issues.Footnote 149 These treaties consider implementing investment facilitation activities in general terms, without specific commitments.
In contrast, under Brazilian ACFIs, the agreement shall be operated by the parties’ national institutions and a Joint Committee. Joint Committees have the duty and responsibility to coordinate the implementation of cooperative and mutually agreed facilitation agendas.Footnote 150 ACFIs with Mozambique, Angola, Mexico, and Malawi define specific topics for agendas such as payments and transfers (facilitation of remittances and foreign capital exchange between the parties); visas (facilitation of the temporary entry and stay of managers, executives, and skilled employees of economic operators, entities, firms, and investors of the other party); environmental legislation and technical regulations (facilitation of the issuance of documents and certificates, licenses relating to the investment of the other party); and cooperation in sectoral legislation and institutional exchanges.Footnote 151 Colombia’s ACFI adds topics on logistics and transportation, promoting strategic alliances and production linkages between private enterprises, favoring micro, small, and medium enterprises (MSMEs).Footnote 152 There are no previously determined agenda topics in ACFIs with Chile, Peru, MERCOSUR, Ethiopia, and Suriname.
Joint Committees may include other topics in these agendas to be discussed between the Parties’ competent governmental authorities. For example, Joint Committee discussions may conclude in common understandings, additional protocols to the agreement, or specific legal instruments.Footnote 153
Some Brazilian ACFIs consider specific cooperation between bodies entrusted with the promotion of investment (like IPAs) to facilitate investment in the other party’s territoryFootnote 154
2.4 IFD Agreement Provisions and Existing IIAs
Investment facilitation provisions included in existing IIAs have served as one of the starting points for both the ‘structured discussions’ and the preparation for the negotiation of an IFD Agreement. However, not all these categories have been part of the JSI negotiations.
2.4.1 Provisions Included in the IFD Agreement
2.4.1.1 Transparency of Investment Measures
Provisions on transparency took a central stage in the IFD Agreement negotiations. The agreement includes a section on the transparency of investment measures (Section II). According to Arts. 6–12 of the IFD Agreement, such section contains provisions on the following:Footnote 155
– publication of relevant measures of general application (including laws and regulations specifically addressing FDI; the indication of open, restricted, prohibited sectors, and practical steps to invest in a country; and contact information of relevant competent authorities), as well as the availability of such measures via electronic means and its update (Art. 6);
– information to be made publicly available if an authorization is required for an investment (Art. 7);
– a single information portal (Art. 8);
– the principle that no fee shall be imposed for the access to information (Art. 9);
– the advanced publication and the opportunity to comment on proposed measures (Art. 10);
– the obligation to notify the WTO of general application investment measures through the ‘Committee on Investment Facilitation’ established in the same agreement (Art. 11); and
– information on the entry and temporary stay of natural persons for the purpose of conducting investment activities (Art. 12).
In addition, Art. 40 establishes that no Party shall be required to provide confidential information, the disclosure of which would impede law enforcement, or otherwise be contrary to the public interest, or which would prejudice legitimate commercial interests of particular enterprises, public or private.
Provisions on ‘domestic regulatory coherence’ and ‘domestic supplier databases’ found in Section IV of the IFD Agreement are connected with transparency. According to Art. 23, when preparing major regulatory measures within the scope of the Agreement, parties are encouraged to carry out, in accordance with its rules and procedures, an impact assessment of such measures (including the social, economic, and environmental impact of the intended measure, as well as appropriate alternatives to a given measure). In addition, the respective regulatory authority should offer reasonable opportunities for any interested person, on a nondiscriminatory basis, to provide comments and consider the proposed regulation’s potential impact on investors, including MSMEs.
In addition, under Art. 24, each Party is encouraged to promote the establishment of one or more domestic supplier database(s) to make available to investors and persons seeking to invest information on possible relevant domestic suppliers, including MSMEs. If possible, this database should be available online, in all WTO official languages, searchable by different parameters (sector or industry, company, product or service, location, certifications, etc.), and kept updated.
2.4.1.2 Movement of Business Persons
Prior versions of the IFD Agreement text reportedly included a Section III bis to facilitate the entry and temporary stay of business persons for investment purposes (movement of business persons), including provisions on the following:Footnote 156
– Administration of movement of business persons measures in a reasonable, objective, and impartial manner;
– Publication of information on requirements for entry and temporary stay (e.g., visas, processing time, and application fees), including explanatory materials, relevant forms, and documents, online where possible;
– Expeditious processing of completed applications, including their extensions. Parties shall endeavor to accept and process applications in an electronic format;
– Provide free-of-charge information on the status of the application, including its outcome and the requirement for additional information.
It also included provisions on the definition of a ‘business person’ as those engaging or seeking to engage in the conduct of investment activities. However, it excluded their application to measures affecting natural persons seeking access to the employment market nor shall it apply to measures regarding permanent citizenship, residence, or employment. This Section III bis did not prevent parties from applying measures to regulate the entry of business persons into, or their temporary stay in, its territory, including those measures necessary to protect the integrity of and ensure the orderly movement of business persons across its borders.
However, Section III bis was not considered in the final text of the IFD Agreement. It was just replaced by a provision on making information available online on the entry and temporary stay of natural persons conducting investment activities, including requirements, procedures, forms, documents, fees, and explanatory materials (Art. 12). Such clause excludes its application to measures affecting natural persons seeking access to the employment market nor shall it apply to measures regarding permanent citizenship, residence, or employment.Footnote 157
2.4.1.3 Simplifying and Speeding up Investment-Related Administrative Procedures
The IFD Agreement includes a Section III on streamlining and accelerating administrative procedures. According to Arts. 13–21 of the text, these provisions include:Footnote 158
– The principle of reasonable, objective, and impartial administration of measures of general application (Art. 13);
– General principles for authorization procedures (objective, transparent, impartial, adequate, justified), if parties have investment admission requirements (Art. 14);
– A common framework of authorization procedures, time frame for processing applications, acceptance of authenticated copies, and the treatment of incomplete and rejected applications (Art. 15);
– For multiple authorizations, the principle of avoiding requiring an applicant to approach more than one competent authority for each application for authorization, if practicable (Art. 16);
– Principles for authorization fees (reasonable, transparent, and based on authority), when they exist and an adequate period for their entry into force, except in urgent circumstances (Art. 17), with special rules for financial services (Art. 17 bis);
– The use of Information and Communication Technologies (ICTs) or e-government for applications or payments of fees, including online submissions and payments (Art. 18);
– Independence of competent authorities involved in the authorization of an investment (Art. 19);
– Review or appeal of administrative decisions affecting investment (Art. 20);
– Periodic review of measures, focusing on MSMEs’ needs, diversity, and stakeholder feedback (Art. 21).
2.4.1.4 Responsible Business Conduct
The IFD Agreement includes a provision on RBC as part of Section VI on ‘Sustainable Investment’. According to Art. 37 of the text, each Party shall encourage investors and enterprises operating within its territory or jurisdiction to voluntarily incorporate into their business practices and internal policies, internationally recognized principles, standards, and guidelines of responsible business conduct that have been endorsed or are supported by that Party. These include areas such as labor (e.g., the International Labour Organization’s Tripartite Declaration of Principles Concerning Multinational Enterprises), environment (e.g., OECD Guidelines for Multinational Enterprises), and human rights (e.g., United Nations Guiding Principles on Business and Human Rights). Each Party should encourage investors or enterprises operating within its territory to undertake and maintain meaningful engagement and dialogue with indigenous peoples, as well as traditional and local communities. In addition, the text recognizes the importance of investors and enterprises implementing due diligence to identify and address adverse impacts in their operations, supply chains, and business relationships. In the same line, parties agree to exchange information and best practices on these issues, including possible ways to facilitate the uptake by enterprises and investors of responsible business practices and reporting.Footnote 159
2.4.1.5 Post-Establishment Investor Aftercare
Section IV of the IFD Agreement includes Art. 22, which deals with focal or inquiry points in charge of responding to inquiries (to the extent practicable) from investors or persons seeking to invest and assisting them in obtaining relevant information from competent authorities.Footnote 160 Parties are encouraged not to require the payment of a fee for such service. Additionally, they may assign additional functions to the focal points, such as resolving problems of investors or persons seeking to invest or recommending measures to improve the investment environment. Overall, each Party should encourage cooperation between their respective competent authorities. Areas for cross-border cooperation may include exchanging information and sharing experiences regarding the IFD Agreement’s implementation, information on domestic investors, and increasing investment for development and business partnerships, including investment in and by MSMEs (Art. 26).
2.4.1.6 Capacity Building
According to Art. 35 of the IFD Agreement,Footnote 161 developed country Parties and, to the extent possible, developing country Parties, in a position to do so, agree to provide assistance and support for capacity building to developing country Parties, and in particular to LDCs, on mutually agreed terms and conditions, either bilaterally or through the appropriate international organizations. Such activities shall seek to complement and build on existing frameworks or arrangements between the parties concerned.
The agreement considers several principles for technical assistance, including taking into the overall developmental framework of recipient countries and regions, ongoing reform and technical assistance programs, as well as regional and subregional challenges and integration. Capacity-building assistance activities should also consider the private sector, promote coordination between and among Parties and other relevant institutions, and encourage using existing in-country and regional coordination structures. To provide transparency, the IFD Agreement also requires a yearly report on the capacity building, which is provided, including detailed information on the beneficiary Party, funding committed or disbursed, and implementing agency (Art. 36)
Capacity building is also promoted locally, as Parties are encouraged, in a manner consistent with their legal systems and their international trade and investment obligations, to implement programs that strengthen the capabilities of local suppliers, especially MSMEs, to meet sourcing demands of investors of another Party (Art. 25).
2.4.1.7 Institutional Arrangements
Section VII of the IFD Agreement establishes a ‘Committee on Investment Facilitation’, open to all Parties, that shall meet at least once a year to discuss any problems regarding the agreement’s implementation, review progress in assistance and support for capacity building, and share experiences and information on investment facilitation, as well as the identification of best practices. In addition, the Committee shall maintain close contact with international organizations in investment facilitation in the field of investment facilitation and responsible business conduct. Any Member of the WTO that is not a Party shall be entitled to participate in the Committee as an observer, after submitting a written notice (Art. 39).
2.4.2 Provisions Not Included in the IFD Agreement
It was reported that the Informal Consolidated Text from April 2020 contained provisions on improving the investment climate for incoming FDI through a range of administrative reforms.Footnote 162 However, there was no further mention of such provisions in the summary of the discussions made publicly available. In the leaked revised version of the Easter Text, creating a better investment climate was part of the objectives of the agreement.Footnote 163 The final IFD Agreement includes enhancing the transparency, efficiency, and predictability of the ‘investment regulatory environment’, as part of the preamble. Additionally, investors may recommend measures to improve the investment environment to the agreements focal points (Art. 22.3)
Provisions on the facilitation of investment permits seem to have been absent from the discussions and negotiations on investment facilitation. It was reported that Art. 1 of the Informal Consolidated Text considered that the IFD Agreement would apply to measures facilitating FDI ‘across the whole investment cycle’, potentially covering post-establishment activities that require authorization, such as applying for permits. Such wording was seemingly too broad for some WTO members and was later abandoned.Footnote 164
Similarly, in the IFD Agreement, there is little consideration for pre-establishment investor services. According to Art. 16, Parties are encouraged to utilize a single entry point for investment applications to the extent practicable and in accordance with its legal system. In contrast, Art. 9 of the Brazilian proposal considered an electronic window as a single entry point for submitting ‘all documents required by the agencies or regulatory bodies involved in the admission, establishment, acquisition, and expansion of investments’. Any governmental entity shall not subsequently require documents uploaded there unless their authenticity is not established.Footnote 165
An earlier leaked version of the Easter Text included a bracketed Section IV bis recognizing the important role of home states in facilitating foreign investment for sustainable development. It encouraged several measures in this regard, such as investment guarantees, investment insurance, technical assistance, investor support services, as well as financial and fiscal measures. Although mostly couched in hortatory language, the final text did not include a specific section on home state obligations. However, some provisions, although not all directly apply to home states, if interpreted broadly, could include most of the information commitments contained in the Easter Text, like the publication of measures of general application to facilitate outward FDI (Art. 6.5), exchange of information on investors (Art. 26.2(b)), and investment facilitation (Art. 26.2(a)), as well as provision on technical assistance (Art. 35). In addition, Section VI deals specifically with sustainable investment, including provisions to promote responsible business conduct and ensure anti-corruption measures.
Finally, other provisions on investment facilitation found in IIAs examined in the preceding section, like investment financing, insurance programs, and relations with investors and the private sector, are absent from the IFD Agreement.
2.4.3 Novel Provisions
The IFD Agreement provisions are not novel per se. Several are found in IIAs and the TFA. What is new is the plurilateral setting and the scope of these commitments. Several of these provisions are found in prior IIAs, but not all at once.
The agreement includes provisions not found in the typology of investment facilitation clauses described before. Some of them are not directly linked to investment facilitation per se but are seen as a way of ensuring the quality of the investment that will be facilitated. In this line, we find, for example, measures against corruption (Art. 38). Another novelty is the inclusion of general and security exceptions (Art. 41) as well as financial exceptions (Art. 42), which are not always common in investment treaties.Footnote 166
But notably, the IFD Agreement includes novel provisions on special and differential treatment for developing and LDC Parties (Section V), which is a key pillar of the treaty. Parties shall bear in mind the special difficulties experienced by such countries in implementing the Agreement’s provision and provide them with assistance and support for capacity building. Implementation of the provisions concerned will not be required until capacity has been acquired. LDCs are only required to undertake commitments to the extent consistent with their individual development, financial needs, or administrative and institutional capabilities (Art. 27).
Using an approach similar to the TFA, the IFD Agreement allows countries to self-designate provisions for extended implementation time, using three different categories, which have different time frames for notification: within a year after entry into force of the IFD Agreement (Category A); after a transitional period following the entry into force (Category B); and after a transitional period but also requiring the acquisition of implementation capacity through assistance and support for capacity building (Category C). Categories B and C also have an early warning mechanism for extending implementation dates, establishing an expert group to support its implementation, and the possibility of shifting between categories. IFD negotiations also included a ‘Needs Assessment’ with the purpose of assisting developing and LDC Parties in identifying their implementation needs as well as related technical assistance and capacity-building support.Footnote 167 The WTO Secretariat and seven partner international organizations developed an Investment Facilitation Self-Assessment Guide based on the extensive experience of the TFA Self-Assessment Guide.Footnote 168
2.5 Conclusion
Investment facilitation provisions are still not standard in investment agreements. Yet, we increasingly find them in IIAs, even without using that denomination. We have identified at least twelve different IIA provisions on investment facilitation. The most common are transparency, post-establishment activities, and relations with investors and the private sector, which are also the most specific and binding. But the majority of these provisions are of general and nonbinding nature. For example, the level of commitment in clauses facilitating permits for establishing investment and the entry and sojourn of related personnel varies across agreements, mostly a ‘best-effort’.
The high level of variation of investment facilitation provisions among a few IIAs has implications for its conceptualization, affecting the possibility of convergence on investment facilitation elements. Yet, one can consider such divergence essential to determine whether and what types of ‘facilitation’ are desirable for different stakeholders (e.g., foreign investors and affected communities).
Since the ‘structured discussions’ and formal negotiations on investment facilitation concluded in July 2023 and at the MC13, Ministers representing 123 WTO Members issued a Joint Ministerial Declaration formally requesting its inclusion in Annex 4 of the Marrakesh Agreement establishing the WTO, as a plurilateral agreement,Footnote 169 and we can extract some preliminary conclusions about the relationship between the provisions of the IFD Agreement and those found in prior IIAs.
First, the content of the IFD Agreement builds on investment facilitation measures already found in existing treaties, particularly on streamlining procedures; removing bureaucratic impediments, transparency, predictability, and institutional arrangements; and including consultation or cooperation mechanisms.
Second, not all existing provisions on investment facilitation have been deemed worthy of a plurilateral agreement, like those directed to facilitating investment permits and connecting foreign investors and the domestic private sector. Some provisions are pretty general and not developed with more detail, like pre-establishment investor services. Others have found little consideration like facilitation of work permits, pre-establishment services, and improving the investment climate. Even some of the included provisions could be considered controversial (like certain elements on capacity building on investment promotion), others as risky or difficult to implement (like too many commitments on transparency).
Third, WTO discussions on investment facilitation have followed a ‘normative’ rather than a ‘functional’ approach. A ‘normative’ approach focuses on policies, laws, and regulations that enable foreign investors to establish and operate in a specific location, emphasizing investment procedural aspects (e.g., information on investment regulations or state incentives). A ‘functional’ approach focuses on activities to support an investor through various investment phases before public or private entities, usually coordinated by an IPA, underscoring practical and operational needs (e.g., advice in identifying relevant incentive programs and assistance in completing applications).Footnote 170 Negotiations were mainly reserved, without involving key stakeholders, such as foreign investors and civil society. Discussing measures without significant consideration of how facilitation issues work at the ground level could affect their implementation. Singh has warned against the adoption of ‘top-down’ rules detached from ground realities, as investors face most impediments at subnational levels (e.g., seeking approvals from authorities before construction) or complying with existing laws during construction and operation. Instead, he suggests developing a ‘bottom-up’ approach to address administrative procedures at local levels as a better option than implementing multilateral binding rules. In the end, investment facilitation is just one instrument to attract investment and not as crucial as countries’ economic determinants.Footnote 171
Fourth, countries’ forms of government matter, especially if they have quasi-autonomous or autonomous subdivisions (like in most federal states). In these countries, investment facilitation national focal points may not perform their tasks without encroaching upon regional governments and local government authorities’ functional autonomy.Footnote 172 Therefore, it is crucial to clarify different local, regional, subregional, and state authorities’ competencies and roles in implementing investment facilitation. Unfortunately, current commitments on investment facilitation found in IIAs do not generally distinguish between these levels.
Many challenges still lie ahead for the IFD Agreement, like if and how it could be integrated into WTO’s legal architecture or how to minimize the risk of ISDS due to its implementation (or lack thereof), even if the agreement includes a detailed provision barring the use of IIAs as a means to interpret or apply the IFD Agreement, and conversely to use that Agreement as a basis for an ISDS claim (Art. 4).
However, in times when reaching multilateral and even broad plurilateral consensus on trade or investment issues seems extremely difficult, the conclusion of the negotiations of the IFD Agreement with a large support of WTO’s membership is nothing short of remarkable.
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