What’s Happening on Investment Facilitation: A survey of recent global developments
Introduction
Though investment protection and liberalization have been a regular feature of IIAs, these have to be complemented with promotion and facilitation at the local level to ensure that host economies are marketed well enough to attract investments and that regulatory and administrative barriers faced by investors in the day-to-day operations are addressed and minimized. To ensure that their economies are competitive, countries have been autonomously developing and implementing facilitation measures locally for some time. However, there currently is no universally accepted definition of what investment facilitation entails and no multilateral framework governing it has taken shape.
Despite these difficulties, investment facilitation is increasingly emerging as an essential area for international cooperation and policy-making. In the last decade, organizations such as the OECD, UNCTAD, and the World Bank have started looking closely at the topic of investment facilitation. At the WTO, it has been the subject of rules being negotiated under a joint statement initiative launched in 2017 by a set of WTO members. And although investment facilitation provisions in bilateral and regional international agreements remain rare, ongoing and recently concluded international negotiations have broken new ground in rulemaking in the field.
Accordingly, this article surveys recent developments in investment facilitation policy-making at the international level. After giving a brief history of efforts in investment facilitation rulemaking at the bilateral and regional levels, the following section discusses bilateral and regional efforts, focusing on the approaches taken by various countries, including China, Brazil, and the EU, in their recent IIAs featuring investment facilitation elements. Another section discusses regional approaches, with developments from the ongoing negotiations at the African Continental Free Trade Area (AfCFTA) and ASEAN investment facilitation instruments at the centre of discussion. Finally, a concluding section of this article surveys efforts by G20 members to create rules on investment facilitation and reviews recently concluded negotiations among a group of WTO members on an investment facilitation agreement.
Bilateral Developments
As mentioned earlier, states have not extensively utilized their IIAs to address investment facilitation issues. Indeed, a 2018 mapping exercise of about 3,000 IIAs found that only 35 featured explicit investment facilitation provisions. While China’s early partnership agreements with Hong Kong and Macau were among the first to feature binding investment facilitation provisions aimed at increasing transparency, conformity of standards, and information exchange, recent agreements between them have enhanced the focus on investment facilitation. China’s 2015 Trade in Services Agreement with Macao, which is not yet in force, establishes a prior approval regime for contracts and company documents for service suppliers from Macao who have operations in China. Under the China–Hong Kong CEPA Investment Agreement of 2017, the parties committed to regularly review and simplify formalities applicable to investors. Further, the agreements contain commitments on the following areas of investment facilitation, ranging from being binding to best endeavour in nature: transparency; establishing of standards and procedure for examination and approval of applications; uniform qualification requirements; expedition in decision making and its communication; regulatory cooperation; establishment of “one-stop” approval institutions; lowering of costs to investors; and availability of public infrastructure.
While these two agreements build on the limited investment facilitation provisions in China’s agreements with New Zealand (2008) and Chile (2005), they are more prescriptive and comprehensive than China’s other recent agreements. Dedicated investment facilitation provisions in China’s FTAs with Cambodia (2020) and Ecuador (2023) are a case in point. Their identical provisions appear to mimic the investment facilitation rules agreed in the RCEP (2020). Operating subject only to domestic laws and regulations, they aim to simplify regulatory formalities, promote transparency and availability of legal and regulatory information, and establish and maintain contact points or one-stop centres for the provision of advisory and assistance to investors.
Efforts by other countries to engage in investment facilitation rulemaking include those by Canada and the Netherlands. The 2021 Canadian Model BIT features two investment facilitation provisions that aim to simplify, digitize, and expedite investment authorization applications and ensure that fees charged for such processes are reasonable and do not prohibit investments. Similarly, the Dutch Model BIT (2019) sets out two investment facilitation provisions to ensure that information related to the subject matter covered by the BIT is made publicly available (and, if possible, online and in English) and that parties guarantee the “rule of law,” which refers to good administrative behaviour with regard to issues covered and the availability of effective dispute resolution and enforcement mechanisms. The Nigeria–Morocco BIT (2016) is also notable for its inclusion of development-oriented investment facilitation provisions that require home state governments to work with host states through capacity building of agencies, establishment of insurance programs, transfer of technology, and other forms of assistance. In this sense, the Nigeria–Morocco BIT aims to ensure that efforts to facilitate investment are cooperative and add to the host state’s capacity rather than simply requiring the latter to meet the investment facilitation standards prescribed.
However, by far the most influential model IIA to integrate investment facilitation has been Brazil’s Cooperation and Facilitation Investment Agreement (CFIA) (2015). The Brazilian CFIA is innovative not only because it shifts away from investor–state dispute settlement and toward prevention, but because it brings investment facilitation to the centre of interstate investment governance. The CFIA, for instance, establishes a two-tiered structure for facilitation of investments. In the first tier, CFIA parties agree to designate a national focal point, or “ombudsperson,” whose objective is to support foreign investors. Among their responsibilities, the focal point is responsible for acting on behalf of the other the CFIA party or foreign investors in their interactions with the host state authorities and seeking to collaborate with government authorities and private entities to prevent differences that may sometimes evolve into disputes. Secondly, the CFIA instructs the agreement’s joint committee to develop and discuss an agenda on furthering cooperation and investment facilitation.
As a starting point for this, the CFIA includes in an annex initial areas of focus, like cooperation between financial authorities on payments and transfers, visas to facilitate movement of key personnel, enhanced procedures for establishment and maintenance of investment, diligent and timely treatment of queries, and institutional cooperation to develop and maintain regulatory frameworks. Further, the CFIA provides that the results of the committee’s work on the investment facilitation agenda will be integrated either as protocols to the CFIA or as separate legal instruments, thus ensuring the legal sanctity of the joint committee’s work. Perhaps due to its inventiveness, the Brazilian CFIA has had a clear influence among IIAs—based on the CFIA, Brazil has signed 13 IIAs. Moreover, the CFIA served as the main inspiration behind the MERCOSUR Protocol on Investment Cooperation and Facilitation (2017).
While too early for it to be equally influential, the EU’s recent Sustainable Investment Facilitation Agreement (SIFA) (2022) with Angola also breaks new ground. For one, the EU–Angola SIFA is a first-of-its-kind dedicated investment facilitation agreement, with three chapters focusing solely on investment facilitation elements. Its Chapter II deals with predictability and transparency by requiring that SIFA parties publish their laws and regulations and endeavour as far as is practicable to publish them in advance to provide an opportunity to comment on the laws and regulations. Further, transparency norms in the SIFA require parties to make available through electronic means (and where practicable, through a single portal) relevant laws and regulations, restrictions, and conditions applicable to investments, contact information of relevant authorities, and information concerning investment incentives. Where authorization is required for investments, Chapter III streamlines procedures relating to authorization applications, including by promoting the acceptance of applications in electronic format. Lastly, much like the Brazilian approach, the EU–Angola SIFA requires the establishment of investment facilitation focal points to address and assist investors in Chapter IV. Other provisions concern creation of a problem-solving mechanism, domestic regulatory coherence, and periodic consultations with stakeholders. In addition to investment facilitation norms, the SIFA establishes environmental and labour rights commitments that are binding upon parties, besides committing to promote the uptake of corporate social responsibility by investors and gender equality in the implementation of the SIFA.
Regional Developments
While regional and mega-regional trade agreements have dominated the rulemaking efforts in international trade, efforts have been somewhat limited with regard to investment facilitation. The CPTPP (2018), for instance, does not feature any dedicated investment facilitation provisions. Investment facilitation provisions in the RCEP are soft commitments that are limited in their scope and ambition. In the context of the AfCFTA Phase II negotiations on investment, however, the recently adopted Protocol on Investment highlights efforts to establish regional norms on investment facilitation. As seen in other investment facilitation rulemaking efforts, the protocol requires AfCFTA parties to establish national focal points to support investors and provide them with information on laws, regulations, and institutional frameworks governing investment. As for publication obligations, the AfCFTA protocol is less prescriptive and allows states to publish information according to their capacities. A dedicated investment facilitation provision is also included and requires state parties to facilitate investments “that contribute to sustainable development.”[1] AfCFTA parties are also encouraged to implement common investment facilitation policy measures like the facilitation of visas for key investment personnel, streamlining of procedures and requirements for investments, digitalization of the procedures, and regulatory coherence. Notably, state parties have also offered to cooperate on policies to encourage the use of special purpose vehicles to increase the participation of the private sector in their development programs.
While these developments are promising, regional engagement on investment facilitation has long been the focus of work among ASEAN members. The 1998 Framework Agreement on the ASEAN Investment Area featured a cooperation and facilitation program under which ASEAN members were required to undertake individual and collective measures to increase transparency of laws and regulations, simplify and expedite formalities for applications and approval, establish a database, including to collect investment data and opportunities in the ASEAN region, and promote public–private dialogues. The 2009 ASEAN Comprehensive Investment Agreement built on the 1998 framework to integrate those norms into an explicit investment facilitation provision. While other provisions remained “soft” commitments in nature, transparency norms were made binding on ASEAN members. Most recently, ASEAN members established the 2021 ASEAN Investment Facilitation Framework (AIFF) in what was their first attempt to create a dedicated investment facilitation instrument. The AIFF is legally non-binding in nature. It identifies investment facilitation principles and actions that ASEAN members “will endeavour” to uphold and implement in accordance with their domestic laws and regulations. The principles and actions set out in the AIFF (e.g., on transparency and streamlining of administrative procedures) certainly build upon previous ASEAN efforts. However, new elements do exist in the AIFF, such as those on the promotion of digitalization across procedures, use of electronic documents, and provision of assistance and advisory services to investors.
Multilateral Developments
Efforts to establish multilateral investment facilitation rules have so far been less successful than those at the bilateral and regional levels. In 2016, G20 members made progress on investment facilitation during the Chinese presidency by agreeing on a set of nine non-binding guiding principles on global investment policy-making that included a reference to investment facilitation. In an attempt to build on these principles, at the next edition of the G20, the German presidency proposed a draft package on investment facilitation. But opposition from India, South Africa, and the United States meant that those efforts failed to take off and investment facilitation as an item fell off the G20’s agenda altogether.
However, in 2017, a host of WTO members launched a joint statement initiative on the sidelines of the WTO Ministerial Conference in Buenos Aires, calling for “structured discussions with the aim of developing a multilateral framework on investment facilitation.” While South Africa and India have questioned the legal status of these joint statement initiative talks, participating WTO members have worked over the past few years toward an Investment Facilitation for Development Agreement (IFDA), negotiations on which were concluded in July. Notably, the IFDA features four pillars that elaborate commitments on transparency; streamlining and speeding up of administrative procedures; establishment of focal points, regulatory coherence, and cross-border cooperation; and special and differential treatment for developing and least-developed countries.
Much like rulemaking efforts at the bilateral and regional levels, the IFDA emphasizes the online publication of information and use and uptake of digitalization for processes, particularly those relating to authorizations. Interestingly, the IFDA contains a section on sustainable investment under which IFDA parties have committed to encourage investors to voluntarily incorporate internationally recognized norms on responsible business conduct and to implement measures to address corruption and money laundering. However, as one analysis of the IFDA provisions has pointed out, these efforts are of limited value, particularly due to the lack of any binding obligations and the absence of provisions that specifically facilitate sustainable investment. Despite these shortcomings—and the fact that the 110 members participating in these negotiations are yet to decide how the outcome will be integrated into the WTO’s rulebook—the IFDA marks a new milestone in efforts to multilateralize investment facilitation policy-making.
Conclusion
Developments in international policy-making surveyed in this article suggest that states have increasingly become keen on developing deeper and more comprehensive norms on investment facilitation. Where some (like the ASEAN members and AfCFTA parties) have preferred to create non-binding or soft commitments with regard to investment facilitation, the EU’s dedicated investment facilitation agreement with Angola and the IFDA at the WTO have focused on creating binding commitments. However, these commitments can create burdensome obligations on administrations that may be constrained by their resources or personnel, preventing them from ensuring compliance. It is perhaps as a recognition of these difficulties that the Brazilian CFIA and the Nigeria–Morocco BIT adopt a cooperation-based approach to investment facilitation.
Yet another difficulty that emerges with creation of strictly binding investment facilitation norms is their interaction with existing or future IIAs, particularly investment protection norms. It is for this reason that negotiators have made use of a firewall provision to insulate the IFDA from IIA universally. It is, however, encouraging to note that efforts on investment facilitation rulemaking have increasingly focused on the digitalization of processes by encouraging acceptance of electronic applications and electronic payment of fees. While these may appear as small shifts in domestic practices and procedures, their overall impact on the sustainability of investment facilitation can be significant (as in the case of trade facilitation).
At the same time, states can certainly do more to integrate sustainability concerns into their investment facilitation rulemaking efforts. Out of all the developments surveyed in this article, only the EU–Angola SIFA incorporates meaningful and binding norms regarding IF and sustainable development. States may consider using their investment facilitation provisions or agreements to establish government-to-government cooperative frameworks to identify areas of investment for sustainable development, develop databases, and make use of their transparency practices to highlight investment opportunities in areas that contribute to sustainable development.
Author
Shantanu Singh is a recent LL.M. graduate from the Geneva Graduate Institute and a former Fellow at the IISD Economic Law & Policy program.
Notes
[1] Protocol to the Agreement Establishing the African Continental Free Trade Area On Investment (2023), Art. 7.