A further way to integrate environment and sustainable development more broadly into the treaty in an overarching manner is through a scope article or through the definition of “investment.” If a treaty contains investor–state arbitration, the definition of investment is particularly important because it will determine whether or not an investor can force host states into binding arbitration: if there is no investment as defined in the treaty, no such claim can be brought. There are three relevant considerations for defining investment:19
- Investment can be defined on an enterprise basis or an asset basis. An enterprise-based definition defines investment as the establishment or acquisition of an enterprise in the host state. By contrast, the asset-based definition is broader, covering more than just capital or resources that have crossed the borders with a view of creating an enterprise. Both options are typically further defined and limited through exclusions and clarifications.
- Investment can also be defined such that covered investments must be constituted or operated in compliance with the law of the host state.
- It could be defined such that covered investments must contribute to the economic development of the host state in some specified manner. This could be done, for example, through the use of a positive list of sectors in which the host state sees its development interests most appropriately addressed by foreign direct investment, and which then are defined as investment for the purposes of the agreement.
Option 1:Define investment in a predictable manner by circumscribing and defining its scope through an enterprise-based definition or a closed list of assets
This ensures that the investment has some of the characteristics that could be reasonably expected, such as duration.
Examples
Enterprise based definition:
“… investment means an enterprise constituted, organised and operated in good faith by an investor in accordance with the law of the Party in whose territory the investment is made, taken together with the assets of the enterprise, has the characteristics of an investment such as the commitment of capital or other resources, certain duration, the expectation of gain or profit, the assumption of risk and a significance for the development of the Party in whose territory the investment is made.
…
For greater clarity, investment does not include the following assets of an enterprise: … (Indian Model BIT, Article 1.4)
How Commonly Used
Examples
Asset-based definition with closed list:
“… Investment means the following assets admitted or established in accordance with the laws and regulations of the Party in whose territory the investment is made:…”
…
For greater certainty, an investment for the purposes of this Agreement does not include … (SADC Model BIT, Article 2 (SADC asset-based option 1))
How Commonly Used
“’investment’ means the following assets established or acquired by an investor of one Contracting Party in accordance with the laws in force of the other Contracting Party in whose territory the investment is made, and involving the commitment of capital, expectation of gain or profit or an assumption of risk:
- an enterprise having substantial business operations in the territory of the host Contracting Party;
- shares, stocks and other forms of equity participation in an enterprise;
bonds, debentures and other debt security of an enterprise” (India – Mexico BIT, Article 1.7)
How Commonly Used
Option 2:Define investment to encompass only investments made and operated in accordance with the domestic law of the host state
This would ensure, for example, that environmental rules are applied. To be more specific, certain types of laws could even be enumerated in a non-exhaustive list to ensure that they are respected and covered. The more specific the language, the higher the chance that, in case of a dispute, the specific regulation will be taken into account to determine whether an investment has been made as defined in the treaty.
Examples
“Investment means an enterprise constituted, organised and operated in good faith by an investor in accordance with the law of the Party in whose territory the investment is made, taken together with the assets of the enterprise, has the characteristics of an investment such as the commitment of capital or other resources, certain duration, the expectation of gain or profit, the assumption of risk and a significance for the development of the Party in whose territory the investment is made.” (Indian Model BIT, Article 1.4 (emphasis added))
How Commonly Used
Option 3:Define investment to encompass only investments that contribute to sustainable economic development in the host state
Excludes investments that do not have some significance for the host state’s development
Examples
“… In order to qualify as an investment under this Agreement, an asset must have the characteristics of an investment, such as the [substantial] commitment of capital or other resources, the expectation of gain or profit, the assumption of risk, and significance for the Host State’s development.” (SADC Model BIT, Article 2 (SADC asset-based option 1, closed list, exhaustive test)20
How Commonly Used
Examples
“Investment means an enterprise within the territory of one State established, acquired, expanded or operated, in good faith, by an investor of the other State in accordance with law of the Party in whose territory the investment is made taken together with the asset of the enterprise which contribute sustainable development of that Party and has the characteristics of an investment involving a commitment of capital or other similar resources, pending profit, risk-taking and certain duration.” (Morocco-Nigeria Reciprocal Investment Promotion and Protection Agreement, Article 1.3) (emphasis added)
How Commonly Used
- 19
For some other options, see UNCTAD’s Investment policy framework for sustainable development (2015), pp. 93-5 (Policy options for IIAs, Secs. 2.1-2).
- 20
Also See Salini Costruttori SpA v. Morocco (ICSID Case No. ARB/00/4, Decision on Jurisdiction of 23 July 2001) and subsequent decisions.