Successful Practices in Modernizing Legal Frameworks

SECOND ASEAN-OECD INVESTMENT POLICY CONFERENCE

Attracting Investment for Regional Integration

10-11 December 2014

Charles Schneider

International Finance Corporation, Yangon, Myanmar

1

Key Points when Considering Modernizing Investment Policy

♦ Strategy – what is the objective of policy ?

♦ What is relationship to International/Bilateral Treaties ?

♦ What are the key policy questions ?

♦ Emerging Issues

Not All Investments are the Same

Natural resource -seeking

Market -seeking

Efficiency-seeking

Strategicasset

-seeking

3

Strategy – what is the objective of policy ?

Why Does the Type of Investment Matter?

♦ Because each type generates different kinds of jobs.

Small-scale

household based

work

Low-skilled,

labor-intensive

work

Moderate skilled,

varied labor

intensities work

High-skilled,

technology

intensive work

Knowledge-

intensive

Agriculture Apparel Automotive IT

Hardware

Business

Services

Economic upgrading

Type of Work

Source: Gereffi, Luo, 2014. April 1, 2014, World Bank Policy Research Working Paper No. 6847

Because each type of investment creates different types of jobs

4

Strategy – what is the objective of policy ?

5

ACIA

Protection

Facilitation

Promotion

Liberalization

Four Pillars of ACIA

5

What is relationship to International/Bilateral Treaties ?

Core

Investor ProtectionLao Investment

Promotion Law

Laos -Japan BITs ACIA

National

Treatment (NT)

Unclear. Provides a generic

statement of equal rights of

investors to invest and be

protected

Yes. Article 2 has a clear

statement of national

treatment for investors

Yes. Article 5 provides the equal

treatment.

Most Favored

Nation (MFN)

Not clear. Same as above. Yes. Article 3. Yes. Article 6 has a clear

statement of MFN.

Fair and Equitable

Treatment (FET)

No explicit provision. Yes. Article 5 provides FET and

full protection and security.

Yes. Article 11 clearly provides

“fair and equitable treatment and

full protection and security”

Currency

Convertibility &

Transfer

Yes, Article 68 but not strong

enough

Yes. Article 15 ensures that all

transfers relating to

investments in its Area

Yes. Article 13 provides all

transfers to be made freely and

without delay

Protection against

Expropriation

Yes but inadequate. Covers

“seizure, confiscation, and

nationalization” and not other

direct and indirect

expropriation nor process

Yes, with 4 elements of best

practice: public purpose; non

–discrimination; prompt,

adequate and effective

compensation; and due

process

Article 14 covers both

expropriation and nationalization

and both direct and indirect

expropriation

Dispute Settlement Yes, but too vague. Not clear

whether this applies to State-

Investor disputes only or also to

investor-investor

Yes, Article 16. Covers both

state-state and state-investor

Yes. Article 36 provides very

elaborate statements on rights,

responsibilities, and procedures

with clear timeframe

Comparing National Framework to International Agreements – Lao PDR

What is relationship to International/Bilateral Treaties ?

Comparing National Framework to International Agreements - Myanmar

Core

Investor Protection

Guarantee

Myanmar FIL Myanmar-

China

Investment

Treaty

Myanmar –

India

Investment

Treaty

Myanmar –

Philippines

Investment

Treaty

ACIA

National Treatment No express

provision

Yes Yes Yes Yes

Most Favored

Nation

No express

provision

Yes Yes Yes Yes

Fair and Equitable

Treatment (FET)

No express

provision.

Yes Yes Yes Yes

Protection against

Expropriation

Yes, but

inadequate.

Yes Yes Yes Yes

Currency

convertibility and

transfer

Yes , but

inadequate.

Yes Yes Yes Yes

Dispute Settlement

Provision

Yes, but

inadequate.

Yes Yes Yes Yes

What is relationship to International/Bilateral Treaties ?

Role of Investment Agency

♦ Nature of Investment Agency– Autonomous body?

– Organization and structure?

♦ Which are the key roles of an Investment Agency?– Formulation of the policy on incentives (what type of incentive, for which

objective, modalities, sectors)?

– Administration of the incentive regime (processes for eligibility, approval, verification & monitoring)?

– Responsible for revisions to investment restrictions (Negative List)?

– Negotiation and implementation of International Investment Agreements?

– Power to manage and settle conflicts before they escalate into legal disputes?

– Representation of the state in international investment disputes (possibility to procure legal assistance)?

♦ Need to balance flexibility with stability; prevent frequent changes to legal framework

8

What are the key policy questions ?

Entry and Admission of FDI

♦ Important distinction: discrimination vs. regulation

– Discrimination: Provide different treatment on the basis of nationality

– Regulation: Countries can always regulate to protect public policy

objectives (i.e. protection of environment, social justice, security, health,

culture, etc.)

♦ Promoting predictability

– Should countries refrain from introducing new discriminatory restrictions to

entry of foreign investors?

– In the future, should the above commitment apply to future liberalization of

new sectors?

♦ Liberalization

– How open to FDI do countries want to be? Should discrimination be limited

to in additional sectors?

9

What are the key policy questions ?

Role of Investment Incentives

♦ Should countries provide incentives to all types of investments and in all

sectors?

♦ Rationalizing the use of incentives

– What are incentives for?

– Given their cost, how can countries maximize their scarce resources and

provide more targeted incentives?

– What type of incentives should be granted, for which policy objectives, type of

sectors and activities?

♦ How to promote transparency and predictability in incentives?

♦ What is the cost and benefit of incentives?

♦ Are incentives necessary or will they come anyway?

10

What are the key policy questions ?

Role of Dispute Settlement to Improve Confidence

♦ Should the country allow access of domestic investors to

Investor-State arbitration?– Domestic arbitration?

– Foreign arbitration?

♦ Key instruments:– Domestic arbitration law (private-private / investor-state)

– New York convention on recognition / enforcement of foreign

awards

– ICSID convention (Myanmar not a member)

♦ Dispute prevention/grievance mechanism – How to enable the country to improve its capacity to react and

address problems before they escalate into full-blown investor-

state disputes ?

11

What are the key policy questions ?

Emerging Issues

♦ Greater Emphasis on Investor Protection • Investment protection as guarantees and not as incentives

• National Treatment – what about domestic investors rights ?

• Expropriation – Not as black and white as we used to think. Greater recognition of indirect expropriation

• Greater emphasis on managing disputes/grievance

♦ Increasing Trend of Investor-State Disputes

♦ Increased Stakeholder Interest and Need for Consultation

♦ Increasing Focus on Responsible Investment • What can investment agencies do about it?

• What is the role of standards and guidelines?

♦ Need for thorough Investment Policy Review at the Outset

12