Describe an overview of the legal regime for admission of foreign investments.
States are under no general obligation to promote and protect foreign investment within its
territory or to encourage foreign investment by its nationals in other states, unless a treaty or
other voluntary legal obligations such as foreign investment contracts exist. Both
domestic and international law recognise that States have the sovereign right to control the
admission of foreign investors and regulate their activities in their territory. For example,
many developing countries enact ‘foreign investment laws’, ‘foreign investment codes’ or
‘joint venture laws’ that create special legal regimes for foreign investment1.
However, such promotion, admission and establishment obligations are weakly
imposed upon host states. In particular, most investment treaties do not provide national
treatment/MFN treatment with respect to such obligations. Neither do they guarantee general,
unconditional rights of entry for foreign investments2.
Describe how investment treaty law governs admission and establishment of foreign
investments.
Terms
‘Admission’ relates to the right of entry of the investment. ‘Establishment’ relates to
conditions under which investor can carry out its business during the investment period3.
UNCTAD stated in its report that ‘where some form of permanent business presence is
preferred, a right of establishment ensures that a foreign national, whether a natural or legal
person, has the right to enter the host state and set up an office, agency, branch or subsidiary
(as the case may be) possibly subject to limitations justified on grounds of national security,
public health and safety or other public policy grounds [...] Thus the right to establishment
entails not only a right to carry out business transactions in the host state but also the right to
set up a permanent business presence there.’4
Entry & Establishment Models
According to UNCTAD5, BITs mostly use the following types of entry and establishment
provisions. Investment control models recognise the restrictions and controls on FDI
admissions (mostly used by US and Canada BITs), but no positive rights of entry and
establishment (dealt with by national discretion). Selective liberalization models offer
selective liberalisation by the Host State’s ‘opt-in’, which results in a ‘positive list’ of
industries where rights of entry and establishment may be enjoyed (but perhaps subject to
Host State restrictions). Regional industrialisation programme models encourage
intraregional investment regimes, in which their policies implicitly (not explicitly) include
rights of entry and establishment. Mutual national treatment models aim to establish a
common regime for entry and admission for investors only from member states. Combined
national treatment/MFN treatment models stipulate NT and MFN to State parties at pre-
entry to widen entry and establishment rights as far as possible (mostly seen in US BITs).
1
Jeswald Salacuse, The Law of Investment Treaties (2nd edn, OUP 2015) 213. See for example India‘s
Consolidated FDI Policy Circular of 2017, D/o IPP F. No. 5(1)/2017-FC-1, (28 August 2017)
2
Andrew Newcombe and Lluís Paradell, ‘Chapter 3 - Promotion, Admission and Establishment Obligations’, in
Law and Practice of Investment Treaties: Standards of Treatment (Kluwer Law International 2009) §3.3
3
Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, OUP 2012) 88
4
UNCTAD, ‘Admission and Establishment’, UNCTAD/ITE/IIT/10 (vol. II) 12
5
UNCTAD (1999), ‘Admission and Establishment’, UNCTAD/ITE/IIT/10 (vol. II), pages 15-28
, Article XVI of the General Agreement on Trade in Services (GATS) provides that
a right of establishment exists where a GATS member makes specific commitments on
market access under this provision, but they have considerable discretion to determine such
extent and to expressly reserve powers to limit the mode of supply.
Performance Requirements
‘Performance requirements’ are those Host States have attempted to impose on investments
to achieve various public policy objectives. These include compulsion to use local materials,
duty to export certain amounts of products, and obligation to hire local personnel6.
However, some BITs have expressly sought to protect investors against such
performance requirements. Article 8 of 2012 US Model BIT provides ‘Neither Party may, in
connection with the establishment, acquisition, expansion, management, conduct, operation,
or sale or other disposition of an investment of an investor of a Party or of a non-Party in its
territory, impose or enforce any requirement or enforce any commitment or undertaking
[…]’. This is similarly seen in Article 1106(1) of NAFTA and Article 14.10 of USMCA. In
Rusoro Mining v Venezuela7, Venezuela’s central bank passed 2010 Resolution which
required Claimant to sell 50% of its gold production in the domestic market, which was a
substantial increase from its 1996 Resolution which only required 15% sale. Tribunal ruled
that this violated paragraph 6(d) of Part II of Annex to 1996 Canada-Venezuela BIT,
which provided ‘Neither Contracting Party may impose any of the following requirements in
connection with permitting the establishment or acquisition of an investment or enforce any
of the following requirements in connection with the subsequent regulation of that
investment: […] (d) restrictions on exportation or sale for export by an enterprise of products,
whether specified in terms of particular products, in terms of volume or value of products, or
in terms of a proportion of volume of its local production.’ This is also seen in Article 7 of
1987 ASEAN Comprehensive Investment Agreement, which refers to prohibition on
performance requirements in Agreement on Trade-Related Investment Measures (adopted in
1994 at Uruguay Round of GATT).
Prior Approval/Registration of Investments in Host State
Many investment treaties contain an express requirement for approval in writing and
registration of a foreign investment. Articles II(1) and (3) of ASEAN Agreement provide
that ‘1. This Agreement shall apply only to investments brought into, derived from or directly
connected with investments brought into the territory of any Contracting Party by nationals or
companies of any other Contracting Party and which are specifically approved in writing and
registered by the host country and upon such conditions as it deems fit for the purposes of
this Agreement. […] 3. This Agreement shall also apply to investments made prior to its
entry into force, provided such investments are specifically approved in writing and
registered by the host country and upon such conditions as it deems fit for [the] purpose of
this Agreement subsequent in its entry into force.’ In Yaung Chi v Myanmar8, a Singaporean
company made an investment before Myanmar’s accession to ASEAN Agreement. However,
the investor fulfilled the necessary procedures to obtain the required permits under
Myanmar’s national law. Tribunal rejected Myanmar’s argument that the investment did not
qualify for protection under ASEAN Agreement due to no approval ‘for the purposes of this
Agreement’ as required by Article II(1). Tribunal argued that Myanmar should have clarified
6
Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, OUP 2012) 88
7
Rusoro Mining v Venezuela, ICSID Case No. ARB(AF)/12/5, Award (22 August 2016) paras 591-592
8
Yaung Chi Oo Trading Pte Ltd v Myanmar, ASEAN Case No ARB/01/1, Award (31 March 2003) paras 59-60
States are under no general obligation to promote and protect foreign investment within its
territory or to encourage foreign investment by its nationals in other states, unless a treaty or
other voluntary legal obligations such as foreign investment contracts exist. Both
domestic and international law recognise that States have the sovereign right to control the
admission of foreign investors and regulate their activities in their territory. For example,
many developing countries enact ‘foreign investment laws’, ‘foreign investment codes’ or
‘joint venture laws’ that create special legal regimes for foreign investment1.
However, such promotion, admission and establishment obligations are weakly
imposed upon host states. In particular, most investment treaties do not provide national
treatment/MFN treatment with respect to such obligations. Neither do they guarantee general,
unconditional rights of entry for foreign investments2.
Describe how investment treaty law governs admission and establishment of foreign
investments.
Terms
‘Admission’ relates to the right of entry of the investment. ‘Establishment’ relates to
conditions under which investor can carry out its business during the investment period3.
UNCTAD stated in its report that ‘where some form of permanent business presence is
preferred, a right of establishment ensures that a foreign national, whether a natural or legal
person, has the right to enter the host state and set up an office, agency, branch or subsidiary
(as the case may be) possibly subject to limitations justified on grounds of national security,
public health and safety or other public policy grounds [...] Thus the right to establishment
entails not only a right to carry out business transactions in the host state but also the right to
set up a permanent business presence there.’4
Entry & Establishment Models
According to UNCTAD5, BITs mostly use the following types of entry and establishment
provisions. Investment control models recognise the restrictions and controls on FDI
admissions (mostly used by US and Canada BITs), but no positive rights of entry and
establishment (dealt with by national discretion). Selective liberalization models offer
selective liberalisation by the Host State’s ‘opt-in’, which results in a ‘positive list’ of
industries where rights of entry and establishment may be enjoyed (but perhaps subject to
Host State restrictions). Regional industrialisation programme models encourage
intraregional investment regimes, in which their policies implicitly (not explicitly) include
rights of entry and establishment. Mutual national treatment models aim to establish a
common regime for entry and admission for investors only from member states. Combined
national treatment/MFN treatment models stipulate NT and MFN to State parties at pre-
entry to widen entry and establishment rights as far as possible (mostly seen in US BITs).
1
Jeswald Salacuse, The Law of Investment Treaties (2nd edn, OUP 2015) 213. See for example India‘s
Consolidated FDI Policy Circular of 2017, D/o IPP F. No. 5(1)/2017-FC-1, (28 August 2017)
2
Andrew Newcombe and Lluís Paradell, ‘Chapter 3 - Promotion, Admission and Establishment Obligations’, in
Law and Practice of Investment Treaties: Standards of Treatment (Kluwer Law International 2009) §3.3
3
Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, OUP 2012) 88
4
UNCTAD, ‘Admission and Establishment’, UNCTAD/ITE/IIT/10 (vol. II) 12
5
UNCTAD (1999), ‘Admission and Establishment’, UNCTAD/ITE/IIT/10 (vol. II), pages 15-28
, Article XVI of the General Agreement on Trade in Services (GATS) provides that
a right of establishment exists where a GATS member makes specific commitments on
market access under this provision, but they have considerable discretion to determine such
extent and to expressly reserve powers to limit the mode of supply.
Performance Requirements
‘Performance requirements’ are those Host States have attempted to impose on investments
to achieve various public policy objectives. These include compulsion to use local materials,
duty to export certain amounts of products, and obligation to hire local personnel6.
However, some BITs have expressly sought to protect investors against such
performance requirements. Article 8 of 2012 US Model BIT provides ‘Neither Party may, in
connection with the establishment, acquisition, expansion, management, conduct, operation,
or sale or other disposition of an investment of an investor of a Party or of a non-Party in its
territory, impose or enforce any requirement or enforce any commitment or undertaking
[…]’. This is similarly seen in Article 1106(1) of NAFTA and Article 14.10 of USMCA. In
Rusoro Mining v Venezuela7, Venezuela’s central bank passed 2010 Resolution which
required Claimant to sell 50% of its gold production in the domestic market, which was a
substantial increase from its 1996 Resolution which only required 15% sale. Tribunal ruled
that this violated paragraph 6(d) of Part II of Annex to 1996 Canada-Venezuela BIT,
which provided ‘Neither Contracting Party may impose any of the following requirements in
connection with permitting the establishment or acquisition of an investment or enforce any
of the following requirements in connection with the subsequent regulation of that
investment: […] (d) restrictions on exportation or sale for export by an enterprise of products,
whether specified in terms of particular products, in terms of volume or value of products, or
in terms of a proportion of volume of its local production.’ This is also seen in Article 7 of
1987 ASEAN Comprehensive Investment Agreement, which refers to prohibition on
performance requirements in Agreement on Trade-Related Investment Measures (adopted in
1994 at Uruguay Round of GATT).
Prior Approval/Registration of Investments in Host State
Many investment treaties contain an express requirement for approval in writing and
registration of a foreign investment. Articles II(1) and (3) of ASEAN Agreement provide
that ‘1. This Agreement shall apply only to investments brought into, derived from or directly
connected with investments brought into the territory of any Contracting Party by nationals or
companies of any other Contracting Party and which are specifically approved in writing and
registered by the host country and upon such conditions as it deems fit for the purposes of
this Agreement. […] 3. This Agreement shall also apply to investments made prior to its
entry into force, provided such investments are specifically approved in writing and
registered by the host country and upon such conditions as it deems fit for [the] purpose of
this Agreement subsequent in its entry into force.’ In Yaung Chi v Myanmar8, a Singaporean
company made an investment before Myanmar’s accession to ASEAN Agreement. However,
the investor fulfilled the necessary procedures to obtain the required permits under
Myanmar’s national law. Tribunal rejected Myanmar’s argument that the investment did not
qualify for protection under ASEAN Agreement due to no approval ‘for the purposes of this
Agreement’ as required by Article II(1). Tribunal argued that Myanmar should have clarified
6
Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, OUP 2012) 88
7
Rusoro Mining v Venezuela, ICSID Case No. ARB(AF)/12/5, Award (22 August 2016) paras 591-592
8
Yaung Chi Oo Trading Pte Ltd v Myanmar, ASEAN Case No ARB/01/1, Award (31 March 2003) paras 59-60
