The International Regulation of Investment is not a recent Phenomenon

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The International Regulation of Investment is not a recent Phenomenon

The International Regulation of Investment is not a recent Phenomenon

Investment matters have been on the international agenda for a long time but there is no multilateral investment treaty. Post-World War II discussions included investment issues. The proposed Charter for an International Trade Organisation (the Havana Charter) contained provisions on foreign investment as part of a chapter on economic development.

Article 12 of the Final Act of the United Nations Conference on Trade and Employment stated that “international investment, both public and private, can be of great value in promoting economic development and reconstruction….” It mentioned the right of States to take appropriate safeguards to ensure that foreign investors do not interfere in States’ internal affairs. It called on governments to enter into bilateral or multilateral investment agreements and to promote co-operation between national and foreign investors.

The Havana Charter was never ratified. Only its provisions on commercial policy were incorporated into the GATT, which went into effect on January 1, 1948. In 1955, the GATT Contracting Parties adopted a resolution on International Investment for Economic Development in which they, inter alia, urged governments to conclude bilateral agreements protecting foreign investment.

A significant development occurred in the 1980s when a GATT panel, in a dispute between the United States and Canada, clarified the extent of national controls over foreign investments.[1] The panel considered a complaint by the United States regarding certain types of undertakings required by Canadian authorities from foreign investors as conditions for the approval of investment projects. These undertakings pertained to the purchase of certain products from domestic sources (local content requirements) and to the export of a certain amount or percentage of output (export performance requirements). The Panel concluded that the local content requirements were inconsistent with the national treatment obligation of Article III:4 of the GATT, but that the export performance requirements were not inconsistent with GATT obligations. The Panel distinguished consistency with the GATT of specific trade-related measures taken by Canada under its foreign investment legislation from Canada’s right to regulate foreign investment per se.

Then came the Uruguay Round of negotiations. Trade-related investment measures were put on the agenda. These negotiations were not intended to deal with the regulation of investment as such, but the trade effects of investment measures. There was strong disagreement; some developed countries wanted a wide range of prohibitions, while many developing countries opposed this. The compromise dealt with the effect of trade-related investment measures on the national treatment of imported goods (under GATT Article III) and on quantitative restrictions on imports or exports (under GATT Article XI). The WTO Agreement on Trade-Related Investment Measures (TRIMS) was adopted and provides and provides that WTO members may not apply measure that discriminates against foreign products or that leads to quantitative restrictions.

As an agreement that is based on existing GATT disciplines on trade in goods, the TRIMS Agreement is not concerned with the regulation of foreign investment as such. It does not cover services and the term “trade-related investment measures” is not defined. A list of prohibited TRIMS, such as local content requirements, is part of the Agreement. There are provisions designed to ensure transparency when WTO Members take trade related investment measures. A Committee on Trade-Related Investment Measures was established. It focusses on discussing specific concerns raised by Members regarding other Members’ trade-related investment measures.

In the early 1990s, the Organisation for Economic Cooperation and Development (OECD) launched an effort to negotiate the Multilateral Agreement on Investment (MAI). The aim was to adopt a multilateral framework of rules for investor protection, the liberalisation of investment regimes, and effective dispute settlement procedures, and to establish worldwide rules like the multilateral rules on international trade of the WTO. These negotiations provoked several negative reactions, and the effort was abandoned. Some feared that the MAI would allow foreign investors too much influence over governments in developing countries in particular, and that multilateral companies would prefer investing in low wage countries with inadequate labour standards.

These concerns are still valid, but the world has also moved on. There has been a push against investor-state-dispute-settlement (ISDS), governments have more space to regulate the effect of investors’ activities in light of the need to tackle climate change and the protection of the environment, while labour standards are more widely enforced. But there is no appetite for another MAI. The multilateral debate regarding investment is now primarily about the conclusion of an Investment Facilitation Agreement under the auspices of the WTO; to improve domestic investment governance generally.

The sentiments expressed in the aftermath of World War II remain valid, even though globalisation, as we know it today, has brought about sweeping changes. One of them is the spectacular rise of China since it joined the WTO in 2001. China has also developed its own unique approaches to investing in developing countries, including in Africa. The world has become much more interdependent and the need for the proper regulation of foreign direct investment (FDI) has increased. This matter is also on the AfCFTA agenda.


[1] Canada — Administration of the Foreign Investment Review Act (“FIRA”) (BISD 30S/140, 1984).

About the Author(s)

Gerhard Erasmus

Gerhard Erasmus

Gerhard Erasmus is a founder of tralac and Professor Emeritus (Law Faculty), University of Stellenbosch. He holds degrees from the University of the Free State, Bloemfontein (B.Iuris, LL.B), Leiden in the Netherlands (LLD) and a Master’s from the Fletcher School of Law and Diplomacy. He has consulted for governments, the private sector and regional organisations in southern Africa. He has also been involved in the drafting of the South African and Namibian constitutions. He grew up in Namibia.

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