(EU) and the Common Market of the South (MERCOSUR)? - FDCL

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2.4 Investment “protection” in international treaties
First of all, there are many different definitions of the term foreign investment:
The U.S.A., e.g., pursues a broad definition of the term, which includes foreign direct
investment, portfolio investment and short-term speculative investment vehicles, in
the NAFTA as well as in the FTA with Chile. The EU favors a more narrow definition,
which excludes portfolio and short-term investment, also in their FTAs with Chile and
Mexico.
The investment rules of a (bi-)regional FTA, in contrast to those of a bilateral
investment agreement, do not have any effects on third parties, i.e., any noncontracting
parties. Even though the MFN principle also applies to regional FTAs, the
accorded regulations do not have any validity for other international treaties, but are
explicitly excluded from these – otherwise all regulations of EU treaties would automatically
apply for all other states. In bilateral investment treaties that is not the case:
If a BIT contains the MFN clause, then all BITs signed by this state automatically
receive the same “best” (i.e., “best” for investors) conditions.
On a multilateral level there were already negotiations from 1996-98 within the
framework of the OECD on a multilateral agreement on investment (MAI). Above all
the U.S. and the EU had pushed these negotiations within the OECD, which, however,
were declared a failure in December of 1998 (due mainly to the international
pressure of various NGOs who were finally able to persuade France to simply say
“non”). The investment regulations already stipulated in the NAFTA had served as a
model for the MAI negotiations.
NAFTA is the first free trade agreement 106 which awards an international juridical
status to companies, corporations and investors: Chapter 11 of the NAFTA bindingly
defines this investor-to-state dispute settling mechanism. 107
The official guideline for states in their relationship with foreign investments is
defined as following by the NAFTA article 1105:
“Each Party shall accord to investments of investors of another Party treatment
in accordance with international law, including fair and equitable treatment
and full protection and security.”
The so-called investor-to-state dispute settlement mechanism gives companies
as recognized juridical subjects the opportunity to take legal action on the basis of
106 Bilateral investment treaties have contained this juridical construct for several years already.
107 http://www.nafta-sec-alena.org/english/nafta/chap-111.htm.