ADB International Investment Agreement Tool Kit: A Comparative Analysis

By Tom Kirchmaier and Carsten Gerner-Beuerle

International investment agreements (IIAs) are important in attracting foreign direct investment, and they are becoming more numerous, varied, and complex. To help policymakers, businesses, and researchers compare and analyze agreements and their implications, the Asian Development Bank (ADB) has created an online database of concluded IIAs involving the Asia and Pacific region. The ADB IIA Tool Kit codifies 15 key investment provisions and includes bilateral investment treaties and investment chapters of free trade agreements. This publication introduces the tool kit and provides a comprehensive analysis of investment treaties and arbitration design.

• Language: English
• Publisher: Asian Development Bank
• Release date: May 1, 2021
• ISBN: 9789292628383

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ADB INTERNATIONAL INVESTMENT AGREEMENT TOOL KIT

A COMPARATIVE APPROACH

MAY 2021

Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO)

© 2021 Asian Development Bank

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Some rights reserved. Published in 2021.

ISBN 978-92-9262-837-6 (print); 978-92-9262-838-3 (electronic); 978-92-9262-839-0 (ebook)

Publication Stock No. TCS210171-2

DOI http://dx.doi.org/10.22617/TCS210171-2

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Notes:

In this publication, $ refers to the United States dollar.

ADB recognizes China as the People’s Republic of China; Hong Kong as Hong Kong, China; and Russia as the Russian Federation.

Cover design by Michael Cortes.

Contents

Tables and Figures

Foreword

International investment agreements safeguard mutual economic interests of investors and host economies and, as such, are an important tool for shaping foreign direct investment (FDI) policy. Such agreements govern issues including the scope of investment, treatment of foreign investors, and dispute settlement and compensation mechanisms. For investors, they grant international legal protection from adverse actions by governments. For host states, these agreements can signal a stable and predictable environment for investment and promote governance standards.

In recent years, however, as the number of investor-state disputes has increased, concerns have arisen that international investment agreements may impose costs on states and not always fully deliver on their objectives. Meanwhile, Asia’s investment treaty regime has also gained prominence in the wake of the coronavirus disease (COVID-19). The pandemic has forced many governments in the region to take extraordinary measures on foreign investment to balance public health and economic interests. Should the pandemic trigger investor-state disputes in the region, we should expect governments and investors to resort to existing agreements. Investment agreements will also be instrumental in reinvigorating FDI for the post-pandemic economic recovery.

This report provides a new framework for analyzing the network of international investment regimes in Asia and the Pacific. With this aim, a comprehensive database of investment agreements—including bilateral investment treaties and investment chapters in free trade agreements—has been developed to provide a more granular codification of investment provisions in the region.

The ADB International Investment Agreement Tool Kit details investment provisions and qualitatively assesses their possible implications for FDI flows, with numerous examples from the region. The report expands knowledge with novel information on investment provisions, such as public interest obligations and transparency in investor-state arbitration. It also proposes new approaches to analyze investment regimes, introducing indicators in relevant treaty areas such as investment liberalization, anti-discrimination, regulatory constraint, and investor-state dispute settlement quality.

The region’s network of investment agreements draws attention in the wake of COVID-19 as economic crises often increase tensions and interruptions in global businesses, triggering an upsurge of investor–state disputes. The design and negotiation of investment agreements is often highly complex. But this report employs new approaches to compare their design and structure and to assess the efficiency of provisions and their possible economic impact. Investment provisions can be better designed and negotiated to accommodate different investment conditions and requirements between home and host economies and, if properly designed, prevent investor-state disputes in the aftermath of COVID-19 and attract more and better quality FDI into the region. Modernizing investment provisions in current and future investment agreements is essential to this end and ADB will continue to support such efforts to encourage a better investment climate in the region.

Yasuyuki Sawada

Chief Economist and Director General

Economic Research and Regional Cooperation Department

Asian Development Bank

Acknowledgments

This publication was prepared by the Regional Cooperation and Integration Division (ERCI) of the Economic Research and Regional Cooperation Department (ERCD) of the Asian Development Bank (ADB), with support from Technical Assistance 9210: Enhancing Research Alliance and South–South Development Policy Cooperation Between Asia and the Pacific and Latin America.

Under the guidance of Cyn-Young Park, director of ERCI, the preparation of this report was led by Rolando Avendano (economist, ERCI, ERCD) and Fahad Khan (economist, Economic Analysis and Operational Support Division (EREA)/ERCD), with the support of Paulo Rodelio Halili (senior economics officer, ADB).

The report is based on the research led by Professor Julien Chaisse (City University of Hong Kong), with contributions from Junkyu Lee, chief of Finance Sector Group of the Sustainable Development and Climate Change Department; Fahad Khan, economist, EREA/ERCD; Rolando Avendano, economist, ERCI/ERCD; Mikko Marl Diaz and Lovely Ann Tolin.

The report team is grateful for the helpful feedback provided by participants at the ADB workshops on Foreign Direct Investment in the time of COVID-19: Policy Options for Asia (July 2020) and Bilateral Investment Agreements and Asia’s FDI (September 2020). Authors are especially grateful to Maria Borga, Balance of Payments division, IMF; Rodolphe Desbordes, Professor of Economics, SKEMA Business School; Yothin Jinjarak, senior economist ERMR/ERCD; Jong Woo Kang, principal economist ERCI/ERCD; and Christina Pak, principal counsel, Office of the General Counsel. Contributions from Mara Claire Tayag (senior economics officer, ADB) and Clemence Fatima Cruz are also acknowledged.

Rolando Avendano and Paulo Rodelio Halili coordinated the production of this report, with administrative support from Marilyn Aure Parra (senior operations