Swiss Expert Highlights Implications of Dispute Settlement for Foreign Direct Investments in GCC
Foreign direct investment has conventionally played a key role in driving businesses worldwide and is increasingly recognized as a major factor for economic development and an important tool to enhance local competitiveness. In this context, bilateral and multilateral investment protection agreements are increasingly coming into force in order to provide a legal framework for such investment activities, according to Professor Andreas R. Ziegler, Chair in Public International Law and Co-Director of the Master of Law Programme in International and European Economic and Commercial Law at the University of Lausanne.
Dr Ziegler’s comments came at a talk hosted at DSG on 21 November. Titled ‘Foreign Direct Investment and its Role for Economic Development’, the event highlighted the facilitating role that investor protection agreements play in settling investor-state disputes, particularly through arbitration. Examining the main features of the settlement mechanism, the session tracked the innumerable proceedings currently being handled around the world and studied their long term consequences and relevance to the GCC region.
Professor Andreas added: “The growth in international trade and investment as a means of creating new economic opportunities in the global economy, for both developed and developing countries, has led to a range of issues related to foreign investment. In this regard, special consideration needs to be given to the concerns of both foreign investors and host countries with respect to dispute-settlement procedures.
“Foreign investors have traditionally maintained that in developing countries, investor-state disputes should be resolved by means of global-standard dispute-settlement mechanisms and procedures, with international arbitration at its apex. This position is supported largely by arguments concerning the apparent fairness inherent in relying upon independent international arbitrators, rather than upon national courts that may be subject to the influence of executives in the host countries.”
According to the United Nations Conference on Trade and Development (UNCTAD) report on ‘Best Practices in Investment for Development 2011’, the last decade witnessed a considerable increase in the flow of foreign direct investment. As part of efforts to enhance investor protection and attract further investment, countries have concluded an ever-growing number of international investment agreements (IIAs), which provide for international arbitration in cases of disputes between investors and host states. Additionally, many countries include clauses for international arbitration in contracts they sign directly with individual foreign investors for specific projects. This has been the background behind a sharp rise in the number of cases of investor-state arbitration in the last decade.
The increase in international investment arbitration has generated concerns regarding the ability of governments to regulate economic activities within their borders, the high costs of arbitration and compensation, the state’s capacity to appropriately manage international investment arbitration and the prevention of frivolous claims. In response, some countries have introduced or strengthened policies to prevent investor-state disputes from emerging and escalating, and manage investor–state dispute settlement (ISDS) proceedings more effectively.