Asia’s Changing International Investment Regime: Sustainability, Regionalization and Arbitration – Book Review (Part I)

Asia’s Changing International Investment Regime: Sustainability, Regionalization and Arbitration, Julien Chaisse, Tomoko Ishikawa and Sufian Jusoh (eds),
Springer, 2017, xii + 260pp, ISBN 978-981-10-588, 120 Euros
Reviewed by: Luke Nottage and Ana Ubilava (University of Sydney Law School PhD candidate)

This 14-chapter book published in late 2017 provides a succinct and quite comprehensive overview, as well as some detailed analysis, of key developments and themes in the rapidly evolving field of Asia-Pacific international investment treaties. It is particularly useful for readers in the antipodes, given for example Australia’s emphasis on concluding bilateral investment treaties (BITs) and especially more recently Free Trade Agreements (FTAs) with investment chapters, with counterparties in the Asia-Pacific region. Although the book’s title refers to “Asia”, several chapters refer to foreign direct investment (FDI) and treaties extending around the Pacific Rim, as well as some developments in Central Asia (a very different sub-region to South or especially East Asia).
The editors’ short Introduction, comprising helpful chapter summaries, explains that the book derived from the recent “rapid evolution of the international investment regime in the Asia-Pacific region”. It aims “to help predict the future regulatory framework in the region, and how the regional trends affect the development of global rules for foreign investment” (p1). Part I sets the scene by outlining “regional trends in an evolving global landscape”, including a growing concern about rebalancing FDI and treaties to promote sustainable patterns. Part II focuses on the “regionalization of investment law and policy ”, especially key intra-regional treaties concluded recently or under negotiation. Part III ends by asking whether we will see a trend “towards a greater practice of investment arbitration in the Asia-Pacific?”. The backdrop is that treaties and FDI flows are triggering somewhat belated, but nonetheless sometimes controversial, increases in both inbound and outbound investor-state dispute settlement (ISDS) claims involving Asian states or investors.

In Part I, the editors elaborate their own perspectives on “the changing patterns of investment rule-making issues and actors” in the region. Referring to 2016 data, they note that “Asia is now the world’s centre for foreign investment”, as “the largest recipient region” (p16), while also making increasingly significant contributions to global FDI outflows. They further point out the concentration and proliferation of BITs and more recently FTAs, including “regional trade agreements with investment chapters like the Trans-Pacific Economic [sic] Partnership Agreement (TPPA), the ASEAN Comprehensive Investment Agreement (ACIA) and the continued negotiation of the Regional Comprehensive Economic Partnership (RCEP) involving ASEAN member states and parties to the ASEAN+6 regional trade agreements” (p17). Despite more ISDS cases, and critiques of this enforcement mechanism exemplified by causes celebres such as Philip Morris Asia v Australia under the latter’s BIT with Hong Kong, the region’s investment treaties “including the mega regional trade agreements, continue to adopt ISDS provisions” albeit with some innovations (p19).
The editors note the prospect of the mega regionals building up towards an overarching Free Trade Agreement of Asia and the Pacific (FTAAP), connecting all 27 Asia-Pacific Economic Cooperation (APEC) economies. But they note that as the TPPA took “many years to negotiate”, any FTAAP will take much longer and “it will probably be the second half of the 21st century before it is being fully implemented” (p21). Even this timeframe may be optimistic, in this reviewer’s opinion, given the difficulties in securing re-signing of the TPPA (renamed the Comprehensive and Progressive TPPA) without the United States after the Trump Administration withdrew in January 2017 – not mentioned in this volume. Meanwhile, the editors suggest that “the actual action on he changes and reform to take place will be more at the regional or sub-regional level based on existing treaties”, such as ACIA as a “standard-bearer” not just for subsequently signed and negotiated ASEAN treaties but also for newer ASEAN member states recalibrating their domestic laws regulating FDI for all comers (p21).
Next, in Part I, Abdullaev and Brooks (from the Australian APEC Study Centre in Melbourne) delve into global as well as regional FDI trends. They emphasise the shift towards cross-border investment in services, rather than resources or manufacturing. (An interesting question is whether this shift might dampen ISDS claim activity, given the greater risks involved in foreign investment in resource projects – illustrated, for example, by the outbound ISDS claims brought by Australian resource companies particularly across Asia). Abdullaev and Brooks also point out that although China is the dominant country within “developing Asia” for inbound FDI both over 1990-95 and 2010-2014, many other smaller economies have emerged as major destinations in the latter period, such as India, Indonesia and even Kazakhstan (p36). However, FDI appears to have remained highly concentrated by sector in APEC economies over 2003-14, potentially limiting positive spillover effects, except for larger economies like Russia, the US and China (p38).
The latter point could be usefully connected to the next very short chapter by Sauvant, specifically his argument that definitions need to be developed and implemented regarding “sustainable” investment, for treaty drafters, ISDS tribunals judging disputes, and policy-makers developing national regimes for regulating FDI. He also urges an international support program for sustainable investment facilitation that, analogous “to the WTO efforts … would be entirely technical in nature, focusing on practical actions” as under the Trade Facilitation Agreement in force since 2017 through the World Trade Organization (p44). Sauvant also reiterates the (quite longstanding and increasingly widespread) call to establish an “Advisory Centre on International Investment Law”, to assist especially developing countries engaged in potentially expensive ISDS cases, again inspired by an analogue in the WTO system since 2001. These two proposals are elaborated in a policy paper by the E15 Initiative Task Force, entitled The Evolving International Investment Law and Policy Regime: Ways Forward (2016).
In “Investment Protection and Host State’s Right to Regulate in the Indian Model Bilateral Investment Treaties: Lessons for Asian Countries”, Ranjan examines the dramatic shift away from a pro-investor 2003 Model BIT (consolidating Indian BIT practice) towards a very pro-host-state 2016 Model BIT. The move was triggered by a recent suite of ISDS claims, notably a small but high-profile award rendered in 2011 in favour of an Australian mining company, under an old BIT. The latter was in fact terminated unilaterally by India on 23 March 2017, as part of its review of BITs associated with developing the 2016 Model BIT as a framework for future negotiations. Ranjan concludes with two wider lessons, especially for other South Asian countries (p64). First, a country need not wait for its first inbound ISDS claim before critically reviewing its older BITs to restore more balance between foreign investor and host state interests. Secondly, in doing so a country can nonetheless remain engaged in the system and retain some form of ISDS. This occurred with the 2016 Model BIT, albeit hemmed in by safeguards in procedures (such as a prior 5-year exhaustion of local remedies requirement combined with limitation periods for ISDS) and substantive safeguards (such as exclusion of taxation, local government measures, and Most-Favoured Nation treatment), which Ranjan argues tip the scales too far towards the host state’s right to regulate.
Trakman turns to China’s regulation of FDI, identifying a more variable and pragmatic approach towards BITs that he suggests is likely to continue. He highlights the dilemma faced by China from having now achieved roughly equal flows of inbound and outbound FDI, as well as experience with both inbound and outbound ISDS claims. As such, Trakman argues that China will likely press for more extensive protections “in treaties in which the primary purpose is to benefit its out bound investors in discrete partner states” (p75), while limiting protections in treaties primarily aimed to regulating inbound FDI flows. He notes that the current-generation Model BIT and related treaties continue to provide for extensive ISDS protections. However, they were limited to National Treatment obligations in the 2015 China-Australia FTA, albeit subject to an ongoing bilateral work program to negotiate further provisions, in light of the BIT that meanwhile remains in existence. Trakman notes that China may still “intervene, diplomatically or otherwise, on behalf of private outbound investors” (p87), as in the case of Huawei being excluded by Australia from government procurement for a national broadband program. Overall, he concludes that China is likely to continue to rely on ISDS while “rebalancing its treaties to provide for greater regulatory control by host states” (p88).
[Parts II and III of this book are reviewed in later posts, from June 2018]

Author: Luke Nottage

Prof Luke Nottage (BCA, LLB, PhD VUW, LLM LLD Kyoto) is founding co-director of the Australian Network for Japanese Law (ANJeL), Associate Director (Japan) of the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS), and Professor of Comparative and Transnational Business Law at Sydney Law School. He specialises in international dispute resolution, foreign investment law, contract and consumer (product safety) law.