Feasibility and viability of a
possible ACS Framework
Agreement on Investment
XXIIth ACS Trade Committee Meeting
Havana, Cuba, 6 November 2007
Definition and types of regional
investment agreements, and their
Definition and types of economic integration
EIAs may be defined as agreements that
facilitate international trade and cross-border
movement of factors of production.
Foreign investment activity may be one or even
the exclusive ingredient of such international
For the purpose of this presentation, EIAs
containing investment rules, are called regional
investment agreements (RIAs).
Types of economic integration
Sectoral trade agreements;
Free trade agreements;
Regional investment agreements;
Potential benefits of regional investment
A removal of trade barriers enlarges the market
and allows firms to benefit from greater scale.
Relaxation of market entry conditions favours
relocation. Relocation is driven by comparative
advantage and helps increase intra-regional
efficiency-seeking foreign investment.
Potential benefits of RIAs (II)
More foreign investment may increase
competition, lower prices and improve the
quality of products and services.
The lock-in effect of investment liberalisation and
protection of a RIA adds credibility to these
commitments, thereby contributing to policy
stability, transparency and reliability.
Potential benefits of RIAs (III)
Regional integration may strengthen the
bargaining power of members vis-à-vis third
It may improve overall political relations between
Potential costs of RIAs
If RIA members are at different levels of
development, the task of liberalisation may fall
asymmetrically on the less developed partner.
Relocation may impose heavy social and
economic costs in some sectors, while others
There may thus be a need for policy measures
to facilitate the adjustment process.
Potential costs of RIAs (II)
RIAs may reduce policy options for member
countries and reduce regulatory flexibility.
Policy making may become more complex for
RIAs may introduce some degree of
discrimination of investors from outside the
region, potentially resulting in investment
The current universe of RIAs
The present universe of regional
investment agreements (RIAs)
The global number of RIAs is growing rapidly
and exceeded 218 in 2006.
RIAs include both intraregional and interregional
Most countries are parties to at least one RIA.
In terms of geographical distribution, most RIAs
have been concluded in the Americas.
Growth of RIAs, 1945 – 2004
Figure III.1. Growth of EIIAs, 1945 - June 2005
Total RIAs concluded by Region, as of
Intraregional and interregional RIAs by
type, as of June 2005
The spaghetti bowl of IIAs
Some prominent examples of RIAs
Americas: NAFTA, Caricom, Mercosur, Andean
Asia: ASEAN, BIMSTEC, SAARC.
Africa: ECOWAS, SADC, COMESA.
Europe: EU, EFTA.
Distinction between Developed and Developing
Most RIAs are between developed and developing
countries. There is also a growing number of South-
In general, South-South RIAs tend to have the following
• They are less likely to include specific liberalisation
• They tend to have less extensive provisions on intellectual
• They are more likely to have provisions on differentiated
treatment according to the level of economic development.
Existing options for investment
integration in RIAs
Different degrees of investment
integration in RIAs
Investment promotion through cooperation;
Framework agreement for future negotiations;
Investment liberalisation and protection;
Investment protection and promotion.
Investment promotion through
These agreements typically spell out specific
investment promotion measures that contracting
parties should undertake.
They include, e.g., exchange of information,
elimination of investment obstacles,
consultations, encouragement of future, more
Examples:EU – APC Partnership Agreements.
Framework for future negotiations
Some investment promotion agreements include
a mandate for future negotiations aimed at
liberalising and/or protecting investment.
Mandate may be general or specific.
Examples: Euro-Mediterranean agreements;
EU-APC Parnership Agreements; BIMSTEC -
Some RIAs focus mainly or exclusively on
investment liberalisation. These treaties show
various degrees of liberalisation:
• General commitment to remove investment
• Progressive liberalisation in the form of
binding obligations (NT, MFN).
• Full liberalisation with general, country- and
sector specific exceptions and reservations
(« top-down » vs. « bottom-up » approach).
• Examples: CARICOM Revised Treaty,
ASEAN Investment Treaty. 22
Investment liberalisation and protection
This type of RIA combines liberalisation
commitments of the contracting parties with
investment protection provisions as can be
found in BITs, including dispute settlement.
Examples: NAFTA, MERCOSUR Colonia
Investment protection and promotion
Some RIAs follow the traditional European BIT
pattern that provides only for post-establishment
Examples: ASEAN Investment Agreement;
several free trade agreements in Latin America
(e.g. Mexico-Costa Rica).
Treatment of Third Parties in RIAs
Typically, RIAs establish preferential treatment
of investors from within the region.
However, most RIAs do not oblige members to
treat investors from outside the region worse.
A few RIAs explicitly provide for non-
discriminatory treatment of outside investors
over time (Ex. ASEAN Framework Agreement),
or – on the contrary – exclude full non-
discriminatory treatment (Ex. MERCOSUR).
The interaction between RIAs and
Interaction between RIAs and other IIAs
RIAs may overlap with other IIAs (e.g.BITs) that
individual members have concluded between
In case of an inconsistency between these
agreements, the provisions of the most recent
agreement between the parties concerned
prevail (see 1969 Vienna Convention on the Law
Interaction between RIAs and IIAs concluded
with third parties
Privileges granted under a RIA may have to be
extended to investors from outside the region if
the latter are covered by an IIA containing an
MFN clause (« free rider issue »).
RIA members may exclude this outcome by
including a « REIO exception » in their IIAs with
third parties. Accordingly, the MFN clause would
not extend to privileges granted within such a
regional integration organisation.
The definition of a « REIO » in the IIA is crucial
for determining the scope of its « protective »
effect for the REIO members.
Policy challenges related to RIAs
Policy challenges for developing countries
related to RIAs
Developing countries negotiating RIAs need to
consider how best to incorporate the
development dimension in their agreement.
They need to strike a balance between the
potential for the RIA to increase investment
flows, and the flexibility of countries to pursue
their particular policy objectives.
RIA provisions through which flexibility may be
ensured include in particular the scope of the
agreement, the scope of the NT clause, rules on
performance requirements and incentives, and
competition policy. 30
Policy challenges for developing countries
related to RIAs (II)
RIAs often touch upon a range of important
social and environmental concerns. Thus, RIAs
should reflect in a balanced manner the rights
and obligations of foreign investors and states.
The proliferation of EIAs results in a multilayered
and multifaceted web of interrelated investment
rules that is difficult to manage for many
developing countries. Thus, further capacity
building and technical assistance remain of
While BITs continue to constitute by far the most
frequent form of IIAs, the number of RIAs is
More recent RIAs are moving gradually towards
greater coverage and depth of investment
While RIAs can be an important tool to
strengthen cooperation between members,
thereby contributing to economic and social
development, they also pose new challenges in
terms of their complexity and consistency.