| TERM |
DEFINITION
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| Bilateral investment treaty (BIT)
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The first modern bilateral investment treaty was entered into in 1959 between Germany and Pakistan. Over
the decades that followed an increasing number of European countries concluded such treaties with developing countries. Since the 1980s, several countries
in the Americas have signed a BIT with another country of the region. Traditionally, BITs set standards for the promotion and legal protection of foreign
investments and investors. Some recent agreements also include the free entry of investments and investors as a feature of the treaty.
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| Compensation for losses
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Investment agreements do not, in principle, require a state to pay compensation in a situation
where an investor of another member country suffers losses in the host country due to war or other armed conflict, civil disturbances, state
of emergency or similar events. Most agreements, however, provide for national treatment and most-favored-nation treatment in respect to any
measure a member country adopts or maintains related to those losses.
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| Denial of benefits
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A Party to a trade or investment agreement may deny the benefits of the Agreement to an
investor of another Party that is an enterprise of such other Party and to investments of that investor if investors of a non-Party own or
control the enterprise and the denying Party does not maintain diplomatic relations with the non-Party; or adopts or maintains measures
with respect to the non-Party or an investor of the non-Party that prohibit transactions with the enterprise or that would be violated or
circumvented if the benefits of the Agreement were accorded to the enterprise or to its investments. See Services, page 38, where this
text may have a slightly different meaning.
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| Expropriation
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Investment agreements include a provision that prohibits a member country from directly
or indirectly nationalizing or expropriating an investment of an investor of another member country except when done for a public purpose,
on a nondiscriminatory basis, in accordance with due process of law, and on payment of compensation. In an international context, a direct
expropriation occurs when the host state takes property owned by a foreign investor located in the host state, when there is deprivation of
wealth attributable to the state. There are very few cases of indirect expropriation at theinternational level because under customary
international law, a state is not responsible for loss of property or other economic disadvantage resulting from bona fide general taxation,
regulation, forfeiture from crime, or other action of the kind. The state has the power to take actions, in the public interest, without
having to pay compensation, even if the interests of individual property owners may be adversely affected.
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| Foreign direct investment (FDI)
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FDI is defined as a cross-border investment in which a resident in one economy (the direct
investor) acquires a lasting interest in an enterprise in another economy. The lasting interest implies a long-term relationship between
the direct investor and the enterprise and usually gives the direct investor an effective voice in the management of the enterprise. By
convention, a direct investment is established when the direct investor has acquired 10 percent or more of the ordinary shares or voting
power of an enterprise abroad.
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| General exceptions
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Investment agreements usually include general exceptions, which apply to all Parties to
the Agreement and exempt these Parties from the provisions of the Agreement. These exceptions usually refer to measures taken for national
security, public order, and international peace and security.
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| International Centre for Settlement of Investment
Disputes (ICSID)
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The International Centre for Settlement of Investment Disputes was established in 1966 under the
Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). ICSID provides facilities
for the conciliation and arbitration of disputes between member countries and investors who qualify as nationals of other member countries. All
Contracting States of ICSID are required to recognize and enforce ICSID arbitral awards.
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| ICSID Additional Facility Rules
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Since 1978 the ICSID Secretariat has been administering certain types of proceedings between States
and foreign nationals which fall outside the scope of the ICSID Convention. These include conciliation and arbitration proceedings where either the
State party or the home State of the foreign national is not a member of ICSID.
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| Investor-State dispute settlement mechanism
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Investment agreements generally include provisions for an investor-state dispute settlement mechanism
whereby an investor of a Party is able to seek redress against another Party. In most investment agreements, the investor may choose between the
local courts and international arbitration. In some agreements, this choice is final, in order to avoid simultaneous procedures and contradictory
decisions. A disputing investor may submit a claim to arbitration under some specific rules of arbitration, for example the ICSID Convention, the
Additional Facility Rules of ICSID, or the UNCITRAL Arbitration Rules. It is worth noting that the objective of an investor-state dispute settlement
mechanism is to depoliticize investment disputes and put them into the sphere of international arbitration.
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| Key personnel
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This term has generated many interpretations because it comprises two dimensions: freedom to hire and
temporary entry. The freedom to hire refers to the right granted to the investor to employ, in senior management positions, personnel within the
host country without regard to the nationality or citizenship of the person concerned. The temporary entry of key personnel refers to the right
granted to the investor to enter the host country or to bring key personnel, essential to a specific operation of an investment. Personnel is
subject to immigration laws and laws and regulations relating to the entry, stay, and work of natural persons.
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| Minimum standard of treatment
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This concept is found in several investment agreements. It means that the host country will accord
treatment to investments of foreign investors in accordance with the international norms encompassed by the customary international law minimum
standard. In general, States would fail to meet the minimum standard of treatment if their acts amounted to an outrage, bad faith, or an
insufficiency of governmental action so far short of international standards that every reasonable and impartial person would readily recognize
its insufficiency.
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| Most favored nation treatment (MFN)
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This principle contained in trade and investment agreements ensures that there is no discrimination
among foreigners. It guarantees that foreign investors and their investments (those of another member country of the trade or investment agreement)
are treated no worse than any other foreign investors and their investments. See Services, page 39, where this text may have a slightly different
meaning.
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| National treatment
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This principle contained in trade and investment agreements ensures that there is no discrimination
between foreigners and nationals. It guarantees that foreign investors and their investments (those of another member country of the trade or
investment agreement) are treated no worse than domestic investors and their investments. See Services, page 39 and Tariffs and Non-tariff
Measures, page 43, where this text may have a slightly different meaning.
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| Negative List
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Under a negative list approach, all sectors and measures covering investment must be liberalized
unless otherwise specified in annexes containing reservations or a list of non-conforming measures.
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| Non-conforming measures
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A non-conforming measure is any law, regulation, procedure, requirement or practice,
which violates certain articles of the investment agreement. For example, a law prohibiting an investor of another member country to own a
factory does not conform with the article on national treatment.
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| Performance requirements
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Are used by countries to influence the behavior of investors. Traditionally, two types of
performance requirements have been identified: mandatory performance requirements and incentive-based performance requirements. Mandatory
performance requirements are conditions or requirements that are imposed at the pre- and/or post-establishment phases, i.e. for the
establishment and/or operation of an investment. Incentive-based performance requirements are conditions that an investor must meet to
secure a government subsidy or incentive. See Government Procurement, page 27 and Tariffs and Non-tariff Measures, page 44, where
this text may have a slightly different meaning.
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| Portfolio investment
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It refers to shares, stocks or other forms of equity participation in an enterprise.
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| Post-establishment
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It refers to the operation of an investment. It guarantees that foreign investors and
their investments (those of another member country of the trade or investment agreement), once established or admitted, are treated no
worse than domestic investors and their investments (national treatment) or any other foreign investors and their investments
(most-favored-nation treatment).
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| Pre-establishment
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It refers to the entry of investments and investors of a Party (member country of a trade or
investment agreement) into the territory of another Party. Each Party allows investors of other Parties to establish an investment in their
territory on terms no less favorable than those that apply to domestic investors (national treatment) or investors from third countries
(most-favored-nation treatment). In the case of the provision on performance requirements, pre-establishment refers to the prohibition of
imposing certain performance requirements as a condition for the establishment of an investment. Pre-establishment is rarely granted without
exceptions since every country has sensitive sectors where foreign investment is not permitted. In fact, members of a trade or investment
agreement usually list a number of measures (for example, laws and regulations) or entire sectors where pre-establishment (free entry of
investments and investors) does not apply.
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| Ratchet mechanism
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Some trade and investment agreements include this mechanism under which any
liberalization measures adopted by a member country cannot be replaced by new measures that are more restrictive.
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| Reservations
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They define any limitations to the commitments of the member countries to
the investment agreement. They are specific to each country to a trade or investment agreement, and are taken against a
limited number of provisions.
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| Standstill
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Under this principle, member countries in a trade or investment agreement commit
themselves to the imposition of the status quo on existing measures and practices which do not conform to a number of obligations
such as national treatment and most-favored-nation treatment. Member countries commit themselves not to introduce new legislation
that would violate these obligations. Standstill do not apply, however, to any general exceptions (e.g. national security) or to
any temporary derogations (e.g. balance-of-payments), or to any exceptions (reservations) for future measures taken by these countries.
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| Transfers
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The provision on transfers set out in several investment agreements guarantees that all
payments relating to an investment of an investor of another member country can be transferred in a freely convertible or usable currency
at the market rate of exchange prevailing on the date of transfer. In some cases, these agreements allow for limitations or exceptions,
such as for balance-of payments problems.
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| Ad-hoc Arbitration Rules of the United Nations
Commission on International Trade Law (UNCITRAL)
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Under the investor-state dispute settlement mechanism, an investor may submit a claim to
arbitration under some specific rules of arbitration such as the ad-hoc arbitration rules of the United Nations Commission for International
Trade and Law.
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