Investment Promotion and Protection in the Canada-UK Trade Relationship
Lead Research Organisation:
British Institute of International and Comparative Law
Department Name: Head office
Abstract
The promotion and the protection of investment have emerged as a crucial part of the future trade relationship between Canada and the United Kingdom (UK). While Brexit has paved the way for the elaboration of a new bilateral free trade agreement, the significance of foreign direct investment stock in these two countries - CAN$ 97.9 billion of Canadian direct investment in the UK and CAN$ 41.8 billion of direct investment from the UK in Canada in 2016 - makes the consideration of bilateral investment regulation essential. At the same time, the exact nature and content of international investment regulation between Canada and the UK remain highly uncertain.
Investment protection has become subject to undeniable controversy. Several stakeholders criticize the lack of legitimacy of international investment arbitration, used in the majority of international investment agreements to settle disputes between foreign investors and states. Numerous calls for reform also demonstrate an increased interest in linking investment protection with issues of human rights, environmental protection, labour rights and the prohibition of corruption. Moreover, the UK has not had control over foreign direct investment since the Lisbon Treaty gave exclusive competence in the area to the European Union; what priorities the UK will set once it has retaken control is unknown. The uncertainty surrounding the nature and the content of an international investment agreement between Canada and the UK requires a deeper understanding of the range of possibilities at hand.
This knowledge synthesis project seeks to identify and analyze provisions that could and should be included in any such international investment agreement. Relying on a content analysis of international investment agreements and propositions from experts in international investment law, the project addresses the various possibilities that will have to be considered by negotiators with respect to dispute settlement, the breadth of protections granted to foreign investors, and obligations imposed on these actors. Despite the numerous criticisms that have been formulated against the very nature of international investment law, explicitly engaging with these concerns is entirely feasible from a legal perspective. Synthesizing knowledge regarding these provisions will ensure that policy-makers approach these unique negotiations with the appropriate tools to maximize the benefits to both countries and contribute to building a more legitimate international investment regime.
Investment protection has become subject to undeniable controversy. Several stakeholders criticize the lack of legitimacy of international investment arbitration, used in the majority of international investment agreements to settle disputes between foreign investors and states. Numerous calls for reform also demonstrate an increased interest in linking investment protection with issues of human rights, environmental protection, labour rights and the prohibition of corruption. Moreover, the UK has not had control over foreign direct investment since the Lisbon Treaty gave exclusive competence in the area to the European Union; what priorities the UK will set once it has retaken control is unknown. The uncertainty surrounding the nature and the content of an international investment agreement between Canada and the UK requires a deeper understanding of the range of possibilities at hand.
This knowledge synthesis project seeks to identify and analyze provisions that could and should be included in any such international investment agreement. Relying on a content analysis of international investment agreements and propositions from experts in international investment law, the project addresses the various possibilities that will have to be considered by negotiators with respect to dispute settlement, the breadth of protections granted to foreign investors, and obligations imposed on these actors. Despite the numerous criticisms that have been formulated against the very nature of international investment law, explicitly engaging with these concerns is entirely feasible from a legal perspective. Synthesizing knowledge regarding these provisions will ensure that policy-makers approach these unique negotiations with the appropriate tools to maximize the benefits to both countries and contribute to building a more legitimate international investment regime.
Planned Impact
The dissemination of the results emanating from this synthesis project will directly contribute to knowledge mobilization and impact on policy-makers and practitioners through both traditional and non-traditional channels.
To ensure that target research users are effectively reached, the following activities are planned:
a) Policy briefings: The primary output of this knowledge synthesis project will be a policy brief for policy-makers and negotiators, both in Canada and the UK. Rather than including the results in a report or an academic paper, Professor Andrea K. Bjorklund and Professor Yarik Kryvoi will supervise the preparation of a policy brief tailored to the work of governmental officials. The document will include four sections: 1) a summary of the international investment context emphasizing legitimacy concerns and current proposals for reforms; 2) recommendations pertaining to the provisions that should be included in an investment agreement between Canada and the UK to effectively address the most controversial issues; 3) a feasibility analysis based on the various provisions identified and their implications from a legal perspective; and 4) a presentation of strategic implications that will position the recommendations in the broader international context. Two seminars will be organized in May 2019 to discuss the content of the policy brief with policy-makers and treaty negotiators, both in Canada and the UK. While one of the seminars will be held in Ottawa, the second one will be held at the British Institute of International and Comparative Law (BIICL). The document will be directly sent to government officials prior to these seminars.
b) OGEMID online symposium: Private practitioners and members of civil society interested in international investment protection are based all around the world. Despite the physical distance between these actors, they interact on a daily basis via a mailing list named OGEMID. This virtual platform brings together experienced professionals in the field of international dispute management, with a particular focus on investment disputes. The mailing list is occasionally used by moderators to facilitate an online symposium on a specific topic. Drawing on the results of this knowledge synthesis project, Professor Bjorklund and Professor Kryvoi will moderate such a symposium and recruit other participants from Canada and the UK to help broaden the discussion on promising provisions that could be included in an investment agreement between these two countries. Members of the mailing list will then be invited to react to the aspects raised by these four participants. This knowledge mobilization activity will reach a vast international audience at very low cost. A Research Assistant will prepare a report on the symposium, based on the interventions from participants and comments formulated by members of the mailing list. The report will subsequently be made available on the Transnational Dispute Management website. This online symposium will be held in November 2018.
c) Annual Conference of the Canadian Council on International Law: There are few events during which all the knowledge synthesis project's target research users will be gathered over the span of the grant. The 47th Annual Conference of the Canadian Council on International Law, to be held in November 2018, is one of these rare opportunities. Participants in this annual conference include government officials, practitioners in international law, representatives from civil society and academics from several countries. Professor Bjorklund and Professor Kryvoi will submit a proposal for a panel to address crucial aspects of investment promotion and protection in the trade relationship between Canada and the UK.
To ensure that target research users are effectively reached, the following activities are planned:
a) Policy briefings: The primary output of this knowledge synthesis project will be a policy brief for policy-makers and negotiators, both in Canada and the UK. Rather than including the results in a report or an academic paper, Professor Andrea K. Bjorklund and Professor Yarik Kryvoi will supervise the preparation of a policy brief tailored to the work of governmental officials. The document will include four sections: 1) a summary of the international investment context emphasizing legitimacy concerns and current proposals for reforms; 2) recommendations pertaining to the provisions that should be included in an investment agreement between Canada and the UK to effectively address the most controversial issues; 3) a feasibility analysis based on the various provisions identified and their implications from a legal perspective; and 4) a presentation of strategic implications that will position the recommendations in the broader international context. Two seminars will be organized in May 2019 to discuss the content of the policy brief with policy-makers and treaty negotiators, both in Canada and the UK. While one of the seminars will be held in Ottawa, the second one will be held at the British Institute of International and Comparative Law (BIICL). The document will be directly sent to government officials prior to these seminars.
b) OGEMID online symposium: Private practitioners and members of civil society interested in international investment protection are based all around the world. Despite the physical distance between these actors, they interact on a daily basis via a mailing list named OGEMID. This virtual platform brings together experienced professionals in the field of international dispute management, with a particular focus on investment disputes. The mailing list is occasionally used by moderators to facilitate an online symposium on a specific topic. Drawing on the results of this knowledge synthesis project, Professor Bjorklund and Professor Kryvoi will moderate such a symposium and recruit other participants from Canada and the UK to help broaden the discussion on promising provisions that could be included in an investment agreement between these two countries. Members of the mailing list will then be invited to react to the aspects raised by these four participants. This knowledge mobilization activity will reach a vast international audience at very low cost. A Research Assistant will prepare a report on the symposium, based on the interventions from participants and comments formulated by members of the mailing list. The report will subsequently be made available on the Transnational Dispute Management website. This online symposium will be held in November 2018.
c) Annual Conference of the Canadian Council on International Law: There are few events during which all the knowledge synthesis project's target research users will be gathered over the span of the grant. The 47th Annual Conference of the Canadian Council on International Law, to be held in November 2018, is one of these rare opportunities. Participants in this annual conference include government officials, practitioners in international law, representatives from civil society and academics from several countries. Professor Bjorklund and Professor Kryvoi will submit a proposal for a panel to address crucial aspects of investment promotion and protection in the trade relationship between Canada and the UK.
| Description | In 2017, Canadian direct investment stock in the UK reached CAN$ 102.63 billion, representing 9.2% of all Canadian direct investment abroad. Direct investment from the UK in Canada amounted to CAN$ 47.4 billion (5.8% of all foreign direct investment in Canada). These numbers indicate a strong investment relationship between Canada and the United Kingdom (UK) suggesting that any eventual bilateral free trade agreement (FTA) between the two states will need to explicitly address the promotion and the protection of foreign investment. This subject must be an integral part of the negotiations regarding the future trade relationship between the two states in a post-Brexit context. International investment agreements (IIAs), whether as stand-alone agreements or as chapters in FTAs, are adopted by states with a view to protecting foreign investment and addressing potential disputes between an investor and the host state. The likely nature and content of any such investment agreement between Canada and the UK is nevertheless highly uncertain, for at least three reasons. First, the protection of investment has become the subject of considerable controversy, with opponents of the regime seriously questioning its legitimacy. Second, calls for reform regarding IIAs and investment dispute settlement have already been reflected in the recent drafting practice of several states. Third, the absence of any IIA signed by the UK since the entry into force of the Treaty of Lisbon in 2009 complexifies the anticipation of the approach that will be taken by the UK in the eventual negotiation process. A new investment agreement between Canada and the UK constitutes a crucial opportunity to include innovative provisions from recent international agreements and to explore new possibilities to construct a more legitimate investment regime. In order to support evidence-based decision-making in the negotiation of such an agreement, this knowledge synthesis project undertakes the task of presenting a comprehensive review of the range of opportunities available. The key question that will have an actual impact on the adoption of new policies in the treaty-making process is concerned with the determination of provisions that can be included in an investment agreement between the two states to address controversial issues and support the reform of the international investment regime. For each theme of the knowledge synthesis project, relevant information has been synthesized through a side-by-side comparison of provisions and their legal implications. Dispute settlement possibilities: The mechanism allowing private investors to submit investment claims to international arbitration has come under increasing public scrutiny, with several actors criticizing its lack of legitimacy. Certain policy-makers and negotiators have responded to these criticisms in various ways. Six different approaches have been included in IIAs and model agreements. These range from a reformed investor-state dispute settlement mechanism, to a return to diplomatic protection and state-to-state arbitration, to reliance on domestic courts, to alternative dispute resolution mechanisms, to hybrid approaches, and to an investment court system. The breadth of investment protection: Addressing of indeterminacy in the substantive protections offered to investors can also be achieved by further clarifying the content of standards of protection that are traditionally included in IIAs. An enhanced level of precision is especially visible with respect to the fair and equitable treatment (FET) and expropriation obligations. Various options have been used by states to qualify FET provisions, including specifying and delimiting the elements included within its ambit. Other provisions include a limiting definition of indirect expropriation or various forms of presumptive carve-outs, including for general regulatory measures. Obligations imposed on foreign investors: With a view to countering the generally asymmetric nature of IIAs, some states have chosen to address foreign investors' responsibilities in their treaties. Some agreements refer generally to these responsibilities in the preamble of an IIA or in provisions referring to corporate social responsibility. More constraining provisions impose a sanction on investors in the event they want to avail themselves of the protection of the treaty by calling for explicit consideration of the investment's negative impact or denying substantive protection for investments made through corruption or other fraudulent means. A few treaties impose direct obligations on foreign investors. As to policy recommendations ensuing from our work, the knowledge synthesis project does not suggest particular provisions that should be included in an investment agreement between Canada and the UK. Rather, the objective underlying the project is to allow policy-makers to undertake the negotiation process with a clear sense of the various provisions that are available to address the most controversial issues of international investment law with respect to dispute settlement possibilities, the breadth of investment protection and obligations imposed on foreign investors. Nevertheless, we offer two general policy recommendations. First, policy-makers and negotiators should engage with these controversial issues and explicitly address them in an investment agreement between Canada and the UK. Whilst IIAs are often concluded by minimally modifying an existing model treaty, the shifting landscape regarding the regulation of investment opens up a wide range of possibilities and calls for creative innovations that can contribute to the elaboration of a more legitimate regime. Policy-makers and negotiators cannot simply avoid these controversial issues anymore. Second, in order to identify specific provisions, policy-makers and negotiators should rely on recent provisions that have already been included in IIAs and model agreements elaborated by other states. Using the practice of states as a starting point implies that even the most innovative options are not unprecedented. Such an approach can contribute to the reform of international investment law in a way that builds upon the existing strengths of the regime. |
| Exploitation Route | This knowledge synthesis project identifies and analyzes provisions that could and should be included in any such international investment agreement. Relying on a content analysis of international investment agreements and propositions from experts in international investment law, the project addresses the various possibilities that will have to be considered by negotiators with respect to dispute settlement, the breadth of protections granted to foreign investors, and obligations imposed on these actors. Despite the numerous criticisms that have been formulated against the very nature of international investment law, explicitly engaging with these concerns is entirely feasible from a legal perspective. Synthesizing knowledge regarding these provisions shows how policy-makers can approach these unique negotiations with the appropriate tools to maximize the benefits to the United Kingdom and Canada and contribute to building a more legitimate international investment regime. This international collaboration offered an excellent opportunity to provide a complete and detailed analysis of the wide range of possibilities regarding the protection of foreign investments to policy-makers in Canada and the UK. While several international investment agreements have been concluded by minimally modifying an existing model, the shifting landscape regarding the regulation of investment opens up a wide range of possibilities. This knowledge synthesis project allows policy-makers to undertake the negotiation of an agreement between Canada and the UK with a clear sense of the potential provisions that can effectively address the most controversial issues of international investment law. In addition to the contribution for policy-makers and negotiators, the project demonstrates how an investment agreement can respond to legitimacy concerns raised by a variety of stakeholders. Several non-governmental organizations have criticized international investment agreements for failing to address issues of human rights and environmental protection. This project demonstrates that explicitly engaging with these concerns in an international investment agreement is entirely feasible from a legal perspective. |
| Sectors | Government, Democracy and Justice,Security and Diplomacy |
| URL | https://ssrn.com/abstract=3312617 |
| Description | The publication has been referred to during a 2023 session of the UNCITRAL Working Group III dealing with reform of investor-state dispute settlment. |
| First Year Of Impact | 2023 |
| Sector | Government, Democracy and Justice,Security and Diplomacy |
| Impact Types | Policy & public services |