Electronic copy available at: http://ssrn.com/abstract=2137197 INVESTMENT CODES Investment Codes Markus Burgstaller and Michael Waibel TABLE OF CONTENTS A. Notion ..................................................................................................................................................... 1 1. Background ...................................................................................................................................... 1 2. Rationales for Investment Codes ...................................................................................................... 5 B. Historical Development of Investment Codes ........................................................................................ 9 1. Regulating Investment Flows (1914–1980) .................................................................................... 11 2. Liberalizing Investment Flows (1980- ) ......................................................................................... 19 3. Bilateral Investment Treaties as Successors to Investment Codes .................................................. 24 C. Substantive Content of Investment Codes ............................................................................................ 29 D. Investment Codes as Instruments of Consent ....................................................................................... 33 1. Investment Codes as a Source for a State’s Consent to Arbitration ................................................ 33 2. Investment Codes as Unilateral Standing Offers to Arbitrate Disputes .......................................... 37 3. Interpretation of Unilateral Standing Offers to Arbitrate Disputes in Investment Codes ............... 41 E. General Trends and the Future of Investment Codes ............................................................................ 51 A. Notion 1. Background 1 Investment codes are standalone, unified codes with all rules relevant for inward foreign investment. They typically specify the types of admissible capital, the sectors open and closed to foreign investors, the environmental, planning and other regulations for foreign investment, and the conditions under which such investment may be terminated. They often provide for tax breaks and other incentives. Some apply only to existing foreign investment. Others seek to encourage new investment flows. They may be generally applicable or sector-specific. 2 Investment codes have a two-fold purpose: to encourage foreign investment, and to maintain control over it. They typically reflect a compromise between control over and facilitation of foreign investment. On the one hand, they seek to insulate foreign investors from domestic policy change and political risk. On the other hand, they enable host countries to absorb foreign investment under a predictable framework provided by their domestic law. 3 Investment codes have been a prominent feature of international investment relations since the 1950s, especially between countries at different levels of economic development. Their heyday was in the 1970s and 1980s, when more than sixty countries had enacted investment codes domestically. Some codes substituted for the underdevelopment of general commercial law in the host country. 4 Other investment codes set out different rules for cross-border as compared to domestic investment, often creating more attractive conditions for foreign investment than the host country’s general commercial law. In such cases, investment codes co-exist alongside general commercial law. Large and developed economies often rely on general commercial law to regulate inward foreign investment. The United States and countries in the European Union absorb foreign investment under general commercial law. Central elements of their legal infrastructure for foreign investment include company and intellectual property law, complemented by specific provisions on immigration and taxation.