International Investment Law Notes - I (Introduction)

ICSID

Brief Introduction

During early 19^th century, International Trade and Investment started gathering pace. Between 1914 and 1945, huge changes took place in worldwide leaderships. These changes played a huge role in establishing the new economic order. Post-1945, the trade again started gathering pace. The focus was on the International Trade and the laws relating to it. Multilateral agreements started taking shape. The regional agreements witnessed an unprecedented growth. Before we proceed any further, let us understand some of the basic definitions and terminologies that are used in this subject.

Some Basic Definitions

A. FDI – FDI is usually defined as Investment by a company or companies from one country into another that involves establishing operations or acquiring assets or stakes in other businesses. The persons investing through the FDI route have an element of control in the management of the organization in which they are investing.

B. FII – The abovementioned conception is not necessary. FIIs are usually organizations that pool large sums of money and invest those sums in securities or other investment assets of countries other than where these organizations are based. These could range from (not limited to) banks to insurance companies to pension funds or mutual funds.

Traditionally, International Investment Law dealt only with FDI. FII did not exist at that point of time. Some new players have also come to the forefront in the field of foreign investment such as NGOs, MNCs, laws of governments, institutions established by law.

C. Definition of Foreign Investment

Following are some of the basic ingredients of ‘Foreign Investment’.

1. It could be from any body and anywhere.

2. It is from a host country to any other country.

3. The investment is done in the assets, equity or shares.

4. It includes both tangible and intangible assets.

5. The persons who do the investment also try to control the management of the organization in which they have invested.

6. Such investment is also governed by the tax laws of the destination country.

7. It must be done by a foreigner.

Thus Foreign Investment is an investment by a foreigner into any other jurisdiction with the purpose of generating wealth in the form of either tangible or intangible assets and such money is accountable to the tax laws.

It is a transfer of funds or materials from the exporting country to any other country (destination country) in return for a direct or indirect participation in the revenue of that enterprise.

It is important to remember that earlier FIIs were not recognized. With their coming into existence, the need for having a protection for FIIs was also felt. The reason was not the increase in the quantum of investment through FIIs. If a person happens to be an investor, such person has certain rights and interests vested in where he/she has invested. Then in such cases, it is the duty of the host country to make sure that such person has the capacity to protect his/her interests. Thus arose the need to protect FIIs too.

D. Calvo Doctrine – Calvo Doctrine states that if there is any foreign investor than he will be afforded the same treatment as your own investor. A Calvo clause in a contract between a state and an alien stipulates that the latter agrees unconditionally to the adjudication within the state concerned of any dispute between the contracting parties.

International Trade Law Notes