Stephen Vasciannie

In the literature of neoclassical economics, particularly in the time of globalisation, we are urged to accept that there should really be no difference in the treatment that states offer to local and foreign investors, respectively. The basis for this position may be traced back to the question of efficiency. The essential argument is that when local and foreign investors are given the same treatment, they compete with each other on even terms, and this ultimately leads to greater efficiency.

This perspective is sometimes put forward in the language of comparative advantage. In a theoretical world without special protection for either local or foreign investors, persons with capital will be drawn to those production centres that have the most efficient means of production, that is, those places with a comparative advantage in the production of particular goods and services.

The argument then goes on: Because the investor has placed his or her capital in the place with the most efficient means of production, the particular goods and services produced in this way will be cheaper to produce than goods and services produced under legal regimes that protect local or foreign investors. In the long run, the consumers benefit from more efficiently produced goods, there will be an increase in global trade, and output in various countries will be increased.

Bilateral Treaties

This theoretical approach - which calls for equal treatment for local and foreign investors - is now firmly built into literally over thousands of bilateral investment treaties. Many, if not most of these treaties, have been completed between developing countries, on the one hand, and developed countries, on the other. Jamaica has completed at least 10 of these treaties. the Jamaican treaties, like those of most other developing countries, contain certain provisions concerning the treatment of foreign investors versus local investors, and others on the treatment of foreign investors as a group.

In the first place, the bilateral investment treaty will normally contain the assurance that foreign investors shall be entitled to national treatment. Thus, any form of advantage given to a local investor, a subsidy, relief from taxation, removal of import restrictions, and so on, shall also be given to the foreign investor. The foreign investor and her or his local counterpart must be given the same treatment. there should be no difference between one or the other.

This provision can sometimes have controversial applications. Leaving aside the first example that comes to my mind, one instance of the application of national treatment arises in the information technology sector.

Assume that the Jamaican Government decides to promote the development of local enterprises in that sector. well, if it does, it cannot give a subsidy to local investors without making that subsidy available to foreign investors.

Or, assume that Jamaica decides to help out local investors in education, in broadcasting, in publishing, in hotel development, in manufacturing, in banking, in library development: the logic of the bilateral investment treaties we have completed is that foreign investors are, as a matter of law, entitled to the same help as that offered to locals. In the context of national development goals that rely on encouraging local investors, this can be a tough message.

Fair and Equitable

In most bilateral investment treaties, foreign investors are also assured most-favoured-nation treatment. The way you treat an investor from Country X must be no better than the treatment you give to the investor from Country Y.

Thirdly, the foreign investor is usually guaranteed 'fair and equitable treatment' by the host state. So, for example, if government action causes a foreign investor to assume that it has satisfied local environmental requirements, then the government cannot go back on that assurance, whether implied or explicit, for to do so would not be fair and equitable.

Stephen Vasciannie is Professor of International Law at UWI, Mona, and works part-time as a Deputy Solicitor General in the Attorney General's Chambers.