Stephen Vasciannie

Many developing countries have now reconciled themselves to the view that foreign direct investment is an essential component of economic growth. Some countries that have reached this conclusion still maintain reservations concerning the negative aspects of foreign investment; but they accept that, on balance, the net effect of foreign investment is positive.

This is not an altogether auspicious environment for foreign investors; for, perhaps, one of the main things that the foreign investor will want is stability, and stability may not be guaranteed when the host country remains doubtful about the value of the investment that the same host country has invited to come in. Nonetheless, the foreign investor can rely on legal devices to safeguard the investment. Some of these may be briefly considered.

Non-discrimination

To begin with, foreign investors want to be treated in a non-discriminatory manner. This has at least two components, namely, (a) they do not want local investors to be given better treatment than they receive from the host government, and (b) they do not want foreign investors from other countries to be given better treatment than they receive from the host government.

With respect to (a), the foreign investor will seek national treatment. This is a contingent standard - i.e. the actual level of treatment accorded to the foreign investor will be contingent upon the level of treatment granted to local investors. As a standard against discrimination, this is acceptable to most developing countries, and so, the national treatment standard has found its way into various treaties on investment and trade relations.

Notice, however, that the national treatment standard can have repercussions for the developing country's economic strategies. A government wishes, for example, to provide incentives for local computer operators, on the basis that information technology is an area of local specialisation to be encouraged. In light of the national treatment standard, foreign investors interested in computer activities must also be entitled to enjoy the benefits of what incentives the government has provided. The government may well opt not to provide the incentives, seing that it has to be given to everyone, local and foreign.

With respect to (b), the foreign investor from country X wants entitlement to all the arrangements and benefits open to foreign investors from country Y. In keeping with the principle of non-discrimination, this is also an understandable desire. But notice, again, that this may have consequences for a government's economic programme. The government may want to offer benefits to countries with which it has particularly close ties, or a government may wish to grant incentives or advantages to countries, such as CARICOM partners, in an agreed regional economic scheme.

Modern Treaty Practice

In modern treaty practice, such benefits for some, but not all foreign investors, are likely to be prohibited when they are given only to countries that are special friends. In some treaties, however, there is an exception made for countries in a regional economic scheme, so that Jamaica may still offer some types of benefits to CARICOM partners that it does not offer to other foreign investors.

The foreign investor will also want a number of other safeguards. These include:

the assurance that the investment will be offered fair and Equitable treatment at all times,

that if the Government nationalises the investment it will pay the investor prompt, adequate and effective compensation for the property,

that the investor will be allowed to transfer hard currency from the local economy, and

that any disputes between the investor and the host state will be settled through third party arbitration, and not necessarily in local courts.

Naturally, the foreign investor will also want a significant level of profits. That, however, cannot be assured in a treaty.

Stephen Vasciannie has recently been elected to the International Law Commission of the United Nations.