Jamaica Gleaner, Jamaica

Investment considerations

3 July 2006

By Stephen Vasciannie

In recent months, there has been much ado about foreign investment considerations, though the issues have not always presented themselves directly, or exclusively, as investment questions. Some of them touch on significant Jamaican interests, so we need to be especially careful in our analysis.

Some people who have spoken about investment questions have been very sound, while others have, in my opinion, failed to reach that level. Pat Francis, for example, made a very important set of observations concerning Jamaica’s readiness for foreign investment. As the then head of JAMPRO, and as one with years of experience in the field, Mrs. Francis had every reason to know that in some respects Jamaica is not ready for foreign investment.

But Mrs. Francis makes this statement, and what happens? Some people, without assessing the validity of the statement, turn to an ad hominem attack on Mrs. Francis. They ask, why is she saying this now, at this late stage, when she has been at JAMPRO for so long? That question, of course, misses the ball completely. The real question is whether Mrs. Francis was correct.

INTERNATIONAL LAW

Foreign investment issues have traditionally been governed in part by international law. The international component arises because the investor - often a multinational company - comes from one country, but carries out substantial operations in another country. International law has, over the years, developed certain rules designed to protect both the investor and the host country.

These international law rules have not, however, been fully incorporated into a multilateral treaty on the subject. Instead, they exist largely as rules of customary law.

But customary law can sometimes be difficult to pin down; and in the area of foreign investment, there have been substantial differences of opinion on what the rules of customary law actually say. Partly for this reason, developed countries have been keen to promote bilateral investment treaties setting out specific rules of investment law. There are now thousands of such treaties, mainly between one developed country and its counterpart developing country. Jamaica is a party to more than 10 such treaties, with traditional investment partners such as the United States of America and the United Kingdom, among others.

TYPICAL TREATY

The typical bilateral investment treaty seeks to ensure that the host state does not abuse its position vis-à-vis the foreign investor. Thus, it will provide that all foreign investment in a host state is guaranteed "fair and equitable treatment." If, for instance, a host country has a set of environmental procedures, and these are followed by the foreign investor then, in my view, it would be neither fair nor equitable for the state to deny the validity of those procedures after the investor has relied on those procedures.

The typical bilateral investment treaty also contains provisions on what are called contingent standards. These include an assurance that the foreign investor from State X will receive treatment no less favourable than that offered to investors from any other foreign country (most favoured nation treatment), and an assurance that the foreign investor from State X will receive treatment no less favourable than that offered to nationals of the host country (national treatment).

These standards raise important policy questions. With respect to most-favoured-nation treatment standard, for instance, Jamaica may well wish to give preferential treatment to its CARICOM counterparts in investment matters, this being inherent in the idea of the CARICOM Single Market and Economy (the CSME). But such preferential treatment would be ex hypothesi, contrary to the most-favoured-nation treatment in some bilateral investment treaties. For this reason, exceptions are sometimes placed in the bilateral investment treaties for the protection of regional economic groups.

With respect to the national treatment standard, the policy issues are profound. If this standard applies in its pure form, Jamaica may not be able to give preferential treatment, say, to Jamaican universities over foreign universities; nor will the Jamaican Government be able to give tax breaks to local investors over foreign ones; nor will Jamaica be able to bar foreign investors from ownership of the media, and so on.

Sometimes exceptions are made to the national treatment standard. But the tide is flowing against such exceptions. The various negotiations on international trade - and existing WTO agreements - are based on the assumption that the type of protectionism developed countries want for certain industries will be phased out in the near future.

Stephen Vasciannie is Professor of International Law, UWI, Mona, and a senior consultant in the Attorney-General’s Chambers.