INTERNATIONAL LAW ON FOREIGN INVESTMENT

Nowadays we live in a global world, as we can see the majority of the things we use are from other country, for this reason the International business started to be more attractive between companies or particulars whose operates in different countries.  Is simple through foreign investment (F.I.) we obtain external resources (capital), to generate cash-flow, with this resources firstly our company obtain other elements like machinery, technology, workforce, secondly with this elements we can improve our production process  and increase our sales, finally we generate profits not only to solve our expenses otherwise the external company who invested in our company get their money back and obtain a percentage of this profits, this kind of investment usually are from developed countries to developing economies, this is one of the reasons for which the investment wasn´t be fair and balanced, in this essay we are going to analyze the law which help to regulate the foreign investment, it means the law to protect developing countries to obtain profit without losing their sovereignty, focus principally in foreign investment.

We mentioned foreign investment (F.I.) bur what does it mean? In simple words there are all kind of resources in their majority money from other country which help  us to increase our process of production and obtain higher profits, we need to take in mind there are three kinds of FI , the first one is direct investment when we know where the capital example we can invest on machinery, buildings, technology and others, second is indirect investment when we don´t know the use of the capital, it is only we delivered  the monetary resources but we aren’t in direct contact  with the activities the enterprise realized with this investment, finally we have portfolio this type of investment means we have different  choices but exist a major risk in turn of major profits that are owned by the same organization.[1]

The terms of FI started at the end of the sixties, when the Second World War was finishing, some group of developing countries were celebrated their independence after many years of fighting, by this time appeared a new ideology and social movement among people “the nationalism”, in this movement the principal objective is every nation needs to keep their national sovereignty which mean the different economies maintain the power to govern themselves. In terms of commerce it means economic liberty, and equal access to other market.  In the seventies appeared a new order international economic world, this order tried to protect natural resources, technologies, and the control of the transnational amounts on foreign investment. In contrast this order didn´t help completely all the countries the consequence was cheap labor force and purchase of natural resources from aliens without concession, in the case of Mexico with this action we can mention the article 27° of the Constitution are violated, remembering all the resources inside of the country belong to their citizens, although this resources could be managed by aliens if the government provided them a concession. 

Continue with the consequences from this new order, the only thing they achieved was that in developing countries the foreign debt increased, by the same time the oil was the principal element by which the developed countries wanted to control all the economies whose have major production of this resource, this action made the OPEC  born, which regulated the production and price of the oil, the problem was the countries which cold exploited this resources didn’t have the enough money to solve  all the expenses, and the power economies give them FI, without the existence of one law which regulated this part, so this countries made this investment taking advantages of the producers of oil.

Not only was the oil though which the developing countries started to compete by FI, was the necessity of a better quality life for their citizens it means more infrastructures, education and other aspects, but the problem was they hadn´t the money, so they turn to credits and they extended their foreign debt, on the other hand the World Bank and the International Monetary Fund started to pressure this countries in order to paid complete this debts, although this institutions helped to the  liberalization of foreign investment regimes, which was focused in two aspects commerce and investment.  Nevertheless even missing an international law which regulated all the topic of Foreign Investment.

Talking about FI at the international level is scarce, because  only exists hundreds of bilateral and multilateral treaties attempt to regulate that behavior, either exclusively or in combination with other matters, typically trade relations. The provisions of these treaties apply equally to the treatment of investment by nationals of either party in the territory of the other party or parties. Several attempts by the OECD, largely a developed countries organizations, to reach agreement among its members on a convention on the treatment of FI have not succeeded. However the great number of investment treaties in force and they noted the similarity in their provisions may in due course contribute to the development of international customary law on the rights of foreign investors generally and the obligations of states towards them. 

 

Other institutions like the World Bank described in their guidelines on the treatment of foreign investment, adopted in 1992 a primary example due to their impact on national legislation even though they mainly address state actions and omissions, by the other hand not all is good looking the foreign investment causes changes into the national and international polices, not always a foreign investment is a good option for the country that are like the receptor country it means the economy where the investment enter, for these reason the Non-Governmental Organizations are created and they protested for different topics.

The effect of FI is different in the developing countries, in our point of view this countries are in some cases the ones that loose when an alien come in to their country and wants to invest, by these reason time ago by year of 1973 Latin American countries developed the “Calvo clause” [2] that talks about the national resources, it is supposed that this clause refers to some areas which are protected from the aliens in order to limited their invest for example in Mexico again in the article 27° mentioned  there is forbidden to an alien the production and distribution of electric energy. [3]

In our opinion the Calvo clause is not satisfied at all, because the contracting countries have the ability to waive the agreement when existed an illegal event  which  directly affecting the nation. We can mention a clear example; in 1960 when "Canada waives the protection of Barcelona Traction Company".[4] Therefore, they needed to integrate the paradigm of globalization, nations didn´t be able to interfered in a controversy when a conflict arises, adhere to international law of FI, which is based on the international law principles. Within these sources, talking  about investment, international agreements are the primary legal resource between countries. However these agreements generate a number of gaps that later provoke difficulties which attempted resolve within the guidelines established in the agreement and give protection to the investor.

The United Nations Organization (UNO), adhering to the Calvo Clause, is concerned with the creation by the World Bank of  two institutions which helps  to solve any disputes that arise between countries which couldn’t established a solution in an internal way. These institutions or arbitral tribunal are International Centre for Settlement of Investment Disputes (ICSID) and Multilateral Investment Guarantee Agency (MIGA) whose objective is  find a solution for every disputes in FI terms.

 It is important highlight, the parties may request assistance from the ICSID must be members of the UN, but above all be in agreement to request the intervention of the organization. However ICSDI may admit non-members if that is your decision. ICSDI is intended to be a forum where various entities generate ideas and alternatives to resolve various disputes.

 Meanwhile, MIGA specifies clear rules to solve problems or disagreements in the contracts. Its main feature is that motivates investors to place their money, even in a country with high risks, since, in addition to providing investment strategies for investment success, says the amount of capital to be invested. That is, if the risk of losing capital MIGA does happen requite the amount of investment, so encourages investors to nominate their money in the best countries for higher profits.

To sum up, is necessary said talking about a FI regulation we have an enormous hole when we want to solve some questions, the most important thing is between developed and developing countries exist respectful contracts, because trough the years the major economies only look for their own benefits, regardless of whom should affect,  other important point is that here in Mexico  we must focus to protect our industrial and agricultural sectors, instead to permitted a huge FI, also started to worry about the correctly assignments of these resources, although the FI could be more beneficial if we  only focus  on the correct use of these resources, we know is not always happened, so before checking the international field we should be worry about national regulations, because we always tend to make the same mistakes again and  again, example in terms of corruption, so we strongly believed International Law of FI is helpful if the FI don´t affected the developing economy.  

   

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[1] Sornarajah, M.(2010) .United Kingdom: Cambridge University

[2] García-Mora Manuel R. (1950).Marquette law review: The calvo clause in Latin American constitutions and international law.

[3] Constitución Política  de los Estados Unidos Mexicanos art 27°

[4] Caso relativo a Barcelona Traction Light/ Resolución. http://www.unizar.es/ssalinas/documents/Prctican8.Documenton6.pdf