International investment law principles: nature and relationship

Table of contents: The Kazakh-American Free University Academic Journal №4 - 2012

Author: Dautbayeva Dinara, Kazakh-American Free University, Kazakhstan

Investment resources are always limited and consequently demand their purposeful expenditure which is very important in the context of economic crisis. In this regard their target use is one of the necessary factors of economy stabilization and increasing. Being one of the instruments of negative economic circumstances overcoming, investment policy should play an important role in the economy management and solve the issues of financial flows according to the state interests in existing social and economic conditions. The state defines investment policy as it has a political power and possesses the ability to realize its will in the regulatory legal acts concerning investment flows. The state's influence on the process is necessary as the state should be able to defend its interests i.e. the interests of all population [1, p. 15].

The specific character of investment regulation is caused by the fact that investment is a difficult and multifaceted category. The provisions for investment relations regulation principles are of great interest in respect of investment legislation improvement. As a whole, the basic principles of investment regulation can be the following: the non-discrimination principle (equal rights of investors), the principle of investment freedom, the principle of the state non-interference in the economic activity of the investor, the principle of investment conditions stability ensuring, the principle of investments protection, the principle of full recovery of investor's losses, and the principle of the state support of investments. In the majority of countries the concept of investments is revealed by enumeration of property put into the objects of business or other activity. It indicates the legislator's approach to the category of investments from positions of the investor's property by which the range of investment objects is not limited that quite corresponds to the principle of investment freedom legally established in these countries. Thus, individuals and legal entities, the state, and organizations of public character can act as investors. It is necessary to note that in the laws of such countries as Belarus, Moldova, Azerbaijan, etc. there are sections devoted to the activity of enterprises with foreign investments.

Investment relationship cannot be revealed without key base concepts such as "investments" and "investment activity". The analysis of legislative definition of the concept "investments" allowed to reveal the following signs of investments: 1) this property is intended for business activity; 2) being put into the objects of business activity this property is exposed to an assessment for the purpose of its definition as a contribution and its cost; 3) this property is considered as a part of investments from the moment of its investing into the objects of business activity; 4) the process of investing can be carried out in the following ways: by contribution (assets) transferring to the authorized capital of the legal entity (commercial organization); by property use for increase in the fixed assets used for business activity; by property use for work or increase in the fixed assets within the contract of concession by the concessionaire (assignee); 5) investing is to be carried out with a view of income (profit) receiving; 6) as object of investment are respectively considered: a) the authorized capital of the legal entity; b) the fixed assets used for business activity; c) the fixed assets made and received within the contract of concession. There exist different classifications of investments types. The most significant ones are the division of investments in capital and intellectual, state and private, foreign and national. Other types of investments, in their turn, fall under the main division and enter in any of them, i.e. have secondary character, and are additional in relation to the main types. They are direct and portfolio investments, real and financial, long-term and short-term, high-risky and low-risky investments, etc. Investment activity is a type of business activity. The analysis of its legislative definition allowed to reveal the following signs of investment activity: 1) it is an initiative activity of the businessman; 2) individuals and legal entities irrespective of ownership forms can be its subjects; 3) it is based on the property of the businessman (property independence); 4) it is carried out on behalf of the businessman; 5) it is based on the risk of the businessman; 6) it is based on the property responsibility of the businessman; 7) it is directed on income receiving; 8) it is carried out by satisfaction of the demand for goods (works, services).

The concept "investment activity" is defined generally as a set of actions on investments implementation (realization). Thus, these actions are not limited to certain legal forms. The rights of investors and a guarantee of their protection are defined when establishing a legal regime. The guarantees are presented by legislative, state, governmental, and additional guarantees. As a whole, all basic guarantees are the following: 1) the guarantee of protection against nationalization, requisition and other similar measures (in some countries some of these measures are forbidden or allowed only in an exclusive order on the principles of adequate, immediate, and full recovery of investor's losses); 2) the guarantees of protection against changes in the legislation (it is not turned into to the guarantee of contract conditions stability, it provides the stability of investment activity conditions); 3) the guarantees of protection against illegal actions of state authorities (provides for the ban on intervention in economic activity of investors and the indemnification for intervention in economic activity). In our opinion, the relations arising in international investment activity are the subject of legal regulation of various branches of law both public and private. In a domestic legal science E. Abdrakhmanova, S. Abdykarimova, G. Akhmadiyeva, Y. Basin, A. Dzhakishev, A. Dzhanaleeva, A. Didenko, R. Dosybayeva, I. Zhanaydarov, E. Zhusupov, K. Maulenov, S. Moroz, N. Mukhitdinov, A. Nukusheva, M. Sarsembayev, M. Suleymenov, M. Taimov, Sh. Tashmukhambetova and others considered the given problem including the questions of international legal regulation of investment relations.

The mechanism of legal regulation of international investments makes set of principles, norms, and rules of international and internal law which defines the legal status of foreign investments from the moment of their establishment till their elimination. Principles and norms of the international investment law occur either from non-contractual sources, especially from general principles of international law, or from conventional sources: both multilateral and bilateral contracts and agreements.

As to the principles and norms of the national law they are developed by the state - the recipient of the capital. Legislative documents or bylaws reflect the choice of the state policy concerning foreign investments. Each country tries to build the investment policy proceeding from a number of reasons. During the international law evolution there was a transformation of principles and norms within the law itself. In the 60-70s of the XX century the international investment law leaned, first of all, on general principles of international law [2, p. 112]. At the period when developing countries tried to approve their unconditional right to international investments regulation under the lack of the conventional system of foreign investments legal protection the developed countries had nothing to do but address to the basic principles of international law. The characteristic feature of modern normative system is the existence of basic principles in it. The basic principles are understood as socially caused generalized norms and ideas reflecting characteristic tendencies and nature of the normative system. Taking into account the importance of the carried-out functions they are of the highest authority. As it was already mentioned, in the second half of the XX century the international investment law, urged to provide a favorable mode of foreign investments, developed in a zigzag fashion that was caused by basic contradictions between the North countries, exporters of investments, and the South countries, their importers. This development had three stages within conditional temporary framework. During the first stage, the countries of the North validated the general principles of international law in the sphere of foreign investments regulation. The second stage was the time of non-recognition (rejecting) of the general principles of international law in the sphere of the international investments status by the countries of the South. The third stage was a period of restoration of general principles concerning the legal mode of foreign investments. Compound and interdependent elements of the general principles of international law in the considered sphere are the following: First, the national norms regulating a mode of investments, in case of need should be brought into accord with the international norms. Secondly, the international law doesn't impede the international investments to be given the preferable in comparison with national investments mode. Thirdly, the international law forbids some differentiated modes putting foreign investments into less advantageous position than national. Developing countries hardly allow existence of the general principles of international law obliging the host state to respect the international standards irrespectively of any convention. General principles were established only under the influence of the developed countries when the developing states did not achieve the international recognition of their sovereignty. Actually, these principles do not reflect the will of all members of the world community as they are adverse for developing countries. The purposes and principles of the international investment law are defined by the purposes and principles of international law as a whole. The United Nations Charter gave particular attention to the economic cooperation with a considerable part made by the international investment cooperation. According to the UN Charter the purposes of the international economic cooperation are designated as the following: assistance to economic and social progress of all countries and peoples; creation of conditions for stability and wellbeing necessary for peace and constructive cooperation between countries; and increase of general and material well-being of people. All general principles of international law are acceptable for the international regulation of investment cooperation but some of them received additional contents in this sphere. According to the principle of states sovereign equality all countries have the right to choose freely the economic system and to carry out economic development. According to the principles of non-use of force and non-interference the use of force or threat by force and all other forms of intervention directed against economic bases of the states are forbidden. All investment disputes should be solved only by peaceful means. According to the principle of cooperation countries are obliged to cooperate with each other for the purpose of assistance to economic stability and progress of the general welfare of the people on the basis of free movement of capitals, goods, and services. The principle of diligent implementation of obligations also refers to the international investment relations as the international investment cooperation completely has a contract binding character [3, p. 55]. Fundamental international purposes and principles of international economic cooperation are stipulated, for example, in Geneva "principles defining the international trade relations and the trade policy promoting development" (accepted at the first United Nations Conference on Trade and Development in 1964), the Declaration for the Establishment of a New International Economic Order and the Charter of Economic Rights and Duties of States accepted in the form of resolutions. The Resolutions of the General Assembly of the United Nations "Confidence-Building in International Economic Relations" (1984), "International Economic Security" (1985), and others accentuate the importance of general principles for the new international economic order which basis is made by civilized forms of the international investment cooperation. The principle of permanent sovereignty of the state over its natural resources and all economic activity including the right of the state on possession, use and operation of natural resources, the right to regulate and supervise foreign investments and multinational corporation activity within its national jurisdiction should also be referred to the general principles of the international investment law. With a certain share of convention and a number of reservations it is possible to deduce some basic principles of the international investment law. They include the principle of investments export freedom; the principle of free protective measures application when importing investments; the principle of investments protection; the principle of "territoriality" of foreign investments regulation; the principle of state and international control over investments movement; the principle of non-damaging the economy of the host country; the principle of prevention of expropriation/nationalization of foreign investments without a corresponding compensation; the principle of free transition of income and dividends from investments out of borders of the basing country; subrogation principle, i.e. transition of the private insurant's right to compensation for damage to the state of the investor; the principle of the double taxation elimination; the non-discrimination principle; the principle of the most favored nation; and the principle of a national regime granting.

The principle giving the right to provide national security and to punish the citizens and the legal entities for breaking the norms of internal and international law during the foreign investment implementation on the territory of another state is of great importance too. According to the antimonopoly law of the majority of the countries their legal entities do not have the right to conduct in a foreign state the economic activity breaking the provisions of the antimonopoly law of the domestic state.

The principle of freedom of protective measures application when investments importing assumes that each state owing to its sovereignty has the right to dispose freely of the natural and other resources; to allow or not to allow the foreign capital to investigation and operation of natural resources; to limit or stop activity of the foreign capital in the territory; to regulate and supervise all economic activity in the territory of the country, including the activity of foreign corporations and the mode of foreign investments on the basis of internal and international law. According to the European model of the bilateral investment agreement the international legal protection is provided only to foreign investments approved by the host country. In other words, some countries divide foreign investments into two categories: having international legal protection owing to their preliminary approval by the host country and not having such status. The monitoring system over the foreign investments admission according to the national legislation does not contradict the theory and practice of international law. At the same time, not all countries demand passing of the approval procedure for all foreign investments. A lot of countries pursue the "open-doors" policy but the officially approved investments get various advantages [4, p.138]. A special procedure of foreign investments approval is directed on involving the investments favorable to the host country and meeting all its conditions.

The principle of foreign investments regulation territoriality means that if a foreign investor is allowed on the territory of another's state, its activity automatically falls under the host country exclusive jurisdiction. In this light, all forms and methods of state control concerning the foreign investor admit lawful according to the existing international legal norms.

The theory and practice of international law consider the principle of country sovereignty as one of the bases of existing in the modern world law and order. The international community considers each sovereign state carrying out its supremacy within its territory to be an axiom. The sovereignty of the state assumes implementation of all completeness of legislative, executive, judicial and other power in its own territory without the intervention from the outside. The supremacy of the state also means the higher authority of the country on the relation to all individuals and organizations being in limits of the territory, and besides, in the territory of the country the public power of another state is excluded [4, p. 150].

The principle of state sovereignty also means an exclusive right of the country to adopt acts obligatory to execution in its territory. Owing to it the tax legislation of each country has its own features leading to certain collisions, in particular, to double taxation when two or more countries consider the same subject their taxpayer or when according to the legislation of both countries the taxation object at the same time is the taxation object of both counties.

The principle of non-damaging the economy of the host country provides that the country-capital exporter must not make negative impact on social and economic development of the host country. Jurisdiction of the state is the manifestation of the state sovereignty, and initial base of national jurisdiction is the state territory. Only within its territory the jurisdiction of the state is unconditionally full and exclusive. It acts as the integral and main element of territorial supremacy [3, p. 94].

The principle of investments protection assumes state protection of a private investor's property in the host country. Originally the protection of foreign property and foreign citizens was carried out mainly through diplomatic channels. Nowadays with the purpose of appropriate legal protection countries make bilateral and multilateral agreements on mutual protection of foreign investments. From the legal point of view the foreign investments protection means creation by the host country of the long-term stable legislation providing non-use of discrimination measures, state guarantees for complete and unconditional protection of the foreign investor's rights and interests, and the right to carry out investment activity in the territory of the country in any forms not forbidden by the law.

The principle of state and international control over investments movement consists in the fact that each country has the right to regulate and supervise foreign investments within its national jurisdiction, according to its own laws, national purposes, and priorities. In the modern world market countries are not able to protect their interests according only to the principle of territorial jurisdiction. Rapid development of telecommunication and transcontinental air flights simplified business relationship of people from different countries. Besides, today capitals can move instantly worldwide in an electronic form. Despite difficulties arising in this regard, countries aspire to supervise the movement of investments from other countries.

The principle of free export of investments is fundamental. According to the basic international legal documents in the sphere of the international investment law, countries are obliged to eliminate national barriers on the way of capitals movement and not to establish ban and restrictions on export of private investments into other countries.

From the point of view of the international investment law the principle of the double taxation elimination provides avoidance of simultaneous taxation in two and more countries of one taxpayer concerning the same object. At the same time under modern conditions the so-called Theory of Universal Jurisdiction is becoming widely spread. According to this theory in the international law there are the highest principles having a priority over the sovereignty of other countries. The world community recognizes supremacy of these new principles though they are not fixed in the United Nations Charter among the basic principles of international law. First of all, it is a question of the international protection of human rights. The Theory of Universal Jurisdiction also finds its application in the sphere of international legal regulation of investments. Need of natural resources protection in the course of foreign investment activity implementation in developing countries promoted progressive international development and establishment of a new economic order. The new system of international legal norms demands recognition of higher moral principles of the world community development, for example, such as the offer of the developed countries of "the fair price" for natural resources of developing countries. It is possible to mention also the provisions of codes drafts for multinational corporations' behavior demanding corporations acting according to economic targets of the developing country. Proceeding from the theory and practice of the international law, each country is obliged to respect and protect the property of other countries' citizens. The obligations of fair and favorable relation to foreign private property and its protection are traditional if meaning bilateral and multilateral agreements. Countries must not undertake any measures directly or indirectly directed on deprivation of foreign investors property. If necessary they should be carried out only in public interests and at observance of lawful procedure. The international investment law demands the nationalization to be accompanied by payment of fair compensation corresponding to real cost of the property at the moment of nationalization. The payment of the compensatory sums is carried out with granting possibility of transfer in the corresponding currency. Thus, the international practice allows the sovereign right of the country to nationalization of the foreign private property being in its territory but demands fair, full, and effective compensation.

For many decades the most-favored-nation principle has been acting as one of the most important legal instruments of normal implementation of the international trade and economic relations including investment. G. Tunkin notes that the doctrine of international law and countries practice recognize as the principles of international law the norms differing from other international norms in their more general character. They only touch upon the main issues of international relations. But there is no accurate differentiation between principles and norms [3, p.109]. The basic principles of modern international law are the conventional norms which are most important for ensuring of normal functioning of interstate system and, therefore, for the solution of the international problems. According to the most-favored-nation principle foreign persons - citizens and organizations - of this country have the same rights, advantages, and privileges established for the subjects belonging to the third country during realization of mutual cooperation. The most-favored-nation principle unlike the principle of the national regime established both in the national act and in the international treaty can be fixed only by international agreements. The legal maintenance of this principle is consolidated to equalizing of conditions and the rights for all foreigners acting in the territory of the concrete country owing to signed international legal agreements with the considered state. It means that if one state provides another a most favored nation treatment both citizens and legal entities and organizations of the latter use so favorable conditions which are already provided or will be provided to any third state. The most-favored-nation principle essence in international trade and economic relations consists in the right to demand the optimum, preferential, exclusive terms provided to any third state. The basic purpose of the most-favored-nation principle consists not only in discrimination prohibition within a certain number of countries but also, first of all, in mutual granting of the most preferential terms in the field of the external economic relations. The most-favored-nation principle establishes an equality of the widest rights and possibilities of partners and creates the fairest conditions for international trade. Nowadays the application of this principle in trade and economic relations became almost universal promoted by the wide experience of its use.

In present the most-favored-nation principle is applied practically by all countries, forms a basis for the bilateral relations, and is established in multilateral contracts. This fact proves to be true that the given principle, being the major branch principle of the international economic law, is in the modern world a necessary condition for effective development of economic relationship of countries. According to E. Usenko the importance of the most-favored-nation principle in the field of international trade "is so great that without its establishment and observance normal trade relations between the respective countries are almost impossible" [4, p. 133]. As one of the features of the most-favored-nation treatment at the present stage is reciprocity, the most widespread legal act containing a clause about the most favored regime is considered the bilateral contract. But the cases of unilateral granting of the most-favored-nation treatment are known to have taken place in the world practice. In this regard there is a question - is it possible to consider a unilateral clause about the most-favored regime corresponding to the principle of sovereign equality? Unilateral granting a most-favored-nation treatment is allowed only under the conditions compensating the absence of formal reciprocity and providing observance of the principle of mutual benefit. The most-favored-nation principle application in multilateral contracts has its specifics. The example of such multilateral contract, with key principle of mutual granting a most-favored-nation treatment, is General Agreement on Tariffs and Trade (GATT). It is of great importance in the system of international legal regulation of economic relations between countries. The mode of the most-favored-treatment characterizes a special level and character of relations between countries. More often they are either the relations within integration cooperation or relations between border states or intraregional relations possessing both signs (the CIS, EU, and EURASEC). Regardless of it, it is necessary to distinguish the most-favored-nation treatment from the preferential mode which can be established for a certain group of the countries in the investment sphere of cooperation. Along with it, there exist particular types of treatments concerning the conditions of foreign individuals and organizations activity in the territory of the concrete state. In particular, according to the CIS Convention on Investors' Rights Protection the parties have the right to revise the list of withdrawals from the sphere of national treatment towards the improvement of a legal status of investors from the agreeing countries. They have the right to define lists of priorities concerning branches, kinds of activity and regions for which more preferential terms of investments attraction are introduced. In the conditions of accruing free movement of the capitals the internal law is more cooperating with the international investment law. The latter acts as a guarantor and as a general "legal standard" for national investment legislations. It is thus important that the implementation of the international investment norms in the national law is possible only when the investment legislation of a country corresponds to the international investment law. The realization of the international and investment norms accepted on the multilateral and bilateral basis demands close and similar legal rules in the national investment legislation. In its turn such interaction promotes to rapprochement and unification of interstate investment norms. By the way, speaking about the international contractual unification of law, it is necessary to note that this form of interaction of the international and national law is one of the important conditions of global economic integration implementation. National financial rules of law and institutions capable effectively to act under the present conditions of the world economy globalization are of great importance during the implementation of foreign investment activity. One of the reasons of not enough appeal to foreign investors of the countries of the so-called "transition economy" is an inefficiency of their financial and economic institutions in the conditions of more active functioning of the world financial system. Thus, universal rules and provisions directly or indirectly regulating a legal mode of foreign investments are stipulated, in particular, in international legal acts of the World Trade Organization, in the International Monetary Fund Charter, the World bank Charter, OECD Model Codes, in documents of the non-governmental financial organizations under the aegis of the London and Parisian clubs, and also in universal financial conventions adopted within the international economic organizations, such, as UNIDROIT, UNCITRAL, UNIDO, UNCTAD, etc. Thus, the basis of the international investment law is made by a set of national and international legal norms regulating the relations between various participants of investment activity in the territory of another state. The especially important factor is that the subject of foreign investments regulation was and remains uniform and indissoluble in the conditions of the interconnected globalized world economy. Legal regulation of foreign investments visually confirms the objectivity and interdependence of investment process and domestic and foreign investment policy.

The legal nature of relationship in the sphere of foreign investments consists in creation of the corresponding conditions and guarantees for investors-owners and in definition of the corresponding organizational and legal forms of investment. First of all, the national law in the form of special investment legislation and in general regulatory legal acts (civil, financial, tax, bank, and customs legislation) stipulates the norms defining legal forms of foreign investments regulation in the country. On the other hand, the international legal investment norms fixed in the international universal and bilateral treaties and being a component of national legal systems, act as a legal standard for the domestic investment legislation. This process occurs not by withdrawal of the corresponding internal principles and norms from the existing national legislation and their replacement with international legal contractual norms but by means of harmonization of joint legal regulation when providing legal guarantees of foreign investments.

It is considered that the Republic of Kazakhstan created the complex of economic, legal, and organizational measures for protection of national and foreign capital investments, issued in the form of norms and rules according to which the favorable mode of mutual investment is declared. The Republic of Kazakhstan defined the basic international principles of investments attraction to be observed on its territory. They are the following: stability and predictability; accurate, transparent, and unequivocal norms of investment activity regulation meeting the international standards; protection of legitimate rights of investors; equal conditions for activity of foreign and domestic investors; observance of conditions of contracts and international treaties; profitability and productivity of direct investments; stimulation of direct investments in priority sectors of economy; ensuring information transparency of domestic stock market and equal conditions for various groups of investors; environment preservation [5, p.62]. The sphere of international investment regulation demands special approaches to public administration and creations of special mechanisms to successfully perform the major function of the state on capital investments attraction. At the modern stage the presented conditions predetermine the carried-out reforms in the sphere of investments concerning the changes of principles and the mechanism of acts performance, with the state support establishing of the special structures for increase of the international investment activity efficiency.

REFERENCES

1. Gitman L., Jonk I. Investment Fundamentals: translated from English. - I.: Delo, 2007. - 257p.

2. Legal Regulation of Foreign Economic Activity. Almaty: Gylym, 2004. - V.2. - 303 p.

3. Doronina N. Legal Regulation of Foreign Investments in Russia and Abroad. - I.: Jurist, 1993. - 208p.

4. Mobius I. Investor's Guide on Developing Markets: translated from English. - I.: "Afon" Investment Company, "Grivna" CJSC, 1995. - P.103-154.

5. Moroz S. Investment Law: Textbook. - Almaty: Jurist, 2007. - 215p.



Table of contents: The Kazakh-American Free University Academic Journal №4 - 2012

  
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