Definition of Foreign Investors and Protected Investments: A Comparative Analysis

Abstract

This chapter first identifies shortcomings concerning the definitions of “foreign investor” and “foreign investment” found in the legislation of some states. It then proceeds to develop specific recommendations for the improvement of these definitions. More specifically, the chapter analyses bilateral and multilateral investment treaties, the legislation of different countries, awards of investment tribunals, and recommendations of international organizations and experts concerning the definition of “foreign investor” and “protected investments”.

While literature concerning the definition of “foreign investor”, “foreign investment”, or “investment activity” exists, this chapter focuses on the most recent approaches of states to this topic – both internationally and domestically. An additional novelty element is that the chapter will compare the international/domestic interface and explain why a one-size fits all cannot be used by every state.

The chapter reiviews the key criteria which define the terms "investment", "investor", "investment activity" and "investment dispute". These criteria differ based on the international investment agreements that contain them. In any case, in the absence of detailed definitions, arbitration tribunals have wide discretion when interpreting these terms. Subsequently, the chapter addresses the most common criteria used for defining these terms and the ways states adapt to avoid overly broad interpretations.

The next section discusses the relationship between a state's sovereign right to regulate the activity of foreign investors, on the one hand, and the protection of their legitimate expectations, on the other. Many international treaties lack specific provisions to clarify the limits of a state's ability to regulate in this context, including in the area of taxation and other areas of public law. The chapter also examines how international law and international tribunals approach corporate features of individual companies and corporate groups, as well as approaches to defining the concept of “investor” based on location, incorporation and control.

Before concluding, the final section presents an overview of recent reforms in various jurisdictions, as well as specific policy options related to the definition of "investment", "investor", and related terms.

This analysis aims to benefit primarily policymakers who consider amending and supplementing existing domestic laws or treaties to clarify these definitions, which should finally contribute to the development of a uniform judicial practice. It can also serve as a source for comparative analysis when formulating definitions of foreign investments and foreign control for other purposes, such as foreign investment screening.

Keywords: Investment, Investor, Investment Activity, Investment Dispute, ISDS, ICSID, Investor-State Arbitration

JEL Classification: K40, K41, K33, K42, K49