A legal framework that guarantees stability to international business is always desirable for any investor or company in any sector of the economy anywhere. Provided that each country has jurisdiction on its own territory, how to promote and protect business abroad? And how to avoid, or at least reduce, the political risk involved in doing business in a different country?
A legal framework that guarantees stability to international business is always desirable for any investor or company in any sector of the economy anywhere. Provided that each country has jurisdiction on its own territory, ¿how to promote and protect business abroad? And ¿how to avoid, or at least reduce, the political risk involved in doing business in a different country?
With the aim of providing instruments that allow the governments to offer a stable and favorable framework for international business, the countries negotiate and celebrate International Investment Agreements –IIA-. This kind of agreements are international treaties signed by two or more countries with the purpose of establishing a framework of common legal rules that shall be applicable for foreign investments in the geographical area of all signing countries.
There are several types of IIA. First of all, there are the agreements aimed mainly to protect the establishment, operation, management or expansion of foreign investments. These agreements include only one substantial discipline which is investment and are known as Bilateral Investment Treaties –BIT-. Secondly, there are Free Trade Agreements – FTA – that constitutes IIA only when they include an investment chapter aimed to protect the establishment, operation, management or expansion of foreign investments (FTA include several substantial disciplines such as, market access, trade in services, intellectual property, rules of origin, etc.).
Colombia, under the strategy of internationalization of its economy and the promotion of the country as a favorable destiny for international investments and businesses, have negotiated several IIA which include, in general terms, the following rules in order to reduce the political risk in foreign investments:
- Non-discrimination: this obligation guarantees that, except in some cases, each country shall not discriminate between the national investors or investors of a third country and the investors of the other country signatory of the IIA. Under this rule, the same treatment granted by a government to national investors or investors of any country, shall be granted in the same conditions, to investors of the other country signatory.
- Fair and Equitable Treatment: includes the obligation of a government, of granting to the investments of the other country, a treatment which is not arbitrary but in accordance with the due process of law and the obligation not to deny justice in criminal, civil or administrative proceedings.
- Full protection and security: implies the commitment of a government of granting police protection to foreign investments in the same level as granted to national investors.
- Prohibition of expropriation without compensation: under this commitment, no expropriation measure may be established unless such measure is taken on a non-discriminatory basis, for a public purpose and in accordance with the due process of law. In any case, any expropriation shall be accompanied by the payment of prompt, adequate and effective compensation.
- Free transfer: implies the obligation for each country of allowing investors of the other country to conduct transfers, in a freely usable currency, freely and without undue delay. Transfers include contributions to capital, including the initial contribution, returns and management fees among others.
- Investor – State dispute settlement: in the event case of infringement of any of the obligations provided in the IIA, the same agreement establishes a special mechanism for the solutions of differences between the investor and the State. This means that, the investor affected by the infringement by the State, may submit a claim against the host State, before international arbitration courts, pursuing an economic compensation.
Colombia has the following IIA in force:
- BIT: with Peru, Switzerland, Spain, China, India, United Kingdom
- FTA with investment chapter: México, United States, Chile, North Triangle (Honduras, Salvador Guatemala) and Canada.
It is expected that the following IIA shall enter into force in Colombia during 2015 – 2016:
- BIT: Japan, France, Singapore.
- FTA with investment chapter: Costa Rica, South Korea and the Pacific Alliance.
It is important to take into account that this kind of IIA provides protection for foreign investments in Colombia as well for Colombian investors abroad considering that such treaties are negotiated on a reciprocity principle.
With these agreements, Colombia certainly improves its investment climate offering a predictable and favorable legal framework for international business which substantially contributes to reduce the political risk involved in any investment established or intended to be established in Colombia by investors from a foreign country.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of any entity or agency of the Colombian government or any other agency associated with it.
- The specific description of any of the obligations provided in IIA may vary in each IIA provided that such provisions are a result of a negotiation process between countries.
- The texts of the IIA in force in Colombia are available in the official web page of the Ministry of Trade of Colombia http://www.tlc.gov.co/publicaciones.php?id=6420 in visit of august 2015. Some of the IIA included in such link, are not referred in this document (such as the EFTA agreement) provided that, such agreements do not include deep rules regarding promotion and protection of investments as the described in this document.