Investment Provisions for a Free Trade Agreement: A Technical Handbook

Clinic: Graduate Institute, Fall 2021

Beneficiary: Confidential

Non-Confidential Summary

This report contains an advisory handbook to assist a country in its negotiations for the drafting of the investment chapter of a free trade agreement that is under negotiation.

This handbook is meant to serve as an aid for the beneficiary’s negotiators in the drafting of the investment chapter of the free trade agreement. Specifically, this handbook concentrates on six important provisions for the investment chapter which were selected based on discussions between the TradeLab team and the beneficiary’s delegation, namely, (1) the definition of an investor, (2) the definition of an investment, (3) the denial of benefits clause, (4) expropriation, (5) the most-favoured-nation standard of treatment, and (6) dispute settlement.

The TradeLab team has proposed draft texts of the provisions that are in line with the beneficiary’s goals of ensuring a protective environment while retaining regulatory autonomy. For each provision, the TradeLab team has made two proposals: the first proposal sets out the recommended position reflecting the beneficiary’s interests. This proposal takes into account, and builds upon, investment agreements and model codes that have been executed and agreed upon in the region. The second proposal sets out a fallback position for the beneficiary, reflecting the reality that the recommended approach might not always be feasible. This proposal also incorporates elements from regional agreements and model codes.

In addition to the proposals for each provision, the TradeLab team has also extracted the relevant provisions from previously executed agreements, model codes and templates in the annexes in order to provide a ready reference for the beneficiary’s negotiators. These annexes include provisions from agreements and codes within the region and from agreements that the counter-party has entered into over the last several years.

On the basis of these extracted provisions, the TradeLab team has created a convergence scale ranging from 1 (high) to 3 (low) and 4 (novel). This convergence scale shows how consistent the positions of the region and of the counter-party have been in terms of each provision. A high level of convergence would demonstrate that a consistent position has been adopted for a particular provision across multiple agreements and model codes. A lower level of convergence would betray inconsistencies in position and be a cause for flexibility during the negotiations.

The aim of this handbook is to provide a ready reference for justifying positions that the beneficiary could be adopting during the negotiations. The TradeLab team has provided justifications both in the form of references to other treaties, model codes and agreements, and relevant investment cases to justify the recommendations provided.