MECHANISM AND MEASURES TO PREVENT INTERNATIONAL INVESTMENT DISPUTES – INTERNATIONAL EXPERIENCE AND LESSONS FOR VIETNAM

LIST OF ABBREVIATIONSAAA American Arbitration Association ACIA ASEAN Comprehensive Investment Agreement ANDI Algeria's Agence National de Development des InvestmentsAPR Arbitration Proce

TABLE OF CONTENTS

LIST OF ABBREVIATIONS

AAA American Arbitration Association

ACIA ASEAN Comprehensive Investment Agreement

ANDI Algeria's Agence National de Development des InvestmentsAPR Arbitration Procedures Rules

ASEAN Association of Southeast Asian Nations

BIT Bilateral investment treaty

GDP Gross Domestic Product

ICC International Chamber of Commerce

ICDR International Center for Dispute Resolution

ICSID International Centre for Settlement of Investment DisputeIIA International investment agreements

ISD Investor-State Dispute

ISDS Investor-State Dispute Settlement

JCAA Japan Commercial Arbitration Association

JIC Jordan Investment Commission

JICA Japan International Cooperation Agency

KOTRA Korea Trade-Investment Promotion Agency

MOJ Ministry of Justice

MoFA Ministry of Foreign Affairs

MPI Ministry of Planning and Investment

NAFTA North American Free Trade Agreement

NHK-ITEC NHK Integrated Technology Inc

ODA Official Development Assistance

OECD Organization for Economic Cooperation and DevelopmentOFIO Office of the Foreign Investment Ombudsman

OIO Office of the Foreign Investment Ombudsman

OPIC Overseas Private Investment Corporation

PCA Permanent Court of Arbitration

PMU Project Management Unit

SCC Stockholm Chamber of Commerce

TPP Trans-Pacific Strategic Economic Partnership Agreement UCCI

Urban-Civil Works Construction Investment Management Authority of Ho Chi Minh city

UNCITRAL United Nations Commission on International Trade LawUNCTAD United Nations Conference on Trade and Development

USA United States of America

USD United States dollar

VIAC Vietnam International Arbitration Center

VTV Vietnam Television

VUS.BTA Vietnam-United State Bilateral Trade AgreementWIPO World Intellectual Property Organization

LIST OF FIGURES

SUMMARY OF THESIS RESEARCH RESULTS

In the trend of international integration, up to now, Vietnam has signed nearly

70 investment treaties Most bilateral investment treaties stipulate issues related tothe settlement of Investor-State dispute (ISD) Most investment treaty regulates thatISDs can be settled according to the procedures of the International Centre forSettlement of Investment Disputes (ICSID), under the ICSID Additional Facility orany other arbitration organization However, the ISD settlement at arbitration is notonly costly, but these arising ISDs will reduce the confidence of foreign investors inVietnam's investment environment Therefore, the purpose of the thesis is providingmeasures to prevent possible ISDs After the research process, the thesis should givethe following results:

Firstly, give the concept of "Investor-State dispute".

Secondly, on the basis of studying the status of ISD settlement in some

countries, synthesizing mechanisms and preventive measures of ISD in thosecountries

Thirdly, assess the current status of legal provisions on investment dispute

settlement between foreign investors and the Vietnamese Government

Fourthly, analyze some cases between foreign investors and the Vietnamese

government, thereby drawing lessons for Vietnam in the prevention and settlement

of ISD

Fifthly, propose measures to prevent disputes between foreign investors and

the Vietnamese government

1. Rationale of the study

The implementation of opening policy, attraction of foreign investment (FI) inVietnam makes economic relationship in general and foreign investmentrelationship in particular in Vietnam become more and more diversified andcomplicated In that context, it is difficult to avoid investment disputes Thedisputes can be a foreign investor-domestic investor dispute or a foreign investor toforeign investor dispute or foreign investor- Vietnamese Government dispute

In recent years, foreign investor-Vietnamese Government disputes ininvestment activities are increasing Practice of international investment disputesettlement shows that arbitration is a dispute settlement method that investor andState usually take precedence to choose; and practice also shows that Vietnam hasnot had experience in the dispute settlement at arbitration yet Unfruitful disputesettlement will harm Vietnam’s attraction for foreign investment and reduceVietnam’s completion in drawing foreign investment Therefore, besides goodsettlement of international investment dispute, it is important to preventinternational investment disputes It is the reason the author selects the theme:

“Mechanism and measures to prevent international investment disputes – International experience and lessons for Vietnam” as my graduation thesis.

2. Research situation

2.1 Situation of research topics oversea

In overseas, there have been many studies mentioning the theoretical issuesabout ISD and ISD resolution Some projects can be listed as follows:

- Dr David A Gantz: “Settling international investment disputes through arbitration” (2004) – The aim of this study is to take stock of and to analyse the

Investor-State Arbitration under ICSID, the ICSID Additional Facility and theUNCTAD Arbitral Rules

- Research "Investor-State Dispute Settlement Public Consultation: 16 th May –

23 rd July 2012" (2012) which gathers reports of experts at the 16th round table of

the Organization for Economic Cooperation and Development (OECD)

- Research "Investor - State Dispute Settlement and Impact on Investment Rulemaking" (2008) study of the United Nations Conference on Trade and

Development (UNCTAD) The aim of this study is to take stock of and to analysethe major developments in the interpretation of procedural and substantiveinternational investment agreement (IIA) provisions as contained in bilateralinvestment treaties and economic integration agreements with investmentprovisions It addresses the implications of those developments for countries,emphasizing the particular needs of developing countries It presents someconclusions and reflections on possible next steps that countries could take toimplement the lessons learned from the investor-State dispute settlementexperience

- Research “Dispute settlement provisions in international investment agreements: A large sample survey” by Joachim Pohl, Kekeletso Mashigo and

Alexis Nohen (2012) This document surveys Investor-State Dispute Settlement(ISDS) provisions in a sample of 1,660 bilateral investment treaties (BITs) and otherbilateral agreements with investment chapters (mainly Free Trade Agreements,FTAs) The treaties in the sample were concluded by the 54 countries thatparticipate in the “Freedom of Investment” (FOI) Roundtables with any othercountry The survey presents a statistical portrait of ISDS provisions of this treatysample that is both comprehensive and detailed The intention is to provide a factualand statistical catalogue of treaty content and not to in any way engage the OECD

or countries participating in the FOI process regarding interpretation of treatylanguage in an arbitral setting, regardless of whether these treaties are in force ornot In some cases, the bilateral treaties are also compared with selected multilateralagreements with investment chapters (e.g NAFTA, Energy Charter Treaty)

- Research “Reform of Investor-State Dispute Settlement: In search of a roadmap” (2013) This note outlines five main reform paths: Promoting alternative

dispute resolution; Tailoring the existing system through individual IIAs; Limitinginvestor access to ISDS; Introducing an appeals facility; Creating a standing

international investment court And “Global Value Chains: Investment and Trade for Development” by UNCTAD – The world investment report by UNCTAD

In general, these works investigate theoretical and practical issues of ISDresolution based on international investment agreements (IIA), bilateral investmentagreements (BIT) and on the basis of ISD solving experience But each study onlytouches on certain issues, but there is no comprehensive study on preventing ISD.These studies study the resolution of ISD by developed and developing countries,but there is no separate study for Vietnam

Regarding ISD mechanisms and precautions, there are a number of studiesabroad mentioned, such as :

- Research “Investor-State Disputes: Prevention and Alternatives to Arbitration I” by UNCTAD (2010) This is reports summarizing the opinions of

experts in this field around the world from both direct and online The arbitrationexperts of the Center for Effective Dispute Resolution (CEDR) are active andoffer many analysis and recommendations to promote the use of alternativemethods in international investment disputes

- Publications “Stocktaking of Investment Dispute Management and Prevention in the Southern Mediterranean Region” by OECD (2018) It provides an

overview of the region's recent ISDS trends, an analysis of each country’sregulations and international agreements, as well as the current mechanisms set upfor the management of investment disputes It also presents selected case studiesand good practices in investor-State dispute prevention

These studies focus on analyzing the practice of dispute resolution of somecountries, from which draw lessons, synthesize mechanisms and preventivemeasures in those countries, but there is no content which is related to Vietnam

2.2 Situation of research topics in Vietnam

In Vietnam, there have been a number of studies on ISD settlement but fewand only focus on theoretical and practical issues to resolve disputes betweenforeign investors and the Vietnamese government, including:

- Assoc Prof Dr Hoang Phuoc Hiep "Theory and practice on the position, role and participation of government agencies in handling government-related international trade and investment disputes", research works (2012) It provides an

overview of the role of government agencies in solving investment disputes base ontheory and practice in Vietnam Thereby it makes suggestions to improve the legalregulations on the role and operation of state agencies in settling investmentdisputes

- Phan Hong Nguyen "Law on settlement of disputes in the field of foreign direct investment by arbitration in Vietnam" master thesis – Hanoi Law University

(2012) The dissertation provides an overview of the legal provisions on settlement

of investment disputes in the field of direct investment from abroad into Vietnam;the current situation of application and to finalize the relevant legal system toensure the quick and convenient settlement of investment disputes

- Tran Phuong Thao "Settling investment disputes between the Government of Vietnam and foreign investors", Master thesis – Diplomatic Academy of Vietnam

(2015) The thesis provides an overview of the Law and the actual status ofinvestment disputes between foreign investors and the Vietnamese government;propose to improve the legal regulations on resolving disputes between foreigninvestors and the Vietnamese government

An overview of the research works on theoretical and practical issues ofinvestment dispute resolution between foreign investors and the Government ofVietnam, found that in the country there has been research on this issue, although,the number of research works is still limited Although there has not been any study

to introduce the concept of "investment disputes between foreign investors and theGovernment of investment host- countries", there have been studies to introduce the

concept of "disputes in foreign direct investment" The research in this groupmainly refers to the Department of Justice's focal position in international disputeresolution, the research on dispute settlement mechanism and the methods ofdispute settlement are only complementary for the main content of the study.Therefore, there has not been comprehensive research on the theory and practice ofresolving investment disputes between foreign investors and the Government of

Vietnam Master's thesis "Settling investment disputes between the Vietnam Government and foreign investors" by Tran Phuong Thao carefully analyzed some

disputes between foreign investors and the states of Vietnam, withdrew the lessonslearned in dispute resolution However, the introduction of ISD precautions is notmentioned in this study

Thus, the above works and articles only stop at dealing with small issues orcontent related to investment disputes, there is not a complete and comprehensivestudy of investment disputes between foreign investors and the Government ofVietnam and there has not been any research to introduce or systematizemechanisms and measures to prevent investment disputes between foreign investorsand the Government of Vietnam Therefore, the thesis will focus on solvingtheoretical issues about ISD, based on research, referring to mechanisms andpreventive measures of ISD of countries, derived from practical experience in ISDS

of Vietnam to draw up mechanisms and measures to prevent investment disputesbetween foreign investors and the Government of Vietnam

3. Objectives of the study

International investment dispute can be foreign investor - domestic investordispute; foreign investor-to-foreign investor dispute; foreign investor - Statedispute However, in the scope of the study, author only concentrates in investmentdispute between the investor and the host country Therefore, the objectives isfinding the mechanism and measures to prevent the dispute between foreigninvestor and Vietnam state after researching the experiences from other countries

4. Scope of the study

The thesis research ISD and prevention of investment dispute between theforeign investor and the Vietnamese Government on the basis of internationalexperience and practice, theory and practice of ISD settlement in Vietnam

On international experience, based on the source of the material, the thesisfocuses on the experiences of Jordan, Peru, Columbia, and Korea

5. Methodology of the study

The study uses the methodology of dialectical materialism and historicalmaterialism The specific research methods of the study included analysis,synthesis, going from general to specific and other scientific methods such ascomparison, statistics, case studies etc to solve the problems that the topic has set.The study focuses on assessing the advantages, limitations and obstacles of thecurrent legal provisions, identifying issues that have not been stipulated by law orhave been legal provisions or needed to be amended and supplemented accordinglyand better meet the requirements of practice preventing investment disputesbetween foreign investors and the Vietnamese government

6. Structure of the study

Excepting for the foreword, conclusion, and recommendations, reference, theresearch includes 3 chapters:

Chapter 1: Basic theoretical issues on Investor - State dispute

Chapter 2: Mechanism and measures in preventing Investor - State

dispute - International experienceChapter 3: Lessons for Vietnam in preventing Investor - State disputes

CHAPTER 1:

BASIC THEORETICAL ISSUES ON INVESTOR - STATE DISPUTE

1.1 An overview of international investment and Investor - State dispute

1.1.1 Conception of international investment

Popular conception of “Investment” is mentioned on BIT conventions signed

or participated by Vietnam with other countries According to Chapter 4, Article 1,Item 1 Vietnam-United States -Bilateral Trade Agreement (VUS.BTA):

"Investment" means every kind of investment in the territory of a Party owned

or controlled directly or indirectly by nationals or companies of the other Party ” According to Article 4, item c ASEAN Comprehensive Investment Agreement(ACIA):

“Investment” means every kind of assets owned or controlled an investor including but not limited to:

(i) Movable property and real estate, property rights such as pledgement, mortgage or guarantee;

(ii) Stock, shares, bond, debentures, and every form of participating in a legal entity and rights and benefit received from it

and regulations of each member state;

(iv) Right of demanding money or for every contract implementation related to business and having financial value;

(v) Contractual rights, such as under turnkey, construction, management, manufacture contract or allocation of tariff contract; and

(vi) Franchising is required in order to carry out economic activities and having financial value empowered according to law or contract including any franchising for research, cultivation, extract or exploitation

of natural resources;

Term of “investment” also includes amounts of money be brought by investment, in details: profit, interest rate, profit from capital, dividend, royalties, and emoluments Any change of form under that invested and reinvested assets does not affect their classification as an investment

Although Conceptions of investment mentioned above are different, there aregeneral features as follows:

The first, the purpose of investment is profit For enterprise, benefits tended by

them are recovery rate, profit, development of position of the enterprise For theState, investment activities tend to make social economic benefits such asemployment, supply of public products and services, protection of resources andenvironment and firm development

The second, the investment are only implemented when the investor or procuring agency brings his capital in investment process The client can be

organizations, individuals and the state Investment capital can exist under manyforms such as tangible assets, intangible assets

The third, the investment has hidden risks Now investment activities surpass

territory of a state so the degree of risk of these activities is getting higher.Restricting risk as well managing risk are issues interested in and studied byinvestors, imported government or exported government

Therefore, investment can be understood as sacrifice something in the present, through that the investor put money, assets under forms, methods according to law

in order to carry out activities for profit

1.1.1.2 Conception of international investment

Basing on different criteria, investment is classified as parts Basing onmanaging right of investment activities, there are two kinds of investment: directinvestment and indirect investment Basing on an economic zone of receivingcapital, investment can be split into two main groups: investment in private zoneand investment in government zone Basing on investment field, it is possible tosplit investment into many kinds such as investment in manufacture, investment intrade or services etc Basing on capital resource, investment is split into domesticinvestment and foreign investment (international investment)

As per the classification mentioned above, Foreign Investment (InternationalInvestment) is a form of investment activities

From the point of view of a state, with the investment from a state to anotherstate or vice versa, we have the term "foreign investment" However, consideringgeneral aspects of the world's economy, all the operation is called internationalinvestment

Considering its nature, investment is capital export because the capital is movedacross the frontier In other words, investment activities will bring internationalfactors if the activities are carried out on the other state's territory by the investors,perhaps natural person or legal entity having citizenship of the other states Therefore,while having features of the international investment in general, it has specificfeatures to be different from domestic investment: It is the movement of capital crossthe state's frontier Therefore, it is possible to understand as follows: International

investment is the process that the investor moves capital or any value kinds from a state to another state to carry out investment activities for profit or social economic benefits.

1.1.2 An overview of international investment dispute

1.1.2.1 Conception of international investment dispute

"Dispute" is a legal conception that is understood and defined in differentways "Dispute" is used to mention "existing situation between two (or more)individuals created by signals of complaints or in opposition "

According to Black's Law Dictionary, "dispute is contradiction, divergence; contradiction of requirements or rights; demand of right, requirement or demand from a party to be responded by an opposite requirement or argument of the other party" (1999, p.17).

According to Vietnamese Dictionary, dispute is understood that

"contradiction; doing or carrying out some opposite issues …; to cram the thing that it is ambiguous to define which party it belongs to” (2000)

In order to define to exist of dispute in Mavrommatis case, on its decision in

1924, Permanent Court of International Justice gave a definition of dispute:

“dispute” is a disagreement on the legal or reality, a conflict of legal opinion or benefit conflict between two or more people (David A Gantz 2004, p.10).

From the above definition, it is possible to understand that dispute is the disagreement, conflict on the basis of law or reality on benefit or obligation between subjects.

Therefore, international investment dispute is understood as disagreement, conflict on economic benefit between subjects participating in international investment in the implementation of rights and obligations occurred from international investment activities.

1.1.2.2 Classification of international investment disputes

Basing on subjects taking part in dispute, International investment dispute can

be divided into dispute between investors, dispute between two states; disputebetween a foreign investor and state receiving investment

The first kind: dispute between investors usually occur under two forms:

dispute between a foreign investor or foreign owned business and capital-importingcountry; dispute between investors

The second kind: dispute between two states This is dispute between two

states on international investment relating to violation, conflicts, disagreement onarticles of bilateral agreements or multilateral agreement on trade or investment.The disputes occur when the economic benefit of a state is violated due to non-compliance with signed agreements of a state or more and its consequence is thatthe retaliation on benefit or political tensions of a part to be violated

The third kind: dispute between a foreign investor and capital-importing

country This dispute occurs in process of implementation of foreign investmentprojects, treaties on encouragement and protection of bilateral or multilateralinvestment The dispute mainly relates to the implementation of contracts such asBOT, BTO and BT

1.1.3 Investor - State dispute (ISD)

1.1.3.1 Conception of Investor - State dispute

On Regulation on Coordination on investment dispute settlement attached toDecision No 04/2014/QD-TTg dated January 14th 2014 of the Prime Ministerconception of international investment dispute is mentioned in Article 2.1 asfollows:

International Investment Dispute as per the Regulation is the dispute occurring from that a foreign investment sues Government, State of Vietnam (hereinafter called the Government of Vietnam) or state organizations or organizations authorized by the State to implement state management (hereinafter called state organizations) on the basis of:

a) Agreement on encouragement and protection of investment or Trade Agreement or other international treaty with regulation on encouragement and protection of investment, of that Vietnam is a member, stipulates dispute settlement

between a foreign investor and the Government of Vietnam at international arbitration or proper foreign jurisdictional agency; or

b) Contract, agreement between the Government of Vietnam or state organization of Vietnam and foreign investor, stipulates that organization of settlement of dispute occurring from the contract or the agreement is international arbitration or proper foreign jurisdictional agency;

Therefore, we generalize that: Investor - State dispute is the disagreement, conflict on benefit or obligation between the foreign investor and the host state in the investment relationship on the basis of international treaties signed or participated by the host government, of which there are regulation on settlement of dispute between a foreign investor and the host State and/or on the basis of contract, agreement between the host State and the foreign investor.

In order to see conception of ISD, it is necessary to see two conceptions:foreign investor and the host state

Host state or importing country or the Government of importing country is a term not defined on investment agreements However, fromthe point of view of “foreign investor”, the Government of capital-importingcountry is a state that allows foreign investor to carry out investment activities onthe state’s territory On IIA the Government of the capital-importing country isunderstood as a party signing IIA that is legal basis for relationship with the investor

Capital-of other parties signing IIA Therefore, the Government Capital-of the Capital-importingcountry is the Government of the State that allows foreign investor to carry outinvestment activities on the state’s territory and it is also the government of a partysigning IIA in the relationship with the investor of other parties signing IIA

Foreign investors include natural person (Individuals) and legal entity(enterprise, economic organizations) carry out investment activities According toIIA, a sign determining foreign investors is citizenship of the investor The citizen

of the investor will affect a protection scope of IIA because agreements are signed

in order to achieve purpose of protection of foreign investor The citizen of natural

person investor on IIA is determined according to law of parties to IIA Forexample, BIT between Vietnam and Argentina stipulates that "investor" being everynatural person is a citizen of a Party to the Agreement in accordance with law of theparty (Point a, Item 2 Article 1) Besides citizenship factor, some IIA add residencefactor: It is time of residence or residence (Point c, Item 1 Article 1 Australia -Vietnam BIT) For legal entity, BIT is able to stipulate simply protection for legalentity established according to Parties to the Agreement IIA can add factor thatlegal entity has to have head office (Point ii, Item a, Article 1 India - Germany BIT1998) and/or to do business in the state signing the Agreement.

However, there are some difficulties in determining citizenship of investor onIIA, for example:

Almost BIT does not mention conception of two citizenship and manyinvestment lawsuits related to two-citizenship issue For natural person investor, theimplementation of BIT usually comes up against difficulties in case of that theinvestor has two citizenships: citizenship of capital-importing country andcitizenship of capital-exporting country According to international law, custom, astate that is not the capital-importing country, the investor is its citizenship, the statewill carry out measures in order to protect its citizen when he/she sues the host state(UNCTAD 2011, p.14) Some BIT mentions this issue and solution of determination

of citizenship of natural person: citizenship of natural person is "effective",

"controlled and effective" citizenship (Article 1, BIT Model Agreement of UnitedStates 2004), therefore natural person is determined having citizenship of a statewith the natures mentioned above

For legal entity investor, difficulties in determining citizenship occur from thatthe investor takes advantage of its citizenship in order to be protected by IIA.Especially, an investor of the third party could take advantage of legal entitycitizenship by establishing a legal entity in the territory of one of the Parties to theagreement so that it is protected when it invests in the other Party Similarly, aninvestor of a party signing agreement can establish legal entity in the territory of theother party in order to be protected when it invests in the state of which it is the

citizen The above cases are examples for "treaty shopping" phenomenon which ispopular and brings about bad effects to the protection purpose of IIA.

Therefore, "Foreign investor" is a term that it is necessary to consider indetails in accordance with specific investment treaties especially in case that theforeign investor has two citizenship of concerned states

1.1.3.2 Features of Investor - State dispute

ISD has some specific features as follows:

The first, In reference to subjects: Depute arises between two subjects that

have different legal status: a foreign investor and host country (authorities in issuinglicense, managing investment project or organizations entrusted by the State to be aprocuring agency in investment contract with foreign investor

The legal status of foreign investor in the investment relationship is decided bythe investor's citizenship Unlike investor, the legal status of the host Governmenttaking part in the relationship is decided by diplomatic custom It means that thehost Government plays a role as a special subject in international privaterelationship The host government has special legal status giving expression tojudicial immunity and immunity for state’s assets, except that the Governmentdeclares clearly to give up the immunity Thanks to the immunity, whenparticipating in international investment relationship, the host government is in abetter position than the foreign investor because it is not adjudged or imperativewhen it violates the investment agreement This causes an inequality for the foreigninvestor in the investment relationship with the host government However alongwith the development of international trade between states, many states applied arelative immunity for the state so that the immunity is applied for non-tradetransaction It is represented by the acceptance of states for that the investor hasdispute with the host government settled under international mechanisms (such asPCA or ICSID Arbitration) and recognizes the investor's complaint right forunsuitable regulation or policy of the host government (it is represented with thatmany states signed ICSID convention According to that the investor has right to

sue directly the host government) However, the right is not recognized by allstates, therefore the absolute judicial immunity in trade transactions still exists andblocks the international investment relationship

The second, In reference to dispute: Normally, dispute is an issue arising from

or relating to relationship between the investor and the state However, the scope ofdispute objects in details is stipulated on Convention/Agreement on relatedinvestment and/or investment or domestic law in case of that there is not anyconvention/agreement For example, Article 1.10 Chapter IV VUS.BTA allowsusing 3 kinds of dispute settlement: investment acceptance, investment agreement,others investment rights The dispute object has specific characteristics, typically asfollows:

- Although relating to State, the dispute has small scope and small effect,mainly in the related case with the related investor and does not affect largely anddirectly to large group of enterprises or business environment in general

- Due to the dispute relating to individual investor, circumstance in the disputehas a given confidential factor and so that in some cases (for example, settlement byarbitration) a decision of settlement is not able to be public

The third, In reference to dispute settlement mode, ISD is able solved through

judicial mode or unjudicial mode Popular judicial mode is to sue at court orarbitration Moreover, it is possible to settle dispute through negotiation, mediationbut these modes are not popular The dispute settlement mode is able to bestipulated on IIA or contract (if any) between the investor and the stateorganizations of the host State However, in some cases (effective) disputesettlement article on IIA is different from that on the contract In that case, disputesettlement mode is chosen depending on parties' claim is put out basing on IIA orcontract If the claim bases on IIA, dispute settlement article will be applied and ifthe claim bases on the contract, the dispute settlement article will be applied

1.2 An overview of mechanism and measures to prevent international

investment disputes

1.2.1 Concept of investor-State dispute prevention

Prevention is an action to eliminate the cause of potential nonconformities orother potentially unwanted situations

Prevention of ISD is the action of “minimizing potential areas of dispute through extensive planning in order to reduce the number of conflicts that escalate

or crystallize into formal disputes.” (UNCTAD, 2010:xiv) According to this

understanding, dispute prevention is conceptualized as the act of reducing thenumber of conflicts that escalate into formal disputes This idea stems from acrucial conceptual distinction widely acknowledged by conflict theorists andDispute System Design (DSD) practitioners, i.e the differentiation between the

notion of “conflict” in the one hand, and “dispute” in the other.

As understanding of investment disputes mentioned in Section 1.1.2.1,preventing investment disputes is an activity to eliminate the causes ofdisagreements and conflicts of economic interests between the participants in theinternational private; when conflicts arise, conflicts of interest need to take actions

so that conflicts do not develop into disputes

From the above definitions and analyzes, preventing investment disputes isunderstood as an action to eliminate, minimize, and eliminate the causes and risks

of hidden risks to reduce conflicts and benefit between investors and localgovernment proactively according to the plan and predetermined plans

According to the above definition, investment dispute prevention has thefollowing characteristics:

- Is an activity that minimizes the number of conflicts that may arise intodispute

- Being proactive in planning and anticipated plans

1.2.2 Investor-States dispute prevention mechanisms

The concept of "mechanism" which is the concept used in technical sciences

and physical, is introduced into legal science with a basic understanding as its originwith appropriate adjustments (Nguyen Nhu Y (2001), Vietnamese dictionary,Culture and Information Publishing House) The term "Mechanism" is thetransliteration of the word Mécanisme of the West The Le Petit Larousse dictionary

(1999) defines "Mécanisme" as "the way in which a set of factors depends on each other" The Vietnamese Dictionary (Institute of Linguistics, H.1997) defines the mechanism as "how to follow a process of implementation".

Dispute prevention mechanism is one of the ways, measures or modes ofoperation of different legal entities in a certain order and discipline to preventdisagreements between those subjects Dispute prevention mechanisms can bedeveloped and formulated on the basis of domestic laws or on the basis ofagreement between the relevant entities

Therefore, the mechanism to prevent investment disputes can be understood as the way, measures or modes of operation of foreign investors and the Government of investment receiving countries in a certain order and discipline, to prevent investment disputes between those entities.

Characteristics of ISD prevention mechanisms

Firstly, on the subject in the dispute prevention mechanism: In the mechanism

of preventing investment disputes, the parties to the dispute include foreigninvestors and the State and related agencies

Secondly, about the content of the mechanism: Mechanism to prevent

investment disputes includes measures, methods and procedures for preventinginvestment disputes

Thirdly, about the purpose of the mechanism: The investment dispute

prevention mechanism aimed at preventing investment disputes may arise andresolve investment disputes that have arisen so that disputes that arise do not have

to be resolved through the judicial

Classification ISD prevention mechanisms:

Firstly, classification by mechanism source: ISD prevention mechanisms by

contract and ISD prevention mechanisms by institutional

- Investor-State dispute prevention mechanism by contract: foreign

investors and local governments will negotiate contractual agreements in addition toterms of rights and obligations in investment relations, contracts will have Conflictmanagement provisions may occur in the future with the aim of not giving rise tolitigation disputes This is a popular form of investment contracts

ISD prevention mechanism's contracts may include mechanisms that allowparties to consult directly to manage any conflicts that may arise during theperformance of the contract or require a problem-solving technique specifically toallow a third party to support conflict management parties such as a disputesettlement, mediation, fact-finding or neutral evaluation panel that the parties mayagree on, before Any specific conflicts arise

In theory, at least, ISD prevention mechanism's contracts have the advantage

of allowing parties involved in potential conflicts to adjust mechanisms according

to their specific needs However, the main limitation of this type of ISD preventionmechanism is that, as mentioned before, they may only apply in situations wherethe relationship between investors and the State is adjusted by a contract

-Investor-State dispute prevention mechanism by institution: Institutional

ISD prevention mechanisms can be defined as investor-State conflict managementmechanisms institutionalized within the structure of the public administration of thehost government Contrary to contractual ISD prevention mechanisms, institutionalISD prevention mechanisms would in principle apply horizontally to allinvestments, regardless of whether or not they are governed by an investmentcontract

Experimental data shows that about half of the cases brought to state-investorarbitration under IIA do not arise from measures adopted at the central or nationallevel of the Government which are the extent to which IIAs are negotiated Instead,

a significant number of disputes between investors and the state tend to arise

regarding measures adopted by city or provincial governments or by state agencies

in charge of specific sectors of the economy (Franck, 2008) Therefore, ISDprevention mechanism organizations may be particularly useful to addressinvestment-related conflicts stemming from the application of inconsistent policiesand measures of different governments - especially the inconsistency may entail thehost country's liability under IIA

In most countries, the proper development of dispute prevention organizationswill likely require the implementation of a comprehensive program aimed atregulating and modernizing parts of public administration infrastructure to allowinvestment stakeholders to early manage conflicts between investors and the state.The most common model of dispute prevention organizations includes thefollowing elements:

1) Investment stocktaking process should comprise at least three keycomponents: a regulatory audit, an empirical analysis of investment stock and flowsinto the country, and third, a record of the investor-State conflict history of thecountry

2) Lead agency with the authority in charge of coordinating activities withrelevant government agencies

3) Information sharing process: allowing the lead agency to disseminateinformation to agencies involved in conflict The lead agency is the head ofinformation for other agencies on issues of implementation of IIAs

4) Early alert mechanism: allowing the Lead Agency to learn about theexistence of an investment-related conflict as soon as possible This is an importantfactor in preventing conflict to develop into a dispute

5) Problem solving methods for the parties: once the problem-solving processhas enabled the parties to find a solution to the conflict It is paramount that suchsolution receives the approval of the adequate political instance of host State and theinvestor

Secondly, According to the criteria of the time of dispute arising, there is amechanism of remote dispute prevention (early prevention), there is a mechanism toprevent disputes when there are problems or conflicts arise With problems orconflicts arise, prevention mechanisms are in place to prevent conflicts to arisinginto disputes.

1.2.3 Investor-States dispute prevention measures

According to the Vietnamese word "Measures are ways to handle work or solveproblems"

Measures to prevent international investment disputes are ways to implementactions to prevent international investment disputes Preventive measures areimplemented according to mechanisms and policies on early activities from abroad

Classification ISD prevention measures:

Research measures of international investment can be classified into thefollowing measures:

- According to the impact of preventing international investment disputes:Economic measures, educational measures, measures of organization and legalmeasures

- According to the scope of activities:

+ Measures to prevent international investment disputes in the whole country:Economics, politics and education

+ Special precautions: For each object of international investment disputesspecific to the economic sector

- According process:

+ Remote preventive measures: through IIA negotiations, implementing theprovisions of IIA for agencies from central to local levels and foreign investors.+ Preventive measures when there are arising problems: quickly receiving andprocessing problems of foreign investors

CHAPTER 2:

MECHANISM AND MEASURES FOR PREVENTING INVESTOR – STATE DISPUTES - INTERNATIONAL EXPERIENCE

2.1 The situation of Investor - State disputes settlement in the world

2.1.1 The situation of Investor - State disputes settlement by the diplomatic

protection method

In the development of ISD solutions, today's diplomatic protection is lesspronounced in protecting the interests of other state-owned investors and is less andless used Limiting the use of this method is reflected in bilateral and multilateralinvestment agreements Clause 1 of Article 27 of the ICSID Convention provides:

"No Contracting State may offer international diplomatic or legal action, involving

a dispute which its nationals and other Contracting States has agreed or must provide arbitration under this Convention, unless the Contracting State fails to comply with the award" On the bilateral level, BITs have similar rules For

example, Item 3 Article 12 BIT between Vietnam - Australia (1991), Article IX.16BIT Vietnam - Chile (1999)

One of the outstanding advantages of the ISD resolution mechanism is theavoidance of political confrontation between countries When investors facedifficulties in claiming compensation from the state according to international arbitralawards, they may invoke their government's actions In the Patuha Power Ltd casewith the Republic of Indonesia (ruling UNCITRAL October 16, 1999), theIndonesian government did not make compensation to judgment investors Later,Pahuta received part of the compensation from political risk insurance issued by a USgovernmental agency, the Overseas Private Company (Overseas Private InvestmentCorporation - OPIC) The OPIC later claimed a refund from the IndonesianGovernment through diplomatic moves and pressure from the United States

As mentioned above, diplomatic protection is still allowed and plays animportant role in some cases where the State receiving investment in disputes withforeign investors who do not enforce an arbitration award In addition, in the

process of adjudicating disputes with foreign investors, the government isprosecuted based on its power, which can act to cause difficulties and threateninvestors Therefore, diplomatic protection still plays a certain role in protectinglegitimate rights and interests of investors Governments, especially developingcountries, should strictly adhere to their obligations to foreign investors in IIAs,especially in compliance with international arbitration awards to avoid politicalconfrontation and adversely affect relations between countries.

2.1.2 The situation of Investor-State disputes settlement by the Courts’ mode

Addressing ISD by way of the court is supported by the Calvo doctrine Thetheory holds that the jurisdiction to settle ISD belongs to the country in which theinvestment takes place and the investor must use the receiving country court Someformer Latin American countries supported this view and stated that ISD can only

be resolved by domestic litigation This view is also expressed in a number ofregional agreements that prevent members from allowing foreign investors to betreated more favorably than domestic investors, and to prioritize the settlement ofdisputes by receiving national courts invest This content is stipulated in Articles 50and 51 (amended in 1991) of Decision No 24 of the Agreement Council ofCartagena (between Bolivia, Colombia, Ecuador and Peru) The United NationsCharter on Economic Rights and States' Obligations December 12, 1974emphasizes that states have the right to "regulate and enforce their jurisdiction overforeign investment within the territory according to the laws of that country and inline with its national goals and priorities, it is found here that the Charter does notprohibit the use of internationalization measures, but not giving their support thesemeasures (UNCTAD, 2003, p.27-28, p.12)

The trend of developing countries and transforming economic are to shift tothe above-mentioned investment-related dispute with international disputesettlement mechanisms The foreign investors are very supportive of this transitionand think that ISD should be addressed by dispute settlement mechanisms governed

by international procedures and standards, typically by international arbitration(UNCTAD 2003, p.13) That is why developing countries have signed investment

agreements with something that could resolve the dispute as a tool to attract foreigninvestment.

However, according to William S Dodge (2006, p 30), resolving disputesthrough national courts can be used with large-scale disputes, and disputes withlower-level authorities and regulators For example, under NAFTA, the importantbody of Loewen said that it would not make sense for a country to face legalobligations in violating international law that caused by low-level judicial officerswhen the appellate has not been conducted in a national court

Currently, the priority of resolving ISD by domestic courts is showing signals

of returning, mainly due to concerns about the resolution of ISD by arbitration thatmay affect the right to issue national public policies For example, the FTA betweenthe US and Australia in 2004, Australia negotiated not include the terms of ISDsettlement and this is the only US bilateral FTA without this provision Australiaadvocates negotiating similar rules in other trade agreements, so disputes in thisarea will be resolved by domestic courts On the other hand, the Australiangovernment also recommends that foreign investors should consider and evaluatecarefully before deciding to invest in a country that they are not protected byinternational dispute settlement mechanisms (Emerson C 2011, p.14)

2.1.3 The situation of Investor-State disputes settlement by the Arbitration

2009 Comprehensive Investment Agreement (Part B), North American Free Trade

Agreement 1994- NAFTA (Chapter 11), Energy Charter Treaty (ECT) (Part 3 andArticle 26), FTA United States - Chile 2003 (Chapter 10)

In fact, arbitration is also a commonly used method of resolving ISD Thenumber of disputes brought to arbitration is increasing If in the years of 1990-

1995, this method was still strange in the field of investment (every year there wereonly about 0-2 disputes were given to arbitration), until the period 2000-2010, thisnumber was average increase of 20-30 cases / year As of the end of 2010, the totalnumber of ISD cases presented by arbitration is known as 390 cases, of which 25were in 2010 alone (UNCTAD 2012d, p.2)

Considering the status of ISD settlement by arbitration, there are some issues

to note as follows:

First, the situation of making judgments: Of the total 390 cases of the above

cases, 197 were resolved, of which 78 were in favor of the receiving state (about40%) and 59 protection benefits of investors (30%) There are still some disputesbetween the two sides that reached a mutual agreement or a decision that was notmade public Thus, although this method facilitates foreign investors to sue thestate, it does not mean that the state receives investment at a disadvantage Statescan make arguments to protect their interests and win disputes

Second, about the parties to the dispute: The majority of disputes are filed by

investors from developed countries By the end of 2010, there were 83 states facingcomplaints of investors by arbitration method, including 51 developing countries,

17 developed countries and 15 countries with transfer economies (UNCTAD 2011,p.2) The fact that developing countries are regularly sued for internationalarbitration in disputes with foreign investors stems from a number of reasons

Firstly, the legal system of these countries has not been completed, often changing policies and legal regulations, thereby affecting the interests of investors; Secondly,

complicated and lack of transparent procedures for domestic procedures make it

difficult for investors to pursue lawsuits; Thirdly, judicial agencies in developing

countries, especially courts, do not guarantee independence and fairness, so they donot create trust with investors.

Third, on the form of arbitration: Arbitration regulation has a priority to use

compared to arbitration cases Arbitration organization plays an important role inresolving ISDs, including ICSID, arbitration of ICC, Stockholm Chamber ofCommerce (SCC) With the form of arbitration, most parties use the arbitrationrules of UNCITRAL According to UNCTAD statistics, out of a total of 390investment disputes reported by 2010, the ICSID mechanism accounted for aremarkable proportion with 245 cases, followed by a form of arbitration under theArbitration Rules of UNCITRAL with 109 cases Other arbitration mechanismsaccount for a small proportion such as SCC (19 cases), ICC (6 cases), the rest areother arbitration cases

As the most commonly used arbitration mechanism in ISDs, ICSID is also theonly permanent arbitration mechanism specialized in resolving disputes of this type.Established under the Washington Convention of 1965 on resolving disputesbetween the State and citizens of other states, under the World Bank, the Centerplayed an important role in creating a settlement mechanism Investment disputesare more effective Currently, 157 countries have joined the Washington Convention

in 1965, of which 147 have submitted official documents on accession, ratification

or approval of the Convention Of the 245 disputes raised by ICSID by the end of

2010, 227 cases had the final conclusion (corresponding to 97%) (ICSID 2010).This ratio shows that ICSID is another effective ISD resolution mechanism

2.1.4 The situation of Investor - State disputes settlement by the other methods

Most of the provisions for resolving ISDs in IIAs require that the right partiesfirst use informal measures, with the aim of resolving conflicts in a friendly andstress-reducing way (UNCTAD 1998, p.88) This provision can be seen in sampleBITs of capital exporting countries such as Germany (1991, Article 11), France(1998, Article 8), England (1991, Article 8) and BITs that have been signed as

Vietnam-China BIT (1992, Article 8.1), Argentina-Bolivia BIT (1994, Article 9.1),Brazil-Chile BIT (1994, Article VIII.1).

However, the use of other forms of dispute resolution (mediation, preventionpolicy, early detect disputes etc.) is still very limited (UNCTAD 2010, p.1).Although organizations such as ICSID, ICC and SCC have other dispute settlementmechanisms in addition to arbitration mechanisms for the parties to choose, thereare actually few records of ISDs using rules that mediation For ICSID, there havebeen 374 disputes submitted to the Center so far but only 7 cases require the use ofICSID mediation mechanism

A study by J Coe (2005, p.35) showed that only about 30% of the disputesthat raised ICSID were resolved by the parties before the intervention of thearbitration decision

Non-judgmental methods are rarely used because they do not have amechanism to enforce agreements or decisions during the resolution process Inaddition, investors are reluctant to participate in mediation procedures in partbecause they think these procedures take time and cost before reaching their maingoals of conducting arbitration procedures On the side of the country receivinginvestment, there are some difficulties due to complicated organizational structure

in the management apparatus, making it difficult to resolve through reconciliation.This is because in order to enforce an ICSID mediation agreement, there must bethe participation of many government agencies that the agencies involved in thedispute must have a legal document or approval from another agency to participate

in dispute resolution or compensation The problem arises further which agency will

be responsible for the settlement through that mediation and about the outcome ofthe mediation Another reason is that because the mediation method is moreconfidential than the arbitration procedure, it is possible that public opinion will notsupport the Government to settle disputes with investors in a controversial issue areinterested in public opinion Especially issues related to social policy, environment,health etc while using arbitration, the Government can refer to the obligation to

compensate and the obligation to comply with the their decisions (Stevens,Margrete and Ben Love 2010, p.389-418)

However, resolving disputes between investors and host countries withalternative methods also has certain development steps In addition to alternativemethods such as negotiation, consultation, and mediation, which are morespecifically defined in investment agreements, some countries, through nationallaw, have taken measures to strengthen the method of alternative dispute resolution

in investment disputes For example, Peru has enacted laws 28,933 to respondpromptly to investment disputes and try to resolve by negotiation and conciliation,and to establish a specialized Council of members from many agencies Thegovernment oversees ongoing or possible disputes and resolves on behalf of theGovernment with foreign investors South Korea built an independent inspectionagency, listened to investors' opinions, collected information, produced reports andpetitions to the Government Recognizing the role of alternative dispute resolutionmethods, UNCTAD also has research on alternative ways to resolve and preventdisputes in 2010 and 2011 at Investor publications - State Disputes: Prevention andAlternatives to Arbitration I, II, in which researchers had a fairly comprehensiveanalysis of alternative methods of dispute resolution

2.2 Mechanism and prevention measures in settling international investment disputes in some countries

2.2.1 Mechanism and prevention measures in settling international investment disputes in Jordan

The Jordan Investment Commission (JIC) holds the role of the investmentpromotion agency in Jordan The functions of the Council (Investment Law No 30-

2014, https://investmentpolicyhub.unctad.org/InvestmentLaws/laws/175 accessed

on 22/01/2019) are the following: submit recommendations to the Cabinet(legislation drafts, national strategies and policies); oversee and supervise theCommission’s work and follow up on the implementation of annual plans; study theobstacles facing the economic activities; outline the remedial courses thereof and

direct the Commission towards the appropriate mechanisms thereto These are allkey elements to dispute prevention but the Council, with the support of JIC, needs

to be clearly empowered and its attributions recognized to ensure an effectiveinstitutional co-ordination, needed for ISD prevention

Learned experience: The prevention of investment disputes requires a

comprehensive strategy, with the participation of many agencies in the stateapparatus and all levels of government related to the issuance and implementation

of establishing a strategy for investment dispute prevention and management, andthe Ministry of Trade acts as the Lead Agency responsible for coordinating theactions of government agencies In parallel, training programs are provided tosensitive officials at national and sub-national levels to Colombia’s internationalcommitments As for the institutional framework, a High-Level Government Bodycomposed of ministers’ representatives was established with the following sixfunctions: i) Direct the national strategy in terms of dispute prevention andmanagement; ii) Promote the use of alternative disputes resolution; iii) Recommendmeasures to prevent and settle disputes; iv) Recommend measures to ensure atimely and constant defense; v) Hire an external counsel; vi) Focus on specificsectors and 38 entities For earlier detection of arising disputes, Colombiaestablished the Investment Attraction Facilitation System, a public-privatemechanism that identifies and centralizes investors’ issues in order to formulate

solutions to improve the investment climate The Investment Attraction FacilitationSystem is managed by a technical committee in charge of coordinating andmonitoring investment climate reforms, comprising the High Presidential Advisorfor Public and Private Management, the Minister of Trade, the President of ProColombia-the investment promotion agency- and the president of the PrivateCouncil for Competitiveness (OECD 2018, p37).

In order to prevent ISD, Colombia takes these measures: Implementation ofISDS commitments: assessment to information, inter-institutional arrangements andauthority to settle

Colombia has recently started the conclusion of IIAs and has in recent monthsnegotiated FTAs with the United States and Canada both of which include aninvestment chapter Almost simultaneously, the Ministry of Commerce has launched

a program with the support of the United States Agency for InternationalDevelopment, aiming at getting prepared to deal with investor–State cases throughthe identification of a lead agency and other institutional arrangements to avoiddisputes and be better prepared for them A specific decree - yet to enter into force –will grant the lead agency the authority to collect and produce evidence from allrelevant sources within the Colombian Government

The lead agency will constitute the core of Colombia’s institutionalarrangements to implement its ISDS commitments and ensure the defense of theState in investor–State arbitration It will be involved in the handling of all issuesrelated to the investor’s interaction with the State in the context of investmentdisputes, including the receipt of notifications about emerging disputes, thecoordination of consultations between the investor, the specific agency involved inthe dispute at hand and other relevant agencies, and the management of thearbitration proceedings themselves In other words, the lead agency will be thecentralized authority to be approached for all matters related to investor–Statedisputes, and all information regarding such disputes is gathered within this agency.Such an approach drastically simplifies the authority structure among governmentagencies, thereby increasing overall transparency

Figure 2.1 illustrates the role of the lead agency in further detail, particularly

in relation to the investor and the involved agency as the two other most relevantactors The involved agency is the government authority which is responsible forimplementing the measure that triggered the dispute between the investor and theState The figure illustrates three different roles of the lead agency, firstly as arecipient of information about disputes, secondly as a coordinating body during theconsultations process, and thirdly as a key agency involved in arbitrationproceedings

Part I: knowing the investment related dispute – there must be a lead agencycentralizing notifications and coordinating any response;

Part II: consultations investor-State - the lead agency must be in charge ofcoordinating the other governmental agencies involved in the dispute, and it alsomust be the front desk for contacts between the investor and the administration; Part III: arbitration proceedings - even during arbitration, the above statedroles of the lead agency must be maintained and any non-judicial solution must beapproved by the Committee

Colombia has already taken several steps in establishing this system Forexample, it made efforts to identify all relevant regulatory authorities that mayhappen to get involved in a dispute To facilitate inter-agency communication,specific contact points (officials in charge) in various agencies were designated todeal with issues related to investment The lead agency will be given clear authority

to collect and produce evidence from all relevant sources within the ColombianGovernment

Guatemala also considers new institutional approaches in dealing withinvestment disputes, with the ad hoc decree No 128-2009 of 5 May 2009illustrating this step The decree temporarily sets up an institutional mechanism fordealing with two recent cases against the country, by establishing an inter-institutional Commission to handle these two pending cases The Ministry ofEconomy was designated by the decree as the coordinating agency

Involved Agency

Investment Related Agency

Investment Related Agency

Investment Related Agency

Other Relevant Agency

Figure 2.1 - Getting prepared: the institutional system of Colombia

(Source: UNCTAD (2010), Investor-State Disputes: Prevention and Alternatives to

Arbitration)

Learned experience: Establishing a focal agency, the focal agency of this activity

needs to be competent enough, having a legal basis as the legal document at the

highest level of the country

2.2.3 Mechanism and prevention measures in settling international investment disputes in Korea

Several host countries are providing an institutional response to problemsencountered by investors by offering ombuds and mediation services Setting up anombuds office or appointing an ombudsman to serve as a one-stop-shop forcomplaints can bear fruitful results For investors, an ombuds office provides aninstitutional interlocutor to turn to, an official channel to address issues andproblems at an early stage It can remain on the informal level but can alsoconstitute a formal approach to the host government and a request to resolve theissue It can constitute a mandatory channel or be available to the investor as anadditional choice It may operate according to strict procedures or be available in amore flexible manner In any event, the ombuds office can constitute a way for theinvestor to attempt a prompt, early, potentially cheap and amicable resolution of aproblem relating to its investment

An illustrative example of such an ombuds office is the approach taken by theRepublic of Korea South Korea’s Office of the Foreign Investment Ombudsmanwas created within Korea Trade-Investment Promotion Agency (“KOTRA”) to help

to improve the investment environment and promote the success of foreign-investedcompanies in Korea by providing assistance in resolving difficulties the companiesface both in business activities and day-to-day management From 1999 to 2015, theOffice of the Foreign Investment Ombudsman has resolved 4,976 grievance cases(annual average of 311 cases) and a total of 360 cases were handled due to thecontribution of the Office of the Foreign Investment Ombudsman to systemimprovements The Office of the Foreign Investment Ombudsman includesspecialists in a number of different fields including labor, law, taxation, finance, etc.who investigate and resolve grievances for the foreign investor They additionallyhave an open channel of communication through their website in which foreigninvestors can make comments or suggestions regarding any specific law orprocedure that they consider inadequate (OECD 2018, p.38)

The Office of the Foreign Investment Ombudsman (OFIO) was established inOctober 1999 following the passing of the Foreign Investment Promotion Act a yearearlier The ombuds office has been strategically located within KOTRA but is totally

independent of it, accountable solely and directly to the Prime Minister The OFIO isset up as a non-profit organization hosted by KOTRA Its main purpose is to supportforeign investors facing difficulties in managing their business within the Republic ofKorea, tracking problems and solving them, as well as continuously working towardsimproving the overall investment environment in the country (fig 2.2)

In addition, the OFIO includes an investment aftercare team that consists ofso-called “home doctors” who are experts on various industrial sectors in theRepublic of Korea They provide individualized support to foreign investors in theRepublic of Korea who face grievances of any kind In addition, an investmentservice team within the OFIO makes sure that the investment environment forforeign investors are generally favorable, by addressing, among other things, thedaily concerns of foreign managers and other individuals at a personal level

The mandate of the OFIO is enshrined in Republic of Korea law, whichrequires all relevant agencies within the Republic of Korea Government tocooperate promptly with the OFIO Article 21-3, Paragraph 3 of the EnforcementDecrees of the Foreign Investment Promotion Act specifies:

“The Ombudsman may request the relevant administrative agency or the foreign investment related agency to cooperate for the purpose of solving problems experienced by foreign capital invested companies and performing duties related thereto In this case, the agency thus requested to cooperate shall notify its opinion

on the matter under consideration within seven days after the date on which the request has been made.”

The OFIO is also a member of two agencies within the Republic of KoreaGovernment that have relevance to investment These are the Foreign InvestmentCommittee, which is the key responsible authority for the policymaking oninvestment, and the Regulatory Reform Committee in charge of conductingregulatory reform As a member of these two agencies, the OFIO can provideeffective advocacy on legal and regulatory issues that affect foreign investors in the

Republic of Korea or give advice on the Republic of Korea investment environment

as a whole

The OFIO usually follows two specific procedures in addressing grievancesnotified to it by foreign investors, depending on the nature of the grievance On theone hand, the problem may be resolved through general business counseling,involving the provision of advisory and supporting services to the foreign investor

on how to handle domestic laws, management difficulties, etc., in order to help theinvestor overcome the problems faced within the Republic of Korea investmentenvironment On the other hand, if the grievance results from inadequate laws oradministrative hindrances on the part of the Republic of Korea Government, thenthe OFIO may venture beyond advising the investor by addressing the relevantRepublic of Korea Government authorities and agencies directly to advocateimprovements in investment policy, administrative procedures or laws andregulations In these particular cases, the role of the investment ombudsman iscrucial, as is his independence Competence and personal values also seem to beplaying an important role in the success of the Republic of Korea experience

In practice, several States have set up institutions to provide internal mediationservices or designate official mediators available for foreign investors Here again,the role can be played by a commission or by an individual A case at hand is themediation services made available by the Kingdom of Morocco to investors both onthe regional level through the decentralized Regional Investment Centre and at thecentral Government level by a Commission on Investment The Commission, inwhich the key ministers are participating or represented, is chaired once a month bythe Prime Minister himself The secretariat for this commission is entrusted to theDirectorate of Investment, a Government entity in charge of investment projects andinvestment policies The Directorate of Investment will bring the problems andcases to the attention of the commission and is then entrusted with theimplementation of the decision taken by the commission

Impartiality, competence and trustworthiness, as well as actual ability toresolve the issues, will be a guarantee for the investor and the Government