State owned enterprises (SOEs), sovereign wealth funds (SWFs) and governmental pension funds are the three main forms that state controlled entities (SCEs) adopt during their activities.  These actors are not new in global economy but their importance is increasing. Especially SWFs which are goring in number and in size are playing a pivotal role in foreign direct investments. 

SWFs are involved in a wide rage of investments: low or high risk, equities, bonds, real estate, infrastructure, fixed income and private equity.  Even though their involvement and their impact in the economy and in foreign investments is huge there are critical issues with respect to international regulations (hard and soft law) that apply to them.  There is a lack of clarity on how international customary law, WTO law and International Investment Agreements can apply to the SWFs.

The General Agreement on Trade in Services (GATS), as part of the WTO law,  provides an applicable legal framework for the activity of the SWFs  in the services sector however its application is subject to restrictions that countries have established in their Schedules of Commitments and different exceptions. 

In his new paper entitled “Sovereign Wealth Funds as “Investors” under the General Agreement on Trade in Services-Untapped Potential of WTO Law?’” published in the International Review of Law, Professor Julien Chaisse analyses on one hand the scope, the substance and the procedural rights which may benefit SWFs and on the other hand the exceptions that exist and the shortcomings of the Dispute Settlement Mechanism of the WTO in relation to the SWFs’ activity.

With respect to International Investment Agreements in some cases SOEs and SWFs are expressly defined as investors and protected as such. The IIAs drafted on the basis of the US Model BIT, those that derive from the Canadian Model BIT and others such as the UAE-Finland BIT signed in 2005 clearly uses the term investor when referring to the sovereign investor. In article 1.4 the UAE- Finland BIT states that the term “Investor” means “ the Government of the Contracting State and any other legal person, such as public and private companies, financial institutions and investment authorities, having its seat in the territory of either Contracting State.

In other BITs the definition is not so clear and maybe slightly ambiguous i.e. the UAE-South Korea BIT signed in 2002 and entered into force in 2004 defines investor as “any natural or juridical person of one Contracting Party but still broad in order to encompass the sovereign investors.There are also a considerable number of IIAs that do not provide any regulation with respect to SWFs.

Many BITs signed by China do not clearly include in the scope of investor definition the SWFs. These early IIAs requires to be renegotiated in order to clarify the protection of sovereign investment especially now that there is a change in the trend of investments flows from the developing countries towards the Western economies.

New agreements, at the moments under negotiation, such as the Trans-Pacific Partnership are focusing on SOEs activities and trying to address to the raising issues caused by their increasing activism in foreign investments.

Since October 2008 the activity of the SWFs is also regulated by 24 principles called the Generally Accepted Principles and Practices (GAPP). These principles that a apply on a voluntary  basis are also known as the Santiago Principles.


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