国际商法英文版：3 Chapter 5 investment.doc

Chapter 5 Foreign Investment

Contents
Summary …………………………………………………………………………2
Outline…………………………………………………………………………3
Questions ………………………………………………………………………10
Vocabulary………………………………………………………………………14

Part 1 Summary

The Chapter is about Foreign Investment. At the beginning, it introduces some related laws, codes and policies. In screening Foreign Investment Applications, there' re formal and informal processes and it needs approval of applications. Of course business forms are diverse. While foreign equity will have limitations. This part introduces brief idea of Free Zones

The second part talks about supervisions of Foreign Investment. It also shows start-up standards and operational reviews. Apart from modification of foreign investment agreements, protection of subsidiaries and penalties for noncompliance are important as well.

The third part tells some regulations towards the securities. Apart from some basic knowledge of securities, we can find out the regulations exist in every step of the life of the security, for example, how do the main countries regulate the issuing, and the trading of security. And then, we get some common rules about the securities exchanges, the issuance and the clearance and settlement procedures. In the end of this part, it introduces the insider trading and how to regulate the takeovers.

Finally, we should consider the question internationally. It mainly talks about some common views towards the enforcement of securities regulations, such as the Memorandums of Understanding, The Convention on Insider Trading and Extraterritorial Application of U.S. Securities Laws.

Part 2 Outline
Chapter 5 - Foreign Investment
A. INVESTMENT LAWS AND CODES
1. Types of regulations
a. General acts.
1) Western countries: Investment laws and investment codes.
2) Communist countries: Joint venture laws.
a) Communist countries only allow investment by joint venture.
b. Special investment laws.
1) Commonly they apply to particular sectors of the economy (e.g., agriculture, technology, tourism, etc.)
2) Some constitute a complex network of laws that in combination function as a general investment law control.
2. Foreign Investment Policy
a. Underlying purposes of the regulations are generally the same worldwide.
1) These commonly are:
a) Promoting local productivity and technological development.
b) Encouraging local participation.
c) Minimizing foreign competition in economic areas already well served by local businesses.
3. Screening Foreign Investment Applications
a. Most countries require foreign investors to:
1) Register with the government.
2) Obtain government approval of their proposed venture.
4. The Formal and Informal Application Process
a. Regulatory authorities look for two things in an investment application submitted by a foreign investor:
1) Does the proposed investment fit the guidelines of the investment law?
2) Does the investment agree with the investment philosophy of the regulatory authority?
a) This second criterion is the more important (especially in developing countries).
b) Conforming to this requirement can prove difficult when:
1] It is secret.
2] The regulatory authority is unsympathetic to foreign investors.
Reading 5-1. The Informal Application Process.
5. Approval of Foreign Investment Applications
a. Forms of approval:
1) When the investor seeks no incentives: a letter of approval.
2) If incentives are granted a formal investment agreement will be signed by both parties.
b. The burden of insuring that the proper approval has been obtained rests on the investor.
Case 5-1. Arab Republic of Egypt v. Southern Pacific Properties, Ltd.
6. The Business Forms that Investors May Use
a. Most states prefer that foreign investors limit themselves to:
1) Businesses that have local participation.
a) Typically this means one of the following:
1] Partnership.
2] Limited liability company.
3] Publicly traded stock company.
2) Businesses which fully disclose their activities to the public.
a) Many host state laws mandate public disclosure of the activities of:
1] Large firms.
2] Firms with foreign ownership.
b) “Tax haven” countries take a different approach.
1] They try to attract foreign multinational investment by imposing no disclosure requirements.
2] Some tacitly encourage the organization of partnerships and limited liability companies (which are not required to disclose their financial activities).
7. Limitations on Foreign Equity
a. Foreign investment laws frequently forbid or limit the percentage of equity which foreigners may own in local businesses.
8. Sectoral Limitations
a. Defined: Restrictions relating to particular economic sectors.
1) Closed sectors: Foreigners are often forbidden from investing in sectors that host governments consider important to their national independence and security.
2) Restricted sectors: Many countries limit the percentage of foreign investment allowed in certain economic sectors.
3) Foreign priority sectors:
a) Foreigners are often encouraged to invest in sectors where:
1] Local development resources are limited.
2] Where foreign investment will increase the number of local jobs.
3] Where the foreign export trade will grow.
9. Geographic Limitations: Some countries limit foreign investment within certain geographic areas for security or economic reasons.
Case 5-2. Brady v. Brown

10. Free Zones
a. “Free zone” defined: A geographical area wherein goods may be imported and exported free from customs tariffs, and in which a variety of trade-related activities may be carried on.
b. Free zones categorized by their size:
1) Free trade areas: Geographical areas made up of two or more states that have agreed to let some or all of each others’ enterprises carry on their trade across and within each state’s borders free from customs tariffs and other restrictions.
a) Examples: NAFTA and the EU.
2) States may open their entire territory or some part of it to international trade.
a) Example of a state that has opened its entire territory: Singapore.
b) Examples of regional free zones:
1] China’s Special Economic Zones.
2] Latin America’s free perimeters.
3) Free cities (or free port) are cities that are open to international trade.
4) Free trade zone (or foreign trade zone in the US) is an area within a city or near a city that is open to international trade.
a) Subzones are special-purpose free trade areas near a free trade zone.
Case 5-3. Nissan Motor Mfg. Corp., USA v. United States
c. Free zones categorized by activities.
1) Export processing zones.
a) Defined: Manufacturing facilities that process raw materials or assemble parts from abroad, then re-export the finished product.
b) Materials and parts brought into these zones are not subject to local customs laws.
1] No tariffs or other duties are paid at the time of importation or re-exportation.
c) Example: Mexico’s maquiladora program.
2) Free retail zones.
a) Found in international airports and harbors and near some border crossings.
b) Cater to tourists and other travelers who are leaving a country by offering them goods free of local sales and excise taxes.
3) Bonded warehouses.
a) Found at the ports of entry of most countries.
b) Privately owned and operated by transportation firms.
c) Function: A place where shippers can store goods between the time of their arrival from overseas to the time they clear customs and are taken away by importers.
11. Foreign Investment Guarantees
a. Host countries provide a variety of guarantees to foreign investors to make investment in their territories more attractive.
1) The most important guarantees relate to:
a) Compensation in the event of nationalization of a foreign-owned enterprise.
b) Repatriation of capital.
c) Repatriation of profits and dividends.
d) Repatriation of other forms of current income (such as royalties, licensing fees, and fees for managerial and other services)
e) Repatriation of the principal and interest from loans.
f) Nondiscriminatory treatment.
g) Stabilization of taxes and other regulations.

B. SUPERVISION OF INVESTMENT
1. Review of Foreign Investments
a. Review of start-up deadlines.
b. Periodic reports during start-up.
c. Operational Reviews: The periodic monitoring of a foreign-owned enterprise once it is in full operation.
2. Modification of Investment Agreements
a. Host state must approve any modification of an investment agreement.
1) This is usually specified in the host state investment law.
b. Host state must act in good faith on requests for modification.
1) This is usually specified in the host state investment law.
2) Courts and tribunals apply this rule in cases where an investment law or an investment agreement sets no standard.
Case 5-4. Arbitration between Wintershall AG et al. and the Government of Qatar
3. Protection of Subsidiaries
a. Rights of foreign investors: Generally, they have the same rights to manage a company in a host state as do local persons and companies.
b. Limitations on this right.
1) Foreigners may not take advantage of the fact that they are not physically present in the host state as a way of escaping full responsibility for their investments.
2) Multinational enterprises are subject to a variety of special regulations designed to prevent them from abusing either their local subsidiaries, their subsidiaries’ employees, or their subsidiaries’ creditors.
c. A Parent is Liable to a Subsidiary’s Tort Victims.
Case 5-5. The Bhopal Case
4. Penalties for Noncompliance
a. Fines.
b. Suspension.
c. Revocation of the facilities granted.
C. SECURITIES REGULATIONS
1. Securities
a. Security is either:
1) share, participation, or other interest in an enterprise or other property, or
2) debt obligation.
b. Form of a security.
1) Certificated security: an instrument of the “type commonly dealt in on the securities exchanges.’
a) Kinds of certificated securities:
1] Registered security: made out to a named owner and registered with the issuing company.
2] Bearer security: made out to bearer and not registered with issuing company.
b) Transfer.
1] Registered security: by negotiation and delivery.
2] Bearer security: by delivery.
a] Bona fide purchaser (in most countries) acquires ownership of a bearer certificate even if the transferor was not the owner.
2) Uncertificated security: a security whose ownership is recorded only on the books of the issuing company (no instrument is issued).
a) Most countries allow use of uncertificated securities.
b) Some require use of uncertificated securities if company is not traded on a public exchange.
3) Par value: most countries require that securities be issued for a minimum par (face) value.
2. Securities Exchanges
a. Function: To make it easier for securities’ issuers to find investors, and for investors to exchange their securities.
b. The world’s exchanges.
1) Largest:
a) New York Stock Exchange.
b) Tokyo Stock Exchange.
c) London Stock Exchange.
3. Issuance of Securities
a. Issuer offering securities to the public must prepare a prospectus.
1) Prospectus is a printed statement disclosing material information about the security and the issuer, such as:
a) History and goals of issuer.
b) Description of issuer’s business.
c) Current financial statement.
d) Profits earned and dividends paid in past three years.
2) Prospectus must be:
a) Signed by officers.
b) Registered (in many countries).
1] Countries requiring registration provide exemptions. Common examples are:
a] Exempt securities — issued by governments, banks, or not-for-profit companies.
b] Exempt transactions —
(1) offerings to small number of investors (e.g., less than 300 in Poland).
(2) offerings limited in monetary amount (e.g., less than $1 million in US).
c) Foreign registration — many countries allow a foreign issuer to use the same registration statement that they used to register securities in their home country.
4. Clearance and Settlement Procedures
a. Securities transactions are contracts to be performed in the future.
1) The buyer delivers the purchase price.
2) The seller delivers the debt or equity certificate.
b. Domestic clearance and settlement procedures.
1) In the United States:
a) Settlement is handled by the National Securities Clearing Corporation (NSCC).
1] A nationwide clearing house.
2] All settlements are made within five days.
b) No physical delivery of a certificate is necessary if settlements can be entered on the books of the Depository Trust Company (DTC).
1] Many companies issue “global” certificates to the DTC, which simply records on its books who owns the stock.
2) Similar procedures followed in other developed countries.
3) In most developing countries, the buyer’s and seller’s brokers must get together and make an actual trade.
a) Settlements take several weeks.
c. International clearance and settlement procedure.
1) International clearinghouses that handle the clearance and settlement of most international transactions:
a) Euroclear.
b) Cedel Bank.
c) Emerging Market Clearing Corporation.
2) Instrument used to transfer security instrument internationally: American Deposit Receipts (ADRs).
a) Creating the ADR:
1] Broker purchases stock of a company in the company’s home country.
2] Broker deposits securities in a bank (the custodian bank) in the home country in the name of an overseas bank (the depository bank).
3] Depository bank issues receipts equivalent in value to the stock deposited in the custodian bank.
4] The receipts (ADRs) are traded as if they were stock.
Case 5-6. Batchelder v. Kawamoto
b) Advantages:
1] The physical delivery requirements of many exchanges are avoided by trading the ADR on an American exchange.
2] Stock transfer taxes imposed by the home state can be avoided since the stock itself remains registered in the name of the depository bank.
5. Insider Trading Regulations
a. Insider trading defined: The use of material nonpublic information about a corporation or the securities market to buy or sell securities for a personal gain.
1) Outlawed in the US by the Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 issued by the Securities and Exchange Commission.
2) Outlawed in the UK by the Company Securities (Insider Dealing) Act of 1985.
3) Outlawed in Japan and France.
a) Both countries’ statutes have been given more teeth in recent years following insider-trading scandals.
6. Takeover Regulations
a. Countries without takeover regulations are generally biased against foreign acquisitions, mergers, and takeovers.
1) Common barriers to takeover attempts include:
a) Restrictions on share transferability.
b) Cross-ownership of shares.
c) Restrictions on the voting rights of publicly held shares.
b. Countries w