09 April 2012 Written by  Tesfaye Abate

Definition and Nature of Investment Law

Law of investment, in general, is a branch of a law consisting of set of rules that regulate investment. Investment law may be either international law on foreign investment or national law.

International law on foreign investment may be defined as a set of rules that govern international investment. International law on foreign investment has been and is being shaped by on interplay of various economic, political and historical factors. It is generated by the eventual resolution of conflicting national interests. The interests of capital-exporting states have clashed with those of the capital-importing states. The international law on foreign investment is a resultant resolution to such conflicts. It is a field by which economic theories, political science and related areas have helped to shape the arguments in the field.[1]

It is a field of international law which calls for a creation of alternative theory because
it cannot be explained in accordance with any existing theory of international law.[2] Now, the rules are not clear.[3]

National investment law -Investment is a commercial or business activity. Business activities are governed by Commercial Code/law. Commercial law cuts across both the law of obligations and the law of property. That means commercial law includes some part of the law of obligations and the law of property.[4]
For instance, the transactions of business in general and investment in particular require the application of the law of contract since it involves contractual transactions. Properties are the subject of contracts in investment.
Let us consider another example. An investor may import or export products or other goods that are related to his/her investment. An investor should import machineries and equipment for his/her investment. Those machineries and equipment should be transported to Ethiopia. In such a case, a bill of lading may be used. A bill of lading is a receipt for the bailment of a specific object and possesses the quality of being ‘negotiable’. Thus, it represents the goods in some way. It is also a document that contains a contract for the carriage of the goods.[5] In short, it both includes contract and property. This shows that an investment involves the application of the law of contract and property.

Further, we have seen that investment activity is governed by commercial law. Commercial law developed through practice by merchants and the state ‘received’ it into a legal system.[6]

Recently, state regulations grows to regulate the industry and with the creation of public utilities owned by the State have led to the intrusion of public law into the realm of commerce.[7] This shows that commercial law is also a public law. Do you remember what public law means?

Public law is a body of law dealing with the relations between individuals and the government.[8] Investors are individuals and the government regulates investment. Therefore, law of investment is a public law.

One of the purposes of our Commercial Cod is, as indicated under the preface as follows:

We have directed that in the expansion and consolidation of our commercial laws, great attention should be given to the control of all trading,


This clearly shows that commercial code is public law by its nature because the government regulates the transaction of investment as a commercial activity.

Investment law regulates investment in general and among others addresses the following issues among:

It defines important terms like investment and investor. International investment agreements are international investment law that define these terms. National laws also devote certain provisions to define investment and investor.[9] In so doing, the investment law regulates investment. For example, many international agreements define investment as something established according to the laws of the host country.[10] The main purpose of such definition is to ensure that investment has been properly registered and licensed in accordance with the laws of the host country. As was have discussed earlier, investment law classifies investment in to varies categories, such as foreign direct investment, portfolio investment, domestic investment etc.

Admission and Establishment of Investment – Investment law regulates the entry of foreign investment in a host country. Each state may wish to restrict investment in certain sectors of the economy to the state or to domestic inventors. Investment law puts requirements to establish enterprises to undertake investment activities, and the forms of enterprises. It also includes ownership restrictions and related issues.

National Treatment – A host country is required by international investment law to treat foreign investors in the same manner as national/domestic investors. However, the host country may not treat foreign investors equally with domestic investors. It is worth noting that a customary international law does not necessarily require states to extend national treatment to foreign investors. Such national treatment is provided by bilateral investment treaties or/and national laws.

Guarantees- Investment law provides guarantees to investors. International investment law is aimed at guaranteeing foreign investors. History has shown nationalization and expropriation of foreign direct investment. Thus, customary international investment law guarantees investors against those and other forms of expropriation of investment.

Environmental Issues:- are also addressed by investment law. Today, it is realized that economic activities are closely linked to the protection of the environment. Thus, investment treaties have begun to include provisions addressing environmental protection.

Labour Issues –The inclusion of labour provisions in investment treaties is growing although they are always included. The International Labour organization’s Tripartite Declaration of Principles Concerning Multinational Enterprises and social policy (1977) and the DECD’S Guidelines on Investment and Multinational Enterprises (1976) are the two international agreements that address labour issue.  Promotion of employment of host country’s nationals is one of the labour issues treated by the investment law. For example, the Ethiopian Investment Law requires, in some cases, that foreigners be replaced within a specified period of time by Ethiopians who have been trained by the investors (employer).[11] Investment treaties may provide for minimum standards as to wages and working labour conditions. It may also address the right of workers to organize labour union.

{slide=Click here for Citation}


[1] M. Sornarajah; The International Law on Foreign Investment, Grotius Publications, Cambridge University Press, New York, 1996, Pp. 2-3
[2] Ibid, P-3
[3] Ibid, P-4
[4] George Whitecross Paton; A Text Book of Jurisprudence,(third Edition),Oxford, London, 1967,pp. 245-46
[5] Ibid, p. 246
[6] Ibid
[7] Ibid
[8] Bryan.; Ibid, p. 1267
[9] See for example Proc, No 280/2002, Ibid,  Art.2
[10] UNCTAD, International Investment Agreements: Volume 1(2004), P.122
[11] See Proc. No 280/2002, Ibid, Art. 38.

{/slide}

Last modified on Wednesday, 02 May 2012 13:05