Capital Flow in International Law: Assessment of Iran's Foreign Investment Sanction

دانشنامه حقوق اقتصادی

Article 6, Volume 27, Issue 17, June 2020, Pages 143-170   

Document Type: Scientific research

DOI: 10.22067/le.v27i16.84418

Authors

Seyed Yaser Ziaee^{* 1}; Mohammad Reza Mellat²

¹Associate Prof.,Department of International Law University of Qom

²PhD Student International Law University of Qom

Abstract

This article tries to respond to this question that how we can analyze foreign investment sanctions against Iran in the light of regulations concerning on capital flow in international law? Finally, it can be understood that capital or foreign currencies are entered to or withdrawn from the states intentionally or unintentionally. Intentional restraints against inflow and outflow of capital might be contrary to some of the international obligations. This analysis should have been done in four chapter which consist of capital restrict and flow in international economy, capital restrict and flow in international law, foreign investment in international law: from promotion to restriction, and analysis of foreign investment sanction in Iran.
Capital Restrict and Flow In International Economy
Free flow of capital as a result of global trade liberalization has been a subject of the economists’ attention. There are different economic schools which have different view to capital flow. Capital flow isn't supposed in Mercantilism because of importance of import of capital and consequently increasing of gold storages of State. In Physiocracy school there is this belief that capital turnover is a natural rule. After that in economic liberalism the voluntary trade strengthened. In this view flow of capital is in the top of its possibility. In contrast, Marxism and Socialism were opposite with the freedom of capital movement. In Islam economy also there are subjective and objective limitations in trade. Keynesians believe that State should control on the capital inflow and outflow. In the view of Milton Friedman (New Classics) the right way is self-regulation of the market e.g. in capital trade. There is also the theory of Impossible Trinity in which respecting to inflow and outflow of capital and stability of domestic exchange is impossible. The superior view in the nowadays world is assimilate to Keynesians meaning that international organizations can supervise on the free movement of exchange and capital in the world.
 Capital Restrict and Flow in International Law (Structural View)
As PCIJ stated as a principle States have sovereignty in regulating of currency movement. International Monetary Fund, World Trade Organization, European Union, Organization for Economic Cooperation and Development (OECD), Group 20 (G20), free trade agreements, and bilateral foreign investment treaties emphasize on this principle. There are also exceptions to the free flow of capital, which shall be restrictively and conservatively applied. In other words, after World War 2 Bretton Woods regime restricted this freedom. IMF advise capital movement and restrict it to economic infrastructures in the country. WTO allowed cash and non-cash capital inflow in TRIMS and GATS and restricted it balance of payments. European Union enforced capital movement and restricted it just in breach of tax law of members and public policy or public security. In OECD capital movement just can be restricted in economic crisis.
Capital Restrict and Flow in International Law (Contractual View)
multilateral trade treaty also supports from the capital inflow and outflow but some of them –like U.S. agreements- support of that more than others. In BITs if core term of definition of investment is non-physician capitals, so capital flow is supported better by free transfer clauses by which investor can transfer its currencies to foreign easily.
Capital flow can be happen in nine type which include: voluntary inflow movement, involuntary inflow movement, voluntary inflow restriction, involuntary inflow restriction, voluntary outflow movement, voluntary outflow restriction (general), voluntary outflow restriction (special), involuntary outflow movement, involuntary outflow restriction. Capital flow just in three type of them: voluntary inflow restriction, voluntary outflow movement and voluntary outflow restriction.
Foreign Investment in International Law: From Promotion to Restriction
Although foreign investment trend increased in 1990 decades and States competed in encouraging of investors, but sometimes this trend decreased cause of some host State or national State policies or involuntary reasons like security of host State. Some economists believe that respecting of inflow of capitals for investment without restrictions isn't favorable. So States tried to restrict inflow of capital for investment which mostly happened by colonialized country.
Analysis of Foreign Investment Sanction in Iran
In investment sanction of Iran inflow capital sanction is due to some non-economic policies. These sanctions are against allowed exceptions set out in international law because goal of that exceptions are safe of economy of State. These sanctions breaches IMF rules as capital flow restriction just permitted where economic infrastructures are undermined or economic crisis is ongoing. These sanctions by EU States are violation of article 63 of Treaty on the Functioning of the European Union, 2007 in which just public interests of States can be justify capital flow restrictions. In according to relations of Iran and United Stated of America, Treaty of Amity, article 7 of Economic Relations and Consular Rights, 1955 prohibited any restriction on payments, remittances and other transfers of funds to or from the territories of each other except to the extent necessary to assure the availability of foreign exchange for payments for goods and essential to the health and welfare of its people. In any way these restriction shouldn't be taken in discrimination. Although U.S. withdraw of Amity Agreement in 2018 but this treaty would be applicable till one year after withdrawal declaration and U.S. is responsible for the enforceable period. Also some bilateral investment agreements of Iran and other States mentioned to the free transfer clause. For example, investment sanctions by franc and Japan is against of their investment treaties by Iran in which capital flow restrictions just is allowable in situation of safe of balance of payments and protecting of debtors, as the same the treaties by Austria (with exception of balance of payments) and by Germany, Italy and South Korea without any exception. By adoption of JCPOA, EU and US obliged to seize investment sanctions on oil and gas and Petrochemical. So any capital sanction like re-imposition of sanctions by president of US is against several recognized international rules.
 

Keywords

Sanctions; foreign investment; capital flow; capital movement; The Islamic Republic of Iran

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