Internazionale: International investment arbitration and sustainable development

In Approfondimenti, Internazionale
Approfondimento a cura della Dott.ssa Alessia Segalini

This particular branch of international law, even if not immediately concerned with sustainable development, impacts values and elements that are indispensible for its realization, and which go further the simple economic aspect.

Moreover, recourse to the concept of sustainable development in international case-law may, over time, justify a hardening of the concept itself into a principle of international law, despite a continued and genuine reluctance to formalize a distinctive legal status. Considering Tribunal reluctance in the application of sustainable development principle in its judgments, there is still a lot of work to do in order to guarantee that the current regulatory framework for international investment law properly promotes sustainable development.

Lack of transparency and public participation.

Investment arbitration initially followed the commercial arbitration model, and confidentiality was one of the rules followed, making the investment arbitration functioning behind closed doors, far from public scrutiny. However (after the publication of certain awards by the ICSID – International Centre for Settlement of Investment Disputes – and the increase in the number of cases), it became clear that matters of public interest were being brought to investment arbitration, and that the decisions of these Tribunals had an impact beyond the two parties of the arbitration.

Here the rise of the importance of transparency and participation, which are necessary to ensure that social and environmental concerns of affected communities are adequately represented[1]. In the Biwater Gauff vs. Tanzania case, ICSID made the interest of the parties in its judgment, establishing a conflict between these ones and the interests of the public. The court seemed to take into account both, but in different levels. First, it stated that investments must have the ability to develop, and later it stated that, in the interest of the parties, no other information potentially relevant to the case had to be disclosed.

However, greater transparency (as embodied in the principle of public participation and access to information and justice) is part of sustainable development, and this approach runs against the principle. In further contradiction, we find that the Tribunal (in response to the principle of public participation) allowed the intervention of amici curiae, some NGOs with expertise in environmental, good governance and human rights issues, which provided a useful contribution to the proceedings.

Potential constraint on regulatory space.

The rules set out by states in investment treaties were drafted in broad terms. This became a concern for states as they realized that, given also the lack of precedent in investment arbitration, it was for the arbitrators to interpret and define the contours of these rules, leaving them great discretion in the interpretation of the treaties. This situation turned in two main problems: first, unpredictability and lack of clarity regarding the legal standards contained in the treaties; second, an expansion of the level of protection granted to foreign investment and investors in these instruments beyond that states expected when they entered this system.

Some arbitral interpretations have established a kind of de facto rule providing that the stability of a legal framework is an essential element of the FET (fair and equitable treatment) standard. A change in the legal system can also imply the expiration of the treaty, due to a violation of the substantive duty of FET. In the CMS Gas Transmission Co. vs. Republic of Argentina case, the passing of an emergency law by the Argentinean government, as a consequence of the economic crisis, changed the legal and business environment in which the agreement was signed and which was one of the causes of the investment of the US company. Changes to national legislation that are inconsistent with a promise previously made to an investor can be a breach of FET. Therefore, it may be argued that investment arbitration may establish limitations on governments’ policy space, preventing them from adopting measures necessary to meet their development goals. If it is so, states may also be unable to use their sovereign power to regulate key areas regarding sustainable development, such as human rights, environment, public health.

However, it is noticeable the introduction by the ICSID, through its judgment in the Tecmed vs. Mexico case, of the proportionality test to assess whether an expropriation has occurred. In the past, whether a measure was expropriatory in nature was solely judged on its economic effects on the investment, but with this new test, the judge can take into account also domestic environmental, health or other concerns when interpreting and applying BIT provisions. Historical and archaeological preservation and environmental protection, for example, were accepted by the Tribunal as justification by Lithuania for the refusal of a project of a Norwegian company in the Parkering Compagniet AS vs. Republic of Lithuania case.

Relationship between investors and states.

Finally, there is another negative aspect regarding the relationship between the current system of investment arbitration and sustainable development. International investment agreements do not expressly offer a way to foster responsible business conduct or require positive contributions to the sustainable development of the host state. Recent agreements, in particular in the form of Free Trade Agreements, have started to include provisions exhorting governments to promote corporate social responsibility. However, according to the OECD, only 12 per cent of the entire stock of investment treaties contains language on sustainable development or responsible business conduct[2]. On the contrary, many treaties limit the possibility to request those contributions by, for example, prohibiting performance requirements[3].

Conclusions.

The importance of investment arbitration relies in the parties it involves. Differently from other cases of international law which may involve privates who can also decide to keep facts confidential, in investment arbitration parties are a State and a private. If in the first case the judgment does not affect any other people, in the second one we have influence on the public in general: the situation has to do with public law, it is a matter of constitutional law and of global administrative law. The resolution of this kind of disputes is going to set standards, which also influence the population.

The most important challenge is to ensure that new international and domestic rules that are being developed to encourage investment by providing additional protection for investors from capital exporting states also provide sufficient policy flexibility and incentives to encourage sustainability.

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[1]There is evidence that informed citizens and the private sector are better able to engage in developing policy; they are better collaborators and partners with government on service delivery, and also better able to hold governments to account, leading to improved development outcomes. […]Participation is both a right and a means to more sustainable development.”, UNDP Discussion Paper “Governance for Sustainable Development – Integrating Governance in the Post-2015 Development Framework”, March 2014, available at www.undp.org/content/damn/undp/library/Democratic%20Governance/Discussion-Paper-Governance-for-Sustainable-Development.pdf.

[2] The most often addressed issue is environmental protection (10%), followed by labour-standards (5.5%), anti-corruption (1.5%) and human rights (0.5%). See OECD Informal Ministerial Meeting on Responsible Business Conduct, “Investment Treaty Law, Sustainable Development and Responsible Business Conduct: A Fact Finding Survey”, 26th June 2014, www.oecd.org/daf/inv/mne/2014RBCMinisterial-TreatyRBC.pdf.

[3] The Canada-Colombia FTA is an interesting example. While including a provision urging governments to encourage companies to voluntarily incorporate corporate social responsibility standards (art. 816), this provision prohibits states from imposing or enforcing a series of requirements, including purchasing, using or according preference to goods produced in the territory of the host state.

 

Nota sull’autrice dott.ssa Alessia Segalini

Laureata con lode in Scienze politiche e delle relazioni internazionali presso l’Università degli Studi di Parma con tesi in diritto internazionale, sta per concludere un master di Giurisprudenza in lingua inglese in Sustainable Development presso l’Università degli Studi di Milano. Grazie a tale master sta acquisendo competenze giuridiche per poter comprendere e conciliare i tre pilastri dello sviluppo sostenibile (economico, ambientale, sociale), e far fronte alle sfide affrontate a livello nazionale, europeo e globale per lo sviluppo e l’implementazione di obiettivi (policy, azioni e strategie) concordati dalla comunità internazionale durante la Conferenza ONU per lo sviluppo sostenibile (Rio +20). 

Attualmente sta svolgendo un tirocinio presso la Camera di Commercio di Milano presso l’U.O. Ambiente ed Ecosostenibilità, occupandosi principalmente di un progetto volto al miglioramento della qualità dell’aria nella città di Milano.
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