International Investment Treaties and IR

A few weeks ago I attended a conference at the Freie Universität –
International Investment Agreements – Balancing Sustainable Development and Investment Protection. The conference brought together an array of lawyers, arbitrators and law professors, as well as government, NGO and IO employees. Central to the conference was a discussion of UNCTAD’s recently launched Investment Policy Framework for Sustainable Development (IPFSD).

IIAs have been receiving a fair amount of media attention lately (at least in Canada). In case you haven’t caught any of this, or aren’t forced to hear me talk about it in a colloquium session, a brief refresher: Investment agreements (IIAs) are generally bilateral investment treaties (BITs) or embedded in FTAs, and commit countries to maintaining stringent investor protection standards. Controversially, they allow investors from one of the states party to the treaty to initiate arbitration proceedings against the government of the other. Arbitrators are then charged with deciding on the legality of domestic measures affecting an investor, which may range from fairly clear cut cases of corruption to honest attempts to regulate in the public interest.

While it’s still a bit of a niche topic, the discussion at the conference touched on a number of issues that are likely of interest to a wider audience of IR and development scholars and practitioners.

The Role of International Organizations
According the Elisabeth Türk, Legal Expert in UNCTAD’s section on IIAs, the IPFSD is being launched now because of changes in the global investment landscape, as well as the continued push to “mainstream” sustainable development concerns. These changes include the political backlash in some developing countries against the investment protection regime (the usual suspects in Latin America as well as South Africa) and a general trend of increasing regulation and restrictions on trade and investment, according to UNCTAD’s 2013 World Investment Report. In the face of this backlash, not just UNCTAD but the International Chamber of Commerce and the OECD have recently launched guidelines for international investment.

All this reminds me of the effort that has gone into promoting CSR at the international level over the last decade (at least). In both cases, a problem was identified by domestic actors (governments, activists, NGOs, etc) and was subsequently taken up by international organizations. As in the case of CSR, the conclusion has been that more non-binding soft law (frameworks, guidelines, principles) is the answer.

While this may not be the place for a lengthy discussion on the merits of these types of initiatives, I will note that the promotion of the IPFSD is repeating what is by now a fairly familiar pattern. While the economic behaviour of certain actors is strictly regulated and legalized (in the case of IIAs, with quite a powerful enforcement mechanism), social and environmental issues are relegated to the realm of soft law, and it is left to the discretion of home states and private investors to uphold these principles – or not.

Emerging Powers
Not surprisingly, another recurring theme at the conference was the role of emerging powers in creating a new investment regime, with former home countries increasingly hosting investment from the developing world. This shift in the investment landscape is exposing hypocrisy on the part of basically everyone involved. While the EU has traditionally included an arbitration mechanism in its treaties with developing but not developed countries, they may come to regret this; EU countries (along with North America) are now host to more investment from an apparently litigious Chinese government.

On the other hand, South Africa has begun a process of withdrawing from most of its BITs with EU countries. However, Sean Woolfrey from TRALAC noted that a South African Model BIT is also in the works, as South Africa begins to invest more actively in its African neighbors. It seems South Africa is in fact not behaving much differently from the EU – trying to have one regime govern its investment activities as a host state, and another as a home state.

The Need for Interdisciplinary Dialogue

I don’t think I’d ever been in a room with so many lawyers before this conference, and I found the difference in their perspectives interesting. Of most relevance may be the disagreement between the NGO/IO people and the investment lawyers on the role of IIAs in the broader policy process. A number of the legal experts insisted repeatedly that the IIAs were not policy tools (and thus perhaps should not be involved in promoting sustainable development?); they are merely in place to protect investment in what was described as a “static” manner. The people from UNCTAD and the GIZ disagreed, claiming IIAs can be used to promote certain objectives beyond attracting investment. I think both sides have a point. While perhaps we shouldn’t expect IIAs to do too much (and perhaps it is not appropriate to do so) it serves no purpose to deny the impact these treaties have on broader policy areas – from IP rights to environmental protection. I think that interdisciplinary perspectives on a topic like this, that has economic, legal, and yes, political, dimensions, is more than necessary.

Ultimately however, a reliance on IIAs or the IPFSD to promote sustainable development alongside investment rests on certain, maybe naïve assumptions – and in my opinion is an attempt at avoiding some tough choices. As the lone radical voice at the conference, Peter Fuchs from the NGO Powershift made the case that environmental and investor protection may not be fully reconcilable, if for example, avoiding the worst of global warming requires leaving some fossil fuels (and very lucrative investment opportunities) in the ground.

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