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BY Avidan Kent
FILED UNDER
Economics
Environment
Human Rights
Investment
TAGS
Bilateral Investment Treaties, investment law
The true nature of BITs (at least as I see it…)
On February 19-20 a conference which dealt with recent developments in the field of international investment law took place at Sydney University.[1] About sixty speakers from all around the world gathered for two intensive days of exchanging ideas, debating pressing issues and discussing what seems to be an emerging sub-field of international law. One important trend that was highly emphasised during this conference was the recognition that international investment law is far more public in nature than it was considered to be in the past. The effects of foreign investment on public interests such as the environment, human rights and labour standards are now obvious and the tension between the protection of investments on the one hand, and the governments’ interests in regulating these sensitive fields on the other, is often emphasised in academic writings and arbitration awards.
The conceptual change that international investment law seems to have gone through has not however reached one very fundamental point. To my great surprise, speakers continually repeated the same old mantra concerning the main objective of investment treaties: the objective of investment treaties, so it was argued, is the protection of investors. This, I would argue, carries the same amount of logic as claiming that the objective of preparing a salad is cutting tomatoes. While it is true that Bilateral Investment Treaties (BITs) are designed to provide a protective and stabile environment for investors, it is also clear that such protection is a tool and not an end in itself.
When raising this point with one of the other conference participants, she simply answered: “it all makes sense, but none of it is written in BITs”. Technically at least, she was right. Most BITs do not specifically approach public interests and focus almost exclusively on the protection of investors. This narrow view has also led arbitrators to ignore public interests in many arbitral awards. Investment arbitrators, after all, are authorised to decide only in accordance with BITs. Referring to public interests when these are absent from BITs may therefore be considered as unlawfully exceeding the arbitrators’ powers.
The reason for the exclusion of public interests from BITs could be the “race to the bottom” phenomenon, in which states try to be as attractive as possible to foreign investors and therefore cannot afford to insist on maintaining large policing powers in BITs. I also heard others claim that the truth is far simpler: that BIT negotiators do not think about the problems that may result from such exclusion and thus neglect to include public considerations in BITs.
To return to the issue with which I started, none of the above can change the fact that BITs’ main objective is not the protection of investors. There is no benefit in the protection of investors just for the sake of protecting them. The protection of foreign investors is merely a tool, used in order to generate benefits, namely jobs, technology transfer, improvement of infrastructure or in short – development. In one of the first attempts to regulate the field of international investment law, The Havana Charter dictated over more than sixty years ago that: “international investment, both public and private, can be of great value in promoting economic development and reconstruction, and consequent social progress”. The Abs-Shawcross Draft Convention from 1959 adopted similar narrative as it envisaged foreign investments as a tool for the promotion of development. This simple essential truth has been forgotten over the years.
I started this post with the presentation of a certain dichotomy: on the one hand, it seems that some level of recognition of the public role of international investment law has been achieved, but on the other hand, people still claim that the main objective of BITs is the protection of investors. I believe that by acknowledging the inherent mistake which lies at the heart of the latter belief, both objectives and recent developments can be reconciled. Indeed lately, a new generation of BITs specifically acknowledge the true objective of BITs and “developmental language” is brought once again to the fore.[2] The Canadian Model FIPA for instance states:
“Recognizing that the promotion and the protection of investments of investors of one Party in the territory of the other Party will be conducive to the stimulation of mutually beneficial business activity, to the development of economic cooperation between them and to the promotion of sustainable development”
By acknowledging the true objective of BITs, arbitrators could include public considerations within their interpretation of investment treaties and thus achieve a more balanced approach, one that cohabits with states’ needs and reflects the recognition that foreign investment effects public interests, alongside those of private investors. Acknowledging development as the true objective of BITs, so I claim, is obvious and should be better reflected within any debate over the field of international investment law.
[1] International Investment Treaty Law and Arbitration: Evolution and Revolution in Substance and Process, Sydney University Faculty of Law, 19-20 February 2010. “
[2] See recent Canadian Model FIPA, Norwegian Model BIT, IISD Model BIT.
3 Responses to “The true nature of BITs (at least as I see it…)”
Well put, Avidan. I had a similar epiphany yesterday at a wind energy commercial conference here in Cape Town yesterday. I think that business people and investors often forget that markets are created for socially useful purposes (in the case of wind energy, it is being actively promoted by the government so South Africa can break its dependence on coal power), not because they have the right to make money. No one has the right to make money if it hurts other people (hence, why the discussion of protection of investors comes along). But that prohibition of hurting people goes further than just to investors, it must go to the communities affected by those investments! This is where potential tensions will arise and where legal problems will come from. I think we can live in a market-driven economy in a global world ONLY if we re-define and redeploy the definition of a market. We learned recently from the United States that disaster arises when staunch capitalists are left at the helm!
The author makes some good points, but we have to keep in mind why BITs are thought necessary: to keep ‘host’ governments from changing the legal or regulatory conditions under which foreign investors decided that they could make enough money to make an investment in those countries. The investors should take the law as they find it, but there is a great temptation on governments, once the investments are made and the benefits of the investments secured for the host country, to decide to regulate the conduct in new ways, possibly destroying the profit that was the incentive for the investment.
BITs try to spell out the limits to such new measures and to establish fair procedures for resolving disputes about them. I agree that investors should not be protected against all evolution of the legal or regulatory regime in the host country – things change, new concerns arise, the impact of the investment may be different from what was anticipated, etc. But the public interest has to include the interest in bringing in the money and skills of the investor, as well as the interest in the people of the host country to reasonable behaviour. Arbitrary changes to the law after the money is in hand will discourage future investment.
So it’s a balance, and the initial point that it is not all about protecting investor expectations, no matter how extreme, is fair. But there is a reason why these treaties get made, and they are not paranoid.
Thanks for the posting. It is true that the integration of investment protection obligations with other aspects of state responsibility, including obligations arising from general international law, is a major concern. I wanted to call your attention to an empirical study relating to the issues you raise. The OECD has surveyed international investment agreements’ (IIAs’) language (or absence thereof) in relation to labour, environment, anti-corruption and human rights obligations for 296 OECD and 131 South-South agreements. The survey shows that “only” 16 of the 39 countries in the OECD sample and 6 out of the 15 countries in the South-South sample include such language in any of their IIAs. Among the IIAs that contain texts on more general commitments, the style and placement of the language varies, rangaing from broad, short texts in preambles (the emerging continental European style) to long, detailed texts in preambles, articles and annexes (e.g. the North American style). The South-South agreements, the most frequently encountered issue establishes exceptions to MFN in relation to benefits stemming from regional cooperation in the labour, environmental or social fields. The survey also documents a distinct, but still hesitant, trend toward including such language and a slight tendency toward harmonisation of such language. The study is available at: http://www.oecd.org/dataoecd/3/5/40471550.pdf