In a valuable extension to Devinder Sharma’s article posted here recently, Rianne ten Veen, who has a deep first-hand knowledge of the situation in many developing countries sent a link to a report: Sleeping Lions, by Javier Perez, Myriam Gistelinck and Dima Karbala.
Today, the world’s natural resources are under increasing pressure and are often the object of important power struggles between corporations, states and communities.
National governments and international institutions are responsible for shaping the environment in which these different interests operate.
As foreign investments in land, water and other natural resources grow in number and magnitude, international investment treaties have become more and more relevant. The international investment legal framework prioritizes the protection of investors’ rights over almost any other consideration.
Will this system weaken developing countries’ capacity to regulate their food, land and water sectors and introduce policies that promote food security and poverty reduction? What lessons can be learnt from the past? This paper sets forth the principal elements of this debate through the analysis of eleven international cases of state-investor disputes.
In recent years, access to the world’s natural resources has been the object of important power struggles between corporations, states and communities.
Given the recent surge in investment projects covering land, water and other agricultural sectors in developing countries, these conflicts are quite likely to increase.
National governments and international institutions shape the legal context in which these different interests operate by means of national laws and international treaties. These govern, for example: foreign direct investment, land use, and environmental and social standards. This paper highlights the importance of one part of this legal framework: the international investment regime.
It must be admitted that developing country governments are not always committed to the defence of their states’ general interests. They don’t always show the desirable level of political will to propose and defend pro-poor and pro-development policy positions. Without the national powers in developing countries being really committed to achieving these objectives, it will be almost impossible to obtain any outcome that represents a noticeable and sustainable improvement in terms of poverty reduction and food security.
But the international investment system has placed all the power in the hands of those who were already powerful. Not even the most committed of governments would find it easy to defy this system and succeed in giving the power over land and water back to the people.
Through the use of 11 case studies of investment arbitration disputes between companies and national governments, some important lessons have been drawn which reveal the main problems that could arise in the absence of a far reaching reform of the current international investment law system. As this paper argues, reform is indeed urgent and much needed.
First, there is a vital need to increase the transparency and the accountability of the investment arbitration system. In spite of its social implications and the significant amount of public resources they involve, investment arbitration disputes are held behind closed doors with, in most cases, no possible participation of stakeholders other than companies and national governments. By allowing public hearings and amicus curiae briefs, investors might be more reluctant to engage in arbitration disputes out of fear of bad publicity. More transparency will also foster more accountable behavior by national governments, as stakeholders will know to what extent their national government has been defending the public interest in a given investment dispute.
Beyond just providing more transparency, the parties involved should also consider making more and better use of other methods to deal with investment disputes, such as state-to-state arbitration or investment dispute mediation and avoidance.
Secondly, international investment treaty provisions should be made more precise and balanced in order to avoid conflicting interpretations by arbitration tribunals and in order to provide the necessary policy space for governments to regulate in favor of social and environmental objectives. With respect to provisions related to ‘fair and equitable treatment’ or ‘indirect expropriation’, for instance, it should be made clear which standard of treatment investors can expect or what exactly could be considered as being ‘expropriation,’ in order to avoid abuse of these provisions by investors. In more general terms, it is vital that investment treaty provisions provide a better balance between the rights and obligations of investors and host governments.
Third, it is essential that investment treaties do not ban the use of performance requirements. The difference between a good and a bad investment when allowing foreign investment into the domestic market often depends on the application of certain ‘performance criteria’. These may be aimed at enabling productive spillovers, promoting technology transfer, creating decent jobs, enhancing environmental sustainability or allowing benefit sharing by local communities.
In more general terms, this paper shows that the current international investment regime can do a lot of harm to the public welfare because it hampers the ability of governments to act in response to broader concerns of human development or environmental sustainability.
The investment arbitration system takes some important public policy decisions out of the hands of domestic courts and institutions, which in the case of developing countries leads to a further weakening of democratic institutions. Moreover, the mere cost of participating in investment arbitration disputes can be disproportionately high.
Lastly, there is no consistent academic evidence arguing that more investment treaties lead to more foreign direct investment.
For all these reasons, it’s not surprising that some countries, such as Ecuador, Bolivia, South Africa or Tunisia, have either withdrawn the commitments they made in investment treaties or have started a reform process of their bilateral investment treaty models (such as the recent proposal made by the Australian Government, that sets an interesting and positive precedent), based on arguments similar to the ones set forth here.
However, in the end, investors themselves decide both on how to proceed with their investment activities and on how to deal with investment disputes. Therefore, investors’ self-imposed standards on these issues can be an important complement to the legal framework reform process and could help avoid many of the state-investor disputes.
Moreover, it is important to recognize that in many dispute cases, civil society can play an important role in documenting and exposing negative corporate behavior, particularly in the case of high-profile disputes. Many investors have withdrawn their complaints before investment tribunals because of the bad publicity generated.
As investors’ attention in developing countries turns to sectors that are more closely related with food security and hunger reduction, the lessons learned from the 11 cases analyzed in this paper become extremely relevant. They anticipate what could be happening shortly in developing countries, once the many investment projects that are underway in their land, water and agricultural sectors mature and conflicts with investors begin to rise.
Oxfam – May 2011
For more information about the un-named dispute settlement organisation read on.