Foreign Investment, International Law and Common Concerns

Tullio Treves, Francesco Seatzu, Seline Trevisanut

• Publisher: Taylor & Francis
• Year: 2013
• Print ISBN: 9780415816052
• eBook ISBN: 9781135071899
• Edition: 1
• Topic: Law
• Subtopic: Environmental Law
• Index: Law

Increasingly, transnational corporations, developed countries and private actors are broadening the boundaries of their investments into new territories, in search of a higher return on capital. This growth in direct foreign investment involves serious concerns for both the investor and host state. Various exponents of international civil society and non-governmental organisations persuasively claim that such growth in foreign investments constitutes potential and serious hazards both to the environment and the fundamental rights and freedoms of local populations.

This book explores from an international law perspective the complex relationship between foreign investments and common concerns, i.e. values that do not coincide, or do not necessarily coincide, with the interests of the investor and of the host state. It pays particular attention to the role of the main international development banks in reconciling the needs of foreign investors with the protection of common concerns, such as the environment, human rights and labour rights. Among its collection of essays, the volume asks how much "regulatory space" investment law leaves; whether international investment law is an effective means of balancing contrasting interests, and whether investment arbitration currently constitutes a mechanism of global governance.

In collecting the outlooks of various experts in human rights, environmental and international economic law, this book breaks new ground in exploring how attention to its legal aspects may help in navigating the relationship between foreign investment and common concerns. In doing so, the book provides valuable insights into the substantive issues and institutional aspects of international investment law.

1

Introduction

Foreign Investment, International Law and Common Concerns

Tullio Treves

The basic concerns relevant in foreign direct investment are those of the investor and of the state in which the investment is made (the host state). The host state is concerned that the investor, because of the strength deriving from being the party that brings in capital and know-how, imposes on it conditions that are economically unjust or that might jeopardize its freedom to pursue its economic, financial, social or environmental policies. The investor is concerned that the host state may take advantage of the strength of being the sovereign in the territory in which the investment is made to expropriate the investor’s property or limit the use thereof, or to change the legal framework of the investment or the political and economic climate in which the investment takes place. The concerns of the host state have to do with its perception of being the weaker party in the determination of the conditions applicable to the investment before the investment is decided, while the concerns of the investor have to do with its perception of being the weaker party once the investment is in place.

A number of clauses are introduced in contracts and concession agreements to meet these concerns. However, in the view of investors, the key to an investment regime which takes into account their concerns is that disputes be settled by an impartial body which is not bound to follow only the law of the host state whatever its permutations. In order to attract investment host states have accepted in many cases that disputes concerning investment be submitted to the jurisdiction of an international panel of arbitrators. Such acceptance is rarely set out in investment contracts or concession agreements, which quite often provide for the settlement of disputes by the domestic courts of the host state or by arbitration within its legal system. Special agreements concluded by a state and an investor to submit an investment dispute to international forms of arbitration are rare. In fact, host states increasingly often accept international arbitration as the mechanism for settling disputes with investors in international agreements concluded with states whose nationals are potential investors. The over two thousand existing bilateral investment treaties (BITs) contain clauses that entitle the investor and the host state to set in motion arbitration proceedings as regards any dispute which concerns the application or interpretation of the agreement.

The relevant role played by international agreements, including not only the BITs but also some multilateral ones such as the North American Free Trade Agreement (NAFTA) and the Energy Treaty Charter, has broadened the importance of international law in dealing with investments. This is particularly true in light of the fact that, with increasing frequency, disputes are settled by arbitrators with an international law background and in an international framework. Among others, questions of treaty interpretation and of international responsibility arise. The recent discussions and divergent solutions adopted by different arbitral tribunals on the issue of whether necessity may be an excuse for non-performance of state obligations towards investors in case of a state’s financial default, examined in Christina Binder’s chapter, are just an example. The interpretation of substantive (and often very broadly drafted) rules in the treaties involve resorting to, and research about, customary law notions such as those regarding fair and equitable treatment.

While the framework of each dispute remains bilateral, the contours of a legal framework going beyond the parties involved in a specific investment and in the dispute arising therefrom, emerge with increasing frequency in legal scholarship analyzing with attention arbitral practice. The developments set out in the chapter by Stephan Schill show that there is a case to be made to consider the jurisprudence of investment arbitral tribunals as developing a body of law analogous to international customary law, although probably not coincident with it. Recourse to ‘systemic’ interpretation of investment treaties under the Vienna Convention’s Art. 31.3(c), as discussed in Luigi Crema’s essay, creates bridges between the specific treaty to be applied and other international law rules. Paolo Bertoli and Zeno Crespi Reghizzi propose a distinction between the law applicable to an investment, be it international or domestic (including lex mercatoria) and the host state’s regulatory measures. These measures may be seen from the point of view of both laws as part of the conduct of the host state intervening de facto in the performance of the latter’s obligations. This perspective adds a further dimension enriched by legal notions utilized in conflicts of law scholarship to an already complex legal framework.

The main focus of the present book is to determine, within a legal framework increasingly connected with general international law, the way ‘common concerns’ interact with the protection of foreign investments and with the protection of the host state’s prerogatives. So, the first part of the book is entitled to general international law issues and includes the already mentioned chapters. The second part complements the first in reviewing developments emerging in multilateral frameworks, especially intergovernmental and non-governmental organizations. The third part examines selected examples of the impact of common concerns on the regime of investment protection.

Admittedly, ‘common concerns’ is a far from precise term, as various contributors have remarked, and permits various and sometimes surprising interpretations. So, in Annamaria Viterbo’s chapter the establishment of an orderly debt restructuring in cases of state default or near-default is seen as ‘one of the greatest common concerns of the international community’. According to Stephan Schill, the preference often given by arbitrators to investment protection over competing policy concerns ‘becomes a common concern for states’. Whatever the merits of these ways of utilizing ‘common concerns’, this term, for the purposes of the research endeavour at the basis of the present book, was chosen as a rather flexible container to include values that do not coincide, or do not necessarily coincide, with the interests of the investor and of the host state.

A procedural reflection of the role common concerns play is the participation in arbitral investment proceedings, sometimes rejected and sometimes accepted and encouraged, of non-governmental organizations and other actors defending values different from the typical ones of investors and host states, examined in the chapter contributed by Chiara Ragni. Another procedural reflection, highlighted very recently by an arbitral tribunal examining an investment dispute, is the need to ensure transparency of the proceedings in contrast with confidentiality which prevails in commercial arbitration.¹ This need is confirmed by the work of the United Nations Commission on International Trade Law (UNCITRAL), which has reached a very advanced stage, for the elaboration of rules concerning transparency in investment arbitration. In these draft rules transparency is adopted as the point of departure and participation by non-state actors is seen as an aspect.²

As regards the substantive reflections, the protection of human rights and of the environment were the obvious examples from which the research project started. And indeed a number of essays tackling different aspects of the interaction between human rights and investment law (in particular Cesare Pitea’s contribution) or between protection of the environment and investment law (see the chapters by Francesca Romanin Jacur, Michele Potestà, Paolo Vargiu) show that these are of paramount importance. But they are not the only ones. Other values, sometimes connected with the protection of human rights but with peculiarities of their own, and which may be included in the broad notion of common concerns, interact with international investment law and emerge, in a more or less explicit way, in arbitral practice. The protection of cultural rights, examined by Giulia Bigi, the right to water, on which Attila Tanzi has contributed a chapter, the protection of workers’ rights, examined in the chapter by Stefano Brugnatelli, and the interest to energy security, studied in the chapter by Seline Trevisanut, are the examples on which attention was focused.

The essays on these subjects show that international investment law is a good example of a current trend of public international law. This trend consists in that certain branches of international law which grow on the basis of specific sources and adjudicating bodies and give rise to a substantial literature and to a group of specialist practitioners and scholars, once they begin to be considered as something separate and special (sometimes the term ‘self-contained’ is used) unavoidably cross their paths with general international law and with other specialist branches. The need to reconcile rights and obligations arising from the different interlinked branches of the law becomes evident. Certainly, the point of view adopted, in particular the point of view of the adjudicating body seized, or which may be seized, is of great importance as are the scope of its jurisdiction and the precise description of the dispute submitted or that may be submitted. Whatever the point of view adopted, the interaction between the different sets of rules and the values they incorporate becomes part of the complex regime applicable to investments and is, to a degree that is not constant, taken into account in the decisions of arbitral tribunals seized of investment disputes.

Concern for values different from the typical ones is also present in current international law instruments. Of the utmost importance seems the recent trend in multilateral agreements, such as NAFTA and in the most recent model BITs and actual BITs, to include provisions, sometimes preambular, sometimes operative, which set out purposes such as that of protecting foreign investment ‘in a manner consistent with the protection of health, safety and the environment’ (US 2004 and 2012 Model BITs) or provide for the prevalence of obligations deriving from environmental treaties (Art. 104 NAFTA). On this trend and its limitations the chapter contributed by Michele Potestà is illuminating, as is the chapter by Anna De Luca about the debate within the European Union concerning non-trade values protection in the shaping of the Union’s investment policy, a subject that has become topical and urgent since the Treaty of Lisbon has added ‘foreign direct investment’ to the list of the exclusive competences of the Union.

Produced mostly within the framework of international inter-governmental or non-governmental organizations, other international instruments concerning common concerns which may have an impact on investment protection are emerging. In most cases they are in the form of soft-law texts. The World Bank’s Guidelines on the Treatment of Foreign Direct Investments and its Principles for Responsible Investment in Agriculture examined in the chapter contributed by Francesco Seatzu are clear examples. The elaboration by various entities, ranging from the UN (the Global Compact) to groups of banks (the Equator Principles), to groups of states (The Extractive Industries Transparency Initiative), to the World Bank and International Financial Corporation (Operational Guidelines and Directives for the Fight against Corruption), of standards to promote common concern observant conduct and accountability of investors provide another set of examples, explored by Laurence Boisson de Chazournes. The relevance of environmental values in the lending policies of international banks (as the World Bank also mentioned by Laurence Boisson de Chazournes and the European Investment Bank considered in the chapter by Sara De Maria) can be seen as part of the same trend. Similarly, the notion of ‘corporate social accountability’ has an impact on responsibilities of investors in light of common concerns. As illustrated in the chapter contributed by Angelica Bonfanti, this may apply in the interpretation of fair and equitable treatment clauses, or on the basis of specific soft and hard law provisions.

Common concerns as envisaged in the present book do not necessarily coincide with concerns of the host states. Such concerns are mostly connected with the notion of sovereignty. Increased attention to common concerns may, however, in many cases facilitate levelling the playing field of the law of foreign investment in favour of host states. In fact, common concerns are often invoked as the justification of the regulatory measures host states take and which are the subject matter of disputes with the investors. When the conduct of investors is observant of the values represented by common concerns, negative intervention by the host state in the investment becomes less likely and, when effected, is often less justifiable.

It should not be forgotten that some states are becoming unhappy with the conditions they have accepted in BITs, and in particular with compulsory arbitration. Some of them have withdrawn, or are considering withdrawing, from the International Centre for Settlement of Investment Disputes (ICSID). The strengthening of the trend, not yet prevalent, to incorporate in BITs clauses for the protection of common concerns may be important for meeting this discontent with the present regime. The same result may be obtained if investors and arbitrators take seriously into account, for instance in shaping the notion of fair and equitable treatment, the numerous soft law instruments aimed at directing the conduct of investors.

    1  Philip Morris Asia v. Commonwealth of Australia, Procedural Order No. 5 of 30 November 2012, para. 51. Online. Available: http://www.pca-cpa.org (accessed 10 January 2013). In the view of the arbitral tribunal, the practice in investment arbitration ‘recognizes that investment disputes involve a public interest component which suggests that information about the dispute be made available not only to parties and the tribunal but to civil society at large’.

    2  UN doc. A/CN.9/765, Report of WG II (Arbitration and Conciliation) on the work of its 58th session, New York, 5–8 February 2013.

Part I

General International Law Issues

2

The Jurisprudence of Investment Treaty Tribunals

Between Public Good and Common Concern

Stephan W. Schill ^*

2.1 The Quest for Multilateral Order: From Custom to Arbitral Jurisprudence

International legal sources traditionally associated with public goods for the international community at large – or community interests – were either customary international law or multilateral treaties. In international investment law, both of these sources play a negligible role. Customary international law, at best, has a role in filling gaps and clarifying treaty standards. Multilateral treaty-making, in turn, has failed at several occasions and different fora, including in the Organisation for Economic Cooperation and Development (OECD) and the World Trade Organization (WTO). Only the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) of 1965 and the Convention Establishing the Multilateral Investment Guarantee Agency (MIGA) of 1985 were successful instances of multilateral treaty-making in international investment law; yet, they did not create substantive rules regarding the relations between foreign investors and host states. Instead, international investment law is enshrined in more than 3,000 bilateral, regional and sectoral investment treaties.¹ In the absence of a truly multilateral investment treaty the quest for multilateral order seems forlorn. International investment law is seemingly doomed to suffer infinite fragmentation.

Paradoxically, however, one can observe that the jurisprudence of investment treaty tribunals creates a significant amount of convergence rather than fragmentation and results in a system of international investment protection that can well be understood as a multilateral system, even though it is based chiefly on bilateral treaties and implemented by one-off arbitral tribunals.² Most importantly, the way in which arbitral tribunals draw on and make use of arbitral precedent has an effect in creating treaty-overarching unity in the interpretation of the central principles of international investment law, such as fair and equitable treatment, the concept of indirect expropriation, national treatment, etc. If one, perhaps the main, characteristic of customary law is that it is generally applicable and binding upon all states without specific commitment, the same uniformity and standard-setting function is now assumed by tribunals in creating a system of treaty-overarching precedent. With respect to th...

Table of contents

• Cover Page
• Half Title Page
• Series Page
• Title Page
• Copyright Page
• Contents
• Foreword by the Editors
• Notes of Contributors
• Table of Cases
• Table of Statutes
• 1 Introduction Foreign Investment, International Law and Common Concerns
• Part I General International Law Issues
• Part II Institutional Aspects
• Part III Common Concerns Selected Issues
• Index