International Investment Law and the UNGP
Several recent developments highlight the precarious relationship between international investment law (“IIL”), the law that protects foreign corporations (and other foreign investors) when they enter a new state, and international human rights law (“IHRL”), particularly the human rights of communities and individuals affected by foreign businesses. IIL provides great protection to corporations through over 3000 treaties, national laws, and state-investor contracts. Corporations often do not need to exhaust domestic remedies, and the decisions of arbitrators may not be reviewed when the company seeks to enforce the decision. This gives IIL greater protection, practically speaking, than IHRL.
IHRL and IIL can be complementarity, but conflicts have arisen. There are primarily two types of conflict. The first is where a state adopts measures that negatively impact on investment law protections in order to secure human rights. A series of cases related to Argentina’s 2001 financial crisis show how different IIL arbitrators treat IHRL in these circumstances. No tribunal has found that IHRL should generally receive prioritization over IIL protections. Some, however, found that where an unexpected crisis emerges a state can violate IIL for the purpose of protecting IHRL. Others found that the state is simply bound to abide by both IHRL and IIL obligations, even if those obligations directly conflict.
Last year, the tribunal in Urbaser v. Argentina was asked to decide on this kind of conflict and came to a relatively positive result. The case, like too many others, stems from Argentina’s efforts to secure adequate water during the financial crisis, part of the state’s obligations under the International Covenant on Economic, Social and Cultural Rights. The company argued that Argentina’s efforts, which included de-pegging the peso from the US dollar and capping water tariffs, violated the guarantee of “fair and equitable treatment” in Argentina’s bilateral investment treaty with Spain.
The “fair and equitable treatment” provision is common in IIL but its exact content remains unclear. Some tribunals and scholars argue that the fair and equitable treatment standard requires the state to maintain regulatory systems in such a way that foreign investors can enter the state with some certainty over the costs and benefits of their investment. This means that states cannot undertake significant changes that disrupt the “legitimate expectations” of an investor to “regulatory stability.” Some tribunals found Argentina could not adopt significant reforms to protect the right to water if those reforms disrupted the “legitimate expectations” of the investor in the existing regulatory system.
In its December 2016 Award (fair warning: it is 328 dense pages), the Urbaser tribunal found that the “fair and equitable treatment” standard does protect some legitimate expectations but those expectations must exist in the context of the “entire legal, social, and economic framework.” The company should have considered the state’s social and constitutional obligations to secure basic water and sanitation services when developing its expectations. (paras 622-624).
While the tribunal still found Argentina violated the fair and equitable treatment provision because of its conduct in the renegotiation of the contract, this part of the decision represents a positive development for IHRL. The decision affirms that a state can take actions to protect human rights even if those actions infringe on an investor’s interests when the state’s social and legal obligations require such efforts. This suggests that when IIL and IHRL obligations conflict, the investor should not be protected from the state’s reasonable efforts to protect IHRL. It seems like a simple conclusion, but it is still a significant finding for an IIL tribunal to make.
The second conflict between IHRL and IIL stems from when businesses negatively impact on human rights and the state seeks to hold the business accountable through IIL. The Urbaser tribunal also addressed this type of conflict when Argentina initiated a counter-suit arguing that the company failed to meet IHRL obligations relevant to its water concession. The tribunal concluded it had jurisdiction over the counterclaim but, relying in part on the UNGP, it found the company did not have direct IHRL obligations. The company was not bound to ensure its water provisions met IHRL standards unless the state specifically referenced IHRL or its attendant standards in its IIL treaty, contracts, or national laws.
Another tribunal decision, in Burlington v. Ecuador, issued in February, suggests what could have been for Argentina if it had a clearer reference to IHRL standards. In that case, the tribunal awarded Ecuador $41.7 million USD when it found the company breached Ecuadorian environmental laws. Together, the two cases make it clear that states need to directly include IHRL language in their IIL treaties, national laws, and contracts if the state is to meet its obligation to protect human rights.
A lack of policy coherence and inter-agency cooperation within domestic systems has long prevented the inclusion and protection of IHRL through IIL. But, there is good news and a great model for doing this. Last December, Morocco and Nigeria signed a bilateral investment treaty (“BIT”). When it eventually enters into force, the BIT will oblige both states to ensure their “laws, policies, and regulations are consistent with the international human rights agreements to which they are a Party” (art. 15(6)). This clearly embeds UNGP Pillar 1 in the IIL treaty.
More importantly, the treaty requires foreign corporations (and other investors) who are beneficiaries of the IIL treaty to “uphold human rights in the host state” (art. 18(2)). This means that Nigerian companies entering Morocco, or Moroccan companies entering Nigeria, are bound to uphold human rights in their operations. Finally, the treaty prohibits companies from operating or managing their operations in way “that circumvents international environmental, labour, and human rights obligations” of the two states (art. 18(4)). The BIT’s language clearly tracks the expectations of the UNGP. This language ensures that UNGP Pillar 2 is also reflected in the treaty.
In light of the Urbaser and Burlington decisions, Morocco and Nigeria could use IIL to seek remedies against a foreign investor that breaches IHRL. This gives both states a better opportunity to realize the right to remedy by allowing the states to pursue businesses that fail to meet IHRL standards. Any money recovered by the state could then be used to ensure a full remedy and reparation for the victims. In this way, the treaty can help realize UNGP Pillar 3.
IIL tribunals have made it clear that if states want to ensure businesses are bound by IHRL, they need to say so within their IIL treaties, domestic laws, and contracts. The Morocco-Nigeria BIT gives a great example of how this can happen. As new IIL treaties are being negotiated, states should ensure the UNGP are reflected. They can do this by using the Morocco-Nigeria language to embed both states’ obligations and businesses’ responsibilities.
Tara Van Ho is an assistant professor at the INTRAlaw Centre, Aarhus University Department of Law (Denmark). She co-edited Human Rights and Business: Direct Corporate Accountability for Human Rights (Wolf Publishers, 2015) with Jernej Letnar Cernic, and researches and writes on the relationships between business and human rights, international investment law, transitional justice, and the laws of armed conflict.