Globalisation and resource development in Africa: assessing the facilitator–protector roles of international law and international institutions

Abstract

A significant feature of globalisation in Africa is the scramble for resources, especially petroleum and solid minerals, through foreign direct investment by multinational companies. This paper explores the role of international law, which protects the investor from regulatory and political risks but offers no such protection to host communities suffering from the social and environmental impacts. The paper argues that there is no valid reason for the difference in treatment, but rather there are compelling grounds for equal protection of communities from the impacts of the operations of multinational corporations, especially as the very investment protection laws place constraints on the sovereign regulatory powers of the state.

1. INTRODUCTION

Globalisation has today become a buzzword in global socio-economic and political discourse. However, its exact nature, scope and impact (Jones, 1995; Castells, 1996; Stiglitz, 2002; Wolf, 2004), and indeed very meaning (Robertson, 1992:8; Waters, 1995:3; Friedman, 1999:7–8; Mittelman, 2000:6), are still the subject of much debate and controversy. Nevertheless, it is undeniable that there is a very real ongoing experience of shrinking in geographical space between countries and cultures and in interconnections in the economic, social and cultural spheres owing to such factors as technological advances and liberalisation of markets. A key feature of this process is the introduction of important new global players such as multinational corporations (MNCs).

This has implications for regulation and governance at both the international and national levels, owing in part to changes in the dynamics of the relations between nation-states on the one hand, and nation-states and other global actors such as international institutions and MNCs on the other (Held & McGrew, 2000; O'Brien et al., 2000; Cutler, 2001; Keohane, 2002). The traditional role of international law – ordering relations between nation-states while respecting the principle of state sovereignty over its domestic affairs – is no longer absolute. In such areas as human rights law, this changing role of international law seems fairly well established, with governments' actions within their domestic jurisdictions increasingly being subject to international scrutiny and responsibility at international law (Steiner et al., 2000). As Twining (2000:51) argues, ‘[i]n so far as our stock of theories of law assumes that municipal legal systems are self-contained or that public international law is concerned solely with external relations between states, such theories just do not fit the modern facts’. Rather, there is increasing pluralism and heterogeneity in global governance, with international law playing more direct roles at national levels, and non-state actors, such as international institutions under the UN and the Bretton Woods institutions, increasingly involved in the regulatory process (Cutler, 2005; Szablowski, 2007). Thus, Birnie and Boyle, writing on international environmental law, state that in its ‘constitutional role … international law … facilitates and promotes cooperation between states, international organisations, and non-governmental organizations’ (2002:7). This complex milieu of global actors, and indeed the changing face of global governance, limits in certain respects the scope and effectiveness of the regulatory power of nation-states.

It is against this background that the present article critically analyses the role of international law (and international institutions) in a significant aspect of economic globalisation in Africa – foreign direct investment (FDI) of multinational companies in the resources sector, especially petroleum and solid minerals. International law plays a significant role (as do international institutions) in helping to provide a framework that eases the entry of multinationals into foreign jurisdictions, including the resources sector in Africa, as well as protecting the investor from regulatory and political risks. However, these are not the only risks of investing in the resources sector, especially in developing countries with weak regulatory and governance structures. Resource development has potentially serious environmental and socio-economic impacts for the communities in the host state.

This paper therefore aims to answer the following crucial questions. What corresponding protection does international law offer the host communities, especially given the way the state's regulatory powers are restricted by international rules for protecting investments? In essence, does international law have equal protections for the investor (regulatory and political risks) on the one hand, and the citizens in the host state (environmental and social risks) on the other? The paper does not aim to engage in the critical debate about globalisation generally, or indeed about the impacts of globalisation or FDI on economic development in Africa. Note that the term ‘resource development’ as used in this paper simply means the conversion of resources from their natural state for human use, devoid of any value judgements about this process that another commonly used term, ‘resource exploitation’, may have.

As a background to the main discussion, the paper first establishes the significance of the resources sector in FDI inflows to Africa. Thereafter, it highlights the environmental and socio-economic impact of resource development in the continent against the background of the ineffective regulation of these impacts by the host states. In this section, the author draws on personal research conducted in Nigeria and secondary sources of information from other countries. The next section then examines the role of international law in protection of investment vis-à-vis protection for the impacts of resource development.

1.1 Research in Nigeria

The author's research in Nigeria was conducted from August to September 2002 in and around Port Harcourt in Rivers State. This entailed three separate sets of activities: collecting oil spills data from official sources, interviewing officers of regulatory agencies, and visiting oil spills and gas flare sites. The main aim of this research was not to rehash the much-documented impacts of the industry on the Niger Delta environment. Rather, it sought to evaluate whether there had been any significant reduction in levels of pollution, or effective enforcement by the regulators in the light of the negative publicity surrounding its operations in the country in the early 1990s. This informed the data range (1989–2001) – the period before and after international attention was first beamed on the environmental situation in the region. Oil spills were a suitable choice of environmental impact to evaluate: they were one of the most prevalent and yet avoidable effects of the industry in the region, official data were available, and the data were quantifiable and allowed for comparison over time.

2. GLOBALISATION, FOREIGN DIRECT INVESTMENT, AND THE RESOURCES SECTOR IN AFRICA

One of the key features of globalisation in its modern context is the increasing role of corporate actors, especially the large MNCs, in the global economy through the injection of huge funds in the form of FDI. FDI has been promoted as being vital to economic development, particularly in developing countries, and this has long underpinned the programmes and policies of the Bretton Woods institutions (the World Bank and the International Monetary Fund) for developing countries, including Africa. States therefore actively seek to attract these investments by following the advice to provide a ‘favourable investment climate’, which entails such factors as liberalisation and restructuring (deregulation and privatisation), especially as this can be a prerequisite for the granting of loans (Piccioto, 1999; United Nations Conference on Trade and Development [UNCTAD], 2005). International law, especially trade and investment law, has also played a significant role in facilitating this process, mainly through bilateral investment treaties (BITs) and multilateral investment treaties (MITs) and the major trade agreements of the World Trade Organisation.

Several countries in the developing world have endeavoured to comply with these requirements for attracting investment (UNCTAD, 2005:39–43), although from available evidence these countries still attract the lowest inflows of FDI (Balasubramayam, 1999:29; UNCTAD, 2006; Prasad et al., 2007). Africa, in particular, attracts the least FDI globally, with a downward trend during the past three decades (UNCTAD, 2005). However, one sector where FDI continues to be high here is the extractive industries. In 2004, while the continent attracted only about 2–3 per cent overall in global FDI inflows, a total of $15 billion was invested in mining, which represented 15 per cent of the global total and a substantial increase from about 5 per cent in the mid-1980s (UNCTAD, 2005:39). In 2005, as in other years, total FDI inflows to Africa remained low at about 3 per cent. Of this regional total, 10 countries – Algeria, Chad, the Democratic Republic of Congo, Egypt, Equatorial Guinea, Morocco, Nigeria, South Africa, Sudan and Tunisia – accounted for close to 86 per cent (UNCTAD, 2006). These are the main petroleum and mining countries in the continent. Indeed, 48 per cent of the inflows went to six oil-producing countries – Algeria, Chad, Egypt, Equatorial Guinea, Nigeria and Sudan – although, perhaps for obvious reasons, Angola, another major oil-producing country, was among those receiving the least FDI. Against this background, it is easy to conclude – as did the New Partnership for Africa's Development (African Union, 2001: para. 31) – that a significant aspect of globalisation in the African context is resource development, and this growing attraction to the primary resources sector in the continent has been referred to by some, including African leaders, as the ‘new scramble.’

2.1 Environmental, social and other impacts of resource development in Africa

From the perspective of the host country, the primary aim of resource development is to promote growth and development in the national economy. However, resource extraction also has potentially serious environmental and social implications. The scale of these impacts can be mitigated where the company adopts techniques that conform to best practices in line with the current technology, taking into consideration the nature of the environment and the economic and social patterns of the area where it operates (United Nations Environment Programme/Exploration & Production Forum, 1997). Unfortunately, the evidence from across the continent in both mining and petroleum operations shows that companies have not generally adhered to these principles in their operations. Examples from Ghana (Ayine, 1999; Owusu-Koranteng, 2004), Tanzania (Lissu, 1999; World Bank, 2003), Mali (Dembele, 1999) and Sierra Leone (Hazelton, 1999) all indicate that these operations have left in their wake devastated environments, human rights abuses, disrupted social institutions and structures, and sometimes outright chaos and conflict. This does not mean that local companies cannot and do not have similar impacts. However, the reality is that the main companies in this sector are foreign. Furthermore, the protections and regulatory constraints under international law do not apply to local companies. The following section explores in some detail the impact of the oil industry in Nigeria.

2.1.1 The case of the Niger Delta of Nigeria

Nigeria is Africa's largest oil producer and the seventh largest net exporter in the world. The main companies involved in operations in the country are the major oil multinationals such as Shell, Exxon Mobil, Chevron, Agip and Elf. The environment in which the companies operate is mainly the rural areas of the Niger Delta. This is an ecologically sensitive wetland, with a dynamic ecosystem rich in freshwater resources and a wide variety of flora and fauna. The local communities, mainly fishermen and farmers, depend on the land and water resources for subsistence (Ashton-Jones, 1998; Human Rights Watch, 1999; Frynas, 2000).

For several decades, the oil industry has degraded and polluted the Niger Delta at all stages of its operations. For instance, seismic activities destroy natural vegetation, including mangrove forests. Construction of operational facilities that does not take into consideration the nature of the environment has led to flooding in some instances (Umudje v. Shell–BP Petroleum Development Company Ltd [1975] 9-11 SC 155) and siltation of rivers in others (Elf (Nig) Ltd v. Sillo [1994] 6 NWLR (Pt.350) 258). However, by far the most visible, and the most researched and documented, effects are oil spills and gas flaring (Awobajo, 1981; Powell et al., 1985; Snowden & Ekweozor, 1987; Fekumoh, 1998; Human Rights Watch, 1999; Emeseh, 2006). All of these studies document a large number and volume of oil spills, with a high proportion of spills resulting from avoidable causes directly related to the companies' environmental management practices, involving such things as equipment failure and old worn-out pipelines. Similarly, Nigeria flares the most gas of any oil-producing country. Several flares are situated very close to local communities, and low flame temperatures result in only partial combustion of gaseous components, which in turn has a greater negative implication for the environment (Ashton-Jones, 1998; Ishisone, 2004; Oguejiofor, 2004; Sonibare & Akeredolu, 2004; Environmental Rights Action/Friends of the Earth, 2005). The polluted environment affects the ability of local communities to rely on the land and rivers for their traditional sources of livelihood, and it also has health implications.

There has not been much support from the home government. Apart from not holding the companies accountable for the environmental pollution, protests by communities over the problems arising from oil operations in the Niger Delta have routinely been repressed by brute force, often occasioning human rights abuses, sometimes with alleged complicity by the oil companies. While by no means the only example, the well-known Ogoni crisis of the 1990s typifies this problem (Human Rights Watch, 1999; Idowu, 1999; Worika, 2001).

In the wake of this crisis, companies openly made a commitment to operate in a more environmentally and socially responsible manner, often claiming near-compliance with regulations and replacement of worn-out pipes in their annual reports. One would therefore expect a reduction in pollution generally, and the number of spills in particular. However, figures collated by this author from official statistics for the period between 1989 and 2001 (see Table 1) show that the number of incidents and the volumes of spills have continued to rise.

Table 1: Oil spills statistics from the eastern operations in Nigeria (1989–2001)

Year	Total number of incidents	Approximate number of barrels spilled	Percentage lost to the environment	Percentage attributed to sabotage
1989	92	6147.59	76.13	28.26
1990	119	15 264.11	66.11	31.09
1991	117	155 031.33	99.10	23.08
1992	184	27 161.54	97.35	32.61
1993	251	7310.14	73.00	29.08
1994	270	32 259.70	94.75	18.52
1995	245	67 561.41	86.91	22.86
1996	264	43 841.35	100.00	22.35
1997	266	74 749.52	98.34	21.43
1998	133	69 338.68	99.45	18.80
1999	260	28 013.72	99.64	30.00
2000	240	71 788.58	–	56.25
2001	297	179 914.77	–	46.46
Total	2441	598 467.67	95.63	27.98
Source: Collated from Department of Petroleum Resources' records over the period 1989–2001.

This rise is not completely explained by sabotage, as is often alleged by the companies, although sabotage is a real problem in the region. A popular tale in the region is that pipeline damage caused by a fallen tree can easily be attributed (by the oil companies) to sabotage. When asked by this author how they arrive at the conclusion that sabotage was the cause of a particular spill, enforcement agents said that ‘suspected sabotage’ was the entry usually made in their records where there were visible signs of this or where there were no other obvious causes of the spill. Once this ‘cause of spill’ had been logged, no further investigations were carried out. Thus the number of spills caused by sabotage remains unsubstantiated.

Despite the glaring evidence of pollution, this author's research showed that not even one civil or criminal case had been brought against any of the oil companies by regulatory agencies, while private litigation is fraught with difficulties (Emeseh, 2005). Officials of these agencies who were interviewed between June and August 2002 gave no satisfactory explanation for this. One senior official of an enforcement agency said there were no enabling laws. When the author pointed out there were laws, even if inadequate, to support some level of enforcement, he replied that he was not aware of these. Another official merely said their policy was to work with the companies to ensure compliance. More junior officers of these agencies who were interviewed simply laughed at the idea. It was apparent from the general attitude of those who were asked this question that prosecution of the companies for oil pollution was not contemplated at all, since the industry is the economic lifeblood of the country.

Arguably, even if there was political will, it is doubtful whether the national agencies have the ability to effectively monitor the companies' operations and enforce compliance with the laws. Human resources, in the form of inspectors, were scarce – with one of the enforcement agencies having only three field inspectors to cover all of the operations in the eastern region. One senior officer also admitted that they did not have adequate monitoring equipment and hence relied on the oil companies' facilities to test samples. All of the agencies also relied on the companies to transport them to investigate spill sites.

Furthermore, analysis of the existing legislative framework showed that, while it could support some level of enforcement, this is far from adequate (Emeseh, 2005). A good example here is the ridiculously low fines stipulated in the Nigerian laws. The highest possible fine provided by the law (Part IX, Para. 4.3 (c) of the Department of Petroleum Resources Environmental Guidelines and Standards for the Petroleum Industry in Nigeria of 2002) is NGN500 000 (Nigerian naira), which is the equivalent of about US$3900. Some fines are less than US$1 (Regulation 45 of the Petroleum Refining Regulations, Cap 350, Laws of the Federation of Nigeria of 1990). By comparison, the Clean Water Act of the US provides for up to US$1 000 000 in fines. Considering the nature of the industry, it is obvious that the Nigerian fines are insignificant and can easily be factored into ‘the cost of doing business’.

One can therefore conclude that host states, for various reasons, are not necessarily equipped to deal effectively with the environmental and social impacts of resource development. Non-enforcement is not just a matter of lack of political will, but also of the unavailability of adequate resources and an ineffective legislative and enforcement framework. In light of these experiences, there have been efforts in recent times by the multilateral lending agencies, the Organisation for Economic Cooperation and Development (OECD) and even the industry themselves to impose some discipline on MNCs. But how do these measures compare with the protection granted to the foreign investor against risks arising from similar weak governance in the host countries? The next section explores this issue.

3. INTERNATIONAL LAW (AND INTERNATIONAL INSTITUTIONS) AS FACILITATOR AND PROTECTOR

Foreign investment protection has developed over time, from the earlier friendship, commerce and navigation treaties aimed primarily at furthering good relations between the economically advanced nations and protecting the life and property of traders operating abroad, based on national standards of treatment, to the present-day BITs and MITs (Sornarajah, 1994:8–9; Muchlinski, 1995:617–9, 1999:47–53). After World War II, and with former colonies now being independent of the world powers, there was a need to adapt BITs to meet the needs of the capital exporting countries; that is, to ensure ‘the control of less developed, capital importing states in their treatment of foreign investors’ (Muchlinski, 1995:618). The first of such BITs was concluded between Germany and Pakistan in 1959, and the numbers have since continued to increase rapidly. For instance, there was an increase from 309 in 1988 to about 1850 at the end of 1999 (UNCTAD, 2000b:6).

Arguably, these treaties are voluntarily entered into and they are evidence of the acceptance of the current rules protecting foreign investment. In truth, some of the new emergent states resisted some of the international law norms (such as a minimum standard of treatment and full effective compensation) for foreign investment protection in the 1960s and 1970s. However various factors, including economic pressures, forced them to accept the dominant jurisprudence of the capital exporting countries.

In addition to BITs, there have been attempts at providing a generally applicable international law for investment. This process, which appears to have begun with the Havana Charter of 1947, has so far not produced an international multilateral investment treaty, although there have been various attempts to produce one, with the most recent being the failed OECD Multilateral Agreement on Investment. However, it has had some success at a regional level, with examples such as the North American Free Trade Agreement (NAFTA) of 1994, and the Energy Charter Treaty (ECT) of 1994. As with BITs, these instruments have broadened the scope of protection granted to foreign investors, and have set up innovations that ‘weaken the regulatory grip national governments have over economic agents subject to their jurisdiction’ (Waelde, 1996, 2000:5).

Although these MITs are regional, there is some indication – following the failed Multilateral Agreement on Investment – that any attempt at a multilateral treaty will be patterned along these lines. Further, the NAFTA and the ECT have the potential to be applied to the much wider region of Latin America and to the Caribbean, to the Mediterranean, to Asia and to the African, Caribbean and Pacific group of states, respectively (Waelde, 2000:5). To some extent the provisions in these treaties also represent, in broad terms, the protections in BITs entered into by these countries with developing countries, and hence they reflect the general position on foreign investment. Therefore, rather than look at individual BITs specifically entered into on the African continent, the discussions below refer to the MITs, as they provide a general guide to the contents of BITs relevant to this paper, even though they are strictly speaking not directly applicable to Africa.

3.1 Main protections of foreign investments

Although individual BITs may differ in some respects, the main protections given the foreign investor are national treatment, most favoured nation treatment, minimum standard of treatment, protection from expropriation of the investment by the host state, and payment of compensation where there is an expropriation. The current MITs, while including and expanding the scope of these, have introduced some innovative mechanisms such as the investor state dispute mechanism and have expanded the right of investors even to pre-entry protection – for instance, by guaranteeing rights of entry into host states.

3.1.1 Standard of treatment of foreign investment

Most BITs entitle investors to either national treatment or the best treatment granted to investors of any other nation, whichever is better. Both the NAFTA (Articles 1104, 1102 and 1103) and the ECT (10(2)) have these provisions, whether or not the most-favoured nation is a party to the treaty. Further, the host state is required to provide a minimum standard of treatment in accordance with international law to the investor (Articles 1105 and 10(1), respectively). This protection of investment was one of those most resisted by host states, particularly by developing countries, because it entitled the foreign investor to a standard of treatment over and above that of its nationals where it was felt that the standards accorded its own nationals was below those of minimum international standards (Muchlinski, 1999:48–9).

In contrast, the foreign investor is liable only to the environmental standards of the host nation. It is irrelevant whether the standards in the host state are extremely weak. There are no minimum standards of environmental protection in any of these treaties, nor is the investor liable to the standard of any other country apart from that of the host state. For example, Article 3 of the North American Agreement on Environmental Cooperation, a supplement to the NAFTA, merely recognises the right of each party to establish its own environmental standards, and does not provide for any minimum standards. Sadly, this position is a contradiction, as it entails stark double standards in the treatment of foreign investment and the environment. To make things worse, there have been concerns that competition among developing countries to attract foreign investment could lead to a lowering of environmental standards, and hence a race to the bottom by multinational companies (Mabey & McNally, 1999:30).

3.1.2 Protection of investment

The crux of the rights of the foreign investor is protection of the investment from expropriation. Definitions of ‘investment’ and ‘expropriation’ are now, however, very broad. Investments now include both the tangible and intangible assets of the investor – Article 1101 of NAFTA read together with Article 1139, and Article 1(6) of the ECT as opposed to the traditional view that includes just tangible assets (Sornarajah 1994:294–313; Waelde, 2000). In the same vein, expropriation is no longer just the actual taking or confiscation of the investors' assets that transfers title to the host state, but also actions by the state that are ‘tantamount to expropriation’ or have the ‘equivalent effect’ of expropriation. Expropriation therefore now includes such concepts as ‘creeping expropriation’ or ‘regulatory taking’ of the investment (Article 1110(1) of the NAFTA and Article 13(1) of the ECT. S; see also UNCTAD, 2000a:4). Therefore, anything done by the host nation that significantly affects the ability of the investor to profit from his investment or exercise his rights under the investment can now be considered expropriation.

This definition of expropriation, together with stabilisation clauses in most international contracts, aims to protect the foreign investor from legislative or administrative measures subsequent to the conclusion of the contract. Although these do not stop a host nation from changing its legal or administrative framework, they do, however, open it up to the possibility of being liable for compensation on the grounds of expropriation (Verhoosel, 1998:455). This is a major encroachment on the powers of the state to make laws and regulations for environmental or social reasons. And although there are some cursory provisions recognising the power of the state to take measures to protect the environment (Article 1114 of NAFTA), this broadened protection of foreign investments could mean that investors are able to circumscribe the way in which nations make such laws as indicated in some arbitrations under NAFTA. In 2007, foreign investors in the mining industry in South Africa relied on a South African BIT with Italy and Luxembourg to challenge legislation based on the post-apartheid government's black economic empowerment policy as being discriminatory against them and amounting to expropriation of their investment. Similarly, Shell instituted arbitration proceedings against Nigeria over hydrocarbon concessions. (The details of the action have not been made public.)

The above changes appear to be a move away from customary international practice where the motives of host states for making regulations that appeared to be for the public purpose were not questioned because they were considered to be within the legitimate powers of that state (Sornarajah, 1994:316–18). Under customary international law and most BIT practices, ‘measures taken by competent authorities of either party [to a BIT] in the legitimate, non-discriminatory exercise of its police power, which reduce an investment value, do not constitute expropriation within the meaning of article 111 [of the Model BIT]’ (Gann, 1985:399; see also Wagner, 1999).

Protection from expropriation does not stop the host state from expropriating an investment, but rather makes them liable for compensation to the investor. The functional value of this, as pointed out by Verhoosel (1998:456), is that it ‘strengthens the private contractor's bargaining position’ because governments will not want to be ‘publicly embarrassed by an arbitral ruling’. The standard of compensation is ‘prompt, adequate, and effective’, and ‘shall amount to fair market value of the investment expropriated’ (Articles 12 (2)(b) and 13(2) of the ECT, and Articles 1110(2), 1110(3) and 1110(4) of the NAFTA). Once again, this reflects the position of the capital exporting countries as opposed to that of developing countries post colonisation, who unsuccessfully argued for ‘appropriate’ compensation following the adoption of the principle of permanent sovereignty over natural resources and nationalisation of foreign companies (Sornarajah, 1994).

The right to compensation has been further widened under both the NAFTA and the ECT. Whereas under customary international law there was no requirement for compensation where the expropriation was for a public purpose (Gann, 1985; Wagner, 1999), the provisions of Article 1110(1) of the NAFTA and Article 13(1) of the ECT clearly provide for compensation, whether or not the expropriation was for a public purpose. Consequently, where a state expropriates on environmental grounds, the state is still liable to pay prompt, adequate and effective compensation. Although, arguably, where there is a ‘valid’ environmental claim, this may significantly reduce the amount payable as compensation, the issue, however, is not so much the amount of compensation but the fact that the state is stopped from acting for fear of the liability for compensating an investor. Also, whether or not an expropriation has been made on ‘valid’ environmental grounds is subject to the interpretation of arbitrators – and this is not always as clear-cut as it may appear, as shown in the case of Metaclad Corporation v. United Mexican States (ICSID Case No. ARB (AF)/97/1, award dated 30 August 2000). For instance, will a regulation based on an application of the precautionary principle by the host state where scientific evidence is not conclusive be sufficient for an arbitral tribunal?

3.1.3 Investor state dispute mechanism

Under customary international law, it is the home state of the foreign investor that has the power to institute an action against the host state for breaches of the right of the foreign investor, since the MNC is not a recognised person at international law. With modern BITs, and particularly in the NAFTA (Articles 1115 and 1116) and ECT (Articles 26(1)(c) and 26(3)), the investor now has the right to institute binding arbitral proceedings against the host government, independent of the home state. This process has been further aided by the dispute settlement rules of the World Bank's International Centre for the Settlement of Investment Disputes, pursuant to the 1965 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965, 4 International Legal Materials 524) and the United Nation's Commission on International Trade Law. Arbitrations are usually held in private, and proceedings are only made public with the consent of the parties. Also, interested third parties do not have the right to be heard before such tribunals, regardless of whether there are serious issues of public policy that naturally should be of interest to the citizens of the host state. The United Nations Convention on the Recognition of Foreign Arbitral Awards (1958, 330 UNTS 38) further makes it easier to enforce these arbitral awards in states that are signatory to the convention. All these are in addition to traditional contractual clauses that allow parties to decide the choice of law governing investment disputes where recourse is invariably made to jurisdictions in the capital exporting world. This process is likely to be facilitated even further when the more recent Convention on Choice of Court Agreements of 2005 comes into effect.

Understandably, these rules are there to protect the investor from political risks and the excesses of unstable regimes. The argument here is that there are no such avenues available to the citizens of the host state where these same states are either unwilling or unable to protect them from the activities or impacts of the operations of the foreign investor. Although there is some possibility of recourse to foreign forums of the home state of the multinationals, these are usually fraught with difficulties and impediments owing to the doctrine of forum non conveniens – as exemplified in cases such as Bhopal, Doe v. Unocal, and the South African asbestos litigation (Ayine & Werksman, 1999; Belgore, 2003; Boggio, 2006).

The Supplemental Environmental Agreement does provide some measure of access by recourse to the Secretariat of the NAFTA Environmental Commission. Under Articles 22 and 24 of the Supplemental Environmental Agreement, a party may request consultations and dispute settlement where it feels that another party has engaged in a ‘persistent pattern of failure … to effectively enforce its environmental law’, which ‘relates to a situation involving workplaces, firms, companies or sectors that produce goods or provide services …’ that are either traded between the NAFTA parties or compete with the goods or services of the other NAFTA parties. But this is a complicated and time-consuming process when compared with the efficient dispute resolution procedures afforded to investors. Similarly, while trade sanctions are determined by the cost of the harm to the complaining party, neither the monetary enforcement assessments nor the trade sanctions provided under the Supplemental Environmental Agreement are in any way related to the environmental costs of failure to enforce the environmental laws.

Although the state is supposed to protect the interests of its citizens, this is not always the case because of such factors as lack of capacity or political will, inadequate regulatory frameworks, constraints on states to attract investment, or even corrupt leadership or dictatorships that are not concerned about the welfare of their citizens. Indeed, as shown in the example above, Nigeria is not enforcing the environmental laws. Also, in both the Nigerian and Tanzanian examples mentioned above, the state has been accused of orchestrating the abuse of its own citizens with the collusion of foreign MNCs. Such irresponsible acts by states are not unique to the areas of environmental protection or foreign investment. It is because of the recognition that states are sometimes parties to heinous breaches of international norms against its own citizens that we now have international tribunals dealing with issues such as war crimes and human rights abuses. Consequently, the protection given to foreign investors against the excesses of state action should also be given to the citizens of the host state against actions by the investor, particularly where such actions are condoned by or in collusion with the host state.

3.2 Governance of foreign investment: environmental and social

As the brief references in the section above indicate, environmental protection is provided for in some form in the MITs under discussion, including the state's power to regulate the environmental impacts of foreign investment. There are also various initiatives by international institutions such as the United Nations, the World Bank, the OECD, and the International Financial Corporation, which provide some measures for disciplining the activities of the foreign investor, especially in the area of environmental and social responsibility. These are examined further in Section 3.2.2 below, to further highlight the difference between the way the investor's risk is protected and the risks faced by the host communities as a result of the investment.

3.2.1 Provisions under MITs and international trade instruments

The preambles to the ECT and the NAFTA both recognise the need to protect the environment. The NAFTA goes further in stating that it is the intention of the parties to achieve their goals in a manner that is consistent with environmental protection and conservation, and further to promote sustainable development and to help develop and enforce environmental laws and regulation. Also, Article 2101 of the NAFTA incorporates the general exceptions under Article XX of the IS General Agreement on Tariffs and Trade (GATT), which recognise measures that will not be considered a breach of the GATT. These exceptions include, among others, measures taken by a state to protect human, animal and plant life or health and to conserve exhaustible natural resources. These exceptions are subject to the general provision that the measures taken do not constitute a means of arbitrary or unjustifiable discrimination between countries where similar conditions prevail, or a disguised restriction on international trade.

Article 1114 of the NAFTA also recognises that a Party is not prevented from ensuring that ‘investment activity in its territory is undertaken in a manner sensitive to environmental concerns’ and that ‘it is inappropriate to encourage investment by relaxing domestic health, safety or environmental measures’. The measures taken to protect the environment should, however, be ‘consistent’ with the investment chapter; and where a Party is believed to have lowered its environmental or health standards to attract investments, the Party is merely required to ‘request consultations … with a view to avoiding any such encouragement’. Although the North American Agreement on Environmental Cooperation recognises the need for environmental protection, its provisions appear to be merely hortatory, especially as Article 3 does not provide any minimum environmental standards. Similarly, Article 19 of the ECT makes provisions for environmental protection, but these are not binding on the state or the investor. The ECT requires Parties to take the environment into consideration only in so far as this is ‘economically efficient’, and Parties are required only to ‘promote’ and ‘encourage’ actions in respect of the environment.

Clearly, the provisions relating to environment protection fall short when compared with those that protect the investor, as they are merely directory, not obligatory, and do not lay down any specific or minimum standards. There are no direct constraints on the foreign investor regarding environmental or social responsibilities. Arguably, these rules do not apply to developing countries in Africa alone but also to developed countries. However, these developed countries do not have the governance problems or issues of lack of capacity in the same way countries in Africa and other developing countries do. As shown earlier in Section 2.1.1, the liability for causing pollution in the developed countries is much more stringent than in Nigeria and the regulatory agencies – as exemplified by cases such as the Exxon Mobil spill in the US and the Sea Empress spill in the UK – have the capacity and the will to enforce the law. Furthermore, lower environmental standards are not a bargaining chip for attracting foreign investment in the way that they could be for countries in the global south. Consequently, while domestic laws may be effective in the north, this is not necessarily so for the south.

3.2.2 Other disciplines on foreign investment

Various initiatives have been introduced over the years by international institutions, especially following the very visible impacts of the activities of MNCs in developing countries and criticisms at the international level of the failure to discipline the MNCs. These initiatives include the OECD Declaration and Guidelines on Multinational Enterprises of 1976, the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy of 2001 (first published in 1977), the UN Secretary-General's Global Compact of 2000, the Draft Norms on the Responsibilities of Transnational Corporations of 2003, and the International Financial Corporation Equator Principles of 2003. Companies themselves have come up with various initiatives, generally along the lines of adopting voluntary codes of conduct. The main problem with most of these is that they do not impose binding enforceable obligations on the investor along the same lines as investment protection. Although initiatives such as the Equator Principles require more rigorous action on the part of MNCs, there are still problems with monitoring and enforcement. As evidenced by the failed Multilateral Agreement on Investment, there is a strong resistance to imposing binding obligations on MNCs – and one cannot but question why, especially as soft law has not proven to address the problem effectively.

5. CONCLUSION

FDI in the resources sector is a significant part of the experience of economic globalisation in Africa. However, investment in this sector does not have only potentially positive economic benefits for host countries; it has potentially negative environmental and social impacts as well. Similarly, while foreign investors may face risks to their investments and therefore ought to be protected, communities and environments in host communities also face risks from the activities of these companies and therefore ought to be protected. However, while the foreign investor is not left solely to the protection of the domestic law and institutions of host states, communities suffering from the resulting environmental and social impacts are. Similarly, while national governments are not allowed to rely on self-regulation and soft laws, companies are! Foreign investment protection by international law has therefore created an anomalous situation where rights are invested in a juristic person without corresponding duties or obligations.

This paper has argued that there is no valid reason for these differing treatments, but rather there are compelling grounds for equal protection of communities from the impacts of the operations of MNCs, particularly since the very investment protection laws place constraints on the sovereign regulatory powers of the state. Arguably, the rules apply to all countries and not necessarily developing countries. However, emerging economies face serious problems in the area of legislation and institutional capacity to monitor and enforce laws, which are not such a problem to developed countries. Emerging countries are also more likely to have governance issues. And even where this is not the case, the economic goals of national governments and the consequent pressure to attract foreign investment seriously undermine the prioritisation of environmental protection.