Role of sustainable development in Bilateral Investment Treaties: recent trends and developments

Abstract

In the last decade, international investment law has undergone an explosive growth, which is characterized by the proliferation of Bilateral Investment Treaties (BITs) and a growing number of investment-treaty arbitrations. The effect of BITs on developing countries (host states) can be far-reaching. There are cases when host states attempt to pursue the objectives of sustainable development have interfered with investments of foreign investors, and subsequently have violated BITs. Increasingly, the claim is made that broader societal interests, such as sustainable development, should be incorporated into BITs. In this article, important trends on the role of sustainable development in international investment law are analysed. Examples of states that attempt to incorporate sustainable development in their BITs are compared with states that oppose such reforms. This comparison shows that there is a lack of consistency and consensus on the future of the role of sustainable development in international investment law.

Keywords:

• Bilateral Investment Treaties
• ethical investments
• international investment law
• sustainable development

Notes

For investors, the system of diplomatic protection contains a number of disadvantages. Firstly, all foreign investments are exclusively subject to the sovereignty of the host state that substantially limits the rights of investors. Secondly, diplomatic protection is granted mainly in cases of expropriation, whereas other violations that constitute breach of investment agreement have no penalty. Thirdly, the relevant nationality of a company is a precondition for protection for multinational companies. This requirement can create many problems due to the complex corporate structure that companies often have. For more information see Tietje (2008, p.20).

Based on the data collected in 2010, 357 known investment treaty arbitrations took place by the end of 2009 (UNCTAD, 2010).

See, for example, Compania del Desarralo de Santa Elena S.A. v. Republic of Costa Rica, Award of 17 February 2000, ICSID; Técnicas Medioambientales Tecmed, S.A. v. United Mexican States (Case No. ARB(AF)/00/2), Award 2003, ICSID; Clayton v. Canada (NAFTA Ch. 11 Arbit. Trib.) 2005; Ethyl Corp v. Canada, 38 I.L.M. 708 (NAFTA Ch.11) 2005; Tecnicas Medioambientales Tecmed, S.A. v Mexico, Award of May 29, 2003, ICSID and others.

In addition, in the field of economic international law, the concept of sustainable development was explicitly mentioned in the Preamble of WTO Agreement of 1995.

FTR Holdings S.A. (Switzerland), Phillip Morris Products S.A. (Switzerland) and Abel Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay, ICSID case no. ARB/10/7, 2010.

In this investment dispute, South Africa enacted new legislation where one of the primary objectives was to promote equality by increasing the participation of historically disadvantaged black South Africans on the labour market. (See Piero Foresti, Laura de Carli and others v. Republic of South Africa (ICSID Case No. ARB(AF)/07/1).)

Compania del Desarralo de Santa Elena S.A. v. Republic of Costa Rica, Award of 17 February 2000, ICSID; Técnicas Medioambientales Tecmed, S.A. v. United Mexican States (Case No. ARB(AF)/00/2), Award 2003, ICSID.

Note that the host state cannot initiate arbitration proceedings against investors.

This report (September 30, 2009) was submitted in the course of revision of the US Model BIT, where some members of the Investment subcommittee argued over why the elaborated and enforceable labour and environmental standards should not be included in a new model BIT.

Piero Foresti, Laura de Carli and others v. Republic of South Africa (ICSID Case No. ARB(AF)/07/1).

A model BIT is a document that is used as a basis for the negotiations of a state's BITs.

Please note that the US Model BIT of 1994 also refers to labour and the environment. However, the model of 2004 is more explicit on that.

Vienna Convention on the Law of Treaties, United Nations, Vienna 1969, entry into force January 27, 1980. See: http://untreaty.un.org/ilc/texts/instruments/english/conventions/1_1_1969.pdf, accessed on 19 April 2011.

In Siemens v. Argentine Republic, Award of 6 February 2007, the Tribunal made a reference to the preamble regarding the interpretation of a ‘fair and equitable’ treatment standard (also see Guntrip, 2011, p.109).

In the case of Belgium, BITs are negotiated together with Luxemburg in the framework of the Belgium-Luxemburg Economic Union (better known as the BLUE Agreements).

See the Agreement between Belgium/Luxembourg Economic Union, on the one hand, and the Republic of Colombia, on the other, on Reciprocal Promotion and Protection of Investments, 2009, Article VII (5), http://www.unctad.org/sections/dite/iia/docs/bits/Belgium_colombia.pdf, and the Agreement between Belgium/Luxembourg Economic Union, on the one hand, and the Republic of Tajikistan, on the other, on Reciprocal Promotion and Protection of Investments, 2009, Article 5, http://www.unctad.org/sections/dite/iia/docs/bits/Belgium_Tajikistan.PDF, both websites accessed on 5 May 2011.

North American Free Trade Agreement, Chapter 11, Investment.

North American Labor Agreement on Labor Cooperation, 32 Ilm 1499 and North American Agreement on Environmental Cooperation, 32 Ilm 1480.