A bilateral investment treaty (BIT) is an agreement made between two States establishing the terms and conditions for private investment by nationals and companies of one State in another State. This type of investment is usually called “foreign direct investment” (FDI).
Questions have been raised as to whether these agreements should include human rights concerns and/or provisions and about how investor-states dispute settlement (ISDS) arrangements of such agreements should be reformed.
The UN Business and Human Rights Guiding Principles (UNGPs), Guiding Principle 9, states:
“States should maintain adequate domestic policy space to meet their human rights obligations when pursuing business-related policy objectives with other States or business enterprises, for instance through investment treaties or contracts.”
“Economic agreements concluded by States, either with other States or with business enterprises – such as bilateral investment treaties, freetrade agreements or contracts for investment projects – create economic opportunities for States. But they can also affect the domestic policy space of Governments. For example, the terms of international investment agreements may constrain States from fully implementing new human rights legislation, or put them at risk of binding international arbitration if they do so. Therefore, States should ensure that they retain adequate policy and regulatory ability to protect human rights under the terms of such agreements, while providing the necessary investor protection.”+ Read more
International investment rulemaking takes place at bilateral, regional, interregional and multilateral levels, with there being over 3000 investment treaties currently in force [Provost & Kennard, 2015]. The growing awareness of both the positive and negative impacts of investment treaties, be they bilateral or international, has resulted in various organisations such as UNCTAD and the South Centre, as well as NGOs, developing recommendations and concrete proposals on how to ensure that investment treaties are aligned and support human rights protection, or at the least do not limit it. UNCTAD’s Work Programme on International Investment Agreements (IIAs) actively assists policymakers, government officials and other IIA stakeholders in negotiating new IIAs with a view to making them more conducive to sustainable development and inclusive growth, and “modernizing the existing stock of old-generation treaties”. UNCTAD’s World Investment Report 2017 presents and analyses the costs and benefits of 10 policy options that countries can take to reform their old-generation treaties. Some States such as Germany, China, Egypt, Romania, and Morocco have already developed policies in this direction and adopted some of these recommendations, in some cases renegotiating their international investment agreements. Such efforts are important examples of States maintaining “adequate domestic policy space to meet their human rights obligations when pursuing business-related policy objectives with other States or business enterprises, for instance through investment treaties.” (UN Guiding Principle 9.) The UN Sustainable Development Goals also call for “respect [of] each country’s policy space and leadership to establish and implement policies for poverty eradication and sustainable development.” [The 2030 Agenda for Sustainable Development]
One of the most controversial and disputed elements of the international investment agreements (IIAs) are provisions concerning the treaty-based Investor-State Dispute Settlement (ISDS). “ISDS is a legal instrument in BITs, or other BIT-like bilateral and International Investment agreements, that grants investors the right to call for arbitration in the event they believe that a government has violated such an agreement” [ECIPE, p.3]. Investor–state arbitration has boomed over the past decade, with the total number of recorded cases rising from 51 in 2000 to 767 known arbitrations in 2016. Of those in 2016, 62 ISDS cases were initiated by investors pursuant to international investment agreements, who were mostly from Global South States. [UNCTAD, Investment Policy Hub]. Alongside the increase in arbitrated cases, there has been growing concern by some states about the nature of arbitration claims by foreign investors against host states, which have included challenges to legitimate environmental and other public welfare and financial policy measures. The high costs of arbitration and lack of transaprency, independence and predictability have also led several states to rethink the scope of their investment treaty obligations as well as the arbitration mechanisms incorporated in their investment treaties. While there is no legal aid equivalent for states defending themselves from these suits, corporations have access to a growing group of third-party financiers who are willing to fund their cases against states, usually in exchange for a cut of any eventual award. [Provost & Kennard, 2015]
The ISDS mechanism came to be at the centre of controversy in a debate over the Transatlantic Trade and Investment Partnership (TTIP) and CETA, not least due to lack of transparency around those treaties development. In this context, it is important to note that there have been a number of important transparency-related innovations in international arbitration in recent years, for example the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration, which came come into effect from April 2014. Also the EU Multilateral Investment Court project, which had an overall objective of setting up a permanent body to decide investment disputes, that would replace the system of ISDS based on ad hoc commercial arbitration and, like the approach in the FTAs, would bring the key features of domestic and international courts to investment adjudication. Both the EU-Canada Comprehensive Economic Trade Agreement (CETA) and the EU-Vietnam Free Trade Agreement foresee setting up a permanent multilateral mechanism and contain a reference to it.