Over the past two decades, international investor-State dispute arbitration has exploded alongside a surge in Bilateral Investment Treaty (BIT) ratifications.
The International Centre for the Settlement of Investment Disputes (ICSID) is cited within some 2,400 BITs – making the ICSID one of the main arbitration forums for international investor-State dispute settlement. To illustrate this dramatic increase in claims, consider that 166 claims were registered with the ICSID between 1996–2005, compared to only 35 over the previous 30 years[i]. As of 2010 the total number of known treaty-based cases reached 390.
Procedurally these disputes stem largely from the general consent States give in their BITs to international arbitration. From this general consent, foreign investors can then bring a claim under the BIT’s investment protection provisions arguing a State’s regulatory act detrimentally interfered with their investment and should be compensated.
Given some multimillion and even billion dollar investor-State dispute claims that have arisen, some countries – Argentina[ii] and South Africa[iii] for example – are increasingly realising the implications of these general consent provisions within the BITs they negotiated years, if not decades, before.
The actual number of worldwide investor-State disputes is unknown. Under ICSID rules, only where both parties have consented are proceedings made public. Awards are binding and highly enforceable because of the multilateral Conventions backing them up, but there is no option of appeal – just a petition for annulment on procedural grounds.
The world of international arbitration does not have a uniform model to follow in determining compensation amounts and does not have any system of precedent, which has at times led to contradictory decisions from tribunals (the most famous being two separate claims, based on the same facts, to two different ad hoc tribunals regarding cosmetics billionaire Ralph Lauder’s co-owned broadcasting company in the Czech Republic - one tribunal dismissed the claim entirely[iv], while the other awarded Lauder’s company $353million from the Czech Government[v]).
Bolivia has a short and unprecedented history with the ICSID. In 2007, its denunciation of the Centre made it the only country amongst the 144 members to have ever taken this step (and only Ecuador has since followed suit). In denouncing the ICSID, Bolivia’s first indigenous President Evo Morales stated:
"(We) emphatically reject the legal, media and diplomatic pressure of some multinationals that ... resist the sovereign rulings of countries, making threats and initiating suits in international arbitration."
Morales later announced his Government’s plans to revise the 24 BITs it holds with other nations one-by-one as they expire to broaden the scope for performance requirements, narrow the definition of ‘investment’, and limit arbitration to domestic forums only – all BIT provisions that could be seen to limit protections for foreign investors. Bolivia’s denunciation of the ICSID could largely be considered symbolic however, with alternate international arbitral forums still consented to within its BITs, and years still to go before each expires.
The SRSG’s Guiding Principles on Business and Human Rights call attention to some of the blind spots and problem areas of investment agreements.
The UN Special Representative to the Secretary-General (SRSG) on Business and Human Rights has considered international investment agreements and arbitration issues throughout his mandate, identifying this area as one where States often fail to ensure their investment policy is consistent with their “duty to protect” human rights.
The duty to protect requires States to guard against human rights abuse within their territories and jurisdictions by third parties, including business enterprises, through effective policies, legislation, regulations and adjudication.
Yet the SRSG found that States often do not consider the implications of BITS on their duty to protect human rights within their policy space. The result is that some States unduly constrain their human rights policy freedom when pursuing other policy objectives.
The SRSG acknowledges the important balance to be struck between States’ need to attract foreign investors through robust protections, while at the same time maintain the ability to ensure access to essential services, improve social and environmental standards, and protect human rights. In response to the pressure countries feel to essentially out bid competing States for foreign investment (tipping the balance toward investor protections and privileges), the SRSG illustratively uses the analogy of digging deeper the hole into which you are stuck – the first thing you must do to get out is stop digging.
Bolivia, it seems, may have been attempting to lay down its trowel, but the case demonstrates the scale with which the world of international investment can impact States’ policy freedom – even following moves to assert its domestic autonomy.
The SRSG’s Guiding Principles on Business and Human Rights (up for final adoption by the UN Human Rights Council this month) call attention to some of the blind spots and problem areas of investment agreements. State progress in this field, however, will be realised through the evolved content of new and revised investment treaties and future investment contracts, which, in providing investor confidence through their provisions, increase transparency and create the space necessary for States to respond to the bona fide social and environmental conditions impacting its citizens’ enjoyment of their human rights. If States can improve this balance they will facilitate their own ability to meet their duties as the ultimate protectors of rights and freedoms within their jurisdictions and territories.
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Footnotes:
[i] Mourra, H. M. (ed), Latin American Investment Treaty Arbitration: The Controversies and Conflicts (Kluwer Law International 2008), 30.
[ii] A multitude of claims were filed against Argentina in the wake of its economic crisis (2001-2002) and the regulatory measures it took in response.
[iii] See a summary of South Africa’s notable Foresti case by InterRights, regarding its Black Economic Empowerment targets argued to devalue the mining investments of the foreign claimants, at:
[iv] Lauder (Ronald S) v Czech Republic (Final Award) (3 September 2001), (2002) 4 World Trade and Arbitration Materials 25
[v] CME Czech Republic BV v Czech Republic (Damages) (14 March 2003), 15(4) World Trade and Arbitration Materials 83.
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Commentary by Scott Jerbi, Senior Advisor, Policy & Outreach, IHRB