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Addressing the imbalance between investment protection and people protection: Making globalisation work for all

14 March 2017

Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)

We are facing a backlash against globalisation. This has gone hand in hand with a push back against investment treaties and trade agreements: just watch the election campaigns and the downfall of TTIP and TPP negotiations.

Nowadays, at the OECD many policymakers talk about “Making globalisation work for all”. If we really want to achieve this, policymakers have to take another critical look at the following.

A number of people have argued that investment policy today is marked by an imbalance between investor rights and investor responsibilities. I would frame it slightly differently.

We have developed investment protection of foreign investment because of states with failing policies and inadequate legal systems to safeguard investor rights. In regions where courts are dysfunctional, corrupt, politically biased or incompetent, foreign investors want extraterritorial protection. Fair point.

A related issue is that some people are victims of foreign economic activities. They also lack protection and remedy because of the exact same reasons: failing policies and weak legal systems. However, they do not have access to extraterritorial protection of their rights. So there is a fundamental asymmetry between investment protection and people protection. There is hard protection of investments and soft protection of people. Why do we protect investments with hard law and protect people with soft law? We have no credible answers.

This imbalance is fuelling two trends: a declining support for investment protection, which even undermines trade policy in general and free trade agreements in particular, and on the other hand societal and political pressures towards mandatory legislation on responsible business conduct, such as the recent due diligence law in France and the modern slavery act in the UK. It has also led to discussions in the UN on a binding treaty on business and human rights.

This topic will not disappear from the agenda. The imbalance will haunt policymakers for decades.

There should be at least two responses in my view: first, strengthening access to remedy for people, for example by strengthening the National Contact Points for responsible business conduct under the OECD Guidelines, and second, making investment protection more responsible. The inclusion of aspirational provisions on corporate social responsibility and cooperation in this field will not do the trick. It will only lead to accusations of “greenwashing” investment treaties.

Are there feasible options? Yes there are. We have seen recent precedents to make investment protection more responsible. Not all of them are easy or without controversy, but worth exploring.

One option is to exclude sectors that are considered as not responsible. There is a precedent for this approach: the TPP exemption of tobacco products from protection. This is controversial and the question remains whether this the way forward: will the coal sector be excluded in the future too?

A second option could include a provision ensuring that only those investors that comply with the OECD Guidelines for Multinational Enterprises are assured protection under such a treaty. This would be very complex from a procedural point of view, but not impossible.

A third option, which is more easily conceivable, is to exclude protection for investments that are linked to corruption and egregious human rights violations. This would be nothing more than “codifying” the “clean hands doctrine” that is already accepted by several arbitration tribunals. In the cases Metal-Tech Ltd v the Republic of Uzbekistan and World Duty Free Company Limited v The Republic of Kenya (2006) the tribunal excluded jurisdiction because of corruption related to the investment.[1]

A fourth feasible option worth exploring is to include a provision that specifies that material breaches of the OECD Guidelines – for example severe human rights violations  –  are taken into account by a tribunal when deciding on the merits of a claim or on potential damages awarded.

Of course these ideas are controversial and complex. It takes investment policymakers and treaty negotiators out of their comfort zone. As a former investment negotiator myself it even makes me uneasy, but we have to explore these options further. This is not impossible: precedents are available. Doing so requires political will and action is urgent. Why? Because we must respond to the backlash against investment and trade policy and make globalisation work for all.

Useful links

OECD Conference on investment treaties: The quest for balance between investor protection and governments’ right to regulate 14 March 2016, Paris

The growing pains of investment treaties OECD Secretary-General Angel Gurría on Insights

 

[1] Metal-Tech Ltd v Republic of Uzbekistan (2013): http://www.italaw.com/sites/default/files/case-documents/italaw3012.pdf  para110 iii ‘clean hands doctrine’165 &166; 236,237; 243; 372; World Duty Free Company Limited v The Republic of Kenya (2006): http://www.italaw.com/documents/WDFv.KenyaAward.pdf

 

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