When talking about international sustainability, it is easier to think about the measurable. How many tons of carbon dioxide do Chinese factories emit? How many acres of Brazilian rainforest were destroyed today? How many living-wage jobs will Nike’s factory create? These are all important things to track, but it is also important to look at the legal framework that has shaped today’s international business norms. Understanding the forces and ideologies shaping international investment law can inform future international sustainability efforts. This post shed’s light on one major influence in modern international business: The Bilateral Investment Treaty.
Bilateral investment agreements gained their notoriety during the last twenty years. However, international agreements relating to investment have had a long history. The earliest foreign investment provisions were related to the protection of property abroad and date back to the late Eighteenth Century.1 Prior to the WWII, the United States’ relationship with international trade treaties was relatively limited.2 The U.S. commonly concluded bilateral treaties of “Friendship, Commerce and Navigation” (“FCN”), but these treaties were focused on protecting international investor’s foreign business activity and property from host country expropriation.3 These early treaties were similar to Bilateral Investment Treaties in style, but not in substance.
International investment law between WWII and 1990, was a battle between two different ideologies: one believing that liberalization of trade was the means to international stability, and the other believing that private property interests should yield to the interests of the sovereign state.4 Shifting world politics meant that, by 1974, developing countries comprised a voting majority in the United Nations. Having gained a political foothold, developing countries pushed-through a series of resolutions intended to strengthen host country control over expropriation compensation and ensure that disputes would be settled under the domestic laws of the home state.5 In many ways, modern Bilateral Investment Treaties are the latest battleground for this ongoing ideological war.
In response to developing nations’ pro-sovereignty initiatives, Western countries began concluding Bilateral Investment Treaties (“BITs”). These treaties aimed to protect foreign investments from uncompensated expropriations.6 Germany was the first country to conclude BITs when it signed agreements with Pakistan and the Dominican Republic in 1959.7 Between 1959 and 1990, most other European countries signed their own BITs with developing countries. The United States signed its first BIT in 1980.8
Modern BITs share three common features. First, are requirements that countries not expropriate foreign investment without swift, fair, and effective compensation. Second, most BITs contain provisions instituting a standard of national treatment for foreign investors and their investments. National treatment standards require a host country to provide a foreign investor with the same treatment that it affords its own citizens. Third, if a foreign investor believes that the host state has violated its treaty obligations, BITs typically provide the investor with the right to take legal action against the host state in an international arbitral tribunal.9
BITs currently focus on protecting investments, but why can’t they also protect the environment? The International Institute for Sustainable Development (“IISD”) is a Canadian public policy research institute established in 1990. IISD makes policy recommendations on international trade, climate change, and natural resources. IISD developed the Model International Agreement on Investment for Sustainable Development (“Model Agreement”) as a response to problems it saw in modern BITs.10 IISD viewed modern BITs as myopically focused on providing protections for foreign investments at the expense developing countries.11
In many developing countries, domestic laws concerning the environment, land rights, workers’ rights, and investments are uncertain and insufficient to protect vulnerable populations.12 Even when laws are in place to deal with these concerns, local governments deprioritize their enforcement in favor of economic development interests.13 The Model Agreement is intended to be a tool for developing countries to use when negotiating future treaties with the goal of promoting sustainable development and a fairer balance between the rights of investors and host countries.14
In spite of its good intentions, the Model Agreement has been attacked as a radical document. Some fear that, the Model Agreement will diminish foreign investor rights and increase the cost of doing business abroad.15 It is true that the Model Agreement advocates for more host country control over issues like expropriations, national treatment, and dispute settlement. However, much of the criticism aimed at the Model Agreement is merely an extension of the ideological tug-of-war that has typified interactions between developed and developing countries since WWII.
The Model Agreement’s shortcomings should not discourage efforts to use the BIT format for environmental good. All available legal tools must be leveraged to push international business towards a more sustainable future. We can learn from the history of international investment treaties and the negative reaction to IISD’s Model Agreement. We must avoid old battles that pit the interests of foreign investors (i.e., security from expropriations, expeditious and predictable dispute resolution) against the interests of host countries (i.e., state sovereignty, natural resource protection). Sustainability efforts must recognize these intractable situations and draft policies to avoid the quagmire.
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Notes
1 See R Wilson, United States Commercial Treaties and International Law 2 (1960).
2 Kenneth J. Vandevelde, The Bilateral Investment Program of the United States, 201 Cornell Int’l LJ 207 (1988).
3 See generally, ANN SEIDMAN & ROBERT SEIDMAN, STATE AND LAW IN THE DEVELOPMENT PROCESS: PROBLEM-SOLVING AND INSTITUTIONAL CHANGE IN THE THIRD WORLD (Macmillan 1995)
4 See Kenneth J. Vandevelde, The Bilateral Investment Program of the United States, 201 Cornell Int’l LJ 157-194 (1988); DOLZER & SCHREUER
5 RUDOLPH DOLZER & CHRISTOPHER SCHREUER, PRINCIPLES OF INTERNATIONAL INVESTMENT LAW, 11 (Oxford 2008) [hereinafter DOLZER & SCHREUER].
6 See Generally, Kenneth J. Vandevelde, The Bilateral Investment Program of the United States, 201 Cornell Int’l LJ (1988).
7 Id at 171.
8 Kenneth J. Vandevelde, The Bilateral Investment Program of the United States, 201 Cornell Int’l LJ (1988).
9 UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT, Dispute Settlement: Investor-State, in UNCTAD SERIES ON ISSUES IN INTERNATIONAL INVESTMENT AGREEMENTS 24 (United Nations 2003).
10 INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT, IISD MODEL INTERNATIONAL AGREEMENT ON INVESTMENT FOR SUSTAINABLE DEVELOPMENT VII (2005).
11 INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT, IISD MODEL INTERNATIONAL AGREEMENT ON INVESTMENT FOR SUSTAINABLE DEVELOPMENT VII (2005).
12 LORENZO COTULA, SONJA VERMEULEN, REBECA LEONARD & JAMES KELLEY, LAND GRAB OR DEVELOPMENT OPPORTUNITY? 23-25 (2009).
13 CARIN SMALLER & HOWARD MANN, A Thirst for Distant lands: Foreign investment in land and water, in IISD FOREIGN INVESTMENT FOR SUSTAINABLE DEVELOPMENT PROGRAM (2009).
14 INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT, IISD MODEL INTERNATIONAL AGREEMENT ON INVESTMENT FOR SUSTAINABLE DEVELOPMENT VII (2005).
15 Viji Rangaswami, Carnegie Endowment for Int’l Peace, Statement at the Carnegie Endowment Workshop on Globalization, International Law, and the Future of International Investment Treaties (July 15, 2005).
