International Investment Law and Noneconomic Issues.

• Author: Choudhury, Barnali

ABSTRACT

Arbitral tribunals have misconstrued the purpose of international investment agreements (IIAs) by failing to factor in the development aspect of these agreements into their analysis. IIAs were constituted to protect foreign investment in order to promote economic developjnent. However, arbitral tribunals have tended to focus mainly on the investor protection elements of IIAs, leading to impingements on human rights and the environment and leaving IIAs as a threat to sustainable development.

Drawing from all publicly available investment awards, a review of these awards found fifty-six awards in which human rights and environmental issues were implicated in investment disputes. The review further finds that in many instances arbitral tribunals downplay or dismiss noneconomic issues, leaving compromises to both human rights and environmental issues and constraints on state ability to regulate these areas. Based on the findings of this review, the Article makes suggestions for how states can best reform IIAs to help them better align with the development aspects of these agreements.

TABLE OF CONTENTS I. INTRODUCTION II. INTERNATIONAL INVESTMENT LAW AND THE DEVELOPMENT NEXUS A. International Treaties and Initiatives B. International Investment Agreements C. International Investment Arbitrations III. IMPINGING ON HUMAN RIGHTS AND ENVIRONMENTAL ISSUES A. Empirical Analysis B. Textual Analysis 1. The Right to Water 2. The Right to Health 3. Environmental Issues IV. THE TREATMENT OF NONECONOMIC RIGHTS AT ODDS WITH DEVELOPMENT IN INVESTMENT ARBITRATIONS V. THE LEGAL RELATIONSHIP BETWEEN INVESTMENT TREATIES AND NONECONOMIC ISSUES VI. REFORMING INVESTMENT TREATIES TO BETTER INCORPORATE DEVELOPMENT IDEALS A. Substantive Reform 1. The Right to Regulate 2. Fair and Equitable Treatment 3. Safeguard Provisions 4. Investor Obligations B. Procedural Reform 1. Counterclaims 2. Scientific Evidence 3. Amicus and Independent Experts 4. Targeted Provisions 5. Reform of ISDS VII. CONCLUSION I. INTRODUCTION

It is widely acknowledged that the purpose of international investment treaties is to help promote and protect foreign investment. (1) Yet this description may be incomplete since the protection to foreign investment afforded by these treaties is also a means of fostering a state's economic prosperity and economic development. (2) Indeed, many investment treaties begin with the formal recognition of the role of foreign investment in seeking to improve economic development. (3)

Countless studies have shown that foreign investment is beneficial for economic development. (4) This is because it can create employment, generate and disseminate knowledge and technology, and create spillover effects onto other industries. (5) Moreover, it can assist "human capital formation, contribute to international trade integration, help create a more competitive business environment and enhance enterprise development." (6) However, the economic benefits of foreign investment are not automatic. (7) Rather, the magnitude of any benefit is dependent on the appropriate frameworks or policy tools the host state puts in place to realize these benefits. (8)

International investment agreements are an example of a framework or policy tool used to realize the benefits of economic development. In theory, these agreements are designed to attract the foreign investment necessary to begin paving the way to a country's economic development. However, countless studies have now proven the amorphous links between investment treaty conclusion and attraction of foreign investment. (9) At the same time, investment protections found in these treaties may constrain a host state's ability to translate investment flows into benefits for the country. (10) In particular, the provisions of investment treaties may thwart state efforts to regulate the effects of foreign investment in relation to social goals, such as those relating to human rights protection and the environment. (11)

Given the recognition of these problems, there has been a movement towards reestablishing international investment agreements as a vehicle for promoting sustainable development. (12) Rather than merely an environmental concept as it was originally envisioned, sustainable development today encompasses concepts of economics, social, and environmental. (13) Foreign investment, seen through the lens of sustainable development, thus prizes investment that maximizes contributions to economic, social, and environmental development of host countries. (14)

Despite the equivocal evidence of foreign investment's positive contributions to social and environmental development, international organizations, such as the United Nations and the Organisation for Economic Co-operation and Development (OECD), are relying on private investors to meet the 2030 Sustainable Development Agenda. As UNCTAD has recently advised, governments should create a favourable and enabling investment environment and use international investment agreements (IIAs) to foster investment to meet sustainable development goals. (16) However, in doing so, UNCTAD counsels, states should also ensure that they protect public interests by "safeguarding policy space for sustainable development." (17) States must therefore find a compromise between using IIAs to foster a favourable investment climate and ensuring that their use does not impinge on policy space for protecting sustainable development goals.

This compromise is further complicated by the fact that, although IIAs are thought to be premised on a grand bargain--the protection of foreign investment in return for the promise of economic development (18)--both IIA agreements themselves, as well as their interpretation by investment arbitral tribunals, have tended not to respect this bargain. Rather, they have tended to focus primarily on protecting foreign investment, while giving little credence to promoting the economic development side of the bargain. (19) Moreover, in myriad instances, arbitral tribunal interpretations of IIAs have also enabled foreign investors to impinge on states' policy space for protecting noneconomic issues. (20) In other words, the foreign investment protection aspects of the treaties have been heralded, while the development aspects of them have not.

Yet what if the basic premise behind IIAs has been misconstrued? That is, that IIAs were constituted not to protect foreign investment in exchange for economic development, but rather that the treaties were promulgated to protect foreign investment in order to promote economic development. This would argue in favour of a nexus between investment and development, which would suggest, at a minimum, two requirements for IIAs and their interpretation. First, IIAs must leave ample room for states to protect development goals; and second, due to the interrelated relationship between economic development, social well-being, and the environment, (21) they must ensure that investors cannot impede social rights or environmental issues. In short, finding a nexus between investment and development would support the incorporation of sustainable development into international investment law.

This Article argues that not only does a nexus between investment and development exist but that IIAs, and their interpretation by arbitral tribunals, do not consistently respect that relationship. As a result, IIAs are adversely affecting human rights and environmental issues and curtailing states' regulatory power in relation to these issues.

This argument will be made in six parts. Part II examines the nexus between international investment law and development, finding that the modern era of international investment law has repeatedly supported economic--and later sustainable--development as an important component of IIAs.

Part III then turns to examine the implications of IIAs on development, focusing on human rights and environmental issues. Drawing from an empirical review of all publicly available investment arbitral awards, this Part locates fifty-six awards in which human rights and environmental issues are implicated. Owing to the small sample size, it then engages in a textual analysis of these awards to find that in many instances arbitral tribunals downplay or dismiss noneconomic issues leaving compromises to both human rights and environmental issues. Part IV examines whether these findings are problematic for development given that commentators have argued that such concerns are overstated.

Part V then looks to define the legal relationship between international investment law and noneconomic issues while Part VI examines methods by which states can reform IIAs to better account for development goals. This latter Part concludes that states must adopt both substantive and procedural reforms to IIAs to better account for sustainable development goals.

1. INTERNATIONAL INVESTMENT LAW AND THE DEVELOPMENT NEXUS

   Historically, foreign investment has been an important objective for developed countries. In the late nineteenth and twentieth centuries, developed countries insured diplomatic claims of protection of their foreign investors' investment abroad with a threat of force, leading to the concept of gunboat diplomacy. (22) Post-World War II, developed countries established Treaties of Friendship, Commerce and Navigation to protect foreign investment, which, from the 1960s onward, evolved into bilateral investment treaties. (23) These offered a more legalized form of protection for foreign investors. From the perspective of developed countries, these treaties would be used to "create a stable international legal framework to facilitate and protect" foreign investments. (24) Developed countries therefore viewed the foreign investment regime only through the lens of protecting foreign investment.

   Developing countries, conversely, fought developed countries' efforts to establish hardline rules for the treatment of...