The investor and civil society as twin global citizens: proposing a new interpretation in the legitimacy debate.

• Author: Gal-Or, Noemi

1. INTRODUCTION: THE RISE OF THE PRIVATE SECTOR ACTOR IN INTERNATIONAL RELATIONS AND INTERNATIONAL LAW

   The rise to international prominence of the private sector actor has been extensively registered, discussed, and debated for at least two decades. The phenomenon correlates with the process of globalization, the transforming role of the Westphalian nation-state, and perhaps, as some scholars have suggested, with the rise and fall of empires (e.g., the "American Empire") and the emergence of neomedievalism. (1) Among the new terminology developed in this discourse, the concept of NSA has come to encapsulate the change in the role of the private sector actor. The NSA, which serves to distinguish the state from all other actors, comprises four main types of actors: not-for profit non-governmental individuals and groups, both national and transnational, loosely grouped under the term of "civil society;" national economic enterprises and multi-national corporations (MNCs), which represent the for-profit version of the former; national and transnational armed opposition groups and their counter-parts represented by para-military actors and the private military industry and services, embodying the interests of "armed force" non-governmental organizations (NGOs); and, sometimes, inter-governmental organizations.

   While the very existence of the NSA is no novelty, the particular role played by the NSA and its re-invigorated power, in both domestic and international politics and law, is new. The legal implications of this development have been noticed across the political, academic, legal, (2) and media arenas. In this paper, I discuss the private nature of the NSA and its application to the so-called international governance gap on the one hand, and the status of the NSA in international law on the other hand, as it arises in the context of international trade and investment. A cautionary note is warranted: the NSA should not be taken as synonymous with civil society. Rather, as a generic concept, the NSA represents a participant, an actor, typical of and within a somewhat anarchic "world society." (3) Specific to this paper:

   Given the volume of foreign direct investment, given the volume of daily transactions and given the political desirability and desiredness of their results and consequences it is quite obvious that world society does not imply planetary, politically organized self-mastery and that world society is not a world-state - an image of the political system which is thereby revealed as the fruit of habitual overestimation. (4) Within the NSA discourse, one influential strand is perceiving the NSA through the lenses of the private-public divide. It addresses the inequality among NSAs as reflected in their different relations with the "public." More often than not, the MNC NSA has been identified as representing the "private," enjoying rights but failing to counter-balance them with corresponding obligations. This perception has been influenced by inter-NSA power differentials, largely MNCs versus civil society. Often the complementarity of interests marking NSA-public alliances (labeled private-public partnership (PPP))--whether domestic or international--has produced rules governing diverse sets of rights and obligations, specific to each particular PPP. By comparison, other NSAs, for example "civil society," have lacked the power to engage in similar PPP to secure their sometimes clashing interests. The discourse of the private-public divide has thus become associated with a sense of (in)justice arising from an unfulfilled expectation that PPPs are all governed by one overarching international legal framework, wherein the private and public are symmetrical, reciprocal, and equal. However, as Schuetz's depiction of "world society" emphasizes, such unity remains the province of dreams. The boldest manifestation of the fact that while NSAs might be conceptually equal their real opportunities to secure equality among themselves diverge, is noted in the incremental crystallization of a "soft law," initiated and developed by only certain NSAs. (5) This soft law has made its way through or bypassed customary law into conventional law. (6)

   The purpose of this paper is to highlight the shortcomings of the private-public centered discourse and its correlating discussion on the privatization of global governance in interpreting the evolution and implications of the foreign direct investment (FDI) regime. This requires the introduction of two other relevant discourses: global citizenship and justiciability of rights. I will argue that the dichotomy of citizen versus non-citizen, and the tension between national citizenship and the (ideal) construct of global citizenship, trumps the private-public divide. It displaces this discourse as secondary even to the discussion of justiciability (which hinges on citizenship in an ontological hierarchy).

   An elucidation of the role of the NSA in international law must entail an examination of rights and obligations, the fundamental ingredients of any law. In this paper, the discussion is limited to two types of NSAs--the investor (usually, a corporation) engaged in FDI and the FDI-impacted NSA (Impacted NSA) (which represents a multitude of distinct interests of individuals and groups relating to health, employment, culture, etc.).

   The first part of this paper describes the essence of FDI and its treatment under international law. The focus is placed on its most controversial aspect, namely the investment specific type of international dispute resolution (DR) mechanism (arbitration), which represents a unique form of PPP. Next, the perceived imbalance of rights enjoyment discriminating among NSAs, flowing from the uneven development which depicts investor NSA, against Impacted NSA, PPPs, and reflected in the codification of the rights of the investor in international law, are examined. This part shortly addresses procedural and substantial aspects of international law. Subsequently, the paper explores the idea of global citizenship and the ensuing requisite of justiciability of the rights of the global citizen in international law, and applies these two concepts to the two types of NSAs studied here. The paper concludes with an assessment of the "private" nature, as well as the general state of, the international investment dispute resolution mechanism.

2. FDI, BITS AND THE INVESTOR-STATE RELATIONSHIP IN INTERNATIONAL LAW

   FDI represents one of the methods of operation of MNCs, whereby capital is moved between countries through financial transactions. When, through the acquisition of foreign assets, a parent MNC based out of one (home) country invests in the purchasing of the right to management and control of an affiliate or subsidiary firm in another (host) country, then it engages in FDI. (7) FDI comes in two variants--"greenfield investments" and "mergers and acquisitions." (8) The foreign investor engages in greenfield investments when establishing new plants and productive assets in the host country. This requires the establishment of a new legal entity (a new firm). Conversely, the foreigner who purchases stocks in an existing firm in the host country in order to actively engage in the management of that firm pursues its investment via merger and acquisition. By employing this method, the local firm is transformed into an affiliate or subsidiary of the foreign corporation. (9)

   Experts have pointed out that, over the past forty years, the increase in international investment capital has been surpassing the capital flows resulting from trade. (10) Therefore, the legal infrastructure needed to administer and facilitate FDI (to minimize the associated risk) has gained preeminence in the legislation, reflecting enforcement of public policies at the national level. In 2007, FDI inflows were expected to reach $1,400-1,500 billion, which would be a new world record level. That figure applies to all categories of the global economic taxonomy (i.e. developed countries, developing countries, and the transition economies of South-East Europe and the Commonwealth of Independent States). (11) With this backdrop, greenfield investments in particular, which are typically long term oriented and exert profound impact on the host country's socio-economic and environmental conditions, have spurred widespread political controversy. The history of FDI traces far back into organized human economic interaction. Some scholars trace the modern day use of FDI by multinational corporations all the way back to the transborder business operations that occurred in medieval fifteenth century Florence. (12) In its most recent and modern form, FDI has seen a remarkable surge, attributed largely to the exponential growth of bilateral investment treaties (BITs). Lately, bilateral trade agreements (BTAs) incorporating investment provisions have also contributed to the surge in FDI. Because customary law, which reflects accepted and recognized habit in the conduct of states, has been slow to catch up with the needs arising from rapidly growing FDI activity, governments have been pressured by NSAs (13) to develop rules clarifying the rights and duties of both investors and host countries. (14) These conflicts of interest between investor and host country have become an acute problem. From the investor's perspective, the treatment of its grievance by the host country's courts has often been inadequate and unsatisfactory. The alternative, being granted access to justice at the International Court of Justice (ICJ), has proved extremely burdensome, as it requires the agency of the investor's home state government. To facilitate the flow of FDI and address these lingering major problems, international agreements were concluded. They were designed to deal mainly with the sources of potential investor-state conflicts (e.g., various forms of expropriation) and to guarantee speedy, appropriate, and...