TWN Info Service on UN Sustainable Development (Sept15/03)
21 September 2015
Third World Network

United Nations: Terminate BITs and FTAs that conflict with human rights
Published in SUNS #8096 dated 21 September 2015

Geneva, 18 Sep (Kanaga Raja) -- States should test their existing bilateral investment treaties (BITs) and free trade agreements (FTAs) for compliance under their respective Constitutions, and revise or terminate said agreements pursuant to the Vienna Convention on the Law of Treaties when they conflict with human rights obligations, a United Nations rights expert has said.

This is one of the main recommendations made by the Independent Expert on the promotion of a democratic and equitable international order, Mr Alfred de Zayas (of the United States), in his report to the Human Rights Council, which began its regular thirtieth session on Monday.

In his report, Mr De Zayas drew attention to the adverse human rights impacts of international investment agreements, bilateral investment treaties and multilateral free trade agreements on the international order, and called for ex ante and ex post human rights, health and environmental impact assessments of these instruments.

The rights expert observed that international investment agreements are not new phenomena in the international arena. Bilateral investment treaties currently number over 3,200, he said.

After years of experience with investor-State dispute settlement (ISDS), the International Centre for Settlement of Investment Disputes (ICSID) and other arbitrations, it has become apparent that the regulatory function of many States and their ability to legislate in the public interest have been compromised, Mr De Zayas further said.

"The problem has been aggravated by the chilling effect of certain awards that have penalized States for adopting regulations to protect the environment, food safety, access to generic medicine and reduction of smoking, as required under the WHO Framework Convention on Tobacco Control. The legality of such awards is questionable as contrary to domestic and international ordre public, and may be considered, in some cases, contra bonos mores [against good morals]."

According to the UN report, observers have noted retrogression in the protection of rights including the rights to life, food, water and sanitation, health, housing, education, culture, improved labour standards, an independent judiciary, a clean environment and the right not to be subjected to forced resettlement.

Moreover, there is a legitimate concern that international investment agreements might aggravate the problem of extreme poverty, foreign debt renegotiation, financial regulation and the rights of indigenous peoples, minorities, persons with disabilities and older persons and other vulnerable groups.

"Accordingly, all international investment agreements under negotiation should include a clear provision stipulating that in case of conflict between the human rights obligations of a State and those under other treaties, human rights conventions prevail," Mr De Zayas stressed.

The report said that the 1994 North American Free Trade Agreement (NAFTA) is an example of an agreement that has led to relocation of manufacturing industries, resulting in loss of employment in the United States (estimated at 850,000 jobs) and the proliferation of assembly centres in Mexico, known as maquiladoras, where labour costs are lower and social protection below ILO standards.

The rights expert noted that several international investment agreements are currently being negotiated, mostly in secret, including the Transatlantic Trade and Investment Partnership (TTIP), the Trade in Services Agreement (TiSA, outside the WTO), the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership.

Observers have noted grave democratic deficits with international investment agreements and investor-State dispute settlement tribunals and wondered why States continue to engage in negotiations, based on partisan studies and overly optimistic forecasts about gross domestic product (GDP) growth and employment, he said.

He noted: "Not only is there a failure of States to proactively disclose information about the agreements, but key stakeholders are excluded from the negotiating table, where mostly corporate lawyers and lobbyists participate. There is even an attempt to circumvent parliaments by ‘fast-tracking' the adoption of these agreements, manifesting a gross absence of due process and hence of democratic legitimacy."

INVESTOR-STATE DISPUTE SETTLEMENT (ISDS)

The rights expert said among the major threats to a democratic and equitable international order is the operation of arbitral tribunals that act as if they were above the international human rights regime. Investor-State dispute settlement tribunals are made up of corporate arbitrators whose independence has been repeatedly questioned because of conflicts of interest.

The investor-State dispute settlement system entails a completely separate system of dispute settlement, not only outside the domestic court system, but above it, and without appeal.

"Can a democracy call itself democratic if it allows the creation of separate, non-transparent and non-accountable systems of dispute settlement," he asked.

He said that observers question the legitimacy of tribunals where the investor can sue the State but not vice versa, and that interpretations of terms such as "investment", "expropriation" and "fair and equal treatment" have been expansive and difficult to reconcile with the interpretation rules under articles 31 and 32 of the Vienna Convention on the Law of Treaties.

Indeed, said Mr De Zayas, it is disturbing that arbitrators can disregard basic principles such as respect for the "margin of discretion" of States, State legislation and even the judicial pronouncements of the highest domestic courts.

"The one-way street of investor protection has not contributed to a culture of investor-State cooperation but fuelled an aggressive tendency to litigate and demonstrably generated a ‘regulatory chill'".

He noted that arbitration may take place in Washington under the auspices of the World Bank's ICSID, but there is a worrisome degree of forum-shopping, and tribunals may meet before the London Court of International Arbitration, the International Chamber of Commerce, the Stockholm Chamber of Commerce, the Hong Kong International Arbitration Centre or the United Nations Commission on International Trade Law (UNCITRAL).

The Independent Expert went on to flag a few cases in order to illustrate litigation practices and their human rights implications.

He said that one of the most egregious ICSID arbitrations concerned the case by United States-based Occidental Petroleum against Ecuador concerning the termination of an oil production site in the Amazon, and resulting in an award of $1.76 billion to Occidental ($2.4 billion with interest), which Ecuador accused of multiple human rights violations and environmental destruction.

"Only gradually are governments and parliamentarians beginning to counter the corporate move against the fundamentals of State sovereignty."

In the European Parliament, the issue of corporate blackmail has been raised in connection with the debate on the TTIP, arguing on the basis of Vattenfall and Veolia that multinational companies are using investor protection rules to achieve corporate aims, increasing the cost to the taxpayer of defending public policy and rules.

"In this context, it must be stressed that the possibility that arbitrations may find for the State and against the investor does not remove the danger nor legitimize the investor-State dispute settlement model, since the mere threat of such arbitration has dissuaded even developed States like Canada from adopting social legislation. Developing countries are even more vulnerable to the threat, since they lack the resources to defend themselves against major transnational enterprises."

The rights expert underlined that the manifest abuse of rights by investors is so brazen that one could imagine that one day the military-industrial complex might invoke investor-State dispute settlement when a country decides to reduce or terminate the production of anti-personnel landmines or cluster bombs because they are contrary to international humanitarian law, thus "expropriating" expected profits of the arms industry.

It is not just a question of reforming the investor-State dispute settlement system for the future, but imperative to review and revise existing bilateral investment treaties and free trade agreements, which were never intended to become prisons for States.

"If investor-State dispute settlement and ICSID have since mutated into institutions of economic coercion, they must be dismantled and reinvented through the Vienna Convention on the Law of Treaties."

The report said although bilateral investment treaties and free trade agreements have been on the international agenda for decades, their human rights impacts have been under-reported.

"Apparently the siren call of potential profit and the over-optimistic forecasts promising GDP growth and significant creation of jobs have been so seductive to some governments that human rights considerations have been neglected and State functions compromised."

The rights expert said that the large body of existing human rights treaties, protocols and declarations create a constitutional framework that must be taken into account whenever a State enters into agreements with other States and/or private-sector actors, including financial institutions and transnational enterprises.

"The human rights regime, including international and regional human rights treaties and the relevant ILO and WHO Conventions, must be treated as superior to other agreements, including bilateral investment treaties and free trade agreements. National courts and international tribunals and arbitration instances must be subordinated to this regime."

The report said among the rights that States must ensure are the rights to life, security of person, participation in the conduct of public affairs, homeland, movement, health, education, employment and social security. These commitments are enshrined, inter alia, in articles 1, 2, 6, 9, 12, 17, 25, 26, 27 of the International Covenant on Civil and Political Rights and articles 1, 2, 5, 6, 7, 9, 10, 11, 12 and 13 of the International Covenant on Economic, Social and Cultural Rights.

The process of elaboration, negotiation and adoption of bilateral investment treaties and free trade agreements must conform with the requirement of article 25 (a) of the International Covenant on Civil and Political Rights to ensure participation by all stakeholders.

This entails a proactive obligation on the part of Governments to disclose the necessary information and facilitate public participation. Access to information is an essential condition for the exercise of the right of freedom of opinion and expression under article 19 of the International Covenant on Civil and Political Rights.

The report said: "Trade negotiations conducted in secret (although not a matter of national security!) and excluding key stakeholders entail prima facie violations of articles 19 and 25 of the International Covenant on Civil and Political Rights."

Mr De Zayas said democracy is not exercised only once in a while, but entails a continuing dialogue between representatives and constituents. Had it not been for Wikileaks publishing several chapters of the free trade agreements under discussion, the necessary public debate could not even have gotten started.

BOLD SOLUTIONS NEEDED

The report said extraordinary problems require bold solutions. Anti-democratic investor-State dispute settlement paroxysms can be neutralized by revision or termination of such dispute settlement.

It added that if States can adopt extraordinary measures such as bailing out delinquent banks, a fortiori they can adopt measures to protect the welfare of the population.

"Protective actions by a State whose economy, agriculture or industry is in danger of failure because of the sometimes unpredictable effects of bilateral investment treaties and free trade agreements may be justifiable under the force majeure principle."

The validity of bilateral investment treaties and free trade agreements should be tested under the rules of the Vienna Convention on the Law of Treaties.

For instance, a treaty may be void if it can be established that there was a manifest violation of the State's Constitution, errors relating to a fact or situation which was assumed to exist at the time the treaty was concluded and which formed an essential basis of its consent to be bound to the treaty (art. 48), fraudulent conduct by a negotiating party (art. 49), deliberately misleading or spurious claims, corruption (art. 50), coercion (arts. 51-52) or conflict with a peremptory norm of international law (art. 53).

Treaties may also be terminated or their application suspended pursuant to the doctrine of material breach (art. 60), subsequent impossibility of performance (art. 61) or fundamental change of circumstances (art. 62).

Normally, treaties contain provisions for denunciation or withdrawal. In the absence of such provisions, such a right may be implied by the nature of the treaty (art. 56).

"To the extent that bilateral investment treaties and free trade agreements lead to violations of human rights, they should be modified or terminated," said the rights expert.

"Are States or some transnational corporations guilty of ‘conspiracy'? Actions in pursuance of such conspiracy could include deliberately giving false information; issuing false forecasts of GDP and employment growth; engaging think tanks, economists, universities or foundations in preparing ‘teleological reports'; and colluding with media conglomerates to ensure that only the ‘sunny' side of bilateral investment treaties and free trade agreements is presented and contentious issues are suppressed or minimized."

Thus, to the extent that there was inadequate disclosure of the risks, false representations and overly optimistic growth forecasts, there was no informed consent and the Vienna Convention on the Law of Treaties provides grounds for modification or termination, said the report.

Substantively, it added, investor-State dispute settlement tribunals cannot immunize investors from responsibility to make amends for damage caused, and the "polluter pays" principle cannot be trumped by a claim that paying fines is tantamount to an "expropriation". Such a claim would be rejected by any independent tribunal as blatantly frivolous and contrary to ordre public.

"Pursuant to this analysis, the denunciation of international investment agreements is not only legitimate but also legal and their ‘survival clauses' must be seen as null and void when they are intended to perpetuate a system that violates human rights."

Bearing in mind that the essence of capitalism and investment is risk taking, States must insist that investors accept the risk and subject themselves to national legislation in a manner similar to the Calvo doctrine, which holds that jurisdiction in international investment disputes must lie with the country in which the investment is made.

"This doctrine has been adopted into the Constitutions of many Latin American States, and merits being used as a model for international investment agreements."

For decades, investor-State dispute settlement arbitrations have de facto upset the international order, but they cannot trump the Charter of the United Nations. Just as other economic paradigms were abandoned, eventually investor-State dispute settlement will be recognized as an experiment gone wrong, an attempted hijacking of constitutionality resulting in the retrogression of human rights.

Mr De Zayas said it would be appropriate to reaffirm that while free trade and investment agreements have their raison d'etre, the primary role of the State is to act in the public interest.

There are ample opportunities for corporations and investors to make legitimate profits and enter into genuine "partnerships" with States and not into asymmetrical relationships. The rule of thumb should be to: (a) give to corporations what belongs to them - an environment in which to compete fairly; (b) give back to States what is fundamentally and inalienably theirs - sovereignty and policy space; (c) give parliaments what belongs to them - the faculty to consider all aspects of treaties without undemocratic secrecy and fast-tracking; and (d) give to the people what is theirs: the rights to public participation, due process and democracy.

RECOMMENDATIONS

The rights expert called on States, amongst others, to ensure that all trade and investment agreements - existing and future - represent the democratic will of the populations concerned. Negotiations on current drafts must not be secret or "fast-tracked", but, on the contrary, must be subject to public participation on the basis of independent human rights, health and environmental impact assessments.

States must ensure that all trade and investment agreements recognize the primacy of human rights and specify that, in case of conflict, human rights obligations prevail. States must uphold their erga omnes (towards everyone) obligation to implement human rights treaties and observe ILO and WHO Conventions.

States must ensure that international investment agreements do not undermine their ability to implement the industrial and macroeconomic policies needed for development, which is an essential objective of United Nations ‘constitutional' law, and take steps to revise promptly existing bilateral investment treaties and free trade agreements with negative effects on human rights.

"States should test existing bilateral investment treaties and free trade agreements for compliance under their respective Constitutions, and revise or terminate said agreements pursuant to the Vienna Convention on the Law of Treaties when they conflict with human rights obligations."

All future international investment agreements should provide for the settlement of disputes not by investor-State dispute settlement but by the national courts or a special international investment court, explicitly bound by the recognition of the primacy of human rights, public interest and national sovereignty.

States must deny effect to investor-State dispute settlement and ICSID awards that violate human rights, practice solidarity with States seeking to modify or terminate bilateral investment treaties, free trade agreements or investor-State dispute settlement agreements or that deny effect to arbitral awards, and take measures vis-a-vis investors and transnational corporations violating international human rights law.

The rights expert called on UNCTAD (UN Conference on Trade and Development) to consider convening a conference to explore the possibilities of revising or terminating existing bilateral investment treaties and free trade agreements that contain provisions that have interfered with the State's duty to legislate human rights, implement economic policies and regulate in the public interest.

"Such a conference should advance the UNCTAD ‘action menu' and ‘road map' for reform," Mr De Zayas said.

(See also the two-part article on investment accords by Andrew Cornford of the Observatoire de la Finance in SUNS #8094 dated 17 September 2015 and #8095 dated 18 September 2015.) +