Tuesday, August 23, 2011

Developing an analysis of international investment law & sustainable development

(Thank you to IntLawGrrls for the opportunity to contribute this guest post)

International investment law, like international trade law, has an economic rationale as its background.
Indeed, international investment law developed after 1966, when the Convention on the Settlement of Investment Disputes between States and Nationals of Other States entered into force. Administered by the Washington, D.C.-based International Centre for Investment Disputes, an autonomous organization within the World Bank Group, the ICSID Convention now has 147 states parties.
The Convention would not have had a mandate for negotiation at all would it not have been for the goal of development. Nevertheless, this economic rationale, and the empirical insights into assumed causal links, play a much smaller role in investment than they do in trade law.
An article that I have coauthored with Tobias A. Lehmann, my research assistant and a master's candidate at the University of St. Gallen, sets forth the relationship between investment law and sustainable development. Entitled Investment and Sustainable Development: Developing a New Conceptual Framework, it is to be presented at a conference on investment law in Bern, Switzerland, next month. (image credit)
Our paper aims at filling the gap between international investment law and economic theory and empirics by:
► Surveying the economic insights into the link between foreign investment and sustainable development; and
► Suggesting adequate interpretative arguments and places -- that is, the jurisdictional phase versus the merits phase --in investment arbitration.
We find that if empirical research and institutional economics, or law and development literature, are taken into account, the sometimes-opposed goals of international investment law and sustainable development seem to be already much more aligned.
Consequently, coupling international investment law and economic insights might help to ground this area of law firmly in the goals it pursues.
The classical assumed causal chain is that bilateral investment treaties, or BITs as they are often called, foster foreign direct investment. Foreign direct investment is assumed to lead to economic growth, and growth in turn to lead to enhanced welfare of the population.
By now we know that some of those causal assumptions are empirically fragile, or that the assumed causal link works only under certain circumstances.
The proper way of aligning sustainable development and investment is, of course, by adequate treaty drafting. However, since most treaties continue to be in force formulated as they are, it is more interesting to focus on how to integrate sustainable development into law application.
There is consensus that a preamble serves as one means for the teleological interpretation of treaties. Finding the object and the purpose of a treaty is, however, not an easy task.
To name a few examples, the US Model BIT 2004, the Swiss Model BIT, the now-discarded Norwegian Draft Model BIT, and the ICSID Convention all reveal a means/end relationship between investment and development. Nowhere is investment protection as such the purpose of any of these treaties.
Since from the empirical evidence it is clear that investment protection does not equal development, tribunals are mistaken when they taking the protection of investments as the purpose of BITs (i.e. when they implicitly equate both protection and development).
If it is accepted that
► the first layer, investment protection, is the object of the treaty,
► investment promotion an intermediary purpose, and
► development is the ultimate purpose of an international investment agreement,
then this may lead to different approaches in the interpretation of such agreements.
The next question arising is then obviously whether "development" has by now evolved to mean sustainable development.
If one accepts that sustainable development is evolving into a customary law principle, then it should also be used as a principle in investment arbitration.
The last remaining question is where development could have a place in the interpretation of international investment agreements.
From an economic point of view, it does not make sense to integrate "development" at the jurisdictional stage of the proceedings (that is, the stage that considers the definition of "investment"). This is because it is impossible for a tribunal to decide whether a certain investment contributes to (economic) development or not.
Rather, tribunals can contribute to sustainable development by taking into account these trade-offs. To do so, they should balance decisions in the merit phase; for example, when interpreting the concept of indirect expropriation or of fair and equitable treatment.
Discussion on the means of integrating sustainable development goals and international investment law has centered partly on the use of the proportionality principle, as I noted in a 2008, Fragmentation of International Law: The Case of International Investment Protection.
To our knowledge, the first tribunal to use the proportionality test in indirect expropriation was the 3-member arbitral panel that in 2003 decided, within the ICSID framework, Tecnicas Medioambientales TECMED S.A. v. United Mexican States, a matter concerning an investment in the State of Sonora, Mexico. (credit for map showing Sonora in dark color)

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