On 26 June 2014, the United Nations Human Rights Council adopted a resolution to establish a working group to “elaborate an internationally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises” (the ‘Working Group’). The Working Group held its first session on 6-10 July 2015 and its second session is to be held later this month, on 24-28 October 2016.
The prospects of such a treaty are routinely discounted due to the difficulties in both drafting such a treaty – which are arguably surmountable, in spite of suggestions to the contrary – and the political negotiation, signature and ratification of such a treaty. It is the latter that critics pessimistically put forward as the greatest impediment; a treaty on business is characterized as a radical development in international law – particularly from those who claim that corporations are properly objects of international law, rather than being subjects – and faces severe opposition from many developed states.[1]
In this short blog post, I will demonstrate the simple but important point that it is not controversial, radical or antithetical to international law to impose obligations on corporate entities or other business associations under international law. Indeed, under three investment treaties currently in force, this is already the case (most of the world simply hasn’t noticed).
Investment treaties imposing obligations on investors
One might, somewhat rightly, think that investment treaties are a peculiar model for a treaty on business and human rights. Investment treaties are routinely described as “asymmetrical”,[2] “one-sided”[3] and “solely an investor protection regime”.[4] These descriptions are, in general terms (only), accurate due to two features of investment treaties that Toral and Schultz describe as “brakes” on the power of states party to act as the claimant in an investor-state arbitration.[5] The first “brake” is the “procedural bias” in investor-state dispute settlement clauses caused by two characteristics of investment treaties: the omission of a procedural right for the host state to commence investor-state arbitration and, where the state has such a right, the absence of consent by the investor to the jurisdiction of the arbitral tribunal.[6] The second “brake” is the omission from investment treaties of substantive obligations for investors.
However, the following three investment treaties do impose obligations on investors and grant varying procedural rights to states to enforce those obligations against investors:
- Agreement on Promotion, Protection and Guarantee of Investments among Member States of the Organisation of the Islamic Conference (the ‘OIC Agreement’);[7]
- Unified Agreement for the Investment of Arab Capital in Arab States (the ‘First AI Agreement’);[8] and
- Unified Agreement for the Investment of Arab Capital in Arab States (the ‘Second AI Agreement’),
(collectively, ‘the Treaties’).[9] In addition to the Treaties, there are a number of model investment treaties[10] and one treaty that has not entered into force – the Investment Agreement for the COMESA Common Investment Area[11] (the ‘CCIA Agreement’) – that purport to impose substantive obligations on investors and grant states a procedural right against them.
What type of substantive obligations do the Treaties impose?
Article 9 of the OIC Agreement provides that:
‘The investor shall be bound by the laws and regulations in force in the host state and shall refrain from all acts that may disturb public order or morals or that may be prejudicial to the public interest. He is also to refrain from exercising restrictive practices and from trying to achieve gains through unlawful means.’
Article 14(1) of the First AI Agreement provides that:
‘… [The Arab Investor] must respect [host state] laws and regulations in a manner consistent with this Agreement and, in establishing, administering and developing Arab investment projects, must comply with the development plans and programmes drawn up by the State for the purpose of national economic development by employing all means which reinforce its structure and promote Arab economic integration. In so doing, he shall refrain from any action which might violate public order and morality or involve illegitimate gains.’
The obligational facet of the OIC Agreement is not dissimilar to the negative obligations contained in international human rights treaties such as the ICCPR (other than in the different subject of the obligation: an investor rather than the state). Article 9 of the OIC Agreement restrains investor conduct “that may disturb public order or morals” and its protection of the “public interest”, which is broad and vague language that is arguably capable of extending to violations of human rights.
Like the OIC Agreement, Art 14(1) proscribes conduct in breach of host state law, contrary to “public order and morality” or which involves “illegitimate gains”, albeit in slightly different language. It does not proscribe “restrictive practices” or conduct “prejudicial to the public interest”. In contrast, Art 13(1) of the Second AI Agreement strips away the broader prohibitions, providing only that:
‘In the various aspects of [the Arab investor’s] activity, the Arab investor must, as far as possible, coordinate with the host State and its various institutions and authorities and must observe its laws and regulations.’
Each of the Treaties imposes obligations on investors that are, in the context of the Working Group’s inquiry, more important for their existence than their content. The task of the Working Group is to determine which obligations – drawn from international human rights instruments – ought to be imposed on business associations.
What type of procedural rights do the Treaties grant to States and in what type of forum?
There are two variables in the procedural terms of the Treaties that affect whether a state party is able to effectively enforce the obligations under the Treaties: (i) the jurisdiction of the forum selected; and (ii) the state’s power to initiate a claim against investors under the terms of the treaty.
(i) The Jurisdiction of an International Forum
The Treaties provide for two different types of international forums as the site for dispute resolution. On the one hand, there are arbitral tribunals that do not have compulsory jurisdiction. This form of dispute resolution has been common in investment treaties since the introduction of investor-state dispute settlement clauses and is the procedure provided for in the OIC Agreement. On the other hand, there are international courts that have compulsory jurisdiction and which do not, therefore, require the consent of the parties to the dispute, akin to a municipal court. The Arab Investment Court, which is provided for in the First AI Agreement and the Second AI Agreement, is an example of such a court.
The jurisdiction of the forum has a significant effect on the ability of states to hold investors accountable for a breach of treaty obligations. Under the OIC Agreement, the consent of an investor must be separately procured in order for a state to initiate an arbitration against the investor for breach of the treaty. This barrier to accountability is noticeably absent from the dispute-resolution procedure provided for under the First AI Agreement and the Second AI Agreement due to the compulsory nature of the Arab Investment Court’s jurisdiction.
(ii) The state’s right to claim
There are two different dispute resolution models that allow the state to enforce treaty obligations against investors; either:
- the state has the right to initiate a claim and counterclaim against an investor, as in Article 17 of the OIC Agreement; and
- the state has the right to initiate a counterclaim, but not initiate a claim, against an investor, as in Article 13 of the CCIA Agreement.
Of course, it is more common for an investment treaty to grant the state neither a power to claim nor counterclaim. In order for substantive treaty obligations to be enforceable, the state must have more than a mere power to enforce those obligations by way of a counterclaim (that is, in response to a claim by an investor).
Conclusion
The Treaties discussed in this blog provide different models for the Working Group, albeit models that require elaboration based on international human rights instruments and which prompt a host of procedural and technical questions. In describing the characteristics of the Treaties, I have not sought to advocate for one model over another. Rather, I have sought only to show – in the face of a great deal of criticism of the Working Group and its object – that models exist that render the object of a binding treaty imposing enforceable obligations on business entities neither radical nor impossible to achieve.
The Treaties referred to in this blog post are discussed in more detail in a paper on investment treaties that is to be submitted for peer review in the near future (if you would like a draft copy, please get in touch). For further reading in this general area, see my article ‘Transnational Supply Chain Regulation: Extraterritorial Regulation as Corporate Law’s New Frontier’ (2016) 17(1) Melbourne Journal of International Law 188.
Edit (27 October 2016): My written contribution to the Working Group is available at: http://www.ohchr.org/EN/HRBodies/HRC/WGTransCorp/Session2/Pages/WrittenContributions.aspx
Endnotes
[1] How an effective international—or, perhaps, regional—regulatory system can be crafted without the participation of major capital exporting states such as the United States will be the subject of a future blog post.
[2] Asha Kaushal, ‘Revisiting History: How the Past Matters for the Present Backlash Against the Foreign Investment Regime’ (2009) 50(2) Harvard Intl LJ 491, 508, 521; Patrick Dumberry and Gabrielle Dumas-Aubin, ‘How to Impose Human Rights Obligations on Corporations under Investment Treaties? Pragmatic Guidelines for the Amendment of BITs’ in Karl P Sauvant (ed), Yearbook on International Investment Law & Policy 2011-2012 (OUP 2013) 569.
[3] Peter Muchlinski, ‘Regulating Multinationals: Foreign Investment, Development, and the Balance of Corporate and Home Country Rights and Responsibilities in a Globalizing World’ in Jose E Alvarez and others (eds), The Evolving International Investment Regime: Expectations, Realities, Options (OUP 2011) 30-1, 37.
[4] Kate Miles, ‘International Investment Law: Origins, Imperialism and Conceptualizing the Environment’ (2010) 21(1) Colorado J Intl Environmental L and Policy 1, 31.
[5] Mehmet Toral and Thomas Schultz, ‘The State, a Perpetual Respondent in Investment Arbitration? Some Unorthodox Considerations’ in Michael Waibel and others (eds), The Backlash against Investment Arbitration: Perceptions and Reality (Kluwer 2010) 579.
[6] Ibid 578-9.
[7] Agreement on Promotion, Protection and Guarantee of Investments among Member States of the Organisation of the Islamic Conference, opened for signature on 1-5 June 1981 (entered into force on 23 September 1986). The OIC Agreement was the subject of a tribunal determination in Hesham Talaat M. Al-Warraq v The Republic of Indonesia Award, UNCITRAL, 15 December 2014 (Al-Warraq), in which the tribunal discovered that a multilateral investment treaty both imposed obligations on investors and granted states a right to enforce them (although unsuccessfully in that arbitration).
[8] Unified Agreement for the Investment of Arab Capital in Arab States, opened for signature on 26 November 1980 (entered into force on 7 September 1981).
[9] Unified Agreement for the Investment of Arab Capital in Arab States, opened for signature in January 2013 (entered into force on 24 April 2016) (English trans. provided by the Organisation for Economic Co-operation and Development (on file with author)).
[10] See, eg, Southern African Development Community, SADC Model Bilateral Investment Treaty Template with Commentary (Southern African Development Community 2012) Art 11-16. See generally J Anthony VanDuzer, Penelope Simons and Graham Mayeda, Integrating Sustainable Development into International Investment Agreements: A Guide for Developing Countries (Commonwealth Secretariat 2012) 287-398.
[11] Investment Agreement for the COMESA Common Investment Area, opened for signature on 23 May 2007 (not yet entered into force).
Ryan J. Turner 