Integrating Sustainable Development into International Investment Agreements: A Guide for Developing Country Negotiators

As International Investment Agreements (IIAs) continue to evolve and become increasingly complex, a key challenge for developing countries is how to maintain coherent investment obligations that are consistent across any overlapping treaty provisions. An even greater challenge is the effective negotiation of trade in services and investment commitments in Preferential Trade Agreements to make foreign investment supportive of development. This guide is designed to assist developing countries to negotiate IIAs that are more effective in promoting their sustainable development. It identifies and consolidates emerging best practices from existing treaty models, evaluating the costs and benefits of different approaches; suggesting new and innovative provisions to encourage foreign investment flows; and outlining how states can achieve coherence among their IIAs. A useful reference tool for developing country negotiators and interested parties, including investment promotion agencies, policy-makers, legislative drafters and officials in government legal departments.

Table of Contents:
Foreword About the authors Acknowledgements List of cases List of treaties Abbreviations and acronyms PART I. BACKGROUND 1. Introduction 1.1 The rationale for a guide to international investment agreement provisions for developing countries based on sustainable development 1.1.1 Exploring how international investment agreements can do a better job of promoting foreign investment and accommodating appropriate host state regulation 1.1.2 Identifying emerging best practices 1.1.3 Identifying new kinds of provisions 1.1.4 Supporting developing country negotiators 1.1.5 Enhancing policy coherence 1.2 What is in the Guide? 1.3 What is not in the Guide? 2. The Context for International Investment Agreement Negotiations 2.1 Existing IIA practice 2.1.1 Why states sign IIAs 2.1.2 Why investors want IIA protection 2.2 Links between signing IIAs and attracting increased foreign investment 2.2.1 Empirical evidence 2.2.2 Problems with empirical models 2.2.3 Problems with data 2.2.4 IIAs with different strengths 2.2.5 Alternative evidence 2.2.6 Conclusion 2.2.7 Guide features promoting investment 2.3 Links between foreign investment and sustainable development 2.3.1 Defining sustainable development and the right to development 2.3.2 Current IIAs do not link development and foreign investment 2.3.3 The costs and benefits of foreign investment for sustainable development 2.4 Making choices: sustainable development in the sample provisions in the Guide 2.4.1 A comprehensive and centrist approach to sustainable development 2.4.2 Alternative approaches to sustainable development 2.4.3 Supporting developing countries through co-operation and their integration into international decision-making 2.4.4 Elements of sustainable development employed in the Guide’s sample provisions 2.4.5 Summary: the principles of sustainable development reflected in the Guide 2.4.6 Overview of mechanisms for promoting sustainable development discussed in the Guide 3. Using the Guide 3.1 Introduction 3.1.1 General purpose of the Guide 3.1.2 Using the Guide in IIA negotiations 3.1.3 Using the Guide to better understand the relationship between IIA obligations and domestic law and other international obligations 3.1.4 Using the Guide to better understand existing IIA obligations 3.2 IIAs and domestic investment policy 3.2.1 General considerations 3.2.2 Specific examples of the interaction between IIA commitments and domestic investment policy 3.3 IIAs and other international obligations PART II. SURVEY OF IIA PROVISIONS AND COMMENTARY 4. Provisions Defining the Scope of IIA Application and Other Preliminary Matters 4.1 Introduction 4.2 IIA preambles 4.2.1 The role of preambles in IIAs 4.2.2 Use and interpretation of preambles in IIA practice 4.2.3 Discussion of options 4.2.4 Discussion of sample provision 4.2.5 Sample provision: preamble 4.3 Definitions 4.3.1 Definition of investment 4.3.2 Definition of investor 4.3.3 Sample provision: definitions 4.3.4 Sample provision: denial of benefits 4.4 Statement of objectives 4.4.1 IIA practice 4.4.2 Discussion of options 4.4.3 Discussion of sample provision 4.4.4 Sample provision: objective 4.5 Scope of application 4.5.1 IIA practice 4.5.2 Discussion of options 4.5.3 Discussion of sample provision 4.5.4 Sample provision: scope of application 5. Substantive Obligations of Host States Regarding Investor Protection 5.1 Introduction 5.2 Right of establishment 5.2.1 IIA practice 5.2.2 Investor obligations and the right of establishment 5.2.3 Discussion of options 5.3 National treatment 5.3.1 National treatment is a relative standard 5.3.2 IIA practice 5.3.3 The basis of comparison and ‘in like circumstances’ 5.3.4 Limiting national treatment to specific matters, including pre- and post-establishment activities 5.3.5 Excluding particular sectors or measures from national treatment 5.3.6 The scope of the national treatment obligation as it applies to sub-national governments 5.3.7 Interaction between national treatment and MFN 5.3.8 Discussion of options 5.3.9 Discussion of sample provision 5.3.10 Sample provision: national treatment 5.4 Most favoured nation (MFN) 5.4.1 MFN is a relative standard 5.4.2 IIA practice 5.4.3 Limiting MFN to specific matters, including pre- and post-establishment activities 5.4.4 Importation of standards from other treaties 5.4.5 Discussion of options 5.4.6 Discussion of sample provision 5.4.7 Sample provision: most favoured nation treatment 5.5 Fair and equitable treatment and the minimum standard of treatment 5.5.1 Introduction 5.5.2 IIA practice 5.5.3 Minimum standard of treatment required by customary international law versus an autonomous treaty standard 5.5.4 Evolution of the customary international law minimum standard 5.5.5 What the FET standard requires 5.5.6 Discussion of options 5.5.7 Discussion of sample provision 5.5.8 Sample provision: minimum standard of treatment 5.6 Limitations on expropriation and nationalisation 5.6.1 IIA practice 5.6.2 Understanding what constitutes an expropriation 5.6.3 Understanding what compensation is required to be paid 5.6.4 Discussion of options 5.6.5 Discussion of sample provision 5.6.6 Sample provision: expropriation and compensation 5.7 Compensation for losses 5.7.1 IIA practice 5.7.2 Discussion of options 5.7.3 Discussion of sample provision 5.7.4 Sample provision: compensation for losses owing to armed conflict or civil strife 5.8 Free transfer of funds 5.8.1 IIA practice 5.8.2 Discussion of options 5.8.3 Discussion of sample provision 5.8.4 Sample provision: free transfer of funds 5.9 Performance requirements 5.9.1 Some performance requirements are prohibited by the WTO Agreement on Trade-related Investment Measures (TRIMs) 5.9.2 Some performance requirements are prohibited by the WTO General Agreement on Trade in Services (GATS ) 5.9.3 IIA practice 5.9.4 Discussion of options 5.9.5 Summary 5.10 Transparency 5.10.1 IIA practice 5.10.2 Transparency obligations deriving from FET 5.10.3 Discussion of options 5.10.4 Discussion of sample provision 5.10.5 Sample provision: transparency 5.11 Entry and sojourn of foreign nationals and restrictions on nationality requirements for senior management 5.11.1 IIA practice 5.11.2 Discussion of options 5.11.3 Summary 5.12 Reservations and exceptions 5.12.1 IIA practice regarding exceptions 5.12.2 IIA practice regarding the right to regulate 5.12.3 IIA practice regarding reservations 5.12.4 Discussion of options 5.12.5 Discussion of sample provisions 5.12.6 Sample provision: reservations for non-conforming measures 5.12.7 Sample provision: general exceptions 6. New Provisions Addressing Sustainable Development 6.1 Making the link between investment and sustainable development 252 6.2 The challenges of regulating foreign investors and holding transnational corporations accountable 6.2.1 Weaknesses in international law 6.2.2 Weaknesses in domestic law in host states and investors’ home states 6.2.3 Investor–state tribunals do not give priority to considerations other than investment protection 6.3 Different approaches to integrating foreign investment and sustainable development 6.3.1 Using domestic laws, regulations and institutions to promote investor compliance with sustainable development policies 6.3.2 Integrating sustainable development into an IIA 6.3.3 The elements of sustainable development addressed in the sample provisions 6.4 Overview of Guide sample provisions promoting sustainable development 6.4.1 Summary of the provisions 6.5 Assessing the costs and benefits of the sample provisions in the Guide 6.6 Sustainability assessments 6.6.1 Sustainability assessment in practice 6.6.2 Policy discussion 6.6.3 Discussion of options 6.6.4 Discussion of the sample SA provisions 6.6.5 Sample provision: standards for sustainability assessment of investments 6.6.6 Sample provision: pre-establishment sustainability assessment process 6.6.7 Technical assistance 6.7 Investor obligation to comply with the laws of the host state 6.7.1 IIA practice 6.7.2 Discussion of options 6.7.3 Discussion of sample provision 6.7.4 Sample provision: obligation to comply with the laws of the host state 6.8 Investor obligation to respect internationally recognised human rights and undertake human rights due diligence 6.8.1 The impacts of foreign investment 6.8.2 The UN Guiding Principles on Business and Human Rights 6.8.3 IIA practice 6.8.4 Discussion of options 6.8.5 Discussion of sample provision 6.8.6 Sample provision: obligation to respect internationally recognised human rights and undertake human rights due diligence 6.9 Investor obligation to refrain from the commission of, or complicity in, grave violations of human rights 6.9.1 Discussion of options 6.9.2 Discussion of sample provision 6.9.3 Sample provision: obligation not to commit, be complicit in or benefit from grave violations of human rights 6.10 Investor obligation to comply with core labour standards 6.10.1 IIA practice 6.10.2 Discussion of options 6.10.3 Discussion of sample provision 6.10.4 Sample provision: obligation to comply with core labour standards 6.11 Investor obligation to refrain from acts, or complicity in acts, of bribery and corruption 6.11.1 IIA practice 6.11.2 Discussion of options 6.11.3 Discussion of sample provision 6.11.4 Sample provision: obligation to refrain from acts, or complicity in acts, of bribery and corruption 6.12 Other rights and obligations of party states 6.12.1 IIA practice 6.12.2 Discussion of options 6.12.3 Summary 6.13 Enforcement of investor obligations 6.14 Criminal sanctions 6.14.1 IIA practice 6.14.2 Discussion of options 6.14.3 Discussion of sample provision 6.14.4 Sample provision: obligation to provide criminal offences, enforcement and sanctions for grave violations of human rights and corruption 6.15 Grievance procedure and other measures to enforce the management plan produced in the sustainability assessment 6.15.1 Discussion of options 6.15.2 Discussion of sample provisions 6.15.3 Sample provision: obligation to establish a grievance procedure 6.15.4 Sample provision: compliance with management plan 6.16 Civil liability of investors 6.16.1 Enterprise liability 6.16.2 Liability insurance 6.16.3 Posting a bond or guarantee 6.16.4 IIA practice 6.16.5 Discussion of options 6.16.6 Discussion of sample provision 6.16.7 Sample provision: obligation to provide for civil liability of investors 6.17 Counterclaims by states in investor–state arbitration 6.17.1 IIA practice 6.17.2 Discussion of options 6.17.3 Discussion of sample provision 7. Dispute Settlement 7.1 Investor–state dispute settlement 7.1.1 Costs and benefits of investor–state arbitration 7.1.2 Statistics show increasing use of investor–state arbitration 7.1.3 Dissatisfaction with investor–state arbitration 7.1.4 Features of investor–state dispute settlement procedures 7.1.5 Discussion of options 7.1.6 Discussion of sample provisions 7.1.7 Sample provisions: investor–state dispute settlement 7.2 State-to-state dispute settlement 7.2.1 IIA practice 7.2.2 Discussion of options 7.2.3 Discussion of sample provision 7.2.4 Sample provisions: state-to-state dispute settlement procedure 8. Investment Promotion and Technical Assistance 8.1 Investment promotion 8.1.1 IIA practice 8.1.2 Possible costs and benefits of investment promotion commitments 8.1.3 Other issues in the design of investment promotion commitments 8.1.4 A role for investors’ home state in investment promotion 8.1.5 Relationship between investment promotion and other IIA provisions 8.1.6 Discussion of options 8.1.7 Discussion of sample provision 8.1.8 Sample provision: assistance and facilitation of foreign investment 8.2 Technical assistance 8.2.1 IIA practice 8.2.2 Challenges in drafting a technical assistance provision 8.2.3 Discussion of options 8.2.4 Discussion of sample provision 8.2.5 Sample provision: technical assistance 9. Final Provisions: Commission, Entry into Force and Termination 9.1 Introduction 9.2 Commission 9.2.1 IIA practice and options for institutional arrangements 9.2.2 Discussion of sample provision 9.2.3 Sample provision: commission 9.3 Termination of IIAs 9.3.1 IIA practice 9.3.2 Discussion of options 9.3.3 Discussion of sample provision 9.3.4 Sample provision: application and entry into force and termination Appendix 1. Review of Evidence Regarding Whether IIAs Encourage Investment Inflows to Signatory Countries Appendix 2. Overview of the General Agreement on Trade in Services Glossary Bibliography Index

About the Author :
Tony VanDuzer is a professor and former Vice Dean of Research with the Faculty of Law (Common Law Section) at the University of Ottawa, as well as an Adjunct Research Professor at the Norman Paterson School of International Affairs at Carleton University in Ottawa. He has written widely on investment and trade in services issues and completed several major studies for the government of Canada, including an analysis of the impact of the WTO General Agreement on Trade in Services to health, education and social services in Canada (2004) and a study of Canadian foreign investment policy (2005). He has participated in technical assistance projects related to trade and investment issues in more than 25 transition and developing economies over more than 20 years. He was a Member of the Academic Advisory Council to Canada’s Deputy Minister for International Trade from 2002 to 2006. Penelope Simons is an associate professor at the Faculty of Law (Common Law Section), University of Ottawa, Canada. She has been engaged in research on corporate human rights accountability since December 1999 when she participated in the Canadian Assessment Mission to Sudan (Harker Mission), appointed by Canada’s Minister of Foreign Affairs and International Trade, to investigate allegations of slavery as well as links between oil development in Sudan and violations of human rights. Her research focuses on the human rights impacts of domestic and extraterritorial activity of extractive corporations, state responsibility for corporate complicity in human rights violations and the human rights implications of transnational corporate activity facilitated by international economic law. She is the co-author with Audrey Macklin of The Governance Gap: Extractive Industries, Human Rights, and the Home State Advantage (Routledge, forthcoming 2013) which examines the human rights implications of corporate activity in zones of weak governance and argues for home state regulation. Graham Mayeda is an associate professor at the Faculty of Law (Common Law Section), University of Ottawa, Canada. His recent work has focused on the impact of international trade and investment law on developing countries. He is also interested in foundational issues in international law such as the role of global justice in structuring international legal regimes. In particular, he is interested in issues of justice raised by developing countries and methods for interpreting international law that can be more responsive to these claims. While on sabbatical at New York University Law School in 2011, he conducted research on the influence of Canadian, American and UK anti-terrorism policy on poverty alleviation and development work conducted by these countries. More recently, he has studied how international and domestic administrative law regimes can be used to promote and protect the interests of developing countries in international legal regimes. Outside of international law, his research has branched into legal theory, theories of judgment, social rights and public protest, and environmental law. He has a background in philosophy and specialises in East Asian and contemporary European ethics.

Review :
'The Guide is an important contribution to the ongoing debate over sustainable development, democracy and foreign investment. It gives governments aspiring to achieve sustainable development their voice in a positive and productive manner.'