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

In November 2012 the Commonwealth Secretariat completed a practical guide, titled “Integrating Sustainable Development into International Investment Agreements: A Guide for Developing Countries,” to help enable developing countries to design international investment agreements (IIAs) that support their development needs.[1] The guide marks the culmination of an intense and very successful consultative and expert-group process held in the Commonwealth Caribbean, Pacific, South Asian and African regions. It has also been subjected to a rigorous peer review process comprising renowned experts in the field to ensure that it meets international standards.

The guide identifies an area of crucial need among its poorest, smallest and most vulnerable members; and provides a cost-effective, instructive and very deeply appreciated tool across the Commonwealth’s developing country membership.

The guide is designed to be a useful reference for policy-makers, legal experts, legal researchers and civil society groups. It explains how IIAs can be more effective tools to attract investment and to ensure that investment leads to sustainable development. It is expected that it will be of use to developing countries in negotiating bilateral investment treaties (BITs), but various provisions may also be suitable for inclusion in economic partnership agreements, investment provisions in preferential trading agreements and other international economic agreements relating to investment.

The guide analyzes the costs and benefits of existing approaches from a sustainable development point of view. It provides a menu of options for states negotiating IIAs, including new ideas for treaty provisions that could enhance the prospects for ensuring that investors’ activities contribute to sustainable development.

This brief note discusses key challenges of negotiating IIAs and how the guide can assist relevant stakeholders in addressing these, as well as its essential features, its targeted audiences and the key policy issues covered.

The challenges of negotiating and living with IIAs

Attracting foreign investment is a cornerstone of the development policy of most developing countries. One strategy to encourage investment from foreigners is to enter into IIAs.

Most IIAs are bilateral investment treaties between capital-exporting developed countries and capital-importing developing countries. These treaties offer protection for foreign investors operating in host countries. Developing countries hope that by offering protection, an IIA will increase inflows of foreign investment from existing and future investors. But the evidence of the link between IIAs and foreign investment inflows is weak, and not all foreign investment contributes to sustainable development. At the same time, the forms of IIA typically sought by developed countries can constrain the ability of host countries to regulate foreign investors operating within their borders. IIAs may make it difficult for countries to achieve essential public policy objectives, including their development goals and the maintenance of environmental, human rights and labour rights standards.

The constraints that IIAs impose on host states, combined with costly, inconsistent and sometimes surprising decisions by investor-state arbitration tribunals regarding the meaning of broadly worded IIA obligations, have led many countries to rethink the obligations an IIA should include.

Addressing challenges related to IIAs?

The Commonwealth’s guide is designed to explain how IIAs can do a better job of promoting sustainable development in host states. It explains how IIAs can support the efforts of host countries to regulate foreign investment inflows in order to ensure that they contribute to sustainable development.

The guide achieves these goals by:

1. Identifying emerging best practices in existing agreements;
2. Suggesting new and innovative provisions; and
3. Discussing how states can achieve better coherence between their IIAs, their other international commitments and their domestic policy.

Essential features of the guide

The guide contains the following features, which are designed to explain how IIAs can do a better job of promoting sustainable development in a manner that serves the needs of its different intended users most effectively:

• Discusses the basic purposes of IIAs
• Describes the links between IIAs and inward investment flows and those between investment inflows and sustainable development.
• Presents the various current approaches to IIA provisions.
• Identifies new ways to modify traditional IIA provisions.
• Describes new types of sustainable development provisions that can be included in future agreements relating to sustainability assessments, human rights, labour rights, environmental protection and corruption.
• Explains the policy implications of all provisions discussed and evaluates their costs and benefits.
• Provides sample provisions.

Who is the guide intended for?

The guide is intended to serve the needs of a variety of users, including:

• A resource to help policy-makers make more informed policy choices
• A negotiators’ handbook
• A technical reference for legal experts and researchers
• A source of information on IIAs for civil society groups and advocates

Key policy issues discussed

The guide discusses many of the potential social, cultural and environmental effects of IIAs. It also explains the current debates regarding the legal interpretations of various IIA provisions. Issues discussed include.

• Do IIAs contribute to economic growth?
• How can IIAs contribute to sustainable development?
• How can IIAs encourage investment more effectively?
• What is the impact of IIAs on regulatory sovereignty?
• How can investors’ home states be engaged to support sustainable development in host states?
• Can IIAs be used to implement international human rights obligations and promote corporate social responsibility?
• How do IIAs interact with WTO obligations, other investment agreements and domestic policy?
• Should IIAs include investor-state dispute settlement?
• What kinds of changes can be made to investor-state arbitration procedures to make them less onerous for states and more predictable?

Conclusions

The guide is not intended to be prescriptive and it’s not without limitations. It does not compare IIAs with investment contract commitments or insurance, which may be used as substitutes for, or complements to, IIAs as ways to encourage investment. Nor does the guide’s focus on IIAs suggest that IIAs constitute the best or only approach to attracting and retaining foreign investment. Other policies may be preferable, or have greater impact.

Rather than surveying all possible approaches to attracting investment, the guide aims to help developing countries with existing IIAs and the negotiations of new ones. Its main purpose is to provide a source of useful information and analysis for countries that have negotiated, or are considering negotiating, IIAs.

Author: Ms. Veniana Qalo is the Acting Head and Advisor, International Trade and Regional Cooperation Section at the Economic Affairs Division of the Commonwealth Secretariat.  The guide referred to in this article was prepared for the Commonwealth Secretariat by Profs Anthony VanDuzer, Graham Mayeda and Penelope Simons of the University of Ottawa. The opinions reflected in this article are those of the authors and do not reflect the views of the Commonwealth Secretariat or its members.