This article is authored by Shruti Sarkar, a Third Year Student of Law at Jindal Global Law School.
DATE OF PUBLICATION-1/6/2022
Introduction
Bilateral investment treaties (BITs) serve as an effective tool in the regulatory landscape of international investment law. It mainly encompasses the regime of bilateral and regional treaties with a focus on investment clauses that protect and promote foreign investment. Further, emphasis is also placed on compliance to the principles of customary international law that govern the BIT. With the ever-growing relevance of such treaties, we also witness an increased criticism of the BITs for their evident asymmetry, imprecision and broad provisions. While the due protection granted to investment forwards the goal of investment protection over host state regulation, the emerging trends indicate a strong inclination towards inclusion of human rights obligations in the investment treaties, thereby creating a balance between the protection of human rights and economic value of the investment. Within this setting, the Nigeria-Morocco BIT has emerged as a ground-breaking example that provides a response against the resistance offered to the BITs.
The Nigeria-Morocco BIT distinguishes itself from similar BITs by ensuring protection and promotion of foreign direct investment by adopting a human rights approach. While traditional BITs impose several obligations on the host state, this BIT takes a step forward to impose obligations on the investors. By this attempt to place a multiplicity of obligations on the ‘investor’ to safeguard human rights and environmental concerns through environmental and social impact assessments, and by efficiently defending the host State’s regulatory rights in social and environmental matters, the BIT has taken a bold step in the right direction.
Obligations of Investors – How heavy is the burden?
At this juncture, it is pertinent to note that several clauses of the Southern African Development Community (SADC) Model BIT resemble the Nigeria-Morocco BIT, especially with regard to the obligations placed on investors. Firstly, the former, like the latter, imposes a duty on the investor to respect human rights by not acting in its contravention under Article 15(1). Secondly, both under Article 14(1) of the Nigeria-Morocco BIT and under Article 13(1) of the SADC Model BIT, even prior to their establishment, foreign investors must abide by the environmental assessment screening and evaluation processes that apply to their investments. Thirdly, Article 14(2) of the Nigeria-Morocco BIT as well as Article 13 (3) of the SADC Model BIT requires the investors to undertake social impact assessment. Both Article 14(3) of the Nigeria-Morocco BIT as well as Article 13(4) of the SADC Model BIT additionally mandate the investors to apply precautionary principle to these environmental assessments. It can therefore be derived that though the first two clauses of Article 14 of the Nigeria – Morocco BIT are regulatory in nature, the third clause embodies a positive obligation.
Fourthly, with regards to domestic labour, public health and safety, or human rights, both States (Nigeria & Morocco) have agreed under Article 15 of the Nigeria-Morocco BIT to not undermine, diminish, relax, or waive their domestic labourlaws or international labour and human rights instruments in order to stimulate foreign investment. Fifthly, Article 18 of the Nigeria-Morocco BIT also specifies that foreign investors have to maintain environmental management systems; comply to human rights in the host country; behave in conformity with core labour standards, and not conduct business in a way that eludes the host country’s international environmental, labour, and human rights obligations. These obligations coincide with the provisions mentioned under Article 15 of the SADC Model BIT. Furthermore under the Nigeria-Morocco BIT, Article 19 expects the investor to meet or exceed corporate governance standards which are nationally or internationally accepted and Article 24 demands compliance with all applicable laws along with engagement in “highly socially responsible practises.”
The imposition of such obligations around the issue of human rights is a significant development because it sets a clear expectation as to the investor’s behaviour. It is therefore critical that these instruments enter into force, as their inclusion will help to alleviate concerns about the unequal distribution of obligations between investor and state in traditional BITs.
Settling the conflict between investor protection and public interest issues
There has been a persisting debate over whether host countries should give preference to their international obligation of (1) protecting their foreign investors, or (2) pursuing public interest issues, like human rights and environmental concerns. This question has emerged in several disputes, and arbitral tribunals have often been faced with a dilemma on the same. This can be witnessed in the decision presented in Santa Elena v. Costa Rica, on one hand and Methanex Corp. v. United States on the other. In the former, the ICSID Tribunal was reluctant to assign special significance to the goal of environmental protection. The ruling was therefore chastised for turning a blind eye to the increasing international efforts at making environmental protection a common goal. In the latter, the tribunal ruled that the state imposed ban was non-discriminatory and for public purpose as it was based on scientific reports to protect the environment, and to prevent contamination of drinking water. It was therefore, not an expropriation and thus was not compensable. This reflects the inherent uncertainty associated with the decisions of tribunals. In this regard, the provisions of the Nigeria-Morocco BIT can be seen as an attempt to resolve the debate as it moves towards finding the right balance between protecting foreign investment and regulating the economy.
Bridging the gap through regulatory discretion
Commentators have argued that the host states’ regulatory powers to enforce measures protecting human rights, public health, and the environment, are often adversely affected by the conventional interpretation of the BITs, which discourages countries to pursue international investment arbitration. However, Article 23(1) of the Nigeria-Morocco BIT, empowers the States to introduce new policy measures by applying their regulatory powers in order to meet the national policy objectives, implying that the host State has the liberty to deviate from their primary obligations in cases where non-economic policy aims take precedence over investment protection. Further, Article 13 allows the host state to exercise discretion regarding regulatory compliance, investigative, and prosecutorial concerns when it comes to environmental regulation. Article 13(4) further lays down that a host State can undertake measures that it deems suitable for carrying out investment activities in a non-discriminatory manner that is sensitive to environmental and social concerns. The regulatory powers of the host state is a helpful tool that permits them to undertake actions to achieve non-investment goals while avoiding liability under the BIT. While this marks a deviation from standard BIT drafting norms, which are frequently seen as limiting the host State’s powers to regulate, of recent, international investment tribunals exhibit an inclination towards supporting such rights of host countries to apply regulatory powers to preserve the environment and human rights.
In Chemtura v Canada, for example, the Tribunal concluded that Canada’s implementation of environmental measures was a permissible exercise and within its regulatory powers, notwithstanding the fact that the measure harmed the foreign investor’s profit. Similarly, in Philip Morris v Uruguay, the Tribunal gave significant deference to the sovereign state’s decisions to adopt public health measures in good faith. In line with these rulings, the Nigeria- Morocco BIT’s clear and unambiguous inclusion of regulatory discretion displays an attempt to address the conflict between an investor’s legitimate expectations of legal framework stability and the host state’s right to determine its own legal and economic order. Subjected to reasonable restrictions, the obligations clearly serve as a defence in favour of the host state in case of disputes arising out of the exercise of regulatory power.
A bit of BITterness amidst greater possibilities
Despite its innovative stance, the Nigeria-Morocco BIT hasbeen subjected to several criticisms for favouring the interest of the host state over that of the investor. The language of the clauses pertaining to the host state’s regulatory powers makes it difficult for the tribunals to evaluate if the regulatory measure’s impact on investor rights is proportional to the host state’s aims. Consequently, the host State alone would be able to determine whether something is an issue in the public interest, and this in turn could lead to regulatory abuse, lack of good faith and absence of due process. There are also concerns about the need to redefine ‘human rights’ before imposing human rights responsibility on the investors.
Also, though crystallization of the host state’s regulatory power and introduction of the series of investor obligations create the illusion of a balance treaty, uncertainty lures about titling the scale too much in favour of the host state which will lead to undermining of the interests of the investor, as BITs with limited protection and enhanced obligation will not attract investors due to the fear of governmental intervention in their business activities. On one hand such BITs can produce regulatory chill on the part of the host State by favouring investment protection, and on the other, they can subdue the objective of investment protection by favouring the host State’s right to regulate, thereby reducing the protection offered to foreign investors. As a result, the drafting of the BITs should take place in a way that balances the host State’s regulatory powers to protect the environment and human rights without jeopardising foreign investors’ interests. Finding the appropriate balance has served as a source of enigma to the tribunals as well, as noticed from the lack of uniformity in their rulings.
Furthermore, there may be doubts about whether the right to regulate is sufficient, as Article 13(4) lays down that the measures have to be consistent with the agreement. Such clauses can be viewed to obstruct a state’s ability to take appropriate measures in public interest due to the traditional role of the BITs where investment protection occupies the centre stage. Therefore, there is a greater possibility that commitments to safeguard foreign investors often trump host governments’ measures designed to preserve public interest concerns. However, it can be claimed that the case of the Nigeria-Morocco BIT might be different since its original purpose was to establish a balance between the economic interest of the investor and the public concerns of the host state in international investment law. In essence, eventhoughthe Nigeria-Morocco BIT has encountered several criticisms, it still continues to mark the commencement of a new generation of BITs which emphasise on environmental and human rights obligations of the investor, with an objective of balancing the investor’s obligations and investment protection.