Írta: Dr. Sándor Lénárd
Professor, you have been studying the field of international investment treaties and investment law for quite a long time. Can you shed some light on the major functions of this field of international public law and on the reasons why you have taken a critical approach towards this area of the law?
I will answer the first question alongside the second. I have taken a critical approach for two reasons. One is that international investment law is a much more powerful source of international adjudicative review of states in their sovereign conduct than one finds in other areas of international law. As a result, it enters into the national domain much more powerfully and extensively than other areas of international law. For that reason, the substance and the allocation of power in international investment law is very important for all countries. The second reason for my criticism has to do with the process and institutional design of international investment law. Under investment treaties, foreign investors can bring arbitration claims against states and in my view the arbitration claims are not resolved by independent, fair and sufficiently open and balanced processes.
So, are private entities and especially corporations playing a much more powerful role in international investment relations than in other, more conventional areas of international law by having the unique ability to bring international lawsuits against sovereigns?
Yes, they can bring claims against countries without using the state’s national courts first and they can have an arbitration award against the country enforced internationally. They can also engage in complicated forum shopping. By the combination of these features, international investment law, and especially investment treaty arbitration, stands out as the most powerful adjudicative mechanism to protect any private actor in international law.
These features also lead into the criticism of international investment law that it allows imbalanced, unfair and insufficiently independent processes. I would also add to that this process often does not allow national courts to play their important role in mediating between the international and national domains.
So unlike traditional international public law and unlike even international human rights law, the domain of international investment law is very one-sided and tends to favor private entities over sovereign states. What is your response to them? What can a country gain on the one hand and what does that same country risk or lose on the other hand by signing investment treaties and consenting to binding international dispute settlement mechanism? What are the benefits and costs?
I think the system is imbalanced between private entities and states, but as importantly, it is also imbalanced among private entities because only some private entities have access to the system. Those who do have access can make claims that affect other private entities who are not foreign investors and therefore are not afforded access or at the very least the right of standing when their interests are affected in the arbitration proceeding. More broadly, I would say yes, governments want to attract foreign investments, but they have to be very careful about the terms and the bargain they are striking. Governments could attract foreign investment by promising the same arbitration mechanisms in a contract. They could limit such contracts to the specific projects they want. They can also take other steps in their domestic law, perhaps by facilitating insurance options that provide reassurance to a foreign investor. Yet with investment treaties, governments go so far as to make the arbitration mechanism available to anyone who can claim to be a foreign investor, regardless of whether they even invested any new money, usually regardless of whether they engage in some kind of criminal activity, and regardless of whether they are from the country with whom the treaty was signed if the treaty permits forum shopping. They have made that concession in general to a wide range of actors who they do not know in exchange for what? I question whether it is even possible for a government to do a thourough analysis of their risk – benefit relationship in terms of an inter-state investment treaty because the liabilities are so far reaching and so difficult to assess. There are alternative mechanisms available to attract foreign investments in the case of specific contracts that can deliver comparable levels of protection and security for the foreign investor without exposing the state to such serious risks to its capacity to carry out its sovereign responsibilities and rights by conceding core elements of the judicial authority of the sovereign.
So the takeaway of your point is that concluding investment treaties is not only opening up the states’ economies to foreign investments, but states are also exposing their sovereign authorities to decisions of international arbitrations also known as ISDS. Probably this is the reason why ISDS is sometimes characterized as a “corporate weapon” against public policies. You are making the argument that investment arbitration is best analogized to domestic administrative law rather than to international commercial arbitration since disputes arise from the exercise of sovereign authority by the state. How can we understand this observation?
This is a specific aspect of how, by conceding their sovereignty and their sovereign authority to international arbitrators, countries have changed considerably the role of legislative, executive and judicial institutions at the national level. Any decision of one of those institutions can now be reviewed by international arbitrators if a foreign investor asks for that to happen. The arbitrators will have extensive powers to review and discipline the country for the conduct of its national decision-making body. This is a very significant shift of authority from the sovereign to the international tribunal, which becomes like a Supreme Court for the world except that it is not a court: it is arbitration. Arbitrators who make more money if more claims are brought have access to a remedy of uncapped monetary compensation against countries that could run into billions of dollars. The threat of that kind of liability also acts as an indirect constraint on sovereignty. It diminishes the regulatory options that are fiscally viable for a country to pursue.
In your book, Sovereign Choices and Sovereign Constraints you take a closer look at how arbitrators oversee entities by which sovereignty is exercised. What are your main findings?
This book looked to the specific question of whether or not the arbitrators appointed under investment treaties appear to exercise restraint when they review countries. Courts typically exercise restraint when they review decisions of legislatures, for example, because they consider them to have a greater claim to accountability than the courts. Courts likewise exercise restraint when they review expert regulators and executive agencies which the courts consider to have more expertise and institutional capacity and the ability to respond to emergencies, which courts do not have to the same degree. I examined a number of mechanisms that courts have adopted in different jurisdictions and then did research into whether arbitrators use the same mechanisms of restraint. I found very little evidence that arbitrators were taking a similar approach. I found no evidence of general restraint in the review of legislative decisions and decisions of expert regulators. The situation was more mixed when arbitrators were deciding cases that involve domestic courts, where there was a substantial minority of investment treaty tribunals whose decisions exercised some degree of restraint with respect to national courts.
Can you illustrate the gravity of the situation with some concrete examples from your findings?
There are many examples. One comes from a massive mine proposed in Romania in the Roșia Montană area, or Verespatak in Hungarian. This mine has been controversial for many years because it would do huge damage to the local landscape and to Roman archeological features that are very noteworthy culturally. It would require entire communities to be relocated and it would flood numerous churches, cemeteries and disrupt the way of life for thousands of people. This mine therefore has been very controversial in Romania. Because it has not been approved to this point by the government, the foreign investor proposing the mine has sued Romania under an investment treaty. In the face of that lawsuit, the Romanian government decided to withdraw a bid for the United Nations (UNESCO) recognition of the Roșia Montană site. I think it quite clear based on the evidence I reviewed that the main reason was a worry about the investment treaty claim. So you see a sovereign government trying to take steps to protect all kinds of important considerations for its country and people and then being intimidated by the mere filing of a claim. There are other cases, for example in Canada, where the government has actually withdrawn a law to prohibit a chemical additive in gasoline for health reasons. It did so as part of a settlement with a foreign investor that manufactured the additive. As a result, the government took significant health and environmental risks for many Canadians partly because it was worried about the investment treaty claim that was brought by the manufacturer. I think it is reasonable to conclude that every country that has concluded an investment treaty with any other country that has major investors will by this point have changed its decisions to avoid liability. It is hard to investigate and track these things but I think that at this point it is fair to assume that every government that has a basic legal capacity will be withdrawing from proposals or changing proposals because of these kinds of risks. This is an unstudied but profound effect on the ability of sovereigns all over the world to meet their responsibilities to protect their populations when interests of their people sometimes conflict with those of a foreign investor.
So investment treaties and their dispute settlement mechanisms generate a so called “chilling effect” on the regulatory power and capacity of the state to protect public interests and even basic human rights….
It could be anything, any situation when someone has an interest that conflicts with the foreign investor. The foreign investor now has a tremendous advantage in the other constituencies’ own government decision-making.
But there are quite a few avenues for reforms. In your view what would be the best option to remedy the current flaws of the international investment system? How do you see the recently proposed and concluded USMCA that will replace NAFTA?
The USMCA is perhaps surprisingly the best example of what to do. Canada and the United States are removing this dispute settlement mechanism entirely from their relationship and they will rely on other means to offer protections to foreign investors including their national court system, the option of insurance and diplomatic protections, inter-state dispute settlement, and the option of integrating this protection into contracts which of course a sophisticated foreign investor can be expected to consider closely. I think that every country should follow that example by making clear to foreign investors they want to attract investments and they will protect them, but not at such high costs to sovereignty. They will have to look at national legal mechanisms and contractual commitments including international arbitration on a case by case basis. But countries need to bargain with foreign investors. Not all foreign investment is positive and not all foreign investors are actually bringing any money into the country. On this basis, I would say that countries should be withdrawing from any investment treaties that allow for these arbitration mechanisms as soon as they can. Sometimes it will take years to extract the country from the obligations and liabilities but the sooner they start the better.