{"id":12253,"date":"2021-03-12T08:00:06","date_gmt":"2021-03-12T07:00:06","guid":{"rendered":"https:\/\/voelkerrechtsblog.org\/?p=12253"},"modified":"2021-03-12T17:23:15","modified_gmt":"2021-03-12T16:23:15","slug":"human-rights-in-the-hyphen-reframing-investor-state-arbitration-through-the-duty-to-regulate","status":"publish","type":"post","link":"https:\/\/voelkerrechtsblog.org\/de\/human-rights-in-the-hyphen-reframing-investor-state-arbitration-through-the-duty-to-regulate\/","title":{"rendered":"Human rights in the hyphen: reframing investor-state arbitration through the duty to regulate"},"content":{"rendered":"

International investment law is commonly associated with the priority of the global over the local, the private over the public, the economic over the social. A leitmotif of the Leiden Journal\u2019s symposium on human rights is the desire to expand our\u00a0legal <\/u>imagination<\/u><\/a> beyond those\u00a0hierarchies, charting pathways through and around the interests of foreign investors and host States. But the contribution of Tomer Broude and Caroline Henckels<\/u><\/a> assembles an eclectic set of sources to highlight some hurdles. Tribunals\u00a0often frame investor claims in the language of rights, thus conceiving of such rights as endowments that have been lost or impaired through government regulation. The human rights of local populations, on the other hand, are conceived of as \u2018merely aspirational\u2019, an uncertain gain that might be realised in the future. Combining insights from rights theory, doctrinal analysis, and cognitive psychology, Broude and Henckels argue that this \u2018loss-gain frame\u2019 places human rights at a structural disadvantage in relation to so-called \u2018investor rights\u2019, offering a partial explanation for why tribunals tend not to take human rights seriously.<\/p>\n

This comment builds\u00a0upon\u00a0the observation of Broude and Henckels that the legal character of entitlements conferred by investment treaties is \u2018far from certain\u2019, emphasising their contested character in contrast to the established character of human rights and the State\u2019s correlative duties. In any event, investment treaties\u00a0are\u00a0concerned not with rights but rather with standards of sovereign conduct, calling for a principled\u00a0approach to arbitral review at the stage of application. Failed efforts to integrate human rights treaties at the stage of interpretation\u00a0divert our attention from\u00a0cases in which tribunals have recognised the\u00a0priority of human rights over economic interests in determining whether regulatory measures were\u00a0unreasonable or disproportionate. The loss-gain frame identified by Broude and Henckels might be escaped by shifting focus from competing rights toward the State\u2019s duty to regulate foreign investment for the protection of human rights as the basis for a deferential standard of review.<\/p>\n

Whose right is it anyway?<\/strong><\/p>\n

Broude and Henckels introduce\u00a0the\u00a0influential framework of\u00a0Wesley Hohfeld<\/u><\/a>, who sought to clarify the character of different\u00a0legal entitlements. Hohfeld identified four pairs of \u2018jural correlatives\u2019: right and duty, privilege and no-right, power and liability, immunity and disability.\u00a0He limited the\u00a0technical characterisation of a right to those\u00a0interests\u00a0significant enough to give rise to a correlative duty on others to act or refrain from acting in a certain way. Through Hohfeld\u2019s framework, Broude and Henckels sharpen our attention to the haphazard fashion in which tribunals have harnessed the language of rights. Of course, investor claims invariably relate to proprietary, contractual or personal rights under\u00a0domestic\u00a0law. These economic interests\u00a0tend to be the object of an impugned measure\u00a0and\u00a0therefore must satisfy the definition of investment under an applicable treaty. It is rare, however, to find sustained arbitral scrutiny of the international legal character of entitlements enjoyed by foreign investors.<\/p>\n

A notable exception is the handful of cases arising from taxes and import requirements imposed\u00a0on beverages containing\u00a0high-fructose corn syrup, which Mexico defended as lawful countermeasures.\u00a0In ADM v Mexico<\/em><\/u><\/a>, the majority held that NAFTA created substantive rights and duties among States. Foreign investors were \u2018the objects or mere beneficiaries of\u00a0those rights\u2019, vested\u00a0only\u00a0with \u2018exceptional\u2019 procedural rights to bring arbitral claims. The tribunal in Cargill v Mexico<\/em><\/u><\/a>, however, held that the origin of NAFTA in\u00a0\u2018the joint act of sovereigns\u2019 did not \u2018negate the existence\u2019 of substantive rights conferred on investors. The majority in\u00a0CPI v Mexico<\/em><\/u><\/a>\u00a0agreed that an investor had \u2018rights of its own\u2019.\u00a0This range of positions serves\u00a0to underscore the contested character of the entitlements\u00a0of investors under international law,\u00a0in contrast to the axiomatic character of human rights\u00a0and the correlative duties of\u00a0States to respect, protect and fulfil those rights.<\/p>\n

Another way to conceptualise investor claims is offered by\u00a0Pedro Nikken\u00a0in Suez v Argentina<\/em><\/u><\/a>, who explained<\/u><\/a>\u00a0that investment treaties contain \u2018standard[s] of conduct<\/em>\u00a0or behavior<\/em> of the State \u2026 not a declaration of rights for\u00a0investors\u2019. Broude and Henckels suggest that Nikken effectively described investment treaties as \u2018providing immunities from some types of government action\u2019. Hewing to Hohfeld\u2019s framework, however, if an investor has an immunity then the State has a correlative disability, which hardly reflects the operation of treaty standards such as fair and equitable treatment (FET). As in Cavalum v Spain<\/em><\/u><\/a>, tribunals frequently\u00a0invoke the \u2018right to regulate\u2019\u00a0as their\u00a0\u2018starting point\u2019\u00a0in determining the legitimacy of a diligent investor\u2019s expectation of regulatory stability.\u00a0The characterisation of the FET standard as an investor\u2019s immunity is therefore difficult to square with the rise of the State\u2019s right to regulate in arbitral case law and investment treaty practice.<\/p>\n

Beyond rights talk<\/strong><\/p>\n

It is puzzling that Broude and Henckels do not apply their loss-gain frame to the interaction of investor claims and the State\u2019s right to regulate, given their concluding suggestions seek to \u2018strengthen state positions against investor claims\u2019 for the sake of human rights. They observe in a footnote that \u2018rights talk\u2019 has begun to pervade the characterisation of government regulation, which Broude and Henckels prefer to characterise as a Hohfeldian privilege. In a detailed survey, Charalampos Giannakopoulos<\/u><\/a> shows how most tribunals conceive of regulation as a power in the sense of\u00a0an\u00a0entitlement to alter the legal relations of other parties. He\u00a0recognises, however, that this\u00a0technical\u00a0characterisation has little nexus to its scope of application when manifold entitlements are entangled in investor-State arbitration: the State\u2019s regulatory powers, the economic interests of foreign investors, and (we might add) the human rights of affected populations.<\/p>\n

Let us return to Nikken\u2019s insight that investment treaties set out standards of conduct rather than\u00a0rights for investors. As Federico Ortino<\/u><\/a> has recently mapped, arbitral approaches to several treaty standards have converged on contextual determination of the reasonableness of sovereign conduct, albeit applying\u00a0different standards of review. Henckels<\/u><\/a> earlier explored this phenomenon, the essential lesson of which she reaffirms with Broude in their recommendation for tribunals to\u00a0adopt proportionality analysis as \u2018a more transparent and coherent analytical structure\u2019. Broude and Henckels\u2019 three further suggestions for how the loss-gain frame might be \u2018dismantled, or at least weakened\u2019 are: (i) for tribunals to take as a reference point \u2018not the current human rights situation of potentially harmed populations\u2019 but rather the situation required by international human rights law; (ii) to \u2018establish an interpretative, rebuttable presumption that the host state is taking due steps to protect and promote human rights\u2019; and (iii) for tribunals always to consider human rights, whether ex proprio motu<\/em> or by reference to amicus briefs.<\/p>\n

Although Broude and Henckels refer to an interpretative presumption, their suggestions\u00a0are targeted largely at the stage of application. This distinction is important due to past failures to integrate human rights through art 31(3)(c) of the 1969 Vienna Convention on the Law of Treaties, by which a treaty interpreter\u00a0must take into account \u2018relevant rules of international law applicable in the relations between the parties\u2019.\u00a0In South American Silver v Bolivia<\/em><\/u><\/a>, the tribunal found the requirements for systemic integration were not satisfied because none of the human rights treaties invoked by Bolivia were applicable in its relations with the investor\u2019s home State. When applying an investment\u00a0treaty standard, however, a tribunal may defer to the State\u2019s pursuit of its obligations to protect human rights in reviewing whether conduct was unreasonable or disproportionate.<\/p>\n

The duty to regulate<\/strong><\/p>\n

Here it helps to recall that each State must \u2018manifest[] its territorial sovereignty in a manner\u00a0corresponding to circumstances\u2019. That rudimentary duty, classically formulated in Island of Palmas<\/em><\/u><\/a>, has been progressively refined through human rights and investment treaties. Yet the State remains the institutional locus of\u00a0regulatory authority over persons and property, normatively reinforced by customary international law. In Philip Morris v Uruguay<\/em><\/u><\/a>, Gary Born\u00a0recalled<\/u><\/a> the\u00a0\u2018presumptive lawfulness of governmental authority\u2019 as the \u2018starting point\u2019 for evaluating FET claims.\u00a0Jorge Vi\u00f1uales<\/u><\/a> similarly describes\u00a0the police powers doctrine, usually invoked in the context of alleged expropriation, as \u2018a presumption of regularity\u2019.\u00a0Beyond that baseline,\u00a0Lone Wandahl Mouyal<\/u><\/a>\u00a0highlights how\u00a0international obligations to respect, protect and fulfil human rights transform the State\u2019s regulatory powers into a \u2018duty to regulate\u2019, warranting a heightened degree of deference in investor-State arbitration. \u2018The duty to protect requires the state to adopt and implement effective measures to prevent human rights violations by third parties,\u2019 explains Markus Krajewski<\/u><\/a>. \u2018The territorial state can therefore also regulate the activities of multinational enterprises and impose labour, health, safety and environmental requirements\u00a0on them.\u2019<\/p>\n

The priority of the State\u2019s duty to regulate\u00a0over an investor\u2019s economic interests is evident in recent arbitral reasoning that circumvents the loss-gain frame. The tribunal in Philip Morris<\/em>\u00a0recalled<\/u><\/a> that\u00a0the measures were \u2018adopted in fulfilment of Uruguay\u2019s national and international legal obligations for the protection of public health\u2019, describing the WHO Framework Convention on Tobacco Control (FCTC) as \u2018one of the international conventions to which Uruguay is a party guaranteeing the human rights to health\u2019. The FCTC thus served as \u2018a point of reference on the basis of which to determine the reasonableness\u2019 of Uruguay\u2019s conduct. In Urbaser v Argentina<\/em><\/u><\/a>, moreover, the tribunal accepted<\/u><\/a> that the provincial government \u2018had to guarantee the\u00a0continuation of the basic water supply to millions of Argentines\u2019. \u2018The protection of this\u00a0universal basic human right\u2019, in the tribunal\u2019s view, \u2018constitutes the framework within which Claimants should\u00a0frame their expectations.\u2019<\/p>\n

The duty to regulate the operations of foreign investors\u00a0may be further developed by reference to the\u00a02018 advisory opinion<\/u><\/a> of the Inter-American Court of Human Rights, which unbundled the duty of States to prevent violations of human rights into specific obligations to regulate, supervise, monitor, and mitigate activities of third parties that could cause significant environmental damage, even beyond their borders.\u00a0At a juncture when we see the German energy company\u00a0RWE being sued by a Peruvian farmer<\/u><\/a> for its contribution to climate change, seeking merely\u00a0$20,000 to help fund a $4-million scheme to prevent flooding from glacial melt, while that same company files an investment treaty claim<\/u><\/a>\u00a0for \u20ac1.4 billion compensation arising from the Dutch phase-out of coal combustion, there is mounting pressure for international law to recognise the State\u2019s duty to regulate for the extraterritorial protection of human rights as a reasonable basis for the ambitious regulation of economic activities without compensating for stranded assets<\/u><\/a>.<\/p>\n

Conclusion<\/strong><\/p>\n

Reframing investor-State arbitration through the duty to regulate might\u00a0escape the loss-gain frame by avoiding the technical pitfalls of rights talk and shifting arbitral focus toward an inquiry into whether\u00a0sovereign conduct was animated by the State\u2019s\u00a0obligations under international human rights law. Regardless of whether a human rights treaty is fit for systemic integration at the stage of interpretation, tribunals\u00a0may\u00a0determine\u00a0that\u00a0regulatory measures to protect human rights were reasonable or proportionate,\u00a0in light of other indicia such as an investor\u2019s\u00a0economic interests. Given the latter are creatures foremost\u00a0of domestic law,\u00a0a dispute arising from circumstances that engage any duty of the State to regulate foreign investment\u00a0would warrant the application of a deferential standard of review that places human rights in a position of normative\u00a0priority.<\/p>\n

 <\/p>\n

Oliver Hailes <\/em>thanks<\/em> the editors and Professor<\/em>\u00a0<\/em>Jorge E Vi\u00f1uales for <\/em>helpful<\/em>\u00a0<\/em>suggestions<\/em> and <\/em>Fabian Eichberger <\/em>for the invitation to write this <\/em>comment<\/em>. A<\/em>ny<\/em> errors <\/em>belong to the author<\/em>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

International investment law is commonly associated with the priority of the global over the local, the private over the public, the economic over the social. A leitmotif of the Leiden Journal\u2019s symposium on human rights is the desire to expand our\u00a0legal imagination beyond those\u00a0hierarchies, charting pathways through and around the interests of foreign investors and […]<\/p>\n","protected":false},"author":8,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6639],"tags":[],"authors":[6694],"article-categories":[3572],"doi":[],"class_list":["post-12253","post","type-post","status-publish","format-standard","hentry","category-uncategorized","authors-oliver-hailes","article-categories-symposium"],"acf":{"subline":""},"meta_box":{"doi":"10.17176\/20210312-153626-0"},"_links":{"self":[{"href":"https:\/\/voelkerrechtsblog.org\/de\/wp-json\/wp\/v2\/posts\/12253","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/voelkerrechtsblog.org\/de\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/voelkerrechtsblog.org\/de\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/voelkerrechtsblog.org\/de\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/voelkerrechtsblog.org\/de\/wp-json\/wp\/v2\/comments?post=12253"}],"version-history":[{"count":5,"href":"https:\/\/voelkerrechtsblog.org\/de\/wp-json\/wp\/v2\/posts\/12253\/revisions"}],"predecessor-version":[{"id":12664,"href":"https:\/\/voelkerrechtsblog.org\/de\/wp-json\/wp\/v2\/posts\/12253\/revisions\/12664"}],"wp:attachment":[{"href":"https:\/\/voelkerrechtsblog.org\/de\/wp-json\/wp\/v2\/media?parent=12253"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/voelkerrechtsblog.org\/de\/wp-json\/wp\/v2\/categories?post=12253"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/voelkerrechtsblog.org\/de\/wp-json\/wp\/v2\/tags?post=12253"},{"taxonomy":"authors","embeddable":true,"href":"https:\/\/voelkerrechtsblog.org\/de\/wp-json\/wp\/v2\/authors?post=12253"},{"taxonomy":"article-categories","embeddable":true,"href":"https:\/\/voelkerrechtsblog.org\/de\/wp-json\/wp\/v2\/article-categories?post=12253"},{"taxonomy":"doi","embeddable":true,"href":"https:\/\/voelkerrechtsblog.org\/de\/wp-json\/wp\/v2\/doi?post=12253"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}