Investor-State Arbitration Threatens Public Health as well as Human Rights and the Environment

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We’ve previously written about how corporations are using the investor-state arbitration regime to challenge decisions by governments that protect the environment and human rights, and the need to incorporate human rights standards into that regime. Basically, investor-state arbitration allows corporations to sue governments directly in an international tribunal made up of private lawyers, and claim that the government’s regulation has harmed the corporation’s business.

The New York Times recently highlighted the effect that this system is having on tobacco regulation, an essential public health issue, worldwide – and the effect is not good. Several countries have received threats from tobacco companies that their regulation violates bilateral investment treaties (BITs). Philip Morris has sued the Australian government. And Namibia, which passed an extensive tobacco regulation law in 2010, has yet to carry out its provisions.

Thankfully, the issue is getting increased attention, both from the media and in academic circles. The International Commission of Jurists published a report by Stratos Pahis looking in-depth at the relationship between international human rights law and international investment law. (Full disclosure: Stratos is a friend of mine, and wrote the report while he was on the Robert L. Bernstein International Human Rights Fellowship, which was the same fellowship that gave me my start at ERI.)

One of the report’s recommendations is for increased transparency in investor-state arbitration procedures, which are often confidential. There are some moves in this direction – one of the major arbitration forums, UNCITRAL, will have new rules next year that allow greater transparency and public participation – but only for new BITs.

But transparency alone is not enough. The report concludes that “international investment tribunals have not only the authority but the obligation to consider international human rights norms while interpreting and applying BITs. Specifically, they must take seriously the potential for conflict between these two sets of laws, and interpret and apply BITs in a manner that minimizes these conflicts.”

Unfortunately, this has not been the trend in arbitration. One study attempted to look at whether there was a bias in favor of companies, especially Western companies, and against governments. It found that there was a “strong tendency” for arbitration tribunals to give “expansive” interpretations of BITs, increasing the likelihood of allowing claims against governments. And, even more alarming, this tendency was greater in cases where the company “was from a Western capital-exporting state.”

Let’s hope that governments take note of the dangers in allowing investor-state arbitration, especially given the current trends. After all, when Australia announced that it would no longer agree to investor-state arbitration clauses, it did so largely on the basis of a report that concluded that there was no “sound evidence” that investor-state arbitration led to increased foreign investment, but that such provisions create “risk for governments when making domestic policy decisions.”

A risk of affecting domestic policy – now including the risk of not being able to regulate the tobacco industry – and no evidence of reward. In this system, only the corporations win.

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