Ashutosh Mani, 30LL.

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Response Paper
On
BILATERAL INVESTMENT TREATIES: A FRIEND OR FOE TO HUMAN RIGHTS?
By- MEGAN WELLS SHEFFER
A sustainable economic development of a country requires FDI as well as protection of Human
Rights. FDI (Foreign Direct Investment) is to be regarded as the tool for economic development
of the country. At the same time, protection of their investors from any kind of harmful
interference in foreign state is also a major issue for capital exporting state. Therefore, we can
see that human rights and economic development of the country are not separate identities but
they are as one and go hand in hand for the Economic progress of the host-country.
Concept of BIT can be understood as a bilateral investment treaty, in which there is an agreement
between two state parties to ensure that one state party receives certain standards of treatment
when investing in territory of the other state party. BIT is a kind of mutual benefit to both the
state-parties in an agreement. Bilateral Investment Treaties also grant Multinational Corporations
(MNCs) certain rights against states. Like to allow them directly initiate arbitration against State
under condition, if that state has not fulfilled its obligation under BIT.
Mechanism of BIT is that There is an investment contract, a contract signed between an
investor (or group of investors) and the host state that lay down the rules governing a specific
investment project. All these instruments usually contains Dispute Settlement Clauses allowing
investors, in most cases, to bring on arbitration claim against the host-state when their rights
under the International Investment Instrument in question are allegedly breached.
BITs empower MNCs and provide regulatory power to the state for promotion and protection of
Human Rights.
Section I- Brief history of international investment law
International Investment law is not a new concept in field of law. The stabilization clause 1
contained in the International Investment Contracts puts a legal limit on the right of host-states,

1 Stabilisation clauses are contractual protections often incorporated into long term investment or
concession contracts between international investors and states.

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to adopt new regulation and thus discouraging them from enacting human rights related
regulations.
During the period of World War II, there were many initiatives taken to establish a multilateral
legal framework for investment, like ITO but failed, due to existing preferences for BITs. As a
result, GATT does not included an investment framework.
But now, International investment law exists but only as a patchwork of BITs created to promote
FDI. As there was rise in Globalization, there was increase in number of MNCs which also
accelerated the growth of FDI and thus, the use of BITs.
Attempts to create a Multilateral Investment Framework have been unsuccessful. U.S promoted
negotiations of a Multilateral Agreement on Investment(MAI) within the organization for
Economic Corporation and Development (OECD). Again MAI was a great failure and which led
to the bringing of investment in WTO regime.
In 2001 Doha Declaration recognized need for a multilateral investment framework. In
December 1 2009, EU reviewed competence over FDI, which includes the power to enter BITs.
On July 7,2010, European Commision released draft regulation which was approved by both the
Council and Parliament and would give members temporary authority to maintain their existing
BITs with non EU countries and even to negotiate new BITs.
Section II- Description of BIT
BIT stands for Bilateral Investment Treaty. It ensures that an investor of state party must receive
certain standards of treatment when it is investing in the territory of other state party. For
violation of BIT, a member state can bring claim directly against that state which violated the
BIT. There are many models taken from the U.S Model BIT, such as1- National Treatment Provision- It essentially means treating foreigners and locals equally.2
2- Most Favored Nation Provision- The term means the country which is the recipient of
this treatment must, nominally, receive equal trade advantages as the "most favoured
nation" by the country granting such treatment.3
3- Fair and Equitable Treatment Provision
4- Expropriation Provision
2 https://en.wikipedia.org/wiki/National_treatment
3 https://en.wikipedia.org/wiki/Most_favoured_nation

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There is also a dispute resolution clause, whose main function is to settle the disputes between
contracting parties by Arbitration. There are various kinds of Arbitrational Institutes to resolve
the disputes between states such as1- There is an autonomous international institution established by a multilateral treaty to
resolve the Investment Disputes between States and nations of other States, known as
International Centre for the Settlement of Investment Disputes (ICSID). ICSID is
only a body which provides for the institutional and procedural framework for arbitral
tribunal to resolve the dispute.
2- United Nations Commission on International Trade Law (UNCITRAL)- To promote
the progressive harmonization and unification of international trade law.4
3- Stockholm Chamber of Commerce (SCC)5
While less commonly offered in investment treaties, the SCC rules are found in a
minority of BITs, particularly where one or both parties hails from Eastern Europe or the
former USSR, as well as the Energy Charter Treaty a powerful multilateral agreement
governing trade and investment in the energy sector. The SCC handles a modest number
of investment treaty arbitrations up to several in a given year - as revealed through
statistics it publishes. Little information is available about arbitrations taking place under
SCC rules unless the disputants desire otherwise.
4- International Chamber of Commerce (ICC)6
The Paris-based ICCs International Court of Arbitration is a popular venue for resolving
private commercial disputes. The ICC also handles a tiny number of investment treaty
cases, about which very little is known. The major bottleneck which limits the number of
treaty cases arbitrated at the ICC is the fact that most BITs do not offer ICC arbitration as
an option.
These decisions given by the arbitration court are only binding on the parties to the arbitration
and does not create a binding precedent. Enforceability of BITs arbitrational award can be
understood by the case- For example, CalEnergy, a U.S. corporation, had two geothermal
4 https://en.wikipedia.org/wiki/United_Nations_Commission_on_International_Trade_Law
5 Luke Eric Peterson, Human Rights and Bilateral Investment Treaties
6 Ibid

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projects in Indonesia that became the subject of an arbitration and an award was issued in favor
of CalEnergy. However, Indonesia refused to pay. CalEnergy had political risk insurance with the
Overseas Private Investment Corporation (OPIC),7 an agency of the United States government.8
OPIC then had authority to seek payment from Indonesia under the arbitration award. In July
2000, the U.S. ambassador to Indonesia, Robert Gelbard, stated that he was "running out of
patience" with Indonesia's tardy payment to OPIC. He threatened to cut off aid to Indonesia and
declare expropriation: "There is always the possibility of eclaring expropriation . If we were to
do this, it would result in a dramatic deterioration of the rupiah and would hurt Indonesia very
much.9 OPIC also removed Indonesia from the list of countries eligible for political risk
insurance. The strategy worked. OPIC and Indonesia reached a settlement in mid-2001.10
As BITs provide for Arbitral Tribunal for the settlement of disputes between the two contracting
parties and looks at both the factors of the parties. Therefore, in a way it promotes for corporate
social responsibility and also acts as a protector of Human Rights.
Typically this has been done without much theoretical explanation for the resort to human rights
jurisprudence; rather, as occurred in the Mondev v. United States case, the tribunals seem to have
held that human rights cases might help to illuminateby way of analogyhow certain
investment treaty provisions might be construed.11
In the Mondev v. United States case under NAFTA, the tribunal faced a claim by a Canadian real
estate developer objecting to its treatment at the hands of US courts. In the course of ruling on
Mondevs claim that it had not received treatment in accordance with international law, the
tribunal examined the case-law of the European Court of Human Rights with respect to Article

7 Wells, supra note 14, at 452.

8 Press Release, Overseas Private Investment Corporation, Spinelli Addresses Sustainable Development at London
Conference (June 17, 2009), available at http://www.opic.gov/news/pressreleases/ 2009/pr061709 [hereinafter
OPIC-Spinelli].

9 Wells, supra note 14, at 452.

10 Jennifer M. DeLeonardo, Are Public and Private Political Risk Insurance Two of a Kind? Suggestions for a New
Direction for Government Coverage, 45 VA. J. INT'L L. 737, 770 (2005).

11 Mondev International Ltd. v. USA, ICSID Case no. ARB/(AF)/99/2, Award of Oct 11, 2002,
par. 144, available on-line at ita.law.uvic.ca/documents/Mondev-Final.pdf

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6(1) which provides among other things a right to a court hearing.12 In other arbitration cases,
including the Tecmed v. Mexico case, arbitrators have looked to human rights case-law for
assistance in interpreting the BIT obligations owed to investors in relation to expropriations of
property.13Thus, for example, the jurisprudence of the European Court of Human Rights on
the peaceful enjoyment of possessions has been referred to by arbitrators seeking to interpret
investment treaty protections against expropriation or nationalization. In the Azurix v. Argentina
case, an ICSID tribunal endorsed the approach taken in the Tecmed v. Mexico case (described
above) whereby a judgment of the European Court of Human Rights was deemed to provide
useful guidance to the interpretation of the expropriation clause of the US-Argentina bilateral
investment treaty.14
Section III- Gaps in the Patch work Regime of BITs
Patchwork of BITs mainly consist of International Investment system which have several flaws
under it asa.

The origin of BITs has created an Asymmetry in Power and Experience- BITs and
other investment instruments are thought to spur the economic development of the host
states by attracting FDI. Presence of foreign investors may stimulate best practices in
terms of labour standards or of environmental preservation.
According to some scholars there have been race to the bottom, which means that some
of the developing nations provide for loose regulations in investment to attract more and
more FDI in there country, which ultimately results in more Human Rights Abuses.
But there are a number of studies which attempts to demonstrate that international
investment instruments were not necessarily that important factor to attract FDI or even
foreign capital which has resulted in the economic growth of the host state.15

12 Mondev Award, par. 141-144.

13 Tcnicas Medioambientales Tecmed, S.A. v. United Mexican States (Case no. ARB(AF)/00/2), Award of May 29,
2003, at par. 116-122, available on-line at ita.law. uvic.ca/documents/Tecnicas_001.pdf.

14 Azurix Corp. v. Argentina, ICSID Case no. ARB/01/12, Award of July 14, 2006, par. 311-12,
available on-line at ita.law.uvic.ca/documents/AzurixAwardJuly2006.pdf.
15 M. Crackovic and R.Levine, Does Foreign Direct Investment Accelerated Economic Growth?
(Washington ,D.C: Institute for international economic/Centre for Global Development,2005)

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b. The separation of Human Rights and Investment law in Policymaking- The
patchwork of BITs regime has not included the Human Rights and it is generally devoid
of human rights.
c.

Lack of Jurisdiction to address Human Rights-Related issues in BIT Arbitration

Tribunal- BITs are more generally treated as solely for Commercial Disputes. Most
arbitrators that are selected by the parties have commercial backgrounds and do not
regularly deal with matters pertaining to human rights law, making it difficult for them to
assertively deal with such issues even if they thought it appropriate.84 On the other hand,
not many human rights experts have sufficient expertise of the technical and business
related aspects of investment law. Be that as it may, many arbitrators in investment
disputes display a narrow positivistic focus, rooted in a tradition of international
commercial arbitration that is solely concerned with the effective ad hoc legal resolution
of business disputes. Proper respect for human rights on the other hand essentially
requires taking into account the externalities of the investment regime, in particular since
matters concerning the public interest are transferred to the international level. This
ultimately public understanding of the investment system is hard to fit into the self
denying ethos of conventional arbitration, but one recent NAFTA tribunal visibly
signalled a novel readiness to undertake its mandate with an awareness of the context
within which it operates.16

d. Lack of transparency and Public Participation in BIT Arbitrational Tribunals- BIT

disputes are often done in a secret, while ICSID provides pending and available cases to
the public, including subject matter of arbitration, party names, date of registration,
composition of tribunal and the procedural timeline. Though they are not completely
open but most of the basic information are there in the public domain.
e. Arbitrators Lack of Human Rights Expertise and Opposing Allegiances in BIT
Arbitration Tribunal- In BITs arbitrational tribunal there are arbiters which are chosen
by the parties to the dispute. So, there can be cases in which human rights norm are
outside the scope of arbitrator expertise. As ICSID only provide for arbitrators to have a

16 Glamis para.7.

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recognized competence in the fields of law, commerce, industry or finance.17 Therefore,
even if the case involves some aspects of human rights in it the arbitrator must know the
way in which to proceed in such situations.
The arbitrator are appointed only for the settlement of disputes on commercial grounds
and not to touch the Human Rights approach of the case. As they are there basically to
protect their jobs as an arbitrator for securing their next appointment in tribunal.
f. BITs can limit State Sovereignty- Basically, BITs are there to protect for MNCs and not
the state itself, this is because of the fact that foreign MNC may bring a multi-million
dollar claim against the state for violation of BIT. While BITs do not as such attempt to
outlaw the ultimately probably too deeplyingrained practice of expropriation, the direct
or indirect taking of property must generally be nondiscriminatory, for a public purpose,
and accompanied by prompt, adequate and effective compensation, itself to be assessed at
fair market value.33 Such clauses can make it prohibitively expensive for states to
regulate for human rights reasons in areas such as labour rights, land use, the
environment, and public health and safety where this would deliberately or
inadvertently cause a sufficient economic impact on foreign investments.18
For example, in the recent Biwater Gauff arbitration, Tanzania was inter alia held to have
violated the expropriation clause of the UKTanzania BIT (1994).19 A BritishGerman
consortium had been awarded a bid to upgrade and run water and sanitation infrastructure
in Dar es Salaam, which the World Bank had previously described as precarious at the
time. The consortium however underestimated the difficulty of the project due to poor
planning and sought to renegotiate the contract after it had run into management and
implementation difficulties. Tanzania declined and ultimately sought to take things into
its own hands by occupying the water facilities and usurping management control. While
17 Tony Cole, Arbitrator Appointments in Investment Arbitration. Why Expressed Views on Points of Law Should
be Challengeable, INVESTMENT TREATY NEWS, Sept. 23, 2010, at 14, available at
http://www.iisd.org/itn/2010/09/23/arbitrator-appointments-in-investment-arbitration-why-expressedviews- onpoints-of-law-should-be-challengeable-2/.

18 Waincymer 309.
19 Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania, ICSID Case No. ARB 05/22,
Award, 24 July 2008.

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no compensation was awarded in the end on account of causation issues (the consortium
had sued Tanzania for around $20 million, but the tribunal considered the loss inevitable),
the arbitrators held Tanzania liable for breaching the BIT. Similarly, several disputes have
arisen from South American state measures affecting the privatization of water supplies,
e.g. by fixing water pricing, arguably pitting investor rights against the increasingly
recognized right to water.20
Even more acutely, in the recent Piero Foresti case, European investors challenged South
African legislation seeking to improve participation and ownership of historically
disadvantaged South Africans in the mining sector.21 The claimants alleged among other
things that the Mineral and Petroleum Resources and Development Act of 2002 violated
the expropriation provisions of the ItalySouth Africa BIT and the BeneluxSouth Africa
BIT by effectively expropriating their existing mineral rights by turning them into new
order rights, which the investors claimed were less valuable.22
Section IV- How to protect Human Rights within the Present BIT Regime
States must revamp the present BIT regime for the protection of Human Rights in the State. Most
obviously, completely new BITs could be negotiated and concluded. But this takes time.
Amending existing BITs, while technically possible, is also not without complications. Generally
speaking, investors are entitled to rely on the treaty provisions as long as the treaty remains in
force.23
20 See e.g. Aguas del Tunari S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3 and Suez,
Sociedad General de Aguas de Barcelona S.A. and Interagua Servicios Integrales de Agua S.A.
v. Argentine Republic ICSID Case No. ARB/03/17. More generally P Thielbrger, The Human
Right to Water Versus Investor Rights: DoubleDilemma or PseudoConflict? in PM Dupuy, F
Francioni and EU Petersmann (eds), Human Rights in International Investment Law and
Arbitration (Oxford University Press, Oxford 2009) 487510.
21 Piero Foresti, Laura de Carli and others v Republic of South Africa, ICSID Case No.
ARB(AF)/07/1.
22 LE Petersen, More Details Emerge of Miners Case Against South Africa, Investment Treaty
News, 30 November 2007, available at: http://www.iisd.org/pdf/2007/itn_nov30_2007.pdf. It
now appears that this particular claim might be discontinued, presumably because of the barrage
of negative publicity it received.
23 Dolzer and Schreuer 23.

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A. Integrate domestic human rights policy and investment policy- there must be a system
established which harmonizes the approach of BITs and at the same time not infringing
any of the domestic laws of the country. As both are necessary for a healthy progress of
the nation.
B. Add broader policy objectives to BIT preambles- Drawing on the above then and
expanding the initiatives of recent Scandinavian and North American investment
agreements, future BITs could in preamble language expressly reaffirm their commitment
to the general system of public international law, declare that they do not intend to create
an isolated legal regime, and state that they recognize other relevant norms and values of
international law such as human rights, sustainable development, and environmental
protection. It would also be worth emphasising an intention to seek an adequate balance
between investment protection and the frequent necessity of positive state measures to
implement those norms and values. Finally, it might be advisable to draw attention to the
common heritage of investment protection and human rights law to dispel any lingering
myths of irreconcilability.
C. Acknowledge State Sovereignty- BITs must include states substantive language which
acknowledges the Sovereignty of that state.
D. Provide Jurisdiction for human rights related matter- States must include human rights
matter in their jurisdiction. Investment Tribunal must be made competent to include
matters related to Human Rights.
Section V- How to Protect Human Rights by making one fundamental change in the Bit
Regime
There can various ways by which Human Rights can be protected such as1- Theoretical Foundation: MNCs and Human Rights Obligations- Trade and investment
liberalization must be allowed only to a certain extent and protection of Human Rights
must be the responsibility of MNCs. Treaties must be of such nature that talks about the
protection of Human Rights.
2- Umbrella Clauses: Discard them or make them reciprocal- Through socalled umbrella
clauses the host state guarantees to the home state that it will abide by the contractual
promises given to a foreign investor. The effect of such clauses is that violations of

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contractual promises given to an investor are elevated to violations of the host states
international legal obligations.
3- Due Diligence Standard- This idea was given by John Ruggie. It can be acquired by 4
components- A. Companies should adopt a Human Right Policy.24
B. companies should integrate this policy throughout the company.25
C. companies should conduct a human rights impact assessment,
D. companies should adopt monitoring and auditing procedures to track the company's
human rights impact and performance.26
4- Require Pre-Establishment Environmental and Social Impact Assessments- It will show
the impact on local community land, air quality, etc. Social Impact Assessment will look
into the social impact on human rights, religious beliefs, family values,etc.
5- Require a Standard of Corporate Social Responsibility- It falls under two categoriesa. State controlled
b. Industry controlled
Section VI- Conclusion
Future investment agreements should first and foremost strive for a responsible balance between
state regulation and investment protection, recognizing that both are legitimate endeavors. It is
crucial in this respect to neglect neither the general interest in a global rule of law and property
protection nor the role investment plays in sustainable development, while at the same time
allowing for the worldwide realization of human rights and related concerns.27
An Efficient use of the Arbitration Tribunal can bring a lot of change in the society by bringing
under its ambit the mechanism of Human Rights enforcement. States must formulate their BIT in
such a way that within its purview it also includes Human Rights. So that not only there is a
economic development of the state but also of Human beings are benefitted from it.

24 Ruggie - Protect, Respect and Remedy, supra note 1, 60.

25 Id. 62.
26 Ruggie - Protect, Respect and Remedy, supra note 1, 63.
27 Marc Jacob, International Investment Agreements And Human Rights( INEF Research Paper Series,Human
Rights, Corporate Responsibility And Sustainable Development)