Bilateral Investment Treaties, Indigenous Peoples and Investor-State Dispute Settlement: Is International Investment Law Really International?

Over the past few decades, the trend in Investor-State Dispute Settlement (“ISDS”) has been rapidly increasing. Several important multilateral treaties govern the rules and principles of International Investment Law (“IIL”) and ISDS. However, differing —and sometimes conflicting — interests of states have made it difficult to enforce certain specific rules and principles of IIL set forth under the International Centre for Settlement of Investment Disputes (“ICSID”) Convention. This has led to a boost in the number of withdrawals from the convention. For instance, Venezuela, while opting out from the ICSID Convention, stated that transnational economic sectors are involved in the dismantling of Venezuela’s national sovereignty and being a state party to the convention was a wrong decision. Meanwhile, some other states envisage potential benefits to contract Bilateral Investment Treaties (“BITs”) between others who share similar political and economic interests with them or others who can easily be manipulated in the treaty negotiations. Thus, from the second half of the 20^th century, the international community has been witnessing a huge increase in the number of BITs between states, governing the terms and conditions of private investments in each other’s borders. The primary aim of these treaties is to facilitate foreign investments by one another’s nationals. There are currently more than 2500 BITs amongst states which is consistently increasing. Nevertheless, BITs obviously put the global nature of IIL into question. First, they preclude the potential for a unified consensus amongst states by prioritizing similar state interests over a more inclusive and multi-voiced structure of international law. Second, and as a consequence of this, they diminish the level of internationality in IIL.

Other than that, undoubtedly, one of the most important principles of IIL is the protection of investors. Despite growing awareness of the need for a more sustainable IIL, including the adoption of environmental protection rules and obligations (please see Waelde and Kolo; de Chazournes), the protection of investment remains the primary objective of both IIL, and ISDS. For example, in Ethyl v. Canada, the Ad-Hoc Tribunal decided that Canada’s ban on the import of a fuel additive which drove by environmental concerns was unlawful and the ban should be reversed. Also, in Bilcon v. Canada, where the Canadian Environmental Review Panel rejected the proposal of the investor based on an environmental risk assessment, a majority of the Permanent Court of Arbitration (“PCA”) held that the Panel’s decision is heavily based on the community opposition which makes it arbitrary. Thus, it is stated that Canada is in breach of NAFTA’s “Fair and Equitable Treatment” clause.

Accordingly, one may convincingly claim that the principles of IIL raise an issue on the conflicting natures of IIL and environmental concerns along with land rights of indigenous peoples. On the one hand, the protection of investors can sometimes create an inequal balance that favors investor interests rather than indigenous rights. On the other, it sometimes may lead to decisions that overlook the environmental risks of investments, putting environmental concerns in a secondary place of importance. Given a fact that land and environmental concerns are profoundly significant for indigenous peoples, IIL may hinder the international community from hearing fourth-world [1] voices by failing to give sufficient importance to environmental protection and land rights.

In this regard, this post tries to critically analyze the “international” nature of IIL in two aspects. First, significant increases in the number BITs and withdrawals from the ICSID Convention, and second, exclusion of fourth-world voices by prioritizing investors.

Withdrawals and BITs: Potential for Foreign Investments or the Decadence* of IIL’s Internationality?

It is particularly concerning that BITs are now very trendy amongst states more than ever. It is concerning because this trend is concurring with the growing number of states’ withdrawals from the ICSID Convention. This “coincidence” has so much blurry lines, but one certain thing is precise: the global nature of IIL has been significantly decreasing.

The broad objective of the ICSID Convention is to encourage a larger flow of international investment (see, para. 13) and to serve as a solution to the need for international cooperation in economic development. However, third-world criticisms (see inter alia Odumosu; Haynes and Hippolyte) of the Convention have led some countries to opt out of it, based on the view that the ISDS regime continues to position them as subservient to their former European colonizers. Considering the recent withdrawals from the convention in the period of two decades and the increasing tendency to sign BITs especially among wealthy states such as EU members and the USA, the main objectives of the ICSID Convention are far from accomplished.

As Chimni (p. 339, 343) observes, globalization, along with its institutions such as World Bank, WTO, ICSID and so, is of little concern when the interests of third-world countries are at stake. In contrast, these institutions generally reflect the priorities of transnational capital and further support their interests through their dispute settlement mechanisms especially within the framework of ISDS. He might be correct, as Stephenson illustrates that between March 2020 and July 2021, at least 29 of 116 ICSID claims have filed against the Latin American countries —which demonstrates the colonial continuity in the field of ISDS— and most of them also have filed against either developing or underdeveloped states which proves Chimni’s arguments. It seems like that’s the very reason why third-world countries are opting out from the ICSID Convention.

With the increasing number of withdrawals from multilateral investment treaties, today we can say that we are currently living in a world of investment which is mostly composed of and governed by BITs. The reason is easily explainable. As Krisch (p. 390) rightly puts: bilateral treaties can serve as tools to reflect the interests of dominant and powerful states and, as a result, often do not create equal and reciprocal rights and obligations. Given the nature of multilateral negotiations, the possibility of counterbalancing dominant states is higher, as other states can unite around shared interest and exert collective influence on the negotiation process. Therefore, one does not need to be a savant to anticipate why the number of BITs has consistently increased. Asymmetrical bargaining power amongst states and the competition for the capital govern BIT negotiations. Accordingly, these BITs, favoring the interests of dominant states, generally have very little to do with the concerns of poorer ones. Furthermore, they reinforce the fractured international investment regime by dividing the structure of IIL into separate BITs. As a result, the global nature of IIL has collapsed and it implicitly excluded developing countries from meaningful participation in the system.

As a consequence, developing countries are withdrawing from the ICSID Convention, and at the same time, dominant states have tended to contract BITs. However, the driving motives of these two trends are opposite. Thus, asymmetrical BITs along with withdrawals undermine the global nature of IIL.

Taking Indigenous Resistances Seriously: ISDS and Environmental Protection

A second aspect that is often criticized by legal scholarship regarding the global nature of IIL is that ISDS is generally disregards potential harms of investment related projects on the environment and the land rights of indigenous peoples by prioritizing investment protection. One may not disagree that those projects can sometimes conflict with environmental protection values. Given the significance of environmental rights —particularly for indigenous communities— upholding investment protection principles may overlook the concerns of fourth-world peoples and their host states.

As Hall and Biersteker rightly put it, we have been witnessing “the emergence of private authority in international affairs”. In line with this, many legal rules and principles governing environmental issues have been proposed and adopted by private actors. Recalling Chimni’s arguments on globalization —earlier mentioned in this post— these rules and principles usually tend to prioritize private interests, such as free-trade and investment projects, over community interests such as land rights and environmental concerns.

In this regard, environmental regulations —especially within IIL— can, as Robinson (p. 164) argues, be used to facilitate ‘capital accumulation’ [2] for the benefit of transnational capital. At the same time, these “privatized” legal instruments can impose significant constraints on the institutional and sovereign capacity of -particularly poorer- states (please see Freeman for a detailed analysis) [3], thereby limiting their autonomy to adopt social policies aligned with their cultures and stages of development (Chimni, p. 9).

A second aspect is that investment projects can serve as tools for facilitating ‘accumulation by dispossession’ [4]. These projects are functioning for the benefit of investors and land grabbers by creating new markets or redirecting social expenditures toward specific territories (please see Harvey in general; and Hall, pp. 1589- 1590). Such investments frequently result in the reconstruction of social life and relationships within those specific territories, usually leading to temporal or spatial displacements.

This second aspect is closely tied to the indigenous resistances against investment projects. There are numerous instances in which fourth-world communities have resisted the transnational capital class. However, a detailed analysis of these resistances exceeds the scope of this piece. Thus, suffice it to mention a few of them in this piece.

To begin, Bear Creek Mining Corp. v. Republic of Perú illustrates the struggles faced by Global South States to challenge investor claims even when the indigenous rights are at stake. Bear Creek is a Canadian mining company that found a silver within an Aymara-Lupaca Reserve Area, very nearby to Peruvian-Bolivia border. However, mining activities are prohibited in the area because it is home to endangered flora and fauna along with Aymara Indigenous Community whose lives are strongly dependent to their lands. Also, foreign mining activities should demonstrate a public necessity under Peruvian law. However, Bear Creek were encountering difficulties to secure the consent of indigenous communities who are the hosts of the land. Peruvian government sought to commence negotiations between the company and local communities to reach an agreement, as ILO Convention 169, which Perú is a state party, obliges state parties to develop, … coordinated and systematic action to protect the rights of peoples. However, Bear Creek gave no guarantees or promises to the landowners despite their activities posing significant risks to the environment. Even though the agreement between parties was never reached, mining activities began. This led to demonstrations over the region, and Peruvian government sided with the local communities, revoked the license of Bear Creek.

ICSID acknowledged that Bear Creek failed to take appropriate measures to engage local communities. Nevertheless, it pointed out that the revocation of the license was unlawful because ILO Convention 169 imposes obligations only on states and the company holds no such obligations vis-à-vis indigenous communities. Thus, it held that Bear Creek had nothing to do with the indigenous rights under international investment law and the revocation constituted expropriation.

In South American Silver v. Bolivia, the South American Silver (“SAS”) mining company acquired mining concessions in areas named Limosna, Wara Wara and Sucre which indigenous communities are inhabitants. These areas are essential for indigenous communities as they serve as the foundation of their cultural traditions, social structures, and communal interactions. However, since the company was granted concessions formerly, the project was started. Following the commencing of the project, some evidence of environmental pollution was recorded (para. 113). After the reports were publicized, the project encountered severe opposition including demonstrations, blockades and so. In response, the Bolivian government revoked the concession decision.

The PCA, considered the decision of revocation as expropriation and rejected Bolivia’s arguments on illegality. The PCA held that for the illegality requirement to exclude foreign investment, such illegality must be relatable to the establishment of the investment. In contrast, if illegal conduct occurs after the investment was made, there is no such ground to invoke illegality requirement to revoke grants or concessions. Thus, the PCA found the revocation unlawful on the grounds that Bolivian government failed to compensate SAS.

These two recent arbitrations demonstrate ISDS mechanisms’ conducts on the necessity to balance investment protection, land rights and environmental protections. They tend to prioritize investor interests over others even when the indigenous rights and environmental concerns are jeopardized. Despite some arbitrations in favor of indigenous communities —such as Álvarez y Marin Corporación v. Panama, and Pac Rim Cayman LLC v. Republic of El Salvador, those are very rare.

Wang, Ning, and Zhang examined 10 selective ISDS proceedings and they reached to the conclusion that indigenous people’s participations in legal proceedings are significantly restrained, time-consuming, and rarely favorably decided by tribunals. Among 10 arbitrations, only in 7 of them tribunals accepted the participation of indigenous communities to the proceedings. Furthermore, only in 3 of them, tribunals decided in favor of state, upholding environmental protection principles and indigenous rights.

Those statistics further prove that ISDS mechanisms and IIL principles are still prioritizing investment interests over environmental concerns and indigenous rights. [5] The reason is that most investment laws, treaties and tribunals are established under the great influence of first-world states, and transnational capital. Therefore, in the negotiation process, the influence of parties was not symmetrical. Also today, the international law is mostly privatized which enables transnational capital to sell their interests in every international platforms, and to present them as universal. However, this privatization and investment-favored approach hinders the emancipatory potential of IIL to establish a more sensitive and progressive paradigms on environmental issues and indigenous rights.

Conclusion

One of the most fundamental principles of international law is the sovereign equality of states. To uphold this principle, international law should first promote its global character by adopting measures that counter uneven development and hegemony. However, increasing number of BITs and the approaches of ISDS mechanisms to IIL principles —when environmental concerns and the right of indigenous peoples are at stake— are not likely to challenge the uneven nature of international law. In contrast, they facilitate the collapse of its global nature for the benefit of wealthier states and transnational capital. To overcome inequalities and promote the global nature of IIL, the international community should encourage all parties to sign multilateral treaties which equally concern the interests of all parties. Secondly, there might be robust changes in international legal instruments in favor of environmental protection rules and indigenous rights when those are in conflict with investment protection principles. With these changes, ISDS mechanisms are more likely to adopt more progressive and fair approaches to the protection of environment and indigenous communities.

Notes:

[1] A term “fourth-world” used in this piece to refer indigenous peoples and tribes.

[2] “Capital accumulation” is a Marxist-Economic concept refers to the process of creating or increasing the assets or resources that needed to achieve economic growth for the capital class.

[3] He argues that high arbitration costs and asymmetrical decisions held by arbitral tribunals, for the benefit of more institutionalized and wealthy states, lead to constraints on the institutional and sovereign capacity of poorer states.

[4] “Accumulation by dispossession” is a concept presented by David Harvey, refers to the centralization of wealth and power in the hands of elites by redistributing assets including property rights through the dispossession of individuals and local communities.

[5] Please see Botner for a detailed analysis of how IIL prioritize investment interests and exclude indigenous voices in ISDS.

* A concept “decadence” in this piece is used analogously to refer a French word “décadence” which basically means a social corruption. By referring to this word, the author tries to argue that the growing number of BITs could undermine the principles of IIL in terms of its global nature.