{"id":2350,"date":"2013-01-14T03:53:13","date_gmt":"2013-01-14T09:53:13","guid":{"rendered":"http:\/\/itn.mattrock.ca\/?p=2350"},"modified":"2018-04-26T12:54:39","modified_gmt":"2018-04-26T17:54:39","slug":"unctads-investment-policy-framework-for-sustainable-development-potential-and-issues","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2013\/01\/14\/unctads-investment-policy-framework-for-sustainable-development-potential-and-issues\/","title":{"rendered":"UNCTAD\u2019s Investment Policy Framework for Sustainable Development: Potential and Issues"},"content":{"rendered":"

The United Nations Conference on Trade and Development (UNCTAD<\/span><\/span>) has released its Investment Policy Framework for Sustainable Development (IPFSD)[1]<\/a>. UNCTAD characterizes it by saying it emphasizes \u201ca balanced approach between the pursuit of purely economic growth objectives \u2026, and the need to protect people and the environment,\u201d and underscores the interests of developing countries in investment policymaking.<\/p>\n

This article engages in an independent assessment of the IPFSD from the standpoint of those two claims. The IPFSD comprises three parts: Core Principles; guidelines for national investment policies; and options for policymakers negotiating international investment treaties. Only the first and the last are assessed in this article.[2]<\/a><\/p>\n

Core Principles for Investment Policymaking<\/b><\/p>\n

Among the Core Principles that the IPFSD attempts to convert collectively and individually into policy guidelines, Principle 2 features a welcome call for policy coherence. Unfortunately, it fails to give some guiding norm for subordination; for example, that in case of conflict, it is the sustainable development and human rights commitments undertaken by a country that should prevail over investment commitments.<\/p>\n

Principle 4 is about dynamic policymaking: \u201cInvestment policies should be regularly reviewed for effectiveness and relevance and adapted to changing development dynamics.\u201d<\/p>\n

This principle is an exciting contribution to the current debate on international investment rules. It provides grounds for encouraging that investment treaties be subject to automatic and periodic review. The need to adapt investment policies to incorporate what is learned through their implementation tends to be absent in international investment agreements that, once subscribed, are hard to renegotiate. Even in the limited instances that theoretically allow for renegotiations, these tend to be subject to insurmountable obstacles.<\/p>\n

On the other hand, two Principles are especially problematic. Principle 7 on openness to investment, states: \u201cIn line with each country\u2019s development strategy, investment policy should establish open, stable and predictable entry conditions for investment.\u201d <\/i>Principle 8 states: \u201cInvestment policies should provide adequate protection to established investors. The treatment of established investors should be non-discriminatory.\u201d<\/p>\n

Now, sustainable development is defined as development that \u201cmeets the needs of the present without compromising the ability of future generations to meet their own needs.\u201d The assumption cannot be automatic that, a priori<\/i>, a regime of openness to FDI<\/span> (with some exceptions) today will not compromise options required for future generations to meet their needs. The ability of a regime to serve sustainable development will depend on the particular configuration of regimes and mixtures between domestic and foreign in a given country.<\/p>\n

The adoption of openness as a principle does not coexist comfortably, either, with the interests of developing countries that UNCTAD claims to defend. The notion of open trade responds to the theory of comparative advantage, elaborated having in mind trade in goods. Regardless of where one stands on the benefits of open trade, extending such arguments to open investment is not a straightforward proposition.<\/p>\n

In the case of Principle 8 on protection to established investors, again, there is no reason why non-discrimination should be consecrated as a principle, rather than an exception to be allowed in cases where investment can prove to fit into the sustainable development strategy and generate positive impact.<\/p>\n

Tensions between Principle 4 and principles 7 and 8 are also bound to emerge; the latter call for a predictable and stable entry framework may limit the scope for examination and \u201cdynamic policymaking.\u201d Indeed, taken to the extreme, a highly stable entry framework will be logically one that does not allow any kind of learning from experience.<\/p>\n

Principle 5 is on balanced rights and obligations: \u201cInvestment policies should be balanced in setting out rights and obligations of States and investors in the interest of development for all.\u201d<\/p>\n

Thus the principle reaffirms the need to strike a balance and move away from the manifestly unbalanced system of investment treaties and regimes in force today.<\/p>\n

Principle 6 is one to welcome: \u201cEach country has the sovereign right to establish entry and operational conditions for foreign investment, subject to international commitments, in the interest of the public good and to minimize potential negative effects.\u201c<\/p>\n

UNCTAD goes as far as saying that regulation is not just a State right but a necessity. However, the phrase \u201cto minimize potential negative effects\u201d is a weaker option than \u201cto avoid\u201d such effects altogether. It is also ambiguous whether \u201csubject to international commitments\u201d intends to include non-investment commitments (such as human rights, for instance) or only international investment commitments\u2014in which case this part of the sentence would cancel out what is good in the right to regulate.<\/p>\n

International Investment Agreements: Policy Options<\/b><\/p>\n

The IPFSD recognizes that the space for many recommendable national policy measures will be constrained by the clauses in international investment agreements. It aims, therefore, to offer guidance for countries negotiating such treaties. In this regard, the IPFSD distinguishes three levels of challenges: strategic, design of provisions in agreements, and multilateral consensus building.<\/p>\n

At the strategy level, UNCTAD looks at pros and cons of IIAs. It chooses a cautious \u201ccan\u201d to refer to IIAs alleged ability to promote investment, and warns that IIAs may become \u201clargely a vehicle for the protection of interests of investors and home countries without giving due consideration to the development concerns of developing countries.\u201d It further asserts that, on average, existing treaty provisions are heavily skewed in this way.<\/p>\n

The IPFSD also recommends watching for the interactions of international agreements. For example \u201ccommitments made to some treaty partners may easily filter through to others through most-favoured-nation clauses.\u201d<\/p>\n

On the design of provisions in IIAs, the IPFSD offers welcome support for several approaches that, in many cases, had been first developed by civil society.<\/p>\n

For instance, UNCTAD suggests that IIAs could balance State commitments with investor obligations, noting that \u201cLegally binding obligations on companies and individuals are stipulated by national law but are absent in international treaties.\u201d Arguably, if treaties stipulate rights to investors, they can and should also impose obligations on private parties.<\/p>\n

In this context UNCTAD suggests that IIAs stipulate that investors should \u201ccomply with \u2026 national laws of the host State when making and operating an investment, and \u2026 at the post-operation stage.\u201d The failure of investors to comply with their obligations could then be the basis for host States to make a counterclaim if sued in an investment tribunal. This is a good idea so far, but UNCTAD goes on to add investor compliance with national laws should be subject to such laws conforming to \u201dthe host country\u2019s international obligations, including those in the IIA<\/span>.\u201d If this latter condition is attached, it could easily cancel out what is achieved by adding such a clause.<\/p>\n

UNCTAD\u2019s recommendation that countries safeguard some policy space by \u201cclarifying the scope and meaning of particularly vague treaty provisions such as the fair and equitable treatment standard and expropriation\u2026\u201d echo civil society concerns about excesses in interpretation of such provisions.<\/p>\n

Noting that host countries have faced claims of up to US$114 billion, UNCTAD recognizes the burden on defending countries and the damage to policy space. Moreover, it recognizes that investor-state mechanisms have been used by investors in unanticipated ways, showing an increasingly blurred line between political risk and under interference on the one hand and legitimate domestic policies on the other.<\/p>\n

Within the alternative clauses that treaties could include, UNCTAD reviews examples covering scope and definition, national treatment, MFN<\/span> treatment, fair and equitable treatment, expropriation and investor\u2013state dispute settlement.<\/p>\n

When discussing the scope of IIAs, UNCTAD warns about the misuse of provisions on definition of investment, signaling the importance of carving out, for instance, government debt, portfolio investment, or areas of public policy and sensitive sectors. In regards to the problem of investors channeling complaints through legal entities based in the contracting parties, it argues such practice could be countered with provisions that only \u201cgenuine investors\u201d from the contracting parties can benefit from treaty provisions.<\/p>\n

UNCTAD says national treatment may need to be circumscribed by negotiators given that States may wish to afford preferential treatment to national investors for industrial policy or other reasons. And on MFN treatment, it highlights IIAs have started explicitly excluding dispute settlement issues and obligations undertaken in treaties with third parties from MFN obligations, in response to a number of investment tribunals that have construed MFN as allowing investors to invoke more favorable provisions of a treaty between the host State and a third country.<\/p>\n

On the controversial issue of investor\u2013state dispute settlement, the IPFSD recognizes flaws that have been displayed recently, such as inconsistent and unintended interpretations, unanticipated uses by investors, challenges against policy measures in the public interest, costly and lengthy procedures and limited or no transparency. Among the remedies it proposes \u201cpromoting the use of alternative dispute resolution (ADR) methods, increasing transparency of procedures, encouraging arbitral tribunals to take into account standards of investor behaviour when settling investor-State disputes, limiting resort to ISDS<\/span><\/span> and increasing the role of domestic judicial systems, providing for the possibility of counterclaims by States, or even refraining from offering ISDS.\u201d<\/p>\n

The IPFSD makes suggestions on how to operationalize sustainable development objectives, along three \u2014clearly not exclusive\u2014cluster methods: adjusting existing provisions to make them more sustainable development friendly, adding new provisions and introducing special and differential treatment.<\/p>\n

This section of the IPFSD is complemented by a 16-page table with very detailed set of options that for each of the areas typically covered under IIAs provides a spectrum of optional approaches. This portion cannot be considered a set of \u201cgood practices\u201d because it is not really siding with any particular option. But their greatest merit as a contribution to the debate is that it places within the spectrum of valid options many that are rarely \u2013 if ever \u2013 considered by treaty negotiators.<\/p>\n

For instance, parties to an IIA might opt for:<\/p>\n