Business and Human Rights Treaty Negotiation Sees a Light at the End of the Tunnel

A preamble: Argentina’s water crisis

Starting from the 1990s, as part of the process of privatizing its water utility services, Argentina granted many concessions to foreign investors to provide water and sewage services in many parts of the country.[1] As its 2001 economic crisis loomed, jeopardizing the health and the environment of local communities living in extreme poverty, Argentina adopted a series of measures to ensure sufficient water supply.

As a result of these measures, many of these projects encountered significant challenges. A suite of foreign investors initiated ISDS proceedings against Argentina seeking damages for alleged breach of various investment treaties that it had entered into with their home countries. Many were awarded compensation amounts ranging from tens of millions to several hundred million U.S. dollars.[2]

In one of those cases, Urbaser v. Argentina,[3] Argentina also tried to seek compensation from the investors by filing a counterclaim against them based on their alleged human rights abuses against Argentinian citizens. Even though the tribunal affirmed its jurisdiction over the counterclaim, and even though it concluded that individuals and other private parties—and not only states—have an obligation to refrain from committing acts violating human rights,[4] the tribunal still failed to find any positive obligation under international law requiring investors “to put their policies in line with human rights law.”[5] With some recent developments in international human rights law, there could soon be more guidance and clarification for tribunals on the obligations of investors under international law.

Fifth session of the OEIGWG

The United Nations Human Rights Council established the Open-Ended Intergovernmental Working Group on Transnational Corporations and Other Business Enterprises with Respect to Human Rights (OEIGWG) in 2014. The mandate of the working group is “to elaborate an international legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises.”[6]

From October 14 to 18, 2019, the working group held its fifth session in Geneva, with active participation from more than 400 representatives, including delegates representing over 90 governments as well as those representing international organizations, national human rights institutions and civil society organizations.

Prior to this session, the chair of the working group had circulated a revised draft Legally Binding Instrument (LBI).[7] Based on this version, which contains “ground-breaking improvements”[8] from an earlier draft,[9] government delegates made and examined many proposals during the session.

For example, on scope (Art. 3), participants shared views on whether to expand the LBI to cover “all business activities” regardless of whether they are of a transnational character. As for the rights of victims (Art. 4), participants focused on delimiting the scope of protection to be offered by the LBI as well as ensuring meaningful access to these protections, including discussions on access to evidence and reversed burden of proof, among other procedural issues.

Article 5 of the revised draft LBI requires states to adopt measures to ensure that businesses conduct due diligence to prevent human rights abuses arising from their own business activities or from their “contractual relationships.”[10] Some shared their concerns that more efforts should be put into this article so that the provisions can accurately reflect the dynamic business realities in the era of global value chains. Others suggested that there should be incentives for businesses to carry out due diligence, for example, by allowing businesses to raise their compliance with due diligence obligations as a defence in future proceeding against them, or by shifting the burden of proof back to the victim once prima facie evidence of due diligence is established.

On Legal Liability (Art. 6), Jurisdiction (Art. 7) and Applicable Law (Art. 9), there was a clash of views on whether the LBI can provide innovative thinking to long-standing legal principles enshrined in the domestic laws of many countries in situations involving human rights abuses. These issues include, for example, extraterritorial jurisdiction, general principles of corporate law and criminal liability of legal persons.

Linkage between human rights law and international investment law

The drafters of the LBI are fully aware that decisions such as the one rendered by the Urbaser tribunal in Argentina’s counterclaims can seriously undermine the effectiveness of the future LBI. After all, on important issues such as standard of protection, legal liability, due diligence requirement and jurisdiction, no matter what rules state parties may agree to after lengthy negotiations, those rules would be of no use to the affected communities if adjudicators decide not to apply them.

Over the years, investment tribunals have expanded the scope of application of investment treaties and investment chapters in FTAs and interpreted the obligations of states widely. In large part, they have done this in isolation of other areas of international law. This has contributed to an increased fragmentation of the international legal framework governing transnational investment activities.[11]

In order to address this concern, Art. 12 of the LBI attempts to provide some guidance to state parties and future interpreters on the relationship between this instrument and other international laws. In particular, Art. 12(6) specifies that “any bilateral or multilateral agreements, … on issues relevant to this (Legally Binding Instrument) and its protocols, shall be compatible and shall be interpreted in accordance with their obligations under this (Legally Binding Instrument) and its protocols”. This ensures that the effect of the LBI extends to the interpretation of other treaties, or even toward international courts or tribunals, when considering issues relating to business and human rights. If appropriately implemented, this will ensure a more inclusive, mutually supportive and less fragmented application of international law and will be particularly important where binding adjudicative systems are in place.

To ensure the success of this provision, however, it would be helpful to put into place a process to identify agreements and areas of law for which the LBI may be relevant and criteria to make such a determination. This could be done either in the text of the treaty itself or through a commentary or interpretative guidance at a later point. Further, in order to ensure consistent and predictable interpretation, it is also advisable to establish a mechanism where a panel of experts can issue binding interpretations on human rights-related issues that can reflect the joint understanding of state parties. The LBI could also take a step further and allow state parties, through institutional arrangements such as pre-established independent expert panels, to conduct fact-finding missions and provide professional assistance to adjudicators depending on the complexity involved in a dispute.

Conclusion

Until now, many of the discussions regarding the current human rights regime and the international investment law regime take place in an isolated way within the two respective circles. The ongoing negotiation of the LBI offers a rare opportunity to break the silos and bring together the two worlds to develop a set of legally binding international rules that can contribute to a harmonized international legal and governance framework for sustainable development.

The working group is accepting inputs and textual suggestions on the revised draft LBI until the end of February, after which time the chair will prepare a second revised draft for further debate at the working group’s sixth session in late 2020.

Author

Joe Zhang is a Senior Law Advisor in IISD’s Economic Law and Policy program.

Notes

[1] Alcazar, L., Abdala, M. & Shirley M. (2000, April). The Buenos Aires water concessions (World Bank Policy Research Working Paper No. 2311). Retrieved from http://documents.worldbank.org/curated/en/718361468769245711/pdf/multi-page.pdf

[2] See for example, Azurix v. Argentina, ICSID Case No. ARB/01/12; Suez v. Argentina, ICSID Case No. ARB/03/17; SAUR v. Argentina, ICSID Case No. ARB/04/4; and Impregilo v. Argentina, ICSID Case No. ARB/07/17, all available at http://www.italaw.com

[3] Urbaser v. Argentina, ICSID Case No. ARB/07/26, Award, Dec. 8, 2016. para. 1110 et seq. Retrieved from https://www.italaw.com/sites/default/files/case-documents/italaw8136_1.pdf

[4] Referring to “an obligation to abstain, like a prohibition to commit acts violating human rights,” the tribunal held that “[s]uch an obligation can be of immediate application, not only upon States, but equally to individuals and other private parties.” Id., para. 1210. For a detailed analysis of the Urbaser case, see Schacherer, S. (2018, October). Urbaser v. Argentina. In N. Bernasconi-Osterwalder & M. D. Brauch (Eds.), International investment law and sustainable development: Key cases from the 2010s (25–30). Geneva: IISD. Retrieved from https://www.iisd.org/sites/default/files/publications/investment-law-sustainable-development-ten-cases-2010s.pdf

[5] Id., para. 1195.

[6] Human Rights Council. (2014, July 14). Resolution 26/9 Elaboration of an international legally binding instrument on transnational corporations and other business enterprises with respect to human rights (UN Doc. A/HRC/RES/26/9). Retrieved from http://undocs.org/A/HRC/RES/26/9. For earlier ITN coverage on the negotiation process, see Zhang, J., & Abebe, M. (2017, December). The journey of a binding treaty on human rights: Three years out and where is it heading? Investment Treaty News, 8(4), 3–4. Retrieved from https://www.iisd.org/itn/2017/12/21/the-journey-of-a-binding-treaty-on-human-rights-three-years-outand-where-is-it-heading-joe-zhang-and-mintewab-abebe; Zhang, J. (2015, November). Negotiations kick off on a binding treaty on business and human rights, Investment Treaty News, 6(4), 10–11. Retrieved from https://www.iisd.org/itn/en/2015/11/26/negotiations-kick-off-on-a-binding-treaty-on-business-and-human-rights

[7] OEIGWG. (2019). Revised draft of a legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises. Retrieved from https://www.ohchr.org/Documents/HRBodies/HRCouncil/WGTransCorp/OEIGWG_RevisedDraft_LBI.pdf

[8] Lopez, C. (2019, October). The revised draft of a treaty on business and human rights: Ground-breaking improvements and brighter prospects. Investment Treaty News, 10(4), 11–14. Retrieved from https://www.iisd.org/itn/2019/10/02/the-revised-draft-of-a-treaty-on-business-and-human-rights-ground-breaking-improvements-and-brighter-prospects-carlos-lopez

[9] OEIGWG. (2018, July 16). Zero draft of legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business entities. Retrieved from https://www.ohchr.org/Documents/HRBodies/HRCouncil/WGTransCorp/Session3/DraftLBI.pdf. For an analysis of the Zero Draft, see Lopez, C. (2018, October). Toward an international convention on business and human rights. Investment Treaty News, 9(3), 13–16. Retrieved from https://www.iisd.org/itn/2018/10/17/toward-an-international-convention-on-business-and-human-rights-carlos-lopez/

[10] OEIGWG, supra note 7, Art. 5(3)(a). The wording of “contractual relationship” does not accurately reflect the intent of the drafters. As the chair explained, the purpose is to extend the due diligence obligation beyond a company’s own activities, but also to cover the conducts of its subsidiaries and supply chains. It was suggested changing the wording to “business relationship.”

[11] For an analysis of the decision-making process of investment tribunals, see Van Harten, G. (2018, May). Leaders in the expansive and restrictive interpretation of investment treaties: A descriptive study of ISDS awards to 2010, European Journal of International Law, 29(2), 507–549. Retrieved from http://www.ejil.org/pdfs/29/2/2877.pdf