Efforts to reform the investment treaty regime have gained traction but are narrowly conceived, as if the treaties existed in isolation from wider governance frameworks.[1] Specialization pushes lawyers toward circumscribed remits, while prevailing investment policy narratives focus on investor–state relations and macro-level issues such as cross-border investment flows. Renewed interest in how the treaties interact with other international norms, including on human rights,[2] has yet to translate into substantial investment treaty reconfigurations.

Such trends contrast with the local realities of investment relations. Though the state plays a central role in investment regulation and approval, large-scale projects often involve or affect broader constellations of actors, each with different and possibly competing interests. Also, the application of investment treaties typically intersects with other rules of national and international law, and a treaty’s practical implications partly depend on these rules. Governance arrangements raise difficult questions about reconciling commercial interests with economic development, social justice, and environmental protection. And while investor–state dispute settlement focuses on reparations the state may owe to the investor, proceedings can have wider governance ramifications, affecting actors and rights beyond the conventional investor–state dyad.[3]

Large-scale investments in the natural resource sector illustrate these complexities. Mining, petroleum, logging, and agribusiness operations can have far-reaching impacts on small-scale farmers, forest dwellers, pastoralists, and artisanal fishers, including groups that international law recognizes as Indigenous Peoples. Relations between companies, affected people, and the different branches of government often engage diverse legal instruments that underpin conflicting claims—from constitutional provisions and sectoral legislation to international treaties protecting foreign investment, human rights, or the environment. Further, the approach a government takes to natural resource development may diverge significantly from what local groups advocate for. Thus when, for example, a state defends itself in investor–state arbitration, it does not necessarily protect the same interests as local groups.

In these respects, extractive industry investments can expose systemic tensions permeating the governance of foreign investment. Exploring how investment treaties operate in these settings can reshape how we understand—and address—investment relations. It can also offer insights on rethinking the investment treaty regime and its articulation with other international norms, including environmental and human rights.

Law and The political economy of extractivism

In resource-dependent countries, extractive activities have a deep relation with statehood: public authorities often depend heavily on resource revenues and, at a deeper level, the allocation of resource rights provides an avenue for the state to exercise “effective occupation” and thus assert sovereignty under international law.[4] Commodities such as petroleum, gold, and palm oil can sustain mythologies of national identity and development, as well as exports and foreign exchange. Natural resource governance may involve extensive public contestation over development pathways and diverse combinations of cooperation and resistance on the part of groups affected by extractive activities.

Though governance patterns vary greatly, certain features tend to facilitate large-scale projects. State institutions often control natural resources and have the power to allocate them to prospective investors. Diverse legal arrangements encourage commercial investments while marginalizing local resource rights that may impede them. For example, broad or ill-defined notions of “public purpose” can enable authorities to expropriate land and award rights to extractive projects, in effect prioritizing certain private activities over others.[5] Also, some laws make land rights conditional on proof of “productive use,” with skewed notions of productivity—often measured solely in terms of durable land use change—weakening the rights of shifting cultivators, pastoralists, and hunter gatherers.[6]

Often rooted in colonial legacies, such arrangements facilitate investment in activities that, through elaborate webs of contracts, integrate extraction sites into the global economy. They are embedded in variable political economies that link the state to national elites pursuing public or personal interests in resource extraction; export markets needing secure commodity supplies; foreign capital in search of business opportunities; international financial institutions supporting or imposing business-friendly policy reform; and local actors, such as traditional authorities, mediating access to resource-rich locations.[7] These arrangements are among the root causes of conflicts associated with expanding the extractive frontier to areas without a history of large-scale investments because the law undermines the traditional bond people feel toward the territory they inhabit. Instead, it prioritizes the allocation of resource rights to commercial operators. In such legal contexts, even investments that comply with national law can systematically impair local resource claims.

Disputes often arise from a skewed distribution of costs and benefits, as well as the material dispossession and social dislocation that new large-scale projects can impose on local actors. But they can also originate from the deeper transitions such projects represent, with commercial and national development imperatives taking precedence over the social, cultural, and spiritual values many people attach to their surrounding environment. With so much at stake, investment disputes can provoke tense conflicts between businesses, people whose ways of life are at stake, and diverse national and local government agencies, as well as divisions within and between communities.

The place of international law

International law provides the legal foundation for extractive strategies. It organizes people and territories into states,[8] and vests with states “permanent sovereignty” over natural resources located within their jurisdiction.[9] International law requires that states exercise their sovereignty “in the interest … of the well-being of the people.”[10] A country’s population typically hosts divergent interests and aspirations, and states have the legal authority to reconcile these interests and represent them on the international plane. In practice, empirical accounts highlight the diverse interests that different state institutions may advance,[11] while international norms on issues such as human rights, Indigenous Peoples, and environmental governance affirm the pluralistic nature of real-life political organization.

International law creates obligations for states and offers redress for violations, enabling non-state actors to mobilize the language of international law when attempting to influence public authorities. Recourse to international law in natural resource disputes has also resulted in actual legal proceedings aimed at holding states accountable for alleged violations, including human rights litigation and investor–state arbitrations. Such proceedings often arise from difficult disputes where different universes collide—from corporate boardrooms to the traditional ways of life of people who hold a strong connection to their land and territory.

Due to the social and legal contexts from which they originate, proceedings can expose tensions between local and international constructs, and between different international norms. For example, international human rights litigation may require petitioners to reframe their resource claims into notions, such as the human right to property, that conflict with Indigenous conceptions. And while human rights jurisprudence has tied people’s relationship with territory to traditional cosmovisions, self-determination and the realization of socioeconomic rights,[12] investment protection norms mainly conceptualize natural resources as commercial assets, with their value expressed in monetary terms.

Tensions within international law are particularly apparent in cases where human rights and investment treaties protect competing resource claims. In litigation before the Inter-American Court of Human Rights, Indigenous Peoples have challenged the handling of land restitution and the awarding of commercial concessions. Such claims can come into conflict with investment protection norms. In Sawhoyamaxa Indigenous Community v. Paraguay, for example, an Indigenous community sought restitution of land owned by a foreign investor protected under a bilateral investment treaty.[13] Conversely, in several investor–state arbitrations, businesses have challenged actions states claimed to have taken, at least in part or in the rhetoric, to address local concerns or unrest about a project’s impact, while states or non-disputing parties have developed human rights arguments to persuade the arbitral tribunal to reject investor claims. In Bear Creek v. Peru—to cite but one example—the tribunal discussed the implications of consultation requirements established by international legal instruments protecting Indigenous Peoples’ rights, ultimately reaching split conclusions on both law and facts.[14]

Systemic integration—and problems

On one level, international law provides tools to manage these tensions. For example, “systemic integration” requires tribunals to consider other relevant, applicable rules of international law when interpreting a treaty.[15] Arbitral tribunals have recognized that investment treaties are part of wider international law, and in some cases they have applied systemic integration to consider human rights.[16] Systemic integration does not, however, change the scope of a tribunal’s jurisdiction, and leaves considerable room for discretion—for instance on which rules are relevant and how to take them into account. It also raises the question of whether investment tribunals are well placed to interpret human rights law.

More fundamentally, tensions between human rights and investment law arguments reflect systemic problems rather than isolated incidents; addressing them requires more than techniques coordinating the interpretation of international norms. Recourse to human rights is often a response to the structural marginalization that local actors face in national governance, which can result in authorities allocating concessions with little consultation or compensation, let alone respect for local resource rights and systems of belief. Meanwhile, public mobilization against an investment project perceived to have been approved without due consultation can lead to protests, government action aimed at cancelling or renegotiating the project, and, ultimately, investor–state arbitration.

These considerations point to a misalignment between the nature of disputes and the international rules and procedures in place to settle them. While natural resource disputes often involve multiple actors and raise wide-ranging issues, the jurisdiction of investor–state arbitral tribunals primarily centres on whether a state breached certain standards of treatment owed to foreign investors. This narrows the bounds of the dispute and sidelines other arguments such as those based on human rights—relegating them, for example, to discussions about the amount of damages a state must pay a business.[17] Local activists can, and often do, take their own claims to national courts, international human rights institutions, and grievance mechanisms established by lenders or commodity bodies, and lack of coordination between arrangements addressing investment claims and human rights claims can fragment dispute settlement proceedings and outcomes.

Investment law’s distributive implications

In complex natural resource disputes, the narrow framing of investment law has distributive consequences, structurally marginalizing local actors whose rights may be directly at stake—from people suffering land dispossession or environmental damage to prospective agrarian reform beneficiaries. Procedurally, actors who may have challenged the state’s policies in the streets or even in court must now rely on state agencies to represent their perspectives. Though applicable arbitration rules may allow them to make amicus curiae submissions, these are merely one-off, informational contributions to assist the tribunal in its deliberations. Tribunals enjoy wide discretion on whether to accept these submissions and what use, if any, to make of the arguments they contain. Restricted access to case documents or hearings makes it difficult for the amici to calibrate their arguments, reducing the likelihood the tribunal will consider them.[18] As a result, local perspectives are typically “invisible” in dispute settlement proceedings.[19]

The investment treaty regime also matters in substantive terms, as it can affect both the range of protected interests and the strength of legal protection. By elevating to the international plane the rights and interests of certain private actors, without qualifying them with commensurate obligations,[20] it alters the balance of rights and obligations between transnational businesses, state agencies, and local actors. For example, although the acquisition of natural resource rights is typically regulated by national law, international law protects investor interests that national law does not necessarily recognize as legal rights. Indeed, arbitral tribunals have interpreted investment treaties as protecting investors’ “legitimate expectations,” which public officials can create if, for example, they give assurances that land is available and the necessary permits will be issued.

Should officials make such representations before consulting affected people, tensions may arise between investor expectations and local resource rights. By converting investor expectations into legal claims, the legitimate expectations doctrine can shift the balance between these competing interests.[21] Compensation is the most common remedy in investor–state arbitration, meaning states can safeguard local rights and compensate investors. But arbitration proceedings can directly affect third-party rights, for example where an investor seeks relief that interferes with the enforcement of judgments third parties secured in national courts,[22] and the risk of an expensive dispute may discourage the state from acting in the first place.[23]

While local actors may be able to resort to international human rights institutions, investment treaties provide foreign investors with further-reaching and more readily enforceable protections. Unlike investment treaties, human rights instruments require actors to exhaust domestic remedies before accessing international redress, which can take years of litigation before national courts. Asymmetries can also result from substantive or review standards. For example, the European Court of Human Rights held that states enjoy a “margin of appreciation” in applying international norms, defining its own remit as assessing whether authorities have struck an overall “fair balance” between private property and public interests. By contrast, most arbitral tribunals have not followed the margin of appreciation doctrine and, in expropriation claims, have looked at whether state conduct met each of the conditions investment treaties typically require for expropriations to be lawful. Where damages are a relevant aspect, investor–state tribunals have awarded significantly higher amounts than human rights courts.[24] Differences are even more pronounced where no effective regional human rights court is in place.

Stronger rights and more effective means of redress may give transnational businesses greater leverage in their relations with government than that enjoyed by the people their activities affect, compounding imbalances in different actors’ ability to influence public decisions. Though international law is primarily thought of as regulating international relations, it can in this way reverberate across national political arenas.

The need for a holistic approach

Debates about investment governance are a function of perspective and positionality. Legal experts advising transnational businesses may be concerned about state action undermining commercial returns. They may perceive the questioning of the investment treaty regime as a process of economic disintegration, with states rolling back legal arrangements governing cross-border investment.[25] But for many people affected by resource extraction, it is the prevailing legal regime that dis-embeds and disintegrates, because investment treaties can protect ventures that, while consistent with national law, upend their lives with little scope for voice or redress.

Tackling these issues requires holistic consideration of multiple spheres of national and international law—examining the investment treaty regime not in isolation but as it intersects with, and affects, wider governance arrangements. In policy terms, it calls for systemic change well beyond investment treaties. Depending on the context, national law reforms may be necessary to protect traditional resource rights and facilitate public participation in investment approval, while the ongoing negotiation of a multilateral treaty on business and human rights could help rebalance rights and obligations.

As for international investment law, options range from terminating old treaties to reforms that redesign investment protections, affirm investor obligations, for example on the environment and human rights, and exclude from protection investments that fail to comply.[26]  Reformist options also include reimagining dispute settlement to more effectively consider the rights of people affected by an investment or dispute, not just in procedural terms, but also through dismissal or reframing of investor claims as circumstances require.[27] Institutional cross-linkages could improve coherence within international law—for example, through conflict provisions establishing the primacy of human rights obligations over investment treaties, and mandating that arbitral tribunals refer to human rights bodies any issues that require interpretation of human rights law.[28]

At a time when legal professionals are under pressure to specialize in ever-narrower fields, effective responses require a “big-picture” view of the multiple bodies of law involved and imaginative action at local to global levels.

Author

Lorenzo Cotula is a principal researcher in law and sustainable development at the International Institute for Environment and Development (IIED) and visiting professor at the University of Strathclyde, School of Law.

Notes

[1] This article largely summarizes a longer piece: Cotula, L. (2020). (Dis)integration in global resource governance: Extractivism, human rights, and investment treaties. Journal of International Economic Law 23(2), 431–454, https://academic.oup.com/jiel/article/doi/10.1093/jiel/jgaa003/5875706. The longer article provides more comprehensive references to support the points made. I am grateful to Jesse Coleman, Nicolás Perrone and Zoe Phillips Williams for comments on the ITN piece.

[2] The United Nations Working Group on Business and Human Rights has convened a consultation on these issues: https://www.ohchr.org/EN/Issues/Business/Pages/IIAs.aspx. See also the open letter by several United Nations human rights mandate holders in connection with the work of the United Nations Commission on International Trade Law (UNCITRAL)’s Working Group III on Investor-State Dispute Settlement Reform (7 March 2019), https://uncitral.un.org/sites/uncitral.un.org/files/public_-_ol_arm_07.03.19_1.2019_0.pdf.

[3] See also Perrone, N.M. (2016). The international investment regime and local populations: Are the weakest voices unheard? Transnational Legal Theory 7(3), 383–405; Williams, Z.P. (2016). Investor-state arbitration in domestic mining conflicts. Global Environmental Politics 16(4), 32–49.

[4] Weinar, L. (2016). Blood oil: Tyrants, violence, and the rules that run the world. Oxford University Press, at 67–79.

[5] See, e.g., Gebremichael, B. (2016). Public purpose as a justification for expropriation of rural land rights in Ethiopia. Journal of African Law 60(2), 190–212. On the interface between land and subsoil resource rights, see Bastida, A.E., (2020). The law and governance of mining and minerals: A global perspective. Hart, pp. 161–163.

[6] See, e.g., Nguiffo, S., Kenfack, P.E., & Mballa, N. (2009). The influence of historical and contemporary land laws on indigenous peoples’ land rights in Cameroon. Forest Peoples Programme. http://www.forestpeoples.org/en/topics/rights-land-naturalresources/publication/2010/land-rights-and-forest-peoples-africa-2-camero.

[7] See also Bebbington, A., Abdulai, A.-G., Humphreys Bebbington, D., Hinfelaar, M., & Sanborn, C.A. (with J. Achberger, C. Grisi Huber, V. Hurtado, T. Ramírez & S.D. Odell). (2018). Governing extractive industries: politics, histories, ideas. Oxford University Press. https://fdslive.oup.com/www.oup.com/academic/pdf/openaccess/9780198820932.pdf.

[8] Eslava, L. & Pahuja, S. (2020). The state and international law: A reading from the Global South. Humanity 11(1), 118–138, 145–146.

[9] United Nations General Assembly Resolution 1803 (XVII) of 14 December 1962.

[10] Ibid., para. 1.

[11] Sands, A. (2020, Dec. 21). Unpacking regulatory chill: the case of mining in the Santurbán Páramo in Colombia. International Institute for Environment and Development, https://www.iied.org/unpacking-regulatory-chill-case-mining-santurban-paramo-colombia.

[12] See, e.g., the following judgments of the Inter-American Court of Human Rights: Yakye Axa Indigenous Community v. Paraguay (2005), at 124, 131, 135; Saramaka People v. Suriname (2007), at 82, 93, 95; and Kichwa Indigenous People of Sarayaku v. Ecuador (2012), at 145–146, 155, 176.

[13] Sawhoyamaxa Indigenous Community v. Paraguay, Inter-American Court of Human Rights, Judgment (2006), paras. 115(b), 125, 137. See more generally Van Ho, T. (2016). Is it already too late for Colombia’s land restitution process? The impact of international investment law on transitional justice initiatives. International Human Rights Law Review 5(1), 60–85.

[14] Bear Creek Mining Corporation v. Republic of Perú, Award (30 November 2017), paras. 203, 208, 257–264, 406–412, 565–569, 656–668, and Partial Dissenting Opinion of Professor Philippe Sands QC (12 September 2017).

[15] Article 31(3)(c) of the Vienna Convention on the Law of Treaties (Vienna, 23 May 1969), 1155 U.N.T.S. 331.

[16] E.g., Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26, Award (8 December 2016), paras. 1190, 1200, 1204.

[17] Copper Mesa Mining Corporation v. The Republic of Ecuador, PCA Case No. 2012-2, Award (15 March 2016).

[18] In Pac Rim Cayman LCC v. Republic of El Salvador, ICSID Case No. ARB/09/12, Award (14 October 2016), the tribunal deemed it “unnecessary” to engage with the arguments contained in an amicus curiae submission, noting that the petitioners were “not privy to the mass of factual evidence adduced in this arbitration’s third phase, including the hearing” (para. 3.30).

[19] Perrone, N.M. (2018). The “invisible” local communities: Foreign investor obligations, inclusiveness, and the international investment regime, AJIL Unbound 113:16–21.

[20] For a discussion, see Gathii, J. & Puig, S. (2019). Introduction to the symposium on investor responsibility: the next frontier in international investment law, AJIL Unbound 113:1–3.

[21] Johnson, L. (2017–2018). A fundamental shift in power: Permitting international investors to convert their economic expectations into rights. UCLA Law Review Discourse 65, 106–123.

[22] Sachs, L., Johnson, L., Merrill, E. (2020). Environmental injustice: How treaties undermine human rights related to the environment. Revue des Juristes de Sciences Po 18, 90–100.

[23] For a discussion, see Tienhaara, K. (2018). Regulatory chill in a warming world: The threat to climate change policy posed by investor-state dispute settlement. Transnational Environmental Law 7(2), 229–250.

[24] See, e.g., De Brabandere, E. (2015). Complementarity or conflict? Contrasting the Yukos case before the European Court of Human Rights and investment tribunals. ICSID Review 30(2), 345–355.

[25] Montanaro, F. & Violi, F. (2020). The remains of the day: The international economic order in the era of disintegration. Journal of International Economic Law 23(2), 299–322.

[26] See also Surya Deva, “Managing States’ ‘Fatal Attraction’ to International Investment Agreements” (13 August 2018) Investment Policy Hub, https://investmentpolicy.UNCTAD.org/blogs/75/managing-states-fatal-attraction-to-international-investment-agreements-.

[27] These points are articulated in CCSI, IIED and IISD, Third Party Rights in Investor-State Dispute Settlement: Options for Reform (submission to UNCITRAL Working Group III on Investor-State Dispute Settlement Reform, 2019), http://ccsi.columbia.edu/files/2019/07/uncitral-submission-third-party-participation-en.pdf.

[28] Markus Krajewski, Ensuring the Primacy of Human Rights in Trade and Investment Policies: Model Clauses for a UN Treaty on Transnational Corporations, Other Businesses and Human Rights (CIDSE, 2017), https://www.cidse.org/wp-content/uploads/2017/03/CIDSE_Study_Primacy_HR_Trade__Investment_Policies_March_2017.pdf; Jesse Coleman, Kaitlin Y. Cordes and Lise Johnson, “Human Rights Law and the Investment Treaty Regime” CCSI Working Paper (2 June 2019) http://ccsi.columbia.edu/files/2019/06/Coleman-Cordes-and-Johnson-Human-Rights-Law-and-the-Investment-Treaty-Regime.pdf. On institutional coordination between human rights bodies and the investment treaty regime, see also Bruno Simma and Diane Desierto, “Bridging the Public Interest Divide: Committee Assistance for Investor-host State Compliance with the ICESCR” (2013) Transnational Dispute Management 1.