Analysis  |  October 9, 2024  |  Moataz Hussein

The Coherence Challenge in Tackling Labour Rights Through International Investment Regulations: A case study of Egypt

A mosque is pictured against the Cairo skyline with three pyramids in the background.

Introduction

Attaining coherence between international investment law, especially IIAs, and other related branches of public international law and national laws became an important challenge in reforming the rules regulating international investment.

This article explores this coherence challenge, concentrating on coherence in relation to national and international labour rules and obligations, taking Egypt as a case study. As one of the top 10 signatories of BITs and a lead foreign investment destination in the Middle East and Africa, Egypt has many similar counterparts among developing countries.

Labour rights and investment regulations

Since joining the ILO in 1936, Egypt has become bound by many international obligations related to labour rights emanating from its conventions. Currently,  54 ILO conventions are in force for Egypt.

Labour rights represent a crucial element of business-related human rights that also intersect with national security, as they contribute to social stability and security. Various international soft and hard law instruments regulate or touch upon labour rights.

Historically, IIAs have interacted with business-related human rights, including labour rights. This interaction increased during the first two decades of the 21st century, materializing in many labour rights-related provisions in IIAs nowadays.

Among the IIAs that mention labour rights, there are different provisions that touch either upon the role of the state or the investor in the furthering of these rights.

On the side of government’s responsibilities, IIAs that include labour provisions often assert the right to take the necessary measures to avoid relaxing labour standards as a way of attracting FDI and allow for enforcing labour laws and regulations in conformity with internationally recognized labour standards, especially those supported by the ILO. Examples are contained in in the EU–Angola SIFA (2022), U.S BIT Model (2012), the BIT between Belgium–Luxembourg and Ethiopia (2003), and historically, NAFTA’s Side Agreement on Labor Cooperation (1993).

On the other side (the responsibilities of investors), some IIAs include employment encouragement, equality of opportunities, security, conditions of work, industrial relations, right of association, and the abolition of child and compulsory labour; recent examples include the African Continental Free Trade Agreement Investment Protocol (2023), Morocco–Nigeria BIT (2016), and Brazil’s BIT Model (2015).

Labour provisions in the Egyptian Investment Law

As an example of the new generation investment legislation, the Egyptian Investment Law No. 72 of 2017 linked investment to attaining sustainable and comprehensive development.

In this sustainable investment context, labour issues were an element that was tackled through some of the law’s provisions.

Examples of these provisions in the law include the following elements.

  • Recognizing the provision of employment opportunities as one of the main goals of investment in Egypt

In this context, the law encourages the employment of the national labour force to the extent possible by stipulating the right of the investment enterprise to appoint foreign workers up to 10% maximum, with the possibility to increase to 20% in case of unavailability of the required qualifications among nationals. Besides, for some strategic enterprises with special significance, exceptions from these rates may be made if training is provided to nationals (Art. 8

  • Safeguarding the right of foreign workers in the enterprises to remit their financial dues abroad (Art. 8)
  • Providing special incentives

For labour-intensive investments, the law provides incentives on geographical and sectorial bases through providing a discount off the taxable net profits ranging from 50%–30% deduction of the investment costs, depending on the geographical location. In the context of additional incentives, the state shall incur a part of the expenses of the technical training provided for the staff (Art. 13).

  • Corporate social responsibility

The investor may dedicate a percentage of the annual profits to create a social development system, outside of the enterprise, by participating in supporting technical education and provision of services or programs in the areas of health care, social or cultural care, or in any other field of development, including by

    • Creating job opportunities for persons with special needs
    • Funding training and qualification programs in the area of providing positive alternatives to illegal migration (Executive Regulations, Art. (2))
  • Free zone regulations

The most flagrant labour-related provisions are those related to free zones, one of the investment regimes in the law, that tried to attain coherence with the National Labor Law No. 12 of 2003 and the Social Insurance Laws. According to these provisions, Egyptian labour law is applicable to the work relations and occupational safety and health in these zones. These provisions shall be deemed the minimum that may be agreed upon in the employment contracts concluded with the workers of enterprises in these zones.

Furthermore, enterprises operating in the free zones shall develop and be bound by internal bylaws that shall complement the employment contracts. In this context, the competent authority may object to the provisions provided for in the bylaws that violate public order or include fewer privileges than those established in the Labor Law.

In addition, the provisions of the Social Insurance Law No. 79 of 1975 shall apply to workers of those enterprises and shall be subject to the Law on the Social Insurance for Employers and Equivalents No. 108 of 1976 (Art. 45 of the law).

As for the breaches that pose risks to public health, public safety, or national security, which implicitly comprise labour, the investment activity may be suspended for 90 days, and if the breach persisted or another breach was committed within a year from the first one, the licence shall be terminated (Art. 81 of the law).

This analysis of the Egyptian investment law from the labour lens reveals that despite the law tackling various labour issues, it confined the provisions on coherence with national labour laws only to enterprises operating in free zones without clarifying whether the same rules apply under other investment regimes.

Labour provisions in Egyptian IIAs

Analyzing how Egyptian IIAs have tackled labour issues and dealt with the coherence challenge with national laws and international obligations reveals the following:

On the level of BITs

The analysis of the 72 Egyptian BITs in force reveals that the role of those agreements in protecting business-related human rights, especially labour rights, is minimal. This can be explained by the fact a vast majority of those BITs belong to the old generation of agreements. Hence, those clear references were confined to preambular language in only one BIT, signed with Finland (2004), which acknowledged the respect of internationally recognized labour rights.

On the other hand, most of those BITs guarantee the free entry and sojourn of key personnel, experts, and employees related to the investment activities in the host state and oblige the state parties to facilitate this entry and grant the needed licences according to their laws and regulations. In this context, the Egypt–U.S BIT provided an additional provision that makes a rare reference to the conformity of this right with national labour laws in the course of employing the needed personnel.

Similarly, the majority of BITs include provisions that guarantee the free transfer of investment-related funds, including the remuneration of personnel engaged from abroad in connection with the investment that have obtained work permits in accordance with national laws and regulations.

On the level of treaties with investment provisions (TIPs) and regional free trade agreements

Agreements with European states

The association agreements that Egypt signed with the EU and the United Kingdom, as well as the FTA with the European Free Trade Area (EFTA) countries, granted considerable attention to the protection of human rights in general and specifically those related to fundamental labour rights.

With respect to human rights in general, the Egyptian-European association agreement affirmed in Art. (2) that

Relations between the Parties, as well as all the provisions of the Agreement itself, shall be based on respect of democratic principles and fundamental human rights as set out in the Universal Declaration on Human Rights, which guides their internal and international policy and constitutes an essential element of this Agreement.

Similarly, the FTA signed between Egypt and the EFTA (2007) affirmed in its preamble the commitment to: “the principles and objectives set out in the United Nations Charter and the Universal Declaration of Human Rights.”

On the side of the protection of labour rights, the EU Association Agreement affirmed the importance its parties attach to the fair treatment of their workers legally residing and employed in the host state, and their agreement to initiate talks on reciprocal bilateral agreements related to the working conditions and social security rights of those workers (Art. 62 of EU Association Agreement).

Agreements with the Arab Bloc

The Unified Agreement for the Investment of Arab Capital in the Arab States signed in 1980 is among the rare IIAs of the old generation that tackled labour issues from the perspective of encouraging national employment through granting priority to national and Arab labour forces despite neglecting labour rights more broadly (Art. 13).

Furthermore, this agreement encouraged Arab host states to provide additional incentives for Arab investors that exceed those provided by the Unified Agreement itself, taking into account the creation of employment opportunities (Art. 16).

Agreements with the African Blocs

This level represents the most advanced one in dealing with labour issues within Egypt’s IIAs. This can be partly attributed to the novelty of those agreements, as they were adopted in the last 7 years. Two IIAs deserve particular attention.

The first is the COMESA Common Investment Area Agreement (CCIA) adopted in November 2017, which tackled labour issues in a progressive way through the following

  • the non-relaxation formula that stipulates that the realization of the agreement’s objectives shall not justify waiver or derogation from the standards concerning labour, public health, safety or the environment (Art. 5(f)).
  • the responsibility of states to develop national policies to guide investors in developing the capacity of the labour force. This includes incentives to encourage employers to invest in training, capacity building, and knowledge transfer (Art. 5g).
  • establishing a Committee to make recommendations on the development of common minimum standards relating to investment in areas including labour standards and respect for human rights (Art. 7).
  • recognizing the right of investors to hire technically qualified persons necessary for investment from any member state, including providing them with the necessary authorizations. However, the agreement provided that investors shall accord priority to workers who possess the same qualifications or expertise and are available in the host state or any other member state (Art. 16).
  • in the course of attaining coherence with international human rights and labour rights standards, the agreement obliges the investors to (Art. 29):
    • observe the UN Guiding Principles on Business and Human Rights
    • support and respect the protection of internationally proclaimed human rights
    • not to be involved in human rights abuses
    • uphold the freedom of association and recognition of the right to collective bargaining
    • eliminate all forms of forced and compulsory labour, including the abolition of child labour
    • not to discriminate in respect of employment and occupation.
  • in addition, in the course of prevention of human rights abuses, investors should first seek to prevent and mitigate those that are most severe or where delayed response would make them irremediable.

The second relevant IIA concluded on the continental level is the Investment Protocol of the African Continental Free Trade Agreement adopted in February 2023. This protocol represents the most advanced IIA concluded by Egypt tackling labour issues and business-related human rights. Therefore, it contributes to achieving coherence with national and international regulations.

  • In this context, the protocol recognizes in its preamble the significant contribution investment could make to sustainable development, including the furtherance of investment-related human rights, where the protocol provides a novel definition of “investment-related human rights” as those rights directly related to investment activity, in particular environmental, health, and core labour rights (Art. 1).
  • The protocol contains an important provision related to attaining coherence between the obligations in the protocol and those in the other international agreements, including ILO obligations, though providing that measures taken by the state to comply with those international obligations shall not constitute a breach of the protocol (Art. 24).
  • Aiming at attaining coherence with national and international standards, the protocol stipulated the responsibility of the state to ensure that the international best standards and relevant international agreements to which it is a party are implemented and obliges the state to make efforts to continuously improve those standards within national laws and regulations. This includes upgrading national labour standards to the international level in order to avoid turning into a “labour violation haven.”
  • The protocol uses the non-relaxation formula to assert that the state shall not encourage investment by relaxing domestic standards or compliance with laws and international minimum standards in relation to issues that include labour (Art. 25).
  • On the side of human resource development, the protocol mandates that state parties develop national policies to guide and incentivize investors in developing the human capacity of the labour force, with particular attention to the needs of youth, women, persons with disabilities, and vulnerable groups (Art. 29).
  • To attain a balance between investor and state obligations, the protocol affirms the state’s obligation to promote and enforce the laws and policies to protect investment-related human rights and labour rights, in addition to ensuring that investors and their investments comply with national laws and regulations and international law (Art. 31).
  • The protocol obliges the investors to be responsible for carrying out their investments in compliance with all the previous regulations in addition to administrative guidelines (Art. 32).
  • Similar to the CCIA, the protocol asserts the responsibility of investors and their investments to comply with high standards of business ethics and investment-related human rights and labour standards, in compliance with national and international regulations, including those of the ILO. In the framework of CSR, the protocol stipulates that investors and their investments shall endeavour to perform the following (Art. 38):
    • human capital development, especially by creating employment opportunities and facilitating access to professional training
    • gender equality and inclusiveness
    • refrain from seeking exemptions not stipulated in national legislation, including those relating to work
    • promote workers’ knowledge of corporate policies.
  • Finally, the protocol provides an important guarantee to investment-related human rights victims by providing the opportunity to sue investors before the courts of their home state, where applicable and in accordance with national laws and regulations, for the acts, decisions, or omissions made in the host state in relation to the investment in case of damage, personal injuries, or loss of life (Art. 47).

Conclusion

National investment laws, state contracts, and IIAs could play an important role in the protection of labour rights and standards.

This objective could be supported by stipulating in these legal frameworks balanced legally binding provisions that clearly identify the responsibilities of both states and investors.  In this respect, including the enforcement mechanisms for implementing those provisions, for instance, through the role of specific institutional arrangements and grievance bodies, would be desirable.

As for investment laws, the Egyptian case reveals that despite trying to deal with labour issues, the related provisions largely concentrate on job creation and employment rather than labour rights. The coherence challenge is addressed only on a limited scale. This underscores the urgent need for reforming those national legal frameworks to enhance the policy space for attaining developmental objectives, including the protection of labour rights, in addition to clear provisions that holistically achieve coherence with national labour-related laws and international labour obligations and standards and is applicable to all kinds of investments and investors.

Furthermore, at the level of IIAs, it is clear from the Egyptian case that there is a current challenge emanating from the old-generation IIAs, specifically BITs. As opposed to regional TIPs, the old-generation BITs neglect labour rights in a manner that could contribute to a regulatory chill concerning adopting, maintaining, or amending regulations or measures for the sake of protecting those rights out of fear of ISDS claims. In addition, these old-generation BITs assist in creating a “labour violation haven” in many investment destinations by benefiting from low national labour standards and the lack of coherence with international obligations and standards.

This necessitates the urgency of reforming old-generation IIAs, as concluded by many developing countries. Recognizing and enhancing the right to regulate in the public interest, including for the protection of investment-related human rights, especially labour rights, should represent a non-negotiable issue during IIA negotiations, especially with regard to investors’ responsibilities.

These IIA reform efforts could be inspired by and enhance the increasing trend in many modern IIAs, such as those adopted in Africa, by granting priority to the protection of those rights and achieving coherence with the relevant national and international regulations.

                                                                                                                                                     

Author

Moataz Hussein, PhD, is an Egyptian Senior International Investment Agreements & Policies Specialist

                                                                                                                                                     

Notes

Sector (A) includes the geographic locations in urgent need for development, while sector (B) covers the rest of areas in Egypt and targets the sectors directly related to the development plan of Egypt.