The contribution of bilateral investment treaties to a sustainable future
Rafael Leal-Arcas
Centre for Commercial Law Studies - School of Law - Queen Mary University of London - UK
Abstract
Bilateral investment treaties (“BITs”) are treaties entered into by two contracting states with the aim to protect and promote investment. These treaties typically include substantive protections for the investors and investments from one contracting party in the territory of another contracting party, such as protection against unlawful expropriation or unfair and inequitable treatment, as well as a dispute resolution mechanism which allows investors to bring claims regarding their investment against the host state in international arbitration outside national courts, subject to specific conditions and potential limitations. Arbitration forums which may be referred to in BITs differ, from International Centre for Settlement of Investment Disputes (“ICSID”) through arbitral institutions, such as the Stockholm Chamber of Commerce or International Chamber of Commerce, to ad hoc arbitration under UNCITRAL Rules. Statistics show that in 2017, there was total of 2,946 BITs signed. Compared to the older BITs with emphasis on the protection of foreign investment by providing substantive protection standards and allowing investors to bring a claim against host states through investor-state dispute settlement mechanism, the recent developments in newer BITs show that there is a positive shift towards explicit inclusion of sustainable development issues into their wording (e.g., states’ right to adopt sustainable development-oriented regulation). It is clear from the wording of new BITs that reference to sustainable development issues may appear in different parts of a BIT, e.g. as a general objective of the treaty in a preamble, as a separate obligation of the state parties or investors, or as an exception to the substantive protection standards, such as prohibition of unlawful indirect expropriation. Specific position and wording of sustainable development provisions determine to what extent such provisions will be binding and enforceable against state parties. Certain BITs contain only a broad reference to sustainable development without clear practical consequences, while others list sustainable development obligations that may be enforced in practice, e.g. by means of state to state dispute settlement mechanism or, if such obligations are imposed on foreign investors, as a counterclaim brought by a host state against an investor. Since this paper emphasizes climate action and sustainable energy, we will focus on the protection of the environment as one of the key aspects of sustainable development. This paper starts with the question of compatibility of traditional objectives of BITs and environmental protection goals, before addressing three potential solutions that might increase BITs’ contribution to climate action and environmental protection, namely (i) imposition of environmental obligation on state parties or investors, (ii) freedom of state parties to adopt environmental regulation and exemption of environmental measures from BITs’ substantive protection standards, and (iii) counter-claims brought by host states for violation of environmental protection standards.
Keywords
bilateral investment treaties; sustainable development
