International law has developed rapidly in recent decades to accommodate the demands of emerging markets, resulting in an unprecedented emergence of specialized regimes such as ‘investment law’, ‘human rights law’, and ‘environmental law’ with no clear mandate in the international law framework as to how to deal with the overlap between rules and institutions within these regimes. 

The international legal framework for transnational investment activities continues to expand.  There are thousands of Bilateral Investment Treaties (BITs) in force, the purported purpose of which was to increase foreign investment by providing foreign investors procedural and substantive rights that protect them from activities of the host government, such as expropriation without adequate compensation, guarantees of fair and equitable treatment, and non-discrimination.  Yet international investment law remains silent on human rights and the ‘investment law’ regime does not provide any mechanism to protect the individuals and communities whose human rights may be implicated by corporate activities and direct foreign investment.

This is no surprise to Argentina.  The Argentine Government has faced numerous foreign investor claims that the country’s various emergency measures and public interest reforms adopted in the wake of the 2001 economic crisis devalued foreign investments in the formerly State-owned public utility sectors, such as water, sewage, and energy.  Almost all of the claims filed against Argentina are before the International Centre for the Settlement of Investment Disputes (ICSID), the international arbitration arm of the World Bank.  At one point, claims against Argentina comprised over 40 percent of ICSID’s docket. 

Many BITs give investors a direct cause of action against Sovereigns, to bring investment claims before an international dispute settlement body, such as ICSID, instead of through the local court system of the country where the investment was made. Traditionally, investor-State dispute resolution had been understood as a procedure that only concerned the two disputing parties: the private investor and the government alleged to have breached its investment treaty obligations.  But recently, some investor-State tribunals have allowed civil society and non-disputing parties to submit amicus curiae briefs.  This development may reflect a growing acknowledgment that some investment disputes involve health, environmental, indigenous, and labor issues in which the public has a stake, and that there is a need for someone other than the disputing parties to represent those public interest concerns to enable the tribunal to arrive at a fully informed judgment.  Although no enforcement mechanism exists for arbitral awards rendered, they are supposed to be recognized as binding and enforceable in the host country, as if an award was a final judgment of a court in that state.

On June 29, 2010, a major development came in the investor-State world and for Argentina.  An ad hoc ICSID Annulment Committee completely annulled an arbitral award rendered against the Argentine Republic in 2007, that had awarded the investor, a US energy company Sempra Energy International, US$ 128 million, plus interest.  The Annulment Committee concluded that the ICSID arbitral tribunal had manifestly exceeded its powers by failing to apply Art. XI of the US-Argentine BIT, which provides a special exception to expropriation standards for foreign investors in certain circumstances of “emergency”.  This major development marks the first complete annulment of an ICSID award involving Argentina.  Currently, Argentina is involved in four other annulment proceedings at ICSID and certainly there will be more in the future, as ICSID arbitral tribunals continue to resolve the numerous investment claims against the Argentine Republic onset by the country’s economic crisis.

Although human rights were not mentioned in the Sempra Annulment Decision, this departure from the norm is a step in the right direction and could lead to other positive developments.  At the risk of sounding too optimistic, it could encourage the investment world to begin considering the applicability of human rights, environmental standards, and indigenous rights in the resolution of investment disputes. It also demonstrates the need of reconciling a country’s BIT obligations with the country’s international and domestic law obligations to promote human rights—such as the right to life, equality, and sustainable development.  The UN Special Representative of the Secretary-General on human rights and transnational corporations and other business enterprises, John Ruggie, has urged greater transparency in investor-State arbitration proceedings, especially those involving public interest and human rights considerations. The Special Representative’s most recent report highlights a big problem with BITs: much of the law, policy, and agencies that shape business practices function in isolation from their government’s human rights obligations.

With the increasing number of investor-State cases before arbitral tribunals involving human and environmental rights, it is critical that there is greater transparency in arbitral proceedings, increased participation by civil society, and a better balance between rights of foreign investors and the human rights of individuals implicated by investment activities. 

Michelle Salomon is a second-year law student at the University of Maryland and is currently interning with ERI's legal program in Washington DC.