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A “health warning” on international investment agreements

In a report submitted to the UN General Assembly (“the report”), the UN Special Rapporteur on the Right to Health, Mr. Anand Grover (“the Rapporteur”) added his voice to the rising chorus of dissatisfaction with the role and performance of international investment agreements.

In Mr. Grover’s case the criticism was, as pertinent to his mandate, centered around the negative impacts of such treaties on the right to health. But his comments and criticism resonate strongly with the concerns that have led more than forty countries to be at the moment reviewing their processes for rule-making on investment or fully withdrawing from previously signed investment treaties.

The Rapporteur stated such agreements “have been instrumental in increasing the influence of transnational corporations on States’ ability to institute public health policies.” He also referred to the fact that such treaties are concluded between States, thus they confer no obligations on transnational corporations to respect, protect and fulfil the right to health, allowing corporations to continue profit-making activities even if they are violating individuals’ right to health.

It is worth noting that, while the Rapporteur’s statement accurately reflects the current practice, the creation of obligations for investors by the investment treaties is a possible choice, just not one States pursue. UNCTAD, in its Investment Policy Framework for Sustainable Development (in 2012), said that international investment agreements could refer to commonly recognized international standards, thus making, for instance, the UN Guidelines on Business and Human Rights binding for investors. Similarly, the UNCTAD document proposed investment treaties could specify that in case of conflict between their provisions and, e.g., human rights norms, the latter should prevail. This is another never followed practice that could erase any scope for ambiguity over the normative body that prevails in case of conflict.

One way the Rapporteur exemplified international investment agreements undermine rights is by imposing obligations on States vis-à-vis investors that may affect States’ power to introduce health laws in the public interest. “States may have to modify their laws to accommodate investors’ rights, even though such modifications may increase the risk of violating individuals’ right to health,” he said, explaining how such treaties may grant pharmaceutical companies the right to challenge patent laws of host states even if they were laws necessary to check increasing costs of medicines in furtherance of the obligation to ensure access to medicines for all.

In an ongoing case filed by Eli Lilly, a major US pharmaceutical company, under the North America Free Trade Agreement, a Canadian court decision to invalidate, five years before its expiry, a patent the company had obtained in Canada, is being challenged, even though the invalidation would be in line with not just the NAFTA but also the WTO Trade Agreement on Intellectual Property Rights (TRIPS).

The treaties, said the Rapporteur, can translate into challenges to State laws but also into a chilling effect on the States’ willingness to take necessary steps to fulfill their right to health obligations due to the high cost of arbitration and the threat of an adverse judgment.

The document discussed the procedural guarantees that may be violated when States negotiate and enter into such agreements.  The rights to information and to participate in the decision-making process are ”undermined when international investment agreements are negotiated and concluded in secrecy,” it stated. The report added that “making information regarding the negotiations public can allow communities and civil society organizations to pressure States to refrain from signing such agreements or to assist States in asserting themselves during negotiations, which may facilitate the exclusion of provisions that may result in a breach of human rights.”

The Rapporteur addressed some aspects of investment agreements that rig the field in favor of investors and against the State parties. International investment agreements grant corporations rights protective of their investments in the host State, such as the right to fair and equitable treatment, and give them the right to initiate disputes before international commercial arbitration tribunals for alleged violations by the host State.  But “States, on the other hand, may be unable to initiate disputes against investors because transnational corporations, as non-signatories, have no obligations under international investment agreements.”

The system for dispute settlement between investors and States contributes to furthering this imbalance. The report characterized the system of investor-State dispute settlement as suffering from bias and conflicts of interest. It is controlled by a small clique of arbitrators and lawyers, and the same person may be counsel, arbitrator and adviser to an investor or State at different times. The report said that the fact that many arbitrators share close links with business communities and may be inclined towards protecting investors’ profits can affect the independence and neutrality of arbitrators.

Indeed, according to findings from a report  by Corporate Europe Observatory and the Transnational Institute:

“it has become clear that the arbitration industry has a vested interest in perpetuating an investment regime that prioritises the rights of investors at the expense of democratically elected national governments and sovereign states. They have built a multimillion-dollar, self-serving industry, dominated by a narrow exclusive elite of law firms and lawyers whose interconnectedness and multiple financial interests raise serious concerns about their commitment to deliver fair and independent judgments.”

The role of investment arbitration may become all the more important in the context of plans to mobilize large savings from institutional investors to finance infrastructure, currently advanced in forums such as the Group of 20, the World Bank and the United Nations.

Such mobilization would happen through partnerships between the governments and private companies that are expected to require granting of extensive public guarantees and financial and de-regulatory commitments towards the investors, all of them embedded in “Public-Private Partnership” contracts.

The negotiation of such complex contracts is a daunting enterprise for any government, including those in sophisticated developed country administrations. But in the light of experience with investment tribunals, it is an open question whether, no matter how good the letter of the contracts, their interpretation can be trusted to ever offer adequate protection to the States and the public interests they represent.

The Rapporteur found that “A public, democratic, open and accountable system of domestic courts has been replaced with private, closed and unaccountable arbitration. Arbitration lacks a system for review that can check arbitrariness. The opaque nature of arbitration, under which some awards are not even made public, protects the parties from the accountability that ensues from an open and transparent system.”

An important reflection the report delivered in addition to its discussion of investment agreements was in regards to the difficulties that States or affected individuals may face when attempting to hold foreign transnational corporations accountable for harmful actions that were orchestrated through their domestic subsidiaries. “The involvement of multiple jurisdictions may effectively protect transnational corporations from liability for their human rights violations or may lead to protracted litigation in multiple forums,” the report stated.

In this regard, the Rapporteur supported efforts towards a binding treaty on transnational corporations, as is currently being negotiated by an open-ended intergovernmental working group at the UN Human Rights Council.

Showing skepticism about non-binding responsibilities, he explained that developing countries may be vulnerable to undue influence from transnational corporations, thus allowing business interests to be protected at the cost of the human rights of those affected communities that remain dependent on States to hold corporations accountable for violations. As a result, the Rapporteur said “There is an urgent need for an international instrument that can address the increasing complexities presented by transnational corporations’ multi-jurisdictional organization and global influence.”


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February 2017
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