International Investment Agreements and Industrialization: Realizing the Right to Development and the Sustainable Development Goals

International Investment Agreements and Industrialization: Realizing the Right to Development and the Sustainable Development Goals*

By Bhumika Muchhala

With the expansion of global trade, investment and technology over the last decades, international investment agreements (IIAs) have witnessed a significant increase in both scope and use. While foreign investment has a crucial role to play for meeting the Sustainable Development Goals (SDGs), the impact of IIAs on signatory host countries, in particular developing countries, is controversial due to constraints imposed on national policy space for economic and industrial development. The right to development (RtD) is thus challenged in many countries, creating critical obstacles to achieving numerous SDGs. This blog will briefly outline the legal sources of the RtD in international law and its link to the SDGs and discuss possible challenges to the RtD and SDGs arising from the rules and impacts of IIAs. Finally, it will propose some concrete actions for the investment and development community to consider in order to overcome these challenges.

I. Sources of the RtD in International Law and its Link to the SDGs

Building on the vision of a social and international order in which all human rights and fundamental freedoms can be fully realized for all people, as enshrined in Article 28 of the Universal Declaration of Human Rights (UDHR), the 1986 United Nations Declaration on the Right to Development (DRtD) made development an inalienable human right (Article 1.1).

The right to development entitles all individuals and all peoples to active, free and meaningful participation in development and fair distribution of its benefits (Article 2(3)). It places on all States and the international community the duty to design national and international development policies aimed at the constant improvement of human well-being and to cooperate to ensure development and eliminate obstacles to development (Articles 2, 3, 4 and 6). The DRtD also implies the full realization of the right of peoples to self-determination and to their right to full sovereignty over all natural wealth and resources (Article 1(2)). It also makes equality of opportunity for development, “a prerogative both of nations and of individuals who make up nations”(Preamble).[1]

The Vienna Declaration and Programme of Action (1993)[2] reaffirmed the RtD and recognized that lasting progress towards the implementation of this right needs effective development policies at the national level as well as equitable economic relations and a favourable economic environment at the international level (Article 10).

The RtD has since been re-affirmed in numerous international and regional legal and policy instruments, including the 2030 Agenda and Sustainable Development Goals, the Addis Ababa Action Agenda on Financing for Development and the Paris Climate Agreement. The effective implementation of the sustainable development policy framework requires an enabling environment at both the national and international levels.

The DRtD provides a normative framework for such an enabling environment. The 2030 Agenda is guided by the purposes and principles of the UN Charter, including full respect for international law. It is grounded in the UDHR, international human rights treaties, the Millennium Declaration (which commits to making the right to development a reality for everyone) and the World Summit Outcome Document. It is also informed by the DRtD (Paragraph 10). The Agenda aims “to leave no one behind” and “reach the furthest behind first” by ensuring that the SDGs and targets are met “for all nations and peoples and for all segments of society” (Paragraph 4).[3]

The DRtD must be a guiding force for the successful implementation of all the SDGs. It is particularly pertinent to SDG 1 on ending poverty, SDG 10 on reducing inequalities within and between countries and SDG 17 on strengthening implementation and revitalization of a global partnership for sustainable development.

II. Challenges to the RtD and the SDGs Through IIAs

1. General Challenge: “Old-generation” IIAs Restrict Policy Space and Expose Host Countries to Costly Investor-State Arbitration

Investment treaty-making has reached a turning point. While the total number of IIAs keeps growing, 2017 saw countries conclude the lowest number of new IIAs since 1983.[4] In parallel, a broad public debate on the pros and cons of IIAs continues. Among other analyses and angles, there is a human rights dimension to this critique.

Most prominent in the public debate is the concern that “old-generation” IIAs in particular tend to restrict governments’ right to regulate in the public interest (e.g. for the protection of public health or the environment).[5] Such concerns stem from the friction between IIAs and national government policies, in that the binding provisions of IIAs constrain national policy space. Moreover, IIAs typically give foreign investors a powerful mechanism, namely investor-State dispute settlement (ISDS), to sue the host government for damages in case the latter enacts measures that harm investor’s current or future profits. This has in the past led to ISDS claims challenging government measures aimed at protecting human rights, environmental, social or other public interests. In some cases, tribunals have found that the challenged measures indeed as constituted an indirect expropriation or a violation of fair and equitable treatment (FET).[6]

This suggests that investor protection, particularly the combination of substantive and procedural protections (e.g. FET and ISDS) in IIAs, may challenge the ability of signatory countries to realize both Articles 3.1 and 3.3 of the DRtD. These provisions affirm the primary responsibility of countries to create national and international conditions favourable to the realisation of the RtD and call on States to cooperate with each other to ensure development and eliminate obstacles to development.

2. Specific Challenge: Prohibition of Performance Requirements

There are also specific IIA clauses that may pose challenges to the RtD. For instance, a clause often found in “old-generation” IIAs is the prohibition of performance requirement (PR), which may affect countries’ capacity to implement industrial development policies required to achieve SDG 9 on inclusive and sustainable industrial development. Placed on foreign investors, PRs have historically served as critically important policy tools that facilitate national industrialisation. This is done, for example, by (a) increasing the value of production, productivity rates and employment creation in domestic economic activities; (b) diversifying economic sectors towards a balanced mix of agriculture and raw materials, goods manufacturing and services; (c) creating domestic links between the various stages of manufacturing; (d) regulating national trade balances; and e) incentivising the innovation and development of technology, including clean technology, which enables sustainable industrial development.[7]

Some examples of PRs that countries enforce in order to promote domestic industrial development include requirements to enter into joint ventures with domestic businesses, to transfer or share technology, to ensure that a certain amount of inputs are locally sourced, to help finance local research and development or to hire a certain number or percentage of local employees.

With the prohibition of such measures in IIAs, SDG 8 (on sustained, inclusive and sustainable economic growth), and SDG 17 (on the means of implementation) can be adversely impacted. Target 17.15 underscores the respect which States should have for each other’s national policy space and leadership to implement policies for poverty eradication and sustainable development. Industrial policy is a potent example of a means of implementation, in that it refers to State-led efforts to direct the economy’s production structure towards sectors that are expected to offer growth, employment, productivity and development opportunities.

The integral link between industrialisation and development is reaffirmed by various UN processes beyond the SDGs in the Post-2015 Development Agenda. These include the Fourth United Nations Conference on the Least Developed Countries (LDCs) in the 2011 Istanbul Programme of Action and the General Conference of the United Nations Industrial Development Organization (UNIDO) in the 2013 Lima Declaration.

III. The way forward

Governments, international organisations, the private sector and civil society can each take a number of actions to help re-orient the international investment policy regime towards the SDGs. Countries may, for example, seek to address their existing stock of outdated old-generation treaties, among others, by amending, re-interpreting or clarifying investor protection clauses, or by terminating IIAs. UNCTAD has analysed 10 options that countries can take, as well as their pros and cons, in its Reform Package for the International Investment Regime (2018 edition).[8] Before negotiating new IIAs, governments may also wish to conduct human rights impact assessments (HRIAs) of trade and investment agreements to obtain a better understanding of their possible impact on these issues and guidance for specific policy approaches. The UN Guiding Principles on Human Rights Impact Assessments of Trade and Investment Agreements[9] can serve as a key instrument for the conduct of HRIAs.

International organisations and international financial institutions can play a role by providing empirical and legal information as well as guidance on such options and best practices on IIAs, including monitoring developments in IIAs. They can also provide data on the links between FDI, economic growth and IIAs. UNCTAD’s free-of-charge and user-friendly online databases and policy tools help countries and stakeholders keep up-to-date with IIAs, ISDS cases and other investment policy developments.[10]

The private sector can also play a role, for example, by participating in HRIA processes, by complying with key human rights standards as they apply to private actors (e.g. engaging in human rights-related due diligence before making an investment) or by engaging States in advance of an ISDS process (dispute avoidance, dispute prevention etc.).

Civil society can contribute by monitoring IIA developments, conducting advocacy and monitoring on the linkages between IIAs, industrial development and the RtD, as well as on women’s rights and implementing the lessons learned from HRIAs.

The critical issues associated with investment treaties and the ISDS mechanism in particular have already stimulated a wave of actions from both developing and developed countries, leading to reform and termination of old treaties, and adoption of more inclusive new model treaties. As documented by UNCTAD, IIA reform is well underway across all regions.[11]

IV. Conclusion

As the timeline to implement the 169 targets of the SDGs hurtles forward towards 2030, the imperative to address the constraints imposed by IIAs becomes increasingly clear.

The SDGs are hollow without their means of implementation or the policies, regulatory frameworks and financial and technological resources employed by national governments to implement sustainable development. The means of implementation are inherently linked to policy coherence for the realization of the RtD. In the last decade, important steps forward have been taken in the investment field. Now, the human rights community and investment community should work closer together to achieve an inclusive approach towards realising the SDGs.


* This blog piece is based on a paper commissioned by the Right to Development Section of the UN Office of the High Commissioner for Human Rights (OHCHR). It was published as a Conference Room Paper and is available here: “International Investment Agreements and Industrialization: Realizing the Right to Development and the Sustainable Development Goals”, A/HRC/WG.2/19/CRP.5, https://www.ohchr.org/EN/Issues/Development/Pages/19thSession.aspx. The author acknowledges with thanks the contribution of the Right to Development Section of OHCHR with regard to the legal basis of the right to development and links with the Sustainable Development Goals.

[1]UN General Assembly, 1986, “Declaration on the Right to Development,” A/RES/41/128, 4 December 1986,

http://www.un.org/documents/ga/res/41/a41r128.htm.

[2]UN General Assembly, 1993, “Vienna Declaration and Programme of Action,” A/CONF.157/23, 25 June 1993, https://www.ohchr.org/Documents/ProfessionalInter...

[3]UN General Assembly, 2015, “Transforming our world: the 2030 Agenda for Sustainable Development,”

A/RES/70/1, 25 September 2015, http://www.un.org/ga/search/view_doc.asp?

symbol=A/RES/70/1&Lang=E.

[4]UNCTAD, World Investment Report (WIR) 2018, Chapter III, http://unctad.org/en/PublicationsLibrary/wir2018_...

[5]UNCTAD WIR 2015, Chapter IV, http://unctad.org/en/PublicationChapters/wir2015c...

[6]See e.g. Tecmed v Mexico, ICSID Case No. ARB(AF)/00/2, Award (29 May 2003).

[7] Nikièma, Suzy H., “Performance Requirements in Investment Treaties”, Best Practices Series,International Institute for Sustainable Development, (December 2014) p.1-3, https://www.iisd.org/library/best-practices-serie...

[8]UNCTAD, Reform Package for the International Investment Regime (2018 edition), http://investmentpolicyhub.unctad.org/Upload/Docu...

[9]

https://www.ohchr.org/Documents/HRBodies/HRCouncil/RegularSession/Session19/A-HRC-19-59-Add5_en.pdf.

[10] http://investmentpolicyhub.unctad.org.

[11]UNCTAD, WIR 2018 (n 1). Several countries have in recent years started to reform existing BITs (so-called Phase 2 of IIA reform), such as through amendments, terminations and replacements/renegotiations (e.g. India and Ecuador; the EU is also pushing for the termination of existing “intra-EU” BITs). For more examples of reform actions see also the country statements delivered at UNCTAD’s High-level IIA Conference during the World Investment Forum 2018, https://investmentpolicyhub.unctad.org/Pages/high-level-iia-conference-2018/.

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It is always about striking the right balance between gaining incoming investment and policy space for governments. Government should strike the right balance in their investment treaties. Bashar H. Malkawi

Thank you for delving into the crucial intersection of International Investment Agreements and Industrialization, with a focus on realizing the Right to Development and the Sustainable Development Goals. Your thoughtful exploration of this complex subject is highly appreciated, providing valuable insights for understanding the broader implications of these agreements on development and sustainability.
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