When the architects of the international order that took shape after the second world war created the United Nations, they gave the organisation a lofty goal: “Save succeeding generations from the scourge of war.” Through the UN charter – akin to a world constitution – solemnly adopted in 1945 in San Francisco, they also said they were “determined to establish conditions under which justice and respect for the obligations arising from treaties and other sources of international law can be maintained”.
Since then and in line with that vow, the UN has put on the world stage not only the Universal Declaration of Human Rights, but also legally binding instruments, including 10 core human rights conventions and countless declarations and resolutions.
But now more than ever, one single mechanism – the little-known investor-state dispute settlement (ISDS) – threatens the existing system of justice, the concept of checks and balances, the very core of the rule of law. Its implications for the respect of human rights around the world are devastating. If it is allowed to continue to exist, it will hijack the dreams of a just international order born out of the second world war. It must be abolished because it undermines fundamental principles of the UN, state sovereignty, democracy and the rule of law. Far from contributing to human rights and development, the international investment regime and ISDS have resulted in growing inequality among states and within them. Article 103 of the UN charter is clear: in case of conflict between the charter and any other agreements, including ISDS, it is the UN charter that prevails.
The ISDS mechanism is a unique privatised system of arbitration, often buried in bilateral investment treaties and multilateral trade agreements (such as Nafta and TTIP). It grants an investor the right to use private dispute settlement proceedings against a foreign government, yet governments cannot sue the investors. The system is neither transparent nor accountable and often results in aberrant judgments without the possibility of appeal. Over the years, it has led to inconsistent, unpredictable and arbitrary awards contrary to national and international public order.
In 1993, a waste management business, Metalclad, sued Mexico for indirect expropriation after Mexico had adopted an ecological decree declaring the area where the company was doing business and seeking to develop a landfill to be a natural reserve. The ISDS tribunal found that the government had taken a measure tantamount to expropriation and ordered Mexico to pay $16.7m (£11m) in compensation – later reduced to $15.6m. One commentator suggested that such broad interpretations of expropriation provisions could reverse the established tenet of environmental policy that the polluters should bear the cost of their pollution rather than be paid not to pollute.
More recently, Philip Morris sued Uruguay after it adopted a number of anti-tobacco regulations with a view to implementing the 2003 World Health Organisation’s framework convention on tobacco control, aimed at tackling the health dangers posed by tobacco. A decision from the International Centre for Settlement of Investment Disputes is expected later in 2015, but the figures are telling: Philip Morris is claiming $25m in compensation from Uruguay. This is not only absurd: it gives me moral vertigo.
The last 25 years have delivered numerous examples of abuse of rights by investors and unconscionable ISDS arbitral awards, which have not only led to violations of human rights, but have had a chilling effect, deterring states from adopting necessary regulations on waste disposal or tobacco control.
There is no justification for the existence of a privatised system of dispute settlement that is neither transparent nor accountable. Investors can have their day in court before national jurisdictions, often with multiple opportunities for appeal. Investors can also rely on diplomatic protection and state-to-state dispute settlement procedures.
The ISDS cannot be reformed. It must be abolished. A peaceful, just, stable and sustainable international order cannot be ensured by the private sector, whose driving force is short-term profit.
No one should underestimate the adverse human rights impacts of free trade and investment agreements on human rights, development and democratic governance. Respect for human rights must prevail over commercial laws. It is time for the UN general assembly to convene a world conference to put human rights at the centre of the international investment regime. In this context, a binding treaty on business and human rights is long overdue.