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Human rights and investment arbitration

Business and Human Rights: A new dimension

The awareness of the importance and relevance of human rights for businesses is generally on the rise: Rights of workers, child labor, protection of natural resources, access to water and other resources, climate, pollution or health – the potential impact is broad and a violation may lead to severe financial consequences. World business is thus increasingly aware and active in this area and be it only to protect commercial interests. In our times, any incident in any part of the world is rapidly reported and becomes known. This can lead to significant commercial and reputational consequences. World business, in its own interest, is thus taking charge of these issues. A particular challenge arises in regard to supply chains of companies as reflected in the recent disaster involving factory workers in Bangladesh. This situation is leading to a prominent role of transnational instruments.

UN Guiding Principles on Business and Human Rights 2011

In June 2011 the UN Commission on Human Rights issued the Guiding Principles for business and human rights. These principles state the obligation of the States to respect the human rights and fundamental rights of freedom. More importantly, it acknowledges the role of businesses to respect human rights. And in addition, they provide for the duty to ensure appropriate and effective measures to remedy in the case of infringement of these rights.

Human rights and investment arbitration

Human rights also play an increasing role in investment arbitration. Investing companies must be aware that their investment increasingly must comply with the requirements of human rights standards. This applies where, for example, laws of the host State or other measures of the State have an impact on the foreign investment. Under certain circumstances, and increasingly so, human rights can form the very basis of an investment arbitration.

In most of the older instruments of investment protection there is no direct reference to human rights. It is becoming increasingly clear, however, that the current developments on an international level, also influence the developments in the area of investment protection. The severe criticism against some aspects of investment arbitration has opened the debate to some fruitful developments.

The recent Free Trade Agreement between the European Free Trade Association (EFTA) and Singapore confirms in its preamble the commitment of the contracting parties to the principles set out in the United Nations Charter and the Universal Declaration of Human Rights and contains the explicit commitment to "…protect human, animal or plant life or health".

The same principle is introduced in the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union with an explicit commitment to the Universal Declaration of Human Rights and explicitly "… recognising the importance of international security, democracy, human rights and the rule of law for the development of international trade and economic cooperation…"

The relevance of human rights in investment arbitration

Increasingly human rights are playing an increasing role in investment arbitration as a defence by host States. Under International Human Rights law, the host State has the duty to prevent the infringement of human rights violations by others to individuals in their territory. A failure by the host State to protect individuals in its territory leads to a liability of the State. There are a number of areas in which human rights are invoked as a defence for certain acts of the States: protective measures in relation to natural resources, access to water, pollution, health, working conditions. These arguments are also invoked at the stage of assessing a potential compensation to be paid. From a current perspective, there is not yet a body of case law but it probably cannot be expected at this stage. It is a rather recent topic which has now been laid down in a number of instruments as described above. It is a matter of time for these issues to become common ground and a natural part of the issues to be taken into account in investment protection.

The role of investment arbitration tribunals

Investment tribunals have and will have an increasingly determinative role for the practical implementation of human rights in arbitration. Tribunals have the duty to balance the human rights principles based in public international law with the rights of investors deriving from an investment treaties. For example in the case of Saur International vs. Argentina, the tribunal declared that investment protection and human rights – in that case the access to water – are at the same level and are to be equally considered. These latest developments reflect that the major issues of world law and trade have an international dimension and can be solved only at an international level. Under that aspect, the application of human rights in investment arbitrations will lead to lending human rights a practical role. It will contribute to defining human rights in a commercial application and in changed circumstances. From that perspective, investment tribunals have the chance to implement a change and an acceptance of guiding principles that would otherwise take much more time to implement. It is to be hoped that investment tribunals will accept this challenge and duty by taking an active role in promoting human rights. This development is long overdue. If shouldered exclusively by States and transnational bodies, the implementation will continue to be hesitant and delayed. Where it starts to become an integral part of the practical issues debated and to be decided in arbitration proceedings, it will have an immediate impact on business interests. This will raise awareness for the players that there is a commercial and directly relevant role of human rights.