Meeting: UN Conference on Trade and Development (UNCTAD): Multi-year Expert Meeting on Investment, Innovation, and Entrepreneurship for Productive Capacity-Building and Sustainable Development, fifth session

Speakers: Representatives from Ecuador, India, Kenya, Netherlands, Spain, Switzerland, and France

Date/Location: Monday October 9, 2017; 15:00-16:30; Building E Room 26, Palais Nations, Geneva

Written By: Marli Kasdan

On Monday at Palais Nations, UNCTAD convened a meeting on the need to reform international investment agreements (IIAs) in order to spur foreign direct investment (FDI) in developing countries – an important source of finance when it comes to meeting the SDGs. As it stands, IIAs are mostly ineffective in creating a significant increase in the flow of FDI to developing countries that have signed on to them. Furthermore, most IIAs have strict Investor-State dispute settlement (ISDS) clauses – mechanisms that provide for arbitration in the event of disputes between investors and states. However, the clauses give investors many more rights and protections than the state, creating an unfair environment where investors rights’ are privileged. Since ISDS clauses are biased towards investors, and in most cases IIAs have not produced the volume of FDI necessary to adequately finance the SDGs, the need for IIA reform was called for across the board.

The meeting began with a statement from Ecuador, which emphasized the negative effects of ISDS arbitration and highlighted the need for more specific definitions of protection standards when it comes to the environment and human rights in new IIA arbitration clauses. Next, India spoke about the many bilateral investment treaties (BITs) it signed from 1990-2013, with most containing arbitration clauses so broad that they were detrimental to India’s economy. India called for the need to balance rights and obligations in arbitration clauses and the importance of focusing on alternative models of dispute settlement, such as mediation, in future IIAs. The representative from the Kenya Investment Authority spoke about how FDI is the largest and most constant source of external finance for developing countries, and he called for reform that will meet the objective of attracting private sector investment for sustainable development.

Most developed country governments that spoke during this meeting also agreed on the need for reform. The statements from developed country delegations all highlighted the importance of IIAs and the need to modernize them in order to harness finance for sustainable development. As part of IIA reform, the Netherlands explicitly called for a reference to the right of developing countries to regulate their investments, the need for corporate social responsibility, and more safeguards in ISDS arbitration. Furthermore, Spain called for the need for reform that strikes a balance between the public interest and a healthy relationship with investors. In addition, Switzerland emphasized how IIAs are beneficial because they increase legal security and predictability in international investment, although they are in need of continued examination and adjustment. Lastly, both Spain and France called for the creation of a multi-lateral EU investment court to regulate ISDS going forward.

While all country governments who spoke at this meeting, in addition to academics and NGOs, called for the need to reform IIAs and BITs, the process of achieving this reform is going to be difficult. As it stands, IIAs overtly benefit investors and developed countries, even though one of the main goals identified by UNCTAD is that IIAs should spur private sector investment for sustainable development in developing countries. Due to the power imbalances present in IIAs and the entrenched nature of the system, reform is fraught with competing priorities. A major challenge going forward is the issue of previously concluded IIAs and BITs with restrictive ISDS clauses, and what is to be done with these formerly concluded agreements during the reform process.