Investment treaties must be inclusive, sustainable and fair. That means that they must not put the interests of companies before those of people and their living environment.
International investment flows are currently regulated by some 3,000 bilateral investment treaties (BITs) and other international investment (IIAs). These agreements and treaties were originally set up to promote foreign investment, but very little has come of their promised beneficial effects. The time has come to radically change the international system of investment treaties. It is not only clear that investment treaties do not promote foreign investment, but also that in many cases they seriously harm the interests of developing countries.
Far-reaching rights for investors
The treaties grant foreign investors far-reaching rights and are increasingly used to exert pressure on governments not to take measures that are not in the investors’ interests. The Investor-to-State-Dispute-Settlement (ISDS) system allows businesses or investors to lodge charges against states beyond the jurisdiction of international courts. ISDS tribunals are not subject to the laws of countries that are charged and only work in one direction: only businesses may submit complaints, without having to do anything to defend themselves.
Dispute settlement beyond the reach of international courts
Through ISDS, foreign investors can oppose a wide range of national government policies and measures, including social and environmental rules. The rulings of an ISDS tribunal are definitive, binding and internationally enforceable. A large proportion (around 60%) of all ISDS cases are brought by companies against poorer countries, and the number of complaints has risen sharply in the past 10-20 years. In the past five years, one new ISDS case has been submitted per week. At the end of 2017, UNCTAD reported that successful complainants received an average of $522 million in compensation. Countries will often decide not to introduce a certain measure rather than face such high penalties, with all the consequences that will have for its people.
Many ISDS claims from the Netherlands
ISDS claims have already caused considerably harm in many developing countries. The second highest number of ISDS procedures are initiated from the Netherlands, after the US. That is partly because of the almost 100 BITs that the Netherlands has concluded, including with developing countries. There are also many ‘letter-box’ companies registered in the Netherlands, which can use the Dutch BITs to lodge complaints against countries in which they invest. The increasingly negative effects of ISDS in investment treaties is one of the main reasons why more and more developing countries want to terminate their investment treaties with the Netherlands.
Both ENDS is working to reform and terminate BITs
Both ENDS has long been drawing attention to the negative consequences of investment treaties on developing countries and is particularly concerned about the ISDS mechanisms in the current treaties. To make investment policies fair and sustainable and to ensure that they do not harm people and the environment, the ISDS mechanism included in all these treaties must be removed as soon as possible.
Dutch model BIT
In 2018, the Netherlands is revising the model text of its BITs. As the text will serve as an example for many other European countries, it is important that it is as inclusive and sustainable as possible. Together with Dutch and foreign partners, Both ENDS is providing input for the new text, naturally in the hope that its recommendations are taken up. We are also working with our partners to raise awareness of the consequences of investment treaties and ISDS, with the aim of exerting public pressure on the decision-making process relating to the model text.
Outside the Netherlands, we are also making our concerns and criticisms clear in other institutions, like UNCTAD and the European Parliament. We are supporting local groups in Southern countries in their efforts to terminate existing treaties, so that new investment policies can be developed that put people and the environment first and ensure that investments make a positive contribution to sustainable development.
Read more about this subject
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Indigenous communities in Paraguay saw their attempts to regain their ancestral lands thwarted by German investors. In Indonesia, US-based mining companies succeeded to roll back new laws that were meant to boost the country’s economic development and protect its forests. This is the level of impact that investment treaties can have on social, environmental and economic development and rights. Why? Because of the ‘Investor-to-State Dispute Settlement’ clauses that are included in many such treaties.
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