Adding New Ingredients to an Old Recipe: Do ISDS Reforms and New Investment Treaties Support Human Rights?

• Author: Diamond, Nicholas J.
• Position: Investor-state dispute settlement changes - American Society of International Law's 10th Midyear Meeting

Table of Contents Abstract Table of Contents I. Introduction: A Dawn for ISDS Towards Reform? II. Entrenched Barriers for Human Rights Claims in ISDS A. Jurisdictional Barriers Have Generally Limited Human Rights Claims in ISDS 1. Rejecting Human Rights Claims Because They Are "Independent" Claims 2. Rejecting Human Rights Counterclaims Because of a Narrow Reading of the Requirements for Counterclaims B. Tribunals' Interpretations of the Scope of the Applicable Law Has Resulted in Inconsistent Practice C. Continued Scarcity of Investor Responsibilities in IIAs III. Potential Impact of ISDS Claims on a State's Regulatory Autonomy Resulting in a Regulatory Chill IV. Creating a Human Rights Typology to Evaluate the ISDS Reform Process: The Three "Generational" of Human Rights V. Key Reform Proposals for the Future of ISDS A. UNCITRAL Working Group Report III Are solely procedural reforms adequate? B. Can the Multilateral Investment Court Provide Solutions for the Future of Human Rights in ISDS? VI. Evaluating Recent State Practice and How It May Impact Human Rights A. Treaty Practice 2018-2020 1. References in a Treaty's Preamble 2. Provisions Preserving Policy Space for Regulating in the Public Interest 3. Exclusion of Welfare Measures from Indirect Expropriation 4. General Exception Provisions VII. Looking Ahead I. Introduction: A Dawn for ISDS--Towards Reform?

The investor-State dispute settlement ("ISDS") system has been undergoing significant change along two fronts. First, multi-stakeholder efforts, primarily led by States via the United Nations Commission on International Trade Law ("UNCITRAL"), have recently been considering various, largely procedural, reform options. Second, international investment agreements ("IIAs") have likewise evolved in recent years, influenced by, inter alia, new foreign investment priorities and drafting approaches. Alongside this twin evolution, stakeholders continue to express concerns regarding the effects, both direct and indirect, of the ISDS system on human rights. (1) In particular, the inherent investor-centric bias of the ISDS system has been said to negatively impact States' efforts to satisfy its human rights obligations on the international plane. (2)

We consider the convergence of the future trajectory of ISDS, encompassing both proposed procedural reform options and the recent evolution of IIAs, with the longstanding expressed concerns of the impact of the ISDS system on human rights. Several foci structure our analysis. First, entrenched barriers persist regarding the opportunity for a robust role for human rights considerations in the ISDS system. Such barriers are both procedural and substantive, suggesting the importance of broad reform efforts. Second, even where efforts have been made to better accommodate human rights considerations within the ISDS system, which human rights have been included remains limited. As the scope of human rights norms and obligations expands, so too must the ISDS system flex if it is to accommodate. Third, and crucially, States continue to play a paramount role in both the international human rights architecture and ISDS system. As such, if the ISDS system is to better accommodate human rights considerations, States must deploy their many tools, such as negotiation and drafting of IIAs, in furtherance of such objectives--while concurrently aligning such efforts with ongoing discussions around procedural reforms--so as to avoid unintended fragmentation and maximize impact. Ultimately, we argue that the ISDS system may finally be positioned to bend the arc of its trajectory toward a more accommodating system for human rights. However, we caution that the focus on human rights remains fairly limited--perhaps, at times, even a mere afterthought--suggesting slow progress.

In Section II, we first consider selected entrenched barriers, both procedural and substantive, in the ISDS system that have historically negatively impacted human rights considerations in the foreign investment context, to diagnose the problem motivating reform. Correspondingly, in Section III, we articulate the cumulative effects of said barriers on States' regulatory autonomy, which is part and parcel to the satisfaction of their human rights obligations on the international plane. In Sections IV--VI, we turn to ongoing reform developments, both characterizing efforts to date and their potential impact on said barriers. In Section IV, we introduce the so-called three "generations" of rights framework, to help categorize the impact of each development on the full spectrum of human rights. In Section V, we consider the robust, ongoing dialogue around largely procedural reform options, which has been primarily guided by UNCITRAL. In Section VI, we explore trends in recent IIA development that may impact human rights. Finally, in Section VII, we provide concluding thoughts on whether reforms effort will meaningfully reduce the historical tensions between the ISDS system and human rights.

2. Entrenched Barriers for Human Rights Claims in ISDS

   The ISDS system accords certain rights to businesses or individuals qua foreign investors. (3) These rights "are not accorded to the investors for the sake of human flourishing," but are instead "instrumental" for the exportation of capital. (4) At bottom, they are part of the "grand bargain" by States via IIAs for purposes of attracting foreign capital. (5) Moreover, these rights are only available to a limited subset of entities, owing to the significant costs associated with instituting ISDS proceedings. (6) In contrast, international human rights law accords rights to all individuals qua human beings. (7) These rights are universal, not selective. (8) They are also typically "domesticated," which is to say that they are protected primarily by domestic courts, (9) with international adjudicatory bodies playing primarily monitoring, not enforcement, roles. (10)

   Consequently, the ISDS system and international human rights law "have evolved along radically divergent paths" (11) and "rest on different legal sources, contain different legal principles and are applied and administered in different institutional settings." (12) Moreover, their intersection has been complicated by the ways in which human rights can be introduced, both as a sword and shield, for strategic purposes by the parties in a dispute. (13) Therefore, and perhaps unsurprisingly, several entrenched barriers obstruct the role of human rights norms and obligations within the ISDS system. Although international human rights law does not accord businesses or individuals qua foreign investors a privileged (normative) position, (14) this section seeks to highlight such barriers, so as to understand how the ISDS system in toto places downward pressure on States' ability to satisfy its human rights obligations on the international plane. (15)

   1. Jurisdictional Barriers Have Generally Limited Human Rights Claims in ISDS

      Unsuccessful attempts to bring independent claims or counterclaims alleging human rights violations underline both the importance and complexities of establishing jurisdiction in investment disputes. As a reflection of party consent, a tribunal only has competence to hear claims that fall within its jurisdiction. (16) The scope of the dispute resolution clause in both the IIA and the relevant arbitration rules is, therefore, crucial for determining which claims the tribunal may hear. (17) How a tribunal undertakes to interpret its own jurisdiction has been crucial for determining the role of human rights in investment disputes. (18)

      1. Rejecting Human Rights Claims Because They Are "Independent" Claims

         To the extent that a human rights issue affects a protected investment under the IIA, it may become arbitrable by virtue of its relationship to or impact on the investment. (19) Moreover, it has been argued that, in principle, a broad dispute resolution clause could provide for adjudicating a "pure human rights claim." (20) Nonetheless, the case law supports the general trend that human rights claims do not have autonomous standing as independent claims before ISDS tribunals. (21) As such, the independent significance of the dispute resolution clause has been limited. (22) Biloune is the prototypical example of this trend, where the tribunal expressed its reluctance to consider an independent claim for an alleged human rights violation. (23) While the tribunal described the dispute resolution clause as "broad," (24) it underscored its limited competence vis-a-vis the independent claim, (25) not least because the wording "in respect of an approved enterprise" in said clause did not envision the parties' consent to independent claims. (26)

         In contrast, though with a similar outcome, the tribunal in Chevron construed the dispute resolution clause broadly such that it had the jurisdiction to entertain a denial of justice claim relating to the concession contracts underlying the dispute. (27) The claimants sought to have the tribunal rely on customary international law in support of its denial of justice claim, and cited to both human rights instruments (28) and jurisprudence (29) in this regard. The tribunal, however, held that the provisions in the IIA regarding denial of justice were lex specialis, which precluded the need to refer to customary international law. (30) It did not discuss the human rights references in its interpretation of the relevant provision in the IIA, thereby leaving doubt as to whether, absent a lex specialis, the claimants could have sustained its independent claim. (31)

         Similarly, in Toto, the tribunal again weighed a denial of justice claim. (32) In this case, however, the tribunal discussed several human rights instruments relating to denial of justice. (33) Ultimately, it denied jurisdiction over the claim because of insufficient evidence. (34) While some argue that the tribunal seemed open to considering human rights as...