New York, 26 October 2015
Ladies and Gentlemen,
A democratic and equitable international order as envisaged in the United Nations Charter requires international solidarity to achieve sustainable development and human rights for all. As my 2015 reports to the Human Rights Council and General Assembly have shown, the international investment regime currently in place has too often impeded development and hindered States in the fulfilment of their human rights treaty obligations. This must end.
There are fundamental problems that raise serious issues of incompatibility with human rights norms, not only from the procedural aspect of the elaboration, negotiation, adoption and implementation of free trade and investment agreements, but from their substantive impacts. My report to the Human Rights Council focused on the impacts of bilateral investment treaties and multilateral trade agreements on the international order. The report I am presenting to you today surveys the negative effects of ISDS – the investor-State dispute settlement mechanism that accompanies most of these agreements. It shows that necessary fiscal, budgetary, labour, health, social, and environmental policies initiated by governments have often resulted in exorbitantly expensive lawsuits by investors before this unbalanced form of dispute settlement, where only investors can sue governments but not vice versa.
There is no justification for the existence of a privatized system of dispute settlement that is not transparent nor accountable and often results in aberrant arbitral awards. Indeed, the system has led to inconsistent, unpredictable and arbitrary awards that courts worldwide should refuse to implement as manifestly ill-founded and contrary to national and international ordre public.
ISDS is not needed. Investors can have their day in court before national jurisdictions bound by article 14 of the International Covenant on Civil and Political Rights, often with multiple appeal instances. Investors can also rely on diplomatic protection and inter-State dispute settlement procedures.
In my report I refer to the alternative proposal of establishing an International Investment Court. This proposal, however, also suffers from fundamental flaws and can only be considered if the primacy of human rights is guaranteed and if the State’s regulatory space is guaranteed, e.g. by carving out health and environmental protection from the court’s jurisdiction.
My report provides an analysis of legal issues concerning ISDS and incompatibilities with the Purposes and Principles of the UN Charter and UN human rights treaties. It also refers to numerous cases where ISDS arbitrations have penalized States for adopting regulations, for example to protect food security, access to generic and essential medicines, and reduction of smoking, as required under the WHO Framework Convention on Tobacco Control, or raising the minimum wage. This is partly because of outrageously expansive interpretations by specialized corporate-sector arbitrators of terms like “investment”, “indirect expropriation” and “fair and equitable treatment”, well beyond their legal meaning and outside what could be derived from article 31 of the Vienna Convention on the Law of Treaties. The ongoing Philip Morris v. Argentina and Philip Morris v. Uruguay arbitrations prompt moral vertigo in the unbiased observer.
Over the past 25 years ISDS has undermined fundamental principles of the United Nations, State sovereignty, democracy and the rule of law. Far from contributing to human rights and development, they have resulted in growing inequality among States and within them. ISDS cannot be reformed. It must be abolished.
Today I call upon the General Assembly to convene a World Conference with a view to phasing out existing ISDS and preventing the adoption of any new agreements with ISDS. This Conference could be organized under the auspices of the United Nations Trade and Development Organization, which, alas, bears a certain responsibility for the proliferation of investment agreements, and for the harm caused to many developing States who relied to their detriment in UNCTAD’s advice to adhere to agreements whose dangers they could not possibly have anticipated, particularly the ISDS Trojan horse, which has so gravely reduced their regulatory space.
The unbiased observer will have no problem understanding the two basic ontologies at stake. First the ontology of the State, which is to legislate for the welfare of all persons under its jurisdiction. This ontology is seen by some as a social contract. The second ontology is that of investment, business, enterprise, banking, and other free economic activity. By their very nature these activities entail risk-taking, which justifies an expectation of profit. But can there be a guarantee that an investor who speculates or a bank that gives loans without adequate equity will always draw a profit? Certainly not. Nor should it. It is normal and foreseeable that sometimes investors win, sometimes they lose. What is aberrant is for an investor or speculator to demand a guarantee of profit, to create a separate and rigged system of extra-judicial dispute resolution. After all, there is risk insurance for investors and this should be seen as part of the cost of doing business.
The last twenty-five years have delivered numerous examples of abuse of rights1 by investors and unconscionable ISDS arbitral awards2, which have not only led to violations of human rights, but have engendered a “chilling effect”, deterring States from adopting necessary regulations on waste disposal or tobacco control for fear of being sued before ISDS tribunals. General principles of law including the prohibition of contracts or treaties that are contra bonos mores3 and the prohibition of abuse of rights must be used by national and international courts to challenge the egregious abuses that have accompanied ISDS.
As the international community continues to strive toward a democratic and equitable international order in conformity with the Purposes and Principles of the United Nations, it faces many obstacles, among them the globalization of greed, the growing inequality between developed and developing nations, the widening gulf between the super rich and the abject poor, the race for control over national resources, economic neo-colonialism and exploitation, deregulation of financial markets, and more recently the assault of investors and transnational enterprises on the State’s regulatory space. A peaceful, just, stable and sustainable international order cannot be ensured by the private sector, whose driving force is short-term profit, but only by sovereign States.
The General Assembly has just celebrated the 70th anniversary of the entry into force of the Charter. Over the past seventy years, the Organization has hosted a magnificent normative orchestra which has put on the world stage not only the Universal Declaration of Human Rights, but legally binding instruments including ten core human rights conventions and countless declarations and resolutions such as the Declaration on the Right to Development, the Declaration on the Establishment of a New International Economic Order, the Declaration on the Rights of Indigenous Peoples, and the 17 Sustainable Development Goals for 2030. Moreover, the United Nations has established implementation mechanisms, including treaty-based bodies like the Human Rights Committee and the Committee on Economic, Social and Cultural Rights, which have advanced the work of standard-setting through the adoption of general comments on specific articles of the Covenants. The Human Rights Council engages through its Special Procedures in monitoring activities and in situ visits. States have also accepted and actively cooperate in the Universal Periodic Review, evidencing opinio juris that human rights entail international obligations that must be met.
Paradoxically, States also enter into bilateral and multilateral free trade and investment treaties that hinder their compliance with their human rights treaty obligations and result in the violation of civil, cultural, economic, political and social rights. Perhaps they follow the siren call of promised growth and job-creation, which has been disappointed time and again. Too late do they realize that investors and enterprises militantly oppose scrutiny by human rights bodies and generally reject legally binding obligations. A solution to this dilemma is the expeditious adoption and ratification of a treaty on corporate social responsibility. This is why I urge States to meaningfully engage in the ongoing negotiations before the Human Rights Council’s inter-governmental working group on transnational corporations and human rights, which held its first session in July of this year. John Ruggie’s Guiding Principles on Business and Human Rights are good, but they only constitute soft-law. Alas, self-regulation by investors and corporations has in the past failed miserably4.
Precisely because States are bound by ICCPR and ICESCR treaty obligations, they must ensure that non-State actors operating in their territories and extra-territorially do not violate human rights, that they work within the framework of the host State’s constitution, do not exert pressure on governments to weaken labour regulations or threaten to reduce investments if their demands are not met.
Paradoxically, although States are bound to observe the public participation clause of article 25 ICCPR, they negotiate international investment treaties in secret and exclude key stakeholders including labour unions, consumer unions, health professionals and environmental protection groups. Sometimes secret treaties are fast-tracked through Parliaments so as to avoid public participation. This renders the agreements democratically illegitimate, I would even say totalitarian.
Notwithstanding good diagnoses formulated inter alia by UNCTAD itself in its Trade and Development Report 2015 and World Investment Report 2015 and the perceptive analysis of experts including Joseph Stiglitz, Jeffrey Sachs, Ha-Joon Chang and Paul Krugman, pressures by transnational corporations continue to drive governments to new agreements with ISDS provisions that will aggravate matters and ultimately result in a breakdown of the system or even a crisis situation nourished by stark economic disparities in which local, regional or international peace and security will be endangered.
All States Members of the United Nations are bound by the UN Charter, which is akin to a World Constitution. Pursuant to article 103: “In the event of a conflict between the obligations of the Members of the United Nations under the present Charter and their obligations under any other international agreement, their obligations under the present Charter shall prevail.” This means that bilateral and multilateral free trade and investment agreements that contain provisions that conflict with the letter and spirit of the UN Charter must be revised or terminated. Incompatible provisions can be eliminated according to the doctrine of severability5, without overthrowing the entire international investment regime.
Pursuant to article 96 of the Charter, the General Assembly can request an advisory opinion on any legal question from the International Court of Justice, the Organization’s highest judicial instance. Indeed, it is necessary to settle once and for all the priority of human rights treaties over other agreements and the primacy of the UN Charter6, including its provisions on sovereignty, self-determination, human rights and development, over any and all conflicting treaties, including free trade and investment agreements.
Today I urge the General Assembly to request an advisory opinion on the following legal questions:
- The legal consequences of the primacy of the UN Charter over all other treaties, in particular with regard to international investment agreements and investor-state-dispute-settlement awards.
- The priority of the international human rights regime, including the ICCPR and the ICESCR as well as FAO, ILO, UNICEF, and WHO Conventions over conflicting obligations under trade and investment agreements.
- The application of norms of customary international law to non-State actors, in particular the respect for the sovereignty and independence of States and the prohibition of interference in matters that are essentially within the domestic jurisdiction of States.
- The responsibility of a home or host State for the actions of a transnational corporation registered or operating in its territory.
- The scope of State sovereignty and the ontological obligation of every State to legislate and regulate for the welfare of the population, in particular the obligation of States pursuant to the international human rights treaties, not to regress in human rights protection and not to allow external actors, to dictate its fiscal, budgetary, social, labour, health, educational or environmental policies.
- The application of article 53 of the Vienna Convention on the Law of Treaties to investment agreements that contain provisions that are contra bonos mores or violate jus cogens.
- The legal status of privatized systems of justice that are not transparent or accountable nor subject to appeal, especially in the light of article 14 (1) of the International Covenant on Civil and Political Rights. The compatibility of ISDS tribunals with the principle of the rule of law. The obligation of ISDS arbitrators to take international human rights treaties into account.
- The validity of ISDS awards, the necessity of appealability and consequences of ex tunc invalidity.
- The primacy of State sovereignty over arbitral tribunals and the right of sovereign States to refuse to execute arbitral awards that entail violations of human rights.
- The right of third States to refuse execution of arbitral awards that are contra bonos mores, notwithstanding the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
- The obligation of States to modify or terminate international investment agreements that have led to or are likely to lead to violations of human rights.
- The modalities of modification or termination of bilateral and multilateral free trade and investment agreements, pursuant to the Vienna Convention on the Law of Treaties.
- The responsibility of State courts to investigate corruption and collusion in connection with the operation of ISDS and to impose punitive damages on investors who engage in frivolous and vexatious litigation against the State’s regulatory competences.
By way of conclusion I wish to urge the Assembly not to underestimate the adverse human rights impacts of free trade and investment agreements on human rights, development and democratic governance, to systematically monitor these abuses and to ensure that human rights prevail over commercial laws. A World Conference to mainstream human rights into the international investment regime and abolish ISDS is necessary to make trade and investment work for human rights and not against them. A binding treaty on business and human rights is long overdue.
Finally, I would like to reiterate my appreciation of the very hard-working and competent OHCHR staff, and request the General Assembly to allocate greater resources to OHCHR.
I thank you.
1. Alexandre Kiss “Abuse of Rights” Max Planck Encyclopaedia of Public International Law, Vol. I, pp. 20-26. M. Byers, “Abuse of Rights: an Old Principle in a new Age” 47 McGill Law Journal, 389-431. See for instance the reference to abuse of rights in the Trail Smelter Arbitration and in article 300 of the UN Convention on the Law of the Sea “States Parties shall fulfil in good faith the obligations… in a manner which would not constitute an abuse of right”. V. Paul, “Abuse of Rights and Bona Fides in International Law” Österreichische Zeitschrift für öffentliches Recht und Vökerrecht, vol. 28 (1977) 107-130, B.O. Iluyomade, “The Scope and Content of a Complaint of Abuse of Right in International Law”, Harvard International Law Journal, Vol. 16 (1975) 47-92.
2. Pia Eberhardt and Cecilia Olivet, Profiting from Injustice, Corporate Europe Observatory, Transnational Institute, Brussels 2012¸Profiting from Crisis, Brussels 2014.
3. Hersch Lauterpacht’s First Report on the Law of Treaties (1953) to the International Law Commission suggested that ‘rules of international morality so cogent’ could constitute principles of international public policy that void treaties. Ybk Int L Commission Vol II, Part 2, 154-156, at para 4. See also Michael Akehurst who argues that morality underpins the process through which conventional or customary rules acquire a peremptory character, ‘Notes: The Hierarchy of Sources in International Law’ (1975) XLVII (47) BYIL 273, 283. Summary records, A/CN.4/SR.683, Law of Treaties, 1963 http://legal.un.org/ilc/documentation/english/a_cn4_sr683.pdf, para. 45. Alfred Verdross advanced the position that the ‘higher interests of the whole international community’ were capable of voiding ‘immoral treaties’ in violation of a compulsory norm of general international law. Verdross, Die Verfassung der Völkerrechtsgemeinschaft (Springer, Vienna, 1926), 21 et seq. Verdross, “Jus Dispositivum and Jus Cogens”, International Law in the Twentieth Century, pp. 222-23. Hermann Mosler, The International Society as a Legal Community, 1980, p. 142, RY Jennings, ‘Nullity and Effectiveness in International Law’, in D Bowett (ed), Cambridge Essays in International Law (London, 1965) 64, 74. G. Hernandez, “A reluctant guardian: The International Court of Justice and the Concept of ‘International Community”. BYIL, vol. 83, pp. 13-60.
5. See summary records of ILC http://legal.un.org/ilc/documentation/english/a_cn4_sr683.pdfAlso: Human Rights Committee, General comment 24. Roslyn Moloney, “Incompatible Reservations to Human Rights Treaties: Severability” in Melbourne Journal of International Law, vol. 5 (2004).
6. Robert Kolb, Recueil des Cours 367, Hague Academy of International Law, Summer 2013 “L’Article 103 de la Charte des Nations Unies”; Rain Liivoja, The Scope of the Supremacy Clause of the United Nations Charter, International and Comparative Law Quarterly 2008 http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=2052764; Istrefi Kushtrim “The Application of Article 103 of the United Nations Charter in European Courts” http://cadmus.eui.eu/handle/1814/28723.