17 Oct 2014
New Delhi, 13 October (K M Gopakumar) – Investment treaties should be reviewed to ensure that States have the right to make changes in their laws and policies to further human rights regardless of the impact of such changes on investors’ rights.
This recommendation came from the Special Rapporteur on Right to Health, Mr. Anand Grover, who just completed his term, in his last report to the UN General Assembly (UNGA). The UNGA is expected to consider this report in the third week of October.
The report notes that nearly 40 countries have already began renegotiation of international investment treaties.
Bilateral investment agreements are under intense scrutiny of various governments and civil society organizations due to the onerous obligations they create on governments, and the upscaling of the rights of TNCs.
[The call for reform of international investment treaties and agreements will also be made this week during the UNCTAD Investment Forum, which is taking place on 13-16 October in Geneva.]
The Grover report also calls for an international treaty to hold transnational corporations (TNCs) accountable for their violations on human rights.
[The Human Rights Council at its 26th session passed a resolution to start a process for an internationally legally binding instrument on TNCs. The resolution is titled “Elaboration of an international legally binding instrument on Transnational Corporations and other Business Enterprises with respect to Human Rights” available on: http://www.twn.my/title2/unsd/2014/unsd140605.htm]
The fifth part of the report deals with the accountability deficit of TNCs on human rights violations including the right to health. This part presents the current state of play with regard to the accountability of TNCs with regard to human rights violations. Two other sub-sections discuss the shortcomings of international investment treaties and the investor -state dispute settlement mechanism.
The report also discusses the justifiability of right to health, progressive realization of the right to health and enforcement of right to health (undocs.org/A/69/150).
TNCs and Human Rights
The report notes that TNCs’ “increasing presence in the world economy has enabled them to influence international and domestic law-making and infringe upon States’ policy space”.
On human rights violation, the report states that TNCs “have also affected the rights of large communities with impunity, causing displacement, contamination of groundwater and loss of livelihood. They have directly perpetrated serious human rights violations, in particular in developing and least developed countries.
They have thus seriously affected the laws, policies and social and economic environments of States and have violated the economic, social and cultural rights of individuals and communities, including the right to health.”
The report further says that it is “difficult for States or affected individuals to hold foreign transnational corporations accountable for harmful actions that were orchestrated through their domestic subsidiary”.
According to the report, “The magnitude of violations by transnational corporations and the ease with which they can evade responsibility for such violations call for an international mechanism to hold them liable for human rights abuses”.
The report also points out the shortcomings of a 2011 document prepared by the Special Representative of the UN Secretary-General on human rights and transnational corporations and other business enterprises: “Guiding Principles on Business and Human Rights – Implementing the United Nations ‘Protect, Respect and Remedy’ Framework”.
The first pillar of the Principles requires States to take measures including institution of laws to ensure accountability of TNC for their human rights violations. According to the Grover report “it could be argued, however, that the State obligation to protect, which is already an important obligation of States under international human rights law, has been ineffective against transnational corporations”.
Further, the report also critiques the idea of extending incentives for TNCs to comply with human rights standards and states that providing incentives for compliance makes respect for rights a means to attain an end (the promised incentive), but does not foster respect for rights in and of themselves”.
The report further points out that access to remedy against human rights violations mentioned in the Guiding Principles becomes ineffective due to the inability or unwillingness of States to hold TNCs accountable for their human rights violations.
The report adds that, “The Guiding Principles also fail to take into consideration the existing political context, whereby developing countries may be vulnerable to undue influence from transnational corporations. Business interests may be protected at the cost of the human rights of those affected communities that remain dependent on States to hold corporations accountable for violations. Non-binding responsibilities have therefore not prevented transnational corporations from violating human rights”.
According to the report “there is an urgent need for an international instrument that can address the increasing complexities presented by transnational corporations’ multi-jurisdictional organization and global influence. Moreover, because not all States have a robust regulatory mechanism, owing either to their poor negotiating power or because they are unwilling to hold domestic corporations accountable for harms caused, obligations should also be conferred on domestic corporations”.
Apart from the accountability and monitoring mechanism, the report calls for an effective enforcement mechanism to remedy and discourage violations. Towards this the report proposes an adjudicatory mechanism to examine individual or State complaints against transnational or domestic corporations.
International Investment Agreements
The report states that international investment agreements allow TNCs to reduce States’ policy space and States’ power to introduce health laws in the public interest.
It states that, “Given that the agreements are concluded between States, they do confer no obligations on transnational corporations to respect, protect and fulfil the right to health, allowing corporations to continue profit-making activities even if they are violating individuals’ right to health”.
The report questions the secrecy and lack of consultation at national level while negotiating investment agreements. It points out that “The rights to information and to participate in the decision-making process are essential for the enjoyment of the right to health. Those elements of the right to health framework are undermined when international investment agreements are negotiated and concluded in secrecy”.
According to the report “the practice of withholding information from stakeholders such as civil society groups has been held to be non-discriminatory, even where the same information was provided to corporations with the justification that corporations have expertise in matters relating to free trade agreements. Such inequity in access to information can enable corporations to influence the content of an international investment agreement in their favour”.
The report warns of the threat of investment and trade agreements on the enjoyment of right to health. “Pharmaceutical companies may be able to challenge the patent laws of host States if such laws do not comply with investors’ rights under the free trade agreement, even though such patent laws may be compliant with the Agreement on Trade-Related Aspects of Intellectual Property Rights. States may thus be unable to check the increasing cost of medicines, which undermines their core obligation to ensure access to health facilities, goods and services, including essential medicines, especially for vulnerable groups”.
The report notes that “International investment agreements are treated as a stand-alone legal code and often do not contain references to the right to health. They should, however, be interpreted in a manner that does not conflict with human rights law …”
The report calls on States to review these investment agreements to ensure that States have the right to change laws and policies in furtherance of human rights irrespective of the impact of such changes on the investor’s right.
In the absence of an international legal framework to hold TNCs accountable for their human rights violations, the report calls upon States to incorporate provisions in investment agreements to enable them to hold TNCs liable for human rights violations in both the home country and the host country. Furthermore, the report also urges States “to ensure their ability to implement human rights-friendly laws is not in any way hindered by the (investment) agreement”.
Investor-State Dispute Settlement
Grover’s report stress various shortcoming of the investor-state arbitration process provided in investment agreements.
According to the report, “the high cost of arbitration and the threat of an adverse judgment can create a chilling effect on States, dissuading them from fulfilling their right to health obligations.” In addition, “These disputes may also deplete States’ resources, which can affect their ability to progressively realize the resource-dependent aspects of the right to health”.
It notes that out of 568 known investor-State arbitrations most of them were brought against developing countries and nearly 85% of the cases were brought by investors from developed countries.
The report states that, “the current system of investor-State dispute settlement also suffers from bias and conflicts of interest. The dispute settlement is controlled by a small clique of arbitrators and lawyers, and the same person may be counsel, arbitrator and adviser to an investor or State at different times”.
According to the report the “ the enormous size of such awards can have a negative effect on the State’s ability to implement health policies. For example, in CME v. Czech Republic, the compensation awarded to the investor was equal to the entire health budget of the States.
The key recommendations of the report are as follows:
- States review, renegotiate or enter into international investment agreements in an open and transparent manner, with the participation of affected communities and other stakeholders;
- International investment agreements should include provisions that:
(a) Confer human rights obligations on host and home States and investors;
(b) Allow host States to modify existing laws, or adopt new laws, to comply with their obligations under the right to health or in times of crisis affecting the entire State;
(c) Enable States to initiate disputes when investors do not comply with or violate the right to health.
- Investor-State dispute settlement systems should be made transparent and be modified to:
(a) Ensure that arbitrators are unbiased;
(b) Establish a regionally representative, permanent panel of arbitrators;
(c) Require the details of a dispute to be published and continuously updated as soon as an investor issues the notice of intent;
(d) Ensure that non-parties to disputes have the right to attend arbitration proceedings;
(e) Ensure that those who are not party to the dispute, especially affected communities, have a right to make written and oral submissions;
(f) Allow arbitration to be conducted in host States to facilitate access to the arbitration by interested parties;
(g) Institute a system of review of arbitration awards to reduce arbitrariness.
- The adoption of an international treaty that will:
(a) Confer specific, binding human rights obligations, including the right to health, on transnational corporations;
(b) Prevent investors from encroaching on States’ policymaking space;
(c) Provide for an accessible and effective adjudicatory forum where States and individuals can hold transnational corporations accountable for violations of the right to health.
- Until an international treaty is formulated, States adopt a declaration on human rights obligations of transnational corporations.+