The EU Investment Law and Human Rights

LEXCOM
Santosuosso e Associati - www.santosuosso.it
1
International Investment Law
Introduction
Dr. Sondra Faccio

1. Wording – essential definitions
2. International Investment Agreements (‘IIAs’)
3. What is a FDI ?
4. Standards of protection under international
investment law: FET standard and protection
against Expropriation
5. Dispute settlement
Table of contents

• FOREIGN DIRECT INVESTMENT (‘FDI’) can be defined as the transfer
of funds or materials from one country to another country to be
used in the conduct of an enterprise in that country in return for a
direct or indirect participation in the earnings of the enterprise. It
implies economic commitment, duration and a certain degree of
risk
• BILATERAL INVESTMENT TREATY (‘BIT’); INTERNATIONAL
INVESTMENT AGREEMENTS (‘IIAs’); FREE TRADE AGREEMENT
(‘FTA’) are all agreements concluded by States with the aim of
regulating their investment and trade relationships
• ICSID: International Centre for the Settlement of Investment
Dispute, established in 1965 under the auspice of the World Bank. It
is deemed to be the leading international arbitration institution
devoted to investor-State dispute settlement
Wording – Essential Definitions

Currently in force
2.669 BITs + Treaty w/inv. provisions
http://investmentpolicyhub.unctad.org/IIA

• Concluded by States, but providing some
standards of protection of foreign investments.
• States undertake reciprocally some obligations
regarding the treatment of foreign investments in
their territories
• States recongize to the foreign investor the right
to proceed directly against it, before an
international arbitration tribunal, in case of
violation of the IIA
International Investment Agreements

• The concept of FDI (or investment) is important
to define what is the scope of application of the
IIAs
• It also plays a significant role as jurisdictional
prerequisite for bringing a dispute before an
arbitration tribunal
• ICSID has jurisdiction only on legal disputes
arising out of an “investment” (Article 25 ICSID
Convention)
What is a FDI?

ICSID leading arbitration institution
for investment
Investor-State Dispute Settlement: Review of Developments in 2016, IIA Issue Note, No. 1,
2017, http://unctad.org/en/PublicationsLibrary/diaepcb2017d1_en.pdf

Main features to qualify the specific “asset” as a form
of investment under the ICSID Convention:
1. a substantial commitment of resources,
2. a certain duration of the operation,
3. risk, and
4. the contribution to the development of the host
State
Salini Costruttori SpA and Italstrade SpA v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on
Jurisdiction, 23 July 2001
What is a FDI? - Salini test

“every asset that an investor owns or controls, directly or indirectly, that has
the characteristics of an investment, including such characteristics as the
commitment of capital or other resources, the expectation of gain or profit, or
the assumption of risk. Forms that an investment may take include: (a) an
enterprise; (b) shares, stock, and other forms of equity participation in an
enterprise; (c) bonds, debentures, other debt instruments, and loans; (d)
futures, options, and other derivatives; (e) turnkey, construction,
management, production, concession, revenue-sharing, and other similar
contracts; (f) intellectual property rights; (g) licenses, authorizations, permits,
and similar rights conferred pursuant to domestic law; (h) other tangible or
intangible, movable or immovable property, and related property rights, such
as leases, mortgages, liens, and pledges”
(Article 1 of the 2012 U.S. Model BIT)
What is a FDI?

Relative Standards: the conduct of the State is
compared with other conducts:
• Most Favoured Nation (‘MFN’) Standard
• National Treatment
Absolute Standards: they do not need to be compared
to other conducts to determine the State’s
international responsibility:
• Fair and Equitable Treatment (‘FET’) Standard
• Full Protection and Security
Standards of protection under
international investment law

Standards vs.Rules
Action/Omission Consequence
Speed limit 130 km/h

Standards vs. Rules
Standards: a group, many cases
Alfabeth: a group of letters for many ideas
Rules: one rule, one case
Ideograms: one ideogram for one idea

Standards
State’s Competence
in dealing with FDI
State’s conduct
in violation of the standard

“1. Each Party shall accord to covered investments treatment in accordance with
customary international law, including fair and equitable treatment and full protection
and security. 2. For greater certainty, paragraph 1 prescribes the customary
international law minimum standard of treatment of aliens as the minimum standard
of treatment to be afforded to covered investments. The concepts of “fair and
equitable treatment” and “full protection and security” do not require treatment in
addition to or beyond that which is required by that standard, and do not create
additional substantive rights. The obligation in paragraph 1 to provide: (a) “fair and
equitable treatment” includes the obligation not to deny justice in criminal, civil, or
administrative adjudicatory proceedings in accordance with the principle of due
process embodied in the principal legal systems of the world; and (b) “full protection
and security” requires each Party to provide the level of police protection required
under customary international law.”
Art. 10.5 of th Australia-Chile Free Trade Agreement,
https://dfat.gov.au/trade/agreements/aclfta/Documents/Australia-Chile-Free-Trade-
Agreement.pdf.
Fair and Equitable Treatment (‘FET’)

Customary international minimum standard is usually referred to the famous
Neer Case of 1926
Neer Case
“The treatment of an alien, in order to constitute an international delinquency,
should amount to an outrage, to bad faith, to willful neglect of duty, or to an
insufficiency of governmental action so far short of international standards
that every reasonable and impartial man would readily recognize its
insufficiency”
(Sean D. Murphy, Principles of International Law p.297)

FET standard:
• Restrictive theory: the FET standard corresponds to the so
called International Minimum Standard (Neer Case - 1926)
• Exstensive theory: case law has increasingly focused on
investors’ expectations in connection with their investments as
a central element of the fair and equitable treatment standard,
connecting the latter to the required stability and
predictability of the business environment, founded on
solemn legal and contractual commitments
(E.g. International Thunderbird Gaming Corp. v. The United Mexican States, UNCITRAL, Award, 26 January
2006, dissenting opinion Prof. Thomas Walde, para. 37; Saluka Investments B.V. v. Czech Republic, Partial
Award, 17 March 2006, paras. 301, 302)

Expropriation
According to the Oxford
dictionary “expropriation”
identifies the taking of
property from its owner for
public use or benefit, by the
State or an authority. The
word derives from the Latin
verb expropriare: ex- 'out,
from', and proprium
'property’

• In the context of international law, expropriation involves the
transfer of wealth or profit from one person (the foreign
investor) to another person (usually the host State or a public
person in the host State)
• The host State either adopts a law or a decree, which entails
the transfer of the title, or it takes actions to physically
dispossess the private owner
• The State deliberately wants to deprive the investor
concerned of the substance of his rights, in order to satisfy a
public interest
Expropriation

• Canada Expropriation Act of 1985, part I, art. 4 (1), provides
that “any interest in land or immovable real right […] that, in
the opinion of the Minister, is required by the Crown for a
public work or other public purpose may be expropriated by
the Crown in accordance with the provisions of this Part”
• Rwanda Law N° 18/2007 of 19/04/2007 Relating to
Expropriation in the Public Interest, article 3, provides that
“Only Government shall carry out expropriation. Expropriation
as provided for in this law shall be carried out only in the
public interest and with prior and just compensation”
Expropriation

International investment treaties usually provide for a
set of four preconditions for an expropriation to be
lawful:
1. the taking of property should be based on public
reasons
2. it should respect the principle of non-discrimination
3. due process of law
4. the State has to pay adequate compensation to the
foreigner, whose property has been expropriated
Expropriation:
According to international law
States can expropriate

“Le Gouvernement Royal [Italien], socieux du respect qui est dû
aux lois intérieures d'un Etat étranger, n'a jamais contesté le
droit du Gouvernement de la République Tchécoslovaque
d'exproprier, en application de ses lois, les porpriétés des
ressortissants italiens sur son territoire. Le Gouvernement Royal
a seulement contesté la mesure de l'indemnisation prévue pour
ces expropriations, en soutenant que chaque État a le devoir de
sauvegarder le droit de propriété de ses ressortissants à
l'étranger, sur la base d'un principe généralemente admis dans la
doctrine internationale et récemment sanctionné à la Conférence
de Gênes vis-à-vis de la Russie”
(Mr. Chiaromonte Bordonaro, Italian representative in Prague, 1923)
No Expropriation
without Compensation

• Compensation is the main element of the substantive protection
offered to the foreign investor
• Many treaties employ the so called “Hull formula” elaborated in
1938 by the U.S. Secretary of State Cordell Hull, which requires the
payment of “prompt, adequate, and effective” compensation
1. «Prompt» requires that compensation be paid within a
reasonable period of time after the taking
2. «Adequate» compensation is usually equivalent to the fair
market value of the expropriated investment, calculated
immediately before the expropriation took place
3. «Effective» means paid in a form which is of real practical use to
the person entitled thereto, possibly in convertible foreign
exchange
Prompt, adequate, effective
Compensation

• Today investor-State tribunals deal mostly with
indirect expropriation, rather than direct takings,
and IIAs in their vast majority refer to both direct
expropriation and indirect expropriation
• “indirect expropriation” refers to all government's
measures that have adverse radical effects on the
foreign investment, but that do not entail a formal
transfer of the title nor a physical outright taking of
the investment, and which do not involve a transfer
of wealth from the investor to the benefit of the
State
Indirect Expropriation

Example NAFTA

Example case law
Anglia Auto Accessories v. Czech Republic
(award 10 March 2017)

Example case law
Urbaser S.A. and others v. Argentina
(8 December 2016)

Dispute Settlement
• In case of a violation of the standards
provided by the IIA, the foreign investor has
the right to resort directly against the State
before an international investment arbitration
tribunal
• Usually IIAs and BITs make reference to the
International Centre for Settlement of
Investment Disputes ('ICSID')

Dispute Settlement
1. Ad hoc arbitration: the arbitral tribunal is
appointed by the parties and administered
autonomously
2. Administered arbitration: arbitration is
administered by a professional arbitration
institution, providing arbitration services:
• the International Centre for Settlement of Investment Disputes in Washington
• the London Court of International Arbitration in London
• the International Commercial Chamber in Paris
• the Permanent Court of Arbitration at the Hague
• the Stockholm Chamber of Commerce

Dispute Settlement
•767 cumulative number of known investor-State treaty-
based cases as of January 1, 2017
•109 States have been respondents to one or more
known investor-State claims
•62 new investor-State cases initiated in 2016
•29% of cases have been brought against developed
countreis (lower % than in 2015 (45%))
•1/4 of investment arbitrations initiated in 2016 are Intra-
EU disputes
Investor-State Dispute Settlement: Review of Developments in 2016, IIA Issue Note, No. 1, 2017,
http://unctad.org/en/PublicationsLibrary/diaepcb2017d1_en.pdf

Dispute Settlement
Investor-State Dispute Settlement: Review of Developments in 2016, IIA Issue Note, No. 1, 2017, http://unctad.org/en/PublicationsLibrary/diaepcb2017d1_en.pdf

LEXCOM
1
The EU Investment Law and
Human Rights
Dr. Sondra Faccio

1. Wording – essential definitions
2. Criticism agains Multinationals, IIAs and the
EU Trade and Investment Policy
3. UNGPs, EU National Action Plans and other
pieces of domestic legilsation
4. The EU Trade and Investment Policy and
Human Rights
5. Evidence from EU investment agreements
Table of contents

• MULTINATIONAL ENTREPRISE it is the main type of foreign investor making FDI; it
generally consists of a group of corporations, each established under the law of
some State, linked by common managerial and financial control and pursuing
integrated policies (P. Muchlinski, Corporations in international law, in
<www.mpepil.com>)
• HUMAN RIGHTS: Human rights are rights inherent to all human beings, whatever
their nationality, place of residence, sex, ethnic origin, colour, religion, language, or
any other status. All human beings are all equally entitled to human rights without
discrimination. These rights are all interrelated, interdependent and indivisible.
That means that the improvement of one right facilitates advancement of the
others; likewise, the deprivation of one right adversely affects the others
• TTIP: Transnational Trade and Investment Partnership between the EU and the US.
Last round of negotiations took place on October 2016
• CETA: Comprehensive Economic and Trade Agreement between the EU and
Canada, the EU Parliament gave its consent for CETA on February 15, 2017. The
agreement will be applied provisionally after Canada will have notified adoption of
all necessary legislative acts
Wording – Essential Definitions

• Multinationals disregard human rights
standards of protection (and related human
rights issues) and/or lower these standars
when carry out business abroad
• Multinationals do not take responsibility for
their actions/omissions abroad
• IIAs disregard the need of the State to protect
human rights and to take care of public
interest issues
Criticisms against
Multinationals and IIAs

• Endorsed by the UN Human Rights Council on June
2011
• They have become the first globally accepted standard
covering the responsiblities of States and businesses in
preventing and addressing business-related human
rights abuse
• They establish duties and responsiblities of both States
and businesses:
– States have the duty to protect against human rights
abuses by third actors, including businesses
– Businesses have the responsiblity to respect human rights
across the value chain (i.e. by acting with due diligence and
addressing adverse impacts)
2011 UN Guiding Principles on
Business and Human Rights (‘UNGPs’)

The European Parliament:
• calls on all States to implement the UNGPs swiftly and
robustly in all areas falling under their respective
competence, including by developing action plans
• calls on companies, whether European or not, to carry
out human rights due diligence and to integrate their
findings into internal policies and procedure
• strongly calls for the systematic inclusion in trade and
investment agreements of rules on corporate liability
for violations of human rights, to be implemented at
national level, and of references to internationally
recognized principles and guidelines
EP Resolution of 25 October 2016 on
Corporate Liability for Serious Human
Rights Abuses in third Countries

Up to December 31, 2016, eight EU countries have produced National Action
Plans:
1. United Kingdom (UK) (revised version, 2016)
2. The Netherlands (2013)
3. Denmark (2014)
4. Finland (2014)
5. Lithuania (2015)
6. Sweden (2015)
7. Germany (2016)
8. Italy (2016)
Source: http://www.europarl.europa.eu/RegData/etudes/STUD/2017/578031/EXPO_STU(2017)578031_EN.pdf
Existing EU National Action Plans on
Business and Human Rights

• On February 21st, 2017, the French National Assembly
approved a new bill imposing due diligence obligations, as to
human rights, health, safety and the environment, upon
multinational enterprises headquartered in France
• These obligations cover not only multinationals’ activities in
France, but also the activities undertaken abroad by
subsidiaries and entities, within the multinationals’ supply
chain
• The bill takes inspiration from the UNGPs and it is the first
piece of domestic legislation imposing specific due diligence
obligations in the human rights area upon companies, both
within the national territory and abroad
French Due Diligence Law
(February 21, 2017)

• Article 3 (5) TEU “In its relations with the wider
world, the Union shall uphold and promote … the
protection of human rights”
• Article 21 (1) TEU “The Union's action on the
international scene shall be guided by the
principles which have inspired its own creation,
development and enlargement, and which it
seeks to advance in the wider world: … the
universality and indivisibility of human rights
and fundamental freedoms…”
EU Foreign Policy and Human Rights

• Articles 206 and 207 TFEU: the EU’s trade and
investment policy shall be guided by the principles,
pursue the objectives and be conducted in accordance
with the general provisions laid down in Chapter 1 of
Title V of the Treaty on European Union (i.e. respect
for fundamental rights)
• Commission Communication of July 7, 2010
(COM(2010)343): “[a] common investment policy
should also be guided by the principles and objectives
of the Union's external action more generally, including
the promotion of the rule of law, human rights and
sustainable development.”
EU Trade and Investment Policy
and Human Rights

Country Treaty Reference to Human Rights
African, Caribbean and
Pacific Countries
ACP Countries – EU
Partnership Agreement
(signed in Cotonou on
June 23, 2000, latest
update in 2010)
PREAMBLE: «REFERRING … and
recalling the Universal
Declaration of Human Rights, the
conclusions of the 1993 Vienna
Conference on Human Rights…
CONSIDERING the Convention for
the Protection of Human Rights
and Fundamental Freedoms of
the Council of Europe, the African
Charter on Human and Peoples'
Rights and the American
Convention on Human Rights …”
Article 9: “[c]ooperation shall be
directed towards … respect for
and promotion of all human
rights.”
Evidence from
EU Investment Agreements

Canada CETA (The EU
Parliament gave its
consent for CETA on
February 15, 2017)
PREAMBLE «reaffirming strong
attachment to democracy and to
fundamental rights … recongising
the importance of … human
rights»
ANNEX 8-E States can deny some
benefits to investors, for reasons
of international peace and
security, «…the Parties confirm
their understanding that
measures that are “related to the
maintenance of international
peace and security” include the
protection of human rights»
Evidence from

Singapore EU-SINGAPORE FTA
(negotiations ended on
October 17, 2014; The
ECJ issued Opinion 2/15
on May 16, 2017)
PREAMBLE: «reaffirming
committment to … the principles
articulated in The Universal
Declaration of Human Rights»
CHAPTER XIII: «The Parties
recognise the right of each Party
to establish its own levels of
environmental and labour
protection, and to adopt or
modify accordingly its relevant
laws and policies, consistent with
the principles of internationally
recognized standards or
agreements»
Evidence from

ANDEAN COMMUNITY:
Columbia
Perù
Ecuador
Bolivia
EU - ANDEAN
COMMUNITY FTA
(signed IN 2012 -
Entered into force for
Columbia and Perù in
2013)
PREAMBLE: «REAFFIRMING their
commitment to the United
Nations Charter and the Universal
Declaration of Human Rights …
COMMITTED to implementing this
Agreement in accordance with …
labour rights»
ARTICLE 1: «Respect for
democratic principles and
fundamental human rights, as
laid down in the Universal
Declaration of Human Rights, and
for the principle of the rule of law,
underpins the internal and
international policies of the
Parties. Respect for these
principles constitutes an essential
element of this Agreement»
Evidence from

United States TTIP (last negotiation
round on October 2016)
PRESS RELEASE (November 15,
2013) «confirming the Parties'
regulatory freedom to legislate in
the public interest»
TTIP INVESTMENT CHAPTER
(November 2015):
• ARTICLE 2: «The provisions of
this section shall not affect the
right of the Parties to regulate
within their territories through
measures necessary to achieve
legitimate policy objectives,
such as … social or consumer
protection or promotion and
protection of cultural
diversity»
Evidence from

REPORT ON THE 13° ROUND OF
NEGOTIATIONS (April 2016):
• Reference to «ILO core labour
standards – freedom of
association and right to
collective bargaining,
elimination of forced labour,
abolition of child labour, non-
discrimination in the
workplace»
Evidence from

THE EU's PROPOSAL for legal text
on «Trade and Sustainable
Development» in TTIP:
• ARTICLE 3 «Right to regulate
and levels of protection» (i.e.
international labour standards)
• ARTICLE 8 «Equality and non-
discrimination in respect of
employment and occupation»
with reference to the UN
Universal Declaration of
Human Rights of 1948 and the
UN Convention on the Rights
of Persons with Disabilities of
2006
Evidence from

LEXCOM
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