by Tabe van Hoolwerff*
Imagine, you are an EU trade minister and you want to attract foreign investors by offering a stable investment climate. At the same time, you also want to avoid potential claims arising from government measures that seek to protect the environment or labor standards – a fear your non-business stakeholders have been very vocal about. You have also learned from the business sector that Investor-State Dispute Settlement (ISDS) is a means of last resort. So there must be room for maneuvering in the area of conflict prevention. Two keywords from your experience in the policy field of responsible business conduct spring to mind: transparency and mediation. How to go from there?
Despite the public belief that foreign investors will easily sue their host governments when faced with measures that impair their profitability, you realize that by far and large such measures remain uncontested at the investor-to-state level. Moreover, measures aimed at business activities in order to e.g. reduce their environmental impact are also in the self-interest of companies and a business sector as a whole. When a laggard in the industry fails to uphold common yet not mandatory levels of environmental protection, then that may put the social license to operate of the industry as a whole at risk.
So, new legislation requiring particular environmental standards to be upheld for that industry is likely to help them all in the long run. You smile when realizing that it ‘only’ takes a fine minister as yourself and your colleagues to find the right balance between adequate environmental protection and reasonable costs for the business sector. Typical Brussels jargon such as subsidiarity and proportionality may even spring to mind.
Back to transparency. Although you are not likely to be an expert in international investment law, you have learned that cases often center around ‘legitimate expectations’ of the investor. So in order to guide these expectations, you want to inform (potential) foreign investors about the basic regulatory framework in your country and the democratic process for making new laws and regulations, in which they could perhaps even participate. It would indeed be useful to compile this information on such issues as disclosure, corporate governance, labor and consumer rights, environmental standards, anti-bribery laws and taxation into one convenient document.
Of course you want to mention that these laws and regulations are upheld in a non-discriminatory manner, in case an investor might think he could be bullied on the basis of all these norms and standards. You decide to call them ‘Guidelines for Responsible Investment’ or something similar. You want to use that word ‘responsible’ because it reassures your non-business stakeholders what kind of investment and investors you want to attract and it tells investors to be responsible by making themselves aware of laws and regulations and how to appropriately engage in their making.
Obviously, these Guidelines need to be disseminated. If you do not yet have a special agency for attracting foreign investment, you might consider doing so now and give it a catchy name that will send the right signals to all stakeholders, like ‘National Contact Point for Responsible Investment’. This Contact Point can draw a communication plan, visit trade fairs and help organizing incoming trade missions where potential investors learn of both the opportunities and obligations when investing in your country.
But no matter how clearly you and your government communicate about laws, regulations, individual permit procedures and subsidy schemes, a conflict between your government and a foreign investor might still emerge one day. You know investors are not happy to resort to investor-state arbitration – it is expensive and the odds are not with the investors – and neither are you. Investor-state conflicts are bad publicity of course. Similar to legal disputes between private parties, you think that a state and a foreign investor should be able to try amicable venues first, such as mediation.
Of course, when offering mediation, you do want to keep some level of control, but also provide assurance to the investor that the entity providing its good offices knows about doing business and the various risks involved. Well, why not put that same Contact Point in charge here? All it needs is some procedural guidance on how to handle specific instances in which a foreign investor alleges discriminatory government measures have run counter to his legitimate expectations. The objective should not be to render verdicts about right or wrong, but to produce future-oriented recommendations that enable the investor to continue his/her business, so creating jobs and government revenue while observing applicable norms and standards that protect public goods.
In short, you could come up with the idea of drafting Guidelines for Responsible Investment that would be disseminated by a National Contact Point that would also deal with complaints by offering its good offices to aggrieved investors. It would be helpful of course if all your EU colleagues would apply a similar model, for purposes of a level playing field and exchanging experiences with handling investor complaints. Only then you realize that this plan sounds all too familiar. You call your investment policy expert to verify your thoughts. (S)He will indeed confirm that your plan strikingly resembles the 1976 OECD Guidelines for Multinational Enterprises, the related National Contact Points and their tasks, responsibilities and procedural guidance, most recently updated in 2011.
Only that it has been used in the past two decades by civil society to hold companies to account. But indeed, with some creativity the OECD Guidelines and NCPs could also be applied as an ISDS prevention mechanism. After all, the Guidelines are part of the OECD Declaration on International Investment and they include an encouragement of the use of arbitration as an appropriate means of dispute resolution between enterprises and host governments. How come nobody else ever thought of this? Would it not be worth exploring?
Tabe van Hoolwerff is a legal counsel with Shell. This blog was written and published on a personal title and not on behalf of Shell. The views reflected are Tabe’s own and do not necessarily reflect those of Shell.