International Monetary and Development Law - Research Paper Example

International investment law might apply be described as a foreign investors charter for unrestrained wealth-generation” Introduction Economic interests are among the driving forces for creating and forging legal rules. Tracing the historical facts we can see that the major reason behind setting the legal canons is the protection of life and property of men. It has also been propounded by the political thoughts of various thinkers like Hobbes and Locke in their theories of “States of Nature”. Therefore we can say that law is not enacted to merely guide the citizen’s acts and omission to act, but also to make norms ensuring basic social needs, equal political rights and fair intercourse of economic activities among the people. With the ushering in of globalization and giant leaps of technology and communication, the planet has become one huge international market. Trade and commerce and other economic activities now remain no more restricted within the domestic walls rather they have reached the international stage. Thus a pressing need for enacting such law at international level was felt which would be able to keep pace with this ever developing and growing economic phenomenon of globalization whilst ensuring that such progress is guided by rules of equity and fair play. The growth of these transborder economic activities has made the goods, services, and capital to have progressively cast off their territorial ties and circulate freely across the borders. Thus the international law which was just an instrument synchronizing the interstate relations gradually emerged to become a potent tool to provide a effective legal structure for the true global economic orders. In pursuance of these objects various international economic institutes has been set up and various international statues, treatise etc have been designed. (Waelde, 2000) When we talk of international monetary and development law, we are talking from the global dice which consists in its ambit different states, some of which are under-developed, some developing and others developed. The prime objective of such an International law should be to make sure that no nation is treated unfairly or be prejudiced merely due to them being economically handicapped. International Investment law is one such important bit of legislation which regulates one of the most important economic functions. It not only regulates the investment related laws from the international dice but also protects the interest of the investors from developing nations as against the developed nations. If these safeguards of fair investments are not bestowed upon these limited resource countries, their expected benefits might be affected and they would in turn be compelled to withdraw from further investments. Similarly, the underdeveloped nations having a very little experience in dealing with private investors may have to deal with the unfair conditions of the dominating investor which will ultimately result into weakening the value of their economy. Recently it’s being speculated if such international laws on investment are allowing an unfettered wealth generation to the foreign investors or not. Some people may argue that such a provision is the essence of globalization because more the privileges provided more would be the turnout of foreign investors, but isn’t this also in a way concentrating wealth in few hands and thus increasing the economic disparity? The International Investment Agreements add a number of important components and institutional determinants for Foreign Direct Investemt (FDI). It improves investment protection, adds to the security, transparency, stability and predictability of the investment framework and liberalizes market. However, more recently, the FDI inflows from developed countries into developing countries are adhering to the means of bilateral treaties. Although, most bilateral treaties do not change the key economic determinants of FDI yet they seek to make improvements upon it and thereby increases the likelihood that developing countries engaged in BIT programmes will receive more FDI which might be at the cost of host countries general welfare. The obligations embedded in IIAs can possibly constrain the sovereignty of the host country by entering into treaties that specifically limit their ability to take necessary legislative and administrative actions to advance and protect their national interests. Presently, there is nothing in the International Investment Agreements which might contain any specific obligations made by the capital exporting countries to their respective host countries unless the host country is well developed. The IIA’s mostly comprise of a ambiguous and vague language which can be very easily interpreted in the favour of the foreign investors and thus in a way discriminatory to the interest of the other party. The international laws on economic activities like investment was enacted to ensure fair share of economic welfare to even the poorest nations and thus bring them at par with developed nation while providing the developed nations with a wider market. This twofold aim should not be forgotten by the international investment laws in the garb of self development. Analysis The International investment law is a building block of the global economy. No capital formation is possible or no business can be conducted unless there has been a healthy investment in the economy. As discussed earlier, that successful foreign investments require international cooperation and the patronage of the host countries. It is a risky trade intercourse for both investor and the host state because it is indirectly interaction between two sovereigns. Initially the Host state and the investor may have largely converging interests in attracting and making investments, but the situation may change once the investment has been made (Schill, 2009). If the investor is in the dominating position he may simply withdraw his investments and re-employ it elsewhere causing severe financial loss to the host country. In such a circumstance the host country might have to succumb to the wrongful demands of the investor, thereafter filling his pockets at the cost of its own welfare. On the other hand, the host State has an incentive to change unilaterally the original investment terms by changing an investment contract, amending the law governing the investment, or even expropriating the investor without compensation (Schill, 2009). These types of opportunistic behaviour of the either party not only increase the cost of investments for both investors and consumers, but it may even prevent the flow of foreign investment completely. International investment laws have restricted such atrocities by granting rights to individuals and companies by recognizing enforceable inter-nation contracts, and providing dispute settlement mechanisms in both domestic and international forum. The vitality of the subsistence of these foundations cannot be questioned. In the absence of these, not only the economic escalation and development of a country will suffer badly but the individual investment decisions will also be adversely affected. The lack of these institutions is widely regarded as one of the major reasons for low levels of foreign investment, low income levels, and underdevelopment. Consequently, many domestic legal systems and international legal instruments have recognised the dual need of protection to the foreign investors and the desire of the host States to attract foreign investment. The international investment law is however tilted more towards the interests of the foreign investors rather than providing a balanced growth. The reason behind this slightly disproportionate balance seems to be the highly asymmetrical distribution of wealth throughout. We can mostly see the developed countries dressed as investors as against the developing and underdeveloped nations. In these under developed nations investors are hardly any and a major chunk of their population is below poverty line. These countries face a deficit balance of trade, widespread unemployment and their economies are weak enough to take investment risks. To strengthen their economies they seek foreign investments and cordial relations with their economically powerful allies for the sake of capital formation, employment opportunities, infrastructural development and other approaches of economic progress. The underdeveloped host countries are always anxious to please and allure the foreign investors to invest in their respective countries. They are also under a constant pressure to stay in good terms with their foreign investors so that people from their nations too can get an easy entry to the foreign territories as investors. This ultimately leads them to succumb under the pressure of the investors which ultimately leads to designing of the investment treatise in such a way so as to transmit unwarranted advantages to the foreign investors and act as a tool for their unrestricted wealth generation. This hegemonic approach of the international investment law has been subject to wide criticism due to its arbitrary and extensive application to capital-exporting and capital-importing States. This discrimination becomes more apposite with the entrance of more domestic economies into the universal market. Thus appears a situation where it seems that it is less States and their economies but more of the private players that compete with each other in the global economic structure. Therefore the International investment law, gets attributed with another onerous task of providing a successful framework to private investors to carry on with their economic activities in the newly materialized global space effectually. Under the present International investment laws and bilateral treaties conducted under it, the investors from the developed nations who are in the dictating position translate the host state’s policies into their favour and the economic system which is liberal market-based model of their preference. They not only exploit the host country under investment protection schemes and other competing policy concerns, but also compromise their environmental protection laws or labour welfare schemes. The manner by which these international investment rules are being determined, bargained, concluded, and implemented has drawn severe disparagement. They have been condemned as being unfair, unjust and a method adopted to preserve the dominance of these capital extorting states against the economically weaker ones. The developing countries, which had at times resisted the adoption of certain international treaty on investment within the WTO, were later, through the decisions of the ICSID and other investment tribunals, forced to accept pro-investment standards. Therefore, it is advisable for the developing countries to have an internationally negotiated treaty than to accept the often unbalanced and controversial dictates. There are plethora of laws and conventions to protect the interest of the investors but there are hardly any to check their atrocities. As a matter of fact the unjust acts of the investors are being dismissed by calling them the “steps towards globalization”. Article 11 and 12 of Havana Convention contended certain provisions to check the interest of the member countries by subjecting the investment law to certain restrictions. It empowered the member countries to adopt any suitable defences compulsory to guarantee that the foreign investment is not used as a basis for the interference in its internal matters or national policies. This charter however never saw the daylight owing to the US decision to discard it in 1950. The developed countries that have a vital say in all most all the international economic institutions mould the laws mostly to cater their needs. Take for example the USA forced India to open its market to the foreign investors while Indian economy was yet to recover from the imperialistic blues. India had to succumb to this pressure and its domestic and cottage industries suffered a vital blow even though USA enjoyed a huge market. Later when the developing countries gained a numerical majority in the UN, they attempted to introduce certain reforms like economic equality and prosperity for all. They introduced the agenda of a new international economic order called NIEO within the UN was a direct result of their apprehension regarding the rise of foreign corporate power and it’s ability and willingness to intervene in their internal matters. The alleged involvement of a US multinational in the overthrow of elected Allende government in Chile once again rekindled their concern regarding their sovereignty. Therefore they provided for conditions more suitable to developing nations. Article V of NIEO declaration sought to regulate the activities of Transnational Corporations. It provided that Transnational Corporations should refrain from interfering into the internal matters of the host state and must regulate their activities in the host state to eliminate the restrictive trade practices and to adhere to the national development plans and objective of the developing countries. It also contended that the TNC’s are to bring assistance, transfer of technology and management skills to the developing countries on equitable and favourable terms not only for their own benefits but also to make sure that the turnovers accruing from their manoeuvres are evenly distributed. The fair conduct of business is possible by promoting the reinvestment of their profits in developing countries and thus taking into account the legitimate interest of these countries too. The Charter of Economic Rights and Duties of the States was later adopted as a part of NIEO agenda but it has had an independent status and existence and its significance has not been diminished by the passing into history of the ideas that lay behind the NIEO itself. Another interesting provision with respect to the balancing of the rights of investors with the host state is the provision of “fair and equitable standard”. ‘Caveat Investor’ is the term which has led this provision to a new height. This phrase encapsulates the investor’s duties towards the shunning away of any unethical conduct and to function in a way so as to stay tuned to the moral codes of business and reasonability. (Muchlinski, 2006) The reasonable and equitable treatment standard is the cornerstone of the international investment law. It aims at protecting the interest of both investors and the money so invested. These standards have been incorporated under NAFTA and ICSID and have been a principal measure for the determination of the obligations of the host countries towards investors and investments. In this era of global investment, such application of the fair and equitable standards covers a wider range of governmental administrative action and judicial or other national dispute settlement processes (Schreuer, 2005).Therefore care has to be taken by the host government to implement these standards effectively and further put a check to any kind of misuse of application of such standards. However it’s important to design an international set of rules to define clearly what constitutes and what does not constitutes fair and equitable treatment on the part of the investors. In the absence of such set of concrete rules different countries might frame different laws, which might be contradictory to one another. The importance of these standards can be well asserted from the two cases decided by the International Court of Justice (ICJ). In the “Barcelona Traction Case”, (1970) ICJ Reports 3 ,the ICJ made certain pronouncements concerning the role of equitable analysis in relation to investor claims against host countries, and, more importantly, in the “ELSI Case”, (1989) ICJ Reports 15, where the conduct of investors lay at the heart of the decision that the 1948 US-Italy Treaty of Friendship, Commerce and Navigation, and its 1951 Supplementary Treaty, had not been breached by the Italian authorities when dealing with the events arising out of the bankruptcy of the US owned and controlled Italian company Elettronica Sicula SpA (ELSI) (Muchlinski, 2006).The judicial indictment shows that the investors conduct would be a potent factor while determining whether the fair and equitable standard has been breached or not and thus has to be considered while deciding the amount of compensation to be awarded. All most all the international enactments provide for the extensive protection of the foreign investors. In Subedis (2009) opinion, this protection could go so far that, by virtue of obligations to provide full protection and security, ‘foreign investors will demand full protection against terrorist activities at the expense of the host state, and in the event of terrorist attacks claim compensation against host states for failing to prevent such attacks’. He also makes note of the fact that all the protection schemes which the developing countries were made to provide to the developed country’s investors do not follow the reverse trend. The major developed countries, such as the United States, actually seek to curtail such extensive investment protection when they are placed as the host countries. Underlying this trend is a concern that the very standards of treatment once advocated to protect US investors abroad were invoked in investment arbitration against the US by investors from other countries. This typically shows that how powerless the international laws are when it comes to restrict the foreign investors. Extensive interpretation of investment treatment standards in favour of foreign investors tends to result in reverse discrimination, where many kinds of protection available to foreign investors may be withheld from domestic investors. In this view, adopting a global treaty on foreign investment and establishing an international court of foreign investment will ensure the uniform formulation, interpretation, and application of investment protection standards and this task should be entrusted to the international bodies like UN, WTO, or the World Bank (Calamita, 2009). Similarly, the author suggests that, following the successful adoption of the 2001 Draft Articles on State Responsibility, the ILC could be entrusted with drafting articles on the fundamental principles of foreign investment law which, importantly, should include provisions on foreign investors responsibility. It is recommended that provisions should be made so as to revise the Bilateral Treatise executed by the contracting parties, to prevent the stronger party taking an upper hand. BITs should include terms delimiting the amount of compensation, and provide for remedies other than monetary compensation. Thus would be a beneficial agenda for countries like Tanzania, Afghanistan etc which are financially so unstable that they cannot provide for monetary compensation. Here the compensation should be of type like “reinvestment in the same country under more liberal terms”. The tribunals handling such matters of compensation should take sufficient notice of the cause and treatment of causation. Subedi (2009) puts forth a very challenging reformist opinion that, in order to reconcile the promotion of foreign investment with competing policies, victims of foreign investors activities which violate human rights and cause environmental degradation should be given access to international courts and tribunals. International Investment Law should club together the significant substantive and procedural aspects the law with respect to this problem of unequal economic benefits and thus certify the successful, balanced and effectual functioning of this international investment law on foreign investment. Conclusion The international law of investment merely should not be a statute helping the foreign investors in making unrestricted profits rather it should also encompass other universal welfare considerations like promotion of sustainable development, protection of human rights, eliminating world poverty, upholding labour rights etc. International cooperation is inevitable in these events of international economic activities, because no individual State can suffice by itself to provide all such rules and regulations required for global monetary exchange. The recent developments in the international investment law on foreign investment have prompted concerns that the interests of foreign investors are being protected against the vicissitudes of divergent economic and political regimes in host countries at the expense of other important public values. Efforts are needed to be made by the international institutions to optimize the regulation of foreign investments, for their international protection and aim some form of fundamental principles under the auspices of the UN, OECD, World Bank, IMF and the WTO to prevent these foreign investors from unfettered wealth generation. The trend towards the extensive protection granted to foreign investors by a broad interpretation of investment treatment standards is alarming. These foreign investors are not only getting away after violating the labour laws and human rights, but they seldom bother to compensate the victims of their misdeeds. The object of the international law of trade and investment is to ensure a level playing-field and equality before the law. However this equal treatment still seems a distant dream. The victims of the Union Carbide Company v Union of India, more popularly known as the Bhopal gas leak Tragedy have yet not been compensated as they did not have any effective international remedy against a foreign investor. While we celebrate the success of the international investment law in protecting the foreign investors and thus giving a thrust to the global economic give and take, we cannot overlook the hazards it’s posing to its weaker counterparts. All the countries in the world are not at par. Many of them had been imperialised in the past and their economies are still in shackles even after independence. These countries would need some softer laws and certain benefits to at least rebuild their economies in a decent shape. International investment laws should not be designed in such a way to push their economies more into the ditch rather it should offer the ways of promotion of investment and reconcile it with competing policies. References Calamita, J., 2009. The British Bank Nationalizations: An International Law Perspective. 58 ICLQ (2009) 119. Schreuer, C., 2005. Fair and Equitable Treatment in Arbitral Practice. (2005) 6 JWIT 370-373 Campbell, D., 2009. International Protection of Foreign Investment, Yorkhill Law Publishing. Policy framework for investment. Non-discriminatory treatment for national and international investors, Available at: http://www.oecd.org/document/29/0,3343,en_39048427_39049329_39634141_1_1_1_1,00.html accessed on 26th May 2010 Waelde, T., 2000. Changing Directions for International Investment law in the Global Economy An Overview of Selected Issues. Available at http://www.dundee.ac.uk/cepmlp/journal/html/vol4/article4-2.html accessed on 26th May 2010 Schill, S.W. 2009. The Multilateralization of International Investment Law, Cambridge University Press, New York Small, C.Y., 2005. Indirect Expropriation and the “Right to Regulate” in International Investment Law. International Investment Law: A Changing Landscape A Companion Volume to International Investment Perspectives. ICCs expectations regarding a WTO investment agreement, 2003. Available at http://www.iccwbo.org/policy/trade/id564/index.html , accessed on 28th May 2010 International Investment Rule-Making Stock Taking ,Challenges and The Way Forward. 2008.United Nations Conference on Trade and Development. Available at http://docs.google.com/viewer?a=v&q=cache:18uRHeLyvY4J:www.unctad.org/templates/Download.asp%3Fdocid%3D10129%26lang%3D1%26intItemID%3D1397+foreign+investors+earning+unrestricted+wealth+under+international+investment+law&hl=en&gl=in&pid=bl&srcid=ADGEESg0ZxRMKAbj4EvR_3SaFO2syBAl_bmsnQXW3i87fBNhwwPYYAzzBwMiv-9SIsZcwK2yh7FhN24Jkt4HNv1C75w2jiVxd5LZ02eE5ImsN__IJEpH88kl8pLTREkSZyvTFLVxwveW&sig=AHIEtbTzMYH4cKXNV1Sjo_C0m79fYcLqlQ accessed on 28th May 2010 Muchlinski, P. 2006 "Caveat investor?" The relevance of the conduct of the investor under the fair and equitable treatment standard, International & Comparative Law Quarterly Subedi, P.S., 2009. International Investment Law: Reconciling Policy and Principle. Publication Review, European Journal of International Law Read More