Previously published in The Institute for Transnational Arbitration's News & Notes, Volume 22, Number 2, Spring 2008.
Key investment-protection features in the 3,000 investment treaties that bind much of the world are under attack, and no one seems to be taking the necessary steps to protect these important features.
This assault ought to be a worrying development for those who believe in the value of the global system of investment protection.
There is a real risk that opponents of investment protection are managing to define the issues to fit their political agenda, choose "hot button" language that will characterize the issues in the mind of the public, and demonize important aspects of the investment-protection system. They seem to be winning over important constituencies in various parts of the world and gaining a momentum that soon could become unstoppable.
Who is speaking out to the media, writing op-ed pieces, explaining to the public everywhere – in an understandable and personally meaningful way – why the investment-protection system fundamentally advances people's long-term economic welfare and why it is fair and efficient? Who is getting them to appreciate and believe that treaty protections are designed to – and do – encourage international investment, and in turn host-country prosperity, by protecting foreign-owned companies from discrimination, arbitrary nationalization and other unfair treatment at the hands of host governments? Who is explaining and persuading why it's a system worth preserving, improving and protecting?
There needs to be a well-considered, effective communication plan – sooner rather than later. Compelling reasoned arguments among the converted will not suffice.
The issue was highlighted by the Financial Times recently, which referred to the "noisy battering" of the North American Free Trade Agreement (NAFTA) by both Democratic presidential candidates – in particular Senator Hillary Clinton, who said, "We're going to take out the ability of foreign companies to sue us because of what we do to protect our workers."1
Opposition to investment-protection provisions is growing among emerging-market governments, with support from a wide range of powerful and sophisticated NGO campaigners who assert in colorful and pointed language that, first, investment protection undermines democracy and human rights, and, second, the arbitral tribunals that determine claims violate national sovereignty, operate ad hoc and in secret, and function without due process, permanent judges, consistency, appeal rights or transparency.
With strong rhetoric coming not just from emerging-market governments but from several quarters in the United States – especially when high-profile claims are brought against the country under the NAFTA or bi-lateral investment treaties – we can envision the convergence of strange bedfellows (forces of opposition from divergent countries) turning the hearts of people in many countries against investment protection as we know it.
The case for investor protection is not being made. Supporters of investment protection tend to talk among themselves. They articulate the benefits of investors being able to claim against states. They analyze the actual modest awards in successful claims that may have been headline grabbers when they were launched due to the amounts claimed or the nature of the government action challenged. They consider the many claims in which defendant governments have prevailed. They discuss whether changes should be made to the system, what those changes might be, and the pros and cons of the potential changes.
But they shy away from the growing debate in public arenas. They are disinclined to be drawn into using their political currency on the issue. Be it at their peril. The battle could go by default to the political opponents of the existing system unless those who believe in it stand up as a political and media-savvy force to protect it.
Investment protection needs to seen as the political issue that the opposition forces have made it. And the investment community needs to quickly learn how to succeed in this contest; otherwise investor protection rights may be lost. The existing system may not be perfect and improvements may be possible, but it is not, nor should it be, a static system. It is a credible, independent system with reasonably well-defined parameters and processes. Investors and states can make reasonably informed decisions in the middle ground, even if claims periodically push the envelope or states inadvertently take action without anticipating their potential exposure.
It is time for those who care about investment protection and its benefits to get out in front, to work to influence the shape and scope of the issues and to weigh in on those issues. These supporters need to find ways to come together, marshal adequate resources, take professional communications advice, and develop and implement an effective communications strategy that will incorporate compelling messages about the benefits of investment protection – and will resonate with the publics of developed and developing countries. The messages must be not only credible and intellectual but also understandable and emotionally compelling. They must recognize and address the themes and rhetoric of the opponents of investment protection, which are proving attractive to too many people in too many places.
Time may not be kind to those who are underestimating or misreading the forces lining up against investment protection. Keeping a low profile and appealing to sympathetic constituencies with reasoned arguments alone seem unlikely to prove sufficient to succeed against the rising tide of opposition to investment protection.
Barry Leon practices international and domestic arbitration in the Toronto office of Torys LLP.
Footnote
1. Alan Beattie, "Concern Grows over Global Trade Regulation," March 12, 2008.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.