Public Interest, Human Rights, and Foreign Investment

Abstract

Foreign direct investment (FDI) involves a private investor from one state (the home state) investing in another state (the host state). The time frame for the investment is usually medium to long-term. The investment is often governed by a contract, and protections are offered to the investor in an international investment agreement. The international investment agreement frequently contains provisions requiring disputes to be settled by way of investment arbitration. The medium to long-term presence of a foreign-owned private party in a state, that has been granted investment protection standards, has given rise to concerns regarding whether the host state’s ability to act in the public interest is compromised. Often, foreign direct investment results in public services being operated by private companies. Should these public services fail, the host state can intervene, but it risks breaching the terms of the international investment agreement. If the host state does not intervene, its population can suffer. Foreign investors may also undertake private activities that have negative consequences for local populations. For example, mining projects may have long-term environmental impacts. Investment protection standards may preclude the host state from introducing new forms of regulation to protect the public interest in a variety of fields. Human rights have been raised as a particular concern, given widely publicized human rights violations resulting from the actions of some foreign investors. Human rights such as indigenous rights, the prohibition on racial discrimination, the right to health, and the emerging “right to water” have all been raised in investment arbitrations. Conversely, host states can also act in a manner that violates the human rights of the foreign investor; for example, by arbitrarily detaining those associated with the investment project. Given the potential for the public interest to be detrimentally affected by FDI, it has been suggested that human rights and public interest claims be introduced into investment arbitration. However, given investment arbitration’s jurisdictional limits, there remains considerable debate regarding how this can be achieved. Further, investment arbitration has traditionally been confidential, preventing public access to hearings and public scrutiny of investment awards. In response, measures have been taken to improve public awareness of investment disputes and to permit interested groups to make submissions to arbitral tribunals. Nonetheless, investment awards may undermine host state regulatory power exercised in accordance with democratic processes. Consequently, research in the field of public interest, human rights, and foreign direct investment is increasing at a rapid rate.