Reconceptualizing the Right to Regulate in Investment Agreements: Reflections from the South African and Brazilian Experiences

Abstract

Concerns about the restrictions imposed by Bilateral Investment Treaties (BITs) on states ability to regulate for public interest have given way to moderate reform. Now some BITs recognize the right to regulate, specifically in the areas of environment, health and safety. However, these changes don’t address the main interests of developing countries, including core values concerning economic justice or industrial policy objectives. The cases of South Africa and Brazil suggest there are alternative paths. South Africa enthusiastically embraced BITs as a way to attract investment but soon realized the constraints they imposed on the state’s ability to further economic justice according to its post-apartheid Constitution. It decided to terminate its BITs, adopt a new investment protection act limiting the protection of foreign investors, and decided to use domestic courts to solve disputes. Brazil decided not to enter BITs and instead pursued Agreements on Investment Cooperation and Facilitation (ACFIs) that delimited the rights of foreign investors. These examples show that developing countries have options outside the BITs. Conversely, they suggest that to truly accommodate the interests of developing countries, the right to regulate under BITs has to be expanded considerably to include distributive justice concerns and industrial policy goals. Otherwise, the investment regime will reinforce global inequalities and likely force countries to exit the system.