Reform Global Investment Rules!

That slogan, or a zippy version of it, may well pop up in the speeches of Democratic candidates for President. Here’s why.

A big reason for the public’s suspicion of globalization is that its governing rules and procedures are mysterious to almost everyone, except for a select group of insiders. Few of those rules and procedures are more mysterious than the ones governing cross-border investments, even as international agreements protecting them have multiplied at a pace almost as rapid as foreign investments themselves.

Now some countries and international NGOs are demanding a simple reform to help demystify the process of protecting foreign investment. They want transparency in how international tribunals make decisions in disputes between foreign investors and the countries in which they invest. The issue is highly sensitive because current intergovernmental agreements on investments are generally one-sided -– they contain a series of rights for inward capital, but they lack any counter-balancing investor responsibilities.

This imbalance is a serious flaw in the 15-year-old North American Free Trade Agreement (NAFTA), and is at the root of some U.S. labor and NGO attacks on its Chapter 11, which grants U.S. and other foreign investors rights in Mexico without commensurate responsibilities. This lop-sided protection, which the U.S. has duplicated in other free trade agreements, has not surfaced as an issue in the U.S. Presidential contest, but may if Hillary Clinton and Barrack Obama are asked for details explaining why they say NAFTA needs to be reformed.

Meantime, some developing countries, joined by two international NGOs and some developing countries that have been bitten by expensive lawsuits under Chapter 11, are seeking change in one contentious area of the larger problem. They are pressing for a partial reform in rules to make transparency a requirement in all arbitrations filed by private foreign investors against states. In early February, however, this initiative was rebuffed by a UN Working Group charged with revising a key set of international arbitration rules.

If you have gotten this far, bravo. There’s more.

This is not a riveting issue. No wonder, then, that you haven’t seen or heard anything in the media about it, not even about the February 15 joint press statement released by the two international NGOs, the Center for International Environmental Law and the International Institute for Sustainable Development. But bear with me, please.

John Ruggie, UN Special Representative to the Secretary General, recently summarized what is at stake: “Adequate transparency where human rights and other state responsibilities are concerned is essential if publics are to be aware of proceedings that may affect public interest. Indeed, transparency lies at the very foundation of what the United Nations and other authoritative entities have been promulgating on the precepts of good governance.”

The joint press release, besides quoting Ruggie’s words, has a lengthy explanation of the issues involved and how a transparency reform, though delayed, might still be adopted:

Under regulations laid down in free trade and investment pacts, foreign investors have the right to bypass local courts and bring disputes with the host state to international arbitration. Even when these disputes raise crucial public interest issues -- impacts of failed water privatizations, financial crises in developing countries, and environmental and health regulations, for example -- arbitrators are able to hide their work behind a veil of secrecy. Thus, interested citizens, NGOs, and other governments are kept ignorant about decisions affecting them.

A Working Group of the UN Commission on International Trade Law (UNCITRAL), which is responsible for a key set of rules governing these arbitrations and is currently revising them, has so far blocked inclusion of transparency provisions in the revision. But the question has now moved from the Working Group to the UNCITRAL Commission itself, which meets in June at the UN headquarters in New York

By airing the issues publicly now, the two NGOs, IISD, headquartered in Canada, and CIEL, headquartered in Washington, are hoping that their arguments will persuade the UN Commission on International Trade Law to decide in favor of sunshine.
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Is there any likelihood of awakening public interest in this issue? Read on.

The present UN arbitration rules, dating since 1976, do not distinguish between private commercial arbitrations and those between a state and foreign investors and thereby apply the same secrecy rules to both. But the public interest element in investor-state disputes requires transparency, as argued in a 17-page study by IISD and CIEL.

Also enlightening, and on a wide range of foreign investment issues, is an IISD publication on “Why Elected Officials Need To Pay Attention to International Investment Agreements.” Trade union leaders and their staffs also need to pay attention.