Introduction

One of the most important pillars of investment protection under international law is the understanding that a foreign investor investing in a host state should be treated ‘fairly and equitably.’ The importance of this notion is supported by the inclusion of the fair and equitable treatment (FET) standard in most of the International Investment Agreements (IIAs), as well as its invocation in the vast majority of investment disputes. However, the concern has been expressed frequently that a broad interpretation of this usually openly formulated provision has an adverse impact on the host state’s ‘right to regulate’ in the public interest. These concerns have been voiced particularly as a result of FET claims in which investors have challenged a variety of state decisions in publicly sensitive areas, e.g. renewable energy, waste management, public health issues, and access to water. In this regard, tribunals have often been criticised for attaching insufficient weight in their assessment of the FET standard to a host state’s right to regulate and its duty to fulfil its obligations under other international treaties, such as human rights and environmental treaties.

In the last five years the balance has gradually shifted from an approach of a broad interpretation of investor protection under the FET standard to an approach in which the state’s right to regulate is also recognised, and in particular when this right is exercised to benefit the public interest and/or to fulfil obligations in the field of human rights, health, and environmental protection, derived from international treaties.[1]

However, there are still gaps in clarifying the scope of the FET standard in the IIAs, including the new generation of treaties.  The following proposals made in the context of the 2018 UN Forum on Business and Human Rights are aimed at harmonising treaty practice – both treaty drafting and treaty interpretation practice. In the proposals, a host state is allowed to maintain adequate policy space to exercise its right to regulate in the public interest and, on the other hand, is obliged to observe its obligations under FET standards in IIAs:

• Exhaustive list of the state’s obligations complemented by a provision on the state’s right to regulate

For example, in the IIAs concluded between the EU and Canada (CETA), the EU and Vietnam, and the EU and Singapore the obligation to provide fair and equitable treatment has been clarified through an exhaustive, but expandable, list of the state’s obligations in relation to foreign investors. Furthermore, these agreements include provisions on the state’s right to regulate in the public interest. What is important in reforming the FET standard in future treaties is to continue to include such a list. The exhaustive list of obligations provides some certainty and predictability to host states and investors about those types of state conduct that might lead to a breach of the FET standard.

Also important is the explicit codification of the host state’s right to regulate in some recent IIAs. See examples hereof in CETA, the EU-Singapore FTA and the Dutch Model BIT. Explicating the right to regulate in the body of an IIA constitutes a strong sign that, in the opinion of the contracting states, the role of tribunals is to balance the state’s public interests and the interests of the investor when interpreting and applying the FET standard.

• Direct obligations towards investors

Further, retaining adequate domestic policy space, while providing the FET standard to investors, can be attained by including a provision on Corporate Social Responsibility (CSR) in the IIA (see our article). Such a provision should be addressed directly to foreign investors rather than to the contracting states. Examples hereof are the 2016 Morocco-Nigeria Bilateral Investment Agreement (BIT), the 2016 Argentina-Qatar BIT, the 2016 Pan-African Investment Code, and the 2012 South African Development Community (SADC) Model Bilateral Investment Treaty Template.

Also, it is essential to specify in the CSR provisions to which CSR norms an investor should adhere while operating in a host state. It is not sufficient to merely refer to the ‘internationally recognized standards of corporate social responsibility’ that often can be traced in CSR provisions. In the absence of a definition of CSR norms, tribunals may face difficulty in interpreting these norms, as it will remain unclear as to what investor obligations flow from such CSR provisions. A concrete specification of the CSR norms that foreign investors are expected to comply with when investing in the host state provides more concrete guidance to such investors, as well as to arbitrators. For example, the Dutch Model BIT refers to the OECD Guidelines for Multinational Enterprises, the United Nations Guiding Principles on Business and Human Rights, and the Recommendation CM/REC(2016) of the Committee of Ministers to Member States on human rights and business. The Morocco-Nigeria BIT refers to the ILO Tripartite Declaration.

Such CSR obligations of investors - stipulated in an IIA - can be even more effective, if the same treaty also contains a provision that allows a tribunal to reduce the protection under the substantive investment protection clauses, e.g. the FET standard, in a situation where an investor has breached one or more of the CSR provisions contained in the IIA. For example, in Article 23 ‘Behavior of the investor’ of the Dutch Model BIT such a provision has been included. It provides that ‘a Tribunal may, in deciding on the amount of compensation, take into account non-compliance by the investor with its commitments under the UN Guiding Principles on Business and Human Rights, and the OECD Guidelines for Multinational Enterprises.’

• The investor’s due diligence efforts

The inclusion of the investor’s duty to conduct due diligence, is another aspect that can help to create a better balance between the rights and obligations of states and investors under the FET standard. For example, in Article 7 of Dutch Model BIT, the contracting parties are encouraged to reaffirm the importance of due diligence conducted by investors ‘to identify, prevent, mitigate and account for the environmental and social risks and impacts of its investment.’

The due diligence conducted by foreign investors in assessing the socio-political risks in a host state has been growing in importance in tribunals’ assessments of the FET standard. Some FET tribunals (see, for example: Charanne v. Spain, Isolux Netherlands, BV v. Kingdom of Spain, Mamidoil v. Albania) have underlined that an investor bears the responsibility of appraising the reality and the context of the state, in which the investment is/will be made, by performing a due diligence investigation and conducting risk assessments. The investor has to be aware and to take into account the relevant regulations, policies and decisions concerning its investment in order to anticipate the possible risks. This aspect played a role in cases in which the investor’s claim was based on a claim to protect his ‘legitimate expectations’ in the context of regulatory changes applied to a general regulatory framework. The extent of an investor’s due diligence investigation can operate as a yardstick in judging whether an investor could have predicted the contested changes. As was pointed out in Isolux Netherlands, BV v. Kingdom of Spain, if the changes were not foreseeable by a prudent investor, despite visible efforts to collect the information about the future of the regulatory framework, the legitimate expectations of the investor may be protected under the applicable IIA.

Therefore, it would be advisable to specify in a IIA that an investor has the duty to conduct adequate due diligence comprising an investigation of the environmental, human rights, and social risks, and that this constitutes a condition for receiving fair and equitable treatment. An explicit reference in IIAs to an investor’s duty to conduct due diligence also strengthens the importance of investors’ responsibilities under international investment law.

General Conclusion

In this contribution, several proposals have been made in the context of the 2018 UN Forum on Business and Human Rights to further clarify the right of investors to receive the FET standard under an applicable IIA and to assure the adequate policy space for host states to regulate in the public interest. We have suggested to include (or to continue to include) an exhaustive list of the state’s obligations under the FET standard into the text of IIAs with the aim to provide a certain degree of predictability to foreign investors as well as host states regarding the types of state conduct that might lead to a violation of the FET standard. Also, the provision on the right to regulate should continue to be included in the operative part of IIAs. The function of the aforementioned provision is not to exempt the state from liability under the FET standard. Rather, it requires tribunals to balance the state’s public interests and the interests of the investor, while interpreting and applying the FET standard. Finally the proposal further argues that by incorporating the direct CSR obligations imposed on foreign investors, as well as the inclusion of the investor’s due diligence duty into the text of IIAs will further assure the balance of the rights of the investor under the FET standard and the state’s right to regulate.

[1] This is based on the study of Y. Levashova, ‘The Right of States to Regulate in the Public Interest and the Right of Investors to Receive Fair and Equitable Treatment,’ Kluwer International Arbitration Law Library, forthcoming in 2019. 

Editor’s note: Daniela Heerdt is a PhD candidate at Tilburg Law School in the Netherlands. Her PhD research deals with the establishment of responsibility and accountability for adverse human rights impacts of mega-sporting events, with a focus on FIFA World Cups and Olympic Games. She recently published an article in the International Sports Law Journal that discusses to what extent the revised bidding and hosting regulations by FIFA, the IOC and UEFA strengthen access to remedy for mega-sporting events-related human rights violations.

The 21^st FIFA World Cup is currently underway. Billions of people around the world follow the matches with much enthusiasm and support. For the time being, it almost seems forgotten that in the final weeks leading up to the events, critical reports on human rights issues related to the event piled up. This blog explains why addressing these issues has to start well in advance of the first ball being kicked and cannot end when the final match has been played.

The Warm-up: Preparing for the Game

Even though the recently published update by FIFA’s Human Rights Advisory Board compliments FIFA on its increased efforts for tackling human rights issues related to this year’s World Cup, it is no secret that thousands of workers were exposed to severe human rights violations while working on World Cup construction sites in Russia.[1] Human rights groups such as Human Rights Watch (HRW) extensively reported on the structural exploitation that workers were facing, including unsafe working conditions leading to numerous injuries and the death of 17 workers, forced illegal work due to lack of employment contracts, and cases of non-payment or serious delays in payment of wages.  Those workers that dared to file a complaint were threatened with retaliation and non-payment of wages.[2] Furthermore, journalists and human rights advocates that tried to report on these cases have been intimidated, denied entry into the country, or even arrested while carrying out their investigations.

Blaming the occurrence of these human rights violations on Russia being this year’s World Cup’s host would ignore the fact that these violations are recurring in the context of mega-sporting events (MSEs) like the Summer or Winter Olympic Games or the World Cup. To a certain extent, these events heighten pre-existing human rights risk in the host country and thereby increase the likelihood for violations to occur. Thus, numerous stories of exploitation of migrant workers have been documented in relation to the construction works for the 2022 World Cup in Qatar. Furthermore, worker’s rights are not the only rights that are at risk during the delivery of MSEs. Other common types of human rights abuses associated with hosting MSEs are cases of forced displacement, infringements of participatory rights, and infringements of freedom of expression and the right to protest.[3] Shortly before and during these events, reports on incidents of excessive use of force by local police and private security forces, as well as arbitrary arrest and criminalization of homeless people and street children are also commonplace.[4]

The First Half: Establishing Responsibility

The key challenge in addressing these cases is to identify the actor and actions responsible for these harmful outcomes. However, MSEs like the FIFA World Cup are jointly organized and staged by a mix of public, private, national, and international actors. International sports bodies, like FIFA or the International Olympic Committee (IOC), set the terms and conditions under which these events can be hosted. Host countries agree to these conditions by submitting government guarantees and declarations and by adopting special event-related legislation. Furthermore, local and regional authorities issue permits and give orders to enable and facilitate event-related operations. The local organizing committees are responsible for living up to the conditions set by the sports bodies and for hiring the necessary contractors. These range from local to international firms, from city planners and logistic experts, to food suppliers and construction firms.[5] Further companies that profit from the MSE-business are international broadcasting firms and recruitment agencies. The financing of these events is secured through national and international corporate sponsors, such as McDonald’s and Budweiser for this year’s FIFA World Cup.[6]

The intuitive thing to do from a human rights perspective would be to call upon the responsibility of Russia as the host country to address these abuses, since states are not only responsible for respecting, protecting and fulfilling human rights but also for preventing third parties from abusing human rights on their territory. However, this would ignore the real issue at stake: the fact that MSE-related human rights abuses are the result of complex collaboration between multiple actors involved in delivering these events. In the case of exploitation of workers on World Cup construction sites in Russia, construction companies contribute by imposing abusive employment conditions; recruitment agencies by recruiting the workers under false promises; the state by failing to protect the workers and potentially even facilitating certain practices through its event-related policies; FIFA by requiring a certain number and standard of stadiums for the event; and finally also the sponsors by providing the necessary finances.

This rather simplified identification of the various contributing actors only presents a broad indication of how they contribute to these violations and share responsibility. The problem is that the entanglement of actors and their operations creates highly complex governance structures. In order to identify those actors responsible for the violations, victims first have to untangle these structures and retrace the chain of decisions taken, permits issued, orders given, and actions taken. Even if that succeeds, the key challenges are to identify which of the contributing acts would give rise to legal responsibility and to establish responsibility for those actors that have no direct obligations under international human rights law.

The Second Half:  Establishing Accountability

The entanglement of actors and their contributions does not only impede the identification of the responsible actors but also the identification of adequate accountability mechanisms. The business and human rights field knows a broad spectrum of mechanisms ranging from judicial to non-judicial, and from state-based to operational level mechanisms. Up to this point, the few attempts to hold certain actors accountable for MSE-related human rights violations either have been unsuccessful or only addressed a fraction of the actors or types of violations involved. For example, FIFA’s responsibility for World Cup-related human rights abuses has been the subject of a court case in Switzerland and two specific instances dealt with by the Swiss National Contact Point (NCP). The court in Zürich dismissed the case with unusual speed on mainly practical grounds (a more detailed discussion of the judgement can be found here).[7] The mediation procedure at the Swiss NCP led to the creation of a monitoring system for decent work and safety in the workplace for migrant construction workers in Qatar[8], but their living standards and the abuses of recruitment agencies were not addressed.

What these attempts highlight is that the main shortcomings of available mechanisms amount to a lack of access to these mechanisms for affected groups and individuals and a lack of human rights receptivity of existing mechanisms. In light of these shortcomings, new mechanisms are currently being developed and existing mechanisms are being tested in the MSE and human rights context. Just in time for the start of the World Cup, FIFA launched its new complaint mechanism for human rights defenders, which provides human rights defenders and media representatives with an avenue for complaints for situations “in which they consider that their rights have been unduly restricted when conducting work in relation to FIFA’s activities”.[9] Via an online platform, human rights defenders, journalists and other media representatives can submit a complaint and FIFA commits to ensure that it will apply an “appropriate follow-up processes” to it.[10] FIFA itself is supposed to assess these complaints and seek cooperation with third parties that are involved in the matter and relevant institutions that can support the complainant.[11] With regard to testing existing mechanisms, the possibilities for using arbitration as means to address MSE-related human rights issues opened up with the revised bidding and hosting regulations of FIFA and the IOC. Both entail provisions for human rights protection and arbitration clauses, referring to the Court of Arbitration for Sports, for challenging the performance of the host-city or -country under any of the provisions.

The Overtime: The Winner Takes its Share

One way of interpreting these recent efforts of international sports bodies to increase awareness and respect for human rights protection in connection with their events is to argue that they are increasingly becoming aware of their share of responsibility and accountability. Indeed, the increased awareness of adverse human rights impacts of MSEs triggered a number of initiatives that aim at raising human rights standards in the MSE business. In 2016, the MSE platform for human rights has been created, which is a multi-stakeholder coalition consisting of international and intergovernmental organisations, governments, sports governing bodies, athletes, unions, sponsors, broadcasters, and civil society groups, who are committed to take joint action to protect human rights throughout the MSE lifecycle. Recently, this multi-stakeholder initiative created the Centre for Sport and Human Rights, which is an independent center that connects stakeholders and affected groups to share knowledge, build capacity, and strengthen accountability for adverse human rights impacts of sports more generally. Concrete event-related examples of initiatives exist as well. In the run-up to this year’s World Cup, FIFA, Russian authorities and representatives of trade unions took a joint effort to set up a monitoring program for labour conditions on World Cup construction sites. Similar processes led to the establishment of a worker welfare monitoring system for workers on World Cup construction sites in Qatar.

Nevertheless, significant challenges remain in relation to concrete cases of MSE-related human rights abuses and it is important that these efforts do not fade after the final match has been played. MSE-related human rights violations do not automatically stop when the event is over. In some cases, for instance cases of forced evictions, violations continue as long as victims have not been compensated adequately. These challenges do not make it a hopeless endeavour, but they highlight that more work and change is needed before responsibility for MSE-related human rights violations can be established. Especially, most of the developments and efforts of sports governing bodies are rather recent and only apply to events that will take place in the future. Hence, it remains to be seen whether the revised bidding regulations can ensure that future World Cups will have a more positive human rights legacy and eventually avoid adverse human rights impacts altogether.

[1] Business & Human Rights Resource Centre, ‘Russia 2018 FIFA World Cup’ <https://business-humanrights.org/en/russia-2018-fifa-world-cup> accessed 14 February 2018.

[2] ibid 27.

[3] Megan Corrarino, ‘“Law Exclusion Zones”: Mega-Events as Sites of Procedural and Substantive Human Rights Violations’ (2014) 17 Yale Human Rights and Development Law Journal 180.

[4] Lucy Amis and John Morrison, ‘Mega-Sporting Events and Human Rights—A Time for More Teamwork?’ (2017) 2 Business and Human Rights Journal 135, 137.

[5] For a more elaborate overview of actors, see Amis and Morrison (n 5) at 136.

[6] Fédération Internationale de Football Association, ‘2018 FIFA World Cup Russia^TM - FIFA Partners’ (FIFA.com, 2017)< http://www.fifa.com/worldcup/organisation/partners/index.html> accessed 15 February 2018.

[7] FNV, Bangladeshi Free Trade Union Congress, BWI & Nadim Shariful Alam v FIFA Handelsgericht Kanton Zürich (3 January 2017).

[8] Specific Instance regarding the Fédération Internationale de Football Association (FIFA) submitted by the Building and Wood Workers’ International (BWI) - Final Statement Swiss National Contact Point (2 May 2017).

[9] FIFA, ‘FIFA Statement on Human Rights Defenders and Media Representatives’ (2018) 4, para 14< https://resources.fifa.com/image/upload/ejf1ecdku14lm2v9zc03.pdf> accessed 12 June 2018.

[10] ibid.

[11] ibid 5, para 15.