No Rights without Responsibilities: Redefining investment agreements towards binding Corporate Social Responsibility Sandy Buffett The Nautilus Institute NGO Private Finance Skills Share Amsterdam: July 6, 2001

In wake of MAI, what’s going on with investment liberalization? Bilateral: BITs (over 1,700 w/ 155 countries) Regional: NAFTA’s Chapter 11, FTAA, ASEAN investment forum Global: GATS, WTO working group on investment

Beneficiaries of investor rights agreements Corporations engaged in FDI –I.e. Manufacturers, mining companies, oil companies, energy companies –Financial services, I.e. insurance, mutual funds, commercial banks “setting up shop” overseas PFIs & insurers engaged in international project finance

What’s in the current investor rights “suitcase” Basic: Nondiscriminatory rights: National treatment, MFN Performance requirements Expropriation Expanded: Dispute resolution

Nondiscriminatory treatment National treatment– foreign investors treated “no less favorably”than domestic investors Most Favored Nation– all foreign investors treated equally

Performance requirements Governments will not set targets for local content Governments cannot demand particular technologies (technology transfer) as a condition for investment

Expropriation Nationalization Seizing of property “creeping expropriation” or “takings”– gov’t regulation results in an expropriation of business

Dispute resolution Most controversial aspect of investment agreements Provides forum for investor-to-state arbitration Rulings are binding and cannot be appealed One-way: no remedy for civil society Non transparent process

Where do investors take these cases? ICSID– International Center for Settlement of Investment Disputes -most investment agreements rely upon ICSID for binding arbitration -hears about 1 case each month UNCITRAL– UN Commission on Int’l Trade Law MIGA– also authorized to promote & facilitate investment agreements…for “the protection of investors”

Where can NGOs take their case? Well… OECD voluntary guidelines National Contact Point -Each OECD member has a designated NCP which serves as mediator, information disseminator -US NCP has never received a case from a NGO! ICSID “amicus” briefs recently accepted from a NGO on Chapter 11 challenge

Need to create a package of binding investor responsibilities Disclosure– “International Right to Know” Publicly-available EIAs for overseas operations Reporting and verification mechanisms Legal redress for civil society

Some guidelines which could be used for Investment Rules OECD guidelines on multinational enterprises Universal Declaration of Human Rights ILO core labor standards WB pollution prevention standards US OPIC categorical prohibitions ISO Global Sullivan Principles World Commission on Dams final report Social Accountability (SA) 8000

What about the international capital markets? Could either a single investment agreement framework or regulation at several entry points bring international portfolio flows into the domain of binding investment rules? Currently regulated at national level Potential entry points for advocacy: –International organization of Securities Commissions (IOSCO) –Multidisciplinary Working Group on Enhanced disclosure (IOSCO, BIS, financial services reps) How would it work?: investors would have to abide by the investor “responsibilities” in order to receive benefits of investor rights

What rules for portfolio flows? Harmonized disclosure & transparency requirements for SECs of the world Increased corporate disclosure on material environment, social information Disclosure rules for institutional investors (I.e. UK pension law) Binding reporting mechanism (GRI?) Securities underwriters must use a minimum standard of ethical due diligence

Is the ICSID mechanism worth saving? Should the dispute mechanism be scrapped or can it be made transparent? Could we push for state-to-investor or NGO-to-investor remedy?

In summary: Internationally recognized guidelines, such as the OECD Guidelines, and reporting and disclosure mechanisms must be brought into the binding rules which govern investment to define not only investor rights, but a corresponding set of investor responsibilities. Regulation within international investment agreements should be expanded from FDI to capital market instruments and actors. In exchange for the benefits and protection investors receive under investor rights regimes, investors would be expected to behave responsibly and be held accountable for their overseas operations.