Foreign Investment and the Environment in International Law

By Jorge E. Viñuales

Cambridge University Press, 2012
423 pp
ISBN 978-1-107-00638-6 (hardcover)
ISBN 978-1-107-52181-0 (paperback)

Reviewed by Maria Pohjanpalo (University of Helsinki)

23 FYBIL (2012–2013) 469

Jorge E. Viñuales has made a comprehensive and timely contribution that, while focusing on foreign investment, brings together elements from two fields of international law, namely international investment law and international environmental law. Both of these fields of international law have developed quite rapidly and somewhat separately but they are in interaction, for example when foreign investments are targeted to the environment, natural resources and environment related fields, or when they (potentially) have environmental impacts. The book appears to be further developed from an article that Viñuales published in the British Year Book of International Law in 2009[1] and naturally goes much further in details and length.

Viñuales sets out to make a theoretical point that, as international investment law and international environmental law develop and become more precise and demanding, the interaction between them will intensify both in terms of synergies and conflicts. Furthermore he claims that this theoretical point has two important practical implications. The first one is that the operations of investors in several different sectors, such as extractive industries, energy production or waste treatment, will be affected. The second one is that the regulatory powers of State in the environmental sector are ‘strait-jacketed’ by investment disciplines.

When identifying and analysing main legal issues raised by the interactions of foreign investment and environmental protection in contemporary international law, Viñuales aims to produce an unbiased contribution, by taking the perspective of an environmental lawyer in Part II and that of an investment lawyer in Part III. According to him, the protection of the environment is a great challenge of the time, but that such protection is best served by disentangling law from hope. This expression and the employment of the term ‘strait-jacket’ as described above, suggest that he may lean slightly more towards international environmental law, but with a ‘realistic twist’. This impression is of course backed up by Viñuales’ professional and academic background, which includes a strong focus of international environmental law as the Harold Samuel Professor of Law and Environmental Policy at the University of Cambridge, Pictet Chair of International Environmental Law at the Graduate Institute of International and Development Studies in Geneva and Director of the Programme on Institutions for Sustainable Development at the Centre for International Environmental Studies. However, the author also has experience in international investment law, and such a combination of expertise is perfect to conduct this study.

The book is divided in three parts. While Part I sets the framework, Parts II and III address, respectively, two kinds of conflicts: normative conflicts and legitimacy conflicts. Normative conflicts refer to conflicts that might arise between international obligation stemming from international investment law and another international obligation from international environmental law. Legitimacy conflicts, on the other hand, arise between norms or measures stemming from different legal systems altogether. For example, a common type of a legitimacy conflict involves a regulation or a measure adopted by a host state for environmental protection or more broadly for environmental reasons, that adversely affects the interests of a foreign investor, who then claims that the measure or regulation is in breach of an international investment obligation of the host state.

This kind of division is particularly helpful when forming a picture of different fields of international law, as well as systems of national and international law surrounding a foreign investment having an environmental aspect and therefore relevant when considering which conflict norms might be applied into a particular case, thus adding clarity to the presentation of the topic. Then again, it may also be viewed as a bit limiting to categorically divide conflicts and their elements to legitimacy or normative conflicts, as a conflict may well contain both legitimacy and normative elements, sometimes even closely intertwined, making it not always so easy to distinct one from the other. In fact the style of presentation in general throughout the text is somewhat categorized, in the sense that under several headings and subheadings first an argument or statement is made and then it is further developed through a division into subcategories e.g. (i), (ii), (iii) and so on. Again some readers, could view this frequent division clarifying whereas others may find it systematically chopping down the text into quite small pieces.

Viñuales calls for the clarification of the link between international environmental norms and domestic environmental measures, in order to have a fuller understanding of the impact of international environmental norms. A clear link in his view would also demonstrate that collisions between environmental measures and investment disciplines would take the form of normative conflicts, which in turn, would call for a different treatment by investment tribunals, than that accorded to mere legitimacy conflicts.

To support his theoretical point that international investment law and international environmental law are developing and their interaction is intensifying, in Chapter 1 Viñuales points out three signs, namely, (1) conceptual evolution, containing a shift from a primary focus on environmental protection to one on sustainable (economic and social) development towards a green economy, indicating that the role of the private sector in global environmental governance has moved from marginal to central, (2) developments regarding integration of environment into investment treaties and (3) several investment disputes involving an environmental element. This also sets a clear context for the rest of the book. The chapter also includes a very useful listing of recent investment dispute cases which indicates in a clear and easy manner the environmental component in each case. In Chapter 2 the author continues backing up his theoretical point by demonstrating thorough examples how the trend of intensified interaction may be viewed as being synergetic or conflicting and succeeds in it very well.

Part II, which addresses normative conflicts, begins with a short presentation of possibly applicable conflict norms in Chapter 6. Then, Chapters 7, 8, 9 and 10 deal with certain substantial or specialized fields of international environmental law, namely freshwater, biological and cultural diversity, dangerous substances and activities, and climate change. This approach provides further support for the author’s theoretical point that international environmental law is becoming increasingly specialized. However, one could also point out that international environmental law is not actually becoming more ‘precise’ as Viñuales claims: for example, the language of numerous multilateral environmental agreements, one of the main sources of international environmental law, may actually be very imprecise and leave a great deal of room for interpretation and different kinds of applications. This may even contribute to some investment disputes. In practice, the drafting of multilateral environmental agreements is often a result of intense negotiations and, if all goes well, followed by a compromise language in the agreement. Then again, one way or the other – be it precise or imprecise – it certainly leads to the remaining element of his theoretical point that international environmental law (as well as international investment law) indeed become more demanding.

Chapter 10 on climate change includes quite a bit of discussion of specific EU law, in particular in Section 10.2.2 (‘Cap-and-trade systems’). While there is interesting case-law on the emission trading directive, this discussion appears to extend a bit beyond the scope of international law, which is the focus of this book.

Another point related to the scope of the book which could be raised in this context, is that there are several references to international human rights law. For example, in the useful list of cases in Section 1.3 (‘The third sign – the environment breaks into investment disputes’), the environmental component of Foresti et al. v. South Africa[2] is described as ‘Dispute concerning the effects of post-apartheid redistribution policies based on economic, social and cultural rights’ (at 20). This catches the eye of the reader: How might this be an environmental component in an investment dispute? Similarly, in the same section, cases against the United States regarding minority rights are referred to without providing further clarification of the link to an environmental component (at 23). Interaction of international human rights law and international investment law would seem to be a separate topic.

The link that certain human right cases have to environmental questions (and investment issues) is better explained in Section 9.2.5 (‘Protection of the rights of individuals and minorities’). For example, regarding Lopez Ostra v. Spain,[3] the author points out the view of the European Court of Human Rights that ‘by allowing illegal waste-treatment plant to cause nuisance and health problems to local residents, Spain had failed to strike a fair balance between the interests of the effected individuals and the interest of the community to have the waste (from operation of tanneries) treated’ (at 243).

The first practical implication of the theoretical point claimed by Viñuales – that the operations of investors in several different sectors, such as extractive industries, energy production or waste treatment, will be affected – is convincingly supported by arguments throughout the book that refer to several investment dispute cases.

However, a few remarks could be made regarding the supportive arguments for the second practical implication – that the regulatory powers of State in the environmental sector are ‘strait-jacketed’ by investment disciplines. Indeed there are cases, such as those explored by Viñuales, which strongly support this implication. As Part III of the study well demonstrates, States have been ordered to pay compensation where they have, for example, breached the standard of fair and equitable treatment, or illegally expropriated property of an investor by an environmental regulation or other measure. However, as Chapter 15 on defence arguments based on environmental considerations and in particular in 15.1 on police powers doctrine reveal, a State may have room to manoeuvre if it legitimately employs its police powers. For example, a domestic environmental protective measure that conflicts with an international investment agreement providing for investment protection may not necessarily lead to state liability. There have been some investor-state arbitration cases where arbitration tribunals have taken the approach that deprivations of property, such as expropriation, resulting from environmental measures, may not result in compensation or even be regarded as expropriation as they may be considered to be within the police powers of a state. Viñuales points this out by reference to the cases of Saluka Investments BV v. Czeck Republic[4] and Chemtura v. Canada[5] (at 125-126). However, as he also notes, other tribunals have taken a different approach to the matter, ruling that any taking must be compensated because the underlying reason is irrelevant – CDSE v. Costa Rica[6] and Metalclad v. Mexico[7] (at 124-125).

Additional space for States to adopt domestic environmental measures has also been a topic of discussion within the context of contemporary international investment agreements. A report by the Organisation for Economic Co-operation and Development (OECD) published in 2011,[8] which Viñuales also refers to in the Chapter 1, indicates that language referring to environmental concerns, although rare in bilateral investment agreements (BITs), is common in ‘non-BITs’, namely regional or other international investment agreements (IIA). From the IIAs examined in this study, 8.2%[9] contained a reference to environmental concerns. All of the examined non-BIT IIAs contained such references, but only 6.5% of BITs did. Then again, the references included in the IIAs (a category that includes all investment agreements in the international level, including BITs) varied greatly, but these did include reserving policy space for environmental regulation in general or for more specific limited subject matters (at 14-17).

As there are doctrines, such as the one on police powers, providing at least some level of flexibility and perhaps at least to some extent a trend regarding IIAs that may further increase flexibility in the future by integrating the environment into investment treaties, as explained in the paragraph above, instead of the expression ‘strait-jacket’ in the second practical implication, perhaps it could have been formulated e.g. that the regulatory powers of State in the environmental sector are affected by investment disciplines. This small difference in nuance, making it more neutral, would have brought the second practical implication closer to the wording of the first one – that the operations of investors in several different sectors, such as extractive industries, energy production or waste treatment, will be affected – and at the same time perhaps slightly better reflect his aim to produce an unbiased contribution, in which he actually succeeds well.

As the book is a general presentation to the topic, it necessarily has a limited scope and lacks detail on some points (although the analysis of case law is quite detailed). Nonetheless, it still would have been interesting to read slightly more on certain issues: What, for example, is included in the concept of a ‘watch-dog’ as a component of a contractually agreed accountability mechanism regarding an investment in extractive industries and what have been experiences with such mechanisms (at 72)?

In conclusion, the purpose set for the book is well achieved: Viñuales successfully present arguments for his theoretical point with its two practical implications. The book is a very welcome contribution to the field, as previously there has not been such a comprehensive study on the topic. Combining two different fields of international law is, of course, challenging but, with the proper limitation of its scope, possible and extremely interesting.

In general, the book is an excellent addition to the discussion of contemporary international law: it shows how important it also is to deal with its fragmentation or further specialization into different fields, as in practice international lawyers cannot really escape from it. It also serves as a very useful general guidance for further studies in the field, as many of the elements presented in the book and some left outside of its scope definitely spark ideas for further exploration. The combination of theoretical and practical points of view made the book a particularly enjoyable reading experience.

[1] Jorge E. Viñuales, ‘Foreign Investment and the Environment in International Law: An Ambiguous Relationship’, 80 British Year Book of International Law (2009) 245–332.

[2] Piero Foresti, Laura de Carli and others v. Republic of South Africa, Case No. ARB(AF)/07/1, International Center for Settlement of Investment Disputes, Award of 4 August 2010.

[3] Lopez Ostra v. Spain, Application No. 16798/90, European Court of Human Rights, Judgment of 9 December 1994.

[4] Saluka Investments BV v. The Czech Republic, UNCITRAL, Partial Award of 17 March 2006.

[5] Chemtura Corporation v. Government of Canada, UNCITRAL, Award of 2 August 2010.

[6] Compañía del Desarollo de Santa Elena SA v. Republic of Costa Rica, Case No. ARB/96/1, International Center for Settlement of Investment Disputes, Award of 17 February 2000.

[7] Metalclad Corporation v. United Mexican States, Case No. ARB(AF) 97/1, International Center for Settlement of Investment Disputes, Award of 30 August 2000.

[8] Gordon Kathyrn, Pohl Joachim, ‘Environmental Concerns in International Investment Agreements: a survey’, OECD Working Papers on International Investment, No. 2011/1, May 2011, OECD Investment Division.

[9] The study surveys the use of references to environmental concerns in a sample of 1,623 IIAs that the 49 countries that are invited to the Freedom of Investment process have concluded with any other country. The survey assesses the extent, kind and frequency of such language in IIAs as well as the evolution of its use over time. The said countries were: Austria, Argentina, Australia, Belgium, Brazil, Canada, Chile, China, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Malaysia, Mexico, Morocco, Netherlands, New Zealand, Norway, Peru, Poland, Portugal, Romania, Russian Federation, Saudi Arabia, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom, and United States.