Towards reforming the fair and equitable treatment standard in International Investment Agreements - By Dr. Yulia Levashova & Prof. Tineke Lambooy (Nyenrode Business University)

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. 

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Doing Business Right Blog | FIFA's Human Rights Agenda: Is the Game Beautiful Again? – By Tomáš Grell

FIFA's Human Rights Agenda: Is the Game Beautiful Again? – By Tomáš Grell

Editor’s note: Tomáš Grell holds an LL.M. in Public International Law from Leiden University. He contributes to the work of the ASSER International Sports Law Centre as a research intern.

 

Concerns about adverse human rights impacts related to FIFA's activities have intensified ever since its late 2010 decision to award the 2018 and 2022 World Cup to Russia and Qatar respectively. However, until recently, the world's governing body of football had done little to eliminate these concerns, thereby encouraging human rights advocates to exercise their critical eye on FIFA. 

In response to growing criticism, the Extraordinary FIFA Congress, held in February 2016, decided to include an explicit human rights commitment in the revised FIFA Statutes which came into force in April 2016. This commitment is encapsulated in Article 3 which reads as follows: ''FIFA is committed to respecting all internationally recognized human rights and shall strive to promote the protection of these rights''. At around the same time, Professor John Ruggie, the author of the United Nations Guiding Principles on Business and Human Rights ('UN Guiding Principles') presented in his report 25 specific recommendations for FIFA on how to further embed respect for human rights across its global operations. While praising the decision to make a human rights commitment part of the organization's constituent document, Ruggie concluded that ''FIFA does not have yet adequate systems in place enabling it to know and show that it respects human rights in practice''.[1]

With the 2018 World Cup in Russia less than a year away, the time is ripe to look at whether Ruggie's statement about FIFA's inability to respect human rights still holds true today. This blog outlines the most salient human rights risks related to FIFA's activities and offers a general overview of what the world's governing body of football did over the past twelve months to mitigate these risks. Information about FIFA's human rights activities is collected primarily from its Activity Update on Human Rights published alongside FIFA's Human Rights Policy in June 2017.

 

The most salient human rights risks

FIFA faces human rights risks through its events, commercial subsidiaries and business partners, member associations or other parties. This section identifies sources of human rights risks that are most often associated with FIFA's activities.

Bidding and selection

Allegations of corruption have cast a shadow over FIFA's decision to organize the 2018 and 2022 World Cup in Russia and Qatar respectively.[2] If these allegations were proven to be true, it would be conceivable that financial incentives provided by the successful candidates helped them not only to secure the right to stage the tournament, but also to evade certain requirements, including those related to human rights. As Ruggie puts it, ''lack of financial integrity […] is a foundational source of human rights risks''.[3]

Moreover, in the past, countries bidding to host FIFA's tournaments have not been required to present a strategy addressing human rights risks that may arise in connection with the tournament’s organization. This allowed Qatar to win the bidding contest for the 2022 World Cup without explaining how it plans to protect migrant workers from the adverse impacts of the kafala system. Another example is Papua New Guinea that was awarded the 2016 U-20 Women's World Cup despite the country's high rate of sexual violence against women.

Construction

FIFA delegates the organization of the World Cup to the Local Organizing Committee ('LOC'), a separate legal entity created by the government and the national football association of the Host Country. The LOC is responsible, inter alia, for the delivery of World Cup-related infrastructure. In order to meet their deadlines, contractors hired by the LOC may ignore safety standards or force their employees to work overtime. Other reported practices include, for instance, appalling living and working conditions, non-payment of salaries, withholding identity documents or restrictions on the freedom of association.

In March 2017, Norwegian football magazine Josimar uncovered a series of human rights abuses faced by North Korean men working at Zenit Arena in Saint Petersburg. As recently as 14 June 2017, Human Rights Watch documented the mistreatment of construction workers at five other World Cup stadium construction sites in Russia. As the situation in Qatar has not been much better,[4] the Netherlands Trade Union Confederation filed in December 2016 a lawsuit with the Commercial Court of the Canton of Zürich, asking the court to find FIFA responsible for alleged human rights violations of migrant workers. The court dismissed the lawsuit on jurisdictional grounds in January 2017 (for a detailed analysis, see our blogs here and here).

Discrimination

Article 4 of the FIFA Statutes prohibits ''discrimination of any kind against a country, private person, or group of people on account of race, skin colour, ethnic, national or social origin, gender, disability, language, religion, political opinion or any other opinion, wealth, birth, or any other status, sexual orientation or any other reason''. In practice, FIFA must enforce this provision by taking further action to tackle issues such as anti-gay legislation in countries where its tournaments are staged, homophobic chants by fans or gender discrimination in the world of association football. 

Players' rights 

In January 2017, the international players' association FIFPro published a Global Employment Report on working conditions in men's professional football. Out of nearly 14,000 players interviewed, 41% reported having experienced delayed salary payments over the past two seasons. Players who lodge a formal complaint against their club put themselves at risk of being excluded from the squad or subjected to violence and harassment. FIFPro strongly condemned these practices and called upon FIFA to reform its Regulations on the Status and Transfer of Players ('RSTP') to ''provide stronger protections of players against material breaches of contracts by clubs''.[5] Another issue that merits closer attention is human trafficking in football, especially as it often involves minors.[6]

Other 

In addition to the above, FIFA could better address human rights abuses that may occur (i) in the supply chains of its licensees; (ii) in the process of land acquisition for stadiums and event-related infrastructure; or (iii) in connection with event-related security measures.

 

Overview of the measures taken by FIFA

First and foremost, FIFA strengthened its internal capacity to deal with human rights risks. In 2016, FIFA established the Governance Committee which provides, via its Human Rights Working Group, strategic guidance to the FIFA Council on human rights-related matters. At the operational level, the overall responsibility for the implementation of FIFA's human rights commitment rests with the Secretary General who delegates the day-to-day management of human rights-related work to the Sustainability and Diversity Department. In September 2016, FIFA employed a Human Rights Manager to work within this department. Moreover, in March 2017, FIFA appointed an independent Human Rights Advisory Board with the view of accelerating its efforts to embed respect for human rights. Composed of experts from the United Nations, trade unions, civil society and business, the Advisory Board is scheduled to meet at least twice a year. It has already contributed to the development of FIFA's Human Rights Policy, a landmark document clarifying FIFA's approach to the implementation of its human rights commitment in accordance with the UN Guiding Principles.

The rest of this section looks at the most significant steps taken by FIFA in each of the areas outlined above.

Bidding and selection

The FIFA Council has recently agreed that, as of the 2026 World Cup, human rights requirements will feature in the bidding procedure. This is of paramount importance as it means that countries failing to present an effective human rights strategy should not be allowed to host the World Cup. In other words, the protection of human rights will constitute a material factor in the bid evaluation. Had such requirements existed at the time of the bidding procedure for the 2022 World Cup, Qatar would arguably never have been selected.

The bidding procedure for the 2026 World Cup, the first to feature 48 teams, is currently in an early stage, and therefore bidding requirements are not yet available. The Host Country of the 2026 World Cup will be announced in 2020 at the latest.

Construction

As part of the implementation of the Sustainability Strategy for the 2018 World Cup, FIFA and the Russia 2018 LOC have launched a Decent Work Monitoring System aimed at detecting non-compliance with labour standards at World Cup stadium construction sites. Under this system, two-day on-site inspections are conducted on a quarterly basis by the Klinsky Institute of Labour Protection and Working Conditions, at times accompanied by the Building and Wood Workers' International ('BWI') and the Russian Building Workers Union ('RBWU').[7] After each inspection, companies are provided with a report containing recommendations for further improvement of working conditions. This report is forwarded to FIFA and the Russia 2018 LOC, and, in cases where the health or safety of workers are seriously threatened, also to the competent Russian authorities. As of 14 June 2017, a total of 58 inspections have been carried out.[8]

In Qatar, the Supreme Committee for Delivery and Legacy ('Supreme Committee'), an entity tasked with the delivery of World Cup-related infrastructure,[9] has developed a comprehensive set of Workers' Welfare Standards ('WWS'). Inspired by international labour standards, the WWS are mandatory for all contractors working on World Cup-related construction projects. To see whether contractors are adhering to these standards, the Supreme Committee has designed a four-tier monitoring system which comprises due diligence conducted by the Supreme Committee, the British company Impactt Ltd.,[10] the Qatari Ministry of Labour and contractors themselves. As of February 2017, the implementation of the WWS is further monitored via on-site inspections carried out jointly by the Supreme Committee and the BWI.[11]

Discrimination 

Establishment of the Anti-Discrimination Monitoring System in May 2015 is regarded as the most significant step taken by FIFA to combat discrimination in the world of football. This system uses independent observers who are present at matches identified as involving heightened risks of discriminatory incidents. Based on the reports provided by these observers, FIFA may open disciplinary proceedings and eventually impose sanctions on member associations. For instance, several Latin American associations have been sanctioned for homophobic chants by spectators during the 2018 World Cup qualifying matches.

Internally, FIFA promotes gender equality by requiring each of the six confederations to reserve at least one seat in the FIFA Council for women.[12]

Players' rights

As far as the protection of players' rights is concerned, FIFA informs that it has introduced certain measures intended to preserve confidentiality of the data available in the Transfer Matching System.[13] Furthermore, on 1 March 2015, FIFA modified the RTSP so as to put in place 'fast-track' proceedings for disputes concerning overdue payable claims (for a detailed analysis, see our blogs here and here).[14]

Other

In addition to contractors working on World Cup-related construction projects, other companies having business relationships with FIFA are now required to strengthen their human rights compliance. These include the suppliers of FIFA-licensed balls, artificial turf and technology used in games. Before a license agreement is entered into between FIFA and the supplier, FIFA must satisfy itself that both the supplier and its manufacturer are in compliance with the World Federation of the Sporting Goods Industry ('WFSGI') Code of Conduct, whose purpose is ''to guide WFSGI members in the standards and practices expected in the workplaces that they operate or contract from''.[15] Should FIFA-licensees cease to comply with the standards laid down in the WFSGI Code of Conduct, FIFA may decide to withdraw its license.

 

Concluding Remarks

The aforementioned report on human rights violations of World Cup-related construction workers in Russia, published by Human Rights Watch in June 2017, came as a major setback to the otherwise encouraging measures taken by FIFA in respect of human rights compliance. This and similar reports demonstrate that FIFA's human rights activities have not yet produced their desired effect. To increase the efficiency of its human rights activities in the future, FIFA should probably engage in a tougher discussion with the competent authorities of the Host Country. This is important because event-related human rights abuses often flow from inadequate domestic legislation and administrative practices of the Host Country.[16] Examples from the past show that FIFA is able to exert pressure on the future Host Country to modify its domestic legislation when it is in the interest of FIFA's sponsors.[17] At the risk of stating the obvious, it is hard to understand why FIFA's sponsors should be prioritized over thousands of people facing human rights abuses in connection with the organization of the World Cup. Thus, a lot will depend on FIFA's amendment of the bidding requirements for the 2026 World Cup. Though it may sound optimistic and far-fetched, if FIFA were to award the World Cup taking into account human rights compliance of the potential Host Countries, it could become a strong force in spreading the human rights gospel across the globe.


[1]    John G. Ruggie, 'For the Game. For the World. FIFA and Human Rights' (April 2016) p. 19.

[2]    Jonathan Calvert and Heidi Blake, 'Plot to Buy the World Cup' (The Sunday Times, 1 June 2014). See also David Conn, 'France Investigates Votes for 2018 and 2022 World Cups and Questions Blatter' (The Guardian, 27 April 2017).

[3]    See Ruggie's report (n 1) p. 21.

[4]    Amnesty International, 'The Ugly Side of the Beautiful Game: Exploitation of Migrant Workers on a Qatar 2022 World Cup Site' (30 March 2016).

[5]    FIFPro, '2016 FIFPro Global Employment Report: Working Conditions in Professional Football' (January 2017) p. 30.

[6]    See Ruggie's report (n 1) p. 25.

[7]    In August 2016, the BWI and the RBWU signed a memorandum of understanding with FIFA and the 2018 World Cup LOC.

[8]    FIFA, 'Statement on Human Rights Watch Report on Russia' (14 June 2017).

[9]    The Supreme Committee works closely with the Qatar 2022 LOC.

[10]   In April 2017, Impactt Ltd. published its first report.

[11]   The Supreme Committee and the BWI signed a memorandum of understanding in November 2016.

[12]   FIFA Statutes, Article 33(5). See also FIFA, '2016 Reform Committee Report' (2 December 2015) p. 9.

[13]   RSTP, Definitions.

[14]   RSTP, Article 12bis.

[15]   WFSGI Code of Conduct, Introduction.

[16]   It should be noted that, in December 2016, the Qatari government introduced certain reforms to its labour laws. However, Amnesty International asserted that these reforms ''barely scratch the surface of labour exploitation''.

[17]   One such example is the well-known 'Budweiser Law' – a law enacted by Brazil in the run-up to the 2014 World Cup allowing beer sales at match venues despite the fact that the sale of alcohol had been prohibited in Brazil's stadiums for almost ten years.

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