(Vid Prisian) Labor Provisions in Int'l Investment Agreements - Prospects For Sustainable Development

Labor
Provisions in International Investment

Agreements: Prospects for Sustainable Development
Vid Prislan, Ruben Zandvliet
Content type: Yearbook articles

Citation(s): (2014) Yearbook on International Investment Law and Policy 2012-2013
357-414 (Other Reference)
OUP r efer ence: IC-JA 071 (2014)
Pr oduct: Investment Claims [IC]
Subject(s):
Foreign Direct Investment — Investor — Treaties, interpretation — Host state law
From: Investment Claims (http://oxia.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved. Subscriber: FDI Moot 2018; date: 18 October
2018
Introduction
The publication of the 2012 U.S. Model Bilateral Investment Treaty has revived the debate about
the relationship between international investment law and labor rights. Business associations
contended that the inclusion of labor provisions in the model text “set a bad precedent and may
well undermine the United States’ ability to conclude bilateral investment treaties (BITs) with
developing countries,” while trade unions voiced their disappointment that the labor provision is
nonenforceable and therefore too lenient toward business interests.1 These critiques align with the
main fault lines in the debate about trade and labor, with globalization skeptics calling for labor
rights (p. 358) enforcement through trade measures, which is rebutted by business representatives
and developing countries as a form of disguised protectionism. But the relationship between
investment law and labor law is much less scrutinized and understood than its trade-labor
counterpart, or other public policy concerns in the investment sphere.2 Indeed, few international
investment agreements (IIAs) contain explicit labor provisions.3 But even fewer IIAs refer to other
human rights concerns such as the right to water or indigenous rights, which nevertheless have
been the subject matter of several investor-state arbitrations and a wide range of scholarly
contributions.4 As labor law’s nature is inherently economic, the process of globalization has
drawn much attention toward the establishment of formal or informal “linkages” with trade law,
investment law, corporate social responsibility, and international economic organizations.5
Linkages between investment and labor rights are found in relation to export credit facilities,
development finance, stabilization contracts, and IIAs.6 This chapter will focus exclusively on
the latter. The inclusion of references to labor rights in IIAs is said to be instrumental to the
fulfillment of the social component that is embedded in the notion of sustainable development.7
The assumption is that liberalization and protection of foreign direct investment through
traditional IIAs induces regulatory competition among (potential) host states, which may have
negative effects on domestic labor standards. If this risk materializes, an investment agreement
would contribute to unsustainable rather than sustainable development.
The purpose of this chapter is to provide a broad analysis of the underlying theories and
assumptions of investment-labor linkage, the various models of linkage that currently feature in
IIAs, and their potential impact on investment law and investment arbitration in general. Part A
positions labor rights within the concept of sustainable development – a concept which is of
increasing importance also for the regulation of foreign investment. Attracting foreign direct
investment (FDI) has long been recognized as “critical to the ability of developing countries to
achieve needed economic growth to improve the welfare of their populations and to meet their (p.
359) basic needs in a sustainable manner.” 8 But capital liberalization and the legal framework
that has been set up to attract and protect FDI may lead to conflicts between economic interests
on the one hand, and social or environmental concerns on the other. Part B then examines these
potential conflicts in depth, as they provide the rationale for inclusion of labor provisions in IIAs.
Part C analyzes the various labor provisions that can be found in IIAs. Finally, Part D looks at the
different ways in which labor standards could be invoked in investment treaty arbitration.
A. Sustainable Development and International Labor Standards

Since the World Commission on Environment and Development, commonly known as the
Brundtland Commission, popularized the term “sustainable development” in its 1987 report “Our
Common Future,” there has been much debate among scholars about the term’s definition,
parameters, and policy implications. The Brundtland Commission defined sustainable
development as “development that meets the needs of the present without compromising the
ability of future generations to meet their own needs.” 9 Central thus is “the concept of ‘needs,’ in
particular the essential needs of the world’s poor.” 10 But given its environment-focused mandate,
the report as a whole concentrated on the adjective “sustainable,” and the “idea of limitations
imposed by the state of technology and social organization on the environment’s ability to meet
present and future needs.” 11 To what extent “needs” should also encompass human or labor rights
was not discussed. Today, sustainable development is widely understood to be composed of three
interdependent and mutually reinforcing pillars: economic development, social development and
environmental protection.12 The concept has moved beyond the stage of aspirational policy
documents, as it has gained legal relevance carrying or influencing states’ rights and obligations
under international law.13 This is true for both general public international law as well as
international economic law. The World Trade Organization (WTO) Agreement, as well as many
regional economic agreements, lists sustainable development as one of the goals that the other (p.
360) treaty objectives shall strive to achieve. The concept has been applied by the International
Court of Justice,14 in inter-state arbitrations,15 and by the WTO dispute settlement mechanism. In
the U.S. Shrimp-Turtle case, for instance, the WTO Appellate Body noted with approval that
“[sustainable development] has been generally accepted as integrating economic and social
development and environmental protection.” 16
The inclusion of a social development pillar in the concept of sustainable development recognizes
that social development cannot disregard the position of individuals as long as the country as a
whole fares well. This recognition has been particularly influenced by the work of Amartya Sen
and others, who have argued that the fulfillment of human rights is not only a means to
development but constitutes development ipso facto.17 Sen’s conceptual work coincided with a
rejection of neo-liberal laissez-faire economics, which refuted any normative floor to global
economic integration. As Howse, Langille and Burda noted:
On this view labour standards have often been characterized as producing “rigidities” in
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markets and frustrating development. Labour rights are thus a cost and a tax upon
development—one which international investment will seek to avoid and which rational
governments should refrain from imposing. Labour rights are a set of luxury goods to be
purchased with the wealth generated by growth and after the event.18
Now that this neo-liberal conception of labor law is no longer in fashion, states increasingly
accept that observance of labor standards may function as a prerequisite for free trade and
investment policies. It has become recognized that social development is a matter of intra-
generational equity and not something that can only be claimed after a certain level of economic
development has been met.19
The International Labour Organization (ILO) increasingly uses the concept of sustainable
development to integrate economic and environmental concerns in its own work, and as a
platform to promote integration of ILO standards into other domains of international law (p. 361)
and policy-making.20 In 1998, the ILO adopted the Declaration on Fundamental Principles and
Rights at Work, which elevated (1) freedom of association and collective bargaining, (2) the
abolition of child labor, (3) the abolition of forced labor, and (4) the elimination of occupational
discrimination, to the status of “core” labor rights. The text explicitly stated that the ILO
…should […] draw on its standard-setting, technical cooperation and research resources
in all its areas of competence, in particular employment, vocational training and working
conditions, to ensure that, in the context of a global strategy for economic and social
development, economic and social policies are mutually reinforcing components in order
to create broad-based sustainable development.21
The concluding documents of all major international summits on sustainable development now
contain ample references to labor rights and the work of the ILO, also beyond the four core labor
rights. The final resolution of the Rio+20 summit in 2012, for instance, discusses youth
unemployment, the concept of decent work, child labor, and occupational health issues including
HIV/AIDS.22
Embedding labor rights into a holistic definition of sustainable development aligns with the
“principle of integration,” which “reflects the interdependence of social, economic, financial,
environmental and human rights aspects of principles and rules of international law relating to
sustainable development.” 23 Integration of sustainable development principles may take place
within the body of primary rules governing international economic relations, and – even if no such
rules exist – they may be applied proprio motu by the institutional mechanisms and dispute
settlement bodies that implement and enforce the primary rules.24 The relationship between
economic and social development is profoundly complex. Despite the rejection of the neo-liberal
notion that labor standards necessarily impede economic growth, it would be equally delusive to
argue that trade-offs between labor regulation, wages and employment opportunities do not exist.
An assessment on the merits of linkage must therefore be based on an apt problem assessment
and should be aware of possible unintended consequences.25
(p. 362) Attracting FDI is often seen as a prerequisite for development.26 It strengthens a state’s
balance of payments and is presumed to have positive spillover effects in the host state. Although
the effect of IIAs on attracting FDI is contested by various empirical studies, there are around
3,000 IIAs currently in force that protect, and in some cases also liberalize, FDI.27 The stated
object and purpose of these treaties align with the economic assumptions that underpin their
existence. IIAs are not intended to actively promote a holistic concept of sustainable development.
To assess whether IIAs act as an impediment to the achievement of sustainable development in the
context of labor standards, we thus approach the issue from the perspective of “unsustainable
development.” The latter occurs “when economic objectives trump all others, or growth takes
place at the expense of a country’s social or natural capital, limiting the ability of future
generations to meet their needs.” 28 Only if the current segregationist approach of IIAs causes
risks of unsustainable development would integration of social concerns be legitimate. On the
basis of this analytical framework, the next part identifies the main risks of unsustainable
development that can ensue from investment liberalization and the legal protections offered by
IIAs. Parts C and D will then examine how states try to mitigate these risks through the inclusion
of labor (and labor-related) provisions in IIAs, and what the effects of such provisions can be in
practice.
B. Normative Framework for Investment-Labor Linkage

The issue of whether to include labor provisions in IIAs is part of a broad debate on how to
achieve the appropriate balance between promotion and protection of foreign direct investment
on the one hand, and the sovereign right to regulate matters of public policy concern on the
other.29 This part focuses on three risks of unsustainable development that are associated with
investment liberalization and protection, and provide the main rationale for (p. 363) investment-
labor linkage: (1) regulatory distortions, (2) regulatory chill effects, and (3) the lack of balance
between state commitments and investor obligations. A regulatory distortion is a situation in
which jurisdictional competition between states to attract FDI leads to derogations from labor
standards that would not have occurred absent the free movement of capital.30 Although it is
recognized that economic incentives may also induce states not to raise labor standards, this
contribution focuses on derogations; that is, situations in which standards are explicitly lowered in
order to attract (a specific) investment. Regulatory chill, on the other hand, is inherently a legal
problem and refers to situations in which a state refrains from adopting new labor regulations
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because it fears that doing so might violate the terms of an investment agreement. While
regulatory distortions delineate the host state’s right to regulate vis-à-vis other states, regulatory
chill exclusively concerns the relationship between the investor and the host state. Balancing
provisions, in turn, are somewhat idiosyncratic, as they concern the relationship between an
investor and other stakeholders (including therefore the investor’s home state, host state, and the
broader public), which is inherent to the concept of corporate social responsibility. In the
following sections we briefly present each type of linkage and the main rationale therefor. In
doing so, we do not intend to determine the characteristics of ideal-type linkage provisions.
Instead, our main goal is to provide an explanation of why states increasingly embrace
investment-labor linkage.
1. Labor Rights Derogations

The first risk of unsustainable development that is associated with investment liberalization and
promotion of investment flows through enhancing investment protection is the possibility that
states will lower their standards to attract investment. This is essentially an empirical question, as
whether the risk materializes can be easily observed. Importantly, however, there are different
ways to detect and assess derogations. The first method is generally taken by economists and is
based on a regression of FDI inflows with indicators on labor standards and vice versa. Its aim is
to determine whether a “race to the bottom” occurs. The second is used by lawyers and
sociologists and relies on individual case studies without investigating whether derogations are
systematic or reciprocal. In the following, we do not evaluate these research methods or their
outcomes, but merely consider which of the two methods is most valuable with regard to
answering the normative question of whether labor standards should be integrated in
international investment law. In our view the case study approach is best suited to perform this
task.
a. The Race to the Bottom Fallacy

The race to the bottom hypothesis often appears to occupy the central position in the taxonomy of
arguments in favor or against investment-labor linkage. According to Oman, there is “a
permanent risk of costly beggar-thy-neighbor bidding wars and downward pressure on…labour
rights that cannot be fully addressed by national governments in the absence of strengthened (p.
364) international policy co-ordination.” 31 But the corollary is that if this risk does not materialize
– as is argued by many – the rationale for international policy co-ordination diminishes.
The race to the bottom has an intellectual history that dates back to Adam Smith, who argued:
The proprietor of stock is a citizen of the world, and is not necessarily attached to any
particular country. He would be apt to abandon the country in which he was…assessed to
a burdensome tax, and would remove his stock to some other country where he could
either carry on his business or enjoy his fortune more at his ease. By removing his stock
he would put an end to all the industry which it had maintained in the country which he
left.32
Many scholars have examined the empirical evidence for this hypothesis in today’s global
economy. The race to the bottom hypothesis is based on two assumptions of corporate and state
behavior: (1) states with low labor standards will attract FDI as corporations exploit the
opportunities of regulatory arbitrage, and therefore (2) in order to remain attractive to
corporations, states will – in a continuous and competitive process – deteriorate wages and labor
standards relative to productivity.
Most studies that have examined the first assumption find that low labor standards do not provide
an advantage in attracting FDI. One explanation is that the costs of (high) labor standards are
offset by other effects that create a conducive investment climate.33 The right to freedom of
association and collective bargaining, for instance, contributes to political and social stability. On
the same note, the eradication of child labor and occupational discrimination positively affects a
country’s human capital.34 As investors value political stability and human capital, it is
hypothesized that decent labor standards could even be a source of competitive advantage vis-à-
vis other states. In particular, companies that are sensitive to consumer pressure, for instance in
the apparel industry, may prefer to invest in countries with a track record of enforcing domestic
child labor laws. As low labor standards are, on the aggregate level, not significantly correlated to
FDI inflows, Rodrik asserts that these results “indicate that low labor rights may be a hindrance,
rather than an attraction, for foreign investors.” 35 One study that focused on outward-FDI finds
that high levels of employment protection may actually “anchor” companies to a home state.36
Olney, on the other hand, finds that “the responsiveness of FDI to employment protection (p. 365)
legislation will depend crucially on the type of FDI.” 37 Despite this, arguably, crucial distinction,
many studies do not differentiate between market-seeking FDI, which is primarily responsive to
market size and per capita GDP, and resource-seeking FDI, which may be more influenced by low
labor costs. As FDI that specifically values cheap labor resources is only a small part of aggregate
global FDI, a general regression analysis may not accurately capture its responsiveness to host
state labor regulation, and thus underestimate the effects of labor standards on some FDI-types.
This warrants some caution in drawing any general conclusions.
For the purpose of this chapter , however, it is not necessary to conclusively determine the
proper correlation between high labor standards and inward-FDI. This is because an assessment
of whether states with low labor standards will attract FDI only informs us about the behavior of
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corporations, while assuming the rationality of regulatory distortions. However, the lowering of
labor standards for the purpose of improving its competitive position might also be an irrational
move for a state; yet, if states perceive low labor standards as a source of comparative advantage
they may still engage in a race to the bottom. Rejecting the assumption that states with low labor
standards will attract FDI therefore does not lead to the rejection of the race to the bottom
hypothesis as such. Studies that have examined whether the race as such is an empirical reality
find mixed results. Olney finds that “there is evidence that countries are competitively
undercutting each other’s labor standards to attract foreign investment.” 38 Häberli et al., who
specifically looked at race to the bottom effects between states that have adopted preferential
trade agreements, find that agreements between high income countries put significant pressure on
labor regulation, although the authors refrain from a general conclusion that a race to the bottom
is actually ongoing.39 Drezner, on the other hand, finds that “there is little evidence to support the
allegation that a race to the bottom is currently taking place with regard to labor and
environmental standards.” 40
The diverging conclusions regarding the effects of labor standards on inward investment (testing
the race to the bottom rationale) and the effects of competition for inward investment on labor
standards (testing the existence of races to the bottom as such) obviously warrant continuous and
more sophisticated examination. But for the purpose of a fruitful normative debate on investment-
labor linkage, the race to the bottom paradigm is a fallacy. It is not a fallacy because it may not
exist, but because its existence does not matter in order to legitimize linkage. Indeed, even if there
is no macro-trend that points to a race to the bottom in terms of labor standards, and however
irrational this might be, there are concrete instances in which states alter domestic standards to
gain comparative advantage or lure a specific investor. Such instances cannot be merely rejected
as “anecdotal,” but will need to be explained in order to provide a comprehensive analysis of the
effects of investment liberalization and protection on (p. 366) labor standards. More important,
since such regulatory distortions are problematic from the perspective of unsustainable
development, they provide a legitimate justification for integration of labor standards in IIAs.
b. Nonsystematic Regulatory Distortions

A regulatory measure is classified as a distortion when it (1) deteriorates (the enforcement of)
labor standards, and (2) is motivated by the desire to attract FDI.41 The precondition for
regulatory distortions to occur is thus that a state has a liberal regime toward inward investment.
Although traditionally IIAs played a limited role in the liberalization of capital flows, a growing
number of IIAs are based on the “right of establishment” model, whereby investors of the other
contracting party are granted specific rights of entry, often connected to the obligation to provide
national and/or most-favored nation treatment.42 This model is prevalent in U.S., Canadian, and
increasingly Japanese IIAs. This is not to say that regulatory distortions necessarily materialize as
a result of the conclusion of IIAs. The latter are only one means by which states may liberalize
investment flows. In fact, most states provide for establishment rights in their domestic legislation,
and are generally supportive of inward investment.
There is a wide array of labor incentives that states can and do provide in the process of
regulatory competition. These actions can be divided into (1) general labor incentives, which can
take the form of (a) lower protection afforded by domestic labor laws, or (b) a decrease in public
enforcement capacity; or (2) investment specific labor incentives, which can be realized through,
for example, (a) the establishment of export processing zones, or (b) the inclusion of stabilization
clauses in investment contracts. As noted by Howse et al., “We do see jurisdictions compete for
foreign investment, engaging in what seems a mugs game of transferring public resources
(incentives, tax breaks, loans, etc.) to private firms in order to attract location of factories etc.
And there are clear examples of lowering or violating labour rights in such attempts.” 43 Similar
statements can be found in various studies, including an Organisation for Economic Co-operation
and Development (OECD) study that explicitly notes the discrepancy between rationale and
practice:
[Aggregate] FDI data suggests that core labour standards are not primary factors in the
majority of investment of OECD companies. Nonetheless, some governments in non-
OECD countries have restricted labour rights (especially in export processing zones) in
the belief that so doing would help attract inward FDI from both OECD and non-OECD
investors.44
Cases are not restricted to non-OECD countries. Häberli et al. conclude that developed states are
especially susceptible to regulatory distortions, while developing states are vulnerable to
regulatory chill.45 Recorded instances of regulatory distortion range from the “Hobbit labor laws”
in New Zealand, where film industry workers were reclassified from employees to “independent
contractors” (p. 367) in order to deny them union contracts,46 to the prohibition of trade unions in
Bangladeshi export processing zones, which was demanded by Japan and South Korea on behalf
of their own investors.47
The main normative questions are thus whether limits should be placed on the ability of states to
influence investment inflows through the deregulation of labor, and whether this should be done
by integrating labor standards in investment agreements. An increasing number of IIAs answers
these questions affirmatively, as will be discussed in Part C. Regulatory distortions are in essence
inter-state problems. Derogations artificially modify a state’s competitive advantage, which puts
undue pressure on other states to also derogate in order to retain investments within their
jurisdiction, or become more attractive to new investors. As the ability and willingness to derogate
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strengthens the bargaining power of investors, nondistorting states might be induced to provide
similar, or better, incentives.48 It may well be the case that a labor-incentive in the state in which
the investment is located will be enough to “counter” a derogation of another state. Even if the
investor decides to retain its investment at its existing location, the initial derogation by the
potential host state has led to a net-deterioration of labor standards. On the other hand, it is also
possible that regulatory pressure does not materialize, in the sense that other states do not adjust
their labor standards.49 But there is a difference between pressure and effects. No state
exclusively responds to the preferences of mobile capital, so the political clout of other
constituencies (such as trade unions) or the recognition that a counterincentive would breach
international obligations could lead the state to simply accept the fact that a third state’s labor
incentive has diminished their competitive advantage vis-à-vis that state, but decide that no action
will be taken to offset that disadvantage.50 However, especially when the initial derogation
violates international labor standards, the absence of counter-derogations should not be seen as a
form of acceptance or acquiescence.51
(p. 368) In none of the IIAs that contain non-derogation provisions are the restrictions on the
sovereign “right to deregulate” absolute. Instead, they rely on (a subset of) international labor
standards as the threshold to assess nonacceptable derogations, whether or not with an explicit
reference to the ILO. In this way, the otherwise vague notion of “unfair” competitive advantage is
defined in clear normative terms that are accepted by most states. It also means, however, that
the decision of which labor standards to include in an IIA is not based on an assessment of which
derogations are most harmful to third party economies, or which derogations may provide the
strongest incentives to other states to also derogate.52 In addition, the use of ILO norms may lead
to the erroneous conclusion that IIAs serve a humanitarian purpose when it comes to upholding a
particular level of labor standards. Most states are already bound to observe the labor standards
included in IIAs as a result of their ILO commitments or other human rights treaties. If a state
violates trade union rights, for example, this can be addressed by the supervisory bodies of the
ILO or by the Human Rights Committee. But as these institutions have no enforcement
mechanism beyond “naming and shaming,” it is often argued that investment and trade linkages
provide more effective means to enforce international labor standards. The suspension of trade
concessions or monetary compensation are regarded as more persuasive then moral suasion. But
it is not the purpose of IIA labor provisions to complement, let alone substitute, the ILO system.
Investment-labor linkage may in practice lead to more effective enforcement of ILO standards,
but (most) labor provisions are only actionable if this is in the interest of the host state, and when
the derogation is investment or trade related.
2. Policy Space Concerns

The second normative justification for the inclusion of references to labor standards in IIAs can be
sought in broader concerns about the potentially restraining effects of IIAs on host states’ “policy
space.” 53 Concerns in this respect were voiced by, among others, UN Special Representative on
Business and Human Rights John Ruggie, who stated in his final report to the UN Human Rights
Council:
Economic agreements concluded by States, either with other States or with business
enterprises—such as bilateral investment treaties, free-trade agreements or contracts for
investment projects—create economic opportunities for States. But they can also affect
the domestic policy space of governments. For example, the terms of international
investment agreements may constrain States (p. 369) from fully implementing new human
rights legislation, or put them at risk of binding international arbitration if they do so.54
It has been said that the threat of arbitration was likely to make host states hesitant to implement
measures in the pursuit of social policy objectives, such as the improvement of labor standards,
out of fear that by doing so it might violate the standards of treatment prescribed by an
investment agreement. On this account, IIAs potentially even lead to a “regulatory chill.” 55 From
an empirical point of view, it is difficult to assess the validity of these claims. As Bonnitcha
rightfully acknowledges:
Chilling effects are difficult to identify because they require counter-factual evidence
about the regulations that would have existed in the absence of the purported chilling.
Regulatory chill due to [IIA] protection is particularly difficult to isolate because, in
addition to identifying a chilling effect, one must be able to exclude the possibility that it
was attributable to some other cause.56
It may well be, as some have argued, that there is nothing in the nature of IIAs that would confirm
the regulatory chill hypothesis.57 But the latter should not be dismissed too quickly; as others have
warned, threats are cheap and investors can make claims even when these may have little chance
of success.58 The more so, since foreign investors have already demonstrated their readiness to
use IIAs as a way to challenge undesirable legislative and administrative measures adopted by
host states in pursuance of public policy objectives, such as those aimed at the promotion of
public health or the protection of the environment.59 In light of these precedents, trade unions
have expressed a fear that investors might bring similar claims in response to the introduction or
significant increase of a minimum wage, introduction or strengthening of collective bargaining
rights, constraints on the use of casual labor, or the failure to end industrial disputes or strikes.60
(p. 370) Concerns about regulatory chill are due to many factors, though justifications are mostly
sought in (1) the asymmetric legal relationship resulting from the fact that IIAs grant rights to
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foreign investors without creating concomitant rights for the states recipients of the investments;
(2) the focus of IIAs on the single objective of economic development, which may be at the cost of
other societal concerns; and (3) the fragmented nature of the investment treaty system itself. What
makes the regulatory chill hypothesis difficult to test is the fact that none of the substantive
investment protections guaranteed by IIAs expressly prohibit changes to the domestic regulatory
framework, or else have the intention of excluding foreign investors from the effects of regulatory
changes. In this sense, the investment protection disciplines under IIAs clearly differ from
stabilization clauses of the kind that are often inserted in private contracts between investors and
states, which either have the effect of “freezing” the law of the host state with respect to the
investment project over its life cycle, or otherwise provide the investor with compensation for the
cost of complying with new laws. This kind of stabilization clause has often been criticized for
creating obstacles to the application of new social legislation to investment projects.61 Instead,
the problem with IIAs is that the protections that they guarantee are not hard and fast rules, but
broadly formulated standards – such as the obligation to provide “fair” and “equitable” treatment
– and that much therefore depends on how these standards are construed and applied by
investment tribunals in the circumstances of each case.
It cannot be denied that tribunals occasionally have adopted interpretations of those standards
that they considered to be most conducive to realizing conditions favorable to investment – which
often were in the interests of the foreign investor. In this vein, the presumption has sometimes
been upheld that uncertainties in the treaties’ jurisdictional requirements had to be interpreted in
favor of the foreign investor,62 that the treaties’ substantive provisions were to be construed in a
way that effectively contributed to the protection of investments,63 and that the quantum of
compensation to be paid to the foreign investor did not depend upon the question of whether the
host state’s measures had been taken for a specific public purpose.64 This has further been
exacerbated by the reluctant attitude occasionally expressed by investment tribunals when it has
come to considering and applying noninvestment rules in the context of investor-state disputes.65
Thus, notwithstanding the fact that host states have prevailed more often than they have (p. 371)
lost in investor-state arbitrations,66 a handful of precedents have significantly contributed to the
currently dominant impression that, on average, the treaty provisions found in IIAs “are heavily
skewed towards providing a high level of protection, with limited concessions to development
aspects that can be a trade-off against investor protection.” 67
The focus on investment protection has much to do with the IIAs’ original design. IIAs were
incepted as instruments of economic co-operation between states, aimed primarily at the
promotion of economic growth. As such, they were premised on a simple equation: In exchange
for contributing to the flow of capital and technology into the economy of the host state, the
investors of the other party of the IIA were promised a few basic treatment guarantees, such as
the right to be treated in a nondiscriminatory, fair and equitable manner, and to be compensated
in case of direct and indirect expropriation.68 The underlying assumption was that the proper
treatment of investors would automatically contribute to the flow of capital and technology, and
consequently to the development of the host state. Noneconomic objectives, in contrast, were not
originally part of this equation; if anything, they were perhaps tacitly assumed to follow from the
increase in FDI flows, as a positive spillover effect.69 Even later, when they gradually found their
way into IIAs, noneconomic objectives remained in principle subordinated to economic ones, in
that they were assumed to materialize as a result of the proper treatment of foreign investors. It
was this focus on economic objectives and the attendant emphasis on the high level of protection
to investments that, in turn, also influenced the construction of treaty terms.
Investment tribunals have now increasingly begun to realize that it is necessary to adopt a
“balanced approach” to the interpretation of the standards of protection, given that (p. 372)
interpretations which exaggerate the protection to be accorded to foreign investments might
undermine the system of investment protection in the long run.70 But this has not removed
concerns that investment tribunals will continue to adopt interpretations that are biased in favor
of claimants and against respondent states. To some extent, the problem is thus also a systemic
one. The fragmented nature of investment law – both regarding the diversity in treaty obligations
and the institution of ad hoc arbitration, which lacks any form of stare decisis and offers limited
possibility of appellate review – has led to often inconsistent and contradictory decisions. The
uncertainties that this has created are said to have brought the investment law regime into a
legitimacy crisis.71 While these uncertainties may be remedied in various ways, an obvious remedy
is through a legislative approach that seeks to reduce inconsistencies and promotes textual
certainty. The new generation of IIAs that began to be concluded in the first decade of the twenty-
first century is thus – to a large extent – an answer to this uncertainty.72 The second type of
investment-labor linkage is part of this legislative response.
3. Balancing State Commitments with Investor Obligations

In addition to regulatory distortion and regulatory chill concerns, there is a third policy dynamic
that drives the inclusion of labor issues into IIAs – the attempts to balance state commitments with
investor obligations. This type of linkage is a direct response to the often-heard accusation that
“IIAs grant rights without responsibilities.” 73 As discussed above, IIAs are often perceived to be
one-sidedly focused on the rights of foreign investors, without creating concomitant rights for the
states recipients of the investments or obligations on the part of investors. The explanation for this
lies in the historical motives that led capital-exporting states to begin concluding bilateral
investment treaties (BITs) with developing countries in the early 1960s. The main objective was to
provide legal certainty to their nationals investing abroad at the time when the rules of customary
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international law on the minimum standards of treatment of aliens were in a state of flux, as a
result of the attempts by decolonized states to establish national control over foreign investment
in the context of their strife to bring about a New International Economic Order. The original
purpose of IIAs was thus to provide a set of definite norms that would protect foreign investors at
a time when there was no consensus on multilateral norms.74
(p. 373) Only a decade later it was recognized that the balance of power between host states and
foreign investors was (potentially) problematic, and in the late 1970s negotiations began to draft
a United Nations Code of Conduct on Transnational Corporations. The draft texts of the code
mainly emphasized the responsibility of investors to comply with host state regulations, respect
their sovereign right to regulate and contribute to the host state’s development. The code
eventually died in vain as political agreement was impossible, but it has also been rightfully
criticized from a substantive point of view for defining a “limited list of rights linked to imprecise
and expansive responsibilities, rather than defining the specific responsibilities of companies with
respect to all rights.” 75 The latter more closely aligns with the contemporary notion of corporate
social responsibility (CSR), which is not primarily focused on corporate compliance with host
state regulation, but more broadly concerns “the responsibility of enterprises for their impacts on
society.” 76 Respect for domestic legislation is merely a prerequisite, and weak host state
regulation on social and environmental issues does not negate the independent responsibilities of
multinational enterprises (MNEs).
Presently, the regulatory framework of corporate social responsibility primarily consists of

corporate self-regulation. International law plays only a limited role. Various instruments that
have been adopted at the international level for the purpose of regulating the activities of MNEs,
such as the OECD Guidelines on Multinational Enterprises (as revised in 2011),77 the UN Global
Compact,78 and the ILO tripartite declaration of principles concerning multinational enterprises
and social policy (as revised in 2006),79 are essentially nonbinding. In addition, international
instruments such as ILO conventions,80 the International Covenant on Civil and Political Rights
(ICCPR) 81 and the UN Convention against Corruption,82 carry no direct obligations for
corporations, although they have been important for defining the normative content of corporate
codes of conduct.83 In the context of labor, the consensus on four core labor rights as enshrined in
the 1998 ILO Declaration is replicated in most CSR instruments.
(p. 374) The ultimate decision to adopt a corporate code of conduct or negotiate international
framework agreements with a global union federations is still left to the corporation, which aligns
with the paradigmatic view that CSR is voluntary. Arguably however, the line between the
“strictly voluntary” (CSR) and the “mandatory” (host state laws) spheres has begun to blur due to
various factors.84 First, instruments of corporate self-regulation increasingly include compliance
structures and sanctions, such as termination of the contract when a supplier fails to observe the
standards set by the investor.85 Second, soft law may assist in the interpretation of open norms in
home state tort law.86 Third, host states increasingly adopt process norms in the form of due
diligence and transparency requirements.87 As no substantive rules are prescribed on how a
corporation should behave outside a host state, these host state measures cannot be classified as
extraterritorial legislation – which may be controversial – but as domestic measures with
extraterritorial implications.88 Last, there has been an increase in the use of different forms of
judicial89 and nonjudicial compliance mechanisms to hold corporations accountable for human
rights or environmental law violations.90
Attempts to impose certain obligations upon foreign investors through IIAs are not new, and fit
well within the decline of a noncommittal attitude toward CSR. The draft of the later aborted
Multilateral Agreement on Investment already contained a provision that would have “associated”
the OECD Guidelines on Multinational Enterprises to that agreement.91 Other attempts to link
investor protection to CSR promotion have been more successful, as will be discussed in Part C.
However, provisions that seek to impose obligations directly upon foreign investors are (p. 375)
rarely found in IIAs. Nevertheless, given the present policy dynamics, they are likely to become
more prevalent in investment treaty practice. Indeed, from the perspective of contemporary
international law, there are certainly no conceptual arguments explaining why IIAs could not
impose obligations directly upon foreign investors. If IIAs are capable of vesting foreign investors
with direct rights, they are certainly capable of also subjecting them to specific obligations.92
Similarly, there are no good reasons why IIAs could not impose more stringent obligations upon
the investors’ home states, when it comes to ensuring that companies investing from their territory
comply with labor rights in the state where the investment is made. This would align with the
extraterritorial regulatory possibilities – or even obligations – that states have under international
law to ensure human rights compliance by corporations.93 Indeed, the importance for states to set
out clearly the expectation that all business enterprises domiciled in their territory and/or
jurisdiction respect human rights throughout their operations has been emphasized in the Guiding
Principles on Business and Human Rights (2011) developed by UN Special Representative John
Ruggie, and the same point was recently reiterated by the Human Rights Committee under the
ICCPR in its recommendations to an important capital-exporting state which is home to several
multinational business enterprises.94
As with regulatory distortion and regulatory chill concerns, the notion that IIAs should provide a
better balance between investor rights and obligations is not uncontroversial. It would indeed be
grave misjudgment to characterize multinational enterprises as “engines of worker exploitation
and bastions of sweatshop working conditions.” 95 Research shows that foreign-owned
corporations tend to pay higher wages than domestic firms, and create spillover effects that are
beneficial to the local economy.96 In addition, some investors may have a strong interest in seeing
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that the host state respects international labor standards. This will certainly be (p. 376) the case
where the host state’s adherence to international labor rights is a crucial element of the foreign
investor’s business model.97 However, the fact that most companies act in a responsible way does
not undermine the rationale of home state legislation, CSR provisions or even direct investor
obligations in IIAs. In fact, such norms may have practical relevance for laggards, and contribute
to a level playing field for investors that already do business in a responsible way.
4. Normative Consequences and Regime Design

The relationship between investment and labor standards has been the subject of much empirical
and theoretical research. Although there are still significant gaps in this body of work, the general
conclusion appears paradoxical at best. On the one hand, high-standard countries attract more
FDI than low-standard countries and workers at foreign enterprises tend to be paid higher wages
than their domestic counterparts. On the other hand, however, states do occasionally provide
labor incentives in order to attract FDI, and the outcomes of various investor-state arbitrations
attest to the fact that regulatory chill is a legitimate concern. There are few attempts to bridge
these seemingly contradictory conclusions. Flanagan, for instance, decisively concludes that:
“Each of the globalization mechanisms [i.e., trade, international migration and international
capital flows] works to advance working conditions and labor rights. Barriers to globalization
retard the advance of labor conditions.” 98 Sabel et al., on the other hand, reach the opposite
conclusion with similar assuredness: “Globalization has given rise to widespread abuses, including
child labour, punishingly long work days, harsh discipline, hazardous work conditions, sexual
predation, and suppression of the freedom to associate and organize.” 99
In our view, however, this stark divide on the level of empirical assessment is not as problematic
for the normative debate on the desirability of investment-labor linkage as it appears to be. Even
in the absence of evidence of general regulatory distortion or regulatory chill effects, there are
cases in which states derogate from existing labor laws to attract new FDI or do not implement
higher standards because they fear that doing so may breach the terms of an IIA. Similarly, while
many investors pay a wage-premium and adopt CSR policies, some do abuse the lack of
(enforcement of) decent labor standards. While economists might not be worried about such
outcomes as long as they do not constitute a “race to the bottom,” such instances are problematic
from the perspective of sustainable development, and have led states to agree upon the inclusion
of labor standards in IIAs.
(p. 377) Each type of investment labor linkage addresses different issues, and serves different
interests. Regulatory distortion provisions give a state party a “sword” to challenge regulatory
actions by a host state. They impose a normative floor that should prevent states from gaining
competitive advantages through the violation of internationally accepted labor standards.
Regulatory chill provisions, on the other hand, provide the host state with a “shield” against
possible investor-state claims. The assumption on their part is that the inclusion of labor
provisions will better balance the prospects of economic development traditionally expected to
result from the increased inflow of foreign investment with the attainment of broader social policy
objectives. The same is true for balancing provisions that address the conduct of corporations
more directly, although they are still in a stage of infancy.
All three types of provisions thus address legitimate concerns of unsustainable development in the
investment context. The next part will examine the ways in which states increasingly give effect to
these concerns in IIAs, thereby adhering to the principle of integration that is instrumental to the
realization of sustainable development.
C. Substantive Labor Obligations in International Investment

Agreements
Although the inclusion of separate labor provisions is a relatively new development in investment
treaty practice, references to labor rights in IIAs are not of recent vintage. As early as 1991, the
U.S.-Poland BIT recognized in its preamble “that the development of business and economic ties
can contribute to the well-being of workers in both countries and promote respect for
fundamental worker rights.” 100 Similar language was later added to the preamble of the 1994
U.S. Model BIT 101 and several U.S. BITs that were concluded on its basis, and after some delay,
eventually started to appear in the preambles of European BITs, particularly those concluded by
Finland and The Netherlands.102 Statements of this kind were premised on the belief that
increased FDI flows will, by themselves, inevitably lead to an improvement of labor standards in
recipient countries. However, with the growing realization that the liberalization of investment
flows can have both positive and negative impacts on the position of workers of the contracting
parties, there has been considerable evolution in, as well as diversification of, treaty language.
The labor provisions that are presently found in IIAs exhibit a great deal of diversity. This is not
only obvious when it comes to their form, which ranges from brief preambles and self-standing
treaty clauses, to separate treaty chapters and side-agreements,103 but also with regard to their
substance (the specific aspect of the interface between investment and labor (p. 378) rights that
they seek to regulate), the methods selected for the purpose of achieving the desired goals (the
type and the scope of commitments that they impose, and the enforcement procedures and
institutional arrangements that they establish).
Notwithstanding the differences, the labor provisions also exhibit a number of common traits.
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Unlike other standards of treatment guaranteed by IIAs, they essentially do not intend to create
direct rights for individual investors (or for any other categories of private persons, such as the
workers in the host state receiving the investment). Nor do they provide for any new labor rights
additional to those that the parties may have already granted under existing labor conventions to
which they are party. In most cases, IIAs do not even refer to specific labor conventions. Instead,
the parties merely “reaffirm” or “recognize” their obligations as members of the ILO and usually
recall their commitments under the 1998 ILO Declaration.104 In general, it is possible to discern
three modes of regulation: (1) provisions responding to potential derogations in the level of labor
rights; (2) provisions aimed at the preservation of the parties’ policy space in labor matters; and
(3) provisions focusing on the observance of labor standards by foreign investors.105
Of course, these distinctions are not always easy to maintain, as different provisions sometimes
overlap within the same treaty clause. Then again, not every IIA contains provisions of each type.
But inasmuch as each of these provisions attempts to respond to different problems, they also
deserve separate treatment. In principle, the first and second type of clauses remain concerned
with the adoption, maintenance, and improvement of labor standards by the contracting parties
themselves, although each with a different emphasis (the former on the potential regress in the
level of labor standards, the latter on the potential progress in the level of labor standards) and
method (the former by imposing new obligations upon the contracting parties, the latter by
regulating how other obligations under the IIA are interpreted and applied). The third type of
clauses, in contrast, focuses on the observance of such standards by the foreign investors as the
beneficiaries of protection afforded by the IIA in question. Each of these clauses will be examined
below.
1. Preventing Labor Rights Derogations

The large majority of labor provisions that are presently found in IIAs attempt to respond to the
distorting effects potentially resulting from the increased liberalization of investment flows by
requiring that the contracting parties refrain, in one way or another, from relaxing labor rights as
an incentive to attract foreign investment. In general, these types of provisions are more likely (p.
379) to be found in IIAs that pursue a stronger liberalization agenda, such as those concluded by
the United States, Canada, and Japan, which extend the obligation of national treatment also to
the establishment and/or acquisition of investments. Nonetheless, they are also present in some
BITs that are based on the traditional admission control model, such as those concluded by
Austria or the Belgium-Luxemburg Economic Union (BLEU).
The language in which these provisions are couched varies between IIAs. Occasionally, they do
not go much further than merely recognizing the inappropriateness of encouraging investment
through the relaxation domestic labor standards.106 In most cases, however, the language is quite
elaborate. A typical example is the labor clause in the U.S.-Uruguay BIT, which provides:
The Parties recognize that it is inappropriate to encourage investment by weakening or

reducing the protections afforded in domestic labor laws. Accordingly, each Party shall
strive to ensure that it does not waive or otherwise derogate from, or offer to waive or
otherwise derogate from, such laws in a manner that weakens or reduces adherence to
the internationally recognized labor rights […] as an encouragement for the
establishment, acquisition, expansion, or retention of an investment in its territory…107
What most labor clauses of this type have in common is that they are formulated broadly, in that
they prohibit not only outright derogations, but also any offers to do so; in that they do not
require a systemic pattern of behavior (with the consequence that a single derogation would be
sufficient for a violation to occur); and in that they do not distinguish between the ways in which
derogations take place (with the consequence that the abolition of a formal law would have the
same effect as a contract in which the state promises not to enforce its labor laws within an
export processing zone). Moreover, they are broader in scope than the traditional investment
disciplines, in that the obligations they impose are not limited to the weakening of labor standards
in favor of investments by nationals of the other contracting party, but equally apply to the
weakening of labor standards in favor of investments of third states.108 At the same time, they are
all limited in their focus to derogations that are used as a means to encourage investment. Hence,
they do not prohibit derogations as such, which means that if a state were to abolish the right to
unionize or introduce unequal pay legislation for women for reasons other than (p. 380) to attract
investment, this would arguably not violate the terms of the investment agreement in question.
In spite of their commonalities, however, there are also important differences within this type of
clause. One of the aspects in which IIAs differ is in the nature of the commitments undertaken by
the contracting parties. Some IIAs, particularly those concluded by Japan, contain only
aspirational language in that they stipulate that the contracting parties “should not” waive or
otherwise derogate from their domestic labor standards.109 A large number of IIAs, however,
contain legally binding language, even though there are differences in the type of obligations
imposed. In most cases, the commitments in question are formulated as obligations of conduct, in
that they require that the contracting parties “shall strive to ensure” that they do not waive or
otherwise derogate from their domestic labor legislation. This type of language is currently
present in several BITs concluded by the BLEU,110 in some of the BITs and FTAs concluded by the
United States,111 and occasionally in FTAs concluded by other states.112 On the other hand, there
are several IIAs that go a step further and impose obligations of result, by providing either that
the parties “shall not”/“will not” derogate from their labor legislation, or that they “shall ensure”
that no derogations take place. This has become the preferred drafting method in recent U.S.
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FTAs,113 though such language can also be found in labor chapters /side agreements of FTAs
concluded by Canada, Korea, and the European Free Trade Association (p. 381) (EFTA) states.114
In general, however, provisions imposing more stringent commitments are still relatively limited,
and still rarely found in BITs.115
Significant differences also exist when it comes to the scope of commitments undertaken in the
labor clauses. First, some IIAs are more comprehensive than others with regard to the manner in
which impermissible relaxations of labor standards take place. While many IIAs currently address
only derogations from domestic labor legislation by way of positive action (through changes in
legislation or by way of administrative measures), some IIAs demand in addition that derogations
shall also not occur as a result of omissions. Thus, a number of labor chapters in U.S. FTAs
contain provisions to the effect that a party “shall not fail to effectively enforce its labor laws […]
through a sustained or recurring course of action or inaction, in a manner affecting trade or
investment between the Parties.” 116 But similar requirements can also be found in labor
chapters and side agreements of FTAs concluded by Canada, Korea, and the EFTA states.117
This type of language considerably strengthens labor provisions, since the weakening of labor
standards often occurs by lack of enforcement instead of formal derogations. Interestingly, some
U.S. FTAs go as far as to also limit the “enforcement” discretion of the contracting parties by
additionally stipulating that a party cannot defend failure to enforce its labor laws on the basis of
resource limitations or decisions to prioritize other enforcement issues.118
Second, IIAs sometimes differ in the type of changes that the parties are allowed to introduce to
their domestic labor legislation, and in the scope of the labor legislation to which the non-
derogation provisions apply. To date, there has been no IIA that would seek to prohibit
derogations from any labor law, regardless of type. As a rule, non-derogation provisions in IIAs (p.
382) only apply to that part of domestic labor legislation that directly relates to a set of
international labor standards. However, while some IIAs prohibit any derogations from such
laws,119 others prohibit only those derogations that are actually inconsistent with ILO norms.120
This means that the party that currently observes, in its domestic legislation, labor standards
above those required by the ILO can thus lower its standards without violating the labor clause.
Furthermore, differences also exist with regard to the set of international labor standards that are
to serve as a benchmark for permissible derogations. For this purpose, no IIA actually refers to
the “international labor code” as such, which in total comprises 189 binding ILO conventions and
202 nonbinding Recommendations, dealing with matters ranging from rights for migrant workers
to workplace-related HIV/AIDS issues. The majority of IIAs refer to: (1) freedom of association
and the effective recognition of the right to collective bargaining, (2) elimination of all forms of
forced or compulsory labor, (3) effective abolition of child labor, and (4) acceptable conditions of
work with respect to minimum wages, hours of work, and occupational safety and health.121
Curiously, these correspond to the standards traditionally treated as “internationally recognized
labor rights” by the United States in its domestic legislation relating to the enforcement of labor
rights through trade measures.122 However, they depart from the four “core labor rights” listed in
the 1998 ILO Declaration, in that they include acceptable conditions of work, but exclude the
elimination of discrimination in respect of employment and occupation which is otherwise listed in
that Declaration as a core labor right.
Sometimes, both sets of rights are used within the same IIA, but for different treaty purposes. For
example, the U.S.-CAFTA-DR FTA provides that the parties shall strive to ensure that both the
internationally recognized labor rights and the labor principles enshrined in the 1998 ILO
Declaration are recognized and protected by their laws, but prohibit only derogations from the
labor laws relating to the set of the internationally recognized labor rights.123 Arguably, the
practical effect of such provisions is rather contradictory, in that the treaty on the one hand
requires the principle of nondiscrimination in respect of employment and occupation to be
implemented in the parties’ domestic legislation, but on the other hand allows such legislation to
be derogated from for the purpose of encouraging investments. Increasingly, however, the
principle of nondiscrimination in respect of employment and occupation is added to the other four
internationally recognized labor rights as a non-derogable right in itself. Such expanded lists can
presently be found in more recent U.S. FTAs,124 in some Austrian BITs, and in several labor
cooperation agreements (LCAs) concluded by Canada as counterparts to its FTAs. Notably, the
latter even cover additional labor standards, which are not present in other IIAs. For example, the
LCA between Canada and Peru refers in that context to the right of migrant workers to be
provided with the same legal protections as the party’s nationals in respect of working conditions.
In addition, this agreement stipulates that the freedom of association and the right to (p. 383)
collective bargaining include the protection of the right to organize and the right to strike – an
issue which has been recently subject to fierce ideological discussions within the ILO.125
2. Improving Labor Standards and Preserving Policy Space

The second type of labor provisions that are commonly found in IIAs address the problem of
policy space. These provisions seek to preserve the contracting parties’ regulatory autonomy in
labor matters, by stipulating, either explicitly or implicitly, that the standards of treatment
imposed by IIAs ought not to result in them being prevented from establishing their own levels of
domestic labor rights. Most paradigmatic in this regard is the “Statement of Shared
Commitment” in the U.S.-Singapore FTA, which provides:
Recognizing the right of each Party to establish its own domestic labor standards, and to
adopt or modify accordingly its labor laws and regulations, each Party shall strive to
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ensure that its laws provide for labor standards consistent with the internationally
recognized labor rights […] and shall strive to improve those standards in that light.126
Similar treaty provisions can be found in other U.S. FTAs, but also in BITs and FTAs concluded by
other states.127 Of course, these provisions not only recognize the parties’ regulatory discretion in
labor matters, but at the same time impose additional commitments to improve domestic labor
standards, although varying in their normative ambition. Some IIAs focus only on preventing
derogations of labor standards as a means to encourage investment, without being concerned
with the level of those standards, not even implicitly. For example, the labor clause in the U.S.-
Uruguay BIT, while requiring that the parties do not derogate from their labor legislation, does
not explicitly demand that such legislation be consistent with internationally recognized labor
rights, nor impose any obligation to bring this legislation in conformity with such rights.128 Other
IIAs, however, pursue a more progressive agenda. The U.S.-CAFTA-DR FTA, for example,
demands that each party “shall strive to ensure” that the internationally recognized labor rights
“are recognized and protected by its law,” as well as “that its laws provide for labor standards
consistent with the internationally recognized labor rights” and hence, “shall strive to improve
those standards in that light.” 129 The same language is present in many BITs concluded by the
BLEU.130 The Canada-Peru LCA, on the other hand, formulates such commitments as obligations
of result, requiring that each party “shall ensure that its statutes and regulations, and practices
thereunder, embody and provide protection for […] internationally recognized (p. 384) labour
principles and rights.” 131 Similarly, the U.S.-Korea FTA demands that each party “shall adopt and
maintain in its statutes and regulations, and practices thereunder” such internationally recognized
labor rights.132 But then again, those internationally recognized labor rights are nothing but a
bare minimum. Under the North American Agreement on Labour Cooperation (NAALC), in
contrast, “each Party shall ensure that its labor laws and regulations provide for high labor
standards, consistent with high quality and productivity workplaces, and shall continue to strive
to improve those standards in that light.” 133 These standards are not limited to the internationally
recognized labor rights and core labor standards, but are broader, as they also encompass the
right to strike, equal pay for women and men, prevention of occupational injuries and illnesses,
compensation in cases of occupational injuries and illnesses, and protection of migrant
workers.134
More often, however, provisions recognizing the parties’ regulatory discretion in labor matters
are simply included among other statements forming a preamble. Reference is made there to
international labor rights, either for the purpose of clarifying that investment protection must not
go at the cost of other societal concerns, or with a view to add noninvestment policy goals as self-
standing treaty objectives. An example of the former can be found in the preamble of the U.S.-
Uruguay BIT, which expresses the desire “to achieve these [treaty] objectives in a manner
consistent with the protection of health, safety, and the environment, and the promotion of
internationally recognized labor rights.” 135 An example of the latter can be found in the preamble
of the Netherlands-Mozambique BIT, which recognizes “that the development of economic and
business ties should promote internationally accepted labour rights.” 136 Some other statements
are bound to have similar effects, even without making reference to labor rights explicitly. The
preamble to the Canada-Jordan FIPA, for example, recognizes “that the promotion and the
protection of investments […] will be conducive to the stimulation of mutually beneficial business
activity, to the development of economic cooperation between [the parties] and to the promotion
of sustainable development.” 137 The latter arguably includes the promotion (p. 385) of
international labor standards, given that sustainable development requires the integration of
economic, environmental, and social objectives.
This type of language in preambles has not evolved in relation to labor rights issues specifically,
but has been part of a broader response to the growing concerns that IIAs may unduly affect the
host states’ regulatory autonomy in matters of general societal concern. By elevating
noneconomic objectives onto the same normative plane as investment policy objectives, these
provisions seek to prevent investment protection disciplines from impinging upon the ability of
host states to safeguard broader public policy objectives. In the same category, one must also
consider separate treaty provisions that have been included in IIAs for the same purpose and may
also have the effect of preserving the parties’ policy space in labor matters, even without
necessarily making reference to labor rights as such. This is certainly true with regard to various
interpretative statements, through which some states have sought to clarify the scope of the most
commonly invoked standards of treatment, such as expropriation, fair and equitable treatment,
and nondiscrimination. A number of U.S. and Canadian IIAs, for example, contain annexes
clarifying that nondiscriminatory regulatory actions by a party that are designed and applied to
protect legitimate public welfare objectives such as public health, safety, and the environment, do
not constitute indirect expropriations, except for the rare circumstances in which those actions
are not adopted and applied in good faith.138 This was undoubtedly inspired by the experience of
the United States and Canada as respondents in arbitrations brought against them under the
North American Free Trade Agreement (NAFTA). However, similar explanatory language can
also be found in IIAs concluded by African and Asian countries, such as the Investment Agreement
for the Common Market for Eastern and Southern Africa (COMESA) Common Investment Area
(2007)139 and the Association of Southeast Asian Nations (ASEAN) Comprehensive Investment
Agreement (2009).140 In principle, the language used in such explanatory statements will equally
apply to regulatory actions aimed at the improvement of labor rights, given that these also
represent legitimate public welfare objectives.
Similar effects can also be achieved by general exceptions clauses, which are occasionally
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included in IIAs to provide the contracting parties with the possibility of derogation – subject to
several substantive or procedural requirements – from their investment treaty obligations in
situations where compliance would prevent a party from adopting or enforcing measures
necessary for the achievement of certain noninvestment policy goals. So far, none of these clauses
expressly provides exceptions for measures aimed at the improvement of labor rights.
Nonetheless, several exceptions could, under certain circumstances, be construed as applying to
measures related to the improvement of labor standards, such as the exceptions applicable to
measures necessary to protect public morals, human life or health, or to measures aimed at (p.
386) ensuring compliance with laws and regulations that are not inconsistent with the provisions
of the IIA in question.141
The different provisions are sometimes used alternatively, and sometimes in combination with one
another. This is because they operate at different levels: While general exception clauses affect the
application of investment protection standards, the other types of provisions primarily affect their
interpretation. But essentially, they all aim at reaffirming the host states’ regulatory autonomy in
social matters.
3. Fostering Compliance by Foreign Investors

The third, and thus far the least frequent type of labor provisions, are those directed at fostering
compliance with labor standards by foreign investors, either as a matter of corporate social
responsibility or through other language emphasizing the importance of investors’ adherence to
international labor standards, including by means of direct treaty obligations. In contrast with the
other types of labor clauses discussed above, these provisions adopt a different focus, in that they
shift away from the question of how labor standards are complied with by the state recipient of
the investment, to the issue of how labor standards are respected by the foreign investors.
Provisions to such effect can occasionally be found, albeit in a somewhat embryonic form, in
various statements in preambles to FTAs. In a few FTAs concluded by the EFTA states, for
instance, the contracting parties “acknowledge[e] the importance of good corporate governance
and corporate social responsibility for sustainable development, and [affirm] their aim to
encourage enterprises to take into account internationally recognised guidelines and principles
where appropriate.” 142 On the other hand, there are also examples where this matter is dealt with
in separate treaty clauses. Thus, in the investment chapter of the Canada-Peru FTA (2009), one
can find a provision stipulating:
Each Party should encourage enterprises operating within its territory or subject to its
jurisdiction to voluntarily incorporate internationally recognized standards of corporate
social responsibility in their internal policies, such as statements of principle that have
been endorsed or are supported by the Parties. These principles address issues such as
labour, the environment, human rights, community relations and anti-corruption. The
Parties therefore remind those enterprises of the importance of incorporating such
corporate social responsibility standards in their internal policies.143
Similar treaty clauses can presently also be found in Canadian FTAs with Colombia and
Panama,144 and are likely to be inserted in some important IIAs that are currently in the making,
(p. 387) as attested to by, among other examples, the leaked investment chapter of the Trans-
Pacific Partnership Agreement.145 It is also expected that they will become a standard feature of
future trade and investment agreements negotiated by the European Union.146
The commitments that these CSR provisions impose are much less demanding when compared to
the obligations under other types of labor provisions, as they are usually phrased in a “double-soft
law” manner: States are required to remind or encourage investors to adopt voluntary standards.
This is not to say, however, that the “soft” language necessarily makes them redundant, as they
could certainly influence the interpretation of other investment protection standards found
IIAs.147 Furthermore, in comparison with the other labor provisions, the CSR clauses are not
directed solely at the state party which is the recipient of the investment (as the other types of
labor clauses essentially do), but also at the state party within whose “territory” the enterprises
operate or to whose “jurisdiction” they are subject, which equally (and perhaps primarily) means
the capital-exporting state.
In terms of structure, however, these types of provisions do not depart from the paradigmatic way
in which IIAs are drafted, in that they do not impose obligations upon investors directly, but rely
for the purpose of regulation upon the contracting parties to the IIA, for it is essentially through
national legislation and administrative measures that the contracting parties can “encourage”
compliance of companies with CSR norms. This paradigm may begin to change, however. The
Investment Agreement for the COMESA Common Investment Area (2007) contains an early
example of provisions that seek to impose obligations directly upon foreign investors, by providing
that “COMESA investors and their investments shall comply with all applicable domestic
measures of the Member State in which their investment is made.” 148 This provision does not yet
impose any specific obligation of conduct; it does, however, impose an additional obligation under
international law to comply with the domestic legislation of the host state, including, among
others, its labor code.149
(p. 388) Much more comprehensive, on the other hand, are the Community Rules on Investment
that were adopted by the Economic Community of West African States (ECOWAS) in 2008,150 as
they contain a complete chapter devoted to obligations and duties of investors and investments
( Chapter III). The Rules provide, among others, that investors “are subject to the laws and
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regulations of the host State,” and that they “shall strive, through their management policies and
practices, to contribute to the development objectives of the host States and the local levels of
government where the investment is located.” 151 Most important, they require that, once
established in the host state, investors
shall uphold human rights in the workplace and the community in which they are located.
Investors shall not undertake or cause to be undertaken, acts that breach such human
rights. Investors shall not manage or operate the investments in a manner that
circumvents human rights obligations, labour standards as well as regional environmental
and social obligations, to which the host State and/or home State are Parties152
and furthermore, that
[i]nvestors and investments shall act in accordance with fundamental labour standards as
stipulated in the ILO Declaration on Fundamental Principles and Rights of Work,
1998.153
Therefore, the policy dynamic currently taking place suggests that it is not inconceivable that
future IIAs will impose more demanding commitments when it comes to CSR issues, including
specific obligations of conduct. An additional example potentially attesting to this trend is also the
new Southern African Development Community Model BIT which contains a full provision on
Minimum Standards for Human Rights, Environment and Labour that reads:
15.1. Investors and their investments have a duty to respect human rights in the
workplace and in the community and State in which they are located. Investors and their
investments shall not undertake or cause to be undertaken acts that breach such human
rights. Investors and their investments shall not assist in, or be complicit in, the violation
of the human rights by others in the Host State, including by public authorities or during
civil strife.
15.2. Investors and their investments shall act in accordance with core labour standards
as required by the ILO Declaration on Fundamental Principles and Rights of Work, 1998.
15.3. Investors and their investments shall not [establish,] manage or operate
Investments in a manner inconsistent with international environmental, labour, and
human rights obligations binding on the Host State or the Home State, whichever
obligations are higher.154
(p. 389) As it is only a Model BIT, it remains to be seen whether the Southern African
Development Community will be able to negotiate a text along these lines with capital exporting
states, which arguably have little interest in including such clauses.155
4. Innovation in Treaty Language – Prospects for Sustainable

Development?
Much has therefore changed in the treaty language since the reference to the promotion of
respect for fundamental worker rights in the U.S.-Poland BIT in 1991. First, the inclusion of labor
provisions has steadily gained momentum. Less than a decade ago, it was still considered a
“general rule” that investment treaties of OECD countries did not include special provisions
bearing on the protection of labor rights, with the United States and Belgium/Luxembourg being
mentioned as the only two exceptions.156 Today, such provisions are found with increasing
frequency in IIAs concluded by Austria, Korea, Japan, Canada, and the EFTA states, and are
furthermore expected to be inserted in a number of important future IIAs, such as the new Trans-
Pacific Partnership Agreement (TPP) and the Transatlantic Trade and Investment Partnership
(TTIP) that are currently under negotiation.157
Second, the policy issues that are dealt with in the labor provisions have diversified. The main
concern is no longer how to prevent the relaxation of labor standards, but also how to preserve
states’ regulatory autonomy in labor matters. Furthermore, the first steps have now been taken
toward ensuring that investors also comply with international labor rights. All in all, more
attention is therefore devoted to achieving a better balance between investment and
noninvestment goals in IIAs. This is not to deny, of course, that significant discrepancies still exist
in the legal commitments undertaken. However, at least with respect to the non-derogation
provisions, there has been a trend toward broadening and strengthening the commitments
undertaken, with obligations of result gradually replacing hortatory language. At the same time,
consistency is gradually ensuing with regard to the parameters of accepted labor standards in
IIAs, as the lists of non-derogatory rights now increasingly relate to the 1998 ILO Declaration, in
conjunction with the requirement that state parties maintain acceptable conditions of work with
respect to minimum wages, hours of work, and occupational safety and health.
Third, and perhaps most important, significant changes have been taking place in how investment
matters are regulated. The creation of BITs is slowly losing momentum, as states increasingly
prefer to conclude comprehensive investment and trade agreements. These are not typically
limited to trade and investment, but more and more often deal with important noneconomic
matters as (p. 390) well, such as labor and the environment. This reduces the potential of
normative conflicts between treaty regimes, as inconsistencies between different issue areas must
now be resolved at the level of the same instrument. At the same time, it increases the potential
for regulating the interface between investment and labor rights in a comprehensive and
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integrated manner, and with it the prospects of IIAs becoming instruments for the achievement of
sustainable development.
D. Implementation, Enforcement and Dispute Settlement

Various IIAs not only diverge in the substantive obligations that they impose upon the parties in
relation to labor rights, but also in the institutional arrangements that they create for the purpose
of overseeing the parties’ compliance with those obligations, as well as in the procedures that they
provide for their enforcement. Therefore, this part focuses on the mechanisms that are available
for the implementation of substantive labor obligations that were discussed in Part C. It begins by
providing an overview of different institutional arrangements, and then goes on to discuss the
different modalities through which each of the three categories of labor commitments can be
enforced in practice. Finally, it looks at the specific position of workers and their role in the
enforcement of IIA provisions.
1. Institutional Arrangements
As with regard to other matters, IIAs differ in the institutional arrangements that they establish
for the purpose of supervising the compliance of the parties with their labor obligations. On one
end of the spectrum there are BITs, which tend not to create any permanent institutions, but
usually provide for consultations to be convened on an ad hoc basis. A typical example are the
BITs concluded by the BLEU, which recognize that co-operation between the parties “provides
enhanced opportunities to improve labour standards” and therefore provide that upon request by
a party, the other contracting party “shall accept to hold expert consultations” on any matter
falling under the purpose of the labor provisions.158 Under U.S. BITs, in contrast, such
consultation procedures are only provided in the event that a violation of the labor clause has
taken place.159 Yet, there are also BITs that do establish permanent committees with the general
task of supervising the implementation and operation of the treaty, which can then provide a
forum to discuss also any problems arising under the labor provisions.160
On the other end of the spectrum, there are FTAs with labor chapters and separate labor
agreements, which establish permanent institutional arrangements that are often very
comprehensive in nature. Japanese FTAs use a simpler institutional set up and only provide for the
(p. 391) establishment of a permanent committee, which has the function of reviewing the
implementation and operation of the investment chapter , including its labor provisions.161 More
extensive arrangements can, on the other hand, be found under the NAALC, and in U.S. FTAs and
Canadian LCAs that were modeled on the basis of the NAALC. All these agreements establish
supranational bodies of various designations, composed of minister-level representatives and
generally tasked with overseeing the implementation of the treaty (sometimes supported by a
permanent secretariat), and national administrative offices that serve primarily as a contact point
for all interested parties and can receive and review petitions from private persons.162 The
NAALC example may have inspired other states, which have established similar, albeit less
detailed arrangements in the labor chapters and labor agreements of their FTAs.163
These institutional arrangements not only provide a forum to discuss any problems that could
potentially arise in respect of the enforcement of labor provisions, but also to enhance the parties’
cooperation in the adoption, maintenance, and further improvement of labor standards. In that
light, many IIAs also mandate the development of special collaborative mechanisms. Most U.S.
FTAs, for example, expressly recognize that cooperation provides enhanced opportunities to
promote respect for core labor standards and their improvement, and to further advance the
parties’ common commitments, including those under the 1998 ILO Declaration. For that
purpose, they establish special labor cooperation (and capacity building) mechanisms, through
which the parties are expected to cooperate on establishing priorities for cooperative activities on
labor matters and their subsequent development, exchanging information on labor legislation and
practice (including their further improvement), and implementing the principles reflected in the
ILO Declaration. The said cooperative activities may relate to, among other subjects, fundamental
workers’ rights and their effective application, labor-management relations, and work
conditions.164 The development of similar cooperative activities is also mandated by the NAALC
and in several Canadian LCAs.165
2. Enforcement of Labor Provisions: What Role for Investment-

Treaty Arbitration?
As noted in Part C, labor provisions not only impose specific obligations in relation to the
adoption, maintenance, and further improvement of labor rights, but some of them also affect the
interpretation and application of other substantive obligations arising out of IIAs. Inasmuch as
they differ in the type of obligations that they impose, and to whom these obligations are owed,
each type of labor provisions therefore gives rise to different problems when it comes to their
operation in practice. These problems are additionally exacerbated by the fact that some (p. 392)
private-party beneficiaries are empowered to enforce IIAs provisions directly, while others are not.
In particular. when it comes to investment protection guarantees, IIAs typically confer a right to
enforce these directly upon the investors; but when it comes to substantive labor obligations, they
do not necessarily grant similar powers to workers or trade unions, which are the ultimate
beneficiaries of the labor provisions and also have a broader interest in the matters regulated by
the treaty. The following section considers some of these problems by reference to each
category of substantive labor provisions that was discussed in Part C, by exploring the different
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avenues that various actors may pursue in order to enforce these provisions. The analysis focuses
in particular on investment-treaty arbitration, which, in comparison to the more traditional inter-
state proceedings, has become the preferred method for resolving investment disputes. The
analysis considers several fact patterns, both real and fictitious, to analyze whether enforcement
actions based on IIAs that do contain the labor provisions are likely to have different outcomes
from arbitrations based on IIAs that do not.
a. Enforcement of Non-Derogation Obligations

When it comes to provisions dealing with relaxation of domestic labor legislation, the mechanisms
available for their enforcement under IIAs often differ from those available for the enforcement of
investment protection guarantees. In the case of U.S. FTAs, for example, investor-state arbitration
is only available for obligations under the investment chapter , whereas matters arising under
the labor chapter are to be dealt with on the inter-state level. The focus is primarily on
consultations, as many U.S. FTAs also limit the types of matters that can be submitted to
arbitration to those that relate to the failure by a party to effectively enforce its labor laws
through a sustained or recurring course of action or inaction “in a manner affecting trade
between the Parties.” 166 Moreover, these treaties also place limits on monetary penalties for
breaches of such labor provisions, albeit while retaining the suspension of benefits under the
treaty as a last recourse option.167 Similar restrictions can also be found in the NAALC and the
Canadian LCAs. Under the former, the only provision that is enforceable through arbitration is a
party’s “persistent pattern of failure…to effectively enforce its occupational safety and health,
child labor or minimum wage technical standards,” where that failure is “trade-related” and
“covered by mutually recognized labor laws.” 168 The latter, on the other hand, allow for
arbitration in relation to all substantive labor commitments, but nonetheless require that
violations be “trade-related.” 169 Likewise, both the NAALC and the LCAs also place caps on
monetary penalties. On the other hand, there are also FTAs that do share the same dispute
settlement mechanisms in relation to both labor and commercial obligations. Thus, under the
more recent U.S. FTAs with Peru, Colombia, Panama, and South Korea, recourse to inter-state
dispute settlement is available with regard to all obligations under the labor chapters and
without any caps on potential penalties.170 The same is true under Japanese FTAs, which contain
no carve-outs in (p. 393) relation to their labor clauses.171 Then again, there are also FTAs
concluded by the EFTA states and Korea where the labor chapters /labor agreements are
expressly excluded from any form of binding, third-party dispute settlement.172
Following the example of the NAALC, the labor chapters in U.S. FTAs and the labor side
agreements concluded by Canada often contain provisions fostering private action in the
enforcement of labor rights. Some of these provisions have the purpose of contributing to the
effectiveness of domestic labor law enforcement, by requiring the contracting parties to ensure
that their competent domestic authorities give due consideration to any request by an employer,
employee or their representatives, or other interested person, for an investigation of an alleged
violation of a party’s labor law,173 and to ensure that persons with a legally recognized interest
have appropriate access to domestic tribunals for the enforcement of the party’s labor laws and
that such procedures comply with several procedural guarantees.174 Other provisions, on the
other hand, are aimed at promoting compliance with the parties’ treaty obligations, by allowing
private persons to submit “communications” on matters related to the labor chapters /labor side
agreements which have arisen in the territory of the other contracting party (NAALC or LCAs) or
in the territory of either party (U.S. FTAs). This, in practice, allows private persons or
organizations to bring complaints against a party for failing to comply with its labor obligations,
and therefore to directly enforce the parties’ commitments. Such communications are not,
however, treaty-based procedures, analogous to investor-state arbitration. They are reviewed by
National Administrative Offices or National Contact Points, subject to and in accordance with
domestic procedures.175 Nonetheless, since the National Administrative Offices and National
Contact Points often have the option to recommend further actions at the level of ministerial
consultations, the matters raised through such communication could eventually lead up to dispute
settlement mechanisms under the treaties.176 The practice of providing private persons with the
possibility to submit petitions on matters related to labor provisions is, however, limited to IIAs
concluded by North American states. The labor chapters and labor agreements of other states’
FTAs do not contain similar mechanisms177 – and neither do BITs.
When it comes to BITs, these frequently limit the dispute settlement mechanisms available with
respect to the labor clauses; though, the differences in treaty-making practice are somewhat more
pronounced. In U.S. BITs, for example, the labor clause remains outside the scope of both
investor-state and state-state arbitration.178 In the event that a contracting party considers (p.
394) that the other contracting party sought to encourage investment by offering to relax its labor
standards, that party can instead request consultations with the other party, whereby “the two
Parties shall consult with a view to avoiding any such encouragement.” 179 In contrast, the BITs of
other countries do not necessarily exclude labor provisions from binding dispute settlement
mechanisms. The BITs concluded by the BLEU or Austria in principle retain the possibility for the
labor clause to be invoked in both investor-state and state-state dispute settlement procedures.180
Occasionally, however, the option to invoke labor provisions in investor-state arbitration is
excluded due to limitations in the scope of consent to arbitrate, as is sometimes the case with
Japanese BITs.181
The practical effects of such limitations are not necessarily detrimental to the position of the
investor. Their inability to bring direct claims in relation to the labor provisions may not prevent
them from invoking the failure of the host state to respect internationally recognized labor rights
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or to effectively enforce its domestic labor legislation as part of their principal or subsidiary
claims in relation to other investment protection standards available under IIAs. As attested to by
the NAFTA case of UPS v. Canada, there are certainly situations where a foreign investor will
have an interest in the host state’s complying with its international labor legislation. The claimant
in that case, a U.S. parcel delivery service provider, contended that the restrictions on the
collective bargaining rights of the employees of its competitor on the Canadian market, the state-
owned Canada Post, provided the latter with an unfair competitive advantage and thus violated
the minimum standard of treatment as required by Article 1105 NAFTA, as well as Canada’s
obligations under ILO conventions and various human rights instruments. The claims of
noncompliance with labor obligations, though, were clearly based on economic motivations. The
fact that Canada Post’s rural route contractors could not be unionized and that its employees
were prevented from negotiating pension benefits, which according to UPS unfairly allowed
Canada Post to pay lower wages, which meant that the company enjoyed lower operating costs
than UPS and other, largely foreign-owned competitors, and enabled it to maintain its market
share at the expense of the latter.182
(p. 395) In the end, UPS’s claim relating to Canada’s breaches of core labor rights, as well as its
other claims, failed. In its award on jurisdiction, the tribunal determined that those parts of the
claims which challenged anticompetitive behavior on the basis of Article 1105 NAFTA were
outside the scope of its jurisdiction, insofar as there was no rule of customary international law
prohibiting or regulating anticompetitive behavior.183 This meant that in the award on the merits,
the tribunal was essentially prevented from considering the effects of Canada’s failure to respect
core labor rights on the competitive advantage of Canada Post and the implications thereof for
the position of UPS, save to the extent that Canada’s anticompetitive conduct could have
amounted to a breach of the national treatment obligation under Article 1102 NAFTA. But insofar
as UPS and Canada Post were not found to be “in like circumstances,” the UPS claim failed also
in that respect.184 Other than that, the tribunal held that UPS had demonstrated “no sufficient
interest” to justify its pursuit of the labor-related claims, “nor any substantive ground which could
begin to show a breach of the minimum standard reflected in Article 1105.” 185
The UPS v. Canada case is certainly not an example of a successful invocation of host state’s
noncompliance with international core labor rights in investor-state arbitration. However, there is
nothing to suggest that a foreign investor “in like circumstances” with a domestic one could not
demonstrate that the existence of domestic legislation distinguishing, in law or in fact, between
labor rights applicable to domestic entities and to foreign investors, without legitimate reasons for
the difference in treatment, violates the national treatment standard – an obligation which can be
found in nearly all IIAs. Nor would it be impossible to demonstrate that similar distinctions could
give rise to violations of the most-favored nation treatment standard, where waivers or
derogations from domestic labor legislation are made in favor of investors from a third state. This
suggests that investment tribunals could consider waivers or derogations from domestic labor
legislation, even in cases where labor clauses prohibiting such conduct were otherwise excluded
from the scope of dispute settlement provisions under the IIA in question or even when there is no
labor clause at all. Nor would, for that matter, investment tribunals be prevented from
considering cases where the host state failed to effectively enforce its labor laws, without formally
making any distinction in the labor standards applicable to domestic and foreign investors. It is
well established that the failure of the host state to implement and enforce its labor legislation in
a manner adversely affecting a foreign investor, just as the failure to implement or abide by its
own law in general, could amount to breaches of the fair and equitable treatment standard (a
standard which is equally present in the majority of IIAs), particularly if nonenforcement would
lack any reasonable justification and would be part of a recurring pattern.186
(p. 396) At the same time, the UPS v. Canada case suggests – particularly in light of the
Government of Canada’s defense that UPS lacked standing to bring a claim for Canada’s
violations of international labor rights under NAFTA, since its obligations in that field were owed
to Canada Post’s rural route workers and pension holders, and not to UPS187 – that investor-state
arbitration may be of more limited utility in cases where no distinction is actually made in the
application of domestic labor legislation between different classes of investors, but the host state’s
legislation in general does not comply with international (core) labor standards.188 This is because
investment tribunals, in view of their limited jurisdictional competence, may generally not be able
(nor probably willing) to pronounce upon breaches of host state’s international obligations other
than those under the IIA – at least as an independent head of claim. Whether or not investor-state
arbitration can prove successful as an avenue for pursuing claims relating to the host state’s
compliance with core labor rights will thus essentially depend on how the claim is framed.
Admittedly, however, the chances of investors bringing claims against the host state for lack of
compliance with international labor standards are probably thinner than the chances of investors
challenging regulatory actions taken by host states in pursuit of higher labor standards, as
discussed in the next section .189
b. Challenges to Host State’s Regulatory Action in Labor Matters

The potential for investors using investor-state arbitration under IIAs to challenge undesirable
legislative and administrative measures adopted by host states for the purpose of improving labor
rights is not remote. Foreign investors expect a stable environment for their investments and
certainly have an interest that the host state does not introduce legislative changes that lead to
the imposition of labor standards which could be considered as unreasonable and excessive,
particularly if such changes are sudden and end up imposing more burdensome obligations on
foreign investors.
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Thus far, there have been no reported cases of investors bringing a claim under an IIA alleging
that the imposition of higher labor rights constitute a breach of investment protection standards
guaranteed by the investment treaty. There are, however, at least two known cases where
investors commenced arbitrations against host states in response to changes of legislation
regulating conditions of work, by invoking breaches of specific investment contracts. In 2006, the
Canadian mining-company Centerra, which operates one of the largest gold mines in the Kyrgyz
Republic, reportedly commenced arbitration on the basis of the arbitration clause in its
concession contract with the Kyrgyz Government, after the latter had amended its labor
legislation regarding the payment of high-altitude premiums to workers. The amendments of the
labor laws, which resulted in increased labor costs of Centerra’s personnel in the amount (p. 397)
of US$ 6 million per year, were said to violate the contract’s stabilization clause. The arbitration
was later settled, however, and the documents of the case are not publicly available.190 Similar
claims have reportedly been advanced in an arbitration brought against Egypt by the French
multinational Veolia in 2012, which is currently still pending before the International Centre for
Settlement of Investment Disputes (ICSID).191 The dispute arose as a result of a premature
termination of a contract for waste management that the claimant has held in the Egyptian city of
Alexandria. While the details of the case have not been public at the time of this writing, it has
been reported that some of Veolia’s claims directly relate to Egypt’s legislative changes that
resulted in an increase in minimum wages. The changes were claimed to have negatively affected
the company, despite provisions in the concession contract designed to offset the concessionaire
from financial implications of such legal changes.192 The arbitration has apparently been
commenced under the France-Egypt BIT, on the ground that the respondent’s premature
termination of the contract, as well its broader treatment of the concessionaire, have breached
protections contained in the treaty. However, the underlying dispute concerns essentially
contractual claims, which in the circumstances of the case could have been brought to ICSID
arbitration as a result of the BIT’s broadly formulated dispute settlement clause.193 Therefore, the
cases of Centerra v. Kyrgyz Republic and Veolia Propreté v. Egypt remain in principle of limited
precedential value in the context of investment treaty arbitration, since IIAs do not contain
stabilization clauses of the kind that were relied upon in the two cases to contest undesirable
legislative changes. However, this is not to say that IIAs could not have amplifying effects in such
circumstances, in the event that they would contain umbrella clauses and thus provide the
possibility for contract breaches to be elevated into treaty breaches. But what both precedents
certainly demonstrate is the propensity of foreign investors to use arbitration as a means to
challenge regulatory measures imposing higher labor rights.
The potential for using IIAs for such purposes has, furthermore, been demonstrated in two other
cases where foreign investors relied upon such treaties to challenge host states’ regulatory
measures that partly related to labor matters: Paushok v. Mongolia194 and Foresti v. South
Africa.195 In the former case, three Russian investors in Mongolia’s second-largest gold mining
operation challenged several pieces of the respondent’s legislation on the ground that these (p.
398) violated Mongolia’s obligations under the Russia-Mongolia BIT (1995). The thrust of the
case was directed against the imposition of a new Windfall Profit Tax (2006), which levied a tax
of 68% on any gold sales at prices in excess of US$ 500 per ounce. At the same time, however, the
claimants also challenged the enactment and application of the new Mining Law, which sought to
achieve greater participation of Mongolian workers in mining operations, by requiring mining
companies that employed foreign citizens in excess of a 10% quota to pay a special monthly
penalty equal to ten times the minimum salary in Mongolia for each foreign national they employ
above that percentage. The new hiring obligations – which differed considerably from those under
the previous law that remained applicable to industries other than the mining one, and imposed
penalties only at two times the minimum monthly salary – significantly affected the claimants’
local Mongolian mining company, which employed a substantial number of foreign workers and
was therefore required to pay about US$ 500,000 in penalties each month. Accordingly, the
claimants argued that the new Mining Law violated Mongolia’s obligations to provide fair and
equitable treatment (on the ground that it unpredictably changed the business and legal
framework for the claimant’s investment and violated their legitimate expectations) and to grant
their investments treatment not less favorable than that granted to Mongolian domestic investors
or nationals of third states. The claimants, however, did not prevail in their claims, as the Arbitral
Tribunal did not accept that Mongolian legislation violated the country’s obligations under the
BIT.
The imposition of specific hiring obligations was also challenged in the Foresti case. The
claimants, who held investments in two of South Africa’s major players in the granite extraction
industry, brought arbitration against South Africa alleging that their investments were adversely
affected by several measures that the latter adopted in the implementation of policies known as
Black Economic Empowerment, in pursuit of a wider effort to address the country’s racial
inequalities. The focus of the claimants’ case was on the new system of mining rights introduced
by South Africa under its Mineral and Petroleum Resources Development Act (MPRDA) of 2004,
which was said to have expropriated their preexisting mineral rights, leases and authorizations. At
the same time, however, the claimants also directed their action against the obligations imposed
upon them by the Mining Charter, which included the obligation to hire “historically
disadvantaged South Africans.” 196 In the view of the claimant, both the MPRDA and the Mining
Charter violated South Africa’s obligations under its BITs with Italy and Luxembourg; in
particular, the obligations to provide fair and equitable treatment to foreign investors and
prohibiting unlawful expropriations. However, the tribunal never came to considering these claims
on the merits, as the case was eventually discontinued. Nonetheless, the case remains of interest,
in that it shows that legislative action aimed at correcting past social injustices, including those
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arising from discrimination in employment and occupation – which undoubtedly was the reason
for the underrepresentation of historically disadvantaged South Africans in managerial positions
of South African mining companies – may well stumble upon the opposition of foreign investors.
Furthermore, both the Paushok and the Foresti cases demonstrate that the opposition of investors
to legislative changes will be that much greater if those changes are to affect foreign (p. 399)
investors more severely than their domestic counterparts, just as the penalties on the employment
of foreign personnel ended up placing a heavier burden on some foreign mining companies in the
Paushok case and the requirement to meet the quotas for the hiring of black managers was
considered to place more onerous requirements on foreign-owned firms by the claimants in the
Foresti case.
In neither of the two cases was the challenge actually successful. One would be tempted to argue
that this provides evidence that IIAs are not a problem. However, the evidence is too meager to
draw any definite conclusions as to whether investment protection disciplines could effectively
function as a bar to adopting and implementing higher labor rights. Further inferences can,
however, be drawn from other cases where investors have used IIAs to challenge regulatory
measures of general application to see whether these standards of treatment could be interpreted
and applied in a way that would prevent the adoption and application of such measures. One of
the standards that has usually been seen as problematic in this respect is the obligation to provide
compensation in the event of indirect expropriations. Under most IIAs, this is formulated broadly
as it essentially encompasses any measures that have the effect of interfering with the foreign
investors’ property rights. The problem, of course, is that the obligation may equally extend to
legitimate regulatory measures adopted by the host state in the pursuit of the public interest,
especially if one considers solely the effects of such measures without taking into account the
public policy concerns that motivated their adoption, as some tribunals have had the tendency to
do.197 In general, however, investment tribunals have preferred to adopt a more nuanced
approach in establishing whether a regulatory measure amounted to an indirect expropriation.
Hence, in deciding whether or not a regulatory measure amounted to a de facto expropriation,
some have found it appropriate to consider the purpose of the host state’s interference with
investor’s rights, and particularly whether the public interest presumably protected by regulatory
actions was not significantly disproportional to the protection granted to investments.198 Others
have assumed that a nondiscriminatory regulation, taken for a public purpose, and enacted in
accordance with due process may simply not be deemed expropriatory and compensable unless
specific commitments had been given that the government would refrain from such regulation.199
All in all, in determining whether a regulatory measure amounted to an indirect expropriation,
investment tribunals have balanced the investors’ expectations on the one hand, and public policy
concerns of the host state on the other.200 Judged against this backdrop, in situations where an
investor (p. 400) would have sufficient reasons to challenge regulatory measures in labor matters
on the ground that these constituted an unreasonable interference with their property – that is, in
cases where a state decided to impose excessive labor regulations, such as those setting minimum
wages at a prohibitively high level or prohibiting any dismissal of staff201 – for such challenges to
be successful, the investor would still have to demonstrate that the regulations did not satisfy a
public purpose, were discriminatory, disproportionate, and not in accordance with due process.
The other standard that has usually given rise to concern is the obligation to provide fair and
equitable treatment. Indeed, the apparent indeterminacy of this standard has allowed investment
tribunals to read into it an extensive list of disciplines, including the obligations to provide
stability and predictability of the legal framework and to protect investors’ legitimate
expectations – obligations which, in their nature, are geared toward generating stabilizing (and
potentially chilling) effects.202 Nonetheless, the possibility for the fair and equitable treatment
standard to impede regulatory activity must not be exaggerated, as the protections afforded under
this standard have never been interpreted as absolute ones. Already in Saluka v. Czech Republic,
the tribunal acknowledged that, in order to determine whether the frustration of the foreign
investor’s expectations was unjustified and unreasonable and therefore in breach of the fair and
equitable treatment standard, it must also consider “the host State’s legitimate right subsequently
to regulate domestic matters in the public interest” and that this required “a weighing of the
Claimant’s legitimate and reasonable expectations on the one hand and the Respondent’s
legitimate regulatory interests on the other.” 203 The need to perform such a balancing test was
later confirmed by other tribunals, who also rejected the idea that the fair and equitable
treatment obligation could be interpreted as implying the total freezing of the host state’s legal
framework and therefore serving the same purpose as stabilization clauses specifically granted to
foreign investors.204 Thus in Paushok, the tribunal firmly rejected the claim that the changes
adopted by the respondent in relation to the employment of foreign nationals had violated the fair
and equitable treatment obligation, on the ground that
investors cannot legitimately expect that the [legislative] environment which they face at
the time of their first investment will not be substantially altered with the passage of time
and the evolution of events. The proper way for an investor to protect itself in such
circumstances is to ensure that it will benefit from a stability agreement covering taxation
and other matters; absent such an (p. 401) agreement, the investor will face the much
more difficult task of demonstrating that a breach of particular provision of a BIT has
occurred.205
Indeed, in order to prove such a breach, the investor will have to demonstrate that it had received
explicit promises from the host state that its domestic laws will not be changed, or that it obtained
other kinds of assurances or representations to that effect when making the investment.206
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Arguably then, there may be situations where a tribunal could uphold the claim that significant
and unpredictable changes to labor legislation would be capable of amounting to violations of the
fair and equitable treatment standard, particularly where such changes would substantially affect
regulatory guarantees that had been specifically tailored to attract foreign investment.207
However, save in those situations, the plea that a foreign investor legitimately expected that the
host state would not bring amendments to its domestic legislation, including its labor standards,
will essentially be difficult to accept.
In view of their vagueness, it is primarily the protections against indirect expropriations and the
fair and equitable treatment standard that seem particularly prone to being used to scrutinize the
regulatory activities of the host state. However, under certain circumstances, other investment
protection standards could also be used to thwart the adoption of measures aimed at the
strengthening of labor rights. It may well be, for example, that investors could have sufficient
cause of action for claiming that the adoption or modification of labor legislation that imposed
more burdensome obligations to all or some foreign investors amounted to a violation of the
national treatment or most-favored nation treatment obligations. However, it is also well accepted
here that tribunals will take account of host state’s public policy interests in establishing any
legitimate reasons that could justify such a difference in treatment.208 Thus in Paushok, where the
legislative changes regarding the employment of foreign personnel were contested by the investor
as being discriminatory in nature, the tribunal had little trouble accepting that Mongolia was
justified in imposing severe restrictions on the use of foreign workers in its mining sector (and to
diverge in that from the other sectors of its economy), given that the latter was a strategic sector
which represented a large part of Mongolia’s industrial activity.209 Nor was that tribunal
convinced that the standard of “full legal protection” that the host state was to guarantee to
foreign investments under the BIT – and which on the face of it, could also imply an obligation to
guarantee stability of the legal framework – could prevent the adoption of the contested
legislation and its application to the investor, in the absence of a stability agreement.210
(p. 402) In light of the current jurisprudence, it is difficult to conclude that the investment
disciplines that are presently found in most IIAs necessarily prevent the adoption and
implementation of higher labor standards. It may be that regulatory measures adopted by the host
state to achieve this aim could be perceived as an interference with the foreign investor’s
property; however, the main purpose of IIAs is not to shield the foreign investor from any and all
interferences by the host state, but only from those that are undue. In this sense, the function of
IIAs is only to dissuade the host state from amending its laws in a capricious or opportunistic way,
but not to stand in the way of bona fide law reform. The more so, considering that the large
majority of IIAs do not regulate labor matters, which means that the host states will enjoy a wide
regulatory autonomy in this respect.211 The host state’s discretion in regulating labor matters will
be even greater with regard to matters that would be considered illegal under international
human rights and labor instruments, such as child or forced labor.212
It is essentially the task of the arbitrator to find the right balance between the host state’s
regulatory discretion and the investor’s interest that such discretion is not abused. This is why all
these standards essentially require a weighing of the investors legitimate and reasonable
expectations on the one hand, and the host state’s legitimate regulatory interests on the other. In
addition to the host state’s domestic policy interests, investment tribunals will certainly also have
to take into account, in this weighing process, any obligations that the host state may have under
ILO conventions or customary law, which potentially also triggered the regulatory or enforcement
action affecting the foreign investor. In that respect, investment tribunals are generally not
restricted in the scope of the law that they can apply to the resolution of disputes, despite
limitations upon their jurisdiction.213 Even if they were so restricted, there are no impediments for
them to at least consider the host state’s international obligations relating to labor matters in the
process of interpreting the substantive protection standards. As is well known, Article 31(3)(c) of
the Vienna Convention on the Law of Treaties (VCLT) instructs the interpreter to take account of
“any relevant rules of international law applicable in the relations between the parties” in the
construction of treaty provisions.214 This may well include the host state’s obligations under ILO
conventions, as well as the obligations relating to “core” labor rights laid down in the (p. 403)
1998 ILO Declaration which, to the extent that they have attained the status of customary law
rules, will at any rate be “applicable in the relations between the parties.” 215
At the end of the day, however, the balancing between the competing objectives of investor
protection and other concerns of the host state remains the task of investment tribunals, which
are established for each specific dispute. Considering that under the current system, states cannot
decisively influence the composition of such tribunals and that there is no guarantee that these
will take due account of host state’s regulatory interests, nor adopt consistent decisions in
interpreting the same standards, it is no surprise that some states preferred to amend the
language of their IIAs, with a view to expressly recognizing their policy space in noninvestment
matters. But as discussed in this section , the standards of treatment should not necessarily
function as a bar to host states’ efforts to improve labor rights, even without any clauses
acknowledging the host state’s right to regulate in pursuit of broader societal objectives. While
one may wonder whether addition of such clauses was really necessary in that case, these
amendments certainly provide an additional impetus for investment tribunals to properly take
account of public policy concerns of the host state, including their interest in the adoption and
further improvement of labor standards.
c. Ensuring Foreign Investors’ Compliance with Domestic Laws
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Eventually, the question also arises of what role, if any, IIAs may have in ensuring that foreign
investors, in their turn, comply with labor standards. The issue is perhaps a somewhat convoluted
one, given that existing IIAs in most cases do not go so far yet as to impose labor-related
obligations directly onto foreign investors. The investors’ compliance with host state’s labor laws
remains primarily a matter for the domestic authorities of the host state and any disputes arising
in that regard are essentially to be resolved by the host state’s own courts.216 Of course, as
discussed in the previous section , IIAs do set minimum standards of treatment which the host
state will also be bound to accord to foreign investors in the implementation and enforcement of
its domestic labor legislation. This may prevent, for example, the host state from abusing its
regulatory powers under the guise of ensuring compliance with labor standards, as apparently
happened in the case of Caratube v. Kazakhstan where the investor complained about abusive
labor inspections allegedly occurring as part of the broader aim of destroying its investment.217 In
general, however, IIAs certainly do not insulate foreign investors from the domestic laws of the
host states. After all, (p. 404) investments are naught but an embodiment of property and
contractual rights, which essentially result from different transactions occurring in the host state
and which are to a large extent governed by its laws.218
Having said that, it is not inconceivable that the question of the investor’s own compliance with
international labor standards could arise as an incidental matter in an investor-state dispute, as
part of host state’s defense on liability. Admittedly, the possibilities for the host state to raise such
issues as an independent head of claim in the context of investment treaty arbitration are
generally limited. In contrast to arbitrations based on investment contracts (where contractual
dispute resolution provisions are normally bilateral and allow either party to the contract to
assert claims for breach of the contract’s provisions), the right of recourse to investor-state
arbitration under IIAs usually pertains solely to the foreign investor, and not the state. For the
host state to present the issue of noncompliance independently, it would therefore have to raise it
as a counterclaim , once the investor has already initiated arbitration proceedings. But even
then, the chance of successfully asserting such claims may be limited. First, counterclaims must
fall within the scope of consent to arbitration as expressed in the IIA. When this is limited to
disputes concerning breaches of obligations under the IIA in question, it may be practically
impossible to bring counterclaims in relation to the investor’s own conduct, given that IIAs
generally do not impose obligations directly upon the foreign investors.219 Second,
counterclaims must also arise directly out of the subject-matter of the dispute or must have a
close connection with the primary claim to which they are a response.220 As attested to in
Paushok, this threshold may be difficult to meet in counterclaims relating to investors
noncompliance with domestic labor legislation.221
(p. 405) This is not to say, however, that the issue of investors’ compliance with international
labor standards may not enter investment treaty arbitration in a less direct way. If the host state
would undertake specific measures against the foreign investor wholly or partly on the ground
that the latter breached domestic labor legislation relating to such standards – for example, by
refusing to issue a permit or by revoking an existing permit222 – and the investor would challenge
those measures before an investment tribunal, the issue of the investor’s own noncompliance with
labor legislation could potentially be invoked by the host state as an argument in defense of its
liability under an IIA. There are essentially two types of liability defenses that could be used by the
host state in this regard: On the one hand, the issue of noncompliance could be raised as an
objection to the jurisdiction of the arbitral tribunal or the admissibility of the investor’s claim; on
the other hand, it could be brought up as a defense on the merits.223
The first type of liability defense touches upon the question of whether the foreign investor
complied with domestic laws of the host state when making its investment. Many IIAs expressly
require that investments be made “in accordance with,” “in compliance with” or “within the
framework of” the laws and regulations of the host state. Provisions to such effect can generally
be found in clauses defining the scope of protected investments, in clauses dealing with the
promotion and admission of investments, or even in more general clauses stipulating the scope of
the treaty’s application. Regardless of their position in the IIA, however, such references have
generally been interpreted as concerning the legal validity of the investment. Their purpose has
been to ensure that the IIA does not protect investments that should not be protected because they
would be illegal. And in a handful of investment disputes, tribunals have actually declined
jurisdiction over claims because the investments were not legally made – for example, because of
the claimant’s fraudulent misrepresentations in the making of the investment,224 the claimant’s
dissimulation of true ownership,225 or simply because the transaction by which the claimants
obtained ownership of their assets did not comply with domestic law.226 It is beyond doubt that an
examination of the legality of an investment may also comprise an assessment of the investor’s
compliance with the requirements under domestic labor legislation, especially that part which
relates to “core” labor rights. This was implicitly acknowledged by the tribunal in Phoenix v.
Czech Republic, when noting that “nobody would suggest that ICSID protection should be
granted to investments made (p. 406) in violation of the most fundamental rules of protection of
human rights, like investments made in pursuance of torture or genocide or in support of slavery
or trafficking of human organs.” 227
Not every violation of the host state’s laws will automatically result in the disqualification of an
investment from the scope of the IIA. On the one hand, compliance with domestic laws has been
said to constitute an objective requirement that has to be met by each investor, regardless of its
knowledge of the law or its intention to follow it.228 On the other hand, it has also been suggested
that, in case the violation of host state’s laws has been inadvertent and irrelevant to the
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investment, there were certain presumptions that might ordinarily operate in favor of the investor,
especially in circumstances where the local law in question is not entirely clear and mistakes have
been made in good faith.229 Indeed, where breaches of domestic law related to minor errors in the
application of local law or the nonfulfillment of mere formalities, investment tribunals have
tended not to reject jurisdiction on allegations of illegalities that easily.230 Nor is it to say that the
investor’s violation of just any domestic laws will automatically be detrimental to its claims. The
scope of domestic legislation applicable to such a “legality test” will essentially depend upon the
provisions of the IIA in question.231 But then again, even the lack of an explicit provision imposing
compliance with domestic laws has generally not precluded arbitral tribunals from analyzing the
legality of an investment. In several cases tribunals have considered that the requirement of
compliance was implicit even if not expressly stated in the relevant IIA.232 Be that as it may, the
rationale behind the “legality test” is that illegal investments are disqualified from the protection
of the IIA already at the jurisdictional stage. The scope of such a test will therefore in most cases
be limited to allegations of violations of certain fundamental principles of the host state’s law,
especially where such violations are manifest – that is, when the investment clearly pursues an
illegitimate business purpose, involves fraud and other blatant illegalities.233 This suggests that
the cases where noncompliance with domestic labor legislation could lead to the disqualification
of an investment from the protection of an IIA at the jurisdictional stage would probably be
limited to circumstances where the investor has breached one or more core (p. 407) labor rights in
the making of the investment – by using children or by adopting discriminatory criteria in the
employment of personnel.
On the other hand, it is now well established that allegations of illegalities in the management and
operation of the investment, such as the failure to pay taxes and to observe obligations under the
local laws, are matters for the merits.234 Accordingly, the question whether the foreign investor
complied with domestic labor standards in the course of the investment project could eventually
become part of the overall examination of the investment tribunal, which would potentially have
to balance the conduct of the investor against the conduct of the host state in determining
breaches of investment protection standards. There is in fact a long line of investment awards in
which account has been taken of a foreign investor’s own conduct in the tribunal’s considerations
of alleged breaches of investor protection provisions.235 In some of these cases, for example, the
investor’s breaches of domestic law were decisive in leading the tribunal to dismiss a breach of the
fair and equitable treatment standard.236
Investment tribunals have therefore become watchful of investors’ misconduct. The requirement
that investments comply with host states’ domestic laws is now increasingly accepted as implicitly
present in every IIA. The legality test is still in an emerging state and the scope of domestic law
violations that are covered by this test often depend on specific IIA provisions. But there are good
grounds to argue that the test ought in any event to include an assessment of the investor’s
compliance with the core labor rights. The CSR provisions that have started to feature in IIAs may
provide an additional benchmark for testing the legality of investments. However, it must not be
forgotten that the current system of investment arbitration was originally not intended to function
as a mechanism for ensuring an investor’s compliance with domestic labor laws. In fact, it
essentially remains inadequate for such purposes.
d. A Role for Workers?

The limitations that are inherent in the IIA framework become most obvious in relation to the
position of stakeholders with the greatest interest in the adoption and effective enforcement of
international labor standards by the host state and their respect by the foreign investor – namely,
the workers. Paradoxically, workers are those to be most adversely affected by breaches of labor
standards by the host state and/or the foreign investor. But because the system of investment
treaty arbitration is an essentially bilateral type of dispute settlement and arbitration is
consensual in nature, their prospects for using the system to enforce their labor rights are rather
limited. As a rule, the right to invoke the dispute settlement procedures of an IIA pertains to the
foreign investors. Workers, in contrast, do not have standing to bring claims before an investment
tribunal.237 The only way for them to raise the issue of labor standards in the context of (p. 408)
investor-state arbitration is through their limited participation – most likely, through a trade
union – as nondisputing parties.
The workers’ interest in such participation has already been demonstrated in the UPS v. Canada
case, where the Canadian Union of Postal Workers, the organization representing 46,000
operational employees of Canada Post, together with another Canadian nongovernmental
organization, petitioned the tribunal to be admitted as parties to the proceedings, or in the
alternative, at least be allowed to intervene as amici curiae and thus gain access to relevant
documents and make submissions on matters concerning the place of arbitration and the
tribunal’s jurisdiction.238 The petitioners contended, among others, that they had a direct interest
in the subject matter of UPS’s claims, inasmuch as they may be adversely affected by the
tribunal’s award. As far as the Canadian Union of Postal Workers, in particular, was concerned, if
UPS succeeded in challenging the Canadian federal policy concerning the activities of Canada
Post, Canada would have likely been forced to restructure the current framework of its postal
services, which could lead in their view to lay-offs and permanent job reductions at Canada Post,
and in the long run even bring the job security of all Canada Post’s employees at risk, as well as
the security of their pensions.239 In other words, the main reason for the intervention was the
potentially adverse effects of the outcome of the arbitration on the position of the employees of
Canada Post. The violations of international labor standards that UPS alleged that Canada had
committed in relation to the employees of Canada Post were not yet an issue, which is not
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surprising given that the details of UPS’s claim were not yet public at that stage of the
proceedings. Curious, however, was the reliance of the petitioners on international conventions
concerning human rights and labor rights as lending support to extending the principle of equality
to third parties with an interest in arbitral proceedings. This, the petitioners explained, was not to
suggest that these conventions established a formal right of participation in the proceedings.
Rather, they were relied upon for the purpose of demonstrating the importance of equal treatment
before the law and to underscore the international dimension of their concerns and the broader
public policy significance of the case.240
Expectedly, the claimant and respondent objected to the petitioners’ request to be given standing
as a disputing party and, albeit without having principled objections to allowing amicus curiae
submissions, doubted whether the petitioners’ submissions on the matters requested would be of
any relevance to the proceedings.241 The tribunal, in its turn, considered that NAFTA does not
confer upon it the authority to add parties to the arbitration either generally or in the
circumstances of the case. For, “[t]he disputing parties have consented to (p. 409) arbitration only
in respect of the specified matters and only with each other and with no other person.” 242 Nor did
the United Nations Commission on International Trade Law (UNCITRAL) Rules, which governed
the procedural aspects of the arbitration, or international law in general provide any support for
admitting the petitioners as parties to the procedure.243 On the other hand, the tribunal essentially
allowed the petitioners to participate in the proceedings as amici curiae, though limiting the scope
of their submissions to those that were likely to be able to provide assistance beyond that provided
by the disputing parties. While neither the NAFTA nor the UNCITRAL Rules expressly authorized
tribunals to accept such submissions, the tribunal considered that it had the power to do so on the
basis of the broad discretion that it enjoyed with regard to the organization of the arbitration.244
In the view of the tribunal, however, questions of jurisdiction and the place of arbitration were not
among the matters on which it was appropriate for the petitioners to make submissions.245
Further to the tribunal’s order, the petitioners presented additional submissions relating to the
merits of UPS’s claims. Interestingly, on the factual allegations concerning Canada’s violations of
obligations under ILO conventions with regard to the exercise of collective bargaining rights by
rural and suburban mail carriers, the petitioners essentially agreed with the claimant.246
However, they contested the proposition that investor-state arbitration would be the proper means
for redressing those violations. The petitioners agreed with Canada that the proper context for
addressing such matters was the NAALC, given that labor matters were excluded from the NAFTA
investment disciplines.247 Moreover, the petitioners objected to the possibility that the foreign
investor, should its claims be successful, would be able to benefit from injuries that were being
caused to the workers, while leaving the latter without any compensation or remedy and also
frustrating the participation of these workers in the arbitral proceedings.248 Finally, the
petitioners argued that acceding to the UPS claims in respect of labor issues would not only
compound the injustice caused to Canadian workers, but would in and of itself represent a breach
of Canada’s obligations under ILO conventions, to the extent that this would allow for the
adjudication of issues that fall entirely within the framework of ILO conventions in a forum which
operates according to principles that were fundamentally opposed to the tripartite structure of the
dispute settlement procedures provided for under the ILO Constitution.249
(p. 410) It is difficult to assess whether the petitioners’ submissions influenced the tribunal’s
holdings on the merits, as the tribunal’s awards make no reference to them. However, the case
remains interesting to the extent that it reveals the possible motivations of workers and their trade
unions to participate in investor-state arbitrations. At the same time, the unsuccessful attempt of
the Canadian Union of Postal Workers to be admitted as party to the proceedings between UPS
and Canada demonstrates the difficulties that workers would face if they wished to directly
intervene in an investment arbitration, in spite of the fact that the outcomes of the latter could
have serious consequences for their employment. Certainly, such interventions cannot be used for
the purpose of enforcing labor rights, given that claims relating to the legal position of third
parties would likely lie outside the scope of consent to the jurisdiction. Instead, the importance of
such interventions lies especially in the chance to make submissions on matters that may not have
been addressed by the disputing parties but could provide assistance to the tribunal. This could
include issues concerning compliance with labor standards by the foreign investor and/or their
nonenforcement by the host state, especially when the disputed parties themselves may not have
an interest in raising labor issues during the proceedings. Apart from the added value that
nondisputing party submissions have for an arbitral tribunal, the possibility for nondisputing
parties to intervene as amici curiae is also important in that it enables them to gain access to
arbitration documents, and potentially even attend oral hearings and reply to questions of the
tribunal. From an internal investment law perspective, this is important to improve the
transparency of investor-state arbitrations and thereby increase their legitimacy. In this regard, it
is interesting that in its decision, the tribunal in the UPS v. Canada case expressly acknowledged
“the important public character of the matters in issue in this arbitration” and recalled “the
emphasis placed on the value of greater transparency for proceedings such as these,” noting that
“[s]uch proceedings are not now, if they ever were, to be equated to the standard run of
international commercial arbitration between private parties.” 250 More generally, the possibility
to intervene as amici curiae aligns with the principle of public participation and access to
information and justice, which is, according to the International Law Association “instrumental in
pursuing the objective of sustainable development in an effective way.” 251
The UPS v. Canada case was one of the earliest instances of an investment tribunal deciding to
accept amicus curiae briefs. Since then, third-party requests to participate in arbitration
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proceedings have become increasingly frequent. To accommodate these developments, some IIAs
now include provisions expressly authorizing submissions by nondisputing parties.252 Moreover,
the ICSID Rules of Arbitration were amended in 2006, now providing ICSID tribunals with the
discretion to allow nondisputing parties to make a “written submission,” however, in order to be
admissible, such submissions should assist the tribunal “in the determination of a factual or legal
issue related to the proceeding by bringing a perspective, particular knowledge or insight that is
different from that of the disputing parties” and “address a matter within the scope of the (p. 411)
dispute,” while the nondisputing party shall also have “a significant interest in the proceeding.” 253
An interest of this kind will not be difficult to prove for a trade union representing workers that
may be adversely affected by the outcome of an investment arbitration (as in the case of UPS v.
Canada), or that may themselves be involved in a dispute with the foreign investor (and that
dispute would underlie the investor’s claims). On the other hand, such interest may be more
difficult to demonstrate where the interests of the workers in the case are more remote.
On the other hand, the requirement under the ICSID rules that nondisputing party submissions
address “a matter within the scope of the dispute” may well serve as a bar to the type of
submissions that would usually be expected from a trade union. In particular, one may wonder
whether allegations of breaches of international labor standards by the investor and/or the host
state would be able to qualify as such a matter, given that investment-treaty arbitration deals
essentially with disputes arising out of unlawful measures taken by the host state against the
foreign investor and its investments and that breaches of labor standards essentially concern legal
relations involving third parties. Some parallels in this regard could be drawn from the Von
Pezold v. Zimbabwe case (2010),254 where a human rights nongovernmental organization (NGO)
and four indigenous communities of Zimbabwe sought intervention in the proceedings as amici
curiae, on the ground that the case raised questions concerning the obligations of the
Zimbabwean state and the responsibility of the investor with regard to the affected indigenous
people. However, the tribunal noted that neither of the disputing parties had put the identity or
treatment of indigenous peoples at issue in those proceedings, nor did the respondent raise the
defense that it had obligations toward the indigenous communities under international law. In the
view of the tribunal, the petitioners’ submissions would clearly require it to consider and decide
whether the indigenous communities constituted “indigenous peoples” for the purposes of
grounding any rights under international human rights law; however, this was a matter outside
the scope of its jurisdiction.255 Similar considerations could thus motivate an investment tribunal
not to allow submissions on alleged breaches of labor standards by one of the disputing parties.
But the outcome would to a large extent depend upon the circumstances of the case and the way
the requests of the petitioners are framed.
Conclusion
This chapter has examined the background, characteristics and (potential) impact of labor
provisions in international investment law. While the realization of labor rights is firmly
established as a necessary component of sustainable development, the chapter departed in its
analysis from the opposite perspective – namely, by focusing on situations of unsustainable
development that may ensue from (1) the liberalization of global capital flows, (2) the substantive
legal protection offered by IIAs, and (3) the lack of balance between investor rights and
obligations.
(p. 412) First, we refute the widely held idea that the “race to the bottom” hypothesis is central to
an assessment whether labor standards should be integrated in IIAs. A general race to the bottom
does not exist, but states do derogate from preexisting labor standards in order to lure investors,
and MNEs do occasionally exploit the opportunities of regulatory arbitrage. This in itself is
enough to legitimize international policy coordination. The ILO obviously plays an important role
in realizing and maintaining decent labor conditions through the adoption and supervision of
international standards, but to the extent that derogations emanate from investment liberalization
and put pressure upon other states to also derogate, the inclusion of labor standards in IIAs may
induce states to refrain from derogating. The ways in which non-derogation provisions take shape
is inconsistent and does not always respond to an analysis of which labor standards are especially
susceptible to derogation risks. Instead, the norms that are included are, in most labor provisions,
restricted to the four core labor standards recognized by the 1998 ILO Declaration, in
conjunction with the requirement that state parties maintain acceptable conditions of work with
respect to minimum wages, hours of work, and occupational safety and health. The nature of
obligations as well as the scope of commitments undertaken differ significantly between IIAs. This
is also true for the means of implementation and enforcement. Non-derogation provisions are
often exempted from arbitration. The main exceptions are U.S. FTAs and some European and
Japanese BITs. A state party can therefore not claim monetary compensation if the other
contracting party derogated from domestic labor standards in violation of the IIA provision. These
IIAs do provide, however, for nonadversarial means of implementation and governance, such as
consultation procedures and cooperation mechanisms. Insofar as investors have an interest in
observance of labor standards they will be able to pursue claims arising out of unjustified
derogations from labor laws or failures to enforce labor legislation already on the basis of other
investment protection disciplines.
Regarding the second risk of unsustainable development, it is questionable whether the legal
protections offered by IIAs do indeed have a restraining effect upon host states’ policy space. It
would be too easy, however, to infer that arbitral awards which did pay due regard to public
policy concerns have mitigated subjective concerns on the part of host states. In the end,
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perception matters, and it would require counterfactual evidence to determine whether states
have not adopted higher labor standards than they would have absent IIAs. The fact that investors
have been willing to challenge measures aimed at the realization of human rights and
environmental protection as incompatible with treaty-protections, and have brought labor-related
claims on the basis of investment-contracts, certainly does not help to diminish concerns. As long
as IIAs are perceived as being one-sidedly focused on the rights of foreign investors without
balancing these rights against the rights of host states to regulate social or environmental issues,
the inclusion of labor standards in IIAs (instead of relying on the same standards as a matter of
domestic or international labor law) is a legitimate way to shield domestic labor regulations from
investor claims. The extent to which labor clauses may have a bearing on the outcomes of
investor-state arbitrations remains untested for the time being. Their effects are likely to be most
pronounced on the way that investment protection standards enshrined in IIAs are interpreted. As
IIAs have to be interpreted in light of the object and purpose of the treaty, it matters whether or
not an IIA contains a labor provision, preambular references to labor standards, or references to
sustainable development. Nonetheless, the scope of the investment protection standards in
“traditional” IIAs has increasingly been interpreted in ways that take due account of the
regulatory interests of host states. The continuation of this trend could, on the one hand,
undermine the rationale for labor provisions. On the other hand, however, policy space provisions
do not seem to harm the interests of state parties in any way, so there is no good reason not to
include them as long as doubt over the possible expansive interpretation of protection standards
remains.
(p. 413) Third, the impact of multinational enterprises on host states’ economies is often positive.
Two trends, however, seek to better balance the current divide between investor rights and host
state obligations. First, investment tribunals have become watchful of investors’ misconduct and
increasingly accept the requirement of investor’s compliance with domestic laws as implicitly
present in all IIAs. Second, IIAs increasingly contain provisions that aim to induce investors to
adopt policies on corporate social responsibility. Like the regulatory chill problem, the balancing
of investor rights and obligations is inherently legal and operates independently of regulatory
distortion concerns. Interestingly however, and in contrast to the regulatory chill problem, the
CSR issue is of equal importance to home and host states. The framework developed by UN
Special Representative John Ruggie, as well as recommendations recently made by the Human
Rights Committee under the ICCPR, highlight the possibility – and perhaps even obligation – for
home states to adopt regulations that influence corporate conduct abroad, and to provide
effective remedies to victims of corporate human rights violations. Although there are no
conceptual difficulties to using IIAs to impose direct obligations upon investors, CSR provisions
currently represent a kind of double-soft law, as states are merely required to encourage investors
to adopt CSR standards, which are in themselves nonbinding. However, given the policy
dynamics, it appears that rebalancing of investor rights and obligations holds most prospects for
future treaty innovation.
Last, we touched upon the role of workers. The lack of directly enforceable worker rights was not
addressed as a separate risk of unsustainable development. Indeed, IIAs do not create “new” labor
rights, nor are they meant as a substitute for the ILO and human rights systems. In the context of
investment arbitration, however, workers and trade unions or NGOs should be able to intervene
as amici curiae if they have an interest in the case. This does not represent a constitutive element
of the concept of sustainable development, but is nevertheless instrumental to its realization.
When IIAs and investment arbitration rules are silent on the potential role of nondisputing parties,
arbitral tribunals should thus use their discretionary powers to admit participation of interested
parties.
The relationship between international investment law and public policy concerns is likely to
retain its prominence in treaty-making and dispute settlement. Thus far, the investment-labor
linkage has remained relatively unexplored in legal research, as most attention has focused on
human rights and environmental protection. This linkage is still in an infant stage and has not
produced a coherent framework to address the potentially adverse impact of investment
liberalization and protection on the regulation of labor. In principle, however, all three issues that
were addressed in this chapter (regulatory distortions, regulatory chill and legal imbalances)
may be recognized as risks of unsustainable development in the investment context, and thus
legitimize the integration of labor standards in IIAs. As the inclusion of labor provisions that
address (a subset of) these issues is undoubtedly on the rise, we hope that this trend will draw
more attention from scholars and practitioners to examine the prospects of investment-labor
linkage for the effective realization of sustainable development.
Footnotes:
* Vid Prislan (v.prislan@law.leidenuniv.nl) is a Research Fellow and PhD Candidate at the
Grotius Centre for International Legal Studies, Leiden University. Ruben Zandvliet
(r.zandvliet@law.leidenuniv.nl) is a Lecturer and PhD Candidate at the Grotius Centre for
International Legal Studies, Leiden University. The authors wish to thank Freya Baetens, Yannick
Radi, Eric De Brabandere, and two anonymous reviewers for their critical and insightful
comments on an earlier version of this chapter . They are also thankful for the valuable
feedback received during the presentation of this chapter as part of the Grotius Dialogues at
Leiden University.
1. Emergency Committee for American Trade, “ECAT applauds Obama Administration’s
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commitment to open markets and protect U.S. investment through updated Model BIT and urges
quick resumption of negotiations: Expresses serious concerns on lack of improvements in key
standards and expanded labor and environment provisions” (April 20, 2012), available at:
https://wtonewsstand.com/iwpfile.html?file=apr2012%2Fwto2012_0824e.pdf (last visited October
31, 2012); Sarah Anderson et al., “The new U.S. model bilateral investment treaty: a public
interest critique,” Institute for Policy Studies Report (May 9, 2012), available at: http://www.ips-
dc.org/reports/the_new_us_model_bilateral_investment_treaty_a_public_interest_critique (last
visited September 11, 2013).
2. The reason for the former is that many trade instruments contain labor provisions. According
to the International Labour Organization (ILO), one-third of all bilateral and regional trade
agreements that entered into force between 2005 and 2011 contain promotional or conditional
labor provisions. The European and American preferential trade schemes for developing countries
also apply labor conditionalities. The latter has been caused by a series of investment arbitrations
that were brought by foreign investors in response to activities undertaken by host states in
pursuit of public policy regulation.
3. The term international investment agreement is used here to refer to the numerous BITs, to the
few multilateral investment agreements, as well as to the growing number of free trade
agreements (FTAs) and economic partnership agreements (EPAs) which contain investment
chapters . The term is not limited to instruments providing for investment protection guarantees,
but also applies to agreements containing other types of investment provisions, such as those
dealing with market access or investment liberalization.
4. See, e.g., Pierre-Marie Dupuy, Francesco Francioni and Ernst-Ulrich Petersmann, eds., Human
Rights in International Investment Law and Arbitration (Oxford: Oxford University Press, 2009).
5. See, e.g., Christine Kaufmann, Globalization and Labour Rights: The Conflict between Core
Labour Rights and International Economic Law (Portland, OR: Hart Publishing, 2007).
6. Bonnie Penfold, “Labour and issues employment issues in conditionalities foreign direct
investment: public support conditionalities,” International Labour Office Working Paper No. 95
(2004).
7. See, e.g., European Parliament, European Parliament Resolution of 6 April 2011 on the future
European international investment policy, 2010/2203(INI) (April 6, 2011), para. 2.
8. United Nations Conference on Environment & Development, “Agenda 21: Programme of

Action for Sustainable Development,” UN Doc. A/CONF.151/6/Rev.1, 31 I.L.M. 874 (1992), para.
2.23, available at: http://sustainabledevelopment.un.org/content/documents/Agenda21.pdf.
9. World Commission on Environment and Development, “Report of the World Commission on

Environment and Development: Our common future” (1987), p. 37, available at: http://www.un-
documents.net/our-common-future.pdf.
Environment and Development: Our common future,” 1987, op. cit., p. 37.
Environment and Development: Our common future,” 1987, op. cit., p. 37.
12. UN Economic and Social Commission for Asia and the Pacific, “Johannesburg Declaration
on Sustainable Development” (September 4, 2000), available at:
http://www.unescap.org/esd/environment/rio20/pages/Download/johannesburgdeclaration.pdf
(last visited September 2, 2013) (adopted at the World Summit on Sustainable Development,
September 4, 2000). See generally Nico Schrijver, The Evolution of Sustainable Development in
International Law: Inception, Meaning and Status (Leiden: Martinus Nijhoff, 2008).
13. Virginie Barral, “Sustainable development in international law: Nature and operation of an
evolutive legal norm,” 23 (2) European Journal of Human Rights 377–400 (2012).
14. See, e.g., Gabčíkovo-Nagymaros Project (Hungary/Slovakia), I.C.J. Reports 1997, judgment
(September 25, 1997), para. 140; or Case concerning Pulp Mills on the River Uruguay (Argentina
v. Uruguay), I.C.J. Reports 2010, judgment (April 20, 2010), paras. 75–76.
15. See, e.g., Iron Rhine (“IJzeren Rijn”) Railway Arbitration (Belgium/The Netherlands), XXVII
UN Reports of International Arbitral Awards 35, award of the Arbitral Tribunal (May 24, 2005),
paras. 58–59; The Indus Waters Kishenganga Arbitration (Islamic Republic of Pakistan/Republic
of India), available at: http://www.pca-cpa.org/showfile.asp?fil_id=2101 (last visited October 3,
2013), partial award of the Arbitral Tribunal (February 18, 2013), paras. 449–452.
16. World Trade Organization, Report of the Appellate Body, “United States—import prohibition
of certain shrimp and shrimp products,” WTO Doc. No. WT/DS58/AB/R (October 12, 1998), para.
120.
17. Note that there is a difference between (1) defining development through human rights, as
Sen does, and (2) the “right to development” as first argued by M’Baye. The latter does, however,
also reject a laissez-faire economic model to achieve development. See Sonia E. Roland,
Development at the World Trade Organization (Oxford: Oxford University Press, 2012), pp. 24–
28.
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18. Robert Howse and Brian Langille with Julien Burda, “The World Trade Organization and
Labour Rights: Man Bites Dog,” in Virginia A. Leary and Daniel Warner, eds., Social Issues,
Globalisation and International Institutions (Leiden: Martinus. Nijhoff Publishers, 2006), p. 159.
19. Barral, “Sustainable Development in International Law: Nature and Operation of an

Evolutive Legal Norm,” 2012, op. cit., p. 380.
20. See, e.g., ILO, “Director-General’s introduction to the International Labour Conference:
Decent work for sustainable development,” ILC 96-2007/Report I (A) (2007), p. 4, available at:
http://www.ilo.org/public/english/standards/relm/ilc/ilc96/pdf/rep-i-a.pdf (last visited September
11, 2013).
21. ILO, “Declaration on fundamental principles and rights at work and its follow-up” (1998)
http://www.ilo.org/declaration/thedeclaration/textdeclaration/lang--en/index.htm (last visited
September 11, 2013) (adopted by the International Labour Conference at its Eighty-sixth Session,
Geneva, 18 June 1998, and Annex revised 15 June 2010) (emphasis added).
22. United Nations Conference on Sustainable Development, “The future we want” (June 2012),
available at: http://www.un.org/disabilities/documents/rio20_outcome_document_complete.pdf
(last visited August 31, 2013). The concept of “decent work” has been developed by the ILO and
refers to the availability of employment opportunities, rights at work, social protection, and social
dialogue.
23. International Law Association, “New Delhi declaration of principles of international law
relating to sustainable development,” 2 International Environmental Agreements: Politics, Law
and Economics 211–216 (2002).
24. Andrew Newcombe, “Sustainable development and investment treaty law,” 8(3) The Journal
of World Investment & Trade 398 (2007). In practice, however, integration is easier said than
done. Recent developments in Greece, for instance, show significant tensions between policy
recommendations to jump-start economic growth and the protection of labor and trade union
rights. See the comments of the ILO Committee on Freedom of Association, available at:
http://www.ilo.org/brussels/press/press-releases/WCMS_193308/lang--en/index.htm (last visited
August 31, 2013).
25. The most salient example of such consequences occurred with the introduction of the Child
Labor Deterrence Act by Senator Harkin, which would ban imports of manufactured goods from
foreign industries that used child labor. In response, Bangladeshi factories reportedly laid off an
estimated 50,000 child workers. Only a concerted effort by the ILO and UNICEF could prevent
these children from ending up in jobs like prostitution or drug trafficking.
26. “Private international capital flows, particularly foreign direct investment, along with
international financial stability, are vital complements to national and international development
efforts. Foreign direct investment contributes toward financing sustained economic growth over
the long term.” United Nations, “Monterrey consensus of the International Conference on
Financing for Development: The final text of agreements and commitments adopted at the
International Conference on Financing for Development, Monterrey, Mexico, March 18–22,
2002,” para. 20, available at: http://www.un.org/esa/ffd/monterrey/MonterreyConsensus.pdf (last
27. On the effects of IIAs, see Karl Sauvant and Lisa Sachs, eds., The Effect of Treaties on
Foreign Direct Investment: Bilateral investment treaties, double taxation treaties and investment
flows (New York: Oxford University Press, 2009).
28. Marie-Claire Cordonier Segger, “Sustainable development in regional trade agreements,” in

Lorand Bartels and Frederico Ortino, eds., Regional Trade Agreements and the WTO Legal
System (Oxford: Oxford University Press, 2006), p. 337. Perhaps one could also imagine situations
in which environmental concerns or labor rights consistently trump economic objectives, which
could also be considered unsustainable, but Cordonier Segger’s description reflects the
paradigmatic case in market economies.
29. In relation to labor standards, the right to regulate implies that states are free to decide not
only whether to adopt higher labor standards or maintain existing standards, but also to explicitly
waive or derogate from them.
30. David Charney, “Regulatory competition and the global coordination of labor standards,”
3(2) Journal of International Economic Law 283 (2000).
31. Charles Oman, Policy competition for foreign direct investment: A study of compensation
among governments to attract FDI (Paris: Organization for Economic Cooperation and
Development, 2000), p. 13, available at: http://www.oecd.org/mena/investment/35275189.pdf (last
32. Adam Smith, An inquiry into the nature and causes of the Wealth of Nations Vol. II (London:
W. Strahan and T. Cadell, 1776), p. 455.
33. David Kucera, “Core Labour Standards and Foreign Direct Investment,” 141(1–2)
International Labour Review 31–70 (2002); Simon Deakin, “The contribution of labour law to
economic and human development,” in Guy Davidov and Brian Langille, eds., The Idea of Labour
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Law (Oxford: Oxford University Press, 2011).
34. David Kucera, “Core labour standards and foreign direct investment,” 2002, op. cit., p. 37.
35. Dani Rodrik, “Labor rights in international trade: do they matter and what do we do about
them?,” in Robert Lawrence, Dani Rodrik and John Whalley, eds., Emerging Agenda for Global
Trade: High Stakes for Developing Countries (Johns Hopkins Press for the Overseas Development
Council, 1996), pp. 35–80.
36. Gerda Dewit, Holger Gorg and Catia Montagna, “Should I stay or should I go? Foreign
direct investment, employment protection and domestic anchorage,” 145 Review of World
Economics 93–110 (2009).
37. William W. Olney, “A race to the bottom? Employment protection and foreign direct
investment,” draft (July 2012), p. 6, available at:
http://web.williams.edu/Economics/wp/OlneyEmploymentProtectionAndFDI.pdf (last visited
August 31, 2013).
38. Olney, “A race to the bottom? Employment protection and foreign direct investment,” 2012,
op. cit., p. 29.
39. Christian Häberli, Marion Jansen and José-Antonio Monteiro, “Regional trade agreements
and domestic labour market regulation,” International Labour Office: Employment Working
Paper No. 120 (2012), p. 39, available at: http://www.ilo.org/wcmsp5/groups/public/---
ed_emp/documents/publication/wcms_180616.pdf (last visited September 11, 2013).
40. Daniel W. Drezner, “The race to the bottom hypothesis: an empirical and theoretical review”
(The Fletcher School: Tufts University, December 2006), p. 20, available at: http://www.iim.uni-
flensburg.de/vwl/upload/lehre/sose_07/ba/int_oek_current/Linda.doc (last visited: October 7,
2013).
41. For the purpose of this chapter we only deal with derogations of preexisting labor
standards.
42. On this trend, see UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Investment
Rulemaking (New York: United Nations, 2007), pp. 21–26.
43. Howse, Langille, and Burda, “The World Trade Organization and Labour Rights: Man Bites
Dog,” 2006, op. cit., p. 172.
44. OECD, Trade, Employment and Labour Standards: A Study of Core Workers’ Rights and
International Trade (Paris: OECD, 1996), p. 123.
45. Häberli et al., “Regional Trade Agreements and Domestic Labour Market Regulation,” 2012,
op. cit., p. 39.
46. “New Zealand passes Hobbit labour law,” CBC News Website, October 30, 2010, available
at: http://www.cbc.ca/news/arts/film/story/2010/10/30/hobbit-nz-labour.html (last visited October
31, 2012).
47. Economist Intelligence Unit, “Bangladesh: Country Report” (April 2001), p. 19 cited in
Theodore H. Moran, Harnessing Foreign Direct Investment for Development: Policies for
Developed and Developing Countries (Washington D.C.: Center for Global Development, 2006), p.
58.
48. Such effects may in particular occur between states that have similar economies. While it is
unlikely that the establishment of unregulated export processing zones in a low-wage economy
will have a significant pull-effect on FDI from a developed state such as the United States, it may
induce companies in other low-wage economies to relocate their investment. Whether this
escalates into a race to the bottom is not important. Consequently, behavior among peer
economies is strongly related to domestic labor standards. See Layna Mosley and Saika Uno,
“Racing to the bottom or climbing to the top? Economic globalization and collective labor
Rights” (2007), p. 24, available at: http://www.unc.edu/~lmosley/mosleyunojuly2006.pdf (last
visited August 31, 2013).
49. Drezner observes that “[t]he data on export processing zones […] fails to support the image
of a race to the bottom. Some countries—Pakistan, Bangladesh, Panama, and Zimbabwe—
exempt their EPZs from regulation covering labor standards. However, contrary to the [race to
the bottom] hypothesis, this failed to put pressure on other countries to relax labor standards in
their EPZs. Several countries, including the Dominican Republic and the Philippines, reversed
course in the mid-nineties, introducing labor standards in their EPZs when none existed.”
Drezner, “The race to the bottom hypothesis: an empirical and theoretical review” (2006), op. cit.,
pp. 7–8.
50. Drezner, “The race to the bottom hypothesis: an empirical and theoretical review” (2006),
op. cit., p. 14.
51. Drezner suggests that the Dominican Republic adjusted its policies because it did not feel
pressured or was even persuaded by studies that show that high labor standards may attract FDI.
In fact, from the late 1980s the ILO and nongovernmental organizations pressured the Dominican
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Republic to alter its policies. Eventually the threat by the United States that the country would
lose its beneficiary status under the Generalized System of Preferences led to the adoption and
enforcement of new labor legislation. Instead of providing an argument against the linkage of
economic liberalization to the observance of labor standards, the example of the Dominican
Republic shows the potential efficacy of economic incentives to uphold labor standards. See
William A. Douglas, John-Paul Ferguson and Erin Klett, “An effective confluence of forces in
support of workers’ rights: ILO standards, U.S. trade laws, unions, and NGOs,” 26 Human Rights
Quarterly 277–281 (2004).
52. See Charney, “Regulatory competition and the global coordination of labor standards,”
2000, op. cit., p. 283, for an analysis of types of labor standards that may be vulnerable to
regulatory distortions. On the ways in which the 1998 ILO Declaration is reflective of and has
further contributed to an international consensus on a narrow range of labor rights, see Philip
Alston, “Core labour standards and the transformation of the international labour rights regime,”
15(3) European Journal of International Law 457–521 (2004).
53. See generally Suzanne A. Spears, “The quest for policy space in a new generation of
international investment agreements,” 13(4) Journal of International Economic Law 1037–1075
(2010).
54. UN Human Rights Council, “Report of the Special Representative of the Secretary-General
on the issue of human rights and transnational corporations and other business enterprises, John
Ruggie: Guiding principles on business and human rights: implementing the United Nations
‘Protect, respect and remedy’ framework,” A/HRC/17/31 (March 21, 2011), p. 12, available at:
http://www.ohchr.org/Documents/Issues/Business/A-HRC-17-31_AEV.pdf (last visited September
11, 2013).
55. See, e.g., UNCTAD, World Investment Report 2003, Sales No. E.03.II.D.8 (New York: United
Nations, 2003), p. 111.
56. Jonathan Bonnitcha, “Outline of a normative framework for evaluating interpretations of

investment treaty protection,” in Chester Brown and Kate Miles, eds., Evolution in Investment
Treaty Law and Arbitration (Cambridge: Cambridge University Press, 2011), p. 134.
57. Stephan W. Schill, “Do investment treaties chill unilateral state regulation to mitigate
climate change?,” 24(5) Journal of International Arbitration 469 (2007).
58. See, e.g., Kyla Tienhaara, “Regulatory chill and the threat of arbitration: a view from
political science,” in Chester Brown and Kate Miles, eds., Evolution in Investment Treaty Law and
Arbitration (Cambridge: Cambridge University Press, 2011), pp. 606–628, who argues on these
grounds that the repeated dismissals of the regulatory chill hypothesis by some practitioners and
legal scholars are both premature and lacking in analytical rigor.
59. For an example of the former, see Philip Morris Asia Limited v. Australia, UNCITRAL,
available at: http://www.italaw.com/cases/851 (last visited September 11, 2013), arising out of the
adoption by Australia of stringent tobacco legislation. For an example of the latter, see Vattenfall
v. Federal Republic of Germany, ICSID Case No. ARB/12/12, arising out of Germany’s decision
regarding its nuclear phase-out.
60. Bill Rosenberg, “Labour rights and investment agreements” (March 2, 2012) (PowerPoint
presentation on file with the authors).
61. On this problem, see the study by Andrea Shemberg, “Stabilization clauses and human rights:
a research project conducted for IFC and the United Nations special representative of the
secretary-general on business and human rights” (May 27, 2009), available at:
http://www.ifc.org/wps/wcm/connect/9feb5b00488555eab8c4fa6a6515bb18/Stabilization%2BPaper.pdf?
MOD=AJPERES&CACHEID=9feb5b00488555eab8c4fa6a6515bb18 (last visited September 11,
2013), which concluded on the basis of a survey of over 70 investment contracts that some
stabilization clauses had the potential of being used to limit a state’s action to implement new
social and environmental legislation to long-term investments. On the effects of stabilization
clauses on the host state’s policy space, see also Antony Crockett, “Stabilisation clauses and
sustainable development: Drafting for the future,” in Chester Brown and Kate Miles, eds.,
Evolution in Investment Treaty Law and Arbitration (Cambridge: Cambridge University Press,
2011), pp. 516–538.
62. See, e.g., SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID
Case No. ARB/02/6, award (January 29, 2004), para. 116.
63. See, e.g., MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, ICSID Case No.
ARB/01/7, award (May 25, 2004), para. 104; or CMS Gas Transmission Company v. The Republic
of Argentina, ICSID Case No. ARB/01/8 CMS, award (May 12, 2005), para. 274.
64. Compañia del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, ICSID Case No.
ARB/96/1, award (February 17, 2000), para. 72.
65. On this problem, see Moshe Hirsch, “Conflicting obligations in international investment law:
investment tribunals’ perspective,” in Tomer Broude and Yuval Shany, eds., The Shifting
Allocation of Authority in International Law: Considering Sovereignty, Supremacy and
Subsidiarity (Oxford: Hart Publishing, 2008), pp. 321–343. See also Eric De Brabandere, “Human
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rights considerations in international investment arbitration,” in Malgosia Fitzmaurice and Panos
Merkouris, eds., The Interpretation and Application of the European Convention of Human
Rights: Legal and Practical Implications (Leiden: Nijhoff, 2012), regarding the relative reluctance
of investment tribunals to engage with human rights arguments.
66. On this, see Susan D. Franck, “Empirically evaluating claims about investment treaty
arbitration,” 86 North Carolina Law Review 1 (2007).
67. UNCTAD, Investment Policy Framework for Sustainable Development (New York: United
Nations, 2012), p. 37.
68. This can be observed, for example, in the preambles of the 1997 The Netherlands Model BIT
(reproduced in UNCTAD, “International Investment Instruments: A Compendium” (UN: Geneva,
2000), UN Doc. UNCTAD/DITE/2, vol. V, available at: http://unctad.org/en/Docs/dite2vol5_en.pdf
(last visited October 3, 2013)), 2005 UK Model BIT (reproduced in C. McLachlan, L. Shore and
M. Weiniger, International Investment Arbitration: Substantive Principles (Oxford: Oxford
University Press, 2007), p. 379), 2005 German Model BIT (reproduced in C. McLachlan, L. Shore
and M. Weiniger, International Investment Arbitration: Substantive Principles (Oxford: Oxford
University Press, 2007), p. 417), 2006 France Model BIT, available at:
http://italaw.com/documents/ModelTreatyFrance2006.pdf (last visited September 11, 2013),
China Model BIT (reproduced in UNCTAD, “International Investment Instruments: A
Compendium” (UN: Geneva, 2001), UN Doc. UNCTAD/DITE/2, vol. VI, available at:
http://unctad.org/en/Docs/dite2vol6_en.pdf (last visited October 3, 2013), p. 151)), Sri Lanka
Model BIT (reproduced in C. McLachlan, L. Shore and M. Weiniger, International Investment
Arbitration: Substantive Principles (Oxford: Oxford University Press, 2007), p. 427), 1994 Chile
Model BIT (reproduced in UNCTAD, “International Investment Instruments: A Compendium”
(UN: Geneva, 2001), UN Doc. UNCTAD/DITE/2, vol. VI, available at:
http://unctad.org/en/Docs/dite2vol6_en.pdf (last visited October 3, 2013), p. 143), and 2004 India
Model BIT (available at: http://finmin.nic.in/the_ministry/dept_eco_affairs/icsection/Indian Model
Text BIPA.asp), as well as the many treaties based on these model texts.
69. On this, see Frederico Ortino, “The social dimension of international investment agreements:
drafting a new BIT/MIT model?,” 7 International Law FORUM du droit international 243 (2005).
70. See, e.g., Saluka Investments B.V (The Netherlands) v. The Czech Republic, UNCITRAL,
partial award (March 17, 2006), para. 300 [herein Saluka]; Bureau Veritas, Inspection, Valuation,
Assessment and Control, BIVAC B.V. v. Republic of Paraguay, ICSID Case No. ARB/07/9, decision
on objections to jurisdiction (May 29, 2009), para. 59.
71. See Susan D. Franck, “The legitimacy crisis in investment treaty arbitration: privatizing
public international law through inconsistent decisions,” 73 (3) Fordham Law Review 1584
(2005); and Michael Waibel et al., eds., The Backlash against Investment Arbitration: Perceptions
and Reality (The Hague: Kluwer Law International, 2010).
72. On this “new generation” of IIAs, see, e.g., John Beechey and Antony Crockett, “New
generation of bilateral investment treaties: consensus or divergence?,” Contemporary issues in
international arbitration and mediation: the Fordham papers, vol. 2008 (Leiden: Nijhoff, 2009),
pp. 5–25.
73. Jarrod Hepburn and Vuyelwa Kuuya, “Corporate social responsibility and investment
treaties,” in Marie-Claire Cordonier Segger, Markus Gehring and Andrew Newcombe, eds.,
Sustainable Development in World Investment Law (The Hague: Kluwer Law International, 2010),
p. 607.
74. For a brief sketch of these developments, see Muthucumaraswamy Sornarajah, The
International Law on Foreign Investment, 3rd ed. (Cambridge: Cambridge University Press,
2010), pp. 183–187. For an in-depth analysis, see Nico Schrijver, Sovereignty over Natural
Resources: Balancing Rights and Duties (Cambridge: Cambridge University Press, 1995).
75. Peter T. Muchlinski, “International corporate social responsibility and international law,” in
Todd Wiler and Freya Baetens, eds., New directions in international economic law: in memoriam
Thomas Wälde (Leiden: Nijhoff, 2011), p. 239.
76. European Commission, “Communication for the Commission to the European Parliament,
the Council, the European Economic and Social Committee and the Committee of the Regions: A
renewed strategy 2011–2014 for Corporate Social Responsibility,” COM(2011) 681 final (October
25, 2011), p. 6.
77. OECD, OECD Guidelines for Multinational Enterprises (OECD Publishing, 2011), available
at: http://www.oecd.org/daf/inv/mne/48004323.pdf (last visited September 11, 2013).
78. See United Nations Global Compact, available at:

http://www.unglobalcompact.org/index.html (last visited September 11, 2013).
79. ILO, Tripartite declaration of principles concerning multinational enterprises and social
policy (Geneva: ILO, 2006), available at: http://www.ilo.org/wcmsp5/groups/public/---ed_emp/---
emp_ent/---multi/documents/publication/wcms_094386.pdf (last visited September 11, 2013).
80. See ILO Conventions, available at: http://www.ilo.org/dyn/normlex/en/f?
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p=1000:12000:0::NO::: (last visited September 11, 2013).
81. International Covenant on Civil and Political Rights (1966), available at:
http://www.ohchr.org/en/professionalinterest/pages/ccpr.aspx (last visited September 11, 2013).
82. United Nations Convention against Corruption (October 31, 2003), available at:
http://treaties.un.org/doc/Treaties/2003/12/20031209%2002-50%20PM/Ch_XVIII_14p.pdf (last
83. Muchlinski, “International corporate social responsibility and international law,” 2011, op.
cit., p. 226.
84. See Doreen McBarnet, Aurora Voiculescu and Tom Campbell, eds., The New Corporate
Accountability: Corporate Social Responsibility and the Law (Cambridge: Cambridge University
Press, 2007), p. 9; UN Human Rights Council, “Business and human rights: mapping international
standards of responsibility and accountability for corporate acts: Report of the Special
Representative of the Secretary-General (SRSG) on the issue of human rights and transnational
corporations and other business enterprises,” A/HRC/4/35 (February 19, 2007), para. 61,
available at: http://daccess-dds-ny.un.org/doc/UNDOC/GEN/G07/108/85/PDF/G0710885.pdf?
OpenElement (last visited September 11, 2013).
85. M. Antonio García-Muñoz Alhambra, Beryl Ter Haar and Atilla Kun, “Soft on the inside, hard
on the outside: an analysis of the legal nature of new forms of international labour law,” 27(4)
International Journal of Comparative Labour Law 362 (2011).
86. Liesbeth Enneking, Foreign Direct Liability and Beyond (The Hague: Eleven International
Publishing, 2012), p. 636 generally, and p. 227 for an example of a case in the Netherlands in
which the Amsterdam Court of Appeal considered the OECD Guidelines in a dispute between
trade unions and a company to determine whether mismanagement had occurred as the company
had allegedly not taken the interests of workers into account in the decision to close one of its
factories.
87. For instance, in Denmark, large businesses are obliged to disclose whether they have a CSR
policy, and when they do, to disclose information on the implementation and results of that policy.
The Netherlands, on the other hand, requires MNEs that receive “State-support” (a condition
which is broadly defined) to actively investigate its supply chain for child- and forced labor
violations and disclose that information, on penalty amounting to as much as € 74,000.
88. UN Human Rights Council, “Report of the Special Representative of the Secretary-General
on the issue of human rights and transnational corporations and other business enterprises, John
Ruggie: Guiding principles on business and human rights: implementing the United Nations
‘Protect, respect and remedy’ framework,” 2011, op. cit., p. 7.
89. Foreign direct liability cases are on the rise in both Europe and the United States, as victims
of corporate human rights violations find their way to home-state courtrooms.
90. The most prominent example of nonjudicial grievance mechanisms is the system of National
Contact Points that is part of the OECD Guidelines.
91. OECD, The Multilateral Agreement on Investment: The MAI Negotiating Text (April 22,
1998), p. 95, available at: http://www1.oecd.org/daf/mai/pdf/ng/ng987r1e.pdf (last visited October
4, 2013) [herein Draft MAI].
92. According to the traditional view, as expressed by the Permanent Court of International
Justice, a treaty, “being an international agreement, cannot, as such, create direct rights and
obligations for private individuals.” Jurisdiction of the Courts of Danzig, Advisory Opinion of 3
March 1928, PCIJ (1928), Series B, No. 15, advisory opinion (March 3, 1928), p. 17. However,
with the conclusion of human rights and investment protection treaties, this view has been
significantly challenged. While there may still be disagreement as to whether the substantive
rights in IIAs are owed to the contracting party itself or directly to its nationals (both views have
been upheld in the jurisprudence of investment tribunals, see, e.g., Archer Daniels Midland
Company and Tate & Lyle Ingredients Americas, Inc. v. The United Mexican States, ICSID Case
No. ARB (AF)/04/05, award (November 21, 2007), paras. 161–180; and Corn Products
International, Inc. v. United Mexican States, ICSID Case No. ARB (AF)/04/01, award (January 15,
2008), paras. 161–179), there is agreement that the investors have at the least been vested with
the right to enforce the provisions of the investment treaty – a point that has been acknowledged
by the International Court of Justice already in its judgment in Barcelona Traction, Light and
Power Company, Limited (Belgium v. Spain), I.C.J. Reports 1970, second phase, judgment
(February 5, 1970), para. 90 [herein Barcelona Traction].
93. Generally, see Jennifer A. Zerk, Multinationals and Corporate Social Responsibility:
Limitations and Opportunities in International Law (New York: Cambridge University Press,
2006), pp. 104–142.
94. See, respectively, UN Human Rights Council, “Report of the Special Representative of the
Secretary-General on the issue of human rights and transnational corporations and other business
enterprises, John Ruggie: Guiding principles on business and human rights: implementing the
United Nations ‘Protect, respect and remedy’ framework,” 2011, op. cit., p. 9; and Human Rights
Committee, “Concluding observations on the sixth periodic report of Germany, adopted by the
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Committee at its 106th session (15 October–2 November 2012),” CCPR/C/DEU/CO/6 (November
12, 2012), para. 16.
95. Robert J. Flanagan, Globalization and Labor Conditions: Working Conditions and Worker
Rights in a Global Economy (Oxford: Oxford University Press, 2006), p. 118.
96. Flanagan, Globalization and Labor Conditions: Working Conditions and Worker Rights in a
Global Economy, op. cit., pp. 143–145.
97. An analogy may be drawn to the Allard v. Barbados case arising from a dispute between a
Canadian investor and Barbados concerning an investment in an eco-tourism facility in one of
Barbados’ natural wetlands area, where the claimant contended that the Government of
Barbados had violated its international obligations under the Canada-Barbados BIT by refusing
to enforce its environmental laws, in defiance of Barbados’ obligations under multilateral
environmental agreements. The investor in that case had a strong interest in the host state’s
compliance with international environmental standards, as the preservation of the natural
environment surrounding the facility was crucial to the investment. See Notice of Dispute,
available at: http://graemehall.com/legal/papers/BIT-Complaint.pdf (last visited August 31, 2013).
98. Flanagan, Globalization and Labor Conditions: Working Conditions and Worker Rights in a
Global Economy, op. cit., p. 188.
99. Charles Sabel, Dara O’Rourke and Archon Fung, “Ratcheting labor standards: Regulation
for continuous improvement in the global workplace” (May 2 2000), KSG Working Paper No. 00-
010; Columbia Law and Economic Working Paper no. 185; Columbia Law School, Pub. Law
Research Paper No. 01-21, p. 4, available at: http://papers.ssrn.com/sol3/papers.cfm?
abstract_id=253833 (last visited September 11, 2013).
100. Treaty between the United States of America and the Republic of Poland concerning
Business and Economic Relations, preamble (March 21, 1990) [herein U.S.-Poland BIT ].
101. 1994 U.S. Model BIT (Treaty between the Government of the United States of America and
the Government of [Country] Concerning the Encouragement and Reciprocal Protection of
Investment (1994)), reproduced in C. McLachlan, L. Shore and M. Weiniger, International
Investment Arbitration: Substantive Principles (Oxford: Oxford University Press, 2007), p. 386.
102. For details, see note 136.
103. Their form to a large extent depends on the type of instrument that they are associated
with. In the context of BITs, labor matters are either dealt with in [preambles] or self-standing
treaty clauses, though in most cases, they are not subject to detailed regulation. This is not
surprising given that BITs, as instruments, are limited in focus to the promotion and protection of
investments. When it comes to FTAs, in contrast, labor matters are usually dealt with much more
comprehensively, as they are regulated either in separate treaty chapters (as in the case of U.S.
FTAs) or side-agreements specifically devoted to labor issues (as in the case of some Canadian
FTAs).
104. See, e.g., U.S.-Colombia FTA (November 22, 2006), art. 17.1, or the preamble of the Free
Trade Agreement between the EFTA States and Montenegro (November 14, 2011) [herein EFTA-
Montenegro FTA].
105. This is not to say that these three categories encompass all kinds of provisions that may
have a bearing on the position of workers. For example, the latter may also benefit from
provisions on entry and sojourn of foreign nationals, which are occasionally included in IIAs (see,
e.g., Agreement between the Government of Australia and the Government of the Republic of
India on the promotion and protection of investments (February 26, 1999), art. 55(1), available
at: http://unctad.org/ sections /dite/iia/docs/bits/australia_india.pdf (last visited August 31, 2013)
[herein Australia-India BIT ]; or Agreement Between the Government of the Republic of Botswana
and the Government if the People’s Republic of China on promotion and protection of investments
(June 12, 2000), art. 2(4) [herein Botswana-China BIT ]). But strictly speaking, such provisions do
not directly relate to the issue of labor rights and will therefore remain outside the scope of this
chapter .
106. See, e.g., Agreement for the Promotion and Protection of Investment between the
Government of the Republic of Austria and the Government of the Republic of Kosovo (signed
January 22, 2010, available at:
http://www.parlament.gv.at/PAKT/VHG/XXIV/I/I_01332/imfname_224247.pdf (last visited October
3, 2013)), art. 5(1); and Agreement for the Promotion and Protection of Investment between the
Republic of Austria and the Republic of Tajikistan (signed December 15, 2010, available at:
3, 2013)), art. 5(1).
107. Treaty between the United States of America and the Oriental Republic of Uruguay
concerning the encouragement and reciprocal protection of investment (November 2005), art.
13(1) [herein U.S.-Uruguay BIT ]. However, identical provisions can also be found in BLEU Model
BIT (2002), art. 6(2) and many of the treaties concluded on its basis.
108. This is often implicit in the language of the clause itself, but sometimes treaties include
explicit provisions to that effect. See, e.g., U.S.-Uruguay BIT, 2005, op. cit., art. 2(1), which
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stipulates that, with respect to the labor clause, the treaty applies to measures adopted or
maintained by a party relating to all investments in the territory of the party.
109. See Agreement between Japan and the Republic of Peru for the promotion, protection, and
liberalization of investment (November 21, 2008), art. 26 [herein Japan-Peru BIT ]; Agreement
between Japan and the Republic of Uzbekistan for the liberalization, promotion, and protection of
investment (August 15, 2008), art. 23; Agreement on Free Trade and Economic Partnership
between Japan and the Swiss Confederation (February 19, 2009), art. 101 [herein Japan-
Switzerland FTA]; Agreement between Japan and the Republic of Colombia for the Liberalization,
Promotion and Protection of Investment (September 12, 2011), art. 21(1); Agreement between the
Government of Japan and the Government of the Independent State of Papua New Guinea for the
Promotion and Protection of Investment (April 26, 2011), art. 22 [herein Japan-Papua New
Guinea BIT]; and Agreement between Japan and the Republic of Iraq for the Promotion and
Protection of Investment (June 7, 2012), art. 22.
110. See BLEU Model BIT, 2002, op. cit., art. 6(2), and the corresponding provisions in the BITs
that BLEU has concluded with Bahrain, Botswana, Congo DR, Guatemala, Libya, Madagascar,
Mauritius, Mozambique, Peru, Qatar, and Sudan. Most BLEU BITS are available at:
http://www.unctadxi.org/templates/DocSearch.aspx?id=779 (last visited September 11, 2013).
111. See Article 13(1) of the 2004 U.S. Model BIT, available at:
http://www.state.gov/documents/organization/117601.pdf (last visited August 31, 2013), and the
corresponding provisions in the U.S.-Uruguay BIT, 2005, op. cit., and the Treaty between the
Government of the United States and the Government of the Republic of Rwanda concerning the
Encouragement and Reciprocal Protection of Investment (February 19, 2008) [herein U.S.-
Rwanda BIT], as well as Agreement between the United States of America and the Hashemite
Kingdom of Jordan on the Establishment of a Free Trade Area (October 24, 2000), art. 6(2); U.S.-
Singapore FTA (May 6, 2003), art. 17.2(2); U.S.-Chile FTA (June, 6, 2003), art. 18.2(2); U.S.-
Australia FTA (May 18, 2004), art. 18.2(2); U.S.-Bahrain FTA (September 14, 2004), art. 15.2(2);
the Dominican Republic-Central America-United States Free Trade Agreement (August 4, 2004),
art. 16.2(2) [herein U.S.-CAFTA-DR FTA]; U.S.-Morocco FTA (June 15, 2004), art. 16.2(2); and
Agreement between the Government of the United States of America and the Government of the
Sultanate of Oman on the Establishment of a Free Trade Area (January 19, 2006), art. 16.2(2).
112. Agreement between Japan and the Republic of the Philippines for an Economic Partnership
(September 9, 2006), art. 103(1) [herein Japan-Philippines FTA].
113. See United States–Peru Trade Promotion Agreement (April 12, 2006), art. 17.2(2) [herein
U.S.-Peru FTA]; U.S.-Colombia FTA, 2006, op. cit., art. 17.2(2); United States–Panama Trade
Promotion Agreement (June 28, 2007), art. 16(2)(2) [herein U.S.-Panama FTA]; Free Trade
Agreement between the United States of America and the Republic of Korea (June 30, 3007), art.
19.2(2) [herein U.S.-Korea FTA]. This approach is likely to be pursued in future U.S. BITs, as
attested to by the new Article 13(2) of the 2012 U.S. Model BIT, available at:
http://www.ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf (last visited
September 11, 2013). See also Vid Prislan and Ruben Zandvliet, “Labor provisions in bilateral
investment treaties: Does the new US Model BIT provide a template for the future?,” Columbia
FDI Perspectives No. 92, April 1, 2013, available at: http://www.vcc.columbia.edu/content/labor-
provisions-bilateral-investment-treaties-does-new-us-model-bit-provide-template-future (last visited
September 12, 2013).
114. See, e.g., Agreement on Labour Cooperation between Canada and the Republic of Peru
(May 29, 2008), art. 2, available at:
http://www.labour.gc.ca/eng/relations/international/agreements/lca_peru.shtml#cpalc (last visited
September 12, 2013) [herein Canada-Peru LCA]; Agreement on Labour between the EFTA States
and Hong Kong, China (June 21, 2011), art. 4, available at:
http://www.efta.int/~/media/Documents/legal-texts/free-trade-relations/hong-kong-
china/Agreement%20on%20Labour.pdf (last visited September 12, 2013) [herein EFTA-Hong
Kong Agreement on Labor]; EFTA-Montenegro FTA, 2011, op. cit., art. 34(2); Peru-Korea FTA
(November 14, 2010), art. 18.2(2),
115. See Agreement between United Arab Emirates and the Belgian-Luxemburg Economic Union
(March 8, 2004), art. 6.2, available at: http://unctad.org/ sections /dite/iia/docs/bits/UAE_Belg-
lux.pdf (last visited September 12, 2013); or Agreement for the Promotion and Reciprocal
Protection of Investment between the Government of the Republic of Austria and the Government
of the Republic of Kazakhstan (January 12, 2010, available at:
3, 2013)). For an example of a model text, see the Southern African Development Community
Model BIT (July 2012), art. 22.2, available at: http://www.iisd.org/itn/wp-
content/uploads/2012/10/SADC-Model-BIT-Template-Final.pdf (last visited September 12, 2013).
116. U.S.-Colombia FTA, 2006, op. cit., art. 17.3 (1)(a). Similar provisions are present in all U.S.
FTAs and have recently been added to the 2012 U.S. Model BIT, op. cit.
117. See, e.g., Canada-Peru LCA, 2008, op. cit., art. 3; Peru-Korea FTA, 2010, op. cit., art.
18.2(1); EFTA-Montenegro FTA, 2011, op. cit., art. 34(1).
118. See U.S.-Panama FTA, 2007, op. cit., art. 16.3(1)(b); U.S.-Peru FTA, 2006, op. cit., art.
17.3(1)(b); U.S.-Colombia FTA, 2006, op. cit., art. 17.3(1)(b); U.S.-Korea FTA, 2007, op. cit., art.
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19.3(1)(b). This differs from earlier U.S. FTAs, which recognized that each party “retains the right
to exercise discretion with respect to investigatory, prosecutorial, regulatory, and compliance
matters and to make decisions regarding the allocation of resources to enforcement with respect
to other labor matters determined to have higher priorities.” For example, see U.S.-Singapore
FTA, 2003, op. cit., art. 17(2)(1)(b).
119. Japan-Peru BIT, 2008, op. cit., art. 26.
120. See U.S. BITs available at: http://www.unctadxi.org/templates/DocSearch.aspx?id=779

(last visited September 12, 2013).
121. See BLEU Model BIT, 2002, op. cit., art. 1(6); 2012 U.S. Model BIT, op. cit., art. 13(2), (3);
Japan-Philippines FTA, 2006, op. cit., art. 103(2).
122. These can be found in Section 301 of the U.S. Trade Act, 19 USC Ch. 12 (1974) and in the
U.S. Generalized System of Preferences.
123. See U.S.-CAFTA-DR FTA, 2004, op. cit., art. 16.1(1), 16.2, 16.8.
124. See U.S.-Panama FTA, 2007, op. cit., art. 16.2(1); U.S.-Peru FTA, 2006, op. cit., art.
17.2(1); U.S.-Colombia FTA, 2006, op. cit., art. 17.2(1); U.S.-Korea FTA, 2007, op. cit., art.
19.2(1).
125. Canada-Peru LCA, 2008, op. cit., art. 1(1). Regarding the recent dispute at the ILO between
employer and employee representatives on the question whether the right to freedom of
association implies the right to strike, see International Labour Conference, Provisional Record,
101st session, Geneva, May–June 2012, 19 (REV), Part one, p. 37.
126. U.S.-Singapore FTA, 2003, op. cit., art. 17.1 (2).
127. For example, Agreement between the Belgian-Luxembourg Economic Union and the
Republic of Mauritius on the Reciprocal Promotion and Protection of Investments (November 30,
2005), art. 6(1) [herein BLEU-Mauritius BIT ]; EFTA-Hong Kong Agreement on Labor, 2011, op.
cit., art. 3.
128. U.S.-Uruguay BIT, 2005, op. cit., art. 13(1).
129. U.S.-CAFTA-DR FTA, 2004, op. cit., art. 16.1.
130. BLEU Model BIT, 2002, op. cit., art. 6(1), (3).g.
131. Canada-Peru LCA, 2008, op. cit., art. 1(1).
132. U.S.-Korea FTA, 2007, op. cit., art. 19.2.(1).
133. North American Agreement on Labor Cooperation (September 13, 1993), art. 2, available
at: http://www.naalc.org/naalc/naalc-full-text.htm (last visited September 12, 2013) [herein
NAALC] (emphasis added).
134. NAALC, 1993, op. cit., art. 1 and annex 1.
135. US-Uruguay BIT, 2005, op. cit., preamble (emphasis added); see also the preambles of the
U.S.-Rwanda BIT, 2008, op. cit., the 2004 U.S. Model BIT, op. cit., and the 2012 U.S. Model BIT,
op. cit., as well as the Norwegian Model BIT (2007).
136. Agreement between the Government of the Republic of Mozambique and the Government of
the Kingdom of the Netherlands concerning the Encouragement and Reciprocal Protection of
Investment (December 18, 2001), preamble (emphasis added); identical statements are also
present in the preambles of the Netherlands BITs with Namibia (2002), Suriname (2005),
Dominican Republic (2006), and Oman (2009), all available at:
http://www.unctadxi.org/templates/DocSearch.aspx?id=779 (last visited September 12, 2013).
Furthermore, similar language can also be found in the preambles of the treaties concluded by
Finland with Bosnia and Herzegovina (2000), Tanzania (2001), Nicaragua (2003), Kyrgyzstan
(2003), Armenia (2004), Guatemala (2005), Algeria (2005), Nigeria (2005), Zambia (2005),
Serbia and Montenegro (2005), Ethiopia (2006), and Belarus (2006), most of which are available
at: http://www.unctadxi.org/templates/DocSearch.aspx?id=779 (last visited September 12, 2013).
137. Agreement between Canada and the Hashemite Kingdom of Jordan for the Promotion and
Protection of Investments, preamble (June 28, 2009) (emphasis added); see also Agreement
between Canada and the Republic of Peru for the Promotion and Protection of Investments
(November 14, 2004), preamble.
138. See the Canadian Model FIPA (2004), section B.13(1), available at:
http://italaw.com/documents/Canadian2004-FIPA-model-en.pdf (last visited September 12, 2013)
and 2012 U.S. Model BIT, op. cit., annex B.
139. Investment Agreement for the COMESA Common Investment Area (2007), art. 20(8),
available at:
http://vi.unctad.org/files/wksp/iiawksp08/docs/wednesday/Exercise%20Materials/invagreecomesa.pdf
(last visited September 12, 2013), where interpretative guidance has been added as an integral
part of the provision concerned.
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140. ASEAN Comprehensive Investment Agreement (February 26, 2009), annex 2, available at:
http://www.asean.org/images/2012/Economic/AIA/Agreement/ASEAN%20Comprehensive%20Investment%20Agreement%20(ACIA)%202012.pdf
(last visited September 12, 2013).
141. See Canadian Model FIPA, 2004, op. cit., art. 10(1)(a), (b); and ASEAN Comprehensive
Investment Agreement, 2009, op. cit., art. 17(1)(b) and (c). See also Agreement between the
Government of the Republic of Korea and the Government of Japan for the Liberalization,
Promotion and Protection of Investment (March 22, 2002), art. 16(1)(c), available at:
http://unctad.org/ sections /dite/iia/docs/bits/korea_japan.pdf (last visited September 12, 2013).
142. See preambles of EFTA-Montenegro FTA, 2011, op. cit., and Free Trade Agreement
between the EFTA States and Hong Kong, China, June 21, 2011, available at:
http://www.efta.int/free-trade/free-trade-agreements/hong-kong.aspx (last visited September 12,
2013).
143. Canada-Peru Free Trade Agreement (May 29, 2008), art. 810.
144. Canada-Colombia Free Trade Agreement (November 21, 2008), art. 816; Canada-Panama
Free Trade Agreement (August 11, 2009), art. 9.17.
145. Trans-Pacific Partnership Agreement, art. 12.15 bis., available at:

http://www.citizenstrade.org/ctc/wp-content/uploads/2012/06/tppinvestment.pdf (last visited
October 3, 2013).
146. See European Parliament resolution of 25 November 2010 on corporate social

responsibility in international trade agreements (2009/2201(INI)), (2012/C 99 E/19), in which the
proposal was made that future EU FTAs “should incorporate a chapter on sustainable
development which includes a CSR clause, based, in part, on the 2010 update of the OECD
Guidelines for Multinational Enterprises.”
147. It was not without reason, for example, that the provision in the Draft MAI, which sought to
“associate” with the treaty the OECD Guidelines on Multinational Enterprises, contained the
disclaimer that this “shall not bear on the interpretation or application of the Agreement,
including for the purpose of dispute settlement; nor change [the Guidelines’] non-binding
character.” See Draft MAI, 1998, op. cit., art. X, para. 1(4).
148. Investment Agreement for the COMESA Common Investment Area, 2007, op. cit., art. 13.
149. Similar attempts to encourage compliance with the host state’s domestic law are sometimes
pursued in preambles. This can be seen, for example, in the preamble of the Agreement among the
Government of Japan, the Government of the Republic of Korea and the Government of the
People’s Republic of China for the Promotion, Facilitation and Protection of Investment, May 13,
2012, available at: http://www.mofa.go.jp/announce/announce/2012/5/pdfs/0513_01_01.pdf (last
visited September 12, 2013), which recognizes “the importance of investors’ complying with the
laws and regulations of a Contracting Party in the territory of which the investors are engaged in
investment activities, which contribute to the economic, social and environmental progress.”
Obviously, if such activities are to contribute to social progress, this necessarily includes respect
of labor legislation. But the added value of such statements is not directly evident, as investors are
in any event expected to comply with the laws and regulations of their host state.
150. Supplementary Act A/SA.3/12/08 Adopting Community Rules on Investment and the
Modalities for their Implementation with ECOWAS, adopted on 19 December 2008, available at:
http://www.privatesector.ecowas.int/en/III/Supplementary_Act_Investment.pdf (last visited
October 14, 2013).
151. See, respectively, Article 11(1) and Article 11(3).
152. Article 14(2), emphasis added.
153. Article 14(4).
154. Southern African Development Community Model BIT, 2012, op. cit., art. 15.
155. This could be deduced, for example, from the “soft law” language permeating the EU-U.S.
Shared Principles for International Investment: “Governments should urge that multinational
enterprises operate in a socially responsible manner. To this end, the European Union and the
United States intend to promote responsible business conduct, in general, and adherence by third
countries to the OECD Guidelines for Multinational Enterprises, in particular.”—Statement of the
European Union and the United States on Shared Principles for International Investment (April
10, 2012), p. 1, available at: http://trade.ec.europa.eu/doclib/docs/2012/april/tradoc_149331.pdf
(last visited September 12, 2013) (emphasis added).
156. OECD, “Novel features in recent OECD Bilateral Investment Treaties,” International
Investment Perspectives 2006 (OECD Publishing, 2006), p. 157.
157. In its Final Report, the U.S.-EU High Level Working Group on Jobs and Growth
recommended that “the two sides explore opportunities to address these important issues, taking
into account work done in the Sustainable Development Chapter of EU trade agreements and
the Environment and Labor Chapters of U.S. trade agreements.”—High Level Working Group
on Jobs and Growth, Final Report (February 11, 2013), available at: http://www.ustr.gov/about-
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us/press-office/reports-and-publications/2013/final-report-us-eu-hlwg (last visited September 12,
2013).
158. See, e.g., BLEU-Mauritius BIT, 2005, op. cit., art. 6(4).
159. See, e.g., U.S.-Uruguay BIT, 2005, op. cit., art. 13(1), and U.S.-Rwanda BIT, 2008, op. cit.,
art. 13(1).
160. For an example of such a committee, see the Japan-Peru BIT, 2008, op. cit., art. 24.
161. These functions can either be performed by the general Joint Committee (see, e.g., the
Japan-Switzerland FTA, op. cit., art. 148), or by a more specialized Sub-Committee on Investment
(see, e.g., the Japan-Philippines FTA, 2006, op. cit., art. 106).
162. NAALC, 1993, op. cit., arts. 8–19; Canada-Peru LCA, 2008, op. cit., arts. 7–11; U.S.-
Singapore FTA, 2003, op. cit., art. 17.4.
163. See, e.g., the Peru-Korea FTA, 2010, op. cit., art. 18.4; or EFTA-Hong Kong Agreement on
Labor, 2011, op. cit., art. 6. However, the latter mandates only the establishment of national
contact points.
164. See, e.g., U.S.-Singapore FTA, 2003, op. cit., annex 17A, paras. 1–4.
165. NAALC, 1993, op. cit., art. 11; Canada-Peru LCA, 2008, op. cit., art. 9.
166. See, e.g., the U.S.-Singapore FTA, 2003, op. cit., art. 17.6(5).
167. See, e.g., the U.S.-Singapore FTA, 2003, op. cit., art. 20.7.
168. NAALC, 1993, op. cit., art. 29.
169. Canada-Peru LCA, 2008, op. cit., art. 13(a).
170. U.S.-Peru FTA, 2006, op. cit., art. 21.2; U.S.-Colombia FTA, 2006, op. cit., art. 21.2; U.S.-
Panama FTA, 2007, op. cit., art. 20.2; U.S.-Korea FTA, 2007, op. cit., art. 22.4.
171. Japan-Philippines FTA, 2006, op. cit., arts. 149–159; Japan-Switzerland FTA, op. cit., arts.
137–149.
172. See, e.g., the Peru-Korea FTA, 2010, op. cit., art. 18.7; EFTA-Hong Kong Agreement on
Labor, 2011, op. cit., art. 6(2).
173. NAALC, 1993, op. cit., art. 3(2); Canada-Peru LCA, 2008, op. cit., art. 3(2).
174. NAALC, 1993, op. cit., arts. 4–5; Canada-Peru LCA, 2008, op. cit., arts. 4–5; U.S.-Chile
FTA, 2003, op. cit., art. 18.3; U.S.-Singapore FTA, 2003, op. cit., art. 17.3; U.S.-Peru FTA, 2006,
op. cit., art. 17.4.
175. U.S.-Singapore FTA, 2003, op. cit., art. 17.4(5); U.S.-Peru FTA, 2006, op. cit., art. 17.5(5)
(c), 17.5(6); Canada-Peru LCA, 2008, op. cit., art. 8(2)(b), 10, and annex 2.
176. These procedures are regulated in most detail in the NAALC, which also imposes important
limitations on the types of complaints that can be considered at each phase. See NAALC, 1993,
op. cit., arts. 16, 21–41.
177. For example, no mechanisms are present in the Peru-Korea FTA, 2010, op. cit., and the
EFTA-Hong Kong Agreement on Labor, 2011, op. cit., although both treaties mandate the
establishment of national contact points. However, the Peru-Korea FTA contains provisions on
procedural guarantees (art. 18.3) akin to those found in U.S. and Canadian agreements.
178. See U.S.-Uruguay BIT, 2005, op. cit., arts. 24(1)(a)(i)(A), 37(5); see also U.S.-Rwanda BIT,
2008, op. cit., arts. 24(1)(a)(i)(A), 37(5).
179. U.S.-Uruguay BIT, 2005, op. cit., art. 13(1); U.S.-Rwanda BIT, 2008, op. cit., art. 13(1). In
the future, U.S. BITs are expected to include a more detailed and extensive consultations
procedure, as attested to by the new Article 13(4) of the 2012 U.S. Model BIT, op. cit. This
provides: “A Party may make a written request for consultations with the other Party regarding
any matter arising under this Article. The other Party shall respond to a request for consultations
within thirty days of receipt of such request. Thereafter, the Parties shall consult and endeavor to
reach a mutually satisfactory resolution.”
180. See, e.g., BLEU-Mauritius BIT, 2005, op. cit., arts. 6(4), 12–13; Austria-Kazakhstan BIT,
2010, op. cit., arts. 13, 20; Austria-Kosovo BIT, 2010, op. cit., arts. 13–14, 21; Austria-Tajikistan
BIT, 2010, op. cit., arts. 13–14, 21.
181. For example, the Japan-Peru BIT, 2008, op. cit., art. 18(1), defines an investment dispute
that can be submitted to investor-state arbitration as “a dispute between a Contracting Party and
an investor of the other Contracting Party that has incurred loss or damage by reason of, or
arising out of, an alleged breach of any obligation under this Agreement with respect to the
investor of that other Contracting Party or its investments in the Area of the former Contracting
Party” (emphasis added). This could be interpreted as excluding disputes relating to the labor
provision, inasmuch as the non-derogation obligations are owed to the other contracting party
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and not directly to the investor or its investments. For similar wording, see Japan-Papua New
Guinea BIT, 2011, op. cit., art. 16(1) and Japan-Switzerland FTA, op. cit., art. 94.
182. United Parcel Service of America Inc. v. Government of Canada, Investor’s Memorial,
merits (March 23, 2005), paras. 340–346, 649–671, available at:
http://naftaclaims.com/Disputes/Canada/UPS/UPS-Merits_Memorial-23-03-05.pdf (last visited
September 12, 2013) [herein UPS v. Canada]; UPS v. Canada, Investor’s Reply Memorial (August
15, 2005), paras. 754–755, available at: http://naftaclaims.com/Disputes/Canada/UPS/UPS-
Merits_ReplyMemorial-15-08-05.pdf (last visited September 12, 2013).
183. UPS v. Canada, UNCITRAL, award on jurisdiction (November 22, 2002), paras. 83–99,
available at: http://www.international.gc.ca/trade-agreements-accords-
commerciaux/assets/pdfs/disp-diff/ups-38.pdf (last visited September 12, 2013).
184. UPS v. Canada, UNCITRAL, award on the merits (May 24, 2007), paras. 186, 102–119,
173–181, available at: http://naftaclaims.com/Disputes/Canada/UPS/UPS-Canada-
Final_Award_and_Dissent.pdf (last visited September 12, 2013).
185. UPS v. Canada, award on the merits, op. cit., para. 187.
186. Support for this can be found in Gami Investments, Inc. v. United Mexican States,
UNCITRAL, final award (November 15, 2004), para. 91, where the tribunal considered that,
depending on the context, “a government’s failure to implement or abide by its own law in a
manner adversely affecting a foreign investor may but will not necessarily lead to a violation of
[the fair and equitable treatment obligation].”
187. UPS v. Canada, Respondent’s Counter-Memorial, merits phase (June 22, 2005), paras. 947,
970, available at: http://naftaclaims.com/Disputes/Canada/UPS/UPS-Merits_CounterMemorial-22-
06-05.pdf. Furthermore, Canada argued that the arbitral proceedings were not the proper forum
to bring labor-related claims. These should have been brought, instead, before other instances,
such as the ILO Committee on Freedom of Association or the National Administrative Office
established under the NAALC (UPS v. Canada, respondent’s Counter-Memorial, para. 977). For
the claimant’s reply to this argument, see UPS v. Canada, investor’s Reply Memorial, op. cit.,
para. 756.
188. This could be relevant in situations analogous to the one that we mention in note 97.
189. Some analogies can be drawn from the cases mentioned in note 59.
190. For details, see “Centerra Gold, Kumtor Mine Resumes Operations” (December 22, 2006),
available at: http://www.centerragold.com/sites/default/files/news-releases-en/cg-12222007-en.pdf.
191. Veolia Propreté v. Arab Republic of Egypt, ICSID Case No. ARB/12/15 (June 25, 2012).
192. For a background, see L. E. Peterson, “French company, Veolia, launches claim against
Egypt over terminated waste contract and labor wage stabilization promises,” Investment
Arbitration Reporter (June 27, 2012), available at: http://www.iareporter.com/articles/20120627_1
(last visited September 12).
193. Agreement between the Republic of France and the Arab Republic of Egypt for the
promotion, protection, and liberalization of investment (December 22, 1974), art. 7, available at:
http://unctad.org/ sections /dite/iia/docs/bits/egypt_france_fr.pdf (last visited September 12,
2013), provides ICSID jurisdiction for “les différends qui pourraient l’opposer à un res-sortissant
ou à une société de l’autre Partie contractante.”
194. Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. The
Government of Mongolia, UNCITRAL, award on jurisdiction and liability (April 28, 2011), para.
353 [herein Paushok].
195. Piero Foresti, Laura de Carli & Others v. Republic of South Africa, ICSID Case No.
ARB(AF)/07/01, award (August 4, 2010), paras. 56, 78, available at:
https://icsid.worldbank.org/ICSID/FrontServlet?
requestType=CasesRH&actionVal=showDoc&docId=DC1651_En&caseId=C90 (last visited
September 12, 2013) [herein Foresti]. For more background, see Luke E. Peterson, “Arbitration
watch: More details emerge of miner’s case against South Africa,” Investment Treaty News,
November 30, 2007, available at: http://www.iisd.org/pdf/2007/itn_nov30_2007.pdf (last visited
September 12).
196. The Mining Charter was an instrument concluded by the South African Government, the
South African Chamber of Mines, the National Union of Mineworkers, and the South African
Mineral Development Association, which attempted to encourage greater ownership of mining
industry assets by historically disadvantaged South Africans. Among other measures, the Charter
introduced compulsory equity divestiture requirements and imposed employment equity plans
directed toward achieving a 40% participation of historically disadvantaged South Africans in the
management of mining companies.
197. See, for example, Metalclad Corporation v. The United Mexican States, ICSID Case No.
ARB(AF)/97/1, award (August 30, 2000), paras. 103–111, where the tribunal refused to consider
the motivation of the Mexican authorities which led them to the adoption of a disputed
environmental protection decree that was considered to constitute an indirect expropriation.
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Strictly speaking, however, the case was not one concerning a regulatory taking.
198. Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No.
ARB (AF)/00/2, award (May 29, 2003), para. 122 [herein Tecmed]; this approach was later
endorsed by, among others, the tribunals in Azurix Corp. v. The Argentine Republic, ICSID Case
No. ARB/01/12, award (July 14, 2006), paras. 311–112; and LG&E Energy Corp., LG&E Capital
Corp., and LG&E International, Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, decision
on liability (October 3, 2006), paras. 194–197.
199. Methanex v. United States, UNCITRAL, final award (August 3, 2005), Part IV, Chapter
D,7. Saluka, op. cit., paras. 254–255; and Chemtura Corporation v. Government of Canada,
UNCITRAL, award (August 2, 2010), para. 266. The police-powers exception, as this is sometimes
called, was previously recognized by the Iran-U.S. Claims Tribunal in SEDCO, Inc., et al., v.
National Iranian Oil Company and The Islamic Republic of Iran, 9 IUSCTR 248, 275 (1985).
200. This is not to say that this approach leads to a proper balancing of interests, since the
outcome is essentially an “all or nothing” result: a measure is either noncompensable regulatory
measure or an indirect expropriation requiring compensation. On this criticism, see in particular
Ursula Kriebaum, “Regulatory takings: Balancing the interests of the investor and the state,” 8 (5)
The Journal of World Investment & Trade 717 (2007).
201. These have been referred to as examples of indirect takings in the 1961 Harvard Draft
Convention on the International Responsibility of States for Injuries to Aliens, 55 American
Journal of International Law 545 (1961), p. 559; and the commentary to the 1967 OECD Draft
Convention on the Protection of Foreign Property, p. 19, available at:
http://www.oecd.org/investment/internationalinvestmentagreements/39286571.pdf (last visited
202. On the general elements of the fair and equitable treatment standard, see Roland Kläger,
“Fair and equitable treatment” in international investment law (Cambridge: Cambridge University
Press, 2011); and Ioana Tudor, The “Fair and Equitable Treatment Standard” in the international
law of foreign investment (Oxford: Oxford University Press, 2008).
203. Saluka, op. cit., paras. 305–306. See also S.D. Myers, Inc. v. Canada, UNCITRAL, first
partial award (November 13, 2000), para. 263.
204. See, e.g., Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8,
award (September 11, 2007), para. 332 [herein Parkerings-Compagniet]; and EDF (Services)
Limited v. Romania, ICSID Case No. ARB/05/13, award (October 8, 2009), paras. 217–219
[herein EDF].
205. Paushok, op. cit., para. 370.
206. See Parkerings-Compagniet, op. cit, para. 32; and EDF, op. cit., paras. 217–219.
207. On this, see LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v.
Argentine Republic, ICSID Case No. ARB/02/1, decision on liability (October 3, 2006), paras.
129–132; Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No.
ARB/01/3, award (May 22, 2007), paras. 264–268 [herein Enron]; Sempra Energy International v.
The Argentine Republic, ICSID Case No. ARB/02/16, award (September 28, 2007), paras. 303–
304 [herein Sempra] (however, the awards in Enron and Sempra were later annulled, but not for
reasons related to the interpretation of the fair and equitable treatment standard); BG Group Plc.
v. The Republic of Argentina, UNCITRAL, final award (December 24, 2007), paras. 307–310; and
National Grid Plc. v. The Argentine Republic, UNCITRAL, award (November 3, 2008), para. 179.
208. See, e.g., S.D. Myers, Inc. v. Government of Canada, UNCITRAL, partial award (November
13, 2000), para. 250.
211. The principle is well established under international law that a state essentially retains
sovereign powers to regulate matters other than those not regulated by the treaty in question. For
a recent restatement of this principle, see the ICJ’s judgment in Case concerning the Dispute
Regarding Navigational and Related Rights (Costa Rica v. Nicaragua), ICJ Rep. 213 (2009),
paras. 87–89.
212. In this vein, the tribunal in Thunderbird confirmed that the respondent had a wide
discretion under the NAFTA in the regulation of the gambling industry, insofar as gambling was
illegal under Mexican laws. International Thunderbird Gaming Corporation v. The United
Mexican States, UNCITRAL, arbitral award (January 26, 2006), paras. 123–127.
213. While a large number of IIAs do not even identify the scope of applicable law, those that
nonetheless do so almost invariably provide for the application of international law, in addition to
the investment treaty in question and/or the domestic law of the host state. Furthermore, the
default choice-of-law clauses, which are found in the ICSID Convention or other arbitration rules
and which will apply in the absence of a designation by the parties of rules applicable to the
substance of the dispute, also provide investment tribunals with considerable flexibility. See
Convention on the Settlement of Investment Disputes between States and Nationals of Other
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States, art. 42(1), in ICSID Convention, Regulations and Rules, ICSID/15 (April 2006), available
at: https://icsid.worldbank.org/ICSID/StaticFiles/basicdoc/CRR_English-final.pdf (last visited
September 12, 2013); or UNCITRAL Arbitration Rules, General Assembly Resolution 65/22
(2010), art. 35(1), available at: http://www.uncitral.org/pdf/english/texts/arbitration/arb-rules-
revised/arb-rules-revised-2010-e.pdf (last visited September 12, 2013).
214. Vienna Convention on the Law of Treaties (May 23, 1969), art. 31(3)(c).
215. The fact that some of the obligations under the 1998 ILO Declaration take the form of
broadly formulated principles does not affect their potential to influence the interpretation of an
IIA. In the Djibouti v. France case, the International Court of Justice considered that Article 31(3)
(c) of the VCLT permitted recourse to the provisions of another treaty, even where the later were
“formulated in a broad and general manner, having an aspirational character.”—Certain
Questions of Mutual Assistance in Criminal Matters (Djibouti v. France), I.C.J. Reports 2008,
judgment (June 4, 2008), para. 113.
216. It is well established that legal disputes concerning the rights and obligations applicable to
investors who are within the reach of a host state’s jurisdiction as a matter of general law, will
fall to be decided by the appropriate procedures in the relevant jurisdiction, unless the general law
generates an investment dispute under IIAs in question. Amco Asia Corporation and others v.
Republic of Indonesia, ICSID Case No. ARB/81/1 (Resubmitted Case), decision on jurisdiction
(May 10, 1988), para. 125.
217. In that case, the investor complained that it was subjected to harassments and oppressive
investigations by various governmental authorities of Kazakhstan – including the State Labor
Inspector, which accused the investor of committing a number of violations of the Labor Code –
all of which allegedly aimed at the disruption and ultimate destruction of the claimant’s
investment. In response, the claimant commenced proceedings against Kazakhstan on the ground
that the latter had violated its obligation under the U.S.-Kazakhstan BIT to accord fair and
equitable treatment and full protection and security to the investments, and the obligation not to
impair the investment by unreasonable or discriminatory measures. See Caratube International
Oil Company LLP v. The Republic of Kazakhstan, Claimant’s Memorial (May 14, 2009), paras.
67–69, available at: http://italaw.com/sites/default/files/case-documents/ita0127_0.pdf (last visited
September 12, 2013). The case was however dismissed on jurisdictional grounds, as Caratube
failed to establish that it was an entity controlled by a U.S. national, a requirement that was
necessary for the purposes of the ICSID Convention and the U.S.-Kazakhstan BIT. Caratube
International Oil Company LLP v. The Republic of Kazakhstan, ICSID Case No. ARB/08/12,
award (June 5, 2012).
218. This is why the substantive law governing investment disputes has sometimes been
described as having a “hybrid” character. See further Zachary Douglas, “The hybrid foundations
of investment treaty arbitration,” 74 British Yearbook of International Law 151–289 (2003).
219. The limited scope of the arbitration clause was for example the reason why
counterclaims were rejected in Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1,
award (December 7, 2011), para. 869. However, the assertion of counterclaims has greater
chances of success when consent extends to disputes “concerning investments.” See, for example,
Saluka, UNCITRAL, decision on jurisdiction (May 7, 2004), para. 39 [herein Saluka
(Jurisdiction)]; and Paushok, op. cit., para. 689.
220. While the former is a requirement laid down in Article 46 of the ICSID Convention, the
latter has been developed as a test for the admissibility of counterclaims under UNCITRAL
Arbitration Rules by the tribunals in Saluka (Jurisdiction), op. cit., paras. 61–76; and Paushok, op.
cit., paras. 689–693. UNCITRAL Arbitration Rules, 2010, op. cit., art. 21(3) otherwise provides
that “the respondent may make a counterclaim […] provided that the arbitral tribunal has
jurisdiction over it.”
221. The respondent’s counterclaim that the claimants had violated their environmental
obligations under Mongolian law was not considered to have sufficient connection to the primary
claim under the BIT, given that it arose out of Mongolian public law and exclusively raised issues
of noncompliance with Mongolian public law: “All these issues squarely fall within the scope of
the exclusive jurisdiction of Mongolian courts, are matters governed by Mongolian public law, and
cannot be considered as constituting an indivisible part of the Claimants’ claims based on the BIT
and international law or as creating a reasonable nexus between the Claimants’ claims and the
Counterclaims justifying their joint consideration by an arbitral tribunal exclusively vested with
jurisdiction under the BIT.”—Paushok, op. cit., paras. 694–696.
222. Analogies could be drawn in this regard from Metalclad Corporation v. The United Mexican
States, op. cit., where the dispute arose as a result of the refusal to permit the claimant’s
subsidiary to open and operate a hazardous waste facility in Mexico on environmental grounds, or
Tecmed, op. cit., where the dispute resulted from the nonrenewal by Mexican authorities of a
license that was necessary to operate a waste landfill owned by the claimant, also allegedly out of
environmental concerns.
223. On this generally, see Andrew Newcombe, “Investor misconduct: Jurisdiction, admissibility
or merits?” in Chester Brown and Kate Miles, eds., Evolution in Investment Treaty Law and
Arbitration (Cambridge: Cambridge University Press, 2011), paras. 187–200.
2018
224. For example, Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No.
ARB/03/26, award (August 2, 2006), paras. 45–61, 263–264; or Plama Consortium Limited v.
Republic of Bulgaria, ICSID Case No. ARB/03/24, award (August 27, 2008), para. 143 [herein
Plama].
225. For example, Fraport AG Frankfurt Airport Services Worldwide v. Philippines, ICSID Case
No. ARB/03/25, award (August 16, 2007), paras. 4, 287, 323.
226. Alasdair Ross Anderson et al. v. Republic of Costa Rica, ICSID Case No. ARB(AF)/07/3,
award (May 19, 2010), paras. 55–57 [herein Alasdair].
227. Phoenix Action Ltd. v. The Czech Republic, ICSID Case No. ARB/06/5, award (April 15,
2009), para. 78; [herein Phoenix Action] (emphasis added).
228. Alasdair, op. cit., para. 52.
229. Fraport, op. cit., para. 397.
230. See Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, decision on jurisdiction (April
29, 2004), at 86; or Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No.
ARB/05/17, award (February 6, 2008), paras. 104–122.
231. See, e.g., Mr. Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20, award (July
14, 2010), at 119, where the tribunal considered that, insofar as the legality requirement in that
case was contained in the BIT’s admissions clause, it only concerned the question of the
compliance with the host state’s domestic laws governing the admission of investments in the host
state. See also Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, ICSID Case No.
ARB/07/24, award (June 18, 2010), para. 127 [herein Hamester]; Quiborax S.A., Non Metallic
Minerals S.A. and Allan Fosk Kaplún v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2,
decision on jurisdiction (September 27, 2012), para. 263, both confirming the importance of the
actual language of the IIA in question.
232. See Plama, op. cit., paras. 138–139; Phoenix Action, op. cit., para. 101; Jan Oostergetel and
Theodora Laurentius v. The Slovak Republic, decision on jurisdiction (April 30, 2010), para. 178
[herein Oostergetel]; and Hamester, op. cit., paras. 123–124.
233. LESI, S.p.A. and Astaldi, S.p.A. v. People’s Democratic Republic of Algeria, ICSID Case No.
ARB/05/3, decision on jurisdiction (July 12, 2006), para. 83; Phoenix Action, op. cit., para. 102.
234. See Oostergetel, op. cit., para. 176; and Hamester, op. cit., para. 127.
235. See generally Peter Muchlinski, “‘Caveat investor’? The relevance of the conduct of the
investor under the fair and equitable treatment standard,” 55 International and Comparative Law
Quarterly 527 (2006), pp. 536–556.
236. See, e.g., Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v. The Republic of
Estonia, ICSID Case No. ARB/99/2, award (June 25, 2001), paras. 349–363; or Emilio Agustín
Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, award (November 13, 2000),
paras. 70–71.
237. In order to qualify for protection under an IIA, an investor must usually be a natural or
legal person having the nationality of one contracting party, who holds an investment on the
territory of the other contracting party. Hence, in the hypothetical case that they would hold a
shareholding interest in a company which represents an investment for the purposes of the IIA,
workers could also be qualified as foreign investors, provided that they satisfy the IIA’s nationality
requirements, though such cases are highly exceptional.
238. UPS v. Canada, UNCITRAL, amicus petitions by the Canadian Union of Postal Workers
and the Council of Canadians (20 October, 2005), paras. 1–2, available at:
http://naftaclaims.com/Disputes/Canada/UPS/UPSAmicusPetitionCUPW.pdf (last visited
239. UPS v. Canada, amicus petitions by the Canadian Union of Postal Workers and the Council
of Canadians, op. cit., paras. 19–28.
240. UPS v. Canada, amicus petitions by the Canadian Union of Postal Workers and the Council
of Canadians, op. cit., paras. 66–68.
241. UPS v. Canada, Canada’s submission on the amicus petitions, op. cit. (May 28, 2001),
available at: http://naftaclaims.com/Disputes/Canada/UPS/UPSCanadaSubReAmicus.pdf (last
visited September 12, 2013); and UPS v. Canada, UNCITRAL Investor’s Submission on the
Amicus Submission (May 28, 2001), available at:
http://naftaclaims.com/Disputes/Canada/UPS/UPSInvestorSubReAmicus.pdf (last visited
242. UPS v. Canada, UNCITRAL, decision of the tribunal on petitions for intervention and
participation as amici curiae (October 17, 2001), para. 36, available at:
http://naftaclaims.com/Disputes/Canada/UPS/UPSDecisionReParticipationAmiciCuriae.pdf (last
243. UPS v. Canada, decision of the tribunal on petitions for intervention and participation as
2018
amici curiae, op. cit., paras. 37–40.
244. UPS v. Canada, decision of the tribunal on petitions for intervention and participation as
amici curiae, op. cit. In this regard, the tribunal relied upon Article 15 of the UNCITRAL Rules
(1976), which provide that “the arbitral tribunal may conduct the arbitration in such manner as it
considers appropriate, provided that the parties are treated with equality and that at any stage of
the proceedings each party is given a full opportunity of presenting his case.” It also relied on the
principled decision adopted in this regard by the tribunal in Methanex, decision of the tribunal on
petitions from third persons to intervene as “amici curiae,” op. cit. (January 15, 2001).
245. Methanex, op. cit., decision of the tribunal on petitions from third persons to intervene as
“amici curiae,” paras. 70–71.
246. UPS v. Canada, UNCITRAL, amicus submission—CUPE and “Council of Canadians”

(October 20, 2005), paras. 26–28.
247. UPS v. Canada, amicus submission—CUPE and “Council of Canadians,” op. cit., paras. 38–
50.
248. UPS v. Canada, amicus submission—CUPE and “Council of Canadians,” op. cit., paras. 29,
51.
249. UPS v. Canada, amicus submission—CUPE and “Council of Canadians,” op. cit., paras. 31–
35.
250. UPS v. Canada, amicus submission—CUPE and “Council of Canadians,” op. cit., para. 70.
251. International Law Association, op. cit., pp. 213–215.
252. See, e.g., 2012 U.S. Model BIT, op. cit., art. 28(3); or 2004 Canadian Model BIT, op. cit.,
art. 39. Also the NAFTA Free Trade Commission issued a statement to the effect that no provision
of the NAFTA limits the discretionary authority of arbitral tribunals to accept nondisputing party
submissions. See “Statement of the Free Trade Commission on non-disputing party participation”
(October 7, 2004), available at: http://www.naftaclaims.com/Papers/Nondisputing-en.pdf (last
253. ICSID Rules of Procedure for Arbitration Proceedings, Rule 37(2), in ICSID Convention,
Regulations and Rules, ICSID/15 (April 2006), available at:
https://icsid.worldbank.org/ICSID/StaticFiles/basicdoc/CRR_English-final.pdf (last visited
254. Bernhard von Pezold and Others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15,
procedural order no. 2 (June 26, 2012), paras. 57–59 [herein Pezold].
255. Pezold, op. cit., para. 60.
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(Vid Prisian) Labor Provisions in Int'l Investment Agreements - Prospects For Sustainable Development

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(Vid Prisian) Labor Provisions in Int'l Investment Agreements - Prospects For Sustainable Development

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Labor

Provisions in International Investment

Content type: Yearbook articles

A. Sustainable Development and International Labor Standards

B. Normative Framework for Investment-Labor Linkage

1. Labor Rights Derogations

a. The Race to the Bottom Fallacy

b. Nonsystematic Regulatory Distortions

2. Policy Space Concerns

3. Balancing State Commitments with Investor Obligations

Presently, the regulatory framework of corporate social responsibility primarily consists of

4. Normative Consequences and Regime Design

C. Substantive Labor Obligations in International Investment

1. Preventing Labor Rights Derogations

The Parties recognize that it is inappropriate to encourage investment by weakening or

2. Improving Labor Standards and Preserving Policy Space

3. Fostering Compliance by Foreign Investors

and furthermore, that

4. Innovation in Treaty Language – Prospects for Sustainable

D. Implementation, Enforcement and Dispute Settlement

2. Enforcement of Labor Provisions: What Role for Investment-

a. Enforcement of Non-Derogation Obligations

b. Challenges to Host State’s Regulatory Action in Labor Matters

c. Ensuring Foreign Investors’ Compliance with Domestic Laws

d. A Role for Workers?

1. Emergency Committee for American Trade, “ECAT applauds Obama Administration’s

8. United Nations Conference on Environment & Development, “Agenda 21: Programme of

9. World Commission on Environment and Development, “Report of the World Commission on

19. Barral, “Sustainable Development in International Law: Nature and Operation of an

28. Marie-Claire Cordonier Segger, “Sustainable development in regional trade agreements,” in

56. Jonathan Bonnitcha, “Outline of a normative framework for evaluating interpretations of

78. See United Nations Global Compact, available at:

80. See ILO Conventions, available at: http://www.ilo.org/dyn/normlex/en/f?

102. For details, see note 136.

119. Japan-Peru BIT, 2008, op. cit., art. 26.

120. See U.S. BITs available at: http://www.unctadxi.org/templates/DocSearch.aspx?id=779

126. U.S.-Singapore FTA, 2003, op. cit., art. 17.1 (2).

128. U.S.-Uruguay BIT, 2005, op. cit., art. 13(1).

129. U.S.-CAFTA-DR FTA, 2004, op. cit., art. 16.1.

131. Canada-Peru LCA, 2008, op. cit., art. 1(1).

132. U.S.-Korea FTA, 2007, op. cit., art. 19.2.(1).

134. NAALC, 1993, op. cit., art. 1 and annex 1.

145. Trans-Pacific Partnership Agreement, art. 12.15 bis., available at:

146. See European Parliament resolution of 25 November 2010 on corporate social

151. See, respectively, Article 11(1) and Article 11(3).

152. Article 14(2), emphasis added.

153. Article 14(4).

168. NAALC, 1993, op. cit., art. 29.

169. Canada-Peru LCA, 2008, op. cit., art. 13(a).

205. Paushok, op. cit., para. 370.

209. Paushok, op. cit., para. 366.

210. Paushok, op. cit., para. 361.

228. Alasdair, op. cit., para. 52.

229. Fraport, op. cit., para. 397.

246. UPS v. Canada, UNCITRAL, amicus submission—CUPE and “Council of Canadians”

251. International Law Association, op. cit., pp. 213–215.

255. Pezold, op. cit., para. 60.

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