Bilateral agreements Brazilian style
Article by Caio Borges, published in Valor Econômico
Caio Borges*
Known for keeping to the sidelines of the bilateral system for regulating international investments, Brazil recently took a new tack in this field. It signed two so-called Investment Cooperation and Facilitation Agreements – a new model Bilateral Investment Treaty (BIT) – with Mozambique and Angola.
Despite being innovative in terms of institutional governance, the agreements do not strike a balance between protecting the property rights of investors and protecting human rights and the environment. This is cause for concern, especially when we consider that they are supposed to serve as a model for a series of other treaties to be signed by Brazil in the near future.
In this article, I shall analyze three aspects of the treaties: i) political and economic motivations; ii) governance; and iii) corporate social responsibility and human rights clauses.
Concerning the motivations, the agreements fit into the scope of “South-South Cooperation for Development”, a complex form of mutual support between emerging and developing countries that involve – besides private financial flows – public funding, technical cooperation and knowledge exchange. It is based on the principles of equality and mutual benefits, hence the use of the term “facilitation” instead of “protection” of investments.
What is currently driving Brazil to sign these agreements is the growing presence of its transnational corporations overseas, especially in Portuguese-speaking Africa and in Latin America. This situation is not exclusive to Brazil. Today, Foreign Direct Investment (FDI) by countries of the Global South already accounts for 30% of global FDI compared to 4.9% in 1990. According to the Central Bank, the amount of Brazilian FDI increased from US$49.7 billion in 2001 to US$295.4 billion in 2013.
On the subject of governance, the agreements establish two bodies for enforcement, mediation and dispute resolution: the Joint Committee and Ombudsmen. Some controversial issues that prevented the fourteen BITs signed by Brazil in the 1990s from being ratified, given the strong resistance of Congress, were given fresh treatment. One example is arbitration-based dispute resolution, which will only occur now between the States themselves rather than the traditional “Investor-State” mechanism. Investor-State arbitration has been criticized for its secrecy, for inhibiting the “policy space” of States and for the large amounts of money involved. There have been cases of arbitration claims as high as US$114 billion (Yukos shareholders vs. Russia) and convictions of nearly US$900 million (CSOB vs. Slovakia).
But other controversial points, such as the “permitted” expropriations, did not receive any major alterations. The generic exception for “public interest or utility” leaves a wide margin of interpretation for arbiters with a pro-privatization bias. Legitimate public policies, such as pollution emission control, were not fully safeguarded. One alternative would have been to use the clause contained in the International Institute for Sustainable Development’s Model Agreement on Investment. This clause states that measures designed to protect legitimate public welfare objectives, such as public health, safety and the environment, are not considered expropriatory if they are taken in good faith and on a non-discriminatory basis.
Concerning corporate social responsibility (CSR), while the provisions have raised hopes, they also possess weaknesses that could make them innocuous in practice. The soft law language is full of exhortative verbs such as “foster”, “promote”, “encourage” and “support”, which creates legal uncertainty.
The agreements state that investors shall make their “best efforts to comply with voluntary principles and standards for responsible business conduct”. These include “respecting the human rights of those involved in the activities of these companies, in compliance with the obligations of the host State”.
However, such provisions fall short of the highest standards of rights, namely the UN Guiding Principles and the OECD Guidelines. These standards make it clear that companies must use as their regulatory benchmark all internationally recognized rights. In other words, the non-ratification of a treaty by a host State, or its inability to enforce it, cannot serve as an excuse for a company not to adopt its own controls to prevent human rights violations.
What’s more curious is that some of the CSR clauses contained in the agreement with Angola were not included in the treaty with Mozambique. One of them states that companies must “observe legislation regarding health, safety, environment and commercial or industrial labor standards”. Another excluded provision enabled the Joint Committee to invite “representatives of non-governmental organizations to present studies on matters of interest to the parties”.
Brazil’s new model of investment agreement is ambiguous. In spite of advances, such as the creation of more flexible governance, it has also introduced setbacks by making respect for human rights by companies a “voluntary” obligation. Moreover, it leaves little room for participation by civil society.
The agreements will now proceed to the National Congress for approval. It is essential for the commissions of the two houses to hold public hearings. An informed and participatory legislative debate could reduce the democratic deficiencies of the treaties, since in the negotiation stage only the private sector was consulted.
Considering that there is a list of agreements to be concluded, it is important for the “new Brazilian model” to undergo rigorous scrutiny by society so Brazilian investments abroad – and those of other countries in Brazil – can contribute to a truly sustainable development.
Click here to read the original article.
*Caio Borges is a lawyer for Conectas Human Rights and a researcher for the FGV Law School in São Paulo, where he earned his Masters in Law and Development
