ILA Reporter | 13 April 2021
Interview with Nicolás M. Perrone: Investment treaties and the legal imagination
International investment law has been facing an increasing amount of negative publicity of late. Its detractors maintain that investment treaties constrain state regulatory space, affecting human rights and environmental measures, and exclude local communities from participating in decisions affecting them. On the other hand, proponents of investment treaties claim that they are necessary to facilitate development and that investment arbitration strikes a fair balance between investor rights and the public interest. In his monograph Investment Treaties and the Legal Imagination, recently published by Oxford University Press, Dr Nicolás Perrone contributes a historical perspective to this debate. Under the international investment law regime, foreign investors enjoy a privileged position; they have strongly enforceable rights, but no obligations. Perrone shows that the unusual status of foreign investors in international law is no accident, but rather the result of a “world-making project realized by a coalition of business leaders, bankers, and their lawyers in the 1950s and 1960s”. This world-making project, which is still alive and well in the legal imagination of investment lawmakers and practitioners today, maintains the power of corporate actors while silencing and making invisible those who are affected by investment projects.
Dr Perrone is a Research Associate Professor at Universidad Andrés Bello, Chile, and has previously taught at Durham University and Universidad Externado de Colombia. Dr Perrone has been Visiting Professor at Universidad Nacional de San Martín, the International University College of Turin, and Università del Piemonte Orientale, a faculty member of the Institute for Global Law and Policy (Harvard Law School) and a Visiting Lecturer at Xi’an Jiaotong School of Law. Dr Perrone has also consulted for the OECD and worked as a legal fellow for UNCTAD.
Dr Perrone joined Assistant Editor Stephanie Triefus for a conversation about his monograph and how academics and policymakers should reflect on the legal imagination of investment law as they engage in reform of the international investment law regime.
ST: What are some of the problematic aspects of international investment treaties that prompted you to undertake this study?
NP: Thank you for your question, and for hosting this interview. I always had a sense that international investment law was about more than the specific investor-state dispute settlement (ISDS) cases. I am from Argentina and when I was in my twenties there were a lot of cases arising from the financial crisis, and I got the intuition that there is more at stake than just winning or losing. To me investment law was about the reorganisation of the government as part of a project in which foreign investment plays a very specific role in governance, and the way we see economic relations not only between states or states and investors, but involving the entire population. When I started my PhD, investment law scholarship was about the right to regulate and proportionality; the belief that if we find the right balance and get the right interpretation then everything will be fine. This line of argument remains very influential, by the way, although there is no such clear formula as decades of the discussions on US Takings Law show.
So there were very important distributive and normative questions at stake, but nobody was taking into account what was happening on the ground – there were other rights involved, individual and community rights. If we look at investment law as just the tension between the right to regulate and foreign investor rights, it’s like there is nothing else there, no other actors, no other rights. But when you start looking at the situation on the ground you see that states most of the time are promoting the investment, whereas the unprotected rights are those of local groups. Most of the time these communities don’t want to get a piece of the cake, they just want things to be organised differently, and that was completely out of the spectrum. I thought that the way people were thinking about investment law was very narrow and minimal whereas the consequences of investment were much broader.
ST: Could you describe what you mean by ‘the legal imagination’?
NP: The notion of legal imagination is quite important for the book because I was trying to hit at something that is neither the worldmaking project of the norm entrepreneurs, nor how lawyers talk about law before an ISDS tribunal. I’m inspired by Charles Taylor’s idea of social imaginaries – a broader concept than legal imaginaries. Taylor talks about how the way we think about things affects the way society is organised. He focuses on the parameters within which people imagine their social existence. The legal imaginary sits in the mess of things between the idea of a grand narrative (such as capitalism) and the dry way in which lawyers talk about the law in everyday practice. It’s the way in which lawyers and norm entrepreneurs were thinking about how investment law should be organised, having in mind the worldmaking project they had – which was about empowering multinational corporations and promoting foreign investment as the best thing that could ever happen to an economy. According to this worldmaking project, a world governed by business would be a better world. So for example, the lawyers were talking about undertakings and indirect expropriation not only as mechanisms to resolve a dispute, but also as a means to organise the way foreign investors and states relate to each other.
Particularly in the Abs-Shawcross Draft, foreign investors and states don’t relate to each other the way that most people go into a country – i.e. by accepting the rules of the country. Rather, for an investment they relate through a contract or through a transaction, even if there is no specific contract – and this, for me, was key to their way of thinking. An investor wants to invest in a state, the state gives them a representation, those representations count as an undertaking, which is a broader idea than a contract – they relate, generally speaking, through a transaction, even when there is no contract. For lawyers, the fact that there is a transaction moves us to the imagination of contracts, implied contracts, legitimate expectations and reliance. So for me, that’s not just a pattern of interpretation, they were talking in these legal terms because they wanted to have impact in real life, to reorganise and consolidate how states and foreign investors were talking to each other. This symbol of the transaction is not just a pattern of interpretation to resolve a particular case, it was a way in which we would organise foreign investment relations, it’s in the background when arbitrators are resolving cases. If you read most ISDS awards, the facts of the dispute are couched in transactional terms.
The legal imagination is something that you can identify through analysis of historical archives and documents, but I’m not so sure it can be empirically tested. It is a condition of possibility of making certain things happen in the real world and that’s why ideas and practice are very important to make the legal imagination have a solid impact on practice – to try to use it as a mechanism to make the world making project possible, so to create a condition of possibility for that worldmaking project, in which businesses and particularly multinational corporations operating in the natural resource sector relate to states as equals through transactions.
ST: In your book you discuss the Philip Morris v Uruguay arbitration, which is similar to the claim brought against Australia by Philip Morris via the Australia-Hong Kong BIT. The current Australian government is not concerned about ISDS because Australia ‘won’ this arbitration, and so continues to favour ISDS in its review of its investment agreements. What does the reasoning in these awards tell us (or conceal) about how investment arbitrators conceive of the state’s right to regulate?
NP: There is a document from the Cologne Society from around 1956 or 1957 that was submitted to the World Bank, that was saying that state regulation is very dangerous, and we should be careful about it. But then when more lawyers got involved, they were more nuanced, saying that of course the state needs to regulate, regulation is totally fine – the American Bar Association was saying that certain regulations are fine, but other regulations go too far. Something that they were very interested in back then was to make it impossible for Global South governments to expropriate when a provision prohibiting nationalisation was included in concession contracts. So they wanted to interpret a contract in a way that could trump states’ right to expropriate, even if that right was part of customary international law and enshrined in the General Assembly Resolution on Permanent Sovereignty over Natural Resources. So it’s not always obvious which regulation is the one that they want to prevent or make more difficult to implement. It depends on corporate needs, existing public policy and, of course, lawyers’ creativity.
For me a good example is the environmental cases. These disputes represent a struggle over the definition and purpose of the environment; nobody really questions that we should take care of the environment. Take Thomas Wälde, the well-known investment scholar and arbitrator, he would characterise environmentalists as using the environment as a Trojan horse to attack globalisation. Investment law is creating a sense of what the environment is, which is a source of natural resources. In Glamis Gold v USA, the US defended itself by saying they were striking a balance between the rights of the Indigenous peoples, the environment and the foreign investor, and the Tribunal said that’s really good, this is how things should be done. The rights of the foreign investors and the environment are on the same level. That means, in the context of a climate emergency, we are putting everything at the same level – but we need to change our priorities. The environment is not negotiating with the state, having meetings with public officials, it is not getting representations. Indigenous communities are not getting representations either. The only ones who do that are foreign investors. Whenever you are doing a proportionality analysis, balancing things, this is what you’re balancing against: in the background, there is a way in which foreign investment operates, which is this transactional model, and it’s also the meaning that investment law gives to things like the environment.
Businesses will accept some regulation, I agree with that, but the problem is when governments want to do something more exciting, be more experimental, really want to care about the climate emergency. That’s a little bit too complicated for investment law. As long as it’s a balanced, proportionate way of regulating, it’s fine. Some would say that as long as we define proportionality in the right manner then maybe it’s not that big of a deal. The problem is that we have these tribunals operating against this transactional model, and they define what the environment is through global expertise and scientific evidence. This second aspect is very important as well. Something quite similar happens elsewhere in international economic law – governments need to show that they are operating by rational, reasonable standards that are based not on their political views about how the world should be organised, but about their technical views about the negative or positive effects of certain things.
So governments and the population cannot say ‘we don’t want this’, they have to say ‘these cause negative implications for the environment and if you balance the negative implications against the rights of the investors then we can do X or Y’. This leads to cases like Phillip Morris, because if you look at the way the case is decided, you see that Uruguay is relying on what the World Health Organization (WHO) and the Pan-American Health Organization were saying; the tribunal was very deferent to the idea that there is a global consensus that tobacco is a problem. But the global consensus that tobacco is a problem did not translate into the idea that whatever Uruguay is doing fine, it translated into the idea that whatever Uruguay is doing that the WHO told Uruguay to do is fine.
There is some space for divergence, and I think the plain packaging case shows how far you can go. But it doesn’t operate the other way around. When states are giving incentives and benefits for new investment projects – they don’t need technical evidence, or the World Trade Organization saying it’s the right thing to do. Excessive incentives may create more problems than solutions for host countries; yet, their legality, legitimacy or appropriateness are not discussed by international investment law literature. So you see the sort of mechanism in which this transactional way operates for foreign investors and states. Incentives are loosely or not regulated, but measures to promote public interests are disciplined by investment treaties and ISDS.
I am frustrated with the way that we govern foreign investment. This goes beyond investment treaties and ISDS, but to some extent we are kind of stuck with investment treaties and ISDS, governing foreign investment through the lens of ISDS and investment treaties. So you get human rights people going into international investment law as opposed to the investment people going into the human rights system – we are trapped in this canon of imagination and it’s difficult to break it. Whether you win or lose the case is just an anecdote in that systemic sense.
ST: While the purpose of the book is not to propose an ideal model to govern foreign investment relations, you do offer some comments on how the debate should move beyond the current binary discussion either rejecting or approving of investment treaties and ISDS. What is problematic about the current debate and how do you propose to move forward?
NP: So if you look at the way the norm entrepreneurs operated, they thought up a different investment law – there was some investment law there, but the parts they didn’t like they imagined something different. They created an investment treaty model, they wanted to have it multilaterally and took it to the OECD. When that didn’t work, governments started signing bilateral investment treaties, and they took what they could get. So they wanted the law to evolve, but they also wanted to change it. And they were looking at the rights of investors as a key element to produce a transformation. It’s interesting because the New International Economic Order was not doing something so different – it was saying we need to look at the rights of states differently, to evolve and change the law. So there was a bit of a competition there, of different projects.
My critique to some critics is that there is a bit of a vacuum – there are no alternatives. I think alternatives are very important here, in the sense that you need to have options. What the norm entrepreneurs did in the 1960’s was give us a lesson, which is that even if it was against the canon of the moment, they kept talking about it. And I think we should talk more about how things could look different. It’s a question of triggering an important conceptual shift. So in the conclusion of the book, I say we should move from investments to social relations; at the moment everything is focused on the idea of investments. We could think about investment law in a completely different way if we focused on the social relations that particular investment projects create. Then investment law should have a mechanism, or an imagination, that is capable of dealing with everything that is happening there, at the local, national and global level.
For me it’s not just about having the best possible critique, we should also try to turn that critique into alternatives. I agree that states are not necessarily going to accept it today, but that’s fine – it took 30 years before the Abs-Shawcross model became the global standard. And for me, thinking about alternatives will be fun – it will be fun to stop thinking about fair and equitable treatment and expropriation and bilateral treaties, to sit down and think about things differently. For instance, we could have an international organisation dealing with foreign investment, where states are the only members and investors don’t have a voice, they speak through states. We could think about re-implementing the need for exhaustion of domestic remedies and saying that the only cause of action is denial of justice, and arbitrators will have to interpret not just domestic law and international law but also the decision of the national judges, which would bring into account whatever is happening socially in the country. I may not like the opinion of particular national judges, but at least they were appointed through the institutional mechanisms of the community and represent the way some people in that community think about the law and values. And that would be a very different system to what we have today – and not the system that the norm entrepreneurs wanted because they wanted a system that would give foreign investment a very special status in the economy.
I would love that kind of conversation but it is difficult to get it at a policy level because governments don’t seem to be very interested, but maybe there is space for that, and that’s the call of the book at the end – to see whether we can think more creatively about international investment law and forget for a while the investment treaty law. We can think about international investment law in many different ways, but investment treaty law really narrows down our canon of imagination.
The ILA Reporter thanks Dr Perrone for his time.
Stephanie Triefus is a PhD Candidate at Erasmus University Rotterdam in the field of human rights and international investment law and an Assistant Editor of the ILA Reporter.