Business and Human Rights: Energy and Extractives In A Changing Landscape of New Generation Trade Agreements Protecting and Promoting Both Trade and Human Rights

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[co-author: Mael Clerc, Law Clerk]

Allegations of genocide, forced labour, or widespread abuse of minorities in various countries fill the airspace daily; governments are increasingly paying heed to business practices abroad. In the EU and its member States, new national and Union measures are being discussed; human rights concerns are the subject of disputes under bilateral and regional trade agreements, and there is a push for a global “business and human rights” (BHR) framework.

The renewed concern for human rights in trading relations builds on sparse but robust existing scaffolding. In the public international law sphere, specific provisions of the General Agreement on Tariffs and Trade 1947 (GATT 1947) already addressed prison labor; in the early 1990s, labor and environmental concerns were incorporated in two side agreements of the North American Free Trade Agreement (NAFTA). BHR-compliance has already been an important element of global business positioning for certain market players: the Kimberley Process Certification Scheme (KPCS), for example, set out requirements for controlling rough diamond production and trade, responding to a strategic necessity of a responsible “conflict-free” production of rough diamonds.

The global framework is being reinforced: as a condition of expanded market access, a new generation of trade agreements builds on existing models to put additional emphasis on the interconnection between human rights, conduct of private enterprise, and international trade.

The new emerging paradigm may well pose a challenge to sectors like Energy and Extractives; exploited capably, it could also become a significant distinguishing factor for early movers.

A changing international trade law landscape

“Trade and human rights” is not a recent phenomenon; it finds its roots in slave trade prohibitions starting in the late eighteenth century.[1] After the Second World War, the horrors of the wars of decolonization on the one hand, and the expansion of trade under the auspices of the newly created GATT on the other, were so dissonant that despite the inherent connections of the two disciplines, human rights and trade grew separately and increasingly divergently.

Different disciplines led to different multilateral agreements and institutions. To the practitioners of each discipline, the other was alien, even as each recognized the importance of the other. For instance, with the Declaration on Fundamental Principles and Rights at Work of the International Labour Organization (ILO), states agreed that labour standards should not be used for protectionist trade purposes. In the same vein, legal instruments and institutions of trade law recognized the right of states to legislation for the protection of morals, human health, and in respect of prison labor,[2] and not just in their own territory, but also in respect of the Global Commons.[3]

In the 1980s and 1990s, driven by domestic politics, the two fields began converging. The first steps were tentative, as loose and non-binding human rights language was incorporated in preferential trade agreements (PTAs).[4] Then came the NAFTA.

The NAFTA was the first free trade agreement between developing and developed countries. After the change in the US Administration in 1993, Congress demanded stronger protections for the environment and labor, leading to the Side Agreements with specialized dispute resolution mechanisms. The Side Agreements did not create substantive obligations, but they were among the earliest steps of formally linking trade and human rights in international legal instruments.

A complex new framework hiding opportunities for early movers

The NAFTA proved a watershed.

In the revised Lomé IV Convention (1995), human rights clauses were systematically included in the EU’s trade agreements.[5] It is estimated that over 75% of states have entered into PTAs that have some form of human rights provisions.[6]

The proliferation of human rights provisions in trade agreements signals a new reality of international trade.

The new generation of recently concluded or renegotiated trade agreements incorporate language to protect and promote investment and trade without jeopardizing other public policy goals such as health, safety, environment or labour rights. The international legal framework is complex because the language used is diverse and represents the particular legal framework and the needs of the parties to specific trade agreements.

In some instances, human rights protection is part of the legal framework; in others, references appear to be hortatory.

Even when part of the framework, the language and the form of the provisions vary considerably: some include human rights treaties within the investment treaty’s general provisions on governing or applicable law (e.g., ‘any relevant rules of international law applicable’),[7] some use human rights language in the preamble,[8] whereas recourse to “non-conforming measures” annexes.[9]

According to the UNCTAD as of January 2020, 14 new IIAs were signed in 2019, nine of these 14 of the 10 IIAs with a publicly available text contain preambular text or substantive provisions relevant for human rights such as the CARIFORUM States-United Kingdom EPA, the EU-Vietnam IPA, the Brazil-UAE BIT, the Brazil-Morocco BIT, the Armenia-Singapore Agreement on Trade in Services and Investment, the Australia-Hong Kong Investment Agreement, the Brazil-Ecuador BIT.[10]

Complex, to be sure, and challenging.

And yet, the landscape presents significant competitive opportunities. From a business perspective, exploited capably, this new emerging paradigm could become a significant distinguishing factor for early movers.

Opportunity and promise for the energy and extractive sectors

Popular perception of energy and extractive industries goes through periodic phases of positive (revenues and development) and negative (environmental degradation) views. [11] Each negative cycle brings with it, eventually, national and multilateral regulatory measures that are at first resisted and, eventually, widely adopted. The current drive on human rights is no different.

What is certain is that early movers will be rewarded in at least three ways: they are doing the right thing at the right time; they distinguish themselves having done so; and, by moving early, they shape the business environment.

Responsible business conduct respecting human rights, sustainability, transparency, and incorporating risk-based due diligence is an inexorable positioning strategy for companies and industries to distinguish themselves. By becoming global advocates for Business and Human Rights issues, companies and industries could also seek to ensure a level playing field.

[1] See, e.g., Susan Ariel Aaronson and Jean Pierre Chauffour, The Wedding of Trade and Human Rights: Marriage of Convenience or Permanent Match?, available at: https://www.wto.org/english/res_e/publications_e/wtr11_forum_e/wtr11_15feb11_e.htm.

[2] GATT Articles XX(a), (b), and (e).

[3] Appellate Body Report, WT/DS58/AB/R, adopted 6 November 1998, footnote 24, para. 168.

[4] See, e.g., Simma Bruno, Foreign Investment Arbitration: a place for Human Rights, International & Comparative Law Quarterly , Volume 60 , Issue 3 , July 2011 , pp. 573 - 596 DOI: https://doi.org/10.1017/S0020589311000224.

[5] A.-C. Prickartz, I. Staudinger, ‘Policy vs practice: The use, implementation and enforcement of human rights clauses in the European Union’s international trade agreements’ [2019] 3(1): 2. Europe and the World: A law review [23]. DOI: https://doi.org/10.14324/111.444.ewlj.2019.12.

[6] See, e.g., Susan Ariel Aaronson and Jean Pierre Chauffour, The Wedding of Trade and Human Rights: Marriage of Convenience or Permanent Match?, available at: https://www.wto.org/english/res_e/publications_e/wtr11_forum_e/wtr11_15feb11_e.htm.

[7] See similar or identical language in ICSID Convention art 42(1); North American Free Trade Agreement (NAFTA) art 1131; Energy Charter Treaty (ECT), art 26(6); Association of Southeast Asian Nations (ASEAN) Comprehensive Investment Agreement, art 40(1); JapanMexico Free Trade Agreement, art 84(1).

[8] Preamble of the 2002 Free Trade Agreement between the European Free Trade Association (EFTA) and Singapore.

[9] Annex 10-D of the Free Trade Agreement between Chile and the United States; See also BIT between Japan and Vietnam in 2003 and the Chile-Korea Free Trade Agreement.

[10] Nicholas J. Diamond (Assistant Editor), ‘2019 in Review: International Investment Agreements and Human Rights’, Kluwer Arbitration Blog, February 8 2020, http://arbitrationblog.kluwerarbitration.com/2020/02/08/2019-in-review-international-investment-agreements-and-human-rights/.

[11] OECD (2017), OECD Due Diligence Guidance for Meaningful Stakeholder Engagement in the Extractive Sector, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264252462-en.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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