Certain clauses are included in trade agreements in order to protect foreign investors from measures adopted by a State that could be considered as a form of expropriation. However, there is an explicit exception in investment protection clauses when the measures taken by the State are justified by public interest objectives such as environmental protection, safety or public health. These clauses are often controversial as they allow investors to sue the host State, a sovereign actor, and States may be reluctant to adopt social measures for fear of being sued by foreign investors. In principle, an investor could attempt to sue a State following the adoption of labour rights laws on the basis that such laws constitute a form of indirect expropriation impacting its profit margins.
Investments under the CETA
CETA’s trading partners adopted a joint interpretative instrument on the agreement that is being perceived as more progressive than the agreement itself, mainly because it responds to civil society’s concerns. Its dispute settlement mechanism has been the subject of controversy due to the power granted to investors to pursue States, before an investment arbitration panel, when adopting policies and legislation on social issues. For some, certain social gains could be weakened by the original text of the agreement, therefore, its interpretative declaration offers certain guarantees to companies in relation to those gains. There is concern that this instrument may be forgotten once the agreement enters into force and governments have been urged to either incorporate its provisions directly into the text of the agreement, or to add the interpretative instrument as a part of the agreement to provide it with the same legal force.
Ways to rebalance workers’ rights and investors’ rights
- Mentioning explicitly that labour laws cannot be considered as measures of indirect expropriation. Recent agreements provide a (non-exhaustive) list of legitimate public interest objectives. Adding workers’ rights into this list would ensure that the adoption of new legislation on workers’ rights is not considered as a measure of indirect expropriation.
- Affirming that labour laws are of public interest and that no further action is necessary. In this way, the State will strengthen an open concept of public interest allowing it to evolve and adapt to changing circumstances, while understanding that labour laws are legitimate objectives of public interest.
- Rethinking the idea of «indirect expropriation» in investor protection clauses. Investors should understand that market risks are not only economic but also social. In that sense, the host State will have the power to take measures and adapt itself to changing circumstances, even if they might affect its fiscal, economic and working environment.
- Keeping the investor protection clause and withdrawing the dispute settlement procedure. Foreign investors should file complaints within their government of origin rather than pursue the host State directly, like in other chapters.
- Allowing civil society to initiate proceedings when measures and/or investments are detrimental to the rights of workers. Investor protection clauses should recognize the right of the State to adopt measures protecting the public interest, at the same time, civil society should have the right to initiate proceedings against foreign investors whose activities weaken or threaten the rights of workers.