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*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues by
the Vale Columbia Center on Sustainable International Investment
No. 124 June 23, 2014
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Shawn Lim ([log in to unmask])
*How to enhance labor provisions in IIAs *
*by*
Rafael Tamayo-Álvarez, Maria Alejandra Gonzalez-Perez and Juan David
Rodriguez-Rios* <#146c9947ca632764_146c9918c81fb049_146c986b154b2afc__edn1>
Free trade agreements (FTAs) and international investment agreements (IIAs)
are regarded as instruments to promote world trade, investment flows and
market liberalization. The question, however, is whether they promote
sustainable development as well. This *Perspective* contemplates
incorporating voluntary codes of conduct for multinational enterprises
(MNEs) in IIAs to strengthen the protection of labor rights, “the social
component […] embedded in the notion of sustainable development.”[1]
<#146c9947ca632764_146c9918c81fb049_146c986b154b2afc__edn2>
The link between employment and trade, which dates back to the 1948 Havana
Charter,[2] <#146c9947ca632764_146c9918c81fb049_146c986b154b2afc__edn3>
focuses on two objectives: greater coherence with international standards
aimed at improving workplace conditions and workers’ welfare and the
incorporation of such standards in trade negotiations. However, policy
space concerns and the fact that international standards are still
perceived as protectionism are obstacles to openly including labor
provisions in the trade agenda. Therefore, trade-related promotion of the
highest available international standards has to be achieved through
mechanisms creating market-based incentives on compliance,[3]
<#146c9947ca632764_146c9918c81fb049_146c986b154b2afc__edn4> such as
corporate social responsibility (CSR) codes or fair-trade labeling. The
interaction between employment and investment follows a similar pattern.
Hence the question: should reference to labor rights in IIAs be limited to
eliminating regulatory distortions created to attract capital (i.e., the
“race to the bottom” phenomenon), or should it encourage corporations to
embrace the highest available international standards on fair labor? In our
view, it should be the latter.
Article 13 of the 2012 US Model Bilateral Investment Treaty (BIT) is
devoted to investment and employment. It cross-references the 1998
International Labour Organization (ILO) Declaration on Fundamental
Principles and Rights at Work to reaffirm core obligations embodied
therein, features a “no-lowering-of-standards” provision according to which
parties shall not derogate from labor standards or deliberately fail to
enforce their laws to attract or maintain investments and creates an
inter-governmental consultation mechanism.
References to labor rights in IIAs are aimed at improving employment
conditions and promoting sustainable development. Since employment-related
issues usually arise from the acts or omissions of corporations and not the
total absence of regulation, provisions should focus on MNEs’ activities
instead of just governmental action. Indeed, although ILO core standards
are widely accepted by governments, corporations may be reluctant to
improve employment conditions voluntarily if it only entails costs.
Furthermore, the role of foreign direct investment in promoting fair
employment depends on the ability of host countries to enforce labor
regulation effectively at the highest available international standards
without affecting their allure to investors. IIAs could better contribute
to this if they included provisions that focus on MNE conduct. The
rationale behind this is simple: if investors expect legal security from
host countries, they should have a correlative deference for national
interests in promoting sustainable development through labor rights
enforcement.
There are multilateral instruments that address employment issues from a
corporate perspective. Among these are the ILO’s Tripartite Declaration of
Principles Concerning Multinational Enterprises and Social Policy and the
Employment and Industrial Relations chapter of the OECD Guidelines for
Multinational Enterprises. They are both focused on issues arising directly
out of MNE conduct. For instance, the Tripartite Declaration underlines
duties for MNEs operating in developing countries, encourages increasing
employment opportunities and urges MNEs to consider host country policies
regarding employment.
Although neither instrument is mandatory, MNEs may have a market-based
incentive to embrace fair labor as a matter of CSR. Therefore, while IIAs
cannot impose binding obligations on MNEs, incorporation[4]
<#146c9947ca632764_146c9918c81fb049_146c986b154b2afc__edn5> of the content
of the Tripartite Declaration and the Guidelines into IIAs or the
investment chapters of FTAs can successfully exhort investors to adhere
voluntarily to the highest available international labor standards.[5]
<#146c9947ca632764_146c9918c81fb049_146c986b154b2afc__edn6> Therefore, we
favor the approach taken in Canada’s FTAs with Peru (2009) and Colombia
(2011)[6] <#146c9947ca632764_146c9918c81fb049_146c986b154b2afc__edn7> over
the approach taken in the 2012 US Model BIT.
*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Rafael Tamayo-Álvarez, Maria Alejandra
Gonzalez-Perez and Juan David Rodriguez-Rios, ‘How to enhance labor
provisions in IIAs,’ Columbia FDI Perspectives, No. 124, June 23, 2014.
Reprinted with permission from the Columbia Center on Sustainable
Investment (www.ccsi.columbia.edu <http://www.ccsi.columbia.edu>).” A copy
should kindly be sent to the Columbia Center on Sustainable Investment at
[log in to unmask] <[log in to unmask]>.*
------------------------------
* Rafael Tamayo-Álvarez (LL.M.) ([log in to unmask]) is Professor of
International Trade Law at Universidad Jorge Tadeo Lozano, Colombia, and a
legal consultant; Maria Alejandra Gonzalez-Perez (PhD, MIB) (
[log in to unmask]) is Full Professor of Business at Universidad EAFIT,
Colombia; Juan David Rodriguez-Rios ([log in to unmask]) is Master of
Public Policy candidate at National Graduate Institute for Policy Studies
in Japan. The authors are grateful to Stephen Pursey and two anonymous
reviewers for their helpful peer reviews. *The views expressed by the
authors of this Perspective do not necessarily reflect the opinions of
Columbia University or its partners and supporters. Columbia FDI
Perspectives (ISSN 2158-3579) is a peer-reviewed series.*
[1] *See* Vid Prislan and Ruben Zandvliet, “Labor provisions in
international investment agreements: Prospects for sustainable
development,” *Yearbook of International Investment Law and Policy
2012/2013*, forthcoming, also available at http://ssrn.com/abstract=2171716.
[2] <#146c9947ca632764_146c9918c81fb049_146c986b154b2afc__ednref3> Article
7 on Fair Labour Standards.
[3] <#146c9947ca632764_146c9918c81fb049_146c986b154b2afc__ednref4> As
compliance is rewarded by consumers' preferences. *See* US – Measures
Concerning the Importation, Marketing and Sale of Tuna and Tuna Products,
WTO Panel Report, WT/DS381/R, para. 7.289,
http://www.wto.org/english/tratop_e/dispu_e/381r_e.pdf.
[4] <#146c9947ca632764_146c9918c81fb049_146c986b154b2afc__ednref5> Either
by cross-reference, appendage or commitment by the contracting states to
pass internal regulation. *See* UNCTAD, *International Investment
Agreements: Key Issues*, vol. II (2004), available at http://www.
unctad.org/en/docs/iteiit200410v2_en.pdf.
[5] <#146c9947ca632764_146c9918c81fb049_146c986b154b2afc__ednref6> Other
examples of international instruments with codes of conduct for MNEs are
the UN Global Compact, the UN Draft Code of Conduct on Transnational
Corporations, the SA8000 Certification, and the Accord on Fire and Building
Safety in Bangladesh.
[6] <#146c9947ca632764_146c9918c81fb049_146c986b154b2afc__ednref7>
*See *Articles
810 and 816, respectively.
*The material in this Perspective may be reprinted if accompanied by
the following acknowledgment: “Rafael Tamayo-Álvarez, Maria Alejandra
Gonzalez-Perez and Juan David Rodriguez-Rios, ‘How to enhance labor
provisions in IIAs,’ Columbia FDI Perspectives, No. 124, June 23, 2014.
Reprinted with permission from the Columbia Center on Sustainable
Investment (www.ccsi.columbia.edu <http://www.ccsi.columbia.edu>).” A copy
should kindly be sent to the Columbia Center on Sustainable Investment at
[log in to unmask] <[log in to unmask]>.*
For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Shawn Lim, [log in to unmask] or [log in to unmask]
The Columbia Center on Sustainable Investment (CCSI), a joint center of
Columbia Law School and the Earth Institute at Columbia University, is a
leading applied research center and forum dedicated to the study, practice
and discussion of sustainable international investment. Our mission is to
develop and disseminate practical approaches and solutions, as well as to
analyze topical policy-oriented issues, in order to maximize the impact of
international investment for sustainable development. The Center undertakes
its mission through interdisciplinary research, advisory projects,
multi-stakeholder dialogue, educational programs, and the development of
resources and tools. For more information, visit us at www.ccsi.columbia.edu
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*Most recent Columbia FDI Perspectives*
<http://columbia.us6.list-manage1.com/track/click?u=ab15cc1d53&id=4e3c1d51ec&e=6eb58d0cae>
- No. 123, James Nicholson and John Gaffney, “Cost allocation in
investment arbitration: Forward toward incentivization,” June 9, 2014.
- No. 122, Miguel Pérez Ludeña, “The rise of FDI income, and what it
means for the balance of payments of developing countries,” May 26, 2014.
- No. 121, Karl P. Sauvant and Victor Z. Chen, “China needs to
complement its “going-out” policy with a “going-in” strategy,” May 12, 2014.
- No. 120, Jeremy Caddel and Nathan M. Jensen, “Which host country
government actors are most involved in disputes with foreign investors?”
April 28, 2014.
- No. 119, Rainer Geiger, “The Transatlantic Trade and Investment
Partnership: A critical perspective,” April 14, 2014.
*All previous FDI Perspectives are available at *
*http://ccsi.columbia.edu/publications/columbia-fdi-perspectives/*
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Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Columbia University
435 West 116th Street, Rm. JGH 645
New York, NY 10027
Ph: (212) 854-0689
Fax: (212) 854-7946
Please visit our website - http://www.ccsi.columbia.edu
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For Karl P. Sauvant and Federico Ortino, *Improving the International
Investment Law and Policy Regime: Options for the Future*, and Karl P.
Sauvant and Victor Zitian Chen, "China's regulatory framework for outward
foreign direct investment,"*China Economic Journal*, vol. 7 (2014), pp.
141-163, see the Center's website.
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