The Law’s "Majestic Equality": Enforcing Unequal Investment Contracts

“The law, in its majestic equality”, the French author Anatole France cynically noted, “forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.” In international law, the concept of sovereign equality – a central building block of the international legal order enshrined in Article 2 No. 1 UN Charter – guarantees ‘equality before the law’. Lawyers tend to forget the fundamental inequalities that can be enforced through an equal application of the law.

Let’s have a brief look at the field of international investment protection. Liberal supporters of international investment law have pointed out that NAFTA’s Chapter 11 has proven to serve the Mexican interest – and not merely that of United States’ or Canadian companies. Roughly one third of NAFTA proceedings have been initiated by Mexican nationals (cf. http://www.naftalaw.org/).

Such a perspective loses sight of a fundamental underlying problem. Investment treaties serve to protect particular ‘investments’. Such investments are typically contractual arrangements (such as a participation contract or a concession) pursuant to which a developing country grants an investor the right to exploit its natural resources in exchange for a participation fee. Such investments may present the following inequalities:

• The participation fee is extremely low – often as low as 10 to 15%. This raises the question to what extent a people’s right to its natural resources is safeguarded (Article 1 of the Covenant on Economic, Social and Cultural Rights).
• The concession extends over a long period of time, without any possibility of adjustment. A ‘good government’ nowadays remains bound by an unfavorable arrangement agreed to by a ‘bad government’ several decades ago. This may hinder the sustainable development of the area in question.
• The concession relates to areas predominantly populated by indigenous people. This problem is particularly acute in the Amazon region. In disrespect of indigenous minority rights, governments have ‘sold off’ the land to a foreign investor.

Investment arbitration, no matter how equal the application of the investment treaty in question, inevitably serves to enforce such inequalities already present in the investment (see the example of Oxydental Petroleum v. Ecuador). Such inequalities cannot be avoided by a more equitable type of investment agreement (as recently proposed by the International Institute for Sustainable Development). Rather, public attention and pressure needs to focus on the equitable character of the investment itself. A new website called RED LISTED now introduces a platform for monitoring investments in light of the goal of sustainable development.