College of Law and Governance

Term paper; on seminar course Assignment.

Title;- Human Right and Labor issues in Investment Treaties.
-

By: Mesfin Niguse. ID No. 01621/06

Submitted to: Muhammed Kebie (LLB, LLM)

October, 2016.
Human right and labor issues in Investment Treaties

Abstract
Today foreign direct investment (FDI) has become one of the ways of
development to countries economy. To this end, to attract the flow of
investors to their country one of the means or the tool of competition among
countries is Bilateral Investment treaties (BITs).This is done by making low
standard of Human Right and labor Right practices in their BITs by offering
broad and legally enforceable protection to investors.
Thus, in one hand BITs with low standard of human Right and labor right
practices favored in attracting more investors to poor countries as some
writers argue, and on the other hand, others oppose that as it worsens
human right and labor right of the citizens.
In this paper the writer analyzes the existing literature review on documents
written by scholars and previous writers on this debatable issue, and finally
reached to the findings that BITs with low standards of Human Right and
labor rights Worsens human Right and labor right of the citizens. At the end,
the writer recommended the possible suggestion to the identified problem.

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Acknowledgement
Thanks to Almighty God! Next, my appreciation goes to Instructor
Muhammed kebe, who instructed me in this course in an attractable manner
and gave such an assignment which helps me to further explore and widen
my understanding in seminar course.

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Acronyms
FDI----------Foreign Direct Investment

BITs---------Bilateral Investment Treaties

FCN---------The Friend ship, commerce and Navigation Treaty

GATT--------General Agreement on Tariff and Trade

WTO---------World Trade Organization

ITO-----------International Trade Organization

NAFTA-------North American Free Trade Agreement

EU-------------European Union

ILO------------International Labor Organization

IFC------------International Finance Corporation

OECD---------Organization for Economic Cooperation and Development

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 Table of contents

Contents
Human right and labor issues in Investment Treaties.................................................1
Abstract...................................................................................................................... 1
Acknowledgement...................................................................................................... 2
Acronyms.................................................................................................................... 3
Table of contents........................................................................................................ 4
CHAPTER ONE............................................................................................................. 5
1. INTRODUCTION.................................................................................................... 5
1.1. What are Human Rights?...............................................................................6
1.2. What is Labor Right?...................................................................................... 6
2.3. What are Investment Treaties?.........................................................................7
CHAPTER TWO............................................................................................................ 8
1. THEORETICAL LITRETURE REVIEW.......................................................................8
1.1. Human right and Labor right Issues in Investment Treaties...........................8
2.2......................................................................................................................... 11
CHAPTER THREE....................................................................................................... 11
3. Conclusion and Recommendations....................................................................11
3.1. Conclusion.................................................................................................... 11
3.2. Recommendations.......................................................................................... 12
References................................................................................................................ 13

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CHAPTER ONE

1. INTRODUCTION
The concern of Human Right and Labor issues in investment treaties are
becoming a crucial issue for countries to strike the balance between; in
attracting Foreign Direct Investment to be the source of capital and as one of
the base for sustainable development to one country in one hand, and to
protect the human Right and labor right of countries citizens on the other
hand.

Developing Countries to attract the inflow of investors in their BITs include

low Human Right and Labor right standards. This issue has supported by
some writers as it attracts much needed capital to poor countries, others
argue that, the favorable treatment given to foreign investors through BITs
can worsen human rights and labor right practices of states. It is these two
contending views that the writer of this term paper bases to search for,
weather low human right and labor right standards in the BITs worsen human
Right or not?. To analyze this, the paper is divided in to three chapters; in
chapter one, definition and an overview of Human Right, Labor Right, and
Investment Treaties will be discussed. In Chapter two, the related theoretical
precedent Literatures which were deal on human Right and labor issues will
be reviewed.

Finally, Chapter Three contains the recommendations and conclusions. The

entire sections of the study are comprehensively concluded in this part. The
summarized part of the research will be followed by recommendations, which
could be helpful to solve the identified problem.

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 1.1. What are Human Rights?
Human rights are refers to the concept of human beings as having universal
rights, or status, regardless of legal jurisdiction or other localizing factors,
such as ethnicity and nationality. In the other hand, human rights are moral
principles or norms that describe certain standards of human behavior, and
1
are regularly protected as legal rights in national and international law.
They are commonly understood as inalienable fundamental rights to which a
person is inherently entitled simply because she or he is a human being, and
which are inherent in all human beings regardless of their nation, location,
language, religion, ethnic origin or any other status.2 They are applicable
everywhere and at every time in the sense of being universal, and they are
egalitarian in the sense of being the same for everyone. They should not be
taken away except as a result of due process based on specific
circumstances, and require freedom from unlawful imprisonment, torture,
and execution.

1.2. What is Labor Right?

Labor Rights are a group of legal Rights and claimed human Rights having to
do with labor relations between workers and their employers, it is obtained
under labor and employment law.3 Some of these rights are exercised
individually and others collectively. One of the most central of these rights is
the right to unionize in order to take advantage of collective bargaining and

1From Wikipedia, the free encyclopedia, Available at https://en.wikipedia.org/wiki/Human_rights

[ accessed on October 19,2016]

2 Id.

3 From Wikipedia, the free encyclopedia, Available at https://en.wikipedia.org/wiki/Labor_rights

[accessed on October 19,2016]

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industrial action to increase their members right. 4 These rights include a
right to work in a job freely chosen, a right to fair working conditions, which
may encompass issues as diverse as a just wage or protection of privacy; a
right to be protected from arbitrary and unjustified dismissal; a right to
belong to and be represented by a trade union and a right to strike.

2.3. What are Investment Treaties?

A bilateral investment treaty (BIT) is an agreement establishing the terms
and conditions for private investment by nationals and companies of one
state in another state. This type of investment is called foreign direct
investment (FDI). BITs are established through trade pacts. A nineteenth-
century forerunner of the BIT is the friendship, commerce, and navigation
treaty (FCN).5

Most BITs grant investments made by an investor of one Contracting State in

the territory of the other a number of guarantees, which typically include fair
and equitable treatment, protection from expropriation, free transfer of
means and full protection and security. 6 The distinctive feature of many BITs
is that they allow for an alternative dispute resolution mechanism, whereby
an investor whose rights under the BIT have been violated could have
recourse to international arbitration, often under the auspices of the ICSID
(International Center for the Settlement of Investment Disputes), rather than
suing the host State in its own courts.7
4 Id

5 From Wikipedia, the free encyclopedia, Available at Available at

http://en.wikipedia.org/wiki/Bilateral_investment_treaty [ accessed on October
21,2016]

6 Id.

7 Id.

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CHAPTER TWO

1. THEORETICAL LITRETURE REVIEW

1.1. Human right and Labor right Issues in Investment
Treaties
The integration of global goods and services markets facilitated first by the
General Agreement on Tariffs and Trade (GATT) and subsequently by the
World Trade Organization (WTO) is correlated with economic prosperity and a
fall in poverty.8 Nevertheless, news of labor and human-rights violations in
global-supply chains abound. Violations of the most egregious sort such as

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human trafficking, child enslavement, mortally hazardous conditions of work,
verbal and physical abuse, exhausting hours of work, nonpayment of wages,
etc. are common occurrences.9

The establishment of international labor standards linked to market access

within the WTO is among the proposals intended to remedy the gross
violations of labor and human rights that accompany international trade and
investment.10 Yet, the WTO Charter and, previously, the GATT are virtually
silent on the potential inhumanity of globally integrated goods and services
markets.11 The only labor standard currently in the WTO Charter is embedded
in Article XX (e), permitting member nations to prohibit imports of goods
produced by prison labor.12

Following the failure of the International Trade Organization (ITO) which

covered labor standards, the international harmonizations of labor standards
were removed to the United Nations, even though the International Labor
Organization, which had been established in 1919, was designed for this
purpose. The Universal Declaration of Human Rights of 1948 was adopted by
the U.N. General Assembly without dissent. As noted in OECD (1996), the
Declaration provides for: civil and political rights (the right to life, liberty, freedom from
torture, freedom of opinion and expression, freedom from slavery and servitude, right to peaceful

8Robert M. Stern: International Labor Standards; ILO; WTO; Effects on Trade and Investment,August 19,
2011,pp. 1

9 Id.

10 Id.

11 Id.

12 Id.

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assembly and association) and economic, social and cultural rights (right to join and form trade
unions, right to work, right to equal pay for equal work, right to education).13

Following the failure of the International Trade Organization (ITO) which

covered labor standards, the international harmonizations of labor standards
were removed to the United Nations, even though the International Labor
Organization, which had been established in 1919, was designed for this
purpose. The Universal Declaration of Human Rights of 1948 was adopted by
the U.N. General Assembly without dissent. As noted in OECD (1996), the
Declaration provides for: civil and political rights (the right to life, liberty, freedom from
torture, freedom of opinion and expression, freedom from slavery and servitude, right to peaceful
assembly and association) and economic, social and cultural rights (right to join and form trade
unions, right to work, right to equal pay for equal work, right to education).14

The WTO charter establishes some of the terms limiting the use of
preferential trade agreements, there are no restrictions on conditionality
relating to labor standards and enforcement for countries invoking Article
XXIV or the Enabling Clause.15

The practice of imposing minimum conditions of work in trade agreements

emerged in legislation establishing the 1983 Caribbean Basin Economic
Recovery Act (USA), the 1984 renewal of the US GSP, and the 1988
Community Charter of the Fundamental Social Rights for Workers, ultimately
adopted by all European Union (EU) members. 16 The U.S. GSP Renewal Act of
1984 specifically sought to protect: (1) the right to freedom of association,

13 OECD, 1996

14 OECD, 1996

15 Hoekman and zden (2005)

16 Id.

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(2) the right to organize and bargain collectively, (3) a prohibition on the use
of any form of forced or compulsory labor, (4) a minimum age for the
employment of children and (5) acceptable conditions of work with respect to
minimum wages, hours of work, and occupational safety and health.17

More terms have been included in the North American Free Trade Agreement
(NAFTA) and the U.S. Trade Agreement with Jordan (2001). 18 Under the terms
of the Jordan-U.S. FTA, each country has the right to challenge the partners
protection of labor rights.

More expansive terms have been imposed through conditions in the

European Union (EU) GSP.19 The EU GSP requires the ratification and
implementation of the ILOs Fundamental Rights at Work: (1) freedom of
association and collective bargaining, (2) elimination of forced labor, (3)
eradication of child labor, and (4) abolition of discrimination. GSP
beneficiaries are subject to supervision through the standard enforcement
mechanisms of the ILO member state reports and tripartite reports of
noncompliance.20

The ILO and the International Finance Corporation (IFC) jointly agreed to
extend Better Factories Cambodia into a global program in 2006. The ILO/IFC
Better Work Program, inaugurated in 2008, establishes labor standards in
eight areas: child labor, forced labor, freedom of association and collective

17 GSP Renewal Act of 1984, Pub. L. No. 98-573, 98 Stat. 3019 (1984).

18 Id.

19 Supra note 7.

20 Ibid.

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bargaining, discrimination, contracts, compensation, occupational safety and
health, and work hours.21

2.2. BITs and Human Rights

A great deal of informal polemics has seen in the last two decades on
whether the global investment regime and, more specifically, BITs harm
human rights. Particularly human rights organizations are vocal about the
effect of BITs on governments policy autonomy to create social peace and
justice.22

BITs include both provisions that guarantee investor rights and mechanisms
for investors to legally enforce such provisions.23The key contention is that
BITs have the potential to harm human rights practices because they lock-in
conditions attractive to investors, both retrospectively and into the future. 24
This means, as many developing countries predominantly attract vertical FDI
and Compete for investment and Trade, BITs lock in the initial conditions

21 Id.

22 Forexample,humanrightsNGOsopposedtheMultilateralAgreementonInvestmentnegotiated
inthelate1990sbytheOECD(Peterson2009).NGOsalsoexpressconcerninindividual
BITsnegotiations,asforexampletheUKColombiaBITortheUSIndiaBIT.( CristinaBodea,
Fangjin Ye,
MichiganStateUniversity)

23 Evenifinvestorshaveextensivelegalprotection,statesstillbreakcontractswith
multinationalenterprises(Blake2013,AlleeandPeinhardt2011,Wellhausen2015)

24 Bilateral Investment Treaties (BITs): The global Investment regime and Human
Rights.(cristina Bodea,Fangjin Ye, Michigan State University)

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favorable to investors on issues ranging from environmental regulations to
labor standards and welfare spends.25

CHAPTER THREE
3. Conclusion and Recommendations

3.1. Conclusion
Currently Foreign direct investment (FDI) has become a key economic flow in
the global economy. Due to this, countries to achieve their pursuit of
development consider FDI as an important contributing factor. To this end
countries have ratified a large number of Bilateral Investment treaties (BITs).
On Bilateral Investment treaties there are different views, some argues that
BITs channel much needed capital to poor countries (Leo 2010). On the other
hand, others fear that the favorable treatment given to foreign investors
through BITs can worsen the environmental or human rights practices of
states (Peterson and Gray 2003).
But, as the findings and view of the writer of this term paper argument; due
to the broad and legally enforceable protection given to investors by bilateral
investment treaties worsens the Human rights practices of developing
countries. The reason is, despite the presence of emerging to include human
right and labor right provisions in BITs in some countries, most developing
countries BITs lock-in initial conditions attractive to investors that tend to be
linked to vertical investment flows and trade competition, and include low
human right standards and labor rights.

3.2. Recommendations
As the findings in the concluding section of the paper, the broad and legally
enforceable protection given to investors by bilateral investment treaties
worsens the Human rights practices of developing countries. Hence this is

25 Id

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the cause of the problem; possible policy implications can be inferred and
recommended for government and policy makers of countries in order to
curb the problem or at least to minimize its negative impact. To this end, the
following are suggested possibilities;
The enactment of strong Human Rights and labor laws and
Regulations so as to be included in the BITs with its effective
enforcement mechanisms.
Creating awareness to citizens about human right and labor right to
ask and defend for his/her right.
Government should work with NGOs which work on human Right and
labor issues.
Investment decisions in human Right and labor right connected
issues should be weighted by the cost and benefit effects in the long
run effect, rather than only by short run effect.
Develop a continuous Human Right and Labor right issues
assessment and inspection to firms after establishment with in a
limited time.

References
1. From Wikipedia, the free encyclopedia, Available at
https://en.wikipedia.org/wiki/Human_rights [ accessed on October 19,2016]
2. From Wikipedia, the free encyclopedia, Available at
https://en.wikipedia.org/wiki/Labor_rights [accessed on October 19,2016]
3. From Wikipedia, the free encyclopedia, Available
athttp://en.wikipedia.org/wiki/Bilateral_investment_treaty [ accessed on October
21,2016]
4. Robert M. Stern: International Labor Standards; ILO; WTO; Effects on Trade and
Investment, August 19, 2011,pp.1
5. Organization for Economic Cooperation and Development( OECD, 1996)
6. Hoekman and zden (2005)

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7. Bilateral Investment Treaties (BITs): The global Investment regime and Human Rights.
(cristina Bodea,Fangjin Ye, Michigan State University)

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