Investment Law & Sustainable DevelopmentPakistan’s Opportunity to Strike the Balance

Ms. Nida MahmoodInvestment Law Consultant

LL.B (Hons), LL.M in Law & Development (London)

Tracing the LinkThere is an inextricable link between

International Environment and International Investment Law

Agenda 21 (United Nations) ‘Investment is critical to the ability of developing

countries to achieve needed economic growth to improve the welfare of their populations and to meet their basic needs in a sustainable manner… sustainable development requires increased investment for which domestic and external financial resources are needed’.

G20 Heads of State (Pittsburgh 2009)

‘We share the overarching goal to promote a broader prosperity for our people through balanced growth within and across nations, through coherent economic, social and environmental strategies…’

‘We will work together to ensure that our fiscal, monetary, trade and structural policies are collectively consistent with more sustainable and balanced trajectories of growth’.

Gradual Convergence of the two fields i.e. sustainable development provisions increasingly making in-roads into IIA Regime

Modern BITs, Model Treaties and FTAs endeavour to incorporate more balanced provisions.E.g. Spain-Libya BIT 2009, Australia-Korea FTA

2014 2014 Canadian BITs etc

Some even require the host States to not lower their environmental, health and safety standards to attract investment etc.

Preserve genuine and non-discriminatory regulatory powers of host States.

UNCTAD Issues Note on Recent Trends in IIAs and ISDS (Feb 2015) stated that,

11 out of 13 agreements concluded in 2014 alone contained the general exceptions on protection of human, animal or plant life or health or the conservation of exhaustible natural resources.

SADC Model BIT – A Landmark Development

Makes it a positive requirement upon investors and their investments to comply with environmental and social assessment screening criteria and processes applicable to them.

Requires the investors & host State to adopt precautionary approach.

Lays down requirement of maintaining environmental management and improvement systems as per nature and size of the investment.

Judicial Recognition of ConvergenceApproach of Foreign Arbitral forums

softening

1. Methanex Corporation v USARejected some of the findings in the earlier infamous case of Metalclad v United Mexican

States in which regulatory measures for environment were held to be exproriation and

hence compensable.

2. Feldman v Mexico‘Govts must be free to act in broader public interest through protection of environment,…’

The Benefits of ConvergenceMore potent impetus to environment and

sustainable development concerns

IIA developed much earlier than nascent IEL

Scores of investment and finance involved has led to faster development of norms and laws as well as dispute resolution principles that are binding

Pakistan & Environmental Laws – A Brief Overview

Approx 90 International Agreements (ETRI website)

Constitution of Pakistan and supporting Case Law

(See Art 9, 14, 38 and 184(3) of Const. See also Shehla Zia v Wapda, PLD, 1994, SC, 693; see also the PIL especially recent examples including canal widening case and signal free corridor case and the like)

Pakistan Environment Protection Act (PEPA) 1997Environmental Protection Agencies (EPAs)

Pakistan – Efforts and ResponsesExpressed commitment to MDG Goal 7

(ensuring environmental sustainability)Believes in Sustainable Development (Pak Eco

Survey 2013-14)Implemented various policies which are by

product of National Environment Action Programme (NEAP)National Environment Policy, Air & Water Quality

Monitoring, Clean Drinking Water for all etc…

Important Programmes at Federal Level (2013-14)Est of National Multilateral Secretariat, the Clean

Development Mechanism Cell, the Centre for Sustainable Organization etc

Pakistan - Apparent FocusAir and Water Quality, Sanitation, Solid Waste Management, Promotion of Green Businesses, (clean/alternative energy

production etc)Protection of Ecosystems, Disaster Management and the like.

In short, focus is very environment law centric and in that, it is very narrow, non-comprehensive and non coherent!

Does not take a holistic approach or an inter-disciplinary approach!

Q. Why is this narrow approach not sufficient?

Environment really is at the base of all development and all our actions have a direct bearing/impact on it.

Till such time it is given a separatist treatment and not entwined in our web of life, due response will not be coming from our end!

2014 Yale University’s EPI ranks Pakistan at 148th place out of 178 countries in its environmental performance.

Developing countries like Pakistan are especially vulnerable to environmental disasters and climate change

Back to back floods of 2010, 11 and 13Droughts2008 cyclones in Karachi/Gawader coastsMelting glaciersLandslidesHealth impacts especially on childrenReduced agricultural productivityLoss of biodiversity, infertility of livestock due to

heat stress etc‘Poverty-Environmental Degradation-Poverty’

nexusRising PopulationImpact of FDI and large scale investment on

environment + Regulatory Powers of host State

Estimated CostsPak Eco Survey 2013-14

Rs 365 Billion every year of which:Rs 112 Billion = inadequate water supple,

sanitation & hygieneRs 70 Billion = agricultural soil degradationRs 67 Billion = indoor pollutionRs 65 Billion = urban air pollutionRs 45 Billion = lead exposureRs 6 Billion = land degradation & deforestation

Some experts suggest costs may have increased beyond Rs 450 Billion per year!

Scale of damage/costs vis a vis IEL and IIA nexus.

Where investment can play a role in positive sustainable development of economies, it can also have a flip side and leave a negative impact on the environment:Large scale investment, concessions and

exploration projects known to have adverse impacts on environment

Shrimp turtle case, metalclad case under NAFTABig scale companies have the power to cause a big

scale damage and affect in areas where they operate

Problem: expansive rights under IIA regime!

Traditional IIA RegimeMost Favoured Nation RightsNational TreatmentFair and Equitable TreatmentFull Protection & SecurityIndirect ExpropriationUmbrella ClausesStabilization Clauses

Blanket Protections + Investor-State Dispute Resolution

actually made it more favourable to do business as a foreign investor in one’s own country as

opposed to as its citizen (reverse discrimination)

(Alvaro J de Regil quoting John Ruggie) ‘Companies can take States hostage and force them to

binding international arbitration, including for alleged damages resulting from implementation of legislation to improve domestic social and environmental standards’.

There is an ever growing number of cases where companies forced States to compensate them for trying to carry out their duty to protect society. 

John Ruggie (UN Special Representative on Business and Human Rights) mentions the case of a European mining company challenging South Africa’s black economic empowerment laws. 

Metalclad case: A U.S. waste management company successfully forced

Mexico’s federal government to compensate it –because a municipality denied Metalclad the license to open a toxic waste management site

Hence, no longer advisable to take a monistic approach and deal with environmental challenges in isolation.

An overall paradigm shift is required in the overall legal structure and policies of the country wherein environment is set as the new ‘grundnorm’ upon which all institutions are built and development is carried out.

If BITs and investment agreements are devoid of environmental considerations and margins, then a clash and conflict is likely to result which will undermine the environmental regime.

Pakistan – Current BIT RegimeSignatory to some 48 BITs almost all of which

comply with the traditional model and structure of BITs.

Exceptions: Pakistan-Turkey BIT 2012Revised BIT with Germany 2009Pakistan-China FTA 2006.

Pakistan - Impending DevelopmentsReviewing and Revising its existing BITs

Working on its own template of BIT (Model BIT)

However: Focus of these upcoming developments also

seem to be very narrow and non-holistic. The main concern of authorities appears to

be the reform of the Investor-State Dispute Resolution provisions.

Pakistan’s Opportunity Mere focus on reform of ISDS only half the battle

won!

To maintain regulatory powers of host State what is needed is to make the BITs overall less lopsided and more balanced.

Efforts are needed to be made in a more inter-disciplinary and inter-dependent way.

What better time than now when Pakistan is already in process of renegotiating, reviewing and developing its own Model BIT!

Thank you!School of Law, Punjab Bar Council and fellow

colleagues.

For feedback and comments:

nidamahmood@yahoo.com