Last month, the US State Department published its new model bilateral investment treaty (BIT). A BIT is treaty between two States which establishes protective rules when a national (person or corporation) of one State makes a private investment in the other State. It thus provides for improved (capital) market access, and protects inter alia against acts of discrimination or expropriation. In addition, BITs contain provisions regarding access to international arbitration in case the treaty is (allegedly) breached. Despite that they are retroactive, BITs usually protect multinational corporations from developed home-States when they make investments in developing host States. States use “model” investment agreements as a template to negotiate future BITs. As the number of US BITs is still relatively low compared to some European countries, and the US intends to begin negotiations with major recipients of US foreign direct investment such as China and Vietnam, the new model BIT may have a significant impact on the protection offered to US corporations operating abroad. (See map: dark green are BITs in force, light green are currently being negotiated.)
One of the main changes compared to the previous model BIT is the inclusion of a more expansive labour clause. This is perhaps unsurprising given the fact that the United States has been a major proponent of trade-labour linkages. The efforts to include a ‘social clause’ in the multilateral trade rounds have been unsuccessful, but they have featured in US free trade agreements (FTAs) since 1994. Labour clauses in BITs are scarce however. On a total of almost 3000 BITs, only a few Canadian, Belgian and Norwegian (model) BITs contain references to labour standards.
Under the new US BIT, State parties agree that “it is inappropriate to encourage investment by weakening or reducing the protections afforded in domestic labor laws”. The specific labour rights covered under this provision are: (1) freedom of association; (2) the effective recognition of the right to collective bargaining; (3) the elimination of all forms of forced or compulsory labor; (4) the effective abolition of child labor and a prohibition on the worst forms of child labor; (5) the elimination of discrimination in respect of employment and occupation; and (6) acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health. This list, which is notably broader than the list of “core” labour standards as defined by the ILO, has featured in all recent US FTAs and in the country’s GSP regulation. Also unsurprising is the fact that the reduction of labour standards is condemned only insofar as it relates to the encouragement of inward investments, despite problem that this link is sometimes difficult to establish.
The main difference with the American free trade agreements is, however,that in case of a dispute, States may not arbitrate under Article 37, but instead “shall consult and endeavor to reach a mutually satisfactory resolution.” This lack of enforceability has caused great disappointment with the AFL-CIO,America’s biggest labour federation. Yet on the other side of the spectrum, corporations and Republicans argue that the not enforceable provision already goes too far. In their view, the new BIT will deter developing countries from signing BITs with the US and it will force American corporations to restructure their investments via foreign subsidiaries. As the model BIT is not more than a template for future negotiations, and given the fact that each new treaty must secure 67 votes in the Senate for ratification, the battle on labour clauses in US BITs is perhaps only just begun.
The complete text of the new US model BIT can be found here. The labour clause reads as follows:
Article 13: Investment and Labor
1. The Parties reaffirm their respective obligations as members of the International Labor Organization (“ILO”) and their commitments under the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-Up.
2. The Parties recognize that it is inappropriate to encourage investment by weakening or reducing the protections afforded in domestic labor laws. Accordingly, each Party shall ensure that it does not waive or otherwise derogate from or offer to waive or otherwise derogate from its labor laws where the waiver or derogation would be inconsistent with the labor rights referred to in subparagraphs (a) through (e) of paragraph 3, or fail to effectively enforce its labor laws through a sustained or recurring course of action or inaction, as an encouragement for the establishment, acquisition, expansion, or retention of an investment in its territory.
3. For purposes of this Article, “labor laws” means each Party’s statutes or regulations, or provisions thereof, that are directly related to the following:
(a) freedom of association;
(b) the effective recognition of the right to collective bargaining;
(c) the elimination of all forms of forced or compulsory labor;
(d) the effective abolition of child labor and a prohibition on the worst forms of child labor;
(e) the elimination of discrimination in respect of employment and occupation; and
(f) acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health.
4. A Party may make a written request for consultations with the other Party regarding any matter arising under this Article. The other Party shall respond to a request for consultations within thirty days of receipt of such request. Thereafter, the Parties shall consult and endeavor to reach a mutually satisfactory resolution.
5. The Parties confirm that each Party may, as appropriate, provide opportunities for public participation regarding any matter arising under this Article.