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human rights vs. rights of foreign investors

Wednesday 27 July, 2011

I had lunch & learned with Prof. Sabine Schlemmer-Schulte Fragmentation of International Law: The Case of International Finance & Investment Law vs. Human Rights Law  when she talked about which essentially pits the rights of foreign investors against the human rights of people in the host country receiving that investment. Cases in Germany & Argentina examined the issue. Argentina provides a case in point. In pursuit of growth, the Argentines privatized/sold public sector assets to foreign investors, but the anticipated growth was not achieved & Argentina defaulted on it’s debts, creating an upward debt spiral. Foreign investors didn’t want to restructure the debt. Courts in Germany & the US looked into the rights of investors in their countries. Given the dire situation in Argentina, they have to wait until after economic restructuring for enforcement. There is no sustainable solution. Breaches of contracts are clear contract cases, but were environmental treaties violated? Investment treaties protect international investors while there are also international covenants on human rights. There are conflicting international norms. International financial institutions have not subscribed to financial treaties creating a new body of law. The fragmentation of international law requires the rethinking of the rudimentary hierarchy of international law norms. No 1 disagrees with debt restructuring-80% of Argentines agreed to restructure. Different approaches to these fragmentation issues bring more questions:

  • Does this create a race to the bottom?
  • Do human rights trump commercial rights?
  • Does corporate social responsibility have any teeth?
  • Why isn’t this all more similar to domestic laws?
  • Does suspending debt payments work?
  • This is a WTO issue of trade vs. the environment. The tools are already available. We could integrate human rights concerns. We need a comprehensive overhaul of the rules of the game.

Prof Karen Halverson Cross added her commentary. The US constitution says both treaties & federal statutes are the “supreme law of the land.” Statutes are to be construed consistent with international law. Customary international law trumps inconsistent state laws. But the International court of Justice’s judgments create international obligations, but they aren’t directly enforceable in US courts. Venture funds in the US bought Argentine debt for $.25/$1 & sued for the full $1 value of the debt. Creditors should be able to enforce a contract. They were invited to bring in international law. Bilateral investment treaties say “investment shall …be accorded fair & equitable treatment.” 3 foreigners claims were brought by bondholders against Argentina, which then became an issue of jurisdiction. Is the basis for the bondholder’s claim a breach of the debt contract or a breach of the bilateral investment treaty? Collective Action Clauses (CAC’s) allow qualified majority holders of debt to change the payment terms of the bonds & restrict the ability of a single bondholder to accelerate or bring suit to enforce the debt. As of 2006, the worldwide stock of bonds with CAC’s stands @ 60%.

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