By Katie Bacharach
A Bilateral Investment Treaty (BIT) is a treaty between two
states that ensures that investors of one state receive certain agreed upon
standards of treatment when investing in the other state. The primary purpose
is to encourage foreign direct investment (FDI) between the two states, which
in turn should lead to economic growth for both states.
The emphasis on protecting the investor has had two
important implications for BITs. First, broader public policy concerns have not
traditionally made their way into these agreements. Second, the agreements have
typically been characterized by an asymmetry of power, where foreign investors
are accorded a number of substantive rights under the agreement without being
subject to any specific obligations. For those concerned with labor rights and
corporate social responsibility, this can be a dangerous combination that can
lead to a “race to the bottom,” where countries continue to relax labor
standards in order to attract investors.
One potential way to get around this race to the bottom and
to impose labor rights obligations on multinational and transnational corporations
is to insert labor commitments directly into BITs. In recent years there has been
a push for governments to do a better job of incorporating broader public
policy concerns, including labor rights, into their BITs. Consequently, a
number of countries have inserted labor safeguards into the language of their
model BITs (which are essentially templates that countries formulate as their
treaty ideal and then use as a starting point for negotiating actual
agreements).
