ENVIRONMENT

UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT UNCTAD Series issues international investment agreements UNITED NATIONS York Geneva, 2001 ENVIRONMENT IIA issues paper seriesii NOTE UNCTAD serves focal point United Nations Secretariat matters related foreign direct investment transnational corporations. , Programme Transnational Corporations carried United Nations Centre Transnational Corporations (19751992) Transnational Corporations Management Division United Nations Department Economic Social Development (19921993). 1993, Programme transferred United Nations Conference Trade Development. UNCTAD seeks understanding nature transnational corporations contribution development create enabling environment international investment enterprise development. UNCTAD' work carried intergovernmental deliberations, research analysis, technical assistance activities, seminars, workshops conferences. term "country" study refers, , territories areas; designations employed presentation material imply expression opinion whatsoever part Secretariat United Nations legal status country, territory, city area authorities, delimitation frontiers boundaries. addition, designations country groups intended solely statistical analytical convenience necessarily express judgement stage development reached country area development process. symbols tables: dots (..) data separately reported. Rows tables omitted cases data elements row; dash () item equal negligible; blank table item applicable; slash (/) dates representing years, .. 1994/95, financial year; hyphen () dates representing years, .. 19941995, signifies full period involved, including beginning years. Reference "dollars" ($) means United States dollars, . Annual rates growth change, stated, refer annual compound rates. Details percentages tables necessarily add totals rounding. material contained study freely quoted acknowledgement. UNCTAD/ITE/IIT/23 UNITED NATIONS PUBLICATION Sales . .01.II..3 ISBN 92-1-112513-8 Copyright © United Nations, 2001 rights reserved iiiIIA issues paper series IIA Issues Paper Series main purpose UNCTAD Series issues international investment agreements address concepts issues relevant international investment agreements present manner easily accessible -users. series covers topics: Admission establishment Competition Dispute settlement (investor-State) Dispute settlement (State-State) Employment Environment Fair equitable treatment Foreign direct investment development Home country measures Host country operational measures Illicit payments Incentives International investment agreements: flexibility development Investment-related trade measures Lessons MAI -favoured-nation treatment National treatment Scope definition Social responsibility State contracts property Taxation Transfer funds Transfer technology Transfer pricing Transparency Trends international investment agreements: overview IIA issues paper seriesiv Preface secretariat United Nations Conference Trade Development (UNCTAD) implementing work programme international investment agreements. seeks developing countries participate effectively international investment rule-making bilateral, regional, plurilateral multilateral levels. programme embraces capacity-building seminars, regional symposia, training courses, dialogues negotiators groups civil society preparation Series issues papers. paper part Series. addressed Government officials, corporate executives, representatives -governmental organizations, officials international agencies researchers. Series seeks provide balanced analyses issues arise discussions international investment agreements. study read , independently . , , issues treated closely interact , studies pay attention interactions. Series produced team led Karl . Sauvant Pedro Roffe. principal officer responsible production Anna Joubin-Bret oversees development papers stages. members team include . . Bushehri, Patricia Mira Pontó, Aimé Murigande, örg Weber. Series' principal advisors Arghyrios . Fatouros, Sanjaya Lall, Peter . Muchlinski, Patrick Robinson. present paper based manuscript prepared .. Bushehri Cynthia Wallace. Substantive contributions Jake Werksman. final version reflects comments received Victoria Aranda, Charles Arden-Clarke, Werner Corrales, William Dymond, Harry Gleckman, Felipe Jaramillo, Joachim Karl, Grace King, Mark Koulen, Barton Legum, Mansur Raza, Maximo Romero Jimenez, Homai Saha, Rupert Schlegelmilch, Chak Mun , Sabrina Shaw, Marinus Sikkel, ... Van der Linde Andreas . Ziegler. paper desktop-published Teresita Sabico. Rubens Ricupero Geneva, February 2001 Secretary-General UNCTAD vIIA issues paper series Acknowledgments UNCTAD' work programme international investment agreements implemented team UNCTAD staff members consultants headed Karl . Sauvant, Khalil Hamdani Pedro Roffe including Marianela Bruno Pollero, . . Bushehri, Arghyrios . Fatouros, John Gara, Anna Joubin-Bret, Sanjaya Lall,, Peter . Muchlinski, Patricia Mira Pontó, Aimé Murigande, Cynthia . Wallace örg Weber. Administrative support éène Dufays-Budhdeo éverine Excoffier. UNCTAD carried number activities related work programme -operation intergovernmental organizations, including Secretariat Andean Community, ’Agence pour la Francophonie, Inter-Arab Investment Guarantee Corporation, League Arab States, Organization American States, la Secretaria de Integració Económica Centroamericana World Trade Organization. UNCTAD cooperated -governmental organizations, including German Foundation International Development, Centro de Estudios Interdisciplinarios de Derecho Industrial Económico Universidad de Buenos Aires, Consumer Unity Trust Society — India, Economic Research Forum — Cairo, European Roundtable Industrialists, Friedrich Ebert Foundation, International Confederation Free Trade Unions, Oxfam, SOMO — Centre Research Multinational Corporations, World Network, la Universidad del Pacífico, University West Indies World Wildlife Fund International. Funds work programme received Australia, Brazil, Canada, France, Japan, Netherlands, Norway, Sweden, Switzerland, United Kingdom European Commission. Countries including China, Egypt, Guatemala, India, Jamaica, Morocco, Peru, Sri Lanka Venezuela contributed work programme hosting regional symposia. contributions gratefully acknowledged. Table contents Page Preface ................................................................................. iv Acknowledgements ............................................................ Executive summary ............................................................ 1 INTRODUCTION .............................................................. 5 . EXPLANATION OF THE ISSUE .............................. 7 II. STOCKTAKING AND ANALYSIS .......................... 13 . General protection environment ............................. 14 1. General references environment ...................... 14 . Provisions relating responsibility Governments ........................... 15 . Provisions relating responsibility TNCs .......................................... 18 2. Preserving national regulatory space environmental protection ........................................ 22 3. Attracting FDI lowering environmental standards .......................................... 36 . Transfer environmentally sound technology ............. 41 . Transfer environmentally sound management practices ............................................................ 50 viii Environment IIA issues paper series Page III. INTERACTION WITH OTHER ISSUES AND CONCEPTS ...................................................... 67 CONCLUSION: ECONOMIC AND DEVELOPMENT IMPLICATIONS AND POLICY OPTIONS............................................................. 71 References ........................................................................... 83 Selected UNCTAD publications transnational corporations foreign direct investment ...................... 91 Questionnaire ..................................................................... 103 Boxes 1 . Protection environment nat ional level ........................................................................ 13 2 . draft United Nations Code Conduct issue environment .................................................. 19 3 . draft NGO Charter Transnat ional Corporat ions ................................................... 21 4 . Mult la tera environmental agreements ......................... 26 5 . Genera ions environmenta measures internat ional rade isputes ...................... 27 6 . Chal lenging environmental measures NAFTA ............................................................................... 33 7 . “pollut ion haven” hypothesis ..................................... 37 8 . Agenda 21: selected TNC-related provisions ransfer environmentally sound technologies .................................................................... 42 ix Table contents IIA issues paper series Page 9 . Agenda 21: selected references TNC responsibi ies respect environmentally sound management prac ices ............................................... 51 10. environmental chapter 2000 OECD Guidelines ............................................................. 54 11. ISO 14001 standards environmental management sys tems ................................................................ 57 12. MIGA: investment guarantees environmenta assessment ..................................................... 61 Table 1 . Interaction issues concepts ............................ 67 Executive summary issue environment touches areas human endeavour. preservation sustainable utilization important component development. , issue caught attention national international rule-makers. , increasingly beginning find wide variety international agreements. international investment agreements (IIAs), , mention environmental protection related matters , date, largely absent. surprising, IIAs considered primary instruments address environmental matters. , linkages environmental concerns international investment rules exist, including intent ensure investment rules frustrate host countries’ efforts protect environment. , IIAs provide framework encourage transfer clean technology environmentally sound management practices host countries, contribute development objectives. present Series focuses IIAs, paper concentrates instruments environmental references. , , relevant international instruments discussed. key issues addressed : general protection environment general references desirability safeguarding environment; preserving national regulatory space environmental protection / avoiding attract foreign direct investment (FDI) lowering environmental standards; transfer environmentally sound technology management practices. IIAs mention environment making reference protect environment, linked principle sustainable development. address issue general terms, primarily preamble general provisions. references typically expressed hortatory language, form mere “string references”, environment simply mentioned clause concerns. Environment IIA issues paper series2 general references environment, context environmental regulation, provisions IIAs form assertions ( assurances) agreements’ provisions injurious environment prevent parties regulating environmental matters. Alternatively, provisions affirm host state regulate environmental matters. close corollary approach urging compliance existing environmental legislation international agreements undertaking environmental standards order attract FDI. respect , concerns actual lowering environmental standards, include lax implementation standards, halting improvements thereto. , developments IIAs run counter assertions, affirmations undertakings, , IIAs provide mechanisms private investors challenge governmental measures affect investments. challenges, threat challenge, discourage host countries adopting enforcing measures protect environment. general approaches, IIAs designed manner encourages transnational corporations (TNCs) utilize fully potential contribute transfer clean technologies environmentally sound management practices, developing countries. wider diffusion environmentally sound technologies, part achieved environmentally sensitive management, reduce damaging effects activities. connection, discussion paper draws Rio Declaration Agenda 21, significant informed — specifically referred — number important instruments adoption. , relevant provisions included IIAs, typically formulated -binding language. addition, IIAs prohibit host countries imposing requirements firms transfer technology. prohibitions, safeguards qualifications, construed include transfer environmentally sound technologies. 3 Executive summary IIA issues paper series Environmental protection interacts topics covered Series. , interactions admission establishment, terms screening investments environmental impacts; incentives geared attract FDI; promotion transfer technology, environmentally sound technologies possibly management practices -group. interaction arises relation takings property, protection granted IIA expropriation construed encompass environmental regulation result loss covered investment. instances, interaction issues social responsibility, concept includes core values respect protection environment. number options exist respect environmental matters dealt IIAs. Parties choose address environmental protection issues. , IIA include general, hortatory provisions stress importance environmental preservation. Thirdly, specific clauses affirm preserve regulatory powers host countries respect environmental protection included IIAs. Equally, IIA carve-put clauses environmental measures. Fourthly, parties address environmental protection provisions oblige standards order attract FDI. Finally, IIAs include mandatory legal duties, addressed actors FDI, observe environmental standards, including related environmentally sound technology management practices, , incorporated reference, respective IIAs. INTRODUCTION area environmental concerns gained importance relations host countries TNCs decade 1990s. time, growing awareness, part countries, importance environmental protection restoration, countries, degraded environments. Simultaneously, heightened consciousness linkage concerns activities TNCs, implying inherent incongruence measures host country protect environment attract FDI. Environmental issues cover broad scope activities dealt wide spectrum instruments specific FDI. concept environmental protection wide, includes issues, quality air, water soil; sustainable natural resources; human, animal plant health; macro- micro-ecosystems. Environmental regulations cover firms, domestic foreign-based. recognized good TNCs good domestic firms. , light specific objectives Series present paper concerns interface environment FDI. IIAs provisions refer environment environmental protection, paper cites environmental agreements direct reference FDI TNCs, relevant provisions IIA negotiators grappling concerns. important future IIA negotiators address environmental concerns. Section EXPLANATION OF THE ISSUE internationalization production goods services FDI increases likelihood extension related environmental damage greater number countries , , larger part world’ environment. time, process offers opportunity improvement environment countries diffusion environmentally sound technologies management practices disposal TNCs. , role FDI TNCs play abating environmental degradation promoting sustainable development considerable importance. Efforts regard environmental preservation primarily national level regulation apply mandatory, statute based, rules conduct (UNCTAD, 1999a, . 291 UNCTAD, 1992, pp. 235-237). Increasingly, , private enterprises -governmental organizations (NGOs) making efforts contribute preservation environment.1 international level, reference IIAs, question arises instruments addressed responsibility relevant actors environmental protection. key issues identified, informed discussions provisions address interface environment FDI: • General protection environment . important component development environmental welfare sustainability. generally accepted , effective, environmental protection — reversing environmental degradation increasing environmental welfare development environmentally sound technologies management practices — matter pursued public private actors levels. international level, cooperation preservation environment Environment IIA issues paper series8 included efforts develop working models sustainable development integrate economic, social environmental concerns (UNCTAD, 1992). pace breadth efforts increased significantly 1990s, highlighting importance environmental preservation general. • Preserving national regulatory space environmental protection . regulatory perspective, accommodate national environmental concerns construed conflict obligations contained IIAs. preservation flexibility regulate protection environment, , number measures construed triggering State’ breach obligations IIAs.2 general protection environment addressed IIAs , , ensure Governments seeking protect environment challenged acting contrary obligations IIAs, .. sufficient national regulatory space environmental protection. Discussions international investment rule-making include concerns relating environmental measures constituting arbitrary means discriminating foreign investors. Home countries attempting impose environmental standards borders legislation aimed operations nationals . ( issue extra-territorial measures discussed detail paper Series entitled Home Country Measures — UNCTAD, forthcoming .) , concerns necessarily relate solely actual environmental damage, encompass threats irreversible damage environment “precautionary principle”.3 • Attracting FDI lowering environmental standards. countries seek attract FDI tangible intangible assets bring country advance development process. eagerness attract investment, host countries tempted 9 Section IIA issues paper series environmental standards increase locational advantages TNCs — TNCs suggest lowering positively influence locational decision making. issue actual lowering environmental standards. -application lax implementation standards effect. Equally, concerns countries improve environmental regulations concern impact locational advantages TNCs. “chilling-effect” component concept relaxation environmental standards interest attracting FDI. • Transfer environmentally sound technology management practices . general questions, key issue concerns extent transfer environmentally sound technology management practices developing countries encouraged. Today, growing recognition protecting environment requires entire range production processes products environment-friendly. problem respect continued , countries, obsolete, environmentally damaging industrial production techniques management practices. response TNCs environmental issues differs important respect uninational firms. addition managing environment pollution-abatement practices, environmental management systems, education training, TNCs manage issues relation affiliates located countries. , added dimension cross-border environmental management, key issue assessing impact environment host developing countries. , specific decisions TNCs regard application transfer environmentally sound technologies management practices play important role environmental health host country. study showed cost-effective (UNCTAD, 1999a). Environment IIA issues paper series10 spin- transfers “demonstration effect” enterprises, expressed Commentary 2000 OECD Guidelines Multinational Enterprises (OECD Guidelines). states TNCs “ access technologies operating procedures , applied, raise environmental performance . Multinational enterprises frequently regarded leaders respective fields, potential ’demonstration effect’ enterprises overlooked” (OECD, 2000b, . 9).4 * ** key issues direct relevance interaction FDI TNCs hand environmental protection , sketched . issues received attention, including assessing environmental impact production environmental financial -financial reporting standards. Typically, , issues elaborated IIAs , briefly documented paper. Finally, issues related implementation enforcement environmental obligations IIAs addressed . ( general discussion issues, UNCTAD, 2000b.) 11 Section IIA issues paper series Notes 1 activities NGOs include field projects, training, education, research publication area environmental protection conservation. respect publications deal interface FDI environment, , , WWF (1999a). relevant WWF publications, , http:/www.panda.org/resources/publications. 2 measure requiring foreign investor invest ( transfer) technology clean toxic seepage caused investor. measures provide tax breaks, incentives, option part investor refuse mandatory clean- requirement. examples include requiring, purposes renewal operating licenses, environmentally sound resource extraction techniques, reduce profit margins foreign investor; changing land regulations reduce property foreign investor significantly; significantly reducing fishing quotas revoking licenses protect fisheries, flora fauna. issue regulatory takings relevant context. 3 principle, measures counter potential environmental damage, risk accurately assessed due scientific uncertainty incomplete data. principle implications international law scope paper. detailed discussion offering views, Sands, 1995, Bodansky, 1991. 4 Chudnovsky ópez, 1999. Section II STOCKTAKING AND ANALYSIS previously mentioned, environmental concerns largely addressed national level (box 1). , countries increasingly pursuing ways enhance environmental protection contribution TNCs thereto international level. Box 1. Protection environment national level Efforts address environmental concerns national level involve Governments, enterprises civil society. respect governmental regulation, countries adopted measures related protection environment. scope level sophistication varies, creates stark differences national frameworks protection environment. Governments rely regulatory frameworks apply mandatory, statute based, rules conduct, imposition taxes charges. Increasingly, , positive incentives market-based policies introduced, include reliance environmental impact assessment studies providing financial guarantees environmental damage. Complementing governmental regulation, enterprises, including TNCs industry groupings, contributed efforts environmental protection adoption maintenance relevant corporate/industry codes conduct. codes internal rules , , typically enforced national authorities. adoption observance environmentally friendly codes conduct operations, TNCs — improving environmental performance — enhance environmental performance host countries , , implementation deficits exist countries operate. addition, TNCs familiar environmental assessments project planning, design implementation, undertake studies . /... Environment IIA issues paper series14 , efforts national level reflected instruments international level. Interestingly, , investment related regulatory developments progress internationally bilateral regional, regional multilateral levels, typically case respect environmental matters. fact, bilateral investment treaties (BITs) largely silent issue protection environment. , efforts national level respect internationalized primarily regional multilateral fora. remainder section takes stock IIAs addressed issue environmental protection. , attention international agreements , IIAs, address TNCs specifically. case 1992 Rio Declaration Environment Development related Agenda 21 (UNCED, 1993) adopted 1992 United Nations Conference Environment Development. international commitment number provisions addressed TNCs explicitly meant protect environment context FDI. clauses relate global corporate environmental management, environmentally sound production consumption patterns, risk hazard minimization, full-cost environmental accounting, international environmental support activities.1 . General protection environment 1. General references environment References meant ensure general protection environment number forms IIAs, including “string” references similar hortatory language preamble (Box 1, concluded) , involvement civil society, including NGOs, coupled increasing consumer demand environment-friendly products processes, factors providing additional incentives protection environment. Source: UNCTAD. 15 Section II IIA issues paper series general provisions mention issue. address Governments enterprises. . Provisions relating responsibility Governments string-type reference addressed Governments appearing Treaty Establishing Latin American Integration Association.2 Article 14 Treaty exhorts member countries “ consideration, matters, scientific technological cooperation, tourism promotion preservation environment”. negotiations Multilateral Agreement Investment (MAI), preambular language proposed Chairperson negotiations part “package” environmental provisions, : “Recognising investment, engine economic growth, play key role ensuring economic growth sustainable, accompanied environmental labour policies; … -affirming commitment Rio Declaration Environment Development, Agenda 21 Programme Implementation, including principles polluter pays precautionary approach; resolving implement Agreement manner consistent sustainable development environmental protection conservation; . . .” .3 Notes accompany MAI Draft Negotiating Text suggest considerable disagreement negotiators provisions struck balance investment liberalization objectives environmental instruments principles cited.4 References environmental preservation included general provisions instruments. Fourth ACP-EEC Convention (Lomé IV), article 77, actual mention investment connection environmental concerns: Environment IIA issues paper series16 “ order facilitate attainment industrial development objectives ACP States, important ensure integrated sustainable development strategy, links activities sectors , evolved. sectoral strategies agricultural rural development, manufacturing, mining, energy, infrastructure services designed foster interlinkages economic sectors view maximizing local added creating, , effective capacity export manufactured products, ensuring protection environment natural resources. pursuit objectives Contracting Parties recourse provisions trade promotion ACP products private investments, addition specific provisions industrial cooperation” . , binding agreement, Lomé IV include mandatory environmental provisions. “” language linked identifiable obligation “recourse” provisions. Lomé IV replaced 2000 Cotonou Agreement, introduces number clauses link economic development environment. link, specifically, FDI environment Cotonou Agreement apparent glance. , , outset, article 1 Agreement entitled “Objectives partnership”. Article 1 states efforts integrate “ ACP countries world economy terms … private investment”, , context Agreement, includes FDI, apply integrate, level, “principles sustainable management natural resources environment” (Cotonou, 2000). number references regard environmental protection increased significantly instrument,5 comprise statements objectives, political commitments cooperation general references environment. 17 Section II IIA issues paper series provision stronger language article 51(1)() Treaty Establishment Economic Community Central African States, member States agreed “ arrange application science technology development agriculture … preservation environment; …”. noted , provision mandatory language, effectiveness diminished extent obligation extends arrangement application science technology. IIAs occasionally general references address environmental protection detail. including particulars environment Cotonou Agreement. Article 32 entitled “Environment natural resources”, cooperation relation protection areas environment.6 principles underlie Agreement, account joint efforts Parties, including efforts channel FDI ACP countries. interesting note Agreement takes account special Cotonou partners. stronger language, Convention Environmental Impact Assessment Transboundary Context, signed 25 European countries, Canada United States, , article 2(1), : “1. Parties , individually jointly, effective measures prevent, reduce control significant adverse transboundary environmental impact proposed activities” (ICEL, 1995, . 12). Convention IIA, significance terms FDI – context transboundary environmental harm – overlooked. article 1(), … “Proposed activity ” means activity major change activity subject decision competent authority Environment IIA issues paper series18 accordance applicable national procedure” (ibid.), definition broad include activity arising FDI. . Provisions relating responsibility TNCs international instruments address , general references, responsibility enterprises environment. string reference furnished original 1976 revised 1991 OECD Guidelines, precursors 2000 OECD Guidelines. Enterprises exhorted, “General Policies” (paragraph 2), “give due consideration [member] countries’ aims priorities regard economic social progress, including industrial regional development, protection environment consumer interests, creation employment opportunities, promotion innovation transfer technology ”.7 2000 OECD Guidelines, string reference replaced dedicated (albeit -line) paragraph 1, , “General Policies”, states: “... enterprises : 1. []ontribute economic, social environmental progress view achieving sustainable development; ...” (OECD, 2000a, . 3). Paragraph 2 Commentary 2000 OECD Guidelines, heading “Commentary General Policies”, unambiguously states “[]beying domestic law obligation business” (OECD, 2000b, . 3). , recommendations seek promote corporate action results envisioned domestic law. demonstrates Guidelines evolved subject environmental protection. Guidelines addressed TNCs, Governments. -binding commitments. , noted 2000 OECD Guidelines’ implementation procedures — important component instrument — strengthened compared predecessors. 19 Section II IIA issues paper series Section OECD instrument, Principles Corporate Governance,8 states responsibilities company’ board “ implement systems designed ensure corporation obeys applicable laws, including tax, competition, labour, environmental, equal opportunity, health safety laws”. general references, provisions IIAs address, specificity, responsibility TNCs respect environment. draft United Nations Code Conduct Transnational Corporations detail (box 2). Box 2. draft United Nations Code Conduct issue environment section “Activities Transnational Corporations”, subsection “Economic, financial social”, paragraphs 41-43 deal “Environmental protection”: “Transnational corporations / carry activities accordance national laws, regulations, administrative practices policies relating preservation environment countries operate due regard relevant international standards. Transnational corporations /, performing activities, steps protect environment damaged [restore extent feasible] [rehabilitate ] efforts develop apply adequate technologies purpose. Transnational corporations /, respect products, processes services introduced propose introduce country, supply competent authorities country request regular basis, authorities, relevant information : Characteristics products, processes activities including experimental related aspects harm /... Environment IIA issues paper series20 NGOs active addressing environmental matters. “Principles” Coalition Environmentally Responsible Economies (CERES), document drafted investor grouping. endorsers CERES Principles affirm introduction, “belief corporations responsibility environment, conduct aspects business responsible stewards environment operating manner protects Earth”. includes pledge “update ... practices constantly light advances technology understandings health environmental science” (ibid.). document highlights commitment reduce eliminate damage areas environment, biosphere natural resources. addition, practices related waste disposal, energy conservation, human health hazards, production processes products relevant management practices, environmental restoration, information management addressed. CERES Principles address TNCs indirectly, draft NGO Charter Transnational Corporations prepared People’ Action Network Monitor Japanese TNCs, , section entitled “Protection nature, environment natural resources” (box 3). Box 2 (concluded) environment measures costs avoid mitigate harmful effects; Prohibitions, restrictions, warnings public regulatory measures imposed countries grounds protection environment products, processes services. Transnational corporations / responsive requests Governments countries operate prepared cooperate international organizations efforts develop promote national international standards protection environment”. Source: UNCTAD, 1996, vol. , pp. 169-170. 21 Section II IIA issues paper series Box 3. draft NGO Charter Transnational Corporations “13. TNC full account effect impact environment natural resources fully conform national/ local laws regulations protection environment ecosystem, conservation natural resources country/region operates conforming relevant international standards. , TNC observe : (1) Implement environmental assessment follow review. (2) Establish environmental/conservation policy guideline develop pro-environmental management system. (3) Freely disclose information company’ environmental policy. 14. environmental destruction negative impact due primarily operations TNC, measures including compensation damage caused environmental damage restore environment original state”. Source: UNCTAD, 2000a, vol. , . 403. , instruments reflect responsibility TNCs respect environmental protection compliance relevant national international standards. Responsibilities extend , , development maintenance practices environmental restoration, conservation, risk impact assessment information dissemination, cooperation national authorities. * * * Environment IIA issues paper series22 preceding discussion shows limited number IIAs address environmental protection issues general references addressed Governments TNCs. language hortatory , cases, mandatory language . remainder -section turns specific issues arise context IIAs governmental measures affect environment. 2. Preserving national regulatory space environmental protection protection environment requires systemic undertaking actors concerned. respect Governments, undertaking typically environmental regulation. ability environmental measures issue addressed IIAs. language agreement simply provisions prevent parties regulating environment. , 1992 North American Free Trade Agreement (NAFTA, article 1114, paragraph 1) stipulates : “ [Chapter Eleven investment] construed prevent Party adopting, maintaining enforcing measure consistent Chapter considers ensure investment activity territory undertaken manner sensitive environmental concerns” . Similar language contained 1994 World Trade Organization (WTO) General Agreement Trade Services (GATS, article XIV: General Exceptions) article -14(1) 1996 Canada- Chile Free Trade Agreement, NAFTA language verbatim . agreements affirm host state regulate environmental matters. words, substantive expressed positive manner, 23 Section II IIA issues paper series recommended inclusion MAI Draft Negotiating Text Chairperson negotiations: “ Contracting Party adopt, maintain enforce measure considers ensure investment activity undertaken manner sensitive health, safety environmental concerns, measures consistent agreem ent” . treaty texts fall short mandatory language oblige party measure . , limit scope “guarantees” “affirmative ” regulate, requiring measures “consistent” IIA’ substantive obligations. regulate environmental protection, free conditionality, article 18 1994 Energy Charter Treaty (ECT) sovereignty energy resources: “ state continues hold rights decide geographical areas Area exploration development energy resources, optimalization recovery rate depleted exploited, ... regulate environmental safety aspects exploration, development reclamation Area ...” . legal nature limited scope examples , examples underline negotiators’ intent unduly restrict, discourage, discretion Governments regulate investment activities environmental purposes. Tratado de Libre Comercio entre Centroamérica República Dominicana, IIA, illustrates obligations Environment IIA issues paper series24 adopt measures assure observance domestic environmental legislation, specific reference investors, exist part binding agreement. Treaty, specifically excluding environment scope application investment chapter (Chapter IX, article 9.15), : “ Party adopt, maintain measures, consistent chapter, considers assure investments territory observe legislation matters environment ...” [author’ translation]. , conditionality — “consistent chapter” — limits broader application. , obligation extends measures party considers , implies party retains wide discretion addressing observance existing environmental regulation investors. , practical effect provision ensure protection environment depends commitment parties environment, confines legal structure chapter. approach evident BIT Costa Rica Netherlands, investment covered agreement “ accordance laws regulations” host country, includes “ laws regulations … environment” (article 10). , compliance , inter alia , environmental laws, explicit prerequisite application BIT investment. ( , explicit reference needed treaty refers “ accordance laws regulations” host country, include environment.) entering investor, environmental laws observed , , legislation adhered cases duly qualified investment article 10 confronted subsequently enacted, stringent environmental regulation. inclusion regulate environmental protection IIA takes form exclusions general exceptions, environmental matters carved 25 Section II IIA issues paper series agreement subject provisions. provide legal basis justifying investment-related environmental measures precluded agreement. Articles XX General Agreement Tariffs Trade (GATT) XIV GATS provide good examples direct indirect implications TNCs, area trade goods services, investment services (.. article XVI.2() GATS), investment activity generally. GATT GATS, safeguarding - entrenched principle -discrimination, exception measures “ protect human, animal plant life health” (WTO, 1995, . 455). , “applied manner constitute means arbitrary unjustifiable discrimination countries [GATS: “” (ibid., pp. 296-297)] conditions prevail, disguised restriction international trade [GATS: “trade services”]” (ibid.). time, NAFTA ’ article 2101 : “GATT Article XX interpretative notes, equivalent provision successor agreement Parties party, incorporated part Agreement. Parties understand measures referred GATT Article XX() include environmental measures protect human, animal plant life health, GATT Article XX() applies measures relating conservation living -living exhaustible natural resources” (ILM, 1993a, . 699).9 area general exceptions important principal mechanism dealing environmental matters IIAs agreements environmental components ramifications. , measures environmental exceptions, based multilateral environmental agreements (box 4) general environmental objectives, provide kind safety valve environmental protection context investment trade liberalization agreements. Environment IIA issues paper series26 Box 4. Multilateral environmental agreements Multilateral environmental agreements (MEAs) specifically mentioned, potential conflict MEAs international investment rules heightened , MEAs, mechanisms seek require promote transfer environmentally friendly technologies, regulate access investment natural resources, stimulate investment countries categories projects. initiatives require individual states international organizations promote kinds investments investors environmental purposes, indirectly discriminate basis country origin (Werksman Santoro, 1998). Faced concerns potential conflicts trade rules, NAFTA parties agreed , conflict arise investment trade obligations agreement “specific trade obligations” set selected MEAs, obligations MEAs “ prevail” extent inconsistency, , party choice equally effective means complying obligations, party chooses alternative inconsistent provisions Agreement (article 104, paragraph 1). specific exception apply, , shown party defending measure, faced “equally effective means complying” obligation MEA, chosen “ alternative inconsistent” NAFTA (ibid.). explicit subordination IIA MEA unprecedented NAFTA text agreed. reflected recognition, parties, importance MEAs, wide support agreements received international community, specific nature trade measures authorize. NAFTA exception , , drawn narrowly. applies respect treaties extend investment ( trade-related) measures party choose meet international environmental commitments. , appears place burden proving measure “ trade inconsistent” measure , responding party (Johnson Beaulieu, 1996). Source: UNCTAD. 27 Section II IIA issues paper series exceptions country opportunity defend challenged environmental measure violate IIA. noted, , , context formal dispute, exceptions invoked, interpreted narrowly dispute settlement bodies. , exceptions context GATT disputes panel proceedings led conclusion , generally, clauses strictly construed (Hudec, 1993). conclusion holds specific reference application general exceptions clauses environmental measures context GATT, 1988 Canada- United States Free Trade Agreement ( precursor NAFTA) (box 5). , concern arises general exceptions provide adequate protection challenges measures protect environment. Box 5. General exceptions environmental measures international trade disputes provisions GATT prohibiting member countries enact environmental protection measures. number GATT articles , , relevant measures. include article  -favoured-nation treatment, article III national treatment internal taxation regulation article XI general elimination quantitative restrictions, sections article XX general exceptions. Specifically, article XX, relevant parts, states : “Subject requirement measures applied manner constitute means arbitrary unjustifiable discrimination countries conditions prevail, disguised restriction international trade, Agreement construed prevent adoption enforcement contracting party measures: ... () protect human, animal plant life health; /... Environment IIA issues paper series28 Box 5 (continued) ... () relating conservation exhaustible natural resources measures effective conjunction restrictions domestic production consumption (WTO, 1995, . 455)”. , reference environmental measures, paragraphs () () article XX WTO Members adopt GATT-inconsistent policy measures measures result arbitrary unjustifiable discrimination countries conditions prevail , constitute disguised restriction international trade (general requirements article XX). general, interpretation GATT panels disputes parties sought rely paragraphs () () article XX justify measures focussed terms “” paragraph () “relating ” paragraph (). , GATT Panel Section 337 .. Tariff Act defined term “” paragraph () -level analysis. , decided “” implies GATT-consistent measure undertaken. , held measure undertaken shown “ degree inconsistency GATT provisions”. United States-Mexico Tuna-Dolphin case, panel held necessity protective measure related product production method, , unilateral, extra- territorial measure benefit article XX () exception. respect article XX () GATT, panel Herring Salmond dispute held measure “relating ” conservation justifiable article XX() primarily aimed conservation. follow- case submitted dispute settlement panel Canada-.. Free Trade Agreement, incorporated Agreement relevant GATT articles. , CUSFTA Panele concluded measure question broader scope application achieving specific conservation aims relates. /... 29 Section II IIA issues paper series Box 5 (continued) , jurisprudence GATT CUSFTA panels, contested measure “” “relating ” environmental protection. general requirements article XX analyzed implicitly legal definitions terms “” “relating ”, specifically addressed. , WTO Appellate Body (AB), decision exception article XX () Standards Reformulated Gasoline case, alternative interpretation article XX. AB noted proper construction article required balance struck, case--case basis, , hand, rights obligations parties market access , hand, rights obligations protect environment. AB devised -tiered analysis article XX GATT, decides provisional justification reason characterization measure XX () exists, , measure, face application, fulfils general requirements article XX. , AB stated measure qualify paragraph () “substantial relationship” conservation natural resources. clarified include measures “incidentally inadvertently aimed ” conservation natural resources. AB analysis introduced Gasoline case Import Shrimp Productsg case. Shrimp Products case clarified making determination measure justified paragraph () article XX, “ treaty interpreter essentially relationship measure stake legitimate policy conserving exhaustible natural resources” (ibid., paragraph 135). , general design structure measure “disproportionately wide scope reach relation policy objective … conservation” (ibid., paragraph 141); , means , “ principle, related ends” (ibid.). AB reiterated measure “fair face”, “ applied arbitrary unjustifiable manner”. AB /... Environment IIA issues paper series30 Box 5 (continued) held unilaterally imposing conditions trading partners “adopt essentially policies” , treating trading partners differently terms time limitations comply regulations transfer technology compliance, constitutes unjustified discrimination. , making reference article :3 GATT 1994, “establishes minimum standards transparency procedural fairness administration trade regulations”, AB held authorities administer regulations procedures regard requirements article :3, treatment constitute “arbitrary discrimination” countries conditions prevail, contrary general requirements article XX. preceding cases , WTO AB adopting narrow interpretation article XX () previous GATT panels. , AB emphasized maintain balance invoke Exceptions provisions, hand, rules market access, hand. interpreting general requirements article XX, AB locating “line equilibrium”. rulings explicitly recognize task panel AB question country’ environmental standards challenge country’ promote environmental goals; examination restricted objectives carried discriminatory manner. conclusion, development WTO jurisprudence lessens burden countries justify, provisionally, environmental measures inconsistent GATT, obligation assuring fulfil general requirements article XX. important point respect inclusion general exceptions — GATT — IIAs ensure State regulate environmental protection, provisions susceptible methods interpretation. context trade agreements GATT, shown exacting standard respect Exceptions clauses, countries ample institutional administrative capacities fail match. remains /... 31 Section II IIA issues paper series form including exceptions substantive provisions specific clause contained provisions, exemplified MAI Draft Negotiating Text, section relating performance requirements, states: “1. Contracting Party , connection establishment, acquisition, expansion, management, operation, maintenance, , enjoyment, sale disposition investment territory investor Contracting Party -Contracting Party, impose, enforce maintain requirements, enforce commitment undertaking: … () achieve level percentage domestic content; Box 5 (concluded) countries administrative resources capacities, requirements prove insurmountable obstacles. Source: UNCTAD addition, Uruguay agreements interact environmental measures, including Agreement Technical Barriers Trade Agreement Agriculture. Section 337 Tariff Act 1930 (United States), BISD 36S/345; , Restrictions Importation Internal Taxes Cigarettes (Thailand), BISD 37S/200. Restriction Imports Tuna (United States), GATT Panel Report . DS21/. Measures Affecting Exports Unprocessed Herring Salmon (Canada), BISD, 35S/114. Matter Canada’ Landing Requirement Pacific Coast Salmon Herring (Canada), Final Report Panel Chapter 18 (Oct. 16, 1989). Standards Reformulated Conventional Gasoline (United States), WT/ DS2/9. Import Prohibition Shrimp Shrimp Products (United States), WT/DS58/AB/. Environment IIA issues paper series32 () purchase, accord preference goods produced services territory, purchase goods services persons territory; … 4. [ measures applied arbitrary unjustifiable manner, constitute disguised restriction investment, paragraphs 1() 1() construed prevent Contracting Party adopting maintaining measures, including environmental measures: … () protect human, animal plant life health; () conservation living - living exhaustible natural resources]”. Similar language NAFTA (article 1106, paragraph 6) NAFTA-informed instruments 1996 Canada-Chile Free Trade Agreement (article -06: Performance Requirements, paragraph 6). Preserving State’ power prescribe regulation environmental protection supplemented — expressed Commentary 2000 OECD Guidelines — encouraging enterprises “work raise level environmental performance parts operations, formally required existing practice countries enterprises operate” (OECD, 2000b, . 9). recognized Commentary TNCs typically subject differing legal expectations aspects environmental performance, depending operate. * * * issue regulate environmental protection importance treatment protection clauses IIAs. concerns provisions IIAs, 33 Section II IIA issues paper series coupled investor-State dispute settlement procedures , private investors challenge measures host Governments intended preserve environment. concern academic, illustrated number cases arisen context NAFTA (box 6). Box 6. Challenging environmental measures NAFTA NAFTA, investment chapter (Chapter 11), treatment standards covered investment (articles 1102-1105), disciplines performance requirements (1106), expropriation compensation (article 1110), investor-State dispute settlement (articles 1115-1138). article 1114(1) NAFTA (quoted ), stipulates Member States retain regulate environmental concerns, investors free challenge measures international arbitration. article 1114(1) proviso environmental measures consistent Chapter 11, issue environmental measure consistent NAFTA chapter investment actionable. cases illustrate point: Ethyl . Canada (1997). Canada ’ Manganese-based Fuels Additives Act force 24 June 1997. Act, gasoline additive MMT schedule, resulted banning interprovincial trade importation Canada MMT. legal challenges legislation launched Government Canada: investor-State challenge NAFTA Chapter 11 Ethyl Corporation (United States); constitutional challenge Ontario Court Ethyl’ Canadian subsidiary (Ethyl Canada); dispute settlement panel established Agreement Internal Trade request Alberta (joined provinces). 20 July 1998, Government announced decision lift trade restrictions MMT removing MMT schedule annexed Act. decision responded Agreement Internal Trade Panel recommendations announced 19 July 1998, inconsistency Act obligations Agreement Internal Trade. Government dealt /... Environment IIA issues paper series34 Box 6 (continued) NAFTA investor-State challenge launched Ethyl Corporation constitutional challenge Ontario Court. terms settlement, Government paid $13 million Ethyl, representing reasonable independently verified costs lost profits Canada. Ethyl dropped claims. time settlement, NAFTA case moved preliminary jurisdictional challenge initiated Government, merits claim heard. Metalclad . Mexico (1997). Metalclad Corporation (United States) operations related facilities treatment, storage disposal industrial waste Mexican states. filed claim arbitration Government Mexico International Centre Settlement Investment Disputes (ICSID) Chapter 11 NAFTA. landfill operation question reportedly top illegal hazardous waste dump site, remediation partial consideration Mexican Federal authorities granting permits. , local construction operating permits granted municipality face opposition residents Guadalcázar environmental NGOs. Metalclad claimed investment expropriated Governor San Luis Potosi declared large area, included location Metalclad’ investment, ecological zone. environmental impact assessment revealed existence underground alluvial stream zone. 30 August 2000, NAFTA arbitration tribunal rendered award Metalclad Corporation . United Mexican States. tribunal Mexico financially responsible inability Metalclad successfully operate facility. Mexico breached NAFTA articles 1105 1110, awarded Metalclad $16,685,000 damages. Mexico agree conclusions panel, options respect award. . . Myers . Canada (1998). . . Myers, . (United States) filed lawsuit NAFTA’ chapter 11 dispute settlement procedures Canada lost profits 15-month (November 1995 — February 1997) ban polychlorinated biphenyls (PCBs) exports. /... 35 Section II IIA issues paper series Box 6 (continued) ban Canada imposed concerns PCBs, hazardous coolant electricity transformers, safely handled. United States company claimed temporary Canadian ban export PCB wastes harmed alleged investment Canada. Claimed damages $20 million. 13 November 2000, NAFTA Tribunal decision concluded Canada’ temporary ban breached provisions NAFTA investment chapter. Specifically, Canada breached obligations NAFTA Chapter 11 respect National Treatment (1102) Minimum Standard Treatment (1105). decision held Canada breach Chapter 11 respect Performance Requirements (1106) Expropriation (1110). noted Tribunal’ decision respect interim order, longer effect Canada. , tribunal explicitly acknowledged NAFTA members “ establish high levels environmental protection. obliged compromise standards satisfy political economic interests states”. , decision confirms NAFTA members retain ability regulate safe movement disposal hazardous wastes, including PCB wastes. Finally, amount damages .. Myers suffered, , determined stage arbitration. Methanex . United States (1999). Methanex Corporation (Canada) filed NAFTA claim United States damages allegedly resulting executive order Governor State California. Methanex contended order required removal MTBE — chemical compound produced methanol isobutylene render water undrinkable circumstances — fuel marketed California. California action light study raising concerns contamination water resources event MTBE leakage. Methanex contested validity environmental evidence claimed measure negatively impact global price product, methanol, markets part /... Environment IIA issues paper series36 3. Attracting FDI lowering environmental standards means protecting environment included IIAs undertaking relax environmental standards order attract FDI. provision included IIAs order answer concerns home host countries liberalization investment rules States provide incentive host states environmental standards order attract FDI. feared removing restrictions flows capital products encourage companies “high”-standard countries relocate “”-standard countries ( “pollution haven” hypothesis — box 7). “pollution haven” hypothesis, investors seek reduce production costs relocating, maintaining access markets countries. Environmentalists sides concerned creating pollution “hot spots” -standard countries, promoting downward pressure environmental standards sides border. Short actual undertaking relax environmental standards incentive FDI, agreement simply include assurance, preambular statement 1998 BIT Bolivia United States America, agreement’ economic objectives injurious environment “ achieved relaxing health, safety environmental measures general application” (UNCTAD, 1999a, . 119). fact, preambular clause featured April 1994 model BIT United States. similar formulation Box 6 (concluded) indirect United States subsidiary produces manufacturing plant United States. company asserted California’ measure tantamount expropriation, entitled compensation article 1110 NAFTA. writing, arbitration case pending resolution. Source: UNCTAD. 37 Section II IIA issues paper series considered BIT negotiation involving Netherlands Mozambique. 2000 OECD Guidelines, provide “Enterprises fully account established policies countries operate, views stakeholders. regard, enterprises : Box 7. “pollution haven” hypothesis approaches testing general “pollution haven” hypothesis (Adams, 1997). correlate outward FDI environmental standards. results support “pollution haven” hypothesis, .. hypothesis TNCs direct investment countries lax standards (Leonard, 1988; Repetto, 1995; Lucas al., 1992, Eskeland Harrison, 1997; Warhurst Bridge, 1997). study (Xing Kolstad, 1997) find predicted effect, robustness questioned sulphur dioxide emissions proxy environmental regulation larger model locational choice. , studies find environmental variable rarely significant. important variables remain traditional locational choice: factor endowments, infrastructure quality, distance market size (Eskeland Harrison, 1997). approach — case studies. approach, examines specific company decisions, proved successful finding cases support notion environmental standards factor TNC location decisions (WWF, 1998). Examples — Governments failing enforce environmental legislation firms acknowledging environmental standards factor — Costa Rica, Mexico, India, Indonesia, Papua Guinea Philippines (WWF, 1998 1999). approaches inherent difficulties. suffer imprecise measurement variables, environmental stringency difficulties plaguing FDI data affiliate production data general; rely heavily data United States. suffers selection bias - firms shifted documented. Source: UNCTAD, 1999a, . 298. Environment IIA issues paper series38 … 5. Refrain seeking accepting exemptions contemplated statutory regulatory framework related environmental, health, safety, labour, taxation, financial incentives, issues…” (OECD, 2000a, chapter 2). explained Commentary 2000 0ECD Guidelines, paragraph 6, words “ accepting” draw attention corollary — role Governments offering exemptions. NAFTA’ Chapter 11 similar clause article 1114 (paragraph 2): “ Parties recognize inappropriate encourage investment relaxing domestic health, safety environmental measures. , Party waive derogate , offer waive derogate , measures encouragement establishment, acquisition, expansion retention territory investment investor. Party considers Party offered encouragement, request consultations Party Parties consult view avoiding encouragement” . NAFTA “pollution haven” clause criticized legal observers weak (.. Johnson Beaulieu, 1996). NAFTA parties chose express commitment -binding language — acknowledging “inappropriateness” lowering standards, stating parties “ ” — prohibiting . , provision governed , “soft” enforcement provision, directs parties consultation procedures binding NAFTA dispute settlement provisions, resolve concerns. Utilizing stronger legal language “Package proposals text environment labour” annexed MAI Draft Negotiating Text (Proposal 3: Affirmation Regulate), Chairperson proposed text: 39 Section II IIA issues paper series “ Contracting Party waive derogate , offer waive derogate , domestic health, safety, environmental, labour measures, encouragement establishment, acquisition, expansion, operation, management, maintenance, , enjoyment sale disposition investment investor” . commitment stated mandatory language, corollary task linking obligation MAI dispute settlement procedures discussed negotiators (ibid., . 215). Linking provision mandatory dispute settlement procedure fact raise problems. NAFTA MAI provisions litigated, claimant party face substantial evidentiary challenges. Providing evidence party intentionally -designed domestic legislation “ encouragement” attract FDI difficult. critics NAFTA provision suggested vigorously enforcing commitment reverse intended effect. suggested , Governments aware subject suit time lowered environmental standard, provide disincentive experimenting higher standards instance (Johnson Beaulieu, 1996). 10 hand, standard proof necessarily show -designed domestic legislation “ encouragement” attract FDI, show lowering standards reflected change scientific evidence. standard proof event considered larger context comparison levels protection afforded legislation. Governments position argue policies objective basis, subjective element intent, reason experiment higher protective standards. , previously , concept relaxation environmental standards attract FDI includes concerns respect -application lax implementation environmental Environment IIA issues paper series40 regulations, chilling-effect attraction FDI improvements regulations. instances, , countries enter parallel environmental agreements, considered including provisions, buttress IIAs respect. , concern environmental effects liberalized trade investment led establishment North American Commission Environmental Cooperation 1994 North American Agreement Environmental Cooperation (NAAEC) (ILM, 1993b) framework NAFTA. NAAEC notable effort tie environmental performance investment ( trade) negotiations. NAAEC, NAFTA environmental “side agreement” ( North American Agreement Labor Cooperation) negotiated response perceived inadequacies NAFTA dealt environmental concerns. NAAEC addressed “ supplemental instruments address social agenda . . . satisfaction vocal interest groups citizenry” countries (Johnson Beaulieu, 1996, . 121). NAFTA parties agreed environmental objectives NAFTA included enhanced levels environmental protection, expressly included article 1 () NAAEC. , articles () () NAAEC specifically stated objectives NAFTA environmental side agreement strengthen cooperation improvement environmental laws regulations, enhancement enforcement. NAAEC “ specific protective measures, environmental standards, codes substantive rules” (ibid., . 128). , provide procedural means complaints addressed NAFTA party “ quality domestic administration enforcement environmental protection schemes party” (ibid., . 126). complaints resolved compulsory arbitration, leading imposition “monetary enforcement assessments” , resort, denial NAFTA benefits ( raising tariffs). , Commission Environmental Cooperation, established NAAEC, NAFTA Secretariat, accepts 41 Section II IIA issues paper series submissions NGOs, business individuals organizations “asserting Party failing effectively enforce environmental law” (ibid., . 152). complaints citizens lead publication “factual record” -enforcement, States party NAFTA authorized evidence formal dispute settlement. levels environmental protection, article 3 NAAEC, recognizing State develop environmental development policies, : “... party ensure laws regulations provide high levels environmental protection strive continue improve laws regulations” (ILM, 1993b, . 1483). environmental provisions included IIAs, proposed draft MAI, context annex 1, “Additional Environmental Proposals”. proposal contained provisions similar article 3 NAAEC. . Transfer environmentally sound technology Provisions transfer clean technologies environment-friendly products processes gaining ground, environmental agreements, IIAs.11 set question historical context, review treatment matter earlier agreements recognizable interface environment FDI existed. early 1972, principle 12 Stockholm Declaration (United Nations Conference Human Environment) (UNCHE, 1972) recognized international technical assistance developing countries. Principle 20 called “environmental technologies developing countries terms encourage wide dissemination constituting economic burden” (ibid.). Twenty years , United Nations Conference Environment Development (UNCED) Rio de Janeiro produced Agenda 21. Chapter 34 Agenda 21 (“Transfer Environmentally Sound Technology Cooperation Capacity-Building”) reflects Environment IIA issues paper series42 limited commitment part international community give attention transfer environmentally sound technology technical assistance (box 8), objectives Agenda 21 regard ensure access developing countries scientific technological information.12 observation left formal treaty arrangements translate objectives actual binding transfer--technology commitments (Sands, 1995). present context, important contribution Agenda 21 framework environmental responsibility explicitly reference role TNCs FDI. , lasting significance represents international commitment protection environment , demonstrated references important contemporary instruments, serves continuous point reference. Box 8. Agenda 21: selected TNC-related provisions transfer environmentally sound technologies Agenda 21 addresses role TNCs FDI respect transfer environmentally sound technologies chapters. Chapter 30 Agenda 21, entitled “Strengthening role business industry”, “… transnational corporations, representative organizations full participants implementation … activities related Agenda 21” [30.1]. specific reference technology transfer, “[]ultinational companies, repositories scarce technical skills needed protection enhancement environment, special role interest promoting cooperation related technology transfer, important channels transfer …” 34.27]. , role TNCs respect transfer environmentally sound technologies established. role FDI respect transfer technology similarly acknowledged Agenda 21. Chapter 33, entitled “Financial resources mechanisms”, states “[]obilization higher levels foreign direct investment technology rans fers /... 43 Section II IIA issues paper series Box 8 (concluded) encouraged national policies …” [33.15], specific reference modalities transfers, , joint ventures. modalities suppliers recipients technology, FDI, “ constitute important channels transferring environmentally sound technologies” [34.28]. purposes Agenda 21, technological knowledge divided public domain publicly owned [34.9], proprietary privately owned technology, commercial channels [34.11]. respect , “[]onsideration role patent protection intellectual property rights examination impact access transfer environmentally sound technology” [34.10], including “providing fair incentives innovators promote research development environmentally sound technologies” [34.11]. time, “ concept assured access developing countries environmentally sound technology relation proprietary rights” [34.10], modalities therefor [34.11], explored. provisions Agenda 21 specifically refer Chapter 34, issues relating changing consumption patterns [4.2], energy-efficient technology [7.49], conservation biodiversity [15.7], marine environment [17.37] mentioned. noted implementation activities related support promotion access transfer technology rests Governments, measures , context FDI, regarded host home country measures [34.18]. connection measures, question “ effective economic instruments market mechanisms … development introduction environmentally sound technology … transfer developing countries” considered [8.33]. Source: UNCTAD, based UNCED, 1993. Bracketed references original Agenda 21 provisions. Environment IIA issues paper series44 long delay establishing practical effective means ensure transfer environmentally sound technologies 1972 Stockholm Declaration reflected failed efforts international community adopt 1985 draft International Code Conduct Transfer Technology elaborated auspices UNCTAD. draft Code , case, mild references environmental issues se. Essentially limited information-sharing responsibility obligation parties (Chapter 5, paragraph 5.2()()). reference cooperation assistance development administration laws regulations designed avoid health, safety environmental risks technology resultant products (Chapter 6, paragraph 6.2(vi)). Real progress linking technology transfer concerns environmental issues equally slow international environmental agreements . Early treaties included general language exchange information technologies (Sands, 1995).13 , surprising case IIAs. concrete legal developments area transfer environmentally sound technology occurred 1985 Vienna Convention Protection Ozone Layer (ILM, 1987a). Vienna Convention requires parties facilitate encourage exchange scientific, technical, socio-economic, commercial legal information. , requires parties cooperate, conformity national laws, promoting “development transfer technology knowledge” (article 4 annex II). Article 10 (2) () 1989 Basel Convention Control Transboundary Movements Hazardous Wastes Disposal requires parties : “cooperate actively, subject national laws, regulations policies, transfer technology management systems related environmentally sound management hazardous wastes wastes” (United Nations, 1992). References specifically address FDI featured time. general protection clauses — owing paucity environmental provisions IIAs — ( background substance interface 45 Section II IIA issues paper series environment FDI) refer environmental agreements direct implicit reference investment relevance IIA negotiators area. , international environmental agreements provide obligations Governments translate obligations TNCs. Montreal Protocol Substances Deplete Ozone Layer (ILM, 1987b) .14 original 1987 Montreal Protocol simply cooperation information exchange promoting technical assistance developing countries purpose facilitating participation implementation Protocol (articles 9 10). London Copenhagen Amendments Protocol required party steps ensure “ , environmentally safe substitutes related technologies expeditiously transferred ” (article 10A) developing-country parties transfers occur fair favourable conditions. amended Protocol, establishment Multilateral Fund mechanism helping developing countries meet incremental costs enabling compliance meeting cost supplying substitutes controlled substances (article 10(1)).15 , suggested Montreal Protocol interpreted prohibit transfer technologies satisfy standards “environmentally safe”, expressly stating commitment (Sands, 1995). TNCs addressed Protocol, implications -evident. Clean Development Mechanism 1992 Framework Convention Climate Change (FCCC) (ILM, 1992a) called “[] relevant significant international environmental agreement discussion theme TNCs sustainable FDI” (Krut Moretz, 1999). FCCC requires parties promote cooperate “full, open prompt” exchange relevant scientific, technical, socio-economic legal information related climate system climate change (article 4(1)()). provision financial resources developed-country parties includes resources transfer clean technology. parties required “ practicable steps promote, facilitate, finance, , transfer , access , environmentally sound technologies - provisions Environment IIA issues paper series46 Convention” (articles 4(5) 11(1)). Kyoto Protocol (article 12) (United Nations, 1997) established Clean Development Mechanism , ratified, financial mechanisms stimulate climate-friendly investments developing countries. national policy action increasingly complemented international action, surprising growing importance global nature issue (UNCTAD, 1999a). mentioned outset, growing recognition protection environment requires giving attention entire range production processes products. , recognized “protection” largely form transferred clean technologies environment-friendly products. , explicit positive obligations areas scarce IIAs. , IIAs mention transfer technology, natures obligations respect tentative. , Telecommunications annex WTO-GATS agreement, paragraph 6 entitled “Technical cooperation”, : “… () Members give special consideration opportunities -developed countries encourage foreign suppliers telecommunications services assist transfer technology, training activities support development telecommunications infrastructure expansion telecommunications services trade” . arguable undertaking includes clean technologies management practices, relate development adequate infrastructure, cases entail threat environment. , noted provision mandatory language, obligation extends giving special consideration opportunities developed countries. stronger obligation argued include environmentally sound technology management 47 Section II IIA issues paper series practices article 66 WTO-TRIPS agreement, states: “…2.Developed country Members provide incentives enterprises institutions territories purpose promoting encouraging technology transfer developed country Members order enable create sound viable technological base” . germane commitment article 7 part II Energy Charter Protocol Energy Efficiency Related Environmental Aspects: “1. Consistent provisions Energy Charter Treaty, Contracting Parties encourage commercial trade -operation energy efficient environmentally sound technologies, energy-related services management practices. 2. Contracting Parties promote technologies, services management practices Energy Cycle” (ECP, 1995). , realized obligations Protocol extend encouragement promotion trade , , environmentally sound technology management practices. respect responsibility TNCs transfer environmentally sound technology, 1991 Business Charter Sustainable Development: Principles Environmental Management, prepared International Chamber Commerce (ICC) Commission Environment, adopted promote meeting present compromising ability future generations meet . Principle 13 specifically exhorts businesses contribute transfer environmentally sound technology. earlier 1987 report World Commission Environment Development, “ Common Future” (WCED, 1987), expressed challenge called cooperation business tackling . Environment IIA issues paper series48 similar clearer diction, 2000 OECD Guidelines, Chapter VIII entitled “Science Technology ”, article 2 “Enterprises : … practicable, … permit transfer rapid diffusion technologies -, due regard protection intellectual property rights” (OECD, 2000a, . 7). Article 4 chapter VIII enterprises, “ granting licenses intellectual property rights transferring technology, reasonable terms conditions manner contributes long term development prospects host country” (ibid.). relevant international agreements environment bearing environmental aspects transfer technology, worth mentioning 1992 Biodiversity Convention (ILM, 1992b). Convention established range provisions serve encourage, require, transfer environmentally sound technology. Convention addresses relationship technology transfer intellectual property rights investment se . important Convention “links effective implementation developing countries commitments effective implementation developed-country parties commitments related , inter alia, transfer technology” (Sands, 1995, . 745, reference article 20(4)). absence direct reference FDI, TNCs recognized main channel technology transfer developed developing countries. Biodiversity Convention, standard met – TNCs investors – transferring technologies elaborated obligatory language. Convention : parties “” provide / facilitate access , transfer , parties “technologies relevant conservation sustainable biological diversity genetic resources significant damage environment” (article 16(1)) (ILM, 1992b). access transfer developing-country parties technologies , , TNCs, place “fair 49 Section II IIA issues paper series favourable terms, including concessional preferential terms mutually agreed” (ibid.) terms recognize ( consistent ) adequate effective protection intellectual property rights (article 16(2)). Technologies genetic resources parties, developing- country parties, accessed transferred parties “mutually agreed terms”, including technology protected patents intellectual property rights, , provision Convention relating financial resources financial mechanism (article 16(3); articles 20 21). , party measures aim private sector facilitates access joint development transfer technologies (article 16(4)). , IIAs relevant international instruments promote transfer environmentally sound technology encourage measures part Governments TNCs respect. , IIAs promotion form performance requirements. , NAFTA, article 1106(1)() “ Party impose enforce requirements, enforce commitment undertaking, connection establishment, acquisition, expansion, management, conduct operation investment investor Party -Party territory… transfer technology, production process proprietary knowledge person territory…”. subject order intended remedy violation competition laws host country , act manner inconsistent provisions NAFTA. , article 1106 (2) NAFTA “ measure requires investment technology meet generally applicable … environmental requirements construed inconsistent paragraph 1()”. measures subject national -favoured- nation treatment standards Treaty. NAFTA, allowing State mandate environmentally sound technologies, preclude transfer . robust approach 1998 BIT Bolivia United States. parties undertook mandate enforce, “condition establishment, Environment IIA issues paper series50 … conduct operation covered investment, requirement (including commitment undertaking connection receipt governmental permission authorization) … transfer technology ” (UNCTAD, 1999a, . 120). subject order intended remedy violation competition laws host country, incentives. , Bolivia-United States BIT operate measures host country mandate transfer environmentally sound technologies. preceding review provisions address transfers clean technology reflects, case protection environment general, recognition address issue international agreements. , analysis confirms, room strengthen relevant provisions. Naturally, realized real test provision implementation. . Transfer environmentally sound management practices addition transfer environmentally sound technologies, diffusion utilization sound environmental management practices component FDI offer objective environmental preservation. 1990, United Nations Centre Transnational Corporations (UNCTC) elaborated set “Criteria Sustainable Development Management”, request United Nations Economic Social Council. criteria steps TNCs transfer sound environmental management techniques host countries enhance sustainable development. , corporations encouraged provide education perform environmental audits - activities, developing countries, verify criteria adequately considered. Sustainable development management criteria, identified UNCTC, included instituting research- -development work reduction / elimination industrial products processes generate greenhouse gases arranging environmentally safer technologies affiliates developing countries extra internal charges. 51 Section II IIA issues paper series Agenda 21 informed instruments enterprise- specific pronouncements, including recognition environmental management high corporate priority (box 9). Box 9. Agenda 21: selected references TNC responsibilities respect environmentally sound management practices Agenda 21 acknowledges role TNCs play mitigating environmental harm development implementation policies operations result “ efficient production processes, preventive strategies, cleaner production technologies procedures product life cycle” [30.2]. , TNCs urged “recognize environmental management highest corporate priorities key determinant sustainable development” [30.3]. , Agenda 21 encourages TNCs : 1. aim increase efficiency resource utilization, including increasing recycling reducing waste discharge [30.6]; 2. develop implement methodologies internalization environmental costs accounting pricing mechanisms [30.9]; 3. report annually environmental records, adoption implementation codes conduct promoting environmental practices [30.10]; 4. establish world-wide corporate policies sustainable development arrange environmental ly sound technologies affiliates owned substantially parent company developing countries extra external charges [30.22]; 5. establish partnership schemes small medium-sized enterprises facilitate exchange experience managerial skills, market development technological - [30.23]; /... Environment IIA issues paper series52 inclusion sound environmental management 1991 OECD Guidelines recognition important component sustainable development, increasingly opportunity responsibility business, TNCs. 1991 version section entitled “Environmental Protection” : “Enterprises … due account protect environment avoid creating environmentally related health problems. , enterprises, multinational domestic, : 1. Assess, account decision making, foreseeable environmental environmentally related health consequences activities, including citing decisions, impact indigenous natural resources foreseeable environmental environmentally related health risks products generation, transport disposal waste; 2. -operate competent authorities, inter alia, providing adequate timely information potential Box 9 (concluded) 6. increase research development environmentally sound technologies environmental management systems [30.25]; 7. ensure responsible ethical management products processes point view environmental aspects [30.26]; 8. adopt implement, operate, policies standards operation reference hazardous waste generation disposal equivalent stringent country origin [20.29]. Source: UNCTAD, based UNCED, 1993. Bracketed references original Agenda 21 provisions. 53 Section II IIA issues paper series impacts environment environmentally related health aspects activities providing relevant expertise enterprise ; 3. measures operations minimise risk accidents damage health environment, -operate mitigating adverse effects, : ) selecting adopting technologies practices compatible objectives; ) introducing system environmental protection level enterprise including, , environmental auditing; ) enabling component entities adequately equipped, providing adequate knowledge assistance; ) implementing education training programmes employees; ) preparing contingency plans; ) supporting, manner, public information community awareness programmes”. Environmental protection attention 1999/2000 review OECD Guidelines. primarily due 1992 Rio Declaration Agenda 21 added reinforcement corporate codes, notable ICC Business Charter Sustainable Development. resulted strengthened Environment Chapter (Chapter ) (box 10), respect environmentally sound management practices. coverage 2000 OECD Guidelines, Commentary reference principles objectives contained , inter alia, Rio Declaration Agenda 21, broadened deepened include establishing maintaining environmental Environment IIA issues paper series54 Box 10. environmental chapter 2000 OECD Guidelines . ENVIRONMENT “Enterprises , framework laws, regulations administrative practices countries operate, consideration relevant international agreements, principles, objectives standards, due account protect environment, public health safety, generally conduct activities manner contributing wider goal sustainable development. , enterprises : 1. Establish maintain system environmental management enterprise, including: ) collection evaluation adequate timely information environmental, health, safety impacts activities; ) establishment measurable objectives , , targets improved environmental performance, including periodically continuing relevance objectives; ) regular monitoring verification progress environmental, health, safety objectives targets. 2. account concerns cost, business confidentiality, protect intellectual property rights: ) provide public employees adequate timely information potential environment, health safety impacts activities enterprise, include report ing progress improving environmental performance; ) engage adequate timely communication consultation communities affected environmental, health safety policies enterprise implementation. /... 55 Section II IIA issues paper series Box 10 (continued) 3. Assess, address decision-making, foreseeable environmental, health, safety-related impacts processes, goods services enterprise full life-cycle. proposed activities significant environmental, health, safety impacts, subject decision competent authority, prepare environmental impact statement. 4. Consistent scientific technical understanding risks, threats damage environment, account human health safety, lack full scientific certainty reason postponing cost-effective measures prevent minimise damage. 5. Maintain contingency plans preventing, mitigating, controlling environmental health damage operations including accidents emergencies; mechanisms reporting competent authorities. 6. Continual ly seek improve corporate environmental performance, encouraging, , activities : ) Adoption technologies operating procedures parts enterprise reflect standards environmental performance performing part enterprise; ) Development provision products services undue environmental impacts; safe intended ; efficient consumption energy natural resources; reused, recycled, disposed safely; /... Environment IIA issues paper series56 management enterprise, essentially limited collection evaluation information monitoring establishment measurable objectives targets improved environmental performance. , managers enterprises exhorted “give attention environmental issues business strategies” (OECD, 2000b, . 8). “Sound environmental management”, referred 2000 OECD Guidelines, interpreted “ broadest sense, embodying activities aimed controlling direct indirect environmental impacts enterprise activities long-term, involving pollution control resource management elements” (ibid.). , environment chapter 2000 OECD Guidelines reflects principles sound management practices contained Rio’ Agenda 21. reflects standards contained instruments International Organization Standardization Box 10 (concluded) ) Promoting higher levels awareness customers environmental implications products services enterprise; ) Research ways improving environmental performance enterprise longer term. 7. Provide adequate education training employees environmental health safety matters , including handling hazardous materials prevent ion environmental accidents, general environmental management areas, environmental impact assessment procedures, public relations, environmental technologies. 8. Contribute development environmentally meaningful economically efficient public policy, , means partnerships initiatives enhance environmental awareness protection.” Source: OECD, 2000a, pp. 5-6. 57 Section II IIA issues paper series (ISO) Standard Environmental Management Systems (ISO, 1998). fact, ISO developed special standards environmental management. TNCs singled addressees, -called “ISO 14001” (box 11) developed series tools encompassing standards environmental management guidelines environmental performance analysis generally , , direct bearing TNC management practices, home . Box 11. ISO 14001 standards environmental management systems ISOa 14001, part ISO 14000 family International Standards environmental management, specifies requirements environmental management system — management processes activities influence environmental impact. organization implement ISO 14001 internal benefits provide, reduced cost waste management; savings consumption energy materials; clarification environmental responsibilities organization. addition, standard basis certification environmental management system independent “registration” “certification” body. ISO carry conformity assessment issue ISO 14001 certificates. ISO 14001-certified environmental management system intended provide confidence external parties organization control significant environmental aspects operational processes, committed comply relevant environmental legislation continually improve environmental performance. independent certification integral part environmental management strategies: certificates conformity ISO 14000 increased fifty-fold years 1995 1999. Firms seeking certification required steps: • initial review management identify environmental issues concern (.. excessive polluting inputs; potential environmental accident); • establishment priorities action, account local environment regulations potential costs; /... Environment IIA issues paper series58 Box 11 (concluded) • establishment environmental policy statement, signed CEO, includes commitments compliance environmental regulations, pollution prevention continuous improvement; • development performance targets based policy statement (.. reduction emissions set amount defined period); • implementation environmental management systems, defined procedures responsibilities; • implementation reviews, performance measurement management audits. , bulk certificates issued firms developed countries. reflects demand countries environmentally responsible management. Developing countries starting obtain greater share certificates issued. TNCs role play assisting, , developing countries upgrade abilities certification bodies, , , domestic firms, operations suppliers, meet certification requirements. Source: UNCTAD, based ISO, 1998. International Organization Standardization, based Geneva, publishes voluntary standards technology business activity. ISO, 1999. participation developing countries standard-setting bodies, Krut Gleckman, 1998 * * * previously, environmental protection vast subject transcends interface FDI IIAs. stock key issues addressed 59 Section II IIA issues paper series IIAs relevant international instruments, developments deserve discussion. notable development concerns increasing awareness calls studying measuring potential impact production environment. development, contribution environmental awareness protection, closely linked issues discussed environmentally sound management practices TNCs. respect environmental assessment studies, issue arises context FDI screening investment projects. general trend providing incentives TNC entry moving screening FDI, IIAs provide pre-admission screening mechanisms environmental grounds requirement submission environmental impact assessment studies. , article 19(1) Part IV ECT, “[] Contracting Parties agree polluter Areas Contracting Parties, , principle, bear cost pollution, including transboundary pollution, due regard public interest distorting Investment Energy Cycle international trade. Contracting Parties ... [inter alia ] ... promote transparent assessment early stage prior decision subsequent monitoring, Environmental Impacts environmentally significant energy investment projects; ...” (ECT, 1995). Convention Environmental Impact Assessment Transnational Boundary Context instrument affects investment projects requirement environmental impact studies. Article 2(2) : “[]ach Party legal, administrative measures implement provisions Convention, including, respect proposed activities listed Appendix significant adverse transboundary impact, establishment environmental impact assessment procedure permits public participation preparation environmental impact assessment documentation Appendix II” (ICEL, 1995).16 Environment IIA issues paper series60 important point article 2(3) Convention Environmental Impact Assessment Transnational Boundary Context requires “[] Party origin ensure accordance provisions Convention environmental impact assessment undertaken prior decision authorize undertake proposed activity listed Appendix significant adverse transboundary impact” (ibid.). provision effect establishes environmental screening mechanism respect FDI. issue addressed ancillary fashion — obtaining investment insurance — World Bank Group’ Multilateral Investment Guarantee Agency (MIGA). MIGA, informed national-level schemes United States’ Overseas Private Investment Corporation (United States, 1999), requires environmental assessment proposed projects applicant guarantee (box 12). MIGA important investors developing countries , contrary virtually developed countries, developing countries typically provide insurance outward FDI. investment insurance facility firms countries. development concerns issue environmental reporting standards. involves inclusion financial measurements impact production environment relevant reports, -financial information respect environmental impact operations. Accounting reporting environment increasingly relevant TNCs. users financial statements extent company’ environmental exposure company managing environmental costs liabilities. connection, technical position paper endorsed UNCTAD’ Intergovernmental Working Group Experts International Standards Accounting Reporting (ISAR) put consideration Governments, enterprises interested parties order contribute quality environmental accounting reporting harmonization (United Nations, 1999). 61 Section II IIA issues paper series Box 12. MIGA: investment guarantees environmental assessment achieve objective helping ensure guarantees projects environmentally sound sustainable, MIGA requires evaluation potential environmental impacts proposed project. seeks assessments improve project planning, design implementation preventing, minimizing, mitigating compensating adverse environmental impacts. MIGA “favour preventive measures mitigatory compensatory measures, feasible” (MIGA, 1999, paragraph 2). environmental assessment proposed project includes identification relevant obligations host country international environmental treaties agreements, MIGA issue guarantees projects contravene obligations. initial screening proposed investment MIGA determines extent type environmental assessment. proposed investment classified categories (, ) “depending : type, location, sensitivity, scale project; nature magnitude potential environmental impacts” (ibid., paragraph 8). criteria classification investment include : • significant adverse environmental impacts sensitive, diverse unprecedented (category ) • impacts site-specific reversible, , cases, mitigatory measures designed (Category ); • produces negligible adverse impacts environment (Category ). applicant advised MIGA’ environmental assessment requirements. types reports satisfy MIGA’ environmental assessment requirements listed defined annex MIGA’ Operational Regulations (ibid., paragraph 7 /... Environment IIA issues paper series62 Environmental reporting respect -financial information policies, practices statements TNCs explicitly encourage chapter III 2000 OECD Guidelines. , enterprises encouraged “ apply high quality standards -financial information including environmental… reporting exist” (OECD, 2000a, .4). , enterprises encouraged report “ statements statements business conduct intended public disclosure including information … environmental policies enterprise codes conduct company subscribes” (ibid.). * * * Box 12 (concluded) “Definitions”). report provide “ clear understanding sponsor’ approach environmental mitigation management” (ibid., paragraph 7, footnote 5). provide MIGA “ adequate basis decision offer guarantee” (ibid., paragraph 5), “ requiring specific actions conditions guarantee” (ibid. paragraph 7, footnote 5). cases, includes requirement public disclosure instrument, consultations “project-affected groups local - governmental organizations” (ibid., paragraph 9). guarantee contract issued, MIGA requires guarantee holders operate compliance host country’ environmental related laws regulations, MIGA’ environmental policies guidelines, specific requirements set MIGA. Compliance verified warranties representations, monitoring reports, site visits, measures. Failure guarantee holder cooperate respect verification mechanisms, abide relevant laws, regulations, specific requirements, entitles MIGA terminate guarantee. addition, MIGA deny payment claim -compliance corrected period set Contract Guarantee. Source: UNCTAD, based MIGA, 1999. 63 Section II IIA issues paper series IIAs number international instruments address linkage environment FDI. protection environment generally referred respect responsibility Governments TNCs. formulations, depending scope instrument purposes objectives signatories. addition, specific issues relating regulatory powers practices Governments noteworthy. , IIAs provide Governments retain regulate. , parties IIAs undertake standards order attract FDI. , contemporary IIAs relevant international instruments ( Agenda 21) expressly recognize role FDI transfer environmentally sound technology management practices, urge measures part Governments TNCs regard. Provisions respect acquire enhanced legal practical significance future rule-making. Notes 1 paper highlight provisions Agenda 21 specifically address TNCs respect environmental protection, relevant interface FDI TNCs hand environment . recognized Agenda 21 numerous articles, Chapter 30, address actors business industry, includes TNCs. 2 noted, instruments cited UNCTAD, 1996 2000a. 3 preambular language, part “operative” text IIA, influence interpretation treaty’ substantive obligations. 4 footnote 3 Preamble MAI Draft Negotiating Text. NGO perspective MAI environmental protection, , WWF, 1998a. 5 General references, binding language “”, provisions setting approach strategies aimed realizing objectives agreement (article 20), conditions regional cooperation (article 30), institutional development capacity building (article 33). declaratory provision article 42 acknowledges importance clean marine environment area marine transport development. Environment IIA issues paper series64 6 specific areas mentioned fact broad, include tropical forests, fisheries resources, soils, biodiversity ecosystems. 7 Due heightened awareness environmental concerns earlier code movement, prompted part reactions industrial accidents Bhopal, chapter environment added 1991 Review, discussed . 8 OECD Principles constitute set -binding corporate governance standards guidelines, prepared OECD task force consultation national Governments, relevant international organizations private sector. Principles approved OECD Council ministerial level 26-27 1999. 9 article 2101 apply NAFTA’ Chapter 11 investment, NAFTA , performance requirements prohibitions, national measures require investment technology meet generally applicable health, safety environmental requirements (article 1106, paragraph 2). 10 reasons MAI Chairperson recommended MAI Draft Negotiating Text accompanied interpretative footnote, “[ Parties] recognize Governments flexibility adjust health, safety, environmental labour standards time public policy reasons attracting foreign investment” (UNCTAD, 2000a, vol. IV, . 215). 11 Provisions relating transfer technology, general terms, included number international instruments. issue technology transfers context IIAs dealt Series (UNCTAD, forthcoming ). , provisions address transfer environmentally sound technologies discussed. 12 Numerous provisions Agenda 21 address technology transfer context. chapters include articles pertain human resources development capacity building respect transfer environmentally sound technologies. chapters include environmental infrastructure human settlements, energy efficiency consumption, combating deforestation desertification, sustainable agriculture rural development, biological diversity, water resources, toxic dangerous products, hazardous wastes. 13 1979 Long-Range Transboundary Air Pollution Convention, Art. 8() (ILM, 1979); 1988 NOx Protocol, Art. 3 (Exchange Technology) (ILM, 1988); 1991 VOC Protocol, Art. 4 (Exchange Technology) (ILM, 1991b). 14 Protocol Vienna Convention Protection Ozone Layer (ILM, 1987a). amendments Protocol: adopted London “ 1991 London Amendment” (Montreal Protocol 65 Section II IIA issues paper series Parties: Adjustments Amendments Montreal Protocol Substances Deplete Ozone Layer) (ILM, 1991a), adopted Copenhagen, “ 1993 Copenhagen Amendment” (United Nations: Montreal Protocol Substances Deplete Ozone Layer. Adjustments Amendments) (ILM, 1993c). 15 Art. 10(1); Annex VIII, Indicative List Categories Incremental Costs, UNEP/OzL.Pro.4/15, 25 November 1992, 51 735C6; Global Environmental Fund, Birnie Boyle, 1995. 16 review list activities fin Appendix reveals closer connection Convention FDI, includes operations traditionally involved TNCs. Activities include types refineries, power stations, chemical installations. included groundwater abstraction activities; pulp paper manufacturing; major mining, -site extraction processing ores coal; offshore hydrocarbon production; , deforestation large areas. addition, infrastructure projects size included list. construction motorways, railways, airports, oil gas pipelines, seaports, waste-disposal installations, chemical treatment plants, large dams, major storage facilities petrochemical products. “Impact” means effect caused proposed activity environment including human health safety, flora, fauna, soil, air, water, climate, landscape historical monuments physical structures interaction factors; includes effects cultural heritage socio-economic conditions resulting alterations factors (article 1(vii) Convention). Section III INTERACTION WITH OTHER ISSUES AND CONCEPTS issue environment number interactive effects number issues concepts covered present Series, cases, extensive (table 1). areas, , interaction extensive. Table 1. Interaction issues concepts Concepts papers Environment Scope definition + Admission establishment ++ Incentives ++ Investment-related trade measures + -favoured-nation treatment + National treatment + Fair equitable treatment + Transfer pricing 0 Competition 0 Transfer technology ++ Employment + Social responsibility ++ Taxation 0 Home country measures + Host country operational measures + Illicit payments 0 property ++ State contracts 0 Transfer funds 0 Transparency + Dispute settlement (investor-State) ++ Dispute settlement (State-State) + Source: UNCTAD. Key: 0 = negligible interaction. + = moderate interaction. ++ = extensive interaction. Environment IIA issues paper series68 • Admission establishment. critical point intervention Governments assess potential impact FDI — investments involving large-scale projects pollution-intensive industries — environment time entry TNC. typically screening mechanisms, environmental assessment studies. • Incentives . generally concern countries, competition attract FDI, lowering environmental standards reduce costs foreign investors. IIAs sought address concern, discussed earlier text (UNCTAD, forthcoming ). • Technology transfer. Provisions IIAs generally deal transfer technology include automatically transfer environmentally sound technology. , discussion broader topic (UNCTAD, forthcoming ) immediately relevant subject paper. • Social responsibility. Contributions TNCs maintenance promotion environmentally sound policies, operational standards practices, technologies products substantive standards social responsibility, increasingly reflected corporate codes conduct , , part Global Compact (UNCTAD, 1999a UNCTAD, forthcoming ). • property . Measures pertaining protection environment result effective loss management, control, significant depreciation , assets foreign investor fall category “regulatory takings” (UNCTAD, 2000c). takings clause IIA encompasses measures compensation foreign investors, chilling effect efforts host countries protect environment. • Investor State dispute settlement. discussed earlier, effects investor-State dispute settlement arrangements IIAs environmental measures require careful 69 Section III IIA issues paper series consideration, light experience context NAFTA. ( general discussion investor- State dispute settlement, UNCTAD, forthcoming .) CONCLUSION: ECONOMIC AND DEVELOPMENT IMPLICATIONS AND POLICY OPTIONS sustainable development perspective, protection environment, possibility contribution FDI environmental welfare, controversial international issues. awareness environmentally friendly products, technology management practices / inadequate attention products processes producers consumers, impose high costs terms environmental degradation natural resources depletion , turn, negatively affect national development. part, FDI — , , firms competitive advantages enable overcome disadvantage operating foreign locations — hold potential international transfer environmentally sound practices knowledge contribute sustainable development. , respect question countries balancing economic impact sought FDI, hand, environmental preservation, hand, controversy exist. scant evidence occurrence significant scale, countries, hard attract FDI, tempted induced environmental standards increase locational advantages TNCs. , absence deliberate policies practices TNCs respect diffusion environmentally sound technologies management practices operations – IIAs prohibit imposition performance requirements investors covered agreements – policy options countries scarce financial resources acquisition technologies - remain limited. Environment IIA issues paper series72 National policymakers managers TNCs contribution protection environment, promoting transfer environmentally sound technologies management practices foreign affiliates located countries, host developing countries local firms linked . contribute long-term sustainable development country question. time, corporation’ perspective, good business sense adopt environmentally sound policies practices — terms minimizing potential liabilities, responding consumer preferences safeguarding corporate image. Traditionally, environmental concerns addressed national laws codes conduct adopted corporations industry groups. , concerns addressed international arrangements related environment, context IIAs. context, number questions arise. extent IIAs general contribute environmental welfare light specialized instruments dealing environment IIAs address environmental concerns, standards included , standards defined, addressed, binding -binding interact standards contained specialized instruments environment discussion questions require balancing sets arguments. , prescription standards circumstances amount form disguised protectionism. , promote environmental standards outweigh negative impacts trade investment growth patterns possibly, intellectual property rights. light discussion preceding sections, range policy options IIA negotiators environmental matters. Series, intention advocate , provide range alternatives: 73 Conclusion IIA issues paper series • Option 1: reference environment. , IIAs specific provisions environment protection. option, national laws remain principal means environmental protection ways means providing framework ensuring achievement related preservation objectives, involving issues relating FDI. , reasoned specialized international environmental agreements — extent national laws — suited IIAs address issues. , argued autonomous efforts TNCs meet surpass national international environmental standards adequate guide policy development area. Proponents line reasoning maintain focus governmental action limited cultivation encouragement environmentally friendly corporate management cultures strategies, including related transfer environmentally sound technologies management practices. include promotion establishment enforcement internal corporate industry-wide codes conduct. , environmental issues important extent countries address commitments actors FDI respect protection environment IIAs, options present . , emphasized litmus test effective protection environment implementation relevant provisions. • Option 2: -binding declaratory provisions related environment. Countries simply confirm commitment environmental preservation. limited exhortation parties generally promote environmental welfare. words, — preamble section instrument — simply Environment IIA issues paper series74 exhort parties account preservation environment, included string issues, social responsibility consumer protection. Alternatively, general references IIAs manifest parties’ consideration attention , environmental welfare general , , international environmental arrangements. model approach preamble Energy Charter Treaty: “Recalling United Nations Framework Convention Climate Change, Convention Long-Range Transboundary Air Pollution protocols, international environmental agreements energy- related aspects; Recognizing increasingly urgent measures protect environment, including decommissioning energy installations waste disposal, internationally-agreed objectives criteria purposes, …” , parties declaratory statements protect promote environment, affirm belief objectives IIA achieved compromising environment lowering environmental standards. Declaratory statements incorporated IIAs. BIT concluded Bolivia United States Mozambique Netherlands, MAI Draft Negotiating Text. Negotiating parties provide -binding provisions address aspects environmental protection detail. introduction provisions reduce indeterminacy effects inclusion hortatory provisions IIAs terms implementation, application dispute settlement. 75 Conclusion IIA issues paper series accomplished making reference agreements context IIA. model approach MAI Draft Negotiating Text. part MAI entitled “Relationship International Agreements” incorporated OECD Guidelines Multinational Enterprises, included recommendations environmental protection, agreement stated: “2. Contracting Parties … encouraged participate Guidelines work … order promote -operation application, … Guidelines … 4. Annexation Guidelines bear interpretation application Agreement, including purpose dispute settlement; change -binding character…”. MAI approach points general variation. IIAs intergovernmental instruments , hortatory language typically refers States. , parties IIAs intend address TNCs, case MAI, hortatory provisions protection environment, transfer environmentally sound technologies management practices included IIA. -binding language prove easier negotiate legally binding provisions. , concern establishment legal obligations potentially stifle initiatives reach higher standards respect environmental protection, inclusion - binding provisions provide . respect provisions addressed States, noted States, implementation “soft” international commitments, create customary norms, , time, “hard” legal obligations, enforceable customary rules international law. Environment IIA issues paper series76 • Option 3: Specific clauses reservation regulatory powers respect environment . nature provisions commitments undertaken IIAs (mis-)interpreted hamper ability Governments protect environment effectively. case, measures interest environmental concerns construed expropriations. case IIA, provisions relating environmental regulation, performance requirements strengthened mandatory, final binding international arbitral procedures settle investor-State disputes. , parties IIAs find clarify specifically obligations thereunder diminish power measures protect environment. approach specific clause encourages requires parties measures ensure covered investments conform environmental standards host country. Countries prefer introduce “carve-” clauses environmental measures. method carving environmental regulation ambit provisions IIAs inclusion general specific exceptions provide legal basis justifying relevant measures affect covered investments, precluded IIA. general exceptions model GATT article XX. specific exception model draft MAI respect performance requirements. introduction type carve- clause establishes unequivocally environmental measures included category prohibited performance requirements, measures, normal scope governmental regulatory activity, submitted investor-State arbitral panel. carve- option considered regard subject-matter jurisdiction investor-State dispute settlement bodies. , parties include provision exclude claims arising environmental 77 Conclusion IIA issues paper series measures affect covered investments pursued investor-State dispute settlement processes , leave matters State--State dispute settlement processes. Proponents technique point , States share common interest regulating environmental welfare, disputes handled regulators, narrower perspective created dispute investor host State. IIAs, regional plurilateral, wider scope ( economic integration agreements), “positive list” “negative list” approach respect obligations. words, parties agreements allowed “opt- ” “opt-” industries economies, subject ( excluded ) investment- related obligations undertaken IIA. method , countries choose carve- environmentally-sensitive industries coverage provisions agreement. noted option cases, , IIA disciplines performance requirements, application country exclude industries sensitive environmental stress. cases, , opting industry remain immune important investment protection provisions IIAs place country competitive disadvantage vis-à-vis countries accept obligations, strengthened domestic regulatory framework respect environmental protection. BITs condition entry foreign investment conformity relevant national legislation, negotiated IIAs sought extend general treatment standards pre-establishment stage. cases, screening foreign investment run counter standards, include environmental impact assessments. hand, environmental impact assessments required -discriminatory basis, Environment IIA issues paper series78 problem arise. hand, general environmental regulatory framework exists country relies project--project screening method ensure environmental protection, differential treatment unavoidable. , option carve- screening mechanisms intended protect environment, environmental impact assessments, specific clauses, modification treatment provisions provide differential treatment dissimilar circumstances. • Option 4: Specific clauses lowering environmental standards. corollary regulate environmental protection issue lowering environmental standards means attract FDI. parties possibility exists, address IIAs, specific clauses effect included. context negotiations issues, concerns arise respect necessity ad hoc relaxation environmental standards circumstances FDI related. include, , experiment levels protection, temporarily raise standards meet transitory environmental stresses, issue individual waivers quickly resolve specific cases damage environment. circumstances account clauses obliging countries environmental standards. model reflects strongly formulated approach issue lowering environmental standards MAI Draft Negotiating Text’ proposal 3. binding language preferred issue, negotiations address legal test devised clear cases lowering environmental standards intended attract FDI distinguished cases lowering legitimate reasons, incidental impact FDI flows. • Option 5: Generally mandatory environmental provisions IIAs. environmental welfare integral purposes 79 Conclusion IIA issues paper series IIA, parties binding environmental clauses advance objectives. , option dealing environmental concerns enshrine principles related standards concrete provisions IIAs. case, obligations undertaken parties, breach consequences international law. addition undertaking binding commitments matter purely international legal obligation, parties making treaty provisions effective , depending nature obligation, create effective rights respective national legal systems. obligations phrased general terms. , , parties agree measures ensure investment activities respective territories carried based environmentally sound policies practices. Alternatively, specific provisions formulated, informed domestic standards similar contracting parties, internationally agreed environmental standards accepted . , standards dealing products production technologies, processes practices. addition, standards provide certification procedures, reporting requirements, testing analysis undertakings, insurance environmental damage. include environmental impact assessments related accounting reports. providing explicitly mandatory provisions environment, parties simply incorporate reference standards legal systems frameworks IIAs. incorporation technique provide inclusion mutually recognised domestic international environmental standards reflected , , multilateral environmental agreements. consequence incorporation option obligations IIA mirror incorporated domestic international standards. , determination Environment IIA issues paper series80 nature scope application obligations depends domestic legal system international regime derived. NAFTA model option, , article 104 entitled “Relation Environmental Conservation Agreements”, : “1. event inconsistency Agreement specific trade obligations set : . Convention International Trade Endangered Species Wild Fauna Flora, Washington, March 3, 1973, amended June 22, 1979, . Montreal Protocol Substances Deplete Ozone Layer, Montreal, September 16, 1987, amended June 29, 1990, . Basel Convention Control Transboundary Movements Hazardous Wastes Disposal, Basel, March 22, 1989, entry force Canada, Mexico United States, . agreements set Annex 104.1, obligations prevail extent inconsistency, Party choice equally effective means complying obligations, Party chooses alternative inconsistent provisions Agreement. 2. 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