Afrin Shaikh (Research Intern)
Natural resources of a country contribute considerably to its economic growth. But many resource-rich countries are plagued with unsustainability, conflicts, poor governance, corruption and weak economic performance. This resource curse makes us contemplate whether resource-rich nations tend to have less economic growth, less democracy, and worse development outcomes than countries with fewer natural resources. The Extractive Industries Transparency Initiative (EITI) is one such initiative that ensures transparency of natural resource management. It has been promoted to increase accountability of natural resources in the extractives sector and address this “resource curse.”
Natural resource governance refers to the norms, institutions and processes that determine how power and responsibilities over natural resources are exercised, how decisions are taken, and how citizens – women, men, indigenous peoples and local communities – participate in and benefit from the management of natural resources. The Natural Resource Governance Framework (NRGF) is an International Union for Conservation of Nature (IUCN) initiative created to provide a robust, inclusive, and credible approach to assessing and strengthening natural resource governance, at multiple levels and in diverse contexts. They have, time and again, provided for deepening economic integration.
Economic integration, an association between countries to eliminate trade barriers, has led to expansion and integration of natural resource extraction. It is not just about large-scale mining, petroleum, logging, and agribusiness developments but also through the small-scale producers that are integrated into the commercial value chains. This results in the transfer of the resource rights of indigenous peoples and small scale producers to the commercial sectors.
With the development of law, we have been integrating the evolutions in international law in our national legal systems. The development of laws has converted land and resources to commercial assets and has allocated them to foreign investors. Though it has facilitated integration into global commodity chains there is a lot of resistance from the indigenous people. They have challenged these national and international arrangements as they perceive it as an encroachment on their land. This has given rise to concerns about ‘land grabbing’, ‘resource nationalism’, resource commodification and also investment protection arrangements. Further, it has added fuel to the concern about economic dis-integration which is the focus of this article.
The question now is whether the decades-old arrangement of trade and investment liberalization is now at stake due to the growing unrest amongst the local actors. Keeping this in view, efforts have been made to reintegrate the disintegrated legal and social realities by recognizing local systems of practice and belief and more effectively considering human rights in investment disputes.
The article thus aims to explore the legal aspects of natural resource extraction of economic integration and understand comprehensively its movement towards dis-integration. It also covers the critiques of investor-state dispute settlements. Though it is a global issue, the focus here is on Global South where colonial legacies and post-independence evolutions have often aligned legal systems with economic integration models and are based on resource extraction.
RESOURCE NATIONALISM AND DIS-INTEGRATION
Since time immemorial, humans have taken efforts to make arrangements to govern relations affecting the surrounding environment. Along with maintaining peace and harmony it also facilitates economic and political growth.
Economic integration is an arrangement among nations that typically includes the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies. It aims to reduce costs for both consumers and producers and to increase trade between the countries involved in the agreement. The European Union, for example, represents a complete economic integration. However, they may create a diversion of trade and erode national sovereignty due to which strict nationalists may oppose economic integration.
Over the past few decades, economic integration has brought along a shifting balance between national and international regulation. They are recognising local systems and rights of indigenous people are considered in resolving human rights cases. Likewise, soft law instruments are also being referred to in domestic regulations. This has created intersections and crosses fertilisations of national and international laws.
The locals feel a profound sociocultural connection to their surrounding environment but the businesses view it as commercial assets. The national regulations promote cross-border investment and growth and thus allocate these resources to the foreign investors contrary to what the traditional governance system believes. Their main aim is to attract foreign capital and increase production and exports. Also, local resource claims are marginalised that could get in the way of these commercial activities. The indigenous peoples perceive it as a threat to their sovereignty and economic well-being. This leads to tension between the two concerning rights and claims over the resources.
While the global legal regime presents dis-integration patterns affecting the economic, socio-cultural and ecological dimensions of natural resource relations, we also need to consider to what extent it accelerates integration.
NATIONAL LAW AND RESOURCE EXTRACTION
Along with adding to the country's wealth, natural resources also assist in food security and building a green economy. They help generate trade at local as well as international levels. It not just affects the state economically but also affects its political, sociocultural and ecological factors. Natural resource exploitation provides an important avenue for the state to exercise 'effective occupation'. It is difficult to generalise the global resource governance policies but it is possible to discuss certain recurring features that tend to facilitate extraction. They promote economic integration of resource-rich locations into commercial commodity chains while disintegrating them from wider national territory. The natural resources are allocated to the commercial developers without paying any heed to the claims of the locals.
In most of the states, the national laws vest the ownership of mineral and petroleum resources with the state. The state thus gets the legal authority for allocating these resources to commercial operators. Land ownerships are varied but the national law empowers the state to compulsorily acquire assets for a public purpose. Thus land too, more than often, is brought under the purview of the state. The states have reformed their laws to attract foreign investments by providing favourable business terms. Thus legally they favour foreign investment and industrial-scale activities over small-scale producers.
Local actors do have national rights but they are often provided limited legal protection. For instance, the land legislation in several sub-Saharan African countries has a condition that the protection of land rights will be subject proof of ‘productive use’. The definition of ‘productive use’ here is quite narrow and depends on the visible and permanent use of land thus enabling the state to coercively acquiring the land if the owners do not meet the conditions. They neglect any values that the local societies attach with the land. They thus transfer them from the locals to the commercial operators. Even though numerous land reforms were adopted since the late 1990s but very few changed the fundamentals while many promoted foreign investments. Actions, however, have been focused on increasing revenues and grabbing economic opportunities created by natural resource investments.
In a legal environment, the people's deep connection to the resources is dismissed and it downplays whatever sociocultural significance they place with the land and resources and prioritizes instead their allocation to commercial operators. The natural resources as a result, always end up being used in favour of the national elites who ultimately control the state and partner with international businesses to capture more markets globally and benefit from resource extraction.
DIS-INTEGRATION IN ECONOMIC INTEGRATION
In the process of economic integration itself, there have been identified partial dis-integrations. One such instance is where the economic potential is concentrated, such as the distribution of valuable natural resources. Often governed by rules and institutions, a special legal regime is created to govern them. Special Economic Zones (SEZ) are an example where the rules of business are different from that prevailing in the rest of the country. They are provided tax incentives and an opportunity to pay lower tariffs to function effectively and attract more businesses. Special Economic Zones are also used to stimulate industrial upgrading, kick-start manufacturing and also promote local processing of natural resource-based commodities. One example of this would be the Special Economic Zones in India that encapsulate the government's vision of Make in India, Digital India and Skill India.
Contractual arrangements have also been used to establish special legal regimes that are not entirely in alignment with the national law. Many investor-state contracts have stabilization clauses that depart from the application or impacts as provided in the national law. The investors reap the benefit of these clauses as they are favoured and are not required to comply with the stringent laws of the nation.
These special legal regimes thus provide an exception to the generally applicable national law concerning certain economic activities. These are undertaken to facilitate rapid economic growth by leveraging tax incentives to attract foreign investment and spark technological advancement. However, citizens affected by the impacts of these commercial operations may have a different view as it has demerits like loss of revenue to the government, land grabbing, compensatory problems and most importantly results in regional disparity. And if the resulting conflicts escalate to the international level, these dis-integrating features can sustain tensions in the application of international law.
INTERNATIONAL HUMAN RIGHTS, INVESTMENT LAW AND LAW OF PROPERTY
Lately, indigenous peoples have availed international human rights law to resist natural resource extraction on their ancestral lands. They have initiated several investor-state arbitrations to challenge the conduct of the state in matters ranging from policy domains, policy reforms to contract renegotiations in the context of changing commodity prices few instances of which are Renco Group Inc v. the Republic of Peru and Burlington Resources, Inc v. the Republic of Ecuador. This led to political backlashes and calls for 'reform'. Despite significant policy shifts and often lively debates, most investment treaties still do remain in force. These differences have resulted in a high number of investor-state arbitrations. Efforts could have been taken to create new institutional configurations to facilitate the arbitration proceedings but the continued existence of international arrangements that were in practice is not questioned.
The investment treaty regime presents fragmenting patterns in it. There International human rights law involves internal diversity as well. More than investment law, human rights norms also present ideational diversity. There are different ideologies from diverse intellectual and political histories that have been contested and evolved and are reflected in these treaties. Owing to this, the right to collective property was used by several indigenous people to establish their legal claims.
Beyond diversity, there are also relations between human rights law and investment law. Individuals can be foreign investors as well as human rights holders, and companies have brought right-to-property cases. The issue then of application of different rules of international law will arise because of the ideational and operational differences. Human rights law is centred on global and regional multilateral treaties that connect rights to human dignity, while investment law primarily protects commercial interests through reciprocal treaties aimed at facilitating cross-border investment. Investment protection norms have commercialised natural resources and human rights have developed a relation between people and territory. This has led to an impact on livelihood and the legally binding character of nature conservation measures.
NATURAL RESOURCE DISPUTES AND DIS-INTEGRATION
The interplay of human rights and investment treaties has led to several disputes. One of them is the leading case of Mayagna (Sumo) Awas Tingni Cmty. v. Nicaragua, Merits, Reparations, and Costs, Judgment, Inter-Am. Ct. H.R. (ser. C.) No. 79 (Aug. 31, 2001). The Inter-American Court held that the award of a commercial logging concession violated indigenous community rights under the American Convention on Human Rights. In the more recent Kichwa Indigenous People of Sarayaku v. Ecuador (Merits, Reparations, Costs) IACtHR Series C No 245 (27 June 2012)—a case stemming from the conduct of oil operations in the Amazon region—the Court found that by approving an investment project without adequately consulting the indigenous community whose territory would be impacted, the state violated the Convention.
Even in the investor-state arbitration, there have been tensions due to human rights and investment law arguments. Arbitral tribunals have tried at their end to interpret human rights and investment treaties in a mutually compatible way. However, they have denied that human rights norms should be given importance. Instead, they have held that human rights and investment protection norms 'operate on different planes' and that a state is 'subject to both international obligations, i.e. human rights and treaty obligation, and must respect both of them equally'. International law provides substantive rules and procedural arrangements to handle these issues, by coordinating the application of different legal rules, including on human rights and investment protection.
Further, the rules of treaty interpretation include ‘systemic integration’, which requires tribunals to consider other relevant, applicable rules of international law when interpreting a treaty. However, systemic integration leaves considerable discretion to international adjudicators, for instance on which rules are deemed ‘relevant’ and how such rules are ‘taken into account’. This has sometimes resulted in arbitrators reaching different conclusions, even in the same dispute, as in Bear Creek v. Peru.
INTERNATIONAL LAW AND DIS-EMBEDDEDNESS
A lot of problems have arisen between human rights and investment law arguments because of structural marginalisation and dis-integrating features of national law. The natural resources are provided to the commercial operators without considering the needs of the local players. Lack of prior approval or proper consultation can lead to social unrest and ultimately investor-state arbitration. Despite the diversity in treaty formulations, investment treaties tend to provide limited opportunities for arbitral tribunals to consider the circumstances under which the investment was made and operated. Many national laws fail adequately to recognize local resource rights, conceptions, and use.
Arbitral tribunals have tried to interpret the investment treaties as protecting not only the legal rights investors acquired under national law but have also considered their ‘legitimate expectations’. The legitimate expectations doctrine facilitates in converting investors’ expectations into legal claims and leading some commentators to talk of an ‘emerging global right to investment’.
One of the most common remedies in investor-state arbitration is compensation. But the amount has several different effects as it can directly affect the rights of the third-party or interfere with the judgments third parties secured from national courts. The difference in the method of calculation of the compensation can also affect how the costs of public action are distributed in society. It also means that complying with investment treaty obligations can create a significant burden for public finances, particularly in low and middle-income countries and the risk of expensive investor-state disputes could discourage states from acting in the first place. This may reinforce power imbalances between states, transnational corporations and local actors.
Most investment treaties focus on protecting foreign investment and say little or nothing about the investors’ responsibilities, let alone their obligations. Also, human rights treaties bind states rather than businesses, though businesses have the responsibility to respect human rights. The human rights treaties are entered between the states and hence the states are obliged to abide by them. In case of any diversion, it is the state that is held answerable. They do not bind the businesses but businesses are expected to respect human rights.
On a comprehensive understanding of the global economic governance, we observe that even though they aimed to promote economic integration, issues like resource nationalism and increasing investor-state arbitrations is slowing moving towards disintegration. States are giving a lot of importance to foreign investments and efforts are made to allocate natural resources to commercial houses. The deep connection of the locals towards their resources on one hand and the dire need of the states for resource extraction to convert natural resources into commodities have led to unrest amongst the indigenous people. There have been landing reforms and policy changes in investment treaties but they have not changed the fundamental characteristics. The special legal regimes, be in contractual or through a special legislature has also shown that there are disintegrations even in the national laws. The right to property being one of the fundamental rights is exploited under the garb of compulsory land acquisition for public purposes. All these disagreements have ultimately resulted in a large number of investor-state disputes.
Though a nation takes pride in its natural resources they are more inclined towards economic development. The easiest way to achieve this is through commercialisation of the resources which leads to its exploitation. Time and again laws are enacted and enforced to protect the resources but investment treaties do not align with this aim. We should also see the paradox of equality here wherein special regulations apply to SEZs despite being in the same geographical territory. It is thus, no surprise that the countries are moving towards disintegration.
(Dis)integration in Global Resource Governance: Extractivism, Human Rights, and Investment Treaties by Lorenzo Cotula
The commodification of natural resources and forest ecosystem services: examining implications for forest protection by Helen Kopnina
Fiscal Management in Resource-Rich Countries by Rolando Ossowski and Håvard Halland