by Jiawen Wang[1]
In September 2023, the European Commission (“Commission”) published a non-paper on model clauses for the future negotiation or re-negotiation of bilateral investment treaties (“BITs”) between EU Member States and third countries. This non-paper, presenting the model clauses, may reflect the Commission’s broader approach to investment protection and the best practice for EU Member States, although it is not an official EU model BIT. These model clauses cover various aspects including investment protection (e.g. FET, expropriation, general exceptions, etc.), sustainable development, investor-state dispute settlement and so on. Notably, this non-paper highlights human resource sustainability (“HR sustainability”) as a new mainstream of the EU investment framework.
What is Human Resource Sustainability?
Achieving sustainable development in Europe and around the world has been formulated as a core principle and strategic approach by the European Commission. For a sustainable European future, all EU Institutions and Member States need to work towards complex perspectives of sustainability, such as HR sustainability, sustainable energy and climate action, economic development and inclusive societies. HR sustainability is commonly considered as a set of practices that aim to promote human rights and to create an inclusive, sustainable and flexible work environment for all. It requires various and interconnected actions to eliminate inequalities in terms of gender, ethnicity, religion, as well as other broad labour-related issues.
Unpacking the Model Clauses of the Commission Non-Paper
In general, EU sustainable policies have been mostly linked to environmental concerns, such as the EU Green Deal, but a new mainstream of HR sustainability for the future EU investment treaties could also be seen in the non-paper. A number of model clauses may reflect this feature.
The non-paper begins with a direct reference to sustainable development as one of the fundamental investment policies and principles, and emphasises the commitment to sustainability of the Parties in the preamble that:
“[r]ecognising the importance of strengthening their investment relations, in accordance with the objective of sustainable development in the economic, social and environmental dimensions … and of high levels of environmental and labour protection through relevant internationally recognised standards and international agreements, to which both Parties are party;
[r]eaffirming their commitment to the principles of sustainable development and transparency”.
This non-paper has included detailed provisions on sustainable development, especially HR sustainability and labour rights. The article titled “Corporate Social Responsibility [“CSR”] and Responsible Business Conduct” is a specific clause which creates an explicit commitment for all Parties by providing a non-exclusive list of CSR standards and instruments on HR sustainability, such as the OECD Guidelines for Multinational Enterprises (“MNE Guidelines”), the UN Guiding Principles on Business and Human Rights, the UN Global Compact strategies and other relevant due diligence documents.
Furthermore, the article “Investment and Labour” specifically highlights the significance of labour rights protection in investment-related sustainable development policies. Paragraph 1 of this article provides a floor of the level of the Parties to regulate their labour laws and policies:
“[t]he Parties recognise the right of each Party to determine its sustainable development policies and priorities, to establish the levels of domestic labour protection it deems appropriate and to adopt or modify its labour laws and policies. Such levels, laws and policies shall be consistent with each Party’s commitments to internationally recognised labour standards and agreements.”
Paragraphs 2 and 3 serve as non-regression provisions which aim to prevent the party States from lowering the level of labour protection standards to boost economic profits. This article also contains explicit obligations and commitments for the Parties to promote labour rights by implementing the core principles in the fundamental ILO Conventions and Recommendations as well as the Decent Work Agenda.
In addition, the non-paper also includes an umbrella clause regarding the dialogue and cooperation on all cross-cutting aspects of investment-related sustainable development issues.
Comment
These model clauses may illustrate the EU’s focus on sustainable investment, especially HR sustainability as a new mainstream. At the same time, these clauses included in the non-paper could give rise to several questions in need of further attention.
1. Rebalance the economic interests and sustainable development
Non-economic interests, such as sustainable development, can sometimes lead to conflicts between negotiating countries when there are competing interests and priorities within the broader context of international investment relations. Some countries or political-economic entities may prioritise their economic interests over the pursuit of sustainable development. However, the model clauses present high standards and expectations based on the most idealistic practices, which to some extent poses challenges to EU investment negotiation, legislation and policies in balancing the seemingly “contradictory” values. In that sense, there is a need for the EU to navigate an appropriate approach to rebalance those interests for future negotiation and re-negotiation of the investment treaties.
2. Increased influence of non-binding international legal instruments
The aforementioned model clauses explicitly suggest the endorsement of a series of international legal instruments on HR sustainability. However, most of them are considered important “soft laws” which do not have binding force. For example, the MNE Guidelines plays an increasingly significant role in the international investment field (particularly in the EU) by setting out standards and expectations on CSR and sustainable development. As of 2024, 22 out of 38 OECD members are EU Member States. Bulgaria, Croatia and Romania have obtained negotiating membership since 2022, and Malta applied in 2017. Also, the EU, as a unity, is a significant participating partner of the OECD working alongside the EU Member States. Similarly, most UN documents and unratified ILO Conventions lack binding force too, but their impact on the EU sustainable investment policies should not be underestimated. Many European BIT practices may reflect the feature of recognising and incorporating the HR sustainability standards and values set by the non-binding instruments. For instance, Article 7 Corporate Social Responsibility of the Netherlands Model BIT (2019) provides that:
“[t]he Contracting Parties reaffirm the importance of … those internationally recognised standards, guidelines and principles of corporate social responsibility that have been endorsed or are supported by that Party, such as the OECD Guidelines for Multinational Enterprises, the United Nations Guiding Principles on Business and Human Rights, and the Recommendation CM/REC (2016) of the Committee of Ministers to Member States on human rights and business.
… The Contracting Parties express their commitment to the international framework on Business and Human Rights, such as the United Nations Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises, and commit to strengthen this framework.”
The non-paper unveiled by the European Commission is highly likely to become the prototype for a future official EU Model BIT. The adoption of the sustainable principles articulated in the non-binding legal instruments could further extend their influence within the EU and its trading or investment partner countries.
3. Can EU investment treaties be a vehicle to promote HR sustainability?
As analysed above, some of the model clauses in this non-paper are directly related to HR sustainability – they create obligations for the Parties to promote sustainable development and labour rights. However, the CSR provisions do not contain direct obligations for investors. This feature raises a question mark over the effectiveness of these provisions in practice. Thus, it emphasises the importance of the role of governments in encouraging and facilitating the contribution of businesses and investors to HR sustainability.
The sustainable investment policies, including those regarding labour standards, of a country are affected by those of its trading or investment partners because business and investment activities can spread out norms and practices. Some international investment agreements concluded by EU countries in recent years, such as the Samoa Agreement (2023) between EU and ACP (African, Caribbean and Pacific Group of States), have recognised HR sustainability as a core strategic priority and provided explicit obligations for the Parties on human rights, labour conditions and social development. For example, Article 8, Title 1, Part II Strategic Priorities regulates that:
“[t]he Parties shall promote people-centred and rights-based policies, encompassing all human rights and ensuring equal access to opportunities for all members of society, directed towards sustainable development centred on the human being. The Parties recognise that respect for democracy, human rights, fundamental freedoms, the rule of law and good governance is an integral part of sustainable development.”
Within this context, while it remains to be seen how effective these provisions will be in contributing to HR sustainability within and beyond the EU, EU Member States and third countries shall still pay more attention to implementing and safeguarding these requirements concretely. In ensuring the compliance with HR sustainable requirements, governments should take action to monitor and update their investment policies and legislation. Besides, governments can also encourage businesses and investors to engage in responsible business conduct by introducing domestic legislation and policies.
Conclusion
Although this Commission non-paper, as an informal document, does not yet have binding force, the model clauses are likely to be a prototype of future European investment treaties and practices. The highlighted HR sustainable values it contains reflect the direction of the EU investment framework. It is important that the EU Member States, potential trading and investment partners as well as investors to be aware of this likely new mainstream in international investment law.
Jiawen Wang is a PhD Candidate and Visiting Lecturer at King’s College London. ↑