Cultural Heritage and Foreign Investment
Defined as the scientific study of the material remains of past human life and activities, archaeology seems to have very little to do with international investment law, the field of public international law governing foreign investments. Archaeology and international investment law seem to constitute different fields of study, with different aims and objectives. Archaeology studies material objects and aims to illuminate the past. International investment law addresses current issues, governs foreign investors and their investments, and aims to protect them against abusive behavior of the host state and to contribute to the sustainable development of the same. Nonetheless, in the past decades, foreign investors have invested in areas with important archaeological artifacts or constituting significant cultural landscapes, and questions have arisen about how to balance investors’ rights under the applicable investment treaties and the state right to protect important archaeological artifacts, architectural features, and landscapes (Vadi 2014). Not only is the right to regulate cultural resources an intrinsic element of state cultural sovereignty, but it is also increasingly recognized under international law. After briefly introducing the field of international investment law and arbitration, this entry will discuss the key issues arising from the clash between the protection of archeological and cultural artifacts and the promotion of foreign investments in international investment law and arbitration, by referring to some paradigmatic examples. Then, it will discuss some current debates and conclude by illuminating some future directions.
Defining International Investment Law and Arbitration
The law of foreign investment is one of the oldest and most complex areas of international law and has gained preeminence in the field. More than 3000 international investment agreements (IIAs) govern foreign investments and provide foreign investors with direct access to international arbitration. States have signed such treaties to attract foreign investment and accord adequate legal protection to their investors. Rare in international law, these treaties give private parties standing to arbitrate disputes under international law and then enforce any award in their favor in domestic courts of the host country. Without the possibility of domestic enforcement, awards would be meaningless. Investment treaties provide extensive protection to investor rights in order to encourage foreign investment and foster economic development. While investment treaties differ in their details, their scope and content have been standardized over the years, as negotiations have been characterized by an ongoing sharing and borrowing of concepts.
At the substantive level, investment treaties broadly define the notion of foreign direct investment (FDI), which typically includes ownership in businesses operating outside the country of origin of the investor, and provide protection against discrimination, fair and equitable treatment, full protection and security, and assurances that the host country will honor its commitments regarding the investment. Other common provisions in investment treaties concern the repatriation of profits and prohibit currency controls that are worse than those in place when the treaty was signed. Investment treaties generally guarantee compensation in the event of nationalization, expropriation, or indirect expropriation and clarify what level of compensation will be owed in such cases.
At the procedural level, most IIAs provide investors direct access to an international arbitral tribunal. In so doing, they create a set of procedural rights for the direct benefit of investors. This is a major novelty in international law, as customary international law does not provide such a mechanism. The rationale for internationalizing investor-state disputes lies in the intended depoliticization of such disputes. The home country is no longer involved in litigating international disputes on behalf of its affected citizens; the host country is no longer subject to the political and/or military pressures of the so-called gunboat diplomacy. The affected investor is no longer subject to the vagaries of diplomatic protection, which entitles the home state to file a claim against the host state for wrongs committed against the citizens of the former state but that is traditionally perceived to be a right of the home state rather than a duty of the same. Arbitral awards shape the relationship between the state, on the one hand, and private individuals on the other. Arbitrators determine matters such as the legality of governmental activity, the degree to which individuals should be protected from regulation, and the appropriate role of the state.
When countries pursue economic growth, their policy makers may have an incentive to lower cultural standards to promote economic activities. If states nonetheless maintain a high level of cultural heritage protection, disputes may arise as foreign investors can claim that such policies affect their economic interests thereby breaching investment treaty provisions (Vadi 2012). Given the extraordinary increase of foreign investment flows in recent years, the privileged regime created by international investment law within the boundaries of the host state has increasingly determined a tension between investors’ rights and cultural heritage protection. In some cases, foreign investors have claimed that cultural policies negatively affected their investment, thereby amounting to indirect expropriation. In other cases, the investors alleged discrimination and/or violation of the fair and equitable treatment standard. In sum, there is a variety of potential conflict areas between investor rights and cultural policies relating the protection of archaeological artifacts (Vadi 2012).
Three examples may clarify the issues at stake. In the Glamis Gold case, a Canadian mining company planned to mine gold on federal land in southeastern California (the Imperial Project). Because the area in and around the Imperial Project was used by precontact Native Americans as a pilgrimage route, the Quechan, a Native American tribe, opposed the project as it would destroy the Trail of Dreams, a sacred path still used for performing ceremonial practices (Vadi 2011). The Department of the Interior withdrew the Imperial Project from further mineral entry for 20 years to protect historic properties. In 2002, however, permission for the project was granted, and the State Mining and Geology Board enacted emergency regulations requiring the backfilling of all open-pit mines to re-create the approximate contours of the land prior to mining.
According to the claimant, however, not only did the US Interior Department fail to promptly approve the project, thus unreasonably delaying its mining operations, but California’s regulation requiring the backfilling of open-pit gold mines also made its mining operation uneconomical. Therefore, the investor claimed inter alia that the United States had expropriated its mining rights in violation of Article 1110 of the North American Free Trade Agreement. According to the claimant, the expropriation began with the federal government’s refusal to approve the claimant’s plan of operations and continued with the backfilling requirement. In particular, backfilling would be uneconomical and arbitrary since it would not be rationally related to its stated purpose of protecting cultural resources. The claimant argued that whereas taking gold out of the ground destroys any cultural resources on the surface, putting the dirt back in the pit actually does not protect those resources but may lead to the burial of more artifacts and cause greater cultural loss (Vadi 2011).
In its award, the Arbitral Tribunal held that the complained measures did not amount to an indirect expropriation. Not only did not they cause a sufficient economic impact to Glamis’ investment, but they were also rationally related to their stated purpose. The Tribunal admitted that “some cultural artifacts will indeed be disturbed, if not buried, in the process of excavating and backfilling,” but concluded that, without such measures, the landscape would be harmed by significant pits and waste piles in the near vicinity (Glamis Award, Vadi 2011). Remarkably, the Arbitral Tribunal also expressly referred to Article 12 of the World Heritage Convention, which requires States to protect their cultural heritage even if it is not listed in the World Heritage lists. This is rather extraordinary, as cultural heritage experts have repeatedly stressed that Article 12 of the WHC is an often-neglected provision.
In Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, the arbitration involved the development of a tourist village at the pyramids of Giza. During construction, artifacts of archaeological importance were unearthed. Therefore, notwithstanding the previous approval of the investment at stake, Egypt canceled the project and the area was added to the World Heritage List (Vadi 2014). The ICSID Tribunal noted that certain acts of Egyptian officials “created expectations protected by established principles of international law” and that the listing had been requested after the cancelation of the project (SPP v. Egypt, Award, Vadi 2014). Therefore, it found contractual liability and sustained the Claimant’s argument that the particular public purpose of the expropriation could not change the obligation to pay fair compensation.
In Malaysian Historical Salvors v. Malaysia, the arbitration centered on the question as to whether a salvage contract for the finding, identification, and recovery of an ancient shipwreck constituted an investment, thus receiving protection under the UK–Malaysia Bilateral Investment Treaty (BIT). Malaysian Historical Salvors (MHS), a British salvage company, entered into a contract with the Malaysian Government to locate and salvage the cargo of the Diana, a vessel licensed by the East India Company that mysteriously sank in the Straits of Malacca on 5 March 1817 (Vadi 2014). Under the terms of the contract, which was on a no finds-no pay basis, all the costs of the salvage and its risks would be borne exclusively by the salvage company. Artifacts directly related to Malaysian history and culture would be retained by the Government for study and exhibition in the National Museum, while the other recovered items would have been auctioned in Europe. The Malaysian Government would receive the sale proceeds, while paying a percentage of the sum to the company. The salvage efforts took almost 4 years; when MHS found and salvaged the sunken vessel, it recovered nearly 24,000 complete pieces of Chinese blue-and-white porcelain. The dispute arose with regard to the proceeds of the auction and the quantity of items which Malaysia withheld from sale. As MHS contested the amount of the salvaged items which were withheld from sale, the company commenced arbitration proceedings against the Malaysian Government in Kuala Lumpur. As the award dismissed the claim, and every challenge failed, the claimant filed a Request for Arbitration at the International Center for the Settlement of Investment Disputes (ICSID) in Washington DC, contending that there was a violation of the UK–Malaysia BIT. In particular, the claimant argued that its performance under the contract fell within the meaning of investment and that, accordingly, it was protected under the BIT. Substantially, the investor contended that the respondent had violated BIT provisions concerning protection of investment and expropriation. For its part, the respondent objected to jurisdiction over the dispute, arguing that the contract was not an investment. This line of argument was upheld by the sole arbitrator who dismissed the claim on jurisdiction (MHS v. Malaysia Award, Vadi 2014). The arbitrator considered that the nature of the claimant’s activities was largely similar to that of a commercial salvage contract and that an ordinary commercial contract could not be considered as an investment. The majority of the Annulment Committee, however, held that a salvage contract is a form of investment, on the basis of the broad definition of investment provided by the UK–Malaysia BIT. Therefore, it concluded that the Tribunal exceeded its powers by failing to exercise jurisdiction with which it was endowed by the UK–Malaysia BIT and the ICSID Convention and that it manifestly did so because it did not consider the definition of investment provided by the same BIT (MHS v. Malaysia, Decision on the Application for Annulment, Vadi 2014).
These arbitrations took place in different locations and concerned facts taking place in the American, African, and Asian continents, respectively. They were conducted by different arbitral tribunals under different international investment treaties and concerned different subject matters and causes of action. One may legitimately wonder whether there is any commonality between these awards. One may also question the relevance of discussing previous awards, given the fact that there is no binding precedent in international (investment) law. Nonetheless, investment arbitrations – while not binding on each other – have become the most important source of international investment law. Moreover, these awards show an increasingly frequent pattern in the reference to cultural heritage protection in investment treaty arbitration. Cultural heritage issues arise in a variety of contexts, delimiting substantive standards of protection and even quantifying damages. The study of previous awards is useful because patterns of consistent use can and do influence subsequent awards. Moreover, many other investment arbitrations clearly involve cultural heritage and archaeological artifacts (Vadi 2014).
The interplay between investors’ rights and cultural heritage protection raises a number of questions. First, have arbitral tribunals paid any attention to cultural heritage? If so, how have they balanced investors’ rights and the cultural policies of the host State? Second, what values and interests are at the heart of their thinking and practice? Third, is investor-state arbitration a suitable forum to protect the public interest? Finally, if one admits that adjudication is a bottom-up mode of governance, and has a fundamental importance with regard to the concrete implementation of a given legal regime, then analyzing the adjudicative patterns of cultural heritage-related investment disputes also tests the effectiveness of international investment law and, indirectly, of international cultural heritage law.
Recent studies have shown that arbitral tribunals have increasingly considered the protection of cultural heritage as an essential aspect of state sovereignty (Vadi 2014). The interaction between international investment law and cultural heritage law has been productive, in showing the gradual emergence of customary norms requiring the protection of cultural heritage in times of peace (Vadi 2014). This is a significant outcome, as most scholars have pinpointed the existence of customary norms requiring the protection of cultural heritage in times of war (Forrest 2014; Venturini 2016). The jurisprudence of arbitral tribunals is thus contributing to the development of international law requiring the protection of cultural heritage (Vadi 2014).
Nonetheless, cultural values and interests are not necessarily at the heart of arbitral thinking and practice. The available jurisprudence shows the need to reinforce the protection of cultural heritage, for instance, by introducing specific reference to cultural concerns such as cultural exceptions or carve-outs in international investment treaties, in order to prevent a “culture clash” between investors’ rights and the host state’s protection of cultural heritage (Vadi 2014). Rather than considering cultural heritage as an exception to treatment standards or as a defense justifying State measures, arbitral tribunals have considered heritage protection as a legitimate objective pursued by the host state when such tribunals interpreted and applied relevant investment treatment standards. Much remains to be done to successfully accommodate cultural heritage considerations within international investment law and arbitration. Arbitral tribunals are of limited jurisdiction: they are required to check whether state conduct complied with its investment treaty obligations. They are not required to adjudicate on state’s compliance with its obligations under international cultural law. Therefore, requiring investor’s compliance with domestic laws and regulations in the text of the relevant international investment agreements can reinforce the state right to protect its cultural heritage. Inserting the possibility for states to bring counterclaims in case of investor’s major breaches of domestic laws can also add teeth to these provisions.
Much ink has been spilled on the question as to whether investor-state arbitration constitutes a suitable forum to protect the public interest. This dispute settlement mechanism has become the object of intense scrutiny in the past few years. Even if one assumes that it is desirable to promote foreign investment in order to foster economic development, the argument goes that some rules of international investment law can hurt host states by limiting the state’s ability to protect its cultural heritage (Ratner 2017). Moreover, investor-state arbitration is based on a model of commercial arbitration that seems ill-suited to deal with (international) public law issues. Because arbitral tribunals are not generally subject to an appeal mechanism, inconsistent awards have resulted.
What could be done to improve the situation? What techniques are available to avoid collisions between the protection of foreign investments and the safeguarding of cultural heritage? From a procedural perspective, countries and commentators have proposed a range of alternatives moving toward some judicialization of investor-state arbitration (Roberts 2018). While a discussion of the various reform proposals is outside the scope of this entry, it will suffice to mention the fact that some reforms can actually foster the consideration of important policy objectives, including the protection of archeological artifacts, a special type of cultural heritage. The establishment of a Multilateral Investment Court, a proposal backed by Canada and the European Union, can contribute to the development of a relatively consistent jurisprudence (even in the absence of binding precedent in international law). Tenured judges may be perceived to be more independent and impartial than ad hoc arbitrators. Their background might be in international law and public law rather than commercial law, and this can favor a more balanced assessment of potential clashes between the safeguarding of cultural heritage and the promotion of foreign investments. The establishment of appeals mechanisms, an initiative adopted by countries such as the United States in some of its BITs, can also provide an additional layer of scrutiny. Nonetheless, the establishment of a permanent world investment court does not necessarily offer a magic formula for balancing the various interests at stake; substantively, further reflection is needed.
Substantively, customary norms of treaty interpretation enable arbitral tribunals to consider cultural concerns within the current framework of international law. When they interpret international investment law, arbitral tribunals can use systematic interpretation and consider other international law commitments of the states, including UNESCO Conventions. Moreover, as states periodically renegotiate international investment treaties, they can expressly accommodate cultural concerns in the text of these treaties. For instance, Canada has inserted specific clauses protecting the cultural industries in the recent EU–Canada Comprehensive Economic and Trade Agreement (CETA). This clause can allow Canada to protect its cultural industries without the fear of expensive investment claims. While only a few investment treaties include a “general exceptions” clause, such clause might be inserted in future treaties. A parallel inclusive way states can build some safeguards within international investment treaties is by requiring compliance with domestic law (Vadi 2019). For instance, states can clarify that the relevant investment treaty protects only those investments that comply with domestic law. Such a clause can enable an adaptation of the treaty to the social, cultural, and political needs of the state. Recent international investment agreements tend to add such legality requirements (Vadi 2019).
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