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Labor Provisions in International Investment Agreements: Prospects for Sustainable Development

The purpose of the article is to examine the substantive labor standards that are found in various international investment agreements (IIAs), and assess their potential impact on investment law and investment arbitration in general. Part A positions labor rights within the concept of sustainable development – a concept which is of increasing importance also for the regulation of foreign investment. Attracting foreign direct investment (FDI) has long been recognized as "critical to the ability of developing countries to achieve needed economic growth to improve the welfare of their populations and to meet their basic needs in a sustainable manner." But capital liberalization and the legal framework that has been set up to attract and protect FDI can lead to conflicts between economic interests on the one hand, and social or environmental concerns on the other. Part B then examines these conflicts in depth, as they provide the rationale for inclusion of labor provisions in IIAs. The debate on investment-labor linkage originates from the fear that liberalization of global capital flows leads to a 'race to the bottom' in labor rights. This part will assess the assumptions that substantiate this fear. Part C then analyzes the various labor provisions that can be found in IIAs. The number of IIAs that contain labor rights is limited, and there are significant discrepancies in the legal commitments undertaken. We discern three broad modes of regulation: state compliance with domestic and international labor law, social dialogue, and corporate social responsibility. Part D examines the different ways in which labor standards could be invoked in investment treaty arbitration.