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This background note provides an overview of recent trends in the international legal framework on foreign investment. The body of international investment law has grown rapidly, promoting investment liberalization and providing extensive rights and privileges to investors. The current framework does not adequately address environmental and social aspects linked to foreign investment. It does not in any way strengthen corporate accountability and corporate governance. Certain gaps in the present framework could be addressed in instruments relating to corporate governance.
This note does not take position or go into detail on the benefits and detriments of binding instruments versus voluntary codes on corporate accountability. It should be pointed out, however, that the current foreign investment rules — while
subjecting host states to binding obligations and providing private rights to foreign investors — do not subject the foreign investor to any obligations. Moreover, investment rules do not provide other private stakeholders with any rights concerning the conduct of the foreign investor or of the host state. Many of t he current instruments also provide for binding dispute settlement which can be initiated by the investor. No private stakeholder other than the foreign investor can initiate dispute settlement proceedings.
The Governance Principles on Foreign Direct Investment in Hazardous Activities which will be presented at Kiev Ministerial Conference “Environment for Europe” in May 2003 must take into account the current state of international investment law in which multinational companies operate. Some specific recommendations are made below. Recommendations of more general nature are not made in this note. However, if the Governance Principles are to contribute to a more balanced and sustainable framework on foreign investment, they must, at a minimum, provide for strong and independent monitoring and provide sanctions for non-compliance.