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The Fluid Nature Of Water Rights In Investment Arbitration

World Water Congress 2015 Edinburgh Scotland
15. Water law
Author(s): Ana Maria Daza Vargas
Dr Ana Maria Daza-Clark - University of Edinburgh

Keyword(s): Sub-theme 15: Water law,


This paper focuses on the relationship between international investment law and the law of water resources and water management. It submits that as the law evolves, expands and specializes, the overall normative coherence of particular legal orders can become more elusive. This increases the likelihood for potential conflict arising between different regimes or areas of law, such as between water law and international investment law.

On the one hand, water laws and policy are increasingly moving towards a holistic and adaptive approach to the management of water resources. International investment law, on the other hand, covers the obligation to protect foreign investment through stable and predictable legal environments, by means of international investment agreements, such as the North American Free Trade Agreement, specific Bilateral Investment Treaties or the Transatlantic Trade and Investment Partnership (TTIP), currently negotiated by the United States and the European Union. What constitutes a breach of an international obligation has -- almost always -- been rooted in domestic regulation adopted by host States, which in turn may constitute a breach of a standard of investment protection under international investment law. Therefore, the outcome of an investment dispute will generally require the host State to repeal the regulatory measure or to pay compensation to the investor.

For these reasons, the international investment regime has been perceived, in certain academic and political circles, as potentially adverse to the regulatory prerogatives of States. Water has a unique nature due to its physical, economic and social characteristics, all of which in combination put water resources at the heart of social and environmental concerns. Challenges around water management do not pertain exclusively to limited quantities and increasing scarcity, but also to quality issues.

In addition, increasing demand as a result of demographic growth, economic globalisation, and larger trade and investment flows trigger fierce competition for water resources, which may potentially be exasperated by climate change. In this vein, increased hydrological variability has an effect on the predictability of water availability, and availability in turn may have an effect on the security of water entitlements. All these factors ought to be considered by investment tribunals when challenged with investment disputes arising from a water-related measure. But will they? To date, any conflict between these epistemic communities of water lawyers and investment lawyers has been engaged -- by necessity -- in the context of disputes arising out of international investment obligations. International investment law, and not water law per se, constitutes the applicable law to decide potential conflicts between the regulation of water resources and the obligation to protect foreign investment.

The proliferation of investment treaties has given rise to specific dispute settlement mechanisms granting jurisdiction to handle investment disputes. The question arises as to how an international investment tribunal would decide a water-related investment dispute; where a governmental measure aimed at managing quantities or quality of water resources affects promises made to an investor relative to the use of such water resources. Investment tribunals may be confronted to the question of whether a water-related measure have had the effect of expropriation of water rights conferred to investors and therefore, the question of the extent and legality of that water-related measure. In contrast to the field of international investment law, the fields of international environmental and water law, more specifically, have fairly limited dispute settlement mechanisms embedded in their respective treaties. This paper explores and reflects on the analysis that investment tribunals might adopt in a potential water-related dispute, and submits that the special nature of water resources may play an important role in this analysis.

The issue is of great relevance due to increasing competition for water resources that would be tackled in different ways, depending on the development and the legal tradition of the host-State called to protect property rights (investment) of the foreign investor. The paper will address the very few cases that, so far, have been brought before the investor-State dispute settlement mechanism, will draw some preliminary conclusions on the treatment that tribunals may afford to water resources, and will finally propose possible actions from the host-State perspective.

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