The compliance of foreign investment projects with local environmental standards and the role (non-role) of the applicable BITs: the case of Ethiopia
| DOI | https://doi.org/10.1108/JPPEL-07-2022-0025 |
| Published date | 17 March 2023 |
| Date | 17 March 2023 |
| Pages | 20-44 |
| Subject Matter | Property management & built environment,Building & construction,Building & construction law,Real estate & property,Property law |
| Author | Seid Demeke Mekonnen |
The compliance of foreign
investment projects with local
environmental standards and the
role (non-role) of the applicable
BITs: the case of Ethiopia
Seid Demeke Mekonnen
School of Law, Jigjiga University, Jigjiga, Ethiopia
Abstract
Purpose –The purpose of this paper is to investigate the compliance of foreign investment projects with
local environmental standardsin Ethiopia. It examines the cause and impact of the environmental problems
created by such projects as well as the necessary policy response, especially by examining the role of the
applicablebilateral investment treaties (BITs) in enforcing localstandards.
Design/methodology/approach –The research approach is fundamentally an empirical study with
some doctrinal analysis. The empirical data (qualitative) was collected through interviews, focus group
discussionsand observation tools.
Findings –The investment projects selected for the case studies were not complying with the local
environmental standards,which resulted in several environmental problems.The major cause for the overall
environmentalproblems was not a legal gap in the local standards, but the failure of enforcing such standards
by the government bodies and foreigninvestors. The applicable BITs also played no role in environmental
protection as they do not impose environmental obligations along with enforcement mechanisms. Non-
compliance with local standards can be mitigated if the applicable BITs impose environmental obligations
along with workable enforcement mechanisms–as a treaty obligation has more binding force. The author
argues that,in general, foreign investments are not environmental-friendlyunless otherwise strictlyregulated
by combining local environmentalstandards and a BIT that imposes environmental obligations (along with
enforcementmechanisms) on the foreign investors, host state and home state.
Originality/value –The existing literature does not deal with the environmental problems, the
enforcement constraintsand the role of the applicable BITs together in a single publication. They separately
address these issues, which do notgive a comprehensive understanding of the cause-and-effect relationship.
This paper fills this gap by presentingcomprehensive findings that combine the environmentalproblems and
the associated enforcement constraints as well as the role of the applicable BITs in this regard. It also
contributes to the ongoing debate concerning whether foreign direct investment is good or bad for the
environmentby producing empirical evidence from Ethiopia, the Africancontinent.
Keywords BITs, Compliance, Enforcement constraints, Environmental problems,
Foreign investments, Local environmental standards
Paper type Research paper
1. Introduction
Foreign investment projects operating in Ethiopia created several environmental problems
due to the reluctance of the companies to comply with the local environmental standards
and the lack of effective government monitoring. The applicable bilateral investment
treaties (BITs) –international treatiesthrough which two states stipulate rules that regulate
investments by their respectivecitizens in the other contracting state –did not play any role
JPPEL
15,1
20
Received12 July 2022
Revised1 January 2023
13February 2023
Accepted13 February 2023
Journalof Property, Planning and
EnvironmentalLaw
Vol.15 No. 1, 2023
pp. 20-44
© Emerald Publishing Limited
2514-9407
DOI 10.1108/JPPEL-07-2022-0025
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/2514-9407.htm
in environmental protection due to a lack of provisionsimposing environmental obligations
on the foreign companies and the contracting states.In this connection, my study examines
three interconnectedissues. The first one is the compliance of foreign investments with local
environmental standards. The second one is the enforcement constraints of these local
standards. Finally, the research examines the role or non-role of the applicable BITs in
environmental protectionand devising effective enforcement mechanisms.
Concerning the first issue, the casestudies identified severe environmental sustainability
problems in the three investmentprojects (companies), selected as samples for such studies.
The major problems were poor standards of gas emission, water and chemical treatments,
soil and biodiversity conservation, waste management, the use of sound technology and
environmental accidentprevention. The investment projects released (partly due to lack of a
controlling technology and monitoring institutions) gases, chemicals, wastes and other
heavy objects to water bodies, air, soil, public road and local community residences and
business centres. The state of some of the surrounding environmental compartments was
changed with respect to the functions they fulfil. This is to mean that due to chemicals,
wastes, gases and heavy objectsreleased by the companies, the feature or quality of some of
the surrounding water bodies,soil, air, public road and the properties of the local community
was changed. Due to the above changes in the state of the environment, the health and
safety, business activities, movement and other socio-economic performance of the local
community and some functions of the environment (e.g. the function of land for future
agricultural use)were affected.
Concerning the second issue, the case studies demonstrated that the environmental
problems created by the threecompanies were mainly due to the reluctance of the companies
to adequately adopt and observe the applicable local environmental standards and lack of
government monitoring and support. The investors tried to apply local standards
selectively, which impose simple obligations and require low costs, but they ignored some
relevant standards that require relatively high financial and material resources. The
government was not committed to or unable to ensure environment-friendly foreign direct
investment (FDI) in the country. Two main reasons can be mentioned in this regard:a lack
of resources and financialnecessity.
When we look at the third issue, the applicable BITs did not play any role in mitigating
the environmental problems and creating enforcement mechanisms. Ethiopian BITs with
China, Turkey and France –which are the applicable BITsin the investment projects of the
case studies –do not incorporate substantive and enforcement provisions dealing with
environmental protection. In fact, the companies did not refer to the BIT at all, but to their
investment contract which does not impose environmental obligations like the BIT. This
indicates that the BITs were not playingthe required role in regulating investments even if
they are considered the primary applicablelaw of FDI.
Unlike the internationallevel, published empirical studies dealing with the compliance of
foreign investments with environmentalstandards in the Ethiopian context are too scant. A
study made by Stebek (2013) can be cited as the main example, buthe did not examine the
legal enforcement-related constraints and the role of the applicable BITs in this regard. He
conducted an empirical study in Lake Zway and identified some practical problems related
to environmental pollution such as soilacidity and water pollution created by the activities
of FDI.
There are contradictory findings as to the impact of FDI on the environment at the
international level. United Nations Conference on Trade and Development’s(
UNCTAD,
2014) shows that, in general, FDIhas a positive impact on sustainable development. Another
study conducted in China concludes that because foreign companies used advanced
Foreign
investment
projects
21
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