The compliance of foreign investment projects with local environmental standards and the role (non-role) of the applicable BITs: the case of Ethiopia

Abstract

Purpose The purpose of this paper is to investigate the compliance of foreign investment projects with local environmental standards in 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 applicable bilateral investment treaties (BITs) in enforcing local standards. 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 discussions and 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 environmental problems was not a legal gap in the local standards, but the failure of enforcing such standards by the government bodies and foreign investors. 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-friendly unless otherwise strictly regulated by combining local environmental standards and a BIT that imposes environmental obligations (along with enforcement mechanisms) on the foreign investors, host state and home state. Originality/value The existing literature does not deal with the environmental problems, the enforcement constraints and the role of the applicable BITs together in a single publication. They separately address these issues, which do not give a comprehensive understanding of the cause-and-effect relationship. This paper fills this gap by presenting comprehensive findings that combine the environmental problems 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 environment by producing empirical evidence from Ethiopia, the African continent.