Think Piece

The Role of PPMs in Extractive Industries

March 2016
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Extractive industries based on foreign direct investment (FDI) are part of a triangle, consisting of the home state, the host state, and the company concerned.

The responsibility and authority to regulate extractive industries today entirely lies with the host state based on the principle of territoriality and permanent sovereignty over natural resources. Companies engaged in FDI in this area enjoy the benefit of support under diplomatic protection and an ever-increasing number of bilateral investment treaties, while their obligations to protect the environment and human rights and provide transparency still are in the process of being developed. At present, home states are not obliged to intervene if proper performance is not met. However, failures by extractive companies to respect basic human rights and the welfare of populations concerned or to protect against environmental degradation may fall back on the home state, representing a political and reputational liability within the international community and the public at large.

This paper primarily addresses the potential responsibilities of home states and third countries importing extractive industry products. It explores the potential role of trade law and regulation in addressing deficiencies and bringing about a better balance of risks. Linking trade, investment, human rights, and the environment is in its infancy and research gaps loom large. The author seeks to address these gaps by exploring the role of process and production methods (PPMs) in regulating international trade of commodities.

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