International economic law developments barely one month into 2017 have been nothing short of tectonic this side of the Atlantic. From US President Trump’s first executive action to withdraw the United States from the unratified Trans-Pacific Partnership; his subsequent announcement (later called mainly an option) to impose a 20% border tax on Mexican imports into the United States to finance a wall between the two countries; a declared initiative to renegotiate the North American Free Trade Agreement (NAFTA) that was signed under the administration of Republican President George Bush; unprecedented changes to the United States National Security Council removing the nation’s top military, intelligence, and security advisers to only permit regular attendance for White House chief strategist Steve Bannon and more limited attendance of the chairman of the Joint Chiefs of Staff and the Director of National Intelligence; threats of punitive tariffs against China and accusations of illegal currency manipulation; to last Friday’s latest executive order announcing a travel ban against individuals from seven predominantly Muslim states (approximately 218 million persons) and the 4-month suspension of any refugee entry, as a possible first step to a broader ban – it is becoming all too clear that barely ten days into the new presidency, the United States will not be above reversing, abandoning, disregarding, or defecting from any of the established rules and institutions of international economic law, through extraordinary actions and reversals that have scarcely any or no inter-agency vetting and consultation, and significantly, with the new president declining to divest himself from all business interests or to introduce transparency and consultation measures even as these political-security-economic policy reversals continue to be formulated with relative opacity. The Dow Jones industrial averages and NASDAQ composite index both dropped with the sudden rush to sell off US equities, and American private companies have taken to hiring crisis management and communication firms for the new age of undisclosed and sudden economic policy reversals, reviewing operations and mergers against possible charges of being “Anti-American”.
Remaking Globalization for the Local: The Real Search for Equality and Diversity in International Law
From Western liberal democracies in the United States and the European Union, to historically democratic developing countries such as the Philippines, ignored, disenfranchised, and disempowered local communities emphatically made themselves heard in elections and referenda around the world. For better or for worse, the international economic order will be remade, somehow. It would be specious and condescending to merely say that this is the rise of “populism” without truly understanding the concerns of local communities who have driven electorates all over the world to reject any form of the “establishment” – whether they be traditional politicians and parties, State apparatuses, international organizations, mainstream media, or multinational corporations.
The supranationalist structures of modern international law’s prominent institutions – the United Nations (UN), the Washington Consensus behemoths such as the World Bank (WB) and the International Monetary Fund (IMF), the World Trade Organization (WTO), the European Union (EU), among others – are premised on deepening inter-State cooperation while still ensuring full respect for the basic UN Charter of the “principle of sovereign equality” of all States. However, the actual power and felt impact of these global institutions on the daily modern lives of individuals, groups, and local communities reveals serious fissures that expose an obvious imbalance between the terms of international cooperation and States’ sovereign equality – from the micromanagement of Greek agencies by EU fiscal managers and inspectors during the worst nadir of the EU’s financial crisis; the enforced austerity and structural adjustment programs of World Bank technocrats harnessing the leverage of the Bank’s conditionality lending to developing countries; the loss of jobs and social dislocations caused to communities throughout manufacturing states in the United States of America when multinational corporations move operations offshore to China or Mexico; as well as the drastically increased competition for resources and the rise in challenges to religious, social, ideological and group identity posed by cleavages within multicultural societies emerging from formerly hermetic communities now overrun by refugees and other immigrants fleeing political persecution, climate change-related natural disasters, and other humanitarian crises.
Restive “Westphalian” political elites push back against the seeming tyranny of the international system and its global institutions, in order to increasingly assert the sovereign prerogative of states and their supposed ‘independence’ from any form of international governance that ultimately erodes any of these elites’ real bases of power. The recent rise of populist, anti-establishment, anti-trade, and anti-internationalist leaders throughout established democracies – from France’s Marine Le Pen, the United States’ Donald Trump and (to a certain extent) Bernie Sanders, the United Kingdom’s Nigel Farage, the Philippines’ Rodrigo Duterte, Venezuela’s Hugo Chavez, among others – is no coincidence. ‘Silent’, faceless, and individually powerless, electoral majorities are clearly voting for leaders who project themselves as best able to roll back the worst excesses of inequality, insecurity, and uncertainty faced by households from an (actual or imagined) unrestrained international order. The rise of an unstable, deep populism throughout liberal democracies around the world does not only express what IMF Managing Director Christine Lagarde calls “a groundswell of discontent” against globalization, but rather, a return to a much harder ‘Westphalian’ version of State sovereignty insulated from the common interests and shared concerns of this century’s community of nations forged and united in the aftermath of the First and Second World Wars.
Detecting Prohibited Subsidies and Determining Continued Compliance: WTO Panel Rules (Again) for the US in the Airbus Dispute with EU
On 22 September 2016, the United States Trade Representative (USTR) scored another victory in its long-running dispute with the European Union (EU) over subsidies provided by certain EU Member States to large civil aircraft manufacturer Airbus. The USTR sought to prove that 36 challenged EU measures remained inconsistent with its duty to comply with the rulings and recommendations issued by the WTO Dispute Settlement Body (DSB) after adopting the original 30 June 2010 Panel Report in this case. Specifically, the US challenged four types of subsidies allegedly made by the EU and/or certain EU Member States to Airbus for continuing inconsistency with the Subsidies and Countervailing Measures (SCM) Agreement: 1) launch aid or member State financing; 2) equity infusions for the corporate restructuring of Aerospatiale and Deutsche Airbus; 3) infrastructure related measures of German and Spanish authorities; and 4) research and technological development funding provided by the EU and certain member States.
The 22 September 2016 WTO Panel Report European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft [hereafter, “2016 Panel Report”] found, among others, that: 1) French, German, Spanish, and UK launch aid or member State financing for the Airbus A350XWB constituted actionable specific subsidies (2016 Panel Report, para. 7.1.c.ii.); 2) the EU and certain member States have failed to comply with their obligation to withdraw the subsidies for other Airbus aircraft (2016 Panel Report, para. 7.1.c.ix.); 3) the EU continues to be in violation of Articles 5(c) and 6.3(a)(b) and (c) of the SCM Agreement by failing to comply with previous recommendations and rulings of the WTO Dispute Settlement Body in the original 30 June 2010 Panel Report (2016 Panel Report, para 7.2); 4) to the extent that the challenged EU measures remain inconsistent with the SCM Agreement, they have nullified or impaired benefits accruing to the US under that Agreement (2016 Panel Report, para. 7.3); and 5) the EU and certain member States failed to bring 34 of its 36 challenged measures into conformity with their obligations under the SCM Agreement (2016 Panel Report, para. 7.4).
“Great Game” politics in the Asia-Pacific has just changed irrevocably, especially for all parties, claimants, and affected constituencies in the South China Sea, after the Annex VII UNCLOS arbitral tribunal released its 12 July 2016 Award in Republic of the Philippines v. People’s Republic of China (Permanent Court of Arbitration Case No. 2013-19). While we will be featuring posts over the coming days on this award that dissect and analyze the award, its international legal significance, and its larger geopolitical consequences for all claimants to the South China Sea dispute and third-party actors (such as the United States), for now, a close read of all 479 pages of this arbitral award reveals it to be an extremely rich and fertile piece of international jurisprudence, one that will certainly have far-ranging doctrinal impacts as an international judicial decision that is also an authoritative subsidiary means for determination of the international law rules under UNCLOS, especially on questions such as the:
1) normative weight of “historic rights” and differentiating the same from “historic title” and “historic rights short of sovereignty”, and clarifying what could still possibly amount to historic rights that States could still validly assert within the UNCLOS treaty regime;
2) authoritative criteria for determining the existence of low-tide elevations (LTEs), noting that the legal consequences of which were not completely settled in the International Court of Justice’s judgment in Qatar v. Bahrain;
3) objective criteria for the authoritative interpretation of Article 121 UNCLOS;
4) objective and subjective criteria for testing the lawfulness and unlawfulness of a coastal State’s asserted ‘enforcement’ activities; and the
5) objective or scientific factors that could be taken into account to determine the existence of actionable environmental damage to the marine environment under Articles 192 and 194 UNCLOS.
Interestingly, the arbitral tribunal did not assume jurisdiction in this case over the interpretation of “military activities” within the meaning of Article 298 of UNCLOS, which the Philippines had asserted in regard to various military and paramilitary incidents with China over Second Thomas Shoal. It would be interesting to see, in the coming days, how the United States reacts to this development, since it has frequently insisted on the prerogative of the coastal State to make the authoritative determination of what “military activities” could be justifiably excluded from compulsory dispute settlement under UNCLOS Article 298(1)(b).
The evidentiary rules and fact-finding procedures of this tribunal will also, I suspect, also provoke considerable commentary, if not critique, since the tribunal drew heavily from numerous statements, published views, and opinions that were attributed to the respondent in this case. One can also expect questions to be raised on why the respondent never chose to participate in the proceedings if only to challenge jurisdiction, to contest the veracity or authoritativeness of the Philippines’ technical, environmental, hydrographical, and other expert submissions under protest, or to otherwise set its own narrative, instead of permitting China’s narrative to be formed from the tribunal’s reconstruction of innumerable media statements and statements of officials.
Clearly, this award has greater consequences beyond China’s repeated refusal to recognize it (at least for now). As a subsidiary means for determining international law, it is conceivably difficult for any of the claimants – the Philippines included – to ignore the legal effect of this ruling and its impact on all future steps to be undertaken in the actual maritime boundary delimitation negotiations. The ruling will likely affect the landscape of interpretation for the 2002 Declaration on the Conduct of Parties to the South China Sea, and the ongoing work agenda of the ASEAN-China Working Group on the Code of Conduct for the Parties to the South China Sea. Whatever the stated preferences may be of China or the new Duterte administration in the Philippines, and regardless of objections to the veracity of factual findings of the tribunal, the very existence of the Philippines v. China arbitration award as a subsidiary means for determining the rules of international law arguably changes the very scope and interpretation of actual applicable law to be considered by parties to this dispute.
We look forward to featuring a broad spectrum of views from various international lawyers and scholars on this landmark arbitral award, as we track contemporaneous developments in the Asia-Pacific region, and invite further discussion especially on next steps ahead for the actual disputes between the claimants on maritime boundary delimitation. Read the rest of this entry…
Arbitral Controls and Policing the Gates to Investment Treaty Claims against States in Transglobal Green Energy v. Panama and Philip Morris v. Australia
Investor-State arbitral tribunals are increasingly policing the gates to investment treaty claims against States. The initiation of investment treaty claims against States remains subject to a high threshold of good faith against possible abuse of process by investors, as recently stressed by arbitrators Dr. Andres Rigo Sureda (President), Professor Christoph Schreuer, and Professor Jan Paulsson, in their 2 June 2016 Award in Transglobal Green Energy LLC and Transglobal Green Panama S.A. v. Republic of Panama. The Tribunal upheld Panama’s objection to jurisdiction on the ground of “abuse by Claimants of the investment treaty system by attempting to create artificial international jurisdiction over a pre-existing domestic dispute.” (Transglobal Award, para. 118). The Transglobal Award was issued six months after another tribunal in Philip Morris International v. Australia [composed of arbitrators Professor Karl-Heinz Böckstiegel (President), Professor Gabrielle Kaufmann-Kohler, and Professor Donald M. McRae] issued its landmark 17 December 2015 Award on Jurisdiction and Admissibility, declaring that: “the commencement of treaty-based investor-State arbitration constitutes an abuse of right (or abuse of process) when an investor has changed its corporate structure to gain the protection of an investment treaty at a point in time where a dispute was foreseeable. A dispute is foreseeable when there is a reasonable prospect that a measure that may give rise to a treaty claim will materialize.” (Philip Morris Award, para. 585.) While to date there is scarcely any doctrinal unanimity over what comprises abuse of process, abuse of rights, or bad faith institution of investor-State claims [see for example Eric De Brabandere, Good Faith, Abuse of Process, and the Initiation of Investment Treaty Claims, 3 Journal of International Dispute Settlement 3, pp. 1-28 (2012), these recent arbitral decisions provide concrete guidance of factors that tribunals have taken into account to determine whether investor-claimants instituted investment treaty arbitration proceedings in good faith.
The ‘Internationalization’ of Maritime Disputes in the South China Sea: Environmental Destruction in the High Seas and Threats to the Global Commons
What does it mean to ‘internationalize’ a maritime dispute? Accusations of ‘internationalization’ of the maritime disputes in the South China Sea have been strident over the past weeks, most recently from the 18 April 2016 Joint Communique of the Foreign Ministers of the Russian Federation, the Republic of India, and the People’s Republic of China, which stressed that “Russia, India and China are committed to maintaining a legal order for the seas and oceans based on the principles of international law, as reflected notably in the UN Convention on the Law of Sea (UNCLOS). All related disputes should be addressed through negotiations and agreements between the parties concerned. In this regard the Ministers called for full respect of all provisions of UNCLOS, as well as the Declaration on the Conduct of Parties in the South China Sea (DOC) and the Guidelines for the implementation of the DOC.” (Joint Communique, para. 21). Russian Foreign Minister Sergei Lavrov was also reported to have observed to Chinese media in Moscow during the Russia-China-India April 2016 trilateral summit that “[attempts to internationalize the issue] are completely counterproductive. Only negotiations, which China and the ASEAN are pursuing, can bring the desired result; namely, mutually acceptable agreements” – a sentiment echoed by Chinese Foreign Minister Wang Yi who was also reported to have voiced his opposition to the ‘internationalization’ of the South China Sea dispute on the basis of the Philippines’ “unilaterally-proposed arbitration case”. Chinese President Xi Jinping reiterated the call for negotiations only between the states involved, reportedly implying nations outside the region such as the United States have “no role in regional disputes”. The Russia-China-India trilateral statement came one week after the G7 Summit in Hiroshima, Japan, yielded the April 11, 2016 G7 Foreign Ministers’ Statement on Maritime Security, which stated, among others, that the G7 “express[es]… strong opposition to any intimidating, coercive or provocative unilateral actions that could alter the status quo and increase tensions, and urge all states to refrain from such actions as land reclamations including large scale ones, building of outposts, as well as their use for military purposes and to act in accordance with international law including the principles of freedoms of navigation and overflight. In areas pending final delimitation, we underline the importance of coastal states refraining from unilateral actions that cause permanent physical change to the marine environment insofar as such actions jeopardize or hamper the reaching of the final agreement, as well as the importance of making every effort to enter into provisional arrangements of a practical nature, in those areas.” (G7 Statement, para. 5). Read the rest of this entry…
A New Theory for Enforcing ICJ Judgments? The World Court’s 17 March 2016 Judgments on Preliminary Objections in Nicaragua v. Colombia
The International Court of Justice simultaneously issued two intriguing judgments on 17 March 2016, both involving applications filed by Nicaragua against Colombia, and both of which have some nexus to the Court’s 19 November 2012 Judgment in Territorial and Maritime Dispute (Nicaragua v. Colombia). To recall, the Court in its 2012 Judgment had affirmed Colombia’s sovereignty over seven islands, drawn a single maritime boundary delimiting the continental shelf and exclusive economic zones of Nicaragua and Colombia, and rejected Nicaragua’s request to have Colombia declared in breach of international law for allegedly denying Nicaragua’s access to natural resources to the east of the 82nd meridian. (2012 Judgment, dispositif, para. 251)
Thereafter, Nicaragua instituted two Applications on matters appearing to flow from, but alleged to be extraneous to, the Court’s 2012 maritime delimitation Judgment. In its 2013 Application in Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea (Nicaragua v. Colombia) [hereafter, “Application on Sovereign Rights and Maritime Spaces Violations”], Nicaragua alleged, among others, that Colombia violated Nicaragua’s rights pertaining to maritime zones defined under the Court’s 2012 maritime delimitation Judgment and that Colombia had also breached the obligation not to use or threaten to use force. On the other hand, in its 2013 Application in Question of the Delimitation of the Continental Shelf between Nicaragua and Colombia beyond 200 Nautical Miles from the Nicaraguan Coast (Nicaragua v. Colombia) [hereafter, “Continental Shelf beyond 200 NM Application”], Nicaragua requested the Court to declare “the precise course of the maritime boundary between Nicaragua and Colombia in the areas of the continental shelf which appertain to them beyond the boundaries determined by the Court in its Judgment of 19 November 2012” [hereafter, “first Request”], as well as “the principles and rules of international law that determine the rights and duties of the two States in relation to the area of overlapping continental shelf claims and the use of its resources, pending the delimitation of the boundary between them beyond 200 nautical miles from Nicaragua’s coast.” [hereafter, “second Request”] (Continental Shelf beyond 200 NM Application, para. 12).
At the core of Colombia’s preliminary objections in both cases was the argument that the Court had already resolved the alleged matters in the 2012 Judgment, and accordingly, incidents related to these matters thereafter ought to be enforced under the canonical rule in Article 94(2) of the UN Charter (“[i]f any party to a case fails to perform the obligations incumbent upon it under a judgment rendered by the Court, the other party may have recourse to the Security Council, which may, if it deems necessary, make recommendations or decide upon measures to be taken to give effect to the judgment.”). Nicaragua’s theory was essentially based on the characterization of fresh disputes with Colombia that may have some factual/legal nexus with the 2012 Judgment, but were, ultimately, left undetermined or outside the purview of the 2012 Judgment. It is highly interesting to see how this theory mainly prevailed in the Court’s 17 March 2016 Judgment on Preliminary Objections in Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea (Nicaragua v. Colombia) [hereafter, “Sovereign Rights and Maritime Spaces Violations Judgment on Preliminary Objections”] and its 17 March 2016 Judgment on Preliminary Objections in the Question of the Delimitation of the Continental Shelf Between Nicaragua and Colombia Beyond 200 Nautical Miles from the Nicaraguan Coast (Nicaragua v. Colombia) [hereafter, “Continental Shelf beyond 200 NM Judgment on Preliminary Objections”]. The Court’s unprecedented acceptance of jurisdiction for certain claims in both of these Nicaraguan applications certainly provoke new lines of inquiry on lines of demarcation between issues of enforcement of the Court’s judgments, and related but separate claims that could be instituted fresh with the Court, without triggering the rule on enforcing ICJ judgments through the more political forum of the Security Council. How was the Court able to assume jurisdiction in these cases, and what do these decisions bode for the settled rule on the finality of the Court’s judgments?
Evidence but not Empiricism? Environmental Impact Assessments at the International Court of Justice in Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v. Nicaragua) and Construction of a Road in Costa Rica Along the San Juan River (Nicaragua v. Costa Rica)
December 2015 was a landmark month for treaty-based developments in international environmental law, after the successful conclusion of the Paris Agreement (see Jorge Vinuales’ three-part analysis here, here, and here, and subsequent reactions from Annalisa Savaresi here and Po-Hsiang Ou here). However, one should not also overlook more modest jurisprudential developments arising from the International Court of Justice’s 16 December 2015 Judgment on the Merits in Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v. Nicaragua) and Construction of a Road in Costa Rica along the San Juan River (Nicaragua v. Costa Rica). While the Court in this case continued to affirm as settled law that States have to conduct environmental impact assessments (EIAs) for projects that could result transboundary harm – even innovatively introducing provisional measures in 2011 that required parties to cooperate on environmental monitoring – the Court ultimately remained opaque on the method and criteria it used to assess the degree of “risk of transboundary harm” that would be sufficient to trigger a State’s obligation to conduct an EIA. It was a regrettably lost opportunity for the Court to provide practical and conceptual guidance to States on how to assess “significant risk of transboundary harm” which triggers the international legal duty of a State to conduct an EIA before starting the proposed activity. The question of transboundary harm risk assessment has become increasingly urgent in recent years, particularly as more cross-border public-private partnership projects proliferate and States assume the international legal burden of conducting proper EIAs at the outset of any such cross-border PPP project.
Beneficial Ownership and International Claims for Economic Damage: Occidental Petroleum v. Ecuador and Restoring Limits to Investor-State Arbitral Tribunals’ Jurisdiction Ratione Personae
On 2 November 2015, the ICSID ad hoc Committee composed of Prof. Juan Fernandez-Armesto (Committee President), Justice Florentino Feliciano, and Mr. Rodrigo Oreamuno in Occidental Petroleum Corporation v. The Republic of Ecuador (ICSID Case No. ARB/06/11) partially annulled the massive US $1.769 Billion award of damages issued on 5 October 2012 by the majority of the arbitral tribunal (Mr. Yves Fortier, President, and Mr. David A.R. Williams) over the strong dissent of arbitrator Prof. Brigitte Stern. Agreeing with arbitrator Stern’s position that Occidental Petroleum had split its ownership to give a 40% ownership interest to a Chinese company Andes/AEC (Committee decision, para. 204), the ICSID ad hoc Committee whittled down the damages awarded to only reflect the actual 60% ownership of claimant Occidental Petroleum in the assets that Ecuador expropriated. The Committee’s decision significantly brought down the compensation value for the expropriation to the 60% as owned by Occidental Petroleum to US$1.061 Billion (Committee decision, paras. 586 and 590). The Committee treated the Chinese company Andes/AEC’s beneficial ownership of 40% of the expropriated assets as outside the scope of its jurisdiction over covered investors protected under the US-Ecuador BIT.
In issuing its landmark decision, the Committee stressed proscribed limits under the law of investor-State claims; the distinct confined mandate and authority of arbitral tribunals as derived from the creation and consent of States; and the ensuing narrow availability of the investor-State treaty arbitral system only to treaty-covered investors: Read the rest of this entry…