A Contentious Toll

Rivers have caused a decent share of international disputes in Latin America: Pulp Mills, Silala (analysed here), and the series of disputes between Costa Rica and Nicaragua involving the San Juan River. And that’s just the last 15 years.

Argentina’s decision late last year to impose a toll on cargo shipped through the Paraná-Paraguay Watercourse (PPW) may be the most recent addition to that list. 

For context, the PPW is a 3,400km long natural fluvial corridor in the La Plata basin that connects Argentina, Bolivia, Brazil, Paraguay and Uruguay. It is one of the most important watercourses in the interior of South America. 

Argentina argued that the toll fees were necessary to cover the costs of upkeep of its section of the Watercourse, particularly dredging (i.e., excavating the river so that vessels may transit without risk of grounding) and buoyage (i.e., keeping buoys to indicate the lanes through which ships should transit).

The decision to charge toll fees has not gone down well. Unsurprisingly, Paraguay is particularly aggrieved. As a landlocked State (or, in the words of one of its most famous writers, Augusto Roa Bastos, “an island surrounded by land”), Paraguay is heavily reliant on the PWW for its international commerce. 

Background

On 10 September Bolivia, Brazil, Paraguay and Urugay issued a joint statement criticising Argentina’s decision to impose the toll, which those States characterised as “arbitrary” and “unilateral.”

The matter escalated when Argentina arrested a Paraguayan-flagged vessel that was carrying a cargo of oil to Paraguay. The vessel’s operator had initially tried to avoid paying the toll. And then, at the Argentinian-Paraguayan border Argentinian customs officers seized tanker lorries transporting LNG into Paraguay.

Paraguay also took measures to pressure Argentina. It decided to increase the electricity it is entitled to receive from the Yacyretá hydroelectrical dam—a joint Argentinian-Paraguayan facility. Although Paraguay is entitled to claim up to 40% of the electricity the dam produces, it usually only takes up 10%, leaving Argentina to take up 90%. Argentina then buys Paraguay’s share at below-market rates. The withdrawal of that wattage means Argentina will need to purchase electricity from Brazil at market prices.

In yet a further twist, the recently elected President of Paraguay, Santiago Peña, alleged that in a recent conversation Argentine finance minister, Sergio Massa, (who is running for president), had lied to him. According to Peña, Massa told him that Argentina would eliminate the toll—a possibility the Government of Argentina quickly dispelled.

The Legal Framework

In River Ode the PCIJ held that riparian States have a “community of interests” in navigable rivers, which results in the “perfect equality of all riparian States in the use of the whole course of the river and the exclusion of any preferential privilege of any one riparian State” (p. 278). But customary international law does not generally recognise freedom of navigation through interstate rivers. Rather, the international legal regime of rivers is mainly based on treaties. See e.g., Pulp Mills (paras. 26-28).

That is the case here. In 1992 Argentina, Bolivia, Brazil, Paraguay and Urugay signed the Treaty on Fluvial Transport on the Paraguay-Paraná Waterway (the Watercourse Treaty; also known as the Treaty of Santa Cruz de la Sierra). More broadly, there had also been prior international cooperation between those States, which signed the Treaty of the La Plata Basin in 1969—and was aimed at achieving greater integration in the La Plata Basin area (including the PPW).

There are three provisions of the Watercourse Treaty that are particularly relevant:

First, Art. 4 recognises the right of “freedom of navigation through the Watercourse of the vessels of their respective flags, as well as for vessels of third flags.”

Second, Article 5 provides that: “without prior agreement of the signatory States, no tax, levy, charge or duty on the transport, the vessels or their cargo, may be established, based solely on the fact of navigation.”

Third, Article 9, however, provides that “the vessels, goods and person of the signatory States will have freedom of transit through the Waterway and they may only be charged a duty that retributes the services effectively rendered to them” (all translations mine).

So, although the Watercourse Treaty provides for freedom of navigation, and requires prior agreement of the other riparian States for the imposition of taxes or duties on either navigation or cargo, it also leaves open the possibility for the riparian States to impose certain charges on vessels that navigate through the Watercourse. Critically, Art. 9 does not require or suggest that the State that is imposing the charge must consult or negotiate with the other riparian States.

This is in contrast with the position adopted in other treaties regarding navigational uses of rivers. For instance, Art. 35 of the Convention regarding the regime of navigation on the Danube provides that States may impose a “levy on vessels navigation charges,” to cover the “cost of the maintenance of navigation.” Yet the Convention requires that those levies are set “by agreement with the Commission,” (which is composed of the riparian States). Thus, by involving the Commission this arrangement precludes any State from being able to unilaterally impose levies on navigation.

The Watercourse Treaty itself does not include specific dispute settlement mechanisms. However, the Treaty includes a 5^th Protocol, which does establish an escalating dispute resolution clause. The Parties must first attempt consultations and direct negotiations. If those are unsuccessful, the dispute may be submitted to the Commission, which may issue recommendations (Arts. 3-4). If not, the matter may be submitted to a three-member arbitral tribunal. The Tribunal has broad discretion to issue provisional measures (Art. 12).

Analysis

Several meetings of the Intergovernmental Commission of the PPW had failed to find a solution. Finally, on 27 September the 5 riparian States agreed to carry out a “technical analysis,” which would allow to determine the price of the toll. The analysis should be carried out within the next sixty days—and during that time Argentina would refrain from arresting vessels. Whereas Paraguay, Bolivia, Brazil, and Uruguay still voiced concerns that the imposition of the toll breached the Watercourse Treaty; Argentina’s position is that, although it insists on the application of the toll, it is open to negotiations as to price. This meeting was carried out under the dispute settlement mechanisms of the 5^th Protocol to the Watercourse Treaty.

These recent developments suggest that a negotiated outcome is possible. There are important economic, geographic, and legal hurdles, though.

First, Argentina is in a difficult economic situation. With pressure on the public budget, the toll probably seems like the most straightforward way of obtaining the funds necessary to carry out the works to operate the Argentinian sections of the Watercourse. Moreover, with presidential elections in late October, it is unlikely that there’s much political will to take any categorical decisions right now.

Second, as to geography, of all the Watercourse’s riparians, Paraguay is the one that will be most affected (followed by Bolivia).  One issue that Paraguay seems particularly concerned by, and that was mentioned in the Joint Statement, was that the toll could affect the transport of strategic goods—and lead to increases in fuel prices. Yet, in addition to having a smaller economy, Paraguay simply has no other options for its maritime commerce. It is the Watercourse or bust. Uruguay, in contrast, does not depend on the PPW for most of its maritime commerce. It’s main ports are directly on the coast or on the banks of the La Plata River. And with a much larger economy, and an extensive coast line, none of Brazil’s busiest ports by cargo volume are on the PPW either.

Third, as to the law, Art. 9 of the Watercourse Treaty gives Argentina grounds to argue that it was entitled to impose toll charges. Argentina could, for instance, argue that the toll is retribution for navigational services—including dredging and buoyage—that are being rendered to the vessels navigating through the Argentinian section of the Watercourse. The provision, however, is not unambiguous, because there is a (small) degree of remoteness between the dredging of the Watercourse and the vessel, particularly when compared to services being directly rendered to the vessel, like pilotage.

If the dispute is ultimately submitted to an arbitral tribunal (which Paraguay has already threatened), it is likely that there will be an interim measures phase. If the proceedings end up being protracted, a provisional measures order suspending the toll (or allowing it to stand) would also likely be relevant in the continuing diplomatic negotiations regarding the toll. 

Overall, however, and despite some diplomatic pressure, Argentina may have some incentives to perhaps negotiate on price—but not to completely yield in the application of the toll charges.