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Are “Transparency” Procedures and Local Community “Consultations” Enough? A Human Rights “Feedback Loop” to International Economic Law Reforms of 2018

Published on December 12, 2018        Author: 
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It is nearly the end of 2018, and so many “reform” efforts are underway throughout all realms of international economic law that one is inclined to think all our good intentions must lead somewhere, eventually.  There is an UNCITRAL Working Group for Reforming Investor-State Dispute Settlement (ISDS) that involves Member States, and to a different degree, academic inputs through the Academic Forum (see the blog’s series of posts on these authored by Anthea Roberts, found here, here, here, here, and here).  New trade agreements have been announced, such as the NAFTA renamed 2.0 version United States-Mexico-Canada Agreement (USMCA, recently discussed here by the Max Planck Institute’s Pedro Villareal and Franz Ebert), a renegotiated Korea-US trade agreement (details here), or the forthcoming entry into force of the US-less 11-nation bloc of the Comprehensive and Progressive Trans Pacific Partnership (CPTPP) on 30 December 2018 (see details here).  With the United States having changed its defense and leadership of the WTO and the multilateral trading system towards a policy of not shirking from initiating open bilateral trade wars to force renegotiations – such as the temporary trade truce with China (contents here) and tariffs slapped on the EU, Canada, and other allies (see Joseph Weiler’s ever prescient portents about the precarious US position here, and further discussions here, here, and here), it is not at all surprising that other States this year have been strategically realigning their economic partnerships, whether it be through deepening EU-Africa trade partnerships; Japan recently concluding a new trade pact with the EU; or more countries moving out of the Western orbit of economic influence towards China’s own expansive march with debt-financed investment projects in the Belt and Road Initiative; or China and/or India leading the state of negotiations at the pending 16-member mega-regional agreement, the Regional Comprehensive Economic Partnership (RCEP), allegedly set to be finalized by early 2019.  All these, apart from the uncertainties of securing any prospective UK-EU treaty, which, as of this writing is still up in the air after British PM Theresa May pulled back from forcing a catastrophic vote at the House of Commons (noting, of course, that the European Court of Justice issued a landmark ruling on 10 December 2018 declaring that the UK can voluntarily revoke Brexit).

Political expediencies and treaty negotiation pragmatisms aside, we have to wonder whether the “efficiency” of these developments will indeed result in “efficacy” or “effectiveness”, and for which constituencies of the international economic system.  Despite the multitude of public policy-driven reform efforts (such as expanding amicus participation, transparency guarantees, as well as public consultations in ISDS, setting out more detailed environmental and labor chapters in trade agreements, or announcing more infrastructure financing avenues for developing countries in new institutions and initiatives), what I have not seen in a year of attempted reforms is any deliberate shift towards broadening global economic governance beyond the usual voices at the negotiating table.  The same political, economic, intellectual, or social elites are crafting the new rules and institutions in the international economic system, with the contours of any local community consultations actually left to be operationalized according to the political auspices and national mechanisms of individual States.  To a great extent, this is understandable, since a relentless cacophony of voices might be anathema to achieving any final treaty text or clear institutional decision (e.g. the Aristotelian version of the tyranny of an extreme democracy).  But to a large extent, this “business as usual” approach remains just as discomfiting as the many paeans regularly being made these days (see here, here, here, for example), towards building in some kind of consultations process for local communities that are somehow intended to depict a “more inclusive” international economic system.  Is it enough that local communities are “being heard” by their respective States, or should the new rules and reforming institutions of the international economic system also start making sure that States are indeed listening?  

Once communities have been “consulted”, one way or another, where is the (hopefully objective and largely depoliticized) “feedback loop” that enables local communities to actually see what the State’s ultimate decision-making process has been with respect to reforming international economic treaties, decisions, and institutions?  That process remains shrouded in mystery – owing to the usual fictions of States claiming to need opacity during hard treaty bargaining.  I make the (rather obvious, but surprisingly still ignored) argument, in this post, that States’ human rights obligations to their populations make it imperative to build in a genuine “feedback loop” for any consultations or transparency procedure that may be contemplated in the continuing reform of international economic law.  A feedback loop is a necessary control mechanism in the communication process that enables communicants to verify whether their respective inputs or views have been used, recycled, revised, or discarded by the decision-maker.  To the best of my knowledge, this still doesn’t exist in the architecture of international economic law and its limited spaces for public participation.  There is “consultation” but no meaningful opportunities for communities’ real-time verification of what their States have promised, traded, conceded, or otherwise bargained at the negotiating table.

It is not enough that local communities just be “heard”, but we should all be properly informed of how community views translate (or not) into the State’s international economic decision, so as to ensure that communities can strategically and effectively participate as fellow constituents of the international economic system.  This is all the more urgent as States persist in these reforms through to the new year, when communities are, in the first place, at the frontlines of the international economic system’s felt impacts on environment, health, economic, social, cultural, civil, and political rights.  If there is any constituency that deserves the information on how States have been making all of these reform decisions, it is our communities who have to live through the consequences of these decisions, years after all the politicians and negotiators have come and gone.  With better information as to States’ actual international economic decisions coming from an actual “feedback loop”, communities are better empowered to choose (or reject) leaders who make these lasting decisions.  The “feedback loop” is thus central to a genuine right to self-determination, in its economic and political dimensions.

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UNCITRAL and ISDS Reforms: Moving to Reform Options … the Politics

Published on November 8, 2018        Author: 
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In the last blog, I provided an update on the UNCITRAL process, including the consensus decision from Vienna last week to move forward to consider possible reforms of investor-state arbitration. This decision is very significant. But to get a sense of how this decision was reached and where the process might be heading, I thought it would be helpful to provide my sense of the politics of the process as well as some projections about how it might move forward.

As stated previously, I am a member of the Australian delegation but I am included in that delegation in my independent academic capacity, so nothing in my writings or talks should be taken to reflect Australia’s views. My academic views are exactly that: mine and academic. Nevertheless, I hope that these views are informed. These blogs are based on official interventions during the UNCITRAL plenary sessions as well as discussions with a diverse range of actors from the process.

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UNCITRAL and ISDS Reforms: Moving to Reform Options … the Process

Published on November 7, 2018        Author: 
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Last week has been described as a watershed moment for ISDS reform. During a meeting in Vienna, states decided by consensus on the desirability of developing reforms in UNCITRAL with respect to investor-state arbitration. States now have an opportunity to make proposals for a work plan about what reforms to consider and how to go about considering them. To the extent that the tide has turned on traditional investor-state arbitration, it is now up to states to tell us where they want to sail.

As you might imagine, reaching a decision like this involved quite a process, along with a lot of politics. In this blog, I set out the process in terms of what was decided in Vienna, what was not decided, and what the next steps will be for moving forward in 2019. In the next blog, I will provide some context to this development, giving some insights into the politics of the process as well as some projections about how this process might develop.

This reform process will be long and its ultimate outcome remains unknowable. But the momentum for and direction of reforms are becoming increasingly clear. The calls for systemic reform are rising, though different states may mean different things by “systemic.”

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The Renegotiated “NAFTA”: What Is In It for Labor Rights?

Published on October 11, 2018        Author:  and
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On 1 October 2018, the draft text of the United States-Mexico-Canada Agreement (Draft USMCA), the North American Free Trade Agreement (NAFTA)’s successor, was published on the official website of the United States Trade Representative. The Agreement has still some way to go though, including extensive legal ‘scrubbing’ by national authorities and, most importantly, approval by the corresponding national legislatures, which is likely to give rise to intense controversies. Much of the debate surrounding the Agreement so far has revolved around its labor implications, with US Trade Representative Robert Lighthizer stating that the renegotiations’ objective was, among others, “to better serve the interests of our workers”.

Against this backdrop, this post takes a look at the Draft USMCA’s labor rights dimension. It analyzes the Draft USMCA’s Labor Chapter and also reviews certain other chapters that are relevant from a labor rights perspective. The main argument is that, while the Draft USMCA entails some interesting legal innovations, the opportunity to address the main structural problems of US trade agreements to date in terms oflabor rights has largely been missed.

What is new in Draft USMCA’s Labor Chapter?

When the NAFTA was adopted in 1993, one of its novelties was the accompanying labor side agreement, which is still in force. At its core, it required parties to enforce their own domestic labor law, set up a Commission for Labor Cooperation, and established a complaint mechanism for third parties. It also allowed, in certain cases, for state-to-state arbitral dispute settlement with possibilities to impose limited fines as a last resort measure. The fate of NAFTA’s labor side agreement, which the Draft USMCA, as it stands, does not refer to, remains unclear.

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From the Indigenous Peoples’ Environmental Catastrophe in the Amazon to the Investors’ Dispute on Denial of Justice: The Chevron v. Ecuador August 2018 PCA Arbitral Award and the Dearth of International Environmental Remedies for Private Victims

Published on September 13, 2018        Author: 
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The recent 30 August 2018 Chevron v. Ecuador arbitral award is yet another example of the ongoing asymmetries of protection in the much-beleaguered investor-State dispute settlement system, in which States have generously afforded protections to foreign investors to bring suits directly against States, without creating parallel avenues for affected local communities and/or indigenous peoples to initiate arbitration proceedings directly against either foreign investors or irresponsible States. Despite all our collective best efforts at ongoing reform in UNCITRAL (see updates on Working Group III’s mission on ISDS Reform here), ICSID (see their latest rules amendment project here) and elsewhere, I retain serious doubts as to whether investor-State dispute settlement could ever symmetrically represent the environmental and cultural interests of indigenous peoples and local communities, as effectively as it does investors’ claims to treaty protection and (significantly substantial) compensatory relief.  Today, environmental plaintiffs have to navigate between an unwieldy, unpredictable, and quite disparate mix of remedies before domestic (administrative or judicial) courts or tribunals of their home States, potentially some regional courts (such as the Inter-American Court of Human Rights) or treaty monitoring bodies (whether those specifically created in environmental treaties or human rights treaties), other foreign courts in other countries that permit some environmental tort claims, and possibly, any cases that their home State can bring under diplomatic protection to pursue remedies against foreign nationals or the home States of these foreign nationals.  And all these frequently take place in the context of abject differences of power, resources, and capacities between environmental and human rights victims as claimants against either States and/or foreign investors, vis-a-vis foreign investors as claimants or States as respondents.  It’s not at all hyperbolic to observe that, with respect to the international environmental system, the deck already appears heavily stacked against environmental plaintiffs at the outset.  

The Chevron v. Ecuador arbitration presents a crystal example of how what was originally an environmental dispute seeking remediation for one of the worst environmental disasters in history involving oil spillage into 4,400 square kilometers of the Amazon rainforest – ultimately mutated into the investors’ denial of justice claim in investor-State arbitration.  At least, in my view, while  the erudite tribunal in this case thoroughly set out the technical legal reasoning in its award on the precise legal issues of the investment treaty breaches alleged, the award itself more broadly demonstrates that we may well be at the point that a dedicated separate international dispute settlement system might already be necessary to properly adjudicate victims’ claims in human rights and environmental disputes. (Notably, other scholars refer to this dispute to highlight the illegitimacy or alleged exces de poivre of arbitral tribunals making assessments and evaluations of the acts or decisions of domestic courts and judicial systems ipso facto – a significant  heavily disputed structural matter about the current investor-State dispute settlement system, which is, however, not the law and policy observation I make here.) Some efforts looking beyond the narrow ISDS framework, among others, include projects such as the drafting of the new Hague Rules on Business and Human Rights Arbitration; the tentative and non-binding 15 September 2016 policy paper of the Office of the Prosecutor of the International Criminal Court exploring the possibility of prosecuting environmental crimes; as well as the Permanent Court of Arbitration’s suite of environmental dispute resolution procedures (interstate arbitration under environmental treaties, mixed dispute resolution under environmental instruments and contracts, specialized environmental rules for arbitration and conciliation).  To date, these initiatives have not gone much further beyond their incubation.

The most difficult aspect of the Chevron v. Ecuador case is the fact that the arbitration turned on the issue of Ecuador’s investment treaty breaches over what Chevron alleged were very troubling serious acts of fraud and corruption committed by lawyers and judges to produce a favorable 2011 Ecuador court judgment for the environmental plaintiffs.  The fraud and corruption allegations have long since overshadowed the urgency of decades of environmental damage that have largely gone without significant and continuing remedy, alongside ongoing health problems from toxic contamination that have impacted indigenous peoples and local communities for generations. (Note: this pollution disaster originated long before I or generations of current international lawyers were even born.) The Chevron v. Ecuador arbitration succeeded in laying the blame on Ecuador since, for the tribunal, Chevron had already been released from its obligations of remediation under the 1995-1998 Settlement Agreements.  Unfortunately, the arbitral award does not lay out any detailed environmental analysis to explain why contracts such as the 1995-1998 Settlement Agreements would be sufficient to release private parties from short-term, medium-term, and long-term remediation efforts to restore the ecosystem, and whether such releases were at all consistent with international public policy and Ecuador’s own commitments under international law (especially international environmental treaties and customary international environmental law).  Neither did the tribunal explore whether Ecuador alone had the right to conclude the Settlement Agreements on behalf of all the environmental plaintiffs and affected communities, or if Ecuador could indeed effectively and exclusively represent the environmental plaintiffs and affected communities in the investor-State arbitration considering how its government agents exercised oversight (or lack thereof) with respect to the environmental disaster.  Because environmental plaintiffs, indigenous peoples, and affected communities continue to be dependent on the host State of the investment to vindicate their claims against foreign investors, the investor-State dispute settlement system simply cannot lend any of these environmental, indigenous, and local plaintiffs any real, much less effective, voice over their fight to restore the Amazon to health.  While plaintiffs are mired in multiple litigations and arbitrations around the world to seek accountability from either Chevron and its affiliates or their own government in Ecuador, there is virtually no dedicated State, inter-State, regional, or public-private partnership cooperative efforts to try and achieve environmental restoration in the affected 4,400 square kilometers of the Amazon, as depicted in the map below (source here):

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Global Pact for the Environment: Defragging international law?

Published on August 29, 2018        Author: 
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A ‘defrag’ computer program that consolidates fragmented files on a hard drive holds metaphorical attraction for international lawyers. Our encounters with international law often seem to be specific to particular legal regimes, which have a functional orientation and professional sensibility that, in the words of the International Law Commission, may be self-contained. International environmental law and human rights, for example, were developed at different times and are supported by different international and domestic institutions. Now, the United Nations is considering a proposal that promises to integrate various parts of international law, thereby improving its performance: the Global Pact for the Environment.

The draft preliminary text for the Global Pact for the Environment entrenches a right to an ecologically sound environment (Article 1), sets out a duty of states and other actors to take care of the environment (Article 2) and requires parties to integrate the requirements of environmental protection into their planning and implementation, especially to fight against climate change, and to help protect the ocean and maintain biodiversity (Article 3). These and other clauses provide a framework that follows the existing international human rights covenants – on civil and political rights and on economic, social and cultural rights – to promote a ‘third generation’ of fundamental rights. On 10 May 2018, a resolution adopted by the United Nations General Assembly established an ad hoc open-ended working group to analyse possible gaps in international environmental law and, if deemed necessary, to consider the scope, parameters, and feasibility of an international instrument (which could include, but is not limited to, a legally binding agreement along the lines of the Global Pact). Two co-chairs were appointed the following month. An accompanying White Paper outlines the Pact’s antecedents, which include the Rio Declaration on Environment and Development. In this short post, I consider three ways in which the Pact impacts upon the interaction between regimes and ‘defragments’ international law. Read the rest of this entry…

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The turn to managed interdependence: a glimpse into the future of international economic law?

Published on August 14, 2018        Author: 
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Beyond the unpredictability injected into the international order in the wake of policies adopted by the current US administration, a trend seems to be taking shape: the management of interdependence. The belief whereby increased global integration and connectivity would bring peace, stability and prosperity has never been as challenged as presently, when links between states are occasionally “weaponized” in the pursuit of goals that increasingly blur the economic, political and strategic divides.

This scenario pre-dates the Trump period. It was described in an influential 2016 publication by the European Council on Foreign Relations as one where interdependence “has turned into a currency of power, as countries try to exploit the asymmetries in their relations”. In reaction, states are reassessing their exposure to an interdependent global order, seeking to mitigate perceived vulnerabilities that might stem from connectivity and openness.

International law is likely to be transformed if this trend gains traction. A number of international rules and institutions were premised on – and, in fact, harnessed – the interdependence that marked the post-Cold War environment. This article offers insights into possible implications of managed interdependence for international economic law, an area where states are increasingly resorting to “economic statecraft” in order to advance strategic interests. As explored below in the example of investment screening regulations, some of these interests — as national security – are pursued by the management of interdependence.

The emergence of managed interdependence

The intensification of the US-China rivalry has made salient the drivers of managed interdependence. In what possibly amounts to one of the most consequential shifts in global politics, the US has decided to change its approach to China. According to the 2017 National Security Strategy, the US needs to “rethink the policies of the past two decades—policies based on the assumption that engagement with rivals and their inclusion in international institutions and global commerce would turn them into benign actors and trustworthy partners.“

In the context of the change in policy, calls are emerging for the US to manage its economic interdependence with China. In the defense establishment there seems to be a growing sentiment that it is necessary to untangle the economic links between the two countries in order to safeguard US national security. Leading China experts in the US are advocating “ways to protect ourselves against (…) Chinese activity that’s intended to exploit our openness.” And think tanks are suggesting to build “diversity and redundancy in critical supply chains” to limit China´s leverage over the global economy.

The US case with respect to China offers a compelling manifestation of the push to manage interdependence, but it is not an isolated instance. China, for its part, is rolling out its own network of interdependence, partially as a result of the lesson “that overdependence on the West in trade and economy is dangerous”, as argued by a Chinese scholar. Likewise, friends and allies of the US are taking due note of the cost President Trump is seeking to extract from interdependence in the form of trade concessions under the guise of alleged national security. While these states often have little wiggle room to counteract at present, they might be looking for options in the future, as analysts recognize. The private sector too is adjusting to managed interdependence by means of a redesign of global supply chains. Finally, it could also be argued that domestic anti-globalization pressure can induce governments to limit their economies’ exposure to interdependence.

International economic law in times of managed interdependence

Underlying these developments is the perception that, in a context of great power competition, economic policies might be enlisted in a larger set of tools aimed at advancing strategic interests. The 2017 US National Security Strategy acknowledges that this dynamic is currently at play when it states that “American prosperity and security are challenged by an economic competition playing out in a broader strategic context.“ The combination of strategic goals and economic policies is the essence of the notion of “economic statecraft”.

In many instances, economic statecraft in all its expressions is enabled by economic interdependence. Economic statecraft is often associated with the imposition of (formal or informal) economic sanctions, and with the leveraging of state clout to advance national economic interests, as the opening of foreign markets. What became more frequent at present, though, is another brand of economic statecraft, namely the deployment of economic tools to push forward strategic state interests such as access to raw materials and the acquisition of relevant technologies. The fact that the strategic rationale behind some state measures might be debatable does not take away their nature as economic statecraft. When the US decides to manage its interdependence with a NATO ally such as Turkey by crippling bilateral economic ties, this is no less an example of economic statecraft – although some could be left wondering what the strategic logic for this decision is.

The “international law of economic statecraft” differs from international economic law in critical ways. First, states often possess more discretion to act, as a number of economic statecraft measures fall under exceptions to international rules, as national security carve-outs. Second, economic statecraft decisions are inspired by a strategic rationale, which not necessarily privileges the efficient allocation of resources. Indeed, these decisions might confound the market, as when the US government vetoed the takeover of the American chip manufacturer Qualcomm by Singaporean company Broadcom.

As exceptions to rules are more frequently invoked, legal uncertainty is introduced into global economic regimes, and the rule of law is impaired. As a reaction, states are likely to opt for some sort of managed interdependence in order to ensure a degree of predictability.

One area of economic regulation where increased managed interdependence can be identified are the disciplines for investment screening. These rules allow states to scrutinize – and occasionally discourage or veto – transactions taking place in their jurisdictions.

The dissemination of foreign investment screening as management of interdependence

Developments in the investment field offer interesting insights on what international economic law might look like in a context of managed interdependence.

Increased interdependence brought about by rules that liberalized investment flows expanded the global outward stock sixfold between 1997 and 2017, from US$ 5.5 trillion to US$ 30.8 trillion, according to UNCTAD.

More recently, though, that same agency noted that, as a consequence of “concerns about national security and foreign ownership of land and natural resources (…) investment screening procedures are becoming more common”. Whereas investments tended to be by and large welcomed in the past, they are now viewed with slightly more caution.

Tellingly, national security is a concept in expansion. This affords state authorities more leeway to review investment transactions. As the OECD documented in a 2016 report, “the reference to strategically important industries and critical infrastructure is nowadays much more frequent than some six years ago when national security was defined in a much narrower sense”.

Other developments also point to an increased management of interdependence in this area. Of particular relevance is the fact that new actors are adopting investment screening legislation – most notably the European Union, where a regulation is expected to be in force in the short term. Additionally, states with established mechanisms are reinforcing the powers held by national authorities to scrutinize foreign investments, as evidenced in the reform of the Committee on Foreign Investment in the United States (CFIUS), whose bill should be signed into law soon.

The current stage of investment screening regulation also hints at possible roles for international institutions and cooperation in this area. Accordingly, the US Congress has directed the President “to urge and help allies and partners of the United States to establish processes that parallel the [CFIUS] to screen foreign investments for national security risks (…)”. For their part, trade ministers of the US, EU and Japan have agreed on the need to work on best practices to stop governments from “the systematic investment” aimed at acquiring foreign technologies.

China, in its turn, has advocated that the WTO examine, as a possible measure of investment facilitation, to “[e]ncourage the establishment of clear and consistent criteria and procedures for investment screening, appraisal and approval (…)”.

As these examples suggest, managed interdependence does not necessarily inhibit some level of internationalization. However, they also expose different views of internationalization, one pushing for the dissemination of national rules and the other for an international control over the application of these rules.

Conclusion

To be sure, interdependence has never been complete, as states have always enjoyed varying degrees of flexibility to implement international rules. What stands out today is the risk of unravelling the interdependence that has been achieved, which generated positive results despite the shortcomings that still need fixing.

Managed interdependence is not a given. It is only emerging and its dissemination depends to a certain degree on whether more states will resort to it or not.

A world of more managed interdependence would mean an unfortunate step backwards. It undercuts the rule of law, produces regime duplication and ultimately promotes the rise of competing legal orders.

While the reasons for increased resort to economic statecraft – by all actors – might be understandable in a context of global power shift, managed interdependence testifies to the incapacity to find agreements. Rather than parting ways, efforts should instead be placed on producing commonly acceptable solutions.

*The views expressed above are personal to the author and do not represent the official views of the Government of Brazil.

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Balancing between Trade and Public Health Concerns: The Latest Step in the Plain Packaging Saga

Published on August 8, 2018        Author:  and
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The Australian Tobacco Plain Packaging (TPP) measures raised the classic issue of balancing between competing interests. While aiming at improve public health by putting plain packaging requirements on tobacco products, Australia revived an important debate in international economic law concerning whether international obligations have become too intrusive for the State’s policy space, asphyxiating the sovereign right to protect essential interests or values.

On the one hand, Australia’s measures seem to have been encouraged by public health concerns and the Framework Convention on Tobacco Control (FCTC), which is a component of a juridical strategy that purports to construct a consensus in the international legal community on the need to fight the tobacco epidemic. As the preamble to the Convention clearly states, the parties were ‘determinedto give priority to their right to protect public health’. On the other hand, the judicial contestation of the TPP measures nevertheless showed the diversity of competing interests at stake, which made the topic a perfect example of those multifaceted litigations raised before a plurality of international courts and tribunals.

The need to determine a balance between the right of the State to legislate to protect public health and the rights of tobacco companies had appeared already in the case law of the European Court of Human Rights(ECtHR Hachette Filipacchi presse automobile et Dupuy v. France,). Investment arbitration has also been another setting for this sort of litigation, most notably after Philip Morris introduced two claims contesting that the Australian and Uruguayan legislation restricting the presentation and sale of cigarettes was in violation of its rights stemming from BITs. In both cases, these requests remained unsuccessful. The ICSID tribunal used the systemic integration principle of Article 31(3)(c) VCLT to operate a balancing test between the investment protection obligations under the BIT and the State’s right to regulate, established in customary international law, together with its corollary, the police powers doctrine (Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, award, para 290).

Ever since the introduction of the complaints in 2012, the question that remained was whether the WTO adjudicatory bodies would have interpreted trade obligations in keeping with this line of reasoning. In an earlier post on the Panel report, Margherita Melillo reflected on how the Panel used the FCTC for evidentiary purposes. This blog post continues this reflection by looking at how the Panel resolved conflicting interests of public health and trade.

Balancing in international trade law

Concerns about the treatment of tobacco control measures under international trade law date back at least to the 1990 GATT case Thailand – Restrictions on importation and internal taxes on cigarettes. While tobacco control measures have also been the subject of two recent trade disputes (i.e. Dominican Republic — Import and Sale of Cigarettesand US — Clove Cigarettes), neither of these disputes drew as much attention to these concerns as Australia – Plain Packaging. At the heart of this dispute was the sharp conflict between the trade interests of the complainants and the public health concerns of Australia. International trade law normally addresses such conflicts through a system of ‘rule and exception’, set out to strike a balance between trade and non-trade interests. However, the two agreements at issue in Australia – Plain Packaging, namely the TBT Agreementand the TRIPS Agreement, do not contain a general ‘exception clause’ equivalent to GATT Article XX. The balancing of competing interests (trade and public health) in this dispute thus took place in the context of determining the consistency, or otherwise, of the TPP measures with Article 2.2 of the TBT Agreement and Article 20 of the TRIPS Agreement.

More trade restrictive than necessary?

The complainants alleged that the TPP measures were more trade restrictive than necessary to achieve their legitimate objective, contrary to Article 2.2 of the TBT Agreement. This provision allows Members to adopt technical regulations that achieve legitimate objectives, insofar as they are not more trade restrictive than necessary to fulfil those legitimate objectives. Parties to the dispute agreed that the objective of the TPP measures, as the Panel put it, was ‘to improve public health by reducing the use of, and exposure to, tobacco products’ (para 7.232). They also accepted that such objectives are legitimate within the meaning of Article 2.2 (para 7.248). Their disagreement was over the trade restrictiveness of the measures and their contribution to the public health objective they pursue. The complainants contended that the measures were more trade restrictive than necessary and proposed four alternative measures that would have been, in their view, reasonably available and less trade-restrictive while making an equivalent contribution to the realization of the legitimate objectives.

Since the objective of the measures at issue was undisputed and such objectives fall within the illustrative list of legitimate objectives under Article 2.2, the main task of the Panel was to determine whether these measures were indeed trade-restrictive but nevertheless contributed to the legitimate objectives. Taking the evidence before it in its totality, the Panel concluded that ‘the TPP measures, in combination with other tobacco-control measures maintained by Australia […], are apt to, and do in fact, contribute to Australia’s objective of reducing the use of, and exposure to, tobacco products’ (para 7.1025). The Panel also found that ‘the TPP measures are trade restrictive, ‘insofar as, by reducing the use of tobacco products, they reduce the volume of imported tobacco products on the Australian market, and thereby have a “limiting effect” on trade’ (para 7.1255).

Having found that the TPP measures are trade-restrictive but make a significant contribution to the protection of public health, the Panel had to weigh and balance the trade and public health interests at stake to determine whether they are more trade-restrictive than necessary to achieve their public health objectives. In doing so, the Panel first considered the risk of non-fulfilment of the objectives and then the reasonable availability of alternative measures that are less trade-restrictive while making an equivalent contribution to the achievement of those objectives. On the ‘risks of non-fulfilment’, it found that ‘the public health consequences of not fulfilling [the] objective are particularly grave’ (para 7.1322). It then examined the proposed alternative measures and found that the complainants failed to demonstrate their proposed alternative measures (individually or collectively) constituted a less trade-restrictive alternative to the TPP measures with an equivalent contribution to Australia’s objective (paras 7.1362-7.1723). Against this background, the panel concluded that the TPP measures are not more trade-restrictive than necessary to achieve their legitimate objective of improving public health (para 7.1732).

Unjustifiable encumbrance?

The complainants also alleged that the TPP measures constitute special regulations that unjustifiably encumber the use of trademarks in the course of trade, contrary to Article 20 of the TRIPS Agreement. The threshold issues here were whether the measures in question constitute ‘special regulation’ and ‘encumbrance’ within the meaning of Article 20. The parties to the dispute agreed that the measures indeed constituted special regulations, but they disagreed over the precise scope of the term ‘encumbrance’. While the complainants argued that it covers all kinds of hindrances and impediments, Australia insisted that it covers only limitations on the use of trademarks. Australia was of the view that a total prohibition on the use of trademarks is outside the scope of Article 20. The Panel agreed with the complainants that it would be ‘counterintuitive’ to consider that a measure that restricts the use of a trademark would be subject to the disciplines of Article 20 while a more far-reaching measure to prohibit such use would not’ (para 7.2238). This consideration has led the Panel to conclude that ‘encumbrances arising from special requirements within the meaning of Article 20 may range from limited encumbrances, […], to more extensive encumbrances, such as a prohibition on the use of a trademark in certain situations’ (para 7.2239). This finding settles the debate over the meaning of the term ‘encumbrance’ in Article 20. While scholars such as Pires de Carvalho have argued that the degree of encumbrance is not to be taken into account for the applicability of the provision, others, most notably McGrady, have argued that a prohibition falls outside the scope of application of Article 20 because the provision deals with whether the trademark could be used and not how it may might be used. The position of Pires de Carvalho seems to have prevailed over the one of McGrady in the eyes of the Panel. On this point, it is also interesting to note that a similar discussion took place concerning what constitutes a technical regulation within the meaning of the TBT Agreement. The Appellate Body in EC – Asbestos reversed the conclusion of the Panel,stating that an absolute prohibition does not qualify as a technical regulation.

Having passed the threshold issues, the Panel then had to determine whether such an encumbrance was unjustified within the meaning of Article 20. No definition or guidance as to what constitutes ‘unjustifiable encumbrance’ exist under the TRIPS Agreement. Nor there is case law on the subject. The Panel had to appreciate the justifiability in concreto, balancing the two conflicting interests.

In the absence of an agreed upon definition or jurisprudence, the Panel interpreted what constitutes ‘unjustifiably’ encumbering the use of trademarks in light of the object and purpose of the TRIPS Agreement. Here the Panel relied mainly on Article 8.1 of the TRIPS Agreement and the Doha Declaration on the TRIPS Agreement and Public Health. Having found that these two provisions authorize WTO Members to take measures for the protection of public health, the Panel concluded that the complainants have not demonstrated that the TPP measures unjustifiably encumber within the meaning of Article 20 (para 7.2605). That is to say that although the measures at issue encumber the use of trademarks within the meaning of Article 20, the encumbrance is justified by virtue of its public health objective. This conclusion resonates with the conclusion of scholars like M. Abbott who have argued  that an interpretation of Article 20 consistent with Article 8 and the Doha Declaration would have acknowledged and given effect to the ‘right to protect public health’ in any implementing action under the TRIPS Agreement and in any dispute settlement proceeding.

In arriving at this conclusion, the Panel also considered the fact that the TPP measures are ‘in line with the emerging multilateral public health policies in the area of tobacco control as reflected in the FCTC and [its] guidelines’ (para 7.2604). The Panel was of the view that the fact FCTC (a non-WTO agreement) endorses the TPP measures reinforces their justifiability. This raises the longstanding question of whether WTO adjudicatory bodies could use non-WTO agreement as an interpretative key. Although the Appellate Body has used such instruments to interpreting WTO agreement in the past, the jurisprudence is far from settled on this matter. This is why Honduras highlighted this issue in its notification of appeal.

A parallel could be made with the Brazil – Tyrescase. Here, the Appellate Body adopted a holistic approach and stressed that, because of their nature, health protection measures had to be analyzed in the larger framework of the State policy action. Looking at the measure as a whole would allow for a clearer overview of the objectives pursued by the State to be identified, in order to facilitate a more accurate balancing. Moreover, the analysis of the effectiveness of the measure had to take a chronologically larger standpoint; the effectiveness of a public policy can in fact take time to emerge (paras 151 and 182). This holistic approach, elaborated in the framework of Article XX GATT, seems to be reiterated in the framework of Articles 20 and 8 TRIPS: the unjustifiability of the encumbrance has be examined in light of all the contextual elements that lead to the adoption of the public health measure, including the reliance on the FCTC and the customary right to regulate. Here we find a strong similarity with the balancing operated in the Philip Morris case, based on an intersystemic and holistic approach.

Conclusion

The WTO Panel’s recent report is the last step in a long saga. This saga has allowed different international courts and tribunals to test the flexibility of international obligations with regard to the State’s regulatory space in health issues. The plain packaging report confirms a general trend in WTO case law, whereby the telosof the measure serves to justify the interference within free-trade obligations. In fact, the Appellate Body had floated an ‘unspoken sympathy for well-intentioned health and safety measures’, an unspoken sympathy that is based on the axiological importance attributed to the policies at stake. This kind of ‘smell test’, as Hudec notoriously defined it, reflects Robert Alexy’s idea of weight formula, intrinsic in the balancing operation operated in different fora. The Panel has extended this technique to two areas of WTO law where its scope of application was doubtful.  

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UK Extraterritorial Financial Sanctions: Too Much, Too Little, Too Late?

Published on July 17, 2018        Author: 
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The US practice of the extraterritorial application of sanctions was criticised for years as, at best, the illegitimate abuse of its particular position in the world’s economy. Despite its fully comparable position in international finance, the United Kingdom was shielded from such criticism predominantly thanks to the transfer of respective decision-making to Brussels. The nature and scope of sanctions were delineated by EU laws. As the UK prepares its (financial) sanctions regime for Brexit, could it draw criticism similar to the US for both giving too broad discretionary powers to the government and preventing it from meeting UK international obligations at the same time? I suggest the new regime for the extraterritorial application of sanctions possibly opens the UK to international liability for, both, the lack of a legal basis for a legal restriction upon states as well as inevitable omissions to prevent gross violations of international law.

Since analysis of legal sanctions under international law is a very complex, multi-stage exercise, I focused on relatively easier cases of discretionary goals of foreign policy and extraterritorial sanctions, where the legal threshold for an internationally wrongful act is lower. Accordingly, I highlight the normative basis for adopting financial sanctions against third-state persons not covered by exceptions, British BITs, or the most relevant multilateral treaties. As for possible breaches of international law by omission, I focus on tolerating the provision of financial services contributing towards gross violations of international law. Because of length limitations, I do not discuss anti-money laundering per se, which is subject to yet another chapter of the law in question.

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