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Home Archive for category "International Economic Law"

Protecting the Environment at the World Trade Organization: the Eventual ‘Greening’ of Trade?

Published on June 20, 2017        Author: 

This post is the result of work conducted for the ILA Committee on Sustainable Development and the Green Economy in International Trade Law.

In a recent post, Diane Desierto discussed the Port State Measures Agreement (‘PSMA’) and its role in attempting to combat illegal, unregulated, and unreported (‘IUU’) fishing. Aside from the numerous interesting aspects of the PSMA identified in that post, the Agreement is also expected to play a key role in regulating IUU fishing beyond the law of the sea. At the World Trade Organization (‘WTO’), members are currently in negotiations to prohibit the use of subsidies which contribute to IUU fishing, as well as those that contribute to overfishing or overcapacity. While the elimination of fisheries subsidies which contribute to IUU fishing have been on the agenda of WTO members since the Doha Declaration in 2001, little progress has been made. The adoption of Agenda 2030 and its 17 Sustainable Development Goals (‘SDGs’) in 2015 has changed this, giving new energy to the international community to achieve a specific set targets. Of most relevance here is SDG 14.6 which requires

‘by 2020, prohibit certain forms of fisheries subsidies which contribute to overcapacity and overfishing, and eliminate subsidies that contribute to IUU fishing, and refrain from introducing new such subsidies, recognizing that appropriate and effective special and differential treatment for developing and least developed countries should be an integral part of the WTO fisheries subsidies negotiation.’

The objectives of SDG14.6 extend beyond subsidies that contribute to IUU fishing to include those that contribute to overcapacity and overfishing. Disciplining such subsidies raises a number of challenges for the WTO. While the regulation of subsidies is a standard feature of world trade law, fisheries subsidies present unique challenges. For example, where a member considers a subsidy to harm their interests, they have two options under the Agreement on Subsidies and Countervailing Measures (ASCM): through direct challenge under the WTO’s dispute settlement system, or through the imposition of countervailing duties as a self-help remedy which seeks to counteract the effect of the subsidy. In each instance, the rules on subsidies seek to avoid harm to members’ interests, understood (inter alia) as injury to domestic industry, lost opportunities in third markets, or nullification or impairments of benefits.

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The Shifting Landscape of Investor-State Arbitration: Loyalists, Reformists, Revolutionaries and Undecideds

Published on June 15, 2017        Author: 

The investor-state arbitration landscape is shifting under our feet. The utility and legitimacy of traditional investor-state arbitration have come under fire, but states have not converged on a viable alternative. In simplified terms, three main camps are developing, which I call the “loyalist,” “reformist,” and “revolutionary” camps. The vast majority of states, however, are yet to take a public position on whether and, if so, how to reform investor-state dispute settlement. These “undecided” states are not a homogenous group, nor are they necessarily passive. Many states within this group are actively watching these developments and debating the various reform proposals.

One of the big strategic questions for the investment treaty system in the next few years will be whether the loyalists, reformists or revolutionaries will be able to attract a critical number of the undecideds to their cause in order to create a reasonable measure of convergence on a particular approach. The alternative is that the undecideds will split among the existing camps and/or develop their own distinct or hybrid positions. Another question is whether any members of the existing camps will shift their alliances. It is unclear how this will ultimately play out. What is clear, however, is that the tide appears to be turning against the traditional model of investor-state arbitration as it has few – if any – real supporters among states.

Loyalists, Reformists and Revolutionaries Read the rest of this entry…

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Foreign control and ICSID jurisdiction on Energy Charter Treaty Claims of Local Companies: The Eskosol Case

Published on June 12, 2017        Author: 

The ICSID tribunal in Eskosol in liquidazione v. Italy rejected Italy’s Rule 41.5 application to have the claim thrown out for being “manifestly without legal merit.” I offer a summary and some reflections on two interesting aspects on the tribunal’s jurisdiction.

Background

The claimant challenged, under the Energy Charter Treaty (ECT), Italy’s 2011 regulatory rollback regarding a feed-in tariffs (FIT) scheme (check this report by the claimant’s lawyers). Investment connoisseurs are familiar with the topic, litigated in Charanne, Eiser and other exhausted or pending cases, some confidential. The claimant is an Italian company, Eskosol in liquidazione (bankruptcy receivership). Eskosol claims to have invested in a 120-megawatt photovoltaic energy project, expecting to benefit from the 20-year FIT scheme. At the time of the rollback, the Belgian company Blusun held 80% of Eskosol. Eskosol alleged that this change rendered its business unviable. It abandoned its projects, became insolvent and entered bankruptcy receivership in November 2013. In December 2015, the tribunal-appointed receiver brought the ICSID claim, on the company’s behalf.

Blusun, the Belgian company controlling 80% of Eskosol, had brought ICSID proceedings  in 2014, under the ECT, against the same measures. Eskosol attempted to file a non-party submission in that arbitration, asserting that Blusun had usurped its claim and sought damages owed to Eskosol alone. Blusun’s abusive claim would prejudice the rights of Eskosol, its creditors and its minority (non-Belgian) shareholders, since Blusun showed no intention to channel any potential gain to Eskosol. Eskosol’s request was denied. Blusun’s claim failed on the merits in December 2016, and in May 2017 Blusun launched annulment proceedings.

The Decision 

In Eskosol, Italy raised four Rule 41.5 objections for expedite consideration (i.e., invoking glaring legal impediments and not hinging on disputed facts [36; 98]; see Álvarez y Marín [95]). The tribunal considered Eskosol’s claim not “manifestly” meritless. This conclusion does not prejudge the defendant’s full preliminary objections, which the tribunal shall examine, jointly with the merits, in the next phase. Read the rest of this entry…

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First Global Treaty Against Illegal, Unreported, and Unregulated (IUU) Fishing Entry into Force

Published on June 9, 2017        Author: 

While the world reacted to the US withdrawal from the Paris Agreement on June 2, the first meeting of the parties to a landmark global marine environmental agreement was held three days later with the FAO Agreement on Port State Measures to Prevent, Deter, and Eliminate Illegal, Unreported, and Unregulated (IUU) Fishing [hereafter, “Port State Measures Agreement or PSMA”].  This first global treaty to combat IUU fishing recognizes that “measures to combat IUU fishing should build on the primary responsibility of flag States and use all available jurisdiction in accordance with international law, including port State measures, coastal State measures, market related measures, and measures to ensure that nationals do not support or engage in IUU fishing” (PSMA, Preamble, paragraph 3), and is designed “to prevent, deter and eliminate IUU fishing through the implementation of effective port State measures, and thereby to ensure the long-term conservation and sustainable use of living marine resources and marine ecosystems.” (PSMA, Article 2).

IUU fishing endangers food security, community livelihoods, and marine environments in many developing countries around the world, particularly in hotspots in West Africa and the Asia-Pacific, causing annual estimated losses worldwide at around USD $23.5 billion to developed and developing coastal States, including the United States and the European Union. IUU fishing directly impoverishes local fishing communities, which in West Africa, for example, is estimated at around USD$ 1.3 billion a year. IUU fishing also exacerbates the problem of unsustainable fishing in the world, where 53% of the world’s fisheries are already fully exploited, and a further 32% are overexploited and depleted. The Food and Agriculture Organization (FAO) and the UN Environmental Programme (UNEP) cautioned in 2009 that the destructive impacts of IUU fishing include, among others, the “extinction (or high risk of extinction of the resource and/or the productive ecosystem and its biodiversity.” (p. 7 of FAO/UNEP Expert Report). The prevalence of IUU fishing in the world is illustrated in the map below (source here), where regional hotspots for IUU fishing are in the Eastern Pacific, the Northwest Pacific, West Africa, Southeast Asia, and Pacific Islands:

To date, not all States implicated in the key IUU hotspots are  parties to the Port State Measures Agreement (PSMA), which to date are only Australia, Barbados, Chile, Costa Rica, Cuba, Dominica, the European Union (as a member organization), Gabon, Guinea, Guyana, Iceland, Mauritius, Mozambique, Myanmar, New Zealand, Norway, Oman, Palau, Republic of Korea, Saint Kitts and Nevis, Seychelles, Somalia, South Africa, Sri Lanka, Sudan, Thailand, Tonga, the United States of America, Uruguay, and Vanuatu.  This post discusses some of the key features of the PSMA, which focus on harmonizing standards for States’ domestic control of their ports, and the coordinated enforcement of international rules to prevent and penalize IUU fishing.

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Is International Investment Law moving the ball forward on IHRL obligations for business enterprises?

Published on May 15, 2017        Author: 

The question of whether businesses are subjects of international law in the absence of express treaty provisions to that effect, and thus can have IHRL obligations, receives mixed answers from legal scholars. Rights granted to businesses under international investment law and under human rights law, and obligations imposed on them under some environmental protection treaties (e.g. the International Convention on Civil Liability for Oil Pollution Damage) show that businesses can be right or duty bearers under international law. The UNGPs also recognise that businesses have a responsibility to respect human rights and remedy violations, but since they are non-binding, they do not introduce a legally enforceable obligation. Since 2014, discussions for a global treaty regulating business impact on human rights have been taking place at the UN level. There is yet little clarity on the form (regional, sectoral, global) and content of such a treaty. Among the key disagreements as to the content of the treaty is whether it should introduce direct human rights obligations for businesses under international law. Some argue that imposing direct IHRL obligations on businesses would not add much to the already existing IHRL framework that requires states to already protect against human rights abuses by business, and that it should not be a “substitute for the states’ duties to fulfil their human rights obligations”. Others argue that effective legal protection requires legal responsibilities of businesses to respect human rights to be recognised in an internationally binding instrument.

While the debate on the BHR treaty is likely to continue for a while longer, some recent developments in international investment law (IIL) seem to be moving the ball forward, albeit slowly, on IHRL obligations for businesses. IIL has been viewed by some of its critics as a force undermining IHRL and this is rightly so in some circumstances. But IIL can also act as a conduit to improve IHRL protection. I will discuss here some of the progress made in this area by the ICSID award in Urbaser v Argentina and some “next generation” investment agreements, most notably, the Morocco-Nigeria BIT and the Indian Model BIT.

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Nigeria and Morocco Move Towards a “New Generation” of Bilateral Investment Treaties

Published on May 8, 2017        Author: 

Introduction

On 3 December 2016, the Governments of Morocco and Nigeria signed a bilateral investment treaty (BIT) that deserves close scrutiny. The treaty is an important attempt by two developing countries to move toward a new generation of BITs fully aligned with the evolution of international law. Indeed, it contains several largely innovative provisions susceptible to address the criticism raised in the last few years against investment treaties.

From popularity to hostility

Investment treaties, and especially BITs, were popular in the 1990s and 2000s. Their number grew quite spectacularly as did the participation of developing countries. In the last few years, however, BITs have been increasingly perceived by States as inconvenient for several reasons, including unbalanced content, restrictions on regulatory powers, and inadequacies of investment arbitration.

Dissatisfaction with traditional BITs has generated four main types of reaction: (a) reluctance to ratify BITs. Since 2012, only 25 BITs have entered into force (see here); (b) conclusion of facilitation agreements, which radically downgrade the substantive protection of foreign investment and do not provide for arbitration (see, eg, Treaty between Brazil and Mozambique); (c) termination of BITs and adoption of investment legislation (see South Africa Protection of Investment Act, 2015); and (d) upgrading of BITs with a view to striking a better balance between the private and public interests at stake. The BIT concluded – but not in force yet – between Morocco and Nigeria is a fine example of the last typology. Read the rest of this entry…

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Stability vs. Flexibility: Can the European Union find the Balance?

Published on April 25, 2017        Author: 

To what extent can a State forego its contractual commitments, in particular those arising from a stabilization clause for human rights and environmental protection? (“under a stabilization clause, the host State commits itself either not to enact changes of the domestic law in the future, or at least, not to apply such changes to the investor”, Ohler, Concessions, Max Planck Encyclopedia, 2009.) Our assumption is that stabilization clauses and states’ rights to regulate should be integrated and not be taken as opposite obligations, considered as incompatible. In other words, if framed correctly, stabilization clauses can balance the two conflicting needs at stake: the sanctity of contract and a state’s right to regulate to protect its public interest (Leben, L’évolution de la Notion de Contrat d’État, Revue de l’arbitrage, 2003; Carbone, Luzzatto, Il Contratto internazionale, 1996; Giardina, State Contracts, national versus international law, The Italian Yearbook of international law, 1980; Fatours, International Law and International Contract, 1980; Mann, State Contracts in International Arbitration, 1967).

This post examines whether the (fairly) new European exclusive competence on foreign direct investment changes the way stabilization clauses should be framed in EU State contracts to avoid potential conflicts. There are two different kinds of possible conflicts that could arise: first involving either provisions among themselves, or second, the two different legal regimes at stake (the international and the European).

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Moving Trade into the 21st Century: Towards a More Inclusive Trade Agenda?

Published on April 21, 2017        Author: 

International organizations sometimes publish general reports – in addition to the usual annual versions – about their work and the future of their remit. Such reports invariably have a theme and are done when these organizations or the work they carry out has come under challenge. In 2005, on the occasion of the WTO’s so-called Sutherland report, Armin von Bogdandy and I found that:

“[a] perception of institutional crisis is pervading international organizations. One evermore fashionable response by the administration of an affected organization is to entrust a group of eminent persons to consider its future. Perhaps not surprisingly the resulting report calls for a politically feasible strengthening of that organization for which it provides good grounds.”

Early April saw the release of a – much less frequent – joint report by the World Bank, the International Monetary Fund, and the World Trade Organization, entitled Making Trade an Engine of Growth for All. The motive for the report is best interpreted as responding to a problem that is fundamental enough to warrant such an unusual step: the increasing calls for and a turn to more inward-looking economic policies. The Trump administration’s protectionist rhetoric and actions (see here, here and here) are the prime example for this development, with Brexit – despite assertions to the contrary: think Global Britain – serving as another.

The circumstances surrounding the release of the report also lead to the conclusion that it is designated to respond to the growing trend of inward-looking economic policies: it took place a) just prior to the 2017 Spring Meetings of the IMF and the World Bank Group, and b) in Berlin which the Financial Times’ Shawn Donnan called the “new capital of global free market liberalism”. The policy differences between the proponents and opponents of multilateralism are now clearly at display: Chancellor Merkel and the leaders of the IMF, the World Bank, the ILO, and the WTO have called for increasing trade policy cooperation and coordination, with the stated goal to not only curb protectionism, but also in order to reduce inequality and combat climate change. US Commerce Secretary Wilbur Ross on the other hand denied that US policies were protectionist (calling warnings of protectionism – ostensibly geared towards the US and other countries – “rubbish”).

The Trump administration policies and Brexit are the most visible manifestations of perceived political solutions to the discontent with the current globalized and interdependent economic system. The report itself recognizes that the public attitude towards trade is not as favorable as they used to be (paras 21-23). While it does not explicitly say so, it is worth noting that the three institutions have recognized that economic inequality is one of the main drivers of this discontent and that their past policies were – or at the very least were seen to be – partially responsible for this discontent.

The report touches on a number of issues, ranging from the long-term trends and benefits of trade, the interplay between trade and (domestic) adjustment (policies), to the need for a stronger rules-based trade regime. It is this last part that this post will focus on by analyzing the sometimes subtle, but important changes in direction that the report advocates as well its shortcomings.

The overall narrative of the report is such that the policies of trade liberalization championed by the three institutions since the end of WW II have resulted in a period of expansion of world trade at an “unprecedented historical pace” (para. 5). The institutions’ policies, indeed their very raison d’être, such as open markets, increased trade integration and competition, efforts to curb protectionist policies, “good governance” and fiscal discipline have come under intense scrutiny. But the report also contains remarkable language – at least for the institutions involved: it recognizes that globalization provides positive effects only where the appropriate domestic policies, including “social protection policies” (page 33), are in place so as to lead to a more equal distribution of gains.

The section entitled “Building Stronger Rules-Based Trade” (page 37 et seq.) reiterates the centrality of a strong WTO as opposed to a more fragmented trading system characterized by preferential/regional trade agreements or bilateral arrangements. By doing so, it picks up ideas put forth by Robert Hudec & John Jackson that the “power-based” GATT has been replaced by a “rules-based” WTO system. It rightly points out that a “core set of rules, a strong enforcement mechanism, and a common forum for cooperating on policy and sharing information” assists in “[reducing] overall levels of trade distortions, including conventional trade measures, subsidies, and other forms of state support” (para. 72). This echoes long-standing WTO principles: reducing tariff and non-tariff barriers (para. 69), promoting competition, “reassuring the public that international trade is evenhanded” and that “rules-based trade integration is critical to share trade benefits more widely” (para. 64). Such statements are a direct response to efforts of the Trump administration to pursue a more protectionist trade and fiscal agenda.

But beyond the orthodox ideas discussed above, the report broaches – although it may not break – new ground. It mentions new forms of services (mainly in conjunction with digitization) without however stating what reforms – beyond a need for rules to be clarified or enhanced – would be needed (para. 70). An area that is marked as a “frontier area” for trade reform is investment. The report explicitly argues for linking trade and investment more closely and for a more coherent policy approach in light of global supply chains (para. 71). The report would have benefited from further clarification of this point: should efforts be made to bring investment genuinely (beyond the TRIMS Agreement) under the purview of the WTO? The report does not provide any details about the extent to which, or how, this could happen. It does not mention a range of PTAs that have incorporated both trade and investment chapters over the last years and whether these developments were the impetus for the renewed effort of integrating trade and investment policies. In addition, there has been considerable debate about the current state of investment law in general, and investor state dispute settlement in particular (see here, here, here and here). It is also worth noting that there is considerable pushback by developing countries at the moment against recent efforts within the WTO to develop rules on investment facilitation.

Finally, the report puts forward pathways for the WTO to retain its relevancy as a negotiating forum. It proposes conducting negotiations on narrower issues similar to the Trade Facilitation Agreement or the Information Technology Agreement (para. 74). Beyond that, it recommends thinking further about a more plurilateral approach to negotiations (aka variable geometry) within the WTO, without however suggesting areas in which this may be fruitful (para. 75).

While there are a number of positive elements in the report, it contains shortcomings and omissions. The first is its economics-centered focus. While impressive, the bibliography contains only a very small number of sources that are from non-economists. Eg, the only identifiable legal academic’s work cited is one that deals with political economy rather than law. This wouldn’t be an issue – and could quite easily be shrugged off as a quibble by a member of an academic community yearning for greater recognition – if the report made suggestions of, or at least hint at, how trade and investment policies could be intertwined (never mind rules implemented); how health, the environment, and equality could be reconciled with trade or investment liberalization (para. 67 of the report is – to use the words of the Appellate Body in EC – Hormones – “not a model of clarity in drafting and communication”); what the extent of regulatory autonomy of governments should be without losing sight of a minimum degree of universality of rules; how consumer or citizen welfare can become more of a direct focus for the WTO rather than producers or exporters; or whether the structural design of the current system of international economic governance could be enhanced/reformed to contribute to achieving these goals. It is rather unfortunate – and a missed opportunity – that the report relegates the important discussion on poverty and developing countries to an annex. The five paragraphs devoted to Annex A reiterate the potential positive role of trade to assist in reducing poverty (paras 82-95, see eg para. 84: “Although causality is hard to establish, this fact pattern suggest (sic) that openness promotes poverty reduction by accelerating growth.” Emphasis in original.) and the need for sound domestic institutional arrangements (para. 86). What is missing is an acknowledgement of the obstacles developing countries are facing when trying to compete with developed country producers in eg the agricultural sector.

Both political science and legal literature are replete with discussions of these issues. Given the interdisciplinary nature of international economic relations it would be more useful in the future to include a broader set of disciplines in the formulation of such important reports. Overall, Making Trade an Engine of Growth for All is a cautious step in the right direction, away from well-trodden orthodoxy. In that sense, it serves the purpose of preserving the importance of the three institutions involved in its drafting. The report recognizes that the trade (and investment) liberalization paradigm can function for a wider swath of the global population only if cushioned by domestic policies (and even that is contested, see here). This is evidenced by statements such as “[t]rade and trade-related policies have a role to play not just in promoting growth and prosperity, but helping to share that prosperity more widely” (para. 81). But it stops short of recognizing that the institutions of global economic governance themselves have opportunities to do more to achieve greater equality.

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