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Trade, Economics and Environment

Can Israel Cut Off Water and Power to Gaza?

by Kevin Jon Heller

That’s the question at the heart of a complicated debate between a variety of IHL scholars. The debate began with a legal opinion that Avi Bell submitted to the Knesset, in which he argued that nothing in international law prohibits Israel from cutting off the water and power it provides to Gaza. Although the opinion is dense — and has been updated in response to a document criticising an earlier published version — the bottom line is that Bell rejects the idea that Gaza is still occupied and believes it is thus impossible to find a positive obligation on Israel to continue to provide water and power (p. 5):

Some have argued that Israel is required to supply the Gaza Strip because Israel allegedly maintains control over Gaza. There are two versions of this claim: one version claims that Israel belligerently occupies the Gaza Strip; the other claims that Israel “controls” the Gaza Strip for purposes of human rights treaties or “post-occupation” duties even though it neither occupies nor exercises sovereignty over the Gaza Strip. When it controls territory through belligerent occupation, a state may have the duty supply certain goods to a civilian population if there is no other way to ensure access to the goods. Similarly, when it controls territory over which it has lawful sovereignty, a state may have the duty to supply certain goods when human rights treaties demand their provision to the civilian population. However, Israel does not control the Gaza Strip for purposes of the law of belligerent occupation or human rights  duties. Thus, Israel cannot be held to a duty to supply.

Bell’s legal opinion led a group of leading Israeli international-law scholars, including Eyal Benvenisti, Aeyal Gross (also at SOAS), David Kretzmer, and Yuval Shany, to submit a response to the Knesset. The essence of the response is that even if Israel is no longer occupying Gaza (on which the experts do not take an opinion), its ongoing control over basic features of Gazan life means that it is not free to completely ignore basic Palestinian humanitarian needs. Here is the key paragraph (pp. 10-11):

Israel and Gaza are not equal sovereign entities. Israel has controlled Gaza for decades, which resulted in significant dependence on Israeli infrastructure. Even after the disengagement, it still holds certain powers over the population in Gaza – including by its control over essential infrastructure. Since Israel does not allow, de facto, the development of independent infrastructure in Gaza, it cannot completely deny the responsibility to provide these essential supplies. Therefore, the interpretation suggested in the Opinion does not reflect a proper balance between the different objectives of IHL – even when considering the special challenges of asymmetric warfare. Chiefly, this is because it results in a legal “black hole” which deprives the civilian population of the effective protection of international law.

The debate between Bell and the other experts led Diakonia, a Swedish NGO, to commission a third report from Michael Bothe, one of the world’s foremost IHL experts. Bothe concludes, like the group of experts, that cutting off water and power to Gaza could (in certain circumstances) violate IHL. But he offers two independent bases for that conclusion…

Milestone: The EU Signs Association Agreements with Ukraine, Moldova, and Georgia

by Chris Borgen

On Friday, Ukraine, Moldova, and Georgia signed the Association Agreements with the European Union that have been at the center of so much controversy among Russia, the EU, and these states. Preventing Ukraine, Moldova and Georgia from signing these agreements had become an important foreign policy goal for Moscow (see, for example: 1, 2, 3) after significant pressure, and perhaps some incentives, from Moscow, former Ukrainian President Yanukovich’s decided at the last minute not to sign the agreement at the EU’s summit in Vilnius in November precipitated the demonstrations that began in Kiev. Those were followed by Yanukovich fleeing, Russia’s intervention in and annexation of Crimea, and the ongoing tensions over the future of Ukraine. Moldova and Georgia have also faced threats of economic and/or energy embargoes as well as the ongoing Russia-backed separatist issues in Transnistria, South Ossetia, and Abkhazia.

After the diplomatic disputes and the pipeline politics, the secessionist movements and Russian military incursions, Maidan Square and Crimean annexation, the signing of these treaties are a significant milestone, and hopefully a turning point. Ukraine, Moldova, and Georgia are committing themselves to a path of greater economic and normative integration with the EU. The EU is committing itself to allowing market access to the EU; more generally, the EU will likely become increasingly involved the in the internal policies of these countries, although they are not member states.

What is clear is that this is a significant moment, President Poroshenko of Ukraine called it the most important moment for his country since the dissolution of the Soviet Union. What is not yet clear is how relations with Russia will evolve from this point. Here are some issues to consider… (more…)

Andreas Lowenfeld: A Life Illuminating the Path

by Chris Borgen

lowenfeld

photo: NYU Law School

I am sad to mark the passing of one of the giants of international law, and one of my teachers, Professor Andreas Lowenfeld of NYU Law School. His career was exemplary; Andy operated at the highest levels of practice and academia. In an era when so many scholars and practitioners become hyper-focused on one or two specific areas, Andy not only had incredible depth and precision, but also brought the panoramic view and sweeping vision of an earlier generation of international lawyers. Though perhaps best known for his work in international litigation and arbitration, that description does not capture his career. Consider this excerpt from his New York Times obituary:

Professor Lowenfeld was a towering figure in the fields of public international law, trade and economic law, private international law, and international arbitration. He served on the NYU Law faculty for 47 years, influencing generations of lawyers, and continued to teach International Litigation and Arbitration and International Monetary System among other courses until as recently as Spring 2013. Professor Lowenfeld wrote more than 18 books and authoritative legal treatises and over 115 law review articles and argued before the United States Supreme Court, the Iran-U.S. Claims Tribunal, and the International Court of Justice in the Hague. He made landmark contributions to legal scholarship and practice on issues as varied as extraterritorial jurisdiction, international arbitration, international monetary transactions, trans-border child abduction, international monetary law, investor-state dispute settlement, economic sanctions, enforcement of foreign judgments, aviation law, sovereign immunity, international trade, and civil procedure. His most recent work was a comprehensive treatise on International Economic Law. An avid supporter of the interaction between academics and practitioners, he was frequently an arbitrator in international disputes, public and private. He served as a Reporter on two major projects of the American Law Institute and was a lecturer twice at the Hague Academy, first in 1979 and later in 1994. In the 1994 lectures, he proposed criteria for a global community free of strict legal rules and based instead upon what he termed “reasonableness, not certainty.” One of the hallmarks of his work was his commitment to eliminating what he viewed as an unnecessary divide between public and private international law. In 2007, he was awarded the Manley O. Hudson Medal of the American Society of International Law for his lifelong achievements in the field of international law.

(Read the rest of the obituary here. See also this tribute from 2009.)

And that doesn’t even cover his years in the State Department’s Office of the Legal Adviser during the Kennedy and Johnson Administrations where:

[h]e provided strategic counsel to those presidents during the Cuban Missile Crisis; the Nuclear Test Ban Treaty; the so-called “Chicken War,” in which the U.S. and the European Common Market sparred over poultry tariffs; and the U.S. invasion of the Dominican Republic.

Andy Lowenfeld’s scholarship and his career argued against the “unnecessary divide of public and private international law,” setting the stage (along with Philip Jessup) for the current focus on  complex regulation, transnational law, and dispute resolution. He taught us how public and private international law interact in an interconnected system and, by his example, he showed us how diverse aspects of the international legal profession could be integrated into a coherent career.

I have the great fortune of having been one of Andy’s students. My second year at NYU, I took the general course in international law, which was then team-taught by Andy Lowenfeld and Theodor Meron. Learning international law from “Ted and Andy” as we affectionately referred to them (behind their backs, that is) was everything you would expect from such lawyers: a lively dialogue interweaving law, history, politics, and economics.  I was also Andy’ s student in what was perhaps his signature course, his International Litigation and Arbitration seminar. Here he paired each JD student with a foreign LL.M. to brief and argue an issue in a case, before a bench made up of 3 of our classmates. It was a wonderful bit of experiential learning that has stayed with me and taught me as much about how to be a good teacher as to how to be a good litigator.

In the years since I graduated from law school, Andy Lowenfeld remained generous with his time and wise counsel. I may have become a professor, but he never stopped being my teacher.

But perhaps my favorite memory of Andy was from when I was the Director of Research and Outreach at the ASIL. Andy was a panelist on an international arbitration panel we organized for a Fifth Circuit judicial conference in San Antonio. After the panel, he told me we should go visit the Alamo. So, one hot summer afternoon we toured the Alamo together; I will always remember his enthusiasm in examining the exhibits, especially anything having to do with the deeds, land grants, and international agreements concerning the disposition of territory. He interspersed our conversation about the history of the U.S.-Mexico border with reminiscences from the State Department, career advice, some thoughts on scholarly projects I was considering, and anecdotes from his incredible career. At one point there was a boy, who was maybe seven years old, standing near us and holding a large faux-parchment facsimile of a document, probably recently acquired from the gift shop.  Andy started questioning the boy about the topic of the text on his souvenir, whether or not the reproduction was accurate, and so on. (The boy stared, then shrugged; Andy walked on.) It made me smile watching Andy attempting a Socratic dialogue with a first grader. Even while walking around the Alamo, Andy Lowenfeld was first and foremost an educator and a mentor.

I want to close with a few of Andy’s own words, taken from his magisterial International Economic Law (Oxford, 2d. ed 2008). In the preface, he argues against the skeptics and describes (with perhaps a wink to Louis Henkin) a realistic appreciation of international economic law:

This book is not founded on a claim that all states and all economic enterprises behave at all times according to all the rules, nor that the rules are clear and universally agreed at all levels. But one would not say that there is no criminal law because crimes continue to be committed and are not always punished, or that there is no family law because marriages break up, husbands beat their wives, and children are abused. In fact international conventions, collaborative arrangements, roughly uniform national laws, and customary laws apply to much of the international economy; while there is no global sheriff, and the system of remedies does not reach as far as the system of rules, there are a surprising number of consequences of deviant behavior, and a growing number of fora for resolving disputes among states and between states and private participants in the international economy.

Almost 1,000 pages later, the closing passage puts more than his treatise into perspective: :

It is evident that this book has made more use of narrative and illustration, and less of flat normative statements than might have been expected from a treatise. This approach reflects my belief that the answers cannot be understood without the question, and that abstract statements cannot be comprehended without awareness of the underlying facts and continuing controversies.

This is not to deny the normative character of international economic law. But international economic law—like all law but perhaps more so—is a process. Any attempt to define the law as of a given moment cannot help but distort. The process continues, and the hope is that this book has illuminated the path.

[Emphasis added.]

It has. And so has Andreas Lowenfeld’s life.

 

 

Guest Post: Argentina and the Foreign Sovereign Immunities Act, Round 2

by Michael Ramsey

[Michael D. Ramsey is the Hugh and Hazel Darling Foundation Professor of Law at the University of San Diego Law School. Professor Ramsey previously prepared an analysis of this case for the Judicial Education Project supporting the bondholders, for which he was compensated.]

In a new claim in the long-running battle between Argentina and holders of its defaulted bonds (see here), the question is whether a U.S. court can order Argentina not to pay some bondholders unless it also pays others.  Again, Argentina says the Foreign Sovereign Immunities Act (FSIA) protects it, and again it tries to make the Act’s text say something it does not.

To recap, a decade ago Argentina stopped making payments on some of its bonds, and the private bondholders (including NML Capital) sued Argentina in federal court in New York (as the FSIA and the contracts governing the bonds allowed them to do).  Argentina refused to pay the resulting judgments against it, so the bondholders are seeking enforcement.  One approach is to seek discovery of Argentina’s worldwide assets; whether a U.S. court can make such an order is the subject of the first Republic of Argentina v. NML Capital case, argued to the U.S. Supreme Court in April.

The bondholders’ second strategy involves a clause in the bond contracts known as the equal treatment or pari passu clause.  To oversimplify, after Argentina initially failed to make payments on the bonds, it persuaded many of the bondholders to accept new bonds, with substantially reduced payments (but some hope of salvaging part of their investment).  NML Capital (and a few others) refused to take the deal, and sued for full payment of the original bonds instead.  Argentina now wants to pay the new bondholders (that is, those who agreed to the refinancing) while refusing to pay the holders of the old bonds.

But that sort of discrimination among bondholders, the U.S. court held, violates the “equal treatment” clause in the original bond contracts: the clause says that the old bonds have to be treated equally to any new bonds, and clearly they aren’t.    Argentina had already said it wouldn’t obey a court order to pay on the old bonds.  So the holders of the old bonds asked the court for an injunction barring payment on the new bonds unless the old bonds receive equal treatment.  The district court granted the order and the Second Circuit affirmed.

Now Argentina is bringing this claim to the U.S. Supreme Court on petition for certiorari (scheduled to be considered at the June 12 conference).  As with the case involving the discovery order, its supposed shield is the FSIA.  But again, Argentina is trying to make the FSIA do something it does not.  Argentina concedes that the FSIA allows the bondholders’ suit: Argentina waived its sovereign immunity in the bond contracts, and the FSIA allows suit where immunity is waived (Section 1605(a)(1)).  The FSIA further says (Section 1606) that non-immune sovereigns are (subject to specific exceptions) liable to the same extent as private litigants.

The only plausible exception (and the only one Argentina argues) (more…)

Constructing the Eurasian Economic Union

by Chris Borgen

The New York Times reports that:

The presidents of Russia, Kazakhstan and Belarus formally signed an agreement on Thursday to create a limited economic union — an alliance hobbled by the absence of Ukraine but one long pursued by President Vladimir V. Putin of Russia to confirm his country as a global economic force.

“Today we are creating a powerful, attractive center of economic development, a big regional market that unites more than 170 million people,” Mr. Putin said during the ceremonies. He underscored the significant energy resources, work force and cultural heritage of the combined nations.

This treaty, which was signed this past week but is not expected to come into force until January 2015, marks the next step in transforming the still-nascent Eurasian Customs Union (ECU) into the Eurasian Union (EEU). Russian pressure for Ukraine to turn away from association with the European Union and towards Moscow-led Eurasian integration was one of the roots of the current crisis.

As the Shanghai Cooperation Organization (SCO) with China and the Central Asian states is Russia’s answer to U.S. military alliances, Eurasian economic integration is meant to be Russia’s response to EU and U.S. economic power.  According to a chronology in a report by the Centre for European Policy Studies, the creation of the EEU was first suggested by the President of Kazakhstan, Nursultan Nazarbayev, in 1994. There was not much movement until the negotiation and signing of a customs union treaty among Russia, Belarus, and Kazakhstan in 2007. The basic requirements of the Eurasian Customs Union came into force in 2010, which were essentially trade policy coordination measures establishing a common external tariff among its members. However, the deepening Eurasian economic integration was given a boost by an op-ed by Russian President Vladimir Putin in October 2011.

In early 2012, the member states deepened ECU’s institutions by starting the operations of the Eurasian Economic Commission, a supranational entity that was contemplated in the 2007 treaty,  to manage the external trade regulations of the member states, including relations with the WTO. That also marked the establishment of  the “single economic space” (SES) among the member countries which, in the words of the Centre for European Policy Studies paper, “envision[ed] further regulatory convergence and harmonisation of national laws” in particular economic sectors.

The treaty that was signed on May 29th is ostensibly to move from customs union towards a full economic union, with free movement of goods, capital, and people among the member states, but reality has so far proven to be less sweeping and heroic than the rhetoric that marked the occasion. The most obvious issue is that the EEU was originally envisioned to include not only Russia, Belarus, and Kazakhstan, but also Kyrgyzstan, Armenia, and especially Ukraine. Ukraine would have added  a populous country with  economic potential and an an economy that (unlike Russia and Kazakhstan) was not based on natural resource exploitation. But Russia’s intervention in Ukraine  backfired: not only did it fail to bring Ukraine into the EEU fold but, according to a Radio Free Europe report, it has weakened the EEU by having: (more…)

Why Taiwanese Investors Should Think About Becoming Chinese (At Least When Suing Vietnam)

by Julian Ku

I’ve been settling into my digs this summer at the National Taiwan University College of Law as a visiting research fellow with the support from a grant from the Taiwan Fellowship. Mostly, I’ve been spending my time eating my way through what I believe is the best Chinese food scene in the world  (I am posting pictures of my eating exploits on my facebook page for those interested in Chinese food).

But in between absurdly delicious meals, I have also been following the anti-Chinese riots in Vietnam that have caused over 500 different businesses to be shut down there over the past week and thousands of Chinese and Taiwanese nationals to flee Vietnam. Those violent riots were apparently in response to China’s placement of an oil rig in disputed South China Sea waters.

The lively Taiwanese media has been following these riots with much more intensity than their Chinese counterparts, because a large proportion of the burned or trashed businesses are actually owned by Taiwanese nationals, with Chinese workers or managers administering it for them.  TV news here is filled with pictures of Taiwanese flying home with harrowing stories of dodging rioters by hiding in trash cans, etc.  Their plight has caused some soul-searching here in Taiwan because Taiwan’s status as a non-country that is recognized in Vietnam only as a province of China means they receive the blowback for China’s actions and Taiwan’s government has limited means to respond and protect their own nationals.  (Their foreign ministry did helpfully issue stickers to their nationals saying, in Vietnamese, “I am from Taiwan”. Reminds me of the time I was told to put little Canadian flags on my backpack when I wandered through sketchy areas of Egypt).

In addition to advising their nationals to emphasize their “Taiwaneseness”, the Taiwan government’s main action has been to invoke the 1993 Taiwan-Vietnam Investment Promotion and Protection Agreement (in Chinese).   The Taiwan government is using this agreement as proof that it can protect and seek compensation for its nationals abroad.

This is sort of like a bilateral investment treaty, but not quite, because of Taiwan’s odd non-country status.  It is technically an agreement between the “Taipei Economic and Cultural Office in Vietnam and the Vietnam Economic and Cultural Office in Taipei” which means it is an agreement between two quasi-government agencies, and not the governments as a whole. This means it is unlikely to be governed by international law, although the agreement doesn’t choose any governing law either.  Moreover, the agreement does not provide for referral to an ICSID tribunal for any investor claims against the host government (in this case Vietnam). Rather, it seems to allow for referral to arbitration under the “1988 International Chamber of Commerce” Rules.  Moreover, such referrals seem to require the mutual consent of the parties in Article 8.  This might allow Vietnam to block a referral to arbitration by a Taiwanese investor.  (Oops! This provision refers to disagreements between the two parties to the agreement, not the investor and the host state. Sorry about the misreading. But I think my larger critical take stands). Since the Agreement doesn’t otherwise waive Vietnam’s state immunity, I am not confident about the ability of an investor to enforce any awards from an ICC tribunal without such consent anyway.

In other words, I am skeptical that the Taiwan-Vietnam Agreement is going to be very effective at winning compensation for investors.  Instead, if I was a Taiwanese investor, I would think about invoking the Vietnam-China BIT.  True, that agreement is limited to natural persons and economic entities who have the “nationality of the People’s Republic of China”, but it is not entirely clear this would exclude the PRC’s “Taiwanese compatriots” who are officially treated in China as “nationals” for some purposes.  Even if this argument doesn’t fly, many of the Taiwanese companies in Vietnam may have Chinese national employees or entities that could make a claim on their behalf.  Of course, this would be pretty bad PR here in Taiwan, where no one really wants to be associated with the Chinese government.  But if they managed to get an ICSID tribunal constituted, a Taiwanese investor has a much better chance to forcing Vietnam to pay out compensation under the Vietnam-China BIT than the Vietnam-Taiwan agreement.  Another example of why being a non-state is such a pain for Taiwan and the Taiwanese.

Using Investment Arbitration to Enforce WTO Commitments

by Roger Alford

plainpackagingI would like to continue the theme of the emerging convergence of investment arbitration and international trade. In my previous posts (discussed here and here) I discussed the prospect of using trade remedies to enforce investment arbitration awards. Another key example of convergence addresses the emerging trend of relying on investment arbitration to enforce international trade rights. As discussed in my recent article, despite the assumption that international trade disputes must be resolved before the WTO DSB, the existence of broad umbrella clauses in BITs present a promising vehicle for enforcing investment commitments in trade agreements.

Of course, the scope of umbrella clauses is dependent on the language in particular BITs, which varies widely from one treaty to the next. Accordingly, there is no uniform understanding as to the meaning of umbrella clauses. Narrow umbrella clauses are unlikely vehicles for vindicating international trade rights. A treaty commitment such as that addressed in SGS v. Philippines to observe any obligation a Contracting State “has assumed with regard to specific investments” is unlikely to encompass legislative measures or treaty commitments. By contrast, broad umbrella clauses are better candidates for vindicating trade rights, such as the BIT clause at issue in Noble Ventures, Inc. v. Romania, which committed Romania to “observe any obligation it may have entered into with regard to investments.”

ICSID tribunals have interpreted broad umbrella clauses to give investors treaty rights with respect to unilateral undertakings of the State embodied in municipal law. In CMS Gas Transmission Co. v. Argentina, the tribunal concluded that utility tariffs designed to attract foreign investment were “legal … obligations pertinent to the investment.” In LGE v. Argentina, the tribunal concluded that abrogation of guarantees made to investors in a statutory framework gave rise to liability under the umbrella clause. In Enron v. Argentina, another tribunal concluded that the umbrella clause referred to “any obligations regardless of their nature.” This included not only contractual obligations, but also “obligations assumed through law or regulation” that are “with regard to investments.” In Sempra Energy International v. Argentina, a tribunal found that major legal and regulatory changes introduced by the State as part of its public function constituted treaty violations under the umbrella clause. Finally, in SGS v. Paraguay, a tribunal interpreted a broad umbrella clause as creating “an obligation for the State to constantly guarantee observance of its commitments entered into with respect to investments of investors of the other party. The obligation has no limitations on its face—it apparently applies to all such commitments, whether established by contract or by law, unilaterally or bilaterally.”

Note that these sweeping pronouncements do not require that a State’s commitment reference a specific investment or contract. As long as legislative or executive measures relate to the promotion or regulation of investments, they constitute unilateral undertakings covered by a broad umbrella clause. Such ICSID jurisprudence has led María Cristina Gritón Salias to conclude in this book that “tribunals overwhelmingly accept the application of umbrella clauses to obligations assumed unilaterally by host States,” whether those undertakings are “made through legislation or otherwise.” Likewise, Darius Chan has opined here that “the current tide of jurisprudence concerning umbrella clauses is in favor of such clauses encompassing host State commitments of all kinds.”

Assuming such interpretations are correct—which is by no means clear—this has significant implications for the WTO. If trade obligations are subject to investment arbitration, it would authorize private parties to initiate trade cases. Private rights of action through investment arbitration would supplement the diplomatic espousal of claims before the WTO.

This is precisely what one foreign investor has argued with respect to alleged WTO violations as a result of Australia’s plain-packaging laws. On November 21, 2011, Philip Morris Asia Ltd. filed an investment arbitration claim against Australia pursuant to the Hong Kong-Australia Bilateral Investment Treaty. The central contention of Philip Morris is that Australia’s plain packaging legislation violated various international obligations. Among the claims it filed is one under the broad “umbrella clause” in the BIT, which provides that “[e]ach Contracting Party shall observe any obligation it may have entered into with regard to investments of investors of the other Contracting Party.” According to the Notice of Arbitration:

This [umbrella clause] obligation is broader than specific obligations … made by the host State to investors…. It also encompasses other international obligations binding on the host State that affect the way in which property is treated in Australia…. [T]he relevant obligations are those enshrined in TRIPS, the Paris Convention, and TBT. [Claimant] as an owner of the investments is entitled to expect Australia to comply with its obligations pursuant to those treaties. By adopting and implementing plain packaging legislation, Australia has failed to observe and abide by those obligations.”

In response, Australia argued that:

The meaning and scope of such provisions is a matter of great controversy. However it is clear in the instant case that … the “umbrella clause” in Article 2(2) cannot be understood as encompassing general obligations in multilateral treaties…. Rather … the “umbrella clause” … only covers commitments that a host State has entered into with respect to specific investments…. [T]he obligations under the multilateral treaties … are not “obligations” which have been entered into with regard to investments of investors” of Hong Kong, but are rather obligations that operate on the inter-State level, with their own particular inter-State dispute resolution procedures.

It is too early to assess the likely success of such claims, but if the recent “umbrella clause” jurisprudence is accurate the claims are at least colorable.

This potential convergence of trade and arbitration has profound implications for the resolution of WTO violations. An arbitration panel liberally construing a broad umbrella clause could transform how WTO obligations are adjudicated. Exactly how would the adjudication of WTO obligations through investment arbitration alter the landscape? Here are a few thoughts.

First, umbrella clauses in BITs could create a private right of action for resolving WTO disputes. Investment arbitration circumvents the traditional barriers to initiating a WTO dispute. Diplomatic espousal is no longer a reliable check on the pursuit of unmeritorious claims. Through umbrella clauses foreign investors could seek recourse for violations of investment obligations that form part of WTO disciplines.

Second, with WTO dispute settlement the Member States control all decisions with respect to adjudication and resolution of the dispute. Investors may prefer an alternative dispute settlement process that places such decisions within their control. The incentives to settle an investment dispute depend on satisfying investors concerns rather than satisfying the disputing Member States’ concerns.

Third, with limited exceptions, the WTO prohibits unilateral trade remedies. Article 23 of the DSU provides that Member States “shall not make a determination to the effect that a violation has occurred … except through recourse to dispute settlement in accordance with the rules and procedures of this Understanding.” Investment arbitration is not a unilateral remedy imposed in response to a WTO violation, but neither is it WTO dispute settlement. Investment arbitration may provide a vehicle for compensating or attenuating the harm caused to investors without offending the WTO restrictions on unilateral trade remedies.

Fourth, WTO remedies are prospective, while investment arbitration remedies may be retroactive. The goal of the WTO adjudication is to bring Member States into conformity with their trade obligations. The goal of investment arbitration is, consistent with traditional understandings of state responsibility, to “wipe-out all the consequences of the illegal act and reestablish the situation which would, in all probability, have existed if that act had not been committed.”

Fifth, under the WTO dispute settlement process, any losses an investor suffers as a result of a Member State’s WTO violation are not compensable. WTO remedies contemplate compensation directly to a Member State or, failing that, the suspension of concessions paid directly to the Member State in the form of increased duties. With investment arbitration, international law violations result in monetary compensation due directly to the investor.

Thus, liberal interpretations of broad umbrella clauses that encompass investment commitments in WTO undertakings may prove to be an attractive avenue for future investment arbitration.

Using Trade Remedies to Enforce Arbitration Awards: The WTO-Compliance Question

by Roger Alford

Simon Lester has a thoughtful response to my earlier post about using trade remedies to enforce arbitration awards. He questions whether conditioning GSP benefits on compliance with arbitration awards is consistent with WTO obligations. My answer is essentially yes. Because there are so many issues at play, I thought it best to respond in a new post rather than respond in the comment section to his post.

First, there is no question that granting preferential treatment for developing countries does not violate MFN rules. That was settled with the so-called Enabling Clause. The real question is whether a particular GSP-scheme is consistent with the Enabling Clause. The Enabling Clause provides that Member States may accord differential and more favorable treatment to developing countries, provided (a) such treatment is non-discriminatory as between similarly-situated developing countries; and (b) is designed to promote the development, financial and trade needs of the developing countries.

As to the first requirement, the Enabling Clause requires GSP benefits to be conferred in a non-discriminatory manner among similarly-situated developing countries. This, according to EC-Tariff Preferences, requires that the relevant preference be made available to all beneficiaries that share that need. (EC-Tariff Preferences, para. 180). That requirement appears to be met. The U.S. obligation on compliance with arbitration awards is applied to all GSP beneficiaries alike. Argentina might have a discrimination argument if other beneficiary countries refuse to honor arbitration awards but still enjoy GSP benefits. But I am not aware of any such examples, and if anything, it appears that other developing countries like Ecuador will soon face a similar fate as Argentina.

Second, the GSP conditional benefit must be imposed to meet particular development, financial or trade needs. In other words, if you are granted benefits with strings attached, those strings must be for the benefit of the developing country. Simon Lester questions whether conditional tariff benefits can ever meet that requirement. I disagree. If you look at the various GSP schemes, the list of such needs are legion, addressing issues such as drug-trafficking, communism, terrorism, human rights, environmental protection, expropriation, contractual compliance, intellectual property protections, etc.

At one level one might view many of these concerns as primarily about protecting developed countries’ interests more than promoting the developing country needs. But, of course, these goals are mutually-beneficial. Goals such as promoting the rule of law, creating a safe and stable legal climate, encouraging foreign investment, good governance, reducing crime and corruption, guaranteeing human rights, and encouraging environmental sustainability are all legitimate objectives that developed countries legitimately can ask developing countries to pursue.

(More….)

Using Trade Remedies to Enforce Arbitration Awards

by Roger Alford

As I discuss in a recent article published in the Santa Clara Journal of International Law, one of the most significant developments signaling the convergence of trade and arbitration is the use of trade remedies to enforce arbitration awards. This is done primarily when a developed country threatens to remove preferential trade benefits to a developing country if that country does not honor its international arbitration commitments.

The WTO allows (but does not require) developed countries to grant preferential trade benefits to “promote the development, financial and trade needs of developing countries.” Many developed countries—including Australia, Canada, the European Union, and the United States—have established such “Generalized System of Preferences” or GSPs to promote trade with developing countries. The major benefit of GSP schemes is the unilaterally lowering of tariff bowers for products from beneficiary countries without a corresponding reduction in tariffs for the developed country’s products.

The discretionary nature of these schemes means that the trade benefits come with strings attached. In the United States and the European Union, for example, developing countries are subject to performance obligations with respect to matters such as drug trafficking, international terrorism, democracy, human rights, environmental protection, government corruption, unlawful expropriation, the rule of law, and good governance.

The United States imposes a number of conditions on beneficiary countries, including that they recognize and enforce arbitral awards in favor of United States nationals. Any country that wishes to secure beneficiary status under the GSP scheme must satisfy this criterion, and any country that fails to maintain this commitment jeopardizes their beneficiary status. The provision was added to the Trade Act of 1974 because of concerns that it was “contrary to sound U.S. policy to give…any… developing nation the favored treatment contemplated by the present legislation in the face of unwillingness to abide by solemn agreements to recognize as final and binding arbitration awards rendered in disputes between it and American parties.” (120 Cong. Rec. 39831).

The use of trade remedies to enforce arbitration awards is best illustrated by the ongoing dispute over Argentina’s refusal to honor adverse investment awards. On March 26, 2012, the Obama Administration announced that Argentina’s GSP beneficiary designation would be suspended “because it has not acted in good faith in enforcing arbitral awards in favor of United States citizens.” It was the first time in American history the United States denied GSP trade benefits to a developing country for its failure to honor arbitration commitments.

(more…)

TED Talks, Placebo Politics, and the Work of International Lawyers

by Chris Borgen

I recently wrote a post that described the virtues of international lawyers thinking about the future and having an international law analog to “design fiction.” The main point being we as international lawyers are often so focused on historical examples, issues, and analogies that we need to spend more time considering the technological changes that are upon us and changing the world in which we live. A bit of tech futurism + international legal practice.

One of the best-known critiques of the profession considered the lack of imagination of the international legal profession. In 2001, Martti Koskeniemi wrote in The Gentle Civilizer of Nations that international law had been depoliticized and marginalized “as graphically illustrated by its absence from the arenas of today’s globalization struggles” or it had become “a technical instrument for the advancement of the agendas of powerful interests or actors in the world scene.” (page 3) He further wrote that international lawyers “in the past 40 years have failed to use the imaginative opportunities that were available to them, and open horizons beyond academic and political instrumentalization, in favor of worn-out internationalist causes that form the mainstay of today’s commitment to international law.” (page 5)

Now, having made a plea for a little more tech futurism in international law, I note that Professor Benjamin Bratton has just done a great job of taking the form of technological futurism most prevalent in TED conferences and smacking it upside the head a few times. Moreover, he did this in a sharp TEDx presentation (and an essay in The Guardian). I highly recommend watching the full TED talk. There’s a lot there that also applies to international legal profession.

Bratton describes the problem of “placebo politics”—focusing on technology and innovation as the solution to major world problems, but not taking into account the difficult issues of history, economics, and politics that bedevil actual workable solutions. Problems become oversimplified. He wrote in The Guardian:

Perhaps the pinnacle of placebo politics and innovation was featured at TEDx San Diego in 2011. You’re familiar I assume with Kony2012, the social media campaign to stop war crimes in central Africa? So what happened here? Evangelical surfer bro goes to help kids in Africa. He makes a campy video explaining genocide to the cast of Glee. The world finds his public epiphany to be shallow to the point of self-delusion. The complex geopolitics of central Africa are left undisturbed. Kony’s still there. The end.

You see, when inspiration becomes manipulation, inspiration becomes obfuscation. If you are not cynical you should be sceptical. You should be as sceptical of placebo politics as you are placebo medicine.

For more on Kony 2012, see our discussion of it, here.

Bratton continued:

If we really want transformation, we have to slog through the hard stuff (history, economics, philosophy, art, ambiguities, contradictions). Bracketing it off to the side to focus just on technology, or just on innovation, actually prevents transformation.

Instead of dumbing-down the future, we need to raise the level of general understanding to the level of complexity of the systems in which we are embedded and which are embedded in us. This is not about “personal stories of inspiration”, it’s about the difficult and uncertain work of demystification and reconceptualisation: the hard stuff that really changes how we think. More Copernicus, less Tony Robbins.

[Emphases added.]

International lawyers can be (but aren’t always) good at the facts on the ground, the messy realities of history, politics, economics. If my previous post was about how lawyers need to keep a weather eye on how new tech is changing the present and shaping the future, then Bratton reminds us how the technologists need to appreciate the hard realities of the present and to remember the lessons of past. In other words, each of us has a lot to learn from the other.

Hackers’ Bazaar: the President’s NSA Speech and the Market for Zero-Day Exploits

by Chris Borgen

All Things Considered ran an interview this past Monday with Alex Fowler, the chief privacy officer of Mozilla (developer of the Firefox web browser), stemming from a blog post Fowler had written critiquing President Obama’s speech last week concerning NSA activities. When asked about the “most glaring reform needs” that were not addressed in the President’s speech, Fowler said:

right now, we have a policy approach in Washington which is focused on not closing security holes but actually [on] hoarding information about security backdoors and holes in our public security standards and using those then to exploit them for intelligence needs. In our perspective, and I think certainly those of your listeners – as you think about the news related to Target data breaches and breaches with Snapchat and other common tools that we use every day – that what we really need is to actually focus on securing those communications platforms so that we can rely on them. And that we know that they are essentially protecting the communications that we’re engaged with.

This relates to the market for so-called “zero-day exploits,”  where the U.S. government pays hackers for information about holes in software security that its intelligence and law enforcement agencies can then use for surveillance. (The market for zero-day exploits is described in greater detail in this previous post.) The U.S. also pays the sellers of these exploits to keep the holes secret, not even warning the company that has the security hole, so that the exploit may remain useful to the U.S. government for as long as possible. Unfortunately, this also means it will remain open for criminal hackers who have also discovered the hole.

The injection of U.S. government funds has transformed a formerly loose, reputation-based, market into a lucrative global bazaar with governments driving up prices and the formation of firms with business models based on finding and selling exploits to the U.S. and other governments. Although cash-rich companies like Microsoft are responding by trying to out-bid state actors for information about zero day exploits in their own products, the money in the market has shifted from rewarding security into incentivizing insecurity

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Exploring International Law with Opinio Juris in 2013: Highways, Back Roads, and Uncharted Territories…

by Chris Borgen

There’s never a boring year in international law and 2013 turned out to be particularly eventful: Syria, major cases in front of national and international courts, a possible nuclear deal with Iran, and turmoil in Eastern Europe, Egypt, and South Sudan, to name but a few reasons.

This post is not an attempt to log all that we have written about on Opinio Juris this year. There’s just too much.  If any of these topics (or others) are of particular interest to you, you can use our search function to find the posts related to them.  Rather, this post is an idiosyncratic tour of some of the highways, back roads, and other territory that we traversed in 2013… (Continue Reading)