International Economic Law and Policy Blog

CALL FOR PAPERS: The duties, rights and powers of international arbitrators

CALL FOR PAPERS: The Law & Practice of International Courts and Tribunals Special Issue on THE DUTIES, RIGHTS AND POWERS OF INTERNATIONAL ARBITRATORS

This special issue of the journal The Law & Practice of International Courts and Tribunals focuses on the duties, rights and powers of international arbitrators in investment arbitration disputes. According to a well-known saying, the three key elements of international arbitration are “arbitrator, arbitrator and arbitrator.” The exercise of the professional activity of international arbitrators, who are the real soul of the contemporary ISDS system, poses many challenges. For example, the legal relationship of arbitrators to the parties, especially to the one which appoints them, is controversial and questioned. The following are just some areas on which the Special Issue will focus: International arbitrator competence; duties of international arbitrators; challenge, removal and replacement of international arbitrators; liability of international arbitrators; rights of international arbitrators; effects of the European Union policy on foreign direct investment on the duties, rights and powers of international arbitrators;  and other regional initiatives, such as Draft Constitutive Agreement of the Center for the Settlement of Investment Disputes of the UNASUR.

Submission of proposals: The Law and Practice of International Courts and Tribunals (Editor-in Chief: Eduardo Valencia-Ospina and Managing Editor: Pierre Bodeau-Livinec) is firmly established as the leading journal in its field, which is indexed in Scopus.  Each issue of this double-blind peer-reviewed journal presents the latest developments with respect to the preparation, adoption, suspension, amendment and revision of Rules of Procedure as well as statutory and internal rules and other related matters. The Journal also presents the latest practice with respect to the interpretation and application of rules of procedure and constitutional documents, which can be found in judgments, advisory opinions, written and oral pleadings as well as legal literature. Procedural matters covered in the Journal include the bench, representation of the parties, institution of contentious proceedings, written proceedings and related matters, oral proceedings, proceedings in chambers, absence of appearance, provisional measures of protection, preliminary objections, counterclaims, intervention by third States, discontinuance of proceedings, the decision, interpretation and revision of judgments, advisory proceedings, evidence, witnesses, experts and the extra-judicial function.

For this call for papers for the Law and Practice of International Courts and Tribunals, experienced practitioners, IIA negotiators and scholars are invited to submit innovative proposals that go beyond the state of the art.  Extended abstracts – minimum of 1,000 words – or unpublished full papers should be submitted to the editors ([email protected] and [email protected]) along with the author’s name, affiliation and a CV that includes the author’s contact details.

All submissions and finalised papers must be written in English. Submission for the Special Issue is incompatible with a parallel submission to a different publication.

Finalised papers will be around 6,000-8,000 words and must comply with the Law and Practice of International Courts and Tribunals style guide, ethical and legal conditions which can be accessed here    http://www.brill.com/sites/default/files/ftp/authors_instructions/LAPE.pdf.

International Conference: Under the direction of Dr. Horacio Grigera Naón, American University Washington College of Law, and the guest editors are organizing an international conference that will take place on September 19^th, 2017 at the Washington College of Law. Accepted papers will be presented in this forum. Paper presenters will receive comments on their papers from key speakers, scholars attending the conference, prominent international lawyers, and guest editors. Selected speakers are expected to bear the costs of their own travel and accommodation.

Timeline:

• The deadline for the submission of proposals is December 31st, 2016.
• Successful applicants will be informed by January 31st, 2017.
• The deadline for the submission of the draft paper for accepted proposals is August 15th, 2017.
• The international conference will be held at American University Washington College of Law in September 19th, 2017.
• Finalised paper will be submitted to the editors by October 30th, 2017.
• The special issue in The Law & Practice of International Courts and Tribunals will be published in Spring 2018 (LPCT, Vol. 17, No. 1).

Could Joe Stiglitz or Lori Wallach Be Making Trade Policy in a Clinton Administration?

This is from the Washington Post:

Liberal advocacy groups are preparing blacklists of candidates for appointments to a Hillary Clinton administration, with one organization even producing opposition research to torpedo contenders they consider too soft on Wall Street or other corporate interests.

Planning for a Democratic victory on Nov. 8, these interest groups and like-minded lawmakers are laying the groundwork to push Clinton, if she is elected, to prove her progressive bona fides through early legislation and personnel appointments.

One liberal group has already forwarded to Clinton’s transition team the names of 150 acceptable appointees for economic positions, while others on the left are engaged in opposition research against prospects for administration jobs whom they see as unacceptable.

...

Others whose service is being pushed include Tom Perez, President Obama’s labor secretary; Rep. Donna F. Edwards (D-Md.), who lost a Senate primary in April; former senator Byron L. Dorgan (D-N.D.); Joseph Stiglitz, an economist and Columbia University professor; Heather C. McGhee, president of Demos, a liberal public-policy organization; and Lori Wallach, an expert on trade with the advocacy group Public Citizen.

...

Advocates also see the U.S. trade representative, the SEC chair and the director of the National Economic Council as vital to their policy mission.

Stiglitz and Wallach have been critics of U.S. trade policy, and advocate some major changes. See, e.g., here and here.

What would it look like to have these long-standing critics of U.S. policy now in positions of influence over policy? Would they come up with constructive ways forward, or would they stand in the way of progress?

Belgian CETA Declaration Informal English Translation (from French version; opening procedural paragraphs omitted)

Informal translation of excerpts of the Declaration of the Kingdom of Belgium relating to the conditions under which the federal State and the federated entities exercise their full authority to sign CETA

I have not translated all of those aspects that mostly pertain to procedural matters and federal intra-Belgium matters as opposed to the substantive operation of the CETA.

…

Belgium has noted that the provisional application of the CETA does not extend to various provisions, notably investor protection and dispute settlement (the Investment Court System), in conformity with the decision of the Council in relation to the provisional application of the CETA. It has in addition noted the right of each party to terminate the provisional application of CETA in accordance with Article 30.7 of the Agreement.

Belgium will request a reference opinion from the European Court of Justice concerning the compatibility of the ICS with the European treaties, especially in light of Notice I/94.

Except in the case of a decision to the contrary by their respective Parliaments, the Walloon region, the French Community, the German-speaking Community, the Francophone Community Commission and the Brussels Capital Region, do not intend to ratify CETA on the basis of the system of Investor-State Dispute settlement provided in chapter 8 of CETA, as it stands at the moment of signature.

The Flemish Region, the Flemish Community and the Brussels Capital welcome in particular the joint declaration of the European Commission and the Council of the European Union concerning the Investment Court System.

The declaration of the Council and the Member states addressing the decisions of the CETA joint committee in the matter of regulatory cooperation in areas of Member State competence confirms that these decisions must be taken by common consent of the Council and the Member-States.

In this context, the governments of the federated entities indicate that, for those matters in areas of their exclusive or shared competence within the Belgian constitutional system, they all regulatory cooperation shall be subject to the prior consent of their Parliament and it shall be informed of every regulatory decision that results.

The federal State or a federated entity with competence in agricultural affairs reserves the right to activate the safeguard clause in case of market disequilibrium, including where the disequilibrium concerns a single identified product.  The exact thresholds will be determined within 12 months following the signature of CETA, to establish what is meant by market disequilibrium.  Belgium will defend the thresholds so determined in the contest of the process of European decisionmaking.

Belgium reaffirms that the CETA will not affect the legislation of the European Union concerning the authorization, placing on the market, development and labelling of Genetically Modified Organisms (GMOs) and of products obtained through new reproductive technologies, and in particular the 

the possibility of Member States restricting or prohibiting the cultivation of GMOs on their territory.  In addition, Belgium reaffirms that the CETA will not prevent the guarantee of the application of the precautionary principle in the European Union, and in particular, the principle of precaution articulated in Article 191 and taken into account in Article 168, paragraph 1, and Article 169, paragraphs 1 and 2, of the Treaty on the Functioning of the European Union (TFEU)

In the case of a request concerning geographical indications (protected designation of origin and protected geographical indication), the federal government commits to relaying said request immediately to the European Union.    

EU Selection Process for Appellate Body Candidates

The EU has launched a selection process for the Appellate Body slot that will open up soon:

The second and last term in office of Professor Peter Van den Bossche (Belgium) on the WTO Appellate Body is due to expire on 11 December 2017 and a vacancy will arise.

The European Union (EU) will nominate its candidate(s) for this vacancy on the basis of proposals from EU Member States. The European Commission has requested the Member States to submit such proposals by 3 January 2017.

Interested persons who are nationals of an EU Member State and who meet the requirements for the position of an Appellate Body member are invited to contact the relevant authorities in their Member State for further information (see list of contact points).

The persons proposed by the Member States will be considered by a selection panel, tasked with recommending the most suitable EU candidate(s) from among these persons in view of the requirements laid down in the WTO Agreements. The selection panel is expected to carry out its work as from the beginning of 2017. It will conduct its assessment on the basis of the candidates' curricula vitae and interviews with the short-listed candidates.

This is great transparency. I'm not aware of any other governments who have a public process like this one. 

If Wallonia Blocks CETA Because Of Investor-State Dispute Settlement (ISDS) Why Not Take ISDS Out of CETA?

Wallonia’s "non" to CETA seems inspired largely by the right CETA gives to Canadian investors in the EU to directly sue EU governments, so-called investor-state dispute settlement (ISDS).

CETA narrowly defines the scenarios where Canadian multinationals -- or, for that matter, individual investors or SMEs -- would have the right to sue Wallonia: denial of justice, blatant discrimination, expropriation without compensation and the like. All very serious and exceptional offences (market access, or rights to invest in, or trade with, the EU or Canada, are not subject to ISDS, only state-to-state procedures). Still, notwithstanding all guarantees provided, giving this private right to sue, including over public laws is, understandably, controversial. It is not included, for example, under the WTO treaty.

What if we take ISDS out of CETA and thereby get Wallonia on board?

Where It Is Least Needed, ISDS Now Creates Most Headwinds

Belgium already has 105 investment treaties most with ISDS in them (Canada has 43, Germany 156). World Bank statistics indicate that Belgian investors abroad used ISDS nine times. Just last year, Belgium successfully defended its first (and so far only known) ISDS case (filed by a Chinese insurance company that held a stake in Belgium’s largest bank, bailed out during the financial crisis).

But Belgium’s current ISDS treaties are all with developing (or Eastern European) countries largely on the assumption that ISDS was needed to compensate for “badly performing” domestic courts in these countries. CETA would be Belgium’s first ISDS treaty with a “developed” country. Ironically, where it is arguably least needed -- the Canadian legal system is pretty solid -- ISDS is now creating most headwinds.

EU investors in Canada, generally happy with Canadian law and courts, are not clamoring for ISDS protection. Canadian investors in the EU, in turn, already have ISDS protection in those EU countries where it may still be needed, if at all (Canada has ISDS treaties with 8 Eastern European countries that only recently acceded to the EU). If given the choice between no CETA, or CETA without ISDS, most businesses, on both sides of the Atlantic, would most probably choose the latter.

So why not take ISDS out of CETA, and get the Walloon veto against CETA lifted?

Now That ISDS Is Reformed, It Faces The Fiercest Critique

A second irony is that the ISDS system now in CETA is probably the most modernized, public law-oriented version out there. Unlike traditional ISDS of which Belgium already has more than 100 and which is often labeled as “private justice” (because investors can appoint and pay their own arbitrator, behind closed doors), CETA would create a more public investment court system, with government appointed- and paid judges, public hearings, an appellate tribunal and strict ethics rules. So Wallonia is blocking what is arguably the “best version” of ISDS on offer, a unique chance to get old-style ISDS substantively reformed.

That is arguably the core reason to have ISDS in CETA: Not to ensure protection of EU or Canadian investors, but to reform ISDS writ-large, make it more public law-oriented and set new rules for future treaties to come, including with the US and developing countries. The EU also wants to be consistent, and include this ISDS 2.0 in all of its trade and investment agreements moving forward (it is already included in a recent EU-Vietnam deal). The EU does not want to black-list certain countries by including ISDS in some treaties (those with weaker domestic legal systems) and not in others (e.g. with Canada, that already have robust domestic courts). The EU also wants to be consistent within the EU, and level the playing field for foreign investors where ever they invest in the EU. Otherwise, a relatively easy way to overcome Wallonia's veto would, indeed, be to include a two-way carve-out from ISDS for investors from, and authorities in, Wallonia (just add them to Annex 8-C of CETA).

So a choice may have to be made. Do we want the economic benefits of CETA without ISDS, or are we willing to sacrifice them for the sake of reforming ISDS and consistently including it with all trade partners and across the EU?

Given the current deadlock, I would be inclined to choose the former: CETA, without ISDS; if the serious offences listed do occur, state-to-state procedures remain available. Indeed, even if Canada and Wallonia were to accept ISDS 2.0 in CETA, the US is unlikely to do so in a future TTIP. In addition, one non-negligible risk with the new EU investment court system is that its judges may take a life of their own: by making them permanently appointed (5 years, once renewable), rather than case-by-case, and setting up an appellate tribunal (a first in ISDS history) judges get more (not less) power than the current ISDS arbitrators. As a clever counterweight, CETA does provide for treaty parties, that is, Canadian and EU governments, to overrule “bad” court decisions, a crucial, democratic safety valve. But with the Walloon experience in mind, such “legislative override” may be theoretical only: it would, once again, require the consent of both Canada and all EU member states and parliaments. This risks setting court decisions in stone, and a less, rather than more, controlled ISDS. Much like the creation of a European Parliament has not solved the EU's democratic deficit, setting up an EU investment court system is unlikely to silence ISDS critics.

So let’s settle on CETA without ISDS?

 

The Australians May Be Looking for a Simpler EU Trade Deal

Are people drawing any lessons from the troubles with CETA? There is still a long way to go with settling the scope of EU trade policy, with a court decision coming and political battles to be fought, and CETA may eventually be fully ratified in its current form. But even so, the Australians seem wary of taking on a trade negotiation that is so comprehensive and controversial:

Trade Minister Steven Ciobo says Australia will forge ahead on a proposed free trade agreement (FTA) with Europe, despite the embarrassing collapse of the EU's trade deal with Canada.

However he said Australia may have to settle for a smaller deal that can be signed by the EU Commission alone, rather than a broader FTA that must be ratified by parliaments across the Union.

Mr Ciobo, who is in Europe meeting the region's other trade ministers, said he was still "optimistic" about an Australia-EU deal, despite European Council president Donald Tusk saying that if the Canada agreement fell through it "could be our last free trade agreement".

...

Mr Ciobo said Australia "needs to be sober about the challenges we face" in negotiating a free trade deal with the European Union.

After a scoping period, the negotiations proper are expected to begin early in 2017.

He said he had watched closely the developments between Canada and the EU "and they will help to inform Australia's position with respect to the scoping study and negotiations".

The Canadian deal's problem was that it had to win the approval of member states, he said.

"Maybe we will look at a deal that is solely within the EU Commission's competence and maybe we will look at the pros and cons of making it more comprehensive than that," Mr Ciobo said.

Speaking of Australians, here's a comment from Brett Williams on the last post that seems relevant here:

Wouldn't it be great if all of these discriminatory agreements fell over and everyone would have to get back to negotiating trade liberalization in the WTO incrementally and gradually on a non-discriminatory basis - and cut agreements on other (non-trade) topics like Intellectual Property and Remedies for Protection of Investment and Movement of People into separate standalone agreements that could be withdrawn from without withdrawing from the liberalization of trade in goods and services!

Is that too far-fetched, or could we get there somehow?

The CETA Controversy

No doubt you have all read about the problems the EU is having with ratifying CETA: 

After seven years of negotiations on the Comprehensive Economic and Trade Agreement (Ceta), talks broke down on Friday.

This followed a rejection of the deal by Wallonia. Exercising its right under the Belgian federal constitution, it called for clarity on safeguards to protect labour, environmental and consumer standards.

The deadlock has called into question the EU's ability to make trade deals. All 28 EU member states support the agreement, which was to be signed next week.

My sense is there is still a deal to be had, and it will probably be worked out eventually. But as with anything to do with politics, I am really just guessing.

But even if a deal is reached, do the current CETA troubles demonstrate a fundamental flaw in modern trade negotiations?  This is from Michael Geist:

International Trade Minister Chrystia Freeland has walked out of talks aimed at addressing Belgian opposition to the Canada-EU Trade Agreement, stating:

I have personally worked very hard, but it is now evident to me, evident to Canada, that the European Union is incapable of reaching an agreement – even with a country with European values such as Canada, even with a country as nice and as patient as Canada. Canada is disappointed and I personally am disappointed, but I think it’s impossible. We are returning home.

Leaving aside the odd reference to how nice Canada is, this is remarkable language that lays bare the obvious frustration and disappointment for the government which prioritized the CETA agreement above all others. The prospect of the deal falling apart has been evident for months. I wrote in July that the agreement was in more trouble than the Canadian government would admit, noting that opposition from any national or regional government could kill CETA altogether. Canadian officials downplayed the risk, but it was obvious that CETA faced stiff opposition that would not be easy to overcome.

Yet to focus exclusively on the political dimensions (which should also include how disingenuous the Conservatives’ claims about their trade deals were) is to miss the broader concerns with trade agreements such as CETA. The Stop CETA protests across Europe tend to focus on broader opposition to trade agreements that extend far beyond reduced tariffs. Indeed, few oppose reduced tariffs. The concerns instead typically point to the wide range of regulatory measures and dispute settlement mechanisms that may prioritize corporate concerns over local rules. The fear of these aspects of the agreement are what lies at the heart of opposition to CETA, as well as to the Trans Pacific Partnership (TPP) and TTIP.

The insistence that such provisions remain in the agreement is what is truly puzzling. Given that Europe and Canada both offer reliable, respected court systems, there is little reason to insist on ISDS rules at all. Further, expanded trade should not require Canada to face increased health care costs (as would result from CETA’s extension of patent protections) or Europe to confront changes to various food and safety regulations.

Is there a package of trade agreement provisions that could pass without controversy? Geist emphasizes that tariff reductions do not generate much opposition (Donald Trump excepted). Thus, if we made deals that were only about tariff reductions, they would not be controversial.

What if the deals went beyond tariffs to include certain regulatory barriers? For example, they could include the mutual recognition for toys and electrical products that I mentioned recently.  As I said there, I'm not sure why those provisions would be controversial.

On the other hand, issues such as ISDS or food safety rules in trade agreements are going to be controversial forever. 

If someone put together a package of the most beneficial and least objectionable trade agreement provisions, would it be ratified without much controversy? It's hard to say, because it hasn't been tried recently. At a certain point, if CETA, TPP, TTIP, etc. can't be ratified (a big if), maybe someone will consider it.

Clayton Yeutter Chair at University of Nebraska-Lincoln College of Law

This is from the University of Nebraska-Lincoln:

The University of Nebraska-Lincoln has announced the three endowed chairs it will establish as the foundation of the Clayton K. Yeutter Institute of International Trade and Finance. The institute was launched in 2015 to prepare students to work at a time when national economies are increasingly connected.

“The institute will offer our graduates unparalleled distinction in the field and uniquely prepare them to become leaders in the global marketplace immediately upon graduation,” Chancellor Ronnie Green said. “We are immensely honored to establish these endowed chairs, which will allow us to attract leading scholars in global trade and finance.”

The Duane Acklie Chair will be established in the College of Business Administration; the Michael Yanney Chair will be established in the Institute of Agriculture and Natural Resources; and the Clayton Yeutter Chair will be established in the College of Law.

Details for the law prof job are here:

Job Description for Yeutter Chair

The UNIVERSITY OF NEBRASKA COLLEGE OF LAW invites applications for lateral candidates for a tenured faculty position to hold the Clayton K. Yeutter Chair at the College of Law. This chaired faculty position will be one of four faculty members to form the core of the newly-formed, interdisciplinary Clayton K. Yeutter Institute for International Trade and Finance. The Institute also will include the Duane Acklie Chair at the College of Business Associations, the Michael Yanney Chair at the College of Agricultural Sciences, and the Haggart/Works Professorship for International Trade at the College of Law. The Yeutter Chair, along with the other three professors, will be expected to support the work and objectives and ensure the success of the Yeutter Institute. The Yeutter Chair will teach courses at the College of Law, including International Finance. Other courses may include Corporate Finance and/or other related classes pertaining to issues arising in international business and finance. More on the Yeutter Institute can be found at http://news.unl.edu/newsrooms/today/article/giftsestablish-endowed-chairs-for-yeutter-institute/ .

Minimum Required Qualifications: J.D Degree or Equivalent; Superior Academic Record; Outstanding Record of Scholarship in International Finance and/or other areas related to international business; and Receipt of Tenure at an Accredited Law School. General information about the Law College is available at http://law.unl.edu/. Please fill out the University application, which can be found at https://employment.unl.edu/postings/51633, and upload a CV, a cover letter, and a list of references. The University of Nebraska-Lincoln is committed to a pluralistic campus community through affirmative action, equal opportunity, work-life balance, and dual careers. See http://www.unl.edu/equity/notice-nondiscrimination. Review of applications will begin on November 5, 2016 and continue until the position is filled. If you have questions, please contact Associate Dean Eric Berger, Chair, Faculty Appointments Committee, University of Nebraska College of Law, Lincoln, NE 68583-0902, or send an email to [email protected].

CETA and Mutual Recognition

This is from The Economist:

Twentieth-century trade deals slashed tariffs. Newer ones between rich countries, such as CETA, focus on cutting other barriers to trade. After seven years of haggling, European negotiators dream of European toys and electrical products being sold straight to Canadians, without having to go through a second round of health and safety checks.

Here's my question for those of you who have followed CETA more closely than I have: What part of CETA would allow European products such as these to be sold in Canada without having to show conformity with Canadian regulations?

ADDED:

OK, with help from Ferdi de Ville, I see it now in the text, in the "Protocol on the mutual acceptance of the results of conformity assessment." My first question is, will these rules actually accomplish what they aim to? Enforcing mutual recognition agreements isn't something trade agreements have done, as far as I know. Will any enforcement actions be needed, or will everyone comply?

In addition, the next sentences of the Economist article state:

Coordinating standards with another country inevitably means surrendering a little sovereignty. This riles many Europeans, who worry that CETA will dilute environmental standards and labour laws

Here's my question on this point: Does anyone really get upset about mutual acceptance of conformity assessment for products such as these? I understand that, at a general level, some people may be worried about lowering domestic standards, or more specifically about certain products (such as beef), or supra-national regulation. But I would have thought that mutual recognition for specific products was not a big deal.

 

Does a Tobacco Carveout FTA Amendment Violate International Investment Obligations?

My buddy Bryan Mercurio and I were emailing about the new tobacco carveout in the amended Australia - Singapore FTA, and he suggested that this carveout may violate the fair and equitable treatment obligation.  At first I thought, how would a provision in an investment chapter violate that very chapter? That doesn't make any sense! But then I started thinking like a complainant, and maybe there is a way to make the argument.

Assuming there is some foreign investor who can and would make the case (a big assumption), the argument could go something like this. The investor made its investment in Singapore/Australia on the basis of the existing legal framework, which included the right to bring ISDS cases against tobacco control measures. Suddenly, this right was taken away from them through an amendment to the FTA, and this amendment violates the fair and equitable treatment obligation in the investment chapter of that FTA. In the context of the fair and equitable treatment obligation, a number of investment tribunals have looked at whether a measure was "arbitrary." Here, the amendment is arbitrary because there is no good reason to single out tobacco control measures, which have only rarely been challenged or targeted in ISDS cases, as compared to other measures/industries. And anyway, a general exception for legitimate public policies is a non-discriminatory solution.

The TPP situation is different, of course, because the carveout was in there from the beginning. It is the act of excluding tobacco control measures later, after investments have been made at a time when ISDS was available to all, that is a particular problem.

That's the short version of the argument. I'll let the high-priced attorneys who bring these cases flesh out the details.

One final point. I'm not sure if the amendment to the Australia - Singapore FTA has to be implemented in domestic law. If so, that domestic implementation act could be the measure challenged. But if not, the government behavior at issue could be the act of amending the existing FTA.

The Role of the European Parliament in the Conclusion and Implementation of Agreements on International Economic Law Issues

From the European Society of International Law:

International Conference "The Role of the European Parliament in the Conclusion and Implementation of Agreements on International Economic Law Issues"

On 9 December 2016, the ESIL IG on International Economic Law in cooperation with the European Parliament will organize an International Conference "The Role of the European Parliament in the Conclusion and Implementation of Agreements on International Economic Law issues ". The Conference will be held at the premises of the European Parliament in Brussels. The Scientific Committee has launched an international call for papers.

Call for papers for the Conference "The Role of the European Parliament in the Conclusion and Implementation of Agreements on International Economic Law issues ". 

Abstracts  must not exceed 800 words, and have to be submitted by 7 November 2016 to the following email addresses: [email protected] ; [email protected] ; [email protected].  

In addition to the abstract, each submission should contain a separate file with information on: • The section of the call for papers for which the abstract is submitted • The author's name and affiliation • A short (one page) author's CV, including a list of relevant publications • The author's contact details, including email address and phone number. Further information on the call for papers may be found here.

Jelena Bäumler on the German Federal Constitutional Court’s Judgment on CETA

Law prof Jelena Bäumler offers the following thoughts on yesterday's decision by the German Federal Constitutional Court on CETA:

Yes, but…- for now!

The German Federal Constitutional Court’s judgment on CETA

On 13 October 2016, the German Federal Constitutional Court (the Court, FCC) issued its much-awaited judgment on the request for temporary legal protection against CETA. The court delivered a Solomonic, but somehow puzzling judgment.

First of all, it should be stressed that this is not the final judgment of the Court on the matter, but a judgment on a request for temporary legal protection on the basis that irreversible damages might occur in case measures were not taken by the court. The complainants argued in essence that a positive decision by the European Union to sign and provisionally apply CETA will violate their rights under the German constitution (namely Art. 38 para. 1 in connection with Art. 79 para. 3 and Art. 20 para. 1 and 2 GG). In short, their democratic rights could be violated as CETA interferes with powers that were not and cannot be transferred to the European Union level, thus constituting an act “ultra vires” by the EU. The complainants (altogether more than 200.000, among them the left wing party DIE LINKE, consumer protection organisations and an individual flute teacher – that the court combined to one proceeding) pledged the court to issue temporary measures disallowing the German member to approve CETA when the Council votes on the agreement with Canada expected for the 18th October 2016.

The Judgment or what we know so far

The court rejected the claim. Yet, it delivered one of its famous “yes, but…”-judgments. The FCC decided that the German representative may agree to CETA in the Council – in its view requiring unanimous voting, which in itself is a question not entirely undisputed among experts of EU law – but only if the following three conditions are met:

First, any decision by the Council regarding CETA must only concern those parts of the agreement that fall within the exclusive competence of the EU.

Second, until the final judgement of the FCC, the court requires sufficient “democratic backing” of any decision taken by the committees to be established by CETA.

Third, Article 30.7 para. 3 lit. c) CETA has to be interpreted as to allow the unilateral termination of the provisional application of CETA by Germany.

If the government of Germany adheres to these conditions, no grave detriments are to be expected for the complainants that would have required the court to issue preliminary measures.

In its reasoning, the court emphasized that a decision on temporary relief requires careful weighing of the detrimental effects for the complainants without any preliminary measures issued by the court and the consequences if the court ordered measures, in that case if it ordered the government to disapprove CETA in the Council voting. In that regard, an order of the court must be necessary in order to avert great detrimental effects and shall not anticipate the outcome of the main proceeding.

The court argued that on the one hand the restrictions on the German government to develop and to actively participate in the European-, foreign and trade policy as well as the detrimental consequences for the EU as a whole to negotiate and conclude trade agreements could be immense. A negative vote of the German representative in the Council on the signing and provisional application could in fact be irreversible and most probably effectively lead to the death of CETA, thereby seriously damaging the reputation and trust in the reliability of Germany as well as the EU. On the other hand, the consequences of an affirmative vote could lead to the provisional application of CETA, but – with regard to the alleged violated rights of the complainant – may not be irreversible in case CETA is incompatible with the German constitution, a question the judges expressly left open to be decided in the main proceedings.

Regarding the first condition, the provisional application appears acceptable if it only concerns those parts that fall – undoubtedly – under the exclusive competences of the EU. The court stressed that the German government itself declared not to agree to disputed areas. The FCC clarified that this might include regulations on investment protection including the dispute settlement system and portfolio investments (Chapter 8 and 13), maritime transport (Chapter 14 CETA), mutual recognition of professional qualifications (Chapter 11) and the Chapter on trade and labour (Chapter 23).

With regard to the second condition, the court argued that there appears to exist an imminent threat that any decision of the CETA committees could possibly lead to conflicts with the identity of the German constitution (“Verfassungsidentität”, Art. 79 para. 3 GG).  The court thus requires that any decision by a committee may only be taken on the basis of a common position taken by the Council according to Article 218 para. 9 TFEU, requiring a unanimous vote in the Council and thereby effectively granting a veto right to all Member States on any decision to be taken in the respective committees.

On the last condition, the court suggests that should any of the dangers posed by CETA run risk to materialize, the German government should ensure the possibility to terminate the provisional application of CETA by a unilateral declaration. For that purpose, Germany should – in a way relevant in public international law (“in völkerrechtlich erheblicher Weise”) – notify its understanding of its interpretation of Article 30.7 para. 3 lit. b CETA, namely that Germany unilaterally may declare termination of CETA’s provisional application.

Some preliminary observations

Wow, the Court did it again. The FCC has become quite famous – one would even say notorious – for any decision on questions regarding the EU, though less for the real outcome – in the end, the FCC did not find OMT to constitute an act ultra vires and also it did not stop CETA – but for its reasoning.

The court did four remarkable things: To begin with, it put the German government on a tight leash. Germany may only approve CETA under three conditions that are not a mere nuisance, but require negotiating on the EU level, maybe even with Canada. For that matter, CETA is categorized as a mixed agreement and the court requires that all those regulations – and the court is not shy to suggest problematic areas – need to be excluded from the provisional application. It is nothing unusual that not the entire treaty is provisionally applied. The German constitutional court with regard to CETA however named entire chapters, namely 8, 11, 13, 14 and 23 of CETA, which might have to be excluded; this could be the safer but also the less desirable approach from the European commission’s as well as other Members and Canada’s point of view.   

Furthermore, it entered into another dialogue with Luxemburg, this time not on the protection of human rights or the power of the ECB, but with regard to the delimitation of competences when it comes to the common commercial policy. It expressed its view as to what Karlsruhe finds to be fields of competences that might have remained within the sphere of competence of the Member states, especially with regard to investment protection. Whether one should go as far as to read this as a warning towards Luxemburg not to go too far in the upcoming EU-Singapore advisory opinion by finding any and all aspects of trade and investment to fall into the explicit or implicit competence of the EU is debatable. That it could have been less explicit and avoid naming those areas in order not to risk interfering with the competences of the Court of Justice of the European Union (CJEU) to interpret European law is however beyond doubt.

Another aspect is critical when it comes to the CETA committees. According to Article 218 para. 9 TFEU, which the court explicitly refers to in its requirement on the “democratic-backing” of the committees, a Council position may be required if an agreement sets up a certain body that may adopt acts that have legal effects. The FCC demands a unanimous decision. By invoking Art. 218 para. 9 TFEU the court not only identifies the committees in CETA to be bodies that would fall under said provision but interprets EU law and requires a certain voting procedure when it comes to those committees. These might be interpretations and suggestions overstepping the power of the German court and would rather have to be clarified by the CJEU.

Finally, it brought public international law into play. The court suggests that Germany should remain in a position to terminate unilaterally the provisional application of CETA. There are two options on approaching this task, depending on whether only the EU and Canada are parties to CETA, or the EU, Canada and all 28 Member States are parties.

In Article 30.7 para. 3 lit c) CETA provides:

“A Party may terminate the provisional application of this Agreement by written notice to the other Party. Such termination shall take effect on the first day of the second month following that notification.”

CETA refers to “a party” and allows termination by written notice to the “other” party. The CETA text suggests here that there are only two parties to CETA, namely the EU and Canada. However, if it is a mixed agreement – as suggested by the FCC – there will be 30 parties, namely the EU, Canada and 28 Member States (at least, so long as Britain remains in the EU). By its statement, the Court seems to suggest that Germany is a party to the agreement and is thus also in a position to terminate the provisional application. However, if CETA is provisionally applied by a decision of the Council for the “EU-only” parts of CETA, Germany might not be regarded a party but might only be bound via the general binding effect of EU law.  Yet, does this mean that Germany could act on behalf of the EU, meaning that Germany by a unilateral act may terminate the application between the EU and Canada? Does this reflect the understanding that because a unanimous act is required in the council at any point in time any EU Member is in a position to unilaterally terminate the provisional application? Is it a unilateral actus contrarius to the affirmative vote in the council? Or would that not require a decision in the sense of an actus contrarius by the council? Would that require unanimity? Finally, does the court suggest that all other Member States could do the same and terminate the application of CETA at any point in time if they so declare or is only Germany in that position?

If one argued that there are 30 parties to CETA and thus applied Art. 25 VCLT-IO on the account that CETA is silent on the question of termination of provisional application of more than two parties, Art. 25 VCLT refers to the negotiating states and allows termination upon notification for a state in respect to the other states between which the treaty is being applied provisionally. Could Germany terminate the application as between itself and the other parties? But which parts would not apply if only “EU-only” parts are in force that are binding upon Germany by way of Article 216 TFEU? That would leave any notification of termination entirely pointless for Germany.

A solomonic puzzle

What became again apparent is that the whole idea of a “mixed agreement” is a nightmare for all involved, i.e. the EU and its organs, the Member States, the European people and the courts that have to deal with the construction. Negotiating an agreement as a single endeavor only to later divide and split it into parts and pieces might run counter of the spirit of any international agreement and does not pay enough attention to the fact that the parties agreed to the agreement as a single undertaking. Additionally, I am not sure the Court harmonized all too wisely the wide discretionary power of the German (or any other states’) government regarding the termination of the provisional application of CETA at any point in time with its reasoning in terms of the importance of the reliability of the EU as a negotiating party.

Any observer must admit that the court was in a difficult position, less because difficult legal questions were posed to it – that is very much the task of a constitutional court to resolve – but because the judgment was issued in a temporary legal protection complaint roughly 12 hours after the oral hearing took place. Any decision not cautious to the effects on all parties involved and affected could have detrimental consequences. Whether the court, with its explicit naming of chapters when it comes to the question of competences, its strange requirement on the “democratic backing” of the committees and its rather puzzling interpretation regarding the possibility to terminate the provisional application rests with any observer of this ruling of which we only have a very short press statement so far. The complainants as well as the government seemed somehow okay with the decision leaving the impression of a Solomonic puzzle to be resolved piece by piece in the upcoming days, months, years.

The Tobacco Carveout is Spreading

Whether or not the TPP ever gets ratified, the idea for a tobacco carveout seems to have taken hold. Via Tania Voon on twitter, I see that Australia and Singapore have agreed to amend their FTA to include a tobacco carveout. Here's the added text (p. 97)

ARTICLE 22

Tobacco Control Measures

No claim may be brought under this Section in respect of a tobacco control measure¹⁹ of a Party.

19 “Tobacco control measure” means a measure of a Party related to tobacco products (including products made or derived from tobacco), such as for their production, consumption, distribution, labelling, packaging, advertising, marketing, promotion, sale, purchase, or use, as well as fiscal measures such as internal taxes and excise taxes, and enforcement measures, such as inspection, recordkeeping, and reporting requirements. “Tobacco products” means products under Chapter 24 of the Harmonised System, including processed tobacco, or any product that contains tobacco, that is manufactured to be used for smoking, sucking, chewing or snuffing.

Here are a few thoughts.

First off, let me ask this question: How often are there formal amendments to FTAs? There can't be too many, so the amendment in and of itself is interesting. The DFAT press release is here.

Second, as Tania pointed out on twitter, this provision is broader than the TPP one, in the sense that there is no need to elect to use it. It just applies generally.

Third, is the use of this provision going to keep spreading? Will other agreements incorporate it?

And finally, this all seems odd to me. I don't find the case for ISDS very convincing, but if we have ISDS, I don't see the need for a tobacco carveout from it. If there are regulatory autonomy concerns, tobacco control is far from the only issue, and a general exception provision makes a lot more sense. It's not clear to me why we don't have such a provision in most investment treaties/FTA investment chapters. Who is objecting to a general exception provision and why?

Property Rights For Some, But Not For Others

I'm coming across quite a few people on twitter and elsewhere who seem eager to defend ISDS/investment treaties/investment chapters in FTAs. This blog post will give them another opportunity, in the context of one particular aspect of the current international investment system.  Investment rules typically have several key obligations. I'm going to focus here on property rights, in particular the rules that require compensation after an expropriation. (I'm not covering national treatment/MFN or the FET/MST obligation.)

Let me mention one caveat at the outset. I doubt any of my arguments here are original; I'm sure someone else has said all the same things at some point. But this is just a blog post, not a law journal article, so I'm not going to try to identify all the people who came up with the various arguments first.

Before turning to international investment obligations, let's start with a look at how domestic law handles these property rights.  As an example, the U.S. Constitution's 5th amendment includes the Takings Clause, which requires compensation when the government expropriates property.  Importantly, this Clause protects the rights of all property holders, rather than just a particular group of property holders.  Thus, it does not protect the rights of only the citizens of Pennsylvania, or only the rights of oil companies, but rather it protects the rights of all.  (Also important is that it protects more than just property rights, but I'll leave that issue aside for now.)

Now, look at the contrast with how international investment law works.  With the investment system, the analogous protections are only for the rights of a particular class of property owners: foreign investors.  Domestic investors get no protections.  In this way, you could say that the way international investment law works with regard to property rights is sort of like the U.S. Constitution protecting the rights of only Pennsylvanians, or only oil companies.

But wait, you might say, there is a reason for this distinction between foreign investors and domestic investors.  It's because foreign investors are subject to the national prejudice and bias of domestic courts and regulators, whereas domestic investors are not.  Domestic investors' property rights are already well-protected under domestic law.  As a result, foreign investors are currently treated worse than domestic investors with regard to their property rights, and therefore need these special protections, which international law is well-suited to provide.

In response, I would say that I'm not sure there is good evidence that foreign investors are treated worse, and I tend to doubt this is the case. Oh, don't get me wrong, there are certainly foreign investors out there who have been treated badly on account of their foreign-ness.  I've seen plenty of stories, in ISDS cases and elsewhere.

But I'm not arguing that foreign investors are always treated well.  Rather, I'm saying that, looking at all investors as a whole, I doubt that foreign investors are treated worse than domestic investors in most places.  The reason is simple:  Foreign investors tend to be much wealthier and more influential than domestic investors.  Of course, there are plenty of wealthy and powerful domestic investors, too.  But there are also lots of small ones (think of the local dry cleaner).  Overall, I suspect foreign investors are in a much better position to defend their property rights than are domestic investors under domestic law.  

But if there is evidence to the contrary -- if in truth foreign investors are disproportionately oppressed by governments with regard to their property rights -- I'm happy to reconsider, and think about what international rules might be appropriate here (maybe a simple non-discrimination obligation?).  So I would say to the supporters, if you think treatment of foreign investors with respect to property rights is worse than the treatment of domestic investors, somewhere in the world, you should try to show that. Otherwise, the system seems like a solution in search of a problem.

In addition to allegations of bias against foreigners, there are also situations where property rights in general are not well-protected under domestic law, such as in Canada (for reasons I can't figure out).  International investment law is sometimes presented as a way to address that.  The problem is, when you give foreign investors rights under international law that no one has under domestic law, you are creating a distinction in treatment under which foreign investors have rights that domestic investors do not have.

Now, when I say things like this, one typical response I get is that, yes, the current investment system is biased towards foreign investors, but these rules are a first step towards providing rights for all people under international law.  It's foreign investors who are covered now, but eventually this will be extended to the local dry cleaner as well.  Thus, limiting these rights to foreign investors is not really a problem, but rather a step towards rights for all in the future.  And I agree that there is an argument for making constitutional rights of this sort global, and giving them to everyone.  

But the political reality is that this will not happen anytime soon.   First of all, no influential group is proposing it or even considering it, as far as I know.  And second, if it were proposed, it would be rejected by every government.  That's not to say people shouldn't try to make the case for it.  There are many examples domestically where, suddenly, particular rights were granted when they never had been before.  But for it to happen under international law, somebody has to start making the case for why property rights, or some other rights, should be protected for all people under international law.

So here's the current and future situation, as I see it, with international law as it relates to expropriation:  Enforceable rules exist for a class of investors/property holders who, for the most part, have the resources to defend their rights under domestic law.  For those without the resources, by contrast, there are no such rules (and there are plenty of examples of their property rights being violated).  This disparity may help explain why so many people are so strongly opposed to the current system.

But I know there are people out there who are strongly in favor of the system, so have at it in the comments!

Mandatory / Discretionary Distinction in EU - Biodiesel

One day, the Appellate Body will be presented with just the right measure and legal obligation to fully elaborate all of the contours of the mandatory/discretionary distinction. Last week's EU - Biodiesel report was not the case to do that, but nonetheless the Appellate Body said some things about this issue that may be of interest to those of you who follow it:

6.2.4.5 Whether the Panel erred by employing an erroneous legal standard to find that Argentina had not established that the second subparagraph of Article 2(5) of the Basic Regulation is inconsistent "as such" with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994

6.268. Before the Panel, Argentina put forward an alternative to its argument that the second subparagraph of Article 2(5) of the Basic Regulation is mandatory. For Argentina, even if it does not mandate recourse to out-of-country costs, the fact that the second subparagraph of Article 2(5) permits the authorities to construct the cost of production using a basis other than the costs of production in the country of origin renders that measure inconsistent "as such" with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994. The Panel, however, rejected this alternative argument, finding instead that, "while Argentina has established that Article 2(5), second subparagraph, is capable of being applied in a manner that is inconsistent with the European Union's obligations under Article 2.2 of the Anti-Dumping Agreement and … Article VI:1(b)(ii) of the GATT 1994, … Argentina has not demonstrated that this provision cannot be applied in a WTO-consistent manner."

6.269. On appeal, Argentina submits that this Panel finding is erroneous because it suggests that, in order to prevail with a claim that a measure is inconsistent "as such", a complaining party must establish that the measure at issue leads to WTO-inconsistent results in all instances in which the measure is applied.

6.270. We understand Argentina and the European Union to have advanced several possible tests as to what must be established in order for a measure to be found to be inconsistent "as such" with WTO obligations. Argentina contends that a complainant challenging a measure "as such" has to demonstrate that a certain aspect of that measure would lead to an outcome that is necessarily inconsistent with WTO rules. In addition, Argentina suggests that, to the extent that a WTO provision at issue prohibits certain conduct, the fact that the challenged measure permits such conduct renders it inconsistent "as such" with that WTO provision. The European Union, for its part, asserts that for a measure to be found inconsistent "as such", the measure must "unavoidably" or "compulsorily" require the domestic authorities to act contrary to WTO obligations in all cases. We also take note of the views of two of the third participants in this regard. China submits that, in order to show that a legislative measure is inconsistent "as such" with a WTO obligation, a complainant need not show that the measure leads to a WTO-inconsistent outcome in every instance. Instead, in China's view, the claim will prevail as long as a measure necessarily operates, at least in certain circumstances, to preclude conduct required under the covered agreements. For its part, the United States opines that, where a Member may apply a measure in a WTO-consistent manner, there is no basis to find that the Member has, through that measure, breached its WTO obligations because of the potential for a future WTO-inconsistent application.

6.271. As we have discussed in paragraphs 6.228-6.229 above, the discretionary nature of a measure is no barrier to an "as such" challenge, and measures involving some discretionary aspects "may violate certain WTO obligations". Consistent with the generally applicable principles regarding the burden of proof in WTO disputes, it is for the complainant to establish the WTO-inconsistency of the challenged measure. Precisely what is required to establish that a measure is inconsistent "as such" will vary, depending on the particular circumstances of each case, including the nature of the measure and the WTO obligations at issue.

6.272. In the present dispute, the Panel began its analysis of Argentina's claims concerning the Basic Regulation by recalling "the relevant principles established under WTO jurisprudence" on, inter alia, the examination of a complaint that a Member's municipal law is inconsistent "as such".  The Panel noted the Appellate Body's clarification that challenges to a Member's legislation "as such" are "'serious challenges', particularly as Members are presumed to have enacted their laws in good faith." The Panel added that, consistent with the generally applicable principles regarding the burden of proof in WTO disputes, it is for the complainant to establish the WTO-inconsistency of provisions of domestic law. In that section of its analysis, the Panel made no additional statements in connection with the examination of a complaint that a measure is inconsistent "as such".

6.273. Our review of the Panel's analysis of Argentina's claim under Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 suggests to us that the Panel proceeded as follows. The Panel first ascertained the meaning of the second subparagraph of Article 2(5) of the Basic Regulation before examining the nature of the WTO obligations in Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994. The Panel then compared the two to assess whether the second subparagraph of Article 2(5) is inconsistent "as such" with those WTO obligations. In our view, the Panel did not err in adopting this approach.

6.274. In addressing Argentina's alternative line of argument, the Panel stated that, "while Argentina has established that Article 2(5), second subparagraph, is capable of being applied in a manner that is inconsistent with the European Union's obligations under Article 2.2 of the Anti-Dumping Agreement and … Article VI:1(b)(ii) of the GATT 1994, … Argentina has not demonstrated that this provision cannot be applied in a WTO-consistent manner." In a footnote to this statement, the Panel indicated that it found guidance in certain statements in the Appellate Body report in US – Carbon Steel (India) containing language that is quite similar to that used by the Panel in its Report.

6.275. In US – Carbon Steel (India), the Appellate Body reversed the panel's findings under Article 12.7 of the Agreement on Subsidies and Countervailing Measures (SCM Agreement) because it found that the panel had failed to comply with its duty under Article 11 of the DSU. India requested the Appellate Body to complete the legal analysis and address its claim that the US measures at issue in that case were inconsistent "as such" with Article 12.7 of the SCM Agreement.

6.276. With respect to the nature of the obligation at issue in that dispute, the Appellate Body found that, pursuant to Article 12.7 of the SCM Agreement, an investigating authority must use "facts available" that reasonably replace the information that an interested party failed to provide, with a view to arriving at an accurate determination. The Appellate Body rejected India's argument that Article 12.7 prohibits the use of an inference that is "adverse to the interests" of a non-cooperating party. Instead, the Appellate Body clarified that using an inference that is "adverse to the interests" of a non-cooperating party is not, in itself, inconsistent with Article 12.7. Rather, whether the "facts available" used are reasonable replacements of the missing information, and whether an adverse inference is drawn in accordance with Article 12.7, is to be determined in light of the particular circumstances of a given case.

6.277. As regards the measure at issue in that dispute, India argued that the measure was inconsistent "as such" with Article 12.7 of the SCM Agreement because, despite the "innocuous" language of the text of the measure, other evidence, including the United States Department of Commerce (USDOC) practice, allegedly demonstrated "a consistent and systematic application of the measure, which contribute[d] to proving the existence, as part of the measure, of a system created to punish non-cooperation by drawing adverse inferences in every case of non-cooperation." The Appellate Body made intermediate findings with respect to each of the elements before it, and concluded that those elements: [did] not establish conclusively that the measure requires an investigating authority to consistently apply inferences in a manner that would not comport with Article 12.7 in all cases of non-cooperation. Where inferences are drawn, this evidence of the use of "adverse inferences" does not establish conclusively that the measure at issue cannot be applied in a manner that comports with Article 12.7.

6.278. In light of the obligation under Article 12.7 of the SCM Agreement, the Appellate Body examined all the relevant elements and found that India had failed to establish that the measure bore the meaning that India attributed to it. As noted above, Article 12.7 directs an investigating authority to use "facts available" that reasonably replace the information that an interested party failed to provide, with a view to arriving at an accurate determination. For this reason, evidence that an adverse inference was drawn in a particular instance, or in several instances, could not, in itself, have sufficed to establish that the information selected did not reasonably replace the information in a manner consistent with Article 12.7. Thus, the finding of the Appellate Body related to the nature of the WTO obligation at issue, and the burden of proof with regard to India's assertion as to the meaning of the municipal law at issue.

6.279. For these reasons, we consider that the Panel in the present dispute took the Appellate Body's statements in US – Carbon Steel (India) out of context. To the extent that the Panel was expressing a legal standard for an "as such" challenge when it stated that "Argentina has not demonstrated that this provision cannot be applied in a WTO-consistent manner", the Panel misread the Appellate Body's statements in US – Carbon Steel (India).

6.280. We recall that the WTO obligation at issue in the present dispute is found in Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994. As stated at paragraph 6.234 above, Article 2.2 and Article VI:1(b)(ii) do not limit the sources of information or evidence that may be used in establishing the costs of production in the country of origin. However, whatever the information that it uses, an investigating authority has to ensure that such information is used to arrive at the "cost of production" "in the country of origin". Compliance with this obligation may require the investigating authority to adapt the information that it collects.

6.281. We further recall our finding, at paragraph 6.266 above, that the Panel did not err in finding that, "even when information from 'other representative markets' is used, Article 2(5), second subparagraph, does not … require the EU authorities to establish the costs of production so as to reflect costs prevailing in other countries." We also recall our view that nothing in the second subparagraph of Article 2(5) precludes the possibility that, when the EU authorities rely on "information from other representative markets", they could adapt that information to reflect the costs of production in the country of origin, in a manner consistent with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994. We therefore find that Argentina has not satisfied its burden of proving that the second subparagraph of Article 2(5) of the Basic Regulation restricts, in a material way, the discretion of the EU authorities to construct the costs of production in a manner consistent with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994.

So when would a measure "restrict" "in a material way" the discretion of government officials to act consistently with WTO obligations? Maybe when the measure specifies clearly the actions to be taken by the officials, does not give them much leeway on whether and how to act, and the WTO violation if those actions are taken is fairly obvious.

The Post-Liberal Left-Political ( & Economic) Not Metaphysical: Response to Ross Douthat

In recent posts, I've tried to address whether and to what extent the backlash against globalization is about tribalism and xenophobia-or rather about jobs, equality, and democracy.  According to Ross Douthat in today's New York Times, the new "post-liberal" politics is all about existential longings, including "yearning for community" left unsatisfied by liberalism-even if, according to Douthat, liberalism has delivered "peace and order and prosperity." 

He may be correct to some extent about the right, but he's got the left wrong.

Douthat refers to left-wing writers "for whom the Marxist dream lives anew" and, as well, to political movements like Syriza in Greece and Podemos in Spain.  As for the writers, whatever provocation Thomas Piketty might have intended by calling his chef d'oeuvre Capital in the Twenty-First Century it is close to absurd to present him as a Marxist dreamer.  Piketty is not calling for the overthrow of liberal capitalism: his policy prescriptions are for meaningful democratic reform of tax and inheritance laws, and of political finance. Piketty's ideas may be too radical for some and insufficiently radical for others, as this article suggests, but he's certainly not fomenting proletarian revolution. 

For Douthat, liberalism is in trouble because "pre-liberal forces-tribal, familial, religious-...speak more deeply than consumer capitalism to basic human needs: the craving for honor, the yearning for community, the desire for metaphysical hope."  I completely disagree with Douthat about the order of basic human needs. Yet if this is what has gone wrong with liberalism, then none of the new left issues that Douthat identifies speak to it.   "[S]tructural racism and sexism, climate change,economic equality" as a critique of liberalism imply that it has not gone far enough toward what the left-Hegelian philosopher (and GATT architect) Alexandre Kojeve called the "universal and homogenous state" where all citizens are free and equal, class, ethnic and religious distinctions rendered irrelevant to the rights of citizenship and opportunities for well-being.  As for climate change, this is clearly a global challenge, where the newest left backs global cooperation.  

Leaving aside the intellectuals, what of the newest political left, Bernie Sanders/Zephyr Teachout, Syriza, and so forth? Douthat's failure to understand such movements comes from his presumption that liberalism actually "delivered peace and order and prosperity" and "greater social equality." In fact, the new political left begins not from existential ennui with liberalism or "angry nationalism", but the thesis that neoliberalism has not delivered prosperity" and "greater social equality"-rather it has produced austerity and unemployment for many and obscene riches for a few.   

In seeking greater social equality, the newest left differs from the old liberal and social democratic parties mainly in challenging their flirtations with clientism and crony capitalism-their striking of Faustian bargains with the oligarchs.  This is as evident in Syriza's challenge to PASOK in Greece as in Bernie Sanders' and Zephyr Teachout's attacks on "pay- to-play" and the Wall Street nexus in the US Democratic Party. 

The newest left may sound anti-trade and anti-globalization, and has sometimes overemphasized oppositionalism rather than constructive engagement with globalization, but the goal isn't a new economics of exclusionary nationalism.  The issue is social equality and democratic accountability, not tribal identity.  As Dani Rodrik explained recently in the Financial Times, a rebalancing of the domestic social contract may require taming aspects of hyper-globalization, but is compatible with the vision of an essentially open world economy:

Healthier polities produce — and can withstand — more globalisation. A reassertion of the nation state may be inimical to hyper-globalisation but as long as it is made in the service of social inclusion, robust economic growth and liberal democracy, it will serve the needs of an open world economy quite well.  

Syriza has responded to the multiple crises facing Greece by welcoming large numbers of refugees, building cooperative relationships on energy with Cyprus and Israel, and taking the lead in attempting to construct with like-minded partners elsewhere in the EU a new Social Europe which would be a strong counterweight to German-led austerity. Hardly some kind of tribalist closing of ranks, or borders.    

Finally, while questioning neoliberal economics, the newest left has generally held true to the tradition of secular liberal individualism in other areas-favoring reproductive rights, same-sex marriage, and strong secular institutions.  One of the first moves of the left coalition when it came to power in Portugal was to push through laws liberalizing access to abortion and legalizing adoption by same-sex couples.  Syriza, albeit in a gradualist fashion, is proposing to increase the separation of church and state in Greece in the current proposals on constitutional reform.  Podemos, unlike the traditional socialists PSOE, has been much firmer and consistent in battling the conservative government's efforts to reverse reproductive rights in Spain.           

In sum, the newest left (unlikely perhaps the newest right) has simply nothing to do with, in Douthat's words, "radical and religious correctives to a flattened view of human life".  While seeking the democratic empowerment of voices previously excluded or marginalized, the newest left simply holds left liberalism and social democracy to their traditional promises of greater freedom and equality, political and social as well as economic-while reminding us that growth and prosperity cannot come at the price of destroying the planet.    

Chris Riffel on the German Constitutional Complaint against CETA

In response to my post about the German constitutional complaint against CETA, focusing on the ISDS issues, Chris Riffel sends the following thoughts:

It is contested whether the envisaged establishment of the CETA Tribunal is at variance with the German constitution, notably Art. 3(1) Basic Law, because legal standing is conferred on foreign investors, but not nationals (Arts 8.18, 8.23.1 CETA). Art. 3(1) Basic Law establishes the principle of equality before the law for the German legal order. It reads as follows: “All persons shall be equal before the law.” This precept binds all branches of German government, including the legislature, § 95(3) Law on the Federal Constitutional Court (www.bundesverfassungsgericht.de/EN/Verfahren/Rechtsquellen/rechtsquellen_node.html). It obligates the German legislature to treat as equal what is basically equal and as different what is basically different (see, eg, BVerfG, Judgment of the First Senate of 30 July 2008 - 1 BvR 3262/07 [150]). Thus, the German legislature must ensure equality before German law, ie, the law the legislature is responsible for. What about equality before international law? The issue in the present case is whether the principle of equality precludes Germany from acceding to an international regime that grants foreigner investors procedural rights that are not available to national investors.

As a preliminary point, it should be noted that international law is not concerned with the discrimination of nationals. Investment law sets an international minimum standard, which harks back to the law of aliens. Ergo, CETA does not guarantee German investors any rights in Germany. Still, both German and Canadian investors in Germany have an international avenue at their disposal where they can pursue their proprietary interests: As seen, foreign investors will be able to rely on CETA. The “possessions” held by Germans in Germany are protected internationally by virtue of Art. 1 Protocol to the European Convention on Human Rights (ECHR). That is, the designated forum before which Germans can assert their proprietary interests against the German government, after having exhausted all domestic remedies (Art. 35(1) ECHR), is the European Court of Human Rights. Unlike the German constitutional court, the Federal Constitutional Court, which can void a law that violates the German constitution, the European Court of Human Rights does not have the authority to void national law that is inconsistent with the European Convention on Human Rights. Instead, the Court can find a violation of the Convention and grant “just satisfaction” within the meaning of Art. 41 ECHR, which encompasses pecuniary damages (ECtHR, ‘Practice Direction – Just satisfaction claims’ (1 January 2016) [10]–[12]).

Note that Canadians within the jurisdiction of Germany enjoy the rights and freedoms of the European Convention on Human Rights, Art. 1 ECHR. Contrariwise, the basic rights of the German constitution, such as the protection of property (Art. 14 Basic Law), do not apply to Canadian juridical persons, Art. 19(3) Basic Law. That is, Canadian companies may have standing before the European Court on Human Rights, but cannot challenge German law before the Federal Constitutional Court. Commensurate with German law, the seat of a juridical person determines whether it is treated as “domestic” within the meaning of Art. 19(3) Basic Law (HD Jarass and B Pieroth, Grundgesetz für die Bundesrepublik Deutschland (14th edn, CH Beck 2016) Art. 19 [22]). If a foreign company operates through a subsidiary incorporated in Germany, the subsidiary is deemed to be domestic from the point of view of German law. That is, the subsidiary could invoke Art. 14 Basic Law in a constitutional complaint (BVerfG, Order of the First Senate of 19 July 2011 - 1 BvR 1916/09 [69]).

Any claim of inequality presupposes comparability. The comparators at issue are national investors as governed by German law, on the one hand, and foreign investors as protected under CETA, on the other hand. Art. 3(1) Basic Law would not apply if the unequal treatment could be ascribed to different legislatures (B Pieroth and others, Grundrechte. Staatsrecht II (29th edn, CF Müller 2013) 111). Thus, the Federal Constitutional Court did not find a violation of Art. 3(1) Basic Law when Germans residing in one federal state had special privileges on the basis of a state law that deviated from federal law or the law of other states, privileges which were not obtainable to Germans residing somewhere else in the Federal Republic (BVerfG, Order of the Second Senate of 30 May 1972 - 2 BvL 41/71 [35]). Nonetheless, the prevailing view regards Art. 3(1) Basic Law as applicable to situations where the discrimination of nationals results from European Union law (Jarass and Pieroth, Grundgesetz für die Bundesrepublik Deutschland Art. 3 [75a]). Following this, Art. 3(1) Basic Law can remedy the discrimination of nationals by forcing the German government to treat Germans like EU citizens.

It is true that the German legislature is involved in the making of international law when, for example, ratifying a treaty in accordance with Art. 14 Vienna Convention on the Law of Treaties. However, CETA is a mixed agreement, undergoing ratification at both EU and Member State level (for the EU, see Arts 207, 216 TFEU; for Germany, see Art. 59(2) Basic Law). As to “foreign direct investment”, the European Union has the exclusive competence pursuant to Art. 3(1)(e) in conjunction with Art. 207(1) TFEU. This includes the resolution of investment disputes. Hence, the German ratification act to CETA would not concern the investment chapter thereof, as it falls within the purview of the European legislature. All things considered, we can conclude that different legislatures are responsible for the treatment of foreign investors, on the one hand, and national investors, on the other hand. Consequently, the precondition for an application of Art. 3(1) Basic Law is not given, namely comparability. The German legislature could not afford nationals the same treatment as foreign investors and, without the consent of Canada and the European Union, grant nationals legal standing before the CETA Tribunal. It would lack the competence to do so. In the final analysis, Art. 3(1) Basic Law does not guarantee equal access of nationals to international tribunals, only to courts within the jurisdiction of the Federal Republic.

Gary Hufbauer on the VAT/Trade Debate

Recently, I mentioned that Trump's advisers had raised the issue of how the use of VAT taxes in some countries but not others might distort trade, if the VAT exempts exports but is applied to imports.  I was thinking about writing something more detailed about this, but thankfully Gary Hufbauer beat me to it so now I don't have to: 

More than 140 countries have adopted the VAT, sometimes with different names and usually with varying rates depending on the “merit” of the product taxed. ...

The United States remains the standout exception to the VAT sweep, for three reasons. Conservatives see the VAT as a “money machine” to expand the federal government. Liberals see the VAT as a regressive tax on poor families. States fear the VAT would encroach on their domain to impose retail sales taxes. Tax experts refute all three propositions, but to this day the US Congress shouts “no thank you” or worse to the VAT.

While the VAT enjoys little US support, two VAT features periodically provoke US condemnation (most recently by Trump): the rebate of VAT taxes on exports and their imposition on imports. These are called “destination border tax adjustments” because they result in the collection of VAT only in the destination of consumption, no matter where goods or services are produced. 

Destination adjustments for the VAT were accepted by all members of the General Agreement on Tariffs and Trade (GATT) in 1979. But US observers had misgivings because GATT rules did not permit destination adjustments for corporate income taxes. Since the United States does not have a VAT but does have a high statutory corporate income tax (then 48 percent, now 35 percent), the asymmetry seemed unfair both to US firms and to some political leaders.

Trump’s argument is simple. Take the case of Mexico. Mexico rebates its 16 percent VAT when Mexican goods are exported to the United States, and collects the 16 percent tax when US goods are exported to Mexico. In Trump’s view this amounts to a 16 percent tariff that keeps out US exports, and a 16 percent subsidy that promotes Mexican exports. In this telling, the system clearly benefits Mexico at the expense of the United States—not only Mexico, but nearly all other US trading partners since VAT taxation is practically the world standard.

Economists argue in professional journals that destination adjustments make no difference to a country’s trade balance or trade performance. By this argument, VAT countries would do just as well if they made no border adjustments. Indeed, two scholars found no association between VAT taxes and exports in the experience of 168 countries over 50 years.

But since the arguments and evidence are difficult to explain, and directly contradict intuitive thinking, they are brushed off. Not only are they brushed off in US business and political circles but also abroad. This is evidenced by the fact that virtually all countries practice destination adjustments for their VAT systems, in hopes of promoting their exports or at least averting tax-inspired trade deficits. Whatever a Trump administration might demand, foreign countries will not abandon their destination adjustments.

The facts of international life leave the United States with three choices. First, the Congress can replace the corporate income tax with a business tax adjustable at the border, though not necessarily a VAT. The latest proposal along these lines is the “Blueprint” advocated by House Speaker Paul Ryan and Ways and Means Committee Chairman Kevin Brady. Second, the United States can accept the status quo,live with the corporate income tax as now structured, and take heart from economists who argue that foreign destination adjustments make no difference to the US trade balance. Finally, the United States could take Trump’s advice that the United States should “rip up” the WTO unless foreign countries abandon their destination adjustments. On that course, collateral damage from the ensuing trade war would make the VAT debate seem like a tempest in a teapot.

 

EU Competence on Trade Policy

As I've mentioned before, the Court of Justice of the EU is hearing an important case on the EU - Singapore FTA related to the competence of the EU over trade policy, which will have important implications for EU trade policy going forward. The hearing in the case was held recently. David Kleimann and Gesa Kübek were there and reported on it. Here's an excerpt:

“Does the European Union have the ‘requisite competence’ to conclude the EU – Singapore Free Trade Agreement [EUSFTA] alone?” More specifically, the Commission, in October 2014, had asked the Court to clarify whether and which areas of the EUSFTA fall under EU-exclusive, shared, or member states’ exclusive competences respectively.

The crux of the matter brought before the Court lies exactly in this precise delineation of EU external competences: If the content of the EUSFTA falls under EU exclusive powers in its entirety, its conclusion as ‘EU-only’ would be mandatory. If certain treaty provisions are regarded as exclusive national competences, the agreement ought to be concluded as a ‘mixed’ agreement, including all EU member states as independent contracting parties. If only EU exclusive as well as shared competences were touched upon by the FTA, the decision to propose the conclusion (on behalf of the Commission) and to conclude the agreement (on behalf of the Council) as either ‘EU only’ or ‘mixed’ is legally optional and referred to the political discretion of the EU institutions involved in the applicable procedures set out in Article 218 TFEU (the general rules on EU negotiation and conclusion of treaties) in conjunction with Article 207 TFEU (the provision on the EU’s Common Commercial Policy).

The importance of the Court’s judgment for the governance of EU commercial relations with third countries – in particular the controversial EU/US trade deal (‘TTIP’) and EU/UK trade relations after Brexit – can hardly be underestimated. Given the broad and deep material coverage of the EUSFTA, the judgment will serve as a precedent for the conclusion of the vast majority of future EU trade and investment agreements. As such, the Court judgment in Opinion 2/15 could possibly mark the beginning of the era of ‘EU-only’ trade and investment agreements and, conversely, the end of the EU member states lengthy parallel ratification procedures required by ‘mixity’. As mirrored by the inter-institutional political debate on the legal status of the EU Canada Comprehensive Economic Trade Agreement (CETA), the eventual outcome of Opinion 2/15 has important implications on both the efficiency, reliability and credibility of EU trade and investment policy formulation, on the one hand, and the de jure legitimacy of multi-level economic governance in the European Union, on the other.

...

Opinion 2/15 raises a vast amount of general as well as policy area specific legal issues that are – in aggregate and in some instances individually - of tremendous importance for the delineation of EU competences vis-à-vis the Union’s member states. The significance of the Court’s judgment very much transcends the question of whether the EUSFTA is characterized as an ‘EU-only’ or a ‘mixed’ agreement in its entirety. Rather, the Court’s much awaited clarifications will have both systemic horizontal as well as policy area specific vertical implications for the operation of the EU’s legal system and its external relations.  Moreover, the judgment will likely clarify and may redefine the role and reach of the member states’ presence in the Union’s external economic relations in adaptation to the primary law reforms of the Lisbon Treaty, constantly evolving EU internal secondary legislation, and the expanding scope and depth of 21^st century trade and investment agreements.

On twitter, I asked the authors for predictions about how the case might turn out. Here's what David said: "Too close to call. Too many unanswered questions. Clarifications on general approaches & specific policy areas needed."

Deplorables-or Discontents? Does support for Trumpian border-closing stem from genuine economic anxiety-or visceral hatred & xenophobia?

The Deplorables sounds like the name of a band that might have been playing clubs in the Bowery in the early 80s.  Now it's been used, notoriously, by presidential candidate Hillary Clinton to denote a sub-set of Trump supporters whose attitudes and beliefs are, in liberal democratic terms, beyond the pale-racist, sexist, bigoted, xenophobic, unfitting for a great nation working out over centuries the inner meaning of the premise of its founding-that all human beings are created equal.  A staunch supporter of Secretary Clinton since Bernie Sanders endorsed her, I nevertheless regret her use of that expression-to me, it's proof above all of the perniciousness of Trump's divisive political discourse that even Secretary Clinton could not avoid at least one fall from grace.  The beliefs of the Deplorables fully deserve to be deplored-but we have to remember that they got to that place not through some kind of incurable evil in the heart but through poor education, troubled family life, often mixed with substance abuse and untreated mental illness.  A person who had the opportunities that people like Secretary Clinton (indeed myself) have had, educational and otherwise, but ended up with those opinions might arguably be called deplorable.  But such are not the backbone of Trumpianism.

One of the most pertinent questions in responding to Trumpianism and its variants elsewhere-the new extreme right in Europe, the Leave movement in the UK-is the extent to which activist social and economic policies to deal with the losers in globalization, or a partial retreat from economic globalization itself, could push the Trumpian support base toward the political center, blunting the taste for radically xenophobic policy change whether in trade or immigration.

In a recent article in Vox, examining a range of public opinion studies, Zack Beauchamp concludes:

This research finds that, contrary to what you’d expect, the "losers of globalization" aren’t the ones voting for these parties. What unites far-right politicians and their supporters, on both sides of the Atlantic, is a set of regressive attitudes toward difference. Racism, Islamophobia, and xenophobia — and not economic anxiety — are their calling cards.

I leave it to the social scientists to debate the soundness of the studies cited by Beauchamp, but to a layman's eyes, the conclusions he draws appear to be sound.  On the eve of the first debate, they have some important implications for how Hillary Clinton positions herself on trade.  Briefly, though a more balanced view of globalization and a more realistic view of the costs as well as benefits of free trade are important for folks like me who are Sanders/Warren/Teachout Democrats, few votes will be pried from Trump by imitating his tough nationalist discourse about trade.  That nationalist discourse, like his racialist talk, responds to xenophobia not economic globalization's discontents.  

So what is to be done about the (misnamed) Deplorables? Trump and other politicians of his ilk have successfully mobilized them politically in part through promising to say racist and sexist and anti-Muslim things through a megaphone that have become (rightly) disrespectful even to whisper in civil discourse.  That this kind of talk has floated to the surface of mainstream political life is of course frightening.  But it is also an opportunity for the left:  crypto- or veiled racism is difficult to fight in an open and vigorous way.  When it spills out into individual episodes of violence or other intolerance, we all regret those episodes but all too soon forget their deeper roots.  The new openness of the bigots has made it clear for all reasonable decent people to see that members of minorities-and women-have not been sounding a false alarm in stating that a lot of prejudice remains out there, even if for a while it has been concealed in many quarters.

Enter Damon Linker, a conservative intellectual of sorts, who seems nervous about what happens when prejudice comes out of the closet and has to face the spotlight.   Linker tries to dismiss liberal assaults on the Deplorables as a kind of cosmopolitan fanaticism, aimed at eradicating any kind of particularist loyalty or attachment:

cosmopolitan liberals presume that all particularistic forms of solidarity must be superseded by a love of humanity in general, and indeed that these particularistic attachments will be superseded by humanitarianism before long, as part of the inevitable unfolding of human progress.

Now Linker doesn't name a single such liberal.  Perhaps because none exists.  There might be a few eggheads around who still argue for a global government or a world state.  But liberals today worry more about the weakening of the state in liberal democracies than its excessive strength; in particular, we recognize that no viable global mechanism exists for redistribution, and this alone means that the case for preserving sovereign states-and allegiance to those states- is watertight, if one cares about social and economic inequality.

The real question is whether the state, the bounded political community, ought to be grounded in some exclusionary subpolitical identity-race, religion, etc. If it is, then there is the further question of how minorities can enjoy legal, political and social equality  in such circumstances.  And as far as beyond the state goes, we can owe special duties to our own and more general duties towards others as human beings, as was well-appreciated in the thought of the ancient stoics, or even in Homer's Greeks with their ethos of hospitality  toward friendly foreigners.  As my late colleague Ronald Dworkin argued in a posthumously published work on international law, global cooperation can be understood as serving the very principles and purposes that underlie the domestic regime in liberal democracies-protecting human rights, saving the environment for future generations, and so forth.     

What Beauchamp has dredged up from the evidence is not subtle thinking more on the communitarian as opposed to liberal side of answering such concerns, but visceral resentment and rejection of the other.  

Linker's next move is to say that particularist attachment to one's own  (which he persistently confounds with rejection or denigration of the other)  has a basis in human nature, a more solid basis, he asserts, than liberal cosmopolitanism, which bids us to see the common humanity in others, across divides of nationality, race, and religion.  Linker is simply wrong to suggest that cosmopolitan notions don't have an ancient pedigree in human thought. Classicist/philosopher  Martha Nussbaum has written about this in a fine essay in the Boston Review.  There are elements in the cosmopolitan outlook in Plutarch and Cicero, for instance, and even in the imperial practice of Alexander the Great who sought to impose a universal legal code on other peoples, not because of a belief in the superiority of Greek ways to their ways (Alexander was quick to adopt the customs of others that he found appealing), but rather as a means of uniting human beings across cultural boundaries.          

What is frightening about Linker's argument is that having dispensed with liberal cosmopolitanism by conjuring an absurd straw man, he hands the Trumpians a justification for xenophobia that has no limiting principle-so-called "human nature".  Are all forms of exclusion of others justifiable by the purportedly natural preference for one's own, for the particular and the near?  Chillingly, and perhaps intentionally, Linker offers no clue as to where to draw the line.  

As far as refugees are concerned a litmus test about human nature is before our eyes:  Greece.  Despite being impoverished and disempowered by economic crisis Greeks have generally speaking opened their arms to the refugees flowing into their country at rapid pace and in large numbers.  Are the Greek grandmothers taking care of Syrian babies on the beaches of Lesvos slaves to some unnatural ideology of liberal cosmopolitanism? Or are they a better reflection of human nature than Trumpian white male irredentists?   Human nature is arguably very distorted in the detached, deluded, disturbed and disrupted and often drugged-out lives of the so-called Deplorables.

Linker implies that the future is on the side of the irredentists.  But the evidence is clear,-whether its Brexit or Trump, the reactionary  xenophobic vision is one that doesn't catch on with young people, the rising generation of democratic citizens.  It's unlikely we can persuade many of the Trumpians, in whatever national version, but the large-scale political mobilization of the young, the reduction of the voting age, and similar measures can  in the medium or longer run, decisively counter the political salience of a dangerous and disturbed minority.  Here Bernie Sanders, in the primary, showed the way.            

 

 

 

 

 

ISDS Lawsuits for Failure to Protect the Environment

The award in the Allard vs. Barbados investment arbitration was just recently made public.  Here were the basic facts and the legal claims:

33. In 1994, Mr. Allard decided to acquire and develop land in Barbados for an eco-tourism attraction. To this end, in October 1996, he incorporated the Barbadian company Graeme Hall Bird Sanctuary Inc. (“GHNSI”), which in three separate land conveyances dated 1996, 1998 and 1999 acquired the Sanctuary, comprising in total 34.25 acres of land located in the western part of some 240 acres of wetlands on the south coast of Barbados (“Graeme Hall Swamp”).

34. The Sanctuary includes a forest of red and white mangroves, and a lake and ponds connected to the ocean by a canal. A long-established sluice gate located at the end of the canal (“Sluice Gate”) is claimed as having the purpose of controlling the exchange of water between the wetlands and the ocean; its exact function at different points in time is in dispute.

...

42. The Sanctuary opened to the public in the spring of 2004.

43. In 2005, a failure at the South Coast Sewage Treatment Plant, operated by the Barbados Water Authority, resulted in the emergency discharge of raw sewage into Graeme Hall Swamp.

44. In June 2007, Mr. Allard began trying to sell the Sanctuary.

45. On 15 April 2008, an amended Barbados National Physical Development Plan, first proposed in 2003, came into effect (“2003 Plan”). The 2003 Plan reclassified a zone located to the north of the Sanctuary that had been allocated to recreational and agricultural uses under the 1986 Plan into two zones: a “predominantly residential” zone, closest to the Sanctuary, and an “urban corridor” (the “Zoning Changes”).

46. On 29 October 2008, Mr. Allard announced the closure of the Sanctuary, which became effective between December and March 2009. Since that closure, the visitors centre’s operation has been confined to its use as a café.

...

50. In summary, the Claimant’s case is that the actions and inactions of Barbados concerning the mismanagement of the Sluice Gate and other issues, caused and/or failed to mitigate a significant degradation of the environment and the “tourist experience” at the Sanctuary, to an extent obliging the Claimant to close the Sanctuary, and thereby depriving him of the entire benefit of his investment in Barbados.

51. The actions and inactions of Barbados are claimed to constitute breaches of its obligations under the BIT:

(i) to accord “fair and equitable treatment in accordance with principles of International Law” (“FET”) (Article II(2)(a));

(ii) to accord “full protection and security” (“FPS”) (Article II(2)(b)); and

(iii) not to expropriate, except “for a public purpose under due process of law, in a nondiscriminatory manner and against prompt, adequate and effective compensation” (Article VIII).

Roughly speaking then, the argument is that the government's failure to protect the environment adequately violated the investor's rights, in violation of the Canada-Barbados investment treaty, in a way that damaged his investment.

For simplicity, I'm going to focus on just one on the legal claims: the full protection and security obligation. Here is the complainant's claim:

229. Article II(2) of the BIT relevantly provides:

2. Each Contracting Party shall accord investments or returns of investors of the other Contracting Party: [. . .] (b) full protection and security [. . .]

(a) The Claimant’s position

230. The Claimant contends that the FPS standard obligates the host State to act with due diligence to “protect investments against injury by private parties,” requiring “nothing more nor less than the reasonable measures of prevention which a well-administered government could be expected to exercise,” without “any need to establish malice or negligence,” and that here, Barbados’ obligations under the Convention on Biological Diversity and the Ramsar Convention heighten the level of diligence required. Further, the Claimant argues that in determining whether a State has exercised due diligence, it is relevant to consider whether: (i) the facts at issue were known to the host State; (ii) the host State conducted investigations in response to complaints by the investor; and (iii) the host State took adequate steps to apprehend a wrongdoer or otherwise enforce a penalty.

231. On reference to the historical development of the FPS standard, jurisprudence of the International Court of Justice and other investment awards, the Claimant submits that the FPS standard is not limited to protection against “physical interference with property, let alone . . . physical violence” and, that in any event, the claim here is one of physical interference with property through the unlawful trespass of pollutants. The Trail Smelter decision is invoked to establish that damage to private property caused by pollution is an actionable injury under customary international law.

232. Applying these principles to the claims, the Claimant argues that Barbados denied FPS to Mr. Allard’s investment by failing to take reasonable care to protect the Sanctuary, despite being put on notice of the environmental damage to the Sanctuary and notwithstanding Mr. Allard’s repeated offers of financial and technical assistance. Specifically, Barbados failed to adequately manage the Sluice Gate and enforce its environmental laws, such as the Marine Pollution Control Act.

The tribunal rejected this claim. Here's a key part of its reasoning:

239. In essence, the Claimant complains that Barbados breached the FPS standard by failing to: (i) repair and regularly operate the Sluice Gate; (ii) take the other specific stepslisted at paragraph 234 above to reduce the run-off of contaminants into the Sanctuary; and (iii) enforce the Marine Pollution Control Act.

240. In substance, the Parties agree that none of these actions were taken by Barbados.

241. With regard to the first two complaints, it may be accepted that the record supports the Claimant’s contention that Barbados was aware of the potential environmental importance of the Sluice Gate and the possible presence of contaminants in both the natural run-off to the Sanctuary and in any emergency discharge from the Barbados South Coast Sewage Plant.

242. The Tribunal further finds, however, that, being aware of the environmental sensitivities of the Sanctuary, Barbados took reasonable steps to protect it.

243. It is accepted by the Claimant that the obligation of the State to provide the investment with FPS is not one of strict liability, but of “due diligence” or “reasonable care.” Relevantly, and as noted in El Paso v. Argentina:

[. . .] the obligation to show “due diligence” does not mean that the State has to prevent each and every injury. Rather, the obligation is generally understood as requiring that the State take reasonable actions within its power to avoid injury when it is, or should be, aware that there is a risk of injury. The precise degree of care, of what is “reasonable or “due”, depends in part on the circumstances.

244. The obligation is limited to reasonable action, and a host State is not required to take any specific steps that an investor asks of it. The fact that Barbados is a party to the Convention on Biological Diversity and the Ramsar Convention does not change the standard under the BIT, although consideration of a host State’s international obligations may well be relevant in the application of the standard to particular circumstances.

245. Here, it is established that Barbadian officials implemented procedures to prevent environmental damage to the Sanctuary both on their own initiative and in response to the Claimant’s complaints. In particular, Barbados established the Graeme Hall Stewardship Committee (“Committee”) in 2003, in order “to investigate and coordinate government action at Graeme Hall [Swamp] in an integrated manner.” The Committee was comprised of representatives of all the ministries responsible for managing the Graeme Hall Swamp ecosystem, as well as representatives of private stakeholders, including GHNSI. The Committee “was tasked by Cabinet to meet as often as necessary and to report back to government” in order to “address the issues related to effective management of the Graeme Hall ecosystem,” and undertook to develop a Master Plan for the long-term preservation of the Graeme Hall Swamp, which, in its draft form of 2007, identified “the significant issues of concern affecting the environmental [conditions of the swamp’s ecosystem]” and set forth the “immediate actions required to ameliorate [these] environmental problems,”  including, inter alia, sewage management, use of adjacent lands, drainage and the Sluice Gate.

...

249. Under these circumstances, Barbados’ approach in addressing the Sluice Gate and general pollution issues at the Sanctuary as part of its governance of the entire area does not fall short of what was appropriate and sufficient for purposes of the duty of due diligence required by Article II(2)(b) of the BIT.

What really intrigues me about this case is the implications for possible future claims about a failure to protect the environment. For example, let's say a foreign investor purchases some property near the ocean. Over time, due to the impact of changes in the climate, it is possible that sea levels will rise, causing damage to the property.  It is also possible that government actions were a cause of this, and that other government actions could have been taken in the meantime to prevent the damage.  

So here's my question. If sea levels rise and the damage occurs, and such investors can find an investment treaty or FTA investment chapter to rely on, how strong a legal claim would the investors have that the government's various actions and inactions violate its obligation to provide full protection and security?  Note this standard cited by the tribunal:  "the obligation is generally understood as requiring that the State take reasonable actions within its power to avoid injury when it is, or should be, aware that there is a risk of injury."  Also, "consideration of a host State’s international obligations may well be relevant in the application of the standard to particular circumstances."

Here's a related question:  If this happens, will environmental NGOs and business groups both switch sides in the ISDS debate?