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Investment and Trade: Tools for the Green
Economy Legal Aspects of the Green Economy Workshop
Thursday 10 – Friday 11 November 2011
University of Sheffield
Markus Gehring, Dr. jur (Ham) LL.M. (Yale) MA (Cantab) Deputy Director, Centre for European Legal Studies (CELS), Tutor in Sustainable Development Law, Faculty of Law, & Law Fellow, University of Cambridge (Robinson College) Professeur agrégé, Chaire Jean Monnet ad personam en droit du développement durable, Université d‟ Ottawa (droit civil)
Faculty of Law
Overview
1. Sustainable Development Law
2. Preliminary remarks
3. Investment and the Green Economy
4. Trade and the Green Economy
5. Conclusion
CISDL CISDL Programming:
• Dialogue: Conferences (Sustainable Justice 2002:
Implementing International Sustainable Development Law,
Montreal); Legal Experts Panels (WSSD, UN CBD, WTO,
UNCCD); Academic Workshops (McGill, Yale, Oxford), etc.
• Curriculum: Legal Seminars & Courses (McGill, Oxford,
UVic, Capetown, UdM, Cambridge, Chile, etc.); Judicial
Education (UNEP, IDLO, NJI).
• Research: Six Research Programmes, led by nine Lead
Counsel, with over 80 Legal Research and Associate Fellows
and a Student Research Group.
• Publications: Sustainable Development Law: Principles,
Practices & Prospects (Oxford University Press, 2004);
Sustainable Justice (Martinus Nijhoff, 2004); Sustainable
Developments in World Trade Law (Kluwer, 2005); World
Trade Law in Practice (Globe, 2006); Sustainable
Development in World Investment Law (Kluwer, 2010) etc.
• Partnerships: International Law for Sustainable
Development Experts Panel Event at the 2002 WSSD
launched the CISDL-IDLO-ILA ILSD Partnership.
The Centre for
International Sustainable
Development Law
(CISDL)
www.cisdl.org
International Environmental Law
(atmosphere, water, biodiversity)
International Economic Law
(Trade, Investment, Competition,
Natural Resources)
International Social Law
(Human Rights, Social
Development, Health Law)
Sustainable
Development Law:
Law at the area of
intersection between
three fields.
Broad purpose is:
“socially, economically &
environ-mentally sound
development that can
last.”
1. Sustainable Development Law
Preliminary remarks
• Transition to a green economy in the context of sustainable
development.
• “Deriving poverty reduction benefits from their green economy is often
dependent on sustaining/increasing social spending, on health,
education and targeted income support for the poor.”
• “Moving toward a green economy whilst supporting sustainable
development and poverty eradication requires structural as well as
technological change.”
• “There is no single approach to a “green economy” but similar with
regards to sustainable development it will look different for every
nation state.” See Objectives and themes of the United nations conference
on sustainable development - Report of the Secretary General
Preliminary remarks
• Specific green economy policies affect livelihoods, income distribution
and other social outcomes through different channels and in different
ways.
• Such green economy policies are grouped into seven clusters:
1. Green stimulus packages
2. Eco-efficiency
3. Greening markets and public procurement
4. Investment in sustainable infrastructure,
5. Restoration and enhancement of natural capital
6. Getting prices right
7. Eco-Tax Reform
Preliminary remarks
• Trade & Investment and green economy don‟t have a black and white
relationship: rather shades of gray (Scott Vaughan et. al)
• Ideally international economic law will foster and not frustrate the
transition to a green economy.
• Current international economic law hinders, permits or supports green
economy measures.
International Investment Law and the Green Economy
1. Green stimulus packages
2. Eco-efficiency
3. Greening markets and public
procurement
4. Investment in sustainable
infrastructure
5. Restoration and enhancement of
natural capital
6. Getting prices right
7. Eco-Tax Reform
1. Fair and equitable treatment of
foreign investors?
3. Fair and equitable treatment, see
Vattenfall II
5. Fair and equitable treatment,
perhaps expropriation
6. ditto
7. ditto
International Trade Law and the Green Economy
1. Green stimulus packages
2. Eco-efficiency
3. Greening markets and public
procurement
4. Investment in sustainable
infrastructure
5. Restoration and enhancement of
natural capital
6. Getting prices right
7. Eco-Tax Reform
1. Subsidies?
2. Like-products, TBT, labeling, Tuna
Dolphin III
3. Discrimination (MFN & National
Treatment) and Agreement on Public
Procurement
4. TRIMS?
5. Subsidies?
6. Discrimination, like-products, TBT,
labeling, State trading?
7. Discrimination
But consider justification under TBT or
GATT Art. XX.
International Trade Law and the Green Economy
1. Green stimulus packages
2. Eco-efficiency
3. Greening markets and public
procurement
4. Investment in sustainable
infrastructure
5. Restoration and enhancement of
natural capital
6. Getting prices right
7. Eco-Tax Reform
2. Energy efficiency standards (TBT CDN)
3. Emission trading (TPRM EU)
5. Forestry subsidies (SCM ARG) and Sustainable land use (AG ARM)
6. Packaging tax (TPRM Maldives & Guyana)
7. Preferential tax for use of waste material (SCM PRC)
EDB 2006 Examples
China notified a compensation fund for forestry ecological benefits for entities that manage the key national commonwealth forests in order to protect key forestry resources and ensure ecological security (SCM)
Korea notified an environmental improvement loan programme for firms that install pollution prevention devices and facilities in order to promote private sector investments in pollution prevention environmental facilities (SCM).
Tunesia notified an energy saving exemption from duties and taxes for all industrial enterprises engaged in energy saving investments in order to encourage companies to make energy savings and develop renewable sources of energy as well as geothermal energy (SCM).
State-trading: The US notified the Bonneville Power Administration and Western Area Power Administration within the Department of Energy which are obligated to encourage conservation, develop renewable energy resources and to protect, mitigate and enhance the fish and wildlife of the Colombia River and its tributaries (State Trade).
Bangladesh TPRM 2006 Secretariat highlighted the revised National Energy Policy which inter alia ensures environmentally sound sustainable energy development programmes (TPRM).
SD Solutions in Procedures of trade & investment Law:
Innovative changes in the process of treaty making & arbitration:
• Assessment / sustainability review procedures ex-ante the conclusion of trade & investment agreements
• Consultations between national trade, investment, environment, development authorities
• Transparency in treaty making (release of draft texts, transcripts, public hearings for civil society)
• Use of amicus curia briefs and consultation of SD experts in investment arbitration and trade disputes.
(See Gehring, 2005 & 2010; Bernasconi 2010; Malik 2010)
International Investment Law and the Green
Economy
SD Solutions in Substantive Trade & Investment Treaty Law
• Preambular recognition of sustainable development
Provisions to prevent T&I treaties from constraining SD measures
• Reservations & exceptions (enviro, health, natural resources)
• New interpretations of „like circumstances‟, „fair and equitable treatment‟ and
„expropriation‟
• Environmental treaties to prevail in the event of conflicts
• Commitments to avoid lowering standards to attract investment
(See Miles 2008, Cordonier Segger, Gehring & Newcombe 2010)
International Investment Law and the Green
Economy
SD Solutions in Substantive Trade & Investment Treaty Law (cont)
Provisions for environmental & social cooperation parallel to Investment treaties
• FTA environmental chapters, parallel treaties on environmental cooperation, joint work programmes on T&E issues, transparency / factual records processes for non-enforcement of environmental law
• FTA labour chapters, parallel treaties on labour & human rights cooperation, joint work programmes on T&L issues, complaints processes for non-enforcement of labour law.
Integrated provisions to favour more sustainable investment through treaties
• Carefully tailored commitments in each chapter of a T&I FTA & in BITs
- encouraging voluntary CSR & anti-corruption measures for investment
- facilitating trade in environmental goods & services,
- permitting green procurement,
- facilitating & certifying trade in sustainable forest products, etc
(See Hepburn & Vuyela 2010; French 2010)
International Investment Law and the Green
Economy
Conclusion
• Many measures which could be useful for a smooth transition to a green economy are
already used in other contexts. Key elements to reduce WTO concerns include:
• Transparency – notification and TPRM discussions
• Take note of trade effects – often measures don‟t seem to generate significant trade
effects
• Focus on allowed subsidies which are not considered trade distorting.
• Reduced space for countervailing duties.
• Make standards transparent and open for foreign companies (TBT)
• Consider voluntary labelling standards (TBT)
Conclusion
• Transition to green economy with benefits in the fight against poverty is
generally manageable without raising trade or investment concerns, just like
environmental objectives could be achieved in other areas.
• While some WTO and investment rules could pose limits on green economic
policies, if carefully crafted they either don‟t give rise to WTO/Investment
concerns or can be defended based on their public policy objective.
• Room for improvement of WTO/investment rules exists: clarification on MEA
implementing measures, too rigid ppm standard, too narrow TBT justifications,
no general Kyoto/MEA exception.
• „Regulatory chill‟ is largely a matter of perception when elements to reduce
WTO/investment concerns are considered.
• Further research on the interaction between domestic green economy
measures and trade/investment rules is advised.
2. Principles of International Law on SD
3) Legal Status of SD in Int’l Economic Law (WTO):
• “Recognizing that their relations in the field of trade and economic endeavour should be conducted with a view to … allowing for the optimal use of the world's resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with [members] respective needs and concerns at different levels of economic development...” (1994 WTO Agreement, Preamble)
• “The preamble of the WTO Agreement -- which informs not only the GATT 1994, but also the other covered agreements -- explicitly acknowledges „the objective of sustainable development‟” FN: “This concept has been generally accepted as integrating economic and social development and environmental protection.” (WTO US – Shrimp/Turtle case, AB Decision, Para 120, & note 207)
• “In that framework, assessing first the object and purpose of the WTO Agreement, we note that the WTO preamble refers to the notion of „sustainable development‟. This means that in interpreting the terms of the chapeau, we must keep in mind that sustainable development is one of the objectives of the WTO Agreement.” FN: Refs 1992 Rio Declaration & Agenda 21, “…the concept [in A21 means] to put in place development that is sustainable - i.e. that "meets the needs of the present generation without compromising the ability of future generations to meet their own needs".” (WTO Shrimp/Turtle case, Recourse to Art. 21.5, Para 5.53, & note)
(See Gehring 2004, 2006, 2010)
3. Tensions for SD in International Investment
Law
4) In a Growing Number of Int’l Investment Agreements (IIAs), States liberalise Investment:
• Current int‟l legal framework governing foreign investment is a vast network of over 2,700 IIAs.
• In 2005, 1,891 (75.8 %) in force, + 232 other FTAs & regional agreements with investment provisions.
• While many treaties and norms intersect and interact, IIAs are the primary public international law instruments that govern foreign direct investment.
• IIAs seek to create „favourable conditions‟ or a „stable framework‟ for investment, for economic development, by impose binding obligations on States re: treatment of foreign investment:
(i) a wide asset-based definition of investment;
(ii) guarantees of non-discrimination (national and most-favoured-nation treatment);
(iii) a minimum standard of treatment often expressed as „fair and equitable treatment‟ coupled with an obligation not to impose arbitrary or discriminatory measures;
(iv) the right to transfer investments and profits out of the host state; and
(v) potentially high compensation for measures tantamount to expropriation.
• A number of IIAs provide for (vi) rights of entry for foreign investment, (vii) prohibitions on performance requirements, and (viii) „stabilization clauses‟ under which a State may commit to „freeze‟ domestic regulatory developments that could affect the investor‟s interests.
3. Tensions for SD in International Investment
Law
1) IIAs are leading to claims which raise tensions for SD interests:
• In most IIAs, foreign investors enforce these rights through investor-state arbitration provisions under which the state provides its general consent to an independent arbitration of claims under the IIA (UNCITRAL, ICSID, etc).
• As of December 2010, 331 IIAs claims had been brought before ICSID. Altogether by 2010, there were 357 known investment treaty arbitrations. Over 85% of the claims were filed after 2001.
• SD concerns were first raised in a series of controversial claims under Ch 11 of the North American Free Trade Agreement (NAFTA):
- Ethyl v. Canada: export & interprovincial trade ban on MMT fuel additive
- Azinian v. Mexico: cancellation of a municipal waste site concession
- Metalclad v. Mexico: refusal to grant permit for a hazardous waste site
- SD Myers v Canada: Canadian measures to prohibit PCB waste exports
- Methanex v. United States: Californian ban on the use of MTBE fuel additive
(See Newcombe 2007; Miles 2008)
4. SD “Solutions” in Intl Investment Law
NAFTA Parties resolve to “promote sustainable development”: Preamble; Parties resolve to defer to MEAs in
certain circumstances (Arts 103 & 104); Parties resolve not to lower standards to attract investment
(Ch 11); North American environment & labour cooperation treaties
Canada-Chile and US-Chile
FTAs
Parties resolve to “promote sustainable development”: Preamble; Parties “recognize importance of
strengthening capacity to protect the environment and promote sustainable development”: Art 19.5
US-Chile; US-Chile environment & labour chapters & treaties
US-Australia FTA Implement “in a manner consistent with their commitment to high labour standards, sustainable
development, and environmental protection.”: Preamble Chapter 19 (Environment); Prevails to the
extent of the inconsistency. Art. 11.2
Mercosur Objective of “sustainable development and environmental protection through the development of
economic, social and environmental dimensions: Art 4, Ch 2, Framework Agreement on the
Environment
India-Singapore CECA “…Economic and trade liberalisation should allow for the optimal use of natural resources in accordance
with the objective of sustainable development, seeking both to protect and preserve the
environment.”: Preamble
UK-Uruguay BIT Exceptions to performance requirements: Art. 8; Not weakening environmental and labour laws: Arts 12 &
13; Appointment of experts on environmental, health safety or other scientific measures: Art. 32.
Canada-Peru BIT “… promotion and the protection of investments of investors of one Party in the territory of the other Party
will be conducive … to the promotion of sustainable development”: Preamble; “Each Party should
encourage enterprises operating within its territory or subject to its jurisdiction to voluntarily
incorporate internationally recognized standards of corporate social responsibility in their internal
policies...” (Art 801)
Germany-Trinidad & Tobago
BIT
“Recognizing the important complementary role of foreign investments in the process of economic
development, recognizing also the increasing need for measures to protect the environment”:
Preamble