This article is authored by Aryan Tulsyan, a third year student of B.A. L.L.B. at Jindal Global Law School.
Introduction Most International Investment Agreements (“IIAs”) contain a specific dispute settlement clause, providing access to avenues such as investment arbitration and domestic courts to the investors. A waiver in the context of Investor-State Dispute Settlement (ISDS) refers to the waiver of protection offered by an IIA. It means that the investor-claimant waives their right to approach an investment arbitral tribunal which has been established by the governing IIA, with regards to claims that may arise against the host state (defendants). There exists literature on the constitution of a waiver upon selection of domestic forums (see Hoffman, Spiermann) and on Calvo Clauses, present in Latin American Investor-State concession contracts, as per which the rights of a foreign investor are limited to availing the host state’s local legal remedies and a waiver of investment arbitration. However, this article does not analyze waivers in the context of Calvo Clauses or available local remedies. The article elucidates whether settlement agreements between a host state and a foreign investor would qualify as a waiver of the investors’ claim before an investment-arbitral tribunal. Situating waivers in ISDS? It is important to situate the principle of waivers within relevant international law sources. Article 38(i) of the ICJ Statute, provides for conventions, customs, and general principles of law as sources of international law. Article 45(a) of the Articles on the Responsibility of States for Internationally Wrongful Acts (“ARSIWA”) states that a State’s responsibility may not be invoked if the injured State has waived a claim. Although Article 45 of the ARSIWA does not address private entities, it mentions the waiver of the ‘State’ and can be used as a source to locate the principles of waivers in international investment law. Although IIAs are usually silent on the issue of waivers, commentaries have interpreted the dispute resolution clauses in IIAs to argue that a right cannot be waived before it can be exercised. Further, although a waiver cannot be presumed, it has been noted that waivers can also be implied (see Håkansson and Sturesson v. Sweden, Russian Indemnity Award). Christopher Schreuer has also argued that ‘if the right to take the host state to arbitration is a right of the investor and the investor alone’, waivers cannot be forbidden. Does the IIA necessarily need to contain a waiver clause? The arguments above can be used as a source to situate waivers as a principle of international law (Article 38(i) of the ICJ Statute). Now, it is important to understand how an arbitral tribunal can determine if they are bound by a waiver. While most IIAs do not have explicit provisions dealing with waivers, they have a broad dispute settlement clause, which would mean that the Tribunal would have the authority to decide on disputes based on the principles and rules of international law. (for example, Article 26(6) of the ECT, Article 30(1) of the US Model BIT). Thus, if the Tribunal is to apply the principles and rules of international law, they would not entertain a claim by an investor who has waived such rights, as waivers are a principle of international law. Therefore, the absence of an explicit waiver clause in the IIA becomes irrelevant if the IIA has a dispute resolution clause allowing it to use international law. Settlement Agreements as Waivers As per Aguas del Tunari v. Bolivia, an investor who agrees to a settlement agreement with the host state is said to commit to a waiver of such claims, which extends to the arbitral tribunal established by the IIA (para 118). This decision can be used to support the claim that settlement agreements would amount to a waiver of protection offered by an IIA. As per the ECHR dispute of Barbera v. Spain, waivers must be established unequivocally and must not run counter to any important public interest (para 82). Therefore, the settlement agreement which is to be constituted as a waiver must be unequivocal. An unequivocal settlement agreement could mean one which is based on consensus between the parties, concerning all material terms and arrangements. If a settlement agreement is to constitute a valid waiver, it must not have been obtained through coercion or duress. In Anaconda v. Iran, the Chilean Government nationalized mines operated by Anaconda Company, to which the latter agreed, on the fear of expropriation of investment. The Tribunal decided that even though Anaconda’s agreement to the rearrangement of the investment might amount to an implicit waiver of treaty protection, Anaconda will be allowed to submit claims before the arbitral tribunal as the settlement was concluded under duress, and the settlement would not amount to a waiver. Therefore, if the host state coerced the investor to enter into a settlement agreement, or in situations where the latter is under duress, the settlement agreement would not be a valid waiver. In Desert Line v. Yemen, the Tribunal found that the terms of the settlement agreement were extremely unfavourable for the investor, which had been “imposed onto the Claimant under physical and financial duress” and had been a result of “coercion” and “inadmissible pressure”. Thus, one way to determine if the settlement agreement is a result of coercion or duress is by perusing its terms. De Rendón v. Ventura employed the concept of laesio enormis which allows a party to rescind an agreement if there is an unfair consideration. Therefore, if the terms of the settlement agreement suggest that there is an unjustified and colossal difference between the quantum of the settlement and the original investments, it can be implied that the settlement was a result of duress or coercion, which would allow the investor to rescind the agreement and make claims before the arbitral tribunal as no valid waiver would be established. Contract Claims and Treaty Claims A way to determine the existence (or refutation) of a waiver could be by determining if the relevant claims concern the specific contract between the foreign investor and the host state (and its agencies), or if they concern the IIA in general. Usually, investment arbitration tribunals are concerned with the protection of foreign investors when the host state has breached the IIA and not the contract. This is based on the sixth commentary on Article 4 of ARSIWA, as per which the breach by a State of a contract does not as such entail a breach of international law. Here, the author argues that if there is a juridical distinction between the IIA and the contract, a waiver of a contract might not always mean to be a waiver of the protection of the IIA. As per Vivendi v. Argentina I, a breach of an IIA and that of a contract are ‘different questions’ (para 96), even if they arise from the same factual circumstances (para 576 of Sun Reserve v. Italy). Based on this, principally, investment arbitration tribunals do not have jurisdiction over purely contractual claims (para 557 of Deutsche Bank v. Sri Lanka), as there is a distinction between contractual and treaty claims. In Burlington v. Ecuador, although the investors waived the claims under the contract, the Tribunal held that “they have not waived the underlying rights (established by the IIA), and Burlington may thus rely on these underlying rights to pursue its Treaty claims in this arbitration” (para 365). Therefore, a contractual waiver would not preclude the investor to approach the arbitral tribunal, as the investor’s rights are protected by the IIA. To determine if a claim would classify as a contractual claim or treaty claim, one could consider multiple factors such as the cause of the claim, content of the right, parties to the claim, applicable law, and the host State’s responsibility. If a claim falls within treaty jurisdiction, contractual waivers will not preclude investors. In certain situations, the host State might act as a sovereign authority and not as a contracting party; here, if the investor waives its contractual claims, it would still be protected by the IIA, as there could be a breach in other substantive standards of protection found in the IIA. (para 77 of El Paso v. Argentina). Investment arbitral tribunals can have jurisdiction over disputes arising from a breach of contract even if the IIA is not breached, if the IIA’s dispute resolution clause is broadly worded, to include “all disputes concerning investments”. In such cases, the investment arbitral tribunal would have jurisdiction over contract claims (Teinver v. Argentina), and it can be argued that the waiver of the contractual claims would ultimately mean the waiver of the IIA protection. One such example is Article 8(1) of the Argentina - France BIT (1991), under which the Tribunal has jurisdiction over “any dispute relating to investments”. Provision for contractual jurisdiction through the IIA can also be established under the Claims Settlement Declaration. This was reiterated in Toto v. Lebanon, where the investor had signed a contractual waiver and claimed that this should not be treated as a treaty waiver, but the Tribunal held that when a claim concerns the same damage for the same act, an investor’s waiver through the contract precludes them from recovering under the IIA (para 85). Aim of the IIA If the nature of the settlement agreement between the host state and foreign investor is outside the aim of the IIA, it can be argued that the settlement agreement would not be a waiver of claims before an arbitral tribunal. For example, most IIAs like the ECT or the US Model BIT, have provided in their preambles that the IIA seeks to enforce investors’ rights by facilitating arbitration of disputes. The IIAs seek to hold the host states responsible for any breaches of obligations made by them. On the other hand, settlement agreements could be limited to the forbearance of repayment obligations, not accounting for the mistreatment meted out to the investors. For example, Company A might enter into a settlement agreement with Country X, through which A decides not to recover investments from X. However, if the IIA governing the investment made by A in X provides protections such as Most Favored Nation or National treatment, and X has violated these protections, then the settlement agreement between A and X would not be a waiver of claims before an arbitral tribunal. ‘A’ might not be able to seek the value of the investment, but A may claim that the host state treated them in a manner inconsistent with the IIA. In situations like these, where the aim of the IIA is broader than the scope of the settlement agreement, certain agreements would not constitute a waiver of claims before an arbitral tribunal. Conclusion There are multiple ways to resolve investor-state disputes, and sometimes, the parties can decide to enter into settlement agreements through negotiations. The standing of these settlement agreements concerning investment arbitration is not a widely addressed issue. This paper has attempted to analyze the situations in which the settlement would and would not be a waiver of the protection by an IIA. Arbitration rests on the tenet of party autonomy, which becomes important here as the decision to establish arbitration as the official dispute resolution mechanism is of the parties. As the settlement, and the arbitration, are decisions of the parties themselves, there rises a conflict, and this article has aimed to resolve this conflict. To conclude, once it has been established that a settlement agreement can be treated as a valid waiver, there needs to be a case-by-case analysis to determine if such a waiver would preclude an investor from approaching an arbitral tribunal.
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This article is authored by Simran Lunagariya, a final year student and Niveditha R, a fourth year student at Institute of Law, Nirma University, Gujarat.
Introduction Subsidies are intended to safeguard consumer interests by ensuring low prices. However, they have substantial fiscal costs that lead to higher taxes or debt; encourage inefficient allocation of the nation’s resources that may hinder development, and condone pollution by contributing to climate change. Most importantly, they are not focused on the poor. In particular, fossil fuel subsidies (“FFS”) immensely contribute to global greenhouse-gas emissions. These subsidies compromise global efforts to mitigate climate change; exacerbate pollution; drain the nation’s budget; cause market distortions, and increase the cost of public health. Moreover, they also have distorting impacts on trade by causing a displacement of the competitor’s imports, reduce the market share of the competitors, as well as impact the development of clean energy alternatives. Eliminating subsidies can thus advance sustainable and equitable progress. However, the World Trade Organization (“WTO”) rules pose a complication for members to challenge FFS. The purpose of this blog is to analyze the trade impacts of fossil fuel subsidies by way of a case study and to highlight the legal and evidentiary challenges posed by the Agreement on Subsidizing and Countervailing Measures (“ASCM”). The blog also attempts to shed light on the global efforts to reform FFS, in addition to suggesting recommendations for such reform. WTO Rules Like other subsidies, FFS are covered under the ambit of the ASCM along with the relevant provisions of the General Agreement on Tariffs and Trade, 1994 (“GATT”) and Agreement on Trade-Related Investment Measures (“TRIMs”). While GATT provisions apply to such subsidies that amount to a quantitative export restriction, the ASCM elaborates upon Articles VI and XVI of GATT that deal with anti-dumping & countervailing duties and subsidies. FFS have remained unchallenged under the WTO rules largely because of the legal and evidentiary difficulties posed by the ASCM. Under the WTO dispute settlement system, a subsidy is defined under Article 1 of the ASCM. A subsidy under Article 1 is a ‘financial contribution’ by a government or a public body within the territory of a member or is a form of income or price support as given under Article XVI of GATT 1994 that confers a benefit on the recipient. Such a financial contribution under the ASCM may take the form of the following:
This being said, the WTO rules are applicable only if the measures are either prohibited or actionable subsidies. Pursuant to Article 3 of the ASCM, prohibited subsidies are those that are contingent upon export performance. According to Articles 2.3, 5 and 6 of the ASCM, subsidies that are specific and create adverse effects are considered actionable subsidies. Furthermore, given the intensive nature of FFS, details pertaining to the subsidy has to be notified to other WTO members under Article 25 of the ASCM. It is also to be observed that subsidies may be granted at different stages namely, production, consumption and general services. Thus, on the face of it, the WTO legislation provides a clear demarcation regarding the elements of a subsidy. However, as stated previously, challenging a FFS under the ASCM is legally and politically intricate and the same can be understood through a case study. Adani’s Case The recent sparks about Adani’s Carmichael project in Australia are a classic example of how FFS impacts trade. Carmichael is a thermal coal mine under development in Central Queensland’s Galilee Basin that has been sanctioned by both the Queensland and Federal governments. The project has been very contentious, with disagreements regarding its purported economic advantages, financial feasibility and environmental impact. Given that the Carmichael project’s declared purpose is to export coal to India and other Asian nations, the subsidies will undoubtedly impact the worldwide coal market. The subsidy seems to prioritise exports, indicated by the fact that royalties are computed depending on the export price. Additionally, the Adani Royalties Deferral Agreement may be characterised as a direct transfer of cash in form of a loan since it requires Adani to repay and charges interest. The reduced interest rate offered to Adani (at the state bond rate), while seen against the commercial rates might also result in a loss of government income. Furthermore, the railroad provided by the government for transport of coal also falls under the ASCM category of the supply of goods or services. Also, as the Royalties Deferral Agreement only applies to Adani, it might be claimed that the subsidy is only accessible to particular firms and not to other sectors in the area. In other words, pursuant to Article 2.1 of the ASCM, this subsidy is likely to be labelled “specific.” Lastly, the subsidy causes adverse effects since the mine’s Australian exports to India are likely to replace other members’ exports, particularly Indonesia’s. Thus, without a doubt, the loan provided to Adani may be deemed to be a subsidy under Article 1 of the ASCM. However, challenging the said subsidy under WTO rules proves to be a mammoth task, and a few challenges posed by the ASCM are discussed in the following section. Challenges posed by the ASCM Challenging FFS under the ASCM poses a high evidentiary burden on the claimant. The first and foremost challenge revolves around the establishment of the grant or loan or any other form as a ‘Subsidy’ under the ASCM, wherein, the elements of financial contribution and benefits have to be proved. The second challenge, especially in cases of actionable subsidies, revolves around the demonstration of the ‘specificity’ of a particular subsidy. This is a challenge for subsidies that are granted at the consumption stage, as such subsidy caters to a large number of recipients. Lastly, the most difficult challenge is to illustrate the adverse effects caused by the alleged subsidy. Additionally, as stated previously, the trade effects of FFS are difficult to be captured in the ASCM. FFS have an immense effect on renewable energy products. These effects can negatively impact competitiveness and slow the innovation of alternatives to fossil fuels. Given that FFS and its alternatives are not ‘like products’ wherein they do not compete in the same market, the said trade effects are not taken into consideration. Even if we accept the doubtful premise that trade effects of FFS are covered under the ASCM, challenges would still remain as the subsidizing member rarely meets the requirements like notifying the measure, or other mandates that are expensive and time-consuming. It is pertinent to note that the ASCM does not focus on the environmental and societal impacts of the subsidies. Even from an economic perspective, it fails to account for the social and environmental elements that may cause market distortion. These challenges along with the strategic and political factors involved, make it difficult for FFS to be challenged. Recommendations The fight to end FFS started over a decade ago. Despite the global commitments to rationalize and phase out the use of FFS in COP26, G7 and the G20 summits, elimination of FFS seems to be a far-fetched aim. For FFS reform to be an attainable reality, certain elements must be included in the plan such as a comprehensive strategy with long-term goals; transparent communication with governments regarding the size and impact of subsidies; gradual price increases, and automatic pricing mechanisms. Added to this, WTO members should also be more transparent about FFS and meet the requirements like providing a notification, advocating peer reviews and SDG reporting. Further, they should challenge the FFS under the WTO rules; encourage an informal dialogue at the Ministerial Conferences, and conduct an in-depth analysis of trade effects including the environmental and societal impacts. Such analysis should primarily include an assessment of the legality of the subsidy and the likelihood of it being an export contingent subsidy. Ideally, emphasis should be laid on conducting practical research on the trade-offs between economic and sustainable development. Conclusion Given that the Adani Carmichael Coal Mine problem arose over a decade ago, it is astonishing that the subsidy is yet to be challenged under the ASCM. This emphasises the ASCM’s evidential and legal burden. Despite the project’s disastrous trade consequences, it is impossible to contest the subsidies under WTO standards as external environmental and social repercussions are not taken into consideration in the ASCM. Also, pursuant to Articles 2 and 5 of the ASCM, the aforementioned subsidy, in addition to being specific, should also have adverse effects on the interests of other members. The Australian and Indian governments’ subsidies, although large, are difficult to challenge since trade consequences are not real-time, as per this requirement. Although the real-time requirement can be solved as the ASCM addresses ‘threat to serious prejudice’ as an adverse effect, establishing the ‘likeness’ of renewable energy and fossil fuel goods remains an uncharted area. As a result, an in-depth investigation of the ASCM is necessary to solve the conundrum surrounding FFS reform. The authors assert that eliminating FFS would aid in addressing energy security issues connected with fluctuating fossil fuel sources. Since September 2021, the import of coal from the Carmichael Coal Mine has increased significantly. India and Australia have joined the Glasgow Treaty on Renewable Energy in order to achieve zero carbon emissions by 2025, yet, they are aggressively encouraging coal trade across their borders. Hence, a robust framework to avoid the horrors of FFS is required under the ASCM. |
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