Dec 1, 2024 | Online Scholarship, Perspectives
Giovanni Chiarini*
I. Introduction
On September 9, 2024, the global advocacy non-profit organization “Stop Ecocide International” (whose “Stop Ecocide Foundation” commissioned the Independent Expert Panel for the Legal Definition of Ecocide in 2021) announced that the “mass destruction of nature reaches the International Criminal Court (ICC) as Pacific Island states propose recognition of ecocide as an international crime.”
On that day, the States of Vanuatu, Fiji and Samoa formally submitted a proposal to Assembly of State Parties (ASP) of the ICC, more precisely to the ASP Working Group on Amendments. The Working Group on Amendments is a subsidiary body of the ASP, tasked with reviewing and filtering out proposed amendments to the ICC Rome Statute and the ICC Rules of Procedure and Evidence and eventually forwarding them to the Assembly of State Parties for consideration. According to Annex II(7) of the “Terms of reference of the Working Group on Amendments” (attached to Resolution ICC-ASP/11/Res.8), States Parties “are encouraged, on a voluntary basis, to bring the text of a proposed amendment to the attention of the WGA before formally submitting it for circulation to all States Parties.” And this was exactly what happened.
The proposal seeks to evaluate the introduction of what would become the fifth international crime: the crime of ecocide, along with genocide, crimes against humanity, war crimes and the crime of aggression. Their proposed definition mirrors the one formulated by the 2021 Independent Expert Panel, defining ecocide as “unlawful or wanton acts committed with knowledge that there is a substantial likelihood of severe and either widespread or long-term damage to the environment being caused by those acts.” As other authors commented, the Pacific Islands’ proposal “can be read as the preliminary culmination of a long saga engulfing social activists, academic experts, national legislators and international policy makers alike.”
This essay will examine the rationale for incorporating ecocide into the Rome Statute of the ICC, prompted by the recent advocacy for ecocide legislation led by Vanuatu, Fiji and Samoa. It will also consider the procedural steps involved in amending the Statute within the ICC’s legal framework and highlight key procedural characteristics.
II. The Rationale for Introducing Ecocide into the ICC Rome Statute
The origins of “ecocide” trace back to scientific and environmental discussions that emerged during the Vietnam War. Since then, extensive literature has developed on the topic, especially in recent years following the Stop Ecocide Foundation’s proposal in 2021. The proposal led by the Stop Ecocide Foundation has significantly influenced both academic and institutional discussions, bringing the issue of ecocide back to the forefront.
Instead of recounting the entire history of ecocide debates, this article wishes to draw attention to some practical aspects—after decades of debate, we still lack an international legal norm that punishes mass environmental destruction under international criminal law. As I have observed in other articles, although attacks against the natural environment are prohibited by the ICC Rome Statute (RS), the First Protocol to the Geneva Conventions and the Convention on the Prohibition of Military or Any Other Hostile Use of Environmental Modification Techniques, the existing legal framework is insufficient to establish a robust foundation for criminal liability for such environmental destruction. The only provision protecting the environment is Article 8(2)(b)(4) of the RS, which defines a war crime against environment as causing “long-term and severe damage to the natural environment which would be clearly excessive in relation to the concrete and direct overall military advantage anticipated.” This, however, is insufficient to prevent mass environmental destruction, as is evident from the way it is formulated. A war crime against environment can be prosecuted only if the actus reus is widespread, severe and causing long-term environmental damage, and there is proof of intentional destruction as mens rea. Moreover, it cannot have been committed as a part of concrete or direct military advantage.
The new crime of ecocide would therefore fill a gap in the existing legal framework.
III. Why Vanatu, Fiji and Samoa Lead the Call for Ecocide Legislation
According to Stop Ecocide International, the fact that the proposal has been put forward by Vanuatu, Fiji and Samoa reflects “the importance of environmental justice considerations for Small Island Developing States (SIDS).” The rationale is also geographical. According to the UN, SIDS “are prone to natural disasters and highly affected by climate change,” and their high population density “makes them even more vulnerable to the effects of extreme weather and natural disasters.”
In December 2019, the Republic of Vanuatu, a nation in the South Pacific composed of roughly 80 islands, delivered a statement at the 18th Session of the ICC Assembly of States Parties, becoming the first country to formally call for the inclusion of ecocide as a crime under the ICC Rome Statute. Vanuatu noted that “over the past four years, Vanuatu has experienced disasters and related calamities of unprecedented scale.” Additionally, during the 28th Session of the International Seabed Authority Assembly in 2023, Vanuatu’s representatives remarked that “owing to our geography, we have been rated as the country most at risk from natural disasters in the world.”
While the Republic of Vanuatu’s position is strongly focused on climate change and rising sea levels—both for obvious geographical reasons and out of concern for the natural environment as a whole and the protection of the planet for future generations—it remains unclear how the current definition of ecocide would address climate change as a prosecutable offense under international criminal law. Additionally, the full text of the Pacific Islands’ proposal remains unavailable to the public. Anyway, now is the time to introduce the proposed crime of ecocide and, afterward, work on further amendments to expand its jurisdiction and ensure procedural effectiveness.
IV. The Process for Introducing the Crime of Ecocide and Potential Steps Forward
At this stage, as per Annex II(6) of the “Terms of reference of the Working Group on Amendments,” the ASP Working Group on Amendments (WGA) is highly likely undertaking a preliminary examination of amendment proposals to inform the decision of the Assembly as to whether to take up a proposal according to article 121(2) of the Roman Statute. In doing that, the WGA could also establish sub-groups in order to discuss amendment proposals simultaneously or more in detail, as allowed by Annex II(4).
The proposal was also submitted to the UN Secretary-General (based on publicly available information), probably aiming to speed up its circulation to all the ICC State Parties.
The subsequent process for introducing the crime of ecocide, like any other amendment, is essentially governed by Art. 121 of the Rome Statute, which requires, first of all, a precise timing. According to Art. 121(2), no sooner than three months from the date of the notification, the Assembly of States Parties will decide by majority vote at its next meeting whether to consider the proposal. Assuming that the date of notification was September 9, 2024 and that the WGA forwarded the proposal to the ASP, time is very limited as the next ASP is scheduled to take place from December 2 to December 7, making December 7 the final possible day and dies ad quem for the proposed amendment to be addressed this year, if we consider 3-month as equivalent to 90 days. However, I acknowledge that this interpretation is somewhat strained, although not impossible. Given the significance of introducing a new international crime, such as ecocide, it is unlikely that such a matter would be relegated to the last day of the session. Instead, it would warrant extensive deliberation, ideally encompassing the entirety of the ASP’s schedule (and this would not be feasible under Article 121(2), as December 2 would fall within the required three-month notification period).
We do not have a crystal ball, but if ecocide is discussed during the 2024 ASP this December, a minority of one-third plus one of the States Parties can effectively prevent the adoption of an amendment by abstaining, voting no, or failing to achieve a quorum, since Article 121(3) requires a two-thirds majority of States Parties.
There are some additional procedural issues to consider: an amendment will take effect for all States Parties one year after seven-eighths of them have deposited their instruments of ratification or acceptance with the UN Secretary-General. As the amendment refers to substantive crimes within the jurisdiction of the Court, new crimes that are introduced by amendment will apply only to those States that accepted them, according to Art. 121(5). For States Parties that do not accept the amendment, the Court will not have jurisdiction over crimes that are covered by the amendment and committed by their nationals or on their territory. Additionally, any State Party that has not accepted the amendment may withdraw from the Statute immediately but must give notice within one year of the amendment taking effect.
However, it is mostly likely that the ICC will simply call for a Review Conference, governed by Article 123 of the Rome Statute, like what happened with the crime of aggression at the Kampala Conference in 2010. This could include the participation of intergovernmental organizations, NGOs, and other entities such as Stop Ecocide International. In this case, the authority of a Review Conference regarding the ecocide amendment would be identical to that of the Assembly of States Parties and its powers. If a Review Conference is convened, ecocide would not be discussed during the 2024 ASP.
V. Conclusion
Further observations will follow once the original text submitted by Vanuatu, Fiji and Samoa is disclosed. Based on what has been seen so far, it appears the Pacific Islands’ submission takes a hybrid approach, engaging various bodies through a broader interpretation of the ICC’s legal framework. It seems that rather than request the UN Secretary General to convene an Art. 123 RS Review Conference on ecocide, the Pacific Islands opted to notify the Secretary General of the proposed amendment, likely in order to expedite its circulation and speed up the process. At the same time, the notification was also directed to the ASP Working Group on Amendments, following the formal procedure and practical guidelines.
While it is unlikely that the amendments will be formally discussed at the December 2024 ASP, there is more than a good chance that ecocide will at least be mentioned. As for ecocide’s eventual introduction into the Rome Statute, a vote on it could take place at the ASP 2025, or more likely at a dedicated Review Conference in the near future (finally, considering that discussions on the topic have been ongoing for over 50 years).
If the amendment is adopted, it will also open the door to considering further changes to enhance its effectiveness. For instance, I have previously suggested introducing an aggravating circumstance for ecocide when the commission of crime significantly impacts on climate change or greenhouse gas emissions; creating a Special Prosecutor for Ecocide with an autonomous Office of the Prosecutor at the ICC, solely competent for ecocide and mass environmental destructions; and establishing a new list of ICC judges with expertise in environmental law, animal law, law of the sea, climate change law and related areas, to bring environmental law expertise into the Court.
But for now, we should take it step by step. It is time for the ICC States Parties to seize the moment and not let the Pacific Islands’ ecocide proposal slip away.
* Prof. Giovanni Chiarini, PhD. Assistant Professor of Law and Vice Dean for Research and Graduate Studies, Alfaisal University College of Law & International Relations, Riyadh, Saudi Arabia – Attorney admitted to the lists of International Criminal Tribunals (ICC – KSC)
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May 17, 2024 | HILJ-HIALSA International Arbitration Collaboration, Online Scholarship
Valeria Arroyo
I. Introduction
The world is advancing by leaps and bounds, and with it, more complex disputes between parties are arising. Currently, disputes involving technology, intellectual property, competition and new contractual forms are gaining momentum. Parties with disputes about these subjects, as well as other disputes that by their nature are arbitrable, have chosen to opt for international arbitration because of its flexibility and efficiency.
In this sense, the necessity arises to simplify arbitration processes, eliminate unnecessary ritualism, and optimize time and resources. Pretending to remain static in the face of change leads to the obsolescence of those who practice it. Being able to embrace modernity while maintaining the principles of the arbitration process without denaturalizing it means becoming a jurisdiction that supports the arbitration process and, therefore, a successful jurisdiction.
The Ecuadorian case is no exception. Despite a period of absence from the international arbitration sphere, Ecuador has made its best efforts to keep up to date in this field. Its 2021decision to rejoin the ICSID Convention has been nothing more than an impetus to further develop arbitration in the country. Consequently, this article will briefly analyze the current status of arbitration in Ecuador and the pending challenges that still face both national and international arbitration today.
II. Ecuador and Arbitration
In Ecuador, arbitration is primarily governed by the Arbitration and Mediation Law and the Regulations to the Arbitration and Mediation Law. Arbitration is also constitutionally recognized as an alternative dispute resolution method in Article 190 of the Constitution of Ecuador.
Several contemporary arbitration institutions operate under this legal framework. They include:
- Private-to-private arbitration;
- Private-to-State arbitration;
- Emergency arbitration;
- Fast-track arbitration; and,
- Arbitration without privity
These institutions have been incorporated in the Law of Arbitration and Mediation, its Regulation, and the rules established by the arbitration centers over the years, respectively. Therefore, nationwide, arbitration is at the forefront with procedural tools or institutions available for parties in domestic procedures. Nevertheless, no system or arbitration center is perfect, and continuous improvements are always necessary.
III. What is still missing in domestic arbitrations?
In accordance with the previous section and the rules of international centers, two concepts have not been implemented into the Ecuadorian Arbitration Law, and therefore, are absent from both its rules and in local arbitration centers. The first concept is the “Early Dismissal of Claims and Defenses.” The second is the implementation of Artificial Intelligence (“ A.I.”), for the management of arbitrations.
Professor Esplugues Mota defines Early Dismissal of Claims and Defenses as an attribution to the arbitrator of the capacity to dismiss the claim raised at an early stage of the procedure. This concept was incorporated in the Arbitration Rules of the International Centre for Settlement of Investment Disputes (ICSID) for the first time in 2006. Subsequently, other arbitration centers have also incorporated early dismissal into their rules.
Taking the Singapore International Arbitration Centre (SIAC) rules as an example, early dismissal allows the parties to request the arbitral tribunal to dismiss a claim or, failing that, a defense when: i) the documents submitted manifestly lack legal merit; or, ii) they are outside the manifest jurisdiction of the arbitrators. Hence, this procedural tool represents an alternative that saves significant time and costs in arbitration.
The second concept, A.I., compromises the use of new technologies in arbitration and has emerged as a means of adapting to the new status quo. With the intention of promoting speed and transparency in arbitration, A.I. has emerged as: i) a support for the automation of procedural actions; ii) a mechanism for consultation or contractual interpretation; and iii) an independent entity with the capacity to administer justice. Similarly, a recent International Chamber of Commerce report on technology in arbitration, titled “Leveraging Technology for Fair, Effective and Efficient International Arbitration Proceedings”, considers the application of A.I. in the arbitration process by means of predictive coding. Through such coding, an algorithm can identify relevant documents or annexes related to a request for documents, thereby saving considerable time and costs during the arbitration process.
On that account, both Early Dismissal and A.I. represent tools that will allow parties to adopt more efficient arbitration procedures. Article 190 of the Constitution of Ecuador recognizes arbitration as autonomous and independent. Therefore, a pathway to include both procedural tools to improve arbitration is evident, and their inclusion in the Ecuadorian Arbitration Law is imminent.
IV. The elephant in the room in international arbitration for Ecuador: The lack of Bilateral Investment Treaties
Ecuador is a unique country divided into four regions: the coast, highlands, amazon, and insular regions (Galapagos Islands). Each region is characterized by a great diversity of natural, cultural, and human resources. This diversity offers investment opportunities in various economic sectors. In addition, because Ecuador is recognized for having the world’s highest biodiversity per square kilometer and being a dollarized country, it maintains one of the most stable economies in Latin America.
Despite persistent challenges over time, such as political instability, a weak institutional framework, and constant changes in the legal framework, Ecuador is still considered an attractive destination for foreign investors. Therefore, public-private partnerships and other contractual forms that allow the exploitation or development of strategic sectors with foreign direct investment (“FDI”) are common in the country. Consequently, implementing arbitration as the preferred alternative dispute resolution method is unavoidable.
Throughout its history, Ecuador has always promoted and advocated for arbitration, except during the “correísmo” period when Ecuador withdrew from ICSID, among other socialist measures taken by former President Rafael Correa related to arbitration. One of the many consequences of this period that persists today is Ecuador’s lack of Bilateral Investment Treaties (“BITs”), which were denounced by former President Correa. Ecuador currently maintains only a few treaties which persist due to ongoing arbitral cases. This situation creates an unattractive climate for foreign investors, who logically prioritize countries with BITs that provide legal certainty.
However, since the end of President Correa’s term, subsequent presidents have made constant efforts to bring Ecuador back into the field of international arbitration, seeking to attract FDI in Ecuador. For that reason—as mentioned above—the country returned to ICSID. Since Ecuador’s re-ratification of the ICSID convention, arbitration has been promoted as a method of dispute resolution in public procurement matters. However, additional challenges still remain. The Constitutional Court recently issued a controversial ruling declaring the unconstitutionality of Article 15.20 of the Trade Association Agreement with Costa Rica, stating that Ecuador cannot submit to international jurisdiction because such submission would be incompatible with Article 422 of the Constitution. This results in a prohibition of arbitration without privity.
To overcome this issue, the new government of President Daniel Noboa is currently making its best efforts to include arbitration as the preferred method to resolve disputes between parties. To achieve this, recent laws such as the “Organic Law for Economic Efficiency and Employment Generation” have sought to establish arbitration as the mandatory method of conflict resolution. In addition, it is also worth mentioning that one of the questions in Ecuador’s April referendum asks whether Ecuador should recognize international arbitration as a method to resolve investment disputes in order to offer foreign investors an appropriate environment of legal assurance.
Despite the substantial challenges in Ecuador’s international arbitration landscape, significant decisions are being made progressively in favor of international arbitration and its enforcement.
V. Conclusions
Ecuador is a small country with a vast amount of natural, cultural and human resources. In the legal field, constant efforts have been made to evolve and improve over time, incorporating new provisions related to both domestic and international arbitration.
Concerning local arbitration, it is evident that challenges persist in the efforts to introduce early dismissal of claims and defenses and integrate A.I. for process management. However, the environment for their eventual incorporation is favorable. In other words, the solid foundation, underpinned by the constitutional recognition of the autonomy and individuality of arbitration, makes both concepts likely candidates for future inclusion.
Turning to international arbitration, the current pro-arbitri trend has grown in recent Ecuadorian governments. Consequently, it is necessary to reinforce the achievements to date, resolve pending issues, and include pieces that are still missing in the legal framework. A successful jurisdiction is a jurisdiction that promotes the arbitral process.
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May 5, 2024 | Innovating Trade, Online Scholarship
*Editor’s Note: This article is part of HILJ’s collaboration with the Georgetown Journal of International Law (“GJIL”) and the Georgetown Center on Inclusive Trade and Development on Innovating Trade: The Intersection of Emerging Technologies, Climate Initiatives, and International Law. HILJ and GJIL each edited and published different articles in the collaboration. Articles published by GJIL are available on the GJIL website.
*María Isabel Ortiz Nuques
I. Introduction
The sea and nearby areas have served as a vital supply of resources and a trading hub for hundreds of years. Food security and the impact of ocean activities on the right to a clean, healthy, and sustainable environment are complex issues that interact with trade. In times where change is urgently needed, trade must adapt to environmental protection in a world shaken by the climate crisis. In this context, fishing activities would benefit from artificial intelligence (“AI”)-powered tools to manage resources and understand fish populations amidst the transformations expected due to climate change.
This piece will focus on the Galapagos Islands as a case study. First, it will briefly illustrate how protecting marine environments has implications for human right protections. Second, it will provide an overview of the challenges the Galapagos Islands’ marine ecosystem faces regarding overfishing and unsustainable fishing practices. Third, this piece will exemplify how AI can create complex models that better reflect the state of fisheries under the pressures of climate change, which can be a helpful tool to prevent overfishing and protect fish stocks. Fourth, it will explore how AI-powered models may become a key tool for the application of international trade instruments in the future.
II. Climate change, the right to a clean, healthy, and sustainable environment and the Galápagos Fisheries
The rapid deterioration of ecosystems due to climate change and biodiversity loss creates serious consequences for areas such as human rights and trade. These crises affect the rights to life, health, food, water, and adequate standard of living of human beings around the world, including those belonging to vulnerable groups, which may be disproportionally affected. The consequences of environmental degradation are alarming and deeply connected to the universal need for a clean, healthy, and sustainable environment, which has been recognized as a human right by the United Nations Human Rights Council.
One of the world’s most sensitive ecosystems is the Galapagos Islands, around 900 kilometers (560 miles) west of the Ecuadorian coast. Its population mainly relies on tourism, fishing, and agriculture as economic activities, all of which would be deeply affected by the climate emergency. Climate change thus directly threatens Galapagos Islanders’ livelihoods. The waters surrounding the Galapagos Islands are rich and ecologically diverse. This diversity made them a target for illegal, unreported, and unregulated (IUU) fishing, which has put iconic species such as the scalloped hammerhead shark at great risk.
The Galapagos area’s biological richness has also been affected by overfishing, as exemplified by the brown sea cucumber populations in the area. The sea cucumber serve an important ecological function by consuming debris and sediment. However, sea cucumber have been intensely fished for consumption to the point where fishing bans have had to be implemented for several years in the islands. In 2021, the sea cucumber fishery in the Galapagos Islands was reopened, only for it to be closed again two weeks later. While sea cucumber, by law, can only be fished inside the Galapagos exclusive economic zone (“EEZ”) using artisanal methods, the fact that 90 percent of the total catch goes to Asian countries shows how important trade is to sea cucumber preservation.
At the same time, marine resources outside of EEZs are available for fishing by international ships under the United Nations Convention on the Law of the Sea. This has resulted in several instances where fishing fleets – mostly comprised of Chinese vessels – line up just outside the Ecuadorian EEZ around the Galapagos Islands. Some of these ships have resorted to turning off tracking devices to avoid recognition. In FAO Fishing Area 87, where the Galapagos Islands are located, Chinese distant water fleet (“DWF”) vessels reported losses even after ample subsidies from the Chinese government. These losses suggest that some vessels could be participating in IUU fishing to remain profitable. Fisheries’ subsidies allow unprecedented and usually unsustainable fishing operations and remain one of the main causes of overfishing. Specifically, around the Galapagos Islands, fishing for large-scale Chinese DWF fleets is unprofitable without such aid.
III. Climate change and AI as a tool to anticipate the unknown
The practices conducted by fishing fleets around the Galapagos Islands are not an isolated phenomenon. Around the world, similar dynamics arise between countries with rich fish stocks and countries with ample fishing demand and considerable subsidies to the fishing industry. The rapid pace at which fish stocks are depleting globally is concerning. These pressures are only worsened by climate change, which is expected to shift the dynamics of marine ecosystems and affect the abundance, migratory patterns, and locations of fish stocks. Plenty of uncertainty remains about the impact of climate change on fisheries. However, AI can be a helpful tool in reducing this uncertainty, as powerful models of physical processes can be created to reflect the complex dynamics related to climate change.
AI can process enormous volumes of data. This allows humanity to better understand what the future behavior of fisheries may look like, and provides forecasts of fish stock abundance and distribution that can change and improve in accuracy as more data is introduced. Moreover, AI models can identify patterns and relationships that may be missed by human analysts. This competence is useful because some processes related to climate change are not yet completely understood. More accurate projections of fish stocks could be attained despite changing circumstances. If the results obtained from these AI models were to be taken into consideration for marine resource governance, they could contribute to the preservation of a clean, healthy, and sustainable environment, and the protection of food security for future generations.
IV. An environmental shift for international trade law and its impact on human rights
Placing an emphasis on what the future may look like for fish populations in the context of climate change is an important tool to create policy that prioritizes responsible fishing and the sustainable trade of existing fish stocks. AI-generated models can comply with international law as it shifts towards environmental considerations. In 2022, the World Trade Organization (“WTO”) members adopted the Agreement on Fisheries Subsidies to end certain fisheries subsidies. The deal is the first WTO agreement to focus on the environment. Its provisions prohibit subsidies to fishing on overfished stocks like the brown sea cucumber population around the Galapagos Islands.
The Agreement on Fisheries Subsidies considers a stock to be overfished if it is recognized as such by the coastal member under whose jurisdiction the fishing is taking place or by a relevant regional fishery management organization or arrangement in areas and species under its competence. These entities must base their decisions on the best scientific evidence available according to Article 4 of the Agreement. As AI models become increasingly sophisticated and accurate, their forecasts and calculations may become some of the best scientific evidence available to detect and predict overfishing in light of climate change conditions, to the point where they could become necessary for making overfishing designations under the Agreement.
Taking emerging technologies into consideration when developing international policy is necessary to secure the human right to a clean, healthy and sustainable environment, which is intertwined with many other rights. The right to a clean, healthy, and sustainable environment holds a profound connection with food security, for example, which is increasingly threatened because of climate change. These interconnections mean that protecting our seas using the best scientific methods available is a key commitment to be adopted by states around the world. Since marine resource governance is inextricably linked with trade, international trade law must adapt to further advance environmental and sustainability goals for the future of humanity. It can do so with the help of rapidly advancing technologies.
IV. Conclusions
The links that connect humans, the sea, and trade have existed for hundreds of years. Recently, marine resource governance has become more complex as the world population grows and develops more powerful fishing systems to satisfy global needs for food. An important challenge marine ecosystems face alongside the pressures of unsustainable fishing are the transformations expected to take place because of climate change, which puts the environment and global food security at risk.
The impact of fishing activities is deeply intertwined with international trade and decisions that make fishing profitable, such as subsidies for DWF vessels. Fishing activities inside the Galapagos EEZ and around it show how some fish populations that serve an important ecological function but are highly regarded as commodities in international trade, such as the brown sea cucumber, can struggle with current fishing demands and policies.
While climate change is imminent, uncertainty remains regarding marine ecosystems. This uncertainty continues to be a major obstacle for decision-making towards better fisheries management worldwide. In this sense, AI can help better predict fish stock abundance, behavior, and location as the effects of climate change regrettably continue. AI continues to play a central role in technological developments regarding marine ecosystem management. At the same time, international trade law is moving toward an increasingly environmental approach, as shown by the WTO Agreement on Fisheries Subsidies, which in part seeks to control subsidies for overfished stocks. Determinations of overfished stocks must rely on the best scientific evidence available. Soon, ever-progressing AI models may play a crucial part in trade and environment negotiations.
*María Isabel Ortiz Nuques received her law degree with honors from the Catholic University of Santiago de Guayaquil, has a special interest in arbitration and international law, and currently works as a tribunal secretary in arbitration cases. She would like to thank the HILJ editorial team for their comments and feedback.
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May 4, 2024 | Innovating Trade
*Editor’s Note: This article is part of HILJ’s collaboration with the Georgetown Journal of International Law (“GJIL”) and the Georgetown Center on Inclusive Trade and Development on Innovating Trade: The Intersection of Emerging Technologies, Climate Initiatives, and International Law. HILJ and GJIL each edited and published different articles in the collaboration. Articles published by GJIL are available on the GJIL website.
Samantha Cristol*
Whether trade is occurring across oceans or continents, the climate costs of transportation are high. In 2019, transport accounted for roughly 15% of global greenhouse gas (“GHG”) emissions. As of 2023, that number was closer to 20%. Of that 20%, around 60% came from vehicles, and 11% from shipping. Reducing the climate footprint of transportation will help to support and sustain international trade. Not only will mitigating climate change decrease the probability of severe adverse climate change impacts, but the implementation of new, sustainable technologies can both benefit trade itself and increase the resiliency of trading communities in the face of climate disasters.
The current state of climate change suggests that there is a dire need to develop and implement technology that will reduce the climate impacts of transportation. This paper will briefly review the challenges transportation sub-sectors are facing and suggest climate technology, and climate technology adjacent, solutions. Then, it will examine how countries can use a combination of policy and trade tools to implement and encourage the proposed solutions.
I. Air Transportation
Air transit is the most carbon-intensive form of transportation: in 2017, it accounted for about 1% of carbon emissions globally. Aviation also poses climate concerns beyond carbon, as the condensation trails left behind airplanes also worsen climate change.
In terms of technology to reduce aviation emissions, a 2022 World Trade Organization (“WTO”) Report recommends lowering trade barriers for electric and hybrid airline engines, and the European Union has adopted a deal that includes an estimated €1.6 billion plan to support the use of sustainable aviation fuels. Although electrification of aircraft is progressing, most electrification initiatives are still confined to the realm of small, short-haul planes. Similarly, while Sustainable Aircraft Fuel (“SAF”) is in production, it is costly and currently not approved for use on it its own without being blended with traditional jet fuel.
While enforcing limits on international air transit that does not meet electrification or renewable fuel guidelines sounds like a simple solution to enforce cleaner transit, both technological and economic factors are holding the industry back. Continued funding for research, combined with subsidies to cheapen the cost of SAF, may help to quicken the transition.
II. Land Transportation
Land transportation is primarily composed of passenger vehicles like cars and buses, trucks, and rail transport. It is, across the world, the most substantial contributor to transportation climate emissions. While the popularity of electric vehicles has increased significantly, electric truck technology is still lagging. Moreover, although short-haul electric trucks are starting to arrive in the United States, battery capacity is a major barrier for longer-haul routes.
While rail transit offers significant advantages in regard to per-passenger-per-kilometer emissions, the “last mile” involved in the delivery of goods is often reliant on vehicle transport. In the United States, “last mile” transportation is described as the final journey from warehouse to doorstep, which is often made by mail Mail delivery trucks are carbon-intensive, adding an additional layer to the challenge of decreasing transportation-related emissions.
Subsidization of electric vehicles, alongside the installation of charging stations and related infrastructure, can continue to encourage consumers to switch away from traditional vehicles. In the case of trucks, however, more research is needed. Publicly funded research and development programs, combined with progressive vehicle requirements and standards imposed on sellers, may help to drive the research needed to reduce emissions. Initiatives aimed at eliminating “last mile” transportation emissions may help as well. Consumer behavior changes may be possible, by providing incentives to consumers that opt to pick-up from a central location, or choose to wait longer for transportation, allowing for a computer program to better optimize a driver route for drop-off. Electrification of last-mile truck fleets may also be a big help in decreasing delivery-related emissions.
III. Maritime Transportation
Sea transportation makes up roughly 3% of global GHG emissions, and 11% of transportation GHG emissions. Ninety percent of all traded goods are involved in ocean shipping. The shipping industry has already seen changes from climate change, like the opening of new year-round shipping routes through the Arctic due to reduced severity of winter weather. While these shorter routes could reduce the emissions per trip, the environmental degradation that could result from the increased use of these new passages is also worrisome. Oil or toxic substance spills could threaten the lives and sustenance of Arctic coastline communities.
While electrification of ferries has been successful, the transition for large ships faces the same problem discussed in both sections above: battery power. Battery power is not the only issue, however. To operate, batteries would need access to power infrastructure at ports. While upgrades are being made at many U.S. ports to electrify loading, docking, and tugging operations, these efforts have not yet expanded to electrification of long-haul ships themselves.
Transitioning shipping off of oil, or at least making shipping more energy efficient in its use of oil and gas, could make a significant dent in sea transportation emissions. To drive needed research and development, a model that combines public research funding with policy-based pressure may be effective. A policy that might effectively drive research and development could look like imposing fees on ships entering or exiting port. Fees could be based on factors like travel distance since last port of call or to the next port of call, engine efficiency, fuel mix being used onboard, or others. As distance between ports of call can be hard to calculate or predict, it may make more sense to instead base fees on the energy efficiency of the engine or use an equation that equalizes engine metrics with weight or amount of cargo on board.
IV. The Role of Trade
Public policy will be a large driver in implementing many of the above solutions, especially in terms of funding research and development and offering subsidy programs to incentivize the technology discussed above. These solutions, and others, like requiring carbon labels or introducing bans on products to reduce shipping amounts, become complicated when they interact with international trade law. Beyond the logistics questions, like how to calculate carbon footprints of a product prior to shipping (given reroutes, ships that stop at multiple ports, the transport that goes into component of the manufacturing process, differing last miles, etc.), and how to determine which products to ban (who makes the call on what products to ban), there is a question as to whether these actions are allowable under international trade agreements. Import bans may violate the General Agreement on Tariffs and Trade, subsidies may contravene the Agreement on Subsidies and Countervailing Measures, limiting air travel may violate the Open Skies Agreements, and parties may have a case regarding national treatment or the Technical Barriers to Trade Agreement when it comes to carbon labels.
Beyond legality, many of the current proposed solutions focus on changing consumer attitudes to try and drive corporate innovation. This is certainly helpful—especially in the case of electric vehicles. However, the major problem that arises in every sector is a lack of battery power for the big-ticket carriers like jets, trucks, and long-haul ships, which is a huge obstacle to electrification. If total electrification is out of the question for the near future, then a multi-faceted approach that drives research and development while also pushing partial electrification and low-carbon transit options is the best bet.
That is where trade tools come in. While the WTO may not be at its most effective right now, nations can take action into their own hands when negotiating regional trade agreements (RTAs). Specifically, nations should be looking to technology transfer and capacity building provisions to promote cooperative programs that drive transportation efficiency across borders. RTAs are extremely flexible, and nations can include funding mechanisms to promote joint research, development, and deployment projects in the transportation space. Technology transfer provisions may also help to encourage the faster spread of energy efficient technology.
International cooperation will also be critical in the next few years as the world grapples with energy transitions and greenhouse gas emissions. Even though the Paris Agreement does not directly mention cars or trucks, reducing transportation emissions will be key to meeting, or at least trying to meet, its goals. Similarly, the International Civil Aviation Organization’s Carbon Offsetting and Reduction Scheme for International Aviation provides a framework for participants to move toward lowering aviation emissions, as do the U.N.’s Sustainable Development Goals.
By participating in international climate and sustainable development agreements, using RTAs to their advantage, and thoughtfully implementing local policies, nations can encourage the invention and adoption of clean transportation technology.
*Samantha Leah Cristol is a third-year J.D. student at the Georgetown University Law Center, expected graduation Spring 2024. She holds a Bachelor of Science in civil engineering from the University of California, Berkeley, and is a LEED Green Associate.
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May 4, 2024 | Online Scholarship, Perspectives
Patrick C. R. Terry*
1. Introduction
For some time now, States and scholars have been debating whether mere cyber espionage, exemplified by the acquisition of data stored on servers located within another State’s territory, violates that State’s sovereignty. Some States and most experts compiling the Tallinn Manual argue that such activities, when conducted without causing any harmful effects on the target State’s territory, do not amount to sovereignty violations and are, therefore, not unlawful. This argument has never been convincing, but it has now become very difficult to sustain, following the recent statement on the matter by the African Union (AU), thereby expressly representing its 55 member States.
As I have argued in the past,[1] cyber espionage activities need not have caused harmful effects in order to amount to a violation of the target State’s sovereignty. The AU concurs with this position.[2] Its recently published Common African Position on the Application of International Law to the Use of Information and Communication Technologies in Cyberspace states that cyber espionage activities violate the target State’s sovereignty when they aim for data stored on servers located in its territory, irrespective of whether they thereby cause any negative effects.
Most experts who compiled the highly influential Tallinn Manual 2.0 on the International Law Applicable to Cyber Operations disagree with this assessment. They argue in favor of a de minimis approach that requires cyber espionage activities to have negative or harmful effects on the target State’s territory for them to qualify as a sovereignty violation.
However, in order to justify this assertion, the experts would need to show that the general rule of international law on sovereignty violations, which has traditionally not required such negative effects, has, at least with respect to cyber espionage, evolved in the way they claim. Based on a review of States’ officially expressed views, strongly reinforced by the AU’s recent statement, they cannot do this convincingly. Therefore, the Tallinn Manual’s contrary position does not reflect current customary international law.
2. Violation of Sovereignty as a Violation of Public International Law
There is widespread agreement that violating another State’s sovereignty is unlawful under public international law.[3] As early as 1927, the Permanent Court of International Justice (PCIJ) had already declared that a State, “failing the existence of a permissive rule to the contrary […] may not exercise its power in any form in the territory of another State.”[4] In 1949, shortly after its creation, the International Court of Justice (ICJ) also stressed that “[b]etween independent States, respect for territorial sovereignty is an essential foundation of international relations.”[5]
Recently, the United Kingdom has sought to call this long-standing view into question by arguing that respecting another State’s sovereignty was not a rule but only a principle of international law that merely serves to justify legal rules derived from it, such as the prohibition of interventions.[6] Unsurprisingly, the United Kingdom has received very little official support from other States for this novel line of argument.[7] In fact, some States, such as France, Germany, and Canada, have explicitly rejected the United Kingdom’s view.[8] In 2020, North Atlantic Treaty Organization (NATO) member States reaffirmed that sovereignty is a primary rule of international law, forcing the United Kingdom to add a reservation.[9] International courts,[10] the UN Security Council,[11] and the General Assembly[12] have consistently taken that view, as have many States in the past.[13] The AU has now thrown its weight behind this position as well.[14]
This near-unanimous view affirms that violating another State’s sovereignty is unlawful under international law.
3. Mere Cyber Espionage is Unlawful
In contrast to traditional forms of espionage, cyber espionage often does not require the physical presence of a ‘spy’ on the target State’s territory. Rather, States often conduct such espionage remotely without sending an agent abroad. In fact, monitoring and intrusion into electronic databases often occur from within the spying State’s territory.[15] This practice makes it more difficult to claim a violation of the target State’s territorial sovereignty.
However, when States engage in cyber espionage, they usually attempt to obtain data stored on servers in the target State by manipulating software or exploiting security risks and subsequently copying the desired data. In such cases, States are actually engaged in remotely conducted activities on the target State’s territory.
Territorial sovereignty, though, encompasses a State’s “right to exercise therein, to the exclusion of any other State, the functions of a State,”[16] which means a State “may not exercise its power in any form in the territory of another State.”[17] The intrusion of one State into another State’s data violates the target State’s territorial sovereignty when the data is stored on servers requiring physical infrastructure on the target State’s territory.[18] By carrying out such actions, the spying State is unlawfully exercising its own governmental authority on the target State’s territory.[19] The fact that the target State’s authorities, in many cases, would require a court order to access the data obtained by the spying State underlines the governmental character of the act of espionage.[20] That the act of espionage is initiated remotely and undertaken by technical means is irrelevant, as the intrusion and interception take place on the target State’s territory. Cyber espionage, undertaken in order to obtain data stored on servers in the target State, is therefore unlawful.[21]
4. Mere Cyber Espionage is Lawful
This is disputed by those who agree with the position adopted by the Tallinn Manual 2.0,[22] according to which an act of cyber espionage that merely obtains data located on the territory of another State does not violate that State’s sovereignty.[23] This argument is sometimes referred to as the de minimis[24] or relativist[25] approach to sovereignty, according to which cyber espionage only violates another State’s sovereignty if it produces noticeable negative effects in the target State.[26] Others even argue that some kind of harm or damage must have been caused on the target State’s territory for such activities to qualify as a sovereignty violation.[27] While there is disagreement on the precise degree of harm or damage necessary,[28] a number of States have publicly supported that view.[29]
5. Assessment of the Tallinn Manual‘s Approach to Sovereignty
This relativist approach, however, fails to convince. As Kevin Jon Heller has explained persuasively, the prohibition of intruding on another State’s sovereignty qualifies as a general rule of international law.[30] As such, it applies to any act that implicates international law, including cyber espionage.[31] It is incorrect that advances in technology and science create a lacuna in international law, which may simply be closed by creating new rules.[32] Rather, at least initially, the general rules of international law apply automatically[33] as the ICJ confirmed in its Advisory Opinion on the Legality of Nuclear Weapons.[34] Of course, subsequent amendments by States are always possible.
The relevant general rule of international law on sovereignty applicable here does not require harm or damage to be caused on the other State’s territory for an intrusion to be unlawful.[35] For example, the unauthorized overflight of a foreign aircraft over a State’s territory is generally viewed as an unlawful violation of territorial sovereignty, although the mere overflight will not cause any damage or harm to the State concerned.[36] The United States reaction to the Chinese surveillance balloon that, in early 2023, crossed United States territory on an alleged mission to spy on military installations confirms this. Although there was no claim of harm or damage intended or caused, “senior State Department officials” stated that “the presence of this balloon in our airspace is a clear violation of our sovereignty, as well as international law, and it is unacceptable that this has occurred.”[37] Similarly, despite usually not causing any harm to the target State, the conduct of cross-border criminal investigations without that State’s consent is generally viewed as a usurpation of governmental functions and, therefore, as a sovereignty violation, irrespective of any damage caused.[38] Applied to the cyber realm, the conclusion must, therefore, be that in the case of cyber espionage, no harm or damage is required to qualify the remote intrusion onto the other State’s territory as unlawful.[39]
Undoubtedly, States are free to create new rules of customary international law (leges speciales) regarding cyber espionage.[40] For such a process to be successful, however, sufficient State practice and sufficient State reaction to evidence opinio juris in support of such a change are required.[41] Given the Common African Position, recently issued by the Peace and Security Council of the AU, such a development seems far off.[42] Although some States support the relativist approach to sovereignty in cyberspace,[43] many others do not.[44] Rather, the latter have taken the view that an unlawful intrusion into a State’s cyber system is a violation of sovereignty, irrespective of whether harm or damage was caused.[45]
France[46] and Iran,[47] two of the States explicitly rejecting the de minimis threshold, are, in fact, major cyber actors.[48] Moreover, considering their reasons for rejecting the Budapest Cybercrime Convention, it seems China and the Russian Federation, well-known for their massive cyber-espionage operations,[49] also support the pure sovereignty approach. Both States disapproved of the Budapest Cybercrime Convention on the grounds that Article 32 (b) of the treaty, which in specific circumstances allows one State to access computer data in another State without the latter’s consent, amounted to a violation of State sovereignty.[50] This fact is particularly relevant, as the ICJ has stated that any analysis of State practice and opinio juris in order to identify a rule of customary international law must include those “States whose interests are specially affected.”[51] The relativist approach to sovereignty fails that test: some major players in the field of cyber espionage oppose it. Now, in February 2024, the 55 member States of the AU that are more vulnerable to and whose interests are therefore also ‘specially affected’ by acts of cyber espionage[52] have likewise rejected the approach to sovereignty espoused by the authors of the Tallinn Manual.[53]
6. Conclusion
The AU’s statement confirms that, by now, many States, including some of the most important perpetrators and many of the particularly vulnerable targets of cyber espionage, have come to oppose the approach to sovereignty adopted in the Tallinn Manual. This reality confirms that no lex specialis has been created with respect to cyber espionage that negates a sovereignty violation in cases where no noticeable negative effects have been caused.
Acts of cyber espionage that serve to obtain data stored on the target State’s territory violate that State’s sovereignty and are, therefore, unlawful. The Tallinn Manual’s current relativist approach to sovereignty in cyberspace does not have sufficient support among States to be viewed as reflective of customary international law.
* Patrick C. R. Terry is a professor of law and the dean of the faculty of law at the University of Public Administration in Kehl (Germany). I wish to thank Cody Corliss and the editors of the Harvard International Law Journal, especially Amirah Mimano, for insightful comments on previous drafts of this piece and during the editing process. All errors are mine.
[1] Patrick C. R. Terry, “The Riddle of the Sands” – Peacetime Espionage and Public International Law, 51 Geo. J. Int’l L. 377 (2020).
[2] Mohamed Helal, Common African Position on the Application of International Law to the Use of Information and Communication Technologies in Cyberspace, and all associated Communiqués adopted by the Peace and Security Council of the African Union ¶¶ 15-16 (Ohio St. Legal Stud, Research Paper No. 823, 2024), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4714756.
[3] Chimène Keitner, Foreign Election Interference and International Law, in Election Interference: When Foreign Powers Target Democratic Institutions 1, 14-15 (Duncan Hollis & Jens Ohlin eds., 2020); Wolff Heintschel von Heinegg, Territorial Sovereignty and Neutrality in Cyberspace, 89 Int’l L. Stud. 123 (2013); Michael N. Schmitt, Virtual Disenfranchisement: Cyber Election Meddling in the Grey Zones of International Law, 19 Chi. J. of Int’l L. 30, 40, 42-43 (2018); see also Tallinn Manual 2.0 on the International Law Applicable to Cyber Operations 11-29, especially Rule 4 (at 17) (Michael N. Schmitt ed., 2017); Russell Buchan & Iñaki Navarrete, Cyber Espionage and International Law, in Research Handbook on International Law and Cyberspace 231, 240-43 (Nicholas Tsagourias & Russell Buchan eds., 2021).
[4] The Case of the S.S. Lotus (Fr. v. Turk.), Judgment, 1927 P.C.I.J. (ser. A) No. 10, at 18 (Sept. 7, 1927); see also Island of Palmas Case (Neth. v. U.S.), 2 R.I.A.A. 829, 838 (Perm. Ct. Arb. 1928).
[5] Corfu Channel Case (U.K. v. Alb.), Judgment, 1949 I.C.J. Rep. 4, at 35 (Apr. 9, 1949); see also Armed Activities on the Territory of the Congo (Dem. Rep. Congo v. Uganda), Judgment, 2005 I.C.J. Rep. 168, ¶¶ 153, 165, 257, 259 (Dec. 19, 2005).
[6] Jeremy Wright, U.K. Attorney General, Speech at the Royal Institute of International Affairs: Cyber and International Law in the 21st Century (May 23, 2018), https://www.gov.uk/government/speeches/cyber-and-international-law-in-the-21st-century; see Suella Braverman, U.K. Attorney General, Speech at the Royal Institute of International Affairs: International law in Future Frontiers (May 19, 2022); https://www.gov.uk/government/speeches/international-law-in-future-frontiers.
[7] See Michael N. Schmitt & Liis Vihul, Respect for Sovereignty in Cyberspace, 95 Tex. L. Rev. 1639 (2017) (under the Trump Administration, the United States seemed to take an ambivalent view on whether respecting another State’s sovereignty was a rule of international law. The Department of Defense General Counsel, Paul C. Ney, Jr., stated that the United States position ‘share[d] some similarities with the view expressed by the U.K. Government in 2018’. However, Ney’s subsequent legal analysis of espionage indicated that he believed it was indeed unlawful to violate another State’s sovereignty); see Paul C. Ney, Jr., General Counsel, U.S. Department of Defense, DOD General Counsel Remarks at U.S. Cyber Command Legal Conference (Mar. 2, 2020), https://www.defense.gov/Newsroom/Speeches/Speech/Article/2099378/dod-general-counsel-remarks-at-us-cyber-command-legal-conference/; see also Dan Efrony & Yuval Shany, A Rule Book on the Shelf? Tallinn Manual 2.0 on Cyberoperations and Subsequent State Practice, 112 Am. J. Int’l L. 583, 640 (2018) (where the authors point out that no State accused of violating another State’s sovereignty has claimed to be entitled to do so); see Harald Hongju Koh, Legal Adviser, U.S. Department of State, Speech at USCYBERCOM Inter-Agency Legal Conference: International Law in Cyberspace (Sept. 18, 2012), https://2009-2017.state.gov/s/l/releases/remarks/197924.htm; Brian J. Egan, Legal Adviser, U.S. Department of State, Speech at the University of California, Berkeley School of Law: Remarks on International Law and Stability in Cyberspace (Nov. 10, 2016), https://2009-2017.state.gov/s/l/releases/remarks/264303.htm (under the Obama Administration, the United States adopted the view that violating another State’s sovereignty was unlawful).
[8] G.A. Off. Compendium of Voluntary Nat’l Contributions on the Subject of How Int’l L. Applies to the Use of Info. and Commc’n Tech. by States Submitted by Participating Gov’t Experts in the Group of Gov’t Experts on Advancing Responsible State Behaviour in Cyberspace in the Context of Int’l Sec. Established Pursuant to G.A. Res. 73/266, U.N. Doc. A/76/136, Netherlands, 55-57 (July 13, 2021), https://front.un-arm.org/wp-content/uploads/2021/08/A-76-136-EN.pdf (hereinafter Netherlands); G.A. Unofficial Translation of France’s Response to Res. 73/27 “Developments in the Field of Information and Telecommunications in the Context of International Security” and Res. 73/266 “Advancing Responsible State Behaviour in Cyberspace in the Context of International Security,” ¶ 3 (a) (2019), https://www.diplomatie.gouv.fr/IMG/pdf/190514-_french_reponse_un_resolutions_73-27_-_73-266_ang_cle4f5b5a-1.pdf (hereinafter France); Ger. Fed. Gov’t, On the Application of International Law in Cyberspace 3-4 (Mar. 2021), https://www.auswaertiges-amt.de/blob/2446304/32e7b2498e10b74fb17204c54665bdf0/on-the-application-of-international-law-in-cyberspace-data.pdf (hereinafter Germany); Can. Fed. Gov’t, International Law Applicable in Cyber Space ¶ 13 (Apr. 22, 2022), https://www.international.gc.ca/world-monde/issues_development-enjeux_developpement/peace_security-paix_securite/cyberspace_law-cyberespace_droit.aspx?lang=eng#a3 (hereinafter Canada); Pol. Ministry of Foreign Affairs, The Republic of Poland’s Position on the Application of International Law in Cyber Space 3 (Dec. 29, 2022), https://www.gov.pl/web/diplomacy/the-republic-of-polands-position-on-the-application-of-international-law-in-cyberspace (hereinafter Poland).
[9] North Atlantic Treaty Organization, Allied Joint Publication-3.20, Allied Joint Doctrine for Cyberspace Operations (Edition A Version 1) 20 fn. 26 (Jan. 2020).
[10] Military and Paramilitary Activities in and against Nicaragua (Nicar. v. U.S.), 1986 I.C.J. Rep 14, ¶¶ 87-91, 251 (June 27, 1986); Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v. Nicar.), 2015 I.C.J. Rep. 665, ¶¶ 66-99, 221-23 (Dec. 16, 2015); Weber and Saravia v. Ger., 2006-XI Eur. Ct. H.R. App. No. 54934/00, ¶ 88 (June 29, 2006); see also Re Canadian Security Intelligence Service Act, 2009 F.C. 1058 (Can.) (dealing with espionage).
[11] S.C. Res. 138, ¶ 2 (June 30, 1960); S.C. Res. 1234, ¶ 1 (April 9, 1999); S.C. Res. 1304 ¶ 4 (a), (June 16, 2000).
[12] G.A. Res. 2625 (XXV) (Nov. 25, 1970); see also U.N. Convention against Transnational Organized Crime, art. 4 (2), Annex I to G.A. Res. 55/25 (Nov. 15, 2020).
[13] Keitner, supra note 3, 14-15; Schmitt, supra note 3, 40, 42-43; see Full Text: International Strategy of Cooperation on Cyberspace, Xinhua News Agency ¶ 2 (Mar. 1, 2017), http://www.xinhuanet.com//english/china/2017-03/01/c_136094371_2.htm.
[14] Helal, supra note 2, ¶ 16.
[15] Stefan Talmon, Sachverständigengutachten gemäß Beweisbeschluss SV-4 des 1. Untersuchungsausschusses des Deutschen Bundestages der 18. Wahlperiode 1–39, at 19-20 (2014) (Ger.), https://www.bundestag.de/blob/282872/2b7b605da4c13cc2bc512c9c899953c1/mat_a_sv-4-2_talmon-pdf-data.pdf; but see Anne Peters, Surveillance Without Borders? The Unlawfulness of the NSA-Panopticon, Part I, EJIL: Talk! 2 (Nov. 1, 2013), http://www.ejiltalk.org/surveillance-without-borders-the-unlawfulness-of-the-nsa-panopticon-part-i/; see also Aaron Shull, Cyberespionage and International Law, in GigaNet 8th Annual Symposium 5 (2013).
[16] Island of Palmas Case, supra note 4, 838.
[17] The Case of the S.S. Lotus, supra note 4, 18.
[18] Nicholas Tsagourias, The Legal Status of Cyberspace: Sovereignty Redux?, in Research Handbook on International Law and Cyberspace, 9, 22-23 (Nicholas Tsagourias & Russell Buchan eds., 2021); von Heinegg, supra note 3, 125-26; see also Tallinn Manual on the International Law Applicable to Cyber Warfare 15, 18 (Michael N. Schmitt ed., 2013); Tallinn Manual 2.0, supra note 3, 13.
[19] International Telecommunication Union (ITU), Understanding Cybercrime: Phenomena, Challenges and Legal Response 277-78 (2012), http://www.itu.int/ITU-D/cyb/cybersecurity/docs/Cybercrime%20legislation%20EV6.pdf; Iñaki Navarrete, L’espionnage en tamps de paix en droit international public, 52 Can. Y.B. Int’l L. 1, 30-34 (2015); cf. Peters, supra note 15, 2.
[20] See, e.g., Electronic Communications Privacy Act of 1986 (ECPA), 18 U.S.C. § 2518; §§ 100 a, 100 e Strafprozessordnung (German Code of Criminal Procedure) for criminal proceedings and §§ 5, 51 Bundeskriminalamtgesetz (Law on the Federal German Police Office) for preventive measures (Ger.).
[21] Russell Buchan, Cyber Espionage and International Law, 54-55 (2019); Kevin Jon Heller, In Defense of Pure Sovereignty in Cyber Space, 97 Int’l L. Stud. 1432, 1480-86 (2021).
[22] Tallinn Manual 2.0, supra note 3, Rule 32 (especially Comment 8, at 171).
[23] Ibid.
[24] Przemyslaw Roguski, Application of International Law to Cyber Operations: A Comparative Analysis of States’ Views, The Hague Program for Cyber Norms Policy 4 (Policy Brief, 2020).
[25] Heller, supra note 21, 1436.
[26] Heller, supra note 21, 1461-63; see, e.g., Tallinn Manual 2.0, supra note 3, Rule 4 (Comment 14, at 22).
[27] Buchan, supra note 21, 53-54; Heller, supra note 21, 1461-63.
[28] See, e.g., Tallinn Manual 2.0, supra note 3, Rule 4 (Comment 14, at 22); Germany, supra note 8, 4; Netherlands, supra note 8, 57; G.A. Off. Compendium of Voluntary Nat’l Contributions on the Subject of How Int’l L. Applies to the Use of Info. and Commc’n Tech. by States Submitted by Participating Gov’t Experts in the Group of Gov’t Experts on Advancing Responsible State Behaviour in Cyberspace in the Context of Int’l Sec. Established Pursuant to G.A. Res. 73/266, U.N. Doc. A/76/136, United States, 140 (July 13, 2021); https://front.un-arm.org/wp-content/uploads/2021/08/A-76-136-EN.pdf (hereinafter United States); Richard Kadlčák, Special Envoy for Cyberspace Director of Cybersecurity Department, Statement at the 2nd Substantive Session of the Open-Ended Working Group on Developments in the Field of Information and Telecommunications in the Context of International Security of the First Committee of the General Assembly of the United Nations 2 (Feb. 11, 2020), https://www.nukib.cz/download/publications_en/CZ%20Statement%20-%20OEWG%20-%20International%20Law%2011.02.2020.pdf (hereinafter Czech Republic); Canada, supra note 8, ¶¶ 15, 17.
[29] Germany, supra note 8, 4; Netherlands, supra note 8, 57; United States, supra note 28, 140; Czech Republic, supra note 28, 3; Canada, supra note 8, ¶¶ 15, 17.
[30] Heller, supra note 21, 1451-54.
[31] Heller, supra note 21, 1451-54; Antonio Coco & Talita de Souza Dias, ‘Cyber Due Diligence’: A Patchwork of Protective Obligations in International Law, 32 Eur. J. Int’l L. 771, 779-80 (2021).
[32] Heller, supra note 21, 1451-53; Coco & de Souza Dias, supra note 31, 779-80.
[33] Heller, supra note 21, 1454; Coco & de Souza Dias, supra note 31, 779-80.
[34] Legality of the Threat or Use of Nuclear Weapons (Advisory Opinion), 1996 I.C.J. Rep. 226, ¶ 86 (July 8, 1996) (“Indeed, nuclear weapons were invented after most of the principles and rules of humanitarian law applicable in armed conflict had already come into existence; […] However, it cannot be concluded from this that the established principles and rules of humanitarian law applicable in armed conflict did not apply to nuclear weapons. Such a conclusion would be incompatible with the intrinsically humanitarian character of the legal principles in question which permeates the entire law of armed conflict and applies to all forms of warfare and to all kind of weapons, those of the past, those of the present and those of the future”).
[35] Heller, supra note 21, 1464-68; Buchan & Navarrete, supra note 3, 243-44.
[36] Military and Paramilitary Activities in and against Nicaragua, supra note 10, ¶¶ 87-91, 251.
[37] U.S. Dept. of State, Senior State Department Officials on the People’s Republic of China, Special Briefing (Feb. 3, 2023), https://www.state.gov/senior-state-department-officials-on-the-peoples-republic-of-china/; see also Donald Rothweill, Too Much Hot Air? A Balloon which Tested the Limits of International Law, Australian National University College of Law (Feb. 16, 2023), https://law.anu.edu.au/research/essay/cipl-discussion-paper-series/too-much-hot-air-balloon-which-tested-limits/.
[38] The Case of the S.S. Lotus, supra note 4, 18-19; see also Tallinn Manual 2.0, supra note 3, Rule 11 (at 66), especially Comment 14 (at 69-70); François Delerue at al., The Geopolitical Representations of International Law in the International Negotiations on the Security and Stability in Cyberspace, Report No. 75, 52 (“generally…accepted”) (Ministère des Armées, 2020).
[39] Heller, supra note 21, 1458-61, 1464-74.
[40] Heller, supra note 21, 1454.
[41] Heller, supra note 21, 1454; Case Concerning the Continental Shelf (Libyan Arab Jamahiriya v. Malta), 1985 I.C.J. Rep. 13, ¶ 27 (June 3, 1985); Legality of the Threat or Use of Nuclear Weapons, supra note 34, ¶ 64.
[42] Common African Position, supra note 2, ¶ 17.
[43] See supra note 29.
[44] See France, supra note 8, ¶ 3 (a) (at 8) (according to France’s official response to two GA resolutions, no harm is necessary for a violation of sovereignty to have occurred); see Declaration of General Staff of the Armed Forces of the Islamic Republic of Iran Regarding International Law Applicable to the Cyberspace, art. II, ¶ 4 (Aug. 18, 2020), https://nournews.ir/En/News/53144/General-Staff-of-Iranian-Armed-Forces-Warns-of-Tough-Reaction-to-Any-Cyber-Threat (for Iran’s position on sovereignty violations in cyberspace); see also Switzerland’s Position Paper on the Application of International Law in Cyberspace, Swiss Federal Department of Foreign Affairs 2, https://www.eda.admin.ch/content/dam/eda/en/documents/aussenpolitik/voelkerrecht/20210527-Schweiz-Annex-UN-GGE-Cybersecurity-2019-2021_EN.pdf; see G.A. Off. Compendium of Voluntary Nat’l Contributions on the Subject of How Int’l L. Applies to the Use of Info. and Commc’n Tech. by States Submitted by Participating Gov’t Experts in the Group of Gov’t Experts on Advancing Responsible State Behaviour in Cyberspace in the Context of Int’l Sec. Established Pursuant to G.A. Res. 73/266, U.N. Doc. A/76/136, Brazil, 18 (July 13, 2021), https://front.un-arm.org/wp-content/uploads/2021/08/A-76-136-EN.pdf; Poland, supra note 8, at 3; Przemyslaw Roguski, Poland’s Position on International Law and Cyber Operations: Sovereignty and Third-Party Countermeasures, Just Security (Jan. 18, 2023), https://www.justsecurity.org/84799/polands-position-on-international-law-and-cyber-operations-sovereignty-and-third-party-countermeasures/; see also Rashad Rolle, Lawyers to Act in N.S.A. Spy Row, The Tribune (June 5, 2014) (responding to accusations that the NSA had recorded every cell phone conversation in the Bahamas, that State’s Minister for Foreign Affairs, Fred Mitchell, declared: “The Bahamas wishes to underscore the most worthy principles of this organisation, as expressed in the OAS charter: that international law is the standard of conduct of States, the primacy of sovereignty, maintenance of territorial integrity, freedom from undue external intrusion and influence […]”), http://www.tribune242.com/news/2014/jun/05/lawyers-act-ns-spy-row/; see further Note Verbale Dated 22 July 2013 from the Permanent Mission of The Bolivarian Republic of Venezuela to the United Nations Addressed to the Secretary-General (on Behalf of the MERCUSOR Member States Argentina, Bolivia, Brazil, Uruguay, And Venezuela), U.N. Doc. A767/746 (July 22, 2013) (in relation to the NSA “interception of telecommunications” the MERCUSOR member States declared that these “constitute unacceptable behaviour that violates our sovereignty […]“), https://digitallibrary.un.org/record/754199; African Common Position, supra note 2, ¶¶ 15-16.
[45] Ibid.
[46] See supra note 44.
[47] See supra note 44.
[48] Arthur B.P. Laudrain, France’s New Offensive Cyber Doctrine, Lawfare (Feb. 26, 2019), https://www.lawfareblog.com/frances-new-offensive-cyber-doctrine; Boris Toucas, With its New ‘White Book’, France Looks to become a World-Class Player in Cyber Space, Texas National Security Review/War on the Rocks (Mar. 29, 2018), https://warontherocks.com/2018/03/with-its-new-white-book-france-looks-to-become-a-world-class-player-in-cyber-space/; Eric Rosenbaum, Iran is ‘Leapfrogging Our Defenses’ in a Cyber War ‘My Gut is We Lose’: Hacking expert Kevin Mandia, CNBC News (Nov. 18, 2021), https://www.cnbc.com/2021/11/18/iran-leapfrogging-our-defenses-in-cyber-war-hacking-expert-mandia-.html; Catherine A. Theohary, Iranian Offensive Cyber Attack Capabilities, Congressional Research Service (Jan. 13, 2020), https://sgp.fas.org/crs/mideast/IF11406.pdf; Publicly Reported Iranian Cyber Actions in 2019, Center for Strategic & International Studies, https://www.csis.org/programs/technology-policy-program/publicly-reported-iranian-cyber-actions-2019.
[49] See, e.g., Bill Whitaker, Solar Winds: How Russian Spies Hacked the Justice, State, Treasury, Energy and Commerce Departments, CBS News (July 4, 2021), www.cbsnews.com/news/solarwinds-hack-russia-cyberattack-60-minutes-2021-07-04/; Zolan Kanno-Youngs & David E. Sanger, U.S. Accuses China of hacking Microsoft, The New York Times (Aug. 26, 2021), www.nytimes.com/2021/07/19/us/politics/microsoft-hacking-china-biden.html.
[50] Eleonore Pouwels, The Road Towards Cyber-Sovereignty Passes Through Africa, Konrad Adenauer Foundation (Dec. 9, 2019), https://www.kas.de/de/laenderberichte/detail/-/content/the-road-towards-cyber-sovereignty-passes-through-africa.
[51] The North Continental Shelf Cases (Ger. v. Den. and Neth.), 1969 I.C.J. Rep. 3, ¶ 74 (Feb. 20, 1969) (“[…] State practice, including that of States whose interests are specially affected, should have been both extensive and virtually uniform in the sense of the provision invoked; – and should moreover have occurred in such a way as to show a general recognition that a rule of law or legal obligation is involved”); Nico Krisch, International Law in Times of Hegemony: Unequal Power and the Shaping of the International Legal Order, 16 Eur. J. Int’l L. 369, 380 (2005).
[52] Common African Position, supra note 2, ¶ 17.
[53] Common African Position, supra note 2, ¶¶ 15-16.
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Apr 11, 2024 | HILJ-HIALSA International Arbitration Collaboration, Online Scholarship
Galo Márquez*
The saga of Spanish investment arbitrations born out of Spain’s decision to disapply incentives in the renewable sector in the face of a financial crisis continues to generate awards on quantum and liability. The recent decision in Eiser v. Spain is one of many that has contributed to a pool of inconsistent arbitral awards. Given the increasing number of decisions, it is not surprising that arbitral tribunals have reached divergent decisions as to the wrongfulness of Spain’s measures. In his Dissent on Liability and Quantum, Prof. Philippe Sands affirms that “[n]o doubt, reasonable folk will question the wisdom of creating a system that allowed so many competing and contradictory awards to flower, and introduce the changes that seem so necessary” (¶ 1). This article addresses some of the inconsistencies arising from how arbitral tribunals have recognized that a state may make regulatory changes. Still, this recognition has not meaningfully impacted the damages awarded to investors.
Nor have the competing views of arbitral tribunals resulted in a uniform application of the law of damages in international arbitration. Typically, when tribunals determine that a state’s measure violates an investment treaty, they award damages for injury attributable to any part of the measure. By reviewing the decision in Eiser v. Spain, this article suggests a different approach. It argues that states should only be liable for the portion of damages attributable to the difference between the injury caused by the measure actually imposed, and the hypothetical injury that would have been caused by a lawful alternative measure. I will refer to this concept as the “Margin of Wrongfulness.”
It must be mentioned that this article builds upon the work of the Academic Forum on Investor-State Dispute Settlement (“ISDS”) before the United Nations Commission on International Trade Law Working Group III (“UNCITRAL”) on matters related to damages. The author is an appointed Member of the Academic Forum on ISDS and a representative observer before Working Group II on Arbitration and Dispute Resolution. However, the views expressed here are mine alone. The benefit of this article is twofold. First, it demonstrates an inconsistency in the way that arbitral tribunals have awarded damages, which the ISDS community has sparingly addressed. Second, by reviewing over a few dozen awards, the article identifies that the concept of ‘legitimate expectations’ in international investment law cannot continue developing as it has in the last few decades without a shift in how damages are awarded.
I. Introduction to the Spanish financial crisis
The Eiser v. Spain case is an old tale with a new twist. Like many other countries, Spain introduced at the end of the 90s a package of regulatory amendments and financial incentives to promote renewable energy in the country. Spain sought to promote a specific type of solar power through state subsidies. The new regulatory regime was an attempt to realize the spirit of the 1992 Framework Convention on Climate Change, the 1994 Energy Charter Treaty, and the 1997 Kyoto Protocol, as well as the 2001 European Union policy for reducing greenhouse gasses by means of developing renewable energy in the region.
Starting in 1998, Spain issued a series of decrees to promote renewable energy by means of a guarantee for long-term supply of energy (Eiser, ¶¶ 105-107). In the long term, however, these incentives were not sustainable. Spain was not left alone in the crusade to advance renewable energy throughout the 90s. In the first weeks of 1991, the Committee on Science and Technology of the European Parliament made an aggressive call to move towards renewable energy on the basis of the results of the Brundtland report—document recounting the world’s critical environmental problems. In the Committee’s view, “[e]very effort should be made to develop the potential for renewable energy which could form the foundation of the global energy structure during the 21st century” (p. 2, ¶ 5).
Answering this call, Spain issued Royal Decree 661/2007. The International Energy Agency viewed the Decree as seeking “[t]o contribute to Spain’s efforts to achieve its 2010 national target for the promotion of electricity from renewable energy under EC Directive 2001/77/CE.” More than an effort, several investors—including Eiser (¶¶ 357-35)—argued that Decree 661/2007 was a public policy creating an attractive environment for investment (Charanne v. Spain, ¶ 515).
This Decree was later retracted by Spain, causing significant harm to energy projects. The rationale behind a state’s incapacity to unreasonably and unfairly backtrack from a commitment is quite logical. In the same way that a person would not purchase a car for a price other than the one advertised, investors expect to receive the benefit of protective guarantees or commitments that the government has made to them. UNCTAD estimates that the Spanish Decree has been at the heart of over 40 investment arbitrations. This number keeps growing as investors submit new ISDS cases arising from Spain’s retreat from its regulatory commitments to the energy sector (See, WOC v. Spain).
A few years into the application of Decree 661/2007, the Tribunal in Eiser recounts that Spain became concerned due to a “tariff deficit.” The tariff deficit is generally understood as “[t]he financial gap between the costs of subsidies paid to renewable energy producers and revenues derived from energy sales to consumers” (¶ 124). To combat this deficit, in December 2012, the Spanish Parliament imposed a 7% tax on the total value of the energy fed into the national grid. This tax eliminated the subsidies for renewable energy. This mechanism was followed by several other decrees that blunted the financial incentives and subsidies for foreign investors. In June 2014, the government dealt the final blow to Decree RD 661/2007 through a ‘ministerial order’ setting up a whole new regime for existing power plants (the “Disputed Measure”).
The Eiser case arose from a so-called ‘failed’ investment in the solar power sector in Spain (¶¶ 94-95). During the arbitration, Eiser valued its investment through the Discounted Cash Flow (“DCF”) method at €124.3 million (¶ 136). The relevance of damages in investment arbitration is a growing concern in the field. Certain circles claim that arbitral tribunals are awarding increasingly larger claims in favor of the investor. On this, the International Institute for Sustainable Development mentions that its “[r]esearch has found over 50 known cases in which an investor–state tribunal has awarded a foreign investor over USD 100 million in compensation. In at least eight claims, the award reached over USD 1 billion” (¶ 14).
The energy generation mechanism promoted under Decree 661/2007 was allegedly categorized as a renewable source. The new policies materialized in Decree RD 661/2007. The Arbitral Tribunal considered that the Decree contained a myriad of key elements, including: (i) a guaranteed “priority of dispatch” into Spain’s grid subject to certain conditions; and (ii) it allowed energy producers to adopt different tariffs for production in accordance with the specific characteristics of each project (¶ 112).
Eiser brought an investment arbitration under the Energy Charter Treaty as the general partner of a limited partnership, claiming that it invested in reliance on Royal Decree 661/2007 and its stabilization clause¾which restricted Spain from amending its regulatory framework (¶¶ 357-358). Eiser’s business model depends on identifying low-risk investments in public infrastructure.
The State’s decision to retract Decree 661/2007 had a devastating effect on several companies. Although many foreign investors had access to bilateral investment treaties or the Energy Charter Treaty, locals recount that Spain’s decision to retroactively backtrack from the Decree 661/2007 (the Disputed Measures) “[l]ed to […] the total ruin of 62 000 families […] and that their opportunities to file claims before the Spanish Government have been restricted, given that they did not have access to more impartial, international courts.” This was not the case for Eiser, which enjoyed its position as a United Kingdom incorporated company with the capacity to bring an investment arbitration against Spain.
II. The Tribunal’s Award
Against this backdrop, the Eiser Tribunal was tasked with reviewing if the Disputed Measures breached the fair and equitable treatment (“FET”) standard. Embarking on this task, the Arbitral Tribunal had to address the State’s capacity to regulate¾a heavily disputed point in international investment law (Isolux v. Spain, ¶¶ 409-426; Novenergia II v. Spain, ¶ 542-697). Although the nuances to identify a breach of legitimate expectations may be contested, arbitral tribunals have generally considered the following points (¶¶ 369-372):
- Whether the investor’s expectations were legitimate, reasonable or fair, and not based on subjective considerations.
- The reliance of the investor on such expectations when making its an investment.
- The State’s unilateral conduct to the detriment of the legitimate expectation.
- The existence of a damage to the investor.
Following the steps of Parkerings v. Lithuania, the Tribunal in Eiser departed from the premise that “[a]bsent explicit undertakings directly extended to investors and guaranteeing that States will not change their laws or regulations, investment treaties do not eliminate States’ right to modify their regulatory regimes to meet evolving circumstances and public needs” (¶ 369). Accordingly, FET itself does not paralyze the regulatory powers of the governments.
III. Overlapping principles for determining the margin of wrongfulness
An award on quantum must flow from a prior determination of liability, granted through the same award or in a prior stage. Arbitrators sometimes split their decisions on liability and quantum into different awards, but these components may very well be included in the same award. Several breaches have been claimed in the Spanish arbitrations, but a notable one is the myriad of claims concerning the FET provision. Tribunals have considered that FET may spin off in several protections, including a violation of legitimate expectations, lack of transparency, lack of due process, and arbitrariness (Electrabel v. Hungary I, ¶ 7.74.; PV Investors v. Spain II, ¶ 565; RREEF v. Spain II, ¶ 260; Operafund v. Spain, ¶ 524).
EDF v. Romania, an important case on the analysis of a claimant’s legitimate expectations, explained that a mere regulatory instability does not amount to a breach of a FET provision (¶ 217):
The idea that legitimate expectations, and therefore FET, imply the stability of the legal and business framework, may not be correct if stated in an overly-broad and unqualified formulation. The FET might then mean the virtual freezing of the legal regulation of economic activities, in contrast with the State’s normal regulatory power and the evolutionary character of economic life.
The Eiser Tribunal considered that Spain’s withdrawal of Decree 661/2007 amounted to a breach of the FET standard and the investor’s legitimate expectations. The Tribunal notably awarded full compensation for all losses to the project attributable to Spain’s retraction of Decree 661/2007. By applying a Margin of Wrongfulness, the Tribunal should have discounted from the award losses attributable to the portion of Spain’s measure that would not have amounted to an arbitrary abrogation of Decree 661/2007. In other words, if not all amendments to the regulatory framework are abusive, then the financial gap between the measure that Spain could have taken without breaching FET and the measure that, if applied, would be illegal constitutes the Margin of Wrongfulness.
Reduction of damages in findings where a government disregards an investor’s legitimate expectations is not uncommon. In MTD v. Chile, the Arbitral Tribunal found a breach to the FET standard by considering that Chile had induced a legitimate expectation that a real estate project would be feasible, even when the acquired land could not be developed for commercial purposes (¶ 217). In what has been called a Solomonic decision (Potestà, pp. 38-39), the Tribunal reduced by 50% the damages awarded to the investor due to its failure to conduct an independent assessment of the land.
As such, not all damages need to be compensated. The Margin of Wrongfulness would imply the existence of an ‘unjustified damage’ standard (Muhammad, p. 108) and not a mere reduction in the value of the investor’s investment (Wöss, ¶ 9-10). The Eiser Tribunal unfortunately missed this aspect. Incoherently, it considered that states are not confined to a straitjacket when amending prior legislation, without analyzing the resulting effect on damage quantum. The Eiser Tribunal is not alone in this omission. In the Renergy case, the Tribunal, by majority, invoked “[w]ell-established arbitral case-law” holding “that even in the absence of any specific commitment, Article 10(1) ECT does protect investors against legislative changes that exceed a (wide) acceptable margin” (¶ 642). The recognition of an exceeding acceptable margin might justify the existence of a Margin of Wrongfulness.
The Eiser case is also enlightening as to the impact that a fact witness might have on damages. In most awards, the decision on quantum is driven by the technical viewpoints of experts. In Eiser, the Tribunal reflected that during the arbitration hearing, representatives of the investor opined on the weight that the Disputed Measure had on the investment:
In response to the Tribunal’s question at the Hearing, Mr. Meissner, a founding partner of Eiser, drew a distinction between the changes in Spain’s regulatory regime and other regulatory situations where regulators might “tinker a little bit with the returns.” In contrast, he deposed that “here we had a complete value destruction. We lost all value in this particular project.”
The factual witness’ statement suggests that “tinker[ing] a little bit with the returns”—i.e., the Margin of Wrongfulness—would be acceptable. This implies an additional layer of analysis that exceeds the scope of this article, where the Margin of Wrongfulness might also be justified since an investor is expected to value its investment considering the risks of the project. This is relevant, because under several methods to quantify damages in arbitration a discount rate needs to be applied to the future cash flows that an investor might expect. The ICCA Task Force on Damages considers than an investor’s “[u]nbiased cash flows are expected (average) cash flows—not the cash flows that investors may hope for if everything goes well”.
The Margin of Wrongfulness does put into question some of the premises on which the law of state reparation has been built. Through state responsibility doctrine, investors expect to receive compensation after a violation of international law, which “[s]hould reflect all financially assessable damages” (Marboe, ¶ 3.289). This principle is derived from the acclaimed Factory at Chorzów case, where the Permanent Court of International Justice settled that “[r]eparation must, as far as possible, wipe out all the consequences of the illegal act and reestablish the situation which would, in all probability, have existed if that act had not been committed” (Chorzów, PCIJ 1927, p. 47). The decision in Chorzów has become a cornerstone of the law on damages and is widely cited by tribunals, including in the Eiser case (Eiser, ¶ 421). The Margin of Wrongfulness brings to light some potential deficiencies in the development of damages in ISDS since the Chorzów case.
While the Margin of Wrongfulness questions the legality of the Disputed Measure, it could also be applied by questioning the legitimate expectation of the investor to receive damages. Reparation as understood in Chorzów is built on two premises: (i) the existence of an illegal act, and (ii) the reestablishment of the situation had the act never been committed (Amoco v. Iran, ¶ 191-195). The first premise is compatible with the Margin of Wrongfulness since it implicitly recognizes that damages cannot be awarded for a lawful act, subject to certain nuances on the type of breach committed (e.g., lawful expropriation still requires compensation). The second premise, however, is more questionable. Compensation should restore the injured party not to their pre-breach position, but to the position they would have arrived at had a ‘lawful’ measure been enacted. Restoring the injured party to the pre-breach position presumes that the State’s measure is unlawful in its entirety—but this may not necessarily be true. Arguably, the Tribunal’s recognition of the Margin of Wrongfulness and the Chorzów case invites discussion on how the premises of international damages should be reconsidered or disregarded by future arbitrators in cases such as Eiser v. Spain.
If the Margin of Wrongfulness is accepted as a legal premise then the arbitrators would need to identify the lawful-scenario of the State’s measure. This would require tribunals to heavily engage in hypothetical factual and financial situations, which ISDS tribunals are familiar with. Most investment arbitrations necessitate that arbitrators identify a “but-for” scenario, derived from the principle of causation in international damages. According to the Brattle Group, one of the most active quantum experts in ISDS cases, “[c]ausation requires the careful construction of a counterfactual or ‘but-for’ world that eliminates only the conduct at issue but retains all relevant features of the actual world. The construction of the but-for world is necessarily hypothetical and must remain internally consistent”.
Assessing the Margin of Wrongfulness by considering a potential hypothetical scenario is then inherent to the ordinary course of damages identification conducted by tribunals. This alternative factual situations are also grounded as a matter of law. In the 1987 Amoco decision before the Iran-US Claims Tribunal, Judge Bower separately opined that once liability is found with a degree of certainty, then quantification may be performed with “[t]he best available evidence, even though this process be inherently speculative” (n. 142, ¶ 26). An alternative evaluation of the Margin of Wrongfulness would then be compatible with the perspective taken by some stakeholders.
IV. Conclusion
Eiser v. Spain underscores the intricate nature of investment disputes and the importance of balancing a state’s regulatory authority with investor protections. Recognizing the Margin of Wrongfulness and considering how this concept impacts damages may contribute to a more nuanced approach in future arbitration cases, fostering a fair and equitable resolution for all parties involved. It would also incentivize uniformity in cases where a state, such as Spain, is faced with a wave of investment claims. Moreover, achieving certainty as to the standard on which an investment tribunal should award damages might also function as a prevent mechanism of control for States when enacting amendments to their international commitments.
*Galo Márquez is an Associate in the International Arbitration practice at Creel, García-Cuellar, Aiza y Enríquez, and a Member of the Academic Forum on ISDS before UNCITRAL. He is also a Business Law Professor at Tec de Monterrey.
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