Feb 13, 2024 | Online Scholarship, Perspectives
Juan Carlos Portilla*
Introduction
Because a paradigm shift is currently underway in the international monetary system, international financial regulators should establish a global standard setter for virtual currencies (“VCs”). This article will refer to such an entity as the Global Agency for the Virtual Currency Economy (“GAVCE”). Two monetary ecosystems coexist today. The first ecosystem involves central banks and depository institutions that supply economies with fiat currency; the second includes VCs. VCs emerged in 2009 “as a means of defiance against a financial system in crisis and ‘captured’ by state regulation and private agents.” For some, VCs inspire a level of confidence that money managed by central authorities might not sustain. Nevertheless, the rise of VCs also implicates important risks including market manipulation and financial crime—and governments across the globe are struggling to regulate VCs because of their disintermediated technological constitution.
Although the European Union agreed in June 2023 on a provisional version of the Markets in Crypto Assets framework, and while some scholars in the United States are making the case for self-regulation in the VC industry, this article argues for some form of global governance intervention in case these or other mechanisms fail. Regulations must protect VC consumers from market failure, asymmetric information, and negative externalities. Yet, most countries have not taken any regulatory action on VCs, creating significant regulatory gaps. According to the World Economic Forum, regulatory systems governing VCs are “fragmented, ineffective, and, in some countries nonexistent.” Because there is no harmonized global regulatory governance for VCs, criminal enterprises can engage in regulatory arbitrage across nations to commit financial crimes, such as the financing of terrorism and money laundering. Therefore, international financial law should establish a GAVCE to regulate VCs.
This article draws upon the interdisciplinary dialogue between international law (“IL”) and international relations (“IR”) scholarship to make the case for a GAVCE. In Part I, the article introduces blockchain technologies and the VC ecosystem. Part II outlines emerging risks related to VCs and discusses matters of law related to the establishment of a GAVCE. Finally, Part III discusses the politics that would emerge while establishing global governance for VCs, which implicate regulatory capture theories and the role of time as an analytical variable, in the rule-making process.
I. Introducing Blockchain
VCs are peer-to-peer electronic cash systems that use blockchain technology to operate without the need for intermediaries (banks). According to a memorandum by presumed Bitcoin creator Satoshi Nakamoto, the peer-to-peer nature of VCs “allows online payments to transfer directly from one party to another without routing through a financial institution.” Blockchain technology, in turn, gathers information (a ledger for transactions) into “blocks” that hold it. Blocks have storage capacities; ledgers for transactions are placed into a block until it is filled. Once a block is filled, it is then closed and immediately linked to the previously filled block. This process forms a chain of information (a “blockchain”), whose blocks are linked through cryptography, creating a peer-to-peer electronic cash system. Thus, VCs “are distributed, open-source, math-based peer-to-peer virtual currencies” that can operate with no central bank involvement, no intermediaries, and no government oversight.
VCs are different from fiat currencies, e-money, and central bank digital currencies (“CBDCs”). While fiat currency is the paper money of a country that is designated to be its legal tender, and accepted as a medium of exchange, VCs are digital representations of value that can be digitally traded, and they are typically neither issued nor guaranteed by governments. VCs are also different from e-money, which digitally represents fiat currency and is utilized to electronically transfer the value denominated in fiat currency. Although some countries have used blockchain technology to issue CBDCs, like the digital yuan of China, CBDCs do not fully encapsulate all of the attractive features of VCs, such as anonymity, decentralization, and governance. While central banks that issue CBDCs decide on the rules governing those CBDCs, the users of VCs control VC networks by making consensus-based decisions.
The VC Ecosystem
Several specific VCs—including Bitcoin and Ethereum—are well-known to the public. Bitcoins, which are convertible units of account composed of unique strings of letters and numbers constituting units of the currency, are decentralized in nature. Since individual users are willing to pay for Bitcoins and other VCs, they have value in the marketplace. Ethereum, Ripple, Litecoin, and Dashcoin came after Bitcoin and utilize a similar form of blockchain technology. Stablecoins, in turn, are VCs backed by fiat currencies, like the U.S. dollar, or commodities, like gold. Tether, for example, is the largest stablecoin by market capitalization and its value is pegged to the U.S. dollar.
Several different actors make up the VC market. The supply side of the VC market consists of exchange firms, such as Binance. Supply-side firms also include administrators, miners, and wallet providers. Exchangers, for a commission, trade VCs for other VCs—or for precious metals or fiat currencies. Administrators are individuals or legal entities that issue VCs, write rules for the use of VCs, maintain central payment ledgers, and redeem VCs. Miners act as market makers; they use computer systems to verify transactions by adding them to the blockchain. VC wallets hold, store, and transfer VCs (examples of wallet providers include Multibit or Coinbase). Finally, users compose the demand side of the VC market. Users exercise their freedom of choice to select VCs and they generally buy VCs for payment or investment needs.
II. Emerging Risks
Emerging risks related to VCs include consumer panic, market manipulation, and financial crime. Confidence is a bedrock principle of the modern financial system. Unlike traditional financial products (such as savings accounts), Bitcoin and other VCs are presently uninsurable—which undermines investor confidence and heightens the risk of consumer panic. When an individual in the United States deposits money with a bank in a single ownership capacity, he or she has access to up to U.S. $250,000 at the Federal Deposit Insurance Corporation (“FDIC”) if the bank fails for the U.S. dollar is backed by the full faith and credit of the U.S. government. In contrast, government deposit insurance is not available for VCs because they are not regulated or backed by any government. Additionally, the price history of VCs demonstrates that the VC market may in fact be a speculative bubble. Bitcoin investors can manipulate its price; for example, media coverage of Bitcoin or fake news associated with Bitcoin can induce individuals who have not previously traded Bitcoin to invest in it for the first time. In the absence of a central government authority backing the value of Bitcoin, Bitcoin investors could lose their shirts, were Bitcoin to fail.
According to Nobel Prize-winning economist Joseph Stiglitz, VCs are also often used for illicit purposes such as tax evasion. According to the Financial Action Task Force (“FATF”), money launderers, terrorist financiers, and sanctions evaders use VCs as a powerful tool for financial crime endeavors, outside the reach of law enforcement. Indeed, bad actors can and often do use technology and Bitcoin to pursue chaos and perpetrate financial crimes. One example is the May 2017 WannaCry ransomware attack, in which a worm component exploited vulnerabilities in the widely used Microsoft Windows operating system. Ultimately, the cyberattack cost eight billion US dollars in damages. The criminals behind the attack demanded payment in Bitcoin because they have easy access to VC service providers around the world.
III. Global Governance for VC
Multiple instruments, including but not limited to treaties, may be used to create a GAVCE. Traditionally, states have been the primary source for the creation of international organizations (“IOs”), particularly by way of international treaties. Examples of this approach include the International Monetary Fund Articles of Agreement. Nevertheless, many legitimate and powerful IOs have also originated outside of the treaty process. These IOs, with more innovative institutional designs, have increasingly found their way into the international legal order. For example, the central bank governors of the G-10 countries established, without a treaty, the Basel Committee on Banking Supervision (“BCBS”)—the primary global standard setter for the prudential regulation of banks. Likewise, the International Organization of Securities Commissions (“IOSCO”)—the international body recognized as the global standard setter for securities—is not a treaty organization but rather a not-for-profit legal entity incorporated under a private act in Quebec, sanctioned by the Quebec National Assembly. FATF—the global money laundering and terrorist financing watchdog—is similarly not a treaty-based international organization but rather a task force composed of member states who fund FATF on a temporary basis for the achievement of specific mandates. Decentralized government agencies, under the control of the executive branch of national governments, can also form IOs; in 1995, a network of national financial intelligence units established the Egmont Group, which provides a platform to exchange financial intelligence to combat financial crime. In sum, there are multiple legal instruments besides treaties available to create a GAVCE.
Considering the above, domestic regulatory agencies should establish GAVCE outside the treaty-based model, which involves a slow and politically costly ratification journey. Although the establishment of GACVE outside the treaty process may face concerns related to legitimacy or a perceived democratic deficit, a more efficient approach here is warranted because of the urgency of the issuance of global VC regulations as well as the widely recognized success of other non-treaty based IOs like IOSCO.
The proposed GAVCE should also have the capability to influence relations amongst states, market agents within the virtual currency economy, and multilateral financial institutions. GAVCE should build power and influence from the inside out to affect the behavior of states when regulating VCs; to achieve this, domestic regulatory agencies should delegate certain law-making capabilities to GAVCE to regulate VCs. This act of delegation upon GAVCE is feasible because IOs can be explicitly empowered to make international law through a delegated law-making process, which is best explained under the principal-agent theory, mainly associated with corporate law. The principal-agent theory can be applied to the relationship between state actors and global standard setters under international law. According to Ian Johnstone of the Fletcher School of Law and Diplomacy at Tufts University, the simplest form of delegation exists in this context when states explicitly grant authority to IOs, because it is typically fairly straightforward to identify the agent, the principals, and the powers that the principals have conferred.
Although this type of delegation to GAVCE may face criticism related to a loss of sovereignty or the risk of capture by special interests, several distinct benefits of delegation outweigh those concerns. First, the delegation at issue will be limited in scope—exclusively to the world of VCs. As such, there is no significant incursion on state sovereignty. A second benefit of delegation is the standardization of norms across jurisdictions to avert regulatory arbitrage and mitigate financial crime. As previously stated, current regulatory systems governing VCs are fragmented, ineffective, and often nonexistent. Third, there is currently a dire need for regulatory experts to develop technical skills related to the various complex features of VCs, blockchain, and exchangers. The development of such expertise through the proposed GAVCE would in turn help the international community to sow the seeds for a good governance model for the VC market. Under this good governance approach, global crypto policymakers would make decisions, through the proposed GAVCE, based on data and widely accepted methodologies to protect the virtual currency economy from the risks outlined above.
Another way to reduce the risks of delegation and institutional capture is for GAVCE to issue soft law rather than hard law. International law is more than just a formalistic set of black-letter rules; a more pluralistic conception of international law, embraced by many scholars today, also considers soft law, which is formally non-binding but habitually obeyed. According to Shaffer and Pollack, states do not always only favor the hard law model when making international law and instead often adopt the soft law approach, as a design choice. Although the concept of soft law may be problematic to legal positivists because it suggests a continuum between political and legal commitments, functionalist scholars argue that soft law norms offer several advantages over hard law, including 1) greater flexibility for states to cope with uncertainty, 2) greater opportunity for states to gain expertise over time through information sharing and deliberation, and 3) lower negotiation costs. In this context, hard law does not provide states with the necessary flexibility to deal with the uncertainties of VCs, because VCs are an emerging, ever-changing technology. Soft law will better accommodate the shifting nature of VCs.
Politics of International Corporate Capture
Concerns about international corporate capture may play a significant role in the establishment of a GAVCE, as corporate capture could materially affect the substantive outcomes of GAVCE’s eventual regulations. Institutional theory, regulatory capture, and the role of time as an analytical variable are all key topics that capture the attention of scholars when analyzing global financial rule-making processes. The politics that revolved around BCBS while it began to regulate international banking set a precedent that leaders should consider in the process of regulating VCs. Indeed, there are different sets of conditions that result in captured regulation, which serves narrow vested interests, versus common interest regulation, which serves the broader public interest.
Indeed, global VC regulators would not be immune to the risk of regulatory capture by self-interested actors and powerful interest groups. If VC firms were to capture GAVCE’s rulemaking, they might pursue policies that would be contrary to the public interest. One hypothetical example to illustrate the risk of VC capture would be a rule allowing the issuers of stablecoins to use an algorithm-based system to maintain their peg to the U.S. dollar instead of a system of cash reserves. History proves that such a rule would have costly effects; TerraUSD—a U.S. dollar stablecoin that sparked a crisis in VC markets in 2022—used an algorithm-based system rather than cash reserves to maintain its peg to the dollar, causing it to lose its price peg during a crisis of liquidity in early 2022. During this crisis, investors expected to be able to cash out the stablecoin for one U.S. dollar at any point, but ultimately were not able to when TerraUSD lost its price peg. The TerraUSD meltdown caused losses of $300 billion across the broader VC market.
To prevent corporate capture and scenarios like the above, scholars have presented theoretical frameworks that emphasize the importance of timing and sequencing in determining rulemaking outcomes in global finance. For instance, a close examination of Basel Committee deliberation records and other key documents provides strong evidence that the first movers in the Basel process, namely powerful international banks, played a key role in determining the Committee’s outcomes. Domestic regulatory agencies should carefully consider time and sequencing to prevent large VC groups from arriving at the decision-making table well before others. The first-mover advantage cannot be part of the regulatory process for VCs. In addition, transparency around lobbying and the establishment of a “cooling off” period after serving in the private sector can prevent powerful VC firms from capturing GAVCE’s rulemaking.
Conclusion
So far, VCs have largely escaped from the regulatory grasp of national governments. Because there is no harmonized regulatory governance regime in place, VCs are often used for illicit purposes. International law must regulate VCs to strengthen the governance of the overarching global financial architecture. Multiple instruments, including treaties and non-treaty mechanisms, are available to create a GAVCE that can issue soft law to regulate VCs. Nevertheless, non-state actors may also pose regulatory capture risks concerning the global VC rule-making process. Global policymakers should take careful measures to avert regulatory capture if they decide to establish a global standard setter for VCs.
*Juan Carlos Portilla is an International Financial Law Professor at Sabana University School of Law (Colombia) & Anti-Corporate Crime Law Professor at the ITAM Law School (Mexico), an ACAMS Speaker, a Legal Consultant and a Compliance Professional at several different global financial institutions including the Central American Bank for Economic Integration (Honduras), Santander Securities LLC, Raymond James Financial Services Inc., Wise Ltd (a fintech company), and Wells Fargo NA. Juan Carlos is a lawyer with a LL.B. degree from Sabana Law School, Colombia. He earned a master’s degree in international law from the Fletcher School of Law and Diplomacy, Tufts University, and completed the Program on Negotiation and Dispute Resolution course at the Harvard Law School.
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Feb 8, 2024 | Online Scholarship, Perspectives
Rizky Citra Anugrah*
Introduction
The humanitarian crisis in Gaza highlights the persistent struggle to enforce international humanitarian law (IHL), a legal framework aimed at mitigating the devastating consequences of armed attacks, particularly the loss of innocent lives. Within just one week, we were confronted with a toll of approximately 3,500 lives lost, with no less than 2,215 belonging to the Palestinian people. In contrast, over the years, Israel has consistently experienced significantly lower casualties. This asymmetry raises a complicated question at the intersection of ethics, technology, and justice: what role does cutting-edge technology play in this equation, and can it contribute to upholding humanitarian principles in the face of such immense suffering?
To understand Israel’s relatively low casualty rate, we must delve into the deployment of the world’s most advanced defensive autonomous weapons system (DAWS), known as the ‘Iron Dome.’ Marco Sassòli, a professor and leading expert on international law at the University of Geneva, Switzerland, affirmed that the Iron Dome has helped Israel reduce its civilian casualties despite the arbitrary targeting by Hamas’ traditional rockets. Introduced in 2011, this defense system has been claimed to have a 97 percent success rate in intercepting incoming missiles. Put into context, Israel’s weekly average of around 3,000 incoming missiles translates to approximately 415 successful interceptions daily.
To get this number, the Iron Dome operates through three key components: radar, control, and battery. First, its radar detects incoming missiles and other airborne threats, distinguishing their size, velocity, and type. Second, the control acts as the ‘brain’ of the operation, employing algorithms and, more recently, artificial intelligence (AI) to guide interceptor rockets toward their targets automatically, even when the incoming missiles exhibit erratic movements. Additionally, it can prioritize intercepting missiles aimed at populated areas. Lastly, the battery fires two interceptors at each incoming missile and can release up to 20 interceptors at a time.
While Israel stands out as a prime example of the application of the world’s most advanced AI-powered DAWS, it is far from being the sole user. The United States, a co-producer of the Iron Dome, has ventured into testing the system’s application in Guam. Meanwhile, the United Kingdom is making significant progress in developing the DragonFire, a DAWS that harnesses concentrated laser beams to safeguard both land and maritime targets. Israel has taken a similar approach to developing the Iron Beam, which is designed to be a cost-efficient alternative to the Iron Dome.
Generally, autonomous weapons systems (AWS) have seen decades of use, but not all have been employed exclusively for defensive purposes. Recently, we have witnessed their integration with AI technologies, enabling these systems to operate substantially independently from human interference. In response to this growing threat to human dignity, there is an uprising movement to limit the further developments of AWS, with some advocating for stopping its development entirely. Spearheaded by the Campaign to Stop Killer Robots, this coalition has made significant progress in raising global awareness about the escalating threats posed by autonomous weapons. Particularly noteworthy is the coalition’s Vote Against The Machine campaign, which prompted the United Nations (UN) General Assembly to adopt Resolution L.56, entitled “Promoting International Cooperation on Peaceful Uses in the Context of International Security,” in October 2023. Sponsored by 44 states, the proposal has garnered the support of 120 other states, calling for all states to address the humanitarian, legal, and ethical risks posed by AWS.
I. The Case for Defensive Autonomous Weapons Systems
While extensive discussions and policies have delved into the legal and ethical challenges associated with lethal autonomous weapons systems (LAWS), a noticeable gap exists with DAWS. In the discourse on AWS, the focus has predominantly gravitated toward LAWS, often overlooking the existence and potential of AWS designed exclusively for defensive purposes. Furthermore, the terminology used in these discussions has contributed to this oversight. The term AWS is frequently used interchangeably with ‘Killer Robots,’ emphasizing the perception of autonomy in weapons systems predominantly geared toward offensive actions. In Resolution L.56 itself, although the title explicitly concerns LAWS, the umbrella term of AWS is still used repeatedly throughout several clauses. It is essential to acknowledge that weapons, in general, are not exclusively developed for offensive purposes. In this context, Black’s Law Dictionary provides an inclusive legal definition of ‘weapon’ as “an instrument of offensive or defensive combat.” In the realm of lexical discourses, weapons are inherently recognized as serving two opposing functions. However, this duality is often overlooked in legal discussions surrounding AWS. In light of this reality, this article proposes introducing a new term, ‘Guardian Robots,’ as a synonym for DAWS, aiming to provide a balanced perspective.
The differentiation between DAWS and LAWS is crucial because several ethical and legal considerations driving the push for a ban on LAWS are not applicable to DAWS. First and foremost, LAWS are often challenged on the grounds that they cannot comply with IHL, which requires adherence to the principles of humanity, distinction, proportionality, and military necessity. These arguments are based on the fact that current AI technologies are incapable of making decisions to the extent humans can. Indeed, AI is not yet technologically advanced enough to differentiate a surrendering soldier from a civilian who might be carrying weapons for defense. However, DAWS do not even need to make such decisions because of its purpose to exclusively aim at offensive weapons. Conversely, it can help and has helped humans in upholding humanitarian principles. For instance, the Iron Dome’s capability to target only missiles directed at civilian areas can help both the aggressor and the defender align with the goals of the distinction principle in IHL, significantly protecting civilian lives.
Another common argument supporting legal limitations on the development and deployment of LAWS revolves around the concept of meaningful human control (MHC). MHC is rooted in the philosophical discussions surrounding AWS, with the primary objective of constraining the reduction of significant human oversight and deliberation in weapons deployment. Two fundamental principles guide the preservation of MHC. The first principle dictates that weapons systems should not be able to apply force and operate without any form of human control. The second principle highlights the notion of ‘meaningful’ control, asserting that pressing a ‘fire’ button falls short of constituting substantive human oversight.
Some scholars argue that, while permitted, automation must be largely restricted to ensure significant human control in AWS. Others have pointed out that even a limited role for automated systems in AWS decision-making promotes an authority imbalance, perpetuating automation bias and ultimately influencing the human operator who should be in charge of the system. Automation bias is a psychological phenomenon in which individuals tend to favor decisions made by automated systems over their own judgments, even when the automated decision is proven inaccurate. Undeniably, automation bias and systematic errors are not exclusive to LAWS and can also arise in the decision-making of DAWS. However, the substantial benefits of widespread DAWS deployment far outweigh the potential drawbacks. Unlike LAWS, in which error exacerbates its already-destructive nature, DAWS only poses a risk in cases of extreme malfunctions. So far, the Iron Dome’s failures have been linked almost exclusively to the inability to intercept missiles without any breaches of IHL principles. Moreover, the Iron Dome is classified as a weapon with a very short launch range. This limitation prevents the Iron Dome from becoming lethal. Given the Iron Dome’s exceptionally high success rate, DAWS’s lawful and comprehensive technological development remains unlikely to pose lethal concerns during errors.
This proposition can be further argued to assert that, in the evolving landscape of military weaponry, autonomous defenses are not only beneficial but also essential for upholding IHL principles. Even without LAWS and AI technologies, military weapons are developed in increasingly complex ways that often surpass human capacity for effective defense. Due to its precision and rapid response capabilities, DAWS can be strategically deployed in vulnerable areas or sectors where the threats are beyond human control. Even in cases where DAWS fail to completely stop an attack, its role in mitigating its consequences can significantly help uphold IHL’s principle of proportionality. When sufficiently developed, the utilization of DAWS is pivotal in significantly reducing civilian casualties, as evidenced by the Iron Dome.
II. The Challenges of Defensive Autonomous Weapons Systems
Nevertheless, the pursuit of lawful development for DAWS while eliminating LAWS is not without its unique set of challenges. The first fundamental concern revolves around the definition of ‘defense.’ To what extent does the use of AWS qualify as an act of defense? The Caroline Doctrine provides a clear framework for ‘anticipatory’ self-defense, allowing a response when the need to react is “instant, overwhelming, and leaves no choice of means, and no moment for deliberation.” It readily addresses the permissibility of actions based on whether they constitute an attack or a counterattack. If the counterattack aligns with the criteria outlined in the Caroline Doctrine, it can be considered a lawful and justifiable response to an action initiated by another party. However, this doctrine is only relevant to decide whether or not the start of a defense is justifiable.
The definition of defense becomes increasingly blurry when it comes to the proportion of the counterattack. Two common yet contradictory parameters are often used to define proportionality in times of defense: the ‘tit for tat’ and the ‘means-end’ parameters. The ‘tit for tat’ parameter suggests that defensive actions are permissible when the counterattack is proportionate to the initial attack. In contrast, the ‘means-end’ parameter focuses on completely deterring the attacker from the ability to launch further attacks, determining the legitimacy of a proportional counterattack based on the objective of using force. The utilization of systems like the Iron Dome aligns more closely with the ‘tit for tat’ approach, where defense matches the scale of the attack.
Proponents advocating for the complete prohibition of all forms of AWS may argue that DAWS could potentially be exploited as LAWS under the guise of self-defense. The lack of a universally agreed-upon definition for defensive weapons creates a vulnerability, allowing for the manipulation of international law principles and doctrines. However, this concern can be effectively addressed by establishing an international agreement that outlines the characteristics of DAWS. The international agreement could explicitly define the elements that categorize a weapon as a DAWS to enhance clarity and prevent misuse. Additionally, incorporating the ‘tit for tat’ parameter into the agreement would provide a specific criterion for assessing the legitimacy of an AWS in relation to its defensive or lethal nature. This criterion ensures that the evaluation of autonomous weapons aligns with the principle of proportionality, wherein the defensive response corresponds appropriately to the scale of the initial attack. By deliberately excluding the ‘means-end’ parameter from the assessment criteria, such an agreement would significantly reduce the potential for abuse of DAWS and uphold IHL principles.
The second fundamental concern revolves around the danger of reverse engineering. As Israeli Prime Minister Benjamin Netanyahu expressed on the Russo-Ukrainian war, “We’re concerned also with the possibility that [the Iron Dome] systems that we would give to Ukraine would fall into Iranian hands and could be reverse engineered.” He continued by adding that this is not a theoretical concern, as a similar case has happened previously with other anti-tank systems. The Iron Dome’s technologies are especially at a heightened risk for reverse engineering due to their high mobility nature. While this feature is an advantage for Israel to strategically place the weapon in densely populated areas, it means that it is also severely vulnerable to being captured. Beyond the concern of physical capture, as AI is also a highly adaptive technology, the other party can learn to continuously feed the system with false positives, which intentionally transforms DAWS into LAWS. In this scenario, the aggressor can use human shields and trick the AI into thinking that the ‘human baits’ are weapons to be attacked for defense.
Critics of DAWS may argue that even when adhering to a strict definition of DAWS to govern their permissibility, the inherent unpredictability of machine learning still introduces a great risk of reverse engineering. However, in the case where the adversary employs false positives to reverse engineer the DAWS, this issue can be overcome by continuous and close oversight from humans to evaluate the decisions carried out by the DAWS. Also, DAWS can incorporate mechanisms such as timers before taking actions to allow human intervention when it responds to false positives. While such a mechanism does not equate to MHC as it does not involve human decision in the firing process, it allows humans to override the system’s action when necessary. In addition to temporal safeguards, advanced physical and technical features can be embedded in DAWS to thwart potential misuse, particularly if the system is captured. These measures include a self-destruction feature, rendering the system inoperable if compromised. Moreover, incorporating custom-built proprietary hardware, which is not commercially available, adds complexity to reverse engineering attempts. Continuous code obfuscation, achieved through regularly updating the codebase with intricate modifications, makes understanding the system’s logic and functionality more challenging for those attempting to reverse engineer DAWS.
Reverse engineering also presents a unique legal issue surrounding the development of DAWS that is not present in the deployment of LAWS. By design, LAWS are made with the intention to attack, while DAWS are not. This distinction prompts a critical consideration regarding whether an act of reverse engineering can be categorized as an attack when the underlying intent to cause harm is absent. According to Article 8 of the Rome Statute of the International Criminal Court, intention, or mens rea, is an element of finding a war crime in an attack against civilians. In a reverse-engineered DAWS, the two parties’ responsibility for the attack becomes divided. The weapon user becomes accountable for the physical act of the offense, referred to as actus reus, while the party manipulating the system holds the mens rea element. So far, there is no international law governing reverse engineering. This dilemma poses another layer of complexity in AWS’s accountability.
Conclusion
Cutting-edge defensive technologies, particularly when integrated with AI, play an indispensable role in upholding humanitarian principles. However, our current global governance on AWS seems to overlook the promising potential of such technology despite the remarkable success evident with the Iron Dome. The L.56 Resolution stands as evidence of the denial of this potential, as it fails to acknowledge the crucial distinction between DAWS and LAWS. The Iron Dome’s pivotal role in safeguarding civilian lives is a testament to years of continuous development. Restricting the freedom to explore such technology further jeopardizes its promise to enhance civilian protection, as emphasized in the resolution’s preamble. While this article presents a diverse set of arguments justifying the use of DAWS, it is undeniable that further elaboration and detailed implementation are required. Beyond advocating for the promotion and protection of the lawful development of DAWS, comprehensive governance should encompass other essential aspects. This governance involves clarifying the definition of defense, establishing a legal foundation for cases of reverse engineering, and researching the possibility of further technical restrictions on DAWS.
Planned to conclude in a legally binding instrument by 2026, the UN is set to have the next provisional agenda on AWS next year. In the following forum, the UN plans to involve various parties to start taking action on the issue and revisit Resolution L.56 to develop it further. This article advocates for a strong and explicit recognition of the distinction between DAWS and LAWS within the UN General Assembly’s resolution on AWS. This recognition can be achieved by refining the legal and political language related to AWS, steering clear of the ambiguous use of the term “LAWS” in the current resolution. Additionally, this article emphasizes the imperative for separate legal instruments governing DAWS and LAWS to duly acknowledge their inherent differences in impacting human lives. While reaching international consensus on military and warfare-related laws remains a challenging endeavor, the adoption of soft laws by the UN to acknowledge the significance of DAWS can carry significant political influence. Such recognition can contribute to the promotion of a peaceful, legally sound, and ethically responsible.
*Rizky Citra Anugrah is an S.H. (LL.B.) Candidate at Universitas Gadjah Mada, specializing in international law. Rizky has received numerous awards from several international institutions for his proficiency in writing and researching within various aspects of international studies. As an undergraduate student, he actively engages in multiple international youth organizations, promoting multilateral cooperation through people-to-people diplomacy. The author is grateful for the guidance and support given by Mr. Haekal Al Asyari, S.H., LL.M., during the process of writing this article.
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Feb 5, 2024 | Content, Online Scholarship, Perspectives
Michael Yip*
I. Introduction
In October 2023, two dozen countries gathered in Beijing to celebrate the Belt and Road Initiative’s (“BRI”) tenth anniversary. However, in ten years, little is understood about the bank loans that finance this initiative. On the one hand, the loans have been described as “debt traps” or “unsettling” projections of Chinese geo-economic power. On the other, the BRI has been characterized as an “international public good” or—in the words of the UAE’s Economy Minister—even “a gift to the world.” Naturally, both approaches—particularly when taken in isolation—are oversimplifications.
1. The Value of a Legal Perspective
Adopting a legal lens, however, would materially enrich our understanding of how BRI loans work in practical and empirical terms—enabling us to “look behind the headlines.” One aspect that has been overlooked is the “invisible law” that governs the loan agreement and disputes arising from the loan. Although this law—codified in the loan agreement’s choice of law, jurisdiction, and procedural law clauses—is an indispensable (albeit “boilerplate”) part of any banking contract nowadays, it has acquired an added significance in BRI loan documents. These clauses have become a venue in which different legal regimes—Chinese, English, New York, and others—project legal power and jostle with one another to shape China’s global development financing initiative (which itself goes on to project power and compete for prominence and acceptance in international affairs).
2. Key Findings
The data presented below shows that, based on the text of BRI loan agreements, Chinese law and dispute resolution mechanisms have been an increasingly popular choice. This indicates a characteristic of the BRI to induce “extraterritorial observance”: a shorthand term used by this article to describe the patterns and processes by which national laws are—as a matter of common and expected practice—observed by persons outside the country from which the laws originate. (In this case, Chinese law happens to be the object of extraterritorial observance, but history tells us that—because of processes such as globalization, migration, revolution, and colonialism—Soviet, Islamic, English, New York, and European Union laws have undergone a comparable experience.)
However, taking what the clauses in BRI loan agreements expressly say at face value would lose sight of the fact that they govern the loan in ways that cannot immediately be evident upon a cursory reading of the loan documentation. In other words, the governing laws have been—to a material extent—“invisible.” This is for three reasons. BRI loan agreements have often been kept secret; the depth, breadth, and content of the governing law have not been fully enunciated in the loan agreement; and some of the governing law may be found elsewhere in the laws of other countries.
3. Article Roadmap
This article will first explain the origins of the contest between legal regimes; describe the extraterritorial observance of Chinese law; and explain what makes the law governing BRI loans both consequential and invisible, before concluding thereafter.
These considerations are not merely academic. Indeed, when BRI projects go wrong, the “invisible law” determines how China and its borrowers will work out problems—on which, according to Christoph Nedopil, over a trillion dollars of taxpayers’ money, citizens’ livelihoods, and geo-economic power are staked.
II. Does a Competition Between Legal Regimes Exist?
At first glance, a competition between legal regimes may not appear to exist. After all, BRI loan agreements—and their clauses—constitute the final product of a negotiation and documentation process between the borrower and lender, supported by legal and financial advisers. Given this, any “competition” most visibly lies between the loan parties, rather than different legal regimes. This interpretation is supported by Ian Ivory and Cora Kang, who—in their book on the use of English law in BRI transactions—suggested that negotiations may be won or lost as part of a quid pro quo: “Where the question of using PRC law is sometimes raised, this is usually as a tool in negotiations and is traded for some other concession on the deal.”
However, the English judiciary and bar associations published a position paper titled: The Strength of English Law and the UK Jurisdiction. This paper advocated for the predictability of English law, claiming that it “respects the bargain struck by parties” and “will not imply, or introduce, terms into the parties’ bargain unless stringent conditions have been met.” Were disputes to arise, the paper also advocated for the UK’s “incorruptible judiciary” that was described as “structurally and practically independent.”
Those comments were made in 2017, attempting to provide reassurance and bolster confidence that—even after the UK’s departure from the European Union—English law was still suitable to govern cross-border contracts and English judges could still be trusted to adjudicate cases. Although the context of these comments, Brexit, is salient, they are just as applicable to the BRI—which at that point was still in its relative infancy (at four years old) and was, according to sentiment analysis conducted by Bruegel, better able to court interest in the West.
At the time, the judiciary’s and bar association’s comments also formed part of a broader set of advocacy messages by the UK state. They include 2016 remarks by the UK Advocate General for Scotland—a member of the executive branch—which emphasized the value of the UK’s law enforcement and legal services on the Belt and Road. In this light, both sets of comments can be cast as an example of one legal regime attempting to maintain its competitiveness in what Gilles Cuniberti called an “international market for contracts” and (by extension) for BRI loan agreements too. To those ends, there is no reason not to include initiatives such as the BRI as a plausible means to maintaining competitiveness in Cuniberti’s “market.”
By contrast, attempts by the Chinese legal regime to extend (rather than, in the English case, maintain) competitiveness have assumed a different form. Rather than an enticement-led approach (through position papers and other marketing campaigns), China’s approach has been directive-based and action-oriented. For example, the Opinions of the Supreme People’s Court on Further Providing Judicial Services and Guarantees by the People’s Courts for the Belt and Road Initiative stated that: “The people’s courts shall extend the influence of Chinese laws… and strengthen the understanding and trust of international businesses on Chinese laws.”
III. The Competition and “Extraterritorial Observance” in Numbers
To date, no attempt has been made to measure the contest between legal regimes to govern BRI loans. However, original analysis of AidData’s loan agreement repository undertaken by the author reveals the extent to which the BRI is inducing the extraterritorial observance of Chinese law.
1. Choice of Law Clauses
Choice of law clauses set out “the law that applies when interpreting the agreement and in determining any disputes regarding it.” A typical formulation of the clause can be found in the 2017 loan agreement signed between China and Sierra Leone that financed the upgrade and expansion of the Queen Elizabeth II Port, which reads as follows: “This Agreement and all non-contractual obligations arising out of or in connection with it shall be governed by English law.”
Fig. 1a shows the composition of choice of law clauses occurring in 48 loan agreements entered into by Chinese banks and overseas borrowers following the inception of the BRI. As shown, Chinese law has emerged as the dominant choice by 2020 (71%). However, this observation runs contrary to common practice of selecting a choice of law originating from a third country. This practice has been described by Philip Wood in a 2016 book commemorating the Loan Market Association’s twentieth anniversary as important “not because of familiarity or commercial orientation or any of those soft virtues, but rather to ensure that the loan obligations were insulated against changes to the loan agreement by a statute of the sovereign.” Philip Wood went on to indicate that such changes could include passing legislation to “forcibly” impose a debt moratorium, a debt rescheduling or a foreign exchange control of the loan currency. The primacy of Chinese choice of law clauses, however, most likely reflects Matthew Erie’s and Sida Liu’s view that China, as a “capital exporter, may occupy a dominant bargaining position vis-à-vis the host state.”
Fig. 1b shows the cumulative frequency of choice of law clauses in 101 Chinese-financed loans from 2003 to 2020. As shown, the adoption of Chinese choice of law clauses increased by 1.8 times from the BRI’s inception in 2013 onwards, whereas the same for English choice of law clauses grew by 1.5 times. This rate of adoption has meant that Chinese law clauses not only maintained but also enlarged their extraterritorial observance over time. English law clauses—the first-choice common law preference but nonetheless the second-choice overall—was unable to challenge Chinese law primacy, instead entering into a plateau that by 2020 had not yet been reversed.
2. Jurisdiction Clauses
Jurisdiction clauses “deal with the physical location of where a dispute will be heard, the type of institution (Court or Arbitration Tribunal) that will hear the dispute.” In practice, these clauses will often mimic choice of law clauses because, as Philip Wood noted in relation to syndicated loan agreements: “Once the governing law had been chosen, jurisdiction followed suit since the benefits of an external governing law might well be lost if the courts that enforced it were different, even though technically most courts could then, as now, apply foreign law.”
However, Chinese lending has produced noteworthy exceptions. In the pre-BRI era, an illustrative example is a RMB32 million loan provided by the Export-Import Bank of China (“China Eximbank”) to the Botswana Ministry of Finance and Development Planning for a housing project in the capital. In that loan agreement, the parties agreed upon an English governing law, but elected that disputes would be submitted to the China International Economic and Trade Arbitration Commission (“CIETAC”). In the AidData repository, other noteworthy hybrid combinations during the BRI era include a US$219 million loan provided by China Eximbank to the Philippine Department of Finance for the “Philippine National Railways South Long Haul Project.” In the loan agreement, Chinese governing law was chosen but the dispute resolution seat was the Singapore International Arbitration Centre.
Fig. 2a shows the composition of jurisdiction clauses, which have aggregated variants such as different physical locations for the same arbitration tribunal or alternative venues if an urgent decision is required. However, as with the case of choice of law clauses and irrespective of the permutations on offer, the preference for the Chinese option—CIETAC—has been dominant (56%). In transactions for which a jurisdiction clause was ascertainable, the London Court of International Arbitration and Hong Kong International Arbitration Centre were in close contention, respectively competing for second and third place.
Fig. 2b shows the cumulative frequency of jurisdiction clauses. As shown, the adoption and extraterritorial observance of Chinese jurisdiction clauses grew by 1.8 times from the BRI’s inception in 2013 onwards. This growth rate mirrors the rate for Chinese choice of law clauses (discussed above), which indicates that the “hybrid combinations” discussed above were outliers rather than the norm. Meanwhile, Hong Kong jurisdiction clauses grew by 1.5 times and those of London grew by 1.7 times.
3. Procedural Law Clauses
Procedural law clauses stipulate the rules by which the dispute resolution seat will administer the adjudication of the dispute. In practice, these clauses will often mimic jurisdiction clauses because—where national courts have been nominated—compliance with their procedures tends to be mandatory. For example, litigants in Chinese and English courts must follow the civil procedure rules for each country in order for their case to be tried. However, the rules of arbitration tribunals give an established right to choose and/or modify the procedural law governing their arbitration.
The “right to choice” in a BRI arbitration context is demonstrated by an US$85 million loan provided in 2010 by the CITIC Bank and China Construction Bank to the Argentinian Ministry of Economy and Public Finance to finance construction of and supplies to the Lina-A Metro in Buenos Aires. In that loan agreement, the Hong Kong International Arbitration Centre was given jurisdiction, but the procedural law chosen by the parties was that of the U.N. Commission on International Trade Law.
What both transactions show is that there is substantial flexibility in the contractual terms governing procedural law – but only where arbitration is concerned. Furthermore, no loan agreements substituted the procedural law of one national arbitration tribunal for those of another national arbitration tribunal. No transaction, for example, gave jurisdiction to the London Court of International Arbitration but chose the procedural law of a Chinese arbitration tribunal. Instead, where substitutions have occurred, they have swapped the procedural law of a national tribunal with multilateral procedural law formulated by an international organization.
Fig. 3a shows the composition of procedural law clauses. As with the choice of law and jurisdiction clauses, the preference for the Chinese option—the rules of CIETAC—has been dominant (54%). Fig. 3b shows the cumulative frequency of procedural law clauses. As shown, the adoption and extraterritorial observance of Chinese procedural law clauses grew by 1.8 times from the BRI’s inception in 2013 onwards.
IV. The Laws are Consequential but Operate “Invisibly”
1. On Consequentiality
The laws described above are consequential in three ways. First, they serve as a gateway for troubled transactions and parties in dispute to seek support from judges and arbitrators on contested points of law. As the BRI matures and moves into its second decade, loan transactions will enter rougher waters and the three clauses discussed will come to the fore—especially as China is pushing to play a more active dispute resolution role in the international legal order through the China International Commercial Court. Doing so enables China to place less reliance on resolving problems through ad-hoc diplomatic channels, as was recently seen when Zambia restructured US$4.1 billion of debt owed to China.
Second, the clauses serve as conduits for extraterritorial observance and channel the legal power that countries exert on each other. The impact of these clauses is at their most pervasive when individual jurisdictions (such as England, New York and—increasingly—China) shape the international legal order to induce others from overseas to voluntarily observe their laws or, alternatively, their approach to the practice of law. For instance, the English jurisdiction, through its Loan Market Association, promulgates standard-form loan agreements—that have often been English law-governed – to lenders and borrowers of all origins. So, in a similar vein, could a standard-form template for BRI loans materialize one day? Possibly. In their landmark work How China Lends, Anna Gelpen et al. have already identified emergent patterns in clauses covering events of default, confidentiality duties and repayment mechanisms across 100 Chinese loan agreements. However, notwithstanding that those patterns are—in their 2024 form—unlikely to constitute a self-standing BRI template, templates materialize slowly. By way of illustration, Philip Wood recollected that the first syndicated loan agreement governed by English law may have drafted in 1968. Since then, it has accumulated nearly 60 years of updates and modifications. Building a template takes time. Let us wait and see.
Third, the clauses—and their propensity to nominate one choice of law or jurisdiction to the exclusion of others—drive and divert significant amounts of business for law firms. Over a longer time horizon, the BRI may go on to bring many millions of dollars of business to the law firms with the capability to advise on Chinese law matters. These law firms include both “home-grown” Chinese firms as well as international outfits that have entered into joint ventures with Chinese partners.
2. On “Invisibility”
Yet, the law governing BRI loan agreements operates invisibly and in ways that a mere examination of the documents would not reveal. It does so in three ways. First, as Anna Gelpern et al. have discovered, BRI loan agreements contain “far-reaching” confidentiality clauses that restrict the borrower’s ability to disclose information about the loan. (This differs with commercial practice, in which it is typically lenders who have been prevented from disclosing confidential information, primarily to uphold borrower privacy.)
Second, the content of the law and the situation-specific rules governing BRI agreements will not be fully enunciated in the three clauses. The clauses cannot (and simply do not have the space to) articulate the legal rule for a complete universe of legal problems that may arise in relation to the loan. Accordingly, at best, the clauses serve as signposts to very large bodies of law, which in turn require further expertise to understand and apply. (Furthermore, the varying levels of comprehensiveness and depth of codification within the Chinese, English and other legal systems will not only add further complexity to ascertaining the proper legal rule, but also subject that ascertainment to interpretation and/or modification by judges.) In this sense, the governing law of a BRI loan may not only be invisible to the reader of loan agreement, but also uncertain.
Third, although parties to a BRI loan generally have the autonomy to select their own choice of law, this may be (or attempt to be) overridden by a foreign mandatory law that is “unseen” and on which the text of the loan agreement was silent. For example, in the case of loans governed by Chinese law and involving a private borrower, plausible mandatory laws—as noted in 2022 by Philip Wood—most likely include the borrower country’s insolvency laws. These could conflict with a Chinese governing law expressly chosen by the parties if the borrower entity became insolvent and claims on borrower assets were made by creditors. (The same, however, would not apply to sovereign borrowers who would instead be caught between an expressly-chosen Chinese governing law and soft international obligations such as Paris Club rules.) Elsewhere, a similar (albeit more indirect) example arises in the field of environmental law. A borrower country’s planning and environmental laws would apply to government licences which, in turn, would be required to develop a site into a project and which would typically be listed as part of conditions precedent to the loan being drawn down by the borrower. Finally, with respect to loans governed by a non-Chinese law, plausible sources of mandatory Chinese law include the “social public interest” exception to party autonomy. Given that mandatory laws of any jurisdiction present a “hidden minefield” to BRI parties, their advisers would do well to acquaint themselves with Chinese and non-Chinese approaches to conflict of laws.
V. Conclusion
There is a contest between legal regimes to be attractive and to—wherever and whenever possible—be taken up and observed by international commercial parties. This contest has long predated the BRI. However, the loan agreements underpinning China’s initiative serve as a new arena for contestation in which a new alternative—China’s laws and dispute resolution mechanisms—show early signs of taking primacy over more established alternatives from North America and Europe. The consequences of this “extraterritorial observance” are significant: a legal regime’s entrenchment and prominence in transactions tends to sustain itself, by setting the norm for future transactions and/or by governing the forthcoming disputes. In turn, extraterritorial observance precipitates more business activity for its lawyers. For practitioners, this can indeed be a virtuous cycle.
However, the laws governing BRI loans operate invisibly. As has been the case with any complicated transaction pre-dating the BRI, it may be difficult to ascertain which loans are governed by which laws; which doctrines of expressly-chosen laws apply; and how local laws may mandatorily override the choice of the parties. One day, these laws could be called upon to determine the outcome of the very first BRI banking dispute. Such a dispute will plausibly place billions of dollars at risk; materially shape the direction of BRI lending practices; and bring about the collision of law against another. For these reasons, how invisible laws govern bank loans on the “Belt and Road” deserve an ever-watchful eye.
*Michael Yip is a Research Associate in “China, Law and Development” at the University of Oxford, where he is also the Research Cluster Lead for legal services. Previously, he was a British civil servant and worked at the World Bank’s Legal Vice Presidency, specialising in export and infrastructure finance. Michael also holds an LLM as a Yenching Scholar from Peking University in China.
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Jan 29, 2024 | HILJ-HIALSA International Arbitration Collaboration, Online Scholarship
Danilo Ruggero Di Bella*
Introduction
This piece traces the possible ramifications of third-party states’ actions in the context of investment arbitration. It explains how a third state’s action may have a “butterfly effect”: the third state’s action can prompt foreign investors to initiate investment arbitrations against host states different from the third-party state that carried out the action in the first place. Although to a certain degree, this is not a new phenomenon (multiple investment arbitrations have been triggered by the E.U. Commission urging the repeal of various state aids), it is certainly a rarer occurrence outside of an international organization. Within an international organization, it is relatively easier for the institutional governing body to direct its member states to commit a breach of their international obligations. For example, in Micula v. Romania, the host state breached its obligations towards foreign investors by repealing incentives that could have constituted illegal state aid in the eyes of the E.U. Commission.
Indeed, sometimes, third-party states’ or international organizations’ actions may prompt foreign investors to initiate arbitrations against their host state for a measure that the host state took in response to the initial third-party’s action. At times, unfortunately for the host state, this measure translates into a breach of an obligation the host state owed towards its foreign investors. Hence, a sort of butterfly effect takes shape.
The critical actions that will be discussed are Russia’s characterization of snow crabs as a sedentary species and Norway’s conflicting interpretation of a multilateral treaty, the 1920 Svalbard Treaty (originally known as ‘Spitsbergen Treaty’ after the name given by the Dutch explorer Willem Barentsz to the archipelago). These actions may have triggered a chain reaction of events bearing legal implications for Spain, due to Spain’s violations of its international obligations towards its foreign investors catching snow crabs around the Svalbard archipelago based on Spanish fishing permits.
First, this piece will provide a brief overview of the snow crab industry and its origins. Second, it will discuss Russia and Norway’s controversial stance on the snow crabs. Third, it will explain the inconsistency of Norway’s isolated view of the 1920 treaty regulating the status of Svalbard. Finally, it will illustrate the potential investment arbitrations that can be filed against Spain for revoking the snow crab-catching permits for Svalbard from its foreign investors.
I. The E.U. Snow Crab Fleet
In 2012, E.U. trawlers began harvesting snow crabs, a relatively new species in Europe’s waters. This novel activity is a highly profitable business (reportedly, each snow-crab trawler yields one million euros per month on average), and arguably an environmentally friendly practice. Indeed, snow crabs are infesting Europe’s waters, since they are a non-indigenous species (p.6) migrating from the Russian coast where they were artificially introduced in the 1960s. Being an alien species prone to overbreeding, they end up harming the ecosystem if they are not regularly caught.
The European Commission has been authorizing a few member states—specifically, Spain (ANNEX IB p. 99), Estonia, Lithuania, Latvia, and Poland (ANNEX III p. 149)—to issue permits to catch snow crabs. A trawler flying the Spanish flag—the Adexe Primero—pioneered the catch of snow crabs in Europe in 2012. The Spanish vessel focused its activities in the “Loophole” area, a small portion of international waters between Norway and Russia in the Barents Sea, and the waters surrounding the Svalbard archipelago. This vessel carried out its activities on the ground of the fishing permits issued by Spain, specifically, a Northeast Atlantic Fisheries Commission (“NEAFC”) zone permit for the Loophole area and a Svalbard Zone permit for Svalbard waters.
Vessels of the contracting parties to the NEAFC can get a permit from their flag state to freely catch unregulated stocks—such as snow crabs—in international waters (like in the Loophole area). Similarly, vessels of the signatories to the 1920 Svalbard Treaty can get a permit from their respective flag States to fish around Svalbard on the same footing as Norwegians. Both of Adexe Primero’s fishing grounds proved to be so profitable that other E.U. and Norwegian vessels followed suit.
II. Crimea Sanctions and Russia’s View on Snow Crabs
Following EU sanctions on Russia for the 2014 annexation of Crimea, Russia retaliated by obstructing E.U. vessels fishing in the Barents Sea. For instance, on 16 July 2015, the Adexe Primero was seized by a Russian patrol boat while fishing in international waters in the Barents Sea (as proved by the satellite-based vessel monitoring system onboard). The seizure was prompted by the detection of fishing pots with foreign signs in Russia’s Exclusive Economic Zone (“EEZ”). The pots belonged to the Adexe Primero and to a Norwegian vessel (the Northeastern H-27-AV). It turned out that the pots had drifted on the current into Russia’s EEZ. The Spanish vessel was then released after posting a bond.
In July 2015, Russia’s retaliations built up to a declaration that defined snow crabs—usually fished by E.U. vessels in the international waters of the Loophole—as a sedentary species living on the continental shelf (p. 339). As such, the exploitation of this valuable resource should be up to the coastal states, i.e., Russia and Norway, the latter of which joined Russia’s declaration.
The Loophole in the Barents Sea is located in international waters, as Russia’s and Norway’s EEZ cannot extend further than 200 nautical miles out to the sea (the Loophole is squeezed between the two EEZs). However, the continental shelf can extend up to 350 nautical miles as per Article 76 UNCLOS, thus engulfing the seabed underneath the Loophole. Therefore, the continental shelf below the water column in the Loophole can be subject to Russia’s and Norway’s jurisdiction, despite the water column above being on international waters. By defining the snow crab as a resource of the continental shelf (instead of a high-seas fishery resource), the coastal states (Russia and Norway) gain otherwise nonexistent jurisdiction over this precious resource and the right to exploit it exclusively, while simultaneously eroding one of the freedoms of the high seas, the freedom of fishing under Articles 87 and 116 UNCLOS.
Interestingly, the characterization of crabs as a sedentary species is not univocal and is rather arbitrary, often driven by national economic interests. Japan (a traditionally distant-water fishing country) considers crabs as a high seas fishery resource. Arguably, crabs’ ability to migrate defies their sedentary feature. Other states—mostly, coastal states (such as Canada (p.14))—hold that this crustacean is a sedentary species. It remains unclear whether crabs are sedentary or high-seas species. For example, Brazil considers lobsters sedentary, whereas the UK does not (p. 9). Accordingly, the classification of crustaceans is often a contentious issue.
Following Russia and Norway’s joint declaration, in August 2015, the E.U. recommended that its member states suspend the permits to catch snow crabs in the Loophole. Accordingly, Spain suspended Adexe Primero’s permit to fish in the NEAFC zone. According to the accounts of the E.U. shipowners and captains involved, other E.U. member states instead disregarded the E.U.’s recommendation and allowed their trawlers to keep fishing in the Loophole. Finally, in September 2015, Spain followed the example of the other member states and lifted the suspension of Adexe Primero’s permit for the NEAFC zone. Spain then renewed Adexe Primero’s permit for 2016. However, in March 2016, Spain suspended the permit for the NEAFC zone once again and eventually stopped issuing it altogether, apparently out of deference to Russia’s stance.
III. Norway’s Breaches of International Legal Obligations
The 1920 Svalbard Treaty governs the international status of the Svalbard archipelago. Just a year earlier, in 1919, the geographer and explorer Robert Neal Rudmose-Brown described the archipelago as a no man’s land whose natural resources have been explored and exploited by a variety of states since its discovery. In the aftermath of World War I, the need to establish some sort of local authority to administer the international community living on the archipelago and to avoid the archipelago’s militarization led to the negotiations of the Svalbard Treaty.
The contracting parties to the Svalbard Treaty gave Norway sovereignty over Svalbard but allowed the joint and peaceful exploitation of the archipelago’s natural resources by a variety of nations. The Treaty accords to the nationals of each contracting state the right of economic activity on an entirely equal footing (p. 128) with Norwegian nationals, thus preserving (p.2) the terra nullius status of the region (specifically based on Articles 2, 3, 6, and 7). By virtue of this Treaty, Svalbard became the only land state territory of common use (p.IV) in modern international law.
However, over time, Norway has discriminatorily restricted the commercial access of the other signatories’ citizens based on nationality requirements. Meanwhile, Norway has disavowed the Svalbard Treaty by depriving its provisions of their original meaning: to constrain Norway’s sovereignty over the archipelago in favor of the international community’s acquired rights. Norway has also relied on the Treaty to extend unrestrained sovereignty on the waters surrounding Svalbard up to 200 nautical miles and, accordingly, to expand its maritime boundaries bordering Greenland.
Thus, Norway inconsistently interprets the geographical scope of the Treaty: on the one hand, Norway holds that the Svalbard Treaty applies only up to 12 nautical miles off the archipelago; on the other hand, Norway stretches its maritime boundaries with Greenland up to 200 nautical miles off Svalbard by relying on the same treaty notwithstanding the fact that, according to Norway’s own interpretation of the Treaty, Norway’s sovereignty over Svalbard should be constrained to 12 nautical miles around the archipelago.
Russia and the EU object to Norway’s interpretation of the Treaty (as every other contracting party does), since if it was not for the Svalbard Treaty, Norway could not set its border at 200 nautical miles off Svalbard. Hence, either the Svalbard Treaty applies up to 200 nautical miles off Svalbard and Norway retains its current maritime border with Greenland, or the Treaty applies up to 12 nautical miles and Norway’s maritime borders (as well as its territorial jurisdiction) should be downsized accordingly.
Should the territorial scope of application of the Treaty be up to 12 nautical miles off Svalbard’s baseline, the portion of water between its outer edge and Greenland’s EEZ would be considered high seas. Should Svalbard’s continental shelf stretch further than 12 nautical miles into the high seas, the Svalbard Treaty would apply to that zone anyway, since the continental shelf is a prolongation of Svalbard’s land territory.
Therefore, regardless of the geographical scope of the Svalbard Treaty (either up to 12 or 200 nautical miles), this instrument should apply to the activity of snow crab fishing around Svalbard, because such activities occur on its continental shelf. Norway indeed considered snow crabs as a resource of the continental shelf in its 2015 joint declaration with Russia. Accordingly, the nationals of all contracting parties to the Svalbard Treaty should be allowed to catch snow crabs on Svalbard’s continental shelf just as Norwegians do.
Norway’s 2015 joint declaration with Russia concerning the sedentary nature of snow crabs might have seemed beneficial at the time to gain jurisdiction over this natural resource on the continental shelf underneath the Loophole. However, the same declaration backfires with respect to Norway’s interests in Svalbard. Indeed, the declaration indirectly obligates Norway to accord equal commercial rights to foreign snow crab trawlers on Svalbard’s continental shelf which, being a prolongation of Svalbard’s land territory, is covered by the application of the Svalbard Treaty. In other words, under Norway’s own interpretation of the Svalbard Treaty, E.U. trawlers should be able to harvest snow crabs on Svalbard’s continental shelf for the same reason they cannot catch them in the Loophole area. Of course, this is an unintended consequence of Norway’s policies on the two bodies of water (the Loophole and the Svalbard waters). The common denominator of the two policies is that they are both driven by national interest: both seek to let only Norwegians exploit snow crabs.
In June 2013, the Adexe Primero began fishing in Svalbard waters thanks to a permit granted by Spain based on the Svalbard Treaty. However, following Norway’s arrest of a couple of E.U. trawlers, in January 2017, Spain suspended the permit indefinitely, despite the EU’s recommendation to disregard Norway’s prohibition to catch snow crabs around Svalbard. Spain was indeed the only E.U. member state to adopt such a suspension (unlike Estonia, Lithuania, Latvia, and Poland). Initially, Span’s suspension was meant to be only temporally. However, it became a de facto revocation of the permit, as the suspension was never lifted.
Norway’s discriminatory actions have already led to investment arbitrations concerning the catching of snow crabs in Svalbard waters. Could Norway’s flawed interpretation of the Svalbard Treaty lead to similar repercussions for other states?
IV. Are Investment Arbitrations Drifting Towards Spain?
As noted, the E.U. member states who were granted snow crab catching permits by the E.U. reacted in different ways to Russia and Norway. On one hand, Estonia, Lithuania, Latvia, and Poland stood firm on their position and kept allowing their vessels to catch snow crabs in the Loophole and around Svalbard. On the other hand, Spain had repeatedly suspended Adexe Primero’s permits and, eventually, stopped issuing them altogether out of fear of Russia and Norway. Thus, Russia’s erosion of the freedom of fishing in the high seas (by defining snow crabs as a resource of the continental shelf) and Norway’s violation of the Svalbard Treaty may have led Spain to breach in turn its international obligations towards its foreign investors.
Spain’s repeated suspensions of the snow crab catching permits and their ultimate revocation have disrupted the activity of the Adexe Primero and its shipowner, Mariscos Polar SL, a company registered in Spain for the purpose of fishing snow crabs in arctic waters and whose shareholders hold Moldovan and Russian nationalities.[1] These Russian and Moldavian investors may invoke respectively the Spain-Russia Bilateral Investment Treaty (“BIT”) and the Spain-Moldova BIT to bring an expropriation claim against Spain. Spain directly expropriated the snow crab-catching permits and indirectly expropriated the foreign investors’ company operating thanks to those permits. Furthermore, the cumulative effects of the continual suspensions of the permits—culminating with their revocation—may well amount to a creeping expropriation.
Spain’s consequential expropriation of Mariscos Polar is worsened by the fact that the actions leading to this taking were not proportional. First, there was a lack of proportionality since Spain did not provide alternative fishing grounds to avoid the total disruption of Mariscos Polar’s business.[2] Second, the absence of proportionality is highlighted by the fact that Spain was the only E.U. member state to adopt such a harsh measure. Hence, even if Spain’s drastic actions may have been taken because of Russia and Norway, their lack of proportionality and compensation does not exempt Spain from its international obligations towards its foreign investors. Importantly, Article 6 of the Spain-Russia BIT and Article 5 of the Spain-Moldova BIT cover not only direct expropriations but also “any other measures with similar effects.” Hence, the applicable BITs allow for indirect and creeping expropriation claims.
Since fisheries are governed by an E.U. Common Policy, the treatment Spain accorded to Mariscos Polar should be contrasted against the treatment that other E.U. member states in the same position as Spain accorded to enterprises operating in the same sector as Mariscos Polar. If such treatment is more favorable than the one accorded by Spain, then Spain failed to accord Mariscos Polar the most favorable treatment it could have possibly accorded. Since the other E.U. Member-States did not suspend their snow crab permits, Spain breached the most favored nation (“MFN”) clause in Article 5(2) of the Spain-Russia BIT and Article 4 of the Spain-Moldova BIT.
Further, a Russian investor bringing a claim under the Spain-Russia BIT could also rely on the MFN clause to broaden the scope of the dispute resolution clause. This way, the investor may bring fair and equitable treatment (“FET”) and full protection and security (“FPS”) claims. For example, the investor may import the more favorable treatment accorded by the Spain-Lebanon BIT, whose dispute resolution clause extends also to violations other than unlawful expropriations. Whereas the Moldovan investor would not need to invoke the MFN clause for this purpose, since the dispute resolution provision of the Spain-Moldova BIT is not limited to expropriation claims.
Spain breached the FET standard towards its foreign investors insofar as it failed to protect their legitimate expectations concerning their investment, by generating an uncertain legal framework for catching snow crabs. Notably, the investors’ legitimate expectations were also backed up by the E.U.’s recommendation to ignore Norway’s prohibition of fishing in Svalbard.
Moreover, Spain failed to accord adequate legal protection against Norway’s subsequent claims to the fishing rights that Spain granted to its investors in the first place. Spain could have protected such rights by resorting to an international arbitration against Norway based on the 1929 Spain-Norway Treaty on Conciliation, Judicial Settlement and Arbitration. Not only did Spain fail to accord appropriate legal protection to her foreign investors to ensure the normal ability of their business to function, but it also deprived the investors of the title (viz. the fishing permit) to advance a possible investment claim against Norway (by invoking the Russia-Norway BIT).
Accordingly, the foreign investors may claim from Spain compensation for the damages suffered, the restitutio in integrum of the revoked permits, and their adequate legal protection through an international legal proceeding between Spain and Norway.
Conclusion
The snow crab affair illustrates how third-state actions may have a butterfly effect on the host state in international investment law. This is especially likely where the initial actions were ill-grounded and driven purely by national interests and the host state’s response did not take into proper consideration its international obligations towards its foreign investors. Crucially, should Spain disregard the interests of its foreign investors concerning the fishing of snow crabs in Svalbard waters, Spain would implicitly waive its international rights stemming from the 1920 Svalbard Treaty. Those rights include all maritime, industrial, mining, and commercial rights over the natural resources of the Svalbard archipelago. Thus, in the future, Norway may validly rely on Spain’s acquiescence to relinquish such rights—as per article 31(3)(b) of the VCLT—to prevent Spain from benefitting of Svalbard natural resources on an equal footing.
*Danilo Ruggero Di Bella is an attorney-at-law – member of the Madrid Bar and the Canadian Institute for International Law Expertise (CIFILE) – leading the law firm Bottega DI BELLA (www.bottegadibella.com). He holds a Master in Lawyering from Alicante University and an LLM in Investment Treaty Arbitration from Uppsala University. Danilo graduated in Law from Florence University with a specialization in public international law from Radboud University Nijmegen. He can be reached at: danilo.dibella@bottegadibella.com.
[1] Author interview with owners of Mariscos Polar SL.
[2] Author interview with owners of Mariscos Polar SL.
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Jan 29, 2024 | Annual Symposia, Symposia
Conference Information
Please join us on Saturday, March 2nd at Austin Hall on the Harvard Law Campus for our 2024 International Law Conference entitled The Future of International Economic Law, hosted by the Harvard International Law Journal and Law and International Development Society.
This year’s conference features four panels and one keynote speech and focuses on the changing nature of multilateral cooperation in international economic law. Each discussion will cover key topics related to this theme, drawing on experts from the legal industry, academia, and intergovernmental organizations. Panels will focus on (1) foreign investment and emerging market development, (2) sovereign debt restructuring with the rise of new powers, (3) the future of international financial law, and (4) avenues for global trade reform.
This year our keynote speech will be delivered by Mr. Hassane Cisse, an expert in international development law and former Deputy General Counsel of the World Bank Group. Mr. Cisse will focus his comments on global governance and institutional reform issues facing international organizations.
The conference will include a complimentary breakfast and lunch.
Dec 19, 2023 | Online Scholarship, Perspectives
Introduction
The diplomatic relationship between the Republic of Haiti and the Dominican Republic is further complicated by the Massacre River affair. Tensions between the two countries, which share the island of Hispaniola, have never been so high in recent decades. The subject of dispute is the construction of an irrigation canal fed by the Massacre River, which the two countries share. Plunged into a deepening humanitarian crisis and plagued by insecurity and armed gang violence, Haitians see the construction of the irrigation canal as a matter of survival, food sovereignty, or a kind of last gasp. However, the Dominican authorities argue that the canal would divert water from the Massacre River, violating the Treaty of Peace, Friendship and Arbitration of February 20, 1929, concluded by the two countries. This situation creates tensions between the two nations and highlights the issues and challenges relating to the management and use of water from the Massacre River. At a time when this dispute is causing major friction between the two peoples, it is more crucial than ever for the two states to strengthen their diplomatic relations if they are to avoid stirring up dark memories of the past.
I. The Facts
The Massacre River is a small coastal river that flows into the Atlantic Ocean and is a border waterway between the Republic of Haiti and the Dominican Republic. In August 2018, Haitian President Jovenel Moïse launched the construction of an irrigation canal on the Massacre River. Water from the Massacre River was to irrigate 3,000 hectares of highly fertile land in the Maribahoux plain in northeastern Haiti, to alleviate the misery of the inhabitants. The project drew protests from the Dominican Government. On April 26, 2021, several Dominican soldiers from the Cuerpo Especializado en Seguridad Fronteriza Terrestre (CESFRONT) intimidated the Haitian workers. On May 27, 2021, with a view to finding a diplomatic solution, the two States convened a meeting of the bilateral Joint Commission at the Ministry of External Relations of the Dominican Republic. The Commission’s technical secretaries signed a joint declaration recognizing that the proposed irrigation canal would not alter the natural course of the waters. Since the assassination of Haitian President Jovenel Moïse in July 2021, the project has slowed down, but Haitian farmers, supported by several civil society organizations, started digging again in August 2023, hoping that water would one day reach their cultivation fields. Today, this irrigation canal is the subject of heated controversy between the two countries. While the Haitian Government is open to dialogue to find a favorable outcome, on Friday, September 15, 2023, Dominican President Luis Abinader decided to close all borders. In a press release issued on the same day, the Haitian government declared that the Maribahoux plain irrigation project would continue. At a time when the Haitian people are facing an acute social, humanitarian, and political crisis, the management of this conflict is of crucial importance. To better understand the current dispute over the Massacre River between the Republic of Haiti and the Dominican Republic, it is essential to bear in mind the long-standing and still-latent conflict over this international waterway.
II. The History
The history of the border between Haiti and the Dominican Republic is essentially one of tensions and exactions. This border was to change with conquest, reunification, independence, and tyranny. The Massacre River was the scene of fierce rivalry between the French, who felt the river belonged to the western part of the island of Saint-Domingue, and the Spanish, who wanted the river to separate their lands from those of the French on the mountainous side. The river’s name reflected the tensions between the two parts of the island. It was called the Massacre River because the two peoples had often come to blows on its banks. The Treaty of Ryswick in 1697 already mentioned the Massacre River. Some historians claim that the river’s name evokes the incessant skirmishes between French buccaneers and Spanish soldiers on its banks, while others maintain that it is a reference to the memory of one of the many wars of extermination that wiped out the indigenous Arawak population. Whichever hypothesis is adopted, it should be noted that the island seemed destined for a tragic confrontation, an anticipatory sign of the violence that was to accompany the birth of Haiti and its relations with the neighboring Republic. It was the Treaty of Aranjuez (1777) that established this river as the boundary of sovereignty between France and Spain.
III. Corpus Juris
In the context of bilateral relations between the Republic of Haiti and the Dominican Republic, the law applicable to international waters is corpus juris dating from the mid-twentieth century. The law governing international watercourses has been codified in legal instruments such as the Treaty on the Delimitation of the Frontier between the Dominican Republic and the Republic of Haiti of January 21, 1929, the Treaty of Peace, Friendship and Arbitration of February 20, 1929, the Boundary Agreement between the Dominican Republic and the Republic of Haiti of February 27, 1935, and the Additional Protocol to the Treaty of January 21, 1929, Regarding the Delimitation of the Frontier Between the Dominican Republic and the Republic of Haiti of March 9, 1936 (“Additional Protocol”).
The most important legal instrument remains the Treaty of Peace, Friendship and Arbitration of February 20, 1929, which views international waters as shared natural resources and contains some of the principles and rules that would later be elaborated in broader forums such as the United Nations. The Convention on the Law of the Non-Navigational Uses of International Watercourses of May 21, 1997 (“United Nations Convention”) essentially regulates international watercourses, which are defined as “watercourse[s], parts of which are situated in different States.”
The Treaty of Peace, Friendship and Arbitration of February 20, 1929 codifies the use of the waters of the rivers Libón and Artibonite, as recalled in Article 6 of the Additional Protocol: “The waters of the rivers Libón and Artibonite belong equally to the two riparian States, and use thereof shall be subject to the provisions of Article 10 of the Treaty of Peace, Friendship and Arbitration signed in the city of Santo Domingo . . . on February 20th, 1929.”
Article 10 of the Treaty of Peace, Friendship and Arbitration of February 20, 1929 enshrines the right of either state “to make just and equitable use, within the limits of their respective territories, of the said rivers and streams for the irrigation of the land or for other agricultural and industrial purposes.”
In other words, this Treaty prefigures the principle of equitable and reasonable sharing found in Article 5 of the United Nations Convention, which emphasizes that “Watercourse States shall in their respective territories utilize an international watercourse in an equitable and reasonable manner . . . [and] participate in the use, development and protection of an international watercourse in an equitable and reasonable manner.”
Moreover, Article 10 of the Treaty also lays down the obligation not to cause significant damage: “[T]he two High Contracting Parties undertake not to carry out or be a party to any constructional work calculated to change their natural course or to affect the water derived from their sources.” A similar formulation of this principle can be found in Article 7 of the United Nations Convention, which establishes the obligation not to cause significant damage to other watercourse States.
The question of equitable and reasonable use can be assessed in light of the criteria set out in Article 6 of the United Nations Convention. Although the Republic of Haiti and the Dominican Republic are not parties to this Convention, it would be logically and legally possible to interpret the provisions of the Treaty in accordance with the principles of international law, considering, for example: “Geographic, hydrographic, hydrological, climatic, ecological and other factors of a natural character; The social and economic needs of the watercourse States concerned; The population dependent on the watercourse in each watercourse State; The effects of the use or uses of the watercourses in one watercourse State on other watercourse States . . . .”
In the case relating to the territorial jurisdiction of the International Commission of the River Oder (1929), the Permanent Court of International Justice interpreted the principles of equitable, reasonable, and non-damaging use of the watercourse through the notion of community of interests uniting riparian States around an international watercourse:
“But when consideration is given to the manner in which States have regarded the concrete situations arising out of the fact that a single waterway traverses or separates the territory of more than one State, and the possibility of fulfilling the requirements of justice and the considerations of utility which this fact places in relief, it is at once seen that a solution of the problem has been sought not in the idea of a right of passage in favour of upstream States, but in that of a community of interest of riparian States. This community of interest in a navigable river becomes the basis of a common legal right, the essential features of which are the perfect equality of all riparian States in the user of the whole course of the river and the exclusion of any preferential privilege of any one riparian State in relation to the others”.
Equitable and reasonable use also presupposes consultation in a spirit of cooperation. For example, a state cannot decide unilaterally on the allocation of a watercourse if other riparian states want to see their own interests considered. The obligation to notify and consult helps to resolve tensions and controversies, as recalled by the International Court of Justice in the Pulp Mills case (2010). Thus, the obligation to notify is essential in the process, and it should lead the parties to work together to assess the risks of the project and negotiate any modifications likely to eliminate them or minimize their effects. The principle of fair and reasonable use can therefore also be applied by prior notification of the project.
IV. Discussion
In the Massacre River affair, the Haitian Government undertook the construction of an irrigation canal in 2018 to water the Maribahoux plain. This is the first project launched by the Haitian Government on the Massacre River, while the Dominican Government has already built several aqueducts and irrigation canals. Opposing the canal construction project, the Dominican government argued that the project constituted a detour of the river and a threat to the environment. The two States consulted each other to assess the project’s risks. In May 2021, they adopted a Joint Declaration stating that, on the basis of the information provided by the representatives of the Republic of Haiti and in the spirit of understanding and exchange of information in accordance with what is stipulated in the Treaty, the project being carried out on the Massacre River for the abstraction of water does not constitute a detour of the watercourse. It was therefore clear from the facts that the project undertaken by the Haitian government was not likely to divert the watercourse and reduce the flow of water and did not undermine the protection of the environment and the promotion of sustainable development.
The Joint Declaration was based on a study conducted by the Dominican National Institute of Hydraulic Resources (INDRHI) in 2021. This study recognized that the project would require a flow between 1.5 and 3 cubic meters per second, which represents 20.33% of the average annual flow of the Massacre River. Thus, the flow would still be below the extractions made on the Dominican side. Finally, the researchers added that two-thirds of the Dominican agricultural land irrigated with the Massacre River’s water is located upstream of the canal under construction.
Nevertheless, we must acknowledge that Haitian farmers continued in August 2023 in the absence of Haitian government control. If the spontaneous initiative of the farmers to pursue the irrigation project is to be understood from the point of view of their urgent economic and social needs, the Treaty of Peace, Friendship and Arbitration of February 20, 1929, confers only on states, and not on the citizens themselves, the right to undertake construction work on watercourses. It is therefore incumbent upon the current government to regain control of the project in accordance with the standards established by bilateral treaties and international legal instruments. In a press release dated September 15, 2023, the Haitian Government declared its intention to take all measures to ensure that irrigation of the Maribahoux plain is carried out in accordance with scientific standards, under the supervision of the Ministry of Agriculture, Natural Resources and Rural Development and of the Environment. For the time being, however, the irrigation project is being carried out according to the sovereignty of a people completely neglected by their government.
Dominican President Luis Abinader’s decision to close his borders with the Republic of Haiti would contravene the Joint Declaration of May 27, 2021, which paved the way for coordinated institutional management, and the Treaty of Peace, Friendship and Arbitration. In the context of this dispute, it would perhaps be more interesting to envisage a peaceful and amicable outcome, by considering “all relevant information on the water table, hydrological studies, environmental impacts and other information outlined in the May 2021 Joint Statement.” Furthermore, in the spirit of joint management of shared water resources, the two parties could draw up a technical protocol for the coordinated management of transboundary watersheds. Finally, the Organization of American States could play an important role in facilitating an amicable settlement through mediation. Failing agreement, recourse to international arbitration remains the most appropriate method for resolving this dispute.
The Dominican Republic’s decision also appears to disregard the first paragraph of Article 3 of the Treaty of Peace, Friendship and Arbitration of February 20, 1929, which underlines the obligation to resort to investigation and conciliation procedures:
“The High Contracting Parties undertake to submit to arbitration all disputes of an international character which may arise between them as a result of one of the Parties claiming a right as against the other, under the terms of a treaty or otherwise, when it has not been possible to settle this claim by diplomacy and when the claim is of a legal nature inasmuch as it is capable of decision according to the principles of law.”
This clause of consent to international arbitration obliges each party to initiate prior amicable and diplomatic attempts to settle a dispute. If the attempt at diplomatic resolution fails, the disputing party may bring the dispute before an arbitrator or an arbitration tribunal, depending on the agreement of the parties. By failing to attempt a diplomatic or arbitral resolution, President Luis Abinader has thus strayed from the path of peaceful resolution mapped out by the Treaty.
Article 5 of the same Treaty sets out the way the arbitral tribunal is to be constituted:
“The arbitrator or tribunal to decide the controversy shall be appointed by agreement between the Parties. Failing agreement, the following procedure shall be observed: each Party shall appoint two arbitrators, only one of whom may be a national of the said Party or chosen from among the persons nominated by the said Party as members of the Permanent Court of Arbitration at The Hague; the other member may be of any other American nationality. These arbitrators will, in their turn, choose a fifth arbitrator, who shall be the President of the tribunal.”
While the Dominican Government is choosing the worst option, preferring a justice of force based on reprisals instead of relying on the strength of justice, it could simply have chosen the amicable option, and in the event of its failure, the arbitration procedure. It is high time we remembered that gunboat diplomacy is no longer fashionable.
The Dominican Government has already acknowledged that the Haitian project is an irrigation project that in no way endangers downstream ecosystems. The onus is now on the Dominican Government to demonstrate that the current intake on the Massacre River constitutes a damaging and inequitable use of water resources and is detrimental to the environment.
No state can guarantee itself exclusive use of shared water resources. The Republic of Haiti is therefore entitled to pursue the Maribahoux plain irrigation project. However, it must be stressed that this must be done in accordance with technical and scientific requirements, and in compliance with environmental standards.
In the midst of this major controversy, and especially in the midst of the climate crisis, the Haitian government should take the opportunity to take a step to the side by demanding that the Dominican Republic provide precise information on the various works it has undertaken on the Massacre River, with a view to determining whether the Dominican authorities are not significantly reducing the flow of water that Haitians could use downstream.
V. Perspectives
To re-establish a healthy and lasting diplomatic relationship between Haiti and the Dominican Republic, the poetics of dialogue are more than necessary. For the future of these two neighboring brothers, the methods of peaceful settlement of disputes must remain essential tools. Diplomacy is the key to peaceful coexistence on the island. It is important to emphasize this in the context of intense tension between the two nations, where Haitians living in the Dominican Republic are sometimes subjected to inhumane, undignified, and degrading treatment.
The Massacre River case teaches both neighboring countries that it is time to take the initiative for a specific river treaty project, particularly in a context where access to and management of water resources pose crucial environmental and social challenges. This would be even more interesting given that the Treaty of Peace, Friendship and Arbitration still in force today is over a hundred years old. But things have changed since then. In addition to the issues of irrigation production for agricultural purposes and use for industrial purposes set out in Article 10 of the Treaty of Peace, Friendship and Arbitration, other issues such as energy production, access to fresh water for human consumption, environmental protection, and preservation of cultural heritage are gaining in importance. Beyond the Treaty’s principles of equitable and reasonable use, the obligation not to cause significant harm, and the principle of equality of use, new approaches are emerging in international law to meet essential human needs and new environmental challenges. This calls for a watercourse treaty adapted to recent social, environmental, and climatic developments, which will be an important step forward in the management of watercourses, based on a global vision. This issue is even more relevant given that the Libón River – an international waterway originating in Haiti – could also in the future be the subject of intense tensions between the two countries in the context of mining operations in the border zone by two Canadian companies, Unigold and Barrick Gold.
As soon as it affects their diplomatic and trade relations, the Massacre River dispute benefits neither Haiti nor the Dominican Republic. To reach a peaceful settlement of this dispute, it is more than necessary to return to the negotiating table in accordance with their treaty obligations. Both parties can count on the Organization of American States (OAS), which has a proven track record in mediation in the Central American region. To facilitate the peaceful resolution of the dispute, the two governments must communicate all relevant information and research data available concerning the water table, the hydrological regime and potential environmental impacts. If the attempt at diplomatic resolution fails, the parties may then submit their dispute to international arbitration. Moreover, to prevent or manage their potential conflicts in the future, the two states need to rethink the Treaty of Peace, Friendship and Arbitration, which is already almost a century old. The Republic of Haiti and the Dominican Republic may consider negotiating a forward-looking treaty accounting for new social, humanitarian, climatic, and environmental challenges. This initiative may prove important for a better coexistence of the two neighboring brothers.
*Milcar Jeff Dorce holds a PhD in Public Law from the University of Bordeaux, Center for European and International Research and Documentation. He specializes in international investment law and arbitration.
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