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Money, power and the public interest v0.2

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Lois Van Waardenberg

on 11 October 2012

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Transcript of Money, power and the public interest v0.2

The Dark Side
(Powerful Selfish Investors) The Other Dark Side
(Powerful Corruptible States) Plama v Bulgaria (ICSID award 2008)
Oil refinery, bankruptcy Saluka v Czech Republic
(ICSID award 2008) MFN clause applies to procedural provisions? No.
Some risks must be borne by the investor.

State won.
Plama violated good faith;
- and even if not, must bear own risk. SIDEBAR: New Australian Trade Policy on ISDS April 2011

A review of Australia’s trade policy was conducted by the new Trade Minister Craig Emerson following the 2010 election. The outcome of this review, announced in April 2011, included the adoption of many of the recommendations of the Productivity Commission Report on Bilateral and Regional Trade Agreements.

The policy rejects the inclusion in trade agreements of investor state dispute procedures. It states:

“The Government does not support provisions that would confer greater legal rights on foreign businesses than those available to domestic businesses. Nor will the Government support provisions that would constrain the ability of Australian governments to make laws on social, environmental and economic matters in circumstances where those laws do not discriminate between domestic and foreign businesses…In the past, Australian Governments have sought the inclusion of investor-state dispute resolution procedures in trade agreements with developing countries at the behest of Australian businesses. The Gillard Government will discontinue this practice. If Australian businesses are concerned about sovereign risk in Australian trading partner countries, they will need to make their own assessments about whether they want to commit to investing in those countries” (Emerson, 2011: 20).

The policy was also influenced by actions taken by the Philip Morris International tobacco company in February 2010 against the government of Uruguay, challenging tobacco advertising restrictions which were based on a World Health Organisation Convention. The company claimed that the measures violated the terms of the Switzerland Uruguay bilateral investment treaty by preventing it from displaying its trademark, which received media publicity in Australia (O’Malley, 2010, Davison 2010).

The Australian government had already announced its intention to introduce tobacco plain packaging legislation. In January 2011 the trade Minister responded to media reports of the Philip Morris Uruguay legal action and its submission for an ISDS in the TPP by saying that “Philip Morris would be ‘whistling in the wind’ if it tried to undermine national anti-tobacco laws” (Rowbotham, 2011).SID RE PM v URUGUAY, Weiiler opinion
A legal analysis of the challenge launched by Philip Morris International (PMI) found the company to be both unjustified and unreasonable in its opposition to Uruguay’s new tobacco packaging laws.

“In my opinion” said the report’s author, Todd Weiler,” the claim is nothing more than the cynical attempt by a wealthy multinational corporation to make an example of a small country with limited resources to defend against a well-funded international legal action, but with a well-deserved reputation as a worldwide leader in tobacco control.”

In March 2010, three subsidiaries of USA-based Philip Morris International (PMI) launched a damages claim against the Government of Uruguay under the Switzerland – Uruguay Agreement on the Promotion and Protection of Foreign Investments. The companies claimed that their rights under this agreement were impaired by Uruguay’s requirements for health warnings that covered 80% of the cigarette package and by regulations to end the industry practice of colour-coding cigarette packages.

“Uruguay has taken a state-of-the art approach to implementing the World Health Organization’s global tobacco treaty, the Framework Convention on Tobacco Control (the FCTC),” said Neil Collishaw of Physicians for a Smoke-Free Canada, which commissioned Mr. Weiler’s opinion. “Uruguay’s new regulations raise the bar for measures to reduce smoking, but are entirely consistent with the World Health Organization treaty’s obligations for health warnings and controls on deceptive packaging.” Mr. Collishaw suggested that Philip Morris’ intention is to force Uruguay to abandon its regulation and thus discourage other countries from adopting similarly strong packaging laws.

The investment treaty between Uruguay and Switzerland is similar to over 2,000 other treaties currently in force worldwide. “Any country that has a bilateral investment treaty with either Switzerland or the USA could face a similar challenge from Philip Morris. The tobacco control measures of dozens of developing countries could be put at risk,” said Mr. Weiler.

Neil Collishaw emphasized the worldwide support for Uruguay’s defence against Philip Morris’ bullying. “Philip Morris may think they can pick on a country half its size, but we expect the global health community will line up to support Uruguay’s efforts.”

Dr. Eduardo Bianco is a cardiologist in Montevideo and president of Uruguay’s leading tobacco control organization, CIET. “What is happening today in Uruguay could happen to any country that implements very effective tobacco control measures,” he said. “As a Uruguayan and a health promoter, I welcome assistance for our work.”

Todd Weiler’s opinion, “Philip Morris vs. Uruguay: An Analysis of Tobacco Control Measures in the Context of International Investment Law” was made public today. Information on tobacco in Uruguay can be found at www.cieturuguay.org CASE LAW Is public policy influenced by private wealth?

Are investment treaties an irresponsible ceding of sovereignty?

Is globalised economic development extracting a price beyond its value? Philip Morris v Australia
(Philip Morris Asia, HQ in Hong Kong)
Notice of Arbitration (UNCITRAL) Nov 2011
Hong Kong-Australia BIT, 1993 ` 2006 2010 2007 State 1 State 2 State 2
(Host State) Investor from State 1
(Home State) Of course: financial resources are a source of power and influence.
THOUGH wealth need not be the only influence on policy: this is a choice.
AND there is no guarantee that optimising economic wealth leads automatically to all other social goods. Do foreign investors have an inappropriate level of influence on public health and safety, environmental, indigenous, cultural and human rights policies? REGULATORY ch-ch-CHILL? ` Treaty shopping legal.

Saluka was a shell company, a Dutch subsidiary of a an English-registered subsidiary of major Japanese investment bank Nomura) with arguably no real economic interest.

Saluka met the formal definition of investor in the BIT. Phoenix Action v Czech Republic
(ICSID Award on jurisdiction 2008)
Tax evasion by metal importer Treaty shopping not allowed. Abusive claim disqualified.

". . .nothing more than an ex post facto
creation of a sham Israeli entity created by a
Czech fugitive from justice, Vladimir Beno, to create diversity of nationality".

The claim was "‘one of the most egregious cases of Treaty Shopping that the investment arbitration community has seen’." The political forces are changing - sovereignty and self-protection of states v previous wave of neoliberalism Why pay attention to this issue right now? Intro ` But first - a story
Big tobacco v Nanny state Philip Morris v Uruguay
(PM Brands SA, PM Products SA, Abal Hermanos SA
Request for Arbitration (ICSID), Feb 2010
Swiss-Uruguay BIT, 1988 Loss claimed - the measures:
(i) resulted in a decrease in sales,
notably because its local subsidiary was forced to discontinue a number of its product varieties;
(ii) caused a deprivation of IP rights and
undermined the goodwill of trademarks
(+consequential reduction in value of local subsidiary); and
(iii) altogether resulted in substantial losses. Outro What's wrong with this story?
What's right with it? Vattenfall (Sweden) v Germany
(ICSID Dispute Registered 2012)
Nuclear power generation Large claim (€700m); compromise of public health and safety?

Publicly supported government decision to phase-out nuclear power.
Resulting claim for expropriation (stolen returns on nuclear power plants)
NB Vattenfall is wholly owned by the Swedish taxpayers.

Claiming lost investments up to €700m.

What impact did this have on the government's decision to implement a nuclear-free policy?
What impact will this have on another state's decision-making about nuclear energy? Yukos (Spain) v Russia, ECT
(SCC Award July 2012)
Oil Large award? Expropriation to value of $60b found; 6% Russia's GDP.

Expropriation, alleged concerted attack by government on oil company (trumped up tax-evasion charges?)

Russia used “illegitimate” tax bills to bankrupt and nationalize Yukos, valued at $60b.
Compensation ordered, amount not released.

What impact does such an award have on Russia's ability to function as a state in caring for its citizens? ConocoPhillips (US) v Venezuela
ICSID, registered 2007
Oil and gas extraction Large claim, seeking at least $2b.

Claims by > 60,000 Italian bondholders, who did not make the investment in Argentina, nor transfer money into Argentina.

The claimants held “security entitlements” in various Argentinean sovereign bonds quoted at the stock exchange, alleged that Argentina’s default and its sovereign debt restructuring were in breach of its BIT obligations.

What weight is given to a state's duty to respond to financial emergency? Abaclat v Argentina
(ICSID Decn on Jurisdiction 2011)
Portfolio investments Forum shopping legal.

Foreign investor status for "local company" by narrow definition of corporate nationality.

Tokios was officially Lithuanian but financially Ukranian. Tokios Tokeles v Ukraine
(ICSID Decn on Jurisdiction 2004) Treaty/forum shopping through corporate nationality structuring Money, Power,
and the
Public Interest

Who's in charge? MFN rule applies to procedural matters Definition of investment - narrow or wide?
IP also a covered investment?
Portfolio investment in sovereign bonds a covered investment? Unreasonable impairment Every legal cost that is incurred,
every government resource expended on unnecessary process,
every dollar awarded in compensation,
“a theft from those who hunger and are not fed,
those who are cold and are not clothed” (from Eisenhower on the cost of war) ... where does all this take us – apart from to exclaiming that the world is complex, and that there are far >50 shades of gray?
Double whammy - outrageous power of dubiously-behave investors+
+pragmatic- and justice-based reasons for limiting states' power
"Answer" to the issues raised is not attempted here: proposed solutions in next paper
What's in charge? 2012 2011 2009 2008 1979 1979
PMI invests in Uruguay by acquiring Abal Hermanos SAS.
Tobacco control is already part of the regulatory culture. 2005 2004 2003 Mar 2008 Uruguay
Consolidated tobacco legislation implemented, including packaging laws, setting the stage for the measures on which PMI's claim is based. 2009-2010 Uruguay
Increase in rigour of packaging laws via new 3 measures in force: these form the basis of the PMI BIT claim Oct, Dec 2012 Aus
The manufacture and packaging in Australia of non-compliant tobacco products will be prohibited from 1 Oct; retail sale of such products will be prohibited from 1 Dec 2013 Large claim ($20b).

Claim based on Venezuela's directing of foreign firms into minority partnerships with the state (PDVSA) in multibillion dollar projects in the Orinoco Belt crude region.

Exxon ($7b) and ConocoPhillips ($20b) sued; other firms accepted the terms.

What would the impact of such an award be on the economy of Venezuela? It's the power, the money, and the public interest, stupid ... - $large and HRfundamental are at stake The economic forces are changing - globalisation of economic devt -> continued asset ownership diffusion The system is unstable - states uncertain, citizens getting noisier The legal context:
International Investment Law Arbitral panel
(ICSID, PCA, ICC, SCC) The rules of engagement
(BITs, FTA Investment Chapters, MIAs) DID YOU KNOW ... ? ChevronTexaco (US) v Ecuador
(UNCITRAL 3rd Interim Ruling 2012)
Oil Pollution.

ChevronTexaco failed to clean up cancer-causing toxic sludge pits in the Ecuadorian Amazon (Los Agrios basin).
ChevronTexaco allege denial of justice by Ecuador regarding Ecuador's response to the pollution (to fine them and use the proceeds to clean up the mess.

Interim ruling ordering Ecuador to take all measures necessary to stop its own courts and other states enforcing the Ecuadorian courts' ruling against ChevronTexaco to the value of $US18b.

What is the impact of this ruling on separation of powers and constitutional autonomy in Ecuador? Burlington Resources (US) v Ecuador
(ICSID Decn on Jurisdiction 2010)
Oil exploration Pollution, indigenous land, social unrest.

Burlington could not carry out its operations due to violent local opposition to its (polluting?) activities.
Ecuador failed to provide physical protection and security for an oil exploration concession in the Ecuadorian Amazon rainforest.

Tribunal re "lack of full protection and security" claim: no jurisdiction (procedural grounds).
Tribunal re expropriation claim: case continues to merits phase.

What is the impact of such claims on a government's ability to respon to its own people and care for its environment? This may not be "the truth" - but there is truth in it. Is the claimant an "investor"?

Is there an "investment"?

Have pre-arbitration procedural requirements been met?

Umbrella clause - breaching other treaties also in jurisdiction? Fair and equitable treatment - if no expropriation? Feb 2005
Framework Convention for Tobacco Control in force; NZ, Australia, Uruguay included amongst signatories Piero Foresti (Italy, Luxembourg) v South Africa
(ICSID Award 2010)
Mining Perpetuation of inequality, discrimination.

apartheid-remediation legislation changed the conditions of investment - made profit making more difficult
i.e. new lego introduced mandatory achievement of Black Economic Empowerment (BEP) objectives.


BEP would have become unaffordable if SA was sued on a frequent basis. (But no sex please, we're British.) PMI v Ecuador and Australia
(ICSID notice 2010, UNCITRAL notice 2011)
Tobacco products Pre IIL, required Home State to sue Host State in the ICJ, based on diplomatic protection of their nationals (investors) But second - reorientation The system continues to grow (57% increase in claims/year over last 5 yrs) LvW cheatsheet HHIISCICC 9 HK Hk Intro Issues Story Cont Iss CS Obs Concl
VIA 3 Volume Int/Parking Agenda
CPIGIT 6 Chill? Priv$ Irresp? GED? Impact TWExtent
Issues deeper
Case study
Concl incl Observations/quiz/consideration

$ = USD unless stated otherwise Did you know ... ? Let's consider ... ... what is the impact of international investment law ...
as it enables powerful corporate investors to constrain
States' right to regulate in the public interest? State lost.
Tribunal found local owned by Mr Kardassopoulos had been granted the exclusive rights to possess, use and operate the Samgori-Batumi pipeline and related facilities, and that these rights subsequently had been extinguished through the adoption of various governmental decrees.

The tribunal held that the circumstances of Mr. Kardassopoulos’ claim presented a classic case of direct expropriation. The tribunal further held that such expropriation had not been carried out in accordance with due process of law and not been accompanied by the payment of any compensation. Kardassopoulos and Fuchs (Greece, Israel) v Georgia, ECT
(ICSID, Mar 2010)
Contribution to national economic development: significant
Accountability for public interests: little-none
Track record regarding human rights and sustainable development: variable-poor Highest concern: Protection, support and socio-economic development of its citizens
Contribution to national economic development: indirect
Accountability for public interests: high
Track record regarding human rights and sustainable development: variable To what extent does State participation in
International Investment Law cause COSTS Large award for small state = to health budget = $131b against USA

Award >US$350 million in damages after interest - equal to the Czech health budget; doubled the public sector deficit for that year.

When adjusted for population size and gross national income, it was equivalent to an award of US$131 billion against the United States.

What was the effect of this award on healthcare in the Czech Republic? CME v Czech Republic
UNCITRAL, Award 2003
Television services RELIEF: COMPENSATION OR OTHER REMEDIES? Waste Management v Mexico
(Award 2004 NAFTA)
Waste disposal services Fair and equitable standard is violated by treatment that is
"arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety-as might be the case with a manifest failure of natural justice in judicial proceedings or a complete lack of transparency and candor in an administrative process. In applying this standard it is relevant that the treatment is in breach of representations made by the host State which were reasonably relied on by the claimant." Metalclad (US) v Mexico
Award 2000 NAFTA
Hazardous waste treatment "[E]xpropriation ... includes not only open, deliberate and acknowledged takings of property … but also covert or incidental interference with the use of property which has the effect of depriving the owner, in whole or in significant part, of the use or reasonably-to-be-expected economic benefit of property even if not necessarily to the obvious benefit of the host state." ... it's about the impact of international investment law ...
as it enables powerful corporate investors to constrain
States' right to regulate in the public interest. Definitions e.g.
investment Treatment standards e.g.
Fair and equitable treatment
Full protection and security
Unreasonable or discriminatory impairment of rights
National treatment
Most favoured nation treatment
Umbrella clause including other agreements And so ... completing the circle. Shutting up now ...
Questions ??? Santa Elena (US) v Costa Rica
Award 2000 ICSID
Property/tourist development Expropriation is independent of public purpose - environment or people.

"While an expropriation or taking for environmental reasons may be classified as a taking for a public purpose, and thus may be legitimate, the fact that the Property was taken for this reason does not affect either the nature or the measure of the compensation to be paid for the taking.

That is, the purpose of protecting the environment for which the Property was taken does not alter the legal character of the taking for which adequate compensation must be paid. The international source of the obligation to protect the environment makes no difference." CMS Gas (US) v Argentina
(ICSID Award 2005)
Gas supplier a stable legal and business environment is an essential element of fair and equitable treatment” Impreglia SpA (Italy) v Argentina
(ICSID Award 2005)
Water and sewage concession 1994 1994
R.J. Reynolds Tobacco Co threatened to bring a claim under the NAFTA investment ch as part of successful lobbying campaign against Canada’s proposed “plain packaging” legislation. Feb 2010 Uruguay
PM brings ICSID request for arbitration against Uruguay. Jul 2010 Uruguay
Todd Weiler expert opinion issued: "PMI’s .. claim is emblematic of its long standing strategy to vehemently oppose the adoption of measures that might some day lead to plain packaging." Sep 2011 Ur
Uruguay's Memorial on Jurisdiction issued. July 2012 NZ
Plain packaging consultation document released by NZ Govt 29 Apr 2010 Aus
Govt announced its decision to adopt a new series of tobacco control measures as part of a comprehensive strategy to promote public health and awareness of the risks of smoking. Feb 2006 Uruguay
(then) President Vasquez set out vision of U as a "smoke free" country; prohibitions on public smoking followed; public supportive. Apr 2011 Aus
Exposure draft of Tobacco Plain Packaging Bill released. Dec 2011 Aus
Tobacco PP Act 2011 (Cth); Tobacco PP Regs2011 (Cth);
Tr Mks Am (TPP) Act 2011 (Cth)
passed into law. Jul 2011 Aus
PMA issues notice of claim under UNCITRAL rules re proposed PP lego Nov 2011 Aus
Notice of arbitration against Australia issued by PMA. Aug 2012 Aus
HCA dismisses claim by BAT, IT, PMI and JT against plain packaging laws - not unconstitutional. 23 Feb 2011 Aus
PMA acquires PM Australia (owns PM Ltd (Aus) from PM Brands Sarl (Switz) (... and maybe more) HCA has "driven a stake through the undead vampire heart of the tobacco industry".
Matthew Rimmer, law prof, ANU (I didn't.) This discussion is not about smoking
... or plain packaging
... or tobacco companies ... Agenda Introduction
Legal context
Issues explored
Case study (Big Tobacco v States)
Observations Relief sought:
Order requiring Aus to suspend the lego and compensate PMA for losses suffered thru compliance OR
compensate PMA for loss suffered as a result of enactment and continued application of the lego Loss claimed:
Loss of share value of PM Australia and consequently owner PML - economic rationale of PMA's investment undermined
IP and goodwill derived from use of the IP Relief sought
declaration of breach of BIT Articles 3(1), 3(2), 5 and 11
suspension of legislation
compensation for lost profit and revenue
compensation for manufacturing
and other costs of compliance So what did the States do wrong? Jurisdiction and admissibility Indirect expropriation - the biggie - maybe Unreasonable / discriminatory impairment - well, maybe Full protection and security - who knows? & how much will it cost the state?
If they win?
If they lose?
If they settle? Where does the balance lie?
Investor protection / states and citizens
Investments v regulatory rights and good practice?

(not sure ...)
(no-one is ...) Wrap A high-stakes area of law affecting me/you
How does it work - Philip Morris
Legal context - so easy
But not so easy to pick a side
Philip Morris - the detail
Observations - finding the fulcrum Dec 2011 Aus
Aus Gvt response to PMA issued
Full transcript