Depoliticization of International Dispute Settlement

A Comparison of the Dispute Settlement Provisions of the WTO and the Energy Charter Treaty

in The Journal of World Investment & Trade
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Depoliticization of International Dispute Settlement

A Comparison of the Dispute Settlement Provisions of the WTO and the Energy Charter Treaty

in The Journal of World Investment & Trade

References

3 See WTO, Tradinq into the Future: The Introduction to the WTO, at: ��http://www.wto.org/english/thewtoe/ whatis_c/tif_e/bey6 e.htm�>. I Mary Footer, Trade and Investment Measures in the Fnergy Charter Treaty, in Walde (ed.), supra, footnote 1, p. 445. 5 The United Nations Conference on Trade and Development (UNCTAD) is implementing a possible multilateral framework on investment; see its Website at: "http://www.unctad.org/iia/index.htm».

The full text of the Energy Charter Treaty appears as an Appendix in Walde, supra, footnote 1. See also The Energy Charter Treaty and Related Documents at: <. 7 Six signatories (Japan, Australia, Belarus, Iceland, Norway and the Russian Federation) have not yet ratified the Ec The Japanese Parliament approved ratification of the ECT on 5 July 2002, and Japan will become the 46th Contracting Party upon the formal procedure to deposit the instrument of ratification of the ECT with the Depositary.

8 Energy Charter Secretariat, Activity Report 2001. For the draft text of the supplementary treaty, see: «http://www.eucharter.org/index.jsp?psk=0903&ptp=tDetail jsp&pci=128&pti=42�>.

" Sec Craig S. Bamberger, Epilogue: THe Energy Charter Trenfy as a Work in Progress, in WIlde (ed.), slIpra, footnotes 1, pp. 596-598: "The Energy Charter Treaty contains three principal dispute resolution mechanisms ... In addition to the Energy Charter Treaty's three principal dispute resolution mechanisms, there is quite a different sort of dispute settlement device in the Treaty's ground-breaking Article 7 on 'Transit'." ��� Peter Schutterle, former Secretary-General of the Energy Charter Secretariat, said in an interview that Russia and the Ukraine had a dispute over the Druzhba oil pipeline fees in 1996 and both Ministries publicly stated the possibility of utilizing the dispute settlement mechanism of the Ec:T; Caspian Investor, July 1999, p. 25.

�r For anti-competitive conduct, notification and consultation procedures are provided (Article 6(5)). For disputes concerning the provisions of environment aspects, there is a review mechanism aiming at a solution (Article 19(2)). 12 See the EcT Website at: ��http://www.encharter.org/iiidcxjsp?psk=09&ptp=tDctailjsp&pci=20&pti= 1 6,>.

m See the ECT Website at: «http://www.encharter.org/index.jsp?ptp=tDeti)it.jsp&pci=2)&pti=16". 14 For the complete text of the W ro Agreements, see the WTO Website at: «http://www.wto.org/english/ thewto e/whatis e/whatis e.htm».

11 United Nations Conference on Trade and Employtncnt, held at Havana, Cuba, from 21 November 1947 to 24 March 1948; UN Doc. E/Conf.2/78. 16 Mary Footer, supra, footnote 4, pp. 447-448.

17 "If a Member undertakes a market-access commitment in relation to the supply of a service through the mode of supply referred to in subparagraph 2(a) of Article I and if the cross-border movement of capital is an essential part of the service itself, that Member is thereby committed to allow such movement of capital. If a Member undertakes a market-access commitment in relation to the supply of service through the mode of supply referred to in subparagraph 2(c) of Article I, it is thereby committed to allow related transfers of capital into its territory." Footnote 8 of Gnrs.

18 Non-conforming measures of national treatment for pre-investment ("Making of Investments" as defined by Article 1 (8) of the ECT) are registered by Contracting Parties of the ECT. Those existing non-conforming measures have been divided by the Energy Charter Secretariat into five categories: (1) land and real estate restrictions; (2) privatization; (3) measures with respect to registration and screening; (4) reciprocity requirements; and (5) other non-conforming measures. Land and real estate restrictions, for example, can be articulated limitations of national treatment (Article XVH) rather than of market access (Article xvi) in the GATS.

1') Thomas Walde, International Investment under the 1994 Energy Charter Treaty, in Walde (ed.), supra, footnote 1, p. 304. 211 Jeswald Salacuse, The Energy Charter Treaty and Bilateral Investment Treaty Regimes, in Walde (ed.), ibid., p. 347. 21 Peter Muchlinski, The Energy Charter Treaty: Towards a New International Order fnr Trade and Investment or a Case of History Repeating Itself, in Walde (ed.), ibid., p. 213. 22 See Jan Paulson, Arbitration without Privity, in Walde (ed.), ibid., pp. 423-438: "The first island of discovery was the 5/'/' 1'. Republic of Egypt (Pyramids Oasis) case ... where an aggrieved investor successfully initiated Icsm arbitration on the basis of a unilateral promise contained in an investment promotion law."

=3 See text of the NAFTA, at: �http: //www. nafta-sec-alena. org/ english/nafta /chap- I 12.htm*. Za For example, the Agreement between the Government of Japan and the Government of the Russian Federation concerning the Promotion and Protection of Investments, which entered into force on 27 May 2000, provides: "Each Contracting Party shall accord sympathetic consideration to, and shall afford adequate opportunity for consultation regarding, such representations as the other Contracting Party may make with respect to any matter affecting the operation of the present Agreement." (Article 13). NAFTA provides StateState dispute settlement provisions which consist of consultation and a non-binding panel under Article 2008. On the other hand, some BITS, such as the Argentina-United States BIT, provide for a binding investor-State dispute settlement mechanism and also a binding State—State disputc Settlement mechanism through hor arbitration. 2S Kenneth J. Vandevelde, Arbitration Provisions in the Bits and the Energy Charter Treaty, in Waldc (cd.), supra, footnote 1, p. 409. 20 Salacuse, supra, footnote 20, p. 322. =� Patrick M. Norton, Back to the Future: Expropriation and the Energy Charter Treaty., in Walde (ed.), supra, footnote 1, pp. 381-382.

28 Salacuse, supra, footnote 20, pp. 335-337. See also Norton, ibid., pp. 372-373. =`' Gerhard Loibl, The Energy Charter Treaty: Implementation and Compliance Issnes, in Walde (ed.), supra, footnote 1, p. 581. See also Olivia Q. Swaak-Goldrnan, The Dispute Resolution Procedures of the Energy Charter Treaty: Made to Measure, The American Review of International Arbitration, Vol. 6, 1995, p. 318. See also W51de, supra, footnote 19, p. 283. 311 Trachtman, supra, footnote 2, pp. 344-345. Trachtman also explores "the disparity between the positive law dispute resolution system of the WTO and the more political, natural law style of dispute resolution available in connection with most other forms of international law". At p. 376.

11 See the Permanent Court of Arbitration's Website at: «http://www.pca-cpa.org/geninfo eng.htnu>. .12 Bamberger, supra, footnote 9, p. 597. 33 Trachtman, supra, footnote 2, p. 336. It should also be noted that the priority of dispute settlement at the WTO is not to make rulings but to settle disputes through consultations if possible (Articles xxii and xxm of Gait i 1947). Trachtman points out that trade diplomats, scholars and non-govcrnmcntal organizations (cos) have concerns that the small tribunals (W ro dispute resolution panels), lacking direct democratic legitimacy, should not determine such profound issues as the relationship between trade and the environment and have called for greater international legislation in such important issues (pp. 333-334). He also points out that the public-choice costs of specification of rules are increasingly countervailed by the costs in terms of the legitimacy of a decision made pursuant to a standard by a dispute resolution tribunal (p. 376).

34 Waldc, supra, footnote 19, p. 309. 35 See the UNCITRAL Rules at the Permanent Court of Arbitration's Website at: ahttp://www.pca-cpa.org/ uncitralrules.htm>. 31, Norton, suyra, footnote 27, pp. 373-374.

3� Vandevelde, supra, footnote 25, pp. 409-411. 31 Vandevelde also says that the United States has legislation authorizing the President to take cross-retaliation, such as trade sanctions or foreign assistant denials, when foreign States expropriate U.S. investment, but the legislation has been invoked only rarely because of a desire to avoid allowing investment disputes to disrupt relations outside the investment sphere. .1'J As pointed out by Vandevelde himself, the WTO created by the 1984-1996 Uruguay Round Of GATT negotiations has restructured the trade dispute settlement mechanism, but the new mechanism, as in the past, does not include the participation of private parties. 40 Swaak-Goldman, supra, footnote 29, p. 336.

41 Trachtman, supra, footnotes 2, p. 348. 12 For example, "Land and real estate restrictions" are registered not only as non-conforming measures of national treatment but were also listed as Annex T of the ECT for transitional derogation from Article 10(7) (post- investment obligations); see supra, footnotes 6 and 18.

43 Article 111) was inserted based on the request of the United States. Australia showed concerns that the GATT and the W ro Agreement might be interpreted outside of the WTO: "Australia further notes that it would not be appropriate for dispute settlement bodies established under the Treaty to give interpretations of GATT Articles m and xi in the context of disputcs between Parties to the GATT or between an Investor of a Party to the GATT and another Party to the GATT. It considers that with respect to the application of Article 10(11) between an Investor and a Party to the GATT, the only issue that can be considered under Article 26 is the issue of the awards of arbitration in the event that a GATT panel or the WTO Dispute Settlement Body first establishes that a trade- related investment measure maintained by the Contracting Party is inconsistent with its obligations under the GATT or the Agreement on Trade-Related Investment Measures." Final Act of tlre European Energy Charter Conference, Declarations, p. 2. With respect to Articles 5 and 10(11), see supra, footnote 6. �a Trachtman, supra, footnote 2, p. 343.

15 According to the Energy Charter Secretariat, a bilateral dispute between two Contracting Parties of the Ec:T was reported at the Energy Charter Conference of 20 June 2002. There is a possibility that it will be the first case under the dispute settlement mechanisms of the Eel'. But see Thomas Walde and Todd Weiler, Investment Arbitration under the Energy Charter Treaty. in the light �)fnew Nafva Precedents: Towards a Global Code �)f'Condiictfor Economic Regulation, which will be published on the CEPM) Intcrnct Journal, 2002, at: ow-ww.cepnilp.org/jouriialo (arguing that two cases have led to active arbitral proceedings with the ECT: Ars v. Hungary, now settled, as indicated on the Icstn Websitc at: -www.worldbatik.org/icsido; and a currently pending case). 46 Trachtman, supra, footnote 2, p. 339. 47 WTO Panel Report: Japan — Measures Affecting Consumer Photographic Film and Paper (Japan— Photographic Film), WT/DS44/R (98-0886), 31 March 1998, at para. 10.86. ^a Wro Appellate Body Rcport: Japan-Taxes on Alrerholic Beverages gapan-Alcoholic Beverages), WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R (96-3951), 4 October 1996, at 1.(a). 4. Ibid., at E.

so Ibid., at 1.(a). " Trachtman, supra, footnote 2, p. 356. 52 Japan— Alcoholic Beverages, supra, footnote 48, at H.1.(a). 53 Id. 54 Id. 11 Trachtman, supra, footnote 2, p. 340. 5h Ibid., p. 371.

5� Ibid., p. 372. See Report ojrhe Working Party on Australian Subsidy on Ammonium Sulphate, 3 April 1950, GATT B.I.S.D., Vol. 2, 1952, at 188; Who Panel Report: Treatment by Germany 4 Imports qfsardities, 31 October 1952, GATT B.I.S.D., 1st Supp., 1953, at 53; Uruguayan Recourse, 16 November 1962, GATT B.I.S.D., 1 lath Supp., 1963, at 95; Wto Panel Report: EC — Tariff Treatment on Imports of Citrus Products from Certain Countries in the Mediterranean Region, 7 February 1985 (unadopted), GATT Doc. L/5576; Wto Panel Report: EEc-Production Aids Granted on Canned Peaches, Canned Pears, Canned Fruit Cocktnil and Dried Grapes, 20 February 1985 (unadopted), GATT Doc. L/5778; W't'o Panel Report: Japan-Trade in Semi-Conductors, 4 May 1988, Gn'rT B.I.S.D., 35th Supp., 1989, at 116; W7o Pane! Report: Er:c--Payme/lts and Subsidies Paid to Processors and Producers of Oilseeds and Related Animal- Feed Proteins (EEc-Oilseeds), 25 January 1990, GATT B.I.S.D., 37th Supp., 1991, at 86; Wro Panel Report: United States-Restrictions on the Importation of Sugar and Sugar- Containing Products Applied under the 1955 Waiver and under the Headnote to the Schedule of Tariff Concessions, 7 November 1990, GnT'r B.I.S.D., 37th Supp., 1991, at 228; Japan-Photographic Film, supra, footnote 47. 5g Japan-Photographic Filrn, supra, footnote 47, para. 10.36. In other types of cases, the WTO Appellate Body seems to reject construction: "The legitimate expectations of the parties to a treaty are reflected in the language of the treaty itself. The duty of the treaty interpreter is to examine the words of the treaty to determine the intentions of the parties." W7o Appellate Body Report: India-Patent Protection for Pharmaceutical and Agricultural Chemical Products, AB-1997-5, WT/DS50/AB/R (98-3091), 24 August 1998, para. 45. 59 japan-Photographic Film, supra, footnote 47, para. 10.82: "Thus, in this case, it is up to the United States to prove that the governmental measures that it cites have upset the competitive relationship between domestic and imported photographic film and paper in Japan to the detriment of imports." (emphasis added). See Trachtman, supra, footnote 2, p. 373.

6(l Japan-Photographic Film, supra, footnote 47, para. 10.86: "We consider that despite the fact these past cases dealt with GATT provisions other than Article XXIII(1)(b), the reasoning contained therein appears to be equally applicable in addressing the question of de facto discrimination with respect to claims of non-violation nullification or impairment, subject, of course, to the caveat that in an Article xxlI1(I)(b) case the issue is not whether equality of competitive conditions exists but whether the relative conditions of competition which existed between domestic and foreign products as a consequence of the relevant tariff concessions have been upset." See Weiler's Website at: «http://www.naftaclaims.com». S.D. Myers, Inc. v. Government or Canada (Myers), Partial Award, 13 November 2000 (40 ILM, 2001, p. 1408; 121 1LR., 2001), para. 325. 63 Metalclad Corp. v. United Mexican States, IcaW Case No. Aittt(AF)/97/1, Award of 25 August 2000 (40 iLM. 2001, p. 35; 16 Icsiv Rev.-FiLj, 2001, p. 168), para. 137. 64 The Supreme Court of British Columbia, Canada, The United Mexican States v. Metalclad Corporation, 20()1 Bcac: 664, 2 May 2001, (hereinafter Metaldad British Columbia Decision).

65 Pope & Talbot, Inc. v. Government of Canada, Award on the Merits of Phase II (Pope & Talbot), 10 April 2001; available at: <>. 66 Dyers, supra, footnote 62, para. 262. 67 Pope & 7'allot, supra, footnote 65, para. 110. 68 Ibid., para. 110, footnote 99. 69 Metalclad British Columbia Decision, supra, footnote 64, para. 65. �° Ibid., para. 62: "In using the words 'international law', Article 1105 is referring to customary international law which is developed by common practices of countries. It is to be distinguished from conventional international law which is comprised in treaties entered into by countries (including provisions contained in the NAFTA other than Article 1105 and other provisions of Chapter 11)." "

Ibid., paras. 66 and 76. Todd Weiler reargues against the Metalrlad British Columbia Decision that the "principle of transparency" can be found throughout the ever-expanding body of international law, while the misunderstanding of the Decision appears to be based on the fact that the word "transparency" exists in NAFTA provisions other than those found in Chapter 11; Mexican Forecast, Volume x, Number 9, World Trade Executive, Inc., 15 May 2001. �- See Walde and Weiler, supra, footnote 45: "In cases where both the home and host States in an investment dispute are parties to the Icsm Convention, an established annulment mechanism exists, but for arbitrations proceeding under Icsii) Additional Facility and UNCITRAL rules, the only avenue is domestic judicial review based upon the standards provided for any commercial arbitration award." 71 Metaldad British Columbia Decision, supra, footnote 64, para. 133. Walde and Weiler, supra, footnote 45.

75 Id. 71 In the NAFTA case-law mentioned above, departure from simple literal interpretation can also be seen concerning the definition of "minimum standard of treatment" and "international law". Wiilde and Weiler point out that the Myers and Pope & Talbot Tribunals made it clear that they would retain considerable discretion to consider "like circumstances" in NAFTA Article 1102, which can be equated with the approach taken by the Appellate Body in japan-Alcohol Beverages; see ibid. �� Trachtrnan, supra, footnote 2, p. 348. 7" Ibid., p. 342. 79 W7o Appellate Body Rcport: Enropean Commlt/lities-Measures Affecting the Importation of Certain Poultry Products, WT/DS69/AB/R (98-2688), 13 July 1998, paras. 81 and 83. 80 Trachtman, supra, footnote 2, p. 341.

WTOPanelReport:UnitedStates-ImportProhibitionofShrimpandShrimpProducts(Shrimp-Turtle Panel Report) WS/DS58/R (98-1710), 15 May 1998, paras. 7.42 and 7.44. 82 Wt'o Appellate l3ody Report: United States-Import Prohibition 0{ Certain Shrimp and Shrimp Products (Shrimp- Turtle Appellate Body Report), WT/1�S58/AB/R, 12 October 1998, para. 115. 83 Shrimp-Turtle Panel Report, supra, footnote 81, paras. 7.50 and 7.55. '4 Shrimp-Turtle Appellate Body Report, supra, footnote 82, para. 132. 85 Ibid., para. 170.

11 Trachtman, supra, footnote 2, p. 363. 87 Id. ex Ibid., p. 364. 19 The International Court ofJustice was established by the Charter of the United Nations as the principal judicial organ of the UN. Article 38 of the Statute of the International Court ofjustice states: "The Court, whose function is to decide in accordance with international law such disputes as are submitted to it, shall apply: a. international conventions, whether general or particular, establishing rules expressly recognized by the contesting States; b. international custom, as evidence of a general practice accepted as law; c. the general principle of law recognized by civilized nations; d. subject to the provisions of Article 59, judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law." See the text of the Statute at: «http://www.un.org/Ovcrvicw/Statute/contents.html».

"" Wio, Trading into the Future: The Introductiou to the WTO, at: «http://www.wto.org/english/thewto e/ whatis_e/tif_e/bey4 e.htm». 91 Trachtman, supra, footnote 2, p. 365. 12 See the WTO's "Trade and Environment" Website at: «http://www.wto.org/cnglish/tratop c/cnvir c/ envir_e.htm». ''3 Walde and Weiler, supra, footnote 45.

11 See Pope & Talbot, supra, at footnote 67, and accompanying text; and Metalclad British Columbia Decision, supra, at footnote 69, and accompanying text. ''5 Myers, supra, footnote 62, paras. 263-264. y6 Walde and Weiler, supra, footnote 45. 1)7 See the full text of the Commission's Interpretation at: <

99 See Trachtman, supra, footnote 2, p. 365. ""' Walde and Weiler, suprn, footnote 45. 1111 See, for example, the International Institute for Sustainable Dcvclopmcnt (Wcbsite at: <>): "Chapter 11 (of NnFrn) is unprecedented in its reach into critical areas of public policy- making, as the cases to date demonstrate ... The result is a growing and alarming strategic use of the provisions by investors to further private interests, often at the expense of environmental protection and other public goals." See also Sanford E. Gaines, NAFTA Chapter 11 as a Challenge to Environmental Law Making-One View from the United States: "In an unexpected turn of events, seven of these [NAFTA Investor-State arbitration] 12 cases involve underlying activities by the investors or actions by governments involving natural resources or pollution control." (Available on the EnviReform Website at: ,http://www.envirefomi.utoronto.ca/envireforiii/pdf/Conferciice/ Gaines.pdf».) 1'2 Walde and Weiler, supra, footnote 45. 1(13 For the text of the Vienna Convention for the Protection of the Ozone Layer, see: (,http://www.uiiep.org/ozoiie/vicniia.shtnil)). t°4 See supra, footnote 90, and accompanying text.

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