News in Brief

Vattenfall launches new claim against Germany

The Swedish state-run energy firm Vattenfall has launched a second claim against Germany.

The claim stems from Germany’s May 2011 decision to phase-out its nuclear power plants, in which 8 plants have been shuttered and the remaining 9 plants to be closed over the next decade.

While Germany has long debated its use of nuclear power, opposition swelled in the wake of Japan’s Fukushima Daiichi nuclear disaster in March 2011.

German media have speculated that Vattenfall will seek between 700 – 1000 million Euros in damages for breaches of the Energy Charter Treaty (ECT), a multilateral agreement that governs trade and investment in the energy sector. The company complains that it invested in two nuclear power plants on the understanding that the life-spans of the plants would be extended.

Vattenfall’s case was registered with ICSID on 31 May 2012.

This is Vattenfall’s second case under the ECT that challenges the German government. In April 2009 Vattenfall sought 1.4 billion Euros in damages related to environmental restrictions imposed by the City of Hamburg on a coal-fired power plant. That dispute was settled in March 2011 when Vattenfall was granted a modified water-use permit and released from previously imposed requirements at the Moorburg power plant.

United States tweaks its model bilateral investment treaty

The United States released its latest model bilateral investment treaty in April 2012, several years after the Obama administration initiated a review of the treaty. The new model is not substantially different from the previous 2004 model.

The review of the model BIT was informed a committee of non-government advisers to the US government on matters of international economic policy—the members of which diverged sharply in their recommendations. Many of those recommendations have not been taken on board by the Obama administration.

Indeed, the core substantive protections—national treatments, most favoured-nation treatment, minimum standards of treatment and expropriation—have been left unaltered. The US has also not changed dispute settlement provisions.

The new model slightly expands environmental obligations, stating that governments have a duty to enforce local environmental laws. However, that duty is not is not enforceable by state-state dispute resolution, as has been the case in recent US FTAs.

The model also clarifies that states are not liable for breaches of the treaty for environmental-related actions that reflect “a reasonable exercise of such discretion, or results from a bona fide decision regarding the allocation of resources.”

The model sets out an obligation for states to enforce local labour laws, albeit less extensively than the US has done in its most recent FTAs. Similar to the environmental obligations, these labour obligations are not re-enforced with state-state or labour-state dispute resolution. Rather, the treaty allows for state-state consultations.

The American Federation of Labor and Congress of Industrial Organizations (AFLCIO) stated that it is “deeply disappointed” by the lack of strong enforcement mechanisms, saying that the new provisions amounted to “little more than paper commitments, without any recourse in the event that consultation fails to resolve a problem.”

A number of changes have drawn praise from US businesses. This includes a provision that requires states to allow persons of the other state-parties to the treaty to engage in the development of technical standards. That provision is backed-up by state-state dispute settlement, but not investor-state.

US investment treaties are notable for their restrictions on performance requirements, and these now include limits on states preferring local “technology”; a change that has been welcomed by US businesses. The USTR explained that it wants to prevent states from “requiring the purchase, use or according of a preference to domestically developed technology in order to provide an advantage to a Party’s own investors, investments or technology.”

Notably, while a number of non-government advisers called for the model BIT to carve out more explicit policy space for governments to react to financial crisis, the Obama administration has decided not to make substantial changes in this regard.

The release of the new model has unleashed calls from US businesses interests for the US to aggressively pursue new investment treaties, with China, India and Russia at the top of the list. US investment treaty negotiations slowed over the last few years, while the treaty-review was in process.

The 2012 US model investment treaty is available here:

Lawyers unite against investor-state in TPPA

A hundred prominent jurists have called for investor-state arbitration to be excluded from the Trans-Pacific Partnership Agreement (TPPA).

In a letter published in May 2012, the lawyers share the opinion that the types of investor protections found in BITs, including investor-state arbitration, should not feature in the TPPA.

“We base this conclusion on concerns about how the expansion of this regime threatens to undermine the justice systems in our various countries and fundamentally shift the balance of power between investors, states and other affected parties in a manner that undermines fair resolution of legal disputes,” state the lawyers.

The lawyers hail from countries that are involved in the TPPA negotiations, and include Jagdish Bhaghati, a trade economist from Columbia University; Bruce Fein, former associate deputy attorney general and general counsel to the Federal Communications Commission; and Margaret Wilson, former speaker of the New Zealand House of Representatives.

The lawyers express concern that BITs extend protection to a range of “covered investments” (i.e., speculative financial instruments, government permits and intellectual property) beyond the original intent to protect real property from expropriation from government. They also worry about tribunals interpreting investment treaties in an overly expansive manner, which place the interests of investors before the rights of states to regulate and govern.

The letter points to recent arbitrations launched by the tobacco company Philip Morris against Australia and Ecuador, over the strict cigarette marketing regulations adopted by both countries.

Investor-state arbitration has emerged as a flashpoint in the TPPA negotiations. In a move that will likely complicate the negotiations, Australia has affirmed that it will not sign on to investor-state arbitration in the agreement (indeed, its policy, announced last year, is to reject investor-state in all of its FTAs). That has drawn concern from the US corporate lobby, which values strong investment protections in the agreement.

The letter is available here:

UN adopts guidelines on long-term land deals

Members of a UN committee on food security have adopted voluntary guidelines that address concerns over long-term investments in agricultural land in developing countries, often termed “land grabbing” by critics.

The “Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests

in the Context of National Food Security” were unveiled in May by the UN’s Committee on World Food Security, after several years of negotiations.

The guidelines are intended “to serve as a reference and to provide guidance to improve the governance of tenure of land, fisheries and forests with the overarching goal of achieving food security for all and to support the progressive realization of the right to adequate food in the context of national food security.”

Recent years have seen an increase in foreign acquisitions of agricultural land, particularly in Africa and Asia. The trend has stoked concerns that these deals can marginalise rural communities, while contributing little to the broader economy.

The main targets for these investments have been Sudan, Mozambique, Liberia, and Ethiopia – countries with weak governance and regulatory frameworks.

The guidelines cover legal recognition and allocation of tenure rights and duties, transfers of tenure rights, such as through investments, and the administration of tenure.

The guidelines also urge alternatives to large land investments. “Investment models exist that do not result in the large-scale acquisition of land, and these alternative models should be promoted,” say the guidelines.

While the guidelines are not binding on states, they have non-the-less been praised for the broad support they have received. The Director General of the UN Food and Agriculture Organization, Jose Graziano da Silva, hailed the guidelines as the “first-ever global land tenure guidelines. We now have a shared vision.”

With an eye to the challenges in implementing the guidelines, Ambassador Yaya Olaniran, the Nigerian Permanent Representative to FAO and CFS Chair stressed that “these changes won’t happen overnight. But we also know, as a result of the extensive consultations by FAO and the CFS-led negotiation process, that there is a lot of buy-in and support for the guidelines.”

The guidelines are available here: