Addressing Environmental Issues in International Trade and Investment Dispute Resolution

1. Addressing Environmental Issues in International Trade and Investment Dispute Resolution David A. Gantz Samuel M. Fegtly Professor of Law The University of Arizona Tucson, Arizona, U.S.A. Santiago, Chile March 13, 2008

2. Introduction • Conflict resolution mechanisms exist for international trade and investment disputes, but not for environmental disputes. • When environmental issues arise, by default they are resolved, if at all, in international trade and investment tribunals. Santiago, Chile March 13, 2008

3. Mechanisms to be Discussed • WTO and WTO Dispute Settlement Body • NAFTA and NAFTA Chapter 11 (investment) • U.S. – Chile Free Trade Agreement • U.S. – Peru Trade Promotion Agreement and “Bipartisan Trade Deal” on environmental protection Santiago, Chile March 13, 2008

4. World Trade Organization • Environment-related provisions include: • Marrakech Agreement Preamble includes commitments to furthering “sustainable development” and to “protect and preserve the environment” • GATT Article XX (b): measures necessary to protect human, animal and plant life and health • GATT Article XX(g): measures “relating to the conservation of exhaustible natural resources” Santiago, Chile March 13, 2008

5. WTO • WTO Agreement on Sanitary and Phytosanitary Measures • Committee on Trade and the Environment • Doha Development Agenda: “We recognize that under WTO rules no country should be prevented from taking measures for the protection of human, animal or plant life or health, or of the environment at the levels it considers appropriate, subject to the requirement that they are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade . . . .” Santiago, Chile March 13, 2008

6. OMC • “Reconocemos que, en virtud de las normas de la OMC, no deberá impedirse a ningún país que adopte medidas para la protección de la salud y la vida de las personas y los animales o la preservación de los vegetales, o para la protección del medio ambiente, a los niveles que considere apropiados, a reserva de la prescripción de que esas medidas no se apliquen de manera que constituya un medio de discriminación arbitrario o injustificable entre los países en que prevalezcan las mismas condiciones, o una restricción encubierta del comercio internacional . . . .” Santiago, Chile March 13, 2008

7. Decisions of GATT/WTO Panels and/or Appellate Body • United States – Tuna (I & II) [GATT] • United States – Reformulated Gasoline • European Communities – Hormones • European Communities – Asbestos • United States – Shrimp (I & II) • European Communities – GMOs Santiago, Chile March 13, 2008

8. WTO Appellate Body • AB decision in Shrimp (21.5) suggests WTO in in a “greening” process: • Article XX may have broad territorial reach • Members have significant leeway in devising measures to protect exhaustible natural resources (such as sea turtles) • Good faith effort to conclude conservation agreements is enough; everyone (e.g., Malaysia) does not have to agree. Santiago, Chile March 13, 2008

9. North American Free Trade Agreement • For its time, NAFTA is an environmentally friendly agreement: • Preamble: Parties “strengthen the development and enforcement of environmental laws and regulations,” act “in a manner consistent with environmental protection and conservation” and promote sustainable development. • [“Reforzar la elaboración y la aplicación de leyes y reglamentos en materia ambiental,” emprender . . . de manera congruente con la protección y la conservación del ambiente;” y “promover el desarrollo sostenible”] Santiago, Chile March 13, 2008

10. NAFTA • In case of conflict between NAFTA and listed Multilateral Environmental Agreements (MEAs), MEAs prevail. [Art. 104] • Measures included to protect human, animal and plant health [Ch. 7] Santiago, Chile March 13, 2008

11. NAFTA “Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental concerns.” [Art. 1114(1)] Santiago, Chile March 13, 2008

12. TLCAN • Nada de lo dispuesto en este capítulo se interpretará como impedimento para que una Parte adopte, mantenga o ponga en ejecución cualquier medida, por lo demás compatible con este capítulo, que considere apropiada para asegurar que las inversiones en su territorio se efectúen tomando en cuenta inquietudes en materia ambiental. [Art. 1114(1)] Santiago, Chile March 13, 2008

13. NAFTA • Environmental disputes must be resolved under NAFTA rather than under the GATT/WTO dispute settlement system [Art. 2005] • Under NAFTA, GATT Arts. XX(b) and (g) are clarified to include explicitly environmental measures designed to protect human health, and conservation of natural resources. Santiago, Chile March 13, 2008

14. NAFTA Dispute Resolution • Tribunals under Chapter 11 (investment) have considered a number of disputes raising environmental issues: • Ethyl Corp. v. Mexico [settled] • Metalclad v. Mexico [indirect expropriation] • Azinian v. Mexico [claim rejected] • S.D. Myers v. Canada [denial of national treatment] • Methanex v. United States [lack of standing] Santiago, Chile March 13, 2008

15. United States – Chile Free Trade Agreement • Parties are committed to • “PROMOTE sustainable development” • CONSERVE, protect, and improve the environment, including through managing natural resources in their respective territories and through multilateral environmental agreements to which they are both parties . . . .” [Preamble] Santiago, Chile March 13, 2008

16. TLC Chile – EE.UU. • El gobiernos decididos a: • “promover el desarrollo sostenible; • “conservar, proteger y mejorar el medio ambiente, incluso mediante el manejo de recursos naturales en sus respectivos territorios y a través de acuerdos multilaterales sobre el medioambiente de los que ambos sean parte . . . .” [Preambulo] Santiago, Chile March 13, 2008

17. Sensitivity to Environmental Concerns • Sanitary and phytosanitary measures [health] are protected [Ch. 6] • “Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining, or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental concerns.” [Article 10.12] Santiago, Chile March 13, 2008

18. Asuntos Ambientales • “Nada de lo dispuesto en este Capítulo se interpretará como impedimento para que una Parte adopte, mantenga o haga cumplir cualquier medida, por lo demás compatible con este Capítulo, que considere apropiada para garantizar que las actividades de inversión en su territorio se efectúen tomando en cuenta inquietudes en materia ambiental.” [Art. 10.12] Santiago, Chile March 13, 2008

19. Indirect Expropriations • “Except in rare circumstances, nondiscriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations.” [Annex 10-D] Santiago, Chile March 13, 2008

20. Expropriaciones Indirectas • “Salvo en circunstancias excepcionales, no constituyen expropiaciones indirectas los actos regulatorios no discriminatorios de una Parte que son diseñados y aplicados para proteger objetivos legítimos de bienestar público, tales como la salud pública, la seguridad y el medioambiente.” [Anexo 10-D] Santiago, Chile March 13, 2008

21. Environmental Laws • “Recognizing the right of each Party to establish its own levels of domestic environmental protection and environmental development policies and priorities, and to adopt or modify accordingly its environmental laws, each Party shall ensure that its laws provide for high levels of environmental protection and shall strive to continue to improve those laws.” [Article 19.1] Santiago, Chile March 13, 2008

22. Leyes Ambientales • “Reconociendo el derecho de cada Parte de establecer, internamente, sus propios niveles de protección ambiental y sus políticas y prioridades de desarrollo ambiental, así como de adoptar o modificar, consecuentemente, su legislación ambiental, cada Parte garantizará que sus leyes establezcan altos niveles de protección ambiental y se esforzará por perfeccionar dichas leyes.” [Art. 19.1] Santiago, Chile March 13, 2008

23. Environmental Laws • “A Party shall not fail to effectively enforce its environmental laws, through a sustained or recurring course of action or inaction, in a manner affecting trade between the Parties, after the date of entry into force of this Agreement.” [Article 19.2(a)] Santiago, Chile March 13, 2008

24. Leyes Ambientales • “Una Parte no dejará de aplicar efectivamente su legislación ambiental, a través de un curso de acción o inacción sostenido o recurrente, de una manera que afecte al comercio entre las Partes, después de la fecha de entrada en vigor de este Tratado.” [Art. 19.2(a)] Santiago, Chile March 13, 2008

25. Environment and Dispute Settlement • Obligation noted above is enforceable under general dispute settlement provisions; environmental (and labor) disputes are not subject to trade sanctions, but only to a monetary penalty, $15 million maximum; funds are to be used by the Commission for “appropriate environmental initiatives.” [Article 22.16] Santiago, Chile March 13, 2008

26. 2007 “Bipartisan Trade Deal” • Democratic Congress and Bush Administration agreed to strengthen environmental (and labor) enforcement provisions of pending FTAS (Peru, Panama, Colombia & S. Korea) • Undertaking of Democrats to support congressional approval of FTAs? Santiago, Chile March 13, 2008

27. Bipartisan Trade Deal • Environmental elements include: • Listed MEAs are incorporated into new FTAs, making a party’s violation of MEA provisions subject to FTA government to government dispute settlement • Instead of parties’ “striving to” enact strong environmental law, parties “shall” enact such laws [no specific obligations] Santiago, Chile March 13, 2008

28. TLC Peru/Chile – EE.UU. • “[C]ada parte se asegurará de que sus leyes y políticas proporcionen y estimulen altos niveles de protección ambiental y se esforzará por seguir mejorando sus respectivos niveles de protección ambiental.” [Art. 18.1, Peru] • “[C]ada Parte garantizará que sus leyes establezcan altos niveles de protección ambiental y se esforzará por perfeccionar dichas leyes.” [Art. 19.1, Chile] Santiago, Chile March 13, 2008

29. Bipartisan Trade Deal • Language differences in English are somewhat greater than in Spanish! • Scope of violations is still limited: A Party shall not fail to effectively enforce its environmental laws, through a sustained or recurring course of action or inaction, in a manner affecting trade . . . .” [Art. 19.2(a)] • Violations of environmental provisions subject to same procedures and same trade sanctions as other violations of the FTA. Santiago, Chile March 13, 2008

30. Conclusions • WTO Appellate Body is likely the most environmentally sensitive of all international tribunals dealing with conflicts between trade and environmental issues • U.S. FTAs are “greener” as written than WTO Agreements • NAFTA Chapter 11 tribunals have not yet recognized a direct conflict between investor interests and environmental concerns Santiago, Chile March 13, 2008

31. Conclusions • Chile FTA is probably greener than NAFTA when it comes to investment disputes, because of: • Directive not to treat environment related regulatory takings as expropriations [Annex 10-D] • General protection for environmental measures affecting investment “otherwise consistent” with Agreement [Art. 10.12] Santiago, Chile March 13, 2008