Working group moves slowly on agreement for transparency in UNCITRAL Arbitration Rules
A working group of the United Nations Commission on International Trade Law (UNCITRAL) met from 7-11 February 2011 in New York to discuss public access to information about disputes between investors and states under the UNCITRAL Arbitration Rules. The meeting marked the second gathering of government delegations which are working to reach an agreement on the issue of transparency in the context of the United Nation’s arbitration rules, which are widely used in investor-state arbitration.
Discussions focused on three broad and interrelated areas: (1) the form of any work produced by the working group; (2) its applicability; and (3) its content. While members of the UNCITRAL working group seemed to agree on several items within those three categories, differences remain with respect to a number of fundamental issues. The working group session concluded without any final decision being taken and without any debate being closed.
Incremental progress, but chasms remains
The February 2011 meeting saw progress on some of the issues preliminarily surveyed the previous fall. On the issue of form, for instance, support seemed to crystallize for the idea that the working group should proceed by drafting clear rules on transparency as opposed to more nebulous guidelines or principles.
With respect to the content of those rules, many delegations also advocated increased transparency in various stages of investor-state disputes. In particular, proposals that the public must be notified of at least the existence of investor-state disputes, that amicus curiae should be allowed to submit briefs in certain circumstances, and that awards should be made public received fairly strong backing.
Delegations expressed more divergent positions on other topics, such as whether and what documents submitted to tribunals (such as briefs, witness statements, and exhibits) must be disclosed.
Other key areas of debate related to the scope and availability of exceptions to new rules on transparency, and the applicability of any new rules on transparency to disputes arising under existing and future treaties.
There was apparent unanimity that an exception to prevent disclosure of confidential, privileged and other information protected from disclosure under applicable law was necessary. There was also general agreement that an exception to protect the “manageability of the arbitral proceedings” would be too broad, and could swallow the general rule providing for public disclosure. Nevertheless, some delegations supported giving the tribunal discretion to deviate from rules on transparency in order to “protect the integrity of the arbitral process.” That exception was described as allowing the tribunal to protect the physical safety and prevent intimidation of witnesses. However, concerns that the potential “integrity of the arbitral process” exception might be interpreted more broadly, if not more specifically defined, prompted objections to its inclusion.
On the issue of the application of rules on transparency to disputes arising under future treaties, the divide fell between those in the “opt-in” and “opt-out” camps. The former took the position that if and when new rules on transparency are concluded, they should be a separate or stand-alone instrument that will only apply if and when states take the specific step of “opting in” to the transparency rules in their future treaties. A reference to UNCITRAL Arbitration Rules in a treaty would not include the new transparency components. The default UNCITRAL rules in this scenario would be the generic, ‘non-transparent’ rules.
The other group’s position was that the provisions on transparency should be adopted in relation to the general UNCITRAL Arbitration Rules; and that references to those general arbitration rules in future treaties will thereby automatically incorporate the rules on transparency, unless countries specify otherwise (or “opt out” of the transparency rules) in their treaties. In this option, the treaty parties still retain the power not to submit to the new rules, but they need to explicitly say it.
Perhaps the most contentious issue centered on the application of the new rules to disputes arising under existing treaties. It was pointed out that if new provisions on transparency are integrated within the general UNCITRAL Arbitration Rules, references in existing treaties to those rules (as opposed to, for example, more specific references to the “1976 UNCITRAL Arbitration Rules”), could be interpreted to incorporate any amendments to the UNCITRAL Arbitration Rules, including new transparency provisions.
Some delegations seemed comfortable with, if not supportive of, the notion that an existing treaty’s reference to the UNCITRAL Arbitration Rules could result in new rules on transparency being applied in disputes arising under existing treaties; others, however, objected that such application of transparency provisions to disputes arising under existing treaties would result in objectionable or improper “retroactive” applications of the transparency rules.
To resolve the different positions on this issue, the working group discussed developing “creative solutions” such as a multilateral convention, interpretation or declaration that countries could adopt or sign onto to clarify their positions regarding whether and when transparency provisions will apply to disputes arising under existing treaties.
The working group asked the UNCITRAL Secretariat to draft possible texts providing these “creative solutions.” It also requested the Secretariat to draft possible rules reflecting the proposals made on content. Those texts will be considered by the working group during its next meeting, which is scheduled to be held in October 2011 in Vienna, Austria.
Civil society groups file amicus request in Pac Rim v. El Salvador
The Center for International Environmental Law, on behalf of La Mesa Nacional Frente a la Minería Metálica de El Salvador, (El Salvador National Roundtable on Mining) has filed a request with the ICSID Secretariat to proceed as amici curae in a dispute between a U.S. mining company and the government of El Salvador.
The prospective amici member organizations comprise a coalition of community organizations, research institutes, and environmental, human rights, and faith-based non-profit organizations with a shared concern over El Salvador’s mining industry.
The amici request comes in response to a USD$77 million investment arbitration case against El Salvador, Pac Rim v. Republic of El Salvador. Pac Rim Cayman LLC, a U.S. subsidiary of Canada’s Pacific Rim Mining Corp, alleges that El Salvador wrongfully denied permits that were needed to explore and develop gold mining opportunities, including a site for its proposed El Dorado mine. The dispute is being brought under the Central America Free Trade Agreement (CAFTA).
In 2002 El Salvador’s Ministries of the Economy and the Environment issued exploration permits to Pacific Rim to determine the potential for gold mining in the country. Not long after the company began exploration, community members became concerned over water and soil contamination associated with cyanide-laced water used in the gold-mining process. La Mesa actively worked to raise awareness of mining’s potential to devastate El Salvador’s environment.
Pacific Rim claims that it invested USD$77 million to acquire, perfect, and maintain exploration and exploitation rights. However, the government of El Salvador stopped providing exploration permits while a mining environmental impact assessment was performed.
Pac Rim’s proposed mining areas are all within the basin of Rio Lempa, El Salvador’s largest and most important river and the source of drinking water for approximately half of El Salvador’s 6 million people. According to the potential amici, people living near the mining exploration activities observed negative impacts related to mining exploration as early as 2004. The communities near the El Dorado site reported a reduced access to water, polluted water, and harmful agriculture and health issues. The potential adverse environmental consequences of full exploitation of the project could be far more dramatic.
Communities began to organize in their opposition to mining activities, and brought their concerns to other individuals, organizations, and government officials. In 2005, community members formed the Environmental Committee of Cabañas (Comité Ambiental de Cabañas), which then joined with other civil society organizations to form La Mesa as a national umbrella organization.
The increased community resistance gradually caught the attention of El Salvador’s government. In 2008, then-President Elías Antonio Saca stated that metals mining should not proceed in El Salvador without significant further study of possible environmental impacts and codification of more robust mining laws. In January 2010, President Carlos Mauricio Funes set up a “Strategic Environmental Evaluation of the Metallic Mining Sector of El Salvador.” The Ministry of Economy’s Department of Hydrocarbons and Mines will finalize and report on its Strategic Environmental Evaluation in May 2011.
The amici contend that the full environmental consequences were not outlined in Pac Rim’s Environmental Impact Assessment (EIA). A hydrogeology expert reviewed the EIA and declared that regulatory agencies in developed nations would call the report “substandard.” The report, while 1400 pages, has a near complete lack of baseline water quantity and water quality data, preventing any meaningful future comparison and assessment.
The amici argue that an ICSID tribunal’s jurisdiction under Article 25 only extends to “legal disputes,” and CAFTA Article 10.1 only applies to disputes over “measures.” These limitations play a critical jurisdictional role, say the amici, which argue that this terminology is an acknowledgement that general public policy is outside the limits of the judicial function and not a source of “legal disputes.”
In addition, the amici contends that although Pac Rim claims it is bringing its case against the Republic of El Salvador, the real locus of the dispute is between Pac Rim and the independently organized communities that would be affected by its proposed mine. Pac Rim is using the ICSID process to gain an “illegitimate advantage” over its opposition in the domestic Salvadoran policy dispute over mining.
North America’s largest lead producer files notice of intent to arbitrate against Peru
The lead producer Renco Group took steps to arbitrate against Peru in December 2010. Renco, on behalf of itself and its subsidiary Doe Run Peru (DRP), claims that Peru’s conduct improperly exposed it to liability for environmental remediation, environmental harms, and personal injuries, causing it to shut down its smelting and refining operations.
Renco alleges that Peru’s conduct violates various contractual agreements and the U.S.-Peru Trade Promotion Agreement (PTPA).
As relief, Renco is claiming at least US$800 million in damages. Additionally, Renco is seeking an award that declares Peru exclusively liable for various civil claims against Renco and DRP by residents living near DRP’s facilities in Peru.
The dispute concerns La Oroya, a town high in the Andes with a population of roughly 30,000, which emerged in conjunction with the 1922 installation of metal smelting and refining facilities in the area. Years of operations and toxic industry byproducts from the smelting and refining operations have left high levels of pollutants in the region’s air, water, and soil. According to Renco, when DRP purchased the business in 1997, the Peruvian government agreed to clean up “much of” that pre-existing contamination in and around La Oroya.
Later, DRP asked the Peruvian government for several extensions of the deadline for the environmental management and clean-up work. According to Renco, this was due to the Peruvian government’s original underestimation of the work entailed, expansion of the obligations imposed on DRP, and financial difficulties relating to metals market.
However, in July 2010, after DRP missed the extension deadline to prove that it had the necessary financing to restart operations and to complete the environmental cleanup, its operations permit was cancelled.
This situation has caught the attention of the Interamerican Commission on Human Rights (IACHR), which released a petition in 2009. It alleges that when the Peruvian government granted DRP extensions to complete its environmental remediation efforts, it improperly allowed the company to postpone crucial environmental cleanup. The petitioners, which are the La Oraya residents, complain that the state allowed business activities to trump public health concerns.
Canadian organizations petition European Parliament over investment provisions in trade pact
A coalition of Canadian organizations is concerned about the investor- protection mechanisms under negotiation in the Canada-E.U. Comprehensive Economic and Trade Agreement (CETA). The CETA intends to liberalize trade and investment between Canada and Europe, enhancing their economic relationship; however, opponents charge that CETA will result in a sizeable Canadian deficit, a loss of employment, and a disregard for public welfare.
A NAFTA Chapter 11-style framework inspired CETA’s standards to protect investors. Previous European trade agreements excluded these substantial investor protections and arbitration methods.
Supporters advocate for CETA’s promise of a mutually beneficial economic arrangement. The Canadian and E.U. governments point to the agreement’s potential to improve investment, labour mobility, and regulatory cooperation.
But in a letter directed to the European Parliament, Canadian opponents take aim at the Act’s sweeping investor-protection clauses. They argue that the measures will undermine states’ abilities to self-regulate, fearing that the NAFTA-like provisions place investors’ economic interests ahead of public welfare.
The NAFTA investor provisions were originally intended to prevent investors from being victimized by inadequate legal systems. However, CETA need not approach investor protection in the same manner – Canada and the E.U. both have adequate judicial channels to support investor claims, argue the Canadian organizations, which include labour unions and think-tanks.
CETA’s opponents point to the $CAD 157 million in damages that Canada has already lost in NAFTA claims. They assert that CETA will result in further financial loss and will hinder progressive social policies because investor protection will usurp citizens’ best interests.
 Patrick J. McDonnell, Town Built on Lead Weighs the Fallout, Los Angeles Times, 18 June 2007, http://www.latimes.com/news/nationworld/world/la-fg-peru18jun18,0,1472010.story?page=2
 Notice of Intent to Arbitrate, para. 3.
 Notice of Intent to Arbitrate, paras. 30-31.
 2006 Earthjustice Petition to the IACHR, p.67, see footnote 1