News in Brief

Canada and Dow Chemical settle claim over pesticide ban
A controversial NAFTA investment dispute between Dow AgroSciences and the government of Canada was settled this May.

The settlement agreement involves no money exchanging hands, and the Province of Quebec will continue to restrict the use the lawn pesticides – the measure that prompted Dow to launch its claim against Canada.

Dow AgroSciences LLC, a subsidiary of the US Dow Chemical Company, filed a request for arbitration under NAFTA Chapter 11 in 2009, complaining that the pesticide, 2,4-D, was banned in the Province of Quebec for political motivations rather than scientific criteria.

Despite the request for arbitration, the dispute stayed in limbo: Dow did not appoint an arbitrator, and the case did not proceed to arbitration.

In return for Dow dropping its case, the Province of Quebec issued a statement saying “products containing 2,4-D do not pose an unacceptable risk to human health or the environment, provided that the instructions on the label are followed.”

However, Quebec will continue to restrict the use of lawn pesticides that contain 2,4-D. Other Canadian provinces have also prohibited the use of the pesticide for lawn care.

The settlement agreement has been framed as a victory by both the Canadian government and Dow.

The agreement “affirms the right of governments to regulate the use of pesticides,” said Canada’s Minister of International trade. “This right will not be compromised by Canada’s participation in NAFTA or any other trade agreement.”

For its part, Dow AgroSciences took comfort in the Quebec’s acknowledgment of its product’s safety.

“Quebec’s decision never had a basis in science. And it cast a shadow on the safety of our product,” said a spokesperson for Dow, in an interview with the Globe&Mail.

Study addresses question of bias against developing countries in investment-treaty arbitration
A report out of Tufts University’s Global Development and Environment Institute adds fuel to the debate over whether the investment-treaty system is biased towards developing countries.[1]

The report offers a critique of the work of Susan Franck, a prominent academic who has undertaken empirical analysis of investment arbitration awards. Franck’s research has been used to bolster the argument that the investment-arbitration system performs fairly.

In response, the Tufts study, authored by Kevin Gallagher and Elen Shrestha, suggests “caution when relying on Franck’s work to argue that investor-state arbitration is neutral toward developing countries”.

Gallagher and Shrestha make three central arguments: first, there is a lack of adequate sample size to conduct rigorous empirical work that would support the bold conclusions on the ‘fairness’ of investment-treaty arbitration; second, the debate should not discount the fact that developing countries are subject to a disproportionate number of claims; and, finally, relative to government budgets and in per capita terms, developing countries pay significantly more in damages than developed countries do.

On the first point, the authors stress that there are not enough investment-treaty cases to form a dataset for rigorous empirical research (a problem that Franck admits). Similar arguments have been put forth by the Canadian academic Profession Gus Van Harten, who has gone into more detail on the limitations of using statistic evidence to draw bold lessons on the fairness of investment-treaty arbitration.[2]  An exchange on the topic between Van Harten and Franck is slated for the forthcoming edition of the Yearbook on International Investment Law and Policy, due out in fall 2011.

Gallagher and Shrestha also note that the average award against a developing country amounts to 0.53 percent of government expenditure, or 99 cents per capita. In contrast, the average damages award against Canada—which the authors claim is a good proxy for developed countries—amounts to 0.003 percent of government expenditure, which is 12 cents per capita.

North American lead producer files claim against Peru
The lead producer Renco Group has initiated arbitration against the government of Peru. 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.

In its April 2011 request for arbitration, Renco said it seeks US$800 million for alleged breaches of the US-Peru Trade Promotion Agreement (PTPA).

The dispute centers on a metal smelting and refining business which have left the Peruvian town of La Oroya badly polluted.  DRP, which purchased the business in 1997, requested several extensions of the deadline for the environmental management and clean-up work. Those extensions were necessary, argues Renco, because the Peruvian government underestimated the extent of the work.

Following a missed deadline in July 2010 to prove that it had the necessary financing to restart operations and to complete the environmental cleanup, its operations permit was cancelled.

Residents of La Oroya have also lodged a case against Renco in the courts of the state of Missouri, where Renco is based. That claim, which remains ongoing, was initiated in 2008, with the claimants seeking damages for the effects of lead poisoning.

Chevron v. Ecuador tribunal rejects petition to submit an amicus brief in the jurisdictional phase
The arbitral tribunal in Chevron v. Ecuador[3] has rejected the application made by two non-governmental organization petitioners—the International Institute for Sustainable Development[4] and Fundación Pachamama—to serve as amici curiae in the jurisdiction phase of that investment-treaty dispute.

In a statement, the IISD called the decision “disconcerting”, and wrote that “the order heightens concerns that, within the controversial system of investor-State arbitration, tribunals are resolving matters of significant public interest, but are doing so without giving those affected an opportunity to access all relevant information or provide relevant input regarding the disputes.”

Chevron, the government of Ecuador and Ecuadorian citizens have been embroiled in multiple legal battles in the United States, Ecuador and international arbitration over environmental damage in Lago Agrio, allegedly caused by Texaco Petroleum (TexPet), which Chevron acquired in 2001.

One of those legal disputes is an investor-state arbitration under the U.S.-Ecuador bilateral investment treaty, in which Chevron charges that the Ecuadorian lower court’s handling of the ongoing litigation between the Lago Agrio Plaintiffs and Chevron was unjust. Chevron seeks an order from the arbitral tribunal to prevent enforcement of any judgment issued by its courts in favour of the Lago Agrio plaintiffs against Chevron.

At the time of Chevron’s filing, no judgment had been issued by the Ecuadorian court hearing the Lago Agrio case. However, the lower court decision has now been issued, with a finding against Chevron/Texaco and an award of US$8.6 billion in favour of the plaintiffs. Chevron has appealed that judgment, and the proceedings in Ecuadorian court remain ongoing.[5]

The amici curiae petitioners charge that Chevron’s claims and requests for relief involve extending the US-Ecuador BIT beyond its intended function and proper boundaries.

On 18 April 2011, the tribunal, composed of V.V. Veeder, Horacio A. Grigera Naón and Vaughan Lowe, decided to “exercise its discretion” to reject the petitioners’ application to provide input on the issue of whether the tribunal should accept jurisdiction over the dispute. The tribunal did not provide its own reasons for rejecting the petition, but rather relied on statements attributed to the disputing parties (Chevron and the government of Ecuador). The tribunal does not appear to rule out the acceptance of an amicus submission at a later stage of the process.

“In this case, the issue of jurisdiction is key for the scope and meaning of BITs and their relationship with other areas of law, such as domestic environmental law and international human rights, both areas dealt with in submissions by amicus curiae during the substantive phases of other investment arbitration cases,” write the IISD. “These issues are of no lesser importance at the jurisdictional phase.”

Background documents on the amici curiae petition are available at: http://www.iisd.org/investment/

New guiding principles on business and human rights endorsed by the UN Human Rights Council
The United Nations Human Rights Council endorsed on 16 June 2011 a new set of guiding principles for business and human Rights, designed to provide the first global standard for preventing and addressing the risk of adverse impacts on human rights linked to business activity.

The guiding principles are the product of six years of research led by John Ruggie from Harvard University, involving governments, companies, business associations, civil society, affected individuals and groups, and investors.

The new standards outline how states and businesses should implement the UN “Protect, Respect and Remedy” Framework in order to better manage business and human rights challenges.

Under the ‘State Duty to Protect,’ the principles recommend how governments should provide greater clarity of expectations and consistency of rule for business in relation to human rights. The ‘Corporate Responsibility to Respect’ principles provide a blueprint for companies on how to know and show that they are respecting human rights.

The guiding principles rest on three pillars: 1) the State duty to protect against human rights abuses by third parties, including business enterprises, through appropriate policies, regulation, and adjudication; 2) the corporate responsibility to respect human rights, which means that business enterprises should act with due diligence to avoid infringing on the rights of others and to address adverse impacts with which they are involved; 3) the need for greater access by victims to effective remedy, both judicial and non-judicial.

The guiding principles are described as a starting point, which establish “a common global platform for action, on which cumulative progress can be built, step-by-step, without foreclosing any other promising longer-term developments.

In addition to the guiding principles, Prof. Ruggie, and his legal advisor Andrea Shemberg, have also published “Principles for responsible contracts: integrating the management of human rights risks into State-investor contract negotiations: guidance for negotiators”, which was endorsed by the Human Rights Council on 16 June 2011.[6] The principles, which are highlighted in an article in this edition of the ITN Quarterly (Howard Mann’s “Foreign investment contracts and sustainable development: The new foundations begin to emerge”), focuses on the integration of human rights considerations in State-investor contracts.

The guiding principles are available at: http://www.ohchr.org/documents/issues/business/A.HRC.17.31.pdf