A Public Statement on the International Investment Regime, signed by a group of forty eight academics from around the world, has added, “We have a shared concern for the harm done to the public welfare by the international investment regime, as currently structured, especially its hampering of the ability of governments to act for their people in response to the concerns of human development and environmental sustainability”. [2] It argues, inter alia, that investment treaty arbitrations are unfair and unbalanced,[3] and that states should withdraw from investment treaties.[4] International investment law has even been described by a distinguished academic as “a law of greed”.[5]

Although perhaps somewhat exaggerated, these critiques are certainly not baseless. Several recent developments, most notably the disputes between tobacco giant Philip-Morris and the governments of Australia and Uruguay, indeed demonstrate how foreign investors can abuse the system of international investment law. But, as previously argued in this blog,[6] it could well be that these critics overlook the possibility that this system can also support sustainable development goals.

An alternative perspective of the ‘regulatory chill’

While the above mentioned critics often claim that investment treaty law restricts governments’ regulatory flexibility and their ability to adopt stricter environmental and social laws, it should be noted that similar ‘restrictions’ can also stop governments from reducing their standards on these very issues. For example, in recent investment arbitration a Canadian investor, who invested in an eco-tourism facility in Barbados, argued that Barbados authorities’ failure to enforce environmental laws and commitments, on which he legitimately relied, led to the pollution of his site.[7] The prospect of paying compensation in such cases can ‘chill’ governments’ will to  lower environmental standards, and thus support environmental objectives.

Similar claims can also be made with respect to climate change policies. Investment in low-carbon technologies, for example, often requires governmental support. This is partly due to market distortions like those resulting from high fossil fuels subsidies.[8] Another reason is the immature state of these technologies that often renders them unprofitable in strictly financial terms. Therefore, without state support many investors may choose other, more profitable alternatives. Indeed in order to promote climate-friendly investment, many states have adopted support schemes so as to cover the existing ‘gap’ between the public need for private investment in this field, and the current unprofitability of these technologies.

Investors rely on these governmental support schemes when deciding whether to invest in new low-carbon technologies. Governments’ ability to ‘fulfill their promises’ of support is therefore crucial for investors. When these promises are not kept after an initial heavy investment has been made, investors’ discontent can be understood. Even more troubling, at least from the public’s point of view, is that ‘un-kept promises’ can also discourage investors from making similar investments in the future.[9]

In light of the above, it can be argued that (to use the Guardian’s words) the existence of such a “legal weapon that gives corporations the edge on government”, may not necessarily be a bad thing. Having the option of claiming compensation in cases of governmental ‘betrayal’ can reduce the risks of relying on governmental promises, and encourage investors to invest in low-carbon technologies.

Recent developments:

Lately this present discussion has become a reality. On November 2011 a group of fourteen foreign investors filed a notice of arbitration against the Spanish government (based on the Energy Charter Treaty), following the latter’s substantive cuts in its feed-in tariffs (“FIT”) scheme. The cut in the FIT scheme was made due to the financial hardships Spain is currently facing.[10] The exact legal arguments raised by the foreign investors in this case are unknown to the author,[11] but a legal brief prepared by a certain leading law firm suggests that they may have relied on the “fair and equitable treatment” and “national treatment” standards of protection, as well as on the protection from expropriation, as stipulated by the Energy Charter Treaty.[12]

The Spanish example, however, reveals also the other side of this story. Spain is currently facing a difficult financial crisis. The solar industry, according to several publications, received 2.6 billion Euros in subsidies in 2010 alone,[13] and it is doubtful whether a state in such a condition should be forced to allocate these amounts to, of all things, renewable energy.

On the other hand, it is also discouraging that when facing financial difficulties, environmental causes are too often the first to be sacrificed. It can also be added that while Spain’s admittedly difficult financial situation should perhaps be considered when resolving this dispute, other, less ‘financially challenged’ states, like the UK, are making similar cuts.

In the author’s view, investment treaty law’s role in such cases is not necessarily negative. It provides assurances that in light of the low priority environmental considerations often receive, especially in times of financial turbulence, environmental ‘promises’ may still be respected. This is important for the prospect of green technologies, and for the future of our planet. This, however, is not to say that the system is flawless. Struggling states such as Spain should be allowed some flexibility when facing economic crises. And as demonstrated by several investment awards decided in the past against Argentina, it is possible that many investment treaties are simply not suitable for dealing with these situations. But, and this is important to remember, the arbitrations against Argentina and the mentioned case against Spain involve financial crises of historical proportions. This may not, usually, be the typical case in future claims.

Conclusion:

The prospects for the UN ‘green-economy’ vision depends on the successful fusion between private commercial interests and public environmental and social goals. Providing the private sector with the ability to efficiently claim compensation from states that do not live up to their environmental commitments, does not conflict with this vision. This is especially true in the case of low-carbon technologies, in which the private sector’s involvement is crucial.

Those criticizing the investment regime should continue to do so. This system, like many others, is not perfect. At the same time the benefits of this system should not be overlooked, especially when the voices calling for its revision grow ever-louder.

[2] Public Statement on the International Investment Regime, 31 August 2010, online: Osgood <http://www.osgoode.yorku.ca/public_statement/documents/Public%20Statement.pdf> [Public Statement].

[3] Public Statement, supra note 10 at para 8.  These critiques mostly claim that investment treaties represent only the commercial interests of foreign investors, and ignore public interests of states.

[4] Public Statement, supra note 10 at para 14.

[5] M. Sornarajah, ‘A Law for Need or a Law for Greed?: Restoring the Lost Law in the International

Law of Foreign Investment’, Int. Environ. Agreements 123 (2006): 329 [Sornarajah, ‘A Law for Need or a Law for Greed?] at 331.

[6] “Environmental exceptions in the future EU investment policy. Perhaps more than meets the eye?”, Legal Frontiers, June 10.

[7] Peter A. Allard v. The Government of Barbados, (Notice of Dispute) 8 September, 2009 online: Graemehall <http://graemehall.com/legal/papers/BIT-Complaint.pdf> [Allard].

[8] Ben Sills, “Fossil Fuel Subsidies Six Times More Than Renewable Energy”,  Bloomberg, 9 November 2011, online: Bloomberg <http://www.bloomberg.com/news/2011-11-09/fossil-fuels-got-more-aid-than-clean-energy-iea.html>.

[9] In a statement made by the UK Solar Trade Association following the U.K. government’s decision to modify its FIT scheme it was argued: “Such deep cuts to the tariff would kill the UK solar industry stone dead.” The UK Renewable Energy Association has added: “The renewables industry is really not confident at all. These changes undermine confidence across all energy-related investments, even CCS [carbon capture and storage] and nuclear, as we need to be confident that the government will honour their commitments and not chop and change.” See Uk Parliament Briefing Paper, Elena Ares, Oliver Hawkins and Paul Bolton, Science and Environmental Section, “Feed-in Tariffs: Solar PV”, online: UK Parliament <www.parliament.uk/briefing-papers/SN06112.pdf> at 14, and Damian Carrington, Feed-in tariff cuts ‘will kill solar industry stone dead’”, The Guardian, 31 October 2011, online: The Guardian <http://www.guardian.co.uk/environment/2011/oct/31/feed-in-tariff-cuts-industry>.

[10] Tim Webb, “Spain’s financial crisis claims another victim: the solar power industry” The Guardian, 30 March 2011, online: The Guardian <http://www.guardian.co.uk/world/2011/mar/30/new-europe-spain-solar-power>. Please note that other states, like the U.K., have also modified their FIT schemes for similar reasons. In the U.K. these measures were legally challenged (successfully, for the moment) by solar industry. See Energy Efficiency News, “High court rules UK government’s solar feed-in-tariff cuts are illegal”, 22 December, 2011, Energy Efficiency News, online: <http://www.energyefficiencynews.com/i/4745/>.

[11] To the best of the author’s knowledge, these have not been published yet.

[12] See a brief prepared by Freshfields Bruckhaus Deringer, “Tariff changes for photovoltaic solar power in Spain” March 2011, online: <http://www.freshfields.com/publications/pdfs/2011/mar11/29871.pdf>.

[13] Tim Webb, “Spain’s financial crisis claims another victim: the solar power industry” The Guardian, 30 March 2011, online: The Guardian <http://www.guardian.co.uk/world/2011/mar/30/new-europe-spain-solar-power>.

The tuna-dolphin disputes revolve around unilateral measures taken by the United States in order to combat the use of purse-seine fishing nets. Purse-seine fishing nets are used for commercial fishing. When used for tuna harvesting, not only tuna but also dolphins (and other species as well) are often trapped, injured, and even killed. It was argued by the United States that due to the use of these nets, the population of dolphins at the ETP was dramatically reduced.

Luckily for the dolphins, two types of U.S. pressure groups did not intend to let them disappear from the waters of the ETP. The first were U.S. fishermen who relied on dolphins for the fishing of tuna. Dolphins often swim above schools of tuna, and as they regularly surface above the water for a breath of air, they serve as an excellent visual indicator of where tuna can be found. The second group of champions to which dolphins owe their gratitude comprise environmental civil society organizations. Dolphins’ excellent reputation developed by generation of TV series and Disney movies probably also did not hurt their campaign.[1]

The pressure applied by these groups was indeed successful. The U.S. first reacted to this pressure with a ban, prohibiting the importation of tuna harvested with purse-seine fishing nets (“non-dolphin-safe tuna”). But as the use of these nets was, and still is prominent among Mexican fisherman, it wasn’t very surprising to find Mexico spearheading the efforts to eliminate this ban. As part of their efforts, Mexico (and other states) invoked the trading system’s dispute settlement mechanism against these U.S. measures. These attempts were relatively successful, as trade dispute settlement panels ordered the United States to drop its ban on non-dolphin-safe tuna.[2]

The use of unilateral trade measures (such as ban on the importation of certain products) in order to ‘convince’ other states to adhere to what locals believe to be ‘right’ and ‘good’, is problematic and regarded by some as ethnocentrism, or cultural imperialism. Think for example on the ways in which many Canadians reacted when the EU decided to ban the importation of Canadian seal products (cute animals, apparently, are an endless source for trade disputes), or its more recent plan to ban Canadian tar-sands oil.[3] What is interesting about these unilateral measures, at least in my view, is how influence flows from one group of interests (environmental interests, for example), to another (economic interests, for example).

More concretely, we can see that some states attempt to influence global environmental issues by applying pressure through the trading system. These attempts highlight the fact that no group of interests is isolated from another. Trade influences the environment, and the environment influences trade. States therefore can use trade in order to affect the environment, and the environment in order to affect trade. International Relations (“IR”) authors define these attempts to influence one system through the use of another as ‘institutional interaction’, i.e. attempts of actors (states, NGOs, etc.) to influence the outcome of one regime (for example, reducing greenhouse gas emissions, which is the goal of climate change treaties), by applying pressure through another institution (for example, unilateral trade measures that affect the trading regime).

Trade, environment and the ways in which influence flows

Influence travels, sometimes even successfully, from the environmental domain into the trading arena. The turtle-shrimps case is one example in which ‘environmental’ influence successfully carried over (through the action of the U.S.) into the trading system. NGOs’ activity is also often mentioned as a vehicle through which influence flows between different regimes (see for example NGOs’ activity at the WTO Ministerial Conference in 1999 (known as “the battle in Seattle”), or during the (failed) OECD negotiations over a multilateral investment agreement).

This route, it should be noted, is a two-way street. An example of how (negative?) influence travels back from international trade motivated groups to affect the outcomes of environmental treaties, can be found in the U.S’s recent WTO challenge of Chinese subsidies granted to local wind power subsidies, which resulted with the elimination of these subsidies.

Critics of the WTO will probably argue that environmentalists’ influence is more likely to be shattered in the trading arena than actually effecting change in that domain. On certain levels they are obviously right. A short review of the ways through which influence travels may demonstrate this point. Influence travels by actors, and actors can act on several levels. Ideally, and most legitimately, actors can influence the trading system through trade negotiations, i.e. states can convince others that environmental considerations are important and should be promoted through trade. But due to the WTO consensus rule (WTO decisions are generally accepted by consensus) and the current negative negotiations atmosphere, it seems improbable that new, urgently needed, environmentally-influenced decisions will be accepted in this manner (for example, regulations concerning subsidies, or environmental goods and services). Influence, therefore, is highly unlikely to travel by actors through trade negotiations.

Another manner in which environmental influence can enter into the trading system is the one mentioned above – through unilateral trade measures applied by certain states that condition access to local markets on the adherence to certain environmental standards. As already mentioned, this approach is considered to be problematic by many as it represents an attempt to impose local standards, which often represent local values and priorities, on foreign states. Furthermore, without getting into too many details, it should be mentioned that under WTO law, states are not allowed to treat differently two similar products which differ only by the way they were made. For example, most will agree that discriminating between two ‘like’ products that differ only in the amount of CO₂ that was emitted during their production, is inconsistent with WTO laws.[4]

Another, less intrusive, way in which influence can travel is in the use of labelling. Labels, according to the online Cambridge dictionary, are “a piece of paper or other material which gives you information about the object it is fixed to”. Examples for labels are ‘fair-trade’, ‘kosher’, ‘eco’, and ‘dolphin-safe’, all of which provide a consumer with information regarding the purchased product that he or she might find important. Labels can be used as ‘conductors’ of influence in more than one way. First, labels can be used as a compulsory requirement for market access. This type of labelling is referred to as ‘mandatory’ labelling. For example, where a specific ‘kosher’ label is required in order to import meat into a state, this is ‘mandatory labelling’. This situation, it should be noted, is in effect no different from the one described in the paragraph above, and should be considered as tantamount to unilateral trade measures.[5]

A second, more interesting, type of labelling is ‘voluntary labelling’. ‘Voluntary labels’ are granted only to those products that follow certain requirements.  But unlike with ‘mandatory labels’, there is no formal barrier which prevents other, non-labelled, products from being sold in local markets. These labels are ‘voluntary’, as producers can decide whether to use them or not. An example of this type of labelling is the variety of ‘fair-trade’ labels available around the world. Indeed in most grocery stores consumers can choose between a variety of ‘fair-trade’ coffees and those brands that do not carry this label. This type of labelling simply provides customers with information about the products they are about to buy. As there is no ‘trade barrier’ imposed by the state, the influence is traveling directly by those consumers who are interested in passing it to traders and producers.

From a trade law perspective, voluntary labelling should be considered as a ‘soft’, non-intrusive, and even desirable ‘conductor’ of influence. It shifts the economic power from the state, which is committed under trade laws to allow market access, to the consumer, whose preferences and ability to choose between competing products is a cornerstone for the capitalist system and are protected both by anti-trust and consumer-protection laws. The battle in this case is no longer between states, and is no longer about trade barriers (as the obligation to allow market access was granted). It is simply between competing producers, whose ability to brand their products, whether through appealing to consumers’ ethics or their desire to dress/drink/act like David Beckham, is their primer motivation.

As explained above, not many routes are currently open for influence to flow from the environmental domain to the world of international trade. This situation is deteriorating as a WTO Dispute Settlement Body (“DSB”) decided recently to impose further difficulties on the transfer of ‘environmental’ influence into the economic domain. The DSB interfered this time with consumers’ ability to choose, their right to be informed, and influence economic actors through their preferences.

The ‘tuna-dolphin’ decision from September 2011

The DSB in its decision from September 2011 arrived at the conclusion that even when the use of a label is completely optional, it shall still be considered as ‘mandatory’ once the conditions for using this label are mandatory, and are regulated by the state. The meaning of the DSB’s decision is that even the use of voluntary labels, if regulated by the state, must be compatible with WTO requirements and can be challenged by other states. Accordingly, in the context of the tuna-dolphin dispute it was decided that conditioning the ‘dolphin-safe’ label with the non-use of seine-purse fishing nets is incompatible with WTO laws. The U.S. should therefore either annul this labelling scheme or face trade sanctions.

This conclusion is problematic from several aspects. Most notably, the DSB adopted a narrative according to which influence originating from consumers, rather than states, is also subjected to trade laws. This approach is justified, according to the DSB, due to the government’s role in deciding and monitoring the criteria for the ‘dolphin-safe’ labels. But the United States did not prevent its citizens from purchasing Mexican tuna; it only made sure that they would know which tuna was, or was not, harvested with purse-seine nets. The state enabled its public to influence, if they wish to do so, the economic sector, and affect the environment through their purchasing habits.

Furthermore, there are obvious advantages to having state-regulated labels.[6] The alternative to state-regulation of labelling is privatized regulation, i.e. leaving labels to be regulated by NGOs, or other private organizations. But the use of private organizations in order to regulate labels is not without faults. First, there are standards of transparency, due-process in decision-making, and a variety of administrative laws and principles to which private organizations are not bound.[7] The economic value of influential labels is incredibly high, and accordingly so will be the pressures applied on the labelling body. The mechanisms imbedded within (certain) governments are better suited to deal with and monitor such pressures. Furthermore, there are also questions of quality assurance. Who is there to “watch the watchdog”?[8] To ensure that these private organizations adhere to high standards of research,[9] monitoring, and decision-making?

Secondly, it should be remembered that these labels often symbolize values and ethics. Privatizing the labelling process, therefore, means privatizing the right to decide on the exact content of these values. While states, politicians and public servants represent citizens and their values, who is it that decides the criteria for what is ‘fair-trade’, for example? What kind of public debate took place within these private organizations in order to establish what ‘fair-trade’ is, and what it should be?

Apparently, if the ‘dolphin-safe’ label would have been produced and monitored by an NGO, this would not have been a ‘trade law’ problem. But why should this change anything? A voluntary ‘label’, as mentioned above, is simply a medium, a transmission tool for providing information. As long as this information is accurate (and there is no doubt that Mexican fishermen are indeed using purse-seine nets), why should a state be banned from passing it on to its citizens? And since when is the provision of accurate information a trade law violation? Since when is it even trade-law related?

The only logical explanation for these questions would have been that both the panel and Mexico believed that this label restricts trade and market access. Otherwise, Mexico would not have bothered to complain in the first place. But labelling, it should be remembered, is aimed to do exactly this; to inform consumers who consider this information to be important, and to allow them to influence international traders and producers to include environmental considerations in their decisions. The whole point of ‘labelling’ is indeed to limit market access and to “discriminate” against certain type of products. The crucial question, however, should have been who is really limiting the market access? Is it the state, or environmentally-conscious consumers?

In my view, the DSB in this case has crossed the line by interfering in the consumer-producer relationship, rather than the state-state relationship it was designed to deal with. The role of the state in this case  was marginal at best. It was aimed at supporting consumers, not blocking trade. The DSB has arrived at its conclusion by focusing on the interpretation of single words, but missed the bigger picture regarding the nature of the state measure, the role of trade laws, and the role of the WTO in general. By doing so, the DSB has limited even further the routes in which influence can travel between the different domains, as it submitted voluntary labelling based on state regulation and monitoring to WTO laws, which in fact are designed to prevent exactly what the labelling was trying to achieve.

The game, however, is not over yet. As this is ‘only’ a panel report, it remains to be seen what the appellate body will rule on these questions. The dissenting opinion in this case indeed leaves some room for optimism. Hopefully, the Appellate Body will give further consideration to these issues and reverse this decision.

[1] Most notably: http://www.youtube.com/watch?v=akyJYeBVbuM

[2] It should be noted that at the time of these decision, trade panels’ reports were de facto not enforceable. For a summary of the cases, see http://www.wto.org/english/tratop_e/envir_e/edis04_e.htm; and http://www.wto.org/english/tratop_e/envir_e/edis05_e.htm.

[3] See online: http://www.guardian.co.uk/environment/2011/oct/04/oil-sands-imports-eu-ban

[4] This topic is disputable and deserves more attention. See interesting discussion in Charles Benoit, “Picking tariff winners: Non-product related PPMs and DSB interpretations of “unconditionally” within Article I:1” (2011) 42(2) Georgetown Journal of International Law  583.

[5] In WTO law, this situation is considered as ‘technical regulation’, and indeed certain WTO agreements pose restriction on ‘mandatory labelling’ (most notably, see Article 2 of the Agreement on Technical Barriers to Trade (“TBT Agreement”).

[6] The author refers in this respect to democratic, non-corrupt states.

[7] for example, the author’s request to receive Greenpeace’s list of donators was denied

[8] Expression borrowed from  Robert C. Blitt, “Who will watch the watchdog?: International Human Rights Nongovernmental Organizations and the case for Regulation” (2004) 10 Buffalo Human Rights Law Review 261

[9] See for example Paul Collier’s well debated criticism of Christian-Aid, Paul Collier, The Bottom Billion (Oxford: Oxford University Press, 2007); See also critique over the outcome of ‘fair-trade’, Andrew Chambers, “Not so fair trade” 12 December 2009, The Guardian, online: <http://www.guardian.co.uk/commentisfree/cif-green/2009/dec/12/fair-trade-fairtrade-kitkat-farmers>

At present, it seems that the EU Parliament aspires to push forward an innovative approach, in line with (and perhaps even further than) policies already applied by countries like Canada, under which exceptions for sustainable development goals are included.[1] This is mostly the result of concerns about “regulatory chill”, which are often mentioned by scholars (and recently also by policy makers)[2] who wish to maintain states’ flexibility to regulate future policies with respect to the protection of the environment, health, human-rights, etc. Indeed, it has been reported that Uruguay intended to relax its proposal for new anti-smoking laws following Philip Morris’ threats of investor-state litigation.[3] Similar concerns seem to have led policy makers and civil society organizations in Australia and New-Zealand to object to the inclusion of the investor-state mechanism in their investment agreements (most notably in the Trans-Pacific Partnership Agreement).[4]

But things are not so simple. The aim of these general exceptions is often to promote sustainable development goals by making states ‘untouchable’ when it comes to the regulation of these important issues. However, the exclusion of such topics from the general standards of protection afforded for foreign investors, can be damaging to the same policies that these same countries are attempting to protect. One interesting example is the case of climate change-friendly technologies.

The development and the transfer of technology for the abatement of climate change can be described as nothing short of crucial. This has been recognised in a line of international agreements, including the 2007 Bali Action Plan, in which technology was mentioned as one of the central issues to be addressed  by the international community (alongside adaptation, mitigation, long-termed cooperative action and finance), and the recent 2010 Cancun Agreements where it was decided to “accelerate action” with respect to technology development and transfer, and to establish the Technology Mechanism, which includes the Technology Executive Committee, the Climate Technology Centre and Network.

As a series of studies and international documents show, without the active involvement of the private sector, sufficient technological development and transfer is unlikely to occur. Unfortunately, the market alone does not supply the private sector with adequate incentives to invest in climate-friendly technologies. The barriers mentioned in this respect include inter alia financial risks, policy risks (including political and regulatory risks) and low returns. The protection offered to foreign investors by international investment agreements and the provision of investor-state arbitration is very important in this respect, as it reduces some of the risk involved in such investment in a foreign country. Indeed investment treaties are designed for this very purpose. Simply put, enforcement of such a protection reduces risks and consequently encourages investment. It can therefore be argued that excluding fields such as the protection of the environment from investment agreements can actually damage the development and transfer of climate-friendly technologies.

But while the reasons for providing strong incentives to the private sector in this respect are clear, there is more to this picture. The climate change challenge is characterised by lack of scientific certainty. What seems a solid solution one day, can be described as a problem soon after.[5] Further, the necessity to apply the best possible technologies coupled with the fast rate at which technologies change, may imply that long-term stability can actually mean unwanted stagnation.

It is clear then, that policy makers are faced with some difficult choices. But while it is possible that the field of international investment law can be in conflict with the promotion of sustainable development goals, it is nevertheless questionable whether the simplistic use of exceptions is the best pro-sustainable development solution for this problem. Perhaps, what is needed is the development of a more sophisticated mechanism that will be able to fully balance this multilayered and complex situation.

[2] Claims brought by foreign investors, if successful, can result in the payment of heavy compensation and costly legal expenses. The ”regulatory chill” refers to the possibility that such expenses ‘chill’ states from applying their legitimate police powers and inhibit the regulation of fields such as the protection of the environment, health, human rights, etc.

[3] See in Rory Carroll, “Uruguay bows to pressure over anti-smoking law amendments”, guardian.co.uk, 27 July 2010, online: The Guardian <http://www.guardian.co.uk/world/2010/jul/27/uruguay-tobacco-smoking-philip-morris>.

[4] See <http://www.iareporter.com/articles/20110414>; and an “Open Letter to the Prime Ministers of Australia and New Zealand” <http://tppwatch.org/news-video-audio/media/letter-nz-australia-pms/>.

[5] See for example, ethical and environmental issues caused by the bio-fuels industry.  See online: BBC <http://www.bbc.co.uk/news/uk-13056862>.

Nailed it: Environment Minister Ryu Matsumoto raises the hammer to end the COP10 conference in Nagoya. KYODO PHOTO, Japan Times Sunday, Oct. 31, 2010

On Saturday morning, October 28 2010 the Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from their Utilization to the Convention on Biological Diversity was adopted in the midst of a standing ovation by the Parties present.

This Protocol is intended to comply with the 3^rd objective of the Convention on Biological Diversity (CBD), which is the fair and equitable sharing of benefits arising from the utilization of genetic resources with the custodians of biodiversity. This Protocol is being hailed by delegates and nongovernmental organizations as one of the most important measures the world has ever taken against biopiracy.

Indeed, for many decades, pharmaceutical and cosmetics firms, and the agricultural and biotech industries have manufactured everyday products (drugs, toothpaste, makeup, etc.) consumed in our developed countries using plants or organisms from such places as the tropical rain forests of Latin America and Southeast Asia without acknowledging their origin or sharing the profits with Indigenous peoples and local communities whose knowledge made the development of these products possible[1]. Even worse, companies have patented over the last decades traditional products that were developed with the knowledge of Indigenous peoples and local communities without a mere recognition of their input in crops such as basmati rice in India, quinoa in the Andes and yellow corn in Mexico.

With stakes now running high around the economic value of ecosystems and biodiversity, such an international regime to control the access and benefit sharing (ABS) of these resources in order to stem their theft was long overdue. But an agreement between North, pressing for enhanced access to these genetic resources, and South, fighting to gain the benefits that were entitled to them after many years of biopiracy on their territory, seemed unreachable. The ghost of the Copenhagen failure last spring had many predicting failure in these difficult negotiations.

In such a context, the adoption of the Nagoya Protocol at the Tenth meeting of the Conference of the Parties to the CBD (COP10) last October, after six years of hard-scrabble negotiating, was seen as a victory, celebrated by many delegates and nonprofits organizations.

Yet amid the celebrations, several key questions remain, especially concerning the true custodians of biodiversity, Indigenous peoples and local communities, which were the most vulnerable party in these negotiations.

At first glance, some gains were made as the Nagoya Protocol provides that “in accordance with domestic law, each Party shall take measures, as appropriate, with the aim of ensuring that traditional knowledge associated with genetic resources that is held by indigenous and local communities is accessed with the prior and informed consent or approval and involvement of these indigenous and local communities, and that mutually agreed terms have been established”.

After an uphill battle, two safeguards clauses were also adopted in the Preamble of the Nagoya Protocol which are: “Noting the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP)” and “Affirming that nothing in this Protocol shall be construed as diminishing or extinguishing the existing rights of indigenous and local communities”.

But if one takes a closer look, these negotiations saw a lack of political will from State Parties to really protect Indigenous peoples and local communities’ rights to their genetic resources and associated traditional knowledge. For example, the sections on access or benefit sharing of traditional knowledge in the Nagoya Protocol use lesser legal terms, such as “with the aim of ensuring”, “as appropriate” and “as applicable”, creating a double standard between Indigenous peoples and local communities rights and those of State parties for the sake of flexibility for implementation at the national level.

The provision “in accordance with domestic law” that is also found throughout the Protocol poses another problem where Indigenous peoples’ inherent right to genetic resources may be deemed to be contingent upon recognition by national legislation in each State[2].

Moreover, the rights of Indigenous peoples and local communities have been limited to “existing” or “established” rights over their traditional knowledge and associated genetic resources which could lead to widespread dispossession and impoverishment according to Paul Joffe, a Canadian Human Rights Lawyer representing the Grand Council of the Crees (Eeyou Istchee) at these negociations. “Genetic resources on Indigenous lands and territories have often been used in association with traditional knowledge for countless years. Such rights are most often not ‘established’ in the sense of being defined by domestic laws, agreements or court rulings.[3]”

Canada was one of the party most reticent to see the rights of Indigenous peoples protected in a firm manner in the Nagoya Protocol as it was the only country to block reference to the UNDRIP[4]. It even was awarded a DODO Award from the CBD Alliance, a global network of civil society organizations involved in the CBD, for their unhelpful behavior in ABS, particularly in relation to Indigenous peoples’ Rights. The Awards, named after the Dodo Bird — the quintessential symbol of biodiversity loss — signify governments’ failure to evolve[5].

With such lack of political will, it remains to be seen how this Protocol will be implemented at the national level. Will the worst fears of Indigenous peoples and local communities be realized or will their rights as holders and owners of much of the world’s biodiversity and traditional knowledge be really protected? We owe as consumers in the North a great deal to the traditional knowledge of Indigenous peoples and local communities and it remains to be seen if they will be repaid in a fair and equitable manner.

This Protocol thus has a long way to go at the national level before it deserves a standing ovation and praises from the international community. The Canadian government in particular needs to be watched as it is starting engagement sessions on their own national policy on ABS.

[2] Press Release: Quebec Native Women, Misinformation and Betrayal by Canada Undermining Biodiversity Negotiations, October 2010.

[3] Press Release: Quebec Native Women, Canada Accepts Reference to UN Declaration – And Continues to Undermine It, October 2010.

[4] See, Press Release: Quebec Native Women, Indigenous Representatives Denounce Canada Obstructionnist Position at COP10, October 21 2010.

[5] Press Release: CBD Alliance, ‘Dodo Awards’ presented to Governments at the Convention on Biological Diversity: The EU and Canada lead the way … to extinction, October 25 2010.

As previously mentioned by this author, South Africa will have a very tough time meeting its commitment to the UNFCCC process. The IRP2 process has brought together industry, government, the academe, civil society and industry – including independent power producers (IPPs) – as never before. The IRP2 hints at the changing nature of energy security ethics and legal approaches in Africa. While the IRP2 does not fully embrace this new brand of energy ethics, it will start South Africa on the road towards a reduced reliance on coal-fired electricity production. There is still hope for critics of the plan. Energy Minister Dipuo Peters has promised that the IRP2 was written with enough “flexibility” to, for example, embrace more renewable energy in the future should it be desired.[1]

In brief, South Africa suffers from an energy paradox. The country has a long tradition of electrification. Indeed, the city of Kimberley had streetlamps before London, England![2] For most of South Africa’s history, those with access to the grid enjoyed a very stable stream of supply from Eskom, the state-owned electricity producer, distributor and grid operator. Of course, the parastatal, as with all government services during the Apartheid era, had racially motivated aims and deliberately withheld services from black and coloured South Africans.[3] There are still serious ongoing disputes about equity in service provision.[4] Nearly a quarter of South African homes lack access to the grid. Over 55% of rural dwellers lack electricity. As no small aside, coal is king in South Africa. Eskom reported that during fiscal year 2009/2010, 232,812GW/h of electricity were sent out on the grid – 92.8% of this was derived from coal-fire power plants, 5.5% from nuclear power, 1.5% from pumped storage, .5% from renewables and .02% from gas.

Since 1994, a build-out program has aimed to increase equity in service delivery to the general population, but power shortages  plagued the country in 2008 and are threatening to challenge the grid again during the coming decade. While it has been acknowledged that powerful industry players cut back-room deals for cheaper and more secure supply contracts with Eskom, the government has had to ram through a “medium term risk mitigation plan” (MTRMP) – fittingly entitled “Keeping the Lights On” – to provide a basic level of energy security for the general population over the coming decade. The plan for power generation over the medium-term is carbon intensive, although programs for demand-side management and energy conversation are being funded.

The IRP2 is the crucial link for long-term electricity planning in South Africa. Elements of sustainable development theory are present in the strategy, as criteria such as water usage, climate change effects (environmental), localisation benefits, regional development goals (social), and financial costs and portfolio risks (economic) are all accounted for.[5] The government has even extended the consultation period for the IRP2 process to harness more input and support from civil society members and sub-national levels of government.[6] The plan would see licensed capacity on the grid expand from 44,535MW in 2010 to 85,241MW in 2030, with a reserve margin of 15%. The bulk of new generation would come from renewables (11,500MW), nuclear power (9600MW), coal-fired power (5,000MW), open-cycle gas turbine generation (4830MW), and imported hydro-power (3,349MW).[7] While these numbers look promising, it must be mentioned that over the medium-term all regular plans to commission major coal-fired facilities at Medupi, Kusile, and Ingula are going ahead – despite protests from local South Africans to World Bank officials.

To a large degree, the assumptions underlying the IRP2 reflect an out-dated model of energy ethics. Predictions of demand and supply are underpinned by assumptions of gross domestic product (GDP) forecasting, even though this indicator is increasingly under fire and decreasingly touted by developed nations. Additionally, while public buy-in is being sought, the entire energy plan seems to hinge on large-scale, capital intensive energy planning. Very little room is carved out for grassroots involvement. Indeed, recent efforts by the Energy Minister to promote initiatives such as community wind projects do not seem to fit into this policy in any real fashion. Also, the report lacks detail as to how demand-side management will improve. Mandating Eskom to actively reduce consumption patterns in South Africa defies the very ethos of the parastatal. A third-party organization should be tasked with this responsibility, and plans to create an independent system operator need to be sped up to drive innovation and enhance the competitiveness of IPPs.

As noted above, the IRP2 has a lot of problems. However, the principles of sustainable development and climate law have started to seep into the domestic energy policy process of South Africa. Only time will tell if South Africa will truly embark upon a new path or stay chained to the energy paradox.

[2] G.Z. Ben-Yaacov, “Power Generation in South Africa to the Year 2000” (1979) 4 Energy 47 at 47.

[3] Leonard Gentle, “Escom to Eskom: From racial Keynesian capitalism to neo-liberalism” in David A. MacDonald (ed.) Electric Capitalism: Recolonising Africa on the Power Grid (Cape Town: HSRC Press, 2009) at 50ff.

[4] Jackie Dugard, “Power to the People? A Rights Based Analysis of South Africa’s Electricity Services” in David A. MacDonald (ed.) Electric Capitalism: Recolonising Africa on the Power Grid (Cape Town: HSRC Press, 2009) at 264ff.

[5] Department of Energy, Integrated Resource Plan (2010 Rev. 2) at 13.

[6] Terrence Creamer, “Urgent Engagement: Provincial roadshows planned to broaden energy-plan consultation” (29 October 2010) Engineering News at 11.

[7] Ibid at 17.

“What does this have to do with law?” you may ask (other than its relevance to my ongoing unjust dismissal hearing). Simple: by passing the environmental buck on to financial regulatory agencies such as the Ontario Securities Commission (OSC), we would be treating them just like poor old Tibor.

In the land of the incompetent, the semi-competent man is king. Similarly, in the ham-fisted world of inefficient and ineffective governmental organisations, a body which generally satisfies its mandate, such as the OSC, is a paragon. Of course, the OSC (or the rest of Canada’s financial market regulators) isn’t beyond criticism. Many complain that Canada is more lax towards fraud and white-collar crime than other countries. Nevertheless, the OSC has fared much better in meeting its dual mandate – protecting investors while promoting fair and efficient markets – than equivalent organizations in other jurisdictions, such as the Securities and Exchange Commission (SEC) in the United States (particularly during the financial crisis).

It is understandable that some would want to use a relatively effective (and semi-autonomous) governmental body such as the OSC to advance important causes which are unrelated to its mandate, just because they have been neglected by more relevant organisations. Examples of such causes could include labour standards, unpopular executive decisions (see this year’s OSC ruling involving Magna International), and now environmental standards. “Tibor,” I mean “OSC,” you might say, “Environment Canada has little power to force businesses to improve their sustainability practices. Why not use corporate disclosure rules to help things along?”

Professor Dhir’s proposal, in his recent special submission to Legal Frontiers, is of course phrased differently, but the effect is largely the same. Professor Dhir argues that the OSC already has the power to require disclosure on environmental matters, and that such disclosure is of material significance to investors. He proposes that Canadian (or Ontario) law be modified to require that companies explain an absence of environmental and social policies, and assess the success of such policies.

The crucial assumption for having financial regulators enforce environmental disclosure is that it is materially relevant to investors because it corresponds with financial performance. Yet various studies have examined this link and found it to be inconclusive. For this reason, National Instrument 51-102 (which applies across Canada) requires companies only to report on “environmental policies that are fundamental to […] operations”. This is logical on its face: in some industries (such as mining or fishing) environmental policies may closely relate to financial performance, while in others (such as manufacturing musical instruments) the link may be nonexistent. Disclosure of these policies is thus only relevant to investors in the former case.

The distinction is important because as international political action on the environment – and particularly climate change – stalls, individual countries will turn to non-conventional means and organisations to achieve progress. For example, the United States has been considering using tariffs within the World Trade Organisation (WTO) framework to prompt action on greenhouse gas emissions. But the risk is that pulling in unrelated organisations such as the OSC or the WTO may merely confuse environmental law, reducing the impetus for a proper solution without actually achieving much.

There are many strong arguments for forcing corporations to implement environmental and social policies. But these arguments may not involve information which is materially important to investors. For this reason, it unwise to pursue action on corporate environmental responsibility within the context of a financial regulatory body tasked with protecting investors – even if progress on other fronts has been limited. Doing so is like forcing a square peg into a round hole, just because someone put gum in the square hole. Nevertheless, the temptation to do so in this case is strong, particularly since political action on the environment is so full of gum. But as Tibor could tell you, foisting the tough jobs onto someone else can only get you so far.

I only wish he hadn’t told a certain Labour Relations Board the same thing during a certain unjust dismissal hearing.

QUICK, FIND TIBOR!

The report follows the Ontario Legislature’s unanimous approval of a private member’s resolution calling on the province to review existing reporting requirements and issuers’ compliance.

The resolution asked the OSC to undertake a broad consultation in order to “establish best practice corporate social responsibility…and environmental, social and governance…reporting standards”. In response, the OSC – supported by the Hennick Centre for Business and Law at York University – convened a multi-stakeholder roundtable and held various consultations with interested parties.

The reporting of material environmental, social and governance (ESG) information should be viewed as an integral part of a businesses’ overall risk management strategy. With this information, shareholders are in a better position to assess financial risks and to allocate capital to firms best suited to mitigate these risks. Disclosure also encourages stakeholder dialogue. This dialogue, over time, informs internal decision-making and provides a critical framework for identifying both risks and opportunities. This, in turn, can drive performance, enhance an organization’s reputation and strengthen the core elements of its relationships with stakeholders.

A range of international studies, including reports by the Asset Management Working Group of the United Nations Environment Programme Finance Initiative, have put forth persuasive evidence that such information may impact long and short-term shareholder value – and is thus material to investors.

Stakeholders are certainly seeking this information. Last October, a coalition of investors (representing CDN $79.6 billion in assets under management), environmental groups and lawyers petitioned the OSC to pursue several actions aimed at increasing mandatory disclosure of climate change-related risks in securities filings.

This is not the first time the OSC has entered into the ESG reporting sphere and the results have been controversial. In 2008, it released Staff Notice 51-716 which found that many issuers were providing “insufficient” boilerplate articulations of environmental liabilities, with little to no analysis. While the reaction to the OSC’s findings from particular quarters was hostile, the reality is the OSC did not create new disclosure burdens for Canadian organizations. On the contrary, the legal requirement to report material ESG information already exists. The reality, however, is many companies are not living up to their obligations.

In its report to the minister, the OSC makes two key recommendations. First, that the OSC should conduct further continuous disclosure reviews (such as 51-716) in order to assess corporate compliance; in particular, in the area of governance. Second, that it should continue to provide educational outreach to issuers including additional guidance on existing environmental disclosure requirements.

Both recommendations are sound and represent important steps in the right direction. Compliance reviews are valuable, especially when they present illustrations of successful disclosures. Publishing these examples can assist other companies in compiling their filings and actively validates the disclosure of the cited issuer. Many business people do not realize how ESG information can materially affect the value of a company, so educational outreach is clearly needed.

The report makes it clear that the OSC is not proposing new disclosure provisions. Existing requirements are seen as generally adequate and comparable to those in other countries.

While I agree that sufficient legal basis currently exists to require the disclosure of material ESG information, there is also room for improvement in the law.

For example, current provisions require public companies to report on any social or environmental policies that are fundamental to operations, including policies on human rights and the communities where the issuer conducts business. If, however, no such policies exist, the issuer is not obliged to disclose that fact or to explain the reasons for the omission. Contrast this with U.K. law. Under the U.K. Companies Act 2006, if the prescribed information is not revealed (including policies on environmental, labour and social/community issues), there must be an explicit statement of what has been omitted.

In addition, current provisions ask Canadian issuers to describe steps taken to implement any social policies. However, they do not require an evaluation of their success. Again, the Canadian instrument is out of step with the U.K. equivalent, which requires consideration of the policies’ effectiveness.

Moving away from the law to a process level, when regulators conduct periodic reviews of continuous disclosure and identify problems, these problems are brought to the issuer’s attention via a comment letter. The letter asks the issuer to address the error or to submit a reply explaining why corrective action is not necessary. If a resolution cannot be reached, enforcement action is considered. In the U.S., the Government Accountability Office recently recommended that all comment letters, and the responses of issuers, be made fully available to the public in the form of a searchable electronic database. The Securities and Exchange Commission complied.

In Ontario, only a summary of the deficiency is made available, as well as the issuer’s post-correction press release. Posting actual comment letters, and any response, would help ensure that investors, the public and other companies fully understand the substance and conclusions of regulatory continuous disclosure reviews and would assist civil society and academia in conducting more meaningful reviews and evaluations of corporate disclosure.

These are but a few examples of enhancements that, while modest, would strengthen the current disclosure landscape and bring Canada in line with emerging best practices in comparable jurisdictions. I would hope that the minister of finance will consider these, and other suggestions made by relevant stakeholders, in deciding the future direction of sustainability reporting.

On July 16^th in the Chinese port city of Dalian, the explosion of two oil pipelines caused thousands of barrels of oil to begin gushing into the sea. The slick has since expanded to cover hundreds of square kilometres of water and spread upwards of 90km down the coast. The spill – and China’s cack-handed response – is clearly modelled after the U.S.’s ongoing gulf coast saga – but it’s a pale imitation. Unlike the American spill, there seems to be no threat of the oil being carried to other nations’ coasts. Yet even Australia has managed to pull off a massive spill affecting its neighbours. If China wants to get into the oil spill big leagues, they’ll have to find a way to go international.

But while the international oil spill scene is characterised by intense competition, there is a notable lack of corresponding cooperation. It’s all well and good to give neighbours’ coasts an old fashioned “slicking”. But as any eighth-grader who gets caught TP-ing someone’s house because my friend Alan can’t keep his mouth shut knows, there must be a time for cleaning up as well. Unfortunately, international law provides few answers about who is responsible for cleaning up international spills.

The Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter explicitly excludes any “wastes derived from the exploration and exploitation of sea-bed mineral resources”. As a result, it will likely not apply to oil spills. The UN Convention on the Law of the Sea is more promising. It specifies at article 194 that “states shall take […] all measures consistent with this Convention that are necessary to prevent, reduce and control pollution of the marine environment from any source”, and specifically, “pollution from installations and devices used in exploration or exploitation of the natural resources of the seabed and subsoil”. However, for the U.S. oil spill UNCLOS is of limited value because America has not ratified the treaty. Instead President Reagan in 1983 directed government agencies to treat most parts of the treaty as customary law.

Beyond the realm of international treaties, much of the regulation of the offshore oil industry is carried out by special national regulators. These include the U.S.’s Minerals Management Service (MMS), the Norwegian Petroleum Directorate, Britain’s Health and Safety Executive, and Australia’s Department of Minerals and Petroleum Resources. In Canada the Canada-Newfoundland Labrador Offshore Petroleum Board (CNLOPB) regulates the industry, since Newfoundland-Labrador is the only province where offshore drilling currently occurs.

National offshore oil regulators do little to coordinate standards with one another. They lack even uniform sex and drugs corruption standards. A prominent example is the absence of coordinated regulations requiring the presence of an “acoustic switch” on offshore rigs. This is a failsafe device which can be remotely (and reliably) used to close off a gushing well on the sea floor in the event of an accident – such as that on the Deepwater Horizon rig. Acoustic switches are required on rigs in Norway, Brazil, and Canada, and they are present in British operations in the North Sea. Yet in a 2003 report to the MMS, requiring acoustic switches was not recommended because “they tend to be very costly”. As a result, acoustic systems are not present on American rigs.

The lack of coordination between oil regulators stands in stark contrast to the kind of international cooperation seen in other industries. IOSCO, the International Organization of Securities Committees, allows national (and provincial) securities regulators to unify policy approaches, while central banks are currently negotiating their third set of global banking standards through the Switzerland-based Basel Committee.

With the ever-increasing global demand for oil, offshore spills affecting multiple countries will likely be inevitable. Some day China will catch up with the pros in this respect, leaving behind their current small-town spills. But if oil-producing countries and their national regulators don’t do more to agree on standards for preventing and cleaning up international spills, then the international dimension of spills will remain one-sided. In that respect, perhaps all of the offshore oil producers will remain amateurs.

BUSH LEAGUE