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Bilateral and Multilateral Investment Treaties and Their Relationship with Environmental Norms and Measures

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Dünnwald, S. (2015). Bilateral and Multilateral Investment Treaties and Their Relationship with Environmental Norms and Measures. Duncker & Humblot. https://doi.org/10.3790/978-3-428-54506-3
Dünnwald, Sonja. Bilateral and Multilateral Investment Treaties and Their Relationship with Environmental Norms and Measures. Duncker & Humblot, 2015. Book. https://doi.org/10.3790/978-3-428-54506-3
Dünnwald, S (2015): Bilateral and Multilateral Investment Treaties and Their Relationship with Environmental Norms and Measures, Duncker & Humblot, [online] https://doi.org/10.3790/978-3-428-54506-3

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Bilateral and Multilateral Investment Treaties and Their Relationship with Environmental Norms and Measures

Dünnwald, Sonja

Schriften zum Internationalen Recht, Vol. 202

(2015)

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About The Author

Sonja Dünnwald hat in Berlin und Louvain-la-Neuve Rechtswissenschaften studiert und 2005 das Erste Staatsexamen abgelegt. Im Rahmen eines anschließenden Praktikums am Permanent Court of Arbitration und eines LL.M.-Studiengangs am University College London 2006 hat sie sich mit Fragestellungen des Investitionsschutzrechts und des internationalen Umweltrechts beschäftigt. Während ihres Referendariats absolvierte sie Stationen u.a. im Bundesministerium für Umwelt, einer internationalen Kanzlei in London und der Ständigen Vertretung Deutschlands bei den Vereinten Nationen in Genf. Sie legte ihr Zweites Staatsexamen 2009 ab. Seit 2011 arbeitet sie als Rechtsanwältin in einer internationalen Rechtsanwaltskanzlei im Schieds- und Prozessrecht. Sie wurde 2014 von der Universität Frankfurt am Main promoviert.

Abstract

Investment treaties protect the investments of foreign investors against interference by the host state: The core standards offer protection against discriminatory or unequitable treatment and expropriation. However, the investment activities can impact on the environment of the host state. The state retains its policy space to regulate for an environmental purpose.

Some investment treaties refer to concepts of international environmental law, but do not impose a hierarchy of norms. In practice, it often falls to investment tribunals to distinguish between legitimate regulation and the violation of investors' rights. They decide on the scope of the state's policy space by balancing the opposing interests: Investment tribunals focus on the absence of protectionist intent, procedural propriety and the review of scientific evidence. If the regulatory framework is more stringent when the investment is made, there is less potential for subsequent conflict.
Investment treaties protect the investments of foreign investors against interference by the host state: The core standards offer protection against discriminatory or unequitable treatment and expropriation. However, the investment activities can impact on the environment of the host state. The state retains its policy space to regulate for an environmental purpose.

Some investment treaties refer to concepts of international environmental law, but do not impose a hierarchy of norms. In practice, it often falls to investment tribunals to distinguish between legitimate regulation and the violation of investors' rights. They decide on the scope of the state's policy space by balancing the opposing interests: Investment tribunals focus on the absence of protectionist intent, procedural propriety and the review of scientific evidence. If the regulatory framework is more stringent when the investment is made, there is less potential for subsequent conflict.

Table of Contents

Section Title Page Action Price
Preface 7
Table of Contents 9
Introduction 17
I. Contemporary Investment Law 20
II. Outline of Methodological Approach 25
Chapter 1: Environmental Norms and Principles 30
A. ‘Environment’ as a Concept 31
B. Development of Environmental Regulation 34
C. Subject Areas of Environmental Law 40
I. Conservation and Biological Diversity 41
1. Protection of Species from Direct Interference 43
2. Habitat Preservation 45
3. Indirect Impacts on Species 46
II. Toxic Substances, Waste Disposal, and Hazardous Activities 48
III. Atmosphere and Climate Change 54
IV. Intermediate Summary 61
D. Fundamental Principles of Environmental Law 62
I. Sustainable Development 63
II. Precautionary Principle 70
III. Polluter-Pays Principle 75
IV. Intermediate Summary 82
E. Scenarios of Potential Conflict 82
I. Scenario No 1: Introduction and Application of Environmental Regulation 82
II. Scenario No 2: Subsidies or Other Advantages for Environmentally Friendly Investments as Potential Violation of Other Investments 83
III. Scenario No 3: Withdrawal of or Reductions in a Scheme Favouring Environmentally Friendly Investments 85
IV. Scenario No 4: Withdrawal of Support Scheme because Investment Affects the Environmental Objective 86
1. Creation of a ‘Perverse Incentive’ 87
2. Neglect of Impacts on other Environmental Sectors 90
V. Intermediate Summary 93
F. Conclusion 94
Chapter 2: The Influence of Environmental Concepts on the Interpretation of Investment Provisions 95
A. Conflicts of Norms and Interpretation 97
B. Preambular Clauses 102
I. Bilateral Investment Treaties 103
II. Free Trade Agreements Containing Provisions on Investment Protection 106
III. Multilateral Investment Treaties 111
IV. Interpretative Value of Preambular Clauses 113
C. References within the Substantive Provisions of the Respective Treaties 115
I. Articles Referring to the Environment within the Investment Provisions 116
1. Adopting, Maintaining and Enforcing Environmental Measures 117
2. Regulatory Race-to-the-Bottom 119
3. General Exception Provisions 123
II. Separate Chapters or Provisions on the ‘Environment’ 125
1. Provisions Setting Forth Environmental Regime 126
a) North American Agreement on Environmental Co-operation 126
b) Environmental Chapters in Post-NAFTA Agreements 128
2. Provisions on Relationship with Environmental Agreements 133
III. Sector Specific References 138
IV. Interpretative Value of Environmental Provisions 139
V. Intermediate Summary 143
D. Further Points of Entry for Relevant Rules of International Law 144
I. Additionally Taking Relevant Rules of International Law into Account 144
1. Rules of International Law 145
2. Issues of Inter-Temporality 149
3. Interpretative Effect and Relevance of Article 31 paragraph 3 lit c VCLT 152
II. ‘International Law’ as Applicable Law to the Dispute 155
1. Designation of ‘International Law’ as Applicable Law within the Treaty 156
2. Applicable Law through Article 42 paragraph 1 sentence 2 ICSID Convention 156
3. Evaluation 161
E. Conclusion 161
Chapter 3: Standards of Non-Discriminatory Treatment 164
A. National Treatment 166
I. Definition of the Comparator 168
II. Treatment No Less Favourable 171
III. Justification of Differential Treatment 174
IV. Analysis of Case Law Concerning Environmental Measures 176
1. S.D. Myers v. Canada 176
a) Portrayal of the Arbitral Decision 176
b) Evaluation 181
2. Methanex v. United States 183
3. Ethyl Corporation v. Government of Canada 186
V. Intermediate Summary 187
B. Most-Favoured Nation Treatment 187
I. Parkerings-Compagniet AS v. Lithuania 189
II. Intermediate Summary 193
C. Prohibition against Arbitrary and Discriminatory Measures 193
I. Elements of the Standard 194
II. Intermediate Summary 198
D. The Environmental Relevance of Standards of Non-Discrimination 199
I. Criteria for Standards of Non-Discrimination in Environmental Context 199
1. No Restrictive Comparator Test 199
2. Relevance of Protectionist Intent 201
3. Justification 202
a) Deference 202
b) Reasonable Nexus 203
c) Alternative, Less Disruptive Measures 205
4. Burden of Proof 207
II. Application of Criteria to Different Scenarios 208
1. Scenario No 1: Introduction and Application of Environmental Regulation 209
a) Establishment of the Investment – Refusal of Permits 209
b) Introduction of Environmental Restrictions after Investment Has Been Placed 211
aa) Restrictive Regulation of Some, but Not All Business Sectors 213
bb) Universal Regulation 218
2. Scenario No 2: Subsidies or Other Advantages for Environmentally Friendly Investments as Potential Violation of Other Investments 218
3. Scenario No 3: Withdrawal of, or Reductions in, a Scheme Favouring Environmentally Friendly Investments 220
4. Scenario No 4: Withdrawal of Support Scheme because Investment Affects the Environmental Objective 221
III. Summary Assessment 222
E. Summary 223
Chapter 4: Standards of Fair Treatment 225
A. Full Protection and Security 226
I. Scope of Protection 227
II. Evaluation of the Relevance of this Standard for this Study 231
B. Fair and Equitable Treatment 232
I. Interpretative Approaches to Fair and Equitable Treatment 233
II. The Relationship between Fair and Equitable Treatment and the International Minimum Standard of Treatment 236
III. Conceptual Notions of the Standard of Fair and Equitable Treatment 240
1. Legitimate Expectations 241
2. Stable and Predictable Legal Framework 247
3. Transparency 250
4. Due Process 252
IV. Intermediate Summary 254
C. Analysis of Case Law Concerning Environmental Measures 254
I. Chemtura Corporation v. Canada 255
1. Portrayal of the Arbitral Decision 255
2. Assessment 258
II. Methanex v. United States 259
III. S.D. Myers Inc. v. Canada 260
IV. Metalclad Corporation v. United Mexican States 261
1. Portrayal of the Arbitral Decision 261
2. Assessment 264
V. Glamis Gold, Ltd. v. U.S.A. 265
1. Portrayal of the Arbitral Decision 265
2. Assessment 269
VI. Plama Consortium Limited v. Bulgaria 270
VII. Técnicas Medioambientales Tecmed, S.A. v. United Mexican States 271
VIII. Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG & Co. KG v. The Federal Republic of Germany 273
IX. Intermediate Summary 275
D. Prohibition against Arbitrary or Unreasonable Measures 275
E. The Environmental Relevance of Standards of Fairness 276
I. Criteria for Standards of Fairness in Environmental Context 276
1. Legitimacy of the Investor’s Expectations 277
2. Scientific Basis for Introducing Environmental Measure 282
3. Procedural Fairness and Transparency 284
4. Conclusive Summary 286
II. Application of Criteria to Different Scenarios 287
1. Scenario No 1: Introduction and Application of Environmental Regulation 287
a) Refusal of Permits 287
b) Introduction of Environmental Restrictions after Investment Was Placed 289
2. Scenario No 2: Subsidies or Other Advantages for Environmentally Friendly Investments as Potential Violation of Other Investments 292
3. Scenario No 3: Withdrawal of or Reductions in a Scheme Favouring Environmentally Friendly Investments 293
4. Scenario No 4: Withdrawal of Support Scheme because Investment Affects the Environmental Objective 296
5. Conclusive Summary 298
F. Summary 298
Chapter 5: Expropriation 300
A. Direct Expropriation 302
B. Indirect Expropriation 305
I. Factors Establishing Indirect Expropriation 307
1. Substantial Deprivation 308
a) Duration of the Impact 313
b) Intensity of the Impact 314
c) Economic Impact as Sole Criterion? 316
2. Interference with Reasonable Investment-Backed Expectations 318
3. Character of the Governmental Measure 321
II. Intermediate Summary 323
C. Analysis of Case Law Concerning Environmental Measures 323
I. Metalclad Corporation v. United Mexican States 324
II. Técnicas Medioambientales Tecmed, S.A. v. United Mexican States 328
III. S.D. Myers Inc. v. Canada 330
IV. Chemtura Corporation v. Canada 332
V. Methanex v. United States 333
VI. Glamis Gold, Ltd. v. U.S.A. 335
VII. Marion Unglaube and Reinhard Unglaube v. Republic of Costa Rica 336
VIII. Further Cases Alleging Expropriation 340
IX. Evaluating Summary 342
D. Expropriation in the Environmental Context 342
I. Blanket Exemption for Regulatory Measures from Scope of Expropriation 343
II. Influence of Police Powers 345
III. Proportionality 349
IV. Only in Rare Circumstances 352
1. Environmental Measure in Breach of Prior Commitment 355
2. Imposition of Special Sacrifice 356
V. Evaluating Summary 360
E. Application of Criteria to Different Scenarios 361
I. Scenario No 1: Introduction and Application of Environmental Regulation 361
1. Permits and Environmental Restrictions 362
2. Introduction of Environmental Restrictions after Investment Was Placed 363
II. Scenario No 2: Introduction of Scheme Supporting Environmentally Friendly Investments as Potential Violation of Other Investments 365
III. Scenario No 3: Alterations to a Scheme Supporting Environmentally Friendly Investments 365
IV. Scenario No 4: Withdrawal of Support Scheme because Investment Affects the Environmental Objective 368
F. Compensation 369
I. Compensation Standard for Lawful Expropriation 369
II. Adequateness of Compensation 370
III. Potential Influence of Societal Factors on Level of Compensation 373
1. Investment Arbitration 374
2. European Court of Human Rights 377
3. Decisions of the Iran-U.S. Claims Tribunal 378
IV. Evaluation 379
V. Intermediate Summary 380
G. Conclusion 381
Conclusion 383
I. Legal Findings Derived From the Study 384
1. Relevant Findings for the Specific Standards 384
2. Common Features 386
II. Practical Evaluation 389
1. The Environmental Framework at the Moment of the Investment Decision 389
2. The Legislative and Administrative Reality in the Host State 390
3. Practical Implications of the Conflict 392
III. Perspectives for the Future 395
1. The Need for Host States to Protect Their Citizens 396
2. Changes to the Content and Interpretation of Investment Treaties 398
3. Institutional Implications 401
IV. Conclusion 402
Bibliography 404
Table of Decisions 421
Table of Treaties and Other International Instruments 433
Subject Index 445