Emerging Powers, Global Justice and International Economic Law: Reformers of an Unjust Order? 3030636380, 9783030636388

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Andreas Buser

Emerging Powers, Global Justice and International Economic Law Reformers of an Unjust Order?

Emerging Powers, Global Justice and International Economic Law

Andreas Buser

Emerging Powers, Global Justice and International Economic Law Reformers of an Unjust Order?

Andreas Buser Department of Law Freie Universität Berlin Berlin, Germany

ISBN 978-3-030-63638-8 ISBN 978-3-030-63639-5 https://doi.org/10.1007/978-3-030-63639-5

(eBook)

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Many books have been written. This is one of them.

Acknowledgements

First of all, I owe my grateful thanks to my academic mentor Heike Krieger for setting me on the right academic course and encouraging me to stay on track. In particular, I owe her a lot for channelling my scattered ideas about global justice, international law, and a general interest in approaches from the Global South towards focusing on legal opinions and practice of emerging powers. I am deeply indebted for her continuing support and am looking forward to future common projects. To Helmut Aust, I owe my sincere thanks for his profound review of an earlier draft of the book and his many helpful advises on shortening its descriptive sections and sharpening its arguments. His personal support in finding a publisher and in coping with career questions was also of great help. A special thanks also goes to all my other actual and former colleagues at Freie Universität. Moreover, it has been my great pleasure and privilege to be a regular visitor to the KFG—research group ‘The International Rule of Law: Rise or Decline?’ lead my Heike Krieger, Georg Nolte, and Andreas Zimmermann. The group’s members and visitors provided me with much inspiration and allowed me to test some of my conclusions on a critical audience. Aside from my home base at Freie Universität, I owe a profound debt of gratitude to many people within the ‘invisible college’ of international law scholars in Germany and around the world. Among them are Phillip Dann from Humboldt University of Berlin for getting me in touch with scholars from India to organise my first ‘field trip’. Prof. M.P. Singh generously invited me to stay at National Law University Delhi and kindly introduced me to scholars and PhD students there from Delhi. I also owe my dear friend Pratyush Kumar for his kind support, including for introducing me to all good bookstores in Delhi. James Nedumpara, Prabhash Ranjan, and BS Chimni were competent interview partners and interviewing them gave a ready excuse to leave my desk, travel the city, and explore the campuses of all law faculties in and around it. I also wish to thank Cai Congyan for hosting me so kindly at Xiamen Law School and for inviting me to speak there at the conference on ‘BRICS in the New vii

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Acknowledgements

International Legal Order on Investment’. The conference gave me the unique opportunity to meet scholars from all BRICS countries in one place, of whom Engela Schlemmer (South Africa) and Henrique Choer Moraes (Brazil) deserve a special mention for their valuable feedback on my ideas about the role of emerging powers in investment law. Lastly, the conference allowed me to discuss my usage of the categories of traditionalists, reformers, and revolutionaries with their creator, Anthea Roberts, which led to some incremental reform. Finally, my family always provided a source of strength and support. I thank my parents for always believing in me despite the fact that they never fully grasped what I was doing and especially not why. My dear wife Stefanie offered a harbour of warmth and laughter whenever academia appeared cold, pointless, or both. I also thank my son Emil (birth: 15.01.2020) for waiting long enough so that his father could finish his PhD in due time.

Contents

1

2

3

Introduction: The Crisis of International Law and the Role of Emerging Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Emerging Powers and the International Order: Outline . . . . . . . . . 2.1 Emerging Powers and the International Order . . . . . . . . . . . . . . . 2.1.1 International Relations: The Broad Picture . . . . . . . . . . . . 2.1.2 Approaches by International Lawyers . . . . . . . . . . . . . . . 2.1.3 Evaluation: Power Is Shifting But Many Questions Remain Open . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Outline of the Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1 Who Are the Relevant Actors? . . . . . . . . . . . . . . . . . . . . 2.2.2 A Common Legal Agenda? Why a Comparative Study of Rising Powers’ Legal Positions Is Valuable . . . . . . . . . 2.2.3 Emerging Powers as Promoters of Global Justice in International Economic Law? Self-Qualification and Scholarly Assumptions . . . . . . . . . . . . . . . . . . . . . . 2.3 Terminology and Methodology . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.1 Rule Makers, Rule Takers, Norm-Entrepreneurs, and Norm-Antipreneurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.2 Institutions, Rules, Principles and Paradigms . . . . . . . . . . 2.3.3 Rising Powers as Loyalists, Reformers or Revolutionaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hegemony, Power and International Law . . . . . . . . . . . . . . . . . . . 3.1 (Western) Great Powers and International Law . . . . . . . . . . . . . 3.1.1 Working Definitions: Power, Hegemony and Great Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.2 A Dichotomy Between Power and Law? . . . . . . . . . . . .

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7 7 8 13

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24 25 25

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47 51 ix

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3.1.3 How to Convert Power into International Law . . . . . . . . . . 3.1.4 Evaluation: Rules of Power and the Power of Rules . . . . . . 3.2 The Third World and International (Economic) Law . . . . . . . . . . . 3.2.1 The Emergence of the Third World: Early Coalitions in the Global South . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.2 The NIEO: A Radical Vision of New International Economic Law? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.3 Legal Success Despite Lack of Power? . . . . . . . . . . . . . . . 3.2.4 The Abandonment of the NIEO and the Spread of Neoliberalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.5 Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 New Great Powers and a New New International Economic Order? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.1 Emerging Powers as New Great Powers? . . . . . . . . . . . . . 3.3.2 BRICS’ Legal Agenda: Resurrection of the NIEO? . . . . . . 3.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

5

Global Justice and International Economic Law . . . . . . . . . . . . . . . . 4.1 Global Justice: A Brief Introduction . . . . . . . . . . . . . . . . . . . . . . . 4.2 A Human Rights Approach to Global Justice . . . . . . . . . . . . . . . . 4.2.1 A Legal Human Rights Approach . . . . . . . . . . . . . . . . . . . 4.2.2 Extraterritorial Human Rights Obligations in the Economic Realm: The ICESCR . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.3 Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Is International Economic Law Fair to ‘Impoverished Nations and Peoples’? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.1 The Justice of International Investment Law . . . . . . . . . . . 4.3.2 The Justice of International Trade Law . . . . . . . . . . . . . . . 4.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Emerging Powers and International Investment Agreements . . . . . 5.1 Historical Approaches: Emerging Powers as Rule Takers . . . . . . 5.1.1 China: A Gradual Rule-Taker . . . . . . . . . . . . . . . . . . . . . 5.1.2 India: From Import-Substitution Industrialization to (Coerced) Opening Up . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1.3 South Africa: From International Isolation to Integration . 5.1.4 Brazil: Half-Hearted Embrace of BITs . . . . . . . . . . . . . . . 5.2 Power Change: Emerging Powers as Agents of Reform? . . . . . . . 5.2.1 Brazilian Cooperation and Facilitation Investment Agreements: An Alternative IIA? . . . . . . . . . . . . . . . . . . 5.2.2 South Africa as a Norm Anti- and Entrepreneur: A Dualistic Approach . . . . . . . . . . . . . . . . . . . . . . . . . .

56 80 81 82 88 93 98 101 101 102 121 127 128 139 140 142 147 148 154 155 155 167 184 184

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194 196 197 199

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5.2.3

India’s Investment Policy Reform and Its Revised New Model BIT 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.4 China’s Ambivalent Approach . . . . . . . . . . . . . . . . . . . . 5.2.5 Common Approaches in Multilateral Fora? . . . . . . . . . . . 5.3 Comparative Analysis of (Model) IIAs and Domestic Legal Alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.1 Policy Space and Respect for Human Rights . . . . . . . . . . 5.3.2 The Protection of Human Rights: Investor Obligations in Emerging Power IIAs? . . . . . . . . . . . . . . . . . . . . . . . . 5.3.3 The Fulfilment of Human Rights in Emerging Powers IIAs? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

7

Emerging Powers and International Trade Law . . . . . . . . . . . . . . . 6.1 Historical Background: Emerging Powers in the International Trade Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1.1 The GATT Years and the Uruguay Round . . . . . . . . . . . . 6.1.2 The Case of China and Its Accession to the WTO . . . . . . 6.1.3 From Uruguay to Doha and Beyond . . . . . . . . . . . . . . . . 6.2 Shift in Power: From Developing Countries to Emerging Trade Powers? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2.1 Brazil, China and India Enter the Green Room . . . . . . . . 6.2.2 Why Is China Not More Prominent? . . . . . . . . . . . . . . . . 6.2.3 Power Change in WTO Dispute Settlement . . . . . . . . . . . 6.2.4 Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 Emerging Powers’ Normative Agenda . . . . . . . . . . . . . . . . . . . . 6.3.1 General Direction: Supporting But Reforming the Rule Based WTO System . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.2 Common Positions on Agriculture . . . . . . . . . . . . . . . . . 6.3.3 Common Positions on TRIPS . . . . . . . . . . . . . . . . . . . . . 6.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 Summary of the Main Findings . . . . . . . . . . . . . . . . . . . . . . . . 7.2 Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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. 205 . 209 . 214 . 216 . 217 . 247 . 253 . 262 . 265 . 271 . . . .

271 272 278 280

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284 284 287 289 296 297

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298 309 365 404 406

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417 417 421 423

Abbreviations1

AB ACP ACTA AIIB AMS AoA ASG ASIL BICS BIT BLEU BRICS CAP CARIFORUM CEPA CERDS CESCR CETA CPTPP DDA DDR DSB

Appellate Body (WTO) African, Caribbean and Pacific Group of States Anti-Counterfeiting Trade Agreement Asian Infrastructure Investment Bank Aggregate Measurement of Support Agreement on Agriculture (WTO) Agreement on Safeguards (WTO) American Society of International Law Brazil, India, China, and South Africa Bilateral Investment Agreement Belgium–Luxembourg Economic Union Brazil, Russia, India, China, and South Africa (official forum) Common Agricultural Policy (EEC/EC/EU) Caribbean Forum of the African, Caribbean, and Pacific Group of States Economic Partnership Agreement between the CARIFORUM States and the European Community Charter of Economic Rights and Duties of States Committee on Economic, Social and Cultural Rights Comprehensive Economic and Trade Agreement (EU-Canada) Comprehensive and Progressive Trans-Pacific Partnership Agreement Doha Development Agenda (WTO) Doha Development Round (WTO) Dispute Settlement Body (WTO)

1 Note: All the abbreviations used in the study are included here except those which are document symbols of international organisations and those which are commonly and widely used and need no explanation (such as e.g., et seq., etc.).

xiii

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DSM DSU EC EChHR ECHR EEC EEZ EPA EPO EU FDI FET FTA GATT IBSA ICC ICCPR ICESCR ICJ ICSID ICTSD IIA IILJ IMF IR ISA ISDS LDC MFN MIGA NAFTA NAM NDB NGO NGP NIEO NT ODA ODTS OECD OGP OOF OTDS PSNR

Abbreviations

Dispute settlement mechanism (WTO) Dispute settlement understanding (WTO) European Community European Convention on Human Rights European Court of Human Rights European Economic Community Exclusive economic zone Economic partnership agreement European Patent Office European Union Foreign direct investment Fair and equitable treatment Free trade agreement General Agreement on Tariffs and Trade India, Brazil, South Africa Dialogue Forum International Criminal Court International Covenant on Civil and Political Rights International Covenant on Economic, Social and Cultural Rights International Court of Justice International Centre for Settlement of Investment Disputes International Centre for Trade and Sustainable Development International investment agreement Institute for International Law and Justice (New York) International Monetary Fund International relations International Seabed Authority (UNCLOS) Investor-state dispute settlement Least developed country Most-favourable-nation (treatment) Multilateral Investment Guarantee Agency North American Free Trade Agreement Non-Aligned Movement New Development Bank (BRICS) Non-governmental organisation New great power New International Economic Order National treatment Official Development Aid Overall trade-distorting domestic support Organisation for Economic Co-operation and Development Old great power Other official (capital) flows Overall trade-distorting domestic support Permanent sovereignty over natural resources

Abbreviations

RAM S&D SADC SCM SPS SSG SSM TBT TKDL TPDS TPP TRIMS TRIPS TTIP TWAIL UN UNCITRAL UNCLOS UNCTAD UNGA UNSC UNTS US USA VCLT WIPO WTO

xv

Recently acceded member (WTO) Special and differential (treatment) Southern African Development Community Agreement on Subsidies and Countervailing Measures (WTO) Agreement on Sanitary and Phytosanitary Measures (WTO) Special Safeguard (Article 5 WTO Agreement on Agriculture) Special Safeguard Mechanism (WTO) (Agreement on) Technical Barriers to Trade (WTO) Traditional Knowledge Digital Library (India) Targeted Public Distribution System Trans-Pacific Partnership Agreement Trade-Related Investment Measures (Agreement) Trade-Related Intellectual Property Protection (Agreement) Transatlantic Trade and Investment Partnership Third World Approaches to International Law United Nations United Nations Commission on International Trade Law United Nations Convention on the Law of the Sea United Nations Conference on Trade and Development United Nations General Assembly United Nations Security Council United Nations Treaty Series United States (of America) United States of America Vienna Convention on the Law of Treaties World Intellectual Property Organization World Trade Organization

Table of Cases

Arbitral Awards Ansung Housing Co, Ltd v People’s Republic of China, ICSID Case No. ARB/14/25, Award (9 March 2017). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/12, Award (14 July 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bayindir Insaat Turizm Ticaret Ve Sanayi AS v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award (27 August 2009). . . . . . . . . . . . . . . . . . . . . . . . Beijing Shougang and others v. Mongolia, PCA Case No. 2010-20, Award (30 June 2017). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Berschader v. Russia, Stockholm Chamber of Commerce, Case No. 080/2004, Award (21 April 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award (24 July 2008). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cairn v. India, PCA Case No. 2016-7 (not public), Notice of Arbitration (2015). . . Chemtura Corp. v. Canada, UNCITRAL, Award (2 August 2010). . . . . . . . . . . Clayton and Bilcon of Delaware, Inc. v. Government of Canada, UNCITRAL, PCA Case No. 2009-04, Award on Jurisdiction and Liability (17 March 2016). . . . . . Compañía del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, ICSID Case No. ARB/96/1, Award (17 February 2000). . . . . . . . . . . . . . . . . . . . . . . . Credit Lyonnais S.A. (now Calyon S.A.) v. Republic of India, UNCITRAL (not public) (2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit Suisse First Boston v. Republic of India, UNCITRAL (not public) (2004). Daimler Financial Services AG v. Argentine Republic, ICSID Case No. AR/05/1, Award (22 October 2012). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fireman’s Fund Insurance Co v. Mexico, ICSID Case No. ARB(AF)/02/01, Award (17 July 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hela Schwarz GmbH v People’s Republic of China, ICSID Case No. ARB/17/19, Notice of Arbitration (21 June 2017). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LG&E Energy Corporation v. Argentina, ICSID Case No. ARB/02/1, Award (25 July 2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii

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Maffezini v. Spain, ICSID Case No. ARB/97/7, Decision of the Tribunal on Objections to Jurisdiction (25 January 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Merrill & Ring Forestry L.P. v. Government of Canada, UNCITRAL, ICSID Administered Case, Award (31 March 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . Metalclad v. Mexico, ICSID Case No. ARB(AF)/97/1, Award (30 August 2000). . . Occidental Petroleum Corporation and Occidental Exploration and Production Company v. Republic of Ecuador, ICSID Case No. ARB/06/11, Award (5 October 2012). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Offshore Power Production C.V., Travamark Two B.V., EFS India-Energy B.V., Enron B.V., and Indian Power Investments B.V. v. Republic of India, UNCITRAL (not public) (2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Parkerings-Compagniet AS v. Lithuania, ICSID Case No. ARB/05/8, Award (11 September 2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Philip Morris Asia Limited (Hong Kong) v. Commonwealth of Australia, UNCTAD, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility (17 December 2015). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Philip Morris Brands Sarl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Piero Foresti, Laura de Carli and others v Republic of South Africa, ICSID Case No ARB(AF)/07/1, Award (4 August 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plama Consorium Limited v Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (8 February 2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . PSEG Global Inc. v. Republic of Turkey, ICSID Case No. ARB/02/5, Award (19 January 2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Salini Construtorri S.p.A. and Italstrade S.p.A. v. Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction (23 July 2001), English Translation in ILM 42, 609. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award (17 March 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Señor Tza Yap Shum v. The Republic of Peru, ICSID Case No. ARB/07/6, Decision on Jurisdiction and Competence (only available in Spanish) (19 June 2009). . . . Señor Tza Yap Shum v. The Republic of Peru, ICSID Case No. ARB/07/6, Decision on Annulment (12 February 2015). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . South China Sea Arbitration, Republic of the Philippines vs. People’s Republic of China, Permanent Court of Arbitration, PCA Case No. 2013-19, Final Award (12 July 2016). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Standard Chartered Bank v. Republic of India, UNCITRAL (not public) (2004). Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v Argentine Republic, ICSID Case No. ARB/03/19, Decision on Liability (30 July 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tecmed, S.A. v. Mexico, ICSID Case No. ARB (AF)/00/2, Award (29 May 2003). . . Texaco Overseas Petroleum Co v. Government of the Libyan Arab Republic, Final Award (1978), ILM 17, 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Table of Cases

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Tippets et al vs. TAMSEFTA (1984), Iran-USCTR 6, 219. . . . . . . . . . . . . . . . . . Urbaser S.A. et al. v The Argentine Republic, ICSID Case No. ARB/07/26, Award (8 December 2016). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vodafone v. India (I), PCA Case No. 2016-35 (not public), Notice of Arbitration (17 April 2014). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . White Industries Australia Limited v. Republic of India, UNCITRAL, Final Award (30 November 2011). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Domestic Courts Agri South Africa v. Minister for Minerals and Energy, Case CCT 51/12, Constitutional Court of South Africa (2013), ZACC 9. . . . . . . . . . . . . . . . . . . . . . . . . . The Antelope, U.S. Supreme Court (1825), United States Reports 23, 66. . . . . . . European Court of Human Rights Yukos v. Russia, Application no. 14902/04, Judgment (31 July 2014). . . . . . . . . European Court of Justice Yassin Abdullah Kadi and Al Barakaat International Foundation v. Council of the European Union and Commission of the European Communities, Slg. 2008, I-6351, Judgement (3 September 2008). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Court of Justice Delimitation of the Maritime Boundary in the Gulf of Maine Area (Canada v. United States of America), Judgment of 12 October 1984, ICJ Reports 1984, 246. . . . . . Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory, Advisory Opinion of 9 July 2004, ICJ Reports 2004, 136. . . . . . . . . . Legality of the Threat or Use of Nuclear Weapons, Advisory Opinion of 8 July 1996, ICJ Reports 1996, 66. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), Judgement of 27 June 1986, ICJ Reports 1986, 14. . . . . . . . Permanent Court of International Justice Case Concerning Certain German Interests in Polish Upper Silesia (FRG v. Poland), Judgement of 25 August 1925, PCIJ Series A, No. 7. . . . . . . . . . . . S. S. Lotus (France v. Turkey), Judgment of 7 September 1927, PCIJ Series A, No. 10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WTO/GATT Brazil – Export Financing Programme for Aircraft, WT/DS46, Panel Report (14 April 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brazil – Export Financing Programme for Aircraft, WT/DS46/AB/R, Appellate Body Report (2 August 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brazil – Measures Affecting Patent Protection, WT/DS199/1, Request for Consultation by the United States (30 May 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . Brazil – Measures Affecting Patent Protection, WT/DS/199/3, Request for the Establishment of a Panel by the United States (9 January 2001). . . . . . . . . . . . . Brazil – Measures Affecting Patent Protection, WT/DS199/4, Notification of Mutually Agreed Solution (19 July 2001). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brazil – Measures Affecting Import of Retreaded Tyres, WT/DS332/AB/R, Appellate Body Report (3 December 2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Canada-Measures Affecting the Sale of Gold Coins, GATT Doc. L/5863, Report of the Panel (17 September 1985). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Canada – Measures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R, Appellate Body Report (2 August 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Canada – Measures Affecting the Export of Civilian Aircraft, WT/DS70/R, Panel Report (14 August 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Canada – Measures Affecting the Export of Civilian Aircraft-Recourse by Brazil to Article 21.5 of the DSU, WT/DS70/RW, Panel Report (9 Mai 2000). . . . . . . . . . Canada – Patent Protection of Pharmaceutical Products, WT/DS114/R, Report of the Panel (17 March 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Canada – Measures Affecting the Export of Civilian Aircraft-Recourse by Brazil to Article 21.5 of the DSU-AB-2000-4, 4 WT/DS70/AB/RW, Appellate Body Report (21 July 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chile – Price Band System and Safeguard Measures Relating to Certain Agricultural Products, WT/DS207/R, Report of the Panel (3 May 2002). . . . . . . . . . . . Chile – Price Band System and Safeguard Measures Relating to Certain Agricultural Products, WT/DS207/AB/R, Appellate Body Report (23 September 2002). China – Measures Affecting the Protection and Enforcement of Intellectual Property Rights, WT/DS362/R, Report of the Panel (26 January 2009). . . . . . . . . . . . . . . China – Measures Related to the Exportation of Various Raw Materials, WT/DS394/AB/R; WT/DS395/AB/R; WT/DS398/AB/R, Reports of the Appellate Body (30 January 2012). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China – Broiler Products, WT/DS427/R, Report of the Panel (2 August 2013). . China – Measures Related to the Exportation of Rare Earths, WT/DS431/AB/R; WT/DS432/AB/R; WT/DS433/AB/R, Reports of the Appellate Body (7 August 2014). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . China – Domestic Support for Agricultural Producers, WT/DS511/8’, Request for the Establishment of a Panel by the United State (6 December 2016). . . . . . . . . China – Tariff Rate Quotas for Certain Agricultural Products, WT/DS517/1, Request for Consultations by the United States (21 December 2016). . . . . . . . . China – Domestic Support for Agricultural Producers, WT/DS511/8, Report of the Panel (28 February 2019). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . European Communities – Measures Concerning Meat and Meat Products, WT/DS48/AB/R, Appellate Body Report (16 January 1998). . . . . . . . . . . . . . . European Communities – Conditions for the Granting of Tariff Preferences to Developing Countries, WT/DS246/R, Panel Report (adopted as modified by the Appellate Body Report on 20 April 2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . European Communities – Export Subsidies on Sugar, Complaint by Brazil, WT/DS266/R, Report of the Panel (15 October 2004). . . . . . . . . . . . . . . . . . . . European Communities – Export Subsidies on Sugar, WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, Report of the Appellate Body (28 April 2005). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . European Communities – Approval and Marketing of Biotech Products, WT/DS291/R, Panel Report (29 September 2006). . . . . . . . . . . . . . . . . . . . . . .

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European Union and a Member State – Seizure of Generic Drugs in Transit, WT/DS409/1, Request for Consultations by Brazil (19 May 2010). . . . . . . . . . . European Union and a Member State – Seizure of Generic Drugs in Transit, WT/DS408/1, Request for Consultations by India (19 May 2010). . . . . . . . . . . . European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R, Appellate Body Report (15 July 2011). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . European Communities – Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS400/AB/R; WT/DS401/AB/R, Appellate Body Report (22 May 2014). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/RW, Appellate Body Report (18 January 2016). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . India – Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products, Report of the Appellate Body, WT/DS90/AB/R (23 August 1999). . . . India – Measures Affecting the Automotive Sector case, WT/DS146/AB/R; WT/DS175/AB/R, Appellate Body Report (19 March 2002). . . . . . . . . . . . . . . India – Certain Measures Relating to Solar Cells and Solar Modules, WT/DS456/R, Report of the Panel (24 February 2016). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . India – Certain Measures Relating to Solar Cells and Solar Modules, WT/DS456/ AB/R, Report of the Appellate Body (16 September 2016). . . . . . . . . . . . . . . . . Korea – Beef Products, WT/DS161/R and WT/DS169/R, Report of the Panel (31 July 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Korea – Beef Products, WT/DS161/AB/R and WT/DS169/AB/R, Report of the Appellate Body (11 December 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, Appellate Body Report (12 October 1998). . . . . . . . . . . . . . . United States – US Patents Code, WT/DS224/1, Request for Consultations by Brazil (7 February 2001). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States – Subsidies on Upland Cotton, WT/DS267/1, Request for Consultations by Brazil (3 October 2002). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States – Subsidies on Upland Cotton, WT/DS267/R, Report of the Panel (8 September 2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States – Subsidies on Upland Cotton, WT/DS267/AB/R, Report of the Appellate Boy (20 December 2004). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/AB/R, Appellate Body Report (7 April 2005). . . . . United States – Subsidies on Upland Cotton, Recourse to Arbitration by the United States under Article 22.6 of the DSU and Article 7.10 of the SCM Agreement, WT/DS267/ARB/2, Decision by the Arbitrator (31 August 2009). . . . . . . . . . . . United States-Subsidies on Upland Cotton, WT/DS267/43, Communication from Brazil (12 March 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States – Subsidies on Upland Cotton, WT/DS267/45, Joint Communication from Brazil and the United States (31 August 2010). . . . . . . . . . . . . . . . . . . . .

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United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China, WT/DS379/AB/R, Appellate Body Report (11 March 2011). United States – Measures Affecting the Production and Sale of Clove Cigarettes, WT/DS406/AB/R, Appellate Body Report (4 April 2012). . . . . . . . . . . . . . . . . United States – Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products, WT/DS381/AB/R, Appellate Body Report (12 May 2012). . United States – Countervailing and Anti-Dumping Measures on Certain Products from China, WT/DS449/AB/R, Appellate Body Report (7 July 2014). . . . . . . . . United States – Subsidies on Upland Cotton, WT/DS267/46, Notification of a Mutually Agreed Solution (23 October 2014). . . . . . . . . . . . . . . . . . . . . . . . . . United States – Countervailing Duty Measures on Certain Products from China, WT/DS437/AB/R, Appellate Body Report (18 December 2014). . . . . . . . . . . . . United States – Certain Measures Relating to the Renewable Energy Sector, WT/DS510/2, Request for the Establishment of a Panel by India (24 January 2017). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Report of the Panel On Uruguayan Recourse to Article XXIII, GATT Doc. L/1923 11S/95, Report (16 November 1962). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 1

Introduction: The Crisis of International Law and the Role of Emerging Powers

The international (legal) order is in disorder. The rise of the so-called international rule of law, often associated with the end of the Cold War, may be in decline.1 Some observers even see a broader crisis of modernity and enlightenment.2 These perceived political crises are accompanied and possibly fuelled by the natural crises of climate change and recently the spread of COVID-19 around the globe. This decline narrative is often associated with the diminished power of Western nations and the rise, or in some cases re-emergence, of ‘authoritarian’ states such as Russia and China. The 1990s and early 2000s were years of great enthusiasm for many (Western) international lawyers. The Cold War was over and the United States was the only superpower left on the planet. The United Nations Security Council (UNSC), mostly hamstrung during the Cold War, became workable again and began to live up to its potential, sometimes even taking up the role of a “global legislator”.3 During this period international law seemed to progress with increased awareness for human rights protections and courts, the installation of new adjudicatory bodies, such as the International Criminal Court and the World Trade Organization’s dispute settlement mechanism, and a more important role and awareness for the work of transnational non-governmental organizations (NGOs). In the economic field, the 1990s saw the creation of the World Trade Organization (WTO) and the spread of international investment agreements, soon to be followed by steeply rising numbers of international investment arbitration cases.4 1

Krieger and Nolte (2019). Mishra (2017). 3 Rosand (2004). 4 According to UNCTAD’s IIA Mapping Project that covers 2573 international investment agreements (IIA), only around 381 such treaties were concluded from 1900 to 1990, while 1330 IIAs were concluded between 1991–2000 and 862 between 2001–2017; UNCTAD’s interactive mapping tool that provides for statistical data on IIA and their content and will be used throughout this study is available at: http://investmentpolicyhub.unctad.org/IIA/mappedContent. UNCTAD’s 2

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 A. Buser, Emerging Powers, Global Justice and International Economic Law, https://doi.org/10.1007/978-3-030-63639-5_1

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1 Introduction: The Crisis of International Law and the Role of Emerging Powers

Today, the 1990s spirit of an ever-evolving international law and the international rule of law appear to be gone. A great number of scholars have written about a perceived crisis and stagnation of international law and research is ongoing.5 The international order and international law—or at least parts of it—have of course, been constantly changing, including fundamental reforms such as the establishment of human rights as legal norms or the process of decolonization. Today there is the growing perception that a fundamental change is again taking place and this time not for the good. Although contemporaries often tend to overestimate their own significance and the challenges of their times, the following examples signal that, as Krieger and Nolte have put it, “a crisis of unusual proportions”6 may indeed be on the brink of unfolding. Symptoms of that “crisis of unusual proportions” are numerous but are disputed in detail. They include the resurgence of geopolitics, exemplified by the conflict in Syria and the annexation of Crimea by Russia, including the lack of strong reaction by the United Nations General Assembly (UNGA);7 the Chinese disregard for the South China Sea Arbitration award;8 the legitimacy crisis of the International Criminal Court (ICC);9 ‘Brexit’ and its implications for the European Union (EU);10 the presidency of Donald Trump and his apparent contempt for international law and organizations;11 the rise of informal forms of cooperation and the stagnation of international treaty-making;12 and the rebirth of nationalism and populism along with a decline of democratic institutions in many States.13 In the economic realm, both international investment- and trade law are experiencing a transformative period. The early twenty-first century saw and continues to see the stalling of the WTO Doha Development Round (DDR), with profound implications for the ability of the WTO to govern international trade. Circumvention through bilateral and

statistics on investment cases also show that initiated investment arbitrations slowly increased from 0 to 1 per year before the 1990s, with two cases per year in 1994 and 1995, then six cases per year in 1996 up until 77 cases initiated in 2015. 5 See e.g.: Domingo (2009); Herwig (2013); Pauwelyn et al. (2014); Marxsen (2015); Krieger and Nolte (2016), pp. 5, 8; see from an international relations perspective e.g. Ikenberry (2018), p. 7 et seqq. providing a synopsis of arguments related to the crisis of international relations. 6 Krieger and Nolte (2019), pp. 4 and 7. 7 See on the reaction of the UNGA to the conflict in Crimea particularly: UNGA Territorial Integrity of Ukraine, UNGA Resolution, UN Doc. A/RES/68/262 (1 April 2014) with 11 votes against and 58 countries abstaining the vote. 8 South China Sea Arbitration, Republic of the Philippines vs. People’s Republic of China, Permanent Court of Arbitration, PCA Case No. 2013-19, Final Award (12 July 2016). 9 See on the withdrawal from the Rome Statute or threats of withdrawal by several African States and underlying problems, e.g.: Jeangène Vilmer (2016) and the contributions in Jalloh and Bantekas (2017). 10 Evans et al. (2018). 11 See e.g. Krieger (2017). 12 Pauwelyn et al. (2014). 13 See e.g. Alston (2017); Krieger (2019); Ikenberry (2018), pp. 7 and 18.

1 Introduction: The Crisis of International Law and the Role of Emerging Powers

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regional free-trade agreements has become a serious challenge to the multilateral WTO’s functioning, and most ambitious mega-regional agreements—such as the Transatlantic Trade and Investment Partnership (TTIP) and Trans-Pacific Partnership (TPP)14—effectively failed, largely due to modified U.S. policies. Moreover, under the presidency of Trump, the United States has intensified its efforts to curtail the power of the WTO’s Appellate Body (AB) by blocking appointments of that body’s members. This behaviour ultimately proved successful in 2019 as membership has fallen below the minimally required number of three judges. Consequently, disputants are now able to block adoption of Panel reports by strategically appealing them.15 The WTO system’s effectiveness is also harmed by intense trade wars launched by the United States and a new trend of justifying protectionist measures in accordance with maintaining national security, the legality of which is dubious.16 Further, the twenty-first century has also witnessed a legitimacy crisis of international investment law and arbitration, including serious critique against the independence of investment arbitrators, the human rights and development impact of international investment rules, and more generally investment rules’ alleged bias in favour of ‘global capital’ to the detriment of national public interests. This criticism led to mass protests (for example, against the TTIP and its investment chapter), and has led several States of the Global South to withdraw from International Investment Agreements (IIAs).17 Put more abstractly, symptoms of the crisis of international law include, a systemically relevant disregard for international rules and judgements, the withdrawal of states from international treaties and courts, a turn to softer coordination mechanisms, and contestations of a value-based international law.18 One might add the emergence of mass civil society protests against international rules and the re-emergence of an aggressive nationalism inherently opposed to international rules that curtail national interests. While symptoms can be observed rather easily, it is more difficult to assess the question of what caused these instances of stagnation, contestation, and crisis. As Krieger and Nolte have pointed out, among the causes are changes in economic conditions, technological developments, political alliances (including the formation of BRICS), domestic political conditions and shifts in widespread beliefs.19 This book does not primarily aim to fully explore symptoms and causes of today’s crisis of international law. However, it focuses on one aspect that might have caused and

14

In January 2017, the US under president Trump, formally notified the TPP Depositary that it does not intend to become a party to the TPP anymore and considers its signature to be without any legal meaning, see: Office of the United States Trade Representative Letter to the TPP Depository/ Withdrawal from TPP (January 30, 2017). https://ustr.gov. Accessed 11 September 2020. 15 Article 16 para. 4 of the Dispute Settlement Understanding. 16 See: Weiler (2018) and Buser (2018). 17 See in more detail Chaps. 4 and 5. 18 See on some of those symptoms also: Krieger and Nolte (2019), p. 18. 19 Krieger and Nolte (2019), p. 8.

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1 Introduction: The Crisis of International Law and the Role of Emerging Powers

might even lead to further disruptions, namely, changes in economic conditions between countries and in particular (economic) powershifts toward some countries associated with the Global South. These powershifts have, in the West, often been depicted as a threat to the international (legal) order. However, it bears mention that this perspective is not only largely one-sided but also overly simplistic. From the perspective of emerging powers (including their elites and scholars but also ‘ordinary people’), and to some extent the Global South more broadly, changing power constellations bring the international order back to ‘normal’. International power distribution might simply transfer, from the somehow extraordinary situations of bipolarity and unipolarity, back to a historically more common multipolar structure. The emergence of the current crisis may question the widely held expectation of an ever-more- interconnected globalized world and notions of linear progress of international law towards an increasingly value-based order.20 Any normative evaluation of this process appears strongly contested and is highly issue-specific. While many international lawyers decry challenges against international human rights protections, contestations of ‘neo-liberal’21 international economic law might be more welcome, at least from a human rights lawyer’s perspective. Further, from the perspective of scholars affiliated with Third World Approaches to International Law (TWAIL), the rise of the Global South and a multipolar world order might lead international law to finally shake off its colonial and post-colonial heritage, which continues to haunt its legitimacy,22 and become truly trans-civilizational.23 This brief overview already provides evidence of the numerous questions involved in the subject of emerging powers and international law, both from a descriptive as well as normative perspective. Power and justice are the two underlying themes of the following study.

20

Such notions are often implicit in works on a constitutionalization of international law. The term ‘values’ is of course a rather vague term. In Western international law discourse, values have often been associated with liberal achievements, such as democracy, the rule of law and human rights protection. Today, the term liberal is often used to describe the international order as it stands. However, it must be noted that describing the international order as purely liberal neglects the fact that international law in many respects also incorporated communitarian notions, such as positive obligations in human rights law or the idea of a common heritage of humankind in the law of the sea. 21 Again, it must be noted that while international economic law is in many ways built on neo-liberal economic thinking associated with the Washington Consensus, it also embraces to some extent more communitarian approaches, such as special and differential treatment in WTO agreements. Therefore, labelling international economic law to be ‘neo-liberal’ appears to be over simplistic. Still, as will be shown in more detail in Chap. 3, the basic orientation embodied in legal principles and rules of international trade and investment law is more liberal than communitarian. In consequence, this book sometimes refers to the international economic order as a liberal one to capture this basic orientation. 22 See on the imperial and colonial history of international law e.g.: Anghie (2005). 23 Onuma (2010).

References

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References Alston P (2017) The populist challenge to human rights. J Hum Rights Pract 9:1–15. https://doi.org/ 10.1093/jhuman/hux007 Anghie A (2005) Imperialism, sovereignty and the making of international law. Cambridge University Press, Cambridge Buser A (2018) Justiciability of security exceptions in the US Steel (and other) disputes: some middle-ground options and the requirements of Article XXI lit. b (i)-(iii). https://www.ejiltalk. org. Accessed 11 Sep 2020 Domingo R (2009) The crisis of international law. Vanderbilt J Transnatl Law 42:1543–1593 Evans G, Carl N, James D (2018) Brexit: the causes and consequences of the UK’s decision to leave the EU. In: Castells M, Bouin O, Caraça JMG, Cardoso G, Thompson JB, Wieviorka M (eds) Europe’s crises. Polity, Cambridge, Medford, pp 380–404 Herwig A (2013) The WTO and the Doha negotiation in crisis? Neth Yearb Int Law 44:161–185 Ikenberry GJ (2018) The end of liberal international order? Int Aff 94:7–23 Jalloh C, Bantekas I (eds) (2017) The International Criminal Court and Africa. Oxford University Press, Oxford Jeangène Vilmer J-B (2016) The African Union and the International Criminal Court: counteracting the crisis. Int Aff (6):1319–1342 Krieger H (2017) Trumping international law? Implications of the 2016 US Presidential Election for the International Legal Order. https://www.ejiltalk.org Krieger H (2019) Populist governments and international law. EJIL 30:971–996 Krieger H, Nolte G (2016) The international rule of law – rise or decline? – Points of Departure. KFG Working Paper Series, No. 1, Berlin Potsdam Research Group “The International Rule of Law - Rise or Decline?” Krieger H, Nolte G (2019) The international rule of law—rise or decline? -Approaching current foundational challenges. In: Krieger H, Nolte G, Zimmermann A (eds) The international rule of law rise or decline?: Foundational challenges. Oxford University Press, Oxford, pp 1–30 Marxsen C (2015) International law in crisis: Russia’s struggle for recognition. German Yearb Int Law 58:11–48 Mishra P (2017) Age of anger: a history of the present. Juggernaut Books, New Delhi Onuma Y (2010) A transcivilizational perspective on international law. Nijhoff, Leiden Pauwelyn J, Wessel RA, Wouters J (2014) When structures become shackles: stagnation and dynamics in international lawmaking. EJIL 25:733–763. https://doi.org/10.1093/ejil/chu051 Rosand E (2004) The Security Council as “Global Legislator”: ultra vires or ultra innovative? Fordham Int Law J 28:542–582 Weiler J (2018) Black lies, white lies and some uncomfortable truths in and of the international trading system. EJIL 29:339–345

Chapter 2

Emerging Powers and the International Order: Outline

“We reiterate our common vision of ongoing profound shifts in the world as it transitions to a more just, democratic, and multi-polar international order based on the central role of the United Nations, and respect for international law.” (BRICS Eighth BRICS Summit, Goa, India (16 October 2016), para. 6) “We recommit ourselves to a world of peace and stability, the central role of the United Nations, the purposes and principles enshrined in the UN Charter, and respect for international law, the promotion of democracy and the rule of law. We reiterate our commitment to working together to strengthen multilateralism and promote a fair, just, equitable, democratic and representative international order.” (BRICS Media Statement: Informal BRICS Leaders’ Meeting on the Margins of the G20 Summit, Buenos Aires, Argentina (30 November 2018), para. 2.)

2.1

Emerging Powers and the International Order

The “Rise of the Rest”1 has aroused much attention of scholars from diverse disciplines around the world. While the term BRIC was coined by an economist2 most scholarship on Rising Powers, Emerging Powers, BRICS3 or whatever alternative term is used, has emerged from political scientists in the field of international relations. International lawyers have also taken notice of the phenomenon, but on a smaller scale.4 Other scholars interested in the study of emerging powers belong to

1

Amsden (2001) and Zakaria (2009). O’Neill (2001). 3 All BRICS documents cited can be accessed online at the University of Toronto’s BRICS Information Centre webpage, available at: http://www.brics.utoronto.ca/. 4 See e.g. Cai (2013), p. 756, who complains that besides a focus of contributions on what he calls “Old Great Powers” since around 2000 a dearth of literature exists on “New Great Powers”. 2

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 A. Buser, Emerging Powers, Global Justice and International Economic Law, https://doi.org/10.1007/978-3-030-63639-5_2

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diverse fields such as history,5 geography6 or philosophy.7 It appears that the phenomenon of rising powers therefore has implications for a broad variety of disciplines. For our purposes here, international law and international relations are the disciplines of most relevance. In both fields newly powerful States have sparked debate about the challenge their rise may bring for the international order; the kind of political norms and international legal rules they might favour (substantive influence); and how the international institutional order will become structured in the future (structural influence).

2.1.1

International Relations: The Broad Picture

The broader subject of emerging powers has led to numerous publications in the realm of international relations. After the short-lived unipolar period that began with the dissolution of the Soviet Union in 1991, or maybe more fittingly, the unipolar moment, scholars in the early twenty-first century began to observe the decline of the United States and the rise of several other States as important powers at the international level.8 With economic liberalization in emerging market economies beginning to ‘pay off’ in high growth rates and U.S. “adventurism”9 in Iraq and Afghanistan turning out to be costly, both financially as well as in terms of reducing U.S. legitimacy, many scholars began to support the argument that U.S. dominance was in decline and other powers were on the rise.10 Importantly, the 2008 financial crisis and the related legitimacy crisis of the international financial order further added to the decline narrative of U.S. and European dominance.11 Only one year after, BRIC and three years later BRICS (with the inclusion of South Africa in 2011) emerged as a political forum engaging in increased cooperation at the international level through regular summits, high-level meetings, and ultimately legal institutionalization with the creation of the New Development Bank and the Contingent Reserve Arrangement.12 This cooperation among major rising powers further

5

See e.g. Kennedy (1987); to some extent also: Winkler (2017). See e.g. Mawdsley (2012). 7 See e.g. Rehbein (2013). 8 See e.g. Hurrell (2006). 9 Acharya (2014), p. 107. 10 See for assessments of these shifting debates: Schweller and Pu (2011), p. 41; Acharya (2014), p. 20; Stuenkel (2015b), p. 3. 11 See on the relationship between the financial crisis, the relative economic stability in emerging economies, and the increased cooperation among and power of BRICS: Stuenkel (2015b), p. 9 et seqq. 12 See for a summary of the formation of BRICS and its history until 2014: Stuenkel (2015b), pp. 9–97. 6

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added to the impression that BRICS mattered for international politics and the time of unipolarity was over. The exact extent and speed of these power-changes is still a matter of debate.13 In more recent years, political crisis, economic slow-down, and even recession affected both Brazil and South Africa. China’s economic growth rate has slowed, and economists warn of economic bubbles that might burst in the near future. These developments may require a reassessment of forecasted growth rates and could threaten the economic and political rise of these States. Thus, some scholars already speak of the “Rise and Fall of Emerging Powers”.14 Additionally, there is no consensus on how far U.S. power has declined or will decline15 and the extent to which certain States have or will become more powerful. Nevertheless, the broader narrative that significant change has taken place within the global distribution of power among States appears to be generally accepted. While the United States in 2020 remains still the dominant player, it increasingly faces opposition from a variety of powerful non-Western States16 as well as a more assertive European Union. This shift of power is observable in many inter-State fora. One of the most prominent examples was the transition of G7 to G20 to include for the first times several ‘developing countries’ and all BRICS countries. As Ikenberry has aptly summed up: There is no longer any question: wealth and power are moving from the North and the West to the East and the South, and the old order dominated by the United States and Europe is giving way to one increasingly shared with non-Western rising States. But if the great wheel of power is turning, what kind of global political order will emerge in the aftermath?17

Globalization, as we know it today, has been made possible by U.S. military and economic dominance in the post-1991 unipolar period.18 In the cultural and economic realms, scholars even speak of an “Americanization-globalization”.19 Despite these views, as Jonathan Krishner has put it, “globalization is neither irresistible nor irreversible”.20 Earlier ‘globalizations’ sometimes ended abruptly with often

13 Cox for example argues that the alleged powershift and the decline of the West and the United States specifically is overrated. Still, he accepts that China and others play a more important role in the contemporary order, see: Cox (2012), p. 372 et seqq. and 379 et seqq. In a similar vein, Nye argues that the “American Century” is far from over and that the United States’ military, economic, and soft power continues to be far greater than even its closest competitors, see: Nye (2015); see for a more detailed assessment also Chap. 3. 14 Kiely (2016). 15 See: Monteiro (2014), p. 11, who essentially argues that the global order is still unipolar and predicts that this is not going to change in the foreseeable future; see also: Cox (2012). 16 The following works all indicate a substantial power change: Zakaria (2009), Mahbubani (2009), Acharya (2014), Reich and Lebow (2014) and Stuenkel (2016). 17 Ikenberry (2011), p. 56. 18 See e.g. Layne (2009), p. 169 et seq. 19 Friedman (2000), p. 316. 20 Kirshner (2008), p. 364.

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devastating effects on economies and ultimately global peace.21 Therefore, one of the essential questions is whether the rise of certain States and the decline of others, may reverse globalization that rests on the Trans-Atlantic alliance and its preferences. Differing arguments and much speculation exist among political scientists regarding the meaning of powershifts for the international order and its future. The following section provides a summary of competing arguments, structured along different schools of international relations scholarship.22

2.1.1.1

The Realist Perspective: Hegemonic Stability in Decline?

Realists relying on hegemonic stability theory23 often see the international system as being in danger of instability and conflict when the power of the hegemon declines and several new potential leaders strive to increase and cement their power.24 Without a single dominant leader, they contend, the international system might become unstable and rife with conflict. Some realists assume that emerging powers, which allegedly hold fundamentally different values and pursue different interests than the old powers, will challenge the principles and rules of the international order created and upheld by Western powers.25 Accordingly, some fear the breakdown of the international economic order and its achievements in terms of liberalization, ultimately leading to nationalism, protectionism and deglobalization.26 The clearest threat in that regard appears to be China. Many scholars relying on realist thinking have accused China of challenging the liberal economic order and supporting ‘market authoritarianism’.27 Further, China’s economic activities in Africa have been described as a new ‘scramble for Africa’, essentially mirroring colonial and imperial exploitation through slightly different means, including the support for authoritarian regimes, land-grabbing, and the plunder of natural resources.28 Some have contrasted Chinese ‘rogue’ development cooperation with

21

See for a historical perspective: James (2011). This differentiation and the following summary builds on existing summaries provided by: Gray and Murphy (2013); Hurrell (2017), p. 92 et seqq.; Hopewell (2016), pp. 4–7; Kiely (2016), p. 16 et seqq. 23 Hegemonic stability theory suggests that a stable international system needs a single hegemonic power to develop and enforce the (political as well as legal) rules of the system; key works developing the theory include: Kindleberger (1973), Krasner (1976) and Gilpin (1981). 24 See: Mearsheimer (2002), Haas (2008), Kirshner (2010), Bremmer and Roubini (2011) and Bremmer (2013). 25 Castañeda (2010), Patrick (2010), Bremmer and Roubini (2011) and Kupchan (2014). 26 See: Layne (2009), p. 172; Patrick (2010), p. 44 et seqq. 27 See e.g.: Rotberg (2008), p. viii; Halper (2010). 28 In that direction e.g. Navarro (2008), p. 100; for an analysis of such arguments but with a more differentiated conclusion, see: Rupp (2008), p. 79. 22

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Western aid policies, ostensibly focusing on poverty reduction, human rights, and sustainable development.29

2.1.1.2

Liberal Institutionalists

For liberal institutionalists the rise of China and others is not necessarily a threat to U.S. hegemony and the existing (supposedly) liberal system. New powers might simply be integrated and integrate themselves into the Western liberal world order.30 Underlying this observation or prediction is the view that in a globalized interconnected world all States have an interest in participating in institutional processes and in maintaining the system. As new powers are seen to have become prosperous by benefiting from the rules and practices of the international order, including for example free trade embodied in WTO agreements, they might seek a stronger voice within these structures, but preserve the system as such.31 The successful incorporation of emerging powers into the international system and into decision making processes, for example, within international financial architectures (the World Bank, IMF etc.) could even strengthen the existing system by making it more inclusive, representative, and legitimate.32 Moreover, participation and integration might secure rising powers’ continuous support for the Western influenced system. Ultimately, the rise of States from the Global South under the liberal order and their further integration may not represent the defeat of the old order but rather its ultimate success.33 However, not all scholars working from a structuralist angle share this analysis. In recent years, most likely influenced by further signs of an unfolding crisis of the international order, scholars working on global governance see and predict more systemic change within international institutions.34 These scholars agree that rising powers are unlikely to depart entirely from established international institutions but argue that they seek substantial institutional reform. In several cases demands by emerging powers, so it is argued, have led to significant distributional struggles over institutional structures and voice, and are likely to lead to further disruption and possibly reform. Regarding the preferences of emerging powers, Zürn has argued

29

For example, Hillary Clinton (then U.S. Secretary of State) during an official Africa tour in 2011, contrasted the United States’ commitment to democracy and human rights with rivalling powers’ focus on exploiting resources, see: Smith (2012); see also Council on Foreign Relations (2006), p. 40 et seqq. 30 Ikenberry (2011), pp. 57–65; Snyer (2013). 31 Ikenberry (2011), p. 57 et seq. 32 Vestergaard and Wade (2014), p. 10 et seqq. 33 Ikenberry (2011), p. 57 (“Indeed, today’s power transition represents not the defeat of the liberal order but its ultimate ascendance.”); but see a for a more skeptical perspective in a more recent publication: Ikenberry (2018). 34 See most notably: Zürn (2018), p. 180; in the same direction already: Hurrell (2007), pp. 214 and 295.

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that BRICS are united by a common antipathy to neoliberalism and a preference for what he calls “embedded liberalism”, meaning a preference for the increased regulation of financial markets and strengthened, but far from unconditional, State sovereignty.35 According to Zürn, today’s global governance crisis can be explained as an outcome of struggles between established and emerging powers. These struggles, according to Zürn, are unlikely to lead to changes of the system itself. Further, Zürn observes that only seldom were emerging powers and their concerns successfully integrated, as Ikenberry would have expected, and instead established powers have frequently turned to “regime shifting” and “competitive regime creation” in order to sidestep demands by emerging powers.36 Finally, Zürn assesses and predicts that the resulting crisis of many global institutions and ongoing shifts from multilateral- to smaller informal forums weaken the legitimacy and effectiveness of the global governance system as a whole.37

2.1.1.3

Critical Theory

Critical approaches to international relations informed by world system theory, dependency theory, and neo-Marxist theory evaluate the existing international order quite differently compared to most liberal institutionalists.38 Critical scholars tend to assume that the international capitalist system favours those that (mainly) created it—namely powerful Western States and global elites—and disadvantages the Global South, or more broadly, States on the periphery. More specifically, the existing international order is said to harm ‘the poor’—mostly located in the Global South—by upholding relations of exploitation and dominance, rooted in imperialism and colonialism. Thus, it appears only natural that an emancipatory movement might come from the Global South. However, there has been much debate among critical scholars as to whether rising powers are likely and able to challenge ‘neoliberal’ globalization and offer a more equitable alternative.39 Some critical scholars have placed the rise of States from the Global South in line with earlier attempts to change the international (economic) system, for example the Bandung Conference, the Nonaligned Movement (NAM), the Group of 77 (G77) and attempts to establish a new International Economic Order (NIEO).40 Among these scholars there seems to be some hope that rising powers

35

Zürn (2018), p. 182 et seqq. Zürn (2018), p. 193 et seq. 37 Zürn (2018), p. 194. 38 See for introductions to critical approaches on international relations: Devetak (2015) and Linklater (2015). 39 See among diverse positions taken inter alia: Arrighi (2007); Evans (2008); Gills (2010), p. 170; Golub (2013); Thakur (2014). 40 Arrighi and Lu (2011); Golub (2013); Thakur (2014), p. 1793. 36

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might overthrow, or at least reform, the international system and its underlying ‘neoliberal ideology’.41 Yet most scholars relying on critical theory are sceptical. Rather than delivering on the promise of the anti-colonial struggle, “re-emerging States of the global South” are seen to have taken a central place in the world capitalist system, gaining voice and equality within the system, but not to challenge or reform it substantially.42 Rising powers driven by their capitalist elites may blur the NorthSouth divide only on a very limited scale, leading to a truly global capitalist class, but no broader redistribution of wealth.43 Overall, it appears that only a few critical scholars assume that rising powers from the Global South are or will become agents of emancipatory change. This perspective is in line with some liberal institutionalists’ assumptions surrounding the ultimate success of the liberal international order. Of course, the normative evaluation of that outcome fundamentally differs. Other critical scholars’ observations and predictions are more in line with realist thinking. Some Marxists and other scholars building on critical theory seem to fear that increased competition among capitalist States might lead to aggressive imperialist rivalries.44 Accordingly, the existing (economic) international order must not fear an emancipatory movement, but rather a clash of capitalist States all striving for supremacy, potentially leading to protectionism, disintegration, and ultimately, military conflict.

2.1.2

Approaches by International Lawyers

In a system that relies on sovereign equality as a fundamental principle, power differentials are supposedly of no concern, even if they factually matter a great deal. Based on that perception, shifts in power among States appear to be the domain of political scientists, not lawyers. Nevertheless, a number of twentieth century international lawyers have occasionally discussed the significance of the relationship between great powers and international law.45 Most notably, Grewe clearly acknowledged that great powers influence international law in various ways. In fact, he has qualified the different epochs of international law’s history according to the respective dominant great power, including the “Spanish Age” (1494–1648), the “French Age” (1648–1815), the “British Age” (1815–1919) and the “Age of

41 Arrighi (2007), p. 379 et seqq. (who inter alia argues that the ascent of China might lead to “greater equality and mutual respect among peoples”). 42 See for the quote and the argument e.g. Golub (2013), p. 1012 et seq. 43 On this note see, Evans (2008), p. 284 et seq. who accordingly questions that China will become an agent of a global emancipatory movement. 44 See in this vein: Callinicos (2007), p. 22; see for an analysis of the argument also: Kiely (2015), p. 18 et seq. 45 See: Triepel (1961) (first published in 1938); Mosler (1949); Abendroth (1960).

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American-Soviet Rivalry and the Rise of the Third World” (1945–1989).46 In each period, so his argument purports, international law was shaped by the preferences of the respective great power or competition among several of these powerful actors. Though this periodization certainly simplifies the complex and diverse impacts various States had on international law’s evolution,47 it nevertheless helps to grasp what may be called the ‘bigger picture’ underlying international law’s basic orientation in respective periods. With this periodization in mind, in which epoch is international law today? The most recent English edition of Grewe’s “Epochs of International Law” includes an epilogue on the period post 1990 entitled “An International Community with a Single Superpower”.48 Other legal scholars analysed in more depth what the advent of the United States as a ‘single superpower’ could mean for international law.49 Byers and Nolte importantly built upon Grewe’s work and sought to answer the question, “whether the current predominance of the United States is leading to foundational change in the international legal system – and if so, how?”50 Collected papers in their edited book, however, provide diverse and ambiguous answers to that question, making it “impossible to draw firm conclusions”51 for the editors. Nevertheless, the work also demonstrates the importance of studying the interrelationship between great powers and international law more closely. This general assumption has become of even more prevalence in a time when the single superpower is not so lonely anymore. Based on the observation that unipolarity is over, international lawyers have begun to assess the rise of other powers and its possible meaning for international law. While some have complained of a dearth of legal literature on “New Great Powers”,52 a closer look reveals that quite a number of publications in some way or the other cover changing power relations. Still, only a few legal scholars have examined the phenomenon of emerging powers and its possible impact on international law in more depth and on a broader scale.53 Numerous other limited studies exist on power changes and their meaning for individual States (limited-actor studies), limited areas of law (limitedsubject studies), or a combination of both (limited-actor and limited subject studies). Limited-subject studies for example exist in the areas of environmental law,54 Grewe (2000). The first complete German version was published in 1984 and Grewe had completed an early manuscript already in 1943. 47 For example, Grewe does not discuss the influence of Germany and its influential writers on international law and also omits any inquiry into the role of less powerful Southern States. See on the latter argument: Becker Lorca (2014); for other points of critique, see: Koskenniemi (2002). 48 Grewe (2000), p. 701 et seqq. 49 See e.g. the insightful collection in: Byers and Nolte (2003). 50 Byers and Nolte (2003), p. xv (preface). 51 Nolte (2003), p. 513. 52 Cai (2013), p. 756. 53 See: Fidler (2005), Stephan (2009), Cai (2013), Sornarajah (2014), Burke-White (2015), Rolland and Trubek (2019) and Cai et al. (2020). 54 Maguire (2013). 46

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intellectual property law,55 and investment arbitration law.56 Limited-actor studies (often also limited to a narrow subject) mainly cover China,57 with only a very limited number of contributions assessing India58 or Brazil.59 A dearth of literature exists on South Africa.60 Some limited-actors studies also exist on Asia as a region.61 Below follows a review of studies that take a broader perspective and provide arguments on the changing structural side of international law making and/or the consequences of powershifts on the content of international law.62

2.1.2.1

Historical Departure: Europe and the United States as (Former) Hegemons

Most, if not all, legal studies that focus on the impact of changing power structures, more or less agree that historically European States, and later the United States, strongly influenced the development of international law in the form of which it stands today. Unsurprisingly, critical scholars affiliated with TWAIL start from that assumption. These scholars have long highlighted the influence of hegemonic powers on international law and their usage of legal instruments to secure interests and legitimize actions or omissions.63 Accordingly, Sornarajah starts his paper on “The Role of the BRICS in International law in a Multipolar World” from the assumption that the world order created by the United States and European countries “was an unjust order catering to the interests of the very few, to the disadvantage of the many, both domestically and internationally”.64 Examples given include the alleged misuse of the concept of humanitarian intervention, the promotion of ‘Washington Consensus’ type policies through IMF and World Bank loan conditionality (with often detrimental impacts on local societies), the establishment of an “unjust trade regime” under the WTO and through the successful promotion and conclusion of “unequal” investment treaties.65 55

Yu (2008) and Abbott et al. (2014). Papa (2014). 57 See, e.g.: Peerenboom (2006), Hsieh (2010), Ofodile (2013), Hadley (2013), Picker et al. (2015), Shaffer and Gao (2018) and Cai (2019). 58 Shaffer et al. (2015); See to some extent also the contributions in: Sornarajah and Wang (2010). 59 Shaffer et al. (2008); To some extent related to power changes also: Trubek et al. (2014) and Ratton Sanchez Badin and Morosini (2014). 60 While there are some studies on South Africa’s approach to some areas of international law, e.g. Schlemmer (2016), there are none that connect these issues to global shifts in power between States. This is most likely due to the prevailing thinking that South Africa has not really become a newly powerful State, at least not comparable to China and traditional Great Powers. 61 See e.g. Chesterman (2017). 62 More specific studies will be taken into account in Chaps. 5 and 6. 63 Anghie and Chimni (2003), Chimni (2006), Anghie (2007) and Chimni (2007, 2013). 64 Sornarajah (2014), p. 294. 65 Sornarajah (2014), p. 291 et seqq. 56

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Most other (non-TWAIL) studies avoid such a strong normative judgement. However, it is interesting to see that they essentially share the narrative of a strong European and later U.S. influence on international law. Drawing on periodization of international law by Grewe,66 Fidler characterizes the nineteenth century as the European and the twentieth as the U.S. American and analyses what a corresponding Asian twenty-first century might mean for international law.67 Stephan starts from the assumption that the end of the Cold War enabled the United States to impose its Washington Consensus policies on the rest of the world. Moreover, he describes the period of “Pax Americana” to have led to “growth in the responsibilities and scope of international organizations, the proliferation of legal claims about international human rights as a broad foundation for international relations, and an increased commitment to economic liberalization.”68 Similarly, Burke-White and Cai start from the narrative that great powers—the United States and some European countries—have dominated the international legal system, at times independently and at times collectively.69 For international economic law, Rolland and Trubek argue that underlying the legal economic order is a truce to be characterized as “embedded neoliberalism”. Accordingly, international economic law was designed for capitalist market economies (from the Global North) but through “exceptions, avoidance and evasion” which allowed for differently organized States to join—coupled with the expectation that China and others would eventually accept “free capitalist market organization”.70 Building on these only slightly differing starting points, all studies assume that the time of the United States acting as the sole superpower—at times in concert with important European States—is over. As Burke-White put it “[t]he era in which the United States and Europe together could steer the international legal system has passed.”71 All studies observe and predict changes in international structures and the substance of international legal regimes.72 At the same time, scholars mostly agree that despite the decline of the United States as the sole superpower, it remains one of the most important, if not the most important, international actor for the foreseeable future.73 However, different views exist on the question of what this might mean for international law-making processes and the substance of legal regimes. 66

Grewe (2000). Fidler (2005). See on the idea that international law may enter an Asian Century also: Onuma (2010), p. 104. 68 Stephan (2009), p. 112. 69 Burke-White (2015), p. 1 et seqq. and 4; Cai (2013), p. 757 et seqq. 70 Rolland and Trubek (2019), p. 3. 71 Burke-White (2015), p. 2. 72 Stephan (2009), p. 91 et seq.; Fidler (2005), p. 19 et seq.; Sornarajah (2014), p. 295 et seqq.; Cai (2013), p. 756 et seqq. 73 See explicitly: Gordon (2009), p. 161; Fidler (2005), p. 26 et seq.; Burke-White (2015), p. 8 (“[. . .] the United States will be able to maintain the freedom it enjoyed as hegemon, even as its hegemony declines. The United States remains comparatively well-placed to build coalitions of different subsystems that advance its interests.”). 67

2.1 Emerging Powers and the International Order

2.1.2.2

17

Relevant New Actors

Individual studies assessed are based on slightly differing assessments of which States are the newly important actors. The BRIC(S) acronym is very influential in international legal scholarship, while other States (e.g., MINT comprising Mexico, Indonesia, Nigeria and Turkey) are seldom, if at all, included in assessments. Trubek, Sornarajah and Cai explicitly focus on BRICS States.74 In their recent work on emerging powers, Rolland and Trubek mainly examine the practices of Brazil, China, India, and South Africa and only seldomly take into account other States or regions.75 In a similar vein, Burke-White includes BRIC countries (excluding South Africa) in his list of “most powerful States”, alongside the United States and “Europe” (sic).76 He also assumes that leadership is not limited to these States, but that a larger group of countries, including Australia, Canada, Indonesia, Mexico, South Africa, South Korea, and Turkey, may serve as “hubs” on an issue-specific basis, that is, “leading international legal processes or articulating preferences that attract followers and alter substantive norms”.77 Other studies mostly focus on Asian States,78 or, more broadly, on States from the Global South without further specification.79 Clearly, as in international relations scholarship, many scholars see China as the most likely candidate to act as the next major powerful actor in shaping international law—at present and in the future. All studies also regard India and Brazil, and to a lesser extent South Africa, to be of high relevance, at least in areas where they have particular preferences, economic interests and power, or are relevant for other reasons, such as their huge impact on the climate.80 However, none have gone so far as to speak of a new African or South-American, let alone Brazilian or SouthAfrican world order, whereas some qualify the twenty-first century as the Asian century.

74

Trubek (2012); Sornarajah (2014); Cai (2013), p. 758. Rolland and Trubek (2019). 76 Burke-White (2015), pp. 26 and 47 et seqq. 77 Burke-White (2015), pp. 6 and 27 (Burke-White describes the “multi-hub” system as follows: “[. . .] in the newly emerging multi-hub structure a growing number of States play issue-specific leadership roles in a more flexible and fluid system. In the right circumstances, many different States can act as hubs, leading international legal processes or articulating preferences that attract followers and alter substantive norms. In other circumstances, those same States may follow the lead of others.”). 78 Fidler (2005) and Posner and Yoo (2006). 79 Gordon (2009) relies on notions of a rising Global South as such and only occasionally makes references to individual countries or country groupings. 80 See e.g.: Burke-White (2015), p. 2. 75

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2.1.2.3

2 Emerging Powers and the International Order: Outline

Structure: Concert of Asia, Parallel Orders, International Anarchy, Regionalism, and/or a Multi-Hub System?

Regarding the processes of international law-making and international law’s structure (e.g., universalization vs. regionalization), arguments by international law scholars differ substantially. While all scholars essentially agree that the United States and some European countries will remain relatively powerful to an extent and that emerging powers may not impose their will on others, scholars disagree on what this means for international law’s structure and political processes of law-making. Fidler essentially makes the point that China and India will not rise in power to an extent that they can impose their will on the rest of the international community and therefore are neither capable nor willing to use “the strong-arm tactics used in the Europeanisation of international relations in the 19th century.” Therefore, he argues that the Asian Century will not mirror the European century.81 Instead of Asia emerging as a hegemonic region or China and/or India replacing the United States as the single “hyperpower”, Fidler envisions Asian countries working together—in what he calls “a Concert of Asia”—“to create a new legal and governance order unlike anything seen before in international relations”.82 However, he expects this new legal order to be limited geographically to the Asian region. Stephan also takes up this regionalization argument (or parallel-order argument). He essentially argues that international law in times of hegemony tends towards universality, while in periods of “multipolar great power competition” it tends towards selectivity.83 In times of more symmetrical relations among several great powers, so the argument goes, each great power tries to promote its own vision of international law. The resulting competition between different visions of international law is likely to lead to conflicts. This assumption resembles realists’ arguments based on hegemonic stability theory presented above. Moreover, as conflicts are supposedly irreconcilable among equally strong great powers, this stalemate is expected to lead to selectivity. As Stephan puts it, “a single superpower will promote a single universal vision of the law”,84 whereas when “multiple Great Powers coexist in a world of rational actors, we should expect conflicting claims about the content of international legal obligations and a more limited scope for international organizations.”85 Stephan remains unclear about the exact outcome of these conflicts. The “new international system” may “develop into the kind of great power concert that characterized the latter part of the nineteenth century and the first decade of the twentieth, or instead a less-stable kind of international anarchy”.86

81

Fidler (2005), p. 26 et seq. Fidler (2005), pp. 20 et seq. and 31 et seqq. 83 Stephan (2009), p. 92. 84 Stephan (2009), p. 107. 85 Stephan (2009), p. 101. 86 Stephan (2009), p. 117. 82

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19

Cai’s paper on “New Great Powers and International Law in the 21st Century” also argues that the international legal order will become more fragmented and regionalized. However, in contrast to Fidler, Cai does not predict an alternative regional Asian order. Based on his assumption that Old Great Powers87 are still powerful international actors and are expected to remain in that position in the foreseeable future, Cai observes a trend towards regionalism and fragmentation, exemplified in the increasing numbers of bilateral and multilateral Free Trade Agreements.88 Importantly, Cai notes that the fragmentation caused by the rise of New Great Powers appears inside the existing international order and is only a “shift of forum” rather than an alternative international order.89 In slight contrast to the fragmentation, regionalization, and parallel orders argument, Burke-White rejects the argument of a multipolar structure or a concert of some powerful States. Instead, he argues that international law is transitioning towards what he calls a “multi-hub system”.90 This multi-hub system is expected to be “more flexible and fluid” than a multipolar system.91 In this system, power is diffusely shared by a number of significantly powerful States (power is diffuse), States often have relative advantages regarding different types of power (power is disaggregated), and many States have power advantages over others on an issuespecific basis (power is asymmetrically distributed).92 Still, consistent with the fragmentation and regionalization argument, Burke-White also predicts that processes might migrate from the international universal level to “separate, but flexible, subsystems”.93 Chesterman notes a “probably irreversible” and considerable shift of power towards Asia in general, and China in particular, leading to a multipolar international order.94 He then evaluates three possible futures for international law and its institutions: “maintenance of the status quo, divergence in international rules and institutions and the possibility of convergence.”95 Chesterman mostly rejects regionalization and parallel order arguments, but sees some limited evidence for both in particular issue areas.96 In the end, Chesterman mainly predicts convergence, with the increased participation and representation of some powerful Asian countries within existing institutions of global governance.97

87 Cai equates Old Great Powers with the G-7, namely France, Germany, Italy, Japan, the UK, the United States, and Canada, see: Cai (2013), p. 758. 88 Cai (2013), p. 771 et seq. 89 Cai (2013), p. 772. 90 Burke-White (2015), p. 6. 91 Burke-White (2015), p. 6. 92 Burke-White (2015), p. 5 et seq. 93 Burke-White (2015), p. 5. 94 Chesterman (2017), p. 967. 95 Chesterman (2017), p. 967. 96 Chesterman (2017), p. 970 et seqq. 97 Chesterman (2017), p. 973 et seqq.

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Finally, Rolland and Trubek reject autarky as a likely alternative to hegemonic international economic governance because of the high degree of economic interdependence today.98 Aside from that limited prediction about how the international economic system will not be they strongly argue how it should be, namely not anarchic but pluralistic in structure.99 According to them, such an institutionally pluralist structure would look “to regional groupings and plurilateral agreements among consenting states to bear more of the burden of transnational regulation while also making room for private ordering”.100 It would guarantee regional pluralism, that is regimes would eschew aspiration to universal membership, and topical pluralism, meaning the conclusion of ad hoc agreements on specific topics rather than “deep integration” treaties with a broader scope.101

2.1.2.4

Substance: Rejection, the Return of the State or Substantive Pluralism?

Now what kind of norms will newly powerful States prefer in their separate subsystems, parallel orders, alternative forums and/or which changes do they foresee for the existent legal regimes? Will these systems differ markedly from the old global order and existing regional systems? Will the new actors challenge existing principles and values of the established international legal order? Fidler does not predict his envisioned new Asian legal order to mirror the twentieth century U.S. order. At the same time, he argues that neither China nor India “provide the world with ideological contributions that fundamentally challenge the triumph of liberal ideology in the wake of the end of Cold War”.102 Fidler also denounces arguments that an inherently “Asian way” as he states, may emerge, arguing that “[t]he “Asian way” implies deep ideological and cultural solidarity in Asia that does not in fact exist.”103 In essence then, Fidler only provides an answer to what the Asian century will not bring for international law, namely cultural challenges and ideological conflicts. In a similar vein, Chesterman rejects the idea of a singular Asian view of the world. Instead, he argues that Asian States do not offer radically different approaches to global governance and its norms.104 Many Asian States’ traditional view of sovereignty may slow down the expansion of some norms, like human rights, but this is unlikely to reverse these sets of norms completely. Instead, the convergence of

98

Rolland and Trubek (2019), p. 193. Rolland and Trubek (2019), p. 191 et seqq. 100 Rolland and Trubek (2019), p. 197. 101 Rolland and Trubek (2019), p. 199. 102 Fidler (2005), p. 27. 103 Fidler (2005), p. 27. 104 Chesterman (2017), pp. 957 et seqq. and 978. 99

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States’ approaches to international law, and international law’s adaptation to interests of Asian States, will lead to “evolution rather than revolution”.105 In stark contrast, Gordon envisions “Southern Tier, middle-income nations” to take up former calls for a New International Economic Order (NIEO)106 and radically reform unfair international economic law, that “strangle[s] low-income nations”.107 In her opinion, the rise of “nations that were themselves formerly subjected to colonialism and other forms of economic or political domination” governed by “people of color” might bring a “New New International Economic Order” with broad (positive) implications for poor States and poor people of colour globally.108 Gordon hopes that policymakers “who share memories of colonialism and domination might be more sympathetic to the very poor nations of the world”.109 Like Gordon, Sornarajah highlights that rising Southern powers share experiences of colonialism and subjugation by dominant powers and were members of emancipatory movements like the Non-Aligned Movement (NAM).110 Consequently, he argues—or at least hopes—that BRICS might revive the NIEO spirit to create a fresh political and economic order and oppose domination by the West.111 Only this time BRICS as an economically powerful coalition may be able to exert enough pressure to bring about real changes to the benefit of the Global South more broadly.112 Together with an appeal to “principles of justice”, they might even overcome opposition from a still dominant United States.113 Sornarajah then briefly analyses five areas of international law where BRICS might pursue common legal goals. These issue areas include international trade, the international financial architecture, international security and the use of force, environmental issues, and foreign investment.114 A common point Sornarajah makes in all these areas is that BRICS’ preferences align with the interests of developing countries more broadly and if implemented would increase international law’s legitimacy and ability to deliver justice. Examples include the successful and meaningful conclusion of the Doha Development Round in the WTO, changes in the governance of the international financial architecture, and resistance to interventionist and often misused legal concepts like humanitarian intervention.115

105

Chesterman (2017), p. 978. See in more detail on the NIEO: Chap. 3, part 3.2. 107 Gordon (2009), p. 132. 108 Quotes taken from Gordon (2009), p. 132. 109 Gordon (2009), p. 162. 110 Sornarajah (2014), p. 295 et seq. 111 Sornarajah (2014), p. 296; see also but less ‘romantic’ and more ‘realistic’: Sornarajah and Wang (2019). 112 Sornarajah (2014), p. 298. 113 Sornarajah (2014), p. 290. 114 Sornarajah (2014), p. 297 et seqq. 115 Sornarajah (2014), p. 297 et seqq. 106

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Many TWAILers and other critical scholars, however, do not share this normatively positive assessment. The Indian scholar Chimni for example provides a quite different argument based on his Class Approach to International Law.116 According to him, the economic rise of some emerging powers does neither prove the justice of existing international economic law, nor does it reflect a transformation of international economic law.117 Instead, he provides an “alternative explanation”: An alternative explanation is the changing nature of imperial social formation through the emergence of a transnational capitalist class, consisting of fractions of capitalist classes from the developed and developing world that together gain from the globalization process. It explains why, despite the growth rate in the emerging economies, millions of peoples still live below the poverty line and the fact that inequality is growing in them.118

Related, but less critical, Trubek also departs from a critical assessment of international economic law, which allegedly is tilted in favour of neo-liberal approaches limiting the ability of developing States to carry out development policies that worked in the past.119 Trubek assesses the likely impact of the rise of the BRICS on international economic governance related to development issues. According to him, the rise of BRICS may change the international economic legal order in a way that provides “some relaxation of the constraints on regulatory autonomy and more acceptance of alternative development strategies.”120 He observes that BRICS relied on State activism and alternative development strategies in their development path; that they have achieved increased voice in international organizations, including the World Bank and IMF, and global summits, such as the G-20 forum; and that they have built up their capacity to use international economic law in their interest. Based on these observations, he concludes that emerging powers have indeed contributed to challenging the hegemony of neo-liberalist thinking.121 In his view, these developments prove that critical assessments of the international economic order are wrong—or at least overly pessimistic—as emerging countries have found ways to influence the rules of the game and shape international economic law to create more leeway for their preferred economic policies.122 Based on further research, Rolland and Trubek conclude that the end of U.S. hegemony could lead to a normatively pluralist order. Such a system would lack a single normative order, would be “sensitive to different normative and strategic views”, and would not seek to impose a “one size fits all” approach

116

Chimni (2010); see also: Chimni (2004) and Chimni (2017), pp. 440–550. Chimni (2013), p. 269 et seq. 118 Chimni (2013), p. 269 et seq. 119 Trubek (2012), p. 2 (Note that Trubek does not fully embrace that narrative himself, rather he summarizes and departs from that critique). 120 Trubek (2012), p. 5. 121 Trubek (2012), pp. 5–7. 122 Trubek (2012), p. 11. 117

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regarding international economic governance.123 According to them, emerging economies reject international rules that purport the standard model of a market economy and seek to preserve their policy space to progress different economic strategies. Given the authors’ assumption that international economic law already rests on a factual truce between established and emerging powers they predict that the latter would want to “transform it [the factual truce] into new de jure rules that were more accepting of different forms of economic organization” and which balance needs for flexibility, freedom of policy choice, and market access.124 As far as other perspectives go, Cai highlights the potential of NGPs to challenge the existing international order and the lack of legal norms that could regulate or restrict such challenges.125 In particular, Cai asks whether “authoritarian NGPs – China and Russia – [might] challenge the global liberal democratic order?”126 Challenges identified are the fragmentation of international law and what Cai calls “the crisis of modernity of international law”.127 As such, he mainly identifies contestations between New- and Old Great Powers over liberal free trade and investment protection, but one might extend the argument to human rights and other areas where competing values and ideologies exist. Cai also observes “positive potential for international law flowing from the rise of NGPs”, namely the potential to address what he describes as the “development deficit” and the “democracy deficit”—meaning equality and equal voting by States, not to be confused with democracy as a requirement for domestic political systems— of traditional international law.128 Like Gordon, Cai argues that NGPs, due to their historical experiences, may be more sensitive to developing country interests,129 and also speaks of a “New NIEO”.130 Briefly analysing BRICS State initiatives in international investment and trade law, he brings forward several examples indicative of what he considers to be “more development friendly legal provisions”.131 Based on the example of investment protection he argues that with increasing investment flows from NGPs to OGPs, both groups of States may have an interest in increasing States’ policy space available under the law of international investment protection. Consequently, the “New NIEO” may pursue the “common development” of all States instead of “unilateral development” of developing States, and its establishment “may see more cooperation and less confrontation between developed and developing States”.132

123

Rolland and Trubek (2019), p. 197 et seqq. Rolland and Trubek (2019), p. 198 et seqq. 125 Cai (2013), p. 766. 126 Cai (2013), p. 767. 127 Cai (2013), pp. 770–774. 128 Cai (2013), p. 775 et seqq. 129 Cai (2013), p. 775 et seqq. 130 Cai (2013), p. 779. 131 Cai (2013), p. 778 et seqq. 132 Cai (2013), p. 780. 124

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2 Emerging Powers and the International Order: Outline

Cai then continues with a case study of China’s latest international legal policy and practice related to military intervention, investment treaties, and human rights.133 With regard to these three areas he does not observe major challenges of existing norms, but rather concludes that China is gradually embracing established norms, only adapting them to different local circumstances.134 In a similar vein, and in line with the arguments of Fidler and Chesterman, BurkeWhite argues that rising powers are “not attempting to wholly destroy the edifice of international law nor even rejecting international law per se. Rather they are seeking to adjust the system from within and to make contemporary international law more compatible with their own preferences.”135 According to Burke White, these preferences might add to the diversity and “substantive pluralism” in international law and are mostly based on a reassertion of the role of the State.136 More concretely, he observes that China and Russia favour an absolute understanding of State sovereignty; that Brazil, China, and India tend to favour an input and process oriented legitimacy understanding, in contrast to an output-oriented understanding attributed to the United States and Europe; and that Brazil, China and India also favour a strong role for the State in economic development. Accordingly, he predicts that the new international system will move away from an emphasis on the role of individuals championed by the United States and Europe, back toward the Westphalian origins based on State sovereignty and non-intervention in internal affairs.137 On international economic law, Burke-White concludes that Brazil, India and China “do not seek to overturn the international economic order itself, but they do have common interests in adapting it to their preferences for State-led economic development”.138 Although Burke-White goes into considerable depth analysing the preferences of four rising powers (Brazil, India, China and Russia) he concedes that “[u]ltimately a booklength treatment is necessary.”139

2.1.3

Evaluation: Power Is Shifting But Many Questions Remain Open

Political scientists, and to a lesser extent international legal scholars, have already provided numerous accounts of ongoing powershifts among States and their significance for international relations and international law. While some controversy exists among political scientists as to which countries are the most likely candidates 133

Cai (2013), p. 787 et seqq. Cai (2013), pp. 787–795. 135 Burke-White (2015), p. 4 (emphasis in the original). 136 Burke-White (2015), pp. 5 and 47 et seqq. 137 Burke-White (2015), p. 47 et seqq. 138 Burke-White (2015), p. 70. 139 Burke-White (2015), Fn. 32. 134

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for great power status and on the extent of a decline in power of the United States, most scholars agree that significant powershifts are ongoing. Both political scientists and international lawyers most often use the BRICS acronym to refer to rising powers, despite the obvious disparity of power and economic potential among its members. Questions addressed by both political scientists and lawyers are diverse. Ultimately, most approaches focus on one fundamental but broad question: What kind of global political and legal order will emerge after the unipolar moment of the United States? Answers provided by political scientists are quite diverse, even within particular schools of thought. From a legal perspective it looks quite similar. While many predict some form of regionalization and fragmentation, few predict the emergence of a sort of completely parallel order. Overall, the system might become more flexible with different States acting as hubs, or at least a greater number of poles (great powers) that compete for influence and offer alternative visions and legal norms (pluralism). Regarding substance, many scholars thus far assume that emerging powers favour a conservative understanding of sovereignty. In the economic sphere a State centred model of development—prevalent in several BRICS States—may challenge the liberal market-based orientation of international trade, investment and financial law. Normative evaluations of ongoing powershifts and their outcomes differ strongly and often—but not always—relate to competing schools of thought.

2.2

Outline of the Book

As has become obvious, numerous questions regarding the phenomenon of rising powers both in the field of international relations and international law remain for closer study. The following paragraphs seek to outline the focus of this book and to elaborate on the methodology used.

2.2.1

Who Are the Relevant Actors?

This study, as its title indicates, focuses on emerging powers. The terms ‘emerging power’ and ‘rising power’ are used interchangeably here as they essentially capture the same phenomenon, the increased importance of several States within the international legal order. But what are the emerging/rising powers that have become more important? First of all, one must note that no universal definition of rising powers or emerging powers exists and that there are also no clear-cut criteria for established great powers to fulfil. We will come back to power and efforts to evaluate and classify the individual power of States in Chap. 3, but for now it shall suffice to explain why this study focuses on Brazil, India, China and South Africa, but excludes Russia.

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2 Emerging Powers and the International Order: Outline

As seen above, the BRICS acronym has often been used by scholars working on the phenomenon of changing power dynamics. This is despite the fact that BRICS States are actually very diverse, be it with regard to their political and economic system, history, economic importance, or other factors.140 Still, there are some important unifying elements. Importantly, BRICS have managed to create a highlevel governmental forum aimed at increasing cooperation among its members.141 Moreover, the grouping includes the most likely candidates for the status of new great powers, namely China, India, and Brazil (in descending order). From a critical perspective it has further been highlighted, that Brazil, China, India, and South Africa share histories of (quasi-) colonization, subjugation, and marginalization; or at least experience notions of historical injustice and non-recognition. Although this historic legacy is complex, it must be noted that these States stand in a tradition of Third World resistance and efforts to install a NIEO, at least according to their self-perception. While Russia is a member of the official BRICS the Russian perspective has often been neglected in studies about emerging and rising powers. This could be a reason to do further research on Russia’s role in the grouping and more generally on its role in the international legal order.142 However, for various reasons, Russia does not qualify as an emerging power in the sense used in this book. First of all, this study is primarily interested in content changes in international law that might be caused by shifts in power. In particular it asks about the consequences for legal regimes stemming from the increasing power of former developing countries. Russia is no emerging power or new great power in the stricter sense. It has never been characterized as belonging to the group of developing countries. While Russia to some extent re-emerges in a geopolitical sense and shows allures to regain Soviet spheres of influence, it has never been completely absent from the ranks of great powers. Of course, the territories of China, and parts of India and Brazil also belonged to huge empires in the past—the Moghul Empire and the Inka Empire respectively—but that past is so distant that it makes much more sense to refer to them as today’s emerging powers than in the case of Russia. One may argue that Russia is also on the rise. Nevertheless, Russia is no new great power, but rather an old great power reasserting itself. Secondly, it bears mention that the influence of power is best assessed in particular issue areas, rather than the broader overall power structure, as a State’s power can significantly vary from issue to issue.143 This issue sensitive perspective suggests that Russia, particularly in the economic realm, should not be considered a

140

See in more detail Sect. 3.3. On the question of how domestic factors shape emerging powers international trade policy see: Mahrenbach (2013). 141 See in more detail Sect. 3.3. 142 See for existing studies on Russian approaches to international law: Mälksoo (2015) and Schweisfurth (1979). 143 Keohane and Nye (2012), p. 32 et seqq.; Lesage and van de Graaf (2015), p. 5; Zürn (2018), p. 178.

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rising power. What Brazil, India, China, and to a lesser extent South Africa, share is a common legacy of quick economic rise in the last two decades (despite some setbacks in recent years) and perhaps, most importantly, the potential to rise further. This is why China, South Africa and Brazil, despite economic slow-downs, can still be seen as rising powers, whereas Russia lacks the economic dynamism to be qualified as such a power.144 In particular, in the issue areas of trade and investment, which shall be the subject of Chaps. 5 and 6, Russia is of minor relevance compared with other BRICS countries. The study could of course include further States which have experienced economic growth and have the potential to become more important actors internationally, such as Indonesia, Mexico, or Turkey. However, for matters of diversity, focusing on Brazil, India, China, and South Africa appears as a simple but wellpicked choice. In that way the major regions of the Global South (Africa, Asia, and Southern America) are represented. The fact that Asia is represented by two States can be justified as China and India are the most likely candidates for great power status in the near future. Finally, the focus on the four States of Brazil, India, China, and South Africa can be explained by their self-affiliation within the BRICS forum, which presents an alternative to the established powers’ club structures, for example the G-7. In this way, and despite the exclusion of Russia, we can also take account of the workings within the BRICS forum, and in particular, common Statements and other official published documents, which reveal common positions and approaches on the international economic legal order.

2.2.2

A Common Legal Agenda? Why a Comparative Study of Rising Powers’ Legal Positions Is Valuable

Despite their diverse political, economic and cultural backgrounds, rising powers have engaged in several common projects, like BRICS and the India, Brazil, and South Africa Dialogue Forum (IBSA).145 The emergence of BRICS as an informal international body illustrates the fact that BRICS has developed from an acronym used to describe lucrative investment destinations146 towards an assertive collective geopolitical platform.147 Moreover, the BRICS forum, backed by the assembled power of Member States, may be seen as a “hub” (to put it in the words of BurkeWhite148), that presents and promotes common (legal) positions.

144

Cf. Zürn (2018), p. 190. See on the IBSA Forum: Stuenkel (2015a). 146 O’Neill (2001). 147 Kiely (2015), p. 16. 148 Burke-White (2015), p. 6 et seqq. 145

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Although BRICS was not established as an international organization itself, it has become more institutionalized with the creation of the New Development Bank (NDB) as an international organization,149 and the Contingent Reserve Arrangement (CRA), which has no individual legal personality but was established through an international treaty.150 Drawing on these coalition building efforts it has been convincingly argued that BRICS as a governmental forum “operates as an entity with an ambition to reform global regulation.”151 Therefore, the third chapter and subsequent chapters occasionally include in-detail analysis of BRICS conference outcome documents. This shall suffice to provide initial insights on common positions. Yet, as we will see, the common agenda on international (economic) law, as expressed in common statements, has not emerged in sufficient detail to make a concise argument. That is why an analysis of individual approaches of emerging powers and also common Statements and negotiation positions in other fora will be taken into closer consideration.

2.2.3

Emerging Powers as Promoters of Global Justice in International Economic Law? Self-Qualification and Scholarly Assumptions

BRICS nations repeatedly present themselves as defenders of the interests of developing countries in international forums and in their common statements, some of which have been cited at the beginning of this chapter. These statements speak of a new multipolar world, democracy, the rule of international law, justice, and an increased participation and representation of developing countries.152 The following chapters seek to test that self-qualification and rhetoric, and for that reason connects debates on rising powers with debates on global justice. International economic law has long been subject to diverse criticism for its distributional outcomes.153 Simply put, the Global North has been described as the home of evil capitalist elites, which singly or in cooperation with their Southern counterparts exploit the working force and natural resources of the Global South for its own benefit. International economic law has been depicted to have secured and legitimized that practice and sometimes is even accused of directly harming the

149

Agreement on the New Development Bank, Fortaleza, Brazil (15 July, 2014). http://ndbbrics. org/agreement.html., Article 29. 150 Treaty for the Establishment of a BRICS Contingent Reserve Arrangement, Fortazelaza, Brazil (15 July 2014), Article 19. 151 Papa (2015), p. 17. 152 See in more depth Sect. 3.3.2.1. 153 See in more depth Chap. 4.

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Global South’s poor.154 Accordingly, international legal obligations are said to limit developing country developmental policy space restraining those states from climbing up the “ladder” of socio-economic development.155 The economic rise of some States from the Global South and their increasing cooperation in the forum of BRICS brings some revolutionary potential to this issue. Due to their increased economic size, rising powers’ actions and omissions have important ramifications for poverty both domestically as well as internationally. Brazil, India, China, and South Africa have not only substantially increased their GDP numbers, but have also been praised for their successes in reducing poverty domestically.156 Moreover, to some extent, emerging powers have already become emerging outward investors, emerging trade powers, and emerging donors.157 These activities are likely to affect the socio-economic development of their own, as well as other States’, populations. International treaties and other sources of law governing these activities should therefore be put under increased scrutiny from a justiceoriented perspective. As seen above debates surrounding emerging powers are often—sometimes explicitly, but mostly implicitly—connected to normative questions. Some realists clearly fear that the rise of authoritarian States may lead to a break-down of the supposedly good and relatively stable existing order. Liberalist institutionalists instead either hope that rising powers integrate themselves into the good liberal world order or predict some reforms which may lead to a correction of neo-liberal excesses. Critical theory in contrast evaluates the current order’s justice quite differently and accordingly rising power integration in the existing system may be seen as a threat rather than a wishful outcome. Other critical scholars hope that rising powers may challenge the existing order ultimately leading to a reform which may make it more just towards the Global South. Yet, they could also imagine that rising powers combine the worst parts of capitalism and an authoritarian State model to make the existing order even worse. Among legal scholars, some express the hope that the rise of the Global South, associated with rising powers, will lead to a reassessment of the values and economic theories underlying international economic law. This hope partly stems from the fact that Brazil, India, and China formerly were affiliated with the Third World—to be discussed more closely in Chap. 3—and still define themselves as developing countries. Moreover, despite some improvements, most of them still encompass

154

See for the argument that international economic law directly infringes human rights of the “global poor”: Pogge (2005, 2008). 155 See for the metaphor: Chang (2003). 156 For relevant data and a critical evaluation of persisting poverty and increasing inequality, see: Kiely (2016), p. 83 et seqq. 157 See for numbers on trade, investment, and aid flows: Sect. 3.3.

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large populations of poor people and are faced with pressure and the need to further their national development.158 Especially critical legal scholars have drawn a connection between earlier calls for a NIEO and what Gordon termed a “New, New International Economic Order”, possibly leading to rules that are friendlier to developing countries. Still, others assume that newly powerful Southern States, given their changing economic needs and interests, might rather embrace status quo international economic rules. The term rising powers may not so much stand for a rise of economic prosperity of their poor populations, but rather be the rise of these States’ capitalist classes, which have an interest in upholding the system they benefit from, to the detriment of the ‘working classes’ and the poor in the Global South, and increasingly the Global North as well. In contrast, promoters of what may be simplistically termed ‘development through economic liberalization’ may have a totally different normative perspective. Seen from their point of view, the economic rise of Brazil, India, China, and South Africa is due to market friendly policies and the opportunities presented by globalization, which both are governed and supported by international economic law. Combined with the argument that globalization lifted millions of people in China and elsewhere out of poverty, the embrace of Western promoted international economic rules might even be seen as a success story for global justice, as inequality among States decreased and less people are poor.159 The normative challenge then would be more likely to come from established great powers, which become wary of increased economic competition, possibly leading them to adopt protectionist policies and withdraw from liberal trade regimes and other legal obligations that could constrain their ability to defend the status quo of the distribution of economic resources. Seen in that way, the rising power embrace of neoliberal policies might uncover established great power hypocrisy and lead to a backlash from the same States that earlier promoted a neo-liberal international economic order.160 These competing arguments and predictions reveal that debates surrounding rising powers involve important normative questions. The rise of Southern powers necessitates descriptive assessments of what the law is and how shifts in power may affect it, yet they also involve important questions of how international law should operate. To conduct a normative assessment of emerging powers’ rise, it is necessary to answer three essential questions: Firstly, how does one normatively evaluate the existing order? This normative starting-point obviously influences any further

158

The Word Bank Poverty & Equity Data Portal provides that the poverty headcount ratio at US$ 1.90 a day (2011 PPP) of the total population was 4.4% in Brazil (2018), 0.5% in China (2016), 21.2% in India (2011) and 18.9% in South Africa (2014), available at: http://povertydata. worldbank.org/poverty/home/ (last accessed 11 Sept 2020). It’s worth mentioning that these numbers only cover the so-called absolute poor, while huge numbers of people in these countries may live just slightly above the US$ 1.90 a day line and per capita income is much lower than in most industrialized States. For a further assessment, see: Kiely (2016), p. 83 et seqq. 159 This assessment of course disregards the fact that inequality within States, most prominently in emerging States, has dramatically risen. See for an analysis: Kiely (2016). 160 See, Hopewell (2016).

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normative argument. Secondly, might emerging powers seek to challenge or embrace the existing order? And third, how might one normatively evaluate a possible alternative order? In Chap. 4 we will see that objective normative assessments of the existing or alternative orders are highly contentious as conceptions of justice crucially depend on different perspectives, ideological standpoints, and moral judgments and beliefs. To make it worse, economic theory and questions of causality between rules built on certain economic theories and their distributional outcomes are highly controversial, further adding to international lawyers’ inability to provide clear normative answers. Nevertheless, Chap. 4 argues that a “thin” human rights-based justice approach can be applied as the least controversial—though still far from being universally accepted—approach to assess the extent to which international economic law delivers justice.161 This thin human rights approach will enable us to draw some minimal normative conclusions. In any case, even readers that reject such an approach will be able to draw own normative evaluations of ongoing powershifts based on the descriptive parts in Chaps. 5 and 6.

2.3

Terminology and Methodology

To systematize the appraisal of changes in the international legal order it is important to distinguish between two related but nonetheless discernible questions. First, how has international economic law changed structurally, if at all, (e.g. fragmentation vs. universality) and second, to what extent has the rise of certain States led to substantial changes of international norms? Drawing on insights from political norm theorists,162 the study contributes to answering the question of whether emerging powers have transformed from rule takers to rule makers, and, connected to this, whether they qualify as ‘norm-entrepreneurs’163 or ‘normantipreneurs’,164 or something in between these poles. The study does not focus on procedural and structural aspects and consequently does not apply or test theories of how norms are created, resisted, or deconstructed.165 Instead, the study uses ‘traditional’ legal methodologies to evaluate whether rising power legal statements, proposals, and treaty practice deviate from established substantial international law. 161

The notion of a thin approach to global justice in international law has been developed in: Ratner (2015). 162 See e.g. Finnemore and Sikkink (1998) and the collection of papers in: Bloomfield and Scott (2017a). 163 The term was coined by Sunstein (1996), p. 909. 164 See on the concept of norm-antipreneurs: Bloomfield and Scott (2017a). 165 One of the most influential ideas in that area of research is the so-called ‘norm life cycle’ developed by Finnemore and Sikkink (1998), p. 894 et seqq. Building on work of Finnemore and Sikkink, several more refined models have been developed, see e.g.: Acharya (2013), Sandholtz (2008) and Wiener (2014).

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To further systematize rising power approaches to substantial issues, the study distinguishes between loyalist/traditionalist approaches, reformist approaches, and revolutionary approaches.166 To begin, this sample of important terms together with some other fundamental terms—such as norms, rules, and principles—need some clarification.

2.3.1

Rule Makers, Rule Takers, Norm-Entrepreneurs, and Norm-Antipreneurs

‘Rule takers’ and ‘rule makers’ are terms commonly used but seldom, if at all, defined. To start with, rule makers are defined here as, States that actively promote new rules as norm-entrepreneurs or actively resist new norms as a normantipreneurs. Thus, a rule taker is defined as a State that binds itself to rules promoted by others and which is neither a norm-entrepreneur, nor a norm-antipreneur. The following in-detail description of norm-entrepreneurs and norm-antipreneurs further defines the term rule maker by providing examples and strategies of rulemaking. In order to define a norm entrepreneur, it is necessary to define what characterizes a norm in the first place. International lawyers rarely define what they mean when speaking of a ‘norm’ and often use it interchangeably with the terms ‘rule’ or ‘principle’.167 Still, one unifying element of these terms is their legal quality in the sense that they stem from legal sources summarized in Article 38 of the ICJ-Statute and which are legally binding.168 In contrast, political scientists define the term ‘norm’ more broadly as “a standard of appropriate behaviour for actors with a given identity”.169 Such norms influence behaviour by limiting available choices of appropriate behaviour but are not necessarily of legal character. Norm entrepreneurs are commonly defined as those actors who are interested in changing the prevailing order and engage in altering that order according to their ideas of how norms should be.170 Norm entrepreneurs can be diverse actors such as individuals, national political groups, business associations, States, and international organizations. However, for our purposes it shall suffice to look at States, as they remain the primary rule makers at the international level. 166

I borrow these terms from Roberts (2017); see for modified but still comparable terms: Roberts (2018). 167 See on the problem and for the distinction between rules, principles and standards: Wolfrum (2010), MN 10 et seqq. 168 See on the legal quality in more detail: Wolfrum (2010) MN 123. 169 Finnemore and Sikkink (1998), p. 891 with further references. See on the distinction between political and social norms and international rules, and the paradox that weak legal rules can exist alongside strong political and social norms on the same matter: Percy (2007), pp. 368 and 375 et seqq. 170 See Sunstein (1996), who defines norm entrepreneurs as “people interested in changing social norms”; for a more refined definition see: Wunderlich (2013), p. 37.

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Strategies of norm-entrepreneurs are quite diverse. As summarized by Scott and Bloomfield “best known strategies used by entrepreneurs include: ‘framing’, or associating a new norm with a pre-existing and widely accepted global norm; ‘grafting’ the new norm onto a well-established local norm; persuasion based on factual reasoning; presentation of moral arguments against the status quo; and accusing status quo defenders of ‘standing in the way of progress’.”171 While most scholarship has focused on norm entrepreneurs, they are not the only actors relevant for norm-making. As Bloomfield and Scott have pointed out, political scientists in the last decades have “over privilege[ed] the phenomenon of normchange as opposed to stability”.172 Accordingly they propose the term ‘normantipreneurs’ to cover actors that resist change instead of promoting it.173 This resistance has to go beyond being simply passive or undecided, albeit at times non-action can be used as a strategy. This terminology allows us to distinguish States into three groups. Namely, norm-entrepreneurs, norm-antipreneurs and undecided or passive States. Both norm-entrepreneurs and norm-antipreneurs can be considered to be engaged in rule making, while passive States essentially can be referred to as rule takers, except in cases where these passive States do not bind themselves to international rules promoted by others. Only in the case of customary law is action sometimes required to exempt a State from a binding international rule (persistent objector) and non-action is equal to the acceptance of a rule, whereas treaties always require action (signature, ratification etc.). It is worth noticing, that research on norm-antipreneurs has only just begun and often the concepts overlap, or it is difficult to discern norm-anti- from normentrepreneurship.174 For example, in some cases in which competing visions of a norm are promoted, it may not be fully clear which actor started the process and could be called the norm-entrepreneur and which actor opposes the norm as a normantipreneur.175 Often actors may bring forward a new norm as an alternative to a competing norm by another actor. Would such an actor be called an entrepreneur or an antipreneur? Still, Scott and Bloomfield demonstrate that the distinction in most cases is of analytical value and argue that actors may at the same time engage in entrepreneurial and antipreneural activity.176 Moreover, for our purposes the exact distinction is of small relevance. Rather, the question is whether and in how far rising powers have become active rule-makers—either as entrepreneurs or antipreneurs— instead of being passive rule-takers. Even more importantly, the crucial question is, which norms they promote, resist or change and whether they do so successfully or not. Still, the descriptive components of this work will provide some insight on clear

171

Scott and Bloomfield (2017), p. 240. Bloomfield and Scott (2017b), p. 1. 173 Bloomfield and Scott (2017b), p. 1; Scott and Bloomfield (2017), p. 231. 174 For a discussion of these problems and why the distinction is nonetheless valuable: Scott and Bloomfield (2017), p. 235 et seqq. 175 Bob (2017), p. 73. 176 Scott and Bloomfield (2017), p. 236. 172

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cases where rising powers have defended the status quo against legal change and where they have promoted alternative legal norms. For that purpose, it is helpful to distinguish between strategies typically used by norm-antipreneurs and strategies typically used by norm-entrepreneurs. Case studies reveal that norm-antipreneurs sometimes use ‘counter-strategies’ to strategies used by norm-entrepreneurs, such as counter-framing (or ‘severing’),177 ungrafting178 and providing fact-based counter-arguments.179,180 Other strategies are said to be uniquely available to antipreneurs such as frustration and delaying tactics, institutional manoeuvring (e.g.,, trying to shift the forum of discussion to a forum where the norm-antipreneur expects strategical advantages), ‘scaremongering’ (that is invoking fears of ‘the unknown’181), and in some cases simply ‘non-action’ (especially when the consent of the actor/State is necessary for change).182 While largely agreeing to this assessment one may add that ‘institutional manoeuvring’ is also available to norm-entrepreneurs. For example, if norm-entrepreneurs do not succeed in establishing their preferred norm within a multilateral forum, they might pursue their goal through bilateral means where they can make better use of powerasymmetries.183

2.3.2

Institutions, Rules, Principles and Paradigms

Norms may be promoted or resisted by different actors but what does this tell us about the ‘bigger picture’ of the existing international order and international law? To establish that ‘bigger picture’ of ongoing legal change we must not only look at individual norms but also at what political scientists call ‘institutions’. Scholars of various disciplines talking of a ‘norm’ (e.g., free trade or sovereignty) often actually refer to a plethora of norms, such as the WTO agreements in trade or the principle of non-intervention, immunity of State officials and a range of other norms and principles related to sovereignty. Such particular sets of norms that are structured together, interrelated, and address specific actors in specific situations have been

177

Adachi (2017), p. 44 et seq. Bob (2017), p. 87. 179 Zahava (2017), p. 62 et seqq. 180 Scott and Bloomfield (2017), p. 240. 181 This strategy, however, is also sometimes used by norm-entrepreneurs, see: Scott and Bloomfield (2017), p. 243. Nevertheless, it is assumed here that warning against the unknown is easier for those resisting new norms than for those promoting new norms, as new norms usually have not been tested in practice. 182 Scott and Bloomfield (2017), p. 239 et seqq. 183 See, for a critical assessment of such strategies: Benvenisti and Downs (2010) and Sect. 3.1.3.2. 178

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defined by institutionalist IR scholars as ‘institutions’.184 Earlier, regime theorists185 used the term ‘regime’ in a similar way to refer to “sets of implicit or explicit principles, norms, rules, and decision-making procedures around which actors’ expectations converge in a given area of international relations”.186 While lawyers hardly use the term ‘institution’ in that way, they sometimes also use the term ‘regime’ to refer to a particular area or field of law, such as the law on State responsibility or the law of the WTO. Different fields of law may have some similarities such as comparable individual rules. Still these fields of law are separated by their respective issue area (e.g., trade, investment, or diplomatic relations) and may be called separate legal ‘regimes’. These legal ‘regimes’ often serve a particular objective and share underlying structural principles. These principles are of particular interest here. Observing only some ‘smaller’ norm-changes may not tell us much about ongoing changes of the specific regime in question, let alone for the bigger system (international law) as such. However, if we find that underlying principles change this would be of greater interest for international (economic) law more broadly. Such bigger changes could be the explicit establishment of new principles (e.g. in treaties) or more subtle changes of legal rules that amount to a ‘critical mass’ triggering the emergence of new principles or the erosion or modification of existing ones. This observation brings us to the distinction between principles and rules that will be of further help in our quest to establish an overall vision of ongoing changes. In that regard, the principles that are of most relevance are either inherent in or have developed from legal rules.187 In contrast to rules, legal principles are broader and more abstract.188 While rules are either applicable or not and determine legal decisions, legal principles embody more general values, objectives or regulatory purposes, that have to be taken into account during legal decision-making, but do not completely determine the outcome.189 Principles can often be derived from a systematization of existing rules and thereby are evidence of the broader objectives and underlying interests, theories, and values of a legal field. Whether all legal principles qualify as general principles in the sense of Article 38 para. 1 c) ICJ-Statute is a matter of debate,190 but of no further relevance here. Even if one considers principles other than those recognized in foro domestico not to 184

Finnemore and Sikkink (1998), p. 891; March and Olsen (1998), p. 948 (“In a general way, an ‘institution’ can be viewed as a relatively stable collection of practices and rules defining appropriate behavior for specific groups of actors in specific situations.”). 185 Regime theory has developed into institutionalism, see; Byers (2003), p. 27. 186 Krasner (1982), p. 186. 187 Wolfrum (2010), MN 6. 188 See e.g. Delimitation of the Maritime Boundary in the Gulf of Maine Area (Canada v. United States of America), ICJ, Judgment of 12 October 1984. ICJ Reports 246, p. 288 et seqq. (para. 79); Byers (2003), p. 10; Wolfrum (2010), MN 6. 189 Cf. Dworkin (1977), p. 24 et seqq; Alexy (1985), pp. 73–79. 190 See for overviews based on the assumption that structural principles qualify as general principles in the sense of Article 38 para. 1 c): Mosler (1984), pp. 95 and 101; Krieger (2000), p. 43 et seqq.;

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be covered by Article 38 para. 1 c) ICJ-Statute, these principles can still derive legal quality via treaties or customary international law. In many treaties, principles can be found in the preamble or in another prominent position.191 Principles often serve as a tool for interpreting and sometimes even for progressively developing international law.192 Some principles even entail direct legal rights and obligations, such as some of the principles enumerated in Article 2 UN Charter. As already indicated, principles are of particular interest here, because they represent a broader notion of the objectives and values underpinning a particular set of norms (institution, regime or field). Additionally, assessing changes of principles has the advantage that there are far less principles than rules, allowing for an easier assessment. International trade law for example consists of thousands of articles. However, underlying this plethora of rules is only a comparatively limited number of principles, including trade liberalization, non-discrimination, sustainable development, co-operation, and multilateralism, amongst others.193 Assessing challenges to these core-principles is far more important and easier than assessing every proposal to change minor and often technical rules, as in trade rounds where hundreds if not thousands of such proposals are broached. Sticking with the example of trade law, smaller changes of rules may not necessarily affect the underlying principles let alone the legal regime. If, however, the principles themselves change this might have a bigger impact. To understand the ‘bigger picture’ of ongoing changes it is therefore necessary to look at the principles that underlie certain regimes. Ultimately, changing principles then may be evidence of a shift of paradigms, including changes of fundamental (normative) beliefs and/or economic theory that underpin international economic law.194 To assess changes of principles and paradigms this book employs positivist legal methods, such as the interpretation of international treaties, evaluating international jurisprudence, monitoring treaty practice and assessing State practice and opinio juris relevant for customary law and treaty law (subsequent practice195). To evaluate rising power reform potential the book evaluates the legal content, and its implications for the respective field of law, of rising power collective and individual statements and proposals in international forums. Criteria to measure support (or non-support) for the existing international order inter alia include the number of ratifications of treaties, compliance with existing law, usage of judicialized dispute settlement and compliance with the decisions rendered by international courts and arbitral tribunals, and commitment of the parties to a treaty and its

but see e.g. Pellet (2012), p. 834 et seqq. who only discusses such principles that are recognized in domestic legal systems (“general principles recognized in foro domestico”). 191 The principle of ‘sustainable development’ can for example be found in the preamble to the Agreement Establishing the World Trade Organization (WTO Agreement). 192 Wolfrum (2010), MN. 7. 193 See e.g. Hilf (2001), p. 117 et seqq. with further references. 194 On shifting paradigms in international investment law, see: Hindelang and Krajewski (2016). 195 See Article 31 para. 3 b) Vienna Convention on the Law of Treaties (VCLT).

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goals (or more generally any rule, or set of rules).196 Some of these criteria are very difficult to assess empirically, such as compliance with international law on a broader scale. Assessments of other criteria may not tell us much about the state of respective treaties or other ‘laws’. For example, a huge number of ratifications of a treaty may be a sign of its general acceptance but not if no State complies with the treaty’s provisions. Still, a combination of these criteria, taken together with some specific criteria doing justice to the characteristics of individual norms in question, shall suffice to provide a bigger—if sometimes rather vague—picture of whether and how rising powers affect the law.197 Respective chapters on international trade and investment law will elaborate in more-depth on the particularities of law-making in each sub-field (e.g., bilateral vs. multilateral treaty making).

2.3.3

Rising Powers as Loyalists, Reformers or Revolutionaries

In order to systematize State approaches to principles and rules of international economic law this work builds on- and develops the categories of ‘loyalists’, ‘reformers’, ‘revolutionaries’, and ‘undecideds’, introduced by Anthea Roberts in the context of international investor-State arbitration.198 These terms essentially describe in different wording what has been termed ‘loyalty’, ‘voice’, and ‘exit’ by Hirschman199 and building on that classification ‘deference’, ‘change within the system’, and ‘challenge of the system’ by Zürn.200 To begin with, loyalists are defined here as States that continue to embrace statusquo legal norms and their underlying principles and paradigms. As it is assumed that States continually evolve treaty practice and other forms of international law, to be qualified as a loyalist does not exclude the possibility of incremental reform. However, the general trend is to keep with existing principles and paradigms. Such States are not necessarily to be qualified as norm-antipreneurs resisting change. Instead they might promote the strengthening of existing norms, or their further development in line with established principles and paradigms. Examples are the conclusion of ever stronger investment protection norms, the further reduction of trade restrictions through legal means, or the inclusion of sectors which were hitherto

See on some of these criteria in a slightly different context, assessing the “rise” or “decline” of international treaties: Nolte (2018), Chapter 1, C. 3. 197 See, along similar lines: Nolte (2018) Chapter 1, D, who speaks of a bigger picture which “cannot be objective in a strictly measurable sense [. . .] [but] is rather the result of an interpretation, as is traditionally done in law, as well as in the humanities and social sciences more generally.” 198 Roberts (2017). 199 Hirschmann (1970). 200 Zürn (2018), p. 172. 196

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not covered by trade or investment law, such as the inclusion of services through GATS into WTO law in 1995. Reformists on the other hand seek pronounced reform. Examples could be the increased inclusion of exception clauses to protect regulatory policy space in both investment and trade law, or the establishment of an appellate mechanism for Investor-State Dispute Settlement (ISDS) or even a permanent and centralized international investment court. It is also considered to be reformist if a State promotes creative but not radical new provisions. Reformists might introduce new or strengthen existing principles, such as sustainable development or a ‘right to regulate’, but do so by building on existing norms and principles in international economic law. Reformists might want to tweak something here and there, change some norms, get rid of others, but on the whole seek to keep the system and its underlying principles and paradigms intact. Revolutionaries share a desire for reform but are much more radical than reformists. Typical (first) actions involve the withdrawal from existing treaties and organizations. For example, revolutionaries might opt for exiting the WTO and regain full policy space to decide which goods and services may enter their markets and on what terms. In investment law they might seek to terminate Bilateral Investment Agreements (BITs) and leave the system of international investment protection and arbitration behind. New creative provisions could be termed revolutionary if they contain a radical overhaul of established paradigms. The establishment of human rights law certainly was a revolutionary departure from the paradigm that only States were subject to rights and obligations at the international sphere. In international investment law a revolutionary change could be a turn from investor rights and obligations of host States towards meaningful obligations for investors and home States. To qualify States according to these terms may be considered by some as overly simplistic. Taking the example of IIAs, a State might loyally embrace some existing provisions but completely reject others, or include revolutionary new obligations in addition to traditional ones. Therefore, these categories will be applied on a provision by provision basis, only revealing some overall trends for any individual State. To make this assessment even more precise, we will further distinguish between level (national or international), forum for dispute settlement (arbitration, international court, or no dispute settlement mechanism), and substantial issues. States may for example radically withdraw from the international level by terminating international trade and investment agreements, only to nationally protect investments through legislation and embrace free trade policies (low tariffs etc.). Also, States may embrace the contents of established free trade and investment law but may opt for restrained judicial review. Such States could be termed reformist or even revolutionary when it comes to the forum for dispute settlement but loyal with regard to substantial rules as such. Even such a case by case and provision by provision approach may not always reveal a fully conclusive approach of an individual State. Still, such findings are important as they reveal that a State so far belongs to the fourth grouping of States,

References

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that remains undecided or ambiguous as to the future course of the respective international regime.201

2.4

Conclusion

The two questions at the heart of this study are the extent to which rising powers, individually and as a bloc, provide alternative regulatory ideas (norms, principles and paradigms) and whether they are able to convert their increasing power into influence on global regulation. The book answers these questions in Chaps. 5 and 6 on investment- and trade law. In each chapter the analysis follows two steps. First, it asks whether emerging powers individually can be qualified as rule makers. If so, the study in a second step assesses whether they promote norms in line with the liberal economic thinking of the past decades and/or resist changes (loyalist/traditionalist), whether they seek moderate reform of these areas (reformers), or whether they radically challenge existing norms or promote radical new ones (revolutionaries). Moreover, the study connects this analysis of ongoing changes with debates surrounding the justice of international law (global justice debates). As justice-based criticism is most prevalent in the economic sphere, international economic law provides an insightful case study. Such an analysis is timely as it helps to understand the role of emerging powers in the evolving structure of international economic law and global economic governance. It also sheds light on broader debates about the implications of the rise of several former developing countries for the international system and the challenges and opportunities this rise poses for the existing international legal order more broadly.

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Mosler H (1984) Principles. In: Bernhardt R (ed) Encyclopedia of public international law, 7th edn. North-Holland Publ. Co, Amsterdam, pp 89–105 Navarro P (2008) The coming China wars: where they will be fought and how they can be won, Rev. and expanded ed. Financial Times Press, London Nolte G (2003) Conclusion. In: Byers M, Nolte G (eds) United States hegemony and the foundations of international law. Cambridge University Press, Cambridge, New York, pp 491–514 Nolte G (2018) Treaties and their practice: symptoms of their rise or decline. Collected Courses Hague Acad Int Law 392:205–397 Nye JS (2015) Is the American century over? Wiley, Somerset O’Neill J (2001) Building better global economic BRICs. Goldman Sachs, Global Economics Paper No. 66 Ofodile UE (2013) Africa-China bilateral investment treaties: a critique. Mich J Int Law 35 Onuma Y (2010) A transcivilizational perspective on international law. Nijhoff, Leiden Papa M (2014) BRICS and the politics of reforming global governance: the case of investment arbitration. In: de Búrca G, Kilpatrick C, Scott J (eds) Critical legal perspectives on global governance: Liber Amicorum David M Trubek. Bloomsbury Publishing, London, pp 405–423 Papa M (2015) BRICS as a global legal actor: from regulatory innovation to BRICS law? In: Scaffardi L (ed) The BRICS group in the spotlight: an interdisciplinary approach. Edizioni scientifiche italiane, Napoli, pp 17–68 Patrick S (2010) Irresponsible stakeholders? The difficulty of integrating rising powers. Foreign Aff 89:44–53 Peerenboom R (2006) The fire-breathing dragon and the cute, cuddly Panda: the implication of China’s rise for developing countries, human rights, and geopolitical stability. Chic J Int Law 7:17 Pellet A (2012) Article 38. In: Zimmermann A, Tomuschat C, Oellers-Frahm K, Tams CJ, Kashgar M, Diehl D (eds) The statute of the International Court of Justice: a commentary. Oxford University Press, Oxford, pp 731–870 Percy SV (2007) Mercenaries: strong norm, weak law. Int Organ 61:367–397 Picker C, Greenacre J, Toohey L (eds) (2015) China in the new international economic order: new directions and changing paradigms. Cambridge University Press, Cambridge Pogge T (2005) Recognized and violated by international law: the human rights of the global poor. Leiden J Int Law 18:717–745 Pogge T (2008) World poverty and human rights, 2nd edn. Polity, Cambridge Posner, Yoo (2006) International law and the rise of China. Chin J Int Law 7:1 Ratner SR (2015) The thin justice of international law: a moral reckoning of the law of nations. Oxford University Press, Oxford Ratton Sanchez Badin M, Morosini F (2014) The Brazilian approach to its south-south trade and investment relations. São Paulo Law School of Fundação Getulio Vargas – FGV DIREITO SP Research Paper Series - Legal Studies, Paper n. 114 Rehbein B (2013) Kaleidoskopische Dialektik: Kritische Theorie nach dem Aufstieg des globalen Südens. UVK, Konstanz Reich S, Lebow RN (2014) Good-bye hegemony: power and influence in the global system. Princeton University Press, Princeton Roberts A (2017) The shifting landscape of investor-state arbitration: loyalists, reformists, revolutionaries and undecideds. https://www.ejiltalk.org/the-shifting-landscape-of-investor-statearbitration-loyalists-reformists-revolutionaries-and-undecideds/. Accessed 11 Sept 2020 Roberts A (2018) Incremental, systemic, and paradigmatic reform of investor-state arbitration. AJIL 112:410–432. https://doi.org/10.1017/ajil.2018.69 Rolland SE, Trubek DM (2019) Emerging powers in the international economic order: cooperation, competition and transformation. Cambridge University Press, Cambridge Rotberg RI (ed) (2008) China into Africa: trade, aid, and influence. Brookings Institution Press, Washington, D.C.

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Rupp S (2008) Africa and China: engaging postcolonial interdependencies. In: Rotberg RI (ed) China into Africa: trade, aid, and influence. Brookings Institution Press, Washington, D.C., pp 65–86 Sandholtz W (2008) Dynamics of international norm change: rules against wartime plunder. Eur J Int Rel 14:101–131 Schlemmer EC (2016) An overview of South Africa’s bilateral investment treaties and investment policy. ICSID Rev 31:167–193 Schweisfurth T (1979) Sozialistisches Völkerrecht?: Darstellung, Analyse, Wertung der sowjetmarxistischen Theorie vom Völkerrecht “neuen Typs”. Springer, Berlin, Heidelberg, New York Schweller RL, Pu X (2011) After unipolarity: China’s visions of international order in an era of U.S. decline. Int Secur 36:41–72 Scott SV, Bloomfield A (2017) Norm entrepreneurs and antipreneurs: chalk and cheese, or two faces of the same coin? In: Bloomfield A, Scott SV (eds) Norm antipreneurs and the politics of resistance to global normative change. Routledge, London, New York, pp 231–250 Shaffer G, Gao H (2018) China’s rise: how it took on the U.S. at the WTO. Univ Ill Law Rev:116–184 Shaffer G, Ratton Sanchez M, Rosenberg B (2008) The trials of winning at the WTO: what lies behind Brazil’s success. Cornell Int Law J 41:384–501 Shaffer G, Nedumpara JJ, Sinha A (2015) State transformation and the role of lawyers: the WTO, India, and transnational legal ordering. Law Soc Rev 49:595–629 Smith D (2012) Hillary Clinton launches African tour with veiled attack on China. https://www. theguardian.com/world/2012/aug/01/hillary-clinton-africa-china. Accessed 11 Sept 2020 Snyer QZ (2013) Integrating rising powers: liberal systemic theory and the mechanism of competition. Rev Int Stud 39:209–231. https://doi.org/10.1017/S0260210511000593 Sornarajah M (2014) The role of the BRICS in international law in a multipolar world. In: Sornarajah M, Lo VI, Hiscock ME (eds) The rise of the BRICS in the global political economy: changing paradigms? Edward Elgar, Cheltenham, pp 288–307 Sornarajah M, Wang JY (eds) (2010) China, India, and the international economic order. Cambridge University Press, Cambridge, New York Sornarajah M, Wang J (2019) China, India, and international law: a justice based vision between the romantic and realist perceptions. Asian J Int Law 9:117–150 Stephan PB (2009) Symmetry and selectivity: what happens in international law when the world changes. Chic J Int Law 10:91–123 Stuenkel O (2015a) India-Brazil-South Africa Dialogue Forum (IBSA): the rise of the global south. Routledge global institutions series. Routledge, London Stuenkel O (2015b) The BRICS and the future of global order. Lexington Books, Lanham Stuenkel O (2016) Post-western world: how emerging powers are remaking global order. Polity Press, Cambridge Sunstein CR (1996) Social norms and social roles. Columbia Law Rev 96:903–968 Thakur R (2014) How representative are BRICS? Third World Q 35:1791–1808. https://doi.org/10. 1080/01436597.2014.971594 Triepel H (1961) Die Hegemonie: Ein Buch von führenden Staaten, reprint. Scientia, Aalen Trubek DM (2012) Reversal of fortune? International economic governance, alternative development strategies, and the rise of the BRICS. Paper presented at the European University Institute Florence, Italy Trubek DM, Alviar García H, Coutinho DR, Santos A (eds) (2014) Law and the new developmental state: the Brazilian experience in Latin American context, First paperback edition. Cambridge University Press, Cambridge, New York Vestergaard J, Wade RH (2014) Still in the woods: gridlock in the IMF and the World Bank puts multilateralism at risk. Global Policy 6:1–12 Wiener A (2014) A theory of contestation. SpringerBriefs in political science. Springer, Heidelberg

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Winkler HA (2017) Zerbricht der Westen?: Über die Krise der Gegenwart in Europa und Amerika. C.H. Beck, München Wolfrum R General international law (principles, rules, and standards), last updated December 2010. In: Wolfrum R (ed) The Max Planck encyclopedia of public international law. Oxford University Press, Oxford Wunderlich C (2013) Theoretical approaches in norm dynamics. In: Muller H, Wunderlich C (eds) Norm dynamics in multilateral arms control: interests, conflicts, and justice. University of Georgia Press, Athens, pp 20–48 Yu PK (2008) Access to medicines, BRICS alliances, and collective action. Am J Law Med 34:345–394 Zahava O (2017) Resistance to the emergent norm to advance progress towards the complete elimination of nuclear weapons. In: Bloomfield A, Scott SV (eds) Norm antipreneurs and the politics of resistance to global normative change. Routledge, London, New York Zakaria F (2009) The post-American world: and the rise of the rest. W.W. Norton & Company, New York, London Zürn M (2018) A theory of global governance: authority, legitimacy, and contestation. Oxford University Press, Oxford

Chapter 3

Hegemony, Power and International Law

“A dwarf is as much a man as a giant; a small republic is no less a sovereign State than the most powerful kingdom.” (Vattel (2008), p. 75 (§ 18 Equality of nations)) “Power matters.” (Schachter (1999), p. 205.)

All powers are States but some States are more powerful than others. The statements cited above indicate the dichotomy that exists in international law between notions of equality of States and factual asymmetries of power. This chapter is meant to elaborate on one of the central ideas behind this book, that power indeed matters for international law and that there is an intimate connection between power and law.

3.1 3.1.1

(Western) Great Powers and International Law Working Definitions: Power, Hegemony and Great Powers

Within the last century international relations scholars and international lawyers have proposed a number of definitions of ‘power’.1 Within contemporary international relations scholarship power is roughly defined as the ability of an actor to get others to do something they would not do otherwise.2 Similarly, international lawyers, such as Byers, have defined power in the context of international law as the ability of certain States to directly or indirectly control or significantly influence the behaviour of other States.3

1

See e.g.: Morgenthau (1960), p. 28; Schwarzenberger (1964), p. 14. Keohane and Nye (2012), p. 10; see also: Boulding (1989), p. 15 et seqq.; see for a rather critical appraisal of that definition: Waltz (1979), p. 191 et seqq. 3 Byers (2003), p. 5. 2

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 A. Buser, Emerging Powers, Global Justice and International Economic Law, https://doi.org/10.1007/978-3-030-63639-5_3

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While power can have many “faces”, to use Boulding’s words,4 three sources of power are commonly highlighted, namely military power, economic power and soft power.5 Applied to international law these forms of power may enable certain States to control or influence the behaviour of other States which has implications for international law, such as influencing the conclusion of treaties or controlling State practice relevant for the development of customary international law.6 Another term with high relevance to discussions of power in international relations and international law is hegemony. Sometimes the terms hegemony and power have even been used interchangeably.7 More commonly, hegemony can be defined as (institutionalized) leadership or the supremacy of one or more States over others, which derives from asymmetries between States in terms of economic, military and soft power.8 In contrast to more comprehensive and strong forms of leadership, such as reign, hegemony is often characterized as a soft form of domination, which does not exclusively rely on coercive measures but requires some form of consent or recognition by the dominated party.9 Hegemony then describes a situation of soft leadership among one or more similarly minded States. Although today hegemony is often used in a pejorative manner, early accounts stressed that hegemonic influence itself is neutral.10 One may, for example, argue that the domination of the United States and the West generally has improved international law, as it has strengthened the role of human rights at the international level. Others may however criticize this contention on the basis that notions of good governance, human rights and even democracy serve to legitimize the continuing subjugation of the Global South and notions of humanitarian intervention including the responsibility to protect may have been misused for interventionist and economic purposes.11 Moreover, Western economic prescriptions of open markets, free trade, privatization and investment protection are often seen as detrimental to the socio-economic rights of the poor in the Global South12 and increasingly also the

4

Boulding (1989). See for an in depth analysis of these three forms of power: Nye (2011), pp. 3–112; see also Boulding (1989), who mainly distinguished between “threat power”, “economic power” and “integrative power”. 6 These are just a few example, part III below focuses in more-depth on the means of how power may become transformed into law or may have other impacts in the legal sphere. 7 Triepel (1961), p. 138 (“Hegemonie ist Macht”; own translation: “Hegemony is power”). 8 See e.g. Thürer (2011), MN 1; see for a quite similar definition already: Triepel (1961), p. 125. 9 Thürer (2011), MN 2; see on the distinction between “Herrschaft” (reign) and “Hegemonie” (hegemony): Triepel (1961), p. 141 et seqq. 10 Triepel (1961), p. 136; for a more recent account that explicitly leaves open the question whether “legalised hegemony” has had good outcomes for the international legal order: Simpson (2004), p. 17. 11 See for a short but powerful critique e.g. Sornarajah (2014), p. 291 et seqq.; for a critical more comprehensive appraisal see also: Anghie (2005), Chaps. 5 and 6. 12 For such critiques see e.g. Salomon (2007) and Joseph (2011). 5

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Southern periphery in Europe (most notably in Greece).13 From a democratic perspective the neutrality of hegemony is particularly dubious. Is a dictatorship morally defensible if it leads a country towards economic and social welfare progress? At least from a participatory or democratic perspective, the process matters. Intuitively outcomes will generally be better if a variety of perspectives, of States and people, are considered. Without going into more detail here, we can conclude that hegemony appears much more fluid than direct ‘reign’ and its outcomes and their normative meaning are more difficult to detect and evaluate. Hegemony appears at first sight to be a rather weak form of domination, but a closer look shows that it may be particularly effective and strong precisely because of its alleged weaknesses. How then may we finally define a great power or even a superpower? The term ‘great power’ is a rather old term that has its origins in early nineteenth century European diplomacy where it was used to characterize a State that had to be consulted in every major question (une puissance à intérêts généraux), regardless of whether individual interests of the State were involved.14 This definition solely relies on recognition of a State as a great power by other States. The origin of the term superpower is much more recent. It only became used after World War II to describe the international community’s most powerful great powers, namely at that time the United States and the Union of Soviet Socialist Republics (USSR).15 With the end of the Cold War (1947–1991), the United States came to be seen by many as the sole surviving superpower.16 While epochs of international law can roughly be structured according to which States were the dominant great powers of the respective time,17 it is hard to find unifying abstract criteria for definitions of superpowers and great powers. Even though definitions of the word superpower are numerous in international relations scholarship, a strong ‘I recognize one when I see one’ element remains.18 At minimum, the main criteria to become a great power is the ability to actively participate in world politics19 (stemming from diverse sources of power). Drawing on the definition of power above, a great power can roughly be defined as a State that has ‘great’ capabilities to indirectly or directly control and influence the behaviour of other less powerful States. This definition intentionally avoids any reference to the success of such a State using its power. History tells us that powerful States and other political entities, despite their greater capacities, may 13

Salomon (2015). Kammerhofer (2009), MN 3; see on the origins of the term and its legal significance also: Mosler (1949), p. 14 et seqq. and 22 et seqq. 15 Kammerhofer (2009), MN 1. 16 See e.g.: Fukuyama (1992), Nixon (1993) and Brilmayer (1994). 17 See on the different “epochs” of international law: Grewe (2000). 18 Kammerhofer (2009). MN 2; among the numerous efforts to find abstract criteria nonetheless, see e.g.: Bull (1977), p. 200 et seqq. 19 See: Mosler (1949), p. 31 (“Die Fähigkeit, aktiv an der Weltpolitik teilzunehmen: das macht das Wesen der Großmacht aus”; own translation: “The capability to actively participate in world politics: that is what characterizes the essence of a great power”). 14

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not prevail in every case. Numerous internal as well as external factors, such as sheer luck, come into play.20 How much military, economic and soft power then is needed to be considered a great power? A superpower appears to be more powerful than a great power, but how much more powerful? Dukes has defined a ‘superpower’ as a State which is able to pursue a global strategy (including the ability to destroy the world), “to command huge economic potential and performance” and to be able to present a “universal ideology”.21 Nuclear capacity can be measured, however, both the extent of economic potential and performance as well as the criteria of a “universal ideology” are difficult to evaluate. To define great powers, we certainly can agree that they are less powerful than superpowers, but how much power is required to distinguish a great power from an ‘ordinary’ State? Nuclear capacity surely provides several States with the ability to cause a serious global catastrophe, but they are not all considered to be great powers, with North Korea possibly being the best example. As a first conclusion we can assert that great powers not necessarily have to be strong in every sector. Therefore Japan and Germany qualify as (economic) great powers based on their high economic power, despite deficits in military power.22 A helpful criteria to further narrow down a definition could be ‘great power’ recognition by others. It has been suggested that power may not be the sole criteria for a great power. Instead, “cognitive factors”23 also play a role. Such factors include a State’s willingness to act like a great power—most notably to make use of its power—and the recognition of great power status by other international actors (most importantly of established great powers, as indicated by the nineteenth century use of the term puissance à intérêts généraux).24 However, it must be noted that those cognitive factors usually are the result of economic, military and soft power in the first place. This calls the additional definitional value of cognitive factors into question. Nevertheless, the inclusion of States into important fora, for example the permanent membership in the UNSC, membership in G-7, or the so-called Green Room Talks within the WTO might be important indications of whether States have entered into the ranks of the world’s most important States. In fact, the composition of the UNSC which gives permanent members veto power on all issues no matter

20 For an insightful historical study of the causes of the rise and fall of great powers: Kennedy (1987b). 21 Dukes (2001), p. 1. 22 See e.g.: Cai (2013), p. 757 et seq. 23 Cai (2013), p. 757. 24 On the importance of recognition by existing great powers already, see: Lawrence (1915), p. 279 (“A State does not become a Great Power because it is strong, though it cannot be a Great Power without being strong. The tacit consent of other States, and the action of those who were Great Powers before, give it that positions.”) in a similar vein, see also: Bull (1977), p. 202 (“Third, great powers are powers recognized by others to have, and conceived by their own leaders and peoples to have, certain special rights and duties.”). Cai (2013), p. 757.

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whether or not they are affected themselves bears much resemblance to earlier notions of a puissance à intérêts généraux. As a preliminary conclusion it must be acknowledged that no clear definitions of great power and superpower exist. Four criteria appear to be most relevant: Military, economic, and soft power and recognition by established great powers. Moreover, to assess whether formerly marginalized States have become great powers, we must evaluate their power relative to existing great powers. Shortages of some sources of power can be compensated by other forms, but generally great powers tend to have strong capacities of each form of power. In the economic realm, established great powers can roughly be equated with the Group of Seven (G7) which includes France, Germany, Italy, Japan, the United Kingdom, the United States and Canada.25 In security matters it is assumed here that it is more accurate to refer to the five permanent members of the UNSC, which are the United States, Russia, the UK, France and China.

3.1.2

A Dichotomy Between Power and Law?

Apart from some notable exceptions, international lawyers in the past have tended to neglect the relationship between power and international law.26 The relationship between political dominance/power and international law has mostly been characterized as a dichotomy.27 This view may be termed ‘the classicist tradition of international scholarship’.28 Classicists in this sense tend to praise international law for trying to restrict pure State power (captured in the metaphor of ‘the civilizer

25

See also: Cai (2013), p. 758. For such an assessment see: Mosler (1949), p. 11 (“Die Juristen sträuben sich also, die Verschiedenheit der tatsächlichen Macht zur Kenntnis zu nehmen und daraus Schlüsse für das Völkerrecht zu ziehen. Die politischen Kräfte, die die Rechtsordnung beeinflussen, sind verdächtig, weil sie das System zu sprengen scheinen.”; own translation: “The political forces, that influence the legal order, are suspicious, because they seem to blow up the system.”); see for recent assessments that note a dearth of legal scholarship on the relationship between power and international law, which at the same time make up for the exceptions: Byers (2003), p. 35; Goldsmith and Posner (2005), p. 3; Krisch (2005), p. 372; a further notable exception is: Simpson (2004). 27 See e.g.: Oppenheim (1912), p. 193 (“a Law of Nations can exist only if there be an equilibrium, a balance of power, between the members of the Family of Nations [. . .] since an overpowerful State will naturally try to act according to discretion and disobey the law.”); Lauterpacht (1977), p. 427 (“[. . .] a full-fledged federal system between the nations of the world would be more conducive to enhancing the stability of international peace, to the protection of rights of man, and to reducing the evils and abuses of national power.” (emphasis added); among more recent studies, see e.g.: O’Connell (2008). 28 See for an overview of ‘classicist’ legal thinking in the US: Steinberg and Zasloff (2006), pp. 65–71. 26

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of nations’29), while power politics are regarded as antithetical to law.30 A focus on the formal concept of sovereign equality may explain these international lawyers’ lack of interest in the factual role of power.31 Additionally, international lawyers may often have felt the need to defend the power of law against the power of States.32 As a consequence, power has often been depicted as the domain of IR scholars.33 This rejection of power as a notion of consideration for international law scholarship goes back to disputes about the relationship between power and law amongst two groups of international lawyers during the 1930s and 1940s, which have been described as one of the reasons for the establishment of international relations as an academic discipline.34 Influenced by U.S. President Woodrow Wilson’s “Fourteen Points”,35 many Anglo-American international lawyers by that time had moved away from strict positivism towards what has been referred to as liberal internationalism, legal-moralism or international idealism.36 Realists such as Carr and Morgenthau in contrast, rejected these new forms of idealism.37 Instead, they upheld a realist perception of State struggles for power and saw international law as dependent on power and subject to short term changes according to the will of powerful States.38 The lack of an effective international judicial system, in particular, was seen as highly problematic for these scholars in terms of protecting weaker states from those with more power. As Morgenthau put it: There can be no more primitive and no weaker system of law enforcement than this; for it delivers the enforcement of the law to the vicissitudes of the distribution of power between the violator of the law and the victim of the violation. It makes it easy for the strong both to violate the law and to enforce it, and consequently puts the rights of the weak in jeopardy. A great power can violate the rights of a small nation without having to fear effective sanctions on the latter’s part. It can afford to proceed against the small nation with measures of enforcement under the pretext of a violation of its rights, regardless of whether the alleged infraction of international law has actually occurred or whether its seriousness justifies the severity of the measures taken.39

29

Koskenniemi (2002). For similar assessments, see: Schachter (1999); Krisch (2005), p. 370. 31 Byers (2003), p. 35; see in the context of current powershifts: Burke-White (2015), p. 2. 32 For example, many legal scholars saw the need to defend the relevance of international law against realists like Morgenthau and Schwarzenberger, see e.g.: D’Amato (1984/1985), Boyle (1985) and Brownlie (1988). 33 Cf. Byers (2003), p. 15 et seqq., 21 et seqq. and 35 et seq. 34 See Byers (2003), p. 21 et seq. 35 Speech Delivered at a Joint Session of the US Congress on 8 January 1918, available at: http:// avalon.law.yale.edu/20th_century/wilson14.asp. Accessed 11 Sept 2020. 36 See Byers (2003), p. 21, with reference to: Barker (1918), Laurence (1919), Lansing (1921) and Lauterpacht (1933/2011). 37 Carr (1946) and Morgenthau (1960). 38 See for an analysis: Byers (2003), p. 21 et seq. 39 Morgenthau (1960), p. 294 et seq. 30

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The split which occurred between realists, who studied international relations and power, and international legal scholars, who studied the law, influenced the agenda of both fields of enquiry for decades to come.40 However, this is not to say that there are no exceptions. The most notable exceptions of interest to this study arguably fall within critical approaches to international law. The work of scholars such as Kennedy41 and Koskenniemi42 sought to deconstruct international law in order to highlight underlying interests and values, thereby heavily attacking alleged myths of political neutrality and objectivity. Similarly, scholars from the ‘Third World’,43 and more recently TWAILers, have highlighted that international law itself is shaped by power. In simplified terms TWAILers argue that international law is an instrument of powerful Western States used to legalize their interests and hide their domination in the supposedly neutral framework of international law to the detriment of the less powerful (‘developing’) States and their populations (especially the ‘poor’).44 So who is right? Is international law the gentle civilizer of nations, as depicted by classicists, or is it just another tool of imperial great powers to subjugate less powerful States and peoples? As often is the case, the truth might be found somewhere in between these extremes. While the purely classicist perspective has overstated sovereign equality and the objectivity and neutrality of international law’s creation, application and adjudication, realists and other critical scholars might also have overstretched their point. International law is surely not completely and always only a reflection of the interests of the most powerful States (that would bring up the question of whether it is law at all45). Nevertheless, it also appears naive to believe that States do not seek to influence international law according to their perceived interests—which often do not represent common interests. Further, less powerful States, in reality, rarely have the same capacity to influence international rules as great—or even superpowers. As will be demonstrated in more detail below, powerful States’ interests are more likely to shape international law than those of less powerful ones. Nevertheless, established rules also impose restrictions on powerful States, as these rules are unlikely to change as fast as power constellations and interests do. To put it in metaphorical terms, international rules may not ‘hop on every bandwagon of power’. The power of States is restrained by the power of international law and the need to 40 See on the reasons on the lack of interdisciplinary discourse between both sciences also: Herdegen (2018), p. 45 et seqq. 41 See e.g.: Kennedy (1987a). 42 See e.g.: Koskenniemi (1989). 43 For early accounts that addressed economic inequality among States and power differentials, see e.g.: Lall (1974) and Bedjaoui (1979). 44 Further approaches critical of underlying power-structures of international law include feminist legal theory, critical race theory on international law, and LGBT legal theory, but are of minor relevance here. For an overview of the current state of critical thinking in international law, see e.g. the collected papers in: Singh and Mayer (2014). 45 On that question, see e.g.: Wiegandt (2011).

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refer to its established and fundamental principles.46 It is this interaction between law and power that is implicit in Martii Koskenniemi’s “apology and utopia”47 and in Nico Krisch’s assessment, that international law is “both an instrument of power and an obstacle to its exercise”.48 To highlight power’s concrete influence on international law it is always a good start to look at history. In fact, power’s influence on international law is more easily detectable in historic times when military and economic power were more openly used to support States’ interests than today. As noted in Chap. 1, Grewe has even named different epochs of international law after the most powerful and legally influential nations of the respective times.49 He essentially argues that in each epoch one great power was able to dominate the international legal discourse with its ideas and concepts and often was able to use international law to bestow “general and absolute validity on its national expansionist ideology”.50 This is not to say that the dominant power was able to control each and every legal development within the system, but that the respective power’s ideas were the reference point for all others. More recent times have seen a revived interest of historical work on how international law was used in the European imperial and colonial projects.51 It appears that from its beginnings (European) international law was used in the expansion of power and to secure economic interests by the respective great powers. Examples are numerous.52 Early international jurists like Vitoria inter alia used a universal ‘right to free trade’ to justify war against the native inhabitants of South America (wrongly assumed to be Indians) as they were said to violate that right by refusing to trade with the Spanish.53 The distinction between Christians and pagans, and later the distinction between the civilized and the uncivilized,54 legally justified imperial and colonial projects.55 Later, European States and the United States used 46

Cf. Byers (2003), p. 206 (“By doing so it [the study] demonstrated that the influence of powerful States on customary law-making is not always decisive, that the ‘power of rules’ sometimes affects how even the most powerful of States behave, and what they are able to accomplish, when they seek to develop, maintain or change rules of customary international law.”). 47 Koskenniemi (2005). 48 Krisch (2005), p. 371; see in a comparable direction also: Herdegen (2018), p. 12 et seqq. 49 Grewe (2000). 50 Grewe (2000), p. 23. 51 See especially: Anghie (2005), p. 13 et seqq.; too some extend also: Simpson (2004), who analysed how the concept of sovereign equality has accommodated “legalized hegemony” and “anti-pluralism” over the centuries; see for earlier (German and Swiss) studies also: Schmitt (1950), pp. 53–109; Fisch (1984). 52 See e.g. Krisch (2005), p. 383 et seq.; for an in-depth analysis of the respective legal arguments of scholars of the time, see: Anghie (2005), Chaps. 1–3. 53 Francisco de Vitoria, De indis et De jure belli relectiones (1539), Section III, third proposition, in: Nys (ed) (1995), p. 140 et seqq. 54 Traces of that distinction can still be found in Article 38 para. 1 c) ICJ Statute. 55 See generally on the different strategies to disregard the sovereignty of political entities outside Europe: Anghie (2005). On the distinction between the ‘civilized’ and the ‘uncivilized’, see: Obregón (2012).

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so-called ‘unequal treaties’ to establish European and U.S. access to foreign markets in China, Japan and Siam.56 Another shocking example is slavery. Slavery was long declared legal according to both international57 and national law, with legal instruments shielding the brutal practice via the ‘dignity of law’.58 This legalization served the interests of European and later U.S. plantation owners, share-holders of trading enterprises—among them many members of the respective parliaments and governments—and ultimately home States which profited from taxes, tariffs and other official forms of government revenue related to the (slave) trade.59 The eventual abolition of slavery was driven by former slave taking nations themselves, most notably Britain. However this development was not altogether based on humanitarian motives, but economic and political interests as well (for example plantation owners in the UK received compensation for their loss of ‘property’).60 Contemporary international law surely is no exception when it comes to the influence of powerful States, albeit that many of the most horrible, violent and oppressive acts, such as genocide, slavery, and apartheid, are now prohibited. Increasingly, the influence of powerful States has been analysed and acknowledged within international legal scholarship. It appears that with the rise of critical approaches—both Kennedy and Koskenniemi are today acknowledged as important figures in international law discourse and the work of Anghie has also been widely received—the argument that law and power are not antithetical but in fact correlate to one another, has become more broadly accepted.61 In particular, in the field of international economic law, many have criticized underlying power differentials and persisting inequality, voicing the opinion that existing economic policies and accompanying legal structures serve the interests of powerful elites (mostly in Western States) to the detriment of developing countries and their poor populations.62 It appears then, that belief in the influence of power on rules and their enforcement is today, if not widely accepted, at least shared by quite a number of scholars of diverse traditions and specializations.

56 See e.g. the Treaty of Nanking: ‘Treaty Between Her Majesty and the Emperor of China’, Nanking (29 August 1842), The London Gazette, Issue 20276, p. 3597, published on 7 November 1843; see generally on unequal treaties with further references: Peters (2018); for a Chinese perspective see: Wang (2003). 57 See e.g. the Antelope case, in which slavery was considered to be “consistent with the law of nations”; The Antelope, U.S. Supreme Court (1825). United States Reports 23, p. 66, at 68. 58 See on slavery and international law: Allain (2013); Drescher and Finkelman (2012); see connectedly also: Buser (2017). 59 For the UK, see: Beckles (2013). 60 See e.g.: Grewe (2000), pp. 554–569. 61 Indicative of a new interest in power and international law, see e.g.: Byers (2003), Simpson (2004), Krisch (2005) and Steinberg and Zasloff (2006). 62 On conflicts between economic law and human rights, see e.g.: Salomon (2007), Joseph (2011), De Schutter et al. (2012), Desierto (2015) and Santacroce (2019).

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The question of how exactly power translates into international law has, however, only seldom been addressed. Only occasionally have writers analysed with more precision how powerful States make and use international law to pursue their interests.63 The following section therefore seeks to provide abstract insights into how power can inform international law by bringing together existing studies on the subject.

3.1.3

How to Convert Power into International Law

History teaches us that the exertion of power in its brute material form is not sustainable in the long run and that it is much more efficient to apply power within legal systems and other institutions.64 Such systems are not only more sustainable and efficient but may also cloak and thereby legitimize effective domination through the apparent participation of individual or smaller groups of States.65 When interests of powerful States are successfully transformed into ‘objective’ international law, administered and enforced by ‘neutral’ international organisations and their organs, power can be veiled.66 But how is it possible that power translates into supposedly neutral and objective international law? The following section provides some answers to that question by first describing different types of power in more detail, and secondly by compiling exemplary and empirical evidence on how different types of power can affect different sources of international law. Section two focuses on the two main sources of international law—treaty and international customary law—whilst also providing insight on international law making in the broader sense, namely via interpretation and judicial dispute settlement. Issues of enforcement and international organization decision making are considered predominantly in the first section and touched upon briefly in the second.

3.1.3.1

Three ‘Faces’ of Power

As noted above, the power of States is mainly made up of three forms of power: Military power, economic power and soft power. Both military and economic power largely rely on a State’s economic and military capabilities and its ability to use these

63

See for a notable exception, e.g. the collection of papers in: Byers and Nolte (2003). See e.g.: Klein (2003), p. 363. 65 Klein (2003), p. 363 with reference to: Chaumont (1970), p. 344 (“le droit international classique est, dans son ensemble, la mise en forme des situations de predominance des forts sur les faibles”). 66 Klein (2003), p. 363; see in a similar vein: Hardt and Negri (2001) who depict the international order built around international organisations like the WTO and the Bretton Woods institutions (which they call “supranational institutions”) as a new form of global empire. 64

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resources to coerce other States (sometimes called smart power). Soft power on the other hand describes the ability to attract and persuade by non-coercive means. Military power is commonly seen to derive from military resources, such as the quantity and quality of military equipment and personnel, and often is evaluated by a comparison of budgets, manpower, ability to use nuclear weapons, military infrastructure, and capability of defence industries. Additionally, studies seek to evaluate factors that are harder to quantify, but which are necessary to convert military resources into military strength in battle, such as strategy, training, organization, and combat proficiency.67 These military resources enable States to influence and sometimes even control the behaviour of other States in at least four ways distinguished by Nye: 1. To physically fight and destroy; 2. to back up threats in coercive diplomacy; 3. to promise protection, including peacekeeping; and 4. to provide varying forms of assistance.68 Economic power derives from the inequality of States’ economic resources.69 Economic resources that underlie this form of power include market size (expressed commonly in GDP figures), per capita income (as an expression of general wealth), natural and human resources (including the ability support a large and well-trained diplomatic staff), availability and quality of technology, and a variety of other resources deployed in special domains.70 Economic power can be applied through negative and positive sanctions. Negative sanctions can be defined as actual or threatened punishments, whereas positive sanctions are actual or promised rewards. Negative economic sanctions may include restrictive trade measures such as raising tariffs and quotas or other market restrictions, so-called targeted sanctions (such as freezing bank accounts), or complete trade embargoes. Studies confirm that economic sanctions are more likely—and more easy—to be applied by economically powerful States.71 For example, large, diversified and rich domestic markets enable States to impose harmful trade sanctions on smaller markets often dependent on the export of only a very limited number of products. At the same time, larger diversified markets enable States to resist smaller States’ trade sanctions. Still, the effectiveness of such sanctions to

67

See for a ranking of different States’ military power drawing on these and a number of further indicators: International Institute for Strategic Studies (2018). 68 Nye (2011), p. 41. 69 On economic power see: Nye (2011), p. 51 et seqq. 70 Nye (2011), p. 52. 71 See for a comprehensive overview of applied sanctions by differing States and their effectiveness: Hufbauer et al. (2007), p. 5 et seqq.; see also: Nye (2011), p. 72 (“Not surprisingly, States with larger markets are better placed to control market access and to apply sanctions.”). An often cited counter example is the OPECs oil embargo in the 1970s, however, it has to be noted that after all the embargo was not very effective in influencing U.S. policy, see for a detailed analysis: Nye (2011), p. 67 et seqq. Similarly, sometimes smaller States may balance the asymmetry in resources with greater attention on the issue, will to succeed, or greater credibility, but this might be regarded as the exception rather than the rule.

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successfully influence targeted actors’ behaviour remains hotly debated.72 Much appears to depend on the precise tailoring of the sanctions and the particular context. In any case negative sanctions carry important signalling power73 relevant for international law enforcement and law-making (e.g., in the creation of customary law). Economic sanctions can signal what behaviours are considered to be right and wrong, or legal and non-legal. In that way economic sanctions play an important role in upholding perceptions of existing international rules and for protecting these rules against deterioration. Economic power not only enables States to negatively sanction other States but also to incentivise or buy their support, so-called positive sanctions. Examples for positive economic sanctions include the granting of preferential trade measures (e.g., favourable market access), so-called ‘cheque book’ diplomacy, and development aid (or other forms of providing financial assistance). Studies on the relationship between U.S. aid allocation and UNGA voting patterns for example reveal that the United States was able to influence other Member States’ votes on UNGA Resolutions of strategical interest.74 While such resolutions are not legally binding per se they are of relevance for the creation of international customary law.75 Another notorious example of positive sanctions surrounds the politics of recognition. Many States have used aid payments and the granting of other financial benefits to influence the recognition of their own Statehood or have sought to keep other States from acknowledging the independent Statehood of political adversaries. One frequently cited example is the political battle between China and Taiwan for recognition. China has provided development aid to many States around the world tied to the non-recognition of Taiwan as a sovereign State, and Taiwan has done the same in attempt to secure recognition of its desired Statehood.76 Another example is the case of Russia allegedly paying US$ 50 million in development aid to Nauru to encourage it to recognize Abkhazia and South Ossetia as sovereign States.77 Aside from increasing the capability to use economic sanctions, economic power further enables a State to support a well-trained diplomatic corps that monitors international developments, takes part in relevant negotiation forums, and blocks unwanted reforms or brings forward its own. Well-financed universities and law

72 See for rather positive assessments: Hufbauer et al. (2007); Nye (2011), p. 73 et seqq.; see for critical assessments, e.g.: Pape (1998) and Early (2015). 73 See on the signalling power of economic sanctions, e.g.: Lindsay (1986); Nye (2011), p. 74 et seq. 74 See e.g. Dreher et al. (2008) and Woo and Chung (2017). For an early study that questioned the success of the strategical aid allocation by the United States on UNGA voting patterns: Kegley and Hook (1991). 75 UNGA Resolutions adopted by consensus can indicate opinio juris of States and States may orient their practice along rules proposed in resolutions. On the role of UNGA resolutions for the deduction of opinion juris see: Legality of the Threat or Use of Nuclear Weapons, ICJ, Advisory Opinion. ICJ Reports 1996, p. 66, para. 70; see for a summary of the role of UNGA Resolutions for customary law: Treves (2006) MN 44 et seqq. 76 See on China’s development cooperation programs: Brautigam (2009, 2010). 77 See e.g.: Harding (2009).

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schools are needed to produce well-trained bureaucrats for ministries of foreign affairs and other ministries that engage with international law; corporate lawyers supporting the business sector in oversea disputes; and academics spreading national values and ideas.78 It is perhaps not surprising that the globally best ranked law-schools are predominantly located in the United States and the United Kingdom and that given changes in economic power, Asian universities are increasingly gaining representation in the global top 20.79 In that way economic power is also crucially connected to soft power. The term ‘soft power’ was coined by Joseph Nye in 1990 and explains how States can use positive attraction and persuasion to gain in global influence.80 Soft power in comparison to hard power—military and economic coercion—describes the ability to shape the preferences of others through appeal and attraction. According to Nye the soft power of a country rests heavily on three basic resources: its culture (in places where it is attractive to others), its political values (when it lives up to them at home and abroad), and its foreign policy (when others assess it as legitimate and having moral authority).81 While often understood to be morally superior to other forms of power, Nye himself warns that “[l]ike any form of power, it [soft power] can be wielded for good or bad purposes” and “that it is not necessarily better to twist minds than to twist arms.”82 Soft power and its influence on international law is hard to grasp and almost impossible to quantify empirically. In terms used in studies on hegemony, the process of how soft power influences international relations and law may be characterized as the “pervasive processes of normalization of a hegemonic ideology”.83 This process succeeds when the hegemonic ideology becomes internalized by States and their populations—especially their elites—around the world. As a form of hegemony more broadly, soft power is at the same time a weak as well as a strong form of power. On first sight it appears weak, as it strongly depends on the will of

See for an insightful study on the question how ‘international’ international legal scholarship is in different countries around the world, finding that international lawyers in many States are strongly influenced by domestic factors and that Western approaches to international law are disproportionally influential: Roberts (2017). 79 QS World University Rankings by subject for 2017 reveal that among the 10 best law schools, seven are from the United States (Harvard, Yale, Stanford, NYU, Berkeley, Columbia and Chicago) and three from the UK (Oxford, Cambridge and London School of Economics and Political Science); within the top 20, three Asian universities were represented, including the National University of Singapore, the University of Hong Kong, and Peking University. The ranking is available at: https://www.topuniversities.com/qs-world-university-rankings. Accessed: 11 Sept 2020. 80 Nye (1990); it is worth pointing out that scholars had earlier accepted a third ‘softer’ form of power next to military and economic coercion; see e.g. Carr (1939) who used three categories of power, namely: military power, economic power, and power over opinion. 81 Nye (2011), p. 84. 82 Nye (2011), p. 81. 83 Krisch (2005), p. 404. 78

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targeted actors.84 On the other hand this weakness is also a crucial advantage, as it masks domination.85 Examples include the spread of notions of good governance, most notably Western ideas of separation of powers, the rule of law, and a strong role for courts; and the successful proliferation of neo-liberal economic theory arguing for the importance of free markets, free trade and the need to attract and protect foreign investments.86 Finally, it is worth mentioning that the three forms of power are also heavily interrelated.87 Military power often derives from a successful domestic economy capable of financing an efficient and powerful military sector. The same successful economies on the other hand often depend on the stability and protection provided by military power. It sounds rather archaic, but military power for many States is still necessary to protect economic resources against neighbour States or other actors such as terrorists or even political opponents. Moreover, military power in many cases has enabled States to build up the local economy in the first place. Much of the British Empire’s wealth was built on its naval pre-eminence and its militarily acquired colonies provided important trade destinations that boosted local production (e.g., clothing with regard to India) and enabled the cheap import of raw materials (such as minerals and oil) and luxury goods (such as spices, tea, coffee, and sugar). While aggression and colonialism have been outlawed, we may still find examples of economic interests having been pursued by military means, such as— allegedly—the U.S. military invasion in Iraq or the annexation of Crimea by Russia.

3.1.3.2

Legal and Factual Restraints?

Power at the international level faces several restraints, including the power of law as well as factual restraints inherent in the characteristics of the modern interdependent economy. The prohibition of the use of force initially comes to mind when thinking about restraints on military power. Indeed, the legal ways for States to use military power have been severely restricted in the twentieth century by the prohibition on the use of force and the principle of non-intervention.88 Thus the ability of States to use, for example, the classical ‘gunboat diplomacy’—the practice of sending warships to collect debts, conclude treaties or in other ways coerce other States/political entities—has seriously been limited.

84

See also Nye (2011), p. 83. Cf. Krisch (2005), p. 404. 86 See on these examples: Krisch (2005), p. 404. It has to be noted that both good governance and the neoliberal economic theory were also part of the so-called Washington Consensus which was also pursued by rather coercive means, such as World Bank and IMF loan conditionality. 87 Nye (2011), p. 52 et seq. 88 Most notably Article 2 para. 4 UN-Charter; see on the historic evolution of the regulation of the use of force by States: Brownlie (1963), especially part I. 85

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However, at times raw military power may still inform the contents of international law.89 The U.S. Freedom of Navigation Program is a case in point. This Program seeks to uphold the United States’ perception of a customary right to conduct military activities in Exclusive Economic Zones (EEZ) on a global scale by sending warships through foreign EEZs and thereby setting State practice. Only a militarily powerful State is able to undertake such a program on a global scale.90 Other examples could be notions of unilateral Humanitarian Interventions and the Responsibility to Protect, which primarily have been relied upon as legal justifications for military intervention on the part of Western States. Although legal arguments by respective States in that regard are quite diverse it must be noted that the concepts of Humanitarian Intervention and Responsibility to Protect have been mostly regarded as unsuccessful in establishing new exceptions to the use of force. However, this demise may not disprove the importance of military power, but instead could be seen as proof of ongoing powershifts, on the basis that rising powers strongly opposed new legal exceptions for unilateral interventions without authorisation by the UNSC.91 Military strength is also still important regarding Nye’s modalities mentioned above, namely to back up threats in coercive diplomacy, to promise protection (including peacekeeping), and to provide various forms of assistance. While the direct use of force and the threat to use force against a State, as well as coercion against State representatives are prohibited, and treaties concluded under such threats or coercion are considered void,92 asymmetries in military power are still likely to shape strategic calculations of governments. Even more, promises of protection and other forms of military assistance are still likely to affect the assisted States’ international policies and ultimately international law and only face limited legal restrictions.93 Economic power is also restrained by modern international legal arrangements but has probably even become more important in recent times. Former U.S. Treasury official Juan C. Zarate already speaks of “a new Era of Financial Warfare”94 and some argue that the old geopolitics are increasingly becoming displaced by “geoeconomics”.95 Nonetheless, today’s international agreements impose some barriers

89

See also: Herdegen (2018), p. 72 et seq. See on the U.S. Freedom of Navigation Program: Horner (2013). It has to be noted that several other States operate military vessels in foreign EEZs as well, but mostly on a smaller scale. These countries include Russia, Australia, South Africa, the UK, and China, see: Houck and Anderson (2014), p. 445. 91 For a discussion of BRICS’ positions on the responsibility to protect, see: Stuenkel (2015b), p. 147 et seqq.; see on the Brazilian alternative of a ‘responsibility while protecting’, e.g.: Benner (2012). 92 See: Articles 51 and 52 VCLT. 93 On the current and future relevance of military power in international relations, see also: Nye (2011), p. 48. 94 Zarate (2015). 95 See e.g.: Blackwill and Harris (2017). 90

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on the use of economic power, for example WTO agreements or human rights principles.96 Still, much discretion persists. The judicial review of GATT’s security exceptions is limited to reviews in ‘good faith’ and today’s trade wars indicate that neither the United States nor the EU is willing to strictly obey international trade rules.97 Finally, a potential restraint on the use of economic power is the increased interconnectedness of modern economies and the power of private transnational economic actors. Today’s transnational companies rely on free trade and the free flow of capital and often face economic losses from economic sanctions even if they are imposed by their home State. Thus, their interests and power pose some limitations on States.98 Another insightful example of the restrictive effects of interdependence is foreign debt. One might assume that a State that holds huge sums of another States’ public debt (e.g., through State-owned funds) may also be able to influence that State politically, for example by threatening to stop lending or through the rapid sale of bonds. Yet these situations are more complicated, as the example of China demonstrates. China holds huge sums of foreign exchange reserves most of which are held in U.S. Treasury Securities.99 While some have warned that this might allow China to influence U.S. policy,100 economic interdependence seriously limits China’s capability of imposing political pressure on the United States. China’s economy is heavily dependent upon exports to the United States. If China would rapidly sell huge amounts of U.S. foreign exchange reserves, this would bring down the price of these reserves, economically harming China itself. Additionally, the negative impact on the U.S. economy, potentially would lead to a decline in demand for Chinese manufactured goods and could also lead to political responses from the U.S. government, such as a further deteriorating willingness to allow Chinese imports.101 In sum, interconnectedness does not defy power but rather complicates its usage. Thus, Keohane and Nye rightly argue that in a system of (economic) interdependence, less dependent actors still hold power over more dependent ones.102 This insight is also applicable to international law.

96

See e.g. Yassin Abdullah Kadi and Al Barakaat International Foundation v. Council of the European Union and Commission of the European Communities, Slg. 2008, I-6351, European Court of Justice, Judgement (3 September 2008). 97 For a preliminary legal assessment of additional tariffs on steel from a number of trading partners imposed by the United States and the EU’s response see: Weiler (2018) and Buser (2018). See on the security exception in the context of the Ukraine Conflict, e.g.: Neuwirth and Svetlicinii (2015). 98 See e.g. Nye (2011), p. 53. 99 According to latest data published by the U.S. Treasury Department, China by the end of 2017 held U.S. government debt worth of US$ 1.18 trillion. 100 See e.g. Shane (2018). 101 See on these points of interdependence also: Nye (2011), p. 56; for a differentiated assessment of the importance of U.S. debt to China, see also: Kiely (2016), pp. 49, 65 and 70 et seqq. 102 Keohane and Nye (2012), pp. 10 et seqq., 28, 177; see also: Herdegen (2018), p. 81.

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Power and International Customary Law

Customary law making appears to be inherently biased against less powerful States due to its nature, namely the constituting elements of State practice and opinio juris.103 A number of reasons exist why less powerful States are structurally less able to influence international custom: First, less powerful States often simply do not have considerable practice in the respective field.104 Second, less powerful States often lack the capacity to bring forward concise accounts of their practice and opinio juris in a language available to States and international lawyers around the world. This decreases chances that others acknowledge their practice and opinio juris. Powerful States in contrast tend to publish their practice in a concise and accessible form.105 These States also have large and well-financed diplomatic corps, which analyse global (legal) developments on a broad spectrum of issues and are able to object to unwanted outcomes or bring forward their own legal initiatives.106 Schachter has aptly summarized the impact of power on customary law in the following words: As a historical fact, the great body of customary international law was made by remarkably few States. Only the States with navies – perhaps 3 or 4 – made most of the law of the sea. Military power, exercised on land and sea, shaped the customary law of war and, to a large degree, the customary rules on territorial rights and principles of State responsibility. ‘Gunboat diplomacy’ was only the most obvious form of coercive law-making. Open threats in support of claims over a broad range of inter-State action. The more powerful the economy, the greater the presence of its government and nationals in international transactions. Trade, foreign investment, and technical know-how emanate disproportionately from the advanced economic powers; they carry with them, as a rule, the political views of their respective States, together with social attitudes bearing on international relations. Moreover, for these reasons the affluent States are objects of attention by others. Their views and positions are noticed and usually respected. Their official legal opinions and digests of State practice are available along with international law treatises that influence professional opinion and practical outcomes.107

In the context of this study’s focus, the development of customary investment protection standards provides a further insightful example. The idea to protect the interests of foreign traders and their investments reach back as far as the writings of

103

See for the most comprehensive study of the subject so far: Byers (2003), pp. 35–40 and 205; see also: Mosler (1949), p. 40; de Visscher (1968), p. 148 et seqq. and 154; Vagts (2001), p. 847; Herdegen (2018), p. 30 et seqq. 104 de Visscher (1968), p. 149 (“Among the users are always some who mark the soil more deeply with their footprints than others, either because of their weight, which is to say their power in this world, or because their interests bring them more frequently this way.”) 105 For example, in many of the more powerful States summaries of a State’s practice are provided by respective ministries or in international law journals, while for the majority of less powerful States such summaries do not exist, or at least are not available in the lingua franca of our time. 106 Byers (2003), p. 205. 107 Schachter (1996), p. 536 et seq.

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Vitoria108 and inter alia were used to legitimize war against the ‘natives’ and the annexation of their territory. In later centuries, Western powers sometimes forced or deceived local authorities to sign unequal treaties to support their economic interests abroad,109 but also sought legal protection and legitimization from international customary law. Most of the early law on diplomatic protection for alien property was claimed to derive from general principles and customary law established mainly by the capital exporting countries themselves and upheld by (forceful) interventions.110 These rules, while allegedly of general and universal application, factually applied only to the weaker party and often were used to legitimize military intervention against host-States.111 Although the decolonization period could have brought full sovereignty over natural resources studies argue that again former colonial powers were able to use legal doctrines to protect their citizens’ and companies’ ‘acquired rights’ in the former colonies, although they were acquired by deception, coercion and force.112 As we will see in more detail below, many post-colonial States tried to challenge notions of investment protection, for example through the proposition of the Calvo doctrine113 and later the proposition of the concept of permanent sovereignty over national resources (PSNR).114 Nevertheless, capital exporting States were consistently able to uphold the protection of investments abroad through a variety of strategies. These strategies include, the dismissal or negligence of practice of capital-importing States in regard to relevant UNGA Resolutions, the creation of new—but allegedly long established—legal doctrines (such as the concept of acquired rights and the internationalization of concession contracts between investors and host States), and later the successful promotion of BITs to circumvent multilateral opposition.115 The crucial point here is that investors’ rights, claimed by Western States to be of customary legal character, were far from well-established nor

108

See on an obligation under ius gentium to receive foreign traders and do them no harm: Francisco de Vitoria, De indis et De jure belli relectiones (1539), Section III, Third Proposition, in: Nys (ed) (1995), 150 et seqq. 109 In China, Thailand, Japan, and in some parts of the Middle East, unequal treaties established systems of extraterritoriality that ensured that European traders were only subject to the law of their home States in certain enclaves, usually harbour cities, see e.g.: Sornarajah (2010), p. 19. 110 See on development of diplomatic protection for alien property by capital exporting Western States in the nineteenth and early twentieth century: Miles (2013), pp. 47–70. 111 Miles (2013), p. 69. 112 Anghie (2005), pp. 196–244; Miles (2013), p. 71 et seqq. 113 For an introduction to the legal meaning and historical context of the Calvo Doctrine: Juillard (2007). 114 See e.g.: UNGA Resolution 1803/17 (14 December 1962) and UNGA Resolution 3171 (XXVIII) (17 December 1973). 115 Miles (2013), p. 71 et seqq.; see in that context also: Pahuja (2011), p. 95 et seqq.

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broadly accepted by other States.116 As Anghie has pointed out, these doctrines emerged at the same time as Third World States were clearly rejecting them.117 Finally, it must again be noted that powerful States today are not able to develop and change customary law as it pleases them, in particular as the community of States has increased and diversified. The creation of customary international law usually118 takes time and no single State can form custom alone. These factors may explain why U.S. influence on the evolution of customary law in the years after 1990 (e.g. on the extraterritorial application of human rights in cases of torture) has been described as “powerful but unpersuasive”.119 These limiting factors, however, do not disprove the insight derived from examples above, that powerful States are far more likely to influence international customary law than less powerful States.

3.1.3.4

Power Differentials and the Conclusion of Treaties

The impact of power on international treaties has seldom become the focus of legal scholarship.120 Competing arguments exist as to which source, treaty or custom, is more prone to be corrupted by power. Some argue that the impact of powerful States on customary law is stronger than on treaty law, as customary law-making is more flexible and the content more vague.121 Others promote the view that non-universal treaties, especially bilateral ones, are more likely to be influenced by power differentials than universal international customary law.122 Irrespective of this rather futile debate, the following inquiry demonstrates how, and through which means, powerful States have at times strongly influenced both bilateral and multilateral treaties.

Unequal Bargaining Power Despite the principles of sovereign equality and consent, bargaining power—based on factors as diverse as economic dependence, the implicit threat of sanctions or promised benefits, experience and knowledge of negotiators—informs the content of international treaties. This applies both to the conclusion phase of a treaty as well as

116

See for a detailed assessment: Miles (2013), p. 49 et seqq. Anghie (2005), p. 238. 118 This is despite the fact that in some special transformative moments the creation of custom might happen faster. See e.g.: Scharf (2013). Still, the notion of so-called ‘instant custom’ might be to far-reaching. 119 Toope (2003). 120 See for some exceptions: Klein (2003); to some extent also: Guzman (1998) and the studies cited below. 121 In that direction: Byers (2003), pp. 37–40; Krisch (2005), p. 378. 122 See e.g.: Toope (2003), p. 289. 117

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to its interpretation, especially as interpretation is informed by the subsequent practice of State Parties.123 International law imposes only limited obstacles to the use of power in treaty making. While fraud, corruption, coercion of State representatives, and the threat and use of force against a State to procure the conclusion of a treaty render a treaty void; economic, political, and even military pressure below the threshold of the threat or use of force do not affect the validity of an international treaty.124 The following categories of example demonstrate the importance of bargaining power. Trade negotiations are probably one of the prime examples. It has generally been concluded that European countries and the United States have dominated bargaining at the GATT/WTO from the early GATT years up until the early WTO years.125 Why have these powerful States in a consensus-based system been more likely to influence trade rules? In trade negotiations, relative market size is “the best first approximation of bargaining power”.126 This is because States largely operate on mercantilist thinking according to which they treat foreign market-opening and accompanied export opportunities as domestic political benefits whereas their own domestic marketopening is perceived as a cost.127 Therefore offerings of market-openings and threats of market-closure have acted as the currency of the post-war GATT era and continue to do so.128 According to that logic, larger and richer economies have more to offer than smaller ones. Therefore, larger developed markets are better placed to use promises of market-opening, threats of market-closure, or a combination of both, to influence trade negotiations. Moreover, larger economies usually have greater internal trade possibilities providing them with a better alternative to a negotiated agreement than smaller and often more specialized economies. Therefore, multilateral trade agreements in the twentieth century were largely built on political agreements between industrialized States. These States focused on liberalizing trade for products produced by each other, however brought little trade liberalization for

123

See: Article 31 para. 3 b) Vienna Convention on the Law of Treaties; the fact that treaties are thereby influenced by subsequent state practice also allows parallels to be drawn regarding the influence of power on customary law. 124 See: Articles 49–52 VCLT. As historical background, it is important to know that developing States tried to enlarge the scope of reasons affecting the validity of treaties, as they sought to address military, political, and economic pressure. However, for matters of legal certainty, Western States objected and ultimately succeeded in limiting the reasons for the invalidity of treaties to those noted, which today are included in section 2 of the VCLT. See for a brief analysis of the negotiating history and competing arguments: Pellet (1989), p. 42. See for the argument that this makes international treaties more open to the exertion of power than domestic ones: Byers (2003), p. 36. 125 See e.g. Steinberg (2002), p. 341; Joseph (2011), p. 62; see for an analysis of the role of developing countries under GATT: Hudec (2010). 126 See for the quote and the following arguments: Steinberg (2002), p. 347 with further references. 127 See: Steinberg (2002), p. 347 and Barton et al. (2010), p. 10, both with numerous further references. 128 Steinberg (2002), p. 347; Barton et al. (2010), p. 10 et seq.

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sectors where developing countries had competitive advantages (e.g., agricultural or the textile products).129 Aside from this more direct importance of economic power, economic resources of a country may also have strong implications for the technical know-how of negotiators and their capabilities to negotiate treaties responsive to their economy’s’ needs.130 Again, the example of the WTO further illustrates the point. To begin with, smaller States usually only operate small missions in Geneva (if at all) which tend to be ill-equipped and staffed and often do not include a specialized unit on trade issues. Instead representatives have to deal with a number of other issues and lack technical and legal expertise in trade law.131 In comparison, economically powerful actors like the United States and the EU have designated and well-staffed permanent WTO missions.132 These missions have a crucial role in preparing WTO Ministerial Conferences where Member States finalize new decisions and agreements. At these conferences, again, poorer States often are represented only by a handful of negotiators while the U.S. and EU delegations comprise hundreds of experts.133 It can reasonably be assumed that the size and training of a delegation brings crucial benefits for these States in negotiations.134 Finally, WTO negotiations are notorious for their ‘green room talks’, where only a limited number of States are invited (usually the most powerful economically). Agreements found within that inner WTO circle have often been presented to other delegations in a ‘take it or leave it’ manner. This exclusion is said to have “generated substantively unfair outcomes” and surely led to “feelings of marginalization and resentment amongst those excluded”.135 Rather drastically, Steinberg has described the WTO’s consensus decision-making process as “organized hypocrisy”.136

129

Steinberg (2002), p. 348. See from a practitioner’s perspective: Pinto (1983), p. 315. 131 On these problems see e.g. Busch et al. (2008), p. 5 et seqq. (basing their findings on surveys and interviews with developing country trade representatives). For empirical evidence on African countries, revealing significant improvements between 1995 and 2010, but still relatively low capacity in comparison to other regions: Apecu Laker (2014), p. 13 et seqq. Moreover, it must be noted that some WTO initiatives have sought to address these problems by providing seminars and workshops for developing country staff. For example, the WTO Institute for Training and Technical Cooperation and the WTO’s Advisory Centre on WTO LAW (ACWL) offer legal advice and training opportunities. 132 See for more information the respective websites of the Permanent Mission of the EU to the WTO: https://eeas.europa.eu/delegations/world-trade-organization-wto_en; and of the U.S. Mission to the WTO: https://geneva.usmission.gov/us-mission-wto/. Accessed 11 Sept 2020. 133 See e.g. the Hong Kong Ministerial meeting where the United States reportedly sent 356 delegates while Burundi send three: Oxfam (2005), p. 5. 134 See e.g. Joseph (2011), p. 62. 135 Joseph (2011), p. 63. 136 Steinberg (2002), p. 342. 130

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Power and the Content of Treaties What consequences does unequal bargaining power bring for the content of treaties and how can we depict whether a theoretically fair and inclusive treaty in fact serves some States better than others? The extent to which a dominant State can influence treaty content can be assessed by examining the various stages of the treaty negotiation process and the content of the treaty itself.137 A treaty may be regarded as corrupted by power if a cost-benefit analysis indicates that the treaty strongly favours the powerful State’s interests. While what is in the interest of the powerful State may sometimes be difficult to assess due to sometimes competing domestic interests (e.g., of different lobby groups), a useful indication is whether the treaty is based on the dominant State’s draft proposals or model treaty texts.138 Existing studies on this form of influence reveal that the United States quite successfully influenced international treaties in the 1990s and often achieved its set goals in negotiations. For example, the United States markedly shaped the content of multilateral international treaties on diverse subjects ranging from the 1996 Comprehensive Test Ban Treaty to WTO agreements that entered into force in 1995.139 One particularly striking example is the treaty on Trade Related Aspects of Intellectual Property Rights (TRIPS). U.S. pharma companies successfully lobbied the U.S. government to promote their interests in negotiations leading to the agreement, ultimately claiming a significant victory against the opposition of many developing countries.140 Another example is the WTO Agreement on Agriculture, which was reportedly originally drafted by Dan Amstutz the U.S. Chief Negotiator for Agriculture during the Uruguay Round.141 Tellingly, Amstutz had earlier served as the vicepresident of the U.S. based agribusiness giant, Cargill, and later worked as the executive director of the North American Export Grain Association, a trade association and lobbying group that represents U.S. exporters. Despite these notable triumphs, the United States has not succeeded in every negotiation of an international treaty. Nevertheless, a pattern of the United States using reservations and unilateral declarations to protect its perceived interests, whenever it does not fully succeed in promoting its preferred content, is evident.142 In the words of Pierre Klein: When it was not able to press its position to shape treaty regimes according to its wishes, the United States only agreed to become a party to these regimes once it had ensured, through

137

Klein (2003), p. 364. See in more detail on the usage of model texts in investment treaty negotiations: Chap. 4, part B. See on Model BITs generally and for an overview of existing models: Brown (2013). 139 Klein (2003), p. 365. 140 Sell (2003), pp. 96–120; see also the collected insights by negotiators in: Watal and Taubman (2015). 141 Joseph (2011), p. 58; Murphy (2005), p. 30. 142 See on reservations by the United States to human rights treaties: Redgwell (2003). 138

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reservations and unilateral declarations, that the impact of those international obligations upon its domestic legal order would remain marginal.143

All in all, the U.S. approach to international treaties can be described as oscillating between two poles: instrumentalization and withdrawal.144 Whenever the United States has succeeded in instrumentalising treaties for its own goals, it has agreed on its terms and pushed others to do so as well. Yet, whenever it has failed, it has either withdrawn from negotiations or even signing (as in the case of the Rome Statute), or has done away with perceived negative impacts for United States interests by issuing reservations.

Why Do Weak States Sign Treaties That Hurt Them? A question that lingers within this discussion of treaties and power is why do weaker States sign treaties that allegedly hurt them?145 The answer is complex and has not been comprehensively analysed. Using the words of Pellet, the short answer is probably “because they need to”.146 But why do they need to sign treaties? Pellet argues that weaker States may need money, technical assistance or other help and may feel a strong necessity (stemming from internalized functional and status-rooted privileges) to participate in international law making to prove their membership to the international community.147 One may add, that in some cases weaker States may sign treaties because of promises offered that later do not materialize. For example, many developing countries seem to have believed (and were encouraged to believe) that BITs are necessary to attract foreign investment. Moreover, given economic rivalry and competition among different developing countries to attract investments, the conclusion of BITs promised to bring a competitive edge in relation to States without such treaties.148 Developing countries and LDCs did not sign BITs that grant foreign investors special rights with reciprocity in mind (as FDI stocks or flows from these countries were non-existent or marginally low), let alone because of notions of justice, but because they felt the need to compete with other developing States for investment and were told that concluding a BIT would provide a competitive advantage.149 However, today the role of BITs in attracting investment is controversial at best.150

143

Klein (2003), p. 370 et seqq.; on the example of human rights: Redgwell (2003). Krisch (2005), p. 379. 145 See on this question: Guzman (1998). 146 Pellet (1989), p. 43. 147 Pellet (1989), p. 43 with further references. 148 Guzman (1998), p. 643. 149 Guzman (1998), 688. 150 See for more on economic assessments of the role of investment protection for attracting FDI: Sect. 3.2.1.2. 144

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In any case, as most developing countries concluded BITs (assumed) competitive advantages were lost from a relative perspective. Relatedly, choosing not to sign up to a treaty may in some cases lead to even stronger negative economic consequences than a decision to participate. An illustrative example is the conclusion of the Uruguay Round that led to the creation of the WTO and its numerous trade-related treaties.151 Developing countries from the start of negotiations objected to the inclusion of agreements on TRIPS, TRIMS and GATS. However, U.S. negotiators considered these agreements crucial to national interests and necessary to achieve support by the U.S. Congress. Therefore, the United States reportedly decided to use what was internally referred to as “the power play” to bring developing countries to accept all treaties as ‘a single undertaking’.152 To convince other countries to join WTO agreements—in particular on IP matters— the United States exerted pressure by threatening to impose unilateral trade sanctions through Section 301 of its 1974 Trade Act and the Special 301 provision of its 1988 Omnibus Trade and Competitiveness Act.153 Maybe even more importantly, the United States and the European Community (EC) reportedly agreed to establish the GATT 1994 as legally distinct from GATT 1947154 and to stop provisional application of GATT 1947155 following the commencement of WTO membership.156 Thereby GATT 1947 Members not joining the WTO would have seen a deterioration of their access to important U.S. and EC markets and would have been placed largely outside the world market. Mathias Risse has aptly described developing countries’ options to either join the WTO or stay outside, as “a choice between the Scylla of subjugation to unwanted and perhaps unreasonable norms and the Charybdis of isolation.”157 ‘Divide and Conquer Tactics’ in International Treaty Making The extent to which a treaty can be corrupted by power depends on the discrepancy of power in any given case. This discrepancy of power often appears most prevalent in bilateral treaties, whereas in multilateral forums less powerful States are more

151

See for a good summary: Steinberg (2002), p. 359 et seqq. See: Steinberg (2002), p. 360. 153 See for a U.S. perspective on the matter: Field (2015), p. 132 et seqq. On how the threat of unilateral action influenced India’s position (from the perspective of a former Indian trade representative in the Uruguay Round), see: Ganesan (2015), p. 219. 154 See: Article II para. 4 of the Agreement Establishing the World Trade Organization, 15th April 1994, 1867 UNTS I-31874. 155 It must be noted here that GATT 1947 never formally entered into force but was only applied provisionally based on the Protocol of Provisional Application of the GATT, 30 October 1947, 55 UNTS 308. 156 Steinberg (2002), p. 360. 157 Risse (2012), p. 351. 152

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likely to build coalitions and thereby to bundle their power.158 Consequently, one often observes the phenomenon that powerful States, when faced with opposition from a majority of less powerful States, retreat from multilateral fora or treaty making processes and turn to bilateral or regional alternatives. The move towards bilateral treaties can be seen as a strategic tool of powerful actors, but also indicates a lack of power in the first place. The shift indicates that the respective powerful State was not powerful enough to push through its agenda in the multilateral forum. The turn to bilateral and regional free trade agreements—because of repeated stalls of the DDR—is one case in point.159 In some instances, powerful States may also use bilateral treaties to contain effects of multilateral treaties of which the powerful State is not a member. The U.S. approach to the Rome Statute and the ICC’s jurisdiction is a clear example. As the Rome Statute provides the ICC jurisdiction over certain crimes committed in the territory of a member State,160 the case could emerge that U.S. personnel involved in military activities abroad might face criminal proceedings despite the United States not being a member of the Rome Statute. Thus, the United States has sought to protect its military personnel from foreign prosecution through the conclusion of bilateral immunity agreements.161 Further, the United States in some cases halted military assistance to parties of the Rome Statute (apart from its closest allies).162 Further, States not willing to sign bilateral immunity agreements reportedly saw severe cuts of development aid.163 An important consideration when analysing the shift to bilateralism is that such bilateral treaties may not only regulate the relations between treaty partners but can also affect third country States, in particular when considered in the long run.164 These treaties may establish so-called ‘gold standards’ in a particular issue areas, which—after their establishment—become much more difficult to be resisted by third States.165 For example, in the areas of trade and investment, States may feel compelled to conclude international treaties that offer similar or even higher protections than under the ‘gold standard’ treaty in order to be competitive as an investment destination. So-called mega-regional trade agreements have a broader regulative agenda, including setting standards for labour and environmental 158

See generally on that phenomenon: Benvenisti and Downs (2010). See e.g. Benvenisti and Downs (2010) and Benvenisti (2016). 160 See Article 12 para. 2 a) Rome Statute. 161 See for an overview of U.S. measures taken against the ICC: Galbraith (2003). 162 American Servicemembers’ Protection Act, Pub L. No. 107-206, §§2001–2015, 116 Stat. 820 (2002), 22 U.S.C.A. §§7421–7433 (West Supp. 2002) which is directed against ICC activities against U.S. service members and in Section 2008 prohibits U.S. military assistance to States which become parties to the ICC Statute with the exception of its closest allies (NATO members and some others). 163 See e.g. Black and Jacques (2004), p. 19. 164 See on such effects, e.g.: Bhala (2014) and Rodriguez Mendoza (2014). See from a democratic perspective: Benvenisti (2016). 165 See on the idea of a ‘gold standard’ in international investment treaties: Alvarez (2016). 159

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protections, harmonizing regulation on diverse areas such as safety standards and rules on e-commerce, setting standards on investment protection, and on regulating State-owned enterprises. Now, given U.S. and EU market power, rules set by these actors not only affect their own markets but also have crucial ramifications for other States and their exporters seeking market access.

3.1.3.5

Power and Judicial Dispute Settlement

International courts should provide neutral and objective adjudication and hold States responsible no matter how powerful they are. But is it possible that power corrupts judges? Discussions surrounding the fairness of—and allegations of judicial overreach against—international courts appear to be quite longstanding.166 However, today the very fact that many of the world’s most powerful States have troublesome records with accepting the jurisdiction of international judicial bodies intuitively suggests that these legal bodies act independently and that their judgments potentially impose legal obstacles to the pursuit of national interests by the powerful. The ICJ’s Nicaragua case provides a prime example. After the ICJ rejected the United States’ argument that the court lacked jurisdiction to hear the case, the United States refused to participate in further proceedings. However, the ICJ still (in absentia) ruled against the United States on all major points.167 While the United States never paid the required compensation and withdrew its compulsory acceptance of the ICJ’s jurisdiction, the court itself appeared to be unbiased and willing to rule even against one of the two major superpowers of the time. Moreover, it is not the United States alone that is (at times) unwilling to accept international judicial dispute settlement. Actually, most of the militarily powerful States refused to become members of the Rome Statute in an effort to avoid the ICC’s jurisdiction. This remains one of the reasons why the court’s legitimacy has continually been questioned.168 Recently, China did not appear before the Permanent Court of Arbitration (PCA) in the South China Sea Case and appears unwilling to accept the judgment which was issued in absentia as legally binding.169 Other examples include accusations of judicial overreach against human rights courts. The UK for example has discussed withdrawal from the European Convention on Human Rights

An example is the ‘Siegerjustiz’ (‘victors’ justice’) argument in relation to the Nuremburg tribunals and later international criminal tribunals and courts. See for a comprehensive assessment of the differing legal problems involved at Nuremberg, see: Jung (1992); see also: Minear (1971) and Schabas (2010). 167 Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), Judgement. ICJ Reports 1986, p. 14. 168 Notably the US, Russia, China and India are absent. See on the reasons for the US’s “hostility” to the court: Conso (2005). 169 South China Sea Arbitration, Republic of the Philippines vs. People’s Republic of China, PCA Case No. 2013-19, Permanent Court of Arbitration, Final Award (12 July 2016). 166

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(ECHR) after losing some cases on perceived ‘sensitive’ issues (e.g., prisoners’ voting rights).170 Russia is also a clear case in point with a troublesome record of human rights violations and an apparent unwillingness to accept judgements against the State by the European Court of Human Rights (ECtHR).171 Despite this problematic relationship between great powers and international judicial dispute settlement—which is most likely not limited to great powers but becomes more problematic with great powers because of their role-model function— debates also exist on the question whether courts and other international dispute settlement mechanisms may be biased against weaker States. Discussions surrounding the international criminal court’s alleged bias against African States172 and international investment arbitrator’s alleged bias against host States of the Global South, stick out as perhaps the most controversial and politically loaded examples. Less well-known but nonetheless insightful are discussions relate to the WTO’s Dispute Settlement Mechanism’s (DSM) alleged bias in favour of important trading powers.

International Investment Arbitration The neutrality, procedural fairness and objectivity of investment tribunals and arbitrators have become seriously questioned in recent times. General concerns are universally applicable covering North-South, North-North, South-North and SouthSouth relations. However, capital exporters are still mostly located in the Global North. Case statistics illustrate that powerful Western States, such as the United States or Germany, are still predominantly the home States of claimants and in turn only received very small numbers of cases as respondents, of which they succeeded in defending in most if not all cases.173 In comparison, for most developing countries the claimant/respondent ratio is exactly the opposite, with Argentina and Venezuela being the clearest examples.174

170

See e.g.: Baade (2013) and for a comprehensive evaluation of critiques against the European Court of Human Rights: Baade (2017). 171 For an in-depth analysis of the relationship between Russia and the ECtHR and the role of the Russian Constitutional Court, see the collected papers in: Mälksoo and Benedek (2017). 172 See e.g. Niang (2017), Clarke et al. (2016) and Kaleck (2012). 173 Statistics from UNCTAD as of December 2020 (available at http://investmentpolicyhub.unctad. org/ISDS/FilterByCountry) illustrate that for example U.S. investors brought 190 cases against foreign host States while the United States only received 19 cases as a respondent (most of them under NAFTA’s investment chapter). Ten were decided in favour of the US, four were settled, and three were discontinued, but none of them were lost. Germany only received four cases as a respondent, while 71 cases were brought against foreign States by German investors. Of the four cases brought against Germany two were settled and two are still pending (Vattenfall II). 174 As of December 2020, Argentina had received 62 cases as a respondent, but only five cases were brought against other States by Argentinian investors. Of these cases, foreign investors won 21 cases, but only five were won by Argentina. Other cases are still pending, have been settled,

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Given these numbers it is not surprising that many developing countries have voiced strong critique against international investment arbitration. For example, Bolivian president Evo Morales reportedly stated that developing countries in Latin America “never win the cases. The transnationals always win.”175 In fact, of the fourteen cases brought against Bolivia, the State lost two, settled ten, but did not win one.176 Following these experiences, Bolivia was the first country that ever withdrew from the ICSID convention,177 followed by Ecuador178 and Venezuela.179,180 All three countries have also withdrawn from some of their BITs.181 In the following years, developing States around the world have also become wary of investment arbitration tribunals, leading to South Africa and Indonesia, among others, withdrawing from many of their BITs.182 Intuitively, what has been said about economic power and international law-making might be applied on bringing and defending cases before international investment tribunals. Economically powerful States with well-staffed and trained legal offices and the financial ability to pay for qualified external legal advice appear more likely to make convincing legal arguments in court. The same is true for transnational corporate entities that bring cases against Southern States and have the financial capacities to pay for expensive law firms. On the other end of the spectrum many developing countries may face problems to even finance defending cases, let alone paying huge amounts of compensation following a lost case, and they are seldom home to transnational companies investing abroad. However, criticism by developing States alone does not prove the point of a lack of procedural fairness and alleged biases of investment arbitrators against them. Moreover, in recent times both the EU and the United States, and their societies, have become wary of investment arbitration,183 suggesting that biases appear to be were discontinued, or no information is available. Venezuela had received 53 cases as a respondent and only one case has been brought by a Venezuelan claimant. 175 Cited in: Franck (2009), p. 436. 176 This assessment is based on data from UNCTAD’s: available at: http://investmentpolicyhub. unctad.org/ISDS/CountryCases/24?partyRole¼2. 177 ‘Notice of denunciation under Article 71 of the ICSID Convention’, 2 May, 2007. 178 ‘Notice of denunciation under Article 71of the ICSID Convention’, 7 January 2010. 179 ‘Notice of denunciation under Article 71 of the ICSID Convention’, January 2012. 180 See on how investors nonetheless were able to sue Bolivia both under ICSID and other fora in recent years: Rivera and Azuga (2017). 181 As of January 2021, Bolivia had terminated 16 BITs out of a total of 23 BITs. Venezuela has terminated two BITs (Netherlands and Ecuador) but 28 of its BITs are still in force. Ecuador has terminated 24 of its BITs out of a total of 30 BITs. All information on the status of BITs is taken from UNCTAD’s Investment Policy Hub, available at: www.investmentpolicyhub.unctad.org. 182 As of January 2021, South Africa had terminated 11 BITs (Austria, Argentina BLEU, Denmark, France, Germany, Italy, the Netherlands, Spain, Switzerland and the United Kingdom) out of a total of 50 BITs and Indonesia had terminated 30 BITs out of a total of 72 BITs. 183 Examples are the criticism the Vattenfall arbitrations sparked in Germany, anti-TTIP protests, and U.S. law professors’ opposition to ISDS clauses in trade agreements (‘Letter from Alliance for Justice to U.S. Congressional Officials and U.S. Trade Representative’, 11 March 2015, available

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based not on the identity of a State but rather are held against home States generally.184 Still, NGOs185 as well as scholars186 continue to argue that international investment tribunals are inherently biased against developing countries and reluctant to decide against powerful States. Some arguments indeed appear convincing. The costs of investment arbitration, including both the costs to defend a case and the (sometimes excessive) compensation due in lost cases, are certainly more burdensome to poorer countries than for richer ones. Supportive of the broader argument is also the fact that the “invisible college” of investment arbitrators has a serious diversity problem, with arbitrators from developing countries clearly underrepresented.187 However, empirical studies by Franck suggest that there is neither a significant correlation between the identity as a developing country (defined either as non-membership in the OECD or according to different categories provided by the World Bank) and winning or losing a case, nor does the status matter for the amounts of damage awarded in comparable cases.188 The same empirical studies also found no significant correlation between arbitrators’ nationality and their likelihood to rule against or in favour of developing countries.189 These studies, as admitted by their author, are however, too limited to fully exclude the possibility of systemic bias in investment arbitration against the Global South. Nonetheless, Franck argues that focusing on development status alone seems to be unwarranted and other alternative explanatory variables, such as internal levels of democracy or other indicators of good governance appear to be of more importance for winning or losing Investor-State Dispute Settlement (ISDS) cases.190 While these empirical studies may suffer from some methodological flaws191 they nonetheless convincingly demonstrate that it is not as easy as critics of ISDS suggest it to be, namely that arbitrators directly discriminate against developing States. at: http://www.afj.org/wp-content/uploads/2015/03/ISDS-Letter-3.11.pdf) and U.S. President Trump’s opposition to TPP and efforts to renegotiate NAFTA (both of which include investment arbitration clauses). 184 See in that vein: Bernasconi-Osterwalder (2005), p. 69 (stating that “host States cannot be winners in investment arbitration”). 185 See e.g.: Food and Water Watch (2007) and Perez et al. (2011). 186 See e.g.: Sornarajah (2006), p. 32 et seqq.; Sornarajah (1991); Shalakany (2000); Benvenisti (2016), p. 9 (“In the case of the most relevant international adjudication, in trade and investment disputes, the reticence of international judges and arbitrators to decide against influential State parties is clearly evident.”). 187 See: Franck et al. (2015) who inter alia analysed the diversity of a group of 67 international investment arbitrators and found that the median international arbitrator was a fifty-three year old man who was a national of a developed State. Another case study identified a pool of 145 investment arbitrators from 40 different countries of which 109 arbitrators (75%) were from OECD countries, see: Franck (2009), p. 458. 188 Franck (2009); see also the later study by the same author: Franck (2014). 189 Franck (2009), p. 448 et seqq. 190 Franck (2014), p. 70 et seq. 191 See on these methodological issues: van Harten (2012) and Gallagher and Shrestha (2011).

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Still, the simple fact remains that States of the Global South have faced and still face proportionally more claims than Northern countries.192 Moreover, empirical studies on the outcomes of arbitration cases could not take into account that in many cases investors may be able to get concessions from host States by the simple threat of initiating expensive arbitration. The looming threat of expensive arbitration may lead Southern host States to anticipatory obedience (often described as ‘regulatory chill’). Unfortunately, such anticipatory obedience is hard to measure and empirical evidence thus far is lacking.193 All in all, it appears that despite findings by empirical studies cited above, there remain convincing—yet thus far empirically unproven—arguments that developing countries benefit less from investment arbitration than do developed ones. While systemic bias appears hard to grasp, it remains a fact that, despite some changes in the pattern of investment flows (described in more depth below) the predominance of the Global North as a capital exporter and origin of investors suing Southern countries remains valid.

The WTO Dispute Settlement System: From the Rule of Power to the Rule of Law? The move from GATT 1947 to WTO agreements also saw the shift from a strongly politicized system of dispute settlement towards a judicialized system based on compulsory jurisdiction.194 The WTO’s Dispute Settlement Mechanism has sometimes even been praised as the most efficient and large scale global dispute settlement mechanism.195 This transformation has been depicted as a major step away from a system of ‘power politics’ towards a system where right perseveres over might.196 However, an appraisal from today’s perspective indicates that it is more complicated. We have already seen that WTO agreements were shaped by the preferences of some important actors, most notably the United States and the EC. Is the WTO’s 192

See on the importance of that point and the critique that Franck overlooked the significance of the disproportionate number of claims also: Gallagher and Shrestha (2011), pp. 3 and 7 et seqq. 193 See for one empirical study on the subject (which however argues that more research, especially from disciplines other than law is needed): Tienhaara (2011). 194 Under GATT 1947 the practice emerged—and was later codified—that the positive consensus of all members was required to establish a panel, allowing defendants to block judicial review, see e.g.: Understanding Regarding Notification, Consultation, Dispute Settlement and Surveillance (28 November 1979). In contrast, the WTO’s Dispute Settlement Understanding (Articles 6 para. 1, 16 para. 4 and 17 para. 14) allows the establishment of Panels, review by the Appellate Body, and the adoption of their reports, unless Member States object by consensus (so-called negative consensus). See on the judicialization of the Multilateral Trading System e.g.: Marceau and Azevedo (2015). 195 See e.g.: Howse (2016). 196 See e.g. Lacarte-Muró and Gappah (2000), p. 401. See on that perceived change also: Busch and Reinhardt (2003), p. 719.

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dispute settlement also an instrument of power? Two arguments need to be considered here: Firstly, a lack of legal capacity may seriously limit developing countries’ ability to defend and bring cases. Secondly, as the WTO’s Dispute Settlement Body (DSB) ultimately can only authorize retaliation,197 a lack of market power by individual developing countries may hinder effective enforcement. Increasingly, the focus of scholars has shifted away from the enforcement problem towards the legal capacity problem. While legal capacity may appear more important as a first step to improving developing countries’ abilities to use the WTO dispute settlement system, it is argued here that enforcement still matters, as developing countries may shy away from legal procedures if enforcement and compliance appear unachievable. Economic power is crucial for the enforcement of international law through countermeasures and other forms of sanction. This is even the case within the supposedly judicialized WTO system. Ultimately, the sharpest sword of the WTO dispute settlement system is granting a successful claimant the authority to suspend concessions to bring the respondent State to implement the recommendations and ruling.198 However, such a suspension of concessions is only meaningful if the claimant’s market is of considerable size and importance to the respondent.199 Thus, actors with huge economic markets, such as the EU or the United States, have far greater capabilities to implement significant suspensions of concessions than States with smaller markets. On the other hand, individual developing countries typically have relatively small volumes of trade with developed countries, making their retaliatory action far less effective. Legal capacity regarding dispute settlement, can be defined as the “institutional resources required to prepare, prosecute and monitor a case, including legal, economic and diplomatic staff”.200 While legal capacity should not automatically be equated with the general wealth of a country201 some links certainly exist. As described by Shaffer et al., legal capacity is crucial in at least four ways: “for the negotiation and drafting of international legal agreements; for the monitoring of foreign compliance with these commitments and as leverage in informal dispute settlement; for the development of legal arguments and interpretation of legal texts in formal international litigation; and for the tailoring of domestic regulatory policy in light of the agreements’ flexibilities and constraints”.202

197

See Article 22 of the Understanding on Rules and Procedures Governing the Settlement of Disputes. 198 Article 22 WTO Understanding on Rules and Procedures Governing the Settlement of Disputes. 199 See e.g.: Stiglitz and Charlton (2005), p. 77; Joseph (2011), p. 67. 200 Busch et al. (2008), p. 3. 201 Daku and Pelc (2017), pp. 235 and 246. 202 Shaffer et al. (2015), p. 601 et seq.

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It is relatively clear that the ability of many developing countries to make use of the dispute settlement system is heavily constrained by a lack of legal capacity.203 The comprehensive legalization of international trade disputes has the downside of more complex procedures and consequently raises transaction costs for settling disputes.204 Increased complexity of WTO law—an additional 30,000 pages of trade law took effect in 1995—and the voluminous body of WTO ‘case law’ (Panel and Appellate Body Reports regularly stretch over hundreds of pages) has intensified the problem.205 As already described above, some developing countries lack permanent WTO missions in Geneva and those missions operated by developing countries are often badly staffed and financed. Thus they lack institutional resources to systematically monitor foreign trade policy, which would enable them to identify and pursue cases. Because of constrained financial resources, hiring outside counsel is also difficult.206 While there have been several important initiatives to increase legal capacity in developing Member States, such as the establishment of the Advisory Centre on WTO Law,207 statistics illustrate that developing country WTO Member States are still largely absent from WTO dispute settlement processes, both as claimants as well as respondents.208 The success stories of Brazil, China and India—to be further discussed in Chap. 5—which were able to substantially increase legal capacity, enabling them to make better use of the WTO’s dispute settlement system,209 do not challenge that argument but rather confirm the importance of legal capacity and economic power. Several empirical studies prove the importance of legal capacity. Taking antidumping as an example, an in-depth study by Busch et al. demonstrates that States with abundant legal capacity are more likely to challenge other States’ anti-dumping duties imposed against their exporters through dispute settlement and are less likely to be targeted by anti-dumping measures of other countries.210 Recent studies demonstrate that legal capacity does not only affect the ability of countries to file

203 See e.g.: Busch and Reinhardt (2003); Guzman and Simmons (2005); Busch et al. (2008); Daku and Pelc (2017), p. 246. 204 See e.g.: Busch and Reinhardt (2003), p. 721; see on the problem of complexity also: Shaffer (2006), p. 181 et seq. 205 See e.g. Busch et al. (2008), p. 4. It must be noted that Panel and AB reports are not legally binding per se. Still, subsequent reports are very likely to follow interpretations and decisions rendered in older reports. 206 See on these challenges: Shaffer (2006); Busch et al. (2008), p. 4. 207 See on the work of the Advisory Centre on WTO Law (ACWL): http://www.acwl.ch/. 208 For example, most African States have never been respondents or complainants, while the US, the EU and Canada have acquired a bulk of cases both as respondents and claimants, see WTO data available at: https://www.wto.org/english/tratop_e/dispu_e/dispu_maps_e.htm. 209 See the insightful studies provided by Shaffer et al.: Shaffer et al. (2008), Shaffer and Gao (2018) and Shaffer et al. (2015). 210 Busch et al. (2008).

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disputes but also their ability to shape the language of resulting jurisprudence.211 They demonstrate that powerful WTO Member States like the United States and the EU are better able to push for their preferred terms in Panel- and AB reports and thereby are often able to shape legal precedents in their interest, even in cases they ultimately lose.212 Another study by Brutger and Morse convincingly argues that WTO panels tend to exercise judicial restraint and limit the negative effects of their judgements when the United States and EU are concerned, in an “effort to balance the demands of law with the concerns of powerful members”.213 This practice, among other things, results from concerns that powerful members may otherwise not comply with judgements of the Panels.214 What then do we make of the fact that—in contradiction to presented findings— the United States remains highly critical of the WTO’s dispute settlement system accusing the Appellate Body of judicial overreach with negative implications for U.S. interests? As Daku and Pelc have put it: One central irony is that those same countries, like the US, that profess to be most wary of judicial rule-making are also best at leveraging the judicial process to define the meaning of the rules in a way that suits their interests.215

In fact, the U.S. 2017 Trade Policy Agenda stated as one of its key objectives: “Resisting efforts by other countries or Members of international bodies like the World Trade Organization (WTO) to advance interpretations that would weaken the rights and benefits of, or increase the obligations under, the various trade agreements to which the United States is a party.”216 This ‘resistance’ has repeatedly taken the form of blocking the appointment of judges for the AB. In 2011, the Office of the U.S. Trade Representative refused to support the former U.S. member of the AB allegedly for failing to defend U.S. legal perspectives.217 Further, the United States refused to support the candidacy of the Kenyan James Thuo Gathii who at that time taught international law in Chicago and would have been the first black, sub-Saharan African member of the AB.218 In 2016, the United States publicly announced objection to the reappointment of the South Korean judge Seung Wha Chang. The reason for that decision reportedly was not a lack of independence or judicial competence, but his participation in decisions against the United States.219 Under the Trump administration the crisis of the AB further unfolded. The United States 211

Daku and Pelc (2017). Daku and Pelc (2017), pp. 233 et seqq.; 245 et seqq. 213 Brutger and Morse (2015). 214 Brutger and Morse (2015). 215 Daku and Pelc (2017), p. 236. 216 Office of the United States Trade Representative 2017 Trade Policy Agenda and 2016 Annual Report of the President of the United States on the Trade Agreements Program (2017). https://ustr. gov/sites/default/files/files/reports/2017/AnnualReport/AnnualReport2017.pdf., p. 2. 217 See: Hufbauer (2011). 218 See: Shaffer et al. (2016), p. 271. 219 Shaffer (2016). 212

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continues to block new appointments of AB members arguing that WTO parties need to address “systemic problems” of the dispute settlement system first. By now, AB membership has fallen below the required minimal number of three judges to serve on one case, and consequently the Appellate Body is dysfunctional.220 Even more the whole dispute settlement system is in peril, as States are now able to prevent panel reports from being adopted by strategically appealing panel decisions.221 These developments, however, should not be taken as proof that the WTO’s Dispute Settlement System really is biased against U.S. interests. Instead, these disputes over the nomination of candidates for judges are a clear sign that the United States is highly aware of the fact that the choice of judges matters for the interpretation of treaties and that pressure imposed may bear ‘positive’ results for U.S. interests.

3.1.4

Evaluation: Rules of Power and the Power of Rules

Power matters for international law and there are many ways power shapes the content of international law. However, equalling law with power would be too simplistic. Law and power are not antithetic but stand in a complex relationship to one another. Sovereign equality provides some protection for smaller, less-powerful States, however at the same time it veils the fact that power matters nonetheless. Sometimes, powerful States are able to instrumentalise international law for their purposes and at times they may withdraw from legal regimes or simply disregard them. Still, the need to gain legitimacy by referring to acknowledged international principles and rules also restrains the open pursuit of national interests. This somehow contradictory, or better differentiated, assessment should not leave us entirely puzzled about the relationship between law and power. At a minimum, we can draw one central conclusion: Powerful States are more likely to influence international law than less powerful States are, but often the latter may profit from international law nonetheless (at least in comparison to an otherwise anarchic international order). This assessment of course is based on the particular features and historical context of the examples provided. Most examples stem from a time of Western and U.S. dominance in international law. In a more diversified multilateral, or multihub system, it may well be that less powerful States might play an increased role as they might exert power and influence on an issue-specific basis.222 The increasing number of indispensable States and the lack of a global hegemon may further

220

Article 17 para. 1 of the Dispute Settlement Understanding. Article 16 para. 4 of the Dispute Settlement Understanding. 222 Burke-White (2015), p. 26 et seqq. 221

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complicate the achievement of consensuses.223 However, the fact that power may become more broadly shared does not contradict the central argument that power will still matter.

3.2

The Third World and International (Economic) Law

The larger ‘Third World project’ has been characterized as the “first real legal and political counter-narrative influential enough to challenge the representation of the world that the West had imposed until then”.224 This agenda culminated in the 1970s in several UNGA resolutions aiming at nothing less than the establishment of a New International Economic Order [. . .] based on equity, sovereign equality, interdependence, common interest and cooperation among all States, irrespective of their economic and social systems which shall correct inequalities and redress existing injustices, make it possible to eliminate the widening gap between the developed and the developing countries and ensure steadily accelerating economic and social development and peace and justice for present and future generations.225

This Third World project and its agenda to establish a New International Economic Order (NIEO) has been characterized by many as attempts to make international law more reflective of the needs of developing countries and to establish notions of justice and equality within that same law.226 Despite its noble ambition and the broad coalition of developing countries supporting its goals, most scholars today conclude that for the most part the NIEO has failed to establish anything close to a new economic order and has been sidestepped by the neoliberal agenda of the 1990s.227 As noted above, the economic rise of some developing countries has been associated with a “New New International Economic Order”. According to that rationale, rising powers are able to finally achieve what the Third World has long demanded: a new and more just international economic order. To put this claim into appropriate historical context the following section describes earlier efforts to install the NIEO and provides a nuanced assessment of its successes and failures. What we are interested in primarily here is first, why the NIEO has mostly failed to achieve substantial changes in international (economic) law, and second, how earlier visions of a just economic order looked. 223

Burke-White (2015), p. 39. Tourme-Jouannet (2013), p. 21 (with reference to Postel-Vinay 2005, p. 119 et seqq.). 225 Declaration on the Establishment of a New International Economic Order, UNGA Resolution 3201 (S-VI) (1 May 1974) UN Doc A/Res/S-6/3201, Preamble. 226 See e.g.: Tourme-Jouannet (2013), p. 25; Salomon (2013); Moyn (2018), p. 118; See for earlier but rather brief assessments of that connection: Khurshid (2013 (first published in 1980)); Nawaz (2013 (first published in 1980)). 227 See e.g.: Tourme-Jouannet (2013), p. 28 et seqq.; Salomon (2013), p. 46 et seqq.; Sacerdoti (2015), MN 25 et seqq. 224

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3.2.1

The Emergence of the Third World: Early Coalitions in the Global South

3.2.1.1

The Third World and the Bandung Conference

For a long time in the history of (European) international law the Global South has been almost entirely excluded from international law-making and the protections of its rules, on varying notions of ‘otherness’ (non-Christian, non-civilized, non-European).228 This changed—at least formally—during the long process of decolonization, spanning from the early independence of the United States of America (1776), over the independence of the Empire of Haiti (1804), to the decolonization of Spanish America (starting approximately in 1809), and finally taking off after World War II and the creation of the UN. With the final global process of decolonisation— mostly taking place in the 1950s, 1960s, and 1970s—over 100 additional States achieved independence and became recognized as part of the international community.229 However, satisfaction with newly found formal independence in many countries soon gave way to frustration over the continuing and in some cases even severing gap in economic development and continuing political and economic pressures. The feeling persisted that the international order was biased against ‘developing countries’ (the then newest term for the ‘other’ countries that lacked behind) and their pursuance of independent economic policies.230 Political self-determination was seen to have come without economic self-determination. Instead, political independence and responsibility for their own affairs showed newly independent States just how dependent they were economically on Western States and how vulnerable their economic systems were as a result.231 Moreover, in a period characterized by great power rivalry and ideological contestation, fears arose over new ‘imperialist’ intrusion. In that context, the Third World—as the newly independent States soon became referred to232—was to emerge as a third force to uphold the newly found autonomy of the already decolonized States of the South, to combat persisting forms of colonialism and to achieve and recover economic independence. While today the term Third World is often considered to be of a derogative manner, in those early 228

See e.g.: Anghie (2005); for ambivalence regarding that thesis and the history of how non-Western States and lawyers were able to use nineteenth century classical international law thinking to bring about new rules (mostly in the twentieth century) such as the abrogation of the standard of civilization and the codification of principles of non-intervention and selfdetermination, see: Becker Lorca (2014). 229 See on decolonization, international law, and newly independent States e.g.: Anand (2008). 230 Cf. Sacerdoti (2015), MN 6. 231 Henkin (1995), p. 156; Salomon (2013), p. 37. 232 The term was almost incidentally coined by French demographer Alfred Sauvy in 1952 and later taken up by writers such as Mehdi Ben Barka and Frantz Fanon. See on the evolution of the term e.g.: Tourme-Jouannet (2013), p. 20.

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days the term was associated with the yearning for justice and equality of newly independent States and their people.233 One of the first instances that “came to symbolize the new spirit of solidarity of the Third World”234 was the Bandung Conference in 1955. This international conference for the first time brought together Asian and African States of which many had only recently become independent.235 The 29 assembled States represented about half of the community of independent States of that time (consisting of 59 States). Among the participants were several prominent leaders such as Prime Minister Nehru from India, Prime Minister Zhou Enlai from the People’s Republic of China, President Nasser from Egypt and President Sukarno from Indonesia. For communist China, the Bandung conference was of special importance, as the participation of the PRC instead of the Republic of China (ROC), marked its entry into the international arena.236 The agenda and outcome of the conference focused on condemning racism and colonialism and on committing the assembled States to support the process of decolonization and economic development, all of which would constitute Third World politics for the coming decades.237 Importantly from a legal perspective, the so-called Bandung principles were put forward.238 These principles mainly focused on sovereign equality and non-interference. However, they also included respect for fundamental human rights, the peaceful and judicial settlement of disputes, the promotion of mutual interests and respect for justice and international obligations. As Anghie has put it “[t]he Third World recognized, even at this stage, that international law was crucial to its broader campaign of decolonization and development.”239 Today, the Bandung conference is mostly remembered for its strong affirmation of the right to self-determination of all peoples and its strong condemnation of all kinds of colonial systems. The conference was an important step towards UN General Assembly Resolution 1514 (XV) of 14 December 1960 that came to be known as the ‘charter of decolonization’.240 Moreover, the Bandung Conference and the highlighted principles of sovereign equality, territorial integrity, non-intervention, and the right of each people to adopt a political, economic and social system of its choice, were meant to safeguard against the division of the world

233

Tourme-Jouannet (2013), p. 20. Rajagopal (2003), p. 74. 235 See in more detail on the conference and its importance: McTurnan Kahin (1956); Queuille (1965); Mortimer (1984), p. 6 et seqq. 236 Bennouna (2007), MN 5. 237 Mortimer (1984), p. 9; Rajagopal (2003), p. 74. 238 Final Communiqué of the Asian-African conference of Bandung (Bandung Communiqué) (24 April 1955). 239 Anghie (2015), p. 146. 240 Bennouna (2007), MN 8. 234

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into geopolitical zones, each subjected to the influence of one of the two major superpowers.241 While the political principles of Bandung are seen as strong positions in the respective historical setting, economic aspects are considered to have been of less importance.242 Still, the final communiqué addressed “Economic co-operation” and inter alia called for technical cooperation among participating countries, recommended the establishment of a “Special United Nations Fund for Economic Development”, the allocation of more resources from the International Bank for Reconstruction to Asian and African countries, the establishment of an International Finance Cooperation with the goal of stabilizing commodity trade, industrialization of developing countries’ economies and recommended consultations among participating countries in international fora to further their mutual economic interests.243 Accordingly, the Bandung Conference also set the stage for further economic demands, later to be voiced more explicitly by the G-77 and within the UN Conference on Trade and Development (UNCTAD). All in all, the Bandung Conference helped to create a Third World consciousness that glossed over numerous internal political tensions, marked the first step towards later collective action through NAM and G-77, and established the two main goals for Third World politics for the coming decades: decolonization and economic development.244

3.2.1.2

NAM and G-77

Following the Bandung Conference, Third World States organized themselves within two important groupings, namely the Non-Aligned Movement (NAM)245 and the Group of 77.246 Moreover, Third World opposition was later institutionalized through the creation of the UN Conference on Trade and Development (UNCTAD) as an organ of the UN General Assembly.247 Initial Bandung participants together with a number of other Third World States founded NAM at a follow-up conference to Bandung which took place in Belgrade in September 1961.248 Despite generally broad participation, Latin American and Caribbean States were initially not to become member States with only Bolivia,

241

Bennouna (2007), MN 13. See e.g. Bennouna (2007), MN 11. 243 Bandung Communiqué, para. 1–12. 244 Mortimer (1984), p. 9; Rajagopal (2003), p. 74. 245 See in more detail on NAM and its importance for international law: Bedjaoui (1976); Strydom (2007); and for an overview: Bennouna (2011). 246 See in more detail on the Group of 77 and its importance for international law: Khan (2011). 247 See: UNGA Resolution 1995 (XIX) of 30 December 1961. 248 Bennouna (2011), MN 1. 242

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Brazil and Ecuador taking part as observers in the first conference.249 This absence has been attributed to their relationships with the United States.250 However, since its establishment, NAM membership has increased manifold, soon also covering a greater number of States from South America.251 As its name already suggests the main uniting goal of NAM was to reject the logic of Cold War and the split of the world into two blocs.252 Accordingly, the five criteria for membership included that States had to adopt an independent policy based on peaceful coexistence and non-alignment with one of the superpowers, non-membership of a multilateral military pact with one of the superpowers, and agreement to not conclude bilateral military alliances or allow for the establishment of a foreign military base on its territory.253 Several influential members over the years came to breach these criteria, for example both Cuba and Pakistan granted military bases to great powers on their territory.254 However, despite the fact that many of its members became affiliated with one or the other great powers in contradiction to the membership criteria, or at least had their preferences for one or the other system, NAM became identified during the Cold War as the Third World, to be distinguished from the First (capitalist) and the Second (communist) World.255 The two poles of the coordinated NAM policy contained a strong focus on defending the (newly found) sovereignty of its members and an equally strong focus on multilateralism and the ‘democratisation’ of international relations (through the UN). These policies hoped to guarantee that the interests of less powerful States were heard and alliances among the majority of developing States could be built.256 More concretely, (legal) issues and goals highlighted by NAM at the Belgrade Conference included the right to self-determination; the principle of permanent sovereignty over natural resources; the goal to end racial discrimination and 249

Participating Delegations included: Afghanistan, Algeria, Burma, Cambodia, Ceylon, Congo, Cuba, Cyprus, Ethiopia, Ghana, Guinea, India, Indonesia, Iraq, Lebanon, Mali, Morocco, Nepal, Saudi Arabia, Somalia, Sudan, Tunisia, United Arab Republic, Yemen, and Yugoslavia. Observers included Bolivia, Brazil, and Ecuador. See: NAM 1st Summit Conference of Heads of State or Government of the Non-Aligned Movement, Belgrade, Serbia (6 September 1961). http://cns.miis. edu/nam/#&panel1-2. Accessed 20 Sept 2020. 250 See: Bennouna (2011), MN 17. 251 As of 2016 NAM’s membership included 120 States from all over the (developing) world, see: NAM 17th Summit of Heads of State and Government of the Non-Aligned Movement: Final Document, NAM 2016/CoB/DOC.1. Corr. 1, Venezuela (17–18 September 2016), Annex 1 (Member Countries of the Non-Aligned Movement). 252 This doctrine goes back to the thinking and policies of Jawaharlal Nehru and later taken up by Josip Tito in Yugoslavia and Gamal Nasser in Egypt. These three leaders became the founding fathers and important drivers of NAM, see: Fischer (1973), p. 10; Bennouna (2011), MN 9. 253 These five criteria were formulated at a preparatory meeting in Cairo in June 1961, see: Bennouna MN 3. 254 Bennouna (2011), MN 16. 255 See e.g. Bennouna (2011), MN 15 et seqq. 256 Cf. Bennouna (2011), MN 12 et seqq.

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apartheid; complete disarmament (except for purposes of internal security) including prohibitions on the production, possession, and utilization of all nuclear and other mass-destruction weapons; the need to address development through a United Nations Capital Development Fund; efforts to address unjust terms of trade to “hasten the achievement of international social justice”; and international economic cooperation among developing countries and coordinated efforts in international organisations.257 In 1964, only three years after the creation of NAM, the Third World project further progressed, as both UNCTAD and the Group of 77 were founded.258 Newly independent States intuitively saw the UN General Assembly as an important vehicle to press for their claims for economic justice.259 This is partly attributable to the fact that the other international organizations originally intended to deal with economic matters (IMF and World Bank Group) were built on systems of weighted voting, discriminating against ‘poorer’ States. Moreover, the international trade order under GATT also quickly became the domain of more powerful actors. In the UN General Assembly every State had one vote, and with the increasing number of developing countries in the UN, the General Assembly became the primary forum for these States’ claims. While the UN initially was primarily seen as a political forum, developing countries increasingly sought to bring economic matters within the realms of the UN and succeeded in establishing UNCTAD in 1964. Another crucial factor leading to the creation of UNCTAD was the disappointment by many Third World States with the international trading system and liberal trading principles legally embodied in GATT.260 Many developing countries and developing country economists of the time were informed by structuralist economics and dependency theory. In fact, one of the founding fathers of dependency theory, Raul Prebisch, became the first Secretary General of UNCTAD and strongly influenced the legal and economic policies of the organization. Prebisch’s theory implied that the structure of the global market was responsible for the persistent inequality among developed and developing States, suggesting that developing countries should rely on import-substitution industrialisation (ISI) supported by protective trade legislation.261 Consequently, UNCTAD promoted Prebisch’s proposal for a preferential legal trade regime that aimed at changing the terms of trade in

257

NAM 1st Summit Conference of Heads of State or Government of the Non-Aligned Movement, Belgrade, Serbia (6 September 1961). http://cns.miis.edu/nam/#&panel1-2. Accessed 12 Sept 2020. para. 13–27. 258 G-77 Joint Declaration of the Seventy-Seven Developing Countries Made at the Conclusion of the United Nations Conference on Trade and Development, Geneva (14 June 1964). http://www. g77.org. Accessed 12 Sept 2020. 259 See e.g.: Salomon (2013), p. 33. 260 See e.g. Rajagopal (2003), p. 83. 261 See on his conception Prebisch (1950). The same idea was also brought forward by Hans Wolfgang Singer at around the same time and later become known as the Prebisch-Singer hypothesis. See on the origins and the historical interpretation of the thesis e.g.: Toye and Toye (2003).

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favour of developing countries.262 This idea of a preferential trade regime was at odds with the idea of a liberal trade regime built on formal equality, non-discrimination, and reciprocity under GATT.263 From its beginnings the work of UNCTAD and G-77 were closely connected. In fact, G-77 was created at the same conference that established UNCTAD. Lacking its own secretariat and institution, the de facto headquarters of G-77 became the seat of UNCTAD and the delegations accredited to UNCTAD by developing countries became the working members of G-77.264 In contrast to NAM, G-77 from the start was more inclusive, with many Southern American countries as members.265 Thereby G-77 was able to legitimately represent most of the developing world in UN forums and beyond.266 Whereas the main focus of NAM was on more political issues (self-determination etc.), the clear focus of G-77 was economic. The group’s initial goals were spelt out in some detail in the Charter of Algiers at the group’s first ministerial meeting.267 The proclaimed programme of action focused on trade issues, including arrangements to stabilize commodity prices, the call for a General System of Trade Preferences and the demand on developed countries to open their markets for products of relevance for the developing world without reciprocity.268 Another focus was on development financing. G-77 inter alia called on developed countries to allocate a minimum of 1% of their GDP to development cooperation, rejected discrimination by international lending institu-

262

Prebisch renewed his theory and proposed a preferential legal trade regime in 1964, see: Prebisch (1964). 263 See also: Tourme-Jouannet (2013), p. 17. 264 Mortimer (1984), p. 75. 265 Initial members included Afghanistan, Algeria, Argentina, Bolivia, Brazil, Burma, Burundi, Cambodia, Cameroon, Central African Republic, Ceylon, Chad, Chile, Colombia, Congo (Brazzaville), Congo (Leopoldville), Costa Rica, Cyprus, Dahomey, Dominican Republic, Ecuador, El Salvador, Ethiopia, Gabon, Ghana, Guatemala, Guinea, Haiti, Honduras, India, Indonesia, Iran, Iraq, Jamaica, Jordan, Kenya, Kuwait, Laos, Lebanon, Liberia, Libya, Madagascar, Malaysia, Mali, Mauritania, Mexico, Morocco, Nepal, Nicaragua, Niger, Nigeria, Pakistan, Panama, Paraguay, Peru, Philippines, Republic of Korea, Republic of Viet-Nam, Rwanda, Saudi Arabia, Senegal, Sierra Leone, Somalia, Sudan, Syria, Thailand, Togo, Trinidad and Tobago, Tunisia, Uganda, United Arab Republic, United Republic of Tanganyika and Zanzibar, Upper Volta, Uruguay, Venezuela, Yemen, and Yugoslavia, see: G-77 First Ministerial Meeting of the Group of 77: Charter of Algiers, Algiers (10–25 October 1967). http://www.g77.org. Accessed 12 Sept 2020. 266 Importantly, China has not become a formal member of the grouping but has at numerous occasions participated as an observer and granted financing for the group’s activities. Thus, G-77 declarations and statements have often been published on behalf of G-77 and China. 267 G-77 First Ministerial Meeting of the Group of 77: Charter of Algiers, Algiers (10–25 October 1967). http://www.g77.org. 268 G-77 First Ministerial Meeting of the Group of 77: Charter of Algiers, Algiers (10–25 October 1967). http://www.g77.org. Programme of Action (section A of the Programme of Action addresses “Commodity Problems and Policies” and sections B, E and F address trade issues).

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tions against the public sector, and requested developed countries and lending institutions to untie aid.269 These claims support the argument, that as political decolonization progressed, the “Third World project” increasingly shifted its focus to economic issues. From Bandung to the establishment of UNCTAD the economic agenda has gradually taken shape. Despite the cultural, economic and political diversity of the Third World,270 the quest to end political and economic domination united a huge number of countries that formed coalitions in important international forums and even created new ones. Through these more or less effective groupings and institutions, the Third World finally was able to bring forward a more comprehensive vision of a new international economic and legal order, to which we will now turn.

3.2.2

The NIEO: A Radical Vision of New International Economic Law?

The agenda of NAM, G77 and UNCTAD culminated in the 1970s, with developing countries calling for nothing less than a New International Economic Order.271 Plans for these proposals had been under discussion within UNCTAD and the Group of 77 for some time, but the concrete proposals were finally initiated by NAM.272 The need for a such an agenda stemmed from the perception of many developing countries that their underdevelopment was the result of capitalist, colonial, and post-colonial exploitation and deteriorating terms of trade in particular with regard to natural resources and primary goods (supported by the Prebisch-Singer hypothesis mentioned above). From their perspective, the economic order established after World War II—with Bretton Woods institutions based on weighted voting and outside the UN—did not allow for the adequate representation of developing countries. Moreover, the view persisted that despite their political independence newly independent States lacked the means to devise and implement their own development policies. Developing countries felt constrained by customary rules on the protection of foreign property that allegedly had been established when most

269

G-77 First Ministerial Meeting of the Group of 77: Charter of Algiers, Algiers (10–25 October 1967). http://www.g77.org., Programme of Action, point C (“Development Financing”). 270 See on these differences and challenges to the unity of Third World e.g.: Rajagopal (2003), p. 86 et seqq. 271 Literature on the NIEO is huge, see the references in: Sacerdoti (2015); For an insightful early assessment of its legal implications, see the UN study prepared by George Abi Saab, Progressive Development of the Principles and Norms of International Law Relating to the New International Economic Order, Report of the Secretary-General, UN Doc. A/39/504/Add. 1) (23 October 1984). For early economic assessments, see contributions in: Bhagwati (1977). 272 Drafts of the proposals were prepared at the Summit Conference of NAM held in Algiers in September 1973. See e.g. Sacerdoti (2015), MN 5 et seqq.; Tourme-Jouannet (2013), p. 24.

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developing States were not yet in existence.273 Additional factors that led to the NIEO’s agenda were the decrease of Western aid in that period and the (perceived) success of OPEC as a primary commodity cartel challenging the monopoly of Western oil companies.274 To address the perceived injustices of the existing international economic order, G-77 successfully led the UN General Assembly to adopt Resolution 3201 (Declaration on the Establishment of a New International Economic Order)275 and a “Programme of Action”276 on the same matter in 1974. The larger NIEO process further included the earlier declarations on Permanent Sovereignty over Natural Resources277 and the later Charter of Economic Rights and Duties of States.278 To take an even broader understanding of the NIEO process one could also include the 1984 Declaration on the Right to Development279 within its realms. The NIEO was treated by States, international institutions and scholars of the time with great seriousness. In fact, it sought—at least rhetorically—the transformation of the international economic system, was backed by a clear majority of UN Member States, and was based on a moral vision of a more equal global order.280 This seriousness is also proven by the fact that the NIEO proposals led to intense and confrontational debates, which by some were depicted as the preliminary climax of North-South confrontation.281 While the UNGA Declaration on the NIEO was actually adopted by consensus, this should not conceal the fact that many Western industrialized States made very significant reservations and the United States even questioned whether consensus had been achieved at all.282 The Charter on Economic Rights and Duties of States proved to be even more controversial, possibly because of its more precise legal agenda. The Charta was drafted like an international treaty and contained many explicit rights and obligations. It sought to establish “generally accepted norms to govern international economic relations” and “recognized that it is not feasible to establish a just order and a stable world as long as a charter to

273

See on these motivations also: Bedjaoui (1991), 24 et seqq.; Kamal (2013 (first published in 1980)); Sacerdoti (2015), MN 5 et seqq.; Salomon (2013), p. 36 et seq. 274 See e.g. Rajagopal (2003), p. 77 with further references; see on the perspective that the success of OPEC has been overestimated: Nye (2011), p. 67 et seqq. 275 UNGA Resolution 3201 (S-VI) (1 May 1974) UN Doc A/Res/S-6/3201. 276 UNGA Resolution 3202 (S-VI) (1 May 1974) UN Doc A/Res/S-6/3202. 277 UNGA Resolution 1803/17 (14 December 1962); ‘Permanent Sovereignty over Natural Resources’, UNGA Resolution 3171 (XXVIII) (17 December 1973). 278 UNGA Resolution 3281/29 (12 December 1974) UN Doc A/Res/29/3281. 279 UNGA Resolution 128/41 (4 December 1986) UN Doc A/Res/41/128. 280 The focus on equality, as opposed to sufficiency, was possibly the most distinctive feature of the NIEO, see for that argument: Moyn (2018), p. 118. 281 Kaltenborn (1998), p. 32 (“Diese vor allem im Rahmen der Vereinten Nationen ausgetragene Auseinandersetzung stellt sich heute im Rückblick als der vorläufige Höhepunkt des Nord-SüdKonflikts dar”.) with further references. 282 Franck and Munansangu (1982), p. 7. States that made reservations include the US, West Germany, France, Japan, and the United Kingdom, see: Bulajic (1993), p. 271.

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protect the rights of all countries, and in particular the developing States, is not formulated”.283 The Charter had initially been proposed by G-77 and later was further elaborated within a governmental working group established by UNCTAD in 1972 but arguably did not take into account proposals from OECD members.284 It was not surprising then, that the Charter was strongly objected to by a number of the most important industrialized States (including Belgium, Denmark, the German Federal Republic, Luxembourg, the United Kingdom, and the United States) and another ten industrialized States (including France, Ireland, Israel, Italy, Japan, Netherlands, Norway, Spain, Austria and Canada) abstained from voting.285 But what exactly were developing and industrialized States quarrelling about? The content of the series of initiatives related to the NIEO (PSNR, NIEO, Charter on Economic Rights and Duties of States) can be summarized along eight core principles or clusters: The right of States to freely choose their economic system; permanent sovereignty over natural resources (including the right to expropriation when granting ‘appropriate’ compensation); participatory equality of developing countries, particularly in economic matters (aimed at reforming voting power in the Bretton Woods institutions); preferential legal treatment for developing countries (especially under trade law); stabilization of their export earnings, particularly for commodities; the right to benefit from science and technology (technology transfer); a right to development assistance; and the principle of common heritage of mankind, in particular as a principle governing the exploitation of the deep seabed.286 As noted, some contemporary writers depicted the NIEO as revolutionary.287 However, from today’s perspective, these proposals appear less radical than suggested. Some of these principles were firmly established in international law already at the time of the NIEO. The right to freely choose one’s own economic system and the principle of permanent sovereignty over natural resources, for example, can both be deducted from the basic principle of State sovereignty and non-interference inherent in the UN-Charter.288 Moreover, the earlier Friendly

283

UNGA Resolution 3281/29 (12 December 1974) UN Doc A/Res/29/3281, Preamble. See: Sacerdoti (2015), MN 16; see on the drafting process also: Fortin (2013), MN 26. 285 UNGA, Twenty-ninth Session, 2315th Plenary Meeting, 12th December 1974, Official Records, p. 1372, para. 99. 286 This structure goes back to an analytical study prepared by George Abi Saab, see: Progressive Development of the Principles and Norms of International Law Relating to the New International Economic Order, Report of the Secretary-General, UN Doc. A/39/504/Add. 1) (23 October 1984), 40 (para. 33); see also: Sacerdoti (2015), MN 20. 287 Franck and Munansangu (1982), p. 3, described the NIEO as “seeking revolutionary changes in the world economy”. 288 In particular, Article 2 para. 1 UN-Charter. 284

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Relations Declaration289 and the first Resolution on PSNR of 1963290 had already given more precise meaning to the rather vague principles of the UN-Charter. Nevertheless, other legal proposals such as the legal right to development assistance, the idea of preferential treatment to address inequality (in contradiction to the long-standing principle of formal sovereign equality), and a right to benefit from technological developments (conflicting with Western ideas of intellectual property protection) contained greater radical potential. In addition, the principle of common heritage of mankind and its application to the deep-seabed was in clear tension with Western States’ economic interests.291 Furthermore, when it comes to the details of economic sovereignty the NIEO proposals went beyond a mere restatement of existing principles.292 Especially the details of PSNR embodied in chapter two of the Charter on Economic Rights and Duties of States (CERDS) proved to be controversial and went beyond the first Resolution on PSNR.293 Article 2 CERDS includes one core principle of the NIEO agenda in that it recognizes a State’s right to regulate the activity of transnational corporations, including to nationalize, expropriate, and transfer ownership of foreign investments under certain circumstances. This Article was seen to deviate from customary principles of investment protection in that it did not require a State to pursue a public purpose for the taking or transfer of property and it granted much discretion to States when it came to compensating such takings.294 In essence, the Third World was arguing that compensation should only be “appropriate” taking into account a State’s national laws and regulations and “all circumstances that the State considers pertinent” (Article 2 c) CERDS), such as the historical and economic background of a country. The self-judging language of the clause (“considers pertinent”) would have allowed for much discretion. This was of particular importance in the post-colonial context as formerly colonized States argued that compensation should take into account the manner in how concessions and other acquired rights were obtained and the profits made by the colonial power or the relevant trading company.295 Former colonial powers instead wanted to uphold the Hull formula of prompt, adequate, and effective compensation.296 Relatedly, Article 2 c) CERDS aimed at settling investment disputes according to the domestic law of the nationalizing State. Albeit rather vaguely framed, this notion ‘Declaration on Principles of International Law concerning Friendly Relations and Co-operation among States in accordance with the Charter of the United Nations’, UNGA Resolution 2625 (XXV) (24 October 1970) UN Doc. A/RES/25/2625. 290 UNGA Resolution 1803 (XVII) as of 14 December 1962. 291 Cf. Sacerdoti (2015), MN 17. 292 See also: Sacerdoti (2015), MN 15. 293 Most notably, any reference to international law regarding the standard of treatment for investors was missing, suggesting more discretion under national standards existed, see: Subedi (2008), p. 26. 294 See e.g.: Boon (2013), MN 5. 295 See: Anghie (2015), p. 212 et seq. 296 See on the competing arguments between the relevant groups of States, e.g.: Pahuja (2011), p. 149; Salomon (2013), p. 39. 289

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of a primacy of domestic law and national courts went against efforts of capital exporting States (former colonial powers) to internationalize such disputes. In their view, only international tribunals provided for neutrality (independence from national political concerns and governmental influence), particularly in Third World countries. However, Article 2 c) CERDS is actually quite open to international arbitration. While it has been interpreted as requiring the exhaustion of domestic remedies,297 it also clearly allows for international arbitration upon the consent of States concerned. The exhaustion of domestic remedies rule alone is far from a radical proposition and is also implicit in many other legal regimes such as the law of diplomatic protection or human rights law (e.g., under the EChHR). Finally, yet importantly, two broader issue areas of conflict stand out.298 The first is the choice of forum. Here developing countries were keen on bringing economic issues into the UN framework, where at least within the General Assembly they possessed a clear majority. In contrast, developed countries had an interest in leaving economic issues outside the UN and within specialized organisations where they dominated decision making either through weighted voting (Bretton Woods organisations) or due to their economic importance (GATT). The second broader issue was the question of whether legal equality should have been given substance by actively addressing factual inequalities through law and affirmative action. NIEO proposals were based on the idea that international cooperation and law should include affirmative action type principles and norms, aimed at achieving substantive equality in economic relations for developing countries. Thereby these norms were built on a somehow different conception of sovereignty, one that gives substance to the principle of sovereign equality by allowing for and even in some respects requiring unequal treatment of States to achieve factual equality.299 These examples reveal that the NIEO should be seen as a reformist rather than a revolutionary agenda.300 Despite some more radical provisions, the legal agenda of the NIEO was generally far from breaking with existing international law.301 Many of the proposed legal changes were built on already established rules, principles, and paradigms. Challenging the standard of compensation for the expropriation of property did not challenge the rule that expropriation required compensation in the

297

See: Progressive Development of the Principles and Norms of International Law Relating to the New International Economic Order, Report of the Secretary-General, UN Doc. A/39/504/Add. 1) (23 October 1984), 60. In my opinion that requirement can but must not be deducted from the rather vague text of Article 2 c) CERDS. 298 See on the following “general features” of the NIEO: Sacerdoti (2015), MN 13. 299 Cf. Kamal (2013 (first published in 1980)), p. 6; Salomon (2013), p. 34. 300 Remember, these terms have been defined in Chap. 1. See on the questionable radicality also: Rajagopal (2003), pp. 74 et seqq. and 89 et seqq. On the one hand, Rajagopal describes the NIEO as “a radical challenge to the ‘old’ European international law of the pre-War period” (p. 89), but on the other hand also argues that radicality was limited because the NIEO was based on Western conceptions of modernity, progress and development. 301 See for similar assessments: Tourme-Jouannet (2013), p. 26 and Salomon (2013), p. 39 et seqq.

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first place. From a critical perspective the NIEO might even be depicted as a capitulation to the economic ideology of the capitalist world and its interests in protecting foreign capital abroad.302 Arguing for the principle of PSNR for example builds on the (capitalist and colonialist) assumption that natural resources are an object of private (or at least State) property and are something to be exploited. Thereby PSNR constituted “a continuation of, rather than a break with, the colonial interpretation of the earth and what it contains.”303 Even the concept of special and differential treatment and the obligation for development cooperation, embraced, rather than challenged, the degrading assumption that developing States lag behind in comparison to industrialized Western States. Further, it confirmed developing States need to follow the lead of the developed world.304 G-77 even explicitly acknowledged that “the primary responsibility for their development rests on them [developing countries]” and brought forward the defensive rather than confrontational call for “a global strategy for development requiring convergent measures on the part of both developed and developing countries”.305

3.2.3

Legal Success Despite Lack of Power?

Efforts to install the NIEO have often been described as unsuccessful.306 Now that we have seen that the NIEO was not as radical as it was often perceived to be, it seems doubtful that the NIEO failed simply because it was too radical. However, taking a step back, was the NIEO really such a wholesale (legal) failure as it has often been depicted? First of all, it bears mention that UNGA Resolutions, despite many controversies on the subject (especially around the time the NIEO agenda was being formulated307), today are predominantly considered not to be legally binding as such.308 Still, such resolutions if accompanied by consensus or a large majority can help to make and shape international customary law or initiate the conclusion of

302

Salomon (2013), p. 40; in a similar vein see also: Chimni (1998), p. 313 et seq. Pahuja (2011), p. 124 et seqq.; see in a similar direction already: Abi-Saab (1991), p. 602. 304 Cf. Rajagopal (2003), p. 79. 305 G-77 First Ministerial Meeting of the Group of 77: Charter of Algiers, Algiers (10–25 October 1967). http://www.g77.org., part 1, III. 306 See e.g.: Sacerdoti (2015), pp. 25 et seqq. and 31 (“it is evident that, as a whole, neither customary law nor treaty law has followed the NIEO principles approach”); Tourme-Jouannet (2013), p. 28 et seqq.; Salomon (2013), p. 46 et seqq. 307 The subject was intensely debated in the 1960s and 1970s, see e.g.: Higgins (1963); Falk (1966); Asamoah (1966); Castaneda and Amoia (Translator) (1969); see for a summary of the debate: Franck and Munansangu (1982), p. 2 et seq. 308 See for a summary of competing arguments: Klein and Schmahl (2012), MN 47 et seqq. 303

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international treaties.309 Furthermore, NIEO proposals did not lead to the adoption of a formal treaty as such. CERDS was never formally concluded as a binding treaty. Still, some NIEO proposals have been incorporated into individual treaties such as GATT and UNCLOS. One example for the partial success of the NIEO’s agenda is the idea of differential treatment in trade law. Already in 1955 developing countries had succeeded in arguing for special exemptions under GATT, which mainly focused on protecting the economies of developing countries.310 With the increasing number of developing countries in GATT, in the 1960s for the first time they accounted for the majority of GATT members,311 and the establishment of UNCTAD and G-77, the agenda became more ambitious. In 1966, briefly after the establishment of UNCTAD and G-77, developing countries succeeded in adding Part IV to GATT entitled “Trade and Development” that inter alia contained the principle of non-reciprocity in trade negotiations.312 Accordingly, developed countries agreed not to expect reciprocity in negotiations concerning reductions of tariffs and other non-tariff barriers from developing countries. However, the tangible effects of non-reciprocity on developing countries are doubtful. Instead of benefiting from non-reciprocal market access, non-reciprocity appears to have led to the side-lining of developing countries and their interests in negotiations. Non-reciprocity simply did not offer any incentive for negotiators of developed countries to offer valuable concessions on products of interest to developing country exporters.313 Thus, market liberalization for sectors in which developing countries had comparative advantages—such as agricultural products or textiles—lagged behind.314 Finally, market access for developing countries was addressed through a temporal (limited to ten years) GATT waiver in 1971, that allowed for preferential treatment of products originating from developing countries in deviation from the MFN principle.315 The decision made a direct reference to the work of UNCTAD and its proposal of a system of generalized, non-reciprocal and non-discriminatory

309 Klein and Schmahl (2012) MN 62; see among ICJ jurisprudence on the legal nature of UNGA resolutions and their importance for customary law, especially: Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), Judgement. ICJ Reports 1986, p. 14, 89 (para. 188). 310 As early as 1955 Article XVIII (B) was incorporated in GATT 1947 which allowed States “at an early stage of their development” to adopt quantitative restrictions on imports to tackle balance-ofpayments problems. Moreover, Article XXVIII (bis) asked contracting parties to take account “of the needs of less developed countries for a more flexible use of tariff protection to assist their economic development and the special needs of these countries to maintain tariffs for revenue purposes”, when calculating reciprocity in tariff negotiations. 311 Hudec (2010), p. 39. 312 Protocol Amending the GATT to Introduce a Part IV on Trade and Development, GATT Doc. PROT/2/62, L/2314, GATT BISD 13S/2; 572 UNTS 320 (Adopted on 8 February 1965). 313 See e.g. Rolland (2012), p. 72 with further references. 314 Rolland (2012), p. 72. 315 Generalized System of Preferences, Decision, GATT Doc. L/3545 (25 June 1971).

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preferences.316 Subsequently, the temporary exemption became permanent with the adoption of the so-called ‘enabling clause’ at the conclusion of the Tokyo Round in 1979.317 The basic idea of ‘differential and more favourable’ or ‘special and differential’ treatment for developing countries since then has reappeared in diverse forms, but its effectiveness to improve the situation of developing countries has become ever more doubtful.318 Importantly, as the name already suggests, the enabling clause does not require developed States to grant preferential treatment but only allows them to do so in deviation from the MFN principle. Thus, the granting of preferential market access, as development aid before, could be—and in fact was—used by developed States to impose pressure on developing States, instead of being solely based on development needs.319 Moreover, special and differential treatment, as incorporated in GATT and later the WTO agreements, is often seen as ineffective and too limited (e.g., excluding market access for products in sectors where developing country producers have competitive advantages). In that way, special and differential treatment may rather serve to mask the fact that the international trade system is unfair, imbalanced, and not doing enough to alleviate poverty.320 Finally, it must also be noted that the margin of preference available for preferential market access fell as a consequence of MFN tariff reductions in further multilateral trade negotiations.321 Another (at first sight) remarkable success of the NIEO was the introduction of the idea that the seabed and ocean floor was common heritage of mankind under the 1982 UN Convention on the Law of the Sea (UNCLOS).322 At around the time of the introduction of the NIEO, with the advancement of technology, minerals on and beneath the deep-seabed increasingly became of economic interest. Before the establishment of the common heritage of mankind principle it would have been logical to apply the ‘freedom of the high seas’ principle also to its seabed, establishing a liberal regime in which every State would have been allowed to access and exploit these resources.323 This ‘first come first serve principle’ would have

316

Generalized System of Preferences, Decision, GATT Doc. L/3545 (25 June 1971), Preamble. Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries, Decision, GATT Doc. L/4903 (28 November 1979). 318 See for a comprehensive analysis of the different forms of special and differential treatment, its historical development and also a critique: Jessen (2006). 319 Hudec (2010), p. 109 who argued that the GSP system became “a form of largesse similar to foreign aid – a tool to be used to win friends and punish enemies.” 320 See e.g.: Trachtman (2005), p. 619; Ismail (2007), p. iii; see on the exclusion of products of interest to developing countries (such as textiles and agricultural products): Michalopoulos (2014), p. 31. 321 Thomas and Trachtman (2009), p. 10. 322 See Articles 133 et seqq. UNCLOS on the principle of common heritage of mankind, and Articles 156 et seqq UNCLOS on the International Seabed Authority. 323 Progressive Development of the Principles and Norms of International Law Relating to the New International Economic Order, Report of the Secretary-General, UN Doc. A/39/504/Add. 1) (23 October 1984), 98 (para. 199); Millicay (2015), p. 272. 317

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benefited only those States with the technical capabilities to locate and extract resources on the deep-seabed.324 The common heritage of mankind principle aimed at addressing this ‘injustice’ by distributing the benefits of the exploitation of the deep-seabed to all the members of the international community325 and is sometimes seen as a scheme of distributive economic justice.326 However, this principle and its implementation through the International Seabed Authority (ISA) proved to be so controversial that many industrialized States only acceded UNCLOS after the Convention’s deep seabed mining regime was “radically revised”327 through the 1994 Implementation Agreement.328 Some controversy exists over the extent to which the 1994 Implementation Agreement affected the distributive outcome and practical utility of the agreement and ISA. While some see the implementation agreement rather critical and even argue that it “largely neutralized the most contentious NIEO-inspired provisions”,329 others contend that the deep-seabed regime has only seen limited modifications and its distributive effects remain largely the same.330 So far, it appears that the regime and its distributional effects appear mostly untested and numerous practical obstacles remain unresolved.331 Without further elaborating on the competing arguments it can be assumed that the legal as well as distributional success of the NIEO with regard to UNCLOS at least appears questionable, implying that even though the principle of common heritage of mankind has been formally adopted in UNCLOS, and not been sacrificed as a whole through the Implementation Agreement, it at least has been curtailed and to some extent deradicalized.

324

Progressive Development of the Principles and Norms of International Law Relating to the New International Economic Order, Report of the Secretary-General, UN Doc. A/39/504/Add. 1) (23 October 1984), 98 (para. 199); a number of States expressed these concerns, see: Rolland (2012), p. 72 with further references. 325 Progressive Development of the Principles and Norms of International Law Relating to the New International Economic Order, Report of the Secretary-General, UN Doc. A/39/504/Add. 1) (23 October 1984), 98 (para. 199); a number of States expressed these concerns within the UN, see: General Assembly Official Records (GAOR), Twenty-second Session, First Committee, 1515th and 1516th meetings (1967). 326 See e.g.: Fidler (2003), p. 44 et seqq.; Gathii (2008), p. 260 et seq. 327 Wood (2008), MN 6; see on the United States’ and other developed countries’ refusal to sign UNCLOS inter alia because of their opposition to the principle of common heritage of mankind: Progressive Development of the Principles and Norms of International Law Relating to the New International Economic Order, Report of the Secretary-General, UN Doc. A/39/504/Add. 1) (23 October 1984), 99 (para. 201). 328 ‘Agreement Relating to the Implementation of Part XI of the Convention of the United Nations Convention on the Law of the Sea’, 10th December 1982, 1836 UNTS 3. 329 Sacerdoti (2015), p. 34; see in more detail also: Anand (1997); Fidler (2003), p. 55 (“On both the substantive rules on exploitation of deep sea-bed resources and the economic benefits deep sea-bed mining would generate for developing countries through international wealth redistribution, the Third World Lost”); see affirmingly also: Salomon (2013), p. 45 et seq. 330 See e.g.: Wolfrum (2009) MN. 1, 19. 331 See e.g.: Jaeckel et al. (2016).

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Aside from these important but ultimately questionable successes of the NIEO, most other legal proposals foreseen by the NIEO never became a reality. Developing countries have sometimes voluntarily accepted the goal of spending 0.7% of their domestic GDP on development cooperation332 (which still is below the requested 1% under the NIEO and often has not been implemented in practice), but a legal obligation to pay aid has not materialized. The envisaged goals of regulating the conduct of transnational companies abroad (in contrast to only protecting these entities) and requiring some form of technology transfer were further pursued in the 70s and 80s, when developing countries pushed for the adoption of an international Code of Conduct on Transnational Corporations within the UN’s ECOSOC333 and an international Code of Conduct for the Transfer of Technology within UNCTAD.334 However, both initiatives proved highly controversial and never became formally adopted.335 The new initiative of a business and human rights treaty initiated by Ecuador and South Africa in 2014 provides evidence for the continuing North-South division on the subject.336 In the case of investment law, the majority support of States for the CERDS could have been regarded as evidence of a derogation from the Hull criteria for compensation and some scholars have presented arguments along these lines.337 However, CERDS has never been successfully invoked in ISDS.338 Instead, arbitration tribunals of the time of the NIEO qualified CERDS as only a ‘political document’.339 Moreover, the whole debate became largely superfluous with the spread of BITs in the 80s and 90s, which mostly contain compensation standards built on fair market value and the Hull criteria—or some variance of them—and substantive standards granting even stronger protection for investments than international customary law.340 To some extent paradoxically, the same developing countries that multilaterally objected the Hull criteria and strong international investment protection, came to accept similar or even stronger standards bilaterally.341 The same is true for investment arbitration. Whereas the NIEO and CERDS gave primacy to domestic

See e.g. ‘International Development Strategy for the Second United Nations Development Decade’, UNGA Resolution 2626 (XXV), (24 October 1970) UN Doc A/RES/25/2626, para. 43. 333 UNGA Resolution 45/186, (21 December 1990) UN Doc A/RES/45/186. 334 UNGA Resolution 40/184, (17 December 1985) UN Doc A/RES/40/184. 335 See also: Faúndez (2010), p. 16; Sacerdoti (2015), MN 22. 336 The business and human rights treaty so far is mainly supported by developing countries, while the United States and members of the EU opposed the initiative, see for an overview: De Schutter (2016). 337 See e.g. Guzman (1998), p. 646 et seqq. who speaks of the derogation of the Hull rule due to developing country opposition. 338 Boon (2013), p. 11. 339 Texaco Overseas Petroleum Co v. Government of the Libyan Arab Republic arbitration (1978). ILM 17, p. 1, para. 88. 340 See for an evaluation of both controversies under customary law and compensation standards under BITs: Sornarajah (2010), p. 208 et seqq. 341 See on that paradox: Guzman (1998), pp. 642 and 651 et seqq. 332

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courts, most BITs concluded in the aftermath contained far reaching compulsory ISDS provisions with only a very small number of them containing exhaustion of domestic remedies clauses.342 Thus it can be reasonably assumed that the NIEO approach was a complete failure in that regard.

3.2.4

The Abandonment of the NIEO and the Spread of Neoliberalism

The mid-1970s saw the apex of the Third World project. Already in the early 1980s the idea of Third World solidarity and an international economic order actively redistributing wealth gave way to the neoliberalist agenda promoted by several Western States. While some achievements of the NIEO, like the Enabling Clause in trade law remained, the very idea of bringing about a fair and more equitable new economic order became gradually abandoned.343 This neoliberal turn in the 1990s also received developing country support. UNGA Resolutions from the 1990s and UNCTAD’s 1992 Cartagena Commitment are indicative of the abandonment of the NIEO and the turn to neoliberalism. UNGA resolutions in the 1990s and early 2000s no longer mentioned the NIEO but instead supported the neoliberal model of development based on trade liberalization,344 privatization and deregulation,345 and the opening-up to investment and capital flows.346 Relatedly, UNCTAD is seen to have performed a “neoliberal swing” in the 1990s.347 This swing is evidenced by the adoption of the Cartagena Commitment that contains neoliberal economic prescriptions, including the primacy of the market, the withdrawal of the State, the importance of trade liberalization and the expansion of world trade, an open regulatory investment regime, and so-called good governance.348 Subsequently, UNCTAD abandoned its former aim of becoming a focal

342

UNCTAD’s Mapping Project reveals that ISDS clauses are included in 2441 out of 2572 mapped treaties and only 88 of these treaties contain ‘local remedies first’ clauses. 343 Tourme-Jouannet (2013), p. 28 et seqq.; Moyn (2018), p. 146 et seqq. 344 Tourme-Jouannet (2013), p. 29 with reference to UNGA Resolution 45/199 (21 December 1990) UN Doc A/RES/45/199 (on launching the Fourth Development Decade); UNGA Resolution 45/188 (21 December 1990) UN Doc A/RES/45/188 (on “Entrepreneurship”) and UNGA Resolution 54/204 (22 December 1999) UN Doc A/RES/54/204 (on “Business and Development”). 345 UNGA 47/171 (22 December 2002) UN Doc A/RES/47/171 committed UN “organs, organizations and bodies” to assist countries in “privatizing enterprises, demonopolizing and deregulating their economic activities” (para. 1 b). 346 See e.g.: UNGA Resolution 57/273 (20 December 2002) UN Doc A/RES/57/274 (on the “Role of the United Nations in promoting development in the context of globalization and interdependence”), preamble. 347 Tourme-Jouannet (2013), p. 29. 348 See: UNCTAD A New Partnership for Development: The Cartagena Commitment, Eight Session, Caratagena de Indias, Colombia (27 February 1992), para. 22, 27 et seqq., and 63 et

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institution for global North-South economic governance and the focus of its work turned on providing technical assistance and conducting economic and legal research and analysis.349 This is not to say that the work of UNCTAD became irrelevant, far from it. Nevertheless, UNCTAD, the Group of 77, and NAM clearly lost influence and ambition in the 1990s. At the same time, the Bretton Woods institutions together with the OECD and more informal groupings such as G7/8 (re)emerged as the forums where the most significant decisions in terms of development were taken.350 Regarding investment and trade law the 80s and early 90s saw a strong rise in the conclusion of international treaties. As mentioned above, the number of concluded IIAs highly increased in that period, as did the number of initiated international investment arbitrations. The creation of the WTO in 1995 was a major step in regulating international trade and significantly enlarged the scope of international trade law to cover services (GATS), investments (TRIMS), intellectual property (TRIPS) and several more technical issues (e.g., the WTO Agreement on Sanitary and Phytosanitary Measures). Some of these newly incorporated agreements, such as TRIPS and TRIMS, are in clear opposition to earlier calls by developing countries for technology transfer and the adoption of infant industry protection policies.351 The WTO’s membership also enlarged in comparison to GATT and eventually even long-standing ideological opponents, like China (2001) and later Russia (2012), were to become Member States. WTO agreements kept with ‘development achievements’ of G-77 including the Enabling Clause and many special and differential treatment provisions were built into the new agreements.352 However, negotiation practice also deviated to a large extent from the principle of non-reciprocity, as developing countries had to agree on all agreements and many accepted substantial tariff cuts, in deviation from earlier practice.353 Moreover, the WTO was created as an independent institution outside the UN system (like the Bretton Woods institutions) demonstrating the demise of developing country efforts to bring economic issues into the UN system. On the whole the 90s saw a retreat of Third World positions. This abandonment was due to a variety of factors, including the rise of neoliberal policies under the governments of Margaret Thatcher in the UK and Ronald Reagan in the United States, and debt crises in many developing countries in the early 1980s, leading them

seqq. (on the role of the market and the importance of private entrepreneurial activity); para. 23 and 96 (on the need for developing countries to adopt or strengthen a liberal regulatory investment regime); para. 125 et seqq. (on the need for further trade liberalization to increase development possibilities of developing countries). 349 Fortin (2013), MN 21; Sacerdoti (2015), MN 28. 350 Tourme-Jouannet (2013), p. 31 with further references. 351 TRIMS for example explicitly prohibits so-called performance and local content requirements often used to promote infant industries, see: TRIMS, Annex Nr. 1, a)-b). 352 See for an overview of the plethora of such provisions: Jessen (2006). 353 See on the more active participation in reciprocal liberalization of trade in goods and services: Michalopoulos (2014), pp. 36, 68 et seqq.

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to accept ‘structural adjustment’ conditionality in return for loans from the IMF and the World Bank group. These conditionalities—based on what later became to be known as the Washington Consensus354—included public sector reduction, privatizations and a preference for open trade and investment regimes. Moreover, the very fact that the Berlin Wall fell, leading to the perception that capitalism had won the ideological battle, ushered in a new phase of economic globalization that promised economic development through integration in the international market and the adoption of market-friendly economic policies.355 With the apparent failure of Soviet style centrally-planned economies, the appeal of economic models based on state intervention in the economy faded. Instead, the success of the so-called Asian Tiger States and to some extent China, seemed to disprove dependency theory, making capitalism and market principles far more attractive. Apart from that, the idea of non-alignment and a united Third World bloc had suffered from internal contradictions over the years. Many developing States became aligned with one or the other, or varying superpowers.356 With the dissolution of the Soviet Union the whole idea of non-alignment became superfluous. Increasingly the diversity in economic development among the grouping’s members also became an issue of tension.357 Continuing power differentials also played an important role in the abandonment of the NIEO. As seen above the EC and the United States actively used the threat of exclusion from world markets, as well as the threat of trade sanctions, to ‘convince’ developing countries to join the WTO. Moreover, developed countries throughout the 1960s and 1970 remained the dominant capital exporting countries, while many developing countries still depended on investment inflows and had no notable investment outflows.358 Even the assertion of PSNR could not veil the fact that the Third World was dependent upon foreign investors to provide for financial and technological assistance to exploit their natural resources.359 As the dominant economic theory suggested that investment protection was necessary to attract investments, or at least that it would bring competitive advantages in comparison to other States, most developing countries individually opted for concluding strong international investment agreements with capital exporting States.

See for the first use of the term and an early explanation of its content: Williamson (1990). On the diversity of reasons for the abandonment of the NIEO, see e.g.: Tourme-Jouannet (2013), p. 28 et seqq.; Sacerdoti (2015), MN 25 et seqq. 356 Cf. Bennouna (2011), MN 16. 357 Because of these factors, the end of the Third World was already proclaimed by some writers in 1986, see: Harris (1986); for the argument that the problem of differentiation among members at different ‘stages’ of development and the need to moderate tensions led to the watering down of radical positions within UNCTAD and G-77, see: Rajagopal (2003), p. 87. 358 See data provided by the World Bank on foreign direct investment flows, available at: https:// data.worldbank.org/indicator/BX.KT.DINV.CD.WD. 359 Cf. Salomon (2013), p. 41. 354 355

3.3 New Great Powers and a New New International Economic Order?

3.2.5

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Evaluation

This part of the chapter has made four important arguments. Firstly, that the Third World was able to garner some unity in the post-colonial Cold War context based on notions of Third World solidarity and opposition to what was perceived as an unjust international economic system. Secondly, It argued that the NIEO did not fail completely, but many of its more controversial parts never became legally adopted or only did so after they were considerably watered down. Thirdly, this lack of success was not due to the radicality of the NIEO’s proposals. The NIEO promoted a stronger role for the State in economic development and industrialization and foresaw some redistributive mechanisms at the international level but no radical overhaul of the system and its basic principles as such. Instead, other factors explain the demise of the NIEO and the rise of neoliberalism. These factors include the effective opposition by more powerful Western States and also the larger historical setting and ‘mindset’ at the end of the Cold War. Ultimately, Western States were able to bloc unwanted NIEO proposals and instead promoted a new (or renewed) vision of a liberal international economic order, that ultimately succeeded.

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New Great Powers and a New New International Economic Order?

Section A has essentially argued that power matters and that despite mixed success Western interests have dominated international law-making in the twentieth as well as earlier centuries. Section B in addition revealed that (newly independent) Third World States largely failed to establish a new international economic order due to a variety of reasons including their lack of power vis-à-vis dominant industrialized States. The important questions in the twenty-first century then appear to be: First, have emerging powers become powerful enough to be capable of reforming international law? Second, are emerging powers—of which several have been members or observers of NAM and G-77360—still committed to earlier calls for a NIEO?

360

India is a founding member of both NAM and G-77. Brazil, China, and South Africa are also listed as G-77 member States, albeit China is not a formal member and G-77 statements are usually issued in the name of G-77 and China. Since 1994 South Africa is also a member of NAM and Brazil and China have observer status. A list of G-77 members is available at: http://www.g77.org; a list of NAM members is available at: http://nam.gov.ir. Accessed 13 Sept 2020.

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Emerging Powers as New Great Powers?

According to the logic of power presented above, only States with military, economic, and soft power are likely to have a deeper impact on the content of international law. As seen above, for our purposes, a great power may be defined as a State with great capabilities—in relation to all other individual States—to indirectly or directly control or influence the content and enforcement of international law and similarly the behaviour of other less powerful States. The necessary capabilities to do so can roughly be defined as stemming from differentials in military, economic, and soft power. Additionally, cognitive factors such as a willingness to act as a great power and the recognition by other States are relevant factors. The next section argues that China, India and Brazil, to varying extents, already qualify as such great powers while the United States continues to take sort of a superpower position outnumbering all other important powers. South Africa, in contrast, clearly is in a different league compared to the other BRICS States and may only have entered the grouping of BRICS to broaden its geopolitical diversity. To back up that argument, we will briefly assess the military, economic and soft power of these States as well as the cognitive factors mentioned above. As great power status is always relative, military, economic and soft power will be compared with those of established great powers, most notably the United States, but also occasionally other G-7 Member States. One caveat is necessary here: In 1938 Triepel noted that power and influence cannot be measured with a yard stick361 and such an assessment has even become more difficult in a world characterized by stronger (economic) interdependence.362 Nevertheless, the following paragraphs demonstrate that some rising powers are very likely to have developed the capacities to play a more important role in the making, shaping, and enforcement of international (economic) law.

3.3.1.1

Military Power

Global rankings of military strength taking into account numerous factors, such as quantity and quality of military fire power, defence budgets, geographical factors, available manpower, and nuclear stockpiles, continue to rank the United States first and Russia second.363 However, these traditional military powers are directly

361

Triepel (1961), p. 140 (“Machtgrade kann man nicht mit dem Zollstocke messen”; own translation: “One cannot measure power with a yard stick”). 362 Hoffmann (1995), p. 184; Keohane and Nye (2012), pp. 3, 9 et seqq. 363 See e.g. the work of the International Institute for Strategic Studies (IISS) based in the UK which provides an annual assessment of countries’ armed forces entitled “The Military Balance”; another annual ranking is provided by the website: https://www.globalfirepower.com/countries-listing.asp.

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followed by China (3rd) and India (4th).364 Only then come G-7 members France (5th), the United Kingdom (6th), Germany (9th), and Italy (11th). Other aspirants for great power status like Brazil can only be found on place 17 behind other developing countries like Turkey (8th), South Korea (12th), Pakistan (14th), Indonesia (15th), Israel (16th) and Vietnam (17th). South Africa lags behind in 46th position, even behind some other African States like Ethiopia (41st) and Nigeria (43rd). Considering defence budget alone then, we can see that the United States far outspends all its competitors with a defence budget of US$ 610 billion, accounting for more than a third of the global total in 2017.365 Budgets by all other important military powers are far lower. China comes second with a budget of an estimated US $ 228 billion, Saudi Arabia third with a budget of US$ 69.4 billion, and Russia fourth with a budget of US$ 66.3 billion.366 Both India and Brazil are also ranked within the top 15 military budgets, with India placed 5th and Brazil 11th in 2017.367 In absolute terms the U.S. defence budget is only slightly below that of all the other top 15 countries taken together. While the size of the defence budget alone does not equate to military efficiency and capability, it is a first important indicator and also proves U.S. willingness to stay on top. Still, relative changes in defence budgets between 2008 and 2017 reveal that others are moving up, while the U.S. budget decreased by 14% between 2008 and 2017. China, Turkey, India, Russia, Saudi Arabia and Australia each made large increases of more than 30% during the same period.368 This fact supports the argument that these countries are catching up.369 Experts also see the Western technology edge eroding due to China’s military modernization and its role as “a global defence innovator”.370 Increasingly, China displays its willingness and ability to act militarily on a global scale. In July 2017, China established its first foreign military base (Djibouti) and the country is believed to be planning new military bases around the world to protect its Belt and Road Initiative. Up until now, this effort pales in comparison to existing engagement by the United States and the G-7 States. The United States operates numerous military bases around the world, as do some other G-7 Member States, especially France and the UK. Other rising powers so far seem not to have established military bases abroad. While there have been some rumours about the establishment of an Indian foreign air base in Tajikistan, it appears that the engagement stalled because of Russia’s objection to the deployment of Indian forces there (Russia employs own military troops in Tajikistan).371 Brazil is also clearly no global military power. Nevertheless,

364

Tian (2018), p. 149. See: IISS (2017); See for data on military expenditure also the Stockholm International Peace Research Institute’s database, available at: https://www.sipri.org/databases. 366 Tian (2018), p. 149. 367 Tian et al. (2018), p. 157. 368 Tian et al. (2018), p. 157. 369 See also: IISS (2018a), p. 20. 370 IISS (2018b), p. 5. 371 Putz (2015). 365

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in Latin America it has the most powerful military and by far outspends all other regional countries. Its military budget equates to 46% of the total military spending among Latin American and Caribbean countries.372 In the case of South Africa it is questionable even whether it amounts to an important regional military power. One ranking indicates that South Africa is not Africa’s most powerful military power, with Egypt, Algeria, Ethiopia and Nigeria ranked higher in terms of military capability.373 Other studies argue that the South African National Defence Force “remains on paper the most capable force in the region” (Sub-Sahara Africa) but that it faces severe funding problems.374 Finally, a look at nuclear capabilities is necessary. Cited rankings already take account of nuclear capacity, however because of their crucial strategic importance these weapons need to be assessed on their own. Today nine States, as far as is publicly known, possess nuclear weaponry: Russia, the United States, France, China, the UK, Pakistan, India, Israel, and North Korea. Among these countries Russia and the United States clearly stick out in terms of the sheer mass of their nuclear arsenals. As of January 2018, the United States possessed an estimated 6450 nuclear warheads and Russia even 6850, while the third largest arsenal, held by France, is much smaller with only 300 warheads.375 The next biggest arsenal is that possessed by China, with an estimated 280 nuclear warheads. India comes next, estimated as holding 130 to 430 nuclear warheads. Both India and China, however, have started to enlarge their nuclear weaponry and to modernize existing arsenals in the last years as part of longer-term strategies to develop their nuclear capacities.376 This brief overview reveals that India and China, in military power terms, have already joined the ranks of important military powers. Though these States are significantly less powerful than the United States, their nuclear capacities together with their outstanding other military capacities indicate that they may qualify as belonging to the small group of military great powers. Moreover, the establishment of the first Chinese overseas military base signals China’s increased willingness and capability to employ its forces on a global scale. Taken together with China’s higher military, and importantly, nuclear capabilities it appears that among emerging powers only China so far has become a credible competitor to U.S. military power in the longer run.

372

See: IISS (2018c), p. 377; see also the ranking of Latin American States by Military Strength that ranks Brazil 1st available at: https://www.globalfirepower.com/countries-listing-latin-america.asp. 373 See: ‘African Powers Ranked by Military Strength Ranking’ available at: https://www. globalfirepower.com/countries-listing-africa.asp. 374 See: IISS (2018d), p. 485. 375 Numbers are based on data from the Stockholm International Peace Research Institute (SIPRI), see: Kile and Kristensen (2018c), p. 236. 376 See for country specific assessments of these strategies: Kile and Kristensen (2018a, b).

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Economic Power

As seen above, economic power derives from the inequality of States’ economies and manifests itself in the international realm through trade, the availability of meaningful economic sanctions, foreign investment flows, and/or the strategic use of foreign development aid. Most international lawyers engaging on the subject of rising powers so far have mostly avoided an in-depth assessment of these States actual economic power. Instead, they simply start from the assumption that the economic power of these States has increased and that this is of relevance for international law. However, this assumption has come under some pressure in recent years. Economic downturn and political turmoil are prevalent in most if not all emerging powers. Thus, some scholars argue that the rise of these States has been overestimated and has already given way to their fall.377 This fall could have potentially far reaching implications for existing predictions about the future of international (economic) law. If the economic potential of rising powers has been overestimated and their economies are in a process of decline, than we may not observe any changes in international (economic) law. Or we may nevertheless see legal changes, but may have to search for alternative explanations than simply increased power. However, the following assessment of economic powers clearly shows that the general assumption of a fall of emerging powers appears much too early. Further, that it can reasonably be assumed that the economic power of Brazil, China, India, and even to some extent South Africa indeed has significantly risen over the last two decades. In that context the abovementioned caveat needs to be repeated: It is illusory— particularly for an international lawyer—to comprehensively measure the relative economic power of States, in particular in times of economic globalization and interconnectedness. The deeper one reads, the more numbers one compares, the more complicated it gets. Therefore, the following section can only provide a broad oversight and analysis of some of the most important economic figures. To do so, we will take a look at one of the main indicators for economic power, namely GDP, as well as some manifestations of economic power, such as development financing, trade shares, and foreign direct investment (FDI) flows and stocks.

Sources of Economic Power: GDP Let us begin with the clearest aspect of emerging powers’ economic success. Rising powers have managed to achieve huge increases of their GDP numbers and some of them have even bypassed several G-7 members. These success stories mostly started in the early 1990s with domestic market liberalisations (in China even earlier) and then took off in the 2000s.

377

Kiely (2016).

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In 1990 the top nine economies (measured in GDP terms) were in descending order: the United States, Japan, Germany, France, Italy, UK, Canada, Spain and Russia. Still, Brazil, China and India came 10th, 11th and 12th, and South Africa 29th. By 2018, the United States continued to hold the top ranking with a GDP of approximately US$ 20.5 trillion. Other old great powers followed suit, with Japan 3rd (nearly 5 trillion), Germany 4th (approximately 3.9 trillion), the UK fifth (nearly 2.9 trillion) and France 6th (nearly 2.8 trillion). However, China surpassed many developed countries and acquired the second largest GDP, with US$ 13.6 trillion in 2018.378 India (approximately US$ 2.7 trillion) and Brazil (approximately US$ 1.9 trillion) are also within the top ten, placed 7th and 9th respectively, both having surpassed some G-7 members, such as Canada and Italy. Other developing countries with high GDP levels include Korea at place 12th (US$ 16 trillion) and Mexico, Indonesia and Turkey within the top 20. South Africa only reached the 34th position (US$ 0.37 trillion) and falls behind several other sub-Saharan African countries, for example Nigeria which sits at place 31th (US$ 0.4 trillion). Importantly, GDP numbers also indicate that in relative terms, China, India, and Brazil are catching up to the United States. In the period between 1990 and 2018 the GDP of the United States only increased around threefold, while Chinese GDP increased over thirtyfold, Indian GDP around sevenfold and Brazilian GDP (despite some decline in recent years) still nearly fourfold. In contrast, South African GDP, due to a steep decline in 2010, only increased by around two- to threefold in the same period. These GDP figures become less relevant when applied per capita. Here it appears that China (US$ 9770.8 per capita), Brazil (US$ 8920.8 per capita), South Africa (US$ 6374.0 per capita), and India (US$ 2010.0 per capita) are far behind G-7 States like the United States (US$ 62,794.6 per capita) or Germany (US$ 47,603.0 per capita) and even behind many developing countries.379 These figures suggest that poverty and severe inequality persist in these States.380 On the other hand, these low figures together with huge populations, particularly in China and India, also illustrate that local markets continue to present much prospect for further economic growth. This again brings us to GDP growth rates. Table 3.1 below illustrates that in the years from 2000 to 2018 all rising powers usually had (much) higher growth rates than industrialized States. Moreover, it reveals that even the 2008 financial crisis had no crucial immediate effects on emerging markets. Still, we also clearly see that growth in Brazil and South Africa has slowed down and, in some years, has even become negative. Numbers also indicate that Brazil and South Africa slowly recover from economic difficulties, this is most prevalent between 2015 and 2017, albeit much will

See GDP figures provided by the World Bank, available at: http://data.worldbank.org. Accessed 5 Jan 2020. 379 See GDP per capita figures provided by the World Bank for 2018, available at: http://data. worldbank.org. 380 See for a detailed analysis of these problems in BRICS States: Kiely (2016), p. 83 et seqq. 378

Brazil China India South Africa Germany United States

2000 4.4 8.4 4 4.2 3.2 4.1

2002 3.1 9.1 3.9 3.7 1.3 1.8

2004 5.8 10.1 7.8 4.6 0.7 3.8

2006 4 12.7 9.3 5.6 1.8 2.7

Table 3.1 Real GDP growth rates 2000–2018 (based on IMF data) 2008 5.1 9.6 3.9 3.2 0.8 0.3

2010 7.5 10.6 10.3 3 1.1 2.5

2012 1.9 7.9 5.5 2.2 0.7 2.2

2014 0.5 7.3 7.5 1.7 1.9 2.6

2015 3.8 6.9 8 1.2 1.7 2.9

2016 3.6 6.7 7.1 0.3 0.4 1.3

2017 0.7 6.7 6.7 0.7 2 2.3

2018 1.1 6.6 6.8 0.8 1.5 2.9

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depend on whether political turmoil in both countries can be overcome in the coming years.381 Data on both India and China reveals continually high growth rates, particularly in comparison to established economic powers. Still, there are also numerous reasons to worry about continuing growth in both countries. Chinese growth for example has slowed down in recent years. Serious concerns exist in relation to ‘economic bubbles’ and about a likely failure of China’s strategy to shift from an export-oriented economy towards fuelling domestic consumption, that might impede further growth or even lead to a serious economic crisis.382

Manifestations of Economic Power: International Finance, Trade, and Investment Emerging Powers as Emerging Donors? Development aid and other forms of financial assistance to other States can be seen as one means of using economic power to gain influence. Interestingly, development cooperation is one of the fields where the importance of so-called emerging donors is increasingly acknowledged.383 To some extent breaking with their developing country status and despite the fact that some of them also continue to be recipients of Western aid, Brazil, India, South Africa, and again most significantly, China, increasingly provide development assistance and other forms of finance to developing countries. This rather new approach384 has even led to the foundation of several multilateral development funds and banks. In 2014, BRICS set up the New Development Bank (NDB).385 The NDB has a significant initial subscribed capital of US$ 50 billion and an initial authorized capital of US$ 100 billion.386 Therefore, the NDB has often been depicted as a rival institution to the World Bank, whose largest stakeholder is the United States (holding 17.07% of total subscribed capital).387 Still, the NDB’s initial subscribed capital is substantially smaller than that of the World Bank (US$ 252.8 billion) and is so far much less ambitious in terms of finance recipients.388 However, this might

381

The recent change of president in South Africa and successful elections in Brazil (whatever one may think of the newly elected president) suggest more political stability may be on the horizon, though it is too early to tell for certain. 382 Kiely (2016), p. 61 et seqq. 383 Among the many contributions to the field, see e.g.: Manning (2006), Brautigam (2009), Mawdsley (2012) and de La Fontaine (2013). 384 It has to be noted here that especially China actually is a ‘re-emerging donor’ as the country already had development cooperation projects earlier, see: Mawdsley (2012), p. 48 et seqq. 385 ‘Agreement on the New Development Bank’, Fortaleza, 15 July 2014. 386 Ibid. Article 2. 387 See e.g.: Desai (2013). 388 Up until December 2018, only projects within BRICS States received funding. For an overview of projects, see: https://www.ndb.int/projects/.

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change in the future, as the Agreement on the New Development Bank allows for the enlargement of membership and also for the exceptional financing of operations in non-member countries.389 The smaller IBSA group,390 including Brazil, India, and South Africa, established a common development fund called IBSA Facility for the Alleviation of Poverty and Hunger (IBSA Fund) in 2004. The IBSA Fund has already funded projects in many developing countries in Africa, the Caribbean and Asia. However, the fund only collects rather small levels of funding, US$ 1 million per member State per year,391 and therefore does not rival the World Bank. Individually, China inter alia launched the Asian Infrastructure Investment Bank (AIIB) that commenced operations in January 2016. Despite the broader participation of States—including some Western States—China remains the single largest stakeholder, holding 26.9266% of voting rights with total subscriptions of US$ 29,780.4 million.392 Moreover, China is pursuing its ambitious so-called Belt and Road initiative that is primarily aimed at increasing the connectivity of trade networks through infrastructure investments and financing. By all estimates the Belt and Road initiative is a huge development and infrastructure project covering approximately 68 countries across the Asian, European, and African continents. Therefore, the Belt and Road initiative can be seen as a strategy on the part of China to strengthen its position in world trade and more broadly its role in global governance. Apart from these prestigious projects it is difficult to assess degrees of development cooperation by emerging powers. Official data is often unavailable, differing definitions of ‘foreign aid’ and ‘development cooperation’ exist, and resources are channelled through diverse bilateral and multilateral institutions.393 Despite difficulties in quantifying their activities it appears that China, India, Brazil, and South Africa have substantially increased their development cooperation activities in the last decade(s), albeit to a significantly different extent. Available (estimated) data on China indicates that the State has provided a huge amount of official financial resources to other countries and projects therein, however most of these resources do not qualify as official development aid (ODA) as defined by the Organization of Economic Co-operation and Development (OECD).394 ODA and other official flows (OOF) from China between 2000 and

389

Agreement on the New Development Bank, Fortaleza, July 15, 2014, Article 2 and Articles of Agreement of the New Development Bank, Article 5, 10 e) 390 See on IBSA: Stuenkel (2015a). 391 Agreement on the IBSA Fund for the Alleviation of Poverty and Hunger, Durban (17 October 2017), Article 2, available at: http://www.itamaraty.gov.br/en/press-releases. 392 A list of voting shares is available at: https://www.aiib.org. 393 See on these difficulties: Mawdsley (2012), p. 78 et seqq. 394 Data on China is provided for by the open-source-based website aiddata.org, which is run by a number of experts in the field and based at the Institute for the Theory & Practice of International Relations at William & Mary University (US).

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2014 made up US$ 350 billion and supported 140 countries and territories.395 While ODA only made up US$ 81.1 billion, taken together Chinese ODA and OOF amount to only slightly lower than the U.S. portfolio (predominantly made up of ODA) for the same period (366.4 billion US$). Unfortunately, the data situation on India, Brazil and South Africa is worse than for China. Nevertheless, it is rather clear that India, Brazil and even South Africa have also engaged in South-South development cooperation but on a smaller scale. Available figures prove that point, albeit it is not entirely clear which concrete definitions are underlying presented numbers and whether they qualify as ODA as defined by the OECD. The Indian government reported in 2012 that approximately US$ 1.3 billion was budgeted for “development assistance” for the fiscal year 2013/ 2014.396 According to latest available figures for Brazil, the country has allocated US$ 923 million to “development cooperation” in 2010.397 South Africa in 2008 reportedly transferred ZAR 27 billion to its neighbouring countries, which at that time represented 1% of South Africa’s GDP.398 Among its numerous other efforts, South Africa in 2000 set up the so-called African Renaissance Fund which aims to establish partnerships and support the economic empowerment of Africa. South Africa has made disbursements of approximately ZAR 200–300 million (around US$ 17–26 million) annually to countries in Sub-Saharan Africa.399 When it comes to the impact of these measures, it is worth noting that emerging powers usually refrain from describing themselves as donors, which would indicate some form of hierarchy, but highlight solidarity, South-South cooperation, non-interference in political matters, and mutual benefit.400 Nevertheless, research indicates that, just like traditional donor countries, emerging donors are driven by commercial and political self-interest, including the aim of increasing global status.401 The rhetoric of South-South development cooperation may rather be aimed at veiling these interests, just as the symbolic regime of charity and benevolence often

395

Aiddata.org distinguishes between Official Development Assistance (ODA) which is commonly defined as containing a concessional element of at least 25% and is primarily intended for non-military development and welfare, and Other Official flows (OOF), which may contain a concessional element but below 25% and is primarily intended for commercial or representational purposes; statistics of China are available at: http://aiddata.org/china. 396 Mullen (2003), p. 2. 397 OECD Active with Brazil (2015). http://www.oecd.org/brazil/Brazil%20brochureWEB.pdf. Accessed 12 Sept 2020. p. 43. 398 Besharati (2013), p. 19. 399 Besharati (2013), p. 19. 400 See: Mawdsley (2012), p. 153 et seqq.; Quadir (2013), p. 326; see on South Africa also: Grobbelaar (2014), p. 10 et seq.; see also the summary of official goals and working principles of the Agência Brasileira de Cooperação (ABC) available at: http://www.abc.gov.br/training/ informacoes/ABC_en.aspx. Accessed 12 Sept 2020. 401 See e.g.: Mawdsley (2012), p. 158 et seqq.; Fuchs and Vadlamannati (2013); Mawdsley (2011), p. 483.

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cloaks economic and political interests of Western States.402 Mullen has for example argued, that India’s development assistance is “increasingly directed towards securing resources, developing markets for domestic companies, and supporting India’s larger geo-strategic goals.”403 Scholarship on Brazil reveals that the country’s development cooperation has been used to open foreign markets for Brazilian products and to gather support for the State’s ambition to reform the UNSC and gain permanent membership.404 While it may be too harsh to qualify China as a “rogue” donor,405 the country’s financing projects surely also pursue national economic interests, such as supporting Chinese companies in accessing foreign markets and acquiring much needed commodities.406 Moreover, the rhetoric of non-political interference is belied by the fact that China used early development cooperation to displace the Taiwan based Republic of China (ROC) at the UN and to this day recognition and diplomatic ties with Taiwan are an issue influencing allocation decisions.407 Rising Powers as New Trade Powers? As noted above, market size (measured as GDP) is one of the most relevant factors to measure bargaining power in trade negotiations. According to that logic, States with larger and richer markets are considerably better placed to offer and receive concessions in trade negotiations than smaller markets. We have already seen that GDP numbers for several rising powers have considerably risen in the past. Thus, we can assume that bargaining power in trade negotiations and the ability to impose meaningful negative- and positive trade sanctions has increased. Additionally, several rising powers have substantially increased their trade share and value of exports. Today, China has become the world’s leading exporter in merchandise trade. However, this status alone does not mean that China has become the world’s most powerful trading nation. Trade share may be one indicator of economic power, but a more nuanced view is necessary. This is because trade share is not an economic resource per se. Huge numbers and a high value of exports may at first sight indicate a strong economy, but if the terms of trade are bad, transactions may lead to welfare losses. Moreover, in times of global value chains, a huge trade share may indicate integration into such value chains, but not necessarily reveal how much value has been added and how much revenue obtained. To give an example, China is today the world’s leading exporter in world merchandise trade with a global share of 12.77% and a total value of US$ 2487

402

Mawdsley (2012), p. 161. Mullen (2003), p. 15. 404 Inoue and Vaz (2012), p. 528 et seqq. with further references. 405 Naím (2007). 406 See for a differentiated assessment of China’s development cooperation and finance in Africa: Brautigam (2009), chapter 11 and p. 307 et seqq. 407 See e.g. Mawdsley (2012), pp. 55, 74 et seqq.; Brautigam (2009), p. 67. 403

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billion. At the same time it was the second largest importer (behind the United States) with a share of 10.75% and a total value of US$ 2136 billion (all according to latest available numbers for 2018).408 While most of China’s exports consist of manufactured goods, for which trade terms are generally better than for commodities, companies operating in China and workers that produce these products tend to make far less revenue on these goods than their Northern counterparts that often develop, design, and ultimately sell the products. Chinese manufactures integrated into global value chains often only assemble parts that have been produced in other (mostly Asian) countries and the products are ultimately sold in Western States. In that way both import and export share increases while little value is added in China and little revenue remains in the country. Kiely demonstrates this phenomenon with the example of Apple products.409 However, it is impossible to provide an overview of real trade power (including value chains and other variables) here. As trade share still has some currency in international forums and negotiations, the following figures410 shall provide a first impression of some important variables of trade power, such as the integration of rising powers in the world market, their major trading partners, and the diversity of ex- and imports. Among rising powers China clearly sticks out. As already noted, China has become the largest exporter of merchandise and the second largest importer. Regarding commercial services it is the fifth largest exporter and the second largest importer. China’s merchandise exports are predominantly made up of manufactured goods (93.9%) and only a small number of agricultural products, fuels and mining products. China’s imports include a high number of fuels and mining products (24.1%), which are required for its manufacturing industries. The main destinations for Chinese exports are the United States (19%), the EU (16.5%) and Hong Kong (12.3%). Chinese imports predominantly stem from the EU (13.3%), Korea (9.7%), Japan (9%), Chinese Taipei (8.5%) and the United States (8.4%). India is the world’s 19th largest exporter of merchandise (with a global share of 1.67%) and its 10th largest importer (2.57%). Both its exports and imports are quite diversified. India’s exports contain 69.6% manufactured goods, 16.2% fuel and mining products, and 13.2% agricultural products. Its imports are made up of

408 Data is drawn from China’s WTO country profile, available online at: https://www.wto.org/ english/thewto_e/countries_e/china_e.htm. Accessed 12 Sept 2020. 409 Kiely (2016), p. 53 et seqq. with further references. Apple obtains many of its products from Hon Hai Precision Industry, a Taiwan-owned company, which uses its Chinese subsidiary, Foxconn, to assemble the parts of Apple products in China. In 2005 a 30 gigabyte iPod classic cost US$ 299 in the United States, of which Apple paid US$ 144 to Hon Hai. Of that US$ 144 only 3% went to Foxconn, 51% to a Japanese hard drive producer, 3% to the United States based semi-conductor designer, and 2% to a South Korean memory chip producer. The 2007 Apple iPhone, which sold for US$ 500 in the United States, only cost US$ 178.96 to be manufactured and Chinese labour costs only made up US$ 6.5 per phone. 410 All figures are drawn from WTO data available online on the respective country pages (data is of 2018): http://stat.wto.org/CountryProfile. Accessed 5 Jan 2020.

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52.5% manufactured goods, 33.8% fuel and mining products, 7.4% agricultural products and 6.3% amounts to ‘other merchandise’. India’s primary export destinations are the EU (17.8%), the United States (16%), and the United Arab Emirates (8.9%). It’s neighbour, China, is only the destination for 5.1% of India’s exports. Still, China is the origin of 14.6% of India’s imports. Other major origin markets for India’s imports are the EU (10.2%) and the United States (6.3%). Another major feature of India’s trade is its strong export-oriented service sector.411 In 2018 India was the world’s 8th largest exporter (3.54% of the world’s total service exports) of commercial services. Brazil is the 27th largest exporter and 28th largest importer of merchandise.412 With a 1.23% share of the value of world total exports and 0.95% for imports. Brazil’s exports are quite diversified with a share of 35.4% of manufactured goods, 40.3% of agricultural products, and 21.5% fuel and mining products. Agricultural export shares are evidence of Brazil’s strong and export-oriented agribusiness sector, with a strong interest in foreign market access liberalization.413 In contrast, its imports predominantly are made up of manufactured goods (74.4%). Brazilian exporters’ main export destinations are China (21.8%), the EU (16%), and the United States (12.5%). Brazil imports predominantly from the EU (21.2%), the United States (16.6%), and China (18.1%). Brazil holds a rather low share of world service exports, at 0.58%. Its import shares amount to 1.20%. South Africa is the 39th largest exporter and the 35th largest importer of merchandise trade, engaging in only 0.48% of the world’s total exports. It’s share of total world trade amounts to 0.57%. South Africa’s exports are quite diversified with 43.5% comprising manufactured goods, 35.8% fuel and mining products, and 13.2% agricultural products. Imports are predominantly made up of manufactured goods (65%), with lower shares of fuel and mining products (17.5%), and agricultural products (8.9%). South Africa’s main trading partners are the EU, China, and the United States. 21.7% of South Africa’s exports in 2018 went to the EU, 9.8% to China and 7.5% to the United States. The country’s imports mostly come from the EU (30.8%), China (18.3%), and the United States (6.6%). Notably, 4.7% of its imports also come from India. All in all, numbers illustrate that only China today stands par on par with established economic great powers in terms of trade share. Still, India and Brazil have also become major traders. Further, statistics demonstrate that intra-rising power’s trade remains quite low, and—keeping with ‘traditional’ trade patterns— the major trading partners of rising powers continue to be from the Global North. Breaking with historical patterns, China, has become an important destination for commodity exports from developing countries and an important exporter of manufactured goods to these countries.

411

See on India’s service sector in the context of the WTO: Hopewell (2016), p. 149 et seqq. All numbers are available on Brazil’s WTO country page, available at: http://stat.wto.org/ CountryProfiles/BR_e.htm. Accessed 5 Jan 2020. 413 See on the importance of the agribusiness sector for Brazil and trade policies: Hopewell (2013). 412

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Rising Powers as Rising Foreign Investors? Investment law has long been criticised for being essentially a one-way street, as capital exporting countries predominantly came from the Global North and countries depending on and competing for FDI inflows located in the Global South. Has this pattern changed for rising powers? FDI statistics from the OECD reveal that only China was able to substantially increase investment outflows and its FDI stocks abroad. China has acquired a relatively high stock of outward FDI (albeit this includes stock held in Hong Kong414). UNCTAD’s 2018 World Investment Report shows that China, in terms of FDI stock, has become the second largest investor in Asia and the fourth largest investor in Africa, but plays a much smaller role in Latin America and the Caribbean and in developed countries.415 Notably, India and South Africa can also be found among the top 10 investor economies by FDI stock in Africa.416 However, India is not among the top 10 investors in Asia and Brazil is only in the 10th position as an investor in the Latin American region.417 None of the emerging powers is among the top 10 investor economies for investments held in developed countries (Tables 3.2 and 3.3).418 While China sticks out by the sheer size of its numbers, Table 3.4 also illustrates that investors from Brazil, India, and even South Africa substantially increased stocks of FDI abroad. From 2005 to 2018, stocks of outward FDI from rising powers increased manifold. At the same time most of them also attracted far more foreign investment inflows. In comparison, data on Germany and the United States, while also revealing huge increases of both inward and outward FDI stocks in absolute terms, in relative terms only engaged in moderate increases. All in all, these numbers indicate that emerging powers are indeed still on the rise in terms of investment. China is the most likely candidate for an ‘investment great power’. Still, compared to the United States and the EU, both inward and outward investment flows and stocks—even in the case of China—remain relatively low. With some distance, Brazil, India, and this time also South Africa have accumulated significant outward FDI stocks. Still, FDI inflows and inward FDI stock by foreign investors to rising powers in most years exceeded their investors’ activities abroad. The exception this time is South Africa, which in 2014 become a net capital exporting country. In relative terms, for example compared to Germany or the United States, outflows from emerging economies remain low (Table 3.5).

See for data of FDI flows between China and Hong Kong: https://www.statista.com/statistics/ 720900/total-outward-fdi-stock-from-china-to-hong-kong/. 415 UNCTAD (2018), pp. 37, 43, 50, 61. 416 UNCTAD (2018), p. 37. 417 UNCTAD (2018), pp. 43, 50. 418 UNCTAD (2018), p. 61. 414

2008 20.5 5.64 754.6 71.4 20.8 2.78 320.9

2009 10.1 43.9 350.7 68.6 16.1 1.32 309.3

2010 22.1 58.0 459.7 125.5 16.0 0.08 296.3

2011 11.1 48.4 484.9 78.0 12.6 0.23 415.3

2012 8.42 65.0 291.9 62.2 8.55 2.89 338.4

2013 0.48 73.0 343.2 39.5 1.76 6.65 321.9

2014 3.26 123.1 195.9 84.0 11.70 7.67 347.7

2015 11.64 174.4 652.5 99.0 7.51 5.74 279.5

Source of data: OECD (2018), FDI flows, Outward, Billion US$, (rounded) 2008–2018 (Accessed on 3 January 2020)

Brazil China EU GER India South Africa United States

Table 3.2 Outward FDI flows 2016 5.90 216.4 436.8 60.34 5.05 4.47 309.9

2017 19.04 138.2 487.1 88.1 11.09 7.37 321.8

2018 3.67 96.5 349.8 63.28 11.42 4.55 68.41

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2008 45.1 171.5 318.7 8.1 47.5 8.2 318.5

2009 25.9 131.1 380.3 23.8 35.6 8.6 157.7

2010 77.7 243.7 358.7 65.7 27.4 4.0 210.5

2011 97.4 280.1 427.8 67.6 36.5 3.8 242.2

2012 82.0 241.2 346.2 28.2 24.0 4.4 211.5

2013 59.1 290.9 328.3 12.8 28.2 8.3 217.3

2014 63.8 268.1 244.9 3.01 34.6 5.8 212.0

2015 49.9 242.5 639.9 30.6 44.0 1.7 481.5

Source of data: OECD (2018), FDI flows, Inward, Billion US$ (rounded), 2008–2018 (Accessed on 3 January 2020)

Brazil China EU GER India South Africa United States

Table 3.3 Inward FDI flows 2016 53.7 174.8 579.3 12.6 44.0 2.3 486.0

2017 66.6 166.9 436.7 33.2 40.0 2.0 291.9

2018 58.5 203.5 357.7 11.9 42.1 5.3 268.4

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2008 130.6 185.7 7480 1250 63.3 49.4 3102

2009 133.5 245.8 8195 1358 80.9 70.2 4322

2010 149.3 317.2 8491 1384 96.9 83.3 4810

2011 159.8 424.8 8686 1433 109.5 97.1 4514

2012 206.4 531.9 8858 1344 118.1 111.8 5223

2013 206.0 660.5 9457 1448 119.8 128.7 6254

2014 207.9 882.7 9666 1389 132.7 146.0 6320

2015 184.9 1096 10,191 1362 139.0 154.7 6059

Source of data: OECD (2018), FDI Stock, Outward, Billion US$ (rounded), 2008–2018 (Accessed on 3 January 2020)

Brazil China EU GER India South Africa United States

Table 3.4 FDI stocks, outward 2016 201.8 1317 10,325 1362 144.1 175.6. 6412

2017 242.1 1809 11,921 1618 155.2 276.5 7829

2018 208.4 1899 11,270 1644 166.6 – 6453

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2008 260.5 915.5 6212 927.3 125.2 83.6 2486

2009 367.2 131.5 6759 965.1 171.2 138.8 2996

2010 640.1 157.0 6764 959.2 205.6 179.6 3422

2011 649.1 190.7 6947 988.5 206.4 159.4 3499

2012 664.2 2068 7570 863.4 225.0 163.5 3916

2013 627.8 2331 8142 955.2 226.6 152.1 4948

2014 601.5 2599 8154 862.2 265.8 138.9 5456

2015 429.8 2696 8713 795.5 282.6 126.8 5731

Source of data: OECD (2018), FDI Stock, Inward, Billion US$ (rounded), 2008–2018 (Accessed on 20 February 2020)

Brazil China EU Germany India South Africa United States

Table 3.5 FDI stocks, inward 2016 563.3 2755 8628 792.3 318.5 135.5 6586

2017 623.0 2726 10,341 954.5 377.3 156.1 7844

2018 568.7 2762 10,229 939 386.2 – 7432

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3.3.1.3

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Soft Power

As a reminder, soft power describes the ability to shape the preferences of others through appeal and attraction and is based on the attractiveness of a State’s culture, its political values, and its foreign policy. Among rising powers, again, China in particular has seriously begun to engage in increasing its soft power abroad through a variety of measures, including the giving of expensive gifts such as the African Union headquarters in Addis Ababa, or the founding of Confucius Institutes around the world.419 Both measures have however led to some controversy as the African Union headquarters allegedly has been bugged for State espionage purposes and the Confucius institutes in the United States, which officially aim to promote the Chinese language and culture abroad, have been criticised for their pro-Communist Party agenda.420 Aside from this anecdotal evidence, how attractive are rising powers’ cultures, political values, and foreign policies to others? The usual caveat applies: Soft power is difficult to measure. Yet, some assessments by private consultancy firms and independent charities are available which suffice here to give a short impression of rising powers’ (lacking) soft power. The most recent and comprehensive assessment available was conducted by the strategic communications consultancy, Portland. Methodologically, the index builds on Nye’s work and evaluates soft power based on “objective data” comprising six sub-indices including government, culture, education, global engagement, enterprise, and digital as well as “subjective data” measured through international polling from 25 country representatives of the world’s major regions.421 The survey assesses 60 countries (including Brazil, China, India and South Africa), and publishes a Top 30 ranking. The latest survey (2019) sees France in 1st place, followed by the UK (2nd), and Germany (3rd). Except for the United States (5th), Canada (7th), Japan (8th), Australia (9th), New Zealand (17th), Singapore (21st), and South Korea (19th), all other States in the top 20 are from Europe. Among emerging powers, China (27th) and Brazil (26th) made it in the top 30. China, since 2015, has moved up from the 30th position. Brazil, in contrast, lost several positions as it was placed 23rd in 2015. South Africa and India did not make it in the top 30. An earlier assessment by the British Institute for Government (an independent charity founded in 2008), prepared by the same author as the Portland study, uses a similar methodology but applied it to a smaller number of countries.422 The top three ranked were France (1st), the UK (2nd), and the United States (3rd), while China came in at 17th, South Africa and Brazil tied in 20th place, and India ranking 23rd.423

419

See on China’s efforts to increase its soft power and also its failures: Nye (2011), p. 88 et seqq. See e.g. Rogin (2018). 421 See on the methodology: McClory (2019), p. 29 et seqq. 422 See on the methodology: McClory (2010), p. 3 et seqq. 423 McClory (2010), p. 5. 420

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These assessments mirror the intuitive assumption that emerging powers so far lack soft power in international relations. However, the increasing scepticism against the United States (especially since the election of Trump as president) and Chinese efforts to fill the gap left by the retreating superpower, may change that image in the long run. We already see that China has taken up an active stance for climate protection and promotes ambitious economic development programs like the One Belt one Road initiative, that could increase its soft power in many parts of the world. All in all, the rankings of soft power again indicate that China is the most likely candidate for (soft) great power status, surpassing in soft power terms even democracies like India and South Africa. While the United States is still seen far more positively than China, the latter’s investments in soft power may lead the country to catch up in the long run.424

3.3.1.4

Cognitive Factors: Recognition and Willingness to Act Like a Great Power

Cognitive factors include a State’s willingness to act like a great power and its recognition by existing great powers. When it comes to recognition as a great power an international lawyer might intuitively think of Security Council membership. Permanent membership in this superior UN body today is limited to five States: China, France, Russia, the United Kingdom and the United States. This composition demonstrates that both China and Russia are recognized by the UN, and its Member States, as particularly important States with special rights. Brazil, India, and South Africa are likely candidates for an increased permanent membership of the UNSC, but thus far reform efforts appear deadlocked. One important forum which has welcomed all BRICS nations in the last decade is the G-20. The traditional forum of the G-7 was established in 1975 and includes the economically most important industrial countries at that time, including: France, Germany, Italy, Japan, the UK, the United States and Canada. While Russia was invited to the forum in 1998 (G-8) it was disinvited because of the annexation of Crimea in 2014. The G-20 was born out of a meeting of the G-7 in 1999 and initially was established as a ministerial-level forum. However, in 2008, in the wake of the financial crisis, meetings by the G-20 were upgraded to heads of State or government. Importantly, the new forum of the G-20 is aimed at bringing together industrialized countries as well as States qualified as “emerging countries”. Its emerging country members include China, Brazil, India, Mexico, South Korea, Indonesia, Turkey, Saudi Arabia, Argentina, and South Africa. This inclusion is evidence of the increased diplomatic importance of these countries and their recognition by existing great powers. The readiness of emerging countries to join the club also proves their willingness to live up to their increased importance. Nevertheless, it’s worth noticing that the G-7 continues to exist alongside the G-20 and still occupies a dominant role.

424

Cf. McClory (2017), p. 70.

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Moreover, the explicit distinction made within the G-20 between industrialized countries and emerging countries suggests that equality among these groups of States has not been fully accepted. One last important forum bears mention here, namely the WTO. WTO negotiations, while formally held among all Member States, usually at some point shift towards a smaller circle of Member States considered the most important. Negotiations of this nature are called ‘Green Room talks’.425 In the GATT and early WTO years, these talks were manly conducted among the so-called Quad (United States, EC, Japan and Canada). However, this has changed. Today, the major inner group of the WTO also includes Brazil, India, and China. Only Russia (possibly because it has only recently joined) and South Africa (perhaps because it is not considered economically important enough) are missing.

3.3.2

BRICS’ Legal Agenda: Resurrection of the NIEO?

BRICS countries have managed to set up a trans-governmental network that conducts annual summits of heads of governments and numerous other high-level meetings, such as meetings of ministers for agriculture, culture, environment, finance, foreign affairs, trade, and others.426 At these summits and meetings, BRICS regularly issue common statements and declarations. Many of these documents address issues of relevance for international law ranging from topics as broad as peace and security, climate change, development, and financial and trade issues. But does the agenda pursued rhetorically in common statements amount to anything comparable to the agenda of the NIEO, and does it challenge existing international rules, principles and paradigms? For those that fear that the international rule of law itself is on the decline, it may be reassuring to hear that BRICS repeatedly commit themselves to the “promotion of international law, multilateralism and the central role of the United Nations”.427 Similarly, statements relevant for international economic law and human rights adopt a loyalist or slightly reformative stance. In the area of international financial regulation BRICS countries have repeatedly called for a reform of the Bretton Woods institutions and in particular for a reform of

The metaphor of ‘green room talks’ derives from the wall colour of the room in Geneva where these negotiations were conducted in the past. 426 For a helpful overview of all high-ranking meetings of BRICS officials and issued documents, see: http://www.brics.utoronto.ca/. Accessed 12 Sept 2020. All statements and declarations cited in the following footnotes and chapters can be accessed there. 427 BRICS Fifth Summit: eThekwini Declaration and Action Plan, Durban, South Africa (27 March 2013), para. 1; BRICS Media Statement: Informal BRICS Leaders’ Meeting on the Margins of the G20 Summit, Buenos Aires, Argentina (30 November 2018), para. 4; BRICS Eleventh Summit: Brasilía Declaration, Brasilia, Brazil (14 November, 2019), para. 5. 425

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voting power within these institutions.428 BRICS leaders appear disappointed over the non-implementation of the 2010 IMF reforms and the failure of the United States to ratify the reform package.429 Additionally, BRICS nations argue for an open and merit based selection method—irrespective of nationality—for the managing director of the IMF and the president of the World Bank as well as for diversification of those institutions’ lower staff.430 In the past, an informal agreement between the United States and European States had ensured that the IMF would be managed by a European national, while the World Bank Group would be presided over by a U.S. national. International investment law has not been addressed in summit declarations but BRICS countries have issued a specific statement entitled “BRICS Perspective on International Investment Agreements”. Therein BRICS support the ongoing reform of IIAs towards making them more supportive of States’ regulatory powers to protect public interests (in relation to the environment, public health etc.) but shy away from more revolutionary proposals.431 In the trade realm BRICS States support an “open, transparent and rules-based multilateral trading system” and condemn protectionism.432 They highlight the centrality of the WTO for negotiating international trade rules433 and repeatedly called for the successful conclusion of the WTO’s Doha Development Agenda.434 428

See e.g. BRIC First Summit: Joint Statement of the BRIC Countries Leaders, Yekaterinburg, Russia (June 16, 2009) para. 3; BRIC Second Summit: Joint Statement, Brasilia (April 16, 2010) para. 11; BRICS Fourth Summit: Delhi Declaration and Action Plan, Delhi, India (March 29, 2012), 8 et seqq.; BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 18 et seq.; BRICS Eighth BRICS Summit, Goa, India (16 October 2016), para. 30; BRICS Ninth Summit: BRICS Leaders Xiamen Declaration, Xiamen (4 September 2017), para. 29. 429 BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 18; BRICS Seventh BRICS Summit: Ufa Declaration, Ufa (9 July 2015), para. 19. 430 BRIC Second Summit: Joint Statement, Brasilia (April 16, 2010), para. 11; BRICS Fourth Summit: Delhi Declaration and Action Plan, Delhi, India (March 29, 2012), 12; BRICS Fifth Summit: eThekwini Declaration and Action Plan, Durban, South Africa (27 March 2013), para. 13. 431 The document is available at: http://brics.itamaraty.gov.br/category-english/21-documents/227brics-perspective-on-international-investment-agreements; see for a more detailed analysis Chap. 4, B. V. 432 BRICS Fifth Summit: eThekwini Declaration and Action Plan, Durban, South Africa (27 March 2013), para. 15; in a similar vein and adding that “efficient allocation of resources, free flow of goods, and fair and orderly competition [is necessary] to the benefit of all.” BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 20; see also: BRICS Media Statement: Informal BRICS Leaders’ Meeting on the Margins of the G20 Summit, Buenos Aires, Argentina (30 November 2018), para. 4–8. 433 BRICS Seventh BRICS Summit: Ufa Declaration, Ufa (9 July 2015), para. 21; BRICS Eighth BRICS Summit, Goa, India (16 October 2016), para. 34; BRICS Eleventh Summit: Brasilía Declaration, Brasilia, Brazil (14 November, 2019) para. 26. 434 See e.g.: BRIC First Summit: Joint Statement of the BRIC Countries Leaders, Yekaterinburg, Russia (June 16, 2009), para. 5; BRIC Second Summit: Joint Statement, Brasilia (April 16, 2010) para. 14; BRICS Third Summit: Sanya Declaration and Action Plan, Sanya, China (14 April, 2011) para. 26; BRICS Fourth Summit: Delhi Declaration and Action Plan, Delhi, India (March 29, 2012), 15 et seq.; BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July

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Additionally, BRICS countries strongly support the work of UNCTAD on trade and investment and commit themselves to strengthening UNCTAD’s capacity “to deliver on its development mandate”.435 In light of the ongoing crisis of the WTO Appellate Body they have highlighted its central role for the effective functioning of the Organization and the enforcement of its rules and have called on WTO members to overcome the blockage of the Appellate Body member selection process promptly.436 On the human rights front, BRICS States stress the need to support “all” human rights, including the right to development and economic, social and cultural rights.437 Relatedly, they call for a dialogue on human rights based on “equality and mutual respect” and in “non-selective, non-politicized and constructive manner, and without double standards”.438 The larger topic of development is also a prominent feature of all BRICS statements.439 One focus is on increasing common economic development through cooperation within the group, but the grouping also has a broader international development agenda.440 One common goal appears to be the protection of developing countries’ policy space to pursue their own development path.441 Repeatedly

2014), para. 21; BRICS Eighth BRICS Summit, Goa, India (16 October 2016), para. 35; BRICS Ninth Summit: BRICS Leaders Xiamen Declaration, Xiamen (4 September 2017), para. 32. 435 Quote taken from: BRICS Fifth Summit: eThekwini Declaration and Action Plan, Durban, South Africa (27 March 2013), para. 17; see on the support for UNCTAD also: BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 22; BRICS Seventh BRICS Summit: Ufa Declaration, Ufa (9 July 2015), para. 22. 436 BRICS Eleventh Summit: Brasilía Declaration, Brasilia, Brazil (14 November, 2019), para. 28. 437 BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 28; BRICS Fifth Summit: eThekwini Declaration and Action Plan, Durban, South Africa (27 March 2013), para. 22; BRICS Seventh BRICS Summit: Ufa Declaration, Ufa (9 July 2015), para. 10; BRICS Ninth Summit: BRICS Leaders Xiamen Declaration, Xiamen (4 September 2017), para. 54. 438 Quotes taken from: BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 28; see on human rights also: BRICS Fifth Summit: eThekwini Declaration and Action Plan, Durban, South Africa (27 March 2013), para. 22; BRICS Seventh BRICS Summit: Ufa Declaration, Ufa (9 July 2015), para. 10; BRICS Ninth Summit: BRICS Leaders Xiamen Declaration, Xiamen (4 September 2017), para. 54. 439 See e.g. BRICS Third Summit: Sanya Declaration and Action Plan, Sanya, China (14 April, 2011), 20 et seq.; BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 54 et seqq.; BRICS Seventh BRICS Summit: Ufa Declaration, Ufa (9 July 2015), para. 65 et seqq. 440 See e.g. the Seventh BRICS Summit which was held under the theme “BRICS Partnership – a Powerful Factor of Global Development”, BRICS Seventh BRICS Summit: Ufa Declaration, Ufa (9 July 2015), para. 1 and also adopted the “Strategy for the BRICS Economic Partnership” aimed at improving trade, investment and financial cooperation within the group (para. 17). 441 BRIC Second Summit: Joint Statement, Brasilia (April 16, 2010), para. 15; BRICS Fourth Summit: Delhi Declaration and Action Plan, Delhi, India (March 29, 2012), para. 34; BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 54; BRICS Eighth BRICS Summit, Goa, India (16 October 2016), para. 23.

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BRICS nations have stressed that they respect each other’s individual development paths and those of others.442 These statements clearly take aim against notions of one-size-fits-all development concepts. BRICS States have also called on the international community to achieve the Millennium Development Goals and on developed countries to fulfil their “commitment of 0.7% of Gross National Income for ODA” and to make further efforts to increase assistance through debt relief, preferential market access and technology transfer.443 More generally, BRICS countries display a clear preference for multilateralism, the UN as the central organization in international relations and law, but also for what they call the democratisation of international governance and institutions.444 In particular, they argue that existing international governance structures have been established under different configurations of power and therefore have increasingly become illegitimate and ineffective. Thus, these structures need to be reformed towards the inclusion of BRICS States to adopt to the new reality of shifts in power dynamics. As BRICS put it at their Sixth Summit: [I]nternational governance structures designed within a different power configuration show increasingly evident signs of losing legitimacy and effectiveness, as transitional and ad hoc arrangements become increasingly prevalent, often at the expense of multilateralism. We believe the BRICS are an important force for incremental change and reform of current institutions towards more representative and equitable governance, capable of generating more inclusive global growth and fostering a stable, peaceful and prosperous world.445

442

See e.g. BRICS Ninth Summit: BRICS Leaders Xiamen Declaration, Xiamen (4 September 2017), para. 3. 443 See on issues of development: BRIC First Summit: Joint Statement of the BRIC Countries Leaders, Yekaterinburg, Russia (June 16, 2009), para. 6–7; BRIC Second Summit: Joint Statement, Brasilia (April 16, 2010), 18; BRICS Fourth Summit: Delhi Declaration and Action Plan, Delhi, India (March 29, 2012), para. 22, 35; BRICS Fifth Summit: eThekwini Declaration and Action Plan, Durban, South Africa (27 March 2013), para. 38 et seq.; BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 6; BRICS Seventh BRICS Summit: Ufa Declaration, Ufa (9 July 2015), 65 et seqq.; BRICS Eighth BRICS Summit, Goa, India (16 October 2016), para. 21 et seqq.; BRICS Ninth Summit: BRICS Leaders Xiamen Declaration, Xiamen (4 September 2017), para. 14. 444 BRIC First Summit: Joint Statement of the BRIC Countries Leaders, Yekaterinburg, Russia (June 16, 2009), 14; BRIC Second Summit: Joint Statement, Brasilia (April 16, 2010), para. 2; BRICS Third Summit: Sanya Declaration and Action Plan, Sanya, China (14 April, 2011), para. 5, 7, 8; BRICS Fourth Summit: Delhi Declaration and Action Plan, Delhi, India (March 29, 2012), 4; BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 2; BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), 5; BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 25; BRICS Seventh BRICS Summit: Ufa Declaration, Ufa (9 July 2015), para. 4; BRICS Ninth Summit: BRICS Leaders Xiamen Declaration, Xiamen (4 September 2017), para. 7; BRICS Ninth Summit: BRICS Leaders Xiamen Declaration, Xiamen (4 September 2017), para. 39 et seq. 445 BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 5.

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According to BRICS nations, democratisation also requires “comprehensive reform”446 of the UN, including reform of the UNSC’s permanent membership. In that matter, Russia and China support the aspirations of India, Brazil, and South Africa “to play a greater role in the United Nations”.447 A final important observation is that BRICS countries tend to frame their agenda as a legitimate, just, and fair one. For example, BRICS stated an intention to “support a more democratic and just multi-polar world order based on the rule of international law, equality, mutual respect, cooperation, coordinated action and collective decision-making of all States”448 and to promote the enhancement of “the voice of emerging and developing countries in international affairs”.449 BRICS countries have also stressed their “commitment to safeguarding a just and fair international order based on the UN Charter, and maintaining world peace and security, as well as promoting human progress and development”.450 Finally, BRICS leaders have “insist[ed] that international law provides tools for achieving international justice, based on principles of good faith and sovereign equality” and have emphasized the “need for universal adherence to principles and rules of international law in their interrelation and integrity, discarding the resort to “double standards” and avoiding placing interests of some countries above others.”451 Many of BRICS countries’ common concerns noted just now resemble earlier calls by the Third World within the NIEO agenda. Like earlier Southern coalitions, BRICS States demand a reform of voting power within the IMF and World Bank. They also highlight the principle of non-intervention in domestic affairs and seek to protect the economic policy space of developing countries. Development cooperation again appears as a central issue for the grouping. Moreover, they stress the centrality of the UN, democratization of international relations, and multilateral

446

BRIC First Summit: Joint Statement of the BRIC Countries Leaders, Yekaterinburg, Russia (June 16, 2009), para. 14; BRIC Second Summit: Joint Statement, Brasilia (April 16, 2010), para. 4. 447 BRIC First Summit: Joint Statement of the BRIC Countries Leaders, Yekaterinburg, Russia (June 16, 2009), para. 14; BRIC Second Summit: Joint Statement, Brasilia (April 16, 2010), para. 4; BRICS Third Summit: Sanya Declaration and Action Plan, Sanya, China (14 April, 2011), para. 8; BRICS Fourth Summit: Delhi Declaration and Action Plan, Delhi, India (March 29, 2012), para. 26; BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 25; BRICS Seventh BRICS Summit: Ufa Declaration, Ufa (9 July 2015), para. 4; BRICS Eighth BRICS Summit, Goa, India (16 October 2016), para. 10; BRICS Ninth Summit: BRICS Leaders Xiamen Declaration, Xiamen (4 September 2017), para. 40. 448 Quote taken from BRIC First Summit: Joint Statement of the BRIC Countries Leaders, Yekaterinburg, Russia (June 16, 2009), 12; see in a similar vein: BRIC Second Summit: Joint Statement, Brasilia (April 16, 2010), para. 2; BRICS Fifth Summit: eThekwini Declaration and Action Plan, Durban, South Africa (27 March 2013), para. 1. 449 BRICS Third Summit: Sanya Declaration and Action Plan, Sanya, China (14 April, 2011), para. 7; see in a similar vein: BRICS Ninth Summit: BRICS Leaders Xiamen Declaration, Xiamen (4 September 2017), para. 6. 450 BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 24. 451 BRICS Seventh BRICS Summit: Ufa Declaration, Ufa (9 July 2015), para. 6.

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approaches. Even special and differential treatment remains an issue (‘common but differentiated responsibility’ in international environmental law).452 However, these perspectives are rather reformative, or even loyal, rather than radical in character. The agenda of BRICS countries appears even less radical than the—as we have seen—not very radical NIEO. Instead of arguing for a complete overhaul of the Bretton Woods institutions’ voting system, for example, BRICS countries seek “a substantial shift in voting power in favour of emerging market economies and developing countries to bring their participation in decision making in line with their relative weight in the world economy”.453 While they also stress that the voice and representation of the IMF’s poorest members need to be “protected”,454 this does not necessarily imply that their voices must be amplified. This exemplifies their embrace of a weighted voting system based on subscribed shares. No ambition has been shown to introduce a one-State-one-vote system, let alone a more democratic form of decision making based on population size. Great symbolic value is also attached to the fact that BRICS countries have even opted for a similarly weighted voting system to govern decision making in the New Development Bank.455 In further contradiction to their ‘democratisation’ focus, BRICS States embrace the forum of the G-20.456 While G-20 in comparison to the G-7 or the G-8 is more representative, it is still a forum for economically more powerful States, excluding States which are not recognized as being ‘important enough’. One might also add

452

BRIC First Summit: Joint Statement of the BRIC Countries Leaders, Yekaterinburg, Russia (June 16, 2009), para. 9; BRIC Second Summit: Joint Statement, Brasilia (April 16, 2010), para. 22 et seq.; BRICS Third Summit: Sanya Declaration and Action Plan, Sanya, China (14 April, 2011) 22; BRICS Fourth Summit: Delhi Declaration and Action Plan, Delhi, India (March 29, 2012), 29 et seqq., BRICS Fifth Summit: eThekwini Declaration and Action Plan, Durban, South Africa (27 March 2013), para. 37; BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 52; BRICS Eighth BRICS Summit, Goa, India (16 October 2016), para. 21. 453 BRIC Second Summit: Joint Statement, Brasilia (April 16, 2010), para. 11; BRICS Third Summit: Sanya Declaration and Action Plan, Sanya, China (14 April, 2011), para. 15 et seq.; BRICS Fourth Summit: Delhi Declaration and Action Plan, Delhi, India (March 29, 2012), para. 9; BRICS Fifth Summit: eThekwini Declaration and Action Plan, Durban, South Africa (27 March 2013), para. 13. 454 BRIC Second Summit: Joint Statement, Brasilia (April 16, 2010) para. 11; BRICS Third Summit: Sanya Declaration and Action Plan, Sanya, China (14 April, 2011), para. 15 et seq.; BRICS Fourth Summit: Delhi Declaration and Action Plan, Delhi, India (March 29, 2012), para. 9; BRICS Fifth Summit: eThekwini Declaration and Action Plan, Durban, South Africa (27 March 2013), para. 13. 455 See: Agreement on the New Development Bank, Fortaleza, Brazil (15 July, 2014). http:// ndbbrics.org/agreement.html., Article 2 and 6. 456 BRICS Third Summit: Sanya Declaration and Action Plan, Sanya, China (14 April, 2011) para. 14 et seq.; BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 9; BRICS Seventh BRICS Summit: Ufa Declaration, Ufa (9 July 2015), para. 18; BRICS Ninth Summit: BRICS Leaders Xiamen Declaration, Xiamen (4 September 2017), 33.

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that while BRICS countries claim to represent 43% of the world’s population,457 from a strictly democratic perspective it is questionable whether the political system in China (and to some extent Russia) is genuinely able to legitimately represent these people.

3.4

Conclusion

The first part of this chapter demonstrated that while the overall picture is messy, power and international law are in an intimate relationship with one another. Power matters for customary—as well as treaty law-making and dominant States are more likely to enshrine their interests in legally binding norms and principles, although they do not always succeed, in comparison to those nations considered less powerful. Powerful States are also better able to enforce international obligations and shield their own behaviour from scrutiny and sanction. Even within dispute settlement processes they tend to be more likely to succeed. Further, they have the military and economic capacity to induce compliance by others or protect themselves against enforcement orders. The second part of the chapter provided a historical background on earlier Third World agendas attempting to reform the international economic order. This section confirmed that power played a role in watering down NIEO proposals and that a lack of power is partly to blame for the NIEO’s limited success. The last part of the chapter demonstrated that among the four emerging powers, China clearly stands out in almost all aspects related to power. China even scores better in terms of soft power and is making huge efforts to further polish its image. Like China, India has become an important military player and is also a nuclear power, while Brazil is some way back, and South Africa even further still. In economic matters, recent years have seen some slowdown in China, severe slowdown in South Africa, and even de-growth in Brazil. Despite encompassing diverse levels of economic and military power, all four rising powers have been recognized in important international forums, such as the G-20 and at least three of them have entered the WTO’s inner circle. Furthermore, Brazil, India and South Africa are likely candidates for permanent membership in the Security Council, if the deadlock on its reform can be broken. This leads us to the assumption that rising powers have joined the ranks of the larger group of powerful important actors that come after the United States, such as G-7 States. If we qualify G-7 States as great powers, then rising powers have become new great powers. The United States remains in a sort of superpower position, even outweighing the economic and military power of most of the following ‘top ten’ States taken together. Still, the combined economic power of rising powers places

457

See e.g.: BRICS Fourth Summit: Delhi Declaration and Action Plan, Delhi, India (March 29, 2012), para. 3.

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them in a position to support or undermine the agendas of other international actors.458 Analysing BRICS common statements we have further seen that these States (at least verbally) share a common—if vague—vision of the future international order and embody common positions on several more concrete legal issues. The general focus seems to be on the ‘democratisation’ of international relations and the furtherance of economic development. BRICS countries still share a ‘Third’ and ‘Second World’ focus on political non-intervention and economic sovereignty. While there are some further connections to earlier Third World legal propositions, BRICS common statements do not call for a new NIEO. BRICS’s overall agenda appears to embrace the international legal status quo, arguing only for some reforms built on existing rules, principles and paradigms. Nevertheless, the vagueness of these common statements requires us to take a closer look at individual State perspectives in individual legal regimes, which will be carried out in Chaps. 4 and 5.

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Lindsay JM (1986) Trade sanctions as policy instruments: a re-examination. Int Stud Q 30:153. https://doi.org/10.2307/2600674 Mälksoo L, Benedek W (eds) (2017) Russia and the European Court of Human Rights. Cambridge University Press Manning R (2006) Will emerging donors change the face of international co-operation? Dev Policy Rev 24:371–385 Marceau G, Azevedo R (2015) A history of law and lawyers in the GATT/WTO. Cambridge University Press, Cambridge Mawdsley E (2011) India as a ‘post-colonial donor’. In: Burnell PJ, Randall V, Rakner L (eds) Politics in the developing world, 3rd edn. Oxford University Press, Oxford, New York, pp 477–487 Mawdsley E (2012) From recipients to donors: emerging powers and the changing development landscape. Zed Books, London, New York McClory J (2010) The new persuaders: an international ranking of soft power. https://www. instituteforgovernment.org.uk/sites/default/files/publications McClory J (2017) A global ranking of soft power 2017 McClory J (2019) The Soft Power 30: a global ranking of soft power 2019. https://softpower30.com McTurnan Kahin G (1956) The Asian-African Conference: Bandung, Indonesia, April 1955. Cornell University Press, New York Michalopoulos C (2014) Emerging powers in the WTO: developing countries and trade in the 21st century. Palgrave Macmillan, Basingstoke Miles K (2013) The origins of international investment law: empire, environment and the safeguarding of capital. Cambridge University Press, Cambridge Millicay MF (2015) The common heritage of mankind: 21st century challenges of a revolutionary concept. In: Castillo L (ed) Law of the sea, from Grotius to the international tribunal for the law of the sea. Brill Nijhoff, Boston, The Hague, pp 272–295 Minear RH (1971) Victors’ justice: the Tokyo War Crimes Trial. Princeton University Press, Princeton Morgenthau H (1960) Politics among nations: the struggle for power and peace, 3rd edn. Alfred Knopf, New York Mortimer RA (1984) The third world coalition in international politics. Westview Press, Boulder Mosler H (1949) Die Grossmachtstellung im Völkerrecht. Lambert Schneider, Heidelberg Moyn S (2018) Not enough: human rights in an unequal world. Belknap Press, Cambridge Mullen RD (2003) India’s development assistance: will it change the global development finance paradigm? Prepared for the Workshop on Innovation in Governance of Development Finance: Causes, Consequences & the Role of Law Conference Murphy S (2005) Concentrated market power and agricultural trade. Ecofair Trade Dialogue Discussion Papers:1–41 Naím M (2007) Rogue Aid. http://foreignpolicy.com/2009/10/15/rogue-aid/. Accessed 11 Sep 2020 Nawaz T (2013 (first published in 1980)) Equity and the new international economic order: a note. In: Hossain K (ed) Legal aspects of the new international economic order. Bloomsbury Academic, London, pp 113–122 Neuwirth RJ, Svetlicinii A (2015) The economic sanctions over the Ukraine conflict and the WTO: ‘Catch-XXI’ and the revival of the debate on security exceptions. J World Trade Law 49:891–914 Niang M (2017) Africa and the legitimacy of the ICC in question. Int Crim Law Rev 17:615–624 Nixon RM (1993) Seize the moment: America’s challenge in a one-superpower world. Easton Press, Norwalk Nye JS (1990) Bound to lead: the changing nature of American power. Basic Books, New York Nye JS (2011) The future of power: its changing nature and use in the 21st century. Public Affairs, New York, London Nys E (ed) (1995) Classics of international law. W.S. Hein, Buffalo

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O’Connell ME (2008) The power and purpose of international law: insights from the theory and practice of enforcement. Oxford University Press, Oxford, New York Obregón L (2012) The civilized and the uncivilized. In: Fassbender B, Peters A, Peter S (eds) The Oxford handbook of the history of international law, 1st edn. Oxford University Press, Oxford, pp 917–939 Oppenheim L (1912) International law, 2nd edn. Longmans, Green, and Company, London Oxfam (2005) What happened in Hong Kong?: Initial analysis of the WTO ministerial. Oxfam Briefing Paper:1–22 Pahuja S (2011) Decolonising international law: development, economic growth and the politics of universality. Cambridge University Press, Cambridge Pape RA (1998) Why economic sanctions still do not work. Int Secur 23:67–77 Pellet A (1989) The normative dilemma: will and consent in international law making. Aust Yearb Int Law 12:22–52 Perez J, Gistelinck M, Karbala D (2011) Sleeping lions: international investment treaties, stateinvestor disputes and access to food, land and water. Oxfam Discussion Papers Peters A Treaties, unequal, last updated February 2018. In: Wolfrum R (ed) The Max Planck encyclopedia of public international law. Oxford University Press, Oxford Pinto MCW (1983) Modern conference technique: insights from social psychology and anthropology. In: Macdonald RSJ, Johnston DM (eds) The structure and process of international law. Nijhoff, The Hague, pp 305–340 Postel-Vinay K (2005) L’Occident et sa bonne parole. Nos représentations du monde de l’Europe coloniale à l’Amérique hégémonique. Flammarion, Paris Prebisch R (1950) The economic development of America and its principal problems. Econ Bull Latin America 7:1–12 Prebisch R (1964) Towards a new trade policy for development. UNCTAD, New York Putz C (2015) Will there be an Indian Air Base in Tajikistan? https://thediplomat.com. Accessed 11 Sep 2020 Quadir F (2013) Rising donors and the new narrative of ‘south–south’ cooperation. Third World Q 34:321–338 Queuille P (1965) Histoire de l’Afro-Asiatisme jusque à Bandoung: La Naissance du Tiers-Monde. Payot, Paris Rajagopal B (2003) International law from below: development, social movements, and third world resistance. Cambridge University Press, Cambridge Redgwell C (2003) US reservations to human rights treaties: all for one and none for all? In: Byers M, Nolte G (eds) United States hegemony and the foundations of international law. Cambridge University Press, Cambridge, New York, pp 392–415 Risse M (2012) On global justice. Princeton University Press, New Jersey Rivera JCB, Azuga MV (2017) Life after ICSID: 10th anniversary of Bolivia’s withdrawal from ICSID. Kluwer Arbitration Blog Roberts A (2017) Is international law international? Oxford University Press, Oxford Rodriguez Mendoza M (2014) Mega-regionals and the Doha negotiations: implications for developing countries. http://www.ictsd.org/bridges-news/bridges-africa/news/mega-regionals-andthe-doha-negotiations-implications-for. Accessed 11 Sep 2020 Rogin J (2018) Waking up to China’s infiltration of American colleges. https://www. washingtonpost.com. Accessed 11 Sep 2020 Rolland SE (2012) Development at the World Trade Organization. International economic law series. Oxford University Press, Oxford Sacerdoti G New International Economic Order (NIEO), last updated September 2015. In: Wolfrum R (ed) The Max Planck encyclopedia of public international law. Oxford University Press, Oxford Salomon ME (2007) Global responsibility for human rights: world poverty and the development of international law. Oxford University Press, Oxford

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Salomon ME (2013) From NIEO to now and the unfinishable story of economic justice. ICLQ 62:31–54. https://doi.org/10.1017/S0020589312000590 Salomon ME (2015) Of austerity, human rights and international institutions. EJIL 21:521–545 Sampford C (2013) Introduction. In: Maguire R, Lewis B, Sampford CJG (eds) Shifting global powers and international law: challenges and opportunities. Routledge, Oxon Santacroce FG (2019) The applicability of human rights law in international investment disputes. ICSID Rev 34:136–155. https://doi.org/10.1093/icsidreview/siz005 Schabas WA (2010) Victor’s justice: selecting “situations” at the international criminal court. John Marshall Law Rev 43:535–552 Schachter O (1996) New custom: power, Opinio Juris and contrary practice. In: Makarczyk J (ed) Theory of international law at the threshold of the 21st century: essays in honour of Krzysztof Skubiszewsk. Kluwer, The Hague, pp 531–540 Schachter (1999) The role of power in international law. Proc Annu Meet Am Soc Int Law 93:200–205 Scharf MP (2013) Customary international law in times of fundamental change. Cambridge University Press, Cambridge Schmitt C (1950) Der Nomos der Erde im Völkerrecht des Jus Publicum Europaeum. Duncker & Humblot, Berlin Schwarzenberger G (1964) Power politics, 3rd edn. Stevens, London Sell SK (2003) Private power, public law: the globalization of intellectual property rights. Cambridge University Press, Cambridge Shaffer G (2006) The challenges of WTO law: strategies for developing country adaptation. World Trade Rev 5:177–198. https://doi.org/10.1017/S1474745606002746 Shaffer G (2016) Will the US undermine the World Trade Organization? https://www. huffingtonpost.com/gregory-shaffer/will-the-us-undermine-the_b_10108970.html. Accessed 11 Sep 2020 Shaffer G, Gao H (2018) China’s rise: how it took on the U.S. at the WTO. Univ Ill Law Rev:116–184 Shaffer G, Ratton Sanchez M, Rosenberg B (2008) The trials of winning at the WTO: what lies behind Brazil’s success. Cornell Int Law J 41:384–501 Shaffer G, Nedumpara JJ, Sinha A (2015) State transformation and the role of lawyers: the WTO, India, and transnational legal ordering. Law Soc Rev 49:595–629 Shaffer G, Elsig M, Puig S (2016) The extensive (but fragile) authority of the WTO appellate body. Law Contemp Probl 79:237–273 Shalakany AA (2000) Arbitration and the third world: a plea for reassessing bias under the specter of neoliberalism. Harv Int Law J 41:419 Shane D (2018) China has boosted its huge stash of U.S. government debt. http://money.cnn.com/ 2018/02/16/news/economy/china-us-debt-holdings/index.html. Accessed 11 Sep 2020 Simpson GJ (2004) Great powers and outlaw states: unequal sovereigns in the international legal order. Cambridge studies in international and comparative law. Cambridge University Press, Cambridge Singh P, Mayer B (eds) (2014) Critical international law: postrealism, postcolonialism, and transnationalism. Oxford University Press, New Delhi Sornarajah M (1991) The climate of international commercial arbitration. J Int Arbitr 47:47 Sornarajah M (2006) Power and justice: third world resistance in international law. Singapore Yearb Int Law 10:19–57 Sornarajah M (2010) The international law on foreign investment, 3rd edn. Cambridge University Press, Cambridge, New York Sornarajah M (2014) The role of the BRICS in international law in a multipolar world. In: Sornarajah M, Lo VI, Hiscock ME (eds) The rise of the BRICS in the global political economy: changing paradigms? Edward Elgar, Cheltenham, pp 288–307 Steinberg RH (2002) In the shadow of law or power? Consensus-based bargaining and outcomes in the GATT/WTO. Int Organ 56:339–374

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Steinberg RH, Zasloff JM (2006) Power and international law. AJIL 100:64–87 Stiglitz JE, Charlton A (2005) Fair trade for all: how trade can promote development. Oxford University Press, Oxford, New York Strydom H (2007) The non-aligned movement and the reform of international relations. Max Planck Yearb U N Law 11:1–46 Stuenkel O (2015a) India-Brazil-South Africa Dialogue Forum (IBSA): the rise of the global south. Routledge global institutions series. Routledge, London Stuenkel O (2015b) The BRICS and the future of global order. Lexington Books, Lanham Subedi SP (2008) International investment law: reconciling policy and principle. Hart Pub, Oxford, Portland Thomas C, Trachtman JP (2009) Editors’ introduction. In: Thomas C, Trachtman JP (eds) Developing countries in the WTO legal system. Oxford University Press, Oxford, New York, pp 1–20 Thürer D Hegemony, last updated April 2011. In: Wolfrum R (ed) The Max Planck encyclopedia of public international law. Oxford University Press, Oxford Tian N (2018) Military expenditure overview. In: SIPRI Yearbook 2018: armaments, disarmament and international security. Oxford University Press, Oxford, pp 149–150 Tian N, Fleurant A, Kuimova A, Wezeman PD, Wezeman ST (2018) Global developments in military expenditure. In: SIPRI Yearbook 2018: armaments, disarmament and international security. Oxford University Press, Oxford, pp 151–187 Tienhaara K (2011) Regulatory chill and the threat of arbitration: a view from political science. In: Brown C, Miles K, Brown C, Miles K (eds) Evolution in investment treaty law and arbitration. Cambridge University Press, Cambridge, pp 606–628 Toope S (2003) Powerful but unpersuasive? The role of the United States in the evolution of customary international law. In: Byers M, Nolte G (eds) United States hegemony and the foundations of international law. Cambridge University Press, Cambridge, New York, pp 287–316 Tourme-Jouannet E (2013) What is a fair international society?: International law between development and recognition. Hart Publishing, Oxford, Portland Toye J, Toye R (2003) The origins and interpretation of the Prebisch-Singer Thesis. Hist Polit Econ 35:437–467 Trachtman JP (2005) The missing link: coherence and poverty and the WTO. J Int Econ Law 8:611–622 Treves T Customary international law, last updated November 2006. In: Wolfrum R (ed) The Max Planck encyclopedia of public international law. Oxford University Press, Oxford Triepel H (1961) Die Hegemonie: Ein Buch von führenden Staaten, reprint. Scientia, Aalen UNCTAD (2018) World Investment Report 2018: investment and new industrial policies. United Nations Publication, Geneva Vagts DF (2001) Hegemonic international law. AJIL 95:843–848 van Harten G (2012) The use of quantitative methods to examine possible bias in investment arbitration. In: Sauvant KP (ed) Yearbook on international investment law & policy 2010–2011. Oxford University Press, New York, pp 859–882 Vattel Ed (2008) The law of nations: or, principles of the law of nature, applied to the conduct and affairs of nations and sovereigns, with three early essays on the origin and nature of natural law and on luxury, edited and with an introduction by Béla Kapossy and Richard Whatmore. Liberty Fund, Indianapolis Waltz KN (1979) Theory of international politics. Addison-Wesley Publishing Company, New York Wang D (2003) The discourse of unequal treaties in modern China. Pac Aff 76:399–425 Watal J, Taubman A (eds) (2015) The making of the TRIPS Agreement: personal insights from the Uruguay round negotiations. WTO, Geneva Weiler J (2018) Black lies, white lies and some uncomfortable truths in and of the international trading system. EJIL 29:339–345

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Wiegandt J (2011) Internationale Rechtsordnung oder Machtordnung?: Eine Anmerkung zum Verhältnis von Macht und Recht im Völkerrecht. ZaöRV 71:31–76 Williamson J (1990) What Washington means by policy reform. In: Williamson J (ed) Latin American adjustment: how much has happened? Institute for International Economics, Washington Wolfrum R Common heritage of mankind, last updated November 2009. In: Wolfrum R (ed) The Max Planck encyclopedia of public international law. Oxford University Press, Oxford Woo B, Chung E (2017) Aid for vote?: United Nations General Assembly Voting and American Aid Allocation. Polit Stud 19. https://doi.org/10.1177/0032321717739144 Wood M International Seabed Authority (ISA), last updated December 2008. In: Wolfrum R (ed) The Max Planck encyclopedia of public international law. Oxford University Press, Oxford Zarate JC (2015) Treasury’s war: the unleashing of a new era of financial warfare. Public Affairs, New York

Chapter 4

Global Justice and International Economic Law

“The quest for global justice in international law is a search for legal obligations that are anchored in global institutional arrangements that are fair to impoverished nations and peoples.” (Salomon (2007), p. 63.)

As defined by Salomon in the quote above, legal obligations could be considered just if they are fair to impoverished States and peoples. However what does a ‘fair’ global institutional arrangement look like? Building on Chap. 3 we might simply state— like some TWAILers do1—that justice-based norms stand in opposition to powerbased norms. Yet, this would be as overly simplistic (just think of human rights law2) as assuming that everything that is legal is also just. Fortunately, international lawyers in recent years have started to engage more comprehensively with philosophical accounts of global justice and to develop their own accounts of global justice and apply them to international law.3 Building on these debates, this chapter in its first section develops a ‘normative benchmark’ external to international economic law—but not necessarily external to international law as such—in order to provide us with criteria to evaluate rising power legal agendas. The second part of the chapter applies the ‘human rights approach’ to core norms and principles of international investment and trade law to provide a preliminary overview of the degree to which these legal regimes can be considered ‘just’. See on the explicit distinction between ‘power based norms’ and ‘justice based norms’: Sornarajah (2006); see in a similar vein: Rajagopal (2003). 2 Although the notion of a Western driven development of international human rights protection has attracted some critique in recent years, it must be noted that many powerful States are strong supporters of human rights law and most of them have a better human rights record than many less powerful States; see on the critique e.g. the contributions in: Barreto (2013). 3 See especially: Ratner (2015) and cited literature below. 1

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 A. Buser, Emerging Powers, Global Justice and International Economic Law, https://doi.org/10.1007/978-3-030-63639-5_4

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Global Justice: A Brief Introduction

The term ‘global justice’ has mainly been used by political philosophers.4 Persistent inequalities both across and within States have made distributive justice one of the primary subjects of these philosophers. Still, global justice remains a rather vague concept and many questions related to the concept remain disputed. With some notable exceptions,5 international lawyers have only recently engaged with the subject more explicitly and have begun to apply justice concepts to international law.6 Apart from these more systematized approaches, notions of ‘justice’ and ‘global justice’ are often used in a rather arbitrary fashion in political and even academic debate.7 Typical questions discussed by philosophers within the realms of global justice involve the following: “What do people in one country owe to those in other countries? In particular, what are people living in affluent countries to do for those in vulnerable positions in developing countries, such as those who live off less than $1 (US) per day? What responsibilities, if any, arise from basic human rights? [. . .] How, if at all, does membership in States or communities of affiliation matter to our obligations to assist? Is partiality towards compatriots justified in a world filled with the more pressing needs of non-compatriots? If obligations of global justice exist, how will these be implemented or enforced?”8 Much of the debate among philosophers seems to have focused on the extend of justice based obligations. While so-called ‘Statists’ maintain that obligations should be mostly limited to relations within States with only limited obligations existing between States, cosmopolitans argue for strong extra-territorial obligations to secure justice on a global scale among all individual human persons.9 Further disputed questions involve the content, meaning, and the addressees of global responsibility.10 Differing conceptions of global justice rely on a variety of the following components: equal global distribution of resources,11 the claim that every person should be well positioned to enjoy the prospects for a decent life,12 global equality of opportunity,13 universal respect for

4

See for an overview: Hahn (2009) and Brock (2013). Franck (1995). 6 Garcia (2013), Carmody et al. (2014) and Ratner (2015); to some extent also: Tourme-Jouannet (2013); this however is not to say that international lawyers have not engaged with underlying questions under different headings. Related research can be found especially in the fields of law and development and international development law, see e.g.: Virally (1965), Trubeck and Galanter (1974), Kwakwa (1987) and Bulajic (1993). 7 French (2009), p. 598 with further references. 8 Brock (2013), p. 1. 9 For a collection of key texts and competing positions on the debate see: Broszies and Hahn (2016). 10 See for an overview: Hahn (2009), p. 34 et seqq. 11 Beitz (1979), Moellendorf (2002) and Tan (2010). 12 Nussbaum (2006) and Brock (2010). 13 Moellendorf (2002); Caney (2006), p. 264 et seqq. 5

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and promotion of human rights,14 the promotion of the autonomy of peoples,15 and a globalized Rawlsian Difference Principle (permitting economic inequalities only if they work to improve the situation of the worst-off in the world).16 Among these conceptions for global justice, human rights approaches appear to be the least controversial, particularly if limited to absolute minimum standards, while the application of egalitarian approaches (e.g., equal opportunities or capabilities) at the international level is highly controversial.17 Regarding addresses, Statists tend to highlight the importance of relationships, leading them to assume a primary responsibility for relatives and fellow citizens, for example, and only secondary responsibility (if at all) for other humans. In contrast, cosmopolitans tend to extend primary obligations, relying on notions of world society in which: primary obligations are owed to every member of the society; causation triggers responsibility on the part those causing harm to others; and the idea that one’s ability to assist is also relevant, in other words, responsibility falls upon the most capable helper.18 The question of the addressee is closely related to the distinction between negative and positive duties. For some scholars like Singer, positive obligations of assistance are sufficient to hold affluent societies and their citizens accountable for helping to alleviate global poverty.19 However, according to most philosophers, and many States’ criminal laws, there is a crucial distinction between these two sorts of obligations. The obligation not to harm is usually seen as a stronger obligation, applicable toward everybody, while the obligation to help is seen as weaker and applicable only under certain circumstances, such as in close relationships.20 International lawyers have built on philosophical works and partially applied some of the theories to international law, such as Rawlsian notions of distributiveand procedural justice. For example, Nancy Fraser’s theory on redistribution,

14

Pogge (2005); Caney (2006), p. 264 et seqq.; Miller (2007), p. 164 et seqq.; Pogge (2008). Rawls (1999) and Miller (2007). 16 Rawls applied his ‘difference principle’ only in the domestic context but not at the international level, see: Rawls (1971). Others, like Beitz and Pogge had earlier argued for the global extension of the difference principle, see: Beitz (1979) and Pogge (1989). 17 Even statists like Miller understand global justice to include a minimum human rights approach that requires affluent nations to respect a minimum set of basic human rights at the international level, see: Miller (2007); see on the general assessment that at least a minimum human rights standard appears broadly accepted also: Hahn (2009), p. 34; It bears notice that equality based conceptions dominate at the national level. 18 For an overview of these cosmopolitan arguments: Hahn (2009), p. 35 et seqq. 19 Singer (1972). 20 For example, in Germany the criminal code (Strafgesetzbuch—StGB) distinguishes between the failure to provide assistance in emergency situations (§ 323 c StGB) and offenses committed by action and offenses committed through omission (§ 13 StGB). According to these rules, omissions are only punished like actions when specific duties to prevent the detrimental outcome exist and the omission is comparable to an action (§ 13 StGB). See on the moral relevance of the distinction e.g. Hahn (2009), p. 36. 15

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recognition, and participation (initially developed for the domestic context);21 Rawlsian liberalism, communitarianism, and consent theory;22 and moral human rights accounts.23 Further, human rights lawyers have sought to specify and further develop extraterritorial human rights obligations and make them applicable to address problems of global poverty and inequality and as a means to critique the existing international economic order.24

4.2

A Human Rights Approach to Global Justice

For our purposes here, a human rights-based account of global justice is most suitable. This is due to the simple fact that human rights have become—and remain—the most influential global normative benchmark of our age.25 This is not to say that a human rights-based account is not open to contestation. Cultural relativism26 and to some extent TWAIL27 have challenged the universal character of human rights. Still, it remains that, to date, the body of international human rights remains the most broadly accepted global normative benchmark, even if only a minimal one. Human rights treaties, including those that seek to protect civil and political, as well as economic, social, and cultural rights, have been concluded by the

21 Tourme-Jouannet (2013), p. 1 et seqq. who relies on two categories of injustices borrowed from Nancy Fraser, namely socio-economic inequalities and non-recognition of cultural and identity claims; see in a similar vein: Chimni (2007), p. 213; see among Nancy Fraser’s works, e.g.: Fraser (1999). 22 Garcia (2013), p. 67 et seqq. (Rawlsian liberalism); p. 137 et seqq. (Communitarism); p. 205 et seqq. (Consent theory). 23 Ratner (2015), p. 64 et seqq. 24 See e.g.: Salomon (2007); Maastricht Principles on Extraterritorial Obligations of States in the Area of Economic, Social and Cultural Rights (28 September 2011). https://www.etoconsortium. org/en/main-navigation/library/maastricht-principles/. Accessed 12 September 2020; De Schutter et al. (2012). 25 See in a similar vein: Pogge (2008), p. 25 (“I employ basic human rights as the internationally recognized minimal standard of our age.”); see also: Ratner (2015), p. 65 who bases his account on two pillars of justice, the second of which is the protection of human rights, which he describes as the “two basic values” of international law. 26 One of the most cited examples of cultural relativism at the international level remains the promotion of so called ‘Asian Values’. See on the debate e.g. the collected papers in: Avonius and Kingsbury (2008). 27 See e.g. Mutua (2001), who however essentially argues that human rights must become truly universalized, and that economic, social and cultural rights should be strengthened and address economic systems; see on the argument that global justice could be “liberal hegemony in the guise of universal values”, French (2009), p. 600; But see for TWAILers that nevertheless employ human rights to criticise international economic law: Chimni (2007), p. 217; Sornarajah (2006), p. 37; see on efforts to ‘rewrite’ the history of human rights from a TWAIL perspective: Barreto (2013).

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vast majority of States,28 and even authoritarian States such as China and Russia ‘speak the language’ of human rights.29 Moreover, a human rights approach may be criticized for its limitedness, in contrast to more ambitious understandings of distributive justice based on equality rather than subsistence.30 While the concern that the framework of human rights might not be sufficient to create a just international economic order is shared here, it must be kept in mind that this book is not about developing a utopia of international economic law. It could even be deemed hypocritical if approaches by emerging powers would be measured by too strict a yardstick—and stricter than the yardstick mostly applied to established great powers. Such a strict yardstick, that has no base in universal international law, could even be deemed post-colonial Western interference. Therefore it is exactly the ‘limitation’ (or modesty) that makes a human rights standard suitable here. A human rights lens is modest enough to not be outrightly rejected by States and ambitious enough to provide a meaningful critique of international economic law. In particular as (material) inequality is not completely beyond the sphere of human rights.31 This said the usage of a limited human rights approach here does not argue against the strive for stricter or ‘thicker’ concepts of justice de lege ferenda. For this book this means that if emerging powers would pursue other higher standards of justice, those attempts would also be acknowledged. But what is meant here when speaking about ‘a human rights approach to global justice’? Based on the different dimensions of existing human rights treaties, we can distinguish between three dimensions of a human rights approach. Human rights law requires States (1) to respect, (2) to protect, and (3) to fulfil human rights obligations. States are generally required equally to respect all three dimensions of human rights, even though differences exist. For our approach, this means we can distinguish among three questions: Firstly, and most importantly, does international economic law per se, or some of its individual rules, directly harm human rights of individuals? Secondly, does international economic law protect against economic conduct that harms human rights? Thirdly, does international economic law prevent the fair distribution of wealth and/or could it do more to fulfil the economic and social rights 28

The two major UN human rights treaties, the ICCPR and the ICESCR each have been ratified by a vast majority of international States. Further, all 193 UN Member States have committed themselves to respect human rights via Article 2 para. 3 UN-Charter. 29 ‘Speaking the language’ here refers to the fact that these States at least rhetorically embrace human rights and even criticize other States for human rights violations. See for BRICS’ rhetorical embrace of human rights e.g. BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 28; BRICS Fifth Summit: eThekwini Declaration and Action Plan, Durban, South Africa (27 March 2013), para. 22; BRICS Seventh BRICS Summit: Ufa Declaration, Ufa (9 July 2015), para. 10; BRICS Ninth Summit: BRICS Leaders Xiamen Declaration, Xiamen (4 September 2017), para. 54; see for Chinese criticism against the United States for alleged human rights violations e.g.: Reuters (2017). 30 Samual Moyn for example argued that the ‘age of human rights’ has led to a neglect for more ambitious ideals of distributive justice, see: Moyn (2018). 31 Salomon (2011).

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of the poor on a global scale? These dimensions relate to the distinction between negative and positive duties mentioned above, with the obligation to respect generally being a negative one and the obligation to protect and fulfil generally requiring positive action. The question, then, is: Does the international economic order cause violations of economic and social rights of individuals, such as extreme poverty? Miller and others associated with Statism tend to emphasise the Nation State’s obligations to uphold its citizens’ human rights,32 while for cosmopolitans like Pogge, it is the international institutional order that is responsible, or, at the very least, complicit in the violation of individual human rights. However, in many cases it appears almost impossible to clearly distinguish domestic and international causes of poverty. Causes of poverty include diverse historical and present-day factors, such as colonial exploitation, local corruption and irresponsible elites, exploitative business practices on the part of both foreign and local entities, and unjust terms of trade for commodities, to name but a few. Pogge, to some extent, overcomes the problem of causation with his rather broad understanding of “institutional negative duties”. He writes, “any institutional design is unjust if it foreseeably produces massive avoidable human rights deficits. Such an institutional order, and participation in its creation or imposition, harms those whose human rights avoidably remain unfulfilled.”33 Under this definition, the production of human rights deficits seems to incorporate both omissions of international as well as active restraints that these institutions impose on the global protection of human rights. As an example of an omission Pogge refers to the failure of WTO agreements to prohibit agricultural subsidies in affluent States with detrimental consequences to poor farmers and food security in the Global South.34 The international intellectual property protection regime that may harm the right to health of those that cannot afford more expensive patented drugs is characterised by Pogge as an example of an active restraint.35 Young has introduced a comparable but even farther-reaching conceptualisation of institutional injustice and participatory responsibility via what she calls “a social connection model of responsibility”.36 According to her conception, the continuing existence of poverty, despite global efforts for change, is in itself a clear indication of persistent structural injustice, and everybody who contributes to structural processes with unjust outcomes shares responsibility for such injustice.37 Based on that

32

See e.g. Miller (2007), chapter 5. Pogge (2005), p. 721. 34 See on the WTO and agricultural subsidies, e.g.: Pogge (2015). 35 Pogge (2008), p. 222 et seqq. 36 Young (2010), p. 96. 37 Young (2010), p. 95 et seqq. (on the social-connection model); 123 et seqq. (on its application across borders). 33

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conception, the burden of proof for causality between poverty and international structures and processes rests on those living in affluence.38 In connection to these efforts to enlarge negative duties and Young’s conception of institutional injustice, human rights lawyers, like Salomon, have also questioned the negative/positive distinction’s suitability for addressing structural human rights violations in the context of world poverty. Salomon essentially seems to argue that as poverty is an already existing and continuing human rights violation, it is at the same time a violation of negative duties (not to harm) and also positive duties (to provide assistance to those harmed), and that this insight renders the distinction meaningless. Moreover, she argues that to stop imposing an international economic order that leads to poverty at first sight appears as a negative duty, but reform also requires action, so that the duty essentially becomes a positive one.39 Despite all these critiques, it is argued here that the distinction between negative and positive duties is important for analytical purposes and because it is deeply rooted in human rights law. In that regard, Salomon seems to mix primary obligations (respecting, protecting, and fulfilling human rights) with secondary obligations to provide for remedy and compensation. Both Pogge’s and Young’s critiques only partly address international economic law but more generally are directed at the international economic order as such (including market forces and the system of capitalism). Given that broader approach, it appears understandable that they see the need to extend responsibility to grasp the more complicated forces at work. For our more limited purposes, it is possible and appropriate to uphold the distinction between negative and positive duties more strictly. The next section also reveals that the distinction between negative and positive duties is reflected in the work of international human rights committees on extraterritorial human rights obligations. Moreover, based on the Lotus principle,40 we must clearly distinguish cases in which international economic law simply does not prohibit practices detrimental to human rights and cases in which it may more directly infringe human rights, for example, by prohibiting States from protecting the human rights of their citizens. In the first case, the practice may be unjust but not the law which simply does not cover the issue, whereas in the second case, international law is clearly involved in the injustice. A useful distinction in that context can be drawn between a ‘thin’ and a ‘thick’ approach to global justice.41 Based on that distinction, international economic law

38

See also: Hahn (2009), p. 58. Salomon (2007), p. 191 et seqq. 40 S. S. Lotus (France v. Turkey), PCIJ, Judgment (1927). PCIJ Series A. No. 10. 41 I borrow these terms from Steven Ratner but do not incorporate his whole concept and theory of a moral thin and thick standard of justice. Still, some explanation of his approach is necessary here: Steven Ratner bases his thin approach to global justice in international law essentially on two pillars which he claims to be inherent in international law itself: peace and basic human rights. He essentially argues that international legal norms are thinly just in cases where they advance international and intra-State peace and do not interfere with basic human rights. In relation to international economic law, he modifies this approach and bases his analysis solely on the non-interference with the basic human rights pillar. Ratner further develops a ‘thick standard of 39

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may be considered thinly just if it does not interfere with basic human rights (to be specified below); it may be considered thickly just if it further actively assists in protecting these rights. Such an approach can usefully be combined with the three dimensions inherent in international human rights treaties: the duty to respect, to protect and to fulfil human rights. Accordingly, we can judge international economic law to be thinly just if it respects human rights and more thickly just if it further protects and helps to fulfil human rights. The obligation to respect human rights is essentially a negative obligation prohibiting the State from acting in a particular way, whereas both the right to protect and fulfil are positive duties that require some sort of action from the State. The duty to protect essentially is a due diligence obligation, that does not require States to guarantee success but to take reasonable measures to protect people from harm to their human rights by third entities, such as corporations, individuals, or other States, and nature.42 Under the duty to fulfil, States are obliged to undertake positive actions to ensure that individuals can enjoy their human rights, such as guaranteeing social security. With regard to our project—an evaluation of the justice of international economic law—an individual norm of international economic law may respect human rights if it does not directly infringe people’s human rights (or such infringements can be justified in individual cases, for example, by reference to the human rights of others). For example, an individual norm may disrespect human rights if it prohibits States from taking necessary actions to ensure the enjoyment of human rights. Further, international economic law may protect human rights if it requires third actors (mostly business entities) to respect human rights. Finally, international economic law may fulfil human rights if it actively (re-)distributes resources to those in need or requires States or business entities to so. This account is considered here to be the most fitting for the purposes of this book due to several reasons. Firstly, by relying on values (human rights) already enshrined in international law, this account avoids being ‘solely’ a moral critique of international law and circumvents the numerous theoretical questions involved in establishing such a moral approach.43 Rather, it becomes an internal-external critique, holding States accountable for their actions and omissions in shaping international economic law by the same States’ obligations under international human

justice’, which international law should strive to achieve. This thick standard of justice brings three changes to his thin justice approach and also takes into account procedural fairness. The first change is that the human rights pillar is now the first and most important criterion. Secondly, the basic human rights pillar is extended to cover the content of the most widely accepted human rights treaties. Thirdly, a norm is not ‘just’, just because it does not interfere with human rights and peace but must actively advance or improve them. Lastly, the thick justice approach also includes procedural fairness, which in Ratner’s view means participation in decision-making by developing countries, transparency, and accountability. Ratner (2015), pp. 64 f., 98, 322 f., 415–429. 42 Mowbray (2004), pp. 72, 117. 43 See on the theoretical underpinnings of Ratner’s account: Ratner (2015), p. 73 et seqq.

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rights law.44 Secondly, by relying on basic human rights, the account is practically applicable, avoiding the pitfalls of what would be required by distributive justice approaches (e.g., perfect equality, equal opportunities, etc.) and the accompanied more complex economic assessments of distribution. Thirdly, the approach is ambitious yet pragmatic. One should neither overestimate international economic law’s capabilities to achieve (distributive) justice, nor ask too much of emerging powers, especially in comparison to established powers.

4.2.1

A Legal Human Rights Approach

A key matter of dispute among philosophers is the question of the extent to which moral obligations exist on a global scale in comparison to obligations stemming from justice within States. A similar question has occupied the minds of human rights lawyers within recent decades. The main questions are essentially similar: Are human rights applicable extraterritorially and must affluent States consider economic and social human rights when making decisions that may affect (poor) people in foreign countries? Do (affluent) States owe human rights obligations (the standard of justice in our case) to non-citizens outside their territories? If yes, under which conditions? And is the human rights standard the same or is it perhaps a less demanding one, leaving more discretion to States? How do extraterritorial obligations toward people in foreign territories relate to the responsibility of the respective territorial State? Today it appears widely recognized that in cases of effective control human rights obligations are generally applicable.45 However, cases of effective control over or within foreign territories are relatively rare—they mostly cover situations such as occupation related to wars and other forms of military conflict. The more ordinary case—that (economic) regulatory actions or omissions in one State affect third country nationals because of economic interdependence—usually does not involve effective control over those affected. Under such premises, it remains a matter of debate as to whether human rights treaties may nonetheless require States to respect and fulfil their human rights obligations and protect third country nationals, for example, against human rights violations stemming from their own nationals and corporations acting abroad.

44

See for the objection that such an internal legal human rights approach is subject to revisions of positive human rights law through States and that therefore a moral human rights approach is “a more solid basis for critical assessment”: Pogge (2005), p. 718. 45 See only: Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory, ICJ, Advisory Opinion of 9 July 2004. ICJ Reports 2004, pp. 136–203, p. 179 et seqq. (paras. 109–112).

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Extraterritorial Human Rights Obligations in the Economic Realm: The ICESCR

For our purposes, the ICESCR appears most promising as a tool to assess the justice of international economic law.46 Firstly, this is because economic, social, and cultural rights are usually concerned when we talk about global poverty and inequality. Secondly, it is because the extraterritorial applicability of the ICESCR, in contrast to most other international human rights treaties, is more broadly accepted even in cases of no effective control over the territory concerned. Differing, for example, from the International Covenant on Civil and Political Rights (ICCPR), the ICESCR has no jurisdiction clause that could limit its extraterritorial applicability. As the Committee on Economic, Social and Cultural Rights (CESCR) has put it: Such extraterritorial obligations of States under the Covenant follow from the fact that the obligations of the Covenant are expressed without any restriction linked to territory or jurisdiction.47

Instead, there are several ICESCR provisions that emphasize that the realization of ICESCR rights must be achieved by States, inter alia, through “international cooperation” or “international assistance and cooperation”.48 The work of the CESCR49 and scholarly work (most notably the development of the Maastricht Principles on Extraterritorial Obligation of States50) have strongly advocated the

46 Most scholars working on international economic law and human rights primarily rely on the ICESCR as the primary instrument to hold States accountable in the economic realm, although sometimes together with other human rights instruments such as the right to development, the Universal Declaration of Human Rights or others, see e.g. Salomon (2007), p. 162 et seqq.; Joseph (2011), p. 23 et seqq, and 123 et seqq.; Desierto (2015). 47 CESCR On State Obligations Under the International Covenant on Economic, Social and Cultural Rights in the Context of Business Activities, General Comment No. 24, UN Doc. E/C.12/GC/24 (2017), para. 27. 48 Articles 2 para. 1, 11 para. 1, 11 para. 2, 15 para. 4, 22 and 23 ICESCR. 49 The CESCR has not yet clarified extra-territorial obligations in a comprehensive and systemic manner (e.g. a dedicated general comment on extraterritorial obligations) but has nonetheless accepted such obligations in its general comments, which provide for an authoritative interpretation of the ICESCR’s provisions. See e.g. CESCR On State Obligations Under the International Covenant on Economic, Social and Cultural Rights in the Context of Business Activities, General Comment No. 24, UN Doc. E/C.12/GC/24 (2017), para. 25 et seqq. and the cited General Comments below; for an analysis of the committee’s work on the matter, see e.g.: Ssenyonjo (2009), p. 42 et seqq.; Karimova (2014), p. 165 et seqq. 50 See: Maastricht Principles on Extraterritorial Obligations of States in the Area of Economic, Social and Cultural Rights (28 September 2011). https://www.etoconsortium.org/en/mainnavigation/library/maastricht-principles/. Accessed 12 September 2020, Principle 9, clearly accepts extraterritorial obligations in three cases: “a) situations over which it exercises authority or effective control, whether or not such control is exercised in accordance with international law; b) situations over which State acts or omissions bring about foreseeable effects on the enjoyment of economic, social and cultural rights, whether within or outside its territory; c) situations in which the State, acting separately or jointly, whether through its executive, legislative or judicial branches, is in a

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extraterritorial applicability of ICESCR beyond cases of effective control. Still, the exact legal meaning of such a broadly framed extraterritorial application has not been fully established.51 The following overview of comments regarding the CESCR shall nevertheless illustrate that the ICESCR can be used to assess State policies on trade and investment and accompanied international law-making. This summary shall also reveal that the CESCR’s commentaries often apply rather weak recommendary language when it comes to extraterritorial obligations. However, we may distinguish here between the different dimensions of ICESCR rights, as extraterritorial obligations that must be respected appear to be more clearly established in international practice than extraterritorial obligations to respect and to fulfil. This distinction might stem from the fact that obligations to protect and fulfil require positive action that often interferes with foreign jurisdictions and the primary responsibility of foreign States. Moreover, such positive actions require the allocation of resources, which States are more reluctant to spend on non-citizens—without voting power and limited other means to influence political decisions—than on their own constituencies. Negative duties, in contrast, may appear as less demanding and, consequently, less politicized.

4.2.2.1

The Work of the CESCR on Extraterritorial Human Rights Obligations

In its General Comment No. 14 on the right to health, the CESCR clearly recognizes a hard duty to “respect the enjoyment of the right to health in other countries, and to prevent third parties from violating the right in other countries, if they are able to influence third parties by way of legal or political means”. Only the obligation to fulfil is held in rather weak recommendatory language, as States “should facilitate access to essential health facilities, goods and services in other countries, wherever possible and provide the necessary aid when required.”52 The CESCR in its General Comment on the right to water, however, mixes recommendatory with obligatory language even with regard to the obligation to respect human rights abroad. It strongly states that “International cooperation requires State parties to refrain from actions that interfere, directly or indirectly, with the enjoyment of the right to water in other countries” but also assumes in weaker terms, that “activities undertaken within the State party’s jurisdiction should not deprive another country of the ability to realize the right to water for persons in

position to exercise decisive influence or to take measures to realize economic, social and cultural rights extraterritorially, in accordance with international law.” 51 See for that conclusion also: Coomans (2011), p. 34. 52 CESCR The Right to the Highest Attainable Standard of Health (Article 12 of the International Covenant on Economic, Social and Cultural Rights), General Comment No. 14, UN Doc. E/C.12/ 2000/4 (2000), para 39 (emphasis added).

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its jurisdiction”.53 With regard to the protection and fulfilment dimensions, the CESCR again sticks with recommendatory language. Accordingly, “[s]teps should be taken by States parties to prevent their own citizens and companies from violating the right to water of individuals and communities in other countries” and “[w]here States parties can take steps to influence other third parties to respect the right, through legal or political means, such steps should be taken in accordance with the Charter of the United Nations and applicable international law”.54 In a similar way, the CESCR omits obligatory language on the protection and fulfilment dimension in its General Comment No. 18 on the right to work, where it assumes that “States parties should endeavor to promote the right to work in other countries as well as in bilateral and multilateral negotiations”.55 A more comprehensive account of what is required by States in international cooperation under the ICESCR is provided in its General Comment No. 19 on the right to social security (Article 19 ICESCR), and its General Comment No. 24 (2017) on extraterritorial obligations in the context of global business activities.56 Examples of what is required under obligations to protect and fulfil the right to social security include the provision of economic and technical assistance and the development of further (international) legal instruments to support the right to social security. It is directly acknowledged here that “[w]ith regard to the conclusion and implementation of international and regional agreements, States parties should take steps to ensure that these instruments do not adversely impact upon the right to social security” and that “[a]greements concerning trade liberalization should not restrict the capacity of a State Party to ensure the full realization of the right to social security”.57 State parties should also take account of the right to social security when acting as members of international organisations.58 General Comment No. 24 particularly addresses situations in which a State is home to a business actor “domiciled in its territory and/or under its jurisdiction, and thus under its control or authority, [which] harmed the rights of others in other States, or where conduct by such an actor may lead to foreseeable harm being

53

CESCR The Right to the Highest Attainable Standard of Health (Article 12 of the International Covenant on Economic, Social and Cultural Rights), General Comment No. 14, UN Doc. E/C.12/ 2000/4 (2000), para 31 (emphasis added). 54 CESCR The Right to the Highest Attainable Standard of Health (Article 12 of the International Covenant on Economic, Social and Cultural Rights), General Comment No. 14, UN Doc. E/C.12/ 2000/4 (2000), para 33 (emphasis added). 55 CESCR The Right to Work (Article 6 of the International Covenant on Economic, Social and Cultural Rights), General Comment No. 18, UN Doc. E/C.12/GC/18 (2005), para. 30. 56 CESCR The Right to Social Security (Article 9), General Comment No. 19, UN Doc. E/C.12/GC/ 19 (2008), para. 53 et seqq. (emphasis added). 57 CESCR The Right to Social Security (Article 9), General Comment No. 19, UN Doc. E/C.12/GC/ 19 (2008), para. 54–58. 58 CESCR The Right to Social Security (Article 9), General Comment No. 19, UN Doc. E/C.12/GC/ 19 (2008), para. 58.

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caused”.59 In that context, the CESCR embraces a strong extraterritorial obligation to respect, which requires that “States parties must ensure that they do not obstruct another State from complying with its obligations under the Covenant” and that “[t] his duty is particularly relevant to the negotiation and conclusion of trade and investment agreements or of financial and tax treaties,[. . .] as well as to judicial cooperation”.60 In other words, States are required not to limit other States’ policy space by international legal agreements in a way that would “obstruct” the State from complying with human rights obligations. With regard to the “extraterritorial obligation to protect” the CESCR requires State parties “to take steps to prevent and redress infringements of Covenant rights that occur outside their territories due to the activities of business entities over which they can exercise control, especially in cases where the remedies available to victims before the domestic courts of the State where the harm occurs are unavailable or ineffective”.61 In essence, the CESCR adopts a due diligence standard here, requiring home States to take “reasonable measures” in order to prevent human rights violations by businesses in host States.62 Examples of such reasonable measures recommended by the CESCR include regulation and “incentives short of the direct imposition of obligations, such as provisions in public contracts favouring business entities that have put in place robust and effective human rights due diligence mechanisms, in order to contribute to the protection of economic, social and cultural rights at home and abroad”.63 Further, States are held accountable to require corporations to deploy their best efforts to ensure that their subsidiaries or business partners (including suppliers, franchisees and subcontractors) respect the ICESCR.64 With regard to the extraterritorial application of the Covenant the CESCR further requires that States “contribute to creating an international environment that enables

59

CESCR On State Obligations Under the International Covenant on Economic, Social and Cultural Rights in the Context of Business Activities, General Comment No. 24, UN Doc. E/C.12/GC/24 (2017), para. 27. 60 CESCR On State Obligations Under the International Covenant on Economic, Social and Cultural Rights in the Context of Business Activities, General Comment No. 24, UN Doc. E/C.12/GC/24 (2017), para. 29. 61 CESCR On State Obligations Under the International Covenant on Economic, Social and Cultural Rights in the Context of Business Activities, General Comment No. 24, UN Doc. E/C.12/GC/24 (2017), para. 30. 62 CESCR On State Obligations Under the International Covenant on Economic, Social and Cultural Rights in the Context of Business Activities, General Comment No. 24, UN Doc. E/C.12/GC/24 (2017), para. 30. 63 CESCR On State Obligations Under the International Covenant on Economic, Social and Cultural Rights in the Context of Business Activities, General Comment No. 24, UN Doc. E/C.12/GC/24 (2017), para. 31 and 33. 64 CESCR On State Obligations Under the International Covenant on Economic, Social and Cultural Rights in the Context of Business Activities, General Comment No. 24, UN Doc. E/C.12/GC/24 (2017), para. 31 and 33.

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the fulfilment of the Covenant rights”65 and asks States to “encourage business actors whose conduct they are in a position to influence to ensure that they do not undermine the efforts of the States in which they operate to fully realize the Covenant rights — for instance by resorting to tax evasion or tax avoidance strategies in the countries concerned”.66 Notably, the CESCR also increasingly refers to extraterritorial obligations in its Concluding Observations on individual member States.67 For example, in 2010 it recommended that Switzerland “take into account its partner countries’ obligations when negotiating and concluding trade and investment agreements [. . .] [and] undertake an impact assessment to determine the possible consequences of its foreign trade policies and agreements on the enjoyment by the population of the State party’s partner countries of their economic, social, and cultural rights”.68 Similarly, in the same year Germany was advised “to fully apply a human rightsbased approach to its international trade and agriculture policies, including by reviewing the impact of subsidies on the enjoyment of economic, social, and cultural rights in importing countries [. . .] [to] ensure that its policies on investments by German companies abroad serve the economic, social, and cultural rights in the host countries”.69 Further, Germany was advised to adopt development cooperation policies that “contribute to the implementation of the economic, social, and cultural rights of the Covenant and do not result in their violation”.70 Norway was asked to “ensure that investments by the Norges Bank Investment Management in foreign companies operating in third countries are subject to a comprehensive human rights impact assessment (prior to and during the investment) [. . .] [and to] adopt policies and other measures to prevent human rights contraventions abroad by corporations that have their main offices under the jurisdiction of the State party, without infringing the sovereignty or diminishing the obligations of the host States under the Covenant.”71 65 CESCR On State Obligations Under the International Covenant on Economic, Social and Cultural Rights in the Context of Business Activities, General Comment No. 24, UN Doc. E/C.12/GC/24 (2017), para. 37. 66 CESCR On State Obligations Under the International Covenant on Economic, Social and Cultural Rights in the Context of Business Activities, General Comment No. 24, UN Doc. E/C.12/GC/24 (2017), 37. 67 A good overview can be found by Desierto (2015), pp. 127–130. 68 CESCR Consideration of Reports Submitted by States Parties under Articles 16 and 17 of the Covenant, UN Doc. E/C.12/CHE/CO/2-3 (26 November 2010), para. 24. 69 CESCR Consideration of Reports Submitted by States Parties under Articles 16 and 17 of the Covenant: Concluding Observations of the Committee on Economic, Social, and Cultural Rights, UN Doc. E/C.12/DEU/CO/5 (26 November 2010), paras 9–11. 70 CESCR Consideration of Reports Submitted by States Parties under Articles 16 and 17 of the Covenant: Concluding Observations of the Committee on Economic, Social, and Cultural Rights, UN Doc. E/C.12/DEU/CO/5 (26 November 2010), paras 11. 71 Consideration of Reports Submitted by States Parties under Articles 16 and 17 of the Covenant: Concluding Observations of the Committee on Economic, Social, and Cultural Rights, Fifth Periodic Report of Norway, E/C.12/NOR/CO/5 (13 December 2013), para. 6.

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The Maastricht Principles on Extraterritorial Obligations of States

Representing the combined scholarly authority of their drafters, the Maastricht Principles have further elaborated upon the concrete meaning of extraterritorial human rights obligations, including in the realm of trade and investment. Concrete extraterritorial obligations include the obligation to avoid causing foreseeable harm.72 Closely linked is an obligation to conduct human rights impact assessments surrounding trade and investment activities.73 With regard to international organizations, Member States are required to “take all reasonable steps to ensure that the relevant organization acts consistently with the international human rights obligations of that State”.74 Furthermore, States are obliged to “elaborate, interpret and apply relevant international agreements and standards in a manner consistent with their human rights obligations. Such obligations include those pertaining to international trade, investment, finance, taxation, environmental protection, development cooperation, and security”.75 With regard to the dimension to fulfil human rights, the Maastricht Principles state that: States must take deliberate, concrete, and targeted steps, separately, and jointly through international cooperation, to create an international enabling environment conducive to the universal fulfilment of economic, social and cultural rights, including in matters relating to bilateral and multilateral trade, investment, taxation, finance, environmental protection, and development cooperation. The compliance with this obligation is to be achieved through, inter alia: a) elaboration, interpretation, application, and regular review of multilateral and bilateral agreements as well as international standards; b) measures and policies by each State in respect of its foreign relations, including actions within international organizations, and its domestic measures and policies that can contribute to the fulfilment of economic, social and cultural rights extraterritorially.76

72

Maastricht Principles on Extraterritorial Obligations of States in the Area of Economic, Social and Cultural Rights (28 September 2011). https://www.etoconsortium.org/en/main-navigation/library/ maastricht-principles/. Accessed 12 September 2020 Principle 13. 73 Maastricht Principles on Extraterritorial Obligations of States in the Area of Economic, Social and Cultural Rights (28 September 2011). https://www.etoconsortium.org/en/main-navigation/library/ maastricht-principles/. Accessed 12 September 2020 Principle 14. 74 Maastricht Principles on Extraterritorial Obligations of States in the Area of Economic, Social and Cultural Rights (28 September 2011). https://www.etoconsortium.org/en/main-navigation/library/ maastricht-principles/. Accessed 12 September 2020 Principle 15. 75 Maastricht Principles on Extraterritorial Obligations of States in the Area of Economic, Social and Cultural Rights (28 September 2011). https://www.etoconsortium.org/en/main-navigation/library/ maastricht-principles/. Accessed 12 September 2020, Principle 17. 76 Maastricht Principles on Extraterritorial Obligations of States in the Area of Economic, Social and Cultural Rights (28 September 2011). https://www.etoconsortium.org/en/main-navigation/library/ maastricht-principles/. Accessed 12 September 2020, p. 29.

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Evaluation

The brief overview provided is not meant to convince the reader of the ‘hard’ extraterritorial obligations in the economic realm stemming from the ICESCR. Instead, it is assumed that much remains debated and ultimately hinges on the willingness of States to adopt recommendations by the CESCR. For our purposes, it suffices to acknowledge that the CESCR, as well as many scholars, recognize extraterritorial obligations beyond situations of effective control in principle and have applied them to assess States’ economic policies and regulatory measures (or omissions) in the economic realm. Based on these findings, it is argued that the rights under the ICESCR should be seen as ‘normative benchmarks’ for States’ public policy decisions, including the international economic law they create and enforce. As Desierto has put it: Social protection commitments under the ICESCR should operate as normative foundations to States’ numerous economic decisions especially in the international sphere – in designing treaties and contracts, voting in international institutions, and State practices at home and abroad. Only then does “economic development” become inclusive, sustainable, and equitable.77

In this sense, the primary responsibility of the territorial State for the human rights of its citizens is complemented by responsibility on the part of the international community to create an enabling environment supportive of securing the economic, social, and cultural rights of individuals globally.78 Obligations under the ICESCR, and even the work of the CESCR, may not be highly detailed about what is required of States in that regard, but at least they can be understood as providing normative goals to be considered during the process of international economic law-making. This is particularly true as Article 2 para. 1 of the ICESCR obliges States to progressively implement the obligations flowing from the covenant dependent upon available resources. This does not deprive Article 2 of any legal meaning but requires States “to move as expeditiously and effectively as possible towards that goal” only allowing for retrogressive measures in exceptional cases and strong justification.79 Accordingly, affluent States especially, and also States whose available resources have increased (i.e., rising powers), are expected to move forward with the progressive realization of ICESCR rights. As Joseph has put it, “more is expected in terms of performance from richer States than from poorer States”.80

77

Desierto (2015), p. 387. Cf. Salomon (2007), p. 183 et seq. 79 CESCR The Nature of States Parties’ Obligations (Article 2, para. 2 of the Covenant), General Comment No. 3, UN Doc. E/1991/23 (1990), para 9. 80 Joseph (2011), p. 25 with further references; for a similar argument, see: Salomon (2007), p. 193 who speaks of “common but differentiated responsibilities” stemming from the ICESCR (and other human rights instruments), for creating a just international economic order (one that is responsive to economic and social human rights) in which factors, such as economic weight and capacity in the 78

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Moreover, it is argued here that the differing use of soft and hard language by the CESCR depending upon whether obligations to respect, protect, and fulfil are addressed, indicates that we can differentiate our approach dependent upon that distinction. It appears that extraterritorial obligations not to harm the human rights of third country nationals are hard law and broadly accepted in the work of the Committee and—to a lesser extend—also State practice.81 In contrast, obligations to protect and fulfil appear softer, more controversial, and their contents more vague.

4.3

Is International Economic Law Fair to ‘Impoverished Nations and Peoples’?

Chapters 2 and 3 outlined that international economic law has long been subject to diverse forms of criticism related to notions of justice.82 Based on our human rights approach to global justice, the following parts provide a brief evaluation of the degree of justice embodied by international trade law and investment law. To do so, each part starts with a brief explanation of core rules and principles in the respective issue area, followed by an overview of critiques, structured along the three dimensions of human rights law. This analysis necessitates some limitations with regard to scope, complexity, and the final judgement. For simplicity, we will limit the analysis to core principles and norms of international trade and investment law, for now leaving aside ‘technical’ complexities. Moreover, we shall see that causality between the rules of international economic law and their impact on human rights is often difficult to evaluate because of a lack of clear empirical evidence. Therefore, we will arrive at a more nuanced outcome than a simple either/or, unjust/just determination.

4.3.1

The Justice of International Investment Law

4.3.1.1

Core Norms and Institutions

International investment law has its roots in international customary law, but today is primarily governed by a set of approximately 3000 bilateral- and regional investment

world economy, contribution to the emergence of the problem, influence at the international level (effective control) and benefit from existing unequal distribution of wealth and resources should be considered. 81 See also: Gondek (2009), p. 377 ff.; Coomans (2011), p. 34; Salomon (2007), p. 189 et seqq. 82 Economic critiques of the paradigms of the international economic order, including but not limited to ideas of free trade and intellectual property and investment protection, as unfair to the global poor have been launched by important figures such as renown economist Dani Rodrick and former senior vice president and chief economist of the World Bank Joseph Stiglitz, see e.g. Rodrik (2001, 2009), Stiglitz (2002) and Stiglitz and Charlton (2005).

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agreements that span almost the entire globe. To date, efforts to establish a multilateral investment regime have largely failed, with the exception of the rather limited TRIMS Agreement. However, the plethora of bilateral treaties usually share a set of common—albeit slightly differently worded—provisions that together with Most Favoured Nation Provisions (MFN) have led to a multilateralization of international investment treaties.83 These ‘core’ provisions include national treatment, mostfavoured-Nation treatment (MFN), fair and equitable treatment (FET), and the requirement that expropriations must fulfil certain criteria and need to be compensated. Other provisions often found in BITs include the right of investors to freely repatriate profits, prohibitions of so-called ‘performance requirements’ (for example, technological transfer or local content requirements), and full protection and security clauses. Notably, these provisions primarily protect investors and investments that have already entered the market of the host States, with only a highly limited number of regional and bilateral treaties providing for the right of entry and establishment of foreign investments.84 Another important characteristic of international investment law is that dispute resolution procedures are fragmented. Several procedural regimes and dispute resolution mechanisms exist alongside each other. International investment arbitration, for the most part, has an ad hoc character. Although some institutionalization exists under the International Centre for Settlement of Investment Disputes (ICSID) and the United Nations Commission on International Trade Law (UNCITRAL), there exist thus far no central international investment court with permanently employed judges or an appellate mechanism. Still, BITs usually include compulsory InvestorState Dispute Settlement (ISDS), meaning that investors can bring claims against host States to international investment arbitration tribunals independently of their home States and irrespective of individual consent to jurisdiction by the host State.

4.3.1.2

International Investment Law in Transition: A Human Rights Critique

The 1990s and early 2000s were the heyday of international investment law. Over the years, the legal regime has attracted a plethora of serious critiques and today exists in a state of transition.85 As we have seen above in the discussion of the NIEO, this is not the first time. Only today, however, critique stems from both industrialized and developing countries. 83 Schill (2014); the effect of MFN provisions will be described in more depth in Sect. 4.2.3.; see also: Dolzer and Schreuer (2012), p. 19; but see for critiques: Rajput (2016) and Batifort and Heath (2017). 84 See e.g. Article 1102 NAFTA (National treatment); NAFTA however also contains a list of sectoral and other limitations; see generally: Sornarajah (2010), p. 88 who further adds that rights of entry can also be found in some further U.S., Canadian, Japanese and South Korean investment treaties. 85 See e.g.: Kurtz (2012) and Hindelang and Krajewski (2016).

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A ‘backlash’ against international investment law is evident in treaty practice by States of both the Global South and the Global North. Several Southern American States—such as Bolivia, Ecuador, and Venezuela—have denounced the ICSID convention and terminated many of their BITs.86 Other States around the globe terminated BITs and became wary of ISDS, South Africa and Indonesia being two main examples.87 Increasingly, States and societies of the Global North also question the need for international investment protection and ‘special rights’ for foreign investors. Prime examples are anti-TTIP protests in the EU, U.S. President Trump’s opposition to the Trans-Pacific Partnership (TPP), and efforts to renegotiate NAFTA (all of which include investment chapters), or the public criticism that the Vattenfall arbitration88 sparked in Germany. Thus, Northern States have also been keen on highlighting public interest considerations, recalibrating treaty language in that regard,89 and supporting reform of ISDS. Canada and the EU advocate a world investment court to correct many flaws of the existing system of arbitration.90 Countries around the world have engaged in restructuring IIAs toward framing them as more development-friendly and allowing for policy space for public purposes.91 All in all, there appears to be a broadly shared concern that the basic orientation of international investment law—namely the balance, or lack thereof, between private interests of foreign investors and public interests of host States—is in need of recalibration.92 This concern is also strongly shared by human rights scholars and NGOs.93 They argue that a great number of investment disputes have revealed the tensions between 86 By January 2020 Bolivia had terminated 15 BITs out of its total of 23 BITs, Venezuela two (but 28 of its BITs are still in force), Ecuador 24 out of a total of 30 BITs; All information on the status of BITs is taken from UNCTAD’s Investment Policy Hub, available at: https://investmentpolicy. unctad.org. 87 By January 2020 South Africa had terminated 11 BITs out of a total of 49 BITs and Indonesia 30 BITs out of its total of 72 BITs. 88 Vattenfall AB and others v Federal Republic of Germany, ICSID Case No ARB/12/12. 89 See: Hindelang and Krajewski (2016), p. 4; examples are: Article 12 (Environment), Article 13 (Labour rights) and Article 14 (Opt-out clause for non-conforming measures) of the U.S. Model BIT 2012; Article 8 para. 9 (Investment and regulatory measures) in the investment chapter of the EU-Canada Comprehensive Economic and Trade Agreement (CETA), 2016. 90 For the proposal to establish a multilateral investment dispute settlement mechanism including an appeal mechanism: European Commission and Government of Canada The Case for Creating a Multilateral Investment Dispute Settlement Mechanism, Discussion Paper presented at the World Economic Forum Davos (20 January 2017). http://trade.ec.europa.eu/doclib/docs/2017/january/ tradoc_155264.pdf. 91 See for an overview of those reform efforts: UNCTAD (2016). 92 See e.g.: García-Bolívar (2009); Spears (2010); Perkams (2011); Hindelang and Krajewski (2016), p. 5. 93 See e.g.: Maastricht Principles on Extraterritorial Obligations of States in the Area of Economic, Social and Cultural Rights (28 September 2011). https://www.etoconsortium.org/en/mainnavigation/library/maastricht-principles/. Accessed 12 September 2020, para. 17 and 29; Mann (2008), Burkard (2013), Kneer (2013) and Täger (2011); among NGO contributions, see e.g.: Perez et al. (2011).

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human rights protections and the obligations of investment law, such as in cases concerning the rights to food and water, access to land, and affirmative action policies in South Africa.94 One of the major concerns of human rights lawyers is that investment agreements—as interpreted by investment arbitral tribunals—may limit States’ policy space to pursue legitimate public policy concerns, such as measures to protect the environment, labour standards, public health, and human rights.95 By limiting States’ legal ability to protect the human rights of their constituencies, international investment law may fail to respect human rights. Especially, extensive interpretations of protections against indirect expropriation and the fair and equitable treatment standard have raised significant concern that legitimate legislative and administrative measures may become affected. Moreover, poorer States may feel threatened by huge litigation costs and looming compensation awards—especially as empirical studies show that even in cases where States win a case they are less likely to benefit from a “loser-pays” approach than investors96— leading to a regulatory chill.97 This is not to say that the obligations of international investment protection law are always detrimental to human rights. If one considers the right to property to qualify as a human right (as the Universal Declaration of Human Rights and a number of regional human rights instruments do), international investment law may even advance this right.98 However, this argument hinges on the problem that international investment law provides protections only to foreigners and, factually, predominantly to huge trans-national companies. Even with regard to the human right to property of foreign investors, it remains debatable whether the balance struck in IIAs between property rights and other legitimate concerns (e.g., other human rights) is the right one from a human rights perspective, or whether the focus on property rights marginalizes other rights.

94

See e.g.: Perez et al. (2011) and Burkard (2013), p. 122 et seqq. See e.g.: Ruggie J Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework, Report of the Special Representative of the Secretary-General on the Issue of Human Rights and Transnational Corporations and Other Business Enterprises, Human Rights Council, 17th Session, UN Doc. A/HRC/17/31 (21 March 2011), Annex, Principle 9; see also the so called Osgoode Hall Statement which has been supported by numerous scholars of diverse backgrounds: Public Statement on the International Investment Regime, Osgoode Hall Law School (York University) (31 August 2010). https://www.osgoode. yorku.ca/public-statement-international-investment-regime-31-august-2010/. Accessed 12 September 2020. Para. 5. 96 Franck (2019), Chapter 6. 97 To my knowledge no empirical studies exist that could prove the regulatory chill hypothesis. This may partly be due to the fact that such an effect is hard to measure. Nevertheless, the regulatory chill thesis is intuitively convincing and well argued. See on the lack of research also: Tienhaara (2011). 98 For example under the Addition Protocol on Human Rights and Fundamental Freedoms (1952) to the European Convention on Human Rights property rights are protected, which allows foreign investors to bring cases to the European Court of Human Rights; see only: Yukos v. Russia, Application no. 14902/04, European Court of Human Rights, Judgment (31 July 2014). 95

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Irrespective of the argument that investment law fails to respect human rights, a further argument can be made that international investment law may not do enough to protect the human rights of those affected by foreign investments, such as employees and local communities. Traditional IIAs have avoided imposing any obligations on investors and thereby have done nothing to address potentially harmful consequences of foreign investments on local communities and the potentially harmful conduct of investors.99 Finally, foreign investment law may not do enough to fulfil human rights in host States. While BIT preambles often state that the rationale for investment protection is to increase investment flows and thereby raise the prosperity of Member States, existing empirical studies shed doubt upon both the assumption of increased FDI, as well as its success in decreasing poverty.100 In the same context stands the often implicit assumption that the protection of investments and international investment arbitration may have positive repercussions for the rule of law and good governance in host States, which is also questionable from an empirical standpoint.

Respect for Human Rights and the Policy Space Critique Of particular concern for States’ policy space are far-reaching interpretations of FET clauses and protections against indirect expropriations. FET is a rather vague and open-ended concept. The following obligations for host States have been regarded to form part of FET: to act according to due process, transparently, non-arbitrarily, and non-discriminatorily; to refrain from coercion and harassment; to act predictably; to create a general duty of due diligence; and, perhaps most controversially, to refrain from frustrating investors’ reasonable expectations101 with regard to the legal framework affecting the investment.102 The notion of the frustration of reasonable expectations related to the regulatory framework is of particular concern for States’ legitimate policy space. These reasonable expectations must stem from objective conduct of the State, which might involve assurances through contract or verbal 99 See for a discussion of this issue including its historic context and a summary of failed legal initiatives by developing countries: Sornarajah (2010), p. 144 et seqq.; see for a discussion of the general problem also.: Stiglitz (2007). 100 See for a recent overview of empirical findings, which appear rather unsupportive (or at least inconclusive) of the success of IIAs’ implicit goals: Howse (2017), p. 18 et seqq.; see also: UNCTAD (2009), p. 29 et seqq. and 109 et seqq; and the collected papers in: Sauvant and Sachs (2009). 101 A huge number of awards have relied on notions of “legitimate expectations”, see e.g.: Metalclad v. Mexico, ICSID Case No. ARB(AF)/97/1, Award (30 August 2000); Tecmed, S.A. v. Mexico, ICSID Case No. ARB (AF)/00/2, Award (29 May 2003); Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award (17 March 2006); LG&E Energy Corporation v. Argentina, ICSID Case No. ARB/02/1, Award (25 July 2007); Parkerings-Compagniet AS v. Lithuania, ICSID Case No. ARB/05/8, Award (11 September 2007); Bayindir Insaat Turizm Ticaret Ve Sanayi AS v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award (27 August 2009), para. 178. 102 See e.g.: Tudor (2009), pp. 157, 186; de Brabendere (2017), p. 287 et seq.

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communications but might also be based on the stability and predictability of existing laws and policies.103 Such an interpretation puts considerable pressure on a State’s ability to alter policies and regulations, as those changes might negatively affect investor profits, even if they are required to address evolving public needs, such as the increasing need to tackle climate change, or a growing awareness of the dangers of nuclear energy.104 Moreover, investment tribunals have held developing countries liable under broad interpretations of FET clauses in cases of high human rights relevance, such as those concerning the supply of drinking water.105 However, interpretative struggles appear far from solved. Some scholars and tribunals have supported more extensive interpretations, promoting FET as some sort of catch-all clause,106 while others seek to limit FET to the customary international minimum standard, mainly covering access to justice, due process, and protection against manifestly arbitrary treatment.107 Yet, even following the second interpretation, today’s content of the IMS in the context of investment law remains an open question. Some commentators argue that investment tribunals have not provided any practical meaning to the differentiation between FET and IMS.108 In fact, some arbitral tribunals have relied on notions of an evolved IMS standard109 and have even suggested that the international minimum standard today incorporates the broader protections of FET as interpreted by arbitral tribunals.110 The protection against indirect expropriations is another investment protection provision that has raised fears of the detrimental impact of investment law on States’ policy space to pursue legitimate goals. Cases that raised concerns include, among

103

See e.g. Dolzer (2014), p. 17 et seqq. (with further analysis of arbitral decisions). See on that issue the still pending case of Vattenfall AB and others v Federal Republic of Germany, ICSID Case No ARB/12/12. 105 See e.g. Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award (24 July 2008); Urbaser S.A. et al. v The Argentine Republic, ICSID Case No. ARB/07/26, Award (8 December 2016), (note however that in both cases for various reasons investors were not awarded any compensation; nevertheless in both cases respondent States had to pay a substantial amount of the costs of the proceedings: Half of the costs in Biwater Gauff and slightly over one million USD in Urbaser);See for a critical discussion including further cases: Sornarajah (2010), p. 354 et seqq.: for scholarly overviews and analyses see e.g.: Tudor (2009), pp. 157, 186; de Brabendere (2017), p. 287 et seq. 106 See e.g.: Dolzer and Schreuer (2012), p. 122; Dolzer (2014), p. 12; among numerous arbitral awards providing for this extensive interpretation see: PSEG Global Inc. v. Republic of Turkey, ICSID Case No. ARB/02/5, Award (19 January 2007), para. 238–240. 107 See e.g. NAFTA Free Trade Commission Notes of Interpretation of Certain Chapter 11 Provisions (31 July 2001). http://www.sice.oas.org/tpd/nafta/Commission/CH11understanding_e.asp., at B. 2; Sornarajah (2010), p. 349 et seqq. 108 Kläger (2013), p. 439. 109 See: Clayton and Bilcon of Delaware, Inc. v. Government of Canada, UNCITRAL, PCA Case No. 2009-04, Award on Jurisdiction and Liability (17 March 2016), para. 435 et seqq,. 110 Merrill & Ring Forestry L.P. v. Government of Canada, UNCITRAL, ICSID Administered Case, Award (31 March 2010), para. 213; In stark contrast, scholars like Patrick Dumberry argue that FET has not become a rule of customary international law, see: Dumberry (2017). 104

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others, a case against Tanzania in which investors challenged measures supposedly aimed at securing the supply of drinking water,111 cases against Argentina that concerned several measures aimed at resolving an economic crisis with significant effects on the human rights of those affected,112 a case against Mexico for environment-related measures,113 and a case against South Africa that challenged affirmative action policies.114 More recently, developed countries faced claims related to legitimate public concerns and policy space, for example, a case brought against Australia for legislation aimed at supporting public health,115 and several claims levied against Germany that addressed the phasing out of nuclear energy for ecological reasons.116 The concept of indirect expropriations, in contrast to direct expropriations, is hard to define.117 Interpreting the term in an expansive matter risks limiting States’ policy space to pursue legitimate goals, whereas overly tight interpretations might open the door to misuse and hollow investor protections against expropriations. Traditionally, arbitral tribunals have primarily considered the effects of a measure and whether these effects are comparable to those of a direct expropriation (the so-called sole effects doctrine).118 More recent arbitral awards have shifted away from this doctrine and consider a number of relevant criteria to define indirect expropriations, including

111

Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award (24 July 2008). 112 See for an overview and analysis of these cases: Alvarez and Khamsi (2009). 113 Metalclad v. Mexico, ICSID Case No. ARB(AF)/97/1, Award (30 August 2000). 114 Piero Foresti, Laura de Carli and others v Republic of South Africa, ICSID Case No ARB(AF)/ 07/1, Award (4 August 2010). 115 Philip Morris Asia Limited (Hong Kong) v. Commonwealth of Australia, UNCTAD, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility (17 December 2015); See also: Philip Morris Brands Sarl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016). In the first case, the investor’s claim, however, was dismissed on jurisdictional grounds and in the second case the tribunal found that public health legislation in question was a reasonable exercise of Uruguay’s “police powers” (see: para. 307, 420). 116 See e.g. Vattenfall AB and others v Federal Republic of Germany, ICSID Case No ARB/12/12. 117 Some BITs further include concepts of “measures tantamount to expropriation”, yet it is unclear whether this forms a separate category. Rather, it appears that the terms indirect expropriation and “measures tantamount to expropriation” are largely used as synonyms. 118 This practice goes back to the Chorzow Factory case (Case Concerning Certain German Interests in Polish Upper Silesia (FRG v. Poland), PCIJ (1926). PCIJ Series A, No. 7, p. 44) and the jurisprudence of the Iran-United States claims tribunal (e.g. Tippets et al vs. TAMSEFTA (1984). Iran-USCTR 6, p 219). More recently NAFTA cases like Metalclad v. Mexico, ICSID Case No. ARB(AF)/97/1, Award (30 August 2000), para 111, have emphasized the effects and neglected the intentions; another good example is Compañía del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, ICSID Case No. ARB/96/1, Award (17 February 2000), paras. 71 et seq.; see among scholarly works supportive of the sole effects doctrine: Dolzer (2002–2003), p. 64; Reinisch (2008), p. 405.

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whether respective regulatory or administrative measures pursue public interests.119 Similarly, some tribunals have sought to adjust their standard of review in cases where legitimate regulatory interests are at play.120 As a general trend, investment tribunals have increasingly acknowledged States’ so-called right to regulate as well as their legitimate regulatory interests.121 Today, it is broadly acknowledged in principle that international investment law recognizes a host State’s right to regulate.122 As the arbitrators in Saluka vs. Czech Republic have put it: It is now established in international law that States are not liable to pay compensation to a foreign investor when, in the normal exercise of their regulatory powers, they adopt in a non-discriminatory manner bona fide regulations that are aimed at the general welfare.123

Still, one should be reluctant to assume that this affirmation is enough to safeguard legitimate policy space in practice. Much depends on how the practice of investment tribunals evolves and whether the general acceptance of a host State’s right to regulate in the public interest will be considered by arbitrators beyond mere lip service.124 Moreover, burdensome procedural requirements and lack of legal capacity may nonetheless have a chilling effect, especially for poorer States that are anxious about expensive litigation costs and excessive compensation awards. Outcomes of cases brought against Argentina in the wake of the Argentinian financial crisis in early 2000 demonstrate that procedural requirements, together with narrow interpretations of the necessity defence, can seriously impact the policy space of a

119 See e.g. Fireman’s Fund Insurance Co v. Mexico, ICSID Case No. ARB(AF)/02/01, Award (17 July 2006), para. 176; Chemtura Corp. v. Canada, UNCITRAL, Award (2 August 2010), para. 266; Philip Morris Brands Sarl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016), paras. 307 and 420; For an overview of further case law, see: Salacuse (2010), p. 307 et seqq.; Barker (2017), p. 245 et seqq. 120 See e.g. Occidental Petroleum Corporation and Occidental Exploration and Production Company v. Republic of Ecuador, ICSID Case No. ARB/06/11, Award (5 October 2012), para. 302–409; Philip Morris Brands Sarl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016), para. 398 et seq.; see also: Henckels (2013). 121 The arbitrational tribunal that first explicitly acknowledged “legitimate regulatory interests” was the tribunal in Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award (17 March 2006), para. 306. 122 Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award (17 March 2006), para. 255; Philip Morris Brands Sarl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016), para. 307, 420; with further references: Barker (2017), p. 234 et seqq. 123 Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award (17 March 2006), para. 255. 124 See for a similar conclusion also: Ratner (2015), p. 358 et seq.; for a recent award that appears to only pay lip service to the right to regulate: Daimler Financial Services AG v. Argentine Republic, ICSID Case No. AR/05/1, Award (22 October 2012), para. 100.

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State even in cases of severe economic emergencies.125 Even though Argentina invoked human rights obligations as a defence in some of these cases, tribunals either avoided addressing the issue in depth126 or argued that investment treaty obligations and human rights obligations are not mutually exclusive and therefore Argentina could have respected both types of obligations.127 Modern IIAs have increasingly been drafted to respond to the policy space critique.128 Some FET clauses have tied FET to the customary international minimum standard129 or international customary law more broadly.130 In some other IIAs, FET clauses have become more detailed (e.g., a reference to denial of justice, due process, and non-discrimination).131 In a similar vein, modern IIAs often incorporate more detailed provisions on indirect expropriation and/or carve-outs for general regulatory measures.132 More generally, modern IIAs have become more detailed and often include exception clauses, for example, to protect public health and the environment or to carve out general financial measures.133 It remains to be seen how arbitrators will interpret these clauses. For now, it must be acknowledged that investment tribunals have found some ways to balance public concerns with private interests. Human rights and global justice do not demand that host States win every case which involves matters relevant for human rights. Arbitrators seem to have been mostly averse to directly consider human rights obligations of States as relevant for international investment law, but some recent exceptions may indicate that this position is changing slowly.134 Moreover, the

125

See: Ratner (2015), p. 364 et seqq; see for a critical analysis of cases against Argentina in the wake of its financial crisis and the repercussions for the legitimacy of investment law and arbitration: Burke-White (2008). 126 Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/12, Award (14 July 2006), para. 261. (The tribunal simply stated that “the matter has not been fully argued and the tribunal fails to understand the incompatibility in the specifics of the instant case.”). 127 Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v Argentine Republic, ICSID Case No. ARB/03/19, Decision on Liability (30 July 2010), para. 262; Urbaser S.A. et al. v The Argentine Republic, ICSID Case No. ARB/07/26, Award (8 December 2016), para. 720. 128 See for an overview: UNCTAD (2016). 129 U.S. Model BIT (2012) Article 5 para. 1–2; all BITs/IIAs cited can be accessed at the individual signatories’ UNCTAD investment policy hub country page available at: http:// investmentpolicyhub.unctad.org/IIA/; the year in brackets is the year the respective agreement was signed, or in case of Model IIAs, the year the model was published. 130 See e.g. Article 3 para. 2 of the Croatia-Oman BIT. 131 See: U.S. Model BIT (2012) Article 5 para. 2; ASEAN Comprehensive Investment Agreement (2009) Article 11 and CETA (2016) Article 8.10 para. 1) and 2). 132 UNCTAD’s IIA mapping project shows that 97 out of 2572 IIA (most of which concluded after 2010) incorporate such carve-outs. 133 See in more detail: Sect. 5.4.1.6. 134 See for an analysis of relevant case law and the causes for the (old) aversion e.g.: Hirsch (2010); and more generally: Hirsch (2008); Recent exceptions are some cases brought against Argentina most notably: Urbaser S.A. et al. v The Argentine Republic, ICSID Case No. ARB/07/26, Award

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chilling effect—albeit hard to grasp empirically—that comes with vague treaty clauses and fragmented and unconcise arbitral decisions is still a major problem. Therefore, much remains in the hands of States and whether they introduce human rights and other public interests more clearly in treaty texts and also as defences in arbitral proceedings.135

The Protection of Human Rights in International Investment Law It is not guaranteed that FDI is always beneficial to host States and local communities. Investors, particularly in States of the Global South, have often been found to disregard labour and environmental standards and engage in corruption, which frequently is tolerated by the governments and local officials of host States.136 Therefore, observers have long called for balancing investors’ rights in IIAs with legal duties.137 However, investment treaties continue to fail to contain meaningful legal obligations for investors.138 Instead, States, international organizations, and transnational companies have mainly sought to address the issue through soft law instruments, such as codes of conduct and corporate social responsibility initiatives.139 These measures are surely valuable on their own, but it is questionable whether non-legal obligations are effective in practice. Importantly, the United Nations Guiding Principles on Business and Human Rights, adopted in 2011,140 have sought to concretize existing human rights obligations to demonstrate what is expected of investors and other business actors, but these efforts largely remain external to international investment law. Arbitrators in Urbaser et al. vs. Argentine partially relied on corporate social responsibility instruments to support their assumption that investors in principle could be subject to obligations under international law. In an unexpected move, the tribunal allowed Argentina to bring a counterclaim against investors partially based

(8 December 2016), para. 720 et seqq., 1193 et seqq; for the conclusion see also: de Brabendere (2018). 135 See also: Ratner (2015), pp. 373 and 377. 136 This of course does not mean that local investors may necessarily behave better. 137 See for a discussion e.g. Stiglitz (2007). 138 Some newer agreements contain non-binding corporate social responsibility standards. However, even these innovative IIAs do not cover substantial legal obligations for investors. According to UNCTAD’s IIA Mapping Project, Corporate social responsibility is included in 39 out of 2572 mapped treaties, all of which were concluded in the twenty-first century and most after 2010. 139 See e.g. OECD Guidelines for Multinational Enterprises (2008). http://mneguidelines.oecd.org/ guidelines/.; OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (2016). http://www.oecd.org/corporate/mne/mining.htm.; ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy (5th Edition 2017). https://www.ilo.org/empent/areas/mne-declaration/lang%2D%2Den/index.htm. 140 UN Human Rights Council Human Rights and Transnational Corporations and Other Business Enterprises, UN Doc. A/HRC/RES/17/4 (6 July 2011).

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on alleged human rights violations by investors in the context of water privatization.141 However, a number of particularities suggest that such counterclaims may remain the exception rather than the rule. Firstly, jurisdiction to hear the counterclaim was based on a particularly broad ISDS clause contained in the respective treaty.142 Secondly, in a rather unusual provision, the BIT in question allowed tribunals to base their decisions not only on the agreement itself, but also on the host State’s domestic law and general principles of international law.143 Finally, while the tribunal noted some change in international law supportive of investor obligations (such as corporate social responsibility),144 and in passing issued the view that private parties are at least obliged “not to engage in activity aimed at destroying such rights [human right for everyone’s dignity and the right for adequate housing and living conditions]”,145 it ultimately maintained that investors themselves are not obliged by human rights instruments to fulfil the right to water (even if contractually required to provide water services).146 These findings may indicate some change regarding investor obligations under human rights law, in particular with regard to the obligation to respect human rights. Moreover, the case reveals an increased willingness by arbitrators to engage with human rights obligations in investment disputes. However, many uncertainties remain, and on the question of whether counterclaims are covered by the jurisdiction of tribunals, everything depends on the provisions of the IIA in question.147

International Investment Law’s Role in Fulfilling Human Rights Obligations Globally The often implicit assumption that international investment protection leads States to adopt rule-of-law reforms or even incentivizes democratization is highly

141

Urbaser S.A. et al. v The Argentine Republic, ICSID Case No. ARB/07/26, Award (8 December 2016)., para. 1110 et seqq. 142 Argentina-Spain BIT (1991) Article X (only available in Spanish); Urbaser S.A. et al. v The Argentine Republic, ICSID Case No. ARB/07/26, Award (8 December 2016) para. 1143 (also containing an English translation of Article X of the Argentina-Spain BIT). 143 Argentina-Spain BIT (1991) Article X para. 5; Urbaser S.A. et al. v The Argentine Republic, ICSID Case No. ARB/07/26, Award (8 December 2016). para. 1188 et seq. 144 Urbaser S.A. et al. v The Argentine Republic, ICSID Case No. ARB/07/26, Award (8 December 2016) para. 1194 et seq. 145 Urbaser S.A. et al. v The Argentine Republic, ICSID Case No. ARB/07/26, Award (8 December 2016), para. 1199. 146 Urbaser S.A. et al. v The Argentine Republic, ICSID Case No. ARB/07/26, Award (8 December 2016), para. 1208–1210 (note that the tribunal does not use the language of “obligations to respect, protect and fulfil” but it appears that its distinction between obligations “not to destroy” and “obligations to perform” is similar to obligations to respect and fulfil respectively). 147 de Brabendere (2018), pp. 6 et seqq., 16.

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questionable from an empirical perspective.148 Some studies even conclude that by requiring the protection of interests of foreign investors only, investment treaties reduce the pressure on States to pursue more comprehensive rule-of-law reforms.149 As noted by Howse, several autocracies—like Uzbekistan and Kazakhstan—are parties to IIAs, but apparently feel no need for democratization or rule-of-law reforms.150 Finally, it remains highly contested whether FDI inflows—the rationale for investment protection—truly add to the development and prosperity of host States and thereby help them to fulfil economic and social rights of their populations. To begin, it is even questionable whether States with IIAs receive greater FDI inflows than States without such treaties. Most likely, IIAs are only one of the many factors that affect investor decisions about where to make an investment, and economic determinants play a more important role.151 Even for States for which BITs may achieve their preambular goal of promoting FDI, surely not all FDI is helpful for poverty alleviation and more generally prosperity and growth, and some even is harmful.152 In that regard, it remains an open question whether IIAs could be structured in a way to attract the ‘right’ investments and investors that help States of the Global South to achieve sustainable development and fulfil economic and social rights of their people. Thus far, little has been done to reform IIAs in that direction or even consider creative new proposals other than merely embracing sustainable development in the preambles of agreements. In that regard, IIAs could surely do more to promote the third dimension of human rights.

4.3.1.3

Evaluation

Given difficult economic assessments, the ongoing reform of international investment law, and non-uniformity in arbitral interpretations, it appears too far-reaching to deem international investment law in violation of the thin standard of justice.153 Nevertheless, to increase investment law’s respect for human rights, much could be done to make investment agreements more responsive to human rights concerns, such as including explicit exception clauses for legitimate public policy objectives. Regarding the protection and fulfilment of human rights, some may argue that investment agreements are not the right instruments to achieve these goals. Yet, as 148

For a summary of empirical evidence and arguments, see: Howse (2017), p. 34 et seqq. Ginsburg (2005). 150 Howse (2017), p. 36; a more comprehensive description of cases brought against named States and their responses can be found in: Sattorova (2017). 151 See: UNCTAD (2009), p. 29 et seqq., 109 et seqq; Howse (2017), p. 18 et seqq.; for further varied assessments of the role of IIAs in attracting investments, see the collected papers in: Sauvant and Sachs (2009). 152 For a critical perspective on FDI’s development outcomes see: Stiglitz (2002), pp. 67–73; for a more positive but still critical assessments, see the collected papers in: Moran et al. (2005). 153 See also: Ratner (2015), p. 352 et seqq. 149

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exemplified by many BIT preambles, these instruments themselves embrace the goal of promoting investment flows, thereby raising the prosperity of Member States, and add to sustainable development. Moreover, it has to be noted that most other instruments (e.g., corporate social responsibility guidelines) are not legally binding and/or do not entail a strong judicial dispute-settlement mechanism. To limit fragmentation, investment agreements that embrace a more holistic approach should be welcomed. In that regard, the next chapters shall show what rising powers’ treaty practice and model BITs can add to the debate.

4.3.2

The Justice of International Trade Law

4.3.2.1

Core Norms and Institutions

Rules governing international trade law comprise the thickest and most complex set of rules in the field of international economy.154 With the establishment of the WTO, States created a major international organization to supervise national trade policy and conduct regular ministerial meetings to further the liberalization of trade. In strong contrast to many other areas of international law, WTO law is characterized by a relatively strong State-to-State compulsory dispute-settlement mechanism. This dispute-settlement system is probably one of the most efficient of such systems in international law today; it has often been praised as a major improvement for the judicialization of international trade disputes in comparison to the original GATT 1947.155 With the launch of the Doha Development Round, the WTO has also become a central forum for the relationship between trade and development.156 With the conclusion of the Uruguay Round and the establishment of the WTO, the scope of trade law has increased, in comparison to the GATT years, to cover further important areas such as services (GATS), matters of trade-related investment measures (TRIMS), and trade-related intellectual property protection (TRIPS). Under GATT 1995, States have committed themselves to liberalize trade in goods through the reduction of tariffs consistent with complex schedules of tariffs, among other considerations. Core rules of the WTO agreements are structured around non-discrimination embodied in the obligation to grant National Treatment157 and Most-Favoured-Nation Treatment.158 TRIMS further aims to provide some protections for foreign investments related to trade, such as prohibiting States from imposing domestic content- and technology transfer requirements on foreign investors.

154

See e.g.: Qureshi and Ziegler (2011), p. 309. See for such a rather positive appraisal e.g. Howse (2016). 156 See e.g.: Thomas and Trachtman (2009), p. 1 et seq. 157 See e.g. Article III GATT and Article XVII GATS. 158 See e.g. Article I GATT and Article II GATS. 155

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The TRIPS agreement also embraces non-discrimination159 and further requires States to provide minimum guarantees of intellectual property protection. TRIPS does not require States to fully harmonize intellectual property protection but is a major step in strengthening international intellectual property protection and in bringing national legal regimes closer together. Still, TRIPS does not require States to accept intellectual property rights established under a foreign jurisdiction (principle of territoriality). Rather, each State must install a system of minimum level intellectual property protection, including the availability and granting of copyrights, trademarks, geographical indications, industrial designs, patents and protection for layout-designs, and to protect rights thereunder for a given period (for example, 20 years for patents).

4.3.2.2

International Trade Law Under Attack: A Human Rights Critique

Overview: The Three Dimensions of Human Rights and Trade Rules In 1995, the WTO was launched with high expectations and great fanfare, and its supporters highlighted its many virtues: The WTO should be a global organization, no club of Western States; its formal legal status, rules, and binding dispute settlement should establish the rule of law in international trade; and this rule of law would provide protection to liberal economic ideas and thereby raise the standard of living and general welfare on a global scale.160 Yet, those hopes were not held by many outside the trade community and a great number of developing countries soon felt “buyer’s remorse”161 as they had made considerable concessions on trade in services and intellectual property rights with little gains in agriculture and other areas of interest to them.162 For years, the WTO—and international trade law more broadly—has also become the target of heavy criticism from civil society. Anti-globalization and anti-free trade protests first climaxed with the 1999 Seattle WTO Ministerial Conference (the so-called Battle of Seattle), when up to 50,000 people demonstrated against the WTO and globalization more broadly. Since then, similar protest marches have repeatedly taken place at WTO conferences and elsewhere (for example, at G-7 and G-20 summits). As a response to developing country criticism, a new trade round—the Doha Development Round—was launched in 2001. As the name suggests, the DDR was meant to become a ‘development’ trade round—or at least has strategically been

159

Article 3 and 4 TRIPS. See for a critical evaluation: Barton et al. (2010), p. 1. 161 Howse (2016), p. 10. 162 See for a critical evaluation of this “grand bargain”: Ostry (2008). 160

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framed as such163—to address developing country issues and to correct perceived imbalances of WTO agreements, making them more adaptable to the needs of developing countries and LDCs. Some commentators even connected the round’s agenda to earlier calls for an NIEO.164 Indeed, as did the NIEO, the Doha Development Agenda had high rhetorical ambitions but has repeatedly failed to deliver. Despite the fact that ministerial conferences in Bali and Nairobi brought more concrete outcomes—most prominently the Trade Facilitation Agreement—it has become highly controversial among WTO members whether to continue with the Doha Development Round and retain the already negotiated draft texts or start anew. At the ministerial meeting held in Nairobi in 2015, it became clear that most industrialized countries want to start afresh, whereas most developing countries are willing to continue negotiations based on the Doha mandate and the already negotiated draft texts.165 The latest ministerial round in Buenos Aires even failed to deliver a ministerial declaration—evidence of continuing dissent among WTO Member States of how to continue with the Doha Agenda, if at all. With multilateral negotiations stalled, States have increasingly sought to negotiate bilateral, regional, and even so-called mega-regional trade agreements, such as the TTIP, TPP and CETA. Thus, the anti-globalization movement—but also civil society more broadly—shifted its focus to these agreements, thereby claiming that negotiations lack transparency and outcomes may be detrimental to environmental and labour standards, food safety, and public health. The accompanying problems of fragmentation of legal regimes and divide-and-conquer strategies of established great powers have already been discussed in Chap. 3.166 Among scholars, the WTO and the liberal international regime on trade more broadly have also been the subject of numerous critiques. We have already discussed some aspects of decision-making at the WTO and factual constraints that developing countries face when they make use of WTO’s dispute-settlement mechanism.167 Briefly summarized, decision-making at the WTO suffers from asymmetrical legal and economic capacities among States, with stronger States, at times, using economic pressure to influence negotiations in their perceived interest. In addition, a lack of legal capacity and a lack of market share needed to impose meaningful trade remedies appear likely to hinder many developing countries from using the WTO’s dispute-resolution mechanism effectively.

See for a critical appraisal of this ‘strategy’ of the WTO Secretariat and several powerful Member States to ‘sell’ a new round of trade liberalization to developing countries and the wider public: Blustein (2009), p. 82; Hopewell (2016), p. 74 et seq. 164 Chen and Chen (2010). 165 Joint Ministerial Statement on DDA from African Group, China, Ecuador, India and Venezuela, WT/MIN(15)/19 (15 December 2015). 166 See Sect. 3.1.3.4.4. 167 See Sect. 3.1.3.5. 163

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Regarding substantial WTO rules, many human rights lawyers are deeply concerned about the human rights impact of WTO agreements.168 Scholars such as Sarah Joseph have identified numerous human rights deficiencies within WTO rules and processes. Most notably, these are the agreements’ allegedly detrimental impact on global poverty, and the problematic relationship between the WTO Agreement on Agriculture (AoA) and the right to food, and the TRIPS agreement and the right to health.169 These concerns are prominently shared by the philosopher Thomas Pogge. According to Pogge, “[o]ur governments, by pressing this WTO Agreement on the rest of the world, have foreseeably taken out millions of poor persons who otherwise would have survived”.170 Irrespective of this rather drastic quote, most scholarly critiques are not full-blown attacks on free trade as such.171 Rather, they tend to argue that in areas of interest to developing countries, liberalization under the WTO has not gone far enough, while in other areas more exceptions and special treatment may be needed to strengthen the protection of developing countries and their populations against ‘unfair’ competition from industrialized countries.172 For matters of systematization, we can again structure arguments along the three dimensions of human rights. Does Trade Law Respect States’ Policy Space to Protect Human Rights? Firstly, some trade rules may directly infringe the human rights of poor people in the Global South and thereby fail to respect their human rights. This argument is prevalent in debates about the possible impact of trade law on a State’s policy space to pursue public interests. In that regard, international trade law may fail to respect human rights by limiting States’ policy space to adopt trade-restrictive legislation or administrative measures that, for example, seek to protect labour standards, food security, the environment, or public health.173 Although WTO agreements include important exceptions (most notably Article XX GATT and Article XIV GATS), which allow States to protect public interests in deviation from their obligations under WTO agreements, the scope of these exceptions is

168

See e.g. Pogge (2008), Chapter 5 and 9; Joseph (2011); Salomon (2007); Desierto (2015); this however is not to say that there are no opposing arguments. More positive views tend to describe the relationship between trade and human rights as one of mutual support, see e.g.: Aaronson and Zimmerman (2008). 169 Joseph (2011), especially Chapters 5–7; see for a comprehensive analysis of the AoA and the right to food also: Kattau (2015); on TRIPS and the right to health, see e.g.: Hestermeyer (2007). 170 Pogge (2008), pp. 22 and 232 et seqq. 171 See on the positive interrelation between free trade and the elimination of poverty, e.g. Petersmann (2002), p. 636 et seq. 172 See e.g. Joseph (2011), p. 286 et seqq. 173 Trade restrictive measures based on human rights concerns such as import prohibitions or sale bans are very likely to violate GATT obligations such as the obligation to grant national treatment under Article III para. 4 or the prohibition of quantitative restrictions under Article XI para. 1 GATT.

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rather limited, allowing only the protection of public morals; human, animal, or plant life and health, but not human rights more generally. The Agreement on Sanitary and Phytosanitary Measures (SPS Agreement)174 and the Agreement on Technical Barriers to Trade (TBT Agreement)175 allow for further trade-restrictive measures aimed at legitimate purposes. Yet, whether these provisions—and their adjudication by panels and the AB—provide States enough discretion to protect named public interests and human rights more generally and allow states to pursue their extraterritorial application (e.g., to protect workers in other countries against health infringements) is subject to a broad debate that shall not be fully explored here.176 Generally speaking, it appears that the AB and Panels have provided sufficient discretion to States in considering what is necessary to protect goals listed in Article XX GATT. Based on the broad interpretation of ‘public morals’ in EC—Seal Products,177 one can reasonably argue that human rights-based trade sanctions directed against the production methods of certain products in foreign countries (such as child labour) could be considered necessary to protect public morals in Europe under Article XX GATT.178 So far, human rights have not explicitly been invoked before a Panel or the AB. Still, legitimate goals listed in Article XX GATT arguably do not address a number of other scenarios where import competition causes harm to local producers that are beyond human health and public morals (or at least the nexus is quite complex), such as development and poverty alleviation more broadly. Similarly, while Panels and the AB have allowed States some discretion in determining what is necessary to protect legitimate goals, they also have often found violations of the Article’s chapeau (namely the non-discrimination requirement).179 In several public health-related cases under the SPS and TBT agreements, 174

Article 2 para. 2 of the SPS Agreement requires that sanitary or phytosanitary measures be necessary to protect the health of human, animals and plants, based on scientific principles and not maintained without sufficient scientific evidence. The further subparagraphs of the Article inter alia require such measures to be non-discriminatory. 175 The TBT agreement in Article 2 requires technical regulations and standards that impose barriers to trade to be based on a legitimate purpose (inter alia national security, protection of human health or safety, the environment) and subjects such measures to a number of other requirements. 176 See among the numerous contributions e.g.: Cleveland (2002); Hilpold (2007); Joseph (2011), pp. 48 and 104 et seqq.; Harris and Moon (2015), p. 1. 177 Traditionally the public moral exception was conceived of to cover bans on trade in slaves, opium, liquor, obscene publications and the like. In EC—Seal Products the AB found that the import prohibition of seal products (de facto a discrimination of Canadian and Norwegian products) was justified by the public morals exception, because within the EU such a moral conviction based on animal welfare prevailed. See: European Communities—Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS400/AB/R; WT/DS401/AB/R, Appellate Body Report (22 May 2014) para. 5168 et seqq.; for a critique, see: Ming (2016). 178 See for such a hypothetical case study e.g. Harris and Moon (2015), p. 28 et seqq. 179 See in the context of environment preservation: United States—Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, Appellate Body Report (12 October 1998), p. 55–75; European Communities—Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS400/AB/R; WT/DS401/AB/R, Appellate Body Report (22 May 2014), pp. 175–180; see in the context of public health: Brazil – Measures Affecting Import of Retreaded

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measures ostensibly aiming to protect public health failed because they discriminated against like products.180 In other relevant cases, measures (ostensibly) imposed to protect public health were found not to be supported by scientific risk assessments required under the SPS Agreement.181 While in a number of cases States could avoid breaching WTO obligations by ensuring that measures protecting public health do not discriminate, strong scrutiny of scientific risk assessments arguably imposes high burdens on States’ regulatory powers, in particular on poor States.182 On the other hand, as will be briefly addressed below, such scrutiny may be necessary to balance protective interests with the interests of exporters for whom protective measures may well have negative implications for economic development and poverty alleviation, and thereby for economic and social rights. It follows that the negative impact of WTO agreements on human rights is hard to grasp and often difficult balancing questions are involved. Still, in some cases to be explored in more depth below, the allegedly negative impact of WTO law on the first dimension of human rights might be more clear. The most controversial rules in that regard are incorporated in the TRIPS agreement. Most notably, requirements under TRIPS to protect pharmaceutical company patents may limit access of poor people in the Global South to essential medication and thereby may directly harm their right to health.183 Does Trade Law Protect and Fulfil Human Rights? While trade law may be too intrusive in some ways, it may at the same time not do enough to directly protect and fulfil human rights. Pogge, for example, has argued that existing protectionism of developed country markets by quotas, tariffs, antidumping duties, export credits, and huge subsidies to domestic producers—especially in sectors in which developing countries tend to be competitive, such as in the textile and agricultural industries—foreseeably prevents poor producers in the

Tyres, WT/DS332/AB/R, Appellate Body Report (3 December 2007), pp. 83–98 and 101; see in the context of the similarly worded exception clause of GATS also: United States—Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/AB/R, Appellate Body Report (7 April 2005), pp. 111–122. 180 For example, the U.S. ban on clove cigarettes (because of their appeal to young people) was held to violate the national treatment and MFN requirements in the TBT Agreement because the ban did not cover menthol cigarettes which are also particularly appealing to young people and therefore was considered a like product, see: United States—Measures Affecting the Production and Sale of Clove Cigarettes, WT/DS406/AB/R, Appellate Body Report (4 April 2012), pp. 60–82, 102. 181 European Communities—Measures Concerning Meat and Meat Products, WT/DS48/AB/R, Appellate Body Report (16 January 1998), pp. 72–77, 102; European Communities—Approval and Marketing of Biotech Products, WT/DS291/R, Panel Report (29 September 2006), p. 108. 182 See e.g.: Ratner (2015), p. 335. 183 See generally on the tensions between intellectual property and human rights: Hestermeyer (2007); Austin and Helfer (2011); Joseph (2011), p. 214 et seqq.; see for an analysis of the WTO’s efforts to allow for the protection of public health: Abbott (2005) and in more detail below Sect. 6.3. 3.2.

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Global South from escaping poverty.184 In a comparable yet more demanding perspective, Garcia would want WTO agreements to incorporate a Rawlsian global difference principle and more explicitly work toward improving the position of the worst-off States and people by guaranteeing obligatory preferential market access, non-reciprocal treatment, and mandatory technical assistance to developing countries.185 These examples show that market protection and domestic support in EU and U.S. agricultural sectors remain an issue for human rights of the poor in the Global South, despite some successes in recent years.186 Trade law clearly could do more to restrict protective practices in the Global North and thereby support the export sectors of developing countries. Economic studies, for example, indicate that the removal of agricultural trade and price distortions could reduce the number of extreme poor—those living below the poverty line at less than $1 per day—by approximately 3%, through increasing net farm incomes and real wages for unskilled workers in developing countries.187 A particularly complicated issue in that regard is balancing the allowance of protective means that (supposedly) support a public purpose—for example, the protection of the environment—with the market access interests of developing countries often connected to development and thereby to poverty alleviation. As WTO agreements allow for certain exceptions—for example, to protect the environment or human health—this is often a matter of finding the right balance between competing legitimate interests in adjudication.188 Scholarship on recent cases suggests that the AB may have been too deferential to the regulatory autonomy of importing States, to the detriment of the interests of exporters in developing and emerging countries.189 However, finding the right balance between legitimate protective interests and legitimate development-related export interests is a difficult task, and it appears that WTO law and its adjudication do not clearly infringe human rights here. Still, what is also clear is that Panels and the AB so far have not explicitly taken account of human rights concerns, neither on the side of importers nor on the side of exporters. This reluctance may be due mostly to the fact that WTO agreements require Panel and AB Members to consider trade impacts and evaluate the necessity to protect mentioned permissible objectives, but not the effects on human

184

Pogge (2008), p. 233. Garcia (2013), p. 82 et seqq. 186 Some successes achieved at Bali and Nairobi Ministerials are analysed in more detail in Sect. 6. 3.3. 187 Anderson et al. (2011). 188 One recent case where this has been an issue is United States—Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products, WT/DS381/AB/R, Appellate Body Report (12 May 2012). 189 Weimer (2017), p. 909 et seqq.; 916–924; see generally (but with a more positive evaluation) on the argument that WTO jurisprudence has responded to challenges of its authority in the context of domestic regulation on environmental protection by granting importing States more discretion to enact protective means: Howse (2016), p. 9. 185

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rights as such.190 In part it is also attributable to States’ hesitancy to invoke human rights as a justification in trade disputes.

Counter-Arguments Against mentioned points of critique, several counter-arguments can be brought forward, some of which have already been discussed implicitly.191 Firstly, critics have not empirically established causality between international trade rules and global poverty and domestic policies have by far the greatest influence on domestic poverty. Secondly, critics are unable to show that alternative trade rules would lead to better human rights outcomes (e.g., less poverty). Closely connected is the consequentialist/utilitarian argument that while trade rules may fail to respect or protect the human rights of some parts of the populations in the Global South they may nonetheless be beneficial to the global poor on a broader scale. For example, carve-outs for agricultural subsidies in the Global North may harm domestic producers of foodstuffs in the Global South but may also benefit their poor consumers by bringing down prices they must pay for their food. Global patent protection may increase the price for some essential medicines, but patents nonetheless may be necessary to increase investments in pharmaceutical research, leading to better medicines that ultimately benefit patients around the world. More generally, trade law may not be the proper place to solve problems of poverty and human rights, which rather should be addressed through development cooperation or in human rights forums. Finally, imperfect WTO agreements may at least be better than no trade agreements at all, as such an anarchical situation may lead to ‘beggar thy neighbour’ trade policies, an unrestricted rule of the strong, and, ultimately, even war. Regarding the last argument, it must be noted that most (human rights) critiques of international trade law are not opposed to the general assessment that economic and legal integration achieved through the WTO and the rule of law in international trade matters are favourable conditions for global peace and prosperity.192 Making WTO agreements more responsive to human rights may require reform but not necessarily revolution. Reform may even help to make WTO agreements more

190

See on this reluctance by WTO Panels and the AB e.g.: Joseph (2011), p. 119 et seq.; Ratner (2015), p. 336; See on doctrinal solutions regarding how to bring human rights into trade disputes e.g.: Marceau (2002); Howse and Teitel (2009). 191 See for an overview that embraces some of the paraphrased arguments: Ratner (2015), p. 343 et seqq. with further references. 192 The foundation of GATT after the Second World War was certainly inspired by a desire to increase economic cooperation and integration to prevent future wars. With recent trade wars and great power economic rivalry that assumption is being tested and ultimately will depend on States’ willingness to abide by the rule-based order. See on the historical connection between trade and peace e.g.; Jackson (2009), p. 32; on the relationship in the context of global justice: Ratner (2015), p. 322 et seqq.

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legitimate and thereby prevent revolution or circumvention by regional and bilateral initiatives. Other usual counter-arguments mentioned above shall be addressed in the following paragraphs along with a more thorough analysis of the most criticized areas of trade rules (from a human rights perspective), namely, rules concerning the trade in agricultural goods and intellectual property protection related to trade.

The WTO Agreement on Agriculture and Human Rights Historically, the agricultural sector has long been largely exempted from liberalization commitments. GATT 1947 covered agriculture in principle but the numerous exemptions and negotiated waivers meant that trade in agricultural products remained largely undisciplined.193 The EEC/EC, in particular, was notorious for its protectionist agricultural policies under its Common Agricultural Policy (CAP).194 Under the CAP, the EEC/EC practiced a scheme of variable levies— which ensured that the price of imports was equal to that of domestic farm goods—to insulate the common European market from the world market. In addition, the EEC/EC granted extensive domestic subsidies, incentivizing overproduction, and supported the dumping of overproduction on world markets where prices were lower than in the European market through export subsidies. While the CAP early on was heavily criticized by the EEC/EC’s trading partners, loopholes on farm goods in the GATT text, combined with a weak dispute-settlement system, led to the system never being successfully challenged.195 The Uruguay Round and the AoA brought more comprehensive coverage of trade in agricultural products supported by a strengthened dispute-settlement system. The new agreement was certainly a first big step toward regulating trade in agricultural products on the global stage. Yet, the AoA in many respects is only a framework agreement that requires further negotiations and concessions to liberalize agriculture more comprehensively. As the AoA did not bring the envisaged liberalization gains, the agreement became widely regarded as a bad bargain for developing countries.196 Critiques of the WTO’s agricultural trade regime, as well as agricultural policies by developed countries more generally, are numerous. Many critiques stem from human rights lawyers who are critical of the impact of WTO agreements and developed countries’ policies on the right to food and other human rights in the 193

See e.g.: Mavroidis (2016), p. 544 et seqq.; WTO Secretariat (2015), p. 9. See for an overview: Mavroidis (2016), p. 546 et seqq. 195 Uruguay launched a complaint in 1962 against certain elements of CAP and a Panel was established but its members saw themselves unable to make any recommendations regarding the consistency with GATT rules, see: Report of the Panel On Uruguayan Recourse to Article XXIII, GATT Doc. L/1923—11S/95, Report (16 November 1962), para. 16–19; for a further discussion of largely unsuccessful U.S. claims against the EEC’s protectionist agricultural policies. see: Mavroidis (2016), p. 548 et seq. 196 See e.g.: Hathaway and Ingco (1996); Finger (2009), p. 87; Stiglitz and Charlton (2005), p. 49. 194

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Global South. While those critiques vary in detail, two broader arguments have been broached regularly.197 Firstly, the AoA has too many carve-outs that allow for protectionism as well as huge domestic and export support in the Global North. Despite eliminating some trade barriers, the AoA allows developed countries to subsidize their agricultural sectors extensively, maintain tariff peaks and non-tariff barriers to protect their agricultural sectors, and allow198 them to support the dumping of excess products on the international market through export subsidies. These practices lead to unfair competition and a denial of market access for agricultural products from the Global South. Ultimately, these practices—which are not prohibited by WTO rules—violate the human rights of the Global South’s poor populations, as many of these populations depend for their living on small-scale farming. Secondly, the AoA does not provide developing countries with enough exceptions to defend themselves against unfair (subsidized) competition from the Global North. WTO market access commitments by developing countries and market liberalization policies prescribed by International Financial Institutions, including the IMF and the World Bank Group, may limit developing countries’ policy space to protect (poor) agricultural producers against unfair global competition. WTO agreements may contain safeguard mechanisms such as the Special Safeguard Provision in Article 5 AoA that allows Member States to adopt protective means under certain circumstances, and other exceptions such as Article XX GATT mentioned above, but these safeguards and exceptions may, for various reasons, be too limited to provide developing States with adequate protection.199 In essence, weak discipline on domestic and export support and other trade-distorting measures in developed countries and overly-rigid discipline for protective instruments of developing countries seem to be the problem. These arguments need a more thorough explanation based on the rules embodied in the AoA. The AoA rests on three pillars: discipline on border measures and market access (Part III AoA), reduction of domestic support (Part IV AoA), and the reduction of volume and level of export subsidies (Part V AoA).200 While all three areas can be regarded as important first steps, several flaws limit their impact. Before the adoption of the AoA, States had various border measures in place besides tariffs, such as quotas or variable levies. Instead of substantially bringing down trade restrictions for agricultural products, the Uruguay Round outcome only foresaw that all Member States convert their non-tariff barriers, such as quantitative import restrictions, into tariffs (so-called ‘tariffication’), allowing for an equivalent level of protection by other means. Under the AoA, to provide for greater transparency,

197

See for an overview: Ratner (2015), p. 342 with further references. It bears mention here that export subsidies by now have been outlawed at the WTO. See in more detail Sect. 6.3.2.3. 199 See for example: South Centre (2015), p. 5 (on the deficiencies of the SSG). At this point the critique is only paraphrased while Chap. 5 will elaborate in more depth on the merits of such arguments. 200 See e.g.: Mavroidis (2016), p. 555 et seqq. 198

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tariffs should become the only legal form of protection for agricultural goods. Yet, Member States engaged in so-called ‘dirty tariffication’ leading to the fact that the protective impact of transformed tariffs was often higher than the protective impact of the supposedly equivalent non-tariff measure.201 Moreover, the calculation method for the reduction of existing tariffs was biased against those developing countries which already had low agricultural tariffs, such as those countries that had reduced tariffs to comply with conditionalities stemming from IFIs structural adjustment measures. In contrast, most developed countries maintained very high tariffs during the period 1986–1988, which was the basis of the calculation that led to smaller tariff bindings.202 The modalities of tariff reductions were also unable to reduce substantially so-called tariff peaks in industrialized countries, allowing these States large discretion to protect their sensitive agricultural sectors from foreign competition.203 Tariff peaks on processed agricultural products can be seen as measures to uphold traditional—or, in other words, colonial—trading patterns, as the development of highervalue processing in developing countries is de-incentivized. With regard to domestic support, the AoA sets up complex provisions to limit the ability of Member States to provide such support.204 The agreement subdivides domestic support into three categories known as boxes: green, blue, and yellow (or amber). The green box covers schemes that are considered minimally or not at all trade-distorting, such as agricultural research, which is generally allowed.205 The blue box covers programs that include production-limiting support for either crop or livestock production.206 Such measures are considered to be minimally tradedistorting and are exempt from reduction commitments as long as they meet the criteria of Article 6 para. 5 AoA. Moreover, the AoA permits developing countries to provide support for some rural development programs under Article 6 para. 2 AoA (sometimes referred to as the development box). Finally, the amber box covers all domestic support measures that are not excepted by the other two boxes and that are considered to be trade-distorting.207 All schemes that fall under the amber box are capped and had to be reduced by Member States that notified so-called Aggregate Measurement of Support (AMS)208 in line with respective schedules. However, only 34 States have made Total AMS commitments, based on their support levels in the base period minus an agreed reduction. Ironically, States that made AMS

201

See e.g. Stiglitz and Charlton (2005), p. 49 et seqq. See: Kattau (2015), p. 211. 203 Stiglitz and Charlton (2005), pp. 51 and 125; Joseph (2011), p. 158; Mechlem (2006), p. 144; Kattau (2015), p. 213. 204 For more details see e.g.: Mavroidis (2016), pp. 556 et seqq, and 570 et seqq.; Kattau (2015), p. 237 et seqq. 205 Annex 2 to the AoA. 206 Article 6 para. 5 AoA. 207 Article 6 AoA. 208 Article 6 para. 1 AoA and Annex 3. 202

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commitments are generally allowed to provide more support than Members without such commitments, which are only eligible to so-called de minimis levels of support and the allowance of support under the other boxes. The de minimis limit for developed countries is 5% of the total value of production, while for developing countries it is 10%. There are several flaws to the system which are considered to be unjust, particularly across North-South lines. Importantly, the level of support in the base period of 1986–1988 was extremely high, meaning that even after a significant reduction, there exists much room for providing support.209 The problem for many developing countries is that in 1994 they did not substantially support their agricultural sectors and consequently did not notify Total AMS commitments, or only rather small amounts. Therefore, today they can only recur to de minimis exemptions, which are substantially lower than the notified amounts of AMS measures by some of the major developed countries and markets. For example, scholars have calculated that in 2008, the United States was allowed to provide US$ 49.1 billion in agricultural support measures versus US$ 24.8 billion by India (based on de minimis levels for the year 2008).210 Even more, in the United States (with a population of approximately 0.3 billion), the agricultural sector makes up only an estimated 1.6% of total employment, compared to an estimated 43% in India (with a population of approximately 1.3 billion).211 Thus, the level of allowed per capita support is highly unequal. In addition, amber box limits are often undermined by so-called box-shifting, the practice of some developed countries to move support from amber to green or blue boxes.212 While those boxes are depicted as minimally trade-distorting under WTO agreements. In fact, many experts contend that such measures do have stronger trade-distorting effects.213 Finally, the regime under the AoA on export subsidies for the agricultural sector also remained flawed until rather recently and other trade-distorting export-support measures remained unregulated. Developed Member States agreed to reduce export subsidies by 21% in terms of the volume of products that receive subsidies and 36% in terms of the cash value based on programs in place between 1986 and 1990.214 Developing States undertook more modest reductions and LDCs none. Again, as several developed States provided massive export subsidies in the referenced period, those commitments did not provide effective limitations. Instead, developed countries continued to incentivize dumping overproduction on world markets through the Jessen (2010), § 17 MN 24; Kattau (2015), p. 254. See: Hopewell (2016), p. 173. 211 These numbers are based on estimates by the International Labour Organization, available at: https://data.worldbank.org/indicator/SL.AGR.EMPL.ZS. 212 See for in-detail assessments of that practice the collected papers in: Meléndez-Ortiz et al. (2009). 213 See for example the collected papers in: Meléndez-Ortiz et al. (2009) Part II (“The Focus, Extent and Economic Impact of Green Box Subsidies”); see also: Kattau (2015), p. 254 with further references. 214 Art. 8-10 AoA. 209 210

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use of export subsidies with harmful consequences for the livelihood of farmers in the Global South.215 Aware of the limited liberalization gains of the AoA, negotiators created an obligation to continue the reform process.216 This continuation of negotiations most notably took place within the Doha Round, though had commenced slightly earlier.217 Three areas emerged as the major negotiation issues in the Doha work program: expansion of market access, reduction of export subsidies (“with a view of phasing out”), and substantial reduction in trade-distorting domestic support, which build on the existing pillars of the AoA.218 However negotiations on agriculture have been among the toughest, particularly on North-South lines, and at several times led to deadlocks and stalls of the Doha round.219

TRIPS and Human Rights The broad-based distributional argument against TRIPS from a Global South perspective is that it requires developing countries to grant and protect intellectual property rights largely owned by individuals and firms of the Global North, leading to a transfer of rents from the South to the North. Precise data on these assumed transfers is, unfortunately, unavailable. Still, economists have argued that “[f]or the United States and other intellectual property providers, the value of the claims TRIPS generates is several times larger than the gain to them from all the merchandise trade liberalization agreed” and that for many developing countries, gains from merchandise trade liberalization are outnumbered by losses generated by TRIPS.220 Other scholars estimated, based on World Bank data for 2002, that, if fully implemented and enforced, TRIPS would result in a transfer of approximately US $ 41 billion a year from developing to developed countries.221 As the implementation period for developing countries expired as of 1 January 2005, developing countries are generally required to implement the TRIPS agreement, suggesting that South-North transfers are already a reality. Still, in many developing countries, enforcement remains weak, likely leading to strongly diminished transfers. Industrialized States claimed and continue to claim that intellectual property protection also benefits developing countries, as it sparks innovation by local

See on the problem of so called ‘import surges’ and their effects on local farmers: Rakotoarisoa et al. (2011) and South Centre (2009). 216 Article 20 AoA. 217 See for an overview of agricultural negotiations before and after the Doha Ministerial: Kattau (2015), p. 98 et seqq. 218 Ministerial Declaration, WT/MIN(01)/DEC/1, Doha (14 November 2001), para. 13. 219 See only: Singh and Gupta (2016), p.f 296 with further references; for a further analysis with respect to rising powers’ positions and achieved successes: Sect. 6.3.2. 220 Finger (2009), p. 88, with further references; see also: Correa (2005b). 221 Gallagher (2007), p. 69. 215

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innovators and encourages foreign direct investment and technology transfer.222 However, a more nuanced appraisal is necessary. Instead of being universally beneficial, the value of an intellectual property regime for a State depends on country- and region-specific factors, such as the level of economic development, and also depends on the specific sector to which it is applied.223 Based on empirical evidence, many scholars assume that stronger patent protection in developing countries correlates with increased imports of patented goods, rather than with innovation and local production.224 Of further concern is the historical fact that a number of countries, such as Switzerland and the Netherlands, industrialized without patent systems.225 Others—such as Japan, China, South Korea, and Taiwan—appear to owe part of their economic success to their weak intellectual property laws during the early years of their development and local manufacturers’ ability to imitate foreign inventions.226 Moreover, many developed countries with patent systems initially did not allow for patents on pharmaceutical products for public health reasons.227 The general distributional argument is of particular human rights concern in the area of pharmaceutical patents. The claim that is at the core of the debate over TRIPS and the right to health is that patents on pharmaceuticals raise prices and thus render many drugs inaccessible for the poor in the Global South.228 Access to affordable medication became of particular concern in the late 1990s and early 2000s because of the AIDS/HIV crisis.229 But do patents really increase prices for essential medicines in the Global South? In addition, what is to be made of the rationales that patents are necessary to incentivize research and development, or that patents are necessary to protect ‘natural rights’ or even the human rights of inventors? Firstly, while economic factors affecting the price of medicines in developing countries are diverse, it appears quite clear that the introduction of patents for pharmaceuticals in these countries lead to higher prices.230 Otherwise, the entire idea of patents—to provide patent holders with monopoly rents to incentivize research and development—would be superfluous. Thus, convincing evidence exists that patents on pharmaceuticals required by TRIPS indeed raise prices for essential medication in the Global South.

222

See for a summary of these arguments e.g.: Hestermeyer (2007), p. 37 et seqq. See generally: Abbott et al. (2014), p. 9; for an in-depth study see: Maskus (2012). 224 See e.g.: Abbott (1989); Abbott (1996), p. 473 et seq.; Correa (2005a); Primo Braga (1989). 225 Schiff (1971). 226 Kumar (2003), p. 212 et seqq.; Hestermeyer (2007), p. 27. 227 For an overview and analysis: Hestermeyer (2007), pp. 28 et seqq. and 37 (Noting that in 1988 even among Member States of the Paris Convention pharmaceutical products were not patentable in 49 Member States). 228 Hestermeyer (2007), p. 18. 229 On more detailed background see: Hestermeyer (2007), chapter 1. 230 See e.g. Chaudhuri et al. (2003) and Fink (2000); for an overview of existing studies and supporting the broader argument: Correa (2002), p. 35 et seqq. 223

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Secondly, it is argued here, that patent protection required by TRIPS conflicts with the right to health of the poor, and that this interference cannot be justified by either rights of inventors or the necessity to utilize patents as an incentive for research and development.231 It appears rather clear that patents or other intellectual property rights are not, per se, protected under human rights treaties like the ICESCR (particularly if held by legal entities). Although States have committed to protect the rights of authors of scientific, literary, or artistic production under Article 15 para. 1 c) ICESCR, they obtain considerable flexibility in determining what measures they adopt to protect such rights, not necessarily requiring current levels of intellectual property protection in developed States.232 In any case the human right to health233 a priori tends to prevail in any balancing effort with moral and commercial interests of patent holders.234 Thirdly, the justification to incentivise research on future medication appears more convincing but ultimately also does not justify limiting access to essential medication. The argument of pharmaceutical patent supporters is basically the following: Without research and development, medication may not be available in the first place, and higher prices under patents may be needed to ‘reimburse’ companies and individuals for their investments. Therefore, patents may be required to induce the development of medicines which are required to fulfil the right to life and the right to health. However, this argument suffers from several flaws, in particular with regard to developing countries.235 Firstly, pharmaceutical sales in LDC and developing country markets are negligibly small and appear not to be necessary to induce research and development. Research done on global diseases would also be done without patents in developing countries. Secondly and in a similar vein, pharmaceutical companies tend to neglect diseases that are predominantly prevalent in developing countries because of a lack of expected profits.236 Studies and reports further indicate that hopes that patents in developing countries could incentivize research were overly optimistic, as many developing countries simply lack the capacity for research and development. In countries where this capacity would be available, companies often neglect regional maladies, such as tropical- and other diseases typically prevalent in poorer communities and States, because the poor simply cannot pay for them, particularly if prices are inflated due to

231

Hestermeyer (2007), pp. 138 et seqq. and 152 et seqq.; see also: Joseph (2011), p. 244; Pogge (2008), p. 222 et seqq. 232 See on the distinction between intellectual property rights and Article 15 c) also: CESCR General Comment No. 17, E/C.12/GC/17 (12 January 2006), para. 1–3, and para. 10 (on flexibility and discretion of States); see also: Saul et al. (2014), p. 1224 et seqq. 233 See e.g. Article 12 para. 1 and para. 2 d). 234 See in more detail: Hestermeyer (2007), p. 158. 235 There are numerous further critiques of patent law systems and their connection to access to medicines which will not be the focus here. For an overview, see: Hestermeyer (2007), p. 159 et seqq. 236 See e.g. UNDP (1999), p. 69; see for an evaluation of possible solutions to the still prevalent problem: Müller-Langer (2009).

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patents.237 Given these uncertainties about the incentivizing effect of patents on diseases prevalent in the Global South and the convincing argument that research on global diseases would also be done without profits from patents, it appears hardly justifiable to limit access to medicines simply to increase private rents.238 These arguments do not suggest that the right to health and the right to life could not be protected under a patent law system, or that the abolition of patent rights would solve all access problems, such as corruption and the lack of basic infrastructure. However, due to more limited budgets, developing countries are less likely and less able to guarantee access to higher-priced patented medicines than richer, developed countries. Moreover, interference of the patent system with the right to access is not negated by the insight that other factors might hinder access even further. The only question that remains is whether existing flexibilities under the TRIPS agreement, if adopted by developing countries, would suffice to guarantee access to essential medicines. Many flexibilities have been of little use to developing countries for a variety of reasons. LDCs were initially granted an additional 10 years for implementation, but this implementation period for pharmaceutical products has been extended several times by WTO Ministerial Decisions.239 However, in practice, the exemption for LDCs is of little practical value as most if not all LDCs lack the capacity to produce their own drugs.240 With the end of the transition period for developing countries as of 1 January 2005, all countries with pharmaceutical manufacturing capacity must grant and enforce patents, enabling inventors to prevent the manufacture of generics on a global scale until the expiration of the patent term. The much-contested issue of so-called parallel imports241—which, despite some controversies among commentators, appears to be legal under TRIPS242— brings benefits to developing countries only if prices are lower in other States, which depends on patent holders and their willingness to apply so-called tiered pricing. Other flexibilities, such as the exception provided for by Article 30 TRIPS, have 237

See e.g. Müller-Langer (2009), p. 204 (based on an extensive review of available studies); see also: WHO (2006), p. 22; to some extent also: Branstetter (2004). 238 Cf. Hestermeyer (2007), p. 165. 239 Article 66 para. 1 TRIPS foresees extensions of the transition period granted by the Council for TRIPS. Such extensions have repeatedly been granted. See most recently: Extension of the Transition Period under Article 66.1 of the TRIPS Agreement for Least-Developed Country Members for Certain Obligations with Respect to Pharmaceutical Products, Decision of the Council for TRIPS, IP/C/73 (6 November 2015). 240 See e.g. Hestermeyer (2007), p. 72. 241 Parallel imports are imports of patented products without the consent of the rights holder. Parallel imports are often carried out when different pricing is used by the patent holder in different markets. The legality of parallel imports without the consent of the right holder crucially depends on the question whether countries adopt the so-called rule of exhaustion according to which a patent right get ‘exhausted’ once the product is first sold anywhere in the world. 242 Most commentators agree that Article 6 TRIPS is an ‘agreement to disagree’ allowing States to decide whether to allow parallel imports under their patent laws or not, see: Kampf (2002), p. 115 f; Gamharter (2004), p. 42 et seq.; Slotboom (2003), p. 433.

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been interpreted narrowly by WTO Panels,243 and consequently appear not to permit an exception that could substantially increase access to medicines in the Global South.244 Even compulsory licenses245—which fall under Article 31, and are generally considered a useful tool for lowering drug prices—face several serious limitations, including the requirement to pay adequate remuneration246 and the fact that compulsory licenses can be granted only to domestic pharmaceutical producers (the principle of territoriality). Again, many developing countries lack the capacity to produce drugs locally, rendering compulsory licenses in these cases mostly useless. These countries can only license the import of the patented product from a third country, but the patent law in this second country regulates who is allowed to manufacture a product.247 While a third country may grant compulsory licenses for exporting generics, this solution faces a number of procedural hurdles under Article 31 and, most significantly, Members are required to grant compulsory licences “predominantly” for the supply of their domestic market, not the market of another Member.248 It must be noted that some of these concerns related to flexibilities have been taken up by a number of Ministerial Decisions and even a small-scale reform of the TRIPS agreement.249 The role of rising powers in negotiations leading to reform, their willingness to uphold flexibilities, and an analysis of the merits of the final reform will be discussed in more depth in Chap. 6. For now, it suffices to conclude that, taken together, arguments support the thesis that strong intellectual property protection and enforcement tends to entrench the industrial lead of the Global North and is likely to lead to a wealth transfer from ‘the poor’ to ‘the rich’. Among today’s developing countries, only for some more advanced economies, benefits from the encouragement of local innovations by patent granting may exceed the social and economic costs of paying patent rents to patent holders abroad. Even such States must carefully balance patent protection with public interests, such as the availability of reasonably priced medicines.250

243

Canada—Patent Protection of Pharmaceutical Products, WT/DS114/R, Report of the Panel (17 March 2000), pp. 151–169; for a notable critique of the interpretation as too narrow: Howse (2000), p. 496 et seqq. 244 See e.g.: Hammer (2002), p. 911; Hestermeyer (2007), p. 234 et seqq. 245 Compulsory licensing describes the practice of governments granting licenses to pharmaceutical companies (sometimes also State-owned companies) without the consent of the patent holder in order to produce the patented drug. 246 Article 31 h); Article 31 a)-l further impose numerous requirements and limitations to compulsory licensing. 247 See on the whole issue of compulsory licensing and its limitations e.g.: Kampf (2002), p. 107; Abbott (2005), p. 318 et seqq.; Hestermeyer (2007), p. 249 et seqq. with further references. 248 Article 31 (f). 249 See in more detail: Sect. 6.3.2.3.3. 250 Abbott et al. (2014), p. 10.

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Conclusion

The first part of this chapter has developed a concrete and practical approach to global justice, namely, a legal human rights-based standard revolving around the three dimensions of human rights and the distinction between negative and positive obligations. Based on the rights found in the ICESCR, such a standard enabled us to systematize existing critique against international economic law. However, we have seen that an ‘objective’ normative assessment of international economic law’s justice, even if based on a relatively simple ‘thin’ human rights standard, is highly controversial and often depends on disputed economic theory and the further development of jurisprudence in the relevant fields. Questions of economic causation further add to the difficulty international lawyers face in offering clear answers. Nevertheless, even the brief assessment provided here has demonstrated that many human rights-based critiques of international investment and trade law are based on convincing arguments. They at least prove that both regimes could be reformed to take human rights concerns more seriously. Some rules of international economic law indeed seem to be overly restrictive on States’ policy space and thereby fail to respect human rights and violate even a thin approach to global justice. Moreover, a thicker standard of global justice—based on obligations to protect and fulfil human rights on a global scale—requires States to further improve international economic law in that regard. This vague assumption shall suffice as a starting point here. Chapters 5 and 6 elaborate in more depth on these issues and illustrate whether rising powers take up (human rights-based) critiques of international trade and investment law and seek to reform existing legal regimes.

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Rajput A (2016) The myth of a multilateral framework in international investment law. Indian J Int Law 56:427–461 Rakotoarisoa MA, Sharma RP, Hallam D (eds) (2011) Agricultural import surges in developing countries: analytical framework and insights from case studies. FAO, Rome Ratner SR (2015) The thin justice of international law: a moral reckoning of the law of Nations. Oxford University Press, Oxford Rawls J (1971) A theory of justice. Belknap Press of Harvard University Press, Cambridge Rawls J (1999) The law of peoples. Harvard University Press, Cambridge Reinisch A (2008) Expropriation. In: Muchlinski P, Ortino F, Schreuer C (eds) The Oxford handbook of international investment law. Oxford University Press, Oxford Reuters (2017) China rails against U.S. for Human Rights Violations. https://www.reuters.com/ article/us-china-usa-rights/china-rails-against-u-s-for-human-rights-violationsidUSKBN16G11N. Accessed 11 Sept 2020 Rodrik D (2001) The global governance of trade as if development really mattered. Report submitted to the UNDP Rodrik D (2009) One economics, many recipes: globalization, institutions, and economic growth. Princeton University Press, Princeton Salacuse JW (2010) The law of international investment treaties. The Oxford international law library. Oxford University Press, Oxford Salomon ME (2007) Global responsibility for human rights: world poverty and the development of international law. Oxford University Press, Oxford Salomon ME (2011) Why should it matter that others have more? Poverty, inequality, and the potential of international human rights law. Rev Int Stud 37:2137–2155 Sattorova M (2017) Reassertion of control and contracting parties’ domestic law responses to investment treaty arbitration: between reform, reticence and resistance. In: Kulick A (ed) Reassertion of control over the investment treaty regime. Cambridge University Press, Cambridge, pp 53–80 Saul B, Kinley D, Mowbray J (2014) The international covenant on economic, social and cultural rights: commentary, cases and materials. Oxford University Press, Oxford Sauvant KP, Sachs LE (2009) The effect of treaties on foreign direct investment: bilateral investment treaties, double taxation treaties, and investment flows. Oxford University Press, Oxford Schiff E (1971) Industrialization without National Patents: The Netherlands, 1869–1912, Switzerland, 1850–1907. Princeton University Press, Princeton Schill S (2014) The multilateralization of international investment law. Cambridge international trade and economic law. Cambridge University Press, Cambridge Singer P (1972) Famina affluence, and morality. Philos Public Aff 1:229–243 Singh JP, Gupta S (2016) Agriculture and its discontents: coalitional politics at the WTO with special reference to India’s Food Security Interests. Int Negotiation 21:295–326. https://doi.org/ 10.1163/15718069-12341334 Slotboom MM (2003) The exhaustion of intellectual property rights. J World Intellect Property 6:421–440. https://doi.org/10.1111/j.1747-1796.2003.tb00223.x Sornarajah M (2006) Power and justice: third world resistance in international law. Singapore Yearb Int Law 10:19–57 Sornarajah M (2010) The international law on foreign investment, 3rd edn. Cambridge University Press, Cambridge South Centre (2009) The extend of agriculture import surges in developing countries: what are the trends?, Analytical Note SC/TDP/AN/AG/8. https://www.southcentre.int. Accessed 12 Sept 2020 South Centre (2015) WTO’s MC10: agriculture negotiations – special safeguard in agriculture for developing countries, analytical note, SC/TDP/AN/MC10/2. http://www.southcentre.int/ analytical-note-december-2015-5/. Accessed 11 Sept 2020 Spears SA (2010) The quest for policy space in a new generation of international investment agreements. J Int Econ Law 13:1037–1075. https://doi.org/10.1093/jiel/jgq048

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Ssenyonjo M (2009) Economic, social and cultural rights in international law. Hart Publishing, Oxford Stiglitz JE (2002) Globalization and its discontents. W.W. Norton, New York Stiglitz JE (2007) Regulating multinational corporations: towards principles of cross-border legal frameworks in a globalized world balancing rights with responsibilities. Am Univ Int Law Rev 23:451 Stiglitz JE, Charlton A (2005) Fair trade for all: how trade can promote development. Oxford University Press, Oxford Täger P (2011) Der Schutz von Menschenrechten im internationalen Investitionsrecht: Unter besonderer Beachtung der Rechte und Pflichten des Exportstaates. Nomos, Baden-Baden Tan K-C (2010) Justice without borders: cosmopolitanism, nationalism, and patriotism. Cambridge University Press, Cambridge Thomas C, Trachtman JP (2009) Editors’ introduction. In: Thomas C, Trachtman JP (eds) Developing countries in the WTO legal system. Oxford University Press, Oxford, pp 1–20 Tienhaara K (2011) Regulatory chill and the threat of arbitration: a view from political science. In: Brown C, Miles K (eds) Evolution in investment treaty law and arbitration. Cambridge University Press, Cambridge, pp 606–628 Tourme-Jouannet E (2013) What is a fair international society?: International law between development and recognition. Hart Publishing, Oxford Trubeck D, Galanter M (1974) Scholars in self-estrangement: some reflections on the crisis in law and development studies in the United States. Wisconsin Law Rev 4:1062 Tudor I (2009) The fair and equitable treatment standard in the international law of foreign investment. Oxford scholarship online. Oxford University Press, Oxford UNCTAD (2009) The role of international investment agreements in attracting foreign direct investments to developing countries. UNCTAD series on international investment policies for development. United Nations, New York UNCTAD (2016) Taking stock of IIA reform. http://unctad.org/en/PublicationsLibrary/ webdiaepcb2016d3_en.pdf. UNDP (1999) Human development report 1999. Oxford University Press, New York Virally M (1965) Vers un droit international du développement. Annuaire français de droit international 11:3–12 Weimer M (2017) Reconciling regulatory space with external accountability through WTO adjudication – trade, environment and development. Leiden J Int Law 30:901–924 WHO (2006) Public health, innovation and intellectual property rights, Report of the Commission on Intellectual Property Rights, Innovation and Public Health. http://www.who.int/ intellectualproperty/documents/thereport/ENPublicHealthReport.pdf?ua¼1 WTO Secretariat (2015) The WTO agreements series: agriculture, vol 3. World Trade Organization, Geneva Young IM (2010) Responsibility for Justice. Oxford political philosophy. Oxford University Press, New York

Chapter 5

Emerging Powers and International Investment Agreements

“BRICS Member States call for further improvements of International Investment Agreements.” BRICS Perspective on International Investment Agreements (2014).

The following chapter presents an in-depth assessment of the role emerging powers play in influencing international investment law. As outlined in the second chapter, we will consider how individual States have positioned themselves within the reform of international investment law and what common statements within the BRICS forum say about the topic. Section 5.1 of this chapter describes historical stances taken by emerging powers on international investment agreements and in Sect. 5.2 asks whether increased power correlates with a more important role in ‘rule making’—shaping international investment law. Section 5.3 provides deeper insights into whether or not emerging power approaches to international investment law can be characterized as loyalist, reformist or even revolutionary, and whether their perspectives align with global justice demands.

5.1

Historical Approaches: Emerging Powers as Rule Takers

The following section presents the historical relationship of emerging powers with international investment law in order to offer a deeper understanding of contemporary approaches. We will see that India, China and South Africa have historically been rule takers in international investment law rather than rule makers. As we will also see, the case of Brazil is more complicated. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 A. Buser, Emerging Powers, Global Justice and International Economic Law, https://doi.org/10.1007/978-3-030-63639-5_5

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China: A Gradual Rule-Taker

China opened to foreign investment only in the late 1970s after decades of political and economic isolation.1 The latter was certainly influenced by ideological doctrine and economic theory prevalent within the communist party but also by historical experience. China endured bitter experiences with early ‘investment protection treaties’. After the first Opium War, so-called ‘unequal treaties’ were imposed on China by foreign powers, including the Treaty of Nanking with Great Britain (1842), the Treaty of Wanghea with the United States (1844), and the Treaty of Whampoa with France (1844).2 From the Chinese perspective, these treaties were seen as a great humiliation and the experience appears to have influenced China’s early stance on international treaties protecting foreigners.3 This critical stance was also extended to customary international law. Even in 1987, after China undertook its first efforts to open up economically, Chinese scholars still argued that the international minimum standard regarding foreign investments “is essentially an imperialist and colonialist theory, and does not conform to contemporary international law”.4 However times changed and China became the first emerging power to conclude BITs. In the context of its opening up policy in the early 1980s China began to conclude BITs with Western States in order to attract investment.5 Soon China also signed BITs with developing countries.6 In that early period China’s rationale for signing treaties with developing countries seems to relate to China’s desire to demonstrate its commitment to South-South cooperation, rather than to seek protection for Chinese outward investment that was relatively insignificant at the time.7 Both North-South and South-South treaties essentially embraced the standard model of BITs of that time.8 Still, China did not accept all Western promoted clauses without reservation. China was reluctant to accept national treatment clauses and

1

For a brief introduction, see e.g.: Schill (2007), pp. 77 et seqq. See for an overview: Peters (2018), MN 10. 3 See e.g. Kong (2003), p. 105; Shan and Gallagher (2013), p. 141. 4 Yao (1987), pp. 335 et seq., cited after Shan and Gallagher (2013), p. 159. 5 The first seven BITs were signed with Western States including Sweden (1982), Germany (1983), France (1984), BLEU (Belgium-Luxembourg Economic Union) (1984), Finland (1984), Norway (1984), and Italy (1985). All Chinese BITs can be accessed (together with their current status) at China’s UNCTAD investment policy hub country page available at: http://investmentpolicyhub. unctad.org/IIA/CountryBits/42. 6 China-Thailand BIT (1985); China-Singapore BIT (1985); China-Kuwait BIT (1985); China-Sri Lanka BIT (1986). 7 Cf. Kong (2003), p. 113; Bath (2018), pp. 50 and 73. 8 Some scholars have pointed out that China’s BITs with developing countries provided for several particularities such as a stronger emphasis on sovereignty and national jurisdiction and greater flexibility on transfer provisions, see: Gallagher and Shan (2009), p. 37. However, to me it appears that these treaties did not markedly differ from Chinese BITs with industrialized countries. See also: Bath (2018), p. 74. 2

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compulsory ISDS.9 Several of its early BITs did not contain NT provisions at all.10 This is in line with China’s initial model BIT, that contained no NT provision, and the second version model BIT, that only contained a ‘best endeavours’ NT clause.11 The exclusion of NT was aimed at protecting China’s infant industries from global competition and thereby served economic development purposes.12 At that time, China applied strict controls for the establishment and admission of investment into China. Moreover, granting national treatment in a nonmarket economy dominated by state-owned enterprises would have proven difficult without a substantial reform of the economy itself.13 The first and second versions of China’s model BIT and following treaty practice were considered by scholars not to contain full-fledged ISDS provisions.14 These BITs literally limited compulsory ISDS jurisdiction to “disputes involving the amount of compensation for expropriation”.15 China used the same wording to restrict its ratification of the ICSID Convention in 1993, where it stated that “the Chinese Government would only consider submitting to the jurisdiction of the International Centre for Settlement of Investment Disputes for disputes over compensation resulting from expropriation and nationalization”.16 This wording was initially understood to preclude arbitrators from ruling on whether an actual expropriation or any other violation of the BIT had taken place.17 However, arbitrators in Tza Yap Shum decided differently and accepted jurisdiction to determine whether an expropriation had taken place based on the argument that the words “involving the amount of compensation for expropriation” in the ISDS clause required an assessment of whether the expropriation was lawful in the first place.18 More recently, the tribunal in Beijing Shougang and others v. Mongolia distanced itself from this “generous” reading of the jurisdiction clause and dismissed Chinese investors’

9 See Sauvant and Nolan (2015), p. 914; see on further restrictions with regard to provisions on transfer of funds: Bath (2018), p. 51. 10 According to UNCTAD’s IIA Mapping project, 57 Chinese BITs do not contain NT clauses, see e.g. China-Sweden BIT (1982); China-France BIT (1984) and China-Switzerland BIT (1986). 11 See for a historic overview: Shan and Gallagher (2013), p. 160. 12 Shan and Gallagher (2013), p. 160 with further references. 13 Cf. Bath (2018), p. 51. 14 Cf. Shan and Gallagher (2013), p. 173. 15 See e.g.: China-Argentina BIT (1992) Article 8 para. 3; China-Peru BIT (1994) Article 8 para. 3; China Indonesia BIT (1994) Article IX para. 3; China-Sri Lanka BIT (1986) Article 13 para. 3; China-Lebanon BIT (1996) Article 8 para. 3; China-Syria BIT (1996) Article 9 para. 3; and ChinaCambodia BIT (1996) Article 9 para. 3; see also: Shan and Gallagher (2013), pp. 132 and 172. 16 People’s Republic of China (1993). 17 See: Kong (2003), p. 130; Shan and Gallagher (2013), p. 172 with further references. 18 Señor Tza Yap Shum v. The Republic of Peru, ICSID Case No. ARB/07/6, Decision on Jurisdiction and Competence (only available in Spanish) (19 June 2009); upheld in: Señor Tza Yap Shum v. The Republic of Peru, ICSID Case No. ARB/07/6, Decision on Annulment (12 February 2015), paras. 72 et seqq. and 210. For an overview of the initial Decision on Jurisdiction and Competence: Newcombe (2009).

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claims based on the similarly worded China-Mongolia BIT (1991).19 Be that as it may, for our purposes it suffices to note that China at least tried to limit ISDS clauses in its earlier BIT practice. Aside from these exceptions, Chinese first and second generation BITs (1982–1999) actually embraced most other typical investment protections such as FET, MFN, and protections against expropriations.20 China’s third generation BITs (2000–2008), have even turned towards including unlimited ISDS provisions and more comprehensive NT provisions, and upheld unqualified traditional protections, such as FET.21 Today China is the second most frequent signatory of IIAs worldwide, having signed 145 such instruments.22 Only Germany has signed more IIAs.23 In sum, with the important exception of NT and the debatably limited acceptance of ISDS, China, since the early 1980s and increasingly since the year 2000 with enlarged ISDS and NT provisions, appeared as a rule taker of established international investment law.

5.1.2

India: From Import-Substitution Industrialization to (Coerced) Opening Up

In a similar vein as China, India was sceptical towards foreign investors and their investments in the years after its independence however changed that attitude with the adoption of ‘opening-up’ policies in the early 1990s. The initial cautious approach, as with China, was influenced by the experiences of colonial subjugation.24 As a consequence, India under its first Prime Minister Jawaharlal Nehru (1947–1964), adopted import-substitution industrialization policies, heavily supporting domestic industrialization in steel, iron, coal, and power with subsidies and protectionist policies.25 Nevertheless, as described by Ranjan, India’s approach towards foreign investments in the 1950s was characterized by a focus on mutual advantage, including the promotion of joint ventures with local industries through local content clauses, and only became more protectionist in the 1970s.26 In 1973 19 Beijing Shougang and others v. Mongolia, PCA Case No. 2010-20, Award (30 June 2017) (not public). 20 See for that conclusion and the systematization of Chinese BITs across several generations: Shan and Gallagher (2013), p. 140. 21 Gallagher and Shan (2009), pp. 44 et seq. 22 See for a list of treaties and their status: http://investmentpolicyhub.unctad.org/IIA/CountryBits/ 42. 23 Germany has signed 155 IIAs. See for a list of treaties and their status: http:// investmentpolicyhub.unctad.org/IIA/CountryBits/78#iiaInnerMenu. 24 See e.g.: Rajput (2016a), p. 197. 25 For an introduction see, e.g.: Omkarnath (2016). For a comprehensive analysis see, e.g.: Mishra (1988). 26 Ranjan (2014), p. 423 with further references.

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India enacted a new Foreign Exchange Regulation Act27 that imposed strict regulations on foreign exchange. This Act significantly affected foreign investors and according to commentators was aimed at protecting India’s infant industries developed in the 1950s and 1960s.28 In consequence, huge transnational corporations like IBM and Coca Cola exited the Indian market during that time.29 In the international realm, as seen in Chap. 3, India played a prominent role in the promotion of the NIEO and CERDS. Up until the 1990s India stayed critical towards an international minimum standard for the protection of foreign investors, did not sign BITs, and refrained from joining the ICSID Convention.30 However, by the early 1990s India faced a serious balance of payments crisis and had to borrow money from the IMF. In consequence of the crisis and conditions imposed by the IMF, India introduced liberal economic reforms in 1991. These reforms included a comprehensive reform of its foreign exchange control regime and measures aimed at liberalizing FDI, such as automatic approval of FDI in many sectors, the opening of formerly closed sectors, and the setting up of a Foreign Investment Promotion Board to facilitate the establishment of foreign investment.31 As a consequence of this paradigm shift in India’s approach to FDI, India also started signing BITs in 1994.32 Up until today India has signed 86 BITs, of which 73 have entered into force.33 These BITs were meant to attract foreign investment As China saw a significant rise in FDI during that period, India wanted to catch up.34 Therefore the concluded BITs largely resembled the dominant BIT model promoted by capital exporting countries of that time. These BITs provide comprehensive protections for investors, including broad FET clauses, protections against indirect expropriations, MFN, and NT (with some sector specific exceptions), and only contain narrow exception clauses in cases where ‘essential security interests’ are affected or an extreme emergency is prevalent.35 All Indian BITs of that time further include mandatory ISDS provisions.36 This approach was confirmed in India’s

27

Foreign Exchange Regulation Act, Act No. 46 of 1973 (19th September 1973). Ranjan (2014), p. 423 with further references. 29 Ranjan (2014), p. 423 with further references. 30 Krishan (2008), pp. 292 et seq.; Ranjan (2014), p. 424. 31 See e.g.: Ranjan (2014), p. 426. 32 India’s first BIT was signed with its former colonial ‘master’ the UK, see: India-UK BIT (1974). 33 All information on numbers of IIAs are taken from UNCTAD’s Investment Policy Hub, available at https://investmentpolicy.unctad.org/#iiaInnerMenu. Accessed 12 Sept 2020. 34 See generally on the rationale of attracting investments by concluding BITs in the Indian context: Chidambaram (1997), cited after: Ranjan (2014), pp. 428 and 430. 35 For a summary of treaty practice, see e.g.: Ranjan (2014), pp. 427 et seqq.; Rajput (2016a), pp. 208 et seqq.; for a deeper analysis: Ranjan (2019); see for an analysis of more modern Indian BITs that contain broader exception clauses, e.g. the India-Singapore CEPA (2005): Nedumpara (2018), p. 212. 36 Assessment based on UNCTAD’s IIA Mapping Project. 28

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Model BIT (2003),37 which largely resembled past practice and was based on the OECD Draft Convention for the Protection of Foreign Property (1967).38 While BITs were seen as a necessary tools to attract foreign investment, Indian treaty negotiators and government circles seem not to have regarded these treaties as ‘hard’ legal instruments and, given the lack of ISDS cases at the time, did not expect India to become a respondent in international legal disputes.39 The situation turned out differently. Following the conclusion of investor friendly BITs, India became subject to eight investment claims in 2003–2004, all related to the controversial Dabhol energy project.40 All of these claims, however, were settled by disputing parties probably calming the Indian government for the time being.41 Also in the early 2000s Indian investors likewise began suing foreign States, but on a smaller scale.42 Finally, it was the first investment award that was issued against India in 2011 (White Industries vs. India43) that would lead the government to reform its approach to international investment agreements again.

5.1.3

South Africa: From International Isolation to Integration

South Africa, as did India, only began concluding BITs in the 1990s but for entirely different reasons. During the Apartheid era, the conclusion of IIAs has not been on the agenda of governments due to international pressure and sanctions against the country’s economy.44 This markedly changed with the victory of the African

37 The Indian Model BIT (2003) is available at: http://investmentpolicyhub.unctad.org/Download/ TreatyFile/2871. Accessed 12 Sept 2020. 38 Nedumpara (2018), p. 198. 39 See e.g.: Nedumpara (2018), p. 197. 40 For background to the Dabhol cases and analysis of legal questions involved, see: Kundra (2008); Bettauer (2009); van Harten (2011). 41 Known settled cases include: Bechtel Enterprises Holdings, Inc. and GE Structured Finance (GESF) v. The Government of India, UNCITRAL (not public) (2003); Standard Chartered Bank v. Republic of India, UNCITRAL (not public) (2004); Offshore Power Production C.V., Travamark Two B.V., EFS India-Energy B.V., Enron B.V., and Indian Power Investments B.V. v. Republic of India, UNCITRAL (not public) (2004); Erste Bank Der Österreichischen Sparkassen AG v. Republic of India, UNCITRAL (not public) (2004); Credit Suisse First Boston v. Republic of India, UNCITRAL (not public) (2004); Credit Lyonnais S.A. (now Calyon S.A.) v. Republic of India, UNCITRAL (not public) (2004); BNP Paribas v. Republic of India, UNCITRAL (not public) (2004); ANZEF Ltd. v. Republic of India, UNCITRAL (not public) (2004); ABN Amro N.V. v. Republic of India, UNCITRAL (not public) (2004). 42 Ashok Sancheti v. Germany, (no further information available), settled; Ashok Sancheti v. UK, UNCITRAL, (not public and no further data available as to the outcome) (2006). 43 White Industries Australia Limited v. Republic of India, UNCITRAL, Final Award (30 November 2011). 44 Schlemmer (2016), pp. 167 et seq.

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National Congress in the first general elections held in 1994 and the party’s interest in attracting foreign investment.45 In order to assure investors that their investments would be secure under the new government, and due to a lack of constitutional protections,46 South Africa concluded fourteen BITs with European States between 1994 and 1998 (United Kingdom, the Netherlands, the Swiss Confederation, Germany, France, Denmark, Austria, Italy and the Czech Republic). In the same period, South Africa also negotiated several BITs with African, Asian, and Latin American States (e.g., Chile, Cuba, Egypt, Ghana, Mozambique, Iran, China and the Republic of Korea).47 All of these early BITs, however, did not follow a particular South African model but largely followed the dominant investor friendly paradigm of the time and included all classical investment protections, such as NT, MFN, FET, as well as obligatory ISDS jurisdiction under ICSID or UNCITRAL.48 During this post-apartheid era many investors who earlier had disinvested from South Africa returned, but the role of IIAs for these returns and generally the rise of FDI remains debatable and empirically contentious.49

5.1.4

Brazil: Half-Hearted Embrace of BITs

The Latin American Region, including Brazil, has historically taken a restrictive approach towards liberalization and protection of FDI and has strongly been influenced by the Calvo Doctrine.50 Consequently Brazil did not sign the ICSID convention in 1965 and for the most part of the twentieth century stayed away from IIAs. Brazil’s approach, however, changed markedly in the 1990s when it conducted BIT negotiations with several countries. Early negotiations were initiated by Western governments and were presented as a means to attract investment and as a requirement to acquire insurance from the Multilateral Investment Guarantee Agency (MIGA).51 Initially, Brazil had developed a rather restrictive model BIT to be used for these negotiations.52 However, the looming threat of competition from countries like China and regional rivals like Argentina were factors that led Brazil to accept the narrative that strong BITs covering ISDS were necessary to attract capital 45

See for a brief overview of Nelson Mandela’s and the ANC’s policy on foreign investments during that time: Schlemmer (2016), p. 168; see also: Schlemmer (2020). 46 The South African constitution that protects private property was only enacted in 1996. See: Woolfrey (2016), p. 267. 47 For an overview of South African BITs and their status, see: http://investmentpolicyhub.unctad. org/IIA/CountryBits/195#iiaInnerMenu. 48 For an overview see: Schlemmer (2016); and Woolfrey (2016), pp. 268 et seqq. 49 Schlemmer (2016), p. 168 with further references. 50 See e.g. Grunwald (1971); Campello and Lemos (2015), p. 1060. 51 Campello and Lemos (2015), pp. 1061 et seq. 52 See: Campello and Lemos (2015), p. 1062 (this early Brazilian Model BIT is not publicly available).

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inflows.53 By that time China and other Asian States transitioned their economies rapidly towards capitalist systems and Argentina had signed the ICSID convention in 1991 and embarked on an extensive BIT program. Thus, Brazil signed fourteen traditional style BITs in the 1990s. Partner countries mostly included European countries such as Denmark, Finland, France, Germany, Italy, the Netherlands, Portugal, Switzerland, and the UK,54 but to a lesser extend also Southern States, such as Chile, Cuba, the Republic of Korea, and Venezuela.55 These treaties reflected the prevailing treaty practice of that time containing the usual investor friendly provisions, including FET, NT, MFN, expropriation provisions covering indirect expropriations, and mandatory ISDS clauses.56 However, Brazil never ratified any of these treaties. Concerns that BITs expropriation clauses and ISDS provisions were non-compliant with the Brazilian constitution, and arguments that these treaties would harm the country’s economic development, ultimately led to non-ratification.57 Cohesive opposition in the Brazilian Congress and an unresolved executive that became less and less committed to the treaties led the government to give up its attempts to ratify signed BITs.58 The high inflows of investment during the 1990s and 2000s, even in the absence of BITs taking effect,59 further diminished the government’s willingness and need to push for controversial BIT ratification.60

53 For a detailed summary of the diverse reason’s for the Brazilian government under Fernando Collor de Mello to sign BITs: Campello and Lemos (2015), pp. 1061 et seqq. 54 Brazil-BLEU BIT (1999); Brazil-Denmark BIT (1995); Brazil-Finland BIT (1995); Brazil-France BIT (1995); Brazil-Germany BIT (1995); Brazil-Italy BIT (1995); Brazil-Korea BIT (1995); BrazilPortugal BIT (1994); Brazil-UK BIT (1994). 55 Brazil-Chile BIT (1994); Brazil-Cuba BIT (1997); Brazil-Korea BIT (1995); Brazil-Venezuela BIT (1995). 56 This analysis is based on UNCTAD’s IIA mapping project because several Brazilian BITs are only available in Portuguese. 57 Secretary of Foreign Trade, Ministry of Development, Industry and Foreign Trade Speech delivered at the UNCTAD World Investment Forum 2014: Investing in Sustainable Development. http://unctad-worldinvestmentforum.org/wp-content/uploads/2014/10/Godinho.pdf. Accessed 11 September 2020. 58 For a detailed assessment of the national processes leading to Brazil’s failure to ratify signed BITs, see: Campello and Lemos (2015), pp. 1069 et seqq.; see also: Ratton Sanchez Badin and Morosini (2018), pp. 239 et seqq. 59 FDI inflows in Brazil strongly increased, beginning approximately in 1993, reaching a peak in 2000 (US$33 billion), and after some down-turn reached an all-time peak in 2011 (US$101.2 billion). These numbers are based on World Bank data, available at: https://data.worldbank.org. 60 Ratton Sanchez Badin and Morosini (2018), p. 240 with further references to official communications (in Portuguese).

5.2 Power Change: Emerging Powers as Agents of Reform?

5.2

199

Power Change: Emerging Powers as Agents of Reform?

The following section engages with reform agendas in Brazil, India, and South Africa and describes China’s approach to IIAs. To do so, international treaty practice, domestic alternatives offered, and most importantly, respective States’ model BITs are examined. Such model BITs are as such not legally binding but serve as templates for future negotiations. Moreover, they are an expression of a State’s preferred treaty standards, and thereby allow predictions of future treaty practice (if the State can convince treaty partners of its views).

5.2.1

Brazilian Cooperation and Facilitation Investment Agreements: An Alternative IIA?

Following the rejection of BITs by the Brazilian Congress, the Brazilian government initiated the development of new guidelines on foreign investment protection.61 In particular, the government sought to address constitutional concerns over indirect expropriation and ISDS and wanted to preserve regulatory autonomy of the State.62 Finally, this process led to the drafting of a new model investment agreement called “Cooperation and Facilitation Investment Agreement” (CFIA).63 Based on this new model several CFIAs were signed between 2015 to 2020 with Southern American, African, Asian, and Arab States, including Angola, Ecuador, Ethiopia, Chile, Colombia, India, Malawi, Mexico, Mozambique, Suriname and the United Arab Emirates.64 Further, an FTA was signed with Peru that also includes an investment chapter based on Brazil’s model CFIA.65 Brazil was also able to convince its

61

Secretary of Foreign Trade, Ministry of Development, Industry and Foreign Trade Speech delivered at the UNCTAD World Investment Forum 2014: Investing in Sustainable Development. http://unctad-worldinvestmentforum.org/wp-content/uploads/2014/10/Godinho.pdf. Accessed 11 September 2020. 62 Secretary of Foreign Trade, Ministry of Development, Industry and Foreign Trade Speech delivered at the UNCTAD World Investment Forum 2014: Investing in Sustainable Development. http://unctad-worldinvestmentforum.org/wp-content/uploads/2014/10/Godinho.pdf. Accessed 11 September 2020. 63 The CFIA model was published in 2016 and is available at: http://investmentpolicyhub.unctad. org/IIA/CountryIris/27#iiaInnerMenu. Accessed 11 Sept 2020. The abbreviation and title of these agreements is not uniform. Ratton Sanchez Badin and Morisini use the acronym ACFI which is based on the original Portuguese title, see: Ratton Sanchez Badin and Morosini (2018), p. 219. My use of the acronym CFIA is based on the official English translation of the agreement provided by the Brazilian Government. 64 All treaties can be accessed at: https://investmentpolicy.unctad.org/international-investmentagreements/countries/27/brazil. 65 Brazil-Peru ETEA (2016) Chapter 2 (Only available in Portuguese).

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Mercosur partners to sign the Mercosur Protocol on Investment Facilitation,66 which draws heavily on the Brazilian model.67 Most of these agreements still await approval in the Brazilian Congress. However, the Brazilian Congress has already approved with Peru and only its ratification is pending.68 Two CFIAs, those with Angola and Mexico, have been ratified and entered into force.69 These developments suggest that this time Brazil appears willing and able to ratify signed treaties, even despite political turmoil in the country in recent years. The new CFIA model clearly illustrates Brazil’s willingness to act as a rule maker and norm entrepreneur in international investment law. As Brazilian State representatives have summed up: CFIA consists in an innovative alternative to traditional IIAs. It recognizes the role of governments in fostering a positive environment for investment, takes into full consideration the interests of private investors, retains policy space for pursuing the development needs of the parties, and adopts a constructive and proactive view aimed at bridging potential differences between investors and the host country.70

The next part of this chapter shall dive more deeply into the concrete contents of these agreements to assess whether Brazil achieved its ambitious goals summarized in the statement above. At this stage it suffices to note that CFIAs, as claimed by Brazilian government officials, provide for a new and unique approach that is somewhere in between resistance and conformity with the international investment regime.71 These treaties refrain from including ISDS, contain rather restrictive protection standards, and provide some creative new provisions. Most notably, these treaties focus on investment ‘facilitation’ instead of investment ‘protection’. State-State dispute settlement is only used as a backup. Mostly CFIAs seek to install institutions to prevent disputes or solve them amicably, such as so-called Focal Points (or Ombudsmen) and a Joint Committee consisting of government representatives of both parties to increase cooperation and communication between State Parties, and also between host States and the private sector.72 Of particular importance is also that Brazil has managed to bring other countries to sign CFIAs, demonstrating its ability to turn its model BIT into concrete legal

66 Intra-MERCOSUR Cooperation and Facilitation Investment Protocol (2017) (available in Spanish and Portuguese). 67 For an analysis and overview, see: Pérez Aznar and Choer Moraes (2017). 68 See: Martins (2017); the ratification status of Brazil’s CFIAs can be assessed at Brazil’s Investment Policy Hub Country Page, but apparently has not been updated for some time, see http:// investmentpolicyhub.unctad.org/IIA/CountryBits/27. 69 Presidência da República (Brazil), Decree 9167/2017 (13 October 2017). 70 Secretary of Foreign Trade, Ministry of Development, Industry and Foreign Trade Speech delivered at the UNCTAD World Investment Forum 2014: Investing in Sustainable Development. http://unctad-worldinvestmentforum.org/wp-content/uploads/2014/10/Godinho.pdf. Accessed 11 September 2020. 71 Cf. Ratton Sanchez Badin and Morosini (2018). 72 See Part III (Institutional Governance and Dispute Prevention) and Part IV (Agenda for Further Investment Cooperation and Facilitation) of the 2015 Brazilian Model CFIA.

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obligations in the form of treaties. Further, reports indicate that there are ongoing negotiations to conclude CFIAs with Algeria, Morocco, Peru, South Africa, and Tunisia, albeit these negotiations seem to be at a rather early stage.73 While it remains to be seen whether Brazil will be able to also convince further countries (including Western ones) to conclude such agreements, Brazil has already proven that it acts as a rule maker in international investment law.

5.2.2

South Africa as a Norm Anti- and Entrepreneur: A Dualistic Approach

Like did Brazil, South Africa has engaged in comprehensive reform of its bilateral investment treaty policy framework. The foregoing review of existing investment agreements and policies started in 2005 when it became apparent that sensitive South African regulation could face challenges from developed country investors.74 Thus far, there have only been two known cases brought by foreign investors against South Africa,75 whereas South African investors have sued foreign countries in three cases.76 Claims against South Africa brought about a substantial rethinking of international investment agreements. South Africa had earlier lost a confidential arbitration case brought by a Swiss investor and was ordered to pay ZAR 6.6 million plus interest and two-thirds of the investor’s legal costs.77 Yet, the case that underscored the need for reform was Piero Foresti and others. v. Republic of South Africa.78 In 2006, Italian nationals and a Luxembourg-based cooperation engaged in the South African mining business initiated a claim under ICSID rules against South African legislation that was part of its Black Economic Empowerment—and mineral sector reform policies. Under the new legislation mining enterprises were required to fulfil the criteria that 26% of their ownership be held by black

73

Bernasconi-Osterwalder and Dietrich Brauch (2015), p. 1. Republic of South Africa Department of Trade and Industry Bilateral Investment Treaty Policy Framework Review—Government Position Paper, Pretoria (June 2009) Accessed 11 September 2020, p. 5. 75 Piero Foresti, Laura de Carli and others v Republic of South Africa, ICSID Case No ARB(AF)/07/ 1, Award (4 August 2010); the other arbitration case was held confidentially under UNCITRAL arbitration rules and involved the claim by a Swiss investor that South African police failed to provide adequate protection to its property (namely a game farm and a conference centre).For an overview of facts and legal questions involved, see: Peterson (2008); Schlemmer (2016), pp. 186 et seqq. 76 Swissbourgh and others v. Lesotho, PCA Case No. 2013-29; Besserglik v. Mozambique, ICSID Case No. ARB(AF)14/2; Burmilla Trust and others v. Lesotho, PCA Case No. 2016-21. 77 See Peterson (2008); Schlemmer (2016), pp. 186 et seqq. 78 Piero Foresti, Laura de Carli and others v Republic of South Africa, ICSID Case No ARB(AF)/07/ 1, Award (4 August 2010). 74

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South Africans in order to qualify for being granted mining licenses.79 In December 2008, the parties reached an agreement to settle the dispute, according to which the government granted the claimants the demanded mining rights even though the companies did not fully satisfy the equity divestiture requirements.80 Thus, the final award in the Foresti case only decided on the discontinuance of the arbitration and contained a costs order in favour of South Africa for €400.000.81 However, if the South African initial cost claim of €5,444,146.91 is anywhere near the real costs, than this order was merely a token award.82 The case and it’s huge costs not only raised government awareness, but also concerns within South African society that investors may challenge affirmative action measures and other ‘legitimate’ South African policies before international arbitral tribunals.83 Despite the fact that the case was ultimately settled, it demonstrated that sensitive South African legislation was open to legal challenge by foreign investors. Thus, the South African Government formally launched a multi-stakeholder “Bilateral Investment Treaty Policy Framework Review” in October 2008.84 The South African review brought about some decisive findings: First, the relationship between South African BITs and investment flows was described as “uncertain”.85 Second, existing BITs were criticised for containing vague and broad provisions limiting South Africa’s policy space and impose “damaging binding investment rules with far-reaching consequences for development”.86 Third, that a new model BIT would be needed to balance the needs of investors with other legitimate interests, and that this new model BIT should be complemented by domestic legislative intervention.87 Based on these findings the South African Cabinet laid out South Africa’s legal investment policy for the upcoming years (from 2010 onwards). As summarized by

79

See for a summary of the legal questions involved: Woolfrey (2016), pp. 270 et seq. Schlemmer (2016), p. 186; Woolfrey (2016), p. 272. 81 Piero Foresti, Laura de Carli and others v Republic of South Africa, ICSID Case No ARB(AF)/07/ 1, Award (4 August 2010), p. 32. 82 Schlemmer (2016), p. 186. 83 Woolfrey (2016), p. 272. 84 Republic of South Africa Department of Trade and Industry Bilateral Investment Treaty Policy Framework Review—Government Position Paper, Pretoria (June 2009) Accessed 11 September 2020. 85 Republic of South Africa Department of Trade and Industry Bilateral Investment Treaty Policy Framework Review—Government Position Paper, Pretoria (June 2009) Accessed 11 September 2020, p. 22. 86 Republic of South Africa Department of Trade and Industry Bilateral Investment Treaty Policy Framework Review—Government Position Paper, Pretoria (June 2009) Accessed 11 September 2020, p. 54. 87 Republic of South Africa Department of Trade and Industry Bilateral Investment Treaty Policy Framework Review—Government Position Paper, Pretoria (June 2009) Accessed 11 September 2020, p. 56. 80

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Ambassador Xavier Carim (South African Permanent Representative to the WTO) this decision contained the following actions: 1. Terminate existing BITs 2. Only negotiate new ones if it can be demonstrated that there are economic benefits to SA 3. If we were to enter into new treaties, those should be based on a new model that mitigates the risks and also gives greater emphasis to the government’s right to regulate 4. In parallel, prepare a new Investment Act, and 5. Establish an Inter-Ministerial Committee to oversee the process.88 In consequence of this decision, South Africa has taken several measures but only the contours of a new IIA policy have been developed by now. South Africa has terminated several of its older BITs, mostly with European States.89 Moreover, South Africa has not signed new BITs since 2009. Meanwhile, South Africa enacted the Protection of Investment Act90 to provide foreign investors (and domestic ones) with (limited) national protections and domestic remedies. According to government officials, the drafting process for a new model BIT began in 2015.91 So far, however, no new model or draft is available to the public. Despite this, the government’s intention is clear. Both domestic investment protections and a future model BIT aim to provide a ‘better’ balance between the rights of investors and the State’s right to regulate and protect the public interest.92 As indicated above, rumours that Brazil and South Africa are negotiating a new IIA have surfaced. Speculation also exists that South Africa might opt to conclude new generation BITs with countries where South African companies possess significant investments or seek such investments, especially in other African States where domestic legal investment protections are considered to be weak or a wellfunctioning and independent judiciary is lacking.93 The fact that South Africa so far has not indicated an intention terminate any of its BITs with African countries 88

See: Carim X South African Input by the South African Permanent Representative to the WTO, Trade and Development Board, Sixty-Second Session Item 7: Investment for Development— Reforming the International Investment Regime (16 September 2015). http:// investmentpolicyhub.unctad.org/Upload/Documents/Ambassador%20Xavier%20Carim_Speaking %20Points.pdf, p. 2; the Cabinet decision itself unfortunately is not available to the public. Further summaries have been provided by: Davies (2014); and Woolfrey (2016), p. 276. 89 To be more precise, many of South Africa’s first-generation BITs signed immediately after 1994 reached their term of validity and were simply not renewed. BITs terminated include BITs with BLEU, Spain, Netherlands, Denmark, France, Germany, Switzerland, United Kingdom and Austria. Information is taken from UNCTAD’s Investment Policy Hub and is available at: http:// investmentpolicyhub.unctad.org/IIA/CountryBits/195. 90 Protection of Investment Act, Act No. 22 of 2015, vol 606 (15 December 2015). Government Gazette (South African Investment Protection Act). 91 See: Woolfrey (2016), p. 277. 92 Woolfrey (2016), p. 277. 93 Woolfrey (2016), pp. 267 and 285 et seqq.

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and ratified a BIT with Zimbabwe in 201094 is proof of this contention. On the other hand, several signed treaties with developing countries, for example with Sudan (2007), Guinea (2007), and Madagascar (2005), have never entered into force, the reasons for which remain unclear.95 This rationale that South African domestic investment protections are enough to offer foreign investors security and protection but that domestic protections in other African countries are not sufficient, could be seen to resemble the approach taken earlier by developed countries. These countries also mostly refrained from concluding investment protection agreements with each other, but required them from developing countries. However, it remains to be seen whether, and if so with whom, South Africa will subsequently engage in negotiations over future IIAs and how their content will look. The only instrument available today that could outline South Africa’s approach to future IIAs is the Southern Africa Development Community (SADC) Model BIT Template.96 However, the SADC Model BIT Template is different from other model BITs. First, it was not drafted by one State, but by a drafting committee consisting of representatives from Malawi, Mauritius, Namibia, South-Africa, and Zimbabwe. Secondly the SADC Model BIT is not drafted as a common model BIT for all participating States but provides a sort of tool box to advise governments on which legal options for diverse clauses in future negotiations exist.97 As a consequence, the SADC Model BIT does not provide a compilation of preferred clauses, but for each clause contains several options. Still, it must be noted that these options overall tend to be progressive and that the commentary of drafters often recommends the implementation of the most progressive clauses. Thus commentators describe the SADC Model BIT Template as the “most state-friendly model BIT to date”.98 If a future new South African model BIT would really be consistent with the recommendations in the SADC Model BIT Template, as suggested by government officials,99 then new BITs are very likely to contain progressive clauses. However, it remains to be seen how any such treaty would bring together the goal of protecting South African investments abroad, while safeguarding States’ rights to regulate, leaving them ample room to pursue their individual development policies. Given these uncertainties about South Africa’s future IIAs it is too early to draw any final conclusions on the new South African approach on international investment protections. Thus far, South Africa has engaged in rule making and norm-antipreneurship by terminating first generation BITs that contained strong investment protections and mandatory ISDS. However, to some extent the country

94

South Africa-Zimbabwe BIT (2009). Schlemmer (2016), p. 169. 96 SADC Model Bilateral Investment Treaty Template with Commentary (2012). http://www.iisd. org/itn/wp-content/uploads/2012/10/SADC-Model-BIT-Template-Final.pdf. Accessed 11 September 2020. 97 Ibid. p. 3. 98 Burke-White (2015), p. 73. 99 Davies (2014). 95

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has only shifted level, from embracing international investment protection towards providing domestic protections. While South Africa has so far not engaged in new international investment rule making, it has nevertheless taken a more active stance and engaged in formulating its own domestic rules that may influence other States. It remains to be seen whether South Africa, in addition, will seek new international investment agreements based on the SADC Model BIT. Part 3 more deeply analyses whether domestic laws and the SADC Model BIT stay loyal to rules incorporated in IIAs, seek substantial reform, or even radically deviate from traditional investment protections.

5.2.3

India’s Investment Policy Reform and Its Revised New Model BIT 2016

As with the case of South Africa, India has begun a comprehensive reform of its approach towards IIAs having lost its first investment arbitration case against the Australian investor White Industries in 2011.100 Differing from the case of South Africa, however, the case of White Industries did not so much concern India’s regulatory sovereignty101 but the sovereignty of the Indian judiciary. Indian courts had, over a considerable period of time, repeatedly failed to give effect to an international commercial award that White Industries had obtained against the state-owned Indian company, Coal India. As in the case of South Africa, the award triggered substantial debate in Indian governmental and academic circles about investment protection viz-a-viz the sovereignty of the Indian State and its judiciary.102 A particular point of criticism was the fact that the tribunal had allowed the Australian investor White Industries to rely on a substantial provision found in the India-Kuwait BIT (Article 4 para. 5), that requires host States to provide “effective means” for asserting claims and enforcing rights with respect to investments, which was imported on the basis of the MFN clause in the India-Australia BIT.103 Such an interpretation of the MFN clause was actually in line with pre-White Industries arbitral decisions104 and has been described by scholars as “largely 100

White Industries Australia Limited v. Republic of India, UNCITRAL, Final Award (30 November 2011). 101 See for a different perspective e.g.: Nedumpara (2018), p. 200 (“The outcome in White Industries brought into the centre stage the importance of policy space in trade and investment treaty negotiations.”) 102 See for a summary of arguments raised by Indian officials and counterarguments against the perception that the award was an ‘attack against the Indian judiciary’: Ranjan (2014), p. 445. 103 See for critical assessments e.g.: Sanan (2012); Kachwaha (2013). 104 See e.g. Berschader v. Russia, Stockholm Chamber of Commerce, Case No. 080/2004, Award (21 April 2006) (“While it is universally agreed that the very essence of an MFN provision in a BIT is to afford to investors all material protection provided by subsequent treaties, it is much more uncertain whether such provisions should be understood to extend to dispute resolution clauses.”).

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uncontested”.105 Only awards that allowed investors to import more favourable ISDS provisions through MFN are more controversial.106 Still, for Indian officials the case has been described as an “eye opener” as they neither expected MFN provisions to be interpreted to allow the import of provisions from other Indian BITs, nor did they expect that a BIT claim could involve the actions or omissions of Indian courts.107 Even more concerningly for the Indian government, India subsequently became a respondent in numerous other investment arbitration cases,108 this time also concerning regulatory issues, for example related to tax law.109 Following these claims by foreign investors, Indian civil society groups expressed concern that BITs and international investment arbitration may have “a chilling effect” on the Indian State’s ability to regulate in the interest of social and economic needs and in consequence argued for a re-examination of India’s BIT program.110 These cases sparked a rethinking within Indian government, and academic circles towards balancing investment protection with the protection of regulatory power of States and towards strengthening the role of domestic Indian courts.111 This process started in 2011 and led Indian government officials to find that IIAs are neither necessary nor sufficient to achieve FDI inflows, that former BITs did not strike an appropriate balance between investment protection and regulatory power, and consequently that any future IIA should strike a better balance.112 This conclusion was also influenced by other developing countries’ decisions to review and terminate BITs, such as in South Africa and a number of Latin American Countries.113 As a first step, India stopped on-going BIT negotiations and reviewed existing treaties and its 2003 Model BIT. In March 2015, the reform led to the publication of

105 Schill (2009), p. 519 with further references of supportive awards; see in more depth also: Schill (2014). 106 See for the much criticised award that promoted such a vast interpretation: Maffezini v. Spain, ICSID Case No. ARB/97/7, Decision of the Tribunal on Objections to Jurisdiction (25 January 2000), para. 38–64 (English Translation from Spanish Original, available at: https://www.italaw. com/sites/default/files/case-documents/ita0479.pdf); see for the most often cited adverse decision: Plama Consorium Limited v Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (8 February 2005), paras. 223 et seqq. For a discussion, see: Schill (2016). 107 See Ranjan (2014), p. 444 with reference to unpublished interviews with officials of the Indian Ministry of Finance and Commerce. 108 Since 2010, India has become a respondent in fourteen international investment arbitrations, all of which are currently pending. A list of cases and their status is available at UNCTAD’s Investment Dispute Settlement Navigator webpage, available at: http://investmentpolicyhub. unctad.org/ISDS/CountryCases/96?partyRole¼2. 109 See e.g.: Vodafone v. India (I), PCA Case No. 2016-35 (not public), Notice of Arbitration (17 April 2014); Cairn v. India, PCA Case No. 2016-7 (not public), Notice of Arbitration (2015). 110 See e.g.: Forum against FTAs (2013); Donttradeourlivesaway (2012); see also: Ranjan (2014), p. 446. 111 See for a summary e.g.: Ranjan and Anand (2018), pp. 13 et seqq. 112 See on the process and for an overview of an early Indian Ministry of Commerce paper on the reform which is not publicly available: Ranjan (2014), pp. 439 et seqq. 113 Ranjan (2014), p. 440.

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a first Draft Model BIT.114 In an unusual move this draft was made open to the public, to allow for discussion with a variety of stakeholders. In addition, the Indian Law Commission carried out an extensive legal analysis of the model and published a detailed report on the matter.115 The Indian Law Commission report assessed the draft rather critically, for example describing the ISDS provision as rendering “the entire BIT unworkable”116 and sought to “assist the Government in achieving a balanced negotiating text, that takes into consideration the protection of Indian investors investing abroad, as well as safeguarding the regulatory powers of the State.”117 In line with that assessment, the first draft was depicted by scholars as a “radical departure from prevalent notions of investment protection”118 and certainly led to many raised eyebrows in the investment (law) community. However, in 2016 the Government of India published a revised and final version of the new Indian Model BIT119 which is less radical, but as explored below, still embodies a clear reformative agenda. Although the new final Indian Model BIT is less radical than the draft version, it still represents a strong departure from past practice and is an important policy tool to progressively influence India’s investment treaty negotiations.120 According to Indian government officials the new Model BIT is “aimed at providing appropriate protection to foreign investors in India and Indian investors in the foreign country, in the light of relevant international precedents and practices, while maintaining a balance between the investor’s rights and the Government Obligations”.121 As India continues to be a net investment importer and Indian investors up until to now have not made as much use of existing BITs against host States as have foreign investors in India, the new model clearly aims at recalibrating the policy space of BITs in favour of the Indian State. In that regard the new Model BIT appears strongly reactive to cases brought against India, for example excluding an MFN provision in response to White Industries and tax measures in response to Vodafone. Currently, the Indian government is in the process of terminating older BITs and has reportedly started negotiations to replace them with BITs based on its new Model

114

The Indian Draft Model BIT is available at: https://www.mygov.in. Accessed 12 Sept 2020. Law Commission of India Analysis of the 2015 Draft Model Indian Bilateral Investment Treaty, Report No. 260 (August 2015). 116 Law Commission of India Analysis of the 2015 Draft Model Indian Bilateral Investment Treaty, Report No. 260 (August 2015), p. 41. 117 Law Commission of India Analysis of the 2015 Draft Model Indian Bilateral Investment Treaty, Report No. 260 (August 2015), p. 5. 118 Jain (2016). 119 Indian Model BIT (2016), available at: http://investmentpolicyhub.unctad.org/Download/ TreatyFile/3560. 120 Rajput (2016b), p. 205; see in a similar vein: Hanessian and Duggal (2015). 121 See: Statement by Shrimati Nirmala Sitharaman Minister of State of the Ministry of Commerce & Industry, Lok Sabha, Unstarred Question No. 1290, to be answered on Monday, the 25th July 2016 (2016). http://dipp.nic.in/sites/default/files/lu1290.pdf. Accessed 12 September 2020. 115

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BIT.122 Most of India’s older BITs contain clauses on duration and termination, according to which agreements remain in force for a period of 10 years, which automatically is extended for another 10 years unless State Parties give their notice of termination at least 6 months before the date of expiry.123 Reportedly, the Government of India has sent such notices to 58 of its treaty partners, with whom initial treaty terms were about to expire.124 By December 2020, UNCTAD listed 67, out of 86, Indian BITs as terminated.125 Moreover, India has invited 25 treaty partners to sign a joint interpretative statement which essentially seeks to bring existing treaties in line with the Indian 2015 Model BIT through ‘interpretation’.126 The possibility of issuing such a binding joint interpretative statement is not explicitly foreseen in most Indian BITs,127 but in any case can be qualified as a subsequent agreement under Article 31 para. 3 lit. a VCLT. As such, a joint interpretative statement is an authentic interpretation that must be read into the treaty and may even go beyond the bounds of the ordinary meaning of the treaty’s terms.128 The strategy of issuing joint interpretative statements appears to be aimed at aligning these BITs with the Indian Model BIT, given that the latter’s time of expiry is until 2017 or longer.129 For example, the regular duration for the BIT with Bangladesh which entered into force in 2011 ends in 2021. Further, most old generation BITs contain so-called sunset clauses providing protection of the agreement for another 15 years from the date of termination with respect to investments made or acquired before this date.130 So even BITs terminated in recent years continue to provide protections to foreign investments already established. Joint interpretative statements by treaty partners could limit the effect of treaties still in effect and possibly even protections available under sunset clauses.

122

See: Statement by Shrimati Nirmala Sitharaman Minister of State of the Ministry of Commerce & Industry, Lok Sabha, Unstarred Question No. 1290, to be answered on Monday, the 25th July 2016 (2016). http://dipp.nic.in/sites/default/files/lu1290.pdf. Accessed 12 September 2020. 123 See e.g. India-Netherlands BIT (1995) Article 16; India-Czech Republic BIT (1996) Article 16; India-Tajikistan BIT (1995) Article 15 para. 1. 124 See: Statement by Shrimati Nirmala Sitharaman Minister of State of the Ministry of Commerce & Industry, Lok Sabha, Unstarred Question No. 1290, to be answered on Monday, the 25th July 2016 (2016). http://dipp.nic.in/sites/default/files/lu1290.pdf. Accessed 12 September 2020. 125 The status of Indian BITs is available at: http://investmentpolicyhub.unctad.org/IIA/ CountryBits. 126 Government of India Ministry of Finance Department of Economic Affairs (2016). 127 According to UNCTAD’s IIA Mapping Project, only 30 out of 87 Indian BITs include modalities for amendment or renegotiation, yet these provisions seem to not directly refer to joint interpretative statements, see e.g. Denmark-India BIT (1995) Article 15; Armenia-India BIT (2003) Article 14; Colombia-India BIT (2009) Article 16. 128 See: Dörr (2018), p. 595 (MN 74). 129 See the listed BITs and their expiry dates in Government of India Ministry of Finance Department of Economic Affairs (2016). 130 See e.g. India-Tajikistan BIT (1995) Article 15 para. 2.

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While it remains to be seen how powerful Western States react to the invitation to issue joint interpretative notes, India seems to have had already limited success with its developing country partners. Official press releases indicate that India has issued joint interpretative notes with Bangladesh131 and Colombia.132 In 2018 India and Belarus signed a BIT that essentially replicates the Indian Model BIT.133 Moreover, India and Cambodia appear to be close to signing a new BIT based on the India Model.134 In 2020 Brazil and India signed an “Investment Cooperation and Facilitation Treaty” that draws from model treaties of both sides.135 Negotiations are ongoing with several further States, including the EU on a broad-based trade and investment agreement. The question of whether India has become a rule maker, rather than a rule taker, hinges on its ability to convince more partner States to accept the provisions of its Model BIT. Still, it can already be noted that India has substantially reformed its investment treaty approach responding to perceived negative experiences with international investment arbitration. The new Model BIT has been extensively discussed by scholars and is likely to influence other (developing) country approaches. Regarding actual treaty practice, success up until now remains limited and India has only succeeded in convincing some (economically weaker) developing countries of the merits of its Model. Despite limited success so far, India has clearly engaged in international rule-making with a norm-antipreneural agenda to be further outlined below.

5.2.4

China’s Ambivalent Approach

In contrast to Brazil, South Africa, and India, China thus far has not engaged in substantial explicit reform international investment agreement policy. Even though China over the years developed three differing versions of its Model BIT, it has not

131

Press Information Bureau Government of India Cabinet Approves Joint Interpretative Notes on the Agreement Between India and Bangladesh for Promotion and Protection of Investments (12 July 2017). http://pib.nic.in/newsite/PrintRelease.aspx?relid¼167345. Accessed 11 September 2020. 132 Press Information Bureau Government of India Cabinet Approves Joint Interpretative Declaration Between India and Colombia Regarding the Agreement for the Promotion and Protection of Investments Signed on November 10, 2009 (10 November 2017). http://pib.nic.in/newsite/ PrintRelease.aspx?relid¼173390. Accessed 11 September 2020. 133 Belarus-India BIT (2018), text available at https://investmentpolicy.unctad.org/internationalinvestment-agreements/countries/96/india. 134 In 2016 official press releases indicated that such a BIT had been signed, see: Press Information Bureau Government of India Cabinet Approves Bilateral Investment Treaty Between India and Cambodia to Boost Investment (27 July 2016). http://pib.nic.in/newsite/PrintRelease.aspx? relid¼147849. Accessed 11 September 2020. 135 Brazil-India ICFA (2020).

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officially updated its model since 1997.136 Even given ongoing reform of its investment regime, China has not yet published an updated model BIT which would reflect its position and influence debates. Rather, China’s position seems to be to ‘wait and see what others do’. Despite this, some fundamental changes are observable regarding China’s treaty practice. China has gradually abandoned its reluctant stance on national treatment provisions and ISDS. Chinese treaty practice has become more ambivalent since around 2008 and has moved away from its own 1997 Model BIT.137 In treaty negotiations China apparently negotiates on the basis of other State model BITs, if available.138 Some have even argued that Chinese BIT practice has become “Americanized”.139 This assessment is based on the observation that Chinese BITs have become more comprehensive and have incorporated many provisions of NAFTA’s investment chapter. Yet Chinese practice appears to be more ambivalent than simply replicating NAFTA.140 In contrast to approaches taken by other emerging powers, China’s approach reveals a tendency towards gradually embracing stronger investment protections, broader ISDS jurisdiction, and even market access commitments. In official documents China has committed itself to promoting high standards in investment and FTA agreements.141 Instead of putting negotiations of investment agreements on hold, as did India and South Africa, China appears to have strengthened its agenda to conclude such agreements.142 In line with the general trend, China increasingly has concluded FTAs with investment chapters and currently has signed the Regional

136

The Model BIT can be found in Shan and Gallagher (2013), Appendix IV (“Chinese Model BIT Version III (Current)”). 137 See e.g. Berger (2015), p. 856; Bath (2018), pp. 48 and 60 et seqq. 138 Berger (2015), pp. 856 et seq. 139 Cai (2009), p. 459. 140 See also: Berger (2015), pp. 860 et seq. 141 See e.g. Compilation and Translation Bureau, Central Committee of the Communist Party of China (2016), Chapter 5 Section 4 (“We will work with more countries to sign high-standard bilateral investment agreements”); For an overview and further references to government statements and official documents, see: Bath (2018), p. 55. See generally on China’s support for the liberalization of both trade and investment: Jinping (2017) (“We must remain committed to developing global free trade and investment, promote trade and investment liberalization and facilitation through opening-up and say no to protectionism [. . .] We will expand market access for foreign investors, build high-standard pilot free trade zones, strengthen protection of property rights, and level the playing field to make China’s market more transparent and better regulated.”). 142 According to UNCTAD’s Investment Policy Hub, the latest BIT signed (but not yet in force) is the China-Turkey BIT (2015) and China has signed several FTAs with investment chapters recently, such as the China-Macao Agreement on Trade in Services (2015), the China-Georgia FTA (2017), and China-Hong Kong CEPA Investment Agreement (2017), of which the treaty with Hong Kong has already entered into force.

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Comprehensive Economic Partnership Agreement (RCEP),143 which has attracted much attention as a likely rival agreement to CPTPP. Currently, despite struggles on the trade front, China appears engaged in negotiating a China-United States BIT, which potentially might even cover pre-established national treatment/market access (including a negative list of excluded sectors).144 So far, however, China follows a flexible and pragmatic approach and seems not to have developed a concise Chinese approach on international investment agreements. How can we explain that behaviour, given China is, rather significantly, the most powerful State among emerging powers, particularly in the economic realm? Several explanations exist for China’s rather ambivalent stance. Most likely a combination of them best explains China’s behaviour. China’s embrace of high standards for investment protection may simply reflect its increased role as an exporter of capital.145 When China adopted its Open Door policy back in the late 1970s, the main goal was to attract FDI from abroad, while at the same time retaining domestic protective measures and more generally a non-market economy based on a strong role for state-owned companies. However, this approach changed in the late 1990s when China started its Going Global strategy, actively encouraging its (state owned) companies to invest abroad.146 As noted above, China today has become an important outward investor, and many investments involve Chinese State owned—or Communist Party controlled companies. These changes suggest that to support its domestic Go Abroad strategy, China has an interest in embracing strong investment protection in IIAs. At the same time, persisting dependency on FDI inflows and China’s reluctance to further increase market access (despite announcements of an Open Economy147) speak for keeping some safeguards of regulatory policy space in Chinese BITs. Additionally, China’s flexible position may reflect increased concerns in host States about Chinese FDI. Traditional capital exporters have become particularly wary of Chinese investors, which are often State owned, or are otherwise closely

143

RCEP has been signed in November 2020. The text is available at: https://rcepsec.org/legal-text/. The agreement also contains an investment chapter. Given that the text only got available at the stage of proofing this book a thorough analysis could not be included. 144 See on the market access issue: Bath (2018), pp. 55 et seqq.; see for an overview of negotiations and prospective outcomes also: Cai (2009). 145 See e.g.: Sauvant and Nolan (2015), p. 898; Bath (2018), pp. 48 and 83. 146 See for an in-depth assessment: Sauvant and Chen (2014); for overviews, see e.g.: Sauvant and Nolan (2015), p. 896; and Bath (2018), pp. 52 et seq. 147 Since the Twelfth Five-Year Plan China has pursued a strategy of further opening its economy, including substantial liberalization of its regulation of inbound investments. In that regard China has shifted towards a ‘negative list’ system, according to which market access is granted in principle and only some sectors are exempted. Still, the negative list issued in 2016 was a disappointment for foreign investors seeking market access. For example the European Chamber of Commerce criticised persisting protectionist measures and slow and uneven progress of the implementation of proposed Open Economy measures, see: European Chamber of Commerce in China (2017); for an overview of regulatory changes and China’s ‘open economy’ policy and its relation to IIAs: Bath (2018), pp. 57 et seqq.

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connected to the Chinese Communist Party (CCP).148 These investors are accused of receiving State support and therefore being able to outcompete local businesses, of strategically acquiring access to technology and then transferring production to China, and even of pursuing the strategic political objectives of the CCP.149 Thus some Western States have taken measures to better review and control incoming investments by state-controlled entities150 or blocked concrete Chinese investments on national security grounds.151 But it is not only industrialized countries that have growing concerns about Chinese investments. Mixed feelings also exist in developing countries at both government and civil society level. Though the exact distribution of Chinese investment is difficult to assess given a high volume of FDI is channelled via financial centres (and/or tax havens such as Hong Kong, the Cayman Islands, the Virgin Islands, Panama, and Luxembourg), existing studies imply that most Chinese FDI flows to developing countries, predominantly to those in Asia.152 Still, Europe and North America together also make up approximately one third of both Chinese FDI outflows as well as capital stocks.153 On the one hand, Chinese investments are welcome to support national growth, on the other hand, worries exist about a new “scramble for Africa”,154 the political influence of the Communist Party, and Chinese investors’ disregard for labour and environmental standards.155 For these reasons, (rhetorically) embracing notions of increased policy space and a

148

Even non-SOEs are often linked to China’s government as top executives and board members include high-ranking members of the CCP, see: Milhaupt and Zheng (2015). 149 For an overview of rising scepticism against Chinese investments, see: Sauvant and Nolan (2015), pp. 901 et seqq. 150 See e.g. recent proposals by the European Commission to establish a framework for screening foreign direct investments and in particular those involving State owned companies: European Commission Press Office (2017); the U.S. Foreign Investment and National Security Act, Public Law 110-149 (2007), available at https://www.gpo.gov, which requires M&As by state-controlled enterprises to be notified and subjects them to further investigation; in a similar vein Canada has issued guidelines on investments by state-owned enterprises that are subject to a review under the Investment Canada Act (ICA) which among other things demands such investors to prove the investment’s commercial orientation and freedom from political influence, see: Government of Canada (n.d.); for a summary of the US and Canadian initiatives and further examples and references: Sauvant and Nolan (2015), pp. 910 et seq. 151 In 2012, President Barack Obama in 2012 vetoed a Chinese windmill project near a military base in Oregon on the basis that the project was a concern for national security. This was the first such veto in 22 years and only the second one in the history of the Committee on Foreign Investment in the United States, see: The Guardian (2012). In 2017, President Donald Trump blocked the sale of a U.S. semiconductor maker to a consortium backed by a Chinese State-owned company on the basis of national security concerns; see: Anna Swanson (2017). 152 Garcia-Herrero et al. (2015), p. 8; See on the difficulties to assess the geographic distribution of Chinese FDI also: Sauvant and Nolan (2015), p. 894; Bath (2018), p. 54. 153 Garcia-Herrero et al. (2015), p. 8. 154 Isanga (2010). 155 A comprehensive empirical study on concerns surrounding Chinese investment among different actors (governments, media, business community and trade unions) in several important host countries has been provided by Sauvant and Nolan (2015), pp. 901–913.

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State’s right to regulate may be aimed at calming host States and their societies wary of Chinese investments. Still, this ‘calming’ approach may eventually evolve towards more openly seeking high standard investment protections and market access commitments to uphold market access for Chinese companies, despite growing concerns in host States.156 Finally, China has not yet suffered adverse investment awards, while its investors abroad may increasingly make use of ISDS provisions in Chinese BITs, strengthening China’s interest in negotiating high-standard treaties. At the time of writing only a total of ten known cases involved a Chinese BIT.157 Of these cases six were brought by Chinese investors against foreign States158 and four were filed by foreign investors against China. However, none of the latter resulted in an award against China, with one case being decided in favour of China,159 one case being settled,160 and the most recent cases still pending.161 Given China’s numerous BITs in force and the volume of FDI flows both inward and outward, this lack of ISDS cases appears to some extent surprising.162 Several explanations exist for this phenomenon, including cultural arguments suggesting that Chinese Confucian theory and culture lead to a preference for mediation and settling disputes,163 the fact that most older Chinese BITs only contain textually limited ISDS clauses, and the argument that chances for legal enforcement of arbitral awards in China are slim and therefore investors are discouraged from bringing expensive cases to investment tribunals.164 Be that as it may, for now, China has not experienced losing an investment case and consequently may not feel the need to recalibrate its IIAs with a view to strengthening policy space available.

156

See for the argument that China increasingly seeks pre-established market access: Bath (2018), pp. 57 et seqq. 157 An overview of cases is provided by UNCTAD’s investment policy hub, available at: https:// investmentpolicy.unctad.org/investment-dispute-settlement/country/42/china/respondent. Accessed 12 Sept 2020. 158 Señor Tza Yap Shum v. The Republic of Peru, ICSID Case No. ARB/07/6, Decision on Jurisdiction and Competence (only available in Spanish) (19 June 2009); Sanum Investments Limited v. The Government of the Lao Democratic People’s Republic, PCA Case No. 2013-13; China Heilongjiang, Shougang Mining et al. v. Mongolia, PCA Case No. 2010-20; Ping An Life Insurance Company of China, Ltd and Ping An Insurance (Group) Company of China, Ltd v. Kingdom of Belgium, ICSID Case No. ARB/12/29; Beijing Urban Construction Group Co Ltd v Republic of Yemen, ICSID Case No. ARB/14/30. 159 Ansung Housing Co, Ltd v People’s Republic of China, ICSID Case No. ARB/14/25, Award (9 March 2017). 160 Ekran Berhad v People’s Republic of China, ICSID Case No. ARB/11/15 (The case was filed on 24 May 2011 but was suspended on 22 July 2011 upon joint request dated 16 May 2013). 161 Hela Schwarz GmbH v People’s Republic of China, ICSID Case No. ARB/17/19, Notice of Arbitration (21 June 2017). 162 See also: Sauvant and Nolan (2015), p. 931. 163 See in that direction e.g. Wang (2011), p. 19; White (2003), pp. 58 et seqq. 164 Sauvant and Nolan (2015), p. 931.

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Despite this, given the evolution of Chinese BIT practice and the enlargement of ISDS clauses, it is expected that China and its investors may resort to ISDS in the future more often.165 Even if these predictions become a reality, and China is sued more often eventually loses its first case, it remains an open question whether China would opt for narrowing IIAs or whether cases won by Chinese investors will outweigh these concerns. All in all, for various reasons, China in recent years has not taken a clear stance regarding ongoing reforms of the international investment regime, counterintuitively suggesting that the most powerful emerging power remains a rule taker, rather than a rule maker. The next part of this chapter analyses in more depth the content of recent Chinese treaties, further backing the assumption that China remains a rule taker and loyalist to the basic rules, principles and paradigms of international investment law. At this stage the preliminary assumption that China has gradually accepted investment protections and ISDS clauses more broadly, shall suffice. It appears indeed that China has not come up with its own distinct approach to international investment agreements.

5.2.5

Common Approaches in Multilateral Fora?

Up until now rising powers have not proposed or negotiated a plurilateral BRICS free trade and/or investment agreement. In 2007, China and India had concluded a BIT, which in 2018 was terminated by India. Most recently Brazil and India have concluded an “investment cooperation and facilitation treaty” that incorporates sections of both the Brazilian CFIA Model and the Indian Model BIT.166 Moreover, a Brazil-South Africa IIA seems to be in the making. Still, so far only one intraemerging powers IIA was signed and is not yet in force. This potentially could change with the conclusion of a Brazil-South Africa IIA, but negotiations have not progressed that far. The Regional Economic Partnership Agreement (RCEP) includes an investment chapter, but as India withdrew from negotiations in 2019 the agreement has only been signed by China.167 Therefore, thus far, no treaty practice is available that would allow the drawing of conclusions on a common BRICS’ or rising powers’ approach to international investment law. However, within the BRICS forum States highlighted the importance of intraBRICS investments and the intention to increase these investment flows, however BRICS nations have not explored the role of investment agreements in supporting intra-BRICS investments. Despite this, a short common statement entitled “BRICS Perspective on International Investment Agreements” was issued by BRICS

165

Sauvant and Nolan (2015), p. 933. Brazil-India ICFA (signed in 2020) available at: https://investmentpolicy.unctad.org/ international-investment-agreements/treaty-files/5912/download. 167 For more on the role of emerging powers in mega-regional trade agreements, see: Sect. 5.3.1.3. 166

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governments in 2014, which allows for some conclusions on their common perception of ongoing reforms and the future course of the international investment regime.168 It is necessary to quote the document in full: 1. Foreign direct investment (FDI) can make a positive contribution to sustainable development when integrated into national development strategies. These benefits of FDI may include, amongst others, technology transfer, skills development, enhanced research at the national level, and the establishment of stronger supply chains between domestic and foreign firms. 2. BRICS Member States note that International Investment Agreements may, depending on their formulation, promote investment liberalization and protect the rights of investors. Investment agreements should strike a balance between the protection of investors and the Government’s sovereign right to regulate in the public interest. In this regard, a robust national legal framework is conducive to the effective protection to both domestic and foreign investments. 3. BRICS Members States call for further improvements of International Investment Agreements, including in their dispute settlement mechanisms. 4. It is also important International Investment Agreements serve the purpose of sustainable development, which is defined and outlined in the United Nations Conference on Sustainable Development. To this end, International Investment Agreements should encourage foreign investors to support national development strategies, inter alia through responsible business practices and offer greater attention to investment promotion and facilitation. 5. BRICS Member States are encouraged to build common approaches in various multilateral dialogues on international investment policy.169

The statement provides no radical critique against IIAs nor their content. Still, the statement requires investment protection to serve national development objectives (para. 1) and takes a nuanced approach regarding the reform of international investment law. It seeks to balance the rights of investors and a State’s regulatory policy space (para. 2). Regarding the more concrete content of reform, the statement, however, remains vague and open. Some references hint at individual BRICS IIA policies, such as investment facilitation (para. 4) in the case of Brazil and the strengthening of domestic legal regimes (para. 2) in the case of South Africa. Remaining rather general, however, the statement supports a stronger focus on sustainable development, the acknowledgement of a right to regulate in the public interest, and reform of dispute settlement processes. All in all the statement takes a reformist stance on IIAs, seeking some reform but no radical overhaul. However, as indicated in the fifth paragraph of the statement, common approaches might further evolve in detail, if BRICS officials are able to build common approaches in multilateral forums.170 So far, no such common agenda 168

BRICS Perspective on International Investment Agreements (2014). http://brics.itamaraty.gov. br/category-english/21-documents/227-brics-perspective-on-international-investment-agreements. Accessed 12 September 2020. 169 Ibid. (Highlighting is my own). 170 A 2015 common statement further indicates that the BRICS dialogue surrounding investment policies and international investment rules is ongoing, see: BRICS The Fifth Meeting of the BRICS Trade Ministers: Joint Communiqué, Moscow, Russia (7 July 2015), para. 17.

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in international forums are observable. Even in the context of ongoing reform at multilateral forums, such as UNCITRAL171 or ICSID, there is no evidence of common positions or efforts for increased cooperation. Common BRICS statements since 2014 reiterate the importance of a right to regulate but provide no further details with regard to more concrete aspects of reform, such as certain treaty clauses.172 In one of BRICS latest documents on investment, entitled “Outlines for BRICS Investment Facilitation”, States embrace the concept of ‘investment facilitation’ promoted by Brazil, but the statement remains rather vague and mostly concerns national policies rather than promoting provisions found in Brazil’s CFIAs for international agreements.173

5.3

Comparative Analysis of (Model) IIAs and Domestic Legal Alternatives

Parts one and two demonstrated the active engagement of Brazil, India, and South Africa in reviewing and reforming their approaches to IIAs. China has not explicitly engaged in such reform but has quietly moved away from its 1997 Model BIT. Further, it is suspected that it may even push for stronger and broader investment protections, such as pre-established market access. The following section describes and analyses particular approaches taken by BRICS countries in more depth. To do so we will take a closer look at India and Brazil’s new model IIAs, at China’s recent treaty practice (2008 onwards), and at South Africa’s new Foreign Investment Protections Act and the SADC Model BIT. Relevant provisions found in respective legal instruments are compared to the majority of existing investment agreements. To do so we rely on UNCTAD’s IIA Mapping Project, which has built an extensive database of 2575 investment treaties and mapped their individual provisions.174 Such a comparison enables us to depict whether emerging powers have taken loyalist, reformist, or revolutionary stands in relation to traditional style investment treaties, and also to place those approaches in the wider context of ongoing IIA reforms.

171

See on ongoing discussions at UNCITRAL about the reform of international investment arbitration: Roberts (2017); see on reforms within ICSID: https://icsid.worldbank.org/en/Pages/ about/Amendment-of-ICSID-Rules-and-Regulations.aspx. 172 In 2017, BRICS Trade Ministers reiterated that they “fully preserve the right to regulate, national policy space, policy making and approaches to investment in [. . .] bilateral, plurilateral and multilateral frameworks and processes”, see: BRICS 7th Meeting of the BRICS Trade Ministers Statement, Shanghai (2 August 2017), para. 6. 173 BRICS Outlines for BRICS Investment Facilitation, Annex II to the 7th Meeting of the BRICS Trade Ministers Statement (31 August 2017). 174 The project is available online at: http://investmentpolicyhub.unctad.org/IIA. In the following reference is made to “UNCTAD’s IIA Mapping Project”. Quantitative assessments are easily replicable by using the website.

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For the first time in this chapter we connect the debate of IIA reform with notions of global justice. As outlined in Chap. 4, we analyse the extent to which reforms are oriented towards making international investment law more responsive to global justice by aiming to preserve States’ policy space, protect human rights through investor or home State obligations, and/or increase IIAs role in fulfilling human rights obligations.

5.3.1

Policy Space and Respect for Human Rights

Brazil, India, and South Africa have all sought to reform or even abandon their IIAs with the aim of protecting their policy space for perceived legitimate State action. However, have they succeeded in achieving this goal via their model IIAs and, in the case of South Africa, in its Protection of Investment Act? What approach has China taken on the issue or might take in the future? Does China uphold its traditional notions of absolute sovereignty and Third World solidarity, or does it seek strong investment protections to safeguard its economic interests abroad? To answer these questions, we will take a closer look at several relevant provisions, including preambles, the scope of legal instruments, and the most relevant classical legal provisions, such as NT, MFN, FET, and protections against expropriations. Further, we assess whether legal instruments provide for non-classical exception clauses supportive of public policy objectives. Finally, we shall briefly look at dispute settlement provisions, as limitations on dispute settlement procedures may also increase the policy space of host States by simply avoiding juridical scrutiny by international arbitrators.

5.3.1.1

Preamble and Objectives

Objectives listed in the preambles of IIAs serve a declaratory purpose, but they are also important for the interpretation of a treaty, in particular to shed light on its context and purpose.175 Traditional style BITs mostly contain short preambles only briefly restating parties’ intentions to intensify economic cooperation, the promotion of mutual investments, and to raise prosperity.176 Modern IIAs increasingly include more comprehensive preambles including references to the right to regulate,177 to sustainable development,178 to social aspects (e.g., human rights, labour and health

175

This follows from Article 31 para. 2 VCLT; see also: Dörr (2018), p. 585 (MN 55). See e.g. Germany-Pakistan BIT (1959). 177 According to UNCTAD’s IIA Mapping Project, of 174 IIA signed between 2010–2018, 25 contain such a reference or a comparable one. 178 According to UNCTAD’s IIA Mapping Project, of 174 IIA signed between 2010–2018, 61 contain such a reference. 176

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standards),179 and protection of the environment.180 One expects that arbitrators will take these changes into account when interpreting substantial clauses of respective treaties. However, thus far even most modern treaties concluded between 2010 and 2018 do not contain such references and only a small number contain several or all these references.181 Brazil, India, and South Africa all have turned towards highlighting regulatory autonomy in their legal instruments on investment protection. The Brazilian Model CFIA, like traditional IIAs, acknowledges the intention to increase economic cooperation and to create favourable conditions for bilateral investment, but also combines these formulations with more modern terms. For example it acknowledges the “essential role of investment in promoting sustainable development” (highlighting added). Importantly, it also reassures State parties’ “regulatory autonomy and policy space”. In a similar vein, India’s new Model BIT recognizes that the promotion and protection of bilateral investments “will be conducive to the stimulation of mutually beneficial business activity, the development of economic cooperation between them and to the promotion of sustainable development”, and also reaffirms “the right of Parties to regulate investment in their territory in accordance with their law and policy objectives”. However, neither the Indian nor the Brazilian Model nor the Brazil-India ICFA (2020) contain further references to human rights, the environment, or other more precise public interests. The South African approach is more progressive and explicit. The preamble of the South African Protection of Investment Act accepts in principle that investment is important in “job creation, economic growth, sustainable development, and the well-being of the people of South Africa”, the need to maintain “an open and transparent environment for investments”, and “that investment must be protected, in accordance with the law, administrative justice and access to information”. Still, the Protection of Investment Act also reaffirms the “government’s right to regulate in the public interest” and “the government’s commitment in respect of international law to ensure that human rights, fundamental freedoms and protection of peoples’ resources are adequately protected”. In response to the Foresti case, the preamble further highlights “the obligation to take measures to protect or advance persons, or categories of persons, historically disadvantaged in the Republic due to discrimination”. The preamble of the SADC Model also contains references to sustainable development and the right to regulate, including a section that stresses the particular needs of developing countries. In contrast, and due to prevailing practice in the 1990s, the Chinese Model BIT (1997) is rather brief in highlighting economic cooperation and mutual benefit, but

179

According to UNCTAD’s IIA Mapping Project, of 174 IIA signed between 2010–2018, 63 contain such a reference. 180 According to UNCTAD’s IIA Mapping Project, of 174 IIA signed between 2010–2018, 60 contain such a reference. 181 According to UNCTADs Mapping Project, only 11 IIAs contain all named references and 27 contain all except the reference to the right to regulate policy space.

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does not include any reference to States’ right to regulate, sustainable development, human rights, the environment, or other social and public concerns.182 Some of China’s more modern IIAs reflect reforms taking place in international investment agreements and have turned to incorporating references to public concerns in their preambles. Yet, there appears to be no clear Chinese approach on the matter, as Chinese BIT preambles are diverse. Two IIAs make a reference to sustainable development.183 Some BITs contain the rather vague statement, that the promotion and protection of investment can be achieved without “relaxing health, safety and environmental measures of general application”.184 Only the Australia-China FTA (2015) contains an explicit reference to the right to regulate of parties.185 Other IIAs make a more vague reference to the “economic sovereignty” of the parties.186

5.3.1.2

Substantial Scope

Limiting provisions on the substantial scope of an IIA is the most direct form of increasing a States’ policy space, as excluded sectors or particular measures, are simply not subject to the treaty and ISDS. Such limitations of the substantial scope of treaties are manifold. States have, for example, sought to exclude taxation,187 the granting of subsidies,188 and government procurement.189 Moreover, States may limit definitions of ‘investor’ and ‘investments’ in IIAs, to exclude protections for unwished forms of investment or certain groups of investors. Traditionally, most IIAs defined investment rather broadly, basically covering any asset having an economic value (so-called broad asset-based definitions).190 These broad definitions have, to some extent, been limited by arbitral tribunals applying the so-called Salini test. This test requires that an ‘investment’ must fulfil four

182

Chinese Model BIT (1997) Preamble. China-Uzbekistan BIT (2011) Preamble; China-Korea FTA (2015) Preamble. 184 See: China-Trinidad and Tobago BIT (2002), Preamble; China-Guyana BIT (2003) Preamble; China-Japan-Republic of Korea Trilateral Investment Agreement (2012) Preamble. 185 Australia-China FTA (2015) Preamble (State parties uphold “the rights of their governments to regulate in order to meet national policy objectives, and to preserve their flexibility to safeguard public welfare”). 186 China-Tanzania BIT (2013) Preamble (“Respecting the economic sovereignty of both States”); China-Guyana BIT (2003) (“Respecting the sovereignty and laws of the Contracting Party within whose jurisdiction the investment falls”). 187 According to UNCTAD’s IIA Mapping Project, of 2572 mapped treaties 270 IIAs contain such an exclusion, most of which have been signed in the twenty-first century. 188 According to UNCTAD’s IIA Mapping Project, of 2572 mapped treaties 89 IIAs contain such an exclusion, most of which have been signed in the twenty-first century. 189 According to UNCTAD’s IIA Mapping Project, of 2572 mapped treaties 81 IIAs contain such an exclusion, most of which have been signed in the twenty-first century. 190 See e.g. Qureshi and Ziegler (2011), p. 502; see on the historical evolution and broadening of what was considered an internationally protected investment: Sornarajah (2010), pp. 11 et seqq. 183

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conditions. It must: (a) involve a contribution of money or other assets of economic value; (b) exist for a certain duration; (c) contain an element of risk; and (d) contribute to the host State’s development.191 The last criteria, in particular, has the potential to substantially limit protected investments if interpreted narrowly. However, the validity of this test was questioned by subsequent arbitral awards,192 and the ‘contribution to the host State’s development’ criteria remains highly disputed.193 More recently, most concluded IIAs contain more detailed definitions of investment, often including lists of excluded assets or even exhaustive lists of covered assets.194 Modern BITs mostly combine an asset-based definition with an exemplary list of covered assets and a list of some excluded assets. In response to the cases brought against Argentina in the wake of its financial crisis, States have, for example, increasingly sought to exclude sovereign debt from definitions of investment.195 A small number of mostly newer IIAs have adopted an alternative ‘enterprise-based’ definition of investment.196 The exact meaning of such clauses has yet not been explored, but it appears that such definitions are not per se more restrictive.197 Rather, openness or restrictiveness of these clauses depends on the concrete wording. The SADC-Model BIT Template provides three options of how to draft definitions of investment: an enterprise-based definition (option 1), a closed-list assetbased definition (option 2), and an open-ended asset-based test (option 3). Of these three options, the third is the most expansive and favourable to investors. The SADC Model BIT considers option 1 to be the most restrictive and clear definition of investment and therefore promotes its inclusion in concrete IIAs.198 The commentary also recommends States to add the Salini requirements (particularly the fourth criterium) if adopting an asset-based definition, and for greater certainty also for the 191

This test has been developed in the context of interpreting the ICSID convention and is named after the case in which it was first applied, namely: Salini Construtorri S.p.A. and Italstrade S.p.A. v. Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction (23 July 2001). English Translation in International Law Monitor 42, pp. 609–624 and 622 (para. 52). For more on the historical development of these criteria and the interpretation of the term ‘investment’ under ICSID, see: Bischoff and Happ (2015), MN 17–44. 192 See with reference to later arbitration awards questioning the Salini-test and in particular the fourth criteria: Grabowski (2014). 193 For a critical discussion and overview, see e.g.: Bischoff and Happ (2015), MN 39. 194 According to UNCTAD’s IIA Mapping Project, of 2572 mapped treaties 2494 IIAs use an assetbased definition. 195 According to UNCTAD’s IIA Mapping Project, of 2572 mapped treaties 51 IIAs contain such a limitation to the definition of investor or exclude other specific assets. 196 According to UNCTAD’s IIA Mapping Project, of 2572 mapped treaties 28 IIAs contain enterprise-based definitions of investment. 197 Unfortunately, literature on enterprise-based definitions is sparse. Most general treatises of international investment law do not even mention such definitions. Sornarajah (2010), p. 10 (Fn. 28) briefly argues in a footnote that there is no substantial difference. 198 SADC Model BIT (2012) Commentary, pp. 12 et seq.

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enterprise-based definition. Still, neither the Model BIT itself, nor the commentary, provides any hint of how to define the ‘contribution to the host State’s development’ requirement. Apparently following the SADC Model BIT, the South African Protection of Investment Act adopts an enterprise-based definition of investment. According to that provision, an investment is any lawful enterprise established, acquired or expanded upon by an investor in accordance with the laws of the Republic; as well as the holding or acquisition of shares, debenture or other ownership instruments; and the holding, acquisition or merger of such an enterprise with another enterprise outside the Republic.199 The definition further includes aspects of the Salini requirements in relation to defining an enterprise (Article 2 para. 1 a): “committing resources of economic value over a reasonable period of time”) however refrains from referring to the ‘contribution to development’ requirement. In addition, the clause contains a broad list of which assets are protected by enterprises. Yet, this list is not exclusive,200 providing latitude for wide interpretation. Apart from defining investment, the act contains no clause on its scope which could further limit protected investments. Further, it must be noted that the Protection of Investment Act covers both national and foreign investment and thereby to some extent resurrects the Calvo Doctrine treating national and foreign investors alike.201 The Brazilian Model CFIA does not contain substantial limitations on scope. The CFIA’s provision on scope only contains the somewhat superfluous sentence that “[t] his agreement shall not prevent the adoption and implementation of new legal requirements or restriction to investors and their investments, as long as they are consistent with this Agreement”.202 The definition of investment is asset-based and contains both an open positive list of covered assets, as well as a negative list of excluded investments, such as public debt securities.203 However, none of these limitations aim to increase States’ policy space for the protection of human rights and other public concerns in a narrower sense. The Indian Model BIT (2016) adopts an enterprise-based definition of investment,204 with a rather narrow definition of enterprise, requiring the enterprise to be constituted, organised, and operated in compliance with the law of a Party.205 Technically enterprises that violate domestic law (e.g., labour law, safety standards or other human rights sensitive provisions) could be considered not to be “organised and operated in compliance with the law of a Party” and lose the treaty’s protections,

199

South African Protection of Investment Act (2015) Article 2 para 1 a)–c). South African Protection of Investment Act (2015) Article 2 para. 2 (The clause only states that “an enterprise may possess assets such as, amongst others”). 201 Forere (2018), p. 266. 202 Model CFIA (2015) Article 2 para. 4 (emphasis added). 203 Model CFIA (2015) Article 3 para. 1.3. 204 Indian Model BIT (2016) Article 1 para. 4. 205 Indian Model BIT (2016) Article 1 para. 3 (i). 200

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e.g. engagement in corruption or violation of labour laws. It remains to be seen whether arbitrators would interpret the clause that far, or whether they would limit respective laws to more technical rules of organisation and operation, for example correct establishment of an enterprise under company law. The Indian clause on investment further provides both an open list of protected assets and a negative list of excluded assets (also excluding public debt securities).206 In addition, enterprises are required to fulfil all four Salini requirements, including the characteristic of being of significance for the development of the Party in whose territory the investment is made.207 Yet the Model remains silent on how to further define the Salini requirements, leading to considerable uncertainties.208 Moreover, the Indian Model BIT contains a restrictive clause on the scope of the treaty (Article 2). First, it excludes pre-establishment investment activities, which is very common but nonetheless worth mentioning. Article 2 para. 4 further excludes the following measures from the scope of the treaty: those taken by local governments;209 taxation and its enforcement; several infringements on intellectual property rights consistent with TRIPS, including the issuance of compulsory licenses; government procurement; subsidies or grants; and services supplied in the exercise of governmental authority. On taxation the clause is even self-judging.210 Such selfjudging language increases the discretion of States, but this discretion is still subject to a good faith test.211 Notably, the exclusion of local government measures provides for a potentially broad limitation of the scope of the treaty, depending on the respective treaty States’ domestic distribution of executive and legislative competences. The Chinese Model BIT 1997 contains a very broad asset-based definition of investment with no list of excluded assets212 and no clause on the scope of the treaty that could further limit its protection. However, a small number of both older and newer IIAs concluded by China contain some typical limitations of scope, for

206

Indian Model BIT (2016) Article 1 para. 4 (i). Indian Model BIT (2016) Article 1 para. 4. 208 See for a critical appraisal of the clause and a summary of inconclusive arbitration awards on the subject matter: Ranjan and Anand (2018), pp. 20 et seq. with further references. 209 A definition of local government is included in Article 1 para. 7. Further, local governments must be discerned from Sub-National State governments or Union Territory administrations, see Article 1 para. 12. 210 The clause reads: “For greater certainty, it is clarified that where the State in which investment is made decides that conduct alleged to be a breach of its obligations under this Treaty is a subject matter of taxation, such decision of that State, whether before or after the commencement of arbitral proceedings, shall be non justiciable and it shall not be open to any arbitration tribunal to review such decision.” (Highlighting is my own). 211 Burke-White and von Staden (2008), p. 370; Schill and Briese (2009); Salacuse (2010), p. 345. 212 Chinese Model BIT (1997) Article 1 para. 1. 207

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example excluding taxation,213 subsidies and grants,214 and government procurement.215 As only a limited number of treaties contain such clauses, and there appears also to be no temporal pattern surrounding their application, it is assumed here that treaty partners have required that these clauses be included. Regarding the definition of investment, most modern Chinese BITs also contain some limitations, but again no real pattern is observable. Of the 41 Chinese IIAs concluded between 2000–2020, only five list required characteristics of investment (some requirements of the Salinitest), two set an exhaustive list of covered assets, and three exclude some specific assets (e.g., sovereign debt).216

5.3.1.3

Non-Discrimination

Clauses on non-discrimination—including national treatment—and MFN provisions—can be found in the great majority of existing IIAs.217 These are the most classic protections of international investment law.218 Most existing IIAs today limit non-discrimination to the post-establishment phase of an investment, allowing States to regulate and limit FDI market-entry.219 At the multilateral level, the WTO TRIMS agreement contains some limitations on States’ ability to regulate the entry of investors and investment, such as the prohibition of performance requirements (e.g., local content requirements). Despite a strong push by the OECD and World Bank in the second half of the twentieth century for the liberalisation of the conditions of entry of foreign investment, many States today continue to extensively control the entry of foreign investment, or have begun to do so, for a variety of reasons, including to protect national security, public morality, and public health, or simply to protect certain economic policies or sectors.220 Only a minority of States, but importantly also the United States, have promoted and accepted commitments

213

According to UNCTAD’s IIA Mapping Project, of 112 mapped Chinese IIAs, 8 IIAs contain such a limitation of scope. 214 According to UNCTAD’s IIA Mapping Project, of 112 mapped Chinese IIAs only one contains such a limitation of scope, namely the Australia-China FTA (2015). 215 According to UNCTAD’s IIA Mapping Project, of 112 mapped Chinese IIAs only two IIAs contain such a limitation of scope, namely the Australia-China FTA (2015) and the China-Japan BIT (1988). 216 Numbers are based on UNCTAD’s IIA Mapping Project. 217 According to UNCTAD’s IIA Mapping Project, of 2572 mapped treaties 378 contain no NT clause and only 38 do not contain an MFN provision. 218 For an overview, see: Reinisch (2015); It must be noted that even the notorious Calvo Doctrine embraced national treatment, albeit in that case national treatment was understood as limiting the protections of foreigners rather than enlarging them. 219 According to UNCTAD’s IIA Mapping Project, only 165 out of 2572 mapped treaties cover the pre- and post-establishment phase. 220 See: Mestral (2015), at MN 2 with further references.

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with respect to the pre-entry phase.221 Still, these IIAs often contain sectoral exceptions for certain industries which are considered to be strategically important or not strong enough to resist foreign competition.222 Despite existing discretion, national treatment as well as MFN may in some instances be contrary to development—or redistribution strategies. Examples include instances in which States pursue discriminatory infant industry support policies to industrialize their economies, or affirmative action policies designed to address historical injustices.

National Treatment Brazil, India, and South Africa: Narrowing NT by Defining ‘Like Circumstances’ Brazil, India, and South Africa have reformed their approach to NT provisions in their IIA models and domestic legislation. In particular, new clauses have become more detailed and seek to protect public policy space by bringing in public interest considerations into the determination of ‘like circumstances’—a central criteria for determining a violation of NT and MFN provisions. None of their NT provisions cover pre-entry rights of investors. According to the Brazilian NT provision, the determination of ‘like circumstances’ depends on “whether the relevant treatment distinguishes between investors or investments on the basis of legitimate public interest objectives”.223 In other words, discrimination is justified when serving public concerns. Potentially, this could involve development policies such as infant industry support and redistributive and affirmative action policies. Similar to the Brazilian CFIA, the Indian Model BIT proclaims that the assessment of ‘like circumstances’ depends on “the totality of the circumstances, including whether the relevant treatment distinguishes between investors or investments on the basis of legitimate regulatory objectives.” It further provides an exemplary list of relevant circumstances, including “(a) the goods or services consumed or produced by the investment; (b) the actual and potential impact of the investment on third persons, the local community, or the environment, (c) whether the investment is public, private, or state-owned or controlled, and (d) the practical challenges of regulating the investment”.224 Provision b) in particular aims to increase States’ policy space to protect the human rights of affected populations and the environment. However, it is not entirely clear why such an exemption from NT is necessary.

221 See for an overview: Mestral (2015) Examples include U.S. Model BIT (2004) Article 3 and NAFTA (1993) Article 1102 para. 1, 1103 para. 1 and 1106 para. 1. 222 See e.g. NAFTA, Annex I, at I-C-10, I-M-55, I-U-13; Annex II, at II-C-9, II-M-11, II-U-5. 223 Model CFIA (2015) Article 5 para. 3. 224 Fn. 2 of Article 4 Indian Model BIT (2016).

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India should prevent both domestic as well as foreign investors from negatively impacting third persons or the environment. If it does that, it respects NT. The South African Protection of Investment Act contains a provision on the establishment of investments but only for the purpose of explicitly stating that investments must be established in compliance with domestic law and that the Act does not create a right for prospective investors to establish investments in South Africa.225 This is in line with recommendations in the SADC Model BIT Template.226 Much like the Indian Model BIT, the South African Protection of Investment Act covers NT but defines ‘like circumstances’ in a limited way. The provision, almost word-by-word, is taken from the SADC-Model BIT Template.227 It allows States to take into account a number of factors, when determining like circumstances, including but not limited to the following criteria: (a) effect of the foreign investment on the Republic, and the cumulative effects of all investments; (b) sector that the foreign investments are in; (c) aim of any measure relating to foreign investments; (d) factors relating to the foreign investor or the foreign investment in relation to the measure concerned; (e) effect on third persons and the local community; (f) effect on employment; and (g) direct and indirect effect on the environment.228

According to the commentary to the SADC-Model BIT Template this list is provided to ensure “that a broad view is taken, rather than simply a narrow question of whether the investors are in the same or a related or competitive sector, an approach seen in a number of earlier arbitrations”. It also aims to take the reasons for an adopted measure into account rather than making a judgement solely based on the financial impact.229 Listed criteria reach even further than the criteria in the Indian Model BIT. As with the Indian Model BIT it is not entirely clear why discriminatory measures are needed to prevent adverse effects on third persons or the local community. Further, the provision contains a list of measures that are exempted from NT as their benefits must not be extended to foreign investors. This list contains benefits stemming from: (a) taxation provisions in any international agreement or arrangement or any law of the Republic; (b) government procurement processes; (c) subsidies or grants provided by the government or any organ of state;

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South African Protection of Investment Act (2015) Article 7 paras. 1–2. SADC Model BIT (2012) Article 3. 227 SADC Model BIT (2012) Article 4 paras. 1–3. 228 South African Protection of Investment Act (2015) Article 8 para. 2. 229 SADC Model BIT (2012) Commentary, p. 21. 226

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(d) any law or other measure, the purpose of which is to promote the achievement of equality in South Africa or designed to protect or advance persons, or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender or disability in the Republic; (e) any law or other measure, the purpose of which is to promote and preserve cultural heritage and practices, indigenous knowledge and biological resources related thereto, or national heritage; or (f) any special advantages accorded in the Republic by development finance institutions established for the purpose of development assistance or the development of small and medium businesses or new industries.

Points (a)–(c) contain rather common exceptions however (d) and (f) are more interesting. Point (d) is a clear response to the Foresti case shielding black economic empowerment policies from legal challenge. Provision (f) contains a development exception which goes beyond the allowance of subsidies in provision (c) and allows for other special advantages for small and medium businesses and even whole industries (if they are new). China: From Gradually Enlarging NT to Pre-Established Rights? China historically has been reluctant to accept national treatment clauses. For example, China’s 1997 Model BIT subjects the guarantees of reasonable, non-discriminatory, and national treatment to the laws and regulations of host States.230 Within its treaty practice China has become more flexible,231 but up until now shied away from completely embracing NT. The China-Canada BIT (2012), for example, does not contain the ‘subject to laws and regulations of host States’ formulation and only exempts several sectors from NT treatment.232 A number of other Chinese IIAs contain so-called ‘freezing clauses’ or ‘grandfather clauses’, allowing China to maintain already established discriminatory measures, but prevent the State from increasing levels of inconsistency.233

230

Chinese Model BIT (1997) Article 2 paras. 2 and 3; this indicates that the provision only prohibits discriminatory means other than laws and regulations, see: Shan and Gallagher (2013), p. 157. 231 Only some recent BITs with developing countries are consistent with the Chinese Model BIT (1997), see; China-Tanzania BIT (2013), Article 3 para. 1 (“Without prejudice to its applicable laws and regulations, with respect to the operation, management, maintenance, use, enjoyment, sale or disposition of the investments in its territory, each Contracting Party shall accord [. . .]”); see also: China-Uzbekistan BIT (2011) Article 3. 232 See: Canada-China BIT (2012) Article 6 para. 3. 233 See e.g. China-Bosnia and Herzegovina BIT (2002) Protocol, Ad Article 3, paragraph 1; Germany-China BIT (2003) Protocol, Ad Article 2 and 3; Finland China BIT (2004) Protocol, Ad Article 2, paragraph 3 and Article 3, paragraphs 2 and 3; China-New Zealand FTA, Article 138; for a further analysis see: Gallagher and Shan (2009), pp. 65 and 90; Sauvant and Nolan (2015), p. 923.

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In recent years a further liberalization regarding national treatment appears to have emerged in Chinese domestic and international practice. Thus far, the country requires that all new foreign investments obtain government approval.234 But since its Twelfth Five-Year Plan, the Chinese government has sought further liberalization of its regulatory limitations to both in- and outbound investment and has adopted some measures and legislation to further open-up its economy to foreign investors.235 Still, government approval remains the general rule with only some exceptions.236 These efforts might explain why China appears to be more open towards embracing pre-entry national treatment in recent treaty practice and treaty negotiations. Among its more recent IIAs, the Australia-China FTA (2015) covers pre-entry national treatment. However, the clause curiously only requires Australia to grant national treatment for the establishment and acquisition (pre-entry) of investments, while China must only grant national treatment with regard to the expansion (explicitly defined in a footnote to be limited to the expansion of an existing investment not the establishment or acquisition of a new investment), management, conduction, operation and sale or other disposition of investments.237 Pre-establishment national treatment, however, is only subject to State-State dispute settlement but not ISDS.238 The China-Taiwan FTA investment chapter does not cover pre-entry national treatment but in an Annex states the Parties’ intention to base subsequent negotiations on a negative list approach covering the pre-establishment phase of investment.239 The China-Hong Kong Investment Agreement (2017) appears to be the first Chinese IIA to cover both pre-entry national treatment for Chinese as well as for its partner’s investors and investments that are only subject to a negative list of excluded non-rollback measures and some sectors.240 Yet, this pre-entry negative list approach might be explained by Hong Kong’s status as a special administrative region of the PRC. Still, the clause might provide an important avenue for foreign investors who already channel their investments into China through Hong Kong. Importantly, ongoing negotiations of a United States-China BIT seem to cover pre-entry national treatment, with only a negative list of excluded sectors (like in NAFTA).241 Despite U.S. President Trump’s clear anti-China rhetoric it appears that these negotiations have been revived under his administration and the United States

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Bath (2018), p. 56. Bath (2018), p. 56. 236 See for an overview of experiments pursued in Shanghai and exceptions for Taiwanese investors: Bath (2018), pp. 56 et seq. 237 Australia-China FTA (2015) Article 9.3 para. 1–4. 238 Australia-China FTA (2015) Article 9.12 and Fn. 5. 239 See: China-Korea FTA (2015) Annex 22-A, A.3. 240 China-Hong Kong CEPA Investment Agreement (2017) Article 5 para. 1–2 (covering the establishment and acquisition of investments), Annex 2 (exclusions). 241 Shan and Gallagher (2013), p. 160; Sauvant and Nolan (2015), p. 923 with further references. 235

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reportedly seeks broader access for U.S. investors to the Chinese market,242 very likely indicating pre-entry national treatment. It remains to be seen whether China is really willing to give up its market access protections with regard to such a strong economy like the United States. Equally, it is unclear how the United States under Biden may position itself on the issue.

Most-Favoured-Nation Treatment To protect investors from discrimination regarding other foreign investors active in the host State, most traditional BITs provide MFN clauses. As noted above, arbitral tribunals have applied such clauses not only to cover domestic preferential treatment but also allowed investors to rely on favourable provisions provided for in BITs of host States with third States. This interpretation has led to a multilateralization of bilateral investment agreements243 even though initiatives to negotiate a multilateral investment agreement have repeatedly failed. Such multilateralization, while equalizing the legal treatment of investors from different States, also has the effect of ratcheting up protections for investors as they can cherry-pick the most investorfriendly provisions from the plethora of respective host-State IIAs (if these provisions are not based strictly on one model BIT). As seen above this multilateralization is contested when applied to ISDS provisions. All States under examination here have reformed their approach on MFN but to very different extents. Both Brazil and China include MFN provisions however increasingly explicitly exclude their application to dispute settlement provisions. They have also included additional exclusions. The MFN clause of the Brazilian Model CFIA explicitly excludes dispute settlement provisions and agreements for regional economic integration, free trade areas, and customs union or common markets of partner countries.244 As Brazil has not concluded investment treaties which would cover ISDS245 and provisions in CFIAs do not markedly differ from each other246 the exclusion appears to be to some extent redundant.247 Nevertheless, it prevents Brazilian investors from relying on ISDS provisions in IIAs of host States with third countries. Further, the CFIA’s MFN clause contains a similar provision as in its NT clause which clarifies that “whether treatment is accorded in ‘like circumstances’ depends on the totality of the circumstances, including whether the relevant

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Talley (2017). See: Schill (2009) and Schill (2014). 244 Model CFIA (2015) Article 6. 245 See for more details below Sect. 5.3.1.6. 246 See for a comprehensive overview: Ratton Sanchez Badin and Morosini (2018), pp. 223 et seqq. 247 Some commentators have suggested that these MFN limitations might protect Brazil from becoming a respondent in ISDS cases via MFN clauses, see: Ratton Sanchez Badin and Morosini (2018), p. 228. This is not correct, as MFN would only allow investors to make use of provisions in other IIAs of the host country, but Brazil has not ratified such IIAs. 243

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treatment distinguishes between investors or investments based on legitimate public welfare objectives”.248 All of China’s IIAs contain MFN clauses.249 China’s first-generation BITs contain some limitations, however China has subsequently adopted broad MFN clauses.250 Following the general trend, China—like Brazil—has excluded ISDS clauses from the scope of its MFN provisions.251 In the case of China this may be of special importance. As outlined above, early Chinese BITs only contained limited ISDS provisions. In consequence, investors sought to use MFN provisions to import ISDS provisions of more liberal IIAs of host States with third countries. However, tribunals have found other solutions to overcome the supposedly narrow jurisdiction under Chinese BITs, namely interpreting limited ISDS jurisdiction extensively.252 This development, together with the fact that newer Chinese IIAs provide broad jurisdiction for ISDS, indicates that the exclusion of ISDS from the scope of MFN may be of limited practical significance. India and South Africa have taken more radical approaches. Neither the Indian Model BIT, nor the South African Protection of Investment Act contain MFN provisions. In the case of India this absence clearly is a response to the White Industries award.253 As several older Indian BITs are still in force, the lack of MFN provisions in new agreements will prevent investors from relying on more investor-friendly provisions in older BITs. The SADC-Model BIT Template recommends against including an MFN provision in IIAs because the Drafting Committee sought to prevent an “unintended multilateralization” of bilateral treaties and also noted that MFN treatment has been interpreted “unexpectedly” by arbitrators “making it very unpredictable in practice”.254 In line with that argument, the South African Protection of Investment Act completely avoids an MFN clause. While these MFN limitations are notable for reducing uncertainty, some caveats exist. The problem with the exclusion of MFN treatment is that it does not only preclude the multilateralization of investment agreements but also allows States to domestically discriminate against foreign investors based on their nationality or

248

Model CFIA (2015) Article 6 para. 4. All of the 122 Chinese investment treaties mapped by UNCTAD’s IIA mapping project contain MFN clauses. 250 Shan and Gallagher (2013), pp. 160 et seq. 251 See e.g.: China-New Zealand FTA (2008) Article 139 para. 2; China-Colombia BIT (2008) Article 3 para.3; ASEAN-China Investment Agreement (2009) Article 5 para. 4; China-Uzbekistan BIT (2011) Article 3 para. 3; China-Japan-Korea Trilateral Investment Agreement (2012) Article 4 para. 3; Australia-China FTA (2015) Article 9.4 para. 2. 252 See e.g. Señor Tza Yap Shum v. The Republic of Peru, ICSID Case No. ARB/07/6, Decision on Jurisdiction and Competence (only available in Spanish) (19 June 2009), Decision on Annulment, paras. 72 et seqq. 253 White Industries Australia Limited v. Republic of India, UNCITRAL, Final Award (30 November 2011). 254 SADC Model BIT (2012) Commentary, p. 22. 249

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home State.255 Keeping MFN but excluding its application to ISDS, or even all provisions found in other BITs, would probably have better served the interests of India and South Africa, in particular because both countries are also important capital exporters.

5.3.1.4

Fair and Equitable Treatment

FET has become the most invoked clause in international investment arbitration.256 As outlined in Chap. 4, its vague wording has led some arbitration tribunals to adopt extensive interpretations, limiting States’ policy space in an overly restrictive way. Therefore, several States seek to narrow down FET clauses in their IIAs. Approaches include: providing detailed lists of what is covered by FET and what excluded, and tying FET to customary international law. The effectiveness of the latter approach however appears less promising than that of the former, as customary international law is itself open to vast interpretation. Exclusive lists of protections under FET can limit problematic notions of legitimate expectations with certainty, for example by limiting protected expectations to those stemming from specific agreements between the investor and the government.257

Brazil, India, and South Africa: From Fair and Equitable- to Fair Administrative Treatment Brazil, India, and South Africa omitted including explicit FET clauses in their model IIAs and domestic legal investment protections. Nonetheless, all three States have included some aspects of FET in their legal instruments. Article 4 of the Brazilian Model CFIA (“Admission and treatment”) grants investors and investments “treatment according to the due process of law” and obliges State Parties to “ensure that all measures that affect investments are administered in a reasonable, objective and impartial manner, in accordance with their respective laws and regulations” (para. 3). On the one hand, the clause appears rather vague as ‘reasonable treatment’ is not a clearly defined legal term. On the other hand, the clause limits this ‘reasonable treatment’ to the administration phase, implicitly excluding legislative measures. This impression is strengthened by the wording “in accordance with their respective laws and regulations”. The omission of other aspects of FET (e.g., legitimate expectations regarding legislation) appears intentional, attempting to limit expansive interpretation. Still, Brazilian officials could have drafted the provision with more precision, for example by including a negative list. Interestingly the Brazil-India

255

See with regard to the case of India: Ranjan and Anand (2018), p. 20. See on the importance of FET e.g.: Schreuer (2005); Dolzer (2005); for an in-depth study of its contents, see e.g.: Tudor (2009). 257 See e.g. CETA (2016) Article 8.10 para. 4. 256

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ICFA (2020) provision on “Treatment of investments” (Article 3) is clearer, following the Indian approach to which we shall now turn. In that regard the Indian provision on “Treatment of Investments” (Article 3) is clearer. The Article contains an exclusive list of protections. It also contains a reference to customary international law which in my eyes complicates the matter. The provision essentially states that Parties shall not subject foreign investors to “measures which constitute a violation of customary international law through” the following listed examples: “denial of justice in any judicial or administrative proceedings”, “fundamental breach of due process”, “targeted discrimination on manifestly unjustified grounds, such as gender, race or religious belief”, and “manifestly abusive treatment, such as coercion, duress and harassment”. Importantly, the list does not cover notions of legitimate expectation. The reference solely to customary international law could provide a backdoor for arbitrators to bring in broader interpretations of FET.258 Still, the listed-examples-approach and the connection with the word “through” (instead of providing only a list of examples) should guard against such vast interpretations. The SADC and South African approaches on FET resemble the Brazilian approach but are more detailed and explicit. The commentary of the SADC Template argues that FET in the past has been interpreted expansively.259 It further suggests that a mere reference to customary international law “does not appear, as a result of some arbitral decisions and academic writings, to suffice to restrain arbitrator creativity in this regard.”260 In consequence, the South African Government has developed and proposed an alternative provision entitled “Fair administrative treatment”261 which has been promoted by the SADC-Model BIT and now replaces FET in the South African Protection of Investment Act. This new provision seeks to avoid most controversial elements of FET, while still providing for some protections.262 Somehow contrary to its title, ‘Fair administrative treatment’ also requires governments to “ensure [that] administrative, legislative and judicial processes do not operate in a manner that is arbitrary or that denies administrative and procedural justice to investors”. A caveat limits these protections to those provided for in the Constitution and applicable legislation. In line with its title, the provision further grants investors the “right to be given written reasons and administrative review” with regard to administrative decision-making processes and a “right to have access to government-held information in a timely fashion” in respect of their investments.263 Through limiting Fair Administrative Treatment to protections against arbitrary treatment and to guarantees for access to judicial and administrative justice,

258

See in that direction: Ranjan and Anand (2018), p. 30. SADC Model BIT (2012) Commentary, p. 22. 260 SADC Model BIT (2012) Commentary, p. 23. 261 SADC Model BIT (2012) Commentary, pp. 22 et seqq. (on p. 24 the commentary notes that the provision has been developed by South Africa). 262 SADC Model BIT (2012) Commentary, p. 24. 263 Article 6 para. 2–3. 259

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South Africa limits classical FET protections and excludes notions of legitimate expectations with regard to the legislature.

China as a Loyalist Supporter of FET? Nearly all Chinese BITs264 and its 1997 Model BIT265 contain FET clauses. For historical reasons (traditional wariness against the international minimum standard) China’s initial BITs avoided reference to customary international law, but more recently some Chinese BITs have connected FET with international customary law (or simply international law).266 Some treaties additionally state that FET does not require anything “in addition to or beyond that which is required by the international law minimum standard of treatment of aliens”.267 It appears the drafters sought to narrow the content of FET by tying it to the customary minimum standard. The problems of such an approach have already been explained above. What appears more promising is the approach taken in the China-Colombia BIT which provides for a list of exemplary elements of FET.268 Still, the open-ended nature of this list leaves substantial discretion to arbitrators. A clear but radical solution has been promoted in the Australia-China FTA investment chapter which completely avoids an FET or similar clause. However, this omission might be due to the preliminary character of this FTA’s investment chapter which has left many issues open to future negotiation.269 The China-Tanzania BIT (2013) contains a less radical but still restrictive solution. The FET provision makes no reference to customary international law but narrowly states that investors “shall not be denied fair judicial proceedings by the other Contracting Party or be treated with obvious discriminatory or arbitrary measures”.270 The most recent Chinese investment agreement with Hong Kong is also the most restrictive and the clearest. It defines FET in a similar way as the China-Tanzania BIT to grant access to justice, due process of law, and protections

264

The IIA Mapping project lists only 4 out of 112 mapped Chinese investment treaties that do not explicitly contain FET clauses. See also: Sauvant and Nolan (2015), p. 921. 265 Article 3 Chinese Model BIT: 266 See e.g. China-Cyprus BIT (2001) Article 9 para. 7; China-Czech Republic BIT (2005), Article 9 para. 5; China-Mexico BIT (2008), Article 5 para. 2; China-Colombia BIT (2008) Article 2 para 3–4; China-Japan-Republic of Korea Trilateral Investment Agreement (2012) Article 2 para. 3–4. 267 China-Mexico BIT (2008) Article 5 para. 2; China-Japan-Korea Trilateral Investment Agreement (2012) Article 3 para. 2; China-Colombia BIT (2008) Article 2 para. 3–4; China-Canada BIT (2012), Article 4; China-Republic of Korea FTA (2015), chapter 12 (investment), Article 12.5 para. 2. 268 See: China-Colombia BIT (2008) Article 2 para. 4 c) (“’Fair and Equitable Treatment’ includes the prohibition against denial of justice in criminal, civil, or administrative proceedings in accordance with the general accepted principles of customary law.”). 269 Australia-China FTA (2015) Chapter 9 (investment). 270 China-Tanzania BIT (2013) Article 5 para. 2.

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against “manifest discriminatory or arbitrary measures”.271 In addition, it explicitly excludes the protection of legitimate expectations by stating that “[f]or greater certainty, the mere fact that one side takes or fails to take an action that may be inconsistent with an investor’s expectations does not constitute a breach of this Article, regardless of whether there is loss or damage to the covered investment as a result.”272 All in all, it again appears that a clear Chinese stance on FET is lacking. If China takes its newest investment agreement with Hong Kong as a model, then the new approach is rather restrictive. However, if future FET clauses only include references to customary international law and open lists, then broad interpretations remain both possible and likely.

5.3.1.5

Expropriation and Compensation

Clauses subjecting expropriations to certain criteria, most notably related to compensation, can be found in almost all IIAs.273 Chapter 4 has already highlighted that regarding States’ policy space to pursue legitimate public concerns, notions of indirect expropriation are the most troublesome. We have also seen that most more recent awards, in principle, recognise host States’ right to regulate274—albeit not all of them275—with the consequence that States are not required to pay compensation when “in the normal exercise of their regulatory powers, they adopt in a non-discriminatory manner bona fide regulations that are aimed at the general welfare”.276 Moreover, treaty practice has increasingly sought to properly define indirect expropriations and to include explicit exceptions for bona fide regulatory measures. Still, as arbitral practice remains not fully conclusive and no uniformly applied criteria exist to shield legitimate regulation from requiring compensation under expropriation clauses,277 much depends on the concrete BIT in question.

271

China-Hong Kong CEPA Investment Agreement (2017) Article 4 para. 2 (i). China-Hong Kong CEPA Investment Agreement (2017) Article 4 para. 2 (i). 273 According to UNCTAD’s Mapping project, only 8 out of 2572 mapped treaties do not contain an expropriation clause. 274 Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award (17 March 2006), para. 255; see also: Philip Morris Brands Sarl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award (8 July 2016), para. 307, 420; with further references: Barker (2017), pp. 234 et seqq. 275 See for a narrower interpretation e.g. Daimler Financial Services AG v. Argentine Republic, ICSID Case No. AR/05/1, Award (22 October 2012), para. 100. 276 Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award (17 March 2006), para. 255. 277 Numerous concepts exist of how to strike a better balance between the concerns of investors and legitimate public interests, such as, allowing States wide discretion in exercising their ‘police powers’, to decrease the standard of review in cases in which public concerns are affected, or to require a strict proportionality test between the effect of the investment and the public interest 272

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Brazil The expropriation clause in the Brazilian Model CFIA, at first sight, is similar to traditional BIT expropriation clauses.278 The clause requires nationalizations and expropriations to be non-discriminatory, to follow a public purpose, and requires payment of compensation in accordance with due process of law.279 Compensation must be paid without undue delay, equivalent to the fair market value, and is completely payable and transferable, essentially in line with the classical Hullcriteria.280 However, in deviation from classical expropriation clauses the Brazilian Model CFIA explicitly excludes indirect expropriations from the scope of the expropriation clause.281 Some already signed CFIAs are less clear as they do not contain such an explicit exemption. Still, they include the qualification “directly” before nationalization and expropriation282 and should therefore be interpreted as excluding indirect expropriations as well. This rather radical approach appears to be a consequence of constitutional concerns that also led to the non-ratification of earlier BITs (which contained broad-based expropriation clauses). The solution fully reclaims policy space and excludes any eventualities of how investors might achieve compensation for indirect takings.

India In contrast to the Brazilian model, the Indian Model BIT covers both direct and indirect expropriations.283 Nevertheless, the provision provides an unusually precise definition of indirect expropriation, requiring a measure that “has an effect equivalent to direct expropriation, in that it substantially or permanently deprives the investor of the fundamental attributes of property in its investment, including the right to use, enjoy and dispose of its investment, without formal transfer of title or

behind [of concern to ?] the regulatory measures. Still, so far none of these proposals appear to have achieved the status of a new prevailing opinion, neither in literature, nor in practice. 278 Model CFIA (2015) Article 7; see also: Bernasconi-Osterwalder and Dietrich Brauch (2015), p. 8. 279 Model CFIA (2015) Article 7 para 1 a)–d). 280 While wording in BITs on the requirements of compensation are quite diverse, it appears that most treaties are built on some variation of the Hull-Formula, requiring compensation to be prompt (“without undue delay”), adequate (“equivalent to fair market value”) and effective (“Be completely payable and transferable”) See e.g.: Salacuse (2010), pp. 324 et seqq. 281 Article 7 para. 5 (“For greater certainty, this article only provides for direct expropriation, where an investment is nationalized or otherwise directly expropriated through formal transfer of title or ownership rights.”). 282 See e.g. Brazil-Malawi BIT (2015) Article 8 para. 2. 283 Indian Model BIT (2016) Article 5 para. 1 (“Neither Party may nationalize or expropriate an investment of an investor [. . .] either directly or through measures having an effect equivalent to expropriation”).

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outright seizure.”284 Thereby, India sets a high threshold for a measure to qualify as an indirect expropriation. Moreover, the provision demands a case by case assessment of whether an equivalent effect is prevalent by taking into account the economic impact of a measure, the duration of the measure, the character of a measure (including its object, context and intent), and whether the measure breaches Party’s prior binding written commitment by contract, licence, or other legal document.285 The clause thereby combines an effects-test with the requirement of taking into account the particular circumstances as well as object and intent behind a measure. Also, the provision clarifies that a negative economic impact to the value of an investment is not enough to constitute an indirect expropriation.286 Even more, the following para. 5.5 of the clause states that non-discriminatory regulatory measures or awards by judicial bodies of a Party that are designed and applied to protect legitimate public interest or public purpose objectives such as public health, safety, and the environment shall not constitute expropriation under this Article.

This narrowly framed definition, and the broadly framed exception, arguably tilt the balance in favour of host-States. Still, the assumption that the provision leaves “a major gap in protection of foreign investment”287 is exaggerated. To shield against misuse by host States the clause requires measures to be of non-discriminatory character and designed and applied to protect public purposes of which several examples are given. Still, other States have framed exceptions more narrowly and/or have added further requirements, such as due process, being adopted in good faith, and the like.288 India clearly has sought to curb protections against indirect expropriations substantially and provide host States with vast discretion. Regarding compensation the Indian Model BIT’s provision on expropriation contains two of the three Hull criteria for compensation (adequate and effective),289 with the requirement of compensation being ‘prompt’ missing. Aside from that, the Model contains an interesting innovative provision in Article 26 para. 3. According to that provision, monetary awards for expropriation and other claims by investors shall be reduced by mitigating factors related to current and past use of the investment, the history of its acquisition and purpose, compensation received by the investor from other sources, any unremedied harm or damage that the investor has caused to the environment or local community or other relevant considerations regarding the need to balance public interest and the interests of the investor.290

284

Article 5 para. 3 a) (ii) Indian Model BIT. Article 5 para.3 b) (i)–(iv). 286 Article 5 para.3 b) (i). 287 Ranjan and Anand (2018), p. 35. 288 See e.g.: EU-Canada CETA (2016) Annex 8-A(3); see also the discussion of the Chinese expropriation clause below. 289 Indian Model BIT (2016) Article 5 para. 2. 290 Indian Model BIT (2016) Article 26 para. 3, Fn. 4. 285

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According to Trubek and Rolland, this clause was inspired by negative experiences with investors (such as the Bhopal disaster).291 As we will see below this approach also closely resembles the approach taken in the South African Protection of Investment Act and the SADC Model BIT Template.

China All older generation Chinese BITs and the most recent Chinese Model BIT contain classic expropriation clauses.292 In some regards modern treaty practice has become more investor friendly on expropriation compared to China’s older generation BITs. Older Chinese BITs had required expropriations only to follow “local legal procedure” instead of the more common objective “due process of law”.293 China’s 1997 Model BIT already referred to the more objective “under appropriate legal procedure”.294 More modern IIAs, however, contain the ordinary due process requirement.295 With regard to compensation, Chinese clauses contain no distinctive deviations from the Hull Criteria.296 More recent IIAs also contain more detailed clauses, for example providing for exceptions regarding States’ right to regulate. Indirect expropriations are covered by nearly all Chinese IIAs.297 In line with general trends, more recent Chinese IIAs contain more precise definitions of indirect expropriations.298 These clauses deviate from the ‘sole effects’ test. While indirect expropriations are still defined as having an effect equivalent to direct expropriations without formal transfer of title, clauses further require a case-by-case inquiry that takes into account the economic impact, reasonable expectations of investors arising out of their investments, whether

291

Trubek and Rolland (2018), p. 398; see also their updated version of the paper in: Rolland and Trubek (2019). pp. 75 et seqq. 292 Chinese Model BIT (1997) Article 4; for an overview of BIT practice see: Shan and Gallagher (2013), p. 163. 293 Shan and Gallagher (2013), p. 163. 294 Article 4 para. 1. b) 1997 Model BIT. 295 See e.g.: China-Japan-Korea Trilateral Investment Agreement (2012), Article 11 para. 1 c) (“in accordance with its laws and international standard of due process of law”); China-Colombia BIT (2008) Article 4 para. 1 b) (“under domestic legal procedure and respecting due process”); ChinaTanzania BIT (2013) Article 6 para. 1 b) (“in accordance with domestic legal procedure and relevant due process”). 296 Shan and Gallagher (2013), p. 164; see also: Gallagher and Shan (2009), chapter 7; see e.g. Chinese Model BIT (1997) Article 4 para. 2. 297 According to the IIA Mapping Project, 110 out of 112 mapped Chinese treaties cover indirect expropriations. 298 See e.g. China-India BIT (2006) Protocol, III. Ad Article 5; China-Colombia BIT (2008) Article 4 para. 2; China-Uzbekistan BIT (2011) Article 6 para. 1-2; China-Japan-Republic of Korea Trilateral Investment Agreement (2012) Protocol para. 2; China-Tanzania BIT (2013) Article 6 para. 2; China-Canada BIT (2012) Annex B.10; China-Republic of Korea BIT (2015) Protocol para. 2 b).

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measures are designed or applied in a discriminatory manner and importantly take into account the character and intent of a measure and its proportionality. Similar to the 2004 U.S. Model BIT,299 regulatory measures that are non-discriminatory and pursue public interests are only deemed to amount to indirect expropriations “in rare circumstances”.300 These circumstances have been defined in most recent IIAs as “when an action or a series of actions by a Contracting Party is extremely severe or disproportionate in light of its purpose” or similar formulations.301 In contrast to literally all other clauses, Chinese treaty practice on expropriation in recent years has been rather consistent. Regarding indirect expropriations, Chinese expropriation clauses are less restrictive than those of India and obviously less radical than the Brazilian approach of not incorporating indirect expropriations at all.302 Still, the provision seeks to protect States’ right to regulate and rebalance expropriation clauses.

South Africa The SADC Model BIT Template at first sight provides for a standard expropriation provision covering both direct and indirect expropriations and nationalizations. The only missing requirement is that expropriations must not be discriminatory. According to the commentary “[t]his is because, in many instances, expropriations are specific and targeted, and thus in a strict legal sense could be defined as being discriminatory by their very nature.” Compensation is the crux of the SADC Model’s expropriation clause. The Model contains three options of how to draft a second paragraph to the expropriation clause of which the first two aim to balance private interests of investors with public interests by adjusting compensation due. This is a remarkable deviation from the classic Hull requirement of adequate (equivalent to fair market value) compensation. According to option 1 for example:

299

See U.S. Model BIT (2004) Annex B (Expropriation) para. 5 b) (“Except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety and the environment, do not constitute indirect expropriations.”). 300 See e.g.: China-India BIT (2006) Protocol, III. Ad Article 5 para. 2 iv); Mainland China-Hong Kong CEPA Investment Chapter (2017) Article 11 and Annex 3. 301 China-Japan-Republic of Korea Trilateral Investment Agreement (2012) Protocol para. 2 c); see also: China-Republic of Korea BIT (2015) Protocol para. 2 c); China-Colombia BIT (2008) Article 4 para. 2 c); China-Tanzania BIT (2013) Article 6 para. 3; China-Canada BIT (2012) Annex B.10, para. 2. 302 Only the recent Australia China FTA (2015) investment chapter does not contain an expropriation clause, however, State Parties have agreed to further negotiate a more comprehensive investment chapter also containing an expropriation clause, see Article 9.9 (Future Work Program) para. 3 b) (ii).

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assessment of fair and adequate compensation shall be based on an equitable balance between the public interest and interest of those affected, having regard for all relevant circumstances and taking into account the current and past use of the property, the history of its acquisition, the fair market value of the property, the purpose of the expropriation, the extent of previous profit made by the foreign investor through the investment, and the duration of the investment.303

Such an evaluation could also lead to the finding that, given the particular circumstances of an expropriation, no compensation is due at all. Only Option 3 is not based on balancing compensation but on providing several exceptions. The most import of these exceptions for our purposes is the exclusion of measures of a State Party that are “designed and applied to protect or enhance legitimate public welfare objectives, such as public health, safety and the environment.”304 The Protection of Investment Act incorporates neither of these options, as it does not contain a stand-alone expropriation clause at all.305 Instead the Act only contains a reference to the right to property in terms of Section 25 of the South African Constitution. Like other constitutions306 Section 25 does not make an explicit reference to indirect expropriations or measures having an equivalent effect to expropriation.307 Still, it distinguishes between the deprivation of property (para. 1) and expropriations (para. 2). Deprivations of property must be based on laws of general application and these laws may not allow arbitrary deprivation. Expropriations in contrast, must additionally be aimed at fulfilling a public purpose or public interest and require compensation. In 2013, a ground-breaking decision by the South African Constitutional Court found that “[t]here can be no expropriation in circumstances where deprivation does not result in property being acquired by the state.”308 Accordingly, the characterising feature of every expropriation needs to be that property is acquired by the State. Other deprivations of property that do not involve the State acquiring property generally do not require compensation. This clearly is at odds with classical requirements under expropriation clauses of IIAs, holding that indirect expropriations require compensation, as indirect expropriations typically do not involve the transfer of title or seizure of property.309 Thereby, the

303

SADC Model BIT (2012) Commentary, p. 24. SADC Model BIT (2012) Commentary, p. 25. 305 An earlier draft of the Protection of Investment Act contained a detailed provision on expropriations which also included a list of acts which should not be regarded as expropriations, however, this approach apparently was abandoned in the continuing legislative process. See for a summary of the contents of the earlier draft: Woolfrey (2016), pp. 280 et seqq. 306 e.g. Artikel 14 German Grundgesetz (GG). 307 South African Constitution, Bill of Rights, Section 25. 308 Agri South Africa v. Minister for Minerals and Energy, Case CCT 51/12, Constitutional Court of South Africa (2013). ZACC 9, paras. 59 et seqq.; on further efforts to change the constitution in order to allow for expropriation without compensation: Schlemmer (2020), p. 151. 309 See: Woolfrey (2016), p. 280 who claims that this even contradicts the customary international minimum standard. 304

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provision strongly protects South Africa’s policy space, especially for redistributive purposes and the State’s constitutional social obligations.310 In addition, section 25 para. 3 of the South African constitution ‘only’ requires the amount of compensation (for expropriations) to be “just and equitable, reflecting an equitable balance between the public interest and the interests of those affected having regard to all relevant circumstances”. These circumstances, among others, include the history of the acquisition and use of the property, its market value, and the purpose of the expropriation. In determining the amount of compensation, South African courts have developed a two-tier test. First, they start by determining the market value of the property. They may then revise that amount downwards by taking relevant circumstances provided for by the Constitution into account. By doing so, compensation due may even be reduced to zero.311 Apparently, just and equitable compensation in this sense is not compatible with adequate compensation reflecting full market value, usually required by IIAs.

5.3.1.6

General Exception Clauses

Classical BITs mostly do not contain general exception clauses (of which Article XX GATT is an example in trade law).312 Newer generation IIAs, however, include such exceptions more often. General exception clauses seek to guard measures that are necessary to protect public interests, such as the environment, public health, and human rights.313 Exceptions usually contain at least three elements. The first element is the permissible objective or a list of such objectives, such as ‘protecting the environment and public health’. The second element is the nexus requirement. The nexus requirement is the word that connects the measure and the permissible objective, such as ‘necessary’ or the weaker ‘related to’. For example, measure x must be necessary (nexus requirement) to protect the environment (permissible objective). As a third element, exception clauses often impose (procedural) requirements for State Parties applying the exceptions clause, such as requirements to notify the imposed measure to the treaty partner and obligations to invoke the clause in good faith; to follow due process on restrictive measures; and to make measures and objectives transparent. Variations are possible which can increase or decrease the clause’s scope and extent or restrict its safeguards. In addition, some exception

310

Agri South Africa v. Minister for Minerals and Energy, Case CCT 51/12, Constitutional Court of South Africa (2013). ZACC 9, paras. 61 et seqq. 311 See: Forere (2018), pp. 276 et seq. with reference to relevant judgments by South African courts. 312 According to UNCTAD’s IIA Mapping Project, among all IIAs signed before the year 2000 only 87 contain a general public policy exception protecting public health and the environment. 313 According to UNCTAD’s IIA Mapping Project, of 980 IIAs concluded between 2000–2018, 156 include a general public policy exception for public health and the environment and another 99 contain other public policy exceptions (e.g. cultural heritage, public order etc.). Of 174 IIAs concluded between 2010 and 2018 nearly half (81) contain public health and environment exceptions and 64 contain other public policy exceptions.

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clauses are self-judging. Such self-judging clauses increase the discretion of States, nevertheless they are still required to apply clauses in good faith and are subject to judicial controls accordingly.314

General Exception Clauses: Brazil and India Both Brazil and India have sought to include general exception clauses in their model IIAs to better protect the policy space of host States. Brazil’s Model CFIA contains several exception clauses. Articles 11–13 contain exceptions for tax measures (Article 11), so-called prudential carve-outs315 (Article 12), and a security exception which is not subject to dispute settlement (Article 13). These exceptions are not unusual, at least in newer generation IIAs.316 The more interesting exception is the general exception clause contained in Article 16. According to that provision: [n]othing in this Agreement shall be construed to prevent a Party from adopting, maintaining or enforcing any measure it deems appropriate to ensure that investment activity in its territory is undertaken in a manner according to labour, environmental, and health legislations of that Party.317

Permissible objectives include the protection of labour standards, the environment, and public health. Importantly, the nexus requirement “it deems appropriate” is self-judging, allowing Parties a wide margin of discretion. Still, the provision further requires that measures are not applied “in a manner which would constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction”, which appears to be open to judicial review. Article 15 para. 2 of the Model CFIA further incorporates the so-called ‘clean hands doctrine’.318 Accordingly, agreement protections must not be granted to investments that involve capital of illicit origin or investments “in the establishment or operation of which illegal acts have been demonstrated to occur and for which national legislation provides asset forfeiture.” The Indian Model BIT also contains some exception clauses, including a broadly framed general exception clause which is drafted along similar lines to Article XX GATT.319 The exception clause allows for several listed permissible objectives, including the protection of public morals and order; protection of human, animal,

314

Burke-White and von Staden (2008), p. 370; Schill and Briese (2009); Salacuse (2010), p. 345. Prudential carve outs mostly exempt regulatory measures that aim to maintain the safety and integrity of financial institutions and the financial system as a whole. 316 According to UNCTAD’s IIA Mapping Project, of 174 IIA concluded between 2010–2018, 67 excluded tax measures from the scope of the treaty, 63 contained prudential carve outs for financial measures and 105 contained security exceptions. 317 Brazilian Model CFIA (2015) Article 16 para. 1. 318 Ratton Sanchez Badin and Morosini (2018), p. 232. 319 Indian Model BIT (2016) Article 32; the Model further incorporates a self-judging security clause in Article 33. 315

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or plant life or health; to ensure compliance with domestic laws that are consistent with the treaty; the protection of the environment; and the protection of national treasures such as cultural and historical objects.320 However, Parties may only adopt measures “of general applicability”, “applied on a non-discriminatory basis” (further requirements) which are “necessary” (nexus requirement) to protect listed public interests. While the nexus requirement is relatively strong, and according to Footnote 6 of the Indian Model requires Parties to assess whether there are less restrictive alternative measures reasonably available, conditions are relatively weak. In particular, the provision does not provide for a so-called chapeau, such as in Article XX GATT (or the Brazilian general exception clause), which would explicitly guard against disguised restriction and misuse.321

China Exception clauses are missing in the Chinese 1997 Model BIT. This omission is simply due to its age and the fact that the inclusion of general exception clauses in IIAs is a recent phenomenon. In line with contemporary trends a number of more recent Chinese BITs do contain general—and other exception clauses (e.g., security).322 Yet it is not clear whether Chinese negotiators favour the inclusion of these clauses or whether treaty partners successfully demanded their inclusion. The Canada-China BIT (2012) for example contains a general exception clause. The provision states that “nothing in this Agreement shall be construed to prevent a Contracting Party from adopting or maintaining measures, including environmental measures” that are “necessary to ensure compliance with laws and regulations not inconsistent with the Agreement”, “necessary to protect human, animal or plant life of health, or relate to conservation of natural resources”, if they are applied in a “nonarbitrary and justifiable manner” and do not constitute “disguised restrictions”.323 This wording strongly resembles the respective clause in the Canadian Model BIT (2004).324 However, as the China Mainland-Hong Kong CEPA Investment chapter includes a similarly worded general exception provision,325 China has at least

320

Indian Model BIT (2016) Article 32. See for a critique in that regard: Ranjan and Anand (2018), p. 37. 322 According to the IIA Mapping Project, 12 out of 112 mapped Chinese investment agreements contain security exceptions, of which four contain self-judging security clauses, including the Australia-China FTA (2015), the China-Colombia BIT (2008), the China-Japan-Republic of Korea Trilateral Investment Agreement (2012), and the China-Republic of Korea FTA (2015). 323 China-Canada BIT (2012) Article 33 para. 3. 324 See: Canadian Model BIT (2004) Article 10 (“General Exceptions”). 325 Mainland China-Hong Kong CEPA Investment Agreement (2017) Article 22 para. 1; further, the agreement contains a broad-based exception in Article 22 para. 6 which reserves for “one side” (not further specified but most likely referring to Mainland China) “the right to establish or maintain any restrictive measures relating to investors and covered investment of the other side in the event that the implementation of this Agreement causes substantial impact on its sectors or public interests.” 321

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adopted the clause. In addition, certain Chinese BITs with developing countries contain similar clauses. The China-Tanzania BIT, for example, contains a general exception clause which exempts non-arbitrary measures which do not constitute a disguised restriction “necessary to protect human, animal or plant life or health”.326 Still, China again seems to have adopted a flexible approach in terms of whether to incorporate general exceptions or not. None of the China-Malta (2009), ChinaUzbekistan (2011), and China-Congo (2015) BITs contain general exception clauses.

South Africa: A Right to Regulate and A Right to Development in IIAs Article 25 of the SADC Model BIT Template contains a general exception clause and several further exceptions. The latter cover so-called ‘prudential carve outs’ for financial measures, exclusion of tax measures from the treaty’s scope (except for the expropriation clause), official monetary or exchange policies, and measures related to international peace and security.327 The general exception clause resembles Article XX GATT. Permissible objectives include “morals and safety”, “human, animal or plant life or health”, “the conservation of living or non-living exhaustible natural resources”, and “the environment”.328 There is no nexus requirement, instead the clause strongly states that “Nothing in this Agreement shall be construed to oblige a State Party to pay compensation for adopting or enforcing measures [. . .]”. However, State Parties are prohibited from applying measures in a manner “that would constitute a means of arbitrary or unjustifiable discrimination” and are required to execute measures in “good faith”. In addition to this general exception clause, the SADC Model BIT reaffirms the right to regulate (Article 20) and promotes a “right to pursue development goals” (Article 21). Article 20 para. 1 points out that “the Host State has the right to take regulatory or other measures to ensure that development in its territory is consistent with the goals and principles of sustainable development, and with other legitimate social and economic policy objectives.” However, para. 2 strongly limits that right by pointing out that this right has already been taken into account by other treaty provisions and exceptions and does not provide for an additional exception. Despite this, para. 3 contains a potentially vast exception by stating that “non-discriminatory measures taken by a State party to comply with its international obligations under other treaties shall not constitute a breach of this Agreement.” Thus, measures justified by reference to international human rights—or environmental protection treaties would not violate the BITs provisions. The “right to pursue development goals” (Article 21) provides further far reaching exceptions for development policies. Article 21 para. 1 allows States to grant preferential treatment to national

326

China-Tanzania BIT (2014) Article 10 para. 2. SADC Model BIT (2012) Article 25 para. 26. 328 SADC Model BIT (2012) Article 25 para. 1. 327

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enterprises when such policies are considered as being required to achieve domestic development goals. Article 21 para. 2 further allows States to support the development of local entrepreneurs and to impose several performance requirements on foreign investors. Host States may, for example, seek to increase employment, human resource capacity, research and development, and technology transfer by imposing special requirements on investors. This is of particular interest as traditionally IIAs rather sought to prohibit performance requirements.329 Yet as a WTO member, South Africa must still honour TRIMS prohibitions of certain trade related performance requirements.330 Finally, the clause contains an exception for affirmative action policies tailored to protect South African Black Empowerment policies (Article 21 para. 3). The South African Protection of Investment Act does not contain such a progressive clause on the ‘right to pursue development goals’. Still, it provides for a general exceptions clause under its Article 12 entitled “Right to Regulate”. The clause exempts official measures which are aim at: (a) (b) (c) (d)

redressing historical, social and economic inequalities and injustices; upholding the values and principles espoused in section 195 of the Constitution; upholding the rights guaranteed in the Constitution; promoting and preserving cultural heritage and practices, indigenous knowledge and biological resources related thereto, or national heritage; (e) fostering economic development, industrialisation and beneficiation; (f) achieving the progressive realisation of socio-economic rights; or (g) protecting the environment and the conservation and sustainable use of natural resources. Importantly, the Article makes direct reference to socio-economic human rights and further seeks to protect South African Black Economic Empowerment policies. In its para. 2 the provision further exempts measures “necessary for the fulfilment of the Republic’s obligations in regards to the maintenance, compliance or restoration of international peace and security, or the protection of security interests, including the financial stability of the Republic.” Notably, the list of permissible objectives is open-ended, leaving room to pursue other legitimate goals of comparable importance. The clause does not contain a nexus requirement, the government or any other State organ may simply “take” measures. Finally, there is only one—but a far reaching—requirement for exempted measures to be fulfilled: Measures must be taken “in accordance with the Constitution and applicable legislation”.

329 According to UNCTAD’s IIA mapping project, at least 212 IIAs of all IIAs mapped contain a clause on the prohibition of performance requirements. 330 Article 2 para. 2 and Annex to the TRIMS agreement.

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Dispute Settlement

One of the fundamentals of international investment law is its relatively strong dispute settlement mechanism, in particular, mandatory investor-state dispute settlement. We have already seen in preceding chapters that international investment arbitration suffers from severe institutional problems and has attracted much criticism in recent years from both State actors and civil society across the Global South and the Global North. These problems also relate to human rights issues. In particular, (alleged) biases of investment arbitrators may lead to interpretations that narrow States’ policy space to protect and fulfil human rights. To tackle these problems States can simply refrain from including ISDS clauses or—more complicated— reform procedures, including the appointment process. Next we will take a brief glimpse into the ISDS provisions of each country.

Avoiding ISDS: Brazil and South Africa Brazilian CFIAs do not include provisions on investor-state arbitration. Instead they focus on amicable ways to prevent and settle disputes and offer State-State Dispute Settlement only as a last resort.331 This approach is the most outstanding feature of the Brazilian Model CFIA. To prevent and settle disputes in an amicable way, CFIAs create two organs: the Joint Committee and so-called “Ombudsmen”.332 The Joint Committee is composed of government representatives and consults with the private sector and civil society. The central tasks of these Committees are to administer the agreement and seek to resolve disputes in an amicable manner. The Focal Points or “Ombudsmen” are designated entities or persons on the territory of the host State which must support external investors, for example by providing information on regulatory issues, handle complaints, and seek to prevent disputes. This focus on institutional dispute prevention and commitment to finding amicable solutions offers an alternative for governments wary of unintended interpretations of BITs being concluded by arbitral tribunals in the past.333 By upholding the political process of State-State consultations and by allowing for consultations with the private sector, States and affected investors may find consensual solutions in disputed cases. Thereby, the focus on dispute prevention and amicable resolution can also be seen as a measure to safeguard policy space and protect against judicial overreach. As State-State dispute settlement has scarcely been used in the past334 and

See: Part III of the Model CFIA (2015) entitled “Institutional Governance and Dispute Prevention”. 332 Model CFIA (2015) Article 17 (Joint Committee) and Article 18 (Focal Points or Ombudsmen). 333 See also: Bernasconi-Osterwalder and Dietrich Brauch (2015), p. 1. 334 Bernasconi-Osterwalder (2014), p. 1, reports that to her knowledge only four such cases have ever been brought under investment treaties. 331

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is included in CFIAs only as a measure of last resort, it appears doubtful whether it will be used in practice at all. South Africa also has sought to avoid ISDS. The Drafting Committee of the SADC Model BIT Template preferred the option of not including ISDS provisions in its Template without providing clear reasons for that decision.335 The Model only contains a very detailed clause on State-State Dispute Settlement.336 The South African Protection of Investment Act similarly does not provide for ISDS but allows for State-State dispute settlement (subject to the exhaustion of domestic remedies).337 However, even State-State Dispute Settlement is not mandatory, meaning that the South African government may consent to international arbitration in respect of the Act but it is not obligated to do so. Aside from that, investors are free to file investment claims with domestic South African courts or other South African independent tribunals and statutory bodies.338 Moreover, the provision foresees a mediation process and accordingly provides some procedural rules to regulate such a process, however it appears that any outcome would not be legally binding.339

Seriously Limiting ISDS: The Approach of India The Indian Model BIT contains a long and detailed Chapter IV on “Settlement of Disputes between an Investor and a Party”, which includes many interesting provisions to improve the procedures of ISDS. However, it is questionable whether those provisions will ever be used in practice, as the jurisdiction of arbitral tribunals has been severely limited. The restrictive nature most importantly stems from the combination and interaction of two clauses of the Indian Model BIT: the exhaustion of domestic remedies requirement and the immunity of domestic court decisions.340 The former requires an investor to exhaust local remedies for a period of 5 years, which commences with the acquirement of knowledge of the measure and the resulting loss or damage or when the investor should have first acquired that knowledge.341 Additionally, Article 13 para. 5 states that “a Tribunal constituted under this chapter shall not have the jurisdiction to [. . .] review the merits of a decision made by a judicial authority of the Parties”. This clause essentially exempts all cases that led to a decision by a domestic court from review of international arbitration. Accordingly, only if an investor pursues local remedies for 5 years and

335

SADC Model BIT (2012) Commentary, pp. 51 et seqq. SADC Model BIT (2012) Article 28. 337 Protection of Investment Act (2015) Article 13 para. 5. 338 Protection of Investment Act (2015) Article 13 para. 4. 339 Protection of Investment Act (2015) Article 13 para. 1–3. 340 Trubek and Rolland (2018), p. 425. Additionally, but of minor importance, ISDS is only available for violations of Chapter II with the exception of Article 9 and 10. 341 Indian Model BIT (2016) Article 15 para. 2. 336

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the judiciary in those 5 years is not able to provide a single decision on the merits, then there is the legal option to start international arbitration. Therefore, there are only very few groups of cases in which an international investment tribunal might actually have jurisdiction to hear a case, namely: in the case of a local court denying jurisdiction in the first place, in the case of the investor being able to “demonstrate that there are no available domestic legal remedies capable of reasonably providing any relief in respect of the same measure”,342 or in the case of the investor trying to exhaust judicial and administrative remedies, but the courts fail to deliver a decision on the merits of a case within 5 years.343 Given the vast backlog of cases and the delays within Indian courts, the last scenario is not unrealistic. Still, the investor must wait for 5 years until he or she can even start the arbitral process with a “notice of dispute” that leads to another 6 months of negotiations to resolve the dispute through an amicable settlement, until it can submit its claim to arbitration—whereby several more years may pass until any award is given.344 These obstacles led the Law Commission of India, referring to comparable requirements in an earlier draft of the Model BIT, to state: [T]his provision renders the entire BIT unworkable. [. . .] Pursuing domestic remedies would entail an interaction with the judicial authorities of the Host State, which would result in [. . .] decisions on the merits. However, any finding by a local Court acts as a jurisdictional bar in as so far as the Arbitral Tribunal is concerned. It is hard to contemplate too many scenarios where an investor would comply with the provisions for exhaustion of local remedies and yet overcome the jurisdictional bar.

China’s Loyalist Stance on ISDS China’s initial reluctance to embrace ISDS has changed. Since 1998,345 most of China’s IIAs provide comprehensive ISDS clauses.346 The only restriction in these newer IIAs is that investors have to “go through the domestic administrative review procedures as specified by the laws and regulations of the disputing Contracting Party before the submission to international arbitration”.347 This substantive 342

Indian Model BIT (2016) Article 15 para. 1. Indian Model BIT (2016) Article 15 para. 2. 344 See on the exact procedure Indian Model BIT (2016) Article 15 and 16. 345 The first such comprehensive ISDS provision was incorporated in the China-Barbados BIT (1998) Article 9. 346 See e.g. China-Finland BIT (2004) Article 9 para. 1; China-Uganda BIT (2004) Article 8 para. 1; China-Canada BIT (2012) Article 20; see for a further analysis: Sauvant and Nolan (2015), p. 915. 347 See e.g. Barbados-China BIT (1998) Article 9 para. 3; China-Mexico BIT (2008) Article 13 para. 5; China-Japan-Korea Trilateral Investment Agreement (2012) Article 15 para. 7; China-Tanzania BIT (2013) Article 13 para. 2; The respective rules on administrative review for China can be found in: Law of the People’s Republic of China on Administrative Reconsideration, Adopted at the 9th Meeting of the Standing Committee of the Ninth National People’s Congress on April 29, 1999 and promulgated by Order No. 16 of the President of the People’s Republic of China on April 29, 1999 343

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broadening of Chinese acceptance of ISDS coincided with China’s Going Out strategy and the accompanied surge in Chinese outward FDI.348 In more recent BITs (post-2008) China has been willing to accept limitations on ISDS jurisdiction.349 In some IIAs jurisdiction investor-state tribunals are limited to ruling on particular provisions of the agreement excluding several types of disputes (e.g., the admission phase, those related to national security and taxation disputes).350 However, apart from these limited exceptions, China, in contrast to Brazil, India and South Africa, remains committed to ISDS.

5.3.2

The Protection of Human Rights: Investor Obligations in Emerging Power IIAs?

Traditional BITs have long been criticised on the basis that they only bind host States and not investors nor their home States.351 NGOs and human rights scholars alike demand that home States of multinational corporations have increasing control over the activities of their investors operating abroad in order to prevent them from engaging in harmful conduct and/or argue for the imposition of further legal obligations for investors themselves.352 Up until now, States have only partially responded to these calls by promoting norms of corporate social responsibility. Corporate social responsibility functions as a self-regulatory mechanism whereby business entities monitor and ensure their compliance with national laws, human rights, and environmental standards. International soft law instruments inter alia include the OECD Guidelines for Multinational Enterprises353 and the Ten Principles of the UN Global Compact.354 In recent times, States have begun to incorporate corporate social responsibility clauses into their trade and investment agreements. Thus far, however, only a comparatively small number of IIAs include such clauses

(1999). Only a small number of older Chinese BITs require investors to also exhaust judicial remedies. According to UNTAD’s IIA Mapping Project, only 6 out of 112 mapped Chinese IIAs contain a local (judicial) remedies first clause, all of which were signed in the 1980s and 1990s. 348 See also: Sauvant and Nolan (2015), p. 915. 349 See also: Bath (2018), p. 68. 350 ASEAN-China Investment Agreement (2009) Article 14; China-Canada BIT (2012) Article 20 and Annex D para. 34; China-Australia FTA (2015) Article 9 para. 12. 351 See for a discussion of those issues, including their historic context, and a summary of failed legal initiatives by developing countries: Sornarajah (2010), pp. 144 et seqq. 352 See Sect. 4.2.1.2. 353 OECD Guidelines for Multinational Enterprises (2008). http://mneguidelines.oecd.org/ guidelines/. 354 The Ten Principles of the UN Global Compact. https://www.unglobalcompact.org/what-is-gc/ mission/principles.

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which—in addition—are often vague and not legally binding.355 While these efforts are surely important in their own right, they fall short of providing legal obligations for business entities as well as home States and are not subject to enforcement mechanisms of investment treaties (most notably ISDS).

5.3.2.1

Brazil

The Brazilian Model CFIA contains such a non-binding corporate social responsibility provision which is closely linked to issues of development.356 According to the provision, investors “shall strive to achieve the highest possible level of contribution to the sustainable development of the Host State and the local Community” through adopting “voluntary principles”. Investors are inter alia expected to respect internationally recognized human rights of those involved in the companies’ activities (such as workers), to encourage local capacity in cooperation with the local community, to engage in the creation of human capital including professional training for workers, and to refrain from “seeking or accepting exemptions that are not established in the legal or regulatory framework relating to human rights, environment, health, security, work, tax system, financial incentives, or other issues”.357 The CFIA explicitly exempts corporate social responsibility provisions from the treaty’s dispute settlement system.358 Commentators have suggested that corporate social responsibility ‘obligations’ in CFIAs may be enforced and supervised domestically,359 but, as corporate social responsibility’s “voluntary principles” are not legally binding in the first place, there is nothing to be enforced and supervised.360 The only viable forums where issues related to corporate social responsibility might become addressed by the host State are the Ombudspersons and the Joint Committee.361

355

UNCTAD’s IIA Mapping project counts 30 out of 2775 mapped treaties that contain any mentioning in the text (aside from preamble) of corporate social responsibility, all of which were concluded after the turn of the century and most of them after 2010. The EU and United States were among the first to include such provisions in their investment and trade agreements, see: Peels et al. (2016), p. 9. 356 Model CFIA (2015) Article 14. 357 Model CFIA (2015) Article 14 para. 2. 358 Model CFIA (2015) Article 24 para. 3. It has to be noted that not all CFIAs so far concluded by Brazil provide for such an exception. Still, as corporate social responsibility is not legally binding, State-State dispute settlement would not make any sense. For an overview of actual treaty practice in that regard, see: Ratton Sanchez Badin and Morosini (2018), p. 234. 359 Ratton Sanchez Badin and Morosini (2018), p. 231. 360 As noted the Model CFIA does not establish legal corporate social responsibility obligations. Concluded CFIAs followed that approach. See for an overview of corporate social responsibility provisions in Brazilian treaty practice: Bernasconi-Osterwalder and Dietrich Brauch (2015), p. 15. 361 See on this possibility correctly: Ratton Sanchez Badin and Morosini (2018), pp. 219 and 231.

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India

Trubek and Rolland have argued that “the most innovative feature” of the 2015 Indian Model BIT is Chapter III on investor obligations.362 In contrast to the Brazilian model, some of the provisions in this chapter appear to be legally binding. Investors inter alia “shall comply with all laws, regulations, administrative guidelines and policies of a Party concerning the establishment, acquisition, management, operation and disposition of investments.”363 Further provisions prohibit investors from engaging in corruption and oblige them to comply with tax laws.364 In addition, the Model again includes a non-binding best-efforts obligation for investors to incorporate “internationally recognized standards of corporate social responsibility in their practices and internal policies”.365 Such standards could involve the UN guidelines on business and human rights or other principles “that may address issues such as labour, the environment, human rights, community relations, and anti-corruption”.366 Although meeting corporate social responsibility obligations are, again, not legally binding, the obligation to comply with domestic law appears to carry legal weight. But even if considered to be legally binding, it is unclear whether this provision will bring anything new as it is already a general fact that investors are bound by local laws and regulations. Article 11 accordingly states that “parties reaffirm and recognize” the obligation of investors to comply with domestic laws and regulations. However, elevating domestic obligations to treaty law may allow host-States to invoke these investor obligations in a counterclaim similar to that brought by Argentina in the Urbaser case.367 Yet chapter III of the Indian Model BIT that includes Article 11 is explicitly exempted from the scope of ISDS tribunals’ jurisdiction.368 Taken together with the fact that the ISDS chapter of the Model is quite detailed but counterclaims against investors are not mentioned, it appears that arbitrators would not allow for such counterclaims. Still, Trubek and Rolland argue that Article 11 of the Model BIT could provide “a defence for India not to give to investors or investment in breach of such obligations the protections of the treaty.”369 Because violations of Chapter III of the Indian Model BIT are not subject to arbitration (Article 13 para. 2 and 3), Trubek and Rolland propose two ways for how arbitral tribunals could respond to claims by a

362

Trubek and Rolland (2018), pp. 419 et seq. Model CFIA (2015) Article 11 (i) (Highlighting is my own). 364 Model CFIA (2015) Article 11 (ii)–(iii). 365 Indian Model BIT (2016) Article 11. 366 Indian Model BIT (2016) Article 12. 367 Urbaser S.A. et al. v The Argentine Republic, ICSID Case No. ARB/07/26, Award (8 December 2016), paras. 1110 et seqq. 368 Indian Model BIT (2016) Article 13 para. 3. 369 Trubek and Rolland (2018), p. 40. 363

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host State that the investor has violated Chapter III obligations.370 First, the arbitral tribunal could respond to such claims by keeping the arbitration pending until Chapter III breaches are resolved through domestic procedures and then take judicial notice of the outcome when adjudicating claims by the investor. Second, they propose that arbitrators “could dismiss the host state’s arguments for lack of jurisdiction.”371 Both options might be legally based on some notion of the general principle of good faith (venire contra factum proprium), but it remains to be seen whether arbitrators are willing to tread on such shaky territory. Another option is that ‘investor obligations’ are brought up in State-State dispute settlement procedures as the respective provision in Article 31 of the Indian Model BIT does not exclude jurisdiction for Chapter III violations. We might imagine a host State suing the home State for illegal conduct of its investor. Yet as States are reluctant to use State-State dispute settlement it is unlikely that they will bring forward such claims. In any case, given the vague formulation in Article 11 (“parties reaffirm and recognize”) it is doubtful whether the Model elevates domestic obligations to the international level. The provision may simply be read as declaratory. Following that interpretation India’s Model BIT does not provide for legally binding investor obligations. In line with that the Brazil-India ICFA (2020) only contains a CSR provision refering to “voluntary principles and standards” (Article 12).

5.3.2.3

China

According to UNCTAD’s IIA Mapping Project, none of China’s 112 mapped treaties contain any reference to corporate social responsibility. Even China’s most recent IIA with Hong Kong does not mention corporate social responsibility. There is also no indication that China has sought to include any other form of investor obligations, even if only soft ones, in its IIAs. Still, China has published domestic documents to guide Chinese investor behaviour abroad, including guidelines on environmental protection and social responsibility.372 However, due to the non-inclusion of such matters in actual investment treaties, China should be considered as a ‘traditionalist’ when it comes to investor obligations in IIAs.

370

Trubek and Rolland (2018), p. 40. Trubek and Rolland (2018), p. 40. 372 See: Notification of the Ministry of Commerce and the Ministry of Environmental Protection on Issuing the Guidelines for Environmental Protection in Foreign Investment and Cooperation (18 February 2013). available at: http://english.mofcom.gov.cn/article/policyrelease/bbb/201303/ 20130300043226.shtml.; China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters Guidelines for Social Responsibility in Outbound Mining Investments (10 February 2015). http://www.cccmc.org.cn/docs/2017-08/20170804141709355235.pdf. Accessed 12 Sept 2020. 371

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South Africa

Both the SADC-Model BIT as well as the South African Protection of Investment Act highlight the need to balance the rights and obligations of investors.373 However, the Protection of Investment Act does not provide for explicit investor obligations. It is likely that drafters thought that such obligations could already be found in South African law and consequently that no benefit would accrue from replicating these obligations in the Protection of Investment Act. In contrast, the SADC Model BIT includes a long and detailed section on proposed Articles on “Rights and Obligations of Investors and State Parties”374 that are predominantly concerned with preventing and addressing negative impacts stemming from investments within host States. This section contains several progressive provisions. An important aspect is also the enforcement mechanism for investor obligations. Articles 10 and 12 set out investor obligations not to engage in corruption and to provide information regarding a company’s investment and corporate history. If investors do not comply with these obligations, they effectively lose protections under the investment treaty and may not seek dispute resolution.375 For example, Article 10 para. 3 and the accompanying commentary point out that the establishment of an investment involving corruption is in breach of the BIT and domestic law, and consequently is no longer covered by the definition of investment of the Model BIT. Accordingly, an investor loses all rights stemming from the treaty. While this is in line with some investment arbitration awards,376 the provision is nevertheless important as an assertion of that jurisprudence by States. Even more progressively, Article 13 SADC Model BIT foresees that investors undertake environmental and social impact assessments which, in particular, shall include assessments of impacts on the human rights of potentially affected persons, including their progressive realization of human rights.377 These impact assessments are required to be made public and accessible to local communities in order to allow for comments to be made prior to the establishment of the investment.378 Moreover, the model reaffirms that investors and host State authorities shall apply the precautionary principle and undertake an environmental impact assessment.379 With regard to the environment, Article 14 further sets out good practice requirements for the environmental management of investments.

373

SADC Model BIT (2012), Preamble; Protection of Investment Act (2015) Preamble (“Securing a balance of rights and obligations of investors to increase investment in the Republic.”). 374 SADC Model BIT (2012), Part 3 (Articles 10–22). 375 SADC Model BIT (2012), Article 10 para. 3 and commentary thereto. 376 This has been pointed out in the commentary, see: SADC Model BIT (2012) Commentary, p. 32. 377 SADC Model BIT (2012), Commentary Article 13 para. 2. 378 SADC Model BIT (2012), Commentary Article 13 para. 3. 379 SADC Model BIT (2012), Article 13 para. 4.

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Article 15 addresses minimum standards for human rights, environment, and labour. Other BITs already have addressed such standards, but usually clauses are not drafted as investor obligations and instead only reaffirm the obligations of State parties.380 Moreover, few if any IIAs explicitly address human rights. The SADC Model BIT, however, states that: Investors and their investments have a duty to respect human rights in the workplace and in the community and State in which they are located. Investors and their investments shall not undertake or cause to be undertaken acts that breach such human rights. Investors and their investments shall not assist in, or be complicit in, the violation of the human rights by others in the Host State, including by public authorities or during civil strife.

Moreover, investors are required to act in accordance with core labour standards as required by the 1998 ILO Declaration on Fundamental Principles and Rights to Work and may not establish, manage, or operate investments “in a manner inconsistent with international environment, labour, and human rights obligations binding on the Host State or the Home State, whichever obligations are higher.”381 Finally, Article 16 brings in corporate governance standards, including international transparency and accounting standards, and prohibits transfer pricing practices which aim to reallocate costs and expenses to reduce or avoid taxes in host States. This provision aims to secure tax revenues, in particular for developing countries unable to monitor such transfer pricing by big corporate players.382 While these obligations appear progressive on paper, one may ask what additional benefit derives from replicating international and domestic human rights and labour law obligations in an international investment agreement. Article 19 of the SADC Model partially answers this question. The clause proposes that investment tribunals shall consider breaches of investor obligations provided for in the treaty and determine whether they are materially relevant for the issues brought by the investor (or its home State) and if so “what mitigating or off-setting effects this may have on the merits of a claim or on any damages awarded in the event of such award.”383 Moreover, Article 19 of the SADC Model explicitly foresees that a host State may initiate a counterclaim against the investor for damages or other relief for a breach of investor obligations. Finally, the Model reaffirms domestic legal obligations and procedures. Interestingly, the SADC Model BIT strongly supports legal procedures against investors in home States. Article 17 on investor liability promotes the idea that investors shall be subject to civil action and liability in judicial processes in home States for acts and omissions that lead to damages in the host State. In particular, the provision requires home States to

380

See e.g. U.S. Model BIT (2012) Article 12 (Investment and Environment) and Article 13 (Investment and Labour). 381 SADC Model BIT (2012), Article 15 para. 2–3. 382 SADC Model BIT (2012), Commentary, p. 37. 383 SADC Model BIT (2012), Article 19 para. 1.

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ensure that their legal systems and rules allow for, or do not prevent or unduly restrict, the bringing of court actions on their merits before domestic courts relating to the civil liability of Investors and Investments for damages resulting from alleged acts, decisions or omissions made by Investors in relation to their investments in the territory of the Host State.384

5.3.3

The Fulfilment of Human Rights in Emerging Powers IIAs?

Aside from making reference to prosperity and development in their preambles, traditional BITs did not include provisions that more directly support the goal of fulfilling human rights, other than through the rationale that investment protection would lead to increased FDI which would improve development and prosperity. How then could IIAs do more than stating these goals in their preamble? And are IIAs the right forum for addressing the fulfilment of socio-economic rights? Should IIAs resurrect the NIEO and require technology transfer from investors and promote local content requirements instead of prohibiting them? The following does not provide a conclusive answer to all of these questions but focuses on whether emerging powers provide for any fresh ideas on the subject.

5.3.3.1

Sustainable Development as a Goal in Preambles and/or a Requirement for Protection

We have already analysed preambles in respect of policy space and respect for human rights. As seen above, India and Brazil highlight sustainable development in preambles to their model IIAs but in a rather vague manner. China’s approach, again, is flexible but only a very limited number of the Chinese modern IIAs even contain a reference to sustainable development.385 The SADC Model BIT Template is the most explicit and detailed in that regard. The Model Template not only references sustainable development but seeks to further define what the meaning of the concept is for investment protection. The clause explicitly states that “sustainable development requires the fulfilment of the economic, social and environmental pillars that are embedded within the concept” and stresses the important contribution investment can make to achieving (inter alia) poverty reduction “and the furtherance of human rights and human development”.386 In a similar vein, the South African Protection of Investment Act accepts the notion that FDI is important for “job creation, economic growth, sustainable development, and the well-being of the people of South Africa” but also acknowledges “the government’s commitment in respect of international

384

SADC Model BIT (2012), Article 17 para. 2. China-Uzbekistan BIT (2011) Preamble; China-Korea FTA (2015) Preamble. 386 SADC Model BIT (2012), Preamble. 385

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law to ensure that human rights, fundamental freedoms and protection of peoples’ resources are adequately protected.”387 Here, South Africa in essence keeps with the notion that FDI is important for (sustainable) development and even links FDI to the fulfilment of human rights obligations. The principle of sustainable development is not used as a safeguard against certain harmful investments or investor practices but reaffirms the need to attract investments. Apart from affirmation in preambles, one approach of how to implement the principle of sustainable development in actual treaty practice is to adopt the Salini388 definition of investment. Thereby only investments adding to host States’ (sustainable) development are protected. As summarized above, the SADC Model BIT and the Indian Model BIT contain such a limitation, while the South African Protection of Investment Act, the Brazilian Model CFIA, and Chinese treaty practice refrain from including the development requirement. Even the SADC and Indian Model BITs refrain from defining the criteria more precisely, leading to considerable uncertainties. Nevertheless, incorporation of the criteria marks a first step towards linking the fulfilment of human rights obligations and FDI more closely.

5.3.3.2

State Obligations Related to the Fulfilment of Human Rights

One avenue for making IIAs more receptive to the fulfilment of human rights obligations is to incorporate state obligations other than the usual obligations to guard investors. Such obligations could take a variety of forms to be further explored in the following paragraphs.

South Africa and Brazil: Reformist but Not Radical The SADC Model BIT Template and the Brazilian Model CFIA provide some limited obligations for State Parties related to the fulfilment of human rights obligations, while the South African Protection of Investment Act refrains from doing so. Aside from promoting numerous obligations for investors, the SADC Model BIT also provides for a few obligations for State Parties (aside from the obvious obligations related to investment protections) which require them to actively engage in addressing human rights concerns. Article 10 prohibits investors from engaging in corruption and sets out obligations for States to implement anti-corruption procedures, for example via the prosecution and penalization of acts of corruption.389 As mentioned above, home States of investors are further required to allow for and not unduly restrict the bringing of court actions within their domestic legal systems related to the civil liability of investors for damages, personal injury, or loss of life

387

Protection of Investment Act (2015) Preamble. See on the Salini Test and its criteria above Sect. 5.3.1.2. 389 SADC Model BIT (2012), Article 10 para. 4. 388

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related to the investment.390 Finally, Article 22 sets out “Obligations of States on Environment and Labour Standards”. The clause begins with a vaguely drafted paragraph that reaffirms the State Party’s right to establish domestic environmental protections, development policies, and labour protection laws. Further, the paragraph, in rather weak language, states that “each State Party shall strive to ensure that it provides for high levels of environmental and labour protection, taking into account internationally accepted standards, and shall strive to continue to improve their standards.”391 The second paragraph contains a provision that aims to discourage the lowering or waiving of environmental and other standards to attract investments (a so-called ‘not lowering of standards clause’). The clause states that it is “inappropriate to encourage investment by relaxing domestic environmental and labour legislation” and requires (“shall not”) States “not to waive or otherwise derogate from, or offer to waive or otherwise derogate from, such legislation as an encouragement for the establishment, maintenance or expansion in its territory of an Investment.” This failure to lower standards clause is of great reformative importance for the capability of States to fulfil human rights obligations as it seeks to avoid the so-called ‘race to the bottom’ problem. However, it must be noted that such clauses are no invention of South Africa. Rather, such clauses go back to NAFTA’s (1992) investment chapter392 and have been promoted in the US Model BIT (2012).393 Still, only a limited number of IIAs adopted such clauses up until now, many of which are stated in ‘best-efforts’ language.394 Moreover, treaties containing such clauses have largely been silent on the question of how to enforce them. Some treaties offer State-State consultations to address concerns related to the clause.395 Theoretically, States could make use of State-State dispute settlement claiming that the other State lowered its standards to attract investment in contradiction to the clause, but thus far there appears to be no practical example of a State doing so.396 The SADC clause, affirmed by the commentary, contains a mandatory obligation not to lower standards to attract or maintain investments.397 However, the SADC Model BIT does not offer any innovative ideas surrounding how to effectively enforce the provision. Rather, like the U.S. Model BIT (2012) it offers State-State consultations to address concerns related to the lowering of standards.398 In

390

SADC Model BIT (2012), Article 17 para. 2. SADC Model BIT (2012), Article 22 para. 1. 392 See NAFTA Investment Chapter (1992) Article 1114 para. 2. 393 U.S. Model BIT (2012) Article 12 para. 2. 394 The IIA Mapping project counts 70 out of 2575 mapped treaties that include such a clause, almost all of which were concluded in the twenty-first century. 395 U.S. Model BIT (2012) Article 12 para. 2. 396 As noted above State-State dispute settlement as a whole has scarcely been used to bring cases related to foreign investments, see: Bernasconi-Osterwalder (2014), p. 1. 397 SADC Model BIT (2012), Commentary, p. 41. 398 SADC Model BIT (2012), Commentary, p. 41. 391

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principle, State-State dispute settlement foreseen in the SADC Model BIT could also be used to solve disputes related to the clause. Article 16 para. 2 of the Brazilian Model CFIA contains a similar clause aimed at discouraging the lowering of standards surrounding labour, health, and environmental legislation to attract investments. More restrictively than the SADC Model BIT, the Model CFIA exempts the clause from dispute settlement,399 offering only consultations between parties as an ‘enforcement’ mechanism. Like the SADC Model, the Brazilian Model CFIA contains a clause on corruption that would require States to “adopt measures and make efforts to prevent and fight corruption, money laundering and terrorism financing” regarding foreign investments.400 Aside from that, the Model CFIA does not contain any further obligations for States related to the fulfilment of human rights responsibilities. Still, as explored in more detail below, the focus on investment facilitation—instead of investment protection—may provide an alternative approach more in line with ensuring that IIAs actually increase FDI and only attract such foreign investments which are beneficial to the host States’ development.

India and China as Traditionalists Both India’s Model BIT and China’s treaty practice do not contain much guidance on the issue of the fulfilment of human rights obligations for the purposes of these discussions. The Indian Model BIT simply embraces the narrative that investment protection promotes investment flows and as such constitutes “mutually beneficial business activity” and leads to “the promotion of sustainable development”.401 Aside from that, the Indian Model BIT does not contain any progressive obligations for host or home States or other creative provisions related to the fulfilment of human rights obligations. In particular, the Model does not contain a ‘not lowering of standards’ clause. Similarly, China’s BITs contain little of what is relevant to the fulfilment of human rights obligations. Still, China seems to have embraced ‘not lowering of standards’ clauses, in a number of its more recent IIAs (but not in all of them).402 This is of particular interest bearing in mind that China has often been accused of attracting investment and even the relocation of entire industries from industrialized countries by keeping social and environmental standards low. Perhaps, given rising labour costs and an increased awareness for the environment in China, the Chinese government has shifted its focus towards preventing the relocation of its industries to

399

Model CFIA (2015) Article 24 para. 3. Model CFIA (2015) Article 15 para. 1. 401 Indian Model BIT (2016) Preamble. 402 See e.g. China-Japan-Republic of Korea Trilateral Investment Agreement (2012) Article 7; China-Republic of Korea FTA (2015) Article 12.7; Mainland China-Hong Kong CEPA investment agreement (2017) Article 25 (limited to environmental standards). 400

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other countries where labour costs and environmental standards are lower. However, the fact that three of the four Chinese IIAs that include ‘not lowering of standards clauses’ have been concluded with Korea suggests that Korea has pushed for these clauses rather than China. It remains to be seen whether the inclusion of such a clause in the China-Hong Kong IIA was an exception or whether future Chinese IIAs will adopt such clauses more often.

5.3.3.3

Performance Requirements

A number of both older and more recent IIAs contain prohibitions of so-called performance requirements.403 Notably the United States promotes such clauses in its treaty practice404 and latest Model BIT.405 Performance requirements are measures imposed by host States on foreign investors which, for example, require the latter to achieve a certain level or percentage of domestic content or labour or oblige investors to transfer technology to local persons and businesses. Prohibitions of performance requirements are related to the fulfilment of human rights obligations as they limit States’ capability to require investments to add to local development.406 The Indian Model BIT, the Brazilian Model CFIA, the SADC BIT, and South African Protection of Investment Act all fail to contain prohibitions of performance requirements. As mentioned above, the SADC Model even explicitly allows States to impose performance requirements to pursue development goals.407 As the commentary to the SADC Model puts it “performance requirements may be imposed on foreign investors in order to promote the social and economic benefits that are often ascribed to FDI.”408 Other models do not explicitly allow performance requirements but also do not prohibit them, essentially leaving their imposition to host-States’ discretion. China has historically not accepted or sought prohibitions of performance requirements. Only some of the State’s more modern IIAs contain such provisions. The China-Republic of Korea BIT, according to UNCTAD, is the first Chinese IIA that contains a prohibition of performance requirements, which prohibits “unreasonable or discriminatory measures against the management, maintenance, use,

403

According to UNCTAD’s IIA Mapping Project, 212 out of 2572 mapped treaties contain a prohibition of performance requirements. 404 According to UNCTAD’s IIA Mapping Project, among 48 mapped U.S. IIAs 43 contain a prohibition of certain performance requirements. 405 U.S. Model BIT (2012) Article 8. 406 See on the development potential of using performance requirements, e.g. Nikièma (2014), p. 16 (“Starting from the premise that well-formulated and applied PRs can be effective tools to maximize the economic, environmental and social benefits of foreign investment, it is consequently important for states, particularly developing countries, to retain the possibility of using them when the circumstances warrant so doing.”). 407 SADC Model BIT (2012), Article 21 para. 2 b). 408 SADC Model BIT (2012), Commentary, p. 41.

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enjoyment and disposal of the investments by the investors of the other Contracting Party” and “unreasonable or discriminatory measures on investments by investors of the other Contracting Party concerning local content, technology transfer or export performance requirements.”409 The China-Korea FTA (2015) incorporates trade prohibitions of trade related performance requirements provided by TRIMS Annex 1 A and prohibits State Parties to impose “unreasonable or discriminatory measures on covered investment by investors of the other Party concerning performance requirements on export or transfer of technology.”410 The same clause can be found in the China-Japan-Republic of Korea Trilateral Investment Agreement.411 As only agreements with the Republic of Korea contain such provisions, while other recent Chinese IIAs do not,412 it is assumed here that Korea pushed for these obligations. However, China’s most recent IIA with Hong Kong also provides for a comprehensive and detailed provision on prohibitions of performance requirements.413 The clause inter alia prohibits export obligations, local content requirements, buy-local policies, and technology transfer requirements.414 Still, the clause also contains a number of exceptions, such as the exclusion of government procurement, export promotion, and foreign aid projects.415 Again, it remains to be seen how future Chinese treaty practice unfolds in that regard.

5.3.3.4

Transfer Clauses

Transfer clauses are another typical feature of traditional IIAs to be found in nearly all IIAs.416 These clauses allow investors to transfer funds related to the investment (e.g., initial capital contribution and income) freely and without undue delay in and out of the host country. Such clauses again limit States’ policy space, namely to restrict the outflow of capital. However, transfer clauses are also related to the fulfilment of human rights obligations as they limit States’ ability to prevent capital flight and to require investors to reinvest income in the host-country, which could be seen as a development strategy. Particularly in situations of economic emergency, such free transfer clauses are problematic, as capital flight might seriously impact

409

China-Republic of Korea BIT (2007) Article 2 para.3. China-Republic of Korea FTA (2015) Article 12.7 para. 1–2. 411 Article 7 para. 1–2. 412 According to UNCTAD’s Mapping Project, only three Chinese IIAs contain prohibitions of performance requirements. 413 China-Hong Kong CEPA Investment Agreement (2017) Article 7. 414 China-Hong Kong CEPA Investment Agreement (2017) Article 7 para. 1. 415 China-Hong Kong CEPA Investment Agreement (2017) Article 3 i)–vi). 416 According to UNCTAD’s Mapping Project, 2560 out of 2572 mapped treaties contain a transfer of funds provision. 410

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States’ economic sovereignty and ultimately the ability to provide social services and order.417 Some treaty makers foresaw this problem early and included balance of payment exceptions to enable transfer restrictions in times of economic emergency. However, only recent financial crises have led to a broader rethinking, and the trend towards including balance of payments and other exceptions in newer IIAs.418 Still, only a minority of IIAs today contain such exceptions.419 Following this trend Brazil, India, and South Africa have all included a balance of payment exception in their respective legal instruments. Brazil’s CFIA contains a very detailed free transfer provision which inter alia exempts temporary restrictive measures related to capital movements in the case of: serious balance of payment difficulties, external financial difficulties or threat thereof, and where in exceptional circumstances transfers generate or threaten to generate serious macroeconomic management difficulties.420 As a safeguard for foreign investors, such temporary restrictive measures are required to be non-discriminatory and in line with the Articles of Agreement of the IMF.421 The Indian Model BIT also contains a fairly detailed clause on transfers providing for several exceptions.422 Like Brazil, India exempts temporary restrictions to address serious balance of payments and macroeconomic problems. Unlike Brazil, the Indian Model BIT does not require measures to be non-discriminatory. Drafters of the SADC Model BIT went one step further in that they did not only include a balance of payment provision but also made it self-judging.423 In consequence, a State’s assessment that temporary restrictions are necessary is only subject to limited scrutiny (and could potentially lead to arbitrary or abusive application). As a diplomatic safeguard, States applying restrictions are required to consult the other State party after taking such measures or prior to their renewal. According to the commentary, this does not give the partner State a veto but aims to provide some level of discipline and accountability within the process.424 The South African Protection of Investment Act simply subjects free transfer of funds to taxation and

Notably a number of cases brought against Argentina in the wake of its financial crisis in the early 2000s were based on the argument that Argentina’s emergency measures violated free transfer clauses, see e.g.: BP America Production Company and others v. Argentine Republic, ICSID Case No. ARB/04/8, Decision on Preliminary Objections (27 July 2006), paras. 21 and 31; see less explicitly also: Gas Natural v. Argentina, ICSID Case No. ARB/03/10, Decision of the Tribunal on Preliminary Question on Jurisdiction (17 June 2005), paras. 13–15. 418 According to UNCTAD’s Mapping Project, of 173 signed treaties between 2010–2018, 106 contained balance of payment exceptions. 419 According to UNCTAD’s Mapping Project, only 351 out of 2572 mapped treaties contain a balance of payments exception. 420 Model CFIA (2015) Article 10 para. 4. 421 Model CFIA (2015) Article 10 para. 5. 422 Indian Model BIT (2016) Article 6. 423 SADC Model BIT (2012), Article 8 para. 4 a) (“Where, in the opinion of a State Party [. . .]”). 424 SADC Model BIT (2012), Commentary, p. 29. 417

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other applicable legislation leaving ample room for the legislator to restrict free transfers in case they are needed to protect financial stability and ultimately the fulfilment of human rights obligations. China’s approach on transfer of payment clauses is again more flexible. Both older and more recent IIAs contain balance of payment exceptions. Among China’s treaties concluded between 2005 and 2018, only approximately half provide for balance of payments exceptions.425 Notably, the recent China-Hong Kong CEPA Investment Agreement contains a detailed transfer provision426 which in many ways resembles clauses promoted by Brazil, India, and South Africa. The clause exempts certain prudential measures and those necessary to address balance of payments problems. Moreover, the clause provides safeguards for investors in that it requires temporary measures to be imposed “on an equitable and non-discriminatory basis” and that those measures “shall not exceed what is necessary to deal with such kind of circumstances”.427 Apart from clauses addressing economic emergency, emerging powers (model) IIAs do not contain further (more radical) restrictions, such as exceptions to pursue broader development objectives by allowing States to require investors to reinvest in their country. Only the South African Protection of Investment Act broadly allows for the introduction of restrictions of free transfers through domestic legislation.

5.3.3.5

The Brazilian Focus on Investment Facilitation

A particular focus of the Brazilian Model CFIA—as its name already suggests—is investment facilitation.428 The central idea is that investment protection and ISDS alone are not sufficient to increase mutual investments among treaty partners. Instead treaties aim to install an institutional framework and to build a common agenda to further investment cooperation and facilitation.429 As mentioned during discussions of the CFIAs provisions on dispute settlement, these treaties install a Joint Committee composed of government officials that is supposed to meet at least annually and permanently set up so-called Focal Points or Ombudsmen.430 The idea to include clauses on cooperation and promotion of mutual investments and to install an institutional framework is not entirely new,431 but the focus on these issues as well 425

According to UNCTAD’s IIA Mapping Project, of 19 mapped IIAs signed by China between 2005 and 2018 only 8 contain balance of payment exceptions. 426 China-Hong Kong CEPA Investment Agreement (2017) Article 14. 427 China-Hong Kong CEPA Investment Agreement (2017) Article 14 para. 5. 428 Hees and Choer Moraes (2020). 429 See Model CFIA (2015) Part III and IV. 430 Model CFIA (2015) Article 17 (Joint Committee) and Article 18 (Focal Points or Ombudsmen). 431 It has to be noted that the idea to install “Ombudsmen” to support investors is not originally a Brazilian idea but was inspired by the Korean Investment Act, see: Korean Foreign Investment Promotion Act 1998, as amended by Act No. 9374 (30th January 2009), Article 15 para. 2; see also: Ratton Sanchez Badin and Morosini (2018), p. 226 who also note some differences.

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as the detailed provisions on the subject in the Brazilian CFIA are unique. The SADC Model BIT,432 as well as other IIAs,433 also contain short clauses on cooperation and the promotion of investments, but mostly these clauses are stated in ‘best efforts’ language and remain relatively vague. The respective clauses in the Brazilian Model CFIA are significantly more detailed and to some extent contain clear legally binding obligations for treaty partners. The Joint Committee inter alia has the functions of discussing opportunities for the expansion of mutual investment, coordinating the implementation of mutually agreed cooperation and facilitation agendas, and consulting with the private sector and civil society.434 In addition, State parties may establish ad hoc working groups on specific subjects. Further, the Model CFIA obliges State parties to set up Ombudsmen or Focal Points. These Ombudsmen/Focal Points provide investors with information and seek to facilitate cooperation with local agencies. Thereby they simplify the establishment of foreign investment and seek to prevent disputes before they arise. One of the Focal Points’ tasks, for example, is to provide information on regulatory issues relevant for investment in the respective State.435 Article 19 of the Model CFIA further foresees a right of State parties to demand from the other State party information regarding regulatory conditions and policies on foreign investments and other relevant information, such as social and labour requirements and immigration legislation. Finally, the Model CFIA contains an inbuild agenda for further investment cooperation and facilitation that requires the Joint Committee to further develop and discuss mutual investment promotion which also foresees the adoption of additional protocols and other legal instruments in addition to the investment treaty.436 This focus on investment facilitation and promotion can be seen as an effort to ensure that IIAs genuinely lead to an increase of FDI supportive of sustainable development, prosperity, and ultimately the fulfilment of socio-economic human rights, instead of simply securing the private interests of foreign investors with the vague promise of a trickle-down effect. While generally an interesting new future for investment treaties, it remains to be seen how the institutional cooperation works out in practice, whether States will be able to agree on a meaningful further agenda, and whether the focus on investment facilitation and promotion is really to increase mutual FDI in a way which is more constructive than the older paradigm of investment protection.

432

SADC Model BIT (2012), Article 23. UNCTAD’s IIA Mapping project lists 366 treaties that contain at least a brief reference (outside the preamble) to specific promotion activities in the context of the agreement. 434 Model CFIA (2015) Article 17 para. 4. 435 Model CFIA (2015) Article 18 para. 4 e). 436 Model CFIA (2015) Article 25. 433

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Conclusion

The first part of this chapter illustrated that in the 1980s and 1990s Brazil, China, India, and South Africa all followed the dominant narrative of that time according to which BITs are necessary to attract foreign investment and that foreign investment is needed for domestic development and growth. This observation suggests that all four countries could be qualified as having been rule takers during those times. However, while the term ‘rule taker’ appears suitable for India and South Africa, the cases of Brazil and China are more complex. Brazil initially embraced the ‘investment protection necessary for attracting FDI’ narrative, but over the years the Brazilian executive and legislature have become less committed to signed BITs, ultimately resulting in non-ratification. Thus, Brazil has not fully adopted Western promoted investment rules, but at the same time has refrained from engaging in rule-making— either as a norm-entrepreneur or antipreneur—itself. China’s approach has more of a rule-maker—or at least rule-shaper—as it has tried to limit ISDS provisions and refrained from embracing NT and other investor protections. Eventually, China reluctantly and gradually gravitated towards becoming a full rule-taker between the years 2000 to 2008 when the country moved towards accepting both ISDS and NT more broadly. All these approaches have changed in the last two decades. Due to investment cases being brought against them, South Africa and India decided to reform their approach to international investment law. In the case of South Africa, this led to a withdrawal from the international level (although not entirely) and a move towards the adoption of domestic legal alternatives. This change could have been seen as revolutionary, if South Africa had not announced plans to develop a new Model BIT and also keep some BITs with developing countries. It remains to be seen whether South Africa delivers on its promises and what will happen to BITs still in existence when they expire. India instead has taken a reformative stance in deciding to adopt a new model BIT and to exchange old BITs with new reformed ones. First successes have been achieved by terminating older BITs and by signing joint interpretative statements and new BITs based on India’s new model BIT with some less powerful developing countries. The eventual outcome in negotiations with more powerful players will allow further conclusions to be drawn about India’s ability to promote its Model BIT and succeed in negotiations. From 2015 Brazil moved from non-acceptance to the embracing of IIAs. However, the State has done so on its own terms. The development and promotion of CFIAs are considered here to be a clear sign of Brazil’s capacity to act as a rule-maker and (small-scale) paradigmshifter. In contrast, and somehow surprisingly, China largely remains a rule-taker rather than a rule-maker regarding international investment law. In particular, China has not substantially reformed its approach to IIAs and has refrained from publishing a new Model BIT since 1997. Despite these variances in general approach, emerging powers were able to voice some common positions on international investment law in the BRICS forum. They have called for a need to find a better balance between the protection of private

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commercial interests and States’ right to regulate in the public interest and for improvements of dispute settlement mechanisms. Further, they have proclaimed to make IIAs more supportive of sustainable development, inter alia through incorporating corporate social responsibility and by strengthening investment facilitation. Brazilian CFIAs, the new Indian Model BIT, and the South Africa Protection of Investment Act all reflect these goals. All three legal instruments highlight the importance of sustainable development and the State’s right to regulate in their preambles. Further, States have reformed provisions on NT, MFN, FET and indirect expropriations, and included general exception clauses in order to substantially increase State policy space. In most instances these reforms shape and limit existing rules rather than promote new ones, even though rules are sometimes rebranded, such as is the case with Fair Administrative Treatment that has been promoted by South Africa. Only on some, and differing provisions, have Brazil, India, and South Africa taken more radical stances. Both South Africa and Brazil effectively exclude protections against indirect expropriations. The Brazilian CFIA’s general exception clause is self-judging, providing States with vast discretion. India has omitted an MFN clause. All three States have radically limited the recourse of investors to ISDS. Both the Brazilian Model CFIA and South Africa’s Protection of Investment Act do not foresee ISDS at all and India has severely limited ISDS jurisdiction through the combination of requiring the exhaustion of domestic remedies alongside the immunity of court decisions. In this sense, all three States have recalibrated the available policy space for legitimate public goals, such as the protection of human rights obligations or the environment. Still, all in all, their approaches have reformative rather than revolutionary character with regard to the policy space of States. In contrast, China has gradually accepted stronger protections for foreign investors and broader ISDS jurisdiction. Despite this tendency, China appears flexible with regard to most treaty standards. Overall the State has not sought to reclaim policy space in a manner comparable to India, Brazil, and South Africa. China seems to follow general trends—also promoted by many developed States—which only foresee the smaller-scale reform of substantial provisions and keep with broad ISDS jurisdiction. It will be interesting to see whether China will turn towards opposing reform efforts when Chinese investors increasingly face restrictions in host States due to strategic security and other concerns. There are already signs that China might accept and promote market access commitments which would be of strategic importance to Chinese investors, especially in the current protectionist climate in some Western States. If China pushes for market access commitments vis-a-vis weaker developing countries it will become increasingly questionable whether treaties really provide win-win opportunities—as China proclaims—or will rather hurt the development goals of partner countries. Regarding the protection of human rights against violations by investors, Brazil, India, and South Africa have promoted some progressive provisions. However, both the Brazilian Model CFIA and the Indian Model BIT fall short of providing legally binding investor obligations and promote non-binding corporate social responsibility clauses instead. Only the SADC Model is more radical in that regard, providing a

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toolbox of provisions to hold investors and their home States accountable. However, the South African Protection of Investment Act does not incorporate any of these proposals. Nonetheless, Brazil, India, and South Africa at least seek some reform on the issue. In contrast, China so far has not incorporated any reference to corporate social responsibility, let alone legally binding investor obligations. Finally, emerging powers have sought some reform that is related to the broader objective of making investment law conducive to sustainable development and the fulfilment of socio-economic rights. Still, proposals are far away from amounting to a revolution in that regard. Verbally all four States seek to highlight sustainable development in preambles of IIAs and domestic legal instruments. Taken alone, however, this does not mark a fundamental paradigm shift. IIAs’ rationale have always been to increase foreign investment which supposedly would support the economic development of host States. Further, emerging powers have taken up some trends related to the subject, such as to reform free transfer clauses to be better able to address economic emergency situations. South Africa and Brazil also support ‘not lowering of standards clauses’, which were first promoted by developed countries, while India’s Model BIT does not contain such clauses and China’s approach on the subject again is flexible. Moreover, Brazil, India, and South Africa have not sought to include prohibitions of performance requirements. The SADC Model even explicitly allows the use of certain performance requirements to achieve development goals. Only China again appears more flexible, accepting such provisions in some IIAs and omitting them in others. Finally, the Brazilian CFIA seeks a limited paradigm shift in international investment law. The focus on investment facilitation, paired with limited legal protections, to some extent rejects the idea that investment protection is necessary to attract investment and seeks a more cooperative approach. Still, its goal is to attract investment and it thereby supports the rationale that foreign investment is necessary for local (sustainable) development. All in all, emerging powers have found some common goals but multiple different ways to get there. Brazil, India, and South Africa have sought reform of both substantial protections as well as investment dispute settlement procedures. Despite some radical approaches on individual norms, their approaches can generally be classified as reformative. China’s approach in contrast remains unclear, with a tendency to follow recent trends, including the recalibration of policy space, but also to gradually enlarge the scope of IIAs (market access). For global justice, reforms supported and sometimes initiated by emerging powers, in particular by South Africa, Brazil, and India, are valuable for diversifying international investment rules and for strengthening States’ policy space to pursue legitimate public interests. Still, with regard to making IIAs more conducive to the protection and fulfilment of socio-economic rights, their legal instruments have little to say. Only the SADC Model BIT Template provides for more innovative and progressive provisions on these two dimensions, but it is also the instrument that is most unlikely to be transformed into international treaty practice.

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Chapter 6

Emerging Powers and International Trade Law

“One thing we can celebrate is that rules here are no longer made by the rich countries. They have to take us into account, and that will continue to be so.” (Statement by Brazil’s Minister of Foreign Relations Celso Amorim, issued alongside with India’s Minister for Commerce and Industry Kamal Nath, cited in: ICTSD (2008a); Vickers (2012), p. 263.)

This chapter explores approaches of emerging powers to international trade law and is structured in a comparable way to Chap. 5. The chapter starts with a brief description of emerging powers’ earlier involvement—in some cases non-involvement—in the world trade order throughout the GATT years (1948–1994). This first part (A.) asks whether Brazil, China, India, and South Africa can be characterized as rule-takers or rule-makers during that period. The second part (B.) analyses whether their rise in economic power has led to an increased importance of emerging powers within the international trade order and its law-making processes. In its third and main part (C.) the chapter examines several examples of how emerging powers have sought to make WTO agreements more just according to our three-dimensional human rights approach and whether they succeeded.

6.1

Historical Background: Emerging Powers in the International Trade Order

Chapter 3 has already exposed the structural involvement of power asymmetries in international trade law-making processes. We have also seen that developing countries did not embrace Western promoted international trade rules during the GATT years solely as rule-takers but fought for—and in a limited way also achieved— special and differential treatment, in the form of non-reciprocal obligations and preferential market access for example (if only on a voluntary basis). The following part seeks to highlight the role of individual emerging powers in the trade order in the © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 A. Buser, Emerging Powers, Global Justice and International Economic Law, https://doi.org/10.1007/978-3-030-63639-5_6

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respective historical context. This is not an easy task. While comprehensive accounts about the role of developing countries as a bloc in GATT 1948 exist,1 literature on positions of individual countries during that period are rare.2 Nevertheless, based on existing literature, trade data, and public statements by respective countries, the chapter provides brief summaries that contextualize today’s approaches by emerging powers in relation to international trade law.

6.1.1

The GATT Years and the Uruguay Round

Brazil and India are original Member States of GATT 1947 and remained so until WTO agreements replaced the old provisional trade order.3 Both countries qualified as developing country member States during the GATT years and were part of the movement for special and differential treatment. Thereby both countries succeeded in limiting their obligations to liberalize and were able to shield their policy space to adopt protectionist import substituting industrialization policies.4 In addition, both countries extensively made use of exceptions and safeguards, such as balance of payments exceptions under GATT Article XVIII Section B.5 In essence, both India and Brazil rhetorically embraced liberal principles embodied in GATT by becoming and remaining Member States but legally and factually managed to avoid many of its commitments. In consequence, India and Brazil should not be qualified solely as rule-takers regarding international trade law during that period. India was very active as a leading State within G-77 which more or less successfully promoted the inclusion of special and differential treatment.6 Brazil as an initial G-77 member also supported these initiatives and brought in many reform

1

See most notably: Hudec (2010). For the exception see: Ismail (2015). 3 It must be noted that GATT 1947 never formally entered into force but was applied on a provisional basis (see: Protocol of Provisional Application of the GATT (30 October 1947) 55 UNTS 308) which is why formally the term ‘Member States’ is not completely correct here. However, for matters of simplification and in line with terms used by States and officials these terms are adopted nonetheless. 4 See on ISI policies in the context of international trade law in the respective countries, on Brazil: Holanda Barbosa (1998); Bulmer-Thomas (2014), p. 296 et seqq.; on India see e.g.: Chimni (2010), p. 165; Shaffer et al. (2015), p. 602 et seqq. 5 See on Brazil: Abreu (1999), p. 2 (“Until 1990 restrictions based on balance of payments became the rule and Brazil’s almost permanent status was that of a country invoking Article XVIII:B of the General Agreement.”); India even after its accession to the WTO agreements sought to apply trade restrictions on balance-of-payments grounds which however were successfully legally challenged by the US in 1997, see: India—Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products, WT/DS90/R, Report of the Panel (6 April 1999) and India-Quantitive Restrictions on Imports of Agricultural, Textile and Industrial Products, WT/DS90/AB/R, Report of the Appellate Body (23 August 1999). 6 See Sect. 3.2.3. 2

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proposals within the GATT system.7 Thereby India and Brazil to some extent already engaged in rule-making in international trade law during the GATT years and often took the role of leaders of the developing world. South Africa was also an original member of GATT 1947. In contrast to Brazil and India, the State from the beginning accepted the status as a developed country member and consequently was not eligible to special and differential treatment. In 1947, the qualification of South Africa as a developed country was not so much based on economic criteria but on South Africa’s affiliation with Western States, and the then apartheid government’s desire to stand par on par with other ‘civilized’ States.8 However, due to a variety of reasons the country nonetheless managed to implement domestic protectionist policies fashionable at the time among developing countries (and also many developed ones) that aimed to protect local industries and import-substitution. Most notably, the country, up until the end of the apartheid regime in 1994, imposed a complex system of import restrictions officially for balance of payments reasons (Article XII GATT 1947) but in fact clearly aimed to protect local industries and businesses from foreign competition.9 Further, South Africa was a very active user of anti-dumping measures which also aimed to protect local industries.10 Because of rising global criticism against the apartheid system in South Africa and increased international isolation, the 1980s saw a worsening of protectionist policies by South Africa. In response to trade sanctions imposed by almost all of South Africa’s major trading partners in the 1980s and 1990s, the State implemented further import barriers such as import surcharges.11 Restrictive import policies only changed when the new National Unity Government of South Africa under Nelson Mandela took office in 1994. As of 1 October 1995, South Africa both abolished import surcharges and took back restrictions based on balance of payments provisions.12 However, policy change was not entirely attributable to the new government. The last apartheid government had already changed its stance on trade towards greater liberalization during the Uruguay Round, which was concluded on 12–15 April 1994, just 2 weeks prior to South Africa’s first democratic elections. South Africa has been an active player in each negotiation round of GATT since 1947.13 In particular, it sought to weaken its legal obligations and concessions in order to protect its emerging businesses and infant industries, while at the same time demanding increased market access commitments from developed countries.14 In

7

See for a summary of several Brazilian proposals: Abreu (1999), p. 2 et seqq. Ismail (2015), p. 82 et seqq. 9 Ismail (2015), chapters 5 and 6 and p. 149 et seqq. 10 Brink (2005), p. 21 available at: http://nrfnexus.nrf.ac.za/handle/20.500.11892/178229. 11 Ismail (2015), p. 152. 12 See: WTO Committee on Balance-of-Payments Restrictions Report on the 1995 Consultation with the Republic of South Africa, WP/BOP/R/1 BOP/R/224 (15 June 1995), para. 5 and 6. 13 For a comprehensive empirical overview, see: Ismail (2015), chapter 5, 6, and 7. 14 See: Ismail (2015). 8

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that regard, its approach strongly resembled that of most developing countries which also were able to limit own market access liberalization but at the same time achieved little with regard to market access to developed countries. The Uruguay Round took 8 years but ultimately its outcome brought about a fundamental restructuring of the rules guiding the international trading system, the creation of a new international organization—the WTO, a strong Dispute Settlement Mechanism (DSM), as well as significant change in the role played by developing countries in the system.15 Certainly not coincidentally, this remarkable step towards liberalized trade and more generally towards a market-based international economic order occurred at the same time as the break-up of the USSR and the beginning of the short-lived unipolar period of the United States.16 From the beginning, severe conflicts of interests across North-South lines characterized the Uruguay Round. Early on, developed countries—most notably the United States—proposed to start negotiations on investments and services, issue areas which until then remained outside the scope of GATT.17 However, the inclusion of those issues was fiercely opposed by Brazil, India, and other developing countries, which instead called for improvements in the areas of agriculture and textiles.18 Only by the 1986 Uruguay Round, initial developing country resistance could be overcome. The agreement reached there foresaw that developing countries would negotiate on the new issues of services, trade related issues of intellectual property, and investment. In return developed countries agreed to negotiate on issues of interest to developing countries, such as the integration of trade in textiles and clothing into GATT and the liberalization of trade in agricultural goods.19 Nevertheless, despite engaging in negotiations, some developing countries, most notably India, continued to remain very critical and inter alia promoted a narrow reading of the trade-relatedness of intellectual property rights.20 By the early 90s, however, it became apparent that developing countries would agree to the incorporation of the new issues, substantial binding of tariffs, and other liberalization commitments within the traditional trade of goods. The result then was a “grand bargain”: Developing countries, including Brazil and India, would

15

Michalopoulos (2014), p. 34; Rolland (2012), p. 89 et seqq. See on the connection also: Rolland (2012), p. 74. 17 During the GATT Tokyo Round (1973–1979) the US had already unsuccessfully sought to open the negotiation mandate for investment rules and continued this effort with a comprehensive proposal in the lead-up to the Punta del Este GATT Ministerial Meeting in March 1986, see e.g. Kurtz (2002), p. 722. 18 Rolland (2012), p. 74; see on Brazil’s negotiation position also: Abreu (1999), p. 4. 19 See: Ministerial Declaration on the Uruguay Round (20 September 1986), p. 5 (Textiles and clothing), p. 6 (Agriculture), p. 8 (Trade-related investment measures), p. 10 (Negotiations on trade in services). 20 See on India’s initial position e.g.: Standards and Principles Concerning the Availability Scope and Use of Trade-Related Intellectual Property Rights: Communication from India, Negotiating Group on Trade-Related Aspects of Intellectual Property Rights, MTN.GNG/NG11/W/37 (10 July 1989), para. 1–4. 16

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substantially commit to WTO disciplines including in new areas such as intellectual property and services—where developed countries saw benefits in their own interest—and in exchange developed countries would open sectors of particular interest to developing countries, namely the agriculture and textiles sectors.21 However, many commentators depicted the outcome as disillusioning for developing countries.22 Market access gains for products typically exported by developing countries were limited and newly incorporated areas proved to be strenuous. Regarding liberalization commitments, the Uruguay Round saw the factual narrowing-down of the principle of non-reciprocity between concessions of developed and those of developing countries. Developing countries for the first time in GATT’s history accepted more comprehensive liberalization commitments regarding tariffs and other trade restrictive measures.23 A notable example is India. For the country the outcome meant that 74.9% of the country’s tariff lines became bound, in contrast to only 6% during the GATT years.24 Negotiators achieved some successes on market access for developing country products to developed markets. Most notably the 1994 Agreement on Agriculture (AoA) promised to liberalize the strongly protected sector of agriculture. Yet, as seen in Chap. 4, liberalization gains for developing countries were limited. When developing countries saw benefits of WTO agreements rather critically, why did they sign and ratify the agreements? Chapter 3 described how the United States used unilateral trade sanctions and the threat of such sanctions to coerce other States and how the United States and EC used their market power to influence developing countries—in danger of becoming excluded from important markets—to sign the WTO agreements. Further reasons include the then deteriorated ability of developing countries to act collectively as a negotiating bloc due to internal conflicts, economic diversification, and diverging economic policies. Moreover, an imprecise economic understanding of several parts of the new WTO agreements (in particular the requirements of TRIPS) by developing country negotiators and the diplomatic appeal of joining the new World Trade Organization, an organization the international community had tried to establish for over 50 years, may have further added to the willingness of developing countries to sign the WTO agreements.25 This summary of reasons holds true for India, Brazil, and South Africa. Only in the Uruguay Round that led to the creation of the WTO and its agreements, both India and Brazil finally—under considerable external pressure—accepted more comprehensive liberalization commitments. By that time, economic policies in

21

Ostry (2008). Stiglitz and Charlton (2005), p. 49; Sylvia Ostry called the outcome a “bum deal”, see: Ostry (2009), p. 105. 23 Cf. Michalopoulos (2014), p. 36. 24 See for the level of bound tariffs: Trade Policy Review of India, Report by the WTO Secretariat, WT/TPR/S/313 (28 April 2015), p. 39. 25 See with reference to the example of TRIPS: Abbott (1989); Watal (2001), p. 19; Sell (2003), p. 96 et seqq. 22

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both countries—in line with overall trends among developing countries26—had moved away from import substitution industrialization policies towards more export-oriented policies requiring both countries to better integrate their economies in the global market. A combination of internal and external economic and political factors best explains Brazil’s policy shift. While ISI policies provided for a high average growth rate of 6.1% during the 1950s, 4% during the 1960s, and 5.5% during the 1970s, the oil and interest rate crisis of 1979 and the debt crises of the 1980s and 1990s in Latin America led to severe economic slow-downs in Brazil.27 As a consequence, inwardlooking development economics lost ground among governments and corporate elites in Brazil and other Latin American countries.28 Beginning in 1989, the newly elected Brazilian president Fernando Collor de Mello pushed for economic policies of fiscal restraint, monetary stability, privatization, and trade liberalization. His successor Fernando Henrique Cardoso (1995–2002), who earlier had become famous as a formulator of dependency theory, became a strong advocate of Brazilian integration in the world economy and under his presidency Brazil gradually moved towards more liberal economic policy.29 Adding to these internal factors, the World Bank, the IMF, and the US treasury strongly pushed for Brazilian trade liberalization during the Uruguay Round.30 The United States used both carrots and sticks, conditional loans, and trade sanctions (Section 301 of the U.S. Trade Act), to bring the Brazilian government to further open the country’s market and accept WTO agreements.31 Under GATT 1947 India had made few legal concessions on opening its economy to global trade. By the time the Uruguay Round began, India’s tariff rates were still exorbitantly high (maximum tariff rate of 355%, import-weighted average tariffs of 87%, and unweighted average tariffs of 128%) with only 6% of Indian tariff lines bound.32 However, economic thinking in governmental circles had begun to change in the late 1980s and early 1990s. The dissolution of the Soviet Union, the rise of 26

Starting in the early 1970s international economic studies strongly questioned the effectiveness of infant industry protection. According to these studies, infant industry protection created disincentives to export and led to ineffective and non-competitive industries. Moreover, import-substitution policies and accompanied inefficiencies arguably led to increased vulnerability of developing economies to external shocks. Further, it was concluded by international economists that the use of fiscal and monetary measures was superior to trade and exchange controls when addressing external imbalances. As the former was not seen to lead to misallocation costs associated with trade restrictions, the rationale for trade restrictions to address balance-of payments difficulties became more and more questionable. For a summary and further references, see: Michalopoulos (2014), p. 33 et seqq. 27 GDP figures for Brazil are based on the World Bank’s database, which is available at: https://data. worldbank.org; See for a brief overview also Shaffer et al. (2008), p. 394 et seq. 28 See e.g. Sikkink (1991), p. 7 et seqq. 29 Shaffer et al. (2008), p. 397 with further references. 30 See e.g. Gilpin (2001), p. 269 et seq.; Shaffer et al. (2008), p. 397. 31 Bayard and Elliot (1994), p. 355 et seqq. 32 Sinha (2016), p. 8 et seq.; Shaffer et al. (2015), p. 603.

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neoliberal economic theories, and the economic rise of export-oriented East Asian economies discredited the ISI development model among Indian officials.33 Further, due to economic crisis stemming from the Gulf War oil shock, India had to apply for emergency credits from the IMF and to export part of its gold reserves to its former colonial ‘master’ to guarantee its debts.34 IMF conditionality seeking liberalization of the Indian economy was depicted as outrageous foreign interference within Indian government circles and the media at the time and still is seen in that way by many Indians today.35 However, some Indian officials today admit that IMF conditionality was also a ready excuse for a number of Indian officials in the Indian Ministry of Commerce—who often had been trained in Western universities—to justify liberal economic reforms undertaken in 1991 that were seen as necessary to reform India’s economy.36 Regardless of the degree to which conditionalities were imposed coercively, it must be noted that—together with changes in economic thinking—they brought about major reforms of the Indian economy and facilitated the acceptance of strong and comprehensive legal commitments under WTO Agreements. The case of South Africa is somewhat different to India and Brazil as the country was still qualified as a developed country under GATT when the Uruguay Round began. South Africa made efforts to be recognized as a developing country during the Uruguay Round however faced objections by major trading powers ultimately leading South Africa to retain its developed country status.37 In consequence, the country made more significant concessions on market liberalization than for example Brazil, India, Mexico, or Malaysia which qualified as developing countries.38 These concessions marked a considerable policy shift from rhetorically embracing trade liberalization but in practice applying ISI policies, towards a more comprehensive embrace of trade liberalization. As with Brazil and India, the policy shift towards further trade liberalization was due to a variety of factors including pressure imposed by the United States and the EC and a change of economic thinking in South African government circles based on the dominant Washington Consensus which (partly) led policy makers to view WTO agreements as necessary to rebuild the competitiveness of the economy.39 Despite its formal status as a developed country, South Africa during the Uruguay Round, and also in latter negotiation rounds, mostly aligned its positions with developing countries and in particular with other African States.40

33

Cf. Shaffer et al. (2015), p. 604. See for a comprehensive account of India’s economic reforms in the early 1990s: Joshi and Little (1996). 35 For a critical perspective, see e.g.: Chimni (2010), p. 168 et seq. 36 See: Shaffer et al. (2015), p. 604 et seqq. with reference to interviews with high-level Indian officials of the time. 37 Cf. Ismail (2015), p. 178. 38 Ismail (2015), p. 168 et seqq. 39 Hirsch (2005), p. 128; Ismail (2015), p. 171. 40 See e.g. Yanai (2013), p. 80 et seqq. 34

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The Case of China and Its Accession to the WTO

The case of China and the international trade order is somewhat special. The Republic of China (ROC) signed GATT 1947 to become one of its founding members. However, the ROC never came to sign the Protocol of Provisional Application of the GATT which would have brought the agreement into effect on a provisional basis.41 When States negotiated GATT 1947, the Chinese Communist Revolution had already started however it was the Nationalists under Chiang Kaishek which took part in GATT negotiations. Despite the defeat of the Nationalists and their retreat to Taiwan, many Western States in the aftermath of 1949 still recognized the Republic of China (ROC) as the legitimate representative of mainland China. In consequence, it was the ROC that occupied China’s seat in the UN Security Council and it would have been consequent if it would also have done so for GATT. However, the ROC government apparently decided not to do so in the case of GATT and formally withdraw its signature in 1949.42 Irrespective of difficult questions of State identity and succession involved, this withdrawal led to the fact that China (PRC) remained outside the international legal trade order for the most of the twentieth century. This position began to change when China gained international standing in 1971 through overtaking the Chinese seat at the UN Security Council. In subsequent years China also began to lobby for GATT accession.43 It was only 7 years later, in 1978, when Deng Xiaoping introduced China’s Reform and Opening Up policy, which inter alia was promoted as planning to bring gradual integration of the semi-autarkic Chinese economy into the global trade regime.44 Formerly, Chinese economic policy had involved highly restrictive trade policies and import-substituting-industrialization.45 Reasons for this policy change included, among others, the disastrous state of the national economy—especially in comparison with newly industrialized neighbours, such as South Korea, Taiwan, Hong Kong, and Singapore—and the deteriorating relationship with the Soviet Union.46 The final decision to open up the economy was an outcome of fierce political battles between different camps within the Chinese Communist Party.47 Regarding content, opening-up policies since 1978 included the introduction of market mechanisms domestically and some liberalization of market access for trade and foreign investments (so-called

41

See: Protocol of Provisional Application of the GATT, 30 October 1947, 55 UNTS 308, para. 1. The telegram containing the withdrawal can be found in: Communication from Secretary-General of United Nations Regarding China, GATT/CP/54 (8 March 1950). 43 See for a summary e.g.: Hsiao (1994), p. 434 et seqq. 44 See on these reforms and their historical context e.g. Reardon (2014). 45 See for an overview of the pre-reform foreign trade system in China: Lardy (2010), pp. 16–36. 46 Feng (2012). 47 See on political battles within the Chinese Communist Party: Reardon (2014), p. 167 et seqq. and 181 et seqq. 42

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Open-Door-Policy”).48 Already by the mid-1980s, China had replaced, or at least complemented, its ISI policies with export promotion policies. At first China’s efforts to join GATT 1947 progressed well. In 1982 China received observer status and took part in several GATT meetings. On 10 July 1986 the PRC formally requested that its status as a contracting party to GATT be “restored” and that China be qualified as a developing country.49 In response GATT members established a “Working Party on China’s Status as a Contracting Party” in March 1987.50 However, despite several meetings the Working Party faced many obstacles, such as whether China would qualify as a developing country member enjoying S&D treatment (which was strongly opposed by the United States) and the sufficiency of liberalization offered by China (which the EC and the United States were unsatisfied with).51 Moreover, internal upheavals in China and the Tiananmen square massacre in 1989, together with China’s reluctance to enact further economic reforms, set China’s prospects of accession back several years.52 Only in 1991 did China manage to resume negotiations on GATT accession.53 However, diplomatic hurdles, particularly with the United States and other developed countries which wanted China to improve liberalization of the national economy and to reduce trade barriers first, proved insurmountable at that time.54 Moreover, the Uruguay Round was in full swing occupying GATT members. It is also likely that important GATT members, including the United States and the EC, for strategic reasons, wanted to set new rules first before bringing in a new powerful player which was still reluctant to accept liberal economic rules and which could have objected to new rules, such as surrounding intellectual property protection and a strong dispute settlement mechanism. In 1996 accession negotiations continued under the WTO’s new legal arrangements.55 Again, many obstacles had to be surmounted within the complicated WTO accession procedure, leading to the fact that China was able to join the WTO only in 2001. As accession requires prospective Member States to negotiate bilateral concession agreements containing offers of market openings with each interested WTO Member State, which then are included as a schedule of commitments in the final Protocol of Accession, China was required to accept considerable so-called

48

For an insider’s perspective, see: Li (2010). For further analysis, see: Lardy (2010), pp. 37–82. China’s Status as a Contracting Party, Communication from the People’s Republic of China, GATT Doc. L/6017 (14 July 1986). 50 Working Party on China’s Status as a Contracting Party, GATT Doc. L/6191 (19 July 1987). 51 For a summary of the work of the Working Party, see: Bhala (2000), p. 1481 et seqq. 52 Feinerman (1992), p. 25; see also: Hsiao (1994), p. 435 and Feinerman (1996). 53 Hsiao (1994), p. 435. 54 Feinerman (1992), p. 25; Hsiao (1994), p. 435 with further references. 55 See for an in detail overview of further negotiations and in particular the bilateral agreement reached with the US in November 1999: Bhala (2000), pp. 1487–1528. 49

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WTO-plus commitments, going beyond concessions given by original WTO Member States.56 All in all, this ‘accession saga’ demonstrates that China early on sought to enter the international trade order but had to overcome numerous internal as well as external obstacles. The final accession indeed represents a risky bet that China would benefit from rules others had created, that cemented already achieved liberalization, and required further opening. China in that regard ultimately accepted liberal trade rules made by other States and even committed itself to liberalization commitments going beyond those agreed by others. Therefore, China until the early 1970s can be qualified as a passive State, neither joining, nor explicitly objecting, nor providing alternatives to the international trade order. Given the long duration of accession negotiations, China was unable to form WTO agreements within the Uruguay Round and finally had to take given rules and even pay a huge ‘entrance fee’ (WTO plus obligations) for joining the international trade order. Thus, China mostly remained a rule-taker rather than a rule-maker in that period.

6.1.3

From Uruguay to Doha and Beyond

The post-Uruguay period has often been described as a period of rising tensions along North-South lines and also as a period of increased participation of developing countries.57 Soon after the Uruguay Round had been concluded Southern States called for a ‘rebalancing’ of commitments.58 Subsequent negotiations saw a huge rise in developing country participation and a diversification of engaged developing country Members in comparison to former negotiation rounds.59 This increased participation sometimes took the form of blockage, but often also the form of substantive proposals.60 The 1999 Seattle Ministerial Meeting is indicative of newly found blocking power of developing countries. The meeting was confronted with massive civilsociety protests in the streets, often referred to as the ‘Battle of Seattle’.61 Yet, the ultimate failure to reach any agreement in Seattle lay again among the negotiating parties. Causes provided by representatives for the failure include an overloaded and over-ambitious agenda (many developing countries were still concerned with implementing the WTO agreements and sought to avoid new obligations), U.S. pressure on developing countries to accept tying trade to labour standards

56

For a summary and critique see e.g.: Ya Qin (2003). Rolland (2012), p. 89 et seqq.; Michalopoulos (2014), p. xix; Hopewell (2016), p. 71. 58 See e.g. Ostry (2008), p. 287; Hopewell (2016), p. 70 et seq. 59 Steiner (2008), p. 355; Rolland (2012), p. 90; Hopewell (2016), p. 77 et seqq. 60 Rolland (2012), p. 90. 61 See e.g. Summers (2001). 57

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(which was seen by the latter as hidden protectionism62), the EU’s unwillingness to accept any commitments on agricultural liberalization, and the non-transparent decision-making procedure that ultimately again shut out many developing countries from key negotiations.63 Negotiations in Seattle had first been conducted in small open-ended working groups, but when deadlocks remained and time ran out the U.S. representative conveyed a smaller meeting with powerful members and only some developing countries. Reportedly several other developing countries which tried to enter the room without invitation were denied entry which led to fierce criticism from many developing country representatives.64 The failure of Seattle shocked members, observers, and WTO officials, and led to concerns about the future of the WTO as a multilateral system. This shock provided the context for the Doha Development Round launched in 2001. Bearing developing countries’ opposition in mind the WTO secretariat had to reinvent the organization’s purpose and framed the new round as a ‘development round’ aimed at addressing concerns of developing countries. Albeit insiders suggest that the WTO secretariat only used development as a positive frame to sell the new round to developing countries,65 this strategy was to some extent successful in recasting the WTO as a ‘development institution’.66 Many developing countries embraced this new focus. Most notably, newly admitted China and the G-77 in 2001 strongly supported the idea of a new round of negotiations with a development focus.67 The DDR has proven to become a highly complex negotiation round spanning a wide array of topics, participants (157 WTO Members and still increasing), and widely differing interests both among and within countries. The initial work programme and negotiation mandate included areas as diverse as agriculture; services; market access for non-agricultural products (NAMA); TRIPS; the relationship between trade and investment; interaction between trade and competition policy; transparency in government procurement; trade facilitation; dispute settlement; trade and environment; electronic commerce; small economies; trade; debt and finance; 62 Brazil for example pointed out that it fully accepts and enforces core labour standards but that developed economies should not use the protection of such standards as a “scapegoat to deal with the problem of structural unemployment in the developed economies”, see: Brazil, Statement by H.E. Mr. Luiz Felipe Lampreia, Minister for External Relations, WT/MIN(96)/ST/8 (9 December 1996); see also: Brazil Statement by H.E. Mr. Fernando Henrique Cardoso, President, WT/FIFTY/ H/ST/7 (19 May 1998), para. 6–7; see on labour standards as a disguised form of protectionism also: India Statement by H.E. Mr. S. Narayanan, Ambassador, Permanent Representative, WT/GC(95)/ ST/11 (30 January 1996); less sceptical but still highlighting the danger of misuse: South Africa Statement by H.E. Mr. Nelson Mandela, President, WT/FIFTY/H/ST/13 (19 May 1998); for a scholarly work supporting these arguments, see: Summers (2001), p. 69 et seqq. 63 See: ICTSD (1999). 64 Rolland (2012), p. 92 with reference to a number of newspapers reports. 65 Then WTO Director-General Mike Moore reportedly told his officials: “We’ve got to get this fuckin‘ show back on the road. And no way are we going to be seen as just bumbling along with the fuckin’ built-in agenda. We’ve got to re-brand.” Cited in: Blustein (2009), p. 82. 66 Hopewell (2016), p. 75. 67 See: Rolland (2012), p. 91.

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trade and transfer of technology; technical cooperation and capacity building; Leastdeveloped countries; and special and differential treatment.68 In many aspects the initial negotiation mandate is at least rhetorically framed to tackle the so-called development deficit of WTO agreements and commits Member States to pay attention to the issues raised by developing countries.69 Some scholars even go so far to describe the Doha Development Round as the second big round for moving towards a New International Economic Order (NIEO).70 However, the Doha Development Round did not deliver and has become notorious for repeated stalls and breakdowns. More recently, the Bali (2013) and Nairobi (2015) Ministerial Meetings have brought some positive outcomes for developing countries. In 2013, after intense negotiations that were often close to failure and depicted as the last opportunity to save the Doha Round, negotiators finally reached the so-called ‘Bali package’ which was hailed as a huge success for the WTO.71 WTO Director-General Roberto Azevêdo even stated that “[f]or the first time in our history: the WTO has truly delivered.”72 The final outcome regarding the DDA in Bali includes ten decisions concerning mainly three subjects: Trade Facilitation, Agriculture (including cotton), and development and LDC issues.73 The main outcome of Bali, the Trade Facilitation Agreement (TFA)74 was also hailed as a major improvement for developing countries. However, neither decisions concerning agriculture nor those concerning development and LDC issues brought about any decisive changes to given WTO agreements or new rules. Moreover, many developing countries remained concerned about the implementation costs of the TFA.75 Two years later the Nairobi Ministerial (2015) promised to further deliver outcomes for developing country WTO Members. At that point the WTO increasingly faced the threat of being side-stepped by bilateral, regional, and mega-regional trade

68 Doha WTO Ministerial 2001, Ministerial Declaration, WT/MIN(01)/DEC/1 (14 November 2001), para. 12–44. 69 Trebilcock et al. (2013), p. 615. 70 Chen and Chen (2010), p. 93. 71 See e.g.: Bellmann (2014), para. 1 et seq. 72 Azevêdo R World Back in WTO, Speech Delivered at the 9th WTO Ministerial Conference, Bali (7 December 2013). https://www.wto.org/english/news_e/news13_e/mc9sum_07dec13_e.htm#dg. 73 The Bali Ministerial Declaration, WT/MIN(13)/DEC (7 December 2013). 74 ‘Agreement on Trade Facilitation’, Ministerial Decision, WT/MIN(13)/36, WT/L/911 (7 December 2013); for a revised version see: ‘Protocol Amending the Marrakesh Agreement Establishing the World Trade Organization’, General Council Decision, WT/L/940 (of November 2014). The agreement’s overall purpose is to reduce the cost of trading by facilitating customs procedures, reducing red tape, and by enhancing efficiency and transparency. The agreement has entered into force in 2017. 75 Bellmann (2014), para. 15. Notably, the TFA contains a number of provisions on support for developing countries which however are phrased rather vaguely, see e.g.: Article 21 on financial and other assistance (“shall endeavor”).

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agreements.76 However, given the largely successful UN climate talks in Paris and the adoption of the Sustainable Development Goals in New York in the same year, chances were good that the WTO Ministerial would become a success. The fact that the Nairobi Ministerial was the first ministerial conference held in a Sub-Sahara African country further raised expectations of developing countries.77 Nairobi delivered on some issues of relevance for developing countries, but also brought to the fore substantial divisions among WTO Members of how to continue multilateral trade negotiations within this forum. Outcomes considered to be in the interest of developing countries include several decisions on agriculture and a package on LDC issues.78 According to WTO Secretary General Azevêdo, the outcome represents “the most significant outcome on agriculture” seen in the WTO’s 20-year history.79 Yet, as described in more depth below, a more nuanced analysis of the final outcome is necessary. Several of the mentioned decisions only represent interim solutions. The economic value of other decisions for developing countries is questionable and nothing was achieved on market access for agricultural products to developed country markets. Moreover, Nairobi saw the factual abandonment of the Doha Development Agenda. While many developing countries including China, India, the African Group, and others promoted reaffirming the Doha Round and its mandate, developed countries/coalitions like the United States, the EU, and Japan instead proposed to discuss only some remaining Doha issues outside its former mandate and also proposed the inclusion of new issues.80 At the end of the Ministerial, the African Group, China, Ecuador, India, and Venezuela stressed their continued support for the Doha Development Round and highlighted the connection to the Sustainable Development Goals (2015) and the WTO’s development deficit.81 Since Nairobi WTO members appear to be unresolved in terms of whether to commence negotiations under the Doha mandate, including interim ‘deals’ so far concluded, or whether to start anew. The latest WTO Ministerial in Buenos Aires even proved unable to issue a joint statement on achieved negotiation outcomes and further negotiations.82

76

ICTSD (2015b). See: ICTSD (2015b). 78 In more detail on agriculture below C. II. 79 An overview of the Nairobi Package’s Content is available at: https://www.wto.org/english/ thewto_e/minist_e/mc10_e/nairobipackage_e.htm. 80 ICTSD (2015b). 81 Joint Ministerial Statement on DDA from African Group, China, Ecuador, India and Venezuela, WT/MIN(15)/19 (15 December 2015). 82 A summary of the outcomes of the conference is available online but a common declaration is missing, see: https://www.wto.org/english/thewto_e/minist_e/mc11_e/mc11_e.htm. 77

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Shift in Power: From Developing Countries to Emerging Trade Powers?

Today it is widely acknowledged among scholars of different disciplines that there has been a systemic shift of power within world trade from the traditional Quad (EC/EU, United States, Canada, and Japan) to emerging powers.83 However, the blanket acceptance of this assumption seems to be too simplistic. The following section describes ongoing power changes through an actor-specific lens and seeks to highlight how Brazil and India so far have engaged more actively in trade negotiations than the more powerful China. Lastly the section explores reasons for South Africa’s subordinate rule in comparison to Brazil, India, and China.

6.2.1

Brazil, China and India Enter the Green Room

A major sign of changed negotiation power is the permanent inclusion of Brazil, India, and China within the inner circles of WTO negotiations. Since 2003 the old ‘Quad’ (United States, EC, Japan, and Canada) has been replaced by a new ‘Quad’ (United States, EU, Brazil and India) and those countries have since been at the core of negotiations.84 During the mini-ministerial in Geneva in July 2008 China also entered the inner circle of negotiations, which then comprised the EC, the United States, Japan, Canada, India, and Brazil.85 These compositional changes reflect a major shift in power relations that influence WTO trade law making and demonstrate that the EU and United States have become unable to push through major agreements on their own and instead need to take into account the positions of Brazil, India, and China.86 South Africa has so far only played a minor role in Doha Round negotiations compared to India, Brazil, and China. Though South Africa has been engaged in several groupings and has played an important leading role in the African Group, it has not entered the inner circle of negotiations like India, Brazil, and China. South Africa at times took part in ‘green room’ talks, but it did not receive a permanent ‘chair’ within the inner circle of those trade negotiations. How did this change happen and why were Brazil, India, and China to enter the inner circles but not South Africa, Mexico, or other emerging economies? As there are no clear criteria for entering the inner circle of the WTO, one can only make assumptions. However, three major factors seem to have been important: Outstanding economic power, improved legal and economic capabilities among negotiators, 83

See e.g.: Vickers (2012), p. 254 et seqq.; Hopewell (2016), p. 77 et seqq. Hopewell (2016), p. 79. 85 ICTSD (2008b). 86 See also: Hopewell (2016), p. 79, with references to supportive statements by trade negotiators and officials from the WTO Secretariat. 84

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and the capability to form and lead coalitions of other developing States. Given India and Brazil’s often more vocal stance in comparison to China it appears that the ability to present themselves and act as leaders of the developing world is even more important in terms of influencing decision-making processes than raw economic power.87 Especially given the WTO’s increased membership and the diversification of interests among the former more broad negotiation bloc of developing countries,88 coalition building has become more and more important. The G-20 coalition of developing countries served Brazil and India as a stepping stone for entering the inner circles of WTO negotiations.89 This coalition of 23 developing countries was initially set up in Cancún in 2003 and comprises all four BICS countries. G-20’s aims are to eliminate practices by the EC/EU and the United States that distort agricultural trade and production, improve market access for agricultural products from developing countries, and to address “rural development, food security and/or livelihood security needs”.90 G-20 is described by some as the first initiative by developing countries since the NIEO to have an impact on negotiations and is said to have led to a re-ideologization along the North-South divide.91 Yet, in contrast to solely ideological coalitions during the GATT years “which usually splintered during the negotiating endgame”, the G20 has so far survived the Doha round.92 Despite its economic power China has not taken a prominent leading position within the grouping to date.93 However Brazil and India have often acted as spokescountries of the G-20.94 Moreover, Brazil has provided the grouping with technical and economic support through sophisticated economic analysis and proposals prepared by the Brazilian Institute for International Trade Negotiations (ICONE), a specialized trade institute funded by Brazil’s major agribusiness associations.95 In the words of Hopewell “[t]he emergence of the G20-T at the Cancun Ministerial marked the end of the era in which the United States and EU could drive the agenda. Under Brazil and India’s leadership, the G20-T transformed the negotiations into an open battle divided along North-South lines.”96 Of particular importance is also the fact that Brazil, India, and China at times were able to align their negotiation positions within ‘green room’ negotiations. A notable

87

Efstathopoulos (2012), p. 283; Hopewell (2016), p. 78. See e.g. Rolland (2012), p. 96; for an exemplary analysis of differing developing country positions in the early stages of the DDR, see: Bjørnskov and Lind (2002). 89 Bello (2006). 90 G-20 Ministerial Communiqué, Communication from Brazil, WT/L/559 (23 December 2003). 91 Efstathopoulos (2012), p. 283. 92 Vickers (2012), p. 269. 93 Lim and Wang (2010), p. 1317; Liang (2013), p. 224. 94 See: Hurrell and Narlikar (2006), p. 420. 95 See on the involvement of ICONE and Brazil’s approach to agriculture negotiations more broadly: Hopewell (2016), p. 114 et seqq. 96 Hopewell (2016), p. 83. 88

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example is the breakdown of the Geneva mini-Ministerial in July 2008. While several long standing issues between the Global North and the Global South, such as cuts to farm subsidies and industrial tariff cuts had been sufficiently bridged, a final conclusion could not be reached, as the issue of a special safeguard mechanism (SSM) to protect farmers from import surges provoked controversies and ultimately led to the breakdown of negotiations.97 Apparently, participants of the meeting were unable to agree on the trigger level of the proposed SSM, with the United States and India each insisting on their respective positions.98 Before the 2008 meeting the U.S. Trade Representative Susan Schwab had expressed optimism that China would lead other developing countries into offering concessions.99 However, China seems to have sided with developing countries instead. The exact circumstances and negotiation positions are difficult to assess as green room talks are confidential and reports on the subject are sometimes contradictory. While some highlight that China sided with India,100 others report that China in fact offered a compromise between the United States and the Indian positions but that India and the United States both insisted on their positions.101 In any event, China did not live up to the expectations of the United States and the EU, as both Members blamed India and China for failing to provide “leadership” to developing countries and for jeopardizing the Doha Round as a whole.102 Moreover, Brazil appears to have sided with India despite competing economic interests. As a major agricultural exporter Brazil had no interest in the creation of a protective instrument like the SSM—which would potentially harm its exports—but a statement by Brazilian and Indian representatives after the meeting is indicative of their mutual support: “One thing we can celebrate is that rules here are no longer made by the rich countries. They have to take us into account, and that will continue to be so.”103 Still, positions by emerging powers and their coalition memberships do not always align, preventing them from forming a more powerful trade coalition. Individual emerging powers are members to several coalitions with sometimes opposing interests. While all four States are members to G-20, which focuses on market access for developing country agricultural products to developed country markets, India and China are additionally members of G-33 known as ‘friends of special products’, which promotes defensive instruments in agricultural trade such as special products shielded from liberalization and the SSM mentioned above. Moreover, individual States are members of regional developing country groupings, such

97

ICTSD (2008e). ICTSD (2008e). 99 See e.g.: Smith (2008). 100 Hopewell (2016), p. 108. 101 Liang (2013), p. 227. 102 See: Lim and Wang (2010), p. 1310; Liang (2013), p. 227. 103 Statement by Brazil’s Minister of Foreign Relations Celso Amorim, issued alongside with India’s Minister for Commerce and Industry Kamal Nath, cited in: ICTSD (2008a); Vickers (2012), p. 263. 98

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as the African group for South Africa, whose positions do not necessarily align given the fragmentation of trade through regional trade agreements. Further, China is a member of the Recently Acceded Member States (RAMS) grouping that lobbies for lesser commitments and concessions for Member States that had to undertake WTO-plus commitments as part of their accession agreements. However, few WTO Members (including China’s BRICS partners) are likely willing to grant special exceptions to one of the world’s strongest trading powers, irrespective of whether this appears ‘fair’ regarding WTO-plus commitments under the accession agreement.

6.2.2

Why Is China Not More Prominent?

The Doha Development Round has been described by some Chinese scholars as “the second big round for NIEO”.104 In stark contrast, traditional WTO powers like the United States seem to have held the opinion initially that China would side with developed counties due to its export oriented economic profile.105 China did not live up to U.S. expectations106 and U.S. trade officials repeatedly blamed China for the DDR stalemate.107 However, it is also not the case that China took strong (NIEO) positions in blocking U.S. initiatives. China has so far maintained a rather quiet presence in WTO negotiations despite its huge economic power.108 From the beginning China positioned itself as a developing country and argued for less obligations and greater policy flexibility in comparison to developed countries. As described by Zhang Xiangchen, then Director-General of the WTO Division of the Chinese Ministry of Commerce, China argued for four “L”s with regard to its own position: “less” (requests), “lower” (obligations), “longer” (transition periods) and “later” (liberalization).109 Moreover, China relied on the RAM grouping to shield itself against further calls for liberalizing its market. China’s relatively modest approach is particularly puzzling from a realist perspective which would assume that an economic power like China would seek a leadership position.110 Why has a trading power like China not taken a more active and reformist position within the WTO?

104

Chen and Chen (2010), p. 93. See e.g. statements by US Trade Representative Susan Schwab, in: Smith (2008); see also Hopewell (2016), p. 95 (based on interviews with US trade officials). 106 Bhala (2009), p. 109 et seqq.; Blustein (2009), pp. 283–284. 107 See e.g. interview by US Ambassador to the WTO Michael Punkte, cited in: Tu (2013), p. 167. 108 See also: Pearson (2007), p. 643 et seq.; Tu (2013), p. 172 with further references. 109 Cited in: Tu (2013), p. 172. 110 Zeng and Liang (2013), p. 7. 105

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One reason is certainly the fact that China after its accession needed some time for implementation and was not ready to accept further liberalization commitments so soon. As Gao has put it: As a newly-acceded Member, China is required to undertake a lot of commitments, many of which are more onerous than those of existing WTO members. It is already a humongous challenge for China to try to implement these commitments. After having been in the spotlight for fifteen years, what China needs now is some quiet breathing space. Shouldering a leadership role would put China back on the front stage again and encourage other Members to pressure China to make more concessions.111

This strategy of keeping a low profile also relates to the fact that China’s huge market attracts numerous States who seek greater market access, while at the same time Chinese exports are regarded as a threat (potentially leading to calls for further market protections).112 In consequence, China’s position in WTO negotiations is a rather complicated one.113 China faces both strong claims to open its market and at the same time many trading partners seek to constrain Chinese manufacturing exports. In consequence, China has an interest in keeping a low profile in order not to draw even more attention to itself.114 Further, China’s negotiation power is also highly constrained due to its WTO-plus commitments undertaken in its accession agreement.115 China for example committed to be treated as a ‘non-market economy’ regarding price comparability in determining subsidies and dumping116 which facilitates bringing anti-dumping cases against Chinese exports and also enables States to impose other traderestrictive measures by use of a special safeguard.117 Even more importantly for trade negotiations, China had to agree to bind its tariffs considerably lower than other countries, leaving little or no room between applied and bound tariffs. Thus, offering tariff reductions for China almost always leads to a reduction of applied tariffs, making such commitments for China more ‘painful’ than for other Members with more room between bound and applied tariffs. Other factors contributing to China’s passive stance are said to be the low priority of further opening-up by the Chinese top leadership and difficulties in coordinating positions of different offices of the Chinese bureaucracy effectively.118 As China is reorienting its economy away from exports towards domestic consumption, partly as

111

Gao (2007), p. 70. Tu (2013), p. 168. 113 See on those points also: Hopewell (2016), p. 94. 114 Hopewell (2016), p. 94. 115 See also: Vickers (2012), p. 260. 116 Article 15 d) of the Chinese Accession Protocol states that: “In any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession.”, see: Protocol on the Accession of the Peoples Republic of China, WT/L/432 (23 November 2001). 117 Article 16 (“Transitional Product-Specific Safeguard Mechanism”) of the Protocol on the Accession of the Peoples Republic of China, WT/L/432 (23 November 2001). 118 Tu (2013), p. 178 et seqq. 112

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a consequence of pressures from the United States and the EU to reduce China’s trade surplus, it also has “less demand for and interest in the multilateral trading system”.119 Moreover, it has been argued that there is an increased awareness of negative consequences of trade liberalisation on disadvantaged groups within Chinese society, leading Chinese leadership to strive for balancing economic growth and social justice under the slogan of a ‘harmonious society’.120 Despite this rather passive stance, China in some controversial cases has so far sided with developing countries rather than with industrialized countries. According to Chinese trade officials this is due to the perception that the United States and other OECD countries are the greatest source of pressure on China and therefore China strategically supported and sided with developing countries to gain strength within that group.121 This also aligns with the perception of Chinese scholars that China is a spokesperson for developing countries and as such is committed “to a fair outcome” at the Doha Development Round.122 Nevertheless, so far China has not comprehensively taken up such a leading role. Even in the case of China seeking a leading position within the developing country bloc, its “mixed identity”123 as a selfqualified developing country as well as a major trading power, would make it difficult to convincingly take up such a role.

6.2.3

Power Change in WTO Dispute Settlement

Developing country participation within GATT 1947s dispute settlement system was low. The list of the few developing countries that have brought cases involves Brazil, India, and South Africa, but the latter two only in a very limited number of cases. As a non-Member China obviously is absent from that list. South Africa has had the lowest degree of participation and was involved in only one case as a complainant. It has never faced cases as a respondent.124 India also was involved in a limited number of cases, three, of which none resulted in a GATT panel report.125 Brazil has been more active. In total it filed 16 complaints, 12 of which were initiated in the later stages of GATT during the Uruguay Round. Further, Brazil has been a respondent in six cases. These numbers make Brazil the fifth most active user of the GATT dispute

119

Tu (2013), p. 80. Tu (2013), p. 180. 121 See the interviews with Chinese officials cited in: Hopewell (2016), p. 95. 122 Chen (2010), p. 57. 123 Zeng and Liang (2013), p. 14. 124 Canada-Measures Affecting the Sale of Gold Coins, GATT Doc. L/5863, Report of the Panel (17 September 1985); for an overview of (low) usage by African States of GATT dispute settlement: Mosoti (2006), p. 439. 125 For an overview, see: Shaffer et al. (2015), p. 603. 120

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Table 6.1 Emerging powers’ use of the DSM (As of 17. December 2020)

Member State Brazil India China South Africa United States European Union

Complainant 33 24 21 0 124 104

Respondent 17 32 44 5 156 87

Third Party 154 166 186 21 162 208

Table 6.2 Direction of complaints brought by—and against emerging powers (As of 1. January 2020) Member State Brazil India China South Africa

Against developed Country 22 19 21 0

Coming from developed Country 12 26 38 0

Against developing country 11 5 0 0

Coming from developing Country 5 6 6 5

settlement system.126 However, activity by the United States and EC—the most active litigants during the GATT years—by far overtops Brazil’s.127 Within WTO dispute settlement—as Table 6.1 below illustrates—the EU and United States are still the most frequent complainants and respondents. However, Brazil, India, and China have also heavily increased their usage of the WTO’s dispute settlement system, in particular in comparison to the GATT 1947 years. It appears that economic power, necessitating and enabling also greater legal capacitybuilding, correlates with numbers of cases brought and received. The fact that Brazil, China, and India have become major users of WTO dispute settlement, while the economically weaker South Africa has hardly participated in cases, and most Sub-Sahara Africa States so far have not brought nor received cases,128 strengthens this hypothesis. Of particular importance is also the fact that Brazil, India, and China are heavily engaged in third party participation indicating their will to further increase their legal capacity by learning from observation. They are also engaged in influencing the interpretation of WTO law through aktualisieren. Regarding the nature of cases brought, Brazil, India, and China have joined the ranks of developed countries. As Table 6.2 below reveals, industrialized countries

126

All numbers are taken from: Shaffer et al. (2008), p. 405 and Annex 1. For example the EEC/EC was a respondent in 27 cases (and there are a number of further cases involving individual EEC/EC Member States) and the US in 38 cases. For a list of all GATT 1947 cases in which panel reports were issued, see: https://www.wto.org/english/tratop_e/dispu_e/ gt47ds_e.htm. 128 See for an analysis of African participation in the WTO’s dispute settlement system: Apecu Laker (2014), p. 218 et seqq. 127

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received by far most of the cases brought by rising powers and in turn industrialized States initiated most cases against rising powers. This pattern indicates that the dispute settlement system remains of greater use to economically powerful States, but also that these States are more likely to become respondents in WTO cases because of their market size. For example, China has so far not brought any case against a developing country but has entirely focused on the United States (16), the EU (5), and EU Member States (2). Industrialized States initiated the overwhelming majority of cases brought against China (United States: 23, EU: 8, Canada: 4, and Japan: 2). Also, Mexico, an economically stronger developing country, has brought some cases against China (4), however smaller developing countries (in this case Guatemala) brought only one case against the country. The sheer number of cases brought and received unfortunately tells us little about the success of countries in convincing judges of their opinions and succeeding in court (which is a better determinant of legal success). Even statistical data on cases won, lost, and settled is not particularly insightful, as States may, for example, lose a case on a smallish technical legal detail but succeed in convincing judges of more important substantive arguments which then may be of importance in future jurisprudence. Moreover, individual cases may have completely different systemic importance. Daku and Pelc applied a more precise yardstick. Their work analyses how successful States have been in influencing the language of WTO jurisprudence through their submissions and statements.129 Based on that yardstick, the study by Daku and Pelc concludes that while the United States is still the most influential country, followed by the EU, several developing countries have also been quite successful in influencing judicial decisions. Interestingly, emerging powers are not the most influential developing countries. Korea is in third position, followed by Canada, Argentina, Thailand, and Japan. Only in eighth and ninth position follow India and Brazil. The economic great power, China, only comes in 13th position. Given that Daku and Pelc also observe that China has considerably increased its influence over proceedings over time, while others have stagnated,130 one might assume that China may overtake other developing countries and may even join the ranks of the United States and the EU as its experience further grows. The following section provides a synopsis of important cases of individual emerging powers and shows how some of them managed to become more successful while others did not. This inquiry also highlights how some emerging powers successfully frame their legal disputes as moral ones, ostensibly defending the interests of the Global South more broadly.

129 130

Daku and Pelc (2017). Daku and Pelc (2017), p. 250.

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6.2.3.1

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Brazil and India

In Brazil the Embraer cases,131 comprising a legal battle with Canada in which each side attacked the other’s subsidies to aircraft manufacturers (the Brazilian Embraer and the Canadian Bombardier), and a case brought by the United States against certain provisions in the Brazilian patent law, which Brazil was strategically able to frame as directed against measures to fight HIV,132 led the government to heavily increase investments in legal capacity. These investments included the creation of a specialized WTO dispute settlement unit combined with greater cooperation with the business sector, private law firms, scholars, and civil society.133 This strengthened legal capacity paved the way for Brazil’s most widely praised successes in WTO dispute settlement, the United States-Subsidies on Upland-Cotton134 and the EC-Export Subsidies on Sugar135 cases. Both cases brought considerable attention to the impacts of United States and EU agricultural support programs on (poor) farmers in developing countries. Moreover, they provided strategic support to Brazil’s negotiation stance in the Doha round to pressure the United States and EU to reduce their agricultural support measures.136 According to commentators, Brazil’s successful trade disputes against the EC and United States “have been widely hailed as a major victory for developing countries”.137 Shaffer et al. concluded that Brazil has become “the most successful developing-country user of the

131

The initial case concerned Brazil’s subsidies to the Brazilian aircraft manufacturer, Embraer, which were challenged by Canada, but soon led Brazil to bring its own cases to challenge Canada’s support to Bombardier on behalf of Embraer; among the numerous decisions rendered in this highprofile trade dispute, see: Brazil—Export Financing Programme for Aircraft, WT/DS46, Panel Report (14 April 1999); Brazil—Export Financing Programme for Aircraft, WT/DS46/AB/R, Appellate Body Report (2 August 1999); Canada—Measures Affecting the Export of Civilian Aircraft-AB-1999-2, WT/DS70/AB/R, Appellate Body Report (2 August 1999); Canada—Measures Affecting the Export of Civilian Aircraft, WT/DS70/R, Panel Report (14 August 1999); Canada—Measures Affecting the Export of Civilian Aircraft-Recourse by Brazil to Article 21.5 of the DSU, WT/DS70/RW, Panel Report (9 Mai 2000); Canada—Measures Affecting the Export of Civilian Aircraft-Recourse by Brazil to Article 21.5 of the DSU-AB-2000-4, 4 WT/DS70/AB/RW, Appellate Body Report (21 July 2000). 132 See: Shaffer et al. (2008), p. 417. Although the case was not directly connected to HIV, Brazil managed to frame it that way and thereby garnered support by many NGOs and other civil society actors including in the US. 133 Shaffer et al. (2008), p. 417 et seqq. 134 United States—Subsidies on Upland Cotton, WT/DS267/AB/R, Report of the Appellate Boy (20 December 2004); United States—Subsidies on Upland Cotton, WT/DS267/R, Report of the Panel (8 September 2004). 135 European Communities—Export Subsidies on Sugar, WT/DS266/AB/R, Report of the Appellate Body (28 April 2005); European Communities—Export Subsidies on Sugar, WT/DS/266/R, Report of the Panel (15 October 2004). 136 Shaffer et al. (2008), p. 422. 137 Hopewell (2016), p. 105.

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WTO dispute settlement system in terms of both the quantity of cases brought and the cases’ systemic implications.”138 India’s success in WTO dispute settlement is quite mixed. Briefly after the Uruguay Round was concluded, the United States and EU brought a series of systemically important cases against India, most of which were successful and required substantial reform of India’s quantitative trade restrictions and industrial policies.139 These loses brought the Indian government to accept the need to increase the legal and economic capacity of relevant departments to handle such cases.140 Likely because of increased legal capacity India was able to win a number of important cases later, even against more powerful actors, such as in the EC—Bed Linen case141 and the EC—Tariff Preferences case.142 More recently, however, India has lost an important case related to India’s industrial (development) policy to support local producers of solar cells and built a local industry for such products,143 which was seen as a major setback.144 However, India seems to have ‘learnt the game’ of strategic usage of the DSM. First, it counterattacked by filing a claim against the United States requesting the establishment of a panel to examine the lawfulness of certain support measures relating to the renewable energy sector in the United States.145 Second, it seems to have successfully avoided implementation of the findings and so far compliance proceedings with the United States are ongoing, while the target of the solar energy development program (2022) is steadily approaching.146 138

Shaffer et al. (2008), p. 413. See most notably: India—Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products, Report of the Appellate Body, WT/DS90/AB/R (23 August 1999); India— Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products, WT/DS90/R, Report of the Panel (6 April 1999). In the case the US successfully challenged a huge number of long standing Indian quantitative trade restrictions that had been justified by India under balance-ofpayment exceptions. Another important case lost that had implications for India’s industrial policies was: India—Measures Affecting the Automotive Sector, WT/DS146/AB/R; WT/DS175/AB/R, Appellate Body Report (19 March 2002). See for extensive analysis of cases involving India, the collected papers in: Das and Nedumpara (2016). 140 Shaffer et al. (2015), p. 606. 141 Shaffer et al. (2015), p. 617. 142 European Communities—Conditions for the Granting of Tariff Preferences to Developing Countries, WT/DS246/R, Panel Report (adopted as modified by the Appellate Body Report on 20 April 2004). 143 India—Certain Measures Relating to Solar Cells and Solar Modules, WT/DS456/R, Report of the Panel (24 February 2016); India—Certain Measures Relating to Solar Cells and Solar Modules, WT/DS456/AB/R, Report of the Appellate Body (16 September 2016). 144 The case was heavily criticised by Indian scholars both for its legal arguments but also for the fact that support for the local solar panel industry is seen as a legitimate interest for India to improve its industrial capacity and its sustainable development, see e.g. Jayagovind (2016). 145 United States—Certain Measures Relating to the Renewable Energy Sector, WT/DS510/2, Request for the establishment of a panel by India (24 January 2017) (The Panel was composed on 24 April 2018). 146 Rolland and Trubek (2019), pp. 6, 46, 150. 139

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China

For China, with its anti-litigation tradition, the WTO’s dispute settlement mechanism is one of the few fora where it has comprehensively accepted settlement of its international disputes through law.147 During the first years after WTO accession, China followed a policy of settling disputes instead of using WTO litigation. According to interviews conducted with Chinese officials this initial reluctance was due to uncertainty, fear of U.S. counterclaims, and “Asian values” (according to which negotiation is preferred over litigation).148 By now, however, China seems to have overcome these fears and cultural obstacles. Since its accession, China has heavily invested in capacity building and has engaged in a ‘learning by participating’ strategy, joining almost every WTO panel as a third party in order to learn about the dispute settlement process.149 As Table 6.1 above showed, China’s position has shifted towards taking a very active stance on WTO litigation.150 Most Chinese cases concern countervailing and anti-dumping issues. Since 2010 China has won at least four important WTO cases brought against the United States and EU all of which involved exports worth billions of dollars.151 Those cases were important for creating legal precedent and also for requiring the United States and the EU to substantially change their administrative rules on antidumping and countervailing duty methodologies.152 China has successfully engaged in shaping WTO jurisprudence with the effect that United States and EU discretion to impose protection against imports from China has become more narrow. In particular, the United States and the EU have less legal space to protect their import-competing industries through antidumping and countervailing measures.153 Following these loses, the United States has severely criticised the AB’s findings and accused members of engaging in judicial overreach.154 Those reactions prove that the EU 147

Shaffer and Gao (2018), p. 120. Shaffer and Gao (2018), p. 135. 149 See: Shaffer and Gao (2018), p. 135, see also Table 6.1 above. 150 Lim and Wang (2010), p. 1324 with further references. 151 United States—Definitive Anti-Dumping and Countervailing Duties on Certain Products from China, WT/DS379/AB/R, Appellate Body Report (11 March 2011); European Communities— Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/ R, Appellate Body Report (15 July 2011); United States—Countervailing Duty Measures on Certain Products from China, WT/DS437/AB/R, Appellate Body Report (18 December 2014); United States—Countervailing and Anti-Dumping Measures on Certain Products from China, WT/DS449/AB/R, Appellate Body Report (7 July 2014); European Communities—Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WTDS397/AB/RW, Appellate Body Report (18 January 2016). 152 Shaffer and Gao (2018), p. 128. 153 Shaffer and Gao (2018), p. 176 et seqq. 154 See e.g.: Office of the United States Trade Representative USTR Statement Regarding WTO Appellate Body Report in Countervailing Duty Dispute with China (March 2011). https://ustr.gov/ about-us/policy-offices/press-office/press-releases/2011/march/ustr-statement-regarding-wto-appel late-body-report-c. Accessed 11 September 2020 (United States Trade Representative Ron Kirk 148

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and the United States are concerned about being vulnerable to Chinese legal challenges and increased economic competition.155 However, China has also lost several important cases and in consequence has had to change domestic laws and regulations to comply with panel- and AB Reports. Following the China-Intellectual Property Rights reports156 China had to amend its copyright laws (albeit not fundamentally). Other important examples of lost cases are the China-Raw Materials157 and the China-Rare Earths158 cases. Yet the Chinese government seems to have reacted to defeats in those cases in a more calm manner than the United States reacted to its defeats against China. As described by Shaffer and Gao, based inter alia on interviews with Chinese trade representatives, China quickly and without much internal ado took the required measures to implement the findings of panel—and Appellate Body Reports.159 According to one Chinese official, this quick implementation was due to the fact, that “the [Chinese] Ministries see the WTO as a just process”.160 In 2016, disputes between China and the United States/EU have cumulated in legal disputes over China’s market economy status.161 The United States and the European Commission use China’s non-market economy status to justify using third country prices in assessing whether Chinese producers dump products on their markets. By strategically picking countries with high prices for a product the United States and the EU use their methodology to raise antidumping duties to prohibitive levels, blocking market access for Chinese products.162 This practice is based on Article 15 a) ii) of China’s Protocol of Accession,163 which allows WTO Members to treat China as a “non-market economy” and consequently to use prices from third countries for the determination of ‘normal value’. However, the same provision in para. d) contains an expiration period of 15 years after the date of China’s accession, which came into effect on 11 December 2016. The EU and United States have contested the expiration, however convincing arguments support the Chinese

was cited as follows: “I am deeply troubled by this report [. . .] It appears to be a clear case of overreaching by the Appellate Body.”); see also: Statements by the United States at the March 25, 2011 DSB Meeting. https://geneva.usmission.gov/2011/03/28/mar-25-2011-dsb-meeting/. 155 Cf. Shaffer and Gao (2018), p. 132 et seq., 176. 156 China—Measures Affecting the Protection and Enforcement of Intellectual Property Rights, WT/DS362/R, Report of the Panel (26 January 2009). 157 China—Measures Related to the Exportation of Various Raw Materials, WT/DS394/AB/R; WT/DS395/AB/R; WT/DS398/AB/R, Reports of the Appellate Body (30 January 2012). 158 China—Measures Related to the Exportation of Rare Earths, WT/DS431/AB/R; WT/DS432/ AB/R; WT/DS433/AB/R, Reports of the Appellate Body (7 August 2014). 159 Shaffer and Gao (2018), p. 171. 160 Cited in: Shaffer and Gao (2018), p. 171. 161 See: United States—Measures Related to Price Comparison Methodologies, WT/DS515 and European Union—Measures Related to Price Comparison Methodologies, WT/DS516. 162 See for more details and examples: Shaffer and Gao (2018), p. 177. 163 Protocol on the Accession of the Peoples Republic of China, WT/L/432 (23 November 2001).

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position.164 Still, the case against the US never left the consultation phase and in June 2019 the Panel in the case against the EU, on request of China, suspended its work.165 The reasons for this move remain unclear, but speculations exist that China felt it would lose the case.

6.2.3.3

South Africa

South Africa clearly plays in a different league regarding WTO dispute settlement compared to China, Brazil, and India. As seen in Table 6.1 above, South Africa so far has not brought any of its own cases as a complainant and only has received five cases as a respondent, all coming from developing country WTO Member States. Of these five cases, none have left the consultation process. As such, South Africa has not acquired any practical experience in defending cases in front of a WTO panel. Furthermore, South Africa has only participated in seven cases as a third party. Studies on South African trade dispute resolution suggest that South Africa lacks experience and expertise, making it difficult for the nation to bring its own cases.166 The responsible South African administrative units like the International Trade and Economic Development Division (ITED) and International Trade Administration Commission (ITAC) comprise some specialists on the WTO agreements, but still these experts and the units have very limited experience in practically handling trade disputes. Even though WTO legal capacity and skills appear to exist in the private sector (academia and private practitioners) it remains unclear whether the government would be willing to use that capacity.167

6.2.4

Evaluation

The section demonstrated that Brazil, China, and India have indeed become powerful players within the WTO legal order. Brazil and India have been particularly vocal within the DDR and have actively sought to shape its legal outcomes, either by blocking unwanted proposals or by bringing forward their own initiatives. China, due to a variety of reasons, has kept a relatively low profile in negotiations. Still, China, as well as India and Brazil, has entered the inner-circle of trade negotiations on a permanent basis. Based on these countries’ continuing self-qualification as

164

See on the WTO incompatibility of reformed EU Anti-Dumping methodology: Tietje and Sacher (2018); see on the illegality of the US approach and a critical analysis of US legal arguments: Charnovitz (12 April, 2018); see also: Cornelis (2007) and Rao (2013). 165 European Union—Measures Related to Price Comparison Methodologies, WT/DS516/13, Communication from the Panel (17 June 2019). 166 Brink (2007), p. 21; see also: Brink (2010). 167 See: Brink (2007), p. 25 et seq. who also proposes several measures to improve capacity.

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developing countries, the developing world’s representation in the inner circles of WTO decision making has increased. Given the continuing informal nature of these negotiations, however, it is questionable whether rising powers indeed represent other developing countries. For example, since South Africa has not entered this inner circle on a permanent basis, no African country represents the continent (e.g., by bringing in proposals by the African Group). The increased participation of new actors in trade negotiations has certainly impeded decision-making processes based on consensus.168 Agreements were much easier to conclude in the GATT-era with a club of economically and ideologically like-minded States at comparable levels of development. With the inclusion of emerging powers into the ‘new quad’, which are at very different levels of development (importantly much lower per capita incomes) and have different economic structures, negotiations became much more difficult to conclude.169 For those reasons, North-South struggles have again acquired prominence. For now, the new balance of power has made the WTO negotiation arm more deadlock-prone which is a clear sign that no individual country or coalition of countries is powerful enough to impose its will on other powerful Members. Shifts of power are also clearly visible in WTO dispute settlement. Brazil, India, and China have joined the ranks of traditional powers regarding the usage of—and success in the WTO’s dispute settlement system. While the United States and EU are still some way ahead, China is clearly catching up and Brazil and India have proved in some cases that they are able to successfully bring and defend cases against traditional powers. Again, South Africa is the sole exception among emerging powers. So far the country has not been able or willing to make use of trade dispute settlement processes, presumably due to a lack of market power and legal capacity constraints. It has often been assumed that the WTO dispute settlement system compared to the GATT system would become less prone to power plays. However, increased participation and success by Brazil, India, and China rather indicates that economic power (leading to and requiring increased legal capacity) is still an important factor in bringing and defending cases.

6.3

Emerging Powers’ Normative Agenda

So far the focus of this chapter has been on systemic issues of power relations between traditional trade powers and developing/emerging countries. Turning now to concrete norms, the following section analyses whether emerging powers contest given paradigms, principles, and rules of international trade law and what this might mean for global justice.

168 169

Cf. Narlikar and Tussie (2016), p. 213. Narlikar and Tussie (2016), p. 213.

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General Direction: Supporting But Reforming the Rule Based WTO System

Emerging powers have repeatedly called on WTO Member States to address development deficits within the WTO and reform certain areas of its rules with regard to making agreements fairer to developing countries and ‘the poor’ more generally. At the same time, they strongly support the multilateral trade forum of the WTO as such, and only some of them have engaged in the conclusion of mega-regional trade agreements. The following overview shall illustrate these general points.

6.3.1.1

The DDR: Making WTO Agreements More Just to Developing Countries

Although the idea to start a ‘development’ round only emerged at a later stage, early statements by emerging powers already propose reforms to correct the (alleged) development deficit of WTO agreements. In 1998, then Brazilian President Cardoso called on WTO Member States “to contribute, through a set of equitable trade rules, towards correcting the disparities in development and in welfare that continue to afflict the world we live in.”170 He further pointed out the connection between trade, development, and “social justice” as follows: We must think big and understand that trade is a fundamental tool for our countries to attain the greater objectives of peace, development, and social justice. The liberalization we seek only makes sense if it moves us closer to these goals, and will only reach its fullest justification if it contributes to overcome inequalities both between and within nations.171

The statement ends with a profound call for global justice: We all know that the world is no level-playing-field, but it is imperative that, at the very least, all players can trust that there are rules which apply to all alike, rules which are not written to protect the strong from their own weaknesses and to prevent the weak from taking advantage of their own strengths.172

India took a comparable ‘third worldish’, justice-based approach towards world trade law in its statements before 2001. At the Ministerial Conference in Seattle (1999) India outlined its view of the connection between trade and development. According to India the “central theme of any negotiations should be to focus on all-round development capable of eradicating poverty” and that “every step we take in the direction of trade liberalization” must “benefit everyone in the planet and not a

170

Brazil Statement by H.E. Mr. Fernando Henrique Cardoso, President, WT/FIFTY/H/ST/7 (19 May 1998), para. 19. 171 Brazil Statement by H.E. Mr. Fernando Henrique Cardoso, President, WT/FIFTY/H/ST/7 (19 May 1998), para. 20. 172 Brazil Statement by H.E. Mr. Luiz Felipe Lampreia Minister of Foreign Relations, WT/MIN(99)/ ST/5 (1 December 1999).

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mere fortunate few.”173 In a similar vein, South Africa early on stressed the need for an inclusive WTO that provides a forum for economically weaker States and warned that the WTO shall not become a club of “the strong and UNCTAD the defense shield of the weak” which would “destroy a partnership for growth, development and trade.”174 Further, South African trade representatives criticized the notion that benefits of the global economic system were unevenly shared both within and between countries and that the Uruguay Round led to an “uneven” outcome, as developing countries were unable to ensure that “rules did not tilt toward the interests of the advanced industrial countries.”175 Thus, South Africa called for a new round to redress that imbalance.176 Though China had not become a WTO Member until 2001, it nevertheless supported developing country claims as an observer. For example, at the Singapore Ministerial Conference in December 1996, China stressed its support for a rule based multilateral trade system but also highlighted the “development deficit” of the WTO. China warned that an “[o]ver-emphasis on trade liberalization, in disregard of the development of developing countries may lead to a situation where one finds open but non-existing markets.”177 Moreover, it criticised the decision making process, which in its view was dominated by a few major players, that tended to disregard interests of the developing world and exert undue pressure on others.178 A summary of the Chinese position on the development deficit of the WTO was presented (again as an observer) at the Third Ministerial Conference in Seattle in 1999: First, the economic development objectives of developing countries and corresponding pattern of gradual market opening should be fully respected. Second, developed countries should meet their obligations stipulated in the agreements of the Uruguay Round, and improve the market access environment for developing countries. Third, the formulation of new trade rules must have the full involvement of developing countries. Fourth, the coordination among developing countries should be strengthened, and their collective negotiation ability in the multilateral trading system should be improved.

173

India Statement by H.E. Mr. Murasoli Maran Minister of Commerce and Industry, WT/MIN(99)/ ST/16 (30 November 1999). 174 South Africa Statement by H.E. Mr. Alec Erwin Minister of Trade and Industry, WT/MIN(96)/ ST/114 (12 December 1996). 175 South Africa Statement by H.E. Mr. Alec Erwin Minister of Trade and Industry, WT/MIN(99)/ ST/45 (1 December 1999). 176 South Africa Statement by H.E. Mr. Alec Erwin Minister of Trade and Industry, WT/MIN(99)/ ST/45 (1 December 1999). 177 China Statement by Mr. Long Yongtu, Assistant Minister of Foreign Trade and Economic Cooperation, WT/MIN(96)/ST/117 (12 December 1996), p. 3. 178 China Statement by Mr. Long Yongtu, Assistant Minister of Foreign Trade and Economic Cooperation, WT/MIN(96)/ST/117 (12 December 1996), p. 2 and 4.

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Fifth, the new round of multilateral trade negotiations should focus on discussing issues related to trade. China holds that those issues that are not related to the functions of WTO such as labour standards should not be incorporated into the agenda.179

With the launch of the Doha Development Round in 2001, emerging powers from the beginning strongly employed notions of justice to back-up their calls for reform and complaints about a lack of progress. This is evident in numerous statements from individual States. South Africa for example described the DDR as a round to address “the disparity between those countries that are economically developed and those that are not” and its mandate as to contain the goal of rebalancing “some rules inherited from past negotiations that clearly prejudice the interests of developing countries”.180 South Africa has continuously called on the WTO membership to address the plight of the poor in the Global South.181 As outlined at the Cancun Ministerial in 2003: “For South Africa and the developing countries, this [addressing structural imbalances in the WTO] is a fight about social and economic justice, and it is a fight inside the WTO”.182 In later statements, South Africa also drew a direct connection between the WTO and the Millennium Development Goals (MDGs), stressing the need for the WTO to advance development—especially for African States—to allow developing countries to be able to meet their MDGs.183 Further, South Africa stressed the need to resist issues driven “by powerful special interests at the expense of the poor, less advantaged constituencies who represent the majority in the political systems of the majority of the WTO’s membership”.184 To support this issue, South Africa strongly promoted the unity of developing countries despite varying levels of development and varying group interests.185 In a similar vein, India embraced the DDA to address the “development deficit” of the WTO and stressed the importance of “creating a rules-based world order, which not only makes trade free, but also makes trade fair.”186 Accordingly, India stressed

179

China Statement by H.E. Mr. Shi Guangsheng, Minister of Foreign Trade and Economic Cooperation, WT/MIN(99)/ST/108 (2 December 1999). 180 South Africa Statement by H.E. Mr. Alexander Erwin, MP Minister of Trade and Industry, WT/MIN(01)/ST/7 (10 November 2001). 181 See e.g. South Africa Statement by the Honourable Alexander Erwin Minister of Trade and Industry, WT/MIN(03)/ST/43 (11 September 2003). 182 South Africa Statement by the Honourable Alexander Erwin Minister of Trade and Industry, WT/MIN(03)/ST/43 (11 September 2003). 183 South Africa Statement by HE Mr. Mandisi Mpahlwa, Minister of Trade and Industry, WT/MIN (05)/ST/87 (16 December 2005). 184 South Africa Statement by HE Mr. Mandisi Mpahlwa, Minister of Trade and Industry, WT/MIN (05)/ST/87 (16 December 2005). 185 South Africa Statement by HE Mr. Mandisi Mpahlwa, Minister of Trade and Industry, WT/MIN (05)/ST/87 (16 December 2005). 186 India Statement by HE Mr. Kamal Nath Minister of Commerce and Industry, WT/MIN(05)/ST/ 17 (14 December 2005).

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the need not to apply equal rules to unequal players187 and argued that a “one size fits all approach” failed to deliver with regard to development.188 Moreover, India described the decision-making process in the WTO as “discriminatory, opaque and unresponsive to their [developing country] needs.”189 Further, the country repeatedly expressed its disappointment on not achieving any outcome with regard to issues of interest to developing countries and accused developed countries of seeking to advance their interests instead of providing meaningful concessions to the developing world.190 The Indian trade representative at the sixth Ministerial Conference in Hong Kong (2005) provided a drastic and profound call for global justice: Development is not simply an adjunct to the global trading system. It is intrinsic to every aspect of this Round. It concerns nothing less than ensuring access of the world's poor to basic material necessities, a decent quality of life commensurate with human dignity. [. . .] Trade commitments which throw hundreds of millions of people already on the edge of subsistence into a chasm of poverty and unemployment simply cannot be supported. The ambition of developed countries cannot and must not trample on the aspirations of four-fifths of humanity.191

Brazilian trade representatives, particularly during the presidency of Luiz Inácio Lula da Silva (2003–2011), repeatedly connected trade issues to development, poverty, and social justice.192 For example, the representative of Brazil at the 2003 Ministerial Conference in Cancún pointed out that his government was committed to “social justice” both domestically as well as internationally and that Brazil supported making trade and trade liberalization instruments of social change to distribute wealth in a more equitable way.193 Still, in line with neoliberal economic theory, the representative also acknowledged that “trade liberalization and fairer distribution of wealth are not only compatible but mutually supportive”194 and that the WTO and

187

India Statement by H.E. Mr. Arun Jaitley Minister of Commerce and Industry and Law and Justice, WT/MIN(03)/ST/7 (10 September 2003), para. 4. 188 India Statement by the Honourable Murasoli Maran Minister of Commerce and Industry, WT/MIN(01)/ST/21 (10 November 2001), para. 6. 189 India Statement by H.E. Mr. Arun Jaitley Minister of Commerce and Industry and Law and Justice, WT/MIN(03)/ST/7 (10 September 2003), para. 5. 190 India Statement by H.E. Mr. Arun Jaitley Minister of Commerce and Industry and Law and Justice, WT/MIN(03)/ST/7 (10 September 2003), para. 6. 191 India Statement by HE Mr. Kamal Nath Minister of Commerce and Industry, WT/MIN(05)/ST/ 17 (14 December 2005). 192 See e.g. Brazil, Statement by H.E. Mr. Celso Amorim Minister of External Relations, WT/MIN (03)/ST/28 (11 September 2003); Brazil Statement by HE Mr. Celso Amorim, Minister of External Relations, WT/MIN(05)/ST/8 (14 December 2005). 193 Brazil, Statement by H.E. Mr. Celso Amorim Minister of External Relations, WT/MIN(03)/ST/ 28 (11 September 2003). 194 Ibid.

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international trade remain central for creating jobs and growth and thus for improving the livelihood of the poor.195 Already at that time, Brazil had warned that the marginalization of the WTO would not be in the interest of developing countries.196 In later statements Brazilian representatives took a more nuanced position on the benefits of trade liberalization, warning that it can only lead to prosperity if it “proceeds in a balanced way and takes into account the differentiated needs of poorer countries”.197 In contrast to Brazil, India, and South Africa, Chinese statements have been less critical. Nevertheless, in general terms China has supported developing country ambitions to make the WTO more development friendly. For example, in a statement in 2009 China stressed that the WTO should reform “towards the direction of promoting sustainable development” and that China was working together with other members “towards building a more democratic, more efficient, more just and more balanced multilateral trading system.”198 Within the BRICS forum emerging powers have addressed trade issues through common statements and have stated their intentions of coordinating their positions on trade issues in multilateral forums. The relevant passages in common statements usually stress the importance of a rule based multilateral trading system (WTO) combined with calls against protectionism and in favour of comprehensive and balanced DDR outcomes.199 In later statements, BRICS even committed themselves “to safeguard this system [the rule-based multilateral trading system]”.200 Yet they also stressed the “development deficit” of the WTO and their commitment to address this through initiatives built on “the fundamental principles of transparency, inclusiveness, and multilateralism”.201 Aside from the WTO, BRICS also stressed their support for UNCTAD as an important additional, rather than alternative, trade forum.202 BRICS also strongly supported the WTO dispute settlement system “as a cornerstone of the security and predictability of the multilateral trading system” 195

Ibid. Ibid. 197 Brazil Statement by HE Mr. Celso Amorim, Minister of External Relations, WT/MIN(05)/ST/ 8 (14 December 2005). 198 China Statement by H.E. Mr. Chen Deming Minister of Commerce, WT/MIN(09)/ST/113 (2 December 2009). 199 BRIC First Summit: Joint Statement of the BRIC Countries Leaders, Yekaterinburg, Russia (June 16, 2009), para. 5; BRIC Second Summit: Joint Statement, Brasilia (April 16, 2010), para. 14; BRICS Third Summit: Sanya Declaration and Action Plan, Sanya, China (14 April, 2011), para. 26; BRICS, ‘The Fifth Meeting of the BRICS Trade Ministers: Joint Communiqué’, Moscow, Russia (7 July 2015), para. 5. 200 BRICS Fourth Summit: Delhi Declaration and Action Plan, Delhi, India (March 29, 2012), para. 15–16. 201 BRICS Fourth Summit: Delhi Declaration and Action Plan, Delhi, India (March 29, 2012), para. 15–16; BRICS The Fifth Meeting of the BRICS Trade Ministers: Joint Communiqué, Moscow, Russia (7 July 2015), para. 6–7. 202 BRICS Fourth Summit: Delhi Declaration and Action Plan, Delhi, India (March 29, 2012), para. 17; BRICS Fifth Summit: eThekwini Declaration and Action Plan, Durban, South Africa (27 March 196

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and also expressed their will to increase the dialogue on WTO Dispute Settlement Understanding (DSU) reform.203 In regards to concrete subjects, BRICS statements importantly addressed two important issue-areas for developing countries—agriculture and developmental policy space: In such a scenario, the Ministers emphasised the need to resist protectionist tendencies and to promote international trade as an engine of economic growth and development, while respecting the WTO consistent policy space available to developing countries to pursue their legitimate objectives of growth, development and stability. The Ministers noted that subsidies in agriculture by some developed countries continue to distort trade and undermine the food security and development prospects of developing countries particularly LDCs, and urge that such form of protectionism be shunned.204 We are in full agreement that all forms of protectionism must be resisted. At the same time, we underscore the need for developing countries to retain and use, when necessary, any existing WTO-consistent policy space. We also underline that trade distorting subsidies granted by developed economies, particularly in agriculture, are one of the most harmful forms of protectionism. These subsidies generate food insecurity and deny the development potential of this key sector in countries that already face formidable challenges to participate in global trade flows.205

Interestingly BRICS in these statements did not argue for more policy space, that would represent a challenge to existing WTO bindings, but only for the usage of existing policy space granted by WTO agreements.206 In later declarations, BRICS, in a similar vein highlighted the “importance of preserving policy space to promote industrialization, industrial upgrading and value addition as a core pillar of structural transformation and sustainable development and BRICS countries integration into the global economy”207 but not for regaining more policy space.

2013), para. 17; BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), 22. 203 BRICS Sixth Summit: Fortaleza Declaration and Action Plan, Fortaleza, Brazil (15 July 2014), para. 21. 204 BRICS The 2nd Meeting of the BRICS Trade and Economic Ministers: Joint Press Release, New Delhi (March 28, 2012), para. 1 (emphasis added). 205 BRICS Ministerial Declaration of the BRICS Trade Ministers, WT/MIN(11)/18 (14 December 2011); see also: BRICS The Third Meeting of the BRICS Trade Ministers, Durban (26 March 2013) (emphasis added). 206 BRICS Trade Ministers Communiqué 6th Meeting of the BRICS Trade Ministers, New Delhi, India (13 October 2016) (“Ministers recognized the importance of preserving policy space to promote industrialization, industrial upgrading and value addition as a core pillar for structural transformation and sustainable development and BRICS countries integration into the global economy. They agreed to enhance cooperation in this regard.”). 207 BRICS Trade Ministers Communiqué 6th Meeting of the BRICS Trade Ministers, New Delhi, India (13 October 2016), para. 3.

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Supporting a Sinking Ship? Emerging Powers’ Continuing Support for the DDA

As indicated above, the WTO Director General and some commentators depicted the Ministerial Conferences in Bali (2013) and Nairobi (2015) as great successes for the multilateral trade order of the WTO and development more broadly. At the same time the prospects for a continuation of the work based on the Doha Mandate look bleak. But how did emerging powers comment on the Bali and Nairobi achievements and the unwillingness of developing countries to continue the DDR? The statement by Brazil at the Ninth Ministerial Conference in Bali on 3–6 December 2013 is less critical than the statements cited above and also less committed to the DDA. The Brazilian representative even indicated that his government is generally open to the negotiation of new issues outside the scope of the DDA.208 Only with regard to one of Brazil’s primary interest areas, market access and domestic support for agriculture, did it call on Member States to give priority to the “unfinished business” of removing trade distorting measures “that hamper full integration of developing countries in world trade”.209 In Nairobi, Brazil stressed the achievements of the WTO but also complained about the still lacking success of the DDA and its unfulfilled promises for developing countries, in particular regarding agriculture. Brazil also committed itself to the WTO, the Doha Mandate, and multilateralism in general, and warned against regionalisation of trade agreements. With regard to concrete issues, Brazil renewed its focus on trade liberalization and bringing down trade restrictive policies of developed countries that harm farmers in developing countries.210 These issues were also taken up in Brazil’s plenary statement in Buenos Aires where the Brazilian representative renewed Brazil’s commitment to development at the WTO and the country’s priority of addressing domestic support in agriculture in developed countries.211 Keeping with its critical stance, India in Bali (2013) expressed its frustration that the only trade round directly aimed at development has been stalled for years.212 India again stressed the need to correct “[h]istorical imbalances in trade rules [. . .] to

208

Brazil Statement by H.E. Mr. Luiz Alberto Figueiredo Machado, Minister of Foreign Relations, WT/MIN(13)/ST/4 (4 December 2013). 209 Brazil Statement by H.E. Mr. Luiz Alberto Figueiredo Machado, Minister of Foreign Relations, WT/MIN(13)/ST/4 (4 December 2013). 210 Brazil Speech by Minister Mauro Vieira at the Opening Session of the 10th Ministerial Conference (16 December 2015). http://www.itamaraty.gov.br/en/speeches-articles-and-inter views/minister-of-foreign-affairs-speeches/12732-speech-by-minister-mauro-vieira-on-the-occa sion-of-the-opening-session-of-the-10th-ministerial-conference-of-the-world-trade-organizationnairobi-december-16-2015. Accessed 11 September 2020. 211 Brazil Statement by H.E. Mr. Alooysio Nunes Ferreira Filho Minister of Foreign Affairs, 11th Ministerial Conference, Buenos Aires, WT/MIN(17)/ST/13 (13 December 2017). 212 India Statement by H.E. Mr. Anand Sharma, Minister of Commerce and Industry, WT/MIN(13)/ ST/22 (4 December 2013).

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ensure a rule-based, fair and equitable order.”213 In a similar vein, the country in Buenos Aires called upon the membership “to re-endorse the centrality of development in WTO negotiations”.214 Of interest is also the fact that India strongly rejected the creation of new sub-categories of countries aside the traditional developed, developing, and LDC categories. Despite increased GDP figures, the Indian representative argued that India still “is home to more than 600 million poor people” and therefore India remains a “legitimate demandeur for special and differential treatment for developing countries.”215 In line with positions of both Brazil and India, South Africa in Bali reaffirmed its commitment to the DDA and to “redressing the imbalances and inequities that continue to disadvantage developing countries”.216 South Africa continued to remind Member States of addressing the “legitimate demands of the poorest countries” and of finding “a meaningful and permanent solution to addressing the food security needs of poor people in developing countries.”217 In its latest statement at the Buenos Aires Ministerial Conference, the South African representative recalled that the Doha mandate committed Member States to address the interests and needs of developing countries, so that trade serves development, and that South Africa remains committed to a comprehensive outcome of the DDR on the mandated issues. Thus, South Africa rejects the inclusion of other issues (e.g. electronic commerce) as long as key mandated issues of the DDA remain unaddressed.218 South Africa has also continued to defend developing countries’ developmental policy space to promote industrialization and diversification policies.219 Chinese statements in recent years have continued to repeat the nation’s commitment to the DDA but generally have become less critical than those of other emerging powers. In Nairobi China sought to highlight its commitment to the mandate of the DDA and multilateralism, emphasized development as a “common issue of mankind”, called on Member States to resist protectionism and to address the “development deficit”, and highlighted that developed States should take up

213

India Statement by H.E. Mr. Anand Sharma, Minister of Commerce and Industry, WT/MIN(13)/ ST/22 (4 December 2013). 214 India Statement by H.E. Mr. Suresh Prabhakar Prabhu Union Minister for Commerce and Industry, WT/MIN(17)/ST/9 (13 December 2017). 215 India Statement by H.E. Mr. Suresh Prabhakar Prabhu Union Minister for Commerce and Industry, WT/MIN(17)/ST/9 (13 December 2017). 216 South Africa Statement by H.E. Dr. Rob Davies Minister for Trade and Industry, WT/MIN(13)/ ST/27 (5 December 2013). 217 South Africa Statement by H.E. Dr. Rob Davies Minister for Trade and Industry, WT/MIN(13)/ ST/27 (5 December 2013). 218 South Africa Statement by Dr. Robert Haydn Davies, Minister of Trade and Industry, WT/MIN (17)/ST/129 (2 August 2018). 219 South Africa Statement by H.E. Dr. Rob Davies Minister for Trade and Industry, WT/MIN(13)/ ST/27 (5 December 2013).

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more responsibility to address these issues at the WTO.220 Other statements seek to present China as a strong supporter of market liberalization (including of its own market).221 Moreover, statements stressed the importance of the Chinese market as an export destination for developing country products and China’s efforts to provide preferential market access and even ‘duty free quota free’ market access for LDC exports.222 Based on these statements it can be concluded that China appears increasingly willing to accept more responsibility for the international trade order and takes a less critical and demanding position in regards to developed countries. Up until now it has not given up its self-qualification as a developing country and its association with developing country interests. All in all, it appears that emerging powers have not given up their support for a comprehensive development outcome in negotiations. This is also evident in common BRICS statements. In a 2014 statement BRICS trade ministers welcomed the outcomes of Bali and Nairobi, reaffirming the “importance of an open and rulesbased multilateral trading system and [. . .] the central role of the WTO in setting rules for global trade”.223 BRICS also renewed calls to continue and finally conclude all issues of the DDA and achieve substantial “development outcomes”, in particular on agriculture.224 After developed countries sought to abandon the DDA in Nairobi (2015) BRICS trade ministers highlighted their continuing support for the Doha mandate.225 In November 2019, they still called for a reform of the WTO that promotes inclusivity and development.226

6.3.1.3

The Trend Towards Mega-Regionals: The Role of Emerging Powers

As already indicated in Chap. 3 the stall of Doha negotiations has sparked efforts of old great powers to circumvent the WTO by concluding (mega-)regional trade 220

China, General Statement, 11th Ministerial Conference, Nairobi, Plenary Session (16 December 2015) audio and video file available online at: https://www.wto.org/english/thewto_e/minist_e/ mc10_e/mc10_planarysessions_e.htm#CHN. Accessed: 11 Sept 2020. 221 China Statement by H.E. Mr. Gao Hucheng, Minister of Commerce, WT/MIN(13)/ST/99 (24 January 2014); China Statement by H.E. Dr. Zhong Shan Minister of Commerce of the People’s Republic of China, WT/MIN(17)/ST/127 (25 January 2018). 222 China Statement by H.E. Mr. Gao Hucheng, Minister of Commerce, WT/MIN(13)/ST/99 (24 January 2014); China Statement by H.E. Dr. Zhong Shan Minister of Commerce of the People’s Republic of China, WT/MIN(17)/ST/127 (25 January 2018). 223 BRICS The 4th Meeting of the BRICS Trade Ministers: Joint Communiqué, Fortaleza, Brazil (14 July 2014), para. 4. 224 BRICS The 4th Meeting of the BRICS Trade Ministers: Joint Communiqué, Fortaleza, Brazil (14 July 2014), para. 5; see also: BRICS The Fifth Meeting of the BRICS Trade Ministers: Joint Communiqué, Moscow, Russia (7 July 2015), para. 9. 225 BRICS Trade Ministers Communiqué 6th Meeting of the BRICS Trade Ministers, New Delhi, India (13 October 2016), para. 20. 226 BRICS Eleventh Summit: Brasilía Declaration, Brasilia, Brazil (14 November, 2019), para. 27.

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agreements.227 From the perspective of many developing States this is problematic as new ‘gold standards’ might become established, which States outside the agreement would later (factually) have to accept in order to maintain market access for their products and market access. What about emerging powers then? What is their perspective on mega-regional trade agreements and potential WTO-plus provisions? Clearly mega-regional trade agreements were initially adopted strategically by the United States and the EU in an attempt to circumvent WTO negotiations where emerging powers had become ever more powerful. With TPP the United States sought to draw important Asian and Latin American States into the liberal ambit and to contain China’s ability to evade existing rules or even set its own.228 The United States, however, seems to have given up this strategy by withdrawing its signature from TPP and by retreating from TTIP negotiations for internal reasons. Still, both the United States and the EU are pursuing the negotiation of bilateral free trade agreements that go beyond WTO agreements with regard to their content. Emerging powers so far remain rather reluctant to negotiate such agreements. A BRICS free trade agreement has never been mentioned in common statements or elsewhere. Among individual States, Brazil, India, and South Africa appear rather reluctant when it comes to mega-regional trade agreements. The only emerging country that has engaged in concluding a potential mega-regional agreement is China. Initiated by ASEAN, China has become a driving force behind the Regional Comprehensive Economic Partnership (RCEP). The agreement has been signed by parties in late 2020.229 Although the text of the agreement got public only at a late stage in the publication of this book—and therefore a thorough analysis was not possible—a preliminary assessment suggests that the agreement is less ambitious than for example the TPP. Nevertheless, it can be seen as an important precedent, as it is said to be more tolerant of industrial policy and state-led development.230 The precedential character in that regard stems not from establishing a ‘gold standard’ but rather in omitting more market-friendly requirements. Despite this less ambitious agenda, India in November 2019 announced its withdraw from RCEP negotiations pointing to flaws in safeguard provisions.231 The Chinese led Belt and Road Initiative has garnered even more attention than the RCEP.232 However, so far the project is not accompanied by an international agreement. Instead, China has opted for an international private law approach, mainly installing local arbitration courts within the Chinese court system to adjudicate commercial matters of traders.233 The initiative is not seen here as a challenge to

227

See Sect. 2.1.3.4. Malone (2019), p. 76; Rolland and Trubek (2019), p. 36, 173 et seqq. 229 See: ASEAN Press Office (2020). 230 Rolland and Trubek (2019), p. 27. 231 Oba (2019). 232 See e.g.: Sooksripaisarnkit and Garimella (2018); Chaisse (2018). 233 See e.g.: Tang (2019) and Sooksripaisarnkit and Garimella (2018); but see on possible repercussion of the initiative on ISDS reform and China’s legal position: Chen (2020). 228

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the existing international economic order but rather brings up numerous questions as to the already applicable existing international law, coordination and conflicts between legal regimes, and dispute resolution.234 This might of course change if the One Belt one Road Initiative brings about an extended RCEP-EU FTA, or any other form of a mega-regional trade agreement with partner countries.235 Aside from this Chinese led initiative, no other emerging power is leading any (mega)regional trade initiatives.236 The African Union has launched a plan for an African Continental Free Trade Area (AfCFTA) that is ultimately aimed at replacing smaller regional and bilateral FTAs and could become an African mega-regional trade agreement.237 Although there are no indications that South Africa led the AfCFTA initiative, such an agreement could strengthen South African trade across the African continent, and thereby potentially increase South Africa’s role in global trade negotiations. However, at this point it is unclear whether the African Union and its member States will have the political strength and endurance to finally conclude such an agreement.238 Brazil, India, and South Africa rather seem to have adopted a pragmatic approach, negotiating FTAs on a bilateral basis. Each nation is a member of a number of such trade instruments.239 More comprehensive new initiatives include the following: Brazil is pursuing plurilateral initiatives with the Pacific Alliance (Mexico, Colombia, Peru and Chile), and through Mercosur is involved in negotiating a MercosurEU FTA. South Africa is a member of SADC, which concluded an Economic Partnership Agreement with the EU in 2016. Even India, which since its retreat from RCEP negotiations has not been involved in any mega-regional trade negotiations, is in the process of negotiating an FTA with the EU. Regarding content we will explore these treaties with regard to intellectual property protection below. There, the extent to which such treaties contain more rigid protections than the WTO’s TRIPS agreement will be analysed, as well as what this means for global justice (C. III. 3.).

6.3.1.4

Evaluation

Throughout their individual and common BRICS statements, Brazil, India, and South Africa have harshly criticized WTO agreements for being imbalanced to the detriment of the developing world and its poor people. China has remained less explicit but has generally supported developing countries in their struggle to redress

234

see on such matters also the contributions in: Zhao (2018). On such a scenario see: Kang (2018). 236 For a more comprehensive overview see: Rolland and Trubek (2019), p. 187 et seqq. 237 See in more depth the contributions in: Luke and MacLeod (2019). 238 See also: Rolland and Trubek (2019), p. 184. 239 Lists of these agreements are provided at WTO member information pages available at: https:// www.wto.org/english/thewto_e/countries_e/. Accessed: 11 Sept 2020. 235

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the development deficit of the WTO. Notably all four States under supervision here affiliate themselves with developing countries and their positions, mostly avoiding references to differentiation among the (economically) diverse group of developing countries. Emerging powers have continually stressed their support for the WTO as the primary global multilateral forum to address trade matters and they generally embrace the given liberal economic legal order. On mega-regional trade agreements, only China seems to pursue a comprehensive agenda. Thereby China could set ‘negative-precedents’ in the sense that RCEP could show that regional trade integration is possible while keeping with state-led ‘developmentalism’ and without curbing the operation of state-owned-enterprises. With regard to the Belt and Road initiative it remains to be seen whether at some point it will be complemented by further international treaties. All other States under exploration here, do not oppose bilateral or mega-regional free trade agreements in principle, however, the retreat of India from the RCEP, in particular, shows that they may not be ready to accept further liberalization in trade, even if less ambitious than Western-led initiatives.

6.3.2

Common Positions on Agriculture

As already indicated in the discussion above, trade in agriculture has been one of the most contested issues throughout the DDR, mostly on North/South lines. Chapter 4 highlighted the manifold human rights critiques of trade rules (or a lack of rules) on agriculture. Briefly summarized, two arguments are most prevalent in discussions. First, the Agreement on Agriculture (AoA) does not sufficiently curb protectionism in the agricultural field (e.g., tariff peaks) and allows developed countries to massively support their domestic farmers to the detriment of agricultural exports from the Global South. If protectionism could be curbed then farmers in the Global South would benefit, poverty would be reduced and poverty related human rights safeguards (to food, housing, health etc.) could be fulfilled more easily. Second, the AoA lacks enough carve-outs for developing countries to support their local producers and shield them from unfair competition from subsidized imports, and thereby hinders those States from protecting the social and economic rights of poor farmers (e.g. the right to an adequate livelihood). The following assessment first highlights that emerging powers mostly share these concerns and have voiced strong arguments for reform. Secondly, we take a closer look at individual reform proposals in negotiations, at efforts to bring down U.S. and EU domestic support through judicial dispute settlement, and at emerging powers’ own domestic support programs and their possibly detrimental impact on producers in other countries of the Global South.

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Emerging Powers’ Commitment to Reform the Agreement on Agriculture

Brazil, India, and South Africa have long been vocal critics of protectionist agricultural policies in developed countries and connected these issues to notions of development and global justice. Brazil already in 1998 called for the abandonment of the “greatest protectionist and subsidizing apparatus ever put together for the preservation of the interest of one sector [agriculture]”.240 In Seattle, Brazil renewed this request and depicted carve-outs in the AoA as the only “real special and differential treatment in the WTO unfortunately benefiting those who do not need it.”241 These calls were reiterated consistently with only slight modifications in later statements and Brazil also directly linked the reform of agriculture within the WTO agreements with the alleviation of poverty.242 India has even been more vocal and drastic in its criticism. Indian officials criticized domestic subsidies and other support measures by developed States.243 Early on they called for the abolition of export subsidies except as a special provision for developing countries.244 Moreover, they attacked non-tariff barriers in developed countries, such as standards, testing, labelling, and certification measures which according to India are used in a discriminatory manner and are set by international standard setting bodies—inadequately representing developing countries—to block developing country exports.245 For India there is also a clear causal connection between agricultural policies introduced by developed countries and poverty in the Global South. For example, India stressed that the “net effect of subsidizing agriculture in developed countries at the expense of products of the relatively poor in developing countries is to aggravate global income inequalities”.246 At the same time, India appeared keen on defending its own support measures. In that regard,

240

Brazil Statement by H.E. Mr. Fernando Henrique Cardoso, President, WT/FIFTY/H/ST/7 (19 May 1998), para. 9. 241 Brazil Statement by H.E. Mr. Luiz Felipe Lampreia Minister of Foreign Relations, WT/MIN(99)/ ST/5 (1 December 1999); see also: Brazil Statement by H.E. Mr. Celso Lafer Minister of Foreign Relations, WT/MIN(01)/ST/12 (10 November 2001). 242 Brazil Statement by HE Ambassador Celso Nunes Amorim, Minister for Foreign Affairs, WT/MIN(09)/ST/11 (30 November 2009); see also: Brazil, Statement by H.E. Mr. Celso Amorim Minister of External Relations, WT/MIN(03)/ST/28 (11 September 2003); Brazil Statement by HE Mr. Celso Amorim, Minister of External Relations, WT/MIN(05)/ST/8 (14 December 2005). 243 India Statement by Dr. B.B. Ramaiah Minister of Commerce, WT/MIN(96)/ST/27 (9 December 1996). 244 Communication from India, Informal Intersessional General Council Meeting on 26-27 October, WT/GC/W/114 (18 November 1998). 245 India Statement Circulated by Mr. Ramakrishna Hegde, Minister of Commerce, WT/MIN(98)/ ST/36 (18 May 1998), para. 13; Statement by India, Committee on Sanitary and Phytosanitary Measures, Implementation of the Provisions for Special and Differential Treatment, Meeting of 21-22 June 2000, WTO Doc. G/SPS/GEN/197 (21 July 2000). 246 India Statement by H.E. Mr Arun Jaitley Minister of Commerce and Industry and Law and Justice, WT/MIN(03)/ST/7 (10 September 2003), para. 8.

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India argued that it is necessary to distinguish between support by developing countries to poor farmers and support in developed countries which is not meant to help keep “small struggling family farms in business but to provide hefty rents to large farmers or corporates”.247 According to India: The legitimate concerns of billions of farmers in developing countries, for whom agriculture means survival and not commercial operation, cannot be sacrificed to sub-serve agri-business profits of a few millions elsewhere sustained through US$ 1 billion in the OECD countries.248

Thus, India does not only seek to bring down domestic support in developed economies but also to protect and even increase flexibility under the AoA for developing countries to be able to support their peasants and rural poor and to ensure food security.249 South Africa, like Brazil and India, early on addressed the issue of agricultural subsidies in the Global North and market access and export competition, criticizing developed countries for their protectionist practices.250 South African Trade Representatives also linked the issue of agricultural trade to development and poverty: It is through addressing the inequities in the current global agricultural trade regime that we can begin to seriously address the widespread poverty in which so many millions of our people live in the developing world, and in Africa in particular.251

Stressing that “selective preferential treatment for a handful of commodities” is not enough, South Africa argued that “what the poor need is to be able to trade on a fair and level playing field, and in a meaningful and sustainable manner”.252 Albeit South Africa has quite some interest in market access for its agricultural exports, negotiators stressed that the South African stance is based on altruistic motives, fighting for an “African revival” and the interests of other African countries.253

247

India Statement by H.E. Mr. Arun Jaitley Minister of Commerce and Industry and Law and Justice, WT/MIN(03)/ST/7 (10 September 2003), para. 8. 248 India Statement by H.E. Mr. Arun Jaitley Minister of Commerce and Industry and Law and Justice, WT/MIN(03)/ST/7 (10 September 2003); para. 8. 249 Communication from India, Informal Intersessional General Council Meeting on 26-27 October, WT/GC/W/114 (18 November 1998). 250 South Africa Statement by H.E. Mr. Alec Erwin Minister of Trade and Industry, WT/MIN(96)/ ST/114 (12 December 1996); South Africa Statement by H.E. Mr Alexander Erwin, MP Minister of Trade and Industry, WT/MIN(01)/ST/7 (10 November 2001). Statement by South Africa, Fourth Special Session of the Committee on Agriculture 15–17 November 2000, WT Doc. G/AG/NG/W/ 82 (29 November 2000); Statement by South Africa, Sixth Special Session of the Committee on Agriculture, 22–23 March 2001, G/AG/NG/W/168 (6 April 2001). 251 South Africa Statement by the Honourable Alexander Erwin Minister of Trade and Industry, WT/MIN(03)/ST/43 (11 September 2003). 252 South Africa Statement by the Honourable Alexander Erwin Minister of Trade and Industry, WT/MIN(03)/ST/43 (11 September 2003). 253 Statement by South Africa, Fourth Special Session of the Committee on Agriculture 15-17 November 2000, WT Doc. G/AG/NG/W/82 (29 November 2000); see in a similar vein: South Africa Statement by Hon. Dr. Rob Davies Minister of Trade and Industry, WT/MIN(15)/ ST/17 (18 December 2015).

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In most recent Ministerial Conferences, Brazil, India, and South Africa have renewed their arguments on the agricultural sector. Brazil, for example, called for giving priority to the “unfinished business” and “overdue aspiration of farmers in developing countries” of removing trade distorting measures in agriculture at the Ministerial Conference in Bali (2013)254 and stressed the development rationale of addressing domestic support in agriculture at the Ministerial Conference held in Buenos Aires (2017).255 Again, in a more explicit way, India stressed that commercial interests must not outweigh survival interests of the four billion people food security is essential for and argued that trade agreements need to be in harmony with the right to food and the Millennium Development Goals.256 In Nairobi, India recalled the “duty to safeguard the legitimate interests of poor farmers and the food security of hundreds of millions in developing countries”.257 Despite its generally reluctant stance, China has also repeatedly addressed agricultural negotiations in its statements and criticised developed country protectionist agricultural practices, albeit in a less explicit way than other emerging powers. In these statements, China called upon developed States to make major reduction commitments in agriculture with regard to subsidies and other measures of domestic support.258 China also “reminded” developed countries that their farmers only make up for 4% of the world’s total and stressed the possibility of reducing subsidies and installing social security schemes for farmers losing employment.259 Except for these few statements, China has not prominently addressed agriculture in WTO negotiations. The relatively quiet presence of China can be explained by economic and legal factors.260 Given that China is not a major agricultural exporter it is less keen on market access regarding agriculture than, for example, Brazil.261 Moreover, China already made extensive agricultural commitments in its accession agreement, such as agreeing to eliminate export subsidies and significantly reducing tariffs on important products, restricting it from being able to make substantial concessions. In trade negotiations China consequently had little to offer.

254

Brazil Statement by H.E. Mr. Luiz Alberto Figueiredo Machado, Minister of Foreign Relations, WT/MIN(13)/ST/4 (4 December 2013). 255 Brazil Statement by H.E. Mr. Aloysio Nunes Ferreira Filho, Minister of Foreign Affairs, WT/MIN(17)/ST/13 (13 December 2017). 256 India Statement by H.E. Mr. Anand Sharma, Minister of Commerce and Industry, WT/MIN(13)/ ST/22 (4 December 2013). 257 India Statement by H.E. Mrs. Nirmala Sitharaman, Minister of State for Commerce and Industry, WT/MIN(15)/ST/9 (17 December 2015). 258 China Statement by H.E. Mr. Lu Fuyuan, Minister of Commerce, WT/MIN(03)/ST/12 (11 September 2003); China Statement by HE Mr. Bo Xilai, Minister of Commerce, WT/MIN (05)/ST/59 (14 December 2005). 259 China Statement by HE Mr. Bo Xilai, Minister of Commerce, WT/MIN(05)/ST/59 (14 December 2005). 260 Tu (2013), p. 174 et seq.; Liang (2013), p. 214 et seq. 261 Cf. Tu (2013), p. 174.

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Still, China supported its partners in common BRICS statements in which reform of the Agreement on Agriculture has repeatedly been an issue. In these statements agricultural subsidies in developed economies have been termed “one of the most harmful form of protectionism” and described as generating “food insecurity” and denying “the development potential of this key sector in countries that already face formidable challenges to participate in global trade flows.”262 Moreover, BRICS also call for special flexibilities and “policy space” for developing countries.263 In later statements BRICS renewed their condemnation of domestic and export support in developed countries and reaffirmed their commitment to finding a permanent solution for the developing country issue of “public stockholding for food security purposes.264

6.3.2.2

Fighting Domestic and Export Support in Developed Countries

This section presents concrete steps emerging powers have taken to pursue their common (even if differently prioritized) goal to curb domestic subsidies by developed countries and explores the extent to which they were successful. The section starts with an analysis of early dispute settlement cases initiated by Brazil against both the United States and the EC, then moves to a discussion of Doha negotiations, and concludes with an analysis of legal and justice aspects of rising domestic support in emerging powers.

Dispute Settlement: Brazilian Challenges Against EC/U.S. Agricultural Policies Beginning in the early 2000s Brazil famously attacked agricultural support practices in the United States and EC judicially. In September 2002 Brazil initiated two ground-breaking WTO dispute settlement cases: EC—Export Subsidies on Sugar265 and United States—Subsidies on Upland Cotton.266 While the cases addressed many complex legal technicalities, for our purposes their symbolic impact

262

BRICS Ministerial Declaration of the BRICS Trade Ministers, WT/MIN(11)/18 (14 December 2011). 263 BRICS BRICS Trade Ministers’ Statement, Puerta Vallarta, Mexico (19 April 2012). 264 BRICS Joint Declaration of the 4th Meeting of the BRICS Ministers of Agriculture and Agrarian Development, Brasilia (13 March 2015), para. 12-13. 265 European Communities—Export Subsidies on Sugar, WT/DS266/1, Request for Consultations by Brazil (1 October 2002). 266 United States—Subsidies on Upland Cotton, WT/DS267/1, Request for Consultations by Brazil (3 October 2002).

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is of most importance.267 The (more or less) successful conclusion of both cases has been hailed by NGOs like Oxfam as “a triumph for developing countries”.268 This assumption is slightly exaggerated. Nevertheless, these cases are important because they prove that emerging powers are in a position to successfully use the dispute settlement system against established powers, at least if cases are backed by economically powerful domestic lobbies.269 Moreover, both cases revealed grave legal inconsistencies of EC (later EU) and U.S. agricultural policies with the AoA. However, as will also be demonstrated, the distributional outcomes for other developing countries in both cases remain questionable. The legal case against the EC mainly concerned export support to European sugar producers and their legality under the EC’s commitments under the AoA.270 While the EC was a net importer of sugar in the early 1970s, CAP interventionist policies including price support led the EC to become a net exporter of sugar by the 1990s and 2000s.271 By 2002, when Brazil launched the case, the EC had become a major sugar exporter. For Brazil, which in 2002 was—and continues to be—the world’s leading exporter of sugar,272 this significant rise of EC sugar exports apparently posed a sincere economic threat. Export subsidies, while not prohibited by the AoA, had to be reduced following the Uruguay Round according to Article 3.3 and 8 AoA specified reduction commitments (schedule of commitments) of each Member State on a product-by-product basis. Brazil (and Thailand and Australia in separate cases) attacked the EC’s sugar policies as being in breach of these commitments. Simply put, Brazil (and the other complainants) argued that the EC exceeded its export support commitments of exports, in part through so-called ‘cross-subsidization’,273 as a result of high intervention support prices the EC guaranteed to producers for a given quantity and also by re-exporting so-called preferential sugar, which it imported from ACP countries and India at zero duty and at guaranteed prices.274 With both India and the ACP countries the EC had concluded trade agreements that obliged the EC to import a

267 See on these legal issues in more depth: Powell and Schmitz (2005), Reithmann (2006), Hoekman and Howse (2008) and Guan (2014). 268 Press Statement by Oxfam, cited in: ICTSD (2004). 269 See on the involvement of agricultural lobby groups in the cases: Hopewell (2013). 270 See for a summary of the case: Powell and Schmitz (2005), p. 315 et seqq. 271 Hoekman and Howse (2008), p. 149 et seqq. 272 Data on sugar exports unfortunately is not provided by the WTO which is why this assessment is based on data provided by the International Trade Center, available at: https://www.trademap.org/ tradestat. 273 In this context cross subsidization describes the practice whereby producers use rents obtained through subsidies for a particular product to support their exports of another product, or in this case—where producers use subsidies obtained for sugar sold on domestic markets (A and B sugar) to support their exports of other sugar (so-called C sugar). 274 See: EC—Export Subsidies on Sugar, Complaint by Brazil, WT/DS266/R, Report of the Panel (15 October 2004), para. 3.1–4.9; for a summary see also: Hoekman and Howse (2008), p. 149.

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significant amount of sugar at a guaranteed price.275 The ACP/India sugar was bought at the EC intervention price and then was exported on world market prices at a significant loss which was absorbed by the EC budget. Both EC and ACP/Indian producers benefited from this practice,276 but third country producers suffered from lower world market prices and unfair competition. Therefore it was no surprise that both a number of ACP countries as well as India joined the case as third parties and sought to defend guaranteed prices for their sugar exports.277 In particular, ACP countries—among numerous legal arguments—highlighted that sugar exports to the EC under the EC/ACP sugar protocol are of great importance for the economic and social development of their countries, including poverty alleviation.278 While some interpretative complexities were involved (especially on the matter of cross-subsidization) the panel ultimately qualified both re-exports and crosssubsidized exports as ‘subsidised exports’ and found that the EC had substantially exceeded its export subsidy commitments under the AoA and the EC’s schedules.279 The Appellate Body upheld these findings across all relevant points.280 After complainants took further steps to juridically enforce compliance, the EC finally substantially reformed its sugar policy and changed its respective regulations in 2006.281 The outcome was a decline of EC sugar exports and a rise in imports making the EC a net sugar importing market by 2008.282 This outcome presents a substantial win for Brazilian sugar producers, but was it also a win for developing countries more broadly? For its symbolic value the outcome certainly was a success for developing countries, but the distributive outcomes are more complicated. The panel/AB findings implied that the EC could not import and re-export the same amount of sugar previously imported from ACP countries, at least if imported on guaranteed prices as high as in previous years

275

In the case of ACP this obligation was based on Article 1 para. 1 of Protocol 3 to Annex IV of the ACP/EC Partnership Agreement, and in the case of India the obligation stemmed from a bilateral trade agreement, see: EC—Export Subsidies on Sugar, Complaint by Brazil, WT/DS266/R, Report of the Panel (15 October 2004), 10 and Powell and Schmitz (2005), p. 316. 276 See the Third Party statements provided by ACP countries in the case: EC—Export Subsidies on Sugar, Complaint by Brazil, WT/DS266/R, Report of the Panel (15 October 2004), p. 89; see also: Hoekman and Howse (2008), p. 152. 277 See: Third Party submissions summarized in EC—Export Subsidies on Sugar, Complaint by Brazil, WT/DS266/R, Report of the Panel (15 October 2004), p. 89 et seqq. (ACP countries) and p. 98 et seqq. (India). 278 EC—Export Subsidies on Sugar, Complaint by Brazil, WT/DS266/R, Report of the Panel (15 October 2004) 89. 279 EC—Export Subsidies on Sugar, Complaint by Brazil, WT/DS266/R, Report of the Panel (15 October 2004) 163–188. 280 EC—Export Subsidies on Sugar, WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, Report of the Appellate Body (28 April 2005). 281 See: Regulation (EC) No. 318/2006, Regulation (EC) No. 319/2006 and Regulation (EC) No. 320/2006. 282 Data on sugar ex- and imports is taken from the European Commission’s Market Access Database, available at: http://madb.europa.eu/madb/statistical_form.htm.

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and without substantially reducing support to EC producers. In consequence, the CAP sugar reforms in 2006 lowered intervention prices and thereby also reduced rents available to ACP sugar producers, likely forcing a number of ACP producers to exit sugar production.283 While the 2006 reform of the EC’s sugar policies made trade in sugar more market-driven, reforms also imposed an external shock on ACP producers which had relied on intervention prices.284 To mitigate adverse effects on ACP sugar producers, the EU Council in February 2006 agreed to provide adjustment assistance to affected countries.285 Moreover, even though the EU/ACP Sugar Protocol was terminated as of 1 October 2009, a 6 year transition period ensured the facilitation of adjustment and newly concluded Economic Partnership Agreements continue to grant preferential market access, albeit to an increased number of sugar producing countries.286 However, critics continue to argue that transition schemes were insufficient to cover losses of ACP producers.287 All in all, the successes of Brazil, Thailand, and Australia in the EC-Sugar cases were at least not unequivocally beneficial to the whole of the developing world from a distributional perspective. The case against the United States concerned several support measures provided for U.S. cotton producers, including subsidies, export credits, grants, and other assistance. Brazil claimed that these measures were not covered by allowed support under AoA commitments and were inconsistent with the Agreement on Subsidies and Countervailing Measures (SCM Agreement).288 The panel ruled mainly in favour of Brazil. Importantly, the panel found that U.S. agricultural export credit guarantees were subject to WTO export subsidy disciplines and three of the United States’ export credit guarantee programmes were considered to be export subsidies inconsistent with U.S. commitments under the AoA.289 Moreover, several other support measures for cotton were deemed in violation of the SCM and AoA, including user marketing payment to exporters and user marketing payments to domestic users of upland cotton.290 Finally, the panel found that several U.S. support 283

Hoekman and Howse (2008), p. 177. Note that according to Article 5 para. 4 of the Protocol 3 to Annex IV to the ACP/EC Partnership Agreement guaranteed prices were negotiated anew every year “taking into account relevant economic factors”. 284 The EC/ACP Sugar Protocol was terminated by the EU as of 1 October 2009. 285 Regulation (EC) No. 266/2006. 286 After the transition period ended as of 1 October 2015, trade in sugar with ACP countries is governed by several Economic Partnership Agreements. Therefore, preferential market access for sugar is granted to an increased number of EPA Member States and also LDCs under the EU’s so-called ‘Everything but Arms’ initiative. See for an overview: Garcia-Duran and Casanova (2009). 287 For an overview: South Centre The Reform of the EU Sugar Sector, Analytical Note SC/AN/ TDP/MA/3, Geneva, Switzerland (November 2017), 29 with further references. 288 United States—Subsidies on Upland Cotton, WT/DS267/R, Report of the Panel (8 September 2004), Annex A-1. 289 United States—Subsidies on Upland Cotton, WT/DS267/R, Report of the Panel (8 September 2004), p. 217 et seqq. and 348. 290 United States—Subsidies on Upland Cotton, WT/DS267/R, Report of the Panel (8 September 2004), p. 265 and 349.

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programmes resulted in ‘serious prejudice’ to Brazil’s economic interests as they significantly suppressed the price for cotton in the world market and thereby violated Article 5 c) of the Subsidies Agreement.291 The AB upheld the main findings of the panel in 2005 (with slight modifications).292 Though a clear win for Brazil, compliance by the United States, including enforcement, proved to be difficult. The United States, though in due course complied with some findings of the reports lacked behind on most others. The United States seems to have speculated on offering reductions in cotton support as concessions within the Doha agricultural negotiations, where it could have extracted some concessions from other Members in return, rather than reducing support ‘simply’ as a matter of implementing the panel decision.293 Yet Brazil proved that it was willing and able to use legal means to pressure the United States towards compliance. The further judicial processes proved to be complex and long. Brazil initiated a compliance panel report which, in 2009, deemed the United States in continuous violation of its WTO obligations and ruled that Brazil could impose US$ 147.3 million in countermeasures annually.294 Brazil stressed its willingness to actually impose significant countermeasures when in May 2010 it communicated a final list of goods of U.S. origin that would be subject to additional import tariffs within 30 days.295 Due to these threats the Obama administration sought a solution through further negotiations. Just 2 days before the countermeasures would have come into force, Brazil and the United States found a consensual solution concluding a “Framework for a Mutually Agreed Solution to the Cotton Dispute” (concluded on 25 August 2010) that laid out further procedures to find a solution and ultimately terminate the legal dispute. Brazil agreed not to impose the countermeasures authorized by the DSB as long as the Framework remains in effect.296 Ultimately both sides concluded a Memorandum of Understanding (16 October 2014) in accordance with Article 3 para. 6 of the DSU which finally terminated the dispute. Under the Memorandum the United States agreed to make a one-off payment of US$ 300 million to the Brazilian Cotton Institute. Furthermore, the United States agreed to change its rules and administration of export credit

291

United States—Subsidies on Upland Cotton, WT/DS267/R, Report of the Panel (8 September 2004), p. 307-329. 292 United States—Subsidies on Upland Cotton, WT/DS267/AB/R, Report of the Appellate Body (3 March 2005), p. 288 et seqq. 293 Powell and Schmitz (2005), p. 306. 294 United States—Subsidies on Upland Cotton, Recourse to Arbitration by the United States under Article 22.6 of the DSU and Article 7.10 of the SCM Agreement, WT/DS267/ARB/2, Decision by the Arbitrator (August 31 2009), p. 52 (para. 4.195). 295 United States-Subsidies on Upland Cotton, WT/DS267/43, Communication from Brazil (12 March 2010). 296 United States—Subsidies on Upland Cotton, WT/DS267/45, Joint Communication from Brazil and the United States (31 August 2010).

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guarantees and to provide Brazil with information on its export credit guarantee programme (GSM-102 Programme).297 Brazil agreed on a peace clause shielding the United States’ Commodity Credit Corporation GSM-102 export credit guarantee program from dispute settlement (as long as it operates in a manner consistent with the Memorandum) and other domestic support programs specific to upland cotton.298 Brazil also committed itself to ensuring that the payment to the Brazilian Cotton Institute is only used for technical assistance and capacity-building activities for Brazilian cotton farmers and for activities related to international cooperation in the cotton sector with countries in sub-Saharan Africa and in Mercosur Members and associate Member States.299 Though it took Brazil some time to reach a mutually acceptable solution and there are ongoing quarrels with the United States,300 the case is often seen as a success for Brazil and even the developing world more broadly. As noted by Hopewell, Brazil used the case to construct a David vs. Goliath like image of itself as a hero of the developing world taking on the traditional powers.301 To strengthen this image Brazil aligned itself with poor West African States largely dependent on cotton farming (the so-called Cotton-4302), two of which, Benin and Chad, had joined the case against the United States as third parties.303 Notably, Brazil’s trade minister of the time, Miguel Jorge, reportedly stated shortly after the conclusion of the MoU in 2014: “The dispute helped the WTO system, since it demonstrated that developing countries can win if they have a properly prepared case.”304 In line with that argument, observers have depicted the case as a sign that WTO law and its dispute settlement provides developing countries with an effective possibility to challenge illegal industrialized States’ agricultural policies.305 Indeed, the case revealed major inconsistencies with WTO rules in U.S. agricultural policies, and the findings had a broader significance for other commodities thereby raising the

297

United States—Subsidies on Upland Cotton, WT/DS267/46, Notification of a Mutually Agreed Solution (23 October 2014), p. 4 (Section IV). 298 United States—Subsidies on Upland Cotton, WT/DS267/46, Notification of a Mutually Agreed Solution (23 October 2014) 4-5 (Section VI and Section VIII). 299 United States—Subsidies on Upland Cotton, WT/DS267/46, Notification of a Mutually Agreed Solution (23 October 2014), p. 2. 300 In mid-2016 the US announced that it would support domestic cotton producers with US$ 300 million, what led to renewed quarrels with Brazil within the WTO’s Committee on Agriculture, see: ICTSD (2016a). 301 Hopewell (2016), p. 113. 302 The Cotton-4 include Benin, Burkina Faso, Chad, and Mali. Cotton production plays an important role in these countries as it accounts for 5–10% of their GDP, 30% of their total export earnings, and more than 10 million people directly depend on cotton production (and more indirectly), see: Mavroidis (2016), 600 with further information on cotton initiatives within the WTO. 303 Hopewell (2016), p. 113. 304 Cited in: Daemmrich (2012), p. 236. 305 Kattau (2015), p. 123.

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prospects of further legal challenges against traditional power agricultural protectionism.306 Despite these developments, given the unwillingness of the United States to change its agricultural policies substantially, potential benefits for third countries were more limited than often assumed. While the Memorandum foresees the possibility that payments to Brazil may be used for technical assistance and capacitybuilding activities in other developing countries there is no obligation to do so. In effect the United States may still go forward with illegal support while paying Brazilian farmers to keep calm. Smaller cotton exporting countries like the Cotton 4 in Africa continue to suffer from the negative effects of world prices, likely lacking the capabilities and resources to substantially challenge U.S. cotton policies on their own.307

Emerging Powers in Doha Negotiations The issue of agricultural support on the part of developed countries not only kept panels and the Appellate Body busy but also became one of the main issues of negotiation in the DDR. As exemplified by the above statements, all four emerging powers supported efforts to bring the EU, United States, and other developed economies to substantially reduce their support for agriculture. Yet, despite the combined power of emerging economies, the DDR so far has not delivered any outcome on curbing domestic support in developed countries. The closest Member States got to the conclusion of negotiations were the 2008 Revised Draft Modalities for Agriculture, a text of 131 pages that comprises 7 years of negotiations and addresses all three pillars of negotiations (market access, domestic support, and export competition).308 The Revised Draft Modalities were meant to be a blueprint for the final outcome of agricultural negotiations. However, as negotiators quarrelled over market access issues and especially special protective measures such as so-called Special Products and the SSM for developing countries, the Draft Modalities remain unadopted. Still, many developing country negotiators continue to consider the Draft Modalities as the basis to finalize agricultural negotiations.309 Would those Modalities, if agreed upon, have brought down domestic support in developed countries substantially? And what would the Modalities have meant for

See: Hopewell (2016), p. 113. See on the application of the findings to other crops: Powell and Schmitz (2005), p. 312 et seqq. 307 Note that recent negotiations brought some outcomes of benefit to Cotton 4 countries but mostly they contain no hard legal commitments (e.g. to grant preferential market access or reduce domestic support to cotton producers in developed countries), see: Ministerial Decision of 19 December 2015 (Cotton), WT/MIN(15)/46, WT/L/981 (21 December 2015). 308 Revised Draft Modalities for Agriculture, WTO Committee on Agriculture Special Session, WTO Doc. TN/AG/W/4/Rev.4 (6 December 2008). 309 See: Häberli (2016), p. 111. This is also evident in developing countries’ insistence on continuing the DDR based on the initial mandate and negotiated modalities. 306

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agricultural support policies in developing countries? The most important part of the Draft Modalities section on domestic support was a general commitment to limit the overall trade-distorting domestic support (OTDS). OTDS would have covered Amber Box support including de minimis expenditures (trade distorting support) and Blue Box support (Subsidies tied to programs that limit production).310 The tiered formula used in the Modalities would have meant higher cuts for higher support levels which would have required the EU to reduce its base period OTDS by 80%, the United States by 70%, and Japan by 75%.311 All other countries were meant to reduce OTDS by 55%.312 Special and differential treatment would further have ensured that developing country Members with no final bound Aggregate Measurement Support (AMS) reduction commitments would not be required to undertake OTDS reduction commitments.313 An important innovation would have been the inclusion of product-specific AMS limits, which were meant to limit the practice of so-called box-shifting and product targeting.314 The Modalities further include reductions of Final Bound Total AMS.315 Again developing countries would have to make smaller reduction commitments—two-thirds of the reduction applicable for developed country Members— and would be eligible for longer implementation periods.316 Further, reduction commitments were foreseen for de minimis and blue box support. A special reduction formula leading to higher reduction commitments and an accelerated phase-in period—20 months instead of 5 years—would have applied to AMS support for cotton.317 This provision aimed at supporting poor Cotton-4 countries, but would likely also have benefitted cotton producers in other countries, such as Brazil and India. With regard to Green Box support, the Modalities foresaw the amendment of Annex 2 to the AoA which would have actually enlarged green box support instead of reducing it (especially for developing countries).318 Importantly, the amendment foresaw an allowance for the usage of administered prices within public stockholding for food security programs in the green box,319 an issue highly contested between developed and developing countries. As explored in more detail 310

Revised Draft Modalities for Agriculture, WTO Committee on Agriculture Special Session, WTO Doc. TN/AG/W/4/Rev.4 (6 December 2008), p. 4 (I. A. 1.); see also: Häberli (2016), p. 110. 311 Häberli (2016), p. 110. 312 Revised Draft Modalities for Agriculture, WTO Committee on Agriculture Special Session, WTO Doc. TN/AG/W/4/Rev.4 (6 December 2008), p. 4 (I. A. 3. c)). 313 Revised Draft Modalities for Agriculture, WTO Committee on Agriculture Special Session, WTO Doc. TN/AG/W/4/Rev.4 (6 December 2008), p. 7 (I. C.). 314 Häberli (2016), p. 110. 315 Revised Draft Modalities for Agriculture, WTO Committee on Agriculture Special Session, WTO Doc. TN/AG/W/4/Rev.4 (6 December 2008), p. 6 (B. 13). 316 Ibid. p. 6 (I. A. 16.-18.). 317 Ibid. p. 13 (I. G.). 318 Ibid. p. 39 et seqq. (Annex B). 319 Ibid. p. 39 (Annex B).

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below, the issue of shielding public stockholding from legal challenges remains one of India’s primary concerns within WTO negotiations. Assessing the possible economic outcomes for different countries of these Modalities is highly complicated but existing studies allow for general evaluation. Although reduction commitments in the Draft Modalities at first sight appear significant, one must keep in mind that they address bound levels, which for developed countries are extraordinarily high as an outcome of the Uruguay Round, meaning that actual levels of support (which in 2008 were low due to high world prices) were not likely to be substantially reduced, if at all.320 This can be demonstrated in more detail for both the EU and the United States. While the Doha commitments would have constrained past EU domestic support, the cuts required by the Modalities had factually already been executed in 2008.321 The EU would have had to ensure that direct payments continued to be notified as green box support and to keep its blue box support at or below current levels but otherwise would have retained flexibility.322 For the United States implementing the Draft Modalities would have been more of a problem and with the adoption of the 2014 Farm Bill323 has become even more problematic. The United States notified Current Total Aggregate Measurement of Support (CTAMS), while relatively far below the binding under the AoA, is very close to the proposed binding under the Draft Modalities.324 Since 1995 U.S. domestic support in many years has been exceeding foreseen bindings under the Draft Modalities, in particular on product specific cotton support.325 Still, at the time of negotiations leading to the Draft Modalities, U.S. domestic support was expected to stay within the flexibility granted and only if world prices were to fall it may have become difficult for the United States to stay within the product-specific cap.326 This is because if prices fall, current U.S. policies–such as countercyclical price support or revenue-guarantee payments—would likely lead the United States to exceed Bound Total AMS and some product-specific AMS limits under the Draft Modalities.327 Nevertheless, there would have been options to change those policies, such as via increased usage of the green box to alter the composition of domestic support.328 All in all, the Draft Modalities would not have affected U.S. domestic

320

See: Gifford and Montemayor (2008), p. 2; South Centre The WTO’s Agriculture Domestic Supports Negotiations, Analytical Note, SC/AN/TDP/201 (January 2017), p. 19 et seqq. 321 See for an in detail analysis: Josling and Swinbank (2011), pp. 80 and 88 et seqq. 322 Josling and Swinbank (2011), p. 94. 323 US Agricultural Act of 2014, Public Law No: 113-79 (2 July 2014). 324 Blandford and Orden (2011), p. 124. 325 Blandford and Orden (2011), p. 124. 326 Blandford and Orden (2011), p. 40. 327 Blandford and Orden (2011), p. 150. 328 Blandford and Orden (2011), p. 150.

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support levels substantially but would have limited flexibility to re-raise Overall Trade Distorting Support.329 Despite limited actual reductions of domestic support in the EU and United States, new disciplines would have locked in reforms and thereby would have increased security and stability for agricultural producers in the Global South. Only green box support would have remained outside the scope of disciplines allowing developed countries (as well as richer developing countries) to keep with those support measures or even increase them (e.g., through box-shifting).330 Nevertheless, all in all, the 2008 Draft Modalities would have been a huge step towards the liberalization of the agricultural sector in developed countries. How would the Draft Modalities have affected domestic support provided by developing and emerging countries? Based on differentiated reduction commitments it has been estimated that the relative share of the capability to domestically support agriculture would have changed in favour of developing countries.331 While developing countries accounted for less than 30% of total OTDS before Doha they might account for over 60% of permitted non-green box support after the implementation of the Modalities.332 This would have meant a considerable redistribution and restructuring of allowed support addressing claims that the AoA is biased against developing countries. Still, shares are far from being based on human rights sensitive criteria (one could for example think of numbers of farmers dependent on agriculture, or income levels of farmers) and a small number of developed countries with a rather small share of the world population would still make up a considerable 40% share of allowed OTDS. Another problematic aspect of this redistribution is that support measures are very likely concentrated in larger and economically stronger developing countries (including emerging powers). Hence, criticism emerged from smaller import sensitive developing countries which are interested in limiting trade distorting support no matter where it comes from.333 As emerging countries continue to grow, available levels of non-green support as well as flexibilities in the green box pose an increasing threat of distorting trade in agriculture, adding to the trade distortion still stemming from domestic support in developed countries. Studies on domestic support measures in Brazil, China, and India reveal that the Draft Modalities would do little to curb their domestic support measures and with the enlargement of the green box would even provide additional flexibility. Domestic support in Brazil is one case in point. Because Brazil provided above de minimis 329

Blandford and Orden (2011), p. 145 and 150; see also: South Centre The WTO’s Agriculture Domestic Supports Negotiations, Analytical Note, SC/AN/TDP/201 (January 2017), p. 19. 330 On the problematic aspects of box-shifting and green box support, see the collected papers in: Meléndez-Ortiz et al. (2009); the South Centre has called this “the biggest loophole in in Rev 4”, see: South Centre The WTO’s Agriculture Domestic Supports Negotiations, Analytical Note, SC/AN/TDP/201 (January 2017), p. 18. 331 Gifford and Montemayor (2008), p. 3. 332 Gifford and Montemayor (2008), p. 3. 333 See: Gifford and Montemayor (2008), p. 3.

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product-specific support for rice, wheat, and coffee under its agricultural policy in the base period of 1986-1988, Brazil, unlike many other developing countries, has a positive Final Bound Total AMS of US $912.1 million.334 Although the Bound Total AMS is very small compared to the total production value of Brazilian agriculture (approximately 0.8%), it provides Brazil with more flexibility to domestically support agriculture than that which is available to most other developing countries which only can rely on de minimis thresholds.335 Despite additional and tightened constrains in the Draft Modalities stemming from the status as a Member State with a Final Bound Total AMS, Brazil—even as a developing country eligible for S&D treatment—would not have to reduce or change its actual support levels and policy because both past and projected levels are below the proposed binding constraints.336 In consequence, Brazil could have and still can comfortably accept the Draft Modalities without actually being obliged to change current policies. Like Brazil, South Africa has a Bound Total AMS, which is at US$ 186 million.337 Thus, it would face formal reductions of Base OTDS and Final Bound Total AMS levels. Yet, as South Africa has considerably changed its agricultural policies since the 1990s and today only has notified green box support338 no actual policy changes would be necessary. Still, South Africa would further lock in these policies and limit its capability to increase amber and blue box domestic support. In contrast to Brazil and South Africa, India can provide domestic support only under the de minimis provisions. Thus, India would be exempt from undertaking reduction commitments in its base OTDS and several other reduction commitments under the Draft Modalities.339 While India would face some additional constraints on product-specific domestic support, it would get improved flexibility under Annex B of the Draft Modalities which exempts price support provided to low-income and resource poor farmers under public stockholding programs from product-specific AMS calculations.340 In sum, India would face some limited additional constraints but keep ample flexibility to pursue its domestic support policies.341 The case of China is special because of WTO plus commitments in its accession agreement. China has a zero Bound Total AMS, and in comparison to most developing countries, to whom Article 6 para. 4 b) AoA applies, has a lower de minimis

334

See e.g.: Nassar (2011), p. 237. Nassar (2011), p. 237. 336 See for a more detailed analysis: Nassar (2011), p. 270 et seqq. 337 ‘Goods Schedule of South Africa’, Annexed to the Marrakesh Protocol, Part IV, Section I. 338 See Trade Policy Review Body Trade Policy Review: Southern African Customs Union (Namibia, Botswana, Swaziland, South Africa and Lesotho), WT/TPR/S/324 (30 September 2015), Annex 4: South Africa, 326 (para. 4.17). 339 Revised Draft Modalities for Agriculture, WTO Committee on Agriculture Special Session, WTO Doc. TN/AG/W/4/Rev.4 (6 December 2008), p. 5 (I. A. 6.). 340 Gopinath (2011), p. 305. 341 Gopinath (2011), p. 306 et seqq. 335

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support limit at 8.5% of the value of production.342 Moreover, China has given up its right to use special flexibilities in providing domestic support under the so-called development box (Article 6 para 2 AoA).343 Despite these WTO plus commitments, China until only recently had no problems meeting its AoA commitments.344 As a developing country and RAM, China would further have been eligible for special treatment under the Draft Modalities. With a zero Bound total AMS, China also would have been exempt from OTDS reductions.345 Therefore a possible Doha agreement on agricultural domestic support based on the 2008 Draft Modalities would only have a small impact on China’s latitude to provide domestic support.346 Nevertheless, China, as will be explored in more detail below, in recent years has come very close to some of its commitments and probably has exceeded them, decreasing the likelihood that China would accept further reduction commitments. In conclusion, the Draft Modalities would have had little impact on domestic support by developed and by emerging powers in 2008. The quid pro quo of the Draft Modalities seems to have been that both developed and emerging countries would have retained their levels of support, only locking in these levels.347 Yet, this quid pro quo could not eventuate because Member States disagreed over other aspects of the Draft Modalities, most notably market access, which shall be analysed in more depth-below. But even if negotiators would have achieved an agreement on those remaining issues the underlying economic and strategic interests since 2008 have changed to such an extent that consent on the domestic support issues in the Draft Modalities has become increasingly unlikely. In 2014 the United States passed a new farm bill that shifted away from direct payments (green box) towards price support measures (likely to be qualified as AMS), which would exceed commitments in the Draft Modalities and require actual policy changes if the United States were to agree on the Draft Modalities.348 Therefore the United States in Nairobi and later trade negotiations appeared unwilling to lend support to the Draft Modalities and the conclusion

342

Goods Schedule of the Republic of China, WT/ACC/CHN/49/Add 1; WT/MIN801)/3/Add 1 (1 October 2001), Part IV, Section I; see also: Report of the Working Party on the Accession of China, WT/ACC/CHN/49 (1 October 2001), Fn. 335. 343 ‘Report of the Working Party on the Accession of China’, WT/ACC/CHN/49, 1st October 2001, Fn. 335. 344 Cf. Cheng (2011), p. 322. 345 Revised Draft Modalities for Agriculture, WTO Committee on Agriculture Special Session, WTO Doc. TN/AG/W/4/Rev.4 (6 December 2008), 5 (I. A. 6) and 9 (I. A. 32). 346 Cheng (2011), p. 346. 347 Cf. South Centre The WTO’s Agriculture Domestic Supports Negotiations, Analytical Note, SC/AN/TDP/201 (January 2017), 19. 348 Glauber and Westhoff (2015), p. 1295; Orden and Zulauf (2015), p. 1308; South Centre The WTO’s Agriculture Domestic Supports Negotiations, Analytical Note, SC/AN/TDP/201 (January 2017), p. 19.

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of Doha negotiations on agriculture has become even more difficult.349 To distract from its own programs, the United States tried to shift the focus to emerging/ developing countries support programs.350 Reportedly the United States tied offers of own reduction commitments of domestic support to reciprocal reduction commitments of emerging and developing countries price support under public stockholding and Article 6.2 AoA programs.351 After some years of silence on the issue of capping domestic subsidies, the topic was brought back to the centre stage at the 11th Ministerial Conference held in Buenos Aires in 2017. In the run-up to the conference a number of countries tabled proposals on farm subsidy reform.352 An interesting coalition appeared when the EU together with Brazil, Colombia, Peru, and Uruguay co-sponsored a proposal that outlined new caps to trade-distorting agricultural domestic support (including blue box support) for both developing and developed countries, including an exception for administered prices under public stockholding schemes.353 The proposal represented a compromise between the ambitions of countries interested in liberalizing market access for agricultural exports and those seeking flexibility to address food security and price spikes through public stockholding schemes. However, India appeared not to be fully satisfied with the proposal. Together with China it submitted an informal proposal that diverged from the EU-Brazil approach in that it foresaw that developing countries maintain their existing de minimis levels without any new ceilings.354 Despite the great number of proposals and compromises offered by Brazil and the EU, Member States in Buenos Aires were again unable to agree on reform of the AoA regarding domestic support. Reportedly, the United States objected to draft texts proposed during negotiations. Negotiators saw themselves unable to agree on special and differential treatment provisions and objected any reference to the 2001 Doha mandate, as well as any connection of the issue of domestic support with issues of a special safeguard mechanism and public stockholding for food security purposes.355 On the later subject, India had taken a hard negotiation-standpoint, arguing

349

Orden and Zulauf (2015), p. 1308 et seq.; South Centre The WTO’s Agriculture Domestic Supports Negotiations, Analytical Note, SC/AN/TDP/201 (January 2017), p. 19. 350 South Centre The WTO’s Agriculture Domestic Supports Negotiations, Analytical Note, SC/AN/TDP/201 (January 2017), p. 22. 351 South Centre The WTO’s Agriculture Domestic Supports Negotiations, Analytical Note, SC/AN/TDP/201 (January 2017), p. 23. 352 Proposals have inter alia been brought forward by the ACP group, Argentina, the EU and Brazil, the group of LDCs, Mexico, and New Zealand, for an overview see: ICTSD (2017a). 353 Brazil, EU, Colombia, Peru and Uruguay Proposal on Domestic Support, Public Stockholding for Food Security Purposes and Cotton, Committee on Agriculture, Special Session, JOB/AG/99 (17 July 2017), p. I. (Domestic Support) and II. (Public Stockholding). 354 The China-India proposal is informal and not available to the public. A brief summary has been provided by: ICTSD (2017a). 355 See: ICTSD (2017b).

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that it would object to any outcome on domestic support if a permanent solution on public stockholding could not be achieved.356

The Problem of Rising Support in Emerging Powers Domestic support is rising in some but not all emerging powers.357 Brazil and South Africa have kept rather stable levels of support in recent years, have no known problems of keeping their support within AoA limits, and even proposed strong commitments under the 2008 Draft Modalities. In contrast, support levels in China and India have become increasingly problematic from a legal, economic, and even global justice perspective. As with domestic support in developed States, support measures by emerging powers might negatively affect other developing countries and their (poor) farmers. As emerging powers justify their programs as measures necessary to support poor subsistence farmers (both in India and China), it becomes a balancing question of how to address those needs without harming economic human rights of farmers elsewhere. In addition, rising domestic support levels may harm the credibility of emerging powers to demand domestic support reductions from developed countries. Rising domestic support levels may even limit emerging power interest in lowering domestic support in developed countries. Nevertheless, as China and India face considerably higher commitments as to the legal limit of their domestic support levels than the EU and the United States (especially when put in perspective the number of farmers/peasants) they remain likely to demand further exceptions and higher limits to keep and increase their domestic support levels. In that regard the request by India (on behalf of other developing countries) to exempt price support under public stockholding for food security programs is an insightful example, which shall be the subject of the next section. Public Stockholding for Food Security Purposes Public stockholding describes the practice of States acquiring food from domestic producers to build buffer stocks.358 Prices paid to domestic producers under such programs are often administered, meaning that they are fixed by governments and based on average production costs plus profits. Administered prices ensure that producers recover costs and generate profits even if market prices are lower than the costs of producers.359 Public stockholding programs based on administered

356

See: ICTDS (2017). See on support levels of individual countries and future projections: Nassar (2011), Gopinath (2011) and Cheng (2011). 358 See on public stockholding programs within the WTO context: McMahon (2006), p. 69; Kattau (2015), p. 153 et seqq. 359 Montemayor (2014), p. 3. 357

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prices mainly serve four purposes: to guarantee that governments are able to establish food reserves even when competing with the private sector in buying food, to guarantee adequate availability of food by stimulating production, to raise enumeration for poor farmers, and to protect farmers from the effects of price volatility.360 Further, some countries distribute acquired food to targeted sectors— mostly poorer parts of the population—again at subsidized and below-market prices. Despite those noble goals, from a free trade perspective these programs can have negative effects on international trade, especially on producers in other States. Administered prices serve as an incentive for producers to keep producing products even if they are not competitive in doing so or there is no demand on the market for the product in question. For international trade this gets particularly harmful when surpluses get dumped on world markets creating market-distortions.361 Public stockholding programs are no invention of contemporary developing/ emerging countries. Instead, several developed countries have relied on such programs in their development path. According to a South Centre publication, the United States used such programs from the 1930s to the 1990s, the UK from the 1940s to the 1970s, and the EEC from the 1960s to the 1990s.362 Nowadays however, developing countries, including Brazil, India, and China, are the main users of such programs. From a legal perspective, while generally allowed, such programs are subject to legal limitations and conditions.363 Developing countries under Annex 2 para. 3 of the AoA are only allowed to purchase food from domestic producers for stockpiling purposes at the prevailing market price without limits. Yet, the central element of India’s and others’ public stockholding schemes are administered prices which are not covered by this provision.364 The difference between administered prices and an external reference price multiplied by eligible production365 is considered to be trade-distorting support subject to legal ceilings (for most developing countries de

360

See e.g. Opening Remarks by the Chair, Informal Meeting of the Committee on Agriculture, Special Session, 27 March 2013, WTO Doc. JOB/AG/23 (28 March 2013). 361 Montemayor (2014), p. 3. 362 South Centre The WTO’s Agriculture Domestic Supports Negotiations, Analytical Note, SC/AN/TDP/201 (January 2017), 37. 363 See in more detail and with a case study for G-33 countries: Nakuja and Kerr (2018). 364 See for a summary of Indian agricultural support programs from a WTO perspective: Jayagovind (2014). 365 In Korea—Measures Affecting Imports of Fresh Chilled and Frozen Beef the Panel acknowledged that countries may officially set a limit to the scope of their price support programs and thereby limit “eligible production” to a certain portion or percentage of local production but rejected Koreas argument to base “eligible production” on actual purchases, see: Korea—Beef Products, WT/DS161/R and WT/DS169/R, Report of the Panel (31 July 2000), para. 827; see also: Korea— Beef Products, WT/DS161/AB/R and WT/DS169/AB/R, Report of the Appellate Body (11 December 2000), para. 122. Simulations display that if countries would implement fixed limits for eligible production, many could avoid breaching their AMS or de minimis caps; see: Montemayor (2014), p. 2.

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minimis ceilings in Article 6 para. 4 AoA).366 One problematic aspect of this equation is that external reference prices according to paras. 8 and 9 of Annex 3 to the AoA are based on 1986-1988 fixed external reference prices. From the 2000s onwards, because of inflation, prices for foodstuffs have risen considerably compared to prices prevailing in 1986 to 1988.367 This has led to inflated differences between the fixed external reference prices and administered prices applied today. While these legal constraints have not been regarded as problematic by developing countries initially, food security concerns—especially after the 2008 food price crisis–have led several developing countries and emerging powers to increase public stockholding programs using administered prices.368 However, concerns over the trade distorting impacts of these programs have attracted international inquiries and led the United States to successfully challenge such programs in Korea under the WTO’s dispute settlement system.369 In consequence of these developments and the problem of inflation many developing country Member States (including India) fear breaching their de minimis exceptions370 and/or are already likely to have overstepped their commitments (China). India is one of the countries which has feared overstepping its legal commitments and therefore has sought legal reform to shield its public stockholding program. India can only use de minimis domestic support of 10% of the value of agricultural production because in the reference period of 1986-1988 its total product specific AMS was negative and therefore bound at zero (Article 7 para. 2 b) AoA).371 In 2007 Indian officials became aware that Indian agricultural support, due to inflation and increased production values, was likely to breach the de minimis limitations.372 Estimates suggested that if India would not have found a solution within the WTO it might have exceeded its de minimis level support sometime in 2015.373 Moreover, India in 2013 introduced a new ambitious food security program which seeks to provide an annual food subsidy of Indian Rupees (INR) 1.3 lakh crore (approximately US$ 22 billion).374 The 2013 Indian National Food Security Act installed a Targeted Public Distribution System (TPDS) and so-called fair price shops which provide food at subsidized prices to the poorest parts of Indian society.375 Food 366

Annex 2 para. 3 Fn. 5 AoA; see also: Mavroidis (2016), p. 595. See also: South Centre The WTO’s Agriculture Domestic Supports Negotiations, Analytical Note, SC/AN/TDP/201 (January 2017), p. 34. 368 Montemayor (2014), p. 4; Kattau (2015), p. 154. 369 Korea—Beef Products, WT/DS161/R and WT/DS169/R, Report of the Panel (31 July 2000); Korea—Beef Products, WT/DS161/AB/R and WT/DS169/AB/R, Report of the Appellate Body (11 December 2000). 370 Montemayor (2014), p. 4; Kattau (2015), p. 154. 371 See e.g.: Nedumpara (2014), p. 179. 372 See: Singh and Gupta (2016), p. 319. 373 Gopinath (2011), p. 305. 374 Indian National Food Security Act, Act No. 20 of 2013, India Code (2013), available at http:// dfpd.nic.in/public-distribution-acts.htm. Accessed 12 Sept 2020. 375 National Food Security Act (2013) Article 3 and Schedule I. 367

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distributed through the TPDS and the fair price shops is procured by the State based on administered prices from local producers.376 Given the possibility of legal challenge from developed countries, Indian negotiators were under considerable pressure to find a legal solution to shield this new prestigious food security program.377 To be sure, India was not the first developing country keen on shielding administered price based public stockholding programs. During the DDR several proposals have been made on public stockholding by different developing country coalitions, such as the African Group and G-33 (including India and China).378 These States shared the feeling that current rules of the AoA would prevent them from taking care of the food security of their populations.379 As noted above, the 2008 Draft Modalities already contained a provision, which had been proposed by G-33, that administered prices under public stockholding programs would be considered as non-trade distorting green box measures.380 However, as Members were unable to agree on the 2008 Modalities the problem remained unresolved. In the case of public stockholding, unlike most other agricultural negotiation issues, Brazil appears not to have supported India. Brazil shifted its agricultural policy in the 2000s from price support based government stockholding towards providing targeted income support.381 Within remaining stockholding schemes Brazil mainly acquires needed foodstuff based on market prices such as under the Program of Acquisition of Agricultural Products from Family Farming (Programa de Aquisição de Alimentos) and under its anti-poverty Zero Hunger Program (Fome Zero) scheme.382 Moreover, Brazil with its large agricultural export sector appears not to be keen on increasing flexibility of other developing countries to use domestic support measures which potentially would affect Brazilian exports.383 Only in Buenos Aires Brazil supported India’s position on achieving a permanent solution for public stockholding, most likely as a compromise to finally achieve a comprehensive agreement on domestic support.384

376

National Food Security Act (2013) Article 22 and 2 para. 2 i). Cf. Nedumpara (2014), p. 178. 378 The earliest proposal appears to be one by the African Group, see: Proposal by the African Group, WTO Doc. JOB(02)/187 (20 November 2002). See for a timeline of negotiations related to public stockholding: https://www.wto.org/english/tratop_e/agric_e/factsheet_agng_e.htm. 379 Cf. Opening Remarks by the Chair, Informal Meeting of the Committee on Agriculture, Special Session, 27 March 2013, WTO Doc. JOB/AG/23 (28 March 2013). 380 Revised Draft Modalities for Agriculture, WTO Committee on Agriculture Special Session, WTO Doc. TN/AG/W/4/Rev.4 (6 December 2008), 39. 381 Nassar (2011), p. 229 et seq. 382 Nassar (2011), p. 233. 383 See also Hopewell (2016). 384 Brazil Statement by H.E. Mr. Alooysio Nunes Ferreira Filho Minister of Foreign Affairs, 11th Ministerial Conference, Buenos Aires,, WT/MIN(17)/ST/13 (13 December 2017); Brazil, EU, Colombia, Peru and Uruguay Proposal on Domestic Support, Public Stockholding for Food Security Purposes and Cotton, Committee on Agriculture, Special Session, JOB/AG/99 (17 July 2017), Section II (Public Stockholding). 377

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China earlier supported India on public stockholding as a member of G-33. In response to the world food crisis in 2006–2007, China highly increased its support for agricultural producers with diverse policy instruments, including public stockholding and price support measures.385 However China has not been as vocal on the matter as India, possibly as it wanted to avoid attention being brought to its illegal domestic support programs386 discussed in more depth below. Nevertheless, India, with the general support of G-33, was able to impose enough pressure on developed countries to negotiate an interim solution for public stockholding in 2013. In the run-up to Bali, G-33—including China and India— tabled several proposals on the subject. The first G-33 proposal sought to exclude “the acquisition of stocks of foodstuffs by developing country Members with the objective of supporting low-income or resource-poor producers” as well as “the provision of foodstuffs at subsidized prices with the objective of meeting food requirements of urban and rural poor in developing countries on a regular basis at reasonable prices” from being accounted for in the AMS.387 In a subsequent proposal, G-33 called for an amendment of the AoA, but also proposed less formal solutions such as the adoption of a Peace Clause.388 Members were however unable to agree on the issue in the run-up to Bali, leading to fierce controversies at the Bali conference itself. As Brazil and other developing country food exporters were concerned with the long-term effects of public stockpiling programs on their exports, they remained relatively passive—likely unwilling to openly break with India and other developing countries with more defensive interests.389 The African group reportedly supported public stockholding390 but the main negotiation ‘battles’ seem to have taken place between the United States and India.391 India was serious on the public stockholding issue. In the eyes of Indian representatives, public stockholding was about more than trade and business—it was also about sustaining the livelihoods of millions of farmers. As one Indian negotiator put it: Agriculture sustains millions of subsistence farmers. Their interests must be secured. Food security is essential for over four billion people of the world. For India, food security is

385 See: Liang (2013), p. 217; see also: Palma (2015), p. 222; WTO Trade Policy Review Body Trade Policy Review, China, WT/TPR/S/342 (15 June 2016), p. 116. 386 China—Domestic Support for Agricultural Producers, WT/DS511/8, Panel Report (28 February 2019). 387 G-33 Proposal on Some Elements of TN/AG/W/4/Rev. 4 for Early Agreement to Address Food Security Issues, Committee on Agriculture Special Session, WTO Doc. JOB/AG/22 (13 November 2012). 388 G-33 Non Paper, Committee on Agriculture Special Session, WTO Doc. JOB/AG/25 (3 October 2013). 389 Cf. Narlikar and Tussie (2016), p. 217. 390 Vickers (2014). 391 Howse (2014).

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non-negotiable. The need of public stock-holding of foodgrains to ensure food security must be respected. Dated WTO rules need to be corrected.392

As a compromise, India again argued for a peace clause. The controversial issue, however, became how long this peace clause would remain in force. India argued that it should remain in force until a permanent solution was agreed upon. To back up its position India threatened to block the Trade Facilitation Agreement if its demands would not be met. The United States on the other hand was only willing to agree on a 4-year peace clause.393 While its G-33 allies initially supported India, the country reportedly increasingly became isolated because of its hard-line stance and even attracted criticism from LDCs which feared that the blockage could threaten the adoption of the LDC package.394 Because of these opposing views between India and the United States, Member States finally only agreed on a compromise.395 The Ministerial Decision adopted installed a temporary peace clause, which was to remain in force “until a permanent solution is found” and committed Member States to negotiate a permanent solution by the 11th Ministerial Conference (Nairobi).396 The requirements of the peace clause for protected programmes are relatively strict. Public stockholding programs must support “food security purposes”, must only affect traditional staple food crops (primary agricultural products that are the predominant staples in the traditional diet of a developing member397), and shielded programs must already exist.398 Benefiting Member States are further subject to several notification and transparency requirements.399 Finally, the provision contains an anti-misuse safeguard that obliges States to “ensure that stocks procured under such programmes do not distort

392

India Statement by H.E. Mr. Anand Sharma, Minister of Commerce and Industry, WT/MIN(13)/ ST/22 (4 December 2013); see also: Statement of Shri Anand Sharma, Minister of Commerce and Industry in Parliament on the 9th Ministerial Conference of WTO at Bali, Press Information Bureau Government of India (17 December 2013). http://pib.nic.in/newsite/PrintRelease.aspx? relid¼101827. 393 Narlikar and Tussie (2016), p. 217; Howse (2014). 394 Narlikar and Tussie (2016), pp. 218 and 223; see on the differing self-perception of India: Statement of Shri Anand Sharma, Minister of Commerce and Industry in Parliament on the 9th Ministerial Conference of WTO at Bali, Press Information Bureau Government of India (17 December 2013). http://pib.nic.in/newsite/PrintRelease.aspx?relid¼101827., 7. 395 Public Stockholding for Food Security Purposes, Ministerial Decision, WT/MIN(13)/38, WT/L/ 913 (7 December 2013). 396 Public Stockholding for Food Security Purposes, Ministerial Decision, WT/MIN(13)/38, WT/L/ 913 (7 December 2013). 397 Public Stockholding for Food Security Purposes, Ministerial Decision, WT/MIN(13)/38, WT/L/ 913 (7 December 2013), para. 2, Fn. 2. 398 Public Stockholding for Food Security Purposes, Ministerial Decision, WT/MIN(13)/38, WT/L/ 913 (7 December 2013), para. 2. 399 Public Stockholding for Food Security Purposes, Ministerial Decision, WT/MIN(13)/38, WT/L/ 913 (7 December 2013), para. 3.

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trade or adversely affect the food security of other Members.”400 The provision apparently commits Members not to unleash stockpiled foodstuff onto the world market, because otherwise the entire purpose of the exception (food security) could be defeated.401 A particularly important question not fully answered by the text of the peace clause is whether existing programs are fully shielded even if the value of support provided increases or whether those programs are locked in at current levels. Because of India’s ambitious food security program, it is likely that its procurement program will further increase.402 Therefore it is still possible that India’s public stockholding program might be challenged in front of a WTO panel in the future.403 Indian negotiators initially saw the peace clause for public stockholding as a huge success for India, or at least sold it to the Indian parliament and public that way.404 Yet, only briefly after the compromise of Bali, the Indian government felt that further negotiations on public stockholding were not progressing well. Therefore, India in July 2014 blocked the adoption of the Trade Facilitation Agreement and linked this blockage to its food security concerns.405 As the TFA was the central part of the Bali Package this move put considerable pressure on Member States as another failure would have further discredited the WTO as the central multilateral trade forum. In Bali, trade ministers had agreed that the WTO’s General Council would have to adopt the protocol, which would bring the TFA into the WTOs legal framework, by 31 July 2014.406 Although non-ratification by India would not have stopped the entry into force of the TFA, as ratification of only two thirds of WTO membership was required for the entry into force, India was in a position to block the adoption of the protocol in the General Council as the body generally acts on a consensual basis.407 Indian representatives made it clear in a meeting of the Preparatory Committee on Trade Facilitation, that they would only back the adoption of the Protocol if they saw improvements in addressing their concerns on public stockholding for food security issues.408 In an address by India’s WTO ambassador to the Indian parliament, the ambassador laid out his fears that once the TFA would have entered into force, developed countries would lose interest in finding a 400

Public Stockholding for Food Security Purposes, Ministerial Decision, WT/MIN(13)/38, WT/L/ 913 (7 December 2013), para. 4. 401 For that interpretation also: Mavroidis (2016), p. 595. 402 Jayagovind (2014), p. 512. 403 Jayagovind (2014), p. 512. 404 Statement of Shri Anand Sharma, Minister of Commerce and Industry in Parliament on the 9th Ministerial Conference of WTO at Bali, Press Information Bureau Government of India (17 December 2013). http://pib.nic.in/newsite/PrintRelease.aspx?relid¼101827.; see also: Nedumpara (2014), p. 178. 405 ICTSD (2014). 406 Agreement on Trade Facilitation, Ministerial Decision, WT/MIN(13)/36; WT/L/911 (7 December 2013), para. 3. 407 See: Article IX para. 1 of the Agreement Establishing the WTO; see also: ICTSD (2014). 408 ICTSD (2014).

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permanent solution on public stockholding.409 These fears were well founded as progress on the TFA supported by developed countries moved fast and the TFA;s entry into force would have deprived India of negotiation power.410 This blockage raised controversies among different groups of developing countries. India’s renewed efforts to find a permanent solution were backed by its G-33 partners. In July 2014, G-33 renewed a proposal it had already broached in 2012 calling for the inclusion of programs to support low-income or resource-poor producers in the green box and thereby exclude them from AMS calculation.411 However, other WTO Members—including some developing countries—opposed any connection between a permanent solution for public stockholding and the TFA.412 Still, in November 2014 Member States found a compromise. India failed to convince Member States of a permanent and substantial correction of the AoA, but Members adopted a General Council Decision that confirmed the Bali peace clause with some important adjustments.413 The decision explicitly pointed out that the peace clause would remain in force even if no permanent solution was found by the 11th Ministerial Conference.414 The Decision also tightened the language of the Bali Decision by stressing that Member States “shall not challenge” instead of “shall refrain from challenging” public stockholding for food security purposes programs.415 As the new peace clause remains in place indefinitely if not replaced by a permanent agreement, India achieved its main goal of shielding its domestic support measures from legal challenge on a permanent basis.416 In line with the inbuilt clause to find a permanent solution for public stockholding, Members discussed the issue at the 11th Ministerial in Nairobi in 2015. G-33 again brought forward several proposals, which foresaw several alternatives for a permanent solution.417 The main proposition was the adoption of an 409

Sitharaman N Speech in Lok Sabha regarding India’s Stance in the WTO, Press Information Bureau of the Government of India, Ministry of Commerce and Industry (5 August 2014). www. pib.nic.in. Accessed 12 Sept 2020. 410 See also: Kattau (2015), p. 162. 411 The proposal is not public but was mentioned in a factsheet prepared by the WTO Secretariat, which is available at: https://www.wto.org/english/tratop_e/agric_e/factsheet_agng_e.htm. 412 WTO Press Office (2014). 413 Public Stockholding for Food Security Purposes, General Council Decision, WT/L/939 (28 November 2014). 414 Public Stockholding for Food Security Purposes, General Council Decision, WT/L/939 (28 November 2014), para. 2; see also: Kerr (2015), p. 4. 415 Public Stockholding for Food Security Purposes, General Council Decision, WT/L/939 (28 November 2014), para. 1. 416 Kerr (2015), p. 4. 417 See: G-33 Proposed Permanent Solution on Public Stockholding for Food Security Purposes, Committee on Agriculture Special Session, WT/MIN(15)/W/22 JOB/AG/54 (24 November 2015); G-33 SSM and Permanent Solution on Public Stockholding For Food Security Purposes for Balanced Nairobi Outcomes, Committee on Agriculture Special Session, WTO Doc. TN/AG/ GEN/40 (11 December 2015).

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Annex to the AoA exempting both current and future public stockholding programs. Under these programs developing countries would have been allowed to use administered prices to support low income or resource poor producers and the distribution at subsidized prices for food security and food price stability purposes.418 Despite being framed as a pro-poor measure419 and despite pressure from G-33, Nairobi brought nothing new on public stockholding. Member States only reaffirmed the General Council Decision of 27 November 2014 and committed themselves to conduct further negotiations during a special session to be held in the Committee on Agriculture.420 Yet, even these special sessions did not bring Member States closer to concluding the issue on a substantial and permanent basis. In Buenos Aires the topic of public stockholding again stood on the agenda.421 India, China (as a member of G-33),422 and this time also Brazil together with the EU (as part of a larger proposal to limit domestic agricultural support423) supported the issue. The proposal by Brazil, the EU, and others, however, was a tightened version of the Bali Decision on Public Stockholding that introduced quantitative limits to support provided under public stockholding schemes and a stronger formulation that developing States must ensure that stocks procured do not distort trade or “adversely affect the food security of other Members” including the prohibition of direct exports of stocks.424 However, even that tightened proposal met strong opposition by the United States425 and it was unclear whether India would have supported it. Because of U.S. opposition and

418

G-33 Proposed Permanent Solution on Public Stockholding for Food Security Purposes, Committee on Agriculture Special Session, WT/MIN(15)/W/22 JOB/AG/54 (24 November 2015), para. 1 of the proposed Annex 6. 419 India Statement by H.E. Mr. Suresh Prabhakar Prabhu Union Minister for Commerce and Industry, WT/MIN(17)/ST/9 (13 December 2017) (“One such issue is the permanent solution for public stockholding for food security purposes. This is a matter of survival for eight hundred million hungry and undernourished people in the world. A successful resolution of this issue would fulfil our collective commitment to the global community.”). 420 Public Stockholding for Food Security Purposes, Ministerial Decision, WT/MIN(15)/44-WT/L/ 979 (19 December 2015), para. 1–2. 421 See for a summary of proposals prior to the Buenos Aires Ministerial: ICTSD (2017a). 422 G-33 Ministerial Communiqué, 11th Ministerial Conference, WT/MIN(17)/38 (10 December 2017), para. 5 et seqq. 423 Brazil Statement by H.E. Mr. Alooysio Nunes Ferreira Filho Minister of Foreign Affairs, 11th Ministerial Conference, Buenos Aires,, WT/MIN(17)/ST/13 (13 December 2017); Brazil, EU, Colombia, Peru and Uruguay Proposal on Domestic Support, Public Stockholding for Food Security Purposes and Cotton, Committee on Agriculture, Special Session, JOB/AG/99 (17 July 2017), section II. 424 Brazil, EU, Colombia, Peru and Uruguay Proposal on Domestic Support, Public Stockholding for Food Security Purposes and Cotton, Committee on Agriculture, Special Session, JOB/AG/99 (17 July 2017), section II, para. 6 and 7 d). 425 See: ICTDS (2017) and ICTSD (2017b).

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conflicts over domestic support, Members were unable to meet the deadline foreseen in Bali to negotiate a formally permanent solution by the 11th Ministerial.426 U.S. Challenge of China’s Domestic Support Programs U.S. legal challenge of China’s domestic support programs brought renewed attention to price support measures in emerging countries. In 2013 analysts were already predicting that China’s growing agricultural support might hit ceilings provided by its WTO commitments.427 In 2016 the United States became convinced that China was violating its domestic support caps as the United States requested consultations with China over domestic support schemes for wheat, India rice, Japonica rice, and corn. As consultations could not resolve the dispute the United States subsequently requested the establishment of a panel428 which was established on 25 January 2017. The case stands in the context of increased legal tensions between the United States and China in the agricultural sector.429 Beginning in 2011 the United States successfully challenged anti-dumping and countervailing duties by China on U.S. broiler products430 and in 2016 the United States requested consultations with China on the administration of tariff rate quotas for wheat, corn, and rice.431 China pursues a policy of self-reliance or self-sufficiency in wheat and rice and consequently has sought to increase output by policy measures.432 Since farm commodity prices and input costs increased worldwide after 2007, China has increased market price support measures, input subsidies, and other support measures.433 At the heart of the challenge brought by the United States are administered prices, which the Chinese National Development and Reform Commission raised considerably in the period between 2008 and 2015.434 Together with tariff-rate quotas, high administered prices have become of grave concern for U.S. export interests.435 China reportedly pointed out its disappointment over the U.S. challenge

In his final remarks Director General Azevêdo stated his disappointment about this failure, see: Azevêdo R Final Remarks, 11th Ministerial Conference, Closing Ceremony (13 December 2017). https://www.wto.org/english/news_e/spra_e/spra209_e.htm. 427 Liang (2013), p. 218. 428 China—Domestic Support for Agricultural Producers, WT/DS511/8, Request for the Establishment of a Panel by the United State (6 December 2016). 429 Brink and Orden (2016), p. 2 et seq. 430 China—Broiler Products, WT/DS427/R, Report of the Panel (2 August 2013). 431 China—Tariff Rate Quotas for Certain Agricultural Products, WT/DS517/1, Request for consultations by the United States (21 December 2016). 432 Brink and Orden (2016), p. 9. 433 Brink and Orden (2016), p. 10. 434 Brink and Orden (2016), p. 10. 435 US lobby groups such as the US Grains Council, the US Wheat Associates, and the National Association of Wheat Growers have voiced those concerns, see: Brink and Orden (2016), p. 12; the US acted upon these calls, leading to the cases against China. 426

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and argued that “Members had a right under the WTO to provide necessary and essential support to their agricultural producers”.436 Unsurprisingly China lost its case on domestic support schemes for agricultural products. In particular, the Panel found that China, in the years 2012, 2013, 2014 and 2016 provided domestic support (price support) in excess of its product-specific de minimis level of 8.5% (regarding wheat, Indica rice, Japonica rice, and corn).437 The legal questions involved have already popped up in the discussion above and mainly focus around the calculation of domestic price support provided by China. As outlined above, market price support is measured as the gap between administered prices and a fixed external reference price multiplied by eligible production. If the eligible production is based on the whole production of individual products concerned, it appeared relatively clear that China exceeded its product specific de minimis commitments on all alleged products and in all alleged years.438 The United States apparently based its calculations of excessive Chinese AMS levels on this mode of calculation.439 In contrast, China promoted a different form of calculation, namely that only actually procured food should be considered as “eligible production”,440 which could drastically limit calculations of AMS. However, the Panel confirmed the U.S. interpretation.441 As the Appellate Body had already rejected a calculation based on actual procurements in the Korea—Beef case, this was no surprise. In Korea–Beef the panel stated that “market price support in AMS terms is not based on expenditures by government”, as “all producers of the products which are subject to the market price support mechanism enjoy the benefit of an assurance that their products can be marketed at least at the support price”.442 Still, the panel also outlined two cases in which eligible production may be based on less than total marketable production. The clear example of formal limitation given is “a legislatively predetermined, non-discretionary, limitation on the quantity of marketable production that a governmental intervention agency could take off the market at

436

Cited in: WTP Press Office (2017). China—Domestic Support for Agricultural Producers, WT/DS511/8, Panel Report (28 February 2019). 438 Calculations unfortunately cannot be based on notifications by China because China has not submitted WTO notifications on domestic support for the years 2012–2015 (States often lag behind on those notifications because of various reasons which also can involve strategic considerations, as in this case) but have been calculated by Brink and Orden (2016), p. 30 (Table 1). 439 Brink and Orden (2016), p. 30. 440 China—Domestic Support for Agricultural Producers, WT/DS511/8, Panel Report (28 February 2019), para. 7.280; 7.289. 441 China—Domestic Support for Agricultural Producers, WT/DS511/8, Panel Report (28 February 2019) para. 7.283. 442 Korea—Beef Products, WT/DS161/R and WT/DS169/R, Report of the Panel (31 July 2000), para. 827; see also: China—Domestic Support for Agricultural Producers, WT/DS511/8, Panel Report (28 February 2019), para. 7.286 et seqq. 437

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the administered price in any year.”443 The second exemption provided by the panel was a factual limitation, for cases “where the minimum price support is only available to producers in certain disadvantaged regions”.444 However, the panel in China–Domestic Support for Agricultural Support did not find a pre-determination in China’s support program, nor was support factually (substantially) limited by other means.445 Before the adoption of the panel report there had been some speculation as to whether Chinese programs are subject to the peace clause on public stockholding for food security programs.446 The panel however did not even consider this argument. Indeed, there are good arguments against protection of the Chinese support program by the Peace Clause. China simply seems not to have complied with the notification requirements of the Ministerial Decision on Public Stockholding, such as notifying the Committee on Agriculture that it is exceeding or at risk of exceeding its AMS limits.447 It is also questionable whether named programs serve “food security purposes” and whether China has ensured that procured foodstuffs will not negatively affect trade or the food security of other Member States.448 From a global justice perspective the case is of considerable interest. China, partly due to its agricultural policies, has made significant gains in poverty reduction, achieved a steady decline in undernourishment levels in the last 20 years, and has therefore done much to meet the Millennium Development Goals.449 Nevertheless, poverty and undernourishment are still grave issues in China (mainland) with 8.5% of China’s population being undernourished.450 Moreover, agriculture is still a significant part of China’s economy contributing 9.3% of total GDP (2015) and providing for 29.5% of all employment (2014).451 200 million farms in China are

443

Korea—Beef Products, WT/DS161/R and WT/DS169/R, Report of the Panel (31 July 2000) para. 827. 444 Korea—Beef Products, WT/DS161/R and WT/DS169/R, Report of the Panel (31 July 2000) para. 827. 445 China—Domestic Support for Agricultural Producers, WT/DS511/8, Panel Report (28 February 2019), para. 7.297–7.315; the panel here reviews a number of legal and factual limitations, going beyond the Korea—Beef findings, but ultimately only acknowledges the limitation that “out-ofgrade” products were not to benefit from support. 446 See: ICTSD (2016c). 447 Public Stockholding for Food Security Purposes, Ministerial Decision, WT/MIN(13)/38, WT/L/ 913 (7 December 2013), para. 2; see also: Brink and Orden (2016), p. 25. 448 See for these requirements: Public Stockholding for Food Security Purposes, Ministerial Decision, WT/MIN(13)/38, WT/L/913 (7 December 2013), para. 4. 449 See: Palma (2015), p. 217 with further references. 450 Numbers are based on data provided by FAO and is based on the year 2017, the last year for which data is available. FAO Statistical Data on food security indicators is available at: http://www. fao.org/faostat/en/#data/FS. 451 WTO Trade Policy Review Body Trade Policy Review, China, WT/TPR/S/342 (15 June 2016), p. 115.

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small family farms with an average size of 0.6 hectare.452 In that regard growing domestic support in China for agriculture may further improve the situation of poor farmers. Having said that, price support in China seems not to solely focus on poverty reduction and fighting hunger. Instead big state trading entities stand to profit from those practices. If procured crops end up on world markets, (poor) producers in other developing countries might be harmed. Again, the case sheds light on the necessity for States to develop more elaborate international domestic support regulation. The peace clause might serve as an example and could lead to a permanent solution distinguishing domestic support in developing countries that is truly directed towards fighting hunger and poverty, from programs that only profit corporate interests and might harm other developing countries. Meanwhile, developing countries could limit their legal vulnerability by pre-determining eligible production and thereby reduce AMS levels calculated under the AoA. The China—Domestic Support panel report leaves open that possibility. The Relative Perspective Aside from the issue of administered prices under public stockholding programs, are rising levels of domestic support in some emerging countries worrisome for free trade in agricultural goods? From the perspective of traditional powers and poorer developing countries not able to sufficiently support their producers, worries exist. From the perspective of emerging powers, the issue again connects to fairness. As the South Centre rightfully has pointed out, support per farmer in emerging economies is still very low when compared to support in many developed countries. Reportedly annual U.S. per farmer support amounts to a huge US$ 68.910 (2013), whilst support per farmer in India (2010/2011) and China (2010) is much lower, about US$ 300-400.453 Other developed States also have high levels of per farmer support, including the EU (US$ 12.384 in 2012/2013), Canada (US$ 16.562 in 2013) and Japan (US$ 14.136 in 2012). Brazil, despite its status as an agricultural powerhouse, has a comparatively low level of support, namely US$ 468 per farmer (in 2014/2015). South Africa maintains a rather high level of domestic support per farmer (US$ 2,265 in 2014), however most of this qualifies as green box support and increasingly has been related to land reform projects to empower historically marginalized black farmers.454 Given these prevailing inequalities, emerging powers are likely to further challenge the status quo and seek to support their farmers, at least as long as high per capita support continues in developed countries. 452

Palma (2015), p. 221. See for a comparison of per farmer domestic support in different countries: South Centre The WTO’s Agriculture Domestic Supports Negotiations, Analytical Note, SC/AN/TDP/201 (January 2017), p. 22 et seq. 454 On South Africa’s agricultural policy see: Trade Policy Review Body Trade Policy Review: Southern African Customs Union (Namibia, Botswana, Swaziland, South Africa and Lesotho), WT/TPR/S/324 (30 September 2015), Annex 4 (South Africa), p. 326 et seqq. 453

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Is Capping Domestic Support Beneficial to the Global South’s Poor? Brazil and the G-20 were able to frame the issue of domestic support for agricultural products in the developed world as a struggle between the rich and the poor. To do so Brazilian negotiators worked together with activists from Oxfam, with whom Brazilian negotiators held several meetings in Geneva.455 In that way Brazil was able to present the interests of its agribusiness sector, a sector which has been notorious for human rights violations against small subsistence farmers, indigenous people, and landless workers, as the universal interests of the Global South’s poor.456 Several studies indeed indicate that reductions of support to the agricultural sector in developed countries could reduce poverty in the South. Still, Brazil’s pro-poor argument appears hypocritical when the industrialized agribusiness sector stands to profit most from reductions of domestic and export support in developed countries. Moreover, it bears worth noticing that proposals to reduce domestic and export support are no radical pro-poor agenda in deviation from established paradigms of international trade law. Instead, they are perfectly in line with the neo-liberal paradigm underlying the WTO’s agreements—that free trade supports development and ultimately benefits everyone. More radical proposals that might address the interests of poor farmers more directly, such as reducing the high level of market concentration by a small number of transnational agricultural businesses or targeting price volatility for commodities increased through commodity speculation, have not been on the Brazilian agenda, likely because several of them would not be in the interest of the Brazilian agribusiness sector.457

Outlawing Export Subsidies in Agriculture Probably the most problematic practice of EC/EU agricultural policy from a global justice perspective has been the provision of export subsidies on agricultural products. Subsidized exports have been of grave concern for developing countries. Many experienced that subsidized competition strongly harmed small-scale farmers and ultimately deprived them of their source of sustaining their livelihood. Disciplining and eventually prohibiting export subsidies and other export support measures is a long standing developing and emerging country demand that was finally achieved in Nairobi in 2015. However, a variety of factors ultimately led to the prohibition of export subsidies in the Nairobi Decision on Export Support,458 of which the increasing influence of emerging powers was only one factor. First, it must be noted that the decision to discipline export support for agricultural products essentially was based on reciprocal concessions provided between the

455

See in more-depth: Hopewell (2016), p. 119. Cf. Hopewell (2016), p. 120. 457 Hopewell (2016), p. 122 et seq. 458 Export Competition, Ministerial Decision, WT/MIN(15)/45-WT/L/980 (19 December 2015). 456

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EU and the United States. Initially curbing export subsidies met strong opposition, most notably from the EC/EU which heavily relied on this policy instrument in the past.459 However, during the early years of the Doha Development Round, negotiators agreed on a compromise in the July Package of 2004460 and subsequently at the Hong Kong WTO Ministerial in 2005.461 As noted above, successful dispute settlement in EC—Export Subsidies on Sugar initiated by Brazil, Australia, and Thailand in 2004 played a role in inducing domestic reform in the EC. Policy change can also partly be explained by high prices for farm goods since the food crisis in 2007, making it unnecessary for the EU from an economic standpoint to incentivize the disposal of over-production on world markets.462 It took some time to phase out existing support programs, but by 2013 the EU stopped using export subsidies.463 Despite the factual abandonment of export subsidies by 2013, the CAP reform of the same year did still allow for the option to reinstall agricultural export subsidies.464 Otherwise the EU would have lost an important bargaining chip within negotiations on the reform of the AoA.465 With the open possibility to resume the provision of export subsidies, the EU was able to demand from other States new commitments on disciplines on their preferred export support measures in return for the legal elimination of export subsidies. The United States in the last decades only used export subsidies on a small scale and even stopped doing so by 2010. Instead, the country extensively has been using and still uses other forms of export support such as export credits and insurance programs on preferential terms.466 Ultimately, the EU conceded to the elimination of export subsidies (where it was the biggest user) in exchange for disciplines on export credit and food aid (of which the United States is the primary user) and on state monopoly marketing boards (of which Canada, Australia, and China are major users). The Ministerial Decision on Agricultural Export Support then appears to be a compromise between the United States and the EU in that the EU agreed to lock in policy reform in exchange for the United States to similarly agree on restricting the provision of export credits. Second, emerging powers did not stand united behind the Nairobi Decision on Export Support. Brazil allied with the EU and several other predominantly

459

See for example the EC’s objection to curbing export support during the Doha Ministerial Conference in 2001, for an overview and analysis : Kattau (2015), p. 106 et seq. 460 See: Decision Adopted by the General Council on 1 August 2004, WT/L/597 (2 August 2004), para. 17 et seq. 461 Doha Work Programme, Ministerial Declaration, WT/MIN(05)/DEC (22 December 2005), para. 6. 462 See e.g.: Diaz-Bonilla and Hepburn (2016), p. 26. 463 See: Mavroidis (2016), p. 592. 464 See for a more detailed analysis of the CAP reform in the context of WTO agreements and food security: Kattau (2015), p. 165 et seqq. 465 Kattau (2015), p. 170. 466 See e.g.: Diaz-Bonilla and Hepburn (2016), p. 31.

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agricultural exporting countries and tabled a proposal in the run-up to Nairobi,467 which ultimately became the blueprint for the final decision. As noted above, Brazil as an agricultural exporter was keen on limiting other countries’ usage of export support measures to guarantee fair competition for its own agricultural exporters. Many developing countries saw the Brazil-EU alliance rather critically, as Brazil earlier was one of the leaders of the G-20 which opposed developing countries in agriculture negotiations.468 India, in particular, must have felt betrayed and feared that its concerns for a special safeguard mechanism and public stockholding for food security would be left behind. At the plenary session in Nairobi, the Indian Minister of State for Commerce and Industry, Ms. Nirmala Sitharaman, complained that “longstanding issues of interest to a large number of developing countries”, such as the reduction of domestic support in developed countries, the installation of the SSM, and a final solution on public stockholding, were “pushed into the future” while “there is a sudden inexplicable zeal to harvest Export Competition”.469 Brazil, however, most likely was not very keen on agreeing on a Special Safeguard Mechanism which potentially could have become used against Brazilian agricultural exports to other developing countries. Therefore it linked any safeguard-related outcome to a result on market access.470 In its statement at the Nairobi plenary, Brazil further highlighted that “the prohibition of export subsidies is a long-overdue aspiration of developing countries”. It also stated that an agreement on export support is necessary to make the Nairobi Ministerial a success and to provide a basis for further outcomes on Doha subjects, including market access and domestic support. Interestingly public stockholding and a Special Safeguard Mechanism were not mentioned in the statement.471 Accordingly, negotiations on agricultural export support in Nairobi were not conducted on traditional North-South lines. As usual, a small group of approximately ten countries (involving the United States, EU, Brazil, India, and China) conducted major negotiations on agriculture,472 but India and Brazil were not united. China, as a member of G-33, supported a final outcome on public stockholding and

467

Proposal on Export Competition from Brazil, European Union, Argentina, New Zealand, Paraguay, Peru, Uruguay and the Republic of Moldova, WTO Committee on Agriculture Special Session, WTO Doc. JOB/AG/48/Corr.1 (16 November 2015), para. 3. 468 See: Kanth (2015). 469 India Statement by H.E. Mrs. Nirmala Sitharaman, Minister of State for Commerce and Industry, WT/MIN(15)/ST/9 (17 December 2015), para. 10 et seq. 470 ICTSD (2015b), p. 2. 471 Brazil Speech by Minister Mauro Vieira at the Opening Session of the 10th Ministerial Conference (16 December 2015). http://www.itamaraty.gov.br/en/speeches-articles-and-inter views/minister-of-foreign-affairs-speeches/12732-speech-by-minister-mauro-vieira-on-the-occa sion-of-the-opening-session-of-the-10th-ministerial-conference-of-the-world-trade-organizationnairobi-december-16-2015. Accessed 11 September 2020. 472 ICTSD (2015a).

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the SSM473 but appears not to have taken a strong stance against an ‘early harvest’ of export support disciplines.474 In a similar vein, South Africa, as a Cairns Group member, embraced a Nairobi outcome on export support and though highlighting the need to achieve successes on market access and domestic support, postponed those issues for the post Nairobi period.475 In strong contrast, India, highly dissatisfied with the evolution of negotiations, reiterated its argument that any outcome on one of the pillars of agricultural talks should not be agreed before other issues were resolved, putting a special emphasize on the SSM.476 Despite this fierce objection by India, negotiators ultimately were able to overcome their differences. It is not entirely clear why India changed its negotiation stance. Given India’s ‘stubbornness’ in earlier negotiations one can only guess that Indian negotiators were satisfied with the declarations on public stockholding and the special safeguard mechanism (although they bring no final legal solution) and/or ultimately did not want India to be seen as the sole stumbling block for an outcome on export support which Indian negotiators themselves had previously put heavy emphasis on. Similar reasons might have led China and South Africa to agree to the outcome. All in all, despite emerging power general common interest in curbing export support of developed countries, it was not their combined negotiation power that enabled the ultimate reform. Instead, disputes between Brazil and India even threatened the final compromise. Brazil displayed a rather pragmatic approach. Instead of siding with India, Brazil pursued its goal of addressing export support with little regard for the defensive interests of India and others. Nevertheless, it would be too easy to simply argue that Brazil had sided with the developed world while India tried to defend the interests of developing countries. As seen above, both countries justified their stances as being in the interest of developing countries more broadly. This contradiction reveals that developing country interests in the agricultural sector have simply become too diverse for any country to be able to represent the entire developing country block on the issue, despite often claiming to do so for strategic reasons.

473

G-33 statements entirely focused on those issues without even mentioning export support, see e.g.: G-33 Ministerial Communique, WT/MIN(15/14), (14 December 2015). 474 In his final statement the Chinese representative strongly praised the decision on export support without any mentioning of public stockholding or domestic support: China, General Statement, 11th Ministerial Conference, Nairobi, Plenary Session (16 December 2015), audio and video file available online at: https://www.wto.org/english/thewto_e/minist_e/mc10_e/mc10_ planarysessions_e.htm#CHN. Accessed 12 Sept 2020. 475 Cairns Group Statement of the 39th Cairns Group Ministerial Meeting, WT/MIN(15)/17 (14 December 2015). 476 Text of Statement by Ms. Nirmala Sitharaman, Minister of State (Independent Charge) for Commerce and Industry in the open ended Agriculture meeting at the 10th Ministerial Conference of WTO on 16th December, 2015 at Nairobi, Kenya, Press Information Bureau Government of India, Ministry of Commerce Industry (2015). available at: http://pib.nic.in/newsite/PrintRelease. aspx?relid¼133363. Accessed 12 Sept 2020.

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Aside from demonstrating some discrepancies among emerging powers, the discussion of export support allows for some further conclusions. While Brazil and India have become important negotiation forces, China is keeping a rather quiet presence and South Africa is most likely not seen as economically powerful enough to play a more important role. Moreover, the negotiation outcome illustrates that major agreements in the WTO require support by both traditional and emerging powers but also that emerging powers individually are not powerful enough to bring about major legal reforms. In the case of agriculture, the EU, due to a variety of factors, has individually decided to adopt more market based agricultural policies and to abandon export subsidies. Brazil has played an important role in inducing that change through successful dispute settlement, but change is also attributable to internal political decisions, high world prices for agricultural products, and the bargain struck with the United States. Therefore, the final solution found on export support is not directly linked to the rising strength of emerging powers. But what does the Ministerial Decision on Export Competition include and what does it mean for global justice? In the decision developed, Member States agreed to “immediately eliminate their remaining scheduled export subsidy entitlements” and developing country members accepted the elimination of export subsidies by the end of 2018.477 Thereby the decision also prevents emerging powers from using export support to dump their overproduce on world markets.478 As a concession to Cotton-4 countries, time limits for the elimination of export subsidies on cotton are even shorter (1 January 2017 for developing countries).479 On some other products, including processed products and dairy products, exceptions have been agreed upon under certain conditions (including a standstill agreement) but only until the end of 2020.480 Importantly, the Nairobi Decision also contains some rules on other export support measures with trade-distorting consequences. For example, the Nairobi Decision foresees maximum repayment terms (18 months) for export financing programs and export credit guarantees and insurances are required to be selffinancing.481 For food aid the Decision foresees legal provisions to ensure that food aid does not displace local food production and may not distort international trade while ensuring that aid is available in emergency situations.482 The new rules provide stricter disciplines on food aid as compared to those already contained in 477

Export Competition, Ministerial Decision, WT/MIN(15)/45-WT/L/980 para. 6 and 7. 478 See also: Diaz-Bonilla and Hepburn (2016), p. 30. 479 Export Competition, Ministerial Decision, WT/MIN(15)/45-WT/L/980 para. 12. 480 Export Competition, Ministerial Decision, WT/MIN(15)/45-WT/L/980 para. 6, Fn. 3 and 4. 481 Export Competition, Ministerial Decision, WT/MIN(15)/45-WT/L/980 para. 15. 482 Export Competition, Ministerial Decision, WT/MIN(15)/45-WT/L/980 para. 22 et seqq.

(19 December 2015),

(19 December 2015), (19 December 2015), (19 December 2015), (19 December 2015),

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Article 10 para. 4 AoA. Accordingly, Member States are required to ensure that international food aid is “needs-driven”, “in fully grant form”, “not tied directly or indirectly to commercial exports of agricultural products or other goods and services”, “not linked to the market development objectives of donor members”, and that agricultural products granted as food aid shall not be re-exported except under several listed circumstances.483 Members are further “encouraged” to use cash-based food aid except as in emergency situations and to procure food needed for aid projects locally. Members also agreed on legally binding restrictions on monetization of in-kind food aid which also has the potential to harm local markets.484 Finally, Member States agreed on some disciplines on agricultural exporting State trading enterprises. However, these provisions are probably the weakest ones in the Decision on Export Support. They only vaguely oblige Members to “ensure that agricultural exporting state trading enterprises do not operate in a manner that circumvents any other disciplines contained in this Decision” and contain a ‘best efforts’ clause to minimize trade distorting effects and negative effects on exports of other Members using export monopoly powers by state trading enterprises.485 The Decision on Export Support has been hailed by many as a “historic” step towards achieving fair trade in agricultural products and food security.486 With regard to outlawing export subsidies for agricultural products this assessment is certainly correct. However, in regards to export financing and state trading entities— the Decision is less ambitious and represents only a first step. Disciplines on export credit support for example are tailored precisely to allow the United States to keep its export support measures at the status quo without any reduction commitments, as the maximum repayment term of 18 months reflects U.S. domestic practice.487 Provisions on agricultural exporting state trading enterprises are rather imprecise and their ability to curb trade distorting effects stemming from the workings of such enterprises remains doubtful. In comparison to the 2008 Draft Modalities legal provisions on exporting, state trading enterprises are substantially shorter and weaker which is also true for other parts of the Ministerial Decision on Export Support.488 It remains to be seen whether future negotiations will further detail rules

483

Export Competition, Ministerial Decision, WT/MIN(15)/45-WT/L/980 (19 December 2015), para. 23. 484 Export Competition, Ministerial Decision, WT/MIN(15)/45-WT/L/980 (19 December 2015), para. 27–28. 485 Export Competition, Ministerial Decision, WT/MIN(15)/45-WT/L/980 (19 December 2015), para. 18–21. 486 See e.g.: WTO Secretariat (2015); Bellmann and Hepburn (2016), p. 16 (“significant step forward”). 487 The 2014 Farm Bill allows for longer periods but reportedly the US in practice only provides an 18-month maximum repayment term for export financing, see: Diaz-Bonilla and Hepburn (2016), p. 30. 488 See: Revised Draft Modalities for Agriculture, WTO Committee on Agriculture Special Session, WTO Doc. TN/AG/W/4/Rev.4 (6 December 2008), Annex K, para. 3; see also: Diaz-Bonilla and Hepburn (2016), p. 30 et seq.

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on State trading enterprises as these entities continue to distort trade and their impact may even increase with the further growth of emerging power markets. China alone operates 25 State Trading Enterprises, the highest number among WTO Members.489

6.3.2.3

Market Access and the Special Safeguard Mechanism

Negotiations on market access made up another pillar of DDR agricultural negotiations and mainly addressed the issue of (further) reducing tariffs for agricultural products.490 In close connection to the issue of market access liberalization stood the proposal to install a special safeguard mechanism, which is essentially a defensive instrument to raise tariffs on agricultural imports under certain circumstances. This SSM is of particular interest here because of the controversies it raised across North/ South lines. Moreover, the issue again strongly relates to notions of global justice as countries such as India have justified the need for an SSM with the need to protect poor peasants against global competition. The following section starts with a brief analysis of what was at stake during agricultural market access negotiations and then focuses on the SSM and the role of emerging powers in negotiations. In particular, we consider whether the SSM would really represent “blatant protectionism” which would have “rolled the global trading system back by decades” as U.S. representatives have proclaimed491 and/or whether it is a necessary policy tool to address the plight of poor subsistence farmers as India and others have suggested.

Market Access Developing countries through the G-20 and other groupings took a very active stance on market access during the DDR, demanding increased market access to developed country markets while at the same time arguing for flexibility through exceptions for certain special products or the installation of a special safeguard mechanism only available to developing countries.492 Despite the initial reluctance of developed States to increase market access, some compromises were achieved in the 2008 Draft Modalities.493 489

Diaz-Bonilla and Hepburn (2016), p. 27. While non-tariff trade barriers are also important trade barriers on trade in agricultural products from developing countries, those negotiations mainly took place under SPS negotiations. 491 Statement by US Trade Representative Susan Schwab (2008), quoted inter alia in: Hopewell (2016), 171. 492 See e.g. G-20 Ministerial Communiqué, Communication from Brazil, WT/L/559 (23 December 2003); G-20 Ministerial Declaration, WT/MIN(11)/19 (14 December 2011). 493 Revised Draft Modalities for Agriculture, WTO Committee on Agriculture Special Session, WTO Doc. TN/AG/W/4/Rev.4 (6 December 2008). 490

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For tariff reductions the Modalities incorporated the principles underlying the so-called Swiss formula, namely that higher tariffs get cut proportionally deeper than lower ones and that developing Member States would cut their tariffs less than developed ones.494 The minimum average cut on final bound tariffs for developed countries would have been 54%.495 Developing countries would have applied a comparable tiered formula but would have had to reduce each tier only by two thirds of the cut for developed country Members.496 The maximum overall average cut on final bound tariffs for developing countries would have been 36%.497 Some flexibility in tariff cuts would have been applicable for RAMs (including China) and LDCs would not have been obliged to make any commitments for tariff reductions. Several products both from developing- as well as LDC countries would have seen smaller tariff cuts, as they could have been qualified as so-called sensitive products.498 Moreover, the category of special products (as part of Special and Differential Treatment provisions) would have allowed developing countries to shield some products in areas where vulnerabilities exist.499 While developing countries were allowed to self-designate special products, the Modalities stressed that their decisions should be guided by indicators based on criteria of food security, livelihood security, and rural development.500 Because of self-designation it is difficult to judge the extent of liberalization of agricultural trade an agreement in 2008 would have brought.501 A study by Laborde and Martin estimates that tariffs in developed countries would have been cut by more than half—from 15.4% to 7.0%.502 Yet, given that significant uncertainties regarding the extent of sensitive product qualifications, reductions could have been substantially lower.503 Further, due to flexibilities allowed for developing countries, scholars assume that market access for agricultural products to developing and emerging countries would hardly have changed.504 This is due to the considerable ‘overhang’ between applied tariffs and bound tariffs. Many of the bigger developing countries such as India have very high bound levels of tariffs, so that reductions of bound levels often do not affect applied tariffs which are often already much lower for other reasons.

494

Ibid. para. 61. Ibid. para. 62. 496 Ibid. para. 63. 497 Ibid. para. 64. 498 Ibid. Attachment Ai: Partial Designation Modalities for Sensitive Products. 499 Ibid. para. 129 et seqq. 500 Ibid. 129. 501 Michalopoulos (2014), p. 211. 502 Laborde et al. (2012). 503 Michalopoulos (2014), p. 211; see also: Laborde et al. (2012). 504 Michalopoulos (2014), p. 211. 495

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Despite this conclusion it appears that several developing countries, including India and China, feared that further tariff cuts included in the Draft Modalities would hurt their agricultural sectors. This is part of the explanation as to why they demanded the possibility to raise tariffs above commitments in exceptional circumstances to cope with so-called import surges and their possible detrimental effects on local farmers.

The Special Safeguard Mechanism The SSM basically is a proposed additional safeguard to protect agricultural producers in developing countries against so-called import surges and competition through lower-priced imports. The logic behind such an instrument is relatively simple (albeit technicities can be very sophisticated): when imports increase significantly (‘surge’) or import prices undercut domestic prices to a notable extent, importing States can apply an additional duty on respective products to protect domestic producers against competition stemming from those imports. Many developing countries, in particular, have the concern that sudden increases of cheap imports can adversely affect their (poor) farmers. The (Persisting) Problem of Import Surges The problem of (subsidized) agricultural imports flooding markets of developing countries and harming or even destroying (poor) farmer livelihoods has been the subject of considerable debate and criticism against the WTO and developed countries.505 Within trade circles, the phenomenon is described as so-called import surges. It is important to note that there is no universal legal or other definition of (agricultural) import surges.506 General characteristics are a sudden or unexpected rise of imports of a particular product and some form of unusualness and excessiveness.507 NGOs and other international actors have listed several cases in which import surges reportedly caused external harm to domestic producers.508 However, definitions of import surge usually use other quantitative and qualitative criteria to define a surge rather than harm caused, including the volume and price of imported products. Definitional uncertainties persist as to the quantity of increased imports needed to call an increase of imports a surge.509

505

See e.g.: Joseph (2011), p. 187 et seqq.; South Centre (2015); Pogge (2015), p. 50. Rakotoarisoa et al. (2011), p. 4; Matthews (2012), p. 119. 507 Rakotoarisoa et al. (2011), p. 4 and 11. 508 See for example the compilation of cases by the South Centre: South Centre (2015); see also: Rakotoarisoa et al. (2011). 509 Rakotoarisoa et al. (2011), p. 13. 506

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Despite those definitional uncertainties it is relatively clear that import surges, even if defined narrowly, have occurred rather frequently over the last decades.510 Based on a moderate definition of import surges, a 20% rise of imports of the product in question compared to a 5-year moving average for each commodity and country, analysis of FAO provides that since the mid-1990s a number of developing countries and, in particular low-income food insecure countries, have seen such surges.511 A South Centre study based on a broader definition of import surges (imports of more than 110% of the preceding 3-year average) analysed 56 developing countries and also found high numbers of import surges.512 These numbers alone, however, cannot tell us much about the impact or cause of those surges. Generally, not all import surges are harmful to local producers. Some import surges are simply related to crop failures, other shortages or increased consumer demand which local producers are unable to fulfil.513 Thus, rising imports, even if happening very fast, do not necessarily harm farmers in developing countries. Often they may even have positive effects, such as addressing food shortages.514 Still, in several cases, studies revealed that developing countries have experienced food import surges with negative effects on local production.515 Seriously affected countries include Benin, Guinea, Haiti, Jamaica, Kenia, Malawi, Niger, the Philippines, and Tanzania. For example, Haiti experienced a 13-fold increase of the volume of rice between 1995–2000 compared to 1984–1989 and a 30-fold increase of chicken meat imports between 1995–2000 compared to the 1985–1989 average. In both product categories local production severely declined in the respective periods.516 This analysis indicates that any protective instrument addressing import surges needs to be carefully drafted to distinguish harmful from much needed import surges of foodstuffs. In recent times, the occurrence of import surges has declined. Since 2007–2008 world market prices rose considerably with a peak in 2011. Despite a downward trend, prices have stayed at a relatively high level, considerably higher than in the

510

FAO Some Trade Policy Issues Relating to Trends in Agricultural Imports in the Context of Food Security, Committee on Commodity Problems, Sixty-fourth Session, Rome (18–21 March 2003); South Centre (2015); Matthews (2012), p. 119 with further references. 511 FAO Some Trade Policy Issues Relating to Trends in Agricultural Imports in the Context of Food Security, Committee on Commodity Problems, Sixty-fourth Session, Rome (18–21 March 2003). 512 South Centre (2009). 513 On the diverse causes of import surges, see e.g.: Rakotoarisoa et al. (2011). 514 Matthews (2012), p. 120. 515 FAO Some Trade Policy Issues Relating to Trends in Agricultural Imports in the Context of Food Security, Committee on Commodity Problems, Sixty-fourth Session, Rome (18–21 March 2003). 516 FAO Some Trade Policy Issues Relating to Trends in Agricultural Imports in the Context of Food Security, Committee on Commodity Problems, Sixty-fourth Session, Rome (18–21 March 2003).

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1980s and 1990s, up until today.517 This phenomenon led to a decrease in import surges and a fall of the incidence of price depressions between 2004 and 2011 to zero in most commodity groups.518 Has the SSM therefore become obsolete? According to analysis provided by the FAO there remains a solid rationale for the SSM.519 The fall of the incidence of volume surges appears not to reflect a reduction of imports in developing countries of agricultural products, instead many food importing developing countries have increased their imports substantially. The FAO therefore foresees an SSM with lower trigger levels.520 This proposal appears to be based on the rationale that increased imports paired with higher prices poses an increasing problem for the trade balance of developing countries. However, this rationale is flawed in some regards. In many African countries it is doubtful whether increased imports displace local production and aggravate poverty or are rather driven by domestic factors such as population growth, aggro-climatic constraints, and domestic structural deficiencies making those countries unable to satisfy increased needs.521 Still, more convincing arguments that support the relevance of the SSM exist. Firstly, while the total number of volume surges has declined in 2009–2013, they remain at approximately two-thirds of the 2004–2008 level.522 Secondly, world prices for agricultural products are not likely to remain high forever. In this regard a period in which the SSM is unlikely to be used may even be seen as a strategic opportunity to install a legal arrangement that can be of help later. Just as the prohibition of export subsidies at a time when most States have stopped using them (because of high international prices) is a historic achievement to prevent States from future use if prices go down again. How Would the SSM Work? All proposals for a new SSM are basically structured the same way and are largely comparable to the structure of the already existing safeguards in Article 5 AoA.523 Based on certain trigger levels which are meant to identify a potentially harmful import surge or a significant fall of prices on an import shipment, provisions of the SSM allow the importing State to apply additional duties on the respective product. Such additional duties would otherwise be subject to legal challenge. For some developing countries (e.g., China) this is simply because their applied tariffs are very close to bound levels so that Article 4 para. 1 AoA and the respective country

517

FAO (2014), p. 3. FAO (2014), p. 21. 519 FAO (2014), p. 21. 520 FAO (2014), p. 21. 521 See for that argument: Morrison and Mermigkas (2015). 522 FAO (2014), p. 10. 523 See on the structure of Article 5 AoA: McMahon (2006), p. 54 et seqq.; Finger (2010), p. 302 et seq. 518

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schedules prohibit any additional duty. Other States have more flexibility to raise tariffs because applied tariffs are substantially lower than bound levels. Still, all States face legal constraints stemming from Footnote 1 to Article 4 AoA. The case of India is a good example. India’s average bound tariff on agricultural commodities remains high at 113.5%, while its applied tariffs are substantially lower.524 One might think that India could simply adjust its applied tariffs to tackle import surges up until the bound tariff level is reached. However, it is not that easy under the AoA to increase tariffs to tackle a sudden import surge. Footnote 1 to Article 4 AoA prevents Members inter alia to resort to “variable import levies” and “minimum import prices”. In particular the outcome of the Chile—Price Band System and Safeguard Measures Relating to Certain Agricultural Products case revealed that even measures which keep additional duties within the ceiling binding can be deemed illegal if they are applied on a variable basis.525 Therefore while States are not prevented from raising tariffs once in a while, they face constraints in installing a system of variable additional duties or comparable measures (e.g., minimum import prices) necessary to quickly respond to import surges. Under the SSM, however, States would be more flexible to respond to import surges and price undercutting. Deficiencies of Existing Safeguards The idea of including safeguards and other exception clauses in WTO agreements is far from new.526 GATT and WTO Agreements have long included diverse provisions which can be qualified as safeguards or flexibility mechanisms.527 In the context of the SSM, the Special Safeguard Provisions contained in Article 5 AoA (SSG) and the safeguards contained in Article XIX and the Agreement on Safeguards (ASG) are of particular interest because as real safeguards they bear the most resemblance to the SSM. Another provision of relevance here is Article XX GATT (general exceptions). However, the effectiveness of these provisions to address the mentioned problems in the agricultural sector remains doubtful for the following reasons. The problem with Article XIX GATT and the ASG is rather simple. While these provisions provide a fair balance in theory, it is often regarded as overly burdensome

524

WTO, ITC, UNCTAD (2016), p. 96. See: Chile—Price Band System and Safeguard Measures Relating to Certain Agricultural Products, WT/DS207/R, Report of the Panel (3 May 2002), para. 7.22 et seqq.; Chile—Price Band System and Safeguard Measures Relating to Certain Agricultural Products, WT/DS207/AB/ R, Appellate Body Report (23 September 2002); see also: Gifford and Montemayor (2008), p. 6. 526 See for a comparison of such safeguards with the SSM: Finger (2010). 527 See e.g.: Article XXVIII GATT 1947; Article XIX GATT (often referred to as “Escape Clause”); Article VI GATT measures (“Anti-dumping and Countervailing Duties”); safeguards contained in the Agreement on Safeguards (ASG), and Article 5 AoA (“Special Safeguard Provisions”). 525

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for developing countries to fulfil their procedural requirements and substantial conditions.528 For example, Article 2 para. 1 ASG requires a Member to determine that an import surge “cause[s] or threatens to cause serious injury to the domestic industry that produces like or directly competitive products”. What appears sound in theory is often utterly complex in practice as proof requirements are onerous and causality often difficult to establish.529 Moreover, Article 8 ASG obliges Member States using the safeguard to compensate “affected parties” which is likely to prevent poorer States from making use of the provision.530 The SSG contained in Article 5 AoA is less rigid in many regards but suffers from other deficiencies.531 The mechanism’s initial telos was to smoothen the transition period of agricultural trade liberalization and therefore formally only “remain[s] in force for the duration of the reform process”.532 However, as there is no end date for that process and Member States thus far have not agreed on its elimination, the SSG is still in effect. In comparison to other safeguards contained in the ASG the SSG allows for protective measures under softer requirements. In particular, the SSG does not require proof of any form of damage to the local industry. Moreover, the SSG does address both increases in the volume of imports, as well as downfalls in price. When the SSG is less rigid than safeguards of the ASG and still in effect, why does G-33 demand a new mechanism? This is because Article 5 AoA faces two main constraints. Firstly, it is available only to a limited number of Member States, and secondly its application is limited to several marked products. To be legally entitled to use the SSG, Member States had to undertake ‘tariffication’ in line with Uruguay Round Modalities and to reserve the right to make use of the SSG by marking tariff lines in their respective schedules eligible for protective measures under the SSG. As many developing countries did not transfer their non-tariff trade barriers to formal tariffs but only used so-called ‘ceiling bindings’,533 due to several reasons including lack of understanding of the connection to the SSG534 but also unwillingness to undertake more comprehensive tariff liberalization, the SSG is not available to them.535 Only 24 developing countries acquired the right to use the SSG and some of them have only reserved to apply the safeguard on a very small range of tariff lines

528

G-33 G-33 Statement, Special Safeguard Mechanism (10 December 2004). http://www.cutsinternational.org. Accessed 11 September 2020, para. 7 et seqq.; Howse and Teitel (2009), p. 54: Joseph (2011), p. 190. 529 See also.: Mavroidis (2016), p. 376; Howse and Teitel (2009), p. 54 et seq.; Joseph (2011), p. 190. 530 Joseph (2011), p. 190. 531 Kattau (2015), p. 220. 532 Article 5 para. 9 AoA; for an overview of the provision’s negotiation history: McMahon (2006), p. 55; Finger (2010), p. 302. 533 see e.g.: McMahon (2006), p. 174. 534 Cainglet (2005), p. 12. 535 See e.g.: Kattau (2015), p. 221; Thennakoon and Anderson (2015), p. 107.

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(e.g., Indonesia with 1% of tariff lines).536 Additionally, some developing countries that could make use of the SSG have complained about the complexity of formulas and the data requirements making the SSG difficult to use and leading the G-33 to call for a simpler mechanism.537 Those concerns are backed by the fact that only very few developing countries have made use of the SSG538 and have also been worked out by scholars.539 Because of these deficiencies the SSG has been described as a “reverse special and differential treatment privileging the developed countries.”540 Finally, could developing countries make use of general exceptions under Article XX GATT to protect against their economies against import surges and serious price undercutting? Generally, Article XX GATT is applicable to all trade in goods, including agricultural products, and Article 21 AoA allows for the application of GATT subject to the provisions of the AoA. However, Article XX GATT only exempts measures necessary to protect the limited number of legitimate concerns listed in the provision. Among those listed legitimate aims, public morals and human health and life could be of relevance in the context of the right to food and the right to a sustained livelihood of poor farmers in the Global South. In particularly severe cases the human health/life exception could be invoked to protect farmers, for example if it could be proven that suicide rates increase or that farmers that lose their income are unable to afford essential medicines and food and the home State is fiscally restrained in providing minimum protection. Yet, from a legal perspective it is problematic that these health concerns are not attributable to the product as such but to the economic impact of its import.541 Economic displacement is actually in line with economic thinking underlying the notion of trade liberalization and the theory of comparative advantage. Therefore it is very doubtful whether such measures as import bans on agricultural products to protect local producers would be covered by Article XX lit. b GATT. Moreover, scholars have argued for the protection of the right to food and/or the protection of sustained livelihoods to be invoked under the public morals exception, but also pointed out that this argument has not been tested within the WTO’s dispute settlement system.542 It must be noted that public morals cannot be equated with broader public order. Traditionally the public morals exception only covers 536

See: Special Agricultural Safeguard, Background Paper by the Secretariat, Revision, Committee on Agriculture Special Session, WTO Doc. G/AG/NG/S/9/Rev. 1 (18 May 2001). 537 See e.g.: G-33 G-33 Statement, Special Safeguard Mechanism (10 December 2004). http://www. cuts-international.org. Accessed 11 September 2020, para. 17; see also: Cainglet (2005), p. 12; Finger (2010), p. 303. 538 See for statistical data of the usage of the SSG: Finger (2009), Annex 1. 539 See e.g. Kattau (2015), p. 222 et seqq. 540 Hopewell (2016), p. 172. 541 Most, if not all, cases in which States invoked Article XX lit. b) GATT were related to health concerns stemming from the product as such and its likely usage in the importing country but not its economic impact. For an overview of relevant cases, see e.g.: Strack and Stoll (2011). 542 Mechlem (2006), p. 173; Harrison (2007), p. 209; Kattau (2015), p. 530.

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measures banning the trade in slaves, opium, liquor, obscene publications, and the like.543 Recent jurisprudence exhibits a willingness of panels and the AB to interpret the clause in an evolutionary manner, for example incorporating public concerns about animal welfare.544 Still, it would be necessary to prove that some moral sentiment existed in the respective society, or even the international society,545 that import surges or serious price-undercutting that drives local farmers out of business are immoral. While it is assumed here that such an understanding exists at the international level, at least in cases whereby socio-economic rights would be violated, another obstacle is again that the threat to public order in this case stems from economic competition rather than from the immorality of the product in question. All in all, Article XX GATT clearly is one of the central provisions that could allow for the harmonization of world trade law with human rights law. Up until now this has not been tested in practice and therefore does not provide developing countries with predictability in that regard.546 Still, one wonders why Article XX GATT has not aroused more attention in discussions surrounding the SSG. A reform of Article XX GATT or even only an interpretative statement could have been a less controversial alternative option to address human rights and poverty related concerns. Negotiation History, Concrete Proposals, and the Role of Emerging Powers Proposals for an SSM date back to the early days of the DDR,547 yet it was only in 2008 that the issue has become a major issue in ministerial negotiations. In 2004 the General Council officially gave the SSM a negotiation mandate in the Doha Work Programme. Paragraph 42 of the Doha Work Programme simply stated that a “Special Safeguard Mechanism will be established for use by developing countries” but contained nothing more concrete on the subject.548 The Hong Kong Ministerial Declaration reaffirmed that commitment and already foresaw a “Special Safeguard Mechanism based on import quantity and price triggers”.549 Subsequent proposals, brought in by a broad coalition of developing countries (G-33, African Group, ACP and LDCs), contained more detailed proposals and called for a simple and 543

See e.g. Wenzel (2011), p. 481 (MN 2). European Communities—Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS400/AB/R; WT/DS401/AB/R, Appellate Body Report (22 May 2014), para. 5.175 et seqq. 545 Charnovitz (1998), p. 704; in that direction also: Ming (2016), p. 683 et seqq. 546 See on that aspect: Kattau (2015), p. 532. 547 See e.g.: Alliance for Strategic Products and Special Safeguard Mechanism Ministers' Communiqué, WT/MIN(03)/14 (9 September 2003). See a for an overview of the different stages of negotiations until 2008: Wolfe (2009), p. 527 et seqq. 548 Doha Work Programme, Decision Adopted by the General Council on 1 August 2004, WT/L/ 579 (2 August 2004). 549 Ministerial Declaration adopted on 18 December 2005, WT/MIN(05)/DEC (22 December 2005), para. 7. 544

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operationally effective mechanism.550 Yet developing countries did not stand united behind the SSM.551 Instead, agricultural exporters, especially Argentina, Paraguay, and Uruguay, early broached more limited proposals arguing that the SSM as a trade policy instrument should become only an exceptional measure to facilitate further liberalizatipn but not a long term measure enabling Member States to protect their agricultural sectors from import competition.552 Despite disparities between agricultural exporters and importers, the Revised Draft Modalities already provided more detailed accounts of the mechanism.553 Although some compromises were achieved, controversies over the details of an SSM finally proved irreconcilable in July 2008 and ultimately led to the breakdown of the entire negotiations on agriculture.554 Struggling negotiations over the SSM in July 2008 mainly took place between India and the United States.555 Reportedly negotiations concerning the SSM were first held among 30 countries but were convened to a smaller group including Australia, Brazil, China, the EU, India, Japan, and the United States after the bigger forum was not able to find a solution.556 As noted briefly above, China and India aligned their positions on the subject and for the first time in its WTO history China took a very active stance leading to open confrontation with the United States.557 China reportedly supported India and G-33 by gathering a large group of developing country Member States to oppose a compromise proposal offered by the United States.558 The compromise proposal foresaw a relatively high import trigger level of 140% which was unacceptable for India and the G-33. One Indian official was quoted as saying: “By that time, the import surge would have wreaked havoc on the livelihoods of the most vulnerable farmers”.559 Another critical question has been whether developing countries would be allowed to raise tariffs beyond bound tariff rates (maximum bound tariff rates of the 1986-94 Uruguay Round or for newly acceded members bound tariffs in their accession commitments), as India and others had proposed, and if yes to what extent and under which conditions.560 550

Joint Communication from the G-33, African Group, ACP, and LDCs on Special Products and the Special Safeguard Mechanism, WTO Doc. TN/AG/GEN/17 (11 May 2006), para. 2 and 4. 551 See on competing interests among developing countries also: Finger (2010), p. 305. 552 See e.g. Argentina, Paraguay, Uruguay Revised Consolidated Reference Paper on Possible Modalities on Market Access—SSM: Some Unanswered Technical Issues, WTO Committee on Agriculture, Special Session, WTO Doc. JOB(06)/197/Rev.1 (21 June 2006). 553 Revised Draft Modalities for Agriculture, WTO Doc. TN/AG/W/4/Rev.1 (8 February 2008), para. 126 et seqq.; Revised Draft Modalities for Agriculture, WTO Doc. TN/AG/W/4/Rev.3 (10 July 2008), para. 123 et seqq. 554 ICTSD (2008f); see for a detailed analysis: Wolfe (2009). 555 ICTSD (2008f). 556 ICTSD (2008d); Wolfe (2009), p. 534. 557 See for overview of arguments between US and Chinese representatives: ICTSD (2008c). 558 See: Wolfe (2009), p. 534. 559 Cited in: Wolfe (2009), p. 534. 560 ICTSD (2008f); Wolfe (2009); Grant and Meilke (2009), p. 224.

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Ultimately the discussions failed as the United States, India, and China refused to compromise on the SSM subject.561 While the United States had hoped to isolate India in the negotiations, the support by China crucially helped the world’s largest democracy to oppose the compromise proposal offered. As the United States had hoped that China would lead developing countries to accept a compromise in agriculture, it felt betrayed and sharply attacked the Chinese position.562 For United States negotiators, allowing China and other developing countries to impose additional duties on agricultural products beyond concessions already made would have led to strong criticism from influential U.S. agricultural lobby groups.563 India framed the SSM as a pro-poor mechanism.564 Given its large number of poor subsistence farmers and the Indian society’s sensitive awareness to agricultural issues, the SSM for India had both an economic and symbolic value.565 But why did China support the SSM? For China an SSM would have meant undoing some of the constraints of the country’s Accession Agreement, which was of special political importance as the accession terms have often been depicted as unequal in China, bringing up historical sentiments against unequal treaties of the nineteenth century.566 Moreover, scholars have argued that China remains concerned about maintaining the political stability of the Chinese farming population, which could be threatened by further agricultural trade liberalization.567 China indeed still has a large rural population dependent on agriculture despite its manufacturing boom and position as a net food importer.568 Poverty in the rural areas also remains a grave problem.569 Concerned by possible unrest among the poor rural population China has engaged in efforts to promote rural development, which could be affected by further lowering tariff levels in agriculture as an outcome of market access negotiations.570 As China’s applied tariff levels are more or less its bound tariff levels (due to China’s Accession Agreement) further reductions would expose China’s farmers to increased competition from imports.571

561

Castle and Mark (2008). See: Bhala (2009), p. 63; Mercurio and Tyagi (2012), p. 115. 563 Wolfe (2009), p. 535. 564 See e.g.: India Statement by HE Mr. Kamal Nath Minister of Commerce and Industry, WT/MIN (05)/ST/17 (14 December 2005); India Statement by H.E. Mrs. Nirmala Sitharaman, Minister of State for Commerce and Industry, WT/MIN(15)/ST/9 (17 December 2015). 565 Cf. Wolfe (2009), p. 535; Hopewell (2016), p. 167; see on domestic agricultural politics in India and their relation to the WTO: Mahrenbach (2013), pp. 111–145. 566 Wolfe (2009), p. 535. 567 Lim and Wang (2010), p. 1311. 568 As of 2015, 36.7 % of China’s 1.425 billion population were employed in agriculture, China imported agricultural goods worth of US$ 36.567 billion, and the country exported agricultural goods worth of US$ 96.838 billion, see: FAO (2015), p. 85. 569 See e.g.: Zhu (2017). 570 Hopewell (2016), p. 170. 571 Hopewell (2016), p. 170. 562

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In the aftermath of the breakdown further discussions seem to have taken place between negotiating parties on the proposed SSM. The Revised Draft Modalities of December 2008 included drafts of modalities of an SSM but also stressed that despite some progress no clean text could be provided.572 Further proposals were brought forward by G-33 in the subsequent years573 of which the most recent one is the proposal in preparation of the Nairobi Ministerial.574 The proposal foresaw the establishment of the SSM as a new “Article 5 bis” in the AoA (special safeguard mechanism for developing country members).575 The proposal clearly was based on the 2008 Revised Draft Modalities but compared to earlier proposals made some concessions to demands by agricultural exports wary of the SSM being ‘misused’ as a protectionist instrument.576 The proposal has become more diverse regarding the treatment of differently situated developing countries (such as LDCs etc.)577 and triggers have become more sophisticated to avoid misuse.578 Still, the proposal did not foresee any a priori product limitations as to its availability but required Member States to self-designate tariff lines available for SSM measures to be marked with an SSM symbol or to be listed under a yearly notification to the Committee on Agriculture (Article 5 bis para. 1). Moreover, a clause comparable to the standard WTO safeguards clause under Article XIX of GATT which would require the importing State to demonstrate that imports have caused injury to domestic producers, is absent. The section on a volume based SSM only foresees an exception to the allowance to apply additional duties under one scenario, namely when triggers are met but “the absolute level of imports is manifestly negligible in relation to domestic production and consumption” (Art. 5 bis para. 2 lit. e).

572

Revised Draft Modalities for Agriculture, WTO Committee on Agriculture Special Session, WTO Doc. TN/AG/W/4/Rev.4 (6 December 2008). 573 See e.g.: G-33 Refocusing Discussion on the Special Safeguard Mechanism (SSM): Outstanding issues and Concerns on its Design and Structure, WTO Doc. TN/AG/GEN/30 (28 January 2010). 574 G-33 Special Safeguard Mechanism for Developing Country Members, Committee on Agriculture, Special Session, WT/MIN(15)/W/19 JOB/AG/49 (18 November 2015). 575 G-33 Special Safeguard Mechanism for Developing Country Members, Committee on Agriculture, Special Session, WT/MIN(15)/W/19 JOB/AG/49 (18 November 2015). 576 See on concerns by agricultural exporters—including Brazil—that India and China would abuse flexibility granted under the SSM: Wolfe (2009), p. 535. 577 The proposal foresees smaller triggers for LDCs, for Members with a small share of world trade, for Members characterized by the UN as the ten most vulnerable countries to climate change, and for developing countries whose average bound tariff was lower than 40% in 2015 (Article 5 bis para. 2 lit. d). 578 On the volume-based SSM the provision foresaw a tiered approach with regard to triggers and available responses (Article 5 bis para. 2). In cases where average imports during the preceding 3-year period exceed 110% but not 115 %, the maximum additional duty imposed on applied tariffs shall not exceed 25% of the current bound tariff or 25 percentage points, whichever is higher (Article 5 bis para. 2 a)). Two additional triggers would allow increasingly higher additional duties the higher the volume of imports relative to what the previous 3 year advantage would be (Article 5 bis para. 2 a-c).

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The proposal further foresees a temporal limitation. Accordingly, the volumebased SSM could only be maintained for a maximum duration of 12 months and for seasonal products only for a maximum of 6 months or the period of actual seasonality. Yet, the proposal keeps open the possibility of applying the SSM repeatedly. The draft text only includes an unspecified limit (“XX consecutive periods”) for the repeated application (Article 5 bis para. 10). The 2008 Draft Modalities limited the application of the SSM for a particular product by 2 years and after that would have foreseen a 2-year period in which the SSM could not have been applied on the product in question.579 The section on the price-based SSM foresees an SSM that allows for additional duties in cases where the import price of a shipment falls below a trigger price equal to 90% (compared to 85% in the 2008 Draft Modalities) of the average monthly price for the product in question of the last 3-year period (Art. 5 bis para. 4). The additional duty is only meant to bring import prices and domestic prices in line, as the additional duty would not be allowed to exceed the difference between import price and the trigger price (Article 5 bis, para. 5). The Draft Modalities would have been more restrictive only allowing the SSM duty to be 85% of the difference between the c.i.f. import price and the trigger price.580 Article 5 bis para. 6 further foresees an exception to the right to invoke the pricebased SSM in cases where the volume of imports of the products concerned is “manifestly declining, or is at a manifestly negligible level incapable of undermining the domestic price level.” The proposal also contains some sophisticated rules on the further technicalities of an SSM, such as the calculation of volume and price triggers and procedural requirements. Nevertheless, procedural requirements in the proposals are rather weak, presumably because G-33 was keen on establishing an ‘easy to use’ mechanism.581 Importantly, the proposed SSM would explicitly allow developing countries to exceed their tariff bindings, meaning Uruguay Round bindings or bindings during the accession period (Article 5 bis para. 12). Only some countries would face limits on the maximum remedy available as an additional duty but the draft leaves open the concrete percentage (the proposal only states “XX% or XX ad valorem percentage points” (para. 12 a) and b)). All in all, the proposal foresees quite a sophisticated mechanism taking into account different needs of developing countries and containing several limitations and safeguards to minimize market distorting effects. While general trigger levels are relatively low, the proposal provides a more elaborate approach, as available additional duties are directly linked to trigger levels.

579

Revised Draft Modalities for Agriculture, WTO Committee on Agriculture Special Session, WTO Doc. TN/AG/W/4/Rev.4 (6 December 2008), para. 140. 580 Revised Draft Modalities for Agriculture, WTO Committee on Agriculture Special Session, WTO Doc. TN/AG/W/4/Rev.4 (6 December 2008), para. 135. 581 For a very critical position on this lack of procedural requirements, see: Finger (2010), pp. 290, 308 and 316.

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Nevertheless, Member States in Nairobi again were unable to agree on the SSM. Instead they only reiterated the mandated goal of establishing an SSM someday in the future.582 Substantially nothing new was achieved in Nairobi on the SSM, which was to repeat itself in Buenos Aires in 2017. Procedurally it is important to note that the Nairobi SSM Decision foresees further negotiations in “dedicated sessions of the Committee on Agriculture in Special Session”.583 Still, these negotiations so far have failed to secure a concrete outcome. In 2016 India’s hard stance on the SSM faced internal critique. In particular the Indian government’s chief economic advisor urged the government to reconsider its stance on the SSM, warning that continuing failures of multi-lateral WTO rounds, combined with the threat of mega-regional trade agreements, might isolate India.584 However, at least rhetorically India has again supported the establishment of an SSM in Buenos Aires.585 China has at times supported India on the issue, but why did other emerging powers, and in particular Brazil, provide little support? Brazil indeed takes a rather complex stand on the SSM issues—neither fully opposing the proposals by G-33, nor whole-heartedly supporting them. On the one hand, Brazil as a Member of G-20 and an ally of India on many agricultural negotiation issues seems to have been unwilling to outright oppose the SSM. On the other hand, Brazil is a major agricultural exporter and its agribusiness sector has absolutely no interest in providing any country (developing or industrialized) with a protective mechanism it might use against Brazilian exports. This reveals that the SSM is not only controversial on North-South lines but more generally between the interests of agricultural exporters and importers. As seen above, Brazil was only willing to accept the SSM as part of a bigger package that would also have included notable concessions on market access. South Africa strategically is also, on the one hand, more interested in market access to other countries than of protective instruments, because of the importance of its agricultural export sector, which in 2017 accounted for US$ 12.2 billion and made up for approximately 13.9% of South African exports.586 On the other hand, South Africa also imports agricultural products of significant value—US$ 9.4 billion in 2017. Therefore South Africa has both offensive as well as defensive interests. Despite this ambivalence, South Africa, through the African Group has supported SSM proposals by G-33.587 As on other issues, however, South Africa has not taken 582

Special Safeguard Mechanism for Developing Country Members, Ministerial Decision, WT/MIN(15)/43 WT/L/978 (19 December 2015), para. 1. 583 Special Safeguard Mechanism for Developing Country Members, Ministerial Decision, WT/MIN(15)/43 WT/L/978 (19 December 2015), para. 2. 584 ICTSD (2016b). 585 India Statement by H.E. Mr. Suresh Prabhakar Prabhu Union Minister for Commerce and Industry, WT/MIN(17)/ST/9 (13 December 2017). 586 Numbers are based on WTO statistics, available at: http://stat.wto.org/CountryProfiles/ZA_e. htm. 587 See e.g.: African Group Joint Proposal on the Negotiations on Agriculture, Committee on Agriculture, Special Session, WTO Doc. G/AG/NG/W/142 (23 March 2001), para. 10; Joint

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part in inner circle negotiations on the issue and seems not to have played a major role in supporting India on the SSM.

Is the SSM Pro-Poor? India has framed the SSM as a means necessary to protect poor farmers. However, economic studies are rather sceptical about the SSM’s effects on the global poor. Several analyses of the economic impact of an SSM of both developing countries using the SSM and developing country exporters affected by the SSM come to the conclusion that the SSM is at best an ambivalent economic tool with regard to achieving the goal of food security and the protection of poor farmers.588 Most studies have assessed the effectiveness and economic impact of the SSM as proposed by the 2008 Draft Modalities (which use the same trigger as the Nairobi G-33 proposal). Based on different scenarios under these Modalities, a study by Montemayor finds that overall, neither a volume- nor price-based SSM would be very effective in problematic months.589 Still, the study also argues that exceeding pre-Doha tariffs and applying lower trigger levels would increase the SSM’s effectiveness. A study by Grant and Meilke (based on the market for wheat as an example) found that the SSM would lead to “welfare costs” (from a liberal economic perspective) which, however, would by far be off-set by “welfare gains” if the SSM is agreed upon together with market access liberalization as foreseen by the 2008 Draft Modalities.590 The study by Finger, in particular, highlighted the negative effects of a prospective SSM used by importing developing countries against other developing country exports.591 Given that both under the volume- and price-based SSM lower-priced products, which typically originate from developing countries, are likely to face higher additional duties, exporters from developing countries could face factual discrimination.592 Finger even assumes that exporters from developing countries might in some cases face nearly constant additional duties.593 Moreover, Finger has questioned the economics underlying the SSM. He comes to the conclusion that the formulas of the SSM would allow for the imposition of import restrictions more

Communication from the G-33, African Group, ACP, and LDCs on Special Products and the Special Safeguard Mechanism, WTO Doc. TN/AG/GEN/17 (11 May 2006), para. 2, 4; Joint Submission by the G-33, Small Vulnerable Economies (SVES), The African, Caribbean and Pacific (ACP) Group, and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, Renewing Development Through the Special Products and Special Safeguard Mechanism,, Committee on Agriculture, Special Session, WTO Doc. TN/AG/GEN/36 (28 July 2015). 588 See for a summary of different accounts in the literature: Matthews (2012), p. 121 et seqq. 589 Montemayor (2010). 590 Grant and Meilke (2009), p. 238. 591 Finger (2010), p. 312 et seq. 592 Finger (2010), p. 313. 593 Finger (2010), p. 313 et seq.

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often in situations where it is not beneficial to local producers than when it is, and that the imposition of additional duties would still be prohibited when it is needed most.594 According to Finger, in more than half of the periods of serious price undercutting the SSM would not have allowed additional duties to be applied.595 Hertel, Martin, and Lester further highlight that the imposition of the SSM (based on the Draft Modalities proposal) in response to import surges might harm those poor people that are net food buyers because of increased food prices.596 According to their study “widespread use of the SSM could destabilize world prices as well as deny domestic consumers access to affordable imports in the case of domestic shortages.”597 The study concludes that pro-poor arguments for an SSM are not convincing. Instead the SSM might even have negative consequences for the urban poor and other net-purchasers of food in developing countries.598 This argument is further supported by Ivanic and Martin.599 Based on simulations for 31 middleincome countries, which cover about 5.5 billion people, they conclude that the volume based SSM has the potential (if used consistently when triggers are reached) to raise the global poverty headcount by an average of 24.2 million people.600 They argue that low-income non-farm households and subsistence farmers who are often net buyers of food, particularly in periods where output is depressed, would be detrimentally affected by higher domestic food prices due to additional duties applied under the SSM.601 Even if additional duties collected were redistributed among the poor these effects could not be redressed because import duty earnings fall with imports (when a protective level is reached).602 A study by Thenakoon and Anderson (based on triggers roughly comparable to the ones used by G-33 in their Nairobi proposal) confirms most abovementioned critiques, and further argues that “offsetting benefits that proponents believe the SSM would offer agricultural-importing developing countries may be illusionary.”603 According to them, protective effects of any SSM are likely to be offset by increasing support to exporters in exporting States, such as the reduction of export taxes, rising export subsidies etc.604 While this rich body of economic analysis casts serious doubt on the effectiveness of an SSM to increase food security of the local and importantly the global poor, not all counter-arguments appear convincing from today’s perspective. Against the

594

Finger (2010), p. 289 and 307 et seqq. Finger (2010), p. 310. 596 Hertel et al. (2010), p. 2 and 24 et seqq. 597 Hertel et al. (2010), p. 24. 598 Hertel et al. (2010), p. 26. 599 Ivanic and Martin (2014). 600 Ivanic and Martin (2014), p. 617. 601 Ivanic and Martin (2014), p. 607 et seq. 602 Ivanic and Martin (2014), p. 618. 603 Thennakoon and Anderson (2015), p. 106. 604 Thennakoon and Anderson (2015), p. 108. 595

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assumption by Thenakoon and Anderson that protective impacts would be offset by increased export support it has to be said that much depends on the concrete legal structure of the SSM. If an SSM would be based on the G-33 proposal then both under the volume- and price-based mechanism it could offset any export support. Only if proposals would incorporate a maximum level of the additional duty or the price-based mechanism would countries be prevented from equalling import prices with local prices. So far proposals only foresee maximum levels for the additional duty under the volume-based mechanism, while the price-based mechanism can be invoked to equal the price of a shipment to local prices. Moreover, as seen above, the WTO has recently seen notable successes in legally curbing export support and banning export subsidies. Furthermore, some concerns brought forward in the literature have been addressed in recent G-33 SSM proposals. Importantly, G-33 has inserted provisions that protect LDC exports and exports of other more vulnerable developing countries from additional duties under a prospective SSM.605 Thereby these proposals seek to prevent negative effects against LDC exports. Finally, most of the abovementioned studies base their assessments on the assumption that developing countries will use the SSM whenever the new rules would allow them to do so and thereby have inflated its trade distorting effects.606 However, experience with other safeguards indicates that States are not likely to use the SSM whenever trigger levels are reached. Still, several concerns are viable, such as the impact on poor consumers of food and problems regarding effectiveness and accessibility of the mechanism. Therefore, the question as to how States would use the SSM in practice is crucial as is the extent to which negative impacts on net-purchasers of food could be offset (e.g., with social welfare schemes). To overcome concerns by economists and exporters, G-33 would need to further elaborate the draft to make the mechanism more effective and accessible. It remains to be noted that alternative and more comprehensive visions exist, as to how to ensure food security in developing countries without the controversial SSM. As Ivanic and Martin have pointed out, trade measures like the SSM are “not no-regrets policy measures and invariably cause harm to some people.”607 An alternative vision, for example, could include conditional cash e-transfers to provide a social safety net for poor farmers affected by import surges or serious priceundercutting.608 Such payments are only minimally trade distorting and case studies are encouraging in the sense that conditional cash e-transfers are workable and

605

G-33 Special Safeguard Provisions for Developing Country Members, Committee on Agriculture, Special Session, WT/MIN(15)/W/34, JOB/AG/65 (9 December 2015), Attachment 1, para. 10. 606 Matthews (2012), p. 124. 607 Ivanic and Martin (2014), p. 617; See in a similar direction: Matthews (2012), p. 125. 608 Thennakoon and Anderson (2015), p. 111 et seq.

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affordable even in developing countries.609 WTO Members could further support such systems, for example through the establishment of a common fund. Such payments would also be more flexible. Direct payments could additionally address the recent problem of export restrictions. Since the 2007–2008 food crisis, import surges declined while high prices brought about by food shortages across world markets harmed low-income consumers, leading to riots and social unrest in some of the affected countries.610 That some States used export restraints to keep domestic prices low further aggravated the availability of affordable food in some food importing countries. Direct payments could provide a less-trade restrictive and less harmful alternative for States seeking to ensure the availability of food in their countries.

The SSM As a Challenge to Free Trade? The United States and other developed countries have portrayed demands by India, China, and G-33 for a broadly drafted SSM as a fundamental threat to the WTO’s underlying principles of free trade and progressive trade liberalization.611 This view rests on one of the most controversial parts of the SSM, the question of whether countries should be allowed to raise tariffs on agricultural products in the case of an import surge or local-price-undercutting above their Uruguay Round tariff commitments. However, the analysis above demonstrated that an SSM based on recent G-33 proposals, presents no major regression from existing agreements in terms of liberalization of agricultural markets, in particular in the case that the SSM would be accompanied by further reductions of tariffs on agricultural products (market access). In such a scenario the SSM would serve as an instrument to smooth the transition period and to address emergency situations. Further, recent proposals are sophistically drafted in order to prevent misuse. The SSM is more about providing flexibility rather than about constantly increasing applied tariffs. Otherwise, India could have done so without the SSM as its applied tariffs are much lower than its bound ones. Only in regards to China do justified fears exist—that the country may permanently use the SSM and apply higher tariffs than its bound ones. More precise economic analysis is needed in that regard. Already, trigger levels and other conditions of most recent SSM proposals protect against misuse and constant usage of the mechanism. Under these conditions the SSM is no anti-free trade mechanism but could even encourage further agricultural market access liberalization. Developed countries were granted the SSG to smoothen the transition process after the adoption of the AoA. Given that historical insight, it appears only fair to grant developing countries

609 Thennakoon and Anderson (2015), p. 112 with reference to several case studies and empirical research. 610 See e.g.: Matthews (2012), p. 124. 611 See the statements by US Trade Representative Susan Schwab cited above.

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accepting further commitments on market access the right to safeguard the interests of their poor farmers in emergency situations. Thereby the SSM could even provide the ground for further liberalization. This is clearly the case if the SSM would be linked to further market access liberation. Still, even without that linkage, the SSM may provide momentum toward liberalization in the long run by providing developing countries with a security mechanism to protect their poor farmers. In this way the SSM could enhance the legitimacy of agricultural liberalization instead of challenging it. Of course, any final conclusion will depend on the exact outlook of the final agreement and in particular whether Members will be able to avoid constant use of the SSM on a broad range of products. The G-33 proposals already contain temporal limits and elaborated triggers which should allow the tackling of real import surges but not the ordinary increase of imports. If crafted well, an SSM could represent a balance between the benefits of further market liberalization and the need to protect poor farmers against import surges that does not represent a challenge against the paradigm of trade liberalization but rather may support it.

6.3.2.4

Evaluation

Emerging powers have pursued diverse defensive as well as offensive interests in DDR negotiations on agriculture that made it difficult to find common positions. Notably India and China focused more on defensive interests, while Brazil was more interested in increased market access for the country’s agricultural exports. South Africa’s position appears more ambivalent. South Africa, despite domestic interests for increasing market access to foreign markets for agricultural products, has also supported defensive instruments such as an SSM, albeit not as vocally as India. Brazil has at times also supported defensive positions but only when linked to its own demands on market access or limitations for domestic support in developed countries. Moreover, on several occasions, differing legal commitments under the AoA (such as differing policy space to provide domestic support) made it difficult for emerging powers to align their positions.612 Still, when it came to demanding concessions from developed countries (domestic and export support, market access) countries were able to find common positions. However, both on domestic support in developed countries and market access, even combined emerging country power have been unable to achieve any substantial outcomes to date. Some successes were achieved on export support and public stockholding for food security purposes. On export support, however, it was not the combined economic power of emerging States but rather a deal struck between the United States and the EU and policy changes in the latter that brought about the final decision to outlaw export subsidies and regulate other export support measures. Only on public stockholding for food security purposes was India able to achieve a

612

Cf. Brink et al. (2013), p. 198 et seq.

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notable, if only second-best (compared to formal reform of the AoA), solution with the establishment of a peace clause. Emerging powers in none of the abovementioned areas have pursued revolutionary changes to WTO agreements. Instead, they have largely embraced the liberal trade system with only minor adjustments. Positions on domestic support, market access, and export support seek to further liberalize trade and expose the hypocrisy of the United States, the EU and others which promoted trade liberalization in sectors of their interest but shielded their volatile agricultural sector. Only public stockholding and the SSM are designed to increase flexibility of developing countries to support and protect domestic producers from international competition. Developed countries have depicted both instruments as protectionist. However, much depends on the perspective taken. From a relative perspective domestic support per capita of producers is still far away from domestic support levels in developed economies, such as in the United States and the EU. Moreover, as Montemeyor has pointed out, allowing developed countries to continue with their trade distorting domestic support practices while “[u]nduly restricting developing countries from providing similar subsidies, often to poorer farmers and at much small magnitudes, does not seem fair.”613 With traditional powers increasingly becoming aware of negative impacts of increased support in emerging powers, now might be the chance that both country groups reconsider their programs and achieve a further levelling of the playing field instead of a null-sum trade war of treasuries. Otherwise increasing (global) domestic support levels are likely to harm the agricultural producers in the weakest developing countries the hardest. Regarding the SSM, much depends on its final outlay. Existing proposals, particularly when connected with further market access liberalization, would not roll back liberalization but support it. To achieve a compromise and also to strengthen the legitimacy of the SSM any future drafts could incorporate more precise limitations to its use for protecting poor farmers, instead of being available to protect agricultural producers as such. Otherwise it appears that India and others will not be able to convince agricultural exporting Member States that it will use flexibilities only occasionally and only for the protection of the poor. All in all, emerging powers are system supporters rather than challengers. Most notably India, Brazil, and to a lesser extent China, have engaged in legal reform, but this reform is only incremental. Most positions taken seek further trade liberalization in line with WTO agreements’ underlying principles and paradigms. Whether proposed reforms make WTO agreements more ‘development-friendly’ and ‘just’ is questionable. To some extent, proposals on all three pillars (market access, domestic support, export support) seek to correct imbalances inherited from the Uruguay Round. However, according to most studies (e.g., on the SSM), effects on global poverty and the human rights of the global poor (right to a sustained livelihood, right to food) are ambiguous. Even the prohibition of export subsidies might, in the short-run, harm net-food importing countries and poor consumers

613

Montemayor (2014), p. 37.

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because of higher prices for foodstuffs. With regard to public stockholding, the danger exists that publicly procured food becomes sold to international markets at cheap rates with detrimental effects on producers in other developing countries.614 Though the peace clause in principle prohibits such practices, it remains to be seen whether the prohibition becomes enforced in practice. Bearing these concerns in mind, the pro-poor rhetoric of emerging powers in negotiations appears to be overstated. In some regard the rhetoric might even have been misused to support the interests of strong domestic lobbies, such as the agricultural lobby in Brazil.615

6.3.3

Common Positions on TRIPS

The negotiation of TRIPS was an example in which a powerful alliance of a few (the USA, EU, with supporting roles from Japan and Canada) charted a course for the many. Two decades on from TRIPS the power of this few to dictate terms on intellectual property has clearly waned. Whatever the future of global patent governance arrangements, it will be partly decided by choices made within the BRICS.616

This statement by three of the most prominent scholars on international intellectual property law is indicative of ongoing power changes affecting global patent governance. Based on foregoing analysis that emerging powers have indeed become more assertive in international trade negotiations at the WTO, the following case study assesses approaches of emerging powers towards the TRIPS agreement. In particular, we shall see that in contrast to negotiations on the reform of the AoA, a more broadly-based consensus has emerged among Brazil, China, India, and South Africa on the matter. Again, the following section focuses on the following questions: Is there a common emerging powers position? To what extent do emerging powers challenge established international IP laws? Might reform make existing rules more just? To answer these questions the case study has to limit itself to certain aspects of the TRIPS regime. In particular, the study focuses on one major conflict that has repeatedly flared up between traditional trade powers and new powers, and which is also crucially connected to pandemic:617 the TRIPS and public health debate.

6.3.3.1

Domestic Approaches and Background

As indicated in Chap. 4 all developing country Member States of the WTO had to implement the TRIPS agreement by 1 January 2005 and reform their domestic

614

See on that threat with regard to India’s food policies: Jayagovind (2014), p. 512. In that direction: Hopewell (2016), p. 123 and 205 et seqq. 616 Abbott et al. (2014), p. 33. 617 See above Sect. 4.2.2.2.2. 615

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intellectual property protection systems accordingly. All emerging powers by now have implemented TRIPS in principle.618 When it comes to details, approaches by emerging powers on domestic intellectual property protection are still quite diverse, but only reveal a few examples of regulatory innovation and alternative approaches to intellectual property regimes of developed countries.619 However, in some respects emerging powers have adapted IP rules to their own environments and domestic contexts.620 In what has been termed “counter-harmonization” by Amy Kapcynski, India (but also a number of other emerging- and also some developing countries) have used flexibilities and interpretative vagueness under the TRIPS agreement in order to promote their (perceived) development needs.621 Examples include IP provisions protecting biological resource rich developing States against bio-piracy, high inventive step requirements for patent grants, novel subject matter limitations, extensive procedural limitations including oppositions and disclosures, and strong patent misuse standards.622 Importantly, India and Brazil—among a number of other developing countries such as Thailand, Malaysia, Indonesia, Zambia and Ecuador—were able to use the grant of compulsory licenses or the threat thereof to reduce prices for certain medications and make them available also to the poorer parts of their constituencies.623 With regard to bio-piracy and traditional knowledge, the creation of India’s Traditional Knowledge Digital Library (TKDL) evidences creativity in some emerging powers. The idea behind the TKDL is to document and translate traditional knowledge in India—often only accessible in local languages such as Sanskrit, Hindi, and Tamil—and make this information available to patent offices around the world. Thereby the work of the TKDL reduces the likelihood that such knowledge gets patented by foreign firms. Moreover, the organization files pre-grant oppositions in various patent offices around the world and provides prior-art evidence.624 The creation of the TKDL was sparked by controversial patent cases in the United States in which U.S. companies sought to obtain patents for bio-pesticides derived from neem extracts, for turmeric’s healing properties, and for a new variety of basmati rice.625

618

See on the implementation process in individual countries: Schulz and Wu (2004); Kapcynski (2009), p. 1575 et seqq.; Sinha (2016), p. 108 et seqq.; Fasan (2012), and the Panel Report in China—Measures Affecting the Protection and Enforcement of Intellectual Property Rights, WT/DS362/R, Report of the Panel (26 January 2009). 619 See for an overview: Abbott et al. (2014), p. 5 and 13 et seqq. and the collected papers in part III of their edited volume. 620 Abbott et al. (2014), p. 31; Sell (2014), p. 47. 621 Kapcynski (2009), p. 1575. 622 Sell (2014), p. 54; see on the case of India: Kapcynski (2009), p. 1575 et seqq. 623 See on those examples: Sell (2014), p. 54 et seq. 624 See the self-description at the institution’s webpage, available at: http://www.tkdl.res.in/tkdl/ langdefault/common/Abouttkdl.asp?GL¼Eng. Accessed 12 Sept 2020. 625 For a critical analysis of the working of the Traditional Knowledge Digital Library and why it was founded see: Prashant and Chandrashekaran (2017), Chapter 9; see more approvingly: Gopalakrishnan (2002).

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Despite this notable use of legal flexibilities and examples of innovation, it also appears evident that emerging powers in principle have adopted far reaching intellectual property regimes and generally embraced the narrative that IP protection is necessary to spur research, innovation, and development. Local industries often have adapted accordingly.626 Even China, which has long been criticized for a lack of enforcement with regard to IP protection,627 appears to be transitioning towards a more knowledge-based economy and has become more willing to implement and enforce intellectual property rights in recent years. China has seen a huge rise in IP filings and grants as part of a larger strategy to promote IP-intensive development which involves inter alia huge investments in capacity building for management and enforcement.628 In 2015 the Chinese patent office already accounted for 38.1% of world patent applications eclipsing all other major IP offices (20.4% United States, 11.0% Japan, 7.4% Republic of Korea, 5.5% European Patent Office).629 China is also catching up on patents in force. While a quarter of all patents in force worldwide in 2015 were still held in the United States, the number of patents held by Chinese nationals and companies are growing fast with 600.000 in 2010 and almost 1.5 million in 2015.630 Brazil, India, and South Africa are way behind China on almost all these criteria. Still, in all three countries intellectual property protection is strongly anchored legally and of strong interest for both domestic as well as foreign innovators. In terms of patent applications the Indian patent office for example is globally ranked on 7th position, only behind China, the United States, Japan, Republic of Korea, the European Patent Office (EPO), and Germany.631 While South Africa and Brazil are not among the top patent offices, or top-providers of other intellectual property rights, their numbers on both applications and grants of IP rights are still significant.632 Data further reveals that Chinese residents account for a huge majority of patent filings and grants in China, while in Brazil, India, and South Africa filings and grants are still dominated by non-residents.633 Chinese companies also have substantially increased applications for patents and other IP rights abroad.634 For example, the European Patent Office has experienced a growing number of patent filings from

626

See for a case study of the Indian pharmaceutical industry: Sinha (2016), p. 108-159. See for a recent comprehensive study on China’s compliance with TRIPS that highlights several limited shortcomings: Thomas (2017), p. 169. 628 See: Drahos (2012); Sell (2014), p. 56 et seq. 629 WIPO (2017), p. 11. 630 WIPO (2017), p. 9. 631 See: WIPO (2018), p. 12. 632 See for a useful comparative table on patent applications: WIPO (2018), p. 37. 633 See WIPO’s country profiles of the individual countries available at: http://www.wipo.int/ipstats/ en/statistics/country_profile. Accessed 13 Sept 2020. 634 See on Chinese patents in the EU the data of the European Patent Office, available at: http:// documents.epo.org/projects/babylon/eponet.nsf/0/5D3BD1BD120859A9C12580D4005AD126/ $File/China_en.xlsx. Accessed 13 Sept 2020. 627

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China,635 leading to serious concerns about the operation of the European patent system. Decreasing patent quality and so-called patent thickets (overlapping patents that are so dense that they lead to a thicket that prevents researchers and companies from developing and commercializing a new product) are among concerns associated with a “patent tsunami from emerging market companies accumulating and asserting European patent rights”.636 However, only China was among the top patent applicants and patent grantees to the EPO, with India, Brazil, and South Africa lagging behind.637 In 2017, 3180 patents were granted to Chinese inventors, but only 106 to Brazilian inventors, 246 to Indian inventors, and 50 to South African inventors. The fact that Indian, Brazilian, and South African companies lag behind in applications for—and grants of patents both at home and abroad may suggests that, as in the case of investment flows and stocks, the interests of emerging powers regarding international intellectual property law do not always align. Nevertheless, thus far, no country among emerging powers is yet capable of generating innovative technologies on a scale comparable to the United States, EU and Japan, albeit the “capacity-differential is narrowing”.638 Only China seems to be on the brink of becoming an ‘IP great power’. If innovation capacity in China will further increase, the country is likely to become less opposed to high IP standards and to seek stronger IP protection in foreign markets.639 Moreover, as Chinese companies become bigger and bigger, litigation costs no longer hinder them from enforcing IP rights both at home as well as abroad.640

6.3.3.2

TRIPS and Public Health

South Africa, India, and Brazil have been hailed for having played a leading role in WTO negotiations on TRIPS and public health.641 These negotiations brought about the important Doha Declaration on TRIPS and Public Health (Doha Declaration),642 the General Council’s Decision on Implementation of Paragraph 6 of the Doha

635

Chinese patent applications to the EPO in 2017 increased by 16.6% in comparison to 2016 alone and China was among the top five applicants to the EPO in 2017, see data available at the EPO’s webpage, https://www.epo.org/about-us/annual-reports-statistics/annual-report/2017/statistics/pat ent-applications.html#tab2. Accessed 13 Sept 2020. 636 van Overwalle (2014), p. 358 et seq. 637 For data on EPO patent applications’ origin, see: https://www.epo.org/about-us/annual-reportsstatistics/annual-report/2017/statistics/patent-applications.html#tab2. Accessed 13 Sept 2020. 638 Abbott (2014), p. 395. 639 Abbott (2014), p. 404. 640 Abbott (2014), p. 404. 641 See e.g. Abbott (2005), p. 334; Rolland (2007), p. 496. 642 Declaration on the TRIPS Agreement and Public Health, WT/MIN(01)/DEC/2 (14 November 2001).

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Declaration on the TRIPS Agreement and Public Health,643 and finally led to the first formal amendment of TRIPS644 which entered into force on 23 January 2017.645 The following section captures the involvement of the named States in reforming the TRIPS agreement, asks whether changes brought about are a challenge to international intellectual property protection, and sheds light on the success of reforms in addressing the problem of accessibility of medicines in the Global South.

The Doha Declaration on TRIPS and Public Health Developing countries had only reluctantly accepted the new TRIPS agreement in the Uruguay Round and almost immediately after its conclusion felt buyer’s remorse.646 Further, the explosion of the HIV/AIDS crisis in the late twentieth century led a number of international organizations, institutions, and NGOs to highlight the tensions between international patent protection and access to medicines.647 This context provided momentum for developing countries—with South Africa, Brazil, and India at the forefront—to argue for a loosening of TRIPS obligations. Two cases involving South Africa and Brazil were of particular importance as they sparked intense critique from NGOs against TRIPS and initiated discussions in several international forums, ultimately paving the way for a legal solution at the WTO.648 Though discussions on patents and access to medicine already had taken place in technically interested circles in the early 1990s, it was only in 1997 when the issue aroused substantial debate in international politics and many societies around the world.649 In December 1997 South Africa enacted amendments to the South African Medicines and Related Substances Control Act which were aimed at promoting the availability of affordable HIV/AIDS medicines by allowing for parallel imports and compulsory licensing.650 At that time the country faced an epidemic of unprecedented proportions. To make it worse, drug prices in South Africa were very

643

Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health, WT/L/540 (1 September 2003). 644 Amendment of the TRIPS Agreement, General Council Decision of 6 December 2005, WT/L/ 641 (8 December 2005). 645 Those documents will be collectively referred to as the ‘WTO’s Public Health Solution’. 646 See for an insightful historical inquiry containing comments by several developing country negotiators at the time of the Uruguay Round: Watal and Taubman (2015). 647 See for oversight of the work of WIPO, the OHCHR, the UN Sub-Commission on Human Rights, the WHO, the UN and civil society, which all were involved in bringing about the Doha Declaration on TRIPS and Public Health: Sun (2004), p. 127 et seqq. 648 Kudlinski (2014), p. 276. 649 See: Hestermeyer (2007), p. 11. 650 Medicines and Related Substances Control Amendment Act, Republic of South Africa Government Gazette No 18505, Act No 90, 1997 (12 December 1997), Section 15 C; for an overview, see: Kudlinski (2014), p. 275; Sun (2004), p. 131.

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high—at times even higher than in developed countries—making HIV/AIDS medication inaccessible for most South Africans and posing a severe burden on state funding and ultimately the country’s overstretched health budget.651 In hindsight scholars mostly regard the enacted amendments to South African patent law as legal under the TRIPS agreement.652 Yet in 1997, due to lack of authoritative interpretation, uncertainty existed, leading EU and U.S. officials and drug companies to quickly lodge protests against the South African initiative.653 In February 1998 the Pharmaceutical Manufacturers Association of South Africa which represented 39 multinational pharmaceutical companies filed a formal complaint to the Pretoria High Court in South Africa challenging the amendment’s constitutionality and compatibility with the TRIPS agreement.654 Only shortly after, in May 1998, the U.S. Trade Representative, at the request of U.S. pharmaceutical industry, put South Africa on the U.S. Section 301 Watch List and the government announced the suspension of U.S. trade preferences to South Africa.655 Fortunately for South Africa however, advocacy groups and AIDS activists rallied behind the issue of providing accessible healthcare, leading to a public outcry in the United States and as the issue became linked to electoral politics the Clinton government backed away from its original stance.656 After intense negotiations between South Africa and the United States the dispute was resolved and South Africa was removed from the Section 301 Watch List in December 1999.657 In May 2000 President Clinton even issued an executive order prohibiting the U.S. government from resorting to Section 301 measures in respect to laws or policies of Sub-Saharan countries that promote access to HIV/AIDS pharmaceuticals (under the condition that they be consistent with the TRIPS agreement).658 Given strong NGO and civil society protests turning the lawsuit in South Africa into a public relations disaster for pharmaceutical companies, mediation by the UN Secretary General, and weak legal standing, the lawsuit was finally withdrawn in April 2001.659 These developments raised public awareness about the negative consequences of TRIPS for public health

651

Statement by South Africa, Council for Trade-Related Aspects of Intellectual Property Rights, Special Discussion on Intellectual Property and Access to Medicines, WT Doc. IP/C/M/31 (10 July 2001); see also: Ostergard (1999), p. 878; Hestermeyer (2007), p. 12. 652 See e.g. Hoekman et al. (2002), p. 374; see on compulsory licencing also: Abbott (2005), p. 326. 653 Both EU officials and the US government had harshly criticized the Act before it was even adopted into law, see: Hestermeyer (2007), p. 13 with further references. 654 ‘Notice of Motion in the High Court of South Africa’ (Transvaal Provincial Division), Case No. 4183/98, (18 February 1998), available online at: http://www.cptech.org/ip/health/sa/ pharmasuit.html. 655 See e.g.: Sell (2003), p. 151; Sun (2004), p. 131; Hestermeyer (2007), p. 13. 656 Yu (2008), p. 355. 657 Ostergard (1999), p. 875 et seqq.; Kudlinski (2014), p. 276. 658 US Executive Order No. 13155, 3 C.F.R. 268-270 (2000) Section 1 (a). 659 On the reasons for the withdrawal, see e.g.: Kongolo (2001); Hestermeyer (2007), p. 14.

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and accessible medicine and provided the background for the 2001 Doha Declaration.660 At about the same time, and before the Doha Declaration, another case aroused public criticism against TRIPS. In May 2000 the United States, despite its concession to South Africa, requested consultations with Brazil arguing that Article 68 of Brazil’s Industrial Property Law,661 which allowed for compulsory licences, was incompatible with the TRIPS agreement. In February 2001 the United States requested the establishment of a WTO panel.662 The Brazilian provision on compulsory licenses foresees a so-called local working requirement which enables State authorities to grant compulsory licenses in the case that the patent holder does not manufacture the object of the patent within the Brazilian territory. Local working requirements can serve development purposes, as they provide an incentive for local production and the possibility to issue compulsory licenses to local producers if the patent holder refuses to ‘work locally’.663 However, the TRIPS compatibility of local working-requirements is questionable in particular with regard to the non-discrimination provision in Article 27 para. 1 TRIPS agreement.664 Though the case did not explicitly concern public health, Brazil was able to present the provision as a necessary part of its program to combat the HIV/AIDS epidemic. Moreover, in a strategic move Brazil on 19 February 2001 requested consultations with the United States about the TRIPS compatibility of several provisions of the U.S. Patents Code.665 By framing the issue as a human rights and public health concern, and by lodging the ‘counterclaim’, Brazil was able to bring the United States to accept a settlement safeguarding Brazilian interests. According to the mutually agreed solution, the United States for the time being does not seek to legally challenge Article 69 of Brazil’s Industrial Property Law and in turn Brazil is required to provide advance notice to the U.S. government and undertake

Mayne (2002), p. 249 (“The South African government’s decision to fight the case was a critical factor in generating global media interest.”); Sell (2003), p. 181; Sun (2004), p. 132. 661 See: Law on Industrial Property, Law No. 9, p. 279 (14 May 1996) (an English translation is available at: http://www.wipo.int/wipolex/en/text.jsp?file_id¼125397. Accessed 13 Sept 2020). 662 Brazil—Measures Affecting Patent Protection, WT/DS199/1, Request for Consultation by the United States (30 May 2000) and Brazil—Measures Affecting Patent Protection, WT/DS/199/3, Request for the Establishment of a Panel by the United States (9 January 2001). 663 See e.g. Hestermeyer (2007), p. 243. 664 Several commentators argue that legitimate working requirements can also be fulfilled by imports and therefore see local-working requirements in violation of Article 27 para. 1 TRIPS, see e.g.: Rott (2002), p. 292; Kampf (2002), p. 105. Note that the Canada—Patent Panel also applied Article 27 para. 1 TRIPS to measures under the exception of Article 30 TRIPS, see: Canada—Patent Protection of Pharmaceutical Products, WT/DS114/R, Report of the Panel (17 March 2000), para. 7.88 et seqq. However, a number of other authors reject the application of Article 27 para. 1 TRIPS to measures under Article 31 TRIPS, inter alia arguing that Article 31 is an exception to Article 27 para.1, see e.g.: Champ and Attaran (2002), p. 367; Hestermeyer (2007), p. 243. 665 United States—US Patents Code, WT/DS224/1, Request for Consultations by Brazil (7 February 2001). 660

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consultations in case it plans to utilize Article 68 to grant compulsory licenses for patents held by U.S. companies.666 A letter by U.S. officials contained in the final mutually agreed solution reveals that the United States was highly aware of public health concerns stressing that legal challenge was not meant to be directed against Brazil’s HIV/AIDS programs and also expressed the expectation that Brazil in turn for the settlement would not proceed with further dispute settlement action in the United States—Patents Code case.667 In both the South African and the Brazilian example the United States eventually abandoned its initial stance for a strict and IP friendly interpretation of the TRIPS agreement, providing the ground for public health friendly interpretations. The most important reason for the United States to finally support the Doha Declaration however appears to be its own confrontation with the threat of a public health emergency following a number of anthrax attacks and threats of attacks in the aftermath of 11 September 2001.668 To prepare for the possibility of massive biological attacks, the U.S. government in October 2001 decided to stockpile an antibiotic to treat anthrax named Cipro which was patented by the German company Bayer and the only medication approved for treating anthrax in the United States. Ironically, the Indian drug manufacturer Cipla which produced a generic version of Cipro offered to supply this generic version to the United States at a fraction of the price offered by Bayer. While the U.S. government at first announced it would not break Bayer’s patent, officials quickly changed their minds and ultimately threatened to break Bayer’s patent by purchasing Cipro from generic manufacturers, as Canada had done some weeks prior, if Bayer would not make significant price concessions.669 Finally, Bayer gave in and agreed to substantial price cuts. In the end, the United States did not break Bayer’s patent but the case made the United States aware of the fact that in certain circumstances the usage of flexibilities under the TRIPS agreement might be necessary to address public health emergencies or even essential security interests. Only briefly after these incidents did the WTO Doha Ministerial take place, in November 2001. Following developments in South Africa, Brazil, and the United States, and persisting uncertainties about the potential conflict between TRIPS and public health concerns, States finally sough to obtain a mutually agreeable solution within the WTO. On 20 June 2001 the TRIPS Council at the request of the African Group held its first special session on the subject of ‘TRIPS and public health’ to be followed by further special sessions on 19 and 21 September. However, discussions again revealed serious conflicts between developing and developed country

666 Brazil—Measures Affecting Patent Protection, WT/DS199/4, Notification of Mutually Agreed Solution (19 July 2001). 667 See: Brazil—Measures Affecting Patent Protection, WT/DS199/4, Notification of Mutually Agreed Solution (19 July 2001) which contains a letter from then Deputy United States Trade Representative Mr. Peter F. Allgeier. 668 See on the historical context also: Sun (2004), p. 133 et seqq.; Hestermeyer (2007), p. 15 et seqq. 669 See in more detail and with further references: Hestermeyer (2007), p. 15 et seqq.

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members. Both groups issued draft texts for a ministerial declaration at the Doha Conference, which were based on incompatible paradigms. Developing countries (including South Africa, Brazil, and India) sought broad based exceptions from TRIPS obligations for Members taking measures to protect public health and directly referred to the human right to life and the “highest attainable standard of physical and mental health [. . .] as affirmed in the International Covenant on Economic, Social and Cultural Rights” as a justification.670 More concretely the draft stated that “[n] othing in the TRIPS Agreement shall prevent Members from taking measures to protect public health”.671 The draft also foresaw deviations from TRIPS obligations such as on compulsory licensing and provided for further exceptions, facilitation of procedures, and S&D provisions (such as prolonged implementation periods for developing countries and LDCs).672 Importantly, the draft included a provision on the problem that in many developing countries local manufacturing capacities for essential medicines remained lacking and therefore domestic compulsory licensing in practice is meaningless. Accordingly, the Member seeking cheap imports of generics may grant a compulsory license, which is given effect by a second State (with exporting capacities), by authorizing a supplier within its territory to produce the drug abroad and import it even though it is patented.673 Moreover, the draft foresaw that Members may under Article 30 TRIPS (Exceptions to Rights Conferred) be allowed to authorize the production and export of essential patented drugs to address public health needs in importing Members without the consent of patent holders.674 The opposing developed country draft was less detailed but stressed: the merits of strong patent protection and its necessity to incentivize research and development; TRIPS’s contribution to the availability of medicines; and existing flexibilities under the Agreement to ensure the accessibility of medicines for HIV/AIDS and other pandemics.675 Finally, it was only at the Doha Ministerial, following the Cipro/anthrax episode which compromised the negotiation position of the United States and Canada, that a solution could be found.676 Again emerging powers were prominently involved in negotiations imposing some (moral) pressure on developed countries. Brazil in its public statement stressed the need for an authoritative statement clarifying the scope of TRIPS with the aim that “commercial exploitation of knowledge must not be

670

Proposal by the African Group, Bangladesh, Barbados, Bolivia, Brazil, Cuba, Dominican Republic, Ecuador, Haiti, Honduras, India, Indonesia, Jamaica, Pakistan, Paraguay, Philippines, Peru, Sri Lanka, Thailand and Venezuela, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/W/312 (4 October 2001), para. 1–14. 671 Ibid. para. 1. 672 Ibid. para. 1–14. 673 Ibid. para. 5. 674 Ibid. para. 9. 675 Australia, Canada, Japan, Switzerland and the United States Draft Ministerial Declaration, Council for TRIPS, WTO Doc. IP/C/W/313 (4 October 2001). 676 See: Hestermeyer (2007), p. 257.

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valued more highly than human life”.677 The Brazilian representative also pointed out that his country would not hesitate to use the flexibility afforded by TRIPS to safeguard the health of its citizens.678 South Africa in a similar fashion highlighted the need to “review the TRIPS Agreement with a view to ensuring that it serves public policy objectives that go beyond narrow commercial and trade interests.”679 India most directly linked the issue to human rights by stating that “[a]vailability and affordability of essential medicines is a universal human right”, that the “WTO should not deny that right”, and that the Member States “must send out a clear message to the world that nothing in the TRIPS Agreement shall prevent governments from taking measures to protect public health”.680 Therefore India argued that “the TRIPS Agreement must be interpreted and implemented in a manner supportive of WTO Members’ right to protect public health and ensure access to medicines for all.”681 The outcome document,682 however, falls short of containing major reform, rather it highlights existing flexibilities and clarifies some interpretative hurdles. The Doha Declaration affirms that TRIPS “can and should be interpreted and implemented in a manner supportive of WTO Members’ right to protect public health, and in particular to promote access to medicines for all,” and it generally acknowledges that TRIPS “provide[s] flexibility for this purpose.”683 While the Doha Declaration reaffirms that intellectual property protection is necessary for developing new medicines, it also acknowledges that concerns about the effects of patents on prices exist and clarifies that the right to protect public health must be taken into account in interpreting the agreement.684 Moreover, developed countries who had initially attempted to limit the declaration’s scope to some pandemics, finally accepted a broader scope of application for the Declaration with public health problems stemming from HIV/AIDS, tuberculosis, malaria, and others only being listed as examples.685 For LDCs the Doha Declaration instructed the TRIPS Council

677

Brazil Statement by H.E. Mr. Celso Lafer Minister of Foreign Relations, WT/MIN(01)/ST/12 (10 November 2001). 678 Brazil Statement by H.E. Mr. Celso Lafer Minister of Foreign Relations, WT/MIN(01)/ST/12 (10 November 2001). 679 South Africa Statement by H.E. Mr. Alexander Erwin, MP Minister of Trade and Industry, WT/MIN(01)/ST/7 (10 November 2001). 680 India Statement by the Honourable Murasoli Maran Minister of Commerce and Industry, WT/MIN(01)/ST/21 (10 November 2001), para. 12. 681 India Statement by the Honourable Murasoli Maran Minister of Commerce and Industry, WT/MIN(01)/ST/21 (10 November 2001), para. 12. 682 Declaration on the TRIPS Agreement and Public Health, WT/MIN(01)/DEC/2 (14 November 2001). 683 Declaration on the TRIPS Agreement and Public Health, WT/MIN(01)/DEC/2 (14 November 2001), para. 3. 684 Declaration on the TRIPS Agreement and Public Health, WT/MIN(01)/DEC/2 (14 November 2001), para. 3. 685 See: Hestermeyer (2007), p. 251 with further references.

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to extend the transition period for implementing and applying sections 5 and 7 of Part II of the TRIPS Agreement for pharmaceutical products for an additional 10 years until 1 January 2016, which was granted on 1 July 2002686 and extended until 2033 in 2015.687 However, for reasons discussed in Chap. 4, this extension is of little practical effect, most notably because LDCs lack the capacity to manufacture required medicines themselves. Most importantly, the Declaration identifies specific options (“flexibilities”) for governments of developing and least-developed countries to address public health problems. These flexibilities include: 1. In applying the customary rules of interpretation of public international law, each provision of the TRIPS Agreement shall be read in the light of the object and purpose of the Agreement as expressed, in particular, in its objectives and principles. 2. Each member has the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted. 3. Each member has the right to determine what constitutes a national emergency or other circumstances of extreme urgency, it being understood that public health crises, including those relating to HIV/AIDS, tuberculosis, malaria and other epidemics, can represent a national emergency or other circumstances of extreme urgency. 4. The effect of the provisions in the TRIPS Agreement that are relevant to the exhaustion of intellectual property rights is to leave each member free to establish its own regime for such exhaustion without challenge, subject to the MFN and national treatment provisions of Articles 3 and 4.688

Although the Doha Declaration’s precise legal status is disputed, most authors (convincingly) agree that it can be qualified as an authoritative interpretation of the TRIPS agreement even though the formal requirements of Art. IX:2 of the WTO Agreement have not been met.689 As such, the Declaration is viable for clarifying several interpretative hurdles with regard to the TRIPS agreement in favour of more flexibility to address public health issues.690 The Declaration’s para. d) for example acknowledges that Members are free to opt for international exhaustion of patent protection and allow parallel imports. Para. b) reaffirms Members’ right to grant compulsory licenses. Para. c) clarifies what is meant by the terms ‘national emergency or other circumstances of extreme urgency’ used in Article 31 b) by explicitly pointing out that public health crises such as epidemics can represent such

686

Extension of the Transition Period under Article 66.1 of the TRIPS Agreement for LeastDeveloped Country Members for Certain Obligations with Respect to Pharmaceutical Products, Decision of the Council for TRIPS, IP/C/73 (6 November 2015). 687 Extension of the Transition Period under Article 66.1 of the TRIPS Agreement for LeastDeveloped Country Members for Certain Obligations with Respect to Pharmaceutical Products, Decision of the Council for TRIPS, IP/C/73 (6 November 2015). 688 Declaration on the TRIPS Agreement and Public Health, WT/MIN(01)/DEC/2 (14 November 2001), para. 5. 689 For a more detailed discussion and overview of literature on the subject: Charnovitz (2002) and Hestermeyer (2004); see for its status as subsequent practice within the meaning of Article 31 para. 1 b) VCLT: Vandoren and van Eeckhaute (2005), p. 780. 690 Hestermeyer (2007), p. 259.

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circumstances. Moreover, the formulation in para. c) that members have the right to determine what constitutes such emergencies has been interpreted to contain a shift of the burden of proof towards the complainant.691 One might even go so far as to qualify para. c) as a self-judging provision only subject to limited scrutiny within the DSM. All in all, the Doha Declaration mainly reiterates the state of international intellectual property law under the TRIPS agreement but does not provide for a substantial reform of the agreement let alone automatic superiority of the right to access to medicines over commercial interests.692 The Doha Declaration therefore confirms, reiterates, and clarifies flexibilities under TRIPS, but Member States have not gone so far as to substantially change the agreement’s rules, principles, and underlying paradigms. Nevertheless, the Declaration is notable for clarifying several interpretative hurdles and for reasserting the right to access to medicines which has potential effects on future questions of interpretation within and outside the WTO’s dispute settlement mechanism.693

The Decision on the Implementation of Paragraph 6 While the Declaration on TRIPS and Public Health provided some guidance on controversial issues of parallel imports and compulsory licensing, no consensus could be found on addressing the problem that several WTO Members with insufficient manufacturing capacity are unable to effectively use compulsory licensing to address public health concerns.694 Thus, the Doha Declaration instructed the Council for TRIPS to find a solution on this problem by the end of 2002. With some delay, the WTO General Council addressed this outstanding issue in 2003, when it adopted the Decision on Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health.695 The legal qualification of this decision is again not entirely clear, but for the purpose of this book it suffices to note that it appears most convincing to qualify the decision as a legally binding waiver based on Articles IX para. 3 of the WTO Agreement.696 The Council for TRIPS put the issue on the agenda for its meetings in March and June 2002. Member States shared several communications and concept papers,

691

Correa (2002), p. 17. See also: Noehrenberg (2003), p. 379; Kampf (2002), p. 125; Vandoren and van Eeckhaute (2005), p. 780. 693 See in a similar way: Hestermeyer (2007), p. 261 who also notes that despite these clarifications much of the insecurity in the interpretation of the TRIPS agreement remains. 694 This was directly acknowledged by WTO Members themselves, see: Declaration on the TRIPS Agreement and Public Health, WT/MIN(01)/DEC/2 (14 November 2001). 695 Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health, WT/L/540 (1 September 2003). 696 For a discussion, see: Hestermeyer (2007), p. 282 et seqq. 692

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including from the EC,697 Kenya,698 the United Arab Emirates,699 Brazil,700 and the United States,701 and a lively discussion took place at the TRIPS Council meeting between 25-27 June 2002.702 Again, discussions mainly took place on North-South lines. The United States, for example, sought to limit exceptions to certain diseases, such as HIV/AIDS, malaria, and tuberculosis,703 which was strongly opposed by representatives from developing countries.704 Because of these opposing views no solution could be found in 2002 and Member States missed the deadline set by the Doha Declaration. However, Members were able to consent on a decision in August 2003. The “tiebreaker”705 appears to have been a statement by the Chairmen of the General Council. The statement sought to reassure the United States that the proposed final Decision was not to be abused or aimed at undermining patent protection. Importantly, the statement also lists a number of both developed and developing countries that agreed to opt out of using the proposed system as importers.706 The General Council then adopted the Decision on the Implementation of Paragraph 6 of the Doha Declaration on TRIPS and Public Health (Decision on the Implementation of Paragraph 6) “in the light of the statement” suggesting that the statement had some legal quality, at least with regard to interpretation of the Decision (and later the formal amendment).707

697

European Communities and their Member States Concept Paper Relating to Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health, WTO Doc. IP/C/W/339 (4 March 2002); European Communities and their Member States Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health, WTO Doc. IP/C/W/352 (20 June 2002). 698 African Group in the WTO Proposal on Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health, WTO Doc. IP/C/W/351 (24 June 2002). 699 United Arab Emirates Paragraph 6 of the Doha Declaration of the TRIPS Agreement and Public Health, WTO Doc. IP/C/W/354 (24 June 2002). 700 Brazil Paragraph 6 of the Ministerial Declaration on the TRIPS Agreement and Public Health, WTO Doc. IP/C/W/355 (24 June 2002). 701 United States Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health, WTO Doc. IP/C/W/340 (14 March 2002); United States Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health, WTO Doc. IP/C/W/358 (9 July 2002). 702 TRIPS Council, Minutes of Meeting. Held in the Centre William Rappard on 25–27 June 2002, WTO Doc. IP/C/M/36 (18 July 2002), para. 1 et seqq. 703 United States Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health, WTO Doc. IP/C/W/340 (14 March 2002). 704 See in more detail on contentious points: Abbott (2005), p. 328; Hestermeyer (2007), p. 263. See for an insider’s account of negotiations from the perspective of South Africa: Ismail (2003), p. 398 et seq. 705 Hestermeyer (2007), p. 264. 706 General Council Chairperson’s Statement, WTO Doc. JOB(03)/177 (30 August 2003). 707 Minutes of Meeting Held in the Centre William Rappard on 25, 26 and 30 August 2003, WT/GC/ M/82 (13 November 2003), para. 29 et seqq. See for a discussion of the legal quality of the statement by the chairperson, qualifying it as an agreement relating to the treaty made between all the parties in connection with the conclusion of the treaty pursuant to Article 31 (2) (a) VCLT: Hestermeyer (2007), p. 276.

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The final Decision brought notable waivers but also contains several substantial and procedural requirements. Importantly, the United States did not prevail regarding the limitation of the Decision’s scope to certain diseases. The most important waiver concerns obligations of an exporting Member under Article 31 (f) TRIPS. Developing countries were unable to achieve a more broad based solution under Article 30 TRIPS but obtained a mechanism based on compulsory licensing, which had also been promoted by the 2001 draft of developing countries.708 The Decision essentially waives Article 30 (f) TRIPS which required States to authorize use under compulsory licenses “predominantly for the supply of the domestic market of the Member authorizing such use”.709 Accordingly, any WTO Member may authorize exports under compulsory licensing schemes to eligible importing Members including all LDC Members and other Members with insufficient or no pharmaceutical manufacturing capacities for the product in question.710 With regard to the question of which State pays ‘adequate remuneration’ due under Article 31 para. h) TRIPS, the Decision on the Implementation of Paragraph 6 opts for the exporting Member.711 However, the economic value of the compulsory licence which is relevant for adequate renumeration is based on the value of the use to the importing Member. Moreover, double payments in cases where the product is also under patent in the importing State, requiring that State to also grant a compulsory license, are avoided by waiving Article 31 (h) for such cases.712 All negotiating parties hailed this solution as a major victory in the fight to safeguard access to essential medicines, including notably the United States, the EC, India, Brazil, and South Africa, but also a number of other developing and developed members.713 Some commentators share this appraisal,714 but others highlight that many practical problems remain and procedural and substantial requirements are burdensome to LDC importers and countries willing to export generic drugs.715 Both importing as well as exporting Members need to notify the TRIPS Council when using the mechanism and countries lacking production facilities are dependent up on other Member States’ willingness to grant compulsory

708

Proposal by the African Group, Bangladesh, Barbados, Bolivia, Brazil, Cuba, Dominican Republic, Ecuador, Haiti, Honduras, India, Indonesia, Jamaica, Pakistan, Paraguay, Philippines, Peru, Sri Lanka, Thailand and Venezuela, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/W/312 (4 October 2001), para. 5. 709 Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health, WT/L/540 (1 September 2003), para. 2. 710 Ibid. para. 2. 711 Ibid. para. 3. 712 Ibid. para. 3. 713 Minutes of Meeting Held in the Centre William Rappard on 25, 26 and 30 August 2003, WT/GC/ M/82 (13 November 2003), para. 36 et seqq.; 40 et seqq., 50 et seqq., and 81 et seqq. 714 See for the argument that the Decision “sets up a balanced and flexible mechanism, which provides for a workable framework”: Vandoren and van Eeckhaute (2005), p. 782. 715 Matthews (2004), p. 97 et seq.; Hestermeyer (2007), p. 271 et seqq.; for a more positive but still critical assessment, see: Abbott (2005), p. 345.

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licences. Moreover, Members did not waive the requirement of adequate remuneration and the fact that exporting Members have to pay the ‘price’ while importing Members enjoy the benefit may disincentivise the grant of such export compulsory licenses.716 Moreover, several safeguards aim to avoide the diversion of generic drugs provided under the mechanism to third markets (e.g., the obligation to make drugs produced under the export scheme identifiable by altering product packaging and colour717), which is a laudable goal but safeguards also make it difficult for many countries and their pharmaceutical producers to apply the mechanism in a cost-efficient way.718 Commentators have further argued that with the end of the developing country implementation period in January 2005, important low-cost manufacturers in India and elsewhere may not have enough economic incentive to produce and supply needed generic drugs only on a case by case basis.719

The Final Amendment and Evaluation The Decision on the Implementation of Paragraph 6 foresaw the TRIPS Council preparing a formal amendment based on the content of the Decision by the end of 2003.720 Controversy again hindered Members agreeing on the subject within the foreseen timeframe, but on 6 December 2005 WTO Member States finally agreed to accept a protocol of amendment to TRIPS which would make the solution found more formal and permanent.721 According to Article X para. 3 of the WTO Agreement, the protocol of amendment would take effect for Members after acceptance by two thirds of Members. Though deadlines were repeatedly missed, the amendment finally entered into force in January 2017. The amendment implements a new Art. 31 bis. TRIPS which—with some minor technical changes—replicates the Decision on the Implementation of Paragraph 6. This outcome is surely symbolically important as well as for increasing the degree of justice embodied by TRIPS, by at least allowing States to protect the right to health. Emerging powers, together with a number of other developing countries, were able to successfully negotiate the first ever amendment to a WTO agreement and to overcome objections from developed countries with strong pharmaceutical sectors. This success can be attributed to emerging powers’ increased negotiating power and their ability to coordinate positions among themselves, but it also points

716

Hestermeyer (2007), p. 272. Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health, WT/L/540 (1 September 2003). 718 Matthews (2004), p. 96 et seq. 719 Hestermeyer (2007), p. 272; see in that direction also: Abbott (2005), p. 346 (who argues that effective use of the solution requires high efforts of coordination between exporters and importers). 720 Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health, WT/L/540 (1 September 2003), para. 11. 721 See for a discussion of these controversies: Hestermeyer (2007), p. 273. 717

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to the broader developing country block.722 Nevertheless, the practical contribution of solutions to improving access to medicines remains doubtful.723 In practice compulsory export licenses have been used on a very limited scale (only one notification under paragraph 2 (a) of the 2003 Decision on the Implementation of Paragraph 6 by Rwanda in 2007).724 Partly this can be attributed to the lack of technical capacity in developing countries and LDCs to implement the 2003 Decision and grant or request licenses when needed.725 Other persisting factual problems include pressure used by Northern pharmaceutical companies against developing States, the continuing use of sanctions and countermeasures or the threat thereof by the United States against ‘IP-violators’, and efforts to conclude TRIPSplus agreements outside the WTO forum.726 Both the Doha Declaration and the 2003 Decision on the Implementation of Paragraph 6 do not appear as radical reform to the TRIPS agreement. Given the many safeguards and procedural requirements, the 2003 Decision is far away from a radical overhaul of the international patent system. This is even more true for the Doha Declaration on Public Health. Rather than seeking to enlarge flexibilities under TRIPS the Declaration only summarizes and authoritatively clarifies some controversies with regard to already existing exceptions and flexibilities. Still, highlighting flexibilities on domestic compulsory licenses seems to have had some practical effect as developing countries appear to use this instrument more freely on a national scale, or at least threaten to use it to obtain better prices on patented medications.727 Solutions are of course compromises between developed and developing States. However, even developing country proposals did not seek comprehensive reform, let alone a radical overhaul, of TRIPS in the first place. Rather, emerging and developed country positions have substantially deradicalized. Both emerging and developing countries seem to have embraced the TRIPS agreement and are satisfied with given flexibilities even though since 2005 they have to implement the TRIPS agreement in full—sentiment which represents a major pendulum shift in favour of Pharma interests.728 Meanwhile, developed countries have shifted forums and promoted TRIPS-plus obligations through bilateral and regional free trade agreements. These initiatives have again put emerging powers on the defence. The next section seeks to describe 722

Cf. Abbott (2005), p. 343 et seqq. See e.g.: Hestermeyer (2007), p. 287; Ratner (2015), p. 732 et seq. 724 Rwanda Notification under Paragraph 2(a) of the Decision of 30 August 2003 on the Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health, WTO Doc. IP/N/9/RWA/1 (19 July 2007); See also: WTO, WIPO, WHO (2013), p. 178. 725 Cf. Ratner (2015), p. 332. 726 Ratner (2015), p. 332 et seq. 727 Reportedly threats to grant compulsory licenses have enabled Brazil to reduce the price of HIV/AIDS antiretroviral drugs by up to 75% per person, see: Roffe (2006), p. 15. Developing countries that made use of compulsory licences since 2001 include India, Thailand, Malaysia, Ecuador, Indonesia, and others, see for a summary: WTO, WIPO, WHO (2013), p. 175. 728 Cf. Abbott (2005), p. 326. 723

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emerging power positions on such TRIPS-plus initiatives and discusses whether States are willing and able to defend TRIPS flexibilities.

6.3.3.3

Defending TRIPS Flexibilities

Even limited success achieved by emerging- and developing countries at the WTO has soon been answered with new pressures to ratchet up IP protection from some developed economies. As already described in more detail in Chap. 3, with the Doha Round stalled, developed countries increasingly have been seeking to negotiate free trade agreements on a bilateral and regional level where power asymmetries have ensured more success. Part of this strategic move is also the promotion of so-called TRIPS-plus obligations as part of bilateral and regional FTAs.729 The following study sheds light on emerging power approaches on TRIPS-plus by analysing discussions on the subject within the WTO and complements these insights with a comparison of IP chapters in bilateral and regional free trade agreements of emerging powers. Another incident which is relevant in that regard because it is of both symbolic and factual importance in the context of access to medicines is the India and Brazil vs. EU—Seizure of Generic Drugs in Transit case, which shall be the topic of the first section of the following discussion.

Defending Free Transit of Generic Drugs (India and Brazil vs. the EU) An instance where the public health vs. TRIPS debate again became very controversial between developed and developing countries was in relation to instances of seizures of generic drugs in transit through EC Member ports. Starting in late 2008, several shipments of generic drugs transiting Dutch ports had been seized by local authorities.730 These shipments for the most part were en route from India to developing countries in South-America and Africa and were neither patented in the country of origin nor in their destination country. Only in the EC territory did European pharma companies hold relevant patents. Transit through the EC is a typical and cost-effective shipment route for delivering generic manufactured goods from India to countries in South-America and Africa.731 The customs actions were based on the then EC regulation “concerning customs action against goods suspected of infringing certain intellectual property rights” which allowed authorities to take customs actions against goods suspected of infringing intellectual

729

See generally on TRIPS-plus initiatives: Mercurio (2006). See in more detail: Kumar (2010); Mercurio (2012); Ruse-Kahn (2016), p. 288 et seqq.; see also reports provided by the ICTSD, e.g. ICTSD (2009). 731 Mercurio (2012), p. 399. 730

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property rights.732 Reportedly seizures also had happened in France, Germany, Spain, and the United Kingdom.733 These seizures let to immediate critical responses both by Indian as well as Brazilian authorities in the WTO’s General Council Meeting in February 2009.734 Similarly, NGOs voiced strong criticism against customs decisions on account of the negative effects on access to health in the developing world.735 Later the dispute was taken up in the WTO’s TRIPS Council Meeting on 3–4 March 2009.736 Then Brazilian ambassador Roberto Azevêdo said at the WTO’s General Council Meeting in February 2009, that “[t]he protection of intellectual property could not supersede the protection of more fundamental values, such as the protection of life and the right to promote public health” and argued that seizures in the EC violated the “freedom of transit” provision (Article 5 GATT).737 This statement was supported by several emerging- and developing countries including India, Peru, Ecuador, Egypt (on behalf of the African Group), South Africa, Bolivia, Argentina, Cuba, Nigeria, Venezuela, Indonesia, Burkina Faso, Thailand, China, Pakistan, and Costa Rica.738 Within the named TRIPS Council meetings, EU representatives highlighted the EU’s commitment to enable access to affordable medicines but defended the actions arguing that TRIPS allows customs to temporarily detain goods if they are suspected of infringing an intellectual property right.739 More precisely, they based their argument on Article 51 and footnote 13 of the TRIPS Agreement,740 which allow a State to enable a right holder to lodge an application “for the suspension by the customs authorities of the release into free circulation of such goods” if the rightsholder has “valid grounds” to suspect that the goods involved infringe intellectual property rights. As no compromise could be found in the TRIPS Council, India and Brazil, on 12 May 2010, initiated separate WTO dispute settlement proceedings against the EU and the Netherlands by requesting consultations over the issue of seizures of generic medicines in transit.741 India based its arguments against such seizures of generic 732

Council Regulation (EC) No. 1383/2003 (22 July 2003), see in particular Articles 1 and 17. Mercurio (2012), p. 398. 734 For a summary of responses, see: ICTSD (2009). 735 See e.g. a letter of various NGOs to the director generals of the WHO and WTO (dated 18 February 2009), available at: http://keionline.org/blogs/2009/02/19/ngo-letters-to-who-wto-ondutch-seizure. Accessed 12 Sept 2020. 736 Minutes of Meeting, Held in the Centre William Rappard on 3 March 2009, Council for TradeRelated Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/59 (25 May 2009), para. 122 et seqq. 737 Ibid. para. 74–93. 738 Ibid. para. 75 et seqq. 739 Ibid. para. 147 et seqq. 740 Ibid. para. 152. 741 European Union and a Member State—Seizure of Generic Drugs in Transit, WT/DS409/1, Request for Consultations by Brazil (19 May 2010); European Union and a Member State—Seizure 733

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drugs in transit most notably on Article V GATT (freedom of transit), several provisions of the TRIPS Agreement (Articles 2, 7, 8, 28, 31, 41, and 42), and the Decision of the General Council on the Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health.742 India further highlighted the “serious adverse impact on the ability of developing and least-developed country members of the World Trade Organization to protect public health and to provide access to medicines for all” and argued for interpreting the relevant TRIPS provisions in the light of the Doha Ministerial Declaration and in the light of Article 12 para. 1 of the ICESCR (right to health).743 Brazil gave a less precise account of alleged violations of WTO agreements but also based its request for consultations on Art. V GATT 1994 and a plethora of provisions of the TRIPS agreement.744 The dispute raised difficult legal questions, in particular with regard to Articles 51 and 52 of TRIPS and Articles V and XX (d) GATT, which up until now have neither been answered by WTO panels nor the AB, nor fully been explored by scholars.745 Nevertheless, arguments by both Brazil and India appear to be reasonably convincing.746 Article 5 GATT protects the transit of goods and detentions in question appear not to be justified by covered exceptions, particularly not Article XX (d), when no evidence exists that goods might be diverted into the domestic market of the transit State.747 TRIPS contains several provisions on border measures which allow customs authorities, on request of the right-holder, to suspend the release of goods. However, such a suspension is only legal in cases where valid grounds have been brought forward, to demonstrate that the products in question are counterfeit trademark or pirated copyright goods, or that their importation would violate other intellectual property rights (Article 51 TRIPS). In the case of generic drugs in transit no release into the EC/EU’s territory was imminent and as the drugs were neither patented in the exporting nor the importing State, no infringement of intellectual property rights in these countries was due (for which in any case European States may not have jurisdiction). Subsequently, India and Brazil held two rounds of consultations with the EU in 2010 in Geneva. In a press release of 28 July 2011 the Indian Government

of Generic Drugs in Transit, WT/DS408/1, Request for Consultations by India (19 May 2010); for a more detailed analysis of competing legal arguments see: Mercurio (2012), p. 402 et seqq. 742 European Union and a Member State—Seizure of Generic Drugs in Transit, WT/DS408/1, Request for Consultations by India (19 May 2010), Request for Consultations by India, pp. 2–3. 743 Ibid. p. 3. 744 European Union and a Member State—Seizure of Generic Drugs in Transit, WT/DS409/1, Request for Consultations by Brazil (19 May 2010), Request for Consultations by Brazil, p. 4. 745 For some legal inquiry, see: Mercurio (2012), p. 402 et seqq.; Ruse-Kahn (2016), p. 297 et seq. 746 See: Mercurio (2012), pp. 416 and 425. 747 Ruse-Kahn (2016), p. 310 (“In sum, good arguments support a finding that an expansion of IP rights to cover as infringement the mere transit of goods without any further connection to the territory of the IP-granting state, in particular any evidence for the goods being diverted onto the domestic market, is inconsistent with Article V GATT” and “can further not be justified under Art. XX(d) GATT”).

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announced that an Understanding on the Issue of Seizure of Indian Generic Drugs in Transit had been reached.748 According to the published document, the EU agreed only to intercept in-transit generic medicines when there would be “adequate evidence” of the “substantial likelihood of diversion of such medicines to the EU market”, while “the mere fact that medicines are in transit through EU territory, and that there is a patent title applicable to such medicines in the EU territory, does not in itself constitute enough grounds for customs authorities in any Member State to suspect that the medicines at stake infringe patent rights.”749 The EU also announced it would replace the respective EC Regulation No. 1383/2003. India on the other hand agreed not to request the establishment of a dispute settlement panel at the WTO. Subsequently, the EU adopted an amended regulation that cites paragraph 4 of the Doha Declaration on TRIPS and public health and states that customs authorities should “when assessing a risk of infringement of intellectual property rights, take account of any substantial likelihood of diversion of such medicines onto the market of the Union.”750 Although the provision leaves customs authorities some discretion, it can be concluded that the new provision addresses the worries of India and other developing countries with regard to trade in generics.751 All in all, the case again proved the newly found power and legal capacity of Brazil and India within the WTO and their willingness to protect TRIPS flexibilities. Arguments by India also demonstrate the country’s awareness for economic and social rights of the ICESCR and its willingness to apply these rights to trade law issues. Finally, India and Brazil successfully triggered the EU’s changing of respective legislation and acceptance of free transit of generic drugs through its territory. However, given that both the EU and United States have pushed to include rules on stronger border enforcement measures covering goods in transit in their FTAs and mega-regional agreements,752 the matter remains an important issue in terms of access to medicine and disputes are likely to resurface in the future.753

The Threat: TRIPS Plus Standards in (Mega-)Regional Free Trade Agreements Since the conclusion of the TRIPS negotiations, the developed countries, encouraged by the multinational business community, have pressed for closer harmonization of substantive

748

Government of India (2011). Government of India (2011). 750 EU Regulation No 608/2013 (June 2013), Recital 11. 751 Ruse-Kahn (2016), p. 292. 752 See e.g.: Article 18.76 para 5 TPP (full text available at: https://ustr.gov/trade-agreements/freetrade-agreements/trans-pacific-partnership/tpp-full-text). 753 Mercurio (2012), p. 391 and below section b). 749

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international patent law [. . .] seeking to limit the use of flexibilities in the TRIPS Agreement.754

TRIPS amounts to the most far-reaching effort to regulate and protect IP on the international plane. Nevertheless, the United States and other industrialized States keen on protecting their technological lead only shortly after the conclusion of the Uruguay Round pushed to further strengthen intellectual property law within the WTO755 and WIPO (with the proposal of a Substantive Patent Law Treaty756). As these efforts failed due to opposition from developing countries, and in particular since subsequent trade negotiations within the Doha Round became stalled, promoters of stronger IP protection and enforcement shifted forums and focused on the inclusion of IP matters in bilateral and regional FTAs, and to some extent also in BITs.757 Reasons for this renewed push are manifold and include the realization that TRIPS provides developing countries with more flexibility than initially thought— further strengthened by the Doha Declaration and the final amendment of TRIPS— and enforcement continues to remain weak in many parts of the Global South.758 By way of FTAs, developed States also circumvented WIPO as a multilateral forum for international law making. This was of crucial importance as developing States, under the leadership of India, Brazil, and Egypt, initiated WIPO’s development agenda, pushing for the inclusion of developing country concerns such as protections for traditional knowledge, farmers’ rights, and access and benefit sharing reforms.759 As Sell has pointed out, it was exactly the day after WIPO adopted the Development Agenda in October 2007 that the United States, Japan, and the EU announced the commencement of negotiations on the Anti-Counterfeiting Trade Agreement (ACTA), a plurilateral agreement that would have set a new precedent and ‘gold standard’ for international IP protection.760 ACTA ultimately failed, largely due to civil society protests in many Northern States. However, a number of FTAs containing IP rules were successfully concluded by the EU, the United States, and others. How do TRIPS-plus standards pursued in these agreements look? The standard template of U.S. bilateral FTAs tries to promote U.S. standards of IP protection to the counterpart country and in some regards even excels these standards in terms of the level of protection provided.761 In

754

Abbott et al. (2014), p. 7. See on those efforts e.g.: Lutz (2015), p. 166. 756 For a critical appraisal see: Reichmann and Cooper Dreyfuss (2007). 757 See for a detailed analysis of the cycles between bilateral, regional, and multilateral forums with regard to international intellectual property law: Mercurio (2006); see also: Sell (2014), p. 52; with a particular focus on the threat of intellectual property protection in BITs for access to essential medicines: Correa (2006); Hestermeyer (2007), p. 291 et seqq. 758 See e.g. Sell (2011), p. 450 et seqq.; Mercurio (2006), p. 219. 759 Sell (2014), p. 52. 760 Cf. Sell (2014), p. 53. 761 Abbott et al. (2014), p. 8; for an in-depth analysis, see: Abbott (2006). 755

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comparison to TRIPS, U.S. FTA IP chapters enlarge the scope of what is protected as intellectual property, contain levels of protection that exceed the TRIPS minimum standards, and reduce the scope and effectiveness of limitations and exceptions.762 Robert E. Lutz has provided a sample of TRIPS-plus obligations in U.S. FTAs containing the following: Copyrights—Adds to the TRIPS obligations the following: 20 additional years to the copyright term beyond the 50 years prescribed previously (that is, life of author plus 70 years); requires tracking copyrights established domestically by the Digital Millennium Copyright Act (DMCA) of 1998, PL 105–304, 112 Stat 2860 (1998) and outlaws circumvention of technologically copyright controlled measure (e.g., descrambling a scrambled work, decrypting an encrypted work without authority of copyright owner); and prohibits removal or alteration of ‘rights management information’ (e.g., electronic information identifying a protected work and its author, as well as the terms and conditions of the use of the work). Patents—Adds to the TRIPS obligations the following: 1-year grace period to patent applicants (i.e., 1 year from public disclosure of one’s invention to file a patent application); accession to the Patent Cooperation Treaty [28 UST 7645 (19 June 1970)]; term extensions based upon ‘unreasonable’ administrative delays, potentially extending the 20 year patent term under TRIPS; additional conditions on the grants of compulsory licences; and the patent proprietor not being required in instances of compulsory licences to provide additional undisclosed information or technical know-how that is related to the patented invention. Trademarks—Adds to the TRIPS obligations the following: marks need not be visually perceptible in order to be registered as a mark, thus allowing sounds and scents to also be marks; licences for TMs need not be publicly registered to be valid; and disputes over Internet domain names be resolved through recourse to the principles established in the Uniform Domain Name Dispute Resolution Policy. Data Protection—Adds to the TRIPS obligations the following: requirement for 5 year marketing exclusivity for pharmaceuticals utilizing new chemical entities; definition of ‘new product’ as ‘one that does not contain a chemical entity that has been previously approved in the territory of the Party’ [e.g., Dominican Republic-Central American Free Trade Agreement [DR-CAFTA] 15.10:1(c)]. Other Provisions—Other IPRs are also addressed, for example, certain levels of protection for ‘encrypted programme-carrying satellite signals’ (US–Australia FTA, Art. 17.7), minimum standards concerning litigation proceedings, remedies, and other intellectual property enforcement measures exceeding TRIPS obligations (e.g., US–Australia FTA, Art. 17.11; US–Singapore FTA, Chapter 20).763

The EU’s approach on the subject matter in its trade agreements is more subtle but still contains ‘TRIPS-plus’ obligations and additional provisions on enforcement. While in early agreements with developing countries (such as the four Lomé

762

See e.g: Sell (2011), p. 451. Lutz (2015), Fn. 46; see for further summaries of TRIPS-plus content also: Sell (2011), 451 et seqq.; Hestermeyer (2007), p. 290; High-Level Panel on Access to Health Technologies Report of the United Nations Secretary-General’s High-Level Panel On Access to Medicines (September 2016). http://www.unsgaccessmeds.org/final-report/., 25 et seqq. 763

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agreements764 and the Cotonou Agreement of 2000765) intellectual property only played a marginal role and no substantive provisions were included,766 this approach changed in the mid 2000s when the European Commission outlined a more aggressive stance in its “Strategy for the Enforcement of Intellectual Property Rights in Third Countries” (Enforcement Strategy).767,768 Importantly, the strategy foresaw the strengthening of global IP protection and enforcement through negotiating biand multilateral agreements.769 The goal to strengthen international IP protection and enforcement was justified by the European Commission with the experience that despite the minimum levels of protection provided by TRIPS the enforcement of intellectual property protections remained weak in many trading partners.770 In addition, the European Commission linked local IP protection with development and poverty alleviation by claiming that strong IP protections and enforcement attracts investment and pirated products pose a risk to the health of consumers.771 This strategy has further evolved and become more sophisticated. In its most recent document on the subject, the EU Commission stresses that bilateral IP protection in bilateral trade agreements takes EU legislation as a reference and calibrates this level of ambition to partner country levels of development.772 Moreover, the EU Commission also notes that multilateral and bilateral agreements shall reflect the objective of ensuring access to medicine.773

764 ‘ACP-EEC Convention of Lomé’, signed on 28 February 1975 (Lomé I), replaced by Lomé II in 1979, by Lomé III in 1984 and Lomé IV in 1989. Texts of the agreements are available at: https:// publications.europa.eu/en/publication-detail/-/publication/c973175b-9e22-4909-b1090ebf1c26328/language-en. 765 ‘Partnership Agreement Between the Members of the African, Caribbean and Pacific Group of States of the One Part, and the European Community and its Member States, of the Other Part’, signed in Cotonou on 23 June 2000, revised text available at: http://ec.europa.eu/development/ body/cotonou/pdf/agr_rev_en.pdf#zoom¼100. 766 The Cotonou Agreement for example only contains one Article on the Protection of Intellectual Property Rights, namely Article 46. 767 European Commission, Directorate General for Trade (2005). 768 See: Jaeger (2015), p. 173 et seqq. 769 European Commission, Directorate General for Trade (2005), p. 2; see also: European Commission Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions: Global Europe Competing in the World: A Contribution to the EU’s Growth and Jobs Strategy, COM(2006) 567 final (2006), p. 8 et seqq. 770 European Commission, Directorate General for Trade (2005), p. 1 and 14; see also: Jaeger (2015), p. 174. 771 European Commission, Directorate General for Trade (2005), p. 7. 772 Trade, Growth and Intellectual Property—Strategy for the Protection and Enforcement of Intellectual Property Rights in Third Countries, Communication from the Commission to the European Parliament, the Council and The European Economic and Social Committee, COM (2014) 389 final (1 July 2014), p. 15. 773 Ibid. 10.

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This Enforcement Strategy went hand in hand with the start of negotiations on so-called Economic Partnership Agreements (to be distinguished from ‘normal’ FTAs) by the EC between 2003 and 2007. Such partnership agreements highlight development and poverty alleviation as a central goal and are exclusively negotiated by the EC/EU with ACP-States.774 So far only one EPA covering intellectual property rights has entered into force fully, namely the EPA between the CARIFORUM States and the EC (CEPA).775 Other EPAs do not cover intellectual property but contain commitments by members to cooperate on the matter and negotiate on intellectual property protection in the future.776 A number of further EPA’s are currently under negotiation that shall include intellectual property rights, however concrete drafts are so far unavailable.777 CEPA in its preamble explicitly states that it seeks to strike a balance between sustainable development and IP enforcement.778 Yet, it has been questioned whether the IP provisions found in CEPA live up to the development and poverty alleviation rhetoric broached by the EU to support its new EPA approach.779 CEPA’s IP chapter is quite complex in detail and contains some S&D treatment provisions, like prolonged implementation periods and transitional arrangements.780 CEPA also contains a clause that references the Doha Declaration on TRIPS and Public Health and other Decisions and Amendments on the issue within the WTO and acknowledges their importance.781 However, these provisions cannot mask the point that the treaty’s principal goal is a TRIPS-plus level of IP protection and enforcement in the

774

For an overview of negotiated EPAs and their status, see: http://ec.europa.eu/trade/policy/ countries-and-regions/development/economic-partnerships/. Accessed 12 Sept 2020. 775 ‘EPA between CARIFORUM States and the European Community and its Member States’, Official Journal of the European Union, L289/1/3 (30 October 2008), available at: https://eur-lex. europa.eu/LexUriServ/LexUriServ.do?uri¼OJ:L:2008:289:0003:1955:EN:PDF. 776 See: ‘Economic Partnership Agreement between the East African Community Partner States and the European Union and its Member States’, (signed 16 October 2014) (consolidated text available at: http://trade.ec.europa.eu/doclib/html/153845.htm), Article 3 b) and ‘Economic Partnership Agreement between the European Union and its Member States and the SADC States’, Official Journal of the European Union, L 250/3, (16 September 2016), Article 16. 777 See e.g.: ‘Interim Agreement Establishing a Framework for an Economic Partnership Agreement Between the Eastern and Southern Africa States, On the One Part, and the European Community and its Member States On the Other Part’, Official Journal of the European Union, L111/2 (24 April 2012); ‘Interim Agreement with a View to an Economic Partnership Agreement Between the European Community and its Member States, on the One Part, and the Central Africa Party, of the Other Part’, Official Journal of the European Union, L 57/4 (28 February 2009), Article 58. 778 Jaeger (2015), 185 with reference to CEPA’s preamble and its Article 132 para. 2). 779 See for a number of papers dealing with these questions: Drexl et al. (2014). 780 See e.g. CEPA (2008) Article 139 para. 4) and 140. 781 See CEPA (2008) Article 147 B. (“Patents and public health”).

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long run.782 Despite this, TRIPS-plus obligations regarding patents are mainly limited to enforcement rather than ratcheting up substantial standards.783 Enforcement provisions in CEPA are very similar to the EU’s 2004 IP Enforcement Directive784 and contain a number of TRIPS-plus enforcement obligations.785 Importantly, with regard to the transit case described above, CEPA contains a TRIPS-plus obligation on border measures which expands the scope of border measures significantly from importation alone (TRIPS) to “importation, exportation, re-exportation, entry or exit of the customs territory, placement under a suspensive procedure or placement under a customs free zone or a customs free warehouse”.786 Though the provision does not yet cover violations of patents (the provision is only applicable to violations of trademarks, protected designs, and geographical indications), it is intended to do so in the future and may then require the forfeiture of generics in transit.787 Further, the EU has concluded and continues to negotiate classic FTAs (without the explicit development focus) with several other developing countries (non-ACP), which tend to incorporate more detailed chapters on intellectual property. Though some of these treaties seek to provide a “balance between the rights of intellectual property holders and the interest of the public”788 and all of them contain references to the WTO’s work on “patents and public health”789 they also contain several TRIPS-plus obligations. On patents these FTAs for example extend periods of protection by compensating patent owners for unreasonable delays in the granting of first marketing authorization in the respective territories (max. 2–5 years).790 They also strengthen the protection of undisclosed information and data of patent applicants, which affects how early generic competition with the originator product can begin.791 Again, the main focus is on complementing the TRIPS agreement with stronger obligations on enforcement.792 The EU-Republic of Korea FTA for example

782

See also: Jaeger (2015), p. 186. CEPA (2008) Articles 151-163 (“Enforcement of intellectual property rights”). 784 Directive 2004/48/EC. 785 For a detailed overview of CEPA’s TRIPS plus obligations, see: Jaeger (2015), p. 192. 786 CEPA (2008) Article 163 para. 1. 787 CEPA (2008) Article 163 para. 1 Fn. 2 does not cover patents but the provision stipulates that Members seek to extend the scope to other IP rights in the future. 788 EU-Vietnam FTA (2016) (signed but not ratified so far), Chapter on Intellectual Property, Article 2 para. 1. 789 See e.g. EU-Republic of Korea FTA (2010) Article 10.34; EU-Vietnam FTA (2016) Chapter on Intellectual Property, Article 8.2. 790 EU-Republic of Korea FTA (2010) Article 10.35; EU-Vietnam FTA (2016) Chapter on Intellectual Property, Article 8.3 para. 1 and para. 2. 791 EU-Republic of Korea FTA (2010) Article 10.36; EU-Vietnam FTA (2016) Chapter on Intellectual Property, Article 9. 792 EU-Republic of Korea FTA (2010) Article 10.41-10.69; EU-Vietnam FTA (2016) Chapter on Intellectual Property, Article 12–30. 783

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requires State Parties to apply criminal procedures and penalties at least in cases of wilful counterfeiting and piracy on a commercial scale.793 Strong border enforcement provisions can also be found in a number of FTAs, and in the case of the FTA with South Korea, such provisions cover all intellectual property rights, including patents,794 potentially posing a threat to South-South trade in generic drugs. The FTA strategy of major economic powers also includes so-called megaregional agreements which cover intellectual property protection. The United States in particular has been accused of building a “ring fence” of higher IP protection standards through ACTA and TPP around China and other emerging economies.795 The most comprehensive agreement focused on IP enforcement would have been the Anti-Counterfeiting Trade Agreement (ACTA) agreement.796 Although ACTA was signed in 2011/2012 by several important actors including the United States and the EU, a number of signatories have stopped the ratification process due to massprotests and civil society criticism. De facto ACTA has been abandoned by its signatories. The latest mega-regional initially supported by the United States which would have contained TRIPS-plus obligations is the TPP (partly incorporated now in the CPTPP).797 While TPP was hailed by some as the new “gold-standard” of intellectual property protection,798 NGOs and scholars highlighted negative outcomes for developing partners and access to essential medicines.799 The final text of TPP (as agreed upon by the US but then rejected800) contains a number of TRIPS-plus obligations, such as longer minimum terms of trademark protection,801 longer minimum copyright terms,802 the protection of undisclosed test data submitted for marketing approvals (a minimum of 10 years in the case of agricultural chemicals and 5–8 years in the case of pharmaceuticals; TRIPS does not have such a

793

EU-Republic of Korea FTA (2010) Article 10.54. EU-Republic of Korea FTA (2010) Article 10.69. More limited provisions on border enforcement can be found in: EU-Vietnam FTA (2016) Article 24–28. 795 Abbott (2014), p. 402. 796 See on the origins of ACTA, the process of its negotiation, and many legal and factual questions involved e.g.: the collected papers in: Roffe and Seuba (2014) and Katz and Hinze (2009). 797 The final text of the TPP is available at: http://bilaterals.org/tpp-trans-pacific-partnership? lang¼en; this text is not to be confused with the new text of the Comprehensive and Progressive TPP (CPTPP) negotiated without United States participation, which entered into force on 20 December 2018. 798 Primo Braga (2017). 799 See among numerous critical appraisals by NGOs, e.g.: UNITAID (2014); for scholarly critiques, see e.g.: Bhala (2014). 800 Office of the United States Trade Representative Letter to the TPP Depository/Withdrawal from TPP (January 30, 2017). https://ustr.gov. Accessed 11 September 2020. 801 TPP Article 18.26 foresees a term of no less than 10 years, whereas TRIPS Article 18 only foresees a minimum term of 7 years. 802 TPP Article 18.63 foresees a minimum term of protection of 70 years after the author’s death, whereas TRIPS Article 12 only foresees a minimum term of 50 years. 794

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requirement),803 explicit protections for new pharmaceutical products that are or contain a biologic (not provided for by TRIPS),804 and provisions to compensate for undue delays by patent offices in the granting of patents.805 Still, as do EU FTAs, TPP generally recognizes the necessity of State Parties to adopt measures to protect public health and reaffirms the WTO’s public health solution.806 Both TPP and ACTA have been regarded as strategic initiatives not only aimed at ratcheting up IP standards for Member States but also at putting pressure on States outside the agreements, including China, Brazil, India, and South Africa.807 The setting of high-standards in bilateral and plurilateral agreements is likely to serve as a precedent for multilateral forums or future bilateral treaties with the late-comers. Moreover, high IP standards in a mega-regional free trade agreement poses an economic threat to businesses located in third States, as stronger IP protections and enforcement in parties to the agreements tilts competition in favour of developed country economic actors which typically (so far) are owners of IP rights and can use them against products of competitors from States outside the agreements.808 For now, developed countries have banned these threats by themselves. As noted above, ACTA failed due to civil society mass protests and a comprehensive TPP failed due to the withdrawal of the United States. Due to the withdrawal of TPP’s most important signatory, irrespective of other parties’ success in concluding CPTPP, the agreement is unlikely to become a new global standard for IP protection. Nevertheless, as noted, the United States has already finalized several bilateral free trade agreements containing TRIPS-plus obligations that inter alia cover patents and pose a threat to access to medicines on a global scale. The EU has adopted a more elaborated and cautious EPA/FTA strategy. It still promotes stronger IP protections through EPAs and FTAs (backed by the threat to impose unilateral sanctions), though with some flexibility and efforts towards offsetting harmful potential impact on poorer developing countries and LDCs.809 The next part analyses how emerging powers reacted to this new threat to flexibilities and remaining policy space under the TRIPS agreement.

Responses by Emerging Powers How did emerging powers react to U.S. and EU approaches to include TRIPS-plus obligations in bilateral, regional, and ‘mega-regional’ free trade agreements? Given

803

TPP Article 18.47 (Agricultural Chemical Products) and Article 18.50 (Pharmaceutical Products). 804 TPP Article 18.51. 805 TPP Article 18.46 and 18.48. 806 TPP Article 18.6 and 18.50 para. 3. 807 Sell (2014), p. 53. 808 Cf. Abbott (2014), p. 399 et seq. 809 Cf. Jaeger (2015), p. 200 et seqq.

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the risen importance of technology production in emerging powers have they changed their international policy towards stronger IP protection? Or have emerging powers again sought to lead developing country resistance? The following section provides answers to these questions. The forum where emerging powers so far have given their most comprehensive account of legal arguments on TRIPS-plus obligations in FTAs and in ACTA is the WTO TRIPS Council. Between June 2010 and February 2012 WTO Members discussed TRIPS-plus provisions in the context of ACTA and of the proliferation of IP chapters in FTAs in several sessions of the TRIPS Council.810 A heated debate arose between Members. Negotiation positions essentially were structured along North-South lines, apart from some developing States involved in ACTA negotiations, such as South Korea and Mexico which sided with developed countries. While industrialized countries essentially defended TRIPS-Plus obligations, emerging powers challenged these provisions on numerous legal and non-legal grounds. Though much discussion in the TRIPS Council concerned ACTA, which ultimately failed and shall not be discussed here in detail, many broader arguments were also broached that concern the strategic use of bilateral and plurilateral agreements to increase international IP standards which shall be the focus of the following analysis. At the meeting of the TRIPS Council in June 2010 China and India pushed to include a proposal on “TRIPS-Plus enforcement trends” onto the agenda of the meeting which was then hotly debated among Member States.811 China and India on this issue were the most vocal developing countries, but they also garnered support from several other countries including Barbados, Mauritius, Peru, Cuba, Bolivia, Ecuador, Egypt, South Africa, Brazil, and Nigeria (speaking on behalf of the African Group) which essentially endorsed many of the concerns about TRIPS-plus obligations and ACTA. Brazil and South Africa, in comparison to India and China, played a more reluctant role on this issue, but both issued supportive statements embracing positions of China and India. 812

810

See: Minutes of Meeting, Held in the Centre William Rappard on 8–9 June 2010, WTO, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/63 (4 October 2010); Minutes of Meeting Held in the Centre William Rappard on 26–27 October 2010, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/64 (17 February 2011), para. 440 et seqq.; Minutes of Meeting Held in the Centre William Rappard on 24–25 October and 17 November 2011, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/67 (15 February 2012), para. 456 et seqq.; Minutes of Meeting Held in the Centre William Rappard on 28–29 February 2012, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/69 (15 May 2012), para. 230 et seqq. 811 ICTSD (2010). 812 Minutes of Meeting, Held in the Centre William Rappard on 8–9 June 2010, WTO, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/63 (4 October 2010), see for the statement by Brazil : para. 317 et seq.; see for the statement by South Africa : para. 328 et seqq.

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The main arguments can be summarized as follows:813 • Though the TRIPS agreement only provides for minimum standards it nevertheless contains conditions and ceilings for further IP protection and enforcement in plurilateral agreements (most notably Article 1 para. 1 TRIPS “not contravene the provisions”).814 • Higher IP enforcement measures shall not become barriers to legitimate trade, as foreseen in the preamble of the TRIPS agreement. Border Measures shall not unduly restrict trade in (generic) medicines and thereby harm public health in developing countries and hollow out the “Public Health Solution”.815 • TRIPS-Plus obligations should not inappropriately restrict flexibilities and exceptions in TRIPS. The delicate balance found between the interests of developing countries and developed ones but also between IP rightsholders and customers and public interests (e.g., accessible health care) must not be disturbed (Argument relies on Article 7 and 8 of the TRIPS Agreement).816 • Higher IP enforcement is cost intensive and conflicts with developing country limited resources which shall best be used for other purposes (e.g., combating poverty). • Plurilateral agreements circumvent multilateral fora and negotiations are not transparent.817 • Regarding the concern of developed countries about the rise of piracy and counterfeiting, China argued that the root cause of the phenomenon might be lack of development and it was therefore important to make “IP work for development”.818

813

See for an initial summary by China: Minutes of Meeting, Held in the Centre William Rappard on 8-9 June 2010, WTO, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/63 (4 October 2010), para. 252; see for a broader explanation of each point para. 253–258. 814 See also Minutes of Meeting, Held in the Centre William Rappard on 8–9 June 2010, WTO, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/63 (4 October 2010); statement of India in para. 265. 815 Minutes of Meeting, Held in the Centre William Rappard on 8–9 June 2010, WTO, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/63 (4 October 2010), statement of China in para. 331; statement of India in para. 264; statement of Egypt para. 298 et seq. 816 Minutes of Meeting, Held in the Centre William Rappard on 8–9 June 2010, WTO, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/63 (4 October 2010), statement of India in para. 271; see also Statement of Brazil in para. 317 et seq.; Statement by Chile in para. 306 et seq. 817 Minutes of Meeting, Held in the Centre William Rappard on 8–9 June 2010, WTO, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/63 (4 October 2010), statement of India in para. 267. 818 Minutes of Meeting, Held in the Centre William Rappard on 8–9 June 2010, WTO, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/63 (4 October 2010), statement of China in para. 331.

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The United States and EU, supported by other ACTA participants including Korea, Japan, Australia, Switzerland, and New Zealand, highlighted the (ostensible) benefits of higher IP enforcement and IP standards for both developed and developing countries.819 Representatives inter alia highlighted the following: • TRIPS only provides for minimum standards and Article 1 TRIPS allows Member States to provide for higher IP protections and enforcement than required by TRIPS in domestic law and also in bilateral or plurilateral agreements.820 • Footnote 13 to Article 51 of the TRIPS agreement clarifies that it is not mandatory under TRIPS to apply border measures to goods in transit but also does not prohibit Member States to make such measures mandatory under a TRIPS-plus treaty.821 • Counterfeiting and product piracy (e.g., fake sub-standard medicines) pose a threat to the health and safety of customers.822 • Development and IP enforcement are connected as IP protection is an incentive for innovation823 and counterfeiting and piracy reduce tax revenues of (developing country) governments.824 • “ACTA is not intended to interfere with a signatory’s ability to respect its citizens’ fundamental rights and civil liberties and will be consistent with the WTO TRIPS Agreement and will respect the Declaration on TRIPS and Public Health.”825 • The plurilateral approach of ACTA is a response to failed discussions at multilateral forums.826

819 Minutes of Meeting, Held in the Centre William Rappard on 8–9 June 2010, WTO, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/63 (4 October 2010), US statement in para. 278 et seqq.; statement by the EU in para. 326 et seqq. 820 See: Minutes of Meeting, Held in the Centre William Rappard on 8–9 June 2010, WTO, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/63 (4 October 2010), US statement in para. 284; Statement of Korea in para. 287; statement by Japan in para. 295. 821 Minutes of Meeting, Held in the Centre William Rappard on 8–9 June 2010, WTO, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/63 (4 October 2010), US statement in para. 287. 822 See Minutes of Meeting, Held in the Centre William Rappard on 8–9 June 2010, WTO, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/63 (4 October 2010), for the position of the US see para. 280 et seq,; for the position of Canada see para. 301; for the position of Switzerland see para. 310; for the position of the EU, see para. 326. 823 Minutes of Meeting, Held in the Centre William Rappard on 8-9 June 2010, WTO, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/63 (4 October 2010), US statement in para. 285. 824 Ibid. 825 Ibid. para. 284. 826 Minutes of Meeting, Held in the Centre William Rappard on 8–9 June 2010, WTO, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/63 (4 October 2010), US Statement in para. 285; statement by Switzerland in para. 315; Statement by the EU in para. 326.

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In following TRIPS Council meetings these arguments were mostly reiterated but discussions focused more closely on ACTA.827 However, no outcome or compromise could be found between disputing parties. As several signatory States ultimately abandoned ACTA, similarly discussions within the TRIPS council stopped. Despite this, emerging powers continued to reiterate their arguments in the following years within the BRICS forum. In one of their most detailed statements on the issue of TRIPS and public health, BRICS emphasize “the importance and need of technology transfer as a means to empower developing countries” and “[u] nderlined the importance of ensuring access to affordable, quality, efficacious and safe medical products, including generic medicines, biological products, and diagnostics, through the use of TRIPS flexibilities, for the realization of the right to health”. They also “renewed [their] commitment to strengthening international cooperation in health, and South-South cooperation in particular, with a view to supporting efforts in developing countries to promote health for all.”828 Moreover, BRICS reaffirmed their goal to “make TRIPS flexibilities fully available for use by countries to promote access to medicines, foster innovation and defend their policy space against TRIPS plus provisions and other measures that impede access to medicines and share these experiences with other developing countries”.829 In 2016 emerging powers again brought the issue of public health and TRIPSplus provisions into the TRIPS council. At the TRIPS Council meeting of 8–9 November 2016, Brazil, India, China, and South Africa requested that the recent report of the UN High-Level Panel on Access to Medicines830 be placed on the Council’s agenda.831 India, on behalf of the other initiators, introduced the report and again called on WTO Member States to make full use of TRIPS flexibilities to

827

See: Minutes of Meeting Held in the Centre William Rappard on 26–27 October 2010, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/64 (17 February 2011), para. 440 et seqq.; Minutes of Meeting Held in the Centre William Rappard on 24–25 October and 17 November 2011, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/67 (15 February 2012), para. 456 et seqq.; Minutes of Meeting Held in the Centre William Rappard on 28-29 February 2012, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/69 (15 May 2012), para. 230 et seqq. 828 BRICS Joint Communiqué of the BRICS Member States on Health on the Sidelines of the 69th World Health Assembly, Geneva (24 May 2016). 829 BRICS Joint Communiqué of the BRICS Member States on Health on the Sidelines of the 69th World Health Assembly, Geneva (24 May 2016) (highlighting added). 830 High-Level Panel on Access to Health Technologies Report of the United Nations SecretaryGeneral's High-Level Panel On Access to Medicines (September 2016). http://www. unsgaccessmeds.org/final-report/. 831 Minutes of the Meeting held in the Centre William Rappard on 8–9 November 2016, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/83/Add. 1 (2 December 2016), para. 8. Each State also issued a supportive statement to the goal of using TRIPS flexibilities and promoting access to medicines, see statement of India (para. 584); statement of Brazil (para. 590 et seqq.); statement of South Africa (para. 597 et seqq.); statement of China (para. 607 et seqq.).

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support public health.832 India also renewed its criticism of TRIPS-plus standards and enforcement in regional trade agreements and warned that such agreements have “the potential to significantly undermine the effective and full use of the TRIPS flexibilities.”833 The UN Report inter alia recommends that WTO Members make full use of existing policy space under Article 27 of the TRIPS Agreement to adopt rigorous definitions of invention and patentability curtailing so-called evergreening; to adopt and use provisions on compulsory licenses for legitimate public health needs; to ensure that bilateral and regional trade and investment agreements do not include provisions that interfere with obligations to fulfil the human right to health; and called on States and private entities to refrain from explicit or implicit threats or strategies aimed at undermining the right of WTO Members to use TRIPS flexibilities.834 The United States, the EU, and other proponents of TRIPS-plus obligations (e.g., Switzerland and Japan)835 strongly criticized the UN report and defended their policies. The United States was keen to highlight the positive contribution of patents to research and development, rejecting the notion of policy incoherence between intellectual property protection, trade liberalization, and human rights.836 The EU also supported these arguments and further highlighted that IP rights are listed as human rights by the EU’s Charter of Fundamental Rights, suggesting that patent protection is required by human rights and not opposed to it.837 Arguments presented at the 2016 TRIPS Council meeting do not add much to the legal arguments presented earlier. Rather they represent competing conceptions of the relationship between patent protection and access to medicines. However, ongoing debates illustrate that North-South struggles about international IP protection at the WTO continue, with traditional powers supporting TRIPS-plus

832

Minutes of the Meeting held in the Centre William Rappard on 8–9 November 2016, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/83/Add. 1 (2 December 2016), statement of India in para. 584. 833 Minutes of the Meeting held in the Centre William Rappard on 8-9 November 2016, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/83/Add. 1 (2 December 2016), para. 585. 834 High-Level Panel on Access to Health Technologies Report of the United Nations SecretaryGeneral's High-Level Panel On Access to Medicines (September 2016). http://www. unsgaccessmeds.org/final-report/., 22 et seqq. 835 Minutes of the Meeting held in the Centre William Rappard on 8-9 November 2016, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/83/Add. 1 (2 December 2016), statement of Switzerland in para. 645 et seqq.; statement of Japan in para. 656 et seqq. 836 Minutes of the Meeting held in the Centre William Rappard on 8-9 November 2016, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/83/Add. 1 (2 December 2016), statement by the United States, para. 618–624. 837 Minutes of the Meeting held in the Centre William Rappard on 8–9 November 2016, Council for Trade-Related Aspects of Intellectual Property Rights, WTO Doc. IP/C/M/83/Add. 1 (2 December 2016), statement by the European Union, para. 632.

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commitments and emerging powers rejecting them.838 Also emerging powers have maintained the justice narrative against international intellectual property protection, arguing it is detrimental to the human rights of the Global South’s poor. What are we to think about the contesting legal arguments between WTO Member States? Most importantly, does TRIPS really provide for conditions or even ceilings to bilateral and plurilateral trade agreements containing TRIPS plus obligations? A detailed legal analysis of all legal questions involved would go beyond the scope of this book. However, preliminary assessments demonstrate that the stronger arguments are on the side of TRIPS-plus proponents.839 The TRIPS agreement does not contain an explicit conflict rule that would govern its relationship with subsequent agreements, such as Art. XXIV GATT. Instead, Article 2 para. 2 TRIPS only governs the relationship of TRIPS to the main multilateral IP treaties prior to TRIPS. The essential part of Article 1 para. 1 TRIPS, which several States referred to above, reads as follows: Members may, but shall not be obliged to, implement in their law more extensive protection than is required by this Agreement, provided that such protection does not contravene the provisions of this Agreement.

Though some Member States have suggested so, the provision does not directly address the TRIPS-FTA relationship.840 Instead the norm only covers the implementation of more extensive protection in a State’s domestic law.841 Indirectly of course the provision should prevent Member States from concluding international treaties that would bind them to implement TRIPS-plus obligations inconsistent with TRIPS.842 WTO Member States that would implement TRIPS-plus obligations contravening TRIPS would become liable of breaching Article 1 para 1 TRIPS in relation to all other WTO Member States.843 The important questions that follow are: Which additional IP protection obligations ‘contravene’ the provisions of TRIPS? And does a TRIPS-plus obligation that prevents or restricts the exercise of flexibilities in TRIPS contravene the provisions of TRIPS? The short answer to the second question is no. As Rhuse-Khan points out, one must distinguish between conflicts of TRIPS-plus obligations with mandatory TRIPS provisions and optional ones.844 Member States of TRIPS are free to dispose of their optional flexibilities by implementing tighter IP protections. Therefore, they

838

A follow-up discussion took place in March 2017, however did not add much to arguments summarized above and ultimately led States to discontinue the discussion, see: Council for TradeRelated Aspects of Intellectual Property Rights: Minutes of Meeting, Held in the Centre William Rappard on 1-2 March 2017,, IP/C/M/85/Add.1 (7 June 2017), 27 et seqq. 839 See: Ruse-Kahn (2016), p. 113 et seqq. 840 This assumption can be based on the agreement’s wording but also on the historical context and the negotiation history, see: Ruse-Kahn (2016), p. 114 et seqq. 841 Carvalho (2010), p. 110; Ruse-Kahn (2016), p. 116 with further references. 842 Ruse-Kahn (2016), p. 116 et seq. 843 See: Article 30 para. 4 b) VCLT). 844 Ruse-Kahn (2016), p. 117 et seq.

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are also free to limit such flexibilities under FTAs. The TRIPS agreement only provides for a limited number of mandatory ceilings or maximum standards which WTO members are not free to dispose of by bilateral and plurilateral agreements.845 A good example is Article 9 para. 2 TRIPS which states that “[c]opyright protection shall extend to expressions and not to ideas, procedures, methods of operation or mathematical concepts as such.”846 Other examples are limits on the level of enforcement and obligations to implement procedural safeguards.847 Enforcement procedures, for example, must be fair and equitable and shall “be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse” (Article 41 para. 1 and 2 TRIPS).848 Therefore, the developed country argument that TRIPS only provides for minimum standards is not completely correct but ceilings in TRIPS are rather limited allowing developed States much leeway in pursuing their TRIPS-plus agenda. Enforcement measures may not be applied in a matter that limits “legitimate” trade, but that provides only for a rather weak limitation of FTA-TRIPS plus obligations, as the trade of goods that violate IP rights may not be considered legitimate. Another provision that is of relevance here is Article 41 VCLT that allows the modification of a multilateral treaty by two or more of the treaty partners. TRIPSplus obligations in FTAs could be qualified as such a modification. As Article 1 para. 1 TRIPS does not provide for a conflict resolution norm regarding FTAs containing TRIPS-plus obligations, the general rule in Article 41 VCLT is applicable.849 Such a modification is only applicable between the modifying parties and also has several conditions so as to safeguard the multilateral treaty and also other Member States. As TRIPS does not provide for an explicit possibility of modification (Article 41 para. 1 a) VCLT) the requirements of Article 41 para. 1 b) VCLT must be fulfilled. The question is whether TRIPS-plus obligations in FTAs may affect the enjoyment of TRIPS rights or obligations by other non-FTA WTO Members or whether the TRIPS-plus obligations may “modify provisions crucial for the effective execution” of TRIPS’ object and purpose (Article 41 b) (i-ii)). Regarding the effect on the enjoyment of TRIPS “rights or obligations” only a limited number of cases is imaginable where TRIPS-plus obligations may harm third States. While there are numerous and grave imaginable “effects” of the TRIPS plus obligations of certain States on others, only a limited number really affects the “rights and obligations” of third States. Patent term extensions, limits on compulsory licensing, or test data exclusivity periods, which all limit some State’s (e.g., India’s) capability to provide third States with affordable medicines could have disastrous consequences for public health issues. Yet, though Article 7 TRIPS provides a

845 See generally Ruse-Kahn (2016), p. 119; see for a more detailed analysis of maximum standards also: Grosse Ruse-Kahn (2009), pp. 67–73. 846 Highlighting not in the original. 847 See: Ruse-Kahn (2016), p. 119. 848 See: Ruse-Kahn (2016), p. 119. 849 Ruse-Kahn (2016), p. 119.

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“normative preference” for balancing IP protection with access, there is no legal obligation to use flexibilities to establish a balanced IP system and thus, as RhuseKhan has put it: “WTO members have no right to demand from other Members the full use and implementation of optional provision in TRIPS which could be taken away by a TRIPS-plus FTA.”850 Only where IP protection or enforcement has extraterritorial effect and affects a third State’s (non FTA member) right to exercise flexibilities (such as to grant compulsory licenses for imports) such a measure might be incompatible with Art. 41 para. 1 b) (i) VCLT.851 Such a scenario relates to the above-mentioned dispute over generic medicines in transit between the EU and India and Brazil. But only if such seizures are made mandatory in FTAs could the relevant provisions be deemed not to meet the requirements of Article 41 VCLT.852 While this poses some limitations to TRIPS-plus provisions in FTAs, most of these provisions appear to meet the criteria of Article 41 para. 1 b) (i-ii). All in all, there are only very limited legal conditions or ceilings for TRIPS-plus provisions in FTAs. Nevertheless, there are some possibilities for emerging powers to further pursue their legal arguments against TRIPS-plus efforts by industrialized States. It remains to be seen whether emerging powers are willing to use the DSM when scenarios realize where the implementation of TRIPS-plus obligations, in particular with regard to enforcement, impacts on emerging powers’ trade.

IP in Emerging Powers’ Free Trade Agreements The United States appears to be the most ardent promoter of TRIPS-plus. The strategy of the United States, however, thus far seems not to involve negotiating such provisions with emerging powers but rather with like-minded or substantially weaker States.853 In slight contrast, the EU has managed to conclude an EPA with SADC, which also includes South Africa, and has started negotiations on FTAs with MERCOSUR (including Brazil), China, and India. As noted above, however, the EU-SADC EPA so far does not include a substantial IP chapter but only commits members to negotiate IP provisions in the future.854 An earlier EU-South Africa Agreement on Trade, Development, and Cooperation contains a provision on intellectual property, but it is limited to a reiteration of existing international obligations.855 850

Ruse-Kahn (2016), p. 125. Ruse-Kahn (2016), p. 125. 852 Ruse-Kahn (2016), p. 125. 853 For a list of recent US FTAs, see: https://ustr.gov/trade-agreements/free-trade-agreements. 854 EPA between the European Union and its Member States and the SADC States, Official Journal of the European Union, L 250/3 (16 September 2016) Article 16. 855 ‘South Africa - EU Agreement on Trade, Development and Cooperation’, Official Journal of the European Communities, L 311/3 (4 December 1999), Article 46. While containing the far-reaching formulation that Parties “shall ensure adequate and effective protection of intellectual property rights in conformity with the highest international standards” (Art. 46 para. 1), EC representatives 851

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Regarding India, it appears that the EU is demanding the inclusion of strong IP protections in any prospective FTA. Several Indian NGOs warned against TRIPSplus obligations in an FTA with the EU and their impact on the right to health in India and elsewhere.856 Importantly, the acceptance of TRIPS plus obligations by India could potentially also affect many other developing countries. Not only because it will set another precedent, but also because requirements by the FTA may threaten India’s generic manufacturers which thus far still serve as the ‘pharmacy of the poor’ on a global scale. However, negotiations have stalled several times and it is questionable whether India would accept stronger IP protections.857 In a similar vein, negotiations with China for an upgrade of the 1985 Trade and Economic Cooperation Agreement which might cover IP, were launched in 2007 but have been stalled since 2011.858 Only the FTA between the EU and Mercosur is currently under negotiation.859 Reportedly, the EU has been pushing for TRIPS-plus provisions to be included in the EU-Mercosur FTA, leading a number of Brazilian NGOs and scholars to rally against the agreement and highlight its potential negative effects on access to medicine.860 The draft, however, appears to have dropped some of the more controversial EU proposals. Still, it foresees (as a proposal by the EU) extended duration of patent term as compensation for unreasonable delays in the granting of the first marketing authorisation,861 exclusivity of data submitted to obtain market authorization,862 and a detailed section on enforcement.863 A preliminary impact assessment conducted by Brazilian scholars estimates that these provisions would lead to substantial additional expenditures for the Brazilian Ministry of Health with regard to its fight against HIV and Hepatitis C and a decrease of domestic production of generic drugs in Brazil.864 Thus, these scholars demand that Brazil stay firm and

have stated, regarding a similar provision in another treaty, that the formulation does not seek to dynamically incorporate the respective highest international standard but rather is declaratory in character, see: Association Agreement between the European Communities and Chile, WTO Committee on Regional Trade Agreements, Questions and Replies, WT/REG164/5 (20 June 2006), Answer 34. 856 See e.g. Frontline (2013). 857 For an overview from the EU’s perspective, see: http://ec.europa.eu/trade/policy/countries-andregions/countries/india/. 858 See: Overview of FTA and other Trade Negotiations, available at: http://trade.ec.europa.eu/ doclib/docs/2006/december/tradoc_118238.pdf. Accessed: 11 Sept 2020. 859 A leaked text as of February 2018 is available online at: http://bilaterals.org/IMG/pdf/iprs.pdf. Accessed: 11 Sept 2020; later the EU published a slightly amended version (as of June 2019) available online at: https://trade.ec.europa.eu/doclib/press/index.cfm?id¼2048 (EU-Mercousur FTA draft). 860 See e.g.: Ermert (2018). 861 EU-Mercosur FTA (leaked draft as of 27 February 2018) Article 13. 862 EU-Mercosur FTA draft, Sub-Section 7 (“Protection of Undisclosed Information”). 863 EU-Mercosur FTA draft Section C. 864 Costa Chaves et al. (2017), p. 8 et seqq.

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reject any TRIPS-plus obligations in the FTA with the EU.865 It remains to be seen whether Brazil will be able and willing to do so against EU opposition. But what about emerging power FTAs with weaker developing countries? Do they contain IP protections, and if yes to what extent? Brazil, as part of Mercosur, has concluded a number of FTAs whose counterparts are only developing countries.866 However, none of these agreements cover intellectual property protection, let alone TRIPS-plus obligations.867 Among India’s FTAs, only those entered into with more industrially advanced developing countries such as Singapore868 and Korea,869 and developed countries such as Japan,870 cover intellectual property at all, but no substantial TRIPS-plus obligations are included. South Africa’s Agreements with the EU have already been analysed above. Aside from these, South Africa is a member of the Southern African Customs Union (SACU) and the Southern African Development Community (SADC). As a member of SACU, South Africa is also subject to an FTA with the European Free Trade Association (representing Iceland, Liechtenstein, Norway, and Switzerland).871 However, none of these agreements contains TRIPS-plus obligations.872 The case of China is more complicated. Intellectual property provisions are included in most of China’s FTAs.873 Early Chinese FTAs only contained short

865

Costa Chaves et al. (2017), p. 10. For an overview, see: http://www.sice.oas.org/ctyindex/BRZ/BRZagreements_e.asp. Accessed: 11 Sept 2020. 867 See e.g.: Mercosur-Egypt FTA (2017); Mercosur-Israel FTA (2007). 868 ‘Comprehensive Economic Cooperation Agreement Between the Republic of India and the Republic of Singapore’ (2005). The chapter on intellectual property co-operation in the IndiaSingapore CEPA only contains a declaratory statement that Parties engage in mutual cooperation on the issue but no substantial standards, see Articles 11.1 and 11.2. 869 ‘Comprehensive Economic Partnership Agreement Between the Republic of India and the Republic of Korea’ (2009) Article 12.2 affirms the rights and obligations of the TRIPS agreement and Article 12.3 states, that parties may provide more extensive intellectual property protection but are not required to do so by the CEPA. 870 ‘Comprehensive Economic Partnership Agreement Between Japan and the Republic of India’ (2011), includes a more detailed chapter on intellectual property (Chapter 9) with eight Articles. However, the General Provision in Article 102 points out that intellectual property shall be protected “in accordance with the provisions of the TRIPS Agreement” and the definition of intellectual property is also linked to the categories provided under TRIPS. Some provisions then provide certain adjustments but cannot be considered as substantial TRIPS-plus standards. Often those provisions also refer to the TRIPS agreement (e.g.: Article 107 and Art. 109). 871 For an overview of all trade agreements and ongoing negotiations, see: https://www.thedti.gov. za/trade_investment/ited_trade_agreement.jsp. Accessed: 11 Sept 2020. 872 The SADC Treaty (2000) simply reiterates Members commitment to TRIPS (Article 24); the SACU-EFTA FTA contains a single provision on IP (Article 26) which commits Member States to the protection of IP rights but which does not extend TRIPS rights and obligations. 873 See for an analysis also: Zhang (2016). 866

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chapters on intellectual property protection,874 or none at all, but this approach changed with FTAs concluded with Switzerland (2013),875 Australia (2015),876 and Korea (2015)877 which provide longer and rather detailed IP chapters.878 All three treaties include specific provisions on copyright and related rights, trademarks, patents, genetic resources and traditional knowledge, plant variety protection, industrial designs, and geographical indications. However, several provisions on new issues, such as genetic resources, traditional knowledge, and utility models were kept in rather vague language. Further, these provisions are predominantly limited to restating Members’ intention to further cooperate on the respective issue and of outlining what kind of regulations Parties “may” adopt without legally requiring them to do so.879 Despite the length and detail of IP chapters in these treaties they mostly appear not to provide TRIPS-plus obligations. Rather they seek to clarify existing obligations under TRIPS and other IP treaties. In particular, these treaties do not require any prolongation of periods of protection, compensation for unreasonable delays in the granting of patents or market authorization, and undisclosed test data protections are mostly limited to requirements under the TRIPS Agreement.880 Only the ChinaSwitzerland FTA contains a TRIPS-plus provision on undisclosed test data, which goes beyond Article 39 of TRIPS in requiring parties to prevent applicants for marketing approval from relying on or referring to undisclosed test data by the first applicant for at least 6 years for pharmaceuticals.881 In line with EU and U.S. FTAs, Chinese FTAs contain a declaratory provision on members’ commitment to declarations and decisions agreed upon within the WTO on TRIPS and public health.882 Moreover, newer FTAs acknowledge that intellectual property systems, aside from incentivizing innovation, should support “appropriate limitations and

874

Most of the earlier FTAs that include provisions on IP take TRIPS as a benchmark and only reaffirm obligations stemming from this agreement, see e.g.: China-Chile FTA (2005) Article 111 para. 1; China-Pakistan FTA (2006) Article 10 and 46; China-New Zealand FTA (2008) Article 161; but see also: China-Iceland FTA (2013) Article 64. 875 China-Switzerland FTA (2013). 876 Australia-China FTA (2015). 877 China-Republic of Korea FTA (2015). 878 For example, the China-Korea FTA (2015) features 24 articles on IP and the China-Australia FTA (2015) 30 articles. 879 See e.g. Australia-China FTA (2015) Article 11.16 (Plant Breeders’ Rights); Article 11.17 para. 2 (Genetic Resources, Traditional Knowledge and Folklore); China-Switzerland FTA (2014) Article 11.9 (Genetic Resources and Traditional Knowledge); China-Republic of Korea FTA (2015) Article 15.16 (Utility Model); Article 15.17 (Genetic Resources, Traditional Knowledge and Folklore). 880 See: China-Republic of Korea FTA (2015) Article 15.19 (“The Parties shall protect undisclosed information in accordance with Article 39 of the TRIPS Agreement.”) see more detailed but still rather restrictive: Australia-China FTA (2015) Article 11.18. 881 See: China-Switzerland FTA (2014) Article 11.11 para. 2. 882 China-Switzerland FTA (2014) Article 11.5.

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exceptions, and an appropriate balance between the legitimate interests of rights holders, users and the public interest”.883

6.3.3.4

Evaluation

Brazil, India, and South Africa have made use of TRIPS-flexibilities to tackle public health emergencies. All three countries were also leaders of the movement that led to the Doha Declaration and finally the first ever amendment of TRIPS, seeking to make TRIPS more receptive to the human right to health and access to medicine concerns. Nevertheless, reform efforts have neither sought nor led to a revolutionary reform of the TRIPS Agreement. The sufficiency of reform efforts designed to bring TRIPS into line with the right to health also remains doubtful. All in all, emerging powers have come to accept the principal necessity of global IP norms but seek to retain existing policy space. Moreover, emerging powers are not simply ‘rule-takers’ when it comes to intellectual property norms proposed by the Global North anymore, however at the same time have not presented comprehensive accounts of alternatives or new rules, principles, and paradigms. Regarding the safeguarding of existing flexibilities, emerging powers have demonstrated considerable ability to block enforcement measures (drugs in transit) by the EU. However, legal challenges under TRIPS against TRIPS-plus obligations in FTAs are hardly convincing and appear to have been largely abandoned by emerging powers. More recently, challenges have focused on the effects of TRIPS-plus provisions on the right to health and access to medicines, but equally have not led to any meaningful outcome. As emerging power economies transition towards knowledge-based economies, they may become keener on protecting corporate inventions through international intellectual property protection. Data on China already suggest that Chinese companies have become highly aware of the profits achievable through IP protection. So far, however, emerging powers have not promoted or accepted substantial TRIPSplus obligations in FTAs. Only some recent Chinese FTAs incorporated such provisions but only on a limited scale. It remains to be seen whether India and Brazil may accept stronger IP protections in respective FTAs with the EU, which are currently under negotiation. As NGOs have warned, this would pose a significant threat to access to medicine on a global scale in practical terms. Importantly it would also display a major shift of these countries’ policies. Emerging power approaches have already shifted from rejecting TRIPS towards embracing the agreement not only as the smaller evil but rather as an agreement that strikes a balance between incentivizing research and development and that also allows for enough flexibility to address public health concerns. In that way, WTO processes and successes but also the promotion of TRIPS-plus provisions through the United States and the EU,

883

Australia-China FTA (2015) Article 11.1 para. d); see also: China-Republic of Korea FTA (2015) Article 15.1 para. 2; China-Switzerland FTA (2014) Article 11.1 para. 4.

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appear to have de-radicalized emerging power approaches. Today, emerging powers have largely become loyalists to the existing system. However, in seeking even stronger IP protections and enforcement, the EU and United States uphold their image of the ardent defenders of international IP protection. As their economic power declines on a relative scale these States might opt for an even more protective strategy, protecting their IP assets by (a) physical and technical barriers such as anti-cyber-attack security but also by (b) stronger international IP protections.884 On the other hand the embrace by emerging powers of IP protections and the ‘patent tsunami’ coming from China might also spark a debate about the public purpose of IP in developed countries, maybe leading to a recalibration of policy. Moreover, as India, China, Brazil, and South Africa remain to have huge and to a large extent impoverished populations, access to affordable medicine and other cost-effective pirated products such as educational materials, remain issues emerging countries may need to address by rejecting strict enforcement and TRIPS-plus obligations.885 Hopefully, these developments together lead to a further recalibration of the international patent system bringing it further in line with human rights obligations.

6.4

Conclusion

The chapter demonstrated that the negotiation power of emerging powers has substantially increased, leading to the inclusion of Brazil, India, and China into the inner-circles of WTO negotiations. In dispute settlement Brazil, India, and China have proven their ability to successfully bring cases against developed countries and defend cases brought against them by others. In that way they have also played and continue to play an increasing role for the enforcement of WTO agreements against the most powerful Member States. Only South Africa so far has played a minor role, with some exceptions. Surprisingly, the economically most powerful emerging country, China, has kept a rather low profile compared to India and Brazil which have become the most vocal (self-appointed) leaders of the developing world. The continuing self-qualification of emerging powers as developing countries subject to special treatment made it more difficult to find compromises with traditional powers wary of economic competition from the South. The increased participation of new powerful actors has complicated decision-making processes within the WTO. Agreements were much easier to conclude in the GATT era with a club of economically and ideologically like-minded States at comparable levels of development. The continuing deadlock of negotiations also proves that power has become more diffuse, as every single great power is able to block consensus and no State is able to push through its agenda single-handedly.

884 885

Cf. Abbott (2014), p. 392. See in that regard: Sell (2014), p. 60.

6.4 Conclusion

405

This chapter also sets out that—against expectations—emerging powers have not fundamentally questioned the underlying paradigms and principles of WTO agreements, and have refrained from promoting creative new principles or rules. While emerging powers continue to highlight the perceived development deficit of the WTO, their proposals for reform have largely kept with principles of free trade and market liberalization. Within the agricultural sector, emerging powers have demanded further liberalization only complemented by the usual and limited special treatment for developing countries (including themselves). Only on some special issues, like the SSM and public stockholding, has India (and to some extent also China and South Africa) pursued a more protectionist agenda. However, if the SSM is seen as a mechanism to facilitate further liberalization in developing countries than even this effort ultimately serves the liberal agenda. Regarding international IP protection, emerging powers were at the forefront of promoting access to health through reform of TRIPS. However, the extent of successful outcomes, including for example the Doha Declaration and the ultimate reform of the TRIPS agreement, is rather limited. While having some impact on TRIPS’ underlying paradigm, legal changes fall short of a comprehensive reform of the TRIPS agreement’s concrete norms, let alone a revolutionary shift. Incremental reform is the most fitting term for the final solution found. Emerging powers have become defenders of policy space available under the TRIPS agreement, without seeking to increase available policy space in the first place. Moreover, emerging powers have legally and politically attacked the EU’s in transit enforcement measures as illegal under the TRIPS agreement and have questioned the TRIPS compatibility of EU and U.S. bilateral and plurilateral initiatives to ratchet up international intellectual property protection. In both cases, however, at least their legal arguments are hardly convincing. In the long run, given economic transitions towards more knowledge-based economies, emerging powers may also become less ardent defenders of TRIPS flexibilities. China already appears willing to accept some TRIPS-plus provisions in FTAs with its Western partners and increased numbers of IP rights held by Chinese individuals and companies in foreign countries may increase the Chinese government’s willingness to protect these assets internationally. For access to medicine in the Global South this may pose severe threats. On global justice some successes were achieved in the years since the start of the DDR, albeit not all of them are attributable to the increasing economic power of the developing world. The regulation of export support and the prohibition of export subsidies were great (first) successes, but these achievements cannot be attributed to emerging powers. Only on public stockholding did India prove its willingness and power to achieve some reform while its argument for an SSM has not succeeded so far. Also, the quest to limit domestic support in the Global North and increase market access for agricultural products from developing countries has thus far not led to any substantial concessions by traditional powers. Rising domestic support in emerging countries may intensify the problem but also has the potential to bring traditional powers back to the negotiation table if both sides are willing to agree on reduction commitments. In that regard, however, the relative/per farmer perspective requires

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developed countries to provide far more reduction commitments than emerging powers. Finally, the beneficial distributional outcomes of some of the issues for the Global South as such is questionable, contrasting the pro-poor rhetoric of emerging powers. Brazil’s approach, in particular, reveals hypocrisy when rhetorically reform proposals are justified with poverty reduction but in the end Brazil’s aggro-business sector stands to profit most, which itself has a questionable human rights record. All in all, emerging powers can be characterized as loyalist system supporters in the WTO context, only supporting incremental legal changes rather than comprehensive legal reform or even revolution. For global justice this largely meant that the situation did not get worse but it also did not get significantly better. Much is at stake at the WTO in the twenty-first century. The interwar period in the 1930s revealed how dangerous unilateralism, protectionism, and great power rivalry can be. Signs of great power rivalry between emerging powers and traditional powers are obvious in international trade negotiations and dispute settlement and already affect the workings of the WTO. Interestingly, but no less concerningly, it is not emerging power rising assertiveness that threatens the WTO’s status as the primary institution for international trade and the rules-based international trade system, but rather U.S. policies under President Trump. Be it threats to leave the WTO altogether, the continuing U.S. blockage of the appointment of new members of the Appellate Body, or the large-scale and illegal imposition of tariffs to shield some parts of the U.S. economy. A return to great power economic rivalry and protectionism, as in the inter-war period of the 1930s, has already started and trade wars between the United States and China but also between former allies (EU-USA) are in full swing. Although the WTO and its liberal economic agenda has been loathed by critics, from a global justice and human rights perspective a collapse of the multilateral forum and a return to full-fledged economic power-politics is likely to hurt the poor most.886

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Narlikar (2018).

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Chapter 7

General Conclusions

This concluding section provides a summary of the main findings and closes with a brief outlook on the further evolution of the rule of international law.

7.1

Summary of the Main Findings

1. Power and international law are neither opposed, nor is law to be equated with power. Nevertheless, great powers are better able to influence international law-making, adjudication, and enforcement, than less powerful States. 2. Since 1978, China has significantly increased its military, economic, and even soft power to an extent that it can reasonably be called a new great power. India, and to a lesser extent, Brazil have also significantly increased their capacities to influence the international legal order and in the twenty-first century joined the ranks of established powers in important international forums (G-20 and WTO). However, regarding economic and soft power they clearly lag behind compared to most established great powers. Despite this, as their economic power is expected to keep rising (despite some economic setbacks in recent years in the case of Brazil) the gap is narrowing. In contrast, South Africa clearly lags behind on all forms of power and will not become a great power in the near future. 3. Despite increased power, or possibly because of it, the rise of Southern States is unlikely to lead to a resurrection of the NIEO. BRICS, in common statements, support the existing international (legal) order and only seek minor reforms mainly related to increasing their voice. Albeit rising powers sometimes keep with Third World rhetoric, they do not offer a concise alternative to existing international rules, principles, and paradigms. 4. Global justice is a highly indiscernible term, but from an international lawyer’s perspective a human rights approach to global justice appears the most workable and broadly accepted approach. In that regard, we can distinguish between thin notions of justice, namely negative obligations to respect human rights, and © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 A. Buser, Emerging Powers, Global Justice and International Economic Law, https://doi.org/10.1007/978-3-030-63639-5_7

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thicker notions of justice, namely positive obligations to protect and fulfil human rights. Under both thin and thick approaches to global justice, serious concerns about the justice of international trade and investment law persist (albeit causality is often difficult to prove). International investment and trade law could clearly do more to respect and protect human rights of affected people. The role of both legal regimes in fulfilling human rights is highly controversial from an economic perspective. Legal regimes could and should be reformed to address the third dimension more explicitly, instead of simply adopting a laissez-faire approach putting trust in market principles and the trickle-down effect. 5. During the 1980s and 1990s most of today’s rising powers have been takers of international investment rules, with only Brazil ultimately rejecting ratification of BITs and essentially adopting a passive stance. China only reluctantly and gradually accepted established investment protection standards and jurisdiction for ISDS, but also refrained from promoting alternatives. Since around the year 2000 China has gradually moved towards embracing the regime almost in full. 6. Apart from China, all emerging powers have significantly reformed their approaches on international investment law and became rule-makers instead of rule-takers or passive States. In India and South Africa these reforms have predominantly been driven by concerns as host States rather than in relation to an increased role of foreign investment abroad. South Africa has radically shifted levels of investment protection—from the international to the national level—but has adopted a reformative approach regarding the substance of protection. Nevertheless, the country has kept some of its older BITs with developing countries and remains open to negotiate new BITs in the future, supporting the argument that South Africa does not per se oppose international investment protection. In the case of India, it remains to be seen whether the country will be able to convince other States to sign treaties based on its new Model BIT. Brazil has clearly turned towards acting as a rule-maker and to a limited extent even as a paradigm shifter (from investment protection to investment facilitation). This approach is driven by both Brazilian economic interests abroad, as well of partner countries, and thereby is based on a more equal basis than former North-South investment protection. In contrast to India, Brazil already had more success in convincing several developing countries to conclude IIAs based on its Model CFIA. 7. In regards to content, both the Brazilian as well as the Indian Model got rid of some established rules, reformed others, but contain only a few progressive new provisions. On investment arbitration, Brazil, India, and South Africa are united in severely limiting—or even excluding—the availability of ISDS for investors. Overall, Brazil, India, and South Africa can be qualified as reformers regarding international investment law. Somehow surprisingly, the most economically powerful state under exploration here, China, has adopted a flexible and somehow undecided approach to many provisions in its BITs, and so far largely remains a loyalist to traditional style BITs and ISDS. China still mostly qualifies

7.1 Summary of the Main Findings

8.

9.

10.

11.

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as a rule-taker, following recent trends rather than promoting its own alternatives. What all this means for global justice and the future of the international investment regime remains a difficult question. International investment law clearly has become more balanced (towards increased policy space for States) and diverse. Approaches by Brazil, India, and South Africa substantially increase the policy space of States to pursue policies of public interest, including human rights. However, in regards to protecting and fulfilling economic and social rights, their agreements are less progressive. While they incorporate some progressive provisions (e.g., CSR), they do so mostly in a non-binding manner. Therefore, the practical value of such provisions remains dubious. The exception is the SADC Model BIT, which provides a more radical toolbox of provisions to hold investors and their home States accountable for human rights violations. Despite this, new South African investment legislation refrains from adopting such more radical provisions. All in all, reforms sought are important for diversifying international investment rules and for strengthening State regulatory policy space to pursue legitimate public interest, but fall short of protecting and fulfilling human rights in a more progressive and innovative manner. India, Brazil, and later China entered the inner circles of informal WTO decision-making. Both Brazil and India have become vocal players within negotiations, actively shaping and at times blocking outcomes. In contrast, China has kept a lower profile but at times has proven its willingness to support its allies (India, Brazil, and developing countries more broadly) in crucial moments of negotiations. Only South Africa has not entered the inner circle of negotiations. South Africa also has been less vocally engaged in negotiations than Brazil or India. The diversification of WTO decision making and the inability of (formerly) like-minded Western States to push through with their agenda has made WTO decision making more prone to deadlocks but also more resistant to ‘power-plays’ of the established great powers. Brazil, India and China have also joined the ranks of established trade powers in their usage of the WTO dispute settlement system, albeit in comparison to the United States and EU they still are somewhat behind. Increased legal capacity and market power appear to have made the DSM more attractive to rising powers. The only exception is South Africa. This pattern supports the argument that economic power and legal capacity increases the ability of States to make use of the DSM in a successful manner. Regarding substance, rising powers pursue both liberal and protective approaches and sometimes their interests do not align. Despite competing interests in agriculture, rising powers were often able to align their positions and act together in important WTO groupings, such as G-20, especially when demanding concessions from developed countries. However increased power does not necessarily correlate to legal success in WTO decision-making so far. Only a compromise between the United States and the EU made the regulation of export support and prohibition of export subsidies possible. Developed

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countries made no new concessions on domestic support and market access. India and at times China strongly supported the SSM but were unable to convince established powers to agree on its establishment. Only on public stockholding for food security purposes did India gain a permanent—if informal—solution (peace clause), by threatening to block the Trade Facilitation Agreement. This limited success is not due to the radicality of rising power proposals. Most proposals are in line with the underlying paradigm of trade law, namely the liberalization of trade. Small exceptions are public stockholding for food security purposes and the SSM. However, while the economic rationale of both instruments remains disputed, they are clearly not radical protectionist proposals. Domestic support for agriculture in developing countries is still much lower than in industrialized States (especially when assessed per capita). In that regard, increasing domestic support within rising powers may actually level the playing field. The SSM would increase flexibility of States to protect their markets, but if combined with further market access liberalization could be seen as an instrument to smooth the transition period for developing countries, just as the SSG did for several other States. Moreover, the SSM could be crafted as an emergency instrument rather than a permanent protective means. In that way, the SSM would not role back liberalization but smooth it. Ultimately rising powers are system supporters of the WTO and its underlying paradigms and principles, but simply play the old mercantilist game in negotiations: demanding liberalization from others and seeking to protect their own markets. 12. Rising powers strongly sought to frame reforms of the agricultural sector and the laws governing it as a development or justice issue required to correct the WTO’s ‘development-deficit’. However, economic studies are more cautious, suggesting that distributional outcomes are difficult to predict, and—in some instances—reforms might even harm some parts of the global poor. Especially Brazil is guilty of hypocrisy, ostensibly defending poor peasants, but in fact seeking market access for the products of its huge farming companies, which themselves have often been involved in human rights violations against indigenous people, small-scale farmers, and landless workers. Thus, the pro-poor rhetoric of rising powers is overstated. Still, if emerging and established powers increasingly become aware of the null-sum effects of ‘treasury wars’ to support local produce, concessions might be agreed upon to finally liberalize trade in agriculture more comprehensively. If accompanied by protections for emergencies (e.g., a well-crafted SSM) this could also be of benefit to less powerful developing States and their poor farmers. 13. Rising powers have been at the forefront of reforming TRIPS to make it more responsive to public health and human rights issues. Falling short of revolutionary change, States have worked out existing flexibilities under the agreement, but formally only slightly reformed the existing agreement. Rising powers have generally kept with the paradigm that global IP protection is necessary to induce innovation and guarantee fair competition. From rejecting TRIPS in the beginning, rising powers have turned to defenders of the status-quo against TRIPSplus provisions in regional and bilateral FTAs. Moreover, India and Brazil have

7.2 Outlook

421

successfully challenged EU enforcement measures against drugs in transit. It remains to be seen whether rising powers will keep with this stance given the fact that their economies are transitioning towards more knowledge-based economies which, for China in particular, already led to a boom of firms’ IP right filings and grants, both domestically as well as abroad. Thus far, rising powers remain loyal to the existing international IP order but object to any attempts to shift its balance towards increasing or strengthening IP protections and enforcement. 14. The justice outcomes of the TRIPS reform are questionable. Several problems remain. Flexibilities have been increased to avoid conflicts between TRIPS and human rights protections, but no efforts have been made to make TRIPS more responsive to protect and fulfil socio-economic human rights. Limited successes gained are overshadowed by renewed efforts of the United States and the EU to ratchet up global IP protection through TRIPS-plus provisions in FTAs. This is despite the fact that increasing IP filings and grants to companies from rising powers should have raised the awareness in industrialized States that increasing IP protection is no longer solely about protecting the assets of domestic companies. Hopefully these insights, taken together with the persisting need in emerging powers to make medication affordable to the poor, might lead to a further recalibration of the system in the long run. Until now, such recalibration has only taken place on a limited scale.

7.2

Outlook

At the time the idea for this book project began to materialize the crisis of international law was already in full swing and the prospects of international law to ‘civilize’ international relations and the power of States looked dim. While writing this prospects even worsened. The rationale of ‘angry white men’ dictated U.S. foreign policy which seemed to be based on 140 characters within Twitter messages rather than international law. Against expectations, it were not rising powers that posed the greatest challenge to international order. Rather it is re-rising nationalism and a crisis of democracy in many parts of the Global North and most notably the former superpower.1 Still, this new challenge is not unrelated to the phenomenon of rising powers. U.S. economic policies were clearly based on the idea that the power of the United States declined and has to be made ‘great again’. Apparently, however, the strategy to make the United States great again was based on disregard for international rules and informal agreements that helped to make the United States great in the first place. From a (cynical2) critical perspective, this 1

See in a similar direction: Ikenberry (2018), pp. 7, 22 et seqq. (Who also argues that it is only the established Western democratic powers that can save the liberal international order, if they are able to “recapture their progressive political orientation”.) 2 See on cynicism and international law: Baade et al. (2020).

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would almost appear as an ironic twist of fate. The United States might destroy exactly those rules that secured its economic interests and “empire”.3 Comedy however turns to tragedy when we consider what international disorder might bring, especially for weaker States and humans. In the case of international trade, the established multilateral order—though far from perfect—is still better than no order at all, especially for the poor.4 Will emerging powers be able to defend existing institutions and legal regimes? Thus far, institutions and legal regimes largely remained workable—with the exception of the WTO Appellate Body. Regarding the Appellate Body, Brazil and China have joined the Multi-Party Interim Appeal Arbitration Arrangement that re-establishes a functioning appeal mechanism.5 However, India and South Africa so far are reluctant to join. Only the coming years will demonstrate whether more WTO members will join the arrangement, whether a permanent solution can be found, or whether the US in Bidens presidency gives up its blocking position to avoid negative repercussions for the WTO system as such. Generally, China appears willing to take up a more responsible role actively supporting and defending free trade and its underlying legal regime, and possibly free investment flows and investment protection as well. New alliances may emerge and probably are already emerging between rising powers and some Western great powers. This has strengthened the impression of a multipolar or even multi-hub world, in which competing poles build different and new alliances on an issuespecific basis and irrespective of former blocs (East-West, North-South etc.). This may not necessarily bring about a better or more just global order, but at the very least the international order will become more diversified and less one-size-fitsall.6 Such diversification is accompanied by fragmentation, which we can already observe in trade and investment law7 with the proliferation of diverse regional, mega-regional, bilateral, and other trade and investment agreements. This fragmentation makes the work of international lawyers more complicated but also even more indispensable. The diversification of the international (legal) order however also poses severe threats. A return to great power economic rivalry and protectionism not only runs the danger of destroying legal regimes and order governing economic transactions, but—as was the case in the inter-war period of the 1930s—brings with it the danger of large-scale military conflict. Established great power Verlustängste (fears of loss) together with emerging power ambitions to establish themselves comprise a 3

The term is used here in the sense it is used in: Hardt and Negri (2001). Narlikar (2018). 5 Multi-Party Interim Appeal Arbitration Arrangement Pursuant to Article 25 of the DSU, 27 March 2020, text available at: https://trade.ec.europa.eu/doclib/press/index.cfm?id¼2127. Accessed 16 Sept 2020. 6 Cf. Rolland and Trubek (2019), p. 197 et seqq. 7 Diversification of IIAs together with some States newer practice to avoid MFN clauses arguably leads to increased fragmentation of formerly multilateralized (Schill 2009) international investment law. 4

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dangerous mix. From a global justice perspective, the return to full-fledged economic and military power-politics, even if involving a revolution of the international order, poses more risks than it offers possibilities for positive reform.

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