4.3 The Imbalance of TCL in Favour of Economic Objectives
4.3.1 System, Shifting Paradigms and Unbalancing Effects
4.3.1.3 Economic Imbalance: Investment Protection
As mentioned above, commodity activities have been described as‘paradigmatic example’ of an investment. Often, TNCs domiciled in industrialised states are conducting commodity operations in less developed, yet resource-rich countries.462 The investment case law is rich in precedents, which originated from conflicts over state measures affecting investors’control or title over commodity investments or their profitability.463In fact, more than 28 % of all arbitral proceedings under the ICSID Convention to date concerned commodity operations, which is by far the largest overall share by sector.464
Correspondingly, some signature cases of international investment law, such as the arbitrations between BP, TEXACO, LIAMCO and Libya,465 the Kuwait
460The CSR provision contained in Article 7 NLBIT moreover makes express mention of due diligence (Article 7(3)); liability of investors in home state jurisdiction where their‘acts or decisions lead to significant damage, personal injuries or loss of life in the host state’(Article 7(4)); and parties’commitment to the UN GP as well as the OECDG (Article 7(5)).
461Articles 17–24 Brazil-Ethiopia CFIA, UNCTAD (2019) https://investmentpolicyhub.unctad.
org/Download/TreatyFile/5717;Articles 18–25 Brazil-Suriname CFIA, UNCTAD (2019)https://
investmentpolicyhub.unctad.org/Download/TreatyFile/5715;Moreira (2018).
462See already Sect.2.1.2above.
463Eljuri and Trevino (2015), p. 313; Childs (2011). On inter-state disputes over the commercial terms of commodity extraction see also already the early case law of both the PCIJ and the ICJ as summarised by Higgins (1999): PCIJ (1924–1927)Mavrommatis Concessions Case, Judgments of 30 August 1924, 26 March 1925, 10 October 1927, available at https://www.icj-cij.org/en/pcij-series-a;PCIJ (1928)Phosphates in Morocco Case, Judgment of 14 June 1938,https://www.icj-cij.
org/files/permanent-court-of-international-justice/serie_AB/AB_74/01_Phosphates_du_Maroc_
Arret.pdf;ICJ (1952)Anglo-Iranian Oil Company Case, Judgment of 22 July 1952,https://www.
icj-cij.org/files/case-related/16/016-19520722-JUD-01-00-EN.pdf(all last accessed 14 May 2021).
464ICSID (2018) Caseload statistics, issue 2018-2, https://icsid.worldbank.org/en/Documents/
resources/ICSID%20Web%20Stats%202018-2%20(English).pdf (last accessed 14 May 2021), p. 12. Disputes arising from oil, gas and mining accounted for 24%, agriculture,fishing and forestry for an additional 4% of all disputes. Out of the 17% of cases concerning electric power and other energy disputes, it is quite likely that a considerable part likewise more or less directly concerns commodity operations, such as the sourcing or trade of energy commodities.
465Sole arbitrator (1973)BP Exploration v. Libya, Award of 10 October 1973, 53 ILR 297, available at https://kupdf.net/download/bp-exploration-v-libyan-arab-republic-53-ilr-297-1973_
v. Aminoil,466or theOccidental v. Ecuadorproceedings, arose in connection with commodity activities.467 These cases share that they typically represent conflicts between host state and investor over the economic benefits of a commodity opera-tion.468Paradigmatically, many of the historic commodity investment arbitrations originated from the termination of concessions or PSAs, direct as well as indirect expropriations, and nationalisations.469
While direct expropriations and nationalisations concerned international arbitra-tors especially during the NIEO era in the 1970s and 80s, they still constitute a current topic. This is particularly due to measures taken by Venezuela in 2007, which sought to nationalise oil production in the so-called Orinoco belt.470This step impacted projects maintained by large transnational oil companies, such as Chevron, ExxonMobil and ConocoPhillips; several affected corporations initiated arbitral proceedings.471Further specific state measures that gave rise to commodity invest-ment arbitrations and were raised as especially forms of indirect expropriations or breach of the FET standard respectively, included windfall profit taxes, export taxes, denial of the right to reimbursement of VAT, export restrictions, price regulations, and domestic market obligations (DMOs).472
The subject at issue in several proceedings involving Ecuador for instance was a tax that the state introduced in order to capture a share of‘extraordinary incomes’
5a1aec14e2b6f5f95564e0e1_pdf;sole arbitrator (1977)TEXACO v. Libya, Award of 19 January 1977, available athttps://www.trans-lex.org/261700;sole arbitrator (1977)Liamco v. Libya, Award of 12 April 1977, available athttps://www.trans-lex.org/261400(all last accessed 14 May 2021).
466AMINOIL tribunal (1982)Kuwait v. AMINOIL, Award of 24 March 1982, 21 ILM 976, available athttps://www.trans-lex.org/261900(last accessed 14 May 2021).
467LCIA (2004)Occidental v. Republic of Ecuador, LCIA Case No UN 3467, Final Award, 1 July 2004; see also the‘Vivendi saga’, Italaw (2019)Vivendi v. Argentina,https://www.italaw.com/
cases/309, Italaw (2019)Suez, Vivendi v. Argentinahttps://www.italaw.com/cases/1057(both last accessed 14 May 2021), which concerned water, a product, which is explicitly not classified as a commodity for the purposes of this book. The dispute, however, arose over the privatisation of water supply in an Argentinian province—and is thus paradigmatic for the‘commoditisation of nature’, cf. Chap.1 above. For more lead cases, see i.a. Bernasconi-Osterwalder and Johnson (2011); Weiler (2005).
468Cf. Viñuales (2016), p. 33.
469Ruzza (2017), paras. 7, 12–14; for a recent example of nationalisation, ICSID (2010)Mobil Corporation v. Bolivarian Republic of Venezuela, Decision on Jurisdiction, 10 June 2010, paras.
16–25, 30–36, 145–146; Childs (2011), pp. 251–252.
470Eljuri and Trevino (2015), pp. 314–315.
471ICSID (2013) ConocoPhillips v. Venezuela, Decision on Jurisdiction and the Merits, 3 September 2013; Italaw (2019) Mobil Corp., Venezuela Holdings et al. [ExxonMobil]
v. Venezuela, https://www.italaw.com/cases/713; ICSID (2013) OPIC Karimum Corporation v. Venezuela, Award, 22 May 2013; Eljuri and Trevino (2015), pp. 314–315 with further references.
See too the proceedings between Repsol and Argentina, which ended in settlement, Italaw (2019) Repsol. v. Argentina,https://www.italaw.com/cases/2046(both last accessed 14 May 2021); Eljuri and Trevino (2015), p. 315.
472For cases concerning DMOs, see e.g. PCA (2010)Chevron Corporation v. Republic of Ecuador, Partial Award on the Merits, 30 March 2010; Childs (2011), pp. 241–243 with further references.
4.3 The Imbalance of TCL in Favour of Economic Objectives 145
generated by oil corporations.473The tax was setfirst at 50 %, later at 99 %.474Both theBurlington and Perenco tribunals, which had to assess the identical operative facts, held that the windfall profits tax didnotconstitute an indirect expropriation.475 ThePerencotribunal noted that
. . .it would be unsurprising to an experienced oil company that given its access to the State’s
exhaustible natural resources, with the substantial increase in world oil prices, there was a chance that the State would wish to revisit the economic bargain underlying the contracts.476 In 2002, 2004 and 2007 respectively, Argentina introduced export taxes on hydrocarbons, which had been ‘designed to prevent producers from receiving more than forty-two U.S. dollars per barrel of oil produced.’477In reaction to these taxes, at least five corporations initiated arbitral proceedings against Argentina, including the French TNC Total.478Total claimed that the export tax would consti-tute a breach of the FET standard. The tribunal, however, considered that the tax constituted an ordinary fiscal measure as part of the general fiscal framework therefore dismissing Total’s claim.479
Another measure taken by Ecuador involved changes in the right to be reim-bursed of the value-added tax (VAT) paid when purchasing goods and services that were needed for commodity activities.480 This gave rise to two arbitrations, one involving the US corporation Occidental Exploration and Production Com-pany (Occidental).481The tribunal inOccidentalheld that the changes in the VAT reimbursement scheme constituted a breach of the FET standard given that it
473‘Extraordinary income’constituted‘the difference between the market price of Ecuadorian oil actually sold and the average market price of oil at the time the contracts were executed, multiplied by the number of barrels produced’, Eljuri and Trevino (2015), p. 321; Italaw (2019)City Oriente v. Ecuador, ICSID Case No ARB/06/21, https://www.italaw.com/cases/3432; Italaw (2019) Perenco v. Ecuador, ICSID Case No ARB/08/6, https://www.italaw.com/cases/819; Italaw (2019) Burlington v. Ecuador, ICSID Case No ARB/08/5, https://www.italaw.com/cases/181;
Italaw (2019)Murphy Exploration v. Ecuador, ICSID Case No ARB/08/4,https://www.italaw.
com/cases/723(all last accessed 14 May 2021); Childs (2011), p. 233; Eljuri and Trevino (2015), pp. 321–3.
474Eljuri and Trevino (2015), p. 321.
475Eljuri and Trevino (2015), p. 322.
476ICSID (2014) Perenco v. Ecuador, Decision on Remaining Issues of Jurisdiction and on Liability, 12 September 2014, para. 588; the tribunal held, however, that the introduction of the windfall profit tax i.a. constituted a breach of contract, Eljuri and Trevino (2015), p. 322.
477Eljuri and Trevino (2015), p. 323; Childs (2011), pp. 235–237.
478ICSID (2011) El Paso v. Argentina, Award of 31 October 2011; ICSID (2006) Pan Am. v. Argentina, Decision on Preliminary Objections, 27 July 2006; ICSID (2008)Wintershall v. Argentina, Award of 8 December 2008; ICSID (2010)Total v. Argentina, Decision on Liability, 27 December 2010; Eljuri and Trevino (2015), p. 323; Childs (2011), p. 235.
479Eljuri and Trevino (2015), p. 324.
480Eljuri and Trevino (2015), p. 324.
481LCIA (2004)Occidental v. Ecuador, Final Award of 1 July 2004; and LCIA (2006)EnCana v. Ecuador, Award, 3 February 2006; Eljuri and Trevino (2015), p. 325.
‘significantly changed the framework under which its investment had been made.’482