YOUR HEADING HERE10.05.2011

The Significance of the ICJ decision in Pulp Mills on the River Uruguay for Multinational CorporationsLarissa Prevett LL.B, LL.M

About the Case:

• “Clearly the most important case on

international environmental law decided by

any international court so far.” (Prof. Alan

Boyle, 2010)

• Strengthens the case for multinational

corporations (“MNCs”) to assume a role in the

advancement of international environmental

law (“IEL”) and Business & Human Rights

Background to the Dispute:• By 2005 - Uruguay set to host two major

investments for commercial eucalyptus plantations & cellulose production (ENCE & Botnia)

• Uruguay’s manufacturing sector is underdeveloped & Botnia’s $1.2bn investment was the largest FDI in its history

• Paper pulp mills to be built on the River Uruguay

• Cellulose production – water & chemical intensive process; raises environmental concerns for those affected

River Uruguay: a shared resource

The River Uruguay Statute • International treaty between Uruguay and

Argentina signed in 1975

• Governs use of shared resource– Procedural & substantive obligations

– Jointly intended to ensure the “optimum and rational utilization of the River Uruguay” (art 1)

• 3 important points:– Art. 60 gives the ICJ jurisdiction to resolve disputes

– Art. 7 establishes obligation to notify CARU & other side of plans for exploitation of the shared resource

– Substantive obligations on environmental protection

Relevant substantive obligations:• Art. 35

– The obligation to ensure that the management of the soil and woodland does not impair the regime of the river or the quality of its waters

• Art. 36

– The obligation to co-ordinate measures to avoid changes in the ecological balance

• Art. 41

– The obligation to prevent pollution and preserve the aquatic environment

The dispute:• Argentina invoked art 60 and instigated proceedings against

Uruguay– Procedural breach – failure to notify

– Substantive breach of environmental protection clauses made construction & production illegal

• “Not simply a case about a river treaty” (Prof. Alan Boyle, 2010)

• Requirement of general international law to carry out effective environmental impact assessments where there is potential trans-boundary harm

• The plants, and the decision authorising them, were alleged not the comply with international standards regarding effluent emission from pulp mills

Timeline• 2005 – Construction of Botnia plant began

• May 2006: Argentina files an application with the ICJ

• May 2006: Argentina Request for Indication of Provisional Measures (rejected)

• October 2006: World Bank Study published stating project meets all relevant

IEL standards

• November 2006: Uruguay Request for Indication of Provisional Measures

(rejected)

• 2007 – Production of cellulose at Botnia plant began

• 2008 – First 1million tonnes of cellulose produced by Botnia

• April 2010: Final Judgment

• October 2013: Pulp Mills II??

– Botnia seeking to build a second mill; feasibility under consideration

– Argentina threatening retaliation

The decision: procedure• Despite procedural and substantive obligations jointly

required to comply with art. 1 of the 1975 Statute, each was to be considered separately by the Court

• 13:1 Decided that Uruguay had committed a procedural breach under art 7

– “the notification to Argentina of the environmental impact assessments for …mills did not take place through CARU, and that Uruguay only transmitted those assessments to Argentina after having issued the initial environmental authorizations for the two mills in question” (para. 121)

– The failure to notify did not amount to the illegality of the construction

The decision: substantive • 11:3 Decided that Uruguay had not infringed substantive

obligations relating to environmental protection under the 1975 Statute– Argentina unable to demonstrate impact of Uruguay’s major

eucalyptus planting operations on the river waters (para 180)

– Argentina unable to demonstrate that Uruguay refused to engage with CARU on co-ordinating measures (para 189)

– Re art 41, “there is no conclusive evidence in the record to show that Uruguay has not acted with the requisite degree of due diligence or that the discharges of effluent from the Orion (Botnia) mill have had deleterious effects or caused harm to living resources or to the quality of the water or the ecological balance of the river since it started its operations in November 2007” (para 265)

The court confirmed..• Decision largely consistent with precedent

– No forum shopping / letting international treaty obligations in the back door

– The obligation of prevention is about due diligence not outcome

– Requirements of due diligence:• “adoption of appropriate rules and measures” (para 197)

• “a certain level of vigilance in their enforcement”

• “the exercise of administrative control applicable to public and private operators”

• “careful consideration of the technology to be used” (para 223)

• EIA and notification

The judgment’s significance: • reconciles equitable use, protection of the

environment and sustainable development

• treats EIA as a distinct and freestanding trans boundary obligation in international law

• left open issue of whether ICJ has the competence to assess the adequacy of a trans boundary EIA

• controversial question of whether the court should have appointed third party experts and whether it is the right forum to resolve this kind of dispute

Above all..• Decision was significant for investors – any other decision would have sent

the wrong signal– Investors had fully collaborated with host’s EIA process

– Investors voluntarily adhered to EU “BAT” standards and effluent guidelines

– Project was both World Bank and IMF approved

– Declaring this investment illegal would have discouraged host countries from holding MNCs accountable and MNCs from acting responsibly

• Raises the point that:– FDI magnifies the potential for environmental damage on a global scale; BUT

– corporations are also a source of technical innovation with capacity to: • provide solutions to environmental challenges; and

• disseminate environmentally friendly technologies and management practices.

Interesting observations:• Botnia’s investment behaviour

– pivotal role in Uruguay’s favourable result

– a template for responsible investment?

• Scope for MNCs to contribute to IEL through

their investments in less developed countries

(“LDCs”)

Regulatory gap:

• LDCs compete for FDI and leads to a lowering of standards on the environment

• Lack of multilateral agreement in area of international investment

– bilateral investment treaties (“BITs”) are a main source of regulation and as a rule overlook the environment

• Sources of international regulation for MNCs are voluntary

Concluding thoughts:• There is scope for MNCs to advance IEL & host country standards,

but soft law instruments and initiative are usually insufficient

• MNCs are tweaking strategy to maintain competitiveness in a changing environment but only generally to the minimum level required

• Increased reference to the environment in BITs is positive– waiting for customary law to develop is not enough;

– need to cross-reference IEL standards in BITs and prevent investors from undermining host countries in individual investment contracts

• As with Ruggie’s Guiding Principles on Business & Human Rights, the role of States in requiring MNCs to adhere to international standards in their global operations is indispensable and this role can in part be fulfilled through more effective BIT negotiations.

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