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This short paper follows informal comments which were sent through the OGEMID e-forum in response to Sumio Kozawa's article in the Journal of World Investment.[1]
We would like to add to Mr Kozawa's already extensive analysis by briefly trying to assess the reasons why a state party to both the Energy Charter Treaty (ECT) and the WTO Agreements (WTO) would choose one or the other set of rules in a dispute with another fellow ECT and WTO contracting party. Talking from the ECT point of view and without going back to either the ECT or the WTO dispute settlement provisions (something which was aptly developed by Mr Kozawa), there are a few arguments that could be advanced in favour of a state party using ECT Article 27 (ECT 27) instead of the procedure under Dispute Settlement Understanding of the WTO Agreements (DSU).
For the purpose of this discussion, it is assumed that the subject matter of the dispute falls within one of the GATT 1994 provisions (eg: Art V transit) and can also be adjudicated under ECT 27 (the scope and likelihood of such disputes are thus limited).
It seems to us to be a choice between the known advantages of the modern set of arbitration rules that can be chosen under ECT 27 and which leaves the parties in near complete command of the process against, on the other hand, a set of rules (DSU) which still allows considerable room to the slowly fading (but still powerful) 'state sovereignty' doctrine.
This might be illustrated by some of the features of the two sets of the dispute settlement procedures. This is not meant to be an exhaustive list and are simply 'off-the-cuff' ideas triggered by Mr Kozawa's article:
4. the absence of any award on compensation (ie damages) under DSU. This is explained by some as the prevalence of a ‘distributive’ over a ‘corrective’ justice.[3] The latter is seen more as a retroactive system which covers past breaches and tries to remedy their effects rather than, like the former, a prospective system which works for the future without assessing the economical or other impact of past breaches. Alternatively, the ECT, unlike the self-contained DSU, leaves the doors wide open to general principles of international law in relation to compensation for damages.[4]
Modern procedural rules (incorporated 'by reference' under ECT 27) treat a state party on par with any private party and expose them to the full rigour of modern international arbitration while allowing state parties to tailor the rules to those which they deem appropriate (viz: ECT 27(3)(f) with the UNCITRAL Rules 1976) provided, of course, they can agree.
This is not meant to be a laudation of ECT 27 against DSU. DSU has some very useful provisions [among others, I have in mind DSU 4(7)/5(4) provisions compared to the seemingly weaker ECT 27(1) together with the useful time limits imposed throughout by DSU -but quid in practice when coupled with implementation eg:Bananas[5] ? Note also that strict timetabling can also apply to a procedure under ECT 27 if the parties have chosen, for example, the 1998 ICC arbitration rules (see ICC 1998 Art 18.2 and 24.1) or have tailored the UNCITRAL Rules to include a strict procedural timetable].
In conclusion, in the context of Mr Kozawa's article and irrespective of whether this is a pre or post-investment dispute, we would think that ECT gives sovereign states an opportunity to adopt a more mature attitude to dispute resolution by embracing the modern rules of international arbitration; is this not the best prophylaxis to a dispute arising or at the very least, a strong incentive for an early and amicable settlement ? This is another debate.
Pascal Laffont, 21 Nov 2002
PS: the above views are my own and do not necessarily reflect those of the Secretariat.
[1] A Comparison of the Dispute Settlement Provisions of the WTO and the Energy Charter Treaty in JWI, vol. 3, no. 5, Oct 2002, p.793
[2] This procedure has been adequately explained by Kym Anderson in Peculiarities of retaliation in WTO dispute settlement in WTR (2002), 1:2, p.123
[3] See, for instance, Chi Carmody in Remedies and Conformity under the WTO Agreement in JIEL, vol. 5 no. 2, June 2002, p.307
[4] See, among others, Joost Pauwelyn’s Enforcement and Countermeasures in the WTO: Rules are rules - Toward a more collective approach in 94 A.J.I.L. 335. Pauwelyn’s comments below is a point in case:
An interesting consequence of the EC--Bananasdecision is that a member could win a case all the way through the Appellate Body without having a tangible trade interest in the WTO-inconsistent measure. When that member was faced with noncompliance, however, it would not be able to claim compensation or, arguably, retaliation; retaliation is explicitly linked to "nullification and impairment" of benefits, that is, to trade effects. This situation is representative of the growing tension within the WTO legal system between protecting bilateral-contractual balances and enforcing multilateral rules.”
[5] Ec – Bananas, arbitration report, WTO Doc. WT/DS27/ARB
