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MarcBungenberg

StephanHobe Editors

Permanent
Sovereignty
over Natural
Resources

Permanent Sovereignty over Natural Resources

ThiS is a FM Blank Page

Marc Bungenberg Stephan Hobe


Editors

Permanent Sovereignty over


Natural Resources

Editors
Marc Bungenberg
Europa-Institut
Saarland University
Saarbruecken
Germany

Stephan Hobe
Faculty of Law
University of Cologne
Cologne
Germany

ISBN 978-3-319-15737-5
ISBN 978-3-319-15738-2
DOI 10.1007/978-3-319-15738-2

(eBook)

Library of Congress Control Number: 2015938326


Springer Cham Heidelberg New York Dordrecht London
Springer International Publishing Switzerland 2015
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Editors Foreword

Resolution 1803 (XVII) of the United Nations General Assembly from


14 December 1962 on permanent sovereignty over natural resources is now
more than half a century old. It can be regarded as the kickoff for the development
of an international law on natural resources consisting of principles of customary
international law as well as treaty law. This symposium volume deals with the
development of this principle, its limits as well as corresponding rights and duties.
In the last 50 years, several new developments in specific areaseven special
regimes such as the UN Convention on the Law of the Seashave brought limits
to the Principle through public international law, as well as through national and
regional legal developments.
In the introductory chapter, Stephan Hobe1 draws the attention on the evolution
of the permanent sovereignty principle. He especially highlights the development
from soft law only being mentioned in resolutions of the General Assembly of the
United Nations to being recognized as a principle of customary international law by
the International Court of Justice in his jurisprudence in 2005. One can observe a
change of focus of the discussion from self-determination to permanent sovereignty. Finally, the UN General Assembly adopted the Resolution 1803 on Permanent Sovereignty over Natural Resources on 14 December 1962.
Nico Schrijver2 gives then an idea of the different aspects of the permanent
sovereignty over natural resources principle and highlights especially the balance of
rights and duties that forms an integral part of its todays substance. Core of the
Principle of Permanent Sovereignty over Natural Resources was first the protection
of economic independence and the development of resource-rich countries. After
the emphasis on permanent sovereignty in the era of decolonization, todays main
questions are raised in the direction of the fair and equitable allocation of resources.
The Principle is thus more characterized by human rights and environmental
1
2

See p. 1.
See p. 15.
v

vi

Editors Foreword

protection considerations, a development which could hardly have been foreseen


50 years ago.
Central topics of resource management regimes are generally questions of State
access to natural resources, mining and exploitation concessions as well as the
necessary infrastructure. Thus, Friedl Weiss3 seeks to identify common and universal principles of international law as to whether and to what extent they are
applicable to resource management. He takes into account regime theory, according
to which States coordinate their behavior under circumstances where decentralized
and uncoordinated decision-making does not lead to optimal results. He thereby
explains globalization phenomena. Weiss argues that most of the existing or
developing common or universal principles for resource management exist in the
field of international environmental law.
More regional approaches to resource management are taken up by the contributions of Fernando Loureiro Bastos,4 Richard Roeder5 and Manjiao Chi.6 Bastos
describes A Southern African approach to the permanent sovereignty over natural
resources and common resource management systems, Roeder focuses on the
examination of Australias Resource Management System in the light of UNGA
Resolution 1803, and Manjiao Chi argues that the permanent sovereignty principle
has profound economic implications touching upon foreign investment protection
and foreign trade governance. Because of Chinas economic rise and its changing
status in the international community as well as its frequent participation in
international resource-related dispute settlement, this country began to shift its
attitude in regard to resource sovereignty from a developing country-positioned
and ownership-oriented attitude towards a community-based and governanceoriented attitude.
Viewed from the opposite perspective of mining companies and their home
countries, the focus lies on the protection of investments. International resource
companies have often secured mining concessions in developing countries for
dumping prices, which in various cases has led to the nationalization of even entire
sectors in the raw materials sector. Still ongoing expropriations of foreign investors
in the resources sectorrecently, e.g., in the oil sector in Argentina, Bolivia and
Venezuelashould have seen an adequate compensation according to the 1962
resolution. But the backlash came: In the course of discussion about the New
International Economic Order the compensation amount was considered to be at
the discretion of the expropriating States, as opposed to even the minimum standard
as part of the law of aliens that demanded a higher, i.e. adequate compensation. In
agreements on international investment lawmostly bilateral investment
treatiesespecially capital exporting countries have enforced compensations oriented at the market value of the respective investment. Through that, expropriations

See p. 29.
See p. 61.
5
See p. 79.
6
See p. 97.
4

Editors Foreword

vii

of sovereign States have in fact been hindered. In this context, Marc Bungenberg7
writes on Evolution of Investment Law Protection as Part of a General System of
National Resources Sovereignty, and draws the attention not only to common
origins, but also to common parallel developments especially in the area of the
inclusion of non-economic issues into international economic (investment) law.
Modern international environmental law demands from resources-rich countries to
implement assessments of environmental effects of resource exploitation due to
environmental damages with cross-border effects, contrary to past opinions that
even cross-border contaminations could not hinder sovereign determination of the
use of natural resources. Shotaro Hamamoto8 argues that compensation standards in
national resources law might differ depending on whether a simple expropriation or
a nationalization has taken place. He concludes that a strict application of the Hull
formula is to be limited to cases of individual expropriations.
At the end of the papers which discuss the interrelation between national
resources law and investment law, Andre Thomashausen9 draws the attention
onto (Foreign) Investment Strategies in Africa. Out of 53 African States 43 have
adopted the World Banks ICSID investment dispute settlement mechanism. For
them, this triggers significant increases in FDI flows to Africa. The same can be
observed by looking at the ChinaAfrica Cooperation (FOCAC).
As already mentioned, the right on permanent sovereignty is accompanied by
duties of the resources-rich States as well as of the companies. The areas with the
most dynamic development probably are human rights and environmental protection as well as the taking of measures against corruption in the wake of good
governance initiatives. Karl M. Meessen10 points out that business, i.e. De Beers,
along with governments, mainly of consumer States, started operating a worldwide
certification scheme which effectively distinguishes into stolen blood diamonds and
their legally marketed clones. Although Meessen argues that on other occasions, it
may not be that simple to identify equally effective incentives when business is
being asked to actively promote human rights and good governance, nevertheless
given the mixed prospects of judicial enforcement, Kimberley should be kept in
mind. The extraterritorial enforcement of national law gains momentum in the
protection of international human rights. Against individual non-State actors the
extraterritorial enforcement of national law has been applied. Royal Dutch (Shell),
for example, has been sued in a court in Den Haag for damages for the contamination of soil and groundwater. In the United States, civil damage claims have been
based on the Alien Tort Claims Act, but a fundamental judgment of the US
Supreme Court is eminent. This case concerns complaints against the oil company

See p. 125.
See p. 141.
9
See p. 155.
10
See p. 173.
8

viii

Editors Foreword

for aiding and abetting human rights violationsalso in Nigeria. Thus, Hans-Georg
Dederer11 analyzes extraterritorial possibilities of enforcement of human rights in
cases of violations, and states, that the victims of human rights violations may try to
bring claims against the host State or against the transnational corporations home
State or against the transnational corporation itself. They may choose to file such
civil lawsuits with foreign courts, i.e. with courts of a third State, even though such
damage claims before foreign courts will be hardly ever successful, as the Kiobel
case under the Alien Tort Statute (ATS) in the U.S. Supreme Court shows.
With this, many aspects of the general topic themes have been covered. However, a lot of research is still necessary. This is the case, for example, with regard to
transparency and the general fight against corruption. In just a few years, international consensus for a better transparency in the natural resources sector has been
reached. On the European level, the committee on legal affairs of the European
Parliament urges Europe-based mining companies to publish their payments not
only for each country, but also for each project. Similar obligations have been
introduced in the United States through the Dodd-Frank-Act in 2010, which has
rearranged US law concerning the financial market and will affect all listed
companies. In a parallel development, we find the Extractive Industry Transparency
Initiative (EITI), whose members now include 36 States and several mining corporations, public and private organizations as well as a big number of institutional
investors. Additionally, the now 10-year-old Publish What You Pay Initiative
facilitates the publication of payments in the mining sector.
From the original principle which was highly focused on the economic interests
of developing countries, an international resources law has emerged. It consists of
investment law as well as international rules on good governance and the protection
of the environment. In this respect, a prognosis is possible insofar as global
struggles for the allocation of resources will bring an INTERNATIONAL
RESOURCES LAW to the center of attention. It is hoped that this book may add
a bit to the necessary discussion about this old and new topic.
As organizers of the Conference Permanent Sovereignty over Natural
Resources and editors of this volume, we would like to thank the FoKoSThe
Research Centre Shaping the future of Siegen University for the support of the
conference. Anna Dulski (Siegen University) took care of the layout of the manuscript of this volume. Finally, we would like to thank Dr. Brigitte Reschke from
Springer for accepting this volume as a Springer publication.
Siegen, Germany
Cologne, Germany
March 2015

11

See p. 187.

Marc Bungenberg
Stephan Hobe

Abbreviations

AB
ABAJ
AEAA
A.F.D.I.
AIOC
AJIL
Am. U. Intl L. Rev
appr.
Art./Arts.
ASEAN
ASIL Proc.
ASIL Insights
ATS
AU$
Aust J Agri Res Econ
BEQ
BIT
BoG
BP
BYIL
CC
CDB
CETA
China Q.

Appellate Body
American Bar Association Journal
African East-Asian Affairs
Annuaire Francais de Droit International
Anglo Iranian Oil Company
American Journal of International Law
American University International Law Review
Approximately
Article/Articles
Association of Southeast Asian Nations
American Society of International Law
Proceedings
American Society of International Law Insights
Alien Tort Statute
Australian Dollar
The Australian Journal of Agricultural and
Resource Economics
Business Ethics Quarterly
Bilateral Investment Treaty
Bank of Ghana
British Petroleum
British Yearbook of International Law
German Criminal Code
China Development Bank
EU-Canada Comprehensive Trade and
Investment Agreement
The China Quarterly

ix

CISDL
CJICL
Co.
CSIEL
DAC
DAJV
DePaul L. Rev.
DRC
DSB
DSU
ECJ
ECOWAS
edn.
EDR
ed(s)
EEZ
EFTA
e.g.
EITI
EJIL
ELJ
Envtl. L.
ESCAP
et seq.
EU
E&C clauses
EuR
FATA
FDI
FET
FIRB
fn.
FOCAC
Fordham Intl L. Rev.
Foreign Aff.
freq.
FTA
GATT
GDP

Abbreviations

Center for International Sustainable Development


Law
Cardozo Journal of International and
Comparative Law
Company
Chinese Society of International Economic Law
Development Assistance Committee
Deutsch-Amerikanische Juristen-Vereinigung
DePaul Law Review
Democratic Republic of the Congo
Dispute Settlement Body
Dispute Settlement Understanding
European Court of Justice
Economic Community of West African States
Edition
Economic Demonstrated Resources
Editor(s)
Exclusive Economic Zone
European Free Trade Association
Exempli gratia
Extractive Industries Transparency Initiative
European Journal of International Law
European Law Journal
Environmental Law
Economic and Social Commission for Asia and
the Pacific
Et sequence
European Union
Expropriation and compensation clauses
Europarecht
Foreign Acquisition and Takeovers Act
Foreign Direct Investment
Fair and equitable treatment
Foreign Investment Review Board
Footnote
Forum on ChinaAfrica Cooperation
Fordham International Law Review
Foreign Affairs
Frequently
Free Trade Agreement
General Agreement on Tariffs and Trade
Gross Domestic Product

Abbreviations

Glob. Gov.
GNPC
GoG
GPPR
Harv. Envtl. L. Rev
HuV-I
i.a.
IA Reporter
Ibid.
ICC
ICJ
ICJ Review
ICLQ
ICSID
ICTSD
i.e.
IGO
IIA
IJIL
ILA
ILC
ILM
ILO
IMF
Ind. J. Global Legal Stud.
Intl Law
IO
ISA
ISO
ITLS
ITN
JAL
J. Bus. Ethics
J. Conflict Resolut.
J. Dev. Stud
JENRL
JIEL
J. Int. Arb.
JPS
JWIT
J.W.T.

xi

Global Governance
Ghana National Petroleum Corporation
Government of Ghana
The Georgetown Public Policy Review
Harvard Environmental Law Review
Humanitares Volkerrecht - Informationsschrift
Inter alia
International Arbitrator Reporter
Ibidem
International Criminal Court
International Court of Justice
International Commission of Jurists Review
International and Comparative Law Quarterly
International Centre for Settlement of Investment
Disputes
International Centre for Trade and Sustainable
Development
Id est
International Governmental Organisation
International Investment Agreement
The Indian Journal of International Law
International Law Association
International Law Commission
International Legal Materials
International Labour Organization
International Monetary Fund
Indian Journal of Global Legal Stud.
The International Lawyer
International Organization
Investor-state arbitration
International Organization for Standardization
International Tribunal of the Law of the Sea
Investment Treaty News
Journal of African Law
Journal of Business Ethics
The Journal of Conflict Resolution
The Journal of Development Studies
Journal of Energy & Natural Resources Law
Journal of International Economic Law
Journal of International Arbitration
Journal of Peasant Studies
Journal of World Investment & Trade
Journal of World Trade

xii

JYIL
JZ
LDD
Liamco
MEP
MFA
MIGA
MLR
M.L.R.
m. n.
MoFEP
MRA
MRR
MRRT
NDRC
NEPAD
NGO
NIEO
NILR
nm
Nw. JIHR
Nw. J. Intl L. & Bus.
NZ
OECD
OHBLA
OPEC
OPIC
p(p).
para.
PCA
PDGG
PGSA
PGSR
PPP
PRC
PRRT
PSNR
PwC

Abbreviations

Japanese Yearbook of International Law


Juristenzeitung
Law, democracy & development
Libyan American Oil Company
Ministry of Environmental Protection
Master Facility Agreement
Multilateral Investment Guarantee Agency
Ministry of Land and Resources
The Modern Law Review
Marginal number
Ministry for Finance and Economic Planning
Mineral Resources Act
Mineral Resources Regulation
Minerals Resource Rent Tax
National Development Reform Commission
New Partnership for Africas Development
Non-Governmental Organisation
New International Economic Order
Netherlands International Law Review
Nautical miles
Northwestern Journal of International Human Rights
Northwestern Journal of International Law and
Business
New Zealand
Organization for Economic Co-operation and
Development
Organization for the Harmonization of Business
Law in Africa
Organization of the Petroleum Exporting
Countries
Overseas Private Investment Corporation
Page(s)
Paragraph
Permanent Court of Arbitration
Participatory Development and Good
Governance
Petroleum and Gas (Production and Safety) Act
Petroleum and Gas (Production and Safety)
Regulations
Polluter-Pays-Principle
Peoples Republic of China
Petroleum Resource Rent Tax
Permanent Sovereignty over Natural Resources
PricewaterhouseCoopers

Abbreviations

Rev. Droit Intl & Legis. Comp.


Rev. Intl Stud.
RIW
RPT
SACU
SADC
Sa Merc LJ
SASAC
SAYIL
Sect.
Tcf
TDM
TEU
TFEU
TOPCO
Trans. Grot. Socy
UN
UNCTAD
UNDP
UNEP
UNGA
UNIPEC
UNTS
U. Pa. J. Intl L.
US
US$
v.
WAEMU
WBI
WBRO
WHO
Wld. Today
WTO
Yale L. J.
Za
oRV

xiii

Revue de Droit International et de Legislation


Comparee
Review of International Studies
Recht der Internationalen Wirtschaft
Reasonable period of time
Southern African Customs Union
Southern African Development Community
South African Mercantile Law Journal
State-owned Assets Supervision and
Administration Commission
South African Yearbook of International Law
Section
Trillion cubic feet
Transnational Dispute Management
Treaty on the European Union
Treaty on the Functioning of the European Union
Texaco Overseas Petroleum Company
Transactions of the Grotius Society
United Nations
United Nations Conference on Trade and
Development
United Nations Development Programme
United Nations Environment Programme
United Nations General Assembly
China International United Petroleum &
Chemicals Co.
United Nations Treaty Collection
University of Pennsylvania Journal of
International Law
United States
US Dollar
Versus
West African Economic and Monetary Union
World Bank Institute
World Bank Research Observer
World Health Organization
The World Today
World Trade Organization
The Yale Law Journal
Zeitschrift fur auslandisches offentliches Recht
und Volkerrecht

ThiS is a FM Blank Page

Contents

Evolution of the Principle on Permanent Sovereignty Over Natural


Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stephan Hobe
Fifty Years Permanent Sovereignty over Natural Resources . . . . . . . . .
Nico J. Schrijver
(Existence of) Common or Universal Principles for Resource
Management (?) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Friedl Weiss and Bernhard Scherzer
A Southern African Approach to the Permanent Sovereignty
over Natural Resources and Common Resource Management
Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fernando Loureiro Bastos
Australias Resource Management System in the Light of UNGA
Resolution 1803 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard W. Roeder
From Ownership-Orientation to Governance-Orientation . . . . . . . . . . .
Manjiao Chi

1
15

29

61

79
97

Evolution of Investment Law Protection as Part of a General System of


National Resources Sovereignty (and Management)? . . . . . . . . . . . . . . . 125
Marc Bungenberg
Compensation Standards and Permanent Sovereignty over Natural
Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Shotaro Hamamoto

xv

xvi

Contents

(Foreign) Investment Strategies in Africa . . . . . . . . . . . . . . . . . . . . . . . . 155


Andre Thomashausen
Kimberley as a Means of Promoting Good Governance: The Role of
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
Karl M. Meessen
Extraterritorial Possibilities of Enforcement in Cases of Human Rights
Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Hans-Georg Dederer
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217

Evolution of the Principle on Permanent


Sovereignty Over Natural Resources
From Soft Law to a Customary Law Principle?
Stephan Hobe

Contents
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
B. The Development of the Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
I. The Roots . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
II. The Starting Process of Decolonization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
III. UNGA Resolution 1803 Permanent Sovereignty Over Natural Resources . . . . . . . . . . . . 6
IV. Consequences for the 1803-Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
V. The Battle for a New International Economic Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
VI. After the New International Economic Order (NIEO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
C. Legal Status of the Principle of Permanent Sovereignty Over Natural Resources . . . . . . . . . 10
D. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Abstract The contribution deals with the evolution of the principle of permanent
sovereignty over natural resources and its status in international law. The origin of
the principle, which has its roots in the claim for self-determination of newlyindependent States and in the question of economic development of developing
countries, can be traced back to various resolutions of the United Nations General
Assembly. Special attention is paid to Resolution 1803 of 14 December 1962 which
serves as the landmark resolution regarding permanent sovereignty over natural
resources since it emphasizes several economic aspects of the principle. The
analysis of various further UNGA resolutions leads to the observation that the
debates during the process of the evolution of the principle had primarily focused
on developmental dimensions. At later times aspects of conservation and rational

S. Hobe (*)
Institute of Air and Space Law, International Investment Law Centre Cologne, Cologne,
Germany
University of Cologne, Albertus-Magnus-Platz, 50923 Cologne, Germany
e-mail: Stephan.hobe@uni-koeln.de
Springer International Publishing Switzerland 2015
M. Bungenberg, S. Hobe (eds.), Permanent Sovereignty over Natural Resources,
DOI 10.1007/978-3-319-15738-2_1

S. Hobe

use of natural resources were included as well. Regarding the legal status of the
principle in international law the development from a non-binding concept to a
principle of customary international law is highlighted, as was recognized in the
judgment of the International Court of Justice in the case DR Congo v. Uganda.

A. Introduction
There is a high likelihood that most of the important (armed) conflicts in our
twenty-first century will be those concerning resources.1 Although this type of
conflict is not entirely newlooking back e.g. to the Iraqi invasion into Kuwait,2
or the conflict between the Democratic Republic of Congo with Uganda in the
1990s, and conflicts in Nigeria, Burundi or Sierra Leone3 in the more recent past
the current conflict between several States at the arctic region4 is a vivid example of
struggles for the reason of getting access to mineral resources. It is a common
saying that the wars of the twenty-first century shall be wars for the reason of
securing strategic access to certain resources like water. Moreover, and adding to
the picture, we can find new reports about raw materials on celestial bodies, e.g.
platinum, that shall be recovered in the not all too distant future from asteroids.5
There is thus a strong necessity for getting orientation from the law. What does
international law say regarding the legal status of natural resources or raw materials? Do we have treaty provisions concerning this statusdoes all this depend on
the nature of the natural resource or is there one single law relating to natural
resources?
In order to answer these questions and then draw some further conclusions from
this answer I will first describe the development of what today is considered to be
the principle of permanent sovereignty over natural resources. Here the question is
at stake whether one can say that this is a principle of international law comparable
to other principles like the non use of force or the non-intervention principle?
To this end I will first, after a brief definition of what should be understood as
resources, sketch out the development of what today is characterized as the
principle of permanent sovereignty over natural resources by the International
Court of Justice in the Case of the Democratic Republic of the Congo v. Uganda
of 2005.6 Thereafter the current legal nature of this concept will be considered.

See Humphreys (2005), pp. 508537.


Greenwood (1991), pp. 3943.
3
ICJ, Armed Activities on the Territory of the Congo (Democratic Republic of the Congo
v. Uganda), Judgment of 19 December 2005, ICJ Reports 2005.
4
Dolata-Kreutzkamp (2009); Rainwater (2013), pp. 6282.
5
See Dambeck (2012).
6
ICJ, Democratic Republic of the Congo v. Uganda, Judgement of 19 December 2005, ICJ
Reports 2005, 1, 87, mn. 244.
2

Evolution of the Principle on Permanent Sovereignty Over Natural Resources

Finally I shall try to draw some conclusions from this legal genesis and come to an
appreciation of the legal nature of this principle.
Before we can start to describe the development of the principle of permanent
sovereignty over natural resources it is necessary to briefly define what we are
actually using as subject matter of this paper, namely the natural resources. Those
can be described as raw materials, of exhaustible or non-exhaustible nature, that can
be found overall over the globe and in the universe, and are subject to human
exploitation.7

B. The Development of the Principle


As has been correctly pointed out, the development of the principle of permanent
sovereignty over natural resources has two main roots: On the one hand the question
of economic development particularly of so-called developing countries is
involved, and on the other hand, the international legal principle of self-determination and pacta sunt servanda as well as a possible duty to cooperate for development.8 Right in the United Nations Charter one cannot directly find this principle
itself. Instead, the principle has various sources: undetermined is what one can find
in the UN Charter, more specific hints can be found in the two Human Rights
Covenants, and there we have most specifically the United Nations General Assembly (UNGA) Resolution 1803.

I. The Roots
The UN-Charter speaks in Article 2, paragraph 1 of sovereignty and thus introduces
the concept of territorial jurisdiction of States. Schrijver has correctly hinted to
several provisions of the preamble of the United Nations Charter which in its
paragraph 2 reaffirms faith. . . in the equal rights . . . of nations large and small.
In paragraph 4 of the preamble the promotion of social progress and better
standards of life in larger freedom are mentioned and Article 1, paragraph 2 mentions the principle of equal rights and self-determination of peoples. Moreover,
Article 2, paragraph 1 of the Charter introduces the principle of sovereign equality
and Article 55 the necessity to promote economic and social progress as well as the
development and the respect for human rights and fundamental freedoms. Thus
some kind of a ground work is already set in the United Nations Charter. But this
was not at all sufficient for the distinct feature of this principle to develop. As has
been correctly pointed out9 the principle has slowly developed from various

See for other definitions: 42 USCS 9601; 36 CFR 6.


See Schrijver (2008a), mn. 1.
9
See Schrijver (2008a), paragraph C.
8

S. Hobe

sources. Immediately after the Second World War there was a great dependence on
overseas raw materials, which most particularly was highlighted in the Atlantic
Charter of 1941 by the United States of America and the United Kingdom. Both
mentioned the issue of access, on equal terms, to the trade and to the raw materials
of the world which are needed for the economic prosperity.10 During the Bretton
Woods Conference of 1944 which led to the establishment of the Bretton Woods
institutions, both the International Bank for Reconstruction and Development in
Article 1, paragraph 3 of its articles, as well as the International Monetary Fund in
Article 1, paragraph 2 of its founding articles, saw a need to develop the productive
resources of all members. Equally paragraph 1 of the preamble of the 1947
General Agreement on Tariffs and Trade made the full use of the resources of
the world an important goal of this agreement to achieve. In 1947 the Food and
Agriculture Organization of the United Nations had organized an International
TIMBER Conference which was to consider the question of the availability of
timber for the reconstruction of countries that were destroyed during the war. The
Economic and Social Council organized in 1949 a Scientific Conference on the
Conservation and Utilization of Natural Resources and US President Harry Truman had proclaimed the new natural resources of the seabed and fisheries on the
High Seas US in the Policy in 1945 (so-called Truman Proclamation).11 In this
proclamation he found it necessary for the United States to extend the access to and
the control over natural resources like gas and oil within the continental shelf and to
fishery resources in established so-called conservation zones. Later, in 1952
Chile, Ecuador and Peru with the so-called Santiago Declaration on the Maritime
Zone12 had proclaimed to conserve and safeguard for their respective peoples the
natural resources of the Maritime Zones adjacent to their coasts (see paragraph 3
(2)).

II. The Starting Process of Decolonization


Up to these rather not very exiting first proclamations with regard to the necessity to
control natural resources, this area became one of international and common
interest when during the 1950s in their battle for decolonization the independence
movement led by the then still colonies discovered the necessity to control the
natural resources in their territory. First it was United Nations General Assembly
Resolution 523 (VI) of 12 January 1952 on integrated economic development and
commercial agreements which considered that the under-developed countries

10

See paragraph 5 of the Atlantic Charter of 1941.


See: http://www.cfr.org/world/truman-proclamation-policy-united-states-respect-natural-resourcessubsoil-sea-bed-continental-shelf/p20650, accessed 8 July 2013.
12
See: http://www.embaperu.org.au/embassy/pdfs/Maritime%20Delimitation%20Peru%20Chile.
pdf, pp. 11 et seq., accessed 8 July 2013.
11

Evolution of the Principle on Permanent Sovereignty Over Natural Resources

have the right to determine freely the use of their natural resources and that they
must utilize such resources in order to be in a better position to further the
realization of their plans of economic development in accordance with their
national interests, and to further the expansion of the World economy.13 Moreover
this Resolution underlines that commercial agreements shall not contain economic
or political conditions violating the sovereign right of the under-developed countries, including the right to determine their own plans for economic development.14
Around 1 year later UNGA Resolution 626 (VII) of 21 December 1952 as a followup of the Iranian nationalization of the Anglo-Iranian Oil Company in 1952 led to a
Draft Resolution submitted by Uruguay that recommended Member States to
recognize the right of each country to nationalize and freely exploit its natural
wealth, as an essential factor of independence.15
A little later both human rights Covenants, the International Covenant on Civil
and Political Rights as well as the International Covenant on Economic, Social and
Cultural Rights, both of 1966, contain a clause according to which all peoples may,
for their own ends, freely dispose of their natural wealth and resources without
prejudice to any obligations arising out of international economic cooperation,
based upon the principle of mutual benefit, and international law.
But it was essentially the work towards these two human rights treaties which
started in the 1950s with the aim of concretizing the legally unbinding Universal
Declaration of Human Rights of 10 December 1948,16 and which led in 1954 to the
division into two parallel treaties, the Civil Covenant and the Economic Covenant,
that during this time of preparation also contributed quite considerably to the
building up of the Principle of Permanent Sovereignty over Natural Resources. In
1958 a nine-member Commission on Permanent Sovereignty over Natural
Resources was established in order to conduct a full survey of this basic constituent of the right to self-determination, with recommendations, where necessary, for
its strengthening.17 The work of this Commission then resulted in the adoption of
the important Declaration on Permanent Sovereignty over Natural Resources, i.e.
United Nations General Assembly Resolution 1803 (XVII) of 14 December 1962.18

13

See UNGA Resolution 523 (VI) Integrated economic development and commercial agreements
of 12 January 1952, Preamble, paragraph 1.
14
Ibid., paragraph 1 (b).
15
See UNGA Economic Development of Under-Developed Countries: Uruguay, DraftResolution, paragraph 5 of the Preamble.
16
The Universal Declaration on Human Rights, http://www.un.org/en/documents/udhr/index.
shtml, accessed 8 July 2013.
17
UNGA Resolution 1314 (XIII) Recommendations concerning international respect for the right
of peoples and nations to self-determination of 12 December 1958.
18
See on this the monograph by Schrijver (2008b).

S. Hobe

III. UNGA Resolution 1803 Permanent Sovereignty Over


Natural Resources
With regard to natural resources UNGA Resolution 1803 on Permanent Sovereignty over Natural Resources is the key expression of international law so far. It
has a preamble and eight operative paragraphs as well as two additional paragraphs.
In short, in the first paragraph the rights of peoples and nations, the permanent
sovereignty over their natural wealth and resources is proclaimed and it is asserted
that such rights must be exercised in the interest of the national development and
the well-being of the peoples of the States concerned. Moreover, according to
paragraph 2, the exploration, development and disposition of natural resources
as well as the foreign capital required for these purposes, should be in conformity
with the rules and conditions which the peoples and nations freely consider to be
necessary or desirable with regard to the authorization, restriction or prohibition of
such activities. The following two paragraphs 3 and 4 contain rules for the
treatment of foreign investors. Here the national legislation of the host State and
international law shall be the crucial provisions and the profits derived from an
investment must be shared according to the proportions freely agreed upon . . .
between the investor and the recipient state. Moreover, nationalization, expropriation or requisitioning should be based on grounds of public utility, security or the
national interest (paragraph 4). Finally, there is the possibility of having recourse to
international adjudication and arbitration. This is the possibility to reconcile the
national standard proclaimed in the CALVO doctrine,19 advocated by the developing countries, on the one hand, with a minimum standard supported by the industrialized countries, on the other hand.20
In paragraph 5 of the Declaration the importance of the sovereign equality of
States is reiterated and paragraph 6 stipulates that international and development
cooperation must be aimed at, thus furthering the independent national development of developing countries and should be based upon respect for their sovereignty over their natural wealth and resources. Paragraph 7 stresses that any
violation of the principle of the Permanent Sovereignty over Natural Resources
is contrary to the spirit and the principles of the Charter of the United Nations and
hinders the development on international cooperation in the maintenance of peace,
and finally in paragraph 8 of the Declaration it is stipulated that foreign investment
agreements shall be observed in good faith and that states and international organisations respect the principles of Permanent Sovereignty over Natural Resources
in accordance with the Charter and the principles set forth in the present resolution.

19
20

Shaw (2008), p. 824.


Ibid., p. 823.

Evolution of the Principle on Permanent Sovereignty Over Natural Resources

IV. Consequences for the 1803-Resolution


There were practical consequences of this natural resources Declaration of 1962,
ever since developing countries looked for the concrete implementation of this
principle. In 1964 the United Nations Conference on Trade and Development
(UNCTAD) was founded21 and General Principle III of the Final Act of the
UNCTAD provided that every country has the sovereign right freely to trade
with other countries and freely to dispose of its natural resources in the interest of
the economic development and well-being of its own people. In this context the
United Nations General Assembly sought to establish a link between resource
sovereignty and development. It elaborated on the foreign-investment related provisions of the Natural Resources Declaration. Such found its expression in Resolution 2158 (XXI) of 25 November 1966, where it is stressed that in order to
safeguard the exercise of Permanent Sovereignty over Natural Resources, it is
essential that their exploitation and marketing should be aimed at securing the
highest possible rate of growth of the developing countries.22

V. The Battle for a New International Economic Order


At the time after the 1803-Declaration, in the 1970s the spirit of cooperation was
replaced by a rather strong confrontation in the battle over natural resources. All
culminated in efforts of developing countries to establish a New International
Economic Order (NIEO).23 A special session of the UN General Assembly was
exclusively devoted to the problems of raw materials and development. Here, the
United Nations General Assembly adopted without vote Resolution 3201 (S-VI) on
1 May 1974, which it entitled Declaration on the Establishment of the New
International Economic Order. This Resolution, strongly advocated by developing
countries, proclaimed inter alia in its paragraph 4 lit. e full permanent sovereignty
of every state over its natural resources and all economic activities. This should
include the right to nationalize resources or to transfer their ownership to nationals.
This Declaration on the New International Economic Order also asserted the right
to restitution and full compensation for the exploitation and depletion of natural
resources and all other resources of States and peoples under foreign occupation,
alien and colonial domination, or apartheid. Moreover, on 10 December 1974 the
United Nations General Assembly adopted the Charter of Economic Rights and

21
United Nations Conference on Trade and Development, http://unctad.org/en/Pages/About%
20UNCTAD/A-Brief-History-of-UNCTAD.aspx, accessed 8 July 2013.
22
Paragraph 5 of the Preamble of Resolution 2158 (XXI) Permanent sovereignty over natural
resources of 25 November 1966.
23
See on the New International Economic Order from a developing countries perspective:
Castaneda (1961), pp. 41 et seq; Anand (1962), pp. 384 et seq; Verwey (1981), pp. 1 et seq.

S. Hobe

Duties of States in UNGA Resolution 3281 (XXIX) of 12 December 1974.24 This


was a supplement to the Declaration on the New International Economic Order
and inter alia foresaw that according to Article 2, paragraph 1 of this Declaration
every state has and shall freely exercise full permanent sovereignty, including
possession, use and disposal, over all its wealth, natural resources and economic
activities. Here particularly Article 2 of the Economic Rights Charter contained
provisions that included the possibility of the host State to regulate foreign investment and nationalization. For example, Article 2 of the Economic Rights Charter
granted a State the right to regulate and exercise authority over foreign investment
within its national jurisdiction in accordance with its laws and regulations and in
conformity with its national objectives and priorities.25 It continued to underline
the need to regulate and supervise the activities of transnational corporations
within its national jurisdiction and take measures to ensure that such activities
comply with its laws, rules and regulations and conform with its economic and
social policies.26

VI. After the New International Economic Order (NIEO)


As has been correctly observed27 after the battle over the New International
Economic Order the center of gravity of this discussion shifted towards the increase
of international cooperation in the management of natural resources. The Stockholm Declaration of the United Nations Conference on the Human Environment in
Principle 21 limited any experience of sovereignty over natural resources by the
implicit reference to international law principles such as due diligence and due care,
good neighbourliness and State responsibility with regard to extraterritorial damage. Moreover, the United Nations Convention on the Law of the Sea28 led to a
thorough revision of coastal States sovereignty over marine resources. This convention extended the breadth of the territorial sea to 12 nautical miles and included
therein the full sovereignty over the natural resources. It moreover, introduced the
new rules as regards the breadth of a substantially extended continental shelf and
attributed exclusive rights to coastal States as regards the exploration of the
continental shelf and the exploitation of its natural resources. Furthermore, the
UN Convention on the Law of the Sea established a 200 nautical miles Exclusive

24

UNGA Resolution 3281 (XXIX) Charter of Economic Rights and Duties of States of
12 December 1974, http://unctad.org/sections/dite/iia/docs/Compendium/en/6%20volume%201.
pdf, accessed 8 July 2013.
25
Ibid., Art. 2 para. 2 lit. a.
26
Ibid., Art. 2 para. 2 lit. b.
27
See Schrijver (2008a).
28
United Nations Convention on the Law of the Sea, http://www.un.org/depts/los/convention_
agreements/texts/unclos/unclos_e.pdf, accessed 8 July 2013.

Evolution of the Principle on Permanent Sovereignty Over Natural Resources

Economic Zone (EEZ). As in the case of the continental shelf a coastal State does
not enjoy full sovereignty over the EEZ but only sovereign rights to the natural
resources.29
As can be observed the debate on sovereignty over natural resources had focused
primarily on the developmental dimension. However, later the conservation and
rational use aspect for the natural resources received attention. An early example is
the concept of the optimum sustainable yields in Article 2 of the 1958 Convention
on Fishing and Conservation of the Living Resources of the High Seas. The need to
reconcile economic development with environmental protection was finally coined
in the notion of sustainable development, introduced into international politics by
the World Commission on Environment and Development in its report on Our
Common Future issued in 1987.30 Concepts like sustainability and biological
diversity became in a growing way relevant as became evident in the New Declaration of 1992 on the World Summit on Sustainable Development in Johannesburg
10 years later.
Finally it is worth mentioning that particular problems can arise in territories
under occupation where one can find specific regulation in humanitarian international law like the Geneva Convention relative to the protection of civilian persons
in times of war.31 It was in this context thata bit different in focusthe International Court of Justice in the Democratic Republic of the Congo v. Uganda case32
had to clarify whether the Principle of Permanent Sovereignty over Natural
Resources remains applicable during foreign occupation. Other resolutions of the
United Nations General Assembly particularly with respect to the Israeli occupation
of Palestinian territory had made it clear that the General Assembly had reaffirmed
a right of peoples under occupation to restitution and full compensation for the
exploitation, the loss and the depletion of and damages to the natural resources in
territory under occupation.33 In the Israeli Wall Advisory Opinion34 the International Court of Justice had to deal with the difficult relationship of humanitarian law
and human rights, where the Court stated that human rights conventions do not
cease to be applicable in times of armed conflict, at least with regard to some
rights.35

29

Art. 55 of the United Nations Convention on the Law of the Sea.


So-called Brundtland Report, http://www.un-documents.net/our-common-future.pdf, accessed
8 July 2013.
31
Geneva Conventions, http://www.icrc.org/eng/assets/files/publications/icrc-002-0173.pdf,
accessed 8 July 2013.
32
ICJ, Democratic Republic of the Congo v. Uganda, ICJ Reports, http://www.icj-cij.org/docket/
files/116/10455.pdf.
33
See UNGA Resolution 3336 (XXIX) Permanent sovereignty over national resources in the
occupied Arab territories of 17 December 1974, http://daccess-dds-ny.un.org/doc/RESOLU
TION/GEN/NR0/739/38/IMG/NR073938.pdf?OpenElement, accessed 8 July 2013.
34
ICJ, Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory,
Advisory Opinion of 9 July 2004, http://www.icj-cij.org/docket/files/131/1671.pdf, accessed
8 July 2013.
35
Ibid., paras. 106 and 111.
30

10

S. Hobe

Thus one can see that after some rather general rules the concept of permanent
sovereignty over natural resources became central in the discussion through UNGA
Resolution 1803 of 1962. Ever since it played a role, be it in the context of the New
International Economic Order, be it with regard to the law governing foreign
investment. It has certainly lost its specific developmental aspect and today assembles various aspects of international law.

C. Legal Status of the Principle of Permanent Sovereignty


Over Natural Resources
In the previous paragraphs the description of the genesis of what was called by the
International Court of Justice a principle of international law has been described
in some detail in order to have a sound basis for the following consideration as to its
legal quality.
The genesis of this principle gives evidence of the imminent political environment of its coming into existence. It was the struggle of the formerly dependent
colonies for their independence that laid some of the bases for the creation of the
principle. Together with the declarations for a New International Economic Order,
the 1962 Declaration on Permanent Sovereignty over Natural Resources symbolized an important core element of this fundamental challenge. Rather than being
determined by othersin particular colonial powersdeveloping countries
proclaimed that their independence and their right to self-determination, together
with the fundamental principle of territorial sovereignty were the determining
factors of this claim. The claim had a sound basis in international law. Like has
been shown in the beginning, two concepts of self-determination and territorial
sovereignty, are fundamental parts of general international law. It is for this reason
that the strong plead should be made for the concept of Permanent Sovereignty over
Natural Resources being a principle of international law. Regardless of the legal
nature of the United Nations General Assembly Resolutions in general36 and of
Resolution 1803 in particular, which is rather disputed in international law, the core
elements of this concept have certainly emerged to something like a principle of
international law. Like sole arbitrator Rene Jean Dupuy had declared in its judgement of Texaco Overseas Co. v. Government of the Libyan Arab Republic37 the
Natural Resources Declaration of 1962 had been adopted by a great many states,
representing not only all geographical areas but also all economic systems and had
thus expressed an opinio juris communis reflecting the state of customary international law in this field, including the contentious issue of nationalization of foreign
property under international law.

36

Shaw (2008), pp. 114 and 1212.


Texaco Overseas Petroleum Co. and California Asiatic Oil Co. v. Government of Libyan Arab
Republic, Award of 19 January 1977, 17 ILM (1978), p. 1.
37

Evolution of the Principle on Permanent Sovereignty Over Natural Resources

11

It is for this reason that the question of the legal nature of United Nations General
Assembly Resolutions is not of overwhelming importance here. One can, of course,
state that UNGA resolutions do not have legally binding force per se, because the
United Nations General Assembly does not have a law making function under the
United Nations Charter. However, it has for good reason almost universally been
accepted that if and when the United Nations General Assembly reiterates several
times certain legal notions in a rather streamlined way over a certain period of time
one has to seriously consider this as an expression of a respective opinio juris which
also reflects the respective behavior of States so that one can speak about an
emerging norm of customary international law.38 In the case of the principle of
Permanent Sovereignty over Natural Resources this is all the more the case
because, as has been pointed out, this principle is based on other firmly established
and uncontested principles of international law.
Therefore, one can certainly conclude that the core of this principle is the
territorial sovereignty of any State over its resources and the obvious entitlement
to decide within the confines of international law, how to deal with these resources.
This core has been universally recognized and thus the statement on the customary
nature of this principle in the judgement of the International Court of Justice in
Democratic Republic of the Congo v. Uganda can be agreed at. Moreover, other
aspects of the principle are rules on expropriation, nationalization and investment,
which after 1962 were developed by States and by today enjoy the status of an
important part of international law. But this is obviously only one side of the medal.
Of legal importance and of fundamental interest for this symposium is the
question of the limits of this freedom.39 What can be said about limits of international environmental law caused by the fact that the environment and environmental considerations may to some extent influence the possibility of States to use their
natural resources. Moreover, as indicated by UNGA Resolution 55/56 of 29 January
2001 with regard to some illicit transaction of rough diamonds there are in a
growing way limits, including the manner of how raw materials are explored and
exploited, e.g. through the banning of slave labor or child labor.
And finally the principle of Permanent Sovereignty over Natural Resources
explicitly only refers to resources within the territorial confines of States. What
are the principles of international law one could ask, which are applicable to natural
resources in the international commons like the High Seas and the Deep Seabed or
Antarctica and finally, Outer Space. Here, concepts like the common heritage of
mankind, the common concern of mankind and the like may indicate the doctrinal
direction as possible limits to the exploitation of these resources. Also with regard
to these international commons we may have similar considerations to be taken
with regard to sustainability, biodiversity, non-discrimination and equitable access
of exploration and exploitation of these resources.40 As the example of Antarctica

38

See concerning the customary international law inter alia Hobe (2014), pp. 209215.
See for some thoughts on this question Dederer (2012), pp. 37 et seq and 41 et seq.
40
See on these concepts Dederer (2012), supra note 40, pp. 42 et seq; particularly on the concept of
the CHOM see Wolfrum (1983), pp. 312 et seq.; and Hobe et al. (2005), pp. 11 et seq.
39

12

S. Hobe

shows, however, there may also be a completely different answer in that the
international community, or at least those States that act as trustees for the international community, i.e. the so-called Antarctic Club, determine to abstain from
any kind of exploitation for the sake of the preservation of this pristine
environment.

D. Conclusion
As we have seen during the previous considerations there is indeed a core principle
of Permanent Sovereignty over Natural Resources as part of customary international law. The random area of this principle, however, is rather open and up to
regulation by the respective States and the international community. With regard to
the international commons each of these international commons must be looked at
separately and no general principle may be applicable to all of them. There is,
however, a clear indication that considerations of good governance and the preservation of the environment may in a growing way be considered important in the
future if the international community comes to an agreement with regard to the
exploration and exploitation of natural resources in these areas. The fundamental
importance of these principles for the survival of mankind and the integrity of our
spaceship Earth may also be guiding principles for the exploitation of all of its
resources as already mentioned by the great American international lawyer Oscar
Schachter in his 1977 book on Sharing the Worlds Resources.41 Maybe the
compared to the 1960s and 1970sless ideological current period leaves a better
chance for the development of international legal principles governing the exploration and exploitation of the worlds resources.

References
Anand RP (1962) Role of the New Asian African countries in the present international legal
order. AJIL 56(2):383406
Castaneda J (1961) The underdeveloped nations and the development of international law. IO
15:3848
Dambeck H (2012) Bergbau auf Asteroiden: US Firma verspricht Goldrausch im Weltall. http://
www.spiegel.de/wissenschaft/weltall/bergbau-auf-asteroiden-us-firma-verspricht-goldrauschim-weltall-a-829563.html. Accessed 8 July 2013
Dederer H-G (2012) Rohstoffausbeutug, -bewirtschaftung und -verteilung aus der Sicht des
allgemeinen Volkerrechts. In: Ehlers D, Wolffgang H-M (eds) Rechtsfragen des
internationalen Rohstoffhandels. Deutscher Fachverlag GmbH, Fachmedien Recht und
Wirtschaft, Frankfurt am Main, pp 3756

41

Schachter (1977).

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13

Dolata-Kreutzkamp P (2009) The Arctic Is Ours: Canadas Arctic policy between sovereignty
and climate change. Friedrich-Ebert-Stiftung 2/2009
Greenwood C (1991) Iraqs invasion of Kuwait: some legal issues. Wld. Today 47(3):3943
Hobe S (2014) Einfuhrung in das Volkerrecht, 10th edn. UTB, Tubingen
Hobe S et al (2005) A tribute to Jost Delbruck on the occasion of his 70th birthday. In: Delbruck J,
Giegerich T, Zimmermann A (eds) German yearbook of international law, vol 48. Duncker &
Humblot, Berlin, pp 928
Humphreys M (2005) Natural resources, conflict, and conflict resolution uncovering the mechanisms. J. Conflict Resolut. 49(4):508537
Rainwater S (2013) Race to the North Chinas Arctic strategy and its implications. Nav. L. Rev.
66(2):6282
Schachter O (1977) Sharing the worlds resources. Columbia University Press, New York
Schrijver N (2008a) Natural resources, permanent sovereignty over. In: MaxPlanck encyclopedia
of public international law. http://www.mpepil.com/subscriber_article?scriptyes&id/epil/
entries/law-9780199231690-e1442&recno2&searchTypeQuick&query
Schrijver N (2008b) Sovereignty over natural resources: balancing rights and duties. Cambridge
University Press, New York
Shaw MN (2008) International law, 6th edn. Cambridge University Press, Cambridge
Verwey W (1981) The establishment of a new international economic order and the realisation of
the right to development and welfare a legal survey. IJIL 21:115
Wolfrum R (1983) The principle of the common heritage of mankind. ZaoRV 43:312337

Fifty Years Permanent Sovereignty over


Natural Resources
The 1962 UN Declaration as the Opinio Iuris Communis
Nico J. Schrijver

Contents
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Two Main Roots . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C. The 1962 Declaration on Permanent Sovereignty over Natural Resources . . . . . . . . . . . . . . . . .
D. Further Phases in the Evolution of Resource Sovereignty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E. The Rightholders of PSNR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F. The Objects of PSNR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
G. The Reflection of the Principle of Permanent Sovereignty over Natural Resources
in Treaty Law and Judicial Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
H. Final Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16
16
17
18
22
23
24
26
28

Abstract This chapter analyses the evolution of permanent sovereignty over


natural resources by reference to its two main roots, self-determination of peoples
and sovereignty of States; the formulation and adoption of the 1962 Declaration; the
further phases in the evolution of the principle; the right holders and the objects to
which it relates; and the reflection of the principle in sources of international law,
such as treaty law and judicial decisions. The chapter emphasizes the new directions the principle has taken in an increasingly interdependent world by giving rise
to duties as well as rights. In this way the principle of PSNR serves at the core of
law-making efforts in the field of foreign investment regulation, global and national
resource management, environmental conservation and sustainable development.
The 1962 Declaration proves to be of lasting value in all these fields formulating as
it does the opinio iuris communis on some principal dimensions.

N.J. Schrijver (*)


Grotius Centre for International Legal Studies, University of Leiden, Leiden, The Netherlands
e-mail: n.j.schrijver@law.leidenuniv.nl
Springer International Publishing Switzerland 2015
M. Bungenberg, S. Hobe (eds.), Permanent Sovereignty over Natural Resources,
DOI 10.1007/978-3-319-15738-2_2

15

16

N.J. Schrijver

A. Introduction
During the post-1945 period permanent sovereignty over natural resources (PSNR)
emerged as a new principle of public international law and became a powerful
organizing principle within world politics. Its birth was far from easy, as noted in
the brief discussion on the main roots of resource sovereignty (Sect. B). Its
substance got shape particularly through the landmark 1962 Declaration on Permanent Sovereignty over Natural Resources (Sect. C). Various phases in the subsequent evolution of the principle of PSNR can be identified and these have been
significantly influenced by the UN policy as regards natural resource management
and vice versa (Sect. D). Currently, various right holders can be identified (Sect. E).
Furthermore, the scope of the objects to which the principle relates, has been
widened (Sect. F). The principle was conceptualized and got shape in various
political organs of the United Nations, most notably the UN General Assembly.
Therefore, it is relevant to examine the extent to which the principle of PSNR has
been incorporated in hard sources of international law in terms of Article 38 of the
Statute of the International Court of Justice. Is the principle reflected in treaty law?
Can it be viewed as reflecting customary international law? Has it been recognized
in judicial decisions, especially from international tribunals and courts? (Sect. G)
For a long time the PSNR discussion focused on the rights of States and peoples to
dispose freely of their natural resources. However, in modern international law
PSNR has come to entail duties as well. This movement has been instrumental in
turning PSNR into a fully-fledged principle involving a balancing of rights and
duties. Only in such a situation the principle of PSNR can serve a variety of
interests. It is quite notable that many of those interests and concerns were in
summary already reflected in the 1962 Declaration as the main constitutional
instrument of PSNR (Sect. H).

B. Two Main Roots


On the one hand, permanent sovereignty was part of the movement to strengthen the
political and economic sovereignty of the newly-independent States, especially
those in Latin America. Here it can be viewed as an offspring of the at that time
well-established principle of sovereignty which includes national economic jurisdiction over natural resources as well as over the domestic and foreign economic
activities within a State. Early UNGA Resolutions 523 (VI) and 626 (VII) testify to
this particular root.1 But it was, secondly, also part and parcel of the struggle of the
colonial peoples and non-self governing territories for political independence based
1

UNGA Resolution 523 (VI), Integrated economic development and commercial agreements of
12 January 1952; UNGA Resolution 626 (VII), Right to exploit freely natural wealth and
resources of 21 December 1952.

Fifty Years Permanent Sovereignty over Natural Resources

17

upon the much younger principle of self-determination. In this way PSNR was an
integral part of the decolonization movement, since it was widely felt that the
achievement of political self-determination would be an empty shell without
realizing simultaneously economic self-determination. Furthermore, the new principle did neither emerge from a long genesis in the practice of States gestating a
related opinio iuris nor from a diplomatic conference involved in treaty-making.
Rather the cradle of this principle stood in the UN General Assembly. In a way the
UN General Assembly served as the midwife.2 Such genesis in a political organ
cannot but call for considerable caution as regards its actual status in international
law. However, its status got clarified by UNGA Resolution 1803 (XVII), entitled
Declaration on Permanent Sovereignty over Natural Resources, which has been
very instrumental in cementing the principle of PSNR into the fabric of international law.3

C. The 1962 Declaration on Permanent Sovereignty over


Natural Resources
A careful reading of Resolution 1803 learns that it is a somewhat hybrid resolution,
partly reflecting widely-accepted or at least widely-held views and partly attributing
new dimensions to the principle of PSNR, which initially turned it into quite a
controversial resolution. Consequently, it could be argued that the eight paragraphDeclaration has served declaratory, quasi-law creating and programmatory functions in international law. It is a declaratory resolution in the sense that it summarizes in certain respects the state of the law in this particular field. Here we should
refer to paragraph 1, laying down the basic principle that all States have the right to
PSNR; paragraph 2, providing that the exploration, development and disposition of
natural resources as well as the foreign capital required for these purposes should be
in accordance with domestic law; paragraphs 3 and 4, containing some basic rules
for the treatment of foreign investors; paragraph 5, reaffirming the importance of
the sovereign equality of States for the exercise of the principle of PSNR; and
paragraph 8, stipulating that foreign investment agreements shall be observed in
good faith. Examples of quasi-law creating effects are: paragraph 1, aiming to vest
permanent sovereignty in both peoples and States and attributing to both of them
the duty to exercise their resource sovereignty in the interest of national development and for the well-being of the people; and paragraph 4, seeking to permit
policies which until that moment were often found to be in contravention of
traditional international law. These include allowing the taking of foreign property
rights (through nationalization or otherwise) according to international and national
law and against the payment of appropriate compensation rather than full, prompt
2

See on this Schrijver (1997), Part I.


UNGA Resolution 1803 (XVII), Permanent sovereignty over natural resources of
14 December 1962.
3

18

N.J. Schrijver

and effective compensation (the classic Hull formula) and giving primacy to
domestic remedies, when it comes to dispute settlement. At the same time, the
Declaration also bears some programmatory features, where it sets guidelines for
the sharing of profits in the proportions freely agreed upon (paragraph 3) and
provides that international development cooperation must be aimed at the independent national development of developing countries, based upon respect for the
sovereignty over their natural wealth and resources. As a result of all the discussions in the 1950s and early 1960s, partly in the Economic and Social Council,
partly in the UN Commission on Human Rights, but mostly in the context of the UN
General Assembly, somewhat of a consensus emerged, which crystallized in and
was further developed by this UN Declaration 1803 (XVII). Being the outcome of
extensive preparatory work and fruitful discussions and in light of the need for some
consensus on this highly political issue, this Declaration 1803 rather soon was
viewed as the economic decolonization declaration, the pendant to the very wellknown political Decolonization declaration, adopted in 1960 by way of UNGA
Resolution 1514 (XV).4 Indeed, sole arbitrator Dupuy could state rather uncontroversially in 1977, in the Texaco award,5 that this 1962 Declaration formulates the
opinio iuris communis of the international community, in contrast to the rather
controversial resolutions concerning a New International Economic Order adopted
in 1974.6

D. Further Phases in the Evolution of Resource Sovereignty7


Soon after the adoption of the 1962 Declaration, developing countries actively
sought to build upon the principle of PSNR as a means to foster their economic
development and to redistribute wealth and power in their relations with the
industrialized countries. This has always been a somewhat two-pronged
approach. On the one hand, they initiated resolutions emphasizing the need to
strengthen the national capacity to develop, exploit and market their natural
resources and use them as a basis for the development of their own industry.
UNGA Resolution 2158 (XXI), adopted in 1966,8 may serve as an important
example of a resolution seeking to put developing countries in a position to
4
UNGA Resolution 1514 (XV), Declaration on the Granting of Independence to Colonial
Countries and Peoples of 14 December 1960.
5
Texaco Overseas Petroleum Co. and California Asiatic Oil Co. v. Government of Libyan Arab
Republic, reprinted in 17 ILM (1978), pp. 337.
6
UNGA Resolution 3201 (S-VI), Declaration on the Establishment of a New International
Economic Order of 1 May 1974 and UNGA Resolution 3281 (XXIX), Charter of Economic
Rights and Duties of States of 12 December 1974.
7
See also Schrijver (2012), pp. 536541.
8
UNGA Resolution 2158 (XXI), Permanent sovereignty over natural resources of
25 November 1966.

Fifty Years Permanent Sovereignty over Natural Resources

19

undertake themselves the exploitation, processing and marketing of their natural


resources. In this respect, Resolution 2158 views foreign investment as only
supplementary to these efforts and contains provisions on the transfer of capital
and know-how to developing countries for the exploitation and marketing of their
natural resources as well as on increasing the share of developing countries in the
administration of foreign companies operating in their country and the profits
derived therefrom. Resolution 2158 is a programmatory resolution: how to use
natural resources as the basis for industrialization of developing countries. On the
other hand, developing countries also used the forum of the United Nations to
embark on efforts to enhance international economic co-operation for development, for example by concluding international commodity agreements for which
UNCTAD (the United Nations Conference on Trade and Development,
established in 1964) has been very instrumental. The 1960s did not bring about
the results the Group of 77, the caucus of all developing countries on economic
issues, had been aiming for and it became receptive for ideas to end the period of
cooperation and switch to confrontation, using permanent sovereignty as a legal
basis to legitimize a more radical nationalization policy and to establish producer
associations, not only in the field of oil (Organization of the Petroleum Exporting
Countries, OPEC) but also for bauxite, tin and perhaps also for bananas, coffee,
and cocoa. This was the period of the efforts to establish a New International
Economic Order (NIEO), among other principles based upon full permanent
sovereignty of every State over its natural resources and all economic activities,
including the right to nationalize foreign property rights or to transfer ownership
to nationals.9 The results of seeking a confrontational strategy proved to be far
from encouraging, reason why just a few years later developing countries decided
to return to cooperation in the management of natural resources. Meanwhile, other
concerns had also come to the fore. Apart from the NIEO, the 1970s was also the
decade of the first-ever United Nations Conference on the Protection of the
Human Environment. This took place at Stockholm in 1972 and one of the main
results was the adoption of the Stockholm Declaration.10 From a legal point of
view, this was a very inspiring document which gave rise to considerable treatymaking activity in the 1970s. In addition, it served as the basis of the United
Nations Environment Programme (UNEP) Guidelines in 1978 on the sharing of
transboundary resources.11 These developments placed the exercise of sovereignty over natural resources in an environmental context, highlighting other
international law principles such as diligence and due care, good-neighbourliness,
and State responsibility with regard to extraterritorial damage. In another spirit of
9

UNGA Resolution 3201 (S-VI), Declaration on the Establishment of a New International


Economic Order of 1 May 1974, para. 4 (sub e).
10
Declaration of the United Nations Conference on the Human Environment, Stockholm,
16 June 1972.
11
United Nations Environment Programme, Principles of Conduct in the Field of the Environment
for the Guidance of States in the Conservation and Harmonious Utilization of Nature Resources
Shared by Two or More States, Nairobi, 9 May 1978.

20

N.J. Schrijver

co-operation the UNGA also adopted the World Charter for Nature in
1982.12 This Charter, born out of an initiative by the International Union for the
Conservation of Nature, formulates a series of environmental parameters for the
use of natural resources, while taking fully into account the sovereignty of States
over their natural resources. Furthermore, the UN Convention on the Law of the
Sea could at last be adopted in 1982, following 9 years of negotiation in the
context of the third UN Conference on the Law of the Sea. This convention
extended the breadth of the territorial sea to 12 nautical miles (nm) and vests
States with full sovereignty over the natural resources therein. It also introduced
new rules as regards the breadth of a substantially extended continental shelf and
it records the exclusive rights of coastal States as regards the exploration of the
continental shelf and the exploitation of its natural resources. Furthermore, the
UN Convention on the Law of the Sea establishes a 200 nm exclusive economic
zone. Like in the continental shelf, a coastal State does not enjoy full sovereignty
over the Exclusive Economic Zone, but only sovereign rights with respect to the
natural resources, both living and non-living, of the sea-bed and subsoil and the
superjacent waters. It is interesting to note that, apart from rights, the UN
Convention on the Law of the Sea also imposes duties and obligations with regard
to the management of the marine natural wealth and resources. Thus Article
193 imposes on all States the general duty to protect and preserve the marine
environment, while recognizing their sovereign right to exploit their natural
resources pursuant to their environmental policies. In fisheries States should
observe a maximum sustainable yield. Land-locked developing countries should
be entitled to fish in nearby exclusive economic zones should there be a surplus of
fish. Lastly, a detailed international cooperative regime was established for the
management of the deep seabed and its natural resources (in particular
polymetallic nodules), which the Convention declared to be the common heritage
of mankind.
These findings demonstrate that the developmental dimension of PSNR increasingly was supplemented by concerns with respect to the conservation and rational
use of natural resources. This need to reconcile economic development with
environmental conservation was finally coined by the World Commission on
Environment and Development in its report Our Common Future, issued in
1987.13 This Commission, commonly known as the Brundtland Commission,
introduced into international politics the concept of sustainable development,
which it concisely described as development that meets the needs of the present
without compromising the ability of future generations to meet their own needs.
In its track, the UN General Assembly decided in 1989 to convene a United Nations
Conference on Environment and Development, which took place in 1992 in Rio de

12

UNGA, World Charter for Nature of 28 October 1982, A/RES/37/7.


United Nations, Report of the World Commission on Environment and Development, Our
Common Future, 1987, Annexed to UN Doc A/42/427-Development and International
Co-operation: Environment.
13

Fifty Years Permanent Sovereignty over Natural Resources

21

Janeiro. One of the principal outcomes is the Rio Declaration on Environment and
Development, which seeks to strike a balance between environmental protection
and economic development in developing countries. Obviously, the Rio Declaration of 199214 builds upon the Stockholm Declaration of 1972 but can be said to
place the exercise of resource sovereignty somewhat more explicitly in both a
developmental and environmental context. This follows from the reformulation of
Stockholm Principle 21 in Principle 2 of the Rio Declaration. Whereas Principle
21 of the Stockholm Declaration declares that States have . . . the sovereign right to
exploit their own resources pursuant to their own environmental policies, Principle
2 of the Rio Declaration adds the words and developmental policies. Other
significant results of the follow-up of the Brundtland report and the process leading
up to the Rio Conference include the UN Framework Convention on Climate
Change and the Convention on the Conservation of Biological Diversity. Both
treaties were opened for signature at the Rio Conference in 1992.15 Article 2 of
the Convention on Biological Diversity provides an informative definition of
sustainable use, which means the use of components of biological diversity in a
way and at a rate that does not lead to the long-term decline of biological diversity,
thereby maintaining its potential to meet the needs and aspirations of present and
future generations. Subsequent world conferences, especially the 2002 Johannesburg World Summit on Sustainable Development and the 2012 Rio+20 Conference
on Sustainable Development, have further elaborated the global commitment to
sustainable development and reaffirmed sovereignty over natural resources as
qualified by environmental and developmental duties as one of its core elements.
Two further phases in the evolution of sovereignty over natural resources should
be mentioned. First of all, the increased attention for the rights of indigenous
peoples, particularly with respect to their ancestral lands and natural resources.
At long last, the UNGA in 2007 adopted the United Nations Declaration on the
Rights of Indigenous Peoples.16 Article 26, paragraph 1, formulates the rights of
indigenous peoples to the lands, territories and natural resources which they have
traditionally owned, occupied or otherwise used or acquired. Governments have not
only the obligation to respect these rights but also to protect them, vesting a positive
obligation incumbent on the governments to pursue policies aimed at both respect
for and protection of the rights of the indigenous peoples. Furthermore, in line with
the trend to match with procedural human rights, Article 27 of the Declaration
stipulates that the implementation and protection of the indigenous peoples rights
take place through a fair, independent, open and impartial process in which
indigenous peoples have a full right to participate with respect to matters that
may affect their rights to their land, territories and resources.17

14

Rio Declaration on Environment and Development, Rio de Janeiro, 14 June 1992.


United Nations Framework Convention on Climate Change, 1992.
16
United Nations Declaration on the Rights of Indigenous Peoples, 13 September 2007, Annexed
to UN Doc A/61/295.
17
Rombouts (2014).
15

22

N.J. Schrijver

Second, the availability of natural resources in a country is no longer considered


only a blessing and a helpful precondition for development. Rather it proves
sometimes to be a curse. The economic value of natural resources often fuels
violent conflicts. To a certain extent the plundering of the natural resources of the
Democratic Republic of Congo (DRC) by Uganda, Burundi and Rwanda, respectively, is part of an international resource conflict, particularly on gaining access to
the rich natural resources in the Great Lakes Region. Furthermore, the availability
of natural resources often fuels internal conflicts over power, as the sad developments with respect to gemstones and conflict timber in Cambodia and with respect
to blood diamonds in Liberia, Sierra Leone and the DRC have shown. In recent
years, the Security Council has paid increasing attention to the control over and the
rational management of natural resources in its efforts to maintain or restore peace
and security in such war-torn areas.18
This has also led to an increased interest for the relationship between the
principle of PSNR and the principles of international humanitarian law in territories
under occupation.

E. The Rightholders of PSNR


From the early resolutions it followed that the obvious right holders to PSNR are the
peoples, but more and more they got trampled under the foot by States. In the
beginning, PSNR was really for the colonial peoples who had not yet been able to
exercise their right to self-determination and it was meant to support their cause for
independence. However, early in the process permanent sovereignty became also
part of the process of the underdeveloped countries, later called developing
countries, and the newly-independent countries to seek economic independence
and full economic sovereignty. From the 1960s and 1970s PSNR became more and
more an attribute of the sovereignty of all States. Hence, the modalities of the
exercise of sovereignty of States rather than the exercise of self-determination of
peoples became the main theme in permanent sovereignty-debates. This change of
emphasis resulted from the relatively rapid decolonization process, the way in
which newly-independent States cherished their sovereignty, and the nonrepresentation of peoples in the intergovernmental United Nations. However, in
recent decades a tendency can be discerned that the principle of self-determination
and the rights of peoples in a non-colonial context are receiving increased attention.
Examples include the environmental rights in the World Charter for Nature
(1982),19 the developmental rights of peoples to exercise sovereignty over all
their natural wealth and resources in the UN Declaration on the Right to

18
Dam-de Jong (2015), chapter 8; UN Security Council, S/RES/1457, 24 January 2003; UN
Security Council, S/RES/1521, 22 December 2003.
19
UNGA, World Charter for Nature of 28 October 1982, A/RES/37/7.

Fifty Years Permanent Sovereignty over Natural Resources

23

Development (1986)20 and the rights of indigenous peoples to their territories, lands
and resources in the UN Declaration on the Rights of Indigenous Peoples (2007).21
It could well be said that the principle of PSNR is returning to its two roots as well
as the twofold aspirations derived from these roots. This is exemplified by the
increasing set of qualifications to the exercise of State sovereignty (such as exercising it in the interest of the well-being of the people), signifying that both sovereignty and self-determination are principles of great value when in balance with
each other. Furthermore, one may wonder whether a territorial connection to
natural resources is always necessary. We increasingly realize that some parts of
the Earths natural wealth and resources are of vital interest and hence of common
concern to humankind as a whole. Certain planetary resources should belong to all
of us, since they are part of one ecological system and perform vital ecological
functions for our planet as a whole. This relates to biological diversity, the climate
system and the ozone layer, and certain areas such as the two polar regions, the seas
and the oceans. Depending on the political climate among States (conducive to
co-operation or confrontational?) and the level of pressure of the world public at
large (mainly concerned with short term goals or attention for medium- and longterm issues?), it may well be that the next phase in the evolution of natural resource
management will relate to these global concerns.22

F. The Objects of PSNR


The principle of PSNR focuses as a matter of course on natural resources, whether
living (animals, fish, crops) or non-living (oil, gas, other minerals) and exhaustible
or non-exhaustible. These two categories of living/non-living and exhaustible/nonexhaustible resources do not necessarily overlap each other, since some non-living
resources can be non-exhaustible as demonstrated by the example of the
polymetallic nodules which can grow on the deep sea-bed in about 40 years. The
1962 Declaration broadened the scope of PSNR to natural wealth, which relates to
the forest rather than to the timber of the tree, to the fertile soil rather than to the
banana, tea or coffee plants, and to the lake and the sea rather than to the fishery
resources. Natural wealth, as the resource basis, is extremely important. Sometimes,
one can also spot the concept of national resources, especially in the resolutions
concerning the rights of the Palestinian people.23 In the environmental literature, an
interesting discourse takes place on the environmental utilization space, related to

20

UNGA, Declaration on the Right to Development of 4 December 1986, A/RES/41/128.


UNGA Resolution 61/295, United Nations Declaration on the Rights of Indigenous Peoples of
13 September 2007, A/RES/61/295.
22
See Schrijver and Prislan (2009).
23
See, for example, UNGA Resolution 37/135, Permanent Sovereignty over National Resources
in the Occupied Palestian and Other Arab Territories of 17 December 1982, A/RES/37/135.
21

24

N.J. Schrijver

the capacity to regenerate after use without destructing the natural wealth and
resources.24 More and more we come to learn that there are very important
ecological functions to be played by a forest, or by the wind, or by the polar regions,
or by the climate system, or by the ozone layer. They are part of an invisible
ecological whole and part of an ecological system, which we do not yet understand
or for only for just a tiny bit. However, one thing we know: to destruct these global
commons will have disastrous consequences.25

G. The Reflection of the Principle of Permanent Sovereignty


over Natural Resources in Treaty Law and Judicial
Decisions
An extensive follow-up of the principle of PSNR, as so powerfully formulated in
the 1962 Declaration, can be noted in various sources of international law. As
regards treaty-law, reference should first of all be made to the two Human Rights
Covenants of 1966,26 which incorporate in the identical Article 1 the core of the
natural resources rights of peoples in the context of their right to economic and
political self-determination: All peoples may, for their own ends, freely dispose of
their natural wealth and resources. Among other things, they also stipulate: In no
case may a people be deprived of its means of subsistence. This serves as a very
powerful formulation of the peoples dimension of sovereignty over natural
resources. That was followed-up in, among other treaties, the African Charter of
Human and Peoples Rights (1986).27 Furthermore, the principle of PSNR is
reflected in international commodity agreements, which are all based upon the
principle that commodity exporting countries indeed are the legal subjects entitled
to exercise sovereignty over their natural resources and to manage these freely. The
principle is also widely reflected in the 1958 Law of the Sea Conventions,28 but
most notably in the 1982 comprehensive United Nations Convention on the Law of
the Sea29 and in particular in the parts on the various resource zones, such as the
Exclusive Economic Zone and the continental shelf. In addition, a host of

24
The term environmental utilization space was coined by Opschoor (1992); see also
Bosselmann (2008).
25
See Gore (2006) and also Schrijver (2010).
26
International Covenant on Economic, Social and Cultural Rights, New York, 16 December
1966, UN Treaty Series, Vol. 993, p. 3; International Covenant on Civil and Political Rights,
New York, 16 December 1966, UN Treaty Series, Vol. 999, p. 171 and Vol. 1057, p. 407.
27
Article 21 of the African Charter of Human and Peoples Rights provides: All peoples shall
freely dispose of their natural wealth and resources.
28
1958 Geneva Conventions on the Law of the Sea, Geneva, 29 April 1958.
29
United Nations Convention on the Law of the Sea, Montego Bay, 10 December 1982, UN Treaty
Series Vol. 1833.

Fifty Years Permanent Sovereignty over Natural Resources

25

international investment treaties can be noted, for example in Europe the Energy
Charter Treaty which is also based upon the notion of permanent sovereignty over
energy resources.30 Indeed, countries such as Norway, Russia, and in an earlier
phase also the United Kingdom, invoked sovereignty over the own oil resources as
a principal basis of their resource policies. Next, permanent sovereignty is also well
reflected in various multilateral environmental agreements, most notably in the
substantive Convention on Biological Diversity31 and the more scattershot global
climate change treaty.32 It can be found in State succession treaties,33 although
hardly ratified, and in some new conventions relating to the law of armed conflict. A
quite recent example is a new protocol relating to illicit exploitation of natural
resources in the Great Lakes Region, which formulates in Article 1 the concept of
illicit exploitation, which is understood as any exploration, development, acquisition, disposition of natural resources contrary to law, custom, practice or the
principle of permanent sovereignty over natural resources.34 In Article 3 members
of this Conference of States bordering the Great Lakes Region confirm that they
shall freely dispose of their natural resources.
As regards international arbitral and judicial decisions, there are the early
Texaco Award of 1977 and Liamco Award (also 1977) regarding the nationalization
of oil companies in Libya, which pay ample attention to the principle of PSNR and
its formulation in the 1962 Declaration.35 Reference should also be made to various
decisions of the International Court of Justice (ICJ), the principal judicial body of
the United Nations. The ICJ rendered various judgments on fisheries jurisdiction as
well as on continental shelf delimitation. A landmark judgment from a PSNR
perspective is the judgment in the Armed Activities Case (DRC v. Uganda), in
which the Court determined that the principle of PSNR as contained in the 1962
Declaration is part of customary international law.36 Furthermore, elements of
PSNR are being referred to, albeit sometimes rather indirectly, in some advisory
opinions, such as those on Namibia (1971),37 the Western Sahara (1975)38 and the

30

See Art. 18 of the Energy Charter Treaty, signed in Lisbon, 17 December 1994. Text in
37 Official Journal of the European Communities, No. C 344, p. 15 and in 34 ILM (1995), p. 360.
31
See the Preamble and Art. 15, para. 1, of the 1992 Biodiversity Convention.
32
See the Preamble of the 1992 Climate Change Convention.
33
See the Vienna Convention on Succession of States in Respect of Treaties (1978) and the Vienna
Convention on Succession of States in Respect of State Property, Archives and Debts (1983).
34
Protocol Against the Illicit Exploitation of Natural Resources, adopted by the International
Conference on the Great Lakes Region on 30 November 2006.
35
Texaco Overseas Petroleum Co. and California Asiatic Oil Co. v. Government of Libyan Arab
Republic, reprinted in 17 ILM (1978), pp. 2930, paras. 8488, para. 59; Libyan American Oil
Company v. Government of Libyan Arab Republic, reprinted in 20 ILM (1981), p. 53, para. 100.
36
Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v. Uganda),
Judgment of 19 December 2005, ICJ Reports 2005, p. 168, para. 18.
37
Legal Consequences for States of the Continued Presence of South Africa in Namibia (South
West Africa) notwithstanding Security Council Resolution 276 (1970), Advisory Opinion, ICJ
Reports 1971, p. 16.
38
Western Sahara, Advisory Opinion, ICJ Reports 1975, p. 12.

26

N.J. Schrijver

Israeli Wall (2004).39 Furthermore, there is a growing body of human rights-related


jurisprudence in which elements of PSNR are taken up. First of all in the context of
the Inter-American Commission and the Inter-American Court on Human Rights
relating to the cases of indigenous peoples, brought against their own States, among
others in Guatemala (Case of Bamaca-Velasquez, 2000),40 in Suriname (Saramaka
people, 2007)41 and in Ecuador (Kichwa people of Sarayaku, 2012).42 In the context
of the rather nascent African system for the protection of human rights, some
pronouncements by the African Commission concerning self-determination in the
case of the Ogoni people in the Niger Delta (2001)43 and in the Case of the Local
Communities of the Endorois Ethnic Group versus Kenya (2003).44 These (semi-)
judicial decisions all touch upon various dimensions of permanent sovereignty.

H. Final Conclusions
The principle of PSNR serves as the legal basis for quite a list of rights emanating
from it, in particular the basic rights to possess, use, freely dispose of, explore,
exploit, market, manage, and conserve the natural resources. Such rights relate both
to the resources on land and in the sea. Related to these rights are the rights to
regulate foreign investment, including the right to tax foreign investment and under
certain specific circumstances and meeting international law requirements the right
to take foreign property. Still rather controversial is to invoke permanent sovereignty as the basis for a State demanding a share in the management of local
subsidiaries of multinational companies, or to withdraw from unequal treaties or to
revise unilaterally terms of agreed arrangements. The same holds true for the right
to determine unilaterally the amount of compensation, and to settle international
investment disputes solely upon the basis of national law. For a long time, developing countries sought the deepening of the principle of PSNR by formulating an

39

Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory,


Advisory Opinion, ICJ Reports 2004, p. 136.
40
Inter-American Court of Human Rights, Case of B
amaca-Vel
asquez v. Guatemala, Judgment,
25 November 2000 (merits).
41
Inter-American Court of Human Rights, Case of the Samaraka People v. Suriname, Judgment,
28 November 2007.
42
Inter-American Court of Human Rights, Case of the Kichwa Indigenous People of Sarayaku
v. Ecuador, Judgment, 27 June 2012 (merits and reparations).
43
African Commission on Human and Peoples Rights, The Social and Economic Rights Action
Center and the Center for Economic and Social Rights v. Nigeria, African Commission on Human
and Peoples Rights, Comm. No. 155/96 (2001).
44
African Commission on Human and Peoples Rights, Centre for Minority Rights Development
(Kenya) and Minority Rights Group International on behalf of Endorois Welfare Council v. Kenya,
276/2003.

Fifty Years Permanent Sovereignty over Natural Resources

27

ever-increasing number of rights. However, there now appears to have crystallized


a basic set of rights on the legality of which international consensus has emerged.
In modern international law, PSNR has come to entail duties. Although political
discussion has long focused on the rights emanating from PSNR, certain corollary
obligations are part and parcel of PSNR. As aptly declared in the very first
paragraph of the 1962 Declaration, the right of peoples and nations to PSNR
must be exercised in the interest of their national development and of the wellbeing of the people of the State concerned. Hence, the benefits should not accrue to
a ruling elite only. This stipulation to exercise sovereignty over natural resources
for purposes of promoting national development and the well-being of the people,
and not to the benefit of the ruling elite only, can be viewed as a good governance
requirement avant la lettre. The 1972 Stockholm conference added the obligation
to exercise due care for the environment and for nature as such, while the UNEP
guidelines in 1978 specified concerns regarding the management of transboundary
resources. They were followed by a number of multilateral and regional treaties. In
combination these treaties form the basis for the general duties of neighbouring
States to cooperate, to duly inform and to make optimal use of transboundary
resources. Similarly, the duty to observe foreign investment agreements as cast in
paragraph 8 of the 1962 Declaration was subsequently recorded in various multilateral and numerous bilateral investment agreements.
As far as the legal status is concerned, permanent sovereignty over natural
resources emerged as soft law, but became incorporated in treaty law, is being
referred to in judicial decisions of international courts and tribunals as well as in
semi-judicial decisions, most notably those of human rights courts and other treaty
bodies. The ICJ regarded PSNR in 2005 as a principle of customary international
law in its judgment in the Armed Activities Case (Democratic Republic of Congo
v. Uganda). Furthermore, PSNR as a principle of international law is widely
recognized in doctrine, including in the work of the UN International Law Commission. Yet, in the view of this author the principle does not rise to the status of ius
cogens. Such a status would imply that no deviations from the norm are possible,
whereas in fact many general as well as specific agreements exist in which States
commit themselves to certain modalities in exercising their sovereign rights,
including in the field of foreign investment.45
It is interesting to note that the UN debates on natural resources and the
evolution of the principle of PSNR gave rise to all kinds of new concepts, hitherto
hardly or not known in international law. Apart from permanent sovereignty over
natural resources itself, reference may also be made to the facility of international
commodity agreements, the sharing of transboundary resources, integrated river
management (Mekong Delta, Zambezi, Nile), the concept of the continental shelf
and the exclusive economic zone in the context of the law of the sea, the common
heritage of humankind in the context of law of outer space (in particular the Moon
Agreement) and the law of the sea (Part XII of the Law of the Sea Convention on

45

See Schrijver (1997), 374-377.

28

N.J. Schrijver

the deep seabed), the principle of sustainable use of natural resources (including
fishery and other marine resources), the conservation of convention on biological
diversity, the rights of indigenous peoples to their lands and natural resources, and
lastly the certification of conflict resources (for example with respect to conflict
timber and the Kimberley-registered diamonds). All are very important new concepts which partly or in whole emerged and got substance in debates on sovereignty
over natural resources. It is quite remarkable that the 50 years old UN Declaration
on Permanent Sovereignty over Natural Resources still services as the important
and dynamic cornerstone of rights and duties emanating from the principle of PSNR
and serves as the framework for nearly all particular natural resources policies. In
this way it is part and parcel of international law as one of its fine instruments in
world politics for the art of balancing rights and duties.

References
Bosselmann K (2008) The principle of sustainability: transforming law into governance.
Ashgate Publishing Ltd., Hampshire
Dam-de Jong DA (2015) International law and governance of natural resources in conflict and
post-conflict situations. Cambridge University Press, Cambridge
Gore A (2006) The inconvenient truth. The planetary emergency of global warming and what we
can do about it. Rodale, Emmaus
Opschoor HB (1992) Environment, economy and sustainable development. Wolters-Noordhoff,
Groningen
Rombouts SJ (2014) Having a say, indigenous peoples, international law and free, prior and
informed consent. Wolf Legal Publishers, Oisterwijk
Schrijver NJ (1997) Sovereignty over natural resources. Balancing rights and duties. Cambridge
University Press, Cambridge
Schrijver NJ (2010) Development without destruction. The United Nations and global resource
management. UN Intellectual History Project/Indiana University Press, Bloomington
Schrijver NJ (2012) Natural resources, permanent sovereignty over. In: Wolfrum R (ed) Max
Planck encyclopedia of public international law, vol VII, 3rd edn. Oxford University Press,
Oxford, pp 535544
Schrijver NJ, Prislan V (2009) From Mare Liberum to the global commons, building on the
Grotian Heritage. Grotiana 30(1):168206

(Existence of) Common or Universal


Principles for Resource Management (?)
Friedl Weiss and Bernhard Scherzer

Contents
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Context: Sources of International Law: Management of ResourcesInternational
Regimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I. Universal Principles and Sources of International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. Management of Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
III. Regime Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C. Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I. Global Governance and Good Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. Universal Principles for Resource Management in International Law . . . . . . . . . . . . . . . . . . .
D. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30
30
30
35
36
38
38
45
54
56

Abstract This chapter seeks to identify and probe a selective number of common
and universal principles of international law as to whether and to what extent they
are applicable to resource management. The inescapable phenomenon of globalization today is considerably more intensive as well as extensive than historic
globalization compelling States to cooperative engagement. According to regime
theory, States coordinate their behaviour under circumstances where decentralized
and uncoordinated decision-making does not lead to optimal results. Such international regimes consist of sets of principles, norms, rules and decision-making
procedures for the governance of limited issue-areas thereby furnishing the basis for
global governance. Most of the existing or developing common or universal
principles for resource management are to be found in the field of international
environmental law. Due to high thresholds for acceptance, only the principle of
permanent sovereignty over natural resources and the principle not to cause transboundary environmental damage have as yet attained the status of customary
international law. Even though numerous other principles such as the precautionary

F. Weiss (*) B. Scherzer


Institute of European, International and Comparative Law, University of Vienna, Vienna,
Austria
e-mail: friedl.weiss@univie.ac.at
Springer International Publishing Switzerland 2015
M. Bungenberg, S. Hobe (eds.), Permanent Sovereignty over Natural Resources,
DOI 10.1007/978-3-319-15738-2_3

29

30

F. Weiss and B. Scherzer

principle and the concept of sustainable use are not yet fully accepted principles of
international law, they are certainly developing towards broader recognition.

A. Introduction
In this chapter an attempt will be made to probe the possible existence of common
or universal principles of resource management. To that end it seeks to identify
common and universal principles of international law applicable to resource
management. Given this limited framework of enquiry, both search for and determination of universal principles must be selective.
The first section B. deals with conceptual and terminological issues. We begin
by elucidating the meaning of the term universal or general principle and outline
the sources of international law, then reflect upon a definition of resources and
briefly consider the concept of management, concluding with a look at the concept
and the frequent use made of the term regime in the field of international law as
well as in the field of international relations.
In the second section C. we examine concepts, principles and systems of (global)
governance which are closely related to the management of resources and also
reflect upon global/supranational governance. Moreover, we draw on a representative number of existing principles illustrating their use in various fields of international law and discuss if and to what extent these principles may constitute
suitable building blocks for defining common or universal principles for resource
management.
In the final section D. we conclude our findings.

B. Context: Sources of International Law: Management


of ResourcesInternational Regimes
I. Universal Principles and Sources of International Law
As this chapter is focused on universal principles for resource management in the
international legal system, we need to take all sources of international law into
account.1
Article 38 of the Statute of the International Court of Justice (ICJ) contains the
only explicit declaration of relevant sources of international law. Accordingly, rules
and principles of international law shall be derived from (a) international

Wolfrum (2012a), para. 7.

(Existence of) Common or Universal Principles for Resource Management (?)

31

conventions, whether general or particular, establishing rules expressly recognized


by the contesting states;, (b) international custom, as evidence of a general
practice accepted as law;, (c) the general principles of law recognized by civilized
nations; and (d) subject to the provisions of Article 59, judicial decisions and the
teachings of the most highly qualified publicists of the various nations, as subsidiary
means for the determination of rules of law. The statutes enumeration of sources
of international law is, however, neither exhaustive nor are the sources always
gushing, so to speak, because matters not regulated by States in their domestic law,
do not give rise to State practice capable of becoming a source of international law.
Also, rigid categorisation of sources is inadequate.2 In view of numerous examples
of authoritative acts emanating from States and international organs, Article 38 can
no longer be considered a closed system of law-making.3 Similarly, EU decisionmaking is not limited to the types of acts expressly listed in Article 288 TFEU. At
any rate, it is undisputed that there are at least two additional sources of law not
listed in Article 38 of the ICJ Statute, namely unilateral legal acts of States as well
as decisions of international organisations. Deriving universal principles for
resource management from these sources of international law remains undoubtedly
a challenging task. One has to beware of recognising universally accepted principles too readily in existing international agreements or decisions by International
Organisations, in particular by the United Nations.4 As indeed, one writer pointedly
observed, the process of drafting a treaty acceptable to a wide range of negotiating
parties leads, by necessity, to the inclusion of hybrid terminology.5
The function of international treaties includes, but is not limited to, the establishment of contractual rights and obligations among the parties to the treaty. Rather,
international treaties, which are not only based upon the parties consent, but also
reflect customary rules and general principles, constitute an important instrument to
establish an international order.6
As the development of customary international law requires established State
practice as well as opinio iuris which must occur in such a way as to show a general
recognition that a rule of law or legal obligation is involved.7 In other words, States
engaging in a certain practice must consider their practice to be legally required.

Brownlie (1998), p. 19; Wolfrum (2012a), paras. 911.


Weiss (2012a), pp. 336 et seq. See generally Sklar (1991).
4
A number of provisions contained in the Vienna Convention on the Law of Treaties are generally
considered to reflect pre-existing customary law, see Bernhardt (1984), p. 459; Brownlie (1998),
chapter 1.
5
Gordon (1965), p. 813.
6
Wolfrum (2012a), paras. 12 and 14.
7
North Sea Continental Shelf cases, Judgment of 20 February 1969, ICJ Reports 1969, p. 3, para.
74.
3

32

F. Weiss and B. Scherzer

State practice, whether consisting of positive acts or omissions, may manifest itself
at the domestic or international level, over a certain period of time (tempus) and
must be extensive and virtually uniform,8 though new customary rules may also
be established rather quickly and can sometimes be traced in international treaties
that often codify them. Conversely, the conclusion of a treaty may also be regarded
as proof that States do not (yet) believe in the existence of certain obligations in
customary international law. Generally, newly developed customary international
law is hard to identify. There are various sources and evidences as well as participants and arenas for creation of customary international law. It is certainly a
complex and dynamic legal process. Even though some scholars argue that the
relevance of customary international law has been limited (due to the spread of biand multilateral treaty regimes), it is important to recognise its considerable
importance for the development of the international legal order, owing to a high
degree of flexibility and natural universality (as compared to treaty law).9
International organisations also play an important role in the development of the
international legal order, by making binding10 as well as non-binding decisions11 or
through initiating or facilitating treaty-making processes, especially through the
provision of independent expertise.12
Unilateral acts too, most commonly taken by States, can produce legal effects.
According to the International Law Commissions (ILC) definition, unilateral acts
stricto sensu, i.e. those taking the form of formal declarations formulated by and
intended by a State to produce obligations under international law.13 In the ICJs
1974 Nuclear Tests Advisory Opinion, unilateral acts were recognised as a source
of international law if such acts are taken publicly and with the intention to have a
binding effect.14 Before considering the existence of any common or universal
principles for resource management, it is advisable to provide a definition of the
terms common and universal as well as of the term principle. In fact, the
Oxford English Dictionary offers a great number of definitions. One of the most
useful, it would seem, defines universal, inter alia, as extending over or including
the whole of something specified or implied, especially the whole of a particular

Ibid.; Akehurst (1975), pp. 112.


Wolfrum (2012a), paras. 22, 2527, and 3031; Schlutter (2010); Paust (1997), p. 78.
10
Binding decisions are taken by the International Organisation (IO) on the basis of competences
conferred upon by the constitutive treaty, see Wolfrum (2012a), paras. 530; binding decisions
may take the form of abstract instruments of general application, administrative decisions,
contractual-type arrangements, judicial and quasi-judicial pronouncements or may result in international institutional law, see Wolfrum (2012a), paras. 530.
11
Non-binding instruments play an especially important role in the development of customary
international law as well as (existing) principles of international law, Wolfrum (2012a), para. 39.
12
Wolfrum (2012a), paras. 4043.
13
ILC, Guiding Principles Applicable to Unilateral Declarations of States Capable of Creating
Legal Obligations (2006), Preamble.
14
Nuclear Tests Case (Australia v. France), Judgment of 20 December 1974, ICJ Reports 1974,
para. 43.
9

(Existence of) Common or Universal Principles for Resource Management (?)

33

group or the whole world; comprehensive, complete; widely occurring or existing,


prevalent over all15 and of a rule, law, principle, etc.: true or purporting to be true
for all cases which come under its terms; applicable in all instances.16 The same
dictionarys definition of general includes reference to universal: Of a rule, law,
principle, formula, or description: applicable to a variety of cases; true or
purporting to be true for all or most of the cases which come under its terms;
(virtually) universal. In later use freq.: true in most instances, but not without
exceptions (with implied opposition to universal).17 Moreover, the term common
is defined, inter alia, as being Of general application, general.18 When considering these synonymous terms, another, global, comes to our mind. The Oxford
English Dictionary defines global as Relating to or encompassing the whole of
anything or any group of things, categories, etc.; comprehensive, universal, total,
overall.19 Accordingly, the terms universal and common can be understood as
synonymous with general and global. The term principle is circumscribed in
that dictionary by several definitions as being either a fundamental source from
which something proceeds. . . a fundamental truth or proposition on which others
depend. . . a general law or rule adopted or professed as a guide to action; a settled
ground or basis of conduct or practice.20 In the context of this chapter, we focus on
those principles which are inherent in or developed from law and from which
general conclusions can be drawn. It is of course the assumed existence or nonexistence of such principles which inevitably has a major impact on the interpretation, application and progressive development of international law.21
In the context of international law, the term general principles of law means
principles which are generally recognised22 and may be developed from national
law or international relations as well as from all kinds of legal relations, principles
of legal logic or principles set out in one and transferred to other treaty regimes.23

15

English Oxford Dictionary, available at http://www.oed.com/view/Entry/214783?


redirectedFromuniversal+#eid.
16
Ibid.
17
Op. cit., available at http://www.oed.com/view/Entry/77489?rskeyEsGpzU&result1#eid.
18
Op. cit., available at http://www.oed.com/view/Entry/37216?rskeyLZiwpL&result3#eid.
19
Op. cit., available at http://www.oed.com/view/Entry/79019?redirectedFromglobal+#eid.
20
Op. cit., available at http://www.oed.com/view/Entry/151459?rskeyxqdqHB&result1#eid.
21
Wolfrum (2012b), paras. 6 and 7.
22
Mosler (1984), pp. 9091; Brownlie (1998), p. 16.
23
Principles initially set out in one treaty regime evolve towards an independent source of
international law when they are transferred to another treaty regime and they are recognised as
such, cf. expressed in jurisprudence of international courts, resolutions or policy statements of IOs,
Wolfrum (2012b), paras. 2829, 34, and 36.

34

F. Weiss and B. Scherzer

These were included in the ICJ Statutes enumeration of sources of international


law so as to complement other sources deemed insufficient. Nevertheless, Article
38 of the ICJ Statute does not determine a hierarchy of the sources and, more
generally, apart from the superior status accorded ius cogens, no such hierarchy of
laws exists in the international legal system.24 Furthermore, it might occur that
general principles were developed or codified in treaties and subsequently transferred to others.25 More specifically, general principles can emerge from parallel
observance of certain basic rules applied in similar situations, without any legislative act. . . being necessary.26 In such circumstances one is faced by abstractions
from a mass of rules which are no longer directly connected with State practice.27
Regardless of their origin and degree of (im-)precision or (in-)determination of
their content, principles are generally binding and must be obeyed.28
In examining relevant principles for the purpose of this chapter, our focus will be
both on general principles codified in international agreements and on those not
codified but directly derived from domestic legal orders.
How, then, is one to determine whether a principle is generally recognised as
such, considering in particular that rules of international law are naturally evolving
over time by an elusive process of adaptation and change? Do principles themselves
also change over time or, outlasting such changes of rules, possibly even possess the
attribute of enduring validity? Whether a principle is generally recognised and,
consequently, established as a self-standing source of international law, can be
ascertained through various ways, most commonly by reference to the case law of
international tribunals and to resolutions or policy statements of international
organisations or of international conferences.29 Due to their high degree of abstractness, principles are considered very useful instruments for the flexible adaptation to
new developments and trends, thereby contributing to the progressive development
of international law.30

24

Brownlie (1998), p. 3; Wolfrum (2012a), para. 11.


The European Commission of Human Rights referred to Arts. 3133 Vienna Convention on the
Law of Treaties stating that they constitute, in its opinion, general principles that must be applied
accordingly.
26
Mosler (1984), p. 91.
27
Brownlie (1998), p. 19.
28
Mosler (1984), p. 92.
29
Wolfrum (2012b), para. 55, who also names the principles of international environmental law,
e.g. preventive principle, sustainable development, as examples of this mechanism.
30
Wolfrum (2012b), paras. 6063; in addition, general principles can be a very useful instrument
in order to bridge the fragmentation international law.
25

(Existence of) Common or Universal Principles for Resource Management (?)

35

II. Management of Resources


The term natural resources features in the World Trade Report on trade in natural
resources (2010) where the term is used interchangeably with resources and
defined narrowly as stocks of materials that exist in the natural environment that
are both scarce and economically useful in production or consumption, either in
their raw state or after a minimal amount of processing.31 Similarly, Article
56, para. 1 of the Havana Charter for an International Trade Organisation
(1948) contains a rather narrow definition of the term primary commodity.
According to that definition the term primary commodity means product of
farm, forest or fishery or any mineral, in its natural form or which has undergone
such processing as is customarily required to prepare it for marketing in substantial
volume in international trade.32 Conversely, the Oxford English Dictionary defines
the term resource in rather broad terms as, inter alia, means of supplying a
deficiency or need. . . stocks or reserves of money, materials, people, or some other
asset, which can be drawn on when necessary. . . the collective means possessed by
a country or region for its own support, enrichment, or defence. . . personal attributes and capabilities regarded as able to help or sustain one in adverse circumstances.33 Moreover, environmental lawyers debate whether even carbon
emissions ought to be regarded as a new commodity.34 Whether or not one agrees
with this suggestion, this example clearly points to an ongoing commoditisation
that is a trend of attributing commodity-status to certain goods.35 Therefore, the
term resources considered in the widest sense of the word would include all means
facilitating or enabling the satisfaction of human needs, material or immaterial
goods, denoting an incredibly wide variety of resources: Factors of production
persons (human resources), products, land, capitaland for welfare creation such
as trade or investment, living and non-living resources (environmental resources
such as clean air,36 raw materials, energy, commodities, microchips), societal
regulatory resourceslegal systems, transport infrastructure, educational, health,
welfare systems, characteristics of individualsskill, talents, adaptability, even a
resourceful persons creativity. It is noteworthy though that others, examples such
31

WTO (2010), p. 46.


The term primary commodity has somewhat ineptly been translated as Grundstoff, see
Hummer and Weiss (1997), p. 95.
33
Oxford English Dictionary, available at http://www.oed.com/view/Entry/163768?
rskey2bzBZj&result1#eid.
34
See Button (2008), pp. 575577. In general, no regulation decides on how to conceptualise
carbon units. In the absence of any guidance, industry practice tends to treat carbon emissions
rights as commodities, a practice, which is also reflected in literature and which indeed seems
comprehensible due to the many similarities (trades are made in very large volumes, emergence of
carbon future markets etc.) emissions units share with commodities like e.g. metals.
35
Weiss (2009), pp. 268269.
36
United States Standards for Reformulated and Conventional Gasoline, Appellate Body Report
of 29 April 1996, WT/DS2/AB/R.
32

36

F. Weiss and B. Scherzer

as microchips or carbon emissions, call for a clear differentiation between what still
constitutes a commodity and what is not comprised by that notion, going beyond
even its widest interpretation. As mentioned before, the term commodity is
increasingly interpreted in a very broad sense so as to include also certain mass
products such as microchips.37 Resources are, of course, subject to appropriation,
transactions and allocation. But to yield value through their use they are made
subject to management processesstrategies, systems and regimes. The concept of
management may be defined as purposefully apply ordering, steering and guiding
functions to human activity to achieve optimal utilization of resources however
defined, whether as manager of industrial or political processes. Ministers supposedly manage their ministries to that end, the production of the public good regulation. In democratic societies, their management skills are politically evaluated,
while their productsall manner of governmental regulation-, is scrutinised as to
suitability and quality. For the purpose of this chapter, the focus is on public
management at an international level, particularly in the sense of global governance
(see Sect. C.I).

III. Regime Theory


Even though not explicitly referred to in the title of this chapter, it is appropriate to
shed light on the concept of international regime, which is much used and abused in
both international law and international relations. As such the concept originates in
the discipline of international relations before being adopted in international law.38
According to regime theory, international regimes will normally be established
when uncoordinated and decentralised decision-making results in suboptimal outcomes. In order to overcome suboptimal results, States engage in coordinating
and therefore also restrictingtheir behaviour.39 Thus, an international regime may
lead towards stability through coordination reducing uncertainties concerning State
behaviour, it provides infrastructure for rule enforcement and a forum for negotiations.40 International regimes, in general, can be established either by a formal
binding international treaty or by non-binding legal instruments including so-called
soft law.41 This concept is of importance not just generally to gain insights into
international law drawing upon international relations theory,42 but also particularly for the subject of this chapter, sinceas will be shown laterregimes

37

Weiss (2009), p. 269.


See generally Hasenclever et al. (1997).
39
Gehring (1994), p. 481.
40
Bradford (2001), p. 668.
41
See e.g. Schwarze (2011), pp. 3 et seq.; Benedek (1990), pp. 123125, and 153 et seq.; Marboe
(2012); Hafner (2003); Yoshida (2001), pp. 910; Gold (1984), pp. 515 et seq.
42
Cf. international legal theories such as The New Haven School, see Reisman et al. (2007).
38

(Existence of) Common or Universal Principles for Resource Management (?)

37

might furnish the basis for global governance. In the early 1980s, the concept of
international regimes was widely criticised for being too imprecise and woolly as
well as for resting on too shaky foundations.43 Despite protracted and lively
scholarly debates, consensus on a definition of the term international regime
proved elusive. Eventually, Stephen Krasner provided a definition which gained
wide acceptance and became influential according to which regimes are implicit or
explicit principles, norms, rules and decision-making procedures around which
actors expectations converge in a given area of international relations. Principles
are beliefs of fact, causation, and rectitude. Norms are standards of behaviour
defined in terms of rights and obligations. Rules are specific prescriptions or proscriptions for action. Decision-making procedures are prevailing practices for
making and implementing collective choice.44 Although this definition was again
severely criticised for its vagueness, it nevertheless provides a valuable analytical
tool for research.45 While Krasners definition is very formalistic, it anchors
international regimes not only on norms and rules but also on principles which
reflect the very foundation of (sectoral) cooperation.46 Therefore, placed in a
political context, international regimes are international institutions for the governance of limited issue-areas and may furnish the basis for global governance
understood as the ability to determine common interests as well as to effectively
enforce congruent individual behaviour.47 These institutions themselves are conceived as a set of norms applicable to limited issue-areas.48 Accordingly, another
international scholar, Thomas Gehring, determined international regimes as a
combination of (a) a set of international norms applicable to specific area-issues
that guides actors decision-making and emerges from deliberate, collective (and
usually multilateral) decisions of the participating actors and (b) the negotiations
and organized decision processes from which these norms emerge and within which
they are stabilized.49 Also, some regimes can be characterised as objective
regimes governing particular geographical areas such as the 1959 Antarctic Treaty.
Yet, they are territorially limited and therefore differ from functional regimes
having administrative character such as, for instance, that of global environmental
protection.50
Enquiring how regimes actually furnish the basis for potential global governance
leads to the question what the term global governance actually describes?

43

Hasenclever et al. (1997), p. 8; Susan Strange criticised the scholarly discussions evolving
around international regimes in expressing that people mean different things when they use it, see
Strange (1982), pp. 484486.
44
Krasner (1983), p. 2; Krasner (1985), pp. 45.
45
Hasenclever et al. (1997), p. 11; Gehring (1994), fn. 234.
46
Gehring (1994), p. 60; the empirical object of study in this respect was the GATT47 regime.
47
Gehring (1994), pp. 15 and 481; Yoshida (2001), pp. 1011.
48
Gehring (1994), p. 61.
49
Ibid., p. 397.
50
Yoshida (2001), pp. 1112.

38

F. Weiss and B. Scherzer

C. Principles
I. Global Governance and Good Governance
1. Globalisation and Global Governance
Although, as Paul Krugman pointed out, globalisation is neither new nor unique,
it is perhaps the most pervasive concept of the 1990s and appears to have found
instant appeal across a range of intellectual interests. It is evident that todays
globalisation, which is considerably more intensive as well as extensive than
historic globalisation, makes global cooperation of States inevitable in order to
effectively meet the numerous transboundary challenges (e.g. climate change) in
the light of rapidly growing extensive interconnectedness. Whether fervently
embraced, or vilified, globalisation is living reality. We are part of it as much as
it is part of our daily professional and personal experience, language and mode of
thinking.51
In his book The World is Flat: The Globalized World in the Twenty-First
Century Thomas Friedman classified todays globalization in three periods.
While the first period, Globalization 1.0 as he calls it, was characterised by its
State-driven origins and the second period, Globalization 2.0, has moved beyond
the first driven by multinational companies, globalisation in the third period, finally,
Globalization 3.0, in which we find ourselves today, is shaped by new found
powers of individuals to collaborate and compete globally.52
According to Reinicke, who makes use of a narrow definition, the concept of
globalisation denotes a continuous process of increasing cross-border economic
flows, both financial and real, which are conductive to greater economic
interdependence among formerly distinct national economies.53 Globalisation,
consequently, is a tendency towards international economic integration, liberalization and financial deregulation beyond the sovereignty of the territorial state.54
A second and conversely rather broad definition describes the concept of globalisation as the extension of cross-border societal exchanges and transactions. . . in a
wide range of non-economic areas such as communication and culture. . .
mobility. . . security. . . and environment.55 This second definition thus depicts
the widening, deepening and speeding up of worldwide interconnectedness in all

51

Weiss (2014), p. 579; Globalisation did not just occur in the aftermath of the collapse of the
Soviet Union and the end of the Cold War but has occurred in much earlier times, e.g. Silk Road,
see Bruhl and Rittberger (2002), pp. 1314.
52
Friedmann (2005), passim.
53
Cited from Bruhl and Rittberger (2002), p. 13, based on Reinicke (1998), p. 6.
54
Cited from Bruhl and Rittberger (2002), p. 13, based on Higgott and Phillips (2000), chapter
4. See also Handl et al. (2012).
55
Bruhl and Rittberger (2002), p. 13, see also Beisheim et al. (1999), passim.; Walter et al. (1997),
passim.

(Existence of) Common or Universal Principles for Resource Management (?)

39

types of contemporary social life, from the cultural to the criminal, the financial to
the spiritual.56 Snyder defines globalisation as an aggregate of multifaceted,
uneven, often contradictory economic, political, social, cultural and legal processes
which are characteristic of our time.57 Without international cooperation these
challenges cannot be met adequately and would result in economic inefficiency,
social welfare loss, environmental degradation, overexploitation of resources (such
as fisheries) and underproduction of global public goods.58 However, global cooperation today cannot keep pace with the multiple and rapidly growing global
challenges.59 This ongoing transformation of the world we live in is necessarily
reflected in a globalisation/internationalisation of law, resulting, inter alia, in the
establishment of new institutions and norms as well as a de-nationalisation of
rulemaking and a de-nationalisation of national norms due to national and international norms being increasingly intertwined (e.g. internationalisation of crime).60
Furthermore, globalisation manifests itself in a growing number of important global
actors. Next to States and International Governmental Organisations (IGOs), the
traditional actors in international relations, new actors have emerged and gained
significance in international and global governance thereby fostering heterogeneity
of actors at the global stage. These new actors include a growing number of NonGovernmental Organisations (NGOs) as well as Transnational Corporations and
Transnational Social Movements. Even though States are expected to remain
principal actors in international affairs, the necessity to ensure a proper balance
between all actors as well as a sufficient participation of all actors constitutes one of
the major challenges to international/global governance.61 In addition, debates on a
fair and equitable distribution of wealth62 depict another of the main new challenges posed by globalisation, amongst others.63 Its worth noting that globalisation
results, nevertheless, from political strategies (neo-liberal political strategies) and

56

Cited from Bruhl and Rittberger (2002), p. 13; Held et al. (1999a), p. 2.
Economically: global value chains, fragmentation of ownership and production, politically: new
actors such as multinational firms, NGOs and social movements, socially: spread of certain models
of production and consumption, culturally: development of global culture, legally: new institutions, new types of norms, concerns about how to achieve democracy and accountability, see
Snyder (2010), pp. 4344.
58
Esty (2006), pp. 1497 et seq., examples of international governance include the WTO, WHO,
ISO, OECD.
59
Weiss and Thakur structure the challenges to global governance into five policy gaps: knowledge gaps, normative gaps, policy gaps, institutional gaps, compliance gaps, for an overview see
Weiss and Thakur (2010), pp. 3, 723.
60
For an overview of literature on Globalisation and the Law see Snyder (2010), pp. 1141.
61
The growing number of actors may be, amongst others, one of the reasons behind the UN Global
Compact which addresses the private sectors growing importance, see Weiss and Thakur
(2010), p. 30.
62
The gap in terms of wealth between rich and DCs/LDCs is even widening, UNDP (1999).
63
Bruhl and Rittberger (2002), pp. 23.
57

40

F. Weiss and B. Scherzer

depends on commonly accepted norms (e.g. property rights).64 So, how to govern
globalisation? What actually constitutes in the given context (global) governance?
What form does it take? According to the report Our Global Neighbourhood
published by the Commission on Global Governance governance is the sum of the
many ways individuals and institutions, public and private, manage their common
affairs. It is a continuing process through which conflicting or diverse interests may
be accommodated and co-operative action may be taken. It includes formal institutions and regimes empowered to enforce compliance, as well as informal arrangements that people or institutions have agreed to or perceive to be in their
interests.65 The United Nations Development Programme (UNDP) in 1994 denotes
governance as the exercise of economic, political, and administrative authority to
manage a countrys affairs at all levels. It comprises mechanisms, processes, and
institutions through which citizens and groups articulate their interests, exercise
their legal rights, meet their obligations, and mediate their differences.66 Keohane
and Nye define governance as the processes and institutions, both formal and
informal, that guide and restrain the collective activities of a group,67 Weiss and
Thakur as the sum of laws, norms, policies, and institutions that define, constitute,
and mediate relations among citizens, society, market, and the state-the wielders
and objects of the exercise of public power.68 Accordingly, global governance is
the sum of laws, norms, policies, and institutions that define, constitute, and
mediate relations among citizens, society, markets, and the state in the international
arena-the wielders and objects of international public power.69 Rittberger sees
global governance as the output of a non-hierarchical network of international and
transnational institutions: not only IGOs and international regimes but also transnational regimes are regulating actors behaviour. . . global governance is characterized by the decreased salience of states and the increased involvement of nonstate actors in norm-and rule-setting processes and compliance monitoring. . .
global governance is equated with multilevel governance, meaning that governance
takes place not only at the national and the international level (such as international
governance) but also at the subnational, regional, and local levels. . . non-state
actors (in addition to states and intergovernmental institutions) are both the
addressees and the makers of norms and rules in global governance.70 For Snyder
globalisation is governed by the totality of strategically determined, situationally
specific and often episodic conjunctions of a multiplicity of sites throughout the
world. . . the totality of these sites of governance represents a new global form of
legal pluralism.71 Global governance is certainly expanding and appears in many

64

Bruhl and Rittberger (2002), p. 14.


Commission for Global Governance (1995), p. 2.
66
UNDP (1994), chapter 1.
67
Keohane and Nye (2000), p. 12.
68
Weiss and Thakur (2010), p. 6.
69
Op. cit., p. 6.
70
Bruhl and Rittberger (2002), p. 2.
71
Snyder (1999), pp. 334335.
65

(Existence of) Common or Universal Principles for Resource Management (?)

41

different forms, like binding or non-binding decisions of international organisations, intergovernmental networks and publicprivate or private institutions as well
as domestic actions.72 Leave rulemaking to the market or let private sectors carry
out former public functions? At what level should optimal governance of globalisation take place? Many rules and norms made above national levels of governance
regulate numerous areas of daily life (cf. provisions on food safety under international trade law). However, one must acknowledge that many unresolved questions73 surround global governance regarding, inter alia, issues concerning its
legitimacy or accountability.

2. Good Governance
Having shed some light on the meaning of the concepts of governance and global
governance respectively, we next examine principle and practice of good governance, a term which was first introduced by the World Bank in 1989. At the time it
characterised the regional crisis it had to deal with, and which was due to corruption
and resistance to reforms, as a crisis of governance.74
The concept of good governance was initially linked to economic processes and
administrative efficiency and has since then gained significant importance in
development policy and cooperation.75 The new approach conditioned eligibility
for support for potential recipient States upon their conduct in governmental affairs
and their willingness to implement institutional reforms.76 This shift from governance to good governance implies an additional normative dimension pertaining to
the quality of governance. It is, therefore, based upon the fulfilment of particular
process requirements, both with respect to decision-making and to the formulation
of public policy.77
At first the World Bank and the International Monetary Fund (IMF) adopted
definitions of good governance which were restricted to those elements that could
stifle economic growth. The IMF attributes the transparency of government
accounts, the effectiveness of public resource management, and the stability and
transparency of the economic and regulatory environment for private sector activity78 to good governance. According to the World Bank good governance is
epitomized by predictable, open and enlightened policy making; a bureaucracy

72

Krisch and Kingsbury (2006), p. 3.


For further literature on these topics see also Bruhl and Rittberger (2002).
74
World Bank (1989), p. xii.
75
Austrian Development Cooperation (2006), pp. 45; according to one of the main claims in
literature good governance promotes economic development, cf. Kaufmann and Kraay (2002),
pp. 169229.
76
See Santiso (2001), pp. 3 et seq.; Doornbos (2001), pp. 9397.
77
See Weiss and Steiner (2007), p. 1548.
78
Camdessus (1997), p. iv.
73

42

F. Weiss and B. Scherzer

imbued with a professional ethos; an executive arm of government accountable for


its actions; and a strong civil society participating in public affairs; and all behaving
under the rule of law.79 Later on, the World Bank gradually incorporated political
elements into the concept, such as the protection of human rights and the fight
against corruption.80
While the essential content of good governance has barely been determined,
growing reliance on and usage of the concept has led to the evolution of some
governance indicators. Most importantly, the World Bank Institute (WBI) identified
six indicators: voice and accountability, political stability and absence of violence,
government effectiveness, regulatory quality, rule of law, control of corruption.81
However, the concept of good governance still attracts criticism. The WBI
measurements of good governance clearly show a relation between good governance and economic growth.82
The United Nations Economic and Social Commission for Asia and the Pacific
(ESCAP) adopted a definition which clearly incorporates political elements. It
identifies eight key components according to which good governance ought to be
accountable, transparent, responsive, equitable and inclusive, effective and efficient, follow the rule of law, participatory as well as consensus oriented.83
The United Nations clearly link democracy and good governance by stating that
governance is considered good and democratic to the degree in which a
countrys institutions and processes are transparent. Its institutions refer to such
bodies as parliament and its various ministries. Its processes include such key
activities as elections and legal procedures, which must be seen to be free of
corruption and accountable to the people. A countrys success in achieving this
standard has become a key measure of its credibility and respect in the world.84
Furthermore, good governance in this sense promotes equity, participation, pluralism, transparency, accountability and the rule of law, in a manner that is
effective, efficient and enduring.85 Finally, the UN explicitly denotes violence,
poverty and especially corruption as undermining good governance.86
The African Development Bank determines good governance as a process
referring to the manner in which power is exercised in the management of the
affairs of a nation, and its relations with other nations. Accordingly, it identifies

79

World Bank (1994), p. vii.


Brown Weiss and Sornarajah (2009), paras. 4043; see also Wolfensohn (2000), p. 10;
Kaufmann and Kraay (2008), p. 4.
81
World Bank Institute, Worldwide Governance Indicators (WGI), available at http://info.
worldbank.org/governance/wgi/index.aspx#home.
82
Brown Weiss and Sornarajah (2009), para. 7.
83
ESCAP (2007), p. 3.
84
UN, Governance, https://www.un.org/en/globalissues/governance/.
85
UN, Governance, https://www.un.org/en/globalissues/governance/.
86
UN, Governance, https://www.un.org/en/globalissues/governance/.
80

(Existence of) Common or Universal Principles for Resource Management (?)

43

accountability, transparency, participation, combating corruption, and the promotion of an enabling legal and judicial framework as key elements of governance.87
According to yet another international organisation (IO), the Organization for
Economic Co-operation and Development (OECD), the concept of good governance encompasses the role of public authorities in establishing the environment in
which economic operators function and in determining the distribution of benefits
as well as the nature of the relationship between the ruler and the ruled.88
In its White Paper on European Governance of 2001, the European Commission
established the concept of European governance as rules, processes, and behaviour affecting the way in which powers are exercised at European level, particularly
as regards openness,89 participation, accountability,90 effectiveness, and coherence.91 These five principles of good governance are to reinforce those of subsidiarity and proportionality.92 Moreover, Article 41 of the Charter of Fundamental
Rights of the European Union articulates a proximate right to good administration.
However, all abovementioned definitions aim at good governance by States.
Following the recognition that international organisations should also adopt good
governance, the International Law Association (ILA) recommended a set of elements which good governance practised by international organisations should
consist of. These principles include transparency in both the decision-making
process and the implementation of the ensuing institutional and operational decisions; a large degree of democracy in the decision-making process; access to
information open to all potentially concerned and/or affected by the decisions at
stake; the well-functioning of the international civil service; sound financial management; and appropriate reporting and evaluation mechanisms.93 If compared with
the elements of good governance by States, it does evidently not differ substantially
from the concept of good governance applied by international organisations.94
Although the elements comprised in the various definitions of good governance
differ slightly from one another, there seems to be a consensus on the core

87

African Development Bank Group (2008), p. 15, fn. 1.


OECD (1995), p. 14.
89
Commission of the European Communities 2001, European Governance: White Paper from the
Commission to the European Council, COM(2001) 428 Final, p. 10, stating The Institutions
should work in a more open manner. Together with the Member States, they should actively
communicate about what the EU does and the decisions it takes. They should use language that is
accessible and understandable for the general public. This is of particular importance in order to
improve the confidence in complex institutions.
90
Ibid., stating [r]oles in the legislative and executive processes need to be clearer.
91
Ibid., stating [p]olicies and action must be coherent and easily understood.
92
Ibid.
93
ILA (2004), p. 8.
94
For an overview of good governance in international organisations see Brown Weiss and
Sornarajah (2009), paras. 6171.
88

44

F. Weiss and B. Scherzer

characteristics. Most elements are interlinked and mutually reinforcing.95 Accessible information equals transparency and participatory decision-making, which, in
turn, contributes to legitimacy. Therefore, while the concept of good governance
does not yet possess the status of customary international law, it seems that certain
elements thereof such as those of transparency or accountability may become
customary international law.96 Apart from the debate on the components, there is
disagreement on the range of actors to which it applies, be it intra-State, inter-State
or even inter-privates.97 Two approaches have become apparent: International
monetary institutions and development agencies refined the first approach in fostering the external dimension of good governance through promotion of good
governance in third countries. Institutions such as the OECD or the World Bank
concentrated on domestic dynamics of good governance in the context of development relations. Already in 1993 the OECDs Development Assistance Committee
(DAC) established an ad hoc Working Party on Participatory Development and
Good Governance (PDGG) with the mandate to help bring PDGG into the mainstream of development co-operation by means of a 3-year program of activities.98
In July 1997, the UNDP convened an International Conference on Governance for
Sustainable Growth and Equity a first global conference on governance. Although
representatives of UN Specialized Agencies participated, it did not extend its
definition of (good) governance to international organisations, nor was there any
discussion of the international dimension of good governance.99 Pursuant to a
second approach itself the reaction to emerging pressure for democratic legitimacy
in the exercise of multinational authority, good governance was subsequently
applied internationally and in relation to internal (administrative) proceedings.100
In the context of sustainable development, good governance commits both States
and international organisations and is seen as one of many pieces of the mosaic:
According to Paragraph 6 of the ILA Declaration of New Delhi,101 the progressive
development and codification of international law relating to sustainable development is relying on the commitment of both States and international organisations to
the principle of good governance. It calls for (a) the adoption of democratic and
transparent decision-making procedures and financial accountability; (b) effective

95

The Center for International Sustainable Development Law (CISDL), Legal Working Paper on
The Principles of International Law Related to Sustainable Development, available at http://
cisdl.org/public/docs/new_delhi_declaration.pdf, p. 18.
96
Brown Weiss and Sornarajah (2009), para. 73.
97
The Center for International Sustainable Development Law (CISDL), Legal Working Paper on
The Principles of International Law Related to Sustainable Development, available at http://
cisdl.org/public/docs/new_delhi_declaration.pdf, see supra ibidem.
98
See OECD Development Assistance Committee (1997a, b, c).
99
Weiss and de Waart (1998), p. 9.
100
Uvin and Biagiotti (1996), pp. 384388.
101
International Law Association, ILA Resolution 3/2003: New Delhi Declaration of Principles of
International Law Relating to Sustainable Development (2002), in ILA, Report of the Seventieth
Conference, New Delhi, 2002.

(Existence of) Common or Universal Principles for Resource Management (?)

45

measures to combat official or other corruption; (c) due process in procedures and
observation of the rule of law and human rights; and (d) the implementation of a
public procurement approach according to the WTO Agreement on Public Procurement. In 2002, both the Johannesburg Declaration on Sustainable Development and
Chapter XI of the Johannesburg Plan of Implementation102 recognised the importance of the principle of good governance at the level of a global economy by
committing States to strengthen and improve governance at all levels.103

II. Universal Principles for Resource Management


in International Law
In this section an illustrative number of principles will be examined with a view to
establishing whether these already function as guiding principles for resource
management or might do so in the not too distant future.

1. Sic Utere Tuo Ut Alienum Non Laedas


As a result of the Treaty of Westphalia, geography and jurisdiction were seen to
coincide. State power became identified with defensibleterrestrial, aerial and
maritimespace: territory and citizens were placed under the jurisdiction and
control of sovereignty.104 Territorial control was traditionally the basis of access
to and utilisation of natural resources. The principle of permanent sovereignty over
natural resources has, consequently, its roots in the general principle of sovereignty
and territoriality.105 It was acknowledged in the post-war era and is considered part
of customary international law.106 The principle of permanent sovereignty over
natural resources allows States and peoples to dispose freely over their natural
resources. However, since Nico Schrijver has cogently shown, that it encompasses
rights but also duties regarding natural resources,107 suffice it to focus in this section
on the principles which delimitate the rights derived from the principle of permanent sovereignty over natural resources, in particular environmental law principles
such as the responsibility not to cause environmental damage, the principle of

102

Johannesburg Plan of Implementation of the World Summit on Sustainable Development, 2002,


paras. 137138.
103
Johannesburg Declaration on Sustainable Development From our origins to the future,
adopted at the 17th plenary meeting of the World Summit on Sustainable Development on
4 September 2002, para. 30.
104
Weiss (2012b), p. 463.
105
Schrijver (2008a, b), paras. 1 and 3.
106
For evidence of State practice see Schrijver (2008a, b), para. 23.
107
Op. cit, para. 2.

46

F. Weiss and B. Scherzer

preventive action, the principle of sic utere tuo ut alienum non laedas, sustainable
development, the precautionary principle and the polluter-pays principle (PPP).
The existing dichotomy between sovereign rights of States over their natural
resources and their duty to prevent environmental damage is outlined in Principle
21 of the 1972 Stockholm Declaration.108 Most famously, while affirming States
sovereignty over natural resources Principle 21 of the Stockholm Declaration as
well as Principle 2 of the 1992 Rio Declaration109 also impose a general obligation
not to cause transboundary environmental damage. Principle 21 is customary
international law as has been confirmed by the ICJs 1996 Advisory Opinion on
the Legality of the Threat or Use of Nuclear Weapons.110 The obligation to prevent
environmental damage, however, antedates the 1972 Stockholm Declaration and
has already been recognised by the arbitral tribunal in the Trail Smelter case, as well
as reflected in several treaties prior to as well as after the 1972 Stockholm Declaration.111 For instance, United Nations General Assembly (UNGA) Resolution
2996 highlights that Principle 21 constitutes the basic rule of States responsibility
concerning the environment.112 The responsibility not to cause environmental
damage is, however, a manifestation of the underlying principle of sic utere tuo
ut alienum non laedas which requires States to use their own property so as not to
injure that of other States. It is, moreover, often used synonymously with the
principle of good neighbourliness, a principle which too essentially limits the
States exercise of its territorial rights of sovereignty by imposing a general
obligation not to harm other States exercise of their territorial rights of sovereignty.
In other words, it balances the rights and duties of States regarding the exercise of
their respective territorial rights of sovereignty. Be that as it may, it is, however,
difficult to identify the exact threshold.113 According to the arbitral tribunal in the
Trail Smelter case, the harm has to be of serious consequence and must be

Principle 21 of the Stockholm Declaration outlines that States have, in accordance with the
Charter of the United Nations and the principles of international law, the sovereign right to exploit
their own resources pursuant to their own environmental policies, and the responsibility to ensure
that activities within their jurisdiction or control do not cause damage to the environment of other
States or of areas beyond the limits of national jurisdiction.
109
Principle 2 of the Rio Declaration outlines that States have, in accordance with the Charter of
the United Nations and the principles of international law, the sovereign right to exploit their own
resources pursuant to their own environmental and developmental policies, and the responsibility
to ensure that activities within their jurisdiction or control do not cause damage to the environment
of other States or of areas beyond the limits of national jurisdiction.
110
A number of States invoked Principle 21 as applicable customary international law which was
not rejected by the court. See also Sands (2003), p. 245.
111
Sands (2003), fn. 37; It has been, inter alia, adopted by Art. 30 Charter of Economic Rights and
Duties of States, the 1975 Final Act Helsinki Conference or Art. 193 United Nations Convention
on the Law of the Sea, see also Sands (2003), pp. 243245.
112
See UNGA Resolution 2996 (XXVII), International responsibility of States in regard to the
environment of 15 December 1972, A/RES/27/2996(XXVII).
113
Brunnee (2010), paras. 1, 3, 4, 7, and 9.
108

(Existence of) Common or Universal Principles for Resource Management (?)

47

established by clear and convincing evidence.114 The sic utere tuo-principle is


recognised in numerous agreements, declarations and conventions in the field of
environmental law.115 Whereas the obligation not to cause transboundary environmental damage has been confirmed as forming part of international customary law,
it is still a moot point whether the principle sic utere tuo also applies to other than
environmental harms (e.g. transnational crime, terrorism).116

2. Principle of Preventive Action


The principle of preventive action is closely related to the aforementioned obligation not to cause transboundary environmental damage. However, the former is a
principle in its own right and must not be understood in conjunction with the
exercise of permanent sovereignty over natural resources.117 It merely postulates
a general duty toif possibleprevent environmental damage from happening at
all or at least to reduce, limit or control the risk of damage.118 The principle of
preventive action is endorsed by numerous international declarations and treaties
and, additionally, was recognised in decisions by the ICJ and arbitral tribunals.119
Moreover, the international instruments in which the principle is reflected have a
wide range of specific objectives ranging from prevention of extinction of fauna and
flora to, the spread of diseases, river/radioactive/air pollution to dangerous anthropogenic interference with the climate system and damage to loss of fisheries and
other biodiversity.120

3. Precautionary Principle
Principle 15 of the 1992 Rio Declaration outlines the precautionary principle.121 It
states that regardless of scientific uncertainty protective measures may be taken to
prevent serious and irreversible damage to the environment. Even though the

114

Brunnee (2010), para. 10.


E.g. 1972 Stockholm Declaration, 1992 Rio Declaration, 1985 Vienna Convention on the
Protection of the Ozone Layer, the 1992 Climate Change Convention etc., for full evidence see
Brunnee (2010), para. 11.
116
Brunnee (2010), paras. 14 and 16.
117
Sands (2003), p. 246.
118
Sands (2003), pp. 246247, fn. 65.
119
E.g. in Principles 6, 7, 15, 18, 24 of the 1972 Stockholm Declaration and 14 of the 1992 Rio
Declaration, Art. 191 (2) TFEU, Trail Smelter case, see also Sands (2003), pp. 247248.
120
For an overview see Sands (2003), p. 248.
121
Principle 15 of the Rio Declaration states that In order to protect the environment, the
precautionary approach shall be widely applied by States according to their capabilities. Where
there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used
as a reason for postponing cost-effective measures to prevent environmental degradation.
115

48

F. Weiss and B. Scherzer

principle is recognised in numerous international instruments, its precise content


tends to vary and is, therefore, hard to determine. For instance, the precautionary
principle is reflected in the preamble of the 1984 Ministerial Declaration of the
International Conference on the Protection of the North Sea and was reconfirmed in
the Second (1987) and Third North Sea Conference (1990) and in the 1990 Bergen
Ministerial Declaration on Sustainable Development in the EEC Region as well as
in other international instruments.122 Interestingly, the 1991 Bamako Convention
links the preventive and the precautionary principles and lowers the threshold by
not requiring serious or irreversible harm but solely harm.123 Yet another convention, the 1992 Watercourses Convention, limits on the one hand the scope of
application of the precautionary principle to transboundary impacts on the environment, and on the other hand raises the threshold to significant adverse effects.124
Moreover, the 1992 Climate Change Convention requires the damage to be serious
and irreversible while the measures to be taken in order to prevent such damage
shall be cost effective.125 Other conventions also incorporate the precautionary
principle butas illustrated in the examples aboveadopt slightly different formulations with different legal implications. In addition to the existing international
instruments, the precautionary principle was invoked before the ECJ (European
Court of Justice)/European Court (Court of First Instance before Lisbon) and the
EFTA Court126 as well as the International Tribunal of the Law of the Sea (ITLS),
the ICJ and the WTO Appellate Body.127 However, whereas the ICJ, ITLS and the
WTO Appellate Body did not find that the precautionary principle was part of

122

For an overview see Sands (2003), pp. 269271.


Art. 4(3)(f) Bamako Convention of 1991 states that Each Party shall strive to adopt and
implement the preventive, precautionary approach to pollution problems which entails, inter-alia,
preventing the release into the environment of substances which may cause harm to humans or the
environment without waiting for scientific proof regarding such harm. The Parties shall co-operate
with each other in taking the appropriate measures to implement the precautionary principle to
pollution prevention through the application of clean production methods, rather than the pursuit
of a permissible emissions approach based on assimilative capacity assumptions.
124
Art. 2(5)(a) Watercourses Convention of 1992 states that The precautionary principle, by
virtue of which action to avoid the potential transboundary impact of the release of hazardous
substances shall not be postponed on the ground that scientific research has not fully proved a
causal link between those substances, on the one hand, and the potential transboundary impact, on
the other hand.
125
Art. 3(3) Climate Change Convention.
126
Judgment in the Case Philip Morris v. Norway of 16 September 2011.
127
See Alemanno (2007).
123

(Existence of) Common or Universal Principles for Resource Management (?)

49

customary international law,128 the European Court and the ECJ relied on the
precautionary principle,129 as did the EFTA Court.130
Even though the precautionary principle is widely recognised, especially in
environmental treaty law, the exact content is more difficult to determine. In
addition, only regional but no international judicial bodies have yet authoritatively
recognised the precautionary principle. It might impose the obligation on States to
act carefully and with foresight regarding adverse impacts their measure potentially
can have on the environment. Also, it is not clear what degree of scientific certainty
is required to render the precautionary principle inapplicable.131
To conclude, as the precautionary principle is still evolving and as its precise
scope and content has not yet been entirely clarified, it seems too early to confer
upon it the status of customary international law.

4. The Polluter-Pays Principle


The polluter-pays principle determines that those who cause pollution must also
pay for the costs resulting from pollution. In economic terms the principle reflects
the concept of internalisation of external costs of pollution. It is, for instance,
mentioned in Principle 16 of the 1992 Rio Declaration which provides that
National authorities should endeavor to promote the internalization of environmental costs and the use of economic instruments, taking into account the approach
that the polluter should, in principle, bear the cost of pollution, with due regard to
the public interest and without distorting international trade and investment.
Furthermore, it is also referred to by the 1992 United Nations Economic Commission for Europe Transboundary Waters Convention132 and the 1994 Energy Charter Treaty.133 Nevertheless, the PPP is merely a regionally recognised principle,
especially amongst OECD and EU Member States. The OECDs 1972 Guiding
Principles Concerning the International Economic Aspects of Environmental Policies defined the PPP as the principle to be used for allocating costs of pollution

128

E.g. EC-Hormones, Appellate Body Report, WT/DS26/AB/R, WT/DS48/AB/R, para. 123;


Request for an examination of the situation in accordance with paragraph 63 of the Courts
judgment of 20 December 1974 in the Nuclear Tests case, Order, ICJ Reports 1995, p. 288;
Pulp Mills on the River Uruguay, Request for the indication of provisional measures, Order, ICJ
Reports 2006, paras. 7375; see also Sands (2003), pp. 272279.
129
Case T-13/99, Pfizer v. Council, ECR p. II-3305, paras. 143144; albeit not explicitly mentioned, the ECJ relied upon the precautionary principle in its judgment in C-180/96, United
Kingdom v. Commission, ECR 3903, and C-157/96, National Farmers Union ECR I-2211.
130
EFTA Court of 5 April 2001, Case E-3/00 Efta Surveillance Authority v. Norway, EFTA Court
Report 2000/2001, 73, para 30.
131
Sands (2003), pp. 272273.
132
United Nations Economic Commission for Europe Convention on the Protection and Use of
Transboundary and International Lakes, Art. 2(5)(b).
133
Energy Charter Treaty, Art. 19(1).

50

F. Weiss and B. Scherzer

prevention and control measures to encourage rational use of scarce environmental


resources and to avoid distortions in international trade and investment is the
so-called Polluter Pays Principle. This principle means that the polluter should
bear the expenses of carrying out the above mentioned measures decided by public
authorities to ensure that the environment is in an acceptable state. In other words,
the costs of these measures should be reflected in the cost of goods and services
which cause pollution in production and/or consumption. Such measures should not
be accompanied by subsidies that would create significant distortions in international trade and investment.134 This definition was later reaffirmed and the
PPP classified a fundamental principle for all OECD Member States in the 1974
Recommendation on the Implementation of the Polluter-Pays Principle. By virtue
of the 1989 Recommendation on the Application of the Polluter-Pays Principle to
Accidental Pollution, its application was extended to accidental pollution caused by
hazardous installations.135 Moreover, the PPP is also established in EU primary and
secondary law, as well as in the case law of the ECJ.136 In fact it has become one of
the pillars of the EUs environment policy. First of all, it is set forth in Article
191 (2) TFEU137 and, secondly, in numerous acts of secondary legislation such as,
for instance, in the Water Framework Directive138 and in the Environmental
Liability Directive which also refers to and builds upon the PPP.139 In 2007 the
European Commission also launched a Green Paper on Market-based Instruments
for Environment and Related Policy Purposes which refers to the polluter-pays
principle.140
However, the definitions provided in these instruments are rather broad and
further clarification of the concepts meaning can only be achieved through case-

134

OECD (1972), para. 4.


OECD (1974), I.1; OECD (1989).
136
See amongst others e.g. Case C-293/97, Standley [1999] ECR I-2603, paras. 5153.
137
Art 191(2) TFEU states that Union policy on the environment shall aim at a high level of
protection taking into account the diversity of situations in the various regions of the Union. It shall
be based on the precautionary principle and on the principles that preventive action should be
taken, that environmental damage should as a priority be rectified at source and that the polluter
should pay.
138
Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000
establishing a framework for Community action in the field of water policy, OJ L 327 of
22 December 2000.
139
See Directive 2004/35/EC (as amended by Directive 2006/21/EC, Directive 2009/31/EC,
Directive 2013/30/EU), OJ 143/2004, recital 2 states that The prevention and remedying of
environmental damage should be implemented through the furtherance of the polluter pays
principle, as indicated in the Treaty and in line with the principle of sustainable development.
The fundamental principle of this Directive should therefore be that an operator whose activity has
caused the environmental damage or the imminent threat of such damage is to be held financially
liable, in order to induce operators to adopt measures and develop practices to minimise the risks
of environmental damage so that their exposure to financial liabilities is reduced.
140
See European Commission 2007, Green Paper on Marked based Instruments for Environment
and Related Policy Purposes, COM(2007) 140 Final, pp. 8, 11, and 12.
135

(Existence of) Common or Universal Principles for Resource Management (?)

51

by-case application and its progressive implementation through policy instruments.


Even though the PPP is recognised by several international instruments, it is neither
sufficiently present in State practiceespecially not fully sustained by State practice of the U.S.nor do any of these instruments provide a thoroughly detailed
definition of PPP. It cannot, therefore, be considered a general principle of international (environmental) law nor one of customary international law.141

5. UN Global Compact
Embedded in as well as the result of the changing nature of the international legal
system,142 especially the emergence of non-State actors including multinational
corporations, the UN launched the Global Compact in July 2000. The UN Global
Compact is a strategic policy initiative asking companies to embrace, support and
enact, within their sphere of influence, a set of core values in the areas of human
rights, labour standards, the environment and anti-corruption. All ten principles are
universally accepted and are derived from The Universal Declaration of Human
Rights (1948), the ILOs Declaration on Fundamental Principles of Rights at Work,
The Rio Declaration on Environment and Development (1992) as well as from The
UN Convention Against Corruption (2003). Companies, which commit to aligning
their operations and strategies to the ten principles, should support and respect the
protection of internationally proclaimed human rights, they should assure not to
become complicit in human rights abuses, they should uphold the freedom of
association and the right to collective bargaining, they should abolish all forms of
forced and compulsory labour and eliminate child labour as well as any discrimination regarding employment and occupation.143 Furthermore, committed companies should support a precautionary approach to environmental challenges and
promote greater environmental responsibility as well as encourage the development
and diffusion of environmentally friendly technologies.144 Finally, corporations
should work against corruption in all forms, with extortion and bribery being
demonstratively highlighted.145 The UN Global Compact is the worlds largest
voluntary corporate responsibility initiative with almost 8,000 corporate participants in over 140 countries.146 But what is the legal status of the UN Global
Compact? As mentioned above, it is not a regulatory instrument but rather an
141

Sands (2003), pp. 279280; likewise Chen (2012), pp. 14 and 15.
See contributions in the Austrian Review of International and European Law, vol. 8, 2003 and
Friedmanns observations on globalisation in Friedmann (2005), chapter II.
143
Principles 16 of the UN Global Compact, http://www.unglobalcompact.org/AboutTheGC/
TheTenPrinciples/index.html.
144
Principles 79 of the UN Global Compact, http://www.unglobalcompact.org/AboutTheGC/
TheTenPrinciples/index.html.
145
Principle 10 of the UN Global Compact, http://www.unglobalcompact.org/AboutTheGC/
TheTenPrinciples/index.html.
146
UN Global Compact Brochure, p. 1.
142

52

F. Weiss and B. Scherzer

initiative based on voluntary participation in order to complement regulatory


regimes. As such, the UN Global Compacts object is to mainstream the ten
principles in business activities as well as to provide a catalyst for the support of
broader UN goals (cf. the Millennium Goals).147

6. Sustainable Development
Even though some authors contrive to identify the roots of the idea of sustainable
development in ancient times,148 it has in reality gradually evolved since the
1970s.149 Resolution 35/56 of the UNGA clearly referred to the principle of
sustainable development for the first time.150 Also, the 1985 ASEAN Agreement
on the Conservation of Nature and Natural Resources explicitly mentions sustainable development.151 It was further developed and finally defined by the 1987
Brundtland Report. It underlined that the critical objectives for environment and
development policies which follow from the need for sustainable development must
include preserving peace, reviving growth and changing its quality, remedying the
problems of poverty and satisfying human needs, addressing the problems of
population growth and of conserving and enhancing the resource base, reorienting
technology and managing risk, and merging environment and economics in decision-making;.152 Furthermore, it determines sustainable development as meeting
the needs of the present without compromising the ability of future generations to
meet their own needs.153 After the 1992 UN Conference on Environment and

147

Ibid., p. 1.
See ICJ Reports 1997, Gabcikovo-Nagymaros, pp. 110111, where in a dissenting opinion
Vice-President Weeramantry concluded that Sustainable development is thus not merely a
principle of modern international law. It is one of the most ancient of ideas in the human heritage.
Fortified by the rich insights that can be gained from millennia of human experience, it has an
important part to play in the service of international law.
149
See UNGA Resolution 2626 (XXV) International Development Strategy for the Second United
Nations Development Decade of 24 October 1970, A/RES25/2626; 1971 Founex Report Development and Environment; 1972 Stockholm Declaration; see particularly, Schrijver and
Weiss (2004).
150
The 1980 UNGA Resolution 35/56, International Development Strategy for the United Nations
Third Development Decade of 5 December 1980, A/RES/35/56, para. 41, states that . . .There is
need to ensure an economic development process which is environmentally sustainable over the
long run and which protects the ecological balance. . .. See Sands (2003), p. 252.
151
Art 1(1) states that The Contracting Parties, within the frame work of their respective national
laws, under take to adopt singly, or where necessary and appropriate through concerted action, the
measures necessary to maintain essential ecological process and life-support systems, to preserve
genetic diversity, and to ensure the sustainable utilization of harvested natural resources under
their jurisdiction in accordance with scientific principles and with a view to attaining the goal of
sustainable development.
152
Brundtland Report as adopted by the 1987 UNGA Resolution 42/187, para. 5.
153
Brundtland Report as adopted by the 1987 UNGA Resolution 42/187, Preamble.
148

(Existence of) Common or Universal Principles for Resource Management (?)

53

Development in Rio had established sustainable development as a central concept


for international governance, it was widely incorporated into international treaties.
For instance, Article 2 of the 1992 Climate Change Convention, Article 2(1) of the
1997 Kyoto Protocol to the Climate Change Convention, Article 19(1) of the 1994
Energy Charter Treaty and Article 8 (4) (b) of the 1993 Southern Bluefin Tuna
Convention all explicitly refer to sustainable development.154
The principle of sustainable development has been applied in international
dispute settlement cases. In the Gabcikovo-Nagymoros case the ICJ invoked it
and held that Owing to new scientific insights and to a growing awareness of the
risks for mankind-for present and future generations-of pursuit of such interventions at an unconsidered and unabated pace, new norms and standards have been
developed [and], set forth in great number of instruments during the last two
decades. Such new norms have to be taken into consideration, and such new
standards given proper weight, not only when States contemplate new activities,
but also when continuing with activities begun in the past. This need to reconcile
economic development with protection of the environment is aptly expressed in the
concept of sustainable development.155 Vice-President Weeramantry, however,
considered sustainable development part of modern international law by reason not
only of its inescapable logical necessity, but also by reason of its wide and general
acceptance by the global community.156 The principle was also acknowledged by
the WTO Appellate Body. In its report on import prohibitions of certain shrimp and
shrimp products, the Appellate Body found that the principle of sustainable development, as it is set forth in the Agreement Establishing the World Trade Organization preamble, informs all annexed agreements and has been generally accepted
as integrating economic and social development and environmental protection.
Therefore, it must be taken into account in the interpretation process.157
However, despite incorporation of the principle in numerous international
treaties and application in international dispute settlement cases, some argue, that
it still lacks conceptual rigor, its content being difficult to determine. While others
might contend that it is its very opaque nature which permitted the entire world
community to embrace it.158
What can be confidently asserted though is that Principle 4 of the 1992 Rio
Declaration explicitly calls for the integration of environmental protection into the
development objective in order to achieve sustainable development, thereby
balancing economic development and environmental concerns.159 Secondly, it

154

For a comprehensive overview see Schrijver (2008a, b), pp. 102141.


ICJ Reports 1997, Gabcikovo-Nagymaros, para. 140.
156
ICJ Reports 1997, Gabcikovo-Nagymaros, p. 95.
157
US-Shrimp, Appellate Body Report, WT/DS58/AB/R, para. 129, fn. 107, para. 153.
158
See Foreword by Simma, to Schrijver and Weiss (2004), p. v.
159
Principle 4 of the 1992 Rio Declaration states that In order to achieve sustainable development, environmental protection shall constitute an integral part of the development process and
cannot be considered in isolation from it.; see also Fuentes (2004), p. 7.
155

54

F. Weiss and B. Scherzer

also endorses the principle of intergenerational equity. Thus, Principle 3 of the 1992
Rio Declaration states that the developmental and environmental needs of present
and future generations must be fulfilled in the pursuit of the right to
development.160
Nonetheless, it must be acknowledged that the legal status of sustainable development is contested amongst scholars. Some consider sustainable development
customary international law,161 while others consider this premature or even negate
the existence of a rule of customary international law.162 The uncertain legal nature
of the concept of sustainable development is due to its inherent complexity,
elusiveness and evolutionary nature. Still, it would appear to be an evolving
concept, possibly an emerging principle of international law, despite the fact that
its discernible legal content is as yet mainly derived from scholarly writings.163

D. Conclusion
The search for common or universal principles of resource management has proved
in many ways inconclusive. It is especially difficult to determine or ascertain the
legal status of such principles outside the field of international environmental law in
which the most prevalent examples of existing or developing principles of resource
management can be found.
While some such principles can be deemed general principles or customary
international law, others cannot and or have as yet uncertain legal status.
Amongst the principles considered in this chapter only the principles of permanent sovereignty over natural resources and not to cause transboundary environmental damage have attained the status of customary international law. Whereas the
former was deemed customary international law since the early years of the postwar era, the latter was first defined by Principle 21 of the 1972 Stockholm Declaration and explicitly recognized as customary international law by the ICJ in
1996.164
The precautionary principle was first defined by Principle 15 of the 1992 Rio
Declaration and was recognized in various international instruments, particularly in
the field of international environmental law. However, its content varies so that is
160

See also Barral (2012), p. 380.


See Sands (2003), p. 254, according to whom sufficient State practice and opinio iuris exists to
conclude that sustainable development has become customary international law; also
Weeramantry in his dissenting opinion, ICJ Reports 1997, Gabcikovo-Nagymaros, p. 95, and
Barral (2012), p. 388.
162
According to Lowe sustainable development is not a norm itself, it rather establishes the
relationship between other norms, Lowe (1999), pp. 26 and 34. This view is indeed quite
compelling.
163
Weiss (1995), p. 389; see also Schrijver (2008a, b), p. 231.
164
See Sect. C.II.1.
161

(Existence of) Common or Universal Principles for Resource Management (?)

55

has not so far been uniformly recognized by international courts or arbitral tribunals.165 Therefore, the precautionary principle does not yet form part of customary international law.
The polluter-pays principle, even though referred to in numerous international
instruments, lacks a thoroughly detailed definition and is not it would seem sufficiently rooted in State practice. It is, though a firmly established principle amongst
OECD and EU Member States as reflected, inter alia, in the OECDs 1972 Guiding
Principles Concerning the International Economic Aspects of Environmental Policies, EU primary and secondary law as well as EU case law. So the PPP too, in its
current form, cannot be deemed customary international (environmental) law.
The UN Global Compactas explicitly stated thereinis an initiative to foster
voluntary corporate responsibility. Companies accepting it do not face or undertake
any legally binding obligations or restraints.
Even though the concept of sustainable use of natural resources antedates both
the 1972 Stockholm Conference and the 1982 World Charter for Nature, both these
documents expanded its scope to general environmental protection.166 The 1987
Brundtland Report, finally, defined the concept of sustainable development.
Although its precise remit, contours and status remain contested, it has since then
become an established central element of international governance and has been
widely incorporated in international treaties and applied in international dispute
settlement.167 Therefore, further steps will be necessary to clarify the normative
scope of the principle of sustainable development.168 Despite the current uncertainty concerning its legal status in international law, it can undoubtedly be seen as
an emerging principle of international law.
To sum up, only the principle of permanent sovereignty over natural resources
and the principle not to cause transboundary environmental damage are well
established rules forming part of customary international law. However, a number
of other principles are evolving principles of international (environmental) law
which too might become applicable to resource management. Although these latter
principles cannot be considered principles of customary international law, their
future development must be closely observed as they are gradually but consistently
developing towards ever broader recognition.

165

See Sect. C.II.3.


Schrijver (2008a, b), p. 209.
167
See Sect. C.II.6.
168
See Schrijver (2008a, b), p. 221.
166

56

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A Southern African Approach


to the Permanent Sovereignty over Natural
Resources and Common Resource
Management Systems
Fernando Loureiro Bastos

Contents
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. The Need for an African Perspective Relative to the Principle of Permanent
Sovereignty over Natural Resources to Be Taken into Consideration . . . . . . . . . . . . . . . . . . . . . .
C. The Need to Try to Fix the Contours of International Law to Which African States
Actually Consider Themselves Bound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D. The Confrontation Between Three Visions About the Management and Exploration
of Natural Resources in the States of Southern Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E. SADC as a Space of Intergovernmental Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F. Some Concluding Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract The answer to the question about the possibility of moving towards the
common resource management system in the region of Southern Africa must be
negative. Three main reasons for this can be highlighted. Firstly, the level of
knowledge and dissemination of the contemporary developments in international
law is low and relatively superficial. Secondly, the pursuit of the national interests
of the States and their political elite requires the maintenance of a classical view of
the sovereign powers granted to States as subjects of international law. And thirdly,
the regional integration pursued through regional SADC is organized in accordance with the standards of inter-governmental cooperation. This may be a disappointing response in view of the latest development of international law, as it is
perceived in the Western world. This frustration should be tempered, however, by
the standards of an effective understanding of multiculturalism and the diversity of

F. Loureiro Bastos (*)


Faculdade de Direito da Universidade de Lisboa, Alameda da Universidade, 1649-014 Lisboa,
Portugal
Faculty of Law, Institute for International and Comparative Law in Africa, University of
Pretoria, Pretoria, South Africa
e-mail: floureirobastos@fd.ul.pt
Springer International Publishing Switzerland 2015
M. Bungenberg, S. Hobe (eds.), Permanent Sovereignty over Natural Resources,
DOI 10.1007/978-3-319-15738-2_4

61

62

F. Loureiro Bastos

civilizations, in order for it to be acceptable that there are areas in which the African
and Western worldviews do not coincide and can be reconciled only with difficulty.

A. Introduction
At present any communication dealing with a regional approach regarding the
hypothesis of creating a common resource management system in Southern Africa
involves, first of all, the geographical delimitation of this analysis.
Two options are possible to give content to the term Southern Africa: (1) a
narrow definition, corresponding to the geographical division used by the United
Nations1; and (2) a broader definition, corresponding to the members of the
Southern African Development Community (SADC).
(1) In the United Nations scheme of macro geographical (continental) regions and
geographical sub-regions, Southern Africa is composed by five countries,
namely Botswana, Lesotho, Namibia, South Africa and Swaziland, and is
equivalent to the Southern African Customs Union (SACU)established in
1910, with new agreements in 1969 and 2002.2
(2) The Southern African Development Community, established in 1992, is composed of 15 countries, namely Angola, Botswana, The Democratic Republic of
the Congo (DRC), Lesotho, Madagascar, Malawi, Mauritius, Mozambique,

1
United Nations Statistics Division, Composition of macro geographical (continental) regions,
geographical sub-regions, and selected economic and other groupings, available at http://unstats.
un.org/unsd/methods/m49/m49regin.htm. In the United Nations geographic classification Madagascar, Malawi, Mauritius, Mozambique, Tanzania, Zambia and Zimbabwe belong to Eastern
Africa, and Angola and the Democratic Republic of the Congo belong to Middle Africa. Angola,
the Democratic Republic of the Congo, Lesotho, Madagascar, Malawi, Mozambique, the Tanzania
and Zambia belong to the least developed countries. Botswana, Lesotho, Malawi, Swaziland,
Zambia and Zimbabwe belong to the landlocked developing countries. Mauritius and Seychelles
belong to the small island developing States. According to the United Nations Statistics Division
[i]n international trade statistics, the Southern African Customs Union is (. . .) treated as a
developed region.
2
According to Article 2 of the 2002 Southern African Customs Union Agreement, the objectives
of SACU are: (a) to facilitate the cross-border movement of goods between the territories of the
Member States; (b) to create effective, transparent and democratic institutions which will ensure
equitable trade benefits to Member States; (c) to promote conditions of fair competition in the
Commons Customs Area; (d) to substantially increase investment opportunities in the Common
Customs Area; (e) to enhance the economic development, diversification, industrialization and
competitiveness of Member States; (f) to promote the integration of Member States into the global
economy through enhanced trade and investment; (g) to facilitate the equitable sharing of revenue
arising from customs, excise and additional duties levied by Member States; and (h) to facilitate
the development of common policies and strategies (the text of the 2002 Agreement is available at
http://www.sacu.int).

A Southern African Approach to the Permanent Sovereignty over Natural. . .

63

Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and


Zimbabwe.
The choice of the second alternative has, at its base, a dual purpose. On the one
hand, it allows for the presentation of a more genuinely African approach to the
principle of permanent sovereignty over natural resources. And, on the other hand,
it uses the geographical space of SADC as an experience of regional integration to
demonstrate the dangers of the attempts to transpose legal concepts between
realities which are not equal.
Talking about matters of international law and the management and exploitation
of natural resources in Africa, or, rather, the more restricted space of Southern
Africa, implies the need to take into account the specificities of the different
worldviews that can be found in this geographical area. Although this starting
point is absolutely essential for an understanding of the exercise of power in Africa,
the presentation of these particularities is not easily demonstrable, firstly because of
the lack of research on the subject.
The problem in presenting what is specifically an African vision is, first of all,
about the choice of the perspective that is adopted to achieve this objective. If one
starts from the premise that there are in Africa conditions for an understanding and
application of international law such as this is understood in the Western world, the
situation is close to a catastrophe. It is like being in love with Africa because
someone has spent a holiday season in a tourist resort in an African country,
completely ignoring what the living conditions are of the overwhelming majority
of people of the African States.
The results are not much more enlightening if the starting point is going to be the
traditional views of management and the exploitation of natural resources. On the
one hand this is so because of the multiplicity and diversity of these traditional
schemes and the scarcity of the materials available for their systematic appraisal.
And, on the other hand, because we are not dealing with communities who have
achieved an international legal status as such.
The transmission of what is an African approach achieves contours much more
accurate and appropriate if the analysis takes into consideration the State, in the
classic perspective of a sovereign subject of international law, and seeks to understand the actions of members of African political elites in relation to their strategies
of power conservation, including the holding of elections in accordance with the
assumptions of the Western democracies.
This paper will seek to develop three main ideas. The first is the need to consider
a simplified understanding of international law and of its current developments in
the geographical area of Southern Africa when seeking to appreciate the evolution
of the content of the principle of permanent sovereignty over natural resources. The
second, resulting from a combination of legal and political considerations, the
persistence of a classical view of sovereignty in assessing the principle of permanent sovereignty over natural resources in the geographical space of Southern
Africa. And finally, the third, a reminder that the experience of intergovernmental

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F. Loureiro Bastos

cooperation within SADC is unable to sustain the creation of internationalized


schemes of management and the exploitation of natural resources.

B. The Need for an African Perspective Relative


to the Principle of Permanent Sovereignty over Natural
Resources to Be Taken into Consideration
On 19 December 2005, the International Court of Justice (ICJ) in the case
Concerning Armed Activities on the Territory of the Congo (Democratic Republic
of the Congo v. Uganda) declared that the principle of permanent sovereignty over
natural resources is a principle of customary international law (para. 244).3
The ICJ held that the actions of Uganda regarding the exploitation of natural
resources in the territory of the Congo violated the law of war and the powers of
occupying powers, but did not explicitly discuss the issue of the content of the
principle of permanent sovereignty over natural resources.
In accordance with the ICJ, the Ugandan military acted in violation of the jus in
bello, which prohibits the commission of such acts by a foreign army in the territory
where it is present (para. 245), particularly when failing to comply with its
obligations under Article 43 of the Hague Regulations of 1907 as an occupying
power in respect of all acts of looting, plundering and exploitation of natural
resources in the occupied territory (para. 250).
In 1997, Nico Schrijver published the monograph that is the fundamental work
on the principle of sovereignty over natural resources: Sovereignty over natural
resources. Balancing rights and duties.4
In accordance with the thinking presented in that work, understanding the
concept of permanent sovereignty over natural resources was the result of a
combination of a set of rights and duties. On the side of the rights it was necessary
to consider: (1) the right to dispose freely of natural resources; (2) the right to
3
According to the International Court of Justice (para. 244), [t]he Court finds that it cannot uphold
the contention of the DRC that Uganda violated the principle of the DRCs sovereignty over its
natural resources (. . .). The Court recalls that the principle of permanent sovereignty over natural
resources is expressed in General Assembly resolution 1803 (XVII) of 14 December 1962 and
further elaborated in the Declaration on the Establishment of a New International Economic Order
(General Assembly resolution 3201 (S.VI) of 1 May 1974) and the Charter of Economic Rights
and Duties of States (General Assembly resolution 3281 (XXIX) of 12 December 1974). While
recognizing the importance of this principle, which is a principle of customary international law,
the Court notes that there is nothing in these General Assembly resolutions which suggests that
they are applicable to the specific situation of looting, pillage and exploitation of certain natural
resources by members of the army of a State militarily intervening in another State, which is the
subject-matter of the DRCs third submission. The Court does not believe that this principle is
applicable to this type of situation. (Text available http://www.icj-cij.org/docket/files/116/10455.
pdf).
4
The book was reprinted by Cambridge University Press in 2008.

A Southern African Approach to the Permanent Sovereignty over Natural. . .

65

explore and exploit natural resources freely; (3) the right to regain effective control
and to compensation for damage; (4) the right to use natural resources for national
development; (5) the right to manage natural resources pursuant to national environmental policy; (6) the right to an equitable share in benefits of transboundary
natural resources; (7) the right to regulate foreign investment; (8) the right to
expropriate or nationalize foreign investment; and (9) the right to settle disputes
on the basis of national law. On the side of duties, in turn, the following should be
borne in mind: (1) the exercise of permanent sovereignty for national development
and the well-being of the people; (2) respect for the rights and interests of indigenous peoples; (3) the duty to co-operate for international development; (4) the
conservation and sustainable use of natural wealth and resources; (5) the equitable
sharing of transboundary natural resources; (6) respect for international law and fair
treatment of foreign investors; and (7) obligations related to the right to take foreign
property.
A set of resolutions of the General Assembly of the United Nations, notably:
(1) the Resolution 626 (VII), Right to exploit freely natural wealth and resources, of
21 December 1952; (2) the Resolution 1803 (XVII), Permanent sovereignty over
natural resources, of 14 December 1962; (3) the Resolution 3016 (XXVII), Permanent sovereignty over natural resources of developing countries, of 18 December
1972; (4) Resolution 3201 (S.VI), the Declaration on the Establishment of a New
International Economic Order, of 1 May 1974; and (5) Resolution 3281 (XXIX),
the Charter of Economic Rights and Duties of States, of 12 December 1974,
provided the basis for the above-mention decision of the ICJ and the theoretical
analysis of Schrijver.5
The principle of permanent sovereignty over natural resources, contained in
Resolution 1803 of 1962, was later given conventional wording in the 1966 pacts on
human rights (Article 1(2) of the International Covenant on Civil and Political
Rights,6 of 16 December 1966 and Article 1(2) of the International Covenant on
Economic, Social and Cultural Rights, of 16 December 1966).

Schrijvers thought was synthesized, in 2010, in the article on Permanent Sovereignty over
Natural Resources, for the Max Planck Encyclopedia of Public International Law, as follows
(para. 24): [s]everal successive chapters of international law have had a profound impact on the
interpretation of the principle of sovereignty over natural resources, including human rights,
international investment law and the law of the sea. Recently, the rapid developments of international environmental law and the concept of sustainable development made the principle take new
directions. Hence, permanent sovereignty serves no longer as the source of every States freedom
to manage its natural resources, but also as the source of corresponding international responsibilities requiring careful management and imposing accountability on national as well as international levels, taking into account international law on sustainable development including the
interests of future generations. Moreover, in this interdependent world international regimes
emerge for the management of natural resources (see also Interdependence), building on notions
as shared resources, common heritage and common concern of humankind (see also
Community Interest).
6
Paragraph 2 of the Article 1 of the International Covenant on Civil and Political Rights and the
International Covenant on Economic, Social and Cultural Rights, has a similar wording: All
5

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F. Loureiro Bastos

So, from having initially been enshrined in non-binding documents of international law, the principle of permanent sovereignty over natural resources was
subsequently transformed into a principle of customary international law. But
what is the content of that customary principle?
The question may seem impertinent given the fact that we are in Siegen,
Germany, in Europe, or, for that matter, anywhere else integrated into the first
world. The question, however, has a completely different meaning if we are
located in a different geographical area, particularly in Africa, and especially in
Southern Africa.
The question does not presuppose, or imply, a rejection of international law in
force, but relates rather to the realization of the difficulties that the other subjects of
international law, particularly in Africa, have in understanding the concepts of
international law as if they have been developed in the first world and by first
world (where we must necessarily include the system of the international organizations of universal scope, especially the international organizations integrated into
the UN system).
Indeed, the statement made in the 1960s of the last century that the newlyindependent States would have sovereignty over their natural resources was based
on a concept of self-organization that was particularly simple to understand and use.
Accordingly, the fifth paragraph of Resolution 1803 expressly stated that [t]he free
and beneficial exercise of the sovereignty of peoples and nations over their natural
resources must be furthered by the mutual respect of States based on their sovereign
equality.
The evolution of the initial statement of the principle incorporated an environmental dimension of the exploitation of natural resources from the beginning of the
1980s of the last century. Accordingly, in 1982, Article 193 of the United Nations
Convention on the Law of the Sea, provided that, States have the sovereign right to
exploit their natural resources pursuant to their environmental policies and in
accordance with their duty to protect and preserve the marine environment. A
decade later, in 1992, Article 3 of the Convention on Biological Diversity, provided
an identical formula to determine that States have, in accordance with the Charter
of the United Nations and the principles of international law, the sovereign right to
exploit their own resources pursuant to their own environmental policies, and the
responsibility to ensure that activities within their jurisdiction or control do not
cause damage to the environment of other States or of areas beyond the limits of
national jurisdiction.
This means that, currently, in terms very different from the 1960s of the last
century, there is a tension between conservation and the exploitation of natural
resources, which requires much more complex and sophisticated thinking in the

peoples may, for their own ends, freely dispose of their natural wealth and resources without
prejudice to any obligations arising out of international economic co-operation, based upon the
principle of mutual benefit, and international law. In no case may a people be deprived of its own
means of subsistence.

A Southern African Approach to the Permanent Sovereignty over Natural. . .

67

realm of international law, especially when it involves the internationalization of


the management and the exploitation of natural resources.7
The question that guides this panel has, as its basis, an assumption in favour of
the internationalization of the management of natural resources, given that is asking
whether we are heading Towards a Common Resource Management System?.
From a strictly African perspective, the issue of the internationalization of
natural resource management cannot be addressed on the basis of an universal
system if this universal approach is a system strictly based on Western
assumptions.

C. The Need to Try to Fix the Contours of International Law


to Which African States Actually Consider Themselves
Bound
It is important to recall that the elaboration of the models of internationalization of
the management of natural resources within the territory is subject to the sovereignty and jurisdiction of States, whether on the land territory or in maritime space,
which do not take into consideration the will of all the States involved is in flagrant
contradiction of the basic principles of the international law in force.
The difficulties in understanding the exact contours of the existing international
law to which African States are obliged find their justification in three areas.
The first area is the relatively marginal status that is given to international law in
the sources of law of the legal systems of African States. The second area is the
inertia and the reluctance to incorporate international law into the legal systems of
African States. And finally, the third area is the subordinate position to which the
study and research on matters of international law is relegated in African States.8
The second area deserves particular attention, as it is especially explanatory of
the marginal nature that international law has within the system of the sources of
law in African legal orders.

7
On the question, in terms of the general framework, see Blanco and Razzaque (2011), pp. 525
and 3384; Bothe (2007), pp. 435460.
8
This subordinate position is illuminated by the words of De Wet (2011), p. 592, in relation to
South Africa, despite this countrys being the most advanced State in this field in the whole of
Southern Africa, South Africas inconsistent approach may relate to the fact that expertise in the
field of public international lawin contrast to expertise pertaining to international human rights
lawis limited across the country. Most judges, litigators and law-makers are not well versed in
public international law, partly due to the fact the subject matter has traditionally been neglected at
universities. This in turn is a remnant of the countrys years of isolation and hostile attitude
towards international law before 1994. Although some progress has been made in overcoming this
attitude, the capacity deficit at universities in this area of law is still significant.

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F. Loureiro Bastos

In 1999, Tiyanjana Maluwa, in the book International Law in Post-Colonial


Africa,9 presents an overview of the incorporation of international law into the legal
orders of African States that is particularly illustrative of the situation of the almost
complete irrelevance of the sources of international law and its contents in African
States.
According to this author, altogether, only twenty-one national constitutions in
the whole of Africa currently contain provisions which refer to international law,
broadly speaking, or to treaties or international agreements, in particular. And (. . .)
these provisions are largely concerned with the incorporation of international
agreements into the corpus of the national law.10
Regardless of specific updates that may be made to this summary, it should be
noted that the majority of the constitutions of African States do not address the
exact terms by which the various sources of international law are an integral part of
their legal orders. The constitutional norms or references are usually confined to the
written international commitments, almost completely ignoring other sources of
international law, especially international custom and the legal acts of international
organizations.
It follows that in practically all African States it is extraordinarily difficult to
substantiate arguments relative to international law that have no support in written
international commitments. The conclusion of treaties and international agreements
emerge as a manifestation of sovereignty, while the general international customs
and general principles of international law can be presented as impositions from
outside powers and, in most cases, of no consequence to the African reality.11
Accordingly, following the British tradition, even the Constitutions of Namibia,
Malawi, and South Africa, when dealing with the incorporation of international law
into domestic legal order, do it in a way that explicitly safeguards the prevalence of
internal sources of law.
In this sense the Namibian Constitution of 1990 stipulates in Article 144 that:
Unless otherwise provided by this Constitution or Act of Parliament, the general rules of
public international law and international agreements binding upon Namibia under this
Constitution shall form part of the law of Namibia.

The 1995 Constitution of Malawi establishes, in similar terms, in its Section 211
that:
(1) Any international agreement ratified by an Act of Parliament shall form part of the law
of the Republic if so provided for in the Act of the Parliament ratifying the agreement.

Tiyanjana Maluwa was on the occasion of the publication of the book Legal Counsel and Head of
Legal Division, OAU, Ethiopia and Professor of Law, University of Cape Town, South Africa.
10
Maluwa (1999), p. 32.
11
From a different perspective, Pahuja (2012), pp. 407408, states that the internationalisation of
the activities of developing States takes place through the imposition of development models of
western origin.

A Southern African Approach to the Permanent Sovereignty over Natural. . .

69

(2) International agreements entered into before the commencement of this Constitution
and binding on the Republic shall form part of the law of the Republic, unless
Parliament subsequently provides otherwise or the agreement otherwise lapses.
(3) Customary international law, unless inconsistent with this Constitution or an Act of
Parliament, shall have continued application.

The Constitution of South Africa 1996,12 in turn, identically determines, in


Paragraphs (2) through (4) of Section 231, that:
(2) An international agreement binds the Republic only after it has been approved by
resolution in both the National Assembly and the National Council of Provinces, unless
it is an agreement referred to in subsection (3).
(3) An international agreement of a technical, administrative or executive nature, or an
agreement which does not require either ratification or accession, entered into by the
national executive, binds the Republic without the approval by the National Assembly
and the National Council of Provinces, but must be tabled in the Assembly and the
Council within a reasonable time.
(4) Any international agreement becomes law in the Republic when it is enacted into law by
national legislation; but a self-executing provision of an agreement that has been
approved by the Parliament is law in the Republic unless it is inconsistent with the
Constitution or an Act of Parliament.

The Constitution of Cape Verde in 1992, outside the region of Southern Africa,
can be presented as an example of an African Constitution worried about the
consequences of the participation in regional integration organizations, taking
into account the effects in domestic law of the acts of international supranational
organizations in which the State can participate. It should be noted that this is an
absolutely exceptional text in this respect, even outside the African region.13

12
About the relevance of international law in the legal system of South Africa, see the profound
and updated analysis by Dugard (2011), pp. 4980; De Wet (2011), pp. 567593. According to
Dugard (2011), p. 23, South Africas new constitutional order, which requires courts to
interpret all legislation, and particularly the Bill of Rights, to accord with international law, has
led to a renaissance of international law in the jurisprudence of its courts (reference to footnotes
omitted), but De Wet draws attention to the fact that (p. 593) the courts are much more reluctant to
resort to international law as an instrument of interpretation in areas outside human rights law.
The power given by the constitution to the courts in South Africa finds its basis in the first
paragraph of Section 39 and Section 233. In accordance with these constitutional provisions: i)
When interpreting the Bill of Rights, a court, tribunal or forum (a) must promote the values that
underlie an open and democratic society based on human dignity, equality and freedom; (b) must
consider international law; and (c) may consider foreign law (Section 39(1)); and ii) When
interpreting any legislation, every court must prefer any reasonable interpretation of the legislation
that is consistent with international law over any alternative that is inconsistent with international
law (Section 233).
13
Paragraph 3 of Article 11 of the Constitution of Cape Verde provides that [t]he legal acts
emanated from the relevant organs of the supranational organizations of which Cape Verde is a
member, shall enter directly into force in the domestic legal order, provided that is so established
in the respective constitutive instruments. It is possible to understand the wording of this Article
only by recognising the influence that Portuguese constitutionalism, namely the Portuguese
Constitution of 1976, has in the constitutionalism of Cape Verde. The system is inspired by the
legal order of the European Union, having relevance in Cape Verde because of its participation in
ECOWAS (Economic Community of West African States). The exceptional nature of the provision is demonstrated by the questions of Maluwa (1999), p. 40, particularly when he questions

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D. The Confrontation Between Three Visions About


the Management and Exploration of Natural Resources
in the States of Southern Africa
A superficial knowledge of the recent developments in international law would not
preclude the acceptance of a contemporary view of the principle of permanent
sovereignty over natural resources if it could be compatible with the maintenance of
a classical approach of the State powers and did not require the acceptance of limits
to the exercise of those powers.
Three levels of the assessment of the management models for the exploitation of
natural resources in the geographic space of Southern Africa should, therefore, be
distinguished.
Firstly, there is the model for the management and exploitation of natural
resources that matches the current paradigm of international law, with its components of environmental sustainability and interdependence between the various
subjects of international law.
Secondly, there is the model for the management and exploitation of natural
resources based on a classical perspective of sovereignty, under which the evaluation of any activity in this area is a direct result of the pursuit of national interest,
precisely as it is understood in each one of the States in accordance with their
individual interests.
And thirdly, there are the traditional models for the management and exploitation of natural resources that can be found in African ethnic groups, with a range
corresponding to the particular circumstances of each of the human communities
and the natural environment in which they live.
Given the autonomy of these three levels, difficulties in reconciling conservation
and the exploitation of natural resources in the States of Southern Africa should no
longer be exclusively presented as a shallow understanding of the development
models of Western origin, or merely as ignorance in respect of the international
law in force.
This is not, in fact, an accurate understanding of the problem, namely the
assumption that the environmental constraints that characterize the current view
of the principle of permanent sovereignty over natural resources, with their concerns for sustainability and solidarity between present and future generations, are
recent, innovative, and are of Western origin.
This perspective is uniquely focused on the evolution in Western environmental
thinking and it completely ignores the traditional views relative to the management
and exploitation of natural resources that can be found in traditional African
communities.
himself about the meaning of supranational organizations, despite using an English translation of
paragraph 3 that is not appropriate (because the English translation used refers to judicial acts
emanating from competent offices of supranational organizations). About the Portuguese system
of incorporation of international law into national law, see de Almeida (2011), pp. 500516.

A Southern African Approach to the Permanent Sovereignty over Natural. . .

71

The difficulties in understanding these traditional models for the management


and exploitation of natural resources are considerable, and they result primarily
from the fact that the systems in question are different from the basic assumptions
of Western rationality. The traditional approach is vividly expressed in the interrelationships among the different generations, past, present and future, based on a
spiritual or religious perspective, and this has a decisive influence in the way land is
used.14
As George Ayittey explains, in Indigenous African Institutions,15 in relation to
the indigenous economic system, in indigenous Africa, land was an important
aspect of the social group and its use was governed by social relationships (kinship,
ancestral descendancy) and religious beliefs. (. . .) the earth was regarded as
possessing a spirit or power of its own, which was helpful if propitiated and harmful
if offended or neglected. But the land was also regarded as belonging to the
ancestors. It was from them that the living inherited the right to use it. The spirits
of the ancestors constantly kept watch and saw to it that it was used properly and
fairly. Thus, the land served as a link between the ancestors and the living
descendants. The ancestors were the original founders of the settlement or the
first settlers and therefore owners of the piece of land on which the village
subsequently grew. Land was not treated as a commodity that could be bought
and sold. It was sacred. However, it was a resource that one could exploit exclusively, but not own or sell.
Respect for the traditional models of management and exploitation of natural
resources is currently classified under the rights of indigenous peoples. Its relevance
is, however, dependent on the position that will be taken on the issue by the State
where the indigenous peoples live.
The views expressed on this matter vary considerably depending on whether
those indigenous peoples are located in Europe, America, Oceania, or Africa16,17,18.
In 2009, in the Overview Report of the Research Project by the International
Labour Organization and the African Commission on Human and Peoples Rights
14
In this sense, for a distinct geographic area of Southern Africa, see Date-Bah (1998), p. 399,
stating that in the traditional scheme of concepts, land was given a religious significance. In the
often cited words of a famous Ghanian Chief, Nana Sir Ofori Atta I.: Land belongs to a vast
family of whom many are dead, a few are living and a countless host are still unborn.
15
Ayittey (2006), p. 323.
16
As a general assessment, see Barsh (2007), p. 851, who states that [t]he international legal status
of indigenous peoples continues to be a work in progress, with relatively little in the way of explicit
rules in widely accepted conventions. (. . ..) At this stage, their gains in standing and participation
exceed their achievements in the field of substantive law, and their rights enjoy greater weight in
practice than may appear from a survey of the provisions of the UN conventions.
17
On the issue, as a summary of the right to natural resources in regional courts, see Blanco and
Razzaque (2011), pp. 145148. About the Communication of the African Commission on Human
and Peoples Rights of 4 February 2010 (the Endorois case) in relation to Kenya see Beukes
(2010), pp. 216239.
18
About alternatives to the State model inherited from the colonial period see Pahm (2008),
pp. 183204.

72

F. Loureiro Bastos

on the legislative and constitutional protection of the rights of indigenous peoples


in 24 African countries, which was conducted by the Centre for Human Rights,
University of Pretoria, one of the general conclusions reached was that with a few
notable exceptions, such as elements in the Constitutions of South Africa and the
draft legislation in the Congo, States have not formally accepted the legal existence
of indigenous peoples. The specific reasons for this reluctance to acknowledge the
existence of indigenous peoples vary from State to State, but almost uniformly
relate to the goal of not undermining nation-building and of the maintaining
national unity in multi-ethnic societies characterized by competition for limited
resources. An important result of this denial is that governments records, for
example the national census, do not reflect the different ethnic groups and languages, including indigenous peoples, existing in the country.19
The existence of indigenous peoples in the territory of any State and of traditional models for the management and exploitation of natural resources will not,
however, determine the positions that the States of Southern Africa will take on
these issues.20
The position of Angola is exemplary in this respect. The 2010 Constitution of the
Republic of Angola accepts the existence of legal pluralism and the existence of
traditional authorities in Article 7 (Custom), paragraph 2 of Article 15 (Land) and
Articles 223 (Recognition), 224 (Traditional authorities) and 225 (Attribution,
competence and organization). Accordingly Article 223, integrated in
Chapter IIIdedicated to the traditional institutions of power, in the section
devoted to local power, provides that the State shall recognise the status, role and
functions of the institutions of the traditional authorities founded in accordance
with customary law which do not contradict the Constitution, while determining
that recognition of the institutions of the traditional authorities oblige public and
private entities to respect, in their relations with these institutions, the values and
norms of customary law that are observed within traditional political and community organizations and do not conflict with the Constitution or with the dignity of the
human person. Notwithstanding the constitutional provisions, Angola has not yet
ratified ILO (International Labour Organization) Convention 169, but ILO Convention 107 is still in force (since 4 June 1976) in that country, although its basic
perspective is of the assimilation of the indigenous peoples into the mainstream
model of social organization.21

19

Thornberry and Viljoen (2009), p. vi.


In this sense, from a strictly environmental perspective, the Overview Report, pp. viii and ix,
even states that with the introduction of conservation measures for protected areas and environments, the role of indigenous peoples in conserving and managing such lands was undervalued.
21
On the comparison between the Convention 107 and 169 of the International Labour Organization see Brolmann and Zieck (1993), pp. 197212.
20

A Southern African Approach to the Permanent Sovereignty over Natural. . .

73

It should be noted that the positions which will be assumed by the States in
respect of the management and exploitation of natural resources will always be
attributable to the State as a subject of international law.22 It does not follow,
however, that the evaluation of the national interest always corresponds to the
interests of the community as a whole. Indeed, on the contrary, in many cases it
was, and still is, possible to witness situations where the interests of the ruling
political elite are transformed into the national interests of the State in question.
Accordingly, the adoption of a classical view of sovereignty in relation to the
principle of permanent sovereignty over natural resources will allow that the
transposition of interests cannot effectively be challenged, neither internally nor
internationally.
Furthermore, it should be noted that the issue now has particularly complex
contours after the democratization of African regimes in the 1990s of the last
century, to the extent that political elites in many of the States were able to add
the democratic legitimacy of elections to the political legitimacy already held
earlier as a result of their position as leaders of national liberation movements
that had led their States to independence.23
From the previous comments it is clear that the model for the management and
exploitation of natural resources which ultimately prevail in the States of Southern
Africa is founded on a classical perspective of sovereignty, under which the
national interest of the State (or the political elites from a different perspective) is
the guiding criterion for political decisions.

E. SADC as a Space of Intergovernmental Cooperation


The assessment of the national interest according to a primarily national criteria can
be maintained owing to the relatively marginal status that is assigned to international law in the States of Southern Africa. In addition to that, when necessary, the
persistence of a relatively superficial knowledge of the recent developments in
international law lends itself to a convenient manipulation of its use by the interests
intended to be pursued.

22
In this sense, see Pogge (2012), pp. 385389, when defending the argument that the international
system leads to the maintenance in power of the political elites who promote their own interests by
the borrowing privilege and the resource privilege to the extent that the debts incurred by any
government will always be subject to payment and measures taken about available natural
resources, even when taken by illegitimate governments, will always be protected and enforced
by all other states courts and police forces (p. 387).
23
The example of Angola is particularly significant, because Jose Eduardo dos Santos, being
President of the Republic since September 21, 1979, was re-elected on 31 August 2012, currently
under the Constitution of 2010, which ensures maintenance in power for two terms of 5 years
(in the same elections of August 31, 2012, the MPLA [Popular Movement for the Liberation of
Angola], in power since 1975, won 71.8 % of the votes).

74

F. Loureiro Bastos

The option for inter-governmental cooperation within Southern Africa through


SADC, shows also the kind of commitment that States in the region are willing to
take in terms of international cooperation. In this context the mere use of the term
integration in relation to the SADC generates a misconception about the nature of
the organization which is rarely the subject of appropriate legal discourse.
European integration, under construction since the 1950s of the last century, has
produced some remarkable economic and political results, the most important of
which is the fostering of peace among Member States since the end of World War
II. This fundamental objective of European integration, often taken as irrelevant in
the face of changes in economic conditions, was recently recognized by the award
of the Nobel Peace Prize. Whether the present European integration crisis represents another phase of the integration process or is the harbinger of its future
dissolution is something that only the future will show. The truth is that over the
past decades the model of European integration, despite uncertainty of nature of the
contours of its final construction,24 has exercised such a fascination in Africa that it
has led to an attempt at its reproduction in totally different legal environments from
those of Europe.
The most interesting examples of these attempts to reproduce the legal model of
European integration can be found in West Africa, through ECOWAS and the
WAEMU (West African Economic and Monetary Union), and the creation of legal
integration in business law through OHBLA (Organization for the Harmonization
of Business Law in Africa).
The legal systems of those regional integration organizations are based on the
principles of primacy and the direct applicability of some of their rules. In accordance with these features, in the treaty creating ECOWAS, it is provided that [t]he
decisions of the Authority shall be binding on the Member States and institutions of
the Community, (. . .), in accordance with paragraph 4 of Article 9 (Decisions), and
that the regulations of the Council shall be binding under its authority. They shall
be binding on Member States after their adoption by the Authority. However, in the
case of regulations made pursuant to a delegation of powers by the Authority (. . .)
they shall be binding forthwith under paragraph 3 of Article 12 (Regulations).
Simultaneously, it is stipulated in the Treaty creating WAEMU, in particularly
impressive terms, that [t]he regulations have general application and are binding in
their entirety and directly applicable in all Member States under Article 43. The
most significant rule, however, that can be found relating to this matter, and
probably also the most unlikely given its scope of activity being the law of business,
is that which can be found in Article 10 of the Treaty creating OHBLA when it
expressly provides that Uniform Acts are directly applicable and overriding in the
Contracting States, notwithstanding any conflict they may give rise to in respect of
previous or subsequent enactment of municipal laws.
The success and effectiveness of such legal acts are dependent on pre-existing
consolidated legal orders and materially democratic systems where there is an

24

On this issue see Bastos (2006), pp. 10091044.

A Southern African Approach to the Permanent Sovereignty over Natural. . .

75

effective respect for the rule of law, as it is conceived in the Western world and
according to Western rationality. This description is not, however, an appropriate
description of almost all African legal systems and the way power is exercised in
African States. Neither is this model suitable in maintaining the classical view of
sovereignty25 that persists in the States of Southern Africa.
It is, therefore, worthy of note that the scheme of regional integration that is
being used by the States of Southern Africa is, in essence, the classical model of the
inter-governmental international organization, with the production of the legal
effects of their actions being subordinated to the will of the participating Member
States.26
Accordingly, paragraphs 4 and 5 of Article 6 of the Treaty of the Southern
African Development Community27 provide respectively that Member States shall
take all steps necessary to ensure the uniform application of this Treaty, and that
Member States shall take all necessary steps to accord this Treaty the force of
national law. Paragraph 1 of Article 21 states that Member States Shall co-operate
in all areas necessary to foster regional development and integration on the basis of
balance, equity and mutual benefit. Likewise, making use of the classic mechanisms of international law, Article 2228 establishes in a detailed and precise manner
that:
1 Member States shall conclude such Protocols as may be necessary in each area of
co-operation, which shall spell our objectives and scope of, and institutional mechanisms for, co-operation and integration.
2 Each Protocol shall be approved by the Summit on the recommendation of this Council.
3 Each Protocol shall be open to signature and ratification.
4 Each Protocol shall enter into force thirty (30) days after the deposit of the instruments of
ratification by two thirds of the Member States.
5 Once a Protocol has entered into force, a Member State may only become a party thereto
by accession.

25

About this question, see the opinions of Erasmus (2011), available at http://www.tralac.org.
On the issue, see Clapham et al. (2006); Viljoen and Saurombe (2012), pp. 350360; Cistac
(2012), pp. 213258.
27
The initial version of the Treaty of the Southern African Development Community of 17 August
1982 was signed by Angola, Botswana, Lesotho, Malawi, Mozambique, Namibia, Swaziland,
Tanzania, Zambia and Zimbabwe. The 1992 Treaty was subsequently amended by the following
agreements: (1) Agreement Amending the Treaty of Southern African Development Community
of 14 August 2001; (2) Agreement Amending Article 22 of the Treaty of the Southern African
Development Community of 17 August 2007; (3) Agreement Amending the Treaty of the
Southern African Development Community of 8 September 2009 (amending Articles 10, 11,
12, 14 and 15 of the Treaty); (4) Agreement Amending the Treaty of the Southern African
Development Community of 8 September 2009 (amending Articles 10 and 14 the Treaty); and
(5) Agreement Amending the Treaty of the Southern African Development Community of
8 September 2009 (amending Article 10A of the Treaty)available at http://www.sadc.int.
28
With the wording after the Agreement Amending the Treaty of Southern African Development
Community 14 August 2001 and the Agreement Amending Article 22 of the Treaty of the
Southern African Development Community 17 August 2007.
26

76

F. Loureiro Bastos
6 Each Protocol shall remain open to accession by any State subject to Article 8 of this
Treaty.
7 The original texts of each Protocol and all instruments of ratification and accession shall
be deposited with the Executive Secretary who shall transmit certified copies thereof to
all Member States.
8 The Executive Secretary shall register each Protocol with the Secretariats of the United
Nations and the Organization of African Unity.
9 Each Protocol shall be binding only on the Member States that are party to the Protocol in
question.
10 Decisions concerning any Protocol that has entered into force shall be taken only by the
Parties to the Protocol in question.
11 An amendment to any Protocol that has entered into force shall be adopted by a decision
of three-quarters of the Member States that are Parties to the Protocol.
12 A proposal for the amendment of the Protocol shall be submitted to the Executive
Secretary by any Member State that is party to the Protocol.
13 The Executive Secretary shall submit a proposal for amendment of the Protocol to
Council after:
a) all Member States that are parties to the Protocol have been notified of the proposal;
and
b) thirty days have elapsed since notification to the Member States that are parties to
the Protocol.
14 No reservation shall be made to any Protocol.

The amendments made to Article 22, for its size and detail, show, in a clear and
unequivocal manner, the terms according to which the States of Southern Africa
intend to control their international cooperation.

F. Some Concluding Considerations


The answer to the question being asked by this panel, specifically the possibility of
moving towards the common resource management system in the region of
Southern Africa, must be negative as a result of the previous arguments. Three
main reasons for this can be highlighted.
Firstly, the level of knowledge and dissemination of the contemporary developments in international law is low and relatively superficial.
Secondly, the pursuit of the national interests of the States and their political elite
requires the maintenance of a classical view of the sovereign powers granted to
States as subjects of international law.
And finally, thirdly, the regional integration pursued through regional SADC is
organized in accordance with the standards of inter-governmental cooperation.
This may be a disappointing response in view of the latest development of
international law, as it is perceived in the Western world. This response may further
contribute to strengthening the notion that African States are hopelessly doomed to
marginalization and stagnation as a result of the maintenance of worldviews
incompatible with progress and modernity (although it is increasingly difficult to

A Southern African Approach to the Permanent Sovereignty over Natural. . .

77

know what the current state of post modernity is and which provides the standard
for measuring behaviours unquestionably modern).
This frustration should be tempered, however, by the standards of an effective
understanding of multiculturalism and the diversity of civilizations, in order for it to
be acceptable that there are areas in which the African and Western worldviews do
not coincide and can be reconciled only with difficulty.
Besides that, because the moral superiority of all Western solutions is debatable,
particularly when based on the fight against. . ., in the battle against. . ., and on
victories over . . .., this paper is going to end with a reference to a domain where
traditional African solutions can provide some elements of inspiration to the
Western conceptions, viz. the traditional African approach to conflict resolution.
Appealing once again to George Ayittey,29 Africas own indigenous conflict
resolution mechanism (. . .) requires four parties: an arbiter, the two combating
parties, and civil society, or those directly and indirectly affected by the conflict (the
victims). For example, in traditional Africa, when two disputants cannot resolve
their differences by themselves, the case is taken to a chiefs court for adjudication.
The court is open and anyone affected by the dispute can participate. The complainant makes his case, then the defendant. Next, anybody else who has something
to say may do so. After all the arguments have been heard, the chief renders a
decision. The guilty party may be fined, say, three goats. In default, his family is
held liable.
The injured party receives one goat, the chief another goat for his services, and
the remainder slaughtered for a village feast for all to enjoy. The latter social event
is derived from the African belief that it takes a village, not only to raise a child, but
also to heal frayed social relations. Thus, traditional African jurisprudence lays
more emphasis on healing and restoring social harmony and peace than punishing
the guilty. Further, the interests of the community supersede those of the disputants.
If they adopt intransigent positions, they can be sidelined by the will of the
community and fined, say, two goats each for disturbing social peace. In extreme
cases, they can be expelled from the village. Thus, there is a price to be paid for
intransigence and for wreaking social mayhema price exacted by the victims.

References
Ayittey GBN (2006) Indigenous African institutions, 2nd edn. Transnational Publishers, Ardsley
Barsh RL (2007) Indigenous people. In: Bodansky D, Brunnee J, Hey E (eds) The Oxford
handbook of international environmental law. Oxford University Press, Oxford, pp 829852
Bastos FL (2006) A Uniao Europeia e a Uniao Africana pode um puzzle de que nao se conhece a
imagem final servir de modelo a integraao do continente africano? In: Estudos jurdicos e
economicos em Homenagem ao Prof. Doutor Ant
onio de Sousa Franco, vol I. Coimbra Editora,
pp 10091044

29

Ayittey (2006), p. 530.

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Beukes M (2010) The recognition of indigenous people and their rights as a people: an African
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Blanco EM, Razzaque J (2011) Globalisation and natural resources law. Challenges, key issues
and perspectives. Edward Elgar Publishing Ltd., Cheltenham, Northampton
Bothe M (2007) La protection internationale de lenvironment. Allocation efficace de ressources,
justice distributive et interet commun. In: Pour un droit commun de lenvironnement.
Melanges en lhonneur de Michel Prieur. Dalloz-Sirey, Paris, pp 435460
Brolmann CM, Zieck MYA (1993) Indigenous people. In: Brolmann CM, Zieck MYA, Lefeber R
(eds) Peoples and minorities in International Law. Martinus Nijhoff, pp 197212
Cistac G (2012) Os problemas da integraao jurdica na Comunidade de Desenvolvimento da
frica Austral. In: Cistac G (ed) Aspectos Jurdicos da Integraao Regional. Escolar Editora,
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Maputo, pp 213258
Clapham C, Mills G, Morne A, Sidiropoulos E (2006) Regional integration in Southern Africa:
comparative international perspectives. Southern African Institute of International Affairs
Date-Bah SK (1998) Rights of indigenous people in relation to natural resources development: an
Africans perspective. JENRL 16(4):389412
De Almeida F (2011) Portugal. In: Shelton D (ed) International law and domestic legal systems.
Incorporation, transformation and persuasion. Oxford University Press, Oxford, pp 500516
De Wet E (2011) South Africa. In: Shelton D (ed) International law and domestic legal systems.
Incorporation, transformation and persuasion. Oxford University Press, Oxford, pp 567593
Dugard J (2011) International law. A South African perspective, 4th edn. Juta Law, Kapstadt
Erasmus G (2011) What to do about sovereignty when regional integration is pursued? Stellenbosch, Trade Brief, N SITB01. http://www.tralac.org
Maluwa T (1999) International law in post-colonial Africa. Martinus Nijhoff, The Hague
Pahm JP (2008) African constitutionalism: forgoing new models for multi-ethnic governance and
self-determination. In: Levitt JI (ed) Africa. Mapping new boundaries in international law.
Hart, Oxford, pp 183204
Pahuja S (2012) Conserving the worlds resources. In: Crawford J, Koskenniemi M (eds) The
Cambridge companion to international law. Cambridge University Press, Cambridge, pp
398420
Pogge T (2012) Divided against itself: aspiration and reality of international law. In: Crawford J,
Koseknniemi M (eds) The Cambridge companion to international law. Cambridge University
Press, Cambridge, pp 373397
Thornberry F, Viljoen F (2009) Overview Report of the Research Project by the International
Labour Organization and the African Commission on Human and Peoples Rights on the
constitutional and legislative protection of the rights of indigenous peoples in 24 African
countries. International Labour Office, Geneva. http://www.ilo.org/indigenous/Resources/Pub
lications/WCMS_115929/lang--en/index.htm
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R (ed) The Max Planck Encyclopedia of public international law, vol IX. Oxford University
Press, Oxford, pp 350360

Australias Resource Management System


in the Light of UNGA Resolution 1803
Richard W. Roeder

Contents
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Available Resources in Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I. Iron Ore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
III. Rare Earths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IV. Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
V. Further Minerals and Petroleum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C. Evaluation of the Respective Resource Regimes with Special Regards to the Exploration
and Exploitation of Australians Natural Resources by Foreign Entities . . . . . . . . . . . . . . . . . . .
I. National Natural Resource Regime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. Exploration by Foreign Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
III. Expropriation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D. Conclusion: An Evaluation Under the Sovereignty Lens of UNGA 1803 . . . . . . . . . . . . . . . . . .
I. Legal Nature of UNGA Resolutions and Applicability in Australia . . . . . . . . . . . . . . . . . . . . . .
II. Evaluation Under the Sovereignty Lens of UNGA Resolution 1803 . . . . . . . . . . . . . . . . . . . .
III. Liberal or Protectionist? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract This contribution analyses Australias Resource Management System,


specifically the Australian Foreign Investment Review System in the light of
UNGA Resolution 1803. The sophisticated legal screening procedure and its
development is explained in the light of the ongoing political discussion in
Australia on whether or not to allow more foreign investments in the mining sector.

R.W. Roeder (*)


International Investment Law Centre Cologne, Cologne, Germany
e-mail: richard.roeder@law-school.de
Springer International Publishing Switzerland 2015
M. Bungenberg, S. Hobe (eds.), Permanent Sovereignty over Natural Resources,
DOI 10.1007/978-3-319-15738-2_5

79

80

R.W. Roeder

A. Introduction1
In 1962 the UN General Assembly Resolution 1803 declared the permanent sovereignty of nations over their natural resources.2
Fifty years later, Australia is experiencing an unprecedented boom in natural
resource exploration and exploitation, with both national and international actors
involved.
While some might welcome the involvement of foreign actors and capital, the
Sydney Morning Herald recently featured an article titled: Mining fears of Chinese
invasion.3 This article and other voices have expressed the concerns of at least
some Australians about the potential for loss of sovereignty over their natural
resources.
The question to be explored is whether the way in which natural resources are
managed in Australia, as exemplified by the legal frameworks in the Australian
State of Queensland, is consistent with the obligations set out in UNGA Resolution
1803, or whether Australias legal framework for natural resource management
needs to be reviewed as suggested by the former national government Opposition
Leader and now Prime Minister Mr. Tony Abott.4
After briefly outlining key natural resources available in Australia, the essay will
evaluate Australias natural resource regime with special regard to the exploration
of Australias natural resources by foreign entities.
The conclusion will examine how the legal framework for the management of
natural resources in the Australian State of Queensland, reflects, supports or undermines the sovereignty declaration of the UN General Assembly Resolution 1803.

B. Available Resources in Australia


Australia is a nation rich of natural resources.5 This essay will focus on the natural
resources that are discussed in the context of mining and energy, such as Iron ore,
Coal, Petroleum and Gas.
1
Parts of this paper were developed, but not published, as an essay by the author for the class
Mining Law at the University of Queensland in 2012. The author is a German Lawyer currently
working on his Ph.D. on International Mining Investment Law at the International Investment Law
Centre Cologne (http://www.iilcc.uni-koeln.de), supervised by Professor Hobe, LL.M.(McGill).
The author would appreciate receiving comments and suggestions regarding International Mining
Investment Law at: Richard.Roeder@law-school.de. The legal framework analysed reflects
the prevailing legal norms as of January 1st, 2013.
2
UNGA Resolution 1803 (XVII), Permanent Sovereignty over Natural Resources of
14 December 1962.
3
Wen (2012).
4
Wen (2012).
5
Data can vary depending on which accounting system is being used.

Australias Resource Management System in the Light of UNGA Resolution 1803

81

I. Iron Ore
Australia possesses one of the largest Economic Demonstrated Resources (EDR) of
Iron ore in the world. Of the global EDR of Iron ore that totals 168 billion tonnes,
Australia accounts for 28 billion tonnes, or 16.7 %. Only the Ukraine with 17.9 %
holds a bigger share of global EDR of Iron ore.6
Australia is also one of the worlds largest producers of Iron ore. In 2009
Australias Iron ore production (including concentrate) was 423 million tonnes,
with only China producing more Iron ore.7
In 2009 Australia exported 390 million tonnes of Iron ore, with over two thirds
of it being exported to China.8

II. Coal
EDR of Coal in Australia as of 2008 was calculated to be 76 billion tonnes. Of the
worlds EDR of Coal totalling 860 billion tones, Australias share is 9 %. Its
reserves rank fourth behind the United States, Russia and China.9
Australia is also one of the worlds largest producers for Coal. Australias
production in 2011 was 415 million tonnes, with only China, the United States of
America and India producing more Coal.10
In 2010 Australia exported 328 million tonnes of Coal, making it the worlds
largest exporter.11

III. Rare Earths


Compared to Chinas vast economic resources of rare earth oxides, the Australian
share of the worlds economic resources of rare earth oxides is small and estimated
at less than 2 %.12

See, Australian Government, Geoscience Australia, http://www.ga.gov.au/scientific-topics/min


erals/mineral-resources/aimr/iron-ore, accessed 19 December 2012.
7
Ibid.
8
Australian Government (2011).
9
BP (2012).
10
Ibid.
11
U.S. Energy Information Administration: International Energy Statistics, http://www.eia.gov/
cfapps/ipdbproject/iedindex3.cfm?tid1&pid1&aid4&cid&syid2003&eyid2010&unit
TST, accessed 19 December 2012.
12
Australian Government, Geoscience Australia, http://www.ga.gov.au/minerals/mineralresources/rare-earth-elements.html, accessed 28 December 2012.

82

R.W. Roeder

While there is currently no ongoing production of rare earths in Australia, the


Cummins Range project13 is under construction in Western Australia and further
feasibility studies underway in the Northern Territory and New South Wales.14

IV. Gas
Australia has access to both conventional and unconventional natural gas.
Both conventional and unconventional gas is naturally occurring petroleum gas,
the distinction lies in its way of production. While conventional production aims at
gas pockets associated with petroleum deposits, unconventional production aims at
gas contained within coal and shale formations. This unconventional production
offers new deposits, but also provides new technical and environmental challenges.
Australias conventional gas reserves are estimated at 110 trillion cubic feet
(Tcf) as of January 2011 which ranks Australia 12th on a global scale.15
A global Shale Gas Resources study undertaken by the US Energy Information
Administration in 2009 also found Australia to have 396 Tcf of technically recoverable shale gas reserves in 2009, which ranks Australia 5th on a global scale.16
The special role of Australia derives from its production and export activities.
The production of Natural Gas in Australia reached 1.6 Tcf in 2010, of which half
was exported via Liquified Natural Gas Projects, mostly to Asia.17 With a relatively
small domestic consumption Australia permits a high production to export ratio.
Further and occasionally controversial developments are major Coal Seam Gas
projects in eastern Australia. Coal Seam Gas, as its name suggests, is found in coal
beds, often at depths that are not accessible for surface, or underground mining.
Natural gas is also sourced from near surface coal beds as part of pre-mining
drainage of gas from coal seams to reduce the risks of explosions in underground
mining operations and to minimize greenhouse gas contributions from coal mining
operations.
Technical developments such as hydraulic fracturing, also known as fracking,
and horizontal drilling, both successfully applied in the United States of America,
are now being used in Australia to increase the efficiency of production and to
access resources that could not be produced with conventional techniques.

13
Navigator Resources Limited, http://www.navigatorresources.com.au/Projects/CumminsRange-%28REE%29, accessed 28 December 2012.
14
Australian Government, Geoscience Australia, http://www.ga.gov.au/scientific-topics/minerals/
mineral-resources/aimr/rare-earth-elements, accessed 28 December 2012.
15
U. S. Energy Information Administration, Country Analysis Briefs, http://www.eia.gov/
cabs/Australia/Full.html, accessed 28 December 2012.
16
Ibid.
17
Ibid.

Australias Resource Management System in the Light of UNGA Resolution 1803

83

Production of Coal Seam Gas is considered by some Australians to be problematic as the coal bed formations being exploited are close to surface aquifers, and
their potential linkages to the Great Artesian Basin, a large water aquifer that
underlies eastern/central Australia, are not fully understood.18
There is also concern that potentially hazardous chemicals may be used in
drilling muds and fracking fluids.19 Such concerns have been acknowledged in
some jurisdictions by legislative prohibitions on the use of such chemicals.
Stirred by these concerns, citizen initiatives such as the Lock the Gate20
movement have developed to try and prevent access to land for exploration and
exploitation. Such citizen movements have the potential to substantially disturb and
delay operations.

V. Further Minerals and Petroleum


Further minerals include Antimony, Bauxite, Cobalt, Copper, Diamond, Gold,
Lead, Lithium, Magnesite, Manganese ore, Ilmenite, Rutile, Zircon, Nickel, Niobium, Phosphate, Silver, Tantalum, Tin, Tungsten, Uranium, Vanadium and Zinc.
Australia also possesses substantial oil reserves and produces offshore and onshore.

C. Evaluation of the Respective Resource Regimes


with Special Regards to the Exploration and Exploitation
of Australians Natural Resources by Foreign Entities
I. National Natural Resource Regime
1. The People of Australia, the Political System and the Regulatory
Structure
Various democratic systems were established in Australia over 150 years ago, the
Commonwealth democracy was established over 100 years ago and has been
reformed repeatedly ever since.
Australia can be described as a national federation of States and territories with
representative governments at national, State/territory and local levels.

18
GetUp!, Dont Risk Coal Seam Gas, https://www.getup.org.au/campaigns/coal-seam-gas/csgad-petition/dont-risk-coal-seam-gas, accessed 23 January 2013.
19
Northern Territory Government, What are Shale gas, Tight gas and Coal Seam Gas?, http://
www.nt.gov.au/d/Minerals_Energy/index.cfm?headerWhat%20are%20Shale%20gas,%20Tight
%20gas%20and%20Coal%20Seam%20Gas?, accessed 28 December 2012.
20
Lock the Gate Alliance, http://www.lockthegate.org.au/, accessed 23 January 2013.

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R.W. Roeder

The national constitution provides specific powers to the national government,


with the residual power of government retained by the States. Local governments
are then creations of the State legislatures.
The States retain jurisdictional rights over natural resources such as minerals and
onshore petroleum while the national government shares jurisdictional interests
with the States in other classes of natural resources, e.g. offshore petroleum.
The Commonwealth of Australia, which possesses the jurisdictional power of
entering into international treaties, has entered into international treaty obligations,
e.g. Bilateral and Multilateral Investment Treaties, which in turn have led to a wider
scope of the national governments jurisdiction in natural resources over time.
The Minister responsible for the key Queensland legislation governing the
management of natural resources, the Mineral Resources Act 1989 (MRA), the
Mineral Resources Regulation 2003 (MRR), the Petroleum and Gas (Production
and Safety) Act 2004 (PGSA) and the Petroleum and Gas (Production and Safety)
Regulations 2004 (PGSR), is the Minister for Natural Resources and Mines,
currently the Honorable Andrew Cripps MP.21
The executive branch responsible for the management of natural resources in
Queensland, Australia is the Department of Natural Resources and Mines.22

2. Key Players in the Australian Resource Market


Key players in the Australian Resource Market include Australian or dual listed
companies such as: in the mining sector, BHP Billiton Ltd., Rio Tinto Ltd., Xstrata,
Newcrest Mining Ltd., Fortescue Metals Group Ltd. and Alcoa Inc. and investors
from around the globe such as YanCoal, GEMining and Anglo American; and in the
petroleum sector Shell, Woodside, Santos, BG Group, Petronas, ConocoPhilips and
PetroChina.

3. Crowns Property in Minerals


Section 8 MRA establishes with very limited exceptions the Crowns property in
minerals and coal. Section 26 PGSA establishes the Crowns property in petroleum
and gas. The Crown broadly refers to the political entity, e.g. the State of
Queensland.23

21

Queensland
Government,
http://www.qgd.qld.gov.au/min-minister.html,
accessed
10 October 2012.
22
Department of Natural Resources and Mines, http://www.dnrm.qld.gov.au/, accessed
15 October 2014.
23
Hirst (2002).

Australias Resource Management System in the Light of UNGA Resolution 1803

85

4. Tenements, Land Access and Native Title Influence


Unlike some other jurisdictions around the globe, Queensland law generally does
not provide for private ownership of natural resources. This leads to the situation
where the ownership of the land does not correlate with the ownership of the natural
resources and in some cases does not correlate with the rights to explore and extract
the natural resources from the land where they are to be found.
Furthermore Indigenous people might have a claim to the land if they are
recognized as the original owners of the land (native title).
Native title is a form of customary title, recognized and protected by a law of the
Commonwealth. It does however not extend to ownership of mineral resources. As
with other land owners the right to compensation is a right relating to disturbance of
the land, not a right to participate in the exploration of natural resources themselves,
even if in practise the result for the investor will be similar.
This can lead to the situation that an investor will have to deal with the
government, the private owner of the land and one or several native title claimants.
In relation to the government the use of land is then managed by a license and
tenement system. In relation to the land owners and native title holders the use of
the land is managed by a notice and agreement system.
While a detailed explanation of the tenement and land management system is not
feasible in this paper, from a sovereignty point of view it should be pointed out that
land owners and native title claimants have a right to be given noticeand to
receive appropriate compensation if the exploration or extraction of natural
resources (potentially) disturbs their use of the land. The final decision then lies
within the decision making powers of the relevant courtsthe Land Court
(a Queensland court) and the National Native Title Tribunal and the Federal
Court (a Commonwealth tribunal and court respectively).
The ownership of the minerals themselves lies with the Crownif the processes
are followed correctly and the judicial and administrative decisions are favourable,
the owner of the land and native title owners cannot stop extraction.

5. Taxes, Royalties and Stamp Duty


National development and the well-being of the people concerned as mentioned in
UNGA Resolution 1803 do not only refer to profit-sharing and economic development of the nation and the people.
Participation in the profit derived from the exploration of natural resources
however does constitute a crucial factor for national development and the wellbeing of the people. In Australia the government, both the Commonwealth and
the State government and indirectly its citizens benefit from mining profits
through the imposition of taxes, royalties and stamp duties on particular classes
of transactions.

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R.W. Roeder

a) Minerals Resource Rent Tax and Petroleum Resources Rent Tax


Starting July 1st, 2012 a new national taxation regime was applied to Iron ore,
coal and coal seam gas as incident of coal miningthe Minerals Resource Rent
Tax (MRRT). The same day the existing regime for offshore petroleum project
was extended to all petroleum projectsthe Petroleum Resource Rent Tax
(PRRT).24
The MRRT, administered under the Minerals Resources Rent Tax Act 2012,
applies a tax rate of 30 % to mining project interests. When taking into account
that mining expenditure and a MRRT allowance are subtractable the effective rate
becomes 22.5 %.25 There are however vast exceptions that have led to no MRRT
being paid so far by the mining industry activities to which it is applicable.26
The PRRT, administered under the Petroleum Resources Rent Tax Act 1987
was amended in 2012. While it previously applied only to offshore petroleum
projects it was extended to cover all oil, gas and coal seam gas projects in
Australia. The PRRT applies a tax rate of 40 % to all petroleum project
interests.27
Further regulations exist in the case of foreign residents. Under the Australian
withholding tax regime, payors of dividend, interest and royalties paid to nonresidents are required to withhold generally 10 % for interest and 30 % for
dividends, unless an international agreement applies.28 This however is not an
additional tax for foreigners, but rather a system aiming to secure Commonwealth claims are indeed being paid before profits are taken out of the country.
b) Royalties
Royalties are payments to the State government for rights to extract natural
resources. Royalties are payable pursuant to Section 320 MRA and pursuant to
Section 590 PGSA.
The royalty rates for minerals are set in Schedule 4 MRR and differ from
mineral to mineral, e.g. for coal there is a variable royalty based on the price per
tonne of coal of 7 % of the value up to a price of AU $200 per tonne, and 10 %
per tonne of coal for the value that exceeds AU $200 per tonne.
The royalty rates for petroleum are currently fixed at 10 % of the well head
value pursuant to section 147c PGSR.

24

Australian Taxation Office, Petroleum Resource Rent Tax, http://www.ato.gov.au/pathway.


aspx?sid42&msbusinesses&pc001/003/117, accessed 10 December 2012.
25
Australian Taxation Office, Minerals Resource Rent TaxIntroduction, http://www.ato.gov.au/
businesses/content.aspx?doc/content/00319931.htm&pc001/003/134/001/001&mnu0&mfp
&st&cy, accessed 12 October 2012.
26
Shanahan (2012).
27
The Australian (2010). Australian Taxation Office, Petroleum Resource Rent Tax, http://www.
ato.gov.au/pathway.aspx?sid42&msbusinesses&pc001/003/117, accessed 10 December 2012.
28
Australian Taxation Office, Reporting non-resident withholding from interest and dividend
payments, http://www.ato.gov.au/businesses/content.aspx?doc/content/66410.htm, accessed
12 October 2012.

Australias Resource Management System in the Light of UNGA Resolution 1803

87

c) Stamp duty
Stamp duty, or transfer duty as it is now called in Queensland,29 is a State
charge levied on the transfer of assets, such as an interest in a resource project or
the purchase of an interest in an entity that itself holds a resource project.
Dutiable transactions further include formation of and purchase of an interest
in a partnership as well as the acquisition of (an interest in) a trust or the sale
thereafter.30

II. Exploration by Foreign Entities31


The decision whether or not and the question how and to what extend to allow
foreign direct investments into a country is at the heart of the sovereignty of a
country and of UNGA resolution 1803.
In the Australian legal system the power over this decision is vested in the
Commonwealth.
Australia has made a clear decision towards a generally positive attitude towards
foreign direct investments in the natural resources sectorthe stock of foreign
direct investment in Australia in the mining industry is over AU $150 billion and
makes up over 30 % of the sector.32

1. Policy of Admission of Foreign Direct Investment (FDI) into Australia


The official Foreign Investment Policy of Australia states that Australia welcomes
foreign investment as it has helped to build Australias economy and is thought to
furthermore enhance the wellbeing of Australians by fostering economic growth
and prosperity,33 but Australia does however review investment proposals on a
case-by-case basis to ensure that Australias national interest is protected.34

29
Queensland Government, Office of State revenue, Transfer duty, http://osr.qld.gov.au/duties/
transfer-duty/index.shtml, accessed 12 October 2012.
30
Queensland Government, Office of State revenue, Transfer duty, http://www.osr.qld.gov.au/
duties/transfer-duty/index.shtml, accessed 12 October 2012.
31
The author would like to thank David Earl, Manager of the International Investment and Trade
Policy Unit of the Foreign Investment and Trade Policy Division of the Treasury
of the Commonwealth of Australia for the information and factual advice provided in this section.
32
NSW Government Trade and Invest, Foreign Direct Investment in Australia by Industry, ABS
Cat. No. 5352.0, International Investment Position, Australia, 2012, accessed 23 January 2013.
33
Foreign Investment Review Board (2013), p. 1.
34
Ibid.

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R.W. Roeder

2. Acts and Regulations


Foreign direct investment in Australia is regulated by the Foreign Acquisition and
Takeovers Act 1975 (FATA), the Foreign Acquisition and Takeovers Regulations
1989 and the Foreign Acquisition and Takeovers (Notices) Regulations 1975 and
Australias Foreign Investment Policy.
Furthermore, the Australian Treasury regularly issues Foreign Investment Policies outlining the governments approach towards foreign investments and guidance notes to aid foreign investors.35
Under Sections 1821A FATA the Treasurer of Australia has a wide discretion
to allow foreign direct investments or takeovers in Australia or block them when he
considers them to be contrary to the Australian national interest.
The most relevant section for the mining sector is Section 21A FATA, which
gives the Treasurer the power to examine proposals to acquire interest in urban land
necessary for mining explorations. Urban land in the way it is used in the FATA is a
very broad term and includes inter alia mining titles.
While the Treasurer has the power to review and decide upon investment proposals in reality he often delegates this power to the Assistant Treasurer who in turn
is being advised by the Foreign Investment Review Board (FIRB).36
FIRB comprises of three part-time Members and a full-time Executive Member,
currently being Mr. Brian Wilson who assumed the role of Chair on April 16th 2012
and is a former investment banker; Mr. Hamish Douglass, the current Chief
Executive Officer of Magellan Financial Group; Ms Anna Buduls, an owner and
Chairman of a travel software group; Mr. Michael DAscenzo AO, a former
Commissioner of Taxation from January 2006 to December 2012 and Mr. Jonathan
Rollings, an expert on public policy and legislation.37

3. Process of Approval of Foreign Direct Investments in Australia


a) Who needs to apply for approval?
Foreign government investors received and revive special attention in the
screening process. After substantive debate and voiced fears of Australians,
especially in regards to investments by Chinese State-owned enterprises,38 the
investment policy was adapted to cover all types of government investors.

35

Foreign Investment Review Board, Foreign Investment Guidance Notes, available at http://
www.firb.gov.au/content/guidance.asp?NavID85, accessed 1 October 2012.
36
Foreign Investment Review Board (2013).
37
Foreign Investment Review Board, Foreign Investment Review Board Hierarchy, http://www.
firb.gov.au/content/who.asp?NavID48, accessed 8 October 2012.
38
Industry Search (2012).

Australias Resource Management System in the Light of UNGA Resolution 1803

89

Government investors are urged to notify the Australian Government and get
approval regardless of the value of the investment.39
For the purpose of this investment policy foreign governments investors
include: a body politic of a foreign country; entities in which governments,
their agencies or related entities from a single foreign country have an aggregate
interest (direct or indirect) of 15 per cent or more; entities in which governments,
their agencies or related entities from more than one foreign country have an
aggregate interest (direct or indirect) of 40 per cent or more; or entities that are
otherwise controlled by foreign governments, their agencies or related entities,
and any associates, or could be controlled by them including as part of a
controlling group.40
Their related entities include any political body of that foreign country;
companies or other entities in which foreign governments, their agencies or
related entities have more than an aggregate 15 % interest; or companies or
entities that are otherwise controlled by foreign governments, their agencies or
related entities.
For privately owned legal entities thresholds exist: they are only required to
notify the Government when acquiring a substantial interest in an Australian
business or corporation with a value of more than AU $248 million.
Under the Australia-United States Free Trade Agreement the United States
and since March 1st, 2013 under the Australia New Zealand Closer Economic
Agreement New Zealand sourced investment has been liberalised. For an US
entity, this general threshold increases to AU $1,078 million, while for investments in prescribed sensitive sectors the threshold remains at AU $248 million.41
Those sensitive sectors are: media, telecommunications, transport, the supply
of training or human resources, the manufacture or supply of military goods or
equipment or technology, to the Australian Defence Force or other defense
forces, the manufacture or supply of goods, equipment or technology able to
be used for a military purpose, the development, manufacture or supply of, or the
provision of services relating to, encryption and security technologies and
communications systems the extraction of (or the holding of rights to extract)
uranium or plutonium or the operation of nuclear facilities.42
For investment in residential real estate, vacant land or to buy shares in
Australian urban land, corporations or trusts all foreign persons are to notify
the government.
This is also the case for investments in developed commercial real estate with
an value of AU $54 million or above, whereas however US and NZ investors
will only have to notify the government if the investment in developed commercial real estate reaches the threshold of AU $1,078 million.
39

Foreign Investment Review Board (2013), p. 2.


Foreign Investment Review Board (2013), p. 15.
41
Foreign Investment Review Board (2013), p 15.
42
Foreign Investment Review Board (2013), p. 17.
40

90

R.W. Roeder

b) Timeline
The Australian Government provides help in how to best present the project to
the FIRB.43 After applying, the Treasurer has 30 days to consider the application
and make a decision if he does not chose to extend this period by up to a further
90 days by publishing an interim order.44
c) The national interest test
The decision to allow or block foreign direct investment is based on the
question whether or not the investment is in line with Australias national
interest. The term national interest is not legally defined in the FATA or
elsewhere, giving the Treasurer a wide discretion. The government however
does give guidance for orientation.45
The Treasurer will take into account questions of national security, healthy
market competition, the impact on the Australian tax revenue, the economy, the
environment, the community and the character of the investor.46
For a national security assessment the Australian Government relies on an
assessment from the relevant security agencies, such as the Australian Secret
Intelligence Service.
The assessment of the impact of foreign direct investment on healthy competition in Australia and on a global scale, aims to guard against an investor
gaining control over market pricing and production of a good or service.
A similar analysis is undertaken by the Australian Competition and Consumer
Commission independently of the foreign direct investment screening process.
The extent of tax revenues and the impact on the economy as whole will be
taken into consideration, as will potential environmental impacts and social
impacts on Australian communities. The Australian Government also considers
the Australian participation in the enterprise after an investment, without
establishing local ownership criteria.
The character of the investor refers to the transparency of the commercial
actions of the investor and its corporate governance practices.47
The above mentioned differentiation between privately owned and government owned (or influenced) business entities also plays a role in determining the
question of alignment with the national interest.
This is in line with the enhanced public awareness and concerns regarding
foreign direct investments by State owned enterprises and sovereign wealth
funds, specifically the public perception of Chinese investments.48
The Australian government reacted to increased investments from China and
its public perception by Australian citizens by releasing a set of new principles

43

The University of Sydney Business School (2012).


Foreign Investment Review Board (2013), p. 7.
45
Foreign Investment Review Board (2013), p. 7.
46
Foreign Investment Review Board (2013), pp. 7 et seq.
47
Foreign Investment Review Board (2013), p. 8.
48
Industry Search (2012).
44

Australias Resource Management System in the Light of UNGA Resolution 1803

91

that the Australian Government now considers when determining if investments


of State owned or affiliated entities are consistent with the national interest of
Australia.49
When determining whether or not foreign direct investments by State owned
enterprises or sovereign wealth funds is in the national interest the Australian
Government also considers, whether the foreign direct investment is of commercial nature, or if the investor pursues further political or strategic objectives.
The Australian Government will also try to assess whether the contractual or
funding arrangements are established in a way that allow for controlat the
time of the application or laterby a foreign government.
The Australian Government is more restrictive towards investments which are
closely aligned or influenced by foreign governments.50 The Australian Government however does take into account mitigating factors such as external
(non-governmental) partners, continuous listing on an internationally recognized stock exchange and other arrangements preventing non-commercial
activities.51
While the Treasurer does have the power to formally prohibit a proposal, in
practise, most applicants withdraw their proposals if they receive (informal)
notice from the Treasury that the proposal faces challenges or is likely to be
considered not to be in line with the national interest.52
For example: In the time between 2007 and 2008 out of a total of 8,548
applications, 521 were withdrawn whereas less than ten were formally
rejected.53 And even within the 521 withdrawn proposals some might be withdrawn for business reasons, overlapping application, etc.54
4. Judicial Review and Cases
The possibility of judicial review of decisions of the Treasurer is limited due to the
wide discretion of the Treasurer. However, in Canwest Global Communications
Corporation v. Treasurer (Cth) a decision of the Treasurer has been overruled on
the basis that the Treasurer failed to consider the test of foreign control outlined in
FATA Section 18(4)(a)(ii).55

49

Foreign Investment Review Board (2013), p. 8. Walsh (2012).


Foreign Investment Review Board (2013), p. 7.
51
Foreign Investment Review Board (2013), p. 8.
52
Foreign Investment Review Board (2013), p. 10.
53
Foreign Investment Review Board (2009), p. 9.
54
Details can be found in the FIRB annual reports, available at http://www.firb.gov.au/content/
publications.asp?NavID5, accessed 14 May 2013.
55
Canwest Global Communications Corporation v. Treasurer (1997), 147 ALR 509.
50

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R.W. Roeder

What can be taken from this judgement is that if the Treasurer completely steps
out of his powers or ignores essential facts, the courts have the power to review the
decision.

5. Possible Future Developments


No major reforms are presently in sight for the FATA. The latest amendment, the
Foreign Acquisitions and Takeovers Amendment Act 2010, dealt with new investment structures and clarified the voting requirements.56 This was done to broaden
the applicability of the FATA by making sure that no corporate restructuring of
voting rights could avoid the FATA and therefore the Treasurer from being able to
exercise his discretionary power.57
The question on foreign direct investments was and is a matter of diverse public
debate. Especially in the question of foreign direct investments from China and
possibly from State-owned enterprises the opinions of Australias political leaders
are split. While Tony Abbott is quoted with the words that: It would rarely be in
Australias interest to allow a foreign government or its agencies to control an
Australian business., Bob Carr, Minister of Foreign Affairs of Australia replied by
calling Abbotts position dangerously dumb.
The Chairman of the Foreign Investment Review Board, Brian Wilson, stated
that Australian businesses, however they are owned, should be run on a purely
commercial basis and not as an extension of the policy, political or economic
agenda of a foreign government.58 This statement can be read as steering a path
between two extreme positions.

III. Expropriation
When expropriation is the topic of conversation investors will most likely think of
Latin America and Africa rather than of developed countries such as Australia and
Canada. However, it has been argued that expropriations were correlated with
mineral price booms such as the one taking place in the last decade and that
democratic governments were more likely to expropriate than non-democratic
governments.59

56

Details can be found at: http://ris.finance.gov.au/files/2013/02/03-FATA-2010-amendmentsPIR.pdf, accessed 14 May 2013.


57
Details can be found at: http://ris.finance.gov.au/files/2013/02/03-FATA-2010-amendmentsPIR.pdf, 14 May 2013.
58
The University of Sydney Business School (2012).
59
Duncan (2006).

Australias Resource Management System in the Light of UNGA Resolution 1803

93

The safeguard for investors in Australia so far were Bilateral Investment Treaties
which did not protect the investor from expropriation as such, but did provide for a
prompt, effective and adequate compensation.
In 2011 however Australia declared that it will no longer include arbitration
clauses in its investment treaties.60 It aims to replace international tribunal awards
by Australian domestic court decisions.61
Expropriation also does not have to come in the form of an order of the court/
executive branch, but it may also come in the form of what has been called
creeping expropriation62 and which has been defined as the slow and incremental
encroachment on one or more of the ownership rights of a foreign investor that
diminishes the value of its investment,63 leaving the investor with little more than
an empty shell.
Taking into account the raises in taxes, royalties, stamp duty obligations and new
rules regarding native title regulations in Australia, such incremental regulatory and
revenue changes could be seen as creeping expropriation as it does indeed impact
negatively on ownership rights of investors in the natural resources sector in
Australia, although it might not be as drastic as Peter Leon describes it for the
case of South Africa.64

D. Conclusion: An Evaluation Under the Sovereignty Lens


of UNGA 1803
I. Legal Nature of UNGA Resolutions and Applicability
in Australia
Resolutions of the United Nations General Assembly are of a non-binding nature
under both international and Australian law. Article 10 and Article 14 of the Charter
of the United Nations speak of recommendations. The Australian legal system
takes a similar approach.65
The position of Australia, being a member of the United Nations and a signatory
of the United Nations Charter, can be summarized by the statement by the former
Australian Minister for Foreign Affairs, Mr. Andrew Peacock: We do not, therefore,

60

Trakman (2012).
Ibid.
62
Leon (2009), p. 597.
63
Ibid., p. 597.
64
Ibid., p. 599.
65
The Law Society of New South Wales, New South Wales Young Lawyers, International
Committee (2010).
61

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see ourselves as being either legally or morally obliged to implement all General
Assembly Resolutions, but we take them into account as recommendations.66

II. Evaluation Under the Sovereignty Lens of UNGA


Resolution 1803
Early, the Commonwealth and the State governments were invested with the power
for final decision on the exploration, development and disposition of natural
resources in Australia.
The Crown, rather than foreign or national individuals, owns and manages
natural resources in Australia and enables Australians to maintain sovereignty
over their resources.
This set-up is very much in line with UNGA resolution 1803 and provides the
people of the Commonwealth, the States and territories with a great extent of
sovereignty over their natural resources.
Both, the Commonwealth of Australia and the State Government profit from the
establishment, the acquisition and the transfer of natural resource extraction projects as well as from the production and profits derived from those projects.
Unlike Norway,67 Australia however has not established a substantial Sovereign
Wealth Fund from the profits, but spends most of the profits on an annual basis.
While the current system certainly benefited the national development of Australia
and the well-being of the people concerned, a more sustainable and less political
use of the profits would be possible.
Also, the proportions of the profit sharing agreement were not freely agreed
upon, but subsequently changed one-sided. When taking into account the long-term
life cycles of mining and petroleum projects for investors who had invested in
projects prior to the discussion and introduction of the MRRT and the expansion of
PRRT, the taxes changed the terms agreed upon subsequently and one-sided. This
change is not in line with the wording of UNGA resolution 1803.
Australia established a substantive screening process for foreign direct investments and via the National Interest Test provides itself with a wide discretion for
consideration whether foreign direct investments are necessary or desirable with
regard to the authorization, restriction or prohibition.
The lively public debate around foreign direct investments from governmental
agencies shows how concerned the Australian public is with losing control over
their natural resources. This also makes visible the political dimension of foreign
direct investment: people in Australia are certainly not afraid about foreign capital
as such, they are afraid of economic-political ties that threaten their independence.
The test whether the foreign direct investment is of commercial nature, or if the

66

Ibid. p. 42.
Norges Bank Investment Management, Government Pension Fund Global, http://www.nbim.no/
en/the-fund/about-the-fund/, accessed 15 October 2014.

67

Australias Resource Management System in the Light of UNGA Resolution 1803

95

investor pursues further political or strategic objectives tries to addresses this


concern.
Whilst one might argue that from an economic point of view investors might be
alienated by the lack of predictability and decide for other investment opportunities,
from a sovereignty standpoint this wide discretion is very much in line with
UNGA resolution 1803.
It might be true that National court judges who are not susceptible to bribes,
corruption, or the foibles of electioneering and who are incentivized to promote
norms of ethics may have as much claim to good judgment as intermittently
appointed and often academically focused investment arbitrators68, but common
sense will tell every investor that finally the national interest of Australia, the
employer of the judge, rather than the position of the investor will prevail when
the decision is being made.
Regarding the choice of courts UNGA resolution 1803 leaves room for both,
international arbitration as well as domestic courts.
Australia has now declared to not include arbitration clauses in future contracts.
While Australian courts have a good reputationlocal jurisdiction will not ease
concerns of international investors.

III. Liberal or Protectionist?


Australia is a beautiful, resource-rich, safe country with a strong and reliable legal
system.
The Australian legal regime regarding foreign direct investments in the natural
resource sector, specifically foreign direct investments in mining and energy projects however shall be labeled as liberal with protectionist tendencies. It is generally
open for foreign direct investments and does, on paper, not treat them any different
to local investments.
The current public debate and legislative changes as well as the vast administrative power of FIRB however do not point towards a more liberal regime in the
near future.
No worries mate! is and will likely remain rather a proverb at Australian
beaches than the state-of-mind of foreign investors in the Australian resource
sector.

68

Trakman (2012), p. 118.

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Leon P (2009) Creeping expropriation of mining investments. An African perspective. JENRL 27
(4):597644
Shanahan D (2012) New mine tax fails to raise a cent in blow to revenue. The Australian of
25 October 2012. http://www.theaustralian.com.au/national-affairs/treasury/new-mine-taxfails-to-raise-a-cent-in-blow-to-revenue/story-fn59nsif-1226502734885. Accessed 23 Jan
2013
The Australian (2010) Full statement and detail of new mining tax. The Australian of 2 July 2010.
http://www.theaustralian.com.au/politics/full-statement-and-detail-of-new-mining-tax/storye6frgczf-1225887000521. Accessed 14 Oct 2012
The Law Society of New South Wales, New South Wales Young Lawyers, International Committee (2010) The practitioners guide to international law. The Law Society of New South
Wales, Sydney
The University of Sydney Business School (2012) Whats really wrong with Chinese investment?
http://sydney.edu.au/business/news/2012/whats_really_wrong_with_chinese_investment.
Accessed 8 Oct 2012
Trakman L (2012) Investor state arbitration or local courts: Will Australia set a new trend? J.W.T.
46(1):83120
Walsh M (2012) Abbotts foreign investment policy shuns reality. Financial Review of 2 August
2012. http://afr.com/p/opinion/abbott_foreign_investment_policy_GQwJ72DyM1YYdy2Ecze
E6I. Accessed 8 Oct 2012
Wen P (2012) Mining fears of Chinese invasion: The Sydney Morning Herold of 25 August 2012.
http://www.smh.com.au/business/mining-fears-of-chinese-invasion-20120824-24s0g.html.
Accessed 1 Oct 2012

From Ownership-Orientation
to Governance-Orientation
An International Economic Law Perspective of Chinas
Shifting Attitudes Towards Resource Sovereignty
Manjiao Chi

Contents
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. The Formation and Development of the Principle of PSNR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C. Chinas Natural Resource Law System and Its Major Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I. Chinas Natural Resource Law System in a Nutshell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. Major Defects of Chinas Natural Resource Law System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D. Expropriation of Foreign Investment Under Chinese Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I. E&C Clauses of Chinas BITs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. E&C Clauses in Chinas National Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
III. Chinas Shifting Attitudes Towards E&C of Foreign Investments . . . . . . . . . . . . . . . . . . . .
E. Chinas Participation in International Resource-Related Disputes . . . . . . . . . . . . . . . . . . . . . . . . .
I. Resource-Related Investment Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. Resource-Related Trade Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F. Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

98
99
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122

Abstract Though the international law principle of permanent sovereignty over


natural resources was originally designed for colonized peoples to pursue their right
to self-determination, it has profound economic implications touching upon foreign
investment protection and foreign trade governance. China traditionally held a
developing country-positioned and ownership-oriented attitude towards resource
sovereignty, stressing State ownership of natural resources. However, in recent
years, because of Chinas economic rising and changing status in the international
community as well as its frequent participation in international resource-related
dispute settlement, China began to shift its attitude towards resource sovereignty to
community-based and governance-oriented.
M. Chi (*)
Law School, Xiamen University, Xiamen, China
Fellow, FoKoS Center, University of Siegen, Weidenauer Str. 167, 57076 Siegen, Germany
e-mail: chimanjiao@xmu.edu.cn
Springer International Publishing Switzerland 2015
M. Bungenberg, S. Hobe (eds.), Permanent Sovereignty over Natural Resources,
DOI 10.1007/978-3-319-15738-2_6

97

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M. Chi

A. Introduction
The year 2012 marks the 50th anniversary of the adoption of the United Nations
General Assembly (UNGA) Resolution 1803, titled Permanent Sovereignty over
Natural Resources.1 This Resolution, together with some others, lay down the
foundation of the international law principle2 of permanent sovereignty over natural
resources (PSNR). Although the original roots of this principle were found in two
main concerns of the UN, namely the economic development of underdeveloped
countries and the self-determination of colonized peoples,3 the rich economic
implications of this principle shall not be overlooked, particularly with regards to
foreign investment and trade regulation. It is even suggested that this principle
represents an expansion of international law into the field of economics, and is
deemed as a major development of the twentieth century.4 Besides, the economic
implications of the principle of PSNR is particularly important considering that
economic development, instead of political independence, has become the main
aspirations of the vast number of underdeveloped countries in the world today.
For historical reasons, China traditionally adopted an ownership-oriented view
of resource sovereignty, claiming that all natural resources within its territory shall
be owned by the State or the collective (Ji Ti).5 However, in recent years, China
has risen to be the worlds second largest economy and is actively engaged in global
trade and investment activities. Such change prompted the shift of Chinas attitudes
towards resource sovereignty from ownership-oriented to governance-oriented,
which essentially obliges the exercise of resource sovereignty in a sustainable
manner.
This paper explores Chinas changing attitudes towards resource sovereignty
from an international economic law perspective, mainly by discussing Chinas legal
1

UNGA Resolution 1803 (XVII), Permanent Sovereignty over Natural Resources of


14 December 1962.
2
The term international law principle is difficult to be clearly defined. In this paper, this term is
used in its broad and general sense, which should be differentiated from the term used in Art. 38 of
the Statute of the International Court of Justice, which effects a threefold division of existing
international law into convention, international custom and general principle of international law.
For further discussion on the meaning of general principle of law, refer to, e.g., Cheng (1953),
pp. 12.
3
Schrijver (1997), p. 369.
4
See Shaw (2008), p. 40.
5
Interestingly, the legal term collective (Ji Ti) or collective ownership is important but vague in
China. Although collective ownership (of farmland) is clearly codified in various Chinese laws,
such as the Constitution and the Civil Law of the Peoples Republic of China, no national law
provides a clear definition of this term. Theoretically, collective ownership means that farmland or
resource properties are owned by an entire village or township; in practice, however, due to the
vagueness of this term, the land or properties wind up in the hands of a few representatives who can
easily expropriate it for lucrative private development. It is also argued that collective ownership is
simply a different version of State ownership. Refer to, e.g., Cai (2003), pp. 662680;
Ewing (2008).

From Ownership-Orientation to Governance-Orientation

99

systems of foreign investment protection and foreign trade regulation. In addition to


the introduction (Sect. A) and the conclusion (Sect. F), this paper is composed of
four sections. Section B provides a brief discussion of the formation and development of the principle of PSNR; Sect. C briefly discusses Chinas existing natural
resource law system and its major defects. These two sections set the scene for the
ensuing discussion. Section D focuses on foreign investment protection under Chinese law by examining the expropriation and compensation clauses (E&C clauses)
contained in Chinas International Investment Agreements (IIAs) and domestic laws
and regulations. It also discusses Chinas shift of attitudes towards foreign investment
protection in recent decades. Section E focuses on Chinas participation in resourcerelated international dispute settlements, including investment arbitration cases and
WTO disputes. Finally, this paper concludes that, though China traditionally held an
ownership-oriented view of resource sovereignty, it has gradually shifted to a
governance-oriented view. Such attitudes shift is prompted by both Chinas unprecedented change of economic and political status in the international community and
the profound external influences exerted by Chinas frequent participation in
resource-related international dispute settlements in the recent decade.

B. The Formation and Development of the Principle of PSNR


The principle of PSNR has been developed over decades. It was first developed in the
course of struggle for the right to self-determination by colonized peoples after World
War II, including the right of newly-independent countries and other developing
countries, the Latin American countries in particular, to freely dispose their natural
resources.6 This principle has evolved through several resolutions originating from a
variety of UN organs, including resolutions adopted by the UNGA,7 rather than
conventional methods of international law-making such as evolving State practices
or the conclusion of treaties.8 Prof. Nico Schrijver has authoritatively elaborated on
the development of the principle of PSNR in his book.9 For the purpose of this paper,
a brief introduction of the evolution of this principle is sufficient.
The early relevant UNGA resolutions are Resolution 52310 and Resolution
626.11 The former provides that underdeveloped countries have right to determine
freely the use of their natural resources,12 and the latter states that the right of

Schrijver (2010).
Ibid.
8
Schrijver (1997), p. 371.
9
See ibid.
10
UNGA Resolution 523 (VI) Integrated Economic Development and Commercial Agreements of
12 January 1952.
11
UNGA Resolution 626 (VII) Right to Exploit Freely Natural Wealth and Resources of
21 December 1952.
12
Resolution 523 (VI), Preamble.
7

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M. Chi

peoples freely to use and exploit their natural wealth and resources is inherent in
their sovereignty and is in accordance with the Purposes and Principles of the
Charter of the United Nations.13 A notable move was taken in 1958, when the
UNGA, through Resolution 1314,14 established the Commission on Permanent
Sovereignty over Natural Resources to survey the right to self-determination.15
The result of the survey was acknowledged by the UNGA in Resolution 1803,
despite the heated discussions between different blocs of countries.16 For such
reason, it has been suggested that Resolution 1803 marks the ending of a discussion on the principle [of PSNR] which has been characterized by a great deal of
consensus.17 This Resolution contains eight functional paragraphs, covering various aspects of the principle of PSNR, including the right to dispose, use and control
natural resources, the right to regulate foreign direct investment, the duty of
international cooperation and the observance of foreign investment agreements in
good faith.
In the years following the adoption of Resolution 1803, various other relevant
UN instruments have been adopted, which furthered the development of the
principle of PSNR. Two notable instruments are the Declaration on the Establishment of a New International Economic Order18 and the Charter of Economic Rights
and Duties of States.19 The former clearly confirms that States shall enjoy full
permanent sovereignty over its natural resources and all economic activities.20
And the latter provides that every State has and shall freely exercise full permanent
sovereignty, including possession, use and disposal, over all its wealth, natural
resources and economic activities.21
These UNGA resolutions and instruments lay down the rights and duties of
States in exercising resource sovereignty, although, strictly speaking, they do not
necessarily constitute a formal source of international law and their legal effects are
uncertain.22 Yet, more recently, the customary law status of the principle of PSNR
has been clearly confirmed by the International Court of Justice (ICJ) in the

13

Resolution 626 (VII), Preamble.


UNGA Resolution 1314 (XIII) Recommendations Concerning International Respect for the
Rights of Peoples and Nations to Self-Determination of 12 December 1958.
15
See Resolution 1314 (XIII), para. 1.
16
For an introduction of the background of this Resolution, see generally Gess (1964), p. 398;
Schwebel (1963), p. 463.
17
de Waart (1997), p. 311.
18
UNGA Resolution 3201 (S-VI), Declaration on the Establishment of a New International
Economic Order of 1 May 1974.
19
UNGA Resolution 3281 (XXIX), Charter of Economic Rights and Duties of States of
12 December 1974.
20
See Resolution 3201 (S-VI), para. 4(e).
21
Resolution 3281 (XXIX), Art. 2(1), Chapter II.
22
There is no consensus as to the legal effects of UNGA resolutions. Some scholars argue that such
resolutions have a quasi-legislative effect, while others deny them all legal effects. See, e.g.,
Lauterpacht (1997), p. 265.
14

From Ownership-Orientation to Governance-Orientation

101

judgment in Armed Activities on the Territory of Congo (Congo v. Uganda). In this


judgment, the ICJ, while recalling various relevant UNGA resolutions, Resolution
1803 and Resolution 3201 in particular, clearly recognized that the principle of
PSNR constitutes a principle of customary international law.23
Indeed, the world today is quite different from what it was when Resolution 1803
was adopted 50 years ago. On one hand, self-determination of colonized peoples
and struggle for political independence of underdeveloped countries seem no longer
the theme of todays world. On the other, the international community has become
increasingly interdependent and faces various new common challenges, such as
environment protection and sustainable development. Alongside the worlds
transforming, the emphasis of the principle of PSNR has also gradually shifted
from a primarily rights-based to a qualified concept encompassing duties as well as
rights.24
Given that the emphasis of the principle of PSNR has recently shifted to the
economic fields, it is of interest to explore this principle from an international
economic law perspective. Despite the broad coverage of the principle of PSNR,
States control and regulation of natural resources lie in the center of this principle.
Practically, regulation of natural resources by State is often realized through
regulating resource-related trade and investment activities. In this connection,
Resolution 1803 contains explicit provisions with regards to foreign investment
protection. It not only addresses nationalization, expropriation or requisitioning of
foreign investment and investment dispute settlement,25 but also deals with the
observance of international investment agreements.26 It is for such reason that the
adoption of Resolution 1803 is deemed as the cornerstone of the development of the
principle of PSNR with regards to foreign investment protection, though it is not the
first move.27 Besides, although this Resolution does not clearly mention the term
trade, it does cover the exploration, development and disposition of natural
resources,28 which could include regulation of international resource trade by
States. While recognizing the economic (investment and trade) linkage of the
principle of PSNR, this paper discusses Chinas shifting attitudes towards resource
sovereignty and its implications from an international economic law perspective.

23

See Armed Activities on the Territory of the Congo (Congo v. Uganda), ICJ Judgment, ICJ Rep.
2005, pp. 250251, para 244.
24
Schrijver (2010).
25
See Resolution 1803 (XVII), para. 4.
26
See Resolution 1803 (XVII), para. 8.
27
While recognizing the importance of this Resolution, Lauterpacht observed that by the time
Resolution 1803 was adopted, there already existed a number of bilateral treaties in different forms
regulating expropriation and compensation of foreign investment. See Lauterpacht (1997),
pp. 262266.
28
See Resolution 1803 (XVII), para. 2.

102

M. Chi

C. Chinas Natural Resource Law System and Its Major


Defects
At the outset, it would be helpful to be briefly informed of the legal framework of
Chinas natural resource law and its major defects before exploring Chinas shifting
attitudes towards resource sovereignty. Normatively, Chinas natural resource law
system can be understood either broadly or narrowly. In the broad sense, this system
covers both natural resource governance and environmental protection laws; in the
narrow sense, this system only includes natural resource governance laws.29

I. Chinas Natural Resource Law System in a Nutshell


China lacks a special law governing natural resources. Relevant natural resource
law rules are scattered in different branches of laws, regulations and rules at
different hierarchical levels. Normatively, Chinas natural resource laws have
both domestic (national and local levels) and international law sources. Given the
fragmentation of Chinas natural resource laws, it is neither necessary nor possible
to produce an exhaustive list of them. Rather, a few key aspects of Chinas natural
resource laws will be highlighted.
At the domestic level, the foundation of Chinas natural resource law system is
laid down by the Constitution of the Peoples Republic of China (Constitution).30
There are also a number of other general and special national laws on the regulation
of different types of natural resources, particularly the Property Law of Peoples
Republic of China (PRC Property Law)31 and the Environmental Protection Law of
the Peoples Republic of China (PRC Environment Law).32 In addition, there are
also various regulations and rules at local levels.
Chinas natural resource laws do not contain a clear definition of the term
natural resources, but several major national laws do provide a non-exhaustive
list of the types of natural resources. The Constitution, while addressing the State
ownership of natural resources, provides that All mineral resources, waters, forests, mountains, grasslands, unclaimed land, beaches and other natural resources
are owned by the state.33 In a similar way, PRC Environment Law, when defining
the term environment, provides that environment shall refer to the total body of
all natural elements and artificially transformed natural elements affecting human
29

See Boping (2005), pp. 10951096.


Adopted at the 5th Session of the 5th National Peoples Congress on 4 December 1982 and
amended at the 2nd Session of the 10th National Peoples Congress on 14 March 2004.
31
Adopted at the 5th Session of the 10th National Peoples Congress on 16 March 2007.
32
Adopted at the 11th Session the Standing Committee of the 7th National Peoples Congress on
26 December 1989.
33
Art. 9 of the Constitution.
30

From Ownership-Orientation to Governance-Orientation

103

existence and development, which includes the atmosphere, water, seas, land,
minerals, forests, grasslands, wildlife, natural and human remains, nature reserves,
historic sites and scenic spots, and urban and rural areas.34 This law does not
provide further interpretation of the listed types of natural elements despite its
broad coverage.
The distinct feature of Chinas natural resource laws lies in the emphasis of State
ownership. Both the Constitution and the PRC Property Law stress the property
nature of natural resources, ownership in particular, but neither of them contains
concrete and operational provisions on exploitation, utilization, management and
protection of natural resources. Such a gap is left to be filled mainly by the PRC
Environment Law.35 As stated, the Constitution provides that All mineral
resources, waters, forests, mountains, grasslands, unclaimed land, beaches and
other natural resources are owned by the state.36 Besides, with particular regards
to the land use rights, the Constitution provides that Land in urban areas is owned
by the state, while Land in rural and suburban areas is owned by the collectives (Ji
Ti).37 The PRC Property Law reiterates and enhances the State ownership of
natural resources, which provides that The ownership of the real property and
the movable property that is exclusively owned by the state as prescribed by law
shall not be acquired by any entity or individual.38
In addition to the above national laws, China has various special laws and
regulations adopted on a resource-specific basis, addressing different types of
natural resources. In 1984, China adopted its first national law on natural resources,
namely the Forestry Law of the Peoples Republic of China.39 Since then, China
adopted many laws and regulations addressing a wide range of natural resources,
such as grassland,40 land,41 mineral resources,42 fishery,43 wild animals,44 wild

34

Art. 2 of the PRC Environment Law.


Art. 1 of the PRC Environment Law provides that the adoption of this law is for the purposes of
protecting and improving natural environment and the ecological environment, preventing and
controlling pollution and other public hazards, safeguarding human health and facilitating the
development of socialist modernization.
36
Art. 9 of the Constitution.
37
Art. 10 of the Constitution.
38
Art. 41 of the PRC Property Law.
39
Adopted at the 7th Session of the Standing Committee of the 6th National Peoples Congress on
20 September 1984.
40
Law on Grassland of the Peoples Republic of China, adopted at the 11th Session of the Standing
Committee of the 6th National Peoples Congress on 18 June 1985.
41
Law on Land Management of the Peoples Republic of China, adopted at the 16th Session of the
Standing Committee of the 6th National Peoples Congress on 25 June 1986.
42
Law on Mineral Resources of the Peoples Republic of China, adopted at the 15th Session of the
Standing Committee of the 6th National Peoples Congress on 19 March 1986.
43
Law on Fishery of the Peoples Republic of China, adopted at the 14th Session of the Standing
Committee of the 6th National Peoples Congress on 20 January 1986.
44
Law on Wild Animal Protection of the Peoples Republic of China, adopted at the 4th Session of
the Standing Committee of the 7th National Peoples Congress on 8 November 1988.
35

104

M. Chi

plants,45 energy-saving,46 scenery resorts47 and meteorological resources.48 Most


of these laws were adopted in the mid 1980s and amended since the twenty-first
century to meet the changing needs of Chinas economic development. Similar to
the Constitution and the PRC Property Law, almost all of these laws and regulations
stress State ownership over natural resources, but none clearly defines the specific
type of natural resources covered thereby.49
Besides the special laws, other national laws also contain resource-related provisions. A typical example is the Criminal Law of the Peoples Republic of China.50
Art. 340 through Art. 344 of this law respectively prohibits such resource-related
crimes as illegal fishery, hunting of precious animals, use of farm lands, mining and
lumbering. These provisions are necessary supplements to the above special laws.
In addition to these national laws and regulations, many ministerial regulations and
implementing rules have also been issued by the relevant ministries and local
governments to address various resource-related issues.
At the international law, China is a contracting party to many multilateral
treaties covering various resource-related issues. To list a few, China ratified the
1972 Convention concerning the Protection of the World Cultural and Natural
Heritage on 12 December 1985,51 signed the 1992 Convention on Biological
Diversity on 11 June 1992,52 and ratified the 1982 Convention on the Law of the
Sea on 15 May 1996.53 It is also possible that China will join more resource-related
international organizations or conventions in the near future.54

45

Regulations on Protection of Wild Plants of the Peoples Republic of China, adopted by the State
Council on 30 September 1996, issued pursuant to State Council Order No. 204.
46
Law on Energy-Saving of the Peoples Republic of China, adopted at the 28th Session of the
Standing Committee of the 8th National Peoples Congress on 1 November 1997.
47
Regulations on Scenery Resorts of the Peoples Republic of China, adopted by the State Council
on 6 September 1996, issued pursuant to State Council Order No. 474.
48
Law on Meteorology of the Peoples Republic of China, adopted at the 12th Session of the
Standing Committee of the 9th National Peoples Congress on 31 October 1999.
49
See, e.g., Art. 3 of the Law on Forestry of the Peoples Republic of China; Art. 9 of the Law on
Grassland of the Peoples Republic of China; Art. 2 of the Law on Land Management of the
Peoples Republic of China; Art. 3 of the Law on Mineral Resources of the Peoples Republic of
China; Art. 3 of the Law on Wild Animal Protection of the Peoples Republic of China.
50
Adopted at the 2nd Session of the 5th National Peoples Congress on 1 July 1979, amended by
5th session of the 8th National Peoples Congress on 14 March 1997.
51
The status of the Convention is available at http://whc.unesco.org/en/statesparties/.
52
The status of the Convention is available at http://www.cbd.int/convention/parties/list/.
53
The status of the Convention is available at http://www.un.org/Depts/los/reference_files/chro
nological_lists_of_ratifications.htm.
54
For instance, China plans to formally accede to the International Renewable Energy Agency
(IRENA) in 2013, available at http://www.mlr.gov.cn/xwdt/jrxw/201301/t20130114_1174973.
htm (original in Chinese).

From Ownership-Orientation to Governance-Orientation

105

II. Major Defects of Chinas Natural Resource Law System


As can be seen from the above introduction, Chinas natural resource laws have
defects. Technically speaking, China lacks a comprehensive law on natural
resources. Laws and regulations at both national and local levels governing the
ownership, exploitation, utilization and management of natural resources and those
governing protection and sustainable development of natural resources are divided
into two categories. In other words, Chinese laws on using natural resources and
protecting environment are segregated. Further, each category of law and regulations are made on a resource-specific basis and are thus seriously fragmented.
The fragmentation of law is amplified by the fact that different categories of laws
are implemented by different government organs. In 2008, China established the
Ministry of Land and Resources (MLR) and the Ministry of Environmental Protection (MEP) as two constituent organs of the State Council of China (Chinas Central
Government).55 According to their respective mandate, MLR is charged of inter
alia the protection and reasonable use of land, mineral, ocean and other natural
resources,56 while MEP is charged of inter alia dealing with important environmental problems, preventing and controlling pollution and guiding, coordinating
and supervising ecological development.57 Given the close connection between
using natural resources and protecting environment, the work division between
MLR and MEP is somehow vague and overlapping. Besides, the lack of coordination between these ministries sometimes produce tensions between exploitation and
utilization of natural resources for economic growth and protection of natural
resources for sustainable development.
Besides, Chinas laws neither provide a clear definition of the term natural
resource nor operable criteria to help distinguish State ownership from private
ownership, despite their stress on State ownership of natural resources. In practice,
the high level of State grip of natural resources and the vagueness of Chinas laws
often lead to insufficient protection of resource-related private property rights and
could result in inappropriate intervention in international trade and investment
activities. For such reason, it is unsurprising to see that Chinas natural resources
laws and regulations are frequently challenged and criticized at both national and
international levels.
At the national level, a typical defect of the implementation of the resource laws
is arbitrary expropriation of resource-related private properties in the name of
defending State ownership, which has been brought to the spotlight by several
widely-reported recent cases. In June 2012, Chinas northeastern Heilongjiang

55

Art. 2(1), Notice on Organization Establishment of the State Council of the Peoples Republic of
China, Doc. No. Guo Fa (2008) 11, available at http://www.gov.cn/zwgk/2008-04/24/content_
953471.htm (original in Chinese).
56
The mandate of MLR is available at http://www.mlr.gov.cn/bbgk/zyzn/201009/t20100908_
762243.htm (original in Chinese).
57
The mandate of MEP is available at http://www.mep.gov.cn/zhxx/jgzn/ (original in Chinese).

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M. Chi

Province issued the Regulation on Exploitation and Protection of Climate


Resources of Heilongjiang Province. According to this Regulation, enterprises
must obtain prior approval for exploitation of wind or solar energy, and such
energy, if confirmed, shall be owned by the State. This regulation has been widely
criticized, yet the provincial Government of Heilongjiang claimed that it is in full
conformity with Art. 9 of the Constitution and other relevant national laws and
regulations.58 In another case, it has been reported in July 2012 that Gushi County
of Central Chinas Henan Province issued a regulation requiring local peasants to
pay natural water fee for using rain water for irrigation, claiming that rain water is
a State-owned natural resource.59
At the international level, many natural resource management measures of China
are challenged for inconsistency with Chinas international obligations. This has
happened in several recent investment arbitration cases and WTO cases involving
China.60 For instance, in ChinaRaw Materials (DS394/DS395/DS398), the challenged measures of China cover various laws and regulations concerning export
management of several types of raw materials (mostly mineral resources) adopted
by a number of State organs, including the Standing Committee of the National
Peoples Congress (Chinas top legislature), the State Council (Chinas central
government), the Ministry of Foreign Economics and Trade (the predecessor of
the Ministry of Commerce), the General Administration of Customs and the State
Council Tariff Policy Commission.61 In the recent investment arbitration case
against China (Ekran Berhad v. China), Ekran Berhad as the investor challenged
the local measures concerning land use rights. A more detailed discussion of these
cases will be provided in Sect. E of this paper.

D. Expropriation of Foreign Investment Under Chinese Law


Regulation of nationalization and expropriation of foreign investments stands at the
forefront of investment protection. As mentioned, one of the most important
elements of the principle of PSNR is that a host State has the right to nationalize
foreign investments within its territory for the purpose of public interest and against
compensation. In the words of the resolution, public interests requirement requires
that nationalization must be based on grounds or reasons of public utility, security
or the national interest which are recognized as overriding purely individual or

58
Available at http://news.xinhuanet.com/politics/2012-06/20/c_112260656.htm (original in
Chinese).
59
But this news was denied by local government officials, available at http://news.china.com.cn/
2012-07/05/content_25813184.htm (original in Chinese).
60
Refer to Sect. E of this paper.
61
See Request for Consultations by the United States, WT/DS394/1, 25 June 2009, available at
http://www.worldtradelaw.net/cr/ds394-1%28cr%29.pdf.

From Ownership-Orientation to Governance-Orientation

107

private interests; while the compensation requirement requires that investors shall
be paid appropriate compensation in accordance with the rules in force in the State
and in accordance with international law.62
Although China is a party to various multilateral investment treaties,63 there is
no such international treaty dedicated to the issue of investment protection.64 In
fact, foreign investment protection is regulated by Chinas domestic laws and its
Bilateral Investment Treaties (BITs) and Free Trade Agreements (FTAs).
According to the statistics of the Ministry of Commerce of the Peoples Republic
of China, up to present, China has concluded 132 BITs, with 102 now in force.65 It
is generally agreed that Chinas BITs can be roughly divided into two generations:
BITs concluded before the late 1990s are deemed as the first generation BITs, while
those concluded thereafter are second generation BITs.66 China has also concluded
ten FTAs with foreign countries, Taiwan, the Hong Kong and Macau Special
Administrative Regions.67 This section briefly discusses the expropriation and
compensation clauses in Chinas national laws and BITs.

62

See Resolution 1803 (XVII), para. 4.


China signed the 1965 Convention on the Settlement of Investment Disputes between States and
Nationals of Other States (ICSID Convention) on 9 February 1990, available at https://icsid.
worldbank.org/ICSID/FrontServlet?requestTypeICSIDDocRH&actionValShowDocument&
languageEnglish; China became a Member State of the 1988 Convention Establishing the Multilateral Insurance Guarantee Agency (MIGA Convention), on 30 April 1988, available at http://web.
worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/ORGANIZATION/BODEXT/0,,content
MDK:20122866~menuPK:64020025~pagePK:64020054~piPK:64020408~theSitePK:278036~is
CURL:Y,00.html; China acceded to the World Trade Organization (WTO) on 11 December 2001,
available at http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm; China ratified the 1958
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention)
on 22 January 1987, available at http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/
NYConvention_status.html.
64
Sornarajah (2010), p. 415.
65
A list of Chinas BITs is available at the official website of the Department of Treaty and Law of
the Ministry of Commerce of the Peoples Republic of China. It must be noted this website only
lists BITs in force, while the BITs that have been signed but are not yet in force are excluded. This
list is available at http://tfs.mofcom.gov.cn/aarticle/Nocategory/201111/20111107819474.html.
66
However, it is also suggested that Chinas BITs can be divided into three generations. Generally,
BITs concluded before the late 1990s are first generation BITs; those concluded between the late
1990s and mid 2000s are second generation BITs; while those concluded after the mid 2000s are
deemed third generation BITs. See, e.g., Dulac (2010), p. 3; Cai (2009), p. 462.
67
A list of Chinas FTAs is available at the official website of the Department of International
Affairs of the Ministry of Commerce of the Peoples Republic of China, available at http://fta.
mofcom.gov.cn/english/index.shtml.
63

108

M. Chi

I. E&C Clauses of Chinas BITs


E&C clauses often form a typical part of BITs,68 and almost all Chinese BITs
contain various forms of E&C clauses. The investment chapters of some FTAs also
contain E&C clauses similar to those of Chinas BITs.69 Although E&C clauses are
not the decisive factor for categorizing Chinas two generations of BITs,70 the E&C
clauses of Chinas first generation BITs do carry some difference from those of the
second generation BITs. In this sense, it is helpful to explore Chinas changing
attitudes towards E&C of foreign investments through studying the E&C clauses of
its two generations of BITs.
On this issue, the old and new Agreement between the Federal Republic of
Germany and the Peoples Republic of China on the Encouragement and Reciprocal Protection of Investments (ChinaGermany BIT) provide a good example. The
old ChinaGermany BIT was concluded in 1983,71 and the new ChinaGermany
BIT was concluded in 2003,72 which replaced the old one. They represent Chinas
first and second generation BITs respectively, and both contain E&C clauses.
Art. 4(1) of the old ChinaGermany BIT provides that:
Investors of the Contracting State shall be protected within the territory of the other
Contracting State, and the security of such investment should be safeguarded. A
Contracting State may expropriate the investment made in its territory by an investor of
the other Contracting State only for public interest, under due process of law and against
compensation. The compensation shall be paid without unreasonable delay and shall be
convertible and freely transferable between the territories of the Contracting States.

Further, the Protocol of the old ChinaGermany BIT clarifies the relevant
wording of the above clause.73 Art. 4(1) of the Protocol provides that expropriation
shall include nationalization and other measure the effects of which would be
tantamount to expropriation or nationalization; Art. 4(3) of the Protocol provides
that compensation shall be equivalent to the value of the investment immediately
before the expropriation has become publicly known. The Contracting States shall
negotiate on the amount of the compensation.
The new ChinaGermany BIT bears some difference from the old BIT with
regards to the E&C clause. Art. 4(2) of the new ChinaGermany BIT provides that:
68

See Bronckers and Quick (2000), p. 48.


See, e.g. ChinaASEAN FTA contains a separate investment chapter titled Agreement on
Investment of the Framework Agreement on Comprehensive Economic Co-operation between
China and ASEAN, available at http://fta.mofcom.gov.cn/topic/chinaasean.shtml.
70
It is suggested that the major differences between the two generations of BITs are the acceptance
of a comprehensive investor-State arbitration clause and the incorporation of national treatment
standard by the second generation BITs. See e.g. Schill (2007), pp. 89100; Rooney (2007), p. 702;
Ji (2011), p. 83.
71
Available at http://tfs.mofcom.gov.cn/aarticle/h/au/201002/20100206787044.html.
72
Available at http://tfs.mofcom.gov.cn/aarticle/h/au/201001/20100106725086.html.
73
The Protocol is an integral part of the BIT, which is available at http://tfs.mofcom.gov.cn/
aarticle/h/au/201002/20100206787044.html.
69

From Ownership-Orientation to Governance-Orientation

109

Investments by investors of either Contracting Party shall not directly or indirectly be


expropriated, nationalized or subjected to any other measure the effects of which would be
tantamount to expropriation or nationalization in the territory of the other Contracting Party
(hereinafter referred to as expropriation) except for the public benefit and against compensation. Such compensation shall be equivalent to the value of the investment immediately
before the expropriation is taken or the threatening expropriation has become publicly
known, whichever is earlier. The compensation shall be paid without delay and shall carry
interest at the prevailing commercial rate until the time of payment; it shall be effectively
realizable and freely transferable. Precautions shall have been made in an appropriate
manner at or prior to the time of expropriation for the determination and payment of such
compensation. At the request of the investor the legality of any such expropriation and the
amount of compensation shall be subject to review by national courts, notwithstanding the
clauses of Article 9.

As can be seen, the above two E&C clauses bear similarities and differences. On
one hand, there are several similarities. (1) Both clauses confirm that in general
foreign investments shall be free from expropriation and nationalization and that
compensation shall be paid in case of expropriation. (2) Both clauses adopt a broad
meaning of expropriation, which includes direct or indirect expropriation, nationalization and other measures with equivalent effects. (3) Both clauses confirm that
expropriation measures can only be taken upon satisfaction of public purpose and
compensation requirements.74
On the other hand, the two E&C clauses also carry some notable differences,
with the general impression being that the clause of the new BIT appears more
complicated and enforceable than that of the old BIT. The major difference lies in
their respective compensation standards. Although the new BIT seems a bit more
lenient on the requirements of expropriation, it is much stricter as to the compensation compared with the old BIT. Specifically, the compensation standard of the
new BIT has several features: (1) The amount of compensation shall be equivalent
to the value of the investment immediately before the expropriation is taken or the
threatening expropriation has become publicly known, whichever is earlier and
shall carry interest at the prevailing commercial rate until the time of payment.
(2) The payment of compensation must be made without delay. (3) Compensation
must also be effectively realizable and freely transferable. Besides, (4) the old BIT
is silent as to the interest of compensation, but the new BIT expressly addresses this
issue. Given these features, it is interesting to observe that, although the compensation standard of the new BIT is not verbally identical to the Hull Formula,
namely adequate, prompt and effective, they are quite similar in essence.
In addition to the compensation standards, the two BITs are also different with
regards to the conditions of expropriation and the determination of the amount of
compensation. As to the conditions of expropriation, the old BIT contains the
requirement of due process in law, while the new BIT omits it. There is no clear

74
According to Ye Jis research, out of Chinas 131 BITs, 109 BITs adopted four requirements for
expropriation, namely (1) compensation, (2) public purpose, (3) due process of law and (4) nondiscrimination. The rest 22 BITs adopted two or three of these requirements. Obviously, the two
ChinaGermany BITs adopted the first two requirements. See Ji (2011), p. 83.

110

M. Chi

reason for such omission. A possible explanation seems to be that, if such due
process in law refers to the domestic law of the contracting State instead of
international law, then it would be of no substantial use since a State can change
its laws to evade such requirement. As to the determination of the amount of
compensation, the old BIT provides that The Contracting States shall negotiate
on the amount of the compensation, while the new BIT provides that the amount
of compensation shall be subject to review by national courts, notwithstanding the
clauses of Article 9 [Settlement of Disputes between Investors and one Contracting
Party]. The new BIT grants the investor access to international arbitration if he is
not satisfied with the decision of the national court, which seems more sensible for
foreign investors.

II. E&C Clauses in Chinas National Laws


Besides international treaties, Chinas national laws also contain E&C clauses
concerning foreign investments. The Constitution has two general clauses with
regards to the legal status and protection of foreign investments in China: Art.
18 addresses investments of foreign enterprises, Sino-foreign enterprises or other
organizations75; Art. 32 deals with investments of foreign individuals.76 The PRC
Property Law then reiterates Chinas determination of protecting foreign investments.77 Besides, China also adopted three special laws exclusively addressing
foreign investment regulation, namely the Law of Sino-Foreign Equity Joint Venture of the Peoples Republic of China (Equity Joint Venture Law),78 the Law of
Sino-Foreign Contractual Joint Venture of the Peoples Republic of China (Contractual Joint Venture Law),79 and the Law of Foreign-Owned Enterprise of the

Art. 18 of the Constitution provides in relevant part that The Peoples Republic of China
permits foreign enterprises, other foreign economic organizations and individual foreigners to
invest in China and to enter into various forms of economic cooperation with Chinese enterprises
and other Chinese economic organizations in accordance with the clauses of the laws of the
Peoples Republic of China. . .. All foreign enterprises, other foreign economic organizations and
Sino-foreign joint ventures within Chinese territory shall abide by the laws of the Peoples
Republic of China. Their lawful rights and interests are protected by the laws of the Peoples
Republic of China.
76
Art. 32 of the Constitution further provides that The Peoples Republic of China protects the
lawful rights and interests of foreigners within Chinese territory; foreigners on Chinese territory
must abide by the laws of the Peoples Republic of China.
77
Art. 4 of the PRC Property Law provides that The property rights of the State, collective,
individual and other property right holders shall be protected by law, and shall be free from
infringement of any institute or individual.
78
Adopted at the 2nd Session of the 5th National Peoples Congress on 1 July 1979, amended at
4th Session of the 9th National Peoples Congress on 15 March 2001.
79
Adopted at the 1st Session of the 7th National Peoples Congress on 13 April 1988, amended at
18th Session of the Standing Committee of the 9th National Peoples Congress on
31 October 2000.
75

From Ownership-Orientation to Governance-Orientation

111

Peoples Republic of China (Foreign Enterprise Law).80 These laws, also widely
known as the three foreign-related enterprise laws, form the cornerstone of
Chinas foreign investment law system. Practically, they were adopted to help
implement Chinas policy of economic reform and opening up, particularly to
help attract, utilize and regulate foreign investments in China.
Art. 2 of the Equity Joint Venture Law provides that:
The state shall not nationalize or expropriate the joint venture; under special circumstances,
based on the need of social and public interests, expropriation of the joint venture may be
allowed in accordance with legal process and compensation shall be paid accordingly.

An almost identical E&C clause is found in Art. 5 of the Foreign Enterprise Law,
except for the verbal change of joint venture to foreign-owned enterprise.
Comparing the E&C clauses of Chinas national laws and those of Chinas BITs,
one is to find that China actually adopts a dual-track system regarding protection of
foreign investments. Specifically, Chinas national laws grant a lower level of protection of foreign investments compared with Chinas BITs, though their E&C clauses
look quite similar. Chinas national laws recognize three general conditions of expropriation of foreign investments, namely (1) public and social interests, (2) legal process
and (3) compensation. However, these conditions are different from those of Chinas
BITs. Such difference can have significant practical implications. For instance, the
definition of the term public and social interests is unclear, and it is arguable whether
this term has the same meaning of the term public interests of Chinas BITs. Besides,
it is obvious that the term legal process in Chinas national laws is no equivalent to
due process of law in Chinas BITs. Finally, as to the compensation standard, Chinas
national laws only provide that expropriation shall be compensated accordingly.
According to mainstream Chinese scholars, such compensation standard conforms to
the standard of the Charter of Economic Rights and Duties of States and is proper.81
Yet, practically speaking, this standard is extremely vague and cannot match the de
facto Hull Formula provided in some of Chinas second generation BITs. The
disparity in foreign investment protection offered by Chinas domestic laws and
BITs could help explain why foreign investors are not prone to choose local remedies
in China but prefer to international arbitration to settle their investment disputes.

III. Chinas Shifting Attitudes Towards E&C of Foreign


Investments
Expropriation and compensation of foreign investments has been and still is a
thorny issue in international law.82 Nowadays, although host States power of
80

Adopted at the 4th Session of the 6th National Peoples Congress on 12 April 1986, amended at
18th Session of the Standing Committee of the 9th National Peoples Congress on
31 October 2000.
81
See e.g. Zeng (1999), p. 36.
82
See Sornarajah (2010), pp. 271 and 412423.

112

M. Chi

nationalization and expropriation of foreign investments is less disputed, controversy remains as to the compensation for expropriation.83 Traditionally, developed
and developing countries have different positions on compensation of expropriation. Developed countries, mainly investment-exporting ones, often insist on a full
fair market value compensation reflected in the Hull Formula; while developing
countries, mainly investment-importing ones, often insist on national treatment
standard of compensation which is something less than the fair market value.84
Given such controversy, it is indicative and interesting to examine the compensation standards in the E&C clauses of Chinas BITs.
China and its mainstream scholars traditionally view expropriation and compensation of foreign investments from a developing country perspective. They stress
host States right of investment regulation and deem the power to expropriate
foreign investments as an inherent aspect of State sovereignty.85 This position
somehow reflects Chinas past experience of expropriating foreign investment
without even paying any compensation, happened in the 1950s after the Communist
Party of China came into power and adopted the policy of slow motion nationalization to build the socialist State.86 In light of such historical background, it is not
difficult to understand that China and its mainstream scholars not only strongly
object the Hull formula, but also the application of international law in determining the compensation.87
In this regard, the opinion of Prof. An Chen, former President of the Chinese
Society of International Economic Law (CSIEL), is quite typical. According to
Chen, although Resolution 1803 correctly recognizes the right of underdeveloped
countries to nationalize foreign investments, it has some defects. First, the compensation standard contained in this Resolution (appropriate compensation) is
quite vague and actually represents a compromise between underdeveloped and
developed countries. Second, this Resolution provides that compensation shall be
decided both by referring to domestic law and international law,88 which leaves the
door open for international arbitrators to apply international law but not domestic
law in deciding compensation. On this point, Chen further opines that the compensation standards in Resolution 317189 and the Charter of Economic Rights and
Duties of States are more reasonable because both provide that compensation of

83

Ji (2011), p. 83.
Newcombe and Paradell (2009), p. 377.
85
Gallagher and Shan (2009), p. 295.
86
Ibid., pp. 278279.
87
See Ji (2011), p. 83.
88
Resolution 1803 (XVII), para. 4.
89
UNGA Resolution 3171 (XXVIII) Permanent Sovereignty over Natural Resources of
17 December 1973.
84

From Ownership-Orientation to Governance-Orientation

113

expropriation is to be determined based on State law without necessarily referring


to international law standards.90 Finally, while referring to the relevant wording of
the Preamble of Resolution 1803,91 Chen also deems it unfair for this Resolution to
protect the property of the developed States acquired during their colonial rule of
the underdeveloped.92
Chens opinions received wide support among mainstream Chinese scholars. For
instance, Prof. Huaqun Zeng, the current President of the CSIEL, found that the
expropriation and compensation clauses contained in the national laws of some
developing countries provided that whether and how to compensate foreign investments shall be decided by their national laws, and opined that such clauses adhere
to the spirits of Art. 2(2)(c) of the Charter of Economic Rights and Duties of States,
reflect the developing countries stance of defending their sovereignty and dignity
of law while protecting foreign investment.93
Indeed, from a developing countrys position, the above opinions are not without
merits. However, both China and the world are different from what they were
several decades ago. Historically, China has remained as an investment-importing
country for a long period since the late 1970s. Yet, such status has gradually
changed since the adoption of the Going Abroad policy to encourage Chinese
enterprises to invest overseas in the late 1990s.94 Today, China is a leading country
in both investment-importing and exporting.95 The change of economic status

90
For instance, para. 3 of Resolution 3171 provides that Affirms that the application of the
principle of nationalization carried out by States, as an expression of their sovereignty in order to
safeguard their natural resources, implies that each State is entitled to determine the amount of
possible compensation and the mode of payment, and that any disputes which might arise should
be settled in accordance with the national legislation of each State carrying out such measures.
Similarly, Art. 2(2)(c) of the Charter of Economic Rights and Duties of States provides that To
nationalize, expropriate or transfer ownership of foreign property, in which case appropriate
compensation should be paid by the State adopting such measures, taking into account its relevant
laws and regulations and all circumstances that the State considers pertinent. In any case where the
question of compensation gives rise to a controversy, it shall be settled under the domestic law of
the nationalizing State and by its tribunals, unless it is freely and mutually agreed by all States
concerned that other peaceful means be sought on the basis of the sovereign equality of States and
in accordance with the principle of free choice of means.
91
The relevant paragraph of the Preamble of Resolution 1803 provides that nothing in paragraph
4 below in any way prejudices the position of any Member State on any aspect of the question of
the rights and obligations of successor States and Governments in respect of property acquired
before the accession to complete sovereignty of countries formerly under colonial rule.
92
See Chen (2012), pp. 9495.
93
See Zeng (1999), p. 28.
94
See e.g. Heymann (2008), p. 524.
95
According to the Statistical Bulletin of Chinas Outward Foreign Direct Investment issued
jointly by the Ministry of Commerce of Peoples Republic of China, the National Bureau of
Statistics of Peoples Republic of China and the State Administration of Foreign Exchange,
Chinas net amount of outbound investment in 2011 is US$74.65 trillion, ranking number six in
the world and increased by 8.5 % compared with that in 2010. Available at http://www.mofcom.
gov.cn/aarticle/tongjiziliao/dgzz/201208/20120808315019.html (Accessed 5 January 2013).

114

M. Chi

requires China to negotiate BITs to offer Chinese enterprises and their overseas
investments a higher level of protection. Thus, despite its persistent self-positioning as
a developing country, China has gradually shifted its investment policy from stressing
investment regulation to investment protection. As suggested by Ye Ji, China has
gradually changed its pro-investment-importing country policies and is willing to grant
a higher level of protection to foreign investments in case of expropriation, which is
more pro-investment-exporting countries and their nationals (i.e. foreign investors),
phenomenon described by Ji as voluntary westernization of Chinas BITs.96
On this issue, a brief comparison of the compensation standards of the two
ChinaGermany BITs could be illustrative. In short, the compensation standard of
the old BIT has several key elements, including (1) without unreasonable delay,
(2) convertible and freely transferable and (3) equivalent to the value of the
investment. While the key elements of the compensation standard of the new BIT
include (1) equivalent to the value of the investment, (2) without delay,
(3) carry interest and (4) effectively realizable and freely transferable. Comparing these two standards, several observations can be made: First, the compensation
standard of the new BIT is much more favorable to foreign investments than that in
the old BIT. Second, the elements of the compensation standard in the new BIT,
considered in their totality, are not substantively different from the elements of the
Hull Formula, although it might be premature to assert that China has fully
embraced this Formula in its second generation BITs.
In fact, the upgrading of the compensation standards in Chinas BITs can also be
sensed from Chinas recent BIT practices. For instance, some recent BITs provide
that compensation shall be equivalent to the fair market value of the expropriated
investment or similar terms.97 It is suggested by some Chinese scholars that the
term fair market value could imply acceptance of the Hull Formula.98 However,
since Chinas BITs, particularly its second generation BITs are seldom tested in
investment arbitration cases, it remains to be seen how international arbitrators
would interpret the compensation standard contained therein.

E. Chinas Participation in International Resource-Related


Disputes
Resource-related legislations and activities of States could be subject to international scrutiny. In this sense, resource-related international dispute settlement provides an opportunity to observe the limits of resource sovereignty. This section,

96

Ji (2011), p. 83.
See e.g. Art. 5(1)(c) of the Agreement on Encouragement and Reciprocal Protection of Investments between the Government of the Peoples Republic of China and the Government of the
Kingdom of the Netherlands, signed on 26 November 2001, available at http://tfs.mofcom.gov.cn/
aarticle/h/au/201001/20100106725830.html%3Cbr/%3E.
98
See Ji (2011), p. 85.
97

From Ownership-Orientation to Governance-Orientation

115

mainly through case study, discusses two types of resource-related international


dispute settlement in which China is involved, investment arbitration and WTO
dispute settlement, and briefly analyzes the relevance of these cases and Chinas
attitudes towards resource sovereignty.

I. Resource-Related Investment Disputes


Although the principle of PSNR generally allows investment disputes to be settled
by national courts of the host State, the host State is bound to settle disputes through
international arbitration if an agreement so requires.99 As a matter of fact, resourcerelated and environment-related international investment disputes are frequently
seen nowadays.100 China is a contracting State to the Convention on the Settlement
of Investment Disputes between States and Nationals of other States (ICSID
Convention) and has concluded a large amount of IIAs containing investor-State
arbitration (ISA) clauses. China bears a treaty obligation to settle resource-related
investment disputes through international arbitration.
Despite its large number of IIAs, China does not have many investment disputes.
Up to present, there are only four ISA cases based on Chinas BITs.101 Not all cases
are resource-related, though they all arose out of investment issues. Based on the
information available,102 only the Heilongjiang International Economic & Technical Cooperative Corp., Beijing Shougang Mining Investment Company Ltd. and
Qinhuangdaoshi Qinlong International Industrial Co. Ltd. v. Mongolia (Heilongjiang case) and the Ekran Berhad v. China (Ekran case) are resource-related,
concerning mining rights and land-use rights respectively.
The Heilongjiang case was filed by three Chinese investors against Mongolia in
2010, following the cancellation of a mining license in 2009. This is an ad hoc
arbitration case under the 1976 United Nations Commission on International Trade
Law Arbitration Rules administered by the Permanent Court of Arbitration (PCA).
99

See Resolution 1803 (XVII), para. 4.


See Bernasconi-Osterwalder and Johnson (2011).
101
These cases are, listed chronologically, Tza Yap Shum v. Peru (Tza Yap Shum case), ICSID
Case
No.ARB/07/6,
available
at
https://icsid.worldbank.org/ICSID/FrontServlet?
requestTypeGenCaseDtlsRH&actionValListPending; China Heilongjiang International Economic & Technical Cooperative Corp., Beijing Shougang Mining Investment Company Ltd. and
Qinhuangdaoshi Qinlong International Industrial Co. Ltd. v. Mongolia (Heilongjiang case), PCA,
available at http://www.pca-cpa.org/showpage.asp?pag_id1378; Ekran Berhad v. China (Ekran
case), ICSID Case No.ARB/11/15, available at https://icsid.worldbank.org/ICSID/FrontServlet?
requestTypeGenCaseDtlsRH&actionValListPending; and Ping An Life Insurance Company of
China, Limited and Ping An Insurance (Group) Company of China, Limited v. Belgium (Ping An
case), ICSID Case No. ARB/12/29, available at https://icsid.worldbank.org/ICSID/FrontServlet?
requestTypeGenCaseDtlsRH&actionValListPending.
102
One has to note that many investment arbitration cases are not made public, particularly before
the completion of the arbitration proceedings.
100

116

M. Chi

In this case, the claimants contended that Mongolias actions breached the terms of
a Mongolian investment law for the protection of foreign investors, and the terms of
the ChinaMongolia BIT.103 Up to date, this case is pending and no further
information is publicly available.
The Ekran case is the first case in which China is sued by a foreign investor
based on a Chinese BIT, registered by the Secretary-General of the ICSID on
24 May 2011. This dispute is reported to relate to a lease over several pieces of
lands in Hainan Province, whose estimated value is US$6 million. The lease was
revoked by the local authorities in 2004 on the grounds that the investor had failed
to develop the lands as stipulated under the local legislation.104 Ekran invoked
ChinaMalaysia BIT to claim for compensation. According to the ICSID, this case
has been suspended pursuant to the agreement between Ekran and China on 22 July
2011, and no further information is publicly available.
Because both the Heilongjiang case and the Ekran case failed to produce any
substantive awards or decisions so far, and because there lacks publicly available
details of these cases, it is difficult to ascertain what precise resource-related
measures of Mongolia and China were challenged and how international arbitrators
would determine the compliance of these measures with the BIT or other applicable
international law rules. Yet, the Ekran case makes it clear that foreign investors
have access to international arbitration to settle resource-related investment disputes based on Chinese BITs and that international arbitrators may review Chinas
resource-related measures and acts and may order compensation in case they rule in
favor of the investors.
In the past years, a substantial part of foreign investments have been channeled
to the resource and energy industries in China, and China keeps encouraging more
foreign investments to new energy industries in recent years.105 Meanwhile, a
significant amount of Chinese outbound investments have also been put to
resource-related and energy-related sectors in many parts of the world, particularly
in African countries.106 In light of such factual background, although reported
resource-related investment arbitration disputes involving Chinas BIT are small
in number at this point of time, it is highly possible that China and Chinese
enterprises will confront more disputes in the future.

103

Peterson (2010), pp. 1718.


Available at http://www.ashurst.com/publication-item.aspx?id_Content6135.
105
See Xinhua News Agency (2007).
106
Chinas outbound investments to energy and mining industries in African countries have
increased over the past years, available at http://www.chinanews.com/cj/2011/04-27/3002315.
shtml.
104

From Ownership-Orientation to Governance-Orientation

117

II. Resource-Related Trade Disputes


In the field of international trade dispute settlement, there have emerged quite a few
resource-related disputes based on different WTO agreements.107 In almost all
these disputes, the complainants claimed that the resource-related trade measures
of the respondents constitute violations of various WTO agreements. Though the
WTO Dispute Settlement Body (DSB) is authorized to apply covered agreements
listed in Appendix 1 of the Understanding on Rules of Procedures Governing the
Dispute Settlement (DSU) to adjudicate disputes,108 it is possible for the Panels and
the Appellate Body (AB) to consider certain non-WTO law rules due to the
non-self- contained nature of WTO legal system.109 At this juncture, the principle
of PSNR may come into play in WTO dispute settlement. As discussed below,
China has raised the principle of PSNR in WTO dispute settlement to justify its
resource-related trade measures in three disputes, though Chinas arguments were
not supported by the Panels and the AB.
China acceded to the WTO in late 2001, and has grown into a frequent user of
WTO dispute settlement mechanism over the past decade.110 Up to now, China has
been involved in 43 cases either as complainant or respondent.111 Despite the
diversity of WTO agreements applied and the complexity of legal issues raised in
these cases,112 there are six WTO cases in which Chinas resource-related measures
are challenged, namely ChinaRaw Materials (DS394/DS395/DS398)113 and
ChinaRare Earth (DS431/DS432/DS433).114 It is particularly worth noting that
the former group of cases are the only ones in which a WTO member (China)
expressly invoked the principle of PSNR to justify its resource-related trade measures which were later held by the Panel and the AB not WTO-compliant.
107

See Sect. E, WTO (2010).


Art. 1(1), DSU. This provision provides that The rules and procedures of this Understanding
shall apply to disputes brought pursuant to the consultation and dispute settlement provisions of
the agreements listed in Appendix 1 to this Understanding (referred to in this Understanding as the
covered agreements). The rules and procedures of this Understanding shall also apply to
consultations and the settlement of disputes between Members concerning their rights and
obligations under the provisions of the Agreement Establishing the World Trade Organization
(referred to in this Understanding as the WTO Agreement) and of this Understanding taken in
isolation or in combination with any other covered agreement.
109
See e.g. Paulwelyn (2003), pp. 3540; Cameron and Gray (2001), pp. 263270.
110
See Leitner and Lester (2010), pp. 216217.
111
A list of Chinas WTO cases is available at http://www.wto.org/english/tratop_e/dispu_e/
dispu_by_country_e.htm (accessed 20 July 2014).
112
For a general review of Chinas participation in the WTO dispute settlement in the past decade,
refer to Manjiao (2010), pp. 2949.
113
See ChinaMeasures Related to the Exportation of Various Raw Materials (DS394/DS395/
DS398), available at http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds394_e.htm.
114
See ChinaMeasures Related to the Exportation of Rare Earths, Tungsten and Molybdenum
(DS431/DS432/DS433), available at http://www.wto.org/english/tratop_e/dispu_e/cases_e/
ds431_e.htm.
108

118

M. Chi

In ChinaRaw Materials, the complainants (the U.S., EU and Mexico) submitted


that Chinas various types of export restrictions imposed on several raw materials
violated Art. VIII (Fees and Formalities Connected with Importation and Exportation), Art. X (Publication and Administration of Trade Regulations) and Art. XI
(General Elimination of Quantitative Restrictions) of the General Agreement on
Tariffs and Trade 1994 (GATT 1994) and various provisions of the Protocol on the
Accession of the Peoples Republic of China (China Accession Protocol). To
respond, China argued, inter alia, that its restrictions could be justified by Art.
XX(g) of the GATT 1994 (Environmental Exception). Particularly, China insisted
that nothing should interfere with their sovereignty over such natural resources by
citing the principle of PSNR.115 On this point, China essentially argued that
regulation of natural recourses within its territory, including imposing export
restrictions on resources shall fall within the scope of its permanent sovereignty.
The Panel, while referring to several UNGA resolutions and other international
treaties, such as Resolution 1803, Resolution 626 and the Convention on Biological
Diversity, clearly recognized States permanent sovereignty over natural resources
as the ability for States to freely use and exploit their natural wealth and resources
wherever deemed desirable by them for their own progress and economic development.116 Yet, despite the Panels consideration of the principle of PSNR in
interpreting WTO exceptions, it found that restrictions on the exercise of sovereign
rights accepted by treaty by the State concerned cannot be considered as an
infringement of sovereignty. To support its finding, the Panel referred to various
international law materials, particularly the Permanent Court of International
Justices consideration of the principle of PSNR in the case on Jurisdiction of the
European Danube Commission between Galatz and Braila.117 Based on such
analysis, the Panel ultimately found that Chinas exercise of its resource sovereignty did not allow it to derogate from the commitments it had undertaken under
the WTO system.118 The Panel held that:
The principle of sovereignty over natural resources affords Members the opportunity to use
their natural resources to promote their own development while regulating the use of these
resources to ensure sustainable development. Conservation and economic development are
not necessarily mutually exclusive policy goals; they can operate in harmony. So too can
such policy goals operate in harmony with WTO obligations, for Members must exercise
their sovereignty over natural resources consistently with their WTO obligations. In the
Panels view, Article XX(g) has been interpreted and applied in a manner that respects
WTO Members sovereign rights over their own natural resources.119

115

The Report of the Panel (WT/DS394/R, WT/DS395/R & WT/DS398/R), para. 7.356, available
at http://www.wto.org/english/tratop_e/dispu_e/394_395_398abr_e.pdf.
116
Ibid, para. 7.380.
117
Ibid, para. 7.379.
118
Rolland (2012).
119
The Report of the Panel (WT/DS394/R, WT/DS395/R, WT/DS398/R), para. 7.381.

From Ownership-Orientation to Governance-Orientation

119

ChinaRaw Materials went through both Panel and AB proceedings. As a result,


Chinas environmental exception arguments were substantively rejected and China
is required to bring its measures in conformity with WTO law. China has expressed
its intention to implement the DSB recommendations and rulings in this dispute,
and the reasonable period of time (RPT) for such implementation would expire on
31 December 2012.120 Although the RPT has already expired, there is no information publicly available regarding Chinas implementation of the DSB recommendations and rulings in this dispute.
The decision of ChinaRaw Materials may shed light on the general question of
the relationship between resource sovereignty and WTO obligation of a State. As
mentioned, the Panel held that, while China bears WTO obligation not to take
certain forms of restrictive measures on natural resources exportation, such obligation does not necessarily violate Chinas resource sovereignty. This is because
China has already exercised its sovereignty in acceding to the WTO and thus has
accepted the treaty obligation to regulate its trade in natural resources in a WTOcomplaint manner, which includes no imposition of export restrictions on certain
raw materials. In a more general sense, it is argued that this decision takes away the
right of WTO members to use export duties as a legitimate tool for economic
development, for they are not allowed to keep a greater share of their natural
resources for domestic use and instead must sell their resource-based products to
all domestic and foreign purchasers on an equal basis.121
The decisions of the Panel and the AB in ChinaRaw Materials have attracted
wide attention and some criticisms, particularly from developing country perspectives. For instance, it has been argued that For all the wisdom and foresight framed
into the GATT and then WTO Agreements, the drafters appear to have either
missed the issue of export taxes, underestimated future concerns, or perhaps
intentionally reserved this area to the Contracting Parties as policy space.122
Julia Ya Qin described that this decision exposed the highly irrational aspect of the
world trading system.123 Particularly, Qin argued that this decision is arguably
inconsistent with the principle of the PSNR:
Although the exercise of such right is without prejudice to the treaty obligations a nation
undertakes of its own free will, the WTO should take care to respect this fundamental
principle of international law in the design of its trade disciplines. Since the GATT already
prohibits the use of non-tariff measures to restrict exports for developmental purposes, the
only legitimate means a WTO Member may employ to claim a larger share in the
distribution of its natural resources is through export duties. Thus, when the WTO obligates
a Member to eliminate export duties on resource products, as it has done with several

120

Status Report Regarding Implementation of the DSB Recommendations and Rulings in the
Disputes ChinaMeasures Related to the Exportation of Various Raw Materials (WT/DS394,
WT/DS395, WT/DS398), (WT/DS394/19, WT/DS395/18, WT/DS398/17, available at http://
trade.ec.europa.eu/doclib/docs/2012/december/tradoc_150178.pdf, 7 December 2012.
121
Qin (2012), p. 1148.
122
Crosby (2008), p. 3.
123
Qin (2012), p. 1147.

120

M. Chi

acceding Members, it strips away the right of that Member to dispose freely of its natural
resources for developmental purposes. When such obligations are made virtually immutable, as is the case with the several acceding Members, it amounts to permanent alienation of
a Members ownership right to claim a larger share of its natural resources for domestic use.
Such an arrangement is arguably inconsistent with the concept of permanent sovereignty
over natural resources.124

Chinas losing of ChinaRaw Materials somehow paved the way for more
disputes against Chinas resources-related policies in WTO dispute settlement. A
typical example of such follow-up disputes is ChinaRare Earth, jointly initiated
by the U.S., EU and Japan on 13 March 2012.125 This dispute is still pending in the
Panel proceeding, thus Chinas legal arguments are not known. Despite several
studies focusing on the potential impacts of this dispute,126 it might be premature at
this point of time to provide a well-informed and balanced assessment of the
substantive issues raised therein. However, as indicated by the Requests for Consultations submitted by the complainants, the factual backgrounds and the alleged
violations of this dispute are very similar to those in ChinaRaw Materials.127 In
light of such similarity of these two disputes, it is highly likely for China to put
forward similar or even identical legal arguments, including the argument of the
principle of PSNR. Such likelihood could be particularly high considering the
sensitivity of the product involved in ChinaRare Earth and the international
pressure China faced in recent years.

F. Concluding Remarks
Despite its comparatively short history, the principle of PSNR is an evolving
concept. It was originally designed to support the colonized peoples and countries
to fight for their self-determination and political independence after World War
II. However, in the past several decades, great changes have taken place to the

124

Ibid., p. 1186.
See ChinaMeasures Related to the Exportation of Rare Earths, Tungsten and Molybdenum,
(DS431/432/433), available at http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds431_e.
htm.
126
There are a few papers dedicated to the case of ChinaRare Earth in the light of the WTO
decision in the case of ChinaRaw Materials. See e.g. Liu and Maughan (2012); Baroncini (2012),
pp. 4969.
127
As can be seen from the Requests for Consultation, the major claims raised by the complainants
are quite similar to those in ChinaRaw Materials. See China Measures Related to the Exportation
of Rare Earths, Tungsten and Molybdenum Request for consultations by the United States
(WT/DS431/1); China Measures Related to the Exportation of Rare Earths, Tungsten and
Molybdenum Request for consultations by the European Union (WT/DS432/1); China
Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum Request for
consultations by Japan (WT/DS433/1); all available at http://www.wto.org/english/news_e/
news12_e/dsrfc_13mar12_e.htm.
125

From Ownership-Orientation to Governance-Orientation

121

world economic and political landscapes. Accordingly, the emphasis of the principle of PSNR has also shifted from political independence to sustainable development. While recognizing the political significance of this principle, one should be
aware of its profound economic implication with particular regards to resourcerelated investment and trade regulation.
Traditionally, China held ownership-oriented and State-centered attitudes
towards resource sovereignty. As suggested by Chinas national laws, China often
one-sidedly stresses State or collective ownership of natural resources but ignores
the concerns of sustainable development thereof. Such attitudes, to a certain extent,
are even deemed as a useful ideological instrument for defending Chinas political
independence. Yet, on the other hand, China has committed to a higher level of
protection of resource-related foreign investments in its IIAs (second generation
BITs in particular) and is under international obligation to regulate resource-related
trade in a WTO-compliant manner. Thus, Chinas resource-related trade and
investment regulative measures and activities could be subject to international
review, and could be ruled as violating Chinas international obligations. This
could particularly be the case considering that China is actively engaged in international investment and trade activities and has grown into a leading economy in
the world in recent years. As shown by WTO dispute settlement, despite the
recognition of Chinas resource sovereignty over its natural resources, the Panels
and the AB of the DSB held that the challenged resource-related measures of
China were inconsistent with Chinas WTO obligations.
Chinas international commitments and changing economic status will inevitably influence its natural resource governance regime. In light of such background, it
seems necessary and appropriate for China to shift its attitudes towards resource
sovereignty from ownership-oriented to governance-oriented. Chinas attitudes
shift is ongoing, which is driven by both internal and external forces. Internally,
Chinas economic rising and expansive trade and investment activities, particularly
its increasing overseas investments in recent years urge China to adjust its traditional developing country (southern country) positioned policy-making and treatynegotiation preference. Externally, China is also heavily influenced by participation
in resource-related international dispute settlements, particularly WTO dispute
settlement, which actually requires China to adjust its traditional idea which sees
the exercise of resource sovereignty as a mere internal issue. Such external pressure
and influence remind China that the impacts of its exercise of resource sovereignty
may be subject to international restriction and scrutiny, and requires China to
exercise such sovereignty in a more multilateralized manner. Although Chinas
attitudes shift towards resource sovereignty appears subtle and mild at this point of
time, it may foreshadow future policy changes at a more fundamental level and in a
wider spectrum.

122

M. Chi

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Evolution of Investment Law Protection


as Part of a General System of National
Resources Sovereignty (and Management)?
Marc Bungenberg

Contents
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Development of International Investment Law in the Area of Natural Resources . . . . . . . .
C. Admission of Foreign Investments in the Natural Resources Sector . . . . . . . . . . . . . . . . . . . . . .
D. Modes of IIL and Integration of Non Economic Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I. Investment Protection via International Investment Treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. Investor State Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
III. Investment Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

126
127
129
131
132
134
135
138
139

Abstract The contribution focuses on the interrelation between international


investment and natural resources law. The interdependency is stressed already
when the author highlights that international investment law has one of its historical
origins in the exercise of sovereignty by nationalizing foreign investments in the
domestic oil industry as well as in granting access to its territory. Today the main
common feature of natural resources and investment law is the promotion of non
economic objectives. For the area of investment law the inclusion and promotion of
topics like sustainable development and environmental protection is discussed in
regard to investment agreements, investment contracts and investment guarantees.

M. Bungenberg (*)
Europa-Institut, Saarland University, Postfach 151150, 66041 Saabruecken, Germany
e-mail: bungenberg@europainstitut.de
Springer International Publishing Switzerland 2015
M. Bungenberg, S. Hobe (eds.), Permanent Sovereignty over Natural Resources,
DOI 10.1007/978-3-319-15738-2_7

125

126

M. Bungenberg

A. Introduction
The discussions of the sovereignty over natural resources and international investment (protection) law have always been directly linked to each other as will be
shown. International investment law developed out of the exercise of sovereignty
over natural resources. As Nico Schrijver points out in his monograph, (t)he
principle of permanent sovereignty epitomizes the sovereign right of a host State
to regulate and control the activities of foreign investors.1 States have the sovereignty to admit foreign investors to their territory, to conclude contracts with them
and to grant them exploitation concessions in the field of natural resources.
Also theythe Statesare free to naturalize or expropriate or regulate the exercise
of investments in the natural resources sector at a later stage again under certain
conditions. A full sovereignty over natural resources is more or less accepted under
at least customary international law as long as natural resources are not exploited.
The same is true in regard to the regulation of the admission of foreign investors.
This includes the right to control foreign admission of as well as to exercise
authority over foreign investment.2 But once the decision is taken that
foreign investors should be admitted and exploitation should take place, the body
of international investment law gains more importance, and the full sovereignty is
insofar limited, as the guest State of the investment and home State of the
natural resources is limited in the measures it is allowed to take in regard to the
investment; nevertheless, the guest State can regulate.
As it has been discussed in other contributions to this volume, part of an international resources law are the connected principle of sustainable development
as well as the promotion of good governance and the protection of human rights.
Since a decade a discussion is taking place on how to integrate ideas not only of
sustainable development, but also of good governance and the protection of
human rights into international investment law, especially into international
natural resources investment law. This development is of relevance not only for
the investor and the guest State of the investment, butas will be shownalso for
the home State of the investor as well as for international organizations, particularly
in the case of investment guarantees.

1
2

Schrijver (1997), p. 278.


Ibid., p. 278.

Evolution of Investment Law Protection as Part of a General System of. . .

127

B. Development of International Investment Law in the Area


of Natural Resources
A look at the relationship between foreign investors and host States in for example
the oil industry shows the close link between natural resources, economic risks and
the need for effective protection mechanisms. As the following examples prove
international investment law and resources law are connected in their development;
part of international investment law forms part of the international regulatory body
of resources law. One of the cornerstones of the early development of international investment law as part of a natural resources law were the land reforms
in Mexico in the 1930s, the nationalization of the Anglo Persian Oil Company in
1951 and of foreign oil companies in Libya in the 1970s.
In Mexico in 1938 it was declared, based on Article 27 of the Mexican Constitution of 1917, that all oil reserves on Mexican territory belonged to the Mexican
nation. Oil reserves, facilities, and foreign oil companiesUS and Anglo-Dutch
enterprisesin Mexico were thus expropriated.3 In this context the US Secretary
of State, Cordell Hull, declared that no government is entitled to expropriate
private property, for whatever purpose, without provision for prompt, adequate
and effective compensation. This is commonly referred to as the Hull doctrine in
international investment law.4
Until 1951 the Anglo Persian Oil Company controlled the domestic Persian oil
industry; the company was granted various longtime exploration and extraction
concessions with only small royalty payments to the government of Persia. After
the company resisted demands for a greater share of profits, the Iranian parliament
voted to nationalize the Anglo Iranian Oil Company (AIOC) and its holdings.5
A coup dE`tat in 1953generated by the CIAled to a change in government with
a new consortium and an American leadership taking over the Iranian oil production.6 Even though AIOC was compensated for its losses, this nationalization in
the field of natural resources gives a perfect example for the need of an effective
investment protection (law).
Between 1971 and 1974 the Libyan Government nationalized the foreign oil
production. The Libyan Government refused to arbitrate and did not appoint its
arbitrator in accordance with the Concession. Nevertheless, three arbitration tribunals were established and rendered awards on the issue; all awards also deal with

3
See on this in general Wortley (1957); de la Garza (2013), pp. 208 et seq.; United States:
Legislative Reference Service Report on Expropriation of American-owned Property by Foreign
Governments, 2 ILM 6 (1963), pp. 1079 et seq.
4
Hull accurately presented the then current position in international law in 1938 when he wrote his
famous letter to the Mexican Government on 22 August 1938; see Supplement of Official
Documents, Mexico-United States, Expropriation by Mexico of Agrarian Properties Owned by
American Citizens, AJIL 32 (4), pp. 191 et seq; see also Kuokkanen (2002), pp. 180 et seq.
5
See on this in general Orakhelashivili (2007).
6
See, Weiner (2008), pp. 122 et seq.; Kinzer (2003), pp. 195 et seq.

128

M. Bungenberg

the UN Resolutions on permanent sovereignty over natural resources (PSNR). The


awards (BP,7 Texaco,8 Liamco9) differ considerably in their argumentation and
final outcome, and are to be seen as some of the most mentioned arbitral awards at
least in the field of natural resources investment law. All three do also treat the
impact of the relevant UN resolutions on PSNR. Libyas only appearance was in the
Texaco Overseas Petroleum Co. (TOPCO) case in which it filed a memorandum
with the President of the International Court of Justice (ICJ) contending that the
disputes were not subject to arbitration because the nationalizations were acts of
sovereignty. This argument was rejected by all three sole arbitrators. Especially in
the TOPCO-case it was stressed, that contracts between States and private persons
can be internationalized in the sense of being subjected to international law or
international arbitration. In the BP case Arbitrator Lagergren excluded single
municipal law, and instead applied general principles of international law, including those principles applied by international tribunals. In the Liamco-case Arbitrator Mahmassani applied the principles of international law in accordance with
Article 38 of the Statute of the ICJinternational law applies custom and equity,
and principles of international law include the sanctity of property and contracts,
respect for acquired or vested rights, a prohibition of unjust enrichment, and the
obligation to pay compensation for expropriation. In regard to Resolution 1803
Arbitrator Dupuy stressed in the TOPCO-case, that On the basis of the circumstances of adoption mentioned above and by expressing an opinio juris communis,
Resolution 1803 (XVII) seems to this Tribunal to reflect the state of customary law
existing in this field. Indeed, on the occasion of the vote on a resolution finding the
existence of a customary rule, the States concerned clearly express their views. The
consensus by a majority of States belonging to the various representative groups
indicates without the slightest doubt universal recognition of the rules therein
incorporated, i.e., with respect to nationalization and compensation the use of the
rules in force in the nationalizing State but all this in conformity with international
law.10 In regard to the Charter of Economic Rights and Duties he pointed out that
The absence of any connection between the procedure of compensation and
international law and the subjection of this procedure solely to municipal law
cannot be regarded by this Tribunal except as a de lege ferenda formulation,
which even appears contra legem in the eyes of many developed countries.11

7
B.P. Exploration Co. (Libya) Ltd. v. Government of Libyan Arab Republic, Award of 10 October
1973, 53 ILR 297 (1979).
8
Texaco Overseas Petroleum Co. and California Asiatic Oil Co. v. Government of Libyan Arab
Republic, Award on the Merits of 19 January 1977,17 ILM 1 (1978).
9
Libyan American Oil Company v. Government of Libyan Arab Republic, Award of 12 April 1977,
20 ILM 1 (1981).
10
Texaco Overseas Petroleum Co. and California Asiatic Oil Co. v. Government of Libyan Arab
Republic, Award on the Merits of 19 January 1977, 17 ILM 1 (1978), p. 30, para. 87.
11
Texaco Overseas Petroleum Co, and California Asiatic Oil Co. v. Government of Libyan Arab
Republic, Award of 19 January 1977, 17 ILM 1 (1978), p. 30, para. 88.

Evolution of Investment Law Protection as Part of a General System of. . .

129

These examples show firstly the permanent risk of expropriation, that is especially high in natural resource rich countries very often also being politically
instable States with little interest in environmental protection, respect of human
rights as well as the promotion of good governance structures, and secondly, the
reflection of the development of the law of aliens in general as well as of international investment law in particular in international arbitral awards.

C. Admission of Foreign Investments in the


Natural Resources Sector
It is the sovereign right of States to decide on the admission of foreign investment.
Especially the UNGA Resolutions 1803,12 215813 and 328114 affirm this principle
of a States right. As long as a State has not liberalized the market access of
investments, authorization for investing into natural resources exploitation can be
declined at any time; only if an investment is made in accordance with the
applicable law of the guest State at that time it is a protected investment; and
often States ask for a permission of foreign investors to invest on their territory.
Similarly, already the Havana Charter recognized, that it is a sovereign right of
every State to determine whether and to what extent and upon what terms it will
allow future foreign investment,15 the OECD Draft Convention on the Protection
of Foreign Property foresees that no State is bound unless agreed otherwise to
admit aliens into, or permit the acquisition of property by aliens in, its territory.16
Thus, as long as a State does not open up its territory for foreign investors to exploit,
international investment law does not apply; this general principle is also reflected
in most international investment agreements.
As pointed out in the Salini award, the compliance-clause in accordance with
the applicable law is supposed to prevent the Bilateral Treaty from protecting
investments that should not be protected, particularly because they would be illegal.
Therefore, compliance clauses limit the investment treatys protective scope to
lawful investments.17 This terminology clearly refers to host State law, but
because of a rather wide wording instead of an also possible narrow one

12

UNGA Resolution 1803 (XVII), Permanent sovereignty over natural resources of


14 December 1962.
13
UNGA Resolution 2158 (XXI), Permanent sovereignty over natural resources of
25 November 1966.
14
UNGA Resolution 3281 (XXIX), Charter of Economic Rights and Duties of States of
12 December 1974.
15
Article 12.1(c)(ii) Havana Charter.
16
Para. 9 of Notes and Comments to Art. 1(b) of the 1967 Draft Convention on the Protection of
Foreign Property; 7 ILM (1968), p. 122.
17
See on this in general: Diel-Gilgor and Hennecke (2014).

130

M. Bungenberg

(for example national laws of the contracting parties)leaves room for taking
into account EU law or public international law, even though investor obligations
stemming directly from public international law are rather rare. Of more interest in
this regard should be, besides the general principles of international law such as the
above mentioned territorial sovereignty, the need to take into account soft law
instruments such as the OECD Guidelines for Multinational Enterprises 18 or the
Global Compact,19 to which especially the European Parliament has referred in a
number of documents.20 Their observance will be most likely provided for in EU
investment agreements or unilateral acts of the EU relating to investment in the
future. Another point of future attention will be the topic of corrupt practices by the
investor, equally taking into account numerous international texts on this topic.21
In World Duty Free,22 the arbitration tribunal made clear that bribery violates
international public policy23 and referred to the principle ex turpi causa non oritur
actio.24 The reference to public policy as well as the fact that the tribunal made
clear that local customs may consider the problem of corruption differently point to
new directions in the interpretation of the in accordance with the law requirement25 in a more value-oriented approach.

18

OECD (2011)
See www.unglobalcompact.org, accessed 5 March 2014.
20
See, e.g., European Parliament, Resolution of 9 October 2013 on the EU-China negotiations for
a bilateral investment agreement, available at: http://www.europarl.europa.eu/sides/getDoc.do?
pubRef-//EP//TEXT+TA+P7-TA-2013-0411+0+DOC+XML+V0//EN,
accessed
14 October 2014.
21
See, for example, the Inter-American Convention against Corruption, 29 March 1996 (entry into
force 6 March 1997), 35 ILM 724 (1996); Convention on the Fight against Corruption involving
Officials of the European Communities or Officials of Member States of the European Union,
Council Act 97/C 195/01, 26 May 1997; OECD, Convention on Combating Bribery of Foreign
Public Officials in International Business Transactions, 21 November 1997 (entry into force
15 February 1999), DAFFE/IME/BR(97)20; Committee of Ministers of the Council of Europe,
Criminal Law Convention on Corruption, 27 January 1999 (entry into force 7 January 2002),
CETS No. 173, 38 ILM 505 (1999); UN General Assembly, Convention against Corruption,
31 October 2003 (entry into force 14 December 2005), GA Res. 58/4, UN Doc. A/58/422; African
Union Convention on Preventing and Combating Corruption, 11 July 2003 (entry into force
5 August 2006), 43 ILM 5 (2004).
22
World Duty Free Company Limited v. Kenya, ICSID Case No. ARB/00/7, Award,
4 October 2006.
23
Ibid., para. 157.
24
Ibid., paras. 161, 179, 181.
25
See on this in general: Lorz and Busch (2014).
19

Evolution of Investment Law Protection as Part of a General System of. . .

131

D. Modes of IIL and Integration of Non Economic Objectives


The UNGA Resolutions 1803, 2158 and 3281 all affirm the right of States to
regulate foreign investment according to their own objectives and development
plans. But already Resolution 1803 also highlights that the investmentif authorized by the guest Stateis governed by the terms of the authorization, national
legislation and international law.26 Resolution 2158 stresses the role of national law
and regulations and the Declaration on the Establishment of a New International
Economic Order provides, that States, on the basis of their full sovereignty, should
take measures in the interest of the national economies of the countries where
such transnational corporations operate on the basis of the full sovereignty of those
countries27 and regulate and supervise their activities. Thus, various attempts were
undertaken in the past to weaken the position of foreign investors by reference to
the permanent sovereignty principle and to lower the standard and amount of
compensation. Nevertheless, the minimum standard, already foreseen in the
Hull-formula, was accepted in Resolution 1803 as well as in most of later concluded
specific investment agreements. Nationalization measures can only be implemented
for public purposes, security or national interest, subject to the investor receiving
appropriate compensation in accordance to domestic and international law.
Also Resolution 1803 stresses, that agreements between the sovereign State and
an investor, that was agreed to by the host State freely, should be observed in
good faith. Thus, on the one hand several of the provisions contained in the
United Nations Resolutions on Natural Resources and aspects of the sovereignty
over natural resources principle have become accepted principles of the international order as customary international law or have found there inclusion in
international treaties, as Nico Schrijver points out in his contribution in this volume.
On the other hand strong investor protection limiting the discretion of sovereign
States to regulate the natural resources sector has been established almost parallel.
Investment protection is currently guaranteed via different alternatives. A first
one is the one resulting of investor State contracts, a second variant is based on
several thousand international investment agreements (IIAs) and a third alternative
is the one of investment insurance/guarantee mechanisms. The task for the future is
not only the pure protection of made investments, but furthermore the integration of
so called non-economic objectives such as sustainable development, human rights
protection and promotion of good governance into the principle of permanent
sovereignty over natural resources as well as into the basic principles and means
of international resources investment law. From an European perspective the latter
aspect is getting more attention in recent times since the EU is giving its entire
Common Commercial Policy a more value oriented face.28
26

Schrijver (1997), p. 279.


UNGA Resolution 3201 (S-VI), Declaration on the Establishment of a New International
Economic Order of 1 May 1974, para. 4g.
28
See on this for example Vedder (2013), pp. 115 et seq.
27

132

M. Bungenberg

I. Investment Protection via International Investment Treaties


In recent years the most discussed mode of investment protection also in the
field of raw material investments are by far IIAs. These IIAs have been traditionally
concluded in general between sovereign States, but now also the EU is starting
to negotiate these agreements that establish the terms and conditions for
private investment by nationals and companies of one State in another State.
Until a short while ago IIAs were mostly concluded between developed countries
on the one side and less developed on the other side (NorthSouth agreements),
very often explicitly covering also investments made in the natural resources sector.
Especially the protection standards granted to foreign investors in IIAs serve as now
widely recognized and at the same time criticized limits of a States sovereignty
over its natural resources. Today more than 3200 IIAs have been signed,29 one of
the most prominent ones being the Energy Charter Treaty, that also comprises an
investment protection section.
A policy shift that has taken first shape in North America, namely with the
adoption of the 2004 Model BITs of Canada and the United States, is supposed to
lead to the adoption of more balanced investment treaties deferent to public policy
considerations.30 This is done for example in the newly negotiated EU-Canada
Comprehensive Trade and Investment Agreement (CETA) via an Annex pointing
out that a high threshold of substantial interference with the right to use, enjoy and
dispose of the investment has to be proven, and that arbitral tribunals do have to
conduct a balancing exercise on a case by case basis.31 All in all the new EU
approach contains the police powers doctrine-inspired language trying to ensure
that bona fide regulation in the public interest should not be considered
expropriatory.32 The objective is to find a clear and fair balance between public
welfare objectives and private interests in defining indirect expropriation.33 Also
the FET (fair and equitable treatment) standard as for a long time having been the
most dynamic almost catch all standard faces in the CETA text a now explicit
substantive content.34 Already the mandate for the EU Commission to negotiate35

29

UNCTAD (2014), p. 114.


See on this Titi (2013). See also Julliard (2004).
31
See also Hoffmeister and Alexandru (2014), pp. 379 et seq.
32
Annex: Expropriation CETA Investment Text, 5 August 2014.
For greater certainty, except in the rare circumstance where the impact of the measure or series of
measures is so severe in light of its purpose that it appears manifestly excessive, nondiscriminatory measures by a Party that are designed and applied to protect legitimate
public welfare objectives, such as health, safety and the environment, do not constitute
indirect expropriations.
30

33

Reinisch (2014), pp. 679 et seq.


See also Hoffmeister and Alexandru (2014), pp. 389 et seq.
35
Available at: http://www.s2bnetwork.org/themes/eu-investment-policy/eu-documents/text-ofthe-mandates.html, accessed: 9 September 2014.
34

Evolution of Investment Law Protection as Part of a General System of. . .

133

did foresee, that [it] shall be without prejudice to the right of the EU and the
Member States to adopt and enforce, in accordance with their respective competences, measures necessary to pursue legitimate public policy objectives such as
social, environmental, security, public health and safety in a non-discriminatory
manner. The European Parliament36 in regard to the currently negotiated stand
alone BIT with China pointed out, that whereas the poor implementation or nonimplementation by China of certain fundamental social and labour rights and
environmental standards, which are, however, internationally recognised, are
among the causes of the present imbalance in trade flows between the EU and
China, which could be even further exacerbated by deeper investment relations if
progress is not achieved in the implementation of those rights and standards;
whereas the investment agreement should therefore not have the effect of further
lowering social and environmental standards in China, but should, on the contrary,
contribute to the improvement thereof as a precondition, leading to a more balanced
and mutually beneficial trade and investment relationship,37 and also Stresses that
a precondition for the conclusion of the agreement should be the inclusion of a
strong commitment by the parties to sustainable and inclusive development,
(. . .)38; and Reiterates its call for an effective corporate social responsibility
clause in line with the UN Guiding Principles on Business and Human Rights;
affirms that investors should, respectively, apply the ILO Tripartite Declaration on
Multinational Enterprises and Social Policy and the OECD Guidelines for Multinational Enterprises, as well as specific or sectoral international standards of
responsible practice where these exist; calls for binding social and environmental
clauses as part of a fully fledged sustainable development chapter that is subject to a
dispute settlement mechanism; calls on both parties to implement a sustainable and
inclusive investment strategy that includes a corporate social responsibility clause
with concrete guidelines for investors, as well as an efficient assessment methodology for public authorities overseeing the resulting investments in terms of their
social and environmental impact;39 and furthermore Insists that the agreement
should include a clause which prohibits the watering-down of social and environmental legislation in order to attract investment, and ensures that neither party may
fail to effectively enforce the relevant legislation through a sustained or recurring
course of action or inaction, as an encouragement for the establishment, acquisition,
expansion or retention of an investment in its territory.40

36
European Parliament, Resolution of 9 October 2013 on the EU-China negotiations for a bilateral
investment agreement (2013/2674(RSP), available at: http://www.europarl.europa.eu/sides/
getDoc.do?pubRef//EP//TEXT+TA+P7-TA-2013-0411+0+DOC+XML+V0//EN,
accessed
14 October 2014.
37
Ibid., Recital J.
38
Ibid., para. 22.
39
Ibid., para. 33.
40
Ibid., para. 38.

134

M. Bungenberg

II. Investor State Contracts


As pointed out, especially the legal regime of oil and gas projects has been
determined in large part by investment contracts/investor State contracts.41 International tribunals have recognized that contracts between the host State and the
investor itself may limit a States sovereignty over its natural resources. The
principle of pacta sunt servanda was considered applicable to investment agreements, and for example in the LIAMCO v. Libya arbitration it was concluded that
although the 1974 resolutions reflected a more current trend of State opinion
concerning their rights over natural resources, these rights are always subject to
the respect of contractual obligations validly agreed upon by the State.42 Thus, it is
the aspect that the State can waive its sovereign rights to the resources within its
State territory that is very important to notice.
Furthermore, stabilization and internationalization clauses play a significant role
especially in longterm exploitation projects governed by investment contracts.
Most foreign investors today demand the inclusion of contractual guarantees
aimed at maintaining the legal status in force at the time the investor made its
investment (stabilization clauses) and thereby freeze a national system of law as
of the date of the contract. In Texaco v. Libya, the arbitrator also dealt with a
stabilization clause that provided, that no changes in the legal system would apply
without the parties agreement.43 Thus, in the arbitrators opinion, although Libya
could nationalize other investors property according to its sovereign powers, it
could not nationalize contractual rights protected by a stabilization clause.44 In
more general terms, a State cannot invoke its sovereignty to disregard obligations
acquired with respect to foreign investors. Thus, the TOPCO-case stresses that the
Government cannot exercise its sovereignty to nationalize in violation of its specific
contractual commitments in the stabilization clausesthe stabilization clause
negates the power of the public authority unilaterally to amend or abrogate the
agreement, and nationalization in the face of a stabilization clause amounts to a
breach of the concession.45 As pointed out, stabilization clauses, to be effective,
must be accompanied by special internationalization clauses which lift the
contract to the level of international law and thereby internationalize the investor

41

Dolzer and Schreuer (2012), p. 79.


Libyan American Oil Company v. Government of Libyan Arab Republic, Award of 12 April
1977, VI Yearbook Of Commercial Arbitration 89 (1981), p. 107.
43
Texaco Overseas Petroleum Co. and California Asiatic Oil Co. v. Government of the Libyan
Arab Republic, 17 ILM 1 (1978) p. 22.
44
Texaco Overseas Petroleum Co. and California Asiatic Oil Co. v. Government of the Libyan
Arab Republic, 17 ILM 1 (1978) pp. 23 et seq; see also Vielleville and Vasani (2008), p. 12.
45
Texaco Overseas Petroleum Co. and California Asiatic Oil Co. v. Government of the Libyan
Arab Republic, 17 ILM 1 (1978), pp. 23 et seq.
42

Evolution of Investment Law Protection as Part of a General System of. . .

135

State relationship.46 These clauses remove contracts from the domestic legal regime
of the State where the investment is made and specify, that the contract is to be
governed by some third country law orless ofteninternational law. The
TOPCO-arbitration and the underlying concession agreement are seen as one of
the best articulations of the principle of internationalization of the law applicable to
contracts between public and private entities47; Clause 28 paragraph 7 of the
Concession agreement reads: This Concession shall be governed by and interpreted in accordance with the principles of law of Libya common to the principles
of international law and in the absence of such common principles then by and in
accordance with the general principles of law, including such of those principles as
may have been applied by international tribunals.
But investment contracts do not only limit the permanent sovereignty, they at
the same time might serve as a tool to set out investors obligations in regard to for
example sustainable development, good governance, corporate social responsibility
etc. Ensuring the respect and promotion of these issues requires a rethinking of the
construction of investor State contracts through a more general sustainable development lens.48
Inter alia the UN Special Representative for Business and Human Rights,
John Ruggie (SRSG) submitted the UN Principles for Responsible Contracts to
the UN Human Rights Council49; these ten principles foresee the integration of
human rights risk management into State-investor contract negotiation as well as
access to remedy by people impacted by projects subject of the contracts. Other
initiatives promote fairness and distribution of project revenues; transparency of
contracts as well as contract-related documents. Special attention by the Extractive
Industries Transparency Initiative50 has been given to contracts involving the
exploration or sale of natural resources and thus often represent a large portion of
the States revenues.

III. Investment Insurance


Finally, government or international organization investment insurance or guarantee programs are set up to reduce typical investment risks. In the United States for
example the Overseas Private Investment Corporation (OPIC)51 supports domestic
industry to engage abroad. In Germany similar guarantees are managed by a

46

Herdegen (2013), p. 376.


See Vielleville and Vasani (2008).
48
Cotula (2011), p. 4.
49
Ruggie (2011).
50
For more information see www.eiti.org.
51
For additional information, see OPICs internet address http://www.opic.gov/; see Foreign
Assistance Act of 1961 (P.L. 87-195); Executive Order No. 11579, January 19, 1971,
36 F.R. 969, as amended.
47

136

M. Bungenberg

government appointed consortium formed by PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprufungsgesellschaft (PwC), as lead partner, and Euler
Hermes Aktiengesellschaft (Euler Hermes) to cover of risks associated with foreign
direct investments.52 On the level of International Organizations the Multilateral
Investment Guarantee Agency (MIGA),53 a member of the World Bank Group,
also provides insurance for foreign investments against non commercial risks.
Even though the objectives of the mentioned institutions are similar, the conditions
under which the investment can be insured differespecially in regard to which a
pre investment assessment of inter alia ecolgical and social consequences of the
investment is made a condionality of the procedure whether or not granting the
investment guarantee.
In this investment protection alternative an integrated approach between economy and other issues should in theory be possible without further problems,
as long as the specific government being responsible for the investment insurance
believes in the necessity of human rights protection, anti corruption practices and
sustainable development. Under the MIGA Convention the investor is bound to the
laws of the host State and has to comply with all laws54; MIGA is furthermore
undertaking an assessment of all environmental risks,55 as well as it is taking into
consideration the economic soundness of the investment and its contribution to the
development of the host country.56 Even though the objective of the mentioned
institutions are similar, the conditions under which the investment can be insured
differespecially in regard to which a pre investment assessment of inter alia
ecological and social consequences of the investment is made a conditionality of
the guarantee procedure.
For all Member States of the EU linking a guarantee to the condition of acting in
conformity with inter alia environmental legislation and obligation should be
without a question as Article 21 TEU stresses inter alia these points for all external
policies and actions of the EU. Investment Protection now being a competence of
the EU means, that of course also all EU Member States are absolutely bound by the
constitutional principles of the EU. But when taking a look at the German guarantee
scheme it is questionable if the promotion of high environmental standards abroad
is already made a condition. On the one hand an essential criterion for the eligibility
for promotion of a project is its environmental compatibility, but on the other hand
as is pointed out by PwC, a project can be considered eligible for promotion under
environmental considerations if it complies with the environmental standards of
the host countrymeaning also, that an international environmental minimum

52

For a detailed overview over the German investment guarantees see www.agaportal.de/en/dia/.
Convention Establishing the Multilateral Investment Guarantee Agency, available at www.
miga.org/documents/mga_convention_november_2010.pdf.
54
Art. 12(e) Convention Establishing the MIGA.
55
MIGA Operational Regulations, available at; www.miga.org/documents/Operations-Regula
tions.pdf, pp. 128 et seq.
56
MIGA Operational Regulations, pp. 46 et seq.
53

Evolution of Investment Law Protection as Part of a General System of. . .

137

standard must not be met in any case!even though the compliance with more
stringent international environmental standards normally results in a project being
regarded eligible for promotion under environmental considerations. It is questionable if such a policy can be regarded as fulfilling high EU constitutional standards,
as investment law as well as investment guarantees are to be regarded as a matter of
EU competences and thus are bound by inter alia Articles 21 TEU as well as
11 TFEU.57 An investment guarantee for an EU enterprise should in general not, in
no way, be given, if the specific country has any kind of problems with human rights
protection, sustainable development or good governance.
Compared to the German guarantee system the U.S. seems in this regard to
follow a more restrictive approach. U.S. regulations ask for an environmental
impact assessment for every investment which the OPIC insures, reinsures, guarantees, or finances in connection with a project in a country. Support for projects
that, in OPICs judgment, would have an unreasonable or major adverse impact on
the environment or on the health or safety of workers should be declined. OPIC may
insure only if the country in which the project is to be undertaken is taking steps to
adopt and implement laws that extend internationally recognized worker rights.58
Furthermore OPIC shall in all contracts, which the corporation enters into with
eligible investors to provide financial support, include an article declaring that
The investor agrees not to take actions to prevent employees of the foreign enterprise from lawfully exercising their right of association and their right to organize
and bargain collectively. The investor further agrees to observe applicable laws
relating to a minimum age for employment of children, acceptable conditions of
work with respect to minimum wages, hours of work, and occupational health and
safety, and not to use forced labor. The investor is not responsible under this
paragraph for the actions of a foreign government. As is pointed out in the
literature this is a rather unique approach in international investment law.59
Thus, OPIC has to refuse to insure investment in connection with a project which
the corporation determines will pose an unreasonable or major environmental,
health, or safety hazard, or will result in the significant degradation of national
parks or similar protected areas. In 1999, Congress also directed OPIC to decline its
services if it determines that an activity will have an adverse environmental impact
that is sensitive, diverse, or unprecedented.60 OPIC has thus developed a procedure to screen proposed projects.61 First, OPIC examines the proposed project to
determine if it violates any categorical prohibitions. Projects that would be

57

See on this Dimopoulos (2013).


See on this issue Jackson, Overseas Private Investment Corporation: Environmental Review
Procedures, CRS Report for Congress, 2003, available at: http://congressionalresearch.com/
RS21587/document.php?studyOverseas+Private+Investment+Corporation+Environmental
+Review+Procedures.
59
Dubin (1999), p. 57.
60
OPIC through P.L. 106-158, in 22 USC Section 2191a(b).
61
See on this Jackson.
58

138

M. Bungenberg

categorically prohibited for environmental reasons would be: infrastructure and


extractive projects located in primary tropical forests; projects involving the
construction of large dams that significantly and irreversibly affect the environment; projects that involve the commercial manufacturing of ozone-depleting substances or pollutants that are banned by international agreement; and projects that
require the resettlement of 5,000 or more persons. If the project is determined not to
fall within one of the categorical prohibitions, it is subject to an environmental
screening to determine the level of environmental impact that is associated with the
industrial sector or site that is involved. Thus, different than the German guarantee
scheme, for OPIC strict no gos exist. Finally, OPIC also conducts compliance
audits after a project begins to determine if the project is complying with all
environmental and social conditions attached with the project.

E. Conclusion
The principle of permanent sovereignty over natural resources and international
investment law are interdependent; at the same time international investment law
can, to a large part, be understood as being an integral part of an international legal
order of natural resources. Phases of more nationalism and State control over
natural resources and their exploitation have been accompanied by parallel discussions on possible expropriation standards. It is accepted that irrespective the
permanent sovereignty principle even though a State is sovereign to determine
which foreign investors it wants to admit, this principle is strongly limited once a
State binds itself via international contracts or treaties. Thus, international investment agreements as well as investor State contracts are limiting the full sovereignty
of States over the management of their natural resources.
A current issue is bringing together natural resources law and new topics of
international investment law such as the inclusion of good governance, sustainable
development and the protection of the environment as well as human rights into this
field of international law. All relevant subfields of investment law are capable of
taking into further concern these issues being at the same time the current issues of
an evolving international resources law. As for example appr. 50 % of the existing
EU Member States agreements will be substituted by new ones; the EU is underway
of negotiating investment agreements that will replace old Member States agreements, and the European Parliament is asking for integrating non economic objectives such as the mentioned areas into the new generation of international
investment agreements. Furthermore it isunder public pressure especially of an
international civil societyup to the host countries of the investments as well as to
the investors to include these issues into State investor contracts. Finally investment
guarantees for investments in the resource sector in foreign States shouldespecially when sustainable development and specific issues of environmental protection are seen more and more as principles of customary international lawonly be
granted after inter alia environmental assessments of the investments.

Evolution of Investment Law Protection as Part of a General System of. . .

139

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Compensation Standards and Permanent


Sovereignty over Natural Resources
Shotaro Hamamoto

Contents
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Development Since 1962 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C. Compensation Under International Investment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I. Large-Scale Nationalizations and Individual Expropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. Reality Check of IIA Standard of Compensation in Case of a General Expropriation
D. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

142
142
145
146
148
152
153

Abstract In case of direct expropriation, the host State is required to pay compensation. The form and amount of such compensation used to be the subject of a
heated debate. An appropriate compensation needs to be paid, but does it mean
that the compensation should cover the entire market price of the expropriated
assets? This question is today considered moot, given the proliferation of investment treaties, which almost unanimously adopt the Hull formula. The present study
argues, however, that the permanent sovereignty over natural resources or peoples
right of economic self-determination may come into play in cases of expropriations
of a general and impersonal character so that the strict application of the Hull
formula is to be limited to cases of individual expropriations.

S. Hamamoto (*)
Kyoto University, Kyoto, Japan
e-mail: hamamoto@law.kyoto-u.ac.jp
Springer International Publishing Switzerland 2015
M. Bungenberg, S. Hobe (eds.), Permanent Sovereignty over Natural Resources,
DOI 10.1007/978-3-319-15738-2_8

141

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S. Hamamoto

A. Introduction
It is a commonplace to say that of the requirements for the legality of an expropriation, the measure of compensation has been by far the most controversial.1 At the
same time, many of the recent investment disputes are settled through treaty-based
arbitration, which applies the treaty standard of compensation. One might thus be
tempted to consider that the past discussions on the influence of the permanent
sovereignty over natural resources upon the measure of compensation have become
obsolete and irrelevant (B.). However, the present study argues that the permanent
sovereignty over natural resources still has a role to play in todays treaty-based
investment arbitrations, which lack a coherent mechanism to co-ordinate individual
and ad hoc arbitrations (C.).

B. Development Since 1962


From the outset, compensation standards were at the crux of the debate over the
permanent sovereignty on natural resources. Already in 1952, the General Assembly of the United Nations adopted Resolution 626 (VII), which remember[ed] that
the right of peoples freely to use and exploit their natural wealth and resources
[was] inherent in their sovereignty, recommend[ed] all Member States, in the
exercise of their right. . . to have due regard, consistently with their sovereignty, to
the need for maintaining the flow of capital in conditions of security, mutual
confidence and economic co-operation among nations.
Resolution 1803 (XVII), which recognised the right of peoples and nations to
permanent sovereignty over their natural resources, also provided that in cases of
nationalization or expropriation, the owner shall be paid appropriate compensation, in accordance with the rules in force in the State taking such measures in the
exercise of its sovereignty and in accordance with international law.2 It is well
known that this sentence was a fruit of an uneasy compromise between developed
capitalist States that insisted on the Hull formulaadequate, effective and prompt
compensationand socialist and newly-born developing States that considered that
compensation should be paid only in accordance with the domestic law of the
host State.3
Twelve years later, in 1974, the General Assembly adopted Resolution 3281
(XXIX), entitled the Charter of Economic Rights and Duties of States. The
resolution, underpinned by the Zeitgeist marking the climax of the ideology of a

Dolzer and Schreuer (2012), p. 100.


Emphasis added.
3
See e.g. Gess (1964), pp. 420424; Dolzer (1981), p. 562.
2

Compensation Standards and Permanent Sovereignty over Natural Resources

143

New International Economic Order, tried to obliterate the past.4 According to its
Article 2(2)(c), international law would have no role to play in nationalization or
expropriation, in which case appropriate compensation should be paid by the State
adopting such measures, taking into account its relevant laws and regulations.5
Customary international rules on compensation in case of expropriation were
thus quite equivocal during the 1960s and 1970s. In his insightful study published in
1981, Rudolf Dolzer identified elements to be taken into account when determining
the amount of compensation to be paid to the investor as follows: (1) the impact of
the compensatory obligations on the economy of the expropriating State; (2) the
original expectations of the investor when he/she decided to place his/her property
in the host State; and (3) the scope of the expropriatory actions.6
The claim for a New International Economic Order, however, lost momentum
soon after the adoption of the Charter of Economic Rights and Duties in 1974.7
Already in the 1960s, some developing States started to conclude bilateral investment treaties (BITs) with developed States. Many of such treaties included a
provision similar to the Hull formula regarding the compensation for expropriation.
An early example is the 1965 BIT between the Central African Republic and the
Federal Republic of Germany, which provides: Lindeminte devra correspondre a
la valeur de linvestissement exproprie, etre effectivement realisable, librement
transferable et etre versee sans delai (Art. 3(2)).8 After 1974, the number of treaties
adopting the Hull formula did not cease to increase.9 For example, in 1975the
year immediately following the adoption of the Charter, Egypt and the UK concluded a BIT containing the following provision: Such compensation shall amount
to the market value of the investment expropriated immediately before the expropriation itself or before there was an official Government announcement that
expropriation would be effected in the future, whichever is the earlier, shall be
made without delay, be effectively realizable and be freely transferable (Art. 5
(1)).10 Nevertheless, until the end of the Cold War, it should have been justified to
state, as Georges Abi-Saab did, that these treaties did not affect the state of

[P]uisque la souverainete reelle politique des Etats serait mise a neant par la confiscation de leur
souverainete economique, il ny aurait plus dindependance comple`te sans la souverainete
economique. Il en resulte que linstauration de la souverainete economique des Etats en voie de
developpement est devenue le but definitif du NOEI [nouvel ordre economique international]. Ida
(1982), p. 122.
5
Emphasis added.
6
Dolzer (1981), pp. 582584.
7
See Waelde (1998), p. 771; Kamto (2011), p. 493.
8
Traite entre la Republique federale dAllemagne et la Republique Centrafricaine relatif a
lencouragement et a la protection mutuelle des investissements de capitaux, fait a Bangu le
23 ao^ut 1965, http://unctad.org/. See also Agreement on the Encouragement and Reciprocal
Protection of Investments, signed on 15 January 1970, UNTS, Vol. 853, I-12057.
9
Verwey and Schrijver (1984), pp. 7074.
10
Agreement for the Promotion and Protection of Investments, signed at London on 11 June 1975,
UNTS, Vol. 1032, I-15181.
4

144

S. Hamamoto

customary international law rules, because they were concluded only between
developed and developing countries and on the reciprocal basis and had not been
really applied in practice.11
However, the situation radically changed in the 1990s, when developing States
started to conclude BITs containing the Hull formula with other developing States
(so-called SouthSouth BITs).12 Ardent defenders of the New International Economic Order are no exceptions. Just to give a few examples: CubaVietnam
(1995),13 Art. 5(3); AlgeriaMali (1996), Art. 4(3)14; IndiaIndonesia (1999),15
Art. 5(1); or IranSri Lanka (2000),16 Art. 5(2). The Hull formula is also common in
BITs concluded between least developed countries.17 For example: Ethiopia
Yemen (1999),18 Art. 4; BeninBurkina Faso (2001),19 Art. 5(2); and Burundi
Comoros (2001),20 Art. 7(1). The 2005 ChinaNorth Korea BIT, though understandably not referring to the market value of the expropriated investment, provides that the compensation shall be calculated essentially in accordance with a
similar method.21

11
Il est difficile de tirer des conclusions generales de ces traites. [. . .] Seuls y souscrivent les pays
en developpement qui acceptent de garantir une telle protection speciale en echange dautres
avantages stipules dans le traite ou escomptes de son application. [. . .] Enfin, ces traites nont
donne lieu jusquici a aucune pratique significative permettant devaluer leur portee juridique
reelle.: Abi-Saab (1991), p. 658.
12
Poulsen argues that [i]n SouthSouth BITs, NT [national treatment] provisions have tended to
be more restricted (or completely absent), and transfer clauses more likely to allow restrictions to
foreign investors repatriation of funds. Poulsen (2010), p. 130. What is relevant to our study are,
however, the clauses on expropriation, fair and equitable treatment and particularly investor-State
arbitration.
13
Agreement on the Promotion and Protection of Investment, done in Havana City on 12 October
1995, http://unctad.org/.
14
Accord relatif a la promotion et a la protection reciproques des investissements, signe a Bamako,
le 11 juillet 1996, http://unctad.org/.
15
Agreement for the Promotion and Protection of Investments, done at Montego Bay on 8 February
1999, http://unctad.org/.
16
Agreement on Reciprocal Promotion and Protection of Investments, done at Tehran on 25 July
2000, http://unctad.org/.
17
List of Least Developed Countries: http://www.unohrlls.org/en/ldc/25/.
18
Agreement on the Reciprocal Promotion and Protection of Investment, done in Sanaa on
15 April 1999, http://unctad.org/.
19
Accord concernant la promotion et la protection reciproque des investissements, fait a Bruxelles, le 18 mai 2001, http://unctad.org/.
20
Accord concernant la promotion et la protection reciproqiue des investissements, le 18 mai
2001, http://unctad.org/.
21
The compensation [. . .] shall be equivalent to the value of the expropriated investments
immediately before the expropriation takes place or the impending expropriation becomes public
knowledge, whichever is earlier. The value shall be determined in accordance with generally
recognized principles of valuation. The compensation shall include the interest at a normal
commercial rate from the date of expropriation until the date of payment. The compensation
shall also be made without delay, be effectively realizable and freely transferable: Art. 4(2),

Compensation Standards and Permanent Sovereignty over Natural Resources

145

It thus comes as no surprise that the authors who carried out detailed analyses of
compensation standards in international investment law conclude as follows:
The difference of opinion on the customary law standard has [. . .] lost much of its
explosiveness as the applicable standard of compensation in case of expropriation nowadays is contained in a large number of bilateral and multilateral treaties on the protection of
foreign investment.22
With the proliferation of investment treaties, resistance from the industrialized countries,
and the emergence of developing countries as capital exporters, the NIEO movement lost
its raison detre and the Hull Formula is now generally accepted as the prevailing
standard.23

This conclusion is widely shared among investment law experts.24 We thus have
arrived at the end of the historyor have we really?

C. Compensation Under International Investment


Agreements
Needless to say, in a dispute to which an international investment agreement (IIA)
is applicable, the amount and mode of compensation shall be determined in
accordance with the rules stipulated in the IIA. In todays world where there are
more than 3,000 IIAs, many of which are equipped with an investor-State dispute
settlement procedure, it is not surprising at all that a large number of investment
disputes are settled in accordance with applicable IIAs.25 Given the fact that a large
number of IIAs provide the Hull formula as the compensation standard,26 it is
understandable that investment lawyers concentrate their efforts on elucidating
precise conditions of the standard,27 because the mere fact that the treaty contains
a definition of the standard of compensation does not make the task of determining
the amount of compensation any easier.28 Without underestimating the importance

Agreement on the Promotion and Protection of Investments, 22 March 2005. This agreement has
not entered in force at the time of writing (2013), according to the website of the UNCTAD.
22
Marboe (2009), p. 44.
23
Sabahi (2011), pp. 9293.
24
Dolzer and Schreuer (2012), p. 100; Subedi (2012), p. 79; Salacuse (2010), p. 323; Newcombe
and Paradell (2009), p. 377; McLachlan et al. (2007), p. 317.
25
Only 19 % of the arbitration cases brought to ICSID are based on investment contracts
concluded between investors and host States. The proportion is even smaller in recent years.
ICSID (2013), pp. 10, 23. Although the ICSID statistics cannot be said to reflect the whole of the
investor-State dispute settlement system, approximately 60 % of the investor-State disputes have
been brought to the ICSID. UNCTAD (2013), p. 4.
26
UNCTAD (2007), p. 52.
27
For non-expropriation cases, see Tamada (2009), p. 309.
28
McLachlan et al. (2007), p. 318.

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S. Hamamoto

of such studies, which need certainly to be pursued much further, we wish,


however, to point out that there remains a fundamental problem regarding compensation. It is fundamental in the sense that it is related to the framework itself of
current international investment law, i.e. the network of IIAs and investor-State
arbitration.
It is to be noted that the debate on customary international law rules regarding
the compensation standard in case of expropriation has centred on large-scale
nationalizations (I.). It is doubtful that todays investor-State dispute settlement
system based on IIAs is conceived or designed for such situations (II.).

I. Large-Scale Nationalizations and Individual Expropriations


It is useful in this context to recall in which context the renowned Hull formula was
presented. During the Mexican Revolution, a new Constitution was adopted in
1917. Its Article 27 provided that [t]he ownership of lands and waters [. . .] is
vested in the nation which has the right to transmit title thereof to private persons
[. . .] as well as the right to impose such restrictions as might be necessary for the
general welfare.29 On the basis of this new Constitution, the Mexican Government
took several measures including the nationalization of petroleum and farms, affecting the property rights of foreigners, particularly US citizens. In the course of
negotiations, the Secretary of State of the United States argued, in a note of
21 July 1938, as follows:
We are entirely sympathetic to the desires of the Mexican Government for the social
betterment of its people. We cannot accept the idea, however, that these plans can be
carried forward at the expense of our citizens [. . .]. The whole structure of friendly
intercourse, of international trade and commerce, and many other vital and mutually
desirable relations between nations indispensable to their progress rest upon the single
and hitherto solid foundation of respect on the part of governments and of peoples for each
others rights under international justice. The right of prompt and just compensation for
expropriated property is a part of this structure. [. . .] It is not a principle which freezes the
status quo and denies changes in property rights but a principle that permits any country to
expropriate private property within its borders in furtherance of public purposes. It enables
orderly change without violating the legitimately acquired interests of citizens of other
countries.30

The Secretary of State further detailed his argument in his note of 22 August
1938 and announced the famed Hull formula:
The Government of the United States merely adverts to a self-evident fact when it notes that
the applicable precedents and recognized authorities on international law support its
declaration that under every rule of law and equity, no government is entitled to expropriate

29
Political Constitution of the United States of Mexico, January 31, 1917, in: Peaslee (1956),
pp. 661, 667.
30
Hackworth and Whiteman (1963), pp. 656657.

Compensation Standards and Permanent Sovereignty over Natural Resources

147

private property, for whatever purpose, without provision for prompt, adequate, and
effective payment therefor.31

The Mexican Government did not argue that no government was obliged under
international law to pay compensation for expropriated property in whatever
situation. It tried to distinguish general and large-scale expropriations from individual ones. The Minister of Foreign Affairs stated, in his note of 3 August 1938:
My Government maintains. . . that there is in international law no rule universally accepted
in theory nor carried out in practice, which makes obligatory the payment of immediate
compensation nor even of deferred compensation, for expropriations of a general and
impersonal character like those which Mexico has carried out for the purpose of redistribution of the land.32

The Mexican Government further stated in its reply to the Hull formula of
2 September 1938:
[I]t is indispensable, in speaking of expropriations, to distinguish between those which are
the result of a modification of the juridical organization and which affect equally all the
inhabitants of the country, and those others decreed in specific cases and which affect
interests known in advance and individually determined.33

It is well known that both parties agreed to settle the dispute without prejudice to
their respective legal standpoints in principle.34
Since the enunciation of the Hull formula in 1938, it has seldom been applied in
cases of expropriations of a general and impersonal character. No prompt,
adequate and effective compensation was paid in the so-called les Optants
hongrois dispute,35 Soviet socialist nationalizations36 or post-Second World War
nationalizations in Eastern Europe,37 all of which took place before the adoption of
UNGA Resolution 1803 (XVII) in 1962. Since then, the situation has not changed
with respect to expropriations of a general and impersonal character. The Hull
formula has not been applied in such cases, for example the nationalization of the
copper industry in Peru38 or that of the petroleum industry in Libya.39 Probably the

31

Hackworth and Whiteman (1963), pp. 658659.


Hackworth and Whiteman (1963), p. 657.
33
Hackworth and Whiteman (1963), p. 660.
34
Exchange of notes, 9 and 18 November 1938, Department of State Press Releases, Vol. XIX,
No. 477, 19 November 1938, pp. 339342.
35
Dobrin (1929), p. 249.
36
Sack (1939), p. 8.
37
Friedman (1953), pp. 2950.
38
Gantz (1976), p. 389.
39
Settlement of BP Exploration Company (Libya) Limited v. Government of the Libyan Arab
Republic following the arbitral award rendered on 1 August 1974, 53 ILR 297, p. 298 n. 2;
Settlement of Texaco Overseas Petroleum et al. v. Libya following the arbitral award rendered on
19 January 1977, 53 ILR 389, p. 391, n. 2. Liamco also settled the dispute with Libya but the
details of the settlement agreement have not been made publicly available. Libyan American Oil
Company (Liamco) v. Libyan Arab Republic, 62 ILR 140, p. 219.
32

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S. Hamamoto

solitary example of the faithful application of the Hull formula in a general


expropriation is the French nationalization under the Mitterrand administration in
19811982.40
It is therefore tempting to go along with Sornarajah, who states that full
compensation need not be paid as part of a full-scale nationalization of a whole
industry, while full compensation must be paid where there is a one-off taking of a
small business.41 Ian Brownlie, in his separate opinion in CME v. Czech Republic,
quoted Oscar Schachter stating that:
[l]arge-scale expropriation such as general land reform often raises questions as to ability of
the State to pay full compensation. In such cases, a good case can be made that less than
full value would be just compensation when the State would otherwise have an overwhelming financial burden.42

The evident problem is, however, the existence of more than 3,000 IIAs, a large
number of which adopt the Hull formula or a similar standard of compensation.
What role will the treaty standard of compensation play in case of expropriations
of a general and impersonal character?43

II. Reality Check of IIA Standard of Compensation in Case


of a General Expropriation
Few expropriations of a general and impersonal character have ever been
conducted since the generalisation of the treaty-based investment arbitration in
the beginning of the present century. One such rare example is the land reform that
took place in Zimbabwe.

1. Land Reform in Zimbabwe


In the process of land reform by which white-owned farm land in Zimbabwe was
transferred to African use,44 the Zimbabwe parliament adopted an amendment to
Conseil constitutionnel, Decision n 81132 DC du 16 janvier 1982. See also Juillard (1981),
pp. 537567; Juillard (1982), pp. 767774.
41
Sornarajah (2010), pp. 448449.
42
Separate Opinion on the Issues at the Quantum Phase of CME v Czech Republic by Ian
Brownlie, 14 March 2003, para. 31, quoting Schachter (1991), p. 324.
43
The CME tribunal applied Article 5(c) of the Czech-Netherlands BIT, which provides: The
measures [depriving investors of their investments] are accompanied by provision for the payment
of just compensation. Such compensation shall represent the genuine value of the investment
affected. CME v. Czech Republic, Final Award, 14 March 2003, paras. 496497. This is, however
a case of individual expropriation.
44
As for the process and context of the land reform in Zimbabwe, see Cliffe et al. (2011), p. 907;
Scoones et al. (2011), p. 967; Dekker and Kinsey (2011), p. 995.
40

Compensation Standards and Permanent Sovereignty over Natural Resources

149

the Constitution in 2000. Section 16A(1) of the 2000 Constitution provides as


follows:
In regard to the compulsory acquisition of agricultural land for the resettlement of people in
accordance with a programme of land reform, the following factors shall be regarded as of
ultimate and overriding importance (a) under colonial domination the people of Zimbabwe were unjustifiably dispossessed of
their land and other resources without compensation;
(b) the people consequently took up arms in order to regain their land and political
sovereignty, and this ultimately resulted in the Independence of Zimbabwe in 1980;
(c) the people of Zimbabwe must be enabled to reassert their rights and regain ownership
of their land;
and accordingly (i) the former colonial power has an obligation to pay compensation for agricultural
land compulsorily acquired for resettlement, through an adequate fund established
for the purpose; and
(ii) if the former colonial power fails to pay compensation through such a fund, the
Government of Zimbabwe has no obligation to pay compensation for agricultural
land compulsorily acquired for resettlement.45

The Constitution was further amended in 2005 to include Section 16B.


Section 16B(2) provides as follows:
(a) all agricultural land
(i) that was identified on or before the 8th July, 2005, in the Gazette or Gazette
Extraordinary under section 5(1) of the Land Acquisition Act [Chapter 20:10],
and which is itemised in Schedule 7, being agricultural land required for
resettlement purposes; [. . .]
is acquired by and vested in the State with full title therein with effect from the appointed
day [. . .]; and
(b) no compensation shall be payable for land referred to in paragraph (a) except for any
improvements effected on such land before it was acquired.46

In Funnekotter v. Zimbabwe (2009), the Respondent admitted the applicability


of the NetherlandsZimbabwe BIT and its obligation to pay compensation in
accordance with Article 6, i.e. just compensation representing the genuine
value of the investments affected. It also argued that discounting from the market
value must be made in case of large scale nationalizations.47
It is unfortunate that the issue was not extensively discussed in this case. The
Respondent raised this argument only at the stage of the hearing and it seems that it
indicated no authority to support its argument in this respect.48 The tribunal, for its
45
Constitution of Zimbabwe, http://www.gta.gov.zw/index.php/documents/constitution-ofzimbabwe.
46
Ibid.
47
Funnekotter v. Zimbabwe, ICSID Case No. ARB/05/6, Award, 22 April 2009, paras. 89, 124.
48
Ibid., para. 89.

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S. Hamamoto

part, summarily rejected the Respondents argument quoting an arbitral award that
has nothing to do with the issue.49 The tribunal decided that the Respondent should
pay just compensation representing the genuine value of the investments
affected, which amounted to more than eight million Euros.50 No information is
publicly available regarding the implementation or enforcement of the arbitral
award.

2. Argentine Economic Crisis


It is well known that more than 40 cases have been brought to arbitration
concerning the measures that Argentina took to cope with the economic and
financial crisis that it experienced in 20012002.51 Tribunals rarely found expropriation in these cases52 but these arbitrations are appropriate examples to carry out
a reality check of the full compensation in cases of expropriations of a general and
impersonal character, since the Argentine measures in question are certainly of a
general and impersonal character.
Although tribunals are notoriously divided in a number of issues discussed in
these arbitrations, we carry on our discussion on the following assumption for the
sake of argument: Argentinas measures are in breach of one or several substantive
provisions of applicable IIAs (e.g., the fair and equitable treatment clause53 and/or
the obligations observance clause54) and are justified neither by treaty provisions
(e.g., Article XI of the ArgentinaUS BIT55) nor under customary international law

49

Ibid., para. 124, quoting Fedax v. Venezuela, ICSID Case No. ARB/96/3, Award, 9 March 1998.
Ibid., para. 148.
51
Escobar (2006), p. 219; Achtouk-Spivak (2008), p. 477.
52
An exception is Saur c. Argentine, Affaire CIRDI N ARB/04/4, Decision sur la competence et
sur la responsabilite, le 6 juin 2012, paras. 381392.
53
CMS v. Argentina, ICSID Case No. ARB/01/8, Award, 12 May 2005, para. 281; LG&E
v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006, para. 132; BG
v. Argentina, Final Award, 24 December 2007, para. 310; National Grid v. Argentina, Award,
3 November 2008, para. 179; Suez & Vivendi v. Argentina, ICSID Case No. ARB/03/19 and AWG
v. Argentina, Decision on Liability, 30 July 2010, para. 247; Total v. Argentina, ICSID Case
No. ARB/04/1, Decision on Liability, 27 December 2010, para. 175; Impregilo v. Argentina,
ICSID Case No. ARB/07/17, Award, 21 June 2011, paras. 330331; El Paso v. Argentina, ICSID
Case No. ARB/03/15, Award, 31 October 2011, paras. 516519.
54
LG&E v. Argentina, supra note 53, para. 175; EDFI v. Argentina, ICSID Case No. ARB/03/23,
Award, 11 June 2012, paras. 970, 983. Contra Continental Casualty v. Argentina, ICSID Case
No. ARB/03/9, Award, 5 September 2008, paras. 300303.
55
El Paso v. Argentina, supra note 53, paras. 656, 665. Contra LG&E v. Argentina, supra note
53, para. 229; Continental Casualty, supra note 54, paras. 233, 236.
50

Compensation Standards and Permanent Sovereignty over Natural Resources

151

rule on necessity.56 Upon such a hypothesis, Argentina would be obliged to pay


full compensation to wipe out all the consequences of the illegal act.57
Given the number of claims and the amount of damages claimed, Argentine
officials have publicly recognised the countrys inability to pay out all of the
potential claims.58 It is reported that the total of possible arbitral awards may
amount to the total annual budget of the Argentine Government59 and that the
total of those that have already been rendered has reached the average salary for
150,000 school teachers or 95,800 public hospital doctors in the host State.60 Under
such circumstances, two important questions need to be posed.
The first question is relating to the equality between claimants. As aptly
explained by Vaughan Lowe, international law has no rule pertaining to the
administration or liquidation of sovereign States that would permit an orderly
process in which certain creditors would be given priority over others according
to a system of priorities established by law in the interests of justice and maximizing the efficiency of the process.61 In the absence of such a system, no equality
between claimants will ever be achieved, as long as tribunals continue to award
full compensation to claimants.
The second question is more relevant to the present study: how is the simple
application of the treaty standard (in case of expropriation) or the customary
Chorz
ow standard (in case of a breach of a treaty provision) of compensation
compatible with the permanent sovereignty over natural resources, or more generally, the peoples right of economic self-determination,62 when the governmental
measures in question are of a general and impersonal character? Is it legally
possible to oblige a government to implement arbitral awards, the total of which
may amount to its total annual budget or at least to the average salary for 150,000
school teachers or 95,800 public hospital doctors? Unless the respondent State,
which took the incriminated measures in the midst of a desperate financial crisis,
records an unimaginable V-shaped economic recovery, the payment of such an

56
BG v. Argentina, supra note 53, para. 409; National Grid v. Argentina, supra note 53, para. 260;
Suez & Vivendi v. Argentina and AWG v. Argentina, supra note 53, paras. 257265; Total
v. Argentina, supra note 53, paras. 223224; Impregilo v. Argentina, supra note 53, para. 359;
EDFI v. Argentina, supra note 54, paras. 11721173.
57
The Factory at Chorz
ow (Claim for Indemnity) (The Merits), Judgment, 13 September 1928, P.
C.I.J. Series A, No. 17, p. 47. See e.g. CMS v. Argentina, supra note 53, para. 400.
58
Goodman (2007), p. 453.
59
van Harten (2007), p. 2. In the Optants hongrois dispute, Romania advanced the following
argument: if the Romanian Government were asked to grant [a full indemnity], could it possibly
be expected to make immediate payment of [. . .] three times the total Romanian budget, merely in
order to meet the annual cost of expropriation?, League of Nations Official Journal 1923, Vol.
4, p. 1013.
60
Eberhardt and Olivet (2012), p. 19.
61
Lowe (2004), p. 39.
62
All peoples have the right [. . .][to] pursue their economic, social and cultural development.
Article 1(1) of the International Covenant on Civil and Political Rights (1966).

152

S. Hamamoto

amount of damages would most probably hinder the exercise of the peoples right of
economic self-determination to a considerable extent.63 And, it is quite arguable
that the peoples right of self-determination is a peremptory norm of international
law.64

D. Conclusion
It is thus submitted that arbitral tribunals should try to avoid the literal application
of the Hull formula or a similar standard of compensation prescribed in the
applicable IIA in case of expropriations of a general and impersonal character,
if such an application is to hinder the exercise of the peoples right of economic
self-determination. The treaty provision setting forth the Hull formula or a similar
standard of compensation could be interpreted to apply only to individual expropriations to avoid any conflict with a peremptory norm of international law.65 The
same can be said about granting a full compensation in accordance with the
Chorz
ow formula in case of a breach of an IIA by governmental measures of a
general and impersonal character.
From a practical perspective, the literal application of the Hull formula or a
similar standard of compensation will not necessarily work in favor of claimants,
particularly in a situation where the host State is financially incapable of paying a
full compensation for expropriations of a general and impersonal character. The
host State will certainly refuse to pay full compensation66 and winning claimants
will encounter a number of difficulties in having arbitral awards executed.
The permanent sovereignty over natural resources has not lost its vigor 50 years
after its inception. As insightfully pointed out by Vaughan Lowe, problems that we
have dealt with in the present study arise from the largely ad hoc and insular nature
of international tribunals established to decide a single case. [. . .] [T]he international legal community must fortify the tribunals by articulating a consensus on
the principle that should be applied.67 It is humbly submitted that the permanent
sovereignty over natural resources or peoples right of economic self-determination
may well be one of such principles, which an arbitral tribunal is required to take into

[T]he impact of full compensation on the financial resources and the development plans of the
nationalizing country would in practice nullify the effect of the nationalization. Schrijver
(1997), p. 294.
64
Cassese (2005), p. 203; Frowein (2009), para. 6.
65
If the treaty provision setting forth the standard of compensation itself is considered to be in
conflict with a norm of peremptory norm, the entire treaty will be held to be null and void (Article
44(5), Vienna Convention on the Law of Treaties). Such a drastic consequence will be neither
desirable nor realistic.
66
Argentina reportedly continues to refuse to pay compensation ordered by a number of arbitral
awards. Robalino (2009), p. 441; Chedly (2011), p. 375.
67
Lowe (2004), p. 39.
63

Compensation Standards and Permanent Sovereignty over Natural Resources

153

account when it examines claims arising from expropriations of a general and


impersonal character.

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(Foreign) Investment Strategies in Africa


Andre Thomashausen

Contents
A. The PSNR and Foreign Direct Investment Regulation in Africa . . . . . . . . . . . . . . . . . . . . . . . . . .
B. The World Bank and the ACP/Lome/Cotonou Conventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C. New Partnership for Africas Development (NEPAD) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D. Forum on China-Africa Cooperation (FOCAC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E. The FOCAC Business and Legal Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eligible Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsidiary Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F. FOCAC Success and Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract Considering contemporary context and State practice, a paramount duty


of States exists to exercise their Permanent Sovereignty over Natural Resources
(PSNR) in the interests of national development and for the well-being of its people.
The early transformation of the principles of the PSNR Declaration into national
licensing laws in Africa became the main instruments for the institution of systemic
corruption and maladministration. Investment strategies towards Africa during the
1990s focussed on multilateral and economic interdependence, with 43 out of
53 African States adopting the World Banks ICSID investment dispute settlement
mechanism, triggering significant increases in FDI flows to Africa. After the failure
of the South African NEPAD concept, China-Africa Cooperation (FOCAC) during
the decade of 20002010 achieved twice the originally envisaged essential investments in infrastructure. Based on a strict interpretation of the principles of noninterference, China implemented FOCAC projects, aid and FDI flows into African
countries within the normal framework of project contracting, using mostly English
common law precedents and giving preference to ICC arbitration. However, the allimportant differentiation in the FOCAC Master Facility Agreements is Chinas
integrated approach where Chinese State Owned Enterprises and Banks credit the
A. Thomashausen (*)
Department of Public, Constitutional and International Law, University of South Africa,
The Cas van Vuuren Building, Muckleneuk Ridge, Pretoria, South Africa
e-mail: thomaaea@unisa.ac.za
Springer International Publishing Switzerland 2015
M. Bungenberg, S. Hobe (eds.), Permanent Sovereignty over Natural Resources,
DOI 10.1007/978-3-319-15738-2_9

155

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A. Thomashausen

offtake of raw materials at market value to serve as finance for agreed project
implementations so that the contracting, project management, payments and cash
flows do not pass through the authorities of the African Resource State. The
integration of resource exploration and mining, raw materials trading, project
finance and project implementation established a new State practice in respect of
the PSNR.

A. The PSNR and Foreign Direct Investment Regulation


in Africa
Fifty years ago, the 1962 UNGA Resolution on the Permanent Sovereignty over
Natural Resources (PSNR) proposed to lay down new legal foundations for the
exploration and exploitation of natural resources. The Declaration was inspired by
the great decolonisation and self-determination quest following the end of World
War II. The terms of reference for the drafting Commission for the Declaration
specifically instructed it to determine the extent of the PSNR principle within the
notion of self-determination.1 It should thus not be a surprise that the PSNR
remained firmly grounded on traditional and absolutist conceptions of equal State
and territorial sovereignty. Art. 1 ruled that the permanent sovereignty over the
resources of nations must be exercised in the interests of national development and
the well-being of the people of the State concerned. The co-operative dimensions of
resource exploration and exploitation were not in the minds of the drafters and
signatories, nor were the concerns of sustainable development and the environment
addressed.
In the opinions of many contemporary authors, the Declaration did nevertheless
not inhibit the subsequent rise of the principles of sustainable development and
ecological and environmental responsibility.2 The reference in Art. 1 to an exercise
of PSNR in the interests of national development and the well-being of the people is
today interpreted in a broader sense, transcending the territorial boundaries of
individual States. The proponents of an absolute sovereignty doctrine in regard to
natural resources evidently focus in their reading of the Declaration, on the States
freedom to regulate foreign investments (Art. 2) as well as on the national prerogative to determine the conditions and procedures for compensation in cases of
nationalization (Art. 4).
It will be the proposition of this article, that in our contemporary context,
considering State practice and the duty of States to exercise their PSNR in the
1

UNGA Res. 1314 (XIII), Recommendations Concerning International Respect for the Rights of
Peoples and Nations to Self-determination, 12 December 1958, 13 UN-GAOR, Supp.
No. 18, p. 27, UN Doc.A/4090; Schrijver (2008), p. 59; Broms (1997), p. 521.
2
Louka (2006), p. 34; Perrez (1996), p. 1194; Schrijver (2008), p. 8.

(Foreign) Investment Strategies in Africa

157

interests of national development and for the well-being of its people, this in terms
of Art. 1 of the Declaration on PSNR is of particular relevance and a key enabler for
the more successful instances of resource exploration anywhere.
Another important argument in the contemporary State practice that underlies
the application of the Declaration is the realisation that the Declaration did not
define the concept of natural resources. It was thus left open to interpretation
whether fresh water, oceans, seas, air, forests, soils, genetic materials and other
components of ecological systems can be included alongside with the more obviously profitable natural resources such as oil, gas, and minerals.
In Africa, the freedom to regulate foreign investments as stipulated in Art. 2 of
the Declaration3 encouraged the emerging post-colonial and underdeveloped
States, almost without exception, to adopt foreign investment codes and legislation
that introduced general prohibitions of foreign direct investments, subject to licensing and permit based exemptions. The inspiration for the Foreign Direct Investment
(FDI) laws and codes in Africa came from the Algerian Investment Code of 1966.4
The key measures introduced by the Algerian model were: private investments are
permitted only subject to comprehensive approval and licensing procedures on the
basis of extensive feasibility studies and binding performance projections, to be
submitted by the foreign investor;
(i) the limitation of foreign investments to those sectors of the economy which
are considered not to be vital to the national economy, unless the State
specifically invites foreign or domestic private investment to participate in
those sectors, which, as a rule, can only be done in joint venture with an
existing state owned enterprise;
(ii) tight control and state monopolies regarding commercial operations of any
foreign companies and all foreign trade, as well as foreign exchange;
(iii) restrictions on ownership of immovable property by foreign companies or
individuals;
(iv) mandatory local participation rules normally providing that foreign investors could only operate as minority (49 %) equity partners of local (national)
shareholders;
(v) severe penalties, which include confiscation, forfeiture and imprisonment,
for any failure to comply with the administrative licensing conditions of any
foreign investment or the laws governing any related activities;
(vi) the discretionary granting of certain privileges, mainly customs and tax
rebates and
(vii) foreign exchange exemptions, to foreign investments approved by the
authorities;

The exploration, development and disposition of such resources, as well as the import of the
foreign capital required for these purposes, should be in conformity with the rules and conditions
which the peoples and nations freely consider to be necessary or desirable with regard to the
authorization, restriction or prohibition of such activities.
4
See for an English translation of the 1966 Code: de Brauw (1979).
3

158

A. Thomashausen

(viii) the general rule that all general commercial, other statutory and common
law will only apply subject to the special legislation regarding foreign
investments and commercial activities of foreign companies;
(ix) the existence of special legislation for mining, petroleum and gas explorations5; and
(x) compensation limited to the net value of assets in case of expropriation and
only in so far as all licensing requirements are satisfied, such compensation
being convertible in to foreign exchange only up to the amounts of foreign
capital actually and originally invested; and
(xi) submission of all legal interpretation and disputes to the national law and
forum only.
Typical for many of the Investments Codes during the first three decades of the
PSNR Declaration was the prescription of detailed forms for the submission of
minute investor information, feasibility data, economic performance projections
and undertakings regarding labour. The Algerian Decree of 31 March 1967 prescribed the furnishing of every conceivable information in respect of the investor
and his investment project, as well as ten detailed forms or tables regarding: cost
and financing of the foreign investment; number of jobs to be created within the first
5 years (including salaries); number of jobs to be created within the second 5 year
period (including salaries); breakdown of the costs of all purchases to be made for
the implementation of the project; costs and financing of the project as whole over
the first 5 year period, including and excluding all taxes payable; and breakdown of
the numbers of female and male, as well as foreign and Algerian staff, permanent
and seasonal, and by levels of seniority, to be employed during the first 5 year
period.6
The information requirements not only placed a particular planning burden on
the applicant investor, but rather the information supplied by the foreign investor
became part of the conditions for the investment authorisation and any deviation
therefrom that had not been duly communicated to and approved by the competent
authority could be used as a pretext to revoke the authorisation and declare part or
the whole of the investment forfeited.
The early transformation of the principles of the PSNR Declaration into national
laws thus became the main instruments for the institution of systemic corruption
and maladministration in Africa. The other and even more detrimental effect was
the misdirection of investments into areas selected for opportunistic political
reasons and on the basis of unusually high and mostly hidden or indirect profits,
rather than market conformity.
FDI statistics reflect this development. Whilst in 1970, Africa still attracted 10 %
of Global foreign direct investment flows, this percentage dropped by 1980 to
below 1 %, and by 1990 recovered only slightly to just over 1 %. In 1999 the

5
6

See Ordinance 71-22 of 12-04-1971 in respect of hydrocarbons.


See de Brauw, supra, pp. 23 et seq.

(Foreign) Investment Strategies in Africa

159

percentage of FDI flows to Africa as of global FDI still only stood at 1.3 %, as
against its share of 15 % of World Population and 20 % of the total World land
area.7
Another indicator that has the greatest significance for the attraction of FDI is
return on capital. Overall return on foreign investments in sub-Saharan Africa
declined from 30.7 % in the period 19611973 to 13.1 % in the period 1973
1980, and 2.5 % in the period 19801987. Real per capita Gross Domestic Product
(GDP) declined for the whole of Africa by 0.8 % per year in the period 1987
1992.8
With multiparty democracy and liberal legal reforms slowly gaining ground in
Africa during the 1990s, following the collapse of the Soviet Union, we can see a
turn around. FDI as a percentage of World FDI increased to 2.75 % in the decade
from 2000 to 2010, with much of the increase going to North Africa. In real terms,
this trend translated into an average 5.5 % GDP growth from 2000 to 2008.9
Most significantly in the decade from 2000 to 2010, returns on capital improved
dramatically, peaking at 31 % in 2007, which at that time was the highest return rate
on capital globally.10 Evidently, the continent also shows marked regional variations and concentrations of FDI with the by far biggest FDI flows concentrating in
Egypt, Nigeria and South Africa.11
The regional and conjectural differences are currently highlighted by the United
Nations Conference on Trade and Development (UNCTAD) latest review of FDI
performance in 2012, during which year a further increase of 5 % for Africa has
been recorded, but a decline of 43.6 % for South Africa.12

For an impressive graphical representation of these dimension see: http://commons.wikimedia.


org/wiki/File:Afrika-real-size.png, accessed 21 January 2013.
8
Cockcroft and Riddell (1991), p. 46; see also IMF (1993), p. 44.
9
These and the previous FDI data from Inward FDI flows, annual, 19702011, Developing
economies Africa and Africa n.e.s. (not elsewhere specified), http://unctadstat.unctad.org/
TableViewer/tableView.aspx?ReportId88, last accessed 21 January 2013. A graphic depicting
these trends is the chart: Inward FDI flows, annual, 19702011, Developing economies Africa and
Africa n.e.s (not elsewhere specified) at: UNCTAD International Trade Statistics: http://
unctadstat.unctad.org/TableViewer/chartView.aspx
and
http://unctadstat.unctad.org/
TableViewer/tableView.aspx?ReportId88
10
UNCTAD (2008); see also summary at: http://en.afrik.com/article14576.html, accessed
21 January 2013.
11
See a good graphical representation at: http://afrographique.tumblr.com/post/4290367888/
infographic-of-foreign-investment-on-the-african, last accessed 21 January 2013.
12
http://unctad.org/en/PublicationsLibrary/webdiaeia2012d20_en.pdf, accessed 21 January 2013.
See also the comprehensive study by van der Lugt et al. (2011), p. 85.

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A. Thomashausen

B. The World Bank and the ACP/Lome/Cotonou


Conventions
The original Algerian interpretation of the PSNR Declaration in favour of an
absolute concept of sovereignty in respect of natural resources has today been
abandoned in the State practice of all States in Africa. The former FDI licensing
commissariats have been transformed into FDI promotion and facilitation agencies.
Approval procedures have been simplified with provision conceding automatic
approval after the expiry of a relatively short notice period, typically 30 days.
The advisory and support services of the World Banks International Finance
Corporation have successfully set standards and created what amounts to a global
jus commune on the facilitation, regulation and protection of foreign direct investment,13 including in Algeria, in terms of the new Algerian Investment Code.14
The modern treatment of foreign investments in Africa is also the result of the
first manifestation of an investment strategy in Africa. Driven by the industrialized
free market economies of the Northern Hemisphere, the investment strategy
towards Africa of the 1990s found an overwhelming economic, legal and technical
support from key World Bank institutions, the International Finance Corporation
since 1956, the International Centre for Settlement of Investment Dispute (ICSID)
of 1966, the Multilateral Guarantee Agency (MIGA), established in 1985. Other
key interventions can be attributed to UNCTAD, the Organization for Economic
Co-operation and Development (OECD), the EUs ACP, Lome and Cotonou
Agreements, and since 1993 to the Japanese Tokyo International Conference on
African Development initiative. The overall objective of this first coherent investment strategy has been to de-ideologize foreign investment, whilst linking it to
clearly defined objectives of sustainable development and development assistance.15 The dimension of the 1990s investment strategy towards Africa has been
inherently multilateral and based on the principles of economic interdependence
and friendly co-operation between States. It co-opted 43, that is to say all but ten
African States into becoming members of the ICSID investment dispute settlement
mechanism,16 and established a very large number of bilateral investment protection agreements.
In hindsight, a strategic mistake can be attributed to the EUs Africa investment
strategy. By denying accession to the newly liberated and re-constituted
South African nation to the trade cooperation facilities of the ACP-Lome

13

A comprehensive overview and documentation of national foreign investment and related


legislation is found on the webpages of the World Banks and IFCs Doing Business Initiative:
http://www.doingbusiness.org/, accessed 21 January 2013.
14
Legislative Decree Number 93 of 12-10-1993.
15
See for instance: Investment Climate Advisory Services of the World Bank Group (2010); also:
http://www.oecd.org/daf/internationalinvestment, both accessed 21 January 2013.
16
https://icsid.worldbank.org/ICSID/FrontServlet?requestTypeICSIDDocRH&actionValShow
Document&languageEnglish, accessed 21 January 2013.

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161

Convention at the ACP-EC Council of Ministers Meeting in Luxembourg on


24 April 1997, South Africa was challenged as a competitor for access to African
resources and markets. The reasoning of the EU in the ACP context was that
South Africa was economically much stronger than most other ACP Convention
Members and did not deserve to benefit from privileged access to the EU markets.
In response, South Africa began defining its own expansion and investment strategy
for Africa.

C. New Partnership for Africas Development (NEPAD)


South Africas counter-strategy for investment in Africa was presented in Abuja,
Nigeria in October 2001 by the then South African President Thabo Mbeki, together
with his principal ally in Africa, Olusegun Obasanjo, with the launch of the New
Partnership for Africas Development (NEPAD).
NEPAD proposed to overcome Africas endemic underdevelopment and mass
poverty within a period of 15 years by rewarding good governance reforms and
political peer review mechanisms with investments in essential transport, energy
and communications infrastructure, totalling a proposed external funding of US$64
billion (equivalent to 12 % of the GDP of Africa), per year, for 15 years. The
funding and investments should be coordinated by a NEPAD Secretariat (conveniently located in Johannesburg, South Africa), and acting under a Heads of State
Forum, to bundle and coordinate most if not all European and bilateral development aid and investment into Africa, so as to maximize the FDI benefits.
Only 6 months after the launch of NEPAD, at the G8 meeting in Calgary,
Canada, on 27 June 2002, the proposition of bundling most aid to Africa into a
central co-ordination scheme was rejected. Individually, each G8 participant State
and several other industrial nations promised to increase aid to Africa, so as to
collectively arrive at an annual development aid increase of US$6 billion, or 10 %
of the projected and proposed NEPAD funding. The world had discovered other
priorities, last but not least the War on Terror and the occupation of Iraq. In
hindsight, we now know that the estimated total cost of the War on Terror
campaigns including the occupation of Iraq, from 2002 until 2012, amounts to at
least US$1.6 trillion, or US$160 billion/year. In March 2004 the UK Government
appointed the Blair Commission on Africa. A year on, in March 2005 it produced
a 399-page long report that contained about as many reasons why it would not be
advisable to address Africas ills and needs in the manner in which NEPAD had
proposed.17
Although a NEPAD secretariat still exists at the start of 2013 in Midrand,
South Africa, it has reverted to a mostly advisory and facilitating role.18

17
18

http://www.commissionforafrica.info/, accessed 21 January 2013.


http://www.nepad.org/npca, accessed 21 January 2013.

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A. Thomashausen

D. Forum on China-Africa Cooperation (FOCAC)


Already in October 2000 and 1 year before the South African launch of NEPAD, the
Peoples Republic of China had secured the participation of 44 African States at the
First Ministerial Conference of the Forum on China-Africa Cooperation
(FOCAC).19
Mostly unnoticed or if at all, belittled, by the industrial nations of the Northern
Hemisphere, the conference adopted the Beijing Declaration of the Forum on
ChinaAfrica Cooperation and the Programme for ChinaAfrica Cooperation in
Economic and Social Development.20
The declaration and programme delineated a mostly bilateral network of development and investment strategies, to be coordinated by China, but implemented
separately for each individual African State. It is a unique blend of entirely flexible
and pragmatic approaches to international as well as trade and development relations. The core principles that have guided each of the tri-annual Ministerial
Conferences have been the Five Principles of Peaceful Coexistence; friendly
relations; liberation solidarity and mutual benefit, or as China often phrases it, a
win-win common development policy. China insists that it is its respect for equal
rights in international relations that will prevent it from in way whatsoever impose
political or economic policy conditionality, as had become the norm and characteristic of EU-ACP relations and many World Bank and IMF interventions.
The first 12 years of Chinese-African cooperation within the FOCAC framework
have positioned China as the most relevant trading, development and investment
partner in Africa.21 Trade volumes between China and Africa expanded 20-fold
from US$10 billion in 2000 to just over US$200 billion in 2012.22 Chinese FDI
stock in Africa grew from under US$50 million in 2000 to US$13 billion in 2010
and an estimated total of US$55 billion in 2012, showing an average growth rate of
60 % per annum.
FDI figures regarding China present several methodological difficulties.23 Many
of the preferential loans and credits granted by China for projects in Africa are
actually foreign investments, as repayment is not truly expected. Three major
Chinese State owned banks are entrusted with processing and granting policy
loans, namely China Eximbank, China Development Bank, and China Agricultural
Development Bank, often working in syndication with Chinas largest banking
institution, China Construction Bank. The total volume of loans and credit lines

19

http://www.focac.org/eng/, accessed 21 January 2013.


For an image of the official seal and emblem of FOCAC see: http://www.focac.org/chn/gylt/ltjj/
t155388.htm, last accessed 21 January 2013.
21
See the overview by Cisse (2012), p. 4. A very good evaluation is also found in
Kobylinski (2012).
22
For the latest 2012 figures see Hazelhurst (2013).
23
Kobylinski (2012); Brown (2012), p. 17.
20

(Foreign) Investment Strategies in Africa

163

granted since 2002 stands at approximately US$60 billion. It is thus fair to adjust
Chinese FDI stock values in Africa upward to at least US$80 billion.24
For the past 4 years, China has become Africas largest trading partner, accounting for 20 % of the total trade with Africa. China currently purchases three fifths of
its crude oil imports from African producers, headed by Angola, as well as much of
its coal, iron ore and heavy and precious metals. Naturally, China has a growing
interest in improving its trade balance with Africa with rapidly increasing exports of
machineries and manufactured goods. The recent proposals for Sino-African trade
to be processed through a new intergovernmental accounting facility that would be
Renminbi, rather than US Dollar-based, reflects the Chinese push to increase
exports of products and manufactured goods into Africa.
The current state of affairs was openly criticised on 19 July 2012 by
South African President Jacob Zuma in his address to the fifth FOCAC Ministerial
Conference held in Beijing: Africas commitment to Chinas development has been
demonstrated by the supply of raw materials, other products, and technology
transfer. As we all agree, Your Excellency, this trade pattern is unsustainable in
the long term. We certainly are convinced that Chinas intention is different to that
of Europe, which to date continue to attempt to influence African countries for their
sole benefit.25
The aggressive exporting of manufactured goods and machinery has proved to
be ruinous for many new and still fragile industries in Africa. An approximate total
export to Africa of US$7 billion per year in textiles and garments has all but
destroyed existing textile and shoe manufacturing industries in Africa and especially in South Africa.
South African ferrochrome steel makers are currently threatened by Chinese
imports, manufactured with ferrochrome ore which China buys and mines in
South Africa. Considerations by the South African Government to impose an export
tax on its ferrochrome ore are being vigorously opposed by China, invoking a web
of currently 60 bilateral cooperation and consultation agreements concluded
between China and South Africa since 1997.26
The main obstacles against stronger Chinese engagement in local manufacturing
in Africa are the severe disparities in industry wage levels. The average skilled
industry worker monthly wage in China equals approximately 300 Euros, whilst in
South Africa it will be four times higher, starting at the equivalent of 1,200 Euro per

24

See for statistical material and analysis in Renard (2011).


http://www.info.gov.za/speech/DynamicAction?pageid461&tid76792, accessed 21 January
2013. The concern voiced in 2012 by South Africa, as one of Chinas main trading and investment
partners, is graphically demonstrated here: http://afrographique.tumblr.com/post/5387542552/aninfographic-depicting-the-percentage-breakdowns, last accessed 21 January 2013.
26
Thomashausen (2011), pp. 407419. A map showing and identifying Chinese Investment Offers
in Africa since 2010 can be found here: http://www.stratfor.com/image/chinese-investment-offersafrica, last accessed 21 January 2013.
25

164

A. Thomashausen

month with the recent mine worker strikes having set a new minimum wage level at
the equivalent of 1,800 Euro per month.27
It is clear that whilst globalisation and the World Trade Organizations (WTO)
international trade regime have greatly enhanced the freedom of movements of
goods and capital, they have not been able to achieve input cost parity between
competing producer nations.
An essential characteristic of the China-Africa economic cooperation within the
FOCAC network of cooperative engagements, institutionalized communication
channels sub-committees and working groups, is Chinas integrated approach to
development aid, foreign direct investment and long term, preferential and government guaranteed project finance.28 A special role within the FOCAC is reserved for
the China Portuguese-speaking Countries Ministerial Forum that was initiated in
2003 by the Chinese Special Region of Macau to strengthen cooperation with
Angola, Cape Verde, Guinea Bissau, Mozambique and Sao Tome, with Brazil
and Portugal being carefully co-opted into the regular meetings and working
committees.
Chinese development aid contributions in Africa are difficult to quantify as
investments, developmental or commercial, and are characterized by secrecy. It is
almost impossible for non-officials to gain access to actual agreements and
reports.29 Official figures show that at least US$13 billion was made available
from 2006 to 2010 in preferential loans for aid projects. Each of the FOCAC
summits of 2000, 2006 and 2009 also announced almost complete debt relief to
all heavily indebted poor countries and least developed countries in Africa and
granted complete tariff exemptions for 95 % of their export products. The creation
of the African Human Resources Development Fund successfully trained at least
40,000 personnel with a further cumulative 12,000 academic bursaries having been
made available to students from Africa. Chinese Development Aid over the past
12 years also built several hundred hospitals and clinics in Africa, and trained at
least 4,000 health workers. In many cases, the interventions have a decisive
strategic impact, with over 600 major infrastructure projects carried out in Africa
thus far.30
As a rule, direct development aid and developmental projects will strengthen
essential government infrastructure and thereby secure access and influence for the
Chinese Ministry of Foreign Affairs. Almost all capital cities in Africa have
benefitted over the past decade from Chinese built and donated new buildings to
house presidential and government administrations, parliaments and conferences.

27

Thomashausen (2012).
Schiere (2011).
29
Hubbard (2007), pp. 7 et seq; Brautigam (2010); also: Brautigam (2013).
30
White Paper on ChinaAfrica Economic and Trade Cooperation, Peoples Republic of China
(PRC) Information Office of the State Council, 1 December 2010. See for more details: Meibo and
Xie (2012), pp. 1120, 12; also Grimm (2012); also: http://www.chinaafricarealstory.com/2012/
01/africas-new-au-building-how-many.html, accessed 21 January 2013.
28

(Foreign) Investment Strategies in Africa

165

Quite naturally, this input has signalled that China takes African governments
seriously and does not expect Ministries and Presidential Offices to function with
unreliable power supply, in derelict buildings from the colonial past. Chinas
approach further benefits from its win-win approach, based on the understanding
Chinese development aid is given not by a rich, but itself developing nation, with
GPD per capita ratios around US$8,500, meaning one quarter to a third of European
nations, or one twelfth of, for instance Norway. It is a matter of the poor helping the
even poorer, or as China will put it, of development solidarity. The most prominent
example of Chinas success in addressing Africas most pressing infrastructural
needs, whilst at the same time respecting Africas need for being respected equally,
is the new and state of the art US$200 million African Union headquarters building
in Addis Ababa, donated entirely by China. The new headquarters were handed
over in 2012.

E. The FOCAC Business and Legal Models


Engagement between China and African participants of FOCAC will always
commence with the discussion and proposal on government to government level
of a Master Facility Agreement which is in most cases sponsored by either China
Development Bank or China Eximbank, both falling under the direct jurisdiction of
the State Council thus ensuring political control of all decisions at the highest level
of authority.
The Master Facility Agreement (MFA) will provide for a revolving credit line to
be available to finance eligible projects. Projects will be proposed by a bi-national
committee in which the recipient nation is normally represented by its Ministry of
Finance. The bi-national committee is often referred to as the Project Management
Office. The decision on project finance will lie with the Chinese financing institution, following a due diligence process conducted by the same Chinese financing
institution which will engage with and obtain a wide range of Chinese governmental approvals, including from the State-Owned Assets Supervision and Administration Commission (SASAC) and the National Development Reform Commission
(NDRC), as well as the State Administration of Foreign Exchange and in many
cases the State Council. Once authorised, the Chinese financing institution will
appoint on direction of the governmental authorities, the relevant qualifying Chinese industrial entities that will be contracted to implement the project. The project
companies will be without exception State owned or public sector corporations.
Local participation or content contributions from the benefitting African State is
normally limited to below 30 %.
With the exception of development aid finance, the Master Facility Agreements
are serviced by guaranteed purchases of raw materials from the African partner
State, mostly oil, ores and minerals, on the basis of guaranteed supply undertakings
by the African resource State and guaranteed off take agreements by Chinese
corporations. As a rule additional loans are granted as supply and take off volumes

166

A. Thomashausen

increase. In the case of Angola, the original loan amount of US$2 billion granted in
2004 grew to 14.5 billion in 2011.31
The usually followed procedure is summed up on the webpages of China
Eximbank as follows:
In order to support and assist Chinese firms doing trade and business in Africa
overcome the problem of insufficient funding, the Chinese Government has already
signed reduced interest concessional loan framework agreements with 26 African
countries, including Sudan, Kenya, Zambia, Tanzania, Gabon, Cameroon, Ghana
and Mozambique. Chinese firms only need to find a suitable opportunity within
these African countries in order to apply for one of these types of low interest
concessional loans.
Chinese firms applying for an intergovernmental low interest concessional loan
must meet the following basic conditions: the project must be located in a country
with which China has signed a concessional loan framework agreement, at the
beginning of the project, and during progress operations, the firm must inform the
Peoples Republic of China, Ministry of Commerce Foreign Assistance Office
whether or not the project operations are in accordance with the terms of the
loan; the country in which the project is located must have a relatively stable
political situation and favourable conditions for economic growth; the project
must be in line with relevant policies of the Chinese Government and the host
government, and must obtain the consent of the host government; the lender and
guarantor must have good credit and the capacity to repay; the investment project
should be in manufacturing, with plentiful local resources, a vast market for goods,
favourable economic prospects and capable of promoting the host countrys economic development; the project should focus on infrastructure or the introduction
of equipment; the government of the host country will need good credit and be
capable of servicing the debt; the unit applying for and carrying out the project
should have comparatively strong economic and technical strength and the capacity
to manage foreign operations; the loan size should ordinarily be at least US$1
million, and should purchase and import from China as much equipment, technology and services as possible; the projects supplementary funding, equipment etc.
conditions must be implemented.
Application Procedure: (1) In accordance with the abovementioned conditions,
the firm must submit an application to the Foreign Assistance Office in the Ministry
of Commerce, along with supporting material. After the Ministry of Commerce has
initially approved the project, it will submit a recommendation to the China Exim
Bank. (2) After receiving the official letter of recommendation, the China Exim
Bank will conduct a feasibility study of the project, using the official application
and supporting material provided by the firm; the feasibility report; the credentials

31
A good account of the Chinese expansions into Angola, Uganda, Nigeria, and Zimbabwe is
given in: Chan-Fishel and Lawson (2007), pp. 6368. See also the detailed reports and evaluations
covering Angola, DRC, Mozambique, Tanzania, Uganda, EAC and SADC in: Centre for Chinese
Studies (2010). On Sino-Angola relations specifically see: Kabemba (2012).

(Foreign) Investment Strategies in Africa

167

of the firm applying for the loan (comprising the firms situation, licenses, company
regulations etc.); a 3 year audit of the firms certified financial report; the guarantors situation and 3 year financial audit; a commercial contract with an African
joint cooperative partner (if it is a joint venture, the joint venture rules and contract,
and the partners credit situation, etc. should be provided); an effective written
document showing the African countrys government approval or support for the
project; and any other relevant documentation required by the China Exim Bank.
The China Exim Bank will perform an evaluation, consider the feasibility of the
project, and will then sign agreements with the borrower and the guarantor.32
The Master Facility Agreement of 16 December 2011 between the Government
of Ghana and China Development Bank is one of the few MFAs for which some
detail has become known through the Ghanaian parliamentary approval process.
Crucial to its implementation are a number of subsidiary agreements, forming
conditions precedent for the MFA. These are:
(i) The Five Party Agreementamong Government of Ghana (GOG), Bank of
Ghana (BoG), Ghana National Petroleum Corporation (GNPC), China
Development Bank (CDB) and China International United Petroleum &
Chemicals Co. (UNIPEC) Asia (as the crude oil offtakers); this agreement
sets out the structure of, and key contractual obligations of each party under,
the transaction. In summary: GoGs obligation to open and maintain the
transaction accounts; BoGs obligation to ensure timely and legal transfers of
repayments to CDB accounts and to open and maintain standby letters of
credit; GNPCs obligation to supply and UNIPECs obligation to purchase
crude oil to support repayments as scheduled; and the Ministry of Finance
and Economic Planning (MoFEP)s obligation to oversee and manage the
loan and the projects. Most importantly, under the Finance Documents,
MoFEP is the party responsible for managing the facility on behalf of
Ghana. Although MoFEP is the borrower, and commercial agreements are
executed between (Chinese) Project Sponsors and their (Chinese) project
Contractors, the agreements impose the responsibilities on MoFEP to supervise and ensure that the projects are economically, financially and materially
carried out according to best standards, meaning that the Chinese financing
entity will normally not be responsible for delays, defects and defaults.
(ii) The Accounts Agreementsetting up the transaction accounts, namely:
Collection Account, Debt Service Account, and Owner Contribution
Account in CDBs Hong Kong Branch for the operation and management
of the loan;
(iii) The Charge over Accounts Agreement, giving CDB a charge (lien) over all
the repayment accounts;
(iv) The Subsidiary Agreements: one each to be signed between GoG and CDB to
cover the financing for each Eligible Project proposed for financing;
32
http://www.people.com.cn/GB/paper53/13217/1185583.html, accessed 21 January 2013, as
translated in Hubbard (2007), pp. 1415.

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A. Thomashausen

(v) Standby Letters of Credit that will be opened to support each loan repayment
installment: these are required to be open by BoG whenever a repayment is
due. Although issued as 30 day L/Cs, it is understood that they will expire
immediately whenever all GoGs payment obligations for a repayment
period are completed;
(vi) Other Surety Documents; including a letter of Commitment from MoFEP
certifying that the principal and interest of the outstanding loan will be
included in each annual budget until paid off;
(vii) Offtaker Agreements between GNPC and UNIPEC Asia for the sale and
purchase of crude oil to support repayment of the loan;
(viii) On-lending Agreements for MoFEP to on-lend the loans to the Project
Sponsors entrusted with carrying out approved projects.
The duration of the Master Facility Agreement of 16 December 2011 is 15 years
and 6 months, subject to such extensions beyond the repayment period of the loan
as may be necessary to allow CDB to be fully reimbursed. The total credit amount is
US$3 billion from China Development Bank available in two tranches:
Tranche A (US$1.5,000,000,000) with 15 years repayment period with 5 years
grace period
Tranche B (US$1.5,000,000,000) with 10 years repayment period with 3 years
grace period
Availability Period: 6 years from the signing date of the Master Facility Agreement
Repayment: Principal and interest in respect of the Facility shall be paid to CDB
every 6 months at the end of each Interest Period.
Interest Periods: 6 months.
Interest Rate: 6 months LIBOR plus the applicable Margin.
Margin: 2.95 % per annumTranche A loan; 2.85 % per annumTranche B loan
Upfront Fee of zero point two five per cent (0.25 %) of the loan
Half (0.125 %) will be due on or before twenty (20) days after signing of the
MFA, and
Half will be paid as a Condition Precedent to the first Subsidiary Agreement.
Commitment Fee: one percent (1 %) per annum on the undrawn and un-cancelled
balance of the loan will become due no later than sixty (60) days after the signing
of the MFA (i.e. by 14 February 2012).
GoG Owner Contribution: 15 % of each Subsidiary Agreement amount.
Debt Service Reserve Account cover: GoG is required to maintain a cover of 1.5
times each repayment in the account at all times.

(Foreign) Investment Strategies in Africa

169

Eligible Projects
Twelve (12) eligible projects, primarily infrastructure development projects under a
variety of MDAs, were identified and confirmed already for financing under the
facility given to the Government of Ghana. They are:
1. Western Corridor Infrastructure Renewal ProjectTakoradi-Kumasi;
Dunkwa-Awaso Railway Line (Scenario 1 Retrofit);
2. Western Corridor Infrastructure Renewal ProjectTakoradi Port Retrofit
Phase 1;
3. Sekondi Free Zone ProjectShared Infrastructure and Utility Services;
4. Accra Plains Irrigation Project (Phase 1: 5,000 ha);
5. Coastal Fishing Harbours and Landing Sites Re-development Project (Axim,
Dixcove, Elmina, Winneba, Mumford, Senya-Beraku, Jamestown, Teshie,
Tema, Ada, Keta);
6. Eastern Corridor Multi-modal Transportation ProjectUpgrade of Volta Lake
Ferries, Pontoons + Landing Sites (Kpandu-Amankwakrom; Kete KrachiKwadokrom; Yeji-Makongo; Tapa Aboatoase; Dzemini); Upgrade of
Akosombo and Buipe Ports;
7. Western Corridor Gas Infrastructure Project: Offshore Gas Gathering Pipeline;
Early Phase Gas Processing Plant; Onshore Gas Trunk Pipeline, including
Pumpuni Dispatch Terminal; NGLs Processing Retrofit (Tema Oil Refinery);
and Helicopter Surveillance Fleet;
8. Western Corridor Petroleum Terminal Project;
9. Western Corridor Oil Enclave Toll Road Project;
10. Accra Metropolitan Area ICTEnhanced Traffic Management Project
(including urgent road completion components);
11. Integrated National Security Communications Enhancement ProjectDeployment of ICT Enhanced Surveillance Platform for Western Corridor Oil
Enclave;
12. US$100 million SME Projects Incubation FacilityFacility Management
Contract(s) with local financial institution(s).

Subsidiary Agreements
Separate Subsidiary Agreements must be signed between MoFEP and CDB for
each eligible project and are submitted to CDB together with an Application for
consent to the Subsidiary Agreement. The loans will be disbursed only following a
successful due diligence by CDB on the eligible project. Once approved for
disbursement, disbursements are made upon submission to CDB by MoFEP of
Utilisation Requests, of which no more than five (5) are permitted annually.
Loan disbursements will be made directly from CDB to the accounts of project
contractors.

170

A. Thomashausen

F. FOCAC Success and Risk


The Master Facility Agreement structure offers African States an integrated
approach where the offtake of raw materials is credited at market value to serve
as finance for agreed project implementations where the contracting, project management, payments and cash flows do not pass to the authorities of the African
resource State.
This may appear as a denial of sovereignty of the African resource State and a
fundamental contradiction of the principles of the PSNR declaration. However, it
addresses a fundamental reality that has caused many Western sponsored projects
and loans to fail.
Current statehood in Africa is too weak to be able to successfully market and sell
their natural resources by interacting with global corporations whose annual turnover exceeds by many times the annual budgets of African States, and often even
the GDPs of entire States. Chronic lack in critical skills on a national level makes it
difficult to diligently administer the proceeds of resource trading and apply them
purposefully, without the resource contributing to what literature refers to as the
resource curse, meaning large uncontrolled cash flows that undermine every
attempt at safeguarding State administration and good governance. Moreover,
African States are normally not able to obtain large commercial loans at reasonable
rates and costs.
The Chinese approach puts Northern Hemisphere competitors at distinct disadvantages as their financial institutions and industries cannot operate in an integrated
manner with the support and coordination of the State.
With the growing success and expansion of FOCAC to cover science, education
and cultural exchange, including the teaching of Mandarin in many schools in
almost every country in Africa, a new long term SouthSouth alliance is forged.
Already Africa has probably become home to close on three million Chinese
nationals, if the informal or non-official migration is factored in. Angola for
instance officially recorded 258,920 Chinese immigrants in April 2012.
The Chinese State control over all its State Owned Enterprises through the
SASAC and the NDRC, all but eliminates the commercial risk for all the parties
intervening in this process. China will praise this State control as the basis for the
effectiveness of the FOCAC win-win formula.33 The downside of this approach
however has been an overall disappointing return on capital from Chinese investments in Africa. Recent research suggests that over the entire past FOCAC decade
from 2012, not a single project sponsored and undertaken by China in Africa would
have generated actual profits for the Chinese project companies and investors.34
However, Chinese Africa trade and investment relation accounts for only 4 % of
Chinas trade globally.

33
34

Zhang (2011), pp. 500513.


Komesaroff (2012); Taylor (2012), pp. 3138.

(Foreign) Investment Strategies in Africa

171

China is reaping significant benefits from this strategy, through access to raw
materials, expanded markets for exports of manufactures, the establishment of
investment and support Africas efforts to attain the Millennium Development
Goals, generating significant diplomatic influence globally, for the survival of the
Chinese political system and its elite, without the need for any significant democratic reforms.
The benefits are at this stage still mostly political and strategic, and not economic. FOCAC helped rebuild essential administrative and transport infrastructure
and strengthen the ability of governments to intervene and govern. For China it
provided a welcome boost in actual orders and work for Chinese State Owned
Enterprises that struggle, even within the confines of their own national markets, to
compete with the far more innovative and quality conscious Chinese joint venture
and private companies and industries. As FOCAC becomes integrated into the
vision of a much broader alliance of developing nations, Brazil, Russia, India,
China and South Africa, BRICS, its FOCUS will adapt and economic consideration will become more important. In law, FOCAC and the BRICS are manifesting
a State practice that has already changed the meaning of the Declaration on PSNR,
and will further shape the emerging concepts of development cooperation.

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Kimberley as a Means of Promoting Good


Governance: The Role of Business
Karl M. Meessen

Contents
A. Targeting Diamond Based Financing of Civil Wars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. A Lawyers View of the Kimberley Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C. Protection of Human Rights as a Matter of Global Governance . . . . . . . . . . . . . . . . . . . . . . . . . . .
D. Involving Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E. Coping with Extraterritoriality in Kiobel v. Royal Dutch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F. The Remaining Scope for National Law Implementing Human Rights Soft Law . . . . . . . . .
G. Corporate Social Responsibility Under the Impact of the Competition of Systems . . . . . .
H. Setting the Right Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I. The Positive Incentive Contained in Kimberley and What It Costs . . . . . . . . . . . . . . . . . . . . . . . .
J. Conclusion: But a Small Flashlight on Global Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Abstract The Kimberley Process stands for involving business in the promotion of
human rights if only in singular circumstances. Financing civil wars with stolen
diamonds seems strange. But it did happen in Angola and Sierra Leone a while ago.
At that time the world diamond business was still being controlled by just one
producer plus trader. In retrospect not so surprisingly, De Beers allowed itself being
talked into providing active support to the two governments fighting the respective
rebellious groups and to a number of other governments appalled at reports of
atrocities occurring on both sides but proving reluctant to commit their own
soldiers. As a result business, i.e. De Beers, along with governments, mainly of
consumer States, started operating a worldwide certification scheme effectively
distinguishing between stolen blood diamonds and their legally marketed clones.
The bottom line was that the rebels financial resources were gradually being dried
out while De Beers managed to secure its near monopoly for another decade or
so. On other occasions, it may not be that simple to identify equally effective
incentives when business is being asked not only to abide by solemn rules of
corporate responsibility but to actively promote human rights and good governance.
K.M. Meessen (*)
Friedrich Schiller Universitat Jena, Jena, Germany
e-mail: karl.meessen@t-online.de
Springer International Publishing Switzerland 2015
M. Bungenberg, S. Hobe (eds.), Permanent Sovereignty over Natural Resources,
DOI 10.1007/978-3-319-15738-2_10

173

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K.M. Meessen

But given the mixed prospects of judicial enforcement, Kimberley should be kept
in mind.

A. Targeting Diamond Based Financing of Civil Wars


The reference in the title, of course, is to the Kimberley process and only indirectly
to that classic site of diamond extraction situated in Northern Cape Province,
South Africa. It is not even to the diamonds mined in Kimberley but to diamonds,
which were for quite some time exploited in Angola, Sierra Leone and several other
places of Africa affected by internal unrest escalating to civil war. In those cases,
the exploitation happened to be intermittently controlled by rebellious groups that
were fighting the recognized government of the respective country and, to that end,
used to finance the purchase of weaponry and the hiring of soldiers, sometimes
children soldiers in their early teens, from the proceeds of diamonds illegally
marketed from the area under their control. The diamonds therefore were later
dubbed conflict diamonds in government statements or blood diamonds in the
media.
As ever, the recognized governments turned to the United Nations or, to be more
precise, to the United Nations Security Council. The Security Council took note of
the matter, expressed its concern and urged the parties involved in the conflict to
end all hostilities.1 As a means of implementing that goal it was soon considered to
try and deprive the rebels of any chance to market the conflict diamonds. The
trouble is: diamonds harvested in zones of conflict, can neither before nor after
refinement, be distinguished from diamonds extracted elsewhere, let alone from
diamonds extracted in the respective conflict areas by the rightful owners of the
mine at an earlier stage.
To implement any attempt to embargo conflict diamonds, as trade policy experts
know, certification is the remedy of choice. Hence the Security Council prohibited
the direct or indirect import of diamonds from Angola unless duly certified.2 Two
years later the General Assembly gave its general endorsement to the initiatives
already taken . . . by the Governments of Angola and Sierra Leone and by other key
producing, processing, exporting and importing countries, as well as by the

For Angola see e.g. U.N. Security Council, Resolution 696 (1991) of 30 May 1991, available at:
http://www.un.org/en/ga/search/view_doc.asp?symbolS/RES/696%281991%29.
2
See e.g. U.N. Security Council, Resolution 1173 (1998) of 12 June 1998, available at: http://
www.un.org/en/ga/search/view_doc.asp?symbolS/RES/1173%281998%29.

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diamond industry and civil society . . ..3 In 2003, a hybrid publicprivate4 scheme
of certification was set up in Kimberley. It was given the name Kimberley process
and has been operated ever since.5

B. A Lawyers View of the Kimberley Process


The facts have been extensively reported by political scientists who also rightly
emphasized the remarkable role business played, and continues to play, to make the
certification mechanism work.6 The author relies on their fact finding also with
regards to numerous further details mentioned below. On the promotion of good
governance in international relations, however, it may be permitted to add a few
words from a legal point of view, in this case mainly from the one of public
international law.
When discussing matters of global governance, lawyers tend to focus on legal
rules, which implies a State centered approach to what the law is. From that
perspective, whatever changes the Westphalian State of Thomas Hobbes times
may have undergone, States continue to be the only lawmakers. Hence lawyers are
reluctant to admit the existence of business-made law or any other society-made
law.7 The reason is simple. Adjudication continues to be operated by State controlled courts, and State controlled courts are instructed to apply formally produced
law, be it produced by the respective State as national law, or by an organization set
up by two or more States in the form of international agreements or as customary
international law based on a general practice of States recognized to be binding.
To be sure, in discussions of global governance international lawyers or lawyers
in general run the risk of failing, and are often charged thereof by political scientists
and economists, to give enough weight to other powerful factors making up global
governance. Yet in the course of applying existing legal rules to particular cases,
lawyers are used to taking note of social and political factors and may thereby
contribute to a development of the pertinent rules that reflects a rather complete
picture of the forces governing global governance.
Trying to evaluate the promotion of good governance in this light, one has to ask
which issue was at stake in the civil wars that raged in Angola and Sierra Leone for
quite some time and were financed by conflict diamonds. Was it
3

UNGA Resolution 55/56, The role of diamonds in fuelling conflict: breaking the link between the
illicit transaction of rough diamonds and armed conflict as a contribution to prevention and
settlement of conflicts, of 1 December 2000, available at: http://www.un.org/en/ga/search/view_
doc.asp?symbolA/RES/55/56&LangE.
4
For an explanation of the term see Kobrin (2009), pp. 349 et seq.
5
For the basic documents and current activities see http://www.kimberleyprocess.com.
6
Wallis (2005), pp. 388 et seq.; Haufler (2009), pp. 403 et seq.
7
For the authors perception of Justice Holmes theory of legal realism see Meessen (2004),
pp. 45 and 152.

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(1) the procurement and marketing of the diamonds,


(2) the rebellion against the recognized government, and/or
(3) the atrocities that were committed, presumably by both sides, in those conflicts?
Reviewing the foregoing aspects one by one, it may at the outset be stated that
the illegal taking of property owned by foreign or by foreign-controlled companies
clearly is an issue of international law.8 Yet not every issue of international law
necessarily involves concerns of a generality relevant to global governance. If
rebellious groups within a State, as in the instant cases, gain control of parts of
the respective States territory and then seize the opportunity to engage in some
looting of valuable objects in that area, such taking is an issue normally to be dealt
with in conformity with international law by the executive and judicial branches of
that government or of any foreign government to whose territory the one or other
object taken may eventually be shipped.9
Rendering support to the incumbent government on its request does not even
raise a problem of international law. Only supporting regime change would. So far,
except for bringing to an end grave infringements of human rights, there are no
parameters in terms of promoting democracy, the rule of law or the elimination of
corruption liable to be recognized as justifying foreign intervention.10 Besides, in
the case of the civil wars financed by conflict diamonds, none of those governments
installing the Kimberley process intended to support the rebellion. But even if that
intention had been pursued, the facts reported would hardly have allowed to expect
a substantial improvement of domestic governance, no matter which side would
eventually prevail.

C. Protection of Human Rights as a Matter of Global


Governance
The real issue certainly was civil war itself with its notorious concomitants of
particularly cruel atrocities in disregard of the minimum standard of human rights
applicable in times of war. The standard to be observed was considerably clarified
by the Rome Statute of the International Criminal Court of 17 July 1998 meanwhile
in force in more than 120 States.11 The relevant provisions are Articles 7 and 8 on
crimes against humanity and war crimes respectively. The applicability of Article
8 to crimes committed in a civil war is under its paragraph 2(f) limited to armed
conflicts that take place in the territory of a State when there is protracted armed
conflict between governmental authorities and organized armed groups . . ..

See e.g. Meessen (2004), pp. 173 et seq.


Meessen (2004), pp. 182193.
10
For a recent principled discussion see Benvenisti (2013), pp. 295 et seq.
11
Rome Statute of the International Criminal Court of 17 July 1998, 2187 UNTS, pp. 3 et seq.
9

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The civil wars discussed here, it is submitted, qualify for protracted armed
conflicts as defined in the passage quoted. This is not to say that the applicability
of the Rome Statute settles the matter. To be sure, it imposes a risk on the
individuals responsible for the commitment of the crimes and therefore also liable
to be held responsible before the International Criminal Court, albeit only retrospectively. Attempting to end a further commitment of international crimes, however, raises an issue of global governance: may foreign governments interfere in
those conflicts and, if so, in what way?
The question relates to the responsibility to protect, or R2P for short. That
concept, officially baptized at the United Nations summit of 2005,12 has many
facets, which cannot, and need not, all be taken up here. It may be permitted to stay
with the particular focus entrusted to this speaker, that is the one on a possible role
of business.

D. Involving Business
For many years already, business has been made subject to a vast body of rules of
soft law so as to create a sense of corporate social responsibility. The contents of
those rules can conveniently be taken from the OECD Guidelines for Multinational
Enterprises.
Unlike the United Nations Code of Conduct on Transnational Corporations,
which never made it beyond the stage of drafting,13 the OECD Guidelines came to
be adopted as a recommendation already in 1976 and have been regularly updated
ever since.14 The project of a global compact on the matter not having materialized either, the United Nations Human Rights Council resolved on 6 July 2011 to
set up a working group charged with drafting rules implementing the Report of the
Special Representative of the Secretary General on the issue of human rights and
transnational corporations and other business enterprises, which is often referred
to as the Ruggie-Report.15
The 2011 Edition of the OECD Guidelines provides in Chapter IV on Human
Rights not only that States have a duty to protect human rights, but also that
enterprises should . . . 2. Within the context of their own activities, avoid causing or
contributing to adverse human rights impacts and address such impacts when they
occur.
12

UNGA Resolution 60/1, 2005 World Summit Outcome of 16 September 2005, no. 138.
On more than three decades of abortive efforts to draft a code of conduct, see SagafiNejad (2008).
14
For the most recent edition see OECD Guidelines for Multinational Enterprises, 2011 Edition,
Paris 2011.
15
UN Human Rights Council, Resolution 17/4, Human rights and transnational corporations and
other business enterprises of 6 July 2011, UN Doc A/HRC/RES/17/4, available at: http://daccessdds-ny.un.org/doc/RESOLUTION/GEN/G11/144/71/PDF/G1114471.pdf?OpenElement.
13

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The OECD Guidelines emerged from the investment conflicts of the 1970s
between the newly assertive majority of Third World countries and some highly
insensitive large corporations headquartered in industrialized States, which constitute the bulk of OECD Member States. Despite their designation, the Guidelines
apply to any kind of business, that is, not only to multinational enterprises, which
are usually considered to have operative subsidiaries in a number of foreign States.
The only requirement is that the respective businesss conduct is covered by the
terms of one of its rules, causing . . . adverse human rights impacts in the above
example.16
Their rule-like language notwithstanding, codes of conduct, guidelines etc. are
not binding as part of international soft law or rather they are binding only if found
to reflect the contents of existing rules of treaty law or customary international law.
In the case of the OECD Guidelines, the non-binding character clearly follows both
from their legal form as a recommendation of an international organization and
from their wording: all the time reiterating the term should instead of shall. But
adherence to the guidelines in general and to the rules of its human rights chapter in
particular was always accepted as an obvious must by business if only because its
representatives contributed so much to their elaboration and continuous updating.
Yet it may be wondered what the legal consequences will actually be like once, in a
particular case, adverse human rights impacts occur and particular businesses are
then alleged to have contributed to them.

E. Coping with Extraterritoriality in Kiobel v. Royal Dutch


A case of that kind was recently decided by the United States Supreme Court.17 In
Kiobel v. Royal Dutch Petroleum Co., a group of Nigerian nationals residing in the
United States charged Royal Dutch/Shell to have assisted to, and profited from, the
commitment of grave violations of human rights in the course of massacres among
indigenous ethnic groups accompanying the exploration of new oil fields in the
Niger delta by Shell, and claimed damages under the Alien Tort Statute (ATS) of
1789. That statute, adopted two years after the entry into force of the Constitution of
the United States, provides for United States District Courts to adjudicate tort
claims brought by aliens for a violation of the law of nations.18 At the time of
its enactment, the idea was to grant damages resulting from acts of piracy to foreign
nationals as well. After having stayed dormant for more than a century, the ATS
was invoked as a basis for a wide array of claims for violations of todays
international law inter alia with the intention of benefitting from United States

16

See Chapter I (Concepts and Principles) para. 5 of the Guidelines.


Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659 (2013).
18
For the text of the Alien Tort Statute, its history and a discussion of the merits of applying it to
claims based on violations of human rights, see Hufbauer and Mikrokostas (2003).
17

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practice, which offers the prospect of fabulous amounts of damages being granted
and a financing of the law suits by contingency fees at a rate of 3050 % of the
damages eventually awarded.
In the Kiobel case, the United States Supreme Court eventually dismissed the
action relying on a presumption of territorial applicability of United States domestic
law it had developed in cases unrelated to human rights issues.19 Since the abuses of
human rights were alleged to have taken place in Nigeria, applying that presumption meant to affirm the dismissal of the claim by the Court of Appeal. The Court of
Appeal, however, had reached that conclusion by denying any liability of corporations for violations of human rights under customary international law.20
Neither ground will, however, preclude claims of that kind in the future should
the United States legislator or the legislator of any other State choose to implement
international soft law on corporate social responsibility by providing for an
unequivocal statutory basis for damages claims to that effect. That is what both
courts said towards the end of their opinions, the Supreme Court by pointing out
that, if Congress were to determine otherwise, a statute more specific than the
(Alien Tort Statute) would be required, and the Court of Appeal by stating:
nothing in this opinion limits or forecloses Congress from amending the (Alien
Tort Statute) to bring corporate dependents within our jurisdiction. Yet would
international law stand in the way of such legislation?

F. The Remaining Scope for National Law Implementing


Human Rights Soft Law
It is indeed for national law or, to be more precise, for every sovereign State to
decide on how to make business comply with the international soft law rule cited
above. Making foreign businesses like the DutchBritish Shell group abide by
United States statutory law implementing international soft law on corporate social
responsibility when operating in Nigeria poses the traditional problem of extraterritoriality, which is partly a problem of jurisdiction under customary international
law, partly a problem of the factual possibilities of enforcement.
To deal with the latter type of problem first: the bigger and the more global a
company is, the easier it is to enforce national orders based on national laws
designed to implement international law. The reason is simple. The truly big and
global companies are particularly vulnerable to the enforcement of extraterritorial
orders because they have spread their business activities all-over the world, and
those activities have materialized or will materialize in assets located in a great
many countries at the same time, be it real estate, subsidiaries, intellectual property

19
For a claim for damages under anti-trust law, see e.g. F. Hoffmann-LaRoche Ltd. v. Empagran S.
A., U.S. Supreme Court, Judgement of 14 June 2004, 124 S.Ct. 2389.
20
Kiobel v. Royal Dutch Petroleum Co., 621 F. 3d 111 (2010).

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rights or just claims against present or future customers. No company can afford to
expose all of those assets to risks of enforcement, and Shell is no exception even
though, in Kiobel, its contacts to the United States were found to have been
minimal.
Turning to the problem of the customary international law of jurisdictionthere
is no universally applicable treaty law on that mattera distinction has to be made
between rules or principles on the basis of jurisdiction and those governing its
exercise.21
Rules or principles on the basis of jurisdiction would require from the 193 States
of the world to confine their law-making under identical criteria of worldwide
applicability and thereby to bring about some kind of geographic allocation of
potential subject-matter among them without causing too many overlaps. A comparative analysis of the 193 conflicts laws is likely to reveal more or less consistent
patterns of practice in many fields of law. But any pattern of that kind would
constitute a rule or a principle of customary international law only if it rested on a
conviction of its internationally binding character. Usually it just stands for a sound
policy of conflicts law making on the basis of an enlightened self-interest to that
effect. To be sure, major deviations from the traditional pattern of enlightened selfinterests may be challenged as violating customary international law. But none of
those patterns of State interests would withstand adjustment or outright change if a
State, in response to new facts and/or to new demands of its electorate, decided to
reshuffle its political priorities and thereby redefined its enlightened self-interest.
That at least is the lesson to be gathered from antitrust law enforcement in the
United States, Germany, the European Union andincreasinglyChina.22
It is the stage of exercising jurisdiction when State-to-State frictions occur and
prepare the ground for an evolution of principles of customary international law.
The frictions are signalized by protests on the part of foreign governments, which,
often alerted by domestic industry, react on early signs of exercising jurisdiction by
organizing agency-to-agency protests, sending diplomatic notes, filing amicus
briefs, refusing execution of foreign judicial orders, etc. Both sides then take to
charging each other of infringements of international law. Such rows are regularly
settled by compromises reached on the diplomatic level or by courts adopting a
more restrictive interpretation of domestic law. That practice can be summarized in
terms of a balancing rule of non-interference, which obliges States to refrain from
exercising their jurisdiction whenever the harm arising to the interests of other
States is greater than the domestic benefits. In the opinion of this author therefore,
paragraph 403(3) of the Third Restatement of Foreign Relations Law, which provides for that rule, should have been formulated as a binding rule of customary law
21

As to that distinction and its impact on international antitrust law, see Meessen (1984), pp. 798 et
seq.
22
Meessen (1984), p. 800; for later practice see Meessen (2009); for an account of the first 5 years
of implementing the Chinese Anti-Monopoly Law, see Commissioner Ohlhausen of the US
Federal Trade Commission, Speech delivered in Beijing, China, on 31 July 2013, available at:
http://www.ftc.gov/speeches/ohlhausen.shtm.

Kimberley as a Means of Promoting Good Governance: The Role of Business

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through utilizing the term shall instead of should.23 Unlike any general rule on
allocating bases of jurisdiction to the various States, the balancing rule rests on a
firm, albeit often ignored, generally recognized principle of international law, to wit
the general principle of sovereign equality of States laid down in Article 2(1) of
the United Nations Charter.
Coming back to Kiobel, the various opinions filed in that case reveal that the
courts of the United States have no jurisdiction to adjudicate claims for damages
brought by foreigners against foreign businesses even on account of grave infringements of human rights if the alleged conduct took place abroad. The red line,
however, is drawn exclusively as a matter of United States conflicts law. Yet
conflicts law is mostly national law, which may at any time be changed to cover
foreign related human rights cases. Even Judge Leval, who had entered a concurring opinion in Kiobel at the Court of Appeal, urged the Supreme Court in an article
in Foreign Affairs not to deal a devastating blow to hopes of expanding global
recognition of human rights.24 Now, after the Supreme Court construed the ATS
narrowly, and thereby left the door open to legislative change, Levals view
amounts to suggesting such change, which would also be in line with the Sovereigns as Trustees of Humanity concept put forward by Benvenisti in the American
Journal of International Law.25 Assuming public opinion embraced the universalist
idea and Congress translated it into statutory law, it is hard to imagine any court of
the United States refusing to follow suit. But, Kiobel, after it was recently
reinforced by Justice Ginsburg delivering the opinion of the U.S. Supreme Court
in its decision of 14 January 2014 in Daimler AG v. Bauman, is unlikely to give way
to a mere judicial rethink. In the United States therefore, any further extension of
extraterritoriality as of now seems to require straightforward legislative action.

G. Corporate Social Responsibility Under the Impact


of the Competition of Systems
Assuming the international law of State jurisdiction would no longer preclude the
imposition of social responsibility upon business through extraterritorial legislation, the worldwide competition of systems may yet have set factual limits to lawmaking worth taking note of. That competition among all the States of the world
eager to attract economic activities has lately intensified to a considerable degree.
Ever since companies extended operations beyond the frontiers of their home States
and multinational enterprises eager to protect their foreign direct investments

23

American Law Institute (1987). For the authors view and ample references to State practice, see
Meessen (1984), pp. 802808; for an update of the discussion of doctrine and case law, see
Meessen (2009), nos. 92116.
24
Leval (2013), pp. 16 et seq.
25
See supra note 10.

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K.M. Meessen

started influencing host State policies, the relationship between States and big
companies has grown awkward.26
Meanwhile the odds have changed. It is no longer the one or other multinational
enterprise dwarfing a State of the Third World in terms of income and trying to
bribe its way through that States administration. The international soft law of
guidelines and codes of conduct, if only in the form of a draft,27 as well as the
rise of a number of Third World States into the league of home States for foreign
investment have effectively turned multinational enterprises into responsible
players in the world economy. Misconduct of the ITT type of interfering with
Chilean elections has now largely, though not entirely, become a matter of the
past.28
Today it is the totality of world business being wooed by every single State of the
world to increase inward investment and other domestic business activities in order
to gain jobs, obtain advanced technological know-how and all of this to boost the
domestic economy. Due to the globalization of markets, the global enterprise,
characterized by a global business strategy and global mobility ever ready to
move from one site of localizing its activities to another one, has become the new
antipode of the good old Westphalian State.29 As a result, States have become used
to gauging every single step of economic policy in view of its impact on their
position in the competition of systems. Before extrapolating current trends so as to
assume the adoption of a modernized Alien Tort Statute, one will therefore have to
ask what will happen to the United States economy, or the economy of any other
State, if bringing cases of the Kiobel kind became a matter of routine.
The localization of economic activities is more volatile than it ever was.
Companies are bound to react quickly whenever they spot a major risk to their
local business environment. Even for a company like Shell group, Kiobel was not
just a minor matter. One can well imagine the amount of irretrievable legal costs
produced by a pilot case of that kind. Those costs, however, would easily be
dwarfed by actual and/or punitive damages accorded to the plaintiffs, and those
expenses would still have to be multiplied if, in the wake of Kiobel, more law suits
were, on the basis of similar charges, brought against Shell and/or other oil
extracting companies.
The prospect of according damages under an unlimited ATS-like legislation
would then indeed amount to a nightmare as the economist Hufbauer and the
lawyer Mitrokostas put it in their 2003 study titled the Awakening Monster.30 To
be sure, legislators could try to hedge the effects of implementing legislation and
proceed cautiously by capping the amount of damages etc. But if United States tort
law, which is particularly favorable to the plaintiff side, stays as it stands, the Kiobel

See the telling Sovereignty-at-Bay title of Vernon (1971).


See supra notes 1315 and accompanying text.
28
Girvan (1976), pp. 90 et seq.
29
For an explanation and references see Meessen (2013), para. 246.
30
See supra note 18.
26
27

Kimberley as a Means of Promoting Good Governance: The Role of Business

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approach of implementing the international soft law on human rights seems difficult
to sustain.

H. Setting the Right Incentives


States may regulate business conduct through selecting policy goals, enshrining the
goals selected in laws that prohibit certain conduct and assuring compliance by
providing for heavy fines in the event of non-compliance. Even regulation of
extraterritorial applicability can thus obtain a reasonable chance of enforcement.
The repressive scheme would work up to a certain point. That point, however, is
reached when addressees start calculating whether shifting business activities to
another State would on the whole turn out preferable as a result of sparing them the
costs of future fines, damage awards and irretrievable expenses for legal services at
their present location.
In this context, it has to be remembered that businesses are not only subject to the
law-making of up to 193 States but, what matters more in their view, they are
primarily subject to the pressure of their competitors in their respective product
market. It is the product competition that determines their conduct on the demand
side of the competition of State systems. The global enterprises mentioned above
are bound to make efficient use of their mobility in localizing business operations in
globalized product markets. Quick reactions can offer additional opportunities.
Belated ones may prove fatal.
One may regret or even denounce it as profit-minded capitalism but, in todays
world economy, businesses that intend to survive have no alternative to pursuing
economic efficiency goals. States, or at least the ones organized as democratic
systems, are driven by demands of their electorate and hence have a broader array
of policy goals in mind such as social justice, ecological sustainability andthe
worldwide protection of human rights. If they want to call upon business for
contributions to one or more of those non-economic goals, it is best to make
companies truly internalize social responsibility as a business goal of their own
instead of only paying lip service to any such vision as a mode of presenting
themselves in a favorable light to the public. It is imperative to choose the right
incentives.31 Kimberley may serve as an example to discuss the point.

31

For a more extensive explanation, see Meessen (2013), nos. 132136.

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K.M. Meessen

I. The Positive Incentive Contained in Kimberley and What


It Costs
Kimberley certainly was the right place to try. It is not the capital of South Africa
nor its financial center, but it is a place that stands for the diamond industry, and De
Beers is its standard-bearer. As the world leading diamond company for more than
a century, the De Beers name is synonymous with diamonds. That quote, taken
from the homepage of De Beers Group,32 sounds pretentious. Yet it is largely
correct or was so. The De Beers brothers having sold their piece of land which
comprised important mine fields, it was Cecil Rhodes who founded De Beers
company back in 1888. That company, now no longer alone in the world, came
to be controlled by the Oppenheimer family. It is today chaired by Nicky Oppenheimer and is still going strong.
In the Kimberley process, the role of business was initiated and continues to be
exercised by De Beers. De Beers, quite aware of the positive impact of the scarcity
of a product on its value, employed all the techniques of directly or indirectly
controlling the production of diamonds, or at least of their distribution, to avoid the
world market to be flooded by an overproduction, even though the extraction of
diamonds had meanwhile been taken up by several other States of Southern and
Central Africa. Towards the end of the twentieth century, new market entries from
Australia, Canada and in particular Russia started challenging De Beers dominant
position. Nonetheless, involving De Beers in the process provided participating
States with instant in-depth knowledge of the market and its players and the
infrastructure necessary to set up and monitor a certification scheme of worldwide
extension.
Certification is a particularly effective form of providing transparency, and
transparency is an essential device of fighting corruption and also a necessary
element of democratic processes. Yet from a competition law perspective, any
exchange of information among competitors induces the conclusion of agreements
on prices, quotas and the like.33 If no such agreements are concluded or can be
proved to have been concluded, similarities of business conduct are likely to
indicate an informal concerting of practices, which is equally reprehensible and
may trigger fining by enforcement agencies and private lawsuits for damages by
classes of customers.
To no-ones surprise therefore the certification scheme had the side-effect of
rescuing the cartel.34 Or rather it has terminated a monopoly and given rise to a
genuine cartel with De Beers and a number of other producers, notably from Russia,

32

http://www.debeersgroup.com/en/About-US/Our-Approach/.
See e.g. Wagenbaur (2009), Art. 81 para. 1 EG nos. 244 et seq.
34
For the various devices of disciplining the members of the diamond and other cartels, see
Kronstein (1967), pp. 65 et seq.
33

Kimberley as a Means of Promoting Good Governance: The Role of Business

185

as members. In addition, De Beers obtained an opportunity to begin to unload some


of its $ 4 billion stockpile without diluting prices.35 Orderly marketing is still
on. All the main producers share an interest in avoiding over-supply that would
leave industrial customers and private consumers with little choice but to accept the
high pricing, and their home States, as one may add, share that interest.
To be sure, the civil wars, at least the African ones financed by blood diamonds,
have come to an end, and so have the massacres committed against civilians and
children soldiers. In that respect, the higher prices charged for gems and diamonds
for industrial usages seem negligible. It may only be asked for how long that price
will have to be paid as a quid pro quo. It should be possible to envisage a scheme of
certification, which is, while being operated, compatible with competition policy.

J. Conclusion: But a Small Flashlight on Global Governance


The Kimberley Process precluded henceforth making use of illegally extracted
diamonds to finance insurgencies and thereby significantly contributed to the
termination of the civil wars ravaging parts of Angola and Sierra Leone. Maybe it
helped terminating and preventing similar unrest elsewhere. Above all, Kimberley
points in the right direction of trying to combine State action with business
operations.36 Yet there is more to Kimberley and much more to global governance
than can be discussed here.
With regard to Kimberley, aside from the essential support accorded to the
process by international governmental and non-governmental organizations, the
critical role world public opinion played has yet to be noted. The value of diamonds
is not determined by artificially provided scarcity of supply alone. In addition, the
steady demand for diamonds is bolstered in numerous regions of the world by their
function as a traditional wedding gift to the bride. Thus the term blood diamonds,
to stay with the metaphor, would not before long have killed the diamonds image
of pure joy and happiness. The chairman of De Beers is reported to have been quite
upset about that aspect of the matter.37
As to global governance, it is precisely public opinion whose recent development needs being examined. The new types of internet communication have given
civil society itself, which is in that case not mediated by governmental and nongovernmental organizations, a say on world events and even an opportunity to react
in a matter of a few hours e.g. by simultaneous mobilization of crowds in the streets
of major cities. Scrutinizing the pros and cons of Kimberley and assessing the
effectiveness of other methods of involving business for the cause of human rights

35

Wallis (2005), p. 400.


Meessen (2013), nos. 132 et seq.
37
Haufler (2009), pp. 408409.
36

186

K.M. Meessen

in the light of Kiobel can therefore at best have thrown a small flashlight on the
necessary discussion of good governance in todays world.

References
American Law Institute (1987) Restatement of the law, third: foreign relations law of the United
States, vol 1. American Law Institute, St. Paul
Benvenisti E (2013) Sovereigns as trustees of humanity: on the accountability of states to foreign
stakeholders. AJIL 107(2):295333
Girvan N (1976) Corporate imperialism, conflict and expropriation, transnational corporations and
economic nationalism in the Third World. M.E. Sharpe, New York
Haufler V (2009) The Kimberley Process Certification Scheme: an innovation in global governance and conflict prevention. J. Bus. Ethics 89:403416
Hufbauer GC, Mikrokostas NK (2003) Awakening monster: the Alien Tort Statute of 1789.
Institute for International Economics, Washington
Kobrin SJ (2009) Private political authority and public responsibility: transnational politics,
transnational firms, and human rights. BEQ 19:349374
Kronstein H (1967) Das Recht der internationalen Kartelle: Zugleich eine rechtsvergleichende
Untersuchung von Entwicklung und Funktion der Rechtsinstitute im modernen internationalen
Handel. Schweitzer, Berlin
Leval PN (2013) The long arm of international law, giving victims of human rights abuses their
day in court. Foreign Aff. 92:1621
Meessen KM (1984) Antitrust jurisdiction under customary international law. AJIL 78:783810
(Reprinted in: Reisman WM (ed) (1999) Jurisdiction in international law. Brookfield, Ashgate)
Meessen KM (2004) Economic law in globalizing markets. Kluwer Law International, The Hague
Meessen KM (2009) Internationales Kartellrecht der Europaischen Union. In: Loewenheim U,
Meessen KM, Riesenkampff A (eds) Kartellrecht Europaisches und Deutsches Recht,
Kommentar, 2nd edn. C.H. Beck, Munchen, pp 4181
Meessen KM (2013) Multinationale und globale Unternehmen im Wettbewerb der Systeme. In:
Isensee J, Kirchhof P (eds) Handbuch des Staatsrechts der Bundesrepublik Deutschland,
vol XI. Internationale Bezuge. C.F. Muller, Heidelberg, pp 777824
Sagafi-Nejad T (2008) The UN and transnational corporations from code of conduct to global
compact. Indiana University Press, Bloomington
Vernon R (1971) Sovereignty at Bay. The multinational spread of U.S. enterprises. Longman,
New York
Wagenbaur B (2009) EG-Vertrag. In: Loewenheim U, Meessen KM, Riesenkampff A (eds)
Kartellrecht Europaisches und Deutsches Recht, Kommentar, 2nd edn. C.H. Beck, Munchen,
pp 197324
Wallis AC (2005) Data mining: lessons from the Kimberley Process for the United Nations
Development of Human Rights Norms for transnational corporations. Nw. JIHR 4(2):388417

Extraterritorial Possibilities of Enforcement


in Cases of Human Rights Violations
Hans-Georg Dederer

Contents
A. Introduction: The Kiobel Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Permanent Sovereignty Over Natural Resources and Human Rights . . . . . . . . . . . . . . . . . . . .
I. Human Rights as Limits to Permanent Sovereignty Over Natural Resources . . . . . . . . .
II. Permanent Sovereignty Over Natural Resources as Human Right . . . . . . . . . . . . . . . . . . . . .
C. Human Rights Violations in the Course of Exploration and Exploitation of Natural
Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I. Violations of Indigenous Peoples Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. Violations of Other Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D. Extraterritorial Enforcement of Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. Claims for Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
III. Criminal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
E. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

188
189
189
189
190
190
191
192
192
194
210
213
214

Abstract A State may exercise its Permanent Sovereignty over Natural


Resources by granting concessions to transnational corporations for the purpose
of exploitation of natural resources. It may also provide security services to those
transnational corporations. The activities of both the transnational corporations and
their host States police or armed forces may end in serious human rights violations.
The victims of such human rights violations may try to bring claims against the host
State or against the transnational corporations home State or against the transnational corporation itself. They may choose to file such civil lawsuits with foreign
courts, i.e., with courts of a third State. Such damage claims before foreign courts
will be hardly ever successful, though. In particular, with regard to the Alien Tort
Statute (ATS), the U.S. Supreme Courts decision in the Kiobel case delivered in
April 2013 largely ruled out ATS damage claims with regard to human rights
violations committed abroad.

H.-G. Dederer (*)


University of Passau, Faculty of Law, Innstr. 39, D-94032 Passau, Germany
e-mail: Hans-Georg.Dederer@Uni-Passau.de
Springer International Publishing Switzerland 2015
M. Bungenberg, S. Hobe (eds.), Permanent Sovereignty over Natural Resources,
DOI 10.1007/978-3-319-15738-2_11

187

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H.-G. Dederer

A. Introduction: The Kiobel Case


On April 17, 2013, the U.S. Supreme Court affirmed the appeals courts judgment1
in the case of Kiobel v. Royal Dutch Petroleum.2 The plaintiffs were Esther Kiobel
and other (former) residents of the Ogoni region of Nigeria. They had filed a lawsuit
against Royal Dutch Petroleum and two other companies belonging to the Shell
group in 2002.3 The facts of the case may be summarized as follows:
[Shell] has been engaged in oil exploration and production in the Ogoni region of Nigeria
since 1958. In response to [Shells] activities residents of the Ogoni region organized a
group named the Movement for Survival of Ogoni People to protest the environmental
effects of oil exploration in the region. According to [Esther Kiobel and the other]
plaintiffs, in 1993 [Shell] responded by enlisting the aid of the Nigerian Government to
suppress the Ogoni resistance. Throughout 1993 and 1994, Nigerian military forces are
alleged to have shot and killed Ogoni residents and attacked Ogoni villages beating,
raping, and arresting residents and destroying and looting property all with the assistance
of [Shell]. Specifically, [Esther Kiobel and the other] plaintiffs allege that [Shell], inter alia,
(1) provided transportation to Nigerian forces, (2) allowed their property to be utilized as a
staging ground for attacks, (3) provided food for soldiers involved in the attacks, and
(4) provided compensation to those soldiers. . . . [Esther Kiobel and the other] plaintiffs
brought claims of aiding and abetting (1) extrajudicial killings; (2) crimes against humanity; (3) torture or cruel, inhuman, and degrading treatment; (4) arbitrary arrest and detention; (5) violations of the rights to life, liberty, security, and association; (6) forced exile;
and (7) property destruction.4

Esther Kiobel and the other plaintiffs sued Royal Dutch Petroleum and the other
two companies of the Shell group under the Alien Tort Statute (ATS)5 which reads in
relevant parts as follows: The district courts shall have original jurisdiction of any
civil action by an alien for a tort only, committed in violation of the law of nations.
This statute is a provision of the Judiciary Act of 1789. It has been a Sleeping
Beauty for more than just a 100 years.6 It was only 200 years later, i.e., since the
1980s,7 that the ATS has become notorious for allowing foreigners to sue foreigners
before U.S. courts for human rights violations committed in a foreign country.
Thus, the Kiobel case leads us right into the core of this articles topic. But before
going into any more details on problems of extraterritorial enforcement in cases of

Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111 (2nd Cir. 2010).
Kiobel v. Royal Dutch Petroleum Co., No. 10-1491, slip op. p. 14 (S.Ct. 2013), 569 U.S.__
(2013) 133 S.Ct. 1659 (2013), p. 1669. For an in-depth analysis of the Supreme Courts Kiobel
decision and its implications see Agora: Reflections on Kiobel. Excerpts from the American
Journal of International Law and AJIL Unbound (http://www.asil.org/sites/default/files/
AGORA/201401/AJIL%20Agora-%20Reflections%20on%20Kiobel.pdf); see also Frosch
(2013), Reynolds and Zimmer (2013), Sandrock (2013), and Sturner (2014).
3
See Kiobel v. Royal Dutch Petroleum Co., 456 F.Supp.2d 457 (S.D.N.Y. 2006).
4
Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111 (2nd Cir. 2010), p. 123.
5
28 U.S.C. 1350.
6
See Kiobel v. Royal Dutch Petroleum Co., No. 10-1491, slip op. p. 3 (S.Ct. 2013), 569 U.S.__
(2013) 133 S.Ct. 1659 (2013), p. 1663.
7
Beginning with Fil
artiga v. Pena-Irala, 630 F.2d 876 (2nd Cir. 1980).
2

Extraterritorial Possibilities of Enforcement in Cases of Human Rights. . .

189

human rights violations, we would like to clarify what is the relationship between
human rights violations and the principle of Permanent Sovereignty over Natural
Resources which forms the overall subject of this volume.

B. Permanent Sovereignty Over Natural Resources


and Human Rights
I. Human Rights as Limits to Permanent Sovereignty Over
Natural Resources
For this purpose, the Kiobel case provides a vivid example as well. Undoubtedly,
Permanent Sovereignty over Natural Resources applies to fossil resources like
raw oil in the Kiobel case. In accordance with the principle of Permanent Sovereignty over Natural Resources, the sovereign right to explore oil fields and produce
oil is vested with the State,8 in the territory of which the oil reservoirs are located,
e.g., with Nigeria in the Kiobel case.
However, this sovereign right is not unlimited. Rather, a States Permanent Sovereignty over Natural Resources, like a States territorial sovereignty, is bound, inter alia,
by international human rights to which, e.g., also the plaintiffs in the Kiobel case
expressly refer.9 Thus, a State, like Nigeria in the Kiobel case, has to respect and protect
international human rights10 when exercising its Permanent Sovereignty over [its]
Natural Resources, e.g., by granting concessions to foreign transnational corporations11
for the purpose of exploring and exploiting the States fossil resources and by providing
security services to those transnational corporations by its police or armed forces.

II. Permanent Sovereignty Over Natural Resources as Human


Right
Strikingly enough, Permanent Sovereignty over Natural Resources may not only
be limited by international human rights but may be an international human right
itself. This holds true if it is not the State but peoples, especially indigenous

8
Concerning the scope ratione personae of Permanent Sovereignty over Natural Resources see,
in particular, General Assembly Resolution 3201 (S-VI) Declaration on the Establishment of a
New International Economic Order, 1st May 1974, para. 4(e) (every State); see also Principle
21 of the Stockholm Declaration of the United Nations Conference on the Human Environment of
1972 and Principle 2 of the Rio Declaration on Environment and Development of 1992.
9
See supra at footnote 4.
10
In fact, Nigeria is a party to the African Charter of Human and Peoples Rights of 1981 as well as
to several international human rights treaties. See Amao (2008), p. 106.
11
Concerning the term transnational corporation see footnote 77.

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H.-G. Dederer

peoples, within a State who are the holders of Permanent Sovereignty over [their]
Natural Resources:
The principle of Permanent Sovereignty over Natural Resources is enshrined in
common Art. 1 para. 2 of both International Covenants on Human Rights of
1966.12,13 It forms part of the human right to self-determination of peoples which
is guaranteed by the two Covenants common Art. 1 para. 1.14 The UN General
Assembly has emphatically recognized that also [i]ndigenous peoples have the
right to self-determination.15 Hence, indigenous peoples also enjoy Permanent
Sovereignty over [their] Natural Resources as part of their collective human right
to self-determination.

C. Human Rights Violations in the Course of Exploration


and Exploitation of Natural Resources
I. Violations of Indigenous Peoples Rights
There are numerous accounts of violations of indigenous peoples rights in the
course of the exploration and exploitation of natural resources. Deleterious environmental effects of mining activities, e.g., may devastate their traditional territories. An infamous example is the gold rush in Brazil destroying the rain forests of
the Yanomani Indians territory.16 Furthermore, indigenous peoples may be forced
to leave their lands in the course of the exploration and exploitation of natural

12
International Covenant on Civil and Political Rights (UNTS 999, 171); International Covenant
on Economic, Social and Cultural Rights (UNTS 993, 3).
13
We do admit that the principle of Permanent Sovereignty over Natural Resources has not been
laid down explicitly in common Art. 1 of the two International Covenants on Human Rights. The
provisions in question rather refer expressly to all peoples right to freely dispose of their natural
. . . resources only (Art. 1 para. 2 of the two International Covenants on Human Rights). But we
would like to stipulate that the right of peoples to freely dispose of their natural resources signifies
the very essence of Permanent Sovereignty over natural Resources. See Schrijver (2008 ff), para.
2.
14
The right to self-determination of peoples has also the legal status of customary international
law (Nowak 2005, Art. 1 CCPR, para. 3). Consequently, the UN Special Rapporteur Erica-Irene
A. Daes correctly held that also Permanent Sovereignty over Natural Resources became a
general principle of international law when it was included in common article 1 of both International Covenants on Human Rights, see Daes (2004), para. 10. By the same token, the ICJ
acknowledged that the principle of Permanent Sovereignty over Natural Resources has become
a principle of customary international law (ICJ, Armed Activities on the Territory of the Congo
[Democratic Republic of the Congo v. Uganda], Judgment, ICJ Reports 2005, p. 168, para. 244).
15
Art. 3 of the United Nations Declaration on the Rights of Indigenous Peoples (adopted by
General Assembly Resolution 61/295, 13th September 2007); see also, e.g., Wiessner (2012),
pp. 44 et seq.
16
See Daes (2001), para. 55.

Extraterritorial Possibilities of Enforcement in Cases of Human Rights. . .

191

resources. Such incidents may deeply interfere with indigenous peoples spiritual
relatedness to their traditional territories.17
In addition, exploration and exploitation of natural resources may compromise
an indigenous peoples Permanent Sovereignty over [its] Natural Resources. In
fact, according to the Final Report of the UN Special Rapporteur on indigenous
people and their relationship to land, their natural resources can include . . . timber,
minerals, oil and gas, genetic resources, and all other material resources pertaining
to indigenous lands and territories.18 Thus, not only the cutting of timber, but even
oil and gas production or the extraction of minerals or metals may deprive indigenous peoples of their natural resources.19

II. Violations of Other Human Rights


Quite typically, violations of indigenous peoples rights go hand in hand with
individual human rights violations. Of course, not only members of indigenous
peoples but also members of the (local) population in general may suffer such
human rights violations as a result of, or occurring in the course of, the exploration
and exploitation of natural resources. With regard to first generation rights, i.e.,
political and civil rights, the following rights and freedoms, e.g., may be infringed:
the rights to life, liberty and security, the prohibition of torture and cruel, inhuman
or degrading treatment, the right to liberty of movement, the freedom to choose
ones residence, the right to enter ones own country, as well as the freedoms of
expression, association and assembly. Again, the Kiobel case may serve as an
illustrative example for such human rights violations.20 In addition, second generation rights, i.e., economic, social and cultural rights, may be impaired. Examples
include the right to the enjoyment of just and favorable conditions of work or the
right of children to be protected from economic exploitation.21

17
This special relationship to their lands may be fundamental to indigenous peoples cultures and,
thus, to their very identity (see Daes 2001, paras. 12 et seq.). Expelling indigenous peoples from
their traditional lands may, therefore, even threaten their existence as a people and, in extreme
cases, might thus come close to what may be qualified as a genocidal act.
18
Daes (2004), para. 42.
19
However, one might argue that, depending on the individual case, an indigenous people may not
claim permanent sovereignty over, e.g., fossil, mineral and metallic resources if the peoples
traditional culture, day-to-day life, etc. never have been specifically related to the extraction and
use of such resources.
20
See supra at footnote 4.
21
See also the impressive list of human rights which may be affected by transnational corporations
in: Ruggie (2008), para. 52; see also, e.g., Hennings (2009), pp. 77107.

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H.-G. Dederer

D. Extraterritorial Enforcement of Human Rights


I. Overview
No one will dispute earnestly that the perpetrators of human rights violations ought
to be brought to trial. In addition to criminal proceedings, the victims of human
rights violations might like to recover damages as well. Both criminal prosecution
and damage suits are legal instruments for the purpose of effectively enforcing
human rights.22
Customarily, criminal proceedings may be directed against natural persons only.
However, more and more domestic legal systems seem to accept the concept of
corporate criminal liability, i.e., criminal liability of legal persons, as well.23 In
contrast, civil liability of corporations can be regarded as well established under
national tort law.
In cases of human rights violations actions for damages may be filed, of course, not
only against transnational corporations but against States as well. In fact, many
documented cases of human rights violations,24 like the Kiobel case, show that the
host States, i.e., the States in the territory of which a transnational corporation explores
and exploits natural resources, commit human rights violations.25 Thus, host States,
like Nigeria in the Kiobel case, may be taken to court. Besides, the home State of the
transnational corporation, i.e., the State from which the transnational corporation
derives its corporate nationality, could become involved in lawsuits as well.26
22

See, e.g., Tomuschat (2008), p. 321 et seq. and 355 et seq.


See, e.g., Burkard (2013), p. 217 (footnote 923), who mentions by way of example Australia,
Belgium, Canada, France, India, Japan, the Netherlands, Norway, South Africa and the United
Kingdom; see also Beisinghoff (2009), p. 78; Ruggie (2007), para. 22 et seq. What is more, John
Ruggie states in his 2007 report, that simple laws of probability alone suggest that corporations
will be subject to increased liability for international crimes in the future. They may face . . .
criminal . . . liability depending on whether international standards are incorporated into a States
criminal code (ibid., para. 27).
24
See, in particular, the following ATS cases: Doe v. Unocal, 395 F.3d 932 (9th Cir. 2002);
Presbyterian Church of Sudan v. Talisman Energy, Inc., 582 F.3d 244 (2nd Cir. 2009); Bowoto
v. Chevron Corp., 625 F.3d 1116 (9th Cir. 2010); Sarei v. Rio Tinto, PLC, 671 F.3d 736 (9th
Cir. 2011).
25
See also Bradley (2012), p. 516.
26
Concerning the question of which State is the home State and the host State, we have to take into
account that corporations usually form part of larger transnational corporate groups. In the Kiobel
case, e.g., the three defendants, i.e., (1) Royal Dutch Petroleum, (2) Shell Transport and Trading
Company and (3) Shell Petroleum Development Company of Nigeria, all belong to the Shell group
with Royal Dutch Petroleum and Shell Transport and Trading Company being holding companies
of Shell Petroleum Development Company of Nigeria. The two holding companies, Royal Dutch
Petroleum and Shell Transport and Trading Company, are incorporated in the Netherlands and the
United Kingdom respectively whereas Shell Petroleum Development Company of Nigeria is a
subsidiary incorporated in Nigeria. Thus, in the Kiobel case, Nigeria is the home State of Shell
Petroleum Development Company of Nigeria and, at the same time, host State to Royal Dutch
Petroleum and Shell Transport and Trading Company. Concerning the latter two corporations, the
23

Extraterritorial Possibilities of Enforcement in Cases of Human Rights. . .

193

In addition, we should not lose sight of individuals, i.e., natural persons, who are
acting on behalf of all the legal persons mentioned above, be it the host State, the
home State or the transnational corporation. Thus, damage suits may be brought
against employees of the transnational corporations and, depending on the applicable legal regime, even against public officials of the home States or host States in
question.27
To make things a slightly little bit more complicated, we have to draw some
distinctions with regard to the causes of action. As a general rule, the legal basis for
damage suits brought by victims of human rights violations will be national tort
law.28 Pertaining to infringements upon economic or social human rights, like the
right to the enjoyment of just and favorable conditions of work, damages could,
however, also result from the violation of employment contracts giving rise to
contract claims under the national law of contracts.
We could easily extend the list of difficult legal issues by touching the intricate
question of which courts are the competent fora to handle damage suits brought by
victims of human rights violations. Such claims may be filed in national courts of
different States. In the Kiobel case, e.g., Esther Kiobel and the other plaintiffs could
have brought their suit before a court of the host State, i.e., Nigeria. Instead, they
could have chosen perhaps to file their action with courts of the home States of the
defendants, i.e., the Netherlands (with regard to the defendant Royal Dutch Petroleum) or the United Kingdom (with regard to one of the other two defendants).29 In
fact, however, they preferred to bother the courts of a third State, i.e., the USA.
In terms of general public international law national courts, which adjudicate on
claims brought by foreigners against foreigners for acts committed abroad, need a
jurisdictional basis.30 Another procedural issue to be meticulously respected by
national courts is, of course, State immunity if actions are filed against foreign
States.

home State of Royal Dutch Petroleum are the Netherlands and the home State of Shell Transport
and Trading Company is the United Kingdom (see Kiobel v. Royal Dutch Petroleum Co., 621 F.3d
111, [2nd Cir. 2010], p. 124). Concerning the typical structure of a transnational corporate group
operating in Nigerias oil and gas sector see Amao (2008), p. 94.
27
According to the German law on government liability, individuals can recover damages from
the government only, if the public official who acted unlawfully exercised governmental authority.
In such a case, the public official himself cannot be held liable (cf. Art. 34 cl. 1 of the Basic Law;
see, e.g., Ossenbuhl and Cornils 2013, p. 119).
28
In contrast, customary international law does not provide for a cause of action as far as it does
not entitle victims of violations of international law to a remedy against the individual who
committed the violation (Vazquez 2012, pp. 532, 542, and 546).
29
See supra in footnote 26.
30
In this regard, the PCIJs judgment in the Lotus Case is somewhat outdated as far as the Court
states that [f]ar from laying down a general prohibition to the effect that States may not extend the
application of their laws and the jurisdiction of their courts to persons, property and acts outside
their territory, [international law] leaves them in this respect a wide measure of discretion (PCIJ,
The Case of the S.S. Lotus [France v. Turkey], 1927 PCIJ [ser. A] No. 10 [Sept. 7], p. 5, at 19).

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H.-G. Dederer

Thus far, the legal question of extraterritorial enforcement of human rights has
reached quite a remarkable level of intricacy. For the purposes of this article,
therefore, we would like to, and have to, reduce complexity a little bit.31

II. Claims for Damages


1. Claims Against Host States
Concerning claims for damages, civil lawsuits may be brought against the transnational corporation, against its home State or against the host State. The plaintiffs
may choose to file their actions with national courts of a foreign State and not with
the national courts of their own State, i.e., the host State. For within the context of
the exploration and exploitation of natural resources, in most cases, the host States
are developing countries. It is on record, that they are often either unable or
unwilling to provide for effective judicial mechanisms redressing human rights
violations. Moreover, victims may have no trust in the independence and impartiality of the host States courts. For these comprehensible reasons,32 victims of
human rights violations may seek judicial enforcement of human rights through
national courts of foreign States.
Let us start our survey with claims against the host State brought before foreign
courts, i.e., national courts of the transnational corporations home State or national
courts of a third State. Such claims are prone to be dismissed even if it was fully
established on the merits that State organs of the host State have committed the
alleged human rights violations.
First, the principle of State immunity will present an often insurmountable
obstacle to claims against the host State brought before foreign courts. In fact, the
host State may rely on the general public international law principle of State
immunity from foreign jurisdiction with regard to its governmental acts (acta
iure imperii).33 As is well-known, first and foremost members of the host States

31
First, we do not attend to the enforcement of human rights within or by the host State in which
the human rights violations occurred. Rather, and in accordance with this articles title, we focus
on extraterritorial enforcement, i.e., enforcement of human rights abroad or from abroad. Secondly, concerning civil lawsuits, we concentrate on transnational corporations, i.e., on legal
persons, as potential defendants only. Thirdly, our analysis shall be restricted to State-based
judicial mechanisms, i.e., enforcement of human rights through proceedings before national
criminal or civil courts. This implies, on the other hand, that we do not use the term enforcement
in a narrow sense restricted to, e.g., enforcement of judicial judgments, but, rather, in a broader
sense encapsulating, in particular, the making of judicial judgments.
32
See, e.g., Alston and Goodman (2012), p. 1467; Burkard (2013), pp. 210 and 213215;
Buszewski (2012), p. 202; Kaleck and Saage-Maa (2008), p. 16; Schniederjahn (2013), p. 102;
Weschka (2006), pp. 628629.
33
See ICJ, Jurisdictional Immunities of the State (Germany v. Italy: Greece intervening), Judgment, ICJ Reports 2012, p. 99, para. 61.

Extraterritorial Possibilities of Enforcement in Cases of Human Rights. . .

195

police or armed forces commit those grave human rights violations which occur in
connection with the exploration and exploitation of natural resources.34 Acts
committed by the host States police or armed forces, as a rule, are to be qualified
as acta iure imperii.35 Moreover, in accordance with the latest judgment by the
International Court of Justice (ICJ) of 2012 concerning Jurisdictional Immunities of
the State, jurisdictional immunity seems to be absolute as far as governmental acts
are concerned, i.e., the host State apparently enjoys unfettered immunity from
foreign jurisdiction even in cases of the most serious human rights violations.36
Secondly, lawsuits filed with national courts of a third State may face yet another
awkward procedural hurdle if the third State is a common law jurisdiction. English
or US American courts, e.g., may apply the doctrine of forum non conveniens37
according to which courts have discretion to decline to hear a case when there
exists a foreign court more appropriately situated to hear the matter.38 Courts
being more convenient to decide the case might be, of course, the national courts of
the host State itself.

2. Claims Against Home States


a) Claims Before National Courts of the Home State
Victims of human rights violations will also encounter problems, albeit of a
somewhat different kind, if they sue the home State of a transnational corporation.
For the purposes of such damage suits, the plaintiffs may choose to go to the

34

See supra in and at footnote 24; Bradley (2012), p. 516.


See ICJ, Jurisdictional Immunities of the State (Germany v. Italy: Greece intervening), Judgment, ICJ Reports 2012, p. 99, para. 61.
36
ICJ, Jurisdictional Immunities of the State (Germany v. Italy: Greece intervening), Judgment,
ICJ Reports 2012, p. 99, para. 61. However, with regard to the facts of the case, the ICJs holding
may be considered to be confined to the context of litigation arising from armed activities on the
territory of the forum state, based on a concern about the finality of post-war reparation agreements
and the disruptive potential of unlimited claims against belligerent states (Keitner 2013, p 800).
37
Within the EU, the doctrine of forum non conveniens is inapplicable. See ECJ, Case C-281/02,
Owusu, 2005, ECR I-1383, para. 46, according to which a national court of an EU Member State is
preclude[d] . . . from declining the jurisdiction conferred on it by Article 2 of [the BrusselsRegulation] on the ground that a court of a non-[Member] State would be a more appropriate
forum for the trial of the action even if the jurisdiction of no other [Member] State is in issue or the
proceedings have no connecting factors to any other [Member] State. In a very sweeping manner,
the Dutch District Court of the Hague even held that the forum non conveniens restriction no
longer plays a role in todays international private law (Judgment of January 30, 2013, case no./
docket no. C/09/337050/HA ZA 09-1580, para. 4.6).
38
Joseph (1999), p. 178; concerning the doctrine of forum non conveniens see also, e.g., Rau
(2001), p. 177; generally on the doctrine of forum non conveniens Cheshire et al. (2008),
pp. 425 et seq.
35

196

H.-G. Dederer

national courts of the home State. Of course, prima facie, such lawsuits have at least
two advantages from a procedural point of view.
The first advantage of actions brought before national courts of the home State is
that the public international law principle of State immunity does not apply because
the States own courts will sit in judgment on their own State. A second advantage
is that the home States courts are the competent fora to adjudicate claims brought
against their own State.39
The legal problems of claims for damages against the home State concern the
merits of the case, though. The cause of action for damage suits against the home
State will usually have to be based on the home States domestic law on government
liability. The law on government liability will commonly require that the State
organs of the home State acted wrongfully.40 Assuming that international (human
rights) law has become part of the home States domestic law41 the crucial question
to be answered by the courts will be whether the home State has violated international (human rights) obligations,42 i.e., in our scenario the home States duty to
protect human rights abroad.
The answer to this question depends on whether the home State has the duty to
protect international human rights against violations committed on foreign territory,
i.e., in the host State. It is widely acknowledged that a States international human
rights obligations may apply extraterritorially insofar as the State effectively
exercises governmental authority abroad43 or insofar as its exercise of governmental authority takes extraterritorial effects.44 However, these two case groups of
extraterritorial application of international human rights are, usually, not pertinent
in cases of human rights violations within the host State if these violations were

39

See, e.g., Sec. 32 of the German Code of Civil Procedure.


See, e.g., Art. 34 cl. 1 of the German Basic Law in connection with Sec. 839 para. 1 cl. 1 of the
German Civil Code.
41
In Germany, e.g., international human rights treaties have the legal status of federal statutes (see
BVerfGE 111, 307 [315, 317] BVerfG, 2 BvR 1481/04, 14 October 2004, paras. 3031,
available at: http://www.bverfg.de/entscheidungen/rs20041014_2bvr148104en.html).
42
Concerning the typology of States human rights obligations see, e.g., De Schutter (2010),
pp. 242 et seq.
43
With regard to the ECHR see, e.g., ECtHR, Case of Catan and others v. Moldova and Russia,
Appl. No. 43370/04, 8252/05, 18454/06, 19 October 2012, para. 106; Case of Hirsi Jamaa and
others v. Italy, Appl. No. 27765/09, 23 February 2012, para. 74; with regard to the ICCPR and the
ICESCR see, e.g., ICJ, Legal Consequences of the Construction of a Wall in the Occupied
Palestinian Territory, Advisory Opinion, ICJ Reports, 2004, p. 136, paras. 111112; with regard
to the ICCPR see also Human Rights Committee, General Comment No. 31, The Nature of the
General Legal Obligation Imposed on States Parties to the Covenant, para. 10 (CCPR/C/21/Rev.1/
Add. 13, 26 May 2004).
44
With regard to the ECHR see, e.g., ECtHR, Case of S.H.H. v. The United Kingdom, Appl.
No. 60367/10, 29 January 2013, para. 69, concerning expulsion cases in which the person
concerned may be treated in violation of the prohibition of torture abroad.
40

Extraterritorial Possibilities of Enforcement in Cases of Human Rights. . .

197

committed, without any active involvement of the home State, either by the host
State itself or by the transnational corporation.45,46
In such cases, the home States extraterritorial human rights obligations are not
triggered simply by the fact that the transnational corporation is a (corporate)
national of the home State and, thus, subject to the home States personal jurisdiction. Of course, home States are not prohibited from taking measures aimed at
ensuring that their (corporate) nationals do not commit human rights violations
abroad as far as public international law provides for a proper jurisdictional basis.47
In this regard, a recognized basis of jurisdiction is the (active) personality
principle.48
The crucial question is, however, whether international human rights law
requires home States to prevent human rights violations committed by their corporate nationals abroad.49 On the basis of a thorough examination of the core
international human rights treaties and relevant treaty body commentaries, the
United Nations Human Rights Council could only ascertain . . . a trend towards
the treaty bodies recommending [sic!] that [home] States influence the actions of
business enterprises abroad.50 Albeit, [home] States appear to have wide latitude

45
Of course, the case may be different if the transnational corporations conduct is attributable to
its home State because, e.g., the corporation was acting under the effective control of that State
(Art. 8 of the ILC Draft Articles on State Responsibility for Internationally Wrongful Acts; annex
to General Assembly Resolution 56/83, Responsibility of States for internationally wrongful acts,
28 January 2001 [hereinafter: ILC Draft Articles on State Responsibility] in connection with ICJ,
Military and Paramilitary Activities in and against Nicaragua [Nicaragua v. United States of
America], Merits, Judgment, ICJ Reports 1986, p. 14, para. 115; ICJ, Application of the Convention on the Prevention and Punishment of the Crime of Genocide [Bosnia and Herzegovina
v. Serbia and Montenegro], Judgment, ICJ Reports 2007, p. 43, para. 400). Concerning the
problem of attribution of human rights violations committed by transnational corporations to
their home States see, e.g., McCorquodale and Simons (2007), pp. 606 et. seq.
46
The case may be also different if the home State has aided or assisted its corporate nationals or
the host State in committing human rights violations within the host States territory. See, e.g.,
McCorquodale and Simons (2007), pp. 611 et. seq.
47
See, e.g., Committee on the Elimination of Racial Discrimination, Consideration of Reports
Submitted by States Parties under Article 9 of the Convention, UN Doc. CERD/C/CAN/CO/18,
para. 17: [T]he Committee encourages [Canada] to take appropriate legislative or administrative
measures to prevent acts of transnational corporations registered in Canada which negatively
impact on the enjoyment of rights of indigenous peoples in territories outside Canada. In particular, the Committee recommends that the State party explore ways to hold transnational corporations registered in Canada accountable.
48
See, e.g., Kamminga (2008 ff), para. 11; see also Burkard (2013), pp. 216217; Kneer (2013),
p. 131; Papp (2013), pp. 239242, Sornarajah (2010), p. 166.
49
According to Alston and Goodman (2012), p. 1495, this question is [o]ne of the most
controversial issues.
50
Human Rights Council, State responsibilities to regulate and adjudicate corporate activities
under the United Nations core human rights treaties: an overview of treaty body commentaries,
13 February 2007 (A/HRC/4/35/Ad.1), para. 92.

198

H.-G. Dederer

in deciding the type of influence in most circumstances.51 In sum, the treaties and
the treaty bodies general comments, views or concluding observations respectively
are not illuminative with regard to the question of whether and to what extent home
States have the duty to protect human rights abroad by exercising extraterritorial
jurisdiction over their corporate nationals.52 What is more, the European Court of
Human Rights stated that the European Convention on Human Rights is a constitutional instrument of European Public Order which does not purport to be a
means of requiring [sic!] the Contracting States to impose Convention standards on
other States.53 This statement implies that, in the absence of State agent authority
and control54 or effective control of an area,55 the Convention States duty to
protect does not encompass the obligation to protect the Convention rights outside
the Conventions espace juridique.56 Hence, at first glance, it is primarily the host
State which has to comply with its own duty to protect human rights against
violations committed by transnational corporations within its own territory.57
There may be specific circumstances under which a home State may be considered to be obliged to guarantee that its corporate nationals do not commit, or
participate in, human rights violations abroad, though. This may be the case if the
host State lost governmental control over parts of its territory, e.g., as a result of a
non-international armed conflict. One may argue that in such situations the home
State has to step in in order to fill the governmental gap and to assume the
responsibility to protect human rights.58 This responsibility to protect human
51
Human Rights Council, State responsibilities to regulate and adjudicate corporate activities
under the United Nations core human rights treaties: an overview of treaty body commentaries,
13 February 2007 (A/HRC/4/35/Ad.1), para. 92.
52
Human Rights Council, State responsibilities to regulate and adjudicate corporate activities
under the United Nations core human rights treaties: an overview of treaty body commentaries,
13 February 2007 (A/HRC/4/35/Ad.1), paras. 84 et seq.
53
ECtHR, Case of Al-Skeini and others v. The United Kingdom, Appl. No. 55721/07, 7 July 2011,
para. 141.
54
ECtHR, Case of Al-Skeini and others v. The United Kingdom, Appl. No. 55721/07, 7 July 2011,
para. 133.
55
ECtHR, Case of Al-Skeini and others v. The United Kingdom, Appl. No. 55721/07, 7 July 2011,
para. 138.
56
Cf. ECtHR, Case of Al-Skeini and others v. The United Kingdom, Appl. No. 55721/07, 7 July
2011, para. 141.
57
See De Schutter (2010), pp. 162163; see, however, also Kaleck and Saage-Maa (2008), p. 45.
In fact, host States like Nigeria seem to be quite well-equipped to control transnational corporations effectively through its human rights framework. See Amao (2008), pp. 107 et seq.
58
According to the 2005 World Summit Outcome, the responsibility to protect refers to the most
egregious human rights violations only, namely to genocide, war crimes, ethnic cleansing and
crimes against humanity (GA/Res. 60/1 [2005], paras. 138139). However, the original concept
responsibility to protect seems to have a much broader scope ratione materiae. The starting point
of the original concept is to think of sovereignty as responsibility which implies that the state
authorities are responsible for the functions of protecting the safety and lives of citizens and
promotion of their welfare (International Commission on Intervention and State Sovereignty
2001, para. 2.15). Thus, the sovereignty of States has a specific function (or purpose), viz. the

Extraterritorial Possibilities of Enforcement in Cases of Human Rights. . .

199

rights extraterritorially might imply that the home State has to oblige its (corporate)
nationals, by virtue of its personal jurisdiction, not to commit, or participate in,
human rights violations within those parts of the territory which have slipped from
the host States governmental authority.59
Apart from such exceptional circumstances, home States of transnational corporations could be obliged to prevent their corporate nationals from committing, or
participating in, human rights violations in host States on the basis of a general
principle of public international law, i.e., on the basis of the so called no harm rule
which summarily says that every State has the general obligation under international law not to cause harm in other [S]tates.60 In our opinion, this innovative
approach is not without merits.
Nevertheless, it seems to be disputable whether it can be based in full on the no
harm rule as phrased in general terms by the International Court of Justice in its
Corfu Channel-Judgment of 1949 which referred to every States obligation not to
allow knowingly its territory [sic!] to be used for acts contrary to the rights of other
States.61 According to this wording (its territory to be used), the obligations of
States arising from the no harm rule are primarily linked to situations and
activities within their territory. Accordingly, States have to regulate activities of
private actors not because of their being the States nationals but because their
activities are carried out in the States territory.
With international environmental law in mind, though,62 the no harm rule
applies not only to activities in the territory of a State but also to activities

effective observance of human rights (International Commission on Intervention and State


Sovereignty 2001, para. 2.20), without limiting this function to a finite set of only the most
fundamental human rights guarantees. Actually, by way of an excursus, this modern functional
understanding of State sovereignty correlates with the 18th century foundations of modern
constitutional law and theory: see, e.g., the Declaration of Independence of 1776 (to secure
these rights Governments are instituted among Men) and Art. 2 of the Declaration des droits de
lhomme et du citoyen of 1789 (Le but de toute association politique est la conservation des droits
naturels et imprescriptibles de lhomme.).
59
Admittedly, the proper concept of responsibility to protect seems to focus more (albeit not
only) on the question of under which preconditions the international community may adopt
enforcement measures, in particular military measures, against States within which human rights
violations occur (see, in particular: A more secure world: our shared responsibility. Report of the
High-level Panel on Threats, Challenges and Change, UN Doc. A/59/565, p. 8, paras. 199 et seq.,
p. 78, para. 55). In fact, also the considerations leading to the innovative responsibility to protect
approach start with the intervention dilemma (see International Commission on Intervention and
State Sovereignty 2001, para. 1.1). On the other hand, exercising prescriptive jurisdiction over
extraterritorial conduct poses an intervention problem as well.
60
McCorquodale and Simons (2007), p. 624.
61
ICJ, Corfu Channel Case, ICJ Reports 1949, p. 22.
62
Concerning the obligation to prevent significant transboundary harm see, e.g., Art. 3 of the ILC
Draft Articles on Prevention of Transboundary Harm from Hazardous Activities; Official Records
of the General Assembly, Fifty-sixth Session, Supplement No. 10 (A/56/10) (2001) (hereinafter:
ILC Draft Articles on Prevention).

200

H.-G. Dederer

under the jurisdiction of a State.63 The concept of jurisdiction is intended to


cover, in addition to the activities being undertaken within the territory of a State,
activities over which, under international law, a State is authorized to exercise its
competence and authority.64 Indeed, the home State has personal jurisdiction over
its (corporate) nationals. As a result, the home State may have to impose obligations
on its (corporate) nationals which aim at the protection of human rights within the
territory of host States.65
This approach, however, seems to run counter to the fact that, currently, international or regional human rights treaty regimes do not impose a duty to protect
human rights extraterritorially66 (unless a party to the human rights treaty exercises
a certain degree of personal or territorial control abroad67). A harmonizing
approach could be to apply the no harm rule only to the prevention of
transboundary harm to those human rights which form part of customary international law.68
In any case, the obligation of the home State arising from the no harm rule is
one of due diligence.69 Hence, it depends on the circumstances, in particular within
the host State, whether and to what extent the home State of a transnational
corporation has the obligation to protect human rights in the territory of the host
State. Thus, home States may have to adopt laws and regulations and to take
administrative and judicial measures, e.g., with regard to situations which are by
empirical evidence typically prone to human rights violations within the territory of
host States in the course of the exploration and exploitation of natural resources by
transnational corporations. Such situations comprise the exploration and exploitation in, e.g., conflict zones, failed states or repressive regimes.70
In contrast, such situations do not exist simply because home States have entered
into bilateral investment treaties (BITs) with host States. Thus, the sheer existence
of a BIT does not in itself trigger the home States duty to protect human rights
63

See, e.g., Art. 2(d) ILC Draft Articles on Prevention; ICJ, Legality of the Threat or Use of
Nuclear Weapons, Advisory Opinion, ICJ Reports 1996, p. 226, para. 29; Principle 2 of the Rio
Declaration on Environment and Development of 1992; Principle 3 para. 1 of the UNEP Draft
principles of conduct in the field of the environment for the guidance of States in the conservation
and harmonious utilization of natural resources shared by two or more States of 1978; Principle
21 of the Stockholm Declaration of the United Nations Conference on the Human Environment
of 1972.
64
International Law Commission (2001), Art. 1, para. 9.
65
For an extensive discussion of this proposition see, e.g., McCorquodale and Simons (2007),
pp. 618 et seq.; see also Kaleck and Saage-Maa (2008), pp. 3637; Massoud (2013), p. 56;
Sornarajah (2010), pp. 163 and 166.
66
See supra at footnotes 5057.
67
See supra in and at footnotes 4344, 5455.
68
See infra in footnote 112.
69
See also McCorquodale and Simons (2007), pp. 618619; cf. also International Law Commission (2001), Art. 9, para. 6 obligation of due diligence, the core base of the provisions intended to
prevent significant transboundary harm.
70
McCorquodale and Simons (2007), p. 620.

Extraterritorial Possibilities of Enforcement in Cases of Human Rights. . .

201

within the host States territory. Contrary to frequently voiced opinions, in our view
BITs do not generally facilitat[e] extraterritorial harm by restrict[ing] the host
states capacity to regulate foreign investors so as to ensure that the investment is
consistent with the host states human rights obligations.71 First, it is revealing that
proponents of this argument are hardly able to cite an arbitral award supporting
their thesis that BITs typically, or regularly, prevent host States from complying
with their (international) human rights obligations.72 Secondly, both treaty practice
and arbitration practice have become increasingly sensitive with regard to
balancing investors rights as laid down in the BIT against restrictive general
regulatory measures taken by the host State on the basis of public policy grounds.73
In fact, international investment arbitrators have some interpretative avenues not to
dismiss national laws, which implement internationally accepted human rights
standards, as violations of a BIT if the home States legislature aims at a legitimate
public policy objective and the legislative measure is non-discriminatory and
proportionate.74
In any case, when exercising its personal (prescriptive) jurisdiction with regard
to its (corporate) nationals extraterritorial conduct, the home State has to take into
account the host States territorial jurisdiction as well. The no harm rule ought not
to serve as an instrument for the purpose of unilaterally exporting home States
human rights standards to host States.75

b) Claims Before National Courts of Third States


Practically the same problems will arise if victims file damage suits against the
transnational corporations home State before national courts of third States. In
addition, the procedural obstacles already mentioned before76 will come up.

71

McCorquodale and Simons (2007), pp. 621622.


See, e.g., McCorquodale and Simons (2007), pp. 621623; Sornarajah (2010), pp. 149152; see,
however, also Alvarez (2011), pp. 371372; for an extensive analysis of cases which pertain to the
conflict between investment protection and human rights protection see Burkard (2013), pp. 122
173; Kneer (2013), pp. 166193.
73
See, e.g., Alvarez (2012), pp. 3133; Shan (2012a), pp. 6870; Shan (2012b), pp. 7475; for a
more detailed analysis see, e.g., Kneer (2013), pp. 259314.
74
Cf. Alvarez (2011), pp. 382 et seq.; Dolzer and Schreuer (2012), pp. 120 et seq. and 148149.
75
The host States sovereignty would not be infringed, e.g., if the home State required its
(corporate) nationals to abide by human rights norms belonging to the corpus of ius cogens (see
Weschka 2006, pp. 630631; see also McCorquodale and Simons 2007, p. 616 [footnote 122]).
According to Papp (2013), pp. 246273, the host States sovereignty is not impaired if both the
host State and the home State are bound by the same international human rights treaties because
both States are subject to the same obligations (e.g., the duty to protect); if, however, the home
State acts in conformity with its extraterritorial duty to protect arising from an international human
rights treaty which the host State is not a party to it depends on a balancing of the States interests
whether the home State interferes unlawfully with the host State sovereignty.
76
Concerning State immunity see supra at footnotes 3336; concerning the doctrine of forum non
conveniens see supra at footnotes 3738.
72

202

H.-G. Dederer

First, the principle of State immunity from foreign jurisdiction may apply. Even
if there was a duty of the home State to protect human rights abroad, any omissions
in this regard would have to be qualified usually as acta iure imperii because in
order to comply effectively with its duty to protect the home State would have had
to act upon its corporate nationals by exercising governmental authority. Thus, the
home State could reasonably move to dismiss the case on the basis of State
immunity.
Secondly, national courts of a common law jurisdiction, like English or US
American courts, may grant the defendants motion to dismiss the case on the basis
of the forum non conveniens doctrine. It would be not unreasonable at all to assume
that the national courts of the home State are more convenient to decide claims
brought against the home State.

3. Claims Against Transnational Corporations


a) Claims Before National Courts of Home State
Such procedural issues will be less relevant, or completely irrelevant, if victims of
human rights violations bring damage suits against the transnational corporation77
before a national court of the corporations home State. In particular, the home
States domestic courts will be the competent fora to adjudicate such claims if, e.g.,

77
At this point, we consider it necessary to comment on the term transnational corporation. It is
common knowledge that there is no uniform definition of what constitutes a transnational
corporation (see, e.g., Sub-Commission on the Promotion and Protection of Human Rights,
Norms on the responsibilities of transnational corporations and other business enterprises with
regard to human rights, 26 August 2003 [UN Doc. E/CN.4/Sub.2/2003/12/Rev.2] [hereinafter: UN
Norms], para. 20; OECD Guidelines on Multinational Enterprises 2011 Edition, p. 17; International Labour Office 2006, p. 1, para. 6). Nevertheless, the common denominator of the diverse
efforts to define the term transnational corporation seems to be that a transnational corporation
forms a conglomerate of multiple interrelated companies operating in different States. Typically,
these distinct companies constitute entities with separate legal personalities. Defining the term
transnational corporation as a plurality of different, albeit somehow interconnected, legal persons
is of no use at all in a legal context, though. This holds particularly true with regard to the question
of civil liability of transnational corporations for human rights violations committed abroad.
Damage claims can be brought against one or more (natural or) legal persons only but not against
a defendant without legal personality of its own. Hence, our understanding of a transnational
corporation is that a transnational corporation is a legal person which operates outside its home
State in one or more host States either itself or through subsidiaries which are incorporated in the
host State(s) and, thus, form discrete legal persons. In the latter case, only the subsidiaries parent
corporation constitutes the transnational corporation. In the Kiobel case, e.g., Shell Petroleum
Development Company of Nigeria is the Nigerian subsidiary whereas both Royal Dutch Petroleum
and Shell Transport and Trading Company being the holding companies of Shell Petroleum
Development Company of Nigeria form the parent corporations and, thus, according to our
definition, transnational corporations (see also supra footnote 26).

Extraterritorial Possibilities of Enforcement in Cases of Human Rights. . .

203

the transnational corporations statutory seat, central administration or principal


place of business is situated in the home State.78
Concerning the cause of action, plaintiffs may base their damage claims on
national tort law. It will be the national courts task to decide in accordance with the
rules of private international law, i.e., the conflict-of-laws rules, which tort law is to
be applied in the particular case.79
National tort law usually does not explicitly require that norms of public
international law, including international human rights, have been violated. The
reverse holds true, e.g., for the ATS,80 though, which formed the legal basis of
Esther Kiobels and the other plaintiffs claims for damages in the Kiobel case. In
this regard, however, one has to be conscious of the fact that international human
rights are, generally, not directly legally binding on private actors like transnational
corporations.81 Thus, a national tort statute requiring explicitly the violation of
international (human rights) law does, in principle, not allow for recovering

78
See, e.g., Art. 2, 60 of the Council Regulation (EC) No. 44/2001 of 22 December 2000 on
jurisdiction and the recognition and enforcement of judgments in civil and commercial matters
(OJ L 12, 16.1.2001, p. 1; so called Brussels I-Regulation). See also, e.g., Grabosch (2013),
pp. 7879; Massoud (2013), p. 45.
79
See, e.g., Regulation (EC) No. 864/2007 of the European Parliament and of the Council of
11 July 2007 on the law applicable to non-contractual obligations (Rome II) (OJ L 199, 31.7.2007,
p. 40; so called Rome II-Regulation). According to the general rule of Art. 4 para. 1 of the Rome
II-Regulation, a German court would have to apply the tort law of the country in which the
damage occurs, i.e., usually, the host States law of torts. See, e.g., Massoud (2013), pp. 4647.
However, even when applying the host States tort law in accordance with Art. 4 para. 1 of the
Rome II-Regulation, German courts may have to apply German norms in a situation where they
are mandatory irrespective of the law otherwise applicable (Art. 16 of the Rome II-Regulation).
See Grabosch (2013), pp. 8587. By way of example see the District Court of the Hagues
judgment of January 30, 2013, case no. / docket no. C/09/337050 / HA ZA 09-1580, para. 4.5,
according to which Nigerian tort law had to be applied in the case Akpan et al. v. Royal Dutch Shell
Plc. et al. concerning damages caused by oil spills from oil facilities operated by Shell Petroleum
Development Company of Nigeria Ltd. near Ikot Ada Udo in Nigeria.
80
tort . . ., committed in violation of the law of nations.
81
See, e.g., Tomuschat (2008), pp. 107 et seq.; see also, with regard to norms of International
Humanitarian Law, AFPS and PLO v. Alstom and Veolia (Versailles Ct. App.), March 22, 2013,
52 ILM 1161 (2013), pp. 11781181. It is revealing that both the Commission on Human Rights
and the ECOSOC did not back the Sub-Commission on the Promotion and Protection of Human
Rights Norms on the responsibilities of transnational corporations and other business enterprises
with regard to human rights (UN Doc. E/CN.4/Sub.2/2003/12/Rev.2) but rather denounced this
document as a draft proposal which has no legal standing (Commission on Human Rights
Decision 2004/116: Responsibilities of transnational corporations and related business enterprises with regard to human rights, in: Commission on Human Rights, Report to the Economic and
Social Council on the Sixtieth Session of the Commission, 22 April 2004 [UN Doc. E/CN.4/2004/
L.11/Add.7], p. 82; ECOSOC Decision 2004/279 Responsibilities of transnational corporations
and related business enterprises with regard to human rights, in: Economic and Social Council,
Resolutions and Decisions adopted by the Economic and Social Council at its substantive session
of 2004, 6 August 2004 [UN Doc. E/2004/INF/2/Add.2], p. 195). In fact, the UN Norms seemed to
imply that transnational corporations are duty bearers of international human rights obligations on
a more or less equal footing with States. See, e.g., the harsh criticism by Ruggie (2006), paras.

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H.-G. Dederer

damages in cases of human rights violations as far as the defendant, i.e., the
transnational corporation, was not legally bound by international human rights.82
By way of exception, however, transnational corporations could be held liable
for such human rights violations which amount to international crimes.83 It is wellfounded that private actors may be held criminally liable for certain grave human
rights violations which constitute international crimes.84 By analogy, private actors
may also face civil liability for exactly the same wrongdoing.85 This analogy,
however, does not seem to support corporate liability. For customary international
law has steadfastly rejected the notion of corporate liability for international crimes,
and no international tribunal has ever held a corporation liable for a violation of the
law of nations.86
Another exception could apply in accordance with the concept of a corporate
responsibility to respect human rights put forward by the Special Representative of
the UN Secretary-General on the Issue of Human Rights and Transnational Corporations, John Ruggie, in 2008 and 2011.87 With regard to the wording of this
concept (corporate responsibility to respect human rights), this approach seems
to suggest prima facie that transnational corporations are, like States, subject to a
public international law duty to respect international human rights. However, the
concept of a corporate responsibility to respect human rights does not imply that
international human rights are directly binding on transnational corporations.
Rather, the corporate responsibility to respect is a global standard of expected
conduct which exists over and above compliance with national laws . . . protecting
human rights.88 In fact, [i]ts broader scope . . . is defined by social expectations.89
Nevertheless, the corporate responsibility to respect may have some legal
implications. In order to abide by their corporate responsibility to respect
56 et seq. By way of exception, the prohibitions of slavery and forced labor may be directly
binding on private actors, Koster (2010), pp. 140141.
82
Concerning the ATS, see infra at footnote 117.
83
Another exception might apply if the transnational corporation (only) participates in human
rights violations amounting to international crimes committed by the host State. In such cases of
corporate complicity, the human rights violations committed by State organs could be also
attributable to the transnational corporation. Of course, as John Ruggie, the Special Representative
of the UN Secretary-General, has already stated in his 2007 report, [m]ere presence in a country
and paying taxes are unlikely to create liability (Ruggie 2007, para. 30). However, providing
assistance to State organs which commit grave human rights violations might trigger civil liability
of the transnational corporation.
84
See, e.g., Ruggie (2007), para. 19.
85
Cf. Ruggie (2006), para. 61.
86
Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111, at 120 (2nd Cir. 2010); of the same opinion,
e.g., Bradley (2012), p. 513.
87
The latest changes to the OECD Guidelines on Multinational Enterprises have been substantially influenced by John Ruggies Guiding Principles of 2011 (UN Doc. A/HRC/17/31 [2011]);
see OECD Guidelines on Multinational Enterprises 2011 Edition, p. 3.
88
Ruggie (2011), p. 13.
89
Ruggie (2008), para. 54.

Extraterritorial Possibilities of Enforcement in Cases of Human Rights. . .

205

transnational corporations have to comply with standards of due diligence.90


Adherence to these normative, albeit not directly legally binding, standards may
help transnational corporations to avoid charges of corporate complicity in human
rights violations committed by other actors, e.g., State organs.91
In addition, one may argue that the failure to meet the due diligence requirements flowing from the concept of corporate responsibility to respect may give
rise to negligence claims under national tort law.92 In situations which are by
empirical evidence typically prone to human rights violations within the territory
of host States in the course of the exploration and exploitation of natural
resources,93 transnational corporations have to organize the exploration and exploitation of the natural resources in such a way as to avoid violations of human rights.
To this end, transnational corporations have to take appropriate, reasonable and
feasible measures in order to prevent human rights violations. The concept of
corporate responsibility to respect provides for such measures.94 The failure of
a transnational corporation to adopt such measures may amount to negligence.95
For the purpose of a judicial finding of negligence, the concept of a corporate
responsibility to respect can be considered a point of reference. It informs national
courts of internationally accepted due diligence standards. Indeed, the concept of
corporate responsibility to respect has been endorsed by the Human Rights
Council96 and taken up by the United Nations Office of the High Commissioner

90

Ruggie (2008), para. 56.


See Ruggie (2008), para. 73.
92
In addition, depending on the applicable national law of torts, transnational corporations could
be held liable for human rights violations committed by their subsidiaries within the host State if
the national tort law provides for rules according to which the conduct resulting in human rights
violations is attributable to the transnational corporation as the subsidiarys parent corporation. In
addition, the parent corporation could be held liable for aiding and abetting the human rights
violations committed by its subsidiary. See, e.g., Buszewski (2012), p. 205; see also Weschka
(2006), p. 634. In particular, the District Court of the Hague held that there has been an
international trend to hold parent companies of multinationals liable in their own country for the
harmful practices of foreign (sub-)subsidiaries (Judgment of January 30, 2013, case no. / docket
no. C/09/337050 / HA ZA 09-1580, para. 4.5).
93
See supra at footnote 70.
94
See, in particular, Ruggie (2011), pp. 15 et seq.
95
See Grabosch (2013), pp. 8990, and 98; see, however, also Buszewski (2012), p. 205; see
additionally AFPS and PLO v. Alstom and Veolia (Versailles Ct. App.), March 22, 2013, 52 ILM
1161 (2013), p. 1182: The Global Compact, as well as the codes of ethics, express values that the
corporations wish their staff to apply . . . without creating obligations or commitments for the
benefit of third parties who may seek compliance [with such documents]. For a comprehensive
account and analysis of so called corporate social responsibility standards see, e.g., Kaltenborn
and Norpoth (2014).
96
Human Rights Council, Human rights and transnational corporations and other business enterprises, UN Doc. A/HRC/Res/17/4 (2011).
91

206

H.-G. Dederer

for Human Rights.97 What is more, it has also found outright acceptance by the
OECD.98

b) Claims Before National Courts of Third States


aa. General Aspects
As claims against transnational corporations are founded on national tort law,
plaintiffs may go forum shopping filing damage suits with those courts which
will apply, in accordance with their conflict-of-laws rules, the most favorable
national tort law. However, national courts of third States may be inclined to
dismiss such cases already for lack of jurisdiction.99 Domestic courts of third States
may not be competent to hear a case because, e.g., the transnational corporation, as
the defendant, is not domiciled in that State or because the acts causing the alleged
human rights violations were committed outside the States territory.100 In addition,
in common law jurisdictions, like in England or the United States, courts may
dismiss the case on the basis of the doctrine of forum non conveniens which has
been already mentioned above.101
bb. ATS Claims
Nevertheless, the United States courts have become the favorite fora for actions
filed by foreign victims against foreign transnational corporations concerning
human rights violations committed abroad, i.e., not in the USA but in the host
State. Most claims of this kind were, or are, founded on the ATS.102
97

United Nations (2012).


See supra footnote 87.
99
In particular, according to Tomuschat (2008), p. 374, the universality principle may be inapplicable. In contrast, Vazquez (2012), pp. 542 et seq., opines that the principle of universal
jurisdiction is not restricted to the field of criminal law. Even if a national court relied on the
principle of universal jurisdiction for the purposes of establishing subject-matter jurisdiction, the
court would have to affirm personal jurisdiction as well (Tomuschat 2008, pp. 376).
100
According to Sec. 23 cl. 1 of the German Code of Civil Procedure, German courts are also
competent with regard to claims against defendants who are not domiciled in Germany but whose
assets are located within the courts circuit. However, the Federal Court of Justice (Bundesgerichtshof) held that the German courts jurisdiction on the basis of Sec. 23 cl. 1 of the German
Code of Civil Procedure depends implicitly on whether the case has a sufficient relationship to
Germany (see BGHZ 115, 90, at 94: [D]er Vermogensgerichtsstand [kann] nur gegeben sein . . .,
wenn der Rechtsstreit einen hinreichenden Bezug zum Inland hat).
101
See supra at footnotes 3738.
102
Another legal basis for damage claims arising from human rights violations committed abroad
is the Torture Victim Protection Act (TVPA) of 1991 (106 Stat. 73, note after 28 U.S.C., 1350);
see Alston and Goodman (2012), pp. 11441145, and 1175. However, under the TVPA, only
individuals may be sued (Mohamad v. Palestinian Authority, 132 S.Ct. 1702 [2012], pp. 1708
and 1710).
98

Extraterritorial Possibilities of Enforcement in Cases of Human Rights. . .

207

Since Fil
artiga v. Pena-Irala, which was decided by the US Court of Appeals for
the Second Circuit in 1980,103 and, in particular, since Sosa v. Alvarez-Machain
2004,104 which has been the only ATS case decided by the U.S. Supreme Court
until recently,105 it is settled that ATS actions may result from grave human rights
violations, e.g., torture, genocide, slavery or enforced disappearances.106 However,
the U.S. Supreme Court also held that US courts should not recognize private
claims . . . for violations of any international law norm with less definite content and
acceptance among civilized nations than the historical paradigms familiar when
[the ATS] was enacted.107 Thus, judicial enforcement of human rights under the
ATS requires that ATS actions rest on universally accepted and binding norms of
customary international law which are with regard to their specificity comparable to
those norms of the law of nations Congress had in mind when adopting the ATS in
1789.108 In other words, in order to be actionable under the ATS, international
human rights norms must be sufficiently specific, universal, and obligatory.109
In the Kiobel case, e.g., not all human rights norms to which Esther Kiobel and
the other plaintiffs refer110 might have passed this test. Undoubtedly, at least the
prohibition of torture and of cruel, inhuman or degrading treatment and the prohibition of extrajudicial killings111 have been accepted universally as customary
international law.112 With regard to arbitrary detention, the plaintiffs would have
had to establish that the custody amounted to prolonged (arbitrary) detention.113
In fact, the U.S. Supreme Court held in Sosa that a single illegal detention of less
than a day does not satisfy the specificity test.114 In addition, the alleged violations
of the right to life would have had to amount to murder115 or to an arbitrary
deprivation of life.116

103

Fil
artiga v. Pena-Irala, 630 F.2d 876 (2nd Cir. 1980).
Sosa v. Alvarez-Machain, 542 U.S. 692 (2004).
105
See Kiobel v. Royal Dutch Petroleum Co., No. 10-1491, slip op. (S.Ct. 2013), 569 U.S.__
(2013) 133 S.Ct. 1659 (2013).
106
Alston and Goodman (2012), p. 1144; see also, e.g., Sturner (2014), p. 15.
107
Sosa v. Alvarez-Machain, 542 U.S. 692 (2004), p. 732.
108
According to Richardson (2012), the Founders understanding of the law of nations should not
be restricted to Emer de Vattels teachings as presented in his famous treatise Le droit des gens
of 1758.
109
See Sosa v. Alvarez-Machain, 542 U.S. 692 (2004), p. 732 by reference to In re Estate of
Marcos Human Rights Litigation, 25 F.3d 1467 (1994), p. 1475 (9th Cir. 1994).
110
See supra at footnote 4.
111
Cf. Human Rights Committee, General Comment No. 24, para. 8: States must not arbitrarily
deprive persons of their lives, . . . presume a person guilty unless he proves his innocence or deny
the right to a fair trial.
112
For a comprehensive, though not all-embracing, list of human rights norms having acquired the
status of customary international law see, e.g., American Law Institute (1987), 702.
113
See American Law Institute (1987), 702(e).
114
Sosa v. Alvarez-Machain, 542 U.S. 692 (2004), p. 738.
115
American Law Institute (1987), 702(c).
116
Human Rights Committee, General Comment No. 24, para. 8.
104

208

H.-G. Dederer

Concerning the problem of which international norms are actionable under the
ATS, Esther Kiobel and the other plaintiffs faced even more calamities in the end.
For in the Kiobel case, the Court of Appeals for the Second Circuit held that
imposing liability on corporations for violations of customary international law
has not attained a discernible, much less a universal, acceptance among nations of
the world in their relations inter se.117 The US Supreme Court granted Esther
Kiobels and the other plaintiffs petition for certiorari, though.
However, the Supreme Courts recent decision in the Kiobel case delivered on
April 17, 2013 fired a broadside at many, if not most, current ATS claims. Quite
unexpectedly, the Supreme Court had reopened oral arguments in 2012 in the
Kiobel case on the question of whether acts committed within the territory of a
foreign State could give rise to ATS actions at all. In April 2013, the Court
answered this question in the negative holding that the presumption against
extraterritoriality applies to claims under the ATS, and that nothing in the statute
rebuts that presumption.118 Thus, the Supreme Court largely barred foreigners
from suing foreigners before U.S. courts for human rights violations committed
abroad.
Admittedly, the Court has not completely excluded the extraterritorial enforcement of international human rights from ATS scope. However, claims brought
under the ATS must touch and concern the territory of the United States and they
must do so with sufficient force to displace the presumption against extraterritorial
application.119 Whether ATS claims touch and concern the territory of the United
States . . . with sufficient force to displace the presumption against extraterritorial
application depends, from our point of view, on at least two aspects. First,
claimants have to establish that there is a genuine connection (touch and concern)
between the claims and U.S. territory.120 Secondly, this genuine connection must
117

Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111 (2nd Cir. 2010), p. 145.
Kiobel v. Royal Dutch Petroleum Co., No. 10-1491, slip op. p. 13 (S.Ct.2013), 569 U.S. __
(2013) 133 S.Ct. 1659 (2013), p. 1669.
119
Kiobel v. Royal Dutch Petroleum Co., No. 10-1491, slip op. p. 14 (S.Ct. 2013), 569 U.S.__
(2013) 133 S.Ct. 1659 (2013), p. 1669.
120
Whether such a genuine connection exists depends on a mixture of parameters pointing to
U.S. territory such as the place where the alleged conduct resulting in human rights violations
occurred, the claimants place of residence, the corporate defendants sie`ge social, the fact that the
defendants (e.g., economic) activities within U.S. territory benefitted from the exploration and
exploitation of natural resources in the course of which the human rights violations were committed, etc. Based upon the Courts reasoning, it seems especially decisive that the relevant conduct,
albeit not altogether but in part, took place within the U.S. (see Kiobel v. Royal Dutch Petroleum
Co., No. 10-1491, slip op. p. 14 [2013], 569 U.S.__ [2013] 133 S.Ct. 1659 [2013], p. 1669). In
this regard, mere corporate presence in the territory of the U.S. as such does not suffice, though
(Kiobel v. Royal Dutch Petroleum Co., No. 10-1491, slip op. p. 14 [S.Ct. 2013], 569 U.S.__
[2013] 133 S.Ct. 1659 [2013], p. 1669). With regard to Morrison v. National Bank of Australia
Ltd., No. 08-1191, slip op. p. 17 (S.Ct. 2010) some domestic activity . . . involved in the case is
not enough. In the light of Justice Alitos concurring opinion, the domestic conduct must be such
that it is in itself sufficient to violate international law (Alito, J., concurring, Kiobel v. Royal
Dutch Petroleum Co., No. 10-1491, slip op. p. 2 [S.Ct. 2013]). Interestingly enough, the U.S.
118

Extraterritorial Possibilities of Enforcement in Cases of Human Rights. . .

209

by its own strength outweigh, or override, the presumption against extraterritoriality. A decisive criterion for this balancing test should be, from our point of view,
the aim and purpose of the presumption against extraterritoriality.121
Moreover, in Sosa v. Alvarez-Machain, the US Supreme Court mentioned, albeit
only in a footnote, that another possible limitation [to ATS litigation] . . . is a policy
of case-specific deference to the political branches.122 In fact, several U.S. courts
resorted to the so called political question doctrine and, indeed, dismissed ATS
cases. In Joo v. Japan, e.g., the Court of Appeals for the District of Columbia was
convinced that [t]he Executives judgment that adjudication by [the] court would
be inimical to the foreign policy interests of the United States [wa]s compelling and
render[ed] th[e] case nonjusticiable under the political question doctrine.123,124

Supreme Court granted the petition to a writ of certiorari in the ATS (and TVPA) case of Daimler
AG v. Bauman et al., No. 11-965, on April 22, 2013 (http://www.supremecourt.gov/orders/
courtorders/042213zor_k5fl.pdf). According to the petition, the question presented to the Supreme
Court is whether it violates due process for a court to exercise general personal jurisdiction over a
foreign corporation based solely on the fact that an indirect corporate subsidiary performs services
on behalf of the defendant in the forum State. On January 14, 2014, the US Supreme Court held
that US courts are barred from exercising personal jurisdiction over Daimler AG because Daimler
is not at home in California, and cannot be sued there for injuries plaintiffs attribute to
[Mercedes-Benz] Argentinas conduct in Argentina (Daimler AG v. Bauman et al., No. 11-965,
slip op. p. 3 (S.Ct. 2014), 571 U.S.__ (2014) 134 S.Ct. 746 (2014), p. 751). For an analysis of this
decision and its ramifications see, e.g., Zekoll and Schulz (2014), pp. 326328.
121
The aim and purpose of the presumption against extraterritoriality is to protect against
unintended clashes between our laws and those of other nations which could result in international
discord (Kiobel v. Royal Dutch Petroleum Co., No. 10-1491, slip op. p. 4 [S.Ct. 2013], 569 U.S.__
[2013] 133 S.Ct. 1659 [2013], p. 1664, by reference to EEOC v. Arabian American Oil Co.,
499 U.S. 244 [1991], p. 248). Thus, the presumption against extraterritoriality serves to curtail
the danger of unwarranted judicial interference in the conduct of foreign policy (Kiobel v. Royal
Dutch Petroleum Co., No. 10-1491, slip op. p. 5 [S.Ct. 2013], 569 U.S.__ [2013] 133 S.Ct. 1659
[2013], p. 1664). Hence, the presumption against extraterritoriality might be rebutted if the
genuine connection between the claims and US territory is so strong that international discord
and judicial interference in the conduct of foreign policy cannot be reasonably expected as a
result of the exercise of extraterritorial jurisdiction by U.S. courts because the exercise of
extraterritorial adjudicative jurisdiction is plainly plausible.
122
Sosa v. Alvarez-Machain, 542 U.S. 692 (2004), p. 733.
123
Hwang Geum Joo v. Japan, 413 F.3rd 45 (2005), p. 53.
124
In addition, the doctrine of personal immunity may bar plaintiffs from suing individuals such as
sitting heads-of-State (see, e.g., Habyarimana v. Kagame, 696 F.3d 1029 (10th Cir. 2012),
pp. 10321033). See also ICJ, Arrest Warrant of 11 April 2000 (Democratic Republic of the
Congo v. Belgium), Judgment, ICJ Reports 2002, p. 3, paras. 5354, and Keitner (2013), p. 802,
who rightly states that [a]lthough the ICJs decision [in the Arrest Warrant case] related to
criminal proceedings, its rationale would also apply to civil proceedings and other measures of
constraint. In contrast, the scope of functional immunity from civil actions is quite contested. See
Keitner (2013), pp. 806 et seq.

210

H.-G. Dederer

III. Criminal Proceedings


1. Corporate Criminal Liability?
It has been correctly held that civil lawsuits in the United States [like ATS
lawsuits] have much in common with privately initiated criminal proceedings in
civil law [i.e., in particular, European] legal systems.125 That leads us to some final
remarks on criminal liability for human rights violations committed abroad. We
have already pointed out that it is primarily natural persons who may be held
criminally liable.126 However, at least within national legal orders, the concept of
corporate criminal liability seems to gain ground gradually.127
On the international level, however, the concept of corporate criminal liability
has not yet won recognition.128 In fact, neither the International Criminal Tribunals
for the former Yugoslavia and for Ruanda nor the International Criminal Court are
entitled to sentence legal persons.129

2. Jurisdictional Problems
a) National Courts
Even if it could be established beyond reasonable doubt that employees of a
transnational corporation committed, or participated in, human rights violations
amounting to (international) crimes, national courts may lack a sufficient jurisdictional basis to adjudicate on corporate criminal liability in cases of human rights
violations which were committed abroad. Indeed, in accordance with the current
state of public international law, a State may exercise extraterritorial adjudicative
jurisdiction only if there is a sufficient connection between the State . . . and the
extraterritorial event.130

125

Stephens (2002), p. 452.


See supra at footnote 23.
127
Nevertheless, Germany, e.g., might keep aloof from such legal developments with regard to the
fundamental criminal law principle of personal individual guilt. See, e.g., Buszewski
(2012), p. 204.
128
Cf., e.g., Ruggie (2007), paras. 2021. See also Koster (2010), pp. 182187 according to whom
primary prohibitions of a certain conduct have to be distinguished from secondary rules which
give rise to criminal liability if primary prohibitions are disregarded. Thus, even though corporate criminal liability may not exist so far as a secondary rule on the international level, primary
prohibitions may, nevertheless, apply to (transnational) corporations.
129
Art. 6 of the Statute of the International Criminal Tribunal for the former Yugoslavia; Art. 5 of
the Statute of the International Tribunal for Rwanda; Art. 25(1) of the Rome Statute of the
International Criminal Court. See also, e.g., Bradley (2012), p. 513.
130
Kamminga (2008 ff), para. 9.
126

Extraterritorial Possibilities of Enforcement in Cases of Human Rights. . .

211

As a rule, national courts apply only national criminal law of their own State.
Thus, the decisive jurisdictional problem is whether the States legislature adhered
to accepted principles of jurisdiction when enacting its domestic criminal law
enabling the exercise of extraterritorial judicial jurisdiction by its domestic courts.
In cases of human rights violations occurring in the course of the exploration and
exploitation of natural resources by transnational corporations a State may exercise
criminal jurisdiction on the basis of the personality principle with regard to conduct
of its own (corporate) nationals (active personality principle).131
Another jurisdictional basis might be provided by the universality principle.
Based on the principle of universal jurisdiction a State may exercise legislative and
judicial jurisdiction no matter where the crime occurred or what the nationalities of
the perpetrators or the victims were. However, the scope of applicability of the
universality principle is limited but still blurred. It undoubtedly applies to criminal
prosecution. As criminal liability is closely related to civil tort liability, the principle of universal jurisdiction may be extended to civil litigation in tort cases as
well.132 In any case, the universality principle does not apply to all kinds of human
rights violations. It is settled, however, that it permits the exercise of criminal
jurisdiction in cases of the most odious international crimes, e.g., torture, slavery,
war crimes or genocide.133

b) International Criminal Court


This leads us to the question of whether also the International Criminal Court (ICC)
may exercise its jurisdiction in cases of human rights violations committed within
the context of the exploitation and exploration of natural resources. The ICC has, in
particular, jurisdiction over genocide, war crimes, and also crimes against humanity.134 In accordance with the Rome Statutes legal definition of crimes against
humanity, e.g., murder, rape or imprisonment may amount to such crimes if these
acts were committed as part of a widespread or systematic attack directed against
any civilian population, with knowledge of the attack.135
Thus, with a view to the facts of the Kiobel case, the ICC could, in principle,
exercise its jurisdiction as far as the alleged human rights violations amount to
crimes against humanity. Indeed, Nigeria is a party to the Rome Statute and the

The German Criminal Code (CC), e.g., explicitly provides that German criminal law shall
apply to . . . offences committed abroad . . . if the offender . . . was German at the time of the
offence (Sec. 7(2)(1) CC). In addition, it also lays down that German criminal law shall apply to
offences committed abroad against a German (Sec. 7(1) CC).
132
See Alston and Goodman (2012), p. 1122; Kaleck and Saage-Maa (2008), pp. 4748; Koster
(2010), pp. 261266; but see also in footnote 99.
133
Kamminga (2008 ff), para. 14.
134
Art. 5(a)(c), 68 of the Rome Statute of the International Criminal Court.
135
Art. 7(1)(a), (e) and (g) of the Rome Statute of the International Criminal Court.
131

212

H.-G. Dederer

alleged acts were committed within Nigerian territory.136 However, in accordance


with the principle of complementarity, the Nigerian courts would have the primary
responsibility to prosecute the perpetrators in the Kiobel case.137 Thus, for reasons
of primacy of the domestic courts of Nigeria, the ICC would have to determine that
the Kiobel case was inadmissible unless Nigeria was unwilling or unable genuinely
to carry out the investigation or prosecution.138

3. Problems of Immunity
Of course, Nigeria could refer cases like the Kiobel case to the Prosecutor of the
ICC.139 In that case, under the Rome Statute, problems of (functional or personal)
immunity would not arise.140 In contrast, foreign national courts may be barred
from exercising criminal jurisdiction for reasons of (functional or personal) immunity. In fact, national courts have to grant functional immunity to all foreign State
agents.141 Thus, in the Kiobel case, e.g., the Nigerian soldiers could, in principal,
claim that they were not subject to a foreign courts criminal jurisdiction due to the
principle of functional immunity. However, it seems to be well established that
functional immunity may not be invoked in cases of (serious) international
crimes.142,143

136

See Art. 12(1), (2)(a) of the Rome Statute of the International Criminal Court.
See Art. 17 of the Rome Statute of the International Criminal Court.
138
Art. 17(1)(a) of the Rome Statute of the International Criminal Court.
139
Art. 14(1) of the Rome Statute of the International Criminal Court.
140
Art. 27(2) of the Rome Statute of the International Criminal Court.
141
Cassese et al. (2011), pp. 7677, and 88; Cryer et al. (2010), p. 533.
142
See, e.g., Cassese et al. (2011), pp. 77 et seq.; Cryer et al. (2010), pp. 542 et seq. For an in-depth
analysis of the scope of functional immunity see also Keitner (2013), pp. 804 et seq.
143
If heads of State or government were involved in human rights violations amounting to
international crimes, a foreign court would have to adhere to the principle of personal immunity.
On the other hand, heads of State or government (as well as ministers for foreign affairs and,
perhaps, even other ministers, e.g., the minister for defense) enjoy personal immunity only whilst
holding office. Thus, former heads of State or government (and former ministers) may face
criminal prosecution after their term of office. In its Yerodia judgment, however, the ICJ limited
this exception to personal immunity to crimes committed during [his or her] period of office in a
private capacity (ICJ, Arrest Warrant of 11 April 2000 [Democratic Republic of the Congo
v. Belgium], Judgment, ICJ Reports 2002, p. 3, para. 61). The ICJ was criticized for omitting
another exception according to which personal immunity was also inapplicable in cases of
(serious) international crimes. See Cryer et al. (2010), p. 547.
137

Extraterritorial Possibilities of Enforcement in Cases of Human Rights. . .

213

E. Summary
We have come back to the Kiobel case which was the starting point for our analysis
of extraterritorial possibilities of enforcement in cases of human rights violations.
We would, therefore, like to sum up some our results:
A States exercise of its Permanent Sovereignty over Natural Resources, e.g.,
by granting concessions to transnational corporations for the purpose of exploration
and exploitation of natural resources and by providing security services to those
transnational corporations, may lead, in the end, to human rights violations and
even international crimes. The Kiobel case forms an infamous example for such
disastrous developments.
The victims of such human rights violations may try to bring claims against their
own State, i.e., the host State, or against the transnational corporations home State
or against the transnational corporation itself. They may choose to file such civil
lawsuits with foreign courts, i.e., not with courts of the host State, where the human
rights violations were committed, but with courts of the home State or a third State.
Damage claims against the transnational corporations home State will be hardly
successful. First, it might be difficult to establish that the home State had a duty to
protect human rights against encroachments by its corporate nationals abroad, i.e.,
in the host State, and, even if such a duty to protect existed, that the home State had
not complied with that duty. For States usually enjoy a certain margin of appreciation when conforming to their duty to protect human rights. Secondly, foreign
courts may dismiss the case for reasons of State immunity of the home State or, in
common law jurisdictions, on the basis of the forum non conveniens doctrine.
Damage claims against transnational corporations themselves will hardly be
successful, if national tort law explicitly requires the violation of public international (human rights) law and if the transnational corporation commits, or participates in, international crimes. For the concept of corporate liability does not seem
to have gained acceptance in international law. However, the failure of the transnational corporation to adhere to its corporate responsibility to respect human
rights may be considered a disregard of due diligence and, thus, give rise to
negligence claims. Nevertheless, national courts of third States may dismiss such
damage suits for lack of jurisdiction or, in common law jurisdictions, on the basis of
the forum non conveniens doctrine.
So far, the ATS was thought to be a valid legal basis for damage suits brought by
foreigners against foreign transnational corporations in cases of serious human
rights violations committed abroad. However, the U.S. Supreme Courts decision
in the Kiobel case delivered in April 2013 largely ruled out ATS claims with regard
to human rights violations committed abroad.
Concerning criminal proceedings, corporate criminal liability seems to be an
evolving concept on the national level but has not gained ground on the international level so far. With regard to the requirement of a jurisdictional basis, a States
criminal jurisdiction may extend to human rights violations committed abroad if the
perpetrators are (corporate) nationals of the State or if the human rights violations

214

H.-G. Dederer

form serious international crimes. In the latter case, foreign public officials would
not enjoy functional immunity.

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Index

A
African Charter of Human and Peoples Rights, 24
African Development Bank, 42
Algerian Investment Code, 160
Alien Tort Statute (ATS), 178, 188
claims, 206209
Anglo Iranian Oil Company (AIOC), 5, 127
1985 ASEAN Agreement on the Conservation
of Nature and Natural Resources, 52
Australias Foreign Investment Policy, 87
Foreign Acquisition and Takeovers Act
1975, 88
Foreign Acquisition and Takeovers
Regulations 1989, 88
Foreign Acquisition and Takeovers
(Notices) Regulations 1975, 88
Australias Natural Resource Regime, 8387
Mineral Resources Act 1989, 84
Mineral Resources Regulation 2003, 84
Minerals Resource Rent Tax, 86
Petroleum and Gas (Production and Safety)
Act 2004, 84
Petroleum and Gas (Production and Safety)
Regulations 2004, 84
Petroleum Resource Rent Tax, 86

B
1991 Bamako Convention, 48
1990 Bergen Ministerial Declaration on
Sustainable Development in the EEC
Region, 48
Bretton Woods Conference, 4
Brundtland Commission, 20
1987 Brundtland Report, 52

C
Calvo doctrine, 6
Certification, 184
China-Rare Earth, 117
China-Raw Materials, 106, 117120
Chinas bilateral investment treaties, 107110;
111114
compensation standards, 112114
expropriation and compensation clauses,
108110
Chinas national laws, 110111
expropriation and compensation clauses,
110111
Law of Foreign-Owned Enterprise of the
Peoples Republic of China, 110
Law of Sino-Foreign Contractual Joint
Venture of the Peoples Republic of
China, 110
Law of Sino-Foreign Equity Joint Venture
of the Peoples Republic of China, 110
Chinas natural resources law system, 102106
Constitution of the Peoples Republic of
China, 102
Criminal Law of the Peoples Republic of
China, 104
Environmental Protection Law of the
Peoples Republic of China, 102
Forestry Law of the Peoples Republic of
China, 103
Property Law of Peoples Republic of
China, 102
Commission on Global Governance, 40
Commission on Permanent Sovereignty over
Natural Resources, 5
Common heritage of mankind, 11, 20

Springer International Publishing Switzerland 2015


M. Bungenberg, S. Hobe (eds.), Permanent Sovereignty over Natural Resources,
DOI 10.1007/978-3-319-15738-2

217

218
Compensation, 108110, 112114, 142153
appropriate, 17, 131
in bilateral investment treaties, 143145
customary international rules on, 143145
in international investment agreement,
145152
standards, 142153
Compliance-clause, 129130
Constitution of Cape Verde, 69
Constitution of Malawi, 68
Constitution of South Africa, 69
Constitution of the Republic of Angola, 72
Convention concerning the Protection of the
World Cultural and Natural Heritage, 104
Corporate social responsibility, 181183
Customary international law, 31, 64

D
De Beers, 184
1962 Declaration on Permanent Sovereignty
over Natural Resources, 6
Development
economic, 3, 5, 9, 18, 20, 21, 53, 98
national, 6, 17, 27, 65, 85, 156
sustainable, 9, 20, 21, 44, 5254, 131
Due diligence, 8, 200

E
1994 Energy Charter Treaty, 25, 49, 53, 132
Environmental Liability Directive, 50
Environmental protection, 9, 53, 55
EU-Canada Comprehensive Trade and
Investment Agreement, 132
European integration, 74
Exploitation management models, 7073
classical perspective of sovereignty, 70
current paradigm of international law, 70
traditional model, 70
Expropriation
Argentina, 150152
Australia, 9293
general conditions of, 111
Zimbabwe, 148150
Extraterritoriality, 178179, 187214

F
Foreign direct investment, 156159
codes, 157159
laws, 157159
Foreign investment, 17, 129138

Index
Forum on China-Africa Cooperation
(FOCAC), 162171
Master Facility Agreement, 165169

G
1947 General Agreement on Tariffs and
Trade, 4
1994 General Agreement on Tariffs and
Trade, 118
Globalisation, 3841
Good neighbourliness, principle of, 46
Governance
European, 43
global, 3941, 175177
good, 4145, 175177

H
Hague Regulations of 1907, 64
Havana Charter for an International Trade
Organisation, 35, 129
Hull formula, 18, 112, 127, 131, 142145
Human rights
claims against home States, 195202
claims against host States, 194195
claims against transnational corporations,
202210
corporate responsibility to respect, 204206
extraterritorial enforcement of, 192212
extraterritorial obligations, 196
protection of, 176177
responsibility to protect, 198
Human rights violations, 191
criminal liability for, 210

I
Indigenous peoples, 21, 26, 7172, 190191
rights, 7172, 190191
Inter-governmental cooperation, 7376
International Conference on Governance for
Sustainable Growth and Equity, 44
International Court of Justice, 64
Statute of the, 3031, 34, 128
International Covenant on Civil and Political
Rights, 5, 65, 190
International Covenant on Economic, Social
and Cultural Rights, 5, 65, 190
International investment
agreements, 132133, 145152
law, 127129
treaties, 132133

Index
Internationalization
clauses, 134135
models of, 67
International law
principles of, 3034
sources of, 3034
International Law Association, 43
Declaration of New Delhi, 44
International Monetary Fund (IMF), 4, 41
International regime, concept of, 3637
Investment protection, 106114, 125138
Investment strategy in Africa, 160161
Investor state
arbitration clauses, 115
contracts, 134135

J
2002 Johannesburg World Summit on
Sustainable Development, 9, 21
Johannesburg Declaration on Sustainable
Development, 45
Johannesburg Plan of Implementation, 45

K
Kimberley process, 174176, 184186
Kiobel case, 178179, 188214
Kyoto Protocol to the Climate Change
Convention, 53

M
Minimum standard, 131
1984 Ministerial Declaration of the
International Conference on the
Protection of the North Sea, 48
Multilateral Investment Guarantee Agency,
136

N
Namibian Constitution of 1990, 68
Nationalization, 6, 8, 25, 106, 127129
Natural resources, 23, 3536
conservation of, 9, 20
Natural wealth, 2324
New International Economic Order, 78, 19,
100, 143
Newly-independent States, 16, 22
New Partnership for Africas Development
(NEPAD), 161
No harm rule, 199

219
O
Occupation, territories under, 9
Organization for Economic Co-operation and
Development, 43
Development Assistance Committee, 44
Draft Convention on the Protection of
Foreign Property, 129
guidelines for multinational enterprises,
130, 177178
1972 Guiding Principles Concerning the
International Economic Aspects of
Environmental Policies, 49
1989 Recommendation on the Application
of the Polluter-Pays Principle to
Accidental Pollution, 50
1974 Recommendation on the
Implementation of the Polluter-Pays
Principle, 50
Organization of the Petroleum Exporting
Countries, 19
Overseas Private Investment Corporation, 135,
137138

P
Pacta sunt servanda, 3, 134
Permanent sovereignty over natural resources
evolution of, 212, 99101
in treaty law, 2425
legal status, 1012
objects, 2324
right holders, 2223
rights and duties, 6465
Polluter-pays principle (PPP), 46, 4951
Precautionary principle, 46, 4749
Preventive action, principle of, 46, 47
Primary Commodity, 35

R
Regional integration organizations, 7376
Economic Community of West African
States, 74
Organization for the Harmonization of
Business Law in Africa, 74
Southern African Development
Community, 7376
West African Economic and Monetary
Union, 74
Resolution
523 (VI), Integrated economic
development and commercial
agreements, 4, 16, 99

220
Resolution (cont.)
626 (VII), Right to exploit freely natural
wealth and resources, 5, 16, 65, 99,
118, 142
1314 (XIII), Recommendations concerning
international respect for the rights of
peoples and nations to selfdetermination, 100
1514 (XV), Declaration on the granting of
independence to colonial countries and
peoples, 18
1803 (XVII), Declaration on Permanent
Sovereignty over Natural Resources
(see also 1962 Declaration on
Permanent Sovereignty over Natural
Resources), 5, 67, 1718, 65, 80,
9395, 100101, 128, 129, 131,
142, 156
2158 (XXI), Permanent sovereignty over
natural resources, 7, 1819, 129, 131
3016 (XXVII), Permanent sovereignty over
natural resources of developing
countries, 65
3201 (S-VI), 7, 65,101 (see also United
Nations Declaration on the
Establishment of the New International
Economic Order)
3281 (XXIX), 8, 65, 129, 131, 142 (see also
United Nations Charter of Economic
Rights and Duties of States)
Resolution:35/56, International Development
Strategy for the Third United Nations
Development Decade, 52
Resource management,
universal principles for, 3034
Responsibility not to cause environmental
damage, 45
2012 Rio+20 Conference on Sustainable
Development, 21
1992 Rio Declaration, 21, 46, 47, 49, 54

S
Santiago Declaration on the Maritime Zone, 4
Self-determination, 10, 22, 99, 100, 156, 190
economic, 17, 24
political, 17, 24
principle of, 3, 17
Sic utere tuo ut alienum non laedas
principle of, 4547
Soft law, 27
human Rights, 179181

Index
Sources of law of the legal systems of African
States, 67
Southern African Development Community
(SADC), 62, 7376
treaty of, 75
1993 Southern Bluefin Tuna
Convention, 53
Sovereign equality, 6, 17
principle of, 3, 181
Sovereignty
economic, 16, 22
over natural wealth, 6, 18, 22, 23
principle of, 16, 45
territorial, 10, 11
Stabilization clause, 134
State immunity, principle of, 194202
State responsibility, 8, 19
1972 Stockholm Declaration,
8, 19, 21, 46

T
Territoriality, principle of, 45
Tort law, national, 203, 205, 206
Transnational
corporations, 202209
Transparency, 4145, 184
Truman Proclamation, 4

U
Unilateral acts, 32
United Nations Charter, 3, 181
United Nations Charter of Economic Rights
and Duties of States, 65, 100, 128, 142
United Nations Commission on Human
Rights, 18
United Nations Conference on Environment
and Development, 20
United Nations Conference on Trade and
Development, 7, 19
United Nations Convention on the
Conservation of Biological Diversity,
21, 25, 66, 104
United Nations Convention on the
Law of the Sea, 8, 20, 24, 27, 66, 104
United Nations Declaration on the
Establishment of a New International
Economic Order, 7, 65, 100, 131
United Nations Declaration on the
Rights of Indigenous Peoples,
21, 23

Index
United Nations Declaration on the Right to
Development, 22
United Nations Development Programme
(UNDP), 40
United Nations Economic and Social
Commission for Asia and the
Pacific, 42
1992 United Nations Economic Commission for
Europe Transboundary Waters
Convention, 49
United Nations Environment Programme
guidelines, 19, 27
United Nations Framework Convention on
Climate Change, 21, 48, 53

221
United Nations Global Compact, 5152, 130
United Nations Principles for Responsible
Contracts, 135

W
1992 Watercourses Convention, 48
Water Framework Directive, 50
World Bank Institute (WBI), 42
World Charter for Nature, 20, 22
World Commission on Environment and
Development, 9