Nauru triggers two-year countdown for deep seabed mining

On 25 June 2021, the Republic of Nauru (“Nauru”) triggered a two-year countdown for the International Seabed Authority (the “ISA”) to finalise the regulations for the exploitation of minerals in the international seabed. If ISA does not complete those regulations within two years, deep seabed mining contractors could commence exploitation based on provisionally adopted regulations.

ISA regulates all mining activities in the international seabed beyond the limits of national jurisdiction (the “Area”). ISA is an autonomous international organisation established under the 1982 United Nations Convention on the Law of the Sea (“UNCLOS”). No mining activities, whether exploration or exploitation, can take place in the Area without an appropriate licence from ISA.

ISA has developed a detailed licensing system for prospecting and the exploration of the Area, but it is yet to adopt such a system for the exploitation of mineral resources in the Area. ISA has adopted three-sets of exploration regulations and it has granted 31 exploration licences to a total of 22 national agencies and private companies. In the absence of exploitation regulations, those contractors, in principle, cannot move to the exploitation phase yet. Since 2014, ISA has been developing exploitation regulations. Although, those regulations remain in draft form, significant progress has been made. They comprise more than 117 pages of complex technical and legal considerations and are accompanied by several detailed draft standards and guidelines.

Nauru has now invoked the 1994 Agreement relating to the Implementation of Part XI of UNCLOS, Annex 1, Section 1(15) to request that ISA adopt the exploitation regulations necessary to facilitate the approval of plans of work for exploitation in the Area. Nauru made this request on the basis that Nauru Ocean Resources Inc (“NORI”), a State-sponsored Nauruan contractor and a wholly-owned subsidiary of The Metals Company, intends to apply for approval of a plan of work for exploitation in two years.

If in two years’ time ISA has not completed the exploitation regulations, ISA shall consider plans of work from NORI and other contractors, based on provisionally adopted regulations. The current draft exploitation regulations (which would likely be adopted provisionally) foresee a one-year process to review a plan of work for exploitation. As such, commercial mining could potentially commence in three years time. Notably, however, ISA can refuse to approve a plan of work and thereby prevent exploitation in the Area.

Nauru explained that it triggered the two-year count down because of “the urgency of concluding [the exploitation regulations] […] to provide the legal certainty required for this industry to move forward.” Others that support Nauru’s initiative point towards the need to unlock mineral resources in the Area to accelerate the green energy transition. Opponents like Deep Ocean Stewardship Initiative, however, warn that two years is not sufficient to allow for scientifically informed decision-making and that rushing the regulations would run counter to the precautionary approach. A collective of African States has criticised Nauru’s action noting that key sections of the exploitation regulations have yet to be agreed, in particular a financial regime that compensates land-based miners for their losses.

For further information, please contact Robert Volterra (Robert.Volterra@volterrafietta.com), Angela Ha (Angela.Ha@volterrafietta.com) or Florentine Vos (Florentine.Vos@volterrafietta.com).

See here for the Volterra Fietta virtual seminar on the subject of deep seabed mining.

Latin America and the Caribbean join the space race with the creation of a regional space agency (ALCE)

Somewhat abruptly, the planet entered into a new and rapidly accelerating space race. Latin America and the Caribbean have decided to join that race.

On 24 July 2021, the Ministers of Foreign Affairs of Argentina, Bolivia, Costa Rica, Ecuador, Paraguay and Mexico signed a joint declaration containing a draft constitutive convention establishing the Latin American and Caribbean Space Agency (“ALCE”).

On 18 September 2021, at the VI Summit of Heads of State and Government of the Community of Latin American and Caribbean States (CELAC), the final version of the Constitutive Convention was approved by 18 Caribbean and Latin American States (Antigua and Barbuda, Argentina, Bolivia, Costa Rica, Cuba, Dominica, Ecuador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Saint Vincent and the Grenadines, Saint Lucia and Venezuela). The Constitutive Convention provides that ALCE is an international organisation and will be headquartered in Mexico.

The signatories share the view that space exploration will be critical for the development of their States and the region as a whole. They recognise that failing to join the space race and partake in space exploration activities will highlight the technological and scientific disadvantages that the region currently faces. At the same time, they are conscious that no Latin American or Caribbean State has, on its own, the financial, technological or scientific capacity to engage meaningfully in any space exploration activities. ALCE seeks to address those issues.

In the style of the European Space Agency, ALCE will coordinate space-related activities among its Member States. It promises to direct the application of space science, technology and resources towards the region’s shared goals and challenges. Mexico’s Minister of Foreign Affairs, who spearheaded the project along with his Argentinian counterpart, explained that joining financial and human resources will enable Latin American and Caribbean States to become relevant players in the space race. Among others, ALCE promises to improve the region’s capabilities in Earth observation systems for use in agriculture, natural disasters (droughts, floods, fires, hurricanes), security and surveillance, oceanography, meteorology, exploration of natural resources and cartography.

ALCE’s Constitutive Convention will remain open for signature by the other Latin American and Caribbean States. It also contemplates the possibility for other States and international organisations to participate, provided that their participation is previously approved by ALCE’s Assembly.

For further information, please contact Robert Volterra (Robert.Volterra@volterrafietta.com) or Ricardo Gerhard (Ricardo.Gerhard@volterrafietta.com).

The Escazú Agreement enters into force

The Regional Agreement on Access to Information, Public Participation and Justice in Environmental Matters in Latin America and the Caribbean, adopted in Escazú, Costa Rica, on 4 March 2018 (the “Escazú Agreement”, the “Agreement”), entered into force on 22 April 2021.

The Escazú Agreement is the first treaty focusing on the environment in Latin America and the Caribbean and seeks to address key issues that the region faces on this matter. It is the result of negotiations following the 2012 United Nations Conference on Sustainable Development (Rio+20) and seeks to support the attainment of Principle 10 of the 1992 Rio Declaration on Environment and Development, regarding the right to access information, public participation and justice in environmental issues.

Although lacking participation of key players in the region, such as Brazil, Colombia and Chile, the Agreement is a positive development for environmental protection in Latin America and the Caribbean.

Key provisions and takeaways from the Escazú Agreement

a) Access to environmental information

One of the guiding principles of the Agreement is the principle of maximum disclosure, which informs the Agreement’s provisions in relation to disclosure of environmental information under control of State Parties, as well as private entities.

As such, the Agreement introduces obligations to guarantee access to environmental information held by State Parties, albeit limited “to the extent possible within available resources” (Article 6(1)).

Further, it addresses the role of private companies in relation to environmental matters, obliging State Parties to “promote access to environmental information in the possession of private entities” (Article 6(12)) and “encourage public and private companies […] to prepare sustainability reports that reflect their social and environmental performance” (Article 6(13)).

b) Protection of environmental activists

Of particular interest is Article 9 of the Agreement, in relation to human rights defenders in environmental matters. It includes a binding obligation on State Parties to guarantee “a safe and enabling environment” to human rights defenders. This provision recognises and seeks to address the region’s issues with violence towards environmental activists, binding parties to “take appropriate, effective and timely measures to prevent, investigate and punish attacks, threats or intimidations that human rights defenders in environmental matters may suffer while exercising the rights set out in the present Agreement” (Article 9(3)).

c) Environmental protection and human rights

The Agreement follows the line seen in recent years of increased recognition of the link between human rights and the environment in international law. In this regard, the Agreement expressly recognises the link between environmental and human rights and acknowledges the protection of the environment as a human rights issue. As such, it establishes that the Agreement is a “legal instrument for environmental protection, but it is also a human rights treaty” (Article 4(1)).

Next steps

Critical issues as to the implementation of the Escazú Agreement will be decided at the first Conference of the Parties to the Agreement, which will convene a year after its entry into force. The meeting will determine key outstanding points such as the adoption of rules of procedure, including modalities for “significant participation by the public” (Article 15(4)(a)), as well as the establishment of subsidiary bodies essential to the effective implementation of the Agreement (Article 15(5)(b)).

Commentary

Environmental, social and governance (“ESG”) matters are gradually gaining priority in regulators’ agendas, both at an international and national level. As such, disclosure requirements continue to increase, driven by a general call for greater transparency in relation to these issues.

The Escazú Agreement is a landmark treaty for Latin America and the Caribbean, enshrining the right of access to information and the principles of transparency and “maximum” disclosure in environmental issues.

The general non-binding character of the obligations set forth in the Agreement should not be a measure of its capacity to effect change. The Agreement will facilitate public scrutiny of the environmental record of private entities and promote corporations’ transparency in relation to their operations. This is likely to have a knock-on effect on companies’ policies regarding ESG matters.

Space arbitration: Mexico reportedly avoids liability in satellite dispute with Eutelsat

On 15 September 2021, the Mexican Ministry of Economy reported that it had successfully defended a claim brought by satellite giant Eutelsat in an arbitration before the International Centre for Settlement of Investment Disputes (“ICSID”).

According to media reports, Eutelsat’s claim related to the obligation Mexico had imposed on SatMex – which Eutelsat purchased in 2014 – to reserve portions of its satellite spectrum for guard bands and for Government use. The arbitration was reportedly commenced by Eutelsat in August 2017 under the France-Mexico bilateral investment treaty. Relying on the broad protections available in that treaty, Eutelsat had argued that the Government’s spectrum allocation obligations discriminated against its investment as compared to competitors. According to the Mexican Government, the tribunal recently dismissed those claims, with costs awarded to Mexico.

Satellites and space operations are projected to increase in a manifold way in the coming years. The industry is also subject to a significant amount of Government regulation, only beginning with the terms by which satellite spectrum is awarded to private operators. Undoubtedly, this will continue to give rise to significant disputes between Governments and private satellite operators (and other space companies), including under the terms of so-called investment protection treaties or bilateral investment treaties. These treaties may provide some space companies with the right to initiate investor-State arbitration against Governments for redress of their alleged rights.

To date, for instance, as is available in the public sphere, satellite-based claims have led to three sets of investor-State arbitration disputes: (a) Eutelsat’s claim against Mexico; (b) a series of claims by Mauritian and Singaporean companies against India arising out of the annulment of a satellite lease contract between Devas Multimedia and the Indian-government-owned Antrix Corporation; and (c) claims for satellite interference brought against Egypt by Al Jazeera. Volterra Fietta lawyers have been senior counsel to at least some of the parties in two of those three instances.

For further information, please contact Robert Volterra (Robert.Volterra@volterrafietta.com) or Gunjan Sharma (gunjan.sharma@volterrafietta.com).

UK in the market for new trade deals: potential new benefits for States and investors

The United Kingdom (“UK”) is in the market for trade deals, with potential new benefits for a number of States and both inbound and outbound investors. As of 1 January 2021, following its exit from the European Union (“EU”), EU trade agreements no longer apply to the UK. It is now in the process of finalising a UK-Australia trade deal and a UK-New Zealand trade deal, having recently published an Agreement in Principle for each of them.

In the same vein, the UK is negotiating trade deals with the 11 Pacific Rim States forming the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”). It has also expressed an interest in joining the US-Mexico-Canada trade pact and in trade deals with other States, such as India. This follows recent new trade deals signed with Japan in late 2020 and with Norway, Iceland and Liechtenstein in July 2021.

UK-Australia trade deal

On 17 June 2021, the UK and Australia published an Agreement in Principle, setting out broad terms of their deal. It followed the launch of negotiations between the UK and Australia from June 2020. The UK government expects to publish the legal text of the deal by the end of 2021, although Australia has not yet shared any timing expectations.

The deal will include the following:

significant liberalisation of tariffs on trade in goods;
“Most Favoured Nation” provisions (covering services and investment). These require that if the UK or Australia provide more generous access for investment from other States, this will also be extended to Australian and UK investors;
protection for UK and Australian investors, including from unfair or discriminatory treatment and expropriation of assets without due compensation, reflecting the customary international standard of protection;
a provision confirming that economic sanctions are not impacted by the commitment to allow free transfers of funds by investors; and
certain provisions from the CPTPP, such as Prohibition of Performance Requirements included in the CPTPP.

Notably, the UK is the third largest source of foreign direct investment in Australia, with foreign direct investment valued at $123 billion in 2020. The UK is likewise the second largest recipient of Australian foreign direct investment.

Despite the agreement’s wide-ranging investment provisions, the UK-Australia trade deal will not include any investor-State arbitration provisions. As such, the UK-Australia trade deal will not allow Australian or British investors directly to commence investor-State arbitrations against the UK or Australia respectively.

UK-New Zealand trade deal

On 20 October 2021, the UK and New Zealand also published an Agreement in Principle, setting out broad terms of their deal. It followed the launch of negotiations in June 2020 and, as expected, closely resembles the UK-Australia trade deal in multiple key respects. The deal will include, for instance: significant tariff liberalisation; Most Favoured Nation provisions and protection for UK and New Zealander investors, including from unfair and discriminatory treatment and expropriation of assets without due compensation. As with the UK-Australia trade deal, the UK and New Zealand have agreed not to include any investor-State arbitration provisions. Indeed, they have gone even further to agree prospectively that, if and when the UK accedes to the CPTPP, the investor-State arbitration provisions in the CPTPP also will not apply between the UK and New Zealand.

The New Zealand government aims to conclude the UK-New Zealand free trade agreement by the end of 2021, although the UK has not yet shared any timing expectations.

UK membership in the CPTPP

On 28 September 2021, the UK attended its first meeting with the 11 members of the CPTPP to negotiate the UK’s potential accession. This followed the UK’s formal application to join the CPTPP on 1 February 2021.

The CPTPP is a £9 trillion free trade area of 11 States: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. In broad terms, it removes 95% of tariffs between its members. The UK has expressed its hope that CPTPP membership will help secure exports to CPTPP members’ growing markets, which are home to some 500 million people and include some of the world’s biggest current and future economies. Even if approved, the UK is unlikely to achieve accession to the CPTPP before 2022 at the earliest. In addition to the UK, n 16 September 2021, China also officially applied to join the CPTPP.

Under the CPTPP’s investment terms, States that are party to the CPTPP undertake to treat each other’s investors and their investments in accordance with a number of substantive treatment standards. These include the fair and equitable treatment standard and the prohibition on expropriation without compensation. The CPTPP also contains provisions on investor-State arbitration. In the event of an investment dispute, those provisions allow qualifying investors from one CPTPP State party to commence an investor-State arbitration directly against the other CPTPP State party, in which their investment is located.

Comment

The negotiation and signing of new trade agreements by the UK was an anticipated consequence of Brexit. Their impact on foreign investment will depend on the final terms of the deals, but is likely to include a number of significant benefits to the relevant States and their investors.

Under both the UK-Australian trade deal and the UK-New Zealand trade deal, based on the Agreements in Principle, provisions on the protection of investments will be included, even though access to investor-State arbitration will not be part of the treaties. Pending the UK’s possible entry into the CPTPP (and beyond, in the case of New Zealand), certain investors in the UK and other CPTPP member States may wish to consider, on a proactive basis, the optimal structuring of their investments to protect against possible adverse measures. States are also well-advised to consider the protection of investors under international law regardless of whether investor-State arbitration appears immediately available.