How the lobbies used the threat of ISDS to neuter the Hulot Act

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Le Monde | 4 September 2018

How the lobbies used the threat of ISDS to neuter the Hulot Act

by Maxime Vaudano

The “Hulot Act” — the 30 December 2017 law declaring the end of hydrocarbon exploitation — must by now have left a bitter taste in the mouth of its promoter Nicolas Hulot, the former minister responsible for the ecological transition. The power of the industry lobbies ultimately forced him to adjust his ambitions downward, so that instead of shutting down hydrocarbon mining when the 62 currently operating concessions expire, the law grants them a reprieve until 2040 — or even longer if their holders can prove that they have yet to break even on their initial investment.

One year after the parliamentary debate over the act, formerly confidential documents obtained by the NGO Friends of the Earth shed light on the mining industry’s lobbying strategies. The documents show that the Canadian oil company Vermilion brandished the threat of an international arbitration proceeding to discourage the government from pursuing its initial plans.

Investor-state dispute settlement (ISDS), an arbitration mechanism found in many international investment agreements, is supposed to protect companies from having their rights violated in countries where they operate. In practice, numerous panel decisions have challenged or overturned the environmental, social, and public health legislation of governments that acted contrary to the interests of certain companies.

Before the Conseil d’État issued its opinion on an early version of the Hulot Act, Vermilion submitted an external memorandum written by the law firm of Piwnica & Molinié, detailing its criticisms of the text. In particular, Vermilion demanded that its permits and concessions be allowed to be renewed after 2018, arguing that the bill as written would disproportionately violate its property rights and its freedom to do business.

But the memorandum devotes much of its space to the jurisprudence under the Energy Charter Treaty of 1994, a little-known multilateral agreement to which France is a party. The treaty is often invoked by companies as grounds for international arbitration (as in the case of Vattenfall’s demand for compensation after Germany declared its phaseout of nuclear power).

Vermilion’s lawyers state that this treaty bars France from “acting against the legitimate expectations of an investor as regards the key conditions for its investment and the stability of the legal and commercial environment.” In essence, they brandish the threat of ISDS if the government persists in going against the company’s “legitimate expectation” of having its concessions and permits regularly renewed under the Mining Code, as they have been to date.

“The measure violates France’s international commitments as a member of the Energy Charter Treaty of 1994, which provides for protection of investments in the energy sector.”

The message appears to have been received loud and clear by the Conseil d’Etat. In its opinion of 1 September 2017, it asked Nicolas Hulot to revise this text so as to allow renewals of mining concessions and permits until 2040. The justification given is that administrative jurisdiction too is based on the notion of the legitimate expectations of hydrocarbon companies (although recognition thereof is contested in French law).

“The Conseil d’État does find, however, that with the entry into force of the new law, the impossibility for holders of concessions that have reached the end of their initial period of validity to obtain an extension may raise a difficulty as regards the guarantee due to legally acquired situations as well as to the legitimately expected effects of the holding of a concession. Section L. 142–7 of the Mining Code, which provides that “the duration of a concession may be successively extended for periods less than or equal to twenty-five years,” with no limit placed on the number of possible extensions, must be construed, in light of the spirit and purpose of the mining regulations, not as making the granting of an extension optional but as allowing for the total duration of a concession to be adapted to the duration corresponding to the full exploitation of a deposit, which is not necessarily known at the time of the initial grant. This logic would, moreover, explain the fact that no limit is placed on the number of possible extensions that may be granted. Thus, an extension may, if the concession holder demonstrates that a deposit has enough potential to justify continuing to be exploited, be regarded as a right, or at least as a legitimately expected effect. The public interest analyzed in point 8 above can therefore be said to be insufficient to justify the immediate cessation of all ongoing mining operations. Consequently, the text is amended as set out in point 16.”

It was this opinion that impelled Nicolas Hulot to weaken the law, to the consternation of the NGOs, which denounced the manoeuvre as a retreat.

The documents uncovered by Friends of the Earth are, of course, insufficient to conclude that the threat of arbitration was what guided the hand of the Conseil d’Etat. Still, they do highlight for the first time the pressure placed on the French parliament by a foreign company’s threat to use the ISDS mechanism. It is known that this type of proceeding was successfully used by tobacco manufacturers in the 1990s to dissuade the Canadian government from requiring plain cigarette packaging, but such a stratagem has never before been documented in France.

This episode is especially interesting in that the threat came from a Canadian company, since recent debate over the dangers of ISDS has largely focused on CETA, a trade agreement between the European Union and Canada.

source: Le Monde