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Why the LCIA is more needed than ever

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As much as the last-minute Brexit deal was hailed as a success in preventing the UK’s uncontrolled crashing out of the EU, the devil is in the details as many problems are only slowly becoming apparent over time. Case in point is the clause, included in the agreement, that Brussels can impose tariffs on London if EU lawmakers have reasonable cause to believe the UK is giving its firms an unfair advantage. While Boris Johnson has praised the deal as a guarantor of British sovereignty, the fact that London is forced to abide by European rules or face consequences will likely prove a point of ample friction in the future, writes Graham Paul.

It’s unclear how long the UK will be willing or able to adhere to this level-playing field principle. What is already evident, however, is that the resulting disputes will need confident and reliable international arbitration mechanisms accepted by both the EU and UK. While  London and Brussels have outlined plans to set up a separate body to enforce the Brexit agreement, cross-border disputes between private actors may move to forums such as the London Court of International Arbitration (LCIA) in order to avoid uncertainties linked to what the final shape of the enforcement regime will take post-Brexit. Thanks to its independence from any country’s legal system or government, international arbitration is likely to grow by leaps and bounds in the years to come.

Unfortunately, the LCIA has been suffering from populist headwinds in recent years that are aiming to undermine its authority and damage its international standing. In one particularly grievous instance, one of its judgements is being defied by the government of Djibouti in the dubious name of national sovereignty. While Djibouti is not the first nation to take the drastic step of questioning the authority of the LCIA – Russia famously refused to recognize the award in the politically fraught Yukos case – the fact that a small African country could get away with this could very well embolden others to follow suit.

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The case in question began in 2018, when the government of Djibouti seized the Doraleh Container Terminal SA – a joint venture in Djibouti’s port of Doraleh between Dubai-based global port operator DP World and Djibouti – and unilaterally terminated DP World’s contract to run the terminal. In response, DP World filed claims with the LCIA, which shortly thereafter ruled against Djibouti, arguing that the port seizure was illegal and that DP World’s 30-year concession couldn’t be unilaterally ended.

Although the judgement should have definitively put the issue to an end, Djibouti has never recognized the ruling and has continued to refuse to do so ever since. So far, the LCIA has ruled six times in DP World’s favour all of which have been ignored by the Djibouti’s president Ismail Omar Guelleh on grounds that the arbitral award supposedly qualifies “the law of a sovereign State as illegal.” In a similar vein, a LCIA award of $533 million in compensation and unpaid royalties owed by Djibouti to DP World has gone unheeded for the same reason, with the country even asking its own Supreme Court to nullify the LCIA ruling.

Such behaviour doesn’t bode well for the LCIA’s ability to pull its weight in international affairs. Djibouti’s enforcing of domestic law over established international legal procedures on the flimsy justification of national sovereignty is setting a dangerous precedent.

However, if Djibouti’s breach of international legal practice already poses a serious challenge to international arbitration, a recent blunder the LCIA itself made risks being weaponized even further by other regimes looking for facile excuses not to honour the tribunal’s rulings. Indeed, as was revealed in December 2020, the LCIA became a bizarre example of a tribunal that admitted to making a mistake in the calculation of an award in an arbitration case, only to refuse to change the outcome of its ruling.

The case involved Mikhail Khabarov, a Russian businessman, who in 2015 had secured an option to acquire 30 percent in the Delovye Linii GK holding company for $60 million. However, when the deal fell through, Khabarov submitted a claim for damages to the LCIA, which had to calculate the exact amount of damages suffered by the Russian based on the difference between the actual value of the company’s 30 percent share and the option price of $60 million.

In January 2020, the LCIA awarded Khabarov a compensation of $58m – as it turned out, a vast over-valuation as a result of a “typo of miscalculation” that occurred when the LCIA panel in charge had added the value of historic tax liabilities, rather than subtracting it. With the actual value closer to $4m, the English High Court ordered the LCIA to correct the damage, which the arbitration court vehemently refused to do, arguing that the original amount was still in line with its intent to award a fair compensation to the claimant.

The latter case has sparked an entirely separate debate about the models used to calculate the damages in question, although the premise that damages should be paid – even after this clerical error – was never thrown into doubt. It is also widely accepted that errors such as these are a function of human fallibility in the face of vastly complex procedures. However, whereas corrective measures can be taken, it appears little can be done when an entire country refuses to implement a LCIA decision.

In that sense, there is little doubt that Djibouti’s utter disregard for the LCIA is a much greater threat to its credibility. In a norms-based international environment, the rejection of said norms is the first step towards triggering their collapse. If the LCIA’s influence is to be preserved, one must hope that no other country follows down this path. In times like these, an institution like the LCIA is needed as never before.

Employment

Only 5% of total applications for long-term skilled work visas submitted in first quarter came from EU citizens, data shows

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The figures released by the UK Home Office give an indication of how Britain’s new post-Brexit immigration system will affect numbers of EU citizens coming to the UK to work. Between January 1 and March 31 this year EU citizens made 1,075 applications for long-term skilled work visas, including the health and care visa, which was just 5% of the total 20,738 applications for these visas.

The Migration Observatory at the University of Oxford said: “It is still too early to say what impact the post-Brexit immigration system will have on the numbers and characteristics of people coming to live or work in the UK. So far, applications from EU citizens under the new system have been very low and represent just a few percent of total demand for UK visas. However, it may take some time for potential applicants or their employers to become familiar with the new system and its requirements.”

The data also shows that the number of migrant healthcare workers coming to work in the UK has risen to record levels. 11,171 certificates of sponsorship were used for health and social care workers during the first quarter of this year. Each certificate equates to a migrant worker. At the start of 2018, there were 3,370. Nearly 40 percent of all skilled work visa applications were for people in the health and social work sector. There are now more migrant healthcare visa holders in the UK than at any time since records began in 2010. Although the number of sponsor licences for healthcare visas dropped to 280 during the first lockdown last year, it has continued to rise since, a pattern which was unaffected by the third lockdown this winter.

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Conversely, the IT, education, finance, insurance, professional, scientific and technical sectors have all seen a drop in the number of migrants employed so far this year, despite rallying during the second half of 2020. The number of migrant IT workers is still significantly lower than pre-Covid levels. In the first quarter of 2020 there were 8,066 skilled work visas issued in the IT sector, there are currently 3,720. The number of migrant professionals and scientific and technical workers has also dipped slightly below pre-Covid levels.

Visa expert Yash Dubal, Director of A Y & J Solicitors said: “The data shows that the pandemic is still affecting the movement of people coming to the UK to work but does give an indication that demand for skilled work visas for workers outside the EU will continue to grow once travel has been normalised. There is particular interest in British IT jobs from workers in India now and we expect to see this pattern continue.”

Meanwhile the Home Office has published a commitment to enable the legitimate movement of people and goods to support economic prosperity, while tackling illegal migration. As part of its Outcome Delivery Plan for this year the department also pledges to ‘seize EU exit opportunities, through creating the world’s most effective border to increase UK prosperity and enhance security’, while acknowledging that income it collects from visa fees may decrease due to reduced demand.

The document reiterates the Government’s plan to attract the "brightest and best to the UK".

Dubal said: “While the figures relating to visas for IT workers and those in the scientific and technical sectors do not bear this commitment out, it is still early days for the new immigration system and the pandemic has had a profound effect on international travel. From our experience helping facilitate work visas for migrants there is a pent-up demand that will be realised over the coming 18 months.”

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Economy

NextGenerationEU: Four more national plans given thumbs up

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Economy and finance ministers today (26 July) welcomed the positive assessment of national recovery and resilience plans for Croatia, Cyprus, Lithuania and Slovenia. The Council will adopt its implementing decisions on the approval of these plans by written procedure.

In addition to the decision on 12 national plans adopted earlier in July, this takes the total number to 16. 

Slovenia’s Finance Minister Andrej Šircelj said: “The Recovery and Resilience Facility is the EU’s programme of large-scale financial support in response to the challenges the pandemic has posed to the European economy. The facility’s €672.5 billion will be used to support the reforms and investments outlined in the member states’ recovery and resilience plans.”

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Reforms and investments

The plans have to comply with the 2019 and 2020 country-specific recommendations and reflect the EU’s general objective of creating a greener, more digital and more competitive economy.

Croatia plans to implement to reach these goals include improving water and waste management, a shift to sustainable mobility and financing digital infrastructures in remote rural areas. 

Cyprus intends, among other things, to reform its electricity market and facilitate the deployment of renewable energy, as well as to enhance connectivity and e-government solutions.

Lithuania will use the funds to increase locally produced renewables, green public procurement measures and further developing of the rollout of very high capacity networks.

Slovenia plans to use a part of the allocated EU support to invest in sustainable transport, unlock the potential of renewable energy sources and further digitalise its public sector.

Poland and Hungary

Asked about delays to the programmes of Poland and Hungary, the EU’s Economy Executive Vice President Valdis Dombrovskis said that the Commission had proposed an extension for Hungary to the end of September. On Poland, he said that the Polish government had already requested an extension, but that that might need a further extension. 

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Economy

EU extends scope of general exemption for public aid for projects

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Today (23 July) the Commission adopted an extension of the scope of the General Block Exemption Regulation (GBER), which will allow EU countries to implement projects managed under the new financial framework (2021 - 2027), and measures that support the digital and green transition without prior notification.

Executive Vice President Margrethe Vestager said: “The Commission is streamlining the state aid rules applicable to national funding that fall under the scope of certain EU programmes. This will improve further the interplay between EU funding rules and EU state aid rules under the new financing period. We are also introducing more possibilities for member states to provide state aid to support the twin transition to a green and digital economy  without the need of a prior notification procedure.”

The Commission argues that this will not cause undue distortions to competition in the Single Market, while making it easier to get projects up and running.  

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The concerned national funds are those relating to: Financing and investment operations supported by the InvestEU Fund; research, development and innovation (RD&I) projects having received a “Seal of Excellence” under Horizon 2020 or Horizon Europe, as well as co-funded research and development projects or Teaming actions under Horizon 2020 or Horizon Europe; European Territorial Cooperation (ETC) projects, also known as Interreg.

Projects categories that are considered to help the green and digital transition are: Aid for energy efficiency projects in buildings; aid for recharging and refuelling infrastructure for low emission road vehicles; aid for fixed broadband networks, 4G and 5G mobile networks, certain trans-European digital connectivity infrastructure projects and certain vouchers.

In addition to the extension of the scope of the GBER adopted today, the Commission has already launched a new revision of the GBER aimed at streamlining state aid rules further in light of the Commission priorities in relation to the twin transition. Member states and stakeholders will be consulted in due course on the draft text of that new amendment.

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