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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.

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.

Economy

Sausages on the Silk Road

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The link between sausages and the Silk Road may seem superficial at best but both, in their own way, highlight the importance of trade, not least with the ongoing pandemic triggering protectionist trends. Sausages were an indirect casualty of the cross-border problems that followed the Brexit deal signed on Christmas Eve.

While the new agreement allows for tariff-free trading, Stonemanor, a British grocery store in Belgium that delivers up to 20,000 food products and other items from its Norfolk warehouse in the UK, discovered that it is something of a “minefield” to get through all the legislation and legal jargon.

The new post-Brexit rules say that bringing foods that contain meat or dairy into the EU, even for personal use, is forbidden. The export ban on British bangers has since resulted in worried customers seeking reassurance from Stonemanor about their future sausage supplies.

On a slightly different scale, the Belt and Road Initiative (BRI) is a gigantic development strategy proposed by the Chinese government which focuses on connectivity and cooperation between Eurasian countries.

What the humble sausage and the ambitious BRI project both share in common is the role trade plays in a global economy that depends on global supply chains.

Dutch RE MEP Liesje Schreinemacher, a member of the European parliament's Committee on International Trade, told this site, "On trade policy, high on the agenda for the EU in the coming years will be our trade relations with two of the largest global trading partners: the US and China.”

The Belt and Road Initiative (BRI) was unveiled in 2013 by China’s president Xi Jinping. Until 2016 it was known as OBOR – ‘One Belt One Road’. Most people have heard about it because of the large-scale infrastructure projects in more than 60 countries along both routes over land – forming the Silk Road Economic Belt – and over sea – forming the Maritime Silk Road. There actually exist two more routes: The Polar Silk Road and the Digital Silk Road.

There are different views about the BRI from European opinion and policy makers, but all agree that the BRI will have a great impact on the political and economic world order.

A source at the Belgian-Chinese Chamber of Commerce (BCECC) said that several experts anticipate that, thanks to these infrastructure projects, the trade costs for countries participating in the project will reduce significantly, resulting in a trade growth of more than 10%.

Through the BRI the Chinese government aims to accelerate economic integration of countries along the Silk Road and boost economic cooperation with Europe, the Middle East and the rest of Asia.

As a consequence, it is clear that this will also benefit sectors in which European companies are strong global niche players, such as for example logistics, energy and environment, machines and equipment, financial and professional services, healthcare and life sciences, but also tourism and E-commerce.

Currently there are already regular train connections between different Chinese logistic hubs and European cities, such as Antwerp and Liege locations in neighbouring countries, such as Tilburg (the Netherlands), Duisburg (Germany) and Lyon (France). These rail freight lines between China and Europe complete the range of multimodal freight connections available in Europe (air and sea), allowing companies to choose the most suitable logistics solution for their business.

An important part of the Belt and Road Initiative is also the digital Silk Road.

Today, digital trade and e-commerce are becoming an inseparable part of the global economy. For example, in December 2018 Alibaba announced that they will build their logistic hub for Europe in Liege airport.

This achievement cannot be overvalued: it has made Belgium the European headquarters for the Digital Silk Road, strengthening the good relations between China and Belgium even more and offering unique opportunities for e-commerce to many Belgian companies.

In an interview with this website, Anna Cavazzini, Chair of the European Parliament’s Committee on internal market and consumer protection and substitute member of the Committee on international trade, underlines the importance of rules for trade.

She said, "Trade deals are not only about trading more fridges or screws around the world: they function as economic constitutions superior to national or EU law, shaping economic exchanges in the long run with rules that our industries and governments will follow for decades to come. That is why we need to ensure that all our agreements, whether future or existing ones, are in line with the European Green Deal and our sustainability objectives."

On EU trade deals with other countries, she says, "When trade rules are ill-designed, trade agreements lock our societies into an unsustainable economic model. The EU-Mercosur deal is a glaring example of this, as it will boost Mercosur exports of meat and other agricultural products to the EU, leading to a significant increase in deforestation in the region, while we will export more cars, chemicals and machines. Enforceable commitments on fighting deforestation and climate change would be key.”

Addressing the EU/UK agreement, the MEP said, "The Paris Agreement has to set the framework for all trade. In this regard, the agreement on the future relations of the EU with the UK can become the blueprint for future trade deals. For the first time ever, environmental and social standards will be enforceable which until now the European Commission argued was not possible. The EU always has to make clear that access to the single market can never go along with standard dumping.

“Only by using the single market as an instrument to foster the transformation of our economy and by applying our standards to imports, can trade contribute to tackling the climate crisis."

She says that the ongoing EU-New Zealand negotiations provide a chance for more climate-friendly trade “as New Zealand is open to enforceable sustainability standards, a carbon border tax and even to address fossil fuel subsidies.”

“Yet according to reports, so far the EU has been rejecting all climate proposals made by NZ negotiators. It remains to be seen whether the EU will take up this trade policy opportunity to follow up on its Green Deal commitments."

On EU-US trade relations, Schreinemacher says, “We have seen the temperature drop under the Trump administration. But I am hoping that with this Biden administration we will have our transatlantic ally and partner back and ready to cooperate and tackle today’s global challenges. Of course, our relationship will not magically be restored overnight, and we have to be realistic and see things for what they are. But we should waste no time to rebuild burned bridges and I hope the US will join us in our efforts to promote multilateralism, rules-based trade, provide security and the fight against climate change. I am hopeful that we will see a decline in trade conflicts, and I believe there is a need for cooperation on new topics such as regulating Big Tech companies or working on global AI standards."

Addressing concerns about trade rules, the European Parliament, on 20 January, adopted new rules allowing the EU to use countermeasures in trade disputes when arbitration is blocked.

The strengthening of the so-called enforcement regulation allows the EU to protect its trade interests against partners acting illegally. From now on, the EU can introduce countermeasures when it obtains a favourable ruling from a dispute settlement panel of the World Trade Organisation (WTO) or in bilateral and regional agreements, when the other party fails to cooperate on the adjudication of the dispute.

MEP Marie-Pierre Vedrenne (Renew, FR), Parliament’s rapporteur on the issue, said, “This regulation makes it clear that international trade is founded on rules that everybody needs to respect. No one is exempt from these rules.

“Europe continues to stand by the multilateral system and WTO rules. Yet the international dispute settlement mechanism is still blocked. The EU now has another credible, efficient and ambitious tool at its disposal to bolster its trade policies and ensure its strategic autonomy. We now expect the Commission to swiftly introduce a measure to counteract and deter coercive attempts by third countries.”

After exiting the bloc, the UK is now classed by the EU as a third country and the Brexit deal has triggered numerous trade-related problems.

For example, the British Meat Processors Association is receiving a growing number of calls from meat companies highlighting the plethora of problems they’ve been experiencing at the borders; problems which are now causing a serious and sustained loss of trade with the EU, the UK’s biggest export partner.

Alongside seafood, fresh meat is one of the most time critical perishable products. Every hour a lorry load of meat is delayed increases the chance of that order either being reduced in price, cancelled and returned or, in the most severe cases, thrown away and ending up in landfill.

Nick Allen, CEO of BMPA, describes a common problem: “One of our members reported on 11 January that he had 6 lorry loads of product [value around £300,000] all waiting for customs clearance into the Republic of Ireland. At the time, one of those loads was about to be returned to the processing company after waiting 5 days for clearance. Drivers have been reporting long delays as they wait for HMRC to process the customs documents”.

“We are calling for the current customs and certification system to be modernised and digitised, as the existing paper-based system is a relic from the last century and simply not fit for purpose. It was never designed to cope with the kind of integrated, just-in-time supply chain we have built up over the last 40 years, and if not fixed quickly it will be the thing that starts to dismantle the European trade British companies have fought so hard to win”.

He said that for the first two weeks of January most companies deliberately cut the trade they do with the EU and Northern Ireland down to a very low level (on average 20% of normal volumes). This was so they could tentatively test out the new system. But even at these low volumes, there have been catastrophic delays for perishable products, he says.

Another problem is the lack of a functioning WTO Appellate Body, the multilateral authority to decide on trade disputes.

This is why it was imperative to update the EU’s Enforcement Regulation, says senior MEP Bernd Lange, trade committee chair.

The updated instrument allows the EU to suspend trade concessions or impose countermeasures at the end of dispute settlement proceedings even if partner countries try to exploit the situation at the WTO (and appeal cases into the void).

He said, “The new regulation will empower the EU to better defend its interests.”

EPP MEP Anna-Michelle Asimakopoulou cautions that ensuring Europe's strategic autonomy “in an increasingly unstable world must be an absolute priority.”

She adds that the new Enforcement Regulation “will allow the EU to defend itself when third countries, such as China or the United States, unilaterally adopt restrictions in access to their market and simultaneously block the WTO’s dispute settlement process.”

“The EU will be able to counterattack by using customs duties and quantitative restrictions on the import or export of goods, and measures in the field of public procurement.”

Further comment comes from former Europe Minister in the UK, Denis MacShane, who told this website, “Trade is caught between, on the one hand, the ultra-free traders - who justified slavery in the past and sweatshop labour today as well as turning blind eye to torture and mass imprisonments in China which pre-dated Uighur issue - and the protectionists like Donald Trump and Brexit ideologues who reject trade with the UK's biggest trading partner in the name of national identity. The more trade and competition the better should be the general rule but the Davos hight priests of uncontrolled and socially unaccountable globalisation have ignored the cries for help of communities left behind.”

The former Labour MP added, “Trade cannot be disconnected from society and the challenge now is to connect trade maximisation with creating better, fairer and ecologically sensitive societies.”

In a problem that echoes Stonemanor’s sausage situation, Dutch customs officials have been filmed confiscating sandwiches and other food from passengers on a ferry from Britain, blaming new post-Brexit trade rules. The British government in December gave the example of ham and cheese sandwiches as food that could not cross to the continent after Britain formally abandoned EU trade rules on 1 January.

Sam Lowe, of the Centre for European Reform, a think tank, says that the EU/UK Trade and Cooperation Agreement (TCA) removes tariffs and quotas (conditional on the exported products meeting the agreement’s rules of original criteria) but does little to facilitate trade in services, or negate the need for new bureaucracy and checks at the border.

“But this was expected – once the UK government prioritised regulatory autonomy, ending freedom of movement, and gaining a free hand on trade policy, its economic ambition was limited to a trade agreement with the EU similar to what the bloc has with Canada and Japan (at least for Great Britain; Northern Ireland has a deeper trade relationship with the bloc under the terms of the Withdrawal Agreement).”

Lowe says, “You could also imagine the UK seeking to revisit the question of border checks on products of animal origin, simply to reduce the burden placed on traders navigating the new internal trade border between Great Britain and Northern Ireland.”

Brexit aside, the EU has certainly been busy of late in securing trade deals. Most recently, last November, a new EU-US agreement to eliminate customs duties on certain European and American products was signed.

In the context of trade tensions between the EU and the US, this agreement sets a positive mark as the first tariff reduction agreement between the EU and the US in more than 20 years. Moreover, it falls within WTO rules and rules-based trade and MEP Liesje Schreinemacher says, "This mini-deal presents a positive step towards greater cooperation between the EU and US.”

In April 2019, the EU also signed a new Economic Partnership Agreement with Japan, a landmark moment for global trade and the largest free trade area in the world.

“The vast majority of the €1 billion of duties paid annually by EU companies exporting to Japan and vice-versa were instantly removed, helping trade between the two sides to increase by up to nearly €36 billion,” said BusinessEurope Director General Markus J. Beyrer.

The EU is currently trying to secure a similar trade deal with Australia and council president Charles Michel says the “timely conclusion of such an agreement would create growth opportunities, deepen economic integration and reinforce our shared support for rules-based trading arrangements.”

He stresses the EU’s “commitment to open and fair trade and underlines the need to support the multilateral rules-based trading system and render it fit for current challenges.”

Elsewhere, Luisa Santos, Director for International Relations for BUSINESSEUROPE, warns of rising trade tensions, saying, “We have a global economy that depends on global supply chains. Suppliers are scattered around the world and not just in one country or region. Countries need to import to be able to export. Increasing duties on imports is above all putting an extra cost on consumers, both citizens and companies.

“European companies have large investments in the U.S. and China. A trade war between the U.S. and China is also bad for our companies.

“On the other end we recognise, some of the complaints the U.S. has against China are valid and they merit to be discussed and addressed. Europe has already said that it is ready to work with the U.S. and other partners like Japan. But we need to work together and not against each other.”

That is one of the aims of the Belt and Road Initiative (BRI), an ambitious vision of a refashioned, inter-dependent and closely connected world.

Commenting on the digital Silk Road, Luigi Gambardella, president of the ChinaEU Business Association, said this (digital) has potential to be a "smart" player in BRI, making the initiative more efficient and environment friendly.

The digital links will also connect China, the world's largest e-commerce market, to other countries involved in the initiative, he notes.

In ancient times, countries competed for land but, today, the new 'land' is technology.”

The digital industry, including fifth generation mobile networks, are among the most promising areas for cooperation between Europe and China as part of the Belt and Road Initiative, the ChinaEU Business Association says.

Using the China-Europe rail network, a crucial part of the Belt and Road Initiative, online retailers have cut the time transporting auto supplies from Germany to Southwest China by half, compared to sea routes. It now takes just two weeks.

China now has express freight services to 28 European cities. Since March 2011, more than 3,500 trips have been made, and the figure is expected to rise to 5,000 this year.

By 2020, trade volume through cross-border e-commerce will account for 37.6 percent of China's total exports and imports, making it a significant part of China's foreign trade, research agency CI Consulting predicts.

Cross-border e-commerce cooperation has brought China and countries involved in the Belt and Road Initiative closer, and the benefits will extend not only to trade, but also to sectors such as the internet and e-commerce, according to a DT Caijing-Ali Research report.

Both physical and virtual cross border trade depends upon speedy processing of documentation and secure payments. Innovative methods of delivering end to end processing using digital technology have been developed and are becoming widely accepted and used by businesses trading across borders.

LGR Global is one such company providing end to end solutions along the Belt and Road using blockchain technology.

Their CEO, Ali Amirliravi, told EU Reporter  “We couldn’t be more excited about the opportunities for cooperative business development that the BRI is ushering in, we are truly on the verge of a new paradigm in trade. The key for long-term sustainable growth will be implementation of platforms and technology stacks that are up to the task of digitizing, optimizing, and adding transparency to the processes and documentation pipelines that undergird international trade and trade finance - this is precisely the goal of the LGR Global solution.”

Apart from online trade, Jane Sun, CEO of Ctrip, China's largest online travel agency Ctrip, believes there is huge market for EU-China online tourism.

She said, “Ctrip will expand International cooperation with Italian partners and is ready to be the ‘Marco Polo’ of the new era, acting as a bridge of cultural exchange between Italy and China.”

Ctrip recently signed a strategic arrangement with ENIT- the Italian National Tourism Board.

She says, “Italy was the destination of the ancient Silk Road and it is an important member of the Belt and Road Initiative. Our cooperation will better unleash the potential of both tourism industries, create more jobs and bring more economic benefits.

“Tourism is the most simple and direct way to enhance people to people exchanges. It can build a bridge between China and the countries alongside the Belt and Road region as well as other countries in the world.”

Despite the pandemic, Thilo Brodtmann, director of the Mechanical Engineering Industry Association, says it is vital for trade to keep borders open.

"The calls for border closures, which are now increasingly arising again in some EU Member States, must be buried as soon as possible. In the first wave of the pandemic, we had to learn painfully that closed borders impair central value chains and can lead to bottlenecks in important goods and services.”

Looking to the future, MEP Schreinemacher comments on EU-China relations and says the European Parliament will have to closely scrutinize the investment agreement with China before making any decision.

She adds, “China is currently an important trading partner, but apart from its timing this agreement raises a lot of questions. I am particularly concerned with the enforceability of this agreement.

"I think the vote on this agreement will be one of the most important decisions on trade issues that the Parliament will be making in the upcoming year.”

 

 

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Kyriakides calls on Astra Zeneca to respect delivery schedules for its vaccine

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In response to AstraZeneca’s announcement that they were expecting to make shortfalls in the delivery of its COVID-19 vaccine, Health Commissioner Stella Kyriakides has written to AstraZeneca stressing the importance of meeting the delivery schedules laid out in its agreement with the EU. 

Kyriakides reiterated in the letter that the scaling up of the production capacity has to happen concurrently with the conduct of clinical trials to ensure the availability of the vaccines as quickly as possible. The European Medicines Agency (EMA) has not yet given its authorization - a point that has led to criticism from EU states. Her spokesperson said that the scaling up of production was an important premise of the contract. 

The issue will be discussed in a meeting of the steering board made up of the European Commission, member states and the company today (25 January) where it will be made clear that the EU expects contractual obligations to be met. 

Chief Spokesperson for the European Commission Eric Mamer added that European Commission President had spoken with the CEO of AstraZeneca, where she reminded him that the EU has invested significant amounts in scaling up production.  However, she also recognized that production issues can appear with a complex vaccine.

Despite the publicized supply problems at vaccine manufacturer AstraZeneca, Peter Liese MEP (EPP, DE)  said: "AstraZeneca's announcement to reduce the planned supply for the EU from 80 million to 31 million doses in the first quarter must not and will not be the last word. [...] they are apparently delivering to other parts of the world, including the UK without delay. The flimsy justification that there are difficulties in the EU supply chain but not elsewhere does not hold water, as it is of course no problem to get the vaccine from the UK to the continent. 

“The company cannot be interested in permanently damaging its reputation in the world's largest single market. Many in the company seem to be embarrassed by the matter. That's why I expect a change in the delivery plans for the EU in the next few hours, and an accelerated one at that. Even the 31 million doses, however, would be a significant improvement in the situation in the EU.”

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Minister calls for Magnitsky-type sanctions in response to Russia's detention of Navalny

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European foreign ministers meeting today (25 January) will discuss the situation in Russia. Arriving at the meeting, Lithuanian Foreign Affairs Minister Gabrielius Landsbergis said that the EU needed to send a clear and decisive message that the arrest of Navalny and the detentions following Saturday’s (23 January) demonstrations in Russia are not acceptable. Landsbergis calls for the use of the Global ‘Magnitsky’ type sanctions. 

The EU has already condemned the detention of the Russian opposition politician Alexei Navalny upon his return to Moscow (17 January) and called for his immediate release - as well, as the release of journalists and citizens who were detalined on Mr Navalny’s return to Russia. The EU has also called out the politicization of the judiciary in Russia. 

The European Union has already condemned the assassination attempt, through poisoning using a military chemical nerve agent of the Novichok group, on Alexei Navalny, to which it responded by imposing restrictive measures on six individuals and one entity. The EU has called upon the Russian authorities to urgently investigate the assassination attempt on Navalny in full transparency and without further delay, and to fully cooperate with the Organization for the Prohibition of Chemical Weapons (OPCW) to ensure an impartial international investigation.

It appears that the EU will request the immediate release of Navalny and others, before a possible visit of the EU High Representative Josep Borrell to Russia before imposing sanctions.

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