Uruguay Prevails over Argentina in Fray Bentos Mill Landmark ICJ Ruling

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In a much-awaited ruling on a cross-border environmental dispute, the International Court of Justice in The Hague has ruled overwhelmingly in Uruguay's favor in a case brought by neighboring Argentina, which had attempted to force the closing and dismantling of the UPM Fray Bentos pulp mill on the Uruguay River, whose course forms part of the border between the two nations. The ruling by 14 judges from around the world expressly upheld Uruguay's right to continue operating the plant, finding that Argentina failed to prove that it discharged pollutants harmful to the river or its surroundings, or to the local flora and fauna.

The US $1.2 billion mill is the largest foreign investment in Uruguay's history. In December 2009, the Finnish paper, pulp, and forestry companies UPM, Metsäliitto Cooperative, M-real Corp., and Oy Metsä-Botnia Ab (Botnia) completed a transaction whereby the Fray Bentos mill and the eucalyptus plantation forestry company Forestal Oriental in Uruguay were transferred to UPM. As a result, UPM has a 91% ownership in the Fray Bentos mill, 100% in Forestal Oriental, and approximately 17% in Botnia.

Argentina brought the case to the ICJ, otherwise known as the World Court, in 2006. The two sides presented their final arguments last September. The case was only the second environmental dispute to be heard at the ICJ, and the first since the 1990s. The Court's ruling was eagerly awaited by governments, international organizations, investors, and environmental groups around the world. Uruguay was successfully represented by Foley Hoag LLP, led by Washington, DC-based partner and international law specialist Paul Reichler, who practices frequently before the ICJ.

The Court's judgment vindicated Uruguay's assurances that, based on a comprehensive Environmental Impact Analysis and strict monitoring of the plant's discharges, it was environmentally sound in all respects with no risk of harm to the river or its surroundings. The Court also relied on independent monitoring reports prepared by experts from the World Bank's International Finance Corp., which confirmed the clean operation of the plant, and the absence of any environmental harm. Uruguay prides itself on its commitment to environmental protection, and considered the mill a model of "sustainable development" which produced significant economic benefits to the country without threatening the local ecology.

Reichler, Uruguay's lead counsel, called the ruling a landmark decision confirming that "it is possible for a country to achieve its goal of sustainable economic development without compromising environmental protection. The Court performed a major service to the international community by setting the standards for determining when an industrial project may be considered free of risk to the environment." 

The Court found that, although Uruguay gave Argentina advance notice of its intention to authorize construction of the plant and an opportunity to consult about its environmental impact, it did not do so in the precise manner prescribed in a bilateral treaty between the two States. However, the Court rejected Argentina's claim that a technical procedural infraction of this nature justified shutting down a plant that caused no environmental harm.