Question:
What are the possible liabilities of the State of Economia to the State of Asphyxia because of Monuculture, Inc.’s actions that was permitted by Economia?

Answer:
The State of Asphyxia suffered material damage because of the said actions of Monoculture Inc., as the dense black smoke reached the territory of Asphyxia that affected its economy, environment, and public health. This was shown when tourist areas were essentially shut down and people were also advised to stay inside. On the other hand, Economia was not able to prevent the pollution by private parties within its jurisdiction that resulted in demonstrable injury to the State of Asphyxia. Therefore, Economia may be held liable to pay for damages caused and ordered to refrain from causing further damage to Asphyxia.

Facts:
Monoculture, Inc., a private company, requested from the government of Economia, an approval for the private company to develop a massive area of forests and peat bogs owned by the government.
The tract of land in question was located six kilometres from one of the major tourist attractions in the neighboring State of Asphyxia, a world renowned canyon, listed as a World Heritage Site and boasting beautiful vistas over an expansive desert.
At a lunch sometime in February 2010, the Economia environment minister informed the Asphyxia minister of the proposed project to sell the forest concession to Monoculture, Inc., and two days later, Economia approved of Monoculture, Inc.’s plans for developing the forest tract.
Monoculture, Inc. then began to cut the marketable timber from the forest tract. Over 60% of the timber was exported directly to nearby sawmills in Asphyxia, while the rest was processed inside Economia. Monoculture Inc. wanted to complete the clearing of the land through forest fires before the monsoon rains came, as it would make burning the first impossible, therefore, Monoculture Inc. began to set the forest fires.
However, on December 5, 2010, the company lost control of the fires and they spread quickly throughout the heavily forested lands of Economia. For three days, Economia hoped its efforts could contain the fires, but on the fourth day several large peat bogs also caught fire.
Although the fires never reached Asphyxia, the dense black smoke did on December 10. Economia did not alert Asphyxia about the run-away fires until December 11. It covered the region for three months, before the monsoon season finally came.
The thick smog caused serious economic, environmental, and health problems in Asphyxia. The tourist areas were essentially shut down for three months, because the beautiful canyon vistas were virtually invisible. People with asthma and other lung disorders were encouraged to stay inside as well.

Discussion:
What happened in the incident above was somewhat similar to the decided cases of Trail Smelter and Corfu Channel.
In Trail Smelter, a smelter near Trail, Canada, emitted 300-350 tons of sulfur dioxide daily. The United States contended that these emissions were harming forests vital to Washington State’s lumber industry. The United States and Canada submitted the dispute for arbitration. An arbitration tribunal found that fumes from the smelter had already caused $ 78,000.00 damage to the forests, and would continue to cause damage there in the future. The Tribunal held that Canada was legally responsible for the actions of the smelter, ordered Canada to pay damages, and required the smelter to refrain from causing further damage to the United States.
The Trail Smelter Case established two fundamental principles of liability for transboundary pollution under international law: (1) a state must show material damage and causation to be entitled to legal relief, not merely that emissions or releases from one state have crossed into the territory of another state, and (2) a state has a duty to prevent, and may be held responsible for pollution by private parties within its jurisdiction if such pollution results in demonstrable injury to another state. (Malone, L., Environmental Law (Second Edition), Aspen Publishers)
Therefore, applying the Trail Smelter case, Asphyxia should first show that material damage was caused by the forest fires done by Monoculture, Inc., that caused the thick smog that affected the canyon vistas and possibly the health of its citizens. Economia on the other hand, can be held liable to the damages caused by Monoculture, Inc.’s actions of conducting the forest fires to clear the forest lands because it has the duty to prevent pollutions by private parties within its jurisdiction if such pollution will result in demonstrable injury to another state.
In Corfu Channel, the United Kingdom sued Albania in the International Court of Justice (ICJ) for physical damage and loss of life sustained by two British warships, which ran into moored contact mines in the Straits of Corfu. The ICJ determined that the laying of the minefield could not have been done without Albania’s knowledge, and that Albania did not notify the United Kingdom of the minefield’s existence or warn the approaching warships. The ICJ recognized that permitting extraterritorial damage from intrastate activity that is lawful in and of itself may nevertheless render a state responsible for the damage inflicted, and held Albania responsible for the damages caused to the United Kingdom.
The Corfu Channel case established the principles that every state has an obligation not to knowingly allow its territory to be used for acts contrary to the rights of other states, and every state has a duty to notify states of any imminent danger that might harm another state. (Malone, L., Environmental Law (Second Edition), Aspen Publishers)
Now applying the Corfu Channel case, Economia has the duty to notify Asphyxia of any imminent danger that might harm it, especially regarding the actions of Monoculture in setting the forest fires to fulfil the proposed development.

Conclusion:
The State of Asphyxia indeed suffered material damage because of the actions of Monoculture under the permission given by the State of Economia. Tourist areas were essentially shut down, therefore, Asphyxia suffered serious economic, environmental, and health problems.
In applying the two cases mentioned above, namely, the Trail Smelter and Corfu Channel cases, Economia may be held liable for the actions of Monoculture. The liability may include an order to refrain from causing further damage to Asphyxia and paying of damages already caused by Monoculture.
The International Court of Justice may also apply the principles of international law, that a state shall not permit the use of its territory in such a manner as to cause injury to the territory of another state or the properties of persons therein.
Under the principles of International Law, Economia may be held liable for transboundary pollution, this may include the following: “(1) an absolute duty to protect against harm from ultrahazardous activities which, if violated, results in a state being held liable; (2) responsibility for negligent or intentional acts (“abuse of rights”); and (3) liability for a state which permits transboundary pollution to exceed that which its neighbors can reasonably be expected to endure.” (Malone, L., Environmental Law (Second Edition), Aspen Publishers)
The State of Asphyxia may sought for legal relief, therefore, Economia may be held responsible for the pollution that was caused by private parties within its jurisdiction, Monoculture in the case at bar, because the pollution resulted to damages and injuries to another state.