ARTICLES
NAFTA Chapter Eleven at Fifteen:
Contributions to a Systemic Approach in
Investment Arbitration
Sergio Puig and Meg Kinnear*
I. Introduction
More than 2600 bilateral and multilateral investment treaties (BITs)
have been concluded since 1959.1 Although originally concluded between
developed and developing countries, more recently they have been entered into
by developed countries inter se and developing countries inter se. Similar in
content, they provide for the security of foreign investment and usually offer
investor-State arbitration for dispute resolution.2 BITs generally stipulate which
procedural rules are applicable to a dispute. The most commonly referenced rules
* Meg Kinnear is Secretary-General of ICSID and former General Counsel of the Trade Law Bureau
of Canada. Sergio Puig is a Teaching Fellow at Duke University Law School and former consultant at
ICSID. This paper is based on remarks prepared by Dr. Puig and Ms. Kinnear for the “NAFTA at 15”
conference at McGill University, Montreal, Quebec, Canada on 25 September 2009. The authors would
like to thank Professor Andrea Bjorklund and Mark Feldman for their comments. The views expressed in
this paper do not represent the official views of any current or former employer of the authors.
1
The first BIT was signed on 25 November 1959 by the Federal Republic of Germany and the
Islamic Republic of Pakistan. It was updated and signed on 1 December 2009. See UNCTAD, World
Investment Report, at xxii (2009), available at http://www.unctad.org/en/docs/wir2009_en.pdf.
2
Kenneth J. Vandevelde, The Political Economy of a Bilateral Investment Treaty, 92 Am. J. Int’l L.
621 (1998).
225
226
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
are the ICSID Arbitration Rules, promulgated pursuant to a 1965 multilateral
convention establishing the International Centre for Settlement of Investment
Disputes (“ICSID” or “the Centre”) within the World Bank Group. The Centre
was established to facilitate the adjudication, conciliation, and settlement of
investment disputes between States and nationals of other States, including
disputes arising under BITs.3
The Investment Chapter (Chapter Eleven) of the North American Free Trade
Agreement (“NAFTA” or “the Agreement”) was negotiated and signed in the
early 1990s and has had a significant influence on the subsequent development
and understanding of the law applicable to States and investors of other States.4
This influence is attributable not only to the specific provisions of Chapter
Eleven, but also to the decisions and awards issued in NAFTA arbitrations and
the systemic approach taken by the three NAFTA Parties.
Indeed, in numerous respects, NAFTA Chapter Eleven created a systemic
international investment law in North America.5 Arguably, NAFTA’s influence
has been especially significant given the failure to conclude a broader multilateral
investment treaty.6 The development of NAFTA Chapter Eleven and the crossConvention on the Settlement of Investment Disputes Between States and Nationals of Other
States, 8 March 1965, 575 U.N.T.S. 160 [hereinafter “ICSID Convention”]. See Rudolph Dolzer &
Christoph Schreuer, Principles of International Investment Law 20 (2008), concluding that:
The ICSID Convention amounted to the boldest innovative step in the modern
history of international cooperation concerning the role and protection of foreign
investment. This is so because of the combination of five pertinent features of ICSID:
(a) foreign companies and individuals can directly bring suit against their host State;
(b) state immunity is severely restricted; (c) international law can be applied to the
relationship between the host state and the investor; (d) the local remedies rule is
excluded in principle; and (e) ICSID awards are directly enforceable within the
territories of all States parties to ICSID.
4
North American Free Trade Agreement between the Government of the United States of America, the
Government of Canada and the Government of the United Mexican States, 17 December 1992, 32 I.L.M.
612 [hereinafter “NAFTA”]. Under Article 1120 of NAFTA, investors may initiate an arbitration proceeding
by filing a Notice of Intent to Commence Arbitration. The arbitration can be conducted under one of
the following sets of rules: (a) the ICSID Convention Arbitration Rules, provided that both the disputing
Party and the Party of the investor are parties to the Convention; (b) the Additional Facility Arbitration
Rules of ICSID, provided that either the disputing Party or the Party of the investor are party to the ICSID
Convention; or (c) the UNCITRAL Commercial Arbitration Rules. Practically speaking, only the latter two
options are available since Mexico has not signed the ICSID Convention and Canada has not ratified the
Convention.
5
Evidence of the North American scope of influence is seen in the 2004 U.S. Model BIT available at http://
www.state.gov/documents/organization/117601.pdf; the 2003 Canada Model Foreign Investment Promotion
and Protection Agreement [hereinafter “Canada Model FIPA”]; and Mexico’s practice as demonstrated by,
among others, the Agreement between Japan and Mexico for the Strengthening of the Economic Partnership,
17 September 2004, available at http://www.mofa.go.jp/region/latin/mexico/agreement/index.html. Each of
these documents builds on experience under the investment chapter of the NAFTA.
6
Negotiations on a multilateral agreement on investment (“MAI”) were launched by governments at
the Annual Meeting of the OECD Council at the Ministerial level in May 1995. The proposed objective of
3
NAFTA Chapter Eleven at Fifteen227
pollination between NAFTA Chapter Eleven and investment law under other
treaties merits analysis because international investment law has been one of the
main contributors to international economic law and public international law
applicable to aliens in general.7 Today, international investment law around the
world has an immediate reference point in NAFTA Chapter Eleven.
This article discusses the development and main contributions of NAFTA
to international investment law in the last fifteen years.8 After analyzing the
context of the negotiations, the article examines the contributions of NAFTA
to the substantive law applicable to foreign investors. The paper follows with a
discussion of the procedural aspects that make NAFTA Chapter Eleven unique,
and that may have particularly contributed to a systemic approach to investment
disputes. It is suggested that these procedural features have helped maintain a
degree of substantive coherence in NAFTA and that the NAFTA experience has
influenced other treaty systems by making legal reasoning publicly and widely
available. The paper concludes with a brief discussion of what might be expected
in the coming years in the NAFTA context and how these developments might
permeate the law applicable to investment disputes.
II. The Negotiation of NAFTA and
its Investment Chapter
A. The Context of the Agreement
Since World War II, most countries have liberalized their economic relations
by acceding to international treaties that secure reciprocal market access,
concessions from other markets, and protection for their nationals abroad.
Mexico’s decision to join NAFTA was part of the economic reform
brought about by abandonment of the import substitution industrialization
(ISI) model of development and recognition of the need to boost foreign
investment.9 The Salinas Administration (1988–94) implemented a wave of
the MAI was to provide a broad multilateral framework for international investment with high standards
for the liberalization of investment regimes and investment protection and effective dispute settlement
procedures that would be open to non-Members. Negotiations were discontinued in April 1998. See
OECD, Multilateral Agreement on Investment, available at http://www.oecd.org/document/35/0,3343,
en_2649_33783766_1894819_1_1_1_1,00.html.
7
Nicholas DiMascio and Joost Pauwelyn, Nondiscrimination in Trade and Investment Treaties: Worlds
Apart or Two Sides of the Same Coin?, 102 Am. J. Int’l L. 48 (2008).
8
Decisions made public after 31 December 2009 are not considered in this paper.
9
Irwin P. Altschuler & Claudia G. Pasche, The North American Free Trade Agreement: The Ongoing
Liberalization of Trade With Mexico, 28 Wake Forest L. Rev. 7, 10 (1993). See also Jaime Serra Puche,
Lineamientos para una estrategia comercial, 40 Comercio Exterior 526 (1990) (title in English: Outline
for a trade strategy).
228
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
market-oriented reforms starting in 1984 with Mexico’s accession to the GATT,
which was signed by his predecessor, President Miguel de la Madrid (1982–
88). The Salinas Administration took decisive internal and external steps to
liberalize the Mexican economy, open markets to foreign trade and investment,
reduce the State’s role in the economy, and establish favorable conditions for
business. These reforms reached their peak with the negotiation of NAFTA.
However, even prior to NAFTA, Mexico adopted an aggressive series of reforms
that enhanced the expected benefits of the Agreement, or were indispensable
in coordinating the new legal framework made necessary by entering into the
Agreement.10 Among other things, these reforms included the relaxation of
the Calvo Doctrine, the reform of the Federal Law on Expropriation, and the
elimination of most restrictions on private ownership of property for foreigners.
Conversely, the United States had been an advocate of global multilateralism
in trade for many decades and had a developed program for the protection of
its trading interests. This system of protection led to the ratification of multiple
treaties of friendship, commerce, and navigation, and after some years, the
development of a model BIT program. However, until the 1990s, U.S. leadership
was divided over the urgency of a regional pact. A turning point came when the
dedication to multilateralism of the George H. W. Bush Administration faced
an impasse in GATT negotiations. The Uruguay Round had raised contentious,
multilateral issues, and the success of the Round hinged largely on the ability of
the United States and Europe to converge in agreement. Ultimately, a conflict
over price supports and export subsidies between the European Community and
a U.S.-led coalition contributed to stalling the global talks, and this stalemate
became an impetus for the creation of a regional agreement with Mexico.11 Thus,
it was only after the initial failure of the Uruguay Round that the United States
began to pursue “exceptional” bilateral free trade negotiation with Mexico.12
Canada had a different perspective on the creation of NAFTA. Historically,
Canadian trade and investment ties with Mexico were few, providing little
Among other reforms, in May 1989, Mexico altered the foreign direct investment regime by
enacting new regulations which allowed 100 percent foreign ownership in a number of sectors. In
December 1989, Mexico enacted a new “Maquiladora Decree” to promote the establishment of in-bond
plants for exporting industries. In June 1991, Mexico adopted the Industrial Property Law and created
the Mexican Institute of Industrial Property as the intellectual property authority. In January 1992 the
Government reformed Article 27 of the Mexican Constitution to permit a foreign corporation to own
rural and agricultural lands and to eliminate some restrictions on transfer of ejidos, or “communal land.”
In December 1993, Mexico amended its expropriation law, enacted anti-trust legislation, and created
a Federal Competition Commission to serve as the Mexican anti-trust authority. Sergio Puig, NAFTA,
Authority and Political Behavior: The Case of Mexico, 5 Santa Clara J. Int’l L. 363, 365–67 (2007).
11
Riccardo Faini & Enzo Romano Grilli, Multilateralism and Regionalism After the Uruguay
Round (1997).
12
Greg Mastel, American Trade Laws After the Uruguay Round (1997).
10
NAFTA Chapter Eleven at Fifteen229
commercial incentive to enter into negotiations with the Mexican government.
Further disincentive was the fact that the groundbreaking Canada-U.S. Free
Trade Agreement (CUFTA) was already in force, offering investment disciplines
but not investor-State arbitration.13 Nor was the Canadian government, headed
by Brian Mulroney, eager to reopen the national debate that had occurred over
its bilateral trade agreement with the U.S. in 1988.14 Canada’s decision to join
the trilateral negotiations, as summarized by Professors Cameron and Tomlin,
was prompted by the concern that a separate bilateral Mexico-U.S. Free Trade
Agreement would give the United States (as the only country with access to a
continental market) an advantage in attracting investment, and could grant
Mexico preferred access to the U.S. market.15 Ultimately, Canada entered
NAFTA in part because key policy makers perceived it to be vital to protecting
Canada’s interests in the North American market.
B. Investment Arbitration: A Compromise of Three Parties
The outcome of the NAFTA negotiations was largely driven by the
negotiating context: an agreement between two developed Parties and an
emerging economy; a very involved private sector able to navigate national
politics in all three countries; and the inclusion of multinational players
strongly supporting the Agreement.16 The respective bargaining power of
the NAFTA Parties, the role of interest groups, and the nature of domestic
institutions all left their mark on the Agreement. For example, NAFTA
included strong investment disciplines and an investment arbitration process
that were not included in the CUFTA.17 While the United States and Canada
accepted restrictions on their own ability to regulate foreign investment
(the obligations are reciprocal), and U.S. commentators expressed concern
about possible Canadian backsliding both with respect to limits on foreign
ownership and the imposition of trade-distorting investment conditions,
most observers suggest there was a shared perception between the three
Free Trade Agreement, 22 December 1987 and 2 January 1988, Canada-United States, H.R. Doc.
No. 216, 100th Cong., 2d Sess. 297 (1988), reprinted in 27 I.L.M. 281 (1988) [hereinafter “CUFTA”].
14
Kenneth Woodside, The Canada-United States Free Trade Agreement, 22 Can. J. Pol. Sci. 155
(1989).
15
Maxwell A. Cameron & Brian W. Tomlin, The Making of NAFTA: How the Deal Was Done
7, 51 (2000).
16
Id. at 53.
17
NAFTA addresses foreign investment in ways that CUFTA did not. This also meant that, under
NAFTA, the United States and Canada gave liberal access to foreign investors and to one another’s
markets beyond that given in CUFTA. See Jeffrey Atik, Legitimacy, Transparency and NGO Participation
in the NAFTA Chapter Eleven Process, in Todd Weiler (ed.), NAFTA Investment Law and Arbitration:
Past Issues, Current Practice, Future Prospects 135, 139 (2004).
13
230
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
Parties that Chapter Eleven arbitration would likely only be invoked, if at all,
with respect to Mexican actions.18
The history of the negotiation of the investment chapter demonstrates
that the adoption of investment arbitration in NAFTA was a compromise
between the three Parties. On the one hand, the United States, consistent with
its BIT practice at the time, proposed arbitration as the mechanism to settle
investment disputes. It inserted a “fork-in-the-road” provision in the first draft
of the Agreement to ensure that its nationals investing in Canada or Mexico
had access to an impartial mechanism outside the domestic jurisdiction of the
State involved in the dispute. At the beginning, Canada and Mexico seem to
have opposed this model for different reasons. On 16 January 1992, Mexico
suggested adding a provision that disputes under Chapter Eleven “shall not be
subject to the dispute settlement provisions” of the NAFTA,19 and it included
a paragraph expressing its preference for the “Domestic Judicial Enforcement
of the Rights of Investors” in the 6 March 1992 draft.20 Canada, on the other
hand, suggested the inclusion of a provision in the 4 June 1992 draft similar
to the model adopted in NAFTA, apparently to avoid the potential problem of
litigating “substantially the same” matters in an arbitration proceeding and in
national courts or administrative tribunals.21
The final result of the negotiations was the incorporation of investor-State
dispute resolution under the “no-U-turn model,”22 which has given rise to various
interpretive issues. However, this model seemed to address the main policy
concerns raised by the Parties during the negotiations, e.g. (a) the desirability of
an impartial mechanism for settlement of investment disputes; (b) recognition
Id. at 139. See also Jose E. Alvarez, Critical Theory and the North American Free Trade Agreement’s
Chapter Eleven, 28 U. Miami Inter-Am. L. Rev. 303 (1997).
19
NAFTA, Chapter 11 Trilateral Negotiating Draft Texts (16 January 1992), at 17, available at
http://www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/02-January161992.
pdf.
20
NAFTA, Chapter 11 Trilateral Negotiating Draft Texts (6 March 1992), at 18, available at http://
www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/05-March061992.pdf. (The
suggested inclusion of Mexico read as follows: “MEX [Article: Domestic Judicial Enforcement of the
Rights of Investors 1. Each Party shall provide investors of the other Parties access to an impartial judicial
system with authority to enforce the rights of investors established under this Agreement.]”).
21
NAFTA, Chapter 11 Trilateral Negotiating Draft Texts (4 June 1992), at 20, available at http://
www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/11-June041992.pdf.
22
Specifically, NAFTA, supra note 4, at Articles 1121 (1)(b) and (2)(b), requires the disputing party
(investor and/or enterprise) to:
waive their right to initiate or continue before any administrative tribunal or court
under the law of any Party, or other dispute settlement procedures, any proceedings
with respect to the measure of the disputing Party that is alleged to be a breach ...
except for proceedings for injunctive, declaratory or other extraordinary relief, not
involving the payment of damages, before an administrative tribunal or court under
the law of the disputing Party.
18
NAFTA Chapter Eleven at Fifteen231
of the convenience of having impartial domestic adjudicative systems with
authority to enforce the rights of investors; and (c) designing a system that
would avoid litigation in multiple fora that could give rise to double redress for
the same matter.23
III. NAFTA Chapter Eleven at Fifteen
A. Scorecard of Disputes
From 1994 to 2009, approximately 59 NAFTA notices of intent to submit
claims to arbitration were reported. Only 41 claims alleging violations of
Chapter Eleven were eventually submitted, totaling a claimed value of nearly
U.S. $5 billion.24 Of these claims, ICSID has registered 14 cases under NAFTA,
ultimately conducted under the ICSID Arbitration (Additional Facility) Rules.
ICSID has also administered 9 cases under the UNCITRAL arbitration rules.
The rest have either been withdrawn or administered by the Permanent Court
of Arbitration (e.g. Chemtura Corp.25 and Vito Gallo26) or by the tribunal without
relying on an arbitral institution (e.g. Canadian Cattlemen for Fair Trade27 and
Pope & Talbot28).
This number of disputes is among the highest under a single international
investment treaty, together with the U.S.–Argentina BIT and the European
Energy Charter Treaty.29 However, the seemingly large number of investment
conflicts under NAFTA must be viewed in context, and should by no means
suggest a general problem of compliance by the NAFTA Parties with their
obligations. NAFTA created the world’s largest free trade area, and the amount
of foreign investment protected by the Agreement is one of the greatest of any
23
See generally William S. Dodge, National Courts and International Arbitration: Exhaustion of
Remedies and Res Judicata under Chapter Eleven of NAFTA, 23 Hastings Int’l & Comp. L. Rev. 357
(2000); Bernard H. Oxman & William S. Dodge, Arbitration – NAFTA – Jurisdiction – Waiver of Right
to Initiate or Continue Other Legal Proceedings – Effect of Pursuing Municipal Law Claims in Municipal
Court, 95 Am. J. Int’l L. 186 (2001); Jacob S. Lee, No Double-Dipping Allowed: An Analysis of Waste
Management, Inc. v. United Mexican States and the Article 1121 Waiver Requirement for Arbitration Under
Chapter Eleven of NAFTA, 69 Fordham L. Rev. 2655 (2001).
24
Barton Legum, Lessons Learned from the NAFTA: The New Generation of U.S. Investment Treaty
Arbitration Provisions, 19 icsid Rev.—FILJ 344 (2004).
25
Chemtura Corp. v. Canada, UNCITRAL (NAFTA).
26
Vito G. Gallo v Canada, UNCITRAL (NAFTA).
27
Canadian Cattlemen for Fair Trade v. United States, UNCITRAL (NAFTA).
28
Pope & Talbot Inc. v. Canada, UNCITRAL (NAFTA).
29
See Richard E. Walck, Current Statistics on Investment Treaty Arbitration (2007), available at
http://www.gfa-llc.com/images/Current_Statistics_on_Investment_Treaty_Arbitration_-_No_Notes__
Compatibility______Mode_.pdf. See also Energy Charter, Investor-State Dispute Settlement Cases,
http://www.encharter.org/index.php?id=213&L=1%2F%5C%5C%5C%27.
232
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
similar arrangement.30 Moreover, only seven cases have resulted in findings of
State violations of Chapter Eleven NAFTA obligations: five against the Mexican
government and two against the Canadian government.31 At least four of these
decisions have their genesis in two highly sensitive matters involving the United
States and another Party to the NAFTA: the sweeteners conflict with Mexico
and the softwood lumber dispute with Canada.
Excluding the dispute settled by Canada in Ethyl, a claim involving the
decision of the Canadian government to ban the import and inter-provincial
transportation of the fuel additive MMT,32 and the three claims settled by the
United States (Tembec,33 Canfor,34 and Terminal 35) as part of the softwood
lumber settlement agreement,36 the total amount of compensation awarded to
investors under NAFTA Chapter Eleven has been less than U.S. $200 million.37
See NAFTA background notes, Office of the United States Trade Representative, Executive Office
of the Presidency, http://www.ustr.gov/trade-agreements/free-trade-agreements/north-american-freetrade-agreement-nafta.
31
Mexico has been found liable in: Archer Daniels Midland Co. and Tate & Lyle Ingredients Americas,
Inc. v. Mexico, ICSID Case No. ARB(AF)/04/5 (NAFTA), Award (Redacted Version) (21 November
2007) [hereinafter “Archer Daniels Award”]; Corn Products International, Inc. v. Mexico, ICSID Case
No. ARB(AF)/04/1 (NAFTA), Award (18 August 2009) (the Award has not been released, however
information on the case is available in the company’s Form 10-Q dated 5 November 2010, at http://
www.faqs.org/sec-filings/101105/CORN-PRODUCTS-INTERNATIONAL-INC_10-Q/) [hereinafter
“Corn Products Award”]; Cargill, Inc. v. Mexico, ICSID Case No. ARB(AF)/05/2 (NAFTA), Award (18
September 2009) (the Award has not been released, however information on the case is available in the
Judgment of the Ontario Superior Court of Justice on application to set aside the Award, Case No.
CV09–391935, (26 August 2010) [hereinafter “Cargill Award”]; Metalclad Corp. v. Mexico, ICSID Case
No. ARB(AF)/97/1 (NAFTA), Award (30 August 2000) [hereinafter “Metalclad Award”]; Feldman v.
Mexico, ICSID Case No. ARB(AF)/99/1 (NAFTA), Award on Merits (16 December 2002) [hereinafter
“Feldman Award”]. Canada has been found responsible in: Pope & Talbot, UNCITRAL (NAFTA) Final
Award, Award in Respect of Costs (26 November 2002) [hereinafter “Pope & Talbot Award”]; and S.D.
Myers, Inc. v. Canada, UNCITRAL (NAFTA), Final Award (30 December 2002) [hereinafter “S.D.
Myers Award”].
32
Ethyl Corp. v. Canada, UNCITRAL (NAFTA) was settled for US $13 million after an Award
on Jurisdiction was issued on 24 June 1998, and after a domestic panel found Canada in breach of the
inter-provincial Agreement on Internal Trade. See Joint Press Release, Industry Minister John Manley and
Environment Minister Christine Stewart of Canada (20 July 1998) (on file with authors).
33
Tembec Inc. et al. v. United States, UNCITRAL (NAFTA).
34
Canfor Corp. v. United States, UNCITRAL (NAFTA).
35
Terminal Forest Products Ltd. v. United States, UNCITRAL (NAFTA).
36
Softwood Lumber Agreement, U.S.–Can., 12 September 2006, as amended 12 October
2006, available at http://www.international.gc.ca/controls-controles/softwood-bois_oeuvre/otherautres/agreement-accord.aspx. See also Michael J. Trebilcock & Robert Howse, The Regulation of
International Trade 153–54 (3d ed. 2005). An amount of US $242 million was paid to Tembec less
than three weeks after the Softwood Lumber Agreement entered into force on 12 October 2006. See
Press Release, Tembec, Inc., Tembec Reports Financial Results for its First Quarter ended December 30, 2006
(1 February 2007), available at http://www.tembec.com/public/Salle-de-presse/2007–02–01.html. No
information about the compensation paid to Canfor and Terminal is publicly available.
37
Awards against Mexico: Archer Daniels Award, supra note 31 (US $33.5 million); Corn Products
Award, supra note 31 (US $58.4 million); Cargill Award, supra note 31 (US $77.3 million pending set30
NAFTA Chapter Eleven at Fifteen233
Under NAFTA, the total value of compensation awarded represents less than
four percent of the total amount requested.
As of 2009, eight arbitral decisions had been reviewed by domestic courts.38
In Metalclad,39 Feldman,40 Archer Daniels,41 and Bayview Irrigation,42 Canadian
courts reviewed the final awards of the Tribunals. In Thunderbird,43 where
Mexico was awarded costs and partial fees, a U.S. District Court rejected the
set-aside arguments;44 and in Loewen45 the same Court determined that the
set-aside application was time-barred.46 In S.D. Myers47 the questions of setaside of interim and final awards were raised,48 and the Tembec order in the
softwood lumber consolidation49 was challenged in U.S. court.50 Most cases,
aside proceeding); Metalclad Award, supra note 31 (US $15.6 million); and Feldman Award, supra note
31 (US $1.7 million). Awards against Canada: Pope & Talbot Award, supra note 31 (US $461,000), and
S.D. Myers Award, supra note 31 (CDN $6.05 million). Total Awards (principal): US $193.011 million.
38
Article 1136 of NAFTA (Finality and Enforcement of an Award) contemplates the possibility of
domestic review of final awards under the ICSID Additional Facility Rules or the UNCITRAL Arbitration
Rules. Section 3(b) of the Article mandates that a disputing party may not seek enforcement of a final
award until:
(i) three months have elapsed from the date the award was rendered and no disputing
party has commenced a proceeding to revise, set aside or annul the award, or
(ii) a court has dismissed or allowed an application to revise, set aside or annul the
award and there is no further appeal. NAFTA, supra note 4, at Art. 1136(3)(b).
39
Mexico v. Metalclad Corp., Reasons for Judgment, 2001 B.C.S.C. 664 (2 May 2001), 5 ICSID
Rep. 238 (2002), and Supplementary Reasons, 2001 B.C.S.C. 1529 (31 October 2001), 6 ICSID Rep.
53 (2004) [hereinafter “Metalclad Review”].
40
Mexico v. Feldman, No. 03-CV-23500, 2003 CanLII 34011 (Ont. S.C., 3 December 2003) and
2005 CanLII 249 (Ont. Ct. App., 11 January 2005).
41
See Luke E. Peterson, 1(5) Invest. Arb. Rep. (July 2008).
42
Bayview Irrigation District et al. v. Mexico, No. 07-CV-340139-PD2, 2008 CanLII 22120 (Ont.
S.C., 5 May 2008). In this case, the Ontario Superior Court was reviewing Bayview Irrigation District et
al. v. Mexico, ICSID Case No. ARB(AF)/05/1) (NAFTA), Award (19 June 2007) [hereinafter “Bayview
Award”].
43
International Thunderbird Gaming Corp. v. Mexico, UNCITRAL (NAFTA), Award (26 January
2006) [hereinafter “Thunderbird Award”].
44
International Thunderbird Gaming Corp. v. Mexico, 473 F. Supp. 2d 80 (D. D.C., 14 February
2007), aff ’d, 255 Fed. Appx. 531 (D.C. Cir. 2007) [hereinafter “Thunderbird Review”].
45
Loewen Group, Inc. and Raymond L. Loewen v. United States, ICSID Case No. ARB(AF)/98/3
(NAFTA), Award (26 June 2003) [hereinafter “Loewen Award”].
46
Raymond L. Loewen v. United States, Civ. No. 04–2151(RWR), slip. op. (D. D.C., 31 October
2005).
47
S.D. Myers, Inc. v. Canada, UNCITRAL (NAFTA), First Partial Award (13 November 2000),
Second Partial Award (21 October 2002) and Final Award (30 December 2002).
48
Attorney General of Canada v. S.D. Myers, Inc. (Mexico as intervenor), [2004] F.C. 38 (Fed. Ct. Can.,
13 January 2004) [hereinafter “S.D. Myers Review”].
49
Canfor Corp. v. United States, Tembec et al. v. United States and Terminal Forest Products Ltd. v.
United States, UNCITRAL (NAFTA) [hereinafter “Canfor et al. v. United States”], Joint Order on the
Costs of Arbitration and for the Termination of Certain Arbitral Proceedings (19 July 2007).
50
Tembec Inc., et al. v. United States, 570 F. Supp. 2d 137 (D. D.C., 14 August 2008) [hereinafter
“Tembec” Review].
234
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
including contentious cases such as UPS,51 Methanex,52 Waste Management,53
GAMI,54 Mondev,55 ADF,56 Thunderbird,57 Fireman’s Fund,58 and Loewen,59
resulted in complete dismissal of the allegations against the governments.
The relatively small number of disputes reaching the merits phase and
the fact that the NAFTA States have complied with arbitral outcomes suggest
that compliance with investment rules is not an endemic problem within the
NAFTA system.60
B. Substantive Contributions
The advent of NAFTA Chapter Eleven arbitration, at a time when antiglobalization awareness was gaining steam,61 contributed to a collective
awakening among activists, lawyers, and the international business community
with respect to the potential use of the standards of investment protection. Such
activism may well have contributed to the initiation of cases and the evolution
of the main disciplines of investment protection in NAFTA.
Section A of Chapter Eleven sets forth the substantive obligations of
the NAFTA Parties with respect to foreign investment. The obligations are
enforceable through investment arbitration included within Section B. The
main substantive disciplines are: (1) Article 1102, which requires that each
Party accord national treatment to investors or investments of another Party; (2)
Article 1103, which requires that a Party not treat an investor or investment of
another Party less favorably than it treats an investor or investment from a nonNAFTA country in like circumstances; (3) Article 1105, which establishes a
United Parcel Service of America Inc. v. Canada, UNCITRAL (NAFTA), Award on the Merits and
Separate Statement of Dean Ronald A. Cass (24 May 2007) [hereinafter “UPS Award”].
52
Methanex v. United States, UNCITRAL (NAFTA), Final Award (3 August 2005) [hereinafter
“Methanex Award”].
53
Waste Management, Inc. v. Mexico, ICSID Case No. ARB(AF)/00/3 (NAFTA), Final Award (30
April 2004) [hereinafter “Waste Management II Award”].
54
GAMI Investments, Inc. v. Mexico, UNCITRAL (NAFTA), Final Award (15 November 2004)
[hereinafter “GAMI Award”].
55
Mondev International Ltd. v. United States, ICSID Case No. ARB(AF)/99/2 (NAFTA), Award (11
October 2002) [hereinafter “Mondev Award”].
56
ADF Group Inc. v. United States, ICSID Case No. ARB (AF)/00/1 (NAFTA), Award (9 January
2003) [hereinafter “ADF Award”].
57
Thunderbird Award, supra note 43.
58
Fireman’s Fund Insurance Co. v. Mexico, ICSID Case No. ARB(AF)/02/1 (NAFTA), Award (17 July
2006) [hereinafter “Fireman’s Fund Award”].
59
Loewen Award, supra note 45.
60
See also Legum, supra note 24.
61
See Janet Thomas, The Battle In Seattle: The Story Behind and Beyond the WTO
Demonstrations (2000).
51
NAFTA Chapter Eleven at Fifteen235
minimum standard of treatment “including fair and equitable treatment and full
protection and security”; (4) Article 1106, which lists prohibited performance
requirements (e.g. export privileges tied to the level of domestic content); and
(5) Article 1110, which prohibits Parties from expropriating property without,
among other requirements, prompt payment of adequate compensation.
The following section discusses some of the main contributions of NAFTA
to the substantive development of investment law, beginning with some
definitional and jurisdictional aspects of the disputes. This is followed by an
analysis of awards on national treatment, most-favored-nation treatment, the
minimum standard of treatment, performance requirements, and expropriation.
The section concludes by considering the relationship between Chapter Eleven
and other chapters of NAFTA, as well as the relationship between Chapter
Eleven and international law more broadly.
1. Preliminary Matters
NAFTA investment obligations extend to measures (e.g. regulations,
procedures, requirements, or practices) taken by the State Parties.62 Additionally,
Article 1101(1) contains three subparagraphs refining the coverage of Chapter
Eleven. Under this Article, a measure adopted or maintained by a Party must
relate to at least one of the following: an “investor of another Party”; “investments
of investors of another Party in the territory of the Party”; and “with respect to
Articles 1106 [performance requirements] and 1114 [environmental measures],
all investments in the territory of the Party.” Chapter Eleven awards have
construed these terms, providing guidance on the scope of the chapter. These
preliminary matters are explained in this subsection.
a. “Investor” and “Investment”
The terms “investor of a Party” and “investments of an investor of another
Party” are defined in Article 1139 and have not garnered as much attention as
the qualifier “in the territory of the Party” (see discussion infra Part III.B.1.b).
However, at least three different Tribunals have discussed the nature of the
investments protected by NAFTA and the relationship between the investor
and its investment.
In Bayview Irrigation District, a series of claims were advanced against
Mexico by Claimants whose investment was located exclusively in the United
NAFTA, supra note 4, at Article 201 (Definitions of General Application) defines the term
“measure” to include any law, regulation, procedure, requirement or practice.
62
236
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
States. The Tribunal dismissed the claims for lack of jurisdiction. In its holding,
the Tribunal noted that one salient characteristic of an investment covered by
the protections of NAFTA is “that the investment is primarily regulated by the
law of a State other than the State of the investor’s nationality, and that this
law is created and applied by that State which is not the State of the investor’s
nationality.”63 The Canadian Cattlemen case, initiated by 107 investors located
in Canada (see discussion infra Part III.B.1.b), raised a very similar issue. In
like manner, the Tribunal concluded that “the only investors who may avail
themselves of the protections of Chapter Eleven … are actual or prospective
foreign investors in another NAFTA Party.”64
In GAMI, the minority shareholder of Grupo Azucarero Mexicano
(GAM), known as GAMI Investments Inc. (“GAMI”), brought a claim under
Chapter Eleven.65 GAMI was a U.S. corporation indirectly owning 14.18%
of the shares of GAM, its Mexican holding company. GAMI brought its
claim under NAFTA Article 1116 as a U.S. corporation (investor of a Party)
and owner of shares in a Mexican company.66 GAMI alleged that Mexico
had expropriated its Mexican sugar mills contrary to Article 1110. GAM,
the owner of the sugar mills, had previously brought a case before Mexican
courts seeking restitution of the same mills. The GAMI Tribunal affirmed the
principle that nationals do not have standing against their State of nationality
under Chapter Eleven of NAFTA and added that “[i]t is in the very nature
of NAFTA to create a regime in which a foreigner’s entitlements do not
necessarily coincide with those of a citizen even with respect to ownership of
identical types of assets ....”67
b. Territoriality of Investment and Nationality of Investor
As mentioned above, interpretation of the term “in the territory of the
Party” has attracted the most attention of any of the preliminary matters listed
in Article 1101. The term appears in only two of the three subparagraphs of
Article 1101(1). It does not qualify the term “investor.” Nonetheless, as argued
by Canada in the set-aside proceeding concerning the Award in S.D. Myers,
the definition of investor is intimately tied to the definition of an investment
63
Bayview Award, supra note 42, at para. 98. The Claimants also raised an alternative argument that
they had certain rights to water located in tributaries of the Rio Bravo in Mexico.
64
See Canadian Cattlemen for Fair Trade v. United States, UNCITRAL (NAFTA), Award on
Jurisdiction (28 January 2008), at para. 111 [hereinafter “Canadian Cattlemen Award”].
65
GAMI Investments, Inc. v. Mexico, UNCITRAL (NAFTA), Notice of Arbitration (9 April 2002).
66
See NAFTA, supra note 4, at Art. 1116. See also GAMI, supra note 54, Memorial on Jurisdiction
(Spanish) (12 April 2003).
67
GAMI Award, supra note 54, at para. 38.
NAFTA Chapter Eleven at Fifteen237
under Article 1139 because a claimant must establish that it was an investor
that was seeking to make, was making, or had made an investment.68
The issue of territoriality of investment was pivotal in the Canadian
Cattlemen case, where a group of Canadian nationals challenged a ban on
the importation of Canadian cattle into the United States. The Claimants
maintained that imports of Canadian livestock and beef to the United States
were safe and posed minimal risk of Bovine Spongiform Encephalopathy
(BSE). In the Claimants’ view, the decision to close the border to certain meat
products following the discovery of BSE in Canada breached the prohibition on
the obligation to accord national treatment to Canadian investors with respect
to their investments in Canada.69 Relying on the terms of NAFTA, including
the provisions on scope of application, the Vienna Convention, and general
international law, the Tribunal found that:
“[I]nvestors” do not exist in Chapter Eleven in isolation, but are explicitly
linked to their investments. And because it is clear from the text that the
only “investments” covered by Chapter Eleven are those that are made
(or planned to be made) in the territory of another NAFTA Party by
qualifying persons of one NAFTA Party—i.e., foreign investments—
and because it is therefore clear as well that purely domestic investments
do not fall within the scope of Chapter Eleven of the NAFTA, we find
it illogical and inconsistent with the structure of Chapter Eleven as a
whole that the scope of its protections for investors should be different.70
The issue of territoriality of the investment differs from that of the
nationality of an investor, which has also arisen in several NAFTA disputes.
For instance, Waste Management involved a concession agreement concluded
by Acaverde, a waste collection service company incorporated under Mexican
law and established in the City of Acapulco. By the time Acaverde commenced
operation, almost all of its shares were indirectly owned through different Cayman
68
S.D. Myers Award, supra note 31, at para. 229 (The Tribunal concluded that “[t]aking into account
the objectives of the NAFTA, and the obligations of the Parties to interpret and apply its provisions in
light of those objectives, the Tribunal does not accept that an otherwise meritorious claim should fail
solely by reason of the corporate structure adopted by a claimant in order to organize the way in which it
conducts its business affairs.”). Canada had argued that the Tribunal erred in allowing a claim because the
Claimant did not establish that it was an investor of another Party that was seeking to make, was making,
or had made an investment; or that the investment met the definition of the term. In this case, S.D. Myers,
Canada was neither a subsidiary nor an affiliate of S.D. Myers. See Canada’s Amended Memorandum of
Argument, 21 March 2001 in S.D. Myers Review, supra note 48.
69
Canadian Cattlemen Award, supra note 64, at para. 25.
70
Id. at para. 112.
238
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
Islands companies by Waste Management Inc., a Delaware corporation. Mexico
argued that Waste Management, the parent company, lacked standing in the
investment dispute because its Mexican subsidiary (the party to the concession
agreement) was not a U.S. company at the time the concession agreement was
concluded. The Tribunal dismissed Mexico’s argument and concluded that:
When Article 1105 [minimum standard of treatment] specifies the
treatment to be accorded to investments of investors of another Party,
there is no trace of a requirement that the investment itself have the
nationality of that Party either at the time it was acquired or at the
time the conduct complained of occurs. Similarly under Article 1110
dealing with expropriation, the protected quantity is “an investment of
an investor of another Party” in the territory of the expropriating State.
The nationality of the investment (as opposed to that of the investor)
is irrelevant. The same is true in respect of claims by investors on their
own behalf under Article 1116: it is sufficient that the investor has the
nationality of a Party and has suffered loss or damage as a result of action
in breach of one of the specified obligations, including Articles 1105
and 1110. The extent of that loss or damage is a matter of quantum,
not jurisdiction.71
However, this interpretation has not been adopted by all NAFTA Tribunals.
In Loewen, the Tribunal maintained the “continuous nationality rule,” or the
requirement that “the nationality must exist at the date of the injury and should
continue until at least the date of the formal presentation of the claim.”72 Since
the Claimant corporation sought bankruptcy protection in the United States
and consequently transferred all of its assets to its U.S. subsidiary during the
pendency of the NAFTA arbitration, the Tribunal dismissed the claim for failure
to meet the nationality requirements of the treaty. It held that “there must be
continuous national identity from the date of the events giving rise to the claim,
which date is known as dies a quo, through the date of the resolution of the claim,
which is known as the dies ad quem.”73 This decision has been strongly debated,
especially regarding the duration of the nationality that a claimant must possess
under the rule, and whether it must be maintained after initiation of the claim.74
Waste Management II Award, supra note 53, at para. 83.
Malcolm N. Shaw, International Law (5th ed. 2003).
73
Loewen Award, supra note 45, at para. 225.
74
For a critique of the Loewen Award, supra note 45, see Jan Paulsson, Denial of Justice in
International Law 183–184 (2005). See also Draft Articles on Diplomatic Protection with commentaries
2006, at para. 7, II Y.B. Int’l L. Comm’n, Part 2 (2006):
71
72
NAFTA Chapter Eleven at Fifteen239
c. “All Investments in the Territory of the Party”
The scope of application of Article 1106 with respect to “all investments in
the territory of the Party” was the subject of contention in the Archer Daniels
case. The dispute focused (in part) on whether Article 1106(3) was intended to
apply to performance requirements connected with all investments in a Party’s
territory, i.e. Mexico, or whether performance requirements were only imposed
directly on investors in other Member States.
The Tribunal agreed with the investors and held that the measure at issue
(excise tax on soft drinks using sweeteners other than Mexican sugar) breached
NAFTA Article 1106(3). In so deciding, the Tribunal found that Articles 1101 and
1106 “prohibit Member States from imposing performance requirements upon
any investor from the NAFTA region, including Respondent’s own investors.”75
d. Causation & Remoteness
Consistent with Articles 1101, 1116 and 1117, Chapter Eleven tribunals
have required a causal link between the obligation breached and the injury
suffered before awarding damages to an investor. For instance, in S.D. Myers
the Tribunal concluded that compensation was payable “only in respect of harm
that is proved to have a sufficient causal link with the specific NAFTA provision
that has been breached.”76 A similar view was expressed by the Tribunal in
Feldman, concluding that the loss or damage must be “adequately connected to
the breach” of the State.77 In Archer Daniels, the Tribunal required “a sufficiently
clear direct link between the wrongful act and the alleged injury, in order to
trigger the obligation to compensate for such injury.”78
The question of whose damage is recoverable has also been analyzed by
NAFTA tribunals. The UPS Tribunal concluded that to recover damages,
While the Commission decided that it was necessary to retain the continuous
nationality rule it agreed that there was a need for exceptions to this rule. Paragraph
2 accordingly provides that a State may exercise diplomatic protection in respect of
a person who was a national at the date of the official presentation of the claim but
not at the time of the injury provided that three conditions are met: first, the person
seeking diplomatic protection had the nationality of a predecessor State or has lost
his or her previous nationality; secondly, that person has acquired the nationality of
another State for a reason unrelated to the bringing of the claim; and thirdly, the
acquisition of the new nationality has taken place in a manner not inconsistent with
international law.
75
Archer Daniels Award, supra note 31, at para. 221.
76
S.D. Myers Award, supra note 31, at para. 160.
77
Feldman Award, supra note 31, at para. 194.
78
Archer Daniels Award, supra note 31, at para. 282.
240
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
an investor “would have to establish at the merits stage that the damage was
suffered either by it or by one or more of its investments in [the Respondent
State].”79 This same principle was adopted by the GAMI Tribunal. In this case,
the Claimant brought a case for losses deriving from damage to a company in
which it had invested in Mexico. The Tribunal concluded that “the fact that a
host State does not explicitly interfere with share ownership is not decisive. The
issue is rather whether a breach of NAFTA leads with sufficient directness to
loss or damage in respect of a given investment.”80 Finally, NAFTA tribunals
have maintained that the damages arising out of conduct inconsistent with
NAFTA can be denied when the causal connection between the breach and the
damage is “too remote.”81
In short, conduct inconsistent with the norms of the Agreement is only
compensable under Chapter Eleven if a “causal link” exists between the conduct
of the State and the injury of an investor protected by NAFTA, and that
connection or link is not “too remote.”
2. National Treatment Obligation
Traditionally, national treatment obligations in investment agreements
sought to level the economic playing field between foreign and domestic
participants. Fundamentally, the obligation under Article 1102 implies a duty
on NAFTA Parties not to discriminate between foreign and domestic investors
or investments on account of nationality when such investors or investments
are situated in like circumstances.
NAFTA tribunals have made at least two main contributions to
understanding national treatment in international investment agreements.
These are: (1) clarifying which domestic investments should be compared to
the foreign investment; and (2) what constitutes “less favorable treatment” of a
foreign investment in violation of the provision.
a. “In Like Circumstances”
National treatment provisions were inserted in BITs to protect individual
foreign investors from discrimination by States on account of nationality rather
than for the purpose of promoting efficiency or economic competition.82 The
UPS Award, supra note 51, at para. 121.
GAMI Award, supra note 67, at para. 33.
81
S.D. Myers Award, supra note 31, at para. 160; Metalclad Award, supra note 31, at paras. 115, 125.
82
DiMascio and Pauwelyn, supra note 7, at 70.
79
80
NAFTA Chapter Eleven at Fifteen241
language of NAFTA Article 1102(2), like that of many BITs, reflects this purpose.83
It states that a Party shall accord “treatment no less favorable than that it accords,
in like circumstances, to investments of its own investors.”84 As noted by the
Tribunal in Corn Products, under this formulation the investors (or investments)
which are being compared are not to be in “identical but in like circumstances.”85
The focus on the context under Article 1102 requires adjudicators to pay
close attention to the applicable regulatory framework before finding any
national treatment violation.86 Indeed, a distinction between domestic and
foreign investors can be justified on a policy basis.87 This does not mean—
as explained by the Corn Products Tribunal—that “[d]iscrimination does not
cease to be discrimination, nor to attract the international liability stemming
therefrom, because it is undertaken to achieve a laudable goal or because the
achievement of that goal can be described as necessary.”88
The treatment by NAFTA tribunals of the qualifier “in like circumstances”
suggests two possible approaches to assessing the circumstances surrounding
the investors being compared. On the one hand, Tribunals in ADF,89 GAMI,90
Loewen,91 Methanex,92 Archer Daniels,93 and Corn Products94 treated “like
circumstances” as a first-level inquiry or as a threshold matter, i.e. only after
83
See, e.g., U.S. Model BIT, supra note 5, at Art. 3 (“Each Party shall accord to investors of the
other Party treatment no less favorable than that it accords, in like circumstances, to its own investors
with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or
other disposition of investments in its territory.”); Canada Model FIPA, supra note 5 at Art. 4 (“Each
Party shall accord to investors of the other Party treatment no less favourable than that it accords, in
like circumstances, to investors of a non-Party with respect to the establishment, acquisition, expansion,
management, conduct, operation and sale or other disposition of investments in its territory.”).
84
NAFTA, supra note 4, at Art. 1102.
85
Corn Products International, Inc. v. Mexico, ICSID Case No. ARB(AF)/04/01 (NAFTA), Decision
on Responsibility (redacted English version) (15 January 2008), at para. 129 [hereinafter “Corn Products
Decision on Responsibility”].
86
Methanex Award, supra note 52. Cf. NAFTA Arbitral Panel, Final Report of the Panel in the Matter of
Cross-Border Trucking Services, Secretariat File No. USA-MEX-98–2008–01 (6 February 2001), available
at http://www.worldtradelaw.net/nafta20/truckingservices.pdf [hereinafter “Cross-Border Trucking Final
Report”]. In this case under Chapter 20 dispute resolution mechanisms (State-to-State), the Panel concluded
that “a broad interpretation of the ‘in like circumstances’ language could render [the substantive protections
in the services chapter of NAFTA] meaningless. If, for example, the regulatory systems in two NAFTA
countries must be substantially identical before national treatment is granted, relatively few service industry
providers could ultimately qualify.” Cross-Border Trucking Final Report, at para. 259.
87
Pope & Talbot Award, supra note 31, at para. 78.
88
Corn Products Decision on Responsibility, supra note 85, at para. 142.
89
ADF Award, supra note 56, at paras. 152–6.
90
GAMI Award, supra note 54, at paras. 111–5.
91
Loewen Award, supra note 45, at paras. 139–40.
92
Methanex Award, supra note 52, at Part IV – Chapter B – pp. 6 to 13.
93
Archer Daniels Award, supra note 31, at paras. 197–204.
94
Corn Products Decision on Responsibility, supra note 85, at paras. 133–40.
242
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
determining that the two entities that allegedly received differential treatment
were in fact in like circumstances did the Tribunals assess the treatment accorded
to them. On the other hand, Tribunals in S.D. Myers,95 Feldman,96 and Pope &
Talbot97 considered this as an exception, i.e. once differential treatment has been
established, the Tribunal determined whether other considerations such as public
policy concerns demonstrate that the entities were not in like circumstances.
b. “Less Favorable Treatment”
Another important contribution of NAFTA is the method of assessing
less favorable treatment. NAFTA tribunals have held that it is sufficient for a
foreign investor to prove that it was treated less favorably than a single domestic
investor in like circumstances.98 This second element may lighten the burden of
finding a violation since it avoids the need for a group-based analysis like that
found in trade cases.99 In the investment context, investors need only show that
they have been discriminated against in comparison to another investor in like
circumstances. If the investor establishes that it received less favorable treatment
compared to a similarly situated investor (e.g. same economic sector), then the
issue turns to the reason for such discrimination.
Scholars have observed that the type of discrimination covered by NAFTA
Article 1102 is “discrimination that can be demonstrated to be based on
nationality.”100 With respect to the basis upon which to assess the discrimination,
the Pope & Talbot, Corn Products, and Archer Daniels decisions concluded that
there may be de jure or de facto discrimination, both of which are prohibited
forms of discrimination under Article 1102 of NAFTA.101
S.D. Myers Award, supra note 31, at paras. 243–50.
Feldman Award, supra note 31, at paras. 175–84.
97
Pope & Talbot Award, supra note 31, at paras. 78–80.
98
See, e.g. Feldman Award, supra note 31, at para. 172 (“In the Tribunal’s view, the ‘universe’ of firms in like
circumstances are those foreign-owned and domestic-owned firms that are in the [same] business.”). See also
Pope & Talbot Award, supra note 31, at 78 (“[T]he treatment accorded a foreign owned investment protected
by Article 1102(2) should be compared with that accorded domestic investments in the same business or
economic sector. However, that first step is not the last one. Differences in treatment will presumptively violate
Article 1102(2), unless they have a reasonable nexus to rational government policies ….” (footnote omitted)).
See also Cross-Border Trucking Final Report, supra note 86, at para. 292 (“A blanket refusal to permit a person
of Mexico to establish an enterprise in the United States to provide truck services for the transportation
of international cargo between points in the United States is, on its face, less favorable than the treatment
accorded to U.S. truck service providers in like circumstances, and is contrary to Article 1102.”).
99
See Japan – Taxes on Alcoholic Beverages, Appellate Body Report, WTO Doc. WT/DS8–10–11/
AB/R, adopted 4 October 1996. See also European Communities – Measures Affecting Asbestos and AsbestosContaining Products, Appellate Body Report, WTO Doc. WT/DS135/AB/R, adopted 5 April 2001.
100
DiMascio and Pauwelyn, supra note 7, at 70.
101
Pope & Talbot Award, supra note 31, at para. 43; Archer Daniels Award, supra note 31, at para. 193;
95
96
NAFTA Chapter Eleven at Fifteen243
3. Most-Favored-Nation Treatment Obligation
NAFTA Article 1103 extends most-favored-nation (“MFN”) protection
to both investors and investments. Nevertheless, NAFTA contains several
exceptions to MFN, including government procurement, national security, and
certain intellectual property rights.102
Like national treatment, MFN is a relative standard requiring that the
claimant demonstrate that another investor or investment has been accorded
no less favorable treatment in like circumstances. The jurisprudence on this
discipline under NAFTA has been limited compared to other disciplines
under the Agreement or even compared to MFN clauses in other BITs,
and consequently it has been less influential in the development of this
discipline.
a. ��MFN and the Importation of Other Treaty Provisions
In the non-NAFTA context, the main debate in relation to MFN clauses has
been their ability to import a treaty clause to avoid a requirement that a claimant
pursue relief in national courts before proceeding to investment arbitration. This
issue arose for the first time in Maffezini.103 In that case, based on an MFN clause
in the BIT concluded between Spain and Argentina, the Tribunal held that the
Claimant did not have to first submit his claims to Spanish domestic courts. In
so deciding, the Tribunal noted that for a third-party treaty to be imported, “[it]
has to relate to the same subject matter as the basic treaty, be it the protection
of foreign investments or the promotion of trade, since the dispute settlement
provisions will operate in the context of these matters.”104
Not all subsequent tribunals have followed the Maffezini analysis.105
According to the ILC’s Special Rapporteur Professor McRae, a consistent
interpretation of MFN provisions has not yet emerged.106 However, most
tribunals have agreed that to be imported, not only must the subject of the
dispute overlap with an area covered by the MFN clause, but it must also be
able to be characterized in the same terms as those protected by the clause. As a
Corn Products Decision on Responsibility, supra note 85, at para. 115.
102
NAFTA, supra note 4, at Arts. 1103, 1108.
103
Emilio Agustín Maffezini v. Spain, ICSID Case No. ARB/97/7, Decision on Jurisdiction (25
January 2000), at 69.
104
Id., at 56.
105
Cf. Plama Consortium Ltd. v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (8
February 2005).
106
See Int’l L. Comm’n, 60th Session, Geneva, 5 May – 6 June and 7 July – 8 August 2008, available
at http://untreaty.un.org/ilc/sessions/60/60sess.htm.
244
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
result, the importation of a third-party treaty clause through MFN seems to be
permissible in some circumstances.
In the NAFTA context, a similar issue arose in connection with the expansive
interpretation of Article 1105 (Minimum Standard of Treatment) asserted by
the Tribunal in Pope & Talbot (see discussion infra Part III.B.4.a). In this case,
the Tribunal suggested that an investor could apply fair and equitable treatment
provisions in other treaties by virtue of the MFN clause of NAFTA.107 After the
Free Trade Commission (FTC) issued an interpretation on the scope of Article
1105 (see discussion infra Part III.B.4.a), the same Tribunal stated that it would
“make no sense to deny [fair and equitable treatment] under Article 1105, only
to find them revived pursuant to Article 1103 [MFN treatment].”108
The effect of MFN and the fair and equitable treatment clause also arose in
ADF. In that case, the Claimant argued that Article 1103 entitled it to the allegedly
greater protection found in other BITs signed by the United States. In finding a
lack of full clarity and consistency with respect to the decision in Pope & Talbot,
the Tribunal determined that even if the United States was required to accord a
better level of treatment under other BITs, the United States was not in breach
of that standard because Article 1108(7)(a) renders Article 1103 inapplicable.109
In short, the MFN obligation, and its potential to import more favorable
treatment, including fair and equitable treatment obligations under other BITs,
is at an early stage of development under the NAFTA. ���������
4. Minimum Standard of Treatment Obligation
A minimum international standard of treatment (MST) applies to foreign
investments, even if no discrimination or expropriation can be shown. This
discipline is dealt with by NAFTA under Article 1105, which encompasses the
obligation to give investments treatment in accordance with international law,
including fair and equitable treatment and full protection and security.
a. Evolution of the Standard and Interpretation
The early development of this discipline under NAFTA resulted mainly from
three decisions. First, in the Metalclad case, a U.S. investor received a permit
from the federal government of Mexico to construct a facility for the disposal of
hazardous waste. After spending several million dollars to construct the plant,
Pope & Talbot Award, supra note 31, at paras. 115–118.
Pope & Talbot Inc. v. Canada, UNCITRAL (NAFTA), Award in Respect of Damages (31 May
2002), at para. 9.
109
ADF Award, supra note 56, at paras. 193–197.
107
108
NAFTA Chapter Eleven at Fifteen245
local authorities announced that an additional local grant of permission was
required. In these circumstances, the arbitral Tribunal concluded there was a
breach of the MST because:
Mexico failed to assure a transparent and predictable framework for
[the investor’s] business planning and investment. The totality of
these circumstances demonstrates a lack of orderly process and timely
disposition in relation to an investor of a party acting in the expectation
that it would be treated fairly and justly in accordance with the
NAFTA.110
In the second case, S.D. Myers, an Ohio corporation that processed and
disposed of hazardous waste filed claims against Canada arising out of Canada’s
ban on the export of polychlorinated biphenyl (PCB) waste from Canada to
the United States in late 1995. The Tribunal found in favor of the investor with
respect to both the Article 1102 and 1105 claims, concluding:
Although … the Tribunal does not rule out the possibility that there
could be circumstances in which a denial of the national treatment
provisions of the NAFTA would not necessarily offend the minimum
standard provisions, a majority of the Tribunal determines that on
the facts of this particular case the breach of Article 1102 essentially
establishes a breach of Article 1105 as well.111
Finally, in Pope & Talbot, a U.S. corporation operating in Canada and
exporting softwood lumber to the United States brought a case against Canada
because a treaty between the United States and Canada governing exports of
lumber required Canada “to place softwood lumber on the Export Control
List ... and to require a federal export permit for each exportation to the
U.S.”112 The Claimant argued that Article 1105 was not limited to customary
international law. In response to this argument, the Tribunal suggested that a
“possible interpretation of the presence of the fairness elements in Article 1105
is that they are additive to the requirements of international law.”113
At this point, the FTC created by NAFTA (i.e. the trade ministers of the
three State Parties) adopted a binding interpretive statement—referred to as an
“interpretive note”—on Article 1105. Paragraph 2 of this statement provides
Metalclad Award, supra note 31, at para. 110.
S.D. Myers Award, supra note 31, at para. 310.
112
Pope & Talbot Award, supra note 31, at para. 30.
113
Id., at para. 114.
110
111
246
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
that the concepts of “fair and equitable treatment” and “full protection and
security” do not require treatment in addition to, or beyond, the treatment
required by customary international law to comply with the minimum standard
of treatment. Paragraph 3 of the note states that a determination that there has
been a breach of another provision of the NAFTA, or of a separate international
agreement, does not establish that there has been a breach of Article 1105.114
This note of interpretation garnered substantial commentary in subsequent
awards and publications. While the NAFTA States were using a power expressly
conferred by Article 1131 of the Agreement, some commentators criticized “the
timing and seeming purposes of the three-party intervention.”115
b. The Standard under Customary International Law According to
NAFTA Tribunals
The effect of the interpretive note was to confirm the MST in NAFTA as the
standard at customary international law. After this clarification, binding on NAFTA
tribunals, the question thus became: what does the customary international law
MST require of a State Party vis-à-vis investments of another State Party?
This issue has been debated in at least five cases since the note was issued.
In Waste Management, the Tribunal concluded that Article 1105 is breached if
the State’s conduct is:
arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and
exposes the claimant to sectional or racial prejudice, or involves a lack of
due process leading to an outcome which offends judicial propriety—as
might be the case with a manifest failure of natural justice in judicial
proceedings or a complete lack of transparency and candour in an
administrative process.116
A question that often arises in NAFTA arbitration is whether the threshold
for breach of the customary international law MST derives from the very high
standard established in 1926 in Neer v. Mexico before the U.S.–Mexico General
NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11 Provisions (31
July 2001), available at http://www.international.gc.ca/trade-agreements-accords-commerciaux/disp-diff/
NAFTA-Interpr.aspx?lang=en [hereinafter “NAFTA Chapter 11 Notes”]. NAFTA, supra note 4, at Art.
1131 (Governing Law) (“An interpretation by the Commission of a provision of this Agreement shall be
binding on a Tribunal established under this Section.” The Notes also covered confidentiality, access to
documents and information.).
115
See Methanex v. United States, UNCITRAL (NAFTA), Fourth Opinion of Professor Sir Robert
Jennings, Q.C on the meaning of Article 1105(1), at 1 (6 September 2001).
116
Waste Management II Award, supra note 53, at paras. 98, 115.
114
NAFTA Chapter Eleven at Fifteen247
Claims Commission.117 Recently, this argument was addressed by the Tribunal
in Glamis in the following way:
It therefore appears that, although situations may be more varied and
complicated today than in the 1920s, the level of scrutiny is the same.
The fundamentals of the Neer standard thus still apply today: to violate
the customary international law minimum standard of treatment codified
in Article 1105 of the NAFTA, an act must be sufficiently egregious
and shocking—a gross denial of justice, manifest arbitrariness, blatant
unfairness, a complete lack of due process, evident discrimination, or
a manifest lack of reasons—so as to fall below accepted international
standards and constitute a breach of Article 1105(1). The Tribunal notes
that one aspect of evolution from Neer that is generally agreed upon is
that bad faith is not required to find a violation of the fair and equitable
treatment standard, but its presence is conclusive evidence of such. Thus,
an act that is egregious or shocking may also evidence bad faith, but such
bad faith is not necessary for the finding of a violation. The standard for
finding a breach of the customary international law minimum standard
of treatment therefore remains as stringent as it was under Neer; it is
entirely possible, however that, as an international community, we may
be shocked by State actions now that did not offend us previously.118
While some commentators agree that the test in Neer continues to be
relevant, others argue that Neer did not establish a general rule, and is not
applicable to cases of responsibility where the alleged injury flows directly from
administrative or legislative acts.119 This commentary suggests that the issue
may arise in future cases alleging violation of MST under NAFTA.
5. Prohibition on Performance Requirements
Article 1106 of NAFTA establishes the prohibition on performance
requirements. The main rationale for prohibiting the adoption of performance
Neer v. Mexico, U.S.–Mexico General Claims Comm’n, Opinion (15 October 1926), 21 Am. J.
Int’l L. 555 (1927). See ADF Group Inc. v. United States, ICSID Case No. ARB (AF)/00/1 (NAFTA),
Second Article 1128 Submission of Mexico (22 July 2002), at 15 (quoting Pope & Talbot Inc. v. Canada,
UNCITRAL (NAFTA), Post-Hearing Article 1128 Submission of Mexico (Damages Phase) (3 December
2001), at para. 8 quoting Pope & Talbot, Respondent Canada’s Counter-Memorial (Phase 2), (18 August
2001), at para. 309).
118
Glamis Gold Ltd v. United States, UNCITRAL (NAFTA), Award (8 June 2009) [hereinafter
“Glamis Award”], at para. 616.
119
Jan Paulsson & Georgios Petrochilos, Neer-ly Misled?, 22 ICSID Rev.—FILJ 242, 257 (2007).
117
248
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
requirements is to deter the use of measures that distort international trade and
investment flows by conditioning investment or its protection on the fulfillment
of certain requirements. This prohibition, according to some experts, ensures
that “sourcing and sales decisions are based on the investor’s judgment, not by
the dictates of the host government.”120
Examples of measures that impose performance requirements can be
found in most countries and can vary in type, form, and goal. For that reason,
NAFTA Article 1106(1) establishes a list of prohibited measures that impose or
enforce performance requirements on an investor of a Party or a non-Party in
its territory. Similarly, Article 1106(3) prohibits NAFTA parties from granting
“advantages” contingent on compliance with one of the listed requirements.
This is complemented by Article 1101(1)(c), extending the prohibitions to
“all investments in the territory of a Party” and the exceptions noted in other
subsections of Article 1106 as well as other articles in the Agreement.
a. Performance Requirements
Article 1106(1), which reflects very specific and commonly used
performance requirements, was discussed in Pope & Talbot, S.D. Myers, and
ADF. The Tribunals did not find a breach of this NAFTA provision in any of
these cases.
In Pope & Talbot, the Tribunal analyzed Canada’s Export Control Regime
(ECR) for softwood lumber. After an accord was finalized between Canada
and the United States to prevent the escalation of a conflict over softwood
lumber exports, Canada adopted the ECR which mandated that exports to the
United States in excess of quota-allocated, fee-free eligible exports were subject
to a scale of increasing fees. The Tribunal concluded that the ECR did not
impose or enforce any requirements because the regime gave the exporter the
option to pay fees for additional shipments once the company’s quota had been
exceeded.121
In S.D. Myers, the Tribunal dealt with the question of whether Canada’s
export ban on PCBs was a performance requirement because it required the
Claimant to carry out a major part of its business, the physical disposal of PCB
waste, in Canada. The majority of the Tribunal disagreed with the Claimant,
holding that the measure did not fall within any of the specific requirements
prohibited by Article 1106(1).122
120
Daniel M. Price, An Overview of the NAFTA Investment Chapter: Substantive Rules and InvestorState Dispute Settlement, 27 Int’l L. 727, 727 (1993).
121
Pope & Talbot Inc. v. Canada, UNCITRAL (NAFTA), Interim Award (26 June 2000), at paras. 72–80.
122
S.D. Myers Award, supra note 31, at para. 111.
NAFTA Chapter Eleven at Fifteen249
Likewise, the ADF Tribunal analyzed whether the application of the socalled “Buy America” legislation (i.e. a requirement to use steel produced and
fabricated in the United States for a highway interchange construction project
in Virginia) was a breach of Article 1106(1). The Tribunal agreed with the
U.S. argument that these types of measures were excluded under Article 1108
(Reservations and Exceptions) of NAFTA.123
b. Advantages
Article 1106(3) addresses investment incentives or “advantages.”124 This
Article has been discussed in only a handful of cases, but it may be raised in
the coming years. The reason for this is the awards addressing Mexico’s high
fructose corn syrup (HFCS) tax. The measure at issue, approved by the Mexican
Congress in January 2002, imposed a tax on the use of HFCS in soft drinks.125
Taxing the sale of HFCS soft-drinks but exempting all those made with Mexican
sugar affected the HFCS producers and distributors (most of whom were U.S.
investors) and arguably gave an advantage to the largely domestic sugar industry
in Mexico.
The Tribunal in Archer Daniels found that the HFCS tax breached
Article 1106(3) after looking at the structure of the sweeteners industry, the
market for soft drink sweeteners, and the intent of Mexico in adopting the
tax, i.e. to give an advantage to the Mexican sugar industry.126 Conversely,
the Corn Products Tribunal agreed with the Archer Daniels decision that the
intent and effect of the tax was to reduce the use of HFCS and that the tax
conferred an advantage on the cane sugar industry in Mexico. However, they
found no breach of the provision because the tax “was placed on the soft
drink manufacturers,” and the requirement to use Mexican sugar “was not
mandatory.”127
Whereas the Tribunal in Corn Products took a more literal approach to
Article 1106(3), the decision in Archer Daniels looked at the effects of the
measure in greater detail. The two decisions may create some debate in the
coming years.
ADF Award, supra note 56, at para. 136.
NAFTA, supra note 4, at Art. 1106(3).
125
Ley del Impuesto Especial sobre Producción y Servicios (Law on the Special Tax on Production and
Services), D.O., (1 January 2002) at 32, available at http://www.salud.gob.mx/unidades/cdi/nom/compi/
liepys.html.
126
Archer Daniels Award, supra note 31, at paras. 221–227.
127
Corn Products Decision on Responsibility, supra note 85, at para. 80.
123
124
250
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
6. Prohibition on Expropriation without Compensation
Generally, expropriation is lawful and not inconsistent with investment
treaties if it: (i) serves a public purpose; (ii) is non-discriminatory; (iii) accords
with due process; and (iv) is accompanied by payment of compensation.
At least seven NAFTA tribunals have addressed expropriation. However,
only the Metalclad Tribunal found a breach of Article 1110 (see discussion
infra Part III.B.6.b).128 The Award in Fireman’s Fund,129 recently endorsed by
the Tribunal in Corn Products,130 summarized the NAFTA jurisprudence on
expropriation. The same Tribunal also listed the following eleven elements
defining expropriation which it distilled from NAFTA cases and customary
international law:
(a) Expropriation requires a taking (which may include destruction)
by a government-type authority of an investment by an investor
covered by the NAFTA.
(b) The covered investment may include intangible as well as tangible
property.
(c) The taking must be a substantially complete deprivation of the
economic use and enjoyment of the rights to the property, or
of identifiable distinct parts thereof (i.e., it approaches total
impairment).
(d) The taking must be permanent, and not ephemeral or temporary.
(e) The taking usually involves a transfer of ownership to another
person (frequently the government authority concerned), but that
need not necessarily be so in certain cases (e.g., total destruction of
an investment due to measures by a government authority without
transfer of rights).
(f ) The effects of the host State’s measures are dispositive, not the
underlying intent, for determining whether there is expropriation.
(g) The taking may be de jure or de facto.
(h) The taking may be “direct” or “indirect.”
(i) The taking may have the form of a single measure or a series of
related or unrelated measures over a period of time (the so-called
“creeping” expropriation).
(j) To distinguish between a compensable expropriation and a noncompensable regulation by a host State, the following factors
Metalclad Award, supra note 31.
Fireman’s Fund Award, supra note 58.
130
Corn Products, Decision on Responsibility, supra note 85, at para. 87.
128
129
NAFTA Chapter Eleven at Fifteen251
(usually in combination) may be taken into account: whether the
measure is within the recognized police powers of the host State; the
(public) purpose and effect of the measure; whether the measure is
discriminatory; the proportionality between the means employed and
the aim sought to be realized; and the bona fide nature of the measure.
(k) The investor’s reasonable “investment-backed expectations” may be
a relevant factor whether (indirect) expropriation has occurred.131
Two common threads may be observed from the cases under Chapter
Eleven: (1) NAFTA tribunals assessing a violation of Article 1110 have focused
on the impact or effects of the measure; and (2) direct takings of property are
infrequent.
a. ��Impact of the Measure
Several tribunals have agreed on the extent of interference that must occur
for a finding of expropriation, phrasing the test in one instance as “the affected
property must be impaired to such an extent that it must be seen as ‘taken’”;132
and in another instance, as “whether that interference is sufficiently restrictive
to support a conclusion that the property has been ‘taken’ from the owner.”133
More recently, the Tribunal in Glamis Gold pointed out that any analysis
of this provision should begin by determining whether the economic impact
of the measures at issue is sufficient to potentially constitute a taking at all.134
The Corn Products Tribunal held that, in the absence of a physical taking of
property, a measure cannot be considered expropriatory unless it interferes with
the investment to such a degree as to sterilize the business. While tribunals have
relied on other factors such as the purpose of the measure, they have significantly
focused on the “effects test” to assess breach of Article 1110.
b. Measures “Tantamount to Expropriation”
Most expropriations are indirect or are accomplished through measures
“tantamount to expropriation.” This indirect or regulatory expropriation often
Fireman’s Fund Award, supra note 58, at para. 176 (footnotes omitted).
GAMI Award, supra note 54, at para. 126.
133
Pope & Talbot Award, supra note 31, at para. 102.
134
The Glamis Gold Tribunal endorsed the decision in Técnicas Medioambientales Tecmed S.A. v.
Mexico, ICSID Case No. ARB(AF)/00/2, Award (29 May 2003) [hereinafter “Tecmed Award”], at para.
115 of the Award (“[I]t must first be determined if the Claimant was radically deprived of the economical
use and enjoyment of its investments, as if the rights related thereto ... had ceased to exist.”).
131
132
252
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
occurs when government measures do not amount to a physical taking of the
investment, but nevertheless result in “the effective loss of management, use
or control, or a significant depreciation of the value, of the assets of a foreign
investor.”135 For this purpose, NAFTA tribunals have adopted some of the case
law on expropriation developed in the context of the Iran-United States Claims
Tribunal, which in turn has been approved by several investment arbitration
tribunals.136
Metalclad was concerned primarily with a breach of Article 1105. However,
the Tribunal analyzed how the standard of expropriation under NAFTA also
applied to measures tantamount to expropriation:
[E]xpropriation under NAFTA includes not only open, deliberate and
acknowledged takings of property, such as outright seizure or formal or
obligatory transfer of title in favour of the host State, but also covert
or incidental interference with the use of property which has the effect
of depriving the owner, in whole or in significant part, of the use or
reasonably-to-be-expected economic benefit of property even if not
necessarily to the obvious benefit of the host State.137
The standard laid down in Metalclad has been criticized in some subsequent
cases,138 and the Canadian court that reviewed the Award did not endorse this
definition. Rather, the reviewing court commented that the Tribunal’s view of
expropriation exceeded the conventional notion of taking to include incidental
interference with property.139 Metalclad’s approach to indirect expropriation and
UNCTAD, Taking of Property, Series on issues in international investment agreements, UN Doc.
UNCTAD/ITE/IIT/15, at 2 (United Nations 2000).
136
Starrett Housing Corp. v. Islamic Republic of Iran, 4 Iran-U.S. Cl. Trib. Rep. 122, 156–157
(1983) (“[I]t is recognised by international law that measures taken by a State can interfere with property
rights to such an extent that these rights are rendered so useless that they must be deemed to have been
expropriated, even though the State does not purport to have expropriated them and the legal title to
the property formally remains with the original owner.”). See also Sedco, Inc v. Nat’l Iranian Oil Co., 9
Iran-U.S. Cl. Trib. Rep. 248 (1986). For other cases referencing the Iran-U.S. Claims Tribunal Reports,
see Tecmed Award, supra note 134, at para. 119; Saluka Investments BV (The Netherlands) v. The Czech
Republic, UNCITRAL, Partial Award (17 March 2006), at 306; LG&E Energy Corp. v. The Argentine
Republic, ICSID Case No. ARB/02/1, Award (3 October 2006), at 195; Siemens AG v The Argentine
Republic, ICSID Case No. ARB/02/8, Award (6 February 2007), at paras. 222–35, 269, and 325;
Occidental Exploration and Production Co. v. Ecuador, LCIA Case No. UN 3467 (UNCITRAL), Final
Award (1 July 2004), at 85.
137
Metalclad Award, supra note 31, at para. 106.
138
ADC Affiliate Ltd. and ADC & ADMC Management Ltd. v. Republic of Hungary, ICSID Case No.
ARB/03/16, Award (2 October 2006). See also Tecmed Award, supra note 134, at para. 114.
139
Metalclad Review, supra note 39, at para. 99 (“The Tribunal gave an extremely broad definition of
expropriation for the purposes of Article 1110. In addition to the more conventional notion of expropriation
involving a taking of property, the Tribunal held that expropriation under the NAFTA includes covert or
135
NAFTA Chapter Eleven at Fifteen253
the meaning of “tantamount to expropriation” was also adopted by the Tribunal
in Pope & Talbot.140 The recent Award in Glamis Gold reiterated that the term
“tantamount” means “equivalent” and therefore “should not encompass more
than direct expropriation; it merely differs from direct expropriation which
effects a physical taking of property in that no actual transfer of ownership
rights occurs.”141
Finally, while some investors have argued that the terms “expropriation”
and “measures tantamount to expropriation” invite detailed scrutiny of
domestic regulation, the three NAFTA governments have resisted such
an open-ended approach to expropriation.142 An overly expansive view of
expropriation arguably would have encompassed all regulation and resulted in
regulatory uncertainty.143 The more contained standard of expropriation has
permeated numerous other investment treaties,144 encouraged the revision of
some BIT programs,145 and, some argue, has resulted in greater use of the fair
and equitable treatment provisions as a basis for challenge in lieu of indirect
expropriation.146
7. Chapter Eleven and its Relationship to other Chapters and General International Law
As noted above, NAFTA Chapter Eleven is not a stand-alone BIT, but rather
is part of a broader trade agreement. NAFTA tribunals have considered the
incidental interference with the use of property which has the effect of depriving the owner, in whole or
in significant part, of the use or reasonably-to-be-expected economic benefit of property. This definition is
sufficiently broad to include a legitimate rezoning of property by a municipality or other zoning authority.
However, the definition of expropriation is a question of law with which this Court is not entitled to
interfere under the International CAA.”).
140
Pope & Talbot Award, supra note 31, at para. 102.
141
Glamis Award, supra note 118, at para. 355 (citing S.D. Myers Award, supra note 31, at para. 285:
(“[A]ctions that result in an indirect taking or are ‘tantamount to expropriation’ include those acts that
sometimes constitute what is known as ‘creeping expropriation’”) and Feldman Award, supra note 31, at
para. 101).
142
Alan O. Sykes, Public Versus Private Enforcement of International Economic Law: Standing and
Remedy, 34 J. Leg. Stud. 631, 653 (June 2005).
143
Daniel M. Price, Chapter 11 – Private Party vs. Government, Investor-State Dispute Settlement:
Frankenstein or Safety Valve?, 26 Can.-U.S. L. J. 111 (2000).
144
EnCana Corp. v. Republic of Ecuador, LCIA Case No. UN 3481 (UNCITRAL) , Award (3 February
2006), at para. 174; CMS Gas Transmission Co. v. The Argentine Republic, ICSID Case No. ARB/01/8,
Decision on Jurisdiction (17 July 2003), at para. 262; and PSEG Global, Inc., et al. v. Republic of Turkey,
ICSID Case No. ARB/02/5, Award (19 January 2007), at para. 278.
145
2004 U.S. Model. BIT, supra note 5, Annex B.
146
Dana Bray and Lucy Reed, Fair and Equitable Treatment: Fairly and Equitably Applied in Lieu of
Unlawful Indirect Expropriation?, in Arthur W. Rovine (ed.), Contemporary Issues in International
Arbitration and Mediation: the Fordham Papers 2007 (2008).
254
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
relationship between the investment chapter, other provisions of the Agreement,
and international law in general in S.D. Myers,147 Canadian Cattlemen,148 the
three HFCS tax disputes,149 and the softwood lumber cases.150
a. The Interaction of Chapter Eleven with the NAFTA
Article 1112(1) is one of several provisions in Chapter Eleven and NAFTA
that provide guidance as to how the different parts of the Agreement should
interact.151 This Article states that in case of any inconsistency between
Chapter Eleven and another chapter of the Agreement, the latter chapter shall
prevail.152
The three NAFTA Parties have suggested that Chapter Eleven has to be
read harmoniously with the “underride” provision in Article 1112 (Relation to
Other Chapters).153 They have argued that the investment chapter is subordinate
to other chapters—to the extent of any inconsistency with those chapters—and
therefore investor-State awards are without prejudice to the rights and obligations
of the Parties and the jurisdiction of tribunals constituted under other chapters
of the NAFTA (e.g. Chapter Twenty—Institutional Arrangements and Dispute
Settlement Procedures).
In the consolidated claims of Tembec, Canfor, and Terminal, the Tribunal
accepted the argument of the United States that Article 1112(1) constituted
a form of “underride clause [and] an important guidance in interpretation
of the NAFTA … however, it is limited to ‘any inconsistencies.’”154 The
Tribunal concluded that the relationship between Chapter Eleven and other
chapters is cumulative, and potentially overlapping. This approach is more
discreet than the approach taken by jurisdictional bodies under other systems,
S.D. Myers Award, supra note 31.
Canadian Cattlemen Award, supra note 64.
149
Archer Daniels Award, supra note 31; Cargill Award, supra note 31; Corn Products Decision on
Responsibility, supra note 85.
150
Tembec, supra note 33; Canfor, supra note 34; and Terminal Forest Products, supra note 35. See also
Canfor et al. v. United States, supra note 49.
151
Article 1101(3) carves out from the coverage of Chapter Eleven “measures adopted or maintained
by a party to the extent that they are covered by Chapter Fourteen.” Article 1110(7) stipulates that the
expropriation disciplines shall not apply to certain aspects of Chapter Seventeen (Intellectual Property).
Article 1105 does not apply to fiscal measures. The reservations and exceptions set out in Article 1108
also include in paragraph 7b a clear statement that “Article 1102, 1103 and 1107 do not apply to:…
procurement by a Party or a state enterprise.” Certain disciplines concerning government procurement are
contained in Chapter 10 of the NAFTA.
152
NAFTA, supra note 4, at Art. 1112.
153
Corn Products International, Inc. v. Mexico, ICSID Case No. ARB(AF)/04/1 (NAFTA), CounterMemorial on the Merits, at para. 88 (27 October 2005).
154
Canfor et al. v. United States, supra note 49, Decision on Preliminary Question (6 June 2006).
147
148
NAFTA Chapter Eleven at Fifteen255
such as the WTO, which cross-references different sections of institutional
agreements.155�
b. The Interaction of Chapter Eleven and International Law
More recently, NAFTA tribunals have addressed the application of
customary international law defenses and the nature of the rights granted by
the investment chapter of NAFTA. In the three cases brought against Mexico
concerning the imposition of a tax on soft drinks, Mexico, in its affirmative
defense, argued that the tax was a “legitimate countermeasure” adopted in
response to a prior U.S. violation of NAFTA, and hence precluded a finding
of liability under Chapter Eleven.156 The Mexican countermeasure defense
assumed that the United States had breached: (i) NAFTA provisions on market
access by refusing to allow Mexico’s sugar surplus to have access to the U.S.
market; and (ii) NAFTA Chapter Twenty by frustrating the dispute settlement
mechanism under that chapter when it refused to appoint panelists.157
In assessing Mexico’s defense, the Tribunals faced the question of whether
the international law on countermeasures was applicable to claims under
Chapter Eleven. The two available decisions differ in their conclusions on
this point. The Archer Daniels Tribunal decided that, as a general matter,
countermeasures may serve as a defense under investment disputes if
certain conditions are met.158 However, the Tribunal concluded that the tax
was not a valid countermeasure because it was not adopted by Mexico to
induce compliance with NAFTA. It also found that the tax did not meet
the proportionality requirements for countermeasures under customary
international law.159 Conversely, the Tribunal in Corn Products found that
the doctrine of countermeasures, devised in the context of relations between
States, is not applicable to investor-State claims under Chapter Eleven of the
NAFTA because a central purpose of Chapter Eleven was to remove such
claims from the inter-State plane.160
155
See Joost Pauwelyn, The Role of Public International Law in the WTO: How Far Can We Go?, 95
Am. J. Int’l L. 535 (2001), available at http://www.asil.org/ajil/pauwelyn.pdf.
156
In Mexico’s view, the tax was a temporary and proportionate countermeasure intended to return
the Mexican market to the status quo ante, pending resolution of the dispute.
157
Mexico argued that by delaying the appointment of its panelists, the United States had prevented
Mexico from submitting the dispute over sugar access to the Chapter 20 panel.
158
Archer Daniels Award, supra note 31, at para. 123. Arbitrator Rovine did not agree with this
reasoning. See Concurring Opinion of Arthur W. Rovine on Issues of Independent Investor Rights,
Diplomatic Protection and Countermeasures.
159
Archer Daniels Award, supra note 31, at para. 127.
160
Corn Products Decision on Responsibility, supra note 85, at paras. 170–178.
256
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
At international law, a countermeasure cannot extinguish or otherwise affect
the rights of a party other than the State responsible for the prior wrongdoing.161
As a result, the more basic question underlying Mexico’s defense was whether
an investor within the meaning of Article 1101 of the NAFTA has rights of its
own (distinct from those of the State of its nationality) or whether investors are
only entitled to enforce a right that belongs to the State as a Party to NAFTA.
Commentators characterize the conferral of rights under Chapter Eleven
in one of two ways: first, as a species of “delegated espousal,” whereby States,
the only proper subjects of international law, “bestow legally enforceable rights
only on States, and not directly on individuals”162 through their treaties; or,
second, as assuming that individuals become a species of “third-party contract
beneficiaries” of the NAFTA.163 This third-party beneficiary approach,
identified by Professor Andrea Bjorklund, strips away the notion that the State
is the injured party and recognizes that most of the time the injury is suffered
by the individual or claimant.164 Arguably, the first approach was adopted by
the Archer Daniels Tribunal and the second by the Corn Products Tribunal.165
Indeed, some organizations have already claimed that the latter Tribunal went
“outside the bounds of the law as understood by the Contracting Parties.”166
C. Procedural Contributions
NAFTA has various procedural provisions aimed at avoiding the duplication
of proceedings, maintaining procedural efficiency, and encouraging substantive
coherence in the decision-making process. This next section analyzes some
developments in these procedural provisions and their effects on NAFTA
Chapter Eleven in its first fifteen years.
161
James Crawford, The International Law Commission’s Articles on State Responsibility:
Introduction, Text and Commentaries 168–170 (2002).
162
Robert Anderson IV, Ascertained in a Different Way: The Treaty Power at the Crossroads of Contract,
Compact, and Constitution, 69 Geo. Wash. L. Rev. 189, 243 (2001).
163
Andrea K. Bjorklund, Private Rights and Public International Law: Why Competition Among
International Economic Law Tribunals Is Not Working?, 59 Hastings L.J. 241 (2007). See also Thomas
Wälde, Energy Charter Treaty-based Investment Arbitration – Controversial Issues, 5 J. World Invest. &
Trade 373 (2004) (discussing that under the Energy Charter Protocol on Energy Efficiency and Related
Environmental Aspects investors have a right to bring claims against States).
164
For an excellent and comprehensive description of the “hybrid” nature of investor-state arbitration, see
Zachary Douglas, The Hybrid Foundations of Investment Treaty Arbitration, 74 Brit. Y.B. Int’l L. 151 (2004).
165
Cf. Archer Daniels Award, supra note 31, at paras. 123–7 and Corn Products Decision on
Responsibility, supra note 85, at paras. 170–178.
166
Kate Horner et al., Written Comments Concerning The Administration’s Review of the U.S. Model
BIT on Behalf of the Center for International Environmental Law, Earthjustice, Friends of the Earth U.S.,
Oxfam America and Sierra Club 5 (31 July 2009), available at http://www.ciel.org/Publications/BIT_
Comments_Aug09.pdf.
NAFTA Chapter Eleven at Fifteen257
1. No-U-Turn Model
NAFTA, as opposed to many other BITs, allows foreign investors to bring
claims without prior exhaustion of local remedies and, in some circumstances,
permits simultaneous or subsequent uses of domestic and international fora.
This model, also called the “no-U-turn” model, is a departure from the “forkin-the-road” model proposed by the United States in the early negotiations.167
Article 1121 of NAFTA permits foreign investors to seek damages, an
injunction, or declaratory relief in a domestic court or to pursue other dispute
settlement procedures prior to bringing a NAFTA claim. However, at any point
within the three-year limitation period set by Articles 1116(2) and 1117(2), the
investor may choose to waive its right to initiate or continue dispute settlement
procedures before domestic administrative tribunals or courts with respect to
the measure in dispute (“except for proceedings for injunctive, declaratory or
other extraordinary relief, not involving the payment of damages”)168 and may
bring a Chapter Eleven claim instead. The waiver is irrevocable for the investor.
It is commonly observed that the reason for Article 1121 is to avoid double
redress for the same measure. Indeed this distinctive feature drove the inclusion
of Annex 1120.1 to NAFTA. Since NAFTA is a self-executing treaty under
Mexican law (and therefore part of Mexican domestic law), Mexico needed
a provision to prevent two identical causes of action giving rise to damages
under both a Chapter Eleven arbitration and a proceeding before a Mexican
domestic court for the same measure. As stated by the Thunderbird Tribunal,
“Article 1121 serves a specific purpose, namely to prevent a party from pursuing
concurrent domestic and international remedies, which could either give rise to
conflicting outcomes (and thus legal uncertainty) or lead to double redress for
the same conduct or measure.”169
However, Article 1121 does not prevent different causes of action based on
the same set of facts as long as they do not lead to double redress. The dissenting
opinion of Keith Highet in Waste Management I pointed out that domestic
proceedings challenging exactly the same measure could coexist alongside
NAFTA proceedings because “domestic causes of action by definition differ
from international causes of action, and a violation of domestic law will not
always also be an international wrong.”170
NAFTA, Chapter 11 Trilateral Negotiating Draft Texts (December 1991), available at http://
www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/01-December1991.pdf.
168
NAFTA, supra note 4, at Art. 1121.
169
Thunderbird Award, supra note 43, at para. 118.
170
Waste Management, Inc. v. Mexico, ICSID Case No. ARB(AF)/00/3 (NAFTA), Dissenting Opinion
of Keith Highet (2 June 2000), at para. 58.
167
258
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
The waiver model may encourage the use of domestic courts before
commencing arbitration because it allows an investor to bring a claim up to
three years after the date when the investor should have discovered the breach
and injury, thus permitting investors to seek remedies before domestic courts
for some time without limitation concerns.
2. FTC Guidance and Binding Interpretation Mechanisms
The power to issue binding interpretations of the Agreement, including
provisions of Chapter Eleven, is a unique procedural device of NAFTA. Article
2001 created the Free Trade Commission (FTC), consisting of the ministers of
trade from each NAFTA country (or their designees). The functions performed
by the FTC are specifically designated by NAFTA Article 2001(2)(c) and include
“resolv[ing] disputes that may arise regarding its interpretation or application.”
Furthermore, in accordance with Article 1131(2), “[a]n interpretation by the
Commission of a provision of this Agreement shall be binding on a Tribunal
established under this Section.”171
The FTC is not an adjudicative mechanism. The NAFTA Parties establish
the agenda of the FTC, and consensus of the three Parties is required for an
FTC decision to be binding on a tribunal.
Article 1131 has been used to interpret Article 1105 and to clarify the right
of public access to documents submitted to, or issued by, a Chapter Eleven
tribunal. The FTC has the power, among others, to “consider any other matter
that may affect the operation of [the] Agreement.”172 As discussed below, the
FTC has also issued statements providing guidance on non-disputing party
participation in arbitrations, and the formalities required for Notices of Intent.
The FTC note of interpretation on Article 1105 and access to documents
spawned a debate regarding the scope of a binding interpretation and whether
there is a point at which the interpretation is considered an amendment and
must follow the formalities for amending the Treaty.173 Commentators often
NAFTA, supra note 4, at Art. 1131(2).
Id. at Art. 2001(2)(e).
173
Under Article 2001(2)(c), the FTC shall resolve disputes that may arise regarding its interpretation
or application of the Agreement. However, under Article 2202, amendments to the Agreement required the
consent of the Parties, as approved in accordance with the applicable legal procedures of each Party. Under
Article 1131, an interpretation by the FTC of a provision of the Agreement shall be binding on Chapter Eleven
Tribunals. In the Pope & Talbot Award, supra note 31, at para. 46, the Tribunal concluded that a Tribunal shall
“not simply accept that whatever the Commission has stated to be an interpretation is one for the purposes of
Article 1131(2),” and while not required/entitled to analyze if the FTC went beyond its interpretation powers,
the Tribunal concluded that “were the Tribunal to make a determination whether the Commission’s action is
an interpretation or an amendment, it would choose the latter.”
171
172
NAFTA Chapter Eleven at Fifteen259
suggest that the rationale for a provision like Article 1131 is that allegations
of treaty breach are likely to be brought more frequently and to be cast more
broadly when private parties have standing to initiate proceedings. Likewise, it
has been suggested that States are more reluctant to pursue theories regarding
the obligation of other States to protect investment that are inconsistent with
the type of protections they are willing to apply at home. By contrast, the
interests of private investors are “one off ”—the investor can pursue expansive
theories about State obligations to protect investment because investors do not
have to live with the systemic consequences if these arguments are successful. As
put by Professor Alan Sykes, bodies like the FTC “can serve as ex post political
filters, undoing the undesirable decisions while avoiding the costs of sorting the
larger number of cases that arise ex ante.”174
3. Transparency: The Debate and the Response of the NAFTA Parties
Perhaps the most notable legacy of Chapter Eleven has been initiatives to
entrench greater public access to information and to proceedings. First, the
three NAFTA Parties joined in an interpretive note issued by the FTC to
confirm the absence of a presumption of confidentiality in proceedings. Their
shared position states that “[n]othing in the NAFTA imposes a general duty of
confidentiality on the disputing parties” and represents a commitment of the
three States to grant free access to documents with limited exceptions.175
At the same time, there were calls to make NAFTA Chapter Eleven
proceedings more open to the public and to allow for participation by nondisputing parties as amici. In particular, non-governmental organizations
supported access to investor-State arbitral proceedings and third-party
participation, stressing the public nature of the issues at stake in many of the
arbitrations (e.g. the environment, safety, and health).176 Initially, Mexico argued
that the Chapter Eleven process represented a negotiated balance between
different legal systems and that by granting participatory rights to third parties,
amici “would have greater rights than the NAFTA Parties themselves.”177 Until
7 October 2003, the participation of non-disputing parties was decided on
an ad hoc basis by tribunals without any guidelines. Guidance issued by the
Sykes, supra note 142, at 634.
NAFTA Chapter Eleven Notes, supra note 114.
176
See, e.g., Howard Mann, Int’l Inst. Sust. Dev. & World Wildlife Fund, Private Rights, Public
Problems: A Guide to NAFTA’s Controversial Chapter on Investor Rights (Int’l Instit. Sust. Dev.
& World Wildlife Fund, 2001).
177
Methanex v. United States, UNCITRAL (NAFTA), Mexico Submission in Relation to Petitions to
File Amicus Curiae Briefs (10 November 2000).
174
175
260
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
FTC on 7 October 2003 affirmed the right of tribunals to allow non-disputing
parties to participate as amici and recommended procedures by which such
petitions could be made to tribunals.178 Notably, it has also been applied by
non-NAFTA tribunals and is similar to the 2006 revision of ICSID Arbitration
Rule 37.179
The NAFTA Parties also made a clear commitment to actively seek open
hearings in cases against them.180 Allowing public access to all proceedings,
submissions, and decisions, and providing for open hearings, has enhanced
understanding of the Chapter Eleven process. This development has also been
partially mirrored by ICSID, in its 2006 rules revising ICSID Arbitration Rule
32 and authorizing tribunals to allow third parties to attend or observe oral
hearings if none of the parties to the proceedings object.
Amici have intervened in, at least, Methanex,181 UPS,182 Glamis Gold,183 and
Grand River.184 While Methanex became a landmark case due to its recognition
of civil society participation in investor-State arbitration,185 these four cases
178
NAFTA Free Trade Commission, Statement of the Free Trade Commission on non-disputing
party participation, (7 October 2003), available at http://www.international.gc.ca/trade-agreementsaccords-commerciaux/assets/pdfs/Nondisputing-en.pdf.
179
News Release, ICSID, Amendments to the ICSID Rules and Regulations (5 April 2006), available
at http://icsid.worldbank.org. See also Suez, Sociedad General de Aguas de Barcelona, S.A., and Vivendi
Universal S.A. v. The Argentine Republic, ICSID Case No. ARB/03/19, Order in Response to a Petition
for Transparency and Participation as Amicus Curiae (19 May 2005) and Biwater Gauff (Tanzania) Ltd. v.
United Republic of Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 5 (2 February 2007).
180
The United States and Canada announced their consent to open public hearings at all Chapter
Eleven proceedings following the 2003 FTC Meeting. See NAFTA Free Trade Commission, Joint
Statement, Celebrating NAFTA at Ten (7 October 2003), available at http://www.international.gc.ca/
trade-agreements-accords-commerciaux/agr-acc/nafta-alena/statement.aspx?lang=en. Mexico announced
its support for open hearings at the following FTC Meeting. See NAFTA Free Trade Commission, Joint
Statement, Decade of Achievement (16 July 2004), available at http://www.international.gc.ca/tradeagreements-accords-commerciaux/agr-acc/nafta-alena/js-sanantonio.aspx?lang=en.
181
Methanex v. United States, UNCITRAL (NAFTA), Petition for Amicus Standing of the
International Institute for Sustainable Development (25 August 2000), available at http://www.naftalaw.
org/disputes_us_methanex.htm.
182
United Parcel Service of America Inc. v. Canada, UNCITRAL (NAFTA), Application for Amicus
Status of the Canadian Union of Postal Workers and the Council of Canadians (20 October 2005),
Application for Leave to File Submissions as Amicus Curiae of the United States Chamber of Commerce
(20 October 2005), and Letter of the Candian Union of Postal Workers and the Council of Canadians
Responding to UPS’s Observations Concerning Application for Amicus Curiae standing (3 November
2005), available at http://www.naftalaw.org/disputes_canada_ups.htm.
183
Glamis Gold Ltd. v. United States, UNCITRAL (NAFTA), Quechan Indian Nation Application
for Leave to File a Non-Party Submission (19 August 2005), available at http://www.naftaclaims.com/
disputes_us_glamis.htm.
184
Grand River Enterprises, Six Nations, Ltd., et al. v. United States, UNCITRAL (NAFTA), Amicus
Curiae Submission of the Office of the National Chief of the Assembly of Nations (19 August 19 2005),
available at http://www.state.gov/documents/organization/117812.pdf.
185
Sandford E. Gaines, Methanex Corp. v. United States, 100 Am. J. Int’l L. 683, 689 (2006).
NAFTA Chapter Eleven at Fifteen261
together are insufficient to measure the influence of amicus participation in
NAFTA proceedings.
4. Participation by a Party to NAFTA
Another innovative procedural tool of NAFTA is the provision allowing
non-respondent State Parties to make submissions to a tribunal “on a question of
interpretation of th[e] Agreement.”186 Chapter Eleven tribunals have recognized
that this Article confers an absolute right on the non-disputing State Parties to
intervene on questions of interpretation and that it is not merely a matter for
the discretion of the tribunal in an individual case.187
This procedural feature allows the State Parties to NAFTA to address
interpretation of the Agreement during the adjudication process. More than
fifty Article 1128 submissions have been made in at least 18 cases, involving the
interpretation of a number of substantive and procedural questions. There has
been a tendency among the Parties to NAFTA to agree in their submissions.
However, this has not always been the case. For example, in Methanex, Mexico
disagreed with Canada and the United States regarding the participation of
amicus curiae in Chapter Eleven disputes.188
Article 1128 submissions have guided tribunals on various points of
interpretation. For example, after reviewing the NAFTA Parties Article 1128
submissions and the submission of the respondent United States, the Tribunal
in Glamis concluded that “the NAFTA State Parties agree that, at a minimum,
the fair and equitable treatment standard is that as articulated in Neer.”189 In the
Canadian Cattlemen case, the Tribunal considered the consistent position of the
NAFTA State Parties as “suggestive of something approaching an agreement”
but not a subsequent agreement, nor a binding interpretation of the Agreement.
In other words, the concurrence of the three NAFTA Parties on a particular
NAFTA, supra note 4, at Art. 1128.
ADF Award, supra note 56. Cf. Pope & Talbot Award, supra note 31, at para. 17.
188
Methanex v. United States, UNCITRAL (NAFTA), Submission of Cananda in Response to Request
for Amicus Curiae Status (10 November 2000), Mexico Submission in Relation to Petitions to File Amicus
Curiae Briefs (10 November 2000), and Statement of Respondent United States in Response to Canada’s
and Mexico’s Submissions Concerning Petitions for Amicus Curiae Status (22 November 2000), available
at http://www.naftalaw.org/disputes_us_methanex.htm.
189
Glamis Award, supra note 118, at para. 612 (citing ADF Group Inc. v. United States, ICSID Case
No. ARB (AF)/00/1 (NAFTA), Second Article 1128 Submission of Mexico (22 July 2002), at 15, quoting
Pope & Talbot, supra note 28, Post-Hearing Article 1128 Submission of Mexico (Damages Phase) (3
December 2001), at para. 8, quoting Pope & Talbot Inc. v. Canada, UNCITRAL (NAFTA), Respondent
Canada’s Counter-Memorial (Phase 2) (18 August 2001), at para. 309). The Tribunal did not identify
where in its pleadings (written or oral) the United States adopted such a position.
186
187
262
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
point does not reach the level of an agreement, but can be highly persuasive to
a tribunal.190
This interesting procedural feature has been reproduced in other agreements
such as the United States-Central America-Dominican Republic Free Trade
Agreement.191 The experience under NAFTA has also been invoked in sectorspecific arrangements, such as the Energy Charter Treaty, for authority to permit
access by supra-governmental bodies as third-party interveners in investment
arbitration.192
5. Consolidation Process for Chapter Eleven Claims
A further procedural feature of NAFTA Chapter Eleven is the consolidation
process in Article 1126.193 This is a groundbreaking provision whereby the
treaty established specific rules allowing for consolidation of common issues of
fact or law raised in two or more NAFTA arbitrations.
Article 1126 allows any disputing party to seek an order for consolidation,
which is then decided by a specially constituted consolidation tribunal and
not by the tribunal hearing the individual arbitrations. The word “may” in the
first sentence of Article 1126(2) makes it clear that whether to consolidate is a
discretionary decision of the consolidation tribunal. This discretion is exercised
in a two-step process: first, the consolidation tribunal determines whether two or
more claims contain a common question of law or fact. If so, the consolidation
tribunal moves to the second step and analyzes whether consolidation is in the
interest of fair and efficient resolution of the claims.
In the two cases where consolidation tribunals have been called upon
to decide this question, they have weighed the elements of Article 1126
differently.194 In the consolidation request by Mexico in Archer Daniels and
Canadian Cattlemen Award, supra note 64, at para. 187.
United States-Central America-Dominican Republic Free Trade Agreement (28 January 2004), 43
I.L.M. 514 (2004) [hereinafter “U.S.–CAFTA-DR”], at Art. 10.20(2).
192
Luke E. Peterson, European Commission seeks to intervene as amicus curiae in ICSID arbitrations
to argue that long-term power purchase agreements between Hungary and foreign investors are contrary to
European Community Law, 1 Invest. Arb. Rep. 14 (17 September 2008).
193
NAFTA, supra note 4, at Art. 1126(2) (“Where a Tribunal established under this Article is satisfied
that claims have been submitted to arbitration under Article 1120 that have a question of law or fact in
common, the Tribunal may, in the interests of fair and efficient resolution of the claims, and after hearing
the disputing parties, by order: (a) assume jurisdiction over, and hear and determine together, all or part
of the claims; or (b) assume jurisdiction over, and hear and determine one or more of the claims, the
determination of which it believes would assist in the resolution of the others.”).
194
In several cases, the parties have agreed to consolidate voluntarily and no consolidation Tribunal
has been required for constitutions. See, Canadian Cattlemen for Fair Trade v. United States, UNCITRAL
(NAFTA), Procedural Order No. 1 (20 October 2006).
190
191
NAFTA Chapter Eleven at Fifteen263
Corn Products (the HFCS Tax dispute cases), the “Consolidation Tribunal
[was] satisfied that the risk of unfairness to Mexico from inconsistent awards
resulting from separate proceedings [did not] outweigh the unfairness to the
claimants of the procedural inefficiencies that would arise in consolidated
proceedings.”195 The Tribunal added that the consolidation of the claims
would mean “the claimants have to take extraordinary care to avoid revealing
[confidential and proprietary] information to the other,” and, therefore, would
constrain the fair and efficient resolution of the claims within the meaning of
Article 1126.
Subsequently, however, the United States successfully argued for
consolidation of three similar cases brought by Canadian investors (Canfor,
Tembec, Terminal Forest Products) addressing alleged violations of Chapter Eleven.
The consolidation Tribunal held that at least three factors should be considered
in relation to the term “in the interests of fair and efficient resolution of the
claims”: (i) time; (ii) cost; and (iii) avoidance of conflicting decisions.196 The
softwood consolidation Tribunal disagreed with the HFCS tax consolidation
Tribunal on several points, including the proposition that two tribunals could
handle two separate cases more fairly and efficiently than one tribunal where the
two Claimants are direct and major competitors. The softwood consolidation
Tribunal also noted that the risk of inconsistent awards was of greater concern
than the risk of disclosure of confidential information among competitors, and
it therefore consolidated the proceedings.197
6. Revision and Set-Aside Procedures
In ICSID Convention arbitrations, parties can request the annulment of
ICSID arbitral awards by an ad hoc committee appointed by the Chairman of
the Centre’s Administrative Council. Annulment under the ICSID Convention
has not been available under NAFTA because neither Mexico nor Canada is a
Party to the ICSID Convention.198
All NAFTA proceedings to date have taken place under the Additional
Facility Rules of ICSID or the UNCITRAL Arbitration Rules. Under these
rules, any review of an arbitral award must take place in the domestic courts of
195
See Corn Products Int’l, Inc. v. Mexico, ICSID Case No. ARB(AF)/04/1 (NAFTA), and Archer
Daniels Midland Co. and Tate & Lyle Ingredients Americans, Inc. v. Mexico, ICSID Case No. ARB(AF)/04/5
(NAFTA), Consolidation Tribunal Award Rejecting Consolidation (20 May 2005), at para. 16.
196
See Canfor et al. v. United States, supra note 49, Order of the Consolidation Tribunal (7 September
2005).
197
Id., at para. 222.
198
ICSID, List of Contracting States and Other Signatories of the Convention, available at http://
icsid.worldbank.org.
264
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
the place of arbitration, which must be in the territory of one of the NAFTA
Parties, unless the disputing parties agree otherwise.199
The first set-aside petition was filed in the Superior Court of British
Columbia in Vancouver, British Columbia following the Metalclad Award.
However, British Columbia (B.C.) had two potentially applicable regimes
for the review of awards, with different standards of review: the International
Commercial Arbitration Act (“ICAA”) based on the UNCITRAL Model
Law,200 and the Commercial Arbitration Act (“CAA”), a statute that allowed for
review based on errors of law.
In its petition, Mexico, supported by the government of Canada as
intervener, argued that the CAA was applicable because the relationship
between the parties to the arbitration was “regulatory” and not “commercial”
as understood by the ICAA. Metalclad, on the other hand, maintained that
the more restrictive ICAA applied, to the exclusion of the CAA, because the
relationship arose out of investment and was therefore of a commercial nature
for the purpose of the ICAA.
The B.C. Court decided that “[t]he term ‘commercial’ should be given a
wide interpretation so as to cover matters arising from all relationships of a
commercial nature.”201 The Court found that investing fit within the definition
of “commercial” and therefore “the primary relationship between Metalclad
and Mexico was one of investing and the exercise of a regulatory function by
the Municipality was incidental to that primary relationship.”202 Ultimately,
the B.C. Court found that the Tribunal had acted outside the scope of the
submission to arbitration “because there are no transparency obligations
contained in Chapter Eleven.”203
There have been no set-aside proceedings in Mexico and only three setaside proceedings have taken place in U.S. courts (Loewen, Thunderbird and
Tembec). In these cases, the U.S. courts have consistently applied the Federal
Arbitration Act (“FAA”) to the NAFTA awards in which the United States
was the seat of arbitration. In the set-aside petition in Loewen, both disputing
199
Ian Laird and Rebecca Askew, Finality Versus Consistency: Does Investor-State Arbitration Need An
Appellate System?, 7 J. App. Prac. & Process 285, 287 (2005).
200
UNCITRAL Model Law on International Commercial Arbitration, U.N. Doc. A/40/17 (as
amended 2006), available at http://www.uncitral.org/pdf/english/texts/arbitration/ml-arb/07–86998_
Ebook.pdf. The Model Law points to among others, the following grounds for refusing recognition or
enforcement of awards: (i) incapacity of a party; (ii) if a party is unable to present the case; (iii) if the
decision goes beyond the scope of the submission to arbitration; (iv) procedural errors; or (v) the award is
contrary to the public policy.
201
Metalclad Review, supra note 39, at para. 43–49.
202
Id.
203
Id.
NAFTA Chapter Eleven at Fifteen265
parties agreed that Chapter One of the FAA referred to domestic arbitration,
and that the judicial ground of “manifest disregard of the law” set forth the
applicable standard of review for the case. The District Court did not analyze
this question. Instead, it concluded that the application was time-barred
because the petition was not filed within three months of the Award.204
In the softwood lumber disputes, the consolidation Tribunal ordered
Tembec to pay attorney’s fees and costs to the United States. Tembec moved to
set aside the cost Award. The U.S. Court dismissed the motion on grounds of
res judicata and collateral estoppel.205
In Thunderbird, the U.S. Court confirmed the Award, including the
assessed costs and fees and standard of proof asserted by the Tribunal.
The Court found that the Tribunal’s Award was not rendered in manifest
disregard of the law “[b]ecause Thunderbird’s own evidence failed to show a
violation of international law, [and] additional rebuttal evidence was therefore
unnecessary.”206 The Court added that in order for the Court to disturb
the Award, “it would have to be plainly manifest that the Tribunal both (1)
determined that Thunderbird had met its prima facie burden and (2) refused
to require Mexico to overcome the resulting presumption of a violation of
international law.”207
The availability of the set-aside process in domestic courts has raised some
concerns about finality.208 However, it seems safe to say that in the context of
Chapter Eleven, the courts in both the United States and Canada have given a
high degree of deference to arbitral awards.�
204
Raymond L. Loewen v. United States, Case No. 1:04-CV-02151 (RWR), Motion to Vacate and
Remand Arbitration Award (D. D.C., 25 February 2008), available at http://www.state.gov/documents/
organization/45257.pdf.
205
Tembec Review, supra note 50. There is a complicated procedural history beghind this case. For
instance, the U.S. Court first denied the motion in April 2007 given a lack of evidence that the U.S.
government knowingly misled Tembec, and then denied a second Tembec motion, in August 2008, on
grounds of res judicata and collateral estoppel.
206
In the Thunderbird Award, supra note 43, at paragraph 95, the Panel articulated the following rule:
The Tribunal shall apply the well-established principle that the party alleging a
violation of international law giving rise to international responsibility has the burden
of proving its assertion. If said Party adduces evidence that prima facie supports its
allegation, the burden of proof may be shifted to the other Party, if the circumstances
so justify.
207
Thunderbird Review, supra note 44.
208
Laird and Askew, supra note 199, at 293 (concluding that in rejecting the challenges of Mexico
and Canada in the judicial review of both S.D. Myers and Feldman, the Canadian courts unambiguously
confirmed a high degree of deference to arbitral awards).
266
ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
IV. Looking Forward and Conclusions
The relationship of an individual to both its home State and its host State
(in the case of investors) is still evolving in international law, as is the extent
of the rights and obligations that individuals and States enjoy under NAFTA
Chapter Eleven. The architecture of Chapter Eleven has demonstrated an
ability to address such questions in a thorough and systemic manner. This
systemic approach is not only a consequence of the substantive and procedural
features of Chapter Eleven but also reflects the quality of arbitrators and
counsel participating in the disputes. A testament to the soundness of this
approach is that Canada, Mexico and the United States have all negotiated
post-NAFTA BITs and FTAs with partners around the world.209 Many
elements of NAFTA Chapter Eleven have found their way into the text of
these agreements. In particular, the U.S. Model BIT and the Canadian Model
FIPA, the starting points for investment negotiations for these States, are
very similar to NAFTA Chapter Eleven with some modifications to account
for case experience under Chapter Eleven.210 Mexico’s current practice
in investment treaties also contains similar clarifications derived from the
NAFTA experience.211
The NAFTA example may not have been a panacea to solve the complexity
of the trilateral interactions. However, as was pointed out some years ago,
NAFTA has “helped the management of Canadian, Mexican and U.S. relations
[since] agreed rules and not power politics, has determined the outcomes.”212
This can be observed from the preference for using trade and investment
mechanisms, compliance with the outcomes by the three States in all the cases,
and continuous participation of the Parties in the disputes.
209
See, e.g. U.S.–Uruguay BIT signed on 7 September 2004; U.S.–Australia Free Trade Agreement
signed on 1 March 2004; U.S.–Chile Free Trade Agreement signed on 6 June 2003; and U.S.–Morocco
Free Trade Agreement signed on 15 June 2004.
210
According to Foreign Affairs and International Trade Canada, http://www.international.gc.ca,
“[i]n 2003, Canada updated its FIPA model to reflect, and incorporate the results of, its growing
experience with the implementation and operation of the investment chapter of the NAFTA.” Also,
the U.S. Model BIT is under revision by the U.S. Department of State and the Office of the U.S. Trade
Representative. The 2004 version of the U.S. Model BIT has incorporated the FTC Note as well. See
U.S. Model BIT, supra note 5, at Art. 5.
211
For example, the Agreement between Japan and Mexico for the Strengthening of the Economic
Partnership (September 2004), available at http://www.mofa.go.jp/region/latin/mexico/agreement/
agreement.pdf, at Article 60 (General Treatment), also reflects the FTC interpretative note on Article
1105 of NAFTA: “This Article prescribes the customary international law minimum standard of
treatment of aliens as the minimum standard of treatment to be afforded to investments of investors of
the other Party.”
212
Gustavo Vega C. & Gilbert R. Winham, The Role of NAFTA Dispute Settlement in the Management
of Canadian, Mexican and U.S. Trade and Investment Relations, 28 Ohio N. U. L. Rev. 651 (2002).
NAFTA Chapter Eleven at Fifteen267
Most importantly, in practice, the first fifteen years of NAFTA have
influenced the development of investment arbitration toward a more open
method of resolving international investment disputes. This contribution to
investment dispute settlement is Chapter Eleven’s main legacy and has been
facilitated by the incorporation of novel procedural provisions considered
ground-breaking at the time it was signed. Looking forward, Chapter Eleven
will continue to be a benchmark for the design of other investment treaties,
while decisions, awards and pleadings applying Chapter Eleven will inform the
complex and growing BIT jurisprudence.