Transcript Diapositiva 1

International Investment
Agreements: Recent Trends in
Investor-State Case Law and Treaty
Negotiation
Key Substantive Disciplines: National
Treatment, MFN and Minimum
Standard of Treatment
Roberto Echandi
Taipei, March, 2011
Presentation Outline
• Non discrimination
– National Treatment
– Most Favoured Nation (MFN) Treatment
• Minimum Standard of Treatment
– Fair and equitable treatment
– Full protection and security
Non-discrimination:
National Treatment
• Standard entails that investment or investors
of a Contracting Party are entitled to a
treatment by the other Contracting Parties
which is no less favourable than the treatment
the latter grant to their own investments or
investors.
National Treatment
• Conventional, not customary obligation
• Wording and scope varies among different IIAs
– Not included (numerous IIAs)
– « Best efforts » clause to grant NT (e.g. APEC)
– NT principle subject to domestic law (e.g. BIT between Hong Kong-China
and New Zealand)
– Legally binding NT principle (the most common approach; e.g. BITs,
NAFTA, Taiwan and U.S. FTAs)
• Content, “de facto” and “de jure”
• “Like circumstances”
• Application in federal systems of government
National Treatment:
ISDS Experience
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Sequential analysis:
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Identification of the subjects for comparison
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Comparison of treatment of the foreign investor with that of the domestic investor
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Same business or economic sector (Pope & Talbot vs. Canada, S.D. Myers vs. Canada)
“like in all relevant aspects except nationality or ownership” (Methanex vs. U.S.)
“It is possible for two investors to be in the same sector or to be in competition and nontheless be
quite unlike in respect of some characteristic critical to a particular treatment” (UPS vs. Canada)
Some tribunals have determined the comparators exclusively based on the measure challenged
(Occidental vs. Ecuador)
Adverse effect, de jure or de facto, demonstration of discriminatory intent is neither necessary nor
sufficient to find a breach of the standard (Feldman vs. Mexico, Siemens AG. vs. Argentina)
Whether foreign and domestic investors are in “like circumstances”
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Once a difference in treatment has been found, it is left to the tribunal whether investors or
investments are in “like circumstances”
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Pope & Talbot (subsequently followed by most NAFTA related cases)
“Differences in treatment will presumptively violate Article 1102(2), unless they have a reasonable
nexus to rational government policies that (1) do not distinguish, on their face or de facto, between
foreign-owned and domestic companies, and (2) do not otherwise unduly undermine the
investment liberalizing objectives of NAFTA”
Exceptions/Reservations to
the NT Principle
• General exceptions
– Public order or national security (e.g. Taiwan FTAs, BIT between Japan
and Korea);
– Prudential measures (e.g. Canadian model BIT);
– Essential security interests (e.g. BIT between Australia and India);
– Protection of health and the environment (e.g. BIT between Armenia and
Canada)
• Subject-specific exceptions
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Prudential measures;
Incentives;
Public procurement;
Cultural industries;
Special establishment formalities;
Taxation (taxation treaties only or all taxation matters except expropriation)
• Country-specific reservations
– Related to the right of establishment
Non-discrimination:
MFN
• Standard entails that investment or investors of a
Contracting Party are entitled to a treatment by the
other Contracting Parties which is no less
favourable than the treatment the latter grants to
investments or investors of any other third State
MFN: Rationale and Effects
• Links IIAs by ensuring that each Contracting Party grants
investments and/or investors the best treatment granted to
any other investments/investors of any other country
– Impact in terms of harmonization of norms and
disciplines
– Levels the playing field in international negotiations
– Conventional, not customary obligation
– Important for smaller countries
MFN: Rationale and Effects
• Countries tend to have several IIAs which differ in their
contents
• With more than 3.000 IIAs, practical impact of MFN can be
significant
• MFN can lead to obligations applying to different contexts
than originally envisaged by the Contracting Parties
• Countries must fully understand impact of MFN when
negotiating and implementing IIAs
MFN: Main issues
• Issues that often arise in the context of
negotiations of IIAs
• Issues that have arisen in the context of
investor-State dispute settlement
procedures
MFN: Main Issues
• Issues that often arise in the context of
negotiations of IIAs
– Scope
• Regarding pre or post establishment phase, DTTs
– Content, “de facto” and “de jure”
– “Like circumstances”
– Application in federal systems of government
– General and subject-specific exceptions/
reservations
MFN: relevant case law
• Scope of MFN and dispute settlement
– Mafezzini v. Spain
– Salini v. Jordan
– Plama v. Bulgaria
• MFN and substantive standards
–
Equity Bhd. v.Chile
MFN and ISDS
• Does MFN applies to dispute settlement
procedures?
• Maffezini vs. Spain; Siemens vs. Argentina
• Broad language used in MFN clause leads to
apply MFN to ISDS procedures
• Limitations:
– Ejusdem generis principle
– Public policy considerations as fundamental conditions
for the acceptance of the agreement
The « ejusdem generis » principle
• MFN clause can only attract matters
belonging to the same subject matter or the
same category of subject as to which the
clause relates
Public policy considerations as fundamental
conditions for the acceptance of the agreement
• Maffezini vs. Spain
“… As a matter of principle, the beneficiary of the
clause should not be able to override public policy
considerations that the Contracting Parties might
have envisaged as fundamental conditions for
their acceptance of the agreement in question,
particularly if the beneficiary is a private
investor…”
MFN Issues: Dispute Settlement
• Salini vs. Jordan; Plama vs. Bulgaria
• Cases where tribunals rejected to “import” other ISDS from
other BITs
• Salini:
– Situation is different from Maffezini
– BIT explicitly refers to domestic forum
– MFN clause does not apply to “all matters covered by the agreement”
• Plama:
– Agreement to arbitrate must be clear and unambiguous, and cannot
incorporated by reference to another IIA unless parties explicitly state
otherwise
– How can it be determined which ISDS is more favourable?
• Suez/AWG v. Argentina follows Maffezini and Siemens
MFN and Other Standards:
ISDS Practice
• MFN and Fair and Equitable Treatment Standard
• MTD Equity Bhd v. Chile
• Article 3.1 of the BIT between Chile and Malaysia:
“Investments made by investors of either Contracting Party
in the territory of the other Contracting Party shall receive
treatment which is fair and equitable, and not less
favourable than that accorded to investments made by
investors of any third State.”
MFN and Other Standards:
ISDS Practice
• MTD Equity Bhd v. Chile
– Tribunal imports provisions from other BITs negotiated
by Chile
– Fair and Equitable Treatment standard must be
interpreted in the manner most conducive to fulfill
objective of the BIT
– BIT has exceptions from MFN principle, and does not
exclude Fair and Equitable Treatment Standard
– A contrario sensu, other matters that can be construed
to be part of the fair and equitable treatment of investors
would be covered by the clause
MFN Implications…
• Recent ISDS jurisprudence has shown that the
particular wording of MFN provisions does matter,
and can lead to very different outcomes in the
application of IIAs
• MFN can be an useful intrument to level the
playing field:
– Externally, among countries with different
bargaining power
– Internally, leading to a single foreign investment
policy
• Risk of “treaty shopping”
Minimum Standard of Treatment
• Historical origin: customary international law
– State responsibility for the protection of aliens and their
property
– ICL results from a general and consistent practice of
States that they follow from a sense of legal obligation.
• 1926, “General Claims Commission”
– Neer and Roberts cases
• Principles tend to be bundled:
– Fair and Equitable Treatment
– Full Protection and Security
Minimum Standard of Treatment
In order to generate international
responsibility the treatment of an alien must
represent such an abuse, or bad faith, or a
deliberate failure to comply with a duty that
any reasonable and impartial person clearly
recognizes it
(Neer Case)
Minimum Standard of Treatment
• Absolute standard: detached from host country’s domestic
legislation
• Implication: National Treatment for aliens is not enough
• 1960s-1970s, developing countries demand the
establishment of a New International Economic Order
• Existence of Minimum Standard of Treatment under ICL
subject of controversy
• 1990s, trend: standard becomes part of numerous bilateral
investment agreements
Minimum Standard of Treatment:
Full Protection and Security
• Standard traditionally applied to foreign investors in
periods of insurrection, civil unrest and other public
disturbances, although not explicitly limited to these
circumstances
• Obligation of conduct, not obligation of results
• Obligation of good faith efforts to protect the foreign-owned
property, without special regard to resources available to
do so
• “due diligence” standard
Minimum Standard of Treatment:
Fair and Equitable Treatment
• Lacks precise meaning
• Not an obligation of results
• Obligation of conduct
– Reasonable protection
– Access to review, access to the courts
– Access to police protection
Fair and Equitable Treatment:
Why such controversy?
• IIAs with various wordings
– Semantic interpretation
– Historical interpretation linked to ICL
– Application of Article 1105 NAFTA
• Content of the standard
– Linked to international law or ICL?
– Whether a violation of any obligation of an IIA
entails a violation of the standard
Experience under NAFTA
“Article 1105: Minimum Standard of
Treatment
1. Each Party shall accord to investments of
investors of another Party treatment in
accordance with international law, including
fair and equitable treatment and full
protection and security. “
Experience under NAFTA and
other IIAs
• Different cases
– Metalclad
• Mexico violated transparency obligations in NAFTA
• Award set aside by Supreme Court of British Columbia
– SD Myers
• Violation found on the basis of NT violation
– Pope & Talbot
• Fair and Equitable Treatment and Full Protection and Security
concepts that entailed a treatment beyond what required under
international law (“presence of “fairness” elements that are
additive to the requirements of international law)
• Trend to expand application of the standard
• Interpretative note of NAFTA’s Administration Commission
Experience under NAFTA and
other IIAs
• After interpretative note of NAFTA’s Administration
Commission
– Mondev
• “Neer and like arbitral awards were decided in the 1920s… To
the modern eye, what is unfair or inequitable need not to equate
with outrageous or the egregious. In particular, a State may
treat foreign investment unfairly and inequitably without
necessarily acting in bad faith…”
– Waste Management
• The standard is infringed “..if the 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 manifest failure of natural
justice in judicial proceedings or a complete lack of
transparency and candour in an administrative process”
New trends in drafting by some
countries
• Minimum Standard of Treatment
─ Explicit clarification that the obligation undertaken by
the Contracting Parties is to accord covered
investments treatment in accordance with customary
international law
─ Such treatment includes the standards of fair and
equitable treatment and full protection and security
─ The IIAs also define each of these standards
Experience under other IIAs
•
In a series of cases tribunals have held that fair and equitable treatment has a
meaning independent of the minimum standard of treatment.
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Basis for this interpretation: wording of the specific provision with reliance on the
expressed purpose of the IIA, which in most cases is to promote and protect
investments.
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Maffezini vs. Spain
Middle East Shipping v. Egypt
SGS vs. Philippines
Occidental vs Ecuador
Siemens vs. Argentina
Enron vs. Argentina
Some tribunals have applied a somewhat more restrictive approach following
reasoning in Neer and linking standard to customary international law
– Alex Genin vs. Estonia (requires bad faith)
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Other tribunals intepret the FET standard and link it with customary international law but note
that CIL has evolved since the Neer case
• No need for bad faith
• Some awards against Argentina such as CMS
• Convergence between the plain meaning approach and the evolving content of CIL
General features of the FET standard
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Legal standard: does not allow the tribunal to adjudicate ex aequo et bono (according to
what the tribunal considers is fair and equitable) Saluka vs. Czech Republic
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One standard, not two
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No requirement of bad faith or intent to cause injury (CMS vs. Argentina, Azurix vs.
Argentina, Mondev vs. U.S., Lowen vs. U.S.)
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FET requires at least the MST, no less favourable treatment (Sempra vs. Argentina)
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FET standard allows tribunals to assess the process of state decision-making as well as the
substantive fairness of the treatment granted
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FET protects legitimate expectations of the investor of a stable and predictable legal and
administrative framework that meets certain minimum standards, including consistency and
transparency in decision-making, but the analysis must take into account the power of the
States to regulate and the conduct of the investor. Tecmed vs. Mexico, Encana vs. Ecuador,
Saluka vs. Czech Republic, Occidental vs. Ecuador, Waste Management vs. Mexico
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A highly fact and context dependent assessment
Thank you
for your attention
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