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Nationality Planning – How Corporates and Zones
Can Benefit From Investment Treaties
John W. Boscariol
Partner, McCarthy Tétrault LLP, Toronto, Canada
Day 1 - 5th June 2007
2nd INTERNATIONAL BRIEFING & FORUM
with WORLD CUSTOMS ORGANISATION
5th & 6th June 2007
World Customs Organisation Headquarters Building
Rue du Marché 30, Brussels 1210, Belgium
Overview
• strategic use of trade and investment
agreements
• benefiting from foreign investment
protection agreements or bilateral
investment treaties (BITs)
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 1
International Trade and Investment
Agreements
• multilateral agreements
• agreements of the World Trade Organization
• regional agreements
• North American Free Trade Agreement
• Energy Charter
• FTAs
• bilateral agreements
• bilateral investment treaties
• FTAs
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 2
Why do these agreements matter?
• expanding obligations and benefits
• enforcement and dispute settlement
mechanisms
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 3
Role in Strategic Decision-Making Process
• due diligence mechanism for positive and
negative impact on organization
• benefits of participation
• identifying market opportunities
• addressing market access and competitive
issues
• preparing for negative impact
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 4
Role in Strategic Decision-Making Process
(cont’d)
• opportunities for participation in the process
• negotiation of trade and investment agreements
• enforcement and dispute resolution
• government-to-government
• U.S. “Section 301” mechanism
• EU Trade Business Regulation
• Foreign Affairs and International Trade Canada
• private investor-state mechanism
• bilateral investment treaties
• NAFTA Chapter 11
• investment chapters of other FTAs
• retaliation consultations
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 5
Investment Protection Treaties –
Key Trends
• first BIT signed in 1959 (Germany – Pakistan)
• by 1990, 385 BITs signed
• by 2005, 2,495 BITs signed
• BIT claims
• negligible in early 1990s
• now at 255 (cumulative)
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 6
Investment Protection Treaties –
Key Trends (cont’d)
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 7
Investment Protection Treaties –
Key Trends (cont’d)
• target countries for BIT claims:
Total: 255
November 2006
Source: UNCTAD
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 8
Investment Protection Treaties –
Key Trends (cont’d)
• target countries for BIT claims
• 63% developing countries
• 18% developed countries
• 17% southeast Europe and CIS countries
• target sectors for BIT claims
• 42% services (electricity distribution, telecom, debt
instruments, water, waste management)
• 29% primary sector (mining, oil and gas exploration
activities)
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 9
Investment Protection Treaties –
Key Elements
• private investor-dispute settlement mechanism
• investors may sue host country government for losses
or damages arising from a breach of the investment
treaty
• submission of claim before arbitral tribunal under
• United Nations Commission on International Trade Law
(UNCITRAL) Arbitration Rules
• International Centre for Settlement of Investment Disputes
(ICSID) Convention
• Additional Facility Rules of ICSID
• other arbitration rules
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 10
Investment Protection Treaties –
Key Elements (cont’d)
• basic investor protection obligations
• national treatment
• most-favoured-nation treatment
• fair and equitable treatment (minimum
standard)
• performance requirements
• transfers
• expropriation and compensation
• potential carve-outs or limitations
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 11
Investment Protection Treaties –
Key Elements (cont’d)
•
national treatment
1. Each Party shall accord to investors of the other Party treatment no less
favourable 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.
2. Each Party shall accord to covered investments treatment no less favourable
than that it accords, in like circumstances, to investments of its own investors
with respect to the establishment, acquisition, expansion, management,
conduct, operation and sale or other disposition of investments in its territory.
3. The treatment accorded by a Party under paragraphs 1 and 2 means, with
respect to a sub-national government, treatment no less favourable than the
treatment accorded, in like circumstances, by that sub-national government to
investors, and to investments of investors, of the Party of which it forms a part.
Source: Canada Model BIT (2004), Article 3.
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 12
Investment Protection Treaties –
Key Elements (cont’d)
• most-favoured-nation treatment
1 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.
2. Each Party shall, accord to covered investments treatment no less
favourable than that it accords, in like circumstances, to investments of
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.
Source: Canada Model BIT (2004), Article 4.
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 13
Investment Protection Treaties –
Key Elements (cont’d)
• fair and equitable treatment (minimum
standard of treatment)
1. Each Party shall accord to covered investments treatment in accordance
with the customary international law minimum standard of treatment of
aliens, including fair and equitable treatment and full protection and
security.
2. The concepts of "fair and equitable treatment" and "full protection and
security“ in paragraph 1 do not require treatment in addition to or
beyond that which is required by the customary international law
minimum standard of treatment of aliens.
3. A determination that there has been a breach of another provision of
this Agreement, or of a separate international agreement, does not
establish that there has been a breach of this Article.
Source: Canada Model BIT (2004), Article 5.
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 14
Investment Protection Treaties –
Key Elements (cont’d)
• performance requirements
1. Neither Party may impose or enforce any of the following requirements, or
enforce any commitment or undertaking, in connection with the establishment,
acquisition, expansion, management, conduct or operation of an investment of
an investor of a Party or a non-Party in its territory:
(a)
to export a given level or percentage of goods;
(b)
to achieve a given level or percentage of domestic content;
(c)
to purchase, use or accord a preference to goods produced or
services provided in its territory, or to purchase goods or
services from persons in its territory;
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 15
Investment Protection Treaties –
Key Elements (cont’d)
• performance requirements (cont’d)
(d)
to relate in any way the volume or value of imports to the
volume or value of exports or to the amount of foreign
exchange inflows associated with such investment;
(e)
to restrict sales of goods or services in its territory that such
investment produces or provides by relating such sales in any
way to the volume or value of its exports or foreign exchange
earnings;
(f)
to transfer technology, a production process or other
proprietary knowledge to a person in its territory, except
when the requirement is imposed or the commitment or
undertaking is enforced by a court, administrative tribunal or
authority, to remedy an alleged violation of competition laws
or to act in a manner not inconsistent with other provisions of
this Agreement; or
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 16
Investment Protection Treaties –
Key Elements (cont’d)
• performance requirements (cont’d)
(g)
to supply exclusively from the territory of the Party the goods
it produces or the services it provides to a specific regional
market or to the world market.
2. A measure that requires an investment to use a technology to meet generally
applicable health, safety or environmental requirements shall not be construed
to be inconsistent with paragraph 1(f). For greater certainty, Articles 3 and 4
apply to the measure.
3. Neither Party may condition the receipt or continued receipt of an advantage, in
connection with an investment in its territory of an investor of a Party or of a
non-Party, on compliance with any of the following requirements:
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 17
Investment Protection Treaties –
Key Elements (cont’d)
• performance requirements (cont’d)
(a)
to achieve a given level or percentage of domestic content;
(b)
to purchase, use or accord a preference to goods produced in
its territory, or to purchase goods from producers in its territory;
(c)
to relate in any way the volume or value of imports to the
volume or value of exports or to the amount of foreign
exchange inflows associated with such investment; or
(d)
to restrict sales of goods or services in its territory that such
investment produces or provides by relating such sales in any
way to the volume or value of its exports or foreign exchange
earnings.
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 18
Investment Protection Treaties –
Key Elements (cont’d)
• performance requirements (cont’d)
4. Nothing in paragraph 3 shall be construed to prevent a Party from conditioning
the receipt or continued receipt of an advantage, in connection with an
investment in its territory of an investor of a Party, on compliance with a
requirement to locate production, provide a service, train or employ workers,
construct or expand particular facilities, or carry out research and development,
in its territory.
5. Paragraphs 1 and 3 shall not apply to any requirement other than the
requirements set out in those paragraphs.
6. The provisions of:
(a) Paragraphs (1) (a), (b) and (c), and (3) (a) and (b) shall not
apply to qualification requirements for goods or services with
respect to export promotion and foreign aid programs;
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 19
Investment Protection Treaties –
Key Elements (cont’d)
• performance requirements (cont’d)
(b)
Paragraphs (1) (b), (c), (f) and (g), and (3) (a) and (b) shall
not apply to procurement by a Party or a state enterprise;
and
(c)
Paragraphs (3) (a) and (b) shall not apply to requirements
imposed by an importing Party relating to the content of
goods necessary to qualify for preferential tariffs or
preferential quotas.
Source: Canada Model BIT (2004), Article 7
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 20
Investment Protection Treaties –
Key Elements (cont’d)
• transfers
1. Each Party shall permit all transfers relating to a covered investment to be made
freely, and without delay, into and out of its territory. Such transfers include:
(a)
contributions to capital;
(b)
profits, dividends, interest, capital gains, royalty payments,
management fees, technical assistance and other fees,
returns in kind and other amounts derived from the
investment;
(c)
proceeds from the sale of all or any part of the covered
investment or from the partial or complete liquidation of the
covered investment;
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 21
Investment Protection Treaties –
Key Elements (cont’d)
• transfers (cont’d)
(d)
payments made under a contract entered into by the investor, or the
covered investment, including payments made pursuant to a loan
agreement;
(e)
payments made pursuant to Articles 12 and 13; and
(f)
payments arising under Section C.
2. Each Party shall permit transfers relating to a covered investment to be made in
the convertible currency in which the capital was originally invested, or in any
other convertible currency agreed by the investor and the Party concerned.
Unless otherwise agreed by the investor, transfers shall be made at the rate of
exchange applicable on the date of transfer.
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 22
Investment Protection Treaties –
Key Elements (cont’d)
• transfers (cont’d)
3. Notwithstanding paragraphs 1 and 2, a Party may prevent a transfer through the
equitable, non-discriminatory and good faith application of its laws relating to:
(a)
bankruptcy, insolvency or the protection of the rights of
creditors;
(b)
issuing, trading or dealing in securities;
(c)
criminal or penal offences;
(d)
reports of transfers of currency or other monetary
instruments; or
(e)
ensuring the satisfaction of judgments in adjudicatory
proceedings.
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 23
Investment Protection Treaties –
Key Elements (cont’d)
• transfers (cont’d)
4. Neither Party may require its investors to transfer, or penalize its investors that
fail to transfer, the income, earnings, profits or other amounts derived from, or
attributable to investments in the territory of the other Party.
5. Paragraph 4 shall not be construed to prevent a Party from imposing any measure
through the equitable, non-discriminatory and good faith application of its laws
relating to the matters set out in subparagraphs (a) through (e) of paragraph 3.
6. Notwithstanding the provisions of paragraphs 1, 2 and 4, and without limiting the
applicability of paragraph 5, a Party may prevent or limit transfers by a financial
institution to, or for the benefit of, an affiliate of or person related to such
institution, through the equitable, non-discriminatory and good faith application
of measures relating to maintenance of the safety, soundness, integrity or
financial responsibility of financial institutions.
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 24
Investment Protection Treaties –
Key Elements (cont’d)
• transfers (cont’d)
7. Notwithstanding paragraph 1, a Party may restrict transfers in kind in
circumstances where it could otherwise restrict transfers under the WTO
Agreement and as set out in paragraph 3.
Source: Canada Model BIT (2004), Article 14
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 25
Investment Protection Treaties –
Key Elements (cont’d)
• expropriation and compensation
1. Neither Party shall nationalize or expropriate a covered investment either
directly, or indirectly through measures having an effect equivalent to
nationalization or expropriation (hereinafter referred to as "expropriation"),
except for a public purpose, in accordance with due process of law, in a nondiscriminatory manner and on prompt, adequate and effective compensation.
2. Such compensation shall be equivalent to the fair market value of the
expropriated investment immediately before the expropriation took place (“date
of expropriation”), and shall not reflect any change in value occurring because
the intended expropriation had become known earlier. Valuation criteria shall
include going concern value, asset value including declared tax value of tangible
property, and other criteria, as appropriate, to determine fair market value.
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 26
Investment Protection Treaties –
Key Elements (cont’d)
• expropriation and compensation (cont’d)
3. Compensation shall be paid without delay and shall be fully realizable and freely
transferable. Compensation shall be payable in a freely convertible currency and
shall include interest at a commercially reasonable rate for that currency from
the date of expropriation until date of payment.
4. The investor affected shall have a right, under the law of the Party making the
expropriation, to prompt review, by a judicial or other independent authority of
that Party, of its case and of the valuation of its investment in accordance with
the principles set out in this Article.
5. The provisions of this Article shall not apply to the issuance of compulsory
licenses granted in relation to intellectual property rights, or to the revocation,
limitation or creation of intellectual property rights, to the extent that such
issuance, revocation, limitation or creation is consistent with the WTO
Agreement.
Source: Canada Model BIT (2004), Article 17
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 27
Investment Protection Treaties –
Key Elements (cont’d)
• potential carve-outs or limitations
•
•
•
•
•
•
•
•
prudential measures
taxation measures
cultural industries
essential security interests (national security)
government procurement
subsidization programs
protection of human, animal or plant life or health
conservation of living or non-living exhaustible
natural resources
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 28
Key Jurisdictional Issues in Benefiting
from a BIT
• in addition to the substantive protections
• when considering potential locations …
• ensuring that investment treaty protections
apply
• assessing the strength of those protections
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 29
Key Jurisdictional Issues in Benefiting
from a BIT (cont’d)
• covered investments
• the investor’s interest must be considered an “investment”
subject to the obligations under the BIT
• nationality
• claimant must qualify as “national” of a party to the BIT
• standing may be denied to a national depending on the
nationality of those who own or control it
• opportunities may exist for investors to change nationality and
rely on provisions of BITs between other countries (Aguas del
Tunari)
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 30
Key Jurisdictional Issues in Benefiting
from a BIT (cont’d)
• time limits
• limitation period may preclude the filing of a BIT claim
• potential application to non-conforming measures in existence
before the BIT came into force
• exhaustion or waiver of local remedies
• investors may be precluded from bringing a claim until remedies
in local court systems have been exhausted
• investors may have to waive right to initiate or continue related
domestic proceedings before submitting claim
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 31
Key Jurisdictional Issues in Benefiting
from a BIT (cont’d)
• governing law
• some BITs provide that the governing law is the law of the
jurisdiction in which the investment was made
• others are more general and refer to the BIT and “applicable
rules of international law”
• seat
• the place or seat of arbitration selected by the claimant may
impact the procedural rules of the arbitration and the law
governing the challenge of any award issued by the arbitral
tribunal
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 32
Application to Customs and Trade Issues
• examples of using investment treaties to address harmful
customs and trade measures
• Antoine Goetz and Others v Republic of Burundi
• Burundi’s withdrawal of tax and customs exemptions granted to
companies involved in the extraction and sale of ore considered
to deprive the investor of expected benefits of the investment
• arbitral tribunal required Burundi to either pay compensation
equal to the market value of the investment just before
impugned measure was taken or to reinstate the tax exemptions
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 33
Application to Customs and Trade Issues
(cont’d)
• Pope & Talbot v Canada
• challenge to Canadian authorities’ verification process for
allocation of export quota
• tribunal found that Pope & Talbot was subjected to threats,
denied its reasonable requests for pertinent information, forced
to incur unnecessary expense and disruption in meeting
authorities’ requests for information, forced to expend legal
fees, and suffered a loss of reputation in government circles
• considered to be a denial of fair and equitable treatment and
tribunal awarded damages to Pope & Talbot
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 34
Application to Customs and Trade Issues
(cont’d)
• Marvin Roy Feldman Karpa v United Mexican
States
• an excise tax exemption applied by Mexican
authorities to exported cigarettes was denied to
Feldman who sourced cigarettes from retailers and
exported them out of Mexico
• tribunal awarded damages to Feldman on grounds
that Mexico had violated national treatment
obligations by denying rebates to Feldman’s company
while granting rebates to domestic companies
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 35
Application to Customs and Trade Issues
(cont’d)
• Ethyl Corp. v Canada
• Canadian ban on importation and inter-provincial
transportation of gasoline additive MMT
• challenged as inconsistent with national treatment,
expropriation, and performance requirement
obligations
• settled on payment of $20 million to Ethyl and repeal
of MMT ban
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 36
Application to Customs and Trade Issues
(cont’d)
• S.D. Myers, Inc. v Canada
• claimant challenged Canadian ban on
exportation of PCB waste
• tribunal found that the ban violated Canada’s
national treatment and fair and equitable
treatment obligations, and awarded damages
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 37
Application to Customs and Trade Issues
(cont’d)
• Doman, Canfor, Tembec, and Terminal Forest
Products v United States
• Canadian lumber companies challenging application of
the United States of anti-dumping and countervailing
duties on Canadian softwood lumber
• alleging violation of U.S. national treatment, fair and
equitable treatment, performance requirement, and
expropriation obligations
• pending
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 38
Application to Customs and Trade Issues
(cont’d)
• Canadian Cattlemen for Fair Trade v United
States
• Canadian cattlemen and feedlot owners seeking
compensation for U.S. ban on importation of live
cattle after discovery of a case of BSE
• alleging violation of national treatment obligations
• pending
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 39
Application to Customs and Trade Issues
(cont’d)
• Sun Belt v Canada
• U.S. water company challenging moratorium by British Columbia
on bulk water exports from Canada
• Corn Products International, Inc. v United Mexican
States
• Mexican tax on soft drinks containing high fructose corn syrup
challenged on grounds of violating national treatment
obligations, prohibition on performance requirements, and
prohibition against indirect expropriation without compensation
• pending
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 40
Application to Customs and Trade Issues
(cont’d)
• Merrill & Ring Forestry L.P. v Canada
• challenge of export restrictions on timber harvested
from private lands in British Columbia
• alleged violation of national treatment, mostfavoured-nation treatment, fair and equitable
treatment, expropriation and compensation,
performance requirement obligations
• pending
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 41
Application to Customs and Trade Issues
(cont’d)
• GL Farms LLC and Carl Adams v Canada
• challenge to restrictions on exportation of
milk to the United States
• alleging violation of national treatment and
fair and equitable treatment obligations
• pending
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 42
Conclusion
• when deciding location of operations and
facilities …
• political climate
• taxation regime
• environmental and labour laws
• customs and trade regime
• available investment protection, including BITS
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 43
Conclusion (cont’d)
• incorporating investment treaties and
international trade agreements into the
organization’s strategic decision-making
process and due diligence
John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group
Slide 44
John W. Boscariol
Partner
McCarthy Tétrault LLP
Suite 4700
Toronto Dominion Bank Tower
Toronto-Dominion Centre
Toronto, Ontario M5K 1E6
www.mccarthy.ca
Direct Line: 416-601-7835
E-mail: [email protected]