International Economic Law in North America: Recent Developments in Dispute Resolution Under Regional Economic Agreements

Reed, Patrick C.

doi:10.1007/978-3-642-23309-8_15

Patrick C. Reed^3,4

Part of the book series: European Yearbook of International Economic Law ((EUROYEAR,volume 3))

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Abstract

This chapter reviews legal developments in regional economic integration in North America, including Central America and the Caribbean, by examining recent dispute resolution decisions under international economic agreements in the region. The chapter finds that these recent decisions represent a modest body of case law. The agreements providing for regional integration in North America are intergovernmental as opposed to supranational, and the region has no centralized or unified adjudicatory body analogous to the European Court of Justice. The dispute resolution processes are used sparingly, resulting in a small number of decided cases, most of which are investment disputes addressed in investor-state arbitrations. Most of the recent decisions make sound contributions to international economic law, and they belie the stereotype that investor-state arbitrations tend to be biased in favor of business interests. But some decisions do not go as far as might be hoped in promoting stability and predictability in the law, the classic goal for dispute resolution in international economic institutions. These disappointing decisions are a minority of the total. They suffer from questionable reasoning or from inconsistency with other decisions on identical issues. Other decisions, while apparently correct under existing law, reveal gaps in the availability of dispute resolution in the regional agreements.

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Notes

1.
Cf. Clarkson, Integration and Disintegration in North America: The Rise and Fall of International Economic Law in One Region, in: Herrmann/Terhechte (eds.), European Yearbook of International Economic Law (2011), pp. 327 et seq. (340) (in last year’s survey for this yearbook, characterizing NAFTA as having little or no “self-sustaining capacity to generate transnational economic norms” or “offset the power of the dominant member while boosting that of smaller ones, as they do in Europe.”).
2.
E.g., id. (contending that NAFTA’s “investor-state dispute settlement panels favoured the strong (transnational investors) over the periphery’s weaker governments.”) (according to Clarkson, somehow Canada is a weaker periphery country); Editorial, The Secret Trade Courts, New York Times, 27th September, 2004, p. 26 (“the arbitration process … is often one-sided, favoring well-heeled corporations ….”).
3.
E.g., Jackson, Sovereignty, the WTO, and Changing Fundamentals of International Law, 2006, p. 89 (“the procedures of rule application, which often center on a dispute settlement procedure, should be designed to promote as much as possible the stability and predictability of the rule system.”); cf. WTO Dispute Settlement Understanding, Art. 3(2) (“dispute settlement … is a central element in providing security and predictability”).
4.
Dunoff, North American Regional Economic Integration: Recent Trends and Developments, in: Herrmann/Terhechte (eds.), European Yearbook of International Economic Law (2010), p. 297.
5.
Canada has bilateral investment treaties in force with Costa Rica, Panama, and Trinidad and Tobago. The United States has bilateral investment treaties in force with Grenada, Panama, and Trinidad and Tobago. Mexico has bilateral investment treaties with Panama and Trinidad and Tobago.
6.
Dunoff, North American Regional Economic Integration: Recent Trends and Developments, in: Herrmann/Terhechte (eds.), European Yearbook of International Economic Law (2010), pp. 297 et seq. (311).
7.
Id.
8.
See Declaration of Commitment of Port of Spain, Fifth Summit of the Americas, 19th April, 2009 (no mention of FTAA); cf. U.S. Trade Representative, 2009 Trade Policy Agenda, March 2009, p. 122 (reporting that FTAA negotiations have remained suspended since 2005) with U.S. Trade Representative, 2010 Trade Policy Agenda, March 2010 (no mention of FTAA).
9.
NAFTA’s Side Agreements on Environmental Matters and Labor Matters also have their own dispute settlement processes, which are outside the scope of this chapter.
10.
For a summary of NAFTA chapter 11 cases through 2004, see Hufbauer/Schott, NAFTA Revisited: Achievements and Challenges, 2005, pp. 224–235.
11.
SCID, ARB/09/12, Pac Rim Cayman LLC vs. El Salvador, Decision on the Respondent’s Preliminary Objections, 2nd August, 2010; ICSID, ARB/07/23, Railroad Development Corp. vs. Guatemala, Second Decision on Objections to Jurisdiction, 18th May, 2010; ISCID, ARB/07/23, Railroad Development Corp. vs. Guatemala, Decision on Objection to Jurisdiction, 17th November, 2008.
12.
NAFTA, Canadian Cattlemen for Fair Trade vs. United States, Award on Jurisdiction, 28th January, 2008.
13.
Id. & 110.
14.
NAFTA, Art. 1101(1).
15.
NAFTA, Art. 1139.
16.
Canadian Cattlemen ¶ 126.
17.
Id. ¶ 127.
18.
ICSID, ARB(AF)/07/3, Anderson vs. Costa Rica, 19th May, 2010.
19.
Id. ¶ 28.
20.
Id. ¶ 46 (quoting Canada-Costa Rica BIT, Art. I(g)) (italics added).
21.
& 53.
22.
Id. ¶ 58.
23.
Id.
24.
Cf. North Carolina, Webb vs. Fulchire, 25 N.C. (3 Ired.) 483 (1843) (ruling, in the context of enforceability of an illegal contract, that “the artless fool, who seems to have been alike bereft of his senses and his money, is not to be deemed a partaker in the same crime, in pari delicto, with the juggling knave, who gulled and fleeced him.”).
25.
Whether the investors would prevail on the merits is another question. There is authority for finding host state liability under international law for egregiously inadequate enforcement of criminal laws. Janes (USA) vs. Mexico, Rep. Int’l Arb. Awards 4 (1926), p. 82.
26.
NAFTA/ICSID, No. ARB(AF)/04/05, Archer Daniels Midland Co. vs. Mexico, Award, 21st November, 2007; NAFTA/ICSID, ARB(AF)/04/01, Corn Products International, Inc. vs. Mexico, Decision on Responsibility, 15th January, 2008. In addition to these two cases, a third NAFTA case, Cargill Inc. vs. Mexico (filed 2005, apparently decided in 2009), challenged the same Mexican taxes, but the Award and all papers in the case after the notice of intent to arbitrate are confidential.
27.
ADM vs. Mexico, ¶¶ 193–213; CPI vs. Mexico, ¶¶ 109–143.
28.
NAFTA, Art. 1102(2) (italics added).
29.
Report of the Panel, Mexico – Tax Measures on Soft Drinks and Other Beverages, WT/DS308/R, 7th October, 2005, aff’d, AB-2005-10, WT/DS308/R/AB, 6th March, 2006) (cited in ADM v. Mexico, ¶ 212, and CPI v. Mexico, ¶¶ 121–122).
30.
In another national treatment claim, the NAFTA tribunal in Merrill & Ring Forestry LP vs. Canada, 30th March, 2010) held that timber companies operating on Canadian federal land in British Columbia were not “in like circumstances” to timber companies operating on provincial land. Although the federal regulatory regime was allegedly more onerous than the corresponding provincial regime, there was no violation of national treatment because all timber companies operating on federal land were treated equally. The decision properly reflects that, in federal systems such as those found in all three NAFTA parties, national treatment does not require federal measures to be consistent with state or provincial measures on the same subject.
31.
The 2001 interpretation is quoted in, e.g., NAFTA, Chemtura Corp. vs. Canada, Award, 2nd August, 2010, ¶ 118.
32.
Rep. Int’l Arb. Awards 4 (1926), p. 60.
33.
Id., p. 61–62.
34.
Rep. Int’l Arb. Awards (1927), p. 282.
35.
Id., pp. 287–288 (ruling that the host state had violated international law where a criminal defendant was not fully informed of the charges against him, the proceeding was unduly delayed, and the hearings in open court lasted only five minutes and were conducted with a lack of seriousness).
36.
ICJ Case, Elettronica Sicula S.p.A. (ELSI) (United States vs. Italy), 1989, p. 76 (¶ 128).
37.
In one case, for example, the investor argued that the standard of customary international law includes good faith, fairness, transparency, protection against arbitrariness and abuse of rights, protection of legitimate expectations, and a secure legal environment. NAFTA, Merrill & Ring Forestry LP vs. Canada, Claimant’s Memorial, 13th February, 2008.
38.
NAFTA, Chemtura Corp. vs. Canada, Award, 2nd August, 2010.
39.
Id. & 123.
40.
Id. & 162.
41.
In addition to the fair and equitable treatment claim in Chemtura, the investor claimed that Canada violated the most-favored-nation treatment clause in NAFTA article 1102. The theory was that Canada was also a party to sixteen bilateral investment treaties whose fair and equitable treatment clauses were more favorable to non-NAFTA investors, since the clauses were not subject to the 2001 NAFTA interpretive note. The tribunal rejected this argument, finding “no facts … that would even come close to … a breach of the [fair and equitable treatment] standard” and no evidence that Canada’s conduct “was in breach of such hypothetical additional measure of protection allegedly afforded by an imported [fair and equitable treatment] clause.” Id. & 236.
42.
NAFTA, Glamis Gold Ltd. vs. United States, Award, 8th June, 2009.
43.
Id. ¶¶ 22 & 616.
44.
Id. ¶¶ 22 & 616.
45.
Id. ¶ 759.
46.
Id. ¶ 761.
47.
Id. ¶ 760 (quoting U.S. Counter-Memorial).
48.
Id. ¶ 761.
49.
Id. ¶ 767.
50.
Id. ¶ 771.
51.
Id. ¶ 774.
52.
NAFTA, Merrill & Ring Forestry LP vs. Canada, Award, 31st March, 2010.
53.
Id. ¶ 201.
54.
Id. ¶ 202.
55.
Id. ¶ 204.
56.
Id.
57.
Id. ¶ 205
58.
Id.
59.
Id. ¶ 209.
60.
Id. ¶ 210.
61.
Id. ¶ 213.
62.
Id. ¶ 219.
63.
Id.
64.
Id. ¶ 227.
65.
Id. ¶ 239.
66.
Cf. Sornarajah, The International Law on Foreign Investment, (2nd ed.) 2004, p. 339 (“Despite brave assertions that the law on the subject of state responsibility has evolved, there has been little demonstration as to … what the content of the law is. … [T]he extent of protection [BITs] create is a matter of uncertainty because of the paucity of jurisprudence and the difficulty of identifying the content of these standards.”).
67.
E.g., Davis, Administrative Law Treatise, Vol. 5, (2nd ed.) 1985, p. 332; Strauss, Administrative Justice in the United States, (2nd ed.) 2002, pp. 335–336; see generally id., pp. 335–386 (scope of judicial review in U.S. administrative law).
68.
Sornarajah, The International Law on Foreign Investment, (2nd ed.) 2004, p. 339.
69.
Chattin vs. Mexico, 4 Rep. Int’l Arb. Awards (1927), pp. 282, 288 (citation omitted).
70.
NAFTA, Merrill & Ring Forestry LP vs. Canada, Award, 31st March, 2010.
71.
NAFTA, Art. 1106(1)(a), (b), (c) & (e).
72.
GATT, Art. XI(1).
73.
WTO Agreement on Trade-Related Investment Measures, Annex ¶ 2(c).
74.
NAFTA/ICSID, No. ARB(AF)/04/05, Archer Daniels Midland Co. vs. Mexico, Award, 21st November, 2007; NAFTA/ICSID, ARB(AF)/04/01, Corn Products International, Inc. vs. Mexico, Decision on Responsibility, 15th January, 2008.
75.
NAFTA, Art. 1106(3)(a) & (b).
76.
NAFTA, Art. 1106(3).
77.
NAFTA, Glamis Gold Ltd. vs. United States, Award, 8th June, 2009.
78.
Id. ¶ 356.
79.
Id. ¶ 357 (citations omitted).
80.
Id. & 360. It was implicit that denial of the plan of operation would have been an expropriation if it had not been reversed.
81.
Id. & 366.
82.
NAFTA, Merrill & Ring Forestry LP vs. Canada, Award, 31st March, 2010.
83.
Id. ¶ 140.
84.
Id. ¶ 143.
85.
Id. ¶ 144.
86.
Id. ¶ 148.
87.
NAFTA, Chemtura Corp. vs. Canada, Award, 2nd August, 2010.
88.
Id. ¶ 242.
89.
Id. ¶¶ 263–264.
90.
News Release, Foreign Affairs and International Trade Canada, Statement on AbitibiBowater Settlement, 24th August, 2010).
91.
NAFTA/ICSID, No. ARB(AF)/04/05, Archer Daniels Midland Co. vs. Mexico, Award, 21st November, 2007; NAFTA/ICSID, ARB(AF)/04/01, Corn Products International, Inc. vs. Mexico, Decision on Responsibility, 15th January, 2008.
92.
CPI vs. Mexico, ¶ 163.
93.
Id. ¶ 161.
94.
Id. ¶ 169.
95.
Id. ¶ 174.
96.
ADM vs. Mexico, ¶ 151.
97.
Id. ¶ 168.
98.
Id. ¶ 171.
99.
Id. ¶ 173.
100.
Id.
101.
NAFTA, Merrill & Ring Forestry LP v. Canada, Award, 31st March, 2010, & 266.
102.
Id. ¶ 257.
103.
Id. ¶ 258.
104.
Id. ¶ 262.
105.
Id. ¶ 264.
106.
Id. ¶ 265.
107.
Id. ¶ 140.
108.
E.g., Recourse to Arbitration by the United States Under Article 22.6 of the DSU, United States – Measures Affecting the Cross-border Supply of Gambling and Betting Services, WT/DS285/ARB, 21st December, 2007 (calculating Antigua’s lost revenue from internet gambling on horseracing in the United States as $21 million).
109.
This commentator also finds puzzling the Merrill tribunal’s statement that since past damages were limited to the three-year limitations period for NAFTA chapter 11 claims, the short time period made the investor’s damages more uncertain. In this commentator’s view, a short period of lost market access should make the proof of damages easier.
110.
See van Harten/Loughlin, Investment Treaty Arbitration as a Species of Global Administrative Law, EJIL 17 (2006), p. 121 (passim & 131–133) (identifying monetary damages as a key feature of investment treaty arbitration).
111.
NAFTA, Pope & Talbot Inc. vs. Canada, Award on Damages, 31st May, 2002.
112.
ICSID, ARB/05/14, RSM Production Corp. vs. Grenada, 13th March, 2009.
113.
Id. ¶ 377.
114.
ICSID, ARB/10/6, Grynberg vs. Grenada, 10th December, 2010. The Grynberg family members were the shareholders of RSM.
115.
Id. ¶ 2.1.1 (quoting ICSID Rule 41(5)).
116.
Id. ¶ 7.1.2. Under collateral estoppel, “a finding concerning a right, question or fact may not be re-litigated (and, thus, is binding on a subsequent tribunal), if, in a prior proceeding: (a) it was distinctly put in issue; (b) the court or tribunal actually decided it; and (c) the resolution of the question was necessary to resolving the claims before that court or tribunal.” Id. ¶ 7.1.1.
117.
Id. ¶ 7.1.8.
118.
Id. ¶ 7.2.1.
119.
Id.
120.
NAFTA, Art. 1902.2.
121.
Id. Art. 1902.3.
122.
NAFTA, No. USA-MEX-2007-1904-01, Stainless Steel Sheet and Strip In Coils From Mexico: 2004/2005 Antidumping Review, 14th April, 2010.
123.
Report of the Appellate Body, AB-2006-2, United States – Laws, Regulations and Methodology for Calculating Dumping Margins (“Zeroing”), WT/DS294/AB/R, 18th April, 2006; Report of the Appellate Body, European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India, WT/DS141/AB/R, 12th March, 2001.
124.
Fed. Cir., 354 F.3d 1334 (2004), cert. denied sub nom. Koyo Seiko Co. vs. United States, 543 U.S. 976 (2004).
125.
Fed. Cir., 502 F.3d 1370 (2007); accord, Fed. Cir., Corus Staal BV vs. U.S. Department of Commerce, 395 F.3d 1343 (2005), cert. denied, 546 U.S.1089 (2006).
126.
NAFTA, No. USA-MEX-2007-1904-01, Stainless Steel Sheet and Strip In Coils From Mexico: 2004/2005 Antidumping Review, 14th April, 2010, p. 20 (Majority Decision).
127.
Id., p. 22.
128.
Id., p. 20; see also id., p. 14 (“The Federal Circuit has confirmed that statutes must be interpreted consistently with international obligations, absent contrary indications in the statutory language or its legislative history.”) (citing Fed. Cir., Federal Mogul Corp. vs. United States, 63 F.3d 1572 (1995)).
129.
Id., p. 22. These cases, which include Timken and Corus, originate with Fed. Cir,, Suramerica de Aleaciones Laminadas, C.A. vs. United States, 966 F.2d 660 (1992).
130.
In fact, the Federal Circuit again upheld zeroing and reaffirmed Timken and Corus in January 2011. Fed. Cir., App. No. 2010-1128, SKF USA Inc. vs. United States, 7th January, 2011.
131.
Fed. Cir., 367 F.3d 1339 (2004), p. 1348.
132.
See S.Ct.U.S., Chevron U.S.A., Inc. vs. Natural Resources Defense Council, 467 U.S. 837 (1984); Strauss, Administrative Justice in the United States, (2nd ed.) 2002, pp. 349–375.
133.
Fed. Cir., Luigi Bormioli Corp. vs. United States, 304 F.3d 1362 (Fed. Cir. 2002); Fed. Cir., Federal Mogul Corp. vs. United States, 63 F.3d 1572 (1995).
134.
Reed, Relationship of WTO Obligations to U.S. International Trade Law: Internationalist Vision Meets Domestic Reality, Geo. J. Int’l L. 38 (2006) 1, pp. 209 et seq. (233).
135.
Id., p. 234; see also Davies, Connecting or Compartmentalizing the WTO and United States Legal Systems? The Role of the Charming Betsy Doctrine, JIEL 10 (2007) 1, p. 117 (reaching much the same conclusions as this commentator based on a different analysis).
136.
In the long unresolved state-to-state dispute between Mexico the United States over the U.S. failure to implement the NAFTA provisions allowing Mexican truckers to operate in the United States, Mexico ended nearly a decade of forbearance by imposing retaliatory import duties on $2.4 billion of U.S. imports into Mexico in early 2009 and expanded the retaliatory duties to $2.5 billion in August 2010. See Powell, “Trucking Dispute rolls toward dead end – A collision of interests blocks search for agreement – Trucks: Trade war has escalated”, Houston Chronicle, 22nd August, 2010; see also NAFTA, No. USA-MEX-98-2008-01, Cross-Border Trucking Services, 6th February 6, 2001 (finding the United States in violation).
137.
CAFTA-DR, Art. 16.2(1)(a) (“A Party shall not fail to effectively enforce its labor laws, through a sustained or recurring course of action or inaction, in a manner affecting trade between the Parties ….”); see also Letter from U.S. Trade Rep. & Sec. of Labor to Guatemalan Officials, 31st July, 2010; USTR Press Release, USTR Kirk Announces Labor Rights Trade Enforcement Case Against Guatemala, 30th July, 2010.
138.
Cf. Stiglitz, Regulating Multinational Corporations: Toward Principles of Cross-Border Legal Frameworks in a Globalized World Balancing Rights with Responsibilities, Am. U. Int’l L. Rev. 23 (2008), pp. 451 et seq. (456) (criticizing international investment law on the ground that “[d]ifferent arbitration panels have interpreted the same words [in BITs] differently, creating a high level of uncertainty, among both governments and investors, about exactly what BITs can accomplish.”).
139.
Cf. van Harten/Loughlin, Investment Treaty Arbitration as a Species of Global Administrative Law, EJIL 17 (2006), pp. 121 et seq. (150) (identifying “the justification for removing such regulatory disputes from the jurisdiction of domestic courts” as an issue inviting further inquiry).
140.
Cf. Stiglitz, Regulating Multinational Corporations: Toward Principles of Cross-Border Legal Frameworks in a Globalized World Balancing Rights with Responsibilities, Am. U. Int’l L. Rev. 23 (2008), pp. 451 et seq. (548–49) (favoring national treatment obligations, despite criticizing existing BITs in many other respects).

Acknowledgment

The author wishes to express his appreciation to Professor Claire R. Kelly for her comments on an earlier draft.

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Department of Business Law, Baruch College, City University of New York, New York, NY, USA
Patrick C. Reed
Center for Global Affairs, New York University, New York, NY, USA
Patrick C. Reed

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European Law, European and, University of Passau Chair for Constitutional and Administrat, Passau, Germany
Christoph Herrmann
Department of European Law, University of Hamburg, Hamburg, Germany
Jörg Philipp Terhechte

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Reed, P.C. (2012). International Economic Law in North America: Recent Developments in Dispute Resolution Under Regional Economic Agreements. In: Herrmann, C., Terhechte, J. (eds) European Yearbook of International Economic Law 2012. European Yearbook of International Economic Law, vol 3. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-23309-8_15

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