Investor-state dispute settlement

Investor-state dispute settlement (ISDS) is a provision in international trade treaties and international investment agreements that grants investors the right to initiate dispute settlement proceedings against foreign governments in their own right under international law.

Foreign investment protection

Historical development

Under customary international law a state can vindicate injury caused to its national by the host state by exercising diplomatic protection. In addition to diplomatic protection and coercive means, states can establish ad hoc commissions and arbitral tribunals to adjudicate claims involving treatment of foreign nationals and their property by the host state. Notable examples of this practice are Jay Treaty commissions, Iran–United States Claims Tribunal and American-Mexican Claims Commission.

Modern practice

Currently, the legal protection of Foreign Direct Investment is guaranteed by a network of more than 2750 bilateral investment treaties (BITs), Multilateral Investment Treaties, most notably the Energy Charter Treaty and number of Free Trade Agreements such as NAFTA containing a chapter on investment protection. The majority of these legal instruments provides foreign investors with a substantive legal protection and direct means for redress against states for breaches of such treaties.The overall number of concluded cases reached 244. Of these, approximately 42% were decided in favour of the State and approximately 31% in favour of the investor. Approximately 27% of the cases were settled.

Chapter 11 of NAFTA includes an Investor-State provision.

NAFTA Chapter 11

Main article: North American Free Trade Agreement

A notable example is Chapter 11 of the North American Free Trade Agreement (NAFTA). NAFTA Chapter 11 allows investors of one NAFTA party (Canada, United States or Mexico) to bring claims directly against the government of another NAFTA party before an international arbitration tribunal. Because NAFTA Article 1121 waives the local remedies rule, investors are not required to exhaust local remedies before filing Chapter 11 claims. Investors may initiate an arbitration against the NAFTA Party under the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL Rules") or the Arbitration (Additional Facility) Rules of the International Centre for Settlement of Investment Disputes ("ICSID Additional Facility Rules"). NAFTA Chapter 11 was the first instance of an investor-state provision allowing such claims by nationals of developed nations against another developed state.

Debates

Much debate has arisen concerning the impact of investor-state provisions on the capacity of democratically-elected governments to implement reforms and legislative and policy programs related to public health, environmental protection and human rights.

Opponents argue that investor state claims (or the threat of them) inhibit the capacity of domestic governments to pass public health and environmental protection legislation. They also argue that arbitrations are carried out in secret by trade lawyers who earn income from the parties and are not accountable to the public or required to take into account broader constitutional and international law human rights norms.

Transparency

Investment treaties increasingly require greater publicity of arbitrations, including publication of hearing transcripts and even hearings that are open to the public. For example the under the Trans-Pacific Strategic Economic Partnership, the tribunals shall, subject to the consent of the disputing parties, conduct hearings open to the public. The tribunal will make available to the public documents relating to the dispute such as the notice of intent, the notice of arbitrationn, pleadings, memorials, minutes or transcripts of the hearings of the tribunal, where available; orders, awards and decisions of the tribunal. In addition, third parties can and increasingly do participate in investor-state arbitration by submitting amicus curiae petitions.

The World Bank's International Centre for the Settlement of Investment Disputes (ICSID) is required to announce the initiation of arbitral proceedings and to publish awards with the consent of the parties. If the parties do not consent, ICSID publishes excerpts showing the tribunal's reasoning. The ICSID website has published awards for most completed arbitrations, and decisions in investor-state arbitrations outside of ICSID are also publicly available online.

Tribunals

Investment disputes can be initiated by corporations and natural persons an and in almost all cases, investment tribunals are composed of three arbitrators. One is appointed by the investor, one by the state, and the third is usually chosen by agreement between the parties or their appointed arbitrators or selected by the appointing authority, depending on the procedural rules applicable to the dispute.

Examples

Apotex v. the United States

Under Chapter 11 of NAFTA, Apotex Inc., a Canadian pharmaceuticals corporation, has alleged that U.S. courts committed errors in interpreting federal law, and that such errors were in violation of NAFTA Article 1102 (national treatment) and Article 1105 (minimum standard of treatment under international law). Apotex also alleged that the challenged US court decision in favor of the Pfizer drug company expropriated Apotex’s investments in generic versions of the antidepressant Zoloft under NAFTA Article 1110 as was manifestly unjust.

Apotex relied on the doctrine that a manifestly unjust domestic legal decision breaches international law and can be viewed as a substantive denial of justice. Apotex has also brought a similar claim involving US regulatory provisions concening an abbreviated new drug development application for Pravachol and patents allegedly held by Bristol Myers Squibb. Apotex has two claims involving different generic products. However up to now (August 20, 2011) the Tribunal has not decided on its own jurisdiction. Apotex withdrew its application to stay its second-filed Notice of Arbitration, without prejudice or waiver of its right to reintroduce that application after resolution of any jurisdictional issues. The United States intends to defend this claim vigorously.^{[citation needed]}

Centurion Health Corporation v. Canada

Melvin J. Howard, a US citizen, on behalf of the Centurion Health Corporation and the Howard Family Trust, served Canada with a "Notice of Intent" on July 16, 2008, claiming USD $160 million. Howard alleged that a proposed project, the Regent Hills Health Care Centre was treated in a manner that contravened Canada's NAFTA Chapter 11 obligations. The claim alleged the Canadian government amongst other things breached its obligations under NAFTA Article 1102, directly and through Canada’s municipalities and Provinces, by not providing the US investor through clear guidance from the Government of Canada with the best treatment available to US competitors in the monopoly health care services market, and in particular, US surgical services and breached its obligations under NAFTA Article 1103 by failing to accord the Investor and its enterprises of Canada most favored nation treatment by providing treatment to Canadian Investors that is better than the treatment provided to the Claimant. The claim challenged the Canada Health Act, under which the federal government of Canada ensures that the provinces and territories meet certain requirements, such as free and universal access to insured health care. Accordingly, the Federal Government of Canada through the Act constitutes both a "state enterprise" and a "government monopoly" for purposes of NAFTA Articles 1502 and 1503. The arbitral proceedings were terminated by the tribunal due to the refusal of the Claimants to make the required deposit of costs of the arbitration proceedings.

Chemtura Corporation v. Canada

Chemtura Corporation, a United States agricultural pesticide products manufacturer, alleged that the Government of Canada, through its Pest Management Regulatory Agency (PMRA), wrongfully terminated its pesticide business in lindane-based products, which are used on canola/ rapeseed, mustard seed and cole crops to control flea beetle infestations, and on cereal crops to control wireworm. Chemtura alleged NAFTA violations of Article 1105 (minimum standard of treatment) and Article 1110 (expropriation). All claims were dismissed by the Tribunal as the measure did not amount to a substantial deprivation of the Claimant's investment and was taken legitimately and without bad faith.

Dow AgroSciences v. Canada

On August 25, 2008, Dow AgroSciences LLC, a U.S. corporation, served a Notice of Intent to Submit a Claim to Arbitration under Chapter 11 of NAFTA, for losses allegedly caused by a Quebec ban on the sale and certain uses of lawn pesticides containing the active ingredient 2,4-D. The tribunal issued a consent award as the parties to the dispute reached a settlement.

Future trajectories

In 2011, the Australian Government announced that it would discontinue the practice of seeking inclusion of investor state dispute settlement provisions in trade agreements with developing countries. It stated that it:

"...supports the principle of national treatment — that foreign and domestic businesses are treated equally under the law. However, the Government does not support provisions that would confer greater legal rights on foreign businesses than those available to domestic businesses. Nor will the Government support provisions that would constrain the ability of Australian governments to make laws on social, environmental and economic matters in circumstances where those laws do not discriminate between domestic and foreign businesses. The Government has not and will not accept provisions that limit its capacity to put health warnings or plain packaging requirements on tobacco products or its ability to continue the Pharmaceutical Benefits Scheme... In the past, Australian Governments have sought the inclusion of investor-state dispute resolution procedures in trade agreements with developing countries at the behest of Australian businesses. The Gillard Government will discontinue this practice. If Australian businesses are concerned about sovereign risk in Australian trading partner countries, they will need to make their own assessments about whether they want to commit to investing in those countries... Foreign businesses investing in Australia will be entitled to the same legal protections as domestic businesses but the Gillard Government will not confer greater rights on foreign businesses through investor-state dispute resolution provisions."

See also

• International Centre for Settlement of Investment Disputes (ICSID)
• United Nations Commission on International Trade Law (UNCITRAL)
• International Investment Agreement

External links

• Investment Treaty Arbitration, website by Professor Andrew Newcombe, University of Victoria
• "Investor-State Dispute Settlement between Developed Countries"
• Pohl, Joachim, Kekeletso Mashigo, and Alexis Nohen. (2012). “Dispute settlement provisions in international investment agreements," OECD Working Paper
• UNCTAD's Investment Policy Framework for Sustainable Development (IPFSD)