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Published online by Cambridge University Press: 20 January 2017
In the recent Grand River Enterprises case, United States public health regulations on protection from tobacco products successfully withstood a challenge by Canadian Native American investors under NAFTA chapter 11 arbitration. The arbitrators carefully weighed the investors’ rights and the regulatory freedom of the host state under the NAFTA rules. The treatment of other norms of international law on the protection of indigenous peoples, however, merits some criticism.
1 Compare, e.g., the public outcry which followed the defeat of Mexico in Metalclad Corp. v. Mexico ICSID Case No ARB(AF)/97/1, Award (30 August 2000), or the applause for the rejection of investor’s claims against Californian environmental regulation in Methanex Corp. v. United States Award (3 August 2005) 44 ILM 1345.
2 This concept is discussed in more detail in section V.
3 Grand River Six Nations, Ltd., et alii vs. United States of America Award (12 January 2011), ICSID (UNCITRAL), NAFTA (chapter 11). All subsequent paragraphs without different attribution refer to this award.
4 For a complete overview see paras. 8–16.
5 Later extended to 90 days.
6 The amounts differed slightly because some settlements between manufacturers and states prior to the MSA were taken into account in the calculation.
7 Para. 25.
8 Para. 18.
9 Para. 19.
10 Treaty of Amity, Commerce, and Navigation, signed at London, November 19, 1794; see in particular Article 3.
11 The cigarette plant itself was confined to Canadian territory with no place of business in the United States and only its sales of cigarettes had been harmed by the regulatory action, see paras. 87–89, 94 and 106.
12 Para. 125.
13 Para. 62. According to Article 102(2), NAFTA itself is to be construed “in the light of its objectives […] and in accordance with applicable rules of international law”.
14 Para. 64.
15 Para. 66.
16 Para. 69.
17 Para. 71.
18 Para. 71.
19 See, e.g., Dupuy, Pierre-Marie, “Unification rather than Fragmentation of International Law? The Case of International Investment Law and Human Rights Law”, in Dupuy, Pierre-Marie, Francioni, Francesco and Petersmann, Ernst-Ulrich (eds), Human Rights in International Investment Law and Arbitration (New York: Oxford University Press 2009), pp. 45 et sqq., at p. 58CrossRefGoogle Scholar.
20 See Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law – Report of the Study Group of the International Law Commission, 58th Session, UN Doc. A/CN4/L682, p. 206, para. 410 et sqq.
21 Ibid., p. 232, para. 461 et sqq.
22 See with further references to the jurisprudence Hirsch, Moshe, “Conflicting Obligations in International Investment Law: Investment Tribunals’ Perspective”, in Shany, Yuval and Broude, Tomer (eds), The Shifting Allocation of Authority in International Law: Considering Sovereignty, Supremacy and Subsidiarity (Oxford: Hart Publishing 2008), pp. 323 et sqq., at pp. 323 et sqq Google Scholar.
23 Para. 169.
24 Paras. 165–167. The arbitrators used as comparators other domestic firms engaged in wholesale distribution of cigarettes in the United States potentially subject to enforcement actions. Their likeness was bolstered by the identical legal framework. See for a general critique of sector-based tests of national treatment and in favour of regulatory framework analysis DiMascio, Nicolas and Pauwelyn, Joost, “Nondiscrimination in Trade and Investment Treaties: Worlds Apart or Two Sides of the Same Coin?”, 102 American Journal of International Law (2008), pp. 48 et sqq., at p. 85Google Scholar.
25 Para. 170.
26 For a more detailed assessment of the fair and equitable treatment standard in international investment law see Dolzer, Rudolf and Schreuer, Christoph, Principles of International Investment Law (Oxford: Oxford University Press 2008), at pp. 122 et sqq CrossRefGoogle Scholar.
27 Para. 180.
28 Notes of Interpretation of Certain Chapter 11 Provisions, NAFTA Free Trade Commission, 31 July 2001, section B. ‘Minimum Standard of Treatment in Accordance with International Law’, paras. 2 and 3.
29 Para. 181.
30 Para. 205.
31 Para. 208.
32 Para. 210.
33 Para. 211.
34 Para. 213.
35 Para. 212.
36 Para. 212.
37 At para. 186, the tribunal explicitly held that the US states had not been ‘sensitive’ to the special concerns of indigenous peoples despite the existence of ‘strong international policy and standards articulated in numerous written instruments and interpretive decisions’ which favoured state action to promote the rights of such peoples.
38 Compare also Vadi, Valentina, “Trade Mark Protection, Public Health and International Investment Law: Strains and Paradoxes”, 20(3) European Journal of International Law (2009), pp. 773 et sqq CrossRefGoogle Scholar., at p. 788, who suggests that in the Grand River Enterprises case norms protecting indigenous peoples as well as norms protecting public health should be taken into account.
39 Paras. 183–184.
40 While, for example, the tribunal in Metalclad, para. 103 (supra note 1), found that mere interference with the use of an investment could amount to a measure tantamount to expropriation, other tribunals such as the one in Pope & Talbot Inc. v. Government of Canada Merits, Phase 1, Award (26 June 2000) 7 ICSID Report 69, paras. 101–102, required a more substantial effect arising to a loss of control over an enterprise. See in more detail on the distinction between interference with the use and loss of control of an investment Salazar, Alberto, “NAFTA Chapter 11, Regulatory Expropriation, and Domestic Counter-Advertising Law”, 27 Arizona Journal of International and Comparative Law (2010), pp. 31 et sqq, at pp. 39 et sqq Google Scholar.
41 See, e.g., SD Myers Inc. v. Government of Canada Partial Award on Merits (13 November 2000), 8 ICSID Report 4, paras. 281–282; Methanex, part IV para. 15 (supra note 1).
42 For an excellent overview in NAFTA case law and beyond see Ratner, Steven, “Regulatory Takings in Institutional Context: Beyond the Fear of Fragmented International Law”, 102 American Journal of International Law (2008), pp. 475 et sqq CrossRefGoogle Scholar.
43 See in particular paras. 148 et sqq. on the required threshold of economic impact and paras. 152 et sqq.
44 Para. 132.
45 Para. 129.
46 Paras. 135–136. Some evidence indeed suggested that cigarette sales numbers on reservation went far beyond the possible needs of the local inhabitants.
47 Paras. 137–139.
48 Para. 140.
49 Para. 141.
50 Para. 142.
51 Para. 142.
52 Para. 143.
53 Para. 144.
54 Notably, even if no victory was granted on the merits to the investor in Grand River Enterprises, already the cost decision burdened the host state. The arbitrators used their discretion to distribute costs to leave half the costs of the arbitration and the costs of legal representation with the triumphant United States, based on the ‘atypical situation’ of the unsuccessful investors as First Nations traders, paras. 246–247.
55 Remarkably, the MSA was indeed challenged as a distortion of competition in United States domestic law, but upheld by the courts, see Sanders v. Brown, No 05-15676, United States Court of Appeals for the Ninth Circuit, 26 September 2007.