Fair and Equitable Treatment under International Law: Analyzing the Interpretation of NAFTA Article 1105.1 by NAFTA Chapter 11 Tribunals

Contents

I. Introduction

II. Resolution of Investment Disputes under the NAFTA
a. Dispute Resolution Rules under Chapter 11
b. Minimum Standard of Treatment under Article 1105 of the NAFTA: the Fair and Equitable Treatment Principle under International Law
An Expansive Interpretation of the Fair and Equitable Treatment Standard: the Metalclad Case
Canada, Mexico and the United States Reacted: the Mandatory Free Trade Commission Interpretation of Article 1105.1

III. Investment Disputes and Application of the Fair and Equitable Principle by NAFTA Tribunals
a. Commonplace: Everybody is Alleging It!
b. Actual Decisions on the Issue: NAFTA Tribunals and their Interpretation of the Fair and Equitable Treatment under International Law
c. Life after the Free Trade Commission Interpretation on Article 1105.1: Have NAFTA Tribunals Lived Up to their Promise to Be Bound by It?

IV. What Can We Make of All This?
a. Critical Voices on International Investment Arbitration in North America: Changing Roles
b. It’s Easy to Claim a Breach of Article 1105.1, But How Easy is to Prevail?
c. Did the Countries Modify their Behavior? Post-NAFTA Free Trade and Investment Treaties Signed by Canada, Mexico and the United States
d. Settled Meaning of Fair and Equitable Treatment under International Law in NAFTA’s Chapter 11?

V. Conclusion

I. Introduction

What is Fair and Equitable Treatment under International Law ? The question has earned considerable attention during the past decade, as foreign investors have used the concept embodied in Article 1105.1 of the North American Free Trade Agreement (hereinafter NAFTA)^[1] to contest governmental actions that adversely affect their investments. As a result, the arbitral tribunals established pursuant to NAFTA cannot avoid the difficult task of interpreting the concept, and this paper will attempt to demonstrate.

The NAFTA was signed by the Governments of Canada, Mexico and the United States^[2] provided the legal framework to establish a free trade area among these three neighboring countries.^[3] The NAFTA also set rules for North American investment –substantive law – and a dispute resolution mechanism for breach of governmental obligations in the matter – procedural law.^[4]

Arbitral tribunals set under Chapter 11 of NAFTA^[5] have to apply the minimum standard of treatment contained in NAFTA’s Article 1105, but this has proven to be a hard task. This paper will analyze how such tribunals have dealt with the subject in the claims submitted to them from 1996 to 2006.

Part II synthesizes the dispute resolution mechanism of NAFTA’s Chapter 11 and how the decisions of arbitral tribunals set under that chapter have impacted the meaning and content of the Minimum Standard of Treatment. Part III interprets the application of the Fair and Equitable principle contained in the Minimum Standard of Treatment by NAFTA Chapter 11 tribunals. Part IV cites praise and criticism to NAFTA, analyze the current meaning of the Fair and Equitable Standard of NAFTA’s Chapter 11, and study the NAFTA parties’ behavior in post-NAFTA free trade agreements and bilateral investment treaties. Part V concludes.

II. Resolution of Investment Disputes under the NAFTA

a. Dispute Resolution Rules under Chapter 11

NAFTA was the first free trade agreement to include a chapter on investment.^[6] Its chapter 11 contains both substantive and procedural rules.^[7] According to Sornarajah, NAFTA’s Chapter 11 has been the regional agreement on investments which has “attracted the most attention and provided a model for the OCED’s Multilateral Agreement on Investment.”^[8]

Chapter 11 Section A of the NAFTA provides with at least seven main substantive guarantees to be afforded to investors by its signatories:^[9] (1) national treatment,^[10] (2) most-favored-nation treatment,^[11] (3) fair and equitable treatment in accordance with international law,^[12] (4) full protection and security in accordance with international law,^[13] (5) non-discriminatory treatment in case of armed conflict or civil strife,^[14] (6) free transfer of capital related to foreign investment or foreign investor,^[15] and (7) non-discriminatory expropriation followed by fair compensation.^[16]

Section B of Chapter 11 provides for a dispute resolution mechanism.^[17] Its purpose is to establish a “mechanism for the settlement of investment disputes that assures both equal treatment among investors of the Parties in accordance with the principle of international reciprocity and due process before an impartial tribunal.”^[18] This mechanism has been said to be innovative in that it gives investors from Canada, Mexico or the United States an opportunity to arbitrate their claims under Chapter 11 of NAFTA, directly, without the intervention of the national government of the investor.^[19]

Arbitration is always consensual, and acquiescence is necessary. But NAFTA crafted an ingenious solution: article 1122 of the free trade agreement (hereinafter FTA) provides that by signing the NAFTA, Canada, Mexico and the United States consent in advance “to the submission of a claim to arbitration.”^[20] And because all disputes under chapter 11 are initiated by investors, their consent has to be given as a precondition to the submission of a claim to arbitration.^[21] This translates into the elimination – or at least a dramatic reduction – of judicial disputes to enjoin arbitration procedures or resist enforcement of arbitral awards by lack of consent to arbitrate.

Rules for choice of law for Chapter 11 claims are: (1) NAFTA,^[22] (2) applicable rules of international law,^[23] (3) interpretations of NAFTA’s provisions by NAFTA Free Trade Commission (hereinafter, FTC).^[24]

Arbitral proceedings are to be governed, in addition to what has been described in the precedent paragraph, by the rules either^[25] of (a) the ICISD^[26] Convention – if both the party of the investor and the disputing party are parties to the Convention,^[27] (b) the Additional Facilities of ICSD – for a case where either the disputing party or the party of the investor, but not both, are part of the ICISD,^[28] or (c) the UNCITRAL Arbitration Rules^[29] – these rules could apply to any case, regardless the combination of nationalities of claimants and governments.^[30]

b. Minimum Standard of Treatment under Article 1105 of the NAFTA: the Fair and Equitable Treatment Principle under International Law

The fair and equitable treatment principle applied in investment relations originated in language incorporated into bilateral investment treaties^[31] and still is commonly included in modern versions of such treaties.^[32] As the title of this subsection indicates it, the fair and equitable treatment is said to be part of the minimum standard of treatment to be accorded to aliens by host states. As a matter of order, before explaining the fair and equitable treatment principle, we will explore what is the minimum standard of treatment.

The minimum standard of treatment arises on the topic of state responsibility.^[33] It is arguable that under customary international law (hereinafter C.I.L.), states are accountable for violations of international law, and are required to make adequate reparation for them.^[34] The rules relating to this kind of state responsibility seek to confer “a standard of treatment of aliens who enter states for various reasons, including the doing of business.”^[35]

Under the traditional view, injuries to individuals in the international field were enforceable by the home state of such individual.^[36] But modern practice accepts that private parties can sometimes seek legal remedies with independence and without intervention of their home state.^[37] Direct access to claims through arbitration is supposed to provide “an independent, expert, systemically neutral alternative to domestic courts,”^[38] while assuring more “autonomy, control, efficiency, and predictability than diplomatic protection.^[39] In that sense, arbitral clauses are said to remove any idea of inability of individuals to pursue such legal remedies under international law.^[40]

Traditional enforcement of claims for injuries to foreigners had four visible stages: first, what has been called somehow oxymoronically “gunboat diplomacy”; second, developing countries’ response through the Calvo doctrine; third, developed countries’ effort to advance the recognition of an international minimum standard of treatment, and; fourth, modern times where the minimum standard of treatment has been generally accepted, but its content remains controversial. At least during the first three stages, claims were made through espousal by the government of the investor’s home country.

Nineteen century Franco-Mexican Guerra de los Pasteles – the Pastry War – is a good example of oxymoronic gunboat diplomacy, and illustrates this first stage on protection of investors by their home countries: in 1838, a French pastry cook claimed that his shop in a Mexican city had been damaged and sought the protection of French King Louis-Philippe.^[41] A number of countries had failed to secure payment for losses suffered by their nationals due to civil unrest in Mexico,^[42] and France decided to back up its demand for 600,000 pesos by occupying the city of Veracruz, the principal Mexican port on April 16, 1838.^[43] This “diplomatic” effort succeeded and the government of Mexico agreed to pay and France withdrew their fleet almost a year after, on March 9, 1839.^[44]

One effort to minimize and oppose the international minimum standard advanced by developed countries is found in the Calvo doctrine.^[45] This doctrine is “a body of international rules regulating the jurisdiction of governments over aliens and the scope of their protection by their home states,”^[46] and was advanced by the Argentine diplomat and legal scholar Carlos Calvo in 1868.^[47] It emphasizes the sovereign right of countries to treat foreigners equally but not better than nationals.^[48]

Because using direct military intervention is costly, peaceful means have been tried. Developed states have claimed that aliens must be treated according to an “international minimum standard, which could be a higher standard than the accorded by a host state to its own nationals.”^[49] According to some authors, the international minimum standard was advanced by developed nations in the context of the debate on expropriation, as a response to the Calvo doctrine.^[50] Because this international standard would be the same regardless the location of the host state, it could be considered to be objective.

Developing countries, to the contrary, sometimes resisted the recognition of an absolute, objective standard of treatment to be afforded to foreigners possibly beyond the treatment granted to their own local citizens.

The reason of this North-South struggle and diversity of opinion is easy to imagine: developed countries were and are exporters of investment; developing countries, in the other hand, are more likely hosts of foreign investment than investors themselves. It was convenient for developed countries to have assurance that their investors were going to be treated fairly and uniformly, regardless of the geographic place where the investment was – developed countries were seeing the whole, global picture;^[51] but developing countries could not see beyond their own territory, and what could be perceived as an attack to their sovereignty – developing countries’ picture was not global, but local.^[52]

But at the end the struggle between developed and developing countries produced recognition of an international minimum standard of treatment to be afforded to foreigners by states.^[53] For instance, Hotchkiss Professor of Law Edwin Borchard at Yale University Law School,^[54] reacting in 1940 to what he considered an attack by Mexican President Lázaro Cárdenas against the conception of diplomatic protection a year and a half earlier,^[55] undertook the task of re-examining “the whole structure of international law”^[56] in the following terms: “[i]nternational law, as evidenced by diplomatic practice and arbitral decision, has established the existence of an international minimum standard to which all civilized states are required to conform under penalty of responsibility.”^[57]

In my opinion, the reason as to why developing countries yielded to the recognition of the international minimum standard of treatment is found in the positive effects that foreign investment produce in host countries. Capital flow in an underdeveloped economy is a well regarded incentive.

But the only consensus among nations is in recognizing the existence of the minimum standard, yet its content remains difficult to identify.^[58] Sornarajah refers as recognized part of the standard the need to afford compensation for expropriation and the settlement of such claims in fora outside the host state;^[59] but less convergence exists for the inclusion of other principles, such the fair and equitable treatment standard. We agree on the container, not in the content.

In my view, this failure to reach consensus on the content of the minimum standard of treatment can be linked to the lack of uniformity on such treatment in different countries.

Regarding the fair and equitable treatment standard, it seems to be part of the international minimum standard of treatment to be afforded to aliens.^[60] Ved P. Nanda^[61] suggests that the phrase “fair and equitable standard” was first used by the Organization for Economic Cooperation and Development (hereinafter OECD) in its Draft Convention on the Protection of Foreign Property.^[62] In that context, the content of the fair and equitable standard was set by international law “for the treatment due by each State with regard to the property of foreign nations”,^[63] conforming with the C.I.L. minimum standard of treatment to aliens.^[64]

In my opinion, the explanation given by Nanda only cites what he considers the source of the content of the fair and equitable standard, but does not advance on the content of the principle.

There is no consensus regarding the existence and meaning of the fair and equitable treatment. Some authors as Vasciannie consider it to be a non-contingent or absolute standard in protection of foreign investment.^[65] The non-contingent and absolute nature of the standard requires that a tribunal determining whether this standard has been violated by a host country considers only the treatment afforded by that country to the investor, without comparing how others are treated.^[66] In contrast, when dealing with relative standards of treatment owed to foreign investors^[67], reference has to be made to how the host country treat others^[68] in order to determine if the treatment was in violation of such standard. But the fair and equitable treatment measures itself with no external parameter; it is considered “without reference to standards which are applied to other entities,”^[69] and in that sense, non-contingent and absolute.

As advanced supra, there is no consensus on the meaning of the phrase, and some consider it to be vague and equivocal.^[70] This absolute, non-contingent standard – the fair and equitable treatment principle – is directly related to the minimum standard of C.I.L. for the treatment of alien-owned property.^[71] There have been three different approaches proposed for the interpretation of this principle: fair and equitable treatment (a) as part of the minimum standard required by customary international law (C.I.L.),^[72] (b) as part of international law in general – customary and treaty based,^[73] and (c) as an independent self-contained standard.^[74] These are at best theorizations on the meaning of the fair and equitable principle, but in reality there is not a consensus among scholars and tribunals about the true meaning of the fair and equitable standard.^[75]

One of the earlier formulations on the fair and equitable treatment standard was made by the Neer arbitral tribunal in 1925.^[76] The arbitral tribunal concluded that actions of governments would be in violation of the minimum standard of treatment if they “amount to an outrage, to bad faith, to willful neglect of duty, or to an insufficiency of government action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency.”^[77] This was definitively a very high threshold.

In my view, the Neer formulation of the fair and equitable principle was consistent with the historic moment in which it was made. In the first quarter of the twentieth century, developing and developed nations were still struggling with the existence of the minimum standard of treatment to be afforded to aliens and its byproduct, the fair and equitable treatment standard.^[78]

But nowadays modern arbitral tribunals do not generally follow the view that the fair and equitable treatment standard is violated only with actions “sufficiently offensive as to cross the high threshold established in the classic Neer arbitration of 1926” occur.^[79] Sornarajah cites early NAFTA tribunal awards as an example of the expansive interpretation of the standard, as the Metalclad did by linking the lack of transparency with the violation of the fair and equitable treatment;^[80] but the law professor recognizes that “events since the judgment have dispelled any possibility of the survival of the expansionary view.”^[81]

For Rubins and Kinsella, the dominant approach among arbitral tribunals when deciding whether a government has failed to comply with the fair and equitable standard is teleological.^[82] Because the fair and equitable principle is contained in investment treaties, and such treaties’ primary goal is to promote foreign investment,^[83] many tribunals have found that the standard is intended to provide broad protections for the investors.^[84]

Rubens and Kinsella identify the following instances where arbitral tribunals have found governments in violation of the fair and equitable treatment standard when states have failed to:^[85] provide a stable and predictable investment environment,^[86] keep the arrangements “in reliance upon [which] the foreign investor was induced to invest,”^[87] and keep the stability of the legal and business framework.^[88]

Additionally, Sornarajah cites two types of state conduct that can be held to violate the fair and equitable treatment: denial of justice,^[89] and absence of due process or administrative irregularity.^[90] Denial of justice requires an “inordinate judicial impropriety” as to “shock the conscience of the outside world;”^[91] denial of justice would equal a generalized failure of the judicial system of the state to the investor.

Denial of justice has been identified with the “absence of due process, lack of transparency, absence of good faith and violation of legitimate expectations in exercising administrative functions associated particularly with licen[sing].”^[92]

In my view, denial of justice should be recognized as a violation of the fair and equitable treatment only when the legal system as a whole fails to provide the most basic remedy to legal injury; or when in a particular case, all the judicial authorities involved in the adjudication openly depart from the legal framework in place. Otherwise, every losing party in a legal proceeding, each believing justice to be in their side, would argue to have suffered a denial of justice.^[93]

According to Adede, denial of justice can only come from the judicial branch.^[94] Under his view, the term requires improper administration of civil and criminal justice as regards an alien, including denial of access to courts, inadequate procedures, and unjust decisions.^[95] But a denial of justice claim does not make the arbitral tribunal an appeal body of the domestic court’s decision;^[96] I opine that arbitral tribunals cannot become review – appellate – bodies for the judicial decisions of domestic courts. Judicial failures amounting to denial of justice must be “flagrant, notorious, obvious, gross, odious, manifestly unjust or violative of due process or similarly offensive.”^[97]

Beyond the approach to be selected to determine the meaning of the fair and equitable treatment, the real question is whether the treatment afforded by States to foreign investors – through bilateral investment treaties or other sources – has become part of the customary international law.^[98] The question has been answered in the affirmative,^[99] yet customary international law presents its own challenges, as I will explain.^[100]

Article 38 of the Statute of the International Court of Justice lists the fonts of international law.^[101] “International custom, as evidence of a general practice accepted as law,” is one of them.^[102] General practice is the objective element of customary international law;^[103] acceptance as law, also called opinio juris, is its subjective element.^[104]

The two elements of customary international law are general practice and opinio iuris – the acceptance of such practice as obligatory.^[105] But custom is a fluid source of law,^[106] and the biggest challenge is to be able to identify the formation and change of the custom, due in part to the decentralization of the international system.^[107] Because of its fluid characteristic, customary international law can be imprecise,^[108] vague,^[109] and hard to interpret.^[110]

Andrew Guzman gives six reasons explaining why customary international law is critical to understand international law:^[111] (a) important areas of international relations are still governed primarily by custom, as the law of state responsibility;^[112] (b) customary international law plays an important role even in areas where treaties exist, and can influence treaty regimes, as in the human rights area;^[113] (c) customary international law can be relevant to domestic law, or even part of it;^[114] (d) states refer to customary international law to support or condemn behavior of other states;^[115] (e) customary international law is recognized by treaties and secondary materials as source of international law; and finally, (f) customary international law serves as the basis for the requirement that states honor treaties, and by understanding custom, we understand treaties more easily.^[116]

I explained earlier that the formation – and modification – of customary international law requires evidence of general practice among states and opinio juris,^[117] and that it is hard to identify. What kind of rule of evidence would be effective to serve those purposes? Professor Stephen Zamora advocates for a broad rule of evidence of customary international law, one which “allows consideration of virtually anything that would appear to be relevant to State practice or opinio juris.”^[118]

This broad rule of evidence has allowed the fair and equitable treatment standard to be successfully introduced as part of the international minimum standard of treatment to be afforded to foreigners by states.^[119] In my opinion, a broad rule of evidence of customary international law pairs up with the needs of modern day foreign investment and the disputes originated from it.

As I said before, the fair and equitable treatment standard originated in language contained in investment treaties – mainly through bilateral investment treaties.^[120] One particular version of the fair and equitable treatment standard is contained in Article 1105.1 of NAFTA.^[121] It is the focus of this paper. That version of the fair and equitable treatment has been called “the alpha and omega of investor-state arbitration,”^[122] for the frequency it comes up among the alleged violations that investors claim against host states. It establishes the minimum standard of treatment to be afforded to North American investors. Because the official languages of the NAFTA are English, Spanish and French,^[123] all three definitions are included:

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.

Artículo 1105. Nivel mínimo de trato

1. Cada una de las Partes otorgará a las inversiones de los inversionistas de otra Parte, trato acorde con el derecho internacional, incluido trato justo y equitativo, así como protección y seguridad plenas.

Article 1105 : Norme minimale de traitement

1. Chacune des Parties accordera aux investissements effectués par les investisseurs d'une autre Partie un traitement conforme au droit international, notamment un traitement juste et équitable ainsi qu'une protection et une sécurité intégrales (emphasis added).

Some authors say that NAFTA’s Chapter 11 – including the language of Article 1105.1 – is merely a mirror image of the then in force 1983 U.S. Model Bilateral Investment Treaty.^[124] More moderated authors sustain that Chapter 11 is founded on that Model Treaty, with the variations introduced by Canada and Mexico during the negotiations of the FTA.^[125] It can be true generally, but talking specifically about the fair and equitable treatment principle found in Article 1105.1 of NAFTA, then in force 1983 U.S. Model BIT^[126] had the following language regarding this principle in Article 2.IV:

Investment of nationals and companies of either Party shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security in the territory of the other Party. The treatment, protection and security of investment shall be in accordance with applicable national laws, and shall in no case be less than required by international law. Neither Party shall in any way impair by arbitrary and discriminatory measures the management, operation, maintenance, use, enjoyment, acquisition, expansion, or disposal of investment made by nationals or companies of the other Party. Each Party shall observe any obligation it may have entered into with regard to investment of nationals or companies of the other Party (emphasis added).^[127]

Consulting the travaux préparatoires and the negotiations of the NAFTA, the teams for the governments of Canada, Mexico and the United States worked around the following text regarding the fair and equitable treatment for more than a dozen negotiation rounds since early 1992 until August 22, 1992:^[128] “[e]ach Party shall accord at all times to the investments in its territory of investors of another Party full protection and security, fair and equitable treatment, and in all other respects as well, treatment in accordance with international law.”^[129] Finally in August 26, 1992 the draft of the investment chapter^[130] included by the first time the language we find now in Article 1105.1.^[131]

An Expansive Interpretation of the Fair and Equitable Treatment Standard: the Metalclad Case

On September 2, 2000, an arbitral tribunal constituted under Chapter 11 of the NAFTA, found that Mexico had failed to provide the fair and equitable treatment to an American investor for its lack of transparency.^[132] The case initiated in 1996, when Metalclad Corporation, an American company, started arbitral proceedings under NAFTA’s Chapter 11, claiming a breach of the fair and equitable principle of NAFTA’s Article 1105.1 by Mexico^[133] The principal argument was that the foreign investment – the construction and intended operation of a transfer station for hazardous waste – was not realized due to the denial of a construction permit by a municipal authority in the state of San Luis Potosí, Central Mexico, and the subsequent ecological decree by the Governor of that state – which declared a natural area for the protection of endemic cactuses within the area where the landfill had been built.^[134]

The place of arbitration was in Vancouver, British Columbia, Canada, under the ICSID additional facility.^[135] In its final award, the NAFTA tribunal sided with Metalclad, awarding it USD$16,685,000.00 that Mexico was to pay within 45 days.^[136]

The Metalclad tribunal found that the fair and equitable treatment under international law of Article 1105.1 had been violated in the instant case because Mexico’s failure to “ensure a transparent and predictable framework for [the investor’s] business planning and investment.”^[137] This lack of transparency of a municipality of Mexico was imputed to the Federal Government, failing to “comply with or adhere to the requirements of NAFTA, Article 1105.1 that each Party accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment.”^[138]

The transparency requirement was taken from NAFTA’s Article 102.1.c, that lists as one of the objectives of the FTA the transparency in investment.^[139] Allegedly, Mexico’s failure to ensure a transparent framework for the investment was in violation of the referred NAFTA’s objective, therefore a violation of the fair and equitable treatment.^[140]

Mexico challenged the final award and moved to set aside the decision with the British Columbia Supreme Court review.^[141] In deciding which Canadian statute to apply to the review, the court favored the International Commercial Arbitration Act – of narrower review –^[142] instead of the Commercial Arbitration Act – that would allow the court to review “points of law decided by the arbitral body”,^[143] pursuant the fact that the underlying arbitration was international in its essence.^[144]

The Supreme Court of British Columbia^[145] determined that the NAFTA tribunal in the Metalclad case made decisions on matters beyond the scope of NAFTA’s Chapter 11.^[146] In its view, the arbitral tribunal made its decision on the basis of transparency, which is not included in chapter 11.^[147] By ruling based in a requirement not included in Chapter 11, the NAFTA tribunal was held to go beyond the scope of the arbitration.^[148]

The arbitral award was partially set aside.^[149] Mexico succeeded in challenging the arbitral tribunal interpretation of the fair and equitable treatment principle of Article 1105.1.^[150] The practical consequence of the Supreme Court of British Columbia was that the amount of damages to be paid by Mexico was reduced, because interest was to be recalculated from the date of the ecological decree, and not before.^[151]

The Canadian review of the Metalclad arbitral award was important because it served as precedent^[152] of how incorporating concepts not included in chapter 11 – such lack of transparency – could lead to appellate judicial bodies to conclude that an arbitral tribunal was going beyond the scope of the agreement to arbitrate.

Canada , Mexico and the United States Reacted: the Mandatory Free Trade Commission Interpretation of Article 1105.1

None of the parties to the NAFTA liked the Metalclad tribunal’s interpretation on the fair and equitable treatment principle of Article 1105.1.^[153] And even though the British Columbia Supreme Court diluted the reach of the NAFTA tribunal, mainly by denying a cause of action in the principle of transparency,^[154] the NAFTA parties got the message: the ambiguity on the language of the fair and equitable treatment principle had left them at the mercy of a liberal arbitral tribunal in the Metalclad case, and it could happen again – and even worst, the Metalclad decision could be used by subsequent tribunals as persuasive authority.^[155]

The solution came through the NAFTA Free Trade Commission^[156] integrated by the representatives of the governments of Canada, Mexico and the United States. The FTC issued a binding interpretation^[157] on the fair and equitable treatment principle contained in Article 1105.1 of the NAFTA.^[158] The parties agreed that:

Article 1105.1 prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to investments of investors of another Party.

The concepts of “fair and equitable treatment” and “full protection and security” do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens.

A determination that there has been a breach of another provision of the NAFTA, or of a separate international agreement, does not establish that there has been a breach of Article 1105.1.

The relevant points of the interpretation regarding Article 1105.1 are:

- Customary international law (C.I.L.) minimum standard of treatment of aliens includes fair and equitable treatment
- Fair and equitable treatment is part of the C.I.L minimum standard of treatment of aliens
- The fair and equitable treatment does not require anything more than complying with what is demanded by C.I.L. minimum standard of treatment of aliens. The fair and equitable treatment is satisfied if the host state provides what is required by the C.I.L. minimum standard of treatment of aliens
- Failure to comply with rules or principles not included in Chapter 11 do not constitute a breach per se of Article 1105.1.^[159] From there on, only violations of requirements contained in chapter 11 of NAFTA can breach the fair and equitable treatment of article 1105.1 of the FTA

The FTC mandatory interpretation on NAFTA’s Article 1105 has been criticized for diverse reasons, such: (1) being perceived as an effort by the Governments of Canada, Mexico and the United States to artificially limit the scope of the fair and equitable treatment standard,^[160] (2) FTC acting ultra vires of what the NAFTA actually authorized it to do, its binding interpretation on Article 1105.1 constituting an amendment rather than an interpretation of NAFTA,^[161] (c) failing to comply with Article 31 of the Vienna Convention on the Law of Treaties^[162], and (d) violating principles of procedural fairness by allowing a party to limit the scope of its liability by an ex parte declaration.^[163]

Another critique I find valid is the fact that FTC’s interpretation is circular: first it says that the minimum standard of treatment provided by customary international law (C.I.L.) includes fair and equitable treatment.

Then it establishes that the fair and equitable treatment is part of the C.I.L. minimum standard of treatment of aliens. This second proposal is, in my opinion, another way to express the one contained in the preceding paragraph.

Last, the FTC clarifies that the fair and equitable principle does not require treatment beyond what is demanded by the minimum standard of treatment of aliens as provided by C.I.L.

The following diagram illustrates the circular nature of the FTC’s interpretation on Article 1105.1:

Abbildung in dieser Leseprobe nicht enthalten

In order to explain this circular and non-conclusive interpretation on Article 1105.1, I suggest the following allegory: the minimum standard of treatment of aliens as provided by C.I.L. will be identified with the symbol [Abbildung in dieser Leseprobe nicht enthalten], and the fair and equitable treatment with the symbol ]. Using these symbols, what the FTC said is:

1. [Abbildung in dieser Leseprobe nicht enthalten] includes[Abbildung in dieser Leseprobe nicht enthalten]
2. ] is part of [Abbildung in dieser Leseprobe nicht enthalten]
3. ] does not require treatment beyond [Abbildung in dieser Leseprobe nicht enthalten]

The following diagram uses the symbols [Abbildung in dieser Leseprobe nicht enthalten] and [Abbildung in dieser Leseprobe nicht enthalten] for demonstration purposes:

Abbildung in dieser Leseprobe nicht enthalten

In my opinion, FTC’s interpretation on Article 1105.1 is not clear regarding the meaning and content of the fair and equitable treatment; it is circular; and does not provide a clear guide for NAFTA Chapter 11 tribunals.

This is the imperfect interpretation made by the FTC on Article 1105.1. But nevertheless imperfect, from there on NAFTA tribunals were obligated to follow this binding interpretation. And subsequent Chapter 11 tribunals did indeed apply the FTC’s interpretation.

Whether or not FTC’s interpretation on Article 1105.1 actually helped Chapter 11 arbitral tribunals is analyzed infra in chapter IV of this paper.

III. Investment Disputes and Application of the Fair and Equitable Principle by NAFTA Tribunals

a. Commonplace: Everybody is Alleging It!

More than 67% of all investment claims submitted under Chapter 11 of NAFTA allege the violation of the fair and equitable treatment standard in accordance with international law of Article 1105.1.^[164] The “alpha and omega”^[165] of arbitration proceedings under chapter 11 is plainly too much a temptation for lawyers: in an informal survey, I found that twenty-nine out of forty-three notices of intent to commence arbitration submitted under Chapter 11 of NAFTA, included allegations of breach of the fair and equitable treatment.^[166]

High incidence in claims of breach of Article 1105.1 finds parallel, mutatis mutandis, to a particularity of Mexico and its domestic legal system: Mexican attorneys allege –in different judicial fora- authorities’ failure to adequately fundar ^[167] and motivar ^[168] their resolutions. By constitutional mandate, all acts of authority must be founded in and motivated by legal procedural cause.^[169] This principle is known as the garantía de legalidad.^[170]

Claims of breach of Article 16 of the Constitución for lack of motivación can be especially subjective and elusive.^[171] As a practical consequence, is considered a default allegation in proceedings such as the Amparo trial.^[172] An example of this situation can be found in the study developed by Mexican author Héctor Fix-Fierro, who took a sample of 58 finished cases on administrative amparos. ^[173] Fix-Fierro noted that 69% of them contained claims of lack of fundamentación and motivación.”^[174] In my view, something similar has happened with NAFTA Article 1105.1.^[175] The Free Trade Commission’s interpretation on the issue somehow should limit the success rate of this type of claims, but as I said, the temptation is still too big for lawyers.

b. Actual Decisions on the Issue: NAFTA Tribunals and their Interpretation of the Fair and Equitable Treatment under International Law

As I said supra, not all Chapter 11 claims ended in an arbitral award. In fact, there are only 12 cases have produced a final arbitral award. The cases are shown in the following table in chronological order:^[176]

Abbildung in dieser Leseprobe nicht enthalten

But how have the tribunals interpreted the fair and equitable treatment standard under international law principle? Here is a study on the relevant cases on the issue.^[177]

The first case under NAFTA’s Chapter 11 to deal with Article 1105.1 was the controversial Metalclad case, which was decided in September 2, 2000.^[178] The details of the case, final award and judicial review had been described supra.^[179] The Metalclad tribunal found that the fair and equitable treatment under international law of Article 1105.1 had been violated in because of Mexico’s failure to “ensure a transparent and predictable framework for [the investor’s] business planning and investment.”^[180]

The award was subject to judicial review by the Supreme Court of British Columbia,^[181] which determined that the arbitral tribunal went beyond the scope of NAFTA’s Chapter 11,^[182] by making its decision on the basis of transparency, which is not included in such chapter.^[183]

According to Todd Weiler, a byproduct of Metalclad and similar unfair cases is an increase in the number of investor-state claims worldwide.^[184] Besides, the public pressure towards transparency in the arbitral proceedings culminated in a FTC directive to oblige parties to make the relevant documents available to the public;^[185] this in return educates the legal community in the insights of investment arbitrations.^[186]

Notwhitstanding that the NAFTA tribunal’s determination on Article 1105.1 was set aside by the Supreme Court of British Columbia, the NAFTA parties decided to mend the ambiguity through a tripartite interpretation by the FTC.^[187]

The case that came after Metalclad, the S.D. Myers case was decided on the merits on November 13, 2000.^[188] The claimant, an American company, argued that Canada's ban on exports of polychlorinated biphenyl (PCB)^[189] waste effectively prevented its competition in the Canadian PCB waste market, therefore denying treatment in accordance with Article 1105.1.^[190]

The Tribunal considered that a breach of Article 1105.1 occurs only “when it is shown that an investor has been treated in such an unjust or arbitrary manner that the treatment rises to the level that is unacceptable from the international perspective.”^[191] The majority indicated that the fact that a host Party has breached a rule of international law that is specifically designed to protect investors will tend to weigh heavily in favor of finding a breach of Article 1105.^[192]

The majority of the arbitral tribunal found for the claimant, holding that Canada had intentionally discriminated on the basis of nationality against the investor, behavior that was a breach of international law and consequently a breach of Article 1105.^[193] The majority of the arbitrators decided that the breach of a rule of international law that is “specifically designed to protect investors will tend to weigh heavily in favor of finding a breach of Article 1105.”^[194]

Arbitrator Chiasson disagreed with the reasoning of the majority, and considered that a “finding of a violation of Article 1105 must be based on a demonstrated failure to meet the fair and equitable requirements of international law”.^[195] To him, a simple breach of another provision of the NAFTA should not be a foundation for such a conclusion.^[196] But as we saw, the majority found for the claimant.

After that, the Pope & Talbot case was decided on the merits on April 10, 2001.^[197] Pope & Talbot, Inc., an American corporation, initiated arbitral proceedings under Chapter 11 of NAFTA against Canada’s measures implementing the 1996 United States-Canada Softwood Lumber Agreement.^[198]

Claimant advocated for a very broad and inclusive approach to the fair and equitable treatment as to include all sources of international law found in article 38 of the Statute of the International Court of Justice, good faith, – including pacta sunt servanda, World Bank’s guidelines in foreign direct investment, NAFTA Parties’ other treaty obligations, and domestic law of each NAFTA Party.^[199] Respondent wanted the tribunal to find a breach of the fair and equitable treatment only for egregious conduct by the host country.^[200]

The tribunal decided to approach the fair an equitable treatment provided by article 1105.1 of NAFTA as an additive character of the fairness element, going beyond what international law entitles investors.^[201]

The NAFTA tribunal found a breach of article 1105.1 because of the behavior of Canada’s Softwood Lumber Division (hereinafter SLD) towards the investor, after receiving a Notice of Intent to Submit a Claim to Arbitration under Article 1119 of NAFTA.^[202] SLD notified the investor its decision to institute a “verification review.”^[203] As the Pope & Talbot tribunal appreciated it, through the verification review process, the investment was being “subjected to threats, denied its reasonable requests for pertinent information, required to incur unnecessary expense and disruption in meeting SLD’s request for information, forced to expand legal fees and probably suffer a loss of reputation in government circles.”^[204] All these reasons were the basis to find a breach of the fair and equitable treatment by Canada against the investor.

The tribunal found a breach of the fair and equitable treatment because of Canada’s treatment toward the investor “in its totality, during 1999 in relation to the verification review process [was] nothing less than a denial of the fair treatment required by NAFTA Article 1105, and the Tribunal f[ou]nd[] Canada liable to the Investor for the resultant damages.”^[205]

The Mondev case was the first to be decided after the FCT mandatory interpretation on Article 1105.1.^[206] In 1992, Lafayette Place Associates, a limited partnership owned by Mondev, filed a lawsuit in Massachusetts against the City of Boston and the Boston Redevelopment Authority.^[207] After obtaining a jury verdict favorable to Mondev’s interests, the court gave a judgment notwithstanding the verdict in respect of the Boston Redevelopment Authority, holding it immune from liability based in a Massachusetts statute.^[208] All appeals failed and certiorari was denied by the Supreme Court of the United States of America.^[209]

Mondev initiated Chapter 11 arbitral proceedings.^[210] The NAFTA tribunal concluded that it lacked jurisdiction to pass upon acts of the City or the Boston Redevelopment Authority that took place before NAFTA came into force, and therefore limited its analysis to the intervention of the courts of Massachusetts.^[211]

The final award was published on October 11, 2002, dismissing Mondev’s claims in their totality.^[212] The arbitral tribunal noted that article 1105.1 “did not give a NAFTA tribunal an unfettered discretion to decide for itself, on a subjective basis, what was ‘fair’ or ‘equitable’ in the circumstances of each particular case”, but as established according to customary international law.^[213]

The tribunal sustained that “the extension to a statutory authority of a limited immunity from suit for interference with contractual relations [did not] amount [] in this case to a breach of Article 1105.1.”^[214] The American courts had no choice but to recognize the immunity;^[215] it was valid to grant the immunity before NAFTA came into effect, and it was valid to do so after NAFTA came into existence.^[216]

In the ADF Group case, a Canadian investment was one subcontractor in the construction of a highway junction in the state of Virginia, United States.^[217] ADF proposed to perform its obligations by using American produced steel and by carrying out certain fabrication work on that steel in Canada, in facilities owned by the parent ADF Group.^[218] The authorities refused, citing the Buy America clause in the main contract.^[219]

The ADF group initiated arbitral proceedings.^[220] The approach proposed by the investor regarding the content of the fair and equitable treatment was that C.I.L minimum standard of treatment includes a general obligation to accord “fair and equitable treatment” and “full protection and security” to investors and their investments. The United States suggested that in order to find a breach of article 1105.1, the claimant must prove a “violation of a specific rule of customary international law relating to foreign investors and their investments.”^[221]

The final award came on January 9, 2003.^[222] The NAFTA tribunal framed the issue regarding article 1105.1 as whether the United States measures are “inconsistent with a general customary international law standard of treatment requiring a host State to accord ‘fair and equitable treatment’ and ‘full protection and security’ to foreign investments in its territory.”^[223] The tribunal answered the question in the negative.

The tribunal rejected the article 1105.1 claims because: (1) the measures by the respondent’s employees were not per se unfair – as characterized by the claimant,^[224] (2) the reliance by the ADF in pre-existing caselaw – distinguished from the instant case by the tribunal – not followed by the authorities were not legitimate expectations generated by the latter, but for ADF’s counselor,^[225] (3) the tribunal had no authority to determine if the federal authorities had acted ultra vires according to domestic administrative law,^[226] and (4) allegations of a violation by respondent’s employees of a duty under C.I.L. to perform its obligations in good faith was not enough to find a breach of Article 1105.1.^[227]

The Loewen Group case was decided on June 26, 2003.^[228] Loewen lost a jury trial in Mississippi where allegedly the judge allowed racial, national origin and personal wealth’s comments in claimant’s disadvantage.^[229] The jury awarded the plaintiff with a $500 million dollar verdict.^[230] Loewen could not appeal the resolution because of a Mississippi statutory requirement of an appeal bond for 125% of the judgment.^[231] Unable to persuade the trial court and the Mississippi Supreme Court of a reduction in the appeal bond,^[232] and with no intention of buying a $625 million bond, claimant settled the case “under extreme duress” for $175 million.^[233]

The foreign investor then initiated arbitral proceedings, alleging that Mississippi judicial process – imputed to the United States, violated the minimum standard of treatment of Art. 1105.1., by way of denial of justice.^[234]

The NAFTA tribunal dismissed the totality of Loewen Group’s claims because it had lost its Canadian nationality,^[235] yet included the reasons as to why it would have denied the Article 1105.1 claims had it not dismissed them.^[236] These reasons constituted nothing more than dicta.

The arbitral tribunal recognized that the trial of Loewen was a disgrace “by any standard of measurement” and failed to provide Loewen with due process.^[237] It conceded that the trial and the verdict did not comply with the “minimum standards of international law and fair and equitable treatment,”^[238] but claimant failed to pursue domestic remedies –especially the Supreme Court, therefore not showing “a violation of [C.I.L.] and a violation of NAFTA for which Respondent [would be] responsible.”^[239]

In my opinion, the tribunal in the Loewen case likely took into consideration meta-legal factors, such as the impact that a finding of denial of justice could have within the United States. It probably weighted the consequences that such award could have for the survival of NAFTA.

The message of the Loewen tribunal can be seen with cynical eyes: it is acceptable that the judicial system beats the investor, as long as they are not beaten too much. In my opinion, this is a valid lecture of the duality shown by the tribunal by recognizing that the trial in the Mississippi court was a disgrace – an injustice on itself, and not finding a denial of justice in favor of the investor due to a failure to pursue domestic remedies – even if appealing the sentence imposed an unreasonable financial burden on the investor.

In the Loewen case, the tribunal recognized that since the FTC’s interpretation on Article 1105.1, it was clear that “fair and equitable treatment and ‘full protection and security’ [were] not free-standing obligations.”^[240] In the view of the tribunal, parties to the NAFTA were obligated to those principles “only to the extent that they [were] recognized by C.I.L.^[241] It also stated, following the FTC interpretation, that a breach of a different provision of the NAFTA did not per se constitute a violation of the fair and equitable principle.^[242]

The Waste Management case ^[243] originated in 1995, when American investor Waste Management signed a concession agreement – through a wholly owned subsidiary – with the City of Acapulco, Guerrero, Mexico, to provide waste disposal services to the city.^[244] The contract included an arbitration clause.^[245] The enterprise experienced financial difficulties shortly after initiating operations, and the government of the City of Acapulco grown in its dissatisfaction.^[246] Two years after signing the original concession agreement, Waste Management decided to withdraw from the business.^[247]

Waste Management commenced arbitration under NAFTA’s Chapter 11 in 1998 and its claims were dismissed.^[248] Two years later, claimant re-commenced arbitration proceeding with a new arbitral tribunal, reproducing the same claims.^[249]

The investor claimed that it was subject to arbitrary acts by the City of Acapulco, the State of Guerrero and Banobras, “which were capricious, lacking in due process of law and which rendered the investment valueless”.^[250]

The NAFTA tribunal found no violation of the minimum standard of treatment.^[251] As in other cases, the allegations of breach of Article 1105.1 were not the primary basis of claim, but nevertheless it was an autonomous basis of claim.^[252]

The tribunal analyzed the claims of breach of Article 1105.1 and determined that no authority had acted “in a wholly arbitrary way or in a way that was grossly unfair,”^[253] and no deliberate conspiracy among them took place to defeat the purpose of the investment.^[254] Specifically, the NAFTA tribunal found that the “persistent non-payment of debts by a municipality is not to be equated with a violation of Article 1105, provided that it does not amount to an outright and unjustified repudiation of the transaction and provided that some remedy is open to the creditor to address the problem.”^[255]

The Methanex case was decided in August 5, 2005.^[256] Methanex Corporation is the world’s largest producer of methanol, a gasoline additive.^[257] Its claims emanated from a ban on the sale of a gasoline additive by the state of California.^[258] The compensation seek by Methanex was close to a billion dollars. The investor’s rights supposedly violated by the state of California – and imputed to the United States – were those contained in 1105.1 and 1110.1 of the NAFTA.

Methanex claimed that certain actions taken by the government conflicted with the fair and equitable treatment the investor was entitled to under Article 1105.1 because the measures were not based “on credible scientific evidence”,^[259] penalized one component of gasoline solely because it is released into the environment,^[260] did not consider alternative measures,^[261] was the result from a failure from taking effective measures to reduce or eliminate gasoline releases into the environment,^[262] and failed to take into consideration the interests of the investor.^[263] Methanex also alleged that the measures went beyond “what [was] necessary to protect any legitimate public interest.”^[264]

The Methanex tribunal held that some differentiations between nationals and aliens were permitted by Article 1105.^[265] It said that in the absence of a “contrary rule of international law binding on the States parties, whether of conventional or customary origin, a State may differentiate in its treatment of nationals and aliens.”^[266] It also recited that “the plain and natural meaning of the text of Article 1105 [did] not support the contention that the ‘minimum standard of treatment’ precludes governmental differentiations as between nationals and aliens”.^[267] At the end, the NAFTA tribunal decided that Methanex’s claim under Article 1105 NAFTA had failed.^[268]

The Thunderbird case is the latest award in Chapter 11 arbitrations.^[269] The final award was made on January 26, 2006.^[270] The claimant was a publicly held Canadian Corporation, with its principal offices in the United States.^[271] Thunderbird wanted to invest in gaming facilities in Mexico.^[272] Thunderbird’s president and CEO initiated conversations with two Mexican attorneys that claimed expertise in the area.^[273] Counsel for the corporation worked with the two attorneys and determined that there were not conditions to assure the viability of the investment.^[274] Yet Thunderbird continued to seek the matter.

In August 12, 2000, legal representative for Entertainments de Mexico, S.A DE C.V. – a Mexican corporation controlled de facto by Thunderbird^[275] – filed a written request with the Federal Government of Mexico, with specific questions about the operation of gaming machines.^[276] The gaming machines were misrepresented as “video game machines for games of skills and ability,”^[277] where “chance and wagering or betting [was] not involved.”^[278] In the letter, petitioners asked for approval in advance of the investment, to be certain of the legality of the machines operation.^[279]

Three days later, the Federal government issued a formal response to the written request.^[280] The government opined that the skill machines, as described in the written request – “under the concept of ability and skil[l]fulness of its users”, did not fall within their jurisdiction, insofar and as long as the machines did not have as principal factor of the operation luck or gambling.^[281] The answer went on to clarify that gaming and betting was illegal in Mexico, and warned that in the machines should be no intervention of luck or gambling.^[282]

On the day following the answer letter by the Federal Government, Thunderbird wired $300,000 USD as fee payment for the two Mexican attorneys that lobbied for the letter.^[283] From that day on, various gaming facilities were scheduled to open. Some did open, some never did.^[284]

Starting February of 2001, Federal authorities closed all involved gaming facilities.^[285] The Federal Government determined that what has been characterized as “skills machines” in the written request of August of 2000, were in reality “slot machines” where the deciding factor of success was luck.^[286]

Finally, on March 21, 2002, Thunderbird initiated arbitration proceedings under NAFTA Chapter 11.^[287] The applicable rules were those of UNCITRAL, because neither Canada nor Mexico is part of the ICSID.^[288] Pending legal proceedings were subsequently discontinued by Thunderbird.^[289]

The arbitral panel was constituted on March 14, 2003 by Professor Dr. Albert Jan van den Berg, President, Lic. Agustin Portal Ariosa, Arbitrator, and Professor Thomas W. Wälde, Arbitrator.^[290] In its first procedural order, the tribunal designed – with the agreement of the parties – the Secretariat of the ICSID as administrator for the proceedings, just as if the arbitration was held under the ICSID Additional Facilities Rules.^[291]

On the arbitration, Thunderbird alleged violations by Mexico to substantive rights held by investor under Chapter 11 of NAFTA, National Treatment, Most-Favored-Nation Treatment, Minimum Standard of Treatment and Expropriation and Compensation.^[292]

With regard to Article 1105.1 and the minimum standard of treatment, Thunderbird’s position suggested that Mexico had not given it fair and equitable treatment under three different doctrines: (1) detrimental reliance, (2) denial of justice and (3) denial of rights.^[293]

In the claimant’s view, Mexico’s closures on the gaming facilities against what was stated in the formal response, establishes a breach of Article 1105.1.^[294] Thunderbird alleged – without convincing the tribunal – that Mexico did not provide due process, constituting an administrative denial of justice.^[295] Additionally, the investor claimed “manifest arbitrariness in administration, constituting proof of an abuse of right.”^[296]

Mexico responded that it has followed a “uniform and consistent line of conduct with respect to illegal gaming operations.”^[297] Regarding the alleged detrimental reliance of Thunderbird on the formal answer, Mexico contended that Thunderbird knew of the true nature and operation of the machines, and therefore knew of the existing risk of inspection by the Federal government.^[298] Finally, Mexico suggested that the involved administrative proceedings were not illegal, arbitrary or unfair, but transparent and in accordance with Mexican law.^[299]

The NAFTA tribunal decided the issue of minimum standard of treatment following the FTC interpretation on 1105.1 of July 31, 2001,^[300] therefore measuring the standard “against the [C.I.L.] minimum standard, according to which foreign investors are entitled to a certain level of treatment.”^[301] The panel recognized the dynamic character of C.I.L.,^[302] but warned that the “threshold for finding a violation of the minimum standard of treatment still remain[ed] high.”^[303]

In the opinion of the majority of the tribunal, the instant case did not satisfy this high threshold.^[304] The tribunal determined in a diverse issue that there was no detrimental reliance by then investor in the signals sent by the Mexican government in its formal response to the written request – since there was no legitimate expectation created by it,^[305] and therefore Thunderbird could not reasonable rely on it.^[306] The lack of due process – amounting to administrative denial of justice – and manifest arbitrariness in administration – as proof of an abuse of right – allegations were dismissed for lack of evidence of unfairness or arbitrariness by the Mexican government.^[307] To the contrary, the tribunal established that Thunderbird had ample “opportunity to be heard and to present evidence in the Administrative Hearing.”^[308]

This NATFA tribunal dismissed Thunderbird’s claims, and ordered the Canadian investor to pay US$1’252,862.40 to Mexico as reimbursement of the costs of legal representation.^[309]

I agree with the reasoning of the majority of the tribunal in deciding the claim of breach of fair and equitable treatment. The investor tried to entrap the federal government of the host state, misrepresenting the true nature of the so called “skill machines,” looking to lure its officers to authorize what is openly prohibited by Mexican law. Beside this argument, the majority correctly dismissed each and every one of Thunderbird’s unsupported claims of breach of article 1105.1 of NAFTA.

Arbitrator and Professor Thomas W. Wälde did not agree completely with the majority and submitted a separate opinion.^[310] His disagreement was centered in NAFTA’s article 1105.^[311] Professor Wälde also dissented regarding the decision of the majority of ordering the losing party to reimburse Mexico’s attorney’s fees, without reasoned justification by the tribunal.^[312] He found this last decision as a “major departure from established jurisprudence by all previous NAFTA tribunals.”^[313]

The heart of Wälde’s argument lies in the disappointment of legitimate expectations by Mexico’s failure to live up to what the dissent considers the federal government’s message to the investor in the formal response to its written request.^[314] In his view, Mexico failed to send stable, clear and predictable messages to the foreign investor.^[315] Wälde distinguishes between international commercial arbitration^[316] and “investment disputes between a foreign investor and a host state.”^[317]

The dissenting opinion found breach of Article 1105 in 2001, when enforcement began against the Canadian investor without similar efforts against another Mexican in similar circumstances.^[318]

Wälde then entered to defend gambling as a valid type of investment,^[319] linking negative views toward these activities with religious and moralist feelings.^[320] In my opinion this line of thought is irrelevant and out of place, since gaming, gambling and betting is considered illegal in Mexico. This legal reason should be the prevailing consideration.

I do not find the tribunal’s decision regarding the payment of costs by the losing party troubling. The debate proposed by the dissenting arbitrator origins in the dichotomy of English and American rules regarding attorney’s fees.^[321] The dissent seems to characterize the practice as acceptable in international commercial arbitration,^[322] but not for investment arbitration.^[323]

I do not relevant whether or not arbitral tribunals apply their version of the American rule or the English rule; investment arbitration between a Canadian corporation and the Government of Mexico should not be governed by either rule, but by the rules that the tribunal dictates according to the claim submitted by the investor. The applicable rules, the UNCITRAL rules, give broad discretion to the arbitral tribunal to impose the payment of costs to the losing party.^[324]

Even more, the costs of arbitration shall in principle be borne by the unsuccessful party.^[325] As long as NAFTA Chapter 11 arbitrations are held under UNCITRAL rules – as was the case in the Thunderbird case, it is only natural that arbitral tribunals order the losing party to pay all or part of the costs of the arbitration.

To date,^[326] those are those are the elaborations of arbitral tribunals on the fair and equitable treatment standard in the relevant disputes originated under Chapter 11 of the NAFTA.

In September of 2004 the Organization for Economic Cooperation and Development –OECD- published a paper on the fair and equitable treatment standard.^[327] The document explains the current use of the standard in three categories: (1) as a part of the minimum standard required by C.I.L.,^[328] (2) as a part of international law including all sources,^[329] and (3) as an independent self-contained treaty standard.^[330]

The following chart organizes these categories as the basis to classify the disputes arisen under NAFTA’s Chapter 11. Cases decided in the years 2004, 2005 and 2006 were added to the chart, following the same criteria.

Abbildung in dieser Leseprobe nicht enthalten

A quick reading of the chart tells us about the predominance of the understanding of the fair and equitable treatment as a part of the minimum standard required by C.I.L. This is no coincidence, as the following subsection explains.

c. Life after the Free Trade Commission Interpretation on Article 1105.1: Have NAFTA Tribunals Lived Up to their Promise to Be Bound by It?

All NAFTA tribunals that had produced a final arbitral award after July 31, 2001 have followed the FTC’s interpretation on Article 1105.1 as binding.^[331] Arbitral tribunals for Mondev,^[332] Feldman,^[333] ADF Group,^[334] Loewen Group,^[335] Waste Management,^[336] GAMI Investments,^[337] Methanex^[338] and Thunderbird^[339] cases have applied Article 1105.1 as establishing the “[C.I.L.] minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to investments of investors of another Party”,^[340] but not requiring treatment “in addition to or beyond that which is required by this standard of treatment of aliens”.^[341] Additionally, a determination that “there has been a breach of another provision of the NAFTA, or of a separate international agreement, does not establish that there has been a breach of Article 1105.1.”^[342]

IV. What Can We Make of All This?

a. Critical Voices on International Investment Arbitration in North America: Changing Roles

NAFTA has its share of controversy. Some people love NAFTA, some more hate it and the immense majority are indifferent.

Dispute resolution of investors’ claims in Chapter 11 of NAFTA is criticized by its lack of transparency,^[343] the absence of an institution within the NAFTA framework to administer Chapter 11 arbitrations and solve the problems arisen from those proceedings,^[344] and what some people perceive as an attack on NAFTA members’ sovereignty.^[345]

Lack on clarity regarding the concept of fair and equitable treatment contained in article 1105.1 of NAFTA, and the uncertainty it provokes may be also a factor to blame.^[346] States are at the mercy of the understanding that chapter 11 tribunals may have regarding the meaning of the fair and equitable treatment.

In the opinion of some authors as Guillermo Aguilar Alvarez, critics to NAFTA Chapter 11’s dispute resolution mechanism reflects an old problem with actors playing new roles:^[347] Canada and the United States have traditionally provided support for their investors and its claims against developing host states, and had not find themselves as respondents rather than supporting parties to claimants.^[348]

The development of broad standards in foreign investment international arbitrations is in part a consequence of the pressure applied by developed countries like the United States to protect their nationals abroad through arbitration.^[349] Now those broad standards boomerang against their proponents.

As respondents, developed nations like Canada and the United States dislike the rules of foreign investment, in the same way as developing countries had in the past while acting as host states.^[350] In this way, now developed countries, traditionally capital exporters, find themselves “victims of their own success.”^[351]

In my view, the success of NAFTA has to be weighted against the purposes of the FTA contained in article 102 of NAFTA.^[352] NAFTA has increased commercial trade among its members. An examination of this free trade agreement reveals the extent to which free trade can boost a developing nation.^[353]

Besides, critics on NAFTA as the ultimate violator of sovereignty are – in my opinion – out of place and outdated. As Abram Chayes and Antonia Handler Chayes – proponents of the Managerial Theory, a norm-based theory of state behavior – say, sovereignty can no longer mean the “complete autonomy of the state to act as it chooses, without legal limitation.”^[354] Nowadays, Chayes and Handler Chayes say, sovereignty is expressed through participation with international actors.^[355] In my view, states have to acknowledge the status quo in which we live in the world: globalization demands interaction and cooperation among international actors. And if this is true for all states, it is even more dramatic for neighboring countries that have formed a free trade area as is the case for Canada, Mexico and the United States.

b. It’s Easy to Claim a Breach of Article 1105.1, But How Easy is to Prevail?

Before the FTC’s binding interpretation on Article 1105.1, chances of prevailing on a claim of breach of the fair and equitable treatment were statistically high: 75% of the cases resulted in a find of breach of Article 1105.1.^[356]

After the FTC’s binding interpretation on the fair and equitable principle, all eight subsequent arbitral awards on Chapter 11 cases have found no breach of Article 1105.1 as interpreted by such commission.^[357]

Beyond the statistics – just 25% of the arbitral awards by NAFTA tribunals to date have found a breach of the fair and equitable treatment, the threshold to find such breach is too high.^[358] In my opinion, because of the limits on the meaning of Article 1105.1 imposed by the FTC on July 31, 2001, it is highly improbable that investors will succeed in their claims of breach of fair and equitable treatment they are entitled to.

c. Did the Countries Modify their Behavior? Post-NAFTA Free Trade and Investment Treaties Signed by Canada, Mexico and the United States

What did NAFTA parties do after all the turmoil generated by Metalclad, and somehow corrected through FTC’s binding interpretation on article 1105.1 of July 31, 2001? Did they learn the lesson?

Canada signed three free trade agreements after NAFTA: with Israel, Chile and Costa Rica.^[359] The FTA with Israel, – signed on July 31, 1996 and into force on September 1, 1997, has not a chapter on investment.^[360]

The second post-NAFTA free trade agreement was completed by Canada with Chile – signed on July 31, 1996, into force since September 1, 1997, and contains the same exact language than NAFTA regarding the fair and equitable treatment.^[361] Interesting enough, the FTA creates a Free Trade Commission similar to that of NAFTA. The Canada-Chile FTC emitted an interpretation on the fair and equitable treatment on October 31, 2002.^[362] That interpretation is almost identical to the one from NAFTA’s FTC created a year earlier.^[363]

The FTA between Canada and Costa Rica was signed on April 1, 2001 and entered into force on November 1, 2002.^[364] In its chapter on investment, there is an express reference to a BIT in force among both nations.^[365] Such BIT, the Agreement between the Government of Canada and the Government of Costa Rica for the Promotion and Protection of Investments obliges each party to accord investments of other contracting party with “fair and equitable treatment in accordance with principles of international law.”^[366] No reference is made to customary international law.

Canada has also used the same language – fair and equitable treatment in accordance with principles of international law – in thirteen other BITs, or as Canadians denominate them, Foreign Investment Protection and Promotion Agreements (hereinafter FIPA).^[367] A FIPA is a “bilateral reciprocal agreement aimed at protecting and promoting foreign investment through legally-binding rights and obligations.”^[368] For example, the FIPA signed between Canada and Croatia binds both parties to accord investments and return of investments of the other contacting party with “fair and equitable treatment in accordance with principles of international law.”^[369] All other fifteen FIPAs include almost identical language.^[370] Again, no reference is made to C.I.L.

In my view, Canada has only prevented more cases like Metalclad in its Canada-Chile FTC interpretation on the fair and equitable treatment of October 31, 2002.^[371] All other FTAs and FIPAs leave the door open to a liberal interpretation of the fair and equitable treatment beyond what is required by C.I.L.

Mexico has signed nine free trade agreements after NAFTA.^[372] Five out of those nine do not contain any provision on the fair and equitable treatment.^[373] The four FTAs that include a fair and equitable treatment provision use language similar to the one in NAFTA.

The first post-NAFTA FTA signed by Mexico and containing a provision on the fair and equitable treatment was made with Chile in 1998.^[374] Article 9-06.1 uses words similar to those in NAFTA’s article 1105.1.^[375] This FTA was concluded before the controversy generated by the Metalclad award – and therefore previous to the FTC binding interpretation on Article 1105.1.

After that, Mexico signed a FTA with El Salvador, Guatemala and Honduras, including a provision on the fair and equitable treatment in terms similar to those used in NAFTA’s article 1105.1.^[376] This FTA was concluded on June 29, 2000, therefore also before the unexpected Metalclad award – and of course before the FTC binding interpretation on Article 1105.1.

In the FTA with Uruguay, article 13-06.1 prescribes fair and equitable treatment for investors, according to international law, as clarified by Annex 13-06(1).^[377] That annex reproduces NAFTA FTC’s linkage of NAFTA’s fair and equitable treatment of article 1105.1 to customary international law.^[378] This FTA was signed after the Metalclad controversial award, and of course after the FTC binding interpretation on Article 1105.1. Annex 13-06(1) of the FTA between Uruguay and Mexico, both parties took measures to limit their liabilities as host countries regarding the fair and equitable treatment standard.

In the case of the FTA with Japan, a note following article 60,^[379] incorporates similar text to that given by NAFTA’s FTC on July 31, 2001.^[380] Here too Mexico and Japan avoided unpleasant situations as the one generated by the Metalclad liberal interpretation on the fair and equitable treatment.

Mexico, in my opinion, learned the lesson of Metalclad and modified its behavior in post-2001 free trade agreements. I foresee future investment agreements of Mexico with similar text than the used in its FTA with Japan.

The United States have completed seven post-NAFTA FTAs. Five of those include a provision on the fair and equitable treatment.^[381]

All five FTAs with fair and equitable provisions make express reference to customary international law.^[382] Don Wallace acknowledges this fact regarding the CAFTA and Chile FTA.^[383]

Two years ago, the United States drafted a new Model Bilateral Investment Treaty.^[384] Its article 5 contains the minimum standard of treatment:

Article 5: Minimum Standard of Treatment

1. Each Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security.

2. For greater certainty, paragraph 1 prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to covered investments. The concepts of “fair and equitable treatment” and “full protection and security” do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights. The obligation in paragraph 1 to provide:

(a) “fair and equitable treatment” includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world; and
(b) “full protection and security” requires each Party to provide the level of police protection required under customary international law.

3. A determination that there has been a breach of another provision of this Treaty, or of a separate international agreement, does not establish that there has been a breach of this Article.

4. Notwithstanding Article 14 [Non-Conforming Measures](5)(b) [subsidies and grants], each Party shall accord to investors of the other Party, and to covered investments, non-discriminatory

treatment with respect to measures it adopts or maintains relating to losses suffered by investments in its territory owing to armed conflict or civil strife.

5. Notwithstanding paragraph 4, if an investor of a Party, in the situations referred to in paragraph 4, suffers a loss in the territory of the other Party resulting from:

(a) requisitioning of its covered investment or part thereof by the latter’s forces or authorities; or
(b) destruction of its covered investment or part thereof by the latter’s forces or authorities, which was not required by the necessity of the situation, the latter Party shall provide the investor restitution, compensation, or both, as appropriate, for such loss. Any compensation shall be prompt, adequate, and effective in accordance with Article 6 [Expropriation and Compensation](2) through (4), mutatis mutandis.

6. Paragraph 4 does not apply to existing measures relating to subsidies or grants that would be inconsistent with Article 3 [National Treatment] but for Article 14 [Non-Conforming Measures](5)(b) [subsidies and grants].

Note 8 of the 2004 Model BIT demands that Article 5 (Minimum Standard of Treatment) shall be interpreted in accordance with Annex A. Annex A of the 2004 Model BIT provides:

Annex A Customary International Law

The Parties confirm their shared understanding that “customary international law” generally and as specifically referenced in Article 5 [Minimum Standard of Treatment] and Annex B [Expropriation] results from a general and consistent practice of States that they follow from a sense of legal obligation. With regard to Article 5 [Minimum Standard of Treatment], the customary international law minimum standard of treatment of aliens refers to all customary international law principles that protect the economic rights and interests of aliens.

Both article 5 and Annex A of the 2004 U.S. Model BIT leave no doubt that the United States considers the fair and equitable treatment to be part of the minimum standard of treatment to be afforded to aliens, as provided by customary international law.

The United States have thirty-nine BITs currently in force,^[385] and they will not be analyzed in this paper.

My conclusion is that the United States changed its approach to the fair and equitable treatment, to make it clear that this country understands it as part of customary international law. This may limit the protection that its nationals could receive abroad under the fair and equitable treatment standard, but also reduces the risk of being subject itself to the liberal interpretation of the standard by an arbitral tribunal with a mindset similar to the one displayed in the Metalclad award.

d. Settled Meaning of Fair and Equitable Treatment under International Law in NAFTA’s Chapter 11?

Can we say now what violates the fair and equitable treatment contained in NAFTA’s article 1105.1? In my view, despite FTC’s binding interpretation on the fair and equitable treatment, the standard remains too vague as to give certainty to governments and investors. As I appreciate the issue, we are not in a position to say what constitutes a violation of the fair and equitable treatment principle contained in article 1105.1 of NAFTA. The concept remains equivocal.

FTC’s binding interpretation on the topic is clear in establishing which approach should be considered to understand the fair and equitable treatment standard as regulated in article 1105.1 of NAFTA: as part of the minimum standard required by C.I.L.^[386] But it does not help to clarify its content.

Even after the FTC’s interpretation of July 31, 2001, I cannot say, clear and cut, what constitutes a violation of the fair and equitable treatment principle. As I suggested before,^[387] FTC’s explanation on article 1105.1 is circular. It does not define the content of the principle, just its context.

For those reasons, FTC’s interpretation of July 31, 2001 does not provide a clear guide for NAFTA Chapter 11 tribunals.

The real consequence is that the lack of precision comes with costs both for governments and for investors. For governments, because they do not know for sure what their obligation under article 1105.1 of NAFTA is; they cannot adequate their behavior to comply with the fair and equitable principle if they do not know its exact meaning.

Investors pay a price, because they lack the elements to make an accurate risk assessment in the decision making process to decide whether to make the investment or not. Also, not knowing the exact meaning of the fair and equitable treatment principle of article 1105.1 of NAFTA deprives them of a valuable tool to assess whether the principle has been violated or not in a particular situation.

These costs traduce in money: if the respondent is found in breach of article 1105.1 by an arbitral tribunal, the host country would have probably to pay big monetary reparation. If the investor makes a deficient risk assessment, the entire investment would be jeopardized; if it decides to initiate a claim for breach of the fair and equitable principle without certainty on the content of the principle, and the tribunal finds for the respondent, then the claimant will have to bear its own legal costs, and probably – if the logic of the majority of the Thunderbird tribunal is followed, the prevailing party’s costs.

It will be up to amendments of the NAFTA,^[388] further development on customary international law^[389] or FTC’s future interpretations on article 1105.1 to clarify the content and not only the context^[390] – as the July 31, 2001 did.

V. Conclusion

The fair and equitable treatment contained in article 1105.1 at the time of the creation of the NAFTA was ambiguous and ill-defined, and it stills remains that way. There is no consensus among academics and tribunals regarding the meaning and content of the principle.

A high percentage of the notices of intent to initiate arbitration proceedings under NAFTA’s Chapter 11 include claims of breach of Article 1105.1. It is an enormous temptation that lawyers are falling into.

This situation finds parallel to Mexico’s lawyers constant allegations in domestic litigation of breaches of fundamentación and motivación by the authorities.

The expansive interpretation of the fair and equitable treatment principle by the arbitral tribunal for the Metalclad case generated a strong reaction on NAFTA’s signatories. The governments of Canada, Mexico and the United States, acting through the Free Trade Commission (FTC), emitted a binding interpretation of Article 1105.1.

According to FTC’s interpretation, the fair and equitable treatment required by article 1105.1 of NAFTA is part of C.I.L., and the former does not require treatment in addition to which is required by the C.I.L. minimum standard of treatment of aliens.

A survey on the arbitral awards on all eight emitted after FTC’s interpretation reveals that all tribunals are following the Commission’s understanding of the fair and equitable treatment principle.

Breaches of the fair and equitable treatment are easy to claim, but hard to prevail, as demonstrated by the awards posterior to the FTC’s interpretation.

Despite FTC’s binding interpretation on the fair and equitable treatment, the standard remains too vague as to give certainty to governments and investors.

[...]

---

^[1] North American Free Trade Agreement with Canada and Mexico, Dec. 17, 1992, Can.-Mex.-U.S., 32 I.L.M. 605, 702 (1993).

^[2] For this work purposes, the three signatories to NAFTA are listed in alphabetical order.

^[3] NAFTA art. 101 (“Parties to this Agreement, consistent with Article XXIV of the General Agreement on Tariffs and Trade, herby establish a free trade area.”).

^[4] NAFTA’s Section A of Chapter 11 includes the substantive rules for investment; Section B of the same chapter displays an investment dispute resolution mechanism. See Jack J. Coe, Jr., Taking Stock of NAFTA Chapter 11 in Its Tenth Year: An Interim Sketch of Selected Themes, Issues, and Methods, 36 Vand. J. Transnat’l. 1381, 1384 (2003) (stating that Chapter 11 provides both with substantive guarantees and arbitral mechanism for dispute resolution). See also id. at 1391 (stating that Chapter 11 is a “bilateral investment treaty inserted into a multilateral free trade agreement”).

^[5] NAFTA arts. 1115-39. Because NAFTA does not provide for a central authority responsible for the resolution of disputes that could arose under the free trade agreement, Chapter 11 Section B calls for arbitration to hear the claims an investor of one of the three parties –signatories- to the agreement against one of the other two parties to the NAFTA.

^[6] Before NAFTA, all international investment regulation had been done through bilateral investment treaties. See Justine Daly, Has Mexico Crossed the Border on State Responsibility for Economic Injury to Aliens? Foreign Investment and the Calvo Clause in Mexico after the NAFTA, 25 St. Mary's L.J. 1147, 1185 (1994).

^[7] See supra note 4.

^[8] Muthucumaraswamy Sornarajah, The International Law on Foreign Investment 288 (Cambridge Univ. Press 2004). For information about the OCED’s Multilateral Agreement on Investment, see Rainer Geiger, DIRECT INVESTMENT: Towards a Multilateral Agreement on Investment, 31 Cornell Int'l L.J. 467-75 (1998).

^[9] See Coe, supra note 4, at 1384 (referring that that Chapter 11 provides with substantive guarantees).

^[10] NAFTA art. 1102 (“[National Treatment requires that each party] accord to investors of another party treatment no less favorable than that it accords, in like circumstances, to investments if its own investors.”) This principle is derived from art. III of the General Agreement on Tariffs and Trade –GATT- of 1947.

^[11] Id. art. 1103. ([Most Favored Nation Treatment requires that] each party [] accord treatment no less favorable than that it accords, in like circumstances, to investors of [any other country in the world].”) This principle is derived from art. I of the GATT of 1947.

^[12] Id. art. 1105.1. Treatment in accordance with international law, including fair and equitable treatment will be explained later in this work.

^[13] Id.

^[14] Id. a rt. 1105.2.

^[15] Id. art. 1109.

^[16] Id. arts. 1110.1-2.

^[17] Id. arts. 1115-39. Section B of Chapter 11 also includes Annex 1120.1 (Submission of a Claim to Arbitration) and Annex 1138.2 (Exclusions from Dispute Settlement).

^[18] Id. art. 1115.

^[19] See Guillermo Aguilar Alvarez, The New Face of Investment Arbitration: NAFTA Chapter 11, 28 Yale J. Int’l L. 365, 372 (2003) (referring that direct action eliminates the need for the investor to ask its country’s intervention). But see Sornarajah, supra note 8, at 289 (disputing that NAFTA’s Chapter 11 was not innovative in its dispute resolution mechanism, since unilateral remedy to the foreign investor had been previously provided by earlier U.S. and U.K. treaties, and recognizing that NAFTA was the ”first treaty to provide such a remedy in a treaty that involved two developed states”).

^[20] NAFTA . a rt. 1122.

^[21] Id. art. 1121.2.

^[22] Id. art. 1131.1.

^[23] Id.

^[24] Id. art. 1131.2 The FTC is composed by cabinet-level representatives or their designees, from the governments of Canada, Mexico and the United States, and one of its functions is to resolve disputes on NAFTA’s interpretation or application. See id. art. 2001.

^[25] Id. art. 1120.1. The election is always made by the claimant investor, subject to the limitations explained in this paragraph.

^[26] See About ICSID, http://www.worldbank.org/icsid/about/about.htm (last visited March 25, 2006). The International Centre for Settlement of Investment Disputes (ICSID), created in 1966, is an autonomous international organization with close links with the World Bank (all of ICSID's members are also members of the Bank).

^[27] Convention on the Settlement of Investment Disputes between States and Nationals of Other States, Mar. 18, 1965, 575 U.N.T.S. 159 (1966) (ICSID Convention). Because neither Canada nor Mexico are part of the ICISD, NAFTA Chapter 11 arbitrations will not be held under this first option, unless any or both of these two countries become members of the convention, and the rule set forward applies.

^[28] For the reasons advanced in the previous note, this option would not apply to a dispute between a Canadian investor and Mexico, or a Mexican investor and Canada. But see infra note 30.

^[29] The United Nations Commission on International Trade Law (UNCITRAL) was established by the General Assembly in 1966 (Resolution 2205(XXI) (Dec. 17, 1966)). Among other topics, UNCITRAL has developed a framework for international commercial arbitrations. See Origin, Mandate and Composition of UNCITRAL, http://www.uncitral.org/uncitral/en/about/origin.html (last visited March 13, 2006).

^[30] Another avenue has been explored in one of NAFTA Chapter 11 cases: in the Thunderbird case, involving a dispute between a Canadian investor and Mexico, the parties had to go with the UNICITRAL rules –because neither Canada nor Mexico are part of the ICISD Convention-. But they designated the Secretariat of ICSID as the provider of administrative services in relation to the arbitral proceedings in a similar fashion to those rendered in arbitrations under the ICSID Additional Facility Rules.

^[31] Stephen Vasciannie, The Fair and Equitable Treatment Standard in International Investment Law and Practice, 70 Brit. Y.B. of Int’l L., 99, 99-100 (2000). The remote multilateral effort precedent on the fair –then called “just”- and equitable principle is found in the Havana Charter of 1948, which subsequently failed when the International Trade Organization never came into existence.

^[32] Noah D. Rubins & N. Stephan Kinsella, International Investment, Political Risk, and Dispute Resolution: A Practitioner's Guide 213 (Oceana Publications 2005). See also Jack J. Coe Fair and Equitable Treatment under NAFTA’s Investment Chapter, 96 Am. Soc'y Int'l L. Proc. 9, 17-18 (2002) (citing a survey he took among 500 bilateral investment treaties, where he found that roughly 90% of them included the fair and equitable treatment standard).

^[33] See Ian A. Laird, NAFTA Chapter 11: Betrayal, Shock and Outrage – Recent Developments in NAFTA Article 1105, 3 Asper Rev. Int'l Bus. & Trade L. 185, 193-94 (2003). See also Lou Ann Bohn, Understanding the Imposition of Capital Punishment on Foreign Nationals in the United States as a Human Rights Violation, 21 Wis. Int'l L.J. 435, 438 (2003).

^[34] Rubins & Kinsella, supra note 32, at 126 (citing the Draft Articles on State Responsibility for Internationally Wrongful Acts (U.N. Doc. A/CN.4/L.602/Rev.1(2001)), that codify mostly existing law, and generally recognized as reflecting customary international law).

^[35] Sornarajah, supra note 8, at 138.

^[36] Rubins & Kinsella, supra note 32, at 128. See also Ian Brownlie, The Place of the Individual in International Law, 50 Va. L. Rev. 435,460 (1964) (‘Customary international law still maintains [in 1964] the rule that it is the state which has the capacity to present international claims even though in many cases the claim is substantially that of a private person.”) See also Coe, supra note 4, at 1415-16 (explaining that investment disputes were traditionally solved through “espousal” by the state of the investor using diplomatic channels).

^[37] Rubins & Kinsella, supra note 32, at 130. This is true under NAFTA, where chapter 11 provides a cause of action for unsatisfied investors, to initiate arbitral proceedings against one of the two signatories to NAFTA not their home state. In fact, their home state can submit, in terms of article 1128 of the NAFTA, on questions of interpretation of the FTA, and the posture of investor and their home country can be contradictory. Nevertheless, the investor would maintain their right to pursue the claim.

^[38] Coe, supra note 4, at 1418.

^[39] Id.

^[40] Rubins & Kinsella, supra note 32, at 132, citing Rosalyn Higgins, Problems and Process: International Law and How We Use It, 54 (1994). But see Murray J. Belman, Fair and Equitable Treatment under NAFTA’s Investment Chapter, 96 Am. Soc'y Int'l L. Proc. 9, 16 (2002) (concluding that removal of the screening process in diplomatic protection leads to “novel and expansive, even extravagant, claims”).

^[41] See Pastry War -- Encyclopædia Britannica, http://www.britannica.com/eb/article-9058688 (Last visited April 9, 2006). See also Pastry War, Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Guerra_de_los_pasteles (last visited April 9, 2006).

^[42] Id.

^[43] Id.

^[44] Id.

^[45] Rubins & Kinsella, supra note 32, at 186. See Sornarajah, supra note 8, at 140. All three authors cite the Calvo Doctrine, elaborated in the Nineteen Century by Argentinean Diplomat and Jurist Carlos Calvo, which proposed that aliens could not claim any measure of protection greater than what nationals were entitled to.

^[46] See Calvo Doctrine -- Encyclopædia Britannica, http://www.britannica.com/eb/article?tocId=9018741 (last visited April 8, 2006). See Carlos Calvo, Derecho Internacional Teórico y Práctico de Europa y América (1868); see also Carlos Calvo, Le Droit International (vol. 6, 5th ed., 1885). The Mexican version of the Calvo Doctrine is still embodied in Article 27 fraction I of the Federal Constitution: aliens can acquire real estate in Mexican territory with authorization of the Ministry of Foreign Affairs, if they agree to be treated as nationals in all the matters related to such real estate, providing that if the foreign invokes the protection of their home state, their real estate would be considered abandoned in favor of the Mexican nation. See Constitución Política de los Estados Unidos Mexicanos, as amended, Article 27, fraction I, Diario Oficial de la Federación, 5 de Febrero de 1917 (Mex.) (“Sólo los mexicanos por nacimiento o por naturalización y las sociedades mexicanas tienen derecho para adquirir el dominio de las tierras, aguas y sus accesiones o para obtener concesiones de explotación de minas o aguas. El Estado podrá conceder el mismo derecho a los extranjeros, siempre que convengan ante la Secretaría de Relaciones en considerarse como nacionales respecto de dichos bienes y en no invocar por lo mismo la protección de sus gobiernos por lo que se refiere a aquéllos; bajo la pena, en caso de faltar al convenio, de perder en beneficio de la Nación, los bienes que hubieren adquirido en virtud de lo mismo…..”)

^[47] Id. See Carlos Calvo, Derecho Internacional Teórico y Práctico de Europa y América (1868).

^[48] Id.

^[49] Sornarajah, supra note 8, at 140. Rubins & Kinsella, supra note 32, at 186.

^[50] Sornarajah, supra note 8, at 149. See also Rubins & Kinsella, supra note 32, at 186.

^[51] By global picture I mean the fact that the United States, e.g., has an incentive to push for standardized fair treatment for its investors in Dominican Republic as well as in Liberia; having similar expectations from diverse host countries gives certainty to investors. In this sense, the picture the United States has when thinking of a minimum standard of treatment to be afforded to its investors abroad is global.

^[52] Local picture conflicts with the global picture explained in the preceding footnote. Using the same example, Dominican Republic or Liberia– considered separately – do not care about expectations of uniformity by developed countries as the United States. Each developing country is more likely to be worried with the burden imposed to them by the minimum standard of treatment pushed by the developed country and the negative effect of it over their own sovereignty. In this sense, the picture each developing country has is local, rather than global.

^[53] Rubins & Kinsella, supra note 32, at 186. Sornarajah, supra note 8, at 148. See also Edwin Borchard, The Minimum Standard of Treatment of Aliens, 38 Mich. L. Rev. 445, 457 (1940) (“But the existence of the standard and its service as a criterion of international responsibility in specific instances by no means gives us a definition of its content.”)

^[54] Borchard, supra note 54, at 445.

^[55] Id. at 447 (explaining President Cárdenas’ view of diplomatic protection as an impairment of national sovereignty).

^[56] Id.

^[57] Id. at 456-47. Borchard called it the “standard of Civilized Justice.”

^[58] Sornarajah, supra note 8, at 148. See also Borchard, supra note 54, at 457 (“But the existence of the standard and its service as a criterion of international responsibility in specific instances by no means gives us a definition of its content.”)

^[59] Id.

^[60] Fair and Equitable Treatment Standard in International Law, Working Papers on Int’l Inv. (OECD Directorate for Fin. & Enterprise Affairs), September 2004, at 8, available at http://www.oecd.org/dataoecd/22/53/33776498.pdf.

^[61] Charles Brower, II et al., Fair and Equitable Treatment under NAFTA’s Investment Chapter, 96 Am. Soc'y Int'l L. Proc. 9, 19-20 (2002) (remarks by Ved P. Nanda).

^[62] Id. at 19.

^[63] Id. at 20.

^[64] Id.

^[65] Vasciannie, supra note 31, at 105.

^[66] Id. at 106. The absolute, non-contingent nature of the minimum standard of treatment is really a bottom line: every host country must treat aliens and their property at least as provided by the standard. There is not, of course, a maximum standard of treatment: host states are free to provide better treatment than the demanded by the minimum standard of treatment; the incentive to provide a better treatment is that host states compete among them to attract investment to their territories. The better the treatment they provide, the higher their attractiveness for foreign investment.

^[67] Two relative standards are, exempli gratia, the national treatment standard and the most favored nation standard.

^[68] To examine if actions were according to the national treatment standard, the tribunal will have to compare how the claimant was treated contrasted with the treatment received by the host country’s own national investors; to find a violation to the most favored nation standard, the tribunal will have to make a similar inquiry applied to treatment afforded to foreign investment from other countries.

^[69] Vasciannie, supra note 31, at 105-06 (exemplifying as contingent standards the national treatment and the most-favored-nation treatment, because in order to determine that any of them have been violated, reference has to be made either to the treatment procured to national investors, or to other country’s investors, respectively).

^[70] Sornarajah, supra note 8, at 235-36 (“The content of this standard has caused much anxiety.”)

^[71] Fair and Equitable Treatment Standard in International Law, supra note 60, at 8.

^[72] Vasciannie, supra note 31, at 105-06. See also Sornarajah, supra note 8, at 332-33.

^[73] Fair and Equitable Treatment Standard in International Law, supra note 60, at 20. See also Vasciannie, supra note 31, at 104 (referring that under the minimum standard, a State is liable if treats a foreign investor with less than the treatment they are entitled under C.I.L.). See also Sornarajah, supra note 8, at 333 (theorizing that this expansive approach would allow tribunals to create new standards when demanded by the circumstances of the case).

^[74] Id. at 22. See also Sornarajah, supra note 8, at 333. This last approach would give tribunals even more flexibility to expand the fair and equitable treatment to create new standards when demanded by the circumstances of the case.

^[75] Vasciannie, supra note 31, at 142.

^[76] L.F.H. Neer and Pauline Neer (U.S.A.) v. United Mexican States) (U.S. v. Mexico), U.S.-Mexico Gen'l Claims Comm'n 4 R.I.A.A. 60 (Oct. 15, 1926). The Neer case involved a claim brought against Mexico for the death of an American citizen in Mexico. The arbitral tribunal held that only actions amounting “to an outrage, to bad faith, to willful neglect of duty, or to an insufficiency of governmental action so far short of international standard that every reasonable and impartial man would readily recognize its insufficiency” would be violations of international law.

^[77] Id. at 61-62.

^[78] See explanation on the four stages on protection of foreigners supra pp. 7-10.

^[79] Rubins & Kinsella, supra note 32, at 217. Modern tribunals solve disputes in an age where the minimum standard of treatment has been accepted, and the fair and equitable treatment principle has been incorporated in numerous bilateral and multilateral investment treaties.

^[80] Sornarajah, supra note 8, at 333.

^[81] Id. at 334. Professor Sornarajah is likely referring to the FTC’s binding interpretation on Article 1105 of July 31, 2001.

^[82] Rubins & Kinsella, supra note 32, at 214.

^[83] Id.

^[84] Id.

^[85] Id. at 214-16.

^[86] MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, Award ¶ 113 (May 25, 2004), available at http://www.investmentclaims.com/decisions/MTD-Chile-Award-25May2004.pdf (“In their ordinary meaning, the terms ‘fair’ and ‘equitable’ used in Article 3(1)62 of the [Malaysia-Chile] B[ilateral] I[nvestment] T[reaty] mean ‘just’, ‘even-handed’, ‘unbiased’, ‘legitimate’”).

^[87] CME Czech Republic B.V. v. Czech Republic, Partial Award ¶ 611 (June 25, 2001), available at http://www.investmentclaims.com/decisions/CME-Czech-PartialAward-13Sept2001.pdf.

^[88] Occidental Exploration and Production Company v. Ecuador, Final Award ¶ 183 (July 1, 2004), available at http://www.investmentclaims.com/decisions/Occidental-Ecuador-FinalAward-1Jul2004.pdf.

^[89] Sornarajah, supra note 8, at 340.

^[90] Id.

^[91] Id.

^[92] Id.

^[93] Consider, ad absurdum, the following scenario the: Investor from country A sues Investor from country B in host country C for investments that both investors have in it. Both investors believe justice in on their side. If Investor A prevails in its lawsuit, Investor B could claim a breach of the fair and equitable treatment by host country C because of “denial of justice”; likewise, if Investor A does not prevail with its lawsuit, it could claim the same breach for the same reasons. How, then, could host country C comply with the fair and equitable treatment both with Investor A and Investor B? That is, in my opinion, a strong argument to advocate for a hard to sustain threshold on denial of justice claims.

^[94] A.O. Adede, A Fresh Look at the Meaning of the Doctrine of Denial of Justice under International Law, 14 The Can. Y.B. Int’l L. 72, 91 (1976).

^[95] Id.

^[96] Sornarajah, supra note 8, at 676 (clarifying that arbitral tribunals have a presumption of deference to foreign courts, suggesting that the violation must be egregious to overcome it).

^[97] Id. at 680.

^[98] Vascianne, supra note 31, at 153.

^[99] Sornarajah, supra note 8, at 148.

^[100] See infra p. 18.

^[101] Statute of the International Court of Justice, June 26, 1945, Article 38, 59 Stat. 1055, 1060.

^[102] Id.

^[103] Andrew T. Guzman, Saving Customary International Law, 27 Mich. J. Int’l L. 115, 123 (2005).

^[104] Id.

^[105] Statute of the International Court of Justice, June 26, 1945, Article 38, 59 Stat. 1055, 1060. See also Jordan J. Paust, Jon M. Van Dyke & Linda A. Malone, International Law and Litigation in the U.S. 32-33 (West Group, 2nd ed. 2005). Because customary international law (C.I.L.) requires opinio juris, it is a vehicle for the participation of individuals in the shape of this source of law. Cf. Jordan J. Paust, International Law as Law of the United States 3-4 (Carolina Academic Press, 2nd ed. 1996).

^[106] Anthea Elizabeth Roberts, Traditional and Modern Approaches to Customary International Law: A Reconciliation, 95 Am. J. Int’l L. 757, 784 (2001).

^[107] Id. at 784.

^[108] Guzman, supra note 103, at 124 .

^[109] Id.

^[110] Id. at 127.

^[111] Id. at 119-21.

^[112] Id. at 119.

^[113] Id. at 119-20.

^[114] Id. at 120.

^[115] Id. at 121.

^[116] Id.

^[117] See supra pp. 17-18.

^[118] Stephen Zamora, Is There Customary International Economic Law?, 32 German Y.B. of Int’l L. 37, 38 (1990). Professor Zamora proposes that there is indeed a customary international economic law, but that it is even more difficult to prove than C.I.L.; that the main importance of customary international economic law is exacerbated on the political level –in intra-state negotiations- than on the judicial level, where it is to some extent irrelevant.

^[119] Sornarajah, supra note 8, at 148.

^[120] See supra p. 5.

^[121] The NAFTA is not a bilateral investment treaty, but a multilateral free trade agreement also containing regulation on investment. See supra note 6. Nevertheless, this regulation on investment is similar to that contained in bilateral investment treaties. For this reason, NAFTA has been said to be a “bilateral investment treaty within a free trade agreement.” See Coe, supra note 4, at 1391.

^[122] Brower et al., supra note 61, at 9 (“Every pending claim alleges a violation of Article 1105. Likewise, every award rendered against a NAFTA party rests at least in part on the denial of ‘fair and equitable treatment’”) (remarks by Charles H. Brower).

^[123] NAFTA art. 2206 (“The English, French and Spanish texts of this Agreement are equally authentic”).

^[124] Sornarajah, supra note 8, at 338 n.60 (“Chapter 11 is in reality the model investment treaty of the United States cobbled into NAFTA.”)

^[125] Rubins & Kinsella, supra note 32, at 193.

^[126] Treaty Between the United States and _______________ Concerning the Reciprocal Encouragement and Protection of Investments, Jan. 21, 1983 Draft, transcribed in Kathleen Kunzer, Developing a Model Bilateral Investment Treaty, 15 L. & Pol'y Int'l Bus. 273, A1-14 (1983).

^[127] Id. art. 2.IV.

^[128] See NAFTAClaims – NAFTA Documents, http://naftaclaims.com/commission.htm (last visited March 13, 2006). Under the NAFTA Negotiating Text title, this website contains hyperlinks to all 43 negotiating texts of NAFTA, from Dec. 13, 1991, to the final version after April of 1993.

^[129] NAFTA Negotiating Text, art. 2106(1), Aug. 22, 1992, http://www.naftaclaims.com/Papers/18-August221992.pdf.

^[130] Regulation on investment had been originally drafted to be included in chapter 21, before becoming chapter 11 as we know it.

^[131] NAFTA art. 1105.1 (“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.”)

^[132] Metalclad v. Mexico, Final Award ¶ 99 (Sep. 2, 2000), available at http://naftaclaims.com/Disputes/Mexico/Metalclad/MetalcladFinalAward.pdf.

^[133] Metalclad v. Mexico, Notice of Intent at 1 (Dec. 30, 1996), available at http://naftaclaims.com/Disputes/Mexico/Metalclad/MetalcladNoticeOfIntent.pdf.

^[134] Metalclad v. Mexico, Final Award ¶ 50 (Sep.2, 2000), available at http://naftaclaims.com/Disputes/Mexico/Metalclad/MetalcladFinalAward.pdf. The investment consisted of a “state-of-the-art” hazardous waste landfill in Guadalcazar, state of San Luis Potosí that never operated. See id. ¶ 62 (to the date of the final award, the landfill remained dormant. See also Metalclad v. Mexico, Notice of Arbitration at 3-4 (Jan. 2, 1997), http://naftaclaims.com/Disputes/Mexico/Metalclad/MetalcladNoticeOfArbitration.pdf. Metalclad also claimed violations to Article 1102 (national treatment), 1103 (most-favored-nation treatment), 1104 (standard of treatment), 1106 (performance requirements), 1110 (expropriation and compensation) and 1111 (special formalities and information requirements).

^[135] Id. ¶ 8.

^[136] Id. ¶ 131.

^[137] Id. ¶ 99.

^[138] Id. ¶ 100. The tribunal went on to cite the Vienna Convention on the Law of the Treaties, arts. 276, 27, because it said that the violation was particularly clear in light of the governing principle that internal law (such as the Municipality’s stated permit requirements) does not justify failure to perform a treaty. (Vienna Convention on the Law of Treaties, Arts. 26, 27). See generally NAFTA Chapter 11 Investor-State Cases Lessons for the Central America Free Trade Agreement, Public Citizen, Feb. 2005, available at http://www.citizen.org/documents/NAFTAReport_Final.pdf (referring to Stephen L. Kass and Jean M. McCarroll, “The ‘Metalclad’ Decision Under NAFTA’s Chapter 11,” New York Law Journal, Oct. 27, 2000) (suggesting that what the Metalclad tribunal was asking from the federal government of Mexico was to be the chaperon of Metalclad, “walking it through the complexities of Mexican municipal, state and federal law”).

^[139] NAFTA art. 102.1.c (“Article 102: Objectives [] 1. The objectives of this Agreement, as elaborated more specifically through its principles and rules, including national treatment, most-favored-nation treatment and transparency, are to: [] c) increase substantially investment opportunities in the territories of the Parties.”)

^[140] Metalclad v. Mexico, Final Award ¶ 88 (Sep.2, 2000) (“The absence of a clear rule as to the requirement or not of a municipal construction permit, as well as the absence of any established practice or procedure as to the manner of handling applications for a municipal construction permit, amounts to a failure on the part of Mexico to ensure the transparency required by NAFTA.”)

^[141] Because the site of arbitration in the Metalclad case was in Canada, the only place where the award could be set aside was precisely Canada. See Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Article V(1)(e), June 10, 1958, 330 U.N.T.S. 3. Besides, neither Mexico nor Metalclad challenged the jurisdiction of the British Columbia Supreme Court. See United Mexican States v. Metalclad, [2001] B.C.S.C. 664 ¶ 39.

^[142] International Commercial Arbitration Act, R.S.B.C., ch. 233 (1996). This statute is based in the UNICITRAL rules. See United Mexican States v. Metalclad, ¶ 42.

^[143] Commercial Arbitration Act, R.S.B.C., ch. 55 (1996).

^[144] United Mexican States v. Metalclad, ¶ 41.

^[145] Id. ¶ 67. The issue was whether the NAFTA Tribunal went beyond the scope of the submission to arbitration “by deciding upon matters outside Chapter 11.”

^[146] Id.

^[147] Id. ¶ 72.

^[148] Id.

^[149] Id. ¶ 134.

^[150] Id. ¶ 133. Mexico was not successful in demonstrating that the ecological decree did not tantamount to an expropriation. See Id. ¶ 94.

^[151] Id. ¶¶ 134-37.

^[152] Precedent here is used in its ordinary meaning, to denote an opinion that may serve in the future as an example of how to rule. It is not used in its technical connotation that has in the Common law legal systems, as binding reference for future cases.

^[153] Mexico challenged the award in Canadian courts. And Canada’s Trade Minister, Pierre Pettigrew, wrote an article published in The Financial Post in March of 2001, where he aired his concerns over the Metalclad award. See Pierre S. Pettigrew, We Need to 'Clarify' NAFTA to Fix Tribunal 'Errors,' Financial Post, Mar. 23, 2001, at C19 ("I am concerned that recent tribunal decisions related to Chapter 11 go beyond the original intent of its drafters to protect investors from harmful actions by governments. I want investors' rights to be clearly stated and agreed upon, but I also want them to be properly interpreted.")

^[154] United Mexican States v. Metalclad, [2001] B.C.S.C. 664 ¶ 136.

^[155] Cf. Coe, supra note 4, at 1409. Professor Coe points out what he calls “Inter-Tribunal Cross-Fertilization”: the unpredictable fact that NAFTA tribunals constantly consult and “sometimes adopt the reasoning of other Chapter 11 tribunals”; Coe suggests that this fact has developed certain uniformity in the caselaw of NAFTA.

^[156] The FTC is set up in article 2001.a of NAFTA.

^[157] NAFTA art. 2001.2.c grants the FTC authority to interpret the FTA. Article 1131 provides the governing law for investment disputes: (1) the NAFTA itself, and applicable rules of international law, and (2) an interpretation by the FTC as binding for the tribunals referred in Chapter 11 of the NAFTA.

^[158] NAFTA Free Trade Commission. Statement on NAFTA Article 1105 and the Availability of Arbitration Documents, July 31, 2001, http://www.naftaclaims.com/commission.htm (last visited March 2, 2006).

^[159] One of the reasons the Metalclad tribunal had to find Mexico in breach of the fair and equitable treatment was that the federal government of the host state had not been transparent, therefore in violation of an article of NAFTA that demanded such transparency. This article was not in chapter 11, but in chapter 1 –actually an objective of NAFTA, but nevertheless the tribunal linked the alleged violation of this external article to the breach of the fair and equitable principle of article 1105.1

^[160] Todd Weiler, NAFTA Article 1105 and the Free Trade Commission: Just Sour Grapes, Or Something More Serious?, 29 Int’l Bus. Lawyer 491 (Dec. 2001).

^[161] Charles Brower, II et al., supra note 61, at 11.

^[162] Id. See also Vienna Convention on the Law of Treaties, art. 31 (“A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.”)

^[163] Charles Brower, II et al., supra note 61, at 12.

^[164] Percentage calculated taking as a basis the available information listed in website http://www.naftaclaims.com/, maintained by Canadian lawyer Todd Weiler.

^[165] See supra text accompanying note 122. See also Coe, supra note 4, at 1399.

^[166] I took a survey of all the disputes listed in the very helpful website http://www.naftaclaims.com/. Not all claims ended in a final award, but serve the purpose of looking into the litigants’ attitude toward NAFTA Article 1105.1.

^[167] See FUNDAMENTACION Y MOTIVACION, GARANTÍA DE, Segunda Sala de la Suprema Corte de Justicia de la Nación [S.C.J.N.] [Supreme Court], Semanario Judicial de la Federación, Séptima Época, volumen 30 tercera parte, Página 57 (Mex.), available at http://www.scjn.gob.mx/ius2005/UnaTesislnkTmp.asp?nIus=238924. The Fundamentación requisite is the obligation that compels the authority to cite the legal rule that serves as support and enable it to act. See also Stephen Zamora, Jose Ramon Cossio, Leonel Pereznieto, Jose Roldan-Xopa, David Lopez, Mexican Law 241 (Oxford University Press 2004) (stating that fundamentación requires the authority to show a basis in the law in order to issue warrants).

^[168] See id. The motivación requisite is satisfied when the authority explains the reasoning that made it to arrive to the conclusion in a case, and that such conclusion fits within the limits of the norm that it invokes. See also Zamora et al, supra note 167, at 241 (citing that motivación requires the authority to show a basis in the facts in order to issue warrants).

^[169] See FUNDAMENTACION Y MOTIVACION, GARANTIA DE, supra note 149 (“Para que la autoridad cumpla la garantía de legalidad que establece el artículo 16 de la Constitución Federal en cuanto a la suficiente fundamentación y motivación de sus determinaciones, en ellas debe citar el precepto legal que le sirva de apoyo y expresar los razonamientos que la llevaron a la conclusión de que el asunto concreto de que se trata, que las origina, encuadra en los presupuestos de la norma que invoca”), available at http://www.scjn.gob.mx/ius2005/UnaTesislnkTmp.asp?nIus=238924 (explaining what the authority has to do in order to comply with the fundamentación and motivación). See Constitución Política de los Estados Unidos Mexicanos, as amended, Article 16, Diario Oficial de la Federación, 5 de Febrero de 1917 (Mex.) (“Nadie puede ser molestado en su persona, familia, domicilio, papeles o posesiones, sino en virtud de mandamiento escrito de la autoridad competente, que funde y motive la causa legal de procedimiento…”), available at http://www.camaradediputados.gob.mx/leyinfo/.

^[170] See Ignacio Burgoa Orihuela, Las Garantías Individuales 589 (34th ed. 2002) (“[Article 16] es uno de los preceptos que imparten mayor protección a cualquier gobernado, sobre todo a través de la garantía de legalidad que consagra, la cual, dadas su extensión y efectividad jurídicas, pone a la persona a salvo de todo acto de mera afectación a su esfera de derecho que no sólo sea arbitrario, es decir, que no esté asado en norma legal alguna, sino contrario a cualquier precepto, independientemente de la jerarquía o naturaleza del ordenamiento a que éste pertenezca.”). See also Ariel Alberto Rojas Caballero, Las Garantías Individuales en México 314 (Porrúa 2002) (citing that art. 16 of the Mexican Constitution contains the garantía de legalidad – the legality principle.

^[171] Because, unlike Fundamentación, that depends on an objective parameter (the specific articles of the applicable law that control the issue), the Motivación requisite analyzes whether the ratio decidendi used by the authority was adequate.

^[172] For an explanation on the Amparo trial, see Stephen Zamora et al, supra note 167, at 258-74 (Oxford University Press 2004).

^[173] Héctor Fix-Fierro, El Amparo Administrativo y la Mejora Regulatoria en México 49 (Instituto de Investigaciones Jurídicas-UNAM 2005) (“[P]equeña muestra, no representativa pero seleccionada al azar, de expedientes de juicios de amparo indirectos promovidos contra la Procuraduría Federal del Consumidor y la entonces Secretaría de Comercio y Fomento Industrial []. La muestra está compuesta de 58 expedientes concluidos).

^[174] Id. at 52. (“El concepto de violación más reiterado es el de ‘falta de fundamentación y motivación’, lo cual ocurre en 40 amparos (69%).”)

^[175] Beyond the coincidental proximity between the percentages of NAFTA’s article 1105.1 claims of breach of the fair and equitable treatment (67.44%) and Fix-Fierro’s survey of claims of breach of the Fundamentación and Motivación requisite in administrative Amparo trials (69%).

^[176] Information of all claims arisen under NAFTA’s Chapter 11 available at NAFTAClaims – The Disputes, http://www.naftaclaims.com/disputes.htm (last visited March 16, 2006).

^[177] The Azinian, Feldman and GAMI Investment cases are not analyzed because in those instances, the arbitral tribunals determined that: in the first of them, the claim was over a breach of contract – a matter beyond the scope of the fair and equitable treatment; in the second case, the claim versed over tax benefits – therefore falling outside of chapter 11, and in the last case, no demonstration of specific and quantifiable prejudice was made by the claimant.

^[178] Metalclad v. Mexico, Final Award (Sep.2, 2000), available at http://naftaclaims.com/Disputes/Mexico/Metalclad/MetalcladFinalAward.pdf.

^[179] Supra pp. 21-25.

^[180] Metalclad v. Mexico, Final Award ¶ 99.

^[181] See id. ¶ 67 (framing the issue as whether the NAFTA Tribunal went beyond the scope of the submission to arbitration “by deciding upon matters outside Chapter 11”).

^[182] Id.

^[183] Id. ¶ 72.

^[184] Todd Weiler, Good Faith and Regulatory Transparency: The Story of Metalclad v. Mexico, in International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law 701, 705 (Todd Weiler ed., 2005)

^[185] Id. See infra note 344.

^[186] Id.

^[187] See supra p. 11.

^[188] S.D. Myers, Inc. v. Canada Partial Award, (Nov. 13, 2000), available at http://www.appletonlaw.com/cases/Myers%20-%20Final%20Merits%20Award.pdf.

^[189] See generally Wikipedia, http://en.wikipedia.org/wiki/Polychlorinated_biphenyls (last visited March 13, 2006) (explaining that polychlorinated biphenyls (PCBs) are used in a variety of products as heat transfer fluids, hydraulic fluids, lubricating and cutting oils, and as additives in pesticides, paints, adhesives, sealants, plastics, reactive flame retardants, and as a fixative for microscopy. All degradation mechanisms are difficult).

^[190] Id. ¶ 133.

^[191] Id. ¶ 263.

^[192] Id. ¶ 264.

^[193] Id. ¶ 268.

^[194] Id. ¶ 264.

^[195] Id. ¶ 267.

^[196] Id.

^[197] Pope & Talbot v. Canada, Award on the Merits of Phase 2 (Apr. 10, 2001), available at http://www.appletonlaw.com/cases/P&T-Merits%20Award-April%2010,%202001.pdf. Pope, an American investor, was a primary producer and remanufacturer of softwood lumber in British Columbia, Canada.

^[198] Id. ¶ 18. The Agreement provided diverse measures to restrict and control the exportation of softwood lumber from Canada to the United States.

^[199] Id. ¶ 107.

^[200] Id. ¶ 108.

^[201] Id. ¶ 111.

^[202] Id. ¶ 156.

^[203] Id. ¶ 160.

^[204] Id. ¶ 181.

^[205] Id. ¶ 181.

^[206] Mondev Int'l v. United States, Final Award (Oct. 11, 2002), available at http://www.state.gov/documents/organization/14442.pdf.

^[207] Id. ¶ 1. It is to be noted that all the acts attributed to the City of Boston and the Boston Redeveloping Authority occurred before the entry into force of NAFTA; only the actions of the Massachusetts courts happened while NAFTA was in force.

^[208] Id.

^[209] Id.

^[210] Id. ¶ 2.

^[211] Id. ¶ 97.

^[212] Id. ¶ 157.

^[213] Id. ¶ 119.

^[214] Id. ¶ 154.

^[215] Id. ¶ 156.

^[216] Id.

^[217] ADF Group v. United States, Final Award ¶¶ 44-48 (Jan. 9, 2003), available at http://www.state.gov/documents/organization/16586.pdf.

^[218] Id. ¶ 49.

^[219] Id. ¶ 52. Buy America clauses normally require certain percentage of American origin in materials, labor, or both in government procurement and public works.

^[220] Id. ¶ 1.

^[221] Id. ¶ 182.

^[222] Id. ¶ 199.

^[223] Id. ¶ 186.

^[224] Id. ¶ 188.

^[225] Id. ¶ 189.

^[226] Id. ¶ 190. The tribunal also established that ADF had not proven that the federal employees had acted without or in excess of its authority.

^[227] Id. ¶ 191 (Establishing that an assertion of breach of a C.I.L. “duty of good faith adds only negligible assistance in the task of determining or giving content to a standard of fair and equitable treatment”).

^[228] Loewen Group v. United States, Final Award (June 26, 2003) available at http://naftaclaims.com/Disputes/USA/Loewen/LoewenFinalAward.pdf.

^[229] Id. ¶ 4.

^[230] Id. See also id. ¶ 104 (referring that the award of half billion was by far the largest ever awarded in Mississippi).

^[231] Id. ¶ 5.

^[232] Id. ¶ 6.

^[233] Id. ¶ 7.

^[234] Id. ¶ 39. Loewen argued that both conduct occurred during the trial and at the bond stage violated the minimum standard of treatment.

^[235] Loewen Group v. United States, Final Award ¶ 2 (June 26, 2003) available at http://naftaclaims.com/Disputes/USA/Loewen/LoewenFinalAward.pdf. The NAFTA tribunal was criticized by some lawyers, because it failed to protect the claimant because of a technicality. See Don Wallace, Jr., Fair and Equitable Treatment and Denial of Justice: Loewen v. US and Chattin v. Mexico, in International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law 669, 670 (Todd Weiler ed., 2005) (opining that the final award of the NAFTA Tribunal for the Loewen case “is itself a[n] [international] miscarriage and denial of justice”).

^[236] Id. Perhaps the arbitral tribunal was worried with fulfilling an unsolicited pedagogical task, or to help as reference to future NAFTA tribunals.

^[237] Id. ¶ 119.

^[238] Id. ¶ 137.

^[239] Id. ¶ 217. An interesting point is that notwhitstanding that chapter 11 of NAFTA does not require the investor to exhaust local remedies to pursue an investment claim, when the allegation of breach of article 1105.1 is a claim of denial of justice, such exhaustion is a prerequisite, as illustrated by the Loewen case.

^[240] Id. ¶ 128.

^[241] Id.

^[242] Id.

^[243] Waste Management v. Mexico, Award (ICSID Case N° ARB(AF)/ 00/3, Apr. 30, 2004), available at http://naftaclaims.com/Disputes/Mexico/Waste/WasteFinalAwardMerits.pdf

^[244] Id. ¶ 40.

^[245] Id. ¶ 55.

^[246] Id. ¶¶ 54-65.

^[247] Id. ¶¶ 66-69.

^[248] Id. ¶ 71.

^[249] Id. ¶ 72.

^[250] Id. ¶ 87. (Also alleging denial of justice, calling itself a victim of a conspiracy to obstruct its access to judicial and arbitral forums to resolve claims under the concession).

^[251] Id. ¶ 140.

^[252] Id. ¶ 86 (establishing that the fair and equitable treatment allegation was an alternative and overlapping basis to the main claim for expropriation under Article 1110).

^[253] Id. ¶ 115.

^[254] Id. ¶ 138.

^[255] Id. ¶ 115.

^[256] Methanex v. United States, Final Award (Aug. 9, 2005), available at http://naftaclaims.com/Disputes/USA/Methanex/Methanex_Final_Award.pdf.

^[257] Id. ¶ 1.

^[258] Id.

^[259] Methanex v. United States, Notice of Intent to Submit a Claim to Arbitration at 2 (Aug. 9, 2005), available at http://naftaclaims.com/Disputes/USA/Methanex/MethanexNoticeOfIntent.pdf.

^[260] Id.

^[261] Id. ¶ 3.

^[262] Id.

^[263] Id.

^[264] Id.

^[265] Methanex v. United States, Final Award at Part IV - Chapter C - Page 7 ¶ 14. The tribunal noted that when the parties wanted to prohibit discrimination, they did so as in Article 1102; therefore, discrimination, where not prohibited, was permitted.

^[266] Id. Part IV - Chapter C - Page 11 ¶ 25.

^[267] Id. Part IV - Chapter C - Page 8 ¶ 14.

^[268] Id. Part IV - Chapter C - Page 12 ¶ 27.

^[269] Int’l Thunderbird Gaming v. Mexico, Arbitral Award (Jan. 26, 2006), available at http://www.naftaclaims.com/Disputes/Mexico/Thunderbird/Thunderbird_Award.pdf. Because this award is the latest by a NAFTA Chapter 11 tribunal, I will extend in my exposition.

^[270] Id.

^[271] Id. ¶ 2.

^[272] Id. ¶ 42. Under Mexican law, gaming and betting is illegal, according to the Ley Federal de Juegos y Sorteos (available at http://www.camaradediputados.gob.mx/leyinfo/pdf/109.pdf).

^[273] Id.

^[274] Id. ¶ 43.

^[275] Id. ¶ 107.

^[276] Id. ¶ 50.

^[277] Id.

^[278] Id. The representation of the machines as not related to chance, wagering or betting could be made to avoid to be considered means for illegal gaming.

^[279] Id.

^[280] Id. at ¶ 55.

^[281] Id.

^[282] Id.

^[283] Id. ¶ 56.

^[284] Id. ¶¶ 58, 60, 64, 71, 72.

^[285] Id. ¶¶ 65, 70, 73, 74.

^[286] The tribunal seems to agree that luck plays a role in the operation of the machines. See id. ¶ 136 (“The Tribunal notes that the machines operated by EDM are equipped with computerised [sic] random number generators and that it is possible to set the level of payouts, and thus the odds for winning.”)

^[287] Id. ¶ 79.

^[288] Notice of Arbitration, 2, August 1, 2002. For the alternative followed by the parties to the arbitration regarding the administration of the proceedings, see supra note 30.

^[289] Int’l Thunderbird Gaming v. Mexico, Arbitral Award ¶¶ 80-84 (Jan. 26, 2006), available at http://www.naftaclaims.com/Disputes/Mexico/Thunderbird/Thunderbird_Award.pdf.

^[290] Id. ¶ 10.

^[291] Int’l Thunderbird Gaming v. Mexico, Procedural Order One ¶ 4.1 (June 27, 2003), available at http://naftaclaims.com/Disputes/Mexico/Thunderbird/ThunderbirdProceduralOrder1.pdf.

^[292] Int’l Thunderbird Gaming v. Mexico, Arbitral Award ¶ 6. NAFTA’s corresponding articles are: 1102 (National Treatment), art. 1103 (Most-Favored-Nation Treatment), art. 1105.1 (Minimum Standard of Treatment) and art. 1110 (Expropriation and Compensation) of the NAFTA.

^[293] Id. ¶ 186. The detrimental reliance was focused in the Federal government’s formal response to Thunderbird’s written request.

^[294] Id.

^[295] Id.

^[296] Id.

^[297] Id. ¶ 189.

^[298] Id. ¶ 190.

^[299] Id. ¶ 191.

^[300] Id. ¶ 192.

^[301] Id. ¶ 193.

^[302] Id. ¶ 194.

^[303] Id. (announcing that the only facts capable of that would be considered as a violation of the fair and equitable treatment standard would be those that, “weighed against the given factual context, amount[ed] to a gross denial of justice or manifest arbitrariness falling below acceptable international standards”).

^[304] Id. ¶ 195.

^[305] Id. ¶ 166.

^[306] Id. ¶ 195.

^[307] Id. ¶ 197.

^[308] Id. ¶ 198.

^[309] Id. ¶ 222.

^[310] Int’l Thunderbird Gaming v. Mexico, Arbitral Award (Jan. 26, 2006) (Wälde, A., concurring in part and dissenting in part), available at http://www.naftaclaims.com/Disputes/Mexico/Thunderbird/Thunderbird_Dissent.pdf.

^[311] Id. ¶ 2.

^[312] Id. ¶¶ 8, 47. The dissent seems to advocate for the application of what is know as the American rule. See generally Black’s Law Dictionary 82 (7d ed. 1999). Under this rule, all parties to a lawsuit, even the prevailing one – and, in the logic of the dissent, by extension, to an arbitral procedure – must bear its own attorneys' fees. In contrast the English rule asks the losing party to pay the winner's costs and attorney’s fees.

^[313] Id. ¶ 126.

^[314] Id. ¶ 14.

^[315] Id. ¶ 5.

^[316] Id. ¶ 12. In pure commercial arbitration, parties are supposed to be equals in power and size.

^[317] Id. The dissent points out to the disparity between the contestants: an investor in one hand, and a government in the other.

^[318] Id. ¶ 109.

^[319] Id. ¶ 19.

^[320] Id. ¶ 147.

^[321] See supra note 312.

^[322] Int’l Thunderbird Gaming v. Mexico, Arbitral Award ¶ 124 (Jan. 26, 2006) (Wälde, A., concurring in part and dissenting in part).

^[323] Id. ¶ 129.

^[324] UNCITRAL Arbitration Rules, U.N. GAOR, 21st Sess., Supp. No. 39, at 182, U.N. Doc. A/31/39, arts. 38-40 (1976), available at http://www.uncitral.org/pdf/english/texts/arbitration/arb-rules/arb-rules.pdf.

^[325] Id. Art. 40.1.

^[326] May 4, 2006.

^[327] Fair and Equitable Treatment Standard in International Law, supra note 60.The document does not limit itself to NAFTA cases, but includes investment disputes from other fora, as well as state practice and literature.

^[328] Id. at 8.

^[329] Id. at 20.

^[330] Id. at 22.

^[331] For the basis of the binding nature of FTC’s interpretation, see supra note 157.

^[332] Mondev Int'l v. United States, Final Award ¶ 125 (Oct. 11, 2002), available at http://www.state.gov/documents/organization/14442.pdf.

^[333] See Feldman v. Mexico, Final Award ¶ 1 (Dec. 16, 2002), available at http://naftaclaims.com/Disputes/Mexico/Feldman/FeldmanFinalAward.pdf. The Feldman tribunal did not analyze the merits of the claim of Article 1105.1 because it had no jurisdiction over it. See supra note 177. But see Feldman v. Mexico, Final Award, n. 26 (“[B]reach of one substantive provision of Section A should not in itself be considered a breach of a separate provision.”)

^[334] ADF Group v. United States, Final Award ¶ 177 (Jan. 9, 2003), available at http://www.state.gov/documents/organization/16586.pdf (“No more authentic and authoritative source of instruction on what the Parties intended to convey in a particular provision of NAFTA, is possible.”)

^[335] Loewen Group v. United States, Final Award ¶ 126 (June 26, 2003) available at http://naftaclaims.com/Disputes/USA/Loewen/LoewenFinalAward.pdf.

^[336] Waste Management v. Mexico, Award ¶ 98-99 (ICSID Case N° ARB(AF)/ 00/3, Apr. 30, 2004), available at http://naftaclaims.com/Disputes/Mexico/Waste/WasteFinalAwardMerits.pdf.

^[337] GAMI Inv. v. Mexico, Final Award note 14 (Nov. 15, 2004), available at http://naftaclaims.com/Disputes/Mexico/GAMI/GAMIfinalAward.pdf.

^[338] Methanex v. United States, Final Award Part IV - Chapter C - Pages 7-9 (Aug. 9, 2005), available at http://naftaclaims.com/Disputes/USA/Methanex/Methanex_Final_Award.pdf.

^[339] Int’l Thunderbird Gaming v. Mexico, Arbitral Award ¶ 192 (Jan. 26, 2006), available at http://www.naftaclaims.com/Disputes /Mexico/Thunderbird/Thunderbird_Award.pdf. (“The Tribunal shall interpret Article 1105(1) of the NAFTA in accordance with the NAFTA Free Trade Commission’s Notes of Interpretation of certain Chapter Eleven Provisions (‘Minimum Standard of Treatment in Accordance with International Law’) dated 31 July 2001.”)

^[340] NAFTA Free Trade Commission. Statement on NAFTA Article 1105 and the Availability of Arbitration Documents, July 31, 2001, http://www.naftaclaims.com/commission.htm (last visited March 2, 2006).

^[341] Id.

^[342] Id.

^[343] Howard Mann & Konrad von Moltke, Protecting Investor Rights and the Public Good: Assessing NAFTA’s Chapter 11. Background Paper to the ILSD Tri-National Policy Workshops Mexico City: March 13; Ottawa March 18; Washington: April 11, at 19 (Int’l Inst. for Sustainable Dev. 2003), available at http://www.iisd.org/pdf/2003/investment_ilsd_background_en.pdf. The critique of lack of transparency is common to all arbitrations, not only to investor-state arbitrations; secretiveness is part of the nature of this alternative dispute resolution mechanism. The FTC took a step forward to move towards transparency in its interpretation of July 31, 2001; so far we have analyzed that interpretation regarding article 1105.1, but in that occasion the commission also declared that parties to arbitration would “make available to the public in a timely manner all documents submitted to, or issued by, a Chapter Eleven tribunal.” See also http://www.iisd.org/pdf/2001/trade_nafta_aug2001.pdf.

^[344] See Coe, supra note 4, at 1146. See also Mann & Moltke, supra note 344, at 20.

^[345] NAFTA Chapter 11 Investor-to-State Cases :Bankrupting Democracy. Lessons for Fast Track and the Free Trade Area of the Americas, Public Citizen, Sep. 2001, at 27, available at http://www.citizen.org/documents/ACF186.PDF.

^[346] See Aguilar Alvarez, supra note 19, at 387.

^[347] Id. at 393. Developing countries, traditionally capital importers, have been in that position since the beginning of the history of investment protection; only now with NAFTA and similar investment agreements among developed countries, the roles are inverted.

^[348] Id.

^[349] Id. at 387.

^[350] For an explanation on the resistance of developing countries against the minimum standard of treatment, see supra pp. 7-11.

^[351] Aguilar Alvarez, supra note 19, at 388.

^[352] NAFTA Article 102.1 (“The objectives of this Agreement, as elaborated more specifically through its principles and rules, including national treatment, most-favored-nation treatment and transparency, are to: [] a) eliminate barriers to trade in, and facilitate the cross-border movement of, goods and services between the territories of the Parties; [] b) promote conditions of fair competition in the free trade area; [] c) increase substantially investment opportunities in the territories of the Parties; [] d) provide adequate and effective protection and enforcement of intellectual property rights in each Party's territory; [] e) create effective procedures for the implementation and application of this Agreement, for its joint administration and for the resolution of disputes; and [] f) establish a framework for further trilateral, regional and multilateral cooperation to expand and enhance the benefits of this Agreement.”)

^[353] Jeff Fugate, A Recipe for Success, Yale Eco. Rev., Spring 2005, available at http://www.yaleeconomicreview.com/issues/spring2005/nafta.php.

^[354] Abram Chayes & Antonia Handler Chayes, The New Sovereignty: Compliance with International Regulatory Agreements (Harvard Univ. Press 1995), reprinted in Oona A. Hathaway & Harold Hongju Koh, Foundations of International Law and Politics, at 181 (Foundation Press 2005). For a fresh critique on the traditional concept of sovereignty, see also Louis Henik, That “S” Word: Sovereignty, and Globalization, and Human Rights, Et Cetera, 68 Fordham L. Rev. 1, 1-14 (1999).

^[355] Id. at 182.

^[356] See table p. 32. The Azinian case, first claim that produced an arbitral award, the tribunal did not see a breach of the fair and equitable treatment and found for the respondent – Mexico. But in Metalclad, a liberal interpretation of the tribunal on article 1105.1 was hold against the respondent, by the first time in NAFTA’s history. The S.D. Myers and Pope & Talbot cases produced a similar result against Canada.

^[357] See table supra p. 32. Starting with the Mondev award and up to our last final resolution in Thunderbird, there are zero findings for the claimants regarding the fair and equitable treatment.

^[358] Those are the Metalclad, S.D. Myers and Pope & Talbot cases. See table supra p. 32.

^[359] See Regional and Bilateral Initiatives, http://www.dfait-maeci.gc.ca/tna-nac/reg-en.asp (last visited April 22, 2006).

^[360] See SICE – Canada-Israel Free Trade Agreement, http://www.sice.oas.org/Trade/can-isr/can-isr.asp (last visited April 22, 2006).

^[361] Free Trade Agreement between the Government of Canada and the Government of the Republic of Chile, July 31, 1996, Article G-05.1 , available at http://www.dfait-maeci.gc.ca/tna-nac/cda-chile/chap-g26-en.asp#I (“Each Party shall accord to investments of investors of the other Party treatment in accordance with international law, including fair and equitable treatment and full protection and security.”)

^[362] See Regional and Bilateral Initiatives, http://www.dfait-maeci.gc.ca/tna-nac/bilateral-en.asp (last visited April 22, 2006).

^[363] Regional and Bilateral Initiatives, http://www.dfait-maeci.gc.ca/tna-nac/ccftacommission-en.asp (last visited April 22, 2006). (“B. Minimum Standard of Treatment in Accordance with International Law… 1. Article G-05.1 prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to investments of investors of another Party…. 2. The concepts of "fair and equitable treatment" and "full protection and security" 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 the CCFTA, or of a separate international agreement, does not establish that there has been a breach of Article G.”)

^[364] Free Trade Agreement Between the Government of Canada and the Government of the Republic of Costa Rica, April 23, 2001, available at http://www.sice.oas.org/Trade/cancr/English/cancrin.asp.

^[365] Free Trade Agreement Between the Government of Canada and the Government of the Republic of Costa Rica, April 23, 2001, Article VIII.2, available at http://www.sice.oas.org/Trade/cancr/English/cancrin.asp (“The Parties note the existence of the Agreement between the Government of Canada and the Government of Costa Rica for the Promotion and Protection of Investments, signed in San José, Costa Rica, on March 18, 1998 (APPI).”)

^[366] Agreement between the Government of Canada and the Government of Costa Rica for the Promotion and Protection of Investments, Art. II.2.c, available at http://www.dfait-maeci.gc.ca/tna-nac/documents/FIPA/costa_rica_CORRECTED.pdf.

^[367] See Regional and Bilateral Initiatives, http://www.dfait-maeci.gc.ca/tna-nac/reg-en.asp (last visited April 22, 2006).

^[368] Regional and Bilateral Initiatives, http://www.dfait-maeci.gc.ca/tna-nac/fipa-en.asp.

^[369] See CROATIA-E.pdf, http://www.dfait-maeci.gc.ca/tna-nac/documents/FIPA/CROATIA-E.pdf (last visited April 22, 2006)

^[370] See Regional and Bilateral Agreements, http://www.dfait-maeci.gc.ca/tna-nac/fipa_list-en.asp (last visited April 22, 2006).

^[371] Canada is limiting the likeability of having an arbitral award as liberal as the Metalclad award by incorporating an interpretation by the Canada-Chile FTC similar to the one done by the NAFTA FTC.

^[372] Mexico signed post-NAFTA FTAs with Costa Rica, Bolivia, the European Union, Chile, Israel, the Northern Triangle (Honduras, Guatemala and El Salvador), EFTA States (Republic of Iceland, the Principality of Liechtenstein, the Kingdom of Norway and the Swiss Confederation), Uruguay and Japan. Cfr. SICE – Trade Agreements – Mexico, http://www.sice.oas.org/Trade/mex_e.ASP (last visited April 30, 2006).

^[373] FTAs with Costa Rica, Bolivia, the European Union and the EFTA states include a chapter on investment, but do not provide for fair and equitable treatment for investors; the FTA with Israel do not have a chapter on investment. Cfr. http://www.sice.oas.org/Trade/mex_e.ASP.

^[374] Tratado de Libre Comercio entre el Gobierno de la República de Chile y el Gobierno de los Estados Unidos Mexicanos, Oct. 1, 1998, available at http://www.sice.oas.org/Trade/chmefta/indice.asp.

^[375] Id. art. 9-06.1 (“Cada Parte otorgará a las inversiones de los inversionistas de la otra Parte, trato acorde con el derecho internacional, incluido trato justo y equitativo, así como protección y seguridad plenas”), available at http://www.sice.oas.org/Trade/chmefta/chme10.asp#9-06.

^[376] Tratado de Libre Comercio entre los Estados Unidos Mexicanos y las Repúblicas de El Salvador, Guatemala y Honduras, Junio 29, 2000, art. 14-03 (“Cada Parte otorgará a los inversionistas de otra Parte y a sus inversiones, un trato acorde con el derecho internacional, incluido el trato justo y equitativo, así como protección y seguridad jurídica dentro de su territorio.”), available at http://www.sice.oas.org/Trade/mextnorte/tlcpXII.asp#c14.

^[377] Tratado de Libre Comercio entre el Gobierno de la República Oriental del Uruguay y el Gobierno de los Estados Unidos Mexicanos, Nov. 15, 2003, art. 13-06.1 (“1. Sujeto a lo dispuesto en el Anexo 13-06(1), cada Parte otorgará a las inversiones de los inversionistas de la otra Parte, trato acorde con el derecho internacional, incluido trato justo y equitativo, así como protección y seguridad plenas”), available at http://www.sice.oas.org/Trade/mexurufta_s/Chap13_s.asp#CAPÍTULO_XIII.

^[378] Id. Anexo 13-06(1) (“1. El artículo 13-06(1) establece el nivel mínimo de trato a los extranjeros propio del derecho internacional consuetudinario, como el nivel mínimo de trato que debe otorgarse a las inversiones de los inversionistas de otra Parte…. 2. Los conceptos de ‘trato justo y equitativo’ y ‘protección y seguridad plenas’ no requieren un trato adicional al requerido por el nivel mínimo de trato a los extranjeros propio del derecho internacional consuetudinario, ni que vaya más allá de éste…. 3. Una resolución en el sentido de que se ha violado otra disposición de este Tratado o de un acuerdo internacional distinto no establece que se ha violado el artículo 13-06(1)”), available at http://www.sice.oas.org/Trade/mexurufta_s/Chap13_s.asp#CAPÍTULO_XIII.

^[379] Agreement between Japan and the United Mexican States for the Strengthening of the Economic Partnership, Art. 60 September 17, 2004 (“Each Party shall accord to investments of investors of the other Party treatment in accordance with international law, including fair and equitable treatment and full protection and security”), available at http://www.sice.oas.org/Trade/JPN_MEXDraftEPA_e/text_agreem_e.pdf

^[380] Id. (“This Article prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to investments of investors of the other Party. The concepts of ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens. 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.”)

^[381] FTAs with Singapore, Chile, Australia, Morocco and Central America (CAFTA) include provisions that call for fair and equitable treatment for foreign investors. FTAs with Jordan and Bahrain do not contain a chapter on investment, and as a consequence, no call for fair and equitable treatment is made.

^[382] United States-Singapore Free Trade Agreement, May 6, 2003, art. 15.5 (“1. Each Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment… 2. For greater certainty, paragraph 1 prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to covered investments. The concepts of ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights [] (a) The obligation in paragraph 1 to provide ‘fair and equitable treatment’ includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world; and [] (b) The obligation in paragraph 1 to provide “full protection and security” requires each Party to provide the level of police protection required under customary international law. [] 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”), available at http://www.sice.oas.org/Trade/USA-Singapore/Chap15_e.asp#arti15.5; Free Trade Agreement between the Government of the United States of America and the Government of the Republic of Chile, June 6, 2003, art.10.4 (text similar to article 11.5 of the United States-Singapore Free Trade Agreement), available at http://www.sice.oas.org/Trade/chiusa_e/Chap10_e.asp#Chapter%20Ten; United States-Australia Free Trade Agreement, May 18, 2004, art. 11.5 (text similar to article 11.5 of the United States-Singapore Free Trade Agreement), available at http://www.sice.oas.org/Trade/US-AusFTAFinal/2004-06-18version/ausfta_text_june11_rect.pdf; Dominican Republic-Central America-United States Free Trade Agreement, June 15, 2004, art. 10.5 (text similar to article 11.5 of the United States-Singapore Free Trade Agreement), available at http://www.sice.oas.org/Trade/CAFTA/CAFTADR_e/asset_upload_file328_4718.pdf.

^[383] Wallace, supra note 235, at 694 n.114.

^[384] Treaty between the Government of the United States of America and the Government of [Country] Concerning the Encouragement and Reciprocal Protection of Investment (2004) , available at http://www.ustr.gov/assets/Trade_Sectors/Investment/Model_BIT/asset_upload_file847_6897.pdf.

^[385] Cfr. http://tcc.export.gov/Trade_Agreements/Bilateral_Investment_Treaties/index.asp.

^[386] For the three approaches that explain the fair and equitable treatment standard, see p. 13.

^[387] See supra pp. 27-29.

^[388] This scenario does not seem likely to happen, due in part to the complex nature of treaty modifications in the domestic legal systems of Canada, Mexico and the United States. In Mexico’s case, the lack of majority of the political party of the president in Congress provoked a legislative semi-paralysis, and polls indicate that the winning candidate for this year’s elections would face an opposition Congress.

^[389] The problem with C.I.L. is that its formation is not as expedite as the circumstances of this case would require. However, a broad rule of evidence of C.I.L., as proposed by Professor Zamora, could dilute the disadvantage of clarifying the content of the fair and equitable treatment through development of C.I.L. See supra note 118.

^[390] Probably this is the easiest option to define the content of the fair and equitable principle as provided by article 1105.1 of NAFTA. However, this scenario could probably occur only if a chapter 11 tribunal makes another ruling on the principle, against the interest of the members of NAFTA – as happened with Metalclad. Without a drastic situation like that, Canada, Mexico and the United States have no incentive to modify the status quo.