Investment Arbitration Reporter

By Luke Eric Peterson

In a recently-published arbitral award, arbitrators hearing an investor’s claim against the United States have declined to consider that the breach of non-NAFTA obligations might give rise to a breach of a controversial NAFTA provision.

In reaching this decision, the arbitrators expressly deferred to a 2001 interpretive note issued by the three NAFTA signatories (Canada, United States and Mexico).

The 2001 statement by the NAFTA Free Trade Commission (FTC) was occasioned by concern that arbitrators might take capacious readings of the ambiguously-worded NAFTA Article 1105 (which provides for “treatment in accordance with international law”). Hence, the NAFTA parties made clear that the contentious clause “do[es] not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens”.

The statement also stressed that 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).”

In the view of the arbitrators in the Grand River v. U.S.A. case, the 2001 statement foreclosed any prospect that a breach of some other international law obligation – including certain human rights and indigenous rights – could give rise to a breach of NAFTA Article 1105.

For their part, the claimants had pointed to a string of supposed international law obligations which the United States was alleged to have violated - particularly ones which mandate consultation with indigenous peoples prior to making important regulatory decisions affecting their interests.

Lawyers for the U.S. State Department disagreed as to the legal status of certain of the external obligations cited by claimants; but, in any event, the United States insisted that the tribunal should bow to the clear statement of the three NAFTA parties to the effect that such non-NAFTA obligations could not be imported into the NAFTA via Article 1105.

Minimum Standard does not vary for indigenous persons, or cover discrimination

Of particular note, the arbitral tribunal rejected an argument by claimants which posited that their status as indigenous persons meant that the U.S. could be held to a higher standard under Article 1105. While expressing some sympathy for the treatment meted out to the claimants by U.S. authorities, the tribunal held that NAFTA Article 1105 mandated a uniform standard of treatment for all foreign investments – one which did not admit of specialized procedural rights owing to some categories of investors (for e.g. indigenous persons).*

The tribunal also rejected an argument by claimants that Article 1105 could be read to contain an obligation of non-discrimination against special or disadvantaged groups (and a concomitant duty to consult such groups when their commercial interests were at issue.)

On this point, the tribunal nodded to the earlier Methanex v. U.S.A. arbitration, where a different tribunal held that there was nothing in the content of NAFTA Article 1105 which prevented governments from according different treatment to aliens relative to the host country’s nationals.

Tribunal’s use of Vienna Convention raises questions

The tribunal’s reluctance to import non-NAFTA obligations into the NAFTA by means of Article 1105 does not come as a great surprise in light of the lengthy efforts undertaken by NAFTA governments to preclude such a reading of the NAFTA.

However, the tribunal’s discussion of its interpretive task is phrased in an ambiguous manner. In response to the claimants’ urging that the tribunal take account of “other rules of international law”**, the tribunal seems to construe this as an invitation to consider the interpretive rules set forth in the Vienna Convention on the Law of Treaties (VCLT).

To this end, the tribunal makes clear that it will not “import” other rules of international law into the NAFTA, nor will the tribunal permit “alteration of an interpretation established through the normal interpretive processes of the Vienna Convention.”

However, it is difficult to judge whether the arbitrators’ avowed unwillingness to “alter” an interpretation based on other rules of international law should be read as a mere reiteration of their unwillingness to “import” or “transplant” other norms into the NAFTA, or, perhaps, as a more sweeping (and controversial) denial of the role that other external legal norms might play (via VCLT Article 31(3)(c)) in shaping the very interpretation of a treaty obligation.

Arbitrators do not comment on VCLT Article 31(3)(c)

The arbitral award is notable for not touching upon the role of Article 31(3)(c) of the Vienna Convention, which provides that interpretations shall take account of “any relevant rules of international law applicable in the relations between the parties”.

While Article 31(3)(c) does not operate as a springboard for “importing” external norms into a given treaty, such as the NAFTA – and providing claimants with the ability to claim for the breach of such external obligations - it might be the case that other relevant rules of international law might shape an arbitral tribunal’s interpretation of a given investment treaty or trade agreement obligation.

For instance, to take an extreme hypothetical, a tribunal might take account of other rules, such as a human rights norm proscribing human slavery, in a context where an investor (which utilizes slave labor in its activities) argues for a narrow construction of certain investment treaty protections.*** In such a scenario, an effort by arbitrators to interpret an investment treaty protection in light of broader “relevant rules of international law” – including norms proscribing slavery - might take place without there being any fear that external norms are “imported” into the basic treaty.

While Article 31(3)(c) has been the subject of much discussion in the investment law secondary literature, arbitral tribunals have tended not to acknowledge this clause of the VCLT, even in cases where they advert to external legal norms for interpretive guidance or analogies.****

Hence, in the recent Grand River award, it remains difficult to assess whether the tribunal recognizes and acknowledges the role that external legal obligations may play in the interpretive process, even where such norms may not be imported or transplanted into the core treaty being interpreted.

* The tribunal expressed this sympathy in its decision to not shift any of the arbitration costs onto the claimants. Moreover, two of the three arbitrators went further in the body of the award in making several findings which laid blame at the door of U.S. authorities, even while finding that the treatment of the Mr. Montour’s investments did not rise to the level where it breached the NAFTA. ** The claimants cited, among other things, treaties between the United States and Canada affecting the Haudenosaunee tribe (of which certain claimants were members), in particular the 1794 Jay Treaty; customary law rules affecting indigenous peoples; and fundamental human rights norms, including jus cogens principles. *** The term "narrow" is used here to denote an interpretation which focuses narrowly on the investor protection (to the exclusion of other background norms); it is not meant to denote a narrow, limited or parsimonious view of the protection owed to the investor. Indeed, on the narrow (or blinkered) reading that is meant here, the investor's protection might be broader if it is not interpreted in light of outside norms proscribing human slavery. **** See a research note prepared by IAReporter for the UN Conference on Trade and Development (UNCTAD) for background, and discussion of the secondary literature: http://www.unctad.org/en/docs/webdiaeia20097_en.pdf

Investment Arbitration Reporter is a specialized news publication tracking developments in the area of international investment law and policy.

The publication does not offer legal or financial advice or recommendations of any kind.
 
To offer news-tips or comments, email the Editor, Luke Eric Peterson, at: editor@iareporter.com