Investor state dispute settlement
Encyclopedia
Investor State Dispute Settlement (ISDS) provisions in international trade
treaties grant investors covered by provisions with a right to initiate dispute settlement proceedings against foreign governments in their own right under international law
.
Traditionally, dispute settlement under international law
has involved disputes between nation states. Under customary international law
, a foreign investor is required to seek the resolution of such a dispute in the tribunals and/or courts of the country concerned. Over 2000 Bilateral Investment Treaty
(BIT) currently exist and they provide foreign investors with a direct means for redress against states for breaches of such treaties. A notable example is Chapter 11 of the North American Free Trade Agreement
(NAFTA). NAFTA Chapter 11 allows investors of one NAFTA party (Canada, United States or Mexico) to bring claims directly against the government of another NAFTA party before an international panel of arbitrators.
Because NAFTA Article 1121 waives the local remedies rule, investors are not required to exhaust their remedies in domestic court before filing Chapter 11 claims. Investors may initiate an arbitration against the NAFTA Party under the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL Rules") or the Arbitration (Additional Facility) Rules of the International Centre for Settlement of Investment Disputes
("ICSID Additional Facility Rules"). NAFTA Chapter 11 was the first instance of an investor-state provision allowing such claims by developed nations against each other and this has caused consternation to both the United States and Canada.
, environmental protection
and human rights
. Despite the fact that investor state claims (or the threat of them) can significantly inhibit the capacity of domestic governments to pass public health and environmental protection legislation, they are carried out in secret, by trade lawyers who earn income from the parties and are not accountable to the public or required to take into account broader constitutional and international law human rights norms.
also alleged that the challenged US court decision in favour of the Pfizer
drug company expropriated Apotex’s investments in generic versions of the antidepressant Zoloft under NAFTA Article 1110 as was manifestly unjust.
Apotex relied on the doctrine that a manifestly unjust domestic legal decision breaches international law and can be viewed as a substantive denial of justice. Apotex has also brought a similar claim involving US regulatory provisions concening an abbreviated new drug development application for Pravachol and patents allegedly held by Bristol Myers Squibb. Apotex has two claims involving different generic products. However up to now (August 20 , 2011) the Tribunal has not decided on its own jurisdiction. Apotex withdrew its application to stay its second-filed Notice of Arbitration, without prejudice or waiver of its right to reintroduce that application after resolution of any jurisdictional issues.http://www.state.gov/s/l/c27648.htm The United States intends to defend this claim vigorously
Melvin Howard, a US citizen, on behalf of The Centurion Health Corporation and the Howard Family Trust, served Canada with a "Notice of Intent" on July 16, 2008 claiming $US160 million. Melvin Howard alleges that a proposed project, the Regent Hills Health Care Centre was treated in a manner that contravened Canada's NAFTA Chapter 11 obligations. The claim alleged the Canadian government amongst other things breached its obligations under NAFTA Article 1102, directly and through Canada’s municipalities and Provinces, by not providing the US investor through clear guidance from the Government of Canada with the best treatment available to US competitors in the monopoly health care services market, and in particular, US surgical services and breached its obligations under NAFTA Article 1103 by failing to accord the Investor and its enterprises of Canada most favored nation treatment by providing treatment to Canadian Investors that is better than the treatment provided to the Claimant. The claim specifically challenges that the Canada Health Act under which the federal government of Canada ensures that the provinces and territories meet certain requirements, such as free and universal access to insured health care. Accordingly, the Federal Government of Canada through the Act constitutes both a “state enterprise” and a “government
monopoly” for purposes of NAFTA Articles 1502 and 1503.
Chemtura Corporation
(“Chemtura”), a United States agricultural pesticide products manufacturer, alleges that the Government of Canada, through its Pest Management Regulatory Agency
(the “PMRA”), wrongfully terminated its pesticide business in lindane-based products, which are used on canola/rapeseed, mustard seed and cole crops to control flea beetle
infestations, and on cereal crops to control wireworm. Chemtura alleges NAFTA violations of Article 1105 (minimum standard of treatment) and Article 1110 (expropriation).
On August 25, 2008, Dow AgroSciences
LLC, a U.S. corporation, served a Notice of Intent to Submit a Claim to Arbitration under Chapter Eleven of the NAFTA, for losses allegedly caused by a Quebec ban on the sale and certain uses of lawn pesticides containing the active ingredient 2,4-D.
A multinational tobacco company is using provisions in the Australia-Hong Kong Biliateral Investment treaty (BIT) to demand compensation for Australia's Plain cigarette packaging
anti-smoking legislation, despite the fact the legislation is non-discriminatory and addresses a significant public health problem.
International trade
International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product...
treaties grant investors covered by provisions with a right to initiate dispute settlement proceedings against foreign governments in their own right under international law
International law
Public international law concerns the structure and conduct of sovereign states; analogous entities, such as the Holy See; and intergovernmental organizations. To a lesser degree, international law also may affect multinational corporations and individuals, an impact increasingly evolving beyond...
.
Nature of investor-state dispute settlement
International law
Public international law concerns the structure and conduct of sovereign states; analogous entities, such as the Holy See; and intergovernmental organizations. To a lesser degree, international law also may affect multinational corporations and individuals, an impact increasingly evolving beyond...
has involved disputes between nation states. Under customary international law
Customary international law
Customary international law are those aspects of international law that derive from custom. Along with general principles of law and treaties, custom is considered by the International Court of Justice, jurists, the United Nations, and its member states to be among the primary sources of...
, a foreign investor is required to seek the resolution of such a dispute in the tribunals and/or courts of the country concerned. Over 2000 Bilateral Investment Treaty
Bilateral Investment Treaty
A bilateral investment treaty is an agreement establishing the terms and conditions for private investment by nationals and companies of one state in another state. This type of investment is called foreign direct investment . BITs are established through trade pacts...
(BIT) currently exist and they provide foreign investors with a direct means for redress against states for breaches of such treaties. A notable example is Chapter 11 of the North American Free Trade Agreement
North American Free Trade Agreement
The North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada – United States Free Trade Agreement...
(NAFTA). NAFTA Chapter 11 allows investors of one NAFTA party (Canada, United States or Mexico) to bring claims directly against the government of another NAFTA party before an international panel of arbitrators.
Because NAFTA Article 1121 waives the local remedies rule, investors are not required to exhaust their remedies in domestic court before filing Chapter 11 claims. Investors may initiate an arbitration against the NAFTA Party under the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL Rules") or the Arbitration (Additional Facility) Rules of the International Centre for Settlement of Investment Disputes
International Centre for Settlement of Investment Disputes
The International Centre for Settlement of Investment Disputes , an institution of the World Bank Group based in Washington, D.C., was established in 1966 pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States...
("ICSID Additional Facility Rules"). NAFTA Chapter 11 was the first instance of an investor-state provision allowing such claims by developed nations against each other and this has caused consternation to both the United States and Canada.
Investor-state dispute settlement and human rights
Much debate has arisen concerning the impact of investor-state provisions on the capacity of democratically-elected governments to implement reforms and legislative and policy programs related to public healthPublic health
Public health is "the science and art of preventing disease, prolonging life and promoting health through the organized efforts and informed choices of society, organizations, public and private, communities and individuals" . It is concerned with threats to health based on population health...
, environmental protection
Environmental protection
Environmental protection is a practice of protecting the environment, on individual, organizational or governmental level, for the benefit of the natural environment and humans. Due to the pressures of population and our technology the biophysical environment is being degraded, sometimes permanently...
and human rights
Human rights
Human rights are "commonly understood as inalienable fundamental rights to which a person is inherently entitled simply because she or he is a human being." Human rights are thus conceived as universal and egalitarian . These rights may exist as natural rights or as legal rights, in both national...
. Despite the fact that investor state claims (or the threat of them) can significantly inhibit the capacity of domestic governments to pass public health and environmental protection legislation, they are carried out in secret, by trade lawyers who earn income from the parties and are not accountable to the public or required to take into account broader constitutional and international law human rights norms.
Examples of investor-state claims
Under Ch. 11 of NAFTA Apotex Inc., a Canadian pharmaceuticals corporation, has alleged that U.S. courts committed errors in interpreting federal law, and that such errors were in violation of NAFTA Article 1102 (national treatment) and Article 1105 (minimum standard of treatment under international law). ApotexApotex
Apotex is a Canadian pharmaceutical corporation. Founded in 1974, the company is the largest producer of generic drugs in Canada, with sales exceeding one billion dollars a year...
also alleged that the challenged US court decision in favour of the Pfizer
Pfizer
Pfizer, Inc. is an American multinational pharmaceutical corporation. The company is based in New York City, New York with its research headquarters in Groton, Connecticut, United States...
drug company expropriated Apotex’s investments in generic versions of the antidepressant Zoloft under NAFTA Article 1110 as was manifestly unjust.
Apotex relied on the doctrine that a manifestly unjust domestic legal decision breaches international law and can be viewed as a substantive denial of justice. Apotex has also brought a similar claim involving US regulatory provisions concening an abbreviated new drug development application for Pravachol and patents allegedly held by Bristol Myers Squibb. Apotex has two claims involving different generic products. However up to now (August 20 , 2011) the Tribunal has not decided on its own jurisdiction. Apotex withdrew its application to stay its second-filed Notice of Arbitration, without prejudice or waiver of its right to reintroduce that application after resolution of any jurisdictional issues.http://www.state.gov/s/l/c27648.htm The United States intends to defend this claim vigorously
Melvin Howard, a US citizen, on behalf of The Centurion Health Corporation and the Howard Family Trust, served Canada with a "Notice of Intent" on July 16, 2008 claiming $US160 million. Melvin Howard alleges that a proposed project, the Regent Hills Health Care Centre was treated in a manner that contravened Canada's NAFTA Chapter 11 obligations. The claim alleged the Canadian government amongst other things breached its obligations under NAFTA Article 1102, directly and through Canada’s municipalities and Provinces, by not providing the US investor through clear guidance from the Government of Canada with the best treatment available to US competitors in the monopoly health care services market, and in particular, US surgical services and breached its obligations under NAFTA Article 1103 by failing to accord the Investor and its enterprises of Canada most favored nation treatment by providing treatment to Canadian Investors that is better than the treatment provided to the Claimant. The claim specifically challenges that the Canada Health Act under which the federal government of Canada ensures that the provinces and territories meet certain requirements, such as free and universal access to insured health care. Accordingly, the Federal Government of Canada through the Act constitutes both a “state enterprise” and a “government
monopoly” for purposes of NAFTA Articles 1502 and 1503.
Chemtura Corporation
Chemtura Corporation
Chemtura Corporation is a marketer of specialty chemicals, polymer products, and processing equipment for a variety of industries. The company formed in 2005 from the merger of two other corporations: Great Lakes Chemical Corporation of West Lafayette, Indiana, and Crompton Corporation of...
(“Chemtura”), a United States agricultural pesticide products manufacturer, alleges that the Government of Canada, through its Pest Management Regulatory Agency
Pest Management Regulatory Agency
The Pest Management Regulatory Agency is the Canadian government agency responsible for the regulation of pest control products in Canada under the federal authority of the Pest Control Products Act which came into force on June 28, 2006. The agency reports to Parliament through Health Canada. The...
(the “PMRA”), wrongfully terminated its pesticide business in lindane-based products, which are used on canola/rapeseed, mustard seed and cole crops to control flea beetle
Flea beetle
Flea beetles is a general name applied to the small, jumping beetles of the leaf beetle family . They make up the tribe Alticini, which is a part of the subfamily Galerucinae, though they were historically classified as a subfamily in their own right...
infestations, and on cereal crops to control wireworm. Chemtura alleges NAFTA violations of Article 1105 (minimum standard of treatment) and Article 1110 (expropriation).
On August 25, 2008, Dow AgroSciences
Dow AgroSciences
Dow AgroSciences LLC is a wholly owned subsidiary of the Dow Chemical Company specializing in not only agricultural chemicals such as pesticides, but also seeds and biotechnology solutions. The company is based in Indianapolis, Indiana, in the United States...
LLC, a U.S. corporation, served a Notice of Intent to Submit a Claim to Arbitration under Chapter Eleven of the NAFTA, for losses allegedly caused by a Quebec ban on the sale and certain uses of lawn pesticides containing the active ingredient 2,4-D.
A multinational tobacco company is using provisions in the Australia-Hong Kong Biliateral Investment treaty (BIT) to demand compensation for Australia's Plain cigarette packaging
Plain cigarette packaging
Plain cigarette packaging is Australian legislation that requires cigarettes to be sold in plain packages throughout the country from December 2012. Branding and advertising will be replaced by logo-free, drab dark brown packaging with health warnings...
anti-smoking legislation, despite the fact the legislation is non-discriminatory and addresses a significant public health problem.
State responses to investor-state claims
In 2011 the Gillard Australian Government announced that it would discontinue the practise of seeking inclusion of investor state dispute settlement provisions in trade agreements with developing countries. It stated that it: "supports the principle of national treatment — that foreign and domestic businesses are treated equally under the law. However, the Government does not support provisions that would confer greater legal rights on foreign businesses than those available to domestic businesses. Nor will the Government support provisions that would constrain the ability of Australian governments to make laws on social, environmental and economic matters in circumstances where those laws do not discriminate between domestic and foreign businesses. The Government has not and will not accept provisions that limit its capacity to put health warnings or plain packaging requirements on tobacco products or its ability to continue the Pharmaceutical Benefits Scheme...In the past, Australian Governments have sought the inclusion of investor-state dispute resolution procedures in trade agreements with developing countries at the behest of Australian businesses. The Gillard Government will discontinue this practice. If Australian businesses are concerned about sovereign risk in Australian trading partner countries, they will need to make their own assessments about whether they want to commit to investing in those countries...Foreign businesses investing in Australia will be entitled to the same legal protections as domestic businesses but the Gillard Government will not confer greater rights on foreign businesses through investor-state dispute resolution provisions."See also
- International Centre for Settlement of Investment DisputesInternational Centre for Settlement of Investment DisputesThe International Centre for Settlement of Investment Disputes , an institution of the World Bank Group based in Washington, D.C., was established in 1966 pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States...
(ICSID) - United Nations Commission on International Trade Law (UNCITRAL)