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Agreements
Nature of IIAs
Two types
Bilateral Investment Treaties
Chapters in Free Trade Agreements
Investors sue host State
Rights of foreign investors
Right of State to regulate
Quality of jurisprudence creates uncertainty
Paucity of environmental provisions means
Potential conflicts between foreign investment
protection and environmental protection
Risk of litigation and compensation to foreign
investors for climate change regulation
Relation to WTO law
Similar concepts and terminology
Same rules of interpretation (VCLT)
Same sources of international law
IIA tribunals may consider WTO jurisprudence
(judicial decisions per Art. 38 ICJ Statute)
Measures can violate obligations in both BUT
WTO: obligation to comply, no liability
IIA: significant award of damages
WTO versus IIA forum
Some States may decline to litigate where
private actors will not (eg tobacco cases)
Litigation may proceed on both fronts
Mexico soda tax cases: USA, Archer Daniels
Midland, Corn Products International, Cargill
Australia plain packaging cases: Cuba,
Dominican Republic, Honduras, Ukraine, Philip
Morris Asia
Canada renewable energy cases: EU, Japan,
Mesa Power Group (no contract), Windstream
Energy (onshore vs offshore wind energy)
Scope
Principal IIA obligations
(1) non-discrimination (MFN and national
treatment)
(2) minimum standard of fair and equitable
treatment for foreign investors
(3) obligation to pay compensation for
expropriation
BUT only if IIA applies to the measure.
Does IIA apply in a specific case?
Which climate change measures might be
the subject of claims under IIAs?
What types of investments are covered?
Is environmental regulation a measure
relating to foreign investments or foreign
investors?
Climate change measures
Mitigation: carbon taxes, emissions
trading schemes, border tax adjustments,
carbon labels, standards, clean energy
subsidies, other infrastructure projects
(energy, carbon sequestration)
Adaptation: zoning bylaws, infrastructure
projects such as flood barriers
Investments
Foreign ownership/control
Salini test: investors contributions;
duration of performance; existence of
operational risks; contribution to economic
development of host state
Contractual claims/rights
Intellectual property rights/compulsory
licenses
Connection between
measure and investment
Climate change measures may be subject
to IIAs if:
the measures relate to foreign investments or
foreign investors
the substance or procedural aspects of
measures violate specific IIA obligations
BUT not where
based on (preliminary) scientific evidence
non-discriminatory design & application
Methanex v United States
NAFTA Article 1101 relating to requires a
legally significant connection between a
measure and an investor or an investment.
Non-discriminatory environmental measure did
not relate to foreign investment or investors.
Measure applied regardless of nationality.
Scientific and administrative record established
environmental purpose.
Tribunal had no jurisdiction to hear the claim.
S. D. Myers v Canada
Canadian ban on export of PCBs to protect the
Canadian PCB disposal industry from US competition.
Ban relates to S. D. Myers and its investment.
No legitimate environmental reason for ban.
Basel Convention on the Control of Transboundary
Movements of Hazardous Wastes and Their Disposal
discourages transboundary movements of hazardous
wastes.
In this case it was environmentally preferable to ship
hazardous wastes from Central Canada to Ohio than to
Canadas only PCB disposal facility in Alberta, due to
Ohios much closer proximity.
Methanex and S.D. Myers
Host government can argue that an
environmental measure does not relate to
investors or investments.
Requires scientific evidence regarding
contribution of measure to environmental
protection.
Public interest or a private interest?
MEA may be relevant if specific obligation.
GATT Article XX jurisprudence may be relevant
to some extent.
NAFTA: limited scope of
environmental exceptions
No general exception, so real issue is
legitimacy of environmental measure.
IIAs do not negate right of States to
regulate climate change in public interest.
Article 1106: limited exception for domestic
content requirements, preferences for
domestic goods, services
Article 1114: pollution havens
Non-discrimination
Non-discrimination obligations:
MFN and national treatment
Less favorable treatment (LFT) of investors and
investments in like circumstances.
Use different likeness criteria for goods
producers and service providers?
Should test focus on competitive relationship
between different investors and investments?
Are differences in the impact on climate change
relevant to determine like circumstances?
Take into account PPMs to determine likeness?
Legitimate regulatory distinction test for LFT?
S. D. Myers v Canada
like circumstances
Like circumstances must take into account:
whether the foreign and national investors are in the
same economic or business sector and
circumstances that would justify governmental
regulations that treat them differently in order to
protect the public interest.
Comparators provided same PCB disposal
services and were competitors, so like.
Focus on competition is consistent with WTO.
S. D. Myers v Canada
less favorable treatment
Does effect of measure create a disproportionate benefit
for nationals over non-nationals?
Does measure, on its face, appear to favor nationals
over non-nationals?
Protectionist intent relevant if measure produces an
adverse effect on the foreign complainant.
Legitimate environmental goal, consistent with policy
objectives of the Basel Convention.
BUT Canada could have taken alternative measures to
achieve this objective that would have been consistent
with NAFTA.
Is this reading in the GATT Article XX necessity test?
Methanex v United States
appropriate comparator
Given the existence of domestic methanol
producers, they were the appropriate point
of comparison, not ethanol producers.
Methanex did not receive less favorable
treatment than the identical domestic
comparators, producing methanol.
Tribunal did not need to determine how to
interpret the term like circumstances.
NAFTA Article 1202 (services)
like circumstances
US-Mexico Trucking Services panel accepted
differential treatment for legitimate regulatory
objectives related to safety as valid factor, BUT:
differential treatment should be no greater than
necessary for legitimate regulatory reasons &
treatment should be equivalent to treatment accorded
to domestic service providers.
Similar to S. D. Myers less favorable treatment
Similar to WTO legitimate regulatory distinction
Feldman v Mexico
[T]he concept of discrimination has been
defined to imply unreasonable distinctions
between foreign and domestic investors in like
circumstances.
Would distinctions based on carbon footprint be
reasonable where investors are otherwise in like
circumstances?
Would differential treatment based on different
GHG emissions meet legitimate regulatory
distinctions test and not be less favorable
treatment?
Nykomb v Latvia
National treatment in Energy Charter Treaty.
Latvia interfered with right of foreign investor to
benefit from subsidy for renewable energy.
Latvia continued to support low-carbon
installations operated by domestic investors.
Nykomb operating in comparable conditions.
i.e. no legitimate regulatory distinction.
Fair and equitable treatment