Jurisdictional Overlap in WTO Dispute
Settlement and Investment Arbitration
ALBERTAS ŠEKŠTELO, FCIArb 15 May 2014, Kaliningrad
Content of this presentation
•
•
•
•
•
•
Imaginary case example
Why relevant?
Threats of “fragmentation”
Main differences between WTO and BIT Dispute Settlement Regimes
Jurisdictional Overlap between WTO and BIT Dispute Settlement Systems
(in general and case-law examples)
Soft solutions
Legal services in
Estonia / Latvia / Lithuania
2
Instead of Prologue
Case: Private investor made considerable investments in social security – invested into
State’s social health insurance. The State is both a member of the WTO Agreement and
relevant BIT. Later, the State amended legislation and thus precluded the investor from
benefit of its investments.
Two scenarios:
• WTO:
○ Annex I B of the WTO Agreement – GATS (General Agreement on Trade in
Services);
○ State-to-State dispute settlement under DSU (Investor’s State v. the State in
question);
○ Non-discrimination principle;
○ Most-Favored Nation Treatment principle.
• BIT:
○
○
○
○
○
•
•
Legal services in
Estonia / Latvia / Lithuania
Investor-State Negotiations (cooling-off period);
Investor-State arbitration;
Indirect (“creeping” expropriation);
Breach of Fair and Equitable Treatment principle (in fact, discrimination);
Eureco v. the Slovak Republic, PCA case No. 2008-13, Award on Jurisdiction,
Arbitrability and Suspension of 26 October 2010.
Both remedies provided in WTO and BIT supplement each other;
Question: what is relation between WTO and BIT proceedings if, despite
pending DSU proceedings, Investor commence Investor-to-State arbitration
under the BIT?
3
Why relevant?
• By the end of 2011 States had signed 2,833 Bilateral Investment Treaties
•
•
•
(BITs) United Nations Conference on Trade and Development statistics
E.g. Lithuania has concluded 42 BITs, Russia - 50
WTO had 159 members on 2 March 2013
BITs and WTO Agreement often contain similar substantive provisions, e.g.
regarding National Treatment Principle (non-discrimination):
○ Article III(4) of the General Agreement on Tariffs and Trade (GATT)
1994: ”The products of the territory of any contracting party imported into the territory of any
other contracting party shall be accorded treatment no less favourable than that accorded to
like products of national origin in respect of all laws, regulations and requirements […]”
○ Article 3(1) of the Lithuanian-Russian BIT: “Each Contracting Party shall accord
in its territory to the investors, investments made by investors of the other Contracting Party
and activities related to such investments fair and equal treatment […]”
Legal services in
Estonia / Latvia / Lithuania
4
Fragmentation
• Fragmentation: United Nations International Law Commission Study
Group made a report in 2006 on the fragmentation in international law (UN
Doc. A/CN/4/L/682).
• Definition: Emergence of specialized and (relatively autonomous rules or
rule-complexes, legal institutions and spheres of legal practice (emphasis
added)
• Fragmentation exists in three levels:
○ Normative – various legal regimes, e.g. trade law, human rights law,
environment law
○ Institutional – closely related to normative level and implements the
normative level, e.g. courts, tribunals
○ Professional – unique legal techniques, professional styles applicable
in each regime
• Risks of Fragmentation:
○ Creates jurisdictional overlaps (e.g. WTO Agreement vs. BIT)
○ Conflicting decisions (e.g. CME and Lauder cases: same facts,
different (related) claimants, different BITS and tribunals, opposite
Legal services in
awards – see next slide):
Estonia / Latvia / Lithuania
5
CME, Lauder vs. Czech Republic (cont.)
• In 1993, US national Ronald Steven Lauder
•
•
•
Legal services in
Estonia / Latvia / Lithuania
invested in
Czech private television broadcaster TV Nova through his
German company (which was later succeeded by the Dutch
company Central European Media (CME).
Some 20 suits started in front of the Czech courts and
international tribunals, including UNCITRAL arbitrations CME v.
Czech Republic and Lauder v. Czech Republic, after his
business partner, Czech citizen Vladimir Železny, effectively
deprived CME of its investment by breaking off the deal between
Lauder's and Železný's companies.
CME and Lauder respectively sought damages for the alleged
interference of the Czech Media Council, a government entity
granting broadcasting licenses, into the business arrangements
between Lauder's and Železný's companies, which supposedly
eventually contributed to losses experienced by Lauder.
Effectively dealing with the same facts, the tribunals handed
down two contradictory arbitral awards: one dismissed the claim
by Lauder, while the other awarded CME damages of $270
million and 10% interest. Finally Czech republic paid $355
million.
6
Main differences between WTO and BIT Dispute
Settlement Regimes
• WTO Dispute Settlement Regime:
○ Goal - to bring a country member in compliance with its obligations vis-à-vis other
○
○
○
○
○
○
members under the WTO agreements
Unique platform – DSU
State-to-state mechanism
Expedited timetable codified in DSU (6 moth for a panel to render a decision)
Remedies – prospective such as withdrawal or modification of the WTOinconsistent government measure
Review – Appellate Body (issues of law)
Partially confidential
• BIT Dispute Settlement Regime:
○ Goal - enables private actors to bring an action against a state in an international
○
○
○
○
○
Legal services in
Estonia / Latvia / Lithuania
○
forum
Different platforms – relevant BITs
Investor-to-State mechanism
No codified timetable (ICSID average case including annulment – 3.6 years)
Remedies – retrospective such as damages
Review – very limited and related to breach of fair process (ICSID – annulment
proceedings; other – recognition under New York Convention)
Usually confidential
7
Jurisdictional Overlap between WTO and BIT
Dispute Settlement Systems (in general)
• International Private and Public Law employ general principles of law: lis
•
pendens for fighting with parallel (concurrent) proceedings, and res
judicata to prevent successive (one before the other) proceedings
These instruments do not work in WTO vs. BIT regimes:
○ Triple Identity test for both lis pendens and res judicata (ILA report
2006):
• Same relief
• Same grounds
• Same parties
○ WTO vs. BIT regime:
• Different reliefs
• Different grounds
• Different parties
• Such situation creates jurisdictional overlap
Legal services in
Estonia / Latvia / Lithuania
8
Jurisdictional Overlap between WTO and BIT
Dispute Settlement Systems (case-law examples)
• Softwood Lumber Dispute:
○ US vs. Canada
○ Centered on alleged Canadian subsidies to softwood lumber producers
○ The dispute yielded 4 WTO disputes, 15 North American Free Trade
Agreement (NAFTA) Chapter 19 cases (anti-dumping), and 6 disputes
under NAFTA Chapter 11 (non-discrimination)
○ Settlement agreement signed in 2006
○ On 12 decisions rendered by WTO bodies, none
coordination between WTO and NAFTA dispute settlement
discusses
• The “Sweeteners” Dispute:
○ US vs. Mexico
○ Re. Mexico’s 20 % tax on other sweeteners than cane sugar, such as
High Fructose Corn Syrup (HFCS). Cane sugar producers were
Mexican-owned, US investors manufactured and distributed HFCS in
Mexico. The burden of tax was imposed on US investors. Mexico
stated that this tax was a response to the US’ violation of NAFTA
(denial of access to the US market for most of Mexico’s surplus sugar
produce)
Legal services in
Estonia / Latvia / Lithuania
9
Jurisdictional Overlap between WTO and BIT
Dispute Settlement Systems (case-law cont.)
• The “Sweeteners” Dispute (cont.):
○ US successfully challenged the tax before the WTO
○ WTO panel: the tax was discriminatory, and violated GATT Article III
(Panel Report, Mexico – Taxes on Soft Drinks, WT/DS308/R, para.
9.2); HFCS and cane sugar were “like products” and HFCS received
less favorable tax treatment than (domestic) cane sugar. The panel
held that such discrimination was not justified under GATT Article
XX(d) and refused to consider Mexico’s countermeasures defense.
○ The Appellate Body upheld the panel’s decision
○ Mexico repealed the tax in 2006
○ US investors brought claims under NAFTA Chapter 11 (national
treatment, expropriation):
• Corn Products International vs. Mexico: the Tribunal relied on WTO
Legal services in
Estonia / Latvia / Lithuania
findings and stated that GATT Article III contained language analogous to
NAFTA’s national treatment provisions (Article 1102). However, tests for
discrimination were separate and distinct (NAFTA: investor or investments
in “like circumstances”, GATT – “like products”). Breach of NAFTA Article
1102
• Archer Daniels Midland Co and Tale & Lyle vs. Mexico: cited and agreed
with the WTO panel’s finding. Violation of NAFTA Article 1102.
10
How to deal with Jurisdictional Overlap (“soft”
solutions)?
• WTO dispute bodies have emphasized the distinctions between WTO and
•
•
non-WTO regimes and the limited relevance of BIT tribunals award
By contrast, BIT tribunals have in several cases relied on the findings of
WTO panels (both factual and law)
Soft (without amending the governing treaties) Solutions to prevent overlap
and different decisions:
○ Comity – each consecutive tribunal must respect previous adjudicating
body‘s decision
○ Stay of proceedings – BITs tribunals are in better position as WTO
dispute settlement bodies have to comply with strict timetables codified
in the DSU (DSU allows stay of proceedings up to 12 month only, DSU
Article 12(12))
○ Request for documents and information
○ Informal dialogue – e.g. joint WTO and BIT adjudicators’ conferences,
taskforces etc.
Legal services in
Estonia / Latvia / Lithuania
11
Albertas Šekštelo, FCIArb
Senior Associate
albertas.sekstelo@tgslegal.com