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WTO Law and International Investment Agreements

The law on the relationship between environmental law and international economic law is most developed in WTO agreements regarding trade in goods, particularly GATT, the TBT Agreement, and the SPS Agreement. Even so, as we noted in Chapter 3, many legal issues remain unresolved in WTO law on trade in goods. The relationship between international intellectual property law and environmental law is far less developed. Foreign investment law also remains underdeveloped in this regard. However, there is more jurisprudence on this issue in foreign investment law than in international intellectual property law. Nevertheless, the WTO jurisprudence remains more developed and is more sophisticated than the jurisprudence in foreign investment law. All three areas of international economic law employ similar concepts and similar terminology, for example in national treatment and most-favored-nation obligations. However, the nature and context of these three fields differ in many respects. Thus, it is not easy to determine the extent to which developments in one area can be incorporated into another.

There is a growing interest in the relationship between WTO law and foreign investment law. This is due to several factors. First, the two areas use similar concepts and terminology.9 Second, the WTO jurisprudence is of a higher quality, international investment rules obstruct climate protection policies? (World Resources Institute, Washington 2001); Kate Miles, “International Investment Law and Climate Change: Issues in the Transition to a Low Carbon World” Society of International Economic Law (SIEL) Inaugural Conference, 2008 (accessed October 15, 2012).

9 Nicholas DiMascio and Joost Pauwelyn, “Nondiscrimination in Trade and Investment Treaties: Worlds Apart or Two Sides of the Same Coin?” (2008) 102 AJIL 48.

more developed and is often taken into account by international investment arbitration panels. Indeed, the legal reasoning of international investment tribunals can be deficient.[1] Third, it is now clear that some measures can violate obligations in both areas. However, the consequences are very different. A violation of WTO law merely produces an obligation to bring the offending measure into compliance, with no liability for damages. A violation of international investment law can lead to a significant award of damages against the host country.

In Archer Daniels Midland v. Mexico and Corn Products International v. Mexico, foreign investors succeeded in their damage claims under NAFTA Chapter 11 for a Mexican tax on the use of high fructose corn syrup that discriminated in favor of Mexican sugar producers.[2] A WTO panel had found that the tax violated Mexico’s national treatment obligations in GATT Article III:2.[3] The NAFTA Chapter 11 panels considered the WTO panel report in their determination of the violation of the national treatment obligation in Chapter 11, although they emphasized it was not determinative due to the differences in the terms and contexts of the national treatment obligations in GATT and in Chapter 11. Mexico invoked the public international law defense of countermeasures, arguing that its tax was justifiable as a countermeasure to induce US compliance with its NAFTA obligations regarding Mexican sugar imports. One panel held that public international law did not permit the use of countermeasures against foreign investors; they could only be taken against a foreign government. The other panel held that, while Mexico could invoke the public international law defense of countermeasures, it had not met the relevant criteria. This divergence of opinion between the two Chapter 11 panels raises the issue of whether foreign investors might succeed in a claim for damages against a WTO Member that applies countermeasures authorized by the WTO Dispute Settlement Body. The answer should be no, since the presumption against conflicts in international law would require investment arbitrators to interpret investment law in a manner that does not conflict with WTO law. Nevertheless, these cases demonstrate the potential for WTO law to influence foreign investment law and vice versa. There are tobacco cases regarding Australia’s plain packaging law that raise issues regarding the relationship between WTO law and foreign investment law.[4] In addition, there are cases regarding clean energy subsidies in both areas of international economic law, which we discuss below.

NAFTA Article 1131(1) requires the Tribunal to “decide the issues in dispute in accordance with this Agreement and applicable rules of international law.” Article 38(1) of the Statute of the International Court of Justice sets out the sources of international law: international conventions, international custom, general principles of law, judicial decisions and the teachings of the most highly qualified publicists. The Vienna Convention on the Law of Treaties, which codifies the customary rules of treaty interpretation, applies to the interpretation of international investment treaties just as it applies to the interpretation of WTO law. In Methanex v. United States, the Tribunal and the parties agreed that GATT and WTO jurisprudence fall within the scope of “judicial decisions” that may be employed as “subsidiary means for the determination of rules of law” pursuant to Article 38 of the ICJ Statute. However, the Tribunal also recognized that the relevance of GATT and WTO jurisprudence depended on differences between the relevant texts, contexts and the objects and purposes of the different treaties, in accordance with Article 31 of the Vienna Convention. In this regard, the Methanex Tribunal cited the International Tribunal for the Law of the Sea in the MOXPlant case (as also applied in the OSPAR case): “the application of international law rules on interpretation of treaties to identical or similar provisions of different treaties may not yield the same results, having regard to, inter alia, differences in the respective contexts, objects and purposes, subsequent practice of parties and travaux preparatories.”14

In relation to environmental regulation, there are some important differences between international trade agreements and international investment agreements. Here, we illustrate these differences with respect to the WTO and NAFTA Chapter 11. First, only governments have access to the dispute settlement system of the WTO (and comparable dispute settlement systems in free trade agreements, including NAFTA Chapter 20). This filters out challenges to some measures. In contrast, private investors can file claims directly against host governments under international investment agreements, such as NAFTA Chapter 11. Private investors may be less likely to question the wisdom of challenging governments’ right to regulate than government themselves.15 Second, GATT contains general exceptions for environmental measures. Other WTO agreements on trade in goods (not cases_e/ds434_e.htm> (accessed November20, 2012), raises issues under the TRIPS Agreement, TBT Agreement, and GATT. Philip Morris Asia Ltd. v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012—12. Regarding tobacco investment cases, see TaniaVoon andAndrew Mitchell, “Time to Quit? Assessing International Investment Claims against Plain Tobacco Packaging in Australia”

  • (2011) 14JIEL515.
  • 14 Methanex Corporation v. United States, NAFTA/UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits (3 August 2005) para. 16. The MOX Plant case (Ireland v. United Kingdom), Order on Provisional Measures, 3 December 2001, 41 ILM 405, 413, para. 51, quoted in Access to Information under Article 9 ofthe OSPAR Convention (Ireland v. UnitedKingdom), 42 ILM 1118, 1144, para. 141.
  • 15 Of course, this depends on the government. For example, Ukraine has filed a complaint against Australia at the WTO regarding its plain packaging tobacco regulations. See Australia—Certain Measures Concerning Trademarks and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging, DS434 (accessed December 20, 2012).

all) incorporate the language of the GATT exceptions, but framed as obligations. In both cases, provision is made to balance trade obligations against the right to regulate environmental protection. In contrast, NAFTA Chapter 11 does not contain a general exception for environmental measures, even though environmental protection and sustainable development are recognized as legitimate goals in the NAFTA Preamble, and environmental goals are reconfirmed in the subsequent North American Agreement on Environmental Cooperation (NAAEC). This means that the right to regulate should be addressed differently in the context of Chapter 11 than it is in the WTO context.[5]

The presumption against conflict in international law, as well as the rules that resolve conflicts, should come into play to avoid or to resolve conflicts between WTO law and IIAs. The presumption against conflicts requires tribunals to avoid conflicting interpretations of different international agreements. Where there is insufficient ambiguity in the treaty terms to avoid conflicts through interpretation, the general rules are that the specific prevails over the general (lex specialis) and the later prevails over the earlier treaty (lexposterior) in the event of a conflict. However, as we noted above, international investment tribunals vary in their approach to issues. This uncertainty is combined with need to consider specific provisions of specific treaties, which together make it difficult to generalize regarding how conflicts might be avoided or resolved.[6]

  • [1] Federico Ortino, “Legal Reasoning of International Investment Tribunals: A Typology ofEgregious Failures” (2012) 3 Journal of International Dispute Settlement 31.
  • [2] Archer Daniels Midland Co. and Tate & Lyle Ingredients Americas, Inc. v. United Mexican States,ICSID Case No. ARB(AF)/04/5, Award (November 21, 2007); Corn Products International, Inc. v.United Mexican States, ICSID Case No. ARB(AF)/04/1, Decision on Responsibility (January 15,2008); Cargill, Incorporated v. United Mexican States, ICSID Case No. ARB(AF)/05/2, Award (September 18, 2009); Mexico v. Cargill, Incorporated 2010 ONSC 4656 (Ontario Superior Court of Justice);Mexico v. Cargill, Incorporated2011 ONCA 622 (Ontario Court ofAppeal); Mexico v. Cargill, Incorporated (2012), leave to appeal to Supreme Court of Canada denied.
  • [3] Appellate Body Report, Tax Measures on Soft Drinks and Other Beverages (Mexico—Taxes on SoftDrinks), WT/DS308/AB/R, adopted March 24, 2006.
  • [4] Australia—Certain Measures Concerning Trademarks and Other Plain Packaging RequirementsApplicable to Tobacco Products and Packaging, DS434 (complaint by Ukraine), DS435 (complaint byHonduras), DS441 (complaint by the Dominican Republic)
  • [5] Methanex Corporation v. United States, Amicus Curiae Submission (submitted by Howard Mannand Don McRae, International Institute for Sustainable Development) (March 9, 2004) para. 23 (accessed August 10, 2012).
  • [6] See generally Joost Pauwelyn, Conflict of Norms in Public International Law: How WTO LawRelates to Other Rules of International Law (Cambridge University Press, Cambridge 2003).
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