Turning back to non-discrimination under NAFTA Chapter 11, which has become a recent obsession of mine, in addition to Grand River Enterprises, there is another NAFTA Chapter 11 case dealing with non-discrimination standards that is worth talking about: The Corn Products case (discussed on this blog by Luke Peterson just the other day). The nice thing about this one, in contrast to Grand River, is that there is an actual decision, which was just recently released publicly. Luke's general summary of the case is here. I'm going to focus on the non-discrimination parts, although there is a lot more of interest in there.
At the outset, the decision sets out the following legal standard for non-discrimination:
117. First, it must be shown that the Respondent State has accorded to the foreign investor or its investment "treatment ... with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition" of the relevant investments. Secondly, the foreign investor or investments must be "in like circumstances" to an investor or investment of the Respondent State ("the comparator"). Lastly, the treatment must have been less favourable than that accorded to the comparator.
I'm interested in the last part: "less favourable treatment." I should note, however, that the reasoning blurs this aspect with the second one, "in like circumstances." As the arbitrators themselves say in para. 118, "there is a close relationship between whether the State intentionally discriminated on grounds of nationality and the test of like circumstances." To deal with this, what I'm going to do is just quote the key portions, regardless of which factor they were discussed under, then talk about them all together. Here's the quote:
132. The present case might be analogous to GAMI if HFCS had been produced in equal (or nearly equal) volume by Mexican-owned and US-owned firms. In that circumstance, a measure designed adversely to affect the market for HFCS in order to protect the position of the sugar industry could not have been held to violate the requirement of national treatment. But the uncontradicted evidence in this case was that production of HFCS in Mexico was wholly concentrated in foreign-owned enterprises (predominantly CPI, which had of the HFCS share of the market for soft drink sweeteners), whereas production of sugar was largely carried out by Mexican nationals (with the Mexican State itself owning a substantial part of sugar production). Thus, the effect of what was, in substance, a special tax on HFCS was the distortion of the market in favour of domestic suppliers and to the disadvantage of the foreign investors protected by Chapter XI of the NAFTA.
...136. Moreover, in marked contrast to Methanex and GAMI, the present case - concerns a measure the purpose of which was to affect the competition between the products produced by the foreign and domestic investors and to afford a considerable competitive advantage to the latter. The competition between the two products - HFCS and sugar - was at the heart of the measure adopted. By contrast, in Methanex, it was not the competition which concerned those taking the measure but the environmental effect of one of the products. In GAMI the competition between the products was largely irrelevant. In these circumstances, the Tribunal cannot escape the conclusion that the producers of like products which were directly competitive were in like circumstances as regards a measure designed expressly for the purpose of affecting that competition.
137. It is also relevant that, again in contrast to GAMI and Methanex, nationality was a highly pertinent factor in the imposition of the tax. In saying that, the Tribunal does not endorse the submissions made by CPI based upon the remarks of individual members of the Mexican Congress about the purpose of the legislation. We have doubts about the extent to which such comments can legitimately be treated as evidence of the intent of the Legislature as a whole, let alone of the State itself, in imposing a measure of this kind, although we do not need finally to decide that point. Rather, it is the countermeasures justification advanced by Mexico which we consider important. If the HFCS tax was intended as a countermeasure targeted against the United States, it had to have been crafted in such a way that it bore especially heavily upon US interests, otherwise it would have had no chance of being effective or of being a lawful countermeasure. As counsel for Mexico said in the course of the oral hearing, "the model Countermeasure is one that causes pain". But that pain has to be caused to the State against whom the countermeasure is targeted, in this case the United States. While the Tribunal will consider whether the HFCS tax amounted to a lawful countermeasure in the next Part of the Decision, we must at this stage say that the very fact that such a justification has been advanced amounts to a recognition by Mexico that HFCS producers and suppliers were targeted, in part at least, because of the extent of their links to the United States.
138. That factor is also decisive for the third part of the test set out in paragraph 117, above. It demonstrates an intention on the part of Mexico to treat CPI differently because of its nationality. While the existence of an intention to discriminate is not a requirement for a breach of Article 1102 (and both parties seemed to accept that it was not a requirement), where such an intention is shown, that is sufficient to satisfy the third requirement. But the Tribunal would add that, even if an intention to discriminate had not been shown, the fact that the adverse effects of the tax were felt exclusively by the HFCS producers and suppliers, all of them foreign-owned, to the benefit of the sugar producers, the majority of which were Mexican-owned, would be sufficient to establish that the third requirement of "less favourable treatment" was satisfied.
I found the discussions of both intent and effect to be very interesting. Both are somewhat controversial in the WTO context. Here, it is interesting to compare the arbitrators' views to those taken in WTO decisions.
With regard to intent, the arbitrators were not afraid to talk about the purpose of the measure. In this regard, they said that evidence of discriminatory purpose was sufficient to prove "less favourable treatment." This seems to me to go further than WTO panels/Appellate Body have. There has been some talk about purpose there, but I can't recall them going as far as saying intent alone was sufficient to show less favorable treatment. On the other hand, the arbitrators here made clear that they were skeptical of evidence that was based on statements by individual legislators. This sounds a lot like some of the statements in the Japan and Chile Alcohol cases.
As to effect, the arbitrators seemed to view the required effect as something based on an overall comparison of all foreign investors with all domestic investors in "like circumstances." To me, this approach seems to be parallel to what I see as the trend in WTO dispute settlement, and is at odds with the view that the treatment of an individual foreign investor or foreign product is all that needs to be looked at. As a result of this finding, the similar issues in the Grand River Enterprises case become even more interesting. Will the Grand River arbitrators follow this approach? Or will they go a different way?
