Continuing with my occasional (although becoming somewhat frequent) posts on NAFTA Chapter 11 non-discrimination standards, there is a new decision to talk about: Merrill & Ring v. Canada. The basic facts, from the Tribunal:
26. This case concerns a claim by the Investor in respect of the implementation of Canada‘s Log Export Regime to the Investor‘s timber operations in British Columbia and the requirement that any of its exports be subject to a log surplus testing procedure, among other regulatory measures.
Luke Peterson of the Investment Arbitration Reporter describes the case as follows:
The U.S. firm had contended that Canada imposed restrictions on the export of logs from Canada to the United States, and that these restrictions obliged the company to sell its products in Canada for less than they could fetch if exported to the United States. The claimant also objected to the administration of the log export regime which was viewed as exerting unfair, un-transparent and discriminatory effects.
With regard to the national treatment claims, the investor's arguments are at paras. 60-68 and Canada's arguments are at 69-78. Here are some key extracts the Tribunal's summary of the investor's arguments (much of the focus was on "in like circumstances"):
61. It is argued in this connection that the Investor is in "like circumstances" with log producers that export logs from other parts of Canada and from other parts of British Columbia, as is also in "like circumstances" with other log exporters in that province, including those located in coastal areas. All these other log exporters are either not subject to the Log Export Control regime as practiced by Canada in British Columbia or subject to less restrictive regulatory measures.
62. This different treatment is, in the Investor‘s argument, particularly evident with respect to the unavailability of standing exemptions for its operations. Those benefiting from such exemptions have a significant advantage in treatment as opposed to those that have been excluded, such as the Investor. These advantages result from the fact that the producer knows in advance that it will be able to export its logs and can thus enter into supply contracts with its customers, for which it will be able to obtain the best market price, it is not subject to the surplus test and thus free from "blockmailing", and its products will not be subject to the exposure to the natural elements resulting in deterioration and infestation.
...
64. ... the Investor asserts that treatment ought to be compared with that accorded to domestic investments in the same economic or business sector, which is to be broadly understood, including in particular the requirement to provide for competitive opportunities. It is argued in this respect that in view of NAFTA‘s objective of promoting conditions of fair competition in a free trade area, the equality of competitive opportunities is an essential element of the national treatment standard. ...
65. In the Investor‘s submission, the concept of "like circumstances" does not mean that circumstances need to be identical and that even if the standard laid down in the Methanex decision is followed, so as to compare an investor with a domestic investor in an identical product market, in the instant case the test is satisfied because the product market for all comparisons is that of log producers....
67. The fact that the Investor is in "like circumstances" with log producers in Alberta, but subject to a restrictive regulatory export regime which does not apply to the latter, should be enough to establish that national treatment has not been observed. In addition, the Investor, as a producer in the British Columbia coast, is subject to stricter harvesting and sorting requirements than those that apply in the British Columbia interior. The Investor also asserts to be in "like circumstances" with producers in the British Columbia coast, many of which are subject to the more lenient conditions of provincial regulations. ...
The Tribunal's reasoning is at paras. 79-94. I'm not going to go through all of the reasoning; rather I'll just quote some parts I found interesting and talk a bit about them.
First up, the role of intent:
80. The Tribunal in S.D. Myers related "treatment" to a requirement of a practical impact on the investment and not merely a motive or intent so as to produce a breach of Article 1102. While motive or intent cannot be excluded from the scope of Article 1102 beforehand, it is not an issue that arises in the instant case.
I always like talking about intent in the context of non-discrimination, and I was glad to see that this Tribunal would not exclude intent entirely. But nothing going on with the issue in this case, unfortunately.
Next, an important issue related to the relevance of different levels of government in the context of "in like circumstances":
81. An additional issue concerning treatment that the Tribunal also needs to consider is whether the treatment accorded to the Investor by the national government can be compared to that accorded under British Columbia jurisdiction. Canada argues in this respect that Article 1102(3) specifically distinguishes the treatment accorded by a state or province from that of the national government and, thus, the two cannot be compared.
82. Despite the fact that, on occasion, concurrent jurisdictions relating to the same activity might make that distinction difficult, as in some respects the instant case appears to reflect, the Tribunal considers the argument made by Canada correct. Treatment accorded to foreign investors by the national government needs to be compared to that accorded by the same government to domestic investors, subject to meeting the requirement to be in "like circumstances", just as the treatment accorded by a province ought to be compared to the treatment of that province in respect of like investments.
I'm not sure yet what I think about this aspect of the reasoning. I suppose it depends in part on what exactly the claim is. If the claim relates entirely to the actions of the national government, then I think I agree that sub-national government actions would not be relevant. But if it is the overall treatment resulting from the actions of various levels of government, it might not be so easy to separate out the different actions. The issue came up again later in the reasoning:
89. Having decided that the proper comparison is between investors which are subject to the same regulatory measures under the same jurisdictional authority, which in the instant case is the comparison between foreign and domestic investors subject to Notice 102 and the national jurisdiction of the Canadian government, the Tribunal must now determine which is the appropriate comparator for the purposes of the treatment accorded to investors "in like circumstances" under Article 1102.
90. To the extent there are investors in identical circumstances to be compared, this makes it unnecessary to resort to the Methanex alternative choice noted above of finding investors in the most like circumstances. Such identically situated investors are those log producers operating on lands under federal jurisdiction in British Columbia and subject of course to the same requirements under Notice 102. ...
91. Canada has persuasively argued that the Investor must be compared to other log producers subject to Notice 102 and not to producers in other provinces, notably Alberta, or to producers that are operating under the provincial regulations. As some of the Investor‘s operations are located in provincially regulated lands, these ought to be compared with those operations of similarly located log producers, whether in respect of the surplus test or of harvesting and sorting requirements. Some sub-categories of provincially regulated operations, such as producers in remote areas of British Columbia, which is also the case of some of the Investor‘s operations, ought to be compared within that sub-category.
...
93. ... In all the comparisons that are made within the appropriate category, the treatment the Investor is accorded is identical to that accorded to domestic investors in the same category. ...
The basic idea, if I follow this correctly, is that the companies subject to particular regulations (e.g., federal or provincial) should be grouped together, and compared within the category (federal to federal, provincial to provincial). I see the argument, but I'm not sure I'm convinced that companies that fall into different regulatory categories are never in "like circumstances." However, I have a hard time reaching a firm conclusion on the point in the context of this case, mainly because this is in part a factual question and I'm not all that clear on the facts here. I can imagine a situation where it is the overall regulatory regime, including both national and sub-national laws, that is at issue, and thus the categories might not be relevant for the comparison. But I'm not sure this case matches that situation.
Now a bit of talk about whether to look at the "best treatment" available:
93. ... In all the comparisons that are made within the appropriate category, the treatment the Investor is accorded is identical to that accorded to domestic investors in the same category. Here, there is no issue as to which is the best treatment available to an investor, such as was discussed in Pope & Talbot, since the treatment here is the same in each category of comparison.
This "best treatment" point is another issue I would have liked to have seen discussed, as it is important for the scope of the national treatment standard. Nothing got resolved here -- it will have to wait for another case.
Finally, the last paragraph, which for me was the most interesting part:
94. The Tribunal turns lastly to the issue of whether the purpose of Article 1102 is to prevent nationality-based discrimination as discussed in Feldman. In that case, the Tribunal concluded that the concept of national treatment in Article 1102 "is designed to prevent discrimination on the basis of nationality, or by 'reasons of nationality‘". While nationality-based discrimination would make a finding of breach of national treatment unavoidable, some argue that this is not the only aim of the concept of national treatment under Article 1102. They would say that, even in the absence of discrimination, a differentiated treatment which is arbitrary and unjustified might qualify as a breach of national treatment. Thus discrimination might entail considerations other than nationality. However, in the instant case there is not the slightest evidence that any of the measures discussed might be based on considerations of the nationality of the Investor. As concluded above, nor is there any differentiated treatment on other grounds among the appropriate categories of comparison. Accordingly the Investor‘s Article 1102 case must fail.
Parsing the things people say about non-discrimination can be extremely difficult. I've been reading some old GATT cases recently, and I often find myself thinking, "What did they mean by that?" Sometimes the same phrase can be used by different people to refer to different conceptions of national treatment. Also, the different conceptions can be hard to define. As a result, it's not always clear what a panel/tribunal has in mind.
Here, the Tribunal was somewhat clear in distinguishing between two approaches to national treatment, but I do have some questions nonetheless.
First, the Tribunal refers to "nationality-based discrimination." I'm not sure everyone uses this term in the same way. It could mean: (1) de jure discrimination based on nationality, or (2) de facto discrimination where there is evidence of intent and effect, or even (3) de facto discrimination where there is a clear disparate impact, or possibly even (4) something else entirely. It's not clear to me what exactly the Tribunal had in mind here.
Second, the Tribunal also mentions "differentiated treatment which is arbitrary and unjustified." It notes that some people would find a national treatment violation in this situation. I think what is meant here is that an individual investor gets really bad treatment in comparison to the treatment received by some other investor (domestic or foreign). This constitutes a violation even though none of the standards for "nationality-based discrimination" are met. Here, my question is, is this basically the same standard as an "individual product" approach in GATT/WTO jurisprudence, where any less favorable treatment for a particular foreign product, as compared to an individual domestic product, leads to a finding of violation? Or is it something different?
Moving to the conclusion, the Tribunal rejected the claims under either standard. With the nationality-based argument, it said there was no evidence; on the "differentiated treatment" point, it went back to its "categories" reasoning. As a result, it didn't have anything more to say about all this.
Summing up, it seemed to me that this Tribunal went with a narrow legal standard for national treatment, under which it is difficult to prove a claim of violation. The key was its reliance on the different categories as part of the "in like circumstances" analysis. This provided a good route for the panel to reject the claim, without having to get into some of the other national treatment issues noted above.
