International Economic Law and Policy Blog

Australia Productivity Commission: Draft Report on Bilateral and Regional Trade Agreements (including Investor-State)

Australia's Productivity Commission has prepared a draft report on Bilateral and Regional Trade Agreements.  You can read it just for your own pleasure, but note that they are looking for input, so feel free to give them comments (by Friday 10 September 2010.)  Here are the draft recommendations.

Given that Australia has been more skeptical than most rich countries about investor-state dispute settlement (the Australia-U.S. FTA does not include it), I was interested to see what the report had to say about investor-state.  Here's something from the draft recommendations:

DRAFT RECOMMENDATION 5

The Australian Government should be cognisant of the capacity of legal systems in prospective partner countries to resolve disputes on all relevant aspects emerging from cross border commerce.

• Where the legal systems of partner countries are relatively underdeveloped, it may be appropriate to refer cases to third party dispute settlement mechanisms.

• However, such process should not afford foreign investors in Australia or partner countries with legal protections not available to residents.

• Investor-state dispute settlement procedures should be subject to regular review to take into account changing international best practice and the evolving legal systems in partner countries.

More here:

Other benefits from BRTAs relate to improved investor certainty, particularly for Australian investors in countries where a lack of confidence in institutional arrangements may discourage investment. Typically if such concerns exist, Investor-State Dispute Settlement (ISDS) mechanisms are put in place (chapter 13). However, these arrangements are not unique to BRTAs and have been used extensively in bilateral investment treaties (BITs) — in Australia these are termed Investment Promotion and Protection Agreements (IPPAs). While little empirical work has been conducted on the impact of such arrangements in relation to BRTAs, a number of studies have examined BITs. Examining this literature, Bonnitcha and Aisbett suggest that few benefits have been created:

A basic survey of the BIT – FDI scholarship reveals eight studies that claim statistically significant findings to support the hypothesis that signing BITs increases FDI. This count includes studies that find only some types of BITs increase FDI and a study that makes a finding of a ‘minor and secondary’ relationship between BITs and FDI. A further five studies reject the hypothesis that BITs increase FDI. Not all these studies should be treated equally. Some studies draw on more comprehensive data sets and apply more appropriately specified statistical models to those data sets than others. The problem of controlling for policy shifts made concurrently with ratification of BITs and disentangling reverse-causality effects with data for such a small population is endemic to them all. However, it is clear that those studies whose empirical approach better accounts for endogeneity concerns generally do not find a link between BITs and FDI. Our appraisal of the current literature is that it does not provide any sound evidence that investor protections promote mutual direct investment. (sub. 45, pp. 5-6)

Further, during consultations over the course of this study, some participants suggested that not only were the benefits limited and questionable, but ISDS provisions also created some risk for governments when making domestic policy decisions. Further, it was also suggested to the Commission that, while Australia has included these provisions in BITs, they have not been used by Australian investors. Given the above factors, it is likely that the benefits from such provisions in BRTAs (and more broadly) are small.

And here:

Investor-State Dispute Settlement

Australia is a party to numerous Investment Promotion and Protection Agreements (IPPAs), a form of Bilateral Investment Treaty (BIT) that is concerned solely with investment rules between Australia and a partner country. Most of Australia’s current BRTAs also contain investment chapters, which are similar in form to the more targeted IPPAs. Investment chapters and the IPPAs generally provide a range of investment protections to investors in a partner country to an agreement. Australia’s agreements often require it to provide foreign investors equitable and fair treatment (including national treatment), as well as compensation for expropriation of investments.

The investment chapters of some of Australia’s BRTAs and all of its IPPAs contain processes for settling disputes arising between investors in one country and the partner country to the agreement — known as Investor-state dispute settlement (ISDS) (box 13.5). ISDS provisions are intended to reduce the non-commercial risks to foreign investors of government actions. ISDS was historically included in trade agreements between developed and developing countries, as a way of providing additional protection to those who invested in the developing country, given concerns about the state of developing countries’ legal systems. Without ISDS, investors must rely on the domestic legal system of the partner country in which the dispute arises — that is, with jurisdiction over the dispute — to achieve resolution.

...

The inclusion of ISDS in an agreement can shift the balance between domestic and foreign investment, depending on the trade-off between efficient investment and political ‘insurance’. In reviewing the economic literature on the matter, Aisbett and Bonnitcha of the Australian National University noted:

If foreign investors face greater political risk in the absence of a treaty than domestic investors, then there will be inefficiently low levels of foreign investment in the host. In other words, production will be undertaken by domestic firms which are less efficient than potential foreign entrants. To the extent that treaty protection reduces the excess risk faced by foreign investors, it is likely to improve resource allocation and productivity by encouraging more efficient foreign investors.

If, on the other hand, foreign investors do not face greater political risk than domestic firms in the absence of a treaty, then the pre-treaty level of foreign investment is not inefficiently low [compared with] domestic investment. In so far as treaty protection further reduces the political risk faced by foreign firms, it may do so inefficiently. In this case, productivity may fall as a result of the investment agreement as efficient domestic producers are displaced by less efficient but better politically-insured foreign firms. (Aisbett and Bonnitcha, sub. 45, p. 4)

Australia’s approach to date has been to include ISDS with third-party arbitration in agreements with developing countries, while not including it with developed countries such as the United States and New Zealand, and to offer protection only for post-establishment (that is, new) investments. This stems from the belief that Australia operates a stable and well-functioning legal system, and offering the ability for investors in developed countries to pursue third-party arbitration against the Australian government is not in Australia’s best interests.

There are two main concerns that arise from the inclusion of ISDS in BRTAs; firstly, that without a sufficiently well-defined meaning of ‘investment’, inappropriate claims may arise, and secondly, concerns with the way third-party arbitration operates.

Given that ISDS has the potential for foreign investors to make claims for compensation against all levels of government, for government policy changes across a wide range of areas that are otherwise domestic in nature, the importance of properly defining ‘investment’ can not be understated. Definitions of ‘investment’ that insufficiently constrain the scope of ISDS claims may give rise to future cases that partner countries cannot reasonably foresee at the time an agreement is made. Australia has largely avoided such problems in its agreements, as noted by Aisbett and Bonnitcha:

In general, post-establishment protections in Australia’s FTAs are thoughtfully drafted. Investor-state arbitrations, to which Australia was not a party, have revealed a number of potential issues with similar wording contained in Australia’s IPPAs. The Australian government has dealt with many of these issues through modifications to the mostfavoured nation clause, by tying the fair and equitable treatment to the customary international law minimum standard, by adding an interpretative annex on expropriation and by setting out the procedure for investor-state arbitration in more detail. (sub. 45, p. 9)

For example, US businesses have previously initiated arbitration against the Canadian government under the ISDS provisions in NAFTA for regulatory changes to the treatment of agricultural chemicals that resulted in losses to those businesses. To guard against this, it is important that a BRTA investment chapter’s definition of ‘investment’ is carefully drafted. In the case of the AUSFTA, the definition makes clear that a covered asset must have ‘the characteristics of an investment’ (that is, the commitment of capital or other resources, an expectation of gain or profit, or the assumption of risk). The AUSFTA definition also specifies that among the licences, authorisations, permits and similar instruments that do not have the characteristics of an investment are those that do not create any rights protected under domestic law, and also that the term ‘investment’ does not include an order or judgment entered in a judicial or administrative action.

The second main issue with ISDS concerns the international rules of third-party arbitration. These rules are currently less certain than domestic legal systems for those countries with developed legal systems capable of processing complex cases. Cases are generally not appellable and arbitration frequently operates without the benefit of precedents (an important component of legal certainty). Additionally, particular government actions that would otherwise be non-reviewable to domestic investors may be subject to ISDS actions by foreign investors. The Law Council of Australia highlighted this concern in its submission, noting that:

Where the dispute resolution mechanism chosen is the International Centre for the Settlement of Investment Disputes (ICSID), as is common practice, some ICSID arbitration panels have decided that the jurisdiction of ICSID is a matter for the institution itself to decide following the provisions of its constituent convention. Other have argued that what is arbitrable is a dispute concerning an investment as defined in the underlying treaty between the relevant States, following the interpretative rules for lex specialis in international law. (sub. 47, p. 8)

While Australia’s pragmatic approach to the inclusion of ISDS within BRTAs has not appeared to be problematic so far, concern has been raised with the Commission in the context of future agreements that contain a mix of developed and developing country partners. For example, the Trans-Pacific Partnership Agreement involves less developed countries, as well as the United States (which prefers the inclusion of ISDS, including for investments that have not yet occurred). The Commission understands that no US business has been unsuccessful in pursing an ISDS claim against a foreign government.

Aisbett and Bonnitcha suggested that:

Given that there are few benefits and potentially significant costs to offering postestablishment protection to foreign investment, we recommend that these provisions be omitted in future Australian FTAs. (sub. 45, p. 8)

The Commission recognises that to facilitate investment between countries, a robust dispute settlement mechanism is warranted. Where the legal system of partner countries are not sufficiently developed to handle disputes, it may be appropriate to refer cases to external dispute settlement mechanisms. However, the Commission’s draft assessment is that such dispute settlement processes should not afford foreign investors in Australia with access to litigation options not normally afforded to local investors.

The Aisbett and Bonnitcha paper they cite is here.

Overall, the view seems to be that investor-state may be a good idea where the other country is a developing country in which Australian companies could utilize investor-state ("ISDS was historically included in trade agreements between developed and developing countries, as a way of providing additional protection to those who invested in the developing country, given concerns about the state of developing countries’ legal systems"), but the costs outweigh the benefits if the other country is another rich country whose companies may end up suing Australia a lot ("offering the ability for investors in developed countries to pursue third-party arbitration against the Australian government is not in Australia’s best interests").

More on EU Investment Policy: The Commission's Thoughts on Investor-State

As mentioned in the last post, a European Commission policy paper and draft regulation on investment policy were on their way.  They are now available here and here.  Here's what the policy paper says about investor-state:

(d) Enforcing investment commitments

Ensuring the effective enforceability of investment provisions is a key objective of the Union. The Union has increased its focus in recent years on ensuring that agreements negotiated in the field of the common commercial policy can be, and are, effectively enforced, if necessary through binding dispute settlement. The Union has included in all of its recent FTAs, an effective and expedient state-to-state dispute settlement system. This dispute settlement system will, in the future, cover the investment provisions of EU trade and investment agreements.

In order to ensure effective enforcement, investment agreements also feature investor-to-state dispute settlement, which permits an investor to take a claim against a government directly to binding international arbitration.21 Investor-state dispute settlement, which forms a key part of the inheritance that the Union receives from Member State BITs, is important as an investment involves the establishment of a long-term relationship with the host state which cannot be easily diverted to another market in the event of a problem with the investment. Investor-state is such an established feature of investment agreements that its absence would in fact discourage investors and make a host economy less attractive than others.

For these reasons, future EU agreements including investment protection should include investor-state dispute settlement. This raises challenges relating, in part, to the uniqueness of investor-state dispute settlement in international economic law and in part to the fact that the Union has not historically been a significant actor in this field. Current structures are to some extent ill-adapted to the advent of the Union. To take one example, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention), is open to signature and ratification by states members of the World Bank or party to the Statute of the International Court of Justice. The European Union qualifies under neither.

In approaching investor-state dispute settlement mechanisms, the Union should build on Member State practices to arrive at state-of-the art investor state dispute settlement mechanisms. Among the main challenges are:

• The transparency of investor-state dispute settlement. In line with the EU's approach in the WTO, the EU should ensure that investor-state dispute settlement is conducted in a transparent manner (including requests for arbitration, submissions, open hearings, amicus curiae briefs and publication of awards);

• The atomisation of disputes and interpretations. Consistency and predictability are key issues and the use of quasi-permanent arbitrators (as in the EU's FTA practice) and/or appellate mechanisms, where there is a likelihood of many claims under a particular agreement, should be considered;

• Rules for the conduct of arbitration. The Commission will explore with interested parties the possibility that the European Union seek to accede to the ICSID Convention (noting that this would require amendment of the ICSID Convention).

So that's from the European Commission.  What does the European Parliament think of all this?  Iana Dreyer of ECIPE notes the following:

Now enter the EU Parliament. Since December last year, it has equal powers to the Council of member states to decide on trade and investment policy. Certain Members of the European Parliament (MEPs), mostly on the left side of the political spectrum, have already signaled that they will want to put conditions on grandfathering BITs. Not all member state BITs cater for investor-to-state arbitration proceedings, but a growing number do. For ideological reasons, some MEPs oppose the principle of investor-to-state dispute settlement, so the matter might become politicized.  ...

It will be interesting to watch this develop in parallel with the debate in the U.S.

Coming Soon: An EU Investment Policy

The European Commission announces the following today:

The European Commission today took the first step towards a comprehensive European international investment policy with two initiatives. A policy paper lays out how the new EU competence on foreign direct investment can be used to boost competitiveness and trade resulting in growth and jobs. At the same time a draft regulation sets up transitional arrangements offering guarantees on existing or pending bilateral investment treaties concluded between EU and Non-EU countries.

The policy paper and draft regulation don't seem to be available yet, but there is a Q & A that provides some details.

On existing member State BITs:

My investment abroad is protected by a BIT. What will happen to that BIT now? 

Nothing. 

The more than 1200 Bilateral Investment Treaties concluded by MS remain valid under international law. However their existence may raise a question of compatibility with the EU law and the common commercial policy in particular. The proposed regulation makes it 100% clear that the benefits and rights available under Bilateral Investment Treaties cannot be denied (for example, under investor-state arbitration) even with the development of a comprehensive EU-level policy role on investment. The Commission has chosen a "zero-risk" approach to reassure investors that their rights are not affected. This is intended to build confidence and pave the way for the EU to exercise its new EU role on foreign direct investment.

...

Why can the Commission withdraw the authorisation for existing MS BITs?

The Commission will review the existing MS BITs. If it finds clauses that are incompatible with EU law (e.g. transfer clauses that would hamper the implementation of EU financial restrictions against a certain third country), it would ask the Member State to renegotiate such clause. If this proves impossible, the authorisation may be withdrawn as a matter of last resort.
Likewise, authorisations can be withdrawn if the EU negotiates an investment treaty at European level, and recourse to Member State BITs with the same third country is not necessary anymore. 

Will investment become part of trade agreements:

With whom will the EU negotiate investment protection agreements in the future? 

The EU should prioritise, including on the basis of investor needs. Therefore important determinants for defining priority countries for investment protection negotiations will include magnitude of investment flows to and from prospective candidate and its market potential for future investments, as well as stability and predictability of investment climate as guaranteed by political and institutional setting in that country. The EU will also be receptive in case our trading partners wish to engage in investment protection negotiations.

The best prospects for integration of investment protection into the common commercial policy arises in ongoing trade negotiations, where the EU has so far only focused on market access for investors, thus in the short run the Commission intends to consider to propose broadening the scope of ongoing negotiations with India, Singapore, Canada and Mercosur to the complete investment area. In parallel the EU will explore the desirability and feasibility of stand-alone investment agreements with countries which receive high proportion of EU investments, such as China and Russia.

Sounds like the answer is yes, although some countries (Canada) may be more receptive than others (India), and where trade agreements are not being negotiated, a separate investment agreement may still be used.

What will be in these agreements:

Does the Commission envisage developing an EU Model Investment Treaty?

The Commission will define a check-list of elements that need to be included in a future agreement on investment. These elements would be inspired by best practices of Member States and be tailored to specific trading partner's needs.

What protection standards are to be offered to investors in the EU investment agreements?
The objective of the EU common investment policy will be to ensure that no European investor would be worse off than he would be under Member State's Bilateral Investment Treaties. Therefore in implementing its policy, the EU will follow the best available practices as developed by Member States. The key standards of investment protection for the EU investment agreements will include: the guarantee of fair, equitable and non-discriminatory treatment, full protection and security, as well as guarantee of protection against unlawful expropriation and free transfer of funds. In order to ensure effective enforcement; the EU investment agreements should also feature investor-to-state dispute settlement, which permits an investor to take a claim against a government directly to binding international arbitration.

Looks pretty much like most existing investment agreements/chapters in terms of the substance, and includes investor-state dispute settlement.  So, with all of this in there, what about that "policy space" issue critics are always complaining about:

How does the EU intend to ensure "policy space" in its investment agreements? 

The EU common investment policy needs to fit with the way the EU and its Member States regulate economic activity within the Union and across its borders. EU investment policy has to be consistent with the other policies of the Union and its Member States, including policies on the protection of the environment, health and safety at work, consumer protection, cultural diversity, development policy and competition policy. Investment policy will continue to allow the EU, Member States and its trading partners to adopt and enforce measures necessary to pursue public policy objectives.

So investment policy will "continue to allow" these other polices.  Do they think the existing rules are sufficient, and the new EU rules will simply maintain the status quo?  Or will the new rules be specifically designed to take these concerns into account?

Gus Van Harten on Investment Treaties

From Gus Van Harten, Five Justifications for Investment Treaties: A Critical Discussion, posted on SSRN.  Here's the abstract:

The article examines five common justifications for the investment treaty system in order to highlight aspects of the system that give cause for concern. First, it examines whether investment treaties are a means to encourage foreign direct investment and concludes that this expectation is contradicted by common provisions in investment treaties and is unsupported by the preponderance of empirical evidence. If this justification was a factor in the decisions of states to conclude investment treaties – or of international organizations to promote them – then these decisions appear to have been based on incomplete knowledge and analysis of the anticipated benefits. Second, the article examines the claim that investment treaties respond to the bias and unreliability of domestic courts and criticizes investment treaties in this respect for being both under-inclusive (by extending access to international adjudication to a narrow class of private actors only) and over-inclusive (by failing to account for situations where domestic courts offer justice to a foreign investor). Third, the paper examines the claim that investment treaty arbitration advances the rule of law in the resolution of investor-state disputes and questions this claim after considering how investment treaty arbitration fails to incorporate key institutional safeguards of judicial independence that are present in other adjudicative systems that resolve public law claims. Fourth, the paper examines the argument that investment treaties affirm the sovereignty and bargaining strategies of states and outlines tentative evidence that governments did not test carefully the anticipated benefits of the treaties, did not appreciate fully the risks of investor-state arbitration, and did not carry out sophisticated cost-benefit analyses prior to committing themselves to the investment treaty system. Finally, the paper examines the justification that investment treaties were endorsed by the democratic processes of states and draws attention both to the role of arbitrators in giving meaning to the treaties and to certain aspects of investment treaties that appear to undermine democratic choice. Based on this analysis, it is recommended that governments exercise greater care when considering entry into the system or, more likely, the maintenance or renewal of existing treaties, and that governments consider options for reform.

And from the paper:

One avenue for reform lies in the renegotiation or abrogation of investment treaties.  Another lies in reform of the institutional mechanisms and, specifically, in the creation of alternative forums and processes for the resolution of investment disputes. It would be beneficial to their perceived neutrality if such alternatives were based outside of the conventional arbitration centres of Western Europe and North America and if they surpassed the current system in terms of their incorporation of institutional safeguards of judicial independence. However, while all states should strive for a system that is consistent with values of fairness independence in adjudication, it is just as critical for developing and transition countries to formulate appropriate strategies on the investment treaty system after careful assessment of its costs and benefits alongside those of the alternatives.

An EU Model BIT?

From a recent EU DG Trade civil society meeting on trade and investment:

Jean François Brakeland debriefed on the state of play of the preparatory work conducted by the Commission in order to implement the EU exclusive competence on FDI, as conferred by the Lisbon Treaty. He started his presentation with an overview of the scope of the draft Regulation establishing transitional arrangements for Bilateral Investment Treaties (BITs) between Member States and third countries, focusing on its main features such as authorisation to maintain BITs in force and to amend or conclude new BITs.

Subsequently, he presented Commission thinking on how it intends to use the EU competence on investment in the future, referring to the draft Communication which would lay down foundations for the orientation of EU investment policy, as well as its future operationalisation in negotiating directives specific for each negotiating partner. He shared general intentions with respect to the EU investment policy coverage, standards of protection, dispute settlement mechanism, as well as a selection of potential partners for negotiating investment protection, but at the same time highlighted the need for a wider debate that should involve all stakeholders including the European Parliament and the Council.

And from some Q & A that followed:

European Services Forum requested clarification on the scope of the competence on investment, including whether the shift in competence might be questioned, and how new Member States BITs will be covered.

...

The Coalition of Flemish North-South Movement questioned the rationale of re-delegation of
power to negotiate investment agreements back to Member States, claiming that Foreign Direct Investment being part of the Common Commercial Policy should be considered in a broader context of EU foreign policy, and thus could not be limited to investment protection objectives. It called upon the Commission to stop Member States continuing their BITs negotiations. It also raised concerns related to the conflict between Member States' demands for more investment protection at the cost of limited policy space and referred to the social and labour rights chapter of EU trade agreements, which should be equally applicable to protection provisions of EU investment agreements.

M-Lex raised the issue of investor-to-state dispute settlement, enquiring about the availability of ICSID as an arbitration forum and the coverage of portfolio investment by the new EU competence.

...

Several participants asked about the review clauses of already concluded agreements, including the Cariforum EPA and EU-Korea FTA that would allow for negotiating investment protection.

...

Responding to these comments and questions, the Commission (J.F. Brakeland and C. Brown) explained the justification for the empowerment mechanism offered by the draft Regulation, in particular its relevance for curing BITs' incompatibilities with EU rules on capital movement, and gave assurances that the exercise of re-delegated power to negotiate BITs would be conditional and closely followed by the Commission as an observer.

As for ongoing negotiations, it referred to Member States' legitimate expectations relating to grandfathering and empowerment as a justification for the continuation of BITs' negotiations with third countries after entry into force of the Lisbon Treaty, although a legal risk was involved.

With respect to portfolio investment, the Commission explained the rationale for all-encompassing definition of investment as the economically justifiable option, even if portfolio investment was not explicitly mentioned as a part of the EU Common Commercial Policy. Referring to optimal standards of protection, the Commission emphasised the need to compromise the EU's divergent interests in order to find the acceptable balance, and finally to confront it with our partner's interests.

On the choice of negotiating partners, the Commission suggested that it would depend not solely on the EU interest, but also on our partners' willingness to engage. It would have implications on the form of any prospective investment agreement, being a part of a wider trade agreement or stand-alone BIT-like agreement. There is no one-size-fits-all solution.

Referring to the scope of commitments deriving from the existing BITs, the Commission explained that the draft Regulation would set a mechanism for notification of all existing BITs, as well as all disputes launched on their basis.

On arbitration, the Commission admitted that there were a number of issues that could be improved, including transparency of procedure but also clarity of provisions, although it excluded the European Court of Justice as an option for international arbitration.

Here's some commentary on the issue.  Professor Armand de Mestral asks, "Is a model EU BIT possible—or even desirable?"  His conclusion: 

Surely a common legal standard regulating FDI in the EU is an eminently sensible goal: it would replace 27 competing jurisdictions with one high standard of protection; it would allow the EU to present a common face to the world on FDI issues; and it would serve as a powerful incentive to promoting global standards. But it would be foolish to minimize the obstacles that lie in the path of this laudable goal.

And from David Muller, a PhD. law student at Charles University, Prague:

...  Would the European Model BIT provide significant enhancement of current regulations and would the EU really use it? Indeed, there are at least several profound obstacles to be analyzed. First, it may prove to be difficult to identify partners willing to negotiate BIT. Taking into account that the provisions of the model BIT are about the same, it would nevertheless probably always need some minor adjustments. However, the nature of partners in negotiations and the need for complex investment protection is diverse. For instance, imagine the specific needs of particular BIT with e.g. Russia, Canada and ASEAN. Second, it may be demanding to persuade Member States to support the new model with the assumption of an all-round approach, conclusion of EU BIT and consequent termination of their own BITs. Indeed, Member States must be able to identify explicit added value of model compared to their bilateral agreements. Third, the process of negotiation and conclusion of BIT is time consuming. For the most of Member States, it has taken decades to create their BITs networks – it would be vain to believe that the EU BITs, even using a well processed template, might by concluded in a few upcoming years. Fourth, negotiating capacities of the EU are definitely not unlimited. Having a model BIT would probably mean an improvement on condition that it is to be really carried out. Anyway, investment promotion and protection are nowadays covered sufficiently by the mix of the Member States BITs and FTAs provisions. Furthermore, the EU sources are supposedly too limited to anticipate major efforts of the EU to develop its own exclusive network of BITs in following years. In line with these concerns, the Model BIT is to be considered as a useful exercise and practice, but its scope of application seems currently to be dubious and limited.  

The full piece is here.

 

BP and Investor-State Dispute Settlement (or Lack Thereof)

From Carl Pope, Chairman of the Sierra Club:

As we wait for President Obama's speech tonight on the oil catastrophe in the Gulf, it's important to understand that many of the options he has discussed -- from requiring BP to set funds aside in escrow for cleanup to asking Congress to raise the liability limit on oil companies -- are possible only because BP is a British, as opposed to a Canadian or Mexican, company. That's because under the North American Free Trade Agreement (NAFTA) the so-called "investor-protection clauses" would allow a Canadian or Mexican oil company that caused a gusher on the floor of the Gulf to appeal any change in the liability or responsibility it faces to a trade tribunal. Such a tribunal would likely overturn, for example, an after-the-fact raise in the liability limit (or in the royalties companies had to pay). 

But since the U.S. does not have a free-trade agreement with Britain, BP can't hide behind these trade tribunals. 

He said this in the context of arguing that the TPP should not include investor-state.

So is there anything to this?  It is true, of course, that if BP was from a country that had a BIT or FTA investment chapter with the U.S., it could bring an investor-state claim.  So, yes, "a Canadian or Mexican oil company that caused a gusher on the floor of the Gulf" could "appeal any change in the liability or responsibility it faces to a trade tribunal."  But could it win?  In particular, is it true that a tribunal would "likely overturn ... an after-the-fact raise in the liability limit (or in the royalties companies had to pay)"?  That seems like wild speculation to me.  I can't see how anyone could possibly state such a conclusion with any certainty.  If I had to guess, based on the little bit I know of the facts here, I would say there is, at best, a very, very slim chance of success on such a claim.  But I really don't know enough to come to any firm conclusions, and I can't see how the author knows enough about his theoretical legislation either.

I think this is a good example of why trade critics are often ineffective in pushing their views.  There are arguments you can make against the existing investor-state rules (both the procedural and substantive aspects).  But when you say things like this, the people in power tend not to take you seriously.

Do BITs Promote Foreign Direct Investment?

From Jason Yackee, on SSRN, a new paper entitled "Do Bilateral Investment Treaties Promote Foreign Direct Investment? Some Hints from Alternative Evidence":

In this article I present a multi-method examination of whether bilateral investment treaties, or BITs, are likely to promote inflows of foreign direct investment. Using regression analysis I show that BITs are not meaningfully correlated with measures of political risk, and using survey evidence I show that providers of political risk insurance do not reliably take BITs into account when deciding the terms of insurance. Nor do in-house counsel in large U.S. corporations view BITs as playing a major role in their companies' foreign investment decisions. In contrast to existing empirical studies, which claim to prove that BITs can have massive positive impacts on FDI, my results suggest that such results are probably spurious. BITs are unlikely to be a significant driver of foreign investment.

I was particularly interested in the following sentence:  "Nor do in-house counsel in large U.S. corporations view BITs as playing a major role in their companies' foreign investment decisions."  My question is, who is pressing for BITs (or investment chapters of FTAs)?  Clearly, somebody thinks they are important.   But if the lawyers at "large U.S. corporations" don't care all that much, where does the push come from?

Merrill & Ring v. Canada: More About NAFTA Ch. 11 Non-Discrimination Standards

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.

Discrimination Arguments in the AbitibiBowater NAFTA Chapter 11 Claim

Taking a quick break from the big picture questions in the Great Trade Debate, I'm going to bring up a very narrow and technical trade issue:  How to apply a non-discrimination standard in the NAFTA Chapter 11 context.

As was widely reported last week, AbitibiBowater is going ahead with its NAFTA Chapter 11 claim in relation to an expropriation of certain of its assets by the Canadian Province of Newfoundland.  When there's a big NAFTA Chapter 11 case going on, I always go straight to the non-discrimination aspects.  I recognize, of course, that often the other claims are more important (as is likely in this case), but non-discrimination is what interests me, and here the claims raise some fundamental issues as to how non-discrimination is to be established.  Here's a short statement of the argument, from the Notice of Arbitration and Statement of Claim (obviously, more detail will be coming in the briefs):

96. NAFTA Chapter Eleven prohibits discrimination against investors of the other State Parties, vis-a.-vis both nationals or investors of other States. Under Article 1102(2), "[e]ach Party shall accord to investments of investors of another Party treatment no less favorable than it accords, in like circumstances, to investments of its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments." The same principle is found in Article 1103(2), but in reference to "investment of investors of any other Party or of a non-Party." 

97. In effect, these NAFTA provisions make it illegal for Canada, through the Province, to discriminate against a U.S. investor's activities in Canada, whether by comparison to a local investor or to an investor from any other country. The Act undoubtedly breaches NAFTA's non-discrimination guarantees, by explicitly targeting and singling out the Canadian operations of AbitibiBowater, a single foreign investor, rather than serving as a measure of general applicability. Although the Province may have a right under NAFTA to expropriate in the public good subject to certain conditions, it cannot discriminate as between the owners of such assets by unilaterally imposing acts of retaliation on one investor, while treating other investors more favorably. Certainly, AbitibiBowater is not the first employer in the Province to close a facility in hard economic times. Where the Province has not attempted in other cases to penalize companies by unilaterally seizing their remaining assets and cancelling their remaining legal rights, it is clearly discriminating against AbitibiBowater. 

98. Discrimination is also apparent in the Province's approach to compensation for the expropriation. The Act limits AbitibiBowater's rights to be made whole while the Province has publicly stated that it plans to insulate AbitibiBowater's lenders and independent business partners from any adverse effects on their business interests. Discrimination is further apparent, as previously discussed, in the Act's attempt to preclude AbitibiBowater from accessing the courts or continuing with pending claims, while all other investors in the Province still retain the full panoply of judicial options as recourse for any ill treatment.

I think this argument can be loosely summarized as follows:  The Province's actions in relation to the expropriation discriminate against AbitibiBowater, and AbitibiBowater is foreign (partly at least), hence the actions discriminate against a foreign investor, in violation of Article 1102 (and also discriminate among investors of different countries, in violation of Article 1103).  I think that's a reasonable characterization of the argument, but feel free to correct me.  I'm not trying to frame it in an unfair way; it's just hard to get the wording exactly right.

I've talked about this issue a number of times, on this blog and elsewhere (e.g., here and here).  I'm very curious to see how this NAFTA Chapter 11 tribunal addresses the argument, as it is extremely important for defining the boundaries of non-discrimination in the investor-state context.  Some questions that I would very much like to see answered (focusing on National Treatment, rather than MFN, but the issues are similar):

-- Under Article 1102, is it the treatment of an "individual" investor that is most important, or is it the overall treatment of the "group" of foreign and domestic investors that is the key?  And if the latter, how do you identify that "group" here?  Perhaps along the same lines as defining the group, what are the "like circumstances" here?

-- With regard to the "individual" investor theory, is it the case under this approach that any time you single out a particular foreign investor with some kind of negative government action you have violated the NAFTA Chapter 11 National Treatment provisions?

-- There has been a lot of talk about "individual" versus "group" theories of non-discrimination in the WTO context.  Will the parties and the tribunal cite to the various WTO-related journal articles and cases?  Or are the situations too different for the WTO arguments to be relevant?  And is the NAFTA Chapter 11 jurisprudence extensive enough at this point that the parties will be too busy arguing about what it all means, and thus will not bother with insights from the WTO?

A Peaceful Expropriation?

From the WSJ:

Venezuelan President Hugo Chávez is seeking to purchase a local unit of France's Casino Guichard-Perrachon SA, a few weeks after he first ordered the expropriation of one of the retail chains controlled by the French company.

Venezuela has started negotiations with Casino to buy an 80% stake in Cativen, Casino's local subsidiary, after the French company offered to sell it to the government following the seizure of its Almacenes Exito retail chain, Mr. Chávez said Saturday.

"They want to sell to Venezuela," he said.

He said the government has started "friendly negotiations" with the French company to purchase Cativen and its chain of grocery stores, known as Cada.

No possible financial terms were disclosed. Monday Casino confirmed it was in discussions but declined to comment further.

Investment Treaty Arbitration and Censorship

From Luke Peterson:

There are growing signs that investment treaty protections – while rarely discussed in media or human rights law circles - may be surprisingly useful in some cases of repression or censorship of foreign-owned media. While there is growing debate as to the uses of World Trade Organization agreements to combat certain forms of state repression of media actors, less attention has been paid to the potential of international investment law to combat certain forms of state censorship and repression. With the US Department of State now signaling that internet freedom should be advanced through US foreign policy, it remains to be seen whether the US negotiating position on international investment treaties will shift so as to embrace this foreign policy objective. Ongoing investment treaty talks between the US and China could provide the obvious forum for this issue to be raised and debated.

I agree with Luke (if I am reading him correctly) that investment protections may be more effective than trade rules on the issue of censorship (internet and otherwise).  There are two reasons for this:  (1) there is no government filter to bringing complaints and (2) some of the substantive investment rules seem particularly useful.  Presumably, China is aware of all this, though, which makes me wonder whether China would ever sign on to investor-state protections with countries that have significant foreign investments in China.

ADDED:

Michael Snarr of the China - U.S Trade Law blog thinks China and the U.S. will sign a BIT sooner rather than later:

Negotiation of a China-U.S. BIT will not be quick and easy, but it remains likely. China is an expanding market attracting foreign investment from around the globe. American enterprises want to invest there and would like more security for their investments. Such incentives historically have driven the United States to negotiate BITs.

This time, however, there is an added and critical dimension. China has amassed capital and is beginning to invest abroad. The United States not only is an attractive market; the United States also needs a substantial share of that investment for the growth of its own economy. Chinese businessmen, like Americans, want investment security. This time, therefore, the BIT partners share a common vision of an agreement that will attract investment to their own countries while protecting their citizens investing abroad. Such unusual balance may make the negotiations more difficult, but they also make a positive result more likely. 

U.S. Takings Law and International Takings Law: The Florida Beach Erosion Case

From the WSJ:

The Supreme Court waded into a property-rights dispute Wednesday, weighing whether Florida can restore eroded beaches in front of private homes and designate the newly emerged beach as public property.

Erosion threatens nearly 59% of Florida's 825 miles of sandy beaches, according to the state's Department of Environmental Protection. Under a 1961 law, the state dredges sand from one area and dumps it on another, expanding the width of a threatened beach.

Six property owners in Walton County, banding together as Stop the Beach Renourishment Inc., argue that they should own the new beach and visitors shouldn't be allowed to spread their towels on it. The owners say their deeds entitle them to all land up to the mean high water line, including the additional 80 to 100 feet of beach the state added.

SCOTUSBlog's preview of the case provides additional background.  More from Ilya Somin here.

What I wonder is, what would the case look like if brought under FTA/BIT investment provisions?  In theory, if any of the affected homeowners are citizens of countries that are parties to an FTA/BIT with the U.S., they could bring a similar claim there.

For a critical look at this kind of case, see the new book The Expropriation of Environmental Governance: Protecting Foreign Investors at the Expense of Public Policy, from Cambridge University Press.  From the abstract:

Recent years have seen an explosive increase in investor-state disputes resolved in international arbitration. This is significant not only in terms of the number of disputes that have arisen and the number of states that have been involved, but also in terms of the novel types of dispute that have emerged. Traditionally, investor-state disputes resulted from straightforward incidences of nationalisation or breach of contract. In contrast, modern disputes frequently revolve around government measures taken to further public policy goals, such as the protection of the environment. This book explores the outcomes of several investor-state disputes over environmental policy. In addition to examining the pleadings of parties and decisions of arbitral tribunals in disputes that have been resolved in arbitration, the influence that investment arbitration has had in negotiated outcomes to conflicts is also explored.

More Investor-State Debate

Following up on this post, the State Department's Advisory Committee on International Economic Policy (ACIEP) recently held a review of the U.S. Model BIT.  The report issued by the Committee has a discussion of many issues under BITs, including the investor-state dispute mechanism.  It's too long to quote the whole thing here, but here are some key portions of the different views on investor-state:

Some Subcommittee members strongly support investor-state dispute settlement. These
members noted that such provisions are contained in virtually all of the over 2,600 BITs around the world and argued that they provide an objective, fair and non-politicized forum in which investors overseas can seek redress for treaty breaches (and sometimes contract breaches) by foreign countries, including discriminatory treatment, uncompensated expropriation, and denials of fair and equitable treatment.

...

Other Subcommittee members strongly believe that the international dispute resolution
mechanism provided in the Model BIT poses significant risks to the public interest. They were concerned that international arbitrators may lack expertise in and understanding of local laws and societal values and, where these laws and values are at the heart of an investment dispute, the arbitration panels’ decisions risk undermining the domestic laws and values. They believed that where investment disputes raise constitutional questions, such as the allocation of powers among governmental organs or permissible limitations of property rights, the principles of democratic accountability require that domestic courts adjudicate such disputes whenever possible.

...

Some Subcommittee members believed that investors should first be required to exhaust
domestic remedies before taking claims to international arbitration. They asserted that the
exhaustion requirement is a fundamental principle of international law and a policy of the State Department before it will consider espousing the claims of U.S. nationals against foreign governments.

...

Other Subcommittee members argued that the adoption of an exhaustion requirement would run contrary to current international legal practice, undoing a half-century of progress in
international law and would in many cases effectively deny U.S. investors the realistic ability to seek justice for bad acts or omissions by foreign governments.

In addition to this discussion, there is a separate statement by some committee members opposing investor-state dispute settlement: "We recommend that the administration replace investor-state dispute settlement with a state-to-state mechanism. If the administration continues to include an investor-state dispute settlement mechanism, investors should be required to exhaust domestic remedies before filing a claim before an international tribunal. That mechanism should also provide a screen that allows the Parties to prevent frivolous claims or claims which otherwise may cause serious public harm."

For those who don't follow the issue closely, I think Judge Stephen Schwebel's individual statement (towards the bottom of the linked page) helps explain what is going on here:

For more than 150 years, the United States strongly espoused the protection of foreign
investment. That position was constructively developed by the terms of the 1994 U.S. Model
BIT. However the United States sharply modified its traditional position with the advent of
NAFTA, not by the terms of that Treaty but by interpretation of it and by the positions it took in cases brought by Canadian investors against the U.S. Government. The United States made the remarkable discovery that treaty obligations run in more than one direction; foreign investors could take advantage of U.S. obligations just as U.S. investors could invoke the BIT obligations of other States. That led the United States to shift to a “defensive posture” emphasizing restrictions upon the viability of foreign investment rather than its protection, both by the terms of the 2004 Model BIT and in the litigious positions it took in NAFTA cases (such as Glamis Gold)

In a nutshell, the U.S. wanted investor-state dispute settlement (and expansive substantive rules) as long as U.S. companies were filing complaints against developing countries, and companies from those countries were not filing disputes against the U.S. (there wasn't much foreign investment in the U.S. by such companies).  This system was fairly uncontroversial here in the U.S., aside from a few people who advocated for developing country causes.  However, now that Canada (and also Mexico) are filing investor-state cases against the U.S. pursuant to NAFTA, various groups in the U.S. have taken notice.  They fear that complaints against the U.S. could undermine important domestic policies, and thus are trying to limit the scope of these provisions.  As a result, the U.S. position on these issues has changed somewhat, in the sense that when defending its laws in investor-state complaints, it has advocated for narrowing the substantive scope of investment treaty law.

I'm not sure where this is all going.  Some days I think investor-state is now so well-established that it will always be with us and will continue to spread throughout the world, maybe even effectively bringing us an MAI after every country is covered in relation to every other.  Other days, though, I think we are one big judgment against a U.S. environmental law away from seeing the U.S. abandon the whole idea (other countries might react just as strongly).  Is there a middle ground?  Would someone propose applying investor-state only in relation to countries who are unlikely to bring complaints against the U.S.?  From a public relations standpoint, in terms of how the U.S. looks in the eyes of the rest of the world, that might not come across very well.  But in terms of U.S. domestic politics, it might be an acceptable compromise.

Damages: Investor-State Versus State-to-State

What's the difference in assessing damages as between investor-state dispute settlement and state-to-state trade disputes?  Well, with state-to-state, enforcing a successful complaint often revolves around the fuzzy concept of nullification or impairment, and it's up to the aggrieved state to come up with its own trade retaliation, which then gets challenged by the responding party, and in some cases eventually gets applied, to varying degrees of success.  Kind of a mess.

By contrast, with investor-state, it's a nice, clean, round number.  In the Corn Products International NAFTA Chapter 11 case, that number was $58.386 million:

In an award rendered August 18, 2009, the Tribunal awarded damages to the Company in the amount of $58.386 million, representing lost profits in Mexico as a result of the tax and certain out-of-pocket expenses incurred by CPIngredientes, together with accrued interest.

More on the case, from Luke Peterson, here.

So how about applying this approach at the WTO?  With regard to this question, I'll just recall this recent post on an Alan Sykes paper on this issue.

Comments on the U.S. Model BIT: The Investor-State Debate

At this link is a list of submissions made in relation to the review of the U.S. model Bilateral Investment Treaty (BIT).  Here's a sampling of the comments submitted on the investor-state arbitration mechanism (in no particular order), with the submitting entity indicated.  (Not that I think it is likely we will see a change in policy in this area, but the discussion is interesting nonetheless).

Third World Network:

Allowing the investor only to sue the host government at an international tribunal significantly shifts the balance in favour of companies and away from public interest and the right to regulate. Given the broad definition of ‘investment’, the loose definition of ‘investor’ that still allows room for treaty shopping and the strong protections of investors, this opens governments, including the US government, to being sued for many ordinary regulations in the public interest. This can already be seen in the number of cases brought by investors against the US government under NAFTA.

Chevron:

We note that the availability of an investor-state arbitration mechanism increases the
likelihood that good faith negotiations can be successfully and equitably concluded. This
is an important point that cannot be overemphasized. The presence of a treaty enables the
investor to pursue more meaningful discussions with a host government and settle most
disputes on an equal basis.

Coalition of Service Industries:

If any changes are contemplated, CSI recommends that the Model BIT incorporate, or continue to incorporate, the following principles: 
  
- The investor-state arbitration mechanism.   This is one of the most crucial elements of a sound investment regime.  The investor-state dispute settlement mechanism can ensure U.S. investors that their investments are protected against arbitrary, discriminatory and unfair government actions.  Any changes to these provisions must strengthen and clarify the rights of investors abroad to encourage investment flows into and out of the United States.

Gus Van Harten:

Reform the dispute settlement regime:
• consider removing the investor-state regime outright from U.S. BITs;
• as a temporary measure to ensure independence, designate a roster of experts – preferably sitting judges – from which presiding arbitrators (or all arbitrators) must be chosen;
• establish a regional adjudicative body to replace or supplement the role of private arbitration, and to ensure independence and enhance coherence in the decision-making process;
• provide for the members of the regional adjudicative body to develop rules to govern the resolution of investor-state disputes;
• provide for standing in the process for persons or entities whose interests are directly affected by an investor-state dispute, and allow states to bring counter-claims against foreign investors for breaches of their own duties or obligations.

Stephen Canner, U.S. Council for International Business:

The importance of making investor-State arbitration available as a key part of a BIT does not depend on the quality of a BIT partner’s legal system. Even if a country’s legal system is highly regarded, the prospect of a foreign investor having to support its claim against the host government in a local court is a daunting prospect. It will require a reliance on local counsel and experts familiar with local procedures and customs. Even if the investor prevails, its judgment may be subject to multiple layers of appeal. And, even if the local judiciary is regarded as fair, the investor may well be trying its case in a hostile environment, which may affect the proceeding in subtle and unpredictable ways. The option of recourse to a neutral forum avoids these problems, giving the investor some assurance that it will have a reasonable chance at being compensated for any harm it has suffered.

Todd Tucker, Global Trade Watch:

One of the most controversial provisions of BITs and the investment chapters is the investor-state dispute resolution mechanism. As we have seen under NAFTA, the investor-state mechanism has been used to challenge legitimate public-interest measures. It should be sufficient that an investor make use the domestic legal systems to bring a claim or, if not satisfied, push his/her respective government for state-state dispute settlement. The state-state approach has precedent in the U.S-Australia FTA. The above amendments limit to U.S. law the standards that would be applied by investor-state tribunals. However, the above fixes do not remedy the core violation of the no-greater-rights standard – which is the very opportunity for a foreign investor operating within the United States to seek remedy before an investor-state tribunal, while U.S. investors and firms are limited to seeking remedy in U.S. courts. To remedy the violation of the no-greater-rights standard, the Model BIT’s Section B (Articles 23-36) and the Panama FTA Investment Chapter’s Section B (Articles 10.15-10.27) must be stricken. Government-government enforcement action, based on the renegotiated terms described above, would provide recourse for actual acts of direct expropriation, while safeguarding legitimate public-interest laws from challenge and ensuring foreign investors are not provided greater rights than domestic investors operating domestically.

Emergency Committee for American Trade:

It is critical, as well, that the investment chapter include a strong investor-state dispute settlement mechanism, as developed in the Model BIT, to ensure objective and full resolution of investors’ individual disputes that are covered by the FTA.

Investor-State in FTAs

In the context of the proposed Trans-Pacific Partnership Agreement, the Emergency Committee for American Trade makes the following point:

The U.S.-Australia FTA did not include one vitally important component of a strong
investment chapter, namely investor-state dispute settlement. ECAT very strongly urges that investor-state dispute settlement be included with respect to all Trans-Pacific partners in the final agreement. Without such a mechanism, the investment chapter would be largely unenforceable for U.S. companies. ECAT also notes that Australia has included investor-state provisions in its most recently signed agreement – the Agreement Establishing the Association of Southeast Asian Nations (ASEAN)–Australia–New Zealand Free Trade Area (AANZFTA).

If anyone knows, I'm curious as to what was going on behind the scenes that led to the U.S.-Australia FTA not having investor-state.  As far as I know, every other recent U.S. FTA has it, and it sounds like Australia has used it in at least some other FTAs (although perhaps not all).  So what were the factors that led to it being excluded from the U.S.-Australia FTA?

Susan Franck on Investment Treaty Arbitration

Susan Franck has posted "Development and Outcomes of Investment Treaty Arbitration " on SSRN.  Here is the abstract:

The legitimacy of investment treaty arbitration is a matter of heated debate. Asserting that arbitration is unfairly tilted toward the developed world, some countries have withdrawn from World Bank dispute resolution bodies or are taking steps to eliminate arbitration. In order to assess whether investment arbitration is the equivalent of tossing a two-headed coin to resolve investment disputes, this article explores the role of development status in arbitration outcome. It first presents descriptive, quantitative research about the developmental background of the presiding arbitrators who exert particular control over the arbitration process. The article then assesses how (1) the development status of the respondent state, (2) the development status of the presiding arbitrator, and (3) the interaction of these variables affect the outcome of investment arbitration. The results demonstrate that, at the macro level, development status does not have a statistically significant relationship with outcome. This suggests that the investment treaty arbitration system, as a whole, functions fairly and that the eradication or radical overhaul of the arbitration process is unnecessary. The existence of two statistically significant simple effects – namely that tribunals with presiding arbitrators from the developing world made smaller awards against developed states in particular circumstances – suggests that particularized reform could enhance the procedural integrity of arbitration. Irrespective of whether future research replicates the results, reforms targeted to redress possible imbalance in the system have the potential to enhance procedural justice and the perceived legitimacy of arbitration in an area with profound political and economic implications.

Despite the generally good news about the lack of connection between arbitrators' backgrounds and the decisions, she suggests a number of ways to improve the arbitration process, all of which seem sensible to me.

Would these improvements satisfy countries who have threatened to withdraw from investment treaties that use ICSID arbitration?  That's hard to say.  It may be that the perceived bias of arbitrators is only part of the reason they want out.  It's possible that these developing countries just don't want to be involved in such treaties with Western countries who are the source of a lot of foreign investment, as this will almost inevitably lead to lawsuits against them.

Bailouts and International Investment Law

From Anne van Aaken and Jürgen Kurtz, a brief paper entitled "THE GLOBAL FINANCIAL CRISIS: WILL STATE EMERGENCY MEASURES TRIGGER INTERNATIONAL INVESTMENT DISPUTES?"  From the conclusion:

We draw two tentative conclusions, implicated in our analysis of potential liability under international investment treaties. First, there is clear evidence of widespread discrimination directed at foreign actors in the laws we have surveyed despite the public commitment of state parties to free market principles, including the rule of law, respect for private property, open trade and investment and competitive markets, expressed at the G20 meetings. This is not confined to any individual state or select grouping; it is a marked characteristic of emergency responses to the financial crisis across a significant proportion of the globe. This then is a timely reminder to revisit the lessons associated with the outbreak of protectionism leading to the Great Depression in the interwar period. Protectionism is the result of a prisoner’s dilemma understood in game theory terms. Cooperation would make every state better off, but it is individually rational for states to pursue their self-interest (and protect domestic industry) at least in the short term. While protectionist instincts are now more nuanced, it is difficult to escape the conclusion that states are failing to cooperate in the current crisis, with possible cascading consequences.

This leads to our second, tentative concern, namely whether international law will fulfill a key function in the contemporary period. The framers of the post-Second World War architecture of international economic law were deeply influenced by the lessons of the interwar period. They had drafted rules hoping to embed a loose form of cooperation and constrain the freedom of states to resort to shortterm protectionist measures. The preparedness and rapidity by which states are now moving in that direction raise serious questions of whether our existing system is a sufficient check against these problematic tendencies.

With regard to their first concern, embedding protectionism within some other policy measure is always frustrating for trade folks.  We often try to explain that trade rules don't prevent the other policy measure.  You just can't adopt these measures in a way that is discriminatory.  But that message is sometimes hard to get across and many people come away thinking that trade (and investment) rules prevent the other policies.

The Trucking Dispute: Not Just About Trade Anymore

The Trucking Dispute is now a NAFTA Chapter 11 investment dispute as well:

After nearly two years of resisting the opening of the U.S.-Mexico border to long-haul trucking operations, the Mexican motor carrier association now is taking the U.S. to “NAFTA court.”

Canacar filed a Notice of Arbitration on Thursday, April 2, claiming the shutdown of the cross-border trucking demonstration program is a violation of the North American Free Trade Agreement.

...

In the notice the group claims that shutting down the program could cost Mexico $2 billion a year.

ADDED:  Now that I think about it, this post was a bit misleading. The original NAFTA Chapter 20 dispute involved not just trade in services, but also the NAFTA investment provisions.  So perhaps what I should have said was, "not just a state-to-state dispute settlement case anymore."  But that wouldn't have been a very catchy title.

Free Book Chapter on the History of Investment Treaty Law

New from Andrew Newcombe, Law and Practice of Investment Treaties: Standards of Treatment, co-authored with Lluís Paradell.  The first chapter (a 73 page in-depth treatment of the historical development of investment treaty law) is available for free here: http://ita.law.uvic.ca/documents/NewcombeandParadellLawandPracticeofInvestmentTreaties-Chapter1.pdf

Investment Treaty Empiricism

Over at Opinio Juris, Susan Franck talks about empiricism and international law, with a focus on investment treaty decisions, noting the differences between the rhetoric and the reality of investment treaty decisions.  David Zaring offers some comments.

Expropriation Standards in Investment Rules

From the previously mentioned Norwegian draft model BIT (MS Word document) that reader Perry Bechky pointed me to:

ARTICLE [6]: EXPROPRIATION

1. A Party shall not expropriate or nationalise an investment of an investor of the other Party except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

...

What's noticeably absent is the "measures equivalent to expropriation or nationalization" or "measures tantamount to nationalization or expropriation" language.

I'm not sure how much detail we will get during the campaign about the specifics of trade agreement rules, but I wonder if this meets the goal of Senator Obama, mentioned here, that "... With regards to provisions in several FTAs that give foreign investors the right to sue governments directly in foreign tribunals, I will ensure that foreign investor rights are strictly limited and will fully exempt any law or regulation written to protect public safety or promote the public interest."

Possible New Investment Treaty Rules for Non-Discrimination

From a Norwegian draft model BIT (MS Word document) that reader Perry Bechky pointed me to:

Article 3: NATIONAL TREATMENT

1. Each Party shall accord to investors of the other Party and to their investments, treatment no less favourable than the treatment it accords in like circumstances[FN2] to its own investors and their investments, in relation to the establishment, acquisition, expansion, management, conduct, operation and disposal of investments.

[FN2] The Parties agree/ are of the understanding that a measure applied by a government in pursuance of legitimate policy objectives of public interest such as the protection of public health, safety and the environment, although having a different effect on an investment or investor of another Party, is not inconsistent with national treatment ... when justified by showing that it bears a reasonable relationship to rational policies not motivated by preference of domestic over foreign owned investment.

Here are a few initial thoughts on this provision.

First, my sense is that perhaps the footnote would only apply to situations involving de facto discrimination.  De jure discrimination (i.e., explicit distinctions between foreign and domestic investors/investments) would be governed by the main text alone.  But I'm not absolutely sure about this.

Second, the substance of the footnote indicates that disparate impact/discriminatory effect on foreign investment/investors will not lead to a violation of national treatment rules in all instances.  Specifically, there will be no violation if the following conditions are met: (1) The measure pursues "legitimate policy objectives of public interest"; (2) the measure "bears a reasonable relationship to rational policies"; and (3) the "policies" at issue are "not motivated by preference of domestic over foreign owned investment."  The first two elements seem to overlap; I'm not sure exactly how they relate to one another.  The last element, the "motivation" behind the measure, involves intent.  However, it's not clear what kind of intent the drafters had in mind, subjective or objective.

Third, what happens if there is no discriminatory effect on foreign investors/investments as a whole?  Does that mean there cannot be a violation?  There are WTO cases that have found a violation where one individual foreign product is treated unfavorably even though there is no overall discriminatory effect against foreign products.  I wonder how the quoted provision would deal with the equivalent situation in the investment context.  The reference to "an investment or investor" makes me think the "individual" test might be applied.

Fourth, it sounds like the burden is on the defending party to show that the measure "bears a reasonable relationship to rational policies not motivated by preference of domestic over foreign owned investment."  So, the complainant first makes its claim of less favorable treatment, but the defending party can then respond with a defense of this kind.

Finally, I thought it was interesting that they put the footnote after "like circumstances."  There is some disagreement over which part of the national treatment provision is the key, with some emphasizing the "less favorable treatment" part and others focusing on the "like"-ness part.  By putting the footnote where they did, it seems that perhaps these drafters thought "like"-ness was the key.

The Democratic Candidates on Investment Rules

Here are some statements from the Democratic candidates on investment rules in trade agreements, from responses to questions from the Pennsylvania Fair Trade Coalition (answers are in italics).

Obama:

9. Will you commit to renegotiate NAFTA to eliminate its investor rules that allow private enforcement by foreign investors of these investor privileges in foreign tribunals and that give foreign investors greater rights than are provided by the U.S. Constitution as interpreted by our Supreme Court thus promoting offshoring?

... I firmly believe that foreign investors should have no greater rights than Americans in our trade agreements.

10. Will you commit to renegotiate CAFTA and the other FTAs now in effect to eliminate their investor rules that allow private enforcement by foreign investors of the FTA investor privileges in foreign tribunals and that give foreign investors greater rights than are provided by the U.S. Constitution as interpreted by our Supreme Court thus promoting offshoring?

... With regards to provisions in several FTAs that give foreign investors the right to sue governments directly in foreign tribunals, I will ensure that foreign investor rights are strictly limited and will fully exempt any law or regulation written to protect public safety or promote the public interest. And I will never agree to granting foreign investors any rights in the U.S. greater than those of Americans. Our judicial system is strong and gives everyone conducting business in the United States recourse in our courts. The tribunal system was created to ensure that our investors would have access to similar protection abroad. I understand the concerns surrounding this issue, and am committed to working to address them.

Clinton:

9. Will you commit to renegotiate NAFTA to eliminate its investor rules that allow private enforcement by foreign investors of these investor privileges in foreign tribunals and that give foreign investors greater rights than are provided by the U.S. Constitution as interpreted by our Supreme Court thus promoting offshoring?

... 2. Changing NAFTA’s investment provisions that grant special rights to foreign companies. Under NAFTA, foreign companies can challenge American laws before special tribunals and outside of our court system. The laws that foreign companies can challenge include regulations intended to protect workers and protect the environment. I believe that trade agreements must elevate standards of living around the world, not empower corporations to hold them down.

10. Will you commit to renegotiate CAFTA and the other FTAs now in effect to eliminate their investor rules that allow private enforcement by foreign investors of the FTA investor privileges in foreign tribunals and that give foreign investors greater rights than are provided by the U.S. Constitution as interpreted by our Supreme Court thus promoting offshoring?

... As President, I will observe a trade timeout until my administration has reviewed all existing trade agreements to fully determine how they have affected our economy. I do not believe that our trade agreements should give private investors any ability to circumvent U.S. laws, particularly with respect to regulations intended to protect workers and protect the environment. As part of my plan to fix NAFTA, I have called for revising the provisions that permit foreign companies to challenge U.S. laws before special panels rather than in courts. I believe that trade agreements must elevate standards of living around the world and not empower corporations to hold those standards down.

Thea Lee on NAFTA Chapter 11

I've been intrigued with the brief mentions of investor-state arbitration during the Presidential campaign.  Here is something on this subject from Thea Lee, policy director for the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO):

The NAFTA investment chapter should also be revisited. NAFTA was the first trade agreement that allowed corporations to sue governments and challenge statutes protecting the environment, public health, and consumers. Legislators and ordinary citizens have no effective voice in the dispute resolution process. We would argue for eliminating the investor-state dispute settlement provision and more carefully defining both “investment” and “expropriation.”

I wonder if this could become important in the general election.  McCain seems to support trade agreements as currently written, but the Democrats have been quite critical.  So which candidate, Clinton or Obama, is more likely to follow the AFL-CIO view?  Based on this AP article, it could be either, although Clinton may be (slightly) more closely tied to the AFL-CIO:

The AFL-CIO has not endorsed either Clinton or Obama in the Democratic presidential primary, although it has allowed its 56 member unions to make individual endorsements. Clinton so far has been endorsed by more AFL-CIO unions than Obama.

Clinton has made explicit criticisms of investor-state dispute provisions (see the first link above); I haven't seen anything from Obama, though.

Investor-State Arbitration and the U.S. Presidential Campaign

From Alan Beattie in the FT:

Amid the noisy battering the North American Free Trade Agreement is taking from both Democratic presidential hopefuls, one recent statement from Hillary Clinton was particularly resonant. “We will have a very clear view of how we’re going to review Nafta,” the New York senator said. “We’re going to take out the ability of foreign companies to sue us because of what we do to protect our workers.”

...

.. as Mrs Clinton suggested, even the White House and Congress were surprised and disturbed when the US ended up being on the end of several high-profile claims under Nafta. With companies from emerging markets like India and China investing abroad, the rich countries could find themselves increasingly targeted by litigation.

Nonetheless, the system of international investment arbitration continues to expand its reach. European and American business lobbies, often dominated by service sector companies like telecommunications, retailers and banks that invest abroad, are keen on new investment treaties and on adding investment rules to broader trade deals.

The US is pursuing BITs with the “Brics” (Brazil, Russia, India and China) group of emerging market countries. A US trade official says that Washington’s model for BITs deals with some of the problems encountered under Nafta by including rules against frivolous claims, along with consolidation procedures allowing multiple claims to be considered simultaneously rather than clog up the system. But the official adds: “It is inconceivable to think that we would sign a [BIT] without provisions for investor-state litigation.”

That aspect may prove a sticking point for some. Brazil, Latin America’s largest recipient of foreign direct investment, has traditionally been suspicious about investment treaties. A senior Brazilian foreign ministry official said recently that the Argentine example was “very politically visible” and that it would be enormously difficult to get investor-state arbitration through the country’s congress.

One Washington trade lawyer says: “The US business community clearly still likes BITs. But why Brazil or any other country would agree to sign one after looking at Argentina defeats me.”

I've always been surprised at how little public debate there has been on investor-state arbitration.  Perhaps part of the reason is that the issues are somewhat complex and difficult to explain.  I noticed Hillary Clinton's reference to the issue at the time, and I wonder whether this issue will emerge as an important one in the Presidential race, or just get buried in the larger trade debate, as seems to be the case now.

Obama/Clinton: "Opt Out Of" Or "Re-negotiate" NAFTA

I was just watching the Obama-Clinton debate in Ohio.  Most of the trade stuff was boilerplate, but one point jumped out at me.  Both Obama and Clinton stated explicitly that they will "opt out" of NAFTA unless the governments of Canada and Mexico agree to re-negotiate the agreement.  In particular, they want labor and environmental standards to be a core part of the agreement, enforceable through dispute settlement.  (Senator Clinton also mentioned something about preventing foreign investors from challenging our laws designed to protect workers, but I forget whether that was said in the same context).

Here's my question for any Canadian or Mexican readers (or any others who might have some insights):  What would the reaction of the Canadian and Mexican governments be to this proposal?

UPDATE:  Here's the part where Clinton talks about foreign investors:

But let's talk about what we're going to do. It is not enough just to criticize NAFTA, which I have, and for some years now. I have put forward a very specific plan about what I would do, and it does include telling Canada and Mexico that we will opt out unless we renegotiate the core labor and environmental standards -- not side agreements, but core agreements; that we will enhance the enforcement mechanism; and that we will have a very clear view of how we're going to review NAFTA going forward to make sure it works, and we're going to take out the ability of foreign companies to sue us because of what we do to protect our workers.  (emphasis added)

So I think it's clear that modifying the investment provisions is part of her general re-negotiation plan.  What's not clear to me is whether the investment re-negotiation will be limited to laws "to protect our workers."  That's the only part she mentions, but it seems strange to single that area out.

Investment Protection for Whom?

Aren't investment protection rules designed to protect investments by Western companies in developing countries?  That may have been the original idea, but now the situation seems more complicated:

With Indian firms investing aggressively in the US, India has put on fast track negotiations on signing an investment protection agreement with the [United] States.

While both the US and India have signed the investment protection agreements with a number of countries, the one between them has to be unique because it is a different type of relationship, commerce and industry minister Kamal Nath said.

The two countries would try and conclude the investment protection agreement by the end of this year, he said, adding that Indian investments were not made in the American stock market but in the backyard of the US Economy.

Here's more:

In a measure of the growing US-India trade engagement, Nath spoke about the investment protection agreement between the two countries. "The investment protection agreement between US and India, it turns out, is going to be more for India than US," Nath said in a lighter vein. "It is a different kind of agreement compared to the other countries because investments on both sides are so substantial. We hope to conclude it by end of the year."

He said even 10 years ago not many could have imagined that Indian companies would be investing in the US. At best, he said, one could think in terms of investments in Dubai, Singapore, Sri Lanka or Bangladesh.

Indian companies with a strong US presence being showcased during the two days include Bharat Forge, Essar Group, HCL America, ITC Kitchens of India, Jet Airways, Mahindra USA, Ranbaxy, Tata Group, Thermax and Wockhardt USA.

Together these companies are in industries as diverse as steel, airlines, pharmaceuticals, auto parts, healthcare, hotels, chemicals and information technology. According to one study Indian companies have created 30,000 new jobs in the US.

The Gambling Dispute: Is Investment Arbitration An Option?

A law firm representing some gambling interests thinks it might be:

protections contained in the US IIAs, comprising 40 Bilateral Investment Treaties (BITs) and 11 Free Trade Agreements (FTA’s), may be relied upon by foreign investors seeking to establish a gaming business in the US under the “commercial presence” route.

...

in the event the US denies an investor permission to establish a gaming business, this may well amount to a breach of its treaty obligations. The putative investor could then choose to enforce its rights by recourse to the dispute resolution mechanism contained in the applicable IIA.

See pages 8-9 of the document.

(HT to Investment Treaty News)

Trade in Everything: Live Cattle and "Pregnant Heifers"

Reader Perry Bechky points me to a NAFTA Chapter 11 ruling from a couple days ago, in which the Tribunal rejected an investment claim related to trade restrictions on certain live cattle coming from Canada into the U.S.  The basic finding was that the Canadians had no investment in the U.S., so the Tribunal did not have jurisdiction.

(I'm going to leave it to the investment folks around here to say more about the decision, if they want to.)