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MAI DRAFT TEXT OF 1997: V. DISPUTE SETTLEMENT

CONFIDENTIAL DAFFE/MAI(97)1/REV2
GENERAL

It is understood that for a number of delegations further work is needed on dispute settlement. In particular, different options remain in the field of multilateral consultations and scope of dispute settlement. The present text has been prepared by the Chairman of the Expert Group on Dispute Settlement on the basis of the discussions in the group. It needs to be discussed by the Negotiating Group.

STATE-TO-STATE PROCEDURES

Article C.1.a

1. This paragraph provides that arbitration is available for a dispute over whether a Party has acted in contravention of the Agreement. It is understood that 'action' includes failure to act when the Agreement requires it. A key question, which this formulation does not prejudice, and leaves open for the arbitral tribunal to decide in light of all the relevant circumstances and the jurisprudence is, when is a dispute over a legislative measure of a Party ripe for arbitration, if its terms, which provide for action violative of the Agreement, have not yet been applied to a concrete case in that fashion.

2. In light of the opinion of the ICJ in the ELSI case, consideration was given to including in the MAI an express provision that there was no requirement of exhaustion of local remedies before resort might be had to MAI dispute settlement for injury to an investor. There was full agreement that the intent was not to require exhaustion of local remedies before MAI dispute settlement could be invoked. However, it was decided to record that in Commentary, rather than include in the articles of the MAI a provision which might cast doubt on the dispute settlement provisions of other investment agreements which had tite same intent and which were silent on the matter.

3. Mexico has serious concerns in relation to this provision.

Article C 1.b

Article C paragraph l.b, based on ICSID Article 27, is intended to assure that the initiation of any form of investor-state arbitration provided by the MAI would restrain parallel state-state proceedings under the MAI to thesame extent as, but no more than, would initiation of ICSID arbitration for a MAI Contracting Party which is also an ICSID party. This is a very limited preclusion, effecting the right to bring the very same claim. The ICSID observer confirmed that ICSID Article 27 should not preclude a state-to-state arbitration of an issue of treaty interpretation or application which was also involved in the investor-state dispute, as long as this did not amount to the espousal of the claim of the investor. It was recognised that an award in such a state-state proceeding would not affect an award rendered in the investor-state proceeding.

Article C 6

The "applicable rules" referred to in Article C 4 are those concerning the interpretation and application of treaties. Accordingly, this provision would not provide a basis for a Panel to rule on a dispute about a Contracting Party's compliance with other international legal obligations.

127

CONFIDENTIAL DAFFE/MAI(97)1/REV2

Article C 9

1. There was full agreement on the desirability of strong procedural safeguards for resort to countermeasures. This would prevent problems which unilateral recourse to countermeasures can produce. However, there was disagreement on the role of the Parties Group in this process.

2. On the permissible scope of countermeasures, there was agreement that expropriation of investments and denial of treatment in accordance with international law were not available countermeasures. There was broad willingness to consider some hierarchy of responses to discourage countermeasures against established investment. However, views were fairly evenly divided between delegations favoring a broad approach which would generally allow any responsive measure permitted under customary international law, including measures in the field of trade, and those favoring limiting responses to suspension of benefits under the MAI itself.

3. The broader customary law approach might not, in reality, be as far from the MAI only approach as it might appear to be. For example, certain responses permitted under customary law would run counter to obligations of MAI parties under the GATT, GATS or other WTO agreements. By neither expressly authorizing suspension of benefits under other agreements nor precluding challenge of such retaliatory suspension under the WTO DSU, a MAI party would run the full risk that any retaliation in areas protected under those agreements, without obtaining a waiver under them, would be found to be a violation of those other obligations, notwithstanding alleged rights of retaliation under the customary law of state responsibility. This risk would flow in part from the possibility that a WTO panel would not consider any state responsibility argument but would deal with a dispute strictly within the terms of the WTO agreements themselves; it would also flow in part from the legal uncertainties which some delegations believe exist concerning the right to respond to violation of one treaty by action in contravention of another unrelated one. Provided that the MAI, unlike the OECD's shipbuilding agreement, neither expressly authorized retaliatory suspension of benefits under WTO agreements nor waived the MAI Parties rights to complain under the WTO system for a retaliation found lawful under the MAI, the practical scope of the broad option is likely to be severely constrained.

128

CONFIDENTIAL DAFFE/MAI(97)l/REV2

INVESTOR-TO-STATE PROCEDURES

Article D.1.a

1. Pursuant to Article D.l.a, an alleged breach of the MAI must be causally linked to loss or damage to the investor or investment for the investor to have standing to bring a claim against the host state, but the damage, while imminent, would not need to have been incurred before the dispute is ripe for arbitration. Further a lost opportunity to profit from a planned investment would be a type of loss sufficient to give an investor standing to bring an establishment dispute under this article, without prejudice to the question of whether a specific amount of lost profits might later prove too remote or speculative to be recoverable as damages. The claim would be initiated on the basis of allegations of loss or damage, but their existence and actual amount would remain to be demonstrated, along with the remainder of the investor's case, during the proceedings on the merits of the dispute.

2. This Article, which includes effects on the investor, applies to all the investor's rights including those relating to establishment.

Article D.1.b

l. Some countries could accept the procedural solution on condition that there are no reservations permitted; were reservations permitted they would wish to return to the full respect clause. Australia, Canada, Hungary, Korea, Mexico and Norway wish to reserve their position. Positions are divided on the types of agreement to be covered.

2. Provided that the law specified under Anicle D.14.b were applicable under both options, and the respect clause were excepted from state-state dispute settlement, the full respect clause and the procedural solution would appear to be similar in their legal effect.

Article D.2 a

The reference in this article to submission of a dispute to "any competent counts" leaves open the possibility that a Contracting Party might choose not to make the MAI directly enforceable in its counts.

Article D2.c

Under Article D.2.c, the investor may freely choose among the arbitral options. Country reservations limiting the choice of UNCITRAL and ICC to cases in which the ICSID and additional facility options were not available would be acceptable.

Article D.3

Norway and Iceland have problems of a constitutional nature with unconditional prior consent. Korea has serious concerns with it.

129

CONFIDENTIAL DAFFE/MAl(97)1/REV2

Article D.6

This paragraph would be intended to assure that, in cases of mixed or unclear division of competence between the EC and a member state, both would be in the proceedings and responsibility would be covered, without burdening the investor with this issue. Whether or not this should be generalised beyond the EC to any other future REIO contracting party, i.e., a REIO with legal capacity and competence on MAI matters, is being considered as well.

Article D.8

Article D.8 is a variant of the clauses which appear in many investment agreements, allowing the established company to have standing to bring the claim to arbitration against the host state. Country specific reservations to this clause or an annex listing countries to which it does not apply would be acceptable.

Article D.9

l. This paragraph would represent a compromise between those delegations which want consolidation to be only with the case by case agreement of the investors concerned and those which wish consolidation to be mandatory, with the investor only able to withdraw from it with prejudice to its right to resort to other dispute settlement. Subparagraph e would allow withdrawal to be without prejudice other than under Article D.2.c.

2. Mexico has serious concerns in relation to this provision.

Article D.14

Unlike in cases under Article 14 (a) in which domestic law may be applicable as law, domestic law may be considered as a relevant fact in cases under Article 14 (b).

Article D.18

This paragraph provides for the enforceability of awards in accordance with the New York Convention in the courts of parties to it. While it does not require that MAI Contracting Parties become party to the New York Convention, it does requires them to provide for the enforcement of MAI pecuniary awards.

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