ALBERTAS ŠEKŠTELO, FCIArb 15 May 2014, Kaliningrad Jurisdictional Overlap in WTO Dispute Settlement and Investment Arbitration

ALBERTAS ŠEKŠTELO, FCIArb 15 May 2014, Kaliningrad

Jurisdictional Overlap in WTO Dispute Settlement and Investment Arbitration

Content of this presentation

• Imaginary case example

• Why relevant?

• Threats of “fragmentation”

• Main differences between WTO and BIT Dispute Settlement Regimes

• Jurisdictional Overlap between WTO and BIT Dispute Settlement Systems (in general and case-law examples)

• Soft solutions

2Legal services inEstonia / Latvia / Lithuania

Instead of PrologueCase: Private investor made considerable investments in social security – invested into State’s social health insurance. The State is both a member of the WTO Agreement and relevant BIT. Later, the State amended legislation and thus precluded the investor from benefit of its investments.

Two scenarios:

• WTO: ○ Annex I B of the WTO Agreement – GATS (General Agreement on Trade in Services);○ State-to-State dispute settlement under DSU (Investor’s State v. the State in

question);○ Non-discrimination principle;○ Most-Favored Nation Treatment principle.

• BIT:○ Investor-State Negotiations (cooling-off period);○ Investor-State arbitration;○ Indirect (“creeping” expropriation);○ Breach of Fair and Equitable Treatment principle (in fact, discrimination);○ Eureco v. the Slovak Republic, PCA case No. 2008-13, Award on Jurisdiction,

Arbitrability and Suspension of 26 October 2010.

• Both remedies provided in WTO and BIT supplement each other;

• Question: what is relation between WTO and BIT proceedings if, despite pending DSU proceedings, Investor commence Investor-to-State arbitration under the BIT?


Why relevant?

• By the end of 2011 States had signed 2,833 Bilateral Investment Treaties (BITs) United Nations Conference on Trade and Development statistics

• E.g. Lithuania has concluded 42 BITs, Russia - 50

• WTO had 159 members on 2 March 2013

• BITs and WTO Agreement often contain similar substantive provisions, e.g. regarding National Treatment Principle (non-discrimination):

○ Article III(4) of the General Agreement on Tariffs and Trade (GATT) 1994: ”The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to

like products of national origin in respect of all laws, regulations and requirements […]”○ Article 3(1) of the Lithuanian-Russian BIT: “Each Contracting Party shall accord

in its territory to the investors, investments made by investors of the other Contracting Party

and activities related to such investments fair and equal treatment […]”


Fragmentation

• Fragmentation: United Nations International Law Commission Study Group made a report in 2006 on the fragmentation in international law (UN Doc. A/CN/4/L/682).

• Definition: Emergence of specialized and (relatively autonomous rules or rule-complexes, legal institutions and spheres of legal practice (emphasis added)

• Fragmentation exists in three levels:○ Normative – various legal regimes, e.g. trade law, human rights law,

environment law○ Institutional – closely related to normative level and implements the

normative level, e.g. courts, tribunals○ Professional – unique legal techniques, professional styles applicable

in each regime

• Risks of Fragmentation:○ Creates jurisdictional overlaps (e.g. WTO Agreement vs. BIT)○ Conflicting decisions (e.g. CME and Lauder cases: same facts,

different (related) claimants, different BITS and tribunals, opposite awards – see next slide):


CME, Lauder vs. Czech Republic (cont.)• In 1993, US national Ronald Steven Lauder invested in Czech private

television broadcaster TV Nova through his German company (which was later succeeded by the Dutch company Central European Media (CME).

• Some 20 suits started in front of the Czech courts and international tribunals, including UNCITRAL arbitrations CME v. Czech Republic and Lauder v. Czech Republic, after his business partner, Czech citizen Vladimir Železny, effectively deprived CME of its investment by breaking off the deal between Lauder's and Železný's companies.

• CME and Lauder respectively sought damages for the alleged interference of the Czech Media Council, a government entity granting broadcasting licenses, into the business arrangements between Lauder's and Železný's companies, which supposedly eventually contributed to losses experienced by Lauder.

• Effectively dealing with the same facts, the tribunals handed down two contradictory arbitral awards: one dismissed the claim by Lauder, while the other awarded CME damages of $270 million and 10% interest. Finally Czech republic paid $355 million.


Main differences between WTO and BIT Dispute Settlement Regimes

• WTO Dispute Settlement Regime:○ Goal - to bring a country member in compliance with its obligations vis-à-vis

other members under the WTO agreements○ Unique platform – DSU○ State-to-state mechanism○ Expedited timetable codified in DSU (6 moth for a panel to render a decision)○ Remedies – prospective such as withdrawal or modification of the WTO-

inconsistent government measure○ Review – Appellate Body (issues of law)○ Partially confidential

• BIT Dispute Settlement Regime:○ Goal - enables private actors to bring an action against a state in an international

forum○ Different platforms – relevant BITs○ Investor-to-State mechanism○ No codified timetable (ICSID average case including annulment – 3.6 years)○ Remedies – retrospective such as damages○ Review – very limited and related to breach of fair process (ICSID – annulment

proceedings; other – recognition under New York Convention)○ Usually confidential


Jurisdictional Overlap between WTO and BIT Dispute Settlement Systems (in general)

• International Private and Public Law employ general principles of law: lis pendens for fighting with parallel (concurrent) proceedings, and res judicata to prevent successive (one before the other) proceedings

• These instruments do not work in WTO vs. BIT regimes:○ Triple Identity test for both lis pendens and res judicata (ILA report

2006):• Same relief

• Same grounds

• Same parties

○ WTO vs. BIT regime:• Different reliefs

• Different grounds

• Different parties

• Such situation creates jurisdictional overlap


Jurisdictional Overlap between WTO and BIT Dispute Settlement Systems (case-law examples)

• Softwood Lumber Dispute:○ US vs. Canada○ Centered on alleged Canadian subsidies to softwood lumber producers○ The dispute yielded 4 WTO disputes, 15 North American Free Trade

Agreement (NAFTA) Chapter 19 cases (anti-dumping), and 6 disputes under NAFTA Chapter 11 (non-discrimination)

○ Settlement agreement signed in 2006○ On 12 decisions rendered by WTO bodies, none discusses

coordination between WTO and NAFTA dispute settlement

• The “Sweeteners” Dispute:○ US vs. Mexico ○ Re. Mexico’s 20 % tax on other sweeteners than cane sugar, such as

High Fructose Corn Syrup (HFCS). Cane sugar producers were Mexican-owned, US investors manufactured and distributed HFCS in Mexico. The burden of tax was imposed on US investors. Mexico stated that this tax was a response to the US’ violation of NAFTA (denial of access to the US market for most of Mexico’s surplus sugar produce)


Jurisdictional Overlap between WTO and BIT Dispute Settlement Systems (case-law cont.)

• The “Sweeteners” Dispute (cont.):○ US successfully challenged the tax before the WTO○ WTO panel: the tax was discriminatory, and violated GATT Article III

(Panel Report, Mexico – Taxes on Soft Drinks, WT/DS308/R, para. 9.2); HFCS and cane sugar were “like products” and HFCS received less favorable tax treatment than (domestic) cane sugar. The panel held that such discrimination was not justified under GATT Article XX(d) and refused to consider Mexico’s countermeasures defense.

○ The Appellate Body upheld the panel’s decision○ Mexico repealed the tax in 2006○ US investors brought claims under NAFTA Chapter 11 (national

treatment, expropriation):• Corn Products International vs. Mexico: the Tribunal relied on WTO

findings and stated that GATT Article III contained language analogous to NAFTA’s national treatment provisions (Article 1102). However, tests for discrimination were separate and distinct (NAFTA: investor or investments in “like circumstances”, GATT – “like products”). Breach of NAFTA Article 1102

• Archer Daniels Midland Co and Tale & Lyle vs. Mexico: cited and agreed with the WTO panel’s finding. Violation of NAFTA Article 1102.


How to deal with Jurisdictional Overlap (“soft” solutions)?

• WTO dispute bodies have emphasized the distinctions between WTO and non-WTO regimes and the limited relevance of BIT tribunals award

• By contrast, BIT tribunals have in several cases relied on the findings of WTO panels (both factual and law)

• Soft (without amending the governing treaties) Solutions to prevent overlap and different decisions:

○ Comity – each consecutive tribunal must respect previous adjudicating body‘s decision

○ Stay of proceedings – BITs tribunals are in better position as WTO dispute settlement bodies have to comply with strict timetables codified in the DSU (DSU allows stay of proceedings up to 12 month only, DSU Article 12(12))

○ Request for documents and information○ Informal dialogue – e.g. joint WTO and BIT adjudicators’ conferences,

taskforces etc.


Albertas Šekštelo, FCIArbSenior Associate

[email protected]

mailto:[email protected]

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ALBERTAS ŠEKŠTELO, FCIArb 15 May 2014, Kaliningrad Jurisdictional Overlap in WTO Dispute Settlement and Investment Arbitration