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The 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States, promoted by and signed under the auspices of the World Bank, is a milestone in the move towards the establishment of an international legal framework protecting and promoting the flow of foreign investment between developed and developing countries. In particular, the Convention set up the International Centre for the Settlement of Investment Disputes between a Contracting State and nationals of another Contracting State (ICSID), thus providing for the first time an international and highly delocalized institutional machinery for the settlement of disputes arising out of investments, which already constitute a significant part of international economic activities.
ICSID is to be placed in the context of a broader, more ambitious, and so far highly successful effort by the World Bank to set up an international investor-friendly legal environment. This long lasting effort has achieved other laudable results, such as the establishment of the Multilateral Investment Guarantee Agency, which provides an extremely valuable protection against investment risk in developing countries, that of the International Finance Corporation, which helps finance private sector's investment projects in those same countries, and more generally the adoption of policies and operative directives and guidelines which, even in the more traditional lending activities of the World Bank, have successfully aimed at introducing international minimum standards of protection of foreign investment and free market oriented economic and social reforms.
To summarize the role, the aims, and the overall structure of ICSID, no words can be better than Delhaume's, perhaps the leading authority on this topic:
"ICSID is an organization closely associated with the World Bank....Like the World Bank, the paramount objective of ICSID is to promote a climate of mutual confidence between states and investors favorable to increasing the flow of resources to developing countries under reasonable conditions. ICSID, therefore, cannot be viewed solely as a dispute settlement machinery. It must be regarded instead as an instrument of international policy for the promotion of economic development...[ICSID] constitutes a self-contained machinery operating in total independence from domestic legal systems. In the context of ICSID, the sole role of domestic courts is one of judicial assistance intended to facilitate the recognition of ICSID awards and to increase their effectiveness...[ICSID arbitration] is intended to maintain a careful balance between the interests of investors and those of Contracting States. The Washington Convention gives investors direct access to an international forum and enables investors to provide in an investment agreement that disputes will be decided under rules of international law. In exchange, the Washington Convention protects Contracting States from other forms of foreign international litigation...the investor cannot bring suit in a non-ICSID forum whether in the investor's state or elsewhere."[88]
The following sections will seek to speak out these key features of ICSID.
The structure of ICSID institutional dispute settlement mechanism contains several innovative elements. An orderly discussion of these elements requires to start from the key issue of consent. In this regard, the starting point is article 25(1), that is also a key provision for the discussion on jurisdiction in the following section. It so provides:
The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the Parties have given their consent, no party may withdraw its consent unilaterally.
Consent has to be in written form, a reasonable requirement which seeks to avoid any possible risk of uncertainty due to stop and go and unilateral behavior of the parties. The existence of this requirement may be explained with the effects deriving from consent; indeed, after giving their consent, the parties cannot unilaterally withdraw it and they give the proceedings the green light to go ahead.
Written consent may take the traditional form of an express ICSID arbitration clause contained in the investment agreement between the host state and the foreign investor. Another form of written consent may be when the host state consents to ICSID arbitration in its foreign investment law or in a Bilateral Investment Treaty; in this case, it is for the foreign investor to accept what is deemed the unilateral offer of ICSID arbitration on the part of the host state, and this acceptance must be in writing. This alternative is common but it also raises some interpretative issues, because it may not be clear whether and when the mutual consent has been provided, especially when the law of the host state is ambiguous or incomplete as to the procedure the foreign investor has to comply with for accepting that state's offer of ICSID arbitration. Thus, it is essential for the foreign investor to determine what this procedure is, and more importantly, whether the alleged consent contained in the host state's laws or treaties amounts to a unilateral offer of ICSID arbitration or is just the indication of ICSID as one of many possible alternatives for dispute settlement.
In any case, here as well as in any other jurisdictional issue, it is of fundamental importance to stress that ICSID tribunals are accorded competence de la competence. In short, it is always for the ICSID tribunal to determine, as a matter of admissibility of the claim, whether it has jurisdiction or not. This determination obviously includes the issue of consent. ICSID case law shows that there has been a tendency to interpret the notion of consent quite liberally, and this certainly helps the foreign investor in all those cases where the host state seeks to use the ambiguity of its consent not to resort to ICSID arbitration at all.
On the one hand, the underlying principle is always that consent has to be given freely and voluntarily. To be sure, the host state's consent does not derive automatically from its ratification of the Convention, which rather expresses a mere willingness to resort to ICSID as a possible dispute settlement mechanism. Whatever form it takes, its consent must be given for the specific dispute submitted to ICSID arbitration, being this determination regarded as an expression of the state's sovereignty. On the other hand, the need to respect host states' sovereignty cannot go so far as to impose a restrictive interpretation of their consent; in one case, the ICSID tribunal rightly rejected this view and held:
"[the agreement to arbitrate] is not to be construed too restrictively, nor as a matter of fact, broadly or liberally. It is to be construed in a way which leads to find out and to respect the common will of the parties: such a method of interpretation is but the application of the fundamental principle of pacta sunt servanda, a principle common, indeed, to all systems of internal law and to international law."[89]
It is instead the ICSID Convention itself that, in its effort of balancing the interests of the parties, confers on the host state the right to retain a certain control over its consent to ICSID arbitration. The relevant provision is article 25(4), that enables each Contracting State "to notify the Centre of the class or classes of disputes which it would or would not consider submitting to the jurisdiction of the Centre." This is a powerful instrument in the hands of the host state to restrict its consent, justified on the grounds that it is within the discretion of the host state, in turn expressing its sovereignty, to decide in respect of which disputes it consents to ICSID jurisdiction. However, in the application of this rule, ICSID tribunals have noticed a tendency to make abuse of this discretion, and have held that, while the Contracting States can notify the Centre of these restrictions either at the moment of acceptance/approval or at a later stage, "any subsequent change to the initial consent has only prospective, and not retrospective, effect."[90] In other terms, once a Contracting state has given its consent to an ICSID arbitration, it cannot modify/restrict that consent under article 25(4) for bringing the dispute outside the scope of ICSID jurisdiction. This holding proves that the extent of the host state's discretion to restrict its consent will ultimately depend on the interpretation of this discretion, and in particular of that state's written notification(s), given by the tribunal; this is another expression of the tribunal's competence de la competence, an essential guarantee against any abuse of power by the parties, in particular by the host state as concerns its sovereign powers.
Under article 25, there are two additional conditions which need be fulfilled for an ICSID tribunal to have jurisdiction. These are usually referred to as jurisdiction ratione personae and jurisdiction ratione materiae. As to the former, it implies a proper identification of the parties. Article 25(1) sets forth the basic requirement that the dispute be between a Contracting State and the national of another Contracting State. However, this requirement raises a set of delicate interpretative issues. As to the definition of Contracting State, first the Convention regards a state as a Contracting State only when it has confirmed its signature of the Convention at least thirty days before the submission of the dispute; this confirmation may take place through the deposit of either the ratification, the approval, or the accession instrument with the World Bank. Second, scholars and ICSID case load take the view that, while the state needs not be a Contracting State when it gives its consent to ICSID jurisdiction, it must have this status by the date of the actual submission of the formal request to the Secretary-General of the Centre, otherwise the ICSID tribunal would not have binding personal jurisdiction over that state, even if it gave its consent. Finally, under article 25(1), the notion of Contracting State may but must not necessarily include any constituent subdivision or agency of the state, which if included may be parties to the dispute before the ICSID tribunal. The notion of constituent subdivision may include federal states, municipalities, and other forms of local government; that of agency may include governmental agencies and state owned or controlled enterprises. However, any specific definition is left to the discretion of the Contracting State, since it is for it to designate to the Centre its subdivisions and/or agencies having legal standing before an ICSID tribunal. Then, in order to ensure that the Contracting State can retain control over its subdivisions/agencies' use of ICSID arbitration, article 25(3) provides that their consent to such arbitration be approved by the Contracting State to which they belong; as an alternative, under the same provision the Contracting State can notify the Centre that its approval is dispensed with.
Moving on to the identification of the foreign investor, that is, the national of another Contracting State, it must be observed that the Convention contains some provisions which have introduced radical innovations in the context of international law as concerns the nationality of juridical persons. Before getting there, however, it must be noted that the notion of national contained in article 25(2)(a) includes both natural and juridical persons. While the definition of natural persons is of course straightforward, it is important to observe that the Convention has imposed a certain rule of continuity of nationality for them, in the sense that, in order to be a party to an ICSID arbitration, a natural person must possess the nationality of a Contracting State both when the parties consent to ICSID jurisdiction and when the request is registered with the Secretary-General of the Centre. Furthermore, in either moments this nationality cannot be that of the Contracting State party which is party to the dispute.
It is however in respect of juridical persons that the Convention has been very innovative. The relevant provisions are contained in article 25(2)(b):
[The national of another Contracting State is] any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another contracting state for the purposes of this Convention.
This section covers two distinct although equivalent situations. The first is quite straightforward because it refers to the case where the juridical person is a national of a Contracting State other than that party to the dispute. However, it is important to note that the rule of continuity of nationality, applied to natural persons, does not apply here; indeed, the first paragraph refers to this nationality as necessary and sufficient only on the date when the parties consent to ICSID jurisdiction; thus, maintenance of this nationality until the moment when the actual dispute is submitted to ICSID arbitration is not required.
The second situation is instead one that, although extremely important and frequent, has been expressly dealt with for the first time by the ICSID Convention. It is the situation which was discussed above to show how difficult and unsatisfactory the determination of the nationality of corporations for the purposes of diplomatic protection is under traditional international law. Indeed, the situation under scrutiny is that where the foreign investment takes the legal form of a company incorporated under the laws of the host state. Under the principles of customary international law enunciated by the International Court of Justice in the Barcelona case, because the nationality of a corporation would depend on its place of incorporation, this company could neither enjoy diplomatic protection against the host state nor let the foreign investor resort to ICSID arbitration, because the locally incorporated company would be regarded as a national of the host state/Contracting State. It was seen above how this outcome is highly unsatisfactory, because it completely disregards the fact that often, either as a condition to entry imposed by the host state or because of a certain economic rationale, foreign investors, and in particular multinationals, have to set up a wholly owned or controlled subsidiary or a joint venture in the host state. In all these cases, to accept the ICJ's view expressed in the Barcelona case would inevitably force the foreign investor to rely exclusively on the laws and remedies offered by the host state for the enforcement of its rights; this scenario has historically proved to be risky and undesirable for the foreign investor, often accorded inadequate legal protection by the host state. It was also seen that the ICJ somehow departed from the Barcelona ruling in the ELSI case, but it did so in an ambiguous way that does not allow to hold that ELSI overruled the principles of customary international law enunciated in Barcelona.
Article 25(2)(b) of the Convention has the merit to provide a quite clear solution of this outstanding issue. Indeed, for the purposes of applying the Convention, the parties may agree to treat the locally incorporated entity as the national of another Contracting State. It is important to note that this agreement is expressly grounded on the element of foreign control; this means that finally an instrument of international law looks at the substance behind the form and recognizes that the real economic interests and rights to be protected are those of whoever controls the locally incorporated entity. However, the solution provided by the Convention implicitly also shows its limits, which make the solution only partly satisfactory. Indeed, the fact itself that an agreement between the host state and the foreign investor is necessary for the locally incorporated entity to enjoy protection under the mechanism of the Convention confers on the host state a significant degree of control over the possibility for the foreign investor to resort to ICSID arbitration. Furthermore, being this solution structured as an exception to the customary international rules on nationality of corporations, this agreement is supposed to be an express one.
Finally, and perhaps more importantly, the main criticism which the approach taken by the Convention attracts is that the Convention accepts the principle of customary international law whereby the nationality of the juridical entity is determined by its place of incorporation, and therefore the parties' agreement under article 25(2)(b) only provides an exception to that principle. In other terms, the exception confirms the rule. Although it is admirable that the Convention seeks to avoid the difficulties arising from the strict application of the principle of the place of incorporation, the view taken earlier in the present paper is that that principle cannot be embraced. To this extent, it is submitted that the way the Convention deals with the issue of nationality of juridical entities is unsatisfactory. To be sure, it cannot go unnoticed that first the Convention is from 1965, and therefore could not reflect the developments of the global economy which have taken place more recently, and second it provides a much more satisfactory and effective solution than that provided by customary international law, which, as proved by the Barcelona and ELSI cases, contains too many gaps. However, it must also be observed that the time perhaps has come for article 25(2)(b) of the Convention to be amended in order (i) to make the access of the foreign investor to ICSID arbitration independent of the agreement that is now necessary, (ii) to repeal the traditional vision of the parent-subsidiary relationship, which is based on their distinct legal personality and nationality due to their different place of incorporation, and (iii) to recognize the concepts of control and of group entity as the grounds on which a foreign investor may have locus standi before the ICSID tribunal.
The risk of a possible adverse impact of the host state's wide discretion has somewhat been attenuated by the liberal doctrine developed by ICSID case law as to the existence of the agreement. There have been cases where the existence of an agreement under article 25(2)(b), although not expressly entered by the parties, has been implied from the circumstances. One of these cases is where the host state has continuously and constantly treated the locally incorporated entity as owned or controlled by a foreign investor, and as just the legal form taken by the foreign investment; in this case, the ICSID tribunal held that there is no need for an express agreement on the nationality of the local entity.[91] ICSID tribunals have gone even farther, as in the case where it was held that when the host state enters into an investment agreement with a foreign owned/controlled entity having the nationality of that same host state, and that agreement contains an ICSID jurisdiction clause, the agreement to treat that entity as the national of another Contracting State can be implied, unless there is evidence to the contrary.[92]
More in general, the doctrine seems to be that an agreement can be implied if no other conclusion can be implied from the circumstances of the case.[93] So far the application of this doctrine has not only been liberal, but also quite wise. For instance, an implied agreement was not found in a case where the locally incorporated entity was set up after the conclusion of the investment agreement containing the ICSID arbitration clause but making no reference to that entity. However, it has been rightly observed[94] that perhaps the most evident shortcoming is a certain imbalance, in the sense that under the doctrine ICSID tribunals appear too willing and ready to imply the foreign investor's right to resort to ICSID arbitration, while more attention should be paid to whether the host state wishes to deal exclusively with the locally incorporated entity. This aspect becomes particularly important in cases involving the locally incorporated subsidiaries of foreign multinationals; here the foreign parent could enjoy an implied right to ICSID arbitration to protect its economic interests in the host state, while it was seen that the host state would face many difficulties of a jurisdictional nature to extend its regulatory control to the foreign parent, e.g. in cases of group liability. Thus, when an express agreement as to the foreign parent's right to ICSID arbitration has not been entered, to imply it may create an imbalance in the relationship between the foreign multinational and the host state, which favors the former and weakens the latter. In the Holiday Inn case, this argument was considered by the ICSID tribunal, and the absence of an express agreement on the treatment of locally incorporated subsidiaries as nationals of another Contracting State was interpreted as excluding, under the circumstances of the case, any implied right to ICSID arbitration for their foreign parent. However, the issue is to be determined on a case by case basis, and ICSID tribunals have proved to be more concerned about the need to afford foreign investment adequate protection when it takes the form of a locally incorporated entity. In the Amco Asia case, the tribunal expressly restricted the scope of application of the Holiday Inn ruling and confirmed its willingness to confer an implied right to ICSID arbitration on the foreign parent. Because of this position of ICSID tribunals vis-à-vis this jurisdictional issue, if the host Contracting State wishes to exclude the foreign parent, it should do so expressly, to avoid any risk of adverse interpretation.
As to subject matter jurisdiction, or jurisdiction ratione materiae, the Convention sets forth two loose requirements in article 25(1): one is that the dispute must be one "arising directly out of an investment," the other is that the dispute must be a legal one. Any definition of investment in the Convention is purposefully omitted, in order to leave the scope of ICSID's subject matter jurisdiction very broad. By doing so the Convention wisely lets new and unusual types of investment be submitted to ICSID jurisdiction, and this flexibility is important because foreign investment takes continuously new economic and legal forms. Moreover, while it is important that in their request the parties specify out of which investment their dispute has arisen, any definition of investment by the parties would be of little relevance, since it would always be subject to the tribunal's scrutiny, when it determines whether it has subject matter jurisdiction or not. The definition of legal dispute is not provided either. In general, it is understood that "the dispute has to concern either the existence or scope of a legal right or obligation, or the nature or extent of the reparation to be made for breach of a legal obligation."[95] It follows that mere conflicts of interests are outside the scope of ICSID jurisdiction ratione materiae. Finally, it is worth recalling that subject-matter jurisdiction can be unilaterally and ex ante restricted to certain classes of disputes by each Contracting State under article 25(4), which was scrutinized in the above discussion on consent.
The overall delocalized character of ICSID perhaps gives the main contribution to make the Centre a unique and extremely valuable international institutional dispute settlement mechanism. Delocalization appears in many aspects of the ICSID mechanism. Delocalization is primarily achieved through the exclusive character of ICSID jurisdiction vis-à-vis any other national or international remedy, as provided by articles 26 and 27(1) respectively. Indeed, resort to national remedies is excluded by article 26, which provides that "consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to arbitration to the exclusion of any other remedy." Articles 27(1) instead expressly excludes the availability of diplomatic protection and of any other international remedy to the foreign investor's national Contracting State in respect of a dispute submitted to ICSID arbitration.[96] It is important to observe that, as provided by the last part of article 27(1), these international remedies may become available to the foreign investor's national state at a later stage. In other terms, once the ICSID proceedings are over, if the award is in favor of the foreign investor and against the respondent Contracting State, while this award must be recognized and enforced by the national courts of any Contracting State as concerns the pecuniary obligations it imposes, there may still be a failure on the part of the respondent Contracting State to perform its obligations. Should this be the case, then the foreign investor's home Contracting State could resort to diplomatic protection and other remedies of international law against the non-complying respondent Contracting State. It is only at this stage that what was an ICSID dispute, which did not involve the national state of the foreign investor, may be brought on the level of a more traditional dispute between the foreign investor's host and home states. Moreover, under article 54 of the Convention, each Contracting State has accepted the compulsory jurisdiction of the ICJ as to disputes with other Contracting States concerning the interpretation or application of the Convention. This subject matter jurisdiction can therefore be interpreted as to include cases where the legal standing of the complaining Contracting State is provided by the failure on the part of another Contracting State to comply with the obligations arising from an ICSID award rendered against it
Delocalization, however, has some limits. First, it is evident that the host state may retain control over its disputes with the foreign investors by either not consenting to ICSID jurisdiction at all or providing a restricted consent, as it is the case when it consents to ICSID arbitration only in respect of one class or certain classes of disputes under article 25(4). As noted above, another important control over ICSID jurisdiction can be exercised when, under article 25(2)(b), the host state may or may not agree to treat the locally incorporated entity as the national of another Contracting State. On the other hand, it was also seen that for each of these situations empowering the host state to control ICSID jurisdiction, ICSID tribunals have made a constant and liberal use of their broad discretion in determining their own jurisdiction to limit the exercise of this control power by the host state as much as possible.
Another serious limit to delocalization is the recognition, under article 26, of the host Contracting State's power to "require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention." Therefore, the rule of exhaustion of local remedies may well be retained. This rule, however, is not necessarily a major setback for delocalization, because it does not prevent the foreign investor from resorting to ICSID jurisdiction in case of unsatisfactory outcome of the local administrative or judicial remedies.
An important aspect which is common to all the limits to delocalization seen so far is that these limits may operate at a preliminary stage, that is, at the moment of consent to ICSID jurisdiction, in the sense that they may either qualify/restrict or exclude this consent. However, articles 25(1) and 26 seem to clearly ensure that once this consent is given, ICSID jurisdiction becomes exclusive, in the sense that the parties can neither withdraw their consent nor resort to any other national or international remedy. Therefore, once consent is given, the parties are stuck into highly delocalized proceedings. Indeed, these proceedings will take place away from national courts, in an international institutional forum which provides a tribunal made up of professional and sophisticated members, and a detailed and exhaustive procedure. Among other things, ICSID proceedings can smoothly go ahead because, under the Convention, should one of the parties fail to collaborate, some procedural devices would be triggered which prevent the disruption of the proceedings.
Nonetheless, there are two aspects of the proceedings which may limit delocalization. First, while article 26 excludes resort to national remedies, there may still be room for national courts' interference in the pending ICSID proceedings, as a result of either the parties' or the national courts' initiative. In either case, any actual interference will ultimately depend on whether the national court accepts the primacy of ICSID proceedings or not. It has been observed that "the response from national courts has, in this respect, been uneven."[97] There are two cases which describe this varying attitude. In MINE v. Republic of Guinea,[98] there was an American arbitral award on the same dispute as the one pending before an ICSID tribunal. The winning party sought its enforcement before the national courts of the US, Belgium, and Switzerland. The US courts declined to enforce on grounds other than ICSID exclusive jurisdiction, while both the Swiss and the Belgian ones rejected the application by recognizing the primacy of ICSID jurisdiction. In SOGUIPECHE v. Atlantic Triton,[99] a case before the French courts which involved ICSID proceedings, the Court de Cassation, by overruling the judgment of the Court of Appeal, held that ICSID exclusive jurisdiction only applied to the merits of the dispute, while the parties had the right to seek the application of provisional measures of attachment before national courts. An extension of ICSID exclusive jurisdiction to these measures was to be expressly or implicitly agreed upon by the parties to the dispute for it to be upheld by the French courts. The Court could ground these conclusions on the absence of any indication to the contrary in the ICSID Convention or Arbitration Rules, although it was clear that to recognize national courts' jurisdiction to take provisional measures would adversely prejudice the effectiveness and linearity of the related ICSID proceedings. This particular problem is now over, because Rule 39 of the Revised ICSID Arbitration Rules of 1984 expressly confers on the parties the right to seek provisional measures before national courts "provided that they have so stipulated in the agreement recording their consent." However, the more general problem of the relationship between ICSID jurisdiction and national courts ultimately depends on the willingness of the latter to refrain from interfering with the former and accept its primacy.
Second, the delocalization of ICSID proceedings may be adversely affected by the rules on the governing law of the merits of the dispute. The material provision is contained in article 42(1) of the Convention:
The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules of the Conflict of Laws) and such rules of international law as may be applicable.
The general rule is therefore that of parties' autonomy. However, should the parties fail to choose the governing law, the Convention sets forth that the national law of the Contracting State party to the dispute applies; because this includes its conflict of laws rules, in the end the applicable national law may be that of a state other than that party to the dispute, if so determined under the latter' s conflict of law rules. Thus, either because the agreement on ICSID jurisdiction often provides that the national law of the host Contracting State applies, as part of the bargaining process where the host state is likely, in a logic of give and take, to impose this choice on the foreign investor, or because the parties fail to agree on the governing law, which is a result the host state may well wish to achieve knowing that the Convention would then make its national law apply, it is likely that delocalization will be hindered as to the law governing the merits of the dispute. This would greatly water down the overall delocalized character of ICSID arbitration, thus making it much less attractive to the foreign investor. In the end, if the host state can retain control over such an important aspect of the dispute, it is clear that the foreign investor may not see anymore any rationale in preferring ICSID to local remedies. Furthermore, it is not even clear whether this scenario would be in the interest of the host state. Indeed, it has been acutely observed that it is likely that the ICSID tribunal will not possess an adequate level of expertise in the law of the host state, especially when compared to that of the national courts of the host state. In this case, there may be an high risk of mistaken application of the law, which would be counterproductive both for the parties' interests and for the reliability and attractiveness of ICSID. Faced with this scenario, the parties might reasonably opt for local remedies instead.
To be sure, it must be recalled that delocalization of the substantive law governing the merits of a dispute is not an easy task, especially because it is very unlikely to succeed in not submitting these merits to a national law; this may be explained by noting that there are so many and complicated issues arising out of the merits of the dispute, that any system of law other than national law would be unable to regulate all of them properly, or at least less able than national law. However, as a matter of fact, the application of the host state's national law is undesirable for the foreign investor, due to the significant risk of being subjected to a law which does not adequately protect its rights and interests, either because of its many gaps and inconsistencies or because of its hostility towards foreign investment.
Perhaps it is also with this concern in mind that the Convention provides for the application of international law. ICSID case law has been varying as to the role played by international law in regulating the merits of the dispute. First, it is not clear whether international law is relevant both when there is a governing law chosen by the parties and when the parties fail to make such a determination, or only in the latter case. However, in LETCO v. Liberia[100] the ICSID tribunal took the view, so far never rejected in other cases, that even if the parties have chosen the law governing their dispute (which was that of the host state in the present case), the tribunal would still subject it to control by international law. Conformity with international law therefore appears as an absolute value, which the ICSID tribunal is willing to test in any case, whether the parties have chosen the law governing the merits of their dispute or not. To confirm this approach, there have been cases, e.g. the two Amco Asia cases,[101] where the parties did not indeed choose the governing law, so that under article 42(1) the national law of the host Contracting State applied, and ICSID tribunals held that this law is subjected to control by international law.
Second, the Amco Asia cases also dealt with the issue of how and to what extent international law controls the national law governing the dispute, which in those two cases was the law of the host Contracting State. The approach in the first case was that international law had only a "supplemental and corrective" role; it could only fill "the lacunae in the applicable domestic law" and ensure "precedence to international law norms where the rules of the applicable law are in collision with such norms." However, this subsidiary role of international law was rejected as too restrictive when the Amco Asia case was resubmitted to ICSID arbitration. The ICSID tribunal so held:
"Article 42(1) refers to the application of host state law and international law. If there are no relevant host states laws on a particular matter, a search must be made for the relevant international laws. And, where there are applicable host state laws, they must be checked against international law, which will prevail in case of conflict. Thus international law is fully applicable and to classify its role as "only" "supplemental and corrective" seems a distinction without a difference."
This second approach is a major shift from the first; under this new view, international law assumes a much more critical role, because it is the ultimate standard against which the adequacy of national law must always be tested. This approach clearly protects the foreign investor where, under article 42(1), the national law of the host state applies, and it does not afford its rights adequate protection, is incomplete, or hostile towards foreign investment. In all these cases, the application of international law would be critical because international law provides international minimum standards of protection of foreign investment which, in addition to being derived from the practice of developed countries, are normally higher than those provided by the national law of many developing or less developed countries. It may therefore be submitted that this role of international law should adequately shield the foreign investor against the risks connected to the application of the national law of the host Contracting State, which would otherwise be a major disincentive for the foreign investor to resort to ICSID arbitration.
Last but not the least, this approach is more consistent with the structure and rationale of ICSID more in general. In other terms, under the Convention, the ICSID award enjoys recognition and enforcement in all Contracting States, and diplomatic protection by the foreign investor's national Contracting State is quite restricted. The argument submits that the award must comply with international law for it to be consistent with these provisions of the Convention, because only an award that complies with rules and principles of international law is entitled to enjoy full recognition and enforcement and to restrict resort to diplomatic protection. In conclusion, it may be submitted that the centrality and primacy of international law greatly restrict the host state's control over the (merits of the) dispute, and allow ICSID to recover its fundamental delocalized character, which is the ratio itself of an international tribunal. As Muchlinski puts it, "an international tribunal cannot accept a plea from the respondent state that provisions from its own law or deficiencies in that law are an answer to a claim against it for an alleged breach of international law."[102]
Finally, there is one last element of ICSID arbitration that may function as a nuclear weapon the host Contracting State could successfully trigger for the purposes of diluting or neutralizing its delocalized character. This element concerns the ultimate outcome of ICSID proceedings, that is, the stage when recognition and enforcement of the ICSID award are sought. On the one hand, the relevant provisions of the Convention lay down a system whereby recognition and enforcement within each Contracting State are quite straightforward, and this is certainly a competitive advantage ICSID has over other dispute settlement mechanisms, and in particular ad hoc arbitration, where recognition and enforcement are often problematic. Indeed, article 54 of the Convention provides:
Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories, as if it were a final judgment of a court in that State.
Thus, upon presentation of a copy of the ICSID award certified by the Secretary-General of ICSID, the Contracting State where recognition and enforcement of the award are sought will easily accept the petition, because there is a formal equation of the status of the award to that of a final judgment of that state. In this way, the otherwise detailed, burdensome, risky and time consuming scrutiny which arbitral awards must normally undergo is avoided all at once. On the other hand, the actual execution of the award still depends on the national law of the Contracting State where execution is sought. This means that, because in virtually any state the national law on execution of judgments/awards embraces the theory of foreign sovereign's immunity from execution, it may reasonably be submitted that, should the foreign investor be forced to seek execution against the losing host state, he would face a serious obstacle constituted by the granting of such sovereign immunity. It is true that when the Contracting State seeks to shield itself from execution of the award, this clearly constitutes a breach of its obligations under the Convention, whereby it is rather bound by the award to perform its obligations. It is also true that any national law on execution deals with the issue of sovereign immunity in a different way, and this immunity may well result quite loose/weak; thus, the extent to which the foreign investor may be adversely affected by it will in the end depend on the relevant national law on execution applicable to the specific case. Moreover, sovereign immunity from execution is as a general rule accorded only in respect of property which is used for sovereign rather than commercial purposes. But, as a matter of fact, the overall level of deference to it is significant, and this certainly helps the host Contracting State to limit the adverse impact the execution of an ICSID award may have on its property and interests; indirectly, this also lets this state retain control over a key element of dispute settlement on which the ultimate effectiveness and practical utility of ICSID depends. As Muchlinski puts it:
"In practical terms, therefore, the enforceability of an ICSID award is subject to the overriding principle of protecting the property belonging to a foreign sovereign that is used for sovereign rather than commercial purposes against execution, this being the most commonly applicable rule found in national laws."[103]
However, it must be observed that any attempt of limiting or eliminating the relevance of sovereign immunity in execution proceedings is well beyond the scope of the ICSID Convention, and it should rather be part of a more general revision of some aspects of state sovereignty for which states have so far showed no willingness or enthusiasm.
This section will seek to provide a satisfactory overview of ICSID institutional structure and procedures. As to the former, there are essentially two bodies. One is the Administrative Council, comprising a representative from each Contracting State, who can express one vote, and chaired by the President of the World Bank ex officio, who has no voting power. This body has a legislative-like function, since it is for it to adopt, by majority, the various procedural rules and the Administrative and Financial Regulations, to pass the annual budget, and to appoint the top officer of the Secretariat. And the Secretariat is the other body of ICSID, responsible for the administration of ICSID in a broad sense. The Secretary-General is the highest ICSID officer and its legal representative, whose main function is to act as a registrar of ICSID. The Secretary-General and any Deputy-Secretary-General are appointed by the Administrative Council upon nomination by its Chairman.
The Convention also provides for the establishment and maintenance of a Panel of Arbitrators and a Panel of Conciliators. Each Contracting State can appoint four members for each Panel, even if they are nationals of another state, while the Chairman can appoint ten members, who must be of different nationality and represent the various legal and business cultures. Each member, however, must possess high professional qualifications, to ensure an equally high level of sophistication and expertise of tribunals and commissions when they deal with the dispute.
Before scrutinizing the procedure, two remarks are necessary. First. so far reference has been made to ICSID proceedings as if arbitration were the only procedure available at the Centre. It must be clarified that ICSID instead makes available to the parties both arbitration and conciliation proceedings, which are regulated under two different sets of rules, the Rules of Procedure for Arbitration Proceedings (Arbitration Rules) and the Rules of Procedure for Conciliation Proceedings (Conciliation Rules) respectively, although there are some common rules, the so called Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings (institution Rules). While arbitration is by far more important than conciliation, especially since there have been no conciliation proceedings to date, the following overview will refer to both procedures.
Second, it is also important to remind that in 1979 ICSID wisely introduced the Additional Facility, that provides arbitration and conciliation procedures administered by the Centre for the settlement of disputes where one of the parties is not a Contracting State or a national of a Contracting State, that is, cases where ICSID personal jurisdiction would not exist. The Additional Facility has certainly increased the accessibility to ICSID; although the Convention today counts more than one hundred Contracting States, with a significant, quite complete, and balanced representation of developed, developing, and less developed countries, there are still countries which, although they play an important role as either home states (e.g. Canada) or host states (e.g. India, Mexico, and Brazil) of foreign investment, are not Contracting Parties to the Convention. The procedural rules of the Additional Facility resemble those of the ICSID Arbitration and Conciliation Rules to a very large extent. Perhaps the most significant difference occurs at the moment of recognition and enforcement of the award. Indeed, because arbitration under the Additional Facility is not an ICSID arbitration, it is subjected to the municipal law of the forum, and the resulting award is not recognized and enforced under the fast track procedure provided for ICSID arbitration under the Convention.
Both the conciliation and the arbitration proceedings start when one party submits the request to ICSID Secretary-General, who in turn sends a copy to the other party. The request must contain some basic information, i.e. identity of the parties, their consent to ICSID jurisdiction, and the subject matter of the dispute. Upon such submission, the Secretary-General is empowered to make a preliminary investigation as to the compliance of the request with the jurisdictional requirements of the Convention. Should the request fail to fulfill these requirements, the request will be rejected and the parties can resubmit their request amended as it may be necessary to fulfill the jurisdictional requirements of the Convention. When the above are instead fulfilled, the Secretary-General will register the request in either the arbitration or conciliation register and notify the parties. This is deemed the moment when ICSID proceedings are formally commenced. Earlier in this paper it was stressed that the tribunal is competent to determine any jurisdictional issue. The role of the Secretary-General is not in conflict with this competence of the tribunal. Indeed, the former's preliminary investigation is prima facie, and seek to detect the most evident jurisdictional lacunae emerging from the request; this means that the registration of the request does not dispose of the issue of ICSID jurisdiction. This question is always ultimately determined by the tribunal as a preliminary issue of admissibility. Even at this stage, should the claim be held inadmissible, the parties could still resubmit their request but amended as necessary.
The next step after registration is the establishment of either the arbitral tribunal or the conciliation commission. At this stage, it is already possible to observe the flexibility of ICSID procedure, in the sense that the parties may agree to determine the number of conciliators or arbitrators, as long as it is uneven, and appoint them. However, in order to ensure that the proceedings go through and are not disrupted by the uncooperative conduct of the parties, the Rules provide that, if the parties cannot agree on the number, the number of conciliators/arbitrators will be three, and if they cannot agree on the appointment after 90 days (or longer, if they have so determined), the Chairman of the Administrative Council will make the appointments. It is now better to proceed by discussing the arbitration and the conciliation Rules separately, because from this point onward they differ to a significant extent.
In case of parties' failure to agree, the chairman can select the conciliators from either the Panel or outside it, but in the latter case they must possess the qualities required to be on the Panel. Once set up, the conciliation commission determines its jurisdiction, and, if this determination is positive, it determines the exact issues at bar and promotes an agreement between the parties on a mutually satisfactory basis, which includes the submission of its own proposals of agreement. At the end of the conciliation proceedings, the commission shall issue a final report which, together with the issues at bar previously determined, shall record whether an agreement has been reached or not. There is however a third possibility, whose ultimate result is the same as failure to agree: failure to appear by one party. Indeed, unlike the arbitration proceedings, it is in the nature itself of conciliation to depend on a cooperative and constructive conduct by the parties to the dispute. In other terms, in case of non cooperation, conciliation cannot terminate with an outcome imposed on the uncooperative party; its ratio is rather the promotion of the agreement between the parties, which by definition can only be reached by the parties. Therefore, in this case, the conciliation proceedings must terminate. Finally, it is worth noting that, whatever the outcome is, after the end of the proceedings, the parties owe each other a duty of confidentiality as to the matters and settlements discussed.
Moving to arbitration, the appointment of arbitrators is in first instance left to the parties; besides the above requirement of an uneven number, parties are free to appoint arbitrators without any nationality requirements, as long as they agree on the sole arbitrator or each member of the tribunal. However, should the parties fail to appoint the arbitrators, the chairman shall do so by selecting them from the ICSID Panel of Arbitrators, and by fulfilling the requirement whereby the majority of arbitrators are nationals of states other than the Contracting State party to the dispute and that of which the other party to the dispute is a national. Once set up, the tribunal shall determine its jurisdiction, and, if it has jurisdiction, proceed to the determination of the law governing the merits of the dispute under the rules of the Convention. At this stage, unlike the conciliation proceedings, ICSID arbitration proceedings have the peculiar feature that failure to cooperate (in particular non-appearance) by one party does not cause the termination of the proceedings, which the tribunal will rather keep on track by following ICSID Arbitration Rules. This is a major benefit arising out of the institutional dimension of ICSID arbitration, which gives proceedings an high degree of certainty and drastically reduces the parties' retention of control over the proceedings. This quasi-automatic, somewhat judicial-like aspect of ICSID arbitration, is a major guarantee against disruption of the proceedings and ineffectiveness of the mechanism as a whole. To this extent, it also satisfies the need to preserve the delocalized character of ICSID, in this case by letting the proceedings prevail over any unilateral attempt to block them. Moreover, it is provided in conjunction with an equally high degree of flexibility, because the parties, to the extent they intend to participate and cooperate in the proceedings, can often derogate to ICSID Arbitration Rules, the only limitations normally being those basic requirements like the uneven number of arbitrators.
Once the award is rendered, it may be subjected to annulment. The governing provision is article 52(1) of the Convention, whereby either party can request annulment of the arbitral award by written application to the Secretary-General on one of the following grounds: improper constitution of the tribunal, manifest excess of powers by the tribunal, corruption on the part of one member of the tribunal, serious departure from a fundamental rule of procedure, and failure to state the reasons on which it is based. ICSID machinery for annulment is part of its more general institutional mechanism, which is self-contained and does not depend on any form of intervention by either national courts or other international forums. Upon application for annulment, the Chairman sets up an Ad Hoc Committee composed of three members selected from the Panel of Arbitrators, that acts as a review tribunal. It is interesting to note that this organ is set up by the administrative authorities of ICSID without any power of the parties to appoint its members; thus, the committee, while it is not a court of law, may nevertheless affect the outcome of a dispute with the parties not having any control over it but the original discretion as to apply for annulment. The outcome may be a revision or an annulment of the award; in the latter case, the parties may resubmit their dispute to ICSID arbitration, whose award may in turn be subjected to the annulment procedure. What is particularly noteworthy from a legal viewpoint is the relationship between the annulled and the non annulled parts of the award, and the overreaching exercise by the ad hoc committee of its review powers. ICSID case law provides some interesting elements in this regard. In the Amco-Asia case, the first award was annulled by the ad hoc committee, and, when the second ICSID tribunal was set up after the dispute was resubmitted, there was the problem to determine the extent of the annulment. In other terms, the second tribunal was faced with the uneasy task to determine what in the first award had been annulled and what upheld, because it had jurisdiction to decide on the former but not on the latter, which was res judicata. This is an interpretative problem whose solution is to be provided on a case by case basis, because there are no relevant provisions provided under the Convention or the Rules; but it may adversely affect the legal certainty and predictability of the mechanism.
Finally, what this and the other cases where the annulment procedure was triggered indicate is that, beyond the formal exercise of annulment powers on the grounds of article 52(1), the ad hoc committee has proved to exceed the scope of its jurisdiction. It has been rightly observed that it "had acted as a de facto court of appeal on matters of fact and law, which goes beyond the limited grounds of annulment available under article 52(1)."[104] Indeed, it is hard to recognize that the ad hoc committee was granted powers under the Convention which ultimately amount to a revision of the law and of the reasoning of the tribunal; rather, it would seem more in accordance with the overall structure of the Convention to limit the scope of the committee's revision powers to issues of jurisdiction and basic justice, that is, the grounds expressly provided by the Convention. Should this trend not change, there would be the high risk that the annulment procedure may lose its original extraordinary character and become a second instance of judgment, that is, an appeal on the merits. Part of the problem is that there are no rules addressing these issues about the committee. Perhaps, the solution will only come through an amendment which takes a firm and outspoken position and chooses between a restrictive vision of the committee's role, as the current wording of the Convention seems to suggest, and one where the committee becomes a judge of second instance. The current restrictive interpretation of the ad hoc committee's review powers is also justified by the fact that articles 50 and 51 of the Convention set forth respectively a procedure for interpretation and one for revision of the award (the latter admitted "on the ground of discovery of some fact of such a nature as decisively to affect the award"), normally handled by the same tribunal which rendered the award; thus, the necessity for an expansion of the committee's powers appears even more questionable.
Certainly, as it is now, the annulment procedure and the way it has so far been implemented by the committee are such that the risk of ICSID awards being annulled is very high, because the committee has not hesitated to scrutinize any aspect of the tribunal's decision in fact and law for annulment purposes, up to the point that an award could be annulled if it does not give reasons in respect of every submission of the parties. Gailard has effectively expressed the non-appropriateness of this court of appeal-like exercise of powers by the committee:
"This decision, which amounts to a review of the facts and of the substance of the applicable law, clearly departs from one of the strongest trends of international commercial arbitration, which limits any kind of judicial review (both in annulment and exequatur proceedings) to a limited number of cases and excludes any kind of review on the merits."[105]
This departure may adversely affect the reliability, the legal certainty and the predictability of ICSID Arbitration as a whole, which would lead parties to lose confidence in this institutional mechanism and not to resort to it; this scenario would be and perhaps is already a major setback for ICSID. Furthermore, and perhaps more importantly, the current annulment procedure, with the possibility to keep a dispute going back and forward between tribunal and committee, seems to represent a great opportunity for the party which wishes to delay or avoid the end of the dispute. This conduct would be a disguised form of retaining unreasonable control over the dispute whereby the delocalized character of ICSID arbitration and its reliability may be at risk. As Redfern puts it:
"The substantial effort made by the creators of the ICSID regime to insulate the process from national court review will be rendered almost meaningless if every award can be challenged internally and subject to mere second-guessing."[106]
While the crucial issues of recognition and enforcement have been already discussed, it s worth closing this overview with a few words on the issue of costs and expenses. As part of the general framework in which ICSID has been placed, that is, the promotion of economic development through the promotion of flow of investment from developed to developing and less developed countries, one way to make the Centre an attractive international dispute settlement mechanism and, in particular, affordable by less affluent countries, was to keep cost as low as possible. The source of cost determination is the regulation periodically adopted by the Administrative Council, because both the arbitral tribunal and the conciliation commission set fees and expenses within the limits fixed by this regulation and upon consultation with the Secretary-General. The general rule is that the parties can agree with the tribunal/commission on their fees and expenses ex ante, even if their payment could occur at a later stage. As to their allocation, in case of conciliation they are to be borne by the parties on an equal basis, in accordance with the nature and ratio of this procedure. In case of arbitration, if there is no agreement, the tribunal will provide to allocate fees and expenses to the parties. However, these costs tend to be substantially lower than in ad hoc arbitration or other international arbitration institutions like the International Chamber of Commerce (ICC). The main reasons are the low cost of the use of ICSID facilities, since it is based on the Centre's actual expenses, and above all the per diem rather than ad valorem basis on which the fees of the members of the tribunal/commission are determined.
The self-contained and delocalized character of ICSID has clearly emerged from the above discussion. This character makes ICSID a unique model in international law, and a milestone in the development of international law towards a full recognition of the individual as a subject of international law, on both the substantive and procedural levels. To be sure, ICSID is not completely insulated from a certain interaction with national legal systems, due to the possibility of a more or less significant interference by national courts, to a certain degree of control over the dispute retained by the parties, and to the applicability of national law as the governing law of the merits of the dispute. However, it is hard to disregard its ability to afford a mechanism which avoids most if not all the shortcomings of the other, traditional, and outdated international dispute settlement mechanisms, in particular those of diplomatic protection, determination of nationality, and exclusive resort to local remedies. Overall, ICSID has been able to strike an acceptable and effective compromise between the often conflicting interests of host states and foreign investors as well as between those of capital exporting and capital importing countries; this in turn contributes to accomplish the goal for which ICSID was originally set up, that is, to promote, through a neutral and denationalized forum for the settlement of international economic disputes, the flow of international investments as a vehicle of economic development.
Perhaps as a further indication of the decreasing importance and appropriateness of the traditional distinction between public and private international law, ICSID is an international dispute settlement mechanism but not in the sense of belonging to the sphere of public international law, as it is instead the case for forums like the ICJ. Indeed, quite paradoxically, while it is the result of a Convention, that is, an international treaty binding upon states, and it is therefore a public international law institution, it seeks to move and, it is submitted, has successfully moved the whole matter of international economic disputes between states and private parties away from the old and unsuitable framework of state-to-state dispute settlement. In other terms, it has succeeded in depoliticizing disputes which mainly affect private commercial interests, but also affect the public policy goals of private parties. In this century, few other developments of international law have so radically changed its traditional structure and conception.
A final remark is dedicated to the current under-utilization of ICSID. On the one hand, as a matter of fact, the caseload has so far been highly limited, and this may be seen as a sign of non-attractiveness and failure of the system, due to some procedural flaws (e.g. the issues, seen above, on which the host Contracting State retains a significant control, and the abuse of the annulment procedure) and to the hostility towards this mechanisms on the part of many Contracting States which, even if have agreed to ICSID jurisdiction, refrain from submitting their concrete disputes to the Centre. On the other hand, it is true that this same element may prove the exact contrary, that is, ICSID has been so successful in committing Contracting States and foreign investors to a certain discipline that it has worked as an extraordinary prophylactic device preventing disputes from arising in the first place, or better, promoting amicable settlement without going for a confrontational, adversarial dispute. It is not possible to make an either-or choice between these two conflicting conclusions, but it seems reasonable to submit that the truth lays in the middle, although such an highly limited caseload raises many uncertainties on the effectiveness of the system.
The North American Free Trade Agreement (NAFTA) would raise a wide range of very interesting legal issues relating to virtually all the relevant areas of international economic law. However, in order to stay within the scope of the present discussion, the following sections will only focus on those aspects of the NAFTA dispute settlement provisions which deal with access of private parties. In particular, the focus will be: on Section B of Chapter XI, which sets forth a mechanism for the settlement of investment disputes between NAFTA investors and host NAFTA countries; on Chapter XIX, which provides for an indirect access of private parties to a mechanism for settling disputes on antidumping and countervailing duties matters; and the Supplemental Environmental and Labor Cooperation Agreements. As to the general dispute settlement mechanism of Chapter XX, some general remarks will be made at a later stage when the opening of both this mechanism and the WTO Dispute Settlement Mechanism to access of private parties will be jointly discussed.
The NAFTA has been the first major trade agreement to set forth an extensive and comprehensive regulation of investments, on both the substantive and procedural levels. The first level is dealt with in Section A of Chapter XI, where the Agreement lays down a framework for the legal protection of the flow of investments among the three NAFTA countries consisting of well established (among developed countries) international minimum standards, e.g. national treatment, MFN, international law-based fair and equitable treatment, full protection and security, abolition and prohibition of performance requirements. This shows a major enhancement of the protection of foreign investment, as confirmed by the regulation of issues of expropriation and nationalization, which includes requirements such as public purpose, non-discriminatory basis, due process, and "full, adequate and effective compensation."
These substantive rules on investments, while being virtually the same as those in the US-Canada Free Trade Agreement (USCFTA), NAFTA's predecessor, nevertheless assume a new and much more important meaning in the context of the NAFTA, which also includes Mexico, a leading developing and capital importing country. Indeed, the rules on investment protection clearly reflect the approach of capital exporting countries (in the NAFTA, the US and Canada) as opposed to that traditionally embraced by developing countries like Mexico, and summarized by the Calvo doctrine. This doctrine may neutrally be defined as more concerned about the protection of the interests and sovereignty of the host developing country rather than those of the foreign investor, on the assumption that the former would otherwise be in a weaker bargaining position than the latter. The Calvo doctrine rejects the application of the minimum standards of protection of customary international law because they are deemed the standards created by the practice of capital exporting and developed countries which seek to protect the investments of their nationals abroad disregarding the sovereignty and the development needs of the host states, that is, the developing/less developed capital importing countries. These standards are not even regarded as part of customary international law because they derive from the practice of developed countries, which is only partially representative of the international community. Rather, and also to counterbalance the allegedly adverse impact of international minimum standards of protection, the Calvo doctrine emphasizes the importance of the regulation of foreign investment on the level of the national law of the host state as an expression of that state's sovereignty. However, after the end of the big ideological battles of this century, adherence to this doctrine has been shading very rapidly. Mexico's participation in the NAFTA implies its definitive departure from this doctrine previously enthusiastically embraced, and it is one of the most important signs that more generally developing countries are more willing to afford foreign investment international minimum standards of protection.
Another important aspect of NAFTA substantive rules on investments is that they are part of an innovative approach taken by the Agreement. Indeed, the NAFTA goes beyond the traditional coverage of free trade agreements, limited to trade in goods, and rightly extends its scope to include investments, trade in services (Chapter XII), telecommunication (Chapter XIII), and financial services (Chapter XIV). Although with significant exceptions, overall activities in these business sectors are afforded an effective and comprehensive protection on the international law level, and this acknowledges the increasing economic and legal relevance they are assuming worldwide.
Notwithstanding the relevance of the substantive rules on investments contained in section A of Chapter XI, it is section B on investment disputes that constitutes a truly radical innovation. Indeed, the USCFTA did not contain any provision about investment dispute settlement; in particular, there was no access to international dispute settlement conferred on private parties. On the other hand, section B of chapter XI sets forth procedures for the settlement of disputes between a NAFTA country and investors of the other NAFTA countries arising from alleged breaches of section A of that same Chapter. These procedures also apply to NAFTA 1502(2) and 1502(3)(a), that are the provisions dealing with state enterprises, monopolies, and their exercise of regulatory, administrative or other governmental authority. Moreover, they also apply to NAFTA 1109-1111, 1113 and 1114 as incorporated in Chapter XIV on financial services.
The ambitious aim of section B of Chapter XI is to provide for a delocalized mechanism for investment dispute settlement, on the assumption that this system is essential to afford a satisfactory and effective framework on the international law level for the protection of foreign investment. In other terms, it is the codification of the view here embraced whereby the protection of international economic activities cannot be deemed complete and effective if limited to the sole level of substantive law. An adequate and delocalized machinery for the enforcement of substantive rights and obligations, open to access of those (private) parties whose interests are at stake, is the other side of the same coin, an element whose presence is as crucial as the substantive protection. Both are necessary, while neither one would per se be sufficient.
Arbitration is the form of dispute settlement made available under section B of Chapter XI. While its specific features are going to be discussed below, it is interesting to observe that by this section the NAFTA countries have consented to such a form of dispute settlement, obviously under the conditions set forth therein. In other terms, this section may be regarded as a unilateral offer of arbitration on the part of the host NAFTA state in respect of the type of disputes therein specified, so that NAFTA foreign investors need not enter an arbitration agreement with that state, but just comply with the procedural requirements contained in section B for its mechanism to be triggered.
The definition of the parties to the dispute is the aspect from which an orderly discussion must begin. As to the NAFTA country, it is interesting to note that, although the locus standi as the responding state is conferred on the federal government only, this government can be made accountable not only for its own conduct, but also for any conduct on the part of state/provincial governments, and state (as opposed to private) enterprises/monopolies, as long as this conduct is inconsistent with NAFTA relevant provisions.
While the mechanism expressly provides for access of private parties, that is, investors, there are some conditions precedent which the complaining investor has to satisfy. First, under articles 1116 and 1117, it is only a NAFTA investor who may bring a claim. Second, a NAFTA investor must be from a NAFTA country other than the responding one. However, the investor may bring its claim on its own behalf or on behalf of its enterprise, that is, the juridical person it controls or owns, directly or indirectly, in another NAFTA country. This formulation has to be read as to include both the case where the juridical person is incorporated in (thus formally being a national of) the responding state, and the case where it is incorporated in a third NAFTA country but has nevertheless suffered from a breach of NAFTA provisions on the part of the responding state. This definition of the legal standing of the investor is an important innovation. Indeed, there is an express recognition of the primacy of control/ownership as the relevant connecting factor. Furthermore, here control and ownership, unlike in the ICSID Convention, need not be recognized by an agreement between the host state and the foreign investor for according the latter legal standing in case of claims on behalf of a juridical person incorporated in the former or in a third NAFTA country. Rather, control/ownership are automatically regarded as the relevant connecting factor. This approach eliminates one of those residual grounds which the ICSID Convention left to the host state to retain control over an otherwise delocalized dispute settlement mechanism. It also goes well beyond, once and for good, the anachronistic limits of customary international law on nationality of corporations, enunciated by the ICJ in the Barcelona case and not clearly overruled by that same court in the ELSI case. Emphasis is now rightly placed on the investment as such, in the sense that, whatever legal form it takes, the underlying economic and legal interests at stake shall be afforded adequate direct protection, including the recognition of locus standi on the part of whoever holds those interests.
However, it must also be observed that this liberal approach does not reach the point where the juridical entity incorporated in the responding NAFTA country could directly bring a claim against that state, or where the investor could bring a claim against its NAFTA country of origin. In these two sets of cases, considerations of state sovereignty prevailed, because "NAFTA countries did not want to grant the privilege of arbitration and the loss of sovereignty that arbitration implies to a domestically constituted and owned entity."[107] Nevertheless, the overall result should be considered satisfactory. In addition to the improvements noted above, it should also be stressed that, while there is the limit that the investor bringing the claim has to be a NAFTA investor, there is no definition of NAFTA investor as such. This should ultimately allow persons or, more likely, corporations doing business in a NAFTA country to be considered NAFTA investors for the purposes of investment disputes, even if they are not formally nationals of that State. This interpretation, however, has yet to be confirmed by either the NAFTA Commission or Chapter XI case law, and cannot therefore be taken for granted, although it seems quite reasonable and consistent with the ultimate goal of the NAFTA to afford effective investment protection by looking at the substance beyond the form.
The liberal approach followed as to the identification of the parties to the dispute is confirmed by the lack of any definition of subject-matter jurisdiction as such; rather, the mechanism can more simply be applied whenever there are disputes arising from an alleged breach of Chapter XI substantive provisions on investments. This approach is in accordance with the loose definition of investor, and is appropriate because it enables the mechanism to cover virtually each form of foreign investment, an important aspect if one considers that legal and economic forms of investments change continuously and any set definition of investment would soon become outdated and unable to reflect the reality to which it should apply. An important limitation to the jurisdiction of an arbitral tribunal under Chapter XI is that it can only award monetary damages and applicable interest. Even in case of restitution of property, the disputing NAFTA party must be requested to pay monetary damages and interest in lieu of restitution; punitive damages are however excluded. Certain matters must also be excluded because of reservations entered by the NAFTA countries. Thus, if the investment is affected by a measure taken under the national security exception, no claim can be brought under chapter XI. The same applies when the investment is affected by the denial of a permit under Canadian or Mexican investments screening laws.
Finally, it is worth highlighting another condition: either the investor or, when the claim is brought on behalf of its enterprise, the enterprise must have suffered loss or damage as a result of the alleged breach. This connection of the claim with the alleged loss or damage is also relevant for another reason: under articles 1116(2) and 1117(2), there is in fact a time limitation for bringing the claim of three years from the time the investor or the enterprise it controls first acquired or should have acquired knowledge of the breach and consequent alleged loss or damage. A time limitation also applies as to the moment when the procedure under Chapter XI becomes available, which is set in six months since the events causing the claim. With this time limitations, which seeks to restrict resort to arbitration to more recent claims and to promote some form of negotiated settlement, the discussion moves on to conditions precedent of a more procedural character.
Earlier it was seen that the foreign investor needs not enter an arbitration agreement with the responding state. This situation, which is one of those also envisaged by the ICSID Convention, is possible as a result of the fact that section B of chapter XI is itself the expression of consent on the part of each NAFTA country, as provided in article 1122. Yet, under that same article, it is necessary that the investor gives its consent in the form required by the NAFTA. In particular, under article 1121(3) this consent is to be given in writing, a requirement that, in addition to satisfying the more general need of legal certainty and transparency, is also necessary to set up arbitration proceedings in one of the three alternative forms available under Chapter XI. Before getting to the point when the claim is actually submitted, article 1118 provides that the parties should first settle the claim through consultation or negotiation. The use of should clearly means that this is not a mandatory step of the dispute settlement procedure. If this step has either been skipped or has proved unsuccessful, when the disputing investor decides to submit the claim to arbitration, article 1119 requires it to deliver a written notice to the disputing NAFTA country at least ninety days before that submission. That same article also specifies the contents of the notice.
Together with written consent, the disputing investor is also required to waive in writing[108] its right to commence or continue proceedings respecting the same claim before any administrative tribunal or court of any NAFTA country, or under any other dispute settlement mechanism.[109] This requirement is perhaps the most evident sign of a major shift of approach which NAFTA Chapter XI certainly represents as to access of private parties to international dispute settlement. It should not be difficult to see that by this waiver the issue of delocalization assumes a completely different character. Indeed, it was earlier observed that the call for delocalization mainly derives from the need not to leave the foreign investor with the only and too frequently ineffective protection afforded by the national courts and administrative tribunals of the host state under the national laws of that same state. Moreover, even in respect of an international dispute settlement mechanism, there may still be the risk of the host state retaining a significant degree of control over the dispute. With this waiver, NAFTA Chapter XI takes a completely different approach, in the sense that not only, unlike the ICSID Convention, there is no provision that confers on the host state any power to demand the exhaustion of local remedies first or to retain somehow control over the dispute with the foreign investor, but the choice between local/other remedies and Chapter XI arbitration is seen as an option which is for the investor to exercise. In other terms, the delocalized character of investment dispute settlement under the NAFTA seems to be taken for granted, as the underlying and absolute principle of the whole mechanism, or as the rule with no exception, and only the investor, with its own choice, can opt for local/other remedies instead of arbitration and thus renounce to that delocalized mechanism.
It is submitted that this choice also has an exclusive character, in the sense that, once the investor has determined whether the dispute is to be settled under Chapter XI or under local/other remedies, choice of either one excludes the other. In other terms, Chapter XI bars the investor from resorting to local/other remedies once the dispute is submitted to arbitration, and from resorting to arbitration once the dispute is submitted to local remedies. This is another important change when compared to the traditional structure of international dispute settlement whereby the exhaustion of local remedies, resort to which is required in the first place, enables the complaining party to resort, directly or indirectly, to the relevant international dispute settlement mechanism. Instead, under Chapter XI, resort to local remedies would bar the submission of the claim to arbitration..
However, there are some important qualifications of the investor's waiver. First, notwithstanding its exclusive character, resort to arbitration under Chapter XI does not prejudice the possibility to resort to Chapter XX dispute settlement procedures in respect of the same alleged violations. There is no inconsistency in this, because Chapter XX procedures are available to the NAFTA countries only, and they may have an interest different from the investor's one in suing another NAFTA country for violation of those same substantive investment rules. Second, because the jurisdiction of Chapter XI arbitral tribunals is limited to monetary (and never punitive) damages, the waiver does not apply to other proceedings for injunctive, declaratory, or other extraordinary relief which is other than monetary payments. These proceedings can be brought before the national courts and administrative tribunals of a NAFTA country.
Finally, an author has suggested that the exclusive choice would only be between Chapter XI procedures and local/other remedies which are made available with express reference to the NAFTA, that is, as related to breaches of NAFTA provisions.[110] Under this view, only the national NAFTA-implementing legislation of NAFTA countries could provide remedies in respect of breaches of NAFTA provisions; should these remedies be so provided, there would then be a choice, and the waiver would bar such remedies. However, in the absence of domestic remedies expressly provided against breaches of NAFTA provisions, Chapter XI arbitration would be the only remedy available in case of breach of Chapter XI substantive investment provisions, unless there are general remedies available under the general law of NAFTA countries which would also be applicable to NAFTA Chapter XI violations (e.g. general remedies against expropriation under US an Canadian laws). Should these general remedies exist, there would be no barring effect on them as a result of the waiver, because they exist and are available independently of the NAFTA and of its remedies. Indeed, these remedies relate to situations which just happen to be regulated by the NAFTA as well as outside the context of the NAFTA.
This view clearly derives from the fact that the NAFTA does not have direct effect under US or Canadian laws, so that enforcement of its provisions depends on the implementing legislation of these two countries and the remedies eventually made available therein. However, when the general remedies of a NAFTA country are available for the same claims as those submitted to Chapter XI arbitration, to hold them still available in conjunction with or after that arbitration would be an element of disturbance for the effectiveness, the certainty, and the predictability of the investment dispute settlement mechanism provided by the NAFTA. Thus, it is submitted that the barring effect of the waiver should also apply to these general remedies to the extent they are in competition with Chapter XI arbitration in cases of breach of NAFTA substantive provisions on investment.
The preferred and proposed solution would be more in accordance with the principle set forth in article 2021, prohibiting NAFTA countries from providing private parties with rights of actions under the NAFTA, with the sole exception of the investor-state dispute settlement mechanism of Chapter XI. Thus, the concern about the possible adverse effects of this multiplicity of remedies in respect of the same claims seems to be also strengthened by the NAFTA itself. Annex 1120.1 provides that a foreign investor, which under Mexican Law is given private rights of actions due to the direct effect of the NAFTA in the Mexican legal system, cannot bring the same claim based on violations of NAFTA investment provisions before both a Mexican court and a Chapter XI arbitral tribunal, and this prohibition also applies when the investor seeks to submit the claim to arbitration while its Mexican enterprise seeks to bring it before a Mexican court. The two claims are mutually exclusive, so that it is an either-or situation. By analogy, and as a matter of consistency, the same result could and should occur in the situation discussed above, independently of the direct effect of the NAFTA, because, even if this direct effect does not occur in the US or Canadian legal systems, there is still a possibility of conflict of remedies, and to the extent this conflict is or may be an actual one it should be resolved linearly, as proposed.
Once consent and waiver are given, Chapter XI arbitration can take place. Constitution of the tribunal is based on the rules set forth in articles 1123 and 1124. These rules provide that the tribunal is comprised of three arbitrators, with each party appointing one arbitrator and the third and presiding arbitrator being appointed by agreement of the disputing parties. However, should parties fail to set up the tribunal within ninety days from the submission of the claim, article 1124 provides that, upon request of a disputing party, the ICSID Secretary-General shall appoint the arbitrator(s) still to be chosen. In case the presiding arbitrator were still to be chosen, the appointment shall be made by selecting from a roster of forty-five presiding arbitrators maintained by the three NAFTA countries, or, should none of them be available, from the ICSID Panel of Arbitrators. However, the ICSID Secretary-General cannot appoint as presiding arbitrator someone national of the disputing NAFTA country or of the NAFTA country of which the investor is a national. The tribunal shall hold the proceedings in a NAFTA country which is a party to the New York Convention, unless the disputing parties agree otherwise.
At this point of the procedure, arbitration shall follow the procedural rules of one of the three types of arbitration which chapter XI makes available. Under article 1120, these three types are the ICSID Convention, the Additional Facility Rules of the ICSID Convention, and the UNCITRAL Arbitration Rules. The right to choose is accorded to the disputing investor. This clearly confirms the tendency already highlighted while dealing with the waiver, that is, Chapter XI often lets the disputing investor be the sole decision maker as to those aspects of the procedure which are not predetermined by the that Chapter, or which must be decided by both parties (e.g. the appointment of arbitrators). In this sense, this power to choose the applicable procedure is another striking sign of the very significant, if not absolute, degree of delocalization contained in Chapter XI arbitration, especially because of the importance this choice may assume. In practice, the disputing NAFTA country is deprived of any power to control the dispute. Even in the ICSID proceedings, traditionally and rightly considered a model of delocalized international dispute settlement, the procedure can only be modified by agreement of the parties, not unilaterally by just one party.
However, in practice the disputing investor's discretion is much more restricted than it may appear in theory by simply reading the provision. The reason is that the ICSID Convention can only apply if both the NAFTA disputing country and the disputing investor' national NAFTA country are ICSID Contracting States. Because neither Canada nor Mexico are yet ICSID Contracting States, it is clear that the ICSID Convention cannot be applied. Rather, in cases where either the US is the disputing NAFTA country or its nationals are the disputing investors, the Additional Facility Rules of the ICSID could apply as an alternative to the UNCITRAL Arbitration Rules, since the Additional Facility Rules are available when either the host state or the state of which the foreign investor is a national is a Contracting State of the ICSID Convention, and the US is a Contracting State. Finally, whenever an investment dispute only involves Canada and Mexico, as either the disputing NAFTA country or the disputing investor's national state, the UNCITRAL Arbitration Rules are the only ones available under article 1120. Therefore, it may be concluded that the disputing investor can choose only when the claim involves the US, and that even in these cases it would only be a choice between two and not three types of arbitration, being the ICSID Convention inapplicable in any case, while the UNCITRAL Rules are the only ones equally applicable to each situation.
Another aspect which must be considered in the context of the present discussion is that Chapter XI sets forth certain mandatory procedural rules, that is, rules which apply independently of the procedure chosen by the disputing investor. Of course, these rules per se reduce the ultimate relevance of the choice the disputing investor is given as to the governing procedure. What is perhaps more interesting about these rules is that they all together seem to strengthen the delocalized character of Chapter XI arbitration. One aspect of the proceedings which is predetermined by section B of Chapter XI regards the constitution of the tribunal, at least in respect of the number of arbitrators and of the supplementary procedure available in case of failure of the parties to appoint the arbitrators. This aspect was discussed above; two other issues of crucial relevance which are predetermined under Chapter XI are that of the governing substantive law and that of the interpretation of the NAFTA.
First and foremost, under article 1131(1), the merits of the dispute are to be decided according to the NAFTA and the principles of international law. This rule above all prevents the governing law of the merits of the dispute from being the national law of the disputing NAFTA country. Rather, the governing law will be a delocalized one, because both the NAFTA and the principles of international law set forth international minimum standards of protection of foreign investment which are higher than those normally afforded by the national law of many host states, and which have proved to be a reliable, comprehensive and effective form of protection of the economic and legal interests involved in foreign investment. This choice of the drafters of the NAFTA may be explained with their recognition that foreign investment is one of those international economic activities which have assumed such a cross-border character that require a comprehensive regulation on the international law level and need be set free from any dependence on national law. More generally, it may be submitted that the NAFTA embraces the view that the flow of foreign investment between its members is to be promoted through an adequate level of legal protection, and it was seen above how important the delocalized character of a dispute settlement mechanism may be for these purposes.
Finally, this choice as to the governing law of the merits of investment disputes is consistent with the approach taken in section A of Chapter XI on the substantive regulation of investments. In both cases, international minimum standards apply, and sometimes their level of protection is even enhanced. This consistency of approach is the sign of a firm commitment of the NAFTA to protect and promote foreign investment. However, while it is not a significant departure from the legal and business culture of Canada and the US, it is so for a developing country like Mexico that, as said earlier, used to be a strict adherent to the Calvo doctrine, which in turn implied more deference to issues of sovereignty such as control over the forum, procedure, and the governing law of the merits of disputes with foreign investors. Independently of the ideological and cultural approach each NAFTA country may have towards foreign investment, as a matter of fact, its regulation under the NAFTA is such that they have all undertaken the risk of having issues of foreign investment determined by rules, procedures, policies, and goals at odds with their own domestic rules and procedures. However, it is fair to argue that this risk is a price NAFTA countries seem willing to pay in return for the promotion of foreign investment.
The approach taken by Chapter XI as to the governing substantive law is also a departure from previous models, including the ICSID Convention. In fact, the rule is usually that the choice of the law governing the merits of the dispute is in the first place to be left to the parties as an expression of their contractual autonomy. Should the parties fail to agree on this issue, normally there will always be a certain deference to the national law of the host state. Indeed, it was seen that article 42 of the ICSID Convention provides that, if the parties do not agree otherwise, this national law applies, even if in conjunction with the principles of international law. Furthermore, even if the parties do agree on the applicable law, it is submitted that it would always be more likely that the choice will be in favor of the national law of the host state than of a set of international minimum standards like the ones imposed under Chapter XI; for one reason, the host state will throw in all its bargaining weight to let the agreement be struck on its national law, and will certainly oppose any exclusive application of international minimum standards. Under the traditional arbitration models, either way, that is, either because the parties have to agree or because they fail to agree, the national law of the host state might well be the governing one, and certainly international minimum standards will not be the sole governing law as it is instead the case in NAFTA Chapter XI arbitration. For the foreign investor at least, it is unlikely to be better off than in Chapter XI arbitration, since the alternatives so far experienced have always somehow made reference to the national law of the host state, which tends to be less investor friendly than international minimum standards.
Section B of Chapter XI also provides that, in order to determine and avoid possible interpretative issues, the interpretation of NAFTA provisions issued by the Free Trade Commission are binding upon the arbitral tribunals. In particular, under article 1132 the NAFTA disputing country may submit a request to the Commission through the tribunal to determine whether that country's measure, allegedly in violation of the NAFTA, falls within the scope of one of the reservations and exceptions to it (set forth in Annexes I-IV). This is a powerful weapon in the hands of the NAFTA disputing country, because it may be a workable way to raise a defense against the otherwise well founded investor's claim. If the Commission does issue the interpretation of the relevant provision within sixty days, it will be binding upon the tribunal; if it does not, as it may happen if there is disagreement between its members, than the tribunal will decide the issue on its own. However, when the measure is one concerning the financial services sector and the exception sought by the NAFTA country is that of reasonable prudential measures which, under article 1410, may restrict the otherwise free cross-border trade in services, the request of interpretation must be submitted to the Financial Services Committee. The relationship between the Committee's interpretation and the proceedings before the tribunal is the same as in the general case, except for the fact that, should the Committee fail to issue the interpretation, before the tribunal can decide the issue on its own after the expiration of the sixty days, it has to wait for ten days during which the disputing NAFTA country or that of which the investor is a national can request the establishment of a chapter XX panel, which will however be constituted under the special provisions on financial services disputes of article 1414. These are all interpretations of law, while for interpretations of factual matters of an environmental, health, safety or other scientific nature, the tribunal can, if so requested by a disputing party or on its own initiative without opposition from the parties, appoint experts to report in writing on such matters.
Consolidation of claims is perhaps the most interesting and radical innovation introduced by the investment dispute settlement mechanism under Chapter XI. Under article 1126, when there are more than one investors bringing claims arising out of the same event, a disputing party may submit a request to the ICSID Secretary-General to set up a tribunal which shall determine whether those claims present a question of fact or law in common, in which case it may be "in the interests of fair and efficient resolution of the claims" to consolidate them.
The tribunal is comprised of three arbitrators appointed by the ICSID Secretary-General who selects them from a roster of arbitrators maintained by the NAFTA countries; should selection from this roster not be possible, then the ICSID Panel of Arbitrators would be available, and, should selection from this Panel not be possible either, then the appointments are made at the ICSID Secretary-General's discretion. However, when the selection is made from the ICSID Panel of Arbitrators, the presiding arbitrator cannot be a national of any NAFTA country; the other two arbitrators must be one a national of the NAFTA disputing country, and the other a national of the NAFTA country of the disputing investor.
It is interesting to note that the parties to the dispute, although may seek consolidation, do not have a say in the appointment of the tribunal. This may be a weakness of the consolidation procedure, since it is this tribunal so constituted that will eventually assume jurisdiction over the consolidated claims, and it may be argued that the parties should have the opportunity to appoint the arbitrators, in a manner similar to that set forth for the standard Chapter XI arbitration procedure. However, first the ICSID Secretary-General is an appointing authority which certainly possesses such a level of neutrality, expertise, and sophistication that the parties have no reasons to worry about. Second, this guarantee of the reliability of the appointment procedure is strengthened by the fact that arbitrators are likely to be selected from either the roster maintained the by the NAFTA countries or the ICSID Panel of Arbitrators; in either case, arbitrators would be highly sophisticated, professional, and expert. Finally, and more importantly, the main reason for this appointment procedure is that in case of consolidation there would be not one but several disputing investors, and it would be extremely burdensome, if not impossible, to find out a workable way to appoint the arbitrators without affecting the equal standing of the parties; for one reason, it would be hard to strike an agreement, with the likely result that resort to the ICSID Secretary-General for appointing the arbitrators would still be necessary.
Another important aspect to highlight is that the tribunal is first set up to determine the issue of consolidation, and then, if there are the grounds for consolidation, it may assume jurisdiction over and decide all or part of the claims, or one or more of the claims whose settlement is deemed to help resolve the other similar claims; as a result, the original Chapter XI tribunal ceases to have jurisdiction to the extent that it is assumed by the new tribunal. Thus, the procedure is two-tier, with the first tier being dedicated to the determination of the grounds for consolidation, and the second to the actual settlement of the consolidated claims. However, the procedure followed by the tribunal will always be that of the UNCITRAL Arbitration Rules, as modified by the mandatory rules of Chapter XI discussed above. The choice of UNCITRAL Rules was an unavoidable consequence of the fact that, as said, they are the only ones which could be applied independently of the NAFTA countries directly or indirectly involved in the proceedings.
Consolidation was earlier in this paper considered a viable device for going beyond some of the procedural limits of the current mechanism of diplomatic protection. In the context of NAFTA investment disputes, it significantly contributes to rationalize the use of the dispute settlement mechanism under Chapter XI, by producing the typical beneficial effects of consolidation. Among these effects, it is worth remembering that of consistent application of the law, which in turn leads to more legal certainty and predictability, and the substantial savings in costs, time, and human resources. These strengths of consolidation make it a valuable element of the mechanism under Chapter XI. Valuable and unique too, because there is no other international economic dispute settlement mechanism to date which provides for consolidation of claims, not just in the field of foreign investment, but also in that of international economic activities more in general. The investment dispute settlement mechanism of NAFTA might and should well be a model on whose basis other dispute settlement mechanisms may introduce consolidation. ICSID, for example, would significantly benefit from consolidation. More in general, especially in case of disputes arising out of foreign investment, the events leading to the claim are likely to affect, perhaps to a different extent, several investors, e.g. in case of nationalization measures; in all these cases, there would be a strong argument for consolidation.
It was seen how the jurisdiction of Chapter XI tribunals is limited to award monetary relief; however, during the proceedings the tribunal could if necessary order interim measures to protect the rights of the disputing parties. Once the award is delivered, it will be final and binding as between the parties to the dispute only and only in respect of the specific claim(s) decided. The final character of the award and its actual regime of recognition and enforcement depend on the procedure used for the settlement of the specific dispute. However, under article 1136, each NAFTA country undertakes to abide by, to comply with, and to provide for the enforcement of the final award. Failure to do so would amount to a breach of a NAFTA obligation for which the NAFTA country of the disputing investor may bring a claim the non complying NAFTA country under Chapter XX, which may ultimately lead to the suspension of trade benefits if the non compliance persists. Furthermore, and independently of any Chapter XX dispute at the NAFTA country level, the disputing investor may seek recognition and enforcement of the award under the ICSID Convention (although only in theory for the time being), the New York Convention, or the Inter-American Convention.
It may be too early to express any definitive opinion on the investment dispute settlement mechanism of Chapter XI. In particular, the scarcity of caseload does not allow to see how the implementation of this mechanism may work in practice. In this regard, however, it must be observed that very recently the first two cases have been submitted to arbitration under the Additional Facility Rules of the ICSID Convention;[111] because these two claims have arisen out of the same events and are brought against the same NAFTA country, it is likely that they will ultimately be consolidated once the tribunals are set up and the actual proceedings commence.
On the other hand, besides the precious indications as to the shortcomings of the mechanism which may come from Chapter XI case load, the fact that there is such a delocalized, depolitcized, and complete mechanism, presenting such radical procedural innovations as consolidation, is per se sufficient to make it a milestone in the road towards a gradual but increasingly significant opening up of international dispute settlement mechanisms to access of private parties, whenever this option would enable an overall improvement of the legal protection of these parties' interests and rights. And it is a milestone which also represents a step further when compared to pre-existing models, like the ICSID Convention, since it was seen that Chapter XI sets forth a mechanism that is even more delocalized and procedurally efficient. Furthermore, section B of Chapter XI must be read in conjunction with section A and the substantive provisions on investment contained therein; this would enhance the value of the investment dispute settlement mechanism, since it would rightly be placed in the context of a broader, and more comprehensive framework for the effective protection of investments on the international law level. A framework introduced by a multilateral treaty like the NAFTA which may hopefully soon comprise more than its current three parties, and which affords the highest degree of legal protection to date, in the sense that there is no other multilateral accord which has gone so far. It is not a coincidence that proposals for multilateral investment treaties on a larger scale clearly look at Chapter XI as their main reference and model.[112]
NAFTA Chapter XIX deals with the very politically sensitive matters of antidumping and countervailing duties, and it does so in a way that does not substantially differ from the former Chapter XIX of the USCFTA. Indeed, the whole idea about a binational panel system for antidumping and countervailing duties was part of a broader initiative by the Canadian trade authorities aiming at ensuring more and better protected market access of Canadian goods to the US market, which finally led to the USCFTA. In particular, during the USCFTA negotiations, the Canadian argument was that such market access was adversely affected by a series of legal barriers the US directly or indirectly had erected against imports, and in this regard the major source of concern was the administrative and judicial machinery set up for the purposes of levying antidumping and countervailing duties on imported goods, which unfortunately is often a trade distorting and purely politically grounded device common to many important countries. The ambitious Canadian proposals contained some admirable elements such as the inclusion, in a free trade scenario, of antidumping and countervailing duties matters in the scope of competition law, in order to limit their use to cases of predatory pricing, and the negotiation of a common set of substantive laws which would be acceptable by both Canada and the US. As it could be expected, this argument was not embraced by the US negotiators, on the grounds that the US system of trade remedy laws and procedures was a fundamental guarantee for US trade interests against unfair trading practices. Thus, in a getting to yes atmosphere, a compromise was struck half-way between these positions. On the one hand, the panel review of statutory amendments enjoys a certain autonomy from the NAFTA countries' domestic laws as concerns the applicable procedure, and it determines the consistency of the amendments under scrutiny with rules of international trade. On the other hand, the panel system of review of final determinations focuses on procedural autonomy, in the sense that a new forum (the binational panel system) was created to replace national trade courts and given a significant procedural autonomy from the domestic laws of the NAFTA countries, while the substantive rules to be applied in this forum are always those of the domestic laws on whose grounds the determination under review was made.
Notwithstanding USCFTA Chapter XIX was seen as a transitional and unsatisfactory compromise, it was reproduced in the NAFTA with few although important changes. Among the reasons for keeping that system in place, it may be submitted that, while negotiating the NAFTA, it was understood that the US would not make significant further concessions on the matter and that too much insistence could undermine the weak balance the three NAFTA parties had just struck. Moreover, the forthcoming GATT Antidumping and Subsidies Codes seemed to afford a significant increase of the level of protection, on both the procedural and substantive sides, against an arbitrary and trade protectionist use of antidumping and countervailing duties, thus reducing the urgency of the need for enhancing this protection in the NAFTA. Finally, as a matter of fact, the overall results of the panel system had satisfied the NAFTA parties beyond their expectations. While these reasons are sound, perhaps it was not so sound to give the panel system a permanent character, because there might well be grounds for further improvements. With this background, it is now possible to move on to the actual procedures.
NAFTA countries are permitted to maintain and apply their own national laws on these matters, in the sense outlined above. In addition, contrary to a purely free trade approach, no code or other ad hoc substantive regulation of antidumping and countervailing matters are provided in the NAFTA context. However, while under article 1903 each NAFTA country may amend its own laws, such amendments may be subjected to review by another NAFTA country by challenging their consistency with the GATT, the WTO Antidumping and Subsidies Codes, and the "object and purpose" of the NAFTA.[113] Only NAFTA countries, through their federal governments, have locus standi for this challenging procedure, while private parties have no standing, although those from a NAFTA country could still lobby their own government and indirectly trigger the review procedure. Nevertheless, this procedure is of crucial importance because it is the only way the national antidumping and subsidies laws of a NAFTA country may be challenged and brought into consistency with the more liberal multilateral trade rules. However, as to these rules, it must be noted that, while the GATT and the two WTO Codes provide specific terms of reference, the object and purpose of the NAFTA is a much more ambiguous concept. Indeed, article 1902(2)(d)(ii) broadly defines this concept as "to establish fair and predictable conditions for the progressive liberalization of trade between the Parties to this Agreement while maintaining effective and fair disciplines on unfair trade practices." Even if this concept may be better defined in the particular circumstances of each case by looking at both the preamble and the various provisions and objectives of the NAFTA, it still leaves a wide measure of discretion and uncertainty as to its exact definition. On the other hand, there is also a certain overlap with the object and purpose of the WTO and the world trading system as a whole, in the sense that consistency or inconsistency with the fundamental principles and rules of the world trading system enunciated in the WTO system will invariably determine or at least affect consistency and inconsistency with the object and purpose of the NAFTA.
There is an ad hoc procedure followed by the binational panel when reviewing the statutory amendments, which is different from that applied when the binational panel reviews final determinations. Nevertheless, these two procedures share some rules such as those for the establishment of a panel. As a general remark, it may be said that this type of review presents an high degree of delocalization, since both the procedural and the substantive rules applied by the panel are of an international legal nature, and are not related to any national law.
There is another function of the binational panel system of NAFTA Chapter XIX: the review of final determinations made by the NAFTA countries' authorities competent for antidumping and countervailing duties, set forth under article 1904. This function, which is carried out under a set of substantive and procedural laws different from that for review of statutory amendments, is of crucial importance for the purposes of the present paper, because it accords access of private parties to the review proceedings.
The rationale of this review is two-fold. First, the panel system seeks to provide exporters an alternative and above all more impartial forum to review the final determinations of the national authorities. Indeed, as a matter of fact, there was the well founded suspect that too often judicial review of these determinations by national courts was not reliable in terms of neutrality of the forum. Courts in each country tend to pay a significant amount of deference to the administrative authorities of that same country, especially when the counter-party is a foreigner and the issue at bar is such a politically sensitive issue as a trade issue consisting of a determination affecting imports and exports. A binational review panel seems more impartial and thus more suitable. Second, Chapter XIX seeks to make the review process more expeditious, an aspect of crucial importance if one considers the significant economic interests involved in these determinations.
True, these two aims are pursued through a procedure that moves from a national to a binational level. However, as a result of the failure to introduce a multilateral substantive regulation of antidumping and subsidies duties matters, when a panel is set up for reviewing a final determination, it will do so by assessing the consistency of that determination with the national laws the authority making the final determination is supposed to have applied. Therefore, the idea is just to replace the review of final determinations by national courts with that by the panel without replacing the applicable national laws with a multilateral regulation. The legal standards being the same, it may be submitted that panels simply "stand in the shoes" of the domestic reviewing court.[114] It is in the procedure for review of final determinations that private parties play a role; thus, the next section will be dedicated to the discussion of this procedure, with emphasis on those aspects that more directly relate to the position of private parties.
Overall, Chapter XIX panel system has proved a valuable and effective review procedure for those private parties affected by antidumping or countervailing duties determinations made by NAFTA countries' authorities. However, it is necessary to discuss this procedure in order to determine what it implies for private parties.
While it is outside the scope of the present paper to discuss the issues related to the notion itself of final determination, it must be noted that it is only in respect and from the time of this final determination that resort to the binational panel becomes available. Within thirty days from the publication of this final determination, or, when unpublished, from the communication by the importing NAFTA country that a final determination has been made, the exporting NAFTA country must submit its request in writing to the importing NAFTA country. This time limitation is important because after its expiration the panel procedure would not be available anymore, and judicial review by the importing NAFTA country's national courts would be the only remedy left available. On the other hand, within that time limit the panel procedure may be chosen, and judicial review is not available; once the binational panel proceedings are established, they would become the only and last resort available, in the sense that neither resort to judicial review would be possible anymore nor the panel decision may be subject to judicial review. Some remarks must be made on this way to relate judicial and panel reviews.
First, under article 1904(5), it is only the NAFTA country of the affected exporter(s) that can resort to the binational panel. However, this statement needs be qualified. The exporting NAFTA country has a mere discretion to do so only when it acts on its own initiative, while it must do so when requested by the exporter(s). This qualification has some important effects in the light of the discussion carried out in this paper about private parties' access to international dispute settlement mechanism.
On the one hand, the private party affected by a final antidumping or countervailing duty determination can choose between the local judicial remedies of the importing NAFTA country and the binational panel remedy within the above time limit, in the sense that it can opt for the binational panel or let the time limit expire and then resort to judicial review; either choice would automatically exclude the other. Furthermore, it is interesting to observe that here, like in the investment dispute settlement mechanism of the NAFTA, resort to the binational panel cannot be blocked by the importing (respondent) NAFTA country. This lack of control of the responding state over access of the exporter to the binational panel, that implies to take the claim away from its national courts, is certainly an important element of delocalization letting the private party decide which forum is more suitable for an adequate protection of its legal and economic interests affected by the final determination. This element becomes even more important when one duly weighs the case law of national courts on these matters, which quite clearly shows how high the risk of a political and impartial decision is. Moreover, binational panel proceedings take place in a time frame which is far shorter than that of national courts (315 days from the submission of the request). For these reasons alone, it may be submitted that, even if there would be the choice to do otherwise, a wise exporter would more likely resort to the binational panel
However, together with the exporter's discretion, there is also the discretion of its NAFTA country to resort to the binational panel in that same time limit. This implies that, if the exporting NAFTA country resorts to the binational panel, the exporter would be precluded from obtaining the local judicial review. Perhaps, this is not that relevant, since it is reasonable to predict that the exporter will rarely if ever opt for local judicial review; in any case, it is worth noting this aspect that certainly reduces the significance of the exporter's initial discretion to choose either remedy.
It is also interesting to note that the review procedure under article 1904 only applies to goods determined to be of another NAFTA country by the authorities and under the national laws of the importing NAFTA country, and such determination is made under the GATT rules that, unlike the NAFTA rules, define domestic products so that they need not be originating goods. This aspect is important because both it allows the panel system to be adopted in respect of a wider range of goods (thanks to GATT's looser definition of the origin of goods), and, above all, it ultimately means that NAFTA article 1904 remedy is made available independently of any requirement as to the nationality of the exporter; rather, all the attention is focused on the goods whose trade is affected. Indirectly, this is a confirmation that the NAFTA tends to look at the substance of the issues it deals with and the underlying economic interests at stake. Under this approach, an exporter is accorded legal standing as long as its goods are defined as from a NAFTA country, without inquiring on its nationality, which would raise unpleasant uncertainties. Thus, a serious constraint on access of private parties to international dispute settlement mechanisms is avoided, although it may be argued that the origin of goods is not easier to define than the nationality of the exporter; but at least the focus is, as said, on what legally and economically matters, that is, the flow of trade between NAFTA countries, not on who trades.
Moving on to the establishment of the panel, it must be highlighted that, whether the claim is brought by the exporting NAFTA country on its own initiative or upon the exporter's request, it is always this country which will appoint two of the arbitrators, while the exporter has no say on this matter, at least under the procedure set forth in Chapter XIX. Thus, the private party cannot control at all a crucial moment of the panel proceedings. The composition of the panel is a factor that may affect the outcome of the proceedings, which in turn affects the exporter's interests directly, while the exporting country's trade interests, more of a political rather than a legal and economic nature, are only indirectly affected. One plausible explanation, which also applies to the rule whereby it is the exporting NAFTA country, not the exporter, to submit the request, is that, as it is often the case in international trade, the interests of the exporter are regarded as nothing other than the interests of the exporting country, so that when the latter intervenes on behalf of the former, it is indeed seeking to protect the broader state interests. There may be doubts about the validity of this argument, which is another application of the traditional tendency in international trade matters, unlike in foreign investment ones, to see rights and obligations only as existing between states, so that private parties' interests can only be protected and enforced in a diplomatic protection-like manner.
On the other hand, apart from the fact that the exporting NAFTA country may have a sincere and full commitment to make its exporter's interests, after all there are few reasons of concern for the exporter, because the rules on the appointment of the panelists provide some effective guarantees. Indeed, Chapter XIX procedure provides that each NAFTA country involved in the proceedings is accorded the right to choose two of the five panelists from a roster set up prior to the entry into force of the NAFTA; the fifth panelist shall be chosen by agreement of the two NAFTA countries, or, if they cannot agree, by lot. The roster comprises seventy-five members, with each NAFTA country appointing one third of them according to criteria requiring high qualifications, such as a certain level of sophistication and expertise of the candidates on international trade, their good character, high standing, repute, sound judgment and reliability. Since Chapter XX reverse selection does not apply to Chapter XIX, the NAFTA country shall select the two panelists from the twenty-five candidates it originally appointed on the roster. Moreover, candidates for the panel must be nationals of a NAFTA country but at the same time they cannot be affiliated or take orders from any NAFTA country. Finally, the quasi-judicial nature of the panel is enhanced by the requirements that "[the roster] should include judges or former judges to the fullest extent practicable",[115] and that the majority of the panel, including the chairman, must be lawyers in good standing. In any case, each NAFTA country has the right to four peremptory challenges against the candidates chosen by the other, an important weapon in conflict of interests cases, and panelists must abide by a code of conduct agreed by the NAFTA countries when the Agreement came into force. These guarantees should be sufficient to ensure an adequate settlement of the dispute.
Chapter XIX procedure, unlike that under Chapter XI, does not permit consolidation of claims. Perhaps, this may once again be explained by the fact that, under a traditional vision of international trade, the claim at bar in antidumping and countervailing duties matters, when brought on an international level, does not belong to the exporter whose interests are actually affected, in which case, like in investment disputes, it might be easier to agree on consolidation, because it would be the consolidation of private parties' claims against the same host NAFTA country; rather, in Chapter XIX disputes, the claim seems to belong to the exporting NAFTA country, and, so the argument might go on, although a final determination by a NAFTA country may affect goods of both the other two NAFTA countries, consolidation would not be appropriate when the dispute has an inter-state dimension.
However, two counter-arguments outweigh this construction. First and foremost, it should never be forgotten that, in Chapter XIX proceedings, the review regards a final determination which directly applies to and adversely affects one or more exporters; thus, the idea itself that these proceedings somewhat are on a state-to-state level is unsound, and its only argument would be that a trade dispute on the national law level, when brought on the international trade level through Chapter XIX procedure, ceases to be a dispute between the exporter and the importing country, and becomes one between the latter and the exporting country, whose national trade interests are affected by the final determination. These constructions are deemed artificial because they disregard the economic reality which clearly indicates that the exporter's interests are at stake in these final determinations, whose review should thus be seen as the exporter's remedy, either before the courts of the importing country, or before a binational panel. After all, it is always the exporter which appears before the panel, under the same laws and procedures of the importing NAFTA country that would apply before its national courts. Second, even disregarding the strength of the first counter-argument, there would yet be an inconsistency with the inter-state trinational panel system of Chapter XX. In other terms, while under Chapter XX two NAFTA countries can consolidate their claims against the third NAFTA country when they have aspects of fact and/or law in common, and go before a trinational panel, under Chapter XIX, even if the same final determination of a NAFTA importing country adversely affects goods from both the other two NAFTA countries, two separate binational panel must be established. It is evident that in this way there is also an undesirable loss of efficiency. This duplicity of proceedings is not certainly an effective way of rationalizing the use of limited resources, but it rather wastes such resources. Moreover, there is an higher risk of conflicting decisions, which weakens the fundamental principles of legal certainty and predictability, and the reliability of the whole dispute settlement mechanism of Chapter XIX. In particular, it may well be the case that, as a result of this shortcoming, private parties will lose any incentive to resort to binational panel rather than judicial review.
The most controversial aspect of the proceedings before the binational panel is the fact itself that, as mentioned above, the panel shall make its review under the laws of the NAFTA country whose final determination is under scrutiny, and this review replaces and excludes the judicial one by the national courts of that country. The controversy has been about the constitutionality of this crucial aspect of the binational panel system. In particular, the debate has been very hot in the US, where the two main issues of constitutionality have been about the conformity of the panel proceedings with article III, section 1, and with article II, section 2 of the US Constitution. The first provision concerns the exclusive vesting of judicial power in the US judiciary, so that it raises the question whether the binational panel can hear claims about US final determinations which would be otherwise heard by US courts. The second refers to the Appointment Clause, whereby those who exercise significant authority under the laws of the US must be US officers, that is, officers appointed under the procedure set forth by the Appointment Clause, and the question would then be whether panelists applying US law could be appointed by non US authorities (the other NAFTA country involved in the dispute). While it is not in the scope of this paper to discuss these constitutional issues, it is worth mentioning them because their discussion also affects the enforceability of private rights on the international law level in substitution for that on the national law level. It is submitted that the view whereby the binational panel system of Chapter XIX is constitutional, which is also the prevailing view upheld by the US Supreme Court, must be embraced, because, notwithstanding the hybrid and unusual structure of this system raises reasonable doubts, in the end it is part of an international trade agreement resulting from the joint action of the US executive and legislative branches in conformity with the US Trade Act. This agreement operates under international law, and Chapter XIX is a form of international arbitration to which a state may legitimately agree; although quasi-judicial, it does not amount to exercise of US judicial power.
Moving on to the regulation of the proceedings, it is important to note that article 1904(7) provides that both the national authority that issued the final determination and the private parties which would have been standing before a national court for a judicial review have the right to appear before the panel and be represented by counsel. Therefore, there is an express recognition of the right of affected private parties to access the binational panel dispute settlement mechanism and to play an active role. This aspect, when considered together with that whereby the panel is however a more neutral tribunal than a national court, and more willing to listen to the private parties' arguments and complaints, significantly enhances the protection of private parties' rights and interests in antidumping and countervailing duties matters.
Moreover, article 1904(14) required the parties to agree on rules of procedure by January 1, 1994, and these rules had to be based on judicial rules of appellate procedure, comply with the 315 days time frame, and pursue the general aim of the binational panel system consisting of securing a "just, speedy, and inexpensive review of final determinations." These rules were agreed on time, and they deal with a variety of procedural issues, such as the submission of the request, the participation of private parties, the form and contents of the written briefs, the oral proceedings, the timing of the various stages, and the limitation of the review to errors. Without going deeply through them, it must be noted that they have contributed to shape an efficient, reliable, and short timed dispute settlement mechanism. Because these rules are not the mere reproduction of any particular national judicial appellate procedure, but rather strike a compromise between the traditional elements and guarantees of most national appellate procedures and the specific needs (e.g. time savings) of the panel system, they also represent a form of delocalized, neutral, and to a certain extent institutional procedure which adequately protects the interests of the parties involved. The equilibrium between the parties in the panel system achieves the result sought when such system was first conceived, that is, to avoid and provide an alternative to the unbalanced national remedies against final determinations, which not only adversely affect the exporter's interests, but more generally distort the dynamics of international trade.
However, the major handicap of Chapter XIX procedure is that, for the reasons seen above, the NAFTA countries stopped short of regulating the substantive issues of antidumping and countervailing duties matters in a manner which would create a uniform regime throughout the North American free trade area. This unavoidably led to the rule under article 1904(2) whereby the panel must review a final determination under the same domestic substantive laws as those applied by the national authority that made that determination. Article 1904(2) also adds that "the antidumping and countervailing duty law consists of the relevant statutes, legislative history, regulations, administrative practice and judicial precedents to the extent that a court of the importing Party would rely on such materials in reviewing a final determination of the competent investigating authority." To confirm that this is the only applicable substantive law, it is further provided that the relevant national statutes are incorporated and made a part of the NAFTA, although solely for the purposes of the panel review.
From the perspective of the private party, this approach taken by Chapter XIX is not certainly the ideal, because at least on the substantive law level the importing NAFTA country whose final determination is challenged retains control over that level of the dispute with the complaining exporter. Thus, as to substantive matters, Chapter XIX falls short of providing a delocalized dispute settlement mechanism, and the exporter is put at a disadvantage vis-à-vis the importing country which is ensured that, while a forum other than its courts will review its determinations, this review will not be made according to standards which are more pro-free trade than its. It is in this context that the other procedure of Chapter XIX, that for the review of statutory amendments, may play a crucial role. As noted above, even if it is only available to the federal governments of the NAFTA countries, and it cannot be accessed by private parties, it affords a unique opportunity for challenging the consistency of a NAFTA country's antidumping and countervailing duty laws with the regime of international trade law outlined in the GATT/WTO framework, which tend to be more free trade oriented. As a result of these challenges, it might be that the laws of each NAFTA country will be gradually changed as to offer a fairer treatment of exporters and be less protectionist of domestic producers. On the other hand, this procedure is yet untested, and this situation might suggest that NAFTA countries lack the political will to challenge each other's laws, perhaps on the grounds that each wishes to retain this protectionist weapon available to satisfy the demands of their domestic constituencies, that is, the powerful lobbies of domestic producers.
Nonetheless, because the concerns of the exporter about the fairness of the national remedy are mainly related to the excessive deference national courts make to the final determinations of the competent administrative authorities, the panel system is already a significant guarantee in this regard, because the risk of deference is drastically reduced, if not eliminated, by the composition of the panel. Remarks on this point were made earlier when dealing with the formation of the panel. Some additional remarks would however be appropriate, and help understand the effects on the position of private parties.
First and foremost, the traditional notion that the binational panel simply stands in the shoes of the national courts must be qualified. It cannot go unnoticed that, as Moyer puts it, "one obvious difference is that there are considerably more feet."[116] In other terms, the fact that there are five panelists implies a different handling of the case when compared to the judicial remedy before an often single judge. There are more guarantees that the panel will adequately consider and weigh the different issues of the case and the different approaches available for handling those issues. Above all, the composition of the panel is such that panelists will have quite diverse backgrounds, all of which are relevant in deciding the case, and each of which may contribute to clarify some particular aspects. Indeed, on the one hand, there will be a majority of lawyers, which is a necessary element of the procedure because it must maintain a quasi-judicial character which only lawyers and judges may guarantee. On the other hand, lawyers will normally provide an higher level of expertise and sophistication than many national courts would, because the former are normally international trade practitioners or scholars, while the latter lack this specialization in international trade matters. Moreover, lawyers will be from different countries, which means that they will have different legal backgrounds; in turn, this allows the panel to deal with the same legal issue from different legal perspectives and thus ensure its comprehensive and detailed analysis. This peculiar feature is even more striking if one considers that, while Canada and the US share similar if not identical common law cultures and systems, Mexico has a civil law legal system. This, however, may have pros and cons. The presence of Mexican lawyers on the panel is a precious source of different legal views, but it also increases the risk of cultural clash between common law and civil law panelists, and it should be remembered that, for historical reasons, the development of international trade law in Mexico is not on the same level as that of Canada and the US. A source of inconvenience may more in general be that there will be panelists who are not from the NAFTA importing country under whose laws the final determination is to be reviewed; this may but must not necessarily be a cause of unfamiliarity with those laws prejudicing the outcome of the review. However, to the extent there are panelists with legal background in international trade, the risk of unfamiliarity is significantly reduced. Finally, in addition to panelists with legal background, there might well be panelists with an economic background, which is extremely useful to fully understand the trade issues at stake and properly apply trade legal rules; again, this is a type of background unavailable to national courts.
Even if it seems that private parties are well protected by the composition of the panel, they may still be adversely affected by three further aspects of the panel system. First, there is the risk of conflict of interests which may regard the position of a panelist who is also a practitioner. As a practitioner, the panelist may change hat and appear or have appeared before a national trade authority as a counsel; here the risk of conflict would be that the panelist may be tempted to deal with the legal issue (to be decided impartially by the panel) in a manner which takes in account the impact the decision may have on cases where that same issue may arise and the panelist appears as a counsel making the interests of its client. However, the procedure expressly allows to challenge the appointment of a panelist on these grounds, and disqualification of the panelists having a conflict of interests is therefore possible. Second, there is an aspect that is of more indirect effect for private parties. The legal certainty and predictability of the proceedings may be undermined by another change of hats. The national administrative authority which in theory made the challenged final determination in an impartial manner, has to defend it before a panel in a partisan and adversarial way. Moreover, assuming the determination is remanded, that same authority which strenuously advocated its validity, has to change it in accordance with the contents of the panel decision and be ready to defend it again. This continuous change of hats may adversely affect the impartiality and consistency of the determinations, and decrease the level of legal certainty and predictability sought by the exporter. Third, although a rare phenomenon so far, the different nationality of the panelists may affect the way the decision is made, because panelists may be sensitive to the trade interests of their country and thus inclined to decide in a partisan rather than bipartisan manner.
At the beginning of the discussion on Chapter XIX it was mentioned that time savings was another main goal of the panel system. It may be submitted that, overall, the 315 days time limit for the issue of the panel decision has been met in most cases. This means that the many tight deadlines at the various stages of the proceedings have been met. The result is even more satisfactory if one compares the length of panel proceedings to that of judicial proceedings before national courts; the latter take far longer than the former. Unfortunately, the beneficial effects this speed has on the dynamics of the interests involved in international trade, and on the enhancement of legal certainty and predictability, are partially offset by the remand process. Indeed, under article 1904(8) panels can only either uphold the final determination or remand it to the competent national authority for changes not inconsistent with the panel decision. In other terms, the panel can never reverse the determination. While there will be quite tight time constraints for a new determination to be made by the national authority, it might well be the case, as confirmed by the case load, that the new determination does not satisfy the complaining and winning party, which may then resort to the panel again. Should this be the case, the panel shall decide within ninety days, but it will again either uphold or remand the determination; in the latter case, a new determination will be necessary, with the risk of further panel proceedings brought by the unsatisfied exporter or its country. This Ping-Pong cannot be avoided unless there is an amendment of the procedure whereby the panel is conferred the power to reverse the determination and make its own determination. This scenario is unlikely at the moment, because it would have an impact on issues of sovereignty and politically sensitive trade issues about which the NAFTA countries have so far proved to be unwilling to negotiate. Therefore, for the time being, private parties must keep suffering from this long-lasting remand process that may drastically reduce the speed of the proceedings.
Finally, Chapter XIX seeks to ensure legal certainty and predictability of the panel system by providing, under article 1904(9), that panel decisions are "binding upon the involved parties with respect to the particular matter between the Parties that is before the panel." This binding character is two-fold. A panel decision is both binding on the NAFTA countries as a matter of international law, and, under their NAFTA implementing legislation, upon the national competent authorities as a matter of domestic law. Moreover, these decisions are also final in the sense that they cannot be reviewed by any national court, because, as seen earlier, submission of the final determination to the panel precludes any judicial review. In case of remand decisions, what eventually goes before the panel is not its decision, but the fresh determination by the national administrative authority further to that decision.
However, panel decisions may be subject to extraordinary challenge before the Extraordinary Challenge Committee. This procedure is only available to the NAFTA countries involved, not also to the private parties involved, and it is different from a truly appellate procedure. Indeed, article 1904(13) accords it on restricted grounds, that are: (i) panelists' gross misconduct, bias, serious conflict of interests, material violation of the rules of conduct; (ii) panel's departure from a fundamental rule of procedure; (iii) panel's manifest excess of its powers, authority, or jurisdiction...[when] "the error has materially affected the panel's decision and threatens the integrity of the binational panel review process." As to the third ground, the NAFTA added as one of its possible manifestations the failure to apply the appropriate standard of review. However, the procedure does not set forth a time limit for submitting the extraordinary challenge, which means that it is for the parties to agree on a deadline, with the result that the panel decision, even if it may be challenged only in exceptional circumstances, is subject to challenge for an unspecified period of time. Perhaps, it would have been more appropriate to set such a deadline so that the impact of the whole procedure on the decision could be more predictable and there would be more certainty about the ultimate outcome of the dispute. On the other hand, once a request has been submitted, the time frame for the procedure is set and is tight: fifteen days to establish the committee, composed of three members selected from a roster of fifteen federal (superior jurisdiction for Canada) judges or former judges, with each NAFTA country appointing a third of the roster members; ninety days from the establishment to issue a decision. As long as the extraordinary challenge procedure stays within the scope of its restricted jurisdiction, it should not affect the definitive character of the panel decisions. If instead the procedure is used as a disguised form of appellate procedure which affects the merits of the panel decision being challenged, the whole structure of the review procedure would be changed. The question whether the first or the second scenario is more likely depends on the attitude of the NAFTA countries in resorting to this procedure and above all on the Extraordinary Challenge Committee's interpretation of its own powers. So far, unlike the case of the annulment procedure in ICSID proceedings, this interpretation has been wisely narrow, which is in accordance with the spirit of an extraordinary challenge procedure, and the Committee has thus limited its jurisdiction to the exceptional circumstances set forth under article 1904(13). Moreover, should the Committee go beyond its limited jurisdiction, the fundamental final character of panel decisions would be in danger and private parties could not rely anymore on the review panel system as a source of legal certainty and predictability. Nevertheless, it will be interesting to see how the case law of the Committee evolves, also because this time the standard of review is not related to the national law of the NAFTA countries.
Last but not the least, the NAFTA introduced a new procedure aiming at ensuring that the NAFTA countries do not disrupt the correct and effective functioning of the review panel system. Under the procedure set forth under article 1905, either through consultations or by means of the Special Committee, the objective is to help solve the problems in the laws or conduct of a NAFTA country which prevent the panel process from going through properly. As a last resort, the complaining country, should it be right, may suspend the application of Chapter XIX to its trade relations with the non complying country.
The discussion of the process of panel review of final determinations has sought to highlight the pros and cons as to the position and the protection of the legal and economic interests of the private parties involved. As said in the beginning, overall this process has proved effective and successful, perhaps contrary to the expectations of many experts and of NAFTA negotiators. For sure, it has provided private parties a valuable and efficient alternative to national remedies, so that it is predictable that they will tend to make use of it almost exclusively. However, some criticism still persists. First and perhaps more importantly, the idea itself that in a free trade area there may still be antidumping and countervailing duties is a contradiction. These duties, and the substantive and procedural laws under which they are imposed, tend to be a disguised form of trade protectionism which is against the interests not only of exporters but also of consumers, so that in the end the antidumping and countervailing regime hinders and harms the dynamics of free international trade. This is particularly true in the context of a free trade area as the NAFTA is supposed to be, because goods should be let circulate freely within its borders. Therefore, the whole regime on these matters should be scrapped, and those few cases of dumping or subsidies amounting to or causing predatory pricing should be brought within the scope of competition law.
However, there is not yet the political will to make this step. Looking at the current regime and wondering how it may be improved, it is worth reaffirming that its major weakness is its hybrid character, mostly deriving from the political compromise on whose basis Chapter XIX was drafted. An hybrid character that emerges in particular from the lack of any multilateral/international regulation of the substantive issues, and from the fact that in some crucial passages of the procedure there is a dependency of the private parties involved on the conduct and the decisions of their NAFTA country (e.g. submission of the request and appointment of the panelists), an element absent from other dispute settlement mechanisms such as ICSID or NAFTA Chapter XI. Thus, the effectiveness of the process as a whole could be significantly enhanced by letting the private parties be in full control of those aspects now controlled by their country. Moreover, the remand process should be replaced by the panel's power to reverse the final determination. However, improvements would mostly derive from a more institutionalized mechanism of dispute settlement. At the moment, delocalization has occurred only with respect to the procedure, while the next step should be the delocalization of the substantive law. The above discussion has proved that there is room for improvements, and these improvements are not just possible, but also necessary to enhance the effectiveness of the system. This call for improvements is in striking contrast with the permanent character NAFTA Chapter XIX was given by the NAFTA countries.
The most politically sensitive and serious ground on which the NAFTA has been opposed in the US has been the risk of the US being damaged by unfair competition taking advantage of the other NAFTA countries' (mostly Mexico's) lower standards of environmental and labor protection. In other terms, the scenario after the creation of the NAFTA may be that firms locate their activities within the NAFTA area where environmental and labor costs are lower, gain a precious but unfair competitive advantage, and invade the US market with their cheaper goods whose trade is unrestricted. US firms would thus be forced to shut down or relocate in the other NAFTA countries, with huge job losses for the US work-force. Moreover, this scenario would be an incentive to maximize profits and compete at the expense of environmental and labor protection, which would be looser and seriously worsened as the result of this race o the bottom.
The Environmental and Labor Cooperation Agreements seek to prevent this possible scenario from becoming an unpleasant reality by setting up a trilateral institutional framework, committing the NAFTA countries to comply with high standards of environmental and labor protection, and to cooperate in order to enhance such a protection. Moreover, they also provide for a dispute settlement mechanism in case of failure to implement these commitments. In an attempt to reach a compromise between state sovereignty and the need to have a certain uniformity if not harmonization of the standards of protection adopted in the NAFTA area, the agreement provides that each NAFTA country is free to set its own levels of environmental and labor protection, but it has to ensure that this level is high. In the case of environmental protection, high, although not defined, clearly refers to the NAFTA obligation to comply with the standard of international environmental law; in case of labor protection, there is instead more deference to state sovereignty and national regulation, and the Agreement covers a limited number of labor matters. Furthermore, in both Agreements there is a significant commitment as to transparency, access to information by interested parties, and access to domestic enforcement mechanisms.
It is however the institutional framework that is relevant for the purposes of the present paper, in particular as concerns its dispute settlement procedure. In particular, and only in the case of the Environmental Agreement, non-governmental organizations or persons, can indirectly trigger the dispute settlement mechanism, although they do not have direct access to it. The way this may be done is articulated in many steps. Indeed, these private entities may only make submissions to the Secretariat, that is one of the three organs (the other two being the Council and the Joint Public Advisory Committee) of which the Commission for Environmental Cooperation is comprised, alleging the failure on the part of a NAFTA country to effectively implement its environmental laws. However, this is the beginning of a process which may lead to arbitration. The following paragraphs will seek to outline this process together with the basic elements of the relevant institutional framework.
The Secretariat is in general responsible for preparing reports and providing technical, administrative, and operational support to the Council, that is the governing body of the Commission comprised of one cabinet or equivalent level representative from each NAFTA country, makes recommendations on various environmental matters, and plays a decisive role in dispute settlement. Going back to the private parties' submissions, the Secretariat first determines their compliance with certain criteria. Among these it is worth mentioning that the submitting entity must reside in a NAFTA country, be clearly identified, provide sufficient information, inform the targeted NAFTA country and attach its response, and that the submission must "appear to be aiming at promoting enforcement rather than at harassing industry."[117] Determination of compliance with these standards by the Secretariat functions as a filter of the many submissions that it is predicted will be made. And it is not the only filter, because, just after this determination, the Secretariat has to determine whether to seek a response on the submission by the targeted NAFTA country. For these purposes, it considers issues such as whether the submitting person or organization alleges to be harmed, whether local remedies have been pursued, whether the matters at stake are relevant for the goals of the Agreement, and whether the source of the allegations is only the mass-media. Once the Secretariat has decided to request a response, the NAFTA country so requested must provide this response unless there are judicial or administrative proceedings pending on the same matters that are raised by the submission, in which case the Secretariat cannot proceed. Instead, if the response is given, the Secretariat can inform the Council that further to the submission, a factual record should be prepared. If the Council by a two-thirds vote so determines, the factual record can be prepared and private parties can contribute with any relevant information. Finally, the factual record can receive the comments of NAFTA countries and be made public upon another two-thirds vote by the Council. If public, it will contribute to urge the NAFTA country involved to effectively implement its environmental laws. However, the crucial importance of a factual record on a NAFTA country above all derives from the fact that it can be used by another NAFTA country as the basis for alleging the former' s persistent failure to enforce its environmental laws, which is in turn the ground on which the consultation and dispute settlement procedures can be commenced.
However, the actual dispute settlement procedure is not available to private parties, which can only start a process likely to lead in the end to a dispute between NAFTA countries settled through consultations or arbitration. Furthermore, if the various criteria with which the submission has to comply for it to be further considered by the Secretariat were narrowly interpreted and applied, then the relevance of this limited right to submissions accorded to private parties would be drastically reduced if not eliminated. Finally, the factual record developed further to private parties' submissions is only one of many possible grounds on which a NAFTA country can allege the persistent failure of another NAFTA country to enforce its environmental laws, which is generally defined in article 22 as "a sustained or recurring course of action or inaction beginning after the date of the entry into force of this [the Environmental] Agreement;" thus it may be an important contribution, but it is not decisive.
It is evident that this Agreement is similar to the structure of Chapter XIX to the extent that it provides for institutional cooperation and enforcement mechanisms, but does not set any multilateral regulation of substantive matters of environmental protection, which are instead left to the exclusive regulation by the domestic laws of each NAFTA country, although there is a common commitment to afford an high level of protection. Moreover, it cannot be said that private parties have a real right of action on the international environmental law level against NAFTA countries, and indeed environmental NGOs have complained about the absence of any such right from the arbitration/consultations dispute settlement mechanism. Once again, the interest in preserving national sovereignty has prevailed over the appropriateness and effectiveness of a truly supranational regulatory and institutional framework.
Nevertheless, the right to submissions is per se an important although prudent innovation, so far unique in he context of international environmental agreements. It is the first sign in this area of international law of the gradual recognition of the necessity and effectiveness of a more active role of private parties, also in situations leading to international dispute settlement, which however are maintained on an exclusive state-to-state level. Certainly, under the current structure, the extent of the impact this right to submissions may have on the development of the private parties' role in international environmental law matters will mostly depend on the liberal or conservative approach taken by the Secretariat and the Council vis-à-vis this right.
Unfortunately, the Labor Cooperation Agreement, while it establishes a similar institutional framework as concerns cooperation, enforcement, and dispute settlement, does not accord private parties any right to submissions; this confirms a much more careful and narrower approach taken by the NAFTA countries in dealing with labor maters on the multilateral level, due to the highly political character of such matters.
The NAFTA is another milestone in the development of international trade and, more in general, of international economic law. In areas such as investments, environmental protection, financial services, it has made some significant steps forward on the road towards the complete liberalization of international economic activities. Private parties to these activities may substantially benefit from the NAFTA. However, the NAFTA unavoidably also presents some cons of a certain relevance. First, while the trade liberalization in the North American region must be supported, there is still the risk that it may lead to the creation of a regional trading bloc that would distort the dynamics of international trade. Second, it is inconsistent to seek to establish a free trade area and at the same time maintain into force protectionist regimes like that on antidumping and countervailing duties matters, whose impact is however attenuated by the panel system of review under Chapter XIX.
Of a more direct relevance for the position of private parties is the striking contrast between the regulation of trade and that of investment. In the latter, the investor is directly afforded an high level of protection on both the substantive and procedural levels, while in the former no direct substantive rights are conferred on private parties, and access to international dispute settlement is limited to the procedure for reviewing final determinations of the national authorities, which itself needs be improved. The NAFTA therefore seems to maintain the traditional distinction of approaches as between trade and investment, in particular when private parties' s issues are at stake. Under the NAFTA, international trade still exclusively belongs to the sphere of inter-state relations.
On a more general basis, it is fair to say that, where the NAFTA has failed to open up to private parties on both the substantive and procedural levels, it has done so because its member countries' governments have been too receptive and sensitive towards both the protectionist pressure coming from their more powerful national constituencies (i.e. domestic producers), and issues of national sovereignty, often fused together. As a result there have been too many political compromises falling short of a real liberalization from which private parties would have considerably benefited. This shows the unwillingness to establish a truly supranational institutional and regulatory framework in which private parties could be full participants, both in terms of substantive rights and obligations, and in terms of procedural capacity and accountability. True, the NAFTA is not and is not meant to be a copy of the European Union, but an initiative to liberalize international economic activities must go farther than where the NAFTA stands now.
[88] DELAUME, ICSID Arbitration, in LEW, CONTEMPORARY PROBLEMS IN INTERNATIONAL ARBITRATION 24 (1986).
[89] Amco Asia et al v. The Republic of Indonesia, 23 ILM 351 (1984).
[90] Alcoa Minerals of Jamaica v. The Government of Jamaica, ICSID Arb 74/2 (1975).
[91] Amco Asia, supra note 81 at 359-63.
[92] LETCO v. Liberia, 26 ILM 647 (1986).
[93] Holiday Inns v. Morocco (1978).
[94] MUCHLINSKI, supra note 52 at 546.
[95] Id. at 547.
[96] Article 27(1) so provides: "No Contracting state shall give diplomatic protection, or bring an international claim in respect of a dispute which one of its nationals and another Contracting State shall have consented to submit or shall have submitted to arbitration under this Convention, unless such other Contracting State shall have failed to abide by and comply with the award rendered in such a dispute."
[97] MUCHLINSKI, supra note 52 at 548.
[98] 20 ILM 666 (1981).
[99] 24 ILM 340 (1985).
[100] See supra, note 84
[101] See Supra, note 83
[102] MUCHLINSKI, supra note 52 at 551.
[103] Id. at 553.
[104] MUCHLINSKI, supra note 52 at 552.
[105] GAILLARD, Introductory Note to Amco (Review), ibid.
[106] REDFERN, ICSID-Losing its Appeal, 3 ARB. INTL. 98 (1987).
[107] P VON MEHREN, Draft of the author's upcoming and very interesting book on the NAFTA. I wish to thank Mr. Von Mehren, Partner, Curtis, Mallet-Prevost, Colt & Mosle, New York, for his very kind attention and advice on the NAFTA.
[108] Article 1121(3).
[109] Articles 1121 (1) in case of investor, 1121 (2) in case of enterprise.
[110] JOHNSON, THE NORTH AMRICAN FREE TRADE AGREEMENT 507 (1994).
[111] Metalclad Corporation v. United Mexican States, Case ARB (AF)/97/1; Robert Azinian and others v. United Mexican States, Case ARB (AF)/97/2. I wish to thank Dr. Alejandro A. Escobar, Counsel, ICSID, Washington DC, and Dr. Antonio Parra, Counsel, ICSID, Washington DC, for their very kind attention and advice on both the NAFTA and the ICSID Convention.
[112] The upcoming Multilateral Agreement on Investment (MAI) negotiated within the framework of the Organization for Economic Cooperation and Development (OECD), will contain a part on international investment dispute settlement similar to NAFTA Chapter XI; one major difference is that the MAI provides a fourth option, that is, the parties may resort to the arbitration procedure of the International Chamber of Commerce in Paris. This additional option is also provided in the context of the Energy Charter Treaty. I wish to thank Mr. David Small, Deputy Legal Counsel, the OECD, Paris, for his very kind attention and advice on the MAI and on the outstanding differences between trade and investment disputes.
[113] These standards are set forth in article 1902(2)(d).
[114] MOYER, Chapter XIX and the NAFTA: Binational Panels as the Trade Courts of Last Resort, in BELLO, HOLMER, AND NORTON, A NEW FRONTIER IN INTERNATIONAL TRADE AND INVESTMENTS IN THE AMERICAS 292 (1994).
[115] Annex 1901.2(1).
[116] MOYER, supra note 106 at 298.
[117] JOHNSON, supra note 102 at 262.
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