Herbert Smith Freehills launches blog series on NAFTA renegotiations

Herbert Smith Freehills is pleased to announce the launch of a new series of blog posts which will report on the latest developments in the NAFTA renegotiations. The series will run on our Public International Law Blog which provides analysis and commentary on public international law issues.

The series’ opening post provides practical insights to stakeholders in key industries and focusses on the context of the negotiations and the interests and objectives laid out by the states in advance of the talks. It also offers our strategic view of what interested observers should watch for.

Part 2 looks into the (unofficial) US proposal to restructure NAFTA’s investor-state dispute settlement (ISDS) mechanism, transforming it into an “opt-in” regime under which each NAFTA state would elect whether or not to permit investors of other NAFTA parties to bring claims directly against it.

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NAFTA Renegotiation: ISDS reform objectives

The United States will lobby for changes to the investor-state dispute settlement (“ISDS”) provisions of the North American Free Trade Agreement (“NAFTA”) in the upcoming discussions to renegotiate the regional treaty.

ISDS reform is one of several “negotiating objectives” announced last month by the Office of the United States Trade Representative (the “USTR”), the federal agency with responsibility for US trade negotiations.  The disclosure was made public in accordance with a 2015 statute that requires the USTR to release objectives at least 30 days before the start of formal trade negotiations.  The NAFTA talks are set to begin in Washington D.C. on August 16.

On the agenda are modest proposals for increased transparency in the NAFTA ISDS process, such as the introduction of mandatory public access to NAFTA arbitration hearings, and submissions, and awards.  Those amendments would be broadly in line with the recent trend toward greater public transparency throughout the investment treaty space.  A more striking departure from current practice is suggested by the proposed introduction of a “right” of “non-governmental entities . . . to request making written submissions to a panel.” Continue reading

NAFTA tribunal considers issues of res judicata and the customary international law minimum standard of treatment

In Apotex Holdings Inc. and Apotex Inc. v United States of America, (ICSID Case No. ARB(AF)/12/1), a NAFTA chapter eleven tribunal considered issues of res judicata and the customary international law minimum standard of treatment.

In a case notable for its discussion of res judicata and the customary international law minimum standard of treatment, a NAFTA Chapter Eleven tribunal has allowed jurisdictional objections over a significant part of the alleged claims. With respect to the claimants’ remaining claims, the tribunal concluded, on the merits, that the US had not breached any of its commitments under international law.

The tribunal analysed international jurisprudence on res judicata in detail, applying a flexible approach to the question of when claims will be precluded by a prior decision. Following previous NAFTA awards, the award explored the complex relationship between the customary international law minimum standard and the guarantee of fair and equitable treatment and full protection and security contained in NAFTA Article 1105(1).

It did so in the context of the claimants’ novel claims about the status of due process among the protections required by the customary international law minimum standard of treatment. However, the tribunal left for a future tribunal to decide whether NAFTA’s guarantee of most-favoured-nation (MFN) treatment can be used to expand the substantive protections under Article 1105 – a critical topic, in the light of all NAFTA states’ unanimous opposition to that interpretation. (Apotex Holdings Inc. and Apotex Inc. v United States of America, (ICSID Case No. ARB(AF)/12/1).)

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US District Court confirms arbitral award against Pemex that was nullified at its seat

The US District Court for the Southern District of New York has confirmed an arbitral award in favour of COMMISA, a subsidiary of KBR, against Pemex, even though the arbitral award had been annulled at its seat in Mexico. In Corporación Mexicana de Mantenimiento Integral, S. De R.L de C.V v. Pemex-Exploración y Producción, No. 10 Civ. 206 (AKH), 2013 WL 4517225, (S.D.N.Y. Aug. 27, 2013), District Judge Hellerstein considered that the relevant provision of the Panama Convention, under which recognition of the award was sought, allowed him the discretion to confirm an award when the nullifying judgment violated the United States’ basic notions of justice (the standard set in TermoRio). The Mexican Court had based its vacatur decision on a law that had not existed at the time the parties executed their contracts, and which left COMMISA without recourse. The US District Court therefore declined to defer to the Mexican Court and confirmed the arbitral award.

The decision provides useful guidance as to how US courts will exercise their discretion in relation to confirmation of both Panama and New York Convention awards that have been vacated at their seat. Furthermore, the case underlines the importance of selecting your arbitral seat with care.

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