Investor State Dispute Settlement (ISDS) provisions in international trade treaties grant investors covered by provisions with a right to initiate dispute settlement proceedings against foreign governments in their own right under international law.
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Traditionally, dispute settlement under international law has involved disputes between nation states. Under customary international law, a foreign investor is required to seek the resolution of such a dispute in the tribunals and/or courts of the country concerned.[1][2] Over 2000 Bilateral Investment Treaty (BIT) currently exist and they provide foreign investors with a direct means for redress against states for breaches of such treaties. A notable example is Chapter 11 of the North American Free Trade Agreement (NAFTA). NAFTA Chapter 11 allows investors of one NAFTA party (Canada, United States or Mexico) to bring claims directly against the government of another NAFTA party before an international panel of arbitrators.
Because NAFTA Article 1121 waives the local remedies rule, investors are not required to exhaust their remedies in domestic court before filing Chapter 11 claims. Investors may initiate an arbitration against the NAFTA Party under the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL Rules") or the Arbitration (Additional Facility) Rules of the International Centre for Settlement of Investment Disputes ("ICSID Additional Facility Rules"). NAFTA Chapter 11 was the first instance of an investor-state provision allowing such claims by developed nations against each other and this has caused consternation to both the United States and Canada.[3]
Much debate has arisen concerning the impact of investor-state provisions on the capacity of democratically-elected governments to implement reforms and legislative and policy programs related to public health, environmental protection and human rights.[4] Despite the fact that investor state claims (or the threat of them) can significantly inhibit the capacity of domestic governments to pass public health and environmental protection legislation, they are carried out in secret, by trade lawyers who earn income from the parties and are not accountable to the public or required to take into account broader constitutional and international law human rights norms.[5]
Under Ch. 11 of NAFTA Apotex Inc., a Canadian pharmaceuticals corporation, has alleged that U.S. courts committed errors in interpreting federal law, and that such errors were in violation of NAFTA Article 1102 (national treatment) and Article 1105 (minimum standard of treatment under international law). Apotex also alleged that the challenged US court decision in favour of the Pfizer drug company expropriated Apotex’s investments in generic versions of the antidepressant Zoloft under NAFTA Article 1110 as was manifestly unjust.[6]
Apotex relied on the doctrine that a manifestly unjust domestic legal decision breaches international law and can be viewed as a substantive denial of justice.[7] Apotex has also brought a similar claim involving US regulatory provisions concening an abbreviated new drug development application for Pravachol and patents allegedly held by Bristol Myers Squibb.[8] Apotex has two claims involving different generic products. However up to now (August 20 , 2011) the Tribunal has not decided on its own jurisdiction. Apotex withdrew its application to stay its second-filed Notice of Arbitration, without prejudice or waiver of its right to reintroduce that application after resolution of any jurisdictional issues.[1] The United States intends to defend this claim vigorously
Melvin Howard, a US citizen, on behalf of The Centurion Health Corporation and the Howard Family Trust, served Canada with a "Notice of Intent" on July 16, 2008 claiming $US160 million. Melvin Howard alleges that a proposed project, the Regent Hills Health Care Centre was treated in a manner that contravened Canada's NAFTA Chapter 11 obligations.[9] The claim alleged the Canadian government amongst other things breached its obligations under NAFTA Article 1102, directly and through Canada’s municipalities and Provinces, by not providing the US investor through clear guidance from the Government of Canada with the best treatment available to US competitors in the monopoly health care services market, and in particular, US surgical services and breached its obligations under NAFTA Article 1103 by failing to accord the Investor and its enterprises of Canada most favored nation treatment by providing treatment to Canadian Investors that is better than the treatment provided to the Claimant.[10] The claim specifically challenges that the Canada Health Act under which the federal government of Canada ensures that the provinces and territories meet certain requirements, such as free and universal access to insured health care. Accordingly, the Federal Government of Canada through the Act constitutes both a “state enterprise” and a “government monopoly” for purposes of NAFTA Articles 1502 and 1503.[11]
Chemtura Corporation (“Chemtura”), a United States agricultural pesticide products manufacturer, alleges that the Government of Canada, through its Pest Management Regulatory Agency (the “PMRA”), wrongfully terminated its pesticide business in lindane-based products, which are used on canola/rapeseed, mustard seed and cole crops to control flea beetle infestations, and on cereal crops to control wireworm. Chemtura alleges NAFTA violations of Article 1105 (minimum standard of treatment) and Article 1110 (expropriation).[12]
On August 25, 2008, Dow AgroSciences LLC, a U.S. corporation, served a Notice of Intent to Submit a Claim to Arbitration under Chapter Eleven of the NAFTA, for losses allegedly caused by a Quebec ban on the sale and certain uses of lawn pesticides containing the active ingredient 2,4-D.[13]
A multinational tobacco company is using provisions in the Australia-Hong Kong Biliateral Investment treaty (BIT) to demand compensation for Australia's Plain cigarette packaging anti-smoking legislation, despite the fact the legislation is non-discriminatory and addresses a significant public health problem.[14]
In 2011 the Gillard Australian Government announced that it would discontinue the practise of seeking inclusion of investor state dispute settlement provisions in trade agreements with developing countries. It stated that it: "supports the principle of national treatment — that foreign and domestic businesses are treated equally under the law. However, the Government does not support provisions that would confer greater legal rights on foreign businesses than those available to domestic businesses. Nor will the Government support provisions that would constrain the ability of Australian governments to make laws on social, environmental and economic matters in circumstances where those laws do not discriminate between domestic and foreign businesses. The Government has not and will not accept provisions that limit its capacity to put health warnings or plain packaging requirements on tobacco products or its ability to continue the Pharmaceutical Benefits Scheme...In the past, Australian Governments have sought the inclusion of investor-state dispute resolution procedures in trade agreements with developing countries at the behest of Australian businesses. The Gillard Government will discontinue this practice. If Australian businesses are concerned about sovereign risk in Australian trading partner countries, they will need to make their own assessments about whether they want to commit to investing in those countries...Foreign businesses investing in Australia will be entitled to the same legal protections as domestic businesses but the Gillard Government will not confer greater rights on foreign businesses through investor-state dispute resolution provisions."[15]