Enter to open, tab to navigate, enter to select
NAFTA jurisdiction depends on existence of foreign investment
Practical Law UK Legal Update Case Report 7-504-8932 (Approx. 3 pages)
NAFTA jurisdiction depends on existence of foreign investment
by PLC Arbitration
| Published on 23 Feb 2011 • International, USA (National/Federal) |
In Grand River Enterprises Six Nations Ltd v USA (award dated 12 January 2011 but only just published), a tribunal constituted under the UNCITRAL rules confirmed that only foreign investments fall within the dispute resolution provisions of NAFTA.
A tribunal constituted under the UNCITRAL Arbitration Rules to determine claims advanced under NAFTA found that it did not have jurisdiction over certain claims advanced against the USA. The tribunal drew a distinction between two classes of claimant in this regard:
- Canadian claimants engaged in the manufacture of cigarettes in Canada for export to the US (the manufacturers).
- A Canadian claimant who carried on substantial business in the US by importing and distributing Canadian-manufactured cigarettes in the US (the importer).
The tribunal held that it was necessary to establish a "foreign" investment in the territory of the respondent state. It followed that the tribunal had jurisdiction only over the claims of the importer.
Although Chapter 11 of NAFTA does not itself expressly require a claimant to establish a "foreign" investment, the tribunal followed two previous decisions of NAFTA tribunals in reaching its decision, and the requirement must now be accepted as well established.
Chapter 11 of NAFTA contains provisions relating to investment. The scope of Chapter 11 is defined in Article 1101, which provides that it applies:
"to measures adopted or maintained by a Party relating to
(a) investors of another Party; and
(b) investments of investors of another Party in the territory of the Party..."
Article 1139 defines "investors of a Party" as meaning:
"a Party or state enterprise thereof, or a national or an enterprise of such Party, that seeks to make, is making or has made an investment."
Although neither Article 1101 nor Article 1139 expressly exclude purely domestic investments, prior NAFTA tribunals have held that Chapter 11 applies only to investors of one NAFTA party who invest in another NAFTA party (see The Canadian Cattlemen for Fair Trade v US (Award on jurisdiction), discussed in Legal update, NAFTA chapter 11 does not protect domestic investments and Bayview Irrigation District v Mexico (ICSID Case No ARB(AF)/05/1), discussed in Legal update, NAFTA Chapter 11 applies only to foreign investments).
While recognising that no formal system of precedent applied, the tribunal found the reasoning in those cases was persuasive. The positions of the manufacturers and the importer were entirely different: the manufacturers' investment was based in Canada (and therefore did not qualify for NAFTA protection) whereas that of the importer was based in the US and fell within the scope of NAFTA.
As the tribunal noted, decisions on the meaning of "investment" for the purposes of establishing NAFTA jurisdiction are relatively unusual. However, it must now be taken as well established that only "foreign" investments qualify for these purposes.