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Ethyl Corporation v. Canada, Award on Jurisdiction (under NAFTA/UNCITRAL)

Published online by Cambridge University Press:  27 February 2017

Alan C. Swan
Alan C. Swan*
Affiliation:
University of Miami School of Law
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Type
International Decisions
Information
American Journal of International Law , Volume 94 , Issue 1 , January 2000 , pp. 159 - 166
Copyright
Copyright © American Society of International Law 2000

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References

1 S.C. 1997, ch. 11, effective June 24, 1997.

2 Methylcyclopentadienyl manganese tricarbonyl.

3 Ethyl pointed out that production and sale of MMT in Canada was not itself prohibited. Ethyl could continue marketing MMT for use in unleaded gasoline throughout Canada by establishing a manufacturing plant and distribution facility in each of Canada's provinces. Ethyl Corp. v. Canada, Jurisdiction, nafta Ch. 11 Arb. Trib., para. 6 (June 24,1998) [hereinafterJurisdictional Decision], reprinted in 38 ILM 708 (1999).

4 Gov't of Canada, Statement of Defence, paras. 58–66, Ethyl Corp. v. Canada, Jurisdiction, supra note 3.

5 Ethyl Corporation, Notice of Intent to Submit a Claim to Arbitration Under Section B of Chapter 11 of the North American Free Trade Agreement, paras. 25–33 (Sept. 10, 1996).

6 Jurisdictional Decision, para. 7(i); see nafta, Art. 1102.

7 Jurisdictional Decision, para. 7(ii); see nafta, Art. 1106.

8 Jurisdictional Decision, para. 7(iii); see nafta, Art. 1110.

9 Jurisdictional Decision, para. 18.

10 The arbitral tribunal comprised Professor Dr. Karl-Heinz Bockstiegel (chairman, appointed by the secretary-general of the International Convention on the Settlement of Investment Disputes [ ICSID ]), Mr. Charles N. Brower (arbitrator, appointed by Ethyl), and Mr. Marc Lalonde (arbitrator, appointed by Canada).

11 Ethyl Corp. v. Canada, Place of Arbitration, nafta Ch. 11 Arb. Trib. (Nov. 28, 1997) [hereinafter Situs Decision], reprinted in 38 ILM 700 (1999).

12 Jurisdictional Decision.

13 C. Gaz, Part I, Vol. 129, No. 17 (April 29, 1995) at 1323.

14 Report of the Article 1704 Panel Concerning a Dispute Between Alberta and Canada Regarding the Manganese-Based Fuel Additives Act, Agreement on Internal Trade, Winnipeg, Manitoba, June 12, 1998, File No. 97/98–15– MMT–P058.

15 Joint press release by Industry Minister John Manly and Environment Minister Christine Stewart of Canada July 20, 1998).

16 See Report of the United Nations Commission on International Trade Law on the Work of Its Twenty-Ninth Session, UN GAOR, 51st Sess., Supp. No. 17, at para. 52, UN Doc. A/51/17 (1996).

17 Situs Decision at 10, 38 ILM 706.

18 Jurisdictional Decision, para. 46.

19 Canada also argued that the Statement of Claim “introduced an inadmissible new claim”; although the MMT Act was a “measure” when Ethyl submitted that Statement to the arbitrators on October 2, 1997, it was not a “measure” when Ethyl's Notice of Arbitration was filed on April 14, 1997. Id., para. 44.

20 Id., para. 65.

21 Id., paras. 66–67. The Tribunal also found that the Canadian position was reinforced by Articles 1803 and 2004 of nafta. The effect is that state parties to nafta could complain about “proposed legislation,” but an investor making a claim under Chapter 11 could not. Quite apart from nafta this difference in treatment has some merit. Many bills introduced into democratic legislatures—including at least some government bills, even in parliamentary systems—die buried in some crevice of the legislative process and have no direct legal effect on the rights, obligations, and property of foreign investors. Canada's limited definition of a “measure”—a definition concurred in by the Tribunal—reflects this important difference.

22 These events included the government's initiating the idea for the MMT Act in 1994; the first and second reading of the original bill (C-94); the proroguing of Parliament followed by the reinstatement of C-94 as C-29 (the bill that was subsequently enacted); the new Parliament's being “persuaded by the government to pick up where the previous one had left off,” so that, instead of starting all over, C-29 was given only a third reading and passed; thereafter, the prompt introduction of the bill in the Senate (which, experts advised the Tribunal, “generally concurs in House action”); and finally, submission by Ethyl of its claim to arbitration (delivery of its Notice of Arbitration) on April 14,1997, after C-29 had passed the Senate and only awaited the Royal Assent (which, the Tribunal was advised, “is granted as a matter of course once the Government has requested it”). Id., para. 69.

23 Id., para. 68.

24 Id., para. 69.

25 Id., para. 87.

26 Under nafta, Art. 1119, an investor is required to deliver to the disputing Party “written notice of its intention to submit a claim to arbitration at least 90 days before the claim is submitted,” identifying “the provisions of [nafta] alleged to have been breached.” Since there could be no breach of which Ethyl might complain unul the MMT Act received the Royal Assent (April 25, 1997), Ethyl's purported Notice of Intent filed seven and a half months earlier (September 10, 1996) was, according to Canada, utterly void. In response, the Tribunal contented itself with noting that seven months had elapsed between Ethyl's Notice of Intent and its submission to arbitration through filing its Notice of Arbitration. “Thus,” it concluded, “the former was delivered ‘at least 90 days before’ the latter as required by art. 1119.” The Tribunal then added the observation that “Canada's only objection … is that it appears to question the effectiveness of the Notice of Intent.” Plainly, if there was any technical defect in the timing of the Notice of Intent, that defect was totally insubstantial. The purpose of the notice had been fully served without prejudice to Canada. Not surprisingly, therefore, the Tribunal concluded that dismissal of the complaint on these grounds would gravely “disserve, rather than serve, the object and purpose of nafta.” Jurisdictional Decision, paras. 79–80.

27 nafta, Art. 1120.

28 Jurisdictional Decision, para. 83.

29 Id., para. 84.

30 Id., paras. 85–86. It is at this point that the Tribunal drops its intriguing footnote discussed at infra note 35.

31 Id., para. 90.

32 Id., paras. 88, 92, 96(3).

33 Vienna Convention on the Law of Treaties, May 23, 1969, 1155 UNTS 331, reprinted in 8 ILM 679 (1969) (entered into force January 27, 1980) [hereinafter Vienna Convention]. Canada is a party to the Vienna Convention; the United States is not. The United States accepts the Convention, however, as a correct statement of customary international law. See cases cited at Jurisdictional Decision, n.18.

34 These supplemental sources may also be used to confirm conclusions reached under Art. 31.

35 The Tribunal fully acknowledged that dismissal of Canada's challenge required it to move from Article 31 to Article 32. In explaining this move, however, the Tribunal fails (in this writer's view) to take the credit it properly deserves. Thus, in connection with rejecting Canada's arguments that Ethyl had failed to meet the requirements of nafta Articles 1119 and 1120, the Tribunal adds a footnote stating:

Specifically, the Tribunal concludes that this [denial] results from interpreting … [Articles 1119 and 1120] in good faith in accordance with the ordinary meaning to be given to the terms thereof in their context and in the light of the object and purpose of nafta, as prescribed by Article 31 of the Vienna Convention and that, considering particularly the circumstances of nafta's conclusion, any different interpretation would lead to a result which is manifestly absurd or unreasonable within the meaning of Article 32 of the Vienna Convention.

Jurisdictional Decision, para. 85 n.34 (emphasis added). This explanation does not take into account the Tribunal's own innovative interjection of questions that cast a shadow of indeterminacy (ambiguity) over the otherwise straightforward conclusions drawn by Canada on the basis of the narrow interpretive strictures of Article 31. In fact, the Tribunal's insistence on attributing its use of Article 32 to the “unreasonable or absurd” results yielded by Article 31 would not strengthen the Chapter 11 process. If they followed the Tribunal's description of its own method, arbitrators intent upon testing the “ordinary meaning” derived from the limited strictures of Article 31 against such meaning as might emerge under the more generous formulations of Article 32 would be compelled either to label the party's arguments as “unreasonable or absurd,” or to abandon all pretense at following the Vienna Convention. By its terms Article 32 is not so limited; unreasonableness and absurdity were intended, and should remain, only for cases in which the results derived from “ordinary meaning” are truly bizarre or incomprehensible.

36 Id., para. 58.

37 Id., para. 60 (emphasis added).

38 Indeed, the Tribunal went one step further to question Canada's reading of what constitutes a submission to arbitration. Article 1121 (3) states that the consent and waiver must “be included in the submission of a claim.” The Tribunal characterized this phrase as “itself a broadly encompassing concept” to be contrasted with the words “shall be included with the Notice of Arbitration” that the drafters would have used had they intended Canada's preferred interpretation. Id., paras. 90–91. In so doing, the Tribunal largely ignores Article 1137, which defines “submission of a claim to Arbitration” as delivery of the uncitral Notice of Arbitration.

39 Id., paras. 74–75.

40 Id., paras. 85–86. It is at this point that the Tribunal adds the footnote discussed at supra note 35.

41 A second issue was whether extraterritorial damages could be included in Ethyl's claim for compensation. Canada argued that even if the MMT Act was a “measure tantamount to an expropriation” within the meaning of Article 1110, Ethyl could not claim damages for losses caused by that measure outside Canadian territory. After observing that under nafta, the expropriatory acts had to take place within Canadian territory, the Tribunal took note of Ethyl's argument that damages incurred outside Canadian territory were fully compensable if caused by expropriatory actions within Canada: the question posed by this argument, the Tribunal concluded, was a substantive one and could only be “considered” in the “context of the merits.” Id., paras. 70–73.

42 Chapter 3 of nafta pertains to trade in goods. Its principal functions are twofold. From time to time, under the aegis of that chapter, the state-parties to nafta negotiate and record reciprocal reductions in tariffs and other barriers to imports of goods from each other. The design is to facilitate access by goods from one member to markets in another member. The second function is to prescribe a set of rules governing commercial policy that are, by and large, designed to preserve the integrity of market-access commitments. Among the most important of these rules is the “national treatment” requirement. A member state may not use internal regulations or taxes as a device for discriminating against imports and protecting domestic products. The difference between Chapter 3 and Chapter 11, however, is that Chapter 3 has no provision authorizing private firms to adjudicate a claim that they were injured by a member state's violation of the “national treatment” requirement in Chapter 3. Indeed, under the nafta Implementation Act (see infra note 44), U.S. courts are expressly foreclosed from entertaining any such suit. The only recourse for a violation of Chapter 3 is through the government-to-government dispute-settlement procedures set forth in Chapter 20 of nafta—procedures over which the injured private party is likely to have little control.

43 The case was made subject to a “confidentiality order” issued by the arbitral tribunal on July 2, 1998 (reprinted at 38 ILM 736). The order required that all submissions by the parties and transcripts of all hearings be kept confidential except that the Parties, in their discretion, might disclose (1) the Notice of Intent, (2) the Notice of Arbitration, (3) the Statement of Claim, and (4) the Statement of Defense. On request, copies of these latter documents were very generously made available to the author by the Canadian government.

44 See section 102(c) of the NAFTA Implementation Act, Pub. L. No. 103–182, 107 Stat. 2063 (1993) (codified at 19 U.S.C. § 3312 (1999). In addition, the Executive Statement of Administrative Action accompanying submission to Congress of the NAFTA Implementation Act (Release 94-1, Oceana Publications, February 1994, at 13) explains section 102(c) as follows:

Section 102(c) of the implementing bill precludes any private right of action or remedy against a federal, state or local government, or against a private party, based on the provisions of the nafta, or of the labor or environmental supplemental agreements. A private party thus could not sue (or defend a suit against) the United States, a state or a private party on grounds of consistency (or inconsistency) with the nafta….. With respect to the states, section 102 (c) represents a determination by the Congress and the Administration that private lawsuits are not an appropriate means for ensuring state compliance with the nafta, or the two supplemental agreements…. Section 102(c), [however], does not preclude a private party from seeking to enforce an Award, against the United States issued pursuant to the investor-state arbitration provisions of Chapter Eleven (Investment) of the Agreement.

45 In no other multilateral agreement of the United States relating to investments, intellectual property, or trade in goods or services are private parties empowered to make a governmental party account in an adjudicative proceeding for its failure to comply with the agreement.

46 A comparable problem of some note arises out of Ethyl's claim that the interprovincial sales prohibition of the MMT Act violated the “national treatment” requirement of Article 1102. The latter stipulates that “investors” and their “investments” must receive the same treatment as domestic investors “with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.” Presumably, this provision does not mean that every foreign investor must receive treatment identical to the least intrusive regulatory or taxing regime applicable to domestic firms without regard to whether the foreign investor and the domestic firms have some competitive or other relationship. Article 1102 would not, for example, require Canada to extend to an American steel producer the same tax treatment or employee safety standards as it applied to fast-food restaurants. What relationship must be established between the foreign investor and the domestic investor? It may be enough to establish that they are competitors in the market. But that could raise problems where, as in the Ethyl Corp. v. Canada, the regulation being challenged pertains to trade in goods. In that context, nafta has some very specific rules under which equality of treatment required by the national treatment clause applies only in the case of “like” products. Article 301(1) of nafta stipulates that each nafta party shall “accord national treatment to the goods of another Party in accordance with Article III of the General Agreement on Tariffs and Trade (GATT)” (emphasis added), which is then declared to be incorporated into NAFTA. The applicable provisions of GATT (Article 111(4)) apply only to “like” products, a much narrower category than “competitive” products. See WTO Appellate Bodyjapan—Taxes on Alcoholic Beverages, October 4, 1996, WT/DS8/AB/R,WT/DS10/AB/R, WT/DS11/AB/R. If, then, as Ethyl's Statement of Claim intimates, Ethyl is the only producer of MMT in Canada, and if no competitive product of Canadian origin (for example, ethanol) can qualify as a “like” product, Ethyl's case would depend entirely upon reading “national treatment” when applied to an investor's trade in goods (Article 11) as far broader and more intrusive on national regulatory autonomy than “national treatment” when applied to trade in goods generally (Article 3).