On 26 February 2001, the Claimant filed written submissions on the issue of the place of arbitration, requesting the Tribunal to designate Montreal, in the province of Quebec, Canada, as the place of arbitration. On 19 March 2001, the Respondent filed a submission on place of arbitration, asking the Tribunal to designate Washington, D.C., USA, as the place of arbitration. The Claimant on 2 April 2001, filed a reply to the submission of the Respondent on the place of arbitration and on 16 April 2001, the Respondent filed its final observations on this matter.
The Tribunal considered the submissions of the parties including specifically their reference to:
(a) Article 1130(a) of NAFTA that requires the arbitration to be held in the territory of a Party to the New York Convention.
(b) Articles 20 and 21 of ICSID Arbitration (Additional Facility) Rules that require, inter alia: the arbitration to be held in a State Party to the New York Convention; and the Tribunal to determine the place of arbitration after consultation "with the Secretariat and parties."
(c) Article 16 of the UNCITRAL Rules including paragraph 22 of the related UNCITRAL Notes on Organizing Arbitral Proceedings ("UNCITRAL Notes") that enumerate factual and legal factors which "influence the choice of the place of arbitration" although the importance of each "varies from case to case." These factors are (1) suitability of the law on arbitral procedure of the place of arbitration; (2) whether there is a multilateral or bilateral treaty on enforcement of arbitral awards between the State where the arbitration takes place and the State or States where the award may have to be enforced; (3) convenience of the parties and the arbitrators, including the travel distances; (4) availability and cost of support services needed; and (5) location of the subject-matter in dispute and proximity to evidence.
"(i) protects the integrity of, and gives effect to, the parties' arbitration agreement;
(ii) accords broad discretion to the parties and to the arbitrators to determine and control the conduct of arbitration proceedings;
(iii) provides for the availability of interim measures of protection and of means of compelling the production of documents and other evidence and the attendance of reluctant witnesses;
(iv) consistently recognizes and enforces international arbitral awards, in accordance with the terms of widely accepted conventions concerning the enforcement of such awards; and
(v) insists on principled restraint in establishing grounds for reviewing and setting aside international arbitral awards."
The Claimant also argued the distinction between two aspects of lex arbitri: (a) recognition and enforcement of arbitral awards and (b) review by courts of the locus arbitri of such awards in actions to modify or set aside and vacate those awards. According to the Claimant, Article 1136(7) of NAFTA that deems Chapter 11 arbitration as "commercial" for purposes of Article I of the New York Convention, might not reach actions to set aside Chapter 11 awards where the domestic review remedies were limited to awards in commercial arbitration.3 While the Canadian Federal Commercial Arbitration Act was specifically amended to provide for such, the U.S. had not made any similar amendment to its own statute. Accordingly, the Claimant characterized the U.S. law in the matter as unclear and uncertain with respect to post-award litigation rendering U.S. arbitration laws unsuitable.
See Claimant's Reply at para. 17.
The Tribunal noted that, after the parties' submissions, the case of United Mexican States v. Metalclad was decided on 2 May 2001 by the Supreme Court of British Columbia. That Court held that the applicable standard of review was that obtaining under the British Columbia International Commercial Arbitration Act ("ICAA") which closely follows the UNCITRAL model law. In considering that standard, the Supreme Court of British Columbia referred to Quintette Coal Ltd. v. Nippon Steel Corp.  1 W.W.R. 219 (BCCA). In that case, decided under the ICAA Section 34, the majority of the court commented on the standard of review in the following terms:
"It is important to parties to future such arbitrations and to the integrity of the process itself that the court express its views on the degree of deference to be accorded the decision of the arbitrators. The reasons advanced in the case discussed above for restraint in the exercise of judicial review are highly persuasive. The 'concerns of international comity, respect for the capacities of foreign and international Tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes' spoken of by Blackman J. [in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc., 473 U.S. 614 (1985)] are as compelling in this jurisdiction as they are in the United States or elsewhere. It is needed therefore, as a matter of policy, to adopt a standard which seeks to preserve the autonomy of the forum selected by the parties and to minimize judicial intervention when reviewing international commercial arbitral awards in British Columbia (p. 229)."
The U.S. stressed that suitable procedures for review of Chapter 11 awards are available under both U.S. federal and District of Columbia laws regardless of whether or not the award is deemed commercial. The U.S. specifically stated that Section 10 of the U.S. Federal Arbitration Act (9 U.S.C. 208, Chapter 1 of the FAA) governing vacature of awards, would apply to Chapter 11 awards made in the United States.6
Respondent's Final Observations, p. 4 and footnote 2.
The Claimant asked the Tribunal to require the Respondent to produce and communicate certain documents grouped under nine categories best presented in the Claimant's own words:
"(A) The administrative file held by the United States and those held by Virginia relating to the supply of steel to the Springfield Interchange Project by ADF Group Inc. and ADF International Inc. ('Investment'), including, but without limiting the generality of the foregoing:
1) All records relating to the 'Main Contract', and the 'Shirley/ADF Sub-Contract,' as those terms are defined in the Notice of Arbitration filed by the Investor ('Notice');
2) All records prepared by or on behalf of the United States or by or on behalf of Virginia relating to the scope and meaning of the Buy America provisions found at Section 165 of the STAA (1982), Pub. L. 97-424, 23 CFR 635,410 and to the scope and meaning of Special Provision 102.5 of the Main Contract;
3) All records (including correspondence between the United States and the State of Virginia) relating in whole or in part to the supply of steel to the Springfield Interchange Project;
4) All correspondence between the United States and Virginia relating in whole or in part to the Special Provision 102.5 of the Main Contract.
(B) The administrative files held by the U.S. Department of Transport or the Federal Highway Administration relating to the consideration, development, drafting, approval and adoption of the Final Rule of the Federal Highway Administration concerning Buy America Requirements (23 CFR Part 635) which was published in Volume 48, No. 228 of the Federal Register dated November 25, 1983.
(C) All records prepared by or on behalf of the Office of the United States Trade Representative, the Department of State or the Department of Transport, or any agencies thereof relating in whole or in part to the impact of the North American Free Trade Agreement ('NAFTA') on Buy America requirements, including, but without limiting the generality of the foregoing.
1) All records relating to the Buy America and Buy American requirements and policies and laws as those requirements and policies and laws relate or are affected by NAFTA;
2) All records relating to the impact of the implementation of NAFTA on Tea-21, Pub. L. 105-178, Section 165 of the STAA (1982), Pub. L. 97-424 and 23 CFR 635,410.
(D) The administrative file in the following cases, including all the administration records in all appeals taken from these cases and all pleadings submitted by the parties:
1) S. J. Amoroso Construction Co., Inc. v. The United States, 26 Cl. Ct. 759 (1992), aff. 12 F. 3d 1072 (United States Court of Appeals);
2) Wright Contracting, Inc., ASBCA Nos. 39120, 39121, 91-1 B.C.A. P23, 649 (1990); and
3) Decision of the Comptroller General, B-167635 (1969) U.S. Comp. Gen. Lexis 2267;
(E) All records relating to every instance within the last ten years wherein federal funding for a highway project (including bridges and tunnels) has been withheld from or denied to a Department of Transport of any State of the United States ('State') or any agency thereof as a result of the application of any Buy America provisions.
(F) All documents used to report to or inform members of Congress, the President of the United States on the application of Buy America provisions to federally funded highway contracts and the impact of NAFTA on those provisions.
(G) A complete list of highway contracts and/or highway projects, listed by State, which have been approved for funding under Tea-21, Pub. L. 105-178 or which are currently under consideration to receive funding under Tea-21, Pub. L. 105-178, along with a list of the amount of the funding for each such contract or project.
(H) A list of all national and regional waivers of the provisions of Buy America requirements which have been granted within the last ten years under 23 CFR 635,410(c), along with the record which provides the administrative rationale for granting such a waiver and the reports to Congress made during the last ten years in compliance with Section 165(e) of the Surface Transportation Assistance Act of 1982.
(I) All pleadings filed by the United States in NAFTA Chapter 11 proceedings to date." (Motion, pp. 9-10)
"The first aspect relates to a substantive inquiry into whether the documents requested are relevant to, and in that sense necessary for, the purposes of the proceedings where the documents are expected to be used. Inquiry into the relevancy of the documents requested needs to be done on a category by category basis.
"The second aspect concerns a procedural inquiry into the effective and equal availability of the documents requested to both the requesting party and the party requested. Where only one party has access to requested documents relevant to the proceeding at hand, we consider that the party with access should be required to make the documents available to the other party. Where, however, the documents requested are in the public domain and equally and effectively available to both parties, we believe that there would be no necessity for requiring the other party physically to produce and deliver the documents to the former for inspection and copying. Where, however, the requesting party shows it would sustain undue burden or expense in accessing the publicly available material, the other party should be required to produce and deliver the documents."
The Tribunal then sketched out the application of the above principles to the Claimant's motion:
"In the present case, where the Respondent identifies the particular government office at which the documents are in fact available to the Claimant or its representatives, as members of the general public, the Respondent will, in principle, have produced the documents requested within the meaning of Article 41(2) of the ICSID [Arbitration (Additional Facility)] Rules. The Respondent should also provide the document reference numbers, and any other data, necessary to enable the official custodians of the documents to identify and locate them physically or in electronic data bases, with reasonable dispatch. There may be other administrative details that may need to be attended to by the Respondent (e.g., phone calls to the document custodians) to ensure the Claimant's effective and prompt access to the documents. The Respondent would be reasonably expected to provide such necessary and appropriate assistance, without having to deliver the documents physically to the Claimant. The appropriate assumption in every case is that, both parties having proceeded to international arbitration in good faith, neither would withhold documents for its own benefit and that good faith will render any practical problems of document production susceptible of prompt resolution without undue hardship or expense on either party."
The principles which the Tribunal outlined are in line with the procedure and practice in the District of Columbia and the caselaw under the U.S. Federal Rules of Civil Procedure (FRCP), both of which form part of the lex arbitri in the present case:
"Under Rule 34(b) of the FRCP, the requirement to produce a document is a requirement to make the requested document available for inspection and copying at a reasonable time and place. Federal courts in the United States have held that a court may refuse to order production of documents of public record that are equally accessible to all parties (See Moore's Federal Practice (Third Edition) at 34-46; e.g., Dushkin Publishing Group, Inc. v. Kinko's Service Corporation, 134 FRD 334, 335 (DDC); SEC v. Samuel H. Sloan & Co., 369 Fed. Supp. 994, 995-6 (SDNY 1973); Hoffman v. Charnita, 17 Federal Rules Service 2D 1215, 1217 (W.D. Penn. 1973). It has also been held that production from the adverse party may be ordered if the requesting party could demonstrate that it would be 'excessively burdensome for financial and other reasons' for the requesting party to obtain documents from a public source other than from the opposing party who has them in their files (e.g., Snowden v. Connaught Laboratory, Inc., 137 FRD 325, 333 (D. Kan., 1991)."
Shirley, as main contractor, in turn issued a request for bids covering certain parts of the Project Phases awarded to Shirley, including the supply of the structural steel requirements of those parts of the Project. ADF International Inc. (ADF International) submitted the lowest bid and Shirley and ADF International, on 19 March 1999, signed a Sub-Contract for the supply and delivery by the latter of "all structural steel components for nine (9) bridges" (Sub-Contract). "Structural steel components" are described in this Sub-Contract as "includ[ing] but—not limited to continuous plate girders, cross frames, diaphragms, splice plates, loose angles and plates, connection angles and plates, galvanized bolts for field erection, galvanized bolts for steel to steel connections required for completing the work."12 The Sub-Contract provided inter alia that:
"All materials supplied by ADF International Inc. to be in accordance with the Plans, Specifications, Contract Documents and Supplemental Specifications. Subcontractor specifically acknowledges Section 102c of the Special Provisions regarding the Use of Domestic Material."13
The Subcontract also referred to the materials to be supplied by ADF International as "fabricated structural steel and accessories"14 which had to include a shop primer coat of paint at each bearing location.15 The Sub-Contract further required that, before payments are made therefore, "the structural steel materials and fabricated units" shall have been tested or certified and found acceptable.16
Para. 2 of Exhibit B of Sub-Contract, Vol. I, Materials and Cases, A and B, Tab. B- 3, appended to Claimant's Memorial.
Id. para. 4.
Id. para. 5, and Unit Price Schedule.
Id. para. 5.
Id. para. 10.
"Structural steel fabrication for bridges principally involves the production of custom steel girders. Fabrication transforms functionally unusable flat plate shapes into load-carrying structural plate girders. The fabricator begins with long, flexible sheets of steel produced by a steel mill. Using special equipment, the fabricator cuts the steel into plates of the specified length. It then welds the plates into the familiar "I" shape, which transforms the wobbly plates into a rigid girder capable of carrying massive loads. Virginia, like many other places, approves only flawlessly welded girders for use in highway projects. The fabricator then custom-fits the girder for its intended use, bolting or welding elements to hold it securely in place atop piers or abutments at the bridge site. The girders to be painted are then blast-cleaned to remove rust and dirt, inspected and coated to protect the structural steel from weather and other conditions."17
"ADF [International] proposes to perform in Canada cutting, welding, punching/reaming holes, and milling on steel product produced in the United States. The fabricated U.S.-origin steel product which has been subjected to these processes will then be shipped to the construction site and will be used in construction of the I-95 Springfield Interchange."18
"Based on the Department's, the Attorney General's, and the Federal Highway Administration's interpretation, Special Provision for Section 102.05 and 23 CFR 635,410 refers to all manufacturing processes involved in the production of steel or iron manufactured products. This means smelting or any subsequent process that alters the materials physical form, shape or chemical composition. These processes include rolling, extruding, machining, bending, grinding, drilling, and the application of various types of coating.
The manufacturing process is not considered complete until all grinding, drilling and finishing of steel or iron material has been accomplished. As proposed, the additional processes that are to be performed in Canada are necessary to turn steel into a product suitable to be installed in the project. As such, they fall under the aforementioned provision and are not allowable under this contract."19
On 25 June 1999, ADF International requested Shirley to seek a waiver from VDOT of the Buy America requirements. ADF International wrote that
"ADF cannot perform the fabrication work at its facility in Florida. While the Florida facility is large, it does not have heavy lifting capacity to handle the steel for this job. In addition, as is the case with all U.S. fabricators, the ADF facility is fully loaded.
We are unable to locate a steel fabricator who is capable of performing the work in the U.S. within the required time frame.
We understand that all fabricators capable of performing the work are fully loaded."22
ADF International also stressed the public interest in completing the Project on time, urging that the interstate highway system—of which the Springfield Interchange was an important part—served "local needs, interstate commerce and national and civil defense." These interests, in the view of ADF International, "will be promoted by permitting the timely completion of the [P]roject through the grant of a waiver" and "prejudiced by any delay in the [P]roject caused by a refusal to grant a waiver."23
Letter of Mr. P. Paschini, ADF International, to Mr. M. E. Post, Shirley, dated 25 June 1999, pp. 3-4; Investor's Materials and Cases, Vol. I—A and B, Tab. A-7.
Id. pp. 4-6.
The United States measures about which the Claimant complains in the present case comprise three tiers of legal provisions: (a) legislative statutory provisions promulgated in 1982; (b) implementing administrative regulations promulgated in 1983; and (c) contractual provisions embodying the administrative regulations and applying them in a particular highway construction or improvement project, e.g., the Springfield Project. The first tier consists of Section 165(a) to (d) of the Surface Transportation Assistance Act of 1982 (Section 165, STAA of 1982) as it stood on the filing of the Notice of Intention to Submit a Claim to Arbitration dated 29 February 2000. Section 165 provides in pertinent part:
"(a) Notwithstanding any other provision of law, the Secretary of Transportation shall not obligate any funds authorized to be appropriated by this Act, or by any Act amended by this Act or, after the date of enactment of this Act, any funds authorized to be appropriated to carry out this Act, Title 23, United States Code, Federal Transit Act, or the Surface Transportation Assistance Act of 1978 and administered by the Department of Transportation, unless steel, iron, and manufactured products used in such project are produced in the United States.
(b) The provisions of subsection (a) of this section shall not apply where the Secretary finds—
(1) that their application would be inconsistent with the public interest;
(2) that such materials and products are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality; or
(4) that inclusion of domestic material will increase the cost of the overall project contract by more than 10 per-centum in the case of projects for the acquisition of rolling stock, and 25 percentum in the case of all other projects;..."29 (Emphases added)
23 USCA sec. 101; Vol. II—Investor's Materials and Cases, A.1, Tab. A-4. The full text of Section 165 of the STAA of 1982, as currently amended, is also quoted in the Investor's Memorial, para. 47.
The second tier of provisions consists primarily of 23 CFR Section 635,410, entitled "Buy America requirements," the regulations issued by the FHWA, Department of Transportation, for the implementation of Section 165, the first tier statutory provisions. The portions of 23 CFR 635,410 pertinent for present purposes are the following:
"Sec. 635,410 Buy America requirements.
(b) No federal-aid highway construction project is to be authorized for advertisement or otherwise authorized to proceed unless at least one of the following requirements is met:
(1) The project either: (i) includes no permanently incorporated steel or iron materials, or (ii) if steel or iron materials are to be used, all manufacturing processes, including application of a coating, for these materials must occur in the United States. Coating includes all processes which protect or enhance the value of the material to which the coating is applied.
(2) The State has standard contract provisions that require the use of domestic materials and products, including steel and iron materials, to the same or greater extent as the provisions set forth in this section.
(4) When steel and iron materials are used in a project, the requirements of this section do not prevent a minimal use of foreign steel and iron materials, if the cost of such materials used does not exceed one-tenth of one percent (0.1 percent) of the total contract cost or $2500, whichever is greater. For purposes of this paragraph, the cost is that shown to be the value of the iron and steel products as they are delivered to the project.
(1) A State may request a waiver of the provisions of this section if:
(i) The application of those provisions would be inconsistent with the public interest; or
(ii) Steel and iron materials/ products are not produced in the United States in sufficient and reasonably available quantities which are of a satisfactory quality.."30 (Emphases added)
23 CFR 635,410; id. Tab. A-7. The full text of 23 CFR 635,410, as currently amended, is also quoted in the Investor's Memorial, para. 53.
The third tier of provisions consists of "Special Provision for 102C— Use of Domestic Material" (Section 102.05) which is a contractual provision, being (as noted earlier) built into the Main Contract between VDOT and Shirley and incorporated by reference into the Sub-Contract between Shirley and ADF International. The pertinent part of Section 102.05 is quoted below:
... Except as otherwise specified, all iron and steel products (including miscellaneous steel items such as fasteners, nuts, bolts and washers) incorporated for use on this project shall be produced in the United States of America; unless the use of any such items will increase the cost of the overall project by more than 25%. 'Produced in the United States of America' means all manufacturing processes whereby a raw material or a reduced iron ore material is changed, altered or transformed into an item or product which, because of the process, is different from the original material, must occur in one of the 50 States, the District of Columbia, Puerto Rico or in the territories and possessions of the United States. Raw materials such as iron ore, pig iron, processed, pelletized and reduced iron ore and other raw materials used in steel products may, however, be imported. All iron and steel items will be classified hereinafter as 'domestic' or 'foreign', identified by and subject to the provisions herein. In the event use of the aforementioned 'domestic' iron and steel will increase the cost of the overall project by more than 25%, the Contractor may furnish either 'domestic' or 'foreign' items.."31 (Emphases added)
The Investor explicitly stated, and the Respondent has not disputed, that Section 102.05 formed part of the Main Contract and the Sub-Contract because of the force and effect of 23 CFR 635,410, the FHWA regulation implementing Section 165 of the 1982 STAA of the U.S. Congress.32 VDOT included special provision 102C in VDOT's "Road and Bridge Specifications" as of 3 May 1995; and those "Road and Bridge Specifications" as of 1 January 1997 also required, under paragraph 107.01, that all federal and state laws be observed. Further, the Shirley/ADF Sub-Contract provides that the subcontractor "specifically acknowledges Section 102C of the special provisions regarding the use of domestic material."33 The Commonwealth of Virginia has no statute or regulation of its own prescribing any preference for domestic (U.S. or Virginia) steel materials and products in Virginia highway construction projects.
Text quoted in extenso in Investor's Memorial, p. 4; Material and Cases Appended to Investor's Memorial, Vol.I—A and B, Tab-B(1) excerpts from main contract containing VDOT Section 102.5; Tab B(3) Shirley/ADF subcontract, paragraph 12, incorporating Exhibit B, paragraph 4 providing that contractor acknowledges domestic content requirements of Section 102.
Investor's Memorial, para. 6; Respondent's Counter-Memorial on Competence and Liability, pp. 14-18.
In Tab B(3), Exhibit B, para. 4; supra note 31.
"Article 1102: National Treatment
Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.
Each Party shall accord to investments of investors of another Party treatment no less favorable than that it accords, in like circumstances, to investments of its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.."
Article 1102, the Investor argues, "has extended the principle against discrimination in trade in goods to cover investors and their investments."41 Article 1102 must be viewed in its context which consists of a free trade agreement designed to encourage the free flow of goods, services and investments within the NAFTA area.42 Upon the other hand, the Congressional intent underlying the U.S. measures in question is "unequivocal: it is to favor the output of U.S. enterprises over [that of] non-U.S. enterprises and thereby to favor U.S. enterprises over non-U.S. enterprises." (Emphasis and brackets added)43 The U.S. measures are, in the Investor's submission, "de jure ('on their face') discriminatory," and "protectionist," treating non-U.S. investors and their investments less favorably than U.S. investors and their investments."44
Id. para. 135.
Id. para. 138. Article 102(1) of NAFTA sets out the objectives of NAFTA which are, inter alia, to:
"(a) eliminate barriers to trade in, and facilitate the cross-border movement of goods and services between the territories of the Parties;
(b) promote conditions of fair competition in the free trade area; [and]
(c) increase substantially investment opportunities in the territories of the parties;."
Investor's Memorial, para. 147.
Id. paras. 146, 208.
To the Claimant, Article 1105(1) does not simply prohibit treatment of investments of another Party's investors which constitutes "egregious conduct," but rather prohibits "any treatment that is not in itself 'fair' and 'equitable' or which does not provide 'full protection and security'."54 The international law referred to in Article 1105(1) establishes and projects "fair and equitable treatment" and the providing of "full protection and security" as positive legal requirements, against which the treatment accorded by the United States to the Investor and its investments may be evaluated by the Tribunal.
Id. para. 243.
The Investor contends that the U.S. measures here in question fail to come up to those legal requirements in a variety of ways. First, the Buy America provision in Section 165 of the STAA of 1982 as amended is "per se unfair and inequitable within the context of NAFTA."55 Second, the Buy America provision fails adequately to control the discretionary authority of the FHWA, which agency "applies the law as it sees fit, irrespective of the text of Section 165." Section 165 hence does not accord "full protection and security" to investors of another Party.56 Third, the application of the Buy America provision to the Investor arbitrarily dissolves the "legitimate expectations" created by previous decisions of U.S. courts and administrative agencies "with respect to 'buy national' policies."57 The Investor also complains about "the procedures used by the U.S. to adopt the [administrative] regulations in question" as violative of the requirements of Article 1105(1) and the Albanian and Estonian BITs with the U.S.58 It is less than clear, however, whether this complaint is not already covered by the second or the third specification of the Investor. Finally, after having undertaken to exclude the Buy America provision from Federal Government procurement under Chapter 10 of NAFTA, the U.S. should not "indirectly force states to apply [that provision]." Allowing states to pursue Buy America policies is one thing; it is quite another thing actively to "forc[e] them to do so."59
Id. para. 249.
Id. para. 251.
Investor's Reply to the Counter-Memorial of the United States on Competence and Liability (Investor's Reply), para. 283.
Investor's Memorial., para. 255.
On 31 July 2001, a day before the submission by the Claimant of its Memorial dated 1 August 2001, the NAFTA Free Trade Commission (FTC) issued its "Notes of Interpretation of Certain Chapter XI Provisions" (FTC Interpretation), signed for their respective Governments by the United States Trade Representative, the Mexican Secretary of Economy and the Canadian Minister for International Trade. The FTC Interpretation, which was also on 31 July 2001, forwarded to the Tribunal by the Respondent,60 addressed certain articles of the NAFTA, including Article 1105(1):
"B. Minimum Standard of Treatment in Accordance with International Law
1. Article 1105(1) prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to investors of another Party.
2. The concepts of 'fair and equitable treatment' and 'full protection and security' do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens.
3. A determination that there has been a breach of another provision of the NAFTA, or of a separate international agreement, does not establish that there has been a breach of Article 1105(1)."
Letter, dated August 3, 2001, of the Secretary of the Tribunal to the Members of the Tribunal.
"Article 1103: Most-Favored-Nation Treatment.
1. Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to investors of any other Party or of a non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.
2. Each Party shall accord to investments of investors of another Party treatment no less favorable than that it accords, in like circumstances, to investments of investors of any other Party or of a non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments."
3. (a) Each Party shall at all times accord to covered investments fair and equitable treatment and full protection and security and shall in no case accord treatment less favorable than that required by international law.
(b) Neither Party shall in any way impair by unreasonable and discriminatory measures the conduct, operation and sale or other disposition of covered invest-ments."63
To the Investor, the text of Article II(3)(a) of the U.S.-Albania BIT contemplates "separate obligations of 'fair and equitable treatment' and 'full protection and security'" and establishes a "floor, 'treatment required by international law,' below which the first two elements cannot fall."64 Article II(3)(a) requires, in other words, "fair and equitable treatment" and "full protection and security" to be accorded to covered investments, a standard of treatment "separate" or "distinct" from, and more favorable than, the treatment required by customary international law minimum standard of treatment incorporated in Article 1105(1) of NAFTA as interpreted by the FTC Interpretation.65
Investor's Reply, paras. 223, 231.
The Investor also describes the "fair and equitable treatment" and "full protection and security" standards set out in Article II(3)(1) of the U.S.-Albania BIT as "self-contained"; Investor's Reply, paras. 231 and 236, citing R. Dolzer and M. Stevens, Bilateral Investment Treaties, p. 60 (1995).
3 (b) Neither Party shall in any way impair by arbitrary or discriminatory measures the management, operation, maintenance, use or enjoyment, acquisition, expansion, or disposal of investment. For purpose of dispute resolution under Articles VI and VII [the arbitration provisions], a measure may be arbitrary or discriminatory notwithstanding the fact that a Party has had or has exercised the opportunity to review such measure in the courts or administrative tribunals of a Party."66 (Emphasis added)
The next principal claim of the Investor is that the United States measures here at stake are inconsistent with the requirements of NAFTA Article 1106. The Investor cites the following portions of Article 1106:
"Article 1106: Performance Requirements
1. No Party may impose or enforce any of the following requirements, or enforce any commitment or undertaking, in connection with the establishment, acquisition, expansion, management, conduct or operation of an investment of an investor of a Party or of a non-Party in its territory:
(b) to achieve a given level or percentage of domestic content;
(c) to purchase, use or accord a preference to goods produced or services provided in its territory, or to purchase goods or services from persons in its territory;." (Emphases added)
The Buy America measures of the Respondent, the Investor argues, violate Article 1106(1)(b) by imposing a 100% domestic (United States) content requirement, and Article 1106(1)(c) by requiring preference to be given to United States-produced steel materials and products, if the Investor is to provide fabricated steel products to Federal-aid highway projects.69 In the present case, ADF International is obliged to purchase only U.S. steel and either to fabricate that steel in the U.S. itself, or to subcontract the fabrication to U.S. steel fabricators rather than to its Canadian parent.70 The Respondent's measures impose performance requirements relating to or connected with the "management, conduct or operation" of ADF International within the meaning of the chapeau of Article 1106 since those measures "directly impact the daily activities, operations and sales" of ADF International.71
Investor's Memorial, para. 257 et seq.
Id. para. 259.
Investor's Memorial, para. 274.
To document the non-conforming nature of the Buy America measures, the Investor adverts to the part of Article 1108(1) of NAFTA which provides:
"Article 1108: Reservations and Exceptions
1. Articles 1102, 1103, 1106 and 1107 do not apply to:
(a) any existing non-conforming measure that is maintained by
(i) a Party at the federal level, as set out in its Schedule to Annex I or III,
(b) continuation or prompt renewal of any non-conforming measure referred to in subparagraph (a);." (Emphasis added)
The Investor further points to the United States Schedule to Annex I, entitled "Reservations for Existing Measures and Liberalization Commitments," which Schedule includes the following item:
"Sector: Waste Management
Type of Reservation: Performance Requirements (Article 1106)
Level of Government: Federal
Measures: Clean Water Act, 33 USC
secs. 1251 et seq.
Description: The Clean Water Act authorizes grants
for the construction of treatment plants for municipal sewage or industrial waste. Grant recipients may be privately owned enterprises. The Act provides that grants shall be made for treatment works only if such articles, materials and supplies as have been manufactured, mined or produced in the U.S. will be used in the treatment works. The Administrator of the Environmental Protection Agency has authority not to apply this provision for example, if the cost of the articles in question is unreasonable (33 U.S.C. sec. 1295)."72
The Clean Water Act provides:
"Section 1295. Requirements for American Materials. Notwithstanding any other provision of law, no grant—shall be made under this subchapter for any treatment works unless only such manufactured articles, materials and supplies as have been mined or produced in the United States, and only such manufactured articles, materials and supplies as have been manufactured in the United States substantially all from articles, materials and supplies mined, produced or manufactured, as the case may be, in the United States will be used in such treatment works.." (Emphases provided) Full text in Materials and Cases, vol. IIA.1, Tab. A-8, appended to Investor's Reply.
The Investor turns to Article 1108(7) and (8) of NAFTA which the Respondent in its Counter-Memorial invokes as a principal defense against the principal claims of the Investor. The pertinent portions of Article 1108 follow:
"Article 1108: Reservations and Exceptions
7. Articles 1102, 1103 and 1107 do not apply to:
(a) procurement by a Party or a state enterprise; or
(b) subsidies or grants provided by a Party or a state enterprise, including government-supported loans, guarantees and insurance.
8. The provisions of:
(b) Article 1106(1)(b), (c), (f) and (g), and (3)(a) and (b) do not apply to procurement by a Party or a state enterprise;." (Emphases added)
It is stated, firstly, by the Respondent that, as the Investor has conceded, the Commonwealth of Virginia, in purchasing steel and services from Shirley (which in turn contracted with the Investor), was engaged in "pro-curement."80 Virginia being one of the States of the United States, there was, in the present case, procurement by a "governmental unit of the United States." The purchase of steel and services by a governmental unit of the United States is "plainly 'procurement by a Party'" within the meaning of Article 1108.81
Respondent's Counter-Memorial, p. 23.
Id. p. 20.
In the third place, and in any event, the Respondent submits that the U.S.-Albania and the U.S.-Estonia treaties, invoked by the Investor as projecting more favorable standards of treatment than that set out in Article 1105(1) as interpreted by the FTC, do not in fact do so. To the contrary, in the view of the United States, the relevant provisions of the two treaties "set[-] out a minimum standard of treatment based on standards found in customary international law," or "based on customary international law" simply.108 At no time since the NAFTA came into force has the United States considered that the treatment to be accorded to foreign investors by virtue of the "fair and equitable treatment" clauses of treaties of the United States is more favorable to investors than the treatment required under Article 1105(1) of NAFTA. Still further, according to the Respondent, state practice "has consistently viewed 'fair and equitable treatment' as referring to the customary international law minimum standard of treatment of aliens."109
Id. pp. 40-41.
Id. p. 42.
It was noted earlier that the issuance of the 31 May 2002 Pope and Talbot Damages Award, and the Investor's act of providing a copy thereof to the Tribunal and the Respondent, occasioned the filing of a series of PostHearing Submissions from the parties and from Canada and Mexico, all focusing on NAFTA Article 1105 and the reading thereof by the Pope and Talbot Tribunal. The Tribunal had asked the parties to provide it with their comments on "what factors, or kinds of factors, a Chapter Eleven tribunal applying in a concrete case the 'fair and equitable treatment and full protection and security standard' referred to in Article 1105(1), NAFTA, may take into account." We summarize below, in very condensed terms, the principal Posthearing submissions made by the parties and Canada and Mexico in respect of Article 1105(1).
Mexico also records its agreement with the U.S. submission in Pope and Talbot that the Tribunal had no authority to "second-guess the FTC." The jurisdiction of a Chapter 11 tribunal is confined to the subject matter set out in Articles 1116 and 1117: it is authorized "to determine whether a NAFTA Party (in the singular) violated one of the NAFTA obligations listed in those two articles." That jurisdiction does not include "look[ing] behind the governing law which, under Article 1131(2),. include[s] [an] [FTC] interpretation. 'binding upon a Tribunal'."148 Mexico goes on to note that given the absence of "a careful analysis of state practice and opinio juris, " the sheer number of extant BITs today does not suffice to show that conventional international law has become customary international law. Similarly, the simple antiquity of the Neer decision does not show that it is no longer "a leading case on the customary international law standard."149 Finally, Mexico observes that, save for the WTO Agreement on Trade-Related Investment Measures (TRIMs) and the General Agreement on Trade in Services (GATS), WTO law does not address foreign investment disciplines,150 and that work on the relationship of trade and investment is at an early stage.
Id. pp. 18-19.
Id. pp. 19-20.
Id. p. 21.
In this connection, it should be noted that Article 1122 goes on to say that
"2. The consent given by paragraph 1 and the submission by a disputing investor of a claim to arbitration shall satisfy the requirement of:
(a) Chapter II of the ICSID Convention (Jurisdiction of the Centre) and the Additional Facility Rules for written consent of the parties;
(b) Article II of the New York Convention for an agreement in writing; and
(c) Article I of the Inter-American Convention for an agreement." (Emphases added)
It should further be noted that Article 1121(1) and (2) use exactly the same phrase "in accordance with the procedures set out in this Agreement" in respect of the consent of the investor and of the enterprise owned or controlled by the investor:
"1. A disputing investor may submit a claim under Article 1116 to arbitration only if:
(a) the investor consents to arbitration in accordance with the procedures set out in this Agreement; and
2. A disputing investor may submit a claim under Article 1117 to arbitration only if both the investor and the enterprise:
(a) consent to arbitration in accordance with the procedures set out in this Agreement; and..." (Emphases added)
There is another aspect of this Article 1103 issue which the Tribunal needs to consider: the pertinence of Article 1104 which provides as follows:
"Article 1104: Standard of Treatment.
Each Party shall accord to investors of another Party and to investments of investors of another Party the better of the treatment required by Articles 1102 and 1103." (Emphasis added)
As we read it, an investor of another NAFTA Party is entitled to claim the benefit of the best standard of treatment which the NAFTA party affords to its own nationals under Article 1102 and even to a non-party under Article 1103(2). Moreover, the investor is entitled to the benefit of the "better treatment" by virtue of Article 1104 without having to allege and prove breach by the respondent Party of its obligations under both Articles 1102 and 1103. It is sufficient for the investor to allege and seek to prove breach of Article 1102 in order to be entitled to claim the benefit of Article 1104 by seeking to show that more favorable treatment is accorded to investors of another Party, or even investors of a non-Party (such as Albania and Estonia). In our view, that is precisely what the Investor here was trying to show.
Note B to Article 40 of the ICSID Arbitration Rules suggests that "the test to satisfy this condition is whether the factual connection between the original and the ancillary [i.e., incidental] claim[s] is so close as to require the adjudication of the latter in order to achieve the final settlement of the dispute, the object being to dispose of all grounds of dispute arising out of the same subject matter." ICSID Regulations and Rules With Explanatory Notes Prepared by the Secretariat of ICSID; (1975) p. 105. (Emphases added) Article 48 of the ICSID Arbitration (Additional Facility) Rules reproduces paragraphs 1 and 2 of Article 40 of the ICSID Arbitration Rules. C.H. Schreuer, The ICSID Convention: A Commentary (2001) p. 738, referring to Article 46 of the Convention, writes: "This close connection is not a matter of jurisdiction. The wording of Article 46 makes it clear that the 'arising directly' requirement is in addition to jurisdiction. A claim may well be within the Centre's jurisdiction but not arise directly from the subject matter of a particular dispute before the tribunal. An obvious example would be a claim arising from a different investment operation between the same investor and the same host state also covered by an ICSID arbitration clause..." (para. 49). (Emphasis added) See further, id. p. 742, para. 62.
"Article 1102: National Treatment
1. Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.
2. Each Party shall accord to investments of investors of another Party treatment no less favorable than that it accords, in like circumstances, to investments of its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments...." (Emphases added)
Webster's New Twentieth Century Dictionary of the English Language, Unabridged (2d Edition, 1976) p. 1435.
The French text of NAFTA Article 1108(7) uses the term "achats effectués par une Partie." The French text is included in Materials and Cases, Annexed to the Memorial of the Investor, Vol. II-A.1, Tab 1, p. 11-5. The Spanish text refers to "las compras realizadas por una Parte;" available at http://www.nafta-sec-alena.org/spanish/nafta/chap-111.htm.
Supra, paras. 84-85.
Supra, para. 101.
Investor's Reply to the U.S. Counter-Memorial on Competence and Liability, paras. 140-159.
The provisions of the Clean Water Act (33 U.S.C. sec. 1281[h] —) relied upon by the Investor reads in part as follows:
"(h) A grant may be made under this section to construct a privately owned treatment plant serving one or more principal residences or small commercial establishments constructed prior to, and inhabited in December 27, 1977, where the Administrator finds that
(1) a public body otherwise eligible for a grant under subsection (g) of this sections has applied on behalf of a number of such units and certified that public ownership of such works is not feasible;..."
Transcript of the Oral Hearing, Vol.II, 16 April 2002, pp. 492-493. Also Post-Hearing Submission of the United States, 27 June 2002, p. 20.
Transcript of the Oral Hearing, Vol. II, 16 April 2002, p. 501.
See Canada's Second Submission Pursuant to NAFTA Article 1128, 19 July 2002, para. 33: "Canada's position has never been that the customary international law regarding the treatment of aliens was 'frozen in amber at the time of the Neer decision'. Obviously, what is shocking or egregious in the year 2002 may differ from that which was considered shocking or egregious in 1926. Canada's position has always been that customary international law can evolve over time, but that the threshold for finding violation of the minimum standard of treatment is still high."
See the Second Submission of the United Mexican States in the Matter of ADF Group Inc. v. United States of America, 22 July 2002, p. 11. In the Pope and Talbot case, Mexico submitted that "[it] also agrees that the standard is relative and that conduct which may not have violated international law [in] the 1920's might very well be seen to offend internationally accepted principles today." As quoted in the Pope and Talbot Award on Damages, para. 8.
ICSID Case No. ARB(AF)/99/2.
Id. paras. 114, 115 and 116.
ICSID Case No. ARB(AF)99/2, para. 119.
The very general assertions adduced by the Investor are summarized supra, para. 72. The Investor appears to argue principally that the FHWA disregarded the language of Sec. 165 of the 1982 STAA in issuing the implementing regulations. It appears to the Tribunal that the Investor believes that the FHWA fell into legal error in its interpretation of Sec. 165. It seems unnecessary to add that, in any event, such error, if error there was, does not automatically translate into lack or excess of authority on the part of FHWA.
In Mondev, the tribunal commented that "[o]n the approach adopted by Mondev, NAFTA tribunals would turn into courts of appeal, which is not their role." Mondev International Ltd. v. United States of America, ICSID Case No. ARB(AF)/99/2, 11 October 2002, para. 136. We agree also with the statement of Mexico in its Pre-Hearing Submission under Article 1128, that the Tribunal is not called upon to sit as a "court of appeals" in respect of national law; supra, para. 124. The same view was earlier set out in Robert Azinian and others v. United Mexican States, ICSID Case No. ARB(AF)/97/2, para. 99:
"The possibility of holding a State internationally liable for judicial decisions does not, however, entitle a claimant to seek international review of the national court decisions as though the international jurisdiction seized has plenary appellate jurisdiction. This is not true generally and it is not true for NAFTA. What must be shown is that the court decision itself constitutes a violation of the treaty...." (Emphasis partly in original and partly added) Cf. The statement in S. D. Myers, Inc. v. Canada that:
"[w]hen interpreting and applying the 'minimum standard,' a Chapter 11 tribunal does not have an open-ended mandate to second-guess government decision-making.." (para. 261 of the Myers Award rendered under the UNCITRAL Rules)
Cf. also the statement in Marvin Roy Feldman Karpa v. United Mexican States (ICSID Case No. ARB[AF]/99/1), Interim Decision on Jurisdiction, 6 December 2000, para. 61: "[T]he Tribunal does not have, in principle, jurisdiction to decide upon claims arising because of an alleged violation of general international law or domestic Mexican law...."(Emphases added)
Cf. the statements of a Chamber of the International Court of Justice in the Case Concerning Elettronica Sicula, S.p.A. (ELSI) (U.S. v. Italy) (1989) I.C.J. Rep. 4, para. 124.
See Article 7 of the International Law Commission's Articles on Responsibility of States for Internationally Wrongful Acts; text in J. Crawford, supra note 161, p. 106.
The fourth submission of the Investor is that the United States failed to comply with obligations under Article 1105(1) in good faith, and breached its duty under customary international law to perform its obligations in good faith. As noted earlier, the Respondent construes this submission as an assertion that customary international law prescribes "a general obligation of 'good faith' subsumed in Article 1105(1)" and denies that such a general obligation exists. We do not consider it essential to address in any detail this issue cast in terms just as abstract as the issue posed in respect of the content of "fair and equitable treatment" and "full protection and security." An assertion of breach of a customary law duty of good faith adds only negligible assistance in the task of determining or giving content to a standard of fair and equitable treatment. At the same time, without meaning to intimate any view on the Respondent's defense of denial, we observe that the Investor did not try to prove, for instance, that the rejection of its request for waiver of the Buy America requirements by the FHWA was flawed by arbitrariness. The Investor did not suggest that other companies, situated in like circumstances as the Investor, had been granted waivers of the same requirements by the FHWA. The Investor, again, did not allege that the specifications of the structural steel products required under its Sub-Contract with Shirley had been so finely "tailored" that only a particular U.S. steel fabrication company could comply with such specifications. Neither did the Investor allege that application of the U.S. measures had imposed extraordinary costs or other burdens on the Investor not also imposed on successful bidders for the other portions of the Springfield Interchange Project. More generally, the Investor did not establish a serious basis for contending that some specific treatment received by ADF International from either the FHWA or the VDOT constituted a denial of the fair and equitable treatment and full protection and security included in the customary international law minimum standard embodied in Article 1105(1).
(1) The Tribunal has jurisdiction to pass upon the Investor's claim that the U.S. measures in question are inconsistent with NAFTA Article 1103.
(2) The Investor's claims concerning construction projects other than the Springfield Interchange Project have not been considered in this proceeding because they are inadmissible and are, accordingly, dismissed without prejudice.
(3) The Tribunal does not find that the U.S. measures in question are inconsistent with NAFTA Article 1102. Assuming, however, arguendo, that the U.S. measures are inconsistent with the provisions of Article 1102, the Respondent is, in any event, entitled to the benefit of NAFTA Article 1108(7)(a) which renders inapplicable the provisions of, inter alia, Article 1102 in case of procurement by a Party. Procurement by the Commonwealth of Virginia for, or in connection with, the Springfield Interchange Project, constitutes procurement by a Party within the meaning of Article 1108(7)(a). The Investor's claim concerning Article 1102 is, accordingly, denied.
(4) The Investor has shown prima facie that the U.S. measures in question are inconsistent with the requirements of NAFTA Article 1106(1)(b) and (c). The Respondent is, however, entitled to the benefit of NAFTA Article 1108(8)(b) which renders inapplicable the provisions of Article 1106(1)(b) and (c) in case of procurement by a Party. The Springfield Interchange Project involves procurement by the Commonwealth of Virginia, which constitutes procurement by a Party in the sense of Articles 1106(1)(b) and (c) and 1108(8)(b). The Investor's claim concerning Article 1106 is, accordingly, denied.
(5) The Tribunal does not find it necessary to resolve the issue of whether the U.S.-Albania and the U.S.-Estonia bilateral investment treaties accord treatment more favorable than the treatment available under NAFTA Article 1105(1). The Investor is not entitled to the benefits claimed under NAFTA Article 1103, which Article is inapplicable by virtue of NAFTA Article 1108(7)(a) in case of procurement by a Party. The Investor's claim concerning Article 1103 is, accordingly, denied.
(6) The Tribunal does not find that the U.S. measures in question are inconsistent with the requirements of NAFTA Article 1105(1) as construed in the FTC Interpretation of 31 July 2001, which Interpretation is binding upon the Tribunal.