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Free-Trade / Fair TradeFrom the 20th Century to 21st Century
Part I
Second Conference in International Inter-Tribal TradeThompson Rivers University - Faculty of LawKamloops, BC - November 12, 2016Michael Woods, Partner – Woods LaFortune LLP
Woods, LaFortune LLPWoods, LaFortune LLP is an innovative, flexible and proactively cost-effective boutique law firm that focuses on international trade and business, investment, customs, government procurement and government relations. We provide a wide range of services to our clients including advocacy before domestic and international courts and tribunals, strategic advice and analysis, business planning and analytical research.
Michael [email protected] 613.355.0382
www.wl-tradelaw.com
From the 20th Century to the 21st Century
“There was a time in this fair land when the railroad did not runWhen the wild majestic mountains stood alone against the sunLong before the white man and long before the wheelWhen the green dark forest was too silent to be real”
Gordon Lightfoot
Free Trade – Fair Trade“The ground on which we stand is sacred ground. It is the dust and blood of our ancestors.”
Chief Plenty Coups, Crow (1848-1932)
Free Trade – Fair Trade“Suppose a white man should come to me and say, Joseph, I like your horses. I want to buy them.I say to him, no, my horses suit me; I will not sell them.Then he goes to my neighbor and he says, pay me money, and I will sell you Joseph's horses.The white man returns to me and says, Joseph, I have bought your horses and you must let me have them.If we sold our lands to the government, this is the way they bought them.”
Chief Joseph, Nez Perce (1840-1904)
Free Trade – Fair Trade• Free Trade Agreement
“An agreement among two or more countries (more specifically, customs territories) to drop all internal trade barriers as among the countries. Each party to an FTA, however, retains its own
separate schedule of tariffs for imports from third countries, thus making the FTA a less economically integrated entity than a customs union.
[…] The North American Free Trade Agreement (NAFTA) is the
quintessential example of a FTA.”Raj Bhala,
Dictionary of International Trade Law
What is Free Trade?• Economic Strategy and Doctrine
• Free exchange of goods and services and investment
• Assumption: the more country exchange, (goods, services, capital) the more they creates wealth
• Requires elimination of barriers to trade
• Comparative advantage
What is Free Trade?Arguments in favour:• Promotes peace and economic development• Encourage competitiveness• Creates employment• Increases global wealth
What is Free Trade?Arguments against:• Employment in areas that are less effective will disappear
• The opening of global market can create an important adjustment • In exchange, a much larger global wealth is created. Some indicate that this wealth allows to mitigate the negative effect of job loss in areas that a relatively less effective.
• Opening of markets – painful adjustments, employment threatened.
What is Free Trade?Arguments against:• Foods security•Protection of Environment•Developing countries exploited (North-South)
KEY GATT Articles• Article I – Most Favoured Nation (MFN)• Articles II – Tariff Concessions• Articles III – National Treatment• Articles XI – Elimination of Import / Export Restriction• Articles XX – General Exceptions• Articles XXIII – Dispute settlement• Articles XXIV – Customs Unions / FTAs
History of Free Trade• 21st Century:
• RTA made their apparition in the late 20th Century, but by the 21st , they were dominating as the go to trade agreement
• NAFTA, came into force in Jan 1, 1994• Asia Pacific Trade Agreement – APTA, came into for Jan 1, 2002• EU-US TTIP – still under negotiation• EU-Canada (CETA) – provisional application 2017• Trans-Pacific Partnership (TPP) – still under negotiation
From the 20th Century to the 21st Century
NAFTA
The North American Free Trade Agreement - (NAFTA)
• Tri-lateral free trade agreement• Binding upon U.S.A., Canada and Mexico (“the Parties”)• For U.S. and Canada, extension of pre-existing FTA• Coverage:
• Goods (Tariff and Non-Tariff)• Investments• IP rights• Services• Government Procurement
What is the NAFTA?• A snapshot of its scope:
• In 1993, trilateral trade within the North American region was US$288 billion. In 2014, Canadian’s total trilateral merchandise trade exceeded US$1.12 trillion.*
• As of 2014, the prosperity and development of the North American economy has more than doubled in size since 1994. The combined gross domestic product (GDP) for Canada, the U.S., and Mexico surpassed US$20.0 trillion in 2014 up from nearly US$8.0 trillion in 1993.*
*Global Affairs Canada
What is the NAFTA?• A snapshot of its scope (continued):
• Created world’s largest free trade area• Links 450 million people producing $17 trillion in goods and services*• U.S. had $918 billion in two-way trade in goods and services with its
NAFTA partners in 2010 alone*
*Office of the U.S.T.R.
What is the NAFTA?• What is in the NAFTA?
• National Treatment•Most-Favoured-Nation Treatment• Tariff Elimination• Import and Export Restrictions• Investment provisions
NAFTA – A Comprehensive Protection Plan
NAFTA also provides:• A reduction of trade barriers• Creation an expanded market for goods and services produced in North America
• Implementation of intellectual-property protections• Creation of dispute-resolution mechanisms• Implementation of regional labor and environmental safeguards
NAFTA Chapter 11• Designed to:
• Establish a more stable and predictable• Enhance prosperity by increasing FDI• Ensure that investment policies are held to uniform standards
NAFTA Chapter 11• Mechanism:
• Establish obligations for the Parties’ treatment of NAFTA investors and their investments
• Investors can seek to have these standards enforced by bringing a claim under Ch. 11
•Where a Tribunal determines that Ch. 11’s standards been breached, the investor may be entitled to recover damages
NAFTA Chapter 11 Claim Procedure
• Standing:• In order to commence a Ch. Claim, a party must be an “investor of a Party”
• Can be any citizen (corporate or individual) of any of the three countries, who has an investment in one of the other countries
NAFTA Chapter 11 Claim Procedure
• Consent to arbitration and jurisdiction:• NAFTA Parties bound by general consent to Arbitrate in Article 1122
• Therefore, an investor need only bring a claim to commence arbitration
•Claimant must not pursue other judicial or quasi-judicial remedies, other than for injunctive and other extraordinary relief
Article 1102 – National Treatment
•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.”
Article 1102 – National Treatment
•Same protection is extended in 1102(2) to “investments of investors”- Article 1102 requires a host state to provide NAFTA investors and investments with treatment that is no less favorable than the treatment they provide to domestic investors and investments in like circumstances.
Article 1102 – National Treatment
1. Treatment “no less favorable”- Host state must provide to qualifying NAFTA investors/investments treatment that is at least as advantageous as that provided to its own investors/investments
Article 1102 – National Treatment
2. In “like circumstances”- To trigger 1102 protection, NAFTA investor/investment must be in “like circumstances” to a domestic investor/investment receiving more favorable treatment:
- For example:- Same industry- Same economic sector- In direct competition
Article 1102 – National Treatment
3. With respect to the establishment, etc.- Treatment complained of must concern any of the enumerated actions related to the investment:
- Establishment- Acquisition- Expansion- Management- Conduct- Operation- Sale or other disposition
Article 1103 – MFN Treatment•Article 1103: Most-Favored Nation (MFN)
“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.”
Article 1103 – MFN Treatment• Same protection is extended in 1103(2) to “investments of investors”• Imposes the same obligation upon NAFTA Parties as Article 1102, but extends the comparators beyond domestic investors and investments to third-party investors and investments as well
Article 1103 – MFN TreatmentSame principles apply as in Art. 1102, except that group of possible comparators is broadened to include not only domestic investors but investors of other non-Parties as well.
Article 1105 – Minimum Standard of Treatment
•Article 1105: Minimum Standard of Treatment
“Each Party accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable and full protection and security.”
Article 1105 – Minimum Standard of Treatment
• This obligation imposes an absolute (rather than comparative, as in 1102, and 1103) baseline with respect to the standard of acceptable treatment that must be provided to foreign investors and their investments, which includes:
• Treatment in accordance with international law • Fair and equitable treatment• Full protection and security
Article 1105 – Minimum Standard of Treatment
Treatment in accordance with international law :•Denial of justice, arbitrary • grossly unfair treatment•outright and unjustified repudiation of obligations)
Article 1105 – Minimum Standard of Treatment
Fair and equitable treatment:•Detrimental reliance upon legitimate expectations
•Certainty, transparency and stability of host state’s regulatory regime
Article 1105 – Minimum Standard of Treatment
Full protection and security:•Protection from discriminatory treatment•Government’s adherence to its own laws and regulations
Article 1106 –Performance Requirements
Article 1106 – Performance Requirements“ No Party may impose or enforce any of the following requirements, or enforce any commitment or undertaking, with respect to 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:• To export a given level or percentage of goods or services;• To achieve a given level or percentage of domestic content;• To purchase, use or accord a preference to goods produced or services provided
in its territory, or to purchase goods produced or services provided by persons in its territory
• […]”
Article 1106 –Performance Requirements
“Performance requirements” refers to an array of requirements put in place by a host state concerning the performance of foreign-owned enterprises in its territory.• Art. 1106 sets out those performance requirements that are
prohibited under NAFTA, as well as a list of exceptions.
Article 1110 – Expropriation and Compensation
• Article 1110: Expropriation and Compensation
“No party may directly or indirectly nationalize or expropriate an investment of an investor of another Party in its territory or take a measure tantamount to nationalization or expropriation of such an investment (“expropriation”), except:(a) for a public purpose;(b) on a non-discriminatory basis;(c) in accordance with due process of law and Article 1105(1); and (d) on payment of compensation in accordance with paragraphs 2 through 6.”
Article 1110 – Expropriation and Compensation
Nationalization : The state takes ownership of property or investments across a sector or industry
Direct Expropriation : Taking physical possession of an investment or property by transfer of title or seizure of property
Indirect Expropriation: Taking measures which have the effect of destroying the ability to manage and control the investment, or have the effect of depreciating substantially the value of the investment
NAFTA EXEMPTIONSIndigenous peoples were not present at the NAFTA negotiations but Canada, USA, & Mexico each inserted specific language or "non-conforming measures" within NAFTA that exempt specific sectors from operation of the treaty.
Canada - Annex II (reservations or exemptions) exempted "Aboriginal Affairs” sector Canada reserves the right to deny investors or "another Party" the rights or preferences provided to "aboriginal peoples" in five areas: national treatment, most-favored-nation treatment, local presence, performance requirements, and senior management and boards of directors.
NAFTA EXEMPTIONSUS exemption under "Minority Affairs” included indigenous interests within its borders with non-indigenous minorities and reserves the right to adopt or maintain rights or preferences to what are termed "socially or economically disadvantaged minorities." The USA reserves these rights in the same areas as Canada with the exception of MFN. Mexico also exempted sector "Minority Affairs," obscuring the fact that only 10% of its minority population can arguably be termed non-indigenous. Reserved these rights in only the two areas of national treatment and local presence.