The national treatment standard

Outline Of The Research

In international law, the national treatment standard has been invoked in two different contexts. In one context, the standard represents one of the competing international law doctrines for the treatment of the person and property of aliens which has come to be known as the “Calvo doctrine”. Under this doctrine, which was supported especially by Latin American countries, aliens and their property are entitled only to the same treatment accorded to nationals of the host country under its national laws. In contrast with this doctrine, the doctrine of State responsibility for injuries to aliens and their property, which historically has been supported by developed countries, asserts that customary international law establishes a minimum international standard of treatment to which aliens are entitled, allowing for treatment more favourable than that accorded to nationals where this falls below the international minimum standard. (unctad/ite/iit/11 (vol. Iv united nations conference on trade and development national treatment unctad series on issues in international investment agreements united nations new york and geneva, 1999 )

In deciding whether a host state has discriminated against an investor for the purposes of the national treatment standard, the tribunal must compare the state's treatment of the investor with its treatment of others in like circumstances. The tribunal's interpretation of ― “like circumstances” is thus pivotal. In practice, tribunals have taken several different views as to what constitutes ― “like circumstances”. Some tribunals have used the WTO approach of ― “competitors”. That is, if a domestic competitor of the investor has received more favourable treatment, that may be found to breach the treaty. However, competitors in the market may not be the same at all when considered from an environmental perspective - e.g. even if the domestic competitor uses clean energy and the foreign investor does not, this would be irrelevant for determining ―like circumstances‖ under the WTO approach. Other tribunals have taken a more enlightened approach, saying that environmental public policy considerations can be relevant to deciding whether investors are in like circumstances for deciding whether there has been a breach of national treatment.( Investment, ICSID and climate change: turning obstacles into opportunities The Global Institutional Architecture and the Financial Crisis - An Opportunity for Sustainable Development? 14 and 15 September 2009, Berlin, Germany Presentation by: Fiona Marshall, International law advisor, International Institute for Sustainable Development)

The scope of my research is on the comparative analysis of the standard of national treatment applied by the investment tribunals over the years and whether is has been consistent and for this I will be limiting my research on the WTO approach on investment agreements and for this analysis I will be looking into the cases mentioned below in detail.

One of the early cases on national treatment before the tribunal was the case of S.D. Myers Inc. Vs Government of Canada.The Tribunal held, the assessment of “ like circumstances” must also take into account circumstances that would justify governmental regulations that treat [domestic and foreign investors] differently in order to protect the public interest. The ‘ likeness ' is first and foremost an inquiry into the competitive relationship between domestic and foreign investors. Differential treatment alone though would not suffice to justify breach; some form of protectionist intent would also be required.(para 250-254) thus, the tribunal while applying the standard of national treatment established a relationship between ‘competition' and the ‘likeness'. The same test was then applied by the tribunals in cases that followed. In the case of, Pope & Talbot Inc vs Canada The award articulated a three-stage test requiring an identification of comparators in similar circumstances; an analysis of whether there is less favorable discriminatory treatment; and whether there is a justification for any less favorable treatment (Rudolf Dolzer, National Treatment: New Developments (Paris: ICSID, OECD and UNCTAD, 2005). The tribunal followed similar approach in Feldman v. Mexico in 2002 and ADF v. USA in 2003 applying the test of “likeness” in connection with competition. However the later trends show that the tribunal started to take a different approach in applying the national treatment standard as can be seen in the case of, Occidental v. Ecuador, Occidental brought an action for breach of national treatment under the US - Ecuador BIT. The Tribunal decided in favour of the petitioner holding thereby, in fact, ‘ in like situations ' cannot be interpreted in the narrow sense advanced by Ecuador as the purpose of national treatment is to protect investors as compared to local producers, and this cannot be done by addressing exclusively the sector in which the particular activity is undertaken [emphasis added].(para 173) Likewise, in the later award of Methanex v. US, the ruled that it would be ‘ perverse ' to ignore ‘ identical comparators ' where they exist,(para 17) given the task of disciplining nationality-based discrimination. The Tribunal then accepted the domestic methanol industry as the identical comparator to the claimant. As the Californian ban had the same effect on these domestic actors as the foreign methanol producer (Methanex), the Tribunal ruled that there was no breach of the national treatment obligation. (paras 18 and 19) The tribunal in Thunderbird vs Mexico has also provided an award on the national treatment standard wherein by applying the three stage test (pope and tablot case) it was held that it was not required for the claimant to prove that it received less favourable treatment for reasons of nationality however the other two mechanisms were not applied.

“Thus it shows the inconsistency in applying the national treatment standard by the investment tribunals and it lies for the future investment treat tribunals to find a balance between achieving the promise of appropriate protection of an investor or its investment from the host state, without jeopardizing the right to regulate. The issue is more delicate because it does not involve a taking, by definition, it involves a lesser interference which has caused loss or damage and for this reason, the tribunals either implicitly or explicitly import ;rules of reason' or ‘proportionality tests' from other streams of international jurisprudence or use the concept of legitimate expectation concept in order to find the appropriate balance that fully recognizes the regulatory and business context within which the investor and/or its investment have operated.” (The Oxford handbook of international investment arbitration Edited by Peter Muchlinski, Federico Ortino and Christoph