CONFIDENTIAL DAFFE/MAI(97) 1/REV2
V. DISPUTE SETTLEMENT
GENERAL
It is understood that for a number of delegations further work is needed on dispute settlement. In
particular, different options remain in the field of multilateral consultations and scope of dispute
settlement. The present text has been prepared by the Chairman of the Expert Group on Dispute Settlement
on the basis of the discussions in the group. It needs to be discussed by the Negotiating Group.
STATE-TO-STATE PROCEDURES
Article C.1.a
1. This paragraph provides that arbitration is available for a dispute over whether a Party has acted
in contravention of the Agreement. It is understood that 'action' includes failure to act when the
Agreement requires it. A key question, which this formulation does not prejudice, and leaves open for the
arbitral tribunal to decide in light of all the relevant circumstances and the jurisprudence is, when is a
dispute over a legislative measure of a Party ripe for arbitration, if its terms, which provide for action
violative of the Agreement, have not yet been applied to a
concrete case in that fashion.
2. In light of the opinion of the ICJ in the ELSI case, consideration was given to including in the
MAI an express provision that there was no requirement of exhaustion of local remedies before resort
might be had to MAI dispute settlement for injury to an investor. There was full agreement that the
intent was not to require exhaustion of local remedies before MAI dispute settlement could be invoked.
However, it was decided to record that in Commentary, rather than include in the articles of the MAI a
provision which might cast doubt on the dispute settlement provisions of other investment agreements
which had tite same intent and which were silent on the
matter.
3. Mexico has serious concerns in relation to this provision.
Article C 1.b
Article C paragraph l.b, based on ICSID Article 27, is intended to assure that the initiation of
any form of investor-state arbitration provided by the MAI would restrain parallel state-state proceedings
under the MAI to thesame extent as, but no more than, would initiation of ICSID arbitration for a MAI
Contracting Party which is also an ICSID party. This is a very limited preclusion, effecting the right to
bring the very same claim. The ICSID observer confirmed that ICSID Article 27 should not preclude a
state-to-state arbitration of an issue of treaty interpretation or application which was also involved in the
investor-state dispute, as long as this did not amount to the espousal of the claim of the investor. It was
recognised that an award in such a state-state proceeding would not affect an award rendered in the
investor-state proceeding.
Article C 6
The "applicable rules" referred to in Article C 4 are those concerning the interpretation and
application of treaties. Accordingly, this provision would not provide a basis for a Panel to rule on a
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Article C 9
1. There was full agreement on the desirability of strong procedural safeguards for resort to
countermeasures. This would prevent problems which unilateral recourse to countermeasures can produce.
However, there was disagreement on the role of the Parties Group in this process.
2. On the permissible scope of countermeasures, there was agreement that expropriation of
investments and denial of treatment in accordance with international law were not available
countermeasures. There was broad willingness to consider some hierarchy of responses to discourage
countermeasures against established investment. However, views were fairly evenly divided between
delegations favoring a broad approach which would generally allow any responsive measure permitted
under customary international law, including measures in the field of trade, and those favoring limiting
responses to suspension of benefits under the MAI itself.
3. The broader customary law approach might not, in reality, be as far from the MAI only approach
as it might appear to be. For example, certain responses permitted under customary law would run counter
to obligations of MAI parties under the GATT, GATS or other WTO agreements. By neither expressly
authorizing suspension of benefits under other agreements nor precluding challenge of such retaliatory
suspension under the WTO DSU, a MAI party would run the full risk that any retaliation in areas
protected under those agreements, without obtaining a waiver under them, would be found to be a
violation of those other obligations, notwithstanding alleged rights of retaliation under the customary law
of state responsibility. This risk would flow in part from the possibility that a WTO panel would not
consider any state responsibility argument but would deal with a dispute strictly within the terms of the
WTO agreements themselves; it would also flow in part from the legal uncertainties which some
delegations believe exist concerning the right to respond to violation of one treaty by action in
contravention of another unrelated one. Provided that the MAI, unlike the OECD's shipbuilding
agreement, neither expressly authorized retaliatory suspension of benefits under WTO agreements nor
waived the MAI Parties rights to complain under the WTO system for a retaliation found lawful under the
MAI, the practical scope of the broad option is likely to be severely constrained.
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CONFIDENTIAL DAFFE/MAI(97) l/REV2
INVESTOR-TO-STATE PROCEDURES
Article D.1.a
1. Pursuant to Article D.l.a, an alleged breach of the MAI must be causally linked to loss or
damage to the investor or investment for the investor to have standing to bring a claim against the host
state, but the damage, while imminent, would not need to have been incurred before the dispute is ripe for
arbitration. Further a lost opportunity to profit from a planned investment would be a type of loss
sufficient to give an investor standing to bring an establishment dispute under this article, without
prejudice to the question of whether a specific amount of lost profits might later prove too remote or
speculative to be recoverable as damages. The claim would be initiated on the basis of allegations of loss
or damage, but their existence and actual amount would remain to be demonstrated, along with the
remainder of the investor's case, during the proceedings on the merits of the dispute.
2. This Article, which includes effects on the investor, applies to all the investor's rights including
those relating to establishment.
Article D.1.b
l. Some countries could accept the procedural solution on condition that there are no reservations
permitted; were reservations permitted they would wish to return to the full respect clause. Australia,
Canada, Hungary, Korea, Mexico and Norway wish to reserve their position. Positions are divided on the
types of agreement to be covered.
2. Provided that the law specified under Anicle D.14.b were applicable under both options, and the
respect clause were excepted from state-state dispute settlement, the full respect clause and the procedural
solution would appear to be similar in their legal effect.
Article D.2 a
The reference in this article to submission of a dispute to "any competent counts" leaves open
the possibility that a Contracting Party might choose not to make the MAI directly enforceable in its
counts.
Article D2.c
Under Article D.2.c, the investor may freely choose among the arbitral options. Country
reservations limiting the choice of UNCITRAL and ICC to cases in which the ICSID and additional
facility options were not available would be acceptable.
Article D.3
Norway and Iceland have problems of a constitutional nature with unconditional prior consent.
Korea has serious concerns with it.
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Article D.6
This paragraph would be intended to assure that, in cases of mixed or unclear division of
competence between the EC and a member state, both would be in the proceedings and responsibility
would be covered, without burdening the investor with this issue. Whether or not this should be
generalised beyond the EC to any other future REIO contracting party, i.e., a REIO with legal capacity
and competence on MAI matters, is being considered as well.
Article D.8
Article D.8 is a variant of the clauses which appear in many investment agreements, allowing the
established company to have standing to bring the claim to arbitration against the host state. Country
specific reservations to this clause or an annex listing countries to which it does not apply would be
acceptable.
Article D.9
l. This paragraph would represent a compromise between those delegations which want
consolidation to be only with the case by case agreement of the investors concerned and those which wish
consolidation to be mandatory, with the investor only able to withdraw from it with prejudice to its right
to resort to other dispute settlement. Subparagraph e would allow withdrawal to be without prejudice other
than under Article D.2.c.
2. Mexico has serious concerns in relation to this provision.
Article D.14
Unlike in cases under Article 14 (a) in which domestic law may be applicable as law, domestic
law may be considered as a relevant fact in cases under
Article 14 (b).
Article D.18
This paragraph provides for the enforceability of awards in accordance with the New York
Convention in the courts of parties to it. While it does not require that MAI Contracting Parties become
party to the New York Convention, it does requires them to provide for the enforcement of MAI pecuniary
awards.
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