Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Could Investors in the USA Take Over the "Buy America" Trade Wars?

During the 2008 U.S. Elections, Canadians and Mexicans learned via campaign rhetoric that President Obama wants to renegotiate NAFTA Chapter 11 due to the inclusion of the investor-to-State dispute settlement mechanism.  If the"Buy America" provisions, which are now before the Senate (and those passed by Congress) are passed into law, then President Obama may feel the need to run to the re-negotiation as quickly as possible.  He is not going to like what is coming.  However, the renegotation of NAFTA is not going to stop the tidal wave of investor-to-State claims because the investors will find their rights to bring an action in other international treaties.

Investors in the U.S. may bring claims against the U.S. under the investment provisions in (1) NAFTA, (2) another free trade agreement to which the U.S. is a party (with the exception of the U.S. - Australia FTA, which does not have an investor-to-state dispute settlement mechanism or even an investment chapter), or (3) a bilateral investment treaty to which the U.S. is a party.

Private parties (from outside the United States) have rights under some of these international agreements to bring a claim against the Government of the United States if the United States negatively affects their investments in the United States.  The rules are slightly different in the various agreements, but there are a few general principles.

First "investors" may have the right to file a claim against the United States under ISCID or UNCITRAL in order to start an investment arbitration.  Who satisfies the definition of the term "investor" will depend on the definition in the applicable international treaty.  If the person is a Canadian company, they would look to the definition of the term "investor" in NAFTA.

Second, assuming that there is an investor, there must be an "investment".  Some provisions in the treaties state that the investment must be in the territory of the United States, but some provisions, such as the one in NAFTA are not clear.  This issue has arisen in other NAFTA investor-to-State disputes.

Finally, there must be a breach of a substantive provision of the international treaty.  For example, there must be a taking or expropriation of a right - such as the right to participate in government contracts.  The "Buy America" provisions may breach many substantive rights, such as most favoured nation treatment, national treatment, fair and equitable treatment.  The "Buy America" provisions may be challenges as a direct or indirect taking / expropriation. of course, excpetions an reservations will need to be reviewed.

There are so many possible scenarios.  Foreign companies who have incorporated in the United States as an importer of steel, machinery and other products may be able to argue that the U.S. just changed the rules of the game and negatively affected their business.  Foreign companies who have establsihed subsidiaries in the United States in order to bid on lucrative U.S Government contracts will also be able to argue that the U.S. has changed the rules of the game.  Many of these companies have spent hundreds of thousands (if not millions) of dollars on security measures and compliance with ITARS and other U.S. laws.  Now, they are not able to benefit from their efforts because domestic goods and services are being favoured. 

Once an investor files an arbitration claim, their home country cannot just pull the plug on the case - nor would the home government wish to get involved in a private dispute.  The United States will have to defend the cases and pay compensation if the arbiral panel makes an award.  This could require a lot more "Stimulus" money - except that this money is going to be used to pay arbitration awards and the U.S. taxpayer would not be getting any value for that money.  The investor-to-State arbitrations relating to the U.S. softwood lumber decision are examples of the problems in ending such cases after they are started. 

If you would like more information about investor-to-State dispute settlement and would like us to help you assess whether you have the foundation for a claim, please contact us.  Even though the "Buy America" legislation has not yet become law, it may be prudent to start work on an investor-to-State claim or communicate an intention to pursue a claim.  Please call Cyndee Todgham Cherniak at 416-307-4168.

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