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Melbourne Law School

Legal Studies Research Paper No. 321

Free Trade Agreements and Public International Law Andrew Mitchell and Tania Voon

This paper can be downloaded without charge from the Social Science Research Network Electronic Library at: http://ssrn.com/abstract=1123263

FREE TRADE AGREEMENTS AND PUBLIC INTERNATIONAL LAW ANDREW D. MITCHELL* AND TANIA VOON†

I

INTRODUCTION....................................................................................................................1

II

INTERPRETING FTA PROVISIONS ..................................................................................3 A B

III

FTAS AND CUSTOMARY INTERNATIONAL LAW .......................................................7 A B

IV

CONTRIBUTION OF FTAS TO CUSTOMARY INTERNATIONAL LAW ................................7 NON-INTERPRETATIVE IMPACT OF CUSTOMARY INTERNATIONAL LAW ON FTAS ......11

RESOLVING CONFLICTS BETWEEN FTAS AND OTHER TREATIES ...................18 A B

V

IMPACT OF THE VIENNA CONVENTION ON THE LAW OF TREATIES................................3 RELEVANCE OF WTO LAW ...........................................................................................5

SUBSTANTIVE CONFLICTS...........................................................................................18 OVERLAPPING DISPUTES ............................................................................................22

CONCLUSION.......................................................................................................................25

I

INTRODUCTION

From the first report of the Appellate Body of the World Trade Organization (‘WTO’) in 19961 to Joost Pauwelyn’s seminal work in 2003,2 commentators and practitioners alike have been grappling with the thorny relationship between the WTO and public international law. 3 More recently, problems in interpreting and applying WTO

For helpful comments on an earlier draft of this chapter, we thank Joshua Meltzer, Bryan Mercurio, and David Morgan. Any errors are ours. * PhD (Cantab), LLM (Harv), Grad Dip Intl L (Melb), LLB (Hons) (Melb), BCom (Hons) (Melb); Senior Lecturer, Faculty of Law, University of Melbourne; Fellow, Tim Fischer Centre for Global Trade & Finance, Bond University; Barrister and Solicitor, Supreme Court of Victoria and High Court of Australia. Email . † PhD (Cantab), LLM (Harv), Grad Dip Intl L (Melb), LLB (Hons) (Melb), BSc (Melb); Senior Lecturer, Faculty of Law, University of Melbourne; Former Legal Officer, Appellate Body Secretariat, World Trade Organization; Fellow, Tim Fischer Centre for Global Trade & Finance, Bond University; Barrister and Solicitor, Supreme Court of Victoria and High Court of Australia. Email . 1 WTO Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline (‘US –Gasoline’), WT/DS2/AB/R (circulated 29 April 1996, adopted 20 May 1996) 17: ‘the General Agreement is not to be read in clinical isolation from public international law’. 2 Joost Pauwelyn, Conflict of Norms in Public International Law: How WTO Law Relates to Other Rules of International Law (Cambridge: Cambridge University Press, 2003). 3 See also, eg, Lorand Bartels, ‘Applicable Law in WTO Dispute Settlement Proceedings’ (2001) 35(3) Journal of World Trade 499; Michael Lennard, ‘Navigating by the Stars: Interpreting the WTO Agreements’ (2002) 5(1) Journal of International Economic Law 17; Gabrielle Marceau, ‘WTO Dispute Settlement and Human Rights’ (2002) 13(4) European Journal of International Law 753; Joel Trachtman, ‘The Jurisdiction of the World Trade Organization’ (2004) 98 American Society of International Law Proceedings 139; Joel Trachtman, ‘Jurisdiction in WTO dispute settlement’ in Rufus Yerxa and Bruce Wilson (eds), Key Issues in WTO Dispute Settlement: The First Ten Years (Cambridge: Cambridge University Press, 2005) 132.

This chapter will be published in Simon Lester and Bryan Mercurio (eds), Bilateral and Regional Trade Agreements: Commentary and Analysis (Cambridge: Cambridge University Press, forthcoming late 2007/early 2008). Draft only. Please do not cite or distribute without the authors’ permission.

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provisions in the light of customary international law and non-WTO treaties4 have come to reflect a concern regarding ‘fragmentation’ of international law more generally.5 One reason for this potential fragmentation lies in the disparate dispute settlement mechanisms under various international legal systems,6 including free trade agreements (‘FTAs’).7 As negotiations in the Doha Round sputter,8 and FTAs proliferate,9 the relationship between FTAs and other institutions and aspects of public international law becomes all the more crucial. States evaluating the benefits of FTAs must be fully aware of the broader international context into which they are born and the implications of international law as each FTA develops. Moreover, existing FTA members may seek additional certainty about their FTA rights and obligations and the likely outcome in the event of a dispute relating to other areas of international law. More broadly, an investigation into the relationship between public international law and FTAs provides an additional case study of the perceived problem of fragmentation of international law. In this chapter, we focus on two primary sources of public international law, namely treaties 10 and customary international law. 11 We also take into account two other sources of public international law, namely general principles of law12 and judicial decisions and leading commentary.13 All four sources are included in Article 38(1) of the Statute of the International Court of Justice (‘ICJ Statute’), which is often recognised as providing an informal list of the sources of international law.14 See, eg, WTO Appellate Body Report, European Communities – Conditions for the Granting of Tariff Preferences to Developing Countries (‘EC – Tariff Preferences’), WT/DS246/AB/R (circulated 7 April 2004, adopted 20 April 2004) [163]; WTO Appellate Body Report, European Communities – Export Subsidies on Sugar (‘EC – Export Subsidies on Sugar’), WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R (circulated 28 April 2005, adopted 19 May 2005) [310], [312]. 5 See, eg, International Law Commission, UN, Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law — Report of the Study Group (Martti Koskenniemi), A/CN.4/L.682 (4 April 2006); Campbell McLachlan, ‘The Principle of Systemic Integration and Article 31(3)(c) of the Vienna Convention’ (2005) 54 International & Comparative Law Quarterly 279. 6 See, eg, Joost Pauwelyn, ‘Adding Sweeteners to Softwood Lumber: the WTO-NAFTA “Spaghetti Bowl” is Cooking’ (2006) 9(1) Journal of International Economic Law 197; Yuval Shany, The Competing Jurisdictions of International Courts and Tribunals (Oxford: Oxford University Press, 2003). 7 We use the term ‘free trade agreements’ to refer to bilateral and regional agreements between States or customs territories that focus at least in part on liberalising trade between the parties, as distinct from the multilateral system established under the WTO. ‘FTAs’ therefore include free-trade areas and customs unions within the meaning of GATT Article XXIV. 8 See General Council, WTO, Minutes of Meeting Held on 27-28 July 2006, WT/GC/M/103, 10 October 2006, [1]-[53]; WTO, Talks suspended. ‘Today there are only losers.’, news item (24 July 2006). 9 See, eg, Consultative Board, WTO, The Future of the WTO: Addressing Institutional Challenges in the New Millennium (2004) [76]; World Bank, Global Economic Prospects: Trade, Regionalism, and Development (2005) 28-30. 10 See below p 18. 11 See below nn 48-51 and corresponding text. 12 See below nn 113-121 and corresponding text. 13 See below n 106 and corresponding text. 14 See, eg, Martti Koskenniemi, ‘Introduction’ in Martti Koskenniemi (ed), Sources of International Law (Aldershot: Ashgate, 2000) xi, xi; Gerald Fitzmaurice, ‘Some Problems Regarding the Formal 4

This chapter will be published in Simon Lester and Bryan Mercurio (eds), Bilateral and Regional Trade Agreements: Commentary and Analysis (Cambridge: Cambridge University Press, forthcoming late 2007/early 2008). Draft only. Please do not cite or distribute without the authors’ permission.

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Below, we examine three significant areas in which public international law interacts with FTAs: first, how various forms of public international law affect the interpretation of FTA provisions; second, the related issue of how FTAs contribute to customary international law and the extent to which customary international law applies to FTAs; and, finally, how to resolve conflicts between FTAs and other treaties. This final section examines both substantive conflicts and problems arising from overlapping jurisdictions of FTA tribunals and other international tribunals. This survey illustrates the complex web of links between FTAs and public international law and the readiness of FTA tribunals, particularly under the North American Free Trade Agreement 15 (‘NAFTA’), to draw on other sources of international law in interpreting FTA provisions and otherwise determining FTA disputes. At the same time, no clear answers emerge regarding how best to deal with the likelihood of ever increasing conflicts between FTAs and other treaties. II INTERPRETING FTA PROVISIONS In exploring how public international law influences the interpretation of FTA provisions, we first consider the role of the Vienna Convention on the Law of Treaties16 (‘Vienna Convention’), before moving on to the relevance of WTO law. A

Impact of the Vienna Convention on the Law of Treaties

The Vienna Convention applies to ‘treaties between States’, 17 where a ‘treaty’ is defined as ‘an international agreement concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation’. 18 This would naturally include FTAs between any of the 108 parties of the Vienna Convention,19 unless they were concluded before that convention’s entry into force in 1980.20 Moreover, at least some parts of the Vienna Convention are widely accepted as codifying customary international law or having attained the status of customary international law.21 Articles 31 and 32 on the interpretation of treaties, in particular,

Sources of International Law’ (1958) Symbolae Verzijl 153, 173; Robert Jennings, ‘What is International Law and How Do We Tell It When We See It?’ (1981) 37 Schweitzerisches Jahrbuch für Internationales Recht 59, 61. 15

32 ILM 289 and 605 (signed 17 December 1992, entered into force 1 January 1994). Vienna Convention on the Law of Treaties, 1155 UNTS 331 (adopted 22 May 1969, entered into force 27 January 1980). 17 Vienna Convention, Art. 1. Accordingly, the Vienna Convention does not apply to treaties between States and international organisations or between international organisations: Ian Sinclair, The Vienna Convention on the Law of Treaties (Manchester: Manchester University Press, 2nd ed., 1984) 6-7. The Vienna Convention is adapted to international organisations by the Vienna Convention on the Law of Treaties Between States and International Organizations or Between International Organizations, opened for signature 21 March 1986, 25 ILM 543 (not yet in force). 18 Vienna Convention, Art. 2(1)(a). 19 UN, Multilateral Treaties Deposited with the Secretary-General, ST/LEG/SER/E/–, (accessed 10 January 2007). 20 Vienna Convention, Art. 4. 21 We discuss customary international law further below in section III. 16

This chapter will be published in Simon Lester and Bryan Mercurio (eds), Bilateral and Regional Trade Agreements: Commentary and Analysis (Cambridge: Cambridge University Press, forthcoming late 2007/early 2008). Draft only. Please do not cite or distribute without the authors’ permission.

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are frequently regarded as declaring or reflecting customary international law.22 This means that the rules of interpretation in these provisions apply to all FTAs between States, whether or not those States are party to the Vienna Convention. This conclusion is fairly uncontroversial, just as few would argue that the WTO agreements should be interpreted other than by reference to Articles 31 and 32 of the Vienna Convention.23 In any case, although an FTA could conceivably dictate alternative rules for interpretation, the more common scenario would be that the FTA explicitly or implicitly confirms that the Vienna Convention rules apply. For example, Article 21.9(2) of the Australia-United States Free Trade Agreement24 (‘AUSFTA’) provides: The panel shall consider this Agreement in accordance with applicable rules of interpretation under international law as reflected in Articles 31 and 32 of the Vienna Convention on the Law of Treaties (1969).25

Similarly, Article 102(2) of the NAFTA provides that ‘[t]he Parties shall interpret and apply the provisions of this Agreement in the light of its objectives set out in paragraph 1 and in accordance with applicable rules of international law’, which are read to include Articles 31 and 32 of the Vienna Convention.26 Articles 31 and 32 of the Vienna Convention themselves provide an example of public international law (in this case, interpretative rules amounting to customary international law) influencing FTAs. Thus, the primary customary international law rule for interpreting treaties also applies to FTAs: ‘A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.’27 In turn, various forms of public international law may affect the meaning of various terms in Articles 31 and 32 and how they should be applied. For example, Article 31(3) of the Vienna Convention states that, in interpreting a treaty: There shall be taken into account, together with the context: (a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; See, eg, Case Concerning the Territorial Dispute (Libyan Arab Jamahiriya v Chad) (Merits) [1994] ICJ Rep 6, 21-22; Ian Sinclair, The Vienna Convention on the Law of Treaties (Manchester: Manchester University Press, 2nd ed., 1984) 19 (regarding Arts. 30-33); Joost Pauwelyn, Conflict of Norms in Public International Law: How WTO Law Relates to Other Rules of International Law (Cambridge: Cambridge University Press, 2003) 245. See also Gabcíkovo-Nagymaros Project (Hungary v Slovakia) (Merits) (‘Gabcíkovo-Nagymaros Project’) [1997] ICJ Rep 7, 38 (regarding Vienna Convention, Arts. 60-62). 23 See, eg, WTO Appellate Body Report, US – Gasoline, 16-17; Understanding on Rules and Procedures Governing the Settlement of Disputes, LT/UR/A-2/DS/U/1 (signed 15 April 1994, entered into force 1 January 1995) (‘DSU’) Art. 3.2. 24 Signed 18 May 2004, entered into force 1 January 2005. 25 See also North American Free Trade Agreement 32 ILM 289 and 605 (signed 17 December 1992, entered into force 1 January 1994) Art. 102(2). 26 See, eg, NAFTA Ch 20 Panel Report, Tariffs Applied by Canada to Certain U.S.-Origin Agricultural Products, CDA-95-2008-01 (2 December 1996) [118]-[119]; NAFTA Ch 11 Arbitral Tribunal, SD Myers Inc v Government of Canada (‘Myers v Canada’) (Partial Award of 13 November 2000) [200]. 27 Vienna Convention, Art. 31(1). 22

This chapter will be published in Simon Lester and Bryan Mercurio (eds), Bilateral and Regional Trade Agreements: Commentary and Analysis (Cambridge: Cambridge University Press, forthcoming late 2007/early 2008). Draft only. Please do not cite or distribute without the authors’ permission.

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(b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; (c) any relevant rules of international law applicable in the relations between the parties.

The words ‘subsequent practice’ have taken on a specific meaning in public international law, 28 and a correct interpretation in accordance with Article 31(3) should have regard to that meaning. More importantly, Article 31(3)(c) of the Vienna Convention provides a concrete basis for examining non-interpretative rules of public international law in interpreting FTA provisions. In particular, other treaties to which the FTA members are party should be considered. For example, the NAFTA Arbitral Tribunal in SD Myers v Government of Canada examined the CANADA-USA Transboundary Agreement on Hazardous Waste in interpreting NAFTA provisions in an arbitration between the Government of Canada and a United States (‘US’) investor. 29 Most commentators would agree that the WTO agreements contain references to non-WTO ‘rules of international law’.30 Pursuant to Article 31(3)(c), these rules must therefore be taken into account, where relevant, in interpreting an FTA between any of the WTO’s 150 Members. B

Relevance of WTO Law

This leads to the question of the significance of WTO ‘jurisprudence’ in clarifying the WTO rules and, in turn, in interpreting FTA provisions. WTO caselaw itself, in the form of Panel or Appellate Body Reports adopted by the Dispute Settlement Body (‘DSB’),31 does not necessarily amount to or create rules of international law within the meaning of Article 31(3)(c), given that Panels, the Appellate Body and the DSB must not ‘add to or diminish the rights and obligations provided in the covered agreements’. 32 It may nevertheless comprise ‘judicial decisions’ providing a

See, eg, Arnold McNair, The Law of Treaties (Oxford: Clarendon Press, 1961) Ch XXIV; Ian Sinclair, The Vienna Convention on the Law of Treaties (Manchester: Manchester University Press, 2nd ed., 1984) 135-38; WTO Appellate Body Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R (circulated 4 October 1996, adopted 19 March 1999) 12-13. 29 Myers v Canada, [205]-[208]. 30 See, eg, Joost Pauwelyn, ‘The Jurisdiction of the World Trade Organization’ (2004) 98 American Society of International Law Proceedings 135, 136; Gabrielle Marceau, ‘Conflicts of Norms and Conflicts of Jurisdictions: The Relationship between the WTO Agreement and MEAs and other Treaties’ (2001) 35(6) Journal of World Trade 1081, 1081; Joel Trachtman, ‘The Jurisdiction of the World Trade Organization’ (2004) 98 American Society of International Law Proceedings 139, 139 (referring to ‘a separation between WTO law and other international law’ (emphasis added)). 31 For general information about the WTO dispute settlement system, see WTO, A Handbook on the WTO Dispute Settlement System (Cambridge: Cambridge University Press, 2004); David Palmeter and Petros Mavroidis, Dispute Settlement in the World Trade Organization: Practice and Procedure (The Hague: Kluwer, 2nd ed, 2004); Bryan Mercurio, Yang Guohua and Li Yongjie, WTO Dispute Settlement Understanding: A Detailed Interpretation (London: Kluwer, 2005); Giorgio Sacerdoti, Alan Yanovich and Jan Bohanes (eds), The WTO at Ten: The Contribution of the Dispute Settlement System (Cambridge: Cambridge University Press, 2006). 32 DSU, Arts. 3.2, 19.2. 28

This chapter will be published in Simon Lester and Bryan Mercurio (eds), Bilateral and Regional Trade Agreements: Commentary and Analysis (Cambridge: Cambridge University Press, forthcoming late 2007/early 2008). Draft only. Please do not cite or distribute without the authors’ permission.

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‘subsidiary means for the determination of rules of law’.33 Locknie Hsu even suggests that WTO provisions and cases may ‘evolve into customary international law’34 and on that basis be relevant sources of international law in interpreting FTAs. At the least, even though the WTO’s Ministerial Conference and General Council ‘have the exclusive authority to adopt interpretations’ of the WTO agreements,35 the reasoning and conclusions in adopted Panel and Appellate Body Reports may shed light on the correct interpretation of particular WTO provisions, which may be relevant in interpreting related FTA provisions. This conclusion is particularly apt where the FTA provision in question incorporates a WTO provision by reference or replicates the wording of the WTO provision, both of which are common techniques. 36 An example of an FTA incorporating a WTO provision by reference appears in NAFTA Article 301(1): Each Party shall accord national treatment to the goods of another Party in accordance with Article III of the General Agreement on Tariffs and Trade (GATT), including its interpretative notes, and to this end Article III of the GATT and its interpretative notes, or any equivalent provision of a successor agreement to which all Parties are party, are incorporated into and made part of this Agreement.

An example of an FTA replicating the wording of a WTO provision 37 appears in Article 809 of the Thailand-Australia Free Trade Agreement,38 which is very similar to Article XVI of the WTO’s General Agreement on Trade in Services39 (‘GATS’). The relevance of WTO law in interpreting these and other FTA provisions 40 is evidenced by a number of decisions by FTA tribunals. For instance, examining a NAFTA exception provision that ‘closely track[ed] the GATT Article XX language’, an Arbitral Panel established under NAFTA Chapter 20 found that ‘the GATT/WTO jurisprudence proves helpful in determining what “necessary” means’.41 The NAFTA Myers Arbitral Tribunal referred to WTO case law on ‘like products’ in interpreting 33

ICJ Statute, Art. 38(1)(d). As Brownlie notes, ‘the practical significance of the label “subsidiary means” in Article 38(1)(d) is not to be exaggerated.’: Ian Brownlie, Principles of Public International Law (Oxford: Oxford University Press, 6th ed, 2003). See below n 106 and corresponding text. 34 Locknie Hsu, ‘Applicability of WTO Law in Regional Trade Agreements: Identifying the Links’ in Lorand Bartels and Federico Ortino (eds.), Regional Trade Agreements and the WTO Legal System (Oxford: Oxford University Press, 2006) 525, 532. 35 Marrakesh Agreement Establishing the World Trade Organization, LT/UR/A/2 (signed 15 April 1994, entered into force 1 January 1995) Art. IX:2. 36 On the different ways in which FTA provisions may invoke WTO law, see Locknie Hsu, ‘Applicability of WTO Law in Regional Trade Agreements: Identifying the Links’ in Lorand Bartels and Federico Ortino (eds.), Regional Trade Agreements and the WTO Legal System (Oxford: Oxford University Press, 2006) 525, 542. 37 See also AUSFTA, Art. 17.9(3), duplicating Agreement on Trade-Related Aspects of Intellectual Property Rights, LT/UR/A-1C/IP/1 (signed 15 April 1994) (‘TRIPS Agreement’) Art. 30. 38 Signed 4-6 July 2004, entered into force 1 January 2005. 39 LT/UR/A-1B/S/1 (signed 15 April 1994, entered into force 1 January 1995). 40 Conversely, incorporation of WTO provisions in FTAs may have implications for the compulsory nature of the WTO dispute settlement system, given that the same issue may be litigated under an FTA instead of the WTO. This relates to the problem of overlapping WTO/FTA jurisdiction, as discussed further below, p 22. 41 NAFTA Ch 20 Panel Report, In the Matter of Cross-Border Trucking Services, USA-MEX-982008-01 (6 February 2001) [260], [262].

This chapter will be published in Simon Lester and Bryan Mercurio (eds), Bilateral and Regional Trade Agreements: Commentary and Analysis (Cambridge: Cambridge University Press, forthcoming late 2007/early 2008). Draft only. Please do not cite or distribute without the authors’ permission.

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the words ‘like circumstances’ in NAFTA Article 1102 42 (although a subsequent tribunal criticised this approach given the different language used in the two treaties).43 Incidentally, citation by WTO Panels or the Appellate Body of FTA tribunal decisions as legal authority in interpreting WTO law is much rarer,44 although Todd Weiler has argued that: should NAFTA tribunal jurisprudence in the fields of services and investment regulation continue to outstrip that of WTO panels, it would not seem too much to ask that NAFTA awards be considered by WTO panels in the adoption of an inductive approach to as-of-yet ‘untested’ GATS obligations.45

Weiler made this statement in 2003, before the release of several significant WTO cases on services (not that these embraced FTA tribunal jurisprudence either).46 III FTAS AND CUSTOMARY INTERNATIONAL LAW As already mentioned, 47 Articles 31 and 32 of the Vienna Convention reflect customary international law on treaty interpretation and therefore represent one way in which customary international law affects FTAs. Moreover, Article 31(3)(c) provides an avenue for various aspects of public international law (including customary international law) to influence the interpretation of FTAs. In this section, we explore two additional issues regarding the relationship between FTAs and customary international law. To begin with, how might FTAs contribute to or influence customary international law? Conversely, how might customary international law affect the operation of FTAs other than in an interpretative sense? We address these intersecting questions in turn. A

Contribution of FTAs to Customary International Law

Customary international law is an independent source of international law, as reflected in Article 38(1)(b) of the ICJ Statute, which refers to ‘international custom, Myers v Canada, [243]-[246]. For further discussion of the use of WTO law by NAFTA panels and tribunals, see Locknie Hsu, ‘Applicability of WTO Law in Regional Trade Agreements: Identifying the Links’ in Lorand Bartels and Federico Ortino (eds.), Regional Trade Agreements and the WTO Legal System (Oxford: Oxford University Press, 2006) 525, 543-49. 43 NAFTA Ch 11 Arbitral Tribunal, Methanex Corporation v United States of America (Award of 9 August 2005) Part IV, Ch B, [29]-[37]. 44 Cf, eg, Appellate Body Report, European Communities – Customs Classification of Frozen Boneless Chicken Cuts (‘EC – Chicken Cuts’), WT/DS269/AB/R, WT/DS286/AB/R (circulated 12 September 2005, adopted 27 September 2005) [310]-[345]. See also Isabelle Van Damme, ‘What Role is there for Regional International Law in the Interpretation of the WTO Agreements?’ in Lorand Bartels and Federico Ortino (eds.), Regional Trade Agreements and the WTO Legal System (Oxford: Oxford University Press, 2006) 553, 569-571 on the use by WTO Panels and the Appellate Body of FTAs (as opposed to FTA jurisprudence) in interpreting WTO law. 45 Todd Weiler, ‘NAFTA Article 1105 and the Principles of International Economic Law’ (2003) 42 Columbia Journal of Transnational Law 35, 73. 46 See, in particular, Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services (‘US – Gambling’), WT/DS285/AB/R (circulated 7 April 2005, adopted 20 April 2005); Panel Report, Mexico – Measures Affecting Telecommunications Services (‘Mexico – Telecoms’), WT/DS204/R (circulated 2 April 2004, adopted 1 June 2004). 47 See above section IIA. 42

This chapter will be published in Simon Lester and Bryan Mercurio (eds), Bilateral and Regional Trade Agreements: Commentary and Analysis (Cambridge: Cambridge University Press, forthcoming late 2007/early 2008). Draft only. Please do not cite or distribute without the authors’ permission.

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as evidence of a general practice accepted as law’. 48 In accordance with this description, customary international law is essentially created through the two elements of ‘State practice’ and ‘opinio juris’49 (that is, belief among the relevant States that this practice accords with a binding norm). More particularly: Not only must the acts concerned amount to a settled practice, but they must also be such, or be carried out in such a way, as to be evidence of a belief that this practice is rendered obligatory by the existence of a rule of law requiring it. … The States concerned must therefore feel that they are conforming to what amounts to a legal obligation.50

In 1990, before the creation of the WTO, Stephen Zamora canvassed the possibility of ‘customary international economic law’, suggesting that international economic law (including in the form of multilateral and bilateral treaties) could contribute to or provide evidence of both State practice and opinio juris.51 Let us consider an example of how this might occur. Under customary international law, a State is responsible for a ‘denial of justice’ where its courts or tribunals fail to accord a minimum standard of procedural or (more rarely) substantive fairness to aliens in the administration of justice.52 (Importantly, this ‘minimum standard’ may relate to the way the State treats its own nationals, but it operates independently of and supplements the ‘national treatment’ rule common in WTO agreements and FTAs.53) This customary rule could be relevant in interpreting FTA provisions,54 or it could apply independently to the conduct of FTA parties just as other customary rules may do, as discussed below. At the same time, the development of the rule in FTAs and FTA jurisprudence could affect the content or status of the customary rule. This is particularly likely given that FTAs frequently incorporate some form of the doctrine of denial of justice in their provisions, and that disputes concerning the treatment of aliens, including in the courts, often arise in the context of FTAs. For further discussion of customary international law, see Michael Byers, Custom, Power and the Power of Rules (Cambridge: Cambridge University Press, 1999); Kristen Walker and Andrew Mitchell, ‘A Stronger Role for Customary International Law in Domestic Law?’ in Hilary Charlesworth, Madelaine Chiam, Devika Hovell and George Williams (eds), The Fluid State (Sydney: Federation Press, 2005) 110, 112-25. 49 See, eg, North Sea Continental Shelf (Federal Republic of Germany v Denmark; Federal Republic of Germany v Netherlands) (Merits) (‘North Sea Continental Shelf’) [1969] ICJ Rep 3, 41. 50 North Sea Continental Shelf, 44. 51 Stephen Zamora, ‘Is There Customary International Economic Law?’ (1990) 32 German Yearbook of International Law 9, 18-23. 52 See, eg, Case Concerning Elettronica Sicula SpA (ELSI) (United States of America v Italy) (Merits) (‘Elettronica Sicula’) [1989] ICJ Rep 15, 66-67; Louis Sohn and R Baxter, ‘Responsibility of States for Injuries to the Economic Interests of Aliens’ (1961) 55 American Journal of International Law 545; Robert Jennings and Arthur Watts (eds.), Oppenheim’s International Law (Longman, 9th ed., 1992) (vol. I) 543-44; Jan Paulsson, Denial of Justice in International Law (Cambridge: Cambridge University Press, 2005); Andrew Mitchell, ‘Due Process in WTO Disputes’ in Rufus Yerxa and Bruce Wilson, Key Issues in WTO Dispute Settlement: The First Ten Years (Cambridge: Cambridge University Press, 2006) 144, 148–9. 53 Giorgio Sacerdoti, ‘Bilateral Treaties and Multilateral Treatments on Investment Protection’ (1997) Hague Academy, Recueil des Cours 251, 342. 54 In relation to the doctrine of denial of justice in interpreting investment treaty provisions, see Todd Weiler, ‘NAFTA Article 1105 and the Principles of International Economic Law’ (2003) 42 Columbia Journal of Transnational Law 35, 77, 79-81. 48

This chapter will be published in Simon Lester and Bryan Mercurio (eds), Bilateral and Regional Trade Agreements: Commentary and Analysis (Cambridge: Cambridge University Press, forthcoming late 2007/early 2008). Draft only. Please do not cite or distribute without the authors’ permission.

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For instance, NAFTA Article 1105(1) provides: Each Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security.

The reference to international law in this provision highlights the dynamic relationship between NAFTA and other aspects of public international law. The mere inclusion of Article 1105(1) in NAFTA could provide some evidence of state practice and opinio juris in connection with the doctrine of denial of justice in customary international law. The NAFTA Free Trade Commission’s interpretation of Article 1105(1) supports this suggestion, stating that ‘[t]he 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’. 55 Furthermore, NAFTA jurisprudence on Article 1105(1) could influence the meaning of denial of justice beyond the scope of NAFTA. In Loewen Group Inc and Raymond L Loewen v United States of America, Canadian investors challenged, inter alia, a Mississippi State Court decision in a commercial dispute with local business, on grounds including that: the trial court, by the way in which it conducted the trial, in particular by its conduct of the voir dire and its irregular reformation of the initial jury verdict for $260,000,000, [and] by permitting extensive nationality-based, racial and class-based testimony and counsel comments, violated Article 1105 of NAFTA …56

The Arbitral Tribunal determined that the conduct of the trial amounted to a ‘miscarriage of justice amounting to a manifest injustice as that expression is understood in international law’.57 However, due to the failure to appeal the State Court decision (as discussed further below) and subsequent developments affecting its jurisdiction, the Arbitral Tribunal ultimately dismissed Loewen’s claims. 58 Its discussion of denial of justice could nevertheless clarify the meaning of this doctrine under international law, not as a binding direction (particularly given the outcome of the case) but as a reflection of the understanding of the NAFTA parties regarding the content of customary international law (potentially as evidence of opinio juris)59 and perhaps as a guide to the development of that law. The following statements could play this kind of role: [W]e take it to be the responsibility of the State under international law and, consequently, of the courts of a State, to provide a fair trial As cited in and endorsed by Loewen v US, [125], [126], [128]. The Free Trade Commission’s interpretation contrasts with the earlier decision in NAFTA Ch 11 Arbitral Tribunal, Pope & Talbot Inc v Government of Canada (Award of 10 April 2001) [111]-[118], which held that the ‘fair and equitable treatment’ standard was separate from and supplementary to the customary international law standard. 56 Loewen v US, [39]. 57 Loewen v US, [54]. 58 Loewen v US, [240]. 59 Here we emphasise that these decisions could provide evidence of States’ beliefs and intentions in order to establish the existence or content of customary international law. We do not mean that the decisions would themselves constitute opinio juris or customary international law. As noted elsewhere in this chapter, judicial decisions may constitute a ‘subsidiary means’ for determining rules of international law: see above n 33 and below n 106 and corresponding text. 55

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ANDREW MITCHELL & TANIA VOON of a case to which a foreign investor is a party. It is the responsibility of the courts of a State to ensure that litigation is free from discrimination against a foreign litigant and that the foreign litigant should not become the victim of sectional or local prejudice.60 … A decision which is in breach of municipal law and is discriminatory against the foreign litigant amounts to manifest injustice according to international law.61

Other international tribunals have indeed referred to NAFTA rules and jurisprudence in interpreting other international treaties and determining the content of international law rules such as the minimum standard of treatment of aliens. For example, in Tecnicas Medioambientales Tecmed SA v United Mexican States, an Arbitral Tribunal was established within the framework of the International Centre for Settlement of Investment Disputes (‘ICSID’) to hear a dispute concerning a bilateral investment treaty between Spain and Mexico. 62 The tribunal cited as authority the NAFTA decisions in Myers and Mondev International Ltd v United States of America in determining that ‘the commitment of fair and equitable treatment’ under the investment treaty was ‘an expression and part of the bona fide principle recognized in international law, although bad faith from the State is not required for its violation’.63 More recently, in CMS Gas Transmission Company v Argentine Republic,64 another ICSID Arbitral Tribunal considered a dispute arising under a bilateral investment treaty between the US and Argentina.65 Article II(2)(a) of the treaty provided that ‘[i]nvestment shall at all times be accorded fair and equitable treatment, shall enjoy full protection and security and shall in no case be accorded treatment less than that required by international law’.66 Referring to the NAFTA Free Trade Commission’s interpretation of NAFTA Article 1105(1), 67 the Arbitral Tribunal in CMS Gas concluded that the ‘standard of fair and equitable treatment’ under the investment treaty was ‘not different from the international law minimum standard and its evolution under customary law’.68 The CMS Gas case also demonstrates how FTA tribunal decisions may affect state practice. The Arbitral Tribunal noted that the NAFTA ruling in Pope & Talbot Inc v Government of Canada69 that ‘the standard of fair and equitable treatment is separate

Loewen v US, [123]. Loewen v US, [135]. 62 Agreement on the Reciprocal Promotion and Protection of Investments signed by the Kingdom of Spain and the United Mexican States (entered into force 18 December 1996). 63 Tecnicas Medioambientales Tecmed SA v United Mexican States, ICSID Case No ARB(AF)/00/2 (Award of 29 May 2003) [153] (footnote omitted) (citing Myers v Canada, [134] and NAFTA Ch 11 Arbitral Tribunal, Mondev International Ltd v United States of America, ICSID Case No ARB(AF)/99/2 (Award of 11 October 2002) [116]). 64 CMS Gas Transmission Company v Argentine Republic (‘CMS Gas v Argentina’), ICSID Case No ARB/01/8 (Award of 12 May 2005). 65 Treaty between the United States of America and the Argentine Republic Concerning the Reciprocal Encouragement and Protection of Investment (signed 14 November 1991, entered into force 20 October 1994). 66 As cited in CMS Gas v Argentina, [266]. 67 CMS Gas v Argentina, [283]. See above n 55 and corresponding text. 68 CMS Gas v Argentina, [284]. 69 See above n 55 and corresponding text. 60 61

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and more expansive than that of customary international law’70 prompted the Free Trade Commission’s contrary interpretation 71 as well as clarifications in other treaties,72 such as the Chile-United States Free Trade Agreement.73 Article 10.4.2 of that FTA provides additional guidelines regarding the obligations in Article 10.4.1, stating, ‘[f]or greater certainty’, that ‘[t]he 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 standard applicable under customary international law’. A similar qualification appears in the AUSFTA, which requires treatment of covered investments ‘in accordance with the customary international law minimum standard of treatment of aliens, including fair and equitable treatment and full protection and security’.74 The increasingly important role of NAFTA and other FTA tribunals in public international law may concern some commentators, who argue that they are not ‘equipped to hear questions of international law that are normally submitted to the’ International Court of Justice (‘ICJ’).75 On the other hand, the process of ‘dialectic review’ pursuant to NAFTA Chapter 11 may be especially valuable in the ‘development of international norms of due process’ and the ‘refinement of existing norms’.76 Interestingly, the Arbitral Tribunal in Loewen pointed out that Chapter 11 itself ‘represents a progressive development in international law whereby the individual investor may make a claim on its own behalf and submit the claim to international arbitration’.77 B

Non-interpretative Impact of Customary International Law on FTAs

We turn now to the related question of how customary international law constrains or otherwise affects the operation of FTAs, in addition to its common influence in dictating rules of interpretation. Specifically, we consider the extent to which customary international law may impact on FTAs in the absence of an FTA provision that expressly incorporates or refers to a specific rule or principle of international law (such as the minimum standard of treatment of aliens). Some FTA provisions may suggest that all aspects of customary international law (as well as other aspects of international law, such as treaties, as discussed further below) apply not merely in interpreting FTA provisions but more broadly in resolving FTA disputes. For instance, NAFTA Article 1131, the corollary of Article 102(2) mentioned above,78 provides in relation to state-investor disputes under Chapter 11: Governing Law

CMS Gas v Argentina, [282]. See above n 55 and corresponding text. 72 CMS Gas v Argentina, [282]. 73 Signed 6 June 2003, entered into force 1 January 2004. 74 AUSFTA, Art. 11.5(1) (see also Art. 11.5(2)). 75 Ari Afilalo, ‘Towards a Common Law of International Investment: How NAFTA Chapter 11 Panels Should Solve Their Legitimacy Crisis’ (2004) 17 Georgetown International Environmental Law Review 51, 84. 76 Robert Ahdieh, ‘Between Dialogue and Decree: International Review of National Courts’ (2004) 79 New York University Law Review 101, 201. 77 Loewen v US, [223]. 78 See above p 4. 70 71

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ANDREW MITCHELL & TANIA VOON 1. A Tribunal established under this Section shall decide the issues in dispute in accordance with this Agreement and applicable rules of international law.

The reference to ‘applicable rules of international law’ arguably encompasses all procedural or substantive rules of international law, as opposed to purely interpretative rules such as those found in Articles 31 and 32 of the Vienna Convention. Conversely, one might contend that Article 1131 has no impact on the Tribunal’s applicable law; it simply confirms or restates out of an abundance of caution what would be the case anyway. In other words, Article 1131 acknowledges that, pursuant to international law, certain rules not spelled out in NAFTA will apply to Chapter 11 disputes. Assuming that this interpretation is correct, or that we are discussing an FTA that contains no equivalent to Article 1131, we are faced with the question whether or which customary international law rules would apply. In the WTO context, few would dispute that Panels and the Appellate Body have jurisdiction to hear only claims under WTO law, as opposed to claims under any other body of domestic or international law.79 Similarly, most FTAs that include dispute settlement provisions make clear the types of claims that the relevant tribunals may hear: typically those concerning the interpretation or application of the FTA in question.80 A separate, more controversial question81 in the context of both the WTO and FTAs is the extent to which customary international law forms part of the applicable or governing law in resolving disputes. On one view, put simply, each FTA is ‘born into’ public international law and therefore customary international law applies to it and the resolution of disputes under it to the extent that the FTA does not otherwise provide. This is the view espoused by Pauwelyn in relation to the WTO.82 Joel Trachtman forcefully expresses the opposing position: It is important … to recognize the distinction between the law that applies to the conduct of states and the law that is applicable within WTO dispute settlement. [Pauwelyn] argues that because states are subject to the full range of their conventional and customary international legal obligations unless they contract out of them, WTO dispute settlement must apply all international legal obligations unless they are specifically precluded from application … This logic is fundamentally incorrect: it is a non sequitur. The opposite is true. See, eg, Joost Pauwelyn, ‘The Jurisdiction of the World Trade Organization’ (2004) 98 American Society of International Law Proceedings 135, 135; Joel Trachtman, ‘The Jurisdiction of the World Trade Organization’ (2004) 98 American Society of International Law Proceedings 139, 139; Debra Steger, ‘The Jurisdiction of the World Trade Organization’ (2004) 98 American Society of International Law Proceedings 142, 143. 80 See, eg, Thailand-Australia Free Trade Agreement (signed 4-6 July 2004, entered into force 1 January 2005) Art. 21.2. On ‘non-violation’ claims, as allowed under this provision and certain other FTAs as well as GATT Article XXIII:1(b) and GATS Article XXIII:3, see Locknie Hsu, ‘Nonviolation Complaints—World Trade Organization Issues and Recent Free Trade Agreements’ (2005) 39(2) Journal of World Trade 205. 81 International Law Commission, UN, Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law - Report of the Study Group – Finalized by Martti Koskenniemi, A/CN.4/L.682 (4 April 2006) [45]. 82 Joost Pauwelyn, Conflict of Norms in Public International Law: How WTO Law Relates to Other Rules of International Law (Cambridge: Cambridge University Press, 2003) 460-61, 466-67. 79

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International legal tribunals are authorized only to (1) hear cases and (2) apply law pursuant to their specific, positive mandates. They are not implicitly courts of general jurisdiction, either as to the cases they can hear or as to the law they can apply.83

Although this debate has so far taken place largely in the context of the WTO, the same issues arise in relation to FTAs and are equally difficult to resolve. Nevertheless, FTA provisions and caselaw provide some indication of how FTAs in practice deal with their relationship with customary international law. In addition, at the outset, it is important to recognise that FTAs can neither ‘contract out of’ nor avoid by omission certain rules of international law, namely jus cogens norms. Article 53 of the Vienna Convention defines a jus cogens norm or ‘a peremptory norm of general international law’ as ‘a norm accepted and recognized by the international community of States as a whole as a norm from which no derogation is permitted and which can be modified only by a subsequent norm of general international law having the same character’.84 Under the same provision, ‘[a] treaty is void if, at the time of its conclusion, it conflicts with a peremptory norm of general international law’. Similarly, Article 64 of the Vienna Convention provides that ‘[i]f a new peremptory norm of general international law emerges, any existing treaty which is in conflict with that norm becomes void and terminates’. These pronouncements as to jus cogens norms being above all others in the hierarchy of public international law apply not merely to States parties to the Vienna Convention, as ‘[t]he concept of jus cogens operates as a concept superior to both customary international law and treaty’. 85 Arguably, the implications for a treaty that conflicts with a jus cogens norm as set out in the Vienna Convention represent customary international law and are therefore also binding on all States.86 Norms generally recognised as having the character of jus cogens include, for instance, genocide,87 crimes against humanity, war crimes,88 and ‘the prohibition of the use of force expressed in Article 2, paragraph 4, of the Charter of the United Nations’.89 Therefore, peremptory norms may have minimal impact on FTAs in practice, given that few FTAs would ever be likely to conflict with these kinds of norms. 83

Joel Trachtman, ‘Book Review. Conflict of Norms in Public International Law: How WTO Law Relates to Other Rules of International Law by Joost Pauwelyn’ (2004) 98 American Journal of International Law 855, 857–858. 84 See Legality of the Threat or Use of Nuclear Weapons (Advisory Opinion) [1996] ICJ Rep 226, 258, referring to Vienna Convention, Art. 53, as defining jus cogens. 85 Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v Serbia and Montenegro) (Order on Provisional Measures) [1993] ICJ Rep 325, 440 (Separate Opinion of Judge Lauterpacht). 86 See Ian Sinclair, The Vienna Convention on the Law of Treaties (Manchester: Manchester University Press, 2nd ed., 1984) 17-18. 87 Reservations to the Convention on the Prevention and Punishment of Genocide (Advisory Opinion) [1951] ICJ Rep 15, 23. 88 Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v Serbia and Montenegro) (Order on Provisional Measures) [1993] ICJ Rep 325, 440 (Separate Opinion of Judge Lauterpacht); M C Bassiouni, ‘International Crimes: Jus Cogens and Obligatio Erga Omnes’ (1996) 59(4) Law and Contemporary Problems 63, 68; Restatement (3rd) of the Law: The Foreign Relations Law of the United States (1987) vol 2, § 702, 161-62. 89 Case Concerning Military and Paramilitary Activities in and against Nicaragua (Nicaragua v United States of America) (Merits) [1986] ICJ Rep 14, 100-01.

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Aside from these non-derogable norms, several customary international law norms may apply to FTAs and FTA dispute settlement, either because the FTA does not specify that they are inapplicable (taking the Pauwelyn approach) or because the FTA designates them or customary international law more generally as part of the applicable law (taking the Trachtman approach). We now provide two examples of such other norms and how they might arise in an FTA dispute: the international norms on state responsibility, and international rules regarding exhaustion of local remedies. In the Myers case, the NAFTA Arbitral Tribunal held that a Canadian ban on certain exports to the US violated Canada’s NAFTA obligations and that Canada therefore must pay compensation to the US investor Myers for the injury caused to its investment in Canada. 90 The Arbitral Tribunal therefore needed to consider the ‘principles on which compensation should be awarded.91 Noting that it had to decide the matter, pursuant to Article 1131, in accordance with NAFTA ‘and applicable international law’, the Arbitral Tribunal first considered the NAFTA provisions on compensation but found no relevant guidelines. It therefore turned to international law for guidance. 92 Referring to 93 the Factory at Chorzów decision by the Permanent Court of International Justice94 and to the (then draft) Articles on Responsibility of States for internationally wrongful acts of the International Law Commission (‘ILC Articles on State Responsibility’), 95 it concluded that the approach to calculating compensation should ‘reflect the general principle of international law that compensation should undo the material harm inflicted by a breach of an international obligation’.96 Thus, the Arbitral Tribunal applied an aspect of the international law rules on state responsibility either as a norm of customary law or as a general principle of law (as discussed further below). The international rule on exhaustion of local remedies is widely accepted as having attained the status of customary international law.97 In the context of an FTA dispute, the question may arise whether the rule applies to preclude an alien investor from resorting to an FTA tribunal to challenge a measure of an FTA party before exhausting remedies available within the domestic system of that party. The ICJ in Case Concerning Elettronica Sicula SpA (ELSI) (United States of America v Italy) suggested that the rule will apply to a treaty unless the treaty otherwise provides: Myers v Canada, [301]. Myers v Canada, Ch XI. 92 Myers v Canada, [304]-[310]. 93 Myers v Canada, [311]-[312]. 94 Case Concerning the Factory at Chorzów (Claim For Indemnity) (Merits) [1928] PCIJ (Ser A) No 17, 4, 47. 95 See UN General Assembly Resolution, Responsibility of States for internationally wrongful acts, A/RES/56/83 (28 January 2002) Annex, Art. 36; James Crawford, The International Law Commission’s Articles on State Responsibility: Introduction, Text and Commentaries (Cambridge: Cambridge University Press, 2002). 96 Myers v Canada, [315]. 97 See, eg, the sources cited in Chittharanjan Felix Amerasinghe, Local Remedies in International Law (Cambridge: Cambridge University Press, 2nd ed., 2004) 3-4. See also Bernardo Sepúlveda Amor, ‘International Law and National Sovereignty: the NAFTA and the Claims of Mexican Jurisdiction’ (1997) 19 Houston Journal of International Law 566, 583-588. On the relationship between the rule on exhaustion of local remedies and ‘denial of justice’ (discussed above p 8), see Chittharanjan Felix Amerasinghe, Local Remedies in International Law (Cambridge: Cambridge University Press, 2nd ed., 2004) 84-106. 90 91

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The Chamber has no doubt that the parties to a treaty can therein either agree that the local remedies rule shall not apply to claims based on alleged breaches of that treaty; or confirm that it shall apply. Yet the Chamber finds itself unable to accept that an important principle of customary international law should be held to have been tacitly dispensed with, in the absence of any words making clear an intention to do so.98

In the specific context of FTAs, NAFTA again provides useful evidence of the application of the customary international law norm regarding the exhaustion of local remedies. As mentioned earlier, even if the Arbitral Tribunal in Loewen had determined that it had jurisdiction, it would not have provided a remedy to the foreign investor (despite its finding of manifest injustice) because the investor had not, for example, appealed the offending court’s decision to the United States Supreme Court. Significantly, the Arbitral Tribunal distinguished between the procedural rule that ‘requires a party complaining of a breach of international law by a State to exhaust the local remedies in that State before the party can raise the complaint at the level of international law’99 and the substantive ‘requirement that a decision of a lower court be challenged through the judicial process before the State is responsible for a breach of international law constituted by judicial decision’.100 It reviewed a range of sources including the ILC Articles on State Responsibility,101 decisions of the United StatesMexican Claims Tribunal and the Iran-United States Claims Tribunal, 102 and several jurists, 103 and it stated, ‘No instance has been drawn to our attention in which an international tribunal has held a State responsible for a breach of international law constituted by a lower court decision when there was available an effective and adequate appeal within the State’s legal system.’ 104 The Arbitral Tribunal relied on other international tribunals in exploring the scope of the obligation to pursue local remedies.105 Article 38(1)(d) of the ICJ Statute includes as an additional source of international law to which the ICJ should have regard in resolving disputes ‘judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law’. 106 Thus, in relying on these various sources, the Arbitral Tribunal in Loewen was applying international law, not merely as a means to interpret NAFTA provisions, but as a non-interpretative rule of law. Ultimately, it concluded that ‘Loewen failed to pursue its domestic remedies, notably the Supreme Court option and that, in consequence, Loewen has not shown a violation of

Elettronica Sicula, 42. Loewen v US, [149]. 100 Loewen v US, [156]. 101 Loewen v US, [149]. 102 Loewen v US, [151], [155]. 103 Loewen v US, [150], [152], [153]. 104 Loewen v US, [154]. On whether a ‘reasonably available’ alternative remedy in fact existed, see Noah Rubins, ‘Loewen v. United States: The Burial of an Investor-State Arbitration Claim’ (2005) 21(1) Arbitration International 1, 17-23. 105 Loewen v US, [165]-[166]. 106 This provision is expressed as subject to Article 59 of the ICJ Statute, which states: ‘The decision of the Court has no binding force except between the parties and in respect of that particular case.’ 98 99

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customary international law and a violation of NAFTA for which Respondent is responsible’.107 While applauding the desirability of the rule on exhaustion of local remedies, William Dodge contends that the Loewen decision conflicts with Article 1121 and other NAFTA decisions on the issue.108 NAFTA Article 1121 sets out the ‘conditions precedent to submission of a claim to arbitration’ by an investor under Chapter 11. One of the conditions is that the investor: waive their right to initiate or continue before any administrative tribunal or court under the law of any Party … any proceedings with respect to the [challenged] measure … except for proceedings for injunctive, declaratory or other extraordinary relief, not involving the payment of damages, before an administrative tribunal or court under the law of the disputing Party.

Dodge contends that Article 1121 waives the international law rule on exhaustion of local remedies;109 on that view, it is inappropriate for a NAFTA tribunal to rely on the rule. Perhaps the reason for the apparent conflict that Dodge perceives lies in the distinction that the Arbitral Tribunal in Loewen drew between the procedural local remedies rule (which bars international jurisdiction in the absence of exhaustion of local remedies) and the substantive rule that States are not responsible for errors of their courts unless those errors have been appealed to the court of last resort. Arguably, the Loewen Arbitral Tribunal applied the second of these rules, whereas Article 1121 and other NAFTA tribunal decisions address the first. 110 In this context it is easier to understand the Loewen Arbitral Tribunal’s conclusion that Article 1121 does not waive or modify the ‘duty to pursue local remedies’, at least where the alleged international wrong is a judicial act:111 ‘It would be strange indeed if sub silentio the international rule were to be swept away.’112

Before turning to the issue of conflicts between FTAs and other treaties, we wish to make certain additional observations regarding the relationship between FTAs and ‘general principles of law’, which form a separate source of international law according to Article 38(1)(c) of the ICJ Statute. That provision directs the ICJ to apply ‘the general principles of law recognized by civilized nations’. This is a complex area Loewen v US, [217]. William Dodge, ‘Loewen Group v US, Mondev International v US’ (2004) 98(1) American Journal of International Law 155, 161-63 (referring to, inter alia, NAFTA Ch 11 Arbitral Tribunal, Mondev International Ltd v United States of America, ICSID Case No ARB(AF)/99/2 (Award of 11 October 2002); NAFTA Ch 11 Arbitral Tribunal, Metalclad Corporation v United Mexican States, ICSID Case No ARB(AF)/97/1 (Award of 30 August 2000)). 109 William Dodge, ‘Investor-State Dispute Settlement between Developed Countries: Reflections on the Australia-United States Free Trade Agreement’ (2006) 39 Vanderbilt Journal of Transnational Law 1, 3; cf Loewen v US, [161] (referring to Professor Greenwood QC and the late Sir Robert Jennings). 110 See Noah Rubins, ‘Loewen v. United States: The Burial of an Investor-State Arbitration Claim’ (2005) 21(1) Arbitration International 1, 16. Cf Loewen v US, [161] (referring to Professor Greenwood QC and the late Sir Robert Jennings). Dodge’s response to this explanation of Loewen is here: William Dodge, ‘Loewen Group v US, Mondev International v US’ (2004) 98(1) American Journal of International Law 155, 162. 111 Loewen v US, [164]. 112 Loewen v US, [162]. 107 108

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of international law that is explored elsewhere.113 For the purpose of this chapter, it is worth noting that general principles of law may apply to FTAs and FTA disputes just as customary international law may do. To some extent these principles may overlap with customary international law, but as certain general principles may find no corollary in customary international law we should not forget this source of international law. One important example of a general principle of law (as well as possibly a part of customary international law) that may be significant in an FTA dispute is the principle of good faith. 114 Indeed, Weiler describes good faith as a substantive principle of international economic law.115 The scope and content of this principle is unclear, but some FTA provisions incorporate some form of it. For example, the AUSFTA requires parties, in the event of a dispute, to ‘enter into consultations in good faith’,116 echoing the WTO’s Understanding on Rules and Procedures Governing the Settlement of Disputes (‘DSU’). 117 Depending on one’s understanding of the applicable law in FTA disputes,118 this and other aspects of the principle of good faith may operate independently of any FTA provision. In the Pope & Talbot case, the NAFTA Arbitral Tribunal rejected Canada’s claim that the US investor was estopped from bringing a challenge under NAFTA Chapter 11, because the elements of estoppel recognised under international law were not made out.119 Although estoppel did not lie in this case, in ruling on Canada’s claim with reference to international law, the Arbitral Tribunal applied one particularisation of the principle of good faith. The principle of good faith may also require parties to an FTA to perform the FTA in good faith (pacta sunt servanda, as reflected in Article 26 of the Vienna Convention),120 and exercise their rights under the FTA in good faith (in accordance with the doctrine of abus de droit).121 From these examples concerning state responsibility, the local remedies rule, and good faith, we can see that the practice of FTA tribunals (or at least those within NAFTA) is to apply substantive and procedural aspects of customary international law and general principles of law in resolving disputes. Where the FTA expressly See generally Bin Cheng, General Principles of Law as applied by International Courts and Tribunals (London: Stevens & Sons, 1953); Andrew Mitchell, Legal Principles in WTO Disputes (Cambridge: Cambridge University Press, forthcoming). 114 Certain Norwegian Loans (France v Norway) (Jurisdiction) [1957] ICJ Rep 9, 53. See also Bin Cheng, General Principles of Law as applied by International Courts and Tribunals (London: Stevens & Sons, 1953) 105-60; John O’Connor, Good Faith in International Law (Aldershot: Ashgate, 1991); Andrew Mitchell, ‘Good Faith in WTO Dispute Settlement’ (2006) 7 Melbourne Journal of International Law 339, 341-51. 115 Todd Weiler, ‘NAFTA Article 1105 and the Principles of International Economic Law’ (2003) 42 Columbia Journal of Transnational Law 35, 77. 116 AUSFTA, Art. 21.5(1). 117 DSU, Art. 4.3. 118 See above p 12. 119 NAFTA Ch 11 Arbitral Tribunal, Pope & Talbot Inc v Government of Canada (Interim Award of 26 June 2000) [111]-[112]. 120 See also, eg, North Atlantic Coast Fisheries Arbitration (United States v Great Britain) (1910) 11 RIAA 167, 186; Gabčíkovo-Nagymaros Project, 79; Arnold McNair, The Law of Treaties (Oxford: Clarendon Press, 1961) 540. 121 See generally G D S Taylor, ‘The Content of the Rule against Abuse of Rights in International Law’ (1972-73) 46 British Yearbook of International Law 323. 113

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overrides such international law norms (other than jus cogens norms), the FTA will typically prevail. However, resolving conflicts between FTAs and other treaties is more complex. IV RESOLVING CONFLICTS BETWEEN FTAS AND OTHER TREATIES We now explore the possibility of conflicts between FTAs and other treaties, recalling that Article 38(1)(a) of the ICJ Statute includes as a potential source of international law ‘international conventions, whether general or particular, establishing rules expressly recognized by the contesting states’. A

Substantive Conflicts

Because of the expanding content of FTAs and their broadening geographical coverage, they are increasingly likely to include rights or obligations that conflict with those under other bilateral or multilateral treaties, including the WTO agreements, other FTAs, and conventions on issues from human rights and the environment to development and consular immunities. The possibility of these conflicts raises issues similar to those discussed above in relation to FTAs and customary international law.122 In particular, for the purpose of resolving disputes within the framework of an FTA, if the applicable law includes public international law (either because the FTA does not specifically exclude public international law or because the FTA specifically incorporates it, depending on one’s point of view), the FTA tribunal will need to decide whether the relevant FTA rule or the conflicting non-FTA rule should prevail. This will of course depend on the circumstances, but several common considerations and guidelines will apply to the decision, as we explain below. If the non-FTA rule is to prevail, this may mean it provides a defence to an FTA violation, independent of any FTA provision providing for this defence. The rules on treaty interpretation as discussed above,123 including Article 31(3) of the Vienna Convention, may assist in avoiding conflicts between FTAs and other treaties. If a conflict does arise and cannot be avoided through interpretation, we must look to the FTA or conflicting treaty to see if any specific provision indicates how to resolve it. Article 30(2) of the Vienna Convention provides: ‘When a treaty specifies that it is subject to, or that it is not to be considered as incompatible with, an earlier or later treaty, the provisions of that other treaty prevail.’ Accordingly, the impact of a conflict rule may depend on its content and the timing and nature of the conflicting treaty. One example of an FTA conflict rule that is likely to fall within Article 30(3) of the Vienna Convention and therefore be effective in resolving conflicts with certain other treaties is Article 20.3(3) of the Korea-Chile Free Trade Agreement,124 which states: Nothing in this Agreement shall affect the rights and obligations of either Party under any tax convention. In the event of any inconsistency between this Agreement and any such convention, that convention shall prevail to the extent of the inconsistency.

In contrast, NAFTA Article 103 sets out its ‘relation to other agreements’ as follows: 122 123 124

See section IIIB. See section IIA. Signed 15 February 2003, entered into force 1 April 2004.

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1. The Parties affirm their existing rights and obligations with respect to each other under the General Agreement on Tariffs and Trade and other agreements to which such Parties are party. 2. In the event of any inconsistency between this Agreement and such other agreements, this Agreement shall prevail to the extent of the inconsistency, except as otherwise provided in this Agreement.

This provision does the reverse of what Article 30(2) of the Vienna Convention contemplates. However, it is consistent with the lex posterior rule reflected in Article 30(4)(a) of the Vienna Convention, as discussed further below, and it would be effective at public international law to ensure that NAFTA prevails over GATT 1994 and other previous agreements, at least as between the NAFTA parties. In addition to the general conflict rule in Article 103, NAFTA contains a specific conflict rule regarding three multilateral environmental agreements (‘MEAs’). Article 104 provides for obligations under the Convention on International Trade in Endangered Species of Wild Fauna and Flora, 125 the Montreal Protocol on Substances that Deplete the Ozone Layer,126 and (upon its entry into force for the three NAFTA parties) the Basel Convention on the Control of Transboundary Movements of Hazardous Waste and Their Disposal (‘Basel Convention’)127 to prevail to the extent of any inconsistency with NAFTA, subject to the condition that ‘where a Party has a choice among equally effective and reasonably available means of complying with such obligations, the Party chooses the alternative that is the least inconsistent’ with the provisions of NAFTA.128 The Myers Arbitral Tribunal referred to this provision when Canada raised the Basel Convention as a defence to a NAFTA violation. As the Basel Convention had not (and still has not) entered into force for the US, NAFTA Articles 103 and 104 meant that Canada’s claim failed.129 FTAs may also contain provisions that are not explicit conflict rules but that provide exceptions for certain policy objectives or particular kinds of measures that may be promoted under other treaties (equivalent to, say, GATT Article XX in the WTO context). The United States-Singapore Free Trade Agreement, for example, provides an exception for ‘environmental measures necessary to protect human, animal, or plant life or health’,130 which could include measures undertaken pursuant to MEAs. GATT Article XXIV provides an example of a corresponding exception in another treaty that might conflict with an FTA (the WTO treaty). An FTA that meets the stringent requirements of this exception for ‘customs unions and free-trade areas’ would not conflict with WTO law, or at least not with GATT 1994. The same applies to the arguably less stringent requirements of GATS Articles V and Vbis, 131 as regards a conflict with GATS. Unfortunately, the limited jurisprudence to date sheds 125

993 UNTS 243; 12 ILM 1085 (adopted 3 March 1973, entered into force 1 July 1975). 1522 UNTS 3 (adopted 16 September 1987, entered into force 1 January 1989). 127 1673 UNTS 57 (adopted 22 March 1989, entered into force 5 May 1992). At the time of writing, this convention has entered into force for Canada and Mexico, but the United States is not yet a party. 128 Article 104 also extends to certain bilateral environmental agreements listed in NAFTA Annex 104.1. 129 Myers v Canada, [214]-[215]. 130 Signed 6 May 2003, entered into force 1 January 2004, Article 13.4(1)(b) and (2). 131 Bernard Hoekman, Tentative First Steps: An Assessment of the Uruguay Round Agreement on Services, World Bank Policy Research Working Paper 1455 (1995) 8. 126

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little light on the meaning of these exceptions,132 which are contested and by their terms ambiguous,133 if not inherently flawed.134 Although this uncertainty may create a practical disincentive for one WTO Member to challenge another’s compliance with GATT Article XXIV (particularly in view of the proliferation of FTAs across the WTO Membership), it means that Article XXIV does not provide a lasting, predictable solution to resolving conflicts between FTAs and WTO law.135 Although Lorand Bartels argues that Articles 3.2 and 19.2 of the DSU operate as conflict rules in WTO dispute settlement136 (which could operate to resolve conflicts with FTAs), they do not do so explicitly, and no consensus exists on any such rules. Language more clearly amounting to a conflict rule is found in non-trade treaties such as the Cartagena Protocol on Biosafety to the Convention on Biological Diversity,137 the preamble of which states: Recognizing that trade and environment agreements should be mutually supportive with a view to achieving sustainable development, Emphasizing that this Protocol shall not be interpreted as implying a change in the rights and obligations of a Party under any existing international agreements, Understanding that the above recital is not intended to subordinate this Protocol to other international agreements …

These kinds of statements (which are followed in other treaties such as the draft Convention on the Protection and Promotion of the Diversity of Cultural Expressions adopted by the United Nations Educational, Scientific and Cultural Organization in 2005) 138 promote the positive notion of mutual supportiveness and allow some flexibility, while preventing the suggestion of any deliberate or blatant breach of WTO or FTA law. However, they may be ultimately too contradictory or unhelpful to resolve conflicts as they arise.

132

Sungjoon Cho, ‘Breaking the Barrier between Regionalism and Multilateralism: A New Perspective on Trade Regionalism’ (2001) 42(2) Harvard International Law Journal 419, 421, 437-50. See also Joel Trachtman, ‘Toward Open Recognition? Standardization and Regional Integration under Article XXIV of GATT’ (2003) Journal of International Economic Law 6(2) 459, 473-77, 481-89. 133 On the many difficult issues surrounding the exception in GATT Article XXIV, see generally Nicolas Lockhart and Andrew Mitchell, ‘Regional Trade Agreements under GATT 1994: An Exception and its Limits’ in Andrew Mitchell (ed.), Challenges and Prospects for the WTO (London: Cameron May, 2005) 217. See also James Mathis, Regional Trade Agreements in the GATT/WTO: Article XXIV and the Internal Trade Requirement (The Hague: TMC Asser Press, 2002); Joel Trachtman, ‘International Trade: Regionalism’ in Andrew Guzman and Alan Sykes (eds.), Research Handbook in International Economic Law (London: Edward Elgar, forthcoming 2007, manuscript on file with authors) 11-17. 134 Sungjoon Cho, ‘Breaking the Barrier between Regionalism and Multilateralism: A New Perspective on Trade Regionalism’ (2001) 42(2) Harvard International Law Journal 419, 450-52. 135 For an example of how GATT Article XXIV might apply to a challenged measure in practice, see Lorand Bartels, ‘The Legality of the EC Mutual Recognition Clause under WTO Law’ (2005) 8(3) Journal of International Economic Law 691. 136 Lorand Bartels, ‘Applicable Law in WTO Dispute Settlement Proceedings’ (2001) 35(3) Journal of World Trade 499, 507. 137 39 ILM 1027 (adopted 29 January 2000, entered into force 11 September 2003). 138 CLT-2005/CONVENTIONDIVERSITE-CULT REV (20 October 2005) Art. 20.

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Especially where an FTA and another treaty ‘relating to the same subject matter’139 do not make clear how to resolve a substantive conflict between them (or where they conflict as to the proper way of doing so), the lex posterior rule as set out in Article 30 of the Vienna Convention comes into play.140 3. When all the parties to the earlier treaty are parties also to the later treaty but the earlier treaty is not terminated or suspended in operation under article 59, the earlier treaty applies only to the extent that its provisions are compatible with those of the later treaty. 4. When the parties to the later treaty do not include all the parties to the earlier one: (a) as between States Parties to both treaties the same rule applies as in paragraph 3; (b) as between a State party to both treaties and a State party to only one of the treaties, the treaty to which both States are parties governs their mutual rights and obligations.

In general, problematic FTA conflicts would involve Article 30(4), namely because the FTA conflicts with an earlier multilateral treaty that includes the FTA parties as well as non-FTA parties.141 In a dispute between FTA parties (or one party and an investor of another) the FTA would generally prevail in accordance with Article 30(3) of the Vienna Convention. However, in a dispute between an FTA party and a nonFTA party (say, before the ICJ or a WTO Panel), Article 30(4) provides that the earlier multilateral treaty would prevail. Accordingly, as a matter of international law, the FTA party would be obliged to comply with all its obligations under that earlier treaty with respect to non-FTA parties. What if none of these rules—in the FTA, the conflicting treaty, or the Vienna Convention—is able to resolve a particular conflict? Essentially, no hierarchy exists between treaties, unless a jus cogens norm142 or Article 103 of the Charter of the United Nations143 is involved.144 The principle of lex specialis derogat legi generali

Vienna Convention, Art. 30(1). See International Law Commission, UN, Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law Report of the Study Group – Finalized by Martti Koskenniemi, A/CN.4/L.682 (4 April 2006) [253][256]. 140 We leave to one side the possibility that the whole or part of an FTA might be ‘illegal’ by virtue of Article 41 or 58 of the Vienna Convention, in which case an FTA conflict rule could not save it. See Joost Pauwelyn, Conflict of Norms in Public International Law: How WTO Law Relates to Other Rules of International Law (Cambridge: Cambridge University Press, 2003) 302-15. 141 Of course, the dating of a multilateral treaty such as the WTO agreements may be difficult. Is the date of the WTO agreements 15 April 1994 (signing), 1 January 2005 (entry into force), 11 January 2007 (most recent accession), or some other date, given that negotiations on revising the agreements have occurred almost continuously since they entered into force? For further discussion, see Joost Pauwelyn, Conflict of Norms in Public International Law: How WTO Law Relates to Other Rules of International Law (Cambridge: Cambridge University Press, 2003) 372-84. 142 See above p 13. 143 Article 103 states: ‘In the event of a conflict between the obligations of the Members of the United Nations under the present Charter and their obligations under any other international agreement, their obligations under the present Charter shall prevail.’ Article 30(1) of the Vienna Convention provides that the usual rules in Article 30 regarding successive treaties are subject to Article 103 of the Charter of the United Nations. 139

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may assist, although its precise content and status at international law remain uncertain.145 Therefore, the results in any given instance are difficult to foresee. B

Overlapping Disputes

All international tribunals may face difficulties in reconciling their role with the operation of existing domestic court systems, particularly where a given dispute is litigated at both the domestic and international levels, either simultaneously or in sequence. Some FTAs mitigate this problem by precluding resort to domestic dispute resolution in some circumstances. For example, Article 21.15 of the AUSFTA provides: ‘Neither Party may provide for a right of action under its domestic law against the other Party on the ground that a measure of the other Party is inconsistent with this Agreement’. 146 However, a growing problem for FTAs and international tribunals more generally is the potential for conflict between dispute resolution forums at the international level, with given circumstances giving rise to potential claims under more than one treaty. This includes potential conflicts not only between rulings of the WTO’s DSB and those of FTA tribunals, but also between rulings of one FTA tribunal and another, and between FTA tribunals and other specialised or general tribunals operating within public or private international law. To combat this problem, many FTAs with dispute settlement mechanisms therefore include a ‘choice of forum’ clause. Article 21.4 of the AUSFTA thus states: 1. Where a dispute regarding any matter arises under this Agreement and under another trade agreement to which both Parties are party, including the WTO Agreement, the complaining Party may select the forum in which to settle the dispute. 2. Once the complaining Party has requested a panel under an agreement referred to in paragraph 1, the forum selected shall be used to the exclusion of the others.

A similar but more elaborate provision exists in NAFTA to prevent a complaining party from pursuing a remedy under both NAFTA Chapter 20 and the WTO dispute settlement system.147 However, although these provisions may be effective within the FTA dispute settlement system, their impact outside that system may depend on the application of the VCLT rules as discussed above. In other words, an FTA party might bring a dispute first to an FTA tribunal and then to a different tribunal, despite the existence of a choice of forum clause preventing such action. Moreover, the 144

Ignaz Seidl-Hohenveldern, ‘Hierarchy of Treaties’ in Jan Klabbers and René Lefeber (eds.), Essays on the Law of Treaties: A Collection of Essays in Honour of Bert Vierdag (The Hague: Martinus Nijhoff, 1998) 7, 7-9; International Law Commission, UN, Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law - Report of the Study Group – Finalized by Martti Koskenniemi, A/CN.4/L.682 (4 April 2006) [324]-[379]. 145 See International Law Commission, UN, Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law - Report of the Study Group – Finalized by Martti Koskenniemi, A/CN.4/L.682 (4 April 2006) [56]-[122]; Joost Pauwelyn, Conflict of Norms in Public International Law: How WTO Law Relates to Other Rules of International Law (Cambridge: Cambridge University Press, 2003) 385-409. 146 See also NAFTA, Art. 1121(1)(b), (2)(b). 147 NAFTA, Art. 2005. Regarding factors for parties to consider in deciding whether to use NAFTA or WTO dispute settlement, see generally Rafael Leal-Arcas, ‘Choice of Jurisdiction in International Trade Disputes: Going Regional or Global?’ (2007) 16 Minnesota Journal of International Law 1.

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complaining party might find the second tribunal amenable to hearing the dispute despite the existence of that clause.148 That conflicts between FTA tribunals and other international tribunals are more than mere possibilities is demonstrated by several recent WTO cases.149 In particular, in Mexico – Taxes on Soft Drinks,150 Mexico asked a WTO Panel to decline jurisdiction in order to enable the parties to resolve their dispute within NAFTA.151 The Panel refused, and the Appellate Body upheld this decision.152 However, the circumstances of the case were unusual, in that the dispute before the WTO was brought by the United States against certain Mexican tax measures on soft drinks and other beverages, whereas the dispute that Mexico wanted heard before NAFTA would have been brought by Mexico against certain United States measures limiting market access for Mexican cane sugar.153 In addition, the United States was stalling the NAFTA dispute by preventing panelist selection (indeed, this may have been part of Mexico’s justification for imposing the measures that allegedly violated WTO law).154 Hence, the NAFTA choice of forum clause did not apply to prevent the matter from proceeding before a WTO Panel. The result might have differed had Mexico or the United States called on the WTO Panel to enforce or apply the NAFTA choice of forum clause by declining jurisdiction or accepting that it lacked jurisdiction. In other words, had Mexico requested a NAFTA panel to resolve the dispute under NAFTA and then subsequently requested the establishment of a WTO panel to resolve the same dispute under WTO law, the WTO panel might have concluded that the choice of forum clause in NAFTA Article 2005 prevented it from adjudicating the dispute. Perhaps this is what the Appellate Body had in mind when it stated: ‘we express no view as to whether there may be other circumstances in which legal impediments could exist that would preclude a panel from ruling on the merits of the claims that are before it.’155 An express choice of forum clause preventing resort to both the WTO and an FTA panel might be one such ‘legal impediment’. According to Pauwelyn, a WTO Panel faced with such a 148

Kwak and Marceau reach a similar conclusion: Kyung Kwak and Gabrielle Marceau, ‘Overlaps and Conflicts of Jurisdiction between the World Trade Organization and Regional Trade Agreements’ (2003) 41 Canadian Yearbook of International Law 83, 106-07. 149 See, eg, the cases discussed in Greg Anderson, ‘Can Someone Please Settle This Dispute? Canadian Softwood Lumber and the Dispute Settlement Mechanisms of the NAFTA and the WTO’ (2006) World Economy 585; Kyung Kwak and Gabrielle Marceau, ‘Overlaps and Conflicts of Jurisdiction between the World Trade Organization and Regional Trade Agreements’ (2003) 41 Canadian Yearbook of International Law 83, 91-95; Gabrielle Marceau, ‘NAFTA and WTO Dispute Settlement Rules: A Thematic Comparison’ (1997) 31(2) Journal of World Trade 25, 75-80. 150 Appellate Body Report, Mexico – Tax Measures on Soft Drinks and Other Beverages, (‘Mexico – Taxes on Soft Drinks’), WT/DS308/AB/R (circulated 6 March 2006, adopted 24 March 2006); Panel Report, Mexico – Taxes on Soft Drinks, WT/DS308/R (circulated 7 October 2005, adopted 24 March 2006 as modified by the Appellate Body Report). 151 Panel Report, Mexico – Taxes on Soft Drinks, [3.2], [7.11], [7.12]. 152 Panel Report, Mexico – Taxes on Soft Drinks, [7.1], [7.18], [9.1]; Appellate Body Report, Mexico – Taxes on Soft Drinks, [57], [85(a)]. 153 Panel Report, Mexico – Taxes on Soft Drinks, [7.14]. 154 Panel Report, Mexico – Taxes on Soft Drinks, [8.170], [8.200]; Joost Pauwelyn, ‘Adding Sweeteners to Softwood Lumber: the WTO-NAFTA “Spaghetti Bowl” is Cooking’ (2006) 9(1) Journal of International Economic Law 197, 198. 155 Appellate Body Report, Mexico – Taxes on Soft Drinks, [54]. See also Panel Report, Mexico – Taxes on Soft Drinks, [7.13].

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clause would have to conclude that it lacked jurisdiction to hear a dispute brought in violation of it (that is, in violation of the agreement already reached between the disputing parties about how to resolve their trade disputes). 156 On the other hand, Kyung Kwak and Gabrielle Marceau contend that ‘[i]t is doubtful whether this type of provision would suffice to allow a WTO panel to refuse to hear the matter in situations where the dispute settlement process of the free trade agreement has been triggered’.157 Other doctrines might also prevent an FTA tribunal or other international tribunal from hearing a dispute that overlapped with another tribunal, thereby avoiding contradictory rulings. This is a complex area that Yuval Shany has ably covered elsewhere.158 Nevertheless, it is worth briefly examining some of the considerations to which FTA tribunals might have regard in the face of a potential conflict with another tribunal. First, in recognition of the principle of judicial comity (even though this may not have the force of international law),159 an FTA tribunal might defer or decline to commence proceedings while another tribunal was hearing the same or a closely related dispute. On the same basis, an FTA tribunal might refuse to adjudicate a matter that another tribunal had already resolved. This kind of response would express respect for the other tribunal and discourage forum-shopping by disputing parties, while also potentially reducing the chances of substantive conflicts between treaties (eg due to interpretations without regard to other treaties). More legally forceful principles could also govern an FTA tribunal’s response in these circumstances. In particular, res judicata, recognised as part of customary international law or as a ‘general principle of law’ within the meaning of Article 38(1)(c) of the ICJ Statute,160 could prevent an FTA tribunal from hearing a dispute that had already been resolved by another tribunal. This could occur where the disputes before the two tribunals involved the same parties and issues161 (on one view, therefore, res judicata cannot apply where the two tribunals apply different law, eg

156

Joost Pauwelyn, ‘How to Win a World Trade Organization Dispute Based on Non-World Trade Organization Law?: Questions of Jurisdiction and Merits’ (2003) 37(6) Journal of World Trade 997, 1013. 157 Kyung Kwak and Gabrielle Marceau, ‘Overlaps and Conflicts of Jurisdiction between the World Trade Organization and Regional Trade Agreements’ (2003) 41 Canadian Yearbook of International Law 83, 90-91. 158 Yuval Shany, The Competing Jurisdictions of International Courts and Tribunals (Oxford: Oxford University Press, 2003). See also Vaughan Lowe, ‘Overlapping Jurisdiction in International Tribunals’ (1999) 20 Australian Yearbook of International Law 191. 159 Yuval Shany, The Competing Jurisdictions of International Courts and Tribunals (Oxford: Oxford University Press, 2003) 262. See also Joost Pauwelyn, ‘Adding Sweeteners to Softwood Lumber: the WTO-NAFTA “Spaghetti Bowl” is Cooking’ (2006) 9(1) Journal of International Economic Law 197, 202. 160 Bin Cheng, General Principles of Law as applied by International Courts and Tribunals (London: Stevens & Sons, 1953) 336; Yuval Shany, The Competing Jurisdictions of International Courts and Tribunals (Oxford: Oxford University Press, 2003) 245-46. 161 Yuval Shany, The Competing Jurisdictions of International Courts and Tribunals (Oxford: Oxford University Press, 2003) 24-25; Joost Pauwelyn, ‘Adding Sweeteners to Softwood Lumber: the WTO-NAFTA “Spaghetti Bowl” is Cooking’ (2006) 9(1) Journal of International Economic Law 197, 200.

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the law of the WTO agreements vs the law of the relevant FTA).162 Similarly, even in the absence of a choice of forum clause, an FTA tribunal might hold that a complainant was estopped from bringing before it a claim of an FTA violation had it already brought essentially the same claim to another forum.163 One difficulty that an FTA tribunal might perceive in determining whether it lacked jurisdiction due to a pre-existing proceeding would be that it might need to analyse non-FTA laws to answer that question. This difficulty is reflected in the WTO context in Mexico – Taxes on Soft Drinks, where the Appellate Body emphasised, ‘We see no basis in the DSU for panels and the Appellate Body to adjudicate non-WTO disputes.’164 However, an FTA tribunal would not need to decide anything as a matter of non-FTA law in order to determine whether the doctrines of res judicata or estoppel applied or to decide whether and how to give effect to a choice of forum clause. Although it might need to consider non-FTA law to assess the similarity between the issues and claims before the two tribunals, it would not thereby be resolving a non-FTA dispute. The meaning of the non-FTA law would be a question of fact, just as international tribunals frequently evaluate domestic laws as questions of fact.165 V CONCLUSION Some aspects of the relationship between FTAs and public international law are much clearer than others. For example, few would question that the interpretative rules contained in the Vienna Convention guide the interpretation of FTA provisions unless the FTA otherwise provides. Through these interpretative rules, and specifically Article 31(3)(c) of the Vienna Convention, treaty law, customary international law and general principles of law may affect the meaning and development of FTAs. This includes, in particular, WTO rules and jurisprudence, which may shed light on FTA provisions, especially where the FTA provisions mirror those in the WTO agreements. The relationship between FTAs and customary international law beyond the interpretative context is murkier, as is the existence and content of customary international law itself. Nevertheless, an examination of past FTA disputes, particularly under NAFTA, demonstrates that FTAs have the potential to contribute to customary international law. In addition, customary international law may apply to FTAs in a procedural and substantive rather than purely interpretative manner. Examples of this are found in the recognition of jus cogens norms, the international norms on state responsibility, and the international rule regarding exhaustion of local remedies. 162

Kyung Kwak and Gabrielle Marceau, ‘Overlaps and Conflicts of Jurisdiction between the World Trade Organization and Regional Trade Agreements’ (2003) 41 Canadian Yearbook of International Law 83, 103. 163 Cf NAFTA Ch 19 Panel Decision, In the Matter of Certain Top-Mount Electric Refrigerators, Electric Household Dishwashers, and Gas or Electric Laundry Dryers, CDA-USA-2000-1904-03 (15 April 2002) 25-26. For further discussion of res judicata, issue estoppel and collateral estoppel in the context of WTO vs FTA disputes, see Joost Pauwelyn, ‘How to Win a World Trade Organization Dispute Based on Non-World Trade Organization Law?: Questions of Jurisdiction and Merits’ (2003) 37(6) Journal of World Trade 997, 1017-19. 164 Appellate Body Report, Mexico – Taxes on Soft Drinks, [56]. 165 See Tania Voon and Alan Yanovich, ‘The Facts Aside: The Limitation of WTO Appeals to Issues of Law’ (2006) 40(2) Journal of World Trade 239, 251-52.

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The trickiest issues surrounding the overlap between FTAs and public international law arise where an FTA conflicts with another treaty, either because of conflicting norms between the two treaties or because of dispute settlement systems that are capable of hearing the same dispute. The potential for conflicts is growing as the number and breadth of FTAs grow, and further complications can be expected as individual FTA dispute settlement systems become more active or developed. Public international law offers some methods for dealing with treaty conflicts and intersecting jurisdictions, while the judicial experience of decision-makers on tribunals may also assist. As to the extent to which FTA tribunals will make use of principles such as judicial comity, res judicata and lex specialis derogat legi generali to avoid or resolve conflicts, we can only wait and see.

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