A reader emailed expressing concern about the Cargill NAFTA Chapter 11 Award, in particular this part:
299. Reviewing closely the record of this case, the Tribunal finds ample support for the conclusion that the import permit was one of a series of measures expressly intended to injure United States HFCS producers and suppliers in Mexico in an effort to persuade the United States government to change its policy on sugar imports from Mexico. The Tribunal finds that the sole purpose of the import permit requirement was to change the trade policy of the United States; while the sole effect was to virtually remove Claimant from the Mexican HFCS market. There is no other relationship between the means and the end of this requirement. The Tribunal finds the institution of a permit requirement for a few foreign producers in an attempt to persuade another nation to alter its trade practices to be manifestly unjust.
305. For the forgoing reasons, the Tribunal finds the import permit requirement instituted by Mexico, for the period it was in effect, to be a breach of the Article 1105(1) obligation to provide fair and equitable treatment to Claimant.
The reader's concern was that the Tribunal's finding of a violation of Article 1105 undermines a country’s ability to retaliate for a trade violation, even if that retaliation is authorized under a trade agreement.
There was also a "countermeasures" defense that touches on this point. Here, the Tribunal stated:
428. Respondent contends that, if the rights of investors are not viewed as rights substantially held by the State of the investor, then absurd results follow under the NAFTA. Assuming that countermeasures are permitted within the framework of the NAFTA and Chapter 20, Respondent argues that it is absurd that countermeasures possibly could preclude the wrongfulness of its act vis-a-vis the offending State generally, while those very same countermeasures would be "nullified" by the fact that they would have no similar effect on the claims of investors of the offending State under Chapter 11. The Tribunal disagrees with Respondent's view that such a situation is absurd. To the degree that the existence of claims under Chapter 11 would limit the effectiveness of the countermeasures, then it need be recalled that there is always a range of possible countermeasures to be adopted. Moreover, customary international law itself prohibits certain countermeasures. There is no reason that the range of countermeasures might be further limited -- either by direct exclusion in a treaty of certain measures or by the creation of a claims process placed directly in the hands of individuals -- that limits the effectiveness of certain measures in whole or in part.
Basically, the Tribunal seems to say that it's fine if NAFTA Chapter 11 limits the ability to take "countermeasures."
Going back to the question in the post title, does this Tribunal think that authorized trade retaliation can violate investment law provisions? The trade retaliation at issue here was not authorized, of course, but does the reasoning tell us anything about how the Tribunal would answer the question?
I'm just speculating here, but it seems to me that on the "countermeasures" point, the Tribunal would have said that authorized trade retaliation would not take precedence over investment obligations. That is to say, the Tribunal believes that the international law of "countermeasures" could not be used to preclude an investment claim brought against authorized trade retaliation.
However, looking at the "fair and equitable treatment" reasoning, I think the Tribunal would not have found a violation if the trade retaliation at issue had been properly authorized under a trade agreement. I base that conclusion mainly on the Tribunal's use of the terms "the sole purpose of the import permit requirement was to change the trade policy of the United States." With authorized retaliation, the purpose could be characterized as "inducing the responding country to bring its measures into compliance with international law." That's very different from simply "changing the trade policy." Obviously, Mexico (the respondent) took the position here that it was trying to bring the United States into compliance with its NAFTA obligations, and arguably that fact shouldn't be completely ignored. But my guess is, the Tribunal's view was that authorized trade retaliation versus unauthorized trade retaliation is an important distinction, and that unauthorized retaliation can violate Article 1105 whereas authorized retaliation usually will not.
But that's just a guess. The reasoning doesn't address the issue directly, as far as I can see.