Trade Countermeasures in Investment Arbitration: The Issue of State Liability

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Trade Countermeasures in Investment Arbitration:

The Issue of State Liability

LL.M. Thesis

in partial fulfilment of the LL.M. program International and European Law: International Trade and Investment Law

by Ambrine Froger ambrinefroger@gmail.com

12934259

under supervision of Hege Elisabeth Kjos

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List of abbreviations

Abbreviation Explanation

ARSIWA - Draft Articles on the Responsibility of States for Internationally Wrongful Acts AB - Appellate Body

BITs - Bilateral Investment Treaties DSB - Dispute Settlement Body

DSU - Understanding on Rules and Procedures Governing the Settlement of Disputes ECHR - European Convention on Human Rights

ECT - Energy Charter Treaty EU - European Union

GATT - General Agreement on Tariffs and Trade ICJ - International Court of Justice

ICSID - Convention on Settlement of Investment Disputes between States and Nationals of Other States IIA - International Investment Agreement

ILC - International Law Commission NPM - Non-Precluded Measures

PCIJ - Permanent Court of International Justice VCLT - Vienna Convention on the Law of Treaties WTO - World Trade Organisation

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Abstract

Countermeasures are well established in public international law and are even included in the rules of the World Trade Organisation. The use of countermeasures is however not foreseen in investment treaties, even though these countermeasures might affect investors and investments. This thesis attempts to shed light on this still much debated issue of countermeasures in international investment law, and more specifically on the issue of State liability under investment law for trade countermeasures. Specifically, the aim is to assess the different questions that arise when an investor holds a State liable for a breach of an obligation and the same State uses the defence of countermeasures. The thesis benefits from three international investment cases, the cases arising from the Sugar War between Mexico and the United States, the analysis of which concerning countermeasures was used to structure the reflection of this thesis. The Claimants in theses cases argued that the countermeasure defence was not available since investors have direct rights under investment treaties, investment treaties apply lex specialis and the requirements of countermeasures are not fulfilled. These are the issues that this thesis will address in three separate chapters.

Keywords

Countermeasures - Circumstances precluding Wrongfulness - Sugar War cases - ILC Articles - State responsibility

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Introduction

Countermeasures are well established in international public law. The term “countermeasure” is, nonetheless, relatively new and appeared for the first time in the award Air Service Agreement of 27 March 19461_{. The United States, in their memorials and their oral pleadings, often used this expression,} which was reused by the tribunal itself.2_{It is only twenty-three years later, in 2001, that the}

International Law Commission (ILC) adopted the word ‘countermeasure’ in its Draft Articles on the Responsibility of States for Internationally Wrongful Acts (ARSIWA)3_.4_{The Commentaries to these}

articles describe countermeasures as ‘measures that would otherwise be contrary to the international obligations of an injured State vis-à-vis the responsible State, if they were not taken by the former in response to an internationally wrongful act by the latter in order to procure cessation and reparation’5_.

Thus, the terms ‘reprisal’ and ‘sanction’, terms by which the institution was known, have been permanently replaced by the term ‘countermeasure’.6

Still, countermeasures continue to raise a number of questions and in particular with regards to their application to international investment arbitration. Indeed, in World Trade Organization (WTO) law, countermeasures are officially included in the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). On the other hand, the use of countermeasures is not explicitly foreseen in most investment treaties. The issue of countermeasures in international investment law is very relevant since countermeasures can affect investors and their investments. Therefore, investors might be willing to hold States liable before international investment tribunals for countermeasures taken according to the WTO law. The issue of countermeasures under international investment law may raise the question of the jurisdiction of arbitral tribunals or the question of peremptory norms and humanitarian law, since the ILC Articles state that countermeasures shall not affect peremptory norms and humanitarian law.7_{My contribution in this Master Thesis will focus on the question of the}

liability of State for countermeasures before investment tribunals and will follow the various points put forward by the Claimants and the Defendants concerning the defence of countermeasures in the three Sugar War cases that will be presented below.

When held liable by investors for violation of the provisions of an investment agreement, host States may be inclined to avail themselves of their right to take countermeasures in response to an

1_{Air Services Agreements of 27 March 1946 (United States of American and France), Arbitral Award of 9}

December 1978, 18 RIAA, 417, 454.

2_{Federica Paddeu, ‘Countermeasures’, Max Planck Encyclopedia of Public International Law (2017) (OUP,2016),}

para. 2.

3_{Draft articles on Responsibility of States for Internationally Wrongful Acts [2001] adopted by the International}

Law Commission as its fifty-third session, UN GAOR, UN Doc 1/56/10.

4_{James Crawford, Alain Pellet, Simon Olleson, Kate Parlett, ‘The Law of International Responsibility’ (Oxford}

Commentaries on International Law, OUP Oxford, 20 May 2010)

5_{Commentary to the draft articles on Responsibility of States for internationally wrongful acts [2001] adopted}

by the International Law Commission as its fifty-third session, Yearbook of the International Law Commission, 2001, vol. II, Part Three, Chapter II.

6_{Federica Paddeu, ‘Countermeasures’, supra note 2, para. 2.}

7_{Article 50 (1) (c) and (d) Draft articles on Responsibility of States for Internationally Wrongful Acts [2001]}

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6 internationally wrongful act committed by the investor’s State. In this case the justification of countermeasures would be used as a way of precluding wrongfulness in arbitral proceedings, and States would not be held liable. However, several conditions and requirements must be met for this to happen. Thus, this Master Thesis poses the following research question:

‘To what extent can a State be liable for a trade countermeasure in international investment law?’

In order to answer this question, this thesis proceeds with further chapters. The first chapter provides an understanding of the different theories regarding the nature of investors rights. Indeed, this issue is important because we will begin by seeing that the rules concerning countermeasures apply between States. Then, the second chapter will focus on the exclusion of the application of countermeasure through the application of lex specialis under the Article 55 of the ILC Articles. Claimants in the Sugar War cases have argued that the WTO and the investment could apply lex specialis and therefore exclude countermeasures. Thereafter, the third chapter will address the requirements for a countermeasure to be lawful under the ILC Articles and will mainly focus on the proportionality criteria. Finally, the fourth chapter will draw a conclusion to the research question.

Background of the international investment cases

concerning countermeasures

The most significant cases concerning countermeasures in international investment arbitration are the cases arising from the Sugar War between the United States and Mexico. These three cases, Archer Daniels Midland8_{, Cargill}9_{and Corn Products International}10_{, will be analysed and discussed throughout}

this Master Thesis.

In all three decisions, the Claimants are companies that manufacture, or manufacture through their subsidiaries, high fructose corn syrup in Mexico, which is used as a sweetener in non-alcoholic beverages. High fructose corn syrup (HFCS) competes directly with sweeteners made from sugar. The facts are the following: in the early 1990’s, Mexico consumed more sugar than it produced. However, after an extensive restructuring of the industry, the sugar production increased, and Mexico considered that it would have a sugar surplus, which would require export markets.11_{This alarmed U.S.}

HFCS producers who feared they would be overwhelmed by Mexican sugar that could replace HFCS in U.S. soft drinks. Even so, the U.S. Government was prepared to concede access for surplus production under transitional arrangements, incorporated into the NAFTA.12_{The U.S. and Mexico entered into an}

Exchange of Letters attached to the NAFTA, one in English and one in Spanish, which did not match

8_{Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. The United Mexican States, ICSID}

Case No. ARB (AF)/04/5, Award (21 November 2007)

9_{Cargill, Incorporated v. United Mexican States, ICSID Case No. ARB(AF)/05/2, Award (18 September 2009)} 10_{Corn Products International, Inc. V. United Mexican States, ICSID Case No. ARB (AF)/04/1, Award (18 August}

2009)

11_{Ibid, para. 32.} 12_{Ibid, para. 33.}

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7 each other.13_{As a result, between 1997 and 2006, the U.S. admitted less Mexican sugar than that}

which, according to the Mexican Government, should have been admitted in accordance with the terms of NAFTA and the side-letters.14_{At the same time, the imports of HFCS from the U.S. to Mexico}

rose. Therefore, sugar’s share of the market for soft drinks sweeteners in Mexico fell. It brought sugar prices in Mexico to record low levels.15_{This led to a political situation, with sugar producers insisting}

that the Mexican government take action. In 2002, the Federal Congress in Mexico enacted a legislation, which required bottlers of soft drinks to pay a tax of 20% on the full price of each drink. An exemption existed if the soft drink was manufactured using sweeteners made exclusively from cane sugar.16_{These measures were disputed before the WTO and the dispute was settled in 2006.}

Nevertheless, several U.S. investors in Mexico claimed to have suffered losses during the period the measures were in place. As a result, they filed a complaint against Mexico under the investor-state dispute settlement mechanism provided for in the Chapter 11 of NAFTA. Mexico responded that the measures in question were legitimate countermeasures taken after the U.S. violated its obligations under Chapter 8 and Chapter 20 of NAFTA.17

13_{Juanito James Losari and Michael Ewing Chow, ‘A Clash of Treaties: The Legality of Countermeasures in}

International Trade Law and International Investment Law’, published by the Society of International Economic Law, July 10-12 2014, Working Paper No. 2014/18, p. 13.

14_{Corn Products International, Inc. V. United Mexican States, supra note 10, para. 34.} 15_{Ibid, para. 35.}

16_{Mexico – Tax Measures on Soft Drinks and Other Beverages, WTO DSU, Article 3(2), WT/DS308/AB/R, Report}

of the Appellate Body, 6 March 2006, para. 111.

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1. The nature of investors’ rights

In order to know whether the defence of countermeasures is available under investment agreements and whether a State is able to take legitimate trade countermeasures which impact investors a first question arises: is an investor, in pursuing a claim under an investment treaty, claiming its own rights under the treaty or is he acting as an agent for its home State? Zachary Douglas in the International Law of Investment Claims formulates the question differently: does the investor/state arbitral mechanism in the modern investment treaty create a device for triggering the rights and obligations of diplomatic protection?18_{This issue is of primary importance. In fact, if the claimant only acts as an}

agent of the rights and obligations set out in the treaty, then he would basically step into the shoes of his home State and raise the claim on its behalf. In this case, rights set out in the investment treaty would be owed to the home State only.

Article 49 ARSIWA specifies the objects and limits of countermeasures:

1. An injured State may only take countermeasures against a State which is responsible for an internationally wrongful act in order to induce that State to comply with its obligations under Part Two.

2. Countermeasures are limited to the non-performance for the time being of international obligations of the State taking the measures towards the responsible State.

3. Countermeasures shall, as far as possible, be taken in such a way as to permit the resumption of performance of the obligations in question. 19

The text of the ARSIWA makes it clear that countermeasures must be directed against a State. Countermeasures taken against a third party will not be considered as precluding wrongfulness. The ILC Commentary on Article 49 notes that:

In a situation where a third State is owed an international obligation by the State taking countermeasures and that obligation is breached by the countermeasure, the wrongfulness of the measure is not precluded as against the third State. In that sense the effect of the countermeasures in precluding wrongfulness is relative. It concerns the legal relations between the injured State and the responsible State This does not mean that countermeasures may not incidentally affect the position of third States or indeed other third parties. For example, if the injured State suspends transit rights with the responsible State in accordance with this Chapter, other parties, including third States, may be affected thereby. If they have no individual rights in the matter, they cannot complain. Similarly, if, as a consequence of the suspension of a trade agreement, trade with the responsible State is affected and one or more

18_{Zachary Douglas, ‘The International Law of Investment Claims’, (Cambridge: Cambridge University Press, 2009),}

p.10.

19_{Article 49 of the Draft articles on Responsibility of States for Internationally Wrongful Acts [2001] adopted by}

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9 companies lose business or even go bankrupt. Such indirect or collateral effects cannot be entirely avoided.20

Thus, clearly, a countermeasure-based defence might raise the question of whether investors derive substantive rights from investment treaties.21_{If investment treaty rights are rights owed to the}

investor State and not the investor, an injured State, when violating investment treaty rights, can claim that it has done so as part of a legal countermeasure taken against the investor State. This is called the “derivative” model as opposed to the “direct” model, both attempting to clarify the nature of investment treaty arbitration.

1.1. The different models on investor rights

1.1.1. The ‘derivative’ model

The derivative model foresees that investors as individuals do not benefit from direct international legal rights under investment treaties, but instead benefit indirectly from the rights of their home State. This theory suggests that bilateral investment treaties institutionalize and reinforce (rather than replace) the system of diplomatic protection.22_{Under this model, obligations laid out in investment}

treaties are only owed as between States, including the requirement to resort to arbitration when filing a claim in accordance with the terms of the investment treaty.23_{This is in line with the Mavrommatis}

case of the Permanent Court of International Justice (PCIJ), according to which:

It is an elementary principle of international law that a State is entitled to protect its subjects, when injured by acts contrary to international law committed by another State, from whom they have been unable to obtain satisfaction through the ordinary channels. By taking up the case of one of its subjects and by resorting to diplomatic action or international judicial proceedings on his behalf, a State is in reality asserting its own rights – its right to ensure, in the person of its subjects, respect for the rules of international law.24

This dictum was reused in a number of other cases before the PCIJ25_{and in the judgments of the} International Court of Justice (ICJ)26_.

20_{Commentary to the draft articles on Responsibility of States for internationally wrongful acts, supra note 5,}

Article 49.

21_{Kate Parlett, ‘The Individual in the International Legal System’, (Cambridge University Press, May 2011), pp}

47-175, p. 116.

22_{J-R. Crawford, ‘The ILC’s Articles on Responsibility of States for Internationally Wrongful Acts: A Retrospect’,}

American Journal of International Law 96(4) (2002), p. 874-890, p. 888.

23_{Kate Parlett, ‘The Individual in the International Legal System’, para note 21, p. 105.}

24_{The Mavrommatis Palestine Concessions (Greece v. the United Kingdom), Judgment of 30 August 1924, PCIJ,}

PCIJ Series A No. 2, 6, at 12.

25_{Panecezys-Saldutiskis Railway (Estonia v. Latvia) 1938 PCIJ (Ser A/B) No. 76; Serbian and Brazilian Loans (France}

v. Serbia) 1929 PCIJ (Ser. A) No. 20; Chorzow Factory (Germany v. Poland) 1928 PCIJ (Ser. A) No. 17.

26_{Reparations for Injuries Suffered in the Service of the United Nations Case (Advisory Opinion)}

1949 ICJ Rep 174, 181; Nottebohm (Liechtenstein v Guatemala) 1954 ICJ Rep 4; Barcelona Traction, Light and Power Co. Ltd (Belgium v Spain) 1970 ICJ Rep 4.

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In international investment treaty arbitration, the first example of the use of the derivative model is the Loewen award. In this award, the Tribunal held that:

There is no warrant for transferring rules derived from private law into a field of international law where claimants are permitted for convenience to enforce what are in origin the rights of Party states.27

In support of this theory, some authors have argued that international investment agreements never provide that investors benefit from rights independent of State parties. In fact, according to them, investment treaties contain the option for States to amend or terminate the treaty, which implies that the right they contain are not independent.28_{The argument scholars use is that even the procedural} rights can be modified: for example, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) can be denounced.29_{According to them, the ILC} Articles explicitly accept the possibility that companies may lose business and go bankrupt as a result of countermeasures, when they state that “such indirect or collateral effects cannot be entirely avoided”30_.

However, this position has been very criticized, in particular by Zachary Douglas in the International Law of Investment Claims. In six points, which will be summarized here, Zachary Douglas explains how investment treaty arbitration is different from diplomatic protection and that investment treaties do not give legislative effect to the ‘derivative’ model.31

 Functional control of the claim: In the context of diplomatic protection, the State of the national may or may not take up the claim. When taking up the claim, it may waive, compromise, discontinue and even abandon the claim entirely, without taking into account the wishes of the injured national. On the other hand, in an international investment claim, the investor is not required to inform his State of the proceedings, the investor must pay to bring the investment treaty claim and the damages are owed only to the investor. Therefore, the investor State has no interest in investment treaty arbitration, whereas it has a strong interest when dealing with a claim for the exercise of diplomatic protection.32

 The nationality of claims rule: In diplomatic protection, the injured national must be a national of the claimant State at the time of the injury until the presentation of the claim or the date of the award or judgment. In the Nottebohm decision, the International Court of

27_{Loewen Group, Inc. And Raymond L. Loewen v. United States of America, ICSID Case No. ARB(AF)/98/3, Award}

(26 June 2003), para. 233.

International Trade Law and International Investment Law’, supra note 13, p. 29.

29_{Christoph Schreuer, ‘Denunciation of the ICSID Convention and Consent to Arbitration’ in Michael Waibel et al}

(eds), ‘The Backlash against Investment Arbitration: Perceptions and Reality’ (Kluwer International Law, 2010) paras. 353-358.

Article 49.

31_{Zachary Douglas, ‘The International Law of Investment Claims’, supra note 18, pp. 17-32.} 32_{Ibid, paras. 34-39.}

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Justice required an ‘effective’ or ‘genuine’ link between the injured national and the claimant State for the admission of diplomatic protection.33_{Because they have an interest in the claim,} it is common for States, when considering claims based on the corporate interests of their nationals, to require that the corporate interest include a controlling or beneficial ownership, or a connection based on the registered office of the enterprise. Conversely, in investment arbitration, no ‘genuine’ link is usually required between the investor and the national State.34  Forum selection clauses: An exclusive jurisdiction clause in favour of the municipal courts of the host state in an investment treaty will not prejudice the ability of the investor’s home State to bring a claim for diplomatic protection against the host State. No agreement may affect the investor’s home State’s right to file an application for diplomatic protection. On the other side, through a ‘fork in a road’ provision in an investment agreement, an investor may deprive itself of its procedural right to have its claims under the treaty heard by an international tribunal by initiating proceedings regarding such claims before a municipal court of the host State. This shows that, when the investor choses to institute proceedings before a domestic tribunal, there is no interest left in the claim that remains at the international level for the national State. If the State had an interest in the investment claim, the investor would not be able to foreclose its procedural right.35

 The applicable procedural law: In the context of diplomatic protection, before resort may be made to an international court in such a situation, it has been considered necessary that the State where the violation occurred should have an opportunity to redress it by its own means within the framework of its own domestic legal system.36_{This is the local remedies rule.} Investment treaty tribunals, for their part, have waived the local remedies rule as a procedural barrier to proceedings before an international arbitral tribunal. This means that contracting States have given up their interests protected by the local remedies rule. It shows again that States have no interest in international investment proceedings.37

 The assessment of damages: Unlike damages in the context of diplomatic protection, damages in an investment treaty claim never take into account the interests of the investor’s State. The tribunals only assess the harm caused to the investor by the host State. This leads to the conclusion that the investor is not asserting public or international interests.38

 The challenge to and enforcement of awards: A truly international judgment or award is not subject to any challenge or review before a municipal court. Awards rendered before international investment tribunals may be challenged and reviewed in compliance with

33_{Nottebohm case (Liechtenstein v. Guatemala), International Court of Justice, Second Phase, Judgment of}

April 6th_{, 1955, p. 24.}

34_{Zachary Douglas, ‘The International Law of Investment Claims’, supra note 18, paras. 40-50.} 35_{Ibid, paras. 51-52.}

36_{Interhandel (Switzerland v. United States of America), ICJ, judgment of 21 March 1959, p. 27.} 37_{Zachary Douglas, ‘The International Law of Investment Claims’, supra note 18, paras. 53-59.} 38_{Ibid, paras. 60-61.}

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municipal and international instruments governing international commercial arbitral awards: these are not truly international awards. If decisions of the arbitral tribunals were considered as public international awards, they would not be classified as ‘commercial’. It therefore suggests that the relationship between the parties is private and not sovereign.39

These various arguments raised by Zachary Douglas strongly suggest that international investment arbitration is quite different from diplomatic protection. The two methods of dispute settlement do not appear to be comparable. Yet, the derivative theory combines these two methods. Looking at the great differences between these two methods, such a theory might seem to some to be inadequate and even inappropriate.

Furthermore, by looking at investment treaties, we can see that the dispute resolution clauses usually provide that the investor ‘has the right’ to submit a dispute to arbitration. Other state that the dispute shall be submitted ‘at the request’ of the investors.40_{Some provide that the investor ‘may’ or ‘may} chose’ to submit the dispute to arbitration.41_{All these formulations show that it is the investor who} can and does submit a dispute to arbitration. The investor therefore possesses a direct right to submit a claim to arbitral tribunals. It is clear, and it has been concluded by numerous scholars, that the language of the international investment treaties, which state that the right to resort to arbitration is a direct investors’ right, does not support the derivative model.42

1.1.2. The ‘direct’ model

In contrast to the ‘derivative’ rights model, the ‘direct’ model argues that individuals have both procedural and substantive rights under investment treaties, regardless of their State of origin, given the unique features of the arbitration system.43_{In support of this theory, it is suggested that the same}

conclusion is reached by considering a textual analysis of investment agreements and the injured investor’s right of direct action against the host State.44

This approach is in line with different statements made by investment arbitral tribunals. First, the arbitral tribunal in RosInvest stated, when it referred to the MFN clause under the Soviet-UL BIT:

The objective purpose of such treaty provisions, which confer independent third-party rights on investors, tellingly demonstrate that the principle of customary international law is inapplicable.45

39_{Ibid, paras. 62-64.}

40_{Article 8 of the Sri Lanka Model BIT.}

41_{Article 26 of the Energy Charter Treat (ECT), 17 December 1994 (entry into force 16 April 1998).} 42_{Kate Parlett, ‘The Individual in the International Legal System’, supra note 21, p. 110.}

43_{Anastasios Gourgourinis, ‘Investors’ Rights Qua Human Rights? Revisiting the ‘Direct’/ ‘Derivative’ Rights}

Debate’, in: The Interpretation and Application of the European Convention of Human Rights’, (2013), p. 154.

44_{Andrew Newcombe and Lluis Paradell, ‘Law and Practice of Investment Treaties. Standards of Treatment’,}

(Alphen aan de Rijn: Kluwer Law International, 2009), para. 511.

45_{RosInvestCo UK Ltd. V. The Russian Federation, SCC Case No. V079/2005, Award of Jurisdiction of 1 October}

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13 Also, the arbitral tribunal is El Paso v. Argentina concluded that:

The Argentinian companies’ decisions and their agreements (…) have no impact on the claimant’s rights under the BIT, the breach of which is the cause of action in these proceedings.46

A support to the direct theory could also be read in the Plama decision on jurisdiction, where the arbitral tribunal stated:

(Since the investor has access to investor-state dispute settlement under the Energy Charter Treaty), the covered investor is more than an object of international law.47

However, these statements are all made in passim and no real conclusions about the nature of investors rights have been drawn by these tribunals. Therefore, one should not read too much into these declarations.48

A true support for the direct rights theory can nevertheless be found in the Jurisdiction of the Courts of Danzig case of the PCIJ. The PCIJ dismissed the defendant’s submission that the treaty only created rights and obligations between States:

It cannot be disputed that the very object of an international agreement, according to the intention of the contracting Parties, may be the adoption by the Parties of some definite rules creating individual rights and enforceable by the national courts. That there is such an intention in the present case can be established by reference to the terms of the Beamtenabkommen.49

Hersch Lauterpacht, in the Yearkbook of the ILC 1949, interpreted this passage of the Danzig case, as a clear conclusion that:

There is nothing in international law to prevent individuals from acquiring directly rights under a treaty provided that this is the intention of the contracting parties.50

A detailed discussion on the merits and the modalities of the direct model has also been undertaken by the arbitral tribunals in the Sugar War cases between Mexico and the Unites States summarized

46_{El Paso Energy International Company v. The Argentina Republic, ICSID Case No. ARB/03/15, Award of 31}

October 2011, para. 551.

47_{Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction of 8}

February 2005, para. 150.

Debate’, supra note 43, p. 156.

49_{Jurisdiction of the Courts of Danzig, Advisory Opinion of 3 March 1928, PCIJ Series B, No. 15, para. 37.} 50_{Hersch Lauterpacht, ‘Survey of International Law in Relation to the Work of Codification of the International}

Law Commission: Preparatory work within the purview of article 18, paragraph 1, of the International Law Commission – Memorandum submitted by the Secretary General’ (1949) UN Doc A/CN.4/I/Rev.1, para. 28.

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14 above. On this matter, the arbitral tribunal in Corn Products International endorsed the direct theory. It concluded that:

(…) the NAFTA confers upon investors substantive rights separate and distinct from those of the State of which they are nationals. It is now clear that States are not the only entities which can hold rights under international law; individuals and corporations may also possess rights under international law. 51

The tribunal thus dismissed Mexico’s countermeasures defences as inapplicable to the investors’ claims under Chapter XI of NAFTA. The court did not rely on the interpretative presumption in favour of the individual rights, but rather based itself on the text of the provisions of the investment treaty taken in their context:

In the case of rights said to be derived from a treaty, the question will be whether the text of the treaty reveals an intention to confer rights not only upon the Parties thereto but also upon individuals and/ or corporations. In the case of Chapter XI of the NAFTA, the Tribunal considers that the intention of the Parties was to confer substantive rights directly upon investors. That follows from the language used and is confirmed by the fact that Chapter XI confers procedural rights upon them. The notion that Chapter XI conferred upon investors a right, in their own name and for their own benefit, to institute proceedings to enforce rights which were not theirs but were solely the property of the State of their nationality is counterintuitive.52

Unlike the arbitral Tribunal in the Archer Daniels Midland Award, which will be analysed later, the Tribunal in Cargill sided with the Corn Products Award:

(…) the Tribunal does not agree that investors under Chapter 11 are granted mere procedural rights of access. The Tribunal agrees with Respondent that if a State, through diplomatic protection, were to espouse the claims of its nationals damaged by a legitimate countermeasure, then that countermeasure would preclude the wrongfulness of the act that otherwise would have entailed State responsibility and the claims would be denied. In the case of diplomatic espousal, however, the claim is owned by the espousing State and the espousing State is the named party. Moreover, the operative paragraph of the resulting award reciting the decision of the tribunal names the espousing State, and not the national. This is not the situation under Chapter 11 of the NAFTA. Article 1116(1) provides that it is the investor that “may submit to arbitration under this Section a claim” not the State of that investor. Likewise, it is the investor, and not the State of that investor, that is the named party to the proceedings. Similarly, it is the investor that is named in the operating paragraph or “dispositive” of the award.53

51_{Corn Products International, Inc. V. United Mexican States, supra note 10, paras. 167-179.} 52_{Ibid, paras. 168 and 169.}

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15 With regard to the direct theory, it is important to point out that its supporters, like Zachary Douglas, often trace a parallel between the legal regime created by investment treaties and the legal regime created by human rights treaties:

International treaties that confer rights directly upon non-state actors, such as the European Convention on Human Rights, the Algiers Accords establishing the Iran/US Claims Tribunal, bilateral investment treaties, NAFTA, the Energy Charter Treaty, ASEAN and the ICSID Convention….create mechanisms for non-state actors to invoke the international responsibility of the contracting states in a manner that transcends the traditional dichotomy between public and private international law. The secondary obligations generated by the implementation of state responsibility in these cases are different in their legal character from secondary obligations that arise on the inter-state plane.54

Therefore, as stated by Gourgourinis, should one accept the merits of the direct model, he must be also prepared to accept the intimate affiliation and similarities between investors rights under investment treaties and human rights under the European Convention on Human Rights (ECHR), for example. This reasoning that equates investment agreements with human rights treaties has been criticized. Different authors have emphasized the differences between human rights treaties and investment treaties.

First, Losari and Ewing-Chow, after asserting that the reasoning regarding human rights and investment treaties was flawed, stated that:

It is true that there are overlaps between the two regimes. However, human rights obligations are universal and protect individuals from the actions of all states including and sometimes especially that of their home state. On other hand, international investment agreements (IIAs) concern protection of individuals from actions of a host state on a reciprocal basis and based on equal obligations undertaken by the state parties.55

Gourgourinis also drew a distinction between investors rights and human rights:

Every person deserves and receives protection under human rights treaties, while their state of nationality cannot intervene to affect these human rights; but this is exactly a normative consequence not only of the wording of human rights treaties which disentangles protection from nationality, but also of the integral or interdependent nature of human rights obligations the violation of which cannot be excused by virtue of an unilateral decision by the state of nationality of the victim.56

54_{Zachary Douglas, ‘The International Law of Investment Claims’, supra note 18, p. 94.}

International Trade Law and International Investment Law’, supra note 13, p. 30.

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16 Thus, this comparison between human rights and investor rights may seem dangerous, by equating absolute and inherent rights with rights that derive simply from treaties dedicated to investments. It may appear surprising that States have sought to confer on protected investors rights equivalent to those found in human rights treaties through international investment treaties. This is why alternative solutions, which may be considered as good compromises to the direct and the derivative models, have been found by different authors and decisions.

1.2. The alternative solutions

1.2.1. The procedural-direct model

In the Archer Daniels Midland Award, the Tribunal distinguished between three different theories regarding the nature of investors rights: (1) the traditional derivative theory pursuant to which when investors trigger arbitration proceedings against a State, they are in reality stepping into the shoes and asserting the rights of their home State, (2) an intermediate theory whereby investors are vested only with an exceptional procedural right to claim state responsibility before an international arbitral tribunal deciding the dispute in accordance with the rights and obligations which remain inter-state and (3) the direct theory that there are two distinct legal relationships under an investment treaty: the investor and the host State on one hand, and the State Parties on the other hand.57_{The Tribunal in this}

Award opted for the intermediate theory, also called the procedural-direct model.

The procedural-direct model provides for the possibility of direct claims, with the relevant treaty norms forming the legal relationship between the investor and the host State that crystallizes through the invocation of the dispute settlement clause in the investment treaty. Before this crystallization, the substantive rights in the treaty are owed on an inter-State basis.58_{This theory provides for the}

possibility that a State may use the defence of countermeasures.

Contrary to the direct rights theory, where it seems logical that investors, being the custodians of their rights, can waive them, the direct procedural model excludes any possibility of waiver.59_{Only when}

the investor files a claim, that means when the claim is crystallized, is he free to waive its procedural right. Before that, as its procedural right is not a directly vested right yet, the substantive treatment cannot be waived.60_{This was confirmed in the Eureko partial Award, where the Tribunal held that:}

International law recognizes that an investor may, after a claim against a State has arisen, enter into a settlement agreement with that State and commit to a final waiver of those claims. The State can subsequently rely on that waiver and assert it as a defence against the investor, should such investor attempt to raise those claims again.61

57_{Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. The United Mexican States,}

supra note 8, paras. 161-180.

58_{Kate Parlett, ‘The Individual in the International Legal System’, supra note 21, p. 110.}

59_{Zachary Douglas, ‘The International Law of Investment Claims’, supra note 18, paras. 75 and 76.} 60_{Kate Parlett, ‘The Individual in the International Legal System’, supra note 21, p. 111.}

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17 This option appears to be a compromise to the two previously explained theories that can be considered more extreme. However, in his concurring opinion concerning the issues of independent investor rights, diplomatic protection and countermeasures, Arthur W. Rovine disagreed with the Tribunal’s conclusion in Archer Daniels Midland. For him, individual investors have a substantive right to redress from Chapter XI of NAFTA:

It is clear that Chapter Eleven, as stated by Brower and Steven, “creates substantive investment protections that are enforceable in arbitration by the individuals directly impacted by any breach of such protections.”. In my view, the substantive investment protections conferred by treaty upon NAFTA investors include the substantive right of legal redress for breaches of Section A of Chapter Eleven.

Why is the right to legal redress a substantive rather than a procedural right? In my view, the logic of the law, both internal and international, necessarily entails that a claimant with a right to file a claim and be awarded damages for breach of an obligation by defendant, should claimant prevail, has an individual right, owed to him directly, and underlying the right to file and collect damages, not to have that obligation breached by defendant.

To have the right to bring the claim, in addition to having the possibility or reality of satisfying that claim, demonstrates an enforceable right and remedy. Again, legal redress for the wrong committed is a substantive right.62

1.2.2. The third-party beneficiary approach

A new approach, very similar to the direct model, has been suggested by Andrea Bjorklund: it is the ‘third party beneficiary’ approach. According to this approach, in contract-law terms, individuals who have been granted the ability to submit claims of violations of international law on their own behalf become third party beneficiaries of the treaties.63

To Andrea Bjorklund, this approach brings many advantages:

A significant benefit of the third-party beneficiary approach is that it is consistent with both the intentions of the states and the language of the treaty provisions that grant individual claimants autonomous rights separate from those of their home states. It acknowledges, however, that home states retain rights under the treaties. The third-party beneficiary approach strips away the fiction that the state is the injured party in favor of a straightforward recognition of the fact that most of the time the injury is done to the claimant. The dispute settlement provisions of bilateral investment treaties permit individual claimants to bring their own claims; claimants also choose how to prosecute their cases and whether or not to settle them. The third-party beneficiary approach also comports with the fact that the obligations in

62_{Concurring Opinion of Arthur W. Rovine, Issues of Independent Investor Rights, Diplomatic Protection and}

Countermeasures, paras. 46-48.

63_{Andrea K. Bjorklund, ‘Private Rights and Public International Law: Why Competition Among International}

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18 investment treaties are asymmetric; states owe obligations to investors, but investors have no corresponding obligations to states.64

1.3. Conclusion on the nature of investor’s rights

As can be seen by analysing each of the theories and the arguments of the advocates of these theories, they all have flaws. The first two models, the direct model and the derivative model, may both seem "extreme". Indeed, if one were to choose the former, one would also choose to put investors' rights on the same level as human rights. The second model, on the other hand, chooses to compare the system of investment arbitration with that of diplomatic protection, bearing in mind that these two systems, as analysed above, are both very different. The two alternative approaches seem to be more reasonable, even if the approach developed by Andrea Bjorklund remains very close to that of direct rights. Thus, even if each tribunal is free to make its own choices and choose the approach it considers most appropriate, it seems more logical to turn to the direct procedural rights approach. This would appear to be a good compromise, leaving direct procedural rights to investors, without allowing them to benefit directly from all substantive rights as would be the case under a human rights treaty. However, the direct approach is the one most often chosen by courts dealing with countermeasures. A State that defends itself by means of a countermeasure runs the risk of being considered liable if the tribunal uses this model.

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19

2. The concept of lex specialis

Article 55 of the ILC Draft Articles provides that the articles do not apply where and to the extent that the conditions for the existence of an internationally wrongful act or the content or implementation of the international responsibility of a State are governed by special rules of international law.65_Where

it is considered that investors do not have direct rights and the ILC rules on countermeasures apply, the Commission made clear that these rules would not apply if the parties had established their own rules of responsibility.66

The Commentary to Article 50 of the ILC Draft Articles also states that States may agree between themselves on other rules of international law which may not be the subject of countermeasures. This possibility is covered by the lex specialis provision in article 55.67

2.1. The WTO rules excluding countermeasures

The Commentary to Article 50 of the ILC Articles gives as an example of rules potentially excluding countermeasures the dispute settlement system of the WTO. Indeed, the Dispute Settlement Understanding (DSU) sets up a specific process where the prior authorization of the Dispute Settlement Body (DSB) is required before a member can suspend concessions or other obligations under the WTO agreements in response to a failure of another member to comply with recommendations and rulings of a WTO panel or the Appellate Body.68

In Corn Product International, the Claimants did not use the DSU as a provision excluding countermeasures, but the Claimants asserted that Mexico was precluded from raising the defence of countermeasures because of the rulings against it by the WTO Panel and Appellate Body. In fact, the Appellate Body decided that the HFCS tax could not be justified under Article XX(d) of GATT and established that the HFCS tax violated Article III.4 of GATT.69_{However, the Tribunal in Corn Products}

International concluded that it did not mean that the Tax could not amount to a countermeasure or that it could not preclude wrongfulness under the NAFTA.70_{The Tribunal held that the WTO decision}

was not a rejection of the countermeasures defence under general international law and in the context of NAFTA and did not preclude Mexico from advancing that defence.71_{About the lex specialis principle}

in Article 55 of the ILC Draft Articles, the Tribunal stated that:

the International Law Commission.

66_{Donald Malcolm McRae, ‘Chapter 35 : Countermeasures and Investment Arbitration’, in Meg Kinnear,}

Geradline R. Fischer et al. (eds), Building International Investment Law: The First 50 Years of ICSID (Kluwer Law International; 2015) pp. 495 – 504, p. 499.

article 50 para. 10.

68_{Marrakesh Agreement establishing the World Trade Organisation, annex 2 (Understanding on Rules and}

Procedures governing the Settlement of Disputes), articles 3 para. 7 and 22.

69_{Mexico – Tax Measures on Soft Drinks and Other Beverages, WT/DS308/AB/R, Report of the Appellate Body,}

6 March 2006.

70_{Corn Products International, Inc. V. United Mexican States, supra note 10, para. 156.} 71_{Ibid, para. 157.}

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20 The Commentary to Article 50 makes clear that "States may agree between themselves on other rules of international law which may not be the subject of countermeasures" in accordance with the lex specialis principle in Article 55. In such a case, the same conclusions would apply, namely that an act which was contrary to such lex specialis would involve the responsibility of the State under the lex specialis in question but it would not prevent the countermeasures principle operating to preclude wrongfulness in respect of obligations arising under other international agreements or rules of customary international law.72

2.2. The investment treaties excluding countermeasures

The most important issue, nonetheless, is that of lex specialis and international investment treaties. The question arises as to whether the provision of investment agreements apply lex specialis and thus exclude counterclaims. This issue was raised in the Archer Daniels Midland Award. In that Award, the Claimants argued that the Commentary to the ILC Articles recognizes that Article 55 provides the ILC Articles operate in a residual way and that such residual rules on countermeasures are excluded.73

According to the Commentary to the ILC Articles, for rules of international law to operate in a residual way, a treaty must provide a developed regime for dispute resolution to which States must resort in the event of a dispute, especially if (as with the WTO dispute settlement system) it requires an authorization to take measures in the nature of countermeasures in response to a proven breach.74

It could be argued that international investment agreements usually include provisions for investor and State dispute settlement, which are effective. However, as stated by Paparinskis, what one would call the investment protection regime is an ultimately decentralised legal order both in the substantive and procedural sense.75_{Although attempts have been made to put in place policies of consistency and}

predictability that promote appropriate recourse to previous arbitral awards on similar issues, States have shown no willingness to create an integrated investment protection system with strong enforcement mechanisms.76_{One may therefore be sceptical about the “well-developed and}

integrated” nature of the investment treaty enforcement system.

Furthermore, the question arises as to which rules in investment treaties could exclude countermeasures. In the Archer Daniels Midland Award, the Claimants’ position was that the NAFTA excludes countermeasures:

Because it establishes the conditions for the existence of an internationally wrongful act under the free trade agreement and the legal consequences of such an act. Chapters Nineteen and Twenty establish the regime for dispute resolution that governs the ‘existence of an

72_{Ibid, para. 159.}

supra note 8, para. 113.

74_{Commentary to the draft articles on Responsibility of States for internationally wrongful acts, Chapter II para.}

9.

75_{Martin Paparinskis, ‘Investment Arbitration and The Law of Countermeasures’, British Yearbook of International}

Law, Working Paper No.23/08, 2008, p. 63.

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21 internationally wrongful act’ and the ‘content’ of the international responsibility of the Parties in the event of a breach of their obligations under the NAFTA.77

In the Claimants’ view:

These provisions constitute lex specialis within the meaning of Article 55 and thus the residual rules in the Articles on State Responsibility do not apply to alleged breaches of NAFTA provisions.78

The Tribunal found that Chapter Eleven of NAFTA offers a form of lex specialis to supplement the under-developed standards of customary international law relating to the treatment of aliens and property and that the same Chapter confers upon the investor a right of action through arbitration.79

The Tribunal also recognized that the customary international law that the ILC Articles codify do not apply to matters which are specifically governed by lex specialis -i.e., Chapter Eleven of the NAFTA.80

Despite that, the Tribunal found that the matter of countermeasures was not specifically addressed in Chapter Eleven, so it found that even though NAFTA applied lex specialis, it did not preclude countermeasures:

Chapter Eleven neither provides nor specifically prohibits the use of countermeasures. Therefore, the question of whether the countermeasures defence is available to the Respondent is not a question of lex specialis, but of customary international law.81

The only instance in which the NAFTA refers to countermeasures is under Article 2019. Under this provision, non-compliance with a decision rendered in a Chapter Twenty State-to-State arbitration can lead to penalties. In the event of such non-compliance, the complaining State can retaliate by taking countermeasures suspending tariff concessions or other obligations under the treaty. Outside Article 2019, the NAFTA makes no express provision for countermeasures. Accordingly, the default regime under customary international law applies to the present situation.82

This means that the tribunal in the Archer Daniels Midland decision held that substantive provisions in investment treaties, such as rules on indirect expropriation, indirect discrimination, fair and equitable treatment or the Non-Precluded Measures (NPM) clause, cannot be regarded as precluding countermeasures. Yet this question can be raised.

The rules on expropriation and fair and equitable treatment are inspired by classic customary law obligations regarding the treatment of aliens. This classical customary law has always allowed such countermeasures and the nature of the treatment provided for in the particular obligation does not preclude countermeasures. One could say that the situation has changed and that in the present

78_{Ibid, para. 114.} 79_{Ibid, para. 117.} 80_{Ibid, para. 118.} 81_{Ibid, para. 120.} 82_{Ibid para. 122.}

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22 situation investors are owed direct rights. Nevertheless, in this case, the problem of countermeasures would already be solved because of the third-party status of investors.83_{Thus, it seems surprising that}

provisions inspired by a regime that does not exclude countermeasures, in fact exclude those same countermeasures.

As regards the NPM clause, opinions diverge, and different theories have been advanced. While some tribunals treat the NPM clause as part of the primary determining where the treaty has been violated84_;

others situate it in a relationship of lex special secondary rule towards customary law.85_{The most}

established approach would be the one that reads the customary law of necessity into the NPM clause.86_{However, the first two approaches neither include nor exclude countermeasures and the third}

approach only brings the customary law of countermeasures within the treaty : none of these theories change the broader picture about the exclusion of countermeasures. The NPM clause cannot, therefore, be seen either as the provision in investment treaties that would apply lex specialis and exclude countermeasures.

2.3. Conclusion on the concept of lex specialis

Although the argument of exclusion of countermeasures by the lex specialis application of WTO rules or investment treaty rules has been used several times by claimants in decisions on countermeasures, it appears that this argument is often rejected. Thus, contrary to the argument of the direct rights of investors which has been followed by several courts, the lex specialis argument does not seem to be the one by which States could be held liable for their countermeasures. It therefore does not constitute a major obstacle to the use of trade countermeasures by States.

83_{Martin Paparinskis, ‘Investment Arbitration and The Law of Countermeasures’, supra note 75, p. 64.}

84_{CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the ad hoc}

Committee on the Application for Annulment of the Argentine Republic of 25 September 2007.

85_{LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v. Argentine Republic, ICSID Case No.}

ARB/02/1, Award of 25 July 2007.

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23

3. The requirements of the laws regarding countermeasures

3.1. The legal test for valid countermeasures

In the case concerning the Gabcikovo-Nagymaros Project, the International Court of Justice set out a test to know whether countermeasures are valid:

In order to be justifiable, a countermeasure must meet certain conditions (...). In the first place it must be taken in response to a previous international wrongful act of another state and must be directed against that State. (...) Secondly, the injured state must have called upon the state committing the wrongful act to discontinue its wrongful conduct or to make reparation for it. (…) In the view of the Court, an important consideration is that the effects of a countermeasure must be commensurate with the injury suffered, taking account of the rights in question (...) [and] its purpose must be to induce the wrongdoing state to comply with its obligations under international law, and (...) the measure must therefore be reversible.87

The Tribunal in the Archer Daniels Midland Award used this case and the ILC Articles on State Responsibility to formulate four cumulative conditions for the Respondent to successfully raise the countermeasures defence: (1) The U.S. breached Chapter Three and/or Seven and Chapter Twenty of NAFTA, (2) The Tax was enacted in response to the alleged U.S. breached, and was intended to induce U.S. compliance with its NAFTA obligations, (3) The Tax was a proportionate measure, (4) The Tax did not impair individual substantive rights of Claimants.88

For its part, the Tribunal in the Corn Products International decision also cited the Gabcivoko-Nagymoros Project decision and the ILC Articles (notably Articles 22 and 49-53), as well as the US France Air Services case89_{, but required six criteria of legitimate countermeasures: a countermeasure}

must (1) be taken in response to a prior breach of international law by another State; (2) be directed against that wrongdoing State; (3) be taken for the purpose of inducing that State to comply with its international obligations; (4) be limited in time and, so far as possible, be taken in such a way as to permit resumption of the performance of the obligations in question; (5) be proportionate to the injury caused by the original wrongful act, taking account of the gravity of the wrongful act and the rights in question; (6) be accompanied by a call on the State responsible for the original wrongful act to fulfil its obligations and a good faith attempt to negotiate or resolve the dispute in question through other forms of dispute settlement.90

However, in the Corn Product International case, the Tribunal held that the conclusion of the investors direct rights made it unnecessary to address the question of whether the Tax met the requirements

87_{Case Concerning the Gabcikovo-Nagymaros Project (Hungary v. Slovakia), International Court of Justice,}

Judgment of 25 September 1997, paras. 82-87.

89_{Air Services Agreements of 27 March 1946 (United States of American and France), Arbitral Award of 9}

December 1978, 18 RIAA, 417, 454, paras. 81-83.

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24 for a lawful countermeasure under general international law. The Tribunal concluded that to address these questions would not only be unnecessary, it would also be inappropriate.91

The Tribunal in the Cargill case considered that the ILC articles regarding countermeasures provided an important point of departure in ascertain more precisely the content of that custom. It also noted that the Parties did not disagree with either of these statements.92_{Thus, it did not elaborate on what}

would constitute lawful countermeasures.

The only Tribunal in the Sugar War cases to have reviewed the requirements for lawful countermeasures is the Tribunal in the Archer Daniels Midland decision. It seems logical given that it is the only tribunal that has not followed the direct rights model. In its decision, the Tribunal held that it had no jurisdiction to decide whether the U.S. committed an internationally wrongful act which justified a countermeasure.93_{Nevertheless, it found that there are other requirements as well for a}

valid countermeasure over which it had jurisdiction and thus focused on two points: whether the Tax was enacted in response to the alleged U.S. breaches and was intended to induce U.S. compliance with its NAFTA obligations and whether the Tax was proportionate.

Concerning the question as to whether the countermeasure was enacted in response to a breach and to induce the compliance with the NAFTA obligations, the Respondent in the Archer Daniels Midland Award alleged that the Tax was designed, and had as its intent, the goal of inducing the United States to comply with its NAFTA obligations concerning sugar access to the U.S. market, and concerning U.S. obligations in the Chapter Twenty dispute resolution process. On the other side the Claimants maintained that the Tax was enacted for the purpose of protecting the domestic Mexican sugar industry against fructose imports from the United States.94_{Considering all facts presented before it,}

the Tribunal found that Mexico neither proved that the Tax was enacted in response to the breaches not that the measure was intended to induce compliance by the U.S.95_{It may be noted that this is an}

issue that depends entirely on the facts alleged against the Respondent and therefore does not give rise to much debate. Thus, we will not focus on this matter but rather on the criteria of proportionality, which is at the heart of the debate of the countermeasure’s requirements.

3.2. The criteria of proportionality

Article 51 of the ILC Articles on State Responsibility requires countermeasures to be commensurate with the injury suffered, taking into account the gravity of the internationally wrongful act and the rights in question.96_{Furthermore, the Commentary of Article 51 states that:}

91_{Ibid, para. 180.}

92_{Cargill, Incorporated v. United Mexican States, supra note 9, para. 420.}

94_{Ibid, para. 135.} 95_{Ibid, para. 151.}

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25 Proportionality is concerned with the relationship between the international wrongful act and the countermeasure. In some respects proportionality is linked to the requirement of purpose specified in article 49: a clearly disproportionate measure may well be judged not to have been necessary to induce the responsible State to comply with its obligations but to have had a punitive aim and to fall outside the purpose of countermeasures enunciated in article 49.97

According to the Tribunal in the Archer Daniels Midland decision:

Proportionality requires not only employing the means appropriate to the aim chosen but implies an assessment of the appropriateness of the aim itself, considering the structure and content of the breached rule. Proportionality therefore must be assessed in the light of the proper function of the response.98

The Tribunal then proceeded to a qualitative comparison between all the international obligations involved, in this case Section A of Chapter Eleven of NAFTA and the state-to-state dispute resolution provisions of Chapter XX.99

To prove that the aim of the countermeasure has to be connected to the breach of the State, the Tribunal cited the Case Concerning the United States Diplomatic and Consular Staff in Tehran. In this case, the U.S. brought a claim against Iran in response to the seizure by military revolutionaries of the U.S. diplomatic offices and personnel in Tehran.100_{The tribunal of Archer Daniels Midland used the}

case to illustrate the aim and effects approach and concluded that the fact that Iran had at its disposal other measures to put an end to the alleged wrongful acts and could have resorted to other means reflects a different aim, which was not connected with the alleged breaches and thus disproportionate.101

This approach has been criticized, among others by Losari and Ewing-Chow. For them, this test closely resembles the one used by the WTO in its assessment of the word "necessary" under Article XX of the GATT. This test requires non-violation, which seems excessive in the context of countermeasures, which would always be disproportionate since they are by their nature violations of international law.102

The finding of the Archer Daniels Midland Tribunal regarding the proportionality requirement has also been heavily criticized. Indeed, the Tribunal considered Chapter 7 and Chapter 20 of the NAFTA and concluded that they did not endorse specific obligations under which private individuals or non-state actors are the object or beneficiaries of such obligations. It compared these chapters to Chapter

97_{Commentary to the draft articles on Responsibility of States for internationally wrongful acts [2001], Article}

51.

99_{Ibis, para. 155.}

100_{Case Concerning the United States Diplomatic and Consular Staff in Tehran (United States v. Iran), Judgment}

of 24 May 1980, ICJ REP 3 [Tehran Case], para. 81.

Trade Countermeasures in Investment Arbitration: The Issue of State Liability