US Telecommunications Investor Fails to Set Aside Award Dismissing NAFTA Claim Against Mexico

Tereposky & DeRose LLP recently had the privilege of representing The United Mexican States on instructions from La Secretaría de Economía in an investor-state set aside proceeding before the Ontario Superior Court of Justice.

In short, Joshua Dean Nelson (the “Applicant”) and his business, Tele Fácil México SA De CV, failed to convince a Canadian Court that he ought to be allowed to resurrect an investment claim under NAFTA. The Applicant alleged he and Tele Fácil suffered almost US$ half billion in losses following investments in Mexico’s telecommunications industry. The original arbitral Award ( Joshua Dean Nelson v. The United Mexican States ) of 5 June 2020 had dismissed all of the claim and ordered the Applicant to pay over US$2 million in costs to Mexico. (See Mexico Defeats Half a Billion ISDS Arbitration Claim Under NAFTA)

In a Judgment and Reasons dated 16 February 2022, (See  Nelson v. The Government of the United Mexican States, 2022 ONSC 1193), Judge Michael A. Penny of the Ontario Superior Court of Justice upheld the arbitral tribunal’s ruling in its entirety. Penny J. dismissed the application alleging a denial of natural justice and procedural fairness during the arbitral proceedings and ordered the Applicant to pay costs of $100,000 to Mexico.

The Applicant had argued before Penny J. that the arbitral tribunal inappropriately relied on arguments that had not been raised by the parties when it concluded that the Applicant’s business had never actually secured the interconnection rights that it claimed to have been stripped of by Mexican regulators. The Applicant also argued that the arbitral tribunal failed to consider expert evidence.

Penny J. held that fairness and natural justice are well-established principles embodied in Article 34(2)(a)(ii). His Honour went on to confirm that the standard of review in Ontario for setting aside an award under Article 34(2)(a)(ii) is whether the tribunal’s conduct was “sufficiently serious to offend our most basic notions of morality and justice” and “that it cannot be condoned under the law of the enforcing State”. However, a party is not permitted to review the award on its merits under the guise of alleged breaches of Article 34(2)(a)(ii).

Penny J. also recognized that the principle that a tribunal cannot decide a case on a basis that was not pleaded or argued is well established. In dismissing the Applicant’s claims, he made the following observations:

  • there was no failure of fairness or natural justice as both parties put their positions squarely before the tribunal on the issue of the nature of the interconnection rights at issue.
  • it is generally accepted that a trier of fact cannot ignore or fail to evaluate relevant portions of the evidence. The evidence that the Tribunal relied upon was not repeated verbatim in the award but detailed and extensive citations were made referring to the parties’ positions and evidence on each issue and argument. No one could reasonably be in any doubt about whether the tribunal considered the Applicant’s evidence or why the tribunal decided the case the way it did.

Tereposky & DeRose has extensive experience in international investment arbitrations and set-aside proceedings in Ontario.

Jennifer Radford
613.237.9777
jradford@tradeisds.com

Vince DeRose
613.237.8862
vderose@tradeisds.com

Umair Azam
613.237.1208
uazam@tradeisds.com

Canada Shines Light on US Solar Cell Tariffs by Initiating USMCA/CUSMA Dispute Settlement Process

On December 22, 2020, the Government of Canada requested dispute settlement consultations with the United States under Chapter 31 of the Canada-United States-Mexico Agreement (CUSMA, which is also referred to as the USMCA in the United States and the T-MEC in Mexico) concerning the continued US safeguard tariffs on Canadian crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products (CSPV products).

By way of background, the US International Trade Commission (USITC) initiated a Section 201 global safeguard investigation on imports of solar photovoltaic products (i.e., cells, modules, panels, laminates) on May 23, 2017, and imposed a 30% tariff on imports of solar products from Canada on January 22, 2018 (with the tariff set to decline by 5 percent each year). The first 2.5 gigawatts of imported solar cells in each of the four years were exempted from this measure. In October 2020, the White House issued a proclamation that would make the fourth-year tariffs 18 percent instead of the expected 15 percent. The rate is set to take effect in February 2021.

Canada has taken the position that under Chapter 10 of the CUSMA, an emergency safeguard action by the United States would exclude Canada unless those imports (i) account for a substantial share of total imports, and (ii) contribute importantly to serious injury caused by imports. The USITC found that neither of these two conditions were met. As a result, the US was required under the North American Free Trade Agreement (NAFTA), and now CUSMA, to exclude Canadian solar products from its safeguard tariffs.

In her letter to the United States Trade Representative, the Honourable Mary Ng, Canadian Minister of Small Business, Export Promotion and International Trade, wrote: “In addition, Chapter 10 of CUSMA prohibits a party from imposing restrictions on a good that would have the effect of reducing imports below the trend over a recent period with allowance for reasonable growth. The United States failed to observe this prohibition in taking its emergency action and continues to fail to observe this prohibition with respect to imports from Canada.”

Under the state-to-state dispute settlement rules provided in Chapter 31 of the CUSMA, if the parties fail to resolve a dispute through consultations, the establishment of a dispute settlement panel may be requested. Chapter 31 states that when a party believes that another party has “nullified or impaired” a benefit that the first party “could reasonably have expected to accrue to it” under the trade agreement, a request may be made for setting up the dispute settlement panel.

According to the statement issued by Minister Ng on January 7, 2021, the US safeguard tariffs have caused Canada’s exports of solar products to the United States to decline by as much as 82% since they were imposed in January 2018.

How the incoming US administration will address this dispute is not currently known. On December 9, 2020, the USTR requested formal consultations with Canada under Chapter 31 concerning how Canada regulates fourteen categories of dairy imports (See “Who’s Milking the New NAFTA? USTR Challenges Canada’s Dairy Quotas under the CUSMA/USMCA”). Stakeholders in Canada, the United States, and Mexico across the economic spectrum will be watching with great interest how these disputes unfold under the dispute settlement machinery of the CUSMA.

Tereposky & DeRose regularly provides advice on the interpretation, application, and implementation of international trade agreements and acts as counsel in international trade disputes, including WTO and regional trade agreement dispute settlement proceedings. Should you have any questions regarding the CUSMA, or any other trade matter, we are at your disposal.

Umair Azam
613.237.1208
uazam@tradeisds.com

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Who’s Milking the New NAFTA? USTR Challenges Canada’s Dairy Quotas Under the CUSMA/USMCA

In a statement issued on 9 December 2020, the U.S. Trade Representative (USTR) announced that the United States has made a formal request for consultations to address Canada’s import limits on a variety of dairy products. This request for dispute settlement consultations is the first enforcement action taken under the Canada-United States-Mexico Agreement (CUSMA), which entered into force on July 1, 2020. (See “Farewell to the NAFTA and Welcome to the USMCA/CUSMA/T-MEC”).

In its statement, the USTR formally alleges that Canada is unfairly undermining the American dairy farmers’ ability to sell their products to Canadian consumers, and presents a four-pronged argument against Canada’s tariff-rate quota (TRQ) allocation measures. This accusation echoes the concerns of the U.S. Dairy Export Council, which complained in June 2020 about Canada’s TRQs. The USTR’s “request for consultations” could be the first step in what might become the first full-blown trade dispute under the CUSMA between Canada and the United States.

Under Chapter 31 of the CUSMA, the establishment of a dispute settlement panel may be requested if the matter is not resolved by consultations. The dispute resolution mechanism under Chapter 31 may be invoked when a party believes that another party has “nullified or impaired” a benefit that the first party “could reasonably have expected to accrue to it” under the CUSMA.

According to the USTR’s statement, the CUSMA allows Canada to maintain the right to apply certain TRQs on dairy products, including for the following kinds of goods: milk, cream, skim milk powder, butter and cream powder, industrial cheeses, cheeses of all types, milk powders, concentrated or condensed milk, yogurt and buttermilk, powdered buttermilk, whey powder, products consisting of natural milk constituents, ice cream and ice cream mixes, and “other” dairy. The USTR claims that Canada’s dairy TRQ allocation measures appear to be inconsistent with the following provisions of the CUSMA:

  1. Article 3.A.2.11(b) because Canada is setting aside and reserving a portion of the quota to processors.
  2. Articles 3.A.2.4(b) and 3.A.2.11(e) because Canada is not providing “fair” and “equitable” procedures and methods for administering its TRQs.
  3. Article 3.A.2.11(c) because, as a consequence of reserving large shares of the quota for processors and so-called “further processors”, Canada fails to ensure that, “to the maximum extent possible”, the allocation is made “in the quantities that the TRQ applicant requests”.
  4. Article 3.A.2.6(a) because the allocation measures “introduce a new or additional condition, limit, or eligibility requirement on the utilization of a TRQ” that goes “beyond those set out in [Canada’s] Schedule to Annex 2- B.”

The USTR’s challenge could set the stage for bilateral discussions and the development of measures aimed at re-shaping the trade landscape with respect to supply-managed diary products.

Tereposky & DeRose regularly provides advice on the interpretation, application, and implementation of international trade agreements. Should you have any questions regarding the CUSMA, or any other trade matter, we are at your disposal.

Umair Azam
613.237.1208
uazam@tradeisds.com

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

Fifteen Countries Conclude the Regional Comprehensive Economic Partnership (RECP)

On Sunday 15 November, fifteen Indo-Pacific countries signed the text of the Regional Comprehensive Economic Partnership (RCEP), which is set to become the world’s single largest regional trade agreement to date.

The parties to the RCEP include the members of the Association of Southeast Asian Nations (ASEAN) — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam — as well as Australia, China, Japan, New Zealand and the Republic of Korea. In addition, a “Ministers’ Declaration on India’s Participation in the RCEP” provides for India’s accession to the agreement in the future, reflecting India’s participation in the RCEP negotiations while expressly “recognizing that India is not in a position to sign the RCEP Agreement in 2020”.

As it stands, the RCEP is estimated to cover a combined GDP of US $26.3 trillion and a total population of 2.3 billion people (see Government of Australia, “About The Regional Comprehensive Economic Partnership (RCEP)”). This coverage encompasses trade in goods and services, investment, government procurement, electronic commerce, intellectual property, and worker mobility. There are chapters addressing SPS measures, technical regulations, trade remedies, and competition, as well as chapters concerning small and medium-sized enterprises (SMEs), customs procedures and trade facilitation, and economic and technical cooperation. However, the RCEP is not as comprehensive in its coverage as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which also addresses a number of other subject matters.

There are five countries who are party to both the RECP and the CPTPP: Australia, Japan, New Zealand, Singapore, and Vietnam (Brunei and Malaysia are also signatories to both agreements, but have not yet ratified or implemented the CPTPP). It will be interesting to see how suppliers in these countries leverage the overlap between these agreements to enhance their market access advantages in each regional trade area.

Tereposky & DeRose regularly provides advice on the interpretation, application, and implementation of international trade agreements. Should you have any questions regarding the RCEP, the CPTPP, or any other trade matter, we are at your disposal.

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

 

Canada Publishes Its Interpretation of the CUSMA (USMCA)

On 22 August 2020, the Canadian Statement on Implementation of the Canada-United States-Mexico Agreement was published in the Canada Gazette, Part 1.

The Statement sets out Canada’s interpretation of the CUSMA (which is called the USMCA by the United States and the T-MEC by Mexico). Its objective is to explain the basic rights and obligations in the CUSMA from Canada’s perspective, including how Canada intends to exercise its rights while observing its commitments.

On a chapter-by-chapter basis, the Statement provides a summary of Canada’s interpretation of each provision and outlines how Canada has implemented the Agreement into domestic law. The Statement also sets out additional actions that the Government will undertake to maximize the benefits of the negotiated outcomes of the new Agreement.

Tereposky & DeRose regularly provides advice on the interpretation, application, and implementation of international trade agreements. Should you have any questions regarding the CUSMA or any other trade matter, we are at your disposal.

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Canada Publishes Its Interpretation of The CUSMA (USMCA) (21 August 2020)