The Hidden Tool in a Foreign Investorʼs Toolbox:The Trade Preference Program as a “Carrot and Stick” to Secure Compliance with International Law Obligations

Northwestern Journal of International Law & Business, Dec 2013

This Article considers the use of the trade preference program as a tool to pressure a State to comply with its international law obligations. Recent international investment disputes involving Argentina, Ecuador, and the Russian Federation bring to light the increasing utility of U.S. and EU trade preference programs as retaliatory mechanisms for such noncompliance. Particularly where a host State either has not consented to arbitration or has allegedly failed to comply with an adverse award, this Article affirms that the trade preference program can have a meaningful impact on a host State and be a valuable tool for a foreign investor.

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https://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article=1754&context=njilb

The Hidden Tool in a Foreign Investorʼs Toolbox:The Trade Preference Program as a “Carrot and Stick” to Secure Compliance with International Law Obligations

The Hidden Tool in a Foreign Investor's Toolbox The Hidden Tool in a Foreign Investorʼs Peter D. Fox 0 1 Charles B. Rosenberg 0 1 0 Thi s Article is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized administrator of Northwestern University School of Law Scholarly Commons 1 Peter D. Fox and Charles B. Rosenberg, The Hidden Tool in a Foreign Investorʼs Toolbox:The Trade Preference Program as a “Carrot and Stick” to Secure Compliance with International Law Obligations , 34 Nw. J. Int'l L. & Bus. 53, 2013 - The Hidden Tool in a Foreign Investorʼs Toolbox: The Trade Preference Program as a “Carrot and Stick” to Secure Compliance with International Law Obligations By Peter D. Fox & Charles B. Rosenberg* Abstract: This Article considers the use of the trade preference program as a tool to pressure a State to comply with its international law obligations. Recent international investment disputes involving Argentina, Ecuador, and the Russian Federation bring to light the increasing utility of U.S. and EU trade preference programs as retaliatory mechanisms for such noncompliance. Particularly where a host State either has not consented to arbitration or has allegedly failed to comply with an adverse award, this Article affirms that the trade preference program can have a meaningful impact on a host State and be a valuable tool for a foreign investor. * Peter D. Fox is a Regulatory Counsel at the U.S. Food and Drug Administration in Washington, DC. Charles B. Rosenberg is an Associate at White & Case LLP in Washington, DC. The views expressed in this article are those of the authors and do not necessarily represent the views of, and should not be attributed to, their employers. The authors can be reached at and . TABLE OF CONTENTS I. Introduction ...................................................................................... 54 II. Trade Preference Programs .............................................................. 57 III. Failure to Enforce Arbitral Awards.................................................. 59 A. Azurix/CMS Gas and Argentina................................................ 60 1. The Azuriz and CMS Gas Disputes .................................... 60 a. Azurix ............................................................................ 61 b. CMS Gas........................................................................ 62 2. Suspension of Argentina’s U.S. GSP Benefits ................... 64 B. Chevron and Ecuador ................................................................ 65 1. The Lago Agrio Dispute ..................................................... 65 2. Ecuador and the U.S. ATPA/ATPDEA .............................. 67 3. Chevron’s Petition............................................................... 68 IV. Expropriation.................................................................................... 71 A. Yukos and Russia ...................................................................... 71 1. The Yukos Saga .................................................................. 71 2. U.S. Shareholders of Yukos................................................ 73 3. Russia and the U.S. GSP..................................................... 74 B. Repsol and Argentina ................................................................ 76 1. The Repsol Dispute............................................................. 76 2. The EU GSP and Suspension of Argentina’s Benefits ....... 77 V. Conclusion........................................................................................ 79 I. INTRODUCTION International investment, while providing access to new markets, resources, and labor, entails unique considerations from investing locally. One such consideration might arise if a dispute occurs between a foreign investor and a host State. Historically, a foreign investor was limited to seeking redress in the domestic courts of the host State.1 Of late, however, perceived biases of local courts,2 together with the proliferation of international investment treaties containing investor-State arbitration provisions,3 have led foreign investors to turn to international arbitration to 1 See Christoph Schreuer, United Nations Conference on Trade and Development, Course on Dispute Settlement, Module 2.1, at 7, U.N. Doc. UNCTAD/EDM/Misc.232 (2003), http://unctad.org/ en/docs/edmmisc232overview_en.pdf (“In the absence of other arrangements, a dispute between a host State and a foreign investor will normally be settled by the domestic courts of the host State.”). 2 See RUDOLF DOLZER & CHRISTOPH SCHREUER, PRINCIPLES OF INTERNATIONAL INVESTMENT LAW 214 (2008) (“Rightly or wrongly, the investor will fear a lack of impartiality from the courts of the state against whom it wishes it pursue its claim. In many countries an independen (...truncated)


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Peter D. Fox, Charles B. Rosenberg. The Hidden Tool in a Foreign Investorʼs Toolbox:The Trade Preference Program as a “Carrot and Stick” to Secure Compliance with International Law Obligations, Northwestern Journal of International Law & Business, 2013, Volume 34, Issue 1,