Invocation of Plea of Countermeasures against the State of Nationality in Investor-State Investment Arbitration

Author Name IWATSUKI Naoki  (Rikkyo University)
Creation Date/NO. January 2014 14-J-008
Research Project Pressing Problems of International Investment Law
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When one state considers an act of another state as a violation of obligations toward it, it might resort to some measures that are also illegal per se. As long as they are subject to some conditions imposed by international law, those measures are admissible as lawful countermeasures, and the state taking those measures will not incur international responsibility because of them in relation to the target state. Then, what would happen when a host state of investment invokes this plea of countermeasures against foreign investors whose state of nationality violates some obligations owed toward the host state. Is the legality of countermeasures against the state of nationality valid or opposable also as against its national-investors? This is not only a theoretically provoking question but also it involves highly practical consequences as is evidenced in the Mexican high-fructose corn syrup (HFCS) tax case. In this case, one tribunal took the position that lawful countermeasures are opposable also against claimant-investors of the target state while the other two tribunals adopted the opposite view assuming that investors are to be treated as third parties with regard to the inter-state dispute relating to which the countermeasures in issue were taken.

Viewed historically, seizure and deprivation of properties of a foreign country were employed as typical countermeasures, or reprisals; as a member of a state, nationals were deemed to share the responsibility caused by delinquency of their state toward other states or communities (the idea of communal solidarity). The continuing validity of this idea in contemporary international law may well be disputed. However, it cannot be negated in its totality if we take into consideration the fact that foreign investors are protected as a national of a state to which the host state assures the protection of investment and related activities of its national-investors. Then, it would be difficult in principle for investors to claim validly that they are immune from the responsibility of their state of nationality unless it is (deemed to be) agreed by the host state and the state of nationality that the investors of each state shall be protected irrespective of inter-state relations and that investment disputes between investors and the host state shall be treated as a distinct legal relationship independent from an inter-state dispute. Whether or not this is the case is, after all, a matter of treaty interpretation.

So, if a state prefers to avoid the unintended negative effect of international investment agreements on usability of countermeasures which affect foreign investment (they are indeed available, but with due compensation against affected foreign investors of the target state), it would be advisable to make clear that those agreements are not without prejudice to the right to take countermeasures, and the plea of countermeasures can be invoked in the investor-state investment arbitration as a valid excuse against a claimant-investor of the target states.