National Treatment Principle

Summary of National Treatment Principle

A view of international economic transactions that asserts that a nation should accord the same treatment to foreign merchandise, investments, shipping, and entrepreneurs as it does to domestic counterparts under like commercial conditions. Apart from international practice on the part of the European Economic Community and the Central American Common Market, this approach has not been widely adopted. (Main Author: William J. Miller)

National Treatment Issues under the NAFTA Chapter 11

Note: there are more information about the application of the NAFTA Chapter 11 here, and about the National Treatment elements under the NAFTA Chapter 11 here.

Essential Disciplines

By Jon R. Johnson Goodmans LLP (December 2, 2001):

The meaning of Article 1102 is not clear. The problem with applying Article 1102 is compounded by the completely ad hoc approach that has developed in NAFTA Chapter Eleven jurisprudence, with each Tribunal believing itself free to adopt whatever view it sees fit of the Chapter Eleven provision at issue.

The concept of “in like circumstances” is much more difficult to apply than the concept of “like products” in Article III:4 of GATT 1994. The concept of “like service suppliers” in the GATS could be much more problematic. To the extent that the GATS applies to the delivery of services through a commercial presence, the GATS is, in effect, an investment treaty.

It is not a simple matter of looking at consumer preferences, tariff classifications, substitutability and the like. The Pope & Talbot concept of linkage to rational government policy and an absence of discriminatory motivation makes a great deal of sense in addressing the issue of “like circumstances”. However, a NAFTA Chapter Eleven tribunal could easily adopt the view of the Appellate Body that motivation should be disregarded. The decision of the panel in Malt Beverages on laws according more strenuous (and hence less favourable) treatment to strong beer rather than weak beer made perfect sense, because there was no discriminatory intent. How would the Appellate Body approach this situation today? The finding of unlike products was relatively easy in Asbestos because extreme endangerment to health probably does affect consumer tastes and therefore creates an “unlike product”. But on what basis is 3.3% beer a product that is unlike beer that is 3.0% when the cut-off is 3.1%?.

As indicated above, while from the relevant GATT/WTO jurisprudence it is clear that de facto as well as de jure breaches of non-discrimination obligations based on national treatment can occur, the case law has approached de facto breach on a case-by-case basis. In any event, such principles as have developed in the GATT/WTO case law on de facto breach apply to goods and services and probably have limited relevance to consideration of differences in treatment of investments.

It is clear that the NAFTA Parties never intended that Article 1102 establish a best-in-jurisdiction treatment standard. However, the Pope & Talbot Tribunal found that Articles 1102(1) and (2) impose just such a standard. If the Tribunal had not gone on to link the concept of discriminatory motivation to “like circumstances” but rather, had accepted the narrow view of “like circumstances” advanced by the investor (and which would have been supported by the Panel decision in Trucking Services had such decision been available at the time the case was argued) the result would have been intolerable.

The NAFTA Parties should address these issues before a Tribunal in some future Chapter Eleven case renders a decision that none of the NAFTA Parties can live with.