Canadian Tax Foundation Fifty-Eighth Annual Conference November 26 - November 28, 2006 The Westin Harbour Castle Hotel, Toronto

Transcription

1 Canadian Tax Foundation Fifty-Eighth Annual Conference November 26 - November 28, 2006 The Westin Harbour Castle Hotel, Toronto Day 3 November 28, 2006 Key Developments Under International Trade and Investment Agreements Impacting Income and Sales Taxes Supplementary Materials John W. Boscariol

2 Overview of Canada s International Trade and Investment Agreements Free Trade Agreements In Force (November 2006) Agreement Date in Force Canada-Costa Rica Free Trade Agreement (CCRFTA) November 1, 2002 Canada-Israel Free Trade Agreement (CIFTA) January 1, 1997 Canada-Chile Free Trade Agreement (CCFTA) July 7, 1997 Agreements of the World Trade Organization (WTO) January 1, 1995 North American Free Trade Agreement (NAFTA) January 1994 Canada-US Free Trade Agreement (CUSFTA) January 1, 1989 Free Trade Agreements Negotiations and Discussions Country/Organization Start of Negotiations Status of Negotiations Republic of Korea (South Korea) November 19, 2004 Dominican Republic November 2002 Andean Countries (Bolivia, Columbia, Ecuador, Peru, Venezuela) August 2002 Sixth round of negotiations in June 2006; no deadline for their conclusion has been set. Domestic consultation in 2002; discussion to set agenda; most recent meeting, July 2003; no future meetings are scheduled. Most recent round of exploratory discussions held in May 2003; additional sessions to be held in future. p

3 - 2 - Country/Organization Start of Negotiations Status of Negotiations Caribbean Community and Common Market (CARICOM) January 19, 2001 Singapore June 5, 2000 Central America Four (CA4) El Salvador, Guatemala, Honduras and Nicaragua. European Free Trade Association (Iceland, Norway, Switzerland and Liechtenstein) Free Trade Area of the Americas (FTAA) September 28, 2000 October 9, 1998 December 1994 Domestic consultation in 2001; four meetings to identify issues for future negotiations; most recent meeting March 2005; no future dates. Multiple rounds of negotiations in ; last negotiation November 3, 2003; no future negotiations are scheduled. Informal meetings in May 2006, after ten rounds of negotiations could not yield an agreement; another informal meeting took place in July Last negotiations in May 2000; framework for a deal was reached on most issues; formal negotiation took place in November 2006; dates for next negotiating session not set. Negotiations in stalemate since late 2005; Brazil and other Latin American countries at odds with United States over domestic farm subsidies; no date set for resumption of talks. Canada s Bilateral Investment Treaties Country Date Status Poland November 22, 1990 In force (OECD-based). USSR (Russia is continuing state) June 27, 1991 In force (OECD-based). Czezh & Slovak Federal Republic (currently binds both the Czech Republic and the Slovak Republic) March 9, 1992 In force (OECD-based). Hungary November 21,1993 In force (OECD-based). Page 2

4 - 3 - Country Date Status Ukraine July 24, 1995 In force (NAFTA-based). Latvia July 27, 1995 In force (NAFTA-based). South Africa November 27, 1995 Signed but not yet in force. Trinidad and Tobago July 8, 1996 In force (NAFTA-based). Philippines November 13, 1996 In force (NAFTA-based). Barbados January 17, 1997 In force (NAFTA-based). Romania February 11, 1997 In force (NAFTA-based). Ecuador June 6, 1997 In force (NAFTA-based). Egypt November 3, 1997 In force (NAFTA-based). Venezuela January 28, 1998 In force (NAFTA-based). Panama February 13, 1998 In force (NAFTA-based). Thailand September 24, 1998 In force (NAFTA-based). Armenia March 29, 1999 In force (NAFTA-based). El Salvador May 31, 1999 Signed but not yet in force. Uruguay June 2, 1999 In force (NAFTA-based). Lebanon June 19, 1999 In force (NAFTA-based). Costa Rica September 29, 1999 In force (NAFTA-based). Croatia January 30, 2001 In force (NAFTA-based). Peru November 14, 2006 Signed but not yet in force. India N/A Negotiations re-launched in 2004; seven rounds held with latest in August 2006; well-advanced text. Page 3

5 - 4 - Country Date Status China N/A Negotiations re-launched in 2004, four rounds held with latest in September Trade and Investment Cooperation Agreements (TICA) TICA Partner Date Signed Southern Cone Common Market (MERCOSUR) Brazil, Argentina, Paraguay and Uruguay. June 16, 1998 Republic of South Africa September 24, 1998 Andean Community (Bolivia, Colombia, Ecuador, Peru and Venezuela) May 31, 1999 Trade and Economic Cooperation Agreements (TECA) TECA Partner Date Signed The Kingdom of Norway December 3, 1997 Confederation of Switzerland December 9, 1997 Australia November 15, 1995 Republic of Iceland March 24, 1998 Memorandum of Understanding on Trade and Investment (MOUTI) MOUTI Partner Central America (Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua) March 18, 1998 Date Signed Page 4

6 Update on WTO Disputes Considering Tax Measures United States Tax Treatment for Foreign Sales Corporations DS108 United States Tax Treatment for Foreign Sales Corporations (2006), WTO Doc. WT/DS108/AB/RW2 (Article 21.5 Appellate Body Report), online: WTO < Second Article 21.5 Appellate Body Report, February 13, 2006 The dispute began in 1997 with a complaint by the European Community (EC) that sections of the U.S. Internal Revenue Code were inconsistent with U.S. obligations under the GATT, the Subsidies Agreement (SCM), and the Agreement on Agriculture. The U.S. Foreign Sales Corporations tax treatment provided for in the Internal Revenue Code effectively created export subsidies for American businesses. The EC contended that this was a breach of the obligation to apply national treatment on internal taxation under Article III:4 of the GATT, a prohibited export subsidy under Article 3.1(a) and (b) of the SCM, and under Articles 3 and 8 of the Agriculture Agreement. In 2000, the WTO Appellate Body upheld the Dispute Settlement Panel s finding that the Foreign Sales Corporations (FSC) tax measure constituted a prohibited subsidy under Article 3.1(a) of the SCM Agreement. The Appellate Body also found that the United States acted inconsistently with its obligations under Articles 10.1 and 8 of the Agriculture Agreement by applying export subsidies in a manner which resulted in the circumvention of its export subsidy commitments with respect to agricultural products. The Appellate Body s report was adopted by the WTO Dispute Settlement Body (DSB) which recommended that the United States change its tax laws so as to bring its measures into compliance with WTO obligations. The United States passed the FSC Repeal and Extraterritorial Income Exclusion Act in November 2000 as a means of implementing the recommendations of the WTO Dispute Settlement Body. The EC complained that this new act still did not comply with the recommendations of the DSB and asked the original panel to rule on this compliance issue. The compliance panel report concluded that the new legislation was still inconsistent with the GATT, the SCM Agreement and the Agreement on Agriculture. This finding was upheld by the Appellate Body. The EC was subsequently authorized to suspend concessions to the United States in retaliation for the non-compliance, in the form of a 100 percent ad valorem charge on imports of certain goods from the United States, to a maximum of $4.043 billion per year. This countermeasure took effect in May 2003.

7 - 2 In October 2004, the United States enacted the American JOBS Creation Act of 2004 (JOBS Act) with the intent of implementing the WTO s recommendations and rulings on compliance with the initial finding. The EC again complained that the JOBS Act violated the same provisions of the WTO Agreements as did the previous legislation, in particular because of transitional provisions that allowed U.S. companies to continue to benefit from the prohibited subsidies in 2005 and 2006 for all export transactions, and indefinitely for certain binding contracts. Another compliance panel was established, and in February 2006, the panel s findings that concluded the United States had failed to fully implement the WTO s recommendations were upheld by the Appellate Body. In March 2006, the Dispute Settlement Body adopted the Appellate Body s report, again recommending that the United States take action to bring its tax measures into compliance with its WTO obligations. The United States responded by enacted new legislation that eliminated the grandfathering provisions of the JOBS Act to achieve compliance with the WTO recommendations. Finally resolving the longstanding dispute, the EC suspended its trade sanction countermeasures on May 11, Page 2

8 - 3 European Communities Measures Affecting Trade in Commercial Vessels DS301 European Communities Measures Affecting Trade in Commercial Vessels (2005), WTO Doc. WT/DS301/R (Panel Report), online: WTO < Panel Report, April 22, 2005 Korea - Measures Affecting Trade in Commercial Vessels DS273 Korea - Measures Affecting Trade in Commercial Vessels (2005), WTO Doc. WT/DS273/R (Panel Report), online: WTO < Panel Report, March 7, 2005 These two disputes both involved tax and other measures that were alleged to constitute subsidies to the respective country's shipbuilding industries. In October 2002, the EC initiated its complaint against Korea. The measures complained of included (i) a corporate restructuring subsidy for shipbuilding companies in the form of debt forgiveness and debt and interest relief provided through governmentowned or controlled banks, (ii) special taxation for companies under corporate restructuring, and (iii) pre-shipment loans and advance payment refund guarantees provided to Korean shipyards. The EC contended that these measures were in violation of Korea's obligations under the SCM Agreement. The Dispute Settlement Panel found that only certain pre-shipment loans and advance payment refund guarantees were offered at below-market terms and as such were prohibited export subsidies, contrary to Article 3.1(a) of the SCM Agreement. The Panel found that the EC had not established that the other Korean measures identified amounted to illegal subsidies. In September 2003, Korea initiated its complaint against EC regulations relating to shipbuilders, indicating that they may have been adopted as "unilateral measures seeking redress of perceived violation of Korea's obligations under the SCM Agreement" - in reference to the EC's complaint against Korea which at that point was still underway. Korea alleged that these EC regulations provided WTO-illegal subsidies to the shipbuilding industry in various forms. They provided operational aid grants, export credits and tax breaks, and several other types of aid in support of commercial vessels built in the EC. Korea contended these measures violated the SCM Agreement and Article I:1 (Most Favoured Nation) and Article III:4 of the GATT (National Treatment). Korea also contended that the TDM Regluation was in violation of Article 23.1 of the Dispute Settlement Understanding, which prohibits WTO members from acting unilaterally when seeking redress of another member's violations. The Dispute Settlement Panel rejected Korea's Page 3

9 - 4 complaints regarding alleged prohibited subsidies, but did find that the regulation itself violated the Dispute Settlement Understanding. In both complaints, the parties claim to have implemented the WTO's recommendations. By the time the Panel Reports were adopted, the measures being challenged had either expired or been allowed to lapse. Mexico Tax Measures on Soft Drinks and Other Beverages DS308 Mexico Tax Measures on Soft Drinks and Other Beverages (2006), WTO Doc. WT/DS308/AB/R (Appellate Body Report), online: WTO < Appellate Body Report, March 6, 2006 The United States complained that certain tax measures imposed by Mexico on soft drinks and other beverages were inconsistent with Mexico s obligations under Article III of the GATT (National Treatment). The taxes at issue were a 20 percent tax on soft drinks and other beverages that used sweeteners other than cane sugar, and a 20 percent tax on services facilitating the distribution of such beverages. In October 2004 a Dispute Settlement Panel report was issued with a finding that the soft drink tax and distribution tax were inconsistent with Article III:2 of the GATT, which proscribes internal taxes on imported goods in excess of taxes assessed on domestic like goods. The taxes were also determined to be inconsistent with Article III:4, which requires that imported goods be accorded treatment no less favourable than that accorded to like products of national origin. The findings were upheld by the Appellate Body in March The United States and Mexico have agreed that Mexico will have until January 1, 2007 to comply with the Dispute Settlement Body s recommendations and rulings (eliminating the taxes in dispute), or January 31, 2007 if legislation is enacted by the Mexican Congress in December Page 4

10 - 5 China Value-Added Tax on Integrated Circuits DS309 China Value-Added Tax on Integrated Circuits (2005), WTO Doc. WT/DS309/8 (Notification of Mutually Agreed Solution), online: WTO < Mutually Agreed Solution notified, October 6, 2005 This dispute was resolved through successful consultations before a panel was established under the Dispute Settlement Understanding. The United States had requested consultations with China regarding preferential tax treatment accorded to domestically-produced or designed integrated circuits. The United States claimed that companies in China were entitled to a partial refund of the 17 percent Value Added Tax (VAT) on integrated circuits that they had produced, resulting in a lower VAT rate on their products. The alleged result of this measure was that China was subjecting imported circuits to higher taxes than applied to domestically produced circuits, thereby according less favourable treatment to imported circuits in violation of GATT Article III (National Treatment). The United States also contended that by allowing for partial refunds of VAT for domestically-designed circuits that were manufactured outside of China, China was providing more favourable treatment of imports from one member country than from others, in violation of the most-favoured-nation obligation of Article I of the GATT. In July 2004, the United States and China informed the Dispute Settlement Body that they had reached an agreement through consultations, whereby China agreed to eliminate the availability of VAT refunds. In October 2005, the parties notified the DSB that they had successfully implemented their agreement. United States Equalizing Excise Tax Imposed by Florida on Processed Orange and Grapefruit Products DS250 United States Equalizing Excise Tax Imposed by Florida on Processed Orange and Grapefruit Products (2005), WTO Doc. WT/DS250/3 (Notification of Mutually Agreed Solution), online: WTO < Mutually Agreed Solution notified, June 2, 2005 Brazil initiated a complaint against the United States in March 2002, contending that a Florida statute that imposed an equalizing excise tax on citrus products grown outside the United States was in Page 5

11 - 6 violation of Articles II:1(a), III:1 and III:2 of the GATT. The statute exempted from the tax citrus products that were produced in whole or in part from citrus fruit grown within the United States. This violated the obligation to assess internal taxes on imports on terms no less favourable than that assessed on like domestic goods. Brazil complained that the effect of the tax was to provide protection to domestic citrus producers, and that the resulting restraint on their citrus exports to the state of Florida was a nullification and impairment of Brazil s benefits under the GATT. A panel was established by the Dispute Settlement Body in October 2002, but in May 2004, the parties advised the DSB that they had reached a mutually agreed solution: the Florida legislature amended the offending statute so that processors using Brazilian citrus products could opt-out of paying two-thirds of the excise tax, the revenue generated from the remaining one-third payments would not be used to advertise domestic citrus products (as was its previous purpose), and the state would refund approximately $1.5 million to account for taxes that had already been paid. European Communities Measures Affecting Trade in Large Civil Aircraft DS316, DS347 European Communities Measures Affecting Trade in Large Civil Aircraft (2004), WTO Doc. WT/DS316/1 (Request for Consultations), online: WTO < European Communities and Certain Member States Measures Affecting Trade in Large Civil Aircraft (Second Complaint) (2006), WTO Doc. WT/DS347/1 (Request for Consultations), online: WTO < Report in progress United States Measures Affecting Trade in Large Civil Aircraft DS317 United States Measures Affecting Trade in Large Civil Aircraft (2004), WTO Doc. WT/DS317/1 (Request for Consultations), online: WTO < Report in progress These complaints concern alleged prohibited subsidies to the aviation industry, and specifically to the two main producers of large civil aircraft, Airbus in Europe and Boeing in the United States. The first complaint launched by the United States in October 2004 was in regard to measures by the EC and member countries including: launch aid provided to Airbus companies, grants for upgrading Airbus production facilities, loans provided on preferential terms, debt forgiveness, loans and grants for Page 6

12 - 7 research and development, and other subsidies relating to the production of all Airbus aircraft. The United States contended that these measures were inconsistent with the EC s obligations under the Subsidies and Countervailing Measures Agreement (SCM). The United States also alleged that the measures were causing adverse effects to the United States, and caused the nullification and impairment of benefits to the United States under the GATT. After several delays in the procedure of the Dispute Settlement Body, the United States launched a second complaint involving essentially the same issues. The dispute settlement panel for the first complaint was composed in July 2006, and the WTO expects that panel s work to be completed sometime in In October 2006, the United States asked the WTO to suspend the second complaint. The EC s complaint against the United States, also in October 2004, concerned prohibited and actionable subsidies provided to U.S. producers, in particular to Boeing, and state and local legislation and regulations that provided subsidies, grants and other assistance to U.S. producers. The measures included tax breaks, tax exemptions and tax credits, and infrastructure projects for the exclusive benefit of Boeing. Like the U.S. complaint, the EC alleged that the use of these measures were inconsistent with the SCM Agreement, and were causing adverse effects to the EC aircraft industry. The dispute settlement procedure in the EC complaint has likewise been delayed several times, in part due to the second request for consultations filed by the United States. As above, the panel expects its work to be completed in China Auto Parts Tariff Panel Established, October 26, 2006 The United States, European Communities and Canada jointly filed a complaint with the WTO against Chinese tariffs on the importation of auto parts. In their request for the establishment of a dispute settlement panel, the complainants (who have never before acted together in a WTO dispute against China) contended that all vehicle manufacturers in China that use imported parts in the assembly of vehicles must provide specific information about each vehicle they assemble, including a list of the imported parts to be used, and the value and supplier of each part. If the number or value of imported parts exceed specified thresholds, China assesses a charge on each imported auto part that is equal to the higher tariff on a complete motor vehicle, rather than assessing the lower tariff for the auto part. The effect of this policy is that imported auto parts are charged a tariff at an average rate of 25 percent, which discourages auto makers in China from using imported auto parts. The complainants contend that the measures are in violation of Articles II and III of the GATT. Page 7

13 - 8 A dispute settlement panel was established in October 2006, and the dispute is expected to continue through Page 8

14 - 9 Update on Investment Disputes Considering Tax Measures Occidental Exploration and Production Company v. Republic of Ecuador Occidental Exploration and Production Company v. Republic of Ecuador (2004), Case No. UN 3467, (UNCITRAL), online: Investment Claims < The Republic of Ecuador v. Occidental Exploration & Production Co., [2006] EWHC 345 (QBD (Comm.)). Final Award, July 1, 2004 Second Queen s Bench Decision (UK), March 2, 2006 Occidental, a U.S. company, had entered into a participation contract with Petroecuador, a stateowned enterprise, for the exploration and production of oil in Ecuador. Occidental regularly applied for and received a refund of the Value Added Tax (VAT) it paid on purchases required for its exploration and production activities under the contract, and the exportation of the oil produced. In 2001, the state taxation agency issued resolutions denying all future reimbursement applications and requiring the return of amounts previously reimbursed. The justification for the resolutions was an interpretation of the contract with Occidental that VAT reimbursements were already accounted for in the participation formula under the contract. After filing four lawsuits in the tax courts of Ecuador objecting to these resolutions, Occidental commenced arbitration proceedings against the Republic of Ecuador under the bilateral investment treaty that was in place between the United States and Ecuador. The arbitration took place in London under the UNCITRAL rules. In July 2004, the arbitration tribunal found in favour of Occidental, ruling that it was entitled to the refund of all VAT paid, as such refunds were not included in the participation formula of the contract. The tribunal also found that Ecuador breached its obligations under the BIT of fair and equitable treatment and national treatment (i.e., according foreign investors treatment no less favourable than that accorded to foreign or domestic investors). Occidental was awarded just over US$75 million in compensation. Ecuador sought judicial review of the award in the English courts, challenging the jurisdiction of the arbitration tribunal to determine certain claims under the BIT due to the provision excluding tax Page 9

15 - 10 disputes, and in exceeding its powers in such a way as to constitute a serious procedural irregularity. Occidental followed with its own challenge arguing that the issue of the arbitrators jurisdiction was not justiciable before the English courts. Occidental s challenge was dismissed at both the English High Court of Justice and the Court of Appeal. In March 2006, the English High Court of Justice ruled that the arbitration tribunal had jurisdiction to determine alleged breaches of the BIT, and that it did not exceed its powers in granting Occidental the award of compensation. EnCana Corporation v. Republic of Ecuador EnCana Corporation v. Republic of Ecuador (2006), Case No. UN 3481, (UNCITRAL), online: Investment Claims < Final Award, February 3, 2006 This dispute arose out of similar facts as the Occidental case, although because of certain key differences in the bilateral investment treaties involved, the arbitration award was issued in favour of Ecuador. EnCana made claims against the refusal to refund VAT paid by two wholly-owned subsidiaries that had contracts with Petroecuador for exploration and production of oil. The arbitration tribunal found that in this case the claim of EnCana concerned a tax measure. As such, under the terms of the Canada-Ecuador BIT, the claim would fall within the tribunal s jurisdiction only if the tax treatment was in breach of an agreement between the central government [of Ecuador] and [EnCana] concerning an investment, or if there had been an expropriation of EnCana s rights. The tribunal noted that there was no agreement between the government and EnCana directly and therefore it was not open to EnCana to complain of breach of the BIT other than expropriation. Regarding the expropriation claim, the majority of the tribunal considered both indirect and direct expropriation, and found that in neither case was the claim made out by EnCana. The majority concluded on the indirect expropriation claim that the VAT refunds were in the amount of 10 percent of the transactions associated with oil production, and did not deny EnCana in whole or significant part the benefits of its investment. The majority also found that the resolutions adopted by the Ecuadorian tax agency never amounted to a repudiation of legal rights granted by Ecuador, and could not be characterized as a direct expropriation. The dissenting arbitrator found that Ecuador had expropriated EnCana s returns on investment and that EnCana was entitled to compensation. Although successful in defending itself against the BIT claim, Ecuador was ordered to reimburse EnCana for over $300,000 for the costs of arbitration. Page 10

16 - 11 Feldman v. Mexico Marvin Roy Feldman Karpa v. The United Mexican States (2002), Case No. ARB(AF)/99/1, (International Centre for Settlement of Investment Disputes), online: Investment Claims < The United Mexican States v. Karpa (2005), 74 O.R. (3d) 180. Final Award, December 16, 2002 Ontario Court of Appeal Decision, January 11, 2005 This dispute involved the taxation of cigarettes in Mexico. The production and sale of cigarettes were subject to tax, but the tax could be refunded where the cigarettes were exported from Mexico. To obtain a rebate, the exporter was required provide invoices that separately and expressly stated the amount of tax paid. Because the company owned by Mr. Feldman, CEMSA, purchased cigarettes for export from retailers, and not from the manufacturers directly, the claims for refunds were denied. The Mexican tax authorities conducted an audit of CEMSA in 1998 and concluded that CEMSA owed a repayment of previously refunded taxes of approximately $25 million. In 1999, Mr. Feldman referred these matters to arbitration pursuant to the investor-state claim provisions under Chapter 11 of NAFTA. The claim was based on three grounds: that the refusal to pay the tax rebates was tantamount to nationalization or expropriation contrary to article 1110 of NAFTA; that the refusal to pay rebates was a denial of natural justice contrary to article 1105:1, and that the refusal to pay rebates violated the national treatment principle of article 1102, which requires Mexico to accord to investors from the United States and Canada treatment no less favourable than that accorded to its own investors. The award was issued in December The claim failed on the first two grounds, but the majority of the ICSID tribunal found that Mexico was in violation of its national treatment obligations because it had granted rebates to Mexican exporters of cigarettes while denying the rebates to CEMSA. Feldman was awarded approximately $1.6 million, calculated on the basis of rebates withheld from CEMSA. Mexico applied to the Ontario Superior Court of Justice to have the award set aside (Ontario had jurisdiction because the location of the arbitration was Ottawa). Mexico alleged certain procedural errors and that the award was contrary to public policy. The application was dismissed, and the decision of the Superior Court was upheld at the Ontario Court of Appeal in January Page 11

17 - 12 Enron Corporation and Ponderosa Assets, L.P. v. The Argentine Republic Enron Corporation and Ponderosa Assets, L.P. v. The Argentine Republic (2004), Case No. ARB/01/3, (International Centre for Settlement of Investment Disputes), online: Investment Claims < Decision on Jurisdiction, January 14, 2004 This claim involves the assessment of certain stamp taxes by several Argentine provincial governments against the investment of the U.S. investors in a privatized gas transportation network in Argentina, TGS. Through various subsidiaries and joint ventures, the claimants had a percent interest in TGS. The stamp tax assessments on various operations of TGS, primarily the transport and distribution of natural gas through the provinces, amounted to approximately $280 million. Enron and Ponderosa brought a claim under the U.S.-Argentina bilateral investment treaty that these assessments were illegal under Argentine law, and were tantamount to an expropriation in violation of international law and the provisions of the BIT. A provisional stay for the collection of the taxes was granted by the Argentine Supreme Court. Argentina objected to the claimants standing, because they were only minority shareholders in TGS and were not therefore investors under the BIT. An ICSID tribunal was composed to render a decision on jurisdiction. In January 2004 the tribunal held that the dispute was within the jurisdiction of ICSID under the BIT. An award on the merits has not yet been rendered. Corn Products International v. Mexico Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. Mexico Corn Products International v. United Mexican States and Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. United Mexican States, (2005) Case Nos. ARB(AF)/04/1, ARB(AF)/04/5, (International Centre for Settlement of Investment Disputes), online: Investment Claims < Order of the Consolidation Tribunal, May 20, 2005 In October 2003, Corn Products International, Inc. (CPI), a U.S. company, initiated arbitration proceedings under NAFTA Chapter 11, for alleged breaches of Articles 1102 (National Treatment), 1106 (trade restricting performance requirements) and 1110 (expropriation) of NAFTA arising from the Page 12

18 - 13 imposition of an excise tax targeting the use of high fructose corn syrup. The measures at issue were a 20 percent tax on soft drinks and other beverages containing sweeteners other than cane sugar and a 20 percent tax on services facilitating the distribution of such beverages. In August 2004, Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. (ALMEX), also initiated arbitration proceedings against Mexico, based on the same tax measures. Mexico submitted a request to ICSID to have a tribunal rule on whether or not to consolidate the two arbitration proceedings, because of the high degree of similarity between them. Because CPI and ALMEX are direct and fierce competitors in the Mexican market, the tribunal ruled that the procedural inefficiencies created by having to be extremely careful with disclosure of the claimants confidential business information outweighed the advantages to Mexico in consolidating the claims. The disputes were not consolidated, and the disputes are now going forward separately. Page 13