Dominican Republic-Central America-United States Free Trade Agreement - CAFTA-DR - World Arbitration Reporter (WAR) - 2nd Edition

Author(s): 

Alejandro A. Escobar

Michael P. Lennon Jr.

Page Count: 

26 pages

Media Description: 

1 PDF Download

Published: 

December, 2013

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Originally from World Arbitration Reporter (WAR) - 2nd Edition

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I. INTRODUCTION—SUBSTANTIVE OBLIGATIONS AND
ARBITRATION PROCEDURES

 

A. Background on the CAFTADR

 

On August 5, 2004, Costa Rica, the Dominican Republic, El

Salvador, Guatemala, Honduras, Nicaragua, and the United States

(collectively, the “Contracting Parties” or “Parties”) concluded the

Dominican Republic‐Central America‐United States Free Trade

Agreement (“CAFTA‐DR” or “Treaty”).1 The Treaty entered into force

for El Salvador, Guatemala, Honduras, Nicaragua, and the United

States in 2006, for the Dominican Republic in March 2007, and for

Costa Rica in January 2009. The objectives of the Treaty are wideranging,

and include: encouraging the expansion and diversification

of trade between the Parties; eliminating barriers to trade in, and

facilitating the cross‐border movement of, goods and services

between the territories of the Parties; promoting conditions of fair

competition in the free trade area; substantially increasing

investment opportunities in the territories of the Parties; and

creating effective procedures for the implementation and application

of the Treaty and for the resolution of disputes.2

 

The final negotiations of the Treaty coincided with the

completion of the 2004 U.S. Model Bilateral Investment Treaty (“U.S.

Model BIT”) review process. Thus, the structure and text of the

CAFTA‐DR reflect not only the United States’ decade‐long experience

with the North American Free Trade Agreement (“NAFTA”), but also

the United States’ “most extensive revision of the model negotiating

text” ever made, which resulted in the 2004 U.S. Model BIT.3 The

2004 U.S. Model BIT contained various significant changes from the

prior 1994 U.S. Model BIT. For example, the 2004 U.S. Model BIT

emphasized that “investments” must have certain economic

characteristics in addition to a permitted legal form. Likewise, the

2004 U.S. Model BIT elaborated on the “denial of benefits” provision

to enable host States to prevent purported “investors” that lacked a

real connection with a BIT signatory from asserting rights under the

treaty. Other changes sought to clarify the content of the investment

protections provided while preserving each State’s authority to

regulate for the public welfare. To this end, the 2004 U.S. Model BIT

expanded the States Parties’ ability to except measures otherwise

not in conformity with the substantive obligations of the treaty. In

addition, the 2004 U.S. Model BIT addressed the relationship

between certain treaty provisions and customary international law

in an effort to prevent arbitral tribunals from unduly hampering

State authority through expansive interpretations of the treaty text.4

The 2004 Model BIT included significantly broader transparency

provisions than had previously applied to investor‐State disputes.

 

Although the revision of the U.S. Model BIT was only finalized in

November 2004,5 these important developments influenced the

structure of the CAFTA‐DR as well as the text of its investment

protections. The CAFTA‐DR Chapter Ten on Investment (“Chapter