Procedural Background

The dispute arose under Chapter 11 of the North American Free Trade Agreement (NAFTA) and the ICSID Additional Facility Rules between Cargill, Incorporated, a United States corporation, and the United Mexican States. Claimant brought claims on its own behalf and on behalf of its Mexican subsidiary, Cargill de Mexico, S.A. de C.V. (CdM), alleging that Mexico enacted targeted measures to restrict the distribution and sale of high fructose corn syrup (HFCS) in Mexico. These measures included a 20% tax on beverages sweetened with non-cane sugar sweeteners under the Ley del Impuesto Especial Sobre Producción y Servicios (IEPS Tax) and an import permit licensing requirement imposed on U.S.-origin HFCS.

Jurisdiction and Scope of Chapter 11

The Tribunal affirmed its jurisdiction under Articles 1101, 1116, and 1117 of NAFTA. Rejecting Mexico’s contention that trade-related measures governing goods fall exclusively within NAFTA Chapter 3 and State-to-State dispute resolution under Chapter 20, the Tribunal held that there is no presumption that measures affecting trade in goods cannot also relate to investors or investments under Chapter 11. It affirmed that CdM constituted a qualifying enterprise and investment in Mexico. Although market share was not deemed an independent investment, lost sales and profits resulting from regulatory interferences with CdM's distribution operations were cognizable heads of damage.

Merits: National Treatment, Fair and Equitable Treatment, and Performance Requirements

The Tribunal held that Mexico breached Article 1102 (National Treatment). It concluded that Cargill de Mexico was in like circumstances with domestic Mexican cane sugar producers, as both competed in the same sweetener sector for sales to soft drink bottlers. The IEPS Tax and import permit regime accorded less favorable treatment to Claimant's investment based on nationality both in intent and effect, designed intentionally to protect Mexican sugar producers and pressure the U.S. government.

Regarding Article 1105 (Fair and Equitable Treatment), the Tribunal applied the customary international law minimum standard of treatment. It determined that Mexico's import permit requirement breached Article 1105(1) because it was implemented without objective criteria and expressly intended to damage U.S.-owned HFCS suppliers to influence U.S. trade policy, amounting to willful targeting and manifest injustice akin to bad faith. The Tribunal additionally found a violation of Article 1106(3) (Performance Requirements), concluding that the IEPS Tax conditioned an advantage on the use of domestic cane sugar in connection with Claimant's investment operations.

Claims for Expropriation and Countermeasures Defense

Claimant's expropriation claim under Article 1110 was rejected. The Tribunal concluded that customary international law does not recognize temporary expropriation where the investor remains in control of a diversified going concern and has not suffered a radical or permanent deprivation of the totality of its investment.

Addressing Mexico's defense under customary international law that its measures were legitimate countermeasures precluding wrongfulness in response to alleged U.S. breaches of NAFTA Chapter 20 sugar commitments, the Tribunal held that countermeasures cannot preclude wrongfulness regarding direct investor rights under Chapter 11. Chapter 11 vests substantive and procedural rights directly in investors, and inter-State countermeasures cannot be asserted against private foreign investors to extinguish their protections under the treaty.

Damages and Costs

Assessing compensation using a discounted cash flow methodology based on net lost cash flows from June 2002 to December 2007, the Tribunal awarded damages covering both CdM’s downstream lost profits in Mexico and Cargill, Inc.’s upstream lost export sales directly tied to its Mexican investment. Mexico was ordered to pay USD 77,329,240, with interest compounded annually at the U.S. Monthly Bank Loan Prime Rate from January 1, 2008, plus all arbitration costs and half of Claimant's legal fees and expenses.