Good faith recognition and enforcement of arbitral awards as a criterion for eligibility under the United States Generalized System of Preferences.

Author:Posner, Theodore R.

As a matter of United States statutory law, a country's good-faith recognition and enforcement of arbitral awards in favor of U.S. persons is a precondition for participation in the Generalized System of Preferences (GSP), the main U.S. program giving preferential tariff treatment to most goods imported from developing countries. Conversely, a country's failure to recognize and enforce arbitral awards in good faith is grounds for excluding that country from GSP. On March 26, 2012, for the first time in the 37-year history of the GSP statute, the President of the United States exercised his authority to suspend a country's eligibility to receive trade preferences due to its failure to recognize and enforce international arbitral awards. (1) The target of this decision was Argentina, which has refused to pay amounts owed under at least three awards rendered in favor of U.S. companies following arbitration under the U.S.-Argentina Bilateral Investment Treaty. (2) (Argentina has refused to pay amounts owed to award creditors of other countries as well, including the French holder of the Vivendi award (3) and the British holder of the National Grid award. (4) In my remarks, I will discuss the U.S. statute that authorized the President to suspend Argentina's trade preferences, and I will offer some observations about the use of this and other economic policy levers to bring about compliance with obligations under international arbitral awards.

The United States GSP statute was enacted as part of the Trade Act of 1974. (5) Generally speaking, it authorizes the President to give duty-free treatment to most goods from developing countries imported into the United States. In addition to being a developing country, there are several criteria a country must meet to be eligible to participate in GSP. In particular, the country:

* cannot be a Communist country;

* cannot be part of a cartel that withholds vital commodities from global trade;

* cannot give trade preferences to developed countries other than the United States which have a significant adverse effect on U.S. commerce;

* cannot have nationalized or expropriated property of U.S. citizens, or repudiated or nullified certain contracts with U.S. citizens;

* must act in good faith in recognizing as binding and enforcing arbitral awards in favor of U.S. citizens;

* cannot aid or abet international terrorists;

* must be taking steps to afford internationally recognized worker rights; and

* must implement a commitment to eliminate the worst forms of child labor. (6)

Just as a country must meet these criteria to become eligible for GSP in the first place, if it ceases to meet any of the criteria it can lose its eligibility for GSP. (7) Thus, if a country fails to act in good faith in recognizing as binding and enforcing arbitral awards in favor of U.S. citizens, it may lose the right to have its goods enter the United States duty-free, which is exactly what has happened to Argentina. The President's proclamation of March 26, 2012, suspending Argentina's eligibility for trade preferences is to take effect 60 days after publication in the Federal Register, that is...

To continue reading