International Centre for Settlement of Investment Disputes
42 I.L.M. 625 (2003)
Marvin Feldman (plaintiff), a United States citizen, owned a Mexican corporation, CEMSA, which bought cigarettes in Mexico (defendant) from stores for export. The only other cigarette-exporting companies belonged to the Poblano Group. Mexican law provided a rebate for the tax of cigarettes that were exported. To get the rebate, the invoice for the purchase of the cigarettes had to show the amount of tax paid for the production and first sale of the cigarettes separately from the total purchase price. Only manufacturers had access to invoices that showed the amount of the taxes paid. Stores were not provided an invoice that itemized the taxes. Manufacturers would not sell to any exporters or provide the required tax information; therefore, it was impossible for any exporter to provide the required documentation to receive the rebate. Still, Mexico paid rebates to CEMSA for several years and to Poblano Group. Eventually, Mexico stopped providing rebates to CEMSA and demanded repayment of past rebates. Mexico continued to pay rebates to Poblano Group and never sought repayment. Additionally, a new law required cigarette exporters to register with the state. CEMSA filed for arbitration under the North American Free Trade Agreement (NAFTA), asserting that Mexico expropriated its investment by withholding the rebate and violated the national-treatment provision by favoring Poblano Group. After the arbitration filing, Mexico audited and then denied CEMSA’s registration. Meanwhile, Mexico accepted Poblano Group’s registration.
Rule of Law
Holding and Reasoning
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