The Surprising Relevance of Neer at 100

The decision of the U.S.-Mexico General Claims Commission in L.F.H. Neer and Pauline Neer (U.S.A.) v. United Mexican States turns 100 this month. Although States have been criticized for relying on Neer’s definition of the minimum standard of treatment under international law, Neer remains a model for the Commission’s restrained exercise of its power to review the acts of a State. Thus Neer remains useful as guidance on arbitral approach, particularly in cases where the legal standards are unclear.

The below post first reviews the Neer decision and the rejection of the “Neer standard” by later tribunals and commentators. The post then examines a few cases that cited Neer positively, demonstrating how it served as a model for arbitral restraint in reviewing State acts. The post closes by considering how Neer continues to be relevant, 100 years after the decision.

The Neer Decision and its Later Application

The U.S.-Mexico Special Claims Commission and General Claims Commission were established in 1923 to hear, respectively, claims against Mexico arising during the revolutions of 1910-1920, and claims against either government that fell outside of that window. The Special Claims Commission excluded international law as a basis of decision in favor of “the best of [the Commissioners’] judgment” and “the principles of justice and equity,” both standards detailed in Article II of the convention establishing the Commission. As that Article further explained, “Mexico wishes that her responsibility shall not be fixed according to the generally accepted rules and principles of international law, but ex gratia feels morally bound to make full indemnification.” 

In contrast, the General Claims Commission—which heard the Neer claim – was bound to apply principles of international law to the disputes before it in accordance with Article I of its statute. This meant that the General Claims Commissioners had to identify international legal principles by which they could evaluate whether a State had committed an internationally wrongful act.

One of the first cases heard by the General Claims Commission arose from the murder of a U.S. national, Paul Neer, in Mexico, and the failure of the Mexican authorities to take meaningful action in response. In determining how to address this claim, the Commission laid out several legal principles. Neer is most remembered for its pronouncement of the minimum standard of treatment of aliens, at page 61 of the decision:

…the treatment of an alien, in order to constitute an international delinquency, should amount to an outrage, to bad faith, to wilful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency.

Neer was one of the earliest decisions to announce a test for the minimum standard of treatment of aliens, particularly in the context of denial of justice. Edwin Borchard observed shortly after the Commission rendered the Neer decision that its test, “while broad and general, may perhaps be approved,” with the caveat that “[i]ts value will depend upon its application to particular cases.” Ian Brownlie later described Neer as providing the “useful and classical” statement of the minimum standard of treatment. (Ian Brownlie, System of the Law of Nations: State Responsibility (OUP 1983) pt I, 74).

Neer was cited from the 1960s to the 1980s by States seeking to establish the content of the customary international law minimum standard of treatment, including Belgium and Spain (Barcelona Traction, 1970), and the United States (ELSI, 1989). It is thus no surprise that as States first addressed the minimum standard of treatment in the context of investor-State dispute settlement (ISDS) in the late 1990s and early 2000s, they likewise turned to Neer. Canada cited to Neer in two early NAFTA cases, SD Myers (2002) and Pope & Talbot (2002), to define the minimum standard of treatment under NAFTA Article 1105. The United States cited to Neer in its first case as Respondent, Loewen Group v. United States (2003). The argument periodically resurfaced in other cases during the early 2000s.

In most instances, the reliance on Neer’s specific definition of the minimum standard was qualified or rejected by ISDS tribunals, including by noting that the minimum standard may have changed since the 1920s, or by pointing out that the U.S.-Mexico Claims Commission itself cabined Neer to its facts. Prominent commentators, including Stephen Schwebel and Jan Paulsson, also criticized the States’ reliance on Neer, arguing that the standard was too limited for the investment context (including the fair and equitable treatment standard) and that it had evolved since the 1920s.

Neer as a Model for Arbitral Restraint

There were some exceptions to the rejection of Neer, including the awards in Genin v. Estonia (2001) and Glamis Gold v. United States (2009). It is worth revisiting these two decisions, as well as Neer itself, not for a particular articulation of the minimum standard, but for the methodologically conservative approach adopted by each tribunal.

Starting with Neer: the first issue the Neer Commission had to address was whether Mexico’s actions should be assessed against international law standards, or whether it would be sufficient to test them against Mexican municipal law. The Neer Commission answered this question clearly, at page 61: “the propriety of governmental acts should be put to the test of international standards.” As for the content of those international standards, however, “the Commission recognize[d] the difficulty of devising a general formula for determining the boundary between an international delinquency of this type and an unsatisfactory use of power included in national sovereignty.” (Page 61). In light of the blurriness of this line, and the recognized importance of “power included in national sovereignty,” (id.) the Commission opted for a high bar: the Neer standard, quoted above. This accorded with the Commission’s understanding of its limited role: “It is not for an international tribunal such as this Commission to decide whether another course of procedure taken by the local authorities [...] might have been more effective” (Page 62). In other words, the Commission’s job was to police the minimum standard—to assess whether the State’s conduct fell below the floor permissible under international law—not to determine whether the State had pursued the optimal course.

In Genin, the tribunal was asked to review certain regulatory acts by the Bank of Estonia in revoking a bank’s license. The claimant relied in part on the treaty’s “fair and equitable” treatment clause. While acknowledging that “the exact content” of the “fair and equitable” treatment standard was unclear, the tribunal explained that it referred to “an ‘international minimum standard’ that is separate from domestic law, but that is, indeed, a minimum standard.” (Para. 367). In defining that standard, the tribunal adopted a high bar very similar to Neer (while not citing directly to Neer).

The tribunal in Glamis, addressing regulatory actions taken by the state of California with respect to a proposed gold mine, grappled with similar uncertainty as to the content of the relevant standard. In that case, the tribunal noted that the disputing parties had agreed that NAFTA Article 1105(1) referred to the customary international law minimum standard of treatment, for which Neer set a floor. The parties disagreed, however, as to whether and how customary international law had changed since Neer. The tribunal placed the burden on the claimant to establish the content of customary international law and, “acknowledg[ing] that the proof of change in a custom is not an easy matter to establish,” (Para. 21), found that the claimant had “fail[ed] to establish the evolution in custom it asserts to have occurred.” (Para. 22).

In line with Genin, the Glamis tribunal’s reasoning relied in part on the nature of the standard at issue: “[t]he customary international law minimum standard of treatment is just that, a minimum standard. It is meant to serve as a floor, an absolute bottom, below which conduct is not accepted by the international community.” (Para. 615). Accordingly, while “situations may be more varied and complicated today than in the 1920s, the level of scrutiny is the same.” (Para. 616). In other words, “[t]he fundamentals of the Neer standard thus still apply today: to violate the customary international law minimum standard of treatment [...], an act must be sufficiently egregious and shocking [...] so as to fall below accepted international standards.” (Id.).

In each of Neer, Genin, and Glamis, the tribunal was working under what it perceived to be an indeterminate standard. Guided by their understanding of the standard as setting a universal floor for State conduct, each tribunal opted to remain conservative and deferential to the State. These tribunals adopted a reasonable approach in consideration of State sovereignty—one that we see adopted more in recent years—as opposed to the approach adopted by a number of early ISDS tribunals that seemed to dispense with the notion of the minimum standard of treatment as a floor.

Lessons from Neer at 100

As ISDS cases continue to be decided, and as States form new treaties, revise old treaties, and hash out their differences in UNCITRAL Working Group III, certain parallels and lessons can be drawn from Neer and its progeny. First, perhaps drawing on the uncertainty of the minimum standard expressed in each of Neer, Genin, and Glamis, States have recently sought to be more prescriptive in their treaty drafting. Some States have attempted to clarify and refine the meaning of fair and equitable treatment in their treaties; others have eliminated the term “fair and equitable treatment” altogether, replacing the term with more specific standards. The OECD project on modernizing investment treaties discussed this issue as recently as 2024, addressing an “inventory of additional clarifications” to fair and equitable treatment. Each of these projects speaks to a perceived need for greater specificity in investment treaties, a project likewise adopted by UNCITRAL Working Group III, so that less interpretation is required of tribunals.

Second, there is a parallel between the deference accorded to State regulation in Neer, Genin, and Glamis and the increased emphasis in recent years on the “right to regulate.” In interpreting fair and equitable treatment, tribunals have often cited to the “high measure of deference that international law generally extends to the right of domestic authorities to regulate matters within their own borders.” Some tribunals have nonetheless expanded fair and equitable treatment to include broad and inconsistent standards that, it is argued (Section III.B), could infringe upon that right. In response, some States now argue, particularly in the context of UNCITRAL Working Group III, for an exception from investment protections for all exercises of the right to regulate. While these efforts are not likely to succeed, there appears to be a new emphasis on protecting a State’s sphere of regulation, and maintaining flexibility therein.

The difficulty faced by both attempts to refine the language of existing protections and efforts to draft a new regulatory carveout is the same one the Neer Commission confronted: “devising a general formula for determining the boundary between an international delinquency [...] and an unsatisfactory use of power included in national sovereignty.” This challenge continues to trouble us a century later. And while a perfect “formula” may indeed be out there—perhaps we will be celebrating its discovery by the time of Neer’s bicentennial—it is hard to imagine a single provision that could provide unambiguous guidance for the myriad factual scenarios that give rise to investment disputes. In the absence of such a formula, the question will remain how to interpret and apply more general articulations of the minimum standard of treatment in existing treaties. For that, the conservative approaches adopted in Neer, Genin, and Glamis point in the right direction, focusing on the standard as a universal floor and encouraging arbitral restraint in light of State sovereignty and the right to regulate.