Investor-State Disputes Under NAFTA: A Tale of Fear and Equilibrium

Abstract

Writers initially regarded the North American Free Trade Agreement's investment chapter (Chapter 11) as an "overwhelmingly positive" regime that would protect Canadian and United States investors from arbitrary treatment at the hands of Mexican authorities. Despite some early warnings,4 few considered the possibility that Chapter 11 might also provide an instrument for vigorous scrutiny of measures adopted or maintained by Canadian and U.S. authorities.5 Following the initiation of several claims against their governments, however, Canadian and U.S. writers have denounced the purportedly "aggressive" use of investor-state arbitration as an "offensive" weapon7 that has "chilled"' the exercise of regulatory authority and caused an "alarming" loss of sovereignty.9 Based on the wide variety of pending claims, writers warn that. Chapter 11 provides foreign corporations with a reliable "tool for attacking any legislation or regulation that they do not find beneficial to their investment[s]." To combat this apparent threat, some writers advocate a retreat from liberal access to investor-state arbitration."

Joined in part by the Canadian and U.S. governments,' writers also support the adoption of binding interpretive statements to limit the substantive obligations of Chapter 11. Such proposals express little confidence in arbitrators to render decisions that could mitigate popular concern.

Over the past year, however, Chapter 11 tribunals have issued a number of decisions and awards that provide an important opportunity for reassessment of the criticisms that have been leveled at Chapter 11. Part I lays the foundation for such an analysis by reviewing the structure and purpose of Chapter 11. To explain why Chapter 11 has caused an outpouring of public concern, Part II describes the surprising variety of claims submitted to arbitration under its authority. Part III examines recent decisions of Chapter 11 tribunals to determine whether the emerging trends support the criticisms of Chapter 11. In so doing, Part III identifies a balanced interpretive strategy employed by most Chapter 11 tribunals. When construing Chapter Il 's provisions on procedure and jurisdiction, most tribunals have adopted flexible interpretations that promote access to arbitration and a hearing on the merits. When construing the substantive obligations of Chapter 11, however, tribunals have hewed more closely to the treaty's text and specific rules of international law. This suggests that expansive claims will frequently survive procedural and jurisdictional objections, but are much less likely to pass through the more rigorous filter of substantive disciplines. Thus, condemnation of Chapter 11 may be premature; Chapter 11 provides broad opportunities to challenge measures adopted or maintained by host states, but the substantive disciplines offer adequate protection against abusive claims.