This paper illustrates the tensions inherent to the North American Free Trade Agreement or NAFTA dispute settlement mechanism. They also underline the difficulties encountered to establish a proper balance between two legitimate and contradictory interests, namely the protection of investors' rights on one hand and the protection of public policies on the other hand.
In order to better understand the tensions over the NAFTA investor-state dispute settlement, the historical background of the NAFTA system developed by Barton Legum is described here. Indeed, Legum demonstrates that the NAFTA investor-state dispute settlement mechanism is far from being as innovative and departing from the previous methods of resolving public disputes. Chapter Eleven of NAFTA that sets forth the investor-state dispute-resolution mechanism is composed of two sections. The first one presents obligations that state parties have to observe in respect to investment in their territories. Most of these obligations incorporate preexisting obligations in customary international law. Nevertheless, some go beyond the Customary international Law or the CIL and establish obligations that are treaty-based. The second chapter sets forth the arbitration procedure. The controversial provision is the so-called direct claim provision, that is to say the mechanism that allows individuals and companies to bring claims of violation of NAFTA provisions directly against a State.
[...] To some extent, these criticisms are true but they are also often overrated. The very nature of NAFTA's opponents (environmentalists, consumer groups and anti-trade organizations) demonstrates that the debate is largely political and ideological. It appears that the debate goes further and lies in the opposition against globalization. Once again, the key to the problem is to maintain the balance of the system. One way to satisfy many opponents would be to grant demands for openness and accountability, for more transparency when public issues are involved and to accept some innovations (such as the acceptance of written statements from third-party groups). [...]
[...] Many other criticisms are addressed to the NAFTA investor-state dispute settlement. It is argued that the system causes national laws to be revoked, that it questions national justice systems and challenges environmental regulations and undermines public policies (Methanex case). Opponents also point out the fact that the system contributed in an excessive way to the expansion of private companies' rights at States' detriment and that in fact, investors have gained more power and protection than initially wished by NAFTA's fathers. [...]
[...] It's aim is much broader: to increase foreign investment and thus to increase the overall economic development. Bibliography NAFTA, Chapter 11 B. Legum, The innovation of Investor-State Arbitration Under NAFTA Harv. Int'l L.J 531 (2002) DePalma, NAFTA's powerful little secret, New York Times, Mar Public Citizen, NAFTA Chapter 11 Investor to State Cases: Bankrupting Democracy (Executive Summary), Sept Procedural history of Loewen v. United States (from Naftaclaims.com website) Loewen v. United States, Award (June 26, 2003) Loewen v. [...]
[...] Thus the tension is inherent to the system and the difficulty lies in establishing a balance between the different issues at stake. Another fundamental point is the great risk of litigation that is inherent to the NAFTA system. This aspect is also at the heart of many criticisms. Indeed, NAFTA's mechanism founds its roots in BITs. Nevertheless, its logic is different. BITs are concluded between States whose economic development is unequal. Thus, even if in BITs the parties' obligations are reciprocal, their potential application is not. [...]
[...] Keeping in mind all those aspects developed by Legum allows to put into perspective all the radical adverse reactions to the NAFTA investor-state dispute settlement developed by the readings from the New York Times and Public citizen. Those critics lie on many grounds and are more or less justified. In many aspects, they nevertheless appear as tendentious and overestimated. Moreover, they are presented out of their legal context. For instance, the attacks founded on the so-called secret arcane procedural aspects, the recourse to ad hoc tribunals (argument of lack of continuity/ no legal precedent) and the lack of disclosure of the NAFTA investor-state dispute settlement seem unfair. [...]
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