Ch 11 NAFTA Nov 2007

Ch 11 NAFTA Nov 2007 - Description and consequences of...

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1 Description and consequences of Chapter 11 of NAFTA November 15, 2007
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2 Topics in this lecture Lack of transparency of process Articles of Chapter 11. Performance requirements. The doctrine of “regulatory taking” and its relation to Chapter 11. Some Chapter 11 cases.
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3 Lack of transparency There is no requirement of public notification of complaints, and tribunal hearings (typically) are not open to public. Prior to NAFTA Chapter 11, most BIT cases involved narrow commercial interests, where secrecy protected these interests without public harm. Some NAFTA cases involve environmental regulation, with clear public consequences. Until recently, public interest groups could not participate. Tribunal ruling in Methanex case accepted “friends of the court” briefs, providing greater public access.
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4 Provisions of Chapter 11: National Treatment Article 1102: National treatment provision requires governments to treat foreign investors of NAFTA countries no less favorably than domestic investors in like circumstances, with respect to all phases and aspects of investment, including initial investment and sale of investment.
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5 Discussion of National Treatment The difficulty of determining "like circumstances" is similar to the problems associated with determining "like products". Examples: Suppose that a foreign investor builds a new factory. Is it legal to require that this factory meet stricter environmental standards than existing factories? If new factory is located in environmentally sensitive area is legal to regulate it more strictly? If investor owns no other assets in country can it be obliged to post a bond to insure environmental compliance (e.g. cleanup)?
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6 Provisions of Chapter 11: Most Favored Nation (MFN) Article 1103: Most Favored Nation requires governments to treat foreign investors from NAFTA country no less favorably than the best treatment given to investors from other (signatory or non-signatory) nations -- even if this is better than treatment given to national investors. This article creates the possibility that the provisions of other (possibly bilateral) agreements could be imported into Chapter 11.
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7 Provisions of Chapter 11: minimum international standards Article 1105: Minimum international standards of treatment requires investors be treated "in accordance with international law" and to receive "fair and equitable treatment". This provision was intended to protect against egregious violations. The claim that domestic firms were being treated equally badly could not be used as a justification of unreasonable treatment of foreign firms -- thus the need for minimum international standards.
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8 Minimum international standards, continued In Metalclad the Tribunal found that Mexico failed to maintain a transparent and predictable investment climate. In July 2001 the Free Trade Commission (the council of three trade ministers) issued an "interpretative statement", to the
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This note was uploaded on 08/01/2008 for the course ECON 131 taught by Professor Karp during the Fall '07 term at Berkeley.

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Ch 11 NAFTA Nov 2007 - Description and consequences of...

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