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Environmental policy implications of investor-state arbitration under NAFTA Chapter 11

  • Sanford E. Gaines
Original Paper

Abstract

Chapter 11 of the North American Free Trade Agreement requires governments to treat foreign investors the same as domestic investors, to afford them international standards of due process of law, and to compensate investors for any actions that expropriate their investments or are “tantamount” to expropriation. It allows foreign investors to submit compensation claims to international arbitration. To the alarm of the environmental community, four of the early Chapter 11 claims involved challenges to government measures that were, or appeared to be, environmental protection measures. The first three of the four claimants ultimately received compensation; the fourth claim was denied as being outside the scope of Chapter 11. This paper takes an in-depth look at the circumstances of these four claims to determine whether the claimants had thwarted or avoided bona fide environmental protection measures and to try to assess whether these claims have “chilled” government imposition of new environmental measures. The facts of the cases and developments subsequently indicate that the government actions in the first three cases were not truly environmental protection measures, but were motivated by local political and economic considerations. The fourth claim, which involved a bona fide environmental protection, was rightly rejected. Meanwhile the number of “environmental” claims under Chapter 11 has dwindled. The paper concludes that environmentalists have little ground for alarm, and much reason to be encouraged, about how Chapter 11 has influenced environmental protection.

Keywords

NAFTA Investment Foreign investor Arbitration Chapter 11 Environment Trade Hazardous waste MMT MTBE PCBs National treatment Expropriation 

Abbreviations

NAFTA

North American Free Trade Agreement

ICSID

International Center for the Settlement of Investor Disputes

UNCITRAL

United Nations Commission on International Trade Law

SLP

San Luis Potosí in Mexico

NIMBY

Not In My Back Yard

AIT

Canada’s Agreement on Internal Trade

MMT

Methylcyclopentadienyl Manganese Tricarbonyl

MTBE

Methyl Tertiary-Butyl Ether

PCBs

Polychlorinated Biphenyls

EPA

Environmental Protection Agency

SDMI

S.D. Myers, Inc.

ADM

Archer-Daniels-Midland Corporation

CEPA

Canadian Environmental Protection Act

Notes

Acknowledgments

My thanks for insightful and invaluable research assistance to Mr. Luis Suarez, LL.M. degree candidate at the University of Houston Law Center. The final paper has also benefited from careful and thoughtful comments on earlier drafts by ZhongXiang Zhang, and from commentary at the CEC’s Third Symposium on the Environmental Effects of Trade, Montreal, December 1, 2005. Finally, my personal thanks to the CEC staff for efficient administration of the entire contract and review process.

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Copyright information

© Springer Science+Business Media B.V. 2007

Authors and Affiliations

  1. 1.University of Houston Law CenterHoustonUSA

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