Chapter 11 of NAFTA and the Provinces-Will the Constitutional Question Be Asked?

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Canada's unique version of federalism has resulted in an uncertain division of powers between federal and provincial governments. International trade law is among the areas of law that have been significantly impacted by such uncertainty. An important question that remains unanswered today is whether the federal government has the constitutional authority to implement international trade treaties, such as the North American Free Trade Agreement ("NAFTA"), into domestic law so that the treaties will have force against the whole of Canada (including the provinces). The Labour Conventions Case provides some guidance on this question; but considering its vintage and the facts on which it was based, the answer remains uncertain. (1) The recent expropriation of the assets of AbitibiBowater by the Government of Newfoundland and Labrador lead AbitibiBowater to launch a dispute under Chapter 11 of NAFTA. (2) The Government of Newfoundland and Labrador did not make any attempt to settle the dispute under the dispute resolution process outlined in Chapter 11. Instead, the federal government paid out a settlement. With the federal government having to pick up the tab in a NAFTA dispute arising out of purely provincial act, the hand of the federal government may finally have been forced to take legislative action.

A straightforward approach would be the promulgation of legislation implementing NAFTA into domestic law. To help ensure the provinces will be held accountable if they violate Chapter 11, the federal government could also enact a provision, as part of the implementing legislation, stipulating that provinces will be held liable for such violations. Legislation that implements NAFTA and imposes liability on provinces for violations thereof, however, will likely be met with challenges by the provinces. As a result, the Supreme Court of Canada may have to revisit the Labour Conventions Case and opine on whether the federal government has the power to implement international trade treaties into domestic law.


A. Chapter 11 of NAFTA

Chapter 11 of NAFTA deals specifically with investment disputes. (3) It has three primary objectives:

(1) establish a secure investment environment through the elaboration of clear rules of fair treatment of foreign investment and investors;

(2) remove barriers to investment by eliminating or liberalizing existing restrictions; and

(3) provide an effective means for the resolution of disputes between an investor and the host government. (4)

Structurally, Section A of the chapter provides substantive rules and principles, while Section B establishes a dispute settlement mechanism. (5) Section A draws on some of the most common principles of international trade law, including the principles of "National Treatment" (6) and "Most-Favored-Nation Treatment." (7) Two of the most important rules established in Section A are the rules on "fair and equitable treatment" (8) and "expropriation." (9)

Article 1105(1) states "[e]ach Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment ..." (10) Due to the lack of detail regarding what constitutes fair and equitable treatment under Article 1105, a large number of Chapter 11 claims have been brought, leading to varied interpretation. (11)

Unlike Article 1105, Article 1110 provides significant detail on expropriation and compensation. It prohibits NAFTA Parties from expropriating the investments of an investor of another NAFTA Party and other measures tantamount to expropriation. (12) It does, however, offer an exemption from the prohibition if the expropriation is "(a) for a public purpose; (b) on a nondiscriminatory basis; (c) in accordance with due process of the law and Article 1105(1); and (d) on payment of compensation[.]" (13) In paragraphs 2 through 6 of the article, the details of what exactly constitute just compensation are spelled out. …