NAFTA Chapter 11 Dispute Resolution and Mexico: A Healthy Mix of International Law, Economics and Politics
Jablonski, Scott R., Denver Journal of International Law and Policy
Trade and investment agreements provide the political, economic and legal framework for economic integration in the modern international political economy, and underscore the importance of international law in the integration process. The proliferation of such agreements among nation-states since the mid-twentieth century has been a major factor contributing to the increasing volume of business transactions across borders. (1) The Americas are certainly not an exception to these trends. There are roughly fifty regional, sub-regional and bilateral trade and integration agreements in the Americas, (2) with negotiations underway for other agreements, including a Free Trade Area of the Americas ("FTAA"). (3) In 2000, total trade among FTAA negotiating countries had reached roughly $784 billion, growing at 11% annually. (4)
Within the context of multilateral governance of trade and investment and increasing transnational business transactions lies the following reality: more transnational transactions mean an increasing need to seek effective, uniform principles of dispute resolution for disputes between private parties and governments arising out of a government's obligations under a trade agreement. (5) This is particularly true in the context of trade-related investment agreements, through which private parties play a direct role in economic integration. (6) The role of law in the modern international political economy is therefore paramount.
Several obstacles, however, often hinder or severely detract from efforts to achieve uniformity of dispute resolution among foreign legal systems. The greatest obstacle is the phenomenon of differing legal traditions. (7) Alternative Dispute Resolution ("ADR"), namely arbitration, has emerged as the preferred method of dispute resolution among nation-states belonging to trade agreements, as well as among private parties engaged in international transactions. (8) Indeed, in the context of international investment, private parties have long preferred international arbitration for resolving investment disputes with foreign governments. (9)
Chapter 11 of the North American Free Trade Agreement ("NAFTA") (10) is unique among trade agreements in that it contains an entire chapter dealing with foreign investment and the protection of such investment. (11) Chapter 11 broadly defines who an investor is and what an investment is in North America, and gives private investors in NAFTA Parties (12) direct access to binding international arbitration for claims against NAFTA Parties arising out of investment disputes. NAFTA thus seeks to bridge the gap between private individuals and governments in the resolution of cross border commercial disputes. And, it does so by creating an opportunity for a private investor to resolve an investment dispute without litigating in foreign courts or pressuring the investor's home government to resolve the dispute through diplomatic bargaining. (13) The arbitration alternative is also a pragmatic approach to the pressing need for effective international investment dispute resolution without engaging in the monumentally difficult task of harmonizing three different legal systems. (14) Chapter 11 dispute resolution is indeed representative of the evolving link between international law, economics and politics in the modern global political economy.
Despite its pragmatism and progressive nature, however, Chapter 11 dispute resolution has not escaped criticism. In recent years it has come under attack by various groups and commentators in NAFTA Parties whose arguments are generally based upon two main assertions: Chapter 11 dispute resolution is a threat to national sovereignty and an abrogation of democracy. (15) These critics base their assertions on what they believe are fundamental flaws in the Chapter 11 dispute resolution framework. The most often-cited arguments are that Chapter 11 promotes frivolous litigation and permits disproportionate compensation, lacks an adequate award review process, uses "secret" tribunals to reduce transparency, prevents legitimate governmental regulation, and derogates from notions of equality and sustainable development. …