Considerations of NAFTA Chapter 11

I. INTRODUCTION The North American Free Trade Agreement ("NAFTA")1 entered into force in January 1994. For Mexico, this was an important step. Before NAFTA, all foreign investor disputes were resolved in domestic administrative tribunals and judicial courts because Mexico did not recognize international claims by foreign investors. Since NAFTA, however, Mexico has changed its policy and now allows investors of the other NAFTA Party to submit a claim against it before an international tribunal for breach of its obligations under NAFTA Chapter 11. NAFTA Chapter Eleven is divided in two sections: Section A contains the substantive rules such as National Treatment, Minimum Standards of Treatment, Performance Requirements, Transfers and Expropriation, and Compensation.2 Section B contains the dispute settlement rules for investor-State arbitrations. The disputing party is able to choose among three different arbitration rules: the Convention on the Settlement of Investment Disputes between States and Nationals of Other States ("ICSID Convention"), the International Centre for Settlement of Investment Disputes ("ICSID") Additional Facility Arbitration Rules, or the United Nations Commission on International Trade Law ("UNCITRAL") arbitration rules.3 NAFTA Chapter 11 is similar to the Bilateral Investment Treaties ("BITS") signed by the United States. The investor-State mechanism has been used by investors to claim damages for alleged breach of their investments. This mechanism allows the investor of one Party to bring a claim against another Party for alleged breaches of Section A of NAFTA Chapter 11. Given the importance of this chapter for both investments and investors in the North American region, I will proceed to make a general overview of some issues regarding Minimum Standards of Treatment and Expropriation principles. I will also comment on the recent decision in the Metalclad4 case and on the acceptance of amicus curiae briefs in investor-State arbitrations. II. MINIMUM STANDARDS OF TREATMENT NAFTA Article 1105(1) has been the subject of multiple interpretations. This Article provides that: Each Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security.5 This article states the rules of treatment that a host Party is obligated to accord to investments of investors of another Party. The obligations of the NAFTA Parties are to provide treatment in accordance with international law. The phrases "fair and equitable treatment" and "full protection and security" are standards that were incorporated into Article 1105(1) from customary international law. In customary international law, "fair and equitable treatment" is the international standard for a Minimum Standard of Treatment. The phrase "fair and equitable treatment" was used for the first time in the Organization for Economic Cooperation and Development ("OECD") Draft Convention on the Protection of Foreign Property in 1963.(6) The Notes and Comments to Article 1 of the Draft Convention states that "the phrase fair and equitable treatment ... indicates the standard set by international law for the treatment due by each State with regard to the property of foreign nations.... The Standard required that conforms in effect to the minimum standard which forms part of customary international law"7 For this reason, fair and equitable treatment is viewed as linked to the customary international minimum standard. However, the Minimum Standards of Treatment are only granted to the investments of another Party and not to the investor itself. That is, in order to claim that the State failed to provide the appropriate standard of treatment, the company, not the individual investor, must be able to prove its assertion of damages. III. EXPROPRIATION AND COMPENSATION Article 1110(1) has also been the subject of multiple interpretations. …