Individual Rights and Investor Protections in a Trade Regime: NAFTA and CAFTA

Table of ContentsI. Introduction 1058II. Foreign Investment Under NAFTA: Chapter 11 1059A. NAFTA Chapter 11 1059B. The Development of Chapter 11 1064III. Criticisms of NAFTA's Investment Provision 1066A. Greater Rights for Foreign Investors 1067B. Hindrances to U.S. Sovereignty 1071C. Cost to Taxpayers 1074D. Absence of an Appeals Mechanism 1077E. Lack of Transparency 1079IV. Foreign Investment Under CAFTA: Chapter 10 1083V. CAFTA's Response to Specific NAFTA Criticisms 1084A. Greater Rights for Foreign Investors 1085B. Hindrances to U.S. Sovereignty 1086C. Cost to Taxpayers 1087D. Absence of an Appeals Mechanism 1088E. Lack of Transparency 1090VI. Conclusion 1092I. IntroductionOnce established as a shield that would level the playing field and protect foreign investors, the North American Free Trade Agreement's investor-state regime (Chapter 11) is increasingly referenced as a sword that attacks state sovereignty, favors foreign investors, and costs taxpayers billions of dollars.1 Nevertheless, when President George W. Bush signed the Dominican Republic-Central American Free Trade Agreement in 2005, it too included an investment provision with an investor-state dispute resolution mechanism (Chapter 10).2 The persistence of these sorts of investment provisions leads one to wonder: Are the critics mistaken? Is there a place for investor protection and citizenstate litigation in international law after all?This Note argues that there is still a place for investor protection and citizen-state litigation in international law. Part II examines the layout of the North American Free Trade Agreement (NAFTA) Chapter 11, and the impetus behind its creation. Part III then outlines the most common criticisms of Chapter 11, particularly those issues recently addressed in the Dominican Republic-Central American Free Trade Agreement (CAFTA). It explores claims that Chapter 11 unfairly favors foreign investors, hinders U.S. sovereignty, and costs taxpayers exorbitant amounts of money. It also addresses the absence of an appeals mechanism and the lack of transparency under NAFTA Chapter 11. It then concludes that generally these concerns and criticisms are exaggerated and, hence, the problems posed by an investor-state mechanism are not as daunting as critics suggest.Part IV moves into a discussion of CAFTA Chapter 10. Part V parallels Part IH's criticisms, but from the perspective of CAFTA-exploring the text of CAFTA and summarizing how CAFTA addresses each of these issues. An examination of CAFTA illustrates that, even if the criticisms of NAFTA were not overblown, CAFTA effectively addresses them. The improvements adopted by CAFTA demonstrate that, to the extent that it is problematic, the investor-state mechanism can adapt and become an effective method of investor protection and dispute resolution. Finally, Part VI concludes that investor protection and citizen-state litigation still have a place in international law.Investment provisions raise a number of issues, but this Note does not attempt to address all of them. Specifically, this Note is written from the perspective of the United States Government and U.S. investors. It does not speak to the benefits or detriments of the investment provisions from the perspective of foreign governments or foreign investors.II. Foreign Investment Under NAFTA: Chapter 11A. NAFTA Chapter 11NAFTA's Chapter 11 establishes rules to protect investors who wish to invest in a foreign member-State. …