NAFTA Chapter 11 Meets Chicken Little

Before a Vancouver, British Columbia courthouse, on a cool mid-winter day in February of 2001, the forces of anti-globalization arrayed themselves to protest outside the judicial review proceedings of the North American Free Trade Agreement1 ("NAFTA") Chapter 11 case Metalclad v Mexico.2 One activist told a reporter, "This case highlights how an international trade agreement like NAFTA threatens democracy."3 The public interest in the Metalclad arbitration makes it clear that NAFTA Chapter 11 will continue to be the poster child for civil society activists in their anti-free trade attacks. Days later, before a joint session of the Canadian Senate and Parliament, British Prime Minister Tony Blair made an impassioned plea for rational argument in the globalization debate. Blair told Parliament: I think it is time we started to argue vigorously and clearly as to why free trade is right. It is the key to jobs for our people, to prosperity, and actually to development in the poorest parts of the world. The case against it is misguided, and worse, unfair, and however sincere the protests they cannot be allowed to stand in the way of rational argument. We should start to make this case with force and determination.4 The success of the anti-Multi-Lateral Agreement on Investment. ("MAI") forces in the spring of 1998, and the events of Seattle in December 1999, have emboldened anti-free traders and arguably forced the debate to a level of hyperbole that has made Blair's appeal to reason timely. The success of anti-free trade activists has apparently spooked the Canadian government into defensive positions about their support for the promotion of international trade and investment. Canadian Trade Minister Pierre Pettigrew recently re-confirmed his "preoccupation" with Chapter 11 and the policy position that Canada will no longer include Chapter 11-like investment protection provisions in future trade agreements such as the Free Trade Area of the Americas ("FTAA").5 This political shortsightedness is evidence of governments succumbing to a Seattle induced hysteria, rather than arguing the benefits of an open trade and investment rules-based system. The story of Chicken Little6 comes to mind because, like with all children's fables, it embodies real life lessons. Just as Chicken Little sought the answer to his baseless fear in authority, by searching for the King to attend to his problems, this paper is a brief attempt to appeal to some measure of reason. The issues that have generated the most smoke, if not real heat, concerning international investment provisions like NAFTA Chapter 11 are those of expropriation and the transparency of NAFTA tribunal proceedings. A key element of the Metalclad decision that Mexico is seeking to set aside in British Columbia is the expropriation provision in NAFTA Article 1110. The question this article will try to address: is the sky falling or should we just remember to look up when we walk under acorn trees? I. NEW AND UNCERTAIN The main reason that there is a lack of understanding about NAFTA Chapter 11 and other investment treaties, such as Bilateral Investment Treaties, is that they include rather arcane substantive trade provisions developed over a hundred years of international arbitration. Novelty has also come as a result of the fact that Chapter 11 is a new remedy for investors to make claims against governments in their own names, rather than through traditional diplomatic methods and politics. This is the element of NAFTA Chapter 11 that has irritated the Canadian and US governments the most. They do not like being told that international law means something other than what politics dictates. The main response of government officials who negotiated Chapter 11, or act on the government side of disputes, is that "we did not intend NAFTA to mean that". What they are really saying is that Chapter 11 was intended to protect Canadian and US investments from arbitrary or discriminatory conduct of the Mexican government, and that Canada and the US should never attract claims. …