A Tailor-Made Legal Suit: The Actual Scope, Power, and Functioning of NAFTA Chapter 11’s Rules and Institutions for the Settlement of Cross-Border Disputes

Abstract

Many scholars argue that the rules, mechanisms and bodies established under the North American Free Trade Agreement’s Chapter 11 for the settlement of disputes on foreign direct investment have undermined the policymaking capacities of national and subnational governments in the United States, Mexico and Canada for promoting public welfare in their territories. In their view, the provisions of Chapter 11 on the resolution of investor-state disputes allow business actors to undermine and overthrow domestic legislation that might be perceived as adverse to their investments. In contrast, this article argues that the rules, mechanisms and actions and decisions of the bodies established by Chapter 11 have contributed to reaffirm the power of national and subnational governments in North America to enact and uphold social-oriented domestic laws. Over the past 20 years, Chapter 11’s dispute settlement mechanisms have demonstrated they lack the structure and power to fully address investor-state disputes; they thus constitute quasi-regional mechanisms, not supranational rules and bodies which can overrule the decisions of governmental actors. Furthermore, their creation and implementation mainly responded to the interests of the North American national governments, not foreign investors (as it is widely assumed), in delivering an institutional and legal framework that would ease and increase the flows of trade and investment capital between their countries without compromising their sovereignty and policy-making powers. As a result, the mechanisms and bodies of Chapter 11, foremost amongst them, the Arbitral Tribunals, have consistently favoured the actions and largely held up the decisions and policies of national and subnational governments in the three North American countries over the claims of foreign investors.