The New Face of Investment Arbitration: NAFTA Chapter 11

Abstract

To protect American investment abroad, the United States traditionally endorsed arbitration as the preferred means to resolve disputes between investors and host countries. Arbitration was justified as a way to level the procedural playing field in controversies over expropriation, reducing the prospect of "home town justice" in host country courts. Recently this policy has been tested by provisions of the North American Free Trade Agreement (NAFTA) intended to enhance cross-border investment. If one NAFTA country victimizes an investor from another, the investor has a right to seek redress through arbitration. The United States now finds itself a Respondent in several cases brought by Canadian investors asserting discrimination, unfair treatment, or expropriation without compensation, often allegedly committed by American states. Certain segments of American society have objected to these arbitrations as constituting unacceptable interference with governmental economic regulation. Fueled by media attacks, legislation has been proposed (and in some cases enacted) to limit the effectiveness of arbitration pursuant to bilateral investment treaties. Moreover, the NAFTA Free Trade Commission has issued "Notes of Interpretation" intended to soften the rigor of certain NAFTA provisions. This Article suggests that assaults on investment arbitration are misguided, and may end up doing more harm than good On balance, arbitration serves as a positive force in the protection of legitimate economic expectations abroad Impairing neutral arbitral dispute resolution will enfeeble international cooperation by chilling confidence in the security of cross-border transactions. Moreover, the United States' own national interest in safeguarding American-owned assets from foreign political risks requires maintaining an arbitration regime to resolve investment disputes.