Public Citizen | Publications - NAFTA Chapter 11 Investor-State Cases: Lessons for the Central America Free Trade Agreement

NAFTA Chapter 11 Investor-State Cases: Lessons for the Central America Free Trade Agreement

Click here to read and download the full report.

Eleven years ago, the North American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico went into effect after heated debate .1 NAFTA was called a trade agreement. Yet, much of it focused on investment issues – establishing rights for foreign investors to acquire, own and operate broad categories of NAFTA-defined "investments" within the NAFTA nations and restricting governments’ regulation of such investors and their investments.

The NAFTA debate was characterized by more heat than light. NAFTA’s supporters were able to frame the fight in sweeping terms. NAFTA critics who raised concerns about specific provisions were broadly labeled protectionist, fearful, and backward, while proponents promised grand, if vague, benefits from NAFTA. As a result, few people had any idea that NAFTA contained several radical, experimental aspects never before included in a U.S. free trade agreement.

Among the most astounding of these of these surprises was NAFTA’s Chapter 11 investment rules. Therein signatory governments are required to provide extensive rights and privileges to foreign investors, and investors are empowered to privately enforce these new rights by demanding cash payment from governments for actions foreign investors claim violate their NAFTA privileges. These cases are decided in private "investor-state" arbitral tribunals operating outside the nations’ domestic court system, yet millions in taxpayers dollars can be demanded and awarded. These NAFTA rules grant foreign investors greater rights when operating within the United States than those available to U.S. residents or businesses under the Constitution as interpreted by the U.S. Supreme Court.

This report, NAFTA Chapter 11 Investor-State Cases: Lessons for the Central America Free Trade Agreement, provides detailed ana lysis of the 42 cases and claims to date – many of them not previously publicly known – in which foreign investors have demanded compensation from NAFTA nations. The track record of cases demonstrate an array of attacks on public policies and normal governmental activity at all levels of government − federal, state and local. Even though these NAFTA cases implicate commonplace public policies, the investor-state system is a closed and unaccountable one. Citizens whose policies are being attacked have no avenue of meaningful participation and neither do the state and local officials they elected to represent them. Court decisions can be challenged and jury decisions undermined, yet no judge or jury has standing to participate in the private NAFTA tribunals.

This report is the most comprehensive analysis of NAFTA cases yet published in the United States. To date, foreign investors have been granted monetary compensation in five cases and in six cases, investors’ claims have been rejected. Although the number of concluded cases is small it is notable that already $35 million has been awarded to foreign investors by NAFTA tribunals or governments as part of a settlement agreement – often over claims that would not have been allowed under domestic law or in domestic courts. Another $28 billion has been claimed by NAFTA investors (please see "Table of NAFTA Chapter 11 Cases and Claims" at start of report for further details). In addition, the U.S. government has spent millions in legal fees fighting foreign investors’ claims under NAFTA.

Our findings demonstrate that NAFTA’s model of extensive foreign investor privileges and their private enforcement outside of the domestic court system should not be replicated in future agreements. Over the past several years, as news of some of the more controversial cases has hit the papers, members of Congress, state Supreme Court chief justices, state attorneys general, mayors, other state and local officials and taxpayers have raised an array of serious concerns about the legitimacy of private dispute resolution for matters of public concern.