NAFTA’s Threat to Sovereignty and Democracy: The Records of NAFTA Chapter 11 Investor-State Cases – Lessons for CAFTA

By Public Citizen's Global Trade Watch

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Eleven years ago, the North American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico went into effect after heated debate. 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.