Environmental policy implications of investor-state arbitration under NAFTA Chapter 11

Chapter 11 of the North American Free Trade Agreement requires governments to treat foreign investors the same as domestic investors, to afford them international standards of due process of law, and to compensate investors for any actions that expropriate their investments or are “tantamount” to expropriation. It allows foreign investors to submit compensation claims to international arbitration. To the alarm of the environmental community, four of the early Chapter 11 claims involved challenges to government measures that were, or appeared to be, environmental protection measures. The first three of the four claimants ultimately received compensation; the fourth claim was denied as being outside the scope of Chapter 11. This paper takes an in-depth look at the circumstances of these four claims to determine whether the claimants had thwarted or avoided bona fide environmental protection measures and to try to assess whether these claims have “chilled” government imposition of new environmental measures. The facts of the cases and developments subsequently indicate that the government actions in the first three cases were not truly environmental protection measures, but were motivated by local political and economic considerations. The fourth claim, which involved a bona fide environmental protection, was rightly rejected. Meanwhile the number of “environmental” claims under Chapter 11 has dwindled. The paper concludes that environmentalists have little ground for alarm, and much reason to be encouraged, about how Chapter 11 has influenced environmental protection.

Sanford E. GainesEmail: