Lima Arbitration

THE NEW FACE OF INVESTMENT ARBITRATION: NAFTA CHAPTER 11
Development published a report entitled Private Rights, Public Problems which
labels NAFTA Chapter 11 arbitration as «one-sided» and «lacking transparency,»
and concludes that arbitration is «shockingly unsuited to the task of
balancing private rights against public goods.» 100
Members of Congress also complain that NAFTA tribunals override health
and labor laws, and express alarm that the United States federal government
might be held liable for the idiosyncratic acts of local authorities and state
courts. 101 During debate on an appropriations bill, a congressman lamented
that the Justice Department might have to sue local governments to enforce
Process on the Environment, Int’l Inst. for Sustainable Dev. Working Paper (1999), available
at http:// iisd1.iisd.ca/pdf/nafta.pdf (last visited April 29, 2003). Complaints include
the «virtually unfettered right of foreign investors to initiate direct actions against their host
governments,» id. at 5, and the «aggressive use of this process to challenge public policy
and public welfare measures,» id. at 6. The authors complain about «uncertainty and unpredictability
for environmental regulations,» id. at 17, lack of procedural or public interest
safeguards, and «non-transparent, secretive and non-appealable» arbitration, id. at 6, all of
which mean that host governments must «pay foreign investors in order to be able to effectively
regulate the environment.» Id. See also Joseph de Pencier, Investment, Environment
and Dispute Settlement: Arbitration Under NAFTA Chapter Eleven, 23 Hastings Int’l &
Comp. L. Rev. 409 (2000); Todd Weiler, A First Look at the Interim Merits Award in S.D.
Myers v. Canada: It Is Possible to Balance Legitimate Environmental Concerns with Investment
Protection, 24 Hastings Int’l & Comp. L. Rev. 173 (2001).
100
Howard Mann, International Institute for Sustainable Development and World Wildlife
Fund, Private Rights, Public Problems: A Guide To NAFTA’s Controversial Chapter of
Investor Rights 46 (2001). The report by Dr. Mann, a lawyer based in Ottawa, led to followup
commentary in Canada and the United States that furthered the negative characterization
of NAFTA. See Mark Thomsen, Companies Using NAFTA to Undermine Legitimate
Regulations, The SocialFunds Investor, June 12, 2001, http://www.socialfunds.com/news;
Chantal Blouin, NAFTA Goes Too Far on Investor Protection, The North-South Institute,
Aug. 31, 2001, http://www.nsi-ins.ca/ensi/news.
101
See 145 Cong. Rec. H7368 (Aug. 5, 1999) (statement of Rep. Tierney). Federal statute
prohibits challenge of state laws inconsistent with NAFTA, «except in an action brought by
the United States [i.e., the federal government] for the purpose of declaring such law or
application invalid.» 19 U.S.C. § 3312(b)(2) (2000) (codifying §102(b) of the NAFTA Implementation
Act). Similar protections apply to state laws in conflict with Uruguay Round
trade agreements. See 19 U.S.C. § 3512(b)(2) (2000). An amendment to the Bill offered by
Representative Kucinich (Ohio) would have prohibited the Department of Justice from
using appropriated funds to challenge state laws that run afoul of NAFTA, such as the
Mississippi bond requirement in Loewen. See 145 Cong. Rec. H7368 for full text of amendment.
The amendment failed by a vote of 196 to 226.
40 LIMA ARBITRATION. N° 1 - 2006