Originally From World Arbitration and Mediation Review (WAMR)

I. INTRODUCTION

Article 1105 of the North American Free Trade Agreement (NAFTA) provides that NAFTA Parties must accord to investments of investors treatment “in accordance with international law, including fair and equitable treatment” (“FET”).1 In the last two decades, Article 1105 has undoubtedly become the most controversial and contested provision of NAFTA Chapter 11.2 In the words of one writer, “Article 1105 has become the alpha and omega of investor-state arbitration under Chapter 11 of NAFTA.”3 The FET debate started when three controversial awards were rendered in 2000(Metalclad,4 S.D. Myers,5 and Pope & Talbot6) on the scope and meaning of Article 1105. The Pope & Talbot tribunal held, inter alia, that Article 1105 requires the application of the FET standard independently (and in addition) to the minimum standard of treatment under international law.

All three NAFTA Parties expressly rejected the interpretation favored by these tribunals. Under the aegis of the Free Trade Commission (“FTC”),7 NAFTA Parties responded to these awards by issuing the “Notes of Interpretation of Certain Chapter 11 Provisions” (hereinafter referred to as “the Note”) on July 31, 2001. The Note clarified, inter alia, that “Article 1105(1) prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to investments of investors of another Party” and that the concept of FET does “not require treatment in addition to or beyond” that which is required by the custom.