Originially from: World Arbitration and Mediation Review (WAMR)

Cases Brought Under the NAFTA
Investment Arbitration Rules
by Daniel Q. Posin1
As discussed in the January issue of WAMR, in Chapter 11 of the North
American Free Trade Agreement (NAFTA) is found at once a sophisticated,
rational regime promoting cross-border investment among the Parties to the
agreement and an arbitral structure that is unique in international arbitration.
Chapter 11 Section B sets forth the rules for the settlement of disputes
arising out of the investment rules. It is an extraordinary set of rules. Coming
“right out of the chute,” the first principle of this regime is perhaps the most
extraordinary. Section 1116 provides that an investor of a party may submit to
arbitration a claim that another Party has breached an obligation of the investment
rules. Thus, under this provision, a private firm, citizen of one Party, may bring
the government of another Party into the arbitration process. Therefore, as an
example, Corporation X, incorporated in the United States, may bring the
government of Mexico into an arbitration on the question of whether the
government of Mexico has violated the investment rules of Section A. Moreover,
and of great significance, the U.S. Corporation X does not need the permission of
the United States government to initiate this arbitration process with the
government of Mexico.
The ability of a private corporation, citizen of one country, to “bring to
heel,” so to speak, a government of another country by compelling it to participate
in an arbitration, without permission of its own government, is unprecedented in
the international legal community. This extraordinary power is consistent with
the pro-investment cast of the substantive investment rules described above. Not
only are the rules pro-investment, the fundamental structure of the arbitration is
pro-investment.
Nothing better illustrates how the NAFTA investment arbitration system
works than a thumbnail description of the cases that have been brought under it.
Bear in mind that, as discussed above, we have an unprecedented structure in
which large, medium, or small private companies can, without the permission of
their home governments, compel the governments of Canada, United States, or
Mexico to arbitrate. This power of private companies is dramatically illustrated
by the following cases.
The following cases have been brought against Canada:
Ethyl Corp. v. Government of Canada2
Ethyl Corporation (“Ethyl”), a Virginia corporation with a Canadian
subsidiary, submitted a claim, on April 15, 1997 under the UNCITRAL Rules.
This claim was on Ethyl’s own behalf requesting arbitration against Canada.
Ethyl’s claim was with respect to a Canadian statute that banned imports of the