Originially from: World Arbitration and Mediation Review (WAMR)

The Multi-Faceted Investment Arbitration Rules of NAFTA
by
Daniel Q. Posin1
I. Introduction
In Chapter 11 of the North American Free Trade Agreement (NAFTA) is
found a sophisticated, rational regime promoting cross-border investment among
the Parties to the agreement and an arbitral structure that is unique in international
arbitration. This article will first discuss the rules governing cross-border
investment among the parties to NAFTA—Canada, the United States and Mexico.
This article will then discuss the rules for arbitrating disputes that arise under
NAFTA. Finally, the article will provide a synopsis of an arbitration case that
was brought under these rules. The unusual arbitral structure has given rise to an
interesting and variegated collection of cases.
II. NAFTA Investment Rules
From the point of view of promoting international investment, NAFTA in
Chapter 11 Section A of the Agreement imposes upon its Parties2 a set of
seemingly reasonable substantive rules. One of the most significant investment
principles under NAFTA is “national treatment.”3 This means that there shall be
no discrimination by a Party as between domestic and foreign investors. Foreign
investors must be treated the same as domestic investors. Thus, a U.S. investor in
Mexico (to take a likely example) must be treated the same as a Mexican investor
in Mexico. In particular, the standard is that treatment shall be “no less
favorable” than the Party would accord, in similar circumstances, its own
investors.4 This is a broad requirement, providing, in § 1102(1), specifically that
“Each party shall accord to investors of another Party treatment no less favorable
than it accords, in like circumstances, to its own investors with respect to the
establishment, acquisition, expansion, management, conduct, operation, and sale
or other disposition of investments.”
As if this was not a clear enough statement, § 1102(2) reiterates the
principle with respect to investments as well as investors. It provides “Each party
shall accord to investments of investors of another Party treatment no less
favorable than it accords, in like circumstances, to investments of its own
investors with respect to the establishment, acquisition, expansion, management,
conduct, operation, and sale or other disposition of investments.”
Section 1102(3) then expands the reach of these clearly (and doubly)
stated principles to actions of a state or province of a Party. Thus, § 1102(3)
provides: “The treatment accorded by a Party under paragraphs 1 and 2 means,
with respect to a state or province, treatment no less favorable than the most
favorable treatment accorded, in like circumstances, by that state or province to
investors, and to investments of investors, of the Party of which it forms a part.”