NAFTA Dispute Settlement

Abstract

This paper illustrates the tensions inherent to the North American Free Trade Agreement or NAFTA dispute settlement mechanism. They also underline the difficulties encountered to establish a proper balance between two legitimate and contradictory interests, namely the protection of investors' rights on one hand and the protection of public policies on the other hand.
In order to better understand the tensions over the NAFTA investor-state dispute settlement, the historical background of the NAFTA system developed by Barton Legum is described here. Indeed, Legum demonstrates that the NAFTA investor-state dispute settlement mechanism is far from being as innovative and departing from the previous methods of resolving public disputes. Chapter Eleven of NAFTA that sets forth the investor-state dispute-resolution mechanism is composed of two sections. The first one presents obligations that state parties have to observe in respect to investment in their territories. Most of these obligations incorporate preexisting obligations in customary international law. Nevertheless, some go beyond the Customary international Law or the CIL and establish obligations that are treaty-based. The second chapter sets forth the arbitration procedure. The controversial provision is the so-called direct claim provision, that is to say the mechanism that allows individuals and companies to bring claims of violation of NAFTA provisions directly against a State.