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Reconciling Environmental Protection and Investor Rights Under Chapter 11 of NAFTA

June 2001

Citation: 31 ELR 10646

Issue: 6

Author: David A. Gantz

I. Introduction1

Many concerns have been expressed recently regarding the likely conflicts between the extensive protections given to investors and investments under Chapter 11 of the North American Free Trade Agreement (NAFTA)2 and the legitimate needs of the NAFTA governments to exercise their normal regulatory functions, including but not limited to the area of environmental regulation.3 As an article in the New York Times recently put it, "the way a small group of international tribunals handles disputes between investors and foreign governments has led to national laws being revoked, justice systems questioned and environmental regulations challenged."4 Similar concerns were instrumental in causing the failure in 1998 of the negotiations among members of the Organization for Economic Cooperation and Development (OECD) of the Multilateral Agreement on Investment (MAI).5 Many of the same issues arise under provisions of the more than 40 bilateral investment treaties (BITs) the United States has negotiated since 1980 with developing countries around the world,6 and in the early efforts to negotiate a Free Trade Agreement of the Americas (FTAA).7 Recently, opposition has developed among some labor and "civil society" groups to the negotiation of an otherwise uncontroversial free trade agreement with Singapore because of the likelihood that the agreement will include NAFTA-like protection of foreign investors.

While business interests want to preserve the extensive NAFTA protections, particularly the "fair and equitable treatment" standard, environmental groups seek an exception for environmental and health policies.8 Even within the U.S. government, there appears to be some disagreement between the regulatory agencies (U.S. Environmental Protection Agency (EPA), the U.S. Department of Justice, the U.S. Department of the Interior), which fear that the U.S. regulatory process may be compromised by overly broad language such as that guaranteeing "fair and equitable treatment," and the foreign relations agencies (U.S. Department of State, U.S. Trade Representative's Office), which remain committed to protection of American investors abroad and fear that a weakening of the BIT/NAFTA language in future agreements would have adverse implications for U.S. investor-host state disputes found in existing agreements.9

The author is Professor of Law and Director, International Trade Law Program, the University of Arizona, James E. Rogers College of Law, and Associate Director, National Law Center for Inter-American Free Trade. He received an A.B. degree from Harvard College in 1964 and J.D. and J.S.M. degrees from Stanford Law School in 1967 and 1970. The author is currently serving on a North American Free Trade Agreement tribunal under the International Centre for Settlement of Investment Disputes Additional Facilities rules, in a case which raises no environmental issues whatsoever. The assistance of Erica Rocush and Elizabeth Townsend, both third-year students at the College of Law, is gratefully acknowledged. Copyright(c) 2001, David A. Gantz.

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