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NAFTA's Investment Protections and the Division of Authority for Land Use and Environmental Controls

September 2002

Citation: ELR 11001

Author: Vicki Been

The North American Free Trade Agreement (NAFTA)1 contains various "investor protections," including a provision requiring signatory governments to compensate property owners if the government either expropriates property or takes "measure[s] tantamount to . . . expropriation."2 That provision, known as Chapter 11, recently was used to force Mexico to pay compensation to Metalclad, an American corporation that owned a hazardous waste facility in the municipality of Guadalcazar, when local and provincial environmental and land use controls prevented the facility from operating.3 Similarly, the expropriation provisions of Chapter 11 are now the centerpiece of a $ 1 billion claim by a Canadian corporation that California regulations requiring the phaseout of the gasoline additive methyl tertiary butyl ether (MTBE) effected a "regulatory taking" by reducing the Canadian company's market for methanol, a substance used to produce MTBE.4

It is too early to judge just how broadly the arbitral panels will interpret the expropriation provisions of Chapter 11, but Metalclad (discussed in detail later) and pending NAFTA regulatory takings claims have the potential to upset many aspects of land use and environmental law. I've explored in another article the ways in which arbitral interpretations of NAFTA's expropriation provisions may pressure the U.S. Congress and state legislatures, as well as state and federal courts, to interpret the Fifth Amendment's Takings Clause more favorably for property owners.5 Several scholars have noted the effect the provisions may have in chilling regulators from adopting environmental and land use measures.6 In this Article, I examine another implication of the provisions—the potential they have to affect the allocation of authority for land use and environmental regulation among the federal, state, and local governments, as well as their potential to shift the boundaries between environmental and land use law.

Professor of Law, New York University (NYU) School of Law. I benefitted enormously from the helpful comments of Richard Briffault, Ricky Revesz, Carol Rose, the participants in NYU School of Law's Globalization and its Discontents Colloquium and the Pace Law School's Symposium on the Advent of Local Environmental Law, and students in NYU's Spring 2002 Advanced Environmental Law Seminar. I also am indebted to Joel Beauvais, Erik Bluemel, Ashley Miller, Melissa Richman, and Gabriel Ross for invaluable research assistance and critical analysis. I gratefully acknowledge the support of the Filomen D'Agostino and Max E. Greenberg Research Fund at the NYU School of Law.

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