48:2 Broadening NAFTA Article 1105 Protections: A Small Price for International Investment

Comment

Abstract

The North American Free Trade Agreement (NAFTA) attempts to alleviate the problems associated with risky foreign investment through its chapter on investment, Chapter 11, which creates broad substantive protections and rights for investments made among Canada, Mexico, and the United States. The main goal of NAFTA’s Chapter 11 is to promote investment among the three signatory states. With this objective in mind, Chapter 11’s protections should provide investors with security when making investments within one of the signatory states. Along with other substantive provisions, Chapter 11 includes a “Minimum Standard of Treatment” (MST) clause that guarantees investors “treatment in accordance with international law, including fair and equitable treatment” (FET). These protections—articulated in Article 1105—are designed to promote investment, encourage economic growth, and protect foreign investment from arbitrary actions by host governments.

Despite these economic goals, recent restrictive interpretations of Article 1105 have eroded the substantive protections that NAFTA’s Chapter 11 provides investors. This Comment argues that the current interpretation of NAFTA’s Article 1105 and its application of FET is economically and legally dangerous and should be expanded to provide further protection for foreign investment among the signatory states.