24 | LEXPERT • December 2015 | www.lexpert.ca
NAFTA
DISPUTES
TRADE
THE NORTH AMERICAN Free Trade Agreement (NAFTA), which
came into force in 1994, provides an investor/state dispute settlement mechanism in Chapter
11. Foreign investors from Canada, the US and Mexico have the right to bring any of the
three national governments before a NAFTA arbitration tribunal without first resorting to
the country's courts.
NAFTA included the dispute settlement process to protect US and Canadian investors
against corruption in Mexican courts. In practice, however, Canada is the country most oen
targeted under the NAFTA mechanism.
A foreign investor can make a Chapter 11 claim under one or more of the following causes
of action listed in the agreement:
Article 1110 – expropriation, directly or indirectly, of the claimant's assets; e.g., a govern-
ment enacts an environmental measure with no real public policy purpose, does not follow
due process or fails to pay fair compensation.
Article 1102 – discrimination on the basis of the investor's nationality.
Article 1105 – minimum standard of treatment, i.e., treatment that is "fair and equitable"
to the investor; this is a catch-all provision intended to ensure that legitimate expectations of
investors are met.
Article 1106 – performance requirements; in order for a company to make an investment or
use its investment, it must meet minimum performance requirements (e.g., local content) set
by the host government.
"In most of the claims made against Canada, the claimants have used a combination of
provisions, the most common being Article 1105," says Lawrence Herman, a partner at
Herman & Associates LLP in Toronto.
Canada is the country most frequently
sued under NAFTA's controversial Chapter 11
dispute settlement mechanism
BY SHELDON GORDON
