A Controversial Aspect of the North American Free Trade Agreement (NAFTA)

May 05, 2006

Vested Interests Claim NAFTA's Chapter 11 is no Threat

A new book released yesterday by the C.D. Howe Institute explores a controversial aspect of the North American Free Trade Agreement (NAFTA) that protects cross-border investors from arbitrary or discriminatory actions by government.

The study, Investor Protection in the NAFTA and Beyond: Private Interest and Public Purpose, examines the record of legal disputes brought before an impartial panel under Chapter 11 of the trade pact. While uncontroversial when NAFTA was first signed, the clause later became a lightening rod for controversy: critics initially denounced the secrecy of the panel hearings (since made public) and have asserted that the provision restricts the right of governments to protect public policies in areas such as health, safety and the environment.

"The record shows that the NAFTA investor protection mechanism is working well, on balance, to protect and encourage investment while allowing governments to balance this against public policy objectives," claims Alan S. Alexandroff, editor of the book and Research Fellow at the C.D. Howe Institute.

Corporate investors also have used NAFTA’s investor-state enforcement system to challenge domestic court rulings, local and state environmental policies, municipal contracts, tax policy, federal controlled substances regulations, federal and state anti-gambling policies, a federal government’s alleged failure to provide water rights, and even the provision of public postal services. In most instances, challengers have sought millions of dollars in damages, claiming that regulatory measures and government actions negatively affected their profitability. If an investor prevails in its NAFTA claim, the losing nation is obliged to compensate the firm from the national treasury. Among the 42 cases detailed in the report:

"These cases show that there is a growing threat to democratic governance and state sovereignty as more and more state and local government policies, even court decisions, are targeted by NAFTA investors,” said Mary Bottari, a policy analyst at Public Citizen and author of the report.

So who do you believe? Those with vested interests, or the public watch groups?