Taking stock of NAFTA Chapter 11 in its tenth year: an interim sketch of selected themes, issues, and methods.

AuthorCoe, Jack J., Jr.

TABLE OF CONTENTS I. INTRODUCTION II. AN OVERVIEW OF NAFTA'S INVESTOR-STATE ARBITRAL MECHANISM: SOME BROAD THEMES A. Claim Processing Architecture: A Patchwork of Old and New 1. In General 2. Section B: The Basic Sequence and Departures Therefrom B. Chapter 11 Arbitration: A Hybrid 1. Public and Private Features 2. Relative Complexity 3. Intersections with Domestic Arbitral Regimes C. The Preeminence of Jurisdiction-Related Issues 1. In General 2. Terms of Art as Jurisdictional Gatekeepers D. NAFTA Jurisprudence: Accessibility and Importance III. DOCKET CHARACTERISTICS A. Subject Matter B. Disputant Patterns C. Regime Selections and Arbitral Seats D. Settlement and Recoveries IV. THE PROCESSES OF NAFTA JURISPRUDENCE A. Tribunal Relationship to Domestic Courts B. Sources of Substantive Guidance 1. In General 2. Consultation of Domestic Sources 3. International Authorities a. Adjudication b. Texts, Commentaries, and Publicists C. Reasoning Methodologies and Tribunal Attitudes D. Unifying Forces 1. In General 2. Inter-Tribunal Cross-Fertilization 3. Direct and Indirect Submissions of Non-Disputant Parties 4. Binding Interpretations 5. Set-Aside Precedent V. POPULAR MISGIVINGS: FACT AND FABLE A. In General B. Chapter 11 as "Unprecedented" 1. The Labels and Underlying Sensibilities 2. Chapter 11's Lineage C. Direct Standing or Espousal? 1. The Question 2. Espousal: State of Nationality as Traditional Protector 3. Chapter 11 and Espousal D. Direct Standing and Exhaustion of Local Remedies 1. Exhaustion In General 2. Chapter 11 and Exhaustion 3. Metalclad 4. Consequences for the Non-Exhausting Investor 5. Rethinking Exhaustion: Loewen v. United States 6. The Impact of Domestic Court Adjudication 7. Resulting Strategic Considerations E. Governing Law Indeterminateness and Outcome Unpredictability 1. The Stakes: Legitimacy and Efficiency 2. Adopting Reasonable Expectations, Present and Future 3. Formal Mechanisms: The Role of Binding Interpretations a. In General b. The Article 1105 Example c. The Interpretive Note 4. Article 1110: Unremarkable or Untidy? a. Apparent Divergence b. A Second Look 5. Tentative Conclusions on the Question of Indeterminacy F. Lack of Process Transparency 1. Policy Underpinnings and Expectations 2. Comparative Transparency G. Lack of Tribunal Accountability 1. The Complaint 2. A Partial Reply H. Chilling Effect on Beneficial Regulation 1. The Fear 2. The Interim Data I. The Perception of Alien Advantage 1. Dual Systems 2. Potential Consequences of the Perception a. Business Planning b. Legislative Responses VI. CONTROL MECHANISMS A. The Existing Control Patchwork B. Meager Data C. Positive Attributes D. Negative Traits and Potential Flaws 1. Incursions into the Merits 2. Systemic Variations 3. Perceptions Regarding Neutrality E. Improving Control Mechanisms: Abstract Characteristics 1. Overarching Importance and Abstract Criteria 2. Anationality and Neutral Composition 3. Systemic Neutrality 4. Centralization and Standardization 5. Predictable, Manifold Expertise F. Standards for Set-Aside 1. Substantive Review 2. Substantive Review: Competing Interests a. The International Commercial Arbitration Model b. Prolonged Indeterminacy G. Advisory and Remedial Powers H. Completing ICSID Participation I. Standing Appellate Bodies 1. ICJ Chamber 2. The PCA Variation J. The Merits of a Standing First Instance Tribunal V. CONCLUSION TABLES I. INTRODUCTION

The North American Free Trade Agreement (NAFTA) came into force on January 1, 1994. (1) Its Eleventh Chapter establishes substantive guarantees (2) and an arbitral mechanism by which qualifying investors may seek damages for breach of those guarantees. The much-discussed investor-state arbitration apparatus (3) was first invoked in September 1996, (4) and since then has been resorted to several times against each NAFTA state. Many cases have concluded, while others are nearing completion. (5) Though a mature jurisprudence has by no means emerged, substantive trends have been established and several of Chapter 11's distinctive features, strengths, and weaknesses have been illuminated.

NAFTA's investor-state docket has generated predictably high levels of interest among international law scholars and practitioners. It has also sustained a remarkable collection of observers beyond specialist circles. Numerous critiques have issued from both groups, and reactions to NAFTA have prefigured much of the debate that will ensue in relation to its more ambitious proposed successor, the Free Trade Area of the Americas (FTAA). (6) In assessing Chapter 11's dispute regime, it is difficult to fully divorce substance from procedure. Accordingly, while the following interim appraisal of Chapter 11 is concerned primarily with the investor-state arbitration regime, that framework's impact on the substantive jurisprudence of NAFTA will also be treated, albeit not comprehensively.

Part II surveys elements of architecture and develops certain themes. Part III identifies emerging docket patterns. Part IV considers processes and sources that influence the formation of Chapter 11 jurisprudence. Part V discusses selected conceptions and misgivings that have recurred concerning Chapter 11. Part VI considers the mechanisms intended to exert control on Chapter 11 awards and introduces proposals for refining the associated framework. In general, this essay concludes that the existing arrangement is neither fundamentally flawed nor entirely free of troubling features.

  1. AN OVERVIEW OF NAFTA's INVESTOR-STATE ARBITRAL MECHANISM: SOME BROAD THEMES

    1. Claim Processing Architecture: A Patchwork of Old and New

      1. In General

        Section B of Chapter 11 sets forth with specificity rules conditioning an investor's resort to arbitration, the character and mandate of the arbitral tribunals that are to serve, and numerous related matters. (7) It also relies upon several generally well-tested texts and regimes, including three rules formulae and three arbitral conventions. These texts perform their ordinary function subject to the specific ways of proceeding agreed by the NAFTA states and set forth in Section B. Domestic arbitration statutes too play a role, though as a practical matter their role is largely restricted to the post-award setting. (8)

        Private lawsuits in one NAFTA state against other NAFTA states have been explicitly foreclosed by NAFTA and associated statutes of implementation. (9) Nevertheless, some flexibility is afforded claimants under the arbitral remedy to which they are confined in the form of a choice of formats. Section B contemplates that in many instances the aggrieved investor may designate either UNCITRAL Rules of arbitration or one of two ICSID (10) formats (11) (the type and availability depending on the ICSID Convention status of the states involved). However, the present range of options is not as diverse as one might imagine. Because neither Mexico nor Canada is yet a member of the ICSID Convention, (12) only the alternative of ICSID's Additional Facility has been available and then only in the common circumstance in which the United States is either the claimant's state of nationality or is the respondent. (13)

      2. Section B: The Basic Sequence and Departures Therefrom

        The procedures detailed in Section B of Chapter 11, though somewhat intricate, contemplate a scenario in which notice and cooling-off periods induce more deliberate claims than might otherwise occur. An uncontroversial marshaling of a claim would unfold as follows: upon ascertaining that an apparent breach of Chapter 11 by its NAFTA Party host had injured its investment, the investor (a national of another NAFTA state) would pursue redress through consultation with host state officials (14) and, upon the failure of such efforts, would notify the host state of its intention to bring a Chapter 11 claim (Notice of Intent or Notice). (15) The notice would contain specified information (including the provisions alleged to have been breached and the factual basis for the claim). (16) Thereafter, the arbitral claim could be filed, subject to three timing restraints. First, it would be submitted not sooner than 90 days from the date upon which the notice of intent (17) was delivered and, second, not sooner than six months after the occurrences prompting the claim. (18) Third, irrespective of when the notice was given, the claim would not be filed later than 3 years from the date when the investor should have discovered the breach and injury. (19)

        The claim would be filed in the manner set forth in the arbitral rules corresponding to the investor's choice of format (UNCITRAL or the applicable ICSID regime), (20) and would be accompanied by a written waiver and consent to arbitration. (21) The waiver would relinquish the investor's right "to initiate or continue" certain domestic proceedings "with respect to the measure ... alleged to be a breach of [Chapter 11]." (22)

        Despite the prosaic nature of the foregoing claim marshalling procedure, jurisdiction-related skirmishes have become commonplace, in part because claimants have deviated from the prescribed ordering and content set forth above. What should be the consequence of premature initiation of the process? (23) Is the waiver an element of jurisdiction or largely a formality? (24) These and numerous other questions of this type have regularly occupied tribunals as preliminary matters, a characteristic of Chapter 11 arbitration more fully discussed under Subsection C below.

    2. Chapter 11 Arbitration: A Hybrid

      1. Public and Private Features

        Arbitration between states and private parties--"mixed" arbitration--of the kind sponsored by Chapter 11 has characteristics of inter-state arbitration (25) and of private international commercial arbitration. (26) The similarities to the latter are readily apparent. Once underway, Chapter 11 arbitration follows the familiar pattern, ordinarily progressing through written and oral phases culminating in...

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