investment_10nov03-538ba8e76fcf2a12.pdf

This report by the Center for International Environmental Law examines the evolution and application of the Minimum Standard of Treatment (MST) for foreign investments in international law, with a specific focus on NAFTA Chapter XI and the tension between customary international law and bilateral investment treaties (BITs).

• The Calvo doctrine, which insists that foreign investments be subject solely to the domestic law of the host State, was authoritatively expounded in the 1926 North American Dredging Company case. This doctrine has been integrated into the laws and constitutions of several Latin American countries and may represent regional customary law.
• The 'Neer standard' established in the 1920s defined the minimum international law standard for the treatment of aliens. Under this standard, a state's action only constitutes an international delinquency if it amounts to an 'outrage', 'bad faith', 'willful neglect of duty', or an insufficiency of action so severe that any reasonable and impartial person would recognize it as such.
• Early NAFTA Chapter XI tribunals produced inconsistent interpretations of the Minimum Standard of Treatment (MST). For example, the Metalclad Tribunal linked MST to a duty of transparency, while the Pope & Talbot Tribunal suggested that 'fair and equitable' treatment standards might be 'additive' to customary international law rather than identical to it.
• To resolve interpretative inconsistencies, the Free Trade Commission (FTC) issued a binding Note of Interpretation on July 31, 2001. This note clarified that Article 1105(1) prescribes the customary international law MST, that 'fair and equitable treatment' does not require treatment beyond that customary law, and that breaches of other NAFTA provisions do not automatically establish a breach of MST.
• Recent awards such as Mondev, ADF, and Loewen have departed from the Neer standard, arguing that customary law has evolved. These tribunals suggest that a state can treat an investment unfairly or inequitably without necessarily acting in bad faith, focusing instead on whether a decision was 'clearly improper and discreditable'.
• The report concludes that abandoning the 'bad faith' requirement and treating 'fair and equitable' as a free-standing standard threatens good governance. It argues these shifts allow ad hoc tribunals to subjectively second-guess legitimate government actions, such as legislation and regulatory decisions, which is described as 'antithetical to democracy'.
• The Chile-U.S. Free Trade Agreement (FTA) attempted to address NAFTA's ambiguities by refining the MST formulation. It explicitly states that 'fair and equitable treatment' and 'full protection and security' are not additional to MST and links fair and equitable treatment to the obligation not to deny justice according to global due process principles.

APA

Center for International Environmental Law (2003). investment_10nov03-538ba8e76fcf2a12.pdf. https://www.ciel.org/wp-content/uploads/2015/03/investment_10Nov03.pdf

Chicago

Center for International Environmental Law. investment_10nov03-538ba8e76fcf2a12.pdf. 2003. https://www.ciel.org/wp-content/uploads/2015/03/investment_10Nov03.pdf.

Wikipedia

{{cite report |author=Center for International Environmental Law |title=investment_10nov03-538ba8e76fcf2a12.pdf |date=August 2003 |url=https://www.ciel.org/wp-content/uploads/2015/03/investment_10Nov03.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{centerforinternationalenvironmentallaw2003investment10nov03538ba8e76fcf2a12pdf, author = {{Center for International Environmental Law}}, title = {{investment\_10nov03-538ba8e76fcf2a12.pdf}}, institution = {Center for International Environmental Law}, year = {2003}, month = aug, url = {https://www.ciel.org/wp-content/uploads/2015/03/investment_10Nov03.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }