NAFTA’s Chapter 11 and the Environment

This research paper analyzes the environmental implications of NAFTA'S Chapter 11, arguing that its broad definitions of 'SSSS and expansive interpretations of investor protections may undermine public welfare and the right of governments to regulate for health, safety, and the environment.

• The definitions of 'measures' and 'investments' in Chapter 11 are unusually broad, potentially bringing almost all government actions—including zoning codes and court actions—under the purview of investment law. This breadth allows for claims based on losses in market share, as seen in the Pope & Talbot case.
• There is significant concern regarding 'indirect expropriation' (or 'creeping expropriation'), where regulations that harm a foreign investor's value may be treated as expropriation requiring compensation. To date, tribunals have focused on the extent of the impact on the investor rather than the public welfare purpose of the regulation.
• The Most-Favoured-Nation (MFN) treatment obligation in Article 1103 may allow investors to import higher standards of protection from bilateral investment treaties (BITs) signed by a NAFTA party with non-NAFTA countries, potentially bypassing the intended standards of the NAFTA agreement.
• Environmental policy tools, such as import bans on toxic substances, risk being interpreted as prohibited 'performance requirements' (specifically local purchasing requirements) under Article 1106, as argued in the Crompton and Ethyl cases.
• The investor-state dispute mechanism lacks the legitimacy, accountability, and transparency found in domestic judicial systems. Issues include the ad hoc selection of arbitrators, the lack of a permanent appellate body, and limited public access to court documents and hearings.
• Interpretive statements issued by the Free Trade Commission (FTC), such as the July 2001 statement on Article 1105, are limited in effectiveness because they may be challenged as de facto amendments to the treaty and cannot override the procedural rules of arbitration bodies like ICSID or UNCITRAL.
• While adding an Environment, Health & Safety (EH&S) exception similar to GATT Article XX has been proposed, it is viewed as problematic because it concedes that the right to regulate is not already presumed and would require a difficult renegotiation of the entire NAFTA agreement.

APA

Cosbey, A. (2003). NAFTA’s Chapter 11 and the Environment. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/investment_jpac.pdf

Chicago

Cosbey, Aaron. NAFTA’s Chapter 11 and the Environment. International Institute for Sustainable Development, 2003. https://www.iisd.org/system/files/publications/investment_jpac.pdf.

Wikipedia

{{cite report |last1=Cosbey |first1=Aaron |title=NAFTA’s Chapter 11 and the Environment |publisher=International Institute for Sustainable Development |date=24 March 2003 |url=https://www.iisd.org/system/files/publications/investment_jpac.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{cosbey2003naftas, author = {Cosbey, Aaron}, title = {{NAFTA’s Chapter 11 and the Environment}}, institution = {International Institute for Sustainable Development}, year = {2003}, month = mar, url = {https://www.iisd.org/system/files/publications/investment_jpac.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }