NAFTA’s Chapter 11 and the Environment

This briefing paper, written by Aaron Cosbey of the International Institute for Sustainable Development (IISD) for the Commission for Environmental Cooperation's (CEC) Joint Public Advisory Committee (JPAC), analyzes the environmental implications of NAFTA's Chapter 11. The author argues that the investor-state dispute settlement mechanism, originally designed for commercial protection, has become a tool for challenging non-commercial public interest regulations, creating risks for national environmental management.

• The author argues that NAFTA's Chapter 11 provisions have evolved from being protective tools for investors into instruments used to attack or prevent unfavorable government regulations, shifting from a "shield to sword."
• There is significant concern regarding Article 1110 (Protection from Expropriation) because the text does not explicitly include the "police powers" doctrine, which traditionally exempts non-discriminatory public welfare measures from being classified as expropriation. This creates a risk where governments may have to pay damages for implementing tough environmental regulations, effectively creating a "pay the polluter" system.
• The document highlights risks associated with Article 1106 (Performance requirements), noting that some claimants have argued that environmental import bans on toxic substances constitute illegal local purchasing requirements.
• Chapter 11 is criticized for having overly broad definitions of "investment" and "measures." Rulings have extended the definition of investment to include a company's market share, potentially bringing a wide range of trade measures under the purview of investment law.
• The investor-state dispute process is described as lacking legitimacy, accountability, and transparency. The author notes that the ad hoc selection of panelists, the absence of a permanent court, and the lack of a meaningful appeal process make outcomes unpredictable, described by one commentator as a "crapshoot."
• The author suggests that the only way to fix major procedural failures is to re-open and amend NAFTA to establish a tailor-made court system, as the Free Trade Commission (FTC) lacks the power to dictate the procedural rules of ICSID or UNCITRAL tribunals.

APA

Cosbey, A. (2002). NAFTA’s Chapter 11 and the Environment. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/investment_jpac_briefing_paper.pdf

Chicago

Cosbey, Aaron. NAFTA’s Chapter 11 and the Environment. International Institute for Sustainable Development, 2002. https://www.iisd.org/system/files/publications/investment_jpac_briefing_paper.pdf.

Wikipedia

{{cite report |last1=Cosbey |first1=Aaron |title=NAFTA’s Chapter 11 and the Environment |publisher=International Institute for Sustainable Development |date=June 2002 |url=https://www.iisd.org/system/files/publications/investment_jpac_briefing_paper.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{cosbey2002naftas, author = {Cosbey, Aaron}, title = {{NAFTA’s Chapter 11 and the Environment}}, institution = {International Institute for Sustainable Development}, year = {2002}, month = jun, url = {https://www.iisd.org/system/files/publications/investment_jpac_briefing_paper.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }