NAFTA’s Chapter 11 and the Environment

The document examines how NAFTA's Chapter 11 provisions—specifically those regarding expropriation, national treatment, and performance requirements—can be used by investors to challenge environmental regulations. It highlights a lack of transparency and accountability in the ad hoc investor-state dispute process and suggests that the Joint Public Advisory Committee (JPAC) should push the Commission for Environmental Cooperation (CEC) and the Free Trade Commission (FTC) to reform these mechanisms to better balance investor rights with public interest.

• The absence of an explicit 'police powers' doctrine in Article 1110 creates uncertainty regarding whether non-discriminatory regulations for public welfare are exempt from being classified as compensable expropriation, potentially leading to a 'pay the polluter' scenario where governments must pay damages for enacting tough environmental laws.
• Certain interpretations of Chapter 11 provisions have transformed them from 'shields' intended to protect against unfair treatment into 'swords' used by investors to attack or prevent unfavorable public interest regulations.
• The definition of 'investment' has been expanded by rulings to include a company's market share, which could allow a wide range of trade measures to be challenged under NAFTA's investment law.
• The investor-state dispute mechanism lacks legitimacy, accountability, and transparency due to its ad hoc nature, the lack of a permanent court, and a limited review process that does not allow for appeals based on simple errors of fact or law.
• The Free Trade Commission's July 2001 notes of interpretation attempted to limit Article 1105 to customary international law, but the author notes that such interpretive vehicles may not be legally binding on all arbitral tribunals.
• The JPAC can indirectly influence Chapter 11 reforms by advising the Council to provide expert advice to the Free Trade Commission or by promoting improved investor protection language in Free Trade Area of the Americas (FTAA) negotiations.

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} }