NAFTA’s Chapter 11 and the Environment

The report argues that NAFTA's Chapter 11 has evolved from a defensive mechanism to an offensive strategic tool used by foreign investors to challenge public welfare and environmental laws. It identifies significant substantive uncertainties regarding national treatment, performance requirements, and expropriation, which may force governments to pay damages for non-discriminatory environmental measures. The authors recommend the adoption of a legally binding interpretive statement by the NAFTA parties to clarify these disciplines and a shift toward greater transparency in the arbitration process to restore democratic legitimacy.

• The investor-state process in Chapter 11 provides foreign investors with an "unprecedented" and "revolutionary" right to initiate direct actions against host governments, effectively bypassing domestic legal safeguards and appeal mechanisms.
• Foreign investors have strategically used Chapter 11 to shield themselves from new laws or policies with negative economic impacts, shifting the mechanism from a defensive protection tool to a "potent offensive strategic tool."
• Substantive uncertainties in Chapter 11's disciplines—including national treatment, most-favoured nation treatment, minimum international standards, performance requirements, and expropriation—impair the ability of governments to regulate in the public interest.
• The definition of "measure" in NAFTA is exceptionally broad, potentially covering not only laws and regulations but also government practices and statements made by officials during public debates.
• The use of an "effects test" to determine indirect expropriation may lead to a result where governments must compensate investors for non-discriminatory environmental regulations, contradicting the "polluter pays principle."
• The investor-state process is characterized by a lack of transparency and secrecy, which undermines democratic legitimacy and prevents public stakeholders from participating in issues of significant public interest.
• The authors recommend that the NAFTA parties adopt a legally binding interpretive statement to clarify the meaning of non-discrimination disciplines and exclude non-discriminatory environmental measures from the scope of expropriation.

APA

Mann, H., & von Moltke, K. (n.d.). NAFTA’s Chapter 11 and the Environment. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/nafta.pdf

Chicago

Mann, Howard, and Konrad von Moltke. NAFTA’s Chapter 11 and the Environment. International Institute for Sustainable Development, n.d. https://www.iisd.org/system/files/publications/nafta.pdf.

Wikipedia

{{cite report |last1=Mann |first1=Howard |last2=von Moltke |first2=Konrad |title=NAFTA’s Chapter 11 and the Environment |publisher=International Institute for Sustainable Development |url=https://www.iisd.org/system/files/publications/nafta.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{mannndnaftas, author = {Mann, Howard and von Moltke, Konrad}, title = {{NAFTA’s Chapter 11 and the Environment}}, institution = {International Institute for Sustainable Development}, url = {https://www.iisd.org/system/files/publications/nafta.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }