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Overlapping Regulatory Spaces: The Architecture of NAFTA Chapter 11 and the Regulation of Toxic Chemicals
Published online by Cambridge University Press: 20 January 2017
Since the North American Free Trade Agreement (hereinafter NAFTA) was successfully negotiated in 1993, the provisions for investor-state arbitration under its Chapter 11 have put pressure on the regulatory spaces of the State Parties. Under Chapter 11, any investor alleging a breach of the treaty norms by a host State can file an arbitration claim. This diagonal dispute settlement mechanism has determined a growing stream of arbitrations, focusing inter alia on the interplay between the regulation of toxic chemicals by the host State and the substantive provisions of Chapter 11. The arbitration claims filed by investors against host States regarding the regulation of toxic chemicals by the latter include those related to the adoption of discriminatory policies, the expropriation of investments and the violation of the fair and equitable standard (FET). In a nutshell, the question is how to reconcile environmental protection with the promotion of foreign direct investment (FDI). Can the host State adopt precautionary policies? To what extent can and should policy influence risk regulation? Should investors be compensated if their toxic chemicals are banned from the market? Which standard of review should arbitral tribunals adopt to assess scientific evidence? This note explores all of these issues through an analysis of the Chemtura award.
1 North American Free Trade Agreement, 32 ILM 605 (1993).
2 See, for instance, Ethyl Corp. v. Government of Canada, Award on Jurisdiction, June 24, 1998, 38(708) ILM (1999); Metalclad v. The United Mexican States, Award 30 August 2000, Case No. ARB(AF)/97/1, 40(36) ILM; Methanex Corporation v. United States of America, Final Award, August 3, 2005, 44(1345) ILM (2005). For an in depth discussion see Vadi, V., Public Health in International Investment Law and Arbitration (London: Routledge, forthcoming 2012)Google Scholar.
3 There is extensive literature on these standards. See, for instance, Andrew Newcombe and Luis Paradell, Law and Practice of Investment Treaties. Standards of Treatment (2009).
4 Chemtura Corp. (formerly Crompton Corp.) v. Government of Canada, Award, 2 August 2010, available on the Internet at <http://italaw.com/documents/ChemturaAward.pdf> (last accessed on 27 October 2011). The Arbitral Tribunal was composed of Professor Gabrielle Kaufmann-Kohler (President), the Honorable Charles N. Brower and Professor James Crawford.
5 Chemtura v. Canada, Award, para. 8.
6 The Pest Management Regulatory Agency is the federal agency “responsible for the regulation of pest control products in Canada. Its primary objective is to prevent unacceptable risks to people and the environment from the use of pest control products.” Chemtura v. Canada, Award, para. 10.
7 Ibidem, para. 29.
8 The Permanent Court of Arbitration is an intergovernmental organisation established in 1899 to facilitate arbitration and other forms of dispute resolution between States. The PCA now also provides services for the resolution of investment disputes involving states and private parties. A number of NAFTA Chapter 11 arbitrations have been conducted under the auspices of PCA. The list of past and pending cases at PCA is available on the Internet at <http://www.pca-cpa.org/showpage.asp?pag_id=1029> (last accessed on 27 October 2011).
9 Adopted by the United Nations Commission on International Trade Law on 28 April 1976, the UNCITRAL Arbitration Rules represent a comprehensive set of procedural rules upon which parties may agree for the conduct of arbitral proceedings. The rules, which were revised in 2010, are available on the Internet at <http://www.uncitral.org/pdf/english/texts/arbitration/arb-rules/arb-rules.pdf> (last accessed on 27 October 2011).
10 Crompton Corp. v. Government of Canada, Notice of Intent to Submit a Claim to Arbitration, 6 November 2001; Second Notice of Intent, 4 April 2002; Third Notice of Intent, 19 September 2002; Notice of Arbitration (Related to the First and Second Notice of Intent), 17 October 2002; and Notice of Arbitration (Related to the third Notice), 10 February 2005. These documents are available on the Internet at <http://www.international.gc.ca/trade-agreements-accords-commerciaux/disp-diff/crompton_archive.aspx?lang=en&view=d> (last accessed on 27 October 2011).
11 Chemtura v. Canada, Award, para. 52.
12 The MFN and NT provisions reflect the principle of non discrimination. See Ortino, Federico, “Non Discriminatory Treatment in International Investment Law”, in Dupuy, P.-M., Francioni, F. and Petersmann, E.-U. (eds), Human Rights in International Investment Law and Arbitration (2009)Google Scholar.
13 Chemtura v. Canada, Award , para. 92.
14 Ibidem, para. 131.
15 Ibidem, para. 116.
16 Ibidem, para. 97. In order to clarify the interpretation of Article 1105 (1), the NAFTA Free Trade Commission (FTC) issued a binding interpretation on July 21, 2001. According to this interpretation, “The concepts of ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens”. FTC Note of Interpretation of 31 July 2001, available on the Internet at <http://www.international.gc.ca/trade-agreements-accordscommerciaux/disp-diff/NAFTA-Interpr.aspx?lang¼en> (last accessed on 27 October 2011).
17 Chemtura v. Canada, Award, para. 97.
18 Ibidem, para. 98.
19 Ibidem.
20 Ibidem, para. 123.
21 Ibidem, para. 145.
22 Ibidem, para. 138 [emphasis added].
23 Ibidem, para. 134.
24 Ibidem, para. 135.
25 Ibidem, para. 133.
26 Ibidem.
27 Aarhus Protocol on Persistent Organic Pollutants to the 1979 Convention on Long-Range Transboundary Air Pollution of 24 June 1998, in force 23 October 2003, 2230 UNTS 79.
28 Chemtura v. Canada, Award, para. 135.
29 Ibidem, para. 136. Stockholm Convention on Persistent Organic Pollutants of 22 May 2001, in force 17 May 2004; 40 ILM (2001), p. 532.
30 Ibidem, para. 149.
31 Ibidem, para. 154.
32 Ibidem, para. 224
33 Ibidem, para. 237.
34 Ibidem, para. 234.
35 Ibidem, para. 235.
36 Ibidem, para. 263.
37 Ibidem, para. 266.
38 Ibidem, para. 267.
39 Ibidem, paras. 272–273.
40 Orellana, Marcos, “The Role of Science in Investment Arbitrations Concerning Public Health and the Environment”, Yearbook of International Environmental Law (2006), pp. 48–72, at p. 54Google Scholar.
41 Chemtura v. Canada, Award, para. 134.
42 Wälde, Thomas and Kolo, Abba, “Environmental Regulation, Investment Protection and ‘Regulatory Taking’ in International Law”, ICLQ (2001), pp. 811–848, at p. 846CrossRefGoogle Scholar.
43 Orellana, “The Role of Science in Investment Arbitrations Concerning Public Health and the Environment”, supra note 40.
44 Chemtura v. Canada, Award, para. 123.
45 On the need for comparative surveys of best regulatory practices, see Eeckhout, P., “The Scales of Trade – Reflections on the Growth and Functions of the WTO Adjudicative Branch”, 13(1) JIEL (2010), pp. 3–26 CrossRefGoogle Scholar.