Chicago Journal of International Law


In the case of an investment dispute, Chapter 11 of the North American Free Trade Agreement ("NAFTA") permits investors from one NAFTA Party to submit to arbitration a claim against the sovereign government of another NAFTA Party. This type of arrangement in which a sovereign entity sets forth terms to which any potential claimant must accede in order for an agreement to be made is sometimes termed "arbitration without privity." Yet despite a lack of privity in negotiating the agreement, the parties to an arbitration still have an "arbitral contract: Chapter 11 is best viewed as a NAFTA Partys unilateral offer to arbitrate a specified set of claims (Section A) according to specified procedures (Section B). Arbitral tribunals will best serve NAFTA Parties and their investors by strictly adhering to the requirements set forth in Chapter 11. Claimants frequently argue that enforcing the Chapter's terms literally is contrary to NAFTA's goal of investment expansion. Closer examination, however, reveals not only that such strict construction of the terms is required by international law, but also that such a construction would be more likely to achieve the goal of "increas[ing] substantially investment opportunities in the territories of the Parties." First, the NAFTA Parties waived their sovereign immunity from suit on the conditions set forth in Chapter 11. NAFTA was the product of extensive negotiation among the three Parties; arbitral tribunals lack the authority to rewrite that agreement by modifying the Chapter's terms. Effectively, investors may not counter-offer but must accept the terms set forth by the State Parties. Second, the Chapter's guidelines ease and facilitate investment by being clearly workable and predictable for all interested parties. [CONT]