The establishment of a clear set of rules for conducting international business is one of the key reasons for the success of the NAFTA. Trade and investment rules provide a road map for the flow of trade and investment capital.
Chapter 11 is the investment component of the North American Free Trade Agreement (NAFTA) which came into force in 1994. It establishes a framework of rules and disciplines that provides investors from NAFTA countries with a predictable, rules-based investment climate, as well as dispute settlement procedures which are designed to provide timely recourse to an impartial tribunal.
NAFTA Chapter 11 is divided into 3 sections:
Section A - Investment obligations as agreed to by the NAFTA Parties. (Articles 1101-1114)
Section B - Procedures for the settlement of disputes between a Party and an Investor of another Party. (Articles 1115-1138)
Section C - Definitions of certain terms found in NAFTA Chapter 11. (Article 1139)
Section A of NAFTA Chapter 11 outlines the various obligations agreed to by the NAFTA Parties with respect to treatment of investors and investments of the other NAFTA Parties in their territories. These obligations, which are subject to reservations or exceptions taken by the NAFTA Parties, include the following:
National Treatment (Article 1102) - Each NAFTA Party will treat investors and investments from other NAFTA Parties no less favourably that it treats its own investors and investments, in like circumstances, with respect to such matters as the establishment, acquisition, operation and sale of investments.
Most-Favoured Nation Treatment (Article 1103) - A NAFTA Party may not treat an investor or investment from a non-NAFTA country more favourably than an investor or investment from a NAFTA country with respect to such matters as the establishment, acquisition, operation and sale of investments.
Minimum Standard of Treatment (Article 1105) - This Article assures a minimum absolute standard of treatment of investments of NAFTA investors based on long-standing principles of customary international law.
Performance Requirements (Article 1106) - This Article prohibits a NAFTA Party from imposing or enforcing certain performance requirements, such as export requirements and domestic content rules, in connection with the establishment, acquisition, expansion, management, conduct or operation of investments. It also prohibits using the specified performance requirements as conditions attached to advantages such as subsidies, including tax incentives.
Senior Management and Boards of Directors (Article 1107) - NAFTA Parties are prohibited from imposing a nationality requirement on senior personnel employed by an enterprise that is an investment of an investor of another NAFTA Party.
Transfers (Article 1109) - A NAFTA Party must permit an investor of another NAFTA Party to make transfers of funds related to its investments (such as profits, dividends, interest and royalty payments) freely and without delay.
Expropriation (Article 1110) - A NAFTA Party cannot directly or indirectly nationalize or expropriate an investment of an investor of another NAFTA Party except: (i) for a public purpose; (ii) on a non-discriminatory basis; (iii) in accordance with due process of law; and (iv) on payment of compensation equivalent to fair market value.
Environmental Measures (Article 1114) - The NAFTA Parties have the right to adopt and enforce environmental measures consistent with the chapter. NAFTA Parties also recognize that it is inappropriate to encourage investment by relaxing domestic health, safety or environmental measures. Accordingly, Parties should not waive or derogate from such environmental measures to attract investment.
Section B of NAFTA Chapter 11 outlines the procedures for the settlement of a dispute between a Party to the NAFTA and an investor or investment of another Party within its territory. This investor-protection mechanism provides recourse for alleged breaches of the provisions of Section A of Chapter 11 by a Party that have resulted in loss or damage to the investment of an investor. Investors may also use the dispute settlement mechanism outlined in Section B of Chapter 11 to resolve certain disputes arising out of alleged breaches of NAFTA Article 1503(2) (State Enterprises) and Article 1502(3)(a) (Monopolies and State Enterprises).
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Section C contains the definitions of the terms used in Chapter 11 including “investment”, “investor of a Party” and “investment of an investor of a Party”.
These documents are the draft negotiating texts produced between 1991 and 1993 by the NAFTA investment negotiating group, made up of representatives from each NAFTA Party. With the exception of the initial draft text, dated December 1991 which contains initial proposals, these drafts represented the status of the investment negotiations at the conclusion of each of the negotiating group's meetings and, upon circulation to all three Parties, provided the starting point for discussion at the next meeting.
On July 2004, the NAFTA Commission announced the release of these documents
All negotiating draft texts were prepared in English only for trilateral approval by the Parties during the NAFTA negotiations. Given the need to maintain the integrity of the content of these historical documents, the Government of Canada has not modified or changed them in any way. As such they have not been translated from the original.
When Canada implemented the NAFTA through its domestic legislative process, Canada also issued a document which briefly described the agreement and the obligations undertaken.
The Free Trade Commission (FTC) was established to supervise the implementation of the agreement, resolve disputes that may arise regarding its interpretation or application, supervise the work of all committees and working groups. For the purpose of NAFTA Chapter 11, the FTC’S interpretations, as set out in Article 1131(2), are binding on a Tribunal established pursuant to Section B of Chapter 11.