Fair And Equitable Treatment Under International Law

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15-WTR Currents: Int'l Trade L.J. 3

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Currents: International Trade Law Journal
Winter, 2006
*3 FAIR AND EQUITABLE TREATMENT UNDER INTERNATIONAL LAW: ANALYZING THE INTERPRETATION OF THE NAFTA ARTICLE 1105.1 BY NAFTA CHAPTER 11 TRIBUNALS
Ignacio Pinto-León [FNa1]
Copyright © 2006 by Currents: International Trade Law Journal; Ignacio Pinto-León
I. INTRODUCTION
Whatis “fair and equitable treatment under international law?” The question has earned considerable attention during the past decade, as foreign investors have used the concept embodied in Article 1105.1 of the North
American Free Trade Agreement (hereinafter NAFTA) [FN1] to contest governmental actions that adversely affect their investments. As a result, the arbitral tribunals established pursuantto NAFTA cannot avoid the difficult task of interpreting the conceptt.
The NAFTA was signed by the Governments of Canada, Mexico and the United States. [FN2] It provided
the legal framework to establish a free trade area among these three neighboring countries. [FN3] The NAFTA
also set rules for North American investment — substantive law — and a dispute resolution mechanism for
breach ofgovernmental obligations in the matter — procedural law. [FN4]
Arbitral tribunals set under Chapter 11 of NAFTA [FN5] have to apply the minimum standard of treatment
contained in NAFTA's Article 1105, but this has proven to be a hard task. This paper will analyze how such
tribunals have dealt with the subject in the claims submitted to them from 1996 to 2006.
Part II synthesizes the disputeresolution mechanism of NAFTA's Chapter 11 and how the decisions of arbitral tribunals set under that chapter have impacted the meaning and content of the Minimum Standard of Treatment. Part III interprets the application of the Fair and Equitable principle contained in the Minimum Standard
of Treatment by NAFTA Chapter 11 tribunals. Part IV cites praise and criticism to NAFTA, analyze the currentmeaning of the Fair and Equitable Standard of NAFTA's Chapter 11, and study the NAFTA parties' behavior in
post-NAFTA free trade agreements and bilateral investment treaties. Part V concludes.
II. RESOLUTION OF INVESTMENT DISPUTES UNDER NAFTA
A. DISPUTE RESOLUTION RULES UNDER CHAPTER 11
NAFTA was the first free trade agreement to include a chapter on investment. [FN6] Chapter 11 contains
bothsubstantive and procedural rules. [FN7] According to Sornarajah, NAFTA's Chapter 11 has been the regional agreement on investments which has “attracted the most attention and provided a model for the OCED's
Multilateral Agreement on Investment.” [FN8]

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Chapter 11 SectionA of the NAFTA provides with at least seven main substantive guarantees to be afforded
to investors by its signatories: [FN9] (1) national treatment, [FN10] (2) most-favored-nation treatment, [FN11]
(3) fair and equitable treatment in accordance with international law, [FN12] (4) full protection and security in
accordance with international law, [FN13] (5) non-discriminatory treatment in caseof armed conflict or civil
strife, [FN14] (6) free transfer of capital related to foreign investment or foreign investor, [FN15] and (7) nondiscriminatory expropriation followed by fair compensation. [FN16]
*4 Section B of Chapter 11 provides for a dispute resolution mechanism. [FN17] Its purpose is to establish a
“mechanism for the settlement of investment disputes that assures both equaltreatment among investors of the
Parties in accordance with the principle of international reciprocity and due process before an impartial
tribunal.” [FN18] This mechanism has been said to be innovative in that it gives investors from Canada, Mexico
or the United States an opportunity to arbitrate their claims under Chapter 11 of NAFTA, directly, without the
intervention of the national...