CIEL welcomes as a positive development the NAFTA Free Trade Commission decision to increase the transparency of investment arbitral proceedings. Likewise, we applaud the precedent-setting decision of the Methanex arbitral tribunal that allowed amicus curiae submissions from civil society and that opened the hearing on the merits to the public. (See CIEL's amicus curiae brief). In addition, the International Center for the Settlement of Investment Disputes has recently proposed increased transparency and public access to the arbitral proceedings. We hope that such important developments will not remain isolated, but will foster the democratic values of transparency and participation in the application of international law.

From a development perspective, rules governing performance requirements, national treatment and technology transfer frustrate the policy space required by developing countries to implement policies towards sustainable development. For example, restrictions on performance requirements can hamper the efforts of a developing country's government to adopt policies that promote a link between foreign investment and local development. Additionally, non-discrimination obligations can limit the ability of a developing country government to protect emerging strategic sectors or assist domestic minority groups.

Finally, from an environmental perspective, the standards of indirect expropriation and fair and equitable treatment pose particularly grave problems. Indirect expropriation means that foreign investors can demand compensation if a government action is considered by a tribunal to "indirectly" expropriate the value of a multinational company's investment, or if it has an effect "equivalent" to expropriation. Thus national and local laws, regulations, and court decisions that indirectly affect the value of an investment can be considered a violation of the investment rules. For example, in a recent Chapter 11 case, the Canadian corporation Methanex sued the United States under NAFTA's expropriation statute for regulations passed by the California government to outlaw MTBE, a chemical that had contaminated drinking water supplies and is believed to be carcinogenic by the World Health Organization.

The fair and equitable treatment standard is also extremely dangerous to good governance. It would allow-indeed, it invites-an arbitral tribunal to apply its own view of what is "fair" or "equitable" unbounded by any textual or other real limits. Those terms have no definable meaning, and they are inherently subjective. Indeed, we wonder how they can have any principled meaning when applied to countries with such different histories, cultures, and value systems as are involved in BITs and free trade agreements. The kind of second-guessing of governmental action-e.g., legislation, prosecutorial discretion, police action, court decisions, regulatory actions, zoning decisions, etc., at all levels of government-invited by this type of standard is antithetical to democracy and is indefensible.

For more information, please visit CIEL's Trade & Investment page, or contact Marcos Orellana.


This page last modified on 11 November 2004