Arbitration under CAFTA

One of the reasons I opposed CAFTA was its delegation of authority to international arbitration to decide if legislation or regulations treat foreign investors unfairly. Such provisions first appeared in Chapter 11 OF NAFTA and were incorporated in Chapter 10 of CAFTA.

Thanks to David Holiday for pointing out an opinion piece in the Washington Post warning that CAFTA's arbitration provisions threaten the sovereignty of local governments:

Unfortunately, with the proliferation of trade and investment agreements that hand foreign investors surprisingly broad rights, local governments are losing the power to protect their people, environment and economy. Investor protection clauses "essentially restrict the ability of governments to impose public interest or environmental regulations on corporate operations," says Keith Slack, an extractive industries expert for Oxfam America. And this hinders the very sort of development that would, in the long run, make poor countries not only better places for people to live, but far better places for American corporations to do business....

A trade agreement that binds the hands of local governments for the benefit of foreign corporations will only undermine democracy -- and in the long run, global development itself.

This week, the United States won an arbitration brought by Canadian chemical company Methanex under Chapter 11 of NAFTA. Methanex makes the gasoline additive MTBE, and it brought an arbitration case for the destruction of its investment value when California passed a law banning MTBE. Fortunately for those who want the ability to enforce such environmental laws against foreign corporations, the arbitration panel dismissed the case, ruling that it had no jurisdiction over such regulations.

Whether future arbitrations will side with government regulation over foreign investment interests is yet to be seen. When the government is El Salvador or Guatemala, and the plaintiff is a US multinational, will the arbitrators uphold state regulations? The US State Department maintains a list of arbitrations brought so far under NAFTA. Multinational corporations such as Waste Management, Archers Daniel Midland, and Corn Products International have all commenced arbitrations against Mexico in past years to challenge various governmental actions. With the passage of CAFTA, the Central American countries will find themselves in the same situation if foreign corporations find their investments threatened by regulation.