Blowback strongInvestorstrong–State Dispute Mechanisms in International.pdfVIP

INVESTOR–STATE DISPUTE MECHANISMS Blackwell Publishing Ltd.Oxford, UK and Malden, USAGOVEGovernance0952Blackwell Publishing Ltd.April 2006192151172Articles ANN CAPLING AND KIM RICHARD NOSSAL Blowback: Investor–State Dispute Mechanisms in International Trade Agreements ANN CAPLING* and KIM RICHARD NOSSAL** The North American Free Trade Agreement (NAFTA) gave unprecedented rights to private investors. These provisions quickly became entrenched in policy and practice, appearing in most multilateral and bilateral trade agreements in the 1990s as American investors began to bring Canada and Mexico to arbitration. However, the Australia–U.S. Free Trade Agreement (AUSFTA) of 2004 contained no such provisions. The purpose of this article is to explain why enthusiasm for NAFTA-style protections waned so dramatically after a decade of entrenched practice. We argue that the reason lies in the “blowback,” the unintended and negative consequences created by NAFTA’s Chapter 11, and conclude that the abandonment of NAFTA-style protections in the AUSFTA sets important precedents for the future of international free trade agreements. Introduction The North American Free Trade Agreement (NAFTA) that came into force on January 1, 1994, gave unprecedented rights to private investors. Under Chapter 11 of NAFTA,1 the American, Canadian, and Mexican govern- ments assumed a wide-ranging set of obligations to investors from the other NAFTA countries. Investors were granted national treatment, and were protected from direct or indirect expropriation of their investments. Importantly, when investors from one NAFTA country believed they had been treated unfairly by one of the