Overlapping Regulatory Spaces: The Architecture of NAFTA Chapter 11 and the Regulation of Toxic Chemicals

Since the North American Free Trade Agreement (hereinafter NAFTA) was successfully negotiated in 1993, the provisions for investor-state arbitration under its Chapter 11 have put pressure on the regulatory spaces of the State Parties. Under Chapter 11, any investor alleging a breach of the treaty norms by a host State can file an arbitration claim. This diagonal dispute settlement mechanism has determined a growing stream of arbitrations, focusing inter alia on the interplay between the regulation of toxic chemicals by the host State and the substantive provisions of Chapter 11. The arbitration claims filed by investors against host States regarding the regulation of toxic chemicals by the latter include those related to the adoption of discriminatory policies, the expropriation of investments and the violation of the fair and equitable standard (FET). In a nutshell, the question is how to reconcile environmental protection with the promotion of foreign direct investment (FDI). Can the host State adopt precautionary policies? To what extent can and should policy influence risk regulation? Should investors be compensated if their toxic chemicals are banned from the market? Which standard of review should arbitral tribunals adopt to assess scientific evidence? This note explores all of these issues through an analysis of the Chemtura award.