An Improved NAFTA? Investor-State Arbitration Provisions Under the Colombia-US Free Trade Agreement

by Michael Diaz Jr. - Diaz Reus International Law Firm
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Chapter 11 of the North America Free Trade Agreement (NAFTA) was the first international trade agreement provision to give foreign investors a direct cause of action for investment disputes against the host government in a binding international tribunal, commonly known as “investor-state arbitration.” However, NAFTA investor-state arbitration continues to be a source of debate. Critics argue that the text is ambiguous, causing some to misinterpret the provision as a threat to national sovereignty. But, despite its many critics, the United States has adopted a NAFTA style investor-state arbitration provisions within its own trade policy. As a result, almost all free trade agreements signed by the United States after the NAFTA’s implementation include new versions of the agreement’s investor-state dispute provisions. The recently approved Colombia-U.S. Free Trade Agreement (“CFTA”) is no exception.

Chapter 11 of the NAFTA applies only to measures that relate to an investor or to the “investment of investor of another party in the territory of the other party.” “Investor of party” refers to any party that seeks to make, is making, or has made an investment. Incidentally, the NAFTA does not expressly define the term “investment.” Instead, under Article 1139, it lists certain activities that constitute valid investments, as well as activities that are not investments under the treaty. For example, it lists as valid forms of investment “an enterprise, equities, loans, debts, or interest on an enterprise, real estate and other interest arising from the commitment of capital.” On the other hand, it precludes “claims of money arising only for commercial contracts or commercial transactions” from being considered valid investments. Based on this indeterminacy, NAFTA parties in dispute with one another have frequently alleged lack of investment as grounds for dismissal.

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