NAFTA Chapter 11's Investor Protection: What are the limits? P. Ross Weber

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1 NAFTA Chapter 11's Investor Protection: What are the limits? P. Ross Weber I. Introduction II. NAFTA's Text III. Treaty Interpretation A. Investor Protections Under the NAFTA i. Article 31 Analysis a. Plain Meaning b. Context of the NAFTA c. Purpose of the NAFTA d. Object of the NAFTA e. Textual Interpretation of National TMT Obligation B. Article 32 Analysis i. NAFTA Party Negotiations IV. Policy Arguments Broad Investor Protection V. Conclusion I. Introduction The NAFTA is a free trade agreement between the three progressive countries of Canada, Mexico, and the United States. The agreement has been viewed as the most cutting edge trade agreement due to the inclusion of investment protection, granting the Party's investors the right to bring claims against the NAFTA Parties. This type of individual right had never been included in a free trade agreement prior to the NAFTA. The dispute settlement mechanism created in Chapter 11 gives injured investors the ability to seek damages in ad-hoc investment arbitration tribunals for breaches of commitments made in the agreement. This paper will explain how the rights granted in Chapter 11 protect all investors of the NAFTA Parties, regardless of the actual physical location of the investment. The "Investor" rights created by the NAFTA will be analyzed in three sections. Section II will consider the actual text of the Agreement. Section III will discuss interpretation of 1

2 the NAFTA. Section IV will consider a couple of policy arguments in favor of the adoption of broad investor protections. II. NAFTA's Text To properly analyze the rights granted to investors by the NAFTA Parties, one must first consider the text of the Agreement. And, when one considers the text of the Agreement it is important to start at the beginning with the general provisions that apply to the entire agreement before considering the provisions of a specific chapter. The NAFTA's preamble explains that by entering into the Agreement the Parties intend to: "CONTRIBUTE to the harmonious development and expansion of world trade and provide a catalyst to broader international cooperation; CREATE an expanded and secure market for the goods and services produced in their territories; REDUCE distortions to trade; ESTABLISH clear and mutually advantageous rules governing their trade; ENSURE a predictable commercial framework for business planning and investment; BUILD on their respective rights and obligations under the General Agreement on Tariffs and Trade and other multilateral and bilateral instruments of cooperation; ENHANCE the competitiveness of their firms in global markets." 1 To further the goals enumerated in the Preamble, the Parties established obligations to ensure the accomplishment of their goals. Article 101 states that "the Parties to this Agreement hereby establish a free trade area." 2 Along with the establishment of the free trade area, the Parties defined several objectives to be accomplished through the Agreement. 3 The relevant objectives, "as elaborated more specifically through its principles and rules, including national treatment, most favored- 1 NAFTA Preamble 2 NAFTA Article NAFTA Article

3 nation treatment and transparency," 4 are to promote conditions of fair competition in the free trade area, increase substantially investment opportunities in the territories of the Parties, and to create effective procedures for the implementation and application of this Agreement. 5 To accomplish the objectives established in Article 102(1), the Parties agreed in Article 102(2) that the provisions of the Agreement are to be interpreted and applied "in light of its objectives set out in paragraph 1 of this section and in accordance with applicable rules of international law. 6 The Objectives established in Article 102, provide a broad level of protection in addition to that guarantees "elaborated more specifically" through the individual guarantees of national treatment, most favored-nation treatment, and transparency to be used as a reference when interpreting the treaty according to applicable rules of international law. 7 In addition to the protection and guarantees established in the preamble and general provisions, each NAFTA Party is required in Article 105 to "shall ensure that all necessary measures are taken in order to give effect to the provisions of this Agreement." 8 Furthermore, the protections established under the NAFTA are in addition to those the parties are already required to provide under other agreements, with the provisions of the NAFTA having superiority. 9 After considering the guidelines and protections the parties established as a foundation underlying the entire Agreement, one must consider the protections granted specifically to investors, found in Chapter Eleven. The Investment "Chapter applies to 4 NAFTA Article 102(1), Objectives. 5 NAFTA Preamble. 6 Article 102(2), Objectives; see also 1131(1)(A) "Tribunals established under this Section shall decide the issues in dispute in accordance with this Agreement and applicable rules of international law." 7 NAFTA Article NAFTA Article 105 Extent of the Obligations 9 NAFTA Article 103 Relation to Other Agreements. 3

4 applies to measures adopted or maintained by a Party relating to: (a) investors of another Party; (b) investments of investors of another Party in the territory of the Party; and (c) with respect to Articles 1106 and 1114, all investments in the territory of the Party." 10 The protection granted in the Investment Chapter consists of several levels of protection, both against discriminatory treatment and a minimum level of guaranteed treatment. There are actually several prohibitions against discrimination, 11 which include the protections found in Articles 1102, 1103, 1106, and Most significant for the purposes of this paper are the National Treatment guarantees found in Article Article 1102(1) explains that "Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments." 12 Article 1102(2) extends the protection granted in section one to investments of investors of another Party. 13 These protections, unlike several of the other guarantees found in the Investment Chapter, are not restricted guarantees. 14 According to the plain wording of Article 1102, there are no location-based limitations placed on the investors, which are found in several of the other Articles Article 1101 Scope and Coverage. 11 Todd Weiler, NAFTA Investment Law and Arbitration: Past Issues, Current Practices, Future Prospects, at Article 1102(1). 13 Article 1102(2). 14 See Article 1101(2) "investments of investors of Parties located in the territory of another Party." 15 See Id. See also Article 1106 (No Party may impose or enforce any of the following requirements [on] an investor of a Party or of a non-party in its territory.); see also Article 1110 (No Party may directly or indirectly nationalize or expropriate an investment of an investor of another Party in its territory ) (emphasis added). 4

5 To support the guaranteed rights granted in Section A of Chapter 11, the NAFTA Parties created a right for investors to seek binding arbitration. 16 Through the right to seek binding arbitration, investors of other NAFTA Parties may to obtain compensation for government measures that breached specified provisions of the NAFTA and resulted in injury or damage to that investor. III. Treaty Interpretation Initially, I must point out that the most accepted position regarding NAFTA investor rights is that the only investors eligible to use the Chapter 11 process are those investors who have investments located in one of the other two NAFTA countries. 17 This position is not, however, the only position to be taken away from a textual reading of the NAFTA. When the treaty is interpreted strictly by its plain meaning and in light of the objectives and guidelines established in the preamble, the Investment Chapter's National Treatment Obligation provides broad protection for all investors of the NAFTA countries, regardless of where they are located. To come to this conclusion one must turn to treaty interpretation and consider the purpose and objectives of the NAFTA viewed through the guidelines for interpretation established in the treaty. It is broadly recognized that "[t]he legitimate expectations of the parties to a treaty are reflected in the language of the treaty itself. [And, t]he duty of the treaty interpreter is to examine the words of the treaty to determine the intentions of the parties." 18 These 16 See Articles 1116, 1117, and Todd Weiler, NAFTA Investment Arbitration and the Growth of International Economic Law, 2002 BLI Issue 2:0 International Bar Association, at 160; see also Carlos G. Garcia, All the Other Dirty Little Secrets: Investment Treaties, Latin America, and The Necessary Evil of Investor-State Arbitration, 16 Fla. J. Int'l L. 301, (2004) "Assuming the claimant meets the broad and indulgent definitions of being a national of the other state (e.g., other than the host state), and is an "investor," he may compel a sovereign nation before an international tribunal which will determine if that nation has violated its treaty obligations, and if so, the appropriate amount of compensation in the form of a money award." 18 Joel P. Trachtman, The Domain of WTO Dispute Resolution, 40 Harv. Int'l L.J. 333, 340 (1999). 5

6 principles are well represented in the NAFTA, where the NAFTA Parties established principles to be used when there is a question of interpretation or application of the treaty. The NAFTA treaty explains that "[t]he Parties shall interpret and apply the provisions of this Agreement in the light of its objectives set out in paragraph 1 and in accordance with the applicable rules of international law." 19 The "mandatory standard for the interpretation of the detailed provisions of NAFTA" 20 include the objectives of promoting conditions of fair competition within the free trade area and promoting a substantial increase in investment opportunities in the territories of the Parties. 21 According to the Tribunal in Mexico Trucking, "[these] objectives develop the principal purpose of NAFTA" 22 and any interpretation of the Treaty "must recognize this trade liberalization background." 23 Since trade liberalization is a fundamental objective of the NAFTA, it is a strong force behind interpretations of the treaty. Furthermore, as the Panel in Mexico Trucking stated, "[we are] unaware of any agreement related to NAFTA, or any subsequent practice or legal principle that could accommodate the perception that there is a conditional element for the execution of the liberalization commitments." 24 The objectives of "promoting conditions of fair competition within the free trade area" and "promoting a substantial increase in investment opportunities in the territories of the Parties", when considered on their face, do not place strict limitations on the location of an investment prior to the investor being able to bring an investment claim. 19 NAFTA Article 102(2) 20 Mexico Trucking, para Article 102(1) (b) and (c). 22 Mexico Trucking, para Id. 24 Id. at para

7 Furthermore, the Panel in Dairy Products observed that "[t]he principles and rules through which the objectives of NAFTA are elaborated are identified in Article 102(1) as including national treatment, most-favored-nation treatment, and transparency. Any interpretation adopted by the Panel must, therefore, promote rather than inhibit NAFTA's objectives." 25 The treaty further provides that once a tribunal has been established, it "shall decide the issues in dispute in accordance with this Agreement and applicable rules of international law." 26 Historically, determining which rules were to be considered when a reference was made to 'international law' caused much debate. However, "[a]fter the initial practice of the World Trade Organization and its dispute settlement mechanism, it is now generally accepted that 'WTO rules are part of the wider corpus of public international law.'" 27 WTO jurisprudence has the ability to serve as a model for interpretations of the NAFTA, because like the NAFTA tribunals established under Chapter 11 WTO panels and the Appellate Body are obligated to "adjudicate disputes arising between WTO members." 28 Under both agreements, the dispute settlement bodies are often faced with interpretation of the most obscure provisions of the agreements. 29 And, in doing so, they must do so in an 'objective' manner, by looking for information that will lead to the reasonable and objective meaning of the terms of the treaty. 30 Similar to the approach taken by the dispute settlement body of the WTO, it is widely agreed that "NAFTA panels and investment tribunals have consistently 25 In the Matter of Tariffs Applied by Canada to Certain United States Origin Agricultural Products. CDA , Final Panel, para. 122(Dec. 2, 1996). 26 NAFTA Article 1131(1). 27 Jiaxiang Hu, The Role of International Law in the Development of WTO Law, 7 J. Int'l Econ. L 143, 144 (2004). 28 Id. at Id. 30 Id. 7

8 determined that the 'applicable rules of international law' are the customary international law rules of treaty interpretation, which have been codified in Articles 31 and 32 of Vienna Convention Law of Treaties." 31 "The interpretive approach of the customary rules that are reflected in the Vienna Convention is a textual approach. This approach focuses on the words of the text in the treaty." 32 The textual approach also requires a consideration of the 'golden rule' of the Vienna Convention, which is found in Article 31(1). That section provides in pertinent part, "[a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose." 33 When a dispute settlement body is faced with the interpretation of an obscure or ambiguous clause in a treaty, both NAFTA and WTO dispute settlement bodies agree that the correct approach is "first of all, a textual interpretation." 34 Thus, interpretation of the NAFTA must be based on a good faith consideration of the plain meaning of text of the agreement, while giving meaning and effect to all terms of the treaty, and "take into account the context, object and purpose of the treaty." 35 It is only when this approach is insufficient to determine the appropriate meaning of a term of a treaty that Article 32 of the Vienna Convention is considered. 36 Article 32 may be used to support the interpretation found under Article 31 or to allow a 31 Todd Weiler, NAFTA Investment Law and Arbitration: Past Issues, Current Practices, Future Prospects, at p. 19. Citing US-Trucking, at para. 221; and Ethyl Corp. v. Canada, Award on Jurisdiction. 32 James Bacchus, Trade and Freedom, Published by Cameron May, at p. 43 (2004) (hereinafter Trade and Freedom). 33 Article 31, Vienna Convention on the Law of Treaties. 34 Pope & Talbot Interim Award, June 26, 2000, para. 69, p. 24, citing Japan- Taxed on Alcoholic Beverages, October 4, 1996 at p. 12. ("Interpretation must be based above all on the text of the treaty.") 35 Mexico Trucking, para. 221, citing Case Concerning the Application of the Convention of 1902 Governing the Guardianship of Infants, I.C.J. Rep., 1958, 55 at 67; see also Japan Alcohol, at Id. at para "If these criteria are insufficient, there may then be recourse to supplementary means of interpretation, as provided under Article 32 of the Vienna Convention." 8

9 supplementary means of interpretation when the interpretation under Article 31 comes to a contradictory or obscure result. Accordingly, only after considering the context of the treaty and determining that the ordinary meaning of the terms contradicts the object and purpose of the treaty may other international rules on interpretation be resorted to solely for the interpretation of the provision. 37 Resorting to an interpretation under Article 32 is a rare occurrence. With these rules of treaty interpretation in mind, this paper will now consider the rights granted to "Investors" under Chapter 11 of the NAFTA. A. Investor Protections Under the NAFTA The term "Investor of a Party" is defined in broad terms to include "a Party or state enterprise thereof, or a national or an enterprise of such Party, that seeks to make, is making or has made an investment." 38 This broad definition leaves the potential class of claimants limitless because it includes "a Party," "or a state or enterprise thereof," as well as non-governmental actors, such as "a national" and "an enterprise of such Party." This definition does not, however, include nationals of non-parties or enterprises of non- Parties. It is only limits are that the individual Investor must be a national of one of the NAFTA Parties, or own an enterprise of one of the NAFTA Parties. In addition to allowing a broad array of potential claimants, NAFTA Investors are given almost carte blanch protection under the agreement, as seen in the Chapter's Scope of Coverage section. The Scope and Coverage Section, found in Article 1101, provides protection to "Investors" with potentially unlimited protection with regard to "measures 37 Id. citing the ICJ Competence of the General Assembly for the Admission of a state to the United Nations, Advisory Opinion, March 1950, I.C.J. Rep., 4 at NAFTA Article 1139: Definitions. 9

10 adopted or maintained by a Party." 39 The sweeping scope of Article 1101 is supported by the broad time period allowed for Investor protection guaranteed in Article 1139, which guarantees protection for both existing and future investments are covered." 40 These far reaching guarantees protect "encompass both firms (including branches) established in a NAFTA country, without distinction as to nationality of ownership, and NAFTA-country nationals. The chapter applies where such firms or nationals make or seek to make investments in another NAFTA country." 41 i. Article 31 Analysis As the previous section pointed out, Article 31 of the Vienna Convention directs treaty interpretations to be based on a good faith consideration of the plain meaning of text of the agreement, while giving meaning and effect to all terms of the treaty, and "take into account the context, object and purpose of the treaty. The following section will consider the Investor protections granted in the NAFTA through the guidelines of Article 31, beginning with plain meaning. a. Plain Meaning A plain meaning interpretation of a treaty requires the interpreter to "give meaning and effect to all the terms of a treaty. An interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility." 42 To properly perform this type of interpretation, the wording of 39 NAFTA Article 1101: Scope and Coverage. 40 The North American Free Trade Agreement Implementation Act Chapter Eleven: Investment, 1993 WL (NAFTA) (hereinafter Implementation Act). 41 Implementation Act, 1993 WL (N.A.F.T.A.). 42 WTO Appellate Body Report, United States Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, adopted on 20 May 1996, at 22; see also WTO Appellate Body Report, Japan Taxes on Alcoholic Beverages, WT/DS8/AB/R, distributed on 4 October 1996, at

11 each clause must be considered both individually and as a whole, as each word and phrase combination must be given effect. In this light, the Appellate Body of the WTO has an "obsession with the meaning of words." 43 of the WTO treaty. 44 Each appeal brings new challenges about the meaning of the words And, according to an appellate body judge, "[o]ur responsibility in every appeal is to say everything that must be said about the meaning of the words of the treaty so as to "address" the legal issues that are "raised" in that appeal, and thus assist the WTO Members in their efforts to "clarify" 45 the obligations in the treaty, and thereby resolve that dispute in a "positive solution." 46 Once a plain meaning has been determined, that interpretation is to be considered in light of the context, object, and purpose of the treaty. These forces and their influence will now be considered in turn. b. Context of the NAFTA The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes, any agreement relating to the treaty. 47 The Convention provides further that "[a] special meaning shall be given to a term if it is established that the parties so intended." 48 However, there are no additional interpretations of the National Treatment provision to provide for a special meaning, so the plain meaning will prevail. 43 See Trade and Freedom supra note 32, p Id. 45 Id. citing Article 3.2, DSU. 46 Id. citing Article 3.7, DSU. 47 Vienna Convention Article 31:2. 48 Vienna Convention Article 31:4. 11

12 The context of the NAFTA is outlined in its Preamble, which helps to establish the conditions under which the treaty was signed. According to the Preamble, the Parties entered into the agreement with the intent of, among other things, increasing trade between the parties and to provide a predictable framework for investors and investments. The Preamble provides further that the Parties intend to "enhance the competitiveness of their firms in the global markets." 49 Since the context of the agreement was to increase the stability of investments, to promote the competitiveness of the Parties firms, and to strengthen the predictability of investor's claims, an interpretation of the provisions granting investors protection should promote these principles. As such, the investor protections granted in Chapter 11 should be interpreted as broadly as possible. c. Purpose of the NAFTA Countries enter into free trade agreements with the purpose of encouraging trade through the elimination of tariffs and other barriers to trade. The purpose of the NAFTA is made clear in the Preamble where the Parties state their intent to "create an expanded and secure market for the goods and services produced in their territories." 50 The purpose is further explained in Article 102, which explains that the Parties intend to "increase substantially investment opportunities in the territories of the Parties. 51 This position of "creating an expanded and secure market for goods and services" and increasing investment opportunities in the territories of the Parties is further shown in the approach the United States has taken in its free trade negotiations. According to the United States' trade policy, the United States seeks "to put pressure on non-members of individual trade agreements either to join the group itself or to conclude broader agreements" through its 49 NAFTA Preamble. 50 NAFTA Preamble. 51 NAFTA Article

13 regional and bilateral trade deals. 52 Through this approach, thee country intends to accelerate trade "liberalization in ever widening circles until global free trade is achieved." 53 Looking at global trade from a broader perspective, a WTO Appellate Body Justice wrote, "[c]utting barriers to trade in agriculture, manufacturing, and services by one third in the new trade round would boost the world economy by $613 billion dollars annually." 54 He explained further that "this helps explain why the United States has always been in the forefront in world efforts to lower the barriers to world trade. The potential gains to the United States alone from continuing to lower the barriers to freer trade are enormous. [W]hile a successful conclusion of the new WTO round would benefit the United States and other developed countries substantially, lowering the remaining barriers to trade would undoubtedly benefit the people of the world's many developing countries even more." 55 The underlying concept to free global trade is that "[t]rade is a means to an end. The end is human freedom. The cause of trade is the cause of freedom. The "gains from trade" can give us the means to give more real meaning to freedom in American and in all the world. The 'rising tide' of trade can also be the rising tide of humanity." 56 By establishing free trade agreements, countries reduce barriers to trade and increase the cross border movement of goods and services. In doing so, the overarching goal of these agreements is to serve the "mutual self-interest of the [signers of the 52 Hadi Soesastro, Challenges to APEC Trade Policy: The Doha Development Agenda and RTAs/FTAs, (Working paper for the Centre for Strategic and International Studies), at 1, available at (last visited November 11, 2004). 53 Id. 54 See Trade and Freedom supra note 32, at p Id. (emphasis not added). 56 Id. at

14 agreement] by maximizing the gains from trade through the best possible allocation and the best possible use of the world's limited resources." 57 Allowing trade to be controlled by market efficiencies will boost each country's output. Turning to the NAFTA, it is easy to understand why these basic policy principles persuaded the NAFTA Parties to grant such broad rights to Investors. By doing so, they have given Investors the stability and support needed to increase production and the transfer of goods and services. This stability and support reduces the risks undertaken by investors in previously unprotected international trade. d. Object of the NAFTA As stated above, the NAFTA specifically states its objectives in Article 102. The objectives include"promoting conditions of fair competition within the free trade area" and "promoting a substantial increase in investment opportunities in the territories of the Parties." When taken to their extreme, these objectives are very friendly to the investors, so the investors want to use them to their advantage. On the contrary, the NAFTA Parties don t want the objectives to weigh heavily in interpretations, but want these objectives to be interpreted merely as goals. When countries enter into free trade agreements, particularly when the agreements include specific investment protection provisions, investors gain individual rights recognized under international economic law. 58 These rights involve "the protection of individual rights and/or interests, vis-à-vis actions of the state." 59 By entering into Investment Treaties, "States agree (expressly or tacitly) to refrain from 57 See Trade and Freedom supra note 32, at Todd Weiler, The Regulation of Foreign Direct Investment, 42 Colum. J. Transnat'l L. 35, 39 (2003). 59 Id. 14

15 exercising their sovereignty in a manner that would be prejudicial to these individual interests because they expect to derive collective benefits from these protections." 60 It is clear that through the objectives of the agreement that the NAFTA Parties intended to grant greater protection to Investors than had previously been given. The Parties accomplish this protection through the provisions guaranteeing National Treatment, Most Favoured-Nation Treatment, and the Minimum Standard of Treatment. These provisions have been given broad coverage. For example, when referring to the National Treatment obligation of Article 1102, the Feldman Tribunal stated "[i]f Article 1102 violations are limited to those where there is explicit (presumably de jure) discrimination against foreigners, e.g., through a law that treats foreign investors and domestic investors differently, it would greatly limit the effectiveness of the national treatment concept in protecting foreign investors." 61 Through this interpretation the Tribunal allowed protection against hidden discrimination. To further the scope of protection granted to Investors, the Pope and Talbot Tribunal explained that "the true interests at stake are the Investment's asset base, the value of which is largely dependent on its export business." 62 Pope and Talbot concluded that the Investor properly asserted that Canada had taken measures affecting its investment. By making this interpretation, the Pope and Talbot Tribunal adopted broad interpretation of 'measure' affecting the investment. Tribunal interpretations of the rights granted to investors and investments were so favourable to the investors and their investments that the NAFTA Parties later adopted an "Interpretation" of the agreement to limit its coverage. 60 Id. 61 Feldman Award, para. 183, p Pope & Talbot Interim Award, at

16 The NAFTA Parties' interpretation, however, has not hindered the ability of Tribunals to protect the rights granted to investors and, likewise, investment within the free trade area has flourished. In fact, due to the rights and security provided by the Investment Chapter, and the complete removal of tariffs, "many industries have become completely integrated throughout the free trade area." 63 This integration is precisely what the NAFTA Parties sought to accomplish by entering into the agreement. e. Textual Interpretation of National Treatment Obligation As stated above, the broad objectives of national treatment, most-favoured-nation treatment and transparency are to be considered in each interpretation. 64 Based on a textual interpretation the Parties explicitly intended to include these obligations throughout the Agreement, because the Agreement requires the Parties to interpret and apply its provisions "in light of" these objectives. 65 In Article 1102 the NAFTA Parties guaranty protection of "Investors of another Party." Article 1102 does not limit the protection granted, which is unlike other sections of the agreement dealing with references to investments and their limits on "in the territory of the Party". To provide an interpretation which would give meaning to 'all terms of the treaty', the only appropriate interpretation of these sections is that the Parties intended to include specific restrictions on claims for investments "located in the territory of the Party," while not specifically restricting the location of investors. Otherwise, the Parties would have included the additional terms "in the territory of the Party" in Article 1102 when it refers to Investors. 63 DeBoer Farms Notice of Intent. (Should look for more references to complete integration) 64 NAFTA Article 102(1). 65 NAFTA Article 102(2). 16

17 This position is buttressed by considering Article 1101, which deals with the scope and coverage of the Agreement. In Article 1101, the Parties agree that the "Chapter applies to measures adopted or maintained by a Party relating to: (a) investors of another Party " The Parties also grant protection in that section to "investments of investors of another Party in the territory of the Party." This precise wording must be given effect, which requires the additional language in the investment guarantee to be allowed to limit the protection granted. Likewise, the language that guarantees the rights of "Investors" without the additional language limiting their location must be given effect, which would mean investors rights are not limited by their location. Any other reading of this section would undermine a textual reading of the National Treatment provision. B. Article 32 Analysis Article 32 of the Vienna Convention Law of Treaties states that"[r]ecourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31: (a) leaves the meaning ambiguous or obscure; or (b) leads to a result which is manifestly absurd or unreasonable." 66 i. NAFTA Party Negotiations In light of the previous Article 31 Analysis, the present treaty interpretation does not come to an "ambiguous or obscure" meaning, nor does it "lead to a result which is manifestly absurd or unreasonable." This is true after a good faith interpretation of the text in light of the context, purpose, and object does not. So, in this case, an Article 32 analysis is used to "conform the meaning resulting from the application of Article 31." 66 Vienna Convention Law of Treaties, Article

18 The negotiating texts should also be considered when viewed from the perspective of the Pope & Talbot Tribunal. In that case, the tribunal explained that "it is beyond argument that the original texts of Article 1105 and other provisions of Chapter 11 contained ambiguities that had to be resolved by those charged with interpreting those texts. In such cases, it is common and proper to turn to the negotiating history of an agreement to see if that might shed some light on the intentions of the signatories." 67 By taking this view, an Article 31 analysis would never be proper or complete without resorting to the supplementary interpretation measures allowed in Article 32. And, in doing so, the negotiating texts of the treaty should always be considered. Turning to supplementary means of interpretation, it is important to "accept that the negotiators of NAFTA, [are] sophisticated representatives of their governments" when they negotiate free trade agreements. 68 In fact, the negotiators were deemed to have known that "international law" is a broader definition than "customary international law, which is only one of its components. 69 This type of definitional scope is the same situation we are facing here. In this case, the drafters settled on the term "Investors of another Party" 70 rather than "investors of a party in the territory of another Party." 71 Surely, if the negotiators knew that "international law" was broader than "customary international law" they would also know that "Investors of another Party" is broader than "investors of a party in the territory of another Party." 67 Pope & Talbot, Award in Respect of Damages, para. 26, p. 14, May 31, 2002, citing Article 32 of the Vienna Convention Law of Treaties. 68 Id at para. 46, p Id. 70 See NAFTA Article 1101 and See Negotiating Text, May 22, 1991, Scope, Coverage, Duration. 18

19 In all, there are over 40 negotiating drafts to the NAFTA available. Through these texts the Parties discussed and negotiated in tedious detail the precise wording of the treaty. For example, in the draft dated May 22, 1992 the Parties have a "Scope, Coverage, and Duration" section that describes the Investor coverage as: "Unless otherwise provided, this Chapter shall apply to measures affecting: (b) investors of a party in the establishment sale or other disposition of investments in the territory of another party." This is a very narrowly guaranteed right. In that same draft, the National Treatment provision guarantees that "Each party shall accord to an investor of another Party treatment no less favourable than that which it accords to its own investors in respect to sale or other disposition of investments in its territory." Subsequent to this draft, the Parties totally changed the wording, which must have been after a great deal of additional negotiations, due to the significant nature of the changes. In the newer draft, dated August 26, 1992, the "Scope" section is defined as applying to "measures adopted or maintained by a party relating to: (a) investments of investors of another Party in the territory of another Party, (b) investors of another Party " The Parties divided the protection to include two sub-classes Investors and Investments of investors. For the investments the scope of protection remained at the previously limited level. However, for the Investors the Parties significantly broadened the guarantee by eliminating the location requirement. This change is also apparent in the National Treatment provision, which changed to include: "Each Party shall accord to investors of another Party treatment no less favourable than it affords its own investors " Again, the location limitation was removed in this provision of the draft. 19

20 From August 26, 1992 to the final version of the NAFTA there were only minor changes with the order of the clauses in these provisions. This significant change during the negotiations must have resulted from a detailed and thorough bargaining process. With these changes and the detailed process of negotiating a free trade agreement in mind, it is apparent that the Parties intended to grant much broader protection to investors than they did to investments. Otherwise, they would not have omitted the "located in the territory of a Party" language from the provisions granting investor protection. IV. Policy Arguments for Broad Investor Protection In support of the arguments made in this paper, there are a couple additional reasons that governments would want to protect their investors to the broadest extent possible. First, governments enter into trade agreements to benefit the local economy just as much as they do to increase the standard of living globally. When a government enters into trade agreements it does so to benefit all those interested in the agreement. And if the government is truly "committed to the trade treaties they sign and to bringing the benefits of those treaties to their constituents, they must allow their own citizens to bring cases directly to the dispute resolution mechanism established under the treaty." 72 It makes no sense for a government to enter into a trade agreement that would grant foreigners better treatment than the people who elect it. Governments have never been, nor should they ever be, more concerned about foreigners than they are about their own citizens. It just does not fall within a government's authority or right to protect foreigners and to promote their business interests more than locals. 72 Andrea K. Schneider, Democracy and Dispute Resolution: Individual Rights in International Trade Organizations, 19 U. Pa. J. Int'l Econ. L. 587, 638 (1998). 20

21 Second, when trade is considered on a global scale, countries that are the most open have tended to perform the best, both on an economic and a societal level. These countries tend to be more stable and safer. They are places that attract migration of foreigners. And, they are able to do things that are looked at as benefiting society as a whole. It follows that the purpose governments enter into trade arrangements is not simply for the monetary gains to its population. The subsidiary gains from trade are some of the true benefits to societies. As one scholar wrote, "the "strength" of an insular and isolated community is not really strength. It is weakness. It is failure waiting to happen. The supposed "self-sufficiency" of such an inward-looking community is insufficient to the outward-looking and forward-looking true community that we need in every part of the world." 73 By opening their boarders to trade and investment, countries foster relationships that allow the subsidiary effects of trade to flourish. Through the adoption of strong investor provisions in trade agreements, governments help solidify the global society. V. Conclusion The NAFTA contains broad protection of the Parties' Investors. Through the Investment Chapter and other provisions of the agreement, the Parties granted rights that protect all investors of the NAFTA Parties, regardless of the actual physical location of the investment. The position in this paper has been supported by a plain-meaning interpretation of the text of the agreement, as required by Article 31 of the Vienna Convention. The plain-meaning interpretation is supported by the context, purpose, and object of the NAFTA Parties. Additionally, the NAFTA Parties negotiated the agreement in a detailed and thoroughly researched manner. The negotiating texts reveal word 73 See Trade and Freedom supra note 32, at

22 changes that favor the presumption that the Parties intended to grand Investors much broader rights than they granted to investments of investors of a Party. By granting such broad rights to investors the Parties intended to, and succeeded in, promoting investment between the countries. In many industries the three countries are treated as one with regard to supply and demand of products and services produced. Finally, as trade is considered from a global perspective, it is to the benefit of all that investors are granted the broadest protection possible. From an economic standpoint, consumers and investors all benefit from broad investor protection. From a society perspective, everyone benefits from increased globalization because of the increases in safety and freedom. 22