Published online by Cambridge University Press: 05 June 2012
The United States has authorized certain investor-state disputes arising under the North American Free Trade Agreement (NAFTA) to be resolved through arbitration. The arbitral tribunals, which apply the NAFTA and applicable rules of international law to the disputes, have come under substantial attack. Critics charge that the tribunals act as super-appellate courts and tower over domestic courts. Others have pointed out the tribunals' alleged lack of “democratic legitimacy.” Tribunal procedures are believed to be shrouded in secrecy. The legal soundness of tribunal awards has been questioned.
These challenges should not be taken lightly. In addition to raising nagging issues that threaten dispute resolution, the assault reflects a concern from both within and outside of the United States about the loss of sovereign control over matters essential to governance. As more nations enter into bilateral investment treaties (BITs) or free trade agreements (FTAs), which may authorize arbitration of investor-state disputes, the criticism is likely to mount and come from a wider range of sources.
A measured and objective response to the criticism, which sorts the wheat from the chaff and constructively identifies areas of concern and means to address the concerns, is in order. This is the objective of this chapter. It also examines the response to the criticism to date, which has led to reforms of the arbitral process.