Introduction

Canada is highly integrated into the global economy. Its most important trade and investment relationship, by far, is with the United States. Canada's economic relationship with Mexico is much smaller but is growing rapidly in importance such that Mexico is now a significant location for Canadian investment and was Canada's fifth largest trading partner in 2007. Most trade and investment activity involving Canada and its North American partners takes place without disputes arising. Inevitably, however, in such a broad and deep relationship, sometimes government actions by one of the parties to the North American Free Trade Agreement (NAFTA) cause concerns for one or both of the others regarding whether the actions comply with NAFTA.

NAFTA provides a variety of mechanisms to address disputes that may arise. Like most trade agreements, NAFTA provides a process by which a party state may seek resolution of disputes regarding the interpretation of the agreement or whether a given measure of another NAFTA party state is consistent with its obligations. This general state-to-state dispute settlement procedure in Chapter 20 shares many characteristics with dispute settlement under the World Trade Organization's (WTO) Dispute Settlement Understanding (DSU), but also has a number of distinctive features.

NAFTA Chapter 19 creates a unique process whereby a private party from one NAFTA state that is involved in a trade remedies case in another NAFTA state can elect to have a decision in the case reviewed by a bi-national panel instead of a domestic court. Amendments to trade remedies laws may also be reviewed by bi-national panels.

NAFTA Chapter 11 imposes substantive obligations on each party regarding how it will treat investors of the other parties. Where an investor of one NAFTA party experiences losses as a result of actions of another NAFTA party that are contrary to that state's obligations in Chapter 11, the investor may seek compensation in binding arbitration.