Regulating Multinational Polluters in a Post-NAFTA Trade Regime: The Lessons of Metalclad v. Mexico and the Case for a Takings Standard
Abstract
Chapter 11 of NAFTA prohibits signatory nations from "expropriating" foreign investment without compensating the investor. To the alarm of environmental activists and others, NAFT Tribunals have invoked Chapter 11 to force signatory nations to compensate multinationals for losses associated with environmental regulation.
To limit the scope of investment protection in future trade deals, Congress passed the Baucus-Grassley amendment to the Trade Act of 2002. The legislation directs U.S. negotiators to ensure that "foreign investors in the United States are not accorded greater substantive rights with respect to investment protections than United States investors in the United States."
The investment protection enjoyed by American investors is determined by the "Takings" Clause of the Fifth Amendment. Baucus-Grassley, however, fails to explicitly establish U.S. takings law as the upper limit of investment protection in future trade deals, and promulgates mere "negotiating objectives."
A full-scale translation of U.S. takings jurisprudence into an international treaty would likely prove to be unworkable. This Comment urges trade negotiators, nevertheless, to employ U.S. takings law as a guide for recalibrating the investment protection in all future trade pacts. The Comment examines United Mexican States v. Metalclad Corp., a recent Chapter 11 judgment in which Mexico was forced to compensate a U.S. corporation for refusing, based on environmental concerns, to grant the corporation a construction permit. This Comment "re-decides" Metalclad with a takings doctrine lens and suggests that such an approach better preserves the sovereign power of governments to protect citizens from multinational polluters