A NAFTA claim is a legal complaint submitted by a NAFTA Investor who has suffered loss by reason of a breach of certain NAFTA provisions by a NAFTA Party. The claim is heard by an international tribunal, normally composed of three members appointed by the Investor and the NAFTA Party being sued. Tribunals are formed under the Investor’s choice of commercial arbitration rules laid out by either the World Bank (through its International Centre for the Settlement of Investment Disputes – the ICSID) or by the United Nations Commission on International Trade Law (under the UNCITRAL Rules).
After hearing arguments from the Investor and the three NAFTA Parties (i.e. the government being sued for breach of the NAFTA plus the other two governments – if they choose to intervene), the tribunal will issue its written decision (known as an “award”). If the tribunal finds in favour of the Investor, the government found in breach of its NAFTA obligations will be ordered to pay compensation to the Investor for the losses it suffered as a result of the breach.
NAFTA Tribunals are not permitted to recommend that a government must change its laws, regulations or policies, as can World Trade Organization (“WTO”) panels that are called upon to determine if governments have breached their obligations under the WTO Agreement. The primary difference between a NAFTA Claim and a WTO dispute is that a NAFTA Claim is brought by the affected Investor itself, whereas WTO disputes can only be initiated by governments against other governments.
Only a NAFTA Investor can bring a NAFTA Claim. A NAFTA Investor is a national or a corporation of one NAFTA Party that “seeks to make, is making or has made an investment,” in the North American Free Trade Area or particularly in the territory of another NAFTA Party (depending upon the obligation in question). “Investment” is very broadly defined in the NAFTA, including most property or business interests conceivable. Generally, Investors may not bring NAFTA Claims against their own governments for harm to investments made in their own territory.
Determining whether a would-be investor has standing to bring a NAFTA Claim can be a very delicate and complicated matter. However, with expert advice, a solution can often be found to the very important threshold questions of: who the Investor is; what the investment is; and whether harm has been suffered as a result of the breach of a NAFTA provision by a NAFTA government or state enterprise. Accordingly, some careful consideration should be given to the corporate composition of any investment in a NAFTA country, in case a NAFTA Claim must be brought at some point in the future.