NAFTA Dispute Resolution: Implementing True Rule-Based Diplomacy through Direct Access

I. INTRODUCTION The governments of the United States of America, Canada, and the United Mexican States, after years of negotiation, formally entered into the North American Free Trade Agreement on January 1, 1994.' was the general purpose of that agreement to establish a free area.z The institution of a free-trade area would mean, eventually, that there would be among the nations no barriers to most or investment like tariffs, quotas, national preferences, or domestic ownership requirements.' Among the objectives listed in the second article of the agreement was the creation of an effective procedure for the of The principal NAFTA disputes are limited to traditional state-to-state dispute resolution procedures.s For example, the parties agree in Chapter Three not to any existing customs duty, or adopt any customs duty, on an originating good.6 If tomorrow the United States were to increase the duty on Mexican tequila in contravention of the agreement, only the Mexican state, and not Jose Cuervo International, could officially cry foul, initiating dispute settlement procedures.' This is because Chapter Twenty of the NAFTA, the reservoir for most trade disputes,$ grants the privilege of initiation of dispute settlement only to the parties to the agreement-the three aforementioned countries.9 This paper argues that the failure to grant direct access to dispute resolution to affected companies and private citizens-i.e., not allowing Jose Cuervo to initiate dispute settlement procedures in the example above-results in the unfortunate incorporation of an unnecessarily large degree of into a trading regime acclaimed as being rule-oriented. In Part II, I briefly explain the theoretical underpinnings of and differences between and international relations and show why Chapter Twenty overly emphasizes the power of nations, thereby decreasing predictability and equity for the concerned entities. Part III demonstrates that there are some encouraging results from the operation of direct access by examining dispute resolution within the context of NAFTA Chapter Eleven, which permits the individual investor to access the dispute resolution mechanism when a dispute arises between investors and a NAFTA party.' The investor need not rely on its representative nation to prosecute the claim. In Part IV, I offer additional arguments for extending Chapter Eleven direct access to all disputes. Finally, Part V addresses the most salient counter-arguments to my proposal of extending direct access to disputes arising under Chapter Twenty. II. THE RULE-POWER DICHOTOMY AND CHAPTER TWENTY A. Understanding the Differences Between Rule and Power [O]ne can roughly divide the various techniques for the peaceful settlement of international disputes into two types: settlement by negotiation and agreement with reference . . . to relative power status of the parties; or settlement by negotiation or decision with reference to norms or rules to which both parties have previously agreed.'z To fully comprehend the implications of power-based diplomacy and rule-based diplomacy, one must first understand that there are two fundamentally different theories about the forces accounting for the organization of human society. Those differing theories explain the divergence in diplomatic approaches. John Barton explains that the first school of thought, Contractual, is derived from the writings of Immanuel Kant. It begins with the nation-state as an essentially complete and justified society and sees that nation-state as creating a carefully limited and controlled international system.15 A preference for is inherent to the Kantian-Contractual theory. I propose that a natural consequence of is that a government will seek to amass for itself the greatest wealth that it believes it can feasibly administer. …

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