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Chapter 11 – investor-state dispute settlement procedures

Another contentious issue was the investor-state dispute settlement obligations contained in Chapter 11 of NAFTA. Chapter 11 allowed corporations or individuals to sue Mexico, Canada or the United States for compensation when actions taken by those governments (or by those for whom they are responsible at international law, such as provincial, state, or municipal governments) violated international law.

This chapter has been criticized by groups in the United States, Mexico, and Canada for a variety of reasons, including not taking into account important social and environmental considerations. In Canada, several groups, including the Council of Canadians, challenged the constitutionality of Chapter 11. They lost at the trial level and the subsequent appeal.

Methanex Corporation, a Canadian corporation, filed a US$ 970 million suit against the United States. Methanex claimed that a California ban on methyl tert -butyl ether (MTBE), a substance that had found its way into many wells in the state, was hurtful to the corporation's sales of methanol. The claim was rejected, and the company was ordered to pay US$3 million to the U.S. government in costs, based on the following reasoning: "But as a matter of general international law, a non-discriminatory regulation for a public purpose, which is enacted in accordance with due process and, which affects, inter alios, a foreign investor or investment is not deemed expropriatory and compensable unless specific commitments had been given by the regulating government to the then putative foreign investor contemplating investment that the government would refrain from such regulation."

In another case, Metalclad, an American corporation, was awarded US$15.6 million from Mexico after a Mexican municipality refused a construction permit for the hazardous waste landfill it intended to construct in Guadalcázar, San Luis Potosí. The construction had already been approved by the federal government with various environmental requirements imposed (see paragraph 48 of the tribunal decision). The NAFTA panel found that the municipality did not have the authority to ban construction on the basis of its environmental concerns.

In Eli Lilly and Company v. Government of Canada the plaintiff presented a US$500 million claim for the way Canada requires usefulness in its drug patent legislation. Apotex sued the U.S. for US$520 million because of opportunity it says it lost in an FDA generic drug decision.

Lone Pine Resources Inc. v. Government of Canada filed a US$250 million claim against Canada, accusing it of "arbitrary, capricious and illegal" behaviour, because Quebec intends to prevent fracking exploration under the St. Lawrence Seaway.

Lone Pine Resources is incorporated in Delaware but headquartered in Calgary, and had an initial public offering on the NYSE May 25, 2011, of 15 million shares each for $13, which raised US$195 million.

Barutciski acknowledged "that NAFTA and other investor-protection treaties create an anomaly in that Canadian companies that have also seen their permits rescinded by the very same Quebec legislation, which expressly forbids the paying of compensation, do not have the right (to) pursue a NAFTA claim", and that winning "compensation in Canadian courts for domestic companies in this case would be more difficult since the Constitution puts property rights in provincial hands".

A treaty with China would extend similar rights to Chinese investors, including SOEs.