|
|
The North American Free Trade Agreement (NAFTA) is a multilateral trade agreement between United States, Mexico, and Canada. NAFTA, which was signed in 1993, also contains provisions on investment, in its Chapter 11. Although Chapter 11 received little attention in 1993, it has emerged as among the most controversial in ensuing years, and served as the basis for some of the strongest criticism of globalization.
The provisions were included precisely because of Mexico’s questionable history of regulating foreign investment, and these were therefore among the most serious concerns that investors had about entering the Mexican market.
Chapter 11 comprised many of the provisions listed above, providing for most-favored nation treatment and prohibitions on export targets, domestic content, or technology transfer requirements. The agreement also established a more formal dispute resolution procedure and contained provisions on expropriation that have turned out to be among the most controversial.
As discussed earlier in this Issue in Depth, certain regulations can diminish the economic value of an investment. A new environmental rule, for example, which restricts industrial development on a piece of land, might be considered to be a “regulatory taking.” In such an instance, the owner of that land might claim to have a right to be compensated for this expropriation of the value of their real estate. Consequently, concerns have been raised by civil society activists that a vast array of laws and regulations, relating to everything from the environment to civil rights, could be endangered by trade agreements.
For example, think about a manufacturer of automobiles 40 years ago faced with the sudden imposition of tariff barriers in another country. In confronting this kind of economic discrimination against foreign producers, this manufacturer might have been able to find recourse in the GATT’s provisions on tariffs on goods traded internationally. But today, heavily regulated service industries, such as banking, are a growing component of international trade. Several decades ago, banks were generally limited to operating within their home country. However, thanks to globalization (and especially to the telecommunications revolution that has wired the world together), banks are much more willing and able to obtain approvals abroad to expand their operations across borders. Think of a hypothetical bank that is entering a foreign market. After enjoying great initial success, the international bank begins to take so much market share that it is a competitive threat to local banks in the new country. As a result, the foreign government decides to intervene to protect its local banking sector which is less efficient and offers fewer services at more costly rates. The foreign government imposes new regulations that specifically target—or discriminate against—foreign banks. Unlike the automobile manufacturer, who could raise a protest through the GATT procedures, the banker would have had no similar recourse until the WTO covered services and investment. Because a branch office of a bank offers services rather than traded goods, this dispute could not have been addressed within the context of the GATT. To better address a dispute over this kind of economic activity, a new agreement had to be implemented. Disputes of this type formed the basis for the General Agreement on Trade in Services (GATS). |
Next: The MAI