A significant part of the renegotiations of the North American Free Trade Agreement set for this August will be whether a relatively small but elite group of lawyers gets to keep an occasional side-gig the 1993 deal created for them: Serving on the ad hoc legal tribunals that settle trade disputes under the deal.
Officially known as Investor State Dispute Settlement, these tribunals hear complaints by businesses brought against NAFTA’s three member countries: the U.S., Canada and Mexico. This arbitration method is a key feature of most international trade deals.
“There are about 100 people who do most of these arbitrations [NAFTA and non NAFTA ones],” said David Gantz, professor of international trade law at the University of Arizona and a former NAFTA tribunal member. A core group of about 15 lawyers handles the majority of international trade cases, according to groups such as Public Citizen.
Only 85 people have participated specifically in NAFTA tribunals, and only five have sat on three or more. Forty-two NAFTA cases have reached the tribunal stage since the deal was signed a quarter-century ago.
Keeping this system intact is a leading concern of big business. The Chamber of Commerce argues the system is key to protecting investors. Without it, many wouldn’t take the risk.
Labor and liberal groups, on the other hand, want it abolished. They see the system as a boon to business that puts them outside the domestic court system.
“We have a great system for adjudicating these disputes here in the U.S. We should use it,” said Ben Beachey, spokesman for the environmentalist Sierra Club.
Canada, meanwhile, has embraced a hybrid system that would replace the ad hoc tribunals with a standing international settlement court, a feature it included in a recent free trade deal with Europe. A Canadian government official indicated to the Washington Examiner that Ottawa would push for that when the negotiations begin in August.
The NAFTA tribunal system, and others like it, works like this: If a business thinks it has been harmed by a country’s action, it can request that a tribunal be formed. It picks one member, the country picks a second and they jointly agree on a third. The tribunal then presides over the case and issues a binding ruling, much like a regular court.
Who gets on the panel is based largely on personal relationships. “Almost all of these [picks] are by word of mouth. Somebody you know who knows somebody else,” said Ronald Cass, dean emeritus of Boston University Law School and a member of two NAFTA tribunals.
The third consensus member may not even be from a NAFTA country, often hailing from Europe or South America. “What both sides want is somebody they have a good shot at persuading,” Cass explained.
The existing system can be traced back as far as the Revolutionary War. The idea was to create a neutral system to prevent either side from having a home court advantage. The tribunals were rarely used before 2000, but use of them has grown dramatically since then as trade treaties have proliferated.
It’s similar to having federal courts take over when there is a dispute between states, Cass said. “Everybody thinks their courts are fine. It’s the other guys courts that are biased,” he said.
The tribunals have some unusual features compared to other courts. “It is up to the tribunals in each case to decide how costs are allocated,” said Todd Tucker, a fellow with the Roosevelt Institute. That includes how the arbiters themselves are paid, he noted.
Nevertheless, serving on a NAFTA tribunal is not something that trade lawyers go out of their way to do, Gantz and Cass said. Most could make at least as much money doing other private sector work. That’s partly why retired judges and law professors are often chosen.
Critics argue the tribunals can trample on laws and national sovereignty. “The definition of what it means for a country to violate an investor’s rights has changed. It used to be just expropriation or destruction of property,” said Haley Edwards, author of Shadow Courts: The Tribunals That Rule Global Trade. More recent cases have attacked actual policymaking.
For example, after President Obama formally blocked the controversial, long-delayed Keystone XL pipeline project last year, TransCanada, the company behind it, filed a NAFTA complaint seeking $15 billion in damages due to lost revenue. The complaint was withdrawn this year, and the pipeline project has gone ahead under President Trump.
Had the case gone forward, it is possible, though not certain, that TransCanada could have won, experts say. A key complaint of the tribunals is that because they are ad hoc, they are not bound by precedent like traditional courts.
“I think on the whole the tribunal system works well, but there is the question of consistency,” Gantz said.
A standing court system like Canada’s would address this, but it’s not something either side in the U.S. wants. Business groups prefer the status quo, while liberal groups say that just ensures the system remains outside of domestic courts.
Given the uncertainty of creating an alternate model, it’s likely that the status quo will prevail. “I’ve been writing and studying this for 30 years, and I still haven’t figure[d] it out,” Gantz said.
