NAFTA Chapter 11 applies only to foreign investments

In Bayview Irrigation District et al v Mexico (ICSID Case no ARB (AF)/05/1) a tribunal has held that the provisions of Chapter 11 of NAFTA apply only to "foreign" investments. The claimants had invested in farms and irrigation facilities in Texas which were dependent upon water supplied from Mexico through the Rio Grande. They claimed that Mexico had diverted those water supplies in breach of Chapter 11. The tribunal held that, notwithstanding the fact that Chapter 11 was not expressly limited to "foreign" investments, it should be so interpreted. This was the clear and ordinary meaning of its provisions (in particular articles 1101 and 1139), and also reflected the purpose of NAFTA, which was to provide minimum levels of legal protection to foreign investors. Here, the claimants were domestic investors in Texas. They had no investments or rights in, or vis-a-vis, Mexico, and therefore fell outside the scope of Chapter 11.

The case is notable for the tribunal's acceptance of implied limitations reflecting the purpose of the treaty: as the tribunal noted, it was most unlikely that Chapter 11 was intended to confer rights in respect of any domestic investment which happened to be affected by measures taken by another contracting party. However, the question of what amounts to a "foreign" investment for the purposes of Chapter 11 could potentially raise some complex issues in the future.