Blowback: Investor-state dispute mechanisms in international trade agreements

Abstract

The North American Free Trade Agreement (NAFTA) gave unprecedented rights to private investors. These provisions quickly became entrenched in policy and practice, appearing in most multilateral and bilateral trade agreements in the 1990s as American investors began to bring Canada and Mexico to arbitration. However, the Australia–U.S. Free Trade Agreement (AUSFTA) of 2004 contained no such provisions. The purpose of this article is to explain why enthusiasm for NAFTA‐style protections waned so dramatically after a decade of entrenched practice. We argue that the reason lies in the “blowback,” the unintended and negative consequences created by NAFTA’s Chapter 11, and conclude that the abandonment of NAFTA‐style protections in the AUSFTA sets important precedents for the future of international free trade agreements.