Most treaties include a minimum standard of treatment (MST) that requires that the host state treat foreign investors in accordance with an undefinable standard such as “fair and equitable” treatment. Traditionally, this type of treatment only applied to extreme cases of mistreatment. Tribunals under the North American Free Trade Agreement’s (NAFTA) investment chapter have interpreted this provision much more broadly, however. In so doing, these tribunals have both destroyed the traditional barrier to second-guessing legitimate government decisions and failed to articulate a clear, objective standard in its place.
This brief provides an overview of the discussions and jurisprudence on this controversial issue. First, the brief outlines MST’s origins and ties with international legal doctrines on diplomatic protection and on State responsibility for injuries to aliens. Subsequent discussion on the Calvo doctrine reveals how the conflicts of interests between the U.S. as а capital exporting country and the Latin American states have influenced the development of customary international law on MST. The brief then examines the early cases in the 1920s as evidence of the customary law on MST, and contrasts this customary standard against its treaty formulations. The subsequent analysis of the experience of NAFTA Chapter Xl arbltral tribunals that have heard MST claims and arguments reveals the difficulties involved in operating with undefinable standards. This brief concludes bу noting some of the negative impacts on good governance that arise from MST claims and interpretations.