On 12 November 2025, Meg Kinnear, who served as ICSID Secretary-General from 2009 until 2024, delivered the 40th Freshfields Arbitration Lecture in the Great Hall at Lincoln’s Inn, in which she discussed the enduring impact of Chapter 11 of the North American Free Trade Agreement (NAFTA). Introduced by Oliver Marsden, head of Freshfields’ International Arbitration Group in London, and Professor Julian Lew KC, Head of the School of International Arbitration at Queen Mary, University of London, Kinnear delivered a brilliant 40th anniversary lecture, describing the extraordinary influence that NAFTA Chapter 11 has had on investment treaty law and practice.
Political context
Kinnear began by setting out NAFTA’s political context. In the late 1980s, Canada and the US agreed a free trade agreement (an FTA). This was challenging for the Canadian government to achieve, with many Canadians worried that Canada would compromise its economic sovereignty in favour of its powerful southern neighbour. NAFTA emerged as a trilateral agreement between the US, Canada and Mexico after Canada requested to join Mexico’s trade negotiations with the US, concerned that a ‘hub and spoke’ model (with US as the hub under separate bilateral agreements with Canada and Mexico) would give the US too much power over Canada and Mexico.
Investment law before NAFTA
Kinnear described how the model set by the first bilateral investment treaty (BIT) in 1959 between Germany and Pakistan was the dominant model for investment agreements for several decades, during which period BITs were primarily entered into by European states seeking to protect their investors doing business in developing countries. These early BITs were typically brief and often provided for state-to-state dispute settlement. The creation of ICSID in the 1960s made investor-state dispute settlement more popular, but disputes were still generally handled diplomatically, with the first BIT case occurring only in 1987.
The US’s model BIT presented an alternative framework. Encouraged by European efforts, the US signed its first BIT in 1982 and created its model BIT in 1984. This model contained more detailed versions of several classic BIT obligations, including fair and equitable treatment, no expropriation without compensation, no nationality-based discrimination, and umbrella clauses, and it provided for investor-state dispute settlement (ISDS).
Of the three NAFTA states, the US had the most experience with ISDS. Canada instead relied on domestic law, diplomatic protection and trade treaties to protect its investors, so it was less familiar with ISDS. Mexico was the least familiar of the three because its constitution required that disputes involving Mexican businesses should be determined exclusively by the Mexican courts, not international arbitration.
NAFTA Chapter 11: a successful experiment
Kinnear described how, after 42 rounds of negotiations spanning over 16 months, the parties arrived at a consensus text in April 1993, which included ISDS. The parties negotiated creatively and arrived at a text that contained detailed substantive obligations and procedural guidelines. Some of the provisions were novel and none of the language had been tested by a court or tribunal.
Having had decades of BITs without any disputes, no NAFTA party expected what happened next. By July 2020 – when NAFTA was replaced by the United States-Mexico-Canada Agreement (the USMCA) – 99 ISDS arbitrations had been filed under NAFTA Chapter 11. Almost half of those (44) were received by Canada, all of which were launched by US investors. Canada lost or settled 10 of those claims, paying $263m in damages and $113m in legal costs. Mexico faced 33 claims, mainly from US investors. Mexico lost only five cases and paid $205m in damages/settlements. The US faced 22 claims but was never found liable.
By comparison to ISDS cases in general, these damages amounts are low, and investors won much less often than they do under ISDS more widely. In ISDS generally, 35% of cases settle, and of those that don’t, around half are successful, whereas only 15 out of 99 NAFTA cases were settled or won by the investor.
NAFTA’s innovation of placing an investment chapter within an FTA was effective in enhancing trade between the US, Canada and Mexico, and over time many countries have taken up this model: over 400 FTAs have an embedded investment chapter, and these investment chapters form the basis of about half of ICSID’s caseload.
NAFTA Chapter 11’s legacy
Kinnear identified seven ways in which NAFTA Chapter 11 has left an influential legacy.
1. Treaty diffusion
NAFTA’s template proliferated rapidly, as successive treaties – first signed by Canada and Mexico, then in South America, then globally – imported its wording and structure. Over time, NAFTA’s text was widely deployed, including by the US as its model BIT text. Canada and Mexico adjusted their model BITs based on their practical experience in NAFTA arbitrations, which further informed the text of other BITs.
2. Creation of jurisprudence
NAFTA produced the first corpus of interpretations of investment provisions, both substantive and procedural. Prior to NAFTA, there was very little investment treaty jurisprudence. As the number of treaties based on NAFTA proliferated, the NAFTA jurisprudence became more and more important and widely referenced.
3. Approach to treaty interpretation
Kinnear described how NAFTA provided greater direction to tribunals on matters of interpretation than had been found under previous investment treaties, including rules to resolve inconsistencies between the FTA provisions and Chapter 11. In addition, the NAFTA Free Trade Commission had the power to issue binding interpretations of Chapter 11 provisions.
4. Procedural innovations
Following NAFTA, novel provisions such as strict limitation periods, consolidation of claims and waiver requirements became standard features in new investment treaties.
5. Transparency
The NAFTA parties responded to concerns about transparency by pioneering public access to awards, pleadings and hearings. Amicus participation was put on firmer footing, initially by UNCITRAL tribunals interpreting their procedural discretion to allow for participation by non-disputing parties, then through changes to the ICSID and UNCITRAL rules. This influenced the development of subsequent international transparency standards, such as those set out in the Mauritius Convention.
6. Strengthening ISDS expertise
The NAFTA parties’ governments developed in-house investment arbitration expertise, and that expertise permeated private practice. It also expanded the pool of experienced ISDS arbitrators, especially from Mexico and Canada.
7. Awakening the backlash
NAFTA cases were the first to bring investor rights and ISDS into public view, which prompted debates regarding transparency and the legitimacy of investment treaties and ISDS.
Conclusion
Kinnear concluded by observing that although the USMCA has replaced NAFTA and has significantly curtailed ISDS within the region, NAFTA Chapter 11’s influence will continue to endure, as states, practitioners and tribunals worldwide continue to draw on its innovations, lessons and jurisprudence. As North America approaches its review of the USMCA in 2026, debate over ISDS’s future remains active.
A recording of the 2025 Lecture is available here.
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