Bonafide Regulation or Expropriation: The Continuing Debate. Metal Clad Corporation V. The United Mexican States

Abstract

Sovereignty means that a country should be able to enact legislation to protect its interests and its citizens. In the context of globalization and the liberalization of trade and investment, conflicts are bound to arise between, on the one hand, the need of the state to enact legislation to protect its interests and resources, and on the other hand, the need to promote investment and free trade and the protection of investors under various free trade regimes. Under Article 1110 of the North American Free Trade Agreement (the NAFTA), private investors are able to challenge host country regulation as expropriation. While it is important to promote investment and free trade under various free trade regimes, it is also important for a state to be able to enact legislation to protect its interests and that of its citizens. What then is the meaning of expropriation under the NAFTA and how can one distinguish between, on the one hand, bona fide legitimate regulation, and on the other, indirect expropriation, or expropriation by means of regulation? The case of Metal clad Corporation v. The United Mexican States is one case in which the conflict between the legitimate right of a state to enact legislation to protect its interests, comes into conflict with legitimate private interests.