Lawsuits spark calls for changes in NAFTA

by Danielle Knight

Washington, Jun. 23 -- Activists are calling for a review of a section in the North American Free Trade Agreement (NAFTA) because it allows corporations to legally attack the environmental laws of the three partners - Canada, Mexico and the United States.

Environmental groups here and in Canada maintain that NAFTA has become a "key offensive strategic tool" for corporations to fight laws that interfere with their ability to make a profit through exports.

At issue is a clause of the agreement known as Chapter 11 that allows companies to sue the Governments of the Canada, Mexico or the United States if export opportunities are lost for reasons that have nothing to do with normal commerce.

This includes laws aimed at protecting the environment and public health.

"The provisions in Chapter 11 were designed to ensure security and predictability for the investors, but they've become a strategic offensive weapon against new environmental and other public welfare laws," says Howard Mann, an associate with the Canadian-based International Institute for Sustainable Development (IISD), an advocacy organisation.

"No one expected them to be applied in this way," he adds.

At least seven cases challenging domestic environmental policies have been filed by corporations in each country and involve claims totalling more than $1.5 billion.

In the most recent case, filed June 15, the Canadian-based company Methanex Corporation filed against the United States, claiming the state of California's decision last March to phase out the use of the gasoline additive methyl tertiary butyl ether (MTBE) has cost the company $970 million.

California's new governor, Grey Davis, ordered the use of MTBE halted by the end of 2002 after studies revealed dangerous levels of MTBE in California's drinking water supply. The state of Maine is considering a similar phase-out of the substance.

"This is just another case of transnational corporations trying to bully democracies into weakening their environmental safeguards," says Lori Wallach, director. "Methanex is using NAFTA to override the Governor, State Senate, and people of California."

In another case, the US-based Ethyl Corporation attacked a Canadian ban on the interprovincial sale and import of a different gasoline additive known as MMT. Ethyl originally claimed 250 million in damages for, among other things, expropriation, or seizure of its potential profits. In July 1998, Canada withdrew the ban and paid the company 13 million in damages.

"To call a country's effort to protect the environment 'an expropriation' is absurd," said David Schorr, director of World Wildlife Fund's (WWF) Sustainable Commerce Programme. "It's like saying we should pay polluters every time the government asks them not to pollute."

Another US-based corporation, Metaclad Corporation is suing the government of Mexico for $65 million, attacking a local government zoning and licensing decisions that blocked the company from opening a hazardous waste landfill.

In April the company announced it was pulling its operations out of the country, because it said it "lost all confidence in Mexico's ability to protect foreign investment." The case, however, will continue to be heard in August or September.

When Chapter 11 suits are filed, resolving them moves from consultation to arbitration and then, if the claimant is dissatisfied, to court.

Once arbitration begins, the disputing parties enter a secretive, and often costly, litigation phase, according to a new report released here this week by the IISD.

"There are no requirements to provide the public with information at various stages of the process, such as the notice of intent to litigate, the consultation process, or the initiation of litigation," says the report entitled 'NAFTA's Chapter 11 and the Environment.'

Because these NAFTA proceedings are modeled after private commercial arbitrations, public polices are being decided behind closed doors, adds Schorr. "This is precisely the kind of abuse of trade and investment agreements that environmentalists have come to fear," he says.

The report charges that the onslaught of legal challenges creates pressures on lawmakers not to regulate.

"How can you do your job as a regulator if every law you write or enforce may land you with another multi-million dollar lawsuit?," asks David Runnalls, president of IISD.

Only two significant pieces of environmental law Canada has passed since NAFTA came into force five years ago have been challenged by Chapter 11 suits, according to Runnalls.

He warns there is a potential for a "regulatory freeze" in the three countries if the situation is left unchecked by the three governments. While Canadian government publicly acknowledged that there is a problem with the uses of Chapter 11, the three countries have not done anything concretely to prevent cases like Methanex from proceeding.

The report recommends that Mexico, Canada and the United States adopt a binding "interpretive statement" that would clarify the scope of Chapter 11 in relation to domestic environmental legislation.

"Bringing NAFTA fully in line with the need to promote sustainable development would require reopening the NAFTA text," it says. "However, significant improvements, including substantial reductions in the uncertainties caused by the current uses of Chapter 11, can be achieved without changing the NAFTA agreement itself."

It calls upon the parties to NAFTA to act "aggressively and immediately" to improve the transparency of Chapter 11 disputes.

"They should exercise their substantial discretion under current rules in favour of openness in every case where the rules do not explicitly and unambiguously require secrecy," says IISD. (IPS)

The above article by the Inter Press Service appeared in the South-North Development Monitor (SUNS).