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NAFTA's Regulations Endanger Environment

  • NAFTA's supra-national "rights" have placed corporations and global groups above member nations. Efforts are now under way to expand the sovereignty-stealing trade pact across North, Central and South America.
By Mary Bottari

The North American Free Trade Agreement (NAFTA) includes an array of corporate investment rights and protections that are unprecedented in scope and power. NAFTA allows corporations to sue the national government of a NAFTA country in secret arbitration tribunals if they feel that a regulation or government decision affects their investment in conflict with these new NAFTA rights. If a corporation wins, the taxpayers of the "losing" NAFTA nation must foot the bill.

This extraordinary attack on governments' ability to regulate in the public interest is a key element of the proposed NAFTA expansion called the Free Trade Area of the Americas (FTAA).

NAFTA's investment chapter, called chapter 11, contains a variety of rights and protections for investors and investments in NAFTA countries.

Specifically, Article 1110 of NAFTA guarantees foreign investors compensation from the NAFTA governments for any direct government expropriation, i.e., nationalization, or any other action that is "tantamount to" an "indirect expropriation."

In addition, Article 1102 provides for "national treatment," which means that governments must accord to companies of other NAFTA countries no less favorable treatment than they give to their own companies.

Article 1105 contains a "minimum standard of treatment" provision, which includes vague prose about fair and equitable treatment in accordance with international law.

If a company believes that a NAFTA government has violated these new investor rights and protections, it can initiate a binding dispute resolution process for monetary damages before a trade tribunal offering none of the basic due process or openness guarantees afforded in national courts.

These co-called "investor-to-state" cases are litigated in the special international arbitration bodies of the World Bank and the United Nations, which are closed to public participation, observation and input. A three-person panel composed of professional arbitrators listens to arguments in the case, with powers to award an unlimited amount of taxpayer dollars to corporations whose NAFTA investor privileges and rights they judge to have been impacted.

Corporate investors have used these unprecedented NAFTA investment protections to challenge national and local laws, governmental decisions and even governmental provision of services in all three NAFTA countries.

To date, companies have filed more than a dozen dases, claiming damages of more than $13 billion.

In the largest NAFTA chapter 11 suit yet brought against the United States, the Canadian corporation Methanex in 1999 sued the U.S. government for $970 million because of a California executive order phasing out the sale of a Methanex product.

Methanex claims that California's phase-out of methyl tertiary butyl ether (MTBE), a gasoline additive, violates the company's special investor rights granted under NAFTA because the California environmental policy limits the corporation's ability to sell MTBE.

[See The SPOTLIGHT's April 12, 1999, issue for more on the toxic effects of MTBE.-Ed.]

If a NAFTA tribunal decides that California's environmental policy violates NAFTA's investor protection, the U.S. government can be held liable for the corporation's lost profits from not selling MTBE.

The case is "a clear threat to California state sovereignty and democratic governance," says Martin Wagner of the California-based Earthjustice Legal Defense Fund. If Methanex succeeds, California will be under pressure to rescind its executive order to lessen the damage award.

Associated with human neurotoxicological effects, such as dizziness, nausea and headaches and found to be an animal carcinogen eith the potential to cause human cancer, MTBE has been found in ground water and drinking wells around California. On March 25, 1999, California required the removal of MTBE from gasoline sold in the state by Dec. 31, 2002.

In its amended claim, Methanex alleges that the California ban discriminates against MTBE in favor of ethanol, an organic fuel-alternative made from corn, and is therefore a violation of NAFTA's national treatment rules.

As evidence, Methanex cites the executive order which requires the California Energy Commission to look into development of a California ethanol facility.

Methanex alleges that Archer Daniels Midland (ADM), a principal producer of ethanol in the United States, influenced the governor's decision with $210,000 in campaign contributions, arguing that the ban stands in violation of NAFTA's fair and equitable treatment rules.

Finally, Methanex claims that the ban was not the "least trade restrictive" method to fix the water contamination problem, and thus violates NAFTA requirements that companies be treated fairly and "in accordance with international law."

The relevant laws cited by Methanex are the rules of the World Trade Organization, which require countries to use the least trade restrictive means to achieve environmental and public health goals.

Methanex brought its NAFTA case to the United Nations Commission for International Trade and Law (UNCITRAL), the arbitration regime of the United Nations. The case is now pending. Under UNCITRAL rules, not only are the citizens of California shut out of this proceeding, but so are the governor and the attorney general of California, the state whose policy is in question. California officials must rely on the Office of the U.S. Trade Representative (USTR) to defend the interests of California residents in this closed tribunal.

While these expansive investor rights currently are included only in NAFTA, plans are under way to incorporate similar provisions in the FTAA.

FTAA is a proposed NAFTA expansion to all 34 countries of the Western Hemisphere (but for Cuba). The Bush administration has signaled that it wants the controversial fast track trade negotiation authority in order to negotiate the FTAA. Once congress delegates its trade negotiating authority to the president via fast track, it limits its own role to a single up-or-down vote on trade agreements' implementing legislation, which cannot be amended.

Canada, which has been badly burned in a series of chapter 11 cases, is no longer a believer. Canadian Trade Minister Pierre Pettigrew has declared that Canada will not sign FTAA if investor-to-state enforcement of broad regulatory takings rights are included, and Canada has called for a review of chapter 11 within NAFTA.

Whether Canada will hold to these positions, and whether it can organize other countries to join it amidst the complex FTAA negotiations in which the United States is the dominant player, remains to be seen.

In the meantime, environmentalists, public health groups, California residents and many others concerned about the broad regulatory takings provisions will continue to press for their removal from NAFTA and their exclusion from the FTAA.

Mary Bottare is director of Global Trade Watch's Harmonization Project. This report appeared in the April 2001 issue of The Multinational Monitor.