Examine Mixed Results of NAFTA
Jun 2002 12:43 UTC
Two years ago, a private Canadian company got permission
from a provincial government to ship water from Lake Huron
to water-starved countries in Southeast Asia. When the federal
government got wind of the deal, the contract was revoked.
But environmentalists feared that another assault on Great
Lakes water could arise under a provision of the North American
Free Trade Agreement.
Chapter 11 is
a clause that allows private foreign investors to sue
local governments if they believe their trade rights have
been violated. In the case of Great Lakes water, that
could mean that trade laws could trump environmental regulations,
and that businesses could overturn a government's ability
to protect natural resources and human health.
At a recent U.S.-Canada
law conference held in Cleveland, Ohio, government officials,
policymakers, and trade lawyers gathered to discuss the
environmental consequences of Chapter 11 and other trade
issues. In the Great Lakes region, the sharpest impact
may have been to air quality.
transportation linked to NAFTA has led to significant
air pollution at both borders," she said.
heads the North American Commission on Environmental Cooperation,
an international agency established to address environmental
concerns under NAFTA. She has admitted that as yet, there's
been only limited assessment of those impacts. But she
said what data there is, shows it's not all bad news.
"The Mexico steel,
because of NAFTA's investment provisions, actually enabled
Mexico steel to upgrade its technology, making the sector
actually in some ways cleaner than that of the U.S. and
Canada. But what about the effects of trade rules on environmental
policy? And this is where we go to NAFTA's Chapter 11,"
"Chapter 11 is
a chapter designed to protect investors from one NAFTA
country that invested in another NAFTA country and it
has led to a number of cases that have worried the environmental
community," Mr. Loy said.
Frank Loy served
as Under Secretary of State for Global Affairs under the
Clinton administration. He has said under Chapter 11,
a number of private investors have successfully sued foreign
governments for millions of dollars, contending that meeting
local environmental regulations violated their rights
under free trade laws.
"I would say the
cases worry me a lot. My guess is there already is a regulatory
chill, a timidity on the part of governments to take certain
actions for fear of subjecting the state to liabilities,"
Mr. Loy said.
Part of that regulatory
chill may derive from the concern that it's not an open
process. One of the sharpest criticisms of Chapter 11
is that the cases are heard and decided by a closed-door,
three-person tribunal, with no mandate to hear testimony
from third parties. So while the public has a hard time
benefiting from NAFTA, companies have it relatively easy.
In one of the first challenges under the provision, U.S.-based
Ethyl Corporation won nearly $20 million in damages from
the Canadian government for its ban on a gasoline additive
called MMT. Canada has since dropped the ban. Another
case involved an Ohio company, S.D. Meyers, that treats
the chemical compounds known as PCBs.
a trade lawyer from Toronto has said the company wanted
to import the waste from Canada, despite a Canadian prohibition.
"The government of Canada said we are prohibiting this
for environmental reasons. But the real reason, when you
really looked at it hard, the real reason was there was
a PCB plant in Alberta in western Canada that the government
of Canada wanted to promote," he said.
Mr. McIlroy is
not alone when he said a number of Chapter 11 cases apparently
based on environmental protection have proved on closer
scrutiny to be a cover-up for government trade protection.
While he doesn't dismiss the environmental issues, he
does caution against blowing them out of proportion.
"I think it's
fair to say, whether the cases are valid or not, there
haven't been a whole lot of them. And therefore this is
not this huge, massive problem that people are talking
about. And this has been around since, what, 1994, and
you can still count the number of cases on both hands,"
Congressman Sherrod Brown voted against NAFTA. He disagreed
with Mr. McIlroy's assessment. "Their arguments are specious.
Perhaps in the opinion of trade lawyers, these challenges
have served as a cloak for protectionism. But to trade
lawyers, everything's seen as a cloak for protectionism,"
Mr. Brown said.
said while companies began making use of Chapter 11 only
about four years ago, there have been plenty of other
trade challenges to environmental laws.
"Time after time
after time, both in NAFTA and in every public health challenge
under the WTO, 33 straight times, public health laws,
environmental laws, and food safety laws, every single
time they've been struck down. That's wrong, whenever
a trade law can be used to undercut or repeal a democratically-attained
rule or regulation," Mr. Brown said.
and supporters agree it's unlikely NAFTA will be revised
anytime soon. But the precedents set under NAFTA could
affect future trade agreements. Arguments on both sides
of the issue will undoubtedly be aired again as Congress
takes up approval of new fast track trade legislation
with similar investor protections this spring. Environmental
groups believe equitable settlement of future trade challenges
may have to rely on the strength of public opinion to
sway government decisions.