Copyright 2001 The Christian Science Publishing Society Christian Science Monitor (Boston, MA)
April 3, 2001, Tuesday
SECTION: WORLD; Pg. 8
LENGTH:
1120 words
HEADLINE: Does NAFTA trump countries'
laws?
BYLINE: Ruth Walker Staff writer of The
Christian Science Monitor
DATELINE: TORONTO
HIGHLIGHT: Canadian critics are
challenging a controversial NAFTA provision that allows companies to sue
governments.
BODY: Free trade is
supposed to be about leveling the playing field and clearing out the thicket of
unfair regulations and tariffs.
But seven years
into the North American Free Trade Agreement, the three signatory countries are
still wrestling to get the right balance between free-trade principles and local
regulation.
Take the case of Metalclad Corp., a
hazardous-waste treatment company from California. The firm bought a landfill in
Guadalcazar, in central Mexico, with plans to build a waste-treatment center.
The company, which already had plants in 11 Mexican states, obtained the
required federal permits and started building.
But by the time Metalclad completed the $ 20 million, state-of-the-art
treatment plant in 1995, things had soured. Protesters had demonstrated against
the plant, and the state governor designated the site an ecological preserve.
Metalclad was forced to withdraw, and eventually it pulled all its business out
of Mexico.
Metalclad sought redress under a
controversial provision of NAFTA. Chapter 11, which is
designed to protect investors from arbitrary or underhanded treatment by
governments, allows companies to sue governments directly. Metalclad argued that
restrictions put on its property were "tantamount to expropriation" and won $
16.7 million last August. In February, Mexico appealed the judgment to a court
in Vancouver. A final decision is expected in coming weeks.
This case comes at a critical moment. President Bush
has made a hemisphere-wide free-trade pact a pillar of US foreign policy. Later
this month, 34 leaders from Canada to Chile will gather in Quebec City to
consider how to make it a reality. And that's raising anew questions about
whether NAFTA dispute mechanisms such as Chapter 11 are
working.
NAFTA's
impact
Some free-trade critics say the Chapter 11 provision gives too much power to investors. Last
week, Canadian activists and labor leaders filed a constitutional challenge to
the provision in Ontario's Superior Court of Justice. The Council of Canadians
and the Canadian Union of Postal Workers reportedly argued that Chapter 11
undermines their government's right to protect the safety, health, and
well-being of its citizens through the regulatory systems and court.
But advocates say in the world of free trade,
investors need the protection of Chapter 11.
In its judgment, the NAFTA panel issued a
broad ruling that Mexico's treatment of Metalclad amounted to a denial of "fair
and equitable treatment" - which is the benchmark of fairness in the trade
world. "They invited us, they welcomed us, and then they delayed and
obfuscated," says Grant Kessler, chief executive of Metalclad, noting that his
case has been cited in some 30 subsequent legal actions.
But free trade is about encouraging investment and economic
development. And, says Fred McMahon, an analyst at the conservative Fraser
Institute in Vancouver, the Mexican governor's actions are just the kind that
will discourage the outside investment Mexico needs.
This case has nothing to do with limiting local autonomy, he says, but
"everything to do with getting sensible regulations in place in the first
place."
Some critics of free trade have worried
that corporations seeking cheap labor and loose regulations would rush to
exploit developing markets - encouraging them to keep their standards low.
According to a recent study of the impact of NAFTA
on environmental regulation, based on 230 corporate interviews, researchers have
found the opposite.
"Investment is not moving in
a pollution-haven seeking way to jurisdictions in which environmental regulation
or enforcement is lower," concludes the study by John Kirton of the University
of Toronto, attorney Julie Soloway of Davies, Ward, Phillips, & Vineberg,
and Alan Rugman of Oxford University.
"NAFTA's
trade and investment liberalization is producing an environmental regulatory
push to the top, rather than race to the bottom," the study says.
But Howard Mann, an international trade lawyer in
Ottawa, predicts slow going for countries trying to get their regulations in
place for free trade.
"There's no way the vast
majority of developing countries have the capacity" - in terms of analytical
skill and trade expertise - to formulate the kind of environmental regulations
that will stand up to free-trade challenges, he says. And "the costs of
developing a regulation can go into seven figures."
Refining the provision
One reason for the heightened interest in the Metalclad case is that it
arms critics of Chapter 11, who want to make sure a similar provision doesn't
make it into the Free Trade Agreement of the Americas (FTAA), being discussed at
the Quebec City summit later this month.
Canada,
which intervened on Mexico's side in the Metalclad case, has a particular
interest in the issue, and Canadian Trade Minister Pierre Pettigrew has said he
does not want provisions like Chapter 11 in the FTAA accord.
Ottawa has found itself the defendant in several
Chapter 11 cases. In one, Canada had placed a temporary ban on the export of PCB
waste. That meant SD Myers Inc., an Ohio-based company that was shipping PCBs
from Canada to its US disposal plant, was out of luck, while an Alberta company
was assured steady business. A NAFTA panel has ruled that Canada's ban was meant
specifically to exclude SD Myers. It has yet to assess the damages, and Canada
is appealing. Canada faces two other Chapter 11 cases by companies asking for
more than US$ 610 million.
Raising the bar
Even many fans of
NAFTA agree that Chapter 11 needs some adjustment,
beginning with its format. Cases are heard by secret panels convened by the
International Center for Settlement of Investment Disputes, a World
Bank-affiliated entity established to deal with contractual disputes between
companies. But experts say it wasn't designed to consider public policy
issues.
Moreover, the three-member NAFTA
panels that hear these cases have tended to interpret Chapter
11 more broadly, analysts say, than the signatory governments expected. But
renegotiating the troublesome chapter would mean reopening the entire NAFTA
treaty, and that's a can of worms none of the signatories want to open.
Mr. Pettigrew is pushing for a document signed by
the NAFTA signatories clarifying the intent behind Chapter
11 - that is, making it harder to use - and perhaps completing it before
this month's trade summit in Quebec.