USCIB
Comments on the Preliminary Draft Text of the FTAA
Agreement
August 21,
2001
Ms.
Gloria Blue
Executive
Secretary
Trade Policy Staff
Committee
Office of the U.S.
Trade Representative
1724 F Street,
N.W.
Fifth
Floor
Washington,
D.C. 20508
Dear Ms.
Blue:
This is in
response to the Federal Register notice of July 12, 2001,
soliciting comments on the preliminary draft consolidated
texts of the Free Trade Area of the Americas (FTAA) Agreement
and the FTAA Technical Committee on Institutional
Issues. On July 29, 1999 and February 7, 2000, the
United States Council for International Business (USCIB) sent
to USTR our recommendations for the negotiations in several
specific areas. Those recommendations still stand, but
we have revised or updated our positions in the following
areas to reflect developments since our previous
letters.
BIOTECHNOLOGY
In previous
submissions, USCIB stressed the importance of stepping up
scientific and technical exchanges at all levels to ensure
that regulatory regimes are based on scientific principles.
Proactive steps must be undertaken by governments not only to
educate their publics to the realities of new scientific
developments in the rapidly evolving fields of genetics and
biotechnology, but also to anticipate problems in this
field.
Thus, the United
States should use the FTAA process to promote the formulation
of national regulations governing food safety and animal and
plant health that minimize the chance of their being used to
protect domestic economic interests and restrict market
access. While biotechnology products have been found to
be substantially equivalent to products that have not been
created through recombinant DNA techniques, many countries
have created barriers to trade either through questionable
Sanitary and Phytosanitary (SPS) claims, non-tariff barriers,
or technical barriers to trade (e.g. labeling
requirements).
By further
reinforcing and reiterating sound science as the basis for
decision-making, as well as supporting the process of dispute
settlement through increased mechanisms to ensure compliance,
FTAA countries will be able to tap more effectively the
numerous benefits that biotechnology can deliver.
COMPETITION
POLICY
While it is
difficult to comment on a draft text that is so bracketed, we
request U.S. negotiators to consider the following general
suggestions and views. We hope that these principles
will result in a shorter, simplified chapter on competition
policy.
·
In general, U.S.
negotiators should not agree to anything in the FTAA that
would require implementing legislation to amend existing U.S.
antitrust laws. We have good laws that certainly meet
any hemispheric standards that might appropriately be
established in an FTAA.
·
The current draft
text resembles an outline of an antitrust code, which is
undesirable. U.S. businesses could possibly accept
an obligation on FTAA governments to have and enforce laws
that seek to prevent private anticompetitive practices,
including hard core cartels that impede market
contestability. Such obligations, however, should not
include enforcement obligations regarding abuse of a dominant
position and other unilateral business conduct theories that
do not relate closely to market access -- the primary nexus
between competition law and the overall trade objectives of
FTAA. Analysis of unilateral conduct requires complex
rule-of-reason analysis that often places excessive burdens on
enforcement authorities with little experience and
resources. Rules on single-firm conduct are especially
rife with potential for strategic use by competitors seeking
to obstruct rivals for private business reasons, rather than
legitimate competitive process concerns. Moreover,
regardless of enforcement experience or resource levels,
enforcement errors in this area can be costly, resulting in
less market access and reduced incentives to invest and
innovate.
·
FTAA member
countries should implement and enforce rules regarding
official monopolies and state enterprises. Those rules
should ensure that state participation in commercial activity
does not result in discrimination against FTAA trading
partners or against firms located in FTAA member
countries.
·
In general,
government regulatory behavior should be addressed in the FTAA
not under the heading of competition policy, but under other
headings as appropriate, e.g., government procurement,
subsidies, IP protection, etc.
·
FTAA member
countries should fully adhere to safeguards applicable in each
jurisdiction to protect confidential business
information.
·
The agreement
should stress the importance of independent appellate review
of actions taken by competition authorities.
·
FTAA commitments
on competition policy should not be subject to formal FTAA
dispute settlement, but rather should be subject to a
government-to-government consultative mechanism.
·
To ensure the
development of effective and consistent competition
policy, cooperation among FTAA countries should be
encouraged through mechanisms such as technical assistance on
competition policy and law enforcement, and a competition
policy peer review mechanism.
INTELLECTUAL
PROPERTY
Intellectual
property rights (IPR) -- patents, copyrights, trademarks, and
trade secrets -- are essential to economic development and are
therefore a critical component of the FTAA negotiations.
Although many
nations of the Western Hemisphere have made substantial
progress in the protection and enforcement of IPR, others have
failed to implement their trade obligations with respect to
intellectual property. The FTAA should require full
compliance with existing intellectual property accords.
In particular, FTAA negotiating partners who have not yet
fully implemented the agreement on Trade Related Aspects of
Intellectual Property Rights (TRIPs) should be required to do
so before the FTAA enters into force.
With many higher
value-added economic activities increasingly dependent on IPR,
the FTAA must help ensure that intellectual property standards
continue to improve in order to encourage, reward and protect
innovation and creativity. Accordingly, the FTAA should
contain standards of intellectual property protection and
enforcement that build on and strengthen the rights defined by
TRIPS and the North American Free Trade Agreement.
Although the current draft FTAA text includes language that
seeks to improve on the protections stipulated by those two
agreements, the text also includes language -- albeit
bracketed – that seeks to weaken intellectual property
protection. U.S. negotiators should make clear that such
language is an unacceptable basis for proceeding in the
negotiations.
With these
considerations in mind, we believe that the FTAA
should:
·
Guarantee the
availability of patent protection for products and processes
in all areas of technology, including biotechnological
inventions, and plant and animal inventions. It should
include patent protection, without exception, for all new,
useful and non-obvious inventions.
·
Protect
confidential test data for a minimum of five years against use
by third parties in expedited regulatory approval procedures.
·
Limit the use of
compulsory licenses to cases of national emergency or to
remedy fully adjudicated findings of misuse of the patent
rights that cause harm to competition in a market. The
FTAA should ensure that the issuance of compulsory licenses
does not undermine the normal exercise of patent rights.
·
Prohibit
international exhaustion of intellectual property
rights. A regime of international exhaustion would be
harmful to international trade and investment by undermining
the incentives provided by IPR to invest in innovation and
brand reputation. Businesses have legitimate interests –
relating to quality control, product safety, brand reputation
and commercial strategy – in controlling the distribution of
their goods across different markets. The undesirable
effects of international exhaustion include damage to brand
reputation, consumer confusion, health risks stemming from
improperly labeled products and the diversion of products to
the markets capable of providing the highest
prices.
·
Require countries
that have not yet done so to ratify and implement the World
Intellectual Property Organization (WIPO) Copyright Treaty and
the WIPO Performances and Phonograms Treaty, striking a
balance among the rights, interests and obligations of network
operators, service providers, content providers and users in a
manner consistent with the U.S. Digital Millennium Copyright
Act.
·
Adopt and
implement measures to reduce piracy and counterfeiting within
each country and at its borders.
INVESTMENT
USCIB strongly
supports a comprehensive chapter on investment in the
FTAA. Investment protections will be crucial for
ensuring full regional economic integration and will protect
the competitiveness of U.S. industry. Foreign direct
investment is crucial to the continued economic growth and
stability in the Americas. Legal security, in form of strong
international investment protections, is necessary to ensure
continued economic integration and growth. Investors
will not undertake large-scale foreign investments if they do
not have the confidence that host governments will be held
accountable to a set of binding international
protections. Conversely, host governments will not be
able to attract the foreign investments that are necessary to
their economic growth without ensuring investors that their
investments are secure and protected from arbitrary measures
imposed by local governments.
Key elements for
the investment chapter:
The investment
chapter of the FTAA should contain the basic protections that
are currently codified in bilateral investment treaties (BITs)
that countries in the Hemisphere have signed. The most
important of these protections are as follows:
·
Transparency: Government
measures affecting foreign investors and investments should be
transparent and administered in a reasonable, objective, and
impartial manner. Transparency can be encouraged by
requiring a public comment period prior to the adoption of
laws, regulations and administrative policies that affect
foreign investors. The private sector should be
permitted to submit comments through written submissions and,
when appropriate, public hearings. The comment period
should commence a reasonable time period prior to
implementation of new rules in order to permit firms to
resource adequately and become familiar with the rules.
To the extent practicable, regulations, laws and policies
should be easily accessible, and should be made available
through electronic means. In addition, countries should
adopt procedures to redress inconsistent or ineffective
enforcement of rules between foreign and domestic
investors.
·
Definition of
Investment: The
investment chapter of the FTAA should cover all types of
investment, including, but not limited to equity and portfolio
investment, tangible and intangible property,
enterprises and interests in enterprises, contract and
concession rights, intellectual property rights, equity,
bonds, and loans.
·
Relative Standards
of Treatment: National
treatment obligates governments to treat foreign investors and
investments the same as it treats its own investments and
investors in like situations. The most favored nation
requirement obligates governments to treat investors from
other treaty signatories the same as it treats investors who
are in like situations. The FTAA should guarantee the
better of MFN or national treatment with respect to both the
establishment of investment and post-entry
operations;
·
Free Movement of
Capital: The FTAA
should guarantee investors the right to transfer funds related
to an investment, including the right to repatriate profits,
interest, proceeds from liquidation, and infusions of
additional capital, in a freely convertible currency at a
market rate of exchange. We recognize, however, that
certain countries in the region may face severe balance of
payments difficulties and may not be able to meet this
obligation in all cases. Therefore, the FTAA should
contain safeguards that give countries the necessary leeway to
handle such problems. An exception should also be made
to provide for the enforcement of criminal laws.
·
Free Movement of
Key Personnel: The FTAA
should guarantee the right to free movement of key
personnel. This includes the right to enter and
temporarily stay in the territory of an FTAA country for
the purpose of establishing, developing administering or
providing other essential services to an investment. In
addition, investors should be given the right to hire top
management personnel without regard to nationality.
·
Performance
Requirements: The FTAA
should prohibit the imposition of performance requirements
that require investors to: (a) export a given level or
percentage of goods and services; (b) achieve a given level or
percentage of domestic content; (c) purchase or accord
preference to domestically produced goods; (d) balance exports
and imports; (e) restrict sales of goods or services within
the host Party’s territory; and (f) transfer technology act as
the exclusive supplier of goods or services to a particular
region or world market. The FTAA should also prohibit
type (b), (c), (d), and (e) measures that are required as a
condition for obtaining an advantage or benefit.
·
Expropriation: The FTAA
should prohibit expropriation except for a public purpose, in
accordance with due process of law, and with payment of
prompt, adequate and effective compensation in a G-7 currency
or its equivalent in a convertible currency. This
prohibition should cover both direct and indirect
expropriations to ensure that it applies not only to outright
takings of property but also to regulatory takings and
creeping expropriations.
·
General Treatment
Standards: All BITs
contain a provision guaranteeing investors a certain minimum
standard of treatment, which includes fair and equitable
treatment, full protection and security, and treatment in
accordance with international law. These provisions fill
gaps that may be left by the more specific investor
protections and to impose on host governments a general duty
of good faith, fair dealing, and due diligence to protect
foreign investors and investments. The guarantee of fair
and equitable treatment ensures that investors are not treated
arbitrarily, and includes, for example, of duty of honesty and
fair dealing and a guarantee of due process of law. The
provision regarding full protection and security requires
governments to act with due diligence in protecting the
physical security of foreign investors. The requirement
to provide treatment in accordance with international law
complements the other general treatment standards and
incorporates customary international into the
treaty.
·
Dispute
Settlement: All BITs
contain a mechanism for investor-state and state-state dispute
settlement. This provision for investor-state dispute
settlement allows foreign investors to initiate arbitration
proceedings against host governments who have violated their
obligations with respect to the protection of the investor’s
investment. If the arbitration tribunal renders an award
in favor of the investor, the host government may be required
to pay monetary compensation for the damage done to the
investment. Investor-state dispute settlement is
critical for ensuring that governments meet their
international obligation. It enhances the discipline on
governments to follow the rules and settle disputes in a
non-politicized and timely manner. It is essential to
include this mechanism in the FTAA in order to ensure that
governments meet their international obligations.
Telecommunications
and Electronic Commerce
USCIB recommends
that commitments on basic telecommunications, value-added
services, computer-related services, and the other service
sectors associated with the infrastructure needed for
business-to-business and business-to-consumer electronic
commerce are included in the final FTAA agreement.
Moreover, new barriers to electronic commerce should be
avoided.
In response to
specific language in the July 3, 2001 draft FTAA Chapter on
Services, USCIB offers the following comments:
·
Page 7.11, section
7.2 (Market Access): USCIB is concerned that the obligation is
overly vague and seeks clarification on the extent of the
obligation and its enforceability.
·
Page 7.11, section
7.2 (Access and Use): USCIB believes the section should read
as follows: “Each Party shall ensure that persons of
another Party have access to and use of any public
telecommunications transport network or services, including
private leased circuits, offered in its territory or across
its borders for the conduct of their business, on reasonable,
transparent, and non-discriminatory terms and
conditions.” This
slightly revised language ensures greater access to networks
and transparency.
·
Page 7.21, section
1 (General Exceptions): USCIB believes that self-regulation is
the best means of balancing the free flow of information and
effective privacy protection. Moreover, USCIB supports
the principle of non-discrimination when governments adopt
different approaches to privacy. At a minimum, if such
an exemption is included in an FTAA it should be consistent
with GATS Article XIV (General Exceptions). GATS
qualifies the exception by ensuring that "such measures are
not applied in a manner which would constitute a means of
arbitrary or unjustifiable discrimination where like
conditions prevail, or a disguised restriction on trade in
services." GATS Article XIV consistent language is found
in the second variant of this section.
USCIB further
requests that the U.S. government urge its FTAA partners to
adopt a “top-down” negotiating approach (in other words, an
approach in which parties make full market access and national
treatment commitments with all sub-sectors assumed to be
covered) across all services sectors, and in particular for
basic telecommunications, value-added services and
computer-related services, with limitations/reservations held
to a minimum and explicitly noted on commitment schedules.
Attached are
USCIB’s existing general views on trade related aspects of
telecommunications and electronic commerce.
We hope these
comments prove helpful in future negotiations on the
preliminary draft texts of the FTAA Agreement.
Sincerely,
Thomas M.T.
Niles
Attachments:
·
USCIB comments
regarding telecommunications and electronic commerce in the
FTAA negotiations
·
USCIB letter to
Robert B. Zoellick supporting the FTAA and outlining goals for
the investment chapter
USCIB Comments
Regarding Telecommunications
and Electronic
Commerce in the FTAA Negotiations
August 21,
2001
USCIB proposes
that the following core principles be included:
Ø
Promote the
development of the domestic and global infrastructure that is
necessary to conduct e-commerce while avoiding barriers that
would hinder such development;
Ø
Promote full
implementation of existing commitments and seek increased
liberalisation for all basic telecommunications and
value-added services;
Ø
Promote the
development of trade in goods and services via e-commerce;
and
Ø
Promote strong
protection for intellectual property made available over
digital networks.
(1.)
Promote the
development of the domestic and global infrastructure that is
necessary to conduct e-commerce, USCIB seeks:
·
full adoption by
all FTAA Members of the Information Technology Agreement (ITA)
and redoubled efforts to conclude the ITA II
agreement. These agreements are important to ensure that
all countries have access to the hardware and software
necessary to deploy and access the e-commerce
infrastructure;
·
full market access
and national treatment commitments by FTAA Members for the
sectors that are associated with the infrastructure needed for
business-to-business and business-to-consumer e-commerce;
and
·
an open,
competitive market for electronic commerce, including
commitments among FTAA Members not to
impose new barriers to the development of the e-commerce
infrastructure.
(2.)
Promote full
implementation of existing commitments and seek increased
liberalization for all basic telecommunications and
value-added services, USCIB at a minimum seeks:
·
broader market
access and national treatment commitments;
·
earlier
implementation dates;
·
reductions or
elimination of foreign ownership restrictions;
·
adherence to the
“Reference Paper” commitments for basic telecommunications
services only; and
·
adherence to the
GATS Annex on Telecommunications, and the similar provisions
within the FTAA (Page 7.11, section 7.2) for access to and use
of public telecommunications networks for the provision of
value-added services, including Internet services, and other
sectors for which FTAA Members have made
commitments.
(3.)
Promote the
development of trade in goods and services via e-commerce,
USCIB seeks:
·
formal recognition
by FTAA Members that the chapters on goods, services,
investment and intellectual property apply to electronic
commerce, consistent with USCIB’s views with the current
commitments under the General Agreement on Tariffs and Trade
(GATT), the General Agreement on Trade in Services (GATS) and
the WTO Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS). This is essential given the
fact that electronic commerce is not a new form of trade but
rather a new medium for conducting trade in goods and services
and delivery of intellectual property. under
·
agreement among
FTAA Members that in scheduling services commitments
under the FTAA that the existing, classifications under
existing international standards such as the GATS, should be
flexible enough to accommodate technological progress in the
delivery of services. As technology evolves, the
interpretation of the existing classifications of goods and
services based on this technology should also evolve to
capture these advances. With such flexibility,
FTAA member countries can ensure that they benefit from the
tremendous productivity increases and cost savings associated
with the information technology revolution;
·
assurances that
electronically delivered products (i.e. goods or services)
receive market access and national treatment benefits that are
no less favorable than those currently available for such
products delivered physically;
·
meaningful market
opening commitments by FTAA Members for all services that can
be delivered via e-commerce, whether on a cross-border or
consumption-abroad basis; and
·
make permanent the
practice of not imposing customs duties on electronic
transmissions.
(4.)
Promote strong
protection of intellectual property made available over
digital networks, USCIB seeks:
·
Effective and
timely implementation and enforcement of the WTO Agreement on
Trade Related Aspects of Intellectual Property Rights (TRIPs)
by FTAA Members. With the rapid development of digital
technologies and electronic services, the need for strong
protection and enforcement of intellectual property rights is
imperative. The TRIPs Agreement plays a very important
role insofar as it provides minimum standards for such
protection and enforcement.
·
Timely
ratification of the World Intellectual Property Organization
(WIPO) Copyright Treaty and the WIPO Performances and
Phonograms Treaty consistent with the approach in the United
States balancing the rights and obligations of network
operators, service providers, and content providers found in
the Digital Millennium Copyright Act (DMCA).
The flexibility
referred to here is limited to existing GATS classification
schemes and does not refer to the classification of a product
delivered electronically as either a good or a
service.
July
30, 2001
The
Honorable Robert B. Zoellick
United
States Trade Representative
600
17th Street, NW.
Washington, DC 20508-4801
Dear Ambassador
Zoellick:
We strongly
support the efforts of the U.S. Government, and the Office of
the U.S. Trade Representative in particular, to move forward
on the negotiations to create a Free Trade Area of the
Americas and with bilateral agreements with Chile and
Singapore. We wish to emphasize to you the importance to
the U.S. economy and to the economies of our FTAA
partners of foreign investment and the need to include strong
investor and investment protections, including investor-state
dispute settlement, in these agreements. We would like
to suggest certain changes to the dispute settlement process
that would make the process more transparent and, we hope,
less susceptible to the misunderstandings that have arisen.
Investment in FTAA
Partners
Our Latin American
partners have experienced a dramatic surge in foreign
investment and have concluded a number of bilateral investment
treaties in the past decade. Countries in Latin America
increasingly are looking to foreign investment to finance
their growth and are negotiating investment protection
treaties at a rapid pace to help attract and secure that
investment. Unfortunately, the United States’
participation in this investment activity has been relatively
dormant.
In 1994, one out
of every twelve dollars of gross fixed capital formation in
Latin American countries came from external sources. By
1998, the figure doubled — with one out of every six dollars
coming from external sources. Looking at the growth of
foreign investment in another way, annual flows of foreign
investment to the region nearly tripled between
1995 and 1999 – rising from $30 billion per year to $90
billion per year.
U.S. involvement
in the region has not kept pace. According to the Bureau
of Economic Analysis, U.S. investment flows to the region in
2000 were approximately $17.8 billion, virtually the same as
in 1994. At the same time, our competitors in the
European Union have stepped up their new investments from $3
billion in 1995 to just under $25 billion in 1998.
The growth of
investment treaties mirrors the growth in investment. In
the 1980s and into the early 1990s, foreign investment was
viewed suspiciously by many governments in Latin
America. But by the mid-1990s, attitudes and policies
started to change. Governments began to open their
markets to foreign investors and negotiated bilateral treaties
as a signal to outside investors that foreign investment would
be protected. By the end of 1996, Latin American
countries had signed approximately 300 bilateral investment
treaties. At year-end 1999, the number of treaties rose
to 340.
The United
States, however, has signed investment agreements with only
three of the top 10 Latin American recipient countries of
foreign investment. In contrast, countries in the
European Union had signed more than 50 bilateral investment
treaties with Latin American countries as of 1996 and have
added another 75 since then.
Importance of
Investment Provisions
An FTAA that opens
borders to trade and provides strong investment
protections would create enormous commercial opportunities for
U.S. companies, their workers and their families. In
particular, trade liberalization combined with investment
protections fosters greater synergies in production and
distribution operations. Foreign investment by U.S.
companies complements their activities in the United States,
promoting greater productivity, research and development,
investment in physical capital, and new technology. The
payoff is in better, higher-paying jobs and a higher standard
of living in the United States. Restrictions on foreign
investment, which prevent U.S. companies from expanding
abroad, generally reduce activities in the United States and
thus, lower the U.S. standard of living.
Strong investment
protections not only encourage foreign investment and economic
growth but also foster democratic principles and policies,
including the rule of law, transparency of laws and procedures
governing foreign investment, respect for private property and
a market-based free enterprise system.
A strong FTAA
chapter on investment protection and liberalization is also
needed to rebalance the playing field which has shifted in
favor of our competitors in the European Union because the EU
and not the United States has been at the forefront of
negotiating bilateral investment protections in the
region. We risk losing enormous opportunities for U.S.
companies, their workers and their families in the Mercosur in
particular, and the region as a whole, if we do not negotiate
strong investment provisions in the FTAA.
Investment
provisions in the FTAA — Investor-State Dispute
Settlement
In particular, we
believe it is essential that the FTAA include all of the
fundamental protections found in our bilateral investment
treaties (BITs) and in NAFTA Chapter 11. The core
protections in these agreements are intended to ensure that
governments act fairly and do not discriminate against U.S.
investors. The United States has sought inclusion
of these protections in bilateral and multilateral agreements
since World War II. This is not a trend peculiar to the
United States. There are some 1500 BITs in force around
the world-- most of them have investor protection provisions
and investor-to-state dispute procedures found in U.S. BITs
and NAFTA Chapter 11.
Among the key
protections is the so-called “investor-state” dispute
settlement mechanism, which has been an integral part of our
investment agreements since the first U.S. bilateral
investment treaties were signed in the early
1980s. This provision provides a procedure for
investors to seek compensation when the government fails to
provide fair and equitable treatment to foreign investors,
discriminates against a U.S. investor, or expropriates
property either directly or indirectly without paying prompt,
adequate and effective compensation.
The provisions of
our investment treaties provide substantially the same
guarantees as provided under U.S. law, including the takings
clause of the fifth amendment of the Constitution. The
primary difference is that the investor-state procedure goes
through arbitration rather than the court system as in the
United States. This provision was created to provide
U.S. investors substantially equivalent protections as they
receive in the United States. This is particularly
important in countries without an independent judiciary or
similar standards of investment protection.
Access to
investor-state arbitration procedures is critical to provide
effective, enforcement of investment provisions and to obtain
appropriate redress in a timely manner. Limiting
investment dispute settlement to state-to-state procedures
will unnecessarily politicize disputes, leaving investors,
particularly small and medium-sized enterprises, with little
recourse save what their government decides to do after
weighing the diplomatic pros and cons of bringing a particular
claim.
Contrary to recent
criticisms, the investor-state provisions neither undermine
nor interfere with environmental, health, and safety laws that
are applied in an even-handed and non-discriminatory
manner. The obligation undertaken in the NAFTA and in
BITs is only that each country will apply its laws in a fair
and non-discriminatory manner and that any expropriation will
be accompanied by compensation. Even if such laws do not
meet these standards, the NAFTA and BITs do not require
a government to change its law. Rather foreign investors
can only seek compensation for the unfairness, discrimination,
or expropriation.
Attached you will find a summary of recent NAFTA cases that
have been subject to some criticism. Contrary to critics
of investment protections, where the cases proceeded to NAFTA
panels, no panel has found against a government’s even-handed
application of bona fide environmental protections.
Rather, the only NAFTA arbitration panel decisions that have
upheld claims against governments purporting to act for
environmental reasons found instead that these governments
acted arbitrarily and in a discriminatory manner with respect
to foreign investors.
Transparency
We remain
concerned, however, that arbitration panels that rule on NAFTA
investment provisions are presently closed to the public,
which has amplified misunderstandings about this
process. We strongly support U.S. government efforts to
negotiate provisions in future free trade agreements that will
open these proceedings to the public to the same extent as our
court proceedings. Furthermore, briefs submitted to
panels and final panel reports should be made available to the
public, provided that procedures are in place to protect
sensitive and confidential business information. Greater
transparency will demonstrate that the process is fair and
will help quell the concerns that have been generated by a
basic misunderstanding about how the process works.
We hope you will
find this information helpful as you move forward in the
debate over trade and investment
Sincerely,
Thomas
Niles
President
US Council for
International Business
Jerry
Jasinowski
President
National
Association of Manufacturers
William
Reinsch
President
National Foreign
Trade Council
Calman
Cohen
President
Emergency
Committee for American Trade
Attachment:
Summary of NAFTA Cases
Cc: Secretaries
Powell, O’Neill, Evans and Administrator Whitman
SUMMARY OF RECENT
NAFTA CASES: THE FACTS
Issue
A review of recent
NAFTA investment cases demonstrates that that the
investor-state dispute settlement procedures do not constrain
governments from protecting the environment
ETHYL
A U.S. investor,
Ethyl Corporation, is a manufacturer of a fuel additive, MMT
(methylcyclopentadienyl manganese tricarbonyl). MMT has
more than its share of controversy. The U.S.
Environmental Protection Agency sought to prohibit its use in
the United States under the Clean Air Act, but lost in
court.
As early as 1996,
the Government of Canada passed legislation banning the
importation of MMT, but not the manufacture of MMT in
Canada.The ban also prohibited interprovincial trade in
MMT. In short, the act permitted the manufacture of MMT
in Canada and its use as a gasoline additive, as long as MMT
was not imported or shipped across provincial or national
borders. This ban severely limited Ethyl’s Canadian
operations.
Ethyl was not the
only entity affected by the statute. The province of
Alberta has refineries using MMT. Joined by Quebec,
Saskatchewan and Nova Scotia, Alberta initiated a dispute
resolution process established under Canada’s Agreement on
Internal Trade (AIT), an instrument governing the relationship
between federal and provincial governments on the regulation
of trade.
The Canadian
panel issued its decision that the MMT Act was
invalid. The panel found that “[i]t is clear . …
that it was the automobile manufacturers who were the driving
force behind the elimination of MMT. They claimed that
the on-board monitoring equipment in new vehicles would be
impaired by the use of MMT-enhanced gasoline. The
evidence as to the impact of MMT on the environment is, at
best, inconclusive.”
Faced with this
result, the Canadian government decided to settle the
dispute under the AIT with Alberta and to settle the NAFTA
case with Ethyl. The NAFTA panel never heard any
evidence with respect to the environmental impact of MMT and
never rendered a decision on the import ban on MMT. The
settlement of the NAFTA case was prompted by the ruling of a
Canadian inter-provincial panel that found that the Canadian
ban was arbitrary and illegal under Canadian law.
It is instructive
to note however that in its press release, the Canadian
government said its legislation was based on representations
from Canadian automobile manufacturers that MMT adversely
affected on-board equipment. The press release stated:
“Current
scientific information fails to demonstrate that MMT impairs
the proper functioning of automotive on-board diagnostic
systems”.
Despite the fact
that the NAFTA panel did not hear evidence on the
environmental aspects of MMT, the Canadian press release also
stated that: “ … there is no new scientific evidence
to modify the conclusions drawn by Health Canada in 1994 that
MMT poses no health risk” (emphasis
added)
Conclusion:
The NAFTA panel never decided the Ethyl case; Canada
settled. Consequently, there is no basis in the Ethyl
case to conclude that NAFTA permits a corporation to overturn
a treaty members’ laws to protect the environment.
METALCLAD
After
receiving assurances from the Mexican federal government that
it obtained all the necessary permits and complied with all
legal requirements, Metalclad constructed a waste disposal
facility in Mexico, which would have the capacity to reduce
toxic waste in the region by 10 percent. Several
independent studies were conducted which demonstrated that the
project would not harm the environment, and the Mexican
Federal Attorney's Office for the Protection of the
Environment concluded that the landfill site was
geographically suitable for a hazardous waste landfill.
Metalclad even entered into a Convenio with the federal
government that provided for and allowed the operation of the
landfill. The Convenio specified measures that Metalclad
would be required to take in order to ensure that the project
would not harm the environment.
Some
four years after construction, a local government prevented
the facility from opening by denying a municipal construction
permit. Metalclad was not given notice of, or an
opportunity to participate in, the town council meeting in
which the decision was taken to deny the permit. Three
days before leaving office, the Governor issued an Ecological
Decree, which declared the site a Natural Area for the
protection of a rare cactus. To this day, the site
remains inoperative and Mexicans dispose of toxic waste by
dumping it in rivers and streams.
A NAFTA
tribunal found the municipality's denial of the construction
permit was politically motivated and outside the local
government’s jurisdiction. The tribunal also found that
the arbitrary denial of the permit constituted an
expropriation of the Metalclad facility. The tribunal
also found that the Ecological Decree was expropriatory
because it barred forever the operation of the landfill.
On this basis, the arbitration panel awarded Metalclad $16
million.
Mexico
appealed the panel's decision in Canadian courts. The
court set aside the finding that the municipality's actions
violated the obligation of fair and equitable treatment, but
upheld the tribunal's finding that the Ecological Decree
expropriated Metalclad's investment. The court left the
door open for further appeal on grounds of transparency, but
Mexico subsequently chose to settle the case with Metalclad.
Conclusion: The tribunal
ruled against the Mexican government, not because it was
protecting the environment, but because the municipality acted
arbitrarily and attempted to shut down the facility for
political reasons. To the extent that the tribunal found that
the Ecological Decree was expropriatory, a U.S. court would
likely have reached the same conclusion under the taking
clause of the 5th Amendment of the U.S.
Constitution.
S.D.
MYERS
S.D.
Myers Inc., a privately - held family company, was a leading
provider of PCB (polychlorinated biphenyl) waste remediation
in the United States, operating a U.S. Environmental
Protection Agency-approved facility in Ohio. In 1989,
Myers established a subsidiary in Canada to assist Canadian
waste holders prepare their waste for export to Ohio. In
1986, the United States and Canada had entered into a
Transboundary Agreement, which recognized that the
cross-border movement of hazardous wastes could result in the
more efficient handling and disposal of such
materials.
PCBs
are chemical agents used primarily in electrical
transformers. When it was discovered that PCBs
could cause negative health effects, the Canadian government
in 1988, banned their use and required their removal in
accordance with environmental guidelines.
Myers
offered Canadian customers rates, which were 25-50% of the
cost quoted by its largest Canadian competitor, Chem-Security
at Swan Hills in northern Alberta.
Canadian industry lobbied Canada's
then federal environment minister, Sheila Copps, to block
Myers’ Canadian operation. In 1995, she issued an order
prohibiting the export of PCB waste to the United States even
though such exports were permitted under a transboundary
Agreement and the U.S. border was open to receive the
waste. On several occasions, Minister Copps stated that
the ban was put in place to help ensure that the destruction
of PCBs materials was “done in Canada by
Canadians.” The ban destroyed the Myers Canadian
operation and caused significant harm to Myers’ U.S.
business. The business that Myers conducted in Canada
was shifted to its Canadian competitor.
The
NAFTA tribunal found that the Canadian ban on export of PCBs
was discriminatory and that it violated the minimum standard
of treatment required by NAFTA. The tribunal has yet to
rule on the level of damages.
Conclusion: The S.D. Myers
tribunal did not find that bona fide environmental measures
were inconsistent with the provisions of NAFTA Chapter
11. Instead, the tribunal found that the Canadian
measures were protectionist in intent and did not serve
legitimate environmental objectives in a fair and even-handed
manner.
METHANEX
A Canadian
investor (Methanex) produces and distributes methanol to
producers of methyhl-butyl ether (MTBE) a gasoline
additive. California banned the use of MTBE on the
grounds that it is harmful to California’s water supply.
Methanex claims that the measure is based on flawed science,
and that less restrictive alternatives are available other
than banning its use.
Methanex alleges
that the measure is expropriatory, discriminatory, and
violates the minimum standard of treatment required by
NAFTA. The case is still pending before a NAFTA
arbitration panel. Until a ruling is issued, no
conclusions can be reached about the interaction between
Chapter 11 and environmental laws and regulations.
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