June 6, 2001
Multinational corporations are misusing a safeguard provision in the North American Free Trade Agreement (NAFTA) as a weapon to undermine legitimate regulation -- particularly environmental laws -- and to bully the governments of Canada, the US, and Mexico. Howard Mann, an Ottawa, Canada-based attorney specializing in trade issues, levels the charge in an evaluation of Chapter 11 of the trade pact, which deals with investor rights.
As of March 2001, 10 out of a total of 17 NAFTA Chapter 11 cases have been brought against environmental and natural resource management measures.
"While challenges to government actions are inevitably part of providing legal protection for foreign investors, the implementation of Chapter 11 to date reflects a disturbing lack of balance between the protection of private interests and the need to promote and protect the public welfare. The nature of the challenges brought so far has even surprised many of the agreement's authors," write David Runnals, president of Canada's International Institute for Sustainable Development (IISD) and Kathryn Fuller, president of WWF-US, two nongovernmental organizations that published "Private Rights, Public Problems".
The IISD-WWF guide focuses on rights provided to foreign investors in Chapter 11 that have become controversial. These involve most-favored-nation treatment, minimum international standards, and prohibitions on performance requirements and expropriations. The analysis raises the prospect that Chapter 11 may spawn copycat arbitration in bilateral investment regimes now in force and serve as a flawed template for future agreements.
The first real concerns over the use of Chapter 11 arose in the Ethyl v. Canada case. In July 1998, Canada conceded to Chapter 11 when it withdrew a regulation banning the octane enhancer MMT, paid Ethyl Corp. US $13 million, and signed a letter saying there was no proof that the substance was harmful. The list of cases has expanded rapidly, including the high-profile challenge of a US environmental measure by Methanex, which manufactures a component of the gasoline additive MTBE.
Funded by the Ford Foundation, the guide reviews the substantive problems with the NAFTA provisions and with procedural difficulties, primarily caused by the closed nature of the dispute settlements. The guide also contains an annotated digest of all the known Chapter 11 cases. It is available on the Web at http://www.iisd.org/pdf/trade_citizensguide.pdf.
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