The Ottawa Citizen | By Chantal Blouin | September 11, 2001
The Citizen's recent editorials did not fully address one of the most controversial aspects of NAFTA: Chapter 11, the section designed to protect foreign investors from discrimination and uncompensated expropriation. The reality is that with Chapter 11, investors transformed the dispute settlement mechanism into a political tool against government measures. Many companies see Chapter 11 as an excellent way to fight environmental regulations or other government actions that impose costs upon them. In democratic societies, discussions about who will benefit and who will pay for public policies are supposed to take place in the political sphere. The courts are there to ensure the constitutionality of these policies. It is up to each society and its representatives to decide if they want stricter environmental standards. A private firm has the right to try to convince the public of its views. The discussions are supposed to take place within political institutions. Foreign investors have been using Chapter 11 to short-circuit this process. For example, in 1997, Parliament banned the gasoline additive MMT in Canada. The government suspected that components of MMT were hazardous to human health. Several American states had banned the substance and all major car manufacturers selling cars in Canada supported the ban. The only producer of MMT in the world, Ethyl Corporation, is American; Subsidiary Ethyl Canada claimed the new law was "tantamount to expropriation" and that it should be compensated and the ban overturned. We now can find MMT in Canadian gasoline -- while ironically, in much of the United States, it is not allowed. Another example: Methanex is a Canadian company producing methanol, a component of a gas additive called MTBE. Methanex disputed the right of the State of California to ban MTBE and demanded $1 billion US in compensation. This is a perversion of the intended use of investor-state provisions. The misuse of the chapter on investor rights creates a chilly climate for governments. It creates uncertainty about their right to regulate and to provide public goods. For example, Canada withdrew its ban on MMT and settled for $13 million with Ethyl Corporation. The only other new Canadian environmental regulation since NAFTA, a temporary ban on the export of PCB wastes, was also successfully challenged under Chapter 11. What should be done? At the very least, Canada, the U.S. and Mexico need to renegotiate Chapter 11. Investor rights and protection need to be narrowly defined within the current agreement. In future agreements, such as FTAA, the investor-state provision should be abandoned. The normal state-to-state dispute settlement mechanism, with increased transparency, is sufficient. It has the advantage of having a filter, the national government, to decide if the dispute is worth engaging in a formal arbitration process. Governments are more likely to consider the public interest than are private firms. This is not a perfect system, but it would help prevent the abuses we have seen up to now. Chantal Blouin is a researcher with the Ottawa-based North-South Institute, which focuses on international development.The Ottawa Citizen:
