BROOKLIN, Canada, Jun 17 (IPS) - "There's a huge amount of interest in
this case," says Howard Mann, a Canadian lawyer who acts for the
International Institute for Sustainable Development (IISD), which won
the right to be the first-ever intervener in a hearing on chapter 11 of
the North American Free Trade Agreement (NAFTA).
"It's a clear example of a challenge to a government's ability to
regulate foreign investment to protect health and the environment," Mann
Experts point out that similar foreign investment rights protections
are found in the new Central America Free Trade Agreement (CAFTA)
between the United States and five developing nations, in thousands, of
bilateral trade agreements (BITs) between countries, and are also
proposed for the 34-nation Free Trade Area of the Americas (FTAA).
Under NAFTA's chapter 11, governments cannot expropriate property of
foreign investors or apply different standards to foreign-owned
companies than to national ones.
The provision also permits firms to initiate a binding dispute
resolution process for monetary damages before a trade tribunal if they
believe a government violated their investor rights.
Canada-based Methanex filed its complaint to a NAFTA tribunal in 1999,
when the State of California banned the gasoline additive methyl
tertiary butyl ether (MTBE), of which Methanex was the largest supplier.
While MTBE is reputed to reduce air pollution, California found the
additive contaminated some of the state's waterways, groundwater and
soils, forcing the closure of many public and private wells. The
long-term health effects of the additive are unknown and the U.S.
Environmental Protection Agency (EPA) considers MTBE a possible
This week is Methanex's last chance to persuade a tribunal of
commercial arbitrators at the International Centre for the Settlement of
Investment Disputes (ICSID) in Washington, DC that California could have
controlled MTBE contamination with stricter regulation of underground
gasoline storage tanks.
The company also argues the state discriminated against a foreign
investor in banning MTBE and replacing it with domestically produced
If Methanex wins -- a decision that will likely be made before the end
of the year -- it would take home 970 million dollars in compensation
from the U.S. government, the largest award in NAFTA's decade-long
North America's free trade deal, which includes Mexico along with the
United States and Canada, has been the prototype for other agreements'
investor rights guarantees, says Steven Shrybman, a lawyer with the
Toronto-based firm Sack Goldblatt Mitchell.
"These agreements give corporate rights supremacy over human and
democratic rights," he said in an interview.
Martin Wagner, an attorney with U.S. environmental law group
"It goes against common sense that a state or national government
trying to protect the public's interest ends up paying companies that
are threatening that harm," Wagner said in an interview.
Later this year, Shrybman will lead a constitutional challenge of
NAFTA's chapter 11 in the Province of Ontario's Superior Court, alleging
that the provision delegates the authority of Canadian courts to
un-elected commercial tribunals, which are almost always held in
The lawyer says many companies have tried but none has won a case
against Washington, even though most investors have triumphed against
Canada or Mexico.
In a similar case, in 1997 Canada banned another fuel additive, known
as MMT, because of health and environmental risks. Although a MMT ban
existed in the United States, the U.S. manufacturer, Ethyl Corporation,
filed a 250-million-dollar lawsuit against Canada under NAFTA.
Ottawa rescinded the ban in 1998, reportedly apologising and paying
Ethyl 13 million dollars.
Foreign investment protections in trade agreements like NAFTA are
extremely powerful corporate tools, says Scott Sinclair, trade expert at
the Canadian Centre for Policy Alternatives. "There have been much fewer
environmental protections enacted in Canada since NAFTA," he adds.
Just the threat of being brought before a trade tribunal, which are
usually staffed with high-profile commercial lawyers, legal academics
and retired judges, is enough to make elected officials reconsider what
may be very sensible public policies, Sinclair told IPS.
For instance, to curb skyrocketing premiums for auto insurance,
Canada's province of New Brunswick promised in 2003 to create a
public-owned insurance scheme. U.S. and international insurance
companies have already threatened to take the province before tribunals
of NAFTA and the World Trade Organisation (WTO) if it proceeds, says
"They ought not to win such a case," he predicts, "but trade tribunals
are very capricious."
According to Mann, nations, especially developing countries, sign trade
agreements with investor guarantees because the World Bank and other
international development agencies insist that millions of investment
dollars will come their way.
But that is not what really happens, according to many recent studies,
including one by the World Bank itself, he adds.
"Trade agreements don't in themselves generate much investment and when
they do, it's rarely good for the environment nor helps the poor in a
country," Mann argues.
While aid and lending agencies do pressure developing countries into
signing BITs, it is not always clear why they do so, says M Sornarajah,
an expert in international trade law at the National University of
There are between 2,000 and 2,500 BITs in force globally but they have
received little public attention, unlike FTAA and NAFTA. "The public
does not understand the significance of BITs, even in the more advanced
societies such as Canada," Sornarajah wrote in an email interview.
But enthusiasm for such agreements may be waning, as the growing number
of arbitration cases is making governments more anxious about BITs, he
Should Washington lose the Methanex case, the result might prompt the
biggest player in the global trade game to rewrite the rules on foreign
But almost everyone believes the United States will win.
Methanex might have a good case, but it is unlikely the private
adjudicators on the NAFTA tribunal will upset the current system,
"There is an increasing tendency in the U.S. to see its national
security concerns tied to its corporate interests," he observes.
In other words, if a U.S. corporation is having difficulties with a
local government, then that is increasingly being perceived as a
national security issue. Just as a foreign company challenging a U.S.
government will be viewed through the same "security" lens.
While the absolute protection afforded by these trade agreements
provides a high level of security for U.S. corporate interests
(primarily), it undermines democratic societies, Shrybman says.Inter Press Service: