From firstname.lastname@example.org Thu May 17 07:23:24 2001
Date: Wed, 16 May 2001 23:25:15 -0500 (CDT)
Drusha L. Mayhue <email@example.com>
Subject: [toeslist] Article on Chapter 11 && NAFTA
----- Forwarded by Stephen Mills/Sierraclub on 05/15/2001 01:12 PM
When NAFTA was adopted in 1993, Chapter 11 in the trade and investment agreement was too obscure to stir controversy. Eight years later, it's the smoking gun in the intensifying argument over whether globalization trumps national sovereignty. Chapter 11 established a new system of private arbitration for foreign investors to bring injury claims against governments. As the business claims and money awards accumulate, the warnings from astute critics are confirmed--NAFTA has enabled multinational corporations to usurp the sovereign powers of government, not to mention the rights of citizens and communities.
The issue has exquisite resonance with the present moment. On April 20
thirty-four heads of state gather in Quebec City to lead cheers for a
Free Trade Area for the Americas. The FTAA negotiations are designed
to expand NAFTA's rules to cover the entire Western
Hemisphere. The Quebec meeting should provide good theater but not
much substance. Tony Clarke of the Polaris Institute, in Ottawa, says
the meeting is intended to be
a face lift for the whole global
agenda, by portraying free trade as democracy. Protesting citizens
will be in the streets, challenging 6,000 police and Mounties, with an
opposite message: Democracy is threatened by the corporate vision of
Chapter 11 of NAFTA should become a defining issue for FTAA
negotiations. Many, including Clarke, vice chairman of the Council of
Canadians, believe corporate governance was and is the FTAA's
There is a conquering spirit at the heart of all this,
he says, adding that the corporations' attitude is:
We have to
get into every nook and cranny of the world and make it ours.
Chapter 11 provides a model of how this might be accomplished. The
operative principle is that foreign capital investing in Canada,
Mexico and the United States may demand compensation if the
profit-making potential of their ventures has been injured by
tantamount to expropriation.<.q> Thus,
foreign-based companies are given more rights than domestic businesses
operating in their home country. For example:
California banned a methanol-based gasoline additive, MTBE, after the EPA reported potential cancer risks and at least 10,000 groundwater sites were found polluted by the substance. Methanex of Vancouver, British Columbia, the world's largest methanol producer, filed a $970 million claim against the United States. If the NAFTA panel rules for the company, many similar complaints are expected, since at least ten other states followed California's lead. The federal government would have to pay the awards. California State Senator Sheila Kuehl and others have asked the US Trade Representative to explain how this squares with a state's sovereign right to protect health and the environment.
In Mexico, a US waste-disposal company, Metalclad, was awarded $16.7 million in damages after the state of San Luis Potosí blocked its waste site in the village of Guadalcazar. Local residents complained that the Mexican government was not enforcing environmental standards and that the project threatened their water supply. Metalclad's victory established that NAFTA's dispute mechanism reaches to subnational governments, including municipalities.
In Canada, the government banned another gasoline additive, MMT, as a suspected health hazard and one that damages catalytic converters, according to auto makers. The Ethyl Corporation of Virginia, producer of MMT, filed a $250 million claim but settled for $13 million after Canada agreed to withdraw its ban and apologize.
The Loewen Group Inc., a Canadian operator of far-flung funeral homes, lodged a $750 million complaint against the United States, claiming that a Biloxi, Mississippi, jury made an excessive award of $500 million when it found Loewen liable for contract fraud against a small local competitor.
Sunbelt Water Inc. of California has filed the largest and most audacious claim--seeking $10.5 billion from Canada for revoking its license to export water by supertanker from British Columbia to water-scarce areas of the United States.
Canada's Mondev International is claiming $50 million from the United States because the City of Boston canceled a sales contract for an office building with a shopping mall. Boston invoked sovereign immunity against such lawsuits and was upheld by a local judge and the Massachusetts Supreme Court. The US Supreme Court declined to hear the appeal. So the company turned to NAFTA for relief.
When just the threat of a Chapter 11 action may suffice to wrest a
financial settlement from a government, investors have unprecedented
leverage against states, Lydia Lazar, a Chicago attorney who has
worked in global commerce, wrote in Global Financial Markets
magazine. Mexico, Canada and the United States effectively waived the
doctrine of sovereign immunity, she explained, when they signed NAFTA.
As many as fifteen cases have been launched to date, but no one can be
sure of the number, since there's no requirement to inform the
public. The contesting parties choose the judges who will arbitrate,
choose which issues and legal principles are to apply and also decide
whether the public has any access to the proceedings. The design
follows the format for private arbitration cases between contesting
business interests. With the same arrogance that designed the WTO and
other international trade forums, it is assumed that these disputes
are none of the public's business--even though public laws are
under attack and taxpayers' money will pay the fines. The core
legal issue is described as damage to an investor's
property--property in the form of anticipated profits. The NAFTA
logic thus establishes the
regulatory takings doctrine the
right has promoted unsuccessfully for two decades--a retrograde
version of property rights designed to cripple or even dismantle the
administrative state's regulatory powers.
NAFTA is really an
end run around the Constitution, says Lazar.
The fundamental difference in Chapter 11, unlike other trade
agreements, is that the global corporations are free to litigate on
their own without having to ask national governments to act on their
behalf in global forums. Clearly, some of the business complaints so
far are more exotic than anyone probably anticipated. These initial
cases will set precedents, however, that major global firms can apply
later. If nobody stops this process, the national identity of
multinationals will become even weaker and less relevant, Lazar points
out, since they have status to challenge government as
class of 'legal equals.'
In Canada a private lawsuit was filed recently challenging the constitutionality of Chapter 11, since Canada's Constitution states that the government cannot delegate justice to other bodies. The Canadian government, itself embarrassed by the cases against it, expressed doubt that Chapter 11 should be included in the hemispheric agreement, though it appears to be backing away from outright opposition. In US localities, the cases are beginning to stir questions, but lawmakers and jurists are only beginning to learn the implications.
Does George W. Bush understand what he is proposing for the Americas? Did Bill Clinton and Bush the elder understand the fundamental shift in legal foundations buried in NAFTA's fine print? They knew this is what business and finance wanted. As the public learns more, the smoking gun should become a focal point in this year's trade debate, confronting politicians with embarrassing questions about global governance. Who voted to shoot down national sovereignty? Who crowned the corporate investors the new monarchs of public values?