Back to NAFTA and after: Introduction

NAFTA and after

Environmental protections confront corporate lawsuits

by Peter Costantini

Seattle—January 1, 1999

Parallel to the North American Free Trade Agreement (NAFTA), a side agreement set up the Commission for Environmental Cooperation to promote the enforcement of environmental laws. But the accord's record on environmental protection has been "thin," according to The Wall Street Journal. "Only one [complaint], it pointed out, "has resulted in an actual investigation."

Transnational corporations, however, have begun to use investment provisions in NAFTA proper to sue governments for losses allegedly caused by environmental regulations.

A provision within NAFTA itself, Article 1114, discourages the competitive weakening of health, safety or environmental measures to attract investment, but is not mandatory. Environmental groups have criticized the CEC as toothless. and accused all three countries of weakening environmental-protection laws in an effort to attract investors.

Along the U.S.-Mexico border, pollution and public health problems have worsened as trade increases. But so far the planning commission and development bank set up to develop and fund cleanup projects have allocated only disbursed only two percent of their available funds. Recent studies have reported weakened border inspections for truck safety and pesticide residues in the face of greatly increased traffic.

In a corporate counteroffensive, a NAFTA investment clause has been used by businesses to directly sue foreign governments for damages allegedly caused by environmental regulations. Article 1110 contains broad language prohibiting government measures "tantamount to nationalization or expropriation" of investments Where previous multilateral trade agreements have required that one government file a complaint with another on behalf of private parties, NAFTA allows corporations to sue foreign governments directly for monetary damages.

Several have done just that, according to Global Trade Watch, a Washington-based public interest group. The Virginia-based Ethyl Corporation brought a $251 million lawsuit against Canada for banning MMT, a fuel additive also banned in the U.S. on suspicion of causing brain damage in children. Ethyl threatened the suit six months before the law was passed, claiming that even publicly debating the product's safety was tantamount to expropriation because it would damage the firm's reputation. Canada settled with Ethyl for $13 million. Against the findings of the national environmental protection agency, the government was forced to lift the ban and publicly announce that MMT was "safe."

Similar interpretations of NAFTA have been invoked in a suit by the California-based Metalclad Corporation against the Mexican state of San Luís Potosí for blocking its operation of a hazardous waste treatment facility found to be contaminating local groundwater. Chemical and agribusiness firms corporations have also cited NAFTA to oppose the U.S. Environmental Protection Administration's ban on products containing residues of Folpet, a carcinogenic fungicide.

A case that pushes these arguments into new territory was initiated in October by the Loewen Group, a Canadian-owned funeral company which operates mainly in the U.S. In the state of Mississippi, the firm lost a civil lawsuit for anti-competitive and predatory practices to a local funeral home, and settled for $150 million. Loewen had recently settled a similar suit in Philadelphia. Under NAFTA's investment provisions, the company asserted, the legal process and damages imposed by the jury constituted illegal seizure of its assets. Hearings will be held in secret before a special World Bank tribunal, and the records will not be publicly accessible.

According to Michelle Sforza of Global Trade Watch, Loewen is alleging that "the everyday workings of the civil justice system in an American state somehow constitute a violation of international law." Such a precedent "could embolden other North American corporations to use NAFTA to challenge laws, policies or jury verdicts they find objectionable."

If any of these claims are upheld, NAFTA's Chapter 11 could come to offer investors some of the advantages of the proposed Multilateral Agreement on Investment, on which negotiations within the Organization for Economic Cooperation and Development recently collapsed. The logic behind the cases also resembles the "property rights" and "takings" doctrines of the extreme libertarian right, which demand compensation for complying with environmental regulations.

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Peter Costantini writes about Latin America, labor and technology issues for MSNBC News, Inter Press Service, and other news outlets.