Intervenor: Vol 23. No 4 October - December 1998

Sun Belt, Nova and NAFTA

Chapter 11 of the North American Free Trade Agreement allows companies to sue countries if expected returns on investment are reduced by government actions—what the chapter calls "expropriation." It's the door through which US multi-national Ethyl Corp. walked on its way to successfully suing the Canadian government for daring to take measures to protect the environment.

Now (in December 1998) Sun Belt of Santa Barbara has filed a claim against Canada under the same chapter 11 for a BC decision that prevented Sun Belt from exporting billions of litres of fresh water from BC to California. The message is pretty clear: "investor-state" rights such as those enshrined in the NAFTA are a bad idea in trade agreements.

There is no question Europe got the message. It leaps off the pages of two fascinating reports on the collapse of negotiations for the Multilateral Agreement on Investment (MAI) at the OECD. One report is from Jan Huner, a Dutch civil servant who was the secretary to the OECD Chairman of the MAI negotiating group, and the other is from Catherine Lalumiere, European Member of Parliament. It was her report to the French government that led to France's withdrawal from the MAI negotiations, which then collapsed.

In her report, Madame Lalumiere correctly identifies that NGO opposition went to the heart of the agreement and to its "very structure," and concludes that the "absolute obligations" the MAI would have placed on governments was rightly perceived as a serious threat to the sovereignty of national states. She notes that the unprecedented scope of the MAI (the "top-down" approach, which deregulated all sectors except those specifically exempted), the irreversibility of its terms, and the investor rights to sue nations were never clearly put to ministers for political consideration and decision-making.

Madam Lalumiere recommended that if France were to pursue an investment agreement, it should require seven fundamental changes from the MAI approach:

  • exclude protection for portfolio investments and operations of financial markets, so that only stable foreign direct investment would be covered;
  • no investor-state claims;
  • no "general treatment" clause, giving foreign companies "integral and constant" protection;
  • limits on expropriation claims to prevent their use against "all regulation or public legislation that reduces the economic value of economic foreign investment ... [which] is effectively what happened with the NAFTA";
  • continued governmental rights to establish "performance requirements," meaning public benefits from foreign investment;
  • abandon the irreversibility of the agreement; and,
  • open negotiations to developing countries.

In his report, Jan Huner comments that a meeting between the MAI negotiators and international environmental representatives in October 1997 was "decisive, because some of the points raised by environmental groups convinced many [negotiators] that a few draft provisions, particularly those on expropriation and on performance requirements, could be interpreted in unexpected ways. The dispute between the Ethyl Corporation of the US and the Canadian Government illustrated that the MAI negotiators should think twice before copying the expropriation provisions of the NAFTA."

Michelle Swenarchuk attended the October 1997 meeting, specifically to talk about NAFTA and the Ethyl case. She remembers well the genuine shock on the faces and in the voices of the negotiators as they pressed her to assure them that Ethyl could not possibly win. As we know now, Ethyl did win.

The Europeans got the message. And now, finally, perhaps the Canadian Department of Foreign Affairs and International Trade has it too. For DFAIT has invited Michelle to sit on a committee that will take a look at the investment sections of NAFTA, including the infamous Chapter 11.

NAFTA Scorecard

Ethyl Corp. 1, Canada 0. Ethyl sued Canada for banning its gasoline additive MMT because it is a known neuro-toxin. In the back rooms of the NAFTA Tribunal, Canada yields $19.5 million to Ethyl Corp. and a statement saying MMT is neither a health risk nor a health hazard.

SD Myers is taking Canada to arbitration for slapping a ban on the export of PCBs (one of the "dirty dozen" persistent organic pollutants the rest of the world is trying to curtail) to the United States. In progress.

Sun Belt of Santa Barbara. In progress—NAFTA claim for millions of dollars in damages.

Metalclad (a US company) has filed a NAFTA claim against the impoverished Mexican state of San Luis Potosi which refused to approve a waste dump the company wanted because the dump would pollute the local water supply. In progress.

Wildcards in the wings …

The Nova Group withdrew its application to take water from Lake Superior in November 1998, but it may be back in the game, depending on the score in the Sun Belt claim.

The McCurdy Group of Gander, Newfoundland has applied for a permit to export 52 billion litres of water a year from Gisborne Lake in southern Newfoundland.

The Grand Canal project, promoted by Liberal MP Dennis Mills would divert massive amounts of water from Canada to the US.

Also scoring …

Global Water Corp. (a Canadian company) has signed an agreement with Sitka, Alaska to export 18 billion gallons of glacier water a year to China.

David McLaren is the communications coordinator at CELA