GOVERNMENT & POLICY
INVESTORS VERSUS ENVIRONMENT
protections. The commission is exploring how to allow NAFTA governments to issue legitimate environmental regulations— as opposed to rules that are disguised barriers to trade or otherwise discriminate against foreign investors—while maintaining protections against expropriation. On March 24, CEC's Joint Public Advisory Committee (JPAC) held a conference on the issue in Mexico City The committee heard from trade and environment experts from the three NAFTA nations. JPAC Chairman Gustavo Alanis-Ortega said representatives of the NAFTAgovernments, who had agreed to give presentations on the issue at the Mexico City gathering, informed the committee four days before the meeting began that they could not attend. Most of the speakers at the meeting represented environmental groups. Few industry officials attended. Sushan Demirjian, manager ofinternational trade for the American Chemistry Council, says the industry group is aware of the NAFTA investor protection disputes over environmental policies but does not have a formal position on the issue.
NAFTA commission wrestles with part of pact that threatens environmental policies CHERYL H0GUE, C&EN WASHINGTON
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Trade Agreement relaxed trade restrictions to increase the flow of goods among Canada, Mexico, and the U.S. NAFTA was also designed to increase commercial investment among the three nations. To this end, the trade pact included a provision to prevent agovernment from taking over factories built or operated by private investors. Such a takeover is known as expropriation. But this investment protection section ofNAFTAhas triggered consequences that were unforeseen and unintended by its drafters. Companies, including several chemical manufacturers, have employed— or have threatened to use—that investment provision of NAFTA to challenge environmental regulations in all three countries. For instance, Ethyl Corp. of Richmond, Va., used this provision of NAFTA to challenge Canada's 1996 ban on the import and interprovincial trade in the gasoline additive methylcyclopentadienyl manganese tricarbonyl (MMT). Canada adopt-
AT THE BEHEST of JPAC, Aaron Cosbey, senior project adviser on trade and investment at the International Institute for Sustainable Development, Rossland, British Columbia, prepared a detailed analysis of ed the ban because the chemical allegedly the effects of the investor protection proharmed vehicle emission control systems. visions on environmental regulations. "If our worst fears are confirmed, it is Ethyl claimed that the ban amounted to expropriation of its investment in MMT open season on regulations," Cosbey told capacity Canada settled the NAFTA chal- the committee. Taxpayers will end up paylenge by paying Ethyl $ 13 million, and then ing foreign investors so their governments lifted the ban so it would not have to shell can enact legitimate environmental reguout more money Canadian producers of lations, he warned. But other presenters toldJPAC that the MMT did not have recourse to this provision, which applies only to foreign investors investor protections, found in Chapter 11 of NAFTA, help shine light on environfrom other NAFTA nations. Currently pending is a challenge by mental regulations that are unfair to forMethanex, a Canadian producer of eign firms. For instance, Adam B. Greene, methanol, over California's planned phase- director of corporate responsibility for the out ofthe gasoline additive methyl tert-butyl U.S. Council for International Business, said ether (MTBE) to protect the state's drink- the Canadian ban on MMT imports was ing water from MTBE pollution. Methanol flawed and discriminated against foreign is a precursor to MTBE, and Methanex says producers. If the government had simply the phaseout will hurt its investment. It is banned use ofthe gasoline additive, the regulation would have applied to domestic and seeking $1 billion from the U.S. The trilateral Commission on Environ- foreign producers of MMT equally But mental Cooperation (CEC), established by prohibiting only the import and interthe NAFTA side agreement on environ- provincial trade in the chemical meant that ment, is wrestling with these unintended domestic producers could continue to proconsequences of the trade pact's investment duce the substance and sell it locally and
The investment protection section of NAFTA has triggered consequences that were unforeseen and unintended. HTTP://WWW.CEN-ONLINE.ORG
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Using NAFTA Threats Against New Regulation ompanies are using the investment protection provisions found in Chapter 11 of the North American Free Trade Agreement as a way to increase their sway over environmental regulation, according to Aaron Cosbey of the International Institute for Sustainable Development. This part of NAFTA is "an aggressive weapon to forestall regulations that firms do not like," Cosbey says. Canadian news media reported in 2002 that U.S. producers of 2,4-dichlorophenoxyacetic acid, or 2,4-D, threatened to file a Chapter 11 challenge if Quebec adopted a ban on the pesticide for nonagricultural
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M M T could still be used in Canada, he said. Much of the discussion at the meeting focused on the process by which disputes over investor protection get settled. Cosbey said NAFTA Chapter 11 proceedings use a system designed to settle disputes between two private companies. It is closed to the public. The panelists arbitrating the cases are experts in trade and investment. Appeals of their decisions cannot be based on the facts of a case—the only argument that can be made is that the arbitration panel grossly overreached its scope of authority he explained. This sort of process is unsuited for settling disagreements over environmental regulations that affect the general public and not just the private sector, Cosbey said. Plus, the three trade attorneys who make up the Chapter 11 arbitration panels do not necessarily take into account the public policy concerns of governments when they weigh the merits of a complaint, he said. Carroll Muffett, director of the international program at Defenders ofWildlife, said that tribunals on investment disputes should be opened to attendance by the public. Plus, "affected parties" who are neither companies nor governments, such as environmental activists who support pollution-control regulations that are under challenge, should have a right to participate in these cases, Muffett said. NAFTA Chapter 11 tribunals presume there are only two parties in any dispute: an investor and a national government, ^et other parties, such as residents of California where some aquifers are tainted with MTBE, have a concrete interest in the outcome of investment dispute cases, he tells C&EN. 32
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uses. Regardless, the province adopted the regulation on March 5, 2003, but the 2,4-D ban is not scheduled to take effect until 2005. But a U.S. industry challenge to that ban may not materialize. Don Page, executive director of the Industry Task Force II on 2,4-D Research Data, says the law departments of the group's member companies are considering a Chapter 11 challenge. But, Page says, "I think NAFTA would be a last resort" for these firms. The companies—BASF, Dow AgroSciences, Nufarm Ltd., and PBI-Gordon Corp.—are waiting for Canada's Pesticide Management Regulatory Agency to
Environmental regulations are a result of open domestic policy debates, Michelle Swenarchuk, director of international programs at the Canadian Environmental Law Association, pointed out. The fact that there was a debate—and diverging views over what a final regulation should include—is sometimes used to weaken arguments favoring environmental rules. JPAC also heard suggestions about resolving the unintended effects of Chapter 11 on environmental regulations. The solution is not as simple as amending NAFTA. Each of the three NAFTA countries dislikes parts of that trade accord. If the pact were reopened for negotiation on one section, governments would try to rework other parts, too, Cosbey said. This would create an international precedent for renegotiating trade agreements, a scenario that trade officials strongly oppose, he said. ONE POSSIBILITY for redress of NAFTA Chapter 11 is through the proposed Free Trade of the Americas Agreement (FTAA), several commenters said. This pact, which is under negotiation, would liberalize trade among all countries of the Western Hemisphere except Cuba. William Amos, director of Environmental Law McGill, a law student group at McGill University, Montreal, suggested that investment provisions in the proposed FTAA could make changes to NAFTA Chapter 11 by superceding it. Cosbey said parties to the hemispheric trade pact could be bound by the terms of FTAA "in preference" to other regional agreements, in} cluding NAFTA. But JPAC member Mindahi Crescen-
reevaluate several phenoxy herbicides, including 2,4-D. This will be finished before the ban takes effect, Page says. The results of the evaluation may lead Quebec to eliminate 2,4-D from the provincial ban, which includes a number of other pesticides. If this does not happen, the companies could challenge the Quebec action in provincial or federal court, he says. This is preferable to a NAFTA Chapter 11 action because a court case could overturn the 2,4-D ban—which is what the companies want—whereas an investment challenge would only provide compensation, Page says.
cio Bastida-Munoz, president of the Mexican Council for Sustainable Development, said FTAA negotiators don't plan to discuss labor and environmental protections as part of the new trade pact. Bringing up how investor protections in international trade agreements affect domestic environmental regulations may be difficult in the FTAA talks, Bastida-Munoz said. Andrea Abel, a member of the U.S. National Advisory Committee, which advises the Environmental Protection Agency administrator on NAFTA-related environment issues, said it is essential to engage trade officials in the debate over Chapter 11. As long as the issue remains in the bailiwick of only environmental officials, it will remain marginalized, she said. In response, JPAC on April 8 asked the NAFTA countries' top environmental officials to commission a series of reports analyzing the impact of Chapter 11. JPAC wants these reports to explore whether this investor protection provision of NAFTA is stymieing national regulations, especially those designed to protect health and the environment. In addition, the reports should lay out the history of Chapter 11 disputes, which could contribute to existing and future trade agreements, including FTAA. JPAC also wants these reports to examine the impacts of concentrating investments in specific geographic areas, such as the US.-Mexico border. Furthermore, JPAC asked the environment chiefs to work on altering the Chapter 11 dispute settlement process to permit the public to attend hearings and to allow environmental groups and others to file friend-of-the-court briefs in these cases. • HTTP://WWW.CEN-ONLINE.ORG
