Comments on the Preliminary Draft Text of the FTAA Agreement
August 21, 2001
Ms. Gloria Blue
Trade Policy Staff
Office of the U.S.
1724 F Street, N.W.
Dear Ms. Blue:
This is in response
to the Federal Register notice of July 12, 2001, soliciting comments on the
preliminary draft consolidated texts of the Free Trade Area of the Americas
(FTAA) Agreement and the FTAA Technical Committee on Institutional Issues. On July 29, 1999 and February 7, 2000, the
United States Council for International Business (USCIB) sent to USTR our
recommendations for the negotiations in several specific areas. Those recommendations still stand, but we
have revised or updated our positions in the following areas to reflect
developments since our previous letters.
submissions, USCIB stressed the importance of stepping up scientific and
technical exchanges at all levels to ensure that regulatory regimes are based
on scientific principles. Proactive steps must be undertaken by governments
not only to educate their publics to the realities of new scientific
developments in the rapidly evolving fields of genetics and biotechnology,
but also to anticipate problems in this field.
Thus, the United
States should use the FTAA process to promote the formulation of national
regulations governing food safety and animal and plant health that minimize
the chance of their being used to protect domestic economic interests and restrict
market access. While biotechnology
products have been found to be substantially equivalent to products that have
not been created through recombinant DNA techniques, many countries have
created barriers to trade either through questionable Sanitary and
Phytosanitary (SPS) claims, non-tariff barriers, or technical barriers to
trade (e.g. labeling requirements).
reinforcing and reiterating sound science as the basis for decision-making,
as well as supporting the process of dispute settlement through increased
mechanisms to ensure compliance, FTAA countries will be able to tap more
effectively the numerous benefits that biotechnology can deliver.
While it is
difficult to comment on a draft text that is so bracketed, we request U.S.
negotiators to consider the following general suggestions and views. We hope that these principles will result
in a shorter, simplified chapter on competition policy.
U.S. negotiators should not agree to anything in the FTAA that would require
implementing legislation to amend existing U.S. antitrust laws. We have good laws that certainly meet any
hemispheric standards that might appropriately be established in an FTAA.
draft text resembles an outline of an antitrust code, which is
undesirable. U.S. businesses could
possibly accept an obligation on FTAA governments to have and enforce laws
that seek to prevent private anticompetitive practices, including hard core
cartels that impede market contestability.
Such obligations, however, should not include enforcement obligations
regarding abuse of a dominant position and other unilateral business conduct
theories that do not relate closely to market access -- the primary nexus
between competition law and the overall trade objectives of FTAA. Analysis of unilateral conduct requires
complex rule-of-reason analysis that often places excessive burdens on
enforcement authorities with little experience and resources. Rules on single-firm conduct are
especially rife with potential for strategic use by competitors seeking to
obstruct rivals for private business reasons, rather than legitimate
competitive process concerns.
Moreover, regardless of enforcement experience or resource levels,
enforcement errors in this area can be costly, resulting in less market
access and reduced incentives to invest and innovate.
countries should implement and enforce rules regarding official monopolies
and state enterprises. Those rules
should ensure that state participation in commercial activity does not result
in discrimination against FTAA trading partners or against firms located in
FTAA member countries.
government regulatory behavior should be addressed in the FTAA not under the
heading of competition policy, but under other headings as appropriate, e.g.,
government procurement, subsidies, IP protection, etc.
countries should fully adhere to safeguards applicable in each jurisdiction
to protect confidential business information.
agreement should stress the importance of independent appellate review of
actions taken by competition authorities.
commitments on competition policy should not be subject to formal FTAA
dispute settlement, but rather should be subject to a government-to-government
the development of effective and consistent competition policy, cooperation among FTAA countries should be
encouraged through mechanisms such as technical assistance on competition
policy and law enforcement, and a competition policy peer review mechanism.
property rights (IPR) -- patents, copyrights, trademarks, and trade secrets
-- are essential to economic development and are therefore a critical
component of the FTAA negotiations.
nations of the Western Hemisphere have made substantial progress in the
protection and enforcement of IPR, others have failed to implement their
trade obligations with respect to intellectual property. The FTAA should require full compliance
with existing intellectual property accords.
In particular, FTAA negotiating partners who have not yet fully
implemented the agreement on Trade Related Aspects of Intellectual Property
Rights (TRIPs) should be required to do so before the FTAA enters into force.
With many higher value-added economic
activities increasingly dependent on IPR, the FTAA must help ensure that
intellectual property standards continue to improve in order to encourage,
reward and protect innovation and creativity. Accordingly, the FTAA should contain standards of intellectual
property protection and enforcement that build on and strengthen the rights
defined by TRIPS and the North American Free Trade Agreement. Although the current draft FTAA text
includes language that seeks to improve on the protections stipulated by
those two agreements, the text also includes language -- albeit bracketed –
that seeks to weaken intellectual property protection. U.S. negotiators should make clear that
such language is an unacceptable basis for proceeding in the
considerations in mind, we believe that the FTAA should:
the availability of patent protection for products and processes in all areas
of technology, including biotechnological inventions, and plant and animal
inventions. It should include patent
protection, without exception, for all new, useful and non-obvious
confidential test data for a minimum of five years against use by third
parties in expedited regulatory approval procedures.
use of compulsory licenses to cases of national emergency or to remedy fully
adjudicated findings of misuse of the patent rights that cause harm to
competition in a market. The FTAA
should ensure that the issuance of compulsory licenses does not undermine the
normal exercise of patent rights.
international exhaustion of intellectual property rights. A regime of international exhaustion would
be harmful to international trade and investment by undermining the incentives
provided by IPR to invest in innovation and brand reputation. Businesses have legitimate interests –
relating to quality control, product safety, brand reputation and commercial
strategy – in controlling the distribution of their goods across different
markets. The undesirable effects of
international exhaustion include damage to brand reputation, consumer
confusion, health risks stemming from improperly labeled products and the
diversion of products to the markets capable of providing the highest prices.
countries that have not yet done so to ratify and implement the World
Intellectual Property Organization (WIPO) Copyright Treaty and the WIPO
Performances and Phonograms Treaty, striking a balance among the rights,
interests and obligations of network operators, service providers, content
providers and users in a manner consistent with the U.S. Digital Millennium
implement measures to reduce piracy and counterfeiting within each country
and at its borders.
USCIB strongly supports a
comprehensive chapter on investment in the FTAA. Investment protections will be crucial for ensuring full
regional economic integration and will protect the competitiveness of U.S.
industry. Foreign direct investment
is crucial to the continued economic growth and stability in the Americas.
Legal security, in form of strong international investment protections, is
necessary to ensure continued economic integration and growth. Investors will not undertake large-scale
foreign investments if they do not have the confidence that host governments
will be held accountable to a set of binding international protections. Conversely, host governments will not be
able to attract the foreign investments that are necessary to their economic
growth without ensuring investors that their investments are secure and
protected from arbitrary measures imposed by local governments.
Key elements for the investment chapter:
chapter of the FTAA should contain the basic protections that are currently
codified in bilateral investment treaties (BITs) that countries in the
Hemisphere have signed. The most
important of these protections are as follows:
Government measures affecting foreign investors and investments should
be transparent and administered in a reasonable, objective, and impartial
manner. Transparency can be
encouraged by requiring a public comment period prior to the adoption of
laws, regulations and administrative policies that affect foreign
investors. The private sector should
be permitted to submit comments through written submissions and, when
appropriate, public hearings. The
comment period should commence a reasonable time period prior to
implementation of new rules in order to permit firms to resource adequately
and become familiar with the rules.
To the extent practicable, regulations, laws and policies should be
easily accessible, and should be made available through electronic means. In addition, countries should adopt
procedures to redress inconsistent or ineffective enforcement of rules
between foreign and domestic investors.
Definition of Investment:
The investment chapter of the FTAA should cover all types of
investment, including, but not limited to equity and portfolio
investment, tangible and intangible
property, enterprises and interests in enterprises, contract and concession
rights, intellectual property rights, equity, bonds, and loans.
Relative Standards of Treatment:
National treatment obligates governments to treat foreign investors
and investments the same as it treats its own investments and investors in
like situations. The most favored
nation requirement obligates governments to treat investors from other treaty
signatories the same as it treats investors who are in like situations. The FTAA should guarantee the better of
MFN or national treatment with respect to both the establishment of
investment and post-entry operations;
Free Movement of Capital:
The FTAA should guarantee investors the right to transfer funds related
to an investment, including the right to repatriate profits, interest,
proceeds from liquidation, and infusions of additional capital, in a freely
convertible currency at a market rate of exchange. We recognize, however, that certain countries in the region may
face severe balance of payments difficulties and may not be able to meet this
obligation in all cases. Therefore,
the FTAA should contain safeguards that give countries the necessary leeway
to handle such problems. An exception
should also be made to provide for the enforcement of criminal laws.
Movement of Key Personnel: The FTAA should guarantee the right to free movement of key
personnel. This includes the right to
enter and temporarily stay in the territory
of an FTAA country for the purpose of establishing, developing administering
or providing other essential services
to an investment. In addition,
investors should be given the right to hire top management personnel without
regard to nationality.
The FTAA should prohibit the imposition of performance requirements
that require investors to: (a) export
a given level or percentage of goods and services; (b) achieve a given level
or percentage of domestic content; (c) purchase or accord preference to domestically
produced goods; (d) balance exports and imports; (e) restrict sales of goods
or services within the host Party’s territory; and (f) transfer technology
act as the exclusive supplier of goods or services to a particular region or
world market. The FTAA should also
prohibit type (b), (c), (d), and (e) measures that are required as a
condition for obtaining an advantage or benefit.
The FTAA should prohibit expropriation except for a public purpose, in
accordance with due process of law, and with payment of prompt, adequate and
effective compensation in a G-7 currency or its equivalent in a convertible
currency. This prohibition should
cover both direct and indirect expropriations to ensure that it applies not
only to outright takings of property but also to regulatory takings and
General Treatment Standards:
All BITs contain a provision guaranteeing investors a certain minimum
standard of treatment, which includes fair and equitable treatment, full
protection and security, and treatment in accordance with international
law. These provisions fill gaps that
may be left by the more specific investor protections and to impose on host
governments a general duty of good faith, fair dealing, and due diligence to
protect foreign investors and investments.
The guarantee of fair and equitable treatment ensures that investors
are not treated arbitrarily, and includes, for example, of duty of honesty
and fair dealing and a guarantee of due process of law. The provision regarding full protection
and security requires governments to act with due diligence in protecting the
physical security of foreign investors.
The requirement to provide treatment in accordance with international
law complements the other general treatment standards and incorporates
customary international into the treaty.
All BITs contain a mechanism for investor-state and state-state
dispute settlement. This provision
for investor-state dispute settlement allows foreign investors to initiate
arbitration proceedings against host governments who have violated their
obligations with respect to the protection of the investor’s investment. If the arbitration tribunal renders an
award in favor of the investor, the host government may be required to pay
monetary compensation for the damage done to the investment. Investor-state dispute settlement is
critical for ensuring that governments meet their international obligation. It enhances the discipline on governments
to follow the rules and settle disputes in a non-politicized and timely
manner. It is essential to include
this mechanism in the FTAA in order to ensure that governments meet their
and Electronic Commerce
that commitments on basic telecommunications, value-added services,
computer-related services, and the other service sectors associated with the
infrastructure needed for business-to-business and business-to-consumer
electronic commerce are included in the final FTAA agreement. Moreover, new barriers to electronic
commerce should be avoided.
In response to
specific language in the July 3, 2001 draft FTAA Chapter on Services, USCIB
offers the following comments:
section 7.2 (Market Access): USCIB is concerned that the obligation is overly
vague and seeks clarification on the extent of the obligation and its
section 7.2 (Access and Use): USCIB believes the section should read as
follows: “Each Party shall ensure that
persons of another Party have access to and use of any public
telecommunications transport network or services, including private leased
circuits, offered in its territory or across its borders for the conduct of
their business, on reasonable, transparent, and non-discriminatory terms and
conditions.” This slightly revised
language ensures greater access to networks and transparency.
section 1 (General Exceptions): USCIB believes that self-regulation is the
best means of balancing the free flow of information and effective privacy
protection. Moreover, USCIB supports
the principle of non-discrimination when governments adopt different
approaches to privacy. At a minimum,
if such an exemption is included in an FTAA it should be consistent with GATS
Article XIV (General Exceptions).
GATS qualifies the exception by ensuring that "such measures are
not applied in a manner which would constitute a means of arbitrary or
unjustifiable discrimination where like conditions prevail, or a disguised
restriction on trade in services."
GATS Article XIV consistent language is found in the second variant of
requests that the U.S. government urge its FTAA partners to adopt a
“top-down” negotiating approach (in other words, an approach in which parties
make full market access and national treatment commitments with all
sub-sectors assumed to be covered) across all services sectors, and in
particular for basic telecommunications, value-added services and
computer-related services, with limitations/reservations held to a minimum
and explicitly noted on commitment schedules.
USCIB’s existing general views on trade related aspects of telecommunications
and electronic commerce.
We hope these
comments prove helpful in future negotiations on the preliminary draft texts
of the FTAA Agreement.
Thomas M.T. Niles
USCIB comments regarding telecommunications and electronic commerce in
the FTAA negotiations
to Robert B. Zoellick supporting the FTAA and outlining goals for the
USCIB Comments Regarding Telecommunications
and Electronic Commerce in the FTAA Negotiations
USCIB proposes that
the following core principles be included:
Promote the development of the domestic and global infrastructure that
is necessary to conduct e-commerce while avoiding barriers that would hinder
Promote full implementation of existing commitments and seek increased
liberalisation for all basic
telecommunications and value-added services;
Promote the development of trade in goods and services via e-commerce;
Promote strong protection for intellectual property made available
over digital networks.
the development of the domestic and global infrastructure that is necessary
to conduct e-commerce, USCIB seeks:
full adoption by all FTAA Members of the Information Technology
Agreement (ITA) and redoubled efforts
to conclude the ITA II agreement.
These agreements are important to ensure that all countries have
access to the hardware and software necessary to deploy and access the
full market access and national treatment commitments by FTAA Members
for the sectors that are associated with the infrastructure needed for business-to-business
and business-to-consumer e-commerce; and
an open, competitive market for electronic commerce, including
commitments among FTAA Members not
to impose new barriers to the
development of the e-commerce infrastructure.
(2.) Promote full implementation of existing commitments
and seek increased liberalization for all basic telecommunications and
value-added services, USCIB at a minimum seeks:
broader market access and national treatment commitments;
earlier implementation dates;
reductions or elimination of foreign ownership restrictions;
adherence to the “Reference Paper” commitments for basic
telecommunications services only; and
adherence to the GATS Annex on Telecommunications, and the similar
provisions within the FTAA (Page 7.11, section 7.2) for access to and use of
public telecommunications networks for the provision of value-added services,
including Internet services, and other sectors for which FTAA Members have
(3.) Promote the development of trade in goods and services
via e-commerce, USCIB seeks:
recognition by FTAA Members that the chapters on goods, services, investment
and intellectual property apply to electronic commerce, consistent with
USCIB’s views with the current commitments under the General Agreement on
Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS)
and the WTO Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS). This is essential
given the fact that electronic commerce is not a new form of trade but rather
a new medium for conducting trade in goods and services and delivery of
intellectual property. under
agreement among FTAA Members that in
scheduling services commitments under the FTAA that the existing,
classifications under existing international standards such as the GATS,
should be flexible enough to accommodate technological progress in the
delivery of services. As technology
evolves, the interpretation of the existing classifications of goods and
services based on this technology should also evolve to capture these
advances. With such flexibility, FTAA member countries can ensure that they
benefit from the tremendous productivity increases and cost savings
associated with the information technology revolution;
assurances that electronically delivered products (i.e. goods or
services) receive market access and national treatment benefits that are no
less favorable than those currently available for such products delivered
meaningful market opening commitments by FTAA Members for all services
that can be delivered via e-commerce, whether on a cross-border or
consumption-abroad basis; and
make permanent the practice of not imposing customs duties on
(4.) Promote strong protection of intellectual property made available over
digital networks, USCIB seeks:
and timely implementation and enforcement of the WTO Agreement on Trade
Related Aspects of Intellectual Property Rights (TRIPs) by FTAA Members. With the rapid development of digital
technologies and electronic services, the need for strong protection and
enforcement of intellectual property rights is imperative. The TRIPs Agreement plays a very important
role insofar as it provides minimum standards for such protection and
ratification of the World Intellectual Property Organization (WIPO) Copyright
Treaty and the WIPO Performances and Phonograms Treaty consistent with the
approach in the United States balancing the rights and obligations of network
operators, service providers, and content providers found in the Digital
Millennium Copyright Act (DMCA).
The flexibility referred to here is limited to existing GATS classification
schemes and does not refer to the classification of a product delivered
electronically as either a good or a service.
July 30, 2001
The Honorable Robert B. Zoellick
United States Trade Representative
600 17th Street, NW.
Washington, DC 20508-4801
We strongly support
the efforts of the U.S. Government, and the Office of the U.S. Trade
Representative in particular, to move forward on the negotiations to create a
Free Trade Area of the Americas and with bilateral agreements with Chile and
Singapore. We wish to emphasize to
you the importance to the U.S. economy
and to the economies of our FTAA partners of foreign investment and
the need to include strong investor and investment protections, including
investor-state dispute settlement, in these agreements. We would like to suggest certain changes
to the dispute settlement process that would make the process more
transparent and, we hope, less susceptible to the misunderstandings that have
in FTAA Partners
Our Latin American
partners have experienced a dramatic surge in foreign investment and have
concluded a number of bilateral investment treaties in the past decade. Countries in Latin America increasingly
are looking to foreign investment to finance their growth and are negotiating investment protection
treaties at a rapid pace to help attract and secure that investment. Unfortunately, the United States’
participation in this investment activity has been relatively dormant.
In 1994, one out of
every twelve dollars of gross fixed capital formation in Latin American
countries came from external sources.
By 1998, the figure doubled — with one out of every six dollars coming
from external sources. Looking at the
growth of foreign investment in another way, annual flows of foreign
investment to the region nearly tripled between 1995 and 1999 – rising from $30
billion per year to $90 billion per year.
U.S. involvement in
the region has not kept pace.
According to the Bureau of Economic Analysis, U.S. investment flows to
the region in 2000 were approximately $17.8 billion, virtually the same as in
1994. At the same time, our
competitors in the European Union have stepped up their new investments from
$3 billion in 1995 to just under $25 billion in 1998.
The growth of
investment treaties mirrors the growth in investment. In the 1980s and into the early 1990s,
foreign investment was viewed suspiciously by many governments in Latin
America. But by the mid-1990s,
attitudes and policies started to change.
Governments began to open their markets to foreign investors and
negotiated bilateral treaties as a signal to outside investors that foreign
investment would be protected. By the
end of 1996, Latin American countries had signed approximately 300 bilateral
investment treaties. At year-end
1999, the number of treaties rose to 340.
The United States, however, has signed
investment agreements with only three of the top 10 Latin American recipient
countries of foreign investment. In
contrast, countries in the European Union had signed more than 50 bilateral
investment treaties with Latin American countries as of 1996 and have added
another 75 since then.
of Investment Provisions
An FTAA that opens
borders to trade and provides strong investment protections would
create enormous commercial opportunities for U.S. companies, their workers
and their families. In particular,
trade liberalization combined with investment protections fosters greater
synergies in production and distribution operations. Foreign investment by U.S. companies
complements their activities in the United States, promoting greater
productivity, research and development, investment in physical capital, and
new technology. The payoff is in
better, higher-paying jobs and a higher standard of living in the United
States. Restrictions on foreign
investment, which prevent U.S. companies from expanding abroad, generally
reduce activities in the United States and thus, lower the U.S. standard of
protections not only encourage foreign investment and economic growth but
also foster democratic principles and policies, including the rule of law,
transparency of laws and procedures governing foreign investment, respect for
private property and a market-based free enterprise system.
A strong FTAA
chapter on investment protection and liberalization is also needed to
rebalance the playing field which has shifted in favor of our competitors in
the European Union because the EU and not the United States has been at the
forefront of negotiating bilateral investment protections in the region. We risk losing enormous opportunities for
U.S. companies, their workers and their families in the Mercosur in
particular, and the region as a whole, if we do not negotiate strong
investment provisions in the FTAA.
provisions in the FTAA — Investor-State Dispute Settlement
In particular, we
believe it is essential that the FTAA include all of the fundamental
protections found in our bilateral investment treaties (BITs) and in NAFTA
Chapter 11. The core protections in
these agreements are intended to ensure that governments act fairly and do
not discriminate against U.S. investors.
The United States has sought inclusion of these protections in
bilateral and multilateral agreements since World War II. This is not a trend peculiar to the United
States. There are some 1500 BITs in
force around the world-- most of them have investor protection provisions and
investor-to-state dispute procedures found in U.S. BITs and NAFTA Chapter 11.
Among the key
protections is the so-called “investor-state” dispute settlement mechanism,
which has been an integral part of our investment agreements since the first
U.S. bilateral investment treaties were signed in the early 1980s. This provision provides a procedure for
investors to seek compensation when the government fails to provide fair and
equitable treatment to foreign investors, discriminates against a U.S.
investor, or expropriates property either directly or indirectly without
paying prompt, adequate and effective compensation.
provisions of our investment treaties provide substantially the same
guarantees as provided under U.S. law, including the takings clause of the
fifth amendment of the Constitution.
The primary difference is that the investor-state procedure goes
through arbitration rather than the court system as in the United
States. This provision was created to
provide U.S. investors substantially equivalent protections as they receive
in the United States. This is
particularly important in countries without an independent judiciary or similar
standards of investment protection.
investor-state arbitration procedures is critical to provide effective,
enforcement of investment provisions and to obtain appropriate redress in a
timely manner. Limiting investment
dispute settlement to state-to-state procedures will unnecessarily politicize
disputes, leaving investors, particularly small and medium-sized enterprises,
with little recourse save what their government decides to do after weighing
the diplomatic pros and cons of bringing a particular claim.
to recent criticisms, the investor-state provisions neither undermine nor
interfere with environmental, health, and safety laws that are applied in an
even-handed and non-discriminatory manner.
The obligation undertaken in the NAFTA and in BITs is only that each
country will apply its laws in a fair and non-discriminatory manner and that
any expropriation will be accompanied by compensation. Even if such laws do not meet these
standards, the NAFTA and BITs do not
require a government to change its law.
Rather foreign investors can only seek compensation for the
unfairness, discrimination, or expropriation.
Attached you will find a summary
of recent NAFTA cases that have been subject to some criticism. Contrary to critics of investment
protections, where the cases proceeded to NAFTA panels, no panel has found
against a government’s even-handed application of bona fide environmental
protections. Rather, the only NAFTA
arbitration panel decisions that have upheld claims against governments
purporting to act for environmental reasons found instead that these
governments acted arbitrarily and in a discriminatory manner with respect to
remain concerned, however, that arbitration panels that rule on NAFTA
investment provisions are presently closed to the public, which has amplified
misunderstandings about this process.
We strongly support U.S. government efforts to negotiate provisions in
future free trade agreements that will open these proceedings to the public
to the same extent as our court proceedings.
Furthermore, briefs submitted to panels and final panel reports should
be made available to the public, provided that procedures are in place to
protect sensitive and confidential business information. Greater transparency will demonstrate that
the process is fair and will help quell the concerns that have been generated
by a basic misunderstanding about how the process works.
We hope you will
find this information helpful as you move forward in the debate over trade
US Council for
Association of Manufacturers
National Foreign Trade
for American Trade
of NAFTA Cases
Powell, O’Neill, Evans and Administrator Whitman
SUMMARY OF RECENT NAFTA CASES:
A review of recent
NAFTA investment cases demonstrates that that the investor-state dispute
settlement procedures do not constrain governments from protecting the
A U.S. investor,
Ethyl Corporation, is a manufacturer of a fuel additive, MMT
(methylcyclopentadienyl manganese tricarbonyl). MMT has more than its share of controversy. The U.S. Environmental Protection Agency
sought to prohibit its use in the United States under the Clean Air Act, but
lost in court.
As early as 1996,
the Government of Canada passed legislation banning the importation of MMT,
but not the manufacture of MMT in Canada.The ban also prohibited
interprovincial trade in MMT. In
short, the act permitted the manufacture of MMT in Canada and its use as a
gasoline additive, as long as MMT was not imported or shipped across
provincial or national borders. This
ban severely limited Ethyl’s Canadian operations.
Ethyl was not the only entity
affected by the statute. The province
of Alberta has refineries using MMT.
Joined by Quebec, Saskatchewan and Nova Scotia, Alberta initiated a
dispute resolution process established under Canada’s Agreement on Internal
Trade (AIT), an instrument governing the relationship between federal and
provincial governments on the regulation of trade.
panel issued its decision that the
MMT Act was invalid. The panel found that “[i]t is clear . … that it was the automobile
manufacturers who were the driving force behind the elimination of MMT. They claimed that the on-board monitoring
equipment in new vehicles would be impaired by the use of MMT-enhanced
gasoline. The evidence as to the
impact of MMT on the environment is, at best, inconclusive.”
Faced with this
result, the Canadian government decided to settle the dispute under
the AIT with Alberta and to settle the NAFTA case with Ethyl. The NAFTA panel never heard any evidence
with respect to the environmental impact of MMT and never rendered a decision
on the import ban on MMT. The
settlement of the NAFTA case was prompted by the ruling of a Canadian
inter-provincial panel that found that the Canadian ban was arbitrary and
illegal under Canadian law.
It is instructive
to note however that in its press release, the Canadian government said its
legislation was based on representations from Canadian automobile
manufacturers that MMT adversely affected on-board equipment. The press release stated:
information fails to demonstrate that MMT impairs the proper functioning of
automotive on-board diagnostic systems”.
Despite the fact
that the NAFTA panel did not hear evidence on the environmental aspects of
MMT, the Canadian press release also stated that: “ … there is no new scientific evidence to modify the
conclusions drawn by Health Canada in 1994 that MMT poses no health risk” (emphasis added)
Conclusion: The NAFTA panel never decided the Ethyl
case; Canada settled. Consequently,
there is no basis in the Ethyl case to conclude that NAFTA permits a
corporation to overturn a treaty members’ laws to protect the environment.
After receiving assurances from the Mexican federal
government that it obtained all the necessary permits and complied with all
legal requirements, Metalclad constructed a waste disposal facility in
Mexico, which would have the capacity to reduce toxic waste in the region by
10 percent. Several independent
studies were conducted which demonstrated that the project would not harm the
environment, and the Mexican Federal Attorney's Office for the Protection of
the Environment concluded that the landfill site was geographically suitable
for a hazardous waste landfill.
Metalclad even entered into a Convenio with the federal government
that provided for and allowed the operation of the landfill. The Convenio specified measures that Metalclad
would be required to take in order to ensure that the project would not harm
Some four years after construction, a local government
prevented the facility from opening by denying a municipal construction
permit. Metalclad was not given
notice of, or an opportunity to participate in, the town council meeting in
which the decision was taken to deny the permit. Three days before leaving office, the Governor issued an
Ecological Decree, which declared the site a Natural Area for the protection
of a rare cactus. To this day, the
site remains inoperative and Mexicans dispose of toxic waste by dumping it in
rivers and streams.
A NAFTA tribunal found the municipality's denial of the
construction permit was politically motivated and outside the local
government’s jurisdiction. The
tribunal also found that the arbitrary denial of the permit constituted an expropriation of the
Metalclad facility. The tribunal also
found that the Ecological Decree was expropriatory because it barred forever the
operation of the landfill. On this
basis, the arbitration panel awarded Metalclad $16 million.
Mexico appealed the panel's decision in Canadian
courts. The court set aside the
finding that the municipality's actions violated the obligation of fair and
equitable treatment, but upheld the tribunal's finding that the Ecological
Decree expropriated Metalclad's investment.
The court left the door open for further appeal on grounds of
transparency, but Mexico subsequently chose to settle the case with Metalclad.
tribunal ruled against the Mexican government, not because it was protecting
the environment, but because the municipality acted arbitrarily and attempted
to shut down the facility for political reasons. To the extent that the tribunal
found that the Ecological Decree was expropriatory, a U.S. court would likely
have reached the same conclusion under the taking clause of the 5th Amendment
of the U.S. Constitution.
S.D. Myers Inc., a privately - held family company, was a
leading provider of PCB (polychlorinated biphenyl) waste remediation in the
United States, operating a U.S.
Environmental Protection Agency-approved facility in Ohio. In 1989, Myers established a subsidiary in
Canada to assist Canadian waste holders prepare their waste for export to
Ohio. In 1986, the United States and
Canada had entered into a Transboundary Agreement, which recognized that the
cross-border movement of hazardous wastes could result in the more efficient
handling and disposal of such materials.
PCBs are chemical agents used primarily in electrical
transformers. When it was discovered
that PCBs could cause negative health effects, the Canadian government in
1988, banned their use and required their
removal in accordance with environmental guidelines.
Myers offered Canadian customers rates, which were 25-50%
of the cost quoted by its largest Canadian competitor, Chem-Security at Swan
Hills in northern Alberta.
Canadian industry lobbied Canada's then federal
environment minister, Sheila Copps, to block Myers’ Canadian operation. In 1995, she issued an order prohibiting
the export of PCB waste to the United States even though such exports were
permitted under a transboundary Agreement and the U.S. border was open to
receive the waste. On several
occasions, Minister Copps stated that the ban was put in place to help ensure
that the destruction of PCBs materials was “done in Canada by
Canadians.” The ban destroyed the
Myers Canadian operation and caused significant harm to Myers’ U.S.
business. The business that Myers
conducted in Canada was shifted to its Canadian competitor.
The NAFTA tribunal found that the Canadian ban on export
of PCBs was discriminatory and that it violated the minimum standard of
treatment required by NAFTA. The
tribunal has yet to rule on the level of damages.
S.D. Myers tribunal did not find that bona fide environmental measures were
inconsistent with the provisions of NAFTA Chapter 11. Instead, the tribunal found that the
Canadian measures were protectionist in intent and did not serve legitimate
environmental objectives in a fair and even-handed manner.
A Canadian investor
(Methanex) produces and distributes methanol to producers of methyhl-butyl
ether (MTBE) a gasoline additive.
California banned the use of MTBE on the grounds that it is harmful to
California’s water supply. Methanex
claims that the measure is based on flawed science, and that less restrictive
alternatives are available other than banning its use.
that the measure is expropriatory, discriminatory, and violates the minimum
standard of treatment required by NAFTA.
The case is still pending before a NAFTA arbitration panel. Until a ruling is issued, no conclusions
can be reached about the interaction between Chapter 11 and environmental
laws and regulations.