Paying the polluters?

RUTH ABRAMSON September 1 1997

Paying the polluters?

RUTH ABRAMSON September 1 1997

Paying the polluters?


For more than a year now, behind closed doors in a basement room of a bunker-like Paris office building, officials from Canada and 28 other countries have been negotiating a proposed Multilateral Agreement on Investment that has sparked heated debate even before the deal has been signed. MAI proponents in Canada and the United States say it would be a boon to foreign investment and a healthy extension of North American Free Trade Agreement provisions outlawing discrimination against foreign investors. U.S. Trade Representative Jeff Lang says the treaty would “create stability and encourage market liberalization.” But critics argue the focus in both treaties on promoting liberalized trade threatens national sovereignty and other aspects of the public interest—particularly the environment. According to New York City and Toronto-based trade lawyer Barry Appleton, who is also author of the reference book Navigating NAFTA: “Rather than have the polluter-pays principle, you now have ‘Pay the polluter.’ ”

The proposed MAI is a broad set of rules that would clearly prohibit governments from imposing certain restrictions on foreign companies and investors. Experts warn that the rules could give foreign corpora-

tions the right to seek compensation from governments, regardless of whether or not their activities were harmful to local environments. And while NAFTA commits Canada to legal obligations to its two continental neighbors—the United States and Mexico—the MAI would bind Canada to members of the Organization for Economic Co-operation and Development, consisting

A new treaty could bring investors— and controversy

of the world’s 29 leading economies. “I’m certain the governments don’t fully appreciate their obligations under NAFTA,” says Appleton, “and now they are on the verge of taking those obligations further.”

Case in point: an American corporation that Appleton is representing recently launched the first-ever NAFTA-based claim against Ottawa for what it charges are violations of its treaty rights. The action is based on legislation Ottawa enacted in April designed to limit the use of MMT, a controver-

sial gasoline additive suspected of damaging automotive pollution control systems. At first, environmentalists toasted their hardwon victory, but the celebration soured when the manufacturer of MMT, Ethyl Corp., of Richmond, Va., fought back with a NAFTA investment claim directly against Ottawa for at least $347 million. The company, which blends MMT at a plant near Sarnia, Ont., says Ottawa is violating its NAFTA right to immediate compensation for imposing legislation that hinders its operations— in effect, the company says, illegal expropriation. (Before free trade, a U.S. company seeking redress for expropriation would have had to convince Washington to challenge Ottawa on a bilateral level.) And if the MAI proceeds, environmentalists warn, Canadian taxpayers could find themselves at the wrong end of a raft of legal actions ranging from foreign investor disputes over zoning changes to challenges on conservation measures and limits on logging.

Under the MAI, as well, Canada could easily be embroiled in international trade disputes for introducing new measures to protect its environment, says Steven Shrybman, a Vancouver-based environmental lawyer. “The MAI,” says Shrybman, a former senior policy adviser to the Ontario gov-

ernment, “has the potential to create a huge chill over the willingness of governments to even contemplate regulatory measures.” And while Canadians publicly debated the merits of NAFTA before it took effect in 1994, there has been no such airing of the proposed wider treaty’s issues. “The government will bind everybody to the MAI,” says Appleton, “and only then will we all see how it works.”

The MAI was originally to have been signed by industrialized nations last May, but as the complex negotiations lagged, the ratification was delayed until May, 1998. In April, then-Trade Minister Art Eggleton told Maclean’s “it was too early” to publicly debate the MAI. The current minister, Sergio Marchi, who was sworn in last June, was unavailable to comment on the proposed treaty.

The lack of public discussion, combined with the complexity of the 175-page MAI draft, means that most Canadians are still in the dark about its contents. Those who do understand it say they doubt the final version of the MAI will provide anything more than token environmental protections.

Canada’s principal MAI negotiator, Bill Dymond, says those negotiations are still evolving. He admits there will be trade-offs, although he promises the environment will not be among them.

“Are we going to achieve perfection with the treaty?” asks Dymond, then answers, “No.”

Central to the MAI’s investment protection—and the key concern of environmentalists—is the NAFTA-like provision that allows foreign corporations like Ethyl to sue Ottawa directly on the basis of federal, provincial or municipal laws.

Worse, say critics, while the three NAFTA countries can withdraw from that treaty with six months’ notice, the MAI proposes a 20-year lock-in.

NAFTA and MAI provisions could prove particularly destructive when it comes to expropriation, acknowledges lawyer Appleton. Outlining a worst-case scenario, he imagines a contaminant leeching from a gold mine in Canada, owned by a U.S. company. While NAFTA regulations would not prohibit Ottawa from seizing the property, he says, the treaty’s provisions on expropriation would require the government to compensate the company fully and immediately, regardless of whether it had violated Canadian pollution laws. In such a case, under NAFTA—and potentially under the MAI—it is to a company’s advantage to be foreignowned rather than Canadian, says Appleton.

In his example, if the mine had been Canadian-owned, he notes, the company would have had no right to compensation under NAFTA, and Canadian courts have never awarded compensation for similar seizures carried out under Canadian law.

What is more, says Appleton, while Canada could still levy fines on a polluting foreign firm even while seizing its assets, Ottawa could easily be paying more in compensation than it takes in penalties. A U.S. mining

There has been a marked lack of public discussion

company found guilty of polluting could be fined. But under NAFTA, and so far in the MAI, the company is free to claim damages for the full worth of the gold mine if it had to shut down as a result of government action.

The dispute-resolution process for cases like Ethyl’s is also provoking alarm. “There are no obligations on companies under these agreements,” says Appleton, “only obligations on governments.” Under both NAFTA and the draft MAI, an international tribunal of trade experts—whose judgments cannot be appealed—enforces the rule book. Environmental, health and safety considerations may be taken into account, but they have little bearing on the outcome. The arbitration process is closed to the public,

and governments do not have treaty rights to sue corporations on the public’s behalf. Says Shrybman: “The rules of natural justice and due public process that have been a feature of Canadian and American courts for over 100 years are suspended when it comes to this litigation.”

For now, at least, the government appears unperturbed by the fuss over the draft MAI and the Ethyl case, now in its early stages. “The question is, will the Ethyl Corp. claim be upheld by the trade tribunal?” says Canadian negotiator Dymond. Besides, he adds, Canada and most of the OECD nations already support the same legal principles of protecting foreign investment that are proposed for the MAI. “We’re not breaking new ground here,” he says. And while critics say there is a difference between legal theory and signing a treaty that could actually force the government to compensate foreign polluters and affect environmental decisionmaking, supporters argue the MAI is an important step towards greater prosperity. ‘Why should national boundaries prevent people from making business decisions that are to their mutual advantage?” asks University of Toronto international trade law professor Robert Howse. Still, Howse acknowledges that some areas should be protected, and the proposed treaty is intentionally designed to make it harder for governments to impose protectionist regulations on foreign I business. “It is intended,” he says, d “to shape and constrain domestic policies that limit foreign access.” The details of how the environment is ultimately addressed in _ the MAI are still subject to I change. In fact, OECD negotiators are “exploring ways of how the MAI can be implemented to support sustainable development,” says U.S. trade representative Lang. Appleton, despite his criticism, agrees there are good reasons to provide international protections for investments. But he questions the federal government’s ability to protect the public interest while meeting obligations under the proposed MAI. “It’s not that governments can’t act to protect these things,” he says, “but if they do, they have to pay.” For now, Canadians can only imagine where Ottawa’s priorities will lie if it is forced to choose between protecting the environment or compensating a polluting foreign investor.