Relation of Trade Agreements to Environmental Regulation

Introduction

_ There is much criticism, particularly among enviromental groups, of the impact of trade agreements on enivironmental regulation. I say trade agreements plural because I wish to use the case of NAFTA as well as the WTO, since NAFTA provides an analogous situation and due to the longer period it has been in operation demonstrates the issues more clearly. NAFTA, and its clause 11 relating to compensation for expropriation, has often been cited as an example of the deleterious effect of trade agreements on environmental legislation and particularly as a demonstration what would or could happen under the MAI (Multilateral Agreement on Investments see glossary) should it become a WTO agreement. In fact many groups have gone further claiming that the investor provisions in NAFTA are another example of how corporations gain at the expense of democracy (and implicitly at the expense of the average citizen). _

NAFTA

_ The focus of discussion regarding NAFTA is on Section 11: Investment. Among things this chapter provides for the an investor (e.g. a company) of one Party (one of the signatory countries - so Canada, Mexico or the US) to start an action for compensation against another Party. Now the major question is WHAT can a investor be compensated for? For the complete answer to this question you have to read the chapter (see docs page) and the ensuing cases that have clarified the wording in the testing grounds of dispute. However the main question I wish to focus on is compensation relating to environmental regulation.
What do I mean by compensated for environmental regulation? Consider the following example: the Canadian government passes a new regulation making some additive to petrol illegal (for some environmental reason - e.g. they think its toxic) and suppose further that the company, which we will call X, that is the main manufacturer of the additive is a US company. So the Canadian governments actions may cost company X some large sum of money in the form of lost revenue. If company X could start a claim against the Canadian government for compensation this would seem to be a disastrous situation for environmental regulation and very inequitable to boot - a case of pay-the- polluter. In fact many people (just search for Ethyl Case and NAFTA in Google) see this as more than just to do with environmental regulation but as undermining democracy in allowing ‘unelected’ investors (corporations or individuals) to challenge laws enacted by the ‘elected’ government (read ‘the people’). Concrete examples of this viewpoint are Public Citizen’s ‘NAFTA Chapter 11 Investor-to-State Cases: Bankrupting Democracy’ and Mary Bottari’s article in the multinational monitor (both available on the docs page. It is worth reading at least Bottari’s article to understand the allegations that have been made). It is undoubtedly true that Chapter 11 does provide a new and unprecedented right of action against national governments to ‘investors’. From a reading of Chapter 11 and the judgements available in the cases that have gone to arbitration, it is my view that the concern about the effect of Chapter 11, particularly regarding the environment, IS NOT JUSTIFIED. Furthermore the concern is in part due to a misrepresentation of the suits and the judgements relating to those suits. In some cases (for example the two articles cited above) this misrepresentation is of so gross a nature that it is difficult to believe that it arises solely from honest error but rather must derive either from intent or from almost total ignorance of the true details of the suits (for example I wrote to Ms Bottari explaining the inaccuracies in her Multinational Monitor article regarding the Ethyl case. She suggested I read the Public Citizen guide. I did so and wrote again reiterating my concerns. I have heard nothing further). It is interesting to see how far this misunderstanding has spread and it is I think a cautionary tale showing that one must be very careful who one trusts on these issues and the importance or reading the original documents oneself if possible.

Created 21/05/2002
Last updated 21/05/2002