BY EVA CHENG
The pro-business reality of the 1994 North American Free Trade Agreement hit home forcefully in August when the Mexican government was ordered by a NAFTA tribunal to pay nearly US$16.7 million to US waste disposal Metalclad Corporation. Mexico had banned the company from operating a toxic waste disposal dump, in an attempt to prevent fatal contamination of the water source of the Mexican state of San Luis Potosi.
The Mexican government, however, has refused to pay. Making use of the narrow opening of a third-party appeal mechanism, it contested the panel's decision in the British Columbia Supreme Court in Canada, which heard the case between February 19 and March 2.
Many environmental and social movement activists in North America have thrown their weight behind Mexico's appeal, with protest actions held outside the BC Supreme Court on February 19 to greet the opening of the hearing. Inside, the Vancouver Independent Media Centre demanded, and won, the right to broadcast to the world the proceedings of the Metalclad v Mexico case.
Activists who are planning to protest at the Summit of the Americas on April 20-22 in Quebec City, Canada, have also put the Metalclad and related cases high on their list of concerns. They understand that the summit aims to extend what are now key provisions of NAFTA to 31 more countries in the region through the launch of a Free Trade Area of the Americas.
Though the FTAA is aimed to take off only in 2005, hectic negotiations are under way on key provisions, such as the one governing investors' rights — Chapter 11 — which delivered the original Metalclad victory.
Divine right
All eyes are now on the decision on Mexico's appeal, which is expected within weeks. Not only can the judgement turn the original case around, it also has the potential to undermine the notorious Chapter 11, which gives foreign investors sweeping power to sue the government of the host country if their "rights" to make profits are undermined for any reason.
In Metalclad v Mexico, as in a number of other similar cases launched under Chapter 11, the reason for these investors' "divine rights" being interfered with happened to be the health, safety and environment of large numbers of people.
But Chapter 11 was so formulated that it has become a handy weapon for profit-hungry investors to exert their "rights" in utter contempt of the broader and more vital social interest. An all-powerful but unaccountable three-member tribunal is empowered to judge the cases and it has dutifully delivered one judgement after another in favour of business interests.
In August 1993, Metalclad turned a blind eye to intense local opposition, took over a Mexican firm and built a toxic waste dump in San Luis Potosi. It pressed on with the construction but the facility's scheduled opening in March 1995 was blocked by demonstrators, forcing the plant to stay closed for months.
Subsequent investigations of the environmental impact found the site sat atop an ecologically sensitive underground alluvial stream, leading the local authorities to ban the facility's opening, despite the project being supported by Mexico's federal government.
A people's fight is possible now against the tribunal's decision on the Metalclad case because Mexico has found a rare opening to appeal by a side route. The tribunal's decisions are generally not repealable.
NAFTA's panels have nearly always found for the company. In another Chaper 11 case, in July 1998 a tribunal found that Canada had infringed NAFTA stipulations when, in April 1997, it banned the import and transport of the gasoline additive MMT out of consideration for public health. The panel forced the Canadian government not only to settle by paying US$13 million to avoid a $250 million claim, but also to proclaim publicly that MMT is now "safe".
The fact that California had imposed a total ban on MMT, the principal ingredient for which is manganese, a known human neurotoxin, did not seem to be of concern to the NAFTA tribunal. Nor did it seem to be interested in the US Environmental Protection Agency's ban on the use of MMT in reformulated gasoline, which accounts for about one-third of the US gasoline market.
Ethyl Corporation, MMT's only producer, launched the action five days after the Canadian ban came into effect, arguing that that law was an "expropriation" of its assets or an action "tantamount to expropriation", since it would wipe out the company's expected profit coming from sales of MMT in Canada.
Canadian firm Methanex Corporation is also suing under Chapter 11, claiming that California's decision to ban the use of gasoline additive MTBE (methyl tertiary butyl ether) by the end of 2002 will cost the company hundreds of millions of dollars. California decided on the ban after it was discovered that there was an unacceptably high and potentially harmful level of MTBE in the state's drinking water supply. The case is still ongoing.
Canadian-based funeral conglomerate Loewen Group has sought to exploit Chapter 11 in a different way. It launched a suit against the US government in 1998 for a judgement handed down in 1995 by a Mississippi jury which accepted local businessperson Jeremiah O'Keefe's claim that Loewen had committed unlawful and predatory anti-competitive practices to drive competitors out of the market. The Mississippi jury ordered Loewen to pay US$500 million, includes $400 million in punitive damages.
Loewen sought to appeal and also demanded exemption from a long-standing state law which rules that losing defendants in civil cases who wish to appeal without beginning to pay damages to the plaintiff must post a bond worth 125% of the damages owed. The Supreme Court rejected Loewen's demand and the company later settled the case for $150 million.
In its Chapter 11 filing, Loewen claims, among other things, that the 125% bond requirement is effectively an "expropriation" of its assets without compensation; that its right to appeal was foreclosed in effect by the bond requirement; that the jury award isn't "proportional" to the amount sought by the plaintiff; and that its current and projected financial difficulties have been caused by this "illegal" denial of justice to the firm.
Of the three members in the NAFTA tribunal for the Loewen case, one was appointed by Loewen, one by the US and the remaining one by the secretariat of the International Centre for the Settlement of Investment Disputes, a unit of the World Bank.
US activists have warned that there could be many more similar cases. US civil rights group Public Citizen has said that the public might never have learned of the existence of, say, the Loewen case if not for a short mandatory filing with the Securities and Exchange Commission. The group added that, if the case had been settled, the public might never have known of its existence.
While secrecy has long protected Chapter 11 and the companies which use it, there is as yet no sign that, now its nature and purpose have been dragged into the open, the US government or the big corporations will abandon it.
If Washington gets its way, the FTAA will contain provisions similar to Chapter 11, as will a mooted World Trade Organisation agreement on investment. The Multilateral Agreement on Investment, which the Organisation for Economic Cooperation and Development sought to promulgate in 1998 before shelving it in the face of widespread opposition, was a modified version of NAFTA Chapter 11.
Those who opposed NAFTA's promulgation had warned of exactly such an outcome: these Chapter 11 cases show the entire agreement to be a scheme to promote business interests at the expense of people and environment. The ability of a sovereign nation to run its own legal system and the ability of its population to influence the social content of legislation are also being seriously challenged.
[For the Vancouver Independent Media Centre's coverage of the Metalclad v Mexico case, visit <http://www.vancouver.indymedia.org>.]