Antoni's Wire Service

Date: Sun, 1 Nov 1998 23:29:27 -0400 (AST)
From: Antoni Wysocki
To: Undisclosed recipients
Subject: Canada in the dock - again

Howdy folks,

Once more the Government of Canada is being sued for exercising its prerogative to legislate according to what it deems to be the interest of its citizens. S.D.Myers Inc. has announced a $10-million claim against Ottawa under NAFTA's chapter 11. This is in consequence of Ottawa's 15-month ban on the export of PCBs.

In 1997, under the little-known Chapter 11 provisions of NAFTA, the Canadian federal government was named in a suit by Ethyl Corp. of Richmond, Virginia. Chapter 11 allows investors from a given NAFTA signatory to pursue extraordinary legal action against administrations in other NAFTA nations (thus, e.g., an American firm can sue Canadian or Mexican authorities but not an American government).

Parliament passed a law prohibiting the transport within Canada of MMT, a substance banned in a number of jurisdictions (notably California) as a health hazard, and because it is thought to harm equipment which monitors fuel emissions. Ethyl weighed in with its Chapter 11 action claiming that the new law was "tantamount to expropriation". In everyday parlance this means that Ethyl stood to lose money thereby.

Since, post-NAFTA, legislators are required to show incontrovertibly that a product poses a grave risk or to leave it unregulated, Ottawa eventually caved in. Parliament rescinded its anti-MMT ordinance, an apology was proffered to Ethyl for the inconvenience and the government paid the corporation millions of dollars in damages. A day or two later S.D.Myers announced the beginning of the process which has culminated in the aforementioned lawsuit.

While, ceteris paribus , all natural and corporate persons (i.e. all people and all corporations) are at liberty to sue a foreign government in the courts of the nation of said government, Chapter 11 grants foreign investors the right to bypass the normal channels altogether. NAFTA established panels to rule on Chapter 11 disputes. These boards are comprised of three persons drawn from trade backgrounds (hence presumably biased in favor of trade); they meet in secret and their rulings are unappealable.

Although they operate extra-juridically NAFTA panels are empowered to award significant pecuniary damages. Indeed, to date Chapter 11 proceedings have involved monetary amounts considerably in excess of sums seen in similar cases tried domestically.

The rationale for the Chapter 11 remedy is that governments have often used their powers in arbitrary and autocratic ways and that a counterweight against this is needed. Since such authoritarianism is becoming harrowingly common in Canada (witness the '97 APEC summit and the current inquiry into events there) this seems reasonable enough. To be sure, it appears that the treatment of Ethyl Corp. actually adds weight to the argument : a friend of mine who examined the Ethyl imbroglio while interning with the Sierra Legal Defence Fund concluded that Ottawa took on the company not out of concern for the health of citizens but to mollify the auto industry (which dislikes MMT for financial reasons).

However, while it is clear that the apparatus of state in Canada is becomingly increasingly oppressive, and that our current institutions provide an insufficient bulwark for the populace, Chapter 11 is no panacea. Indeed, it actually worsens the situation.

First of all, Chapter 11 benefits only those who don't need any help : transnational corporations (TNCs) alone possess the means to take advantage of the clause. These commercial conglomerates seldom feel the heavy hand of the law as it is - and since the interests of TNCs so seldom coincide with those of the public chances are any restrictions on corporate activity are actually of benefit to the general populace.

In the Ethyl case, for instance, while Ottawa's motives for clamping down on MMT were dubious the effects of the law were ecologically positive. So, to cast this as a trope : we can think of Chapter 11 as analogous to the Hitler-Stalin non-aggression pact...which leaves ordinary Canadians in a position as vulnerable as that of the Polish citizenry of 1939.

Second, those who have to shoulder the costs under Chapter 11 are not those responsible for the actions which precipitate proceedings. As a rule, once elected officeholders are largely unaccountable to the electorate. Yet it is Canadian taxpayers generally and not, e.g., the governor-in-council that have to ante up the millions to Ethyl.

In addition to the above, the ill effects of which are more or less concrete, Chapter 11 is repugnant because it establishes a perverse system of values. It enshrines the principle that commerce - particularly international commerce - is of first importance. Meanwhile the relevance to policymaking of other considerations - such as human rights and environmental protection - must be painstakingly argued on a case by case basis.

When the MMT dispute was settled in Ethyl's favor international trade lawyers predicted that Chapter 11 would become an increasingly popular recourse of TNCs. Should S.D.Myers win as well it is anticipated that, thereafter, Canadian governments will refuse to draw up legislation which could conceivably impinge on the business of US or Mexican firms. Indeed, some commentators have suggested that the true objective of Chapter 11 was to give neoliberal regimes a readymade excuse for a laissez-faire approach while thwarting progressive administrations that would act on behalf of the people.

Yet, for all that Chapter 11 is horrendous, it strikes me that there is merit in the idea of a new check on the creeping tyranny of the state. I find attractive the prospect of a fast track appeal of government action, with real enforcement powers. Here - instead of asking whether legislation impinged on trade - the onus would be placed on government to demonstrate it was doing the utmost to defend citizens against the depredations of TNCs. However, I see no reason to divorce this from the current Canadian judicial system - it would merely be a matter of priorities with such appeals jumping to the head of the queue over, say, copyright disputes. Further, the proceedings should be transparent, not secret.

Lest I be misunderstood, let me hasten to add that I realize that there exist tremendous barriers to the implementation of such a mechanism. It would meet with bitter resistance not only from the Canadian Establishment but would also violate the norms of the World Trade Organization. I propose the notion not because it admits of ready implemention but because I regard it as a move in a good direction along an easily identifiable path.