New NAFTA Rulings Favor Corporations Over Community Values, Environment

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New NAFTA Rulings Favor Corporations Over Community Values, Environment

A whale making an appearance in the Bay of Fundy.  (Photo: Carl Drinkwater/flickr/cc)

We have entered a new era of corporate rights—where, in their quest to access natural resources around the world, multinational firms now routinely ride roughshod over governments and communities. Two trade tribunal rulings issued last month explain how.

Digby Neck, on the Bay of Fundy in Nova Scotia, is a popular whale-watching area. After hearing community concerns about the environmental impact of a proposal to expand a basalt quarry, a Canadian government review panel denied approval of the project. The Canadian province of Newfoundland and Labrador requires oil companies drilling offshore to invest a portion of their profits into local research and development projects. Last month, separate trade tribunals ruled both of these Canadian policies illegal and awarded damages to multinational corporations to compensate them for the loss of anticipated profits under the North American Free Trade Agreement (NAFTA).  

These corporate rights cases, known as Investor State Dispute Settlements (ISDS), are rapidly on the rise, says Public Citizen. And based on leaked text from the proposed Trans Pacific Partnership (TPP) posted last month – they could become even more common in the years to come.

In the Digby Neck case, the U.S. company Bilcon challenged the findings of a Joint Review Panel (JRP) by Canada’s federal and provincial governments as part of an environmental review of the quarry expansion, first proposed in 2002. The JRP recommended in 2007 that the project not be approved – and pointed out that the project ran counter to “community core values.”

Bilcon disputed the whole concept of “community core values” and objected that the JRP never proposed options to address the issues raised by the community. The company also claimed that Nova Scotia had long made a show of being “open for investment” and that Bilcon had previously had political support for the project – so had a reasonable expectation that its investment would go forward.

It’s worth noting that the case did not involve a new environmental law or regulation—but rather existing rules that had been interpreted differently than how Bilcon preferred. Instead of challenging the law’s implementation in Canadian courts—the company decided to pursue a NAFTA case before a private panel of trade lawyers.

A sharply worded dissent by one member of the three-person panel called the Bilcon case a “remarkable step backwards” for environmental protection, arguing that the decision will inhibit future environmental review processes. Bilcon is seeking $300 million in damages.

In the other NAFTA case from last month, an international tribunal awarded $17.3 million in damages to Exxon Mobil Corp., and Murphy Oil Corp. Going back to the 1980s in Newfoundland and Labrador, oil companies have been required to spend some percentage of their revenues from their offshore oil drilling rights on research and development in the local economy. The oil giants successfully claimed that this type of “performance requirements” is prohibited under NAFTA.

These kinds of cases have been receiving a lot more public scrutiny lately as part of the debate on fast track. In response to concerns raised by Sen. Elizabeth Warren, the White House asserted that ISDS in TPP would be different. Trust us, they seem to say. But when WikiLeaks posted the secret TPP investment chapter last week it confirmed what public interest groups have long been warning.  The investment chapter grants foreign corporations and investors in the dozen TPP countries the same rights established under NAFTA in order to guarantee profits anticipated by investors. The chapter defines investments to cover permits, intellectual property rights, derivatives and other financial instruments, and contracts, according to a Friends of the Earth analysis.

The leaked TPP chapter grants greater rights for foreign companies than those for U.S. companies or citizens, by allowing foreign companies to challenge U.S. laws, regulations and regulatory implementation measures. In fact, the TPP would essentially place transnational corporations on the same jurisdictional level as nation-states, but without the public interest obligations of nation-states. FOE writes, “Foreign investors would be able to bypass domestic courts and bring suit before special international tribunals designed to encourage international investment. The authority of domestic judicial institutions is undermined.”

According to Public Citizen, trade tribunals have awarded $3.6 billion to foreign investors through these type of investor state provisions. The group estimates that there are about 9,000 foreign-owned firms in the U.S. who would be empowered under TPP to launch cases against the U.S. government.

U.S. negotiators are still pushing to expand the scope of ISDS enforcement within TPP to include government procurement contracts, which could cover contract disputes about natural resources on federal lands, infrastructure projects, and the operation of utilities, among other things.

While proponents of TPP often claim that the U.S. has never lost an investor state case, that seems unlikely to continue. Under NAFTA, 20 such cases have been filed against the U.S., according to the Canadian Center for Policy Alternatives. Each of these cases costs money to defend—and, as a threatened case alone, can inhibit regulations that protect environmental, public and worker health and safety.

For example, Obama administration officials have already acknowledged that a threatened NAFTA challenge by TransCanada figures into their decision on whether to block the controversial Keystone XL pipeline.

We shouldn’t have to rely on WikiLeaks to discover the details of trade agreements. The secrecy of these trade deals is legitimated by presidential Executive Order 12356, signed by President Reagan, who designated trade negotiations as “national security information.” This secrecy limits public understanding of, and therefore ability to oppose, the terms of trade agreements negotiated with public funds and ostensibly for the benefit of the public. In the next few weeks, Congress is expected to debate fast track trade authority. Fast track would allow the President to continue to negotiate TPP in secret, and present a final version to Congress for a simple up or down vote—depriving Congress of its right to amend the finalized agreement.

The leaking of the TPP investment chapter and the two NAFTA rulings in favor of multinational corporations this past month together reveal the real agenda of these trade agreements—to overturn or preempt any public law or regulation that impedes private profiteering. Defeating fast track is a crucial first step toward a larger showdown about how and by whom trade-related policy is set, and whose rights will be protected.  

Ben Lilliston

Ben Lilliston oversees programmatic work at the Institute for Agriculture and Trade Policy and is the co-author of the book Genetically Engineered Foods: A Self-Defense Guide for Consumers.

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