Reference:

June 4 in the Telegraph Journal, New Brunswick, Canada

Janice Harvey


Ethyl Corporation v. Government of Canada


by Janice Harvey

Over the past month or so, I have written two columns outlining the proposed provisions of the Multilateral Agreement on Investment (MAI) now being negotiated at the OECD and enthusiastically supported by Canada. In response I received a complaint that the terms of the MAI are too abstract and far removed from daily life to fully appreciate its on-the-ground implications. Let me try to make it more concrete.

On April 14, a lawsuit was filed against the Canadian Government. The suit was in response to a law passed in Parliament in early April banning the import and interprovincial transport of the gasoline additive MMT, considered by Environment Canada to be a public health hazard. The U.S. EPA has already banned MMT for use in formulated gasoline, accounting for 1/3 of the gasoline market in that country. California has a total ban on MMT.

Ethyl Corporation based in the U.S. is the only producer of MMT. Ethyl Corp. claims that the Canadian ban on MMT import and transport violates various provisions of the North American Free Trade Agreement. The corporation claims its MMT production plant has essentially been "expropriated" and its "good reputation" harmed by Canada and is seeking restitution of US$251 million to cover losses. Following is an analysis of the lawsuit prepared for a public policy think tank in Washington, DC.

Until NAFTA, trade agreements allowed only national governments to bring suits against other national governments. They did not allow for monetary penalties or compensation. Under NAFTA's investment rules, corporations are granted the ability to sue governments directly and to seek monetary damages for both actual and future losses, as well as the cost of repairing their tarnished images. NAFTA requires member countries to compensate investors when their property is expropriated or when governments take measures "tantamount to expropriation".

Ethyl Corp.'s suit against Canada is the third and largest under NAFTA's "investor-to-state" dispute resolution mechanism. If successful it could set a precedent where, under NAFTA and similar agreements, a government would have to compensate investors when it wishes to regulate them or their products for public health or environmental reasons. Such a precedent would have the effect of giving a corporation's right to make profits the same weight as the public's right to be protected from industrial contaminants. A decision in Ethyl Corp.'s favour could discourage governments from passing regulations to protect the public good and open the door to a flood of corporate claims for compensation for costs of complying with government regulations. Damage claims can be very high and liability could be compounded by multiple investors consolidating their suits. Ethyl Corp. submitted an intent to sue six months before the MMT ban was made law. While this did not deter Canadian lawmakers, future threat of such suits could subvert legislative debate and decision-making. Ethyl Corp. claims that even the debate in Parliament before the law was passed constituted an expropriation of its assets because the public criticism of MMT damaged the company's reputation. In essence, Ethyl Corp. has filed a SLAPP-suit (strategic lawsuit against public participation) against a democratically-elected government. While we ordinary citizens may find this alarming, U.S. trade officials argue that "the ability of investors to use legal threats to influence legislative debates is a healthy innovation that will prevent governments from passing laws that violate international trade agreements."

An international panel, not a domestic court, will hear Ethyl Corp.'s case against Canada. Proceedings will be conducted in secret, the records are not publicly accessible, and the decision is legally binding. If Canada loses, there is no recourse for appeal to domestic courts. The panel will consist of three appointees: one chosen by Ethyl Corp., one by Canada, and the third chosen jointly by the two parties. Lawyers for Ethyl Corp. predict the case will be settled by the end of the year.

If there was ever proof of the threat of NAFTA to national sovereignty, Ethyl Corp.'s legal challenge to Canadian law is it. During the free trade debates, critics claimed governments' ability to legislate on matters of public health and safety and environmental protection would be seriously restricted. Advocates of the deals pooh-poohed the concern, calling opponents scare-mongerers and protectionist wimps, afraid of boldly embracing competition in the global economy.

Now the chickens have come home to roost. Are there any free trade mandarins or politicians in Ottawa who can honestly (and I stress honestly) say they aren't concerned about Ethyl Corp.'s action? At a very crass level, a quarter of a billion US isn't chicken feed, especially in the face of hospital closures and welfare cuts. Of even greater concern is the potential for such corporate challenges to democracy to escalate. There is no limit to the number of suits that can be filed, unlike in state-to-state disputes where governments could decide because of overriding public interest not to pursue a trade dispute through legal means. Ethyl Corp.'s lawyers recently argued that "the potential for lawsuits under this [investor-to-state dispute resolution] process is far-reaching since it could be used by more than 350 million individuals and corporations throughout the NAFTA countries." Not stuff for the faint of heart or those with modest means.

What has Ethyl Corporation v. Government of Canada to do with the MAI? Just this. The MAI will extend and expand the investor protection provisions of NAFTA to the 29 member countries of the OECD, and then to any other countries that want to sign on. This year it's Ethyl Corp.; next year it could be a company from Japan or Germany. If, like me, your stomach churns and your heart palpitates when you read and consider the implications for democracy, you're starting to realize in a physically palpable way what the MAI is all about. We may not have understood the implications of NAFTA before it was ratified. We cannot say the same thing about the MAI.

This is not about wild-eyed left-wing or anarchist conspiracy theories. This is about our elected government elevating corporate interests domestically and globally above the public interest. If you have any doubt about this, read what Harold Culbert wrote as Liberal MP for Charlotte in response to a constituent's query about the MAI: "The government is working to see that Canadian firms [he cites Corel, Northern Telecom and Seagram] have the same opportunities abroad that foreign companies enjoy here. Under NAFTA, Canada has already agreed on extensive investment rights and obligations with the United States and Mexico.... The main objective...is to extend these NAFTA rules to all OECD countries and to any country willing and able to join the MAI.... The MAI would include rules governing the conditions for expropriation, prompt and effective compensation, and the unrestricted transfer of funds.... The agreement will limit the power of the government to discourage foreign investment... It will, however, improve the situation of Canadian companies abroad."

We have been slow to admit that the Canadian government has willingly subjugated its power to govern to corporate interest but we can deny it no longer. Here it is, in our collective face. We are suffering the indignity of a legal challenge by a foreign corporation to our sovereign right to protect the public interest. With these trade and investment deals in place, we will never again, as a nation, be able to engage in law-making without looking over our national shoulder to see what transnational corporation is watching and preparing to strike. This is what free traders have done to Canada. This is what the MAI will entrench even deeper. It is a global economic constitution, according to the head of the World Trade Organization; Canadian analysts call it a global charter of rights and freedoms for transnational corporations. Both images are frightening.

NAFTA could be changed or overturned if the citizens of our three nations repudiate en masse the corporate control of our governments. While this may seem a remote possibility, for Canada to opt out of the MAI once signed will be even more unlikely. Dozens of tentacles will have a stranglehold on our economy, rather than just one. Negotiations on the MAI, which were to have been completed last month, are now predicted to last another year. Will this new government, like our venerable national rodent when threatened, castrate itself before corporate presssure to sign on the bottom line? It will do so to its eternal shame.


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