Know your Chapter 11.
A month ago the Canadian Center for Policy Alternatives posted their survey of the NAFTA Chapter 11 cases. In a nutshell, since 1996, an average of four cases per year have been filed against any of the three NAFTA governments. Nearly half of the Chapter 11 cases brought so far are either currently inactive (or pending) or were later withdrawn by the complainant. Six of the 15 cases filed against Canada came in the last three years, but across the three member countries there doesn't seem to be an uptick in NAFTA Chapter 11 suits. Canada has fared the worst of the three NAFTA partners in terms of the tribunals' decisions, but total awards (including legal fees) over the 11 years of active Chapter 11 contests so far amount to $27 million CDN, $20 million of which was awarded in a single suit brought by the Ethyl Corporation challenging the ban on MMT. (A good overview of the case, from an anti-NAFTA, anti-Agreement on Internal Trade perspective, can be found here
I've been a Chapter 11 detractor like any good liberal, but I have to say I was pretty surprised at how small these stakes are. The cost of Chapter 11 suits to the Canadian taxpayer comes out to about 20 cents a year over the past 11 years. The huge sums demanded by the firms bringing suit (the ones I read about in the left-liberal press) are whittled down to amounts that are fairly negligible unless the number of such successful suits continues to grow at a rapid rate. And while a lot of the cases look bad in principle - UPS suing Canada Post for monopolizing letter-carrying business is a good example - in practice the feared attack on sovereignty as foreign firms muck up the work of governments hasn't exactly materialized and doesn't look like it's about to do so. For instance, the failure of the MMT ban rested largely on the fact that, at the time it was being disputed, Health Canada had not found very strong evidence that it was in fact dangerous to the public. The ban was also strongly opposed by the provinces, who, as we know, hold serious sway (too much in my view) over federal policy quite independent of any specific trade agreement. Meanwhile, the most famously egregious Chapter 11 suit - Methanex' suit against the Californian government over its phase-out of MTBE - resulted in an ignominious loss for the company which was forced to pay the US government's legal and arbitration fees.
So am I coming out in favour of generous investor protections as an integral part of free trade deals? No. It's one thing for strong first world governments, representing rich, relatively informed electorates like in the US and Canada to operate under the constraints of investor protections in the interest of freer investment and commerce - and for taxpayers to shoulder the costs. It's quite another when the governments in question are corrupt, unstable and/or represent poorer electorates in developing economies.
NAFTA Chapter 11 provides a good example here with the case of the San Luis Potosi toxic waste dump case, in which a NAFTA tribunal ordered the Mexican government to pay compensation to Metalclad, the company denied the right to establish the waste disposal facility. In principle the deal worked out as one might hope: Metalclad was compensated (only partially they say) for their lost investment, and the residents of San Luis Potosi won their right to keep the waste dump closed if it couldn't be opened in a way that satisfied local concerns. (In fact, the area was classified as a ecologically protected area.) But a $16.7 USD fine is a much bigger deal to the government of fairly new democracy that had recently suffered a financial crisis. And the burdens of being sued by first world corporations will only be worse in poorer, less stable countries. So while the NAFTA's Chapter 11 might not be the boogie monster I'd always assumed, its provisions are not necessarily affordable and could be quite detrimental outside the first world.
I've been a Chapter 11 detractor like any good liberal, but I have to say I was pretty surprised at how small these stakes are. The cost of Chapter 11 suits to the Canadian taxpayer comes out to about 20 cents a year over the past 11 years. The huge sums demanded by the firms bringing suit (the ones I read about in the left-liberal press) are whittled down to amounts that are fairly negligible unless the number of such successful suits continues to grow at a rapid rate. And while a lot of the cases look bad in principle - UPS suing Canada Post for monopolizing letter-carrying business is a good example - in practice the feared attack on sovereignty as foreign firms muck up the work of governments hasn't exactly materialized and doesn't look like it's about to do so. For instance, the failure of the MMT ban rested largely on the fact that, at the time it was being disputed, Health Canada had not found very strong evidence that it was in fact dangerous to the public. The ban was also strongly opposed by the provinces, who, as we know, hold serious sway (too much in my view) over federal policy quite independent of any specific trade agreement. Meanwhile, the most famously egregious Chapter 11 suit - Methanex' suit against the Californian government over its phase-out of MTBE - resulted in an ignominious loss for the company which was forced to pay the US government's legal and arbitration fees.
So am I coming out in favour of generous investor protections as an integral part of free trade deals? No. It's one thing for strong first world governments, representing rich, relatively informed electorates like in the US and Canada to operate under the constraints of investor protections in the interest of freer investment and commerce - and for taxpayers to shoulder the costs. It's quite another when the governments in question are corrupt, unstable and/or represent poorer electorates in developing economies.
NAFTA Chapter 11 provides a good example here with the case of the San Luis Potosi toxic waste dump case, in which a NAFTA tribunal ordered the Mexican government to pay compensation to Metalclad, the company denied the right to establish the waste disposal facility. In principle the deal worked out as one might hope: Metalclad was compensated (only partially they say) for their lost investment, and the residents of San Luis Potosi won their right to keep the waste dump closed if it couldn't be opened in a way that satisfied local concerns. (In fact, the area was classified as a ecologically protected area.) But a $16.7 USD fine is a much bigger deal to the government of fairly new democracy that had recently suffered a financial crisis. And the burdens of being sued by first world corporations will only be worse in poorer, less stable countries. So while the NAFTA's Chapter 11 might not be the boogie monster I'd always assumed, its provisions are not necessarily affordable and could be quite detrimental outside the first world.
0 Comments:
Post a Comment
<< Home