> What follows is a 1600 word briefing paper on the $251 million lawsuit > filed by the Ethyl Corporation against the Canadian government. Ethyl used > its right to sue national governments established in NAFTA (and included in > the proposed Multilateral Agreement on Investment (MAI)) to sue Canada for > imposing an ban on the toxic gasoline additive MMT. This case will be a > test of whether investor rights in agreements like NAFTA and MAI can be > used to overturn environmental regulations or other safeguards. > > Preamble Collaborative/Preamble Center For Public Policy Briefing Paper > 1737 21st Street, N.W., Washington, D.C., 20009 202/265-3263 phone > 202/265-3647 fax > > > Ethyl Corporation v. Government of Canada: > Chemical Firm Uses Trade Pact to Contest Environmental Law > > Ethyl Corporation's $251 million lawsuit against a new Canadian > environmental law is sure to set off alarm bells throughout the public > interest world. The suit, brought under the terms of the North American > Free Trade Agreement, demonstrates how present and future international > economic pacts could pose a danger to environmental regulations and other > safeguards. > In early April, the Canadian Parliament acted to ban the import and > interprovincial transport of an Ethyl product -the gasoline additive MMT- > which Canada considers to be a dangerous toxin. Ethyl (the company that > invented leaded gasoline) responded on April 14 by filing a lawsuit against > the Canadian government under NAFTA. Ethyl claims that the Canadian ban on > MMT violates various provisions of NAFTA and seeks restitution of $251 > million to cover losses resulting from the "expropriation" of both its MMT > production plant and its "good reputation." MMT is a manganese-based > compound that is added to gasoline to enhance octane and reduce engine > "knocking." Canadian legislators are concerned that the manganese in MMT > emissions poses a significant public health risk. In addition, automobile > manufacturers have long argued that MMT damages emissions diagnostics and > control equipment in cars, thus increasing fuel emissions in general. Ethyl > is the product's only manufacturer.1 > The Environmental Defense Fund (EDF), which tracks the use of MMT, > reports that the additive is used only in Canada. The United States EPA has > banned its use in the formulated gasoline, which includes approximately 1/3 > of the U.S. gasoline market. An EDF survey of the remaining producers > reports that none use the additive.2 California has imposed a total ban on > MMT. > Canadian legislators wanted to ban the use of MMT in order to protect the > Canadian public. Because they could not do so under Canadian Environmental > Protection Act (CEPA) provisions, they chose the best available > alternative: banning MMT's import and transport.3 NAFTA requires member > countries to compensate investors when their property is "expropriated" or > when governments take measures "tantamount to expropriation." Ethyl claims > that the MMT ban constitutes such an expropriation. The company argues > that the ban will reduce the value of Ethyl's MMT manufacturing plant, hurt > its future sales and harm its corporate reputation. The case will be an > important test of how expropriation is to be defined in NAFTA and future > agreements. > A key provision of NAFTA makes the lawsuit possible. Under NAFTA's > investment chapter, for the first time in a multilateral trade or > investment agreement, corporations are granted "private legal standing" - > or the ability to sue governments directly and to seek monetary damages. > This "investor-to-state" dispute resolution mechanism diverges from dispute > resolution systems in previous international economic agreements in two > ways: First, previous agreements allow only national governments to bring > suits. Second, these agreements do not allow for monetary compensation. The > most a government can do if it is successful in a suit is impose tarriffs > on the violating nation. > This lawsuit is the third, and largest, under NAFTA's investor-to-state > dispute mechanism. According to an official at the International Centre for > the Settlement of Investment Disputes (ICSID), the institution that > arbitrates most of the world's investment complaints, the $251 million > Ethyl seeks is higher than any amount requested in an ICSID > investor-to-state proceeding.4 > The Ethyl suit raises a host of issues that should be of concern to > policymakers- particularly since the U.S. is negotiating the expansion of > NAFTA as well as a new multilateral investment agreement (MAI) that would > apply NAFTA-like standards worldwide. > > The Ethyl case 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. If Ethyl wins its case, a precedent will be set whereby the legal > right of corporations to be compensated when public health regulations > affect a company's bottom line is given the same weight as the public's > right not to be harmed by industrial toxins. This could send the message to > investors that seeking compensation from the public for the cost of > complying with environmental regulations constitutes a legitimate business > strategy. Thus, in pacts like NAFTA, groups opposed to strong environmental > regulation may find an effective mechanism for advancing the radical > "takings" agenda for which they have not been able to build public or > legislative support. > > Effective limitations on the frequency and impact of lawsuits are removed > when investors are granted the right to sue national governments on their > own behalf. When governments are the only entities that have legal standing > to bring a case against a regulation or other law under an international > agreement, political and diplomatic pressures reduce the likelihood that > frivolous lawsuits will be initiated. The investor-to-state dispute > resolution clause in NAFTA (and in the proposed MAI) removes this > limitation, allowing corporations and individual investors to sue directly > and to seek monetary compensation. The Ethyl suit is an example of this new > dispute resolution mechanism in operation. > > If claims like Ethyl's are successful and proliferate, the costs to > governments could be burdensome. Under investor-to-state dispute > resolution, corporations can request compensation for actual and future > earnings losses as well as for the cost of repairing their "tarnished > images." Damage claims can therefore be very high, as in the Ethyl case. In > addition, multiple investors can consolidate their suits, thereby > multiplying a government's potential liability. If such cases were to > become commonplace, governments would have to give due consideration to the > potential fiscal costs before passing needed regulations. > > The threat of suits like Ethyl's could be used to pressure lawmakers who > are considering new regulations. Ethyl submitted an intent to file suit six > months before the MMT ban was passed in the Canadian legislature. Ethyl > hoped that the threat of a lawsuit would deter policymakers from passing > the bill. While Ethyl failed in this instance, the ability of investors to > use their private legal standing to credibly threaten major suits could > lead to successful efforts in the future to intervene in the democratic > decision-making process and alter the outcome of legislative debate. Ethyl > also claims that the legislative debate itself constituted an expropriation > of its assets because public criticism of MMT damaged the company's > reputation. Thus, Ethyl is using NAFTA to file what is, in effect, a > SLAPP-suit against the Canadian Parliament. Far from worrying about the > implications of such actions, U.S. trade officials have argued 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 agreements.5 > > In cases like Ethyl's, international panels, not domestic courts, will > have ultimate legal authority. No Canadian court will rule on whether the > MMT ban violated NAFTA. Under NAFTA, Ethyl can pursue its case before an > international tribunal - where the proceedings are conducted in secret, the > records are not publicly accessible and the decision is legally binding. > The panel will be comprised of one person chosen by Ethyl, one by the > Canadian government, and the third jointly by the first two appointees. If > it loses, the Canadian government will have no recourse to appeal in > domestic courts. Claims that go to international arbitration are often > expedited; lawyers for Ethyl predict that the case will be settled by the > end of the year. > > The Ethyl case suggests that critics of NAFTA and GATT may have been > correct in arguing that these agreements could pose a threat to national > sovereignty. The likelihood that NAFTA, and other agreements like it, could > restrict the ability of democratically elected governments to legislate on > such matters as public health and safety and environmental protection was > downplayed by many advocates of the agreement. Yet the Ethyl case suggests > that critics' concerns were not misplaced. Indeed, as Ethyl's attorneys > recently argued: "[T]he 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."6 Under the proposed MAI, which will cover investors from 29 of > the world's industrial countries, the numbers would of course be higher. > > Notes > 1 While automobile manufacturers may be legitimately concerned with clean > air standards, their primary opposition to MMT is that they must bear the > costs of repairing the cars' damaged pollution control systems. > 2 Ivanovich, David. "Collision Course -Slow Start for Gas Additive- MMT's > Effect on Air, Cars Debated," Houston Chronicle, April 16, 1996; EDF, > personal communication, 4/22/97. > 3 Because adequate data on the health risks of long-term exposure to > lower-level manganese emissions was not available, Health Canada could not > consider MMT a health risk under CEPA provisions. In addition, the fuel > standards established in CEPA are not sufficiently broad to cover a ban on > substances that may damage pollution control systems in cars, even if such > damage leads to increased emissions. The Canadian Minister of the > Environment reports that certain key provisions of CEPA are being > rewritten, and may allow a future ban on the use of MMT (personal > communication 4/19/97). > 4 ICSID staff, personal communication 4/22/97. > 5 U.S. Department of Treasury Staff, Briefing on the MAI and the Financial > Services Agreement to the Senate Committee on Banking, Housing and Urban > Affairs, 4/21/97. > 6 Appleton & Associates, "First-Ever Lawsuit Against Canadian Government > Using NAFTA Investor-State Process Brought," press release dated October 9, > 1996. > > Prepared by: Michelle Sforza, Preamble & Mark Vallianatos, Friends of the > Earth For more information: Michelle Sforza @ Preamble (202) > 265-3263/email: [EMAIL PROTECTED] Mark Vallianatos @ Friends of the Earth > (202) 783-7400, ext. 231/email: [EMAIL PROTECTED] > ***** NOTES from Chantell Taylor (CTAYLOR @ CITIZEN) at 5/02/97 3:52 PM > > > Chantell Taylor > Field Organizer > Public Citizen's Global Trade Watch > 215 Pennsylvania Avenue SE > Washington, D.C. 20003 > phone: (202)546-4996 > fax: (202)547-7392 > [EMAIL PROTECTED] > > *To receive reports, updates and articles on the Multilateral Agreement on > Investments (MAI), subscribe to the MAI listserv. Write to: > [EMAIL PROTECTED] reading ONLY: > subscribe MAI-NOT your name organization state > ie: subscribe MAI-NOT Chantell Taylor Public Citizen DC > >
