TRADE AGREEMENTS WILL SLOW REGULATORY RESPONSE TO TOXIC PESTICIDES BECAUSE OF OFFSHORE LAWSUITS

New Zealand lobbyist Charles Finny whose company represents corporations involved in the current TPPA push recently advised Radio New Zealand ‘In terms of ISDS We have had these provisions and agreements for 25-30 years, I haven’t seen a huge number of problems being faced by NZ on this.’

I would suggest this comment is disingenuous – why? Because right now it is boom time for investment arbitration lawyers.

In the last decade there has been a tripling of average claims per year. By February 2015, 3,268 international investment treaties had been signed. UNCTAD’s graph reveals this surge in legal claims at international arbitration tribunals, as corporations realise the benefit of suing governments.

This is troubling, trade agreements are increasingly challenging government regulations and laws that seek to protect citizens from chemicals and pesticides that pose a hazard to health. These laws, that are democratically enacted, are weakened because trade and investment agreements guarantee rights to foreign investors. 70% of cases have been challenges to natural resource and environment policies. 

ISDS cases are expensive, in 2012 OECD advised the average cost ‘USD 8 million with costs exceeding USD 30 million in some cases.’ [1] Translate that to ‘paralysing’ for small countries when facing potential lawsuits as a result of taking restrictive measures foreign corporations may not like.

International investment treaties are agreements made between states that determine the rights of investors in each other’s territories. They are used by powerful companies to sue governments if policy changes – even ones to protect public health.

‘The costs of these legal actions weigh on governments in the form of large legal bills, weakening of social and environmental regulation and increased tax burdens for people, often in countries with critical social and economic needs… Across the world these tribunals have granted big business millions of dollars from taxpayers’ pockets – often in compensation for the alleged impact on company profits of democratically made laws that protect the environment, public health or social well-being.’ [2]

ISDS provisions in trade agreements have a chilling effect on countries making regulatory decisions to protect citizens from toxic chemicals. As Corporate Europe notes, ‘Arbitration lawyers also encourage their clients to use the threat of investment disputes as a way to scare governments into submission.’ According to German law firm Luther: “A settlement, which you should always aim for, is easier to reach under the shadow of a looming investment treaty claim” [3]

Chemtura v Canada (NAFTA Chapter 11) Year of claim 2001.  

Furthermore, the tribunal ordered the investor to pay the costs of the arbitration ($US 688,000) and to pay 50% of the Government of Canada’s costs in defending the claim ($CAD 5.778 million).

Canada still had to pay 50% of the CAD5.778million.

IIAPP comments:

Chemtura lobbied against the bans in Canada and the U.S., challenged Canada’s measures in the Federal Court of Canada, and then sued Canada for USD83 million under NAFTA Chapter 11.

COMMENT: The case has been cited by some proponents of investment arbitration as putting to rest concerns that NAFTA Chapter 11 impedes public health and the environmental regulation. Yet the award itself is troubling on this point. First, the tribunal, like the earlier Glamis Gold v United States tribunal, rejected submissions by Canada that tribunals should defer to good faith regulatory measures of governments.

Second, the tribunal noted repeatedly that lindane was banned in many other countries, making it unclear whether the ban would have been upheld had Canada been a regulatory first-mover in limiting the pesticide on health or environmental grounds.

Third, the tribunal declined to adopt the approach of the earlier Glamis Gold tribunal, which required the claimant to provide affirmative evidence of any alleged expansion of the NAFTA minimum standard of treatment beyond its established content in international custom. Canada, Mexico, and the U.S. have argued that claimants must satisfy this requirement. However, arbitrators in numerous NAFTA cases have rejected this position, thus facilitating investor claims.

Dow AgroSciences v. Government of Canada 

March 2009, Dow AgroSciences LLC alleged Canada had breached its obligations under Section A of Chapter 11 of NAFTA, under Article 1105 (Fair and Equitable Treatment in Accordance with International Law) and Article 1110 (Expropriation).

DowAgroSciences alleging Quebec’s 1991 pesticide bylaw, banning the cosmetic use of pesticides on private property, was in breach of two NAFTA obligations (Page 30 here) contained in Chapter 11. (The Quebec decision set a precedent that was followed by dozens of municipalities throughout Canada). 

The Notice of Intent filed in 2008 sought $2 million from the Government of Canada as well as “further relief including additional damages,”

On May 25, 2011, the parties reached a settlement under which Dow withdrew its claim. In return, the Government of Quebec formally acknowledged that 2,4-D does not pose an “unacceptable risk” to human health. The disputed regulatory measures related to pesticides are maintained and no compensation has been paid to the claimant. 

No costs were paid to either party, yet the ‘agreed principles’ are concerning -as they were reached in an external court without due consultation within the Canadian judicial system.

Further reading on this case: Kathleen Cooper, Kyra Bell-Pasht, Ramani Nadarajah, and Theresa McClenaghan, Seeking a Regulatory Chill in Canada: The Dow Agrosciences NAFTA Chapter 11 Challenge to the Quebec Pesticides Management Code, 7 Golden Gate U. Envtl. L.J. 5 (2014).

REFERENCES

[1] ROUNDTABLE ON FREEDOM OF INVESTMENT 15 - 5 December 2011 – Paris, France
Summary of Roundtable discussions by the OECD Secretariat

[2] Profiting from injustice: How law firms, arbitrators and financiers are fuelling an investment arbitration boom.  Brussels / Amsterdam, November 2012
Published by Corporate Europe Observatory and the Transnational Institute

[3] Chapter 3: Legal vultures: Law firms driving demand for investment arbitration
November 27th 2012  Corporate Europe Observatory and the Transnational Institute