Wednesday, April 25, 2001
The Halifax Chronicle Herald
Chapter 11 guarantees free, and fair, trade
by Brian Lee Crowley
IT WAS a scene straight from the heart of Nova Scotia.
A week ago Sunday, I was in a cafe down on the South Shore when in came a pair of older ladies. These obvious “regulars” were sitting down for a chat and a friendly game of Scrabble.
Scenes like this are repeated daily in a hundred communities across the province. What made this one noteworthy was the topic of conversation. It wasn’t the arduous winter, nor their health, nor their game. It was Chapter 11 of the NAFTA agreement
Chapter 11 deals with investment. This provision has given rise to the most misunderstanding and the greatest fears in the minds of the anti-globalization protesters who put on such a good show in Quebec City. It is this chapter that opponents of a Free Trade Agreement of the Americas (FTAA) like to paint as a kind of “charter of rights for corporations.” Supposedly, Canadian governments will be unable to protect the environment or health care because corporations will sue them for millions if public policy opposes their nefarious schemes. And if this is what’s being earnestly discussed over coffee and buns in the Nova Scotia heartland, then this issue has struck a responsive chord with the general public in a way that few public policy questions do.
Yet there is little in the principles or the practice of Chapter 11 that most people would find offensive. It essentially guarantees that if your country is party to NAFTA and you invest in another NAFTA country, governments in the other country may not steal your money.
Think about it this way. A friend of mine invested a lot of money in a factory in a Caribbean nation. One day, some of the people in power there decided that they’d like to have that factory for themselves, so they sent in troops to occupy it. The local courts have refused to intervene, because there is no independent judiciary or rule of law.
Both Canada and this Caribbean nation suffered from this lawless behaviour. Canada lost the wealth which that capital could have generated. Lacking the international management expertise that came with the original investment, the factory is now virtually idle. And other investors shun a country where the government can arbitrarily seize their investments.
If Canada and this country had signed a trade agreement with a Chapter 11, the Canadian investor would have had an independent tribunal to turn to, and his investment would have been safer. More money would be invested internationally, both by foreigners in Canada, and by Canadians abroad.
Chapter 11 is unambiguous in stating that governments are free to pursue legitimate public purposes, such as protecting the environment. They can ban activities if the government determines that those activities damage Canada in some way. But they have to be prepared to explain how their policy protects the national interest; and if they take someone’s company or business, Ottawa has to compensate the owners for doing so.
The idea that such provisions hamstring our governments so that they can no longer protect Canadians arises from trade disputes where Canada has been successfully sued by a foreign company for its policy. Yet almost invariably what happened was that Canada was engaging in trade protectionism and trying to dress it up as something else.
A favourite example of the anti-globalization forces is the MMT case. MMT is a gasoline additive manufactured in the U.S.A. Ottawa suspected that MMT might damage the environment. If they had had a scientific case to back up this claim, they could have used the Environmental Protection Act to ban the substance outright, applying a non-discriminatory ban to domestic and foreign sources. But the government didn’t have such a case. So it banned the importing of MMT. The government couldn’t justify its environmental claims and was forced to retreat, primarily because of a successful challenge brought by the provinces of Alberta and Quebec, and only secondarily by a trade dispute with MMT’s U.S. manufacturer.
Under free trade, governments can still protect their citizens. But they have to treat Canadian and non-Canadian businesses in a non-discriminatory way. They can’t act arbitrarily; if they want to restrict trade to achieve some public good, they have to show that there is a rational case for their policy. And if they change the rules after someone has invested money in good faith in this country, in accordance with the laws then in force, then that investor has to be compensated.
If you think that governments in Canada should be free to seize your property on a whim and pay you no compensation, then you are right to oppose Chapter 11-type provisions in Canadian trade agreements. But most people think that treating everybody fairly under the rule of law is about as Canadian as it gets.