Canadians Sue Over NAFTA Bias Clause

Canadian activists and labor leaders Wednesday filed a constitutional challenge to a controversial clause in the North American Free Trade Agreement that allows private firms to sue governments over alleged trade discrimination.

In a lawsuit filed in Ontario’s Superior Court of Justice, the Council of Canadians, Canada’s leading citizens group, and the Canadian Union of Postal Workers say the Chapter 11 provision of NAFTA has undermined their government’s sovereign right to protect its citizens’ health, safety and well-being through the courts and the regulatory system.

Under NAFTA, the 1994 trade agreement between the U.S., Canada and Mexico, private companies were, for the first time, given the power to challenge government actions they deemed unfair trade barriers. Unlike court proceedings, these NAFTA investor-state cases are reviewed by an independent tribunal operating in secrecy.

For anti-globalization forces, the NAFTA Chapter 11 provision--which has been used most often to challenge environmental and health measures--is a textbook example of the threat that trade agreements pose to national sovereignty. They have vowed to give the issue high visibility at next month’s Summit of the Americas in Quebec, which will address the proposed expansion of NAFTA to Latin America.

A trigger for Wednesday’s legal challenge was a recent claim by Atlanta-based United Parcel Service that Canada Post, the government postal service, was using its lucrative letter-mail monopoly to unfairly subsidize its courier and express-mail services. UPS is demanding $156 million in damages. The Canadian government denies the claims.

In an odd twist, UPS argues that the same anti-competitive practices take place in the United States. But it cannot pursue similar relief from Washington because the NAFTA Chapter 11 measure applies only to discrimination across national borders.

“There is nothing stopping a Canadian courier company from filing the same suit in the U.S., and I would argue they would have tremendous success if they did so,” said Tad Segal, a UPS spokesman. “But we, as a U.S. company, are the ones being harmed by this anti-competitive practice in Canada.”

This logic doesn’t make Canadian postal workers feel any better. Deborah Bourque, national vice president of the postal workers union, said a victory by UPS could force the Canadian government to relinquish some of its most profitable business and threaten its ability to provide service to those living in isolated rural regions.

“For a trade agreement to allow a multinational corporation to put the public services of a nation-state at risk is quite terrifying,” she said.

Worries about the erosion of national sovereignty have gained sympathy within the Canadian government, which has been a primary target of these cases. In another controversial case, chemical company S.D. Myers Inc. said it was unfairly damaged when the Canadian government placed a ban on the import of PCB in the 1990s and asked for more than $10 million in damages. That case--along with a successful $16.7-million claim against Mexico filed by Metalclad, a Newport Beach-based hazardous waste firm--are under appeal.

Canadian Foreign Ministry spokesman Francois Lasalle said Wednesday he could not comment on the lawsuit because the government has not yet reviewed it.

But Lasalle confirmed the Canadian government shared the concern that recent rulings by NAFTA tribunals “represent in some cases a much broader interpretation of the Chapter 11 rules” than originally intended. He said Canada does not want to “revise” or “reopen” NAFTA but has asked the United States and Mexico to “clarify” the obligations of governments under Chapter 11.

In Wednesday’s lawsuit, the plaintiffs claim the NAFTA investor-state provision undermines the constitutional authority of Canadian courts to adjudicate important public policy issues. They also argue that the measure violates the Canadian Constitution’s guarantee of “equal treatment before the law” by giving private investors a powerful legal tool that is not offered to other citizens.

Steven Shrybman, an attorney for the plaintiffs, said a favorable ruling would make the Chapter 11 provision invalid under Canadian law.

In that case, he said, awards by NAFTA tribunals could not be enforced in Canada, although companies could seek redress in other jurisdictions where the government has assets.

Such a ruling would also call into question Canada’s ability to meet its obligations in other international treaties, Shrybman claims.

“Canada would be obliged in a much more determined way to seek renegotiation of these [trade] agreements,” he said.