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Critics Say Agreement Tramples the Rights of Local Citizens

from Times Picayune, July 30
by Stewart Yerton

When the Loewen Group, a funeral home company in Canada, was hit with a $500 million verdict during a 1996 civil suit in Mississippi, it looked like a classic illustration of one of the risks associated with doing business in the Gulf South.

Chalk another one up to trial lawyers and sympathetic jurors, who in this case ruled in favor of a small Biloxi funeral home owner who had sued Loewen.

If the Loewen case seemed like business as usual for the Mississippi tort system, the company's next move was novel: Instead of appealing through U.S. courts, Loewen turned to a private arbitration panel established under the North American Free Trade Agreement, which among other things, protects foreign investors against capricious government actions in host countries.

Critics of such pacts view Loewen's action as one of the more alarming consequences of recent free trade agreements, including the Central American Free Trade Agreement that is being negotiated in New Orleans.

"What business is it of a free trade agreement to be ruling on a jury verdict in southern Mississippi?" said Brian Marks, a spokesman for the No CAFTA Coalition, a group in New Orleans this week to protest the Central American Free Trade Agreement talks at the J.W. Marriott Hotel on Canal Street. "The public in this country was never consulted and has no idea about how much these agreements affect things that have nothing to do with trade, and that rightfully ought to be a matter dealt with in our legal system."

In the shorthand language of street protests, criticism of trade agreements often boils down to concerns that unbridled capitalist forces unleashed upon developing countries will encourage the smaller nations to compete for commerce so fiercely that they trample workers' rights and the environment. But often lost in the din is the more subtle issue involving trade treaties and what critics say is their potential to trample the voice of the people and national sovereignty.

CAFTA would reduce trade barriers between the United States, Honduras, Costa Rica, Nicaragua, El Salvador and Guatemala. Proponents say that would spur U.S. investment and economic development in the region, lower costs for consumers, create jobs and strengthen governmental systems.

Critics have a much different view.

"Free trade agreements, we are told, are about lowering tariffs," Marks said. "But they are primarily investor rights agreements, which are privileging the rights of multinational corporations and foreign investors over the rights of" nations to establish their own policies.

Although tariffs and subsidies represent some of the most obvious barriers to free trade, trade agreements also typically deal with numerous nontariff impediments. For instance, because investors want assurances that they will be able to do business amid a stable legal and regulatory environment, trade agreements typically address those concerns by protecting investors against laws or regulations that amount to nontariff barriers. That includes protections not only against dramatic governmental actions, such as the expropriation of private property, but also actions deemed "tantamount to expropriation," which might include denying a permit that prevented a company from occupying a building it had constructed.

Trade agreements also typically include a "national treatment" clause, which means a foreign investor must be treated the same way as a company based in the host country.

Investors like the provisions for obvious reasons. Critics say they go much too far.

Last month, the NAFTA tribunal agreed with Loewen that the Mississippi "trial and verdict were improper and cannot be squared with minimum standards of fair international law and fair and equitable treatment." But the panel ruled against Loewen on a technicality, saying the company had not exhausted its appeals in U.S. courts before asking NAFTA to step in.

Despite the happy ending for the Mississippi court system, critics such as Marks question what the case was doing before the NAFTA tribunal in the first place.

Another case often cited as a cautionary tale involves the U.S. company Metalclad Corp. and its attempts to develop a landfill in Guadalcazar, Mexico. The company obtained federal and state permits and completed construction in 1995. But after protests by local residents, the municipal government denied a building permit Metalclad had requested 13 months earlier. The municipality also challenged Metalclad's federal approvals in court and won an injunction that prevented the company from operating the dump.

Metalclad took the matter to a NAFTA tribunal, which ruled that Guadalcazar's actions had been tantamount to expropriation and fined Mexico $16.7 million to cover Metalclad's investment costs.

Although clearly a victory over governmental policies that a company would find untenable, critics say the decision trampled the rights of the municipality to do what local people wanted.

Particularly troubling to critics is a NAFTA provision that allows private investors to sue governments directly, a process known as an "investor-to-state" dispute.

U.S. investors that believe they have been wronged should be required to work out grievances through the U.S. Embassy in the host country, Marks said.

He also took issue with the fact that the tribunals are held in secret, presided over by obscure arbiters.

"The whole investor-to-state process is flawed," he said.

Regina Vargo, assistant U.S. trade representative for the Americas and the lead U.S. negotiator in CAFTA, said the trade agreement, like NAFTA, would allow investors to sue governments. However, she said the agreement would also open up the dispute process, making hearings and documents public and allowing interested parties to file briefs in support of one side or the other.

Critics aren't satisfied.

"That's not changing the basis of it," Marks said.

"I think the CAFTA model is a flawed model," said Timi Gerson, who follows trade policy issues for Public Citizen's Global Trade Watch in Washington, D.C. "So you can't just change this and change that and fix it."