 
Remarks before the Subcommittee on Trade, Trade Disputes, and
Investment (SINT) regarding Chapter 11:
February 16, 2005
-Rusa Jeremic, Program Coordinator, Economic Justice: KAIROS. Also
representing Common Frontiers, and the Americas Policy Group of
the Canadian Council for International Cooperation.
On February 16, 2005 KAIROS, as part of a Common Frontiers coalition,
presented a brief on NAFTA’s Chapter 11 to the Subcommittee
on International Trade, Trade Disputes and Investment (SINT). We
were successful in getting the subcommittee to pass this motion,
directed at the Standing Committee on Foreign Affairs and International
Trade (SCFAIT): "The Subcommittee recommends to the Standing
Committee on Foreign Affairs and International Trade that it undertake
a complete review of NAFTA Chapters 11 and 19." The text of
the submission follows:
As mentioned by my colleague, we are concerned that the government
has not paid adequate attention to the problems inherent to Chapter
11.
In reality the only response to ten years of concerns surrounding
Chapter 11 has been an Interpretative Note that superficially addresses
concerns regarding the tribunal process without actually engaging
in structural changes. The note claims to bring greater transparency
to the arbitration process. Not only does it not address the real
issues at hand, it actually doesn’t amend the treaty, which
means that international arbitration rules would prevail.
I would like to address three main areas of concern regarding Chapter
11:
1) Regulatory Chill, 2) Exporting
of Chapter 11, and 3) Regulatory Policy
1) Regulatory Chill
One of the major and surely unforeseen consequences of Chapter 11
has been a regulatory chill effect.
The expert paper “Untangling the Expropriation and Regulation
Relationship” from 2002, had both authors agreeing that if
Article 1110 can be used to require governments to pay compensation
to investors for adopting bona fide measures, this could have a
chilling impact on the ability of governments to regulate, therefore
compromising a whole range of social, environmental and other protections
and rights.
The recent example of the chill effect at work comes from New
Brunswick.
- Public Auto Insurance in New Brunswick
After months of public consultation, expert testimony and deliberations,
a Legislative Committee submitted their final report recommending
a “made-in New Brunswick model of public automobile insurance.”
Despite popular support and a strong rationale for public automobile
insurance, Premier Lord bowed to threats from the insurance industry
who were threatening trade treaty litigation if the proposal went
ahead. In the end the Premier announced that the government would
not adopt public insurance scheme.
Part of the Committee’s work was a detailed analysis of
how the provincial government could go ahead with public insurance
while ensuring consistency with Canada’s international trade
obligations. Moreover, there was no legal or constitutional impediment
to implementing the scheme. Even the right to establish new Crown
corporations is explicitly preserved in NAFTA.
Despite these assurances the fear of litigation (a litigation
that the federal not government would be responsible for not the
provincial government) resulted in a total rejection of a public
auto insurance program for New Brunswick.
Two more examples of where the government has not yet acted in
response to Canadians needs are healthcare and a national childcare
program.
- Expanding Healthcare
In 2003 the Romanow Commission handed down some clear and explicit
recommendations regarding the need for expanding the public healthcare
system to include homecare and pharmacare. Yet since that time,
the government has only injected cash infusions into the healthcare
system. Clearly this is something that is desperately needed but
the government has made no move to expand the healthcare system.
- National Childcare
In a similar vein, right now Minister Dryden is engaging in talks
on the long awaited and much needed issue of a national childcare
program.
According to legal opinions, if the new program allows for commercial,
for-profit child care, NAFTA’s Chapter 11 may be used to pry
open the Canadian child care market by big box private institutions.
Again, if the government clearly stipulates public, not-for-profit
delivery then there should be no risk of provoking a NAFTA investment
claim.
The best way to ensure social policy flexibility is to minimize
or eliminate private delivery. This means that we can maintain trade
obligations without threatening what Canadians want – a public,
national, and accessible child-care system.
Once it is in private hands it can’t be reversed. Need to
limit foreign investment in the child care sector, which requires
that the board of directors be comprised of parents or members of
communities that are served, expand the sphere of public not-for-profit
commercial providers, limited number of companies providing child
care services.
Right now there are not enough details to know the scope of the
program but the fear is that the potential threat of litigation
will shape the program in a lax manner allowing for foreign-service
providers. There is still time to avert this danger.
2) Exporting Chapter 11
The 2002 Report did not address Canada’s interest in exporting
the problematic and flawed Chapter 11 model.
There is a real disconnect between Canada’s stated foreign
policy goals, our global role as a Human Rights Champion and the
image that Canada is presenting when engaging in trade negotiations.
Currently Canada is negotiating a free trade agreement with four
Central American countries (Nicaragua, El Salvador, Honduras, and
Guatemala). The Canada-CA4 agreement, as confirmed by negotiators
is replicating the NAFTA’s Chapter 11 model.
We are extremely concerned that exporting Chapter 11 is the wrong
path for a government committed to upholding human rights and poverty
alleviation. Given the problematic nature of Chapter 11 at home,
what sort of possibility for development will there be for the post
conflict, small, and weaker economies of Central America.
To give you an idea of what sort of problematic emerges that directly
contradicts with our values and commitment to supporting human rights
and peaceful solutions, I present the Glamis Gold case.
Glamis Gold already has one mining operation in Honduras where
negative impacts on the community have been documented. In Guatemala,
Glamis Gold was granted a mining concession by the Guatemalan government
without an adequate consultative process, which clearly violated
ILO169. When the community protested and attempted to deter the
operation, the Canadian Ambassador James Lambert supported the mining
company disregarding the community’s wishes. Sadly, violence
erupted and Guatemalan security forces killed an indigenous campesino
Raul Castro Bocel. An unnecessary and tragic loss of life that illustrates
the problematic of militarized commerce.
Chapter 11 rules replicated in the Canada-CA4 agreement will only
cement the rights of companies like Glamis to operate with no accountability
and leave communities with no recompense. Chapter 11 rules would
have trumped community rights. And also stated international obligations
like ILO169 and adherence to respect for human rights.
Canada should promote trade and investment rules that permit rather
than restrict governments’ abilities to uphold the economic,
social and cultural rights of its citizens, and to do so without
fear of reprisal.
Increasing Corporate Power with No Accountability
What the Glamis Gold case brings to light is how big transnational
corporations are using Chapter 11 to their advantage in more ways
that one could actually believe. A chess game ensues in which subsidiaries
can place challenges in essence to bypass stricter domestic laws.
Glamis Gold is a joint US-Canadian gold mining company, but is
generally understood to be a Reno-based corporation with a small
subsidiary in Canada.
Glamis Gold has used its Canadian subsidiary to file a Chapter
11 suit under NAFTA for $50 million dollars due to California’s
intent to protect its indigenous communities and the environment
from the notorious harmful open pit mining process.
This illustrates another way in which Chapter 11 works to advance
corporate gains with little or no accountability. As the power of
non-state actors increases, there clearly needs to be some binding
mechanisms and general recognition of their obligations to promote,
secure, and respect international human rights.
3) Regulatory Policy
Finally I would like to mention that NAFTA continues to take precedence
by policy makers over and above our stated obligations in many international
environmental agreements, national environmental and health protections,
and international human rights obligations.
The 1999 Regulatory Policy covers all international commitments
but is preoccupied with trade obligations as evidence by the fact
that only authorities with trade relevance are mentioned.
Moreover, written clearly in the NAFTA agreement is a clause that
states that NAFTA will take precedence over any other agreement
in the event of any inconsistency. This highlights possible logjams
from Canada’s commitment to Kyoto and others.
To conclude, I make the following three recommendations:
- As witnessed through our presentations, Chapter 11 is fundamentally
flawed. Previous attempts to fix Chapter 11 have only resulted
in minor and cosmetic changes. The unforeseen consequences have
been great and the conclusion is straightforward: Chapter 11 does
not work.
- In direct contradiction to our stated foreign policy and poverty
alleviation goals, Canada is now exporting the flawed Chapter
11 model to weaker disadvantaged countries. Rather than reproducing
Chapter 11, Canada should be promoting mechanisms that clearly
prioritize economic, social, and cultural rights and that allow
governments to legislate in favour of public health, education
and environmental protection without fear of reprisal. This can
include important development tools like allowing for performance
requirements on foreign investment such as local-content regulations,
and prohibiting national treatment obligations.
- As we have demonstrated, the problematic nature of Chapter
11 spills out into other areas of NAFTA. There is much more to
examine so in that regard, we are calling for a review of NAFTA
---with special emphasis on Chapter 11--- be placed on the SCFAIT
agenda for a full and comprehensive review.
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