Corporations from Canada and Mexico can sue American governments for monetary damages under the North American Free Trade Agreement, and within a few years, companies from all of Latin America are likely to have the same right.
Already, a Canadian funeral-home conglomerate is using NAFTA arbitration tribunals to challenge a Mississippi jury’s decision in a case brought by a local war hero. Another, through its involvement in the “Mixing Bowl” construction project in Springfield, is attacking laws that earmark federal dollars for U.S. companies.
Through these NAFTA lawsuits, foreign investors cannot change U.S. laws, but they can obtain damages from state, local and federal governments. So far, they have asked for $1.9 billion. None of the five cases against the United States has reached a judgment.
The governments of Canada and Mexico know NAFTA has teeth. They already have had to ante up a total of $28 million to U.S. companies.
Business loves the system.
“Access to an arbitration procedure of this sort is the only effective way to guarantee enforcement of NAFTA and obtain appropriate redress for investors,” said Daniel Price, a former NAFTA negotiator who is now a trade lawyer with Powell, Goldstein, Frazer and Murphy.
But the process has made patriots out of left-leaning groups who oppose NAFTA.
“Foreign investors can be awarded unlimited amounts of taxpayer dollars from the Treasury, even though it has gone around the country’s domestic court system,” said Mary Bottari, an analyst with Public Citizen, an advocacy group founded by Ralph Nader.
The system commonly is referred to as Chapter 11, after a section of NAFTA. It permits a company to take a government to arbitration over actions the company believes harm its investments. If a tribunal rules that the government violated NAFTA rules, which can take about three years, the government must pay for its transgression.
It has caught flak for being a secretive infringement on American sovereignty. Enterprising lawyers have helped drive its development, and within a few years, the system is likely to be much bigger.
Congress is considering legislation that would give President Bush the power to negotiate a Free Trade Area of the Americas that would expand NAFTA to all of the Western Hemisphere by the end of 2004.
This “fast-track” authority would allow Mr. Bush to cut trade deals not only with Latin America that then are submitted to Congress for an up-or-down vote without amendments. The House passed the bill by one vote in December, and the Senate seems likely to follow suit this spring.
In one sense, NAFTA Chapter 11 is nothing new. The procedure was part of dozens of bilateral investment treaties the United States has with poor countries that have weak protection for private property. But NAFTA gave Canada, a major investor in the United States, a chance to use the process against its American trading partner, something poor countries seldom did.
Sen. John Kerry, a Massachusetts Democrat who voted for NAFTA in 1994, is peddling an amendment to the fast-track bill that would limit the scope for lawsuits.
“Not only are American investors not afforded these kinds of rights, but you’ll never convince me that anyone who supported NAFTA intended to infringe on U.S. sovereignty [and] leave American cities and states liable to foreign companies for literally billions of dollars,” he said.
Mr. Price notes that U.S. companies are the largest overseas investors, with $317 billion invested in 2000, and they need Chapter 11. Giving foreigners a crack at lawsuits against the United States is a small price to pay. “It can’t be a one-way street,” he said.
There is no central registry for NAFTA investment cases. The State Department, which defends the United States before the tribunals, set up its first Web site for documents from the lawsuits in the fall, nearly seven years after NAFTA was passed, an administration official said.
In an effort to boost confidence in NAFTA, top trade officials from all three countries, including U.S. Trade Representative Robert B. Zoellick, agreed in July to make documents from Chapter 11 cases public “in a timely manner.” That meeting began the process that led to the official U.S. government Web site, but it did not dislodge all the documents. Over the past few years, a powerful interest group the lawyers has been touting the potential for business under NAFTA, and among this group, no name comes up more often than Barry Appleton.
A former trade official for the Ontario province in Canada, Mr. Appleton, 38, now runs Appleton and Associates, a law firm with offices in Toronto and Washington. His Web site touts the firm’s involvement with a majority of the NAFTA cases to date. In a 1996 news release, Mr. Appleton said “the potential for lawsuits under this process is far-reaching.”
NAFTA supporters such as Mr. Price, who has not had Chapter 11 clients, have suggested the treaty needs a system for sifting out frivolous lawsuits before claimants spend thousands on legal bills.
In an interview, Mr. Appleton downplayed his work, calling himself “a technical person, a lawyer. I’m not an evangelist.” He has spoken at bar association meetings about Chapter 11, and colleagues view him as the man who got the word out.