- The Washington Times - Saturday, January 11, 2003

An international tribunal rejected this week a Canadian company's assertion that it should have been allowed to use steel processed in Canada for the Springfield Mixing Bowl highway interchange project.

The case, tried under provisions of the North American Free Trade Agreement, allows the federal government to retain "Buy America" provisions when it grants funds to states for highway projects.

"The tribunal found in favor of the United States, rejecting ADF Group's claims in their entirety," the State Department said in a statement. State Department lawyers defended the U.S. government program; ADF Group, a steel-fabrication company based near Montreal, filed the suit.

NAFTA provisions grant North American firms the same rights as domestic companies when operating in another NAFTA country, in this case a Canadian business operating in the United States.

The United States, Canada and Mexico started enforcing NAFTA rules in 1994.

Some organizations and politicians have warned that the treaty could infringe on sovereignty and local rights. Public Citizen, a consumer-rights group founded by Ralph Nader, called some cases brought under NAFTA an "extraordinary attack on normal government activity."

Business groups say the provisions provide a clear set of rules for investors.

Last year Congress directed the Bush administration to improve company-government dispute-resolution procedures in new agreements when it granted the president trade-promotion authority. The move came amid concern related to dispute-settlement cases under NAFTA and at the World Trade Organization.

"The alarm bells were going off but [the ADF decision] shows that the process worked. The tribunal gave it a good look on the merits," said Todd Weiler, a law professor at the University of Windsor in Ontario. Mr. Weiler, a lawyer, served as counsel on some early NAFTA suits.

In the ADF case, the firm's American subsidiary in 1999 subcontracted with a Northern Virginia company to supply structural steel for the Springfield Interchange project, an eight-year, $676 million program started in 1999.

The ADF contract contained a "Buy America" clause, which required that all iron and steel products used be produced in the United States unless using those products would increase the cost of the project by more than 25 percent.

ADF wanted to use steel from a Bethlehem Steel plant in the United States but process it in Canada; the Federal Highway Administration, which is funding the interchange project, said it could not.

ADF subcontracted some of the work and eventually purchased a U.S.-based steel fabricator to complete the ongoing work, said Peter E. Kirby, an attorney for the company.

"By buying the steel fabricator we can ensure ADF's access to a market restricted by 'Buy America' requirements," he said.

The firm could request a judicial review of the decision but as of yesterday had not made a decision.

In its complaint, the company said the contract's terms increased its costs, lowered profits and violated NAFTA. In a July 2000 filing, ADF claimed $90 million in damages.

"The tribunal rejected ADF's claims under two NAFTA provisions because those provisions do not apply to government procurement such as the supply of steel for the Springfield Interchange project," the State Department said.

"Buy America" clauses are allowed under the treaty, the panel said.

The ADF case is the second U.S. government victory under NAFTA arbitration. No other decisions have been made, though two major cases are pending.

The first deals with a Canadian funeral-home conglomerate that is challenging an award by a Mississippi jury. The Loewen Group is seeking $725 million from the U.S. government, claiming a denial of justice under the jury decision.

In the other major case, Canada-based Methanex is asking for $970 million in damages after California, to protect drinking water, banned a gasoline additive produced by company subsidiaries. A tribunal ruled that the Methanex did not provide enough information to give the panel jurisdiction in the case; the firm submitted further paperwork, but no decision has been made.

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