page 18

issue 103
august 2003  

Demonstrators protest US efforts to sabotage negotiations on the Framework Convention on Tobacco Control in front of the US Department of Health and Human Services in February 2003.

toxic treaty

nafta's cautionary tales

Under the North American Free Trade Agreement (NAFTA) Chapter 11 investment rules, environmental and public interest standards have been successfully challenged for interfering with the business interests of multinational investors. Global tobacco and agribusiness giant Philip Morris is one of the corporations that has used the threat of a NAFTA Chapter 11 challenge to protect its commercial interests. Philip Morris has strong links to the powerful and fiercely pro-corporate investment lobby, and with its global reach, the company could also benefit significantly from a WTO investment agreement.

toxic tribunal: metaclad vs. mexico
In a dramatic example of how NAFTA undermines local communities, Mexico lost a Chapter 11 challenge and was forced to pay nearly US$16 million to a US business, Metalclad, after the local community in San Luis Potosi refused to allow the operation of a hazardous waste landfill in their midst. The international tribunal that heard the case ruled that the establishment of an ecological zone in the area where the hazardous waste site was located amounted to an ‘expropriation’ of the company’s investment in the site, and was therefore a violation of Chapter 11. This decision was reached even though the community had longstanding concerns about the facility’s potential impacts on the surrounding environment.

toxic trade: pcbs free to travel
In another case, Canada lost a suit brought by a US company challenging Canada’s ban on the export of highly toxic PCBs. The tribunal ruled that Canada violated the ‘national treatment’ rules of Chapter 11 – supposedly benign rules that bar discrimination against investors from other countries – although at the same time it acknowledged that Canada acted reasonably given its obligations under the Basel Convention on the cross-border movement of hazardous wastes. Under the Basel Convention, countries are obligated to restrict trade in hazardous wastes and promote treatment of the waste domestically, rather than in foreign countries. Yet the tribunal ruled that the PCB export ban was not permissible because Canada should have used alternative, apparently ‘less trade restrictive,’ approaches.

However, Philip Morris argued that the cigarette regulation amounted to an ‘expropriation’ of its investment in Canada because ‘light’ and ‘mild’ were terms used in the registered trademarks used by the company’s brands. The company claimed that NAFTA’s investment rules should prevent Canada from taking the actions it has contemplated to protect public health. While Philip Morris has not yet brought a Chapter 11 case against Canada, it certainly sought to force change in Canada’s public policy process using the investment rules.

As a cigarette company with truly global reach and brands in 160 markets, Philip Morris would benefit significantly from an investment agreement at the WTO. With tobacco set to take 10 million lives a year by 2030, the leverage that a multilateral investment agreement which covers 148 countries could give a multinational corporation like Philip Morris is disturbing.

Philip Morris is a member of the United States Council of International Business (USCIB), the US chapter of the International Chamber of Commerce (ICC). The ICC is a key advocate of a WTO investment agreement. The USCIB is pushing for NAFTA-like investment protection in the Free Trade Area of the Americas including strong expropriation provisions and the ability of corporations to directly sue the states, which were used so effectively by Metalclad against Mexico.

regulatory chill, philip morris and nafta
Against this backdrop of Chapter 11 challenges to the public interest, Philip Morris used NAFTA’s investment rules to threaten Canada in a fight over cigarette packaging regulations. This case highlights the way in which free trade agreements with powerful dispute mechanisms, like NAFTA and the WTO, can have a ‘chilling effect’ on environmental and health regulations, as governments can be scared to even risk contravening trade rules.

In a formal submission, Philip Morris warned the Canadian government that a prohibition on the use of the terms ‘light’ and ‘mild’amounted to a Chapter 11 violation – implicitly threatening a challenge before an international tribunal. Canada proposed the regulation in late 2001 in response to a consensus among public health experts that the mild and light descriptors are fundamentally misleading and are not less hazardous to smokers’ health, in part because smokers compensate for reduced tar and nicotine by inhaling more deeply.

In Philip Morris’ case, the benefits of increased access to markets around the world, which would be facilitated by a WTO investment agreement as well as by regional trade agreements like the FTAA, extend far beyond the realm of tobacco. Philip Morris’ parent company, Altria, is actually just a new name for the cigarette conglomerate, a multifaceted business that includes Kraft Foods, one of the world’s largest users of genetically modified ingredients. Is this what the world needs: more Marlboro cigarettes and potentially contaminated taco shells?