Sierra Club of Canada

Presentation to Trade and Environment Consultations of Canadian Government


Elizabeth May, Executive Director, Sierra Club of Canada
1 Nicholas Street, Suite 412, Ottawa, Ontario, K1N 7B7, (613) 241-4611

Thursday July 8th, 1999, Ottawa, Canada


The Sierra Club of Canada is a national, non-profit, environmental research and advocacy organization. We are membership-based and volunteer driven with chapters, groups and offices across Canada. (We currently have staffed offices in Vancouver, Victoria, Edmonton, Toronto, and our national office in Ottawa.) In addition to our regionally-based groups and chapters, we also have a youth wing, the Sierra Youth Coalition, providing youth internships and education to young people across the country. This year marks our thirtieth anniversary as a Canadian environmental group, although the Sierra Club in the U.S., to which we are affiliated, was founded in 1892.

On behalf of the Sierra Club of Canada, I wish to express our appreciation for the opening of dialogue around issues of trade and larger public policy with respect to negotiations at the WTO/FTAA.The trade liberalization agenda has moved steadily along, with decisions having huge implications for social programmes, culture, labour standards, rural survival, and the environment. Yet these negotiations have, for the most part, occurred with little public engagement. Often, the success of the negotiations hinges on keeping prospective agreements out of the public eye.

The Sierra Club of Canada participated in the non-governmental summits held simultaneously with the WTO Ministerial at Singapore as well as the Summit on the Americas in Miami in December 1994. We gathered with our colleagues, environmental activists from around the world, including from Chile, Mexico, Honduras, Costa Rica, Puerto Rico, the United States and others, all sharing the same concern. Our experience with trade and investment liberalization has not been a happy one. We have seen environmental and labour standards under assault.

The irony is that the very same governments that have committed their citizens to the terms of the General Agreement on Tariffs and Trade (GATT), globally, and to regional trade agreements, such as the Free Trade Agreement (FTA) and the North American Free Trade Agreement (NAFTA), also committed to environmental agreements for planetary survival. The largest-ever summit of world leaders met in Rio de Janeiro for the United Nations Conference on Environment and Development -- the Earth Summit -- in June, 1992. Commitments were made to protect global climate from the disastrous destabilization caused by greenhouse gases, to protect the world's genetic, species and eco-system diversity, to the increasing of global aid flows to assist the developing world, to the "precautionary principle" to ensure the protection of the health and well-being of humans and our life-support systems.

Trade and Environment: An Uneven Commitment

Seven years after Rio, those multilateral environmental agreements (MEAs) are notable for the failure of many governments to honour their commitments. (The Environmental Auditor General, Commissioner Brian Emmett has detailed the Canada's multiple failures in his most recent report to Parliament). Meanwhile, the World Trade Organization, which did not even exist at the time of Rio, has achieved an impressive record of enforcing its trade regime. The new implementing agency for the GATT, created through the long Uruguay Round of Multilateral Trade Negotiations, has been obeyed, and where failure to meet terms is suspected, trade disputes and effective, swift, and merciless trade sanctions follow.

The issues of global survival entirely dwarf the petty mercantile concerns of the free traders. Yet the free traders got all the tools to ensure compliance and the environmental agreements are left with few to advance their objectives and defend against trade and investment interests.

The imbalance between effective and forceful global trade rules and weak global environmental agreements would not be fatal if the trade issues and environmental issues stayed neatly in separate boxes. But the world is considerably more messy than that. Environmental protection leads to regulation. If corporate interests failed to thwart an environmental regulation at the domestic level, the GATT and NAFTA provide another route of attack. One man's environmental regulation is another man's non-tariff trade barrier. Environmental and public health issues are increasingly being arbitrated behind closed doors by people with zero scientific competence to examine the dispute from an environmental or public health standpoint. The result is entirely predictable. Every time an environmental or public health action has been challenged through the WTO or NAFTA, the trading regime has ruled the measure to be trade-illegal. Every time.

Environmental Protection Under Attack

An early example was a Venezuelan challenge against measures under the U.S. Clean Air Act to reduce emissions from reformulated gasoline. The challenge was brought by the Venezuelan government, but the real pressure to challenge the regulation came from the subsidiaries of the same multinational oil and gas companies that had failed to keep out the regulation in Washington.

The challenge to the WTO succeeded and U.S. air is dirtier as a result.

Since then, under the WTO, we have seen the tuna-dolphin case (governments cannot act to protect dolphins when importing tuna), the turtle-shrimp case (the same principle in non-protection of sea turtles), the beef hormone case (European nations are not entitled to ban the importation of hormone-treated beef even when there are grounds for health concern that the genetically modified hormone may increase cancer). Under NAFTA, we saw the raw log export case (Canada cannot insist on controls against the export of raw logs to keep jobs in Canada and reduce stresses on our forests), and under the FTA, the salmon-herring case that barred Canada's west coast fishery from protecting jobs in canneries and conserving fish stocks through a ban on export of unprocessed salmon and herring.

Moreover through negotiation, to meet NAFTA requirements, Canada has voluntarily increased the amount of legally permissable pesticide residues allowed on imported fruits and vegetables. Most outrageously, in response to a Chapter 11 NAFTA challenge, last summer, Canada repudiated its ban on a neuro-toxic gasoline additive, despite evidence that it increased air pollution and was a threat to the brains of our children. Our government also apologised to Ethyl Corp, the manufacturer and gave them $19 million in damages!

Trade Disciplines are a Sword, not a Shield

In some of these cases, Canadians have lost environmental and public health measures. In others, Canada has argued successfully for the loss of such protection for others, as we are currently doing to knock out a French ban on asbestos. In the beef hormone case, for example, Canada and the U.S. jointly challenged the EU hormone treated beef ban. Although none of the arguments are open to the public, from the final decision of the panel, it can be inferred that Canada argued against the precautionary principle. Even if we had not committed to the precautionary principle, in writing, several times, at Rio, one would have thought the Krever Inquiry would have created a healthy respect for the principle.

More dangerous to the planet than the individual measures that have been struck down is the chilling effect of these decisions. How many toxic chemicals will remain in use because bureaucrats fear trade retaliation or an investor suit under Chapter 11?

WTO Supremacy over MEAs?

It is demonstrable that when the WTO asked the question, "are MEAs GATT-illegal?", the effect was to weaken the hand of negotiators for meaningful environmental agreements. MEA's negotiated before 1990 -- the Convention on the Trade in Endangered Species, the Basel Convention and the Montreal Protocol to protect the Ozone Layer --all had trade measures as an enforcement mechanism. Bear in mind, there is often no effective way to enforce multilaterally agreements between parties other than by trade sanctions. In NAFTA, although untested, those agreements were specifically mentioned as not offensive to the NAFTA regime. But they were not excluded in the GATT. Thus when the world community was negotiating Kyoto last December 1998, effective dispute resolution and enforcement was off the table. Canada actually took the position that if the Kyoto Protocol included such measures, we would refuse to sign. There is absolutely no difference in policy or principle between the Montreal Protocol, which Canada championed, and the Kyoto Protocol. The only difference in Canada's position in 1987 and 1997 is that in the last ten years the trade agenda has become paramount.

Most recently, Canada and a handful of other nations have lead the charge against a meaningful Biosafety Protocol to the Biodiversity Convention on GMOs and for a WTO supremacy clause to be included in the draft POPs Convention. Nothing stands in the way of the trade monolith.

Canadians will be shocked to learn of these positions by their government against the environment and the public interest. People will find it very offensive to know that its trade delegations are leading the charge to even avoid meaningful labelling so that consumers can enjoy the right to know and chose products based on the process and production methods used to produce the product. The maintenance of these positions by the Canadian government will help to ensure that the current approach to trade and investment liberalization will not succeed.

No wonder, the environmental community greets yet another round of trade negotiations for a new WTO Round or a FTAA with suspicion or worse. We now have abundant evidence of how it should not be done. We also have some examples of how it could be done.

A New Trade and Environment Approach

The essence of trade liberalization agreements is a reduction of domestic sovereignty. As the state's ability to protect its citizens is reduced, we need not cast those peoples and the biosphere to the faceless mercies of the global free-market free for all. We could make some rules to ensure the trading regime operates in ways consistent with sustainability. Some guidance comes from the approach of the European Union. Recognizing the disparate levels of wealth and environmental standards, the EU insisted on raising the environmental standards of its poorer members, such as Spain, and assisting Spain in meeting those new challenges through resource transfers from the wealthier states. NAFTA would be far fairer to Mexico if while insisting they ban DDT, which we are, we provided increased resources for primary health care which would be more effective in preventing malaria than DDT is, which we are not. It's expensive to provide primary health care, and Canada and the US are not helping.

Another feature of the EU lacking in other trade deals is the creation of a democratically elected European Parliament, complete with an Environmental Minister. Sovereignty was lost at the level of the nation-state but re-balanced with an effort at the supra-national level.

An aspect of NAFTA which must be repudiated and not adopted in any WTO/FTAA regime, is the investor protection provisions of Chapter 11. Though these measures, not only have Canadians lost democratic rights, we have conferred those rights to multilateral corporations. The public outrage against the Multilateral Agreement on Investment, thankfully, stalled a global version of Chapter 11. But, under NAFTA, we have the MAI anyway. Canada now faces three more Chapter 11 based suits from US companies that do not like our laws. The blatant anti-democratic nature of these investor rights is galling. Trade Minister Sergio Marchi has tried unsuccessfully to get the US to reopen the Chapter. So far the U.S. Trade Representative has refused. The Mexican government seems content to let the current cases make their way through the process, despite the very bad precedent we have regarding MMT where the Canadian government was unsuccessful in arguing before the ISCID arbitrators that Canadian environmental law was not within the scope of Chapter 11 disputes.

Concluding Observations and Suggestions

Canada must refuse to begin any new rounds of negotiations on FTAA or a new round at the WTO until the grievous and outrageous excesses of the trading regime are corrected. Starting with Chapter 11 of NAFTA, the SPS and TBT WTO agreements as well as the general exceptions under both. Trade agreements are too important to be left to the trade negotiators.

The Sierra Club of Canada will be taking up with Canadians in our work related to the WTO/FTAA, with relevance to the current operational review of the NAFTA, the following three main points:

1. No New WTO Agreements ought to be negotiated at the upcoming Millennium Round given the experience in the past five years. This position hold for new items, especially early harvest agreements around forest products, as well as those areas with built in agendas such as on Agriculture, Services and Intellectual Property Rights. This view also holds for FTAA negotiations.

2. Instead of negotiating new commitments, Canadians ought to be engaged in a process that would review environmental and social impacts related to trade liberalization since the last Round, the Uruguay Round first. In addition, any draft text of any new agreements or other interpretations should be subject, well in advance, to an independent and comprehensive impact assessment, including on culture and on rural communities, undertaken in Canada and at competent international institutions.

A review of WTO practice over the past five years would reveal the need to ensure environmental protection, as indicated in the WTO Agreement preamble, at every facet of the WTO work, including:

.The results of the Sanitary and Photosanitary Standards and Technical Barriers to Trade Agreements particularly regarding a precautionary approach to risk assessment and labelling;

.The practice of tariff escalation that is a barrier to the local value adding to natural resources and the need for extra tariff reductions for environmentally friendly goods and services as an incentive for compliance with multilateral or other environmental agreements; and

.The Dispute Settlement process. Despite the promises of improvement at Rio, and at the Uruguay Round, the WTO continues to rule in secret against every trade restriction ever found in any environmental or public health legislation. The General Exceptions in Article XX GATT and the level of environmental sensitivity when balancing the public interest are clearly inadequate. Current offers by the WTO on better notice of complaints and earlier release of documents are not enough to ensure adequate expertise: international intergovernmental organizations such UNEP or the WHO as well as interested parliamentarians and NGO=s ought to be able to intervene in significant environment-related trade disputes; and

3. Before embarking upon any new commitments, an impact assessment would also reveal the unfinished business of linking trade liberalization, with environmental protection and the respect for workers and other fundamental human rights. No progress has been made to establish a WTO Committee on Labour Standards, despite the 1996 World Social Summit observation that unsustainable production and consumption practices aggravate world poverty.

In terms of prescriptions, the Sierra Club of Canada together with other individuals and groups are actively campaigning that the WTO practice and negotiating process be opened up public scrutiny and debate. Unlike the position taken by the Centre for International Studies at University of Toronto, the solution is not to just model the NAFTA environmental and labour side agreements for global or regional application. We are still developing our views on the benefits of a World Environment Organization in the context of wider UN reform, or a Parliamentary Assembly to the WTO or the Organization of American States, in order to counter balance the uneven commitment to trade liberalization at the expense of environmental and social responsibilities. In any event, a greater emphasis on implementing current MEAs, in particular the Climate Change and Biodiversity conventions would be a good place to start rebuilding public confidence in trade agendas.

Moreover, we do not want the NAFTA style of investor rights imposed on the members of the WTO/FTAA. Sierra Club of Canada, and other NGOs from Canada, the US and Mexico have been required to ask the Commission for Environmental Cooperation to hold a public inquiry into recent investor disputes concerning S.D. Myers, Sun Belt Water, Pope & Talbot and now Methanex which purport to claims millions of dollars to protect environmental legislation on hazardous waste, water export bans, quotas for softwood lumber products and bans of toxic gas additives leaking into ground water supplies. We have called upon Trade Minister Marchi to intervene to suspend these cases pending the CEC public inquiry and the NAFTA operational review, see attached recent media.

To conclude, we recommend that the Canadian government stop negotiating new international trade agreements until the impacts of current trade obligations are assessed and addressed. We acknowledge the challenge to develop the Canadian government=s position at the upcoming ministerial at Seattle. We look forward to working with officials from both DFAITC and Environment Canada to provide additional information about the Canadian government=s current role in trade and environment disputes and how the issues we have raised might be addressed. The urgency of our work is quite apparent.

Inside US Trade, page 2, Thursday, July 1, 1999


A coalition of environmentalists from Canada, the U.S. and Mexico this week launched a broad attack on the handling of environmental issues under NAFTA and in the process have called for a broad review of the NAFTA investor-state dispute settlement provisions and links between trade and environment.

The focus of attention is a recent notice of intent to file a case under the investor provisions which will use NAFTA to challenge a California ban on the gasoline additive MTBE. The group called on NAFTA environment ministers to halt progress on the case for which notice was filed earlier this month against the United States. The group charged that the case represents an attack on governments that pass regulations to protect the environment, and that this and other cases should be suspended until a NAFTA review of the investor-state dispute settlement clause and links between trade and environment are completed.

The June 25 letter reprinted below was delivered to environment ministers at their annual meeting, held June 27-29 in Banff, Alberta. The ministers, collectively known as the Council of the Commission for Environmental Cooperation (the secretariat of the NAFTA environmental side accord), held talks during the meeting on how to work with trade ministers as part of the ongoing NAFTA operational review.

The letter specifically called on the environment ministers, collectively known as the Council, to launch a public inquiry into the MTBE case filed by Canadian-based firm Methanex Corp. as allowed under the NAFTA environmental side accord. It also asks the ministers to hold up the billion-dollar case until the three governments better define NAFTA requirements for investor-state cases filed under Chapter 11 of the agreement (see related story for the notice of intent to file a claim).

At the Banff meeting, U.S. Environmental Protection Agency Administrator Carol Browner told a public gathering that Methanex "does not have a valid claim under NAFTA," according to an informed source. Also at the meeting, the Council expressed deep concern over the use of Chapter 11 cases to undermine environmental legislation, the source said. The remaining Council members are Canadian Environment Minister Christine Stewart and Mexican Secretary for the Environment, Natural Resources and Fisheries Julia Carabias Lillo.

The Council also encouraged trade ministers to make progress in their ongoing operational review of Chapter 11, and reaffirmed the rights of states to enact legislation for environmental and public health reasons. They further called on the trade ministers to ensure transparency in the process, the source said.

In the June 28 final communique, the Council stressed its continued commitment to working on environment and trade issues, and announced a North American Symposium on Understanding the Linkages between Trade and Environment, to be held in October 2000. They also issued a call for papers to analyze the effects of NAFTA on the environment.

The communique also stated that the Council deemed "very useful" talks between environment and trade officials as called for under Article 10(6) of the NAFTA environmental side accord, called the North American Agreement for Environmental Cooperation (NAAEC).

"Trade and environment officials have also been discussing areas of future joint work with regard to environment, economy and trade," the communique said, adding that, "The Council recognizes the sovereign right of governments to legislate in the area of the environment. The Council fully supports and encourages the Free Trade Commission (FTC) to continue discussions on NAFTA Chapter 11...."

Stewart, in a letter to three coalition members sent June 9, said that government trade and environment officials have been meeting "to discuss the nature and extent of the co-operative relationship between the CEC and the NAFTA Free Trade Commission and how the Council might best fulfill its mandate under Article 10(6)."

That article in the NAAEC calls on the three environment ministers to "cooperate" with the trade ministers "to achieve the environmental goals and objectives of the NAFTA" by acting as a point of inquiry for non-governmental organizations and individuals, and providing assistance in consultations between parties if one considers that the other is "waiving or derogating from" an environmental measure in the name of encouraging investment.

The June 9 letter from Stewart followed a similar letter from the Canadian Dept. of Foreign Affairs and International Trade (DFAIT). These were in response to an April 22 letter from the NGO coalition calling for a delay to two new NAFTA investor cases until the environment-trade relationship had been better analyzed by the governments.

The three governments have been conducting internal analyses of what, if any, corrections each feel should be made on the Chapter 11 clause defining expropriation. They are expected to discuss the issue formally in a meeting in late summer or early fall (AT, June 3, p. 1).

The coalition is led by the Sierra Club of Canada in Ottawa, Council of Canadians in Ottawa, and Greenpeace Canada in Toronto, Centro Mexicano de Derecho Ambiental in Mexico City; Centre for International Studies at University College of Cape Breton in Nova Scotia; Thompson Institute of Environmental Studies in British Columbia; Fondation Les Oiseleurs du Quebec Inc. in Quebec City; Red Mexicana de Accion Ecologia in Mexico City; Arizona Toxics Information, an individual named Elizabeth Annette Weems of Alberta; Friends of the Oldman River in Alberta; Union of New Brunswick Indians; North-South Center in Miami; New Energy Development Organization in Washington, DC; and Thompson Watershed Coalition in British Columbia.

The coalition, in its June 28 letter, also called into question the filing of Methanex on behalf of its U.S.-based joint venture partner, Texas-based Methanex US, which it indirectly owns. It also cautioned that the $970 million claim may have the effect of a "regulatory chill" on the other 20 or so states considering banning MTBE.

"[T]his case is an example where some North American companies, unlike a purely domestic one, can manipulate their corporate personalities to take advantage of closed international commercial arbitration and thus avoid the public spotlight of domestic courts to advance alleged claims against governments," the NGO letter said.

The June 28 letter also challenged a claim by Methanex that MTBE is not proven to be harmful to the environment. Methanex made the claim in its June 15 notice of intent to file a case (see related story).

"There is undeniable evidence that this additive, a known carcinogen, is leaking into ground water supplies," the letter said.

Environmentalists' Letter to CEC

To The Council of the North American Commission For Environmental Cooperation,
To Secretariat of the Commission for Environmental Cooperation, and
And To The NAFTA Free Trade Commission,
c/o The Honourable Sergio Marchi, Minister of International Trade Canada.

June 28, 1999

Dear Madames and Sirs:

RE: Methanex Corp NAFTA Investor Dispute Concerning California's notice to ban gasoline additive MTBE to Promote Clean Water

We, the undersigned people and non-governmental organizations, call upon the Council, and the Secretariate to establish another inquiry, based on the functions in Article 10 of the North American Agreement for Environmental Cooperation, into the latest investor assault on a government's public health and environment law by a North American company, the Methanex Corp. of Alberta, Canada, the world's largest producer of MTBE, a toxic gasoline additive.

Groups have written to you in the past to ask you to take action in a number of NAFTA investment cases that have environmental implications. We believe it is your responsibility to act as a point of public inquiry in such cases, and we have asked that all of these cases be "put on ice" while the process to assess environmental impacts is developed. Indeed, it would be manifestly outside the jurisdiction of any international commercial arbitration centre and contrary to public policy to proceed when local, in this case North American, remedies have not been exhausted.

By letters dated December 1, 1998 and received June 9, 1999, the Council agreed to cooperate with the NAFTA Free Trade Commission in achieving the environmental goals and objectives of the NAFTA related to pending Chapter 11 disputes: S.D. Myers on a Canadian PCB waste export ban; Sun Belt Water, Inc. on water export bans; and Pope & Talbot, Inc on the Canada- US Softwood Lumber Agreement. While the use of the term "public inquiry" to describe the Article 10 process is in dispute, in the absence of comparable public guidelines for NAECE Article 14 submissions, we note that in any event, according to Article 10 (6): "The Council shallcooperate with the NAFTA FTC to achieve the environmental goals and objectives of NAFTA by acting as a point of inquiry and receipt of comments from NGOs and persons concerning those goals and objectives". You acknowledge that investor-state claims may raise important environmental issues. Indeed Article 1114 of NAFTA in particular purports to ensure a party should not waive or derogate from an environmental measure to establish or retain an investment.

This latest billion-dollar investor claim by Methanex Corp., on behalf of its joint partnership with Texas-based Methanex US, for lost revenue and stock prices for the Californian regulatory decision to ban the gasoline additive MTBE, raises significant environmental and public interest concerns. There is undeniable evidence that this additive, a known carcinogen, is leaking into ground water supplies. Also this case is an example where some North American companies, unlike a purely domestic one, can manipulate their corporate personalities to take advantage of closed international commercial arbitration and thus avoid the public spotlight of domestic courts to advance alleged claims against governments. Perhaps some governments prefer this route too.

Surely no international commercial arbitration centre can determine the appropriateness of this latest regulatory initiative based on commercial considerations alone, where a CEC Article 10 inquiry is proceeding and where the terms "tantamount and indirect expropriation" in NAFTA Chapter 11 are the subject of current NAFTA Operational Reviews. Perhaps this latest case involving the first Canadian-based corporate challenge to the environmental law of a U.S. state, with "regulatory chill" effects for some 20 others also planning phase outs of MTBE, will motivate the Council, particularly Ms. Carol Browner of the government of the United States, to urgently act to address this useless and mischievous NAFTA investor-state procedure.

In the interim, and within the scope of the current Council Functions, we request that the following actions be taken respecting the Methanex Corp. matter as are pending in the S.D. Myers, Sun Belt Water and Pope & Talbot cases:

1. The Council act as a point of public inquiry and comment, including providing of information and updates on the Methanex, Corp. investor dispute; and

2. The Council cooperate and coordinate with the NAFTA Free Trade Commission in:

A. Providing any international arbitration tribunal established under NAFTA Chapter 11 with appropriate and binding interpretations of the NAFTA, including the terms "indirect and tantamount to expropriation", that would establish the governing law for investor-state disputes, as permitted under Article 1131;

B. Providing expertise on the public health and environmental aspects of the Methanex, Corp. dispute; and

C. Developing Guidelines for Public Inquiries under Article 10 of the NAECE.

Given all of the above, we encourage you to suspend the Methanex, Corp proceeding from going to any international commercial arbitration centre, the parties have not exhausted local, and in this matter North American, remedies. This Article 10 (6) request is urgently filed with you by the following North American NGOs and persons:

Sierra Club of Canada, 1 Nicholas Street, Suite 412, Ottawa, K1N 7B7
Council of Canadians, 151 Slater St., Suite 502, Ottawa, K1P 5H3
Greenpeace Canada, 250 Dundas St. W., Toronto, M5T 2Z5