Bill Moyers takes a closer look at NAFTA’s Chapter 11 and how it provides an “end run around the Constitution.” The program details a system of private justice that is enabling companies to obtain covertly what they would be unlikely to achieve publicly in America’s legislatures or courts.
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BILL MOYERS: Everyone’s heard about NAFTA, the North American Free Trade Agreement, and all the talk about jobs. But almost no one heard about one obscure section of NAFTA – Chapter 11 – except for multinational corporations who are using it to challenge democracy. Today, foreign companies are exploiting Chapter 11 to attack public laws that protect our health and our environment even to attack the American judicial system. Secret NAFTA Tribunals can force taxpayers to pay billions of dollars in lawsuits filed by corporations against the United States.
BILL MOYERS: The public doesn’t have a clue?
WILLIAM GREIDER: This was not in the debate at all.
MIKE ALLRED: If the American people ever find out, they are going to be in open rebellion against this.
BILL MOYERS: NAFTA’s Chapter 11 threatens radical changes in public policy. But it’s all happening out of sight. Citizens have no seat at the table.
[WASHINGTON, DC]
BILL MOYERS: This is the story of how a trade agreement supported by two Presidents and ratified by the Congress became an end-run around the Constitution. The terms were influenced by Washington lawyers and lobbyists and the companies who employ them. It is now played out in rooms like this.
Chapter 11 is only one provision in the five hundred and fifty-five page North American Free Trade Agreement negotiated to promote business among the US, Canada and Mexico. It was supposedly written to protect investors if foreign governments tried to seize their property.
But corporations have stretched NAFTA’s Chapter 11 to undermine environmental decisions the decisions of local communities even the verdict of an American jury. The cases brought so far total almost four billion dollars.
The claims are being decided not in open court, but in what has become a system of private justice, in secret tribunals. That’s exactly the way the authors of Chapter 11 designed it.
WILLIAM GREIDER: (NATIONAL AFFAIRS CORRESPONDENT, THE NATION) What offends me most is that these lawyers understood that public laws were gonna come under attack in this system, and they just walked right past the question of where’s the American public in this?
BILL MOYERS: William Greider has covered economics and politics, both national and global, for 35 years first for The Washington Post and now for The Nation magazine. But even William Greider was taken aback by the broad new powers given foreign corporations under NAFTA’s Chapter Eleven.
BILL MOYERS: They now have the right to sue governments?
WILLIAM GREIDER: Right, and sue them directly, without having to get the approval of their own government. And that’s one of the features of NAFTA which is distinctively different from all previous trade agreements.
BILL MOYERS: Chapter Eleven gives corporations the right to sue for damages if they believe they have been hurt by the action of a government. The case is treated as if it were a simple trade dispute and argued in this room at the World Bank in Washington or in others in cities like New York and Toronto.
The parties in the case the company and the government it is suing choose a three-man tribunal, drawn mostly from a select pool of experts in international law. Nothing is open to the public.
WILLIAM GREIDER: I think of it actually as kind of an exclusive court for capital. American citizens not admitted, even American legislators not admitted. And if that doesn’t up-end democracy, I don’t know what does.
SACRAMENTO, CALIFORNIA
BILL MOYERS: Here in California, a Chapter Eleven claim may turn out to do just that upend democracy. A billion dollar case has been filed against the United States because of an effort by the state government to protect the health of its citizens. It is the first NAFTA challenge against the US because of an environmental regulation.
SEN. SHEILA KUEHL: (CHAIR, CALIFORNIA INTERNATIONAL TRADE POLICY COMMITTEE) First, I was astounded because I really knew nothing about Chapter Eleven. And you know the kind of reaction that you get from people when you say, did you know that one investor in a foreign company can sue the United States because of an environmental protection law in California? People are astounded once they kind of grasp it.
BILL MOYERS: Senator Sheila Kuehl chairs a committee examining the impact of US trade agreements on California laws.
SEN. SHEILA KUEHL: I think it’s just the tip of the iceberg because, in a way, it opens the idea to foreign investors that wherever they might suffer, as they imagine, under some regulation, under some law, statute passed by a state, all they have to do is file a claim and, you know, it’s taken seriously and the United States has to defend itself and the state has to defend itself.
BILL MOYERS: The case in California began with a chemical MTBE that was added to gasoline to help the state clean up its air. But MTBE was found to cause cancer in laboratory animals. And in 1995, it began to show up in drinking water.
NOVATO, CALIFORNIA
BILL MOYERS: In a trailer park twenty miles north of San Francisco, the additive was found in the community’s well.
EYVONNE WATTS: We received a notice saying that MTBE was in the water. As I began to find out more information about it, I was really concerned because I was like, you know, what is the long-term effect for my children? The water that’s being used to cool the house off is the same contaminated water. We’re breathing the water, like you know. The kids are walking around fine now, but who’s to say that won’t affect them later. I’m supposed to protect them in every way. They can’t fight for themselves. That’s why I’m here. So it’s just kind of like okay, how do I fight against something that we don’t know what the long-term effect is of MTBE. And no real straight answers.
SOUTH LAKE TAHOE
BILL MOYERS: The questions spread across the state. South Lake Tahoe whose economy is dependent on tourists had discovered MTBE in its drinking water.
RICK HYDRICK:(MANAGER, WATER OPERATIONS, SOUTH LAKE TAHOE PUBLIC UTILITY DISTRICT) The clarity of Lake Tahoe is legendary or it was. One of our board members asked me what I knew about MTBE, and I said nothing. And he said, well I heard about it, it’s a fuel additive and it may be a problem. And maybe just a few months later, we got our first MTBE hits to the public water supply.
BILL MOYERS: The water department traced the source first to one gas station, then to more than half a dozen. Even the newest, most modern station in town found an MTBE leak the size of a pinpoint.
CASEY MOSS (CO-OWNER, CHEVRON WAY) Within this corner right here, you have three sites that are contaminated right now. There’s one gas station, a previous gas station, and our gas station. I lived here my whole life and the last thing I want to do is contaminate the place where I live and my kids and my family are gonna live. So that’s why we wanted to jump on it and start cleaning it up as soon as we could.
BILL MOYERS: But MTBE spreads through water faster than the money can be spent to clean it up. In the end, South Lake Tahoe was forced to shut down a third of its wells. Across California, thirty public water systems and another 10,000 groundwater sites were eventually found to be contaminated.
RICK HYDRICK:(MANAGER, WATER OPERATIONS) As long as it’s in gasoline in the world that we live in, it will get into water a lot.
SEN. SHEILA KUEHL:(CHAIR, CALIFORNIA INTERNATIONAL TRADE POLICY COMMITTEE) This was an epidemic of MTBE sort of infection. And that caused our legislature to want to consider a total ban.
BILL MOYERS: University of California scientists were commissioned to assess the problem. Their ten-month study warned that the state was placing “its limited water resources at risk.”
SEN. SHEILA KUEHL: We were not going to act precipitously. We wanted to see the science. And having reviewed the report, I think the governor and the legislature were both equally convinced that this was good science, that there was harm. There were independent studies about the health effects of MTBE. This was not political.
BILL MOYERS: On March 25, 1999, California’s governor ordered that MTBE be phased out of all gasoline sold in the state.
But that order didn’t sit well with Methanex a Canadian company that is the world’s largest producer of the key ingredient in MTBE. Within months, Methanex invoked Chapter Eleven and claimed that its market share, and therefore its future profits, were being taken away expropriated by the governor’s action. Allow us to sell MTBE for gasoline in California, the company argued or pay us $970 million dollars in compensation.
MARTIN WAGNER: (ATTORNEY, EARTHJUSTICE LEGAL DEFENSE FUND) This is incredible. This is a foreign corporation coming in and saying first of all, that a regulation that the government of California, through normal democratic processes, has decided is important to protect health and the environment they’re saying that California either can’t implement this protection or that they get a billion dollars. People should be outraged by that.
BILL MOYERS: Martin Wagner represents three environmental groups who lobbied for the MTBE ban. He never expected that action to be challenged under NAFTA.
MARTIN WAGNER: One of the things this law does is give corporations sort of a guarantee that they won’t suffer from the gamble that they take normally that they take as being part of the economic marketplace. If they gamble that they’re going to be able to sell their product, but it turns out that their product is harmful, they’re claiming that this investment provision protects them against that gamble that they should get to make their profits anyway.
BILL MOYERS: While NAFTA may protect investors like Methanex who declined to talk to us it does not protect ordinary people, like Chris Christiansen and his wife, Claudia. A decade ago, they used their life savings to buy the home where they would retire.
CLAUDIA CHRISTIANSEN: With MTBE, it’s been totally devastating to us. The biggest devastation is everything you’ve worked for is not worth anything now. You cannot sell this property because it has a contaminated domestic well. You lose everything you’ve put into a home because you can’t sell. And that haunts me at night.
WASHINGTON, DC
BILL MOYERS: When the NAFTA tribunal meets to consider the Methanex claim, citizens of California like the Christiansens will not be invited. Nor will the taxpayers who will foot the bill if the tribunal decides in favor of the Canadian company. NAFTA makes no provisions for a full appeal to US courts and sets no caps on the amount of damages that can be awarded a corporation.
SACRAMENTO, CALIFORNIA
SEN. SHEILA KUEHL:(CHAIR, CALIFORNIA INTERNATIONAL TRADE POLICY COMMITTEE) So boom, you know, United States tax money goes to Methanex and then the United States has to decide a couple of things. Do they want to get the money back from California, which they could? Do they want to hold federal money back from California so that they keep a billion dollars that California otherwise would have gotten for its welfare to work program, healthy families, anything? Well, they could. Would they like to call the governor and say, you know, you ought to do away with that pesky ban because it costs us a billion dollars and now, who knows what else is going to happen under Chapter Eleven? Perhaps you ought to review all of your laws that might be a threat to Chapter Eleven.
WILLIAM GREIDER: (NATIONAL AFFAIRS CORRESPONDENT, THE NATION) If Methanex wins its billion-dollar claim over California environmental law, there ain’t gonna be many states enacting that law, are they?
BILL MOYERS: If I were in Colorado…
WILLIAM GREIDER: You’d be having second thoughts, wouldn’t you? And that’s the bow wave of this whole subject. And many of the critics think the really essential point is that this legal system hobbles the authority of government to act in the broader public interest. And, in fact, that was the idea in the first place.
OTTAWA, CANADA
BILL MOYERS: They’ve learned in Canada how NAFTA can be used to hobble the authority of government. The first Chapter Eleven case filed here also involved a gasoline additive this one called MMT. The Canadian parliament was considering banning it. That’s when the Ethyl Corporation the American manufacturer of the chemical decided to sue under NAFTA.
Canada enacted the ban anyway but then backed down, lifted it, and paid Ethyl $13 million for the short time the ban had been in place. And that wasn’t all. Ethyl demanded and got a letter to use in its advertising saying there was no new proof MMT was harmful. This despite the fact that MMT is effectively banned from use in most gasoline sold in the United States.
HOWARD MANN: (INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT) Essentially, we’ve now seen a shift of the use of investment agreements as a shield to using them as a sword against government activity.
BILL MOYERS: During NAFTA negotiations, Howard Mann an international lawyer – advised the Canadian government on environmental issues.
HOWARD MANN, PH.D: We begin to see now in a number of other cases where one of the first things that the politicians will receive is a letter from lawyers either representing an industry association or a specific business or other stakeholders saying, we will challenge this through the Chapter Eleven process if you indeed go ahead and adopt it. They’re real explicit. This will be a breach of Chapter Eleven and we’re gonna sue you for x hundred million dollars. And that’s the new genie that’s out of the bottle.
BILL MOYERS: Within days of Canada’s retreat on Ethyl, the same law firm initiated a second NAFTA case against Canada on behalf of another American client.
WILLIAM GREIDER: (NATIONAL AFFAIRS CORRESPONDENT, THE NATION) Governments are already being intimidated by the mere threat of a claim being filed against some regulatory action. If you’re a civil servant, or even a political leader, you’ve gotta think twice when a corporate lawyer comes to you and says, quite forcefully, we’re gonna, we’re gonna hit you for a half a billion dollars, if you do this.
BILL MOYERS: In your reporting, have you come across some threats?
WILLIAM GREIDER: Well, the most, in some ways, the most outrageous one, to me, was, was exercised by Carla Hills, who supervised and led the negotiation of NAFTA, then left government and started her own international consulting firm, and sent her chief negotiator to tell the Canadian government that if they went ahead with a regulation on cigarette packaging, which they were considering, her clients, big tobacco, would file a huge claim against them. Canada backed off, and the reason they backed off is because they could read the terms and see that, my God, they’re right, if we do this which they regarded as a health regulation we’re gonna get stuck with a big bill for it.
BILL MOYERS: Carla Hills’ clients had deep pockets to press a legal…
WILLIAM GREIDER: To go on and on forever, don’t they?
HOWARD MANN: (INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT) Clearly you’ve begun to create a situation where bureaucrats are always looking over their shoulder now. They don’t want to be the next guy who has to withdraw a measure because of a Chapter Eleven challenge. And, you know, when you’re in the bureaucracy, it’s not easy to be the face of the challenge to the dominant trade interest. You’ve gotta feed your family, too.
BILL MOYERS: Since NAFTA was enacted, only two new environmental regulations have been considered by Canada’s federal government and both were challenged under Chapter Eleven.
SACRAMENTO, CALIFORNIA
SEN. SHEILA KUEHL:(CHAIR, CALIFORNIA INTERNATIONAL TRADE POLICY COMMITTEE) There’s no democracy in any of this stuff. It’s of grave concern to us because the state is really not a party at all, not in the negotiation of these agreements, not in the interpretation of these agreements, and not in the defense of our own laws.
BILL MOYERS: Yet at least eighty California laws could be at risk. State regulations that restrict development in scenic areas or coastal zones, for example, are open to challenge by a foreign developer. Enacting more stringent laws about what can be added to California wine or what can be labeled organically-grown food could be challenged. The authority to limit commercial fishing when fish are scarce could provoke claims from foreign-owned fleets. Even state support for alternative energy could come into conflict with trade rules.
SEN. SHEILA KUEHL: We are experimenters in democracy. We’re certainly accountable to our own people and constituents. But I think if there is a threat to the ability of our 50 states to legislate in these arenas it’s a very, very serious thing. And especially if the threat is because of a single or a couple of investors in a company who are not themselves nationals of the United States. It’s, democracy goes out the window.
MEXICO CITY, MEXICO
BILL MOYERS: NAFTA was promoted as promoting democracy. And in the early 1990s, democracy was a new possibility in Mexico. NAFTA was also promoted as promoting investment. Desperate for that investment, Mexico eventually agreed to Chapter Eleven. The people in one Mexican community would soon discover that NAFTA might be friendly to investment but it was not all that friendly to democracy.
LOS AMOLES, MEXICO
BILL MOYERS: The Chapter Eleven claim had its beginnings here in the poorest region of the state of San Luis Potosi. It was brought by an American investor a company called Metalclad and brought against the government of Mexico. The center of the dispute was a toxic dump.
Mexican owners had dumped more than 20,000 tons of waste here and left it lying around, exposed equal to what had been buried beneath New York’s Love Canal. Although Metalclad had no experience operating toxic waste landfills, it saw a lucrative market in helping Mexico solve a big problem. So, in 1993, the American company bought the abandoned dump.
But the people who lived near it like Juan Romo did not want the dump re-opened. They believed it had been making them sick.
JUAN ROMO: After the landfill first opened, we began to fear personally the word cancer. Because it began to appear in people’s bones, cancer in women’s wombs, cancer in people’s blood. Then we got scared.
HERMILIO MENDEZ: The number of cases in this region is not normal. And we blame it completely on the contamination, which started in the early 90s and continues to this day.
GUADALCAZAR, MEXICO
BILL MOYERS: The fears had led people in the community of Guadalcazar to force the Mexican owners to shut down. Now, with town councilor Hermilio Mendez, they demanded that Metalclad clean up the site it had bought before it brought in more waste. The company refused.
HERMILIO MENDEZ: There has been a lot of propaganda on Metalclad’s part. Here is how they think of us with these caricatures. I remember when I was a kid, we used to entertain ourselves with these types of cute drawings. And that is how Metalclad views us. That’s how they see us as little kids.
BILL MOYERS: Opposition to the company spread as was clear in the graffiti that sprouted on the streets of Guadalcazar. But it was shrugged off by Metalclad and the company’s president.
GRANT KESLER: (PRESIDENT, METALCLAD) Believe me, the natural and expected opposition to a landfill in your backyard is no different in Mexico than it is in the United States. We felt that the key to the broader political support was not direct to the people. And every adviser that I had in Mexico told me if the governor supports this project, you don’t have to worry about that local community.
SAN LUIS POTOSI, MEXICO
BILL MOYERS: But in 1993, the state of San Luis Potosi was the hotbed of Mexico’s emerging democracy and the candidates for governor were listening to the voters. To endorse reopening the dump, the eventual winner said, would have been a “political Molotov cocktail.”
HORACIO SANCHEZ UNZUETA: (GOVERNOR, SAN LUIS POTOSI 1993-97) I met with Mr. Grant Kesler, the owner of Metalclad. I talked very clearly with him, saying that it was, from my point of view, virtually impossible to open the site due to the opposition of the local community and the local authorities. And he said, no, no, no, it will take a lot of time, but most–more important, I have the federal permit in order to do so. And I say, well, is not enough.
BILL MOYERS: And that would be the key. Metalclad had managed to get a permit to operate a landfill from the federal government in Mexico City a permit which gave the company five years to clean up the existing waste. But the democratically-elected Guadalcazar town council would not give its permission unless Metalclad agreed that the clean up would happen first.
Without the local permit the American company started building anyway.
Guadalcazar has only two policemen, with one station wagon, to enforce the law. But when it was discovered that construction had begun, town councilmen personally delivered a “stop work” order to the site.
GRANT KESLER (PRESIDENT, METALCLAD): It was in pencil on a piece of paper we showed this to the federal inspector. He says, this is a request for you to go get a local construction permit. He says, if I were you, as a matter of comity, I would go apply for the permit. They may charge you 500 pesos, but they can’t deny you. But by all means, go on with the construction. So we did.
HORACIO SANCHEZ UNZUETA (GOVERNOR, SAN LUIS POTOSI 1993-97): It was an illegal construction, never had the permit to build.
MEXICO CITY, MEXICO
BILL MOYERS: Assuming top down pressure would still work in Mexico, Metalclad turned to the US Embassy. The embassy accepted the company’s claim that it had vast experience in operating toxic landfills and the ambassador summoned Governor Sanchez Unzueta for a conversation.
HORACIO SANCHEZ UNZUETA (GOVERNOR, SAN LUIS POTOSI 1993-97): Since the very beginning, the position of the American ambassador was very, very clear. I think crude. Saying that if my government didn’t open the local facility, the American embassy would put the San Luis Potosi name in a black list in order to warn the investors in United States not to invest in San Luis Potosi.
JAMES JONES (US AMBASSADOR TO MEXICO 1993-97): If this is the way you do business in San Luis Potosi, we’re going to tell other businesses in the United States who want to invest in Mexico, you can invest here, but don’t invest in San Luis Potosi.
HORACIO SANCHEZ UNZUETA: And I clearly said to him that it was not only a threatening against San Luis Potosi but it was a sort of blackmailing.
JAMES JONES It was not blackmail. It was just a you know, one of the job of a US Ambassador is to protect the interest of the United States, whether they’re political interests, commercial interests, or what have you. The reason we have Ambassadors in embassies is to be able to understand on the ground what another country is like. So when there’s a problem, I think it’s the US Ambassador’s job to tell US interests what the real facts are. I don’t think that’s blackmail.
BILL MOYERS: Even with the full weight of the American embassy behind it, Metalclad could not get the locals to relent. They were not going to be told what to do. And when the company staged a “grand opening” at the landfill for its investors and stockholders in March, 1995, the community turned out in protest.
METALCLAD REPRESENTATIVE: Let me speak, please. Let me speak.
FIRST PROTESTER: The governor told us that if the people didn’t want them here, Metalclad would go. We don’t want them here!
SECOND PROTESTER: If they want permission, they have to get it from us.
THIRD PROTESTER: Next time, they have to respect the local municipality.
FIRST PROTESTER: Guadalcazar wants no dump! We want none of it!
BILL MOYERS: The town council stood firm. And Governor Sanchez Unzueta eventually declared the entire region a protected ecological zone. But by that time, Metalclad had filed its Chapter Eleven claim against Mexico. The actions of the state and local government, Metalclad argued, amounted to an “expropriation” of its investment.
WASHINGTON, DC
BILL MOYERS: It is a case that could not have been filed in the US court system had Metalclad tried to build a waste facility in, for example, Iowa and moved ahead without local approval. But under the rules set by NAFTA, Metalclad could file a claim and the tribunal rule in its favor just as the advocates of “investor protection” intended.
EDWIN WILLIAMSON (SULLIVAN & CROMWELL): What you had was some pretty egregious government action.
BILL MOYERS: Edwin Williamson was legal counselor to the State Department when NAFTA was negotiated. He has since headed the International Law Group of the Federalist Society, a conservative legal organization.
EDWIN WILLIAMSON: Then the obstructionist tactics that the local authorities took were inconsistent with the basic belief in the rule of law.
BILL MOYERS: What we found when we went there were people telling us, at the local level, over and over again that, well, this was a toxic dump that they didn’t want reopened until it had been cleaned up. That’s all they were asking for. And they felt that their politicians were responding to their needs, the needs of constituents. In other words, democracy at work.
EDWIN WILLIAMSON: Well, but we have rules within democracies, and the rules in Mexico, according to the panel, was that the federal government in Mexico made those decisions, and while they may have received a sympathetic ear from the local politicians, that is not what Mexico had promised, in effect, to Metalclad that the rules were.
BILL MOYERS: Mexico’s defense against Metalcladís claim was led by Hugo Perezcano.
BILL MOYERS: We have talked to a number of people who say, in their opinion, the federal permit was enough. That the community and the local government actually had no role in this decision.
HUGO PEREZCANO (GENERAL COUNSEL, TRADE NEGOTIATIONS, MEXICO): Well, Let me tell you, Bill, that is a matter of Mexican domestic law. It is a matter that Mexican courts should address. That is not why international tribunals, that is not what they were set up to do. International tribunals were set up to interpret and decide on international law. And the NAFTA has not come in to replace our domestic judicial system for the benefit of foreigners.
BILL MOYERS: But faced with the choice between the Mexican government’s or Metalclad’s interpretation of Mexican law, the NAFTA tribunal ignored Mexico’s arguments and consistently sided with the American company.
HOWARD MANN (INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT): The underlying principle is clearly the right of the investor. That was clearly paramount and foremost in the decision. This is a really key feature of the Metalclad judgment.
Essentially we see Chapter Eleven operate to reverse the globally accepted “polluter pays” principle and we see it being turned into a “pay the polluter” principle under Chapter Eleven. And that’s a significant risk that we now see.
BILL MOYERS: There’s almost no collective action we take as democracy that doesn’t have some negative effect on a product or on a practice.
WILLIAM GREIDER (NATIONAL AFFAIRS CORRESPONDENT, THE NATION): The distinction that the advocates make for this doctrine is that we’re not overturning any laws we’re simply making the public pay the costs they have imposed on some private investor. And that sounds at least on the surface like an attractive idea: Well, if we’re gonna hurt these people in order to protect clean water, clean air maybe we should compensate them in some way. The fallacy, of course, is that the way NAFTA defines it, any firm that suffers any slight, or large, injury from what it perceives as regulatory controls gets to collect money.
BILL MOYERS: That, say the critics, is the Trojan horse of NAFTA. Multinational corporations have seized on one definition in the treaty to claim compensation for unrealized profits. It consists of three key words: “Tantamount to expropriation.”
MARTIN WAGNER (ATTORNEY, EARTHJUSTICE LEGAL DEFENSE FUND): Generally, it’s been understood that governments can do what they need to protect their people and their environment without having to pay if they diminish the value of property. But these corporations are using NAFTA Chapter Eleven to expand that and say governments do have to pay for every amount by which the value of their property is reduced. And one of the bases on which they’ve made that claim is the fact that NAFTA’s Chapter Eleven uses this phrase “tantamount to expropriation.” Not only do governments have to compensate when they expropriate or take away property, but they have to do so whenever they do something that is “tantamount to expropriation.”
BILL MOYERS: Prompted, in part, by the Metalclad tribunal’s decision, companies are attempting to stretch “tantamount to expropriation” even further and have mounted attacks on the ordinary activities of all three NAFTA governments.
United Parcel Service claims that Canada’s publicly-subsidized package delivery system is unfair competition. UPS wants 230 million dollars in damages.
At a new interchange on Interstate Highway 95 in Virginia, the steel and cement being laid are required to be made by American workers. But the “buy American” requirements of US highway programs are under challenge from a Canadian steel maker as illegal under NAFTA.
The threats, one Washington lawyer says, are “out of control.”
WILLIAM GREIDER )NATIONAL AFFAIRS CORRESPONDENT, THE NATION): Some companies are probably gonna win huge claims on issues that will seem utterly illegitimate to most Americans.
BILL MOYERS: I read where one of these lawyers, a Canadian trade lawyer, said to the Canadian government, this is a direct quote: “They could be putting liquid plutonium in children’s food. If you ban it and the company making it is an American company, you have to pay compensation.”
WILLIAM GREIDER: The boundaries on this are literally the infinity of the legal imagination.
BILL MOYERS: How did this happen with no public discussion or debate? We asked the Washington attorney who was number two on the US trade team that negotiated NAFTA.
CHARLES “CHIP” ROH (DEPUTY CHIEF NEGOTIATOR, NAFTA): I don’t find it altogether surprising that there have been creative uses of the mechanism because, I mean, I’m a lawyer and our profession is creative. People use worse words for us, but they are at least creative. And that can result in, you know, attempting to make a use of a provision that perhaps was not in the contemplation of the drafters.
BILL MOYERS: What concerns people is that it would be a real stretch of this whole notion of expropriation if you can get compensated simply because the government decides to enact environmental standards. Is that a stretch?
CHARLES “CHIP” ROH: I think it is a stretch, actually. It would be a very big thing if instead of providing for compensation for expropriations, you were also providing compensation for measures that diminished the profits of business. That would be a big change.
BILL MOYERS: Chapter Eleven claims are now being fashioned in the offices of many of the biggest New York and Washington law firms. Pillars of the bar like Hogan & Hartson, White & Case, Baker & Botts.
WILLIAM GREIDER (NATIONAL AFFAIRS CORRESPONDENT, THE NATION): These lawyers may typically serve at the State Department or Treasury, or the U.S. Trade Representative’s Office, help negotiate the agreements, carefully supervise the legal language that goes into those agreements, and then they return to their firms, in private life, and represent clients using this new language they created as legal tools, and they may even personally become advocates and, and sort of generate a new legal boutique, which–around the practice of, say, Chapter Eleven cases.
BILL MOYERS: A legal boutique?
WILLIAM GREIDER: Well, a specialty that, that suddenly provides a new market for lawyers’ talents. And I think that’s happened with Chapter Eleven.
BILL MOYERS: One Washington firm that seems to be developing a Chapter Eleven specialty represents Methanex in its billion dollar claim against the United States. Now Jones, Day, Reavis & Pogue has brought another action demanding almost as much money for a Canadian client that found itself on the losing end of a Mississippi jury trial.
JACKSON, MISSISSIPPI
BILL MOYERS: You don’t find many people at the Mississippi state fair asking questions about obscure language in an obscure provision of one trade agreement especially when there was no public debate about it in the first place. But NAFTA’s Chapter Eleven goes to the heart of some established customs and traditions here.
BILOXI, MISSISSIPPI
In Mississippi, as in most of America’s small towns, funeral homes have long been run as family dynasties.
JERRY O’KEEFE: My great-grandfather was an Irish farmer, came over here in the 1840s and farmed before the civil war and right after the civil war started this small livery and undertaking business. And a lot of the funeral homes and undertaking establishments in the south came out of the livery business or the furniture business. And so it’s been in the family since 1865.
BILL MOYERS: Seventy-eight year old Jerry O’Keefe owned eight funeral parlors, a funeral insurance business and still found time to serve two terms as mayor of the Gulf Coast town of Biloxi.
But in the early 1990s, he and Mississippi were introduced to a handful of giant death-care companies competing to buy up as many funeral homes as possible. One of the biggest was a Vancouver-based company owned by Raymond Loewen a multinational corporation that had already bought hundreds of family-owned funeral homes in Canada and the United States.
JERRY O’KEEFE: They would buy funeral homes and then they were able to buy funeral merchandise caskets, vaults, burial clothing, embalming chemicals and other items like that on a, on a greatly enlarged quantitative basis and get a much better price than an individual funeral home could. But unlike the, the Walmarts and JC Penneys who buy in great bulk that way, their theory is not to pass on any of that to the consumer.
BILL MOYERS: The Loewen Group quietly bought several of O’Keefe’s Mississippi rivals. But the Loewen corporate logo never replaced the more familiar local facades.
MIKE ALLRED (O’KEEFE ATTORNEY): They hide behind the honored names of these family businesses and they go way out of their way to keep anyone from finding out that they have placed the Loewen golden arches over the local business.
BILL MOYERS: One of the funeral homes bought by Loewen had a longstanding contract with O’Keefe to sell his funeral insurance. Instead of honoring that contract, Loewen began selling its own.
JERRY O’KEEFE: I suggested that I go to Vancouver and sit down and talk to Mr. Loewen, which I did.
BILL MOYERS: Raymond Loewen was known to court funeral home owners during dinner cruises on his 110-foot yacht.
JERRY O’KEEFE: We went out on the yacht and had dinner on the yacht and cruised around the harbor there in, in Vancouver and it was very pleasant. And Mr. Loewen, I was amused because he had a secretary there to serve the drinks and serve the meal and to light Mr. Loewen’s cigars. I was really amused by that because for years, I smoked cigars myself and one of the pleasures of smoking a cigar is actually lighting it, you know. But I think that he went to that means to impress me and it did impress me, but it wasn’t favorable.
BILL MOYERS: The night on the yacht did not resolve the conflict.
MIKE ALLRED: (O’KEEFE ATTORNEY) Their motive was to destroy him as a competitor and to acquire his businesses in these key areas to secure absolutely monopoly power.
BILL MOYERS: O’Keefe decided to sue under Mississippi law. His legal team alleged that the Loewen Group had engaged in “fraudulent” and “predatory” trade practices. The Bible Belt jury was urged to view the case as a morality play – what O’Keefe’s lead trial lawyer called the “oldest known sin to anybody greed.”
MIKE ALLRED: Juries always respond with a sense of justice according to the morality of the schoolyard. If a big mean kid on the schoolyard is beating up the little guys, people are more offended than if a big mean kid is beating up another big mean kid.
BILL MOYERS: Loewen argued this was a simple contract dispute between two parties. But at the end of a seven-week trial, the jury found for O’Keefe and awarded him damages totaling $500 million dollars.
BOB BRUCE (JUROR) The punitive damages, of course, had to be to see that the Loewen Group stopped doing what they were doing. You had to send a message, there’s no doubt about that. And that’s what that’s what we did.
BILL MOYERS: “Not one of my lawyers flagged the danger of a Southern jury,” Raymond Loewen later complained.
HON. JAMES GRAVES (PRESIDING JUDGE, O’KEEFE V. LOEWEN): It is understandable that someone would feel aggrieved by a jury’s verdict. But if there’s a judgment rendered by a trial court and if the appellate court affirms it and you appeal that and ultimately get to the United States Supreme Court and they hear it, they affirm it that’s kind of it. And, I mean, little kids know, United States Supreme Court that’s the last word.
BILL MOYERS: Instead of appealing the jury’s decision, the Loewen Group settled with O’Keefe for $175 million a third of the original award. But three years later using NAFTA the company struck back. Contending that the Mississippi trial was “infected” by appeals to the jury’s anti-Canadian and racial bias, the corporation filed a Chapter Eleven claim. Loewen is asking for $725 million from American taxpayers $550 million more than it had paid O’Keefe.
EDWIN WILLIAMSON (SULLIVAN & CROMWELL): The Federal government of the United Statesí failure to police, in effect, the states is the cause, is the reason the United States government is being threatened with a substantial monetary liability.
BILL MOYERS: We talked to a number of jurors down there, we were down there. And they told us that it wasn’t the fact that Loewen was a Canadian company. They just said it was the company’s behavior that angered them.
EDWIN WILLIAMSON: I think it’s a runaway jury, and I do not think the way our jurisprudence, I don’t think fair and equitable treatment contemplates runaway juries.
BILL MOYERS: Would all juries have to now look over their shoulder at Loewen and this decision?
EDWIN WILLIAMSON: First, if I were in the U.S. Federal government, I’d say wait a minute, what kind of exposure do I have to misbehavior in the state of Mississippi. And so I would start looking around for what I can do to make sure this doesn’t happen again. And I would find some way to impose on Mississippi that liability, and then once Mississippi had the liability, then I think it would be incumbent upon them to do something about it.
BILL MOYERS: To say to the juries, behave or else.
EDWIN WILLIAMSON: Exactly.
CHARLES “CHIP” ROH:
BILL MOYERS: In the sense of being excessive?
CHARLES “CHIP” ROH: Well, yeah, a lot of people say it’s excessive.
BILL MOYERS: I understand that, but it still is troubling to me as an American citizen…
CHARLES “CHIP” ROH: Sure.
BILL MOYERS: –that our jury system could potentially be upheld as…
CHARLES “CHIP” ROH: Sure.
BILL MOYERS: –illegal under a NAFTA provision that was not debated…
CHARLES “CHIP” ROH: Right.
BILL MOYERS: –which was not explored, which was not explained…
CHARLES “CHIP” ROH: Right.
BILL MOYERS: –in an open way.
CHARLES “CHIP” ROH: Right.
BILL MOYERS: That does trouble me.
CHARLES “CHIP” ROH: I mean, there was nothing hidden about it, but no, no one sat there because, honestly, none of us thought about it. I mean, candidly, of course, if the government finds itself laying out several hundred million dollars in this kind of a case, it is you may say, well, you’re free to keep your system the way it is, but it’s sure going to be expensive to.
BILL MOYERS: In a preliminary ruling, the Loewen tribunal declared that the Mississippi trial is a legitimate target under NAFTA. And that could, conceivably, open the US civil justice system to challenge including decisions of the United States Supreme Court.
HON. JAMES GRAVES(PRESIDING JUDGE, O’KEEFE V. LOEWEN) I know I sound like some flag-waving patriot, but I have a profound deep-seated belief in the ability of this system to work exactly the way itís supposed to work most of the time. Because if not juries, then who? And if someone else, then why are they better than those twelve citizens?
WILLIAM GREIDER: (NATIONAL AFFAIRS CORRESPONDENT, THE NATION) The politics of this gets very interesting if a claim like Loewen wins. Will average Americans sort of shrug and say, well, that’s the price of globalization and, and if this is what it takes to spread democracy around the world, overthrowing American jury verdicts through some, quote, offshore legal system, that’s okay with me? I don’t think so.
BILL MOYERS: Most Americans do not know about Chapter Eleven and they do not know there is a push now in Washington to expand NAFTA to thirty-one more countries in another agreement called the Free Trade Area of the Americas. Extending Chapter Eleven privileges for corporate investors is at its core.
The giants of American business are among those demanding it as they made clear in a letter to the official in charge of current US trade policy. The letter was written by their lobbyist, Dan Price, who ten years ago was the lead US attorney shaping Chapter Eleven. Price declined to talk to us. The deputy NAFTA negotiator agreed.
BILL MOYERS: We’ve been given a letter that was written to U.S. Trade Representative Zoellick in which business says they want quote protection of assets from direct or indirect expropriation, to include protection from regulations that diminish the value of investors’ assets.” That’s a pretty clear demand, isn’t it?
CHARLES “CHIP” ROH:(DEPUTY CHIEF NEGOTIATIOR, NAFTA) Yeah, it is. Well,
I can see how you can take that particular set of phrasing and say, oh, well, what business is saying is if I’m if you regulate and make me less profitable, pay me off. I’m not sure whether that was the intent, um, um….
BILL MOYERS: But I can tell just–you know, you…
CHARLES “CHIP” ROH: Just by my body English.
BILL MOYERS: Yeah. Your body says there is a reason to be concerned, that you as a former negotiator, as a former public official, you have some concern over language like that.
CHARLES “CHIP” ROH: If you took that wording literally and said, okay, let’s make it clear or let’s add a rule that says, by the way, expropriation means anything that diminishes the value of your investment, then it seems to me that that’s probably I, who am a huge supporter still of these agreements, would say that’s a that’s a big mistake because you get ñif you try to push it to there, the people are not going to go with you, because that’s just too greedy.
BILL MOYERS: You write that Chapter Eleven is a ticking time bomb in the politics of globalization. Why?
WILLIAM GREIDER: (NATIONAL AFFAIRS CORRESPONDENT, THE NATION) Because I think the public ignorance will be shocked and quite confused, if any of a number of cases, whether it’s Methanex or Loewen, or some of the others, manage to win damages against the United States. People at first are gonna say, Huh? What is that about? And then, as it’s explained to them, they’re gonna say, we didn’t sign on for that. That’s not what we think about as a global trade agreement. And then the education process is quickly gonna turn into anger, I believe.
BILL MOYERS: Will the jurors of Mississippi or the citizens of California be overruled by the NAFTA tribunals? The decisions are still pending the deliberations secret. So we simply do not know. But on October 25, 2001 abiding by the order of one tribunal the government of Mexico paid Metalclad $16,002,433 dollars.
HERMILIO MENDEZ: Our people couldn’t believe that Metalclad won compensation. How is this possible? What will happen to the people who were hurt? We are the lab rats and they experiment with us.
BILL MOYERS: NAFTA may have established a private court for capital. But there is no private court for the citizens of San Luis Potosi who are left with 20,000 tons of toxic waste that the Mexican government now owns and must find the money to clean up. And there is no private court for the Christiansens, who fear their life savings are gone.
Or for Eyvonne Watts, who does not know how contaminated water may affect her children.
The story is not yet over. But if, through trade agreements like NAFTA, the President and Congress continue to create one-sided privileges for multinational corporations, the country must ask: Are they promoting democracy as they claim or trading it away?
This transcript was entered on April 2, 2015.
