Fred McMahon / National Post
Watch out for your backyard! Powerful corporations can now plop down hazardous-waste plants wherever they wish. A NAFTA ruling -- being appealed in Vancouver -- has opened the floodgates for unregulated environmental degradation.
That's the story environmentalists are propagating through their own networks and whatever openings they get in the mainstream media -- usually the CBC. "We now have examples coming out of this international treaty that override our capacity to make decisions in the interests of our own citizens," Connie Fogal of the Defense of Canadian Liberty Committee told a CBC audience recently.
This isn't even close to the truth. The ruling is good news for the environment and environmental regulation.
The dispute pits Mexico against California-based Metalclad. The company sued Mexico for damages after a local municipality frustrated the opening of Metalclad's hazardous waste plant in Guadalcazar. The NAFTA dispute-settlement panel met in Vancouver, a neutral setting, last year and ordered Mexico to pay US$17-million in damages. Mexico appealed the ruling to the B.C. Supreme Court. (The court's jurisdiction is questionable, but the appeal went ahead last week.)
Anti-NAFTA groups claim the ruling demolishes local regulation. "If this ruling is upheld no town or city will be safe," says Judy Darcy, president of the Canadian Union of Public Employees. "This is a frightening example of the way NAFTA puts corporate profits ahead of public health, and the rights of foreign corporations ahead of the democratic rights of citizens."
Here are the facts. Under Mexico's General Ecology Act, the federal government regulates "the generation, handling and final disposal of hazardous materials and wastes." Federal regulators approved Metalclad's proposal. The state government issued a construction permit. Environmental reviews by the federal government and the local university approved the project.
Metalclad applied for a municipal permit, even though, as the NAFTA panel noted, "There is no evidence the municipality ever required or issued a municipal construction permit for any other construction project ... There was no evidence that there was an established administrative process with respect to municipal construction permits."
Many months later, after the plant was built, at a meeting to which Metalclad was not invited, the municipality rejected the permit application. Outside environmentalists had been lobbying against the plant, but they had no interest in letting Metalclad tell its story.
Metalclad's investment was trashed with no offer of compensation.
The NAFTA panel said the municipality failed to show it considered relevant facts -- environmental studies approving the project or Metalclad's compliance with state and federal laws, permits and construction requirements. The process violated NAFTA requirements for predictability and transparency, surely things environmental advocates should support. In any event, the panel said the question was moot since the federal government, not the municipality, had environmental jurisdiction.
Metalclad made its investments in good faith. It met all regulations and passed all environmental reviews. The NAFTA ruling has nothing to do with overturning municipal regulations, as Canada's anti-trade activists claim. Municipal regulation -- where municipalities have authority under the laws of their own country -- is consistent with NAFTA provisions. The ruling is about capricious post-hoc decisions.
What are the implications? Let us imagine Mexican regulators were asleep at the switch and woke up only after Metalclad poured its money into Mexico, paid the labour and built plant. Mexico still had every right to close the plant, provided it compensated Metalclad.
The ruling supports sensible environmental regulation. If governments are liable for post-hoc decisions, they have every reason to establish regulatory frameworks that will stop questionable projects before they start.
And that is what is happening. John Kirton, of the University of Toronto's Centre for International Studies, recently audited broadly defined environmental regulation written between 1980 and mid-1998 that involved at least two of the three North American nations. He found the pace of regulation picked up after NAFTA was signed. He also found recent regulations provide increased protection to weaker jurisdictions.
Post-hoc decisions endanger the environment. With no advance criteria in place, the door is open to political manipulation to permit questionable projects or stymie good projects, depending on the interests of politically powerful groups. When criteria are known and the process is transparent -- as required under NAFTA -- projects can be objectively evaluated.
Companies won't make investments, particularly in poor regions, if their investment can be trashed without compensation by arbitrary government decisions. A victory for Mexico would undermine the whole NAFTA process and damage environmental protection. It would also weaken the economic prospects of the poorest regions of North America.
Fred McMahon is director of the World Economic Freedom project at The Fraser Institute, a Vancouver-based research organization.:
