Courts and Unintended Consequences for Free Trade

She might have looked deeper into unintended consequences flowing from that case and Ottawa’’s other February challenge to Chapter 11, its Federal Court action against the panel ruling in the S.D. Myers case. In short, Ottawa may accidentally give a veto over national trade policy to the two groups guaranteed to wreck the most havoc -- provincial politicians and American lawyers.

In Ottawa’’s Metalclad brief, it asks the BC Supreme Court for intervenor status to argue for invalidating the panel’’s ruling because its members failed to weigh the environmental platitudes in NAFTA’’s Preamble against the investment protection clauses in Chapter 11. Facts matter here.

Metalclad only has a case because the Mexican government had assured them that they had all the necessary permits, environmental and otherwise, to build an industrial waste treatment facility. Then, the city council of Guadalcazar refused to issue a building permit and the state government of San Luis Potosi subsequently declared the site a nature reserve. Mexico City, rather than stand up to these junior governments, decided to repudiate its earlier clearance. Its decision to fight the NAFTA panel has little to do with environmental protection -- it had already decided that issue in Metalclad’’s favor -- it had everything to do with federal-state relations. Sounding familiar?

What’’s the precedent here? It’’s not legal, but political. Provincial or local governments can essentially ignore international trade commitments if they dress up their discriminatory measures as environmental regulations. Ms. Klein and the Council of Canadians support this triumph of local democracy over international trade law. For reasons of raw politics, so, too, do the provinces. Perhaps, Minister Pettigrew, you noticed that Quebec, Ontario and British Columbia also sought intervenor status in the Metalclad case, in Mexico’’s favor? Green solidarity with their Mexican counterparts? Think harder.

By Ottawa’’s Metalclad intervention, it in essence offers provincial politicians the choice of whether or not to comply with trade agreements signed by Canada. Of course, Victoria and Quebec City welcome such new power. They chafe under any interference with their industrial ward-heeling. Witness that after ten years of wrangling, they still cannot agree on actual inter-provincial free trade.

What’’s also odd is that Ottawa may unleash American lawyers to pick apart Canadian trade policy. This brings us to the S.D. Myers case. The federal government has asked the Federal Court to rule that it should not have to pay any compensation arising out of the panel judgment in the S.D. Myers case. The panel ruled that then Environment minister, Sheila Copps (who else), discriminated against that US company by arbitrarily legislating a ban on the export of PCB waste to favor a Canadian competitor. Ottawa contends the panel exceeded its jurisdiction as somehow determined by the Canadian Commercial Arbitration Act! The argument is ingenious. The problem is that, even if it’’s correct, it delivers this message to the US bar -- if a NAFTA panel rules against your client, ignore it and get the matter into a domestic court; the Canadian government did.

Ottawa’’s legal actions set the stage for this scenario. A NAFTA panel rules against US quotas on Canadian softwood lumber imports. Montana then declares that BC and Alberta lumber passing through the state poses an environmental risk. Some bug. Canada complains only to be told, See you in the Butte courthouse. Who knows how the legal hostage-taking of Canadian trade policy by US courts would end? Except of course expensively.

More is at stake than money in urging Ottawa to keep its trade disputes out of Canadian courts, lest they end up in American ones. To sneak around the S.D. Myers’’ decision, Ottawa, inadvertently, may make all trade panel ruling vulnerable to domestic litigation. Wound these investment dispute panels and you cripple the enforcement of rule-based trade. Without enforcement, trade treaties become intentions not agreements. Ottawa has lost sight that it gains more from strong trade rules than it loses to strong investment protection rules.

My colleague, Gordon Gibson, talks about subsidiarity. I hate any word I can’’t pronounce. But Gordon’’s point is a simple one. Different levels of government should do what they can do best. Arguably the national government should manage national trade policy. In its February legal adventures, Ottawa may have undercut its own trade authority by allowing the provinces to opt out of complying with international trade treaties.

Sadder still Ottawa invites attack from that most plentiful and creative creature -- a US lawyer with a mortgage.

Minister Pettigrew, you don’’t want this. Stop it then. Get out of court, before someone ends up in Butte, and it won’’t be Ms. Klein.