Ottawa wins NAFTA challenge brought by U.S. chemical maker

Bertrand Marotte

Ottawa has won an important NAFTA victory against a U.S. chemical company that was claiming damages for a Canadian government agency’s ban of one of its products.

The decision is the latest under the controversial investor-protection provisions of the North American free-trade agreement. The measures allow foreign investors to seek compensation from the three signatory national governments – Canada, the U.S. and Mexico – before an international tribunal for allegedly unfair and discriminatory actions, such as product bans or expropriation of assets.

Specialty chemicals firm Chemtura Corp. of Middlebury, Conn., said in a recent U.S. securities filing that an arbitration tribunal under the NAFTA’s Chapter 11 rules has denied its claim for about $78-million (U.S.) in compensation.

The company filed its complaint over the Canadian government’s decision to end the use of lindane – a suspected carcinogen banned or no longer used in several countries – arguing that the seed-treatment fungicide was banned without sufficient scientific risk assessment.

Reasons for the tribunal’s decision – issued earlier this month – have not yet been released.

The decision by the three-person tribunal dampens the argument made by many environmental and health groups that the Chapter 11 provisions offer companies a way to bypass local courts and sue the federal government for actions taken to protect public health or the environment, says one trade expert.

“This decision counters the ‘sky is falling’ attitude of a number of environmentalists regarding the use of Chapter 11,” said Riyaz Dattu, a lawyer with Osler, Hoskin & Harcourt LLP.

“It shows there can be a balance between the need to implement appropriate environmental measures and the need to protect investors’ interests,” he said.

Kathleen Cooper, a senior researcher with the Canadian Environmental Law Association, agrees that the ruling is positive but remains concerned.

“It’s not a court decision. It’s a very closed-door type of body and there aren’t the kinds of rules of law that the courts have, one of which is precedent.”

It’s not clear what impact – if any – the Chemtura ruling might have on a similar, continuing case, in which U.S. giant Dow AgriSciences is using Chapter 11 to challenge Quebec’s 2006 law banning the use of cosmetic lawn pesticides.

Last week, Ottawa agreed to compensate forestry giant AbitibiBowater Inc. $130-million to settle a claim under Chapter 11 that the company’s assets in Newfoundland and Labrador were illegally seized by the province.