[CTC] With Passage of NAFTA 2.0, Congress Boosts Fossil Fuel Polluters, Particularly in Mexico

[Manuel Perez Rocha]

*sorry for cross postings ...*With Passage of NAFTA 2.0, Congress Boosts
Fossil Fuel Polluters, Particularly in Mexico
inequality.org/research/nafta-investment-mexico/

With Passage of NAFTA 2.0, Congress Boosts Fossil Fuel Polluters,
Particularly in Mexico.
The U.S. Senate has just approved a deal that perpetuates the excessive
powers of corporate polluters to ride roughshod over Mexican communities
threatened by oil, mining, and gas projects.

JANUARY 16, 2020
by Manuel Pérez-Rocha
Institute for Policy Studies

NAFTA 2.0 cleared another hurdle on January 16 as the U.S. Senate approved
the trade deal with bipartisan support.

Officially called the United States-Mexico-Canada Agreement (USMCA), the
pact has some improvements but remains a handout to large corporations.

This is particularly evident in the USMCA rules related to investor rights.
One of the most controversial aspects of the original NAFTA was that it
allowed private corporations to sue governments in international tribunals,
demanding compensation for alleged violations of a wide range of investor
“rights.” Corporations have used these rules repeatedly to demand
compensation for environmental protections and other public interest laws
and regulations that reduce the value of their investments.

The new trade deal curtails this “investor-state” dispute settlement (ISDS)
somewhat. But it falls far short of the progressive demands for an
alternative system that prioritizes human rights and the rights of nature
over corporate rights, as we laid out in the report “Beyond NAFTA 2.0.
<https://ips-dc.org/report-beyond-nafta/https:/ips-dc.org/report-beyond-nafta/>
”

The *Sierra Club*
<https://www.sierraclub.org/sites/www.sierraclub.org/files/Trump-NAFTA-Environment-Failure.pdf>
*,* one of the most vocal opponents of the USMCA, had demanded complete
elimination of the ISDS system, which it describes as an “illegitimate,
shadow legal system for notorious corporate polluters like Chevron and
ExxonMobil.”

Sierra Club and other large U.S. environmental organizations issued a j*oint
statement against the USMCA,*
<https://www.sierraclub.org/sites/www.sierraclub.org/files/uploads-wysiwig/Joint%20NAFTA%20Enviro%20Letter%2012-9-19.pdf>
complaining
that it “failed to eliminate this clear-cut handout to oil and gas
corporations. As such, the revised deal would allow corporate polluters to
sue Mexico in private tribunals if new environmental policies undercut
their government contracts for offshore drilling, fracking, oil and gas
pipelines, refineries, or other polluting activities.”

Three Distinct Investment Protection Regimes in North America

If the USCMA is ratified in Canada, the North American region will have not
one but three distinct investment protection regimes.

   1. a system for the United States and Canada, in which ISDS no longer
   exists. Many substantive investment protections will remain, but they will
   need to be handled national or local courts or through state-to-state
   mechanisms rather than through international arbitration tribunals;
   2. a system for Mexico and the United States, in which ISDS persists,
   notably for certain government contracts, which remain subject to the full
   protections of NAFTA Chapter 11; and
   3. another system between Canada and Mexico, under the Trans-Pacific
   Partnership (TPP), which is largely based on NAFTA’s pre-existing Chapter
   11 model.

Annex 14-D of the USCMA (applicable only to Mexico and the United States)
puts new limitations on investor claims. For example, claims cannot be made
for indirect expropriation, which is used by companies to get “compensated”
for profits it expected to have. It also requires investors to first
exhaust domestic remedies before bringing a claim to an international
tribunal.

However, Annex 14-E preserves NAFTA investor protections for disputes
related to government contracts connected to the oil and gas, power
generation, telecommunications, transportation, and infrastructure sectors.
Also, Annex 14-E does not include the requirement to exhaust domestic
remedies.

While the elimination of ISDS between the United States and Canada is
clearly positive for those countries, the USMCA’s fragmented investment
provisions otherwise represent a step backwards, toward the originally
asymmetrical, post-colonial investor protection system, in which ISDS was
established primarily to allow corporations based in high-income countries
to sue governments in the Global South.

Indeed, developed countries are increasingly withdrawing from or rejecting
ISDS in agreements amongst themselves. For example, *the European Union and
Australia and New Zealand have reportedly dropped ISDS*
<http://aftinet.org.au/cms/node/1581.> from their mandate for negotiations
of a Free Trade Agreement, while there have been strong indications that a
new Transatlantic Trade Treaty (TTIP) would not require ISDS given the
“highly evolved” rule of law, legal systems, and robust courts on both
sides of the Atlantic. Meanwhile, *the **European Union countries have
begun phasing out Bilateral Investment Treaties among themselves*
<https://ec.europa.eu/commission/presscorner/detail/en/IP_18_4528>.

Rich countries (mainly the United States and the European Union) clearly
intend to preserve mechanisms for the protection of their investments in
the Global South, continuing a tradition of predictably discriminatory
practical effects. To give but one example, no Mexican company has ever won
a case versus the United States or a European country, but it has lost many
cases and many more are pending. Also it is expected that in the
renegotiation of the trade agreement between the European Union and Mexico,
ISDS is going to be introduced via the EU’s Investment Court System.

Extraction Casino: Mining Companies Gambling with Latin American Lives and
Sovereignty Through International Arbitration

All in all, with the USCMA and the TPP, Mexico stands to remain the target
of investor-state lawsuits from both the United States and Canada. As
demonstrated in our report “Extraction Casino,”
<https://ips-dc.org/report-extraction-casino/> during the last couple of
decades — and particularly during the last ten years — mining companies
have filed dozens of claims against Latin American countries before
international arbitration panels, demanding compensation for court
decisions, public policies, and other government measures that they claim
reduce the value of their investments.

In a majority of these cases, the communities most affected by the mining
projects have been actively organizing to defend their territories and
natural commons. For local residents, these projects are a threat to their
land, health, environment, self-determination and ways of life. These suits
represent a further assault. For the global mining companies, international
arbitration is merely another opportunity to strike it rich through
reckless, casino-style gambling, given how the recourse they have to bring
expensive lawsuits to international tribunals takes place within a system
in which the deck is heavily stacked in their favor.

Two Mining Companies Sued Mexico in 2019

Since NAFTA came into effect in 1994, Mexico has already had to pay $242.94
million to companies under ISDS cases. The government is currently facing
investor-state suits in which companies are demanding a staggering total of
$5.97 billion. Two of these were brought by mining companies over
environmental protections.

Shortly before the renegotiated text of NAFTA 2.0 was made public, the U.S.
company Legacy Vulcan LLC and its Mexican subsidiary, Calizas Industriales
del Carmen (Calica*)**, **filed a notice of intent to sue Mexico under
NAFTA*
<https://www.iareporter.com/articles/citing-uncertainty-over-future-of-nafta-chapter-11-a-pair-of-investors-act-to-file-papers-notifying-a-dispute-that-touches-on-licensing-and-environmental-issues/>
over
an environmental dispute concerning limestone quarrying in the state of
Quintana Roo. The company is in conflict with the municipality of
Solidaridad (where the resort town Playa del Carmen is located), whose
ecological land use planning* has **prevented the company from mining*
<https://sipse.com/novedades/laura-beristain-calica-dano-ambiental-adelita-corchalito-sipse-novedades-quintana-roo-313039.html>
on
two properties. The company followed through on its threat, registering its
suit on January 3, 2019 for $500 million.
<https://www.arentfox.com/perspectives/alerts/legacy-vulcan-files-nafta-claim-against-mexico>

Also in early 2019, the Odyssey Mineral mining company filed another suit
against Mexico under NAFTA for not having approved environmental permits
for its seabed phosphate project off the coast of Baja California Sur, claiming
a whopping $3.54 billion dollars
<https://www.italaw.com/sites/default/files/case-documents/italaw10442.pdf>.
Fishing cooperatives, citizens groups and environmental organizations have
been opposed to this project for years given the threat to their
livelihoods and the ecosystems they depend on.

NAFTA 2.0. Will Undercut Efforts to Confront the Climate Crisis

Quoting again the U.S. environmental organizations united against the
USMCA, combined with existing and forthcoming trade agreements such as the
TPP, “The environmental consequences of the USMCA are very real. The deal
would contribute to the climate crisis by helping corporate polluters dodge
our climate policies via outsourcing
<https://www.nytimes.com/2018/09/04/climate/outsourcing-carbon-emissions.html>,
leaving the controversial Investor-State Dispute Settlement system intact
for the most polluting sectors in Mexico.”

Indeed, U.S. and Canadian (as well as EU) oil and gas companies have a key
interest in the Mexican oil market. The strengthening of investment
protections under the new agreements will lock in the reforms made by the
Mexican government in 2013 allowing for the privatization of the energy
sector. The present and future Mexican governments will find it hard to
reverse these policies without the risk of being sued at international
investment tribunals. The risk of lawsuits by oil, gas and mining companies
is very real since a significant proportion of the international investment
arbitration cases stems from the extractives sector.

The passage of NAFTA 2.0 is very concerning for all the efforts to confront
the climate crisis and save the planet.

*Manuel Pérez-Rocha *
Associate Fellow
Institute for Policy Studies
1301 Connecticut Ave NW #600,
Washington, DC 20036
Cel. 240-838-6623
www.ips-dc.org
http://www.ips-dc.org/issues/trade/
Follow me on Twitter @ManuelPerezIPS
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