Dow AgroSciences is mulling over a NAFTA challenge to Quebec's law banning the cosmetic use of pesticides, setting a spotlight on one of the most controversial clauses of the trade agreement among Canada, the United States and Mexico.
Under the trade pact, companies can claim that new laws or regulations are indirect expropriation of property without fair compensation, and Dow says it is out $2-million over the pesticide ban.
Although the company signalled in August that it was considering taking on Ottawa by filing a NAFTA notice of intent over the issue, it hasn't formally decided to go ahead with the legal action. But Brenda Harris, the company's manager of regulatory and government affairs, says a decision is pending and will be made this month.
If the company decides taking on Quebec's popular pesticide ban is worth the fight, it will likely intensify the efforts within the environmental community to have the trade deal revised to stop such corporate challenges.
The Canadian Environmental Law Association (CELA) has written to both Prime Minister Stephen Harper and U.S. President Barack Obama, asking that they repeal or amend the section of the North American Free Trade Agreement, known as Chapter 11, covering investor disputes with government over expropriation.
The group contends these provisions may discourage governments from enacting environmental or health and safety laws, based on fears that companies might claim these action harm their interests.
The section “operates as a chill [on regulation] because the government would worry, ‘What if I'm going to get an investment challenge and have to fork over big dollars?'” said Theresa McClenaghan, CELA's executive director and counsel.
International Trade Minister Stockwell Day, in a recent letter to the group, indicated the government rejects criticism of the investor provisions, and says they “have served Canada well.” But Mr. Day said the government is prepared to go up against Dow AgroSciences if it comes down to a dispute.
“The fact that a [notice of intent] has been served does not establish the merits of a claim. However, should this claim proceed, the government of Canada will continue to work with the government of Quebec to vigorously defend our interests,” he wrote.
Under the trade pact, Dow has to file its case against the federal government, even though its objection is with a Quebec regulation prohibiting the use on residential lawns of 2,4-D, a dandelion-killing herbicide it makes. The company is irked by the pesticide ban, saying it wasn't based on sound scientific grounds showing hazards from the residential use of its product.
“I think it's a misconception that the investment chapter of NAFTA actually restricts the government's ability to regulate,” Ms. Harris said. “They have the ability to regulate. What we're saying is that you have to use clear, science-based criteria.”
Although Newfoundland and AbitibiBowater may also be heading toward a Chapter 11 dispute over the seizure of many of the company's assets in the province, claims that environmental rules are tantamount to expropriation are the single largest source of complaints under the provision, amounting to about 40 per cent of the 24 cases filed against Ottawa.
The most recent to be filed were in September and October, by two U.S. citizens disputing a Quebec regulation protecting Atlantic salmon, for a combined $6-million. Four cases based on environment-related rules were filed last year, the highest annual total since the trade pact began in 1994.
Potentially the most costly dispute against the federal government was filed in 2006 by a Pennsylvania investor claiming $355-million over a decision blocking the use of an abandoned open pit mine in Northern Ontario as a dump for Toronto's garbage.
Very few of the claims against Canada have led to substantial payments by taxpayers to businesses, although Ethyl Corp. received about $13-million as a settlement over a disputed gasoline additive.
