QUEBEC, April 21, 2001 (UPI) -- In addition to lowering barriers to international commerce, a Free Trade Area of the Americas agreement -- the continuing topic of discussion between 34 world leaders in Quebec Saturday -- is expected to include protections for international companies that invest, or are planning to invest, in foreign countries.

These investor protections are expected to be essentially the same as those included in the North American Free Trade Agreement. Enforcement of the NAFTA provisions, however, has become the focus of an intense debate.

Trade agreements routinely include provisions that will protect investors if foreign governments seize their assets, such as when an oil industry is nationalized. Under current trade agreements, companies would need to be paid fair compensation for such seizures, called expropriations.

At issue is how the NAFTA rules are being applied. A broad range of actions now appears to be considered an expropriation of property by NAFTA dispute-resolution tribunals. Moreover, NAFTA granted corporations investing in a foreign country the right to directly sue the government of that country; a right domestic corporations do not have. As a result, suits have been filed directly by firms over "expropriations" that include enforcement of domestic environmental laws.

For example, when an American company, Ethyl Corp., was not allowed to import a manganese-containing gasoline additive into Canada it brought a NAFTA-based action against the Canadian government, asserting, among other things, that its reputation worldwide had suffered and its stock price had dropped.

The case was the first time a corporation had claimed that a legislative action designed to protect health was "tantamount to expropriation." In the end, Canadians paid to settle the case, rolled back their law and issued a statement saying there was no new scientific evidence to modify the 1994 conclusions of Health Canada that MMT posed no health risk.

Some members of Congress are concerned about the way trade disputes against national governments are being handled. In March, Rep. Lloyd Doggett, D-Texas, and Rep. Bob Ney, R-Ohio, sent out a letter about trade agreements to the other 433 members of the U.S. House of Representatives. "One area demanding significant improvement is the decision-making process which seems to thrive on secrecy. Its records and proceedings are closed to public scrutiny and accountability," Doggett and Ney wrote.

Doggett also raised the issue at a House Ways and Means Committee meeting on March 7, referring to similar clauses in proposed U.S. agreements with Chile and Singapore. Doggett asked U.S. Trade Representative Robert Zoellick, "How can we ensure that we protect the rights of investors without seeing these agreements misused to undermine our environmental laws?"

Zoellick answered that after studying the existing cases, the U.S. may need to "consider some adjustments" to any agreements. Frank Vargo, international vice-president of the 14,000 member National Association of Manufacturers, thinks the FTAA will phenomenally boost American exports over the next 10 years and that the dispute resolution process poses little threat to the governance of a sovereign country.

"The investor protection provisions do not force any governments to change any laws. They are aimed wholly at making the investor whole -- if the investor has been treated unfairly," Vargo told United Press International. "Investor protections are in every one of our bilateral investment treaties," Vargo said.

A Congressional aide of a House Ways and Means member, speaking on condition of anonymity, told UPI, "This (investor protection) provision was meant to protect businesses whose property had been expropriated. It's now being used for a lot lower level of dispute. ... That's not exactly what many thought they were provided for." In response to a UPI inquiry about investor protection clauses, Senate Finance Committee Chairman Charles Grassley, R-Iowa, responded through an aide that he "has no specific comment on the investor protection provisions of the FTAA (and) ... sees the proposed text as a step forward in the negotiating process."

Another high profile NAFTA case, currently pending, involves the Methanex Corporation's $970 million claim against the United States. Methanex, a Canadian company, makes methanol. Much of its profit depends on another company buying its methanol to mix with MTBE, a gasoline additive. MTBE is a toxic substance that travels through ground water and has contaminated wells throughout California and other parts of the country.

California's governor, Gray Davis, ordered sale of gasoline with MTBE halted in California by the end of 2002. Methanex claims that the action banning MTBE is not the least restrictive solution to the contamination problem and therefore constitutes an expropriation.

David Schorr, director of the sustainable commerce program at the World Wildlife Fund, told UPI, "The investor protections chapter is being used much more aggressively than it has been in the past by private corporations. Instead of using it as a last-ditch tool when a government has abused them, it has become a weapon of first choice in the fight against environmental regulation."

Such lawsuits can also call into question the lines of authority between local and national governments. When Metalclad Corporation, a U.S. company, was denied the right to build a hazardous waste dump in Mexico, it brought action against Mexico and was awarded $16 million. The NAFTA tribunal ruled, among other things, that a municipality had no right to deny a permit if the company had been led to believe by Mexican federal authorities that permission would be granted.

Testimony of Mexican law experts contradicted this finding. The tribunal ruled that Mexico had failed to provide a transparent process for investors and did not proceed in a timely and orderly manner.

Robert Stumberg, professor of law at Georgetown University, specializing in the intersection of local government law and international trade rules, told UPI, "The risk is that it could be a significant shift of power away from state and local government. ... The (investor protection provisions) are open-ended. They could mean almost anything."

Other such cases involve a successful action against Canada for temporarily having prohibited the export of PCBs, a pending action against Canada when a contract to export river water was canceled, a pending case against the United States for $750 million because a Mississippi jury ruled against a Canadian funeral home chain, and an undecided case against the United States because Massachusetts claimed sovereignty in a law suit.

Copyright 2001 by United Press International.