The Free Trade Area of the Americas Places Corporate Rights Above Human Rights

As an international human rights organization committed to promoting social justice, Global Exchange views the current proposals for the Free Trade Area of the Americas (FTAA) as a dangerous elevation of corporate rights above human rights. The imbalance between commercial interests and other values such as human rights promotion and environmental protection will lead to an erosion of basic rights and living standards throughout the Western Hemisphere.

Despite repeated calls for the democratic and transparent negotiation of international trade agreements, the FTAA talks have been conducted in secret. The Canadian government's publication of its bargaining position in December 2000, however, and the United States' release of summaries of its positions provide enough information to know what the FTAA will likely contain. Essentially, the FTAA takes the most far-reaching provisions of existing agreements such as the World Trade Organization (WTO) and the North American Free Trade Agreement (NAFTA) and combines them. Establishing another "free trade" agreement on these precedents is a blueprint for increased social insecurity, inequality and ecosystem destruction.

The WTO and NAFTA dispute panels have consistently ruled that actions based on environmental, humanitarian or human rights concerns are invalid--in fact, illegal--if they in some way obstruct the free movement of commerce. Global Exchange believes that the WTO and NAFTA dispute-resolution decisions, and the reasoning behind those decisions, are inherently flawed. Trade does not constitute simply a commercial transaction; trade is also a political exchange that affects workers' rights, the environment and communities' well being.

Two sections of the FTAA stand out for special concern--the expansion of NAFTA's Chapter 11 "investor-to-state" lawsuits and the broadening of intellectual property rights rules. These proposals reveal, more than any other elements of the agreement, the way in which the FTAA places corporate rights above citizen rights, in the process threatening the common good and democracy. (The Canadian government has said it will oppose inclusion of "investor-to-state" lawsuits in the FTAA. The US negotiators, however, backed by business groups, continue to push for Chapter 11 provisions.)

The complete lack of any measures designed to protect the environment and labor rights is also a serious concern. Given the grossly secretive and undemocratic FTAA negotiating system, the exclusion of enforceable labor and environmental measures is not surprising. While NGOs--and even members of the US Congress, which has not set the goals for US participation--are locked out of the negotiations, corporations have been helping write the rules of the FTAA. More than 500 corporate representatives enjoy the security clearances needed to review the FTAA documents. This kind of exclusive decision-making is intolerable, and it means that the FTAA is from the outset illegitimate.

The case studies and analyses provided below demonstrate the fundamental flaws of FTAA. These imbalances show why the agreement is incapable of creating the kind of equitable development its supporters promise.

Investor-to-State Lawsuits

The North American Free Trade Agreement includes provisions for what are called "investor-to-state" lawsuits. These suits, established through NAFTA's Chapter 11, give corporations the ability to sue governments over acts that diminish a corporation's potential future profits. These lawsuits grant corporations--but not citizens or non-governmental organizations--powers formerly reserved only for nation-states. Free trade proponents like to boast that their agenda fosters democracy. But the existence of investor-to-state lawsuits constitutes a direct assault on the democratic process.

During the seven years since NAFTA has been in effect, corporations in the US and Canada have used Chapter 11 lawsuits to challenge and roll back national laws designed to protect public health and safety and the environment. If such investor-to-state lawsuit powers are extended to the entire hemisphere, it is certain that such challenges will increase. Practically every government regulation in the hemisphere will then be at the mercy of multinational corporations seeking to maximize profits.

Examples of investor-to-state lawsuits include:

Ethyl Corporation vs. Canada. In 1998, the Virginia-based Ethyl Corporation forced the Canadian government to drop its existing ban on the chemical MMT, a fuel additive that had been linked to nervous system damage. Although the US Environmental Protection Agency already bans MMT in the US, the NAFTA tribunal ruled that the Canadian government's prohibition was impacting Ethyl's current and future profits. The Canadian government reversed its ban and was also forced to apologize and pay $13 million to the corporation in damages.
Methanex Corporation vs. US. In 1999, in a strikingly similar case, a Canadian corporation, Methanex, used NAFTA's Chapter 11 to sue the US government for $970 million because of a California phase-out of the gasoline additive MTBE. California Governor Gray Davis ordered the phase-out because it had been shown that MTBE, a known toxin, was leaking into the state's ground water. Methanex, which makes the M in MTBE, claims that the state's move caused a decline in its stock prices. Methanex is basing its $970 million claim on the profits the company says it will lose over a 20-year period. The case is still under consideration. If Methanex wins, the US government will essentially be paying a polluter not to pollute.
Metalclad Corporation vs. Mexico. In 1996, Metalclad Corporation, a US waste disposal company, accused the Mexican government of violating Chapter 11 when the state of San Luis Potosí refused the company permission to re-open a waste disposal facility there. The state governor closed the site after a geological audit showed the facility would contaminate the local water supply. The governor then declared the site part of a 600,000-acre ecological zone. Metalclad claimed that this constituted an act of expropriation and sought damages. In August 2000, a NAFTA tribunal ruled in favor of the company and ordered the Mexican government to pay $16.7 million in compensation.
S.D. Myers Corporation vs. Canada. S.D. Myers Corporation, an Ohio PCB waste disposal company, also successfully used a Chapter 11 threat to force Canada to reverse its ban on PCB exports--a ban Canada undertook in compliance with the Basel Convention limiting the trans-border movement of hazardous waste. The corporation successfully sued the Canadian government for $50 million in damages for business it lost when the short-lived ban was in place.
Loewen Group vs. US. A Canadian-based funeral corporation, Loewen Group, used the NAFTA investor protections to sue the US government after a Mississippi court found Loewen guilty of malicious and fraudulent business practices that unfairly targeted a local company. The jury in Mississippi levied $500 million in damages against Loewen, and now the corporation is seeking $725 in compensation from the US government. Loewen argues that the very existence of the state court system violates its NAFTA rights.

The history of investor-to-state lawsuits under NAFTA shows how government powers to protect the public interest are already being eroded. As corporate rights are given absolute preference, all other values and interests suffer.

Intellectual Property Rights Rules

US trade negotiators are pushing for the FTAA to include intellectual property rights rules that go even further than the regulations established by the WTO and NAFTA. This is a deadly mistake--especially when it comes to the intellectual property rules governing medicine. The WTO intellectual property provisions already are threatening countries' abilities to produce affordable life-saving and life-prolonging drugs for their citizens. The expansion of these rules will certainly make it harder for the world's poor countries to provide affordable medicines to their peoples.

Existing WTO rules obligate all WTO members to provide 20-year patents on all inventions, including medicines. These rules give pharmaceutical corporations 20-year monopolies on prices since they prevent other drug manufactures from producing generic copies of drugs. By limiting the creation of generic drugs, the WTO rules effectively stifle competition in the already-concentrated pharmaceutical industry, which leads to inflated prices. Without price competition, the costs for new drugs will remain out of the reach of many people in the Global South.

A recent report by the British aid agency Oxfam shows that as the WTO rules go into effect (they are currently being phased in), drug prices in the Global South will increase from 200 to 300 percent. This is not a distant threat--especially when it comes to HIV and AIDS. The US has already used WTO rules to intimidate countries that either make their own generic versions of HIV drugs or else import such drugs. In January the Bush Administration filed a WTO complaint against Brazil for breaking WTO rules by producing its own drugs. US trade officials filed a similar complaint against Argentina in May 2000.

The WTO rules allow countries facing public health crises to produce their own drugs through a system called "compulsory licensing." This allows governments in the midst of health emergencies to instruct patent holders to license the right to its patent to other parties. The experience of Brazil shows how generic production and compulsory licensing can drive down prices and enable developing countries to make drug treatments universally available.

Brazil manufactures generic HIV/AIDS drugs (which are not patent-protected because Brazil has only recently adopted a WTO-style patent system for pharmaceuticals), guaranteeing pharmaceutical treatment to every person with HIV/AIDS. Brazil has proven that generic production drives down prices--its cost for drug cocktails is far below that of the multinational pharmaceutical firms, and the price continues to decline. And the Brazil experience--where infection rates are considerably lower than projected--strongly suggests that treatment is an important component of prevention; healthier people are less likely to spread HIV, and people are more likely to be tested for HIV and then adopt safer practices if they know that those with HIV/AIDS have hope of being treated.

Apparently unimpressed with this major public health victory, the US's WTO complaint against Brazil charges the country with having insufficiently strict guidelines for compulsory licensing. If the WTO dispute panel rules against Brazil, it will be harder for the drug manufacturers there and the government to produce affordable drugs.

Now, US negotiators want to make the FTAA intellectual property rights rules even tighter than the already strict WTO regulations. In the summary of its negotiating position, the US made clear that it is seeking rules that require countries to provide stronger intellectual property protections than required by the WTO.

The US negotiating position calls for an effective extension of the patent term for pharmaceuticals (including patent extensions to offset delays in marketing approval for pharmaceuticals). The result would be to give drug companies longer-term monopolies, enabling them to price gouge over longer periods.

The intellectual property rights rules created by the WTO need to be loosened, not tightened. In the short run, tighter rules will make it harder for the estimated 1.8 million HIV-positive people in Latin America and the Caribbean to get life-prolonging medicine. In the long run, the stricter regulations will increase the cost of the next generation of pharmaceuticals needed to treat drug-resistant strains of tuberculosis, malaria, diarrhea, gonorrhea, and other diseases.

By limiting competition and thereby increasing the price of medicines, the draconian intellectual property rules proposed for the FTAA will force poor people in the hemisphere to cut back on their health expenditures. Public health will certainly suffer, and, especially when it comes to HIV-AIDS, lives will be lost. This is intolerable. Human health and human lives should not be sacrificed to serve the financial interests of the already wildly profitable pharmaceutical industry.

By seeking to tighten the WTO's intellectual property laws, the FTAA once again elevates corporate rights above human rights.

The Flip Side

While the FTAA goes to great lengths to protect the interests of multinational corporations--as shown by the US insistence on expanding investor-to-state lawsuits throughout the hemisphere and strengthening intellectual property rules--it does absolutely nothing to protect the environment or labor rights. The FTAA merely states that countries should "strive to ensure that environmental and labor laws are not relaxed to attract investment." The absurdity of the "strive to ensure" language is apparent. And there is no enforcement mechanism for even this weak requirement. Moreover, this loose request is virtually meaningless in countries where environmental and labor laws are already thin and/or unenforced. In order to ensure passage of NAFTA in the US Congress, President Clinton attached environmental and labor "side agreements" to the larger agreement. These were essentially fig leaves designed to attract the support of liberal constituencies. During the last seven years only a handful of union-busting and pollution complaints have been investigated under the side agreements' arbitration process, and none of the them have been settled. President Bush says his administration opposes even the inclusion of such watered down rules. In any case, the NAFTA experience demonstrates that mechanisms for enforcing environmental and labor standards must be in place before further trade "liberalization" if the goal of increased trade is really equitable and sustainable development. Otherwise, there will be no way to hold polluters and those violating individuals' right to freedom of association accountable for their actions.

Two examples from the US-Mexico border help prove the point.

The Environment: Metales y Derivados. In 1994, authorities in Tijuana ordered the closure of a battery recycling plant after it was determined that for years the factory, owned by the San Diego-based New Frontier Trading Company, had improperly disposed of sulfuric acid, lead, and other heavy metals. The US owners and operators of the Metales site abandoned the plant immediately, leaving behind an estimated 6,000 metric tons of toxic materials. Fearing criminal prosecution for failing to dispose of the waste, the plant operator fled to the US. Meanwhile, a community of about 1,000 households just downhill from the plant was left to deal with the hazardous waste.

In October 1998, the Environmental Health Coalition of San Diego and the Comité Ciudadano Pro Restauración del Cañón del Padre of Tijuana filed a petition with the Commission for Environmental Cooperation (CEC), the NAFTA's environmental dispute resolution body. The two groups charged that, although Mexican officials did close down the plant and issue an arrest warrant for Jose Kahn, the Metales operator, the Mexican government failed to properly enforce its own environmental laws, as required under NAFTA. The groups said that the Mexican government had an obligation under its laws to press for the extradition of Mr. Kahn and to adequately dispose of the hazardous material, neither of which it did. The petition merely asked that the CEC investigate the Metales case in order to assist with the cooperative--meaning bi-national--enforcement of environmental laws. After nearly 18 months of bureaucratic wrangling, the CEC finally decided to conduct the requested investigation. The investigation is currently taking place.

The Metales case clearly demonstrates the failures of the NAFTA side agreements, in the process revealing the importance of establishing enforceable labor and environmental rules throughout the hemisphere before expanding commercial pacts.

Under the CEC, a citizen plaintiff has no direct ability to compel any of the NAFTA governments to effectively enforce their own laws. Citizens must hope that another government chooses to act on the factual record created by the original dispute and then pursue its own claim. Even though a citizen submission may prove that a government is failing to effectively enforce its environmental laws, the violation may never be redressed. In comparison, the investor-to-state lawsuits established under NAFTA--and likely to be included in the FTAA--allow corporations to exert direct pressure on government decision-makers by demanding financial compensation.

Equally important, the CEC does not accept submissions against corporations or individuals. There is little way, then, for citizens to hold a corporation and/or its executives directly accountable for their actions.

Labor: Duro Bag Factory. As part of the NAFTA labor side agreement, in 2000 the Secretaries of Labor from the US and Mexico signed a pact committing themselves to promote secret ballot union representation elections. As routine union-busting on both sides of the border demonstrates, the side agreement has been worthless. It demonstrates that without enforceable labor rights standards that set up clear mechanisms for monitoring, enforcement, and accountability, free trade agreements cannot guarantee against labor rights abuses.

To be sure, union-busting is not uncommon in the US. A 2000 report by Human Rights Watch demonstrated that workers' right to freedom of association is regularly violated in the US. But the problem is even worse in Mexico, where the presence of unions controlled by the Institutional Revolutionary Party (PRI) belies any claims about independent unions. A recent episode of worker repression at a factory in Rio Bravo, Tamaulipas, Mexico illustrates the massive obstacles facing independent union organizers in Mexico.

The Duro Bag plant in Rio Bravo is a family-owned factory that makes gift bags for export to the US; one of factory's best-known clients is Hallmark, which purchases an estimated 15 percent of the Duro Bag production. In 1999, the workers at the plant, dissatisfied by their representation with the PRI-backed Paper Workers Union of the Confederation of Mexican Workers, started a drive to form an independent union. The organizing effort was immediately met with intimidation: approximately 150 workers were fired, and another ten were arrested during a work stoppage.

During the next year, as hundreds of fired workers camped out in front of the factory, the plant management did everything it could to either prevent or delay an election for an independent union. But finally, in March 2001, under massive international pressure, the management agreed to an election.

Thirty-nine monitors from Mexico, the US and Canada--including clergy, human rights observers and union representatives--went to Rio Bravo to observe the union election. The intimidation and repression witnessed by the observers were extreme. A day before the election, the observes watched in disbelief as the pro-government union thugs unloaded automatic weapons from a car and conspicuously carried them into the factory. The workers were then sealed inside a room inside the plant and ordered to vote openly, without any provisions for a secret ballot. Not surprisingly, perhaps, the independent union lost the vote 498 to 4.

The Duro Bag experience represents a gross violation of workers right to freedom of association and of their right to form independent trade unions. The episode shows that without a way to hold businesses and government officials accountable with the same sort of lawsuit powers corporations are given under the investor-to-state lawsuits, unions and workers rights groups have little ability to guarantee workers' basic rights. As the presence of dozens of observers illustrates, the Duro Bag workers enjoyed incredible support from people throughout the hemisphere. But that support was not enough to overcome the entrenched power of the Duro Bag managers and the local government officials, who turned a blind eye to the intimidation at the factor.

Again, without enforceable labor rights standards that set up clear mechanisms for monitoring, enforcement, and accountability, free trade agreements cannot guarantee against workers rights abuses. Unless labor rights clauses are contained in the core language of the trade agreement texts, there is little way to fight against violations of workers' basic right to freedom of association.