Umm, Yeah, About that "Dangerous" NAFTA Investment Thing...

One of professional anti-traders' more, umm, "sophisticated" criticisms of US free trade agreements is that they create frightening new investment powers for foreign corporations.  In short, protectionists claim that "NAFTA-style" FTAs are just horrible because, among other things, they allow foreign corporations to challenge domestic health, consumer or safety regulations, and, if they win, to receive compensation from the offending government.  For example, here's Public Citizen on the US-Korea FTA:

If the [Korea-U.S. FTA] were to go into effect, at least 79 Korea-based corporations with 270 establishments across the United States would obtain new rights to demand taxpayer compensation through challenges of U.S. federal, and state laws in foreign tribunals.

Oooooh, scary!  Of course, what these fearmongering protectionists always fail to mention is that the FTA investment provisions that they're carping about are actually designed to encourage mutual investment in FTA partner countries - i.e., to help the countries give each other money for silly things like factories and jobs - by providing certain basic protections for that investment.  And against what exactly are these rules protecting, you ask?  Well, for one, they help discourage guys like Hugo Chavez from forcibly taking the land or facilities that a foreign company has fairly purchased because those rules would obligate ol' Hugo to compensate the company in the amount of its stolen investment.  The horror!  These rules also prevent governments from passing protectionist laws that will harm an FTA partner company's investment where the company proves that those laws are actually disguised restrictions on trade or violate due process.  For example, if American ScottCo buys a Mexican widget factory and then Mexico passes a "health regulation" prohibiting the domestic use of only ScottCo widgets (but not Mexican widgets), Mexico would have to compensate ScottCo where the company showed that the Mexican regulation had no rational, scientific basis.  And, of course, by seeing this type of sane, rules-based investment protection, companies like ScottCo are more inclined to invest in Mexico in the first place.

Pretty sane and un-scary, huh?

Unfortunately, the anti-trader's "investment canard" has become a real favorite of congressional protectionists. For example, here's Maine's favorite protectionist congressman, Mike Michaud (D), on the KORUS FTA in a 2009 letter to President Obama:

While the Bush FTAs with Colombia, Panama, and Korea contain some improvements regarding labor and environmental standards relative to NAFTA, more work is needed on these and other provisions. Many of the most serious problems with the previous trade-agreement model are replicated in these FTAs. They must be renegotiated to ensure that these pacts at a minimum pass the most conservative “do no further harm” test.

This includes the FTAs’ investment chapters, which afford foreign investors with greater rights than those enjoyed by U.S. investors. These three pacts’ foreign-investor chapters contain the same provisions in CAFTA that led many Democrats to oppose that pact, and that you cited as problematic during your campaign. Such provisions promote offshoring and subject our domestic environmental, zoning, health, and other public-interest policies to challenge by foreign investors in foreign tribunals.

Gee, that sure sounds pretty bad.  Well, it isn't, and recent events surrounding two investor-state disputes in Canada have clearly demonstrated that protectionists' "investment canard" is really just a bunch of fear-mongering poppycock.  First, comes news that the Canadian government has settled with US-based AbitibiBowater after the province of Newfoundland seized Abitibi's land and assets:

Canada agreed to pay AbitibiBowater Inc., the insolvent pulp and paper maker, C$130 million ($123 million) to settle a trade complaint after the government of Newfoundland and Labrador stripped the company of its timber and water rights in 2008....

AbitibiBowater in February filed a trade complaint against Canada over what the company said was the illegal seizure of property by the provincial government in Newfoundland. At the time, AbitibiBowater requested C$500 million and filed the case under the terms of the North American Free Trade Agreement....

With demand for newsprint falling, AbitibiBowater decided in 2008 to shut the Grand Falls-Windsor Mill in Newfoundland, which had operated for more than a century. Within two weeks of announcing that closing, the provincial government passed legislation stripping the company of its timber and water rights, according to the Nafta petition.

In short, Newfoundland politicians got mad that a bankrupt US-based company was shuttering some of its Canadian facilities, so, instead of attempting to broker a reasonable compromise or just letting the market, you know, actually work as it's designed, the Newfie government forcibly seized AbitibiBowater's property without any compensation.  Fortunately for AbitibiBowater's creditors and investors, however, the company had legal recourse under NAFTA investment rules, and that led the Canadian government to provide fair compensation for the seized property (although C$370m less than the company wanted).  How, errrr, scandalous.

Only a day later, however, the Canadian government came out on top in another NAFTA investment dispute, this one involving US chemical company Chemtura and new Canadian environmental regulations:

The lawyers at the Department of Foreign Affairs and International Trade are not bragging about it—at least not to date—but they've just won an impressive victory in an $80 million-plus NAFTA lawsuit.

Earlier this month, a panel of three arbitrators dismissed claims filed by the US chemical company Chemtura under Chapter 11 of the North American Free Trade Agreement.

Chemtura had sought to hold Canada liable for financial losses related to the government's phase-out of lindane, a hazardous agricultural chemical. However, the company failed to persuade arbitrators that government regulators acted without regard for scientific evidence or due process.

In addition to kicking Chemtura's claim to the curb, arbitrators also ordered the company to reimburse Canada for $3 million in legal costs and expenses.

In short, Canada passed a law outlawing lidane,which Chemtura produced; Chemtura sued under NAFTA; and the arbitrator ruled in favor of Canada because Chemtura couldn't show that Canada's new law was unscientific.  I dunno about you, but that seems pretty rational (and deferential) to me.

So to summarize, in the last week we've seen these horrible, scary NAFTA investment rules (a) lead to the fair compensation of a bankrupt US company whose lawful property was forcibly seized by the government in response to the company's routine (but unfortunate) commercial decision; and (b) uphold a Canadian environmental regulation and compensate the Canadian government for its legal expenses.

Stop the insanity!

Oddly, neither Congressman Michaud nor Public Citizen has commented on these excellent Canadian examples of the FTA investor-state provisions that they so detestenjoy bringing up.  Instead, Public Citizen's latest blog post scares us about - you guessed it - KORUS investment provisions.  (Because, you know, why focus on a silly thing like how these investment provisions actually work in practice?)