5. North American Free Trade Agreement (NAFTA) Disputes

Abstract

In 2011, three cases with environmental or public health elements were arbitrated under NAFTA Chapter 11: Grand River v United States of America; Vito Gallo v Canada; and Dow AgroSciences v Government of Canada. The first three sections of this report will examine these three cases. The fourth section briefly mentions other pending cases concerning environmental regulations. The Grand River case concerns the question of whether the government of the United States should pay compensation to a Canadian tobacco manufacturer for its adoption of the Master Settlement Agreement (MSA). Grand River Enterprises Six Nations, Limited (a Canadian corporation) and members of Canadian First Nations filed a claim against the United States concerning the claimants’ distribution and sale of tobacco products in the United States (Grand River Enterprises Six Nations Ltd et al. v United States, Award (International Centre for the Settlement of Investment Disputes, 12 January 2011), <http://www.state.gov/documents/organization/156820.pdf>). The claimants alleged that certain legislative measures taken by states relating to tobacco control, inter alia, amounted to indirect expropriation of their investments in violation of the NAFTA investment provisions (Award, para. 7). The claimants argued that the tobacco settlements between US states and large tobacco firms harmed their investments in the United States. As scientific evidence showed that cigarette smoking caused cancer and other diseases, the United States adopted a number of tobacco control policies, and most US states entered into the MSA with major tobacco companies to settle legal claims that the states had filed seeking to recoup medical expenses incurred for treating smoking-related illnesses of indigent smokers and to pay for smoking reduction programs (MSA, <http://www.naag.org/backpages/naag/tobacco/msa>). The MSA required each company adhering to it to make cash payments to a central account in respect of each cigarette sold, so as to pay state costs incurred in the treatment of indigent patients suffering from tobacco-related illnesses. In exchange for payments, the states were to drop all anti-trust and consumer protection lawsuits. In order to avoid free riding by competitors not participating in the initiative, firms that opted out had to contribute a percentage of their sales to non-refundable escrow accounts.