Where the grass is always greener: Foreign investor actions against environmental regulations under NAFTA's Chapter 11, S.D. Myers, Inc. v. Canada

Georgetown International Environmental Law Review, Winter 2002 by Hodges, Brian Trevor

In 1992, before NAFTA came into being, both Canada and the United States adopted the Rio Declaration on the Environment and Development. Witness to this adoption is the preamble to the NAAEC, which states that the Parties "reaffirm" the 1972 Stockholm Declaration on the Human Environment and the 1992 Rio Declaration.193 This reaffirmation should not be taken lightly, as the NAAEC was one of the stipulated conditions set forth by President Clinton for approval by the United States of the main agreement.194 Of crucial importance to both the Stockholm and Rio Declarations is the precautionary principle, which states:

[i]n order to protect the environment, the precautionary approach shall be widely applied by States according to their capabilities. Where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation.195

Dr. Schwartz asserted that Chapter 7 of NAFTA is an embodiment of the precautionary principle in that it addresses measures that a State may take to protect the safety of humans, animals, and plants.196 Specifically, Dr. Schwartz stated that articles 712 and 715 fulfill State obligations under the precautionary principle.197

However, instead of applying the precautionary principle, the panel's analysis of the Interim Order under NAFTA Chapter 7 focused on whether the actions of Canada were "reasonable."198 The panel created a rule that, under the auspices of a Chapter 11 investor challenge, a State action must have been the result of a reasonably perceived threat, thereby creating a threshold test applied prior to any application of the precautionary principle. Based solely on three facts, the panel found that the Interim Order was not based on a reasonable perception. The facts relied upon to determine "reasonableness" were: (1) the long passage of time

between S.D. Myers' initial interest in exporting PCBs and the border closure; (2) that Officials of the Department of the Environment had reason to be familiar with S.D. Myers and its proven safety record; and (3) that there was no individual assessment of S.D. Myers' proposed operations.199

V. ANALYSIS OF THE AWARD

The Partial Award, though exhaustively reasoned, does not satisfactorily address four areas of critical importance:

1. Whether S.D. Myers had a legitimate investment interest under NAFTA Chapter 11;

2. Whether under international law Canada was under the obligation to take measures to protect the environment;

3. Whether the EPA Import for Disposal Rule, having been invalidated by the Ninth Circuit, can be used as a basis to find that S.D. Myers had an investment interest that is compensible by law; and

4. Whether the impact on domestic public policy requires that the award be vacated.

A. S.D. MYERS' INVESTMENT IN CANADA

Most crucial to the panel's award was the foundational finding that S.D. Myers, Ohio, had a foreign investment in Canada that was protected under NAFTA Chapter 11.(200) The panel found that Myers Canada was an enterprise controlled directly by S.D. Myers.201 Myers Canada was established as a separate company under the laws of Canada in 1993 to create a "distinctly Canadian profile and [employ] Canadian expertise [to] make it easier to market."202 The shares of Myers Canada were not owned by S.D. Myers, but by four members of the Myers family;203 therefore, Myers Canada cannot be characterized as a subsidiary.204 The similarity between the corporate structures was limited to the fact that Dana Myers had a 51 percent interest in S.D. Myers and was the "authoritative voice in Myers Canada."205