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NAFTA: Chapter 11

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Nafta Chapter 11

I understand that the scope of this first post is well beyond Broward county but I want to highlight how state, national, and in this case transnational legislation can affect the rights of local counties like Broward county. This particular piece of legislation is one of the most impactful pieces of legislations that I have come across in my research. So I feel it’s the most important to get in front of my audience currently, as I develop the rest of the articles and research for my future posts.

The piece of legislation that I am referring to is in regards to NAFTA (the North America Free Trade Agreement) and in particular a chapter of the agreement that has far reaching impact. For those that don’t know, NAFTA is an agreement that was established between the three countries of North America, Canada, The United States, and Mexico. The agreement was established in order to create seamless trade between the three countries and promote economic growth in their local economies. The terms outlined in the North American Free Trade Agreement have essentially reduced trade barriers, such as tariffs and taxes between the three countries, which have traditionally halted trade and been geared towards promoting domestic economies. This is because it works towards making the cost of local goods cheaper than buying traded goods that have had tax’s imposed upon them which hike up their price. Historically domestic economies have used tariffs to shield their economy from foreign competition. By imposing a tax on foreign goods, it works to make local goods the more affordable choice. Allowing the money to stay in the local economy, since businesses are buying raw goods and products from fellow domestic businesses and not buying the potentially cheaper alternative from over seas.

Increasingly governments and international bodies have promoted the reduction of tariffs and trade related taxes to promote more international trade, since it’s thought to enhance local economies if they are trading with more countries who have a competitive advantage in producing certain products. This notion has propelled a global movement that has ushered in a new era of global trade and policy making. Much of this philosophy comes from huge global agencies like the International Monetary Fund, World Trade Organization, and World Bank. Such organizations collaborate in lending out large sums of money in order to help developing countries pay back debt and build better infrastructure. These loans are notorious with having stipulations that promote this global agenda of free trade and often require countries to extinguish trade barriers such as tariffs in order to promote international trade, and in theory build the local economy. The results of this are more than questionable but we will save that for another day.
So now that we have laid some of the context pertaining to free trade, and its implementation globally, we can better understand NAFTA and the peculiar arrangement we find ourselves in with our North American neighbors. Free trade which is at the heart of NAFTA’s agreement does offer some good points; countries who have competitive advantages in creating certain products should produce those products, and trade those products for other products that are produced by a country who has a comparative advantage in creating their products. Next, they make sure countries allow those products to be traded without extra burdens like taxes, ensuring everyone receives a net positive return. Though practice has not ultimately aligned with this theory, which I will explain in subsequent posts, the theory does have validity. However things get a little peculiar in the context of NAFTA when we review some of the fine print.
Amidst the contractural agreement lies a chapter of law that has drawn a lot of scrutiny and contention. It’s chapter 11, and within its writing states that a countries law cannot inhibit the future profit of North American investors. Well what exactly does that mean? Well I’ll give you some examples of how it’s been interpreted thus far.
In Lake Tahoe California a chemical was being used in gasoline as an additive intended to improve the emissions of vehicles. Much of the gasoline in Lake Tahoe had contained this additive in the early 90’s and it seemed to do exactly as it said, improve emissions. However, simultaneously something strange began to happen with the Lake Tahoe drinking water, it was becoming contaminated. So much so that many residents had to stop using it and the city had to bring in water from out of town.
After much investigation it was discovered that the water was contaminated by the fuel additive that had been added to the local gasoline. After the gas had leaked out of vehicles through brake systems, car crashes and other incidences, the additive found itself ending up in the local water system. Once this became known, residents and many politicians were in up roar, and wanted this product out of the gas, and out of the city. The additive was effectively banned by the state legislatures and no longer permissible to be used in their gasoline. This was not the last that Lake Tahoe heard of this chemical additive. Soon after the ban, Methanex Corporation, a company that produces ingredients for methyl tertiary butyl ether (MTBE), the chemical additive used in the gasoline, took the city of Lake Tahoe to court under NAFTA’s chapter 11, to the tune of $970 million dollars. Methanex Corporation stated that the laws created by the local government infringed upon the future profits of the company. The lawsuit was settled outside of court behind close doors for an undisclosed amount, as are all negotiations and lawsuits pertaining to NAFTA.
This and many other landmark cases like it are telling of what the the future will look like with agreements like chapter 11 at the helm of policy and rule making in our globally integrated world. The sovereignty for countries to create their own environmental, social and security standards is at odds with future realized profits of North American investors. International agreements such as this one shed light on the future of state and national sovereignty as investor capital is held in higher regards than the health and safety of the local populace. Though to my knowledge this has not directly affected Broward county yet, it’s power and reach has the potential to threaten the entire nation. As stories develop I will work to inform my readers of ways to take action against this mass injustice and promote domestic sovereignty. Hopefully this post has prompted you to take further action and learn more about NAFTA, chapter 11, and the globally hierarchy that is developing.
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