Free Trade and Frivolous Lawsuits (3/6/05)

President Bush and members of Congress are on a relentless crusade to rid this country of junk lawsuits.

"We’re making progress toward a better legal system," said President Bush after signing legislation limiting awards for medical malpractice cases. "There’s more to do…We have a responsibility to confront frivolous lawsuits head-on."

To find lawsuits most frivolous of all, lawmakers need look no further than free trade deals. Yet, when it comes to free trade, the Bush Administration turns a blind-eye on legal reform.

Public Citizen recently published a report, NAFTA Chapter 11 Investor State Cases: Lessons for the Central American Free Trade Agreement (CAFTA), which documents lawsuits filed by transnational corporations challenging local, state, and federal laws of the U.S., Canada and Mexico. These challenges usually mean cash payments to these corporations, which comes out of taxpayers’ pockets.

Here are a few examples:

A Canadian cattleman association is suing the U.S. for $300 million for losses they claim occurred when the U.S. barred imports of Canadian cattle after a case of Mad Cow Disease was discovered.

Canadian mining company Glamis Gold is seeking $50 million compensation for a California law that requires mining operators to backfill and restore open-pit mines.

The Mexican government was ordered to pay California based Metalclad Co. $15.6 million because the company was denied a construction permit to build a toxic waste site and because the local governor designated the area an ecological preserve.

Canada was fined for entering an international agreement that discourages trade in toxic PCB’s. Canada, which closed its borders to the toxic substances, was ordered to pay U.S. company S.D. Meyers $4.8 million for "lost business opportunities."

As these examples demonstrate, governments are being sued for: protecting consumers from tainted meat, having environmental laws that protect communities from dirty and dangerous open pit mining, refusing to allow a toxic waste site, and refusing to import toxic substances. When it comes to protecting corporations from ‘frivolous lawsuits’ by ordinary citizens the Bush Administration is eager to step in. But when it comes to protecting ordinary citizens – upholding the regulations they create in the interest of health, safety, and quality of life – the Bush Administration and Congress turns a blind-eye and again sides with transnational corporations.

As troubling as this may seem, what’s worse is the fact that these cases are decided in closed-door tribunals, with no public access or oversight. Many have questioned the constitutionality of these arrangements.

Supreme Court Justice Sandra Day O’Connor, quoted in Public Citizen’s report, said:

"Article III of our Constitution reserves to federal courts the power to decide cases and controversies, and the U.S. Congress may not delegate to another tribunal ‘the essential attributes of judicial power.’"

In addition, the Conference of Chief Justices passed a resolution in July 2004 castigating the gratuitous legal concessions afforded to foreign investors though free trade agreements. The resolution states:

"The Conference of Chief Justices urges the United States Trade Representative to negotiate, and the United States Congress to approve, provisions in trade agreements that recognize and support the sovereignty of state judicial systems… [And] to clarify that under existing trade agreements, foreign investors shall enjoy no greater substantive and procedural rights than U.S. citizens and businesses."

Undermining our nation’s sovereignty and its constitution, the closed-door arbitration process has been under legal review for over ten years by our government. But what is our government’s response?

The Bush Administration decided it would like to extend an invitation to transnational corporations in Central America through CAFTA to strip ordinary citizens of the protections of their laws and to rob their tax money.

As a point of reference, NAFTA cases have thus far awarded $35 million to corporations, while $28 billion worth of claims have been filed and are pending. What’s more, according to the report, CAFTA makes it possible for U.S. companies with subsidiaries in Central America to attack the laws of its home state as well.

Faced with such consequences, many people are wondering when CAFTA is going to reach Congress and whether it will be approved. If members of Congress actually read the text of this agreement and use our country’s experiences with NAFTA as a point of reference, it won’t matter what party he or she belongs to. A No Vote will be the logical step for any lawmaker who cherishes our sovereignty, constitution, legal system and the public’s interests.

Let’s hope these things still matter.

Cyril Mychalejko is the assistant editor of