The original NAFTA let foreign firms sue governments that put in place policies that benefit their own people, on the claim that these policies limit foreign profit. How did NAFTA do that?

Chapter 11 of NAFTA includes a set of “Investor-State Dispute Settlement” — ISDS — procedures. If foreign investors feel that a government is hampering their profits, including their estimated “expected profits,” they can demand “compensation.” The cases go before a supranational tribunal, usually the World Bank’s International Centre for Settlement of Investment Disputes. The US and European Union dominate these tribunals. No Mexican company has ever won a case versus the US or a European country. But México has lost many cases and many more are pending, for a staggering $5.97 billion at least.

To give one example, the US hazardous waste company Metalclad sued the Mexican government for $16 million, “plus damages,” after the people of San Luis Potosí raised environmental concerns and opposed a facility the company wanted. That led to a permit not being granted.

Didn’t the United States-Mexico-Canada Agreement — the USMCA — eliminate ISDS?

This new agreement eliminated ISDS between the US and Canada, but not between the US and México. The agreement does put in place some new limits on investor claims, like requiring that domestic remedies be exhausted first and ending arbitrary claims around “expected profits.” But for certain sectors that have government contracts — oil and gas production, telecommunications, transportation, certain infrastructure, and power generation — the old ISDS rules still apply.

And for disputes between any of the three signatory countries, a “legacy investment claim clause” covers investments made under NAFTA. This clause protects these investments for three years after NAFTA. One example: The oil company Trans-Canada sued the US government for $15 billion after President Obama nixed the Keystone Pipeline. Trump reversed that decision, so the suit was dropped. But President Biden has nixed the pipeline again, and the suit has been reintroduced under the legacy clause.

Why would AMLO accept these onerous provisions?

Powerful oil companies were able to influence negotiations to guarantee that AMLO would not take back lucrative oil contracts. I believe it was a mistake for AMLO to agree to these terms.

México has been exporting crude oil, but it buys refined oil — gasoline — from the US. Now AMLO wants México to increase its energy independence. He’s building an oil refinery and devolving power to México’s Federal Electricity Commission. This puts Mexican national interests and US — and Canadian and European — oil and electricity company interests on a collision course.

Twenty US lawmakers have just sent a letter to Biden calling on him to confront AMLO. They say AMLO is “severely” limiting U.S. companies’ access to hydrocarbon and energy markets in México, in contradiction to “the spirit of the USMCA.”

What have governments done to trigger these suits by foreign investors?

Most have to do with new environmental protections.  People around the world, from indigenous peoples in Latin America to climate activists in Sweden, have been demanding a rapid response to stop global warming. In cases including Metalclad, the Keystone Pipeline, and hundreds of other situations, people have protested, demonstrated, and put their lives on the line to protect their health and the ecosystems they depend on. Investor “rights” like ISDS are thwarting progress on tackling climate change — by threatening governments with massive financial penalties for enacting responsible environmental measures.

What needs to be done?

We need to give priority to human rights and the rights of nature over corporate rights. We also must insist that trade and investment agreements fully eliminate ­ISDS mechanisms. 

Any future agreement must enshrine binding, enforceable obligations to combat climate change and safeguard greenhouse gas reduction initiatives from corporate challenges. And any agreement must fully protect the right to preserve, expand, restore, and create public services without trade treaty interference.

ISDS mechanisms offer one of the most blatant examples of how private corporations have usurped public power. They amount to a new incarnation of an old imperialism. Britain’s East India Company exercised direct rule in India in the 18th century. Current “free trade” agreements allow indirect rule by foreign companies. They’re coercing  governments to act in the interests of corporations and against the welfare of their own people.

Help build the México Solidarity Project. Forward this newsletter to a friend!