S.D. Meyers v. Canada: Assessing the Application of NAFTA’s
Environmental Provisions to Protect the Application of
Domestic Environmental Law in the Face of NAFTA’s Article 11
Investor Protection Provisions

Christina T. Sherman
University of Puget Sound

Research Question
     As the U.S is poised to continue the expansion of free trade throughout the Americas it is essential to determine whether the environmental provisions of NAFTA could do what the environmental provisions of GATT failed to do in Tuna-Dolphin I, protect the enforcement of domestic environmental law.
Introduction
     Trade liberalization and environmental concerns were placed in direct conflict by a 1991 General Agreement on Tariffs and Trade (GATT) arbitration panel report, United States – GATT Dispute Panel Report on Restrictions on Imports of Tuna, Sept. 3, 1991 [Tuna-Dolphin I], that found that provisions of the U.S. Marine Mammal Protection Act (MMPA) were inconsistent with GATT.  The consequence of this report was that the GATT dispute panel barred the enforcement of U.S. domestic environmental law by finding that it was inconsistent with a provision of GATT.  This possibility cast a shadow over the North American Free Trade Act (NAFTA) negotiations, as environmental groups were concerned that passage of NAFTA would undermine the capacity of the party nations to establish, maintain, and enforce domestic environmental law.  In addition, the environmental groups were concerned by the possibility that countries would attempt to attract industry by either weakening their environmental laws, or relaxing their enforcement in a “race to the bottom.”¹
     In reaction to this concern, NAFTA included environmental provisions and was accompanied by the North American Agreement on Environmental Cooperation (NAAEC).²  NAFTA likewise included a number of provisions that are designed to protect foreign investors from protectionist actions by a party state in Article 11.  Environmental groups were concerned that these investor protection provisions could be used to undermine the application of environmental law.  Investors were conversely concerned that environmental provisions could be used by member parties for protectionist reasons, rather than for the true objective of environmental protection.  NAFTA itself is an attempt to strike a balance between these two competing concerns laid out in NAFTA’s preamble in which the parties agree to conduct free trade “in a manner consistent with environmental protection and conservation.”³
     As the zone of trade liberalization continues to expand in the Americas, and the possibility of a Free Trade Area of the Americas continues to loom, it is important to re-evaluate whether NAFTA is an appropriate model for meeting the dual concerns of trade liberalization and environmental protection.
     This paper analyzes how investors have used NAFTA’s article 11 provisions to address the application of environmental law to their investments.  It also examines how arbitration tribunals have resolved disputes that have arisen from the application of domestic environmental laws to foreign investments.
     This paper finds that the NAFTA arbitration panels have yet to fully address the type of challenge posed by the Tuna-Dolphin I opinion.  Investors have used the Article 11 provisions of NAFTA to address the application of environmental law, and they have successfully halted the application of those laws.  Nonetheless, in S.D. Meyers, an arbitration panel decision on the merits of NAFTA’s article 11 provisions to domestic environmental law, the environmental intent behind the pertinent domestic laws was muddled by protectionist and specious state action.  As such, the foreboding claims by environmental organizations that NAFTA would expand the scope of Tuna-Dolphin’s precedent were not realized by the NAFTA arbitration panel decision.
Cause for Environmental Concern
     NAFTA included environmental provisions and was accompanied by the NAAEC side agreement in response to concerns raised by powerful environmental groups and non-governmental organizations.⁴  Those groups raised two primary concerns.  First, that the pending free trade agreement would undermine domestic environmental law.⁵  This concern arose out of the 1991 General Agreement on Tariffs and Trade (GATT) arbitration report that found that provisions of the U.S. Marine Mammal Protection Act (MMPA) were inconsistent with GATT.⁶  Second, environmental groups were concerned that entering into a free trade agreement with Mexico would exert downward pressure on U.S. environmental laws, as countries would lower standards and enforcement to attract industry.⁷  Environmental groups argued that NAFTA “would encourage member governments to relax enforcement of environmental laws or weaken environmental laws to attract industry.”⁸
     The concern by environmental groups that trade liberalization under NAFTA would undermine U.S. environmental law arose principally from a 1991 GATT arbitration panel report concluding that provisions of the MMPA were inconsistent with GATT.⁹  This report was published in the Tuna-Dolphin I matter and it sparked a fierce political debate over trade and the environment “as environmental groups awoke to the possibility that trade tribunals could decide that domestic and international environmental laws were inconsistent with trade agreements.”¹⁰
     The MMPA banned the importation of fish from countries that tolerated fishing technologies that result in high levels of marine mammal deaths.¹¹  Pursuant to the MMPA, in 1990 the U.S. banned the import of Mexican yellow fin tuna due to the use of purse seines fishing nets by Mexican fishermen – which are known for trapping and killing dolphins.¹²  The ban had a devastating effect on the Mexican fishing industry.¹³  The Mexican government reacted to the ban by requesting arbitration under GATT of its claim that the ban violated Articles III and XI of GATT.¹⁴ 
     Article III of GATT “requires each party to treat products from other parties at least as favorably as it treats its own products.”¹⁵  Article XI of GATT “prohibits parties from instituting or maintaining any ‘prohibitions or restrictions’ (other than duties or other charges) “on the importation on any product of the territory of any other contracting party.”¹⁶  Article XI’s prohibition on restrictions on trade would, on its face, bar the application of the MMPA because it restricted the importation of fish on the basis of the production process.  The GATT parties adopted an interpretive note to Article III that exempted restrictions on trade where the “domestic law applies to both an imported product and the ‘like’ domestic products”¹⁷ in such case the interpretive note requires that the restriction “should be analyzed under Article III rather than Article XI.”¹⁸
     A simple application of the interpretive note to Article III to environmental restrictions upon production and trade, indicates that those “laws do not violate Article XI’s prohibition on import restrictions, although they may violate Article III’s national treatment standards if they treat the imported products worse than the like domestic products.”¹⁹  The U.S. defense to the Mexican Dolphin-Tuna claim was premised, in part, upon this distinction.  First, the U.S. argued that because the MMPA applied both to domestic and imported tuna that under the interpretive note to Article III, they were not subject to Article XI’s prohibition on import restrictions, but were instead subject to only Article III’s national treatment standards, which required it to treat imports the same as “like” domestic products.²⁰  The U.S. then claimed that the MMPA ban on the importation on Mexican tuna did not violate Article III of GATT because tuna caught using dolphin-safe processes and tuna caught using non-dolphin-safe processes were not “like” products.²¹
     The GATT arbitration panel rejected the proffered distinction of products based on “process or production method.”²²  Instead, as Knox describes:

It read Article III and the Note Ad Article III as limited to an examination of the imported and domestic products as such.  In the panel’s view differences in the way that the tuna were caught could not possibly affect tuna as a product.  Since measures based on such differences were not covered by the Note Ad Article III, the ban was subject to Article XI, which barred it as a prohibition on imports.²³

     Notably, the panel also rejected the U.S. argument that the MMPA ban on the import of the Mexican tuna was justified under Article XX, the environmental provision of GATT.  Article XX provides, in relevant parts, that: 

nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures … (b) necessary to protect human, animal or plant life or health; … [or] (g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption.²⁴

The GATT panel rejected this argument principally because it found that Article XX’s provisions pertain only to  “human, animal or plant life or health” and “exhaustible natural resources” within the jurisdiction of the importing country.”²⁵
     The panel’s decision implied that any law that regulated the importation of products based upon the process or production method violated GATT unless the process or production method altered the physical properties of the product.²⁶ The panel found that the difference in tuna harvesting processes was insufficient to alter the physical properties of the tuna.²⁷  It also rejected the application of Article XX’s environmental provisions to justify the ban on the importation of tuna that was caught using processes that are harmful to dolphins.²⁸
      “[T]he Tuna-Dolphin decision became infamous because, under its reasoning, other domestic environmental laws and multilateral agreements also conflicted with GATT.”²⁹  Despite having such a monumental effect on the trade debate, the Tuna-Dolphin report was never formally adopted by GATT.  Mexico and the United States held bilateral negotiations and settled the dispute outside of the GATT proceedings, and Mexico chose not to pursue the case to its completion with GATT and thus never obtained an enforceable award. ³⁰  The report nonetheless brought the possibility of conflict between trade and environment onto center stage during the NAFTA negotiations, which were then underway.³¹
     Environmental groups’ concern that further expansion of free trade in the NAFTA agreement would undermine the application of domestic environmental law was exacerbated by the concern that companies would flee the U.S. to take advantage of the lower environmental standards of the Mexican Maquiladoras.³²  While Mexican environmental law is formally strict, it was considered to be poorly enforced.³³  In addition, environmental groups feared that the possible relocation of industry south of the border would also pressure the U.S. to lower its environmental standards to stay competitive in the growing market.³⁴
     The NAFTA negotiations were on going during the 1992 presidential campaign debates.   With the recent Tuna-Dolphin decision, environmental concerns regarding NAFTA were prominently discussed in the presidential debates.  While the NAFTA agreement had been negotiated prior to the election by president George H.W. Bush, Congress had yet to approve it.³⁵ The first Bush Administration, provided the idea of incorporating environmental concerns into NAFTA after key members of Congress, spurred by environmental groups, threatened to derail fast-track negotiating authority.”³⁶
     When President Clinton came to office in 1993, he sought a compromise between political factions in favor of NAFTA’s trade liberalization, and factions concerned about possible negative implications of NAFTA on environmental and labor concerns.³⁷  As such, he left the previously negotiated NAFTA document in tact, but negotiated separate trilateral agreements on labor and the environment, the NAALC and NAAEC.³⁸  Clinton described NAAEC as a supplement to “the environmental provisions and objectives of NAFTA, further ensuring that trade liberalization will not come at the expense of the environment.”³⁹
NAFTA and the Environment
     The prominence of environmental concern during the NAFTA debates resulted in the inclusion of environmental provisions both in the body of the NAFTA agreement and in the environmental side agreement to NAFTA, the NAAEC. While the majority of environmental provisions are in the NAAEC, NAFTA itself incorporated a number of environmental protections.⁴⁰  Indeed, the preamble incorporates the parties’ commitment to environmental protection.  Specifically, it provides that the parties will undertake the free trade agreement “in a manner consistent with environmental protection and conservation; … promote sustainable development; … and strengthen the development and enforcement of environmental laws and regulations.”⁴¹  As the U.S is poised to continue the expansion of free trade throughout the Americas it is essential to determine whether the environmental provisions of NAFTA could do what the environmental provision of GATT failed to do in Tuna-Dolphin I, protect the enforcement of domestic environmental law.
     The body of NAFTA includes a number of provisions that directly address environmental issues.⁴²  The first such provision is Article 104, which is NAFTA’s answer to the concerns raised by the Tuna-Dolphin case that in that it establishes a procedure for balancing unilateral environmental agreements and NAFTA’s trade liberalization.  Article 104, provides that where there is an inconsistency between NAFTA’s provisions and a limited number of specified environmental agreements (including the Basel Convention)⁴³ the obligations of those agreements shall prevail “to the extent of the inconsistency, provided that where a Party has a choice among equally effective and reasonably available means of complying with such obligations, the Party chooses the alternative that is the least inconsistent with the other provisions of this Agreement.”⁴⁴ 
     In reaction to the concern that parties would fail to enforce their environmental standards to attract companies, Article 1114 of NAFTA contains language providing for consultations where a party suspects that another party encouraging investment by relaxing domestic health, safety, or environmental measures.⁴⁵   
     Part B of NAFTA provides a dispute mechanism for disputes arising out of the previously described provisions.  While the agreement encourages settlement⁴⁶ and establishes consultation,⁴⁷ mediation⁴⁸ and arbitration⁴⁹ procedures, it also specifically provides for the empanelling of a scientific panel to address disputes arising out of the environmental provisions of NAFTA. 
     The question remains whether these procedures, in combination with the NAAEC procedures, provide the institutional strength to protect the listed environmental concerns in the face of the agreements’ liberalization demands.
     The NAAEC further emphasizes the parties’ commitment to balancing trade liberalization and environmental objectives.  The statement of objectives includes both these commitments, by committing the parties to support the environmental goals and objectives of NAFTA while avoiding trade barriers and distortions.⁵⁰  The NAAEC emphasizes the rights of the parties to independently establish their own domestic environmental law.  Specifically, article 3 recognizes:

the right of each Party to establish its own levels of domestic environmental protection and environmental development policies and priorities, and to adopt or modify accordingly its environmental laws and regulations provide for some high levels of environmental protection and shall strive to continue to improve those laws and regulations.⁵¹

The parties tempered their right to independently create and enforce environmental law with their commitment to trade liberalization. Thus NAFTA arbitration panels have interpreted these provisions together to mean that:  “where a state can achieve its chosen level of environmental protection through a variety of equally effective and reasonable means, it is obligated to adopt the alternative that is most consistent with open trade.”⁵²
     From the environmental perspective, the ultimate question for environmental groups evaluating NAFTA as a possible template for expanded free trade in the Americas is: did it succeed in preventing the trade liberalization provisions of NAFTA from undermining the parties’ enforcement of their domestic environmental laws?  One of the primary concerns for environmental groups is Article 11 of NAFTA, which sets forth provisions “obliging the host county to protect investments from its NAFTA partners.”⁵³  These provisions include:  national treatment obligations (Article 1102), prohibition on performance requirements (Article 1106), and protection from expropriation (Article 1110).⁵⁴  These provisions are at the heart of environmental groups concerns that trade liberalization can be used by investors to bar the application of domestic environmental law. These concerns are not unfounded.  The articles are synthesized below.
     Article 1102 sets forth an “equal protection” provision that requires that:  “Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors…”²⁵⁵  As Hill explains, “the difficulty here, as with any equal protection clause is in determining when like cases are alike.”⁵⁶  The application of a similar GATT equal protection provision to the enforcement of a US environmental regulation on tuna imports was precisely one of the issues in Tuna-Dolphin I, discussed above.  In Tuna-Dolphin I the GATT panel was construing Article III of GATT which, “requires each party to treat products from other parties at least as favorably as it treats its own products.”⁵⁷  As discussed above, the panel concluded that tuna caught with dolphin safe practices and tuna caught with practices that endangered dolphins were “like” products, and found that the MMPA ban on the importation of non- dolphin-safe tuna violated Article III’s equal-protection provisions.
     Article 1106 prohibits the parties from imposing or enforcing performance requirements as a condition for importation of products.⁵⁸  “Environmental groups expressed concern over Article 1106 because they feared that an import ban based on health or safety concerns might be ruled to constitute an impermissible performance requirement.”⁵⁹  Despite these concerns Article 1106 includes specific provisions that state that nothing in certain provisions of the article “shall be construed to prevent any Party from adopting or maintaining measures, including environmental measures: (a) necessary to secure compliance with laws and regulations that are not inconsistent with the provisions of this Agreement; (b) necessary to protect human, animal or plant life or health; or (c) necessary for the conservation of living or non-living exhaustible natural resources.⁶⁰  Notably, this environmental protection provision is limited to the extent that the environmental performance requirements cannot be disguised restrictions on trade, and they can not be applied in an “arbitrary or unjust” manner.⁶¹
     Finally, article 1110 requires that a party-state compensate any investor of another party for “directly or indirectly” nationalizing or expropriating his or her investment in the party’s territory.⁶²  This provision is problematic to the enforcement of environmental laws in three ways.  First, investors can utilize the inclusion of “indirect” expropriation in this article to challenge the enforcement of environmental regulation against their investment. As Hill explains, “[i]ndirect expropriation, sometimes called ‘creeping’ or ‘disguised expropriation, involves the taking of an investment by means of regulations that indirectly but effectively reduce the value of the investment or give a de facto advantage.”⁶³  Second, the definition of investment is extremely broad and includes even debt security of an enterprise and a loan to an enterprise as investments.⁶⁴  Finally, parties are required to compensate the foreign investor at a rate “equivalent to the fair market value of the expropriated investment immediately before the expropriation took place ("date of expropriation"), …”⁶⁵  They are likewise required to pay interest from the date of the expropriation until the date of actual payment.⁶⁶
     The Application of Article 11 Investor Protection Provisions to the application of domestic environmental law: A Case Analysis
     To answer the question of whether NAFTA’s environmental provisions have been successful at ensuring that the parties can enforce their domestic environmental laws in the face of NAFTA’s trade liberalization, it is essential to examine the claims investors have filed under article 11 of NAFTA.  To date, investors have filed at least ten claims alleging that a party’s application of environmental law has violated a provision of article 11 of NAFTA.⁶⁷  Despite these claims, there remains a dearth of legal precedent interpreting the relationship between NAFTA’s environmental protection and investment protection provisions.  S.D. Myers v. Canada, a rare arbitration decision on the article 11 provisions of NAFTA, demonstrates that the article 11 provisions of NAFTA have been used by investors to effectively contest the application of domestic environmental law.  The S.D. Myers decision demonstrates how investors have used article 11 provisions of NAFTA to contest the application of domestic environmental law.  This case was not however has not brought to fruition the fear spawned by the GATT Tuna-Dolphin opinion that NAFTA will undermine the independent application of domestic environmental law.  Rather investors successfully contested the application of illegitimate “environmental” law.  In S.D. Myers, Canada used the cloak of environmentalism to shield its true protectionist intent.
     In S.D. Myers Inc. v. Canada the UNCITRAL arbitration panel dismissed Canada’s claim that the contested law banning the export of PCBs to the United States was founded on a legitimate environmental purpose.  Instead, the panel found that the true intent of law was protectionist, and therefore analyzed its viability under NAFTA without affording it the protections of NAFTA and NAAEC’s environmental provisions.
     S.D. Myers Inc. (SDMI) is an American corporation that processes and disposes of waste containing polychlorinated biphenyls (“PCB”s) in a facility in Tallmadge, Ohio.⁶⁸  S.D. Myers Canada is a privately held Canadian corporation, owned by the four Myers brothers in equal shareholdings.  The CEO of the American SDMI made all of the decisions for the Canadian company.  ⁶⁹  Myers Canada provided waste remediation services to Canadian customers.  “Myers Canada would drain PCBs from equipment in Canada, and then transport the equipment and PCBs to SDMI in Ohio for further decontamination of the equipment, and for the destruction of the PCBs.”⁷⁰
     PCBs have been highly regulated by both the United States and Canada since the late 1970s.  Canada has had legislation prohibiting the use of PCBs in new products manufactured in or imported to Canada since 1977.⁷¹  The most recent iteration of that legislation is the PCB Waste Export Regulations 1990, which banned the export of PCB waste from Canada to all countries other than the U.S.⁷²  Exports to the U.S. were permitted with prior approval of the U.S. EPA.⁷³  The U.S. border had been closed to the import and export of PCBs and PCB waste since 1980. 
     While the U.S. and Canada generally have very similar PCB policies, only Canada is a party of the Basel Convention.⁷⁴  “The Convention has 170 Parties and aims to protect human health and the environment against the adverse effects resulting from the generation, management, trans-boundary movements and disposal of hazardous and other wastes.”⁷⁵  The Basel convention prohibits, “amongst other things, … the export and import of hazardous wastes from and to states that are not party to the Basel Convention” (of which the U.S. is not).⁷⁶
     On November 15, 1995, the U.S. EPA issued an enforcement discretion valid from that date until December 31, 1997, permitting SDMI to import PCBs from Canada.⁷⁷  Prior to the issuance of the enforcement discretion there was serious lobbying from those with vested economic interests on both sides of the border.  For its part, SDMI had launched a lobbying campaign that involved numerous petitions to the U.S. EPA and Environment Canada, and involved at least 2 mayors, 6 Congressmen, 2 Senators, a County Executive, the U. S. Chamber of Commerce and others.⁷⁸
     There was likewise heavy lobbying on the Canadian side.  In anticipation of the U.S. EPA’s enforcement discretion, “two Canadian operators of hazardous waste facilities met with the Environment Minister at her office to advise that this anticipated U.S. action would threaten the economic viability of their own operations.”⁷⁹  The Canadian PCB disposal industry wrote to the Canadian Minister of the Environment, alleging: 

You should be aware that EPA estimates that it will take only approximately 30 days to import the entire Canadian PCB inventory.  You will recall that we stressed the fact that the inventory is a finite resource which is vital to our industry’s growth and our ability to provide capital for the export of our technology.  Any delay in the Canadian response to the EPA action could have serious repercussions.⁸⁰

     Beyond the economic concerns, Canada raised a number of environmental concerns regarding permitting the export of PCBs to the United States, including:  whether exports of PCB wastes to the U.S., a non party, would comply with the Basel Convention; whether PCBs would be disposed on in the U.S. in an environmentally sound manner; the long-term viability of domestic PCB disposal facilities; and what would happen in the event that U.S. disposal facilities subsequently became unavailable, or if the U.S. border was closed again, as eventually happened.⁸¹
     The Canadian Minister of the Environment signed an Interim Order that banned the export of PCBs from Canada on November 16, 1995, one day after the issuance of the U.S. EPA’s enforcement discretion, permitting SDMI to import PCBs from Canada.⁸²  The interim order cites as its justification the belief “that PCBs are not adequately regulated and that immediate action is required to deal with a significant danger to the environment and to human life and health.”⁸³  On February 26, 1995, Canada adopted the Interim Order as a Final Order. “In March of 1996 the U.S. Environmental Protection Agency issued new regulations concerning the disposal of PCB’s that explicitly prohibited long-term storage of them in landfills.  In light of the new U.S. regulations, Canada rescinded its export ban, effective in February 1997.”⁸⁴ In July of 1997, the U.S. closed the border to the importation of PCB and PCB waste due to a Ninth Circuit Court of Appeals decision.⁸⁵
     S.D. Myers filed suit in July of 1998, under article 11 of NAFTA arguing that Canada’s export ban on PCB’s amounted to an expropriation of S.D. Myers investment in violation of article 1110, an illegal preference for domestic corporations in violation of article 1102, and a prohibited performance requirement contrary to Article 1106.
     Canada asserted a number of defenses to SDMI’s claim related to NAFTA’s environmental provisions.  Specifically, Canada argued that its obligations under the Basel Convention and Trans-boundary Agreement prevail over Chapter 11 obligations in the circumstances to the extent that the two agreements are inconsistent.⁸⁶  Canada also asserted that it believed that PCBS are a significant danger to health and the environment without appropriate assurances of safe transportation and destruction.⁸⁷  It also claimed that even if its actions were a prohibited performance requirement in violation of Article 1106 that the articles environmental exception applied because “it is a measure necessary to protect human, animal or plant life or health or was necessary for the conservation of living or non living exhaustible natural resource.”⁸⁸
     The panel rejected Canada’s environmental arguments because they concluded that the true intent of the PCB ban was fiscal  - not environmental protectionism.  This conclusion was based on a plethora of evidence.  As early as August 2, 1994, a briefing note prepared by three Canadian Department of the Environment officials discussed the possibility of the pending U.S. EPA enforcement discretion and concluded:

by advising that federal and provincial policies should be changed so as to open the border from the Canadian side, because such a policy would represent … a technically and environmentally sound solution to the destruction of some of Canada ’s PCBs. 

     This sentiment was reflected again and again in internal Canadian Department of the Environment Memoranda.  For example, an October 27, 1995, memorandum concluded that:

PCBs destroyed in either country is positive for the environment, PCB owners may have lower destruction costs due to competition and more incentive to destroy PCBs, but offset by liability insurance costs if U.S. option is selected.

     In addition, an October 27, 1995, memorandum prepared at the request of the Associate Deputy Minister stated that:  “An interim order to amend the PCB Waste Export Regulations quickly is not a viable option because it cannot be demonstrated that closing the border is required to deal with a significant danger to the environment or to human health.”⁹¹
     The Canadian officials likewise concluded that the export of PCBs to the United States would comply with the Basel Convention so long as they could be certain that the waste would be disposed of in an environmentally safe manner.⁹² 
     On December 12, 1995, Mr. Dana Myers of SDMI wrote to the Canadian Minister of the Environment to propose

that SDMI should be required by Canada to satisfy any possible environmental concerns by making it a condition of allowing the cross border movement that the waste should be destroyed or recycled in the USA (rather than land filled).  The evidentiary record does not contain a reply from the minister.⁹³

     Had the minister replied to this request, Canada would have had a better idea of whether the PCBs would have been treated in an environmentally safe manner consistent with Basel.
     The record is replete with evidence that environmental protection was not at the for-front of the Environmental Minister’s mind when the Interim Order was issued; however.  Rather, the record indicates that the minister’s true intent was to protect the Canadian PCB industry from U.S. competition.
     At the original July 1995, meeting between senior officials of two Canadian hazardous waste facilities, Chem Security and Cintec, the companies emphasized that U.S. competition would threaten the economic viability of their operations.⁹⁴  The evidence indicates that the Canadian environmental ministers made a commitment to the Canadian PCB industry to protect their viability by installing the ban.  Most notably, the Canadian Environment Minister stated in the House of Commons that it is the policy of Canada that PCB waste should be disposed of … “in Canada by Canadians.”⁹⁵  Furthermore an October 27, 1995 memorandum notes

that the Minister had told the House of Commons that PCB waste should be destroyed in Canada and suggested that banning exports to the USA would be consistent with … current policy ... and would mean … the Commitment to the Canadian PCB industry… would be fulfilled.⁹⁶ 

After the interim order was issued a number of Canadian government officials expressed that they believed the “it was not being done on the merits, but rather for ‘political reasons’ that had nothing to do with the substance of the issue.”⁹⁷
     On the basis of this substantial evidence the arbitration panel concluded that the true intent of the Canadian Interim and Final Orders banning the export of PCBs to the U.S. was to favor Canadian nations, and not to protect the environment.  Thus the panel concluded that the ‘environmental’ policy at issue was simply a disguise for protectionism.
     After reaching that conclusion the panel addressed whether pursuant to article 104 of NAFTA, the Basel Convention barred the export of PCBs to the U.S.  Article 104 provides that where there is an inconsistency between NAFTA’s provisions and a limited number of specified environmental agreements (including the Basel Convention)⁹⁸ the obligations of those agreements shall prevail “to the extent of the inconsistency, provided that where a Party has a choice among equally effective and reasonably available means of complying with such obligations, the Party chooses the alternative that is the least inconsistent with the other provisions of this Agreement.”⁹⁹ 
     The panel contemplated Article 4(2)(d) of the Basel Convention which provides, that the parties to the convention will take appropriate measures to: 

ensure that the transboundary movement of hazardous wastes and other wastes is reduced to the minimum consistent with the environmentally sound and efficient management of such wastes, and is conducted in a manner which will protect human health and the environment against the adverse effects which may result from such movement;¹⁰⁰ 

     In reading this, the panel concluded that “Article 4(2)(d) of the Basel Convention acknowledges that the environmentally sound and efficient management of waste is not necessarily accomplished by avoiding cross-border shipments.”  The panel concluded that Article 104’s application of the Basel Convention could not justify the breach of a specific NAFTA provision where “a party has a choice among equally effective and reasonable available alternatives for complying … with a Basel Convention obligation, it is obliged to choose the alternative that is least inconsistent with NAFTA.”¹⁰¹
     In interpreting the NAAEC’s environmental provisions within the context of the environmental agreement, the panel likewise concluded that “where a state can achieve its chosen level of environmental protection through a variety of equally effective and reasonable means, it is obliged to adopt the alternative that is most consistent with open trade.”¹⁰²
     The panel came to the conclusion that the environmental provisions of NAFTA and NAAEC did not enable Canada to ban the export of PCBs to the US because environmental protection was not the true intent of the ban, and the Government of Canada did not adequately investigate whether the PCBs could be disposed of properly by SDMI initiating the ban. 
     The panel went on to conclude that Canada’s ban on the export of PCBs violated article 1102 of NAFTA (National Treatment).  Canada argued that the PCB ban treated all parties the same because the ban uniformly prohibited all export of PCBs and thus did not discriminate.  SDMI argued, and the panel concluded that the banned export of PCBs breached article 1102 because it was not justified by a bone fide health or environmental concerns, and it had the aim and effect of protecting the PCB market for Canadian companies, and excluding American companies.¹⁰³ 
     The panel also determined that the ban breached article 1105 of NAFTA, on the basis of the same facts, but found that the ban was not a performance requirement in violation of article 1106, or an expropriation in violation of article 1110.
     The panel awarded SDMI $6,050,000 plus interest in compensation damages, $500,000 for legal costs and $350,000 for arbitral costs.¹⁰⁴  The decision had the effect of precluding Canada from enforcing a law that was, at least in name, environmental.  Unlike Tuna-Dolphin, the Canadian ban on PCBs was not demonstrably intended for the purpose of protecting legitimate environmental interests.  Instead, the Canadian law used an environmental pretext to keep a protective shield over Canada’s PCB interest.  NAFTA’s free trade and environmental components were created for the specific purpose of striking a balance between legitimate environmental interests and open markets.  This decision reflects that balance without threatening the legitimate application of environmental law.
Conclusion
     NAFTA and the continued expansion of free trade in the Americas has come about at a time of increasing attention on global environmental stress.  The GATT Tuna-Dolphin opinion released just prior to the NAFTA negotiations placed trade liberalization and environmental protection into direct conflict.  The NAFTA agreement and the environmental side agreement married trade liberalization and environmental concerns, and included provisions for each.  This paper examined how the investor protection provisions of article 11 of NAFTA have been used by investors to address the application of domestic environmental law.  This paper demonstrates that the arbitration panels have successful applied the provisions of NAFTA to uphold the intention of protecting the application of environmental law, while likewise protecting trade liberalization.  Thus, the S.D. Myers decision found that Canada’s PCB export ban violated NAFTA’s article 11 provisions because it was undertaken with the intent of protecting Canada’s fledgling PCB interest rather than protecting the environment.  This decision does not, however, foreclose the prospect that investors will successfully utilize article 11 provisions to undermine the appropriate application of domestic environmental law.  What remains to be seen is whether the NAFTA articles provides the arbitration tribunals with sufficient authority to protect the application of legitimate environmental laws in the face of legitimate investment interests.

1. John H. Knox, The 2005 Activity of the NAFTA Tribunals, 100 Am. J. Int’l. 429, 438 (2006) (a survey of the year  2005 developments of the dispute resolution procedures created by NAFTA and its side agreements); Chris World, Lucus Ritchie, Deborah Scott, & Matthew Clark, The Inadequacy of the Citizen Submission Process of Articles 14 & 15 of the North American Agreement on Environmental Cooperation, 26 Loy. L.A. Int’l & Comp. L. Rev. 415, 415 (2004)(evaluating the citizen submission process under the NAAEC).
2. North American Free Trade Agreement, Dec. 8, 11, 14, & 17, 1992, Can.-Mex.-U.S., 32 I.L.M. 289 [hereinafter NAFTA]; North American Agreement on Environmental Cooperation, Sept. 14, 1993, 32 I.L.M. 1480 [hereinafter NAAEC]; North American Agreement on Labor Cooperation, September 14, 1993, 32 I.L.M. 1499 [hereinafter NAALC].
3. NAFTA, supra note 2, pbl.
4. See Scott Wilson, NAFTA’S Legacy:  An Explanation of Why the Free Trade Area of the Americas is Good for International Environmental Law, 24 Temp. J. Sci. Tech. & Envtl. L. 551, 557 (2005)
5. See Id. at 555-56.
6. See Id.
7. See Chris Wold, Locus Ritchie, Deborah Scott, and Matthew Clark, The Inadequacy of the Citizen Submission Process of Articles 14  15 of the North American Agreement on environmental Cooperation, 26 Loy. L.A. Int’l & Comp. L. Rev. 415, 415 (2004).
8. Id.
9. United States – GATT Dispute Panel Report on Restrictions on Imports of Tuna, Sept. 3, 1991, GATT B.I.S.D. (39th Supp.) at 155 (1993) [hereinafter Tuna-Dolphin I].
10. John H. Knox, The Judicial Resolution of Conflicts between Trade and the Environment, 28 Harv. Evtl. L. Rev. 1, 4 (2004).  See GATT Dispute Panel Report on United States—Restrictions on Imports of Tuna, Sept. 3, 1991, GATT B.I.S.D. (39th Supp.) at 1.1 (1993) [hereinafter Tuna-Dolphin I]).
11. 16 U.S.C. § 1372 (2004).
12. Tuna-Dolphin I at 2.3, 2.8.
13. See Knox, supra at 7 (citing Karla Castillas & Tarvin Colin, Times are Improving for the Fishing Industry, El Financero International, Sept. 1, 1997, for the proposition that “the ban caused the loss of more than 6000 jobs in Mexico and more than half of the Mexican tuna fleet).
14. Knox, supra at 7.
15. Id. at 5. (citing General Agreement on Tariffs and Trade, Oct. 30, 1947 61 Stat. A-11, I.A.S. 1700, 55 U.N.T.S. 194.
16. Knox, supra at 6. (citing GATT art. XI:1).
17. Knox, supra at 5
18. Id.
19. Knox, supra at 5.
20. Id. at 7 (citing GATT Dispute Panel Report on United States—Restrictions on Imports of Tuna, Sept. 3, 1991, GATT B.I.S.D. (39th Supp.) at 3.19-20 (1993).
21. Knox, supra at 7.
22. Id.
23. Id.
24. GATT, supra note 14, article XX.
25. Knox, supra at 9 (emphasis added).
26. Id. at 8.
27. Id.
28. Knox, supra at 9.
29. Knox, supra at 5.
30. World Trade Organization Website,  Mexico etc. v. U.S. Tuna-Dolphin, http://www.wto.org/English/tratop_e/envir_e/edis04_e.htm, July 18, 2007.
31. See Wilson, supra at 556.
32. For a full discussion of this issue see John H. Knox, Separated at Birth:  the North American Agreements on Labor and the Environment, 26 Loy. L.A. Int’l & Comp. L. Rev. 359, 363 (2004).
33. Kal Raustiala, Police Patrols & Fire Alarms in the NAAEC, 26 Loy. L.A. Int’l & Comp. L. Rev. 389, 395 (2004).
34. Chantal Line Carpentier, NAFTA and Its Environmental Side Agreement:  Taking Stock @ 11, 14 Mich. St. J. Int’l L 191, 191-2 (2006).
35. Raustiala, supra, at 395.
36. Id. at 399.
37. Knox, supra, at 364.
38. For discussion of the NAFTA and NAAEC negotiations see NAFTA & the Environment: Substance and Process 3-6 (Daniel Magraw ed., 1995); John Audley, Green Politics and Global Trade:  NAFTA and the Future of Environmental Politics (1997); Barbara Hogenboom, Mexico and the NAFTA Environment Debate:  The Transnational Politics of Econoic Integration (1998); Frederick W. Mayer, Interpreting NAFTA:  The Science and Art of Political Analysis (1998); Pierre Marc Johnson & Andre Beaulieu, the Environment and NAFTA:  Understanding and Implementing the New Continental Law (1996).
39. President William Jefferson Clinton, The NAFTA Expanding U.S. Export Jobs and Growth:  Report on Environmental Issues, U.S. Gov’t Printing Office, 1993.
40. NAFTA, supra, pbl; Articles 104, 715, 903, 904, 906, 1114, 2015; Greg Block, Trade and Environment in the Western Hemisphere:  Expanding the North American Agreement on Environmental Cooperation into the Americas, 33 Envtl. L. 501, 507 – 508 (2003) Wilson, supra at 554 (describing NAFTA as the first international trade agreement to incorporate significant environmental protections).
41. NAFTA, supra note 1, pbl., 32 I.L.M. at 297.
42. Id. at 506 (“NAFTA contains several provisions bearing on environmental matters”).
43. The agreements presently include:  the Convention on International Trade in Endangered Species of Wild Fauna and Flora, done at Washington, March 3, 1973, as amended June 22, 1979;  the Montreal Protocol on Substances that Deplete the Ozone Layer, done at Montreal, September 16, 1987, as amended June 29, 1990; the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal, done at Basel, March 22, 1989, on its entry into force for Canada, Mexico and the United States; the Agreement Between the Government of Canada and the Government of the United States of America Concerning the Transboundary Movement of Hazardous Waste, signed at Ottawa, October 28, 1986; and the Agreement Between the United States of America and the United Mexican States on Cooperation for the Protection and Improvement of the Environment in the Border Area, signed at La Paz, Baja California Sur, August 14, 1983.
44. NAFTA, supra, Article 104.
45. Block, supra at 507.  See NAFTA, supra art. 1114.2.
46. Id., art 2003 (“The Parties shall at all times endeavor to agree on the interpretation and application of this Agreement, and shall make every attempt through cooperation and consultations to arrive at a mutually satisfactory resolution of any matter that might affect its operation.”)
47. NAFTA, supra, art 2006.1 (“Any Party may request in writing consultations with any other Party regarding any actual or proposed measure or any other matter that it considers might affect the operation of this Agreement.”)
48. Id. at art. 2007.
49. Id. at art. 2008.
50. NAAEC, supra, art. 1(d) and (e).
51. Id. at art 3.
52. S.D. Myers, Inc. v. Canada, Partial Award, ¶ 221.
53. H. Hamner Hill, NAFTA and Environmental Protection:  The First 10 Years, 2006 J. Inst. Just. Int’l Stud. 157, 157 (2006).
54. Id. at 158.
55. NAFTA, Art. 1102.1.
56. Hill, supra at 158.
57. Knox. at 5. (citing General Agreement on Tariffs and Trade, Oct. 30, 1947 61 Stat. A-11, I.A.S. 1700, 55 U.N.T.S. 194 [hereinafter GATT] for the proposition that Article III:  4.
58. NAFTA, art 1106.
59. Hill, supra at 159-160.
60. NAFTA, art. 1106.6.
61. Id.
62. NAFTA, art. 1110.1: 
63. Hill, supra at 158.
64. NAFTA art. 1139.
65. NAFTA art 1110.2.
66. Id. art 1110.3.
67. Hill, supra at 160.
68. S.D. Myers Inc. v. Canada, Notice of Intent to Submit a Claim to Arbitration Under Section B of Article 11 of the NAFTA, ¶ C.1(July 21, 1998).
69. S.D. Myers, Inc. v. Canada, 2004 FC 38, ¶ 6 (January 13, 2004).
70. Id. at ¶ 7.
71. S.D. Myers, Inc. v. Canada, Partial Award, ¶ 100.
72. Id.
73. Id.
74. Id. at 105.
75. Basel Convention, see http://www.basel.int/.
76. S.D. Myers, supra, at ¶ 106.  See Hill, supra at 161.
77. S.D. Myers, Inc. v. Canada, 2004 FC 38, ¶ 8.
78. S.D. Myers Inc, Partial Award, ¶ 113 -114.
79. Id.
80. Id. at 122 (citing a November 1, 1995, letter written by the General Manager of Chem-Security to the Canadian Minister of the Environment)
81. Id. at ¶ 121.
82. Id. at 122.
83. Id. at 123 (citing the November 20, 1995, Interim Order Respecting the PCB Waste Export Regulations)
84. Hill, supra at 162.
85. S.D. Myers Inc, Partial Award, at ¶ 128.
86. Id. at ¶ 150.
87. Id. at ¶ 152.
88. Id. at ¶ 155.
89. Id. at ¶ 164 (citing Joint Book of Document, vol. 3 tab 86)
90. Id. at ¶ 177. 
91. Id. at ¶ 176 (internal citation omitted).
92. Id. at ¶ 182.
93. Id. at ¶ 189.
94. Id. at ¶ 168.
95. Id. at ¶¶ 169, 171.
96. Id. at ¶ 176.
97. Id. at ¶ 189.
98. The agreements presently include:  the Convention on International Trade in Endangered Species of Wild Fauna and Flora, done at Washington, March 3, 1973, as amended June 22, 1979;  the Montreal Protocol on Substances that Deplete the Ozone Layer, done at Montreal, September 16, 1987, as amended June 29, 1990; the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal, done at Basel, March 22, 1989, on its entry into force for Canada, Mexico and the United States; the Agreement Between the Government of Canada and the Government of the United States of America Concerning the Transboundary Movement of Hazardous Waste, signed at Ottawa, October 28, 1986; and the Agreement Between the United States of America and the United Mexican States on Cooperation for the Protection and Improvement of the Environment in the Border Area, signed at La Paz, Baja California Sur, August 14, 1983.
99. NAFTA, supra, Article 104.
100. Basel Convention on the Control of Transboundary Movement of Hazardous Waste and Their Disposal, Article 4(2)(d).
101. Id. at ¶ 215.
102. Id. at ¶ 221.
103. Id. at ¶ 241.
104. S.D. Myers, Inc. v. Canada, 2004 FC 38, ¶ 3.