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Date: Fri, 06 Feb 1998 16:11:32 -0500
To: hstokes@geocities.com
From: Bob Olsen <bobolsen@arcos.org>
Subject: MAI Appleton Municipal (excerpts)
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 Municipalities and the MAI
 Municipalities and the MAI
 Municipalities and the MAI

		... government(s) may be forced to rent back

		.... they may have to pay compensation to do
		what they were elected to do.

 Barry Appleton  LL.B., LL.M.

 Appleton & Associates International Lawyers

 Municipalities and the MAI

 NOTE:  Bob Olsen in Toronto has taken the following excerpts from
	Barry Appleton's paper " Municipalities and the MAI"=20

	The complete document is available at=20

	Or, in email format at  http://news.flora.org/flora.mai-not/
	Date: February 6, 1998
	Subject:  MAI Appleton Municipal

 (excepts follow......)

  The MAI, in distinction to the NAFTA, is a much broader agreement in
  that its terms apply to all levels of government without
  exception(9).  As currently negotiated, the MAI=92s obligations will
  directly apply to the acts of all levels of government, including
  municipal governments.

  ...... the MAI includes a special process to protect the "rights" of
  foreign investors by allowing them and their companies to challenge
  local measures that violate their international rights.

  If a government action violated an obligation in the NAFTA=92s
  Investment Chapter, an individual from another NAFTA Party or its
  investment could directly challenge that measure before a fast-track
  international tribunal without the agreement of its home government.

  The "investor-state" dispute settlement process provides for a fast
  and effective means of settling disputes between investors and
  governments by bypassing domestic courts completely.

  .... the investor-state dispute settlement process focuses strictly
  on settling investment disputes between individuals and governments.

  These claims are heard before a special international arbitration
  panel that can award financial compensation to investors that have
  been harmed by governmental action which infringes the MAI=92s
  investment obligations.

  MAI investors are entitled to dispute government measures. These
  measures are not limited to legislation but extend to all acts
  attributable to governments, including regulations, governmental
  policies and practices. Not only are the national governments
  covered by this Agreement, but so are state, provincial, territorial
  and local governments.

  In essence, foreign investors are provided with a better legal
  remedy than Canadians (nationals) under these rules.

  Under the MAI, the term "investment" encompasses every kind of asset
  owned or controlled, directly or indirectly, by an investor.(16)
  This term is more broadly defined in the MAI than in the NAFTA

  Under international law, the term "expropriation" is very broad and
  it applies to any act where a governmental authority denies a person
  or company some benefit of property.(12)

  ....the MAI applies to all advantages granted by governments. The
  term "advantage" is a broad term which may cover any government
  subsidy, concession or incentive.=20

  While municipalities are not "parties" to the MAI, they are subject
  to the full extent of the obligations in the MAI although they have
  absolutely no right to participate in any investor-state dispute
  hearings that would question their actions.

  .... if a civic government takes an action to shut down a local
  business for dumping harmful waste into the local water supply, this
  action would not relieve the civic government from liability for
  compensation. The federal government has not included any wording in
  the MAI that would permit actions to conserve and protect the
  Canadian environment, public health or safety.

  .....the MAI=92s broad investment rules may result in new limits on
  the ability of governments to freely meet environmental challenges.

  ...... the refusal of a municipal government in Mexico to issue a
  civic license for a waste facility is currently the basis of a US $90=09
  million NAFTA expropriation action.   (Metalclad case)

  Changes in zoning that could restrict the use of land, even
  including historic designation, could result in effective claims
  under international law definitions of expropriation.

  ... under domestic law, there can be no compensation for losses
  caused by changes in land use regulation; this is not true under
  international agreements such as the NAFTA or the MAI.

  The MAI national treatment obligation applies to all government
  measures(17) including subsidy programs and other "advantages"
  provided by the government. .... The only discrimination that is
  permitted is against Canadian (national) citizens.

  Since small businesses are predominately local, programs that
  assist them must be equally available to foreign investments, even
  if they are larger.

  At a minimum, the MAI performance requirements obligations would
  severely restrict procurement policies at all levels of government.
  This could harm the ability of governments to assist
  community-based suppliers.

  In summary, a broad range of municipal functions would be affected
  by the MAI. In addition, there are existing implications of the
  NAFTA for the municipal sector. While the NAFTA does not apply to
  subsidies or to municipal government procurement, it applies to new
  expropriation, national treatment and performance requirement
  measures applied made after January 1, 1994.

  No reservations were taken to exempt municipal governments from the
  obligations of the MAI. In addition, no exceptions were included in
  the text of the MAI to otherwise exempt municipalities.

  Even if reservations were to be made to the MAI for municipalities,
  it must be pointed out that under the "rollback" provisions of the
  MAI, these reservations could become subject to eventual
  negotiation for elimination.

  The MAI creates an entirely new multilateral dispute process, vastly
  different from the GATT or WTO. The ability to allow individuals to
  directly bring cases against governments (even without the consent
  of their home government) will have unpredictable results.  What
  is clear is that the MAI creates a speedy and enforceable process to
  settle disputes with governments. This is likely to result in
  investors carefully scrutinizing government practices to find a
  MAI provision on which they can base a claim. Thus, policing of the
  MAI will move from governmental channels over to businesses with
  enforcement done through the use of international tribunals.

  The MAI investment provisions have quietly created a looming
  economic constitution that protects the rights of foreign MAI
  investors investing in each MAI country. The need to take policies
  that are consistent with these rights will have a number of
  implications for civic governments:

  1. The rules of the game are changing. Municipal governments
     will find that the rules that apply to them have changed.
     Appreciating these changes will be even more difficult for
     municipalities as they traditionally do not have experience
     interpreting international investment agreements.

  2. "Governments would rather switch than pay." Faced with budget
     restraints and lacking expertise in international investment
     law, civic governments will need to modify their policies to
     avoid the high damage awards that panels could assess. However,
     the simple fact that large damage awards can be assessed for
     internationally-inappropriate behaviour could leave
     municipalities unwilling to take actions that could leave them
     susceptible to later international tribunal review.

  3. If a government persists in its goal of implementing
     MAI-inconsistent actions, that government may be forced rent
     back jurisdiction. Governments are able to function freely,
     however, they may have to pay compensation to do what they
     were elected to do.

  Clearly municipal governmental concerns have not been an important
  factor in shaping the MAI. Instead, the desire of investors to
  obtain protection from municipal regulation has been reflected.
  While there is still time to change the MAI, the basic structure
  and content of this Agreement appears to be complete. There is
  little doubt that this MAI and its investor-state dispute system
  will play a major role in how business will be done in North
  America over the next decade. Municipalities are directly affected
  by this proposed agreement and it appears that there has been little
  thought by national governments in finding ways to exempt them.
  Indeed, some participants in the MAI negotiations have made it clear
  that they are opposed to any blanket reservations or exceptions for
  "sub-national" governments as they fear that they will be used as a
  loop-hole to provide local preferences for local business.

  1. Barry Appleton is the Managing Partner of Appleton
     & Associates in Toronto and New York City. He is the
     author of Navigating NAFTA: A Concise User's Guide to
     the North American Free Trade Agreement. This short
     paper is based on an address made to the Annual Civic
     Night Dinner for the Simcoe County Kiwana's Club on
     January 19, 1998.

 Bob Olsen	Toronto		bobolsen@arcos.org   (:-)

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