NCPA - National Center for Policy Analysis

Businesses in Canada, Mexico Can Sue U.S. Governments Under NAFTA

February 4, 2002

Corporations in Canada and Mexico can take the U.S. federal government, as well as state and local governments, to court and seek monetary damages under the terms of the North American Free Trade Agreement (NAFTA). Canadian firms are already in the process of doing so and experts predict many more such cases in the future.

  • The system -- commonly referred to as Chapter 11 after a section in NAFTA -- permits a company to take a government to arbitration over actions the company believes harms its investors.
  • If a tribunal finds that the government violated NAFTA rules -- a process that can take about three years -- the government must pay for its transgression.
  • For example, through its involvement in the Springfield, Mass., "Mixing Bowl" construction project, the Canadian firm ADF Group is seeking $90 million in damages allegedly caused by laws that earmark federal dollars for U.S. companies.
  • That suit and four others brought by Canadian firms are pending.

Although such suits cannot overturn U.S. laws, payouts would put pressure on U.S. politicians to reconsider them. Claimants in the five suits are seeking a total of $1.9 billion in damages.

The governments of Canada and Mexico know NAFTA has teeth, because they already have had to ante up a total of $28 million to U.S. companies.

Over the past few years, lawyers have begun touting the potential for NAFTA litigation. But Sen. John Kerry (D-Mass.) has been promoting an amendment to the so-called fast track trade bill that would limit the scope for lawsuits.

Source: Carter Dougherty, "Foreign Firms Hit Back at U.S.," Washington Times, February 4, 2002.


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