A U.S. chemical company lost a major North American Free Trade Agreement lawsuit earlier this week, but the defeat could be viewed in a fairly positive light in some quarters of America.

One of the most controversial provisions of NAFTA is Chapter 11, which allows corporations or individuals to sue the governments of Mexico, Canada or the U.S. when they take actions believed to hurt the bottom line of an investor.

Chemtura sued the Canadian government for $80 million under that provision, claiming that a Canadian government ban on the agricultural chemical lindane was not based on scientific evidence and hurt the company’s profits. The company was seeking compensation due to lost revenues from the ban.

The company, however, failed to convince the panel of three impendent arbitrators of their case and were ordered to reimburse the Canadian government for $3 million in legal fees spent litigating the case.

While the panel’s decision was a defeat for the American company, it was a major victory for opponents of the investor-state dispute settlement provision in NAFTA. Under the provision, federal, state and local laws can be undermined to protect the profits of a foreign company.

Companies that believe laws or regulation have adversely affected their investments have the right to sue the government not only for damages, but to have the law or regulation overturned. In other words, if a Mexican company feels that America’s ban on lead-based paint in children toys affects their profit margin, the company could sue the federal government to collect damages from American taxpayers and seek to have the law overturned. The same is true of America’s environmental, labor and food safety laws.

“One of the things this law does is give corporations sort of a guarantee that they won’t suffer from the gamble that they take normally take as being part of the economic marketplace,” Martin Wagner, an attorney for the EarthJustice Legal Defense Fund, told PBS’s Bill Moyers in 2002. “If they gamble that they’re going to be able to sell their product, but it turns out that their product is harmful, they’re claiming that this investment provision protects them against that gamble – that they should get to make their profits anyway.”

Critics have contended that the provision of the free trade agreement provides foreign investors with more rights than American citizens or companies. Foreign investors have the ability to seek damages from American taxpayers for the costs of complying with the same domestic laws and regulations that all domestic companies must follow.

“I think it’s just the tip of the iceberg because, in a way, it opens the idea to foreign investors that wherever they might suffer, as they imagine, under some regulation, under some law, statute passed by a state, all they have to do is file a claim and, you know, it’s taken seriously and the United States has to defend itself and the state has to defend itself,“ Shelia Kuehl, Chairperson of the California International Trade Policy Committee, told Bill Moyers.

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