A recent NAFTA tribunal ruling that favoured an American landfill operator has significant implications for Canadian waste projects and contracts, even those that don’t involve transboundary waste shipments or federal decisions. Municipalities everywhere should take note.
The case involves Metalclad, an American company that built a much-needed hazardous waste landfill in Mexico with approval from that country’s federal government. The NAFTA tribunal found that Metalclad’s investment was unfairly “expropriated” when the local municipality denied the company construction permits and after the State of San Luis Potosi capriciously designated the area protected habitat for a type of cactus. The company was awarded millions of dollars in compensation. (For details, see Final Analysis on page 38.)
While Metalclad’s facility is far away, the lesson applies in Canada. The NAFTA rules prohibit governments at all levels (not just federal) from depriving companies of their property rights, even through indirect means such as the passage of environmental laws. NAFTA tribunals can neither undo such laws nor award punitive damages; they can, however, award compensation for direct or indirect expropriation.
Recent squabbles over the City of Toronto’s billion-dollar garbage contract illustrate how politicians may unwittingly flirt with disaster under the NAFTA.
“Squabbles over Toronto’s billion-dollar garbage contract illustrate how politicians may unwittingly flirt with disaster under the NAFTA.”
With closure looming for its large local landfill — Keele Valley — Toronto was set last fall to sign a billion-dollar contract with the Rail*Cycle*North consortium and have its garbage rail-hauled north to the worked-out Adams Mine near Kirkland Lake. The deal was scuttled at the last minute when Mayor Mel Lastman sensed that public opposition to the megaproject would derail the election prospects of his most supportive councillors as well as the garbage trains.
Mayor Lastman had been a supporter of the Adam’s Mine but convinced his councillors to support instead a plan to truck Toronto’s garbage to a Michigan landfill operated by Republic Waste Services. To make this decision politically palatable, Council passed a resolution to escalate waste diversion to 100 per cent over ten years. This resolution made the Michigan disposal contract look like an interim measure before a massive investment in recycling and composting.
However, with the election over councillors quickly had to face their old nemesis — reality — this time in the form of a $340-million budget shortfall and the need to hike property taxes 20 per cent. Suddenly the mayor was quoted saying the city couldn’t afford all this recycling and Council canceled even the most milquetoast recycling improvements such as the radical plan to increase Blue Box collection to once a week from once every two weeks.
Mayor Lastman then got caught up in a verbal mudslinging contest with Michigan Governor John Engler. Governor Engler opposes the import of waste into his state but has hitherto been frustrated by an U.S. Supreme Court decision that protects interstate commerce, including garbage.
Governor Engler recently wrote to Canada’s Environment Minister David Anderson requesting a federal review of Toronto garbage export. He then traded letters with Ontario Premier Mike Harris. Premier Harris made it clear that he still favors the job-creating Adams Mine and was disappointed that Toronto chose to send its trash south. Incensed with these exchanges, Mayor Lastman wrote an ill-advised letter asking the President of the United States to intervene. Mayor Lastman will soon discover that American presidents are reluctant to interfere in regional disputes. (Except those in the Middle East, of course.)
Interestingly, Michigan is a “bottle bill” state and the governor’s inspectors have been busy rummaging through Toronto garbage shipments to collect evidence that too many recyclable soft-drink cans and bottles are being disposed. Since deposit-free Toronto only diverts about half of these containers, the governor’s likely to find what he’s looking for. The inspectors are also searching for hazardous waste such as photo chemicals, paint and used oil. If found, these could form an excuse to reject Toronto’s garbage.
What does all this mean in terms of the NAFTA?
Toronto’s pledge to recycle and compost on a large scale now has no credibility. Yet this was part of the reason the city gave for dropping the Adams Mine and favouring export to Michigan. Rail*Cycle*North’s major partner is Waste Management Inc., an American company that has a property right in its Canadian investment. When Toronto canceled the contract, then backed away from its recycling pledge, it danced on the razor’s edge of the NAFTA prohibitions.
This vacillation provides the Ontario government an excuse to transfer Toronto’s waste-management decision making to the Greater Toronto Services Board (which already coordinates waterworks planning). The GTSB could restart Adams Mine negotiations under the protective spray of PR bullets from Michigan’s governor.
However, the Ontario and Michigan governments will have to be very careful not to harm Republic Waste’s property rights by arbitrarily favoring an Ontario consortium. This too could trigger a NAFTA claim. Even a recycling company with a U.S. head office could some day launch a NAFTA suit if Toronto or any other Canadian city commits to waste diversion, then yanks the chain.
No one has crossed this line yet, but if governments keep playing politics with garbage it’s only a matter of time before someone creates a “Metalclad of the North.”