NAFTA Chapter 11, Regulatory Expropriation and Domestic Counter-Advertising Law

Recently proposed food labeling legislation seeking to promote public health in Canada appears to be consistent with NAFTA expropriation provisions. It is, however, unclear whether NAFTA tribunals and courts will follow that interpretation in the future, given the inconsistencies and loopholes in the legal framework. Notably, this concerns the divergent treatments of the public purpose exception in NAFTA article 1110 and the gaps in the ‘proportionality’ principle that is supposed to balance private interest and public policy. This uncertainty, coupled with the cost of litigation and the possibility of paying expensive compensation, re-creates a regulatory chill that may prevent Canada’s government from engaging in an active regulation of food counter-advertising. While in principle the regulatory chill exists as a result of the loopholes in the legal framework, the materialization of such a chill is largely dependent on the institutional context in which NAFTA Chapter 11 is embedded. The political orientation of the government along with the struggles in the political system, the level of public pressure for and against regulatory intervention, the influence of corporations in the regulatory process, the evolution of the regional economy, and firms’ business strategies ultimately determine whether the negative legal incentives associated with NAFTA Chapter 11 materialize into a regulatory chill. In particular, the many strategies that the food industry often uses to oppose food regulation and influence society’s food culture appear to reinforce such uncertainty, regulatory chill, and government inaction. As a consequence, the broad institutional framework, including NAFTA Chapter 11, favors the increasing corporate control of consumer food information and solidifies the influential role of corporations in shaping food culture, a corporate practice that is often unconcerned with citizens’ nutrition and health. Ultimately, this will have an adverse impact on public health and hence the level of human rights protection and corporate social responsibility. This primacy of foreign investors’ property rights and free trade over consumer well-being and public health thus exemplifies the inability of free trade to communicate with, and to effectively integrate, non-market values. It also suggests that, in some instances, the global power of corporations is expanding at the expense of weakening national sovereignty and upon reliance on the facilitative role of trade agreements such as NAFTA. To mitigate these problems, it is desirable not only to correct the loopholes and inconsistencies of NAFTA Chapter 11 jurisprudence, but also to encourage consumer-citizenship activism in order to both counter-balance a possible corporate influence in the domestic regulatory process and help legitimize, legally and politically, bona-fide, non-discriminatory regulatory measures for pressing public purposes. Thus, in tandem with the need to take more seriously the public purpose exemption in NAFTA Article 1110, the analysis of regulatory expropriation should incorporate more realistic assumptions about the ability of foreign investors to influence a domestic regulatory process as well as give serious consideration to the element of public pressure, particularly with respect to measures seeking to protect public health.

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