Oral hearings held in NAFTA arbitration over Canadian pesticide ban

By Fernando Cabrera Diaz
2 October 2009

Chemtura Corporation’s dispute with Canada over the phase-out of the agro-chemical Lindane headed to oral hearings in September after 8 years of legal wrangling.

Chemtura, a U.S.-based chemical manufacturer, claims that Canada violated Chapter 11 of the North American Free Trade Agreement (NAFTA) when it banned Lindane in response to alleged pressure from the United States. Canada, meanwhile, contends that the ban was made to protect the environment and public health, and was based on scientific evidence.

The dispute has its origins in a 1999 agreement between Chemtura’s wholly owned Canadian subsidiary, Crompton, and the Canadian Pest Management Regulatory Agency (PMRA). Under the agreement, Crompton agreed to phase-out the use of Lindane in canola seed pesticides by July 2001, while the PMRA was to review the scientific evidence on the safety of the chemical and provide a scientific assessment of the product.

In its written filings, Chemtura argues that its subsidiary and other Lindane producers in Canada were pressured to sign these “voluntary” agreements by the PMRA.  The PMRA, in turn, was under pressure from the United States, whose canola farmers were seen to be at a disadvantage because Lindane was not registered for use on canola in that country, according to Chemtura.

Chemtura claims it believed the PMRA’s scientific review of Lindane would ultimately reveal the product as safe for use in canola and, as such, expected the phase-out would not be completed. However, the PMRA’s review determined that Lindane was unsafe and banned it for all uses.

Chemtura insists that this decision lacked a sufficient scientific basis, and was instead inspired by a desire to resolve the potential trade dispute between Canada and the United States. According to Chemtura, the United States and Canada ultimately struck a deal that included the cessation of manufacturing and sales of Lindane-based seed treatment products in Canada.

Furthermore, Chemtura claims the “PMRA significantly delayed the registration of Crompton Canada’s replacement product (Gaucho CS FL) to such an extent that Crompton essentially lost all of its canola seed treatment business,” while the agency fast-tracked a Swiss competitor’s product.

Chemtura says it was forced to go to court to compel the Canadian Minister of Health to call for an independent review of the PMRA’s decision.  The Review Panel concluded in August of 2005 that “PMRA’s process leading to the Assessment and its conclusions therein were highly flawed and recommended that the PMRA re-evaluate Lindane properly in accordance with the Review Board’s recommendations,” says the company.

Based on these alleged acts, Chemtura accuses Canada of breaching several NAFTA Chapter 11 obligations, including those related to Minimum Standard of Treatment, Most-Favored Nation Treatment and Expropriation. The company seeks in excess of US$83 million.

In its defence, Canada argues that Chemtura itself was responsible for informing U.S. authorities in September of 1997 that Lindane-treated canola products were being imported from Canada, despite the ban on Lindane in the United States. According to Canada, Chemtura did this in order to increase the market for its Lindane alternative, Gaucho.

In response, the U.S. Environmental Protection Agency (EPA) moved quickly to announce that imports of Canadian canola would stop effective June 1998. With the threat of losing their biggest market, Canadian canola producers urged the 4 Lindane pesticide manufacturers to agree to voluntarily phase-out the use of the chemical in order to convince the U.S. to postpone its border action.

According to Canada, all 4 Lindane producers including Chemtura agreed to the voluntary phase-outs, due to the threatened U.S. border closure.

Following these events, the PMRA conducted a Special Review of Lindane, which determined in 2001 that the continued use of the chemical was unacceptable. The PMRA then offered 3-year phase-outs of the chemical to the 4 manufacturers and all accepted, except Chemtura, which lost its registration in February of 2002 as a result.

According to Canada, the subsequent Review Panel of the PMRA decision concluded that the agency acted within “scientifically acceptable parameters”, although it urged further consultation with the registrants, and ordered the PMRA to reconsider ways besides a ban to lower exposure. The PMRA did this by doing a second review between 2005 and 2008, which took into account the Review Panel’s concerns, but reached the same conclusions, says Canada.

“At the end of the day, Chemtura seeks to hold the PMRA responsible for the fact that it can no longer profit from the sale of a toxic chemical that has been internationally banned based on demonstrated health and environmental concerns” concludes Canada’s counter memorial.

Sources: Written case documents available from the Foreign Affairs and International Trade Canada Website at: http://www.international.gc.ca/trade-agreements-accords-commerciaux/disp-diff/crompton_archive.aspx?lang=en