NAFTA Investment Dispute

One company’s toxic waste is another company’s gold mine

Decom Mat Inc. is a relatively new American toxic decontamination business based in the state of Michigan. Decom Mat provides toxic waste treatment for a wide array of hazardous products and byproducts, including chemical solvents, medical waste, asbestos and cyanide. The material is treated before it is sent to landfills or incineration sites

Incorporated in 2005, Decom Mat quickly established itself as an industry leader in the U.S. The key to their success was their invention of a ground breaking technological decontamination process that renders waste into a form that is almost 100 percent environmentally friendly. Although the track record for the process has not been established, initial research and tests confirm Decom Mat’s innovative new process surpasses all existing regulatory requirements by rendering all forms of waste more environmentally neutral than any other commercial treatment process for hazardous decontamination currently in practice

The company is estimated to be worth $US 200 million, but with the international attention and interest in the minimal environmental impact of their decontamination process, its worth is projected to quadruple in the next five years.

Reduce the distance, Reuse the logistics plan and Recycle the old plant

With the success of its new green technology gaining momentum internationally, in 2008, Decom Mat looked to Canada to invest in their next facility. After careful consideration, they chose the province of Ontario. As with the decision to open the first plant in Michigan, logistics played a crucial role in the selection of the next facility location.

Like Michigan, Ontario was well positioned for short haul transport distances for trucks and trains from a number of hospitals, chemical plants, tire manufacturing companies and other industrial plants responsible for producing tons of hazardous waste materials daily. In addition, the new facility was located near the Canadian-U.S. border. The current logistics company contracted for transportation of the waste had a subsidiary in Canada and was well versed in hazardous material import and export regulations and procedures.

As opposed to building an entirely new plant, Decom Mat purchased an existing decontamination plant in Ontario for $US 25 million and invested an additional $ US 22 million upgrading the existing facility to perform the new process.

So much green…then why so blue?

A month before the plant was set to officially begin processing, its operation was blocked by the province of Ontario. The reason given by the provincial government was ironically, lack of compliance with provincial environmental regulations.

Recent environmental legislation passed required all hazardous waste processing or treatment methods to have a minimum of five years of documented regulatory compliance in order to be legally entitled to operate in the province of Ontario. The legislation applied to any facility not currently in operation on the day the legislation was passed.

With only three years of documented regulatory compliance, while exceptional, Decom Mat was not authorized to begin operation.

Having invested close to $US 50 million with the purchase and upgrade of the Canadian facility, Decom Mat Inc. turned to NAFTA to sue the Canadian government.

Case Study Discussion Questions

1. What are the FDI risks entrepreneurs such as Decom Mat face when investing in another country? Under which NAFTA Chapter are investors protected?

2. In this case study, which of the FDI risks would Decom Mat use as grounds to sue the Canadian government, and why?

3. Dispute resolution under this chapter of NAFTA is modeled on UNCITRAL dispute proceedings. What does this dispute process entail? What are some of the criticism for these proceedings?

4. If this particular scenario were brought to a NAFTA tribunal, Decom Mat would most likely win. Explain why