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March 28, 2008

Liability in a globalized world

Much of the U.S. consumer movement has encouraged the development of punitive damages, mostly because of the massive holes in our regulatory and social safety net structure. Now, the New York Times reports that other countries are pushing back when asked to enforce U.S. punitive damage awards.

Still, as Europe rolls back its own social safety net, some European analysts are looking more favorably on the U.S. punitive damages' system as a stopgap measure to protect consumers. Ironically, U.S. courts, as reported in the article, are rolling back and limiting punitive damages claims... but with no social safety net to take its place. Seems like both continents are moving rightward, although in Europe, the frog may be getting so slowly boiled that there's less screaming about this issue. In the U.S., we may already be too boiled to tell.

Actually, we're not just moving back to a neutral place where there are no punitive damages. Through trade deals like NAFTA, corporations are actually creating systems of corporate "punitive damages" where the force of the law is used to their enrichment. Occasionally, they're claiming corporate-style punitive damages at the same time that they're using NAFTA to attack traditional pro-consumer punitive damages. From the NYT:

Foreign lawyers and judges are quick to cite particularly large American awards. Julian Lew, a barrister in London, recalled a Mississippi court’s $400 million punitive award against a Canadian company in 1995 with scorn. “It did bring America into total and utter contempt around the world,” Mr. Lew said.

The Canadian funeral home multinational, Loewen, at the bottom of this case actually used NAFTA to try to collect investor-state damages from the U.S. government for the attitude problems of the Mississippi "jury of your peers," in a case that the U.S. lost on the merits (the overall case was won on a technicality). We document the history here. Whatever one thinks of the tactics used by the Mississippi lawyers and judge, it seems like quite an overreach to make the U.S. government liable under NAFTA for these local problems that are just part of the institutional reality of this country.

Also, as we documented in our toy report, corporations are actually using offshoring as a way to limit their liability to consumers. As even the American Enterprise Institute's Doug Besharov conceded:

“[f]or many American claimants, the full enforceability of products liability laws stops at the shoreline. The situation worsens every year as imports fill more and more of the United States market... [the lack of liability creates an] artificial price advantage [that] will help [foreign producers] build market share, at the expense of United States consumers and insurers as well as competitors.”

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