Aug. 10, 2005

U.S. Dodging Bullet on Methanex Ruling Does Not Remedy Threats from NAFTA Chapter 11 Foreign Investor Protection Mechanism

WASHINGTON, D.C. – Today’s dismissal of a NAFTA “Chapter 11” challenge to California’s phase-out of MTBE does little to ease public concerns about the extraordinary foreign investor protection rules in NAFTA-style agreements and does nothing to alleviate the unusual and radical threat to other local, state and federal public interest policies posed by the investor-state private enforcement mechanism provided by NAFTA to foreign investors operating within the United States, Public Citizen said today.

In fact, Congress has now extended those unusual rights to more foreign investors by approving the Central America Free Trade Agreement (CAFTA), an expansion of NAFTA to the Dominican Republic and five Central American countries.

In 1999, Methanex Corp., based in Vancouver, challenged a California executive order calling for the phase-out of the gasoline additive MTBE, in which methanol is a key ingredient. The state issued the order because MTBE had contaminated drinking water, posing both environmental and health risks.

“We may have dodged a bullet on this one, but at this moment there are seven additional NAFTA foreign-investor attacks against the United States awaiting decisions from UN and World Bank tribunals,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “The existing threat of these cases and NAFTA’s extraordinary investor rights creates a chill over public interest policymaking.”

Among the pending NAFTA cases is a $300 million challenge, mounted by Canadian feed lot operators, to the United States’ decision to close the border to Canadian cattle because of the threat of mad cow disease. For more information, a chart of NAFTA cases can be viewed by clicking here.

“The Bush administration is extending the NAFTA-style special protections that give foreign investors operating within the United States better treatment than our own businesses and citizens receive and the right to sue for our tax dollars in UN and World Bank tribunals for the expenses of following such laws,” said Wallach. “It is outrageous that instead of working in our interests, our government had to spend years defending California and the rights of another dozen-plus states to ban the use of a dangerous chemical because of some extreme NAFTA provisions that invite foreign investors to attack our basic health and environmental policies. Even when a NAFTA attack on our health and environmental laws is dismissed, the years of nuisance trying to defend against it make clear the NAFTA model that invites such attacks is unacceptable.”

The Methanex case is among the 42 cases filed by corporate interests and investors under NAFTA’s Chapter 11 investor provisions. With only 12 of the 42 cases finalized, some $35 million in taxpayer funds have been granted to five corporations that have succeeded with their claims. An additional $28 billion has been claimed by investors in all three NAFTA nations. Seven additional cases against the United States are currently in active arbitration.

Corporate investors also have used NAFTA’s investor-state enforcement system to challenge domestic court rulings, local and state environmental policies, municipal contracts, tax policy, federal controlled substances regulations, federal and state anti-gambling policies, a federal government’s alleged failure to provide water rights, and even the provision of public postal services. In most instances, challengers have sought millions of dollars in damages, claiming that regulatory measures and government actions negatively affected their profitability. If an investor prevails in its NAFTA claim, the losing nation is obliged to compensate the firm from the national treasury. Among the 42 cases detailed in a February 2005 Public Citizen report, NAFTA’s Threat to Sovereignty and Democracy: The Record of NAFTA Chapter 11 Investor-State Cases:

  • Aspects of the U.S. state tobacco settlements of the late 1990s, which have resulted in a dramatic drop in the rate of teen smoking in the United States, have been challenged as arbitrary and unfair by Canadian tobacco traders.
  • A California regulation requiring the backfilling of open-pit mines has been challenged by a Canadian mining enterprise, which plans to develop a giant open-pit cyanide gold mine in Imperial Valley, Calif., and which owns and operates similar mines around the world.
  • UPS is seeking $160 million in compensation from Canada, claiming that its government-run   parcel delivery system undermines UPS’ market share.
  • Bans or phase-outs of toxic substances have been challenged two other times. A challenge to Canada’s phase-out of certain uses of the pesticide lindane has been initiated by a U.S. company. Canada’s proposed ban on the gasoline additive MMT was challenged, but before the case was finalized, Canada reversed the policy and paid $13 million to an American firm.

The Public Citizen report can be viewed by clicking here.