Critical NAFTA investment cases
One case was decided in favor of the investor. One case was decided in favor of the nation-state. One case is still pending before an international investor tribunal. All three involve challenges to the environmental and public health authority of local governments.
Metalclad v. Mexico
At issue here was the ability of local governments in Mexico to adopt and enforce land use regulations, and to exercise permitting authority--allowing or denying permits for certain kinds of enterprises.
In this case, Mexican state and local officials used their authority over land use regulation and business permitting to stop a U.S. multinational (Metalclad) from operating a hazardous waste disposal facility in the state of San Luis Petosi. Metalclad's proposed facility was located on top of an aquifer that provides drinking water to a town in the state.
Metalclad then brought a suit against Mexico under NAFTA's Chapter 11 on investment, claiming that the company's property rights had been violated.
A NAFTA tribunal, meeting in secret (as is the custom in international arbitration), agreed that Metalclad's rights had been violated. It ordered the Mexican national government to pay several millions of dollars in damages.
Methanex v. United States
Methanex v United States was one of the first cases brought against the United States under the investment chapter of NAFTA. In June 1999, the Vancouver, B.C.-based Methanex Corporation filed a Chapter 11 claim under NAFTA, seeking $970 million. Methanex wanted compensation from the United States government for alleged current and future financial losses resulting from California’s complete phase-out MTBE, a gasoline additive. MTBE environmental and public health officials sought to ban MTBE because it was contaminating groundwater wells, and because it may cause cancer and other public health risks.
After six years of consideration by an international investment tribunal, every argument offered by the Methanex Corporation was rejected. Methanex was even on the hook for four million dollars in U.S. legal costs.
Given the largely undefined standards of NAFTA’s investment chapter, arbitrators have room to read its language broadly or narrowly. The arbitrators in this case interpreted NAFTA’s chapter narrowly to repudiate Methanex’s theory of the case. This may influence tribunals to adopt relatively narrow constructions in future cases involving similar fact patterns--but no one can say for sure, because NAFTA panels are not bound by precedent. Until the language in NAFTA’s investment chapter is clarified, its undefined terms and phrases will mean what an arbitration panel decides that they mean in any particular case.
Glamis Gold v. United States
The Glamis Gold case is another example of NAFTA Chapter 11's threat to state legislative authority. This case also involves the State of California.
July 2003, Vancouver-based Glamis Gold Ltd. filed a NAFTA
claim seeking $50 million from the United States government. (Despite the fact that Glamis filed the case because of a California state law, the 'defendant' in the case is the United States--because the federal government, and not the State of California, is the signatory party under NAFTA). Glamis
wants compensation from the United States for alleged financial losses
resulting from California's land use regulations that require extensive
reclamation of open pit gold mining sites. California passed these regulations in order to protect Native American sacred sites and other sites of particular environmental or cultural value.
This case is currently being heard before an international tribunal. Because there is no formal precedent in the IIA system, members of the Glamis tribunal could cite the Metalclad case, or the Methanex case, or make up their own new theory of law regarding Glamis. This case is being closely watched. Check the Forum's 'News' section for updates.