Environmental Institute Wins Right to Testify in NAFTA Case

TORONTO, Ontario, Canada, February 3, 2004 (ENS) - A North American Free Trade Agreement (NAFTA) arbitration tribunal has agreed to allow formal public input in a case pitting a U.S. state's environmental regulation against NAFTA's guarantee of investor rights. The decision, issued Friday, is a legal first for global trade hearings.

After a three year legal effort, the Winnipeg based International Institute for Sustainable Development (IISD) won the right to view all documents related to the case, to make written submissions in the case, and has also won an order that the hearings are to be open to the public.

Later this year, the NAFTA tribunal will hear claims by Methanex Corporation that California violated guarantees of investors’ rights when it banned a polluting gasoline additive manufactured in Canada.

Methanex, a methanol manufacturer based in British Columbia, says its NAFTA Chapter 11 rights were violated when the state banned methyl tertiary butyl ether (MTBE), a water soluble gasoline additive that is a suspected carcinogen.

Methanex MTBE shipping facilities at Kitimat on British Columbia's north coast. (Photo courtesy Westmar)

In its lawsuit against the United States, Methanex claims US$970 million in damages because California environmental regulations phase out MTBE. California and many other states are concerned about groundwater poisoning caused by leaking underground storage tanks and the product’s suspected carcinogenicity.

Chapter 11 of the NAFTA agreement provides foreign firms with the opportunity to directly sue one of the three NAFTA governments - Canada, the United States, and Mexico - through an investor-state dispute settlement mechanism.

The IISD calls Chapter 11 "a powerful tool for businesses looking to influence government policy." It costs only a few thousand dollars to prepare a notice of intent to arbitrate, which starts a potentially costly process for government. A similar provision is found in many of the more than 2,000 international investment agreements that exist today.

IISD has warned that Chapter 11, improperly interpreted, could lead to a “regulatory freeze” in the three NAFTA countries, with environmental policy decisions inhibited by the threat of multi-million dollar corporate lawsuits.

Governments could find themselves required to compensate firms harmed by new environmental regulations on the grounds they amount to “expropriation” under Chapter 11.

IISD President David Runnalls called the tribunal's decision a precedent setting “triumph for openness” in international trade and investment arbitration.

Until now, international trade and investment arbitration cases have been conducted secretly “in-camera” with investors and governments as the sole participants.

David Runnalls is president of the International Institute for Sustainable Development. (Photo courtesy Globe 2002)

Previous breakthroughs have made the process somewhat more transparent since the original IISD petition in August 2000.

On July 31, 2001 the NAFTA parties issued a joint Free Trade Commission (FTC) statement supporting public access to all arbitration documents.

They issued another FTC statement on October 7, 2003, supporting amicus briefs and setting out a process for tribunals to use in allowing these briefs, which provide for input from stakeholders who are not parties to the litigation.

“We look forward now to participating in the process of getting the interpretations of NAFTA’s Chapter 11 right," Runnells said.

"Foreign investment is critical to achieving sustainable development today," he said. "But foreign investor rights that take priority over the right of policymakers to govern and legislate in the area of sustainable development are self-defeating."

IISD senior international lawyer Howard Mann of Ottawa said the Institute’s submission to the tribunal for formal consideration will be “a true landmark," that democratizes international investment law.

“This tribunal has consistently shown its awareness of the public interests in this case,” Mann said. “It has previously acknowledged that cases under Chapter 11 have important public policy and public welfare issues at their heart. Now they are working to ensure public interests can be fully aired and debated.

Mann said the IISD remains concerned about the direction Chapter 11 cases are taking. "For the first time," he said, "we will now be able to express those concerns before a decision is made in an important case, not just afterwards.”

The IISD is registered as a charitable organization in both the United States and Canada. Founded during the preparatory process for the United Nations 1992 Earth Summit in Rio de Janeiro, the institute publishes the "Earth Negotiations Bulletin," covering international treaty talks on environment and development issues.

The IISD contributes to sustainable development by advancing policy recommendations on international trade and investment, economic policy, climate change, measurement and indicators, and natural resources management.

Find out more about MTBE online at: http://www.epa.gov/swerust1/mtbe/