Introductions to Selected Cases

• Methanex Corp. v. USA is the only reported direct challenge to a United States law. Methanex, a Canadian Corporation and maker of a component of MTBE, is challenging California's decision to ban MTBE in order to protect public health and prevent water pollution. Under NAFTA, Methanex is claiming that California is expropriating their market in favor of domestic providers of substitute products. NAFTA grants foreign investors rights to be treated at least as well as domestic companies (national treatment), have access to domestic markets, and be regulated by the least burdensome method. The claim suggests that California should focus on stronger enforcement of environmental regulations rather than phase out the pollutant. ^[1] The case is being heard in an international tribunal that will determine whether the United States will have to pay for the lost profits due to the ban. Part of the claim is based on the mention of MTBE by name in federal mandates to lower air pollution. Since the federal government suggested the chemical is an acceptable additive, some suppliers argue that they acted in reliance on traditional US law and should not lose the market they relied on. This case may have been avoided had the legislators focused on the clean air goals the benefit the additives might confer rather than specifically listing a particular chemical compound in the legislation.
• Sun Belt Water, Inc. v. Canada challenges the right of a government to restrict access to natural resources by limiting the number of license holders. Canada made a decision to limit the water that can be shipped from Canada by not awarding new business licenses in Canada to foreign or domestic water-exporters. Sun Belt a US company unlicensed in Canada, made a contract to bring Canadian water to California. Sun Belt claims that government agents refused to grant the license to ensure that a Canadian firm would receive the contract. That unfairly prefers Canadian firms to US investors, and therefore breaches the investor's right to national treatment. The claim is based primarily on the fact that most of the license holders are Canadian at this point, so the law is a barrier to new (foreign) investment in what Sun Belt considers a competitive market. (No water has been shipped from Canada to the US at this time). This case is pending (hasn't been accepted as a claim), but an award to Sun Belt would establish that government can not limit the number of companies in an industry even if the commodity is a scarce natural resource. Sun Belt lawyers have also stated that they are stakeholders and as such should be involved in setting Canadian water policy.
• Ethyl Corporation v. Canada was the first case settled under NAFTA. Similar to the Methanex case, Canada settled a challenge to an environmental protection based decision to ban imports of the gasoline additive MMT. Ethyl claimed that the ban was put in place to give preference to Canadian suppliers even though there are none. The only supplier is a US company. Canada made a surprising decision to settle, and paid Ethyl $13 M USD. Municipalities and public unions in Canada stepped up efforts to limit the effects of NAFTA and FTAA soon after the decision.
• MetalClad v. Mexico cost Mexico $16M USD. This case shows how important it is to have federal and local cooperation, communication and solidarity. A local environmental impact statement that showed that a hazardous waste handling site would pollute the ground water was preempted by prior federal and state approvals. A conflict between federal and local authority was the deciding factor rather than the uncontested pollution of the ground water under the site. The lesson for states and localities is two-fold. First, it is important to have regulations in place and available to those who do business in the community. These should be followed as a standard procedure to set the tone of working with that community and put newcomers on notice. As soon as the government notices investment in the community, an effort should be made to educate the investor. Secondly, the city in Mexico tried to turn the area into an environmental preserve to save it from the land use. This reactionary legislation is not acceptable under NAFTA. Laws should be in place before investment and building begins.
• Mondev International v. the United States is another case that illustrates the need for neutrality in documents and laws. Mondev claimed that Boston was discriminating due to their foreign status as evidenced by repeated references to Mondev as a Canadian company. Mondev had developed a portion of land and substantially improved the property values in the area. They tried to exercise an option to buy other adjacent land and Boston defaulted claiming that the option was not valid any longer. The court sided with Boston, and Mondev is challenging under NAFTA claiming that the treatment was due to foreign status. This case is clearly based on contracts, but gets into the international arena and beyond the US court system due to the foreign status of one party. This case, when decided, may give foreign companies better negotiating power than domestic companies in hopes that challenges can be avoided.

For a complete list of cases involving all NAFTA parties, see www.naftalaw.org.

For all WTO disputes see www.wto.org/english/tratop_e/dispu_e/dispu_status_e.htm.