NAFTA Investor To State Cases - Setting the Record Straight


  1. Introduction
  2. NAFTA Chapter 11
  3. Allegations
  4. Cases:
    1. Ethyl Inc. vs Canada
    2. S.D. Myers Inc. vs Canada
    3. Metalclad Inc. vs Mexico
  5. References
  6. Notes


A quick search for NAFTA, Chapter 11 and MAI on the web reveals a vast amount of comment, most of it critical, on NAFTA’s Chapter 11 and the investor to state (ITS) cases it has permitted.

It is often stated that these show unelected and often unpleasant corporations making elected governments back down, change their laws and even pay monetary compensation. The first step in investigating this situation is to read the offending passages in NAFTA for oneself (something which I had noted was never actually quoted in these articles).

Having found NAFTA via a quick search in Google and read Chapter 11 the situation seemed to be less clear than it had appeared and it was necessary to find out more about the ITS cases. After a little effort I discovered a source for the text of the judgements in various of these cases (Appleton Associates NAFTA Cases and Cases List at ICSID).

After reading these my doubts had grown further. In fact I felt that many of the claims being made were simply untrue, they were myths which now self-perpetuated on the semi-infinite grape-vine of the web (from looking at what was written about this it had swiftly become obvious that there were only a few real information sources and that most other articles were derived from them). My final conclusion was that while it is undoubtedly true that Chapter 11 does provide a new and unprecedented right of action against national governments to ‘investors’, this right is not nearly as wide, inequitable or without good reason as has been alleged.

Thus the purpose of this article is two-fold: First to provide justification for this conclusion; Second, to analyze the allegations that have been made. In establishing what Chapter 11 does and does not allow there are two stages: 1) Examining the NAFTA agreement itself 2) Examining and analyzing the case law that establishes how the text is turned into practical decisions.

NAFTA Chapter 11 (Complete text can be found on the docs page)

The focus of discussion regarding NAFTA is on Section 11: Investment. Given that the chapter is available either for perusal on the web or on the docs page I will only provide particularly salient extracts here.

  • Articles 1101-1109 provide various rules about how a Party (i.e. USA, Canada or Mexico) must treat a foreign investor:
    • 1102 National Treatment - ‘Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.’ 1102:1.
    • 1105 Minimum Standard of Treatment - ‘ Each Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security.’
    • 1106 - not allowed to impose such things as domestic content provisions.
    • 1109:1 - ‘Each Party shall permit all transfers relating to an investment of an investor of another Party in the territory of the Party to be made freely and without delay… ‘
    • Various exceptions to the rules laid down throughout but particularly in Article 1108: Reservations and Exceptions. For more details consult the text.
  • Article 1110: Expropriation and Compensation: ‘No Party may directly or indirectly nationalize or expropriate an investment of an investor of another Party in its territory or take a measure tantamount to nationalization or expropriation of such an investment (“expropriation”), except:
    • for a public purpose;
    • on a non-discriminatory basis;
    • in accordance with due process of law and Article 1105(1); and
    • on payment of compensation in accordance with paragraphs 2 through 6.’ (NB: a Party needs to do ALL of these four)
  • Section 1114: Environmental Measures -
    • Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental concerns.
    • The Parties recognize that it is inappropriate to encourage investment by relaxing domestic health, safety or environmental measures. Accordingly, a Party should not waive or otherwise derogate from, or offer to waive or otherwise derogate from, such measures as an encouragement for the establishment, acquisition, expansion or retention in its territory of an investment of an investor. If a Party considers that another Party has offered such an encouragement, it may request consultations with the other Party and the two Parties shall consult with a view to avoiding any such encouragement.
  • Dispute Settlement -
    • Basis for an action: ‘An investor of a Party may submit to arbitration under this Section a claim that another Party has breached an obligation under:’ Section A (= Articles 1101-14) ‘and that the investor has incurred loss or damage by reason of, or arising out of, that breach.’ Also can replace ‘an investor of a Party’ in above with ‘An investor of a Party, on behalf of an enterprise of another Party that is a juridical person that the investor owns or controls directly or indirectly’
    • The following methods of arbitration are available [1120]:
      1. the ICSID Convention, provided that both the disputing Party and the Party of the investor are parties to the Convention;
      2. the Additional Facility Rules of ICSID, provided that either the disputing Party or the Party of the investor, but not both, is a party to the ICSID Convention; or
      3. the UNCITRAL Arbitration Rules.
    • 1123: Number of Arbitrators and Method of Appointment - ‘Except in respect of a Tribunal established under Article 1126, and unless the disputing parties otherwise agree, the Tribunal shall comprise three arbitrators, one arbitrator appointed by each of the disputing parties and the third, who shall be the presiding arbitrator, appointed by agreement of the disputing parties.’
    • 1121: ‘A disputing investor may submit a claim under Article 1117 to arbitration only if both the investor and the enterprise:’ … ‘b) waive their right to initiate or continue before any administrative tribunal or court under the law of any Party, or other dispute settlement procedures, any proceedings with respect to the measure of the disputing Party that is alleged to be a breach referred to in Article 1117, except for proceedings for injunctive, declaratory or other extraordinary relief, not involving the payment of damages, before an administrative tribunal or court under the law of the disputing Party.’

The Allegations

Consider the following example: the Canadian government passes a new regulation making some additive to petrol illegal (for some environmental reason - e.g. they think its toxic) and suppose further that the company, which we will call X, that is the main manufacturer of the additive is a US company. So the Canadian governments actions may cost company X some large sum of money in the form of lost revenue. If company X could start a claim against the Canadian government for compensation this would seem to be a disastrous situation for environmental regulation and very inequitable to boot - a case of pay-the-polluter.

In fact many people (just search for Ethyl Case and NAFTA in Google) see this as more than just to do with environmental regulation but as undermining democracy in allowing ‘unelected’ investors (corporations or individuals) to challenge laws enacted by the ‘elected’ government (read ‘the people’). Concrete examples of this viewpoint are Public Citizen’s ‘NAFTA Chapter 11 Investor-to-State Cases: Bankrupting Democracy’ and Mary Bottari’s article in the multinational monitor (both available on the docs page. It is worth reading at least Bottari’s article as it summarizes much of the general argument. The example above relates to environmental regulation but in general it could be any kind of governmental regulation. The central allegation is: Investors (be they individuals or corporations) in a foreign country have a right to compensation if government regulation causes them a loss (no matter how justified the regulation may be). Below I present a list of sites and documents where this kind of allegation is made.

  1. - Various articles by Charles Greenfield about NAFTA’s Chapter 11 and Investor to State Cases
  2. Environmental News Network (Viewed on 30-Sep-2002).‘Written in the ambiguous, innocuous-sounding prose that makes clever attorneys rich, the chapter spells out terms under which investors (i.e., multinational corporations) can be compensated for losses incurred by expropriation government action.
  3. Public Citizen - Multitude of articles here including ‘Bankrupting Democracy’ article ([5] and cited above). The executive summary of that document contains the following statements:
    • ‘However, the majority of the investor-to-state cases filed to date have had little to do with the seizure of property NAFTA supporters feared. Instead, the cases challenge environmental laws, regulations and government decisions at the national, state and local level:
      • The California-based Metalclad company successfully challenged the denial of a construction permit by a Mexican municipality for the building of a toxic waste facility;
      • Environmental and health bans of suspected toxins have been challenged, with one case already resulting in reversal of a Canadian government ban on the gasoline additive MMT;
      • Canada’s implementation of two international environmental agreements has been successfully challenged, and Canada will soon be ordered to pay damages to U.S. investors in both cases;
      • Foreign corporations have taken two lawsuits they lost in U.S. domestic courts to be “reheard” in the NAFTA investor-to-state system, one challenging the concept of sovereign immunity regarding a contract dispute with the City of Boston and the other challenging the rules of civil procedure, the jury system and a damage award in a Mississippi state court contract case;
      • The American company, United Parcel Service (UPS), has filed a suit challenging the governmental provision of parcel and courier services by the Canadian postal service; and
      • A Canadian steel fabrication company challenged a federal “Buy America” law for highway construction projects in the U.S. This extraordinary attack on normal government activity such as operating a civil justice system through courts, denying a construction permit or establishing health and other public interest regulations has drawn growing criticism to NAFTA’s Chapter 11 investment rules.’
    • ‘Foreign Investors Granted Greater Rights than U.S. Corporations or U.S. Citizens: NAFTA’s investment rules provide new rights and privileges for foreign investors that go significantly beyond the rights available to U.S. citizens or businesses in U.S. domestic law and provide a venue exclusively available to foreign investors to seek payment of U.S. taxpayer funds for alleged business losses.’
    • ‘Foreign Investors Allowed to Evade Legal Liability? NAFTA’s investor-to-state tribunals provide a way for foreign litigants to seek government compensation for damages ordered by U.S. courts. In one NAFTA case, a huge Canadian funeral conglomerate called the Loewen Group is using NAFTA’s investor protections to, in effect, “reverse” a Mississippi jury s ruling in favor of a small funeral home operator who sued the conglomerate for breech of contract.’
    • ‘State and Local Governments are Not Safe from NAFTA Tribunals Reach: Not only have federal laws, such as a U.S. “Buy America” procurement law, been challenged under NAFTA’s Chapter 11, but a variety of measures taken by state, provincial and municipal governments have been challenged as well. In the toxic waste case, involving the U.S. Metalclad corporation, the decision of a Mexican municipality to demand a construction permit before a U.S. company could begin building a toxic waste facility was successfully challenged as NAFTA-illegal.’
  4. Friends of the Earth Trade Case Study: Ethyl Corp and MMT - ‘Under NAFTA, Ethyl Corp - a producer of MMT, a toxic fuel additive - was able to threaten the Canadian Government with prosecution after the Canadian Parliament voted to restrict the trade in MMT. The threat of prosecution and a possible compensation bill running to hundreds of millions of dollars effectively caused the Canadian Government to U-turn, a victory for corporate power and a loss for public health and the environment.’
  5. Naomi Klein’s Article: Democracy, When You Least Expect It - Relates particularly to the Metalclad Case. The same article (with very minor alterations) also appeared in the UK Guardian newspaper 01-03-2001 under the title Fighting free trade laws . ‘Sometimes democracy breaks out when you least expect it. Maybe it’s in a sleepy town, or a complacent city, where residents suddenly decide that their politicians haven’t done their jobs and step in to intervene. Community groups form, council meetings are stormed. And sometimes there is a victory: a hazardous mine never gets built, a plan to privatise the local water system is scuttled, a rubbish dump is blocked. These outbreaks of grassroots intervention are messy, inconvenient and difficult to predict. It is precisely this kind of democracy that the Metalclad panel deemed “arbitrary”.’


  • Ethyl Inc. vs Canada
  • S.D.Myers Inc. vs Canada
  • Metalclad Inc. vs Mexico

Ethyl Inc. vs. Canada

The story as often told: Concerned about the health effects of a gasoline octane enhancer known as methylcyclopentadieny maganese tricarbonyle (MMT), Canada’s federal government banned the sale of MMT in 1997. The only supplier of MMT in Canada was a subsidiary of U.S. based Ethyl Corporation, which commenced an arbitration proceeding under NAFTA’s Chapter 11 alleging, among other things, that the MMT ban was “tantamount to an expropriation” of its Canadian subsidiary and demanding approxiamately $200 million in compensation. After the early stages of the arbitration process but before any final decision, the government of Canada suspended the MMT ban and agreed to pay Ethyl approximately $13 million to compensate it for legal fees and other inconveniences.

The actual facts: (numbers in [] refer to references.)

  • Canada did not ban MMT, rather the relevant Act stated: ‘No person shall engage in the interprovincial trade in or import for commercial purpose a controlled substance [MMT] except under an authorization referred to in section 5’ [2:3]. This is a crucial distinction for it meant that the actual production and sale of MMT was not banned and if Ethyl Corp could have gone on selling MMT for addition to unleaded gasoline if it established a manufacturing facility in each Canadian province. Thus articles 1102, 1106 and 1110 formed the basis for Ethyl’s case. Of course, it would never have been possible to have a plant in every province and thus the Act was a de facto ban but that is not the point, as it stood the Act was discriminatory.
  • There was significant dispute as to true danger of MMT: ‘Before Ethyl filed its arbitration demand, four Canadian provinces had challenged the MMT ban under Canadian law on the ground that there was no adequate scientific basis for that federal action. The domestic arbitral panel hearing that claim agreed, finding the MMT ban arbitrary.’ 3 ‘In Canada, several reviews of health effects and risk assessments by Health Canada have found no evidence of significant health effects associated specifically with exposure to manganese from exhaust emissions. MMT itself was not considered a “priority substance” … . There have been a number of government efforts to ban or control MMT in Canada, although Environment Canada did not use CEPA to control the substance (probably because Health Canada’s risk assessments had found insufficient evidence of health effects and Environment Canada was not able to demonstrate sufficient air pollution effects).’ [4:(3.1.2)]

Thus, while the provisions of Chapter 11 undoubtedly created a technical difficulty for Canada environmental regulation they did not create any substantive interference. (I wrote to Ms Bottari regarding the discrepancies between her presentation of this case and what the actual facts appeared to be and further details can be found in Note 11.

S.D. Myers vs. Canada

S.D.Myers Inc (SDMI) was a company based in Tallmadge Ohio. Founded in 1965 it specialized in transformer oil testing, oil reclaiming, and rewinding, rebuilding, manufacturing transformers. In the early 1980s it had expanded its business to include PCB (polychlorinated biphenyl) remediation. In the early 1990s as the US market declined SDMI decided to expand into the Canadian market and created a subsidiary Myers Canada that obtained waste for treatment in the facility in the USA [6:15-16]. During 1970s PCBs were increasingly recognized as highly toxic substances and consequently their manufacture was prohibited and import and export severely restricted or banned (for greater detail see [6:17-20]). Nevertheless beginning in the early 1990s SDMI lobbied the EPA and the Canadian government to allow it to import PCBs from Canada into the USA for processing. This had the result that ‘on October 26, 1995 the US EPA issued an enforcement discretion to SDMI, valid from November 15, 1995 to December 3 1, 1997, for the purpose of importing PCBs and PCB waste from Canada into the USA for disposal.’ [6:21-22 (pr 118)] Several points are to be emphasized at this point:

  • SDMI was one of the foremost companies in the USA, even the world, in processing PCBs
  • There was only one company in Canada (Chem-Security) suited to the task and it was located in Alberta
  • Most of the Canadian sources of PCBs were located in Ontario and Quebec closer to SDMI than Chem-Security
  • These factors combined resulted in SDMI having a very significant cost advantage in processing while being at least the equal of any other option from an environmental viewpoint [6:20ff]

On Nov 20 Canadian Government issued an interim order banning the export of PCBs. On 26 February 1996 this became a final order and finally in February 1997 the ban was lifted. On July 22 1998 SDMI delivered its Notice of Intent to submit to arbitration under part B of chapter 11. SDMI’s claim for compensation rested upon the denial of access to the Canadian market for a period of 16 months citing in particular Article 1102 National Treatment [6:para 130-3] 1105 Minimum Standard of Treatment [6:para 134-6] 1106 Performance Requirments [6:para 137-41] 1110 Expropriation [6:para 142-3]. The following contains extracts from the conclusions of the Arbitration panel:

  1. The Export Ban:
    • ‘The Tribunal can only characterize CANADA’s motivation or intent fairly by examining the record of the evidence as a whole. The evidence establishes that CANADA’s policy was shaped to a very great extent by the desire and intent to protect and promote the market share of enterprises that would carry out the destruction of PCBs in Canada and that were owned by Canadian nationals. Other factors were considered, particularly at the bureaucratic level, but the protectionist intent of the lead minister in this matter was reflected in decision-making at every stage that led to the ban. Had that intent been absent, policy makers might have reached a conclusion in November 1995 that would have been consistent with the conclusion reached by CANADA when the ban was lifted in February 1997. CANADA’s view in 1997 was that the opening of the U.S. border should be welcomed in the interests of expediting the elimination of PCBs from the environment, provided that any risks associated with exporting PCB waste to the U.S. was minimised through proper regulations and safeguards.’ [6:para 161-2]
    • Following paragraphs support this position by showing a) that prior to the US opening of the border Canadian officials considered that disposal in the US ..a technically and environmentally sound solution to the destruction of some of Canada’s PCBs. [6:para 164-7] b) that there was a conscious desire to promote Canadian disposal for economic reasons (i.e. to promote the Canadian PCB disposal industry) [6:para 168ff; see also pr 122]. In fact these sections make clear how environmental justifications were created for what were in reality politically motivated actions (e.g. pr 186 which is particularly disturbing).
  2. The Basel Convention: The main point to be clear on is that the convention did not ban absolutely any transborder disposal of toxic substances. See Note 22 for more details.
  3. [6:para 256]‘The Tribunal concludes that the issuance of the Interim Order and the Final Order was a breach of Article 1102 of the NAFTA.’
  4. [6:para 268]‘By a majority, the Tribunal determines that the issuance of the Interim and Final Orders was a breach of Article 1105 of the NAFTA. The Tribunal’s decision in this respect makes it unnecessary to review SDMI’s other submissions in relation to Article 1105.’
  5. [6:para 278] ‘By a majority, the Tribunal concludes that this is not a “performance requirements” case.’
  6. [6:para 288] ‘The Tribunal concludes that this is not an “expropriation” case.’
  7. Damages would be decided in a future stage of Arbitration proceedings. It is still unclear to me at present (Sep-2002) whether there has been a decision on quantum or not

What do we conclude from this case? First that no substantive environmental issue was at stake. It was quite clear that disposal of PCB material in the USA by SDMI was at least, if not more, environmentally sound than disposal in Canada. Moreover disposal by SDMI in the USA did not contradict either prior Canadian policy or international agreements such as the Basel convention. In point of fact it appears from the evidence that the ban on PCB export was politically motivated and was an attempt to promote the Canadian toxic waste disposal industry from competition and thus a very legitimate target of NAFTA jurisprudence. The only interference in the Canadian government’s ability to regulate was the decision by the panel that, while the goal of fostering a domestic PCB industry might be legitimate, NAFTA did limit their method of pursuing this goal3.

Metalclad Inc. vs Mexico

The following are the facts of the case taken from [7b:para 28-69] primarily.(See also [7a] [8] and finally [5:10-12] for the critical perspective)

  • Case revolves around the construction of a hazardous waste landfill situated in the thinly populated La Pedrera Valley in the municipality of Guadalcazur (Gu. hereafter) in the state of San Luis Potosi (SLP hereafter).
  • ‘On January 23, 1993, the National Ecological Institute (hereinafter ‘INE’), an independent sub-agency of the federal Secretariat of the Mexican Environment, National Resources and Fishing (hereinafter ‘SEMARNAP’), granted COTERIN a federal permit to construct a hazardous waste landfill in La Pedrera (hereinafter ‘the landfill’).’ [7b:29]
  • April 23 1993 Metalclad a US company entered into a six month option agreement to purchase COTERIN. Between April and August Coterin receives:
    1. state land use permit from the government of SLP subject to various conditions [7b:para 31]
    2. Governor of SLP appeared to offer support for the project.
    3. ‘Metalclad further asserts that it was told by the President of the INE and the General Director of the Mexican Secretariat of Urban Development and Ecology (hereinafter ‘SEDUE’) that all necessary permits for the landfill had been issued with the exception of the federal permit for operation of the landfill. A witness statement submitted by the President of the INE suggests that a hazardous waste landfill could be built if all permits required by the corresponding federal and state laws have been acquired.’ [7b:para 33] 4.Aug 10 1993 Coterin granted federal permit for operation of landfill by INE (National Ecological Institute). Sept 10 Metalclad exercises option to purchase COTERIN.
  • ‘Local opposition was intense. The Governor of San Luis Potosi at first denounced the project, and then, after months of negotiation, appeared to Metalclad to support it. In May 1994, having secured an 18-month extension of the INE construction permit, Metalclad commenced construction of the landfill, which was inspected by both state and federal representatives as construction progressed.’ [8] However, on October 26 1994, the City of Guadalcazur ordered a halt to construction due to the abscence of a municipal construction permit.‘Metalclad claimed (and Mexico denied) that INE assured it that, while no municipal permit was required, it would facilitate amicable relations to secure such a permit, which could not be denied by the City. Metalclad therefore applied for a municipal construction permit and, having received INE approval for completion of the facility, resumed work on the landfill.’ [8] [7b:para 41-3]
  • In 1995 two evaluations of the site were conducted. 1) ‘In February 1995, the Autonomous University of SLP … issued a study confirming earlier findings that, although the landfill site raised some concerns, with proper engineering it was geographically suitable for a hazardous waste landfill.’ 2) ‘In March 1995, the Mexican Federal Attorney?s Office for the Protection of the Environment . . an independent sub-agency of SEMARNAP, conducted an audit of the site and also concluded that, with proper engineering and operation, the landfill site was geographically suitable for a hazardous waste landfill.’ [7b:para 44]
  • Metalclad completed construction in March 1995 and scheduled an inaugaration but this was prevented by local demonstrators with the assistance, Metalclad alleged, of local state troopers.
  • ‘After months of negotiation, on November 25, 1995, Metalclad and Mexico, through two of SEMARNAP’s independent sub-agencies (the INE and PROFEPA), entered into an agreement that provided for and allowed the operation of the landfill (hereinafter ‘the Convenio’).’ [7b:para 47]
  • ‘The Convenio stated that an environmental audit of the site was carried out from December, 1994 through March, 1995; that the purpose of the audit was to check the project?s compliance with the laws and regulations; to check the project?s plans for prevention of and attention to emergencies; and to study the project?s existing conditions, control proceedings, maintenance, operation, personnel training and mechanisms to respond to environmental emergencies. The Convenio also stated that, as the audit detected certain deficiencies, Metalclad was required to submit an action plan to correct them; that Metalclad did indeed submit an action plan including a corresponding site remediation plan; and that Metalclad agreed to carry out the work and activities set forth in the action plan, including those in the corresponding plan of remediation.’ [7b:para 48]
  • The Governor of SLP denounced the convenio and on Dec 5 1995 Metalclad’s application for a municipal permit was turned down.Shortly after the municipality attempted to challenge the convenio both directly with SEMARNAP where it was rejected and then in court where the challege was eventually dismissed in 1999.
  • ‘Metalclad has pointed out that there was no evidence of inadequacy of performance by Metalclad of any legal obligation, nor any showing that Metalclad violated the terms of any federal or state permit; … . that there was no evidence that the Municipality ever required or issued a municipal construction permit for any other construction project in Guadalcazar; and that there was no evidence that there was an established administrative process with respect to municipal construction permits in the Municipality of Guadalcazar… . .
    Metalclad was not notified of the Town Council meeting where the permit application was discussed and rejected, nor was Metalclad given any opportunity to participate in that process. Metalclad?s request for reconsideration of the denial of the permit was rejected.’ [7b:para 52-54]
  • From May to December Metalclad negotiated with the State of SLP but to ultimately to no avail (on Sept 23 1997 the outgoing Governor issued a decree declaring a Natural Area for the protection of the cactus on land that included the landfill). On 2-Oct-1996 Metalclad filed with Mexico a Notice of Intent to Arbitrate under NAFTA chapter 11 and on Jan 27 1997 Metalclad submitted Notice to ICSID.

The legal aspects of the case:

  • Metalclad alleged that Mexico, through its local governments of SLP and the municipality of Gudalcazur, prevented the operation of the waste facility and therefore violated Articles 1105 and 1110 of NAFTA. (It was acknowledged by both sides that Mexico was responsible for the actions of the local governments).
  • 1105: The Tribunal concluded ‘that Metalclad?s investment was not accorded fair and equitable treatment in accordance with international law, and that Mexico has violated NAFTA Article 1105(1).’ [7b:para 73] In evaluating the claims relating to Article 1105 the Tribunal first attempted to establish what exactly ‘the fair and equitable treatment’ owed to a foreign investor by Mexico amounted to. The Tribunal interpretation was ‘that all relevant legal requirements for the purpose of initiating, completing and successfully operating investments made, or intended to be made, under the Agreement should be capable of being readily known to all affected investors of another Party. There should be no room for doubt or uncertainty on such matters. Once the authorities of the central government of any Party (whose international responsibility in such matters has been identified in the preceding section) become aware of any scope for misunderstanding or confusion in this connection, it is their duty to ensure that the correct position is promptly determined and clearly stated so that investors can proceed with all appropriate expedition in the confident belief that they are acting in accordance with all relevant laws.’ [7b:para 76] The Tribunal then focused on how Mexico had failed in respect of this obligation in relation to existence of a need for a municipal construction permit:
    • ‘When Metalclad inquired, prior to its purchase of COTERIN, as to the necessity for municipal permits, federal officials assured it that it had all that was needed to undertake the landfill project.’ [7b:para 80]
    • There was a significant weight of evidence that indicated that in Mexican law the local government of SLP or that of the municipality did not have authority to require such a permit or, in fact, to allow or not allow the construction of such facilities (these decisions rested with the federal government) [7b:para 81-4]. This led to the conclusion:
    • ‘The absence of a clear rule as to the requirement or not of a municipal construction permit, as well as the absence of any established practice or procedure as to the manner of handling applications for a municipal construction permit, amounts to a failure on the part of Mexico to ensure the transparency required by NAFTA.’ [7b:para 88]
  • Article 1110: Expropriation. The Tribunal conclusion on this issue followed immediately from the facts of the case and its decision with respect to 1105. The clear consequence of the refusal of the permit (and the subsequence designation of the landfill as a Natural Area) was to deprive Metalclad of its investment since it had now fully constructed a landfill it was not permitted to use. Given that this refusal of and requirement for a permit and had been deemed a violation of 1105 i.e. not allowed, the conclusion of expropriation followed. [7b: para 102 ff]
  • Quantum: The Tribunal rejected a discounted cashflow basis as the landfill was not yet a going concern and instead focused on Metalclad’s actual investment in the project which it valued at $16,685,000 (including interest). [7b:para 113-125]

Environmental Considerations (Article 1114):

  • ‘This conclusion is not affected by NAFTA Article 1114, which permits a Party to ensure that investment activity is undertaken in a manner sensitive to environmental concerns. The conclusion of the Convenio and the issuance of the federal permits show clearly that Mexico was satisfied that this project was consistent with, and sensitive to, its environmental concerns.’ [7b:para 98]


Interpretation of [x : y ]. x is the reference number relating to the list below. If y is a number then it is a page reference if y = pr__ where __ is a number then this means paragraph number. Anything else should be clear from the context (e.g. 1.2.1 refers to the section numbering of the document referred to.

  1. NAFTA Cases Page at Appleton Law
  2. Arbitral panel’s Jurisdiction Ruling in Ethyl Case [24/06/1998]- On the Appleton Law website (this is a large document ~ 1.29 MB)
  3. NAFTA’S Chapter 11: Regulatory Takings Revisited - Article by Stephen Kass in the Newsletter of the North American Institute [? Nov-2001]
  4. Methylcyclopentadienyl Manganese Tricarbonyl (MMT) Case Study - Detailed look at Canadian regulatory actions about MMT including information on health risks
  5. NAFTA Chapter 11 Investor-to-State Cases: Bankrupting Democracy (on site version) [Public Citizen September 2001]
  6. Myers Final Merit Award [Arbitral panel 13-Nov-2000] - On Appleton Website
  7. ICSID documents relating to Metalclad case - look under concluded cases and the Metalclad section. Following references:
    1. Introductory Note
    2. Award [30-Aug-2000]
  8. The ‘Metalclad’ Decision Under NAFTA’s Chapter 11 [Kass and McCarroll NYLJ 27-Oct-2000]

corporation. NAFTA chapter 11 section 14 in relating to enviromental legislation states: 1/. Nothing in this Chapter [e.g. rules on compensation for expropriation] shall be construed to prevent a Party [e.g. Canada] from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental concerns. Thus Ethyl corp. could not have had an action simply on the basis of a ban of MMT for enviromental reasons. And in fact they did not. The basis for their case were Articles 1102, 1106 and 1110 and related to discriminatory treatment in that the Canadian govt had not prohibited the use of MTT per se but simply its import and interprovincial trade. Hence should Ethyl corp have had a manufacturing facility in each Canadian province it could have gone on manufacturing MMT and adding it to petrol quite happily. It is of course true that the Canadian Act de facto banned MMT but this is not the point. A Canadian ban on MMT or the addition of MMT to petrol would have been permitted, a ban on the importation of MMT would have been clearly discrimatory and therefore was not permitted. Thus I cannot see how the Ethyl case can be used as an example of NAFTA undermining the ability of countries to pursue their enviromental concerns. * [Mary Bottari Replies 30/04/02] Thank you for contacting Public Citizen. The “environmental protection” paragraph in ch 11 is circular and meaningless. As far as I can see, it has never been taken seriously by any NAFTA panel in looking at any of the numerous environmental disputes. The import of the Ethyl case is the first major NAFTA threat immediately made the govt back down. They did it again with SD Myers and again with Phillip Morris and heaven knows how many threats have been lodged in secret because this info is not publicly available. Phillip Morris is now threatening a new suit against a Canadian tobacco labelling law, it will be interesting to see if that one disappears as well.
For a more in depth discussion of the Ethyl case and the many other nafta cases, see our report on the public citizen web page at * [I reply 30/04/02] Dear Ms Bottari, I thank you for your swift reply. However I do feel neither your reply nor the document ‘NAFTA Chapter 11 Investor-to-State Cases: Bankrupting Democracy’(hereafter referred to as BD) address the issues I raised in relation to the Ethyl case. In fact I feel BD misrepresents the case in exactly the way I was pointing out. For example we have the subtitle Pay the Polluter (p. 9) when more accurately the intent of the result was ‘pay the discriminated against’. The fact is that the Canadian government’s ban was discriminatory (although it is of course clear that its intent was enviromental). Finally it is unclear to me what questions of enviromental nature were actually involved in the case as fought since it was never suggested that it would have been illegal if Canada had simply banned (or strongly regulated) MMT rather than restricting its import and transport. There is a similar level of, let us say, selective reading in the case of S.D. Myers (wher I have read the final judgement). Examples: Investor Rights did not trump enviromental regulations. The tribunal did consider carefully the relation of the Basel convention with respect to this case. They felt that disposal in the US was in line with Basel accords allowing as it did a method as safe if not safer as disposal in Canada. And it does seem to me their view on this matter was entirely reasonable from all points of view (enviromental included). Don’t bother me with the law: from what I could understand of the case though theoretically illegal to import PCB’s into the US a) there was a special understanding on hazardous waste disposal from 1990 and b) the EPA had given an official go ahead to SD Myers making quite clear that this case had a practial exemption in that the EPA would not take any action. It seems to me that the main consequence of NAFTA has not been to prevent enviromental regulation but rather to make lawmakers more attentive to the exact method of implementation.

This was clearly acknowledged by the Canadian Government: ‘ “Export of PCB waste from CANADA to the U.S. is consistent with the CANADA-U.S.A. Agreement on the Transboundary Movement of Hazardous Waste. Furthermore, the Canadian position at the Third Conference of the parties to the Base1 Convention was to use facilities in other OECD countries where we could be sure that hazardous wastes would be managed in an environmentally sound manner for final disposal.” ‘6:para 182 Last Updated: 28-Oct-2002
Created: 27-Sep-2002
IP Policy

    1. The following is a brief email correspondence:
      • [27/04/02] Dear Ms Bottari, I read with interest your article’NAFTA’s Investor “Rights”: A Corporate Dream, A Citizen Nightmare’ on the corpwatch website (orginally in the Multinational Monitor). I am particularly interested in the case of the Ethyl
  1. The (Basel) Convention commits it participants * ‘to ensure the availability of adequate disposal facilities, to the extent possible, within its own boundaries (Article 4(2)(b));’ * ‘ensure that the transboundary movement of hazardous wastes and other waste is reduced to the minimum consistent with the environmentally sound and efficient management of such wastes and is conducted in a manner which will protect human health and the environment against the adverse effects which may result from such movement (Article 4(2)(d)).’ [6:para 211] * Article 11 expressly allows parties to enter into bilateral or multilateral agreements for the cross-border movement of waste, provided that these agreements do not undermine the Base1 Convention’s own insistence on environmentally sound management. So far as CANADA and the USA were concerned, Article 11 clearly permitted the continuation of the Transboundary Agreement with its emphasis on including cross-border movements as a means to be considered in achieving the most cost-effective and environmentally sound solution to hazardous waste management. 6: pr 213.

  2. ‘CANADA was concerned to ensure the economic strength of the Canadian industry, in part, because it wanted to maintain the ability to process PCBs within Canada in the future. This was a legitimate goal, consistent with the policy objectives of the Basel Convention. There were a number of legitimate ways by which CANADA could have achieved it, but preventing SDMI from exporting PCBs for processing in the USA by the use of the Interim Order and the Final Order was not one of them. The indirect motive was understandable, but the method contravened CANADA’s international commitments under the NAFTA. CANADA’s right to source all government requirements and to grant subsidies to the Canadian industry are but two examples of legitimate alternative measures. The fact that the matter was addressed subsequently and the border re-opened also shows that CANADA was not constrained in its ability to deal effectively with the situation. [6:para 255] [return]