Emad Mekay

WASHINGTON, Aug 12 2005 (IPS) — A three-member trade tribunal has dismissed a 970-million dollar claim filed by a Canadian company that challenged U.S. regulations banning the use of the gasoline additive MTBE.

The North American Free Trade Agreement (NAFTA) tribunal also awarded four million dollars to the United States in costs in the high-profile case that was widely seen as a test for NAFTA’s clauses that appear to limit sovereign nations’ ability to set their own health and environmental policies.

Vancouver-based Methanex Corp. had submitted its claim for arbitration in 1999, alleging that California’s ban of the use of MTBE in gasoline was a violation of the NAFTA’s investment protections. NAFTA encompasses Canada, the United States and Mexico.

Methanex argued that the California ban on MTBE on health and environmental grounds harmed the company by reducing demand for methanol, its sole product. Methanol is the primary ingredient in MTBE.

The company says that MTBE is a clean-burning gasoline component that has actually improved air quality in the U.S. and elsewhere. It argues that the decision to prohibit MTBE is related more to the political influence of those who produce ethanol, MTBE’s and methanol’s heavily subsidised competitor.

There were widespread concerns, especially among non-governmental organisations, that investor-state dispute provisions in U.S. free trade agreements and investment treaties threaten state or federal rights to protect public health and the environment, something free trade advocates say now is unjustified.

“The decision represents a vindication of the prerogative of states to take action to protect public health and the environment without running afoul of the investment protection provisions of international trade agreements and investment treaties,” said Adam Ereli, deputy spokesman of the U.S. State Department.

“The tribunal’s decision demonstrates that U.S. trade agreements and investment treaties do not encroach on governments’ legitimate right to regulate in the public interest,” Ereli said.

NAFTA advocates also contend that the tribunal’s award of costs to the United States should dampen the prospect of similar claims being brought in the future.

The tribunal ruled that the California measures were not intended to harm Methanex or other foreign methanol producers.

The decision says that the claim therefore was not covered by the investor-state arbitration provisions of NAFTA’s controversial Chapter Eleven, which prohibits nationality-based discrimination against foreign investors.

Anti-corporate globalisation critics have assailed Chapter Eleven as giving too much power to foreign corporations. The ruling did not faze them. Public Citizen, an advocacy group that has been spearheading opposition to Chapter Eleven, said the dismissal of the NAFTA case does little to ease public concerns about the extraordinary foreign investor protection rules in NAFTA-style agreements.

“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 U.N. and World Bank tribunals,” said Lori Wallach 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,” she said.

Wallach says that years have already been wasted defending the Methanex case, a waste of taxpayer dollars.

“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,” she said

“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.”

NAFTA countries still face an array of similar cases, including a 300-million-dollar challenge by Canadian feedlot operators of the United States’ decision to close the border to Canadian cattle because of the threat of mad cow disease.

The U.S. shipping company UPS is also suing for 160 million dollars in compensation from Canada, claiming that its government-run parcel delivery system weakens UPS’s market share.

According to research by Public Citizen, the Methanex case is among 42 cases filed by corporations under NAFTA’s Chapter Eleven investor provisions. With only 12 of the 42 cases concluded, some 35 million dollars in U.S. taxpayer money has been awarded to five corporations that won their claims.

An additional 28 billion dollars has been claimed by investors in all three NAFTA nations.