An international trade tribunal based
here has ruled that Mexico violated the North American Free Trade
Agreement (NAFTA) and ordered the government to pay 16.7 million
dollars to a US company.
The tribunal found that Mexico violated NAFTA's Chapter 11
investor provisions by not allowing California-based Metalclad
Corporation from opening a hazardous waste treatment and disposal
site in San Luis Potosi, a state in central Mexico. Local
government opposition to the project, says the tribunal, amounted
to expropriation of the company's profits.
The tribunal's decision is increasing concern that trade accords
and institutions like the World Trade Organisation (WTO) can be
used to trump local and national laws.
''It's a nightmare,'' said Dan Seligman, director of the Sierra
Club's sustainable trade campaign.
Seligman, who helped organise the protests last year in Seattle
against the WTO, said the tribunal's decision is a ''wake-up
call'' to anyone who cares about environmental protection.
While the provisions in Chapter 11 were designed to ensure a
corporation's investment would not be expropriated, they have
become a strategic offensive weapon against environmental, public
safety and health laws, he said.
''What we've seen in this case is that a corporation can sue
governments successfully under NAFTA rules,'' said Seligman.
In the early 1990s Metalclad received approval from the Mexican
federal government to build a disposal plant capable of handling
up to 360,000 tons of hazardous waste a year.
The facility was ready to begin operation in 1995 but public
protests against the plant prompted local authorities to begin
investigating the potential environmental impacts of the treatment
Local residents said they were never consulted about the facility
by either the federal or state governments or Metalclad, and
vehemently opposed locating a toxic waste dump in their backyard.
When an environmental impact assessment revealed that the site
lies atop an ecologically sensitive underground alluvial stream,
the Governor refused to allow Metalclad to reopen the facility.
Eventually, the Governor declared the site part of a 600,000 acre
ecological zone, despite federal support for the project.
Metalclad claimed that this action effectively expropriated its
future expected profits and sought 90 million dollars in damages.
Local environmental activists note that this figure is larger than
the combined annual income of every family in the county where
Metalclad's facility is located.
The company filed its NAFTA claim in January 1997. Hearings were
held last year and since then nothing was heard until the
The three-judge NAFTA tribunal, under the International Centre for
Investment Dispute Settlement, an arm of the World Bank, gave the
Mexican government 45 days to begin making the 16.7 million dollar
payment to Metalclad. If it does not pay by that time, six percent
interest, compounded monthly, will be added to the award.
Grant S. Kesler, president and chief executive of Metalclad, said
the 16.7 million dollars was a token amount of money and did not
reflect the value of the project.
''The biggest losers of all are the people of Mexico who continue
to have to live in a country that produces 10 million tons of
hazardous waste a year and had only one facility in the whole
country to handle it,'' he told reporters.
The Metalclad case is just one of several cross-border disputes
between companies and the three NAFTA countries. So far, at least
seven cases challenging domestic environmental policies have been
filed by corporations under the Chapter 11 clause in the three
In one instance, the Canadian-based company Methanex Corporation
filed against the United States, claiming the state of
California's decision to phase out the use of its gasoline
additive methyl tertiary butyl ether (MTBE) cost the company 970
California's governor, Grey Davis, ordered the use of MTBE halted
by the end of 2002 after studies revealed unusually high - and
potentially harmful -- levels of MTBE in California's drinking
water supply. Methanex's claim is still pending.
In another case, the US-based Ethyl Corporation attacked a
Canadian ban on the inter-provincial sale and import of a gasoline
additive it produces known as MMT.
Ethyl originally claimed 250 million dollars in damages for
expropriation, or seizure of its potential profits. In July 1998,
Canada withdrew the ban and paid the company 13 million in
''Anytime any investment is infringed upon by regulation, anytime
any worker safety protection puts any burden on a company, these
companies may use this Chapter 11 system to directly sue sovereign
governments -- it's crazy,'' said Mary Bottari, with Global Trade
Watch, an advocacy group affiliated with Public Citizen.
Unfortunately, added Seligman, the provisions under Chapter 11 are
likely to be expanded in new trade accords, including the Free
Trade Area of the Americas Agreement, or FTAA.
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