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You’d think it would be some thing to cheer about. Within the World Bank’s Washington headquarters last week, one lone Canadian company took on the Goliath to the south using the very trade regs that have so often been used against us. But when a Vancouver-based petrochemical producer decided to sue the United States under NAFTA for banning a highly contentious, publicly scorned gasoline additive (for which the company supplied a key ingredient), few were applauding. In fact, public interest groups, eco activists, politicians, even the mainstream U.S. media freaked, launching an all-out assault on the company, accusing Methanex of triggering an international trade brawl and daring to attack the country’s sovereign right to protect its drinking water. Why, then, are so many activists and lefty trade lawyers secretly hoping Methanex wins? Is it possible such a win might attract enough public and political attention to blow the lid off free trade’s most insidious feature – the right of foreign corporations to sue the pants off governments?
As a replacement for lead, MTBE once seemed pretty ideal. It’s relatively cheap and, as what’s called an oxygenator, it reduces nasty emissions coughing out of your tailpipe. It works so well that the U.S. passed legislation back in 1990 mandating the use of MTBE and other additives in high-smog areas to reduce rising pollution levels. The only trouble is, the stuff has a propensity to escape even reinforced storage tanks to travel far and wide, quickly contaminating a region’s water supply with just a few drops. Not the kind of thing that goes over well with the public, especially when towns in over 28 states discovered their tap water tasted like turpentine thanks to the presence of a possible carcinogen.
It was no surprise, then, that California decided to ban the once lauded substance in 99. The great shock to Americans came when three months later a company from that “Canuckistan” to the north decided to sue the U.S. government for nearly a billion dollars, using a section of NAFTA few Americans had ever heard of. (Although the suit targets California, under NAFTA the feds became the defendant.) If they’d known that foreign investors could sue for compensation in this kind of case, using Chapter 11, politicians – and, most recently, even NAFTA judges – say they would never have supported the trade agreement in the first place.
But after years of living with the free trade pact, why the sudden shock? NAFTA’s Chapter 11 has been used successfully many times against Mexico and Canada since it was implemented 10 years ago. (Remember that gasoline additive, MMT, that Canada tried to ban in the late 90s but was forced to accept when American MMT producer Ethyl Corp. sued us for hundreds of millions under Chapter 11? And won? FYI, a number of refineries recently decided to temporarily suspend usage of the neurotoxin since it was found to increase emissions.) The U.S., on the other hand, has never lost a case.
“(Americans) are very, very touchy about their sovereign right to do whatever they want, and secondly, about their environmental protection,” says Aaron Cosbey, of the International Institute of Sustainable Development. The group has been analyzing the eco implications of Chapter 11 since the late 90s and successfully petitioned for the right to submit arguments against Methanex, though these cases are usually heard behind closed doors. “If you violate both (U.S. sovereignty rights and environmental protection) at the same time and you do it by means of a treaty with a bunch of foreigners, it’s just political dynamite.”
And dynamite it is. While over a dozen other states rolled out bans of their own and over 70 municipalities and states launched separate suits against big oil companies for using the additive, the case of “the Canadians” suing the U.S. over MTBE has turned into a political hot potato in Washington. “The Methanex case exploded on the congressional scene,” says David Schneiderman, a law professor U of T. So much so that when, in 2002, U.S. president George W. Bush was trying to win “trade promotion authority” (TPA) – in essence, to pass future treaties without negotiating with Congress – the Methanex case became exhibit A for how that kind of power could be dangerous. TPA only passed, says Schneiderman, when Democrats in Congress, including presidential candidate John Kerry, were assured that the scope of future equivalents to Chapter 11 would be reined in.
And that was before the case was even heard. What if Methanex wins? A decision isn’t expected until the fall, but public interest reps like Lori Wallach, executive director or New York-based Public Citizen, are bracing for the fallout. “It would be like a boomerang with a hand grenade with the pin pulled.” While the suit may undo the MTBE ban, explains Wallach, a victory for Methanex would drive Americans to call into the question the credibility of a trade agreement that is used to support something so unpopular.
Ottawa-based trade lawyer Steven Shrybman agrees. “If a tribunal finds against the U.S., I think there will be a very quick and determined response from Congress. I don’t think U.S. trade department officials want that to happen, and the adjudicators who make a pretty penny arbitrating these cases understand that there are certain places they shouldn’t go if they want to continue to have these files.”
Methanex won’t comment on the political climate around the decision, but company reps downplay such a scenario, calling it an overstatement. Andrew Browning, Methanex’s director of government relations, feels the company has simply been unfairly targeted and is seeking compensation. “We’re not a bad corporate actor,” says Browning. “We’re not trying to prevent California from protecting its water resources. Our business has been impaired as a result of arbitrary and unreasonable state actions.”
According to Browning, leaking underground storage tanks should have been targeted, not MTBE. The company insists California only moved to ban the additive after then governor Grey Davis accepted hundreds of thousands of dollars in campaign contributions from Archer Daniels Midland, the maker of a competing oxygenator and the country’s largest manufacturer of corn-based ethanol.
And that’s the case Methanex pleaded before the NAFTA tribunal last week, saying discrimination on the part of state officials favoured one additive over another, and the company wants $970 million in damages. Notably, Methanex was forced to narrow its argument after its broader case of having sustained financial losses “tantamount to expropriation” was rejected since Methanex is not an actual manufacturer of MTBE but an ingredient supplier.
Regardless of how the winds blow for Methanex, the ramifications of the case can already be felt on the global trade scene. Australia made the boldest move, refusing to have a Chapter 11-style clause in its trade pact with the U.S. And amendments and letters of clarification slightly narrowing the scope of foreign investor rights to sue have been dashed off and added to several other trade deals, even NAFTA.
Of course, whether or not those modest modifications will actually have much impact in terms of stopping suits like Methanex’s from getting off the ground in the first place is another matter.
Does Canada use MTBE?
The answer: not nearly as much as the U.S. Instead, we’ve been using corn-based ethanol. While we have had MTBE spills in at least 250 locations across the country, officials insist that’s all in the past. Gasoline refineries decided to phase out the stuff back in 2002. The only remaining users blend gas intended for sale to the U.S.
