Environmental policy implications of investor-state arbitration under NAFTA Chapter 11

  • Sanford E. GainesEmail author
Original Paper


Chapter 11 of the North American Free Trade Agreement requires governments to treat foreign investors the same as domestic investors, to afford them international standards of due process of law, and to compensate investors for any actions that expropriate their investments or are “tantamount” to expropriation. It allows foreign investors to submit compensation claims to international arbitration. To the alarm of the environmental community, four of the early Chapter 11 claims involved challenges to government measures that were, or appeared to be, environmental protection measures. The first three of the four claimants ultimately received compensation; the fourth claim was denied as being outside the scope of Chapter 11. This paper takes an in-depth look at the circumstances of these four claims to determine whether the claimants had thwarted or avoided bona fide environmental protection measures and to try to assess whether these claims have “chilled” government imposition of new environmental measures. The facts of the cases and developments subsequently indicate that the government actions in the first three cases were not truly environmental protection measures, but were motivated by local political and economic considerations. The fourth claim, which involved a bona fide environmental protection, was rightly rejected. Meanwhile the number of “environmental” claims under Chapter 11 has dwindled. The paper concludes that environmentalists have little ground for alarm, and much reason to be encouraged, about how Chapter 11 has influenced environmental protection.


NAFTA Investment Foreign investor Arbitration Chapter 11 Environment Trade Hazardous waste MMT MTBE PCBs National treatment Expropriation 



North American Free Trade Agreement


International Center for the Settlement of Investor Disputes


United Nations Commission on International Trade Law


San Luis Potosí in Mexico


Not In My Back Yard


Canada’s Agreement on Internal Trade


Methylcyclopentadienyl Manganese Tricarbonyl


Methyl Tertiary-Butyl Ether


Polychlorinated Biphenyls


Environmental Protection Agency


S.D. Myers, Inc.


Archer-Daniels-Midland Corporation


Canadian Environmental Protection Act



My thanks for insightful and invaluable research assistance to Mr. Luis Suarez, LL.M. degree candidate at the University of Houston Law Center. The final paper has also benefited from careful and thoughtful comments on earlier drafts by ZhongXiang Zhang, and from commentary at the CEC’s Third Symposium on the Environmental Effects of Trade, Montreal, December 1, 2005. Finally, my personal thanks to the CEC staff for efficient administration of the entire contract and review process.


  1. Adelman, D. (2005). The false promise of the genomics revolution for environmental law. Harvard Environmental Law Review, 29, 117–177.Google Scholar
  2. Agreement on Internal Trade. (1998). Report of the article 1704 panel concerning a dispute between Alberta and Canada regarding the manganese-based fuel additives act, file no. 97/98-15-MMT-P058. Winnipeg, 12 June.Google Scholar
  3. Alberta Federation of Labour. (2000). Government taking on a health and safety headache at Swan Hills plant. AFL News, 20 October 2000. Retrieved from = 107.Google Scholar
  4. Angus, C. (1999). Is Kirkland Land set to become international centre for PCB waste? Highgrader Magazine, September/October 1999. Retrieved from Scholar
  5. Blumberg, K. & Walsh, M. (2004). Status report concerning the use of MMT in gasoline. International Council on Clean Transportation, Sept. 2004.Google Scholar
  6. British Columbia Supreme Court. (2001). United Mexican States v. Metalclad Corp. Reasons for the judgment of the Honourable Mr. Justice Tysoe, 2001 BCSC 664, 5 August 2001.Google Scholar
  7. Canada Federal Court. 2004. Canada (Attorney General) v. S.D. Myers, Inc., 2004 FC 38, 2004 CarswellNat 94.Google Scholar
  8. California Air Resources Board. (2005). California request for oxygenates waiver. Retrieved from, Last updated 25 July 2005.Google Scholar
  9. del Carmen Carmona Lara, M. (2004a). Gestión de residuos peligrosos en México, Management of hazardous waste in Mexico, Manuscript.Google Scholar
  10. del Carmen Carmona Lara, M. (2004b). Ley general para la prevención y gestión integral de residuos. General law for the prevention and integrated management of wastes, Powerpoint presentation.Google Scholar
  11. CEC. (1996). PCB regional action plan, sound management of chemicals project, December 1996. Montreal: North American Commission for Environmental Cooperation.Google Scholar
  12. Cole, M. A., Elliott, J. R., & Fredriksson, P. G. (2004). Endogenous pollution havens: Does FDI influence environmental regulations, University of Nottingham, Research paper 2004/20. Retrieved from = 764124.Google Scholar
  13. Cortinas de Nava, C. (2004). Los residuos peligrosos en México. Hazardous wastes in Mexico, Manuscript.Google Scholar
  14. Cronin, P. (2002). Metalclad in Mexico. Retrieved from Thunderbird, The Garvin School of International Management., A case study prepared by Prof. Patrick Cronin.Google Scholar
  15. CVMA. (2002). New study finds manganese-based gasoline additive causes vehicle emission failures. Ottawa: Canadian Motor Vehicle Manufacturers’ Association.Google Scholar
  16. DePalma, A. (2001). NAFTA’s powerful little secret. New York Times, 11 March 2001, sec. 3, p. 1.Google Scholar
  17. Energy Information Administration (2003). Status and impact of state MTBE ban. Retrieved from, Last updated 2003.Google Scholar
  18. Environment Canada. (1998a). Press release: Government to act on agreement on internal trade (AIT) panel report on MMT, 20 July 1998. Ottawa: Environment Canada.Google Scholar
  19. Environment Canada. (1998b). Progress on the program for destruction of federal polychlorinated biphenyls (PCBs), August 1998. Ottawa: Environment Canada.Google Scholar
  20. Environment Canada. (2001). Office of the auditor general of Canada, Minister’s response: Environment Canada (EC), 5 December 2001. Ottawa: Environment Canada.Google Scholar
  21. Environment Canada. (2003). Environment Canada’s proposed framework for an independent third-party review of new information on the effects of MMT on vehicle emissions, 10 December 2003. Ottawa: Environment Canada.Google Scholar
  22. EPA. (2004). U.S. Environmental Protection Agency, State actions banning MTBE (statewide), June, 2004. Retrieved from Scholar
  23. EPA. (2005). U.S. Environmental Protection Agency, Methyl tertiary butyl ether (MTBE) overview. Retrieved from (last updated August 31, 2005).Google Scholar
  24. Fernández-Bremauntz, A. (2005). Personal communication, 1 Dec. 2005. Mr. Fernández-Bremauntz is President of Mexico’s Instituto Nacional de Ecología, National Institute of Ecology.Google Scholar
  25. Gantz, D. (1993). Resolution of investment disputes under the North American Free Trade Agreement. Arizona Journal of International and Comparative Law, 10, 335–348.Google Scholar
  26. Gantz, D. (2001). Potential conflicts between investor rights and environmental regulation under NAFTA’s Chapter 11. George Washington International Law Review, 33, 651–752.Google Scholar
  27. González Vázquez, A. (1997). Guadalcázar, zona ecológica en SLP; descartado, reabrir el confinamiento (Guadalcazar, ecological zone in SLP; decided to reopen the waste site). La Jornada, 17 September.Google Scholar
  28. Hart, M.& Dymond, W. (2002). NAFTA Chapter 11: Precedents, principles, and prospects. Retrieved from Carleton University website at Scholar
  29. Hazmat. (1999). PCB update. Hazmat Magazine April/May 1999.Google Scholar
  30. Health Canada. (2001). Office of the auditor general, response of health Canada to the petition filed July 2001 received by the minister of health July 23, 2001. Ottawa: Health Canada, November 2001.Google Scholar
  31. Hilborn, J.C. and S. Hart. (1998). The management and disposal of PCBs in Canada. Paper presented at United Nations Environment Programme Chemical Program workshop on subregional awareness raising on persistent organic pollutants, Argentina: Puerto Iguazú. Retrieved from .Google Scholar
  32. ICSID. (2000). Metalclad Corporation and the United Mexican States, Award of the arbitral tribunal. Vancouver: International Centre for the Settlement of Investment Disputes, 30 August 2000.Google Scholar
  33. ICSID. (2002). Methanex Corporation and United States of America, Preliminary Award of the Tribunal on Jurisdiction and Admissibility. Washington DC: International Center for the Settlement of Investment Disputes, 7 August 2002.Google Scholar
  34. ICSID. (2003). Award: Tecnicas Medioambientales TECMED S.A. v. Estados Unidos Mexicanos, Case No. ARB(AF)/00/2. Washington, DC: International Centre for Settlement of Investment Disputes, 29 May 2003.Google Scholar
  35. ICSID. (2005a). Glamis Gold, Ltd. v. The United States of America. Procedural order no. 1. International Center for the Settlement of Investment Disputes, 3 March 2005.Google Scholar
  36. ICSID. (2005b). Methanex Corporation and United States of America, Final Award of the Tribunal on Jurisdiction and Merits. International Center for the Settlement of Investment Disputes, 3 August 2005.Google Scholar
  37. IISD. (2001). Private rights, public problems: a guide to NAFTA’s controversial chapter on investor rights. Winnipeg: International Institute for Sustainable Development.Google Scholar
  38. Mann, H. (2005). The final decision in Methanex v. United States: some new wine in some new bottles. Winnipeg: International Institute for Sustainable Development.Google Scholar
  39. Medellín Milán, P. (2002). Metalclad vs Guadalcázar vs México. Paper presented at a seminar on analysis of the NAFTA Chapter 11 investment regime and the environment, Mexico D. F., 13 March 2002. Retrieved from Scholar
  40. Methanex Corporation. (2001). Draft Amended Claim, February 12, 2001. Retrieved from Scholar
  41. Methanex Corporation. (2002). Global environmental excellence report 2002. Retrieved from Scholar
  42. Mexico Federal Law. (2002). Ley Federal de Transparencia y Acceso a la Información Pública Gubernamental (Federal law on transparency and access to public governmental information). Retrieved from Scholar
  43. Moyers, B. (2002). Trading democracy, NOW with Bill Moyers, Public broadcasting system. Ttranscript retrieved from Scholar
  44. NAFTA Free Trade Commission. (2001). Joint statement by the NAFTA Free Trade Commission: Building on a North American partnership, 31 July 2001.Google Scholar
  45. NAFTA Free Trade Commission. (2003). Statement of the Free Trade Commission on non-disputing party participation, 7 October 2003.Google Scholar
  46. NAFTA Free Trade Commission. (2004). Joint statement, A Decade of Achievement, 16 July 2004.Google Scholar
  47. A website at maintained by Todd Jeffrey Weiler that collects all the available documents on NAFTA Chapter 11 claims.Google Scholar
  48. National Round Table. (2001). MMT case study. In National Round Table on the Environment and the Economy, Managing potentially toxic substances in Canada: a state of the debate report, Appendix 1.C. Ottawa: National Round Table on the Environment and the Economy.Google Scholar
  49. Ontario. (2004). Ontario ministry of the environment news release: Trans-Cycle Industries, Inc. fined $13,000 for non-compliance with Environmental Protection Act. 7 June 2004. Thunder Bay.Google Scholar
  50. Pembina Institute. (2002). Letter from M.S. Winfield to Frank Coschi, 15 March 2002. Ottawa: Pembina Institute for Appropriate Development.Google Scholar
  51. Perciasepe, R. (2000). R. Perciasepe (EPA asst. administrator for air & radiation), testimony before the subcommittee on health and environment of the committee on commerce, U.S. House of Representatives, March 2, 2000. Retrieved from .Google Scholar
  52. Pettigrew, P. (2001). Remarks to the House of Commons, 1 May 2001, by the Hon. Pierre Pettigrew, Minister for International Trade. Retrieved 11 March 2005 from .Google Scholar
  53. Pfaff, D. (2000). Trade winds. California Lawyer, September 2000, 25.Google Scholar
  54. Price, D. (2001). NAFTA Chapter 11—investor–State dispute settlement: Frankenstein or safety valve? Canada–U.S. Law Journal, 26, 107–112.Google Scholar
  55. Public Citizen. (1998). School of real-life results: NAFTA report card. Washington, D.C.: Public Citizen. Retrieved from Scholar
  56. Public Citizen. (2001). NAFTA Chapter 11 investor-to-State cases: bankrupting democracy. Washington, DC: Public Citizen. September 2001. Retrieved from .Google Scholar
  57. Quiñones, S. (1997). Disposal dilemma. World Trade, 10(5), 20.Google Scholar
  58. Quiñones, S. (2000). Down in the dumps. Latin Trade, 8(3), 68.Google Scholar
  59. S.D. Myers, Inc. and Government of Canada. (2000). Partial award. Toronto: Arbitral Tribunal, 13 November 2000.Google Scholar
  60. S.D. Myers, Inc. and Government of Canada. (2002). Second partial award. Toronto: Arbitral Tribunal, 21 October 2002.Google Scholar
  61. Saleska, S., & Engel, K. (1998). “Facts are stubborn things”: An empirical reality check in the theoretical debate over the race-to-the-bottom in state environmental standard-setting. Cornell Journal of Law and Public Policy, 8, 55–88.Google Scholar
  62. San Luis Potosí. (1997). Sumario del periódico official del gobierno del estado libre y soberano de San Luis Potosí (Summary of the official register of San Luis Potosí), State Executive Order: General coordination of ecology and environmental management, 27 September 1997.Google Scholar
  63. San Luis Potosí. (2003). Ley de Transparencia Administratíva y Acceso a la Información Publica del Estado de San Luis Potosí, Law on administrative transparency and access to public information of the State of San Luis Potosí. Retrieved from .Google Scholar
  64. San Luis Potosí. (2004). Government of the State of San Luis Potosí, Press Release, 12 May 2004. Retrieved from = 260.Google Scholar
  65. Sandrino, G. (1994). The NAFTA investment chapter and foreign direct investment in Mexico: a third world perspective, Vanderbilt Journal of Transnational Law, 27, 259–327.Google Scholar
  66. Semarnat. (2005). Report on state protected area in Guadalcazár, at Website of San Luis Potosí office of Secretaría del medio ambiente y recursos naturals, Mexican department of environment and natural resources, Last updated 21 Dec. 2005.Google Scholar
  67. Semarnat. (2006). Newsletter, Vol. 1, No. 5, May 2006, of San Luis Potosí office of Secretaría del medio ambiente y recursos naturals. Mexican department of environment and natural resources. Retrieved 22 Nov. 2006 from Scholar
  68. Senate of Mexico. (2002). Gaceta Parlamentaria del Senado de la Republica (Parliamentary gazette of the Senate of the Republic. Retrieved from = 124/dictamen_apri_rep_checa_2002_5.html.Google Scholar
  69. Senate of Mexico. (2003). Senado de la Republica, Presentación: Transparencia y Acceso a la Información (Senate of the Republic, Presentation: Transparency and access to information), Retrieved from Scholar
  70. Sierra Club. (2004). Sierra Club of Canada news release: MMT on its way out in Canada, 16 December 2004. Ottawa.Google Scholar
  71. Soloway, J. A. (1999). Environmental trade barriers under NAFTA: the MMT fuel additives controversy. Minnesota Journal of Global Trade, 8, 55–93.Google Scholar
  72. Starr, R. (2003). The ugly duckling. Canadian Business, 14 April.Google Scholar
  73. United Nations. (2003). Commission on Human Rights, Report of special rapporteur, Adverse effects of the illicit movement and dumping of toxic and dangerous products and wastes on the enjoyment of human rights, addendum: Mission to Canada 17–30 October 2002, Doc. No. E/CN.4/2003/56/Add.2, 14 January 2003.Google Scholar
  74. United States (2000). United States, Statement of Defense of Respondent United States, August 10. Retrieved from .Google Scholar
  75. Von Moltke, K., & Mann, H. 2001. Misappropriation of institutions: some lessons from the environmental dimension of the NAFTA investor-state dispute settlement process. International Environmental Agreements: Politics, Law and Economics, 1, 103–119.CrossRefGoogle Scholar
  76. Wagner, J. Martin. (1999). International investment, expropriation and environmental protection. Golden Gate University Law Review, 29, 465–538.Google Scholar

Copyright information

© Springer Science+Business Media B.V. 2007

Authors and Affiliations

  1. 1.University of Houston Law CenterHoustonUSA

Personalised recommendations