Copyright 2002 The Atlanta Journal-Constitution  

The Atlanta Journal-Constitution
March 15, 2002 Friday, Home Edition
SECTION: News; Pg. 3B

LENGTH: 1144 words

HEADLINE: BACKGROUNDER: NAFTA: Some procedures can't be appealed

BYLINE: JEFF NESMITH

SOURCE: Cox Washington Bureau

BODY:
Washington --- Sometime in the next few months, former Secretary of State Warren Christopher and two other lawyers will decide whether the United States must pay a Vancouver, British Columbia, company up to $970 million because a noxious chemical has been banned from gasoline sold in California.

Their decision will be made behind closed doors. Even oral arguments by State Department lawyers, who call the company's claims "absurd," will be closed to the public.

Christopher and his fellow arbitrators, Van V. Veeter of London and J. William Rowley of Toronto, were selected under a procedure provided by the World Bank. When they reach a decision, it cannot be appealed in the U.S. courts or anywhere else.

The possibility that the United States might be required by unelected international officials to pay hundreds of millions of dollars for the right to protect its citizens from a clearly hazardous environmental condition is at the center of a growing controversy over the North American Free Trade Agreement, or NAFTA.

It is a controversy that was not anticipated in the debate over Ross Perot's warning about a "giant sucking sound" when U.S. jobs are lost, and in the debate over other treaty ratification issues.

The claim against California was brought by Methanex Corp. under what is turning out to be a controversial chapter of NAFTA.

"The treaty gives unaccountable arbitral panels far too much discretion in a process that is essentially secret," said Stephen Porter, a lawyer whose nonprofit organization, the Center for International Environmental Law, has asked for permission to file a "friend of the court" brief in the suit brought by the Canadian company, Methanex Corp.

Methanex is the world's largest producer of methanol, a prime component in the production of MTBE, a gasoline octane enhancer. MTBE is known for its dauntingly unpleasant taste at extremely low concentrations in drinking water, and for its tendency to cause cancer in laboratory animals.

Gov. Gray Davis in 1999 ordered MTBE phased out of gasoline sold in the state after it began showing up in underground water supplies, especially in Santa Monica, which is spending millions of dollars in an effort to rid water wells of contamination.

Methanex filed its claim under NAFTA's Chapter 11.

The chapter requires the three NAFTA "parties," Mexico, Canada and the United States, each to treat businesses from one of the other two countries no less favorably than it treats its own businesses in matters such as acquisition, expansion, management, operation, sale and other disposition of investments.
 
Expropriation issue

On its face, Porter explained, that seems simple enough. However, the chapter also provides that if one of the three countries "expropriates" anything of value from a company based in another treaty country "for a public purpose," it must pay compensation.

By ordering MTBE phased out, Davis expropriated profits Methanex might have anticipated from sales of methanol, the company argued.

This is the same as the "takings" issue that has been argued repeatedly in environmental cases in U.S. courts, Porter said.

"You have this international standard which gets raised differently and interpreted not in a U.S. court but in these arbitral panels, are not bound by U.S. jurisprudence on this extremely controversial and unsettled issue," he said.

Concern about the NAFTA provision is not limited to environmental lawyers.

Last month, the Canadian Conference of Catholic Bishops expressed "grave concerns" about NAFTA's threat to the environment.

The bishops cited other cases in which Chapter 11 had been used to mount claims over environmental issues: S.D. Myers Inc. of Talmadge, Ohio, has filed a $30 million claim against Canada over losses it claims to have suffered because of a Canadian ban on toxic PCB waste from the United States. Metalclad Inc., a Newport Beach, Calif., waste disposal company, has collected $17 million from Mexico over the decision by Mexican officials that the company's waste dump in central Mexico was contaminating ground water. In a case that has obvious similarities to the Methanex claim, Ethyl Corp. of Richmond, Va., collected $13 million from the Canadian government because Canada banned as environmentally damaging an Ethyl gasoline additive known as MMT.
 
Pressing for change

Daniel Price, a Washington lawyer who as assistant U.S. trade representative under former President George Bush helped negotiate NAFTA, agreed that reviews of claims by arbitral panels should be opened up. He stops short of saying the panels' sessions should be conducted in public.

"Legitimate concerns have been raised about the transparency of the dispute settlement process," he said, adding that trade ministers from the three countries agreed in July that all briefs and filings should be made public.

In testimony last year before the House Ways and Means Committee, Price noted that arbitral panels can only require countries to compensate foreign companies. The panels cannot require changes to policies or laws.

He also said that the United States has long advocated the creation of a set of rules --- such as Chapter 11 --- to establish so-called "level playing fields" for overseas investment.

Meanwhile, the city of Santa Monica has filed lawsuits against oil companies and pipeline operators for money it must spend to clean MTBE from its groundwater.

And, since the chemical is showing up in drinking water resources nationwide, a number of class-action lawsuits have been filed in behalf of property owners.

Thus, while Methanex is suing the U.S. government for nearly $1 billion because California insisted that its chemical be kept out of gasoline, oil companies are being sued for other billions for putting it in and allowing it to leak out.

The central difference, according to Porter, is the fact that the U.S. lawsuits will be decided openly in the U.S. court system, where rulings will be subject to appeal.

In addition to "opening up" the process, he said, the three countries should establish an appeal body to review arbitrators' decisions.
 
ON THE WEB: NAFTA site: www.nafta-sec-alena.org/english/index.htm Center for International Environmental Law: www.ceil.org State Department: www.state.gov/s/l/c3439.htm NAFTA site: www.nafta-sec-alena.org/english/index.htm

Center for International Environmental Law: www.ceil.org

State Department: www.state.gov/s/l/c3439.htm
 
BEHIND THE NEWS

The AJC explores national and international topics in Backgrounders.

Recent Backgrounders have addressed: The Saudi Arabian peace plan Genetically modified food Afghan warlord Ismail Khan's ties to Iran Peacekeeping in war zones

These and other Backgrounders from previous editions are available on: ajc.com

GRAPHIC: Photo:
Commuting in Los Angeles may be safer after a chemical was phased out of gasoline, but it could cost the country./ REED SAXON / Associated Press Photo:
President Bill Clinton signs the NAFTA accord in 1993 with (from left) Vice President Al Gore, House Minority Leader Bob Michel and House Speaker Tom Foley./ DOUG MILLS / Associated Press

LOAD-DATE: March 15, 2002