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[GreenYes] Update on NAFTA Chapter 11 Claim re Methanex
Methanex Files Updated NAFTA Claim Against California's Ban of Additive MTBE

OTTAWA--A "fresh pleading" by Vancouver-based Methanex Corp. provides new
evidence for a North American Free Trade Agreement arbitration panel to
consider its $970 million expropriation claim against the state of
California's planned ban of gasoline additive MTBE, Chris Dugan, a lawyer
representing the company, said Nov. 7.

The additional information, filed in response to the NAFTA panel's Aug. 7,
2002, ruling provides substantial, detailed proof that the state
government's action was intended to harm foreign methanol producers, Dugan,
a partner with Washington, D.C. law firm Jones, Day, Peavis & Pogue told
BNA. "What we tried to show is that California was trying to favor the U.S.
ethanol industry in order to create a California ethanol industry, and knew
that its actions would harm methanol producers," he said.

The additional information presented in Methanex's new submission meets the
tribunal's requirements for evidence to support the company's allegations
that California Gov. Gray Davis put the MTBE (methyl tertiary butyl ether)
ban in place because of political pressure from major ethanol manufacturer
Archer Daniels Midland Co., a source close to the case told BNA Nov. 7. "We
believe that there is evidence in there of political interference," the
source said.

The latest statement of claim, filed late Nov. 5 to meet the arbitration
panel's deadline for Methanex's submission of additional evidence, stresses
that the claim for compensation under NAFTA Chapter 11 is a straightforward
dispute over economic protectionism and not an attempt to expand
international guarantees in a way that would threaten the ability of nations
or states to enforce valid and nondiscriminatory environmental laws.

"An extensive body of both municipal and international case law demonstrates
that the United States' efforts to protect its domestic ethanol industry
from 'foreign' competitors under the guise of environmental protection is a
common type of impermissible treatment," the statement of claim said. "Far
from representing an abuse or an unwarranted extension of the Chapter 11
process, Methanex's refusal simply to accept the consequences of
California's unlawful protectionism comports exactly with the investment
guarantees Chapter 11 was meant to provide."

Evidentiary materials to support Methanex's claim are contained in
appendices, along with affidavits from senior Methanex officials and expert
opinions from Sir Robert Jennings, former president of the International
Court of Justice on the meaning of NAFTA Article 1101, Claus-Dieter
Ehlermann, former chair of the World Trade Organization's Appellate Body on
the principle of national treatment, and scientific consulting company
Exponent on the role of leaking underground gasoline storage tanks in
relation to California's MTBE ban, the statement of claim said.

Methanex had intended to provide an additional factual affidavit from at
California gasoline refiner that was affected by the MTBE ban, it said.
"That refiner, however, ultimately declined to provide Methanex with that
affidavit, informing Methanex's counsel that it had made that decision
because the refiner feared retaliation by the state," it said.

The NAFTA arbitration panel had found little basis for Methanex's
expropriation claim under NAFTA Chapter 11. Its ruling found that the
company failed to provide sufficient evidence to support the only portion of
the claim in which it had a chance of proving damage to its business--the
allegation that Gov. Davis intended the MTBE ban to harm Methanex's business

"In short, the tribunal cannot continue what has become an impossible
forensic exercise, composing a jigsaw of assumed facts and inferences with
too many missing and incomplete pieces," the ruling said. "In these
circumstances, we do not consider the case clear enough to determine whether
or not Methanex's allegations based on 'intent' are sufficiently credible,"
it said.

Most of Methanex's claim was outside the jurisdictional requirements of
NAFTA Chapter 11, and although certain allegations relating to the "intent"
underlying California's MTBE ban could potentially meet those requirements,
simply submitting a further amendment to the original statement of claim
would be insufficient, the panel said. "At this stage of the proceedings, we
also decide that more is required of Methanex than a fresh pleading," it
said. "Methanex must file with that pleading copies of all evidential
documents on which it relies, together with factual witness statements and
expert witness reports," it said.

The panel said it was willing to consider Methanex's allegations that, as
part of a systematic campaign against MTBE, Archer Daniels Midland conducted
a secret meeting with Gov. Davis on the subject of ethanol during his
election campaign, that ADM made substantial contributions to the Davis
campaign, and that Davis's implementation of the ban was inappropriate
because MTBE had been demonstrated to be a safe product.

Methanex's claim against California's Mar. 25, 1999 decision to ban MTBE
(methyl tertiary butyl ether) was based on allegations that the ban resulted
in a substantial decrease in demand for MTBE constituent methane, Methanex's
sole product, a corresponding loss of profits, and a C$150 million ($98
million) decrease in the value of the company's stock.

The claim renewed the controversy over the use of NAFTA Chapter 11 to seek
compensation in cases of alleged expropriation resulting from environmental
regulation. It followed a case won by Ethyl Corp., of Richmond, Va., in July
1998 in which Ethyl used a $250 claim to force the Canadian government to
withdraw its ban on gasoline additive MMT and to obtain $13 million in
compensation for lost profits.

Successive Canadian trade and environment ministers have argued, with the
support of their U.S. counterparts, that the NAFTA signatories never
intended Chapter 11 to be used to challenge government actions, such as
environmental and health regulations, with a valid social purpose.

Methanex had also filed a complaint with the North American Commission on
Environmental Cooperation against California's MTBE ban, but the NACEC
Secretariat, which administers the environmental side agreement to NAFTA,
ruled in July 2000 that it was prevented from considering the case by the
pending NAFTA Chapter 11 arbitration.

By Peter Menyasz

Copyright (c) 2002 by The Bureau of National Affairs, Inc., Washington D.C.
Peter Anderson
4513 Vernon Blvd. Suite 15
Madison, WI 53705
Ph:    (608) 231-1100
Fax:   (608) 233-0011
Cell    (608) 438-9062

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