A viewpoint by Thomas D. Elias: NAFTA and MTBE: Does the treaty mandate poison?

May 01, 2001

No one disputes that the gasoline additive MTBE brings noxious odors and taste to drinking water as it leaches from rusty storage tanks and the engines of small boats into California's drinking water supplies.

Few argue that the chemical, methyl tertiary butyl ether, can cause cancers. In short, it's probably poisonous.

That's why Gov. Gray Davis ordered it phased out of the state's gasoline by early next year and the federal Environmental Protection Agency actually apologized last year for mandating the fuel as a clean-air tactic in the early 1990s.

Despite all that and despite the fact that MTBE has polluted water from Lake Tahoe to Santa Monica to the Mojave Desert, there's now at least a slight doubt that California can actually get rid of this substance, one which still permeates much of its gasoline supply.

The reason: The North American Free Trade Agreement, better known as NAFTA.

For NAFTA's investor rights provisions, spelled out in Chapter 11 of the treaty between the U.S., Canada and Mexico, allow any corporation in a participating country to sue the federal government of either of the other countries whenever there's the possibility that a government policy or state or local law threatens investors.


For sure, California's pending MTBE ban threatens the profits of Methanex Corp., based in Vancouver, B.C. The Canadian company has now filed a $970 million NAFTA claim because getting rid of MTBE would severely curtail its ability to sell methanol, a key ingredient in the additive, in California.

The case bears a strong resemblance to a 1998 case that saw U.S.-based Ethyl Corp. sue the Canadian government over its health-based ban on another fuel additive called MMT. Ethyl charged the Canadian ban "expropriated" future profits and damaged the company's reputation. Result: Rather than risk a court judgment that could have paid Ethyl as much as $250 million, Canada rescinded its ban on MMT and paid the company $13 million.

In short, the welfare and strong-arm tactics of one company proved a stronger interest than Canadian public health.

Now Methanex wants to do the same thing to California.

"It's a case of a transnational corporation trying to bully a democracy into weakening environmental safeguards," said Lori Wallach, director of the Global Trade Watch wing of the Public Citizen consumer advocacy group. "It's an unconscionable corporate-Canadian shakedown of California's clean-water standards."

Here's the question raised by all this: Does NAFTA make Canadian and Mexican companies immune from the consequences when their products are detrimental to American public health? For sure, American companies and others that do business in this country can suffer when their products prove to be flawed. One example is the fate of Bridgestone-Firestone Corp. when many of its tires turned out to be faulty. That company neared bankruptcy, yet could not even hope to take action against government agencies which exposed the weaknesses of its products.

But federal courts have always shown great respect for international treaties, often affording them precedence over state laws and even some federal ones.

And if Ethyl Corp. could pressure Canada, why can't Methanex do the same to the U.S. and the Davis directive?

"(The treaty) clearly favors trade law over every other form of domestic law," said Jo Dufay, an official of the Council of Canadians, an anti-NAFTA group. "Under NAFTA, you simply can't have a meaningful environmental law, or one that directly protects public health and safety, if they in any way conflict with corporate profits."

Fear of just this sort of problem was one spark behind the massive anti-global trade protests seen last year in Seattle, Los Angeles and Washington, D.C. What's not yet known is whether federal courts in America will make treaty obligations and free trade a higher priority than public health. If that's how this case plays out and MTBE stays in California fuel, pressure to repeal the always-controversial NAFTA may soon become irresistible.

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