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Paying to Regulate: A Guide to Methanex v. United States & NAFTA Investor Rights

August 2001

Citation: 31 ELR 10986

Issue: 8

Author: William T. Waren

I. The Importance of Methanex v. United States to American States

Methanex v. United States1 is one of the first cases brought against the United States under the investment chapter of the North American Free Trade Agreement (NAFTA).2 In three pending NAFTA investment cases based on objections to state law and practice, transnational corporations are seeking $ 1.7 billion in damages from the United States. In effect, they seek to expand property rights beyond U.S. constitutional standards for compensating investors when governments regulate to protect the environment or otherwise exercise their police power.

Methanex illustrates how NAFTA investment cases may raise fundamental issues of state sovereignty and federalism. The Methanex corporation is asking a NAFTA tribunal to accept a very broad interpretation of NAFTA's investment chapter that would allow investors to be compensated when state environmental regulations reduce their expected profits. Arguably, an award of damages to the Methanex Corporation would establish that under NAFTA's investment chapter the United States would have to pay for state governments to regulate.3 Even if the Methanex Corporation loses or has its case thrown out on jurisdictional grounds, the case is but one of several brought under NAFTA's investment chapter, all of which challenge core government functions. The open-ended language of NAFTA's investment chapter practically invites such claims, some of which have proven successful.4

Bill Waren is a fellow at the Harrison Institute for Public Law at the Georgetown University Law Center. He speaks and writes frequently on federalism issues. Mr. Waren received a B.A. and an M.A. from the University of Illinois at Urbana-Champaign and a J.D. from Duke Law School. For 17 years, he analyzed federalism issues at the National Conference of State Legislatures. This Dialogue is an adaptation of a report issued by the Harrison Institute in March 2001. Mr. Waren can be reached by e-mail: wtw2@law.georgetown.edu.

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