February 16, 2001 (3:20 p.m. EST) No. 23

CANADA TO INTERVENE IN REVIEW OF A NAFTA TRIBUNAL RULING REGARDING AN AMERICAN FIRM AND MEXICO

Canada has intervened in a review of a NAFTA tribunal decision involving the Government of Mexico and an American firm. The purpose of the intervention is to ensure that Canadian interests are represented and to assist the Court in the establishment of important principles governing the interpretation of NAFTA's Chapter 11 investment provisions.

Canada's submission argues that the tribunal's decision contains errors that may create uncertainty about the application and scope of NAFTA's obligations and have implications for future NAFTA Chapter 11 arbitrations.

"As a member of the NAFTA, Canada has a direct interest in ensuring that interpretations of the investment chapter are consistently and appropriately applied by NAFTA tribunals," said International Trade Minister Pierre Pettigrew.

The review is of a decision by a NAFTA Chapter 11 tribunal in the arbitration started by Metalclad Corporation against Mexico. On August 30, 2000, the NAFTA tribunal upheld claims by Metalclad that Mexico breached its obligations under two sections of NAFTA's investor-state chapter.

The review -- scheduled to commence on February 19, 2001 -- will be held in the British Columbia Supreme Court in Vancouver, where the NAFTA tribunal originally conducted the arbitration. Canadian law allows for the review of NAFTA arbitral awards by Canadian courts on specified grounds. Mexico has asked the B.C. Court to set aside the NAFTA tribunal's award and to suspend the enforcement of the award pending hearing of the review.

This is the first occasion that a Canadian (or any other) court has considered an application for statutory review of a decision by a NAFTA Chapter 11 tribunal. On February 8, 2001, Canada filed an application in the Federal Court for a review of an award on liability by a NAFTA Chapter 11 tribunal in a case involving Canada (S.D. Myers Inc.).

Canada's written submission is available on the Department of Foreign Affairs and International Trade's Web site at: http://www.dfait-maeci.gc.ca/tna-nac/NAFTA-e.asp

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A backgrounder is attached.

For further information, media representatives may contact:

Media Relations Office

Department of Foreign Affairs and International Trade

(613) 995-1874

Backgrounder

CHRONOLOGY

NAFTA CHAPTER 11 - METALCLAD

DECISION OF THE TRIBUNAL

1. An arbitration was brought in October 1996 by a U.S. company, Metalclad Corporation, against Mexico under NAFTA's Chapter 11. The dispute arose from the refusal of the Mexican Municipality of Guadalcazar to grant Metalclad a municipal licence to operate a hazardous waste treatment facility and landfill site.

2. In August 2000, the NAFTA Chapter 11 tribunal released its decision. It held that Mexico's actions amounted to expropriation, contrary to NAFTA Article 1110, and that the minimum standard of treatment obligations, NAFTA Article 1105, were not met.

3. Mexico was ordered to pay US$16.7 million in compensatory damages to Metalclad.

4. Mexico filed a petition for statutory review in the British Columbia Supreme Court on October 27, 2000. An amended petition was filed on November 14, 2000. The petition was brought before the British Columbia Supreme Court, as Vancouver was the location of arbitration for this case.

5. On December 22, 2000, Canada wrote to the B.C. Court seeking its right to intervene in this matter.

6. On January 25, 2001, the Canadian Union of Public Employees (CUPE) filed an application to the British Columbia Supreme Court also requesting leave to intervene in this matter.

7. On January 29, 2001, the Province of Quebec filed an application to the B.C. Supreme Court, requesting leave to intervene.

8. At a hearing before the British Columbia Supreme Court on January 31, 2001, Canada and Quebec were granted the right to intervene. The application by CUPE was denied by the Court.

9. The hearing on Mexico's Petition is scheduled to commence on February 19, 2001 in Vancouver.

• Canada has filed a submission intervening on the following issues: the appropriate categorization of NAFTA Chapter 11 arbitrations; the appropriate standard of review; errors by the tribunal, including misinterpretation of provisions on minimum standard of treatment and expropriation; and mis-interpretation and application of domestic law.
• In its submission, Canada argues that any interpretation of the NAFTA must promote the NAFTA's objectives as a whole, and ensure governments possess flexibility to safeguard public interests. Canada further argued that the award reads into the NAFTA obligations on federal governments that would require them to remove all doubt and uncertainty concerning relevant legal requirements applicable to NAFTA investors. These expansive obligations are greater than those contemplated by the NAFTA drafters. In Canada's view, the tribunal did not have the authority to expand these obligations in such a manner.