Nafta, Mexico & Metalclad
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NAFTA, MEXICO & METALCLAD: UNDERSTANDING THE NORMATIVE FRAMEWORK OF INTERNATIONAL TRADE LAW By . SUZANNE M. WILKINSON B.A/LL.B., The University of Melbourne, 1998 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF LAWS in THE FACULTY OF GRADUATE STUDIES (Faculty of Law) We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA October 2002 © Suzanne M. Wilkinson, 2002 In presenting this thesis in partial fulfillment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission Department of The University of British Columbia Vancouver, Canada 30 OrJktu* ,20Cfr> Abstract This thesis is an attempt to unpack and explain the outcome in the NAFTA investment dispute, Metalclad v. Mexico. It looks at the surrounding circumstances, principles, and relations that, when combined, assist in shedding light on the specific result in Metalclad and the difficulties embedded within the international trade legal regime under which this decision was made. Chapter one discusses the tendency for the regulation of economics and markets to be elevated from the domestic sphere into the international arena. I argue that once a dispute is in the international sphere, it is more difficult to question the normative assumptions underlying the governing laws. This is due, in part to the development within international trade law of an insider network with technical expertise who assume trade law is outside of politics and therefore not open for political debate. I also question the free choice developing countries had to join the international trading system, when freeing markets came to be seen during the 1980's and 90's as the only way toward economic prosperity. I highlight that contesting international trade law is difficult because there is little opportunity for the public, whose lives are affected by the decision to become involved in the decision-making process. Chapter two looks at the facts and values behind the law of NAFTA by exploring Mexico's specific history with foreign investment and relations with the U.S. It traces Mexico's almost revolutionary transition to a neo-liberal economy and embracing of the of the 'free trade' philosophy, the pinnacle of which was the signing of the NAFTA. The NAFTA negotiations are examined in order to inquire into the power relations and attitudes of each party towards the other that then found their way into the text of the treaty. The aim of this chapter is to see how history has shaped current interpretations of the NAFTA by arbitrators, which is exemplified in the Metalclad case. Chapter three then looks at specific problems inherent in the NAFTA treaty and the Chapter 11 process. In this chapter, the NAFTA is described in general terms as is Chapter 11. I present some broad difficulties embedded within the treaty. The arbitral process that decides Chapter 11 disputes is discussed, focusing on problems with the process that could lead to unpredictable decisions or the tribunal being heavily weighted in favour of the investor. Chapter four examines the case of Metalclad v. United Mexican States through the lens which has been constructed in the first three chapters. I discuss the Tribunal's perceptions of both Metalclad and Mexico that are perhaps a product of the narrow economic focus of international trade law, the specific history between Mexico and the U.S. that shaped current interpretations that the Arbitrators gave to events and the structure of Chapter 11 itself and its dispute resolution mechanism that perhaps contributed to the result in the Award. An important part of this chapter is an examination of the troubling informal jurisprudence that is the legal legacy of this case. Chapter five synthesizes the major findings of each chapter and offer some ideas about ways to address some of the concerns highlighted through the Metalclad case. Table of Contents Abstract ii Table of Contents iii Acknowledgements vi Chapter One: The Metalclad Story -The Big Picture 1 I. Introduction 1 II. Methodology 4 1. A Constitutive Approach to Law 5 2. Justification of My Approach 9 III. International Trade Law—an Emerging Site of Power 11 IV. An Historical Look at the Norms of International Trade Law. 15 V. Developing Countries and International Trade Law 20 VI. Questioning the Method Within International Trade Law 24 1. The Claim that 'Politics has Happened Somewhere Else' -The Increasing Technicality of International Trade Law 24 2. Contesting International Trade Law 27 VII. Concluding Remarks About This Chapter 30 VIII. Where Does this Thesis go From Here? 32 Chapter Two: Mapping U.S.-Mexico Relations—Foreign Investment 35 I. Introduction 35 II. The "Fear-Factor" in U.S.-Mexico Relations 39 III. Mapping the History of Mexico's View of Foreign Investment, the U.S. and Managing the Economy 44 1. Mexico's History With Foreign Direct Investment 45 2. Historical Expropriations 48 3. Foreign Investment Challenged at the Multilateral Level by the Third World 50 IV. Mexico Before and After the 'Radical' Economic Transformation 55 1. ' Mexico Joins the International Trading System 63 iii V. NAFTA Negotiations 65 1. Negotiations Generally 71 2. Negotiations over Investment 76 3. General Conclusions on the Negotiations 79 VI. NAFTA's Effect on Future Investment Treaties 81 VII. Concluding Remarks About This Chapter 84 Chapter Three: NAFTA's Chapter 11 87 I. Introduction 87 II. NAFTA-a Constitution-like Document 89 III. NAFTA's Chapter 11 93 IV. Dispute Settlement 100 V. Arbitral Process -Problem Areas 105 1. Misguided Criticism? 105 2. Ad hoc Tribunals 107 3. Arbitrators 108 4. The Hearings 109 5. Lack of Transparency 111 6. Lack of an Appeal Process 116 7. Lack of Thoroughness of Awards 116 VI. Debate in the U.S. Over Chapter 11 117 VII. A Note on Notes of Interpretation 119 VIII. Concluding Remarks About this Chapter 120 Chapter Four: Metalclad v. Mexico 122 I. Introduction 122 II. The Story 124 III. The Award 127 1. Problematic Elements of the Award 128 IV. Negative Attitude of the Tribunal Towards Mexico 130 V. Representation of Metalclad 131 VII. A Matter of Mexican Constitutional Law 135 VIII. Strong History of Democracy in San Luis Potosi 140 IV IX. The Local Environmental Dispute in Guadalcazar 142 X. Long History of Community Concern over Toxic Waste 146 XI. Troubling Legal Precedents -Article 1105 and 1110 150 1. Article 1105—Minimum Standard of Treatment 150 2. Article 1110—Expropriation 156 XII. Significance of this Case/Concluding Remarks 160 Chapter Five: Post Metalclad—Conclusions and Implications 163 I. Introduction 163 II. Thesis Conclusions 163 III. A Way Forward? 168 Bibliography 175 V Acknowledgements It is with grateful thanks that I acknowledge the people who gave me assistance in completion of this thesis. Firstly, I would like to thank my supervisor, Professor Ruth Buchanan for her encouragement, support and friendship throughout my thesis year. Her enthusiasm for working with graduate students should be commended and I was presented with the best opportunities possible during my graduate year. Thanks to my second reader, Joel Bakan, and to Karin Mickelson, Wes Pue, Annie Rochette and to other Law faculty members at UBC for their encouragement and interest in my thesis. A special thanks must go to the partners and staff at Thomas & Partners in Vancouver. It was there that my interest in NAFTA arbitration began and there that I was first exposed to the Metalclad case, which became the focus of my thesis. Chris and Cam provided me with invaluable insights and material which were an essential component of my thesis. I especially want to thank Yannick Thoraval for his love, support, encouragement, and proof reading, all of which were vital in assisting me to complete my thesis. Thanks also to my very good friends Louise, Matteo, and Joanne for their friendship throughout our graduate year. Lastly, the financial support of the Law Foundation of British Columbia, the Faculties of Law and Graduate studies at UBC is gratefully acknowledged. VI Chapter One: The Metalclad Story - The Big Picture This case highlights how an international trade agreement like NAFTA1 threatens democracy. We're talking about a Mexican municipality that denied a permit for a toxic waste dump. What is worst about this case is that the decision to deny a permit was made after local citizens mobilized to protest the landfill as a threat to their health. Then a faceless NAFTA panel awards damages because local officials listened to their citizens." If that's not an attack on democracy, I don't know what it is. Judy Darcy, National President of the Canadian Union of Public Employees (CUPE)2 This is just the kind of case for which the NAFTA was enacted, why standards of treatment, including due process and fair and equitable treatment, and why specific criteria for a taking by the government including payment of full and fair compensation are codified therein. Mr. Clyde C. Pearce, Counsel on behalf of Metalclad3 I. Introduction The Metalclad4 story began when a small American-based company, Metalclad, wanted to operate a previously Mexican owned and contaminated hazardous waste treatment facility in the municipality of Guadalcazar in the Mexican state of San Louis Potosi. Metalclad had been given assurances from the federal Mexican government that they could build and operate on the site.