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U.S. Amended Statement of Defense

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U.S. Amended Statement of Defense IN THE ARBITRATION UNDER CHAPTER ELEVEN OF THE NORTH AMERICAN FREE TRADE AGREEMENT AND THE UNCITRAL ARBITRATION RULES BETWEEN METHANEX CORPORATION, Claimant/Investor, -and- UNITED STATES OF AMERICA, Respondent/Party. AMENDED STATEMENT OF DEFENSE OF RESPONDENT UNITED STATES OF AMERICA Mark A. Clodfelter Assistant Legal Adviser for International Claims and Investment Disputes Barton Legum Chief, NAFTA Arbitration Division, Office of International Claims and Investment Disputes Andrea J. Menaker David A. Pawlak Jennifer I. Toole CarrieLyn D. Guymon Mark S. McNeill Attorney-Advisers, Office of International Claims and Investment Disputes UNITED STATES DEPARTMENT OF STATE Washington, D.C. 20520 December 5, 2003 CONTENTS PRELIMINARY STATEMENT ...................................................................................... 1 FACTS ........................................................................................................................ 7 MTBE.......................................................................................................................................7 The California Market For MTBE .........................................................................................10 MTBE’s Effects On Public Health And The Environment....................................................12 California’s Actions Regarding MTBE .................................................................................18 Senate Bill 521...................................................................................................................18 The University of California Report ..................................................................................19 The 1999 Executive Order.................................................................................................22 California’s Request For A Waiver Of The Federal Oxygenate Requirement ..................23 Senate Bill 989...................................................................................................................25 The CaRFG3 Regulations ..................................................................................................26 The 2002 Executive Order And The Amended CaRFG3 Regulations ..............................27 Methanex’s Business..............................................................................................................28 Methanex And Its U.S. Investments ..................................................................................28 The Global Methanol Market.............................................................................................31 Methanex’s Participation In The California Market ..........................................................36 Methanex’s Recent Economic Performance......................................................................37 POINTS AT ISSUE ..................................................................................................... 40 I. THE TRIBUNAL LACKS JURISDICTION BECAUSE THE MEASURES AT ISSUE DO NOT “RELATE TO” METHANEX OR ITS INVESTMENTS ....................................................................43 A. The Measures At Issue Do Not, And Were Not Intended To, Address Methanol Producers Or Methanex .........................................................................................................45 1. The Record In No Way Supports Methanex’s Assertion That The Measures Were Intended To Harm Methanol Producers.............................................................................48 2. To The Contrary, The Record Shows That California Harbors No Ill Will Toward Methanex............................................................................................................................53 B. Methanex’s Attempt To Conflate Methanol With MTBE Is Without Support .............55 -ii- 1. Gasoline Distributors Do Not Have An Option Of Buying Methanol....................56 2. Merchant Oxygenate Producers Do Not Face A Choice Between Methanol And Ethanol ...............................................................................................................................63 3. Gasoline Refiners Do Not Have A Choice Between Methanol And Ethanol........65 C. In Any Event, Methanex’s Suggestion That The Measures’ Purpose Was To Benefit Ethanol Is Without Merit .......................................................................................................67 1. California’s Request For A Waiver And The 2002 Executive Order ....................69 2. Campaign Contributions From And Contacts With ADM ....................................71 3. Supposed Reaction To “Public Hysteria” Over MTBE .........................................74 4. Lobbying By Ethanol Supporters...........................................................................76 5. The Best Available Scientific Information Amply Supported The California Measures, And Continues To Do So..................................................................................78 6. Ethanol Was And Remains As “Foreign” To California As Methanol .....................84 II. METHANEX HAS FAILED TO ESTABLISH ANY LOSS PROXIMATELY CAUSED BY A SUPPOSED BREACH....................................................................................................................87 A. The Chain Of Causation Is Far Too Attenuated Here To Establish Proximate Causation................................................................................................................................87 1. Articles 1116(1) And 1117(1) Incorporate The Established Standard Of Proximate Causation............................................................................................................................88 2. The Effect Of The Ban On Suppliers To Suppliers To The Persons Regulated Is Far Too Remote To Be Cognizable..........................................................................................92 B. Each Of Methanex’s Alleged Categories Of Damages Fails As A Matter Of Law And Fact To Establish Proximate Causation .................................................................................96 1. Alleged Deprivation Of Methanex US’s Customer Base, Goodwill And Market.....96 2. Continued Idling Of Methanex Fortier ....................................................................102 3. Decreased Exports From Methanex’s Overseas Plants............................................106 4. Alleged Deprivation Of Methanex’s Customer Base, Goodwill, And Market........110 5. Reduced Return On, And Value Of, Investments And Increased Cost Of Capital..111 6. Downward Pressure On Methanol Price..................................................................113 7. MTBE Bans By Other States ...................................................................................115 8. Drop In Stock Price..................................................................................................116 III. METHANEX AND ITS INVESTMENTS RECEIVED TREATMENT NO LESS FAVORABLE THAN THAT ACCORDED THEIR U.S. COUNTERPARTS...........................................................118 -iii- A. Methanex And Its Investments Received The Same Treatment As U.S. Investors And Their Investments In Precisely The Same Circumstances ...................................................119 1. Methanex Fortier......................................................................................................120 2. Methanex US ...........................................................................................................122 3. Methanex Corporation .............................................................................................123 B. Methanex’s Argument That It Should Be Compared To Investors And Investments In Other Industries Is Without Legal Or Factual Merit ............................................................124 1. Neither Article 1102 Nor The Record Supports Methanex’s Contention That It Is In Like Circumstances With ADM ......................................................................................125 2. The Record Does Not Support Methanex’s Claim That Methanol And Ethanol Are “Like Products” Even If Such A Test Were Relevant .....................................................130 (a) The Property, Nature And Qualities Of Methanol And Ethanol Are Dissimilar.....................................................................................................................130 (b) Methanol And Ethanol Have Different End Uses............................................132 (c) Consumer Tastes And Habits Are Not A Factor Because Methanol And Ethanol Do Not Compete With One Another ...........................................................................135 (d) Methanol And Ethanol Have Different Tariff Classifications .........................135 3. Methanex’s Assertion That MTBE And Ethanol Are “Like Products” Is Similarly Without Support...............................................................................................................136 (a) MTBE And Ethanol Are Not Like Products Because Their Nature, Properties And Qualities Are Different.........................................................................................137 (b) Consumer Tastes And Preferences Demonstrate That MTBE And Ethanol Are Not Like Products ........................................................................................................140 (c) MTBE And Ethanol Have Different Tariff Classifications .............................144 IV.
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