The Metalclad Corporation successfully sued the Mexican government under NAFTA because a Mexican municipality refused to let the US company operate a toxic waste dump within its bounds.
The trouble arose in Guadalcazar, where Metalclad bought a toxic waste dump that was the centre of local health concerns. Granted permission to clean up the dump, Metalclad then proceeded to expand its operation. Municipal officials denied the company a building permit, citing environmental concerns, local opposition, and the companys poor track record. The state also denied permission to re-open the site after studies showed it would contaminate the local water supply.
The efforts of local authorities to protect the health of their community threw a wrench in the companys plans. Metalclad, which had started construction without waiting for all levels of approval, accused the Mexican government of violating Chapter 11 of NAFTA. Instead of seeking to settle jurisdictional questions in Mexican courts, Metalclad opted for the big stick right away, claiming US$90 million in damages and lost profits.
The NAFTA tribunal meeting in Washington behind closed doors sided with Metalclad, but lowered the award to US$17 million. The Mexican government has appealed.
The ruling sends a dangerous signal that municipal and provincial governments are bound by NAFTAs harsh investor state provisions, even though neither level of government was a party to NAFTA.
The Mexican governments appeal of the ruling was heard in a BC court in February 2001, the first appeal of its kind. CUPE sought standing at the appeal, arguing the case had far-reaching implications for municipal governments trying to protect the environment and public health.
While the court only awarded formal standing to the Canadian and Qub0065c governments, CUPE continues to raise concerns about this decision. The Metalclad case highlights the possibility that foreign corporations will use NAFTAs Chapter 11 to push the boundaries even further, challenging any restrictions on their ability to profit from the delivery of public services and forcing widespread privatization.