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Lawyers, other representatives, expert(s), tribunal’s secretary

Partial Award


Methanex : The Claimant is Methanex Corporation (" Methanex "), a company originally incorporated under the laws of Alberta, Canada. It is now formed under the Canadian Business Corporations Act. Methanex produces and markets methanol, with facilities in Canada, the USA, New Zealand, Chile and Trinidad & Tobago. Its headquarters are in Vancouver, British Columbia, Canada.
Methanex-US : Methanex Methanol Company (" Methanex-US ") is a general partnership formed under the laws of Texas, USA. Its partners are Methanex Inc. and Methanex Gulf Coast Inc., both incorporated under the laws of Delaware, USA. Methanex owns, indirectly, all the shares of these two US companies and thereby, also indirectly, Methanex-US.
Methanex-Fortier : Methanex Fortier Inc. (" Methanex-Fortier ") is a company incorporated under the laws of Delaware, USA. Methanex owns, indirectly, all the shares in this US company.
The United States of America : The Respondent is the USA which, along with Canada and Mexico, is one of the three Parties to the North American Free Trade Agreement ("NAFTA").


The Three Arbitrators : The Arbitration Tribunal comprises (i) William Rowley of McMillan Binch, Royal Bank Plaza Suite 3800, South Tower, Toronto, Ontario M5J 2J7, Canada, having been appointed by Methanex; (ii) Warren Christopher of O'Melveny & Myers LLP, 1999 Avenue of the Stars, Los Angeles, California 90067-6035, USA, having been appointed by the USA; and (iii) V. V. Veeder of Essex Court Chambers, 24 Lincoln's Inn Fields, London WC2A 3EG, England, having been appointed as third arbitrator and president of the Tribunal.
The Tribunal's Secretaries : The Tribunal's legal secretaries were Sri Srinivasan (until August 2001), Samuel Wordsworth and (from June 2002) Jeremy Maltby.


(1) Introduction

For reasons that are self-evident to the Disputing Parties and that will become clear below, it is necessary to set out at length part of the procedural history of these arbitration proceedings. It is particularly necessary to describe the steps leading to the reformulation of Methanex's claim in its draft Amended Statement of Claim of February 2001. (To distinguish between Methanex's successive cases, the terms "Original Statement of Claim" and "Amended Statement of Claim" are used in this Award). It is not however necessary to repeat here other procedural aspects of these proceedings, including the Tribunal's earlier decisions on the place of arbitration and on the admission of amici curiae to these arbitration proceedings1.
For ease of reference, relevant provisions of NAFTA (in the English language version) are set out in the annex to this Award, together with provisions of the UNCITRAL Arbitration Rules.

(2) Notice of Arbitration

On 3rd December 1999, Methanex served its Notice of Arbitration, accompanied by its Original Statement of Claim. Pursuant to Article 3(2) of the UNCITRAL Rules and Article 1137(1) NAFTA, the arbitral proceedings were deemed to have commenced on the USA's receipt of the Notice of Arbitration, i.e. 3rd December 1999.

(3) Original Statement of Claim

As formulated in its Original Statement of Claim, Methanex's claim is based on the alleged breach of two provisions in Section A of Chapter 11 of NAFTA: (i) the State of California did not accord a minimum standard of treatment as required by Article 1105(1) NAFTA; and (ii) various actions taken by the State of California and its Governor directly or indirectly constitute a measure tantamount to expropriation under Article 1110(1) NAFTA. Methanex's original claim was brought under Article 1116(1) NAFTA only.

(4) Amended Statement of Claim

On 12th February 2001, Methanex submitted a draft Amended Statement of Claim. This added a new claim of discrimination on the basis of nationality as prohibited by Article 1102 NAFTA, as well as further claims for breaches of Articles 1105 and 1110 NAFTA, with these claims now being brought pursuant to Articles 1116 and 1117 NAFTA.

(5) Waiver and Article 1121(1) NAFTA

Pursuant to Article 1121(1) NAFTA, Methanex appended to its Notice of Arbitration a consent to arbitration and waiver dated 2nd December 1999. The USA disputed the validity of the waiver. However at the oral hearing in July 2001, as discussed further in Chapter H below, the Disputing Parties resolved the issue of waiver by agreement. Accordingly, the Tribunal is not required to rule on the issue of the waiver's validity; and it does not do so in this Award.

(6) The USA's Defence and Jurisdictional Challenges

In its Statement of Defence of 10th August 2000, the USA raised a series of objections to jurisdiction and admissibility in respect of Methanex's Original Statement of Claim. In accordance with the timetable laid down at the Second Procedural Meeting held on 7th September 2000, the USA submitted a Memorial on Jurisdiction and Admissibility on 13th November 2000. It was the first of many submissions which raised substantial objections to Methanex's claims, quite apart from the USA's denial of the merits of those claims.

(7) Pre-Hearing Written Submissions on Challenges

Prior to the oral hearing of July 2001, in accordance with the Tribunal's orders of 7th September 2000, 22nd December 2000, 8th January, 27th February, and 2nd May 2001, the Disputing Parties submitted written submissions on jurisdiction and admissibility, including Methanex's application to amend its Original Statement of Claim in the form of its Amended Statement of Claim. It is convenient to list these submissions below, given that reference will be made to them later in this Award, together with written submissions made by Canada and Mexico as NAFTA Parties pursuant to Article 1128 NAFTA:

13th November 2000 : USA Memorial on Jurisdiction and Admissibility. Also on 13th November 2000, Methanex and USA Joint Submission of Evidence, Vol 1.

12th January 2001 : Methanex Motion to Amend its Original Statement of Claim pursuant to Article 20 of the UNCITRAL Arbitration Rules, together with a Draft Outline of its Amended Statement of Claim.

12th February 2001 : Methanex Counter-Memorial on Jurisdiction and Draft Amended Statement of Claim.

12th April 2001 : USA Reply Memorial on Jurisdiction and Proposed Amendment.

30th April 2001 : Second Submission of Canada under Article 1128 NAFTA, addressing certain jurisdictional issues.

15th May 2001 : Mexico Submission under Article 1128 NAFTA also addressing certain jurisdictional issues.

25th May 2001 : Methanex Rejoinder Memorial on Jurisdiction and its Proposed Amendment.

27th June 2001 : USA Rejoinder Memorial on Jurisdiction and the Proposed Amendment.

(8) Jurisdictional Hearing of July 2001

The oral hearing on the USA's challenges to jurisdiction, admissibility and related issues on Methanex's amendment took place at the World Bank, Washington DC, on 11th to 13th July 2001. The Disputing Parties and Parties were represented as follows:

(I) Methanex : As Counsel, Christopher F. Dugan, Esq., James A. Wilderotter, Esq., Melissa D. Stear, Esq., Nancy M. Kim, Esq., all of Jones, Day, Reavis & Pogue, 51 Louisiana Avenue NW, Washington, DC 20001-2113, USA;

(II) The USA : As Counsel, Ronald J. Bettauer, Esq., Mark A. Clodfelter, Esq., Barton Legum, Esq., Andrea J. Menaker, Esq., Alan Birnbaum, Esq., all of the U.S. Department of State, Office of the Legal Adviser, Suite 203, South Building 2430 E Street NW Washington, DC 20037-2800, USA;

(III) Canada: As Counsel, Mr Boris Ulehla, Counsel, Trade Law Division, Department of Foreign Affairs and International Trade, Department of Justice, 125 Sussex Drive, Ottawa, Ontario K1A 0G2, Canada; and

(IV) Mexico : As Counsel, Adriana González Arce Brilanti Esq., Secretariat of the Economy, Alfonso Reyes No. 30, Piso 17, Col Condesa, 06179, Mexico DF, Mexico; and Nancy Fisher, Esq., of Shaw Pittman, 3200 N Street NW, Washington DC 20037-1128, USA.

In addition, each Disputing Party was attended by other persons whose names are recorded in the files and need not be repeated here, including (for the USA) representatives from the US Department of State, the Office of the US Trade Representative, the US Department of Commerce, the US Department of Justice, the US Department of Treasury, the US Department of Labor, the US Enviromental Protection Agency, the California Environmental Protection Agency and the California State Water Resources Control Board.

No witness or expert witness testified at this oral hearing; and indeed no factual evidence on any disputed issue was adduced by any Disputant Party or Party. As appears below, it was a hearing limited to legal argument, based on alleged and assumed facts.

(9) Post-Hearing Written Submissions on Challenges

Following the oral hearing, the Tribunal received further written submissions on jurisdiction and admissibility:

20th July 2001 : Methanex Post-Hearing Submissions.

20th July 2001 : USA Post-Hearing Submissions.

27th July 2001 : Methanex Reply to Post-Hearing Submissions of the USA.

27th July 2001 : USA Response to Post-Hearing Submissions of Methanex.

31st July 2001 : USA Letter attaching Interpretation issued by the NAFTA Free Trade Commission (see further below).

18th September 2001 : Methanex Letter in Response to the NAFTA Free Trade Commission Interpretation.

26th October 2001 : USA Response to Methanex's Submission concerning the NAFTA Free Trade Commission Interpretation.

11th November 2001 : Methanex's Reply to the USA Response to Methanex's Submission concerning the NAFTA Free Trade Commission Interpretation.

21st November 2001 : Letter of Mexico concerning the Methanex Reply Submission of 11th November 2001.

17th December 2001 : USA Rejoinder to Methanex's Reply Submission concerning the NAFTA Free Trade Commission Interpretation.

8th February 2002 : Third Submission of Canada pursuant to NAFTA Article 1128.

11th February 2002 : Mexico's further submission under NAFTA Article 1128.

By order dated 11th March 2002, having previously intimated its intentions by order dated 28th November 2001, the Tribunal closed the file on any further written submissions relating to jurisdiction and admissibility, unless previously requested by the Tribunal; none were so requested.; and the file was formally closed by letter dated 25th July 2002.

It is readily apparent from the list of these written submissions alone, quite apart from the oral hearing itself, that neither Disputing Party left any stone unturned in support of its own case; and in a document such as this, it is not possible for us to pay sufficient tribute to the enormous industry and legal scholarship required for such detailed, lengthy and learned submissions. Fortunately, however, it appears that these submissions lie in the public domain for future reference, along with the helpful submissions of Canada and Mexico as NAFTA Parties2.

(10) The NAFTA Free Trade Commission Interpretation

Part A of the Interpretation concerns "Access to documents". It is not relevant for present purposes. Part B concerns Article 1105(1) NAFTA. It is relevant to the USA's challenges; and accordingly we set out below its relevant terms:

"B. Minimum Standard of Treatment in Accordance with International Law

1. Article 1105(1) prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to investments of investors of another Party.

2. The concepts of "fair and equitable treatment" and "full protection and security" do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens.

3. A determination that there has been a breach of another provision of the NAFTA, or of a separate international agreement, does not establish that there has been a breach of Article 1105(1).

Closing Provision

The adoption by the Free Trade Commission of this or any future interpretation shall not be construed as indicating an absence of agreement among the NAFTA Parties about other matters of interpretation of the Agreement."

This document had not been expressly foreshadowed in the USA's argument taking place at the oral hearing earlier that same month; but in the light of Methanex's submissions on Article 1105 NAFTA, it is possible that the timing was not a complete coincidence.


(1) Introduction

In summary, Methanex's claim is brought in relation to the production and sale of a methanol-based source of octane and oxygenate for gasoline which is known as methyl tertiary-butyl ether ("MTBE"). It complains against US measures taken by the State of California restricting the use of MTBE in gasoline in California. It is convenient to set out the essential characteristics of the claim, both in Methanex's Original Statement of Claim and Methanex's Amended Statement of Claim.

(2) Methanol, MTBE and Methanex

As stated, MTBE is a methanol-based source of octane and oxygenate for gasoline. As a product, MTBE competes with ethanol. Ethanol is also a source of octane and oxygenate for gasoline, generally manufactured from biomass feedstocks such as corn. A major US producer of ethanol is a US company called Archer Daniels Midland, or "ADM".
Methanex does not produce or sell MTBE or ethanol. Methanex's business is the production, transportation and marketing of methanol. Methanol is a liquid petrochemical made from feedstocks containing carbon and hydrogen; and it is used to produce MTBE (but not ethanol). Approximately one third of Methanex's methanol production is directed at the fuel sector, principally for use in methanol-based MTBE.

(3) The US Measures

For the purposes of Article 1101 NAFTA, the measures adopted or maintained by the USA are alleged by Methanex in its Original Statement of Claim to be the 1997 California Bill and the 1999 California Executive Order.
(i) The California Bill : The California Senate adopted Bill 521 on 9th October 1997. In summary, the Bill allocated funds for the University of California to conduct an assessment of the human health and environmental risks and benefits associated with the use of MTBE.
Section 2 of the California Bill provided:

" The Legislature hereby finds and declares that the purpose of this act is to provide the public and the Legislature with a thorough and objective evaluation of the human health and environmental risks and benefits, if any, of the use of methyl tertiary-butyl ether (MTBE), as compared to ethyl tertiary-butyl ether (ETBE), tertiary amyl methyl ether (TAME) and ethanol, in gasoline, and to ensure that the air, water quality, and soil impacts of the use of MTBE are fully mitigated."

The California Bill appropriated US $500,000 to the University of California to conduct this evaluation, involving not only MTBE but also (inter alia) ethanol. Methanex and methanol do not appear, expressly, in the California Bill.
(ii) The California Executive Order : The Executive Order D-5-99 of the Governor of California of 25th March 1999 recorded that there was a significant risk to the environment from using MTBE in gasoline in California. The Governor was then (and remains) Gray Davis, who was elected Governor of California on 3rd November 1998. Prior to his election as Governor, Gray Davis was Lieutenant Governor of California.
The California Executive Order provided (inter alia):

" The California Energy Commission (CEC), in consultation with the California Air Resources Board, shall develop a timetable by July 1, 1999 for the removal of MTBE from gasoline at the earliest possible date, but not later than 31st December 2002." (Paragraph 4)

" The California Air Resources Board and the State Water Resources Control Board shall conduct an environmental fate and transport analysis of ethanol in air, surface water, and groundwater. The Office of Environmental Health Hazard Assessment shall prepare an analysis of the health risks of ethanol in gasoline..." (Paragraph 10)

" The California Energy Commission (CEC) shall evaluate by December 31, 1999 and report to the Governor and the Secretary for Environmental Protection the potential for development of a California waste based or other biomass ethanol industry. CEC shall evaluate what steps, if any, would be appropriate to foster waste based or other biomass ethanol development in California should ethanol be found to be an acceptable substitute for MTBE." (Paragraph 11)

In addition, the California Executive Order (paragraph 7) required that gasoline containing MTBE be labelled prominently at the pump to enable consumers to make an informed choice on the type of gasoline they purchase. Similarly, Methanex and methanol do not appear, expressly, in the California Executive Order.
The US measures for the purposes of Article 1101 NAFTA, as alleged in the Amended Statement of Claim, are the California Executive Order, described above, and the CaRFG3 Regulations, described below. (Methanex no longer seeks to rely on the California Bill).
(iii) The California Regulations : The CaRFG3 Regulations implemented the California Executive Order: Cal. Code Regs. Tit. 13 §§ 2273 came into force on 16th December 1999, requiring gasoline pumps containing MTBE to be labelled in California as follows: " Contains MTBE. The State of California has determined that use of this chemical presents a significant risk to the environment." Cal. Code Regs. Tit. 13 §§ 2260 et seq came into force on 2nd September 2000. In particular, §§ 2262.6 provided at sub-section (a)(1) that: " Starting December 31, 2002, no person shall sell, offer for sale, supply or offer for supply California gasoline which has been produced with the use of methyl tertiary-butyl ether (MTBE) ".
Similarly, Methanex and methanol do not appear, expressly, in the California Regulations. We shall return below to a more detailed analysis of these three measures.

(4) Breaches of Articles 1102, 1105 and 1110 NAFTA

The claim, as formulated in Methanex's Original Statement of Claim, alleged that the US measures were (inter alia) arbitrary and based on a process lacking substantive fairness, penalised only one component of gasoline, and went far beyond what was necessary to protect any legitimate public interest. Methanex pleaded that the USA was in breach of Articles 1105 and 1110 and, with its Amended Statement of Claim, it added a breach of Article 1102 NAFTA based on discrimination.
Article 1105: As to Article 1105 NAFTA, Methanex alleged that California failed to accord to Methanex-US treatment in accordance with international law, including fair and equitable treatment (Paragraph 34 of the Original Statement of Claim).
Article 1110: As to Article 1110 NAFTA, Methanex alleged that the US measures would end the business of Methanex-US in selling methanol for use in MTBE in California, would contribute to the extended closure of the Fortier plant, and would therefore constitute a substantial taking of the Methanex-US and Methanex-Fortier business and of Methanex's investment in those companies (Paragraph 35 of the Original Statement of Claim).
Article 1102: As to Article 1102 NAFTA, Methanex alleged in the Amended Statement of Claim that the US measures were measures of intentional discrimination, being defined as an intent to discriminate against methanol and MTBE to the benefit of the "domestic ethanol industry" (Page 1, footnote 1 of the Amended Statement of Claim).

(5) Article 1116 NAFTA

In its Original Statement of Claim, Methanex advanced its claims under Article 1116 NAFTA " Claim by an Investor of a Party on Its Own Behalf ". Methanex therefore claims as an investor of a NAFTA Party (Canada) that another NAFTA Party (the USA) has breached an obligation under Section A of Chapter 11 (Articles 1105 and 1110 NAFTA), and that Methanex has "incurred loss or damage by reason of, or arising out of, that breach ".
The loss and damage alleged in the Original Statement of Claim is pleaded by Methanex as follows:

(I) "Loss to Methanex, Methanex US and Fortier of a substantial portion of their customer base, goodwill and market for methanol in California and elsewhere;

(II) Losses to Methanex, Methanex US and Fortier as a result of the decline in the global price of methanol;

(III) Loss of return to Methanex, Methanex US and Fortier on capital investments they have made in developing and serving the MTBE market;

(IV) Loss to Methanex due to the increased cost of capital;

(V) Loss to Methanex of a substantial amount of its investment in Methanex US and Fortier."

As already stated, the claim as formulated by Methanex in its Original Statement of Claim was brought only under Article 1116 NAFTA, without relying on Article 1117 NAFTA.

(6) Article 1117 NAFTA

Methanex's Amended Statement of Claim also alleges that Methanex satisfies all the elements for a claim advanced under Article 1117 NAFTA " Claim by an Investor of a Party on Behalf of an Enterprise ".
Methanex claims here as an investor of a NAFTA Party (Canada), that Methanex indirectly owns and controls Methanex-US and Methanex-Fortier which are US enterprises, that another NAFTA Party (the USA) has breached obligations under Section A of Chapter 11 (Articles 1102, 1105 and 1110 NAFTA), and that Methanex-US and Methanex-Fortier have " suffered grave damage as a result of those breaches " (Amended Statement of Claim, page 71). It is self-evident that the form of this claim is juridically different from the Original Statement of Claim, although the particulars of loss as originally pleaded by Methanex are not factually dissimilar.


(1) Introduction

As already stated, the Tribunal has so far heard no testimony or other evidence; it has determined no disputed issue of fact; and in this Award it makes no finding of fact. In particular, the Tribunal has heard no evidence from the Governor of California, the California legislature, California state officials or ADM. For the legal reasons explained below, the factual materials recited in this chapter are taken necessarily from the facts alleged by Methanex, albeit disputed as facts by the USA.
Accordingly, these materials can be only assumed facts for the purpose only of the Tribunal's decision in this Award on the USA's challenges on jurisdiction and admissibility - and nothing more. Given that the legal burden of proving its disputed factual allegations remains to be discharged by Methanex, together with the legal presumptions of innocence and the legal doctrine of omnia praesumuntur rite esse acta, nothing in our recital of factual materials below should be taken as casting the slightest shadow over the targets of Methanex's allegations. Nor should this Award indicate any conclusions held by the Tribunal as to the eventual proof of these assumed facts because we have formed no view at all as to their merits, one way or the other.

(2) Methanex's Factual Allegations

In brief, Methanex's factual case, as set out in its Amended Statement of Claim, alleges that the US measures constitute a disguised trade and investment restriction intended to achieve the improper goal of protecting and advantaging the domestic ethanol industry through sham environmental regulations disadvantaging MTBE and methanol (Amended Statement of Claim, page 53). Methanex's case is built up with a series of factual allegations, supplemented by other factual allegations advanced in its other written and oral submissions to the Tribunal, which can be summarised as follows:
MTBE : MTBE is a safe, effective and economic component of gasoline (Amended Statement of Claim, page 7). Its use has been approved and encouraged by the US Federal Government after exhaustive study (Amended Statement of Claim, page 56).
European Union: Regulatory agencies in the European Union, including the European Commission, have determined that it is not appropriate or environmentally beneficial to ban MTBE (Amended Statement of Claim, page 34).
Methanol: Methanol is a feedstock for MTBE. In 1998, Methanex shipped approximately 132,000 tons of methanol to California refineries for MTBE production (Amended Statement of Claim, pages 4-5). Methanex supplies the vast majority of methanol in California (Rejoinder of 25th May 2001, page 27). California has no methanol industry of its own (Transcript, Day 3, pages 400 and 403).
Ethanol: Ethanol is a fuel and an oxygenate that competes directly with MTBE. Using ethanol as a gasoline oxygenate may be environmentally harmful; and its use is not energy efficient. Ethanol may be harmful to human health; and it is, in contrast to MTBE, a carcinogen (Amended Statement of Claim, pages 10-11).
US Ethanol Industry: The production of ethanol is heavily subsidised by United States Federal and State Governments. The US ethanol industry is a powerful political lobby that is constantly seeking legislative and other measures granting higher subsidies and better protection from competition against alternative fuels and oxygenates. Political campaign contributions are a central element of the ethanol industry's lobbying program (Amended Statement of Claim, page 7).
ADM: ADM produces more than 70% of US ethanol. ADM is the force that drives the ethanol industry's lobbying machine. ADM has launched a systematic political attack on MTBE and methanol with a view to removing MTBE from the market so that ethanol can take its place. To this end, ADM has advanced two consistent themes: (i) methanol and MTBE are "foreign" products, and any increased use of MTBE increases US reliance on "foreign" energy imports; and (ii) methanol and MTBE are health hazards (Amended Statement of Claim, pages 12-13).
ADM Strategy: Political contributions and lobbying are the foundation of ADM's business strategy (Amended Statement of Claim, page 21). Its lobbying and political contributions have been the prime mover in creating the heavily protected ethanol industry in the USA. Public officials have repeatedly and explicitly adopted ADM's program, supporting a ban on MTBE in order to increase US ethanol production (Amended Statement of Claim, pages 22-23). Governmental officials in the United States who support the ethanol industry almost always cast their support in terms of improper protectionist intent (Transcript, Day 3, p. 392). ADM has even engaged in criminal activity to pursue its interests (Amended Claim, page 24).
True Solution: California's drinking water problem is principally caused by leaking underground storage gasoline tanks. Accordingly, the obvious and reasonable solution is not to ban MTBE, but to stop gasoline leakages (Amended Statement of Claim, page 24). California State officials are criticised for not addressing promptly contamination resulting from leaking underground storage tanks (Amended Statement of Claim, page 26).
MTBE as Indicator : MTBE in groundwater often travels more quickly than other gasoline components; and it is detectable at extremely low threshold levels. It is thus an early indicator of gasoline leaks. In the mid-1990s, trace amounts of MTBE began to appear in some sources of California's drinking water (Amended Statement of Claim, page 28).
ADM's Opportunity: California's contaminated groundwater presented ADM with a golden opportunity to eliminate competition. It did so through its favourite competitive methods: misleading publicity and massive political contributions. As a result of ADM's years of publicly characterising MTBE and methanol as dangerous foreign products, California officials were already receptive to ADM's tactics (Amended Statement of Claim, page 28).
California Bill 521: Rather than cure the problem of leaking underground storage tanks, the Californian response to the problem of gasoline leakage was punitive action against one of the early symptoms of leaking tanks, i.e. to set in motion a process to ban the use of MTBE in gasoline. On 9th October 1997, Bill 521 was passed appropriating funds to the University of California for a study on risks associated with the use of MTBE, including a comparative study of the risks of MTBE's competitors, including ethanol (Amended Statement of Claim, page 29).
First Contribution: On 2nd June 1998, ADM made a contribution of US $5,000 to the Gray Davis gubernatorial campaign in California (Amended Statement Claim, page 29).
The Secret Meeting: On 4th August 1998, Mr Davis flew on an ADM plane to a secret meeting with ADM at its headquarters in Illinois (Amended Statement of Claim, pages 29-30). This meeting took place at a critical time in the development of California's oxygenate policy. At the time when it was held, the meeting was deliberately kept secret; and the participants still continue to deny the true subject-matter of their meeting. The meeting was never disclosed by either Mr Davis' California state office or his campaign organisation.
In fact, the trip to Illinois was recorded on campaign finance filings as a meeting with labour representatives in Chicago, as a studied attempt to hide the trip from public scrutiny. ADM has now said, falsely, that the meeting was a ‘get acquainted session'. This is contradicted by the responsibilities and job titles of the ADM representatives who attended. As the Wall Street Journal reported on 30th March 2001, those who attended "were mostly tied to the ethanol industry " (Rejoinder of 25th May 2001, pages 8-10). ADM's characterisation is also contradicted by the draft agenda for the meeting, from which it may be inferred that the purpose of the meeting was to discuss ethanol (Transcript, Day 3, pp. 480-486).

(This draft agenda has not been seen by the Tribunal; and Methanex has yet to tender the document into evidence).

It would have been extraordinary if ADM had not emphasised to its guest, as a candidate running for the office of Governor of California, what ADM had stated publicly on many occasions, namely that methanol and MTBE were "foreign" products and that banning MTBE would be a patriotic step to reduce US dependence on such products (Amended Statement of Claim, page 20). Later, once elected, Governor Davis acted on what ADM told him during this meeting (Transcript, Day 1, p. 160).
Second and Third Contributions: On 19th August 1998, ADM made a contribution of US $100,000 to the Gray Davis gubernatorial campaign. Within the next four months, a further US $55,000 was paid to the Davis campaign (Amended Statement of Claim, page 30).
The UC Study: On 12th November 1998, the University of California completed its study, pursuant to California Bill 521. The study failed in significant ways to meet the requirements of the Bill, omitting the required comparative study of the risks of MTBE's competitors (Amended Statement of Claim, page 30).
California Executive Order: On 25th March 1999, seven months after the meeting on 4th August 1998, Governor Davis made the California Executive Order effectively banning MTBE after 2002 and requiring MTBE to be labelled at gasoline pumps. The Order also began the process of developing an ethanol industry based in California (Amended Statement of Claim, page 32).
Fourth Contribution: Following this Order, but long after the gubernatorial campaign had come to an end, ADM paid a further US $55,000 to Governor Davis. The four contributions totalled US $215,000. This amount put ADM in the top 1% of Governor Davis' contributors - despite the fact that ADM then had minimal business interests in California (Amended Statement of Claim, page 30).
Cal Regs: Regulations implementing the labelling requirement and prohibiting the use of MTBE in gasoline went into effect respectively on 16th December 1999 and 2nd September 2000. These regulations also prohibited the use of any gasoline oxygenate other than ethanol unless California's Environmental Policy Council determined that use of that oxygenate would not present a significant risk to public health or the environment (Amended Statement of Claim, pages 32-33).
Governor Davis: The information and political contributions received by Governor Davis from ADM misled and improperly affected his decision about leaking tanks and MTBE. ADM promoted the ban on MTBE at its secret meeting with Governor Davis. That meeting led to the large political contributions thereafter. The MTBE measures were at least in part the result of the Governor's political debt to ADM and of his desires to protect and favour ADM, to establish a California based ethanol industry and to penalise producers of MTBE and methanol, the "dangerous" and "foreign" MTBE feedstock (Amended Statement of Claim, page 53).
State of California: California officials also perceived methanol and MTBE as "foreign" products. They were improperly motivated by that perception, and by an intent to promote and protect the California and US ethanol industries (Rejoinder of 25th May 2001, page 27). The measures were intended to discriminate against Methanex and its investments as "foreign" competitors of the highly protected domestic ethanol industry (Amended Statement of Claim, page 66).
Intent: In its Rejoinder of 25th May 2001 (page 26), Methanex characterises its factual allegations as follows: " Methanex has alleged, and it is certainly reasonable for the Tribunal to infer, that when ADM executives secretly met with Governor Davis, they repeated their usual protectionist arguments. Methanex has also alleged that ADM urged the MTBE ban in order to protect the US ethanol industry. Finally, Methanex has alleged that Governor Davis acted at least in part on the basis of those arguments... ". In its Reply Submission of 27th July 2001 (page 9), Methanex refers to its " allegation that Gov. Davis intended to benefit the US ethanol industry and to penalise foreign producers of methanol and MTBE ".
Disclaimer: As Methanex has made clear, it does not allege that Governor Davis, officials of the State of California or ADM violated US or California campaign contribution statutes or US criminal law (Amended Statement of Claim, footnote 2; and Transcript, Day 3, p. 487).

(3) The California Executive Order dated 14th March 2002

For the sake of completeness, the Disputing Parties forwarded to the Tribunal, without substantive comment, Executive Order D-52-02 made by the Governor of the State of California on 14th March 2002. Given that it may qualify the effect of the California Executive Order of 25th March 1999, it is appropriate to quote here its terms in full:

"WHEREAS, Executive Order D-5-99, issued March 25, 1999, found that, "on balance," use of MTBE posed a significant risk to California's environment. The State Energy Resource Conservation and Development Commission (Commission) and the Air Resources Board (Board) were directed to develop a timetable for removing MTBE from gasoline at the earliest possible date, no later than December 31, 2002. The Board was directed to adopt regulations as needed to implement the Executive Order; and

WHEREAS, on December 9, 1999, the Board adopted regulations prohibiting the sale of gasoline containing MTBE in California after December 31, 2002; and

WHEREAS, Senate Bill 989 (Sher) of 1999 requires the Commission to develop a timetable for removal of MTBE from gasoline "at the earliest possible date" that will still ensure adequate supply and availability of gasoline. (Health & Saf. Code §43013.1.); and

WHEREAS, in order to comply with the federal requirements and also eliminate use of MTBE, California would need to import up to 900 million gallons of ethanol per year; and

WHEREAS, the current production, transportation and distribution of ethanol is insufficient to allow California to meet federal requirements and eliminate use of MTBE on January 1, 2003; and

WHEREAS, on June 12, 2001, the U.S. Environmental Protection Agency denied California's request for a waiver of the federal oxygen content requirement. As a result, if use of MTBE is prohibited January 1, 2003, California's motorists will face severe shortages of gasoline, resulting in substantial price increases; and

WHEREAS, strengthened underground storage tank requirements and enforcement have significantly decreased the volume and rate of MTBE discharges since Executive Order D-5-99 was issued in March of 1999;

NOW, THEREFORE, I, GRAY DAVIS, Governor of the State of California, by virtue of the power and authority vested in me by the Constitution and statutes of the State of California, do hereby issue this order to become effective immediately:

I FIND that it is not possible to eliminate use of MTBE on January 1, 2003, without significantly risking disruption of the availability of gasoline in California. This would substantially increase prices, harm California's economy and impose an unjustified burden upon our motorists.

IT IS ORDERED that by July 31, 2002, the board shall take the necessary actions to postpone for one year the prohibitions of the use of MTBE and other specified oxygenates in California gasoline, and the related requirements for California Phase 3 reformulated gasoline.

IT IS FURTHER ORDERED that the Board and Commission shall work with the petroleum industry to ensure that MTBE-free gasoline meeting California standards continues to be supplied to the Lake Tahoe region and any other areas of California currently receiving MTBE-free gasoline.

IT IS FURTHER ORDERED that the State Water Resources Control Board and the Department of Health Services shall work with California drinking water providers to ensure that the providers continue to take all appropriate measures to prevent discharge of MTBE into surface water reservoirs."

(For reasons that appear below, it proved unnecessary for the Tribunal's decisions in this Award to require the Disputing Parties to make any submissions on this new document. In regard to the next stages of these arbitration proceedings, the Tribunal may allow further submissions to be made as to the relevance and effect of both this document and the other documents to which it refers, in particular the US Environmental Protection Agency's decision of 12th June 2001).


(1) Introduction

On 30th November 2000, Methanex served a Notice of Change of Legal Counsel and Intent to File an Amended Claim, alongside a Notice of Intent to Submit a Complaint to Arbitration. It was indicated that Methanex would add a specific claim of discrimination on the basis of nationality under Article 1102 NAFTA. On 22nd December 2000, Methanex gave written notice of its intention to amend its claim to include additional claims in relation to breaches of Articles 1102, 1105 and 1110 NAFTA, with the claim now being advanced under both Articles 1116 and 1117 NAFTA. On 12th January 2001 Methanex submitted its Motion to Amend its Original Statement of Claim pursuant to Article 20 of the UNCITRAL Arbitration Rules and its Draft Outline of Amended Claim; and on 12th February 2001 Methanex submitted its Draft Amended Statement of Claim.
Methanex's application substantially modified the legal and factual basis of its claim; and it much affected the conduct and progress of these arbitration proceedings, including the scope of the USA's existing challenges on jurisdiction and admissibility made in response to Methanex's Original Statement of Claim. The USA opposed Methanex's attempt to modify its claim.

(2) The Grounds for Methanex's Application

Methanex makes its application to amend the claim on the basis of Article 20 of the UNCITRAL Arbitration Rules. This provides:

"During the course of the arbitral proceedings either party may amend or supplement his claim or defence unless the arbitral tribunal considers it inappropriate to allow such amendment having regard to the delay in making it or prejudice to the other party or any other circumstances. However, a claim may not be amended in such a manner that the amended claim falls outside the scope of the arbitration clause or the separate arbitration agreement."

It is said by Methanex that, under Article 20 of the UNCITRAL Arbitration Rules, parties have the right to amend if the amendment is not frivolous or vexatious, if the amendment has not been unduly delayed, and if the amendment will not cause prejudice to the other party. Methanex contends that none of these criteria are met in the present case. It is also said that the amendment raises serious allegations concerning the fairness and equity of the measures at issue; and that, although additional legal theories and facts now fall to be considered, the underlying complaint is unchanged and the arbitration will not be unduly disrupted. Methanex further contends that the alternative to amendment, namely filing the amended claim separately and seeking consolidation pursuant to Article 1126 NAFTA, would be markedly less efficient.

(3) The USA's Response

The USA resists the amendment on the basis that it amounts to a new claim: the amendment identifies an entirely new measure (the CaRFG3 regulations); it is based on new facts; and it adds new legal theories for recovery; i.e. a national treatment claim under Article 1102 and a substantially different claim under Article 1105. The USA contends that international tribunals applying the UNCITRAL Arbitration Rules have disallowed claims in such circumstances. It is argued that there has here been a delay in seeking to make the amendment and a failure to substantiate the assertion that the claim is based on newly discovered facts. In particular, it is said that there has been no explanation as to how and when it was discovered by Methanex that the allegedly secret meeting of 4th August 1998 had taken place. It is noted that the use of an ADM plane was disclosed on Governor Davis' campaign disclosure forms. It is also said that the bulk of Methanex's new allegations are based on public materials available years ago.
The USA also contends that to allow the amendment, after a briefing schedule had already been set with which the USA had complied, would cause the USA prejudice. However, the USA accepted, rightly, that the amendment would cause it no irremediable prejudice; or at least no prejudice which could not be financially compensated by an order from the Tribunal that Methanex bear the USA's wasted costs caused by the amendment.

(4) The Tribunal's Decision

At the jurisdictional hearing of July 2001, the Tribunal ordered that: " Subject to all jurisdiction and admissibility issues and subject to any order as to costs, the Tribunal will allow the Claimant to amend its Statement of Claim in the form of the draft Amended Statement of Claim " (Transcript, Day 2, p. 339). In short, apart from the jurisdiction and admissibility issues, the Tribunal decided, in principle, that Methanex should be allowed to amend its Original Statement of Claim in the form of its Amended Statement of Claim, subject to an order that Methanex should ultimately bear, regardless of the result of the arbitration on the eventual merits of its claim, the wasted costs of the arbitration thrown away by its amendment (including the legal costs of the USA assessed in a reasonable sum). In the Tribunal's view, subject to recovering such costs, the USA would suffer no unfair prejudice from such an amendment; and the overall interests of fairness and procedural efficiency would have supported an order allowing Methanex to amend its claim, as requested.
However, as is clear from the Tribunal's order of July 2001, Methanex's application to amend its pleading was subject to the Tribunal's decision on the USA's challenges on jurisdiction and admissibility, to which we turn below. We there decide that Methanex's Amended Statement of Claim, as a whole, cannot withstand the USA's jurisdictional challenge based on Article 1101; but that it is possible that a fresh pleading from Methanex re-stating part of its existing case could survive that challenge. For these reasons, we cannot here make an order allowing Methanex to amend its claim to the full extent of its Amended Statement of Claim; and we decline to do so. (We make it plain, however, that applying Article 20 of the UNCITRAL Arbitration Rules, Methanex may include in a fresh pleading reliance on Article 1117 NAFTA, in addition to Article 1116 NAFTA).


In the light of the decisions made in this Award, we do not think it necessary here to make any order on Methanex's application for documentary production, raised by Methanex's letter of 1st May 2001, at the jurisdictional hearing of July 2001 (Transcript, Day 1, page 130 et seq.), and expanded by Methanex's letter of 24th September 2001. Such documentation was not relevant to the decisions in this Award; and if relevant to the future conduct of these arbitration proceedings, a like application can be renewed by Methanex against the USA.
We take the view, subject to hearing further argument in relation to a specific application, that we have no general power to order Canada and Mexico as NAFTA Parties to produce any documentation to Methanex in these arbitration proceedings. We also take the view that we have a discretion to impose conditions on any documentary production by the USA, relating to confidentiality and the limited use of the documents.


(1) Introduction

The USA's challenges on jurisdiction and admissibility were formally set out in the USA's Memorial on Jurisdiction and Admissibility of 13th November 2000. The respective positions of the Disputing Parties were then developed with an extensive series of submissions made in writing as well as orally, such submissions addressing both Methanex's claim as pleaded in the Original Statement of Claim and as re-pleaded in the Amended Statement of Claim. The Disputing Parties made submissions addressing not only the individual challenges raised by the USA but also the general approach for the Tribunal, at this jurisdictional stage, towards disputed issues of fact and legal interpretation.
In this Award, the Tribunal does not address each and every submission made by the Disputing Parties, as well as Canada and Mexico as NAFTA Parties. For the Tribunal's decisions, as appears below, it is unnecessary to decide each submission; and it would be quite wrong for us to do so, given that these arbitration proceedings will continue and may require a decision on many of these submissions later.

(2) The USA's Challenges

It is however necessary to list the several challenges made by the USA to indicate what the Tribunal has and has not addressed in this Award:

Challenge I : Article 1116(1) NAFTA (No proximate cause);

Challenge II : Articles 1105 & 1110 NAFTA (No legal right impugned by US measures);

Challenge III : Article 1101(1) NAFTA (No legally significant connection between US measures and Methanex or its investments);

Challenge IV : Article 1116(1) NAFTA (No loss);

Challenge V : Article 1116(1) NAFTA (No claim for subsidiaries' losses);

Challenge VI : Article 1121(b) NAFTA (No waiver); and Challenge VII : Article 1102 NAFTA (No possible claim).

Challenge I: The USA's first objection is based on Article 1116 NAFTA, characterised as requiring that the alleged breach be the proximate cause of the alleged loss. We decide that this particular challenge cannot succeed for several cumulative reasons.
First, as a general principle explained in Chapter I below, we cannot address it as a challenge based on "admissibility". Second, as a jurisdictional challenge, it fails on the wording of Article 1116(1) because it is an indisputable fact that Methanex has made "a claim... that [Methanex] has incurred loss and damage"; and, in our view, the plain meaning of this provision does not require, as a jurisdictional matter, the claimant to prove loss and damage. Third, even if it qualified as a jurisdictional challenge (which in our view, it does not), its legal merits are so intertwined with factual issues arising from Methanex's case that we would have been minded, as a matter of discretion, to join that challenge to the merits under Article 21(4) of the UNCITRAL Arbitration Rules. (This procedure is discussed in Chapter K below).
Challenge II: The USA's second objection is that Methanex has no legal right infringed by the measures under Article 1110 and 1105(1) NAFTA. As to the former provision, it is contended that Methanex has failed to identify an "investment" that could be expropriated; and a customer base or goodwill cannot qualify as an investment under Article 1139(g)&(h) NAFTA; an expectation of future profits from methanol sales cannot constitute an investment; and expectations are not property rights capable of expropriation. As to the latter provision, it is contended that Methanex has failed to identify any legal right to the allegedly denied standard of treatment; and this claim is therefore also inadmissible.
We decide that this particular challenge also cannot succeed for several reasons. As with Challenge I, we cannot address it as a challenge based on "admissibility"; it does not qualify as a jurisdictional challenge; and even if it did qualify as a jurisdictional challenge (which in our view, it does not), it is so intertwined with factual issues in Methanex's case that we would have been minded to join that challenge to the merits.
Challenge III: We address and decide the USA's third objection in the succeeding chapters of this Award.
Challenge IV: The USA's fourth objection is that Methanex has not suffered and could not in any event suffer any loss as a result of the measures, as required by Article 1116 NAFTA, because Methanex relies on an alleged ban of MTBE, whereas neither the California Bill nor the California Executive Order effected such a ban. As with Challenge I, the same comments applies to this challenge: i.e. it fails in principle as a challenge on admissibility; it fails as a jurisdictional challenge on the plain meaning of the words in Article 1116(1) NAFTA; and even if it qualified as a jurisdictional objection, it would be joined to the merits.
Challenge V: The USA's fifth objection in its Memorial is that there is under Article 1116(1) NAFTA no possible claim by an investor made in its own right for alleged injuries to an enterprise owned or controlled by that investor: Article 1116(1) allows only claims for loss or damage incurred by an investor (whereas Article 1117 provides for claims for loss or damage to an enterprise owned or controlled by an investor). Losses suffered by Methanex-US and Methanex-Fortier could only be claimed under Article 1117, which was not pleaded in Methanex's Original Statement of Claim; and Methanex has otherwise suffered no loss that could be claimed under Article 1116, the pleaded losses being derivative of losses suffered by Methanex's subsidiaries.
We decide that this challenge cannot succeed for several cumulative reasons. First, it is moot. As appears below under the USA's Challenge III, we decide that there is no jurisdiction to decide Methanex's claim as advanced in its Original Statement of Claim; and it is therefore unnecessary for us here to decide the USA' further submissions based on Article 1116, limited to that particular pleading. Second, the jurisdictional challenge is technical and capable of being cured by Methanex's reliance on Article 1117. Indeed, Methanex does now rely upon Article 1117 in its Amended Statement of Claim; Methanex asserts that any defect in its original pleading (which is denied) would be cured if this particular amendment were allowed by the Tribunal; and as indicated in Chapter F above, we are sympathetic to Methanex's reliance on Article 1117 in a fresh pleading. Third, with Methanex introducing Article 1117 into its case, any new jurisdictional dispute over Articles 1116 and/or 1117 can be joined to the merits on the grounds of procedural efficiency.
Challenge VII: The USA submits that Methanex's claim pleaded in its Amended Statement of Claim fails to allege, as required by Article 1102, that Methanex or its investments were treated differently from any US producer or marketer of methanol; that Methanex could make no such allegation because the USA is home to one of the largest methanol industries in the world; that the measures accord precisely the same treatment to all investors in the methanol industry, whether owned or controlled by domestic US or foreign investors; that Article 1102 does not oblige the USA as a NAFTA Party to treat all products equally, requiring only treatment that is not less favourable with respect to investors of other NAFTA Parties and their investments that are in like circumstances with their US counterparts; and that ethanol and methanol are different products with different properties and uses. As with Challenge II, the same comment applies to Challenge VII: i.e. it fails in principle as a challenge on admissibility; and even if it had qualified as a jurisdictional challenge, we would have joined it to the merits.
Conclusion: We therefore dismiss each of the USA's Challenges I, II, IV, V and VII; we decide Challenge III later in this Award; and we are not required to decide Challenge VI. As regards Challenges I, II, IV, V and VII, we decide nothing else in this Award as to their underlying legal merits; and to that extent both the USA and Methanex shall remain free to maintain their legal submissions in these arbitration proceedings. Accordingly, it could not be suggested that the Disputing Parties' efforts have been wasted in advancing their extensive submissions on these issues. The exact opposite is true: in the light of the factual evidence still to be adduced in these arbitration proceedings, it may be necessary for the Tribunal to address and decide many of these submissions at a later stage of this arbitration; and we trust that in this regard the research and the written work have been largely completed by the Disputing Parties and will require no repetition.


(1) Introduction

In this chapter, the Tribunal seeks to identify the general approach required to address the several issues on jurisdiction and admissibility raised by the Disputing Parties. The Tribunal's decision has to be made at an early stage of the arbitration; there has been no trial on the merits of Methanex's claim; and as we have already stressed several times, no evidence on any disputed issue has yet been adduced at all by either Disputing Party. It is convenient to begin with general principles.

(2) The 1969 Vienna Convention

Article 31(1): The first general principle relates to the interpretation of the NAFTA provisions at issue. As was common ground between the Disputing Parties, each provision was to be interpreted " in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose ", in accordance with customary international law rules reflected in Article 31(1) of the 1969 Vienna Convention on the Law of Treaties.
Article 31(1) of the Vienna Convention (previously article 27(1) of the draft convention) comprises three separate principles, as noted in the International Law Commission's Commentary to its Final Draft Articles:

" The first - interpretation in good faith - flows directly from the rule pacta sunt servanda. The second principle is the very essence of the textual approach: the parties are to be presumed to have that intention which appears from the ordinary meaning of the terms used by them. The third principle is one both of common sense and good faith; the ordinary meaning of a term is not to be determined in the abstract but in the context of the treaty and in the light of its object and purpose. These principles have repeatedly been affirmed by the Court [i.e. the ICJ].3 "

As to the second of these principles (interpretation in accordance with the ordinary meaning of a term), various commentators have noted that this is not merely an exercise in uncovering the mere literal meaning of a term4. As to the third principle of Article 31(1), the Special Rapporteur of the International Law Commission noted: " the ‘ordinary meaning' of terms cannot properly be determined without reference to their context and to the objects and purposes of the treaty"5.
In accordance with Article 1131(1) NAFTA and Article 33(1) of the UNCITRAL Arbitration Rules, we have sought to apply these general principles to the interpretation of the disputed provisions at issue, both in NAFTA and the UNCITRAL Arbitration Rules.
Article 31(3): Article 31(3) of the Vienna Convention was the subject of a major debate between the Disputing Parties before and during the oral hearing, which was later substantially reinvigorated with the NAFTA Free Trade Commission's Interpretation of 31st July 20016. The particular issue was whether, with respect to the interpretations of Articles 1101 and 1105 NAFTA, the Tribunal should take account of a subsequent agreement and/or subsequent practice of the NAFTA Parties concerning the meaning of these provisions. It was the USA's case that the relevant agreement and practice were to be found in the concordant submissions of the USA, Canada and Mexico made in these arbitration proceedings. With the Free Trade Commission's Interpretation of Article 1105, the USA later contended that the relevant agreement was also to be found in that Interpretation (subject to the USA's separate submission based on Article 1131(2) NAFTA). These later submissions do not relate to Article 1101, which is not the subject of the Interpretation.
For reasons explained above, apart from jurisdiction and admissibility, the Tribunal does not decide in this Award the disputed interpretation of Article 1105 NAFTA. Accordingly, it is unnecessary to develop any further the USA's submissions based on Article 31(3) of the Vienna Convention (or Article 1131(2) NAFTA). (As also explained below, the Tribunal does decide the disputed interpretation of Article 1101(1) NAFTA; but without requiring, for different reasons, any consideration of Article 31(3) of the Vienna Convention).

(3) Restrictive Interpretation

The USA contends that a doctrine of restrictive interpretation should be applied in investor-state disputes. In other words, wherever there is any ambiguity in clauses granting jurisdiction over disputes between states and private persons, such ambiguity is always to be resolved in favour of maintaining state sovereignty.
Methanex challenges the USA's invocation of this doctrine on the basis that it has no application to NAFTA. It relies in particular on the arbitration award in Ethyl Corporation v. Canada (1998), and the arbitral decision in The Loewen Group, Inc. v. United States (2001)7, as authority for the proposition that a liberal rather than a restrictive interpretation of NAFTA is appropriate. Methanex also contests the existence of a restrictive interpretation doctrine in investor-state disputes generally, and it here relies on (inter alia) AMCO Asia Corp. v. Republic of Indonesia, 1 ICSID Reports 377 (1983), as well as the separate opinion of Judge Shahabuddeen in Applicability of the Obligation to Arbitrate Under Section 21 of the United Nations Headquarters Agreement, Advisory Opinion, 1988, ICJ Reports 12, 62 and the separate opinion of Judge Torres Bernandez in Case Concerning the Land, Island and Maritime Frontier Dispute (El Salvador/Honduras), 1992, ICJ Reports 351, 728.
The Tribunal rejects the contention of the USA for reasons which can be stated briefly, given that the point did not greatly influence our decision in this Award. In short, the legal materials invoked by Methanex clearly support its submissions in regard to the dispute resolution provisions contained in NAFTA's Chapter 11. Albeit in a slightly different context, as Judge Higgins decided in the Oil Platforms Case (paragraph 35 of her separate opinion): " It is clear from the jurisprudence of the Permanent Court and of the International Court that there is no rule that requires a restrictive interpretation of compromissory clauses." We accept that the NAFTA Parties intended that the provisions of Chapter 11, particularly Article 1101(1) NAFTA, should be interpreted in good faith in accordance with their ordinary meaning (in accordance with Article 31(1) of the Vienna Convention), without any one-sided doctrinal advantage built in to their text to disadvantage procedurally an investor seeking arbitral relief.

(4) The Tribunal's Power

It follows from the text of Article 21(1) of the UNCITRAL Rules that the Tribunal has the express power to rule on objections that it has "no jurisdiction". This text, however, confers no separate power to rule on objections to "admissibility"8.

(5) The Dual Nature of the USA's Challenges

The USA has raised two distinct classes of challenge: first, as to the Tribunal's "jurisdiction"; and second, as to the "admissibility" of Methanex's claims. In its Memorial of 13th November 2000, the USA did not separately categorise its challenges in this way. However, it became clear in subsequent submissions that the USA's challenges to jurisdiction primarily concerned Article 1101(1) and other provisions of Section B of Chapter 11 (Articles 1116-1117 and 1121), whilst the USA's challenges to admissibility concerned substantive provisions under Section A of Chapter 11, namely Articles 1102, 1105 and 1110, which are the individual provisions in respect of which Methanex alleges breach by the USA.

(6) The Practical Problem

The Tribunal faces an obvious practical problem in addressing the USA's various challenges. The parties' respective cases raise a large number of disputed issues of fact and law. Apart from any jurisdictional challenge, such issues would be decided by the Tribunal after a full hearing on the merits and a complete investigation of the relevant factual evidence and the legal principles to be applied specifically to such evidence. This arbitration, however, has only reached the jurisdictional phase. The Disputing Parties have not adduced any factual evidence on disputed issues (nor have they been entitled to do so); and the Tribunal cannot pre-judge any eventual decision on the merits, still less pre-determine any issue of disputed fact.
There is therefore a preliminary question as to the standard to which Methanex is required, in the face of the USA's several challenges, to establish the two essential components of its claim: (i) its allegations of fact and (ii) its allegations as to the legal meaning of the provisions of NAFTA Chapter 11 on which its case depends.
(ii) Law: This test proved highly contentious between the Disputing Parties; and it raised two successive questions. First, in applying the relevant legal principles to the assumed facts, does the Tribunal have definitively to decide the legal meaning of the relevant provisions of Chapter 11? Or is it sufficient for the Tribunal to establish that Methanex's interpretation is "arguable" or (since such interpretations were indeed argued by Methanex) "well arguable" or argued to some higher standard ? There is then a second question: is the same test to be applied to the provisions of Chapter 11 creating jurisdiction, i.e. Articles 1101, 1116, 1117 NAFTA as to those creating substantive obligations, i.e. Articles 1102, 1105 and 1110 NAFTA?
There are significant differences between the Disputing Parties on these two questions. For Methanex, relying on the separate opinion of Judge Shahabuddeen in Case Concerning Oil Platforms10, it is sufficient that its interpretations of the relevant provisions of Chapter 11 should be "arguable". It may also be that Methanex adopted the conclusion of Judge Shahabuddeen in the Oil Platforms case to the effect that the International Court of Justice there had to decide definitively (and not provisionally) that the particular dispute was within the category of disputes for which the respondent had accepted the jurisdiction of the Court11. In other words, whilst an "arguable" interpretation would suffice in relation to provisions creating substantive obligations, it might not suffice in respect of procedural provisions creating jurisdiction: the interpretation would there have to be conclusively correct.
According to the USA, the correct approach was to ascertain whether on the basis of the assumed facts there could be a violation of the relevant provisions; and this exercise required the Tribunal to make a definitive interpretation of all relevant NAFTA provisions. The USA rejected the reasoning of Judge Shahabuddeen; and the USA maintained that even on the basis of such reasoning, it would remain necessary for the Tribunal definitively to determine the meaning of the relevant jurisdictional clauses: e.g. Article 1101(1) NAFTA.

(7) The ICJ's Oil Platforms Case

(8) The Admissibility Challenges

We now address the question whether the USA can seek at this jurisdictional stage a definitive interpretation of the substantive provisions of Chapter 11, Section A (namely Articles 1102, 1105 and 1110) to show that even on Methanex's alleged facts, there could never be a breach of the provisions; and that Methanex's claim is therefore "inadmissible". As noted above, in the case of a bilateral treaty providing for compulsory dispute resolution where there is a dispute as to the interpretation or application of the treaty, such a challenge could be jurisdictional in nature. But, in our view, that is not the case here.
Article 21(1) of the UNCITRAL Arbitration Rules does not accord to the Tribunal any power to rule on objections relating to admissibility. There is no express power; and it is not possible to infer any implied power. The most analogous procedure under the UNCITRAL Arbitration Rules would be a partial award on a preliminary issue tried on assumed facts, pursuant to Article 32 of the UNCITRAL Arbitration Rules13, or possibly a motion to strike (or "strike out") a pleading for failure to state a cause of action, taken from national court procedures. The first procedure, however, does not relate to jurisdiction; it necessarily assumes the exact opposite; and its existence confirms that it would be inappropriate to imply a like procedure into Article 21. The same is true of the second procedure, even if it were permissible to import that court procedure into a transnational arbitration. The contrary position would produce a curious result in an arbitral procedure where the tribunal's awards on the merits are intended to be "final and binding" (Article 32 of the UNCITRAL Arbitration Rules14). As contended by the USA, a decision on "inadmissibility" under Article 21 would be more easily reviewable, de novo, before the state courts of NAFTA Parties; and in that event the procedure before the tribunal would be duplicated at least twice over, for no obviously good purpose.
Nor is such a power to be found elsewhere in Chapter 11 NAFTA. Where the procedures set out in Chapter 11 are met, the NAFTA Party consents to arbitration; and such consent takes effect under Article II of the UN's 1958 New York Arbitration Convention (Article 1122). There is here no express power to dismiss a claim on the grounds of "inadmissibility", as invoked by the USA; and where the UNCITRAL Arbitration Rules are silent, it would be still more inappropriate to imply any such power from Chapter 11.
This position may be contrasted with the position of a dispute before the International Court of Justice. Article 79(1) of the ICJ Rules of Procedure concerning preliminary objections expressly provides:

"Any objection by the respondent to the jurisdiction of the Court or to the admissibility of the application, or other objection the decision upon which is requested before any further proceedings on the merits, shall be made in writing within the time-limit fixed for the delivery of the Counter-Memorial...." (emphasis added.)

This terminology has given rise to fine distinctions between jurisdiction and admissibility15; and a notorious example is the Barcelona Traction Case16. It can also give rise to equally fine distinctions between a preliminary objection to the admissibility of the claim and a defence on the merits. According to Rosenne (ibid): " As a rough rule-of-thumb, it is probable that when the facts and arguments in support of the objection are substantially the same as the facts and arguments on which the merits of the case depend, or when to decide the objection would require decision on what, in the concrete case, are substantive aspects of the merits, the plea is not an objection but a defence to the merits." It may therefore be doubted whether the USA's challenges would qualify before the ICJ as objections to admissibility falling within Article 79(1) of its Rules of Procedure. As we have already indicated, however, there is no equivalent rule on admissibility in the UNCITRAL Arbitration Rules.


(1) Introduction

(2) The Meaning of the Phrase: "relating to"

(3) The Ordinary Meaning

(4) Context, Object and Purpose

UN New York Convention: This interpretation is supported by the reference to the UN 1958 New York Convention in Article 1222 NAFTA, whereby the consent of the NAFTA Party to arbitration under Article 1122(1) is to be treated as satisfying the requirement of Article II of the New York Convention. Article II(1) of the New York Convention limits the recognition of written agreements to arbitrate differences that may arise " in respect of a defined legal relationship ":

" Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship22, whether contractual or not, concerning a subject matter capable of settlement by arbitration."

It is therefore not sufficient for the purpose of Article II(1) that there be a limitless agreement to arbitrate any future disputes that may ever arise between the parties. More is required for a valid arbitration agreement: the dispute must arise in respect of "a defined legal relationship "23.

(5) Other NAFTA Awards

As to authority, Methanex relies on two arbitration awards decided under NAFTA Chapter 11: Pope & Talbot v. Canada (award of 26th January 2000) and S. D. Myers v. Canada (award of 13th November 2000, separate opinion of Dr Schwartz dated 12th November 2000)24. These are not sources of law; and neither can be regarded as authority legally binding upon this Tribunal. Nonetheless Methanex is entitled to adopt their legal reasoning as part of its case.
S.D. Myers: As to the separate opinion of Dr Schwartz, one of three arbitrators in the S. D. Myers arbitration, the author was apparently departing from the tribunal's collegiate consideration of the specific case. He agreed that the investment had there been the specific target of a measure, such that the "relating to" requirement was met by the investor; and in his separate opinion this distinguished arbitrator was volunteering only his general comments (especially at paragraphs 4849). Without being shared by his two arbitral colleagues or forming part of their award's reasoning, this opinion carries no special status; and whilst the low threshold envisaged by Dr Schwartz appears to support Methanex's submissions, the Tribunal finds no persuasive support in his reasoning sufficient to displace the interpretation decided above.

(6) Prior Statements of the USA and Canada

As to past contentions of the USA, Methanex relies on an interpretation of "relating to" advanced before the WTO Appellate Body in United States Standards for Reformulated and Conventional Gasoline, to the effect that "relating to" signifies "any connection or association existing between two things"25. In the Tribunal's view, this is again of only marginal assistance to Methanex.
The USA's interpretation was there made in a "normal context"; whereas in the context of the specific provision (Article XX(g) of the General Agreement), its position was as follows:

The phrase "relating to conservation", interpreted in its context and in light of the purpose of the General Agreement, means that the measure being examined has a connection to conservation that is not incidental or tangential, but that does not have to be "necessary" or "essential "..." (paragraph 31).

The "normal context" interpretation does not appear materially different from the dictionary definitions; and the interpretation actually relied on by the USA is evidently specific to the particular context. This demonstrates the importance attributed by the USA to interpreting a term in its particular context and in the light of an instrument's object and purpose, an approach consistent with the USA's submissions in the present case. In the event, the WTO Appellate Body decided that Article XX(g) of the General Agreement required that a measure had to be "primarily related to conservation"26. That its interpretation in this respect was quite different from the interpretation in the Pope & Talbot case again confirms the need to interpret a term in accordance with the particular context, object and purpose.

Canada: Methanex also relies on Canada's Statement of Implementation of NATFA, where it summarised Article 1101 as follows:

" Article 1101 states that section A covers measures by a Party (i.e., any level of government in Canada), that affect27: investors of another Party...; investments of investors of another Party...; and... for purposes of the provisions on performance requirements and environmental measures, all investments... ".

This English text supports Methanex's interpretation, although the French text is, at best, neutral. Overall, the status of this succinct, unreasoned commentary by another NAFTA Party carries the argument little further; and it provides no sufficient reason to change the interpretation decided above.


(1) Introduction

Pursuant to Article 18 of the UNCITRAL Arbitration Rules, Methanex was required to submit a statement of claim including a precise statement of (inter alia) the facts supporting its claim. For present purposes, the Tribunal has decided to take into account the further facts alleged in Methanex's Amended Statement of Claim, as also developed in its written and oral submissions. We have attempted to summarise the relevant factual allegations in Chapter E above; and it is against these assumed facts that we now apply our interpretation of Article 1101(1) NAFTA.
Two explanations are necessary. First, subject to an important reservation to which we return below, we accept that the factual allegations pleaded by Methanex's legal representatives are not incredible, frivolous or vexatious. Second, we accept that it is open to Methanex to rely on reasonable inferences; and it may rely generally on circumstantial materials.

(2) Methanex's Original Statement of Claim

It must follow from our interpretation of Article 1101(1) that Methanex's claim, as originally pleaded in its Original Statement of Claim, does not meet the essential requirements of alleging facts establishing a legally significant connection between the US measures, Methanex and its investments. As there pleaded, the measures do not relate to methanol or Methanex; and accordingly, this Tribunal decides that it would have no jurisdiction to hear that claim, as pleaded in the Original Statement of Claim.

(3) Methanex's Amended Statement of Claim

(4) The Assumed Facts and Intent

(5) Article 21(4) of the UNCITRAL Arbitration Rules

Article 21(4) of the UNCITRAL Arbitration Rules requires the arbitration tribunal, in general, to rule on a jurisdictional plea as a preliminary question; and indeed this is the procedure which has so far been followed in these arbitration proceedings. If the Tribunal had no jurisdiction, a decision to that effect could save the Disputing Parties much time and cost. However, as Article 21(4) also provides, the tribunal " may proceed with the arbitration and rule on such a plea in their final award"28. The discretion whether to choose the general or the exceptional procedure lies with the arbitration tribunal; and the exercise of that discretion is not confined to economic factors: e.g. where jurisdictional issues are intertwined with the merits, it may be impossible or impractical to decide the former without also hearing argument and evidence on the latter. In these proceedings, two factors have influenced us in selecting the exceptional procedure.
Fresh Pleading: First, the effect of the Tribunal's decision on Article 1101(1) NAFTA in this Award will require Methanex to re-plead its case in a fresh Statement of Claim. Its Original Statement of Claim fails the jurisdictional test under Article 1101; and potentially only a part of its Amended Statement of Claim can survive that test. It is inappropriate for Methanex to re-amend its Amended Statement of Claim. In our view, a fresh pleading is required both for the Tribunal and as a matter of procedural fairness to the USA, which is entitled to know precisely the case advanced against it.
Methanex's fresh pleading must take a form different from and more limited than its Amended Statement of Claim. Several material allegations made by Methanex as it developed its oral and written submissions do not appear in the Amended Statement of Claim (nor, of course in the Original Statement of Claim); and it will be for Methanex's careful consideration whether, to what extent and in what form these allegations will be formally pleaded. The fresh pleading must not exceed the limits of Methanex's existing case (pleaded and unpleaded); and we do not intend Methanex to make any new claim in its fresh pleading. It must comply with our decisions in this Award and Articles 18 and 20 of the UNCITRAL Arbitration Rules. As regards the statement of the facts supporting its claim under Article 18(2)(b), Methanex's fresh pleading must set out its specific factual allegations, including all specific inferences to be drawn from those facts.
At this stage of the proceedings, we also decide that more is required of Methanex than a fresh pleading. As regards the USA's alleged liability, Methanex must file with that pleading copies of all evidential documents on which it relies (unless identified as documents previously filed with the Tribunal), together with factual witness statements and expert witness reports of any person intended by Methanex to provide testimony at an oral hearing on the merits. For the time being, we exclude evidential materials relating to the alleged quantum of the USA's liability.
In regard to a factual witness, the factual witness statement must be in writing, signed and dated by that witness, setting out: (i) the full name and address of the witness, that witness's present and past relationship with Methanex (if any); and a description of the witness's background, qualifications, training and relevant experience; (ii) a full and detailed account, capable of standing as that witness' examination-in-chief (direct examination) at an oral hearing, of all the facts to which that witness will testify, expressed in that witness's own words, and identifying the specific source of the witness's information, whether it be from that witness's own knowledge or derived from another person or document; and (iii) that witness's undertaking to attend and give evidence at an oral hearing, unless ordered otherwise by the Tribunal.
In regard to an expert witness, the expert report shall be in writing, signed and dated by that witness setting out: (i) the same matters specified in paragraph 164(i) above; (ii) a statement of the facts on which the expert witness has based his or her expert opinions and conclusions, including (if relevant) a description of the method, materials and other information used in arriving at those opinions and conclusions; (iii) a statement of those expert opinions and conclusions; (iv) an acknowledgment by the expert witness of his or her independent duty to assist the Tribunal, including attendance at an oral hearing unless otherwise ordered by the Tribunal; and that this duty overrides any obligation to Methanex as the person engaging or paying that expert witness; and (v) a statement by the expert witness of the truth of those opinions and conclusions.
At this stage, it is not possible for the Tribunal to envisage the terms of Methanex's fresh pleading and the content of these evidential materials. It is also self-evident that we cannot now decide, conclusively, that a future re-pleading of Methanex's case will or will not meet the requirements of Article 1101(1) NAFTA. It would be possible, perhaps, to resume the jurisdictional stage of these proceedings once Methanex has submitted its fresh pleading; but this would add to the time and cost already taken on jurisdictional issues; and it is not for that reason an attractive option for the Tribunal.
Evidence: The second reason is, in our view, conclusive. The necessary analysis relating to the credibility of Methanex's allegations remains incomplete without receiving at least some evidence from the Disputing Parties on the assumed, but disputed, facts and factual inferences. This part of the USA's jurisdictional challenge depends critically on issues which are intimately linked to the factual merits of Methanex's case. In our view, it is not appropriate to decide these issues without hearing evidence from Methanex and the USA. In short, the Tribunal cannot continue what has become an impossible forensic exercise, composing a jigsaw of assumed facts and inferences with too many missing and incomplete pieces. These difficulties could be resolved with relative ease at an evidential hearing.
We are not, however, yet ready to decide upon the precise form of that evidential hearing. We need first to see the scope and nature of Methanex's evidential case; hence our decision above that Methanex must file more than a fresh pleading. After we have considered Methanex's fresh pleading and accompanying evidential materials, subject to consultation with the Disputing Parties, it is our present intention to decide then how to proceed further. It may be that we can identify one or more threshold or other determinative issues on which limited testimony would be adduced at an early oral hearing. It is not our present intention that the case should then proceed necessarily to a full hearing of all factual and expert witnesses. In either event, it will of course be necessary for the USA to plead a response to all or part of Methanex's fresh case (including the filing of its own documentary evidence, witness statements and expert reports); and it could be helpful to make further procedural orders. All that, however, lies in the future.

(6) Conclusion

As regards the USA's jurisdictional challenge under Article 1101(1) NAFTA, the Tribunal decides that certain allegations advanced in Methanex's Amended Statement of Claim, supplemented by its written and oral submissions, relating to the "intent" behind the US measures can potentially meet the requirements of that provision. At this stage of the proceedings, however, it is impossible for the Tribunal to make a definitive ruling on jurisdiction without a fresh pleading and accompanying evidential materials from Methanex; and accordingly that ruling will be postponed by the Tribunal until one or more further awards pursuant to Articles 21(4) and 32(1) of the UNCITRAL Arbitration Rules.


Under Articles 38-40 of the UNCITRAL Arbitration Rules, the arbitration tribunal is required to fix the costs of arbitration in its award, including the costs of the arbitration and the reasonable costs of the successful party for legal representation and assistance, subject to possible apportionment to reflect the relative success and failure on different parts of the case.
We make no order for costs in this Award, nonetheless reserving our power to do so in a later award, after hearing further submissions from the Disputing Parties. Having regard to the successive re-pleadings of Methanex's case and the relative failure and success of the USA's challenges on jurisdiction and admissibility, we shall invite submissions on whether and to what extent a reasonable apportionment should be made, whatever the eventual result of this case on the merits.


For the reasons set out above, the Tribunal makes the following rulings and decisions:

(1) Admissibility: The Tribunal dismisses the USA's several challenges based on the "admissibility" of Methanex's claims;

(2) Jurisdiction - Original Statement of Claim: As regards the USA's jurisdictional challenge under Article 1101(1) NAFTA, the Tribunal decides that Methanex's Original Statement of Claim fails to meet the requirements of that provision; and, as there pleaded, the Tribunal would have no jurisdiction to hear Methanex's claims;

(3) Jurisdiction - Amended Statement of Claim: Subject to paragraph 4 below, as regards the USA's jurisdictional challenge under Article 1101(1) NAFTA, the Tribunal decides that Methanex's Amended Statement of Claim, as a whole, likewise fails to meet the requirements of that provision; and as there pleaded, the Tribunal would have no jurisdiction to hear Methanex's Amended Statement of Claim as a whole;

(4) As regards part of Methanex's Amended Statement of Claim (as subsequently supplemented by its written and oral submissions), the Tribunal decides that certain allegations relating to the "intent" underlying the US measures could potentially meet the requirements of Article 1101(1) NAFTA, thereby allowing part of Methanex's case to fall within the jurisdiction of the Tribunal.

It is impossible for the Tribunal now to make a ruling on jurisdiction in regard to this part of Methanex's case without a fresh pleading from Methanex accompanied by evidential materials, to be followed (subject to consultation with the Disputing Parties) by a pleading and evidential materials from the USA and an evidential hearing which may be limited to one or more threshold or determinative issues arising from Methanex's fresh pleading.

Accordingly, that jurisdictional ruling will be postponed by the Tribunal until one or more further awards pursuant to Articles 21(4) and 32(1) of the UNCITRAL Arbitration Rules;

(5) New Pleading: Within a period not more than ninety days from the date of this Award, Methanex shall submit a fresh pleading, complying with Articles 18 and 20 of the UNCITRAL Arbitration Rules and conforming to the decisions contained in this Award; and that pleading shall be accompanied by the evidential materials described in this Award;

(6) Amendment: Subject to Paragraphs 4 and 5 above, the Tribunal does not allow Methanex's application to amend its claim in the form of the Amended Statement of Claim;

(7) Other Jurisdictional Challenges: The Tribunal does not accept the USA's other jurisdictional challenges;

(8) Documentary Disclosure: The Tribunal makes no ruling for the time being on Methanex's Application for Documentary Disclosure, it being allowed to re-submit this application after serving its fresh pleading (if relevant); and

(9) Costs: The Tribunal makes no order for costs in this Award, reserving its power to do so in a later award.

Made by the Tribunal on... 2002, as at the International Centre for Settlement of Investment Disputes, the World Bank, Washington DC, USA.

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