## Facts

- Methanex Corporation, a Canadian producer and marketer of methanol, supplied methanol used to manufacture methyl tertiary butyl ether (MTBE), a gasoline oxygenate widely used in California in the 1990s.
- MTBE became linked to groundwater contamination caused primarily by leaks from gasoline storage tanks.
- In March 1999, California’s governor issued an executive order directing the phaseout of MTBE by the end of 2002, followed by implementing regulatory measures.
- Methanex alleged the MTBE phaseout was driven by political favoritism toward U.S. ethanol interests and harmed Methanex’s methanol sales and related U.S. investments.
- Methanex commenced NAFTA Chapter 11 arbitration under the 1976 UNCITRAL Rules (seat: Washington, D.C.), asserting violations of NAFTA Articles 1102 (national treatment), 1105 (minimum standard of treatment), and 1110 (expropriation), and sought roughly USD 970 million.
- After Methanex substantially amended its claims in 2001, the United States raised jurisdiction and admissibility objections; the tribunal held a jurisdiction/admissibility hearing and issued a First Partial Award on August 7, 2002.

## Issues

1. Whether California’s MTBE measures were “measures adopted or maintained by a Party relating to” Methanex or its investments under NAFTA Article 1101(1), such that Chapter 11 jurisdiction existed.
2. Whether, assuming Methanex’s pleaded allegations were true, the claims were legally sufficient (admissible) to establish prima facie breaches of NAFTA Articles 1102, 1105, or 1110.
3. Whether Methanex’s amended statement of claim could proceed, and to what extent reformulated allegations remained within the tribunal’s temporal and subject-matter jurisdiction.

## Decision

- The tribunal treated NAFTA Article 1101(1) as a threshold jurisdictional gateway and interpreted “relating to” restrictively.
- It concluded the California MTBE measures, as general regulation of a fuel additive, did not sufficiently “relate to” Methanex or its investments to satisfy Article 1101(1).
- Proceeding on assumed facts (including alleged improper political motives), the tribunal held significant aspects of the case failed to state a legally sufficient claim and were inadmissible and/or outside jurisdiction.
- The tribunal permitted amendment of the claim only subject to jurisdictional limits, rejecting or striking components that exceeded Article 1101(1) and related constraints, thereby narrowing what could proceed.

## Legal Principles

- NAFTA Article 1101(1) is a jurisdictional gatekeeper; Chapter 11 obligations (including Articles 1102, 1105, and 1110) apply only to Party measures that “relat[e] to” investors or investments of another Party.
- “Relating to” requires a legally significant connection between the challenged measure and the claimant investor or its protected investment; indirect economic effects alone are insufficient.
- Generally applicable regulation of a product, without targeting an investor or its investment as such, may fall outside Chapter 11’s scope under Article 1101(1).
- On jurisdiction/admissibility objections, a tribunal may assume the claimant’s pleaded facts arguendo and still dismiss claims that, as a matter of law, cannot constitute a NAFTA breach.

## Conclusion

The tribunal’s First Partial Award narrowed NAFTA Chapter 11 jurisdiction by construing Article 1101(1) “relating to” as requiring more than incidental economic impact, and it dismissed substantial portions of Methanex’s challenge to California’s MTBE phaseout for lack of jurisdiction and legal insufficiency even on assumed facts.


Methanex Corp. v. United States, Partial Award (NAFTA Ch. 11 Arb. Trib. Aug. 7, 2002)