Mexico Pays US$16 Million  to Metalclad

In a closely watched case that expanded corporate legal rights under the NAFTA accords, the Mexican government paid US$16 million to the US-based Metalclad Corporation.  The payment settled a long-standing lawsuit and was widely seen as an effort by the Fox administration to  appease international investors.

In 1995, Metalclad purchased a hazardous waster processing facility in the central Mexican state of San Luis Potosi.  Metalclad intended to clean up the site and expand the plant to handle hazardous waste from the U.S.  During the licensing process, and environmental impact study discovered that the plant was located directly above the local aquifer.  The local government declared the area an ecological preserve in an effort to protect the only source of fresh water in the area, and Metalclad was unable to obtain the necessary government permits for expansion.

Metalclad sued the Mexican government for US$100 million under NAFTA’s  chapter 11, which allows private corporations to sue governments for loss of future potential profits. 

A secret three-member NAFTA tribunal decided the case in favor of Metalclad, awarding the corporation US$16 million.  Initially Mexico disagreed with the decision and refused to pay, but apparently behind-the scene pressure from investors and US officials convinced the Fox administration to settle. 

The case sets an important precedent under Chapter 11 and expands the ability of private corporations to challenge environmental regulation in all three NAFTA countries.