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Metalclad Corp. v. United Mexican States

Arbitration Panel, International Centre for Settlement of Investment Disputes
Case No. ARB(AF) 97/1 (2000)


Metalclad Corporation (plaintiff), a United States corporation, formed a Mexican subsidiary to construct a hazardous-waste landfill in the municipality of Guadalcazar, located in the State of San Luis Potosi (state). Prior to Metalclad’s purchase of the subsidiary, the Mexican government (Mexico) (defendant) and the state informed Metalclad that all necessary permits would be issued for the landfill. Mexico issued federal construction and operating permits for the landfill, and the state issued a state operating permit. Although the project faced local opposition, construction was completed. Guadalcazar’s town council subsequently refused to issue a municipal construction permit, on the grounds that the project had adverse environmental effects and that the site was geologically unsuitable for a landfill. Metalclad did not receive prior notice of the council meeting. Metalclad unsuccessfully pursued litigation in Mexican courts before bringing an arbitration proceeding against Mexico under Chapter 11 of the North American Free Trade Agreement (NAFTA). Metalclad claimed that Guadalcazar lacked authority over hazardous-waste matters. Mexico asserted that Guadalcazar had lawful authority to issue construction permits.

Rule of Law


Holding and Reasoning

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