The three-member panel, which included former U.S. Secretary of State Warren Christopher, said if Methanex wants to press the case it began in June 1999 it will have to file a new complaint, but warned the company it also needs to clarify its argument.

A spokesman for Vancouver-headquartered Methanex said the company was "still accessing what is a long and complicated document" and would consult with its lawyers before deciding what it would do next. It has 90 days to decide. A California official said the tribunal may have given Methanex more time, but the ruling did not mean the panel members believed any of the company's claims - which both the state and ADM strongly deny.

"Methanex has had years to make its case and the tribunal has so far not accepted its case," said William Rukeyser, spokesman for the California Environmental Protection Agency.

California has decided to phase out the use of MTBE (methyl tertiary butyl ether), which is used to reduce auto air pollution, because of concerns the additive was contaminating drinking water supplies.

Methanex, which supplies methanol to the companies that make MTBE, argues the ban was not based on scientific evidence, and the water pollution could be solved by fixing leaking underground storage tanks at gas stations.

The California ban was a financial blow to Methanex because the state is the largest automobile market in the United States, and other states look to California in setting environmental standards.

NAFTA prohibits unfair protection of domestic industries, and Methanex's original complaint alleged U.S. officials acted improperly to protect the U.S. ethanol industry, which competes against MTBE as a gasoline additive to reduce toxic emissions. Methanex later amended its complaint with the claim that Davis and ADM officials held a secret meeting during the 1998 campaign at ADM's Illinois headquarters and the agricultural commodities giant made over $200,000 in contributions to Davis's campaign.

The case has been closely watched by green and civil rights groups who worried that Methanex's case - filed under NAFTA's Chapter 11 investor protection rules - was an example of how private companies can use the agreement to undermine government efforts to protect the environment.

A spokesman for the Sierra Club called the decision "confusing," but said that was "the nature of the NAFTA tribunal system," adding the ruling meant Methanex had not lost the case outright, but did have another hurdle to clear in pressing its claim. "It's definitely not a dismissal. They could have done that and we're disappointed that they didn't do that. We thought that the case was a stretch from the beginning," Dan Seligman said.

A source familiar with the case said the ruling appears to help the United States because it put the onus on Methanex to prove California intentionally banned MTBE to hurt foreign producers of methanol.

Although the case involved a decision by California state officials, NAFTA investor-protection rules required Methanex to file its complaint against the U.S. federal government.