Ottawa -- The Liberal government is beating an embarrassing retreat on its year-old ban of the gasoline additive MMT, despite new evidence that the manganese used in the octane enhancer can cause nervous-system problems.

Sources say government officials have reached a tentative deal with MMT-maker Ethyl Corp., of Richmond, Va., to avoid a potentially devastating legal challenge under the North American free-trade agreement.

Federal lawyers had warned the Liberal cabinet that Ethyl would be likely to win that NAFTA case, a ruling that could cost taxpayers hundreds of millions of dollars and hand a potent weapon to critics of the free-trade pact.

Sources said the negotiators for the two sides have agreed that Ottawa would drop its ban on MMT and pay the company an estimated $10-million for legal costs and lost profits. The government will also issue a statement to the effect that the manganese-based additive is neither an environmental nor a health risk.

In return, Ethyl would drop its NAFTA challenge and its claim for $250-million (U.S.) in damages.

However, Prime Minister Jean Chrétien must still approve the agreement.

The Liberal government legislated the ban on the cross-border sale of MMT last year, claiming the substance interferes with automobile emission controls and is therefore an environmental hazard. The legislation prohibited the importation or interprovincial sale of the additive.

The acrimonious debate pitted Ethyl and gasoline refiners, who wanted access to the inexpensive additive, against environmentalists and auto makers, who insisted the use of the substance ran counter to the goal of lower emissions.

source: the Globe and Mail