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Hadrian Mertins-Kirkwood is a senior researcher at the Canadian Centre for Policy Alternatives and the co-author with Ben Smith of the new report Digging for Dividends

Canadian corporations are taking advantage of Canada’s free trade and investment agreements to undermine environmental policies in developing countries. And it’s putting the global fight against climate change – and Canada’s international reputation – at risk.

Using a little-known legal mechanism called investor-state dispute settlement (ISDS), foreign investors can sue governments to claim compensation for alleged violations of an investment agreement. Canada has negotiated ISDS clauses into dozens of investment treaties with developing countries where there is or could soon be a Canadian mining presence.

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Canadian mining companies operating overseas are already notorious for disregarding human rights and damaging the environment, especially in poor countries. Now, they’re increasingly turning to ISDS to directly challenge government measures taken in the public interest.

For example, after the Constitutional Court of Colombia enforced laws prohibiting mining in the sensitive high-altitude ecosystems that provide 70 per cent of the country’s drinking water, three separate Canadian mining firms launched ISDS cases with claims in the hundreds of millions of dollars. If they win, Colombia will either be forced to backtrack on the policy or shoulder this massive cost of acting in the public interest.

The latest research from the Canadian Centre for Policy Alternatives suggests that cases such as these are part of a growing trend. There are 43 known instances of Canadian investors using ISDS to sue a foreign government outside North America. The mining and energy sectors accounted for 70 per cent of those cases and developing countries were targeted in 86 per cent of cases.

Crucially, a quarter of all ISDS claims brought by Canadian investors abroad involved environmental policy. It is the fastest-growing trigger for these disputes.

As governments ramp up their climate policy ambitions, ISDS can be used to challenge and delay emission-reduction policies as well. The recent case of U.S.-based Westmoreland Coal suing Canada over Alberta’s phase-out of coal-fired electricity may be a sign of things to come.

This can cause problems, especially in developing countries, which are the most vulnerable to the effects of climate change and have the least capacity to fight lengthy and expensive ISDS cases.

What’s more, the emerging trend of third-party funding in ISDS cases is adding fuel to the fire. A growing investment arbitration industry – mostly based in New York and London – is financing companies’ legal costs in these cases for a share of the payout if the arbitration tribunal rules in their favour.

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This third-party financing is propping up and encouraging ISDS cases where they would not otherwise be viable. For example, defunct Canadian mining company Infinito Gold is currently suing the government of Costa Rica over a ban on open-pit mining, despite declaring bankruptcy and ceasing all operations several years ago. Infinito has only been able to continue paying its legal costs through a funding agreement with London-based Vannin Capital.

The Canadian government recently acknowledged these concerns when it agreed to remove ISDS between Canada and the United States in the United States-Mexico-Canada Agreement, the deal that would replace NAFTA and has yet to be ratified. Announcing the conclusion of negotiations last year, Canada’s Foreign Affairs Minister echoed the long-standing concerns of labour unions, social-justice movements, environmental activists and other critics that investor-state arbitration “elevates the rights of corporations over those of sovereign governments.”

Given Canada’s track record as the most-sued NAFTA country, this “concession” on ISDS was a welcome development.

Yet Canada remains firmly committed to the ISDS system in its other trade and investment agreements, including in two major new deals: the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Canada-European Union Comprehensive Economy and Trade Agreement.

If the Canadian government truly believes that investor-state dispute settlement poses a risk to public interest regulation – and a growing body of evidence suggests that it does – then it should be prepared to remove ISDS from all its investment treaties and reassess the investment protection model.

As a major fossil fuel producer and home to more than half of the world’s mining companies, Canada’s resource sector is uniquely positioned to threaten environmental efforts around the world. The Canadian government should not be enabling them through investor-state dispute settlement.

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