David Schneiderman is professor of law, University of Toronto, and Senior Fellow, Centre for International Governance Innovation
Unverified rumours circulated in early 2018 that Canada was willing to abandon NAFTA’s provisions entitling foreign investors to sue for damages under what is called investor-state dispute settlement, or ISDS.
The rumours turned out to have been true. In recently completed trade renegotiations, ISDS between Canada and the United States has been scrapped. ISDS between Mexico and the United States continues, but on much narrower grounds.
Does this reveal a change of government policy? Likely not. Canada eagerly signed onto an unreformed version of ISDS in a mega-regional agreement, the wordily labelled Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Canada also has been enthusiastically championing, without public or parliamentary consultation, a modest proposal for procedural reform initiated by the European Commission for an investment “court,” which looks little like a court. Canada signed onto this version of dispute settlement – one that continues to entitle foreign investors to sue countries for damages – in the Comprehensive Economic and Trade Agreement between Canada and the European Union.
All of this is occurring at the same time that the Ministry of International Trade and Development is undertaking an online consultation of how to make Canada’s investment treaties more “progressive.” A public and deliberative consultation is long overdue. An online consultation hosted by a private entity, even if inadequate, is still welcome. Yet it is not apparent that the consultation is being undertaken with anything like an open mind.
Almost all of the online documentation provided to aid citizens in the consultation effort offers vague platitudes about the supposed benefits of investment protection agreements. By clicking on “more information about the process,” one learns that by virtue of these agreements, “countries commit to provide greater predictability and certainty to each other’s investors.” They also “protect Canadian investments abroad and signal that Canada welcomes foreign investment at home.” This is not a pitch to ditch ISDS.
This online background information does not weigh pros and cons. Nor is any evidence provided to show, as suggested, that signing onto such treaties attracts new foreign investment or even protects Canadian investors abroad. There are no data provided about anything.
Yet the problems associated with ISDS are by now obvious. Vague treaty standards of protection, such as prohibitions on “arbitrariness,” entitle foreign investors to seek damages for all variety of state behaviour, whether sinister or beneficial. It is a system of privatized justice that removes disputes from judges sitting in local courts and relocates them to boardrooms where lawyers in private practice pronounce on government policy.
It was this system that entitled the U.S.-based investor in Bilcon Corp. to successfully sue Canada for having followed the advice of an independent environmental review panel. This panel of environmental experts recommended that Bilcon not be authorized to build a rock quarry on sensitive Nova Scotia shoreline because of potential harm to the natural, marine and human environments. Two of the three members of this tribunal concluded that there were defects in the process that gave rise to arbitrariness, even though this was far from obvious, entitling the investor to an award of damages.
Canada sought to have this decision reversed by domestic courts, but without success. This is because Canadian courts are directed by statute to be deferential to international tribunals. The Federal Court of Canada, for this reason, would not disturb the tribunal’s findings of international liability. The court admitted, however, that the tribunal’s ruling “raises significant policy concerns … including its effect on the ability of NAFTA Parties to regulate environmental matters within their jurisdiction.”
So there are compelling reasons to revisit Canada’s participation in this system. Canada played an active part in its construction and yet has not sought, until now, public input specifically about it. Yet there is every indication that Canada, outside of U.S.-led negotiations, will not be abandoning ISDS any time soon. Instead, at the behest of extractive industries and peak business organizations, Canada will continue to allow public-policy initiatives to be imperilled at home and abroad. All of this is being pursued without any real evaluation of the purported benefits of ISDS. If Canada is serious about adopting a progressive investment treaty policy, the most certain path to achieving this is to stop signing these agreements immediately.