Time to ditch investor-state agreements

The door has opened for the first time in a long time to rid the world of the consistently perverse non-trade aspect of all new trade deals—the so-called “investor-state agreement.”

These provisions allow a foreign corporation to bring a challenge by way of private arbitration against a government if that government’s actions can be interpreted as “tantamount to expropriation.” Ever since Chapter 11 of NAFTA where this anti-democratic instrument first emerged, arbitrators have been willing to find that perfectly reasonable measures by governments have reduced foreign corporations’ expectations of profits.

“Tantamount to expropriation” ceased to mean anything close to actual expropriation. It has become a way for foreign corporations to threaten and punish governments for regulating to protect health, safety and the environment around the world. Trade lawyer Steven Shrybman once correctly described them as “fundamentally corrosive to democracy.”

The remarkable thing is the way in which such outrageous measures have cloaked themselves with the language of the ordinary. When the Green Party tried to raise awareness about the threat to our sovereignty of the Canada-China investment agreement, we were treated to repetition of the bromide, in patronizing tones, “this is a standard foreign investment protection agreement” (FIPA). It is like being told, “but this is a standard water-boarding technique.”

Governments have lost in secret arbitrations for warning citizens that cigarettes cause lung cancer, or for terminating contracts, even when allowed within the terms of the contract, where oil and gas leases are at stake, for banning toxic gasoline additives, or ruling that projects are such a significant threat to the environment that the damage cannot be mitigated. In none of the cases was the foreign corporation required to establish that a government had acted in a discriminatory manner. None required evidence that a government had lacked scientific evidence. All that is required is that a foreign corporation is likely to make less profit.

The most controversial part of the Comprehensive Economic Trade Agreement (CETA) with the European Union is the investor-state provision. The most controversial part of the Trans-Pacific Partnership Agreement (TPP) is the investor-state agreement. These concurrent debates create the opportunity to debate for the first time whether such agreements are in the public interest—anywhere.

Essentially the issue has never been debated. Despite a significant public debate in Canada before ratifying NAFTA, Chapter 11 was never identified as a source of concern. It was a sleeper. Not even Canada’s NAFTA negotiators had contemplated that the language could be interpreted as it has been. An elite group of lawyers globally have profited—enormously—as arbitrators, as counsel and as expert witnesses in ripping off governments in the interest of corporate power. Domestic governments and legislatures at all levels—municipal, state/provincial and federal have lost around the world.

Now the EU Trade Commissioner Cecilia Malmström has proposed what is described as a reform—an Investment Court System (ICS). Despite being oversold in the media, the actual proposal is simply rebranding the ISDS mechanism. One of the few independent Canadian experts in investor-state dispute systems, uncompromised by a career in profiting from the inherent injustice of the ISDS system, is Prof. Gus Van Harten of Osgoode Hall Law School. In a recent article for the Social Science Research Network, he has carefully critiqued Malmström’s proposal. Van Harten rejects it as allowing the continuation of ISDS, despite a degree of whitewashing of its sins.

The sensible thing to do, as the issue is hotly debated in the CETA and TPP context, is to move for a thorough global review of all these agreements in the context of the WTO. The Canada China investor-state agreement is arguably the worst Canada has ever entered into. The Conservative cabinet ratified it in secret by order in council. The earliest Canada can exit the agreement is 2045. Our only way out is either through a global review or if Beijing agrees to renegotiate FIPA in the course of our new trade talks.

A global review of all such agreements is long overdue. Their rationale was never established. They are clearly not a necessary precondition to investment. Australia, for example, has a far larger volume of trade with China than Canada and never entered into an ISDS with China at all—much less the lop-sided deal with which Harper has left us.

The first priority is a new law ensuring all Canadians transparency. The minute any government or foreign corporation threatens Canada, that must be made public. Canadians need to know if we are being threatened. Secondly we need to re-open the TPP and CETA to remove the proposed ISDS provisions. Take them out now and gather up all these pernicious instruments to be replaced by a newly drafted and fair set of rights and responsibilities of foreign corporations.

This ugly threat to democracy slipped out of Chapter 11’s Pandora’s Box. It’s long since time to put it back in the box.

Originally published in the Hill Times.