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Forfeiting control and the right to litigate

By: | March 10, 2014

The federal government doesn’t want us to know how much we’re giving up for CETA. Presented as a “trade agreement” with the European Union, provisions in CETA’s investment chapter undermine our right to regulate and hold transnational corporations accountable for the consequences of their actions

Marilyn Reid
Cutting through the spin on CETA is a series examining the reticent nature of a treaty that threatens Canada’s economic sovereignty

> Other Posts in this Column
The federal government's out of court $130 million settlement with Abitibi Bowater over the Government of Newfoundland and Labrador's expropriation of the company's mill in Grand Falls-Windsor in 2008 "set a troubling precedent for future investors’ rights disputes over natural resources and water on crown land." Photo by Graham Kennedy.

Ask critics of the Canada Europe Comprehensive Economic and Trade Agreement (CETA) what they most oppose in the agreement and chances are they’ll name the investment protection chapter with its investor-state dispute settlement (ISDS) mechanism. Past investment “protections” related to NAFTA have led to big corporate lawsuits in offshore tribunals where Canadian law counts for nothing. Approximately 80 per cent of Canada’s payouts or projected payouts in damages have so far had to do with Newfoundland and Labrador.

Under the Atlantic Accord, oil companies were required to spend some of their profits on research and development in this province. When the province tightened up their guidelines after judging that the oil companies were not meeting their obligations, Exxon Mobil and Murphy Oil demanded $65 million in damages. What is noteworthy about this case is that the ISDS decision supporting the corporations came after three levels of Canadian courts had rejected arguments that the companies were being unfairly treated by the new guidelines.

Litigation followed the Government of Newfoundland and Labrador’s expropriation of Abitibi Bowater’s paper mill and related hydro power plant in Grand Falls-Windsor, and the rescinding of water and timber rights on crown land. The province did this after the company closed its last mill in the province, gave minimum compensation to laid-off workers and pensioners and demonstrated no intentions to clean up the environmental damage it had caused. The out of court $130 million settlement with Abitibi Bowater set a troubling precedent for future investors’ rights disputes over natural resources and water on crown land.

Should we consider these and other investor-state decisions unacceptable? In his CETA presentation to the Parliamentary Trade Committee last December, Dr. John Curtis stated:

The Investor-state provisions trouble me, not only in this agreement but in general. I’m not sure previous Canadian governments were right in the NAFTA proceedings….. There’s been a huge bite-back and it’s not clear to me that it’s in Canadians’ national interest to have these provisions.

Dr. Curtis was representing not, as you might expect, one of the left wing think tanks, but rather the corporate-financed C.D. Howe Institute. He is right to be concerned though. CETA’s investment protection section opens up far more avenues for lawsuits than the drafters of NAFTA ever envisioned.

What right to regulate?

Leaked documents published online just a few days ago reveal that, contrary to the claims of the European Commission and Canada, CETA does not reaffirm the right to regulate in its investment protection section. Instead, the right to regulate clause, which is actually found in the preamble to the agreement, does the reverse: “Recognizing the right to regulate within their territories in a manner consistent with this Agreement to achieve their public policy.” According to legal opinion from the Seattle to Brussels Network this formulation quite clearly subjects all government regulations to the terms of the agreement and opens the door to ISDS lawsuits, thereby subverting the democratic process.

Who really qualifies under CETA?

CETA’s Most Favoured Nation (MFN) clause allows any corporation whose home country has signed a trade agreement with Canada that includes an unqualified MFN clause to be grandfathered in to reap CETA’s corporate benefits. That’s not just Mexico and the United States.  Since 2006 the Harper government has signed trade agreements with nine countries, and is engaged in negotiations with 25 others outside of the EU. How many of these countries will have unqualified MFN status? We don’t know.

Then add in the Asian, Latin American, and other transnational corporations that have subsidiaries in Europe. Given this presence may well give them the same rights as European corporations, CETA really starts to look like a global corporate rights treaty, doesn’t it?

How the investment chapter of CETA undermines the rest of the treaty

An MFN clause in CETA’s investment chapter allows corporations to cherry pick provisions from treaties Canada has signed with other countries. They can then use these provisions to pursue lawsuits against CETA restrictions they don’t like. In other words, weak government protection in past treaties can be used by corporations to try and nullify improved wording (at least from government’s point of view) in CETA.

Then there’s CETA’s “Fair and Equitable Treatment (FET)” clause. FET allows corporate challenges to be made based on what has been established as fair and equitable treatment in customary international law elsewhere. So far there have been over 600 ISDS lawsuits worldwide, with many varying interpretations as to what constitutes ‘fair and equitable treatment’. “It’s open season for the lawyers,” said Howard Mann of the International Institute for Sustainable Development in his critique of FET to the Parliamentary Trade Committee last December.

What’s wrong with bypassing the Canadian court system?

All investment arbitration will take place not in Canadian courts, but in offshore, private tribunals which are deeply flawed. A 2014 report by the European Parliamentary Research Service itemized the complaints against the investor-state dispute settlement process:

  • The loopholes and vague formulations of major provisions in treaties leave a wide margin of interpretations to arbitrators.
  • Arbitrators can be guilty of conflict of interest and impartiality.
  • Erroneous awards are aggravated because there is no appeal court.
  • Banks, hedge funds and insurance companies now invest in corporate lawsuits for a share (20-50%) of the rewards. This has led to an increase in frivolous cases.
  • Awards can be huge. The largest known award hit Ecuador in 2012:  $2.4 billion in damages and interest expenses to Occidental Petroleum.
  • The threat of having to pay compensation has had a chilling effect on state regulatory power as every new policy begins to be looked at through the prism of possible lawsuits.

CETA: Our very own Trojan Horse

CETA is like a Trojan horse, isn’t it? It’s packaged and presented to us as a straightforward trade agreement. But peel back all the different layers of this agreement and you begin to see what it really is. At its core, CETA is a surreptitious way of reducing the power of governments at all levels to the benefit of transnational corporations. It’s a power shift operation.

Prime Minister Harper and his cabinet know that. They just don’t want the rest of us to catch on to what’s happening. That’s why, after almost five years of negotiations and an agreement in principle, they refuse to release any drafts of CETA. That’s why they are trying to camouflage the dubious economics of CETA with exaggeration, partial information and an almost exclusive focus on trade. That’s why they are offering to appease the provinces with financial Band-Aids (i.e. to help Ontario with increased drug costs, Quebec with losses to its cheese industry and our province with job losses due to the sacrifice of minimum processing requirements).

It’s a strategy that seems to be working. Among Canada’s elected politicians it’s really only our municipal councilors who have stood up against CETA. The provinces have acquiesced and the Liberal and NDP parties have chosen to talk about trade issues but ignore the elephant in the room: the loopholes that subvert the democratic process in the investment protection section.

The politics and psychology surrounding CETA are truly alarming. If government increasingly sees us as a disengaged public whose opinions can be shaped and massaged by one-liners, half-truths and superficial summary statements, we ought to ask ourselves: why is that? And, what do we do about it? That’s the subject of next week’s final article on CETA.

Read Part 1, Part 2 and Part 3.

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