In, 2013, an offshore investor-state dispute settlement (ISDS) tribunal ordered Libya to pay U.S. $935 million to corporate investors for “lost profits” from “real and certain lost opportunities” on a cancelled tourism project, even though the corporate investors had only invested $5 million in the project and construction had not started.
Canadians should take note of this outrageous decision. According to the latest figures on ISDS claims from the United Nations Conference on Trade and Development, Canada is now the most sued developed country in the world. This dubious distinction is entirely due to ISDS corporate lawsuits under NAFTA. Imagine how this will accelerate once we’ve concluded CETA, the TTP and TISA, three other trade agreements our federal government is determined to sign and ratify.
What’s wrong with ISDS?
The original justification for holding ISDS lawsuits in off-shore tribunals was to protect transnational corporations from unfair expropriation or nationalization of their assets by governments which might have a corrupt court systems. By this criterion there was no good reason to include ISDS clauses in CETA, given the integrity of the judicial systems in Canada and Europe. Yet they were included.
As for the risk of nationalization, the interpretation of expropriation has now evolved to include the “indirect expropriation” of corporate assets, including corporate profits. Damages, as Libya found out, now take into consideration not just immediate restrictions on profits, but also lost opportunities for future profits.
Here’s a sample of what recent ISDS lawsuits against Canada have looked like:
- Eli Lilly is suing the Canadian government for $500 million under NAFTA for invalidating its patent for Strattera and another drug after a federal court found the company had failed to demonstrate the drugs would deliver the benefits promised in the patent application. Strattera had only been tested in a short 7-week long study involving 22 patients.
- Exxon Mobil and Murphy Oil won their NAFTA lawsuit against research and development regulations put in place after the Government of Newfoundland and Labrador determined the companies were not living up to their commitment under the Atlantic Accord. Three levels of Canadian courts had previously rejected arguments that the companies were being unfairly treated. Damages have not yet been revealed.
Profiting from Injustice, a comprehensive report by Corporate Europe Observatory, reveals the corporate bias that exists in the off22shore tribunals that judge cases like these. That includes:
National Rule of Law counts for nothing: Democracy and constitutional law have no place in these offshore tribunals. Instead, decisions are based on the interpretation of the legal language in the trade agreements (and sometimes even other trade agreements). There is no Appeals Court if a country objects to the judgment rendered. Furthermore, only companies can sue governments. Abusive corporations cannot be sued, for example, when they violate human rights.
The illusion of neutrality: Investor-state disputes are usually decided by a tribunal of three arbitrators. Unlike judges, they do not have a flat salary but are instead paid per case. This creates a strong incentive to side with corporations, because investor-friendly rulings set precedents that pave the way for more cases and more income for the very small, elite group of arbitrators that service the ISDS industry.
Profiting through speculation: Suing governments in offshore tribunals has turned into a money-making industry with investment funds lining up to help corporations fund Investor-state disputes in exchange for a share (typically between 20-50 per cent) in any granted award or settlement.
The revolving door syndrome: The small, elite group of arbitrators and lawyers in the ISDS process move effortlessly from defending corporations to defending governments and back again. This revolving door allows them to aggressively promote investment arbitration in trade agreements as a necessary condition for the attraction of foreign investment. Ignored is the research suggesting that trade agreements are not a decisive factor in whether investors go abroad.
The number of ISDS disputes worldwide has exploded, from just 38 in 1996 to 568 by the end of 2013. Equally worrying is that the growth in damages has been both exponential and dramatic. The most noteworthy victim to date is tiny Ecuador. Ecuadoreans have been ordered to pay $2.3 billion after losing an ISDS lawsuit filed by Occidental Petroleum.
Internationally, over half of the ISDS lawsuits have been instigated by European corporations. CETA is their ISDS entry into Canada.
ISDS lawsuits against Newfoundland and Labrador: Who will pay? Who will defend?
ISDS lawsuits are directed against the federal government and must be defended by the federal government, even if it’s a municipal or provincial action or decision that a corporation might be objecting to. That means that technically, it’s the Canadian government that’s on the hook for payment of costs and damages. However, all that is going to change. The federal government has served notice that it will find ways in the future to reclaim costs and damages from the provinces.
Unfortunately, there is no guarantee that the federal government will adequately defend lawsuits against provincial interests. For example, they chose not to defend against Abitibi-Bowater’s dispute with our province in spite of urgings from multiple groups. The result was an out of court settlement of $130 million, which sets a troubling precedent that undermines public ownership and control of natural resources on crown land.
What sectors of our provincial economy are most vulnerable to lawsuits?
Anybody thinking that our province is fully protected in CETA against ISDS lawsuits is in denial about the all-pervasive scope of this kind of litigation. ISDS lawsuits have been used to challenge government attempts to raise minimum wages, introduce buy-local policies, reduce subsidies, reject new open pit mining proposals, protect water, health or the environment, initiate or modify regulations to gas, nuclear energy, telecommunications, marketing and tax measures, restructure debt to address impending financial collapse, and so on.
Our economy is largely dependent on resource extraction. Oil and mining companies are the most frequent users of ISDS worldwide, so it would be complacent to think there is little possibility of lawsuits here. One obvious example is fracking. If our government decides to permit fracking and then reconsiders policy, NAFTA will allow corporate challenges in the manner of the $250 million Lone Pine Resources lawsuit following the Quebec moratorium. CETA will open that up to European corporations.
On the other hand, if the province defied CETA and continued with minimum processing requirements, I don’t think European processing plants would be easily able to use ISDS lawsuits. That’s because, as far as is known, they are not investors in the Canadian economy. The EU would have to find other ways of punishing us, probably through tariffs.
Does that mean our Canadian-owned fishing sector is protected against ISDS lawsuits? Doubtful, given that the nationality of corporate investors is often not clear. Do we really know how much foreign ownership exists in our fisheries, particularly in the offshore sector? Could minority foreign owners of boats claim to be investors in the Canadian economy, and therefore, mount challenges? What about our aquaculture industry? What’s the capacity for foreign investment there? Once foreign investors gain a foothold in our fisheries, CETA will allow them to sue in all sorts of ways that they can’t at the moment. Given the strong neoliberal bias of the federal government towards deregulation, one has to wonder what kind of defense would be mounted to protect the livelihood of our harvesters and local communities.
Then there is Muskrat Falls. Big contracts have been signed. Government has entered into public-private partnerships. Are we aware who all the corporate investors are? To what extent could investors use subsidiaries under NAFTA or CETA to pursue lawsuits against future government decisions? Has government even considered the ISDS risks there?
Why and how ISDS got put into CETA
ISDS fulfills three central purposes. First, it allows transnational corporations to sue governments for increasingly huge amounts of money in biased, corporate-friendly offshore tribunals where governments can’t use arguments of accountability to the public. Secondly, ISDS, in bypassing national court systems, renders a huge blow to the judicial independence that is fundamental to our democracy. And finally, ISDS effectively straitjackets and undermines regulatory flexibility. The effect on new legislation is chilling, as everything begins to be looked at through the prism of potential lawsuits. The result of all of this is that ISDS facilitates gains in transnational corporate power that are going to be, in the long term, enormous. So too will be the losses to national sovereignty and democracy.
Transnational corporations themselves cannot put ISDS sections into trade agreements between countries — so who does? In the case of CETA, the answer is clearly Prime Minister Harper and his government. It was the Harper government that pushed for ISDS to be included in CETA right from the start. It’s time to face the unpleasant probability that our side may be playing for the other team — not the EU team, but the transnational corporate team.
Can CETA be stopped?
Our province’s recent stance in pulling out of CETA over the dispute about the compensatory $280 million fisheries fund can’t stop the trade agreement going through. However, it has raised public awareness. There’s even a ‘Thank Newfoundland and Labrador’ petition on the go with more than 33,000 signatures on it so far.
Has the ensuing publicity caused politicians to take a closer look at CETA itself? Unfortunately, no. Across Canada, aside from at the municipal level, there’s still little political opposition to the trade agreement (NDP Lorraine Michael has been the notable exception here). One has to wonder how it is politicians in all three major parties have let themselves either be cajoled or whipped into ignoring the different ways CETA is an assault on our democratic and judicial decision making. Their collective silence is alarming.
If CETA is to be stopped, it could be the Europeans who do it. In the space of a couple months in late 2014 more than a million Europeans signed a petition opposing the ISDS sections of CETA and the TTIP deal. Last month France and Germany made a joint announcement they wanted to reopen and amend the ISDS section of CETA. And Syriza, Greece’s newly elected government, has already stated it will not sign on to CETA.
We may yet be rescued from this deal by the Europeans!