iPolitics | 15 April 2021
NAFTA-investor lawsuits cost Canada at least $376 million: report
By Jolson Lim
NAFTA-investor lawsuits have cost Canadian taxpayers more than $376 million over the last 25 years, and could cost even more in the years ahead, according to a new report on the dispute-resolution system that allows companies to sue governments.
The report from the Canadian Centre for Policy Alternatives (CCPA) is urging Ottawa to remove the investor-state dispute-settlement (ISDS) regime from international agreements, and to refuse to implement new ones in future trade deals.
ISDS rules allow foreign companies to sue governments in private tribunals for policy measures they feel have unjustifiably hurt their investments.
The federal government was able to negotiate the end of the ISDS regime in 2023 under the Canada-U.S.-Mexico Trade Agreement (CUSMA), which went into effect last year.
Chapter 11 provisions in NAFTA have resulted in $113 million in legal costs to defend against 44 ISDS claims, mostly from American investors challenging environmental and resource-management policies.
These lawsuits have also required Canada to pay damages and settlements totalling more than $263 million, according to the report, which acquired the data through an access-to-information request.
“That’s a substantial amount of money that isn’t available for other public purposes,” said Scott Sinclair, the report’s author. “I think Canada’s experience under NAFTA Chapter 11 proves largely negative.”
Chapter 11 was originally designed to give investors confidence when doing business in another country by providing a tribunal to settle disputes with the country’s government over discriminatory treatment.
Canada ended up being the most sued country under NAFTA. Eliminating ISDS provisions was a major win for the Liberal government in trade talks with the Trump administration, which didn’t like ISDS rules either, because it thought they encouraged job-outsourcing to Mexico.
But investor-state claims can be made under NAFTA rules until July 2023, as as long as the “legacy” investments are made during the lifetime of the old trade agreement. The claims can also challenge new government measures taken anytime until 2023.
Because of the three-year period, ISDS cases risk piling up, the CCPA report says. There’s been a spike in claims against Mexico in recent years, including four legacy claims.
The fact that ISDS rules haven’t been removed from CUSMA all at once leaves governments vulnerable to uncertainty, investor threats, and litigation, Sinclair said.
“I think there’s a very good chance there will be a spate of cases against all three countries as that deadline approaches,” he said. “Investors will look at their options to see (if) NAFTA Chapter 11 is a favourable venue for them.”
The report also notes an impending legacy claim by the Alberta government, which challenged the Biden administration’s cancellation of the Keystone XL pipeline and could result in a multibillion-dollar settlement. Alberta needs Calgary-based TC Energy to support the legal action.
Canada is also the subject of a legacy ISDS claim by Koch Industries, which is suing over Ontario’s cancellation of the province’s cap-and-trade program with Quebec and California. The Koch subsidiary had bought US$30 million in emission allowances, but was denied compensation by the Ontario government.
Progressives have long criticized ISDS, seeing it as a way for corporate interests to challenge policies made in the public interest. Environmental-protection and resource-management policies account for more than 60 per cent of claims against Canada, according to Sinclair’s report.
Canada’s defeat in the 2015 Bilcon case, in which a U.S. firm successfully sued Canada after being denied a permit to build a quarry in Nova Scotia, became a “tipping point” against ISDS, he said. Many felt the ruling by a NAFTA tribunal had a chilling effect on the ability by governments to conduct domestic environmental policy.
Sinclair’s paper also argues that ISDS mechanisms found in other trade agreements benefit Canadian corporations at the cost of poorer nations. Three Canadian mining companies are currently suing Colombia over policies meant to protect the country’s supply of fresh water.
NAFTA’s signing in 1994 helped usher in ISDS mechanisms in other trade agreements worldwide, and Sinclair hopes its elimination from CUSMA will spell its global demise.
“I hope it might be a turning point,” he said.