Harper's trade disaster: Democracy insurance for foreign companies

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Few Canadians know they have been signed up -- by our federal government -- to back an obscure system that insures foreign corporations against the business risks of democracy, politics, and regulation.

The federal government has committed Canadians to this risk in trade and investment agreements, beginning in 1994 with NAFTA's insurance for U.S. investors. Indeed, since NAFTA, Canada has relinquished more of its economy than any other Western country to a system of foreign investor compensation called investor-state arbitration.

Faced with arbitration claims by U.S. investors under NAFTA, Canada has had to pay about $165 million to U.S. companies. Canadians will have to pay more -- likely tens of millions -- once the penalty payments ordered in two other recent cases are determined by NAFTA arbitrators.

In the first case, Mobil & Murphy Oil v Canada, Canada was ordered to compensate two U.S. oil companies -- one owned by Exxon -- after a federal-provincial regulatory board in Newfoundland and Labrador tightened the existing requirements for offshore oil companies to spend on research and development in Canada.

The board's decisions had been upheld in Canadian courts. But the U.S. companies had the option to go further and request compensation before a NAFTA tribunal, open only to foreign investors

In the second case, Bilcon v Canada, Canada was ordered to compensate a U.S. company whose proposed quarry was denied after an environmental assessment. In that case, the U.S. company was able to avoid Canadian courts entirely by going straight to the NAFTA tribunal.

For many years after NAFTA, under the Liberals, the federal government was more cautious about subjecting Canada to this system of foreign investor compensation. The government limited itself to investment treaties with countries whose companies own very little in Canada.

But the Harper government -- especially after winning its majority 2011 -- has moved to expand the system by leaps and bounds.

First, the government negotiated and then finalized, over public opposition, the Foreign Investment Promotion and Protection Agreement (FIPA) with China. Next, the government reportedly pushed to include a similar system as part of the proposed Canada-Europe Comprehensive Economic and Trade Agreement (CETA).

Perhaps most importantly, the Harper government is anxious to join the U.S.-led Trans-Pacific Partnership (TPP). Based on leaked documents and the U.S. government's track record, the TPP will also include the special insurance for foreign investors.

With this flurry of new treaties, the Harper government would expand Canada's exposure to investor-state arbitration from about 50 per cent of our foreign-owned economy under NAFTA to about 85 per cent.

In the FIPA, the government expanded the special insurance from U.S. to Chinese companies. In the CETA and TPP, it would do the same for Western European, Japanese, and Australian companies, especially.

Also under the TPP -- through complex interactions between the FIPA, CETA, and NAFTA -- the government will have expanded the existing NAFTA rights of U.S. investors in Canada.

In turn, as the government often stresses, Canadian investors receive special protections in these other countries. Yet Canadian investors own fewer assets abroad than the corporations from these other major economies own in Canada. As a result, the financial benefits to Canadians investors are outweighed by the overall cost to Canadians.

Further, Canadian investors have a remarkably poor record when seeking compensation from the U.S. under NAFTA. They have brought 18 claims and never recovered any money. This losing streak is possibly connected to the lack of institutional safeguards of independence in the for-profit arbitration system, which raises questions about the system's usefulness for foreign investors from smaller trade partners.

Why are so many trade and investment agreements -- and the confusing acronyms they create -- being rushed through so quickly? I fear it is so voters and taxpayers won't have time to learn what they stand to lose.

 

Gus Van Harten is a professor at Osgoode Hall Law School and the author of Sold Down the Yangtze: Canada's Lopsided Investment Deal with China (Lorimer, 2015).

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