Investment Disputes – Hot-Button Topic

By | August 6, 2015

I confess I’m not a fan of the Canadian Centre for Policy Alternatives. I find much of their stuff to be ideologically-driven and one-sided. I’m put off by their anti-free trade rhetoric and their congenital hostility toward the WTO and liberalized trade generally.

As a believer in the progressive development of international law, I don’t agree with those that dismiss the efforts of the global community to conclude legally-binding codes of conduct, whether in trade or other economic matters.

But I must say, the CCPA’s August 2015 report on Investor-State Dispute Settlement – “A Losing Proposition – The Failure of Canadian ISDS Policy at Home and Abroad” – is an interesting document.

Whether one agrees with its overall conclusion, and while some of its analysis can be questioned, it makes a useful contribution to the growing debate over ISDS. It’s definitely worth reading.

After reviewing the recent history of investment disputes involving Canadian investors around the world, the report says that Canadians have lost a high percentage of those cases. It concludes that ISDS hasn’t been particularly helpful in that regard and dismisses its utility as an instrument of Canadian policy.

In the reverse situation, it notes that Canada has been targeted in more investor-driven arbitrations under the NAFTA than the US and Mexico combined – a valid point. Because arbitrators found against Canadian environmental regulations, notably the recent Clayton/Bilcon decision, the report says Canadian policy in signing investment protection treaties is wrong-headed.

Typical of opponents of investor arbitration, there is questionable use of some of the data and the historical record in the document.

It throws in the Abitibi-Bowater settlement of $130 million in the list of NAFTA cases Canada has lost, when in fact that was a negotiated settlement and Newfoundland had made it clear at the very outset, when it expropriated Abitibi’s assets, that it would pay compensation.

Apart from the recent NAFTA panel award in the Clayton-Bilcon case where the damages haven’t yet been assessed, the amount paid out by Canada under NAFTA awards is less than $20 million, in comparison to the hundreds of millions of dollars claimed by disputing investors.

In typical CCPA fashion, the report raises the spectre of Canada being threatened in future investor claims under the NAFTA and other bilateral investment treaties, predicting that Canada will come under assault in a range of public policy areas, including environmental and public health and safety measures.

In its selective use of the record, the report doesn’t mention important NAFTA cases Canada has won such as Chemtura Corporation v. Canada, where the arbitrators dismissed the claim involving Canadian pesticide regulations, saying nothing in the NAFTA prevented governments from legislating or regulating for the public good. Or Dow Agrosciences v. Canada, where the case was withdrawn, the company conceding the right of Quebec to regulate the use of 2,4-D.

That being said, and whether one agrees entirely with its overall thesis, the report raises legitimate questions about the value of ISDS for Canadian investments abroad, given the record of Canadian losses over the last decade or so. Whether or not the scorecard is 100% accurate, it’s a valid question.

The irony is that, by pointing to the number and scope of unsuccessful Canadian investor arbitrations against foreign governments, the report implicitly recognizes that arbitrators have tended to side with governments as opposed to foreign corporations.

With those reservations, I find the report to be a useful document. It addresses growing interest – and concern – in the legal and trade policy community about the dramatically increased use of investment litigation and the enlargement of the scope of measures that are being challenged, not only in Canada but around the world.

Parenthetically, I guess when an investment treaty is concluded where governments say to corporations “You can sue me”, it’s not hard to understand why that option is taken advantage of.

The real shortcoming in the report is that it doesn’t come to grips with the central challenge governments are facing. With over 2,500 or so of these investment protection treaties around the world, it’s impossible to roll them back, cancel and re-negotiate them. Governments could choose to abrogate these treaties en masse but that just isn’t going to happen.

So what’s the solution? What can be done to re-calibrate ISDS going forward, to improve the process, enhance procedural transparency and, importantly, to allow appeals from arbitration decisions on matters of law?

The debate in legal and policy circles has taken us to the point where there is a fair degree of consensus over need re-balance ISDS, between the interests of foreign investors to be safeguarded against arbitrary governmental measures and the legitimate right of governments to legislate for the public good.

That’s really what we need to be talking about.


There was an article about the CCPA reports in the August 5 edition of Embassy where I offered some comments. Click here