Author Archives: Lawrence Herman

About Lawrence Herman

Counsel on International trade and investment, global business transactions & public policy

ISDS Redux: Canada Loses – But Very Little

It’s been reported that a NAFTA investment dispute panel has ordered Canada to pay $17 million in compensation to Exxon-Mobil and Murphy Oil due to changes to the  to the Canada-Newfoundland Offshore Petroleum Board Guidelines governing offshore oil and gas development on the continental shelf off Newfoundland and Labrador.

The award isn’t public as yet, but the story leaked out and was featured in a recent issue of the Investment Arbitration Reporter.

The arbitration was launched by the two oil companies as a result of Guideline changes in 2004, requiring them to make additional R & D expenditures in the Province.

The challenge was grounded in NAFTA Article 1106, which prohibits Parties from imposing local purchase and performance requirements on investors within their territory. The changes in the Guidelines were claimed as beyond the permissible NAFTA allowances.

There are several things to note about the proceedings, notably that the $17 award is substantially less than the $60 million plus interest and costs claimed by the companies.

While we don’t know whether the substantial arbitration costs (arbitrators’ fees and administration, etc.)  will be charged 100% to Canada or whether they will be shared, an award of that amount will likely be eaten up by legal fees alone, incurred over the almost eight years since the claim was filed.

So it’s questionable how much the companies have really gained in all of this, illustrating the risks in pursuing investor-state litigation .

The other interesting element is that the award is against Canada – that is, the federal government – as the NAFTA respondent. Whether Ottawa will recover part of the $17 million from the Province is uncertain. In a prior NAFTA case initiated by Abitibi-Bowater in 2006 over Newfoundland’s expropriation of the company’s assets, Ottawa settled the case by paying $130 million in compensation to the company.

Even though the litigation there involved a Provincial expropriation measure, Newfoundland has apparently refused to repay any of the settlement amount to the Federal government. While this is a different situation in that it concerns a joint Fed-Prov agency, whether Newfoundland coughs up any of the money remains to be seen.

Here We Go Again, Maybe – Trade Disputes Looming

Just when there was some feeling that the old Canada-US trade wars of a couple of decades back were really at an end, there are new and darkening clouds on the horizon.

The first bit of gloom is in softwood lumber, a dispute that’s been off the front burner for a while under a bilateral agreement with the Americans, allowing Canadian lumber imports over a stipulated price and suspending any trade case being launched by American producers.

That agreement expires in October of this year. As Barrie McKenna wrote on 8 March 2015 in the Globe and Mail, there are rumblings in Washington that the US industry won’t agree to its renewal.

Without that agreement, American producers will be free to file a new trade case again Canadian exports. Chances are, they will.

The numbers make a new dispute inevitable. Look at it this way.

Canada’s annual market share in the US is over $8 billion. By forcing Canadian producers off balance in fighting a trade case, win or lose, the US softwood industry will come out ahead.

With a new Commerce Department investigation, gaining a mere 1% at the expense of Canadian imports equals $80 million annually in the Americans’ pockets. Why not pay a Washington law firm just half of that to bring on a new case?

The second gathering storm comes from a new petition just filed by US paper producers, arguing that Canadian imports are both dumped and subsidized. The target is Canadian exports of soft – or supercalendered – paper used to print magazines, catalogues, flyers and the like. The target companies are exporting industries in the Maritimes, Quebec and BC, so it has a cross-Canada impact.

Part of the US industry’s petition is that Canadian manufacturers benefit from low stumpage rates, just like the allegation in the softwood lumber dispute.

So here we go again.

While it’s expected that the Canada-US border won’t always be friction free, given the amount of bilateral trade involved overall, these two cases are cause for some re-evaluation. It shows that no matter how closely integrated the two economies have become under the NAFTA, when it comes to trade litigation, the border is still very much there.

Canada-EU Agreement – A Newfoundland Fish Tale

Op-Ed published in The Globe and Mail on January 28, 2015

Lawrence L. Herman, principal at Herman and Associates, practises international trade law and is a senior fellow at the C.D. Howe Institute in Toronto.

It’s happening again.

In the early 1980s, Canadians witnessed the sorry spectacle of provinces roaming around Westminster, cap in hand, lobbying British politicians to save them from their own federal government in its move to patriate the Constitution.

It was a sad chapter in Canadian political history, provinces invoking Britain’s role as colonial master, asking Britain to save them from their own federal government because the provinces couldn’t settle internal differences with Ottawa by their own means.

This time, it’s Newfoundland complaining about a fisheries compensation deal with Ottawa that’s supposed to help ease adjustment once the Canada-EU trade agreement (CETA) comes into effect.

So piqued is the province that it’s withdrawn support for the trade agreement and is going around European embassies in Ottawa, complaining that the feds can’t be trusted and asking foreign governments to support Newfoundland’s cause.

As in the patriation episode some 35 years ago, we have a Canadian province asking foreign governments to save them from their own unfeeling government in Ottawa.

Apparently, Newfoundland government ministers are even heading to European capitals to voice opposition to CETA and continue the lobbying.

The mind boggles. This is, after all, an agreement that provides substantial market gains for Newfoundland and all other exporting provinces. As if Canadians can’t sort these disagreements out themselves.

Newfoundland’s action is both unhelpful and dangerous. Unhelpful because it undermines critical political support for the agreement on the other side of the Atlantic.

Dangerous because at this sensitive juncture in the European Union’s internal procedures, it could put the entire treaty ratification process at risk.

Until now, Canada could pressure the Europeans to move ahead with CETA ratification, pointing out that Canada had its ducks in order. But Newfoundland’s gambit gives the Europeans an argument to go slow on ratification. Why should they move ahead if Canada hasn’t sorted out its own internal problems?

Newfoundland’s position is also legally off-base. Constitutionally, the federal executive (Prime Minister Stephen Harper’s cabinet) has the exclusive authority to negotiate, sign and ratify international treaties. Parliament alone can pass the necessary legislation to give a treaty international legal effect, binding on Canada as a whole.

Provinces have no constitutional voice in that process. It’s true that federal-provincial practice has meant that provinces have been consulted and in some cases involved directly, but as a legal matter, they have no role in negotiating and ratifying international agreements.

This means that once the federal government, under its exclusive authority, signs and ratifies a treaty, Canada is bound under international law. What happens then?

A province could decide not to comply with treaty obligations – but it’s unclear whether provincial laws can legally violate Canada’s international treaty obligations.

Suppose the federal government moved ahead and ratified CETA without Newfoundland’s consent. If Newfoundland then refused to recognize the EU’s treaty rights, Ottawa might challenge that in the courts and may well prevail on constitutional grounds.

The other, more plausible scenario is that the EU would invoke binding arbitration against Canada for breach of the treaty. If the EU succeeded and Newfoundland still refused to comply, the EU would have the right to retaliate. They would do that by applying prohibitive duties on Canadian exports. Those duties would target Newfoundland’s own fishery products.

The CETA, of course, provides tariff-free access to the huge EU market and many other benefits for exports of Canadian goods and services. This includes seafood and other exports from Newfoundland. So in the end, Newfoundland would be the big loser.

That’s why the Newfoundland seafood processors and other business groups in the province have come out against their government’s actions.

Let’s stand back for a moment and accept that there may be some legitimate differences over the compensation to be paid to Newfoundland as a result of the CETA. Fair enough. But the proper response is to settle those issues internally, among Canadians.

The wrong course is to parade the disagreement among our European partners. Not only does that put the CETA ratification process at risk on both sides of the Atlantic, it portrays Canada as a less-than-reliable negotiating partner that can’t get its own team in order.

 

Countering the Aggressive Reach of US Law

The broad and aggressive out-reach of US law has again reared up in Canada.

This time it’s Buy America and the requirement that the Prince Rupert ferry upgrade must use US steel. It shows how Canada can be sideswiped by the American approach in legislating with intended global effect.

In this case, a rapid Canadian response is called for. The December 16 editorial in the Globe and Mail is right on point.

The US Buy America requirement is a carve-out from that country’s obligations under the WTO Government Procurement Agreement. Because that is a “bottom-up” agreement, it means that governments are allowed to list only those procurements that are covered by the GPA’s obligations– and as well those that are not.

So the US excluded all government procurements subject to its Buy America requirements, including all transportation infrastructure projects that get US government funding. Recipients of that funding must only use US goods in their projects, meaning any port terminal projects benefitting from these subsidies.

And since the Prince Rupert terminal, leased to an American operator, wants access to these funds, the condition is that all steel used in the project has to be of US origin.

It wasn’t really intended that Buy America would apply outside the geographical limits of the United States. But it happens that these foreign projects actually do qualify – as apparently would a US operated port facility in Asia, the Middle East or elsewhere.

Unintended or not, the effect is unacceptable when it comes to Canadian projects and the government must take appropriate counter-measures. You may have seen my comments in a piece by Barrie McKenna in the December 14 edition of the Globe and Mail on this very point.

Canada has a law called the Foreign Extraterritorial Measures Act, a more-or-less dormant piece of legislation that was passed by Parliament in the 1985, mostly to counteract the effect of US laws that required American subsidiaries in Canada to comply with the US trade embargo of Cuba.

Canada has no prohibition on trading with Cuba and it was – and is – considered unacceptable for American laws to try to prevent someone in Canada from doing something that is perfectly legal here.

To prevent that, FEMA prevents any Canadian-based company and any person in Canada from complying, directly or indirectly, with the American trade embargo of Cuba.

In more technical terms, statute says that where Canada’s justice minister determines that a foreign state has taken any trade-related measure that (1) “has adversely affected or is likely to affect significant Canadian interests . . . involving business carried on in whole or in part in Canada” or (2) “otherwise has infringed or is likely to infringe Canadian sovereignty”, the justice minister, with the concurrence of Canada’s foreign minister, can issue an order preventing the application of that foreign measure in Canada.

Under those provisions, the government enacted the Cuban blocking order in 1992, making it an offence for any one in Canada to comply, directly or indirectly with the American trade embargo of that country.

No criminal prosecutions have been taken under the blocking order since its enactment. But it continues on the books and it happens that from time to time Canadian companies get caught up in the prohibition against following the US embargo.

While the issue is not the same in the Prince Rupert affair, it would be perfectly in line with the objectives and the statutory language of FEMA for the government to pass an order similar to the Cuban blocking order, preventing Buy America rules having any direct or indirect effect here. It would require Mr. McKay, as justice minister, to make a determination that these Buy America rules infringe Canadian sovereignty and, with Mr. Baird’s concurrence, to issue the necessary blocking order.

Of course, there’s more than technical points at stake here. The issue has broader Canada-US dimensions. Action under FEMA will also affect the redevelopment of the Prince Rupert facility – although the $15 million sacrifice can conceivably be made up with Canadian infrastructure money. This will clearly require the Prime Minister’s sign off before any such action can be taken.

But as the Globe editorial has got it right. Canada must respond and FEMA offers the road map for that response.

 

The Investor-State Dispute Controvery

I just published a short article on the current controversy regarding the rights of investors to invoke binding dispute settlement  proceedings again host governments. This is known as Investor-State Dispute Settlement or ISDS and is enshrined in hundreds of bilateral investment protection treaties around the world.

The issue has recently come to the fore with comments by German government representatives indicating opposition to these ISDS provisions in the recently-concluded trade and economic agreement between the EU and Canada. The newly-elected President of the EU and the new EU Trade Commissioner have also voiced misgivings over these special rights for private investors.

My article looks at those issues and suggests a couple of ways to meet these concerns. One is to allow for appeals from arbitration decisions, so that there is at least some recourse to a higher body where one side or another disagrees with the decisions of arbitration panels. The other is to institute permanent arbitration panels, to eliminate the ad hoc nature of these proceedings.

These don’t answer all the concerns being voiced. However, within the current framework of investor protection agreements, I suggest that this is a feasible approach for governments to examine.

To see my article click here.

Canada-China Investment Treaty Wont Open Floodgates

Here is a commentary of mine that was published in the Financial Post on October 2, 2014.
To see the actual FP piece, click here.
October 2, 2014

China investment treaty no sell-out

Special to Financial Post

Lawrence L. Herman: Predictions of doom over the Canada-China deal aren’t borne out by real-life experience

Predictions of doom over the Canada-China deal aren’t borne out by real-life experience

The Canada-China investment treaty – what Canada calls a Foreign Investment Protection Agreement or “FIPA” – officially entered into force yesterday.

The treaty has been opposed by a number of interests groups, mostly on the left of the political spectrum such as the Green Party and the Canadian Centre for Policy Alternatives. One of their main targets is the investor-state dispute settlement (ISDS) provisions of the treaty.

Opponents claim that ISDS amounts to a sell-out by governments, giving a huge advantage to foreign investors by enshrining the right to bring binding arbitration against host governments that allegedly infringe the treaty, thereby thwarting policies or legislation enacted for genuine public policy reasons.

They argue that increased investment by Chinese enterprises means it’s only a matter of time before a Chinese investor initiates a dispute against Canada or one of the Canadian provinces for measures that it doesn’t like because it has some impact on its Canadian assets.

The reality is that the Canada-China FIPA is merely the last in line of almost 3,000 bilateral investment protection agreements around the world. Many hundreds of these contain ISDS provisions of one sort or another.

The implication in the opponents’ arguments is that dozens of governments from countries large and small, rich and poor, don’t know what they’re doing and have unwittingly signed away their rights to regulate by giving arbitration advantages to foreign investors, often being large and deep-pocketed corporations from rich industrialized countries like the United States.

While there are some aspects of the ISDS process that could be improved on, overall the oppositions’ arguments are highly overblown.

For one thing, China already has, believe it or not, bilateral investment agreements with over 70 countries, going back to the mid-1980s, including with a number of European countries, such as Switzerland, Austria, Germany and the United Kingdom. These agreements, particularly the more recent ones, contain ISDS clauses not much different than those in the Canada-China FIPA.

For example, the 2010 China-Switzerland and the updated 2003 China-Germany agreements contain full-scope ISDS provisions, just like the agreement with Canada, allowing Chinese investors the right to invoke binding arbitration for alleged breaches under the treaty, including allegations that the right to non-discrimination and “fair and equitable treatment” have been infringed.

So the Canada-China FIPA simply follows a 20-year-plus history of China’s bilateral investment agreements with other industrialized countries. Although it’s more detailed than some of these, the basic thrust of the Canadian FIPA is in line with China’s investment protection treaties since the mid-1990s.

There is no doom and gloom here. There isn’t anything in our FIPA with China that’s wildly out of line with investment protection treaties that China has with a host of other industrialized countries.

Another argument against the China FIPA is that it will unleash a litany of arbitration claims by aggressive Chinese companies, claiming that this or that regulation harms their Canadian investments and somehow breaches Canada’s treaty obligations.

Again, that argument is highly dubious. With more than 70 Chinese bilateral investment treaties, some over 20 years old, there is only a single registered arbitration claim by a Chinese company, a case involving financial services regulations in Belgium. While this doesn’t necessarily foretell the future, the record suggests that a flood of Chinese investor arbitration claims is just not going to happen.

One of the overlooked gains in the Canada-China FIPA is that China is now legally bound to strict standards of conduct toward Canadian investors, such as non-discrimination, “fair and equitable treatment” and rules against expropriation without full compensation.

Some argue that this is a sham, that Canadian investors won’t be able to successfully challenge unfair Chinese measures because of the opaqueness of the Chinese system. In other words, the investor playing field isn’t level.

To the extent there is merit in these arguments, they miss a vital point. By signing on to the deal, China becomes legally bound to Canada to accord a defined standard of treatment to Canadian investors. Quite apart from the whole ISDS debate, if the Chinese government or any one of its sub-units fails to live up to these obligations, the Canadian government can invoke dispute settlement proceedings against China directly.

The symbolic – let alone the legal – value of China’s investment treaty with Canada is therefore of immense importance. It binds the two countries legally and morally to a system of rules.

While there are aspects of the standard ISDS model that merit closer examination and possibly improvement, the broad sky-is-falling attack on the Canada-China FIPA is wide of the mark.

Lawrence L. Herman, Herman & Associates, practices international trade and investment law and policy and is a Senior Fellow of the C.D. Howe Institute, Toronto.

Canada and Europe – The Road Ahead for CETA

Prime Minister Harper and EU President Barroso have signed the formal text of the Canada-EU Comprehensive Economic and Trade Agreement (CETA).

Don’t be surprised when I tell you that this isn’t the final step. It isn’t.

Under the Law of Treaties (yes, there is such a thing) signature by authorized representatives is a necessary first step that signifies acceptance of the treaty as negotiated. But signature isn’t the same as ratification. Treaties have to be formally ratified to enter into force and become binding under international law.

What is Ratification?

Ratification requires each party to first take all the internal steps needed to implement treaty obligations within their own laws. Only when all of that is done, is each side be in a position to ratify.

As one simple example, in the case of the CETA there are reductions in duties on imports from each side. So Canada will have to amend its Customs Tariff to reduce duties on EU products. The same is true for the EU. And there are host of other legislative changes needed before both sides are in a position formally ratify the agreement.

This requires bills to be tabled and approved by Parliament. All this will take time and won’t likely be completed until sometime in 2015.

Once all the legislation is in place on the Canadian side, an order in council will be passed by the Governor-in-Council (i.e., by the federal cabinet) allowing an instrument of ratification to be issued. There will then be a formal exchange of these instruments with the EU, following which the treaty then enters into force and becomes legally binding on both parties.

Parliamentary Approval

Under Canada’s constitution, the executive branch (i.e., the Federal cabinet) has full authority to negotiate, sign and ratify treaties. There is no written constitutional requirement for the treaty itself – as opposed to specific statutes – to be approved by Parliament.

In recent years, it’s become the practice to seek Parliamentary approval of major international agreements, as was done with the NAFTA. Whether the Harper government will request Parliamentary approval of the CETA is uncertain but it is expected that this will be done.

But Parliamentary approval on its own doesn’t bring the treaty into force in Canadian law. It merely signifies that the legislative branch has approved the treaty in principle. For the treaty to be given legal effect and for Canada to be able to implement treaty obligations, as noted, legislation will be needed.

Situation in Europe

In the case of the EU, the situation is different. Under the Lisbon Treaty, once the EU Commission concludes a major treaty (i.e., one with significant financial consequences), it requires approval of the European Parliament. Once approved, that treaty then binds all EU member states and the Commission can enact the necessary regulations to implement it.

The Commission is taking the position that there is no need for CETA to be approved by each of the EU’s 28 member States. However, some members of the European Parliament (MEPs) and some interest groups have been claiming that the CETA is a so-called “mixed agreement” under Lisbon and legally requires the approval of each EU member state.

If this becomes necessary – and it’s far from certain it will be – it will enormously complicate matters on the other side of the Atlantic. Apart from its impact on the Canadian deal, it will signal to the Americans that successfully doing a deal with the EU is highly uncertain.

The Role of the Provinces

What about the Provinces? What do they have to do for Canada to be able to ratify CETA?

The short answer is nothing. No provincial approvals or legislation will be needed ahead of Canadian ratification. This was true in the case of the NAFTA and it’s true for CETA as well.

All the provinces have been privy to the CETA negotiations and have given their political approval to the deal. None of the recent electoral changes in the provinces, such as in Quebec or New Brunswick or even in Alberta, have changed the landscape as far as CETA acceptance is concerned.

Leverage

Once ratified, the CETA becomes binding on Canada as a whole vis-à-vis the European Union. If any provincial law is inconsistent with the treaty, the EU – or an EU investor – can bring binding arbitration against Canada. Should the EU succeed and the provincial measure not be changed or repealed, the EU can retaliate, targeting goods exported from that particular province.

So even if the CETA doesn’t require provincial measures before ratification, there is leverage to ensure provincial compliance. It’s safe to expect that all the provinces will take the necessary steps to comply with treaty obligations one way or another.

Time Factors

As is abundantly clear, implementation of the CETA won’t happen tomorrow. The interesting question is whether it will be in force before the next Federal election in 2015. What if it isn’t and there is a change of government?

If history is any guide, political changes in Canada shouldn’t change things. It would be a dramatic step for a country that signed an international treaty to refuse to implement it after a change of government. However, it has happened before.

The danger isn’t on this side of the Atlantic. The situation to watch is on the European side.

 

Investor Arbitration and Public Regulation

On August 27, 2014, a NAFTA panel dismissed a claim by the Canadian pharmaceutical company, Apotex Inc., that had argued that the US government had breached the non-discrimination clauses in the Agreement by issuing an Import Alert over the company’s Canadian drug manufacturing processes.

In 2008 -2009. the US Food and Drug Administration had inspected Apotex Inc.’s manufacturing facilities in Ontario in response to complaints about the safey of certain Apotex products sold in the US. The inspections revealed alleged deviations from what FDA regarded as good manufacturing practices. The FDA placed the company on “Import Alert”, meaning that its drugs could be detained at the border by US customs officials. The Apotex facilities were removed from the Import Alert in 2011.

In February 2012, Apotex initiated NAFTA arbitration against the US government, claiming that the Import Alert violated US obligations under NAFTA Chapter Eleven to accord Apotex and its investments national and most-favored-nation treatment. Apotex also claimed that the FDA adopted the Import Alert without due process, in violation of the customary international law minimum standard of treatment.

The story was picked up by Barrie McKenna of the Globe and Mail, who sought out my views on the significance of the panel decision. Below is an extract from his article.

Tribunals have generally been very reluctant to undercut the right of countries to take actions for legitimate public policy purposes, pointed out Lawrence Herman, a Toronto trade lawyer.

A 2011 NAFTA panel similarly upheld Quebec’s right to restrict the use of certain pesticides.

“These decisions show that governments have a legitimate right to protect the health and safety of their citizens,” he said. “And if it isn’t a biased measure and has sound scientific underpinnings, they won’t interfere. The sky-is-falling rhetoric that we’ve heard is highly exaggerated.”

A win by Apotex in the case would not have affected the right of the FDA to act, but could have forced it to pay compensation.

Those cases are now part of the jurisprudence that panels would look to in the future, including any stemming from the Canada-Europe free-trade agreement, Mr. Herman argued.

“There is no doubt that panels established under [the Canada-Europe free trade agreement] would look to the jurisprudence worldwide,” he said.

Mr. Herman also pointed out that more restrictive rules will make it much more difficult for companies to sue under the Canada-Europe deal than under NAFTA.

 

 

CETA Drama – Ho-Hum

There was flurry of media excitement last week over the leak in Germany (on August 14th) of an unofficial and incomplete version of the Canada-EU economic and trade agreement (CETA). But not much real drama. In fact, public and business reactions in Canada have been quite tame.

Leak Was Expected

As the final drafting by officials came to an end, it was expected that the text would be leaked sooner rather than later– and more likely in Europe, where there are many more officials involved in EU headquarters in Brussels than in Canada. The PMO exercises much stricter controls over these sorts of things. At EU headquarters, there are many possible outlets for leaking these kinds of documents.

No Surprises – So Far

From the moment negotiations began, it was clear that the Canada-EU deal would be a massive treaty, much farther-reaching than the NAFTA. It’s really an epic document, a modern treaty with a lot of beyond the border stuff.

While the value of two-way trade and investment is far less than with the US, the breadth and depth of the CETA makes the NAFTA look like a bit of a novella in comparison.

Last week’s leaked version seems pretty close to what is likely to be the final treaty text. It seems basically consistent with the Agreement in Principle summary issued by the Harper government last October.

The devil is always in the details and those details obviously will warrant careful examination. But on a cursory review, there are few if any surprises in the leaked text. There are provisions for enhanced patent protection for pharmaceuticals as disclosed in the October 2013 summary, as well as more protection for geographic indications, more coverage for procurement at the national and sub-national levels, more detailed rules on investor-State dispute settlement (ISDS) and so on. This is only an unofficial document, however, and more is to come.

Road to Ratification

It will be important to examine all of this carefully when the official text is finally released. That is still a long way off. Some media reports had suggested that the final text would be signed at the Canada-EU summit on September 25th in Ottawa. But the PMO press release certainly didn’t go that far, stating clearly that even though officials have finished their final negotiations,  the CETA still requires a full legal review and translation into many EU languages.

When it will be officially signed remains to be seen. Signature and ratification are distinct steps in treaty-making. Ratification and entry into force could take another year even after formal signature. The treaty will have to be tabled in Parliament and referred to a Commons committee for examination before formal ratification.

During that process, there will be ample opportunity for debate and public discussion, even if this will not result in any parts of the text being amended or re-negotiated. A majority government in Ottawa ensures that, at the end of the day, Parliamentary approval for Canadian ratification is a foregone conclusion.

Not so in Europe. While the Lisbon Treaty gives the EU Commission authority to negotiate trade agreements, when it comes to implementation, it’s not clear whether the CETA comes under the exclusive jurisdiction of the Commission and the European Parliament. If it’s determined that CETA implementation involves shared jurisdiction with the twenty-eight EU member countries – what’s called a “mixed agreement” – it will require legislative approval by each of those countries.

I expect that this issue will be a hotly contested one in the EU. The German opposition to ISDS disclosed last month is a shot across the bow. There is the possibility of litigation before the European Court of Justice on this issue.

My prediction is that even after the fanfare surrounding the Canada-EU summit this September, the road to ratification will be long and bumpy, particularly on the other side of the Atlantic.

Russian Trade Roulette

The current cavalcade of sanctions and counter-sanctions in the Russian-Ukraine crisis ultimately involves issues of trade rules under the WTO Agreement. I commented on this in an op-ed piece in the Globe and Mail today (August 8, 2014), my view being that, contrary to the Russian threat, it’s Russian trade retaliation against the West, including Canada, that’s illegal under WTO rules.

To read my op-ed piece, click here.

Russia had the temerity to suggest in late June that Western sanctions were in contravention of the WTO Agreement. It threatened to litigate the matter in Geneva if the sanctions weren’t lifted.

Contrary to the Russian bluster, it’s Russia that is in breach of WTO obligations, by imposing retaliatory trade actions in a crisis that Russia itself is responsible for.

Under WTO rules, governments can take extraordinary trade measures considered “necessary” to protect their essential security interests in cases of “emergency in international relations”. While this is a very broad escape clause and allows governments to self-define what they consider necessary, it doesn’t allow trade actions where it’s the country itself that has caused the emergency in the first place.

So if the Russians persist in taken the case to the WTO, the Western countries, including Canada, should respond by challenging the Russian retaliation action itself as a gross breach of WTO rules — and demand compensation for the economic impact. Those Russian counter-measures represent political gamesmanship and are indefensible under international trade law.

August 8, 2014