The Canada-China investment treaty sleight of hand : Beware Canadians

Howard Mann, Published: Wednesday, 01/09/2013 12:00 am EST
Since 2005, Canada has prided itself on selling an advanced model of investment
treaty to developing countries-one that, it has argued, protects their regulatory space
while still protecting investors.
Indeed, at a UN-sponsored meeting in 2009, Canada carefully explained how its new
model both protected investors and protected governments regulatory and policy
space.
The Canada-China Investment Treaty ends this model, and Canada's negotiating
partners should beware, as should Canadians.
On Jan. 1, 1994, the North American Free Trade Agreement came into force. Its
language was of its time, and it has spawned some 33 international arbitrations
against Canada. And this number continues to grow, including one initiated last
month over Quebec's decision to suspend natural gas fracking pending further
environmental study, and a further case now being threatened by big pharma if patent
litigation does not go its way.
Canada has similar investment treaties with 25 other nations; an additional 20 will be
ratified or negotiated in the coming years. Canada has not had a claim against it
under these other treaties-but Canadian companies have initiated significant claims
against developing countries, including for over $1 billion.
Arbitrators determine the outcome of claims by looking at the scope of the rights the
treaties give to foreign investors. With awards in investor-state arbitrations now
reaching over $2 billion, the language in these treaties matters. The higher the level
of investor protection, the higher the risk that new laws or regulations will be found
to breach the treaty, requiring compensation to be paid by governments.
In response to the initial arbitrations against Canada, the US, and Mexico under
NAFTA, Canada adopted a new model treaty in 2004 that updated this language. The
revised language restricted the scope of investor rights, without eliminating them-and
reduced the risk of Canada having to pay foreign investors when such measures are
adopted.
To protect these changes in investor protections, post-2004 treaties also include a
technical legal device called a forward-looking most-favoured nation provision. This
means that an investor can use higher levels of investor rights provided under another
treaty, but only if that other treaty was concluded after their nation's initial treaty with
Canada. An investor arbitrating a claim under treaty A can use stronger rights given
to another investor under treaty B, but only if that treaty was concluded later.
Allowing an investor to use an older treaty with broader investor rights under the
provision would undo the risk-reduction strategy by also making the old language
available to investors.
The Canada-China treaty puts an end to this approach. Article 8(1) contains the MFN
provision. It states that the provision does not apply to "treatment accorded under any
bilateral or multilateral international agreement in force prior to 1 January 1994."
This means it does apply to all investment agreements concluded after. So, the MFN
provision is now backward-looking instead of forward-looking.
Between 1994 and 2004, Canada concluded investment treaties with Barbados,
Egypt, Costa Rica, and Ecuador, among others, that contain the older versions of the
investor rights that were discarded by the 2004 model text.
As a result, Chinese investors using the arbitration provisions to sue Canada will
have a claim to use this older language-the same language that even our current
government did not use in treaties it negotiated between 2004 and 2011 because of
the risk it created for all Canadian governments.
This should concern Canadians concerned with issues such as the environmental
conditions on oil sands development.
With Canada now negotiating an EU investment agreement, these higher standards of
investor protection and higher risks to legitimate government measures are being
brought back into the negotiation. EU investors and governments will clearly demand
the same deal as provided to the Chinese.
Why the Canadian government has done this is unknown. To secure higher rights for
Canadian investors abroad by using this new MFN clause? To create a precedent for
negotiations with African countries? To put a brake on future environmental
regulation in Canada, especially in relation to the northern pipeline and China's
newly-acquired tar sands interests? No one knows.
But African governments should beware. Canada is aggressively seeking to negotiate
investment treaties in Africa, especially in mining countries, apparently even tying
development assistance to signing such an agreement in many cases. The government
advertises its treaties as containing well-balanced new standards. But this sleight of
hand in the MFN provision undoes that for African countries too, almost all of which
have old-model treaties as well.
If Canada demands this same MFN provision of countries such as Mali or Benin or
Pakistan or other governments it is negotiating with, Canada will be tying their hands
to provisions that limit their ability to adopt badly-needed new regulatory measures
to protect the environment, worker safety, human health, etc.
African governments should beware of this sleight of hand. Like a magician, Canada
can now sell new-style treaties and make them disappear all at the same time.
Howard Mann is the senior international law advisor for the International Institute
for Sustainable Development, specializing in international law and sustainable
development. The views expressed are his own views and do not necessarily reflect
the views of IISD.
editor@embassynews.ca

http://www.embassynews.ca/opinion/2013/01/08/the-canada-china-investment...
-sleight-of-hand/43048

Source: http://atlantic.sierraclub.ca/en/node/5734

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