A chance to end NAFTA’s pro-corporate trade tribunal
Call it dumb luck or good fortune. Canada has never had a better opportunity to get rid of the investor-state dispute settlement mechanism in NAFTA. The Trudeau government should seize it.
This private arbitration system — known as ISDS — allows foreign investors to sue governments for regulations, policies and even court decisions that hurt the profitability of their investments. Since NAFTA came into force 23 years ago, Canada has been sued nearly 40 times through the deal’s investor-state dispute settlement mechanism.
We have lost or settled more of these cases than either Mexico or the United States. In fact, the U.S. has never lost an ISDS case.
And the consequences are severe. Not only has the Canadian government been forced to pay out hundreds of millions of dollars in damages to foreign corporations, but it has also been pressured into backtracking on measures taken in the public interest. In one of the most egregious examples, the government of Canada reversed its ban on the neurotoxic gasoline additive MMT after being sued in 1997 by the U.S. chemical company Ethyl.
Since then, ISDS cases have only become more controversial and costly.
Increasingly, people and governments wonder why corporations are given such lavish protections in free-trade deals and investment treaties when they are free to slash jobs and sometimes pollute the environment with no consequences.
Now, a bizarre series of events south of the border has given Canada an unexpected chance to end this quasi-judicial, pro-corporate arbitration system.
At a recent NAFTA negotiating round, U.S. trade representative Robert Lighthizer tabled a proposal to make the ISDS system “opt in.” That means each country could choose not to subject itself to investor arbitration.
If all three countries opted out, ISDS would effectively be dead.
There are many good reasons to be skeptical of the Trump administration’s trade agenda. Its uncompromising positions on supply management, government procurement and trade remedies threaten to unravel the negotiations entirely.
But on the issue of ISDS, Canadian negotiators would be wise not to let this opportunity pass them by.
Removing ISDS from NAFTA — or killing it with an opt-in clause — would be a major win for Canada. Most importantly, our governments would no longer be at risk of costly private lawsuits in response to public-interest measures, such as environmental and public-health regulations, that have costs for foreign investors.
Canada could also use this “concession” to keep talks alive and make gains in other areas at the negotiating table. Raising labour standards and protecting public services, for example, are far more important negotiating priorities than preserving special investor rights.
As a bonus, removing ISDS — although it would not fix NAFTA — could win support from critics in the labour and environmental movements. Progressive opponents of NAFTA almost universally identify ISDS as their biggest problem with the deal.
Lobbyists for Canada’s business community will surely oppose the removal of ISDS. And why not? Investor-state arbitration gives multinational corporations powerful legal protections without corresponding responsibilities. For deeppocketed firms and investors, there is no downside to keeping ISDS in NAFTA.
But for the rest of us, the system is unacceptable. It is fundamentally unfair for foreign investors to receive special rights not available to domestic investors, let alone to ordinary citizens and workers. Especially when those rights threaten legitimate public-interest regulations.
And besides, investors who are treated unfairly don’t need ISDS. They still have access to domestic courts and can petition their governments to invoke stateto-state dispute settlement on their behalf.
Lighthizer is right when he says ISDS is a state-funded alternative to companies taking out their own risk insurance. Cross-border investment will continue, even without ISDS in investors’ back pockets.
Including investor-state dispute settlement in NAFTA was a mistake.
Presented with the opportunity to remove ISDS, the bigger mistake would be to keep it.
Investor-state arbitration gives multinational corporations powerful legal protections without corresponding responsibilities