5.15.1 Investor-State Agreements (FIPAs)

While investor-state agreements are sometimes associated – or even confused – with free trade agreements, they are not the same. A trade agreement opens up areas, or sectors, of national economies to allow other countries access. An investor-state agreement is different. For example, the Canada-China Investment Treaty did not open any new sectors to trade. China still refuses foreign investment in its energy sector – while it makes major purchases of Canadian energy companies.

An investor-state agreement gives a foreign company (an “investor”) the right to seek damages from a country (a “state”) in private arbitrations. These are not court actions, although the word “sue” is often used. These are claims for damages arbitrated by a panel of three arbitration lawyers – usually in a posh hotel room somewhere. The first investor-state agreement in the world was Chapter 11 of NAFTA. In the late 1990s, an attempt was made through the OECD to extend Chapter 11 principles to all industrialized countries. The OECD proposal was called the Multilateral Agreement on Investment (the MAI). In what is viewed as the first global citizens’ campaign using the internet effectively, the MAI was defeated. The pro-MAI community then turned to advancing bi-lateral investment treaties. These are generally referred to as “FIPAs” standing for Foreign Investor Promotion and Protection Agreements. Hundreds of these FIPA agreements now exist, crisscrossing the globe with treaties that are, by their very precepts, fundamentally antithetical to democracy.

As referenced above, Chapter 11 of the North American Free Trade Agreement was the first investor-state agreement in the world. It would prove to fundamentally erode a government’s ability to enact laws, regulations, and policies that protect its environment or the health of its citizens. In particular, insufficient attention has been paid to an analysis of the arbitrations under Chapter 11 of NAFTA. Canada has been subjected to arbitration complaints numerous times by U.S. corporations. Canada has never been successful when we are brought to a Chapter 11 tribunal. We have paid out millions for banning a neuro-toxic gasoline additive (to MMT’s manufacturer Ethyl Corporation in Richmond, Virginia), as well as repealing our own law, for banning the export of PCB contaminated waste (to S.D. Myers – a PCB incineration company in Ohio), to Abitibi-Bowaters for actions by the Newfoundland government in attempting to keep that forest industry giant to the terms of its contract when it pulled out of the province.

The worst decision under Chapter 11 arbitration was likely the 2015 decision against Canada in favour of a basalt-mining company from New Jersey, Bilcon. Thanks to expert testimony in favour of Bilcon from an NDP MP, the arbitrators decided in a 2-1 decision that the environmental assessment panel had been unfair to Bilcon.  The sole dissenter, and lone Canadian on the panel, Professor Don McRae of the University of Ottawa Law School, argued the decision will undermine environmental assessment law in Canada permanently. He described the ruling as “a significant intrusion” into Canada’s domestic jurisdiction.

On the other hand, when Canadian companies have sought to rely on Chapter 11 of NAFTA to sue the United States, not one company has ever succeeded. This is the pattern of the growing reliance on these FIPAs – arbitrators are neither fair nor neutral. A clear pattern exists globally that the larger economic power almost invariably succeeds.

“When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all [...] Three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament.”

Juan Fernandez-Armesto, arbitrator from Spain

In what will be regarded by historians as Stephen Harper’s single largest betrayal of Canada’s interests, he rammed through, without a vote in Parliament, a FIPA with the Peoples’ Republic of China. This agreement is particularly disturbing. It is worse than NAFTA in several ways:

  1. NAFTA can be exited with six months written notice; the investment treaty with China is in force for 15 years, then Canada or China could give a one year written notice to exit, but all existing investments would be covered for a further 15 years (31 year ‘lock-in’);

  2. Even though it is egregious that U.S. (or theoretically Mexican) corporations can bring multi-million dollar claims against Canada for laws passed with no intent to discriminate in trade terms, the “investors” from China are not individual corporations. State Owned Enterprises of the Peoples Republic of China are all branches of the government, with boards and CEOs appointed by the politburo of the Communist Party of China;

  3. Under the Canada-China FIPA all claims begin with six months of diplomatic efforts to resolve the dispute. Under such a provision, the larger economic party – China – with all its corporate activities under central control will be able to link all its investments in Canada into a serious threat for economic retaliation. This is not something a U.S.-based firm would be capable of doing under NAFTA, and, in any event, a diplomatic process is not part of NAFTA.

  4. Under the Canada-China investment treaty none of the claims made or arbitration decisions are required to be made public. While Canada’s government is permitted to tell the Canadian public about disputes, there is no requirement that it do so.

Green Party MPs will:

  • Immediately press for a re-opening of the Canada-China FIPA, asking the Peoples’ Republic of China to allow a re-negotiation;

  • Be prepared to insist on maintaining any laws to which the Peoples’ Republic of China objects if those laws are passed to repair the damage done by Harper’s omnibus budget bills, even if that means paying out significant arbitration awards to China;

  • Ensure that Canada stops entering into FIPAs with any more countries or trading blocs (CETA, TPPA, etc.);

  • Open a global dialogue to rescind all existing bi-lateral FIPAs between and among all countries to rebalance corporate rights and domestic sovereignty;

  • Negotiate a new Multilateral Agreement on Corporate Rights and Responsibilities. The effort from 1995 to 1998 to negotiate a Multilateral Agreement on Investment in the OECD failed as it lacked balance. The Green Party of Canada, working with Green Parties around the world, will press for new global negotiations to create a level playing field for multinational corporations and uphold countries’ sovereignty. The template will be based on the European Union’s (EU) in which no country’s environmental and labour laws can fall below the very most rigorous of any EU state. By ensuring that all corporations in the world must adhere to minimum standards to protect children, the environment and labour rights, no company could gain competitive advantage by trampling on these fundamental elements of responsible corporate citizenship.