CIIT Committee Report

Supplementary opinion of the Bloc Québécois

POLITICAL SOVEREIGNTY versus PROFIT ENTITLEMENT

Background

The Bloc Québécois considers social justice, workers’ rights, public health and the environment to be its top priorities. As such, it cannot defend systems that are clearly at odds with those priorities.

As a sovereignist party, we cannot support seeing political sovereignty and the right to collectively make our own decisions being threatened by multinationals.

That is why we had the Standing Committee on International Trade study the implications of the investor-state dispute settlement (ISDS) mechanism. Both major Canadian parties are strongly in favour of such mechanisms, so the selection of witnesses reflected the composition of the Committee.

Foreign investor protection clauses have been extremely important to the rise of neo-liberalism in the decade following the end of the Cold War as a legal tool to undermine the state’s ability to act by raising the ever-present threat of litigation by foreign companies.

The origins of ISDS may very well lie in the ICSID Convention, which was adopted in the mid-1960s, while European bilateral investment treaties were being negotiated and signed from the late 1950s and into the 1960s and 1970s. However, its proliferation in free trade agreements undeniably follows the implosion of the USSR, when the United States seemed to be the only global power.

The most striking attempt to establish a supranational law, based on the idea of investment free of geographical, temporal and political constraints, is the Multilateral Agreement on Investment (MAI). In 1998, the MAI, the result of secret negotiations by the 29 member countries of the OECD, ultimately failed by a narrow margin, due to the withdrawal of France. The MAI was intended to promote the free movement of capital and required the signatory states to comply with several conditions pertaining to investors, who were defined as asset holders, including all financial investors (speculators, holders of securities and intellectual property rights, etc.), with absolutely no requirement that the investment be necessarily productive, meaning that there would be no requirement to create jobs, build factories or engage in any economic development. Investors were presented in the MAI as simply private individuals, which obscures the weight of multinationals. This meant that capital was restricted solely to obtaining and growing profit. Almost all of the obligations that signatory states had were to investors, as countries were required to avoid any activity that might harm investment. The application of the MAI was subject to a supranational body that took precedence over the legal systems of the signatory countries. States were not directly represented in the arbitral tribunal, nor did they have the power to appoint its members.

The MAI thus challenged national sovereignty by threatening to overturn several laws, including those affecting less developed regions, employment and the environment. But the MAI also allowed the “investor” to sue governments when they engaged in “protectionism.” Countries could also be held liable by a company for any practice that might harm the company’s business. Many scholars have expressed concern about the vagueness of this requirement, fearing that it opens the door to all kinds of abuses, believing that the MAI could allow large transnationals to hide behind the impersonal concept of the market to gain significant power. Clearly, the MAI would have provided powerful legitimacy to big business at the expense of the sovereignty of the Westphalian state.

But contrary to initial expectations, the abandonment of the MAI did not do away with foreign investor protections. It soon became apparent that the MAI was simply a proposal to extend part of the North American Free Trade Agreement (NAFTA) to all OECD countries, which was subsequently replicated in almost every treaty. Chapter XI of NAFTA, signed by the United States, Canada and Mexico in 1994, was designed to protect foreign investors from government intervention. Article 1110 provided that “No Party may directly or indirectly nationalize or expropriate an investment of an investor of another Party in its territory or take a measure tantamount to nationalization or expropriation of such an investment.”

The term “tantamount to nationalization” is legally open to various interpretations, suggesting that this definition could conceivably be applied to any democratically enacted legislation, which could mean any disincentive to the pursuit of profit, or even the mere anticipation of one. It has thus become increasingly difficult for a state to legislate on issues related to, for example, social justice, the environment, workers’ conditions or public health, if a transnational believes that it has been aggrieved. The dismantling of democratically negotiated standards was underway.

Following NAFTA, various forms of this investor protection mechanism have been included in most free trade agreements and thus applies, albeit in different ways, on a global scale. Some treaty chapters, such as those pertaining to the environment, often have no concrete requirements. The included oversight mechanisms are almost always consultative or non-binding, unlike those that apply to investment, which are, by contrast, extremely binding.

Involvement of the courts in economic disputes

According to a 2013 United Nations Conference on Trade and Development (UNCTAD) report, in this type of legal proceedings, states won in 42% of cases, compared to 31% for companies. The remaining disputes were settled out of court. In 58% of cases, the prosecutors were able to partly or entirely overturn the political will of the states.

This figure, however, overlooks one important factor: the pressure that investor protection clauses put on states, which do not even bother enacting certain policies for fear of being taken to court. In 2014, a report submitted to the EU Directorate-General for External Policies of the Union discussed the deterrent effect of “investor-state” mechanisms on public policy choices.

The following example illustrates our point. In 2001, the tobacco company Philip Morris International tried to prevent the Czech Republic from passing anti-tobacco legislation using an image showing a corpse with a $1,227 price tag on its foot. The company commissioned a study to quantify the budgetary savings - in health care, pensions and housing - for the death of each smoker. Several years later, the multinational grew impatient and decided to strengthen its arsenal of persuasion by invoking the “investor-state dispute settlement mechanism.” In 2012, Australia required neutral cigarette packaging, prohibiting the use of logos. Philip Morris, which had also sued Uruguay in 2010 over its tobacco policies, then filed a complaint against Australia based on a treaty between Hong Kong and Australia. The case snowballed and led to a climate of political self-censorship. Fearing that it too would be subject to such legal challenges, New Zealand suspended implementation of the neutral packaging policy. In the United Kingdom, Prime Minister David Cameron postponed debate on the issue, waiting for the verdict in the lawsuit against Australia. Echoing the case, cigarette companies threatened to sue France for $20 billion for a policy similar to Australia’s. It took three years for neutral packaging to be implemented in France.

The slowdown in multilateral agreements has not changed the fact that more than 3,000 bilateral investment protection treaties have been concluded around the world. It is worth noting that the Trans-Pacific Partnership Agreement (TPP), which was quickly scuttled by President Trump upon taking office, proposed to take arbitration to a new level. The TPP set up a private arbitration system whose decisions could not be appealed and, of the three arbitrators, one was chosen directly by the suing company, the other required the consent of the company, while the third was appointed by the sued state. Two out of three could have easily overturned a government decision.

These aspects of trade treaties serve to put policy on trial before the courts, a phenomenon that has been observed for decades in the West. There is dwindling interest in solving problems through political debate, and a growing interest in leaving them up to legal technicians to solve.

In this case, litigation is a lengthy process - and therefore lucrative for law firms - and has resulted in a real litigation industry. A paper by the non-governmental organizations Corporate Europe Observatory and Transnational Institute shows that large commercial law firms have a vested interest in engaging in lengthy and complex litigation.

This judicial protection is a form of “profit entitlement” that immunizes multinationals from the potential risks of investing overseas. This supranational investor protection is a legal guarantee.

The ability to sue states was removed from the U.S.-Mexico-Canada Agreement (USMCA), which superseded NAFTA. This is, to our knowledge, the first treaty to go against the grain on this issue.

There is another kind of potential abuse. It is actually very easy for domestic companies to pose as foreign investors, through foreign incorporation or the use of subsidiaries. A Canadian example illustrates this. In 2010, paper company AbitibiBowater closed some of its facilities in Newfoundland and laid off hundreds of employees, to which the provincial government responded by repossessing hydroelectric assets. AbitibiBowater fought back and sued for $500 million. To avoid a lengthy legal battle, Ottawa offered the company $130 million. How could AbitibiBowater, headquartered in Montreal, pose as a foreign investor aggrieved by Canada? It did so by incorporating in Delaware. In the case of Ethyl Corporation, it is a U.S. company incorporated under the laws of the State of Virginia, but is the sole shareholder of Ethyl Canada Inc. incorporated under the laws of Ontario. It was this foreign registration that, under NAFTA, allowed the company to sue Canada in 1997 for restricting the import and transfer of the suspected toxic fuel additive MMT. Canada apologized, along with C$201 million.

Bloc Québécois’s position: in the interest of democracy

The Bloc Québécois supports commerce and free trade. We recognize that exports are important to the Quebec economy. However, we do not accept having limitations placed on democracy. Businesses have the right to seek profit, but investors should also obey the laws of the countries in which they operate.

The independence movement has always been concerned about ISDS. In 2001, Jacques Parizeau described the 1997 Ethyl Corporation lawsuit against Canada’s restriction on the import of a suspected toxic fuel additive as a “rude awakening” about ISDS. In 2004, the Bloc Québécois called for the renegotiation of Chapter 11 of NAFTA, which gave rise to ISDS.

We consider the removal of ISDS from the USMCA to be a positive development, but we must go further. Given the pandemic, we support a moratorium on the use of the ISDS mechanism for measures related to COVID-19.

If the waiver of intellectual property rights on COVID vaccines is approved, there is nothing to prevent Big Pharma from suing the beneficiary countries for compensation under ISDS. That would be, in our opinion, problematic.

The removal of ISDS from North American free trade makes it difficult, in our view, to justify the return of such a mechanism in future agreements.