Canada the main target of NAFTA suits; U.S. remains undefeated, research shows
As Canada, the U.S. and Mexico prepare to rejig the trade deal, changes to how tribunals address disputes is likely to be on the agenda
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OTTAWA—When it comes to the North American Free Trade Agreement, Canada can safely claim the title of biggest loser in terms of lawsuits.
Since the agreement came into force in 1994, Canada has been sued 39 times by foreign companies claiming Canadian policies have violated their rights under NAFTA.
That is almost half of the 84 challenges made against all three nations under the investor state provisions.
Canada has lost or settled eight cases and paid more than $215 million in compensation, while the United States has still not lost a single case or paid out a single dollar in compensation.
About 60 per cent of the challenges aimed at Canada have targeted environmental regulations or resource management policies, including provincial regulations on oil and gas development and wind farms, forest and water
The latest statistics were compiled by Scott Sinclair, a senior research fellow with the Canadian Centre for Policy Alternatives.
Sinclair says NAFTA disputes could put a chilling effect on Canadian policy making, particularly in areas of environmental regulation and natural resources.
Canada’s status as the most sued NAFTA country has to be considered a significant topic of discussion when it begins renegotiating the pact in August, he said.
“I think there is a strong case based on the evidence that we have been the losers more often than not,” he said.
Canada, the U.S. and Mexico are expected begin a renegotiation of NAFTA in mid-August.
David Gantz, an international trade law professor at the University of Arizona and former tribunal member hearing NAFTA challenges, said there is no easy explanation for the fact Canada has been the target of more challenges or that the U.S. hasn’t lost any yet.
“Part of it, certainly, is luck,” said Gantz.
He said it may partly stem from the fact Canadian provinces have more autonomy than U.S. states and many of the challenges in Canada have been over provincial policies rather than federal ones.
In March, Ontario paid a $25 million to Indiana’s Windstream Energy after a NAFTA tribunal agreed it had been harmed by an Ontario government moratorium on offshore wind farms on Lake Ontario.
Gantz said even though the U.S. hasn’t lost yet, that luck will eventually run out, which is probably why the U.S. is as eager as Canada and Mexico to improve the investor state dispute mechanisms during NAFTA talks.
He said improvements need to be made to the tribunals that hear disputes.
Currently, when a private company believes a NAFTA nation has violated the agreement it brings a challenge, and that is heard by a three-member, ad hoc tribunal comprised of one person appointed by the company, one by the country being challenged, and another agreed to by both.
“What seems to some arbitrators to be egregious, to others is not,” said Gantz. “Nothing is predictable and deciding when there has been a violation is very fuzzy.”
Foreign Affairs Minister Chrystia Freeland is not tipping her hand on Canada’s NAFTA strategy and her office wouldn’t say Wednesday what Canada will put on the table when it comes to foreign investor provisions.
Canada already agreed to improved dispute resolution mechanisms for foreign state investors in both the Trans Pacific Partnership and the Canada-Europe Comprehensive Economic and Trade Agreement.
With CETA, Canada and Europe each get to appoint panels of five tribunal members for five year terms, and a third panel is appointed jointly.
Each time there is a dispute, one panelist is to be selected from each group of five.
Alexandre Larouche-Maltais, a senior researcher on trade and investment with the Conference Board of Canada, said this should provide more consistency when it comes to decisions made by the tribunals and more predictability for countries in the agreement.