What Government doesn't want you to know about ISDS

In, 2013, an offshore investor-state dispute settlement (ISDS) tribunal ordered Libya to pay U.S. $935 million to corporate investors for “lost profits” from “real and certain lost opportunities” on a cancelled tourism project, even though the corporate investors had only invested $5 million in the project and construction had not started.

Canadians should take note of this outrageous decision. According to the latest figures on ISDS claims from the United Nations Conference on Trade and Development, Canada is now the most sued developed country in the world. This dubious distinction is entirely due to ISDS corporate lawsuits under NAFTA. Imagine how this will accelerate once we’ve concluded CETA, the TTP and TISA, three other trade agreements our federal government is determined to sign and ratify.

What’s wrong with ISDS?

The original justification for holding ISDS lawsuits in off-shore tribunals was to protect transnational corporations from unfair expropriation or nationalization of their assets by governments which might have a corrupt court systems. By this criterion there was no good reason to include ISDS clauses in CETA, given the integrity of the judicial systems in Canada and Europe. Yet they were included.
As for the risk of nationalization, the interpretation of expropriation has now evolved to include the “indirect expropriation” of corporate assets, including corporate profits. Damages, as Libya found out, now take into consideration not just immediate restrictions on profits, but also lost opportunities for future profits.

Here’s a sample of what recent ISDS lawsuits against Canada have looked like:
  • Eli Lilly is suing the Canadian government for $500 million under NAFTA for invalidating its patent for Strattera and another drug after a federal court found the company had failed to demonstrate the drugs would deliver the benefits promised in the patent application. Strattera had only been tested in a short 7-week long study involving 22 patients.
  • Exxon Mobil and Murphy Oil won their NAFTA lawsuit against research and development regulations put in place after the Government of Newfoundland and Labrador determined the companies were not living up to their commitment under the Atlantic Accord. Three levels of Canadian courts had previously rejected arguments that the companies were being unfairly treated. Damages have not yet been revealed.
Profiting from Injustice, a comprehensive report by Corporate Europe Observatory, reveals the corporate bias that exists in the off22shore tribunals that judge cases like these. That includes:

National Rule of Law counts for nothing: Democracy and constitutional law have no place in these offshore tribunals. Instead, decisions are based on the interpretation of the legal language in the trade agreements (and sometimes even other trade agreements). There is no Appeals Court if a country objects to the judgment rendered. Furthermore, only companies can sue governments. Abusive corporations cannot be sued, for example, when they violate human rights.

The illusion of neutrality: Investor-state disputes are usually decided by a tribunal of three arbitrators. Unlike judges, they do not have a flat salary but are instead paid per case. This creates a strong incentive to side with corporations, because investor-friendly rulings set precedents that pave the way for more cases and more income for the very small, elite group of arbitrators that service the ISDS industry.

Profiting through speculation: Suing governments in offshore tribunals has turned into a money-making industry with investment funds lining up to help corporations fund Investor-state disputes in exchange for a share (typically between 20-50 per cent) in any granted award or settlement.

The revolving door syndrome: The small, elite group of arbitrators and lawyers in the ISDS process move effortlessly from defending corporations to defending governments and back again. This revolving door allows them to aggressively promote investment arbitration in trade agreements as a necessary condition for the attraction of foreign investment. Ignored is the research suggesting that trade agreements are not a decisive factor in whether investors go abroad.

The number of ISDS disputes worldwide has exploded, from just 38 in 1996 to 568 by the end of 2013. Equally worrying is that the growth in damages has been both exponential and dramatic. The most noteworthy victim to date is tiny Ecuador. Ecuadoreans have been ordered to pay $2.3 billion after losing an ISDS lawsuit filed by Occidental Petroleum.

Internationally, over half of the ISDS lawsuits have been instigated by European corporations. CETA is their ISDS entry into Canada.

ISDS lawsuits against Newfoundland and Labrador: Who will pay? Who will defend?

ISDS lawsuits are directed against the federal government and must be defended by the federal government, even if it’s a municipal or provincial action or decision that a corporation might be objecting to. That means that technically, it’s the Canadian government that’s on the hook for payment of costs and damages. However, all that is going to change. The federal government has served notice that it will find ways in the future to reclaim costs and damages from the provinces.
Unfortunately, there is no guarantee that the federal government will adequately defend lawsuits against provincial interests. For example, they chose not to defend against Abitibi-Bowater’s dispute with our province in spite of urgings from multiple groups. The result was an out of court settlement of $130 million, which sets a troubling precedent that undermines public ownership and control of natural resources on crown land.

What sectors of our provincial economy are most vulnerable to lawsuits?

Anybody thinking that our province is fully protected in CETA against ISDS lawsuits is in denial about the all-pervasive scope of this kind of litigation. ISDS lawsuits have been used to challenge government attempts to raise minimum wages, introduce buy-local policies, reduce subsidies, reject new open pit mining proposals, protect water, health or the environment, initiate or modify regulations to gas, nuclear energy, telecommunications, marketing and tax measures, restructure debt to address impending financial collapse, and so on.

Our economy is largely dependent on resource extraction. Oil and mining companies are the most frequent users of ISDS worldwide, so it would be complacent to think there is little possibility of lawsuits here. One obvious example is fracking. If our government decides to permit fracking and then reconsiders policy, NAFTA will allow corporate challenges in the manner of the $250 million Lone Pine Resources lawsuit following the Quebec moratorium. CETA will open that up to European corporations.

On the other hand, if the province defied CETA and continued with minimum processing requirements, I don’t think European processing plants would be easily able to use ISDS lawsuits. That’s because, as far as is known, they are not investors in the Canadian economy. The EU would have to find other ways of punishing us, probably through tariffs.

Does that mean our Canadian-owned fishing sector is protected against ISDS lawsuits? Doubtful, given that the nationality of corporate investors is often not clear. Do we really know how much foreign ownership exists in our fisheries, particularly in the offshore sector? Could minority foreign owners of boats claim to be investors in the Canadian economy, and therefore, mount challenges? What about our aquaculture industry? What’s the capacity for foreign investment there? Once foreign investors gain a foothold in our fisheries, CETA will allow them to sue in all sorts of ways that they can’t at the moment. Given the strong neoliberal bias of the federal government towards deregulation, one has to wonder what kind of defense would be mounted to protect the livelihood of our harvesters and local communities.

Then there is Muskrat Falls. Big contracts have been signed. Government has entered into public-private partnerships. Are we aware who all the corporate investors are? To what extent could investors use subsidiaries under NAFTA or CETA to pursue lawsuits against future government decisions? Has government even considered the ISDS risks there?

Why and how ISDS got put into CETA

ISDS fulfills three central purposes. First, it allows transnational corporations to sue governments for increasingly huge amounts of money in biased, corporate-friendly offshore tribunals where governments can’t use arguments of accountability to the public. Secondly, ISDS, in bypassing national court systems, renders a huge blow to the judicial independence that is fundamental to our democracy. And finally, ISDS effectively straitjackets and undermines regulatory flexibility. The effect on new legislation is chilling, as everything begins to be looked at through the prism of potential lawsuits. The result of all of this is that ISDS facilitates gains in transnational corporate power that are going to be, in the long term, enormous. So too will be the losses to national sovereignty and democracy.

Transnational corporations themselves cannot put ISDS sections into trade agreements between countries — so who does? In the case of CETA, the answer is clearly Prime Minister Harper and his government. It was the Harper government that pushed for ISDS to be included in CETA right from the start. It’s time to face the unpleasant probability that our side may be playing for the other team — not the EU team, but the transnational corporate team.

Can CETA be stopped?
Our province’s recent stance in pulling out of CETA over the dispute about the compensatory $280 million fisheries fund can’t stop the trade agreement going through. However, it has raised public awareness. There’s even a ‘Thank Newfoundland and Labrador’ petition on the go with more than 33,000 signatures on it so far.

Has the ensuing publicity caused politicians to take a closer look at CETA itself? Unfortunately, no. Across Canada, aside from at the municipal level, there’s still little political opposition to the trade agreement (NDP Lorraine Michael has been the notable exception here). One has to wonder how it is politicians in all three major parties have let themselves either be cajoled or whipped into ignoring the different ways CETA is an assault on our democratic and judicial decision making. Their collective silence is alarming.

If CETA is to be stopped, it could be the Europeans who do it. In the space of a couple months in late 2014 more than a million Europeans signed a petition opposing the ISDS sections of CETA and the TTIP deal. Last month France and Germany made a joint announcement they wanted to reopen and amend the ISDS section of CETA. And Syriza, Greece’s newly elected government, has already stated it will not sign on to CETA.

We may yet be rescued from this deal by the Europeans

CETA: Much Theatre … Little Debate

 Published in the Telegram, January 23, 2015

Those of us who oppose the CETA trade agreement between the EU and Canada are grateful that CETA is finally making front page headlines, even if it is for the wrong reasons. If you listen carefully to the words of Ministers Hutchings and King, nowhere do they actually express any doubts about CETA itself. It’s their perceived betrayal by Ottawa over the fisheries development fund that fuels their indignation.

I don’t doubt that our province was misled by the federal government. But have they considered they've been misled in other ways about CETA? Independent research has indicated that CETA will lead to a decline in GDP, exports and jobs, particularly in the manufacturing and processing sectors. But far more alarming than that is the twisty legal language in CETA that will allow transnational corporations to sue us in special, offshore, investor-state tribunals (where Canadian law counts for nothing) if government initiatives risk interfering with future corporate profits.

We shouldn’t underestimate the scope and size of lawsuit payouts. In, 2013, an off-shore investor-state tribunal ordered Libya to pay US$935 million to corporate investors for “lost profits” from “real and certain lost opportunities” on a canceled tourism project – even though the corporate investors had only invested $5 million in the project and construction had never even started.

Could that kind of injustice happen to us under CETA? Our province has already been the subject of two NAFTA investor-state lawsuits compliments of Abitibi-Bowater and Exxon-Mobil. We are especially vulnerable, given that oil and mining companies are the most frequent users of anti-government lawsuits worldwide. Then there is the fact that over half of the investor-state lawsuits worldwide have been instigated by European corporations. CETA is going to give these corporations access to us.

Given that the federal government has stated that in future they will claw back costs and damages from provinces that incur lawsuits, you would think our government would be worried about being sued under CETA. And what about the chilling effect that the mere fear of lawsuits will have on future government initiatives to protect the environment or local economies? Have they considered that?

To be fair, other provincial legislatures are guilty of similar complacency about CETA's impact on democratic decision making. However, our government is now in the unique position of having experienced firsthand how underhanded the Harper government can be in promoting the benefits of CETA. They could take the high road and use this realization as an opportunity to open up the whole CETA can of worms to public debate. They could challenge other provinces to re-examine the extent to which CETA will allow huge corporations to undermine their ability to govern.

That would be splendid leadership. But will they do that? Or will they simply focus on their grievance with the federal government over the fisheries investment fund? What’s it going to be? Continued theater of the David vs. Goliath style – or genuine debate, discussion and consultation about the main event with us, the people who elected them?

There's more than one booby trap in CETA-land

Published in The Telegram, Dec. 27th, 2014

For the past two years, local groups like Citizens against CETA and the Council of Canadians have been sending letters to politicians informing them of the many different traps buried in both the CETA treaty and the negotiating process. Most MHAs have ignored our warnings. They preferred to believe that everything was perfect in CETA-Land.

Now we have this huge misunderstanding between the federal and provincial governments over the $280 million federal fund linked to our giving up minimum processing requirements.  That appears to be bad news. On the other hand, this drama has finally put CETA on people’s radar. Let’s consider what else might be open to misinterpretation in this trade agreement.

There are two issues with respect to the legal language of the treaty that raise alarm bells. 

First, are we really sure that both the federal and provincial language in the agreement can protect our traditional rights over the fishery? Licencing restrictions have, up until now  prevented foreign corporations that care nothing about the welfare of Newfoundlanders and Labradorians from controlling our fisheries.   Could CETA’s wording be sufficiently wobbly to allow legal challenges to that intent? 

That’s not a frivolous question. Since NAFTA there have been around 600 corporate lawsuits worldwide mounted against governments in multilateral and bilateral trade agreements. Presumably, all of these governments thought that they were adequately protecting their interests when they wrote their agreements. 

Then there is the question of whether or not the federal government would even bother to defend Newfoundland and Labrador’s interests if there was a legal challenge. Let’s not forget that, in spite of requests from the Williams government, the Harper government refused to defend our position in the NAFTA lawsuit by Abitibi-Bowater.  They settled out of court.

Corporate lawsuits are the booby-traps at the heart of CETA and they are booby-traps that have the potential to cause us enormous financial damage. To date, a $2.3 billion judgement against Ecuador in its dispute with Occidental Petroleum  is the highest known damages awarded. Suing governments has become a very lucrative business.

However there’s something at work here even more insidious than the financial costs.

 When governments start looking at all new legislation through the prism of whether it might possibly provoke a lawsuit, democracy suffers. "I've seen the letters from the New York and DC law firms coming up to the Canadian government on virtually every new environmental regulation and proposition in the last five years. ......  Virtually all of the new initiatives were targeted and most of them never saw the light of day." So said one former Canadian official about the mere threat of NAFTA lawsuits(quoted in an article by William Greider for The Nation)

The use of lawsuits and the threat of lawsuits is a subversive assault on the right of governments to make decisions in the interest of the public or the environment.  And because CETA is so much more accommodating to corporate interests than NAFTA ever was, that menace will threaten different levels of government right down to the level of school boards all across the country. 

Lawsuits by transnational governments also strike a huge blow to that other branch of government, our court system. How? If they are investors in the Canadian economy, foreign corporations can choose to bypass the Canadian court system and pursue their grievance with government in offshore tribunals where Canadian law counts for nothing.

 Take the example of Exxon-Mobil and Murphy Oil.  In 2012, they won their offshore NAFta lawsuit against new research and development regulations put in place by Newfoundland and Labrador after our government determined the companies were not living up to their commitment under the Atlantic Accord. Three levels of Canadian courts had previously rejected arguments that the companies were being unfairly treated. The offshore tribunal came to a different conclusion. Damages have not yet been assigned but the corporations were asking for $65 million.

The Canadian government will pay those damages, just as they paid the $122 million in the Abitibi-Bowater dispute. However, the federal government has made it clear that in future they will find ways to reclaim these costs from the provinces.

Think about all this.  

First:, we will soon be bound by a trade agreement which, according to independent research studies, will actually lead to a decrease in Canadian GDP and will cause job losses, particularly in the secondary or processing sector.  Yet we’re told it’s a fantastic deal.

Second, CETA is a huge contract which will act as a kind of supranational constitution overriding our own. Future governments will only be able to initiate new laws and regulations if they do not conflict with what has been written down in CETA. Anything governments have failed to adequately protect in writing will be susceptible to lawsuits if they try to make changes that interfere with corporate profits.

Third, these lawsuits will take place in offshore tribunals that are themselves riddled with corporate bias. There is no Appeals Court if a  government doesn’t like the decision.

 Anybody who believes that the very limited economic benefits that CETA will bring to our province justifies all of the above is apparently oblivious to what has been going on in the rest of the world. Trade agreements have allowed transnational corporations to strait jacket the democratic will of people and block protection of jobs and the environment in all sorts of unexpected ways.  Third World countries were the first and the hardest hit. Now that so many of them are squeezed dry it’s our turn.

Prime Minister Harper has been the ideal leader to inflict that squeeze on us.  Don’t be surprised if, once the damage is done, he and his obedient followers in parliament simply walk off into the sunset, into well paid board rooms positions in the big corporations of the world.  

Am I that cynical about our provincial politicians? No, but I do wonder about their ability, when it comes to important decision making, to think outside a narrow neoliberal interpretation of how the world works. Of the three political parties elected in this province, to my knowledge, only the NDP has endeavored to alert the public to the underbelly of CETA.

Now that Premier Davis has suggested that the province might withdraw its support for CETA
I have no doubt that the corporate lobbyists and Harper appointees are all out in full force. They’ll be using a variety of tactics to get the government back on board with CETA.

Let’s hope that government doesn’t make the same mistake as before and rush into a decision without a thorough analysis and discussion of what’s at stake with CETA. So, here’s a suggestion, Premier Davis.  How about appointing an all-party committee to set up public hearings across the province?    Explore the pros and cons of CETA with us.  Don’t shut us out of the decision making again.   

CETA: Time to admit it's an underhanded, oversold deal.

Originally published in the Independent, Dec. 15th, 2014

 Surprise! Surprise! Our premier is now suggesting the federal government has deliberately duped our province over the $280 million CETA package we were promised for giving up minimum processing requirements (MPRs).

“He can’t be trusted,” Paul Davis said following his meeting with Stephen Harper in Ottawa last Friday. “They’re moving the goal posts. They’ve moved them so far that the fund is going to be unreachable.”
MPRs are now gone. We can’t go back and renegotiate them out of CETA (Canada and the European Union’s Comprehensive Economic and Trade Agreement). We could, however, stand up and be the first province to say “No” to this trade agreement. Our premier has already hinted at the possibility.

Defying the vindictive Harper Government would clearly be a heroic gesture. But, even more significantly, it could also be the beginning of a domino effect among the provinces, given many are facing opposition to CETA from their own cities and towns. More than 50 municipalities across the country have disliked or distrusted CETA so much that they have asked their provinces to exempt them. Their requests, of course, were denied.

Some provincial governments might also be swayed by the mounting civil opposition to CETA.  Over the past two months more than one million Europeans have signed a petiCtion stating that the European Union should not ratify either CETA or the TTIP (Trans-Atlantic Trade and Investment Partnership, with the United States).

What’s more — the sense that CETA is a very bad treaty for ordinary wage earners and small businesses is starting to trickle into public consciousness on both sides of the Atlantic.

As for Newfoundland and Labrador, anger and a feeling of betrayal about the now iffy nature of the federal fund are not sufficient reasons for our province to reject CETA. Newfoundland and Labrador should have compelling constitutional and economic reasons to take that step. In that pursuit, they might want to consider more seriously what Gus Etchegary, former CEO of Fishery Products International, meant when he said “the $280 million compensation for job loss and negative impact on the industry will be comparable to the size of a flea on the rump of an elephant.”

Etchegary, with decades of experience in the fisheries, remembers how well minimum processing requirements have worked in the past and the perspective to know that they could in the future. As for the present, if they are not working well at this particular moment in time, government has the flexibility to adjust — as it did two years ago when Ocean Choice International was granted a 15 year reprieve from MPRs at its Fortune plant.

CETA’s uncaring, unforgiving nature
That flexibility disappears with CETA, because CETA forbids us to ever use MPRs no matter how our circumstances might change.

And circumstances can change, even dramatically.

Imagine a future scenario where fish stocks are healthy and the shellfish are bountiful. Imagine also a strong demand from Europe for our resource. Then factor in something unexpected like the closure of the Alberta tar sands for economic or environmental reasons. The displacement of workers would cause a huge unemployment problem for our province. There we would be, sitting on a rich resource that is wholly ours, but unable to insist that our own workers do the processing.

Our government is complacent about this scenario because it believes our processing sector will be able to compete with European fish plants. If there was a level playing field this would probably be true, but the EU gives massive subsidies to its fisheries sector. A 2011 study reported that in 13 European countries the value of the subsidies was actually greater than the value of their fish catch.

How do we compete with that?

A benefit for all Newfoundlanders and Labradorians, or just a few?

In return for the abolition of MPRs the Europeans lowered the tariffs on shellfish. Was this as much of a sacrifice for them as losing MPRs was for us? I doubt it. This was not a clear question of our fish competing with their fish. The Europeans actually import 60 per cent of the fish they consume, and because fish stocks are declining around the world their tariffs have been steadily going down.

According to a 2013 report by the Canadian Centre for Policy Alternatives, tariffs would have likely reached zero within a few years. In reality, they weren’t giving up very much at all.

On the other hand, trading away the democratic rights of future governments to act in the interest of local economies, workers and communities was an enormous concession to make. It’s all being justified by the immediate increase in export sales that will come from the elimination of tariffs on shellfish. The economic growth that will come with those increased sales is supposed to benefit Newfoundlanders and Labradorians in all sorts of ways, we’ve been told by both the provincial and federal governments: It will strengthen us.
Canadian farmers have a precautionary story to tell us about that kind of reasoning. In the 10 years following the signing of NAFTA (North American Free Trade Agreement), Canadian farm exports increased by 300 per cent. Those figures sound impressive until you learn that farm debt also increased by 300 per cent. Even more startling, the income of Mexican farmers—many of whom were already living well below the poverty line—declined  by 40 per cent.

 Trading away the democratic rights of future governments to act in the interest of local economies, workers and communities was an enormous concession to make.

NAFTA increased Canadian exports but impoverished family farmers. Meanwhile, the middlemen—the big agribusiness corporations—did extremely well. If this example teaches us anything, it is that we need to be asking where the money will go from increased shellfish exports.

Will it evenly benefit people working in the fisheries of Newfoundland and Labrador? Or is it more likely that a few people will do very well out of increased sales while the great majority will be excluded? I think I know what the farmers would say.

The Newfoundland and Labrador government has finally found out what Citizens against CETA and the Council of  Canadians have been saying in this province for a long time: You can’t trust what the federal government tells us about CETA.

They’ve wildly misrepresented the benefits of this deal from the very start, and when challenged, their strategy is to resort to even greater exaggeration. In his interview on the Fisheries Broadcast last week, federal minister Rob Moore managed to use the word “fantastic” five times to describe what a good deal CETA is for Newfoundland and Labrador.

As for the “middlemen” in our province, it’s time to insist they clarify their vague assertions.
“It is an agreement that will provide benefits and economic growth and jobs—good-paying jobs for Newfoundland and Labrador—for decades to come,” Richard Alexander, executive director with the NL Employers’ Council, said in an interview with The Telegram.

What kind of jobs, Mr. Alexander? How many? Who is going to get them? And who is going to be left out?
It’s time to finally allow a real discussion about CETA. The deal isn’t ratified yet.