Canada must learn from NAFTA legal battles

With a wary eye on Mexico, the drafters of 1994's North American free-trade agreement gave investors a powerful weapon to sue governments.

The worry at the time was that Canadian and U.S. investors needed extra tools to protect against discrimination from unfair and opaque laws in Mexico, a country with a history of nationalizing industries. Thus, NAFTA's Chapter 11 was born.

It hasn't quite worked out the way many experts thought.

Now it is Canada that is the top target of NAFTA investor-state litigation. This country faces eight active NAFTA investment claims, all launched by U.S. companies. If successful, the claims could cost Canadian taxpayers more than $2.5-billion.

There are only three other ongoing cases, two against Mexico and one against the United States.

These disputes aren't just about governments physically seizing corporate assets or nationalizing foreign companies.

Chapter 11 has become a way for companies either to bypass domestic courts and regulatory agencies, or to get restitution denied through normal channels.

And with each new claim, companies are cleverly stretching the bounds of what they consider an investment. The same goes for expropriated property, which claimants now argue should extend to import permits, drilling rights and patent rulings.

This trend in NAFTA litigation could have profound implications for Canada as it readies for a new generation of free trade deals, including the Trans-Pacific Partnership and the just-completed European Union negotiations. In spite of the slew of recent Chapter 11 cases filed against Canada, Ottawa pushed for an investor-state dispute mechanism in the European free-trade deal. Similar provisions are expected to be in the TPP, vastly expanding the number of potential disputes...

Another U.S. company, Lone Pine Resources Inc. of Wilmington, Del., is suing the Canadian government for $250-million over Quebec's decision to ban natural gas fracking under the St. Lawrence River. The moratorium, put in place while the province studies the safety of hydraulic fracturing, applies to all companies, foreign or domestic.

Lone Pine, headquartered in Calgary but registered in Delaware, argues that the ban is political and amounts to an illegal expropriation of the money it has invested...

None of these claims has been validated by a tribunal decision.

But they highlight the ever-widening scope of what claimants consider investments and expropriation.

Everything, it seems, is an investment. And almost any adverse regulatory or court decision is tantamount to expropriation, regardless of whether foreign companies are being treated differently than domestic ones.

This all seems a very long way from the original intent of the NAFTA architects.

This has been excerpted from 24 November 2013 article by the Globe and Mail, and is available in its entirety at http://www.theglobeandmail.com/report-on-business/economy/canada-must-learn-from-nafta-legal-battles/article15579209/ (subscription may be required).