On October 5, 2015, the Trans-Pacific Partnership (TPP) deal was officially struck between 12 nations that surround the Pacific Ocean. If all countries choose to ratify, this will create the world’s largest free trade zone, impacting 800 million people and totaling a trade value of $28.5 trillion – approximately 40 per cent of global economic output. The evolution of the TPP made headlines last summer for many reasons: several years of secret negotiations; the rattling of Canada’s dairy supply management system; contentious specifications surrounding auto-parts manufacturing, and worrying intellectual property rights provisions. What has largely been missing from the conversation, however, is the impact that this new agreement will have on the environment.
Some environmental groups have praised the deal for strengthening the enforcement of existing environmental protection agreements. However, few have addressed the looming implications of its chapter on investment. Like many free-trade agreements, Chapter 9 includes substantive protections to create a safe, certain, and predictable environment for foreign investors. These protections are nearly identical to those outlined in the North American Free Trade Agreement (NAFTA): national treatment (imported and local goods should be treated equally), most-favored nation treatment (if one country is granted a lower tariff, other countries must be granted the same lower tariff), minimum standard treatment (investments are to be treated in accordance with applicable customary international law principles), and prohibitions against expropriation that lacks appropriate compensation.
If an investor feels that one of these obligations has been breached, and has incurred loss or damage as a result of that breach, the investor has a unique legal right to challenge a foreign government through the Investor-State Dispute Settlement (ISDS) mechanism. Once the investor has submitted a claim, a tribunal is established to hear the case. The selection of tribunal members is not drawn from a permanent list of panelists but is entirely arbitrary, subjective, and inherently biased. If the tribunal determines that the government has breached the agreement, it orders the government to award the monetary damages that the claimant is seeking. These arbitrators are also not bound by legal precedent and are free to interpret the protections as broadly as they would like, often making it easier to fall in agreement with investors. This one-sided process occurs beyond the reach of review by domestic courts, and there is no opportunity for appeal. While the government must defer to the tribunal’s decision, the monetary award itself can be fully enforced through the domestic court system.
The ISDS mechanism has come under fire for having a system that lacks transparency and accountability, for tribunals that are riddled with conflicts of interest, and for a process that creates an obscure private judicial system that favours corporations. Under NAFTA, these provisions have made Canada the most sued government in the industrialized world. Since 2005, over 70 per cent of NAFTA claims have been made against our government. We have paid out $172 million in damages, with 35 outstanding cases that could add up to another $6 billion. And this doesn’t account for the high costs of legal advice and representation: a conservative estimate would include another $65 million. This might be chump change for wealthy multinational corporations, but an excessive and unnecessary burden on the public purse.
After a 1998 case involving US-owned Ethyl Corporation and the Government of Canada, a wave of claims against environmental regulation was triggered. Some of these high-profile cases might ring a bell: the controversial quarry just outside of Hamilton, Ontario; challenges against Canada’s export ban on PCB (polychlorinated biphenyl) waste; and the ongoing dispute against Quebec’s temporary ban on fracking around the St. Lawrence River. Such challenges are not only becoming more frequent, but the amount of damages being sought are also becoming outrageously high. This makes officials and policymakers cautious about the types of legislation they choose to enact, especially regulation targeting climate change and environmental protection. The constant threat of treaty litigation has had a “chilling effect” on policy that could limit the government from acting in the public interest, or distort policy options towards those that are more amenable to investors. ISDS is flawed at its very core: a process modeled after private commercial arbitration does not take into account the public interest. These procedures only consider the interests of the two relevant parties, and not the enormous implications on third parties who may not be directly involved in the proceedings.
Recently, there has been significant global backlash against these mechanisms. For example, Brazil has never signed an agreement containing ISDS provisions and countries like India, South Africa, and Indonesia have committed to letting existing agreements expire and end their use in the future. Unfortunately, Canada is moving in the opposite direction, boasting the establishment of over two-dozen new Foreign Investment Protection and Free Trade Agreements, the largest of which is the TPP. If Canada ratifies all pending agreements containing ISDS provisions, this will increase the share of foreign investments eligible for claims from 55 per cent to 90 per cent.
Since the government has not officially ratified the TPP, it is impossible to make conclusive statements as to how it will impact environmental law, but its investment chapter is enormously concerning. In many ways, the TPP is essentially the new NAFTA, and we can expect to have a similar experience with rampant ISDS claims and regulatory chill. This time however, 11 other countries have access to this legal right, instead of just the two other NAFTA members. Some preliminary reviews of the text indicate that marginal changes to the language may require proof of damages to reduce the amount of frivolous claims, but the success of our government in these lawsuits still relies entirely on the tribunal’s interpretation of investor protection rights outlined in Chapter 9. Unfortunately, these remain quite broad.
On a positive note, the discussion is just beginning. Advocacy groups are calling for more accountability and transparency, and legal experts are emerging with creative solutions. For example, Gus Van Harten from Osgoode Hall Law School has outlined how a carve-out provision in multilateral climate change agreements (think: the recent UN Climate Talks in Paris) could be used to protect against the risk of ISDS claims on climate action. Ongoing conversations and creative thinking are important first steps in ensuring that the natural environment does not take the backseat to corporate interests, and that governments approach the TPP and other new multilateral trade agreements with caution.
Jordann Thirgood is a 2016 Master of Public Policy candidate at the University of Toronto’s School of Public Policy and Governance. She holds a Bachelor’s degree in International Development Studies with a specialization in Political Economy and Administrative Change from the University of Guelph. Her areas of interest include environmental and social policy, as well as corporate responsibility.