Good morning.
Mr. Chairman and honourable members, thank you for inviting me to appear before you this morning to speak to Bill C-24 regarding the recently signed free trade agreement between Canada and Peru.
Good day, ladies and gentlemen. I apologize for the fact that my presentation will be in English only.
My organization, the Canadian Environmental Law Association, is a federally incorporated not-for-profit NGO and an Ontario specialty legal aid clinic. We provide direct legal services to clients, including environmental precedent-setting and test cases to those who would be unable to afford a lawyer. Our mandate does include law reform, public legal education, and community outreach.
For this morning's commentary, I have drawn on the extensive background that CELA has in trade and the environment, including the work of the late Michelle Swenarchuk, formerly our director of the trade and environment program. There are three points that I want to make before you today. I would note that these comments are not necessarily unique to this particular bilateral agreement.
The first point is that the provision of the direct investor access to investor-state claims under the investment chapter is itself problematic in that it invites repeated challenges, in my opinion, of environmental health and safety regulatory action by Canada and the provinces. I'll speak to that.
The second point I want to make today is that if direct investor access is to continue to be provided, then the bilateral free trade agreements must be explicitly clarified to apply to situations of true expropriation and made explicitly inapplicable to regulatory action by Canada and the provinces in the matters of environment, health, safety, and worker protection--at least.
The third point I'd like to speak to is that the proliferation of the bilateral free trade agreements, both in Canada and by other nations, is establishing a patchwork of rules pertaining to the protection or lack thereof of the sovereign rights of Canada, the provinces, and other nations to establish environmental health, safety, and labour rights legislation and regulation as the governments see fit. The very existence of that patchwork makes the assessment of the risk of trade challenges problematic and becomes in itself a greater chill on regulatory action.
First, with respect to direct investor access to investor-state claims under the investment chapter, I would submit that it's not necessary to provide direct access to states by investors in the bilateral free trade agreements, even if one wishes to provide protection against expropriation. The trade agreements normally provide that investors are entitled to the same treatment as nationals. Accordingly, the domestic law--both common law and statutory--regarding expropriation would be available for recourse. That is what happened in the U.S.-Australia Free Trade Agreement, the second bilateral free trade agreement that the U.S. negotiated with “a developed country”, as they put it in their environmental review in 2004.
The U.S.-Australia Free Trade Agreement gives no direct investor-state remedy, even though it does contain provisions regarding expropriation. In the final environmental review, the reviewing committee said:
In recognition of the unique circumstances of this Agreement--including...the long-standing economic ties between the U.S. and Australia, their shared legal traditions, and the confidence of their investors in operating in each others' markets--the two countries agreed not to implement procedures in this FTA that would allow investors to arbitrate disputes with governments. Government-to-government dispute settlement procedures remain available....
That agreement included provisions--which are normal--regarding expropriation, including that it be for a public purpose, that it be not discriminatory, and that prompt, reasonable compensation be provided and in accordance with due process of law. I would comment on that. I'm speculating, but by 2004, NAFTA had been the subject of some investor-state challenges and claims for compensation for regulatory action; I would speculate that the negotiators wanted to avoid those types of claims.
So rather than providing that kind of direct investor-state remedy, the U.S.-Australia Free Trade Agreement provided a proviso for consultations, such that if they decided down the road that they wanted to provide a remedy to a particular investor, they would have consultations about how to do that. But what they settled on in the agreement was the normal expropriation rules of each country. In a case of complaint with those, they could make it the subject of the agreement's dispute resolution procedures.
Before I leave this point, I would submit that the absence of a direct investor-state procedural remedy under the U.S.-Australia agreement is itself a protection for the state parties in terms of their ability to regulate with respect to the environmental health, safety, and worker protection matters, among other things. If an investor had a true expropriation claim, then it could proceed under the normal domestic law. On the other hand, in order to garner attention for an alleged indirect expropriation based on regulatory action by the state, the investor would first have to persuade its own government that it had a legitimate complaint and that the regulatory action in question was one of those rare circumstances of indirect expropriation.
Since the U.S.-Australia parties were clearly anxious to protect their own right to carry on with high standards of environmental regulation—I point to chapter 19 of the Australia agreement—I would suggest that they would be very reluctant to pursue a complaint, and I would suggest the likelihood of that would be quite small. Democratic governments have to consider a range of competing factors, including many matters of public interest such as environmental protection, human health, safety, worker rights, as well as the social and economic impacts of their regulatory actions, and that's their prerogative.
It would be my recommendation under the first point that the right of direct access by investors to a claim against the parties be removed and that instead an approach be taken akin to the U.S.-Australia Free Trade Agreement—in other words, provide access to the Canadian domestic procedures courts of law for cases of true expropriation and do not provide for claims of indirect expropriation. At least these would be regulatory action by Canada or the provinces for environmental health, safety, and worker protection matters.
The second point is that if there is to be direct investor-state access, contrary to the submission I've just made, it be explicitly applicable to true expropriation only. Granted, I understand that the free trade agreement has been negotiated and your decision is whether to approve the legislation putting it into effect. I would submit that the points I've been making about the regulatory impact of the direct investor access are important enough to pause at this point, especially before we continue with this agreement or any future agreements, and go back and review what has been happening vis-à-vis these indirect expropriation claims. Furthermore, certainly for any future agreements, the Australia approach is the one that should be followed.
In terms of the type of language that would restrict matters to true expropriation only, I first want to clarify that my organization has never argued against expropriation in domestic or international law in terms of appropriate compensation provisions. There are important protections of long standing, for example, including highways, transmission lines and so on, but on the other hand, we've long argued against arguments that public interest regulation amounts to expropriation or that compensation is due when activities are curtailed because of public interest regulation. Examples like that include land use decisions, facility approvals, and pollution emission controls. These are all valid regulatory actions in the public interest, even though they may impose costs on owners or preclude certain activities.
In terms of limiting claims to direct expropriation, we would suggest that language in the agreement should specifically limit the direct investor access to those claims of true expropriation. I would suggest that approach be taken instead of the case-by-case approach provided in the Canada-Peru Free Trade Agreement. Even though there is an attempt in that agreement to clarify that these cases do not generally amount to indirect expropriation, the very fact that the claim may be brought means there is uncertainty as to the arbitral panel's rulings and a regulatory chill may still prevail.
You've already heard testimony another day about the recent claim being brought by Dow Chemical against Canada for actions in Quebec under the pesticide code. At the time that claim was filed, as you may know, the Province of Ontario had enacted amendments to its pesticide act dealing with cosmetic use and sale of lawn and garden pesticides and was in the process of consulting with respect to the regulations under that statute. The Ontario Minister of the Environment at the time felt compelled to make public statements in the media late last year that the fact of the Dow challenge against Quebec would not cause Ontario to reconsider its approach. So in my opinion, the very fact that these claims can be brought is a problem in its potential to interfere with valid regulatory action. The potential for those claims gives greater weight or consideration to the commercial interests represented, even though the contemplated regulatory action by the government is not an expropriation in customary or domestic law. The problem extends not just to the federal government but also to the provincial and territorial governments as well.
To finish on that point, does the Canada-Peru Free Trade Agreement provide that explicit limitation? No, I don't think it does. The language could be perceived to be an improvement over NAFTA. However, the agreement in annex 812.1, in determining whether a measure is an indirect expropriation, states that it will be determined case-by-case. It provides several factors, including economic impact, the extent it interferes with investment-backed decisions, and the character of the measure, and then includes the provision, which I know you've reviewed before, that except in rare circumstances--when a measure or a series of measures is so severe in light of its purpose that it cannot be reasonably viewed as having been adopted and applied in good faith--non-discriminatory measures that are designed and applied to protect legitimate public welfare objectives, such as health, safety, and the environment, do not constitute indirect expropriation.
My concern is that, first of all, those types of provisions--this isn't the only bilateral agreement that includes that language--have only been included in bilateral trade agreements recently. I would note that the very same paragraph is found in the Australia-U.S. agreement I was referencing earlier, but they didn't find it necessary to give a direct investor claim there.
In any event, the fact that the claims may be brought case-by-case means that the tribunal would evaluate it. For instance, is this one of those rare circumstances? Is the measure severe? Was it reasonable? Was it adopted in good faith? Was it perhaps discriminatory? Was it designed to protect legitimate public welfare objectives?
Interestingly, Howard Mann, a lawyer for the International Institute for Sustainable Development, said on the Methanex NAFTA decision in 2005 that there the tribunal had drawn a bright line between what's true expropriation and what isn't. This clause in the Peru agreement actually opens that up to question.
The final point, which I've already mentioned, is that the very existence of the proliferation of bilateral free trade agreements across a range of countries, with slightly different ways of attempting to protect the right to regulate, is itself becoming a problem. Now the analysis of where the regulation is subject to challenge is becoming much more complex, and there are slight differences between them.
Thank you.