A new study released last week by the left-leaning Canadian Centre for Policy Alternatives documents all of the known NAFTA investor-state dispute settlement (ISDS) claims up to January 1 2015 and finds that Canada has been the target of over 70% of all NAFTA claims in the last ten years.
35 of the 77 total ISDS claims during the past 20 years were against Canada compared to 20 against the U.S. and 22 against Mexico. Canada has paid out NAFTA damages totaling $172 million, while Mexico has paid damages of over $204 million. Perhaps not insignificantly, the U.S. has yet to lose a NAFTA chapter 11 case. Additionally, the study notes that all three governments have incurred tens of millions of dollars in legal costs to defend themselves against investor claims.
What the study does not mention however is that the claims totaling $172 million are in the context of combined trilateral trade within the North American region over the same period of something in the range of $11-15 trillion and therefore represent only about 0.001 percent of the total volume of trade.
All of Canada’s losses concerned important public policy issues or regulatory matters, the study’s author Scott Sinclair states in his accompanying analysis. NAFTA’s chapter 11 has been used, he claims “to successfully attack the regulation of harmful chemicals or toxic waste exports, to second-guess routine bureaucratic and administrative decisions, to expand private property rights to encompass publicly-owned water and timber, to compensate investors when governments refuse to approve contentious proposals, or to restrict the ability of local governments to enforce local economic development requirements in return for an investor’s access to resources.”
The “pervasive threat” of ISDS, Sinclair says “puts a chill on public interest regulation” and this trend will only worsen he predicts unless political and legal action is taken by the government following along the lines of the opposition stance some countries in Latin America have taken to combat “market fundamentalism” by not incorporating investor protections into trade agreements. In this regard, Sinclair invokes the prominent bestselling writer Naomi Klein to back his assertion that “reining in multinational financial firms or addressing the existential threat posed by rapid climate change, will require more, and more assertive, government intervention and regulation.”
It should be noted that not all of the opposition to ISDS is coming from the “left leaning” advocates. The Cato Institute, a notoriously pro-free market libertarian think tank, has made similar arguments in the past – albeit for entirely different reasons – as to why the ISDS should be dropped from trade agreements. Among other things, Cato believes that the mechanism socializes the risk of foreign direct investment, encourages “discretionary” outsourcing, and exceeds “national treatment” obligations.