canaryincoalmine

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Canada - Australia's canary in the coalmine on ISDS?

25th October 2016

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Kyla Tienhaara

Dr. Kyla Tienhaara is a research fellow in the School of Regulation and Global Governance (RegNet) and co-director of the Climate and Environmental Governance Network (CEGNet), Australian National University.

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Kyla Tienhaara’s research on inter-state dispute settlements (ISDS) has informed a new Get Up! report, The Canary in the Coalmine: a cautionary tale of trade: Canada’s experience of investor-state dispute settlement under NAFTA. If the Trans-Pacific Partnership (TPP) is passed in the Senate, the report warns that Australia could face the same sort of multi-million dollar ISDS legal disputes as Canada has experienced since NAFTA. This Guardian article summarises the report, and the executive summary of the report which will be submitted to the Senate Inquiry on the proposed Trans-Pacific Partnership Agreement is below.

Summary of the report:

Australia signed the Trans-Pacific Partnership (TPP) Agreement on 4 February 2016. Economists are divided over the anticipated benefits of this ‘mega-regional’ trade and investment agreement spanning 12 Pacific Rim countries. There has been no comprehensive analysis of the agreement’s potential costs. The Productivity Commission has offered to model the impacts of the deal specifically for Australia, but the Turnbull Government believes that this is unnecessary.

One area where governments are likely to experience direct costs as a result of participating in the TPP is through the controversial Investor-State Dispute Settlement (ISDS) mechanism, found in Chapter 9. This report illustrates some of the possible costs of ISDS for Australia based on available global data and a direct comparison with the experience of Canada under Chapter 11 of the North America Free Trade Agreement (NAFTA). This report details that:

  • American investors initiate 20% of ISDS cases globally (Canada has had 39 claims brought against it by US-based companies);
  • The TPP’s carve-out of tobacco is of very limited value given that ISDS claims are initiated by investors from a wide variety of industrial sectors over a wide range of issues (Canada has had ISDS claims brought against it by investors in the agricultural, chemicals, construction, electricity generation, entertainment, finance, forestry, health, mining, pharmaceuticals, postal, pulp and paper, oil and gas, tourism, and waste disposal industries);
  • ISDS cases can arise over measures brought by any level of government (more than half of the cases brought against Canada have involved claims against provincial or territorial government measures);
  • States lose or settle ISDS cases more often than they win them (Canada has lost or settled 11 cases and won 6);
  • Even when states ‘win’, they ‘lose’ because they have unrecoverable legal costs (Canada has spent an average of CAD 4.5 million in non-recoverable legal costs per case that has proceeded through arbitration, which is lower than estimated global averages);
  • Damages awarded by tribunals and compensation settlements vary wildly— most are in the range of USD 1-500 million but some have reached over USD 1 billion (Canada has disclosed compensation payments totaling CAD 216.7 million);
  • It is difficult to quantify the cost of ‘regulatory chill’ but there is mounting evidence that it is an identifiable phenomenon (Canada reversed a ban on a fuel additive when faced with an ISDS case);
  • ISDS provides no discernable public benefits—the only beneficiaries of the system are corporations, and particularly large multinationals.

When the Government of Canada signed onto NAFTA it had no idea what it was getting itself into. Australia is not entering the TPP in the same position—it has ample opportunity to learn from the past. Canada is Australia’s canary in the coalmine.

Read the full report.

Updated:  10 August 2017/Responsible Officer:  Director, RegNet/Page Contact:  Director, RegNet