All hell is breaking loose over the Trans Mountain pipeline.

On Sunday, Kinder Morgan announced it was putting all “non-essential spending” on hold until it could be guaranteed “clarity on the path forward.” That sent both the Alberta and federal governments into a near-frenzy — Premier Rachel Notley pledged to buy the entire pipeline if needed, while the federal cabinet held an “emergency meeting” (ministers literally ran from the media afterward).

It’s also come to light that Kinder Morgan could actually sue the government of Canada if it can’t build the pipeline. In a call with investors, Kinder Morgan chair and CEO Steven Kean said that it’s far too premature to consider.

But it certainly wouldn’t be unusual: between 1995 and 2015, Canada has been sued 35 times by investors and paid out at least $170 million.

“It is extraordinarily easy for a deep-pocketed company like Kinder Morgan to sue Canada using NAFTA,” said Gus Van Harten, an associate professor at York University’s Osgoode Hall Law School and expert in international investment law and arbitration, in an interview with DeSmog Canada.

So what would this look like in practice? And would Kinder Morgan have a serious shot at winning? DeSmog Canada took a look at the details.

How on earth would Kinder Morgan actually sue Canada?

It would happen via the Chapter 11 provision of the North American Free Trade Agreement (NAFTA), which was signed by Canada, the United States and Mexico in 1994.

Here’s how Global Affairs Canada describes the process: “It establishes a framework of rules and disciplines that provides investors from NAFTA countries with a predictable, rules-based investment climate, as well as dispute settlement procedures which are designed to provide timely recourse to an impartial tribunal.”

It also happens to be the most notorious part of NAFTA.

The concept itself is referred to as an “investment-state dispute settlement.”  Basically, if an investor — aka a large corporation — thinks that a government has acted in a way that’s unfair and disadvantaged their ability to make profits by introducing a new policy, it can sue the government for alleged losses.

This ability is baked into many international trade agreements: for example, Canadian mining company Gabriel Resources is currently suing Romania for $4.4 billion because the government denied it permits to construct a large and environmentally destructive mine. U.S. company Bilcon is currently suing Canada for rejecting a quarry in an endangered whale nursery.

In the case of NAFTA, an investor has to be based in a different country than the one it’s suing for damages. So even though Trans Mountain ULC is technically the owner of the pipeline, it would be the Texas-based Kinder Morgan Inc. that would launch the challenge.

How Kinder Morgan Could Sue Canada In a Secretive NAFTA Tribunal https://t.co/vjgsRS4PJp #kindermorgan #cdnpoli #bcpoli pic.twitter.com/LgDjq1wjlu

— DeSmog Canada (@DeSmogCanada) April 11, 2018

Is there another motive at play here?

Well, the most obvious thing would be the potential for a large sum of money. For instance, in 2016 TransCanada filed a lawsuit against the U.S. for a whopping $15 billion over the blocked Keystone XL pipeline (the challenge was withdrawn following the election of President Donald Trump and subsequent approval of the project).

But it can also be used as a tool to pressure governments to back down on policies.

“In the present case, a NAFTA claim would allow Kinder Morgan to team up with Alberta and perhaps the federal government too to pressure British Columbia politically,” Van Harten said.

It sounds a bit bonkers, hey? The federal government effectively using a lawsuit against itself to pressure a province to reduce its opposition to a project that it legitimately believes may have calamitous impacts on Indigenous rights and the environment?! Well, it’s worked before.

According to Van Harten, one of the earliest NAFTA cases was against Canada and led to a “humiliating settlement by the federal government.” In 1997, Canada moved to ban a gasoline additive that contained a neurotoxin. The retailer of that additive in Canada then sued the government for $250 million USD. In the end, the government rescinded the ban, apologized, issued a statement saying the toxin wasn’t toxic and then paid the company $13 million USD.

The company didn’t receive the amount of money it was pursuing. In a sense, it received far more than money because of the unique powers that NAFTA provides companies to pressure governments to back down on policies or avoid implementing such policies in the first place.

But why would Kinder Morgan sue the federal government, which supports the project?

It’s the only government that it could actually sue.

NAFTA was signed by the three countries, not provinces or territories. So even if a conflict is between an investor and sub-national government, the lawsuit is still filed against Canada, Mexico or the United States.

Van Harten described the set-up as the “result of bad negotiating decisions in the past by the federal government, advised by federal trade officials who in my experience are often hawkishly pro-investor. For 20 years, Canada has been and still remains the only Western country that allows these aggressive international claims by U.S. multinationals against the country’s sovereign and democratic choices. Thus, our exposure to these claims lies primarily with officials in Ottawa, not B.C. or the other provinces sometimes targeted under these trade agreements.”

We’ve seen this pan out recently with the lawsuit by Lone Pine Resources against the federal government for $118.9 million in alleged damages following Quebec’s decision to revoke oil and gas exploration licences beneath the St. Lawrence River. It’s fundamentally a conflict with Quebec, but has to be dealt with by Canada.

Oh, the joys of federalism.

So who actually decides this stuff? Is there a NAFTA court?

Kind of. It’s actually more of a secretive tribunal.

There are three arbitrators on the tribunal. There are no public records available for most of the decision-making process. It’s up to the tribunal to decide if the challenge is legitimate and, if so, how much the government should pay in damages. Asides from the country directly involved, the tribunal doesn’t allow standing for other stakeholders who may be impacted by the decision.

Keep in mind there’s no equivalent process in place for governments to sue investors that damage local environments or economies.

These challenges can take a long time to resolve. The aforementioned Lone Pine lawsuit against Canada was first launched in 2013 and is still ongoing. It also costs a lot of money for both sides. As a result, it might make more sense to view a potential Kinder Morgan challenge as a means of forcing B.C. to back down and prevent it from considering future standoffs that would impede profits.

Where does this leave B.C.?

Wait and see.

There’s no guarantee that Kinder Morgan will pursue this option. The company has issued the specific date of May 31 as the deadline for the standoff to be resolved, after which it may walk away from the project. At that point, it’s conceivable that it could launch a challenge against the federal government.

“I would advise people in B.C. not to be bullied in this way and to stick to the position that they think is principled and fair,” Van Harten said. “B.C. has a right to enforce its provincial laws and regulations, in a situation of overlapping constitutional jurisdiction and regulatory responsibility, as Kinder Morgan should have known from the start.

“If Canada is sued because of B.C.’s own decisions to protect its environment and economy, the fault lies with the federal government that negotiated and concluded NAFTA, subjecting Canada to these claims by U.S. companies where no other Western country had done then or has done since.”

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Canadian mining company Gabriel Resources is suing Romania for $4.4 billion through a secretive tribunal after the country denied permits for the largest open-pit gold and silver mine in Europe — a project Canadian officials advocated for, according to documents obtained by DeSmog Canada.

Since 1997, the Canadian mining company (fun fact: it was founded by a man convicted twice of heroin possession), has pressured Romania to allow the construction of the proposed mine in northwest Romania.

The mine would destroy three villages, level four mountains and displace 2,000 people.

Tens of thousands of people marched against the Roșia Montană project in 2013 — the same year the Romanian parliament rejected permits for the mine’s construction. Since then, Romania has applied for the site to be designated as a UNESCO World Heritage Site.

Location of Roșia Montană mine. Image via Gabriel Resources

Canadian Ambassadors Advocated For Mine

Hundreds of pages of documents obtained by DeSmog Canada via Mining Watch Romania  — a distinct organization from Canada’s MiningWatch — show Canadian officials have vocally advocated for the mine, which would access the largest undeveloped gold deposit in Europe.

The documents are a portion of the thousands of pages released to Eugen Melinte of Mining Watch Romaina through Canada’s Access to Information legislation. The materials contain internal Department of Foreign Affairs and International Trade correspondence regarding the Roșia Montană mine going back to 2004.

A 2007 e-mail featuring the subject “Rosia Montana good news” sent from a Canadian embassy staffer to Canada’s senior trade commissioner in Romania noted that an “ardent supporter of the Gabriel Resources project” was re-elected as mayor and a “congratulations phone call might be appropriate.”

In an e-mail from 2008 a trade commissioner with Foreign Affairs and International Trade Canada clearly stated: “Our embassies in Bucharest, Brussels and London have provided extensive support to Gabriel Resources, such as offering business development advice and facilitating meetings with key decision makers.”

The documents show former Canadian ambassador to Romania Raphael Girard later joined the board of Gabriel Resources, worked as a lobbyist for the company and used connections inside the ministry to push for the project.

Marta Moszczenska, the ambassador who took Girard’s place, also advocated strongly for the Roșia Montană mine.

Melinte shared documentation with DeSmog Canada showing Canadian officials used foreign diplomatic meetings to discuss the mining project with Romanian counterparts, often when mining was not officially on the meeting agenda.

“They hunt down the decision makers in unrelated meetings,” Melinte said in an interview.

“Let’s say there’s a meeting for all the Francophone countries. When the Canadian official would meet the Romanian counterpart, they would discuss particular mining projects. I found traces also in NATO meetings….NATO is about defence, not mining. Yet when they would meet, they would put this on the agenda.”

The internal documents include briefing notes prepared for then-prime minister Stephen Harper in advance of a meeting with the prime minister of Romania. Those notes included suggestions to “address the issue of Rosia Montana” and advise “a broader point should be made to the Romanian PM about the risk of creating an unfavourable investment climate in Romania.”

Bizarrely, the documents also detail a Canadian embassy recommendation that Gabriel Resources meet with Prince Charles, a vocal critic of the project.

The company was not successful in arranging that meeting, Melinte said.

“I think it is important that [the company’s] side of the story be told to the most important influencers that have already been approached by the project’s opponents,” wrote David McGregor, senior trade commissioner at the Canadian embassy in Romania, in a 2005 e-mail. “Our mandate now includes supporting [Canadian] investors.”

When asked by DeSmog Canada if the Canadian government still supports the construction of the mine, a spokesperson from Global Affairs Canada responded: “This is a matter between Gabriel Resources and the Government of Romania.”

Government of Canada, Gabriel Resources Rosia Montana ATIP Selections by DeSmog Canada on Scribd

Excerpts from documents released via Access to Information laws containing internal Department of Foreign Affairs and International Trade correspondence regarding the Roșia Montană mine.

Tailings Breaches Spilled Millions of Cubic Metres of Mine Waste in Romania, Hungary

The Roșia Montană mine would produce 300 tonnes of gold and 1,400 tonnes of silver.

The process itself would require the use of cyanide to remove the gold from rock, an extremely controversial practice that in part triggered the 2013 protests. Some 200 million tonnes of mine waste, known as tailings, would be stored behind a dam proposed for the scenic Corna valley.

There have been a series of catastrophic tailings breaches in the area. In 2000, a Romanian gold mine breach spilled 100,000 cubic metres of mine waste — including 100 tonnes of cyanide — into a tributary of the Danube River, killing all plant and animal life in the water for hundreds of kilometres. The catastrophic Ajka alumina plant spill in neighbouring Hungary released one million cubic litres of waste in 2010, killing 10 people and injuring another 150.

Local residents are wary the Roșia Montană mine’s cyanide-tainted waste might leak or spill, despite the company’s assurance that the tailings dam will be “100 times safer than a usual tailing dam.”

The company continues to purchase land in the mine’s proposed region, where some residents refuse to relinquish their land rights.

Gabriel Resources failed to respond to multiple interview requests made by DeSmog Canada.

Investor-State Trade Deals Pose Threat to Environmental Protections

Romania has until 2019 to respond to Gabriel Resources’ $4.4 billion suit.

The challenge is filed via an “investor-state dispute settlement” (ISDS) based on both Canada-Romania and United Kingdom-Romania business investment treaties.

The threat to Romania’s national sovereignty and environmental protections is especially relevant in light of ongoing negotiations of trade agreements including NAFTA, TPP and CETA.

The case also highlights the exorbitant amount companies can claim through investor-state trade deals.

“It is a huge amount of claimed compensation, based mainly on the company’s hoped-for future profits if the mine were allowed to go ahead,” Gus Van Harten, associate professor at York University Osgoode Hall Law School and expert in international investment treaties, told DeSmog Canada.

“There are many other ISDS cases in which the foreign investor claims billions,” Van Harten said. “Claimants sometimes inflate the amounts at stake in a dispute as a bargaining tactic to intensify pressure on a country.”

It’s been estimated that Gabriel Resources has spent $700 million to date trying to pull off the project, including helping to fund a pro-mine documentary called “Mine Your Own Business.”

The secretive and often punitive process of investor-state compensation claims occur behind the closed doors of international tribunals.

Van Harten said investor-state dispute settlement should be abolished.

The current system serves as “an institution of globalization that is stacked in favour of the least vulnerable and against ordinary people,” he said.

Why A Canadian Mining Company Is Suing Romania for $4.4 Billion https://t.co/qZ1HN9SKoc #cdnpoli @james_m_wilt @MiningWatchRo @MiningWatch

— DeSmog Canada (@DeSmogCanada) October 19, 2017

Three-Quarters of Global Mining Companies Headquartered in Canada

Pressure is mounting on Romanians struggling to prevent the Roșia Montană project.

In late August, the Romanian prime minister suggested he’s strongly considering withdrawing the country’s application for a UNESCO World Heritage Site, leaving the door open for future development “maybe after 20 years, when technologies will advance and we will no longer use cyanide.”

“We will try to withdraw it, to write that we no longer support the same point of view, which will put us in a very strange position with the international organizations,” he said in a televised discussion and quoted in the Guardian. “If things remain final, it’s all over.”

Canada is home to 50 per cent of the publicly listed mining companies in the world and has no significant legislation to guide the practices of companies operating overseas.

Canada’s Corruption of Foreign Public Officials Act is often criticized for its weak scope and enforcement. Since its introduced in 1999, only one individual and three companies have been convicted under the act.

Melinte said Canada also backs mining projects in South America and Greece.

“Wherever they have a mining project, they support it fully regardless of the consequences,” he said. “They’re not oblivious to the consequences: they just pretend they don’t know.”

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Senior administrators at the University of Calgary suppressed academic freedom and failed to address glaring conflicts of interest while attempting to establish an Enbridge-funded research centre, according to a report commissioned by the Canadian Association of University Teachers (CAUT) that was released Wednesday.

The report — co-authored by Alison Hearn of the University of Western Ontario and Gus Van Harten of York University — is the result of almost two years of investigation, and starkly contradicts the findings of the university’s own internal review of the situation.

The Canadian Association of University Teachers is a nationwide federation of associations representing 70,000 post-secondary workers.

“Academic staff and professors involved at the centre reached out to senior administrators and said ‘we’re concerned about Enbridge’s influence over the centre, we don’t think we should be a PR firm for Enbridge,’” said David Robinson, executive director of CAUT, in an interview with DeSmog Canada.

“Those concerns were rebuffed. That’s a very serious matter that strikes at the heart of the academic credibility and integrity of work at the University of Calgary.”

Here are five key takeaways from the report.

1) University president Elizabeth Cannon was in a stunning conflict of interest

In 2011 and 2012, the University of Calgary fervently worked to launch the Enbridge Centre for Corporate Sustainability within the university’s renown Haskayne School of Business.

A small problem: the University of Calgary’s president, Elizabeth Cannon, was a board member of Enbridge Income Fund Holdings Board, for which she received an annual remuneration of $130,500 per year (that’s in addition to the $454,000 in salary that she made in 2013). At the end of 2014, Cannon owned over $800,000 of shares in the income fund.

Yet she failed to recuse herself from any of the negotiations for the sponsorship deal with Enbridge.

In fact, she made several direct interventions in the process, including an email in August 2012 to the dean of Haskayne School of Business stating that Enbridge is “not seeing your leadership on this file and are feeling that once the funding was committed, the interest from you was lost. This is not good for you or the university. I want to have a good relationship with Enbridge given that Al Monaco is incoming CEO and our grad (and I am on one of their Boards!).”

The CAUT report concluded this represented a “clear appearance of a conflict of interest” that “should have been readily apparent to anyone who knew of the circumstances.”

Its advice? Quite obvious, really: she shouldn’t have occupied a paid position on an external corporate board as U of C president, or should have recused herself from all involvements with Enbridge.

2) Former Enbridge Centre director Joe Arvai had his academic freedom seriously compromised by the university

Joe Arvai, a former Michigan State University professor and member of Barack Obama’s energy advisory group during the 2008 campaign, was hired on as director of the proposed centre.

Almost immediately, he started resisting the company’s push to create what he called a “PR machine for themselves.” His concerns included Enbridge’s request for the institute to partner with Central Michigan University — which was geographically close to where the catastrophic Kalamazoo River oil spill happened in 2010 and served as an opportunity for the company to try to rehabilitate its reputation in the area.

In addition, he became concerned that the centre’s name and terms would “strip away my credibility when it comes to the kind of research and policy work I do best.”

He eventually left the directorship after Enbridge strongly opposed his dual appointment to the U.S. Environmental Protection Agency science advisory body. Furthermore, he told the CAUT committee that he was actually removed from his position only a week after he indicated his opposition to Enbridge’s proposed Northern Gateway pipeline when asked by the company’s public relations firm.

The report held nothing back on this front.

“This mishandling appears to have been due to a desire on the part of senior U of C leadership to please a significant donor,” the authors wrote. “On repeated occasions, one or more University officials who should have been affirming and defending Arvai’s academic freedom instead undermined it.”

3) The university failed to credibly maintain any independence from Enbridge

The agreement was that Enbridge would provide $2.25 million over ten years to help fund the research institute, which would focus on “corporate sustainability and triple bottom line decision-making.”

In return for a mere $225,000 a year, the company pushed to receive naming rights, influence over who funding awards were given to, ability to push for partner institutions such as Central Michigan University and “customized opportunities to meet with researchers pursuing projects of interest.”

The university happily granted them all their wishes.

That led to business professor Harrie Vredenburg writing an email in August 2011 to Haskayne School dean Leonard Waverman, suggesting the situation “smacks of us being apologists for the fossil fuel industry rather than independent scholars and teachers doing work in a broadly defined area.”

The report concluded that “there appears to have been a significant failure of collegial governance, accountability and oversight in the establishment of the [Enbridge Centre for Corporate Sustainability].”

Robinson of CAUT said in an interview with DeSmog Canada: “It doesn’t surprise me at all that companies want to try to influence university research to their advantage. What does surprise me, and frankly shocks me, is when universities give into those demands so easily.”

4) The university has no serious interest in admitting its mistakes

In response to the criticism following the explosive investigation in late 2015 by CBC News into the situation, the university’s board of governors launched a “comprehensive and independent review,” led by former judge Terrence McMahon.

The 17-page report, which took under two months to prepare, cleared Cannon of any alleged wrongdoing. The university maintains that “the McMahon Report is the proper, comprehensive and independent review of matters connected to the Enbridge Centre.”

The authors of the new report strongly disagreed, concluding the McMahon Report was “undermined by his limited acknowledgement and consideration of the role of academic freedom at universities” and gave “significant benefit of the doubt” to higher-ups at the university.

In an interview with DeSmog Canada, Kate Jacobson — current student and former editor-in-chief of the student paper, the Gauntlet — noted the McMahon Report only looked at whether the university had violated its own “very narrow” policy.

“In my mind, the University of Calgary likes this report because it doesn’t ask any hard questions and exonerates them within the confines of their own policy,” she said.

Furthermore, the University of Calgary’s senior administration refused to participate in the report, despite having what Robinson described as “numerous opportunities in which they could have contributed.” When CAUT came to campus in 2016 to interview faculty members for the report, university provost Dru Marshall warned that the group may not protect the confidentiality of participants.

Without expanding on its reasoning for concluding the report “lacks legitimacy due to flawed process,” the board of governors “considers the Enbridge matter closed.”

Arvai, who now teaches at the University of Michigan, wrote in an email to DeSmog Canada that: “To be perfectly honest, it wasn’t a lot of fun to read the CAUT report because it brought back very vivid memories of the conflicts and intimidation I experienced at the time. But, on a positive note, it’s a vindication after the McMahon report, which felt incomplete and one-sided to me.”

5 Things We Learned from the Damning Report on the University of Calgary’s Connections with #Enbridge https://t.co/hkNXwsCWnV @UCalgary

— DeSmog Canada (@DeSmogCanada) October 13, 2017

5) There are many opportunities for the university to improve, but it won’t be easy

The report concluded with nine recommendations.

They included prohibiting the president and other senior officials from serving for remuneration on any external corporate board, acknowledging publicly that it was wrong for Cannon not to have recused herself from Enbridge-related matters and implementing a policy governing the creation of externally sponsored research institutes.

But that itself might require a re-evaluation of the institution’s entire relationship with the oil and gas industry.

After all, the University of Calgary has a long history of controversies relating to alleged collusion with oil and gas interests, including channeling oil funding for Friends of Science via “research accounts” and housing the Bruce Carson-led Canada School of Energy and Environment.

“This keeps happening because all of these people are part of the same class: they go to the same events, and parties, and Petroleum Clubs,” Jacobson concluded. “They have a vested interest in maintaining the status-quo in Alberta, and that manifests itself on campus in terms of how oil companies are involved.”

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In April and May alone, Lone Pine Resources Inc. — the oil and gas company that’s currently suing the government of Canada for $118.9 million in alleged damages — lobbied 11 MPs, a policy advisor for the Prime Minister’s Office and the chief of staff for Natural Resources Canada.

The sole subject matter listed for the lobbying efforts was: “Claim against the Government of Canada under the North American Free Trade Agreement (NAFTA) by Lone Pine Resources Inc.”

The company is actively claiming damages for Quebec's 2011 decision to revoke oil and gas exploration licenses located beneath the St. Lawrence River that were granted to its subsidiary, Lone Pine Resources Canada Ltd., via a “farmout agreement” with Junex Inc. The $118.9 figure represents Lone Pine’s estimated sunk costs and lost future profits.

Actual case proceedings haven’t started yet: the last publically available document — a 251 page rebuttal by the Canadian government written entirely in French — is from July 2015.

These recent meetings could mean the company — which Sujata Dey, trade campaigner with the Council of Canadians, dubs “a Canadian company suing Canada through their U.S. tax haven and subsidiary” — is attempting to seek an out-of-court settlement with the government, an option that would allow Lone Pine to avoid mounting legal fees and the unpredictable nature of investment tribunals.

Investor-State Dispute Settlements Can Result In Large Payout, Rollback In Policies

Ben Beachy, senior policy advisor in the U.S. Sierra Club’s Responsible Trade Program, notes some settlements such as the Ethyl Corporation’s successful suit against Canada in the late ‘90s have resulted in weakened policy.

Even if that doesn’t occur, he says such investor-state dispute settlement procedures can create a “chilling effect” on governments: with the looming threat of lawsuits from foreign companies, officials are less likely to implement strong environmental protections.

Beachy said the threat of legal action is concrete: “It clearly is a consideration on the mind of policymakers: ‘Am I going to get sued in front of not a domestic court but three private lawyers whose rulings are unpredictable for millions or billions of dollars?’”

Lone Pine Suing Canada Over Quebec's Fracking Ban, Aggressively Lobbying in Ottawa https://t.co/YlkUqSMPTD @ccpa #NAFTA #cdnpoli

— DeSmog Canada (@DeSmogCanada) May 25, 2016

Canada Argues Claims By Lone Pine Are ‘Highly Exaggerated’

Lone Pine Resources is suing the government via the infamous Chapter 11 of NAFTA for what it describes as the “arbitrary, capricious, and illegal revocation” to frack under the St. Lawrence River “without due process, without compensation, and with no cognizable public purpose.”

The government of Canada has contended: “The measure was enacted by a fundamental democratic institution of Quebec and was preceded by numerous studies that establish that the Act seeks to achieve an important public policy objective, namely, the protection of the St. Lawrence River” and that “the damages claimed by the claimant are highly exaggerated.”

Investment Tribunals Lack Safeguards and Equal Standing, Says Investment Law Expert

Gus Van Harten, associate professor at York University’s Osgoode Hall Law School and expert in international investment law and arbitration, emphasizes that investor-state dispute settlement procedures don’t constitute an actual judicial process, lacking the usual safeguards of independence that judges have in domestic and international courts, or the ensuring of standing for all affected parties.

“It’s obvious that there are some foreign investors — not a lot — that benefit from it,” he says. “What’s usually claimed is ‘we’ll get more foreign investment and that will help the economy’ but there’s a real lack of evidence on that point.”

Over 70 Per Cent of NAFTA Claims In Past Decade Have Targeted Canada

Canada is the most sued country in the “developed” world.

A report published by the Canadian Centre for Policy Alternatives in January 2015 noted that via NAFTA, the government has been sued 35 times since 1994, losing seven cases and paying out over $170 million in damages.

Over 70 per cent of NAFTA claims since 2005 have involved Canada. Two-thirds of the total suits have been related to environmental or resource management policy.

Over 70% of #NAFTA Claims In Past Decade Have Targeted Canada https://t.co/YlkUqSMPTD @TheEnergyMix #oilandgas #fracking #cdnpoli

— DeSmog Canada (@DeSmogCanada) May 25, 2016

Nine foreign investors are currently suing Canada via NAFTA.

Beachy — who wrote and researched the Sierra Club’s recent report “Climate Roadblocks: Looming Trade Deals Threaten Efforts to Keep Fossil Fuels in the Ground” — notes that 2015 featured the largest number of investor-state dispute settlement cases launched globally, double the number from just five years before.

In 2014, half of new cases globally were challenging policies related to oil and gas extraction, mining or power generation.

Investor Suits May Increase In Number With Implementation of New Trade Deals

Beachy describes the Lone Pine case as being similar in significance to TransCanada’s $15-billion suit against the United States for blocking its proposed Keystone XL pipeline as both “serve as a wake-up call that deals like the Trans-Pacific Partnership would undermine our efforts to keep fossil fuels in the ground.”

Dey notes the ratification and implementation of the Trans-Pacific Partnership would add nine countries to the list in which companies could incorporate or set up legal vehicles in and sue Canada via investor protection clauses.

Beachy adds there are investors currently fracking in a dozen states that would gain new rights to sue the United States via proposed trade deals like the Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership.

“This one is clearly not hypothetical because of Lone Pine,” Beachy says. “We are anxiously looking at the Lone Pine case given that more and more states in the United States are trying to do what Quebec and New York have already done to protect their citizens from the dangers of fracking.

“It’s a really ironic time to be handing more power to fossil fuel companies, just after the world committed to curb greenhouse gas emissions and transition to green energy in Paris,” he says.

Lone Pine Filed Notice of Arbitration Three Weeks Before Announcing Its Restructuring

Lone Pine Resources has had a rough few years. In December 2012, Moody’s Investors Service downgraded Lone Pine’s “corporate family rating” to Caa1 due to “strained liquidity and sharply declining production and reserves.”

Two-and-a-half months later, the company fired its CEO and CFO.

By January 2014, it completed financial restructuring and emerged from creditor protection, a process started in September 2013 (less than three weeks after it filed its notice of arbitration to the government).

In the process, it cut long-term debt obligations by over four times and rescinded its position as a publically traded company in Canada and the United States. As a result, it’s impossible to tell what Lone Pine’s net earnings are looking like these days and the potential significance of a $118.9 million settlement for the company.

Regardless of the outcome, Dey contends it’s a deeply troublesome example of what’s wrong with investor-state dispute settlement: “This is completely undemocratic,” she says. “It takes power from elected people and puts them into a supranational system that gives rights to corporations. It has nothing to do with democracy.”

“This is a corporate rights system that is even higher in position that our own democratically elected governments.”

Image: Mysterious foamy water collected after heavy rainfall near a fracking site. Joshua B. Pribanic/Public Herald.

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This article originally appeared on the Dogwood Initiative blog.

With final arguments in the Kinder Morgan pipeline review underway in Burnaby, a top Chinese official is using the moment to offer Canadians a deal. During his visit to Ottawa last Friday, Han Jun, China’s Vice-Minister of Financial and Economic Affairs, said the world’s second-largest economy would be willing to sign a Free Trade Agreement with Canada — but only if we build a pipeline to the West Coast.

Signing an FTA, Han suggested, would give Canadian agriculture and energy producers greater access to China’s domestic market. In return, Beijing also wants restrictions lifted on takeovers of Canadian companies by Chinese state-owned enterprises (SOEs).

China has been working to gain access to Canadian oil reserves for more than a decade. As Enbridge’s first partner on Northern Gateway in 2005, state-owned PetroChina pledged to purchase up to half of the pipeline’s capacity, but became frustrated by delays and eventually pulled out of the project.

In the years following, China’s SOEs invested billions into the Canadian oil patch, culminating in the 2013 purchase of Nexen by the Chinese National Offshore Oil Corporation (CNOOC) for $15 billion. (In a tragic coincidence, hours after Han spoke in Ottawa, an explosion at Nexen’s Long Lake facility killed one worker and left another critically injured.)

After the Nexen takeover, which prompted concerns about China’s human rights record, labour practices and one-way approach to investment, Prime Minister Stephen Harper brought in restrictions on future purchases of Canadian firms by Chinese SOEs. Angered by the gesture, the Chinese administration shelved negotiations on a Canada-China trade deal.

Now Beijing is back, once again dangling the prospect of free trade. Right on cue, two friendly think tanks — the Canada-China Business Council and the Canadian Council of Chief Executives — released a report arguing that a trade deal with China would boost Canadian exports by $7.7-billion over the next fifteen years and create 25,000 additional jobs.

“During the term of Prime Minister Justin Trudeau there are rare, historical opportunities between China and Canada,” Han told the Globe and Mail. Here in Canada, influential members of the Liberal family are working hard to prove him right.

Having served as Jean Chretien’s former Deputy Prime Minister (as well as Minister of Finance, Foreign Affairs, and Industry), John Manley is perhaps the most visible former Liberal lobbying for closer economic ties to China. Manley is President and CEO of the Canadian Council of Chief Executives, which co-authored the Canada-China FTA report.

The CCCE’s Chairman is Paul Desmarais Jr., whose day job is Chairman and Co-CEO of Power Corporation of Canada. Having employed at different times Jean Chretien, Paul Martin, and Pierre Trudeau, the late Paul Desmarais Sr. was also the founding Chairman of the Canada-China Business Council, which is the other co-author of the above-cited FTA report.

The CCBC is stacked with Liberal heavyweights. Its current Chairman, Peter Kruyt, works for Desmarais at Power Corporation, while its Vice Chairman is former Liberal Justice Minister Martin Cauchon. The CCBC’s President is Peter Harder, a highly-respected former federal civil servant. When Justin Trudeau needed an experienced set of hands to oversee his transition into government, he called Harder.

None of this is to suggest that further trade with China is in itself a bad idea. But the terms on which we negotiate such a deal must be fair to Canadians, as well as uphold the country’s duties to First Nations. By cheerleading publicly for an FTA, old-guard Liberals like Manley and Desmarais increase the pressure on Trudeau to cut a quick deal on China’s terms.

Don’t forget, any new trade deal would take effect in addition to the Canada-China Foreign Investment Promotion and Protection Agreement ratified by the previous government. The FIPA, from which Canada cannot fully withdraw for the next 30 years, locked in more wide-ranging investment rights for Chinese companies than Canadian firms get in China. That’s why signing the FIPA before negotiating a Free Trade Agreement was a mistake by the federal government, according to one of the treaty’s most vocal critics.

“The sequencing works in China's favour,” says Osgoode Hall law professor Gus Van Harten. “China is the capital exporter in the relationship, so it has the greater interest in a FIPA that provides special rights and protections to each country's investors in the other country. I would say that, with the FIPA, the Harper government gave away one of Canada's bargaining chips to get a favourable trade deal. Now we should be going into trade negotiations with a view to repairing some of the flaws in the FIPA, which will not be straightforward or easy.”

Among the problems with the FIPA — at least for Canadians concerned about environmental laws or labour standards — is the right of Chinese corporations to sue Canada over decisions by courts or legislatures that are seen to interfere with their investments. These investor-state disputes are settled in secretive international tribunals overseen by for-profit arbitrators, and can force host countries to pay damages in the billions of dollars. (For more on the Canada-China FIPA, see Sold Down the Yangtze by Gus Van Harten).Add up the lopsided terms of the FIPA and the sudden pressure on Trudeau to conclude a Free Trade Agreement and the picture becomes clear. China intends to use this next round of trade talks to get what it has wanted for more than ten years: ownership of Canadian energy assets and secure access via pipelines and supertanker terminals on the West Coast.

Let’s curtail any accusations of Sinophobia, right here and now. My family was the victim of the same ‘yellow peril’ discourse that has simmered below the surface of B.C. politics for more than a century. This is not about racism toward Chinese people. This is about protecting our sovereignty — Canadian sovereignty, B.C. sovereignty and Indigenous sovereignty — from a powerful international trading partner.

Prime Minister Trudeau’s job is to balance the pressure coming from the likes of Han Jun, John Manley and Paul Desmarais Jr. with the legal and political realities here in British Columbia. Just last Monday the B.C. government came out in opposition to Kinder Morgan because the company has no credible plan to clean up toxic, sinking bitumen. Municipalities and First Nations around the Salish Sea applauded the province’s move.

Then on Wednesday the B.C. Supreme Court delivered the game-changing Gitga’at ruling, concluding that B.C. erred in signing away its duties of consultation around Enbridge’s Northern Gateway proposal. That ruling has clear implications for theKinder Morgan review, which relies on the same “Equivalency Agreement” between B.C. and Ottawa. Pipelines, as it turns out, are not the exclusive domain of the federal government.

As Beijing ramps up its campaign for a West Coast pipeline approval, our job will be to support those Members of Parliament looking to do right by their constituents — and prevent another cave-in like what happened with the FIPA. Simply put, if the cost of a trade agreement involves dangerous bitumen-laden supertankers on our coast, then the people of B.C. aren’t going to accept the terms. We have just under two months to make that clear before Trudeau heads on his first trade mission to China.

Image: Prime Minister Photo Gallery

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This is a guest post by Gus Van Harten, professor at the Osgoode Hall Law School and author of Sold Down the Yangtze: Canada's Lopsided Investment Deal with China. This post originally appeared on the Globe and Mail.

For years, Prime Minister Stephen Harper’s government told Canadians that it could not act on climate change until China joined in. Yet, in 2014, the government quietly finalized a 31-year investment treaty that, in essence, gives Chinese oil companies an advance bailout against a range of steps that Canada may need to take on climate change.

Take, for example, the call by more than 100 scientists for limits on oilsands expansion until a serious Canadian plan on climate change is in place. What is a serious plan? The scientists said it would need “to rapidly reduce carbon pollution, safeguard biodiversity, protect human health and respect treaty rights.”

Now, consider Canada’s new Foreign Investment Promotion and Protection Agreement (FIPA) with China. 

The deal gives Chinese companies powerful rights to frustrate even modest steps that reduce the value of their oilsands holdings. That is, if governments in Canada put new limits on the oilsands, they face major liabilities under the FIPA’s system of foreign investor protection. Worse, Canadians cannot know reliably how the FIPA is being used – and whether it is affecting government decisions – because the agreement makes special allowances for confidential settlements with Chinese investors.

On a close study of the FIPA’s terms, a key purpose of the deal was to open Canadian resources to China and to preserve the value of Chinese assets in Canada. In the case of the oilsands, there are already billions of dollars in Chinese-owned assets and expected profits that would be affected by a tougher response on climate change. If China is not on board for how we decide to regulate in Canada, we will have a problem, owing to the FIPA.

Read DeSmog Canada's in-depth interview with Gus Van Harten on the Canada-China FIPA

China-Canada Investment "Straightjacket": FIPA Interview with Trade Investment Lawyer Gus Van Harten

Can we expect FIPA arbitrators to award billions of dollars in compensation to Chinese companies? The short answer is yes. In the past few years, there have been huge awards to oil companies under similar investment deals: $2-billion (U.S.) against Ecuador, $50-billion (U.S.) against Russia.

True, these cases differ from potential disputes about climate change in Canada’s resource sector. But it is not unrealistic to expect FIPA arbitrators to (1) issue compensation orders against Canada, since they’ve done so in various North American free-trade agreement cases already, and (2) order vast amounts to be paid by Canadians, since they’ve done so against other countries, and the amounts reflect the value of the foreign investor’s assets, not the Boy Scoutishness of the condemned country.

At the least, the FIPA has made it more difficult for governments in Canada to take action on climate change, assuming that governments are (usually) careful with billions of dollars in public money. Put differently, the challenging question of how to respond to climate change in the oilsands is a danger zone under the FIPA, because much of the oilsands are Chinese-owned and because the Chinese owners will not take kindly to government interference with their business plans.

You may ask, why would the federal government agree to a FIPA with China that puts an uncertain and uncontrollable price tag on Canada’s options to respond to climate change – and other important issues too? Why would the government move power over our future from Canada’s legislatures, governments, and courts to Chinese investors and FIPA arbitrators?

I think the straightest answer is that Mr. Harper seems to have wanted it that way. If one accepts climate change as a pressing concern, it is hard to imagine a more epic fail than the FIPA.

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Last week Foreign Affairs and International Trade Canada announced Canada had "officially joined the latest round of Trans-Pacific Partnership (TPP) trade negotiations" after more than two and a half years of talks by previously engaged nations. The 15th round of talks, involving Australia, Brunei, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S. and Vietnam, wrapped up yesterday in Auckland. 

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hat's the scariest thing happening just after Halloween? Is it the stomachaches our children will have from eating too many sweet treats? No, it’s the Canada-China Foreign Investment Promotion and Protection Agreement (FIPA), which will automatically come into force on November 2nd, binding Canada for 31 years to come.

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This post is second in a series on the Canada-China Investment "Straitjacket:" Exclusive Interview with Gus Van Harten. You can read Part 1 here and Part 3 here.

Right now Canadians stare down the barrel of a 31-year long legal trade agreement with the Chinese government that did not become public knowledge until September 26, 2012.

The trade treaty, known as the Foreign Investment Protection Agreement or FIPA, has garnered notable opposition in the past three weeks, with NDP trade critic Don Davies calling for public hearings, Green Party MP Elizabeth May calling for an emergency Parliamentary debate, and campaign organizations Leadnow.ca and SumofUs.org gathering over 39,300 opposition signatures (and counting) to deliver in person to Ottawa.

Yesterday, the Canadian Press reported the Harper government's refusal to host public hearings. Elizabeth May's October 1 request was also denied on the grounds that FIPA does not meet the test of emergency.

The trade agreement, or treaty, as it is called, is slated for ratification at the end of this month. The Commons trade committee will be briefed on the document in a one hour hearing.

With a trade deal that threatens Canadian sovereignty looming on the horizon and a government committed to expediting its approval, DeSmog caught up with trade investment lawyer and Osgoode professor Gus Van Harten to talk through some of the details.

In this segment Van Harten discusses why the Canadian government would pursue a deal of this sort, outlining the implications of the agreement for environmental legislation in Canada and development in the tar sands, especially in light of the spring's Omnibus budget bill C-38.

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Van Harten also considers the implications of the trade agreement for undecided energy projects like the Northern Gateway Pipeline and, significantly, if first nations and environmental groups were to blockade projects of this sort – who's rights the government would be obliged to protect. 

Below is Part 2 of our interview:

Carol Linnitt: As you have described it, it doesn't seem to make much sense for Canada to sign this agreement.

Gus Van Harten: I can tell you – trying to think about why the government would sign the China-Canada deal – it’s very unfavourable to Canada because of the way in which, as I was saying earlier, we have an open economy and China’s is closed, so the deal really, in fact appears likely to benefit Chinese investors far more than Canadian investors in China, because there will just be more Chinese investment here, because we’ve allowed more in. But I was trying to think why the government might do it, well I thought of different reasons, one might be that they sort of want to score the political bragging rights, of, ‘we signed the deal’, which is, you know, very short sighted, but sometimes governments are kind of shallow like that.

Another explanation would be that they want to open up the economy to this investment, and so that shareholders in Canadian companies in the oil patch can sell their shares at a premium to the Chinese, and get that benefit.

But another more troubling explanation which would require greater sophistication by the government but is not – certainly shouldn’t be ruled out – is that they foresee changes in attitudes about the oil patch, in the United States, in Canada, and that this may lead to new regulations on the oil patch, in that, climate can’t just be wished away forever, and that governments might take steps to regulate the oil patch in ways that investors wouldn’t like.

If you bring in a lot of Chinese investments, and you sign the Canada investment deal, you kind of get the Chinese investors to do your dirty work for you, for years after the current government is gone, because the Chinese investors can beat up on new governments that actually do take steps to change the balance between the investor rights in the oil patch and the general interest in addressing climate change or other issues like pollution and so on.

CL: Wow.

GVH: So that’s probably the most troubling aspect, is that this is designed to be a straitjacket, and it will have effect on Chinese investments that have been let in for the next 31 years after the deal’s been signed. Because the deal has a 15 year term, you have to give another year’s notice to terminate the deal and then after it’s terminated it still applies for another 15 years for investments that are in the country at the time of termination.

CL: So you’re saying that this deal has an active shelf life of 15 years, but stays in effect for 31 years?

GVH: Yes, the treaty does, meaning the treaty will be available to protect Chinese investors, including not just the Nexen investors, if they’re allowed to buy Nexen, but any other Chinese investors who come into the oil patch. I don’t think the government wants to see the whole oil patch Chinese owned, but I think it’s quite likely we’ll see significant portions of it Chinese owned, and once significant portions are Chinese owned, the you’ve also given lawyers who work for the Chinese investors this powerful tool to beat up on governments anywhere in Canada, you really frustrate the ability of Canadians to elect governments that are going to get more serious about the environmental consequences of the oil patch. That will be for 31 years from the date of this deal coming into effect, which is right now forecast to be about a two weeks away.

CL: And what’s the significance of that for, say, something like the northern gateway pipeline project that’s still in decision process?

GVH: Well, I mean, first of all, if that pipeline is owned, if foreign investors are spending money in relation to the proposed pipeline, then they right there could conceivably use the China-Canada deal to object to decisions taken by Canada, for example the British Columbian government, in objection to the pipeline. So the BC government may say ‘we don’t like the deal for the pipeline, we won’t supply electricity to it,’ well if they did that and the pipeline had Chinese money in it, the Chinese investors could say ‘you are discriminating against us, you don’t treat other investors in pipelines the same way in BC, so why are you discriminating with this pipeline, you’re not allowed to do it, and any money we lose as a result, you have to compensate us. You, Canada.’

And that’s not just the money that they put into the pipelines, they that’s their lost profits, that’s the money that otherwise reasonably would have earned, had this pipeline gone forward.

CL: I’m thinking about how tenuous the situation has already become in terms of environmental regulations after the Omnibus budget bill was passed and we saw a severe weakening of our environmental reviews and assessments and regulations. In effect the Harper government has instituted this new legal framework in which our pre-existing environmental laws have been weakened, gutted and now we are introducing this new 'straitjacket' to maintain those laws because of the possible difficulty of ever reinstituting them in stronger ways.

GVH: Yes, exactly, and let me spell it out very precisely. In many cases the arbitrators have allowed the investors to argue under the treaties that their treatment by the government was unfair and inequitable, if the government did not provide a stable regulatory framework. So if the regulatory framework is in a particular state, let’s say its currently denuded state because of the changes in the spring budget to environmental legislation, investors from China now say ‘well, we’re going to invest now because we don’t think any of our projects will be subject to environmental assessments and fisheries act regulations’, and so on. A new government comes in when the projects are underway, and says, ‘well actually we’re putting the laws back in place’. The Chinese investor can then say 'ah, but you can’t because we made our investments based on an expectation that there was a stable regulatory framework and that the previous government promised us that that regulatory framework would be stable’.

And so you can’t change the laws so easily. I’m not saying that the arbitrators necessarily would, but many have, interpreted the treaties broadly enough to allow the Chinese investors to receiver full market compensation in those circumstances from the new government due to a change in the regulatory framework. And, in a way, some of the things that the Harper government has done, I understand second hand – but have not confirmed this myself – that one of the ministers, I think Joe Oliver, had said at press conferences that they were changing the environmental laws because that’s what the investors wanted. If he did in fact say something along these lines, the he could have done nothing more to feed the arguments to the  investors’ lawyers down the road, if a new government decided to put the laws back in place. Because Chinese investors would be able to point specifically to his statements, which would be statements on behalf of Canada, that Canada was prepared to remove its environmental laws in order to bring in Chinese investment because that’s what investors wanted. It almost becomes part of the deal. A new government can reverse that decision, but they will have to pay for it.

CL: Well, that is astounding to hear.

GVH: Yeah, it’s kind of disheartening to those who care about, let’s say, protecting the environment for future generations. But on the other hand, the system has invoked very strong reactions by some countries, and increasingly governments that don’t put investor rights ahead of the rights and interests of everyone else are taking steps to unplug the system as best they can. But the decision to allow the China-Canada investment deal to come into effect will have the greatest impact on Canada’s ability to take sovereign decision with respect to its resource sector since any treaty we have signed since NAFTA. And it is comparable to NAFTA in terms of the effect that it will have. Yet it does not allow any access by Canadian exporters to the Chinese market, unlike NAFTA for the U.S. market. For this reason, it seems to be just a very lopsided deal for Canada.

CL: And this is why the conversation that you see coming, even from conservatives, expressing concerns about the fact that China is not a benevolent nation, that this is why that statement is so significant. They’re not talking about whether these are nice guys or not. This is a much more meaningful and significant thing to say about a county like China when you’re preparing to engage in this kind of deal.

GVH: Well let me give you another example. Under the treaties investors are entitled to something called ‘full protection and security’. Now what that has been interpreted by arbitrators in some cases to mean, among other things, that the government has to protect the investors’ property, assets, from public opposition and public protest. So let’s imagine that there are blockades of the pipeline as it’s being built through British Columbia, let’s say by native groups and by environmentalists. The Chinese will have an expectation, backed by the treaty, that the Canadian government through its police, through the courts, will take strong steps to protect the Chinese investors’ business plans from public opposition.

Now, sometimes public protests in opposition to foreign investments in other countries, I’m thinking in particular of a couple of cases in Latin America, one involving oil drilling in the Amazon by Texaco and then Chevron, and the other involving the disputes over a privatised water system in a city in Bolivia, some of those protests have actually led to violence, people have died, and that becomes part of the context for the arbitrators deciding whether the governments’ protection of the investor were sufficient. So it’s a concern, and I think it’s fair to say the Chinese investors may have a different view of how to handle that kind of situation from what we’re used to in Canada.

CL: And suddenly the onus is placed on the federal government to uphold this agreement, and their loyalty will in some sense be split between preserving this agreement that they have with the company and also protecting the rights of the citizens.

GVH: Yes, exact. So the question that the government will now have to face is, how is it going to balance its obligations to respect Canadian democratic protests, including when it’s actually effective in frustrating a pipeline, to balance that against its new obligations to provide full protection and security, backed by a very powerful international arbitration process, which tends often to favour the investors in its legal approach, and to provide that full protection and security under the treaty to Chinese investors. That’s the question the government will now have presented for itself.

[END OF INTERVIEW PART 2]

Gus Van Harten has written extensively on foreign investment deals. His research is freely available on the Social Science Research Network and International Investment Arbitration and Public Policy website.

Stay tuned for Part 3 of my interviews with Gus Van Harten.

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

This post is the first of a series on the Canada-China Investment "Straitjacket:" Exclusive Interview with Gus Van Harten. You can access Part 2 here and Part 3 here.

I recently picked up a copy of Francis Fukuyama's 2011 book, The Origins of Political Order. Sitting on the bedside table at the house I was staying at, the book made for some 'light' bedtime reading. I heaved the enormous tome onto my lap and, opening it to a random page, read this alarming passage: 

There is no rule of law in China today: the Chinese Communist Party does not accept the authority of any other institution in China as superior to it or able to overturn its decisions. Although the People's Republic of China has a constitution, the party makes the constitution rather than the reverse. If the current Chinese government wanted to nationalize all existing foreign investments, or renationalize the holdings of private individuals and return the country to Maoism, there is no legal framework preventing it from doing so.  (Pg 248)

My concerns with China's treatment of foreign investments arose in light of China's recent bid for Nexen, a Canadian company with large holdings in the Alberta tar sands. Since Canada is having trouble with the management of the tar sands now, what would it look like if we had Chinese state-owned enterprises like the Chinese National Offshore Oil Company (CNOOC) in the mix?

It turns out the problem is of magnitudes greater than I had originally conceived, and concerns not only Canada's management of its resources, but its sovereignty, its democracy, and the protection of the rights and values of its citizens.

Perhaps most strikingly, Canada is embracing this threat, showing telltale signs the real culprit in this dangerous deal isn't China at all.

In order to untangle the web of an international trade deal as complex as the China-Canada Investment Treaty, which establishes the terms of the Nexen deal – the biggest overseas takeover by a Chinese company –  I spoke with Professor Gus Van Harten of Osgoode Law School, an expert on foreign investment deals of this sort.

Below is Part 1 of our interview:

Carol Linnitt: Thanks for taking my call, and for making time for me to ask you some questions. I really appreciate that.

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Gus Van Harten: No problem at all.

CL: I guess I’ll just jump right in. The first question I have regards Canada’s sovereignty over its resources when it engages in these kinds of transactions with state-owned enterprises. Could you talk about Canada’s ability to maintain its sovereignty over the tar sands with this potential Chinese acquisition of Nexen under the Canada-China investment deal?

GVH: Okay, so when we talk about sovereignty, the way a country exercises sovereignty over its territory is by being able to pass laws and enact regulations that apply to companies and anyone else operating in its territory. And if there are any disputes about the laws or the regulations, then those get decided in the courts of the country.

What’s really different about the China-Canada investment deal – although it tracks especially NAFTA in Canada's case, although NAFTA obviously relates to American investors – is that it allows disputes about how laws and regulations or even court decisions have been made, to be decided outside of the Canadian courts. So they’re decided by international arbitrators at the option of the investor…and the China-Canada investment deal and many of these other investment treaties … give the power, and quite immense power, to the investor to challenge any decision that Canada would make, whether by the Canadian Parliament, or a provincial legislature, by the Supreme Court of Canada or a lower court, or by Cabinet or some low-level government official. Anything can be challenged by skipping Canadian courts and going straight to these international arbitrators.

And the international arbitration process, for a number of reasons, is really, I would say, without wishing to make personal allegations about any of the arbitrators, objectively slanted in favour of the investors. That’s not unique to the China-Canada deal. But what is unique is that this is the first time since NAFTA that Canada is entering into a deal that allows for these kinds of lawsuits with a country that is likely to have investors that own a lot of assets in Canada. Okay? You get my drift?

CL: Yes.

GVH: So Canada has other investment deals with countries like Romania, but there are not a lot of Romanian investors in Canada. There are more Canadian investors in Romania. But in this case it seems very likely that there will be a lot more Chinese investment in Canada than Canadian investment in China, and that’s because the China-Canada investment deal has another element, which is that it does not require each country to open up its economy to investment from the other country. Now, Canada is already very open to foreign investment, including Chinese investment, whereas China is relatively closed.

So for that reason, going forward, we are likely to see major purchases of assets in the resource sector, especially the oil sands obviously, by Chinese companies, but I don’t think we’re likely to see anything like the same amount of investment by Canadian companies in China, because the Chinese government won’t allow it, it puts more restrictions on foreign investments. You have to do a joint venture, for example.

They just won’t allow their major companies to be bought up by foreigners in the way that Canada has in the last 10, 15 years. And Canada is increasingly open to having that done, because the Harper government has raised the threshold for the review of foreign takeovers of Canadian companies under the investment Canada Act from about 330 million now, it’s going to go up in about 5 years to 1 billion dollars, meaning the Chinese can buy any Canadian company worth less than a billion dollars without any government review, under the usual process, under the Investment Canada Act. So the Nexen takeover is subject to review because it’s worth more than a billion but there could be a lot of purchases by Chinese investors we won’t even hear about.

The point is, we’re open to foreign investment, and it’s only once the investment is allowed in that the rights of the foreign investors kick in under the deal. So it’s much more likely that Chinese investors will benefit from being able to sue any Canadian exercise of sovereignty than vice-versa.

CL: What kind of potential litigation do you see happening? What are the types of regulatory frameworks or legal frameworks that you could foresee being a problem, say in the development of the tar sands?

GVH: I’ve tracked all the known investment treaty lawsuits brought by companies, and most of these lawsuits are brought by American and Western European companies against developing countries. But there’s been a lot of lawsuits against Canada under NAFTA, and Canada’s been sued more than any other developed country. A Chinese company just launched its first lawsuit against Belgium for two or three billion dollars, which is a very large amount, involving the kind of winding-down or takeover of a Belgian bank, in which the Chinese invested before the last financial crisis. So it’s quite reasonable to expect Chinese investors will be in a position to sue Canada in the way that other companies have sued other countries under these treaties.

Now in tracking those cases to date, there are about 300 that have led to a known decision, not all of which you can really evaluate, so it’s maybe between 150 and 200 that can be evaluated on this point; that is, what kind of disputes do they relate to? There are four main areas:

1) One of the major areas is resource disputes. Resource disputes lead to a lot of investor lawsuits in cases to date.

2) Another area is environmental and health regulations, and I would say most of the lawsuits against Canada under NAFTA, there have been about 30, relate to one of those two areas, a significant majority. So we have a reasonable basis to expect that Chinese investors, where we make decisions in the resource sector and/or related to health and environmental regulations, that they will generate lawsuits under investment treaties.

3) The other two areas incidentally are privatisation, disputes arising from privatisation of major infrastructures, such as water systems or gas transmission lines, led to a lot of disputes. So if we’re talking about a privately owned pipeline, subject to regulation in Canada, then that is also an area that’s ripe for investor-state disputes that could be resolved by these arbitrators.

4) The fourth area is tax disputes and financial sector disputes, and those often link in to the resource sector too, because a government will, for example raise royalty rates on the basis that there has been a windfall profit. This has happened in the oil and gas sectors. Many countries have put new taxes on what they consider to be windfall profits by companies in the relevant sector, and those have generated disputes.

So I really can’t imagine any area of government decision making in Canada other than the resource sector specifically, with the huge money that’s going to be wrapped up in the oil sands, and on piping the oil out of the oil sands, that would be more likely to lead to disputes involving Canada.

When we open up other areas of the resource sector, like in the north, in northern Ontario, the Ring of Fire, those will also be ripe for disputes if there’s a significant foreign investment, which there almost certainly will be.

The biggest loss for Canada under NAFTA was a lawsuit brought by companies owned partly by Exxon against Canada, because of Canada and Newfoundland & Labrador’s process for putting research and development spending requirements on companies operating in the Hibernia, Terra Nova oil projects were objected to by the foreign Exxon-owned companies. The tribunal based that decision on a reading of Canada’s exceptions, Canada actually had exempted Hibernia and Terra nova from the NAFTA provisions, but the tribunal apparently adopted a, very unfriendly for us, interpretation of those exceptions, making them very narrow, and we lost on that basis. This is significant because we’re relying on the same types of exceptions in the Canada-China deal.

CL: So that means that not only can China, say for example, challenge the current regulatory framework, but they can also retroactively challenge pre-existing Canadian decisions about Canadian resources?

GVH: Yes, they can challenge existing decisions, and they can challenge existing legal frameworks, although there are grandfathering provisions with respect for some of the standards in the treaty. But it gets quite complicated as to which existing laws are exempted and which are not, and this goes back to the point about the case I just mentioned. It’s that the arbitrators may not consider Canada’s exceptions for its existing laws, including provincial laws, they may not consider them sufficient to avoid liability in the way that the Canadian government is telling us that they are. And incidentally I should add also, the case in which this was decided is called Mobil Oil and Murphy Oil versus Canada. The award in that case was issued in May of this year, and, despite Canada’s government stated policy to make all documents public, it is still sitting on that award and has not made it public. So we cannot see the basis on which the arbitrators in effect defeated our exceptions under NAFTA, reportedly, and we cannot evaluate the risks associated with using potentially the same exceptions under the Canada-China deal as well as other trade deals the government is negotiating.

CL: So there’s no way at this current stage that we could make an informed decision about whether the China Nexen deal would potentially be a good thing for Canada?

GVH: Well I’m not sure about that, but anyone outside the government is unable to evaluate whether or not the exceptions that the government is relying on to exempt certain existing laws are really reliable, or whether this decision actually frustrates our legal approach, or both.

[The exceptions Van Harten is referring to are stated clearly in this explanatory memorandum.]

This isn’t a central point, I should add, this is something of a more peripheral point to what we were speaking about earlier. The bigger point is that we’re essentially delegating a judicial component of Canadian sovereignty to international arbitrators. And the arbitrators, I should stress, are not subject to review in any court, whether a Canadian court, or an international court. And the arbitrators themselves aren’t judges. In this case the arbitrators are often corporate lawyers whose main career is to work for large companies and other foreign investors, or they’re moonlighting academics, or sometimes they’re members of corporate boards.

Put it this way, the process is not independent in the way that most Canadians would think of a judicial process. 

The other point that’s quite important is that it is very reasonable to expect that in relation to Canada’s resource sector, because of the amount of money at stake and the possibility that governments will try to take steps to ensure that Canadians and the Canadian economy benefit from the exploitation of our finite resource. This is something that all governments have an obligation to do, some do better than others. 

If a new government came in or if the circumstances change, say the price of oil in the international market goes up to $200 a barrel, we could quite likely see a government say, “Well, we’re going to raise the royalty rates”, or they’re going to say, “We’ve got enough, we don‘t need to attract as much foreign investment anymore, so we’re going to start demanding a bit more of a share from these projects.”

That is just a minefield under the Canada-China investment deal for lawsuits by China against Canada, and these would potentially be multi-billion dollar lawsuits. The largest lawsuit I’ve heard of is a lawsuit against Pakistan that involves claims in excess of 100 billion dollars, which is sort of hard to get your head around.

CL: Yes.

GVH: It's a massively important decision-making power that the arbitrators have.

CL: And when this sort of international arbitration occurs, is it usually for the purpose of an award, or can it also be for the purpose of re-establishing a legal framework in favour of the investors? Say the investor has a problem with the way that the local government wants to build a pipeline, or manage a certain resource, or deal with privatisation of resources. Can the decision of this international arbitrator actually end up instituting certain laws or changes in the legal framework?

GVH: Generally the arbitrators do not do that; they just award money. They require compensation of the foreign investor out of the public purse of the government. Now that in itself reflects a change in the government's decision, because the government will have taken a decision to pass a law, it will have said ‘we’re not going to compensate everyone in the world who is disadvantaged by this law.’ That’s not how parliaments work.

When Parliaments pass a general law, they don’t compensate all the businesses that now have lost profits they would otherwise have earned over the next ten or twenty years had the law not been passed. But the arbitrators do award that kind of compensation in some cases. They order, in effect, the state to pay compensation for legislation when parliament otherwise would not have, or when the Canadian courts would have ordered parliament not to have done it. So in that way they change decisions but the change is related to the monetary implications for taxpayers.

CL: Right.

GVH: Now the monetary implications in themselves can be huge and can actually exceed in their impact a non-monetary order. It’s actually easier sometimes for a government just to change a decision or tweak it than to have to pay a massive award for all the lost profits of the investors. The threat of a lawsuit, especially if it involves a lot of money, can be used in the early stages of a dispute to get a government to change decisions, or to deter it from making certain decisions. It’s not clear the extent to which this happens because it’s extremely difficult to research, because we never really hear about these cases, because they never lead to an award, they get settled even sometimes before the investor has brought a claim. You see what I mean?

CL: Yes, absolutely.

GVH: Threaten Canada with a lawsuit, and parliament changes its decision while it’s still in the committee stage. We could find out about that. Or for, for example, the federal government may lean on a provincial government to change its decision. We might never know. 

CL: So in effect, when these massive state-owned enterprises are purchasing large stakes in a resource, they’ve got big muscles to flex, basically, they have a lot of power to exercise in the way laws are managed and shaped.

GVH: These treaties are like a dream for the lawyers who work for big companies. It’s just a wonderful additional tool to use to threaten and intimidate and beat up on governments.

And I believe that lawyers in Canada, Canadian lawyers in law firms, may be quite keen on the China-Canada investment deal as they see work for themselves, representing Chinese investors and helping them understand how they can sue, or threaten to sue, governments in Canada. And in fact, it’s regularly the case that you have this section of the Canadian legal community that promotes actively the ability of foreign investors to sue or threaten to sue the Canadian government.

CL: My goodness, the more you talk about this, the more it sounds like absolute madness.

GVH: Yeah, I’ve hardly even gotten started.

[END OF INTERVIEW PART 1]

Gus Van Harten has written extensively on foreign investment deals. His research is freely available on the Social Science Research Network and the International Investment Arbitration and Public Policy website.

The Harper government has recently decided to extend the review period for the CNOOC purchase of Nexen for an additional 30 days until mid-November. The China-Canada Agreement, however, is slated to pass into legislation on October 31, 2012 without open parliamentary debate. 

Campaing organizations Leadnow.ca and SumofUs.org have launched an effort to stop this deal before it's even begun.

Stay tuned for Part 2 of this series based on my interviews with Gus Van Harten.

Images from "PM Visits China" Photo Gallery.

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