Canada on the right track after recent reforms to foreign investment rules

January 18th, 2017
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Montreal – The new rules to settle foreign investment disputes contained in the recently signed Canada-EU Comprehensive Economic and Trade Agreement (CETA) are a step in the right direction and provide a model for Canada’s future investment agreements, says a new chapter from the Institute for Research on Public Policy’s forthcoming volume Redesigning Canadian Trade Policies for New Global Realities.

Author Andrew Newcombe (University of Victoria) says that through its efforts to create a new Investment Court System that many other countries could eventually join, Canada is playing a leadership role by improving international investment policy in a way that protects foreign investment and maintains regulatory flexibility.

In his chapter Newcombe examines critiques of the international investment treaty regime — an area where public criticism has increased sharply in recent years — and reviews the most significant changes to treaty practice over the past decade in Canada and the United States.

Controversial issues include the fact that investor-state dispute settlement (ISDS) tribunals have the power to review host country laws and regulations, which potentially call into question domestic policy decisions aimed at protecting human health and the environment. Newcombe says there is no convincing evidence that ISDS has prevented Canadian policy-makers from regulating in the public interest. “For the most part, Canada’s legal counsel has been successful in defending Canada against questionable claims,” he says. He emphasizes that when viewed in context, awards to date in favour of foreign investors represent only a small fraction of foreign direct investment in Canada (less than 0.025 percent).

Newcombe argues that Canada and other countries have a strong systemic interest in continuing to support international investment agreements backed up by investor-state dispute settlement, and this interest extends beyond any single agreement. The fundamental rationale for the international investment regime is to protect and promote investments by adhering to and enforcing international standards. “Canada cannot and should not expect other countries to accept the obligations of modern international investment agreements if they themselves are not willing to be bound by these same provisions,” he says.

The author says that the proposed multilateral investment approach that CETA establishes is preferable to the current patchwork of thousands of largely bilateral deals. Nevertheless, he cautions that this objective is probably best viewed as a long-term goal rather than a short-term priority, unless it gains the support of key economic powers, such as the United States and China, which is unlikely in the short term.

Canadian Investment Treaty Policy: Stay the Course on Progressive Developments,” by Andrew Newcombe, can be downloaded from the Institute’s website (irpp.org).

Redesigning Canadian Trade Policies for New Global Realities, edited by Stephen Tapp, Ari Van Assche and Robert Wolfe, will be the sixth volume in the IRPP’s The Art of the State series. Thirty-one leading academics, government researchers, practitioners and stakeholders, from Canada and abroad, analyze how changes in global commerce, technology, and economic and geopolitical power are affecting Canada and its policies.

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Media Contact:    Shirley Cardenas    tel. 514-594-6877   scardenas@nullirpp.org