Canada: Effective Use Of International Trade And Investment Treaties

Does a regulatory barrier impede your access to an export market? Does a government measure discriminate against or otherwise harm your business operations? In recent years, there have been significant developments in international trade and investment protection law that offer potential responses to regulatory measures that have a negative impact on business. These changes have enhanced both the scope of the obligations under these agreements and their enforcement.

Trade and Investment Treaty Obligations

The disciplines in these agreements no longer apply just to trade in goods, but also trade in services, intellectual property, government procurement, technical barriers and other impediments to trade, and foreign direct investment. Dispute settlement and enforcement mechanisms contained in these treaties have also been strengthened. Obligations under most trade agreements are "binding" in the sense that one country's failure to comply with them will permit other countries to impose sanctions, most often by suspending benefits and concessions accorded to the offending country under the particular trade agreement at issue. Further, most bilateral investment treaties (BITs), including Canada's, enable private investors to sue governments for losses arising out of a violation of their treaty obligations.

Most developing and industrialized countries are subject to obligations arising from these agreements, because they are World Trade Organization (WTO) members or parties to regional free trade agreements or BITs. These obligations apply to government policies, administrative and legislative measures, and even judicial action. They apply not only to national governments but also in many cases at the provincial, state and other sub-federal levels.

Canadian Commitments

Canada, in addition to being a WTO member and party to the North American Free Trade Agreement (NAFTA), is also a party to regional free trade agreements with Chile, Israel and Costa Rica, and to BITs with over 20 developing countries. Almost all of these agreements have come into force in the last 10 to 15 years. A complete listing of these agreements, as well as ongoing negotiations for additional trade and investment treaties can be found at http://www.mccarthy.ca/pubs/publication.asp?pub_code=2855 .

To date, at the WTO alone, Canada has brought 27 cases against other member countries who have taken measures alleged to violate WTO obligations. Canada has been the target of 14 WTO complaints by other countries and, as a result, has had to terminate or revise offending measures across a wide range of sectors, including automotive products, magazine publishing, pharmaceuticals, dairy products and regional aircraft.

So far, Canada has been sued by investors 13 times under NAFTA's investment chapter, the template for most of Canada's BITs, with awards amounting to US$27 million.

Impact on Strategic Decision-Making

Business decisions must take into account the impact of, and the opportunities afforded by, these agreements. The strategic benefits of staying abreast of developments in this area is at least threefold:

(i) Identifying market opportunities: For example, an exporter may become aware of, and seek to improve its access to, new geographic or product markets as a result of trade negotiations under prospective or existing agreements. More than ever before, governments encourage input into the negotiations from interested parties.

(ii) Tools to deal with market access or competitive issues: Importers encountering difficulties in accessing the Canadian market can look to Canada's obligations under these agreements as one of the available avenues for addressing the situation. Foreign investors may also rely on the investment dispute provisions of BITs or Canada's free trade agreements, including NAFTA, to sue governments imposing discriminatory or expropriatory measures.

(iii) Planning for the potential negative or positive impact: If a measure that has protected a domestic producer's market must be removed (either through negotiations or as required by a trade agreement ruling), or if importers find themselves in the crossfire of a trade dispute, the result of which can be the imposition of sanctions in the form of import surtaxes, all players in the market can use this information to jostle for market advantage.

As the significance of trade and investment agreements grows, companies will need mechanisms in place to ensure that this information is fed into their strategic decision-making process and in their business planning systems. This distant early warning system should cover all trade and investment agreements, including the NAFTA, the WTO agreements, Canada's regional and bilateral agreements, and agreements currently being negotiated as set out at http://www.mccarthy.ca/pubs/publication.asp?pub_code=2855

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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