NAFTA Dispute Resolution Mechanism Costs Canadian Taxpayers $314 Million: Report

The current dispute resolution system for the North American Free Trade Agreement (NAFTA), which allows companies to sue governments, has cost Canadian taxpayers $314 million in legal fees and settlements, according to a new report authored by The Canadian Centre for Policy Alternatives (CCPA).

The report comes ahead of the next round of NAFTA renegotiations between Canada, the U.S. and Mexico that are scheduled to take place in Montreal on January 23rd. The U.S. wants to water down the enforcement mechanism for dispute resolution under NAFTA by making dispute resolution panels non-binding or voluntary. Canada and Mexico have resisted this proposal from the U.S. But CCPA says the current system is a costly one for Canadian taxpayers.

The CCPA, which obtained the data used in its report through Access To Information requests, says Canadian losses through that system amount to $314 million when legal fees are added to $219 million in awards and settlements under the “investor-state dispute settlement (ISDS)” system since the trade treaty was enacted in 1994.

“The current renegotiation opens the door to get rid of, or at least neutralize, the investor-state dispute settlement mechanism in NAFTA and I certainly think Canada should grasp the opportunity,” said Scott Sinclair, a senior research fellow with the CCPA in a news release.

The current dispute resolution system was designed to give investors’ confidence when they do business in another country by providing an impartial tribunal to settle disputes with the government over discriminatory treatment. The Trump administration says this system encourages job outsourcing to Mexico and wants to make participation voluntary.

The CCPA says Canada has been the target of more claims under the dispute resolution system than its Mexican and American partners, and the trend is getting worse. Canada has been sued over twice as many times as Mexico and the U.S. combined since 2010.

It says Canada is currently facing eight active investor-state claims — including Omnitrax’s recent NAFTA claim related to its broken rail line to Churchill, Manitoba, and Lone Pine’s challenge to Quebec’s fracking moratorium — that, combined, seek more than $475 million in damages.

Canada’s Foreign Affairs Minister Chrystia Freeland said last week that Ottawa will bring some new,“ creative” ideas to the sixth round of NAFTA negotiations in Montreal next week, in response to some of the “more unconventional” U.S. proposals.

While Canada continues to hope for the best from the NAFTA renegotiation, Minister Freeland said Ottawa is also preparing for the worst-case scenario — a possible decision by the U.S. to withdraw from NAFTA entirely.