April 25, 2010


NAFTA Background

The Canadian government website describes the North American Free Trade Agreement (NAFTA) as such:

In January 1994, Canada, the United States and Mexico launched the North American Free Trade Agreement (NAFTA) and formed the world's largest free trade area. The Agreement has brought economic growth and rising standards of living for people in all three countries. In addition, NAFTA has established a strong foundation for future growth and has set a valuable example of the benefits of trade liberalization.

I would not go so far as to say this description is a blatant lie, but I do question who are the recipients of these so called benefits and what exactly are these benefits?

Supporters of trade liberalization often argue that the lowering of barriers allows for a greater ease of flow of goods and services. A true capitalist that strongly believes in the system of supply and demand, is a supporter of free trade. With open borders, competition is at its finest. The best prices for the market are determined and the best supplier of the product comes out on top.

Critics of NAFTA argue that is does not truly embody the idea of trade liberalization. While some of the largest arguments against free trade are the lowering of standards and loss of local jobs, the government action taken to skew the true meaning of free trade is where I would like to focus my attention. Tariffs, quotas, subsidies, and red tape barriers are among some of the tactics used by governments to maintain an air of protectionism in a free trade arena. The Canadian government used a number of these tactics against my company and myself while attempting to create a private health care facility in British Columbia.

NAFTA Chapter 11 Controversy

On January 8, 2009 in the National Post, a Canadian publication. Gus Van Harten wrote an article highlighting a NAFTA trade dispute between Newfoundland and Labrador and a US timber and water company Abitibi. I would like to highlight a very relevant and valid argument that Harten has made, criticizing the illegitimacy of the NAFTA Chapter 11 process:

NAFTA Chapter 11 is illegitimate because the arbitrators are not independent like judges. They do not have security of tenure. They are paid by the day. They may practice as lawyers while working as arbitrators while advising companies. They are part of a tiny clique, populated mostly from the world of commercial arbitration. Those who study this world refer to it as a club or a mafia.

My experience thus far with the NAFTA process only validates this statement. I have researched and discovered undisclosed conflicts of interest. I have had to challenge these conflicts out of my own pocket and at a hefty price. I have experienced delays and out right lies. The government is doing everything in its power to bully me out of continuing with this process, but I will not be bullied. I will not sit idly by as the Canadian government takes reprehensible measures, undermining its own legal system, all in an effort to play a game by its own unfair rules. Future posts will explain this point further, by specifically identifying tactics the government has employed and key players who have put them into effect.

NAFTA Chapter 11 Process

It is argued that the NAFTA Chapter 11 process was put into place in an effort to streamline investor disputes. International trade disputes have been known to be timely and costly undertakings and the Chapter 11 was created to confront those issues. However, currently, it takes approximately three years for the Final Award on Merits of an average NAFTA dispute, but can take longer for complicated cases, such as the Softwood lumber which has been ongoing for multiple decades. This average is approximately three times longer than the NAFTA timetables predict and two to three times as long as the World Trade Organization (“WTO”).

At times, Investors have been forced to resubmit claims to restart the process. There are a number of reasons that can cause this to happen, a few include an arbitrator can be removed or replaced, documentation can be lost, or witnesses have disappeared. Whether the fault of the investor or not, it is their responsibility to resubmit and pay for any further filings.

As a result of the underlying problems in the NAFTA investor-state dispute settlement system, investors are denied access to quick and efficient dispute settlement. Any investor would readily admit that “time is money”. Compared to the national treasuries of Canada, Mexico or the United States, virtually all private investors that might avail themselves of the NAFTA Chapter 11 protections would be considered poor. Unlike a NAFTA Party, a private investor does not have an unlimited budget and is not able to afford the luxury of pursuing a case purely to establish a precedent. The investor is there because of a claim and wants their money and needs to collect damages owed as a result of an alleged breach by the NAFTA Party. Does the Government of Canada rely on this imbalance to prolong the process, increase costs, and possibly even thwart justice, in the hopes the investor will, as a business decision, simply give up in the face of unending delays and mounting expenses? I would argue an emphatic yes, but there are ways to counter this strategy which I will not go into detail here.

Canada’s Loophole to Evading the International Rules

As of 2007, the International Centre for Settlement of Investment Disputes (“ICSID”) has been signed by 155 countries, of which 143 have proceeded to ratification. An investor can bring arbitration before ICSID only if the respondent state has also separately agreed to such arbitration. Such an agreement can be contained either in the contract between the investor and the state or, and this is most often the case, in a bilateral investment treaty between the respondent state and the investor’s home state. ICSID awards cannot be set aside before national courts and have to be treated by each member state as if they were a final judgment of its courts. Awards can, however, be set aside by so-called ICSID ad hoc committees. The number of ICSID arbitrations has increased exponentially in the last few years. In July 2007, ICSID had concluded a total of 125 cases, and had 111 pending cases.

However, Canada has not ratified the ICSID yet. Considering Canada has not ratified the ICSID, any recourse must be made to either the Additional Facility Rules of ICSID or the ad hoc United Nations Commission on International Trade Law (“UNCITRAL”) Rules. However, awards can be set aside under these instruments, meaning that until Canada’s ultimate ratification, NAFTA Chapter 11 arbitration under the ICSID Convention remains unavailable to both Canadian investors in the United States and American investors in Canada.

If I were a unbiased risk manger, I would have to ask myself, why would I want to go to arbitration knowing that if we are to win, the award can be challenged in a formal court. By Canada not signing the ICSID treaty, I am at risk of that.


To focus on my case, one may argue that considering Canada has a public health care system, therefore it has no need for private health care companies. It may interest you to know that there 130 private health care companies in Canada, and more than 50 of those companies are located in British Columbia alone. It is also interesting to note that every single one of these companies are Canadian. I am not about to argue whether or not Canadian or American companies provide higher quality care than the other, but I do argue that we will never find out if the Canadian government puts up so many restrictions that American companies do not have the opportunity to compete.

I look forward to hearing your comments and keeping you updated on future proceedings. My next entry will highlight players and scenarios of conflicts of interest. Happy reading.