Lexpert Magazine

70 LEXPERT MAGAZINE | NOVEMBER/DECEMBER 2016 | INVESTOR-STATE DISPUTES | GTH's claim flips the script. It is the first BIT dispute in which Canada finds itself on the defensive, though its subject matter is probably no surprise to seasoned observ- ers. e case is squarely within the realm of the cultural protectionism allegations that have long sullied Canada's reputation as a free-trade advocate. "My impression is that Canada cycles between encouraging foreign investment and its nationalist con- cerns," says Catherine Gibson of Coving- ton & Burling LLP in Washington, DC. ere's really no dispute that Canadian governments have long granted special status to the country's "cultural indus- tries." e policy has for many years been an irritant to trading partners, the subject of extensive discussions in trade negotia- tions, and the catalyst for international ar- bitration claims against Canada under the North American Free Trade Agreement (NAFTA) and at the World Trade Organi- zation (WTO). For the most part, these claims have come from other industrialized countries like the US, the EU and Japan. But, just as this country begins to wade into multina- tional free trade agreements like the Com- prehensive Economic and Trade Agree- ment (CETA) and the Trans-Pacific Part- nership Agreement (TPPA), the worm may be turning in favour of developing nations. "Canada faces, for the first time, a claim under treaties that were oen concluded laxation of the foreign-ownership rules, the Investment Canada Act (ICA) mandated a review of the transaction. Media reports suggested that a seemingly straightforward review had been subject to longer-than- usual delays, but before the review could be completed, GTH withdrew its application. e company stated that its decision came following discussions with the government as part of the review process. Observers speculated that the govern- ment was concerned that GTH intended to sell the company aer acquiring control, but no one outside the stakeholders circle really knows what prompted the govern- ment to drag out the affair and cause GTH to drop its bid. According to Milos Barut- ciski of Bennett Jones LLP in Toronto, the lack of transparency in ICA reviews con- tributes significantly to protectionist alle- gations against Canada. "Any protection- ist reputation we have is due to a handful of sectors and a few ICA cases," he says. Despite the government's protestations as to the objectiv- ity of the ICA review process, Barutciski maintains that ICA reviews produce "totally po- litical" results. "e first thing foreign investors involved in any significant transaction hear is that they're going to be subject to a po- litical review, and they don't like going through what they regard as nonsense," he says. "e government also has a habit of trying to squeeze something, whether it relates to jobs, or language rights, or R&D commitments, from the foreign investor just before closing. So we end up shooting ourselves in the foot by leaving a sour taste that has the flavour of a banana republic in the mouths of foreign investors." If history is any indication, that "bad taste" has been lingering for a while. Just a few years aer NAFTA came into force, the CRTC stopped the US channel Country Music Television from continu- ing its Canadian operation aer granting a license for a new country music channel to a Canadian entity. Subsequently, the US government conducted an investigation that determined that Canada acted in an unreasonable and discriminatory way. e parties ultimately resolved the is- sues privately, but its aermath is still felt. at a time when capital flows were not so much of a two-way street," writes Luke Pe- tersen, editor and publisher of Investment Arbitration Reporter. "ese changes in the direction of investment flows, as well as Canada's pursuit of treaties with major capital exporters like China, India, and the European Union, could presage more such claims in future." To date, Canada has been involved in BIT arbitrations only as the nationality of a complaining company. Many of the ag- grieved investors have been mining compa- nies who have been victims of the phenom- enon known as "resource nationalism." In the typical resource nationalism sce- nario, underdeveloped countries go out of their way to attract foreign investment with incentives and favourable contracts or licences, and companies then invest heavily in the infrastructure necessary to extract the riches. Once the major investments are in place, the governments of these devel- oping states try to renegotiate, and if they can't, resort to threats, taxes, regulatory hurdles or direct or indirect expropriation to get what they want. Clearly, that's not the Canadian way. But when it comes to cultural protection- ism, a long history of formal and informal international claims against Canada have combined with a lack of transparency to give the country something of a black eye. Consider the facts behind GTH's with- drawal in 2013 of its attempt to take con- trol of Wind. e company had provided much of the financial backing when Wind entered the Canadian wireless market in 2008, but foreign-ownership rules limited its stake to a 32-per-cent voting interest and a 65.1-per-cent equity interest. In 2012, the Canadian government re- laxed foreign ownership limits on small telecoms. GTH sought to buy out Wind owner Anthony Lacavera. Despite the re- "Investor-state disputes were intended to depoliticize the process. It used to be that the best available option for investors was to try to convince their governments to either negotiate for them or pull up the gunboats to resolve what was essentially a commercial dispute." TINA CICCHETTI > FASKEN MARTINEAU DUMOULIN LLP

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