Lexpert Magazine

72 LEXPERT MAGAZINE | NOVEMBER/DECEMBER 2016 | INVESTOR-STATE DISPUTES | many were not draed with protections for the developed country in mind. at, obviously, has changed. "In the past, Canada may not have thought about cross-investment when it was negotiating trade treaties, but global money has no need for a home anymore," says Barry Appleton of Appleton & Associates in Toronto. Un- like some European countries, Canada has not taken any step to update its BITs. Going forward, both CETA and the TPPA maintain the cultural exemption for Canada. "ese new agreements are not as- pirational but recognize what's actually go- ing on in the world by allowing more pro- tectionism for everyone," Appleton says. "In doing so, they give government more latitude to discriminate against foreigners in their public policy." e lawyer, however, also maintains that both CETA and the TPPA were conceived and draed too hastily, without sufficient consultation. "e treaties have lots of holes and problems generally, and eventu- ally these errors will manifest themselves into disputes." What will change dramatically, at least under CETA, is the way in which disputes will be resolved — and the issue could not be more controversial. When the European Commission invit- ed comment on investor-state arbitration in 2014, the 145,000 responses crashed its computers. e respondents were over- whelmingly against the current system, es- sentially a private one, where arbitrators ap- pointed and paid for by the parties are the adjudicators. But it's not just Europe. Many countries, including Canada and the US, are seeing a backlash against investor-state arbitration in its current form, where the mechanism is oen viewed as an infringe- ment on sovereignty. Other criticisms of the current system are the lack of judicial independence and the lack of standing for It's not that Canadian legislators are blind to cultural protectionism. Various exemptions for these industries are ex- pressly provided for in Canada's BITS and NAFTA. ey cover not only print publi- cations but their distribution; the produc- tion, distribution, sale or exhibition of film or audio, video and audio music reporting; radio communications intended for recep- tion by the public; all radio, television or cable broadcasting undertakings; and all satellite programming and broadcast net- work services. e exemptions cut a wide swath. Unit- ed Parcel Service of America (UPS) discov- ered just how wide when the company filed a US$160-million NAFTA claim in 2000. UPS alleged that Canada had provided im- proper subsidies to Canadian publications that gave Canada Post an advantage over private courier services. Seven years later, the tribunal ruled against the UPS, hold- ing that the cultural industries exemption, which it called "admittedly broad" and "ex- pansive," applied. e difficulty with the exemptions is that they differ, and to varying degrees. NAFTA, for example, allows the United States to retaliate if Canada invokes the exemptions. Many BITs, like the one with Egypt that governs the GTH dispute, were negotiated in a world that perceived money moving just one way: from developed to developing countries. e upshot is that third parties who may have an interest in the proceedings. e upshot is that the final text of the Comprehensive and Economic Trade Agreement, signed in February 2016, does away with arbitrators appointed by the par- ties and replaces them with a permanent tribunal roster established by governments with no input from investors. e 15-per- son roster will be composed of five Cana- dian members, five from the EU and five from other countries. Arbitrators will be selected randomly from that group. "e roster will enable Canada and the EU to control which experts sit on arbitrations to ensure that they are sensitive to govern- ment perspectives," writes Greg Tereposky in a Borden Ladner Gervais LLP bulletin. CETA also establishes an appellate tribu- nal to review awards. Its jurisdiction will be limited to errors of law and manifest errors in fact. "is will without doubt improve the consistency and predictability of the interpretation and application of investment protection provisions," Tereposky states. Cicchetti, for her part, is skeptical that a permanent court is the right way to go. "e parties won't have an opportunity to choose the decision- maker, and who knows just how these people will be chosen?" But professor Gus Van Harten of Os- goode Hall Law School at York Univer- sity says that the CETA arrangement is a definite improvement and augurs well for Canada. "Canada has been gung-ho on ac- cepting the old system even when it's the country in the more vulnerable position, as it did when it signed on to NAFTA. Since then, we have led the pack among Western nations in ceding sovereignty." Cases like GTH, Van Harten adds, are now exposing risks that Canada did not expect when it signed the BIT with Egypt. "Even if the risk of losing is small, there's a potential for a $1-billion award for lost profits," he says. "Surely that's enough to impact decision-making in this country." What, then, lies ahead for investor- state arbitration? Is Canada going to see a decided uptick or not? Generally speaking, as BITs have prolif- erated globally — there are now just under 3,000 in force — so have the number of "The environment is very different from 25 years ago when free trade was all the rage. There are strong populist trends to protecting local production, workers and the environment, and it would be naïve to think that we're not going to see more government action in support." BRENDA SWICK > DICKINSON WRIGHT LLP

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