2019 Consultation report and FIPA review

Executive summary

This report summarizes the methodology and outcomes of the consultations that were launched in the Summer of 2018 as part of Canada’s Foreign Investment Promotion and Protection Agreement (FIPA) model review.

It outlines the methodology used and various approaches employed to engage the public and key  stakeholders (e.g., businesses, and labour organizations) as well as provincial and territorial governments and Indigenous partners. Views were obtained via online and in-person consultations, meetings with provinces and territories and Indigenous partners, roundtable discussions, and written submissions by various stakeholders.

The report outlines the feedback from 255 individuals from across Canada who submitted comments on the PlaceSpeak platform and 27 individuals and organizations who submitted e-mails and letters on how the following topics should be addressed in Canada’s new model FIPA: Investor-State Dispute Settlement (ISDS); small and medium-sized enterprises (SMEs); corporate social responsibility (CSR); public interest regulation; Indigenous-owned businesses and people; and women’s economic empowerment. The in-person meetings also addressed these issues.

The input received indicates that Canadian investors and business groups continue to be highly supportive of including the ISDS mechanism in FIPAs, as ISDS helps to mitigate the risks associated with investing in foreign jurisdictions. It provides Canadian investors with access to a neutral and objective forum to resolve disputes. Civil society, NGOs, labour unions, Indigenous partners and some think tanks were critical of ISDS. Some of the common criticism to ISDS included the perception that it is incompatible with the promotion of inclusive trade, and that it leads to “regulatory chill”, thereby preventing governments from regulating and enforcing regulation in the public interest (e.g. health and environmental regulations).

The results also showed increased support for including inclusive trade elements to promote Indigenous people and businesses, women’s economic empowerment, SMEs, CSR and public interest regulation in a modernized FIPA.

FIPA modernization review: Public consultations – What we heard

Introduction

Canada last undertook a major revision of its model FIPA in 2003. At that time Canada updated the model borrowing primarily from experience in implementation of the North America Free Trade Agreement (NAFTA) investment chapter. Lessons learned from investment arbitrations under Chapter 11 of the 1994 NAFTA were instructive.

Since the 2003 review, Canada’s approach to investment trade policy has further evolved. The conclusion of milestone free trade agreements such as the Canada-EU Comprehensive Economic and Trade Agreement (CETA), the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and the Canada-US-Mexico Agreement (CUSMA), in addition to the Government’s policy on promoting inclusive trade signalled the need to review again and modernize Canada’s FIPA program.

The Investment Trade Policy Division at Global Affairs Canada (GAC) launched a consultation process in August 2018 toward a modernized and inclusive model FIPA. The consultations sought ideas on how to update the treaty to reflect the innovations of the large FTAs, while also seeking input on incorporating provisions to ensure that all Canadians, including women, Indigenous peoples and small and medium-sized enterprise owners, benefit more from Canada’s investment agreements.

Methodology

A variety of approaches were used to inform the FIPA modernization process:

• A public consultation process (from August 14, 2018 to October 28, 2018) using an online tool (“PlaceSpeak”) which gathered views from over 255 individuals from across Canada. Canadians’ views were sought through discussion questions on a variety of themes, such as ISDS, CSR, Indigenous rights and women’s economic empowerment.
• Written submissions (27 were received) from Indigenous partners and Canadian stakeholders, including scholars, civil society and labour organisations, business associations, pension funds and legal practitioners.
• Meetings with a diverse range of stakeholders including, Canadian businesses and associations, investor groups (e.g., pension funds), NGOs and legal practitioners, as well as with Indigenous partners.
• In October 2018, a FIPA roundtable discussion co-chaired by the Honorable Jim Carr, Minister of International Trade Diversification, and Sean Fraser, MP Central Nova. The event provided an opportunity for a diverse range of stakeholders to express their views on the modernization of Canada’s FIPA program.
• Consultations with Provinces and Territories (PTs); several PTs sent in written submissions to provide their views on the FIPA modernization.

The present report provides an overview and summary of the views expressed through the public consultation process. It is organized around the six themes: (1) Investor-State Dispute Settlement, (2) small and medium-sized enterprises, (3) corporate social responsibility, (4) public interest regulation, (5) Indigenous-owned businesses and peoples, and (6) women’s economic empowerment.

1. Investor-state dispute settlement

80 comments were received from stakeholders and the general public with regard to Investor-State Dispute Settlement (ISDS): 56 comments through PlaceSpeak and 24 comments received by e-mail, letters, and face-to-face meetings. The academic community was split in terms of support for ISDS, civil society and NGOs were generally critical of ISDS; while Canadian business groups and investors were supportive of this mechanism. A number of suggestions were made for improving the functioning of ISDS.

Views expressed through the consultations included the following:

• Canada should move away from and/or remove ISDS in investment treaties as ISDS: lacks transparency; confers rights to foreign investors superior to those available to domestic investors; and investors’ rights are being protected at the expense of human rights, environmental sustainability, health, labour protections, and Indigenous rights.
• The traditional ISDS mechanism protects Canadian investors from the risks of investing abroad by providing access to a neutral forum, should any disputes arise.
• It is important to maintain a robust ISDS mechanism in the FIPAs as this provides greater predictability and certainty for businesses investing abroad.
• ISDS puts public interest regulations in jeopardy and causes a “regulatory chill”, in addition to favouring foreign investors’ rights without holding them accountable for their corporate business practices (e.g. labour protections and environmental sustainability).
• FIPAs should enhance transparency; look at replicating the open court principle of Canadian law (e.g., court proceedings be open and accessible to the public)
• Alternative dispute resolution mechanisms (e.g., state-to-state, mediation, conciliation) or a multilateral investment court initiative should be considered.
• There is a need to create a better balance between investor protections and the Governments’ right to regulate in the public interest. Notably, constructive feedback was received relating to options for ‘exhaustion of local remedies’ and involvement of third parties in ISDS cases as a way of making ISDS more transparent.
• It is vital to preserve core FIPA obligations such as protection from discrimination on the basis of nationality, protection against arbitrary treatment of investors or the ability for investors to repatriate profits.
• If ISDS is maintained in the FIPA, measures promoting Indigenous rights should be exempted from the mechanism.
• FIPAs should not prevent governments from pursuing legitimate policies in the public interest.
• Suggested alternatives and improvements to the ISDS mechanism, included the following:
  • requirement from Canada that FIPA partners’ judicial systems meet a certain standard as a pre-condition to considering an investment agreement;
  • explicit provisions on the State’s right to regulate in the public interest;
  • developing clear ethical rules for arbitrators; 
  • preventing opportunistic treaty shopping by investors;
  • consideration of an appellate mechanism;
  • creating a mechanism for State parties to issue authoritative interpretations of treaty provisions.
  • exempting social programs and environmental protections from ISDS;
  • incorporate an independent screening process to screen out cases that are frivolous;
  • use a predetermined panel of arbitrators to increase consistency in arbitral decisions;
  • review arbitrators’ outside remunerated activities for potential conflict of interest; and
  • inclusion of guidelines that promote the efficient and speedy resolution of disputes.

2. Small and medium-sized enterprises

27 comments were received from stakeholders and the general public with regard to SMEs - 19 comments through PlaceSpeak and 8 comments received by e-mail, letters, and face-to-face meetings. There was a general perception that SMEs traditionally do not benefit from FIPAs. The overall perception was that the government has an important role to play in supporting SMEs so they can take advantage of the business opportunities abroad. Ideas on how this could be addressed included drafting FIPA obligations in a way that better acknowledges the challenges faced by Canadian SMEs interested in doing business abroad.

Views expressed through the consultations included the following:

• FIPA provisions should be better designed to reflect the needs and challenges faced by SMEs.
• SMEs are generally unaware of trade and investment agreements, and that an awareness campaign is needed to ensure that SMEs are able to better understand these agreements and take advantage of them once they are in place. The government should coordinate the work of the Trade Commissioner Service (TCS), Export Development Canada and the Business Development Bank of Canada, so that SMEs can better take advantage of these services and access newly opened markets abroad.
• SME interests could be better promoted by subsidising risk insurance, encouraging policies such as buy-local, enforcing Canadian laws against fraud and bribery, decreasing taxes.
• Performance requirements could be an effective tool to promote the interests of Canadian SMEs. This can include: requiring foreign investors in Canada to purchase local goods from Canadian SMEs; allowing state parties to support the development of local entrepreneurs and SMEs; and clarifying that certain types of performance requirements that benefit SMEs should be permitted under the FIPA.
• Government could consider playing a larger role in assisting SMEs in bringing forward ISDS cases, such as by providing financial support or through assistance to SMEs in bringing claims via the state-to-state dispute settlement system.
• The TCS could be used to better facilitate increased SME exports, help reduce red tape and address the uncertainties and additional risks faced by SMEs.
• FIPAs may not be the best tool to advance an inclusive trade agenda, including the promotion of SMEs.

3. Corporate Social Responsibility (CSR)

32 comments were received from stakeholders and the general public with regard to CSR - 26 comments through PlaceSpeak and 6 comments received by e-mail, letters, and face-to-face meetings. Overall, feedback on CSR has been split between those who believe that the government should not promote CSR standards in FIPAs, and those who believe that stricter CSR provisions are necessary, including the enforcement of CSR investor guidelines (e.g., to address areas such as labour, environment, gender equality, etc.) and/or even denying the benefits of the treaty for those found in violation of these guidelines.

Views expressed through the consultations included the following:

• Some thought that granting investors extensive rights, while also making business conduct subject to non-mandatory and non-enforceable standards was not the right approach.
• Many suggested strengthening the CSR provisions in future FIPAs (including provisions that recognize the importance of the Canadian Ombudsperson for Responsible Enterprise), and seeking binding and enforceable commitments with respect to labour and environmental rights, anti-corruption and protection of human rights. However, there were also some individuals who questioned the efficacy of imposing CSR obligations in a FIPA.
• It was suggested that the CSR provision was weak and needed to reflect domestic and international laws.  Suggestions for strengthening this included referencing the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP), human rights including the United Nations Guiding Principles on Business and Human Rights (UNGP), responsible business conduct, and Indigenous Free Prior and Informed Consent (FPIC)^{Footnote 1}. Some expressed that Canada should ensure investors understand Indigenous FPIC as part of its corporate social responsibility commitment; however, there was question as to whether the FIPA could serve as a tool in this regard.
• Some believed that government should continue to use “best efforts” language in FIPAs with regard to CSR.
• The fundamental objective of FIPAs is to protect outbound Canadian investments, and some believed that governments should not impose new obligations in FIPAs as this would make compliance for Canadian companies more complex and reduce the FIPA’s usefulness as a risk mitigation tool. 
• It was suggested that investors should be required to establish a “due diligence process”, and if they failed to adhere to such guidelines, they should either be: a) denied access to ISDS; b) become subject to a state’s counterclaim; or c) have their damages claim reduced by a proportionate amount.
• Some expressed that Canada should actively engage in international cooperation with partner states to promote policies for the achievement of sustainable development goals, including CSR.
• It was also suggested that Canada should encourage the adoption of multilaterally agreed principles, while also encouraging greater adoption of the OECD anti-corruption principles in developing nations.

4. Public interest regulation

40 comments were received from stakeholders and the general public with regard to public interest regulation - 29 comments through PlaceSpeak and 11 comments received by e-mail, letters, and face-to-face meetings. Overall feedback received indicates there is a concern that FIPAs, specifically ISDS, present a threat to a State’s right to regulate in the public interest. The majority of comments reiterated that the right to regulate is important, and that FIPAs should expressly protect such rights in the following areas: water and environmental protection, health, human rights, labour rights, safety, consumer protection and privacy.

Views expressed through the consultations included the following:

• Governments need to retain the ability to regulate in the public interest in a non-discriminatory, non-arbitrary and transparent manner, and the best way to achieve this is through clear drafting of the substantive obligations in FIPAs (e.g., most favoured nation, minimum standard of treatment and indirect expropriation).
• It is important to strengthen the governments’ right to regulate. This should encompass the right to regulate for health, safety of persons and the environment, data protection and data privacy.
• Need to include provisions clarifying that any changes to domestic legislation in and of themselves do not constitute a breach of the FIPA.
• References specific to the right to regulate should be included directly in substantive FIPA provisions, such as national treatment.
• The scope of general exceptions should be clarified (e.g., whether they operate as exclusions or as affirmative defenses).
• Concerns were expressed with the impact of ISDS on public interest areas such as human rights, health, consumer protection, labour and the environment.
• Some felt that FIPAs could look at promoting and protecting human rights, including: conducting human rights impact assessments, developing a consistent approach to human rights in investment policy, and requiring Canadian companies to carry out human rights due diligence in their operations.
• It was expressed that FIPAs are inherently incompatible with public interest regulation, and should be avoided as a matter of public policy given its alleged negative impact on the duty of governments to regulate in the public interest.
• Suggestions on how to incorporate public interest regulation in FIPAs included: support for exceptions from ISDS where advisable, such as the tobacco exception from CPTPP; look at making ISDS claims subject to the exhaustion of local remedies; limiting the scope of ISDS (or eliminating it altogether); placing onus on foreign investors to prove their investment will not harm the environment and the health of Canadians.

5. Indigenous-owned businesses and peoples

20 comments were received from Indigenous partners, stakeholders and the general public with regard to how FIPAs can best reflect the interests of Indigenous-owned businesses and peoples - 10 comments through PlaceSpeak and 10 comments received by e-mail, letters, and face-to-face meetings. Overall, the feedback noted that the protection of Indigenous rights and promotion of Indigenous-owned businesses should be a priority when negotiating FIPAs. This included meaningful engagement prior to the negotiation of any FIPA, as well as the inclusion of specific provisions to enable the protection of Indigenous rights and interests.

Views expressed through the consultations included the following:

• Investment policies should be aligned (and include reference to) Canada’s obligations under the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP). It was also suggested that foreign investments should not be allowed to proceed if investors do not adhere to these UNDRIP principles.
• Human rights impact assessment should be completed prior to negotiating FIPAs, with a focus on the potential detrimental impacts on Indigenous peoples.
• FIPAs may not be the best tool available to advance an inclusive trade agenda, including the interests of Indigenous-owned businesses and peoples.
• There is a need to advocate for the respect and protection of Indigenous rights in Canada and abroad, particularly in regards to land, people, communities, environmental justice, access to water, food, housing, health, education and jobs.
• Indigenous people should be meaningfully consulted prior to entering into an investment agreement;
• Foreign investors operating in Canada should be encouraged to engage with First Nations in their investments and the federal government should make it mandatory for business procurement programs to engage with First Nations groups.
• Resource sector procurement process model could be a good example of an approach that the governments could pursue in FIPAs as many activities undertaken by the companies operating in the resource sector are located on Indigenous lands and are inherently close to Indigenous communities.
• It was expressed that Canada should not include ISDS in FIPAs as arbitrators may lack the expertise on Indigenous rights and that the risks associated with investing abroad should not be borne by Indigenous populations. However, if ISDS is maintained in the FIPA then an ‘Indigenous general exception’ should be included to ensure the protection of Indigenous rights pursuant to the Canadian Constitution, land claims agreements and self-governing agreements (e.g., similar to the approach taken in CUSMA).
• There was agreement that Canada should continue to allow requirements that foreign investors give preferences to goods or services locally produced or provided by Indigenous businesses or communities.

6. Women’s economic empowerment

22 comments were received from stakeholders and the general public with regard to how FIPAs can best advance gender equality and women’s economic empowerment - 12 comments through PlaceSpeak and 10 comments received by e-mail, letters, and face-to-face meetings. Some feedback was critical, saying that FIPAs were not the best tool to address gender inequality, while others were supportive of efforts to include provisions that could advance gender equality. Overall feedback indicates that advancing gender equality is a priority for Canadians and that FIPAs should reflect this important policy objective.

Views expressed through the consultations included the following:

• Canada should continue to apply a gender lens to FIPAs, and to strive towards gender equality.
• FIPAs should use procurement as a mechanism to advance gender equality (e.g. employ women in non-traditional occupations, employ women when procurement is taking place).
• FIPAs are not currently achieving any real or meaningful inclusive trade goals, including women’s economic empowerment. Specific attention should be given to how FIPAs impact gender equality, and that it should adopt investment policies that align with the Canada’s National Action Plan on Women, Peace and Security.^{Footnote 2}
• Some questioned whether the FIPA was the best tool available to advance gender equality.
• Gender disaggregated data should be used to better understand how trade policies impact women and gender minorities.
• FIPAs are incompatible with gender equality promotion, as FIPAs are perceived as putting corporate interests ahead of social policies.
• Gender diversity should be a guiding principle in Canada’s adjudicative bodies and that Canada should develop domestic policies and programs to support women’s economic empowerment.
• Suggestions on how FIPAs could ensure that foreign investors in Canada and Canadian investors abroad can support gender equality included:
  • adapting their business models and plans to be more inclusive and gender sensitive;
  • reporting on gender-sensitive plans on an annual basis;
  • promoting equal employment opportunity;
  • adopting practices that support women’s participation in the workforce, such as providing childcare support or flexible work hours, etc.

Conclusion

Through this extensive consultation process, the Government of Canada sought the views of Canadians on how Canada’s international investment agreements can better reflect an inclusive approach to trade. Many ideas and suggestions for improving the model FIPA were put forward during the consultations and have been factored into the FIPA review process.
It should also be noted that in parallel with these consultations, an internal technical review of the model FIPA is also being conducted by Global Affairs Canada (GAC). Its purpose is to assess the implications of investment policy approaches negotiated in Canada’s recent free trade agreements (e.g., CETA, CPTPP & CUSMA) for the FIPA. The results of this technical review, in combination with the feedback received over the course of the FIPA consultations, will inform Canada’s position and approach toward a new inclusive model FIPA.