Council of Canadians | 10 July 2020
A Canadian mining company is threatening to sue Mexico to avoid paying taxes... and is asking Canada to help them do it
by Sujata Dey
On July 1, 2020, something unprecedented happened. After decades of campaigning, the new NAFTA, or the Canada United States Mexico Agreement (CUSMA), came into effect without Chapter 11. These are the rules which gave corporations the right to sue governments over laws they put into place to protect the public interest and the environment through investor-state dispute settlements (ISDS). It made Canada the most sued country in the developed world, with over $300 million in settlements and a legacy of broken public regulations and protections.
I was relieved. The Council of Canadians and hundreds of thousands of our supporters have campaigned for over 25 years to remove this threat to our democracy.
There’s a catch, though... actually three... It will take three years for ISDS suits under NAFTA to end in Canada and the U.S. Secondly, under CUSMA, Mexico is still subject to corporate lawsuits. Beyond that, Canada has quietly signed onto a host of other trade agreements with ISDS, while keeping a web of other agreements with ISDS intact.
As COVID kicks-in, corporations’ cash in
Globally, over half a million people have died from COVID-19 and without serious and coordinated government action, there is no telling what the death toll will be. Bold, swift government action is crucial to save lives and to protect workers and their livelihoods.
Around the world, people have been making sacrifices to protect one another in an inspiring display of solidarity. But in March— as people were staying home and limiting their social contact, and the Italian government rationed respirators, making heartbreaking and crucial decisions as to who would receive care— corporations had more selfish concerns: how life-saving government actions could be subject to ISDS suits.
This Global Arbitration Review article discusses how Italy’s emergency measures could face corporate challenges under an ISDS agreement. That’s right. Corporations are exploring ways to sue governments for taking action to protect people. And before we think that we’re exempt from such possibilities in Canada, we could see such challenges under the so-called Comprehensive and Progressive TransPacific Partnership, many of our foreign investment partnership agreements, or NAFTA for the next three years as it winds down.
They write, “Both sets of emergency measures are likely to affect investments made in Italy by foreign investors. Indeed, they may result in harsh limitations on investors’ property rights; fundamental and unpredictable changes to the “normative environment” of the investment; potential discriminations between domestic and foreign companies; and, possibly, failures to provide investors and their managers or employees with the safeguards they need to carry out their activities…More generally, they may lead to a suspension of basic entrepreneurial freedoms and to distortion of competition.”
These kinds of comments show the perversity of the ISDS system which rewards corporate bad behavior and penalizes necessary government actions. And not everyone is suffering during this pandemic. An International Policy Studies report showed while unemployment skyrocketed, U.S. billionaire’s wealth grew by $580 billion during the first months of the crisis, increasing 20 per cent. In Canada, the top five billionaires saw their wealth grow nine per cent as they offered 0.09 per cent to charity.
Now, Mexico will be the most affected by ISDS challenges: with the recent renegotiation of NAFTA, Mexico was left out of key changes and is still subject to ISDS under CUSMA— as it is under the new so-called Comprehensive and Progressive TransPacific Agreement which Canada and Mexico signed onto with nine other countries.
Mexican government attempts to check corporate power
Mexico celebrated a different milestone on July 1: two years of the Andrés Manual López Obrador’s government. It is a complicated, but progressive, government that has vowed to end corruption. The government has promised to get rid of privatization in favor of Mexico’s elite; rehaul dubious contracts with foreign companies, particularly in the energy sector; undo bureaucratic favoritism for the wealthy; and reinvest this money into Mexico’s underdeveloped social welfare system.
The new government has been going after big corporations who they argue have been using their political influence to avoid paying taxes. President López Obrador argues that mining companies, manufacturing companies and other industries need to pay their fair share. Walmart and Coca Cola subsidiaries have been challenged with criminal charges and settled their tax bills with the Mexican government. With this money, the Mexican government says it has recovered at least 25 billion pesos into state coffers.
Already, Mexico’s progressive reforms have made it an ISDS target. First Majestic, a Canadian silver mining company has been threatening Mexico for the last few years, under NAFTA’s Chapter 11.
The Mexican government re-examined First Majestic’s records and ruled that it owed backdated taxes related to a tax avoidance scheme. This scheme allowed it to pay taxes on less than the market value of its product by selling it cheaper to a Bahamas company. According to news reports, First Majestic is one of many mining companies to have their taxes reassessed by the Mexican tax authority. And instead of fighting for tax fairness, Canadian diplomats are arguing on behalf of the companies. First Majestic went so far as to ask the Canadian government to arrange a meeting with the Mexican President.
Canadian mining companies have been notorious in Mexico and Latin America for environmental disasters, human rights violations and questionable practices. These companies are also keen users of the ISDS system. The oil, gas and mining sector represent 86 per cent of Canadian companies offensive ISDS cases, which are disproportionately in Latin America. Mining Watch recently documented how with COVID-19, not only is it business as usual for mining, but companies are using the crisis as an opportunity to strike down environmental reviews. In Mexico, there has been significant pressure to reopen the mining industry despite the COVID-19 crisis.
In recent history ISDS has been a perverse incentive of international corporations to pressure regulation, and to make money from taxpayers. Now, the risks of limiting government action have never been higher. That is why, under COVID-19, governments must scale it back.
Internationally, more than 630 organizations representing labour, civil society, environmental and human rights groups are calling for a moratorium during COVID-19. They signed an open letter governments to:
- Permanently restrict the use of ISDS in all its forms in respect of claims that the state considers to concern COVID-19 related measures.
- Suspend all ISDS cases on any issue against any government while it is fighting COVID-19 crises, when capacity needs to be focussed on the pandemic response.
- Ensure that no public money is spent paying corporations for ISDS awards during the pandemic.
- Stop negotiating, signing, and or ratifying any new agreements that include ISDS.
- Terminate existing agreements with ISDS, ensuring that ‘survival clauses’ do not allow cases to be brought subsequently.
- In light of threats exposed by the pandemic, comprehensively review existing agreements that include ISDS to see if they are fit for purpose.
Add your name. Sign on to this letter to tell Prime Minister Trudeau that ISDS hurts the global fight against COVID-19. It is urgent that we end these agreements now!