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Investment treaties and the internal vetting of regulatory proposals: a case study from Canada

SSRN | 7 December 2015

Investment treaties and the internal vetting of regulatory proposals: a case study from Canada

Gus Van Harten and Dayna Nadine Scott

Do trade agreements and investment treaties that allow for investor-state dispute settlement (ISDS) lead to regulatory chill? Some researchers express the concern that ISDS creates incentives for states to avoid or modify their regulatory decisions because of a risk of foreign investor claims and monetary awards. The fear is usually linked to the exclusive access of foreign investors to ISDS, the inability of states to bring claims against foreign investors, the breadth of foreign investor protections in ISDS, the weaknesses of exceptions to protect the right to regulate, the ability of foreign investors to receive uncapped amounts of compensation from the state, the international enforceability of ISDS awards, or the absence of conventional judicial safeguards in ISDS. The fear is also raised often in the context of health and environmental decision-making. Concerns about regulatory chill point to the broader issue of how legal constraints and litigation risk affect the state’s regulatory enterprise by restricting policy space and raising public costs of state activities.

In this paper, we report empirical findings on ISDS and regulatory chill. Our study focused on whether ISDS contributed to changes in internal vetting of government decisions related to environmental protection in the province of Ontario, Canada. Our main source of information was 51 interviews, conducted on a confidential basis with insiders, mostly current or former officials in ministries with an environmental or trade mandate. We aimed to advance understanding of litigation risk and government decision-making in general with a particular focus on ISDS. Our first set of findings are as follows:

1. Government ministries have changed their decision-making to account for trade concerns including ISDS.

2. Government lawyers play a key role in assessing trade and ISDS risks.

3. The Ontario trade ministry has pushed to expand a centralized regulatory assessment process for evaluating proposed government decisions for trade and ISDS risks.

4. Some insiders saw the trade ministry and the regulatory assessment process as creating undesirable obstacles for environmental decision-making.

5. A ministry’s concern for trade and ISDS was more acute after the ministry was drawn into a NAFTA case although institutional learning about ISDS appeared to be variable and intermittent.

6. Officials typically declined to discuss specific cases or decisions.

7. Officials referred occasionally to specific situations where trade or ISDS concerns were considered and, in some cases, where they led to changes to a proposal.

These findings are not exhaustive and will be supplemented by more detailed findings that are flagged in the conclusion to this article. We stress also that the context of Ontario, Canada, may differ significantly from other jurisdictions. Even for Ontario, the findings are not comprehensive; we think they are best viewed as investigative revelations emerging from somewhat scattered insider perspectives. The perspectives were somewhat scattered because some officials contacted for an interview did not accede and those who did accede worked in different contexts of government. We have exercised caution in presenting the findings by emphasizing observations that were supported by multiple interviewees and by prioritizing the direct reporting of interviewee statements in order to allow the reader to evaluate support for each finding.

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 source: SSRN