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Potential Canada-Ecuador trade pact to navigate tricky investment protections field

The Hill Times | 25 January 2023

Potential Canada-Ecuador trade pact to navigate tricky investment protections field

BY NEIL MOSS | January 25, 2023

With a docket already full of free trade negotiations, Canada could be adding one more as it inches towards launching talks with Ecuador that could include controversial investment protections for Canadian mining interests.

Canada and Ecuador started exploratory discussions towards a free trade pact on Nov. 24, 2022, which was followed by the launch of public consultations on Jan. 6. Those consultations will wrap up by Feb. 21.

Ecuadorian Ambassador to Canada Carlos Játiva said he hopes formal trade negotiations will begin around May.

While International Trade Minister Mary Ng (Markham–Thornhill, Ont.) is considering starting trade talks with Ecuador, she also is in the midst of negotiations with the United Kingdom, Indonesia, the Association of Southeast Asian Nations (ASEAN), and India. At the same time, Canada will be considering accession requests to its Pacific Rim trade deal, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which include the U.K., China, and Taiwan, as well as Ecuador.

Játiva said the objective is to conclude a free trade pact “as soon as possible,” but noted the process “does take time.”

“This is my marching order,” he told The Hill Times during a Jan. 23 interview at the Ecuadorian Embassy.

“I came here to promote an FTA [free trade agreement],” said Játiva, who took over as ambassador last June.

Within a potential free trade pact, there will be a focus on agri-food trade as well as fostering increased mining opportunities in Ecuador, said Játiva. Ecuador says the complementary nature of the Canadian and Ecuadorian economies limits the level of competing exports, with Ecuador exporting fruits and seafood and Canada exporting wheat and grain.

To boost mining investment, Játiva said Ecuador is in favour of having an investor-state dispute settlement (ISDS) provision within the agreement. The controversial system allows for companies to sue countries through arbitration (and not domestic courts) if changes in domestic law affect their investments.

In a June 2021 report on the House Committee on International Trade’s study on ISDS provisions, the NDP and the Bloc Québécois called for the Canadian government to abandon the inclusion of ISDS chapters in future trade deals.

Despite this opposition to ISDS provisions, a potential trade deal would still likely pass Parliament as the Liberals and Conservatives have noted their support for the clauses. Játiva said ISDS provisions are “part and parcel” of a free trade agreement.

The committee is set to begin a study on Canadian mining companies abroad.

In 2017, Ecuador cancelled 17 bilateral investment treaties, including one with Canada.

While there are concerns over the protection of labour and environmental rights that come with increased mining, the Ecuadorian ambassador said those rights are “strictly enforced.”

Játiva said the “standard” for negotiations between Canada and Ecuador will be the North American trade pact that Canada has with the United States and Mexico. However, that agreement does not have ISDS provisions.

He said there is a “political will” on both sides to work towards a final agreement, noting that he and the embassy will be lobbying Parliament on the merits of a trade deal.

Játiva said a Canada-Ecuador free trade agreement will bring some parity, as its neighbours to the north and south, Colombia and Peru, each already have trade pacts with Canada.

“We, therefore, have to level the playing field. There are some tariffs that we have to pay and that is something that has hindered the possibility of having a bigger market access to Canada for our products,” he said.

The Ecuadorian ambassador also noted the push for a free trade agreement is part of the government’s philosophy in favour of free markets, as championed by President Guillermo Lasso, a former banker.

“Our president is really a true believer in FTAs,” he said.

In 2021, Canada had about $573-million in exports to Ecuador and $379-million in imports.

Canada-Ecuador trade pact a ‘no-brainer’: analyst

Michael Harvey, the Canadian Chamber of Commerce’s vice-president for policy and international, said now is the right time to push towards a free trade agreement with Ecuador.

“We’ve got a political opportunity with Ecuador right now with a government that is very open to free trade,” said Harvey, a former diplomat with a number of postings in South America. “It should be a no-brainer for the two countries to move forward. The economies are very complementary in trade and investment.”

He said the biggest benefits for Canada would be in agri-food trade and investor protections.

“Canada is the biggest foreign investor in Ecuador and we don’t have a foreign investment protection agreement,” he said, noting agreeing on those protections “shouldn’t be all that difficult in the current political environment.”

In addition to mining, Harvey said a deal will help to protect Canadian investments in infrastructure projects.

“Investments stretch out far longer than the political cycle, so you want to protect your investment in case future governments come in and want to change the terms of the investment after the fact,” he said. “That’s often a problem in foreign investment.”

Harvey said an ISDS chapter would be beneficial for Ecuador in its quest for increased investment.

Stuart Trew, director of the trade and investment research project at the Canadian Centre for Policy Alternatives, said mining looms large in negotiations with Ecuador, which he noted is “highly contentious,” with large Indigenous-led demonstrations against increased mining.

“We are responding to this pull from Lasso who wants to sign these kinds of agreements that have been repudiated by the last government,” he said, noting that there is also pressure from increased U.S. trade interest in Ecuador, with Canada not wanting to lose out on its market share.

Trew said an ISDS provision would be “purely to protect” Canadian mining interests, noting the lack of evidence that the provisions lead to greater investment.

“What they do is to protect the investment that is there, and they do so in quite a heavy-handed way,” he said, noting that the desire to have investment protections within the trade agreement will make it a “highly charged” trade talk in Ecuador, as well as in Canada.

He questioned how the Liberals could claim to trumpet a progressive trade agenda with labour and environmental protections, while defending ISDS provisions that would protect mining interests that could threaten those same safeguards.

Carlo Dade, director of the Canada West Foundation’s trade and investment centre, said Canada should be bringing Ecuador into the trade fold through the CPTPP rather than through a bilateral deal.

He said bringing Ecuador into the CPTPP would be a “slam dunk.”

“You’ve got one set of rules instead of two sets of rules governing trade with Ecuador. The same set of rules that apply with Ecuador, apply seamlessly to the other countries of the TPP,” he said.

He said it is doubtful that Canada could negotiate a bilateral agreement that has standards as high as those within the CPTPP, where Canada would be joined by other economic powers in its negotiations with Ecuador.

Dade also questioned whether it makes sense to begin trade negotiations in a region that is trending towards rejecting trade liberalization, such as has been seen in Chile and Peru, despite Ecuador currently being a “willing dance partner.”

 source: The Hill Times