MLI Commentary – Trade dispute settlement: Evidence suggests system stacked against Canadian investors

September 28, 2011, Ottawa, ON – The federal government is currently pursuing a major trade deal with Europe that, if left unchecked, would perpetuate a flaw in Canada’s trade model: The lack of safeguards of independence in those chosen to adjudicate disputes under trade agreements where investors from one country are harmed by the other country’s actions. In the latest MLI Commentary by Law Professor Gus Van Harten, he calls for targeted reform of the current design of investor-state arbitration.

According to Van Harten, “The flaw undermines Canadian interests. For example, Canadian investors have an abysmal record in investor-state arbitration. They have sued foreign countries – most often the U.S. – 16 times and lost every case. Although not necessarily definitive, this experience should raise alarm bells about investor-state arbitration.”

He says Canada should look to other models of dispute resolution as a basis for re-shaping the system. One of the best models is the person-to-government arbitration process under Canada’s Agreement on Internal Trade (AIT). Based on this model and its underlying principles, he lists six recommendations to improve investor-state arbitration:

– A pre-set roster from which all arbitrators would be appointed;

– An objective method to select tribunal chairs where the parties do not agree;

– Rigorous checks on outside remunerative activities by arbitrators;

– A binding code of conduct for arbitrators;

– A duty to resort to reasonably-available local remedies, especially in the case of states with mature domestic court systems; and

– An independent screening process to weed out claims that are frivolous, harassing, or unlikely to succeed.

Van Harten concludes, “These adjustments would remove apparent conflicts of interest among investor-state arbitrators. They would support a fair and neutral process of dispute settlement, as an integral part of a rules-based system of trade and investment. And they fit closely with the values and interests of Canada as a trading nation committed to the rule of law.”