Even as Canada hustles to play catch-up on the international trade scene through its ongoing pursuit of Bilateral Investment Treaties (BITs) with developed and emerging nations, it faces its first non-NAFTA investment claim and the first BIT claim against it by a developing-country investor.
The claim comes in the form of a request for arbitration by Global Telecom Holding (GTH), registered in June with the International Centre for Settlement of Investment Disputes (ICSID) under the Canada-Egypt BIT of 1996. Although the parties have not provided any details, the dispute almost certainly arises from GTH’s (operating as Orascom Telephone) failed attempt to buy a controlling interest in Wind Mobile Canada, a wireless telecoms company, about three years ago. GTH maintains that it was treated unfairly by the Canadian government, forcing it to withdraw its bid.
The irony is that investor-state dispute resolution mechanisms were originally intended to protect investors from developed countries against unfair treatment from developing countries where democracy and the rule of law were not necessarily priorities. As far back as 1994, NAFTA’s Chapter 11 was included in the treaty to protect US and Canadian investors against corruption in Mexico.
Still, despite the fact that GTH’s claim is the first BIT dispute in which Canada finds itself on the defensive, its subject matter is probably no surprise to seasoned observers. The case is squarely within the realm of the cultural protectionism allegations that have long sullied Canada’s reputation as a free trade advocate.
There’s really no dispute that Canadian governments have long granted special status to the country’s “cultural industries.” The policy has for many years been an irritant to trading partners, the subject of extensive discussions in trade negotiations, and the catalyst for international arbitration claims against Canada under the North American Free Trade Agreement (NAFTA) and at the World Trade Organization (WTO). For the most part, these claims have come from other industrialized countries like the US, the EU and Japan.
But the worm may be turning with the GTH claim.
To be sure, whether or not the claim is the start of a trend remains to be seen, but asking whether it is constitutes a valid question, one that raises concerns about the potential for investor-state disputes under the Canada and European Comprehensive Economic and Trade Agreement (CETA) and the Trans-Pacific Partnership Agreement (TPPA). “Canada faces, for the first time, a claim under treaties that were often concluded at a time when capital-flows were not so much of a two-way street,” writes Luke Petersen, editor and publisher of Investment Arbitration Reporter. “These changes in the direction of investment flows, as well as Canada’s pursuit of treaties with major capital exporters like China, India, and the European Union, could presage more such claims in future.”
To date, Canada has been involved in BIT arbitrations only as the nationality of a complaining company. Many of the aggrieved investors have been mining companies who have been victims of the phenomenon known as resource nationalism. In the typical resource nationalism scenario, underdeveloped countries go out of their way to attract foreign investment with incentives and favourable contracts or licenses and companies invest heavily in the infrastructure necessary to extract the riches. Once the major investments are in place, the governments of the developing states try to renegotiate, and if they can’t, resort to threats, taxes, regulatory hurdles or direct or indirect expropriation to get what they want.
Clearly, that’s not the Canadian way. But when it comes to cultural protectionism, a long history of formal and informal international claims against Canada have combined with a lack of transparency to give the country something of a black eye.
Consider the facts behind GTH’s withdrawal in 2013 of its attempt to take control of Wind. The company had provided much of the financial backing when Wind entered the Canadian wireless market in 2008, but foreign ownership rules limited its stake to a 32 per cent voting interest and a 65.1 per cent equity interest.
In 2012, the Canadian government relaxed foreign ownership limits on small telecoms. GTH sought to buy out Wind owner Anthony Lacavera. Despite the relaxation of the foreign ownership rules, the Investment Canada Act (ICA) mandated a review of the transaction. Amidst media reports suggesting that what was a seemingly straightforward review had been subject to longer than usual delays, GTH withdrew its application. The company stated that its decision came following discussions with the government as part of the review process.
Observers speculated that the government was concerned that GTH intended to sell the company after acquiring control, but no one outside the stakeholders circle really knows what prompted the government to drag out the affair and cause GTH to drop its bid. Trade lawyers say that it’s precisely that lack of transparency in ICA reviews that contributes to the recurring protectionist allegations against Canada.