Council of Canadians campaigner Stuart Trew is warning that a free trade agreement between Canada and Europe would threaten Canada’s municipal water systems. The proposed Comprehensive Economic and Trade Agreement, he claims, would lock in bad deals with private water service providers and lock out regulatory improvements. Mr. Trew’s claims are false.
In late January, the Council of Canadians, along with the Canadian Union of Public Employees, released a briefing note asserting that CETA would complicate regulation of the water sector and make service agreements with private service providers difficult to reverse. With investors enjoying a “right to profit,” the argument went, they could sue for lost profits if regulations were toughened or agreements were terminated.
The briefing note repeated many of the claims made a year earlier in another joint CoC-CUPE report, “Public Water for Sale.” Under CETA, the earlier report maintained, the protection of investor rights would “restrict how governments regulate the activity and investment of private water companies.” If a municipality was unhappy with the service it received, de-privatization “would become much more complicated … Even when a private company fails to meet its end of the bargain, breaking a contract could be declared expropriation under international trade law, forcing governments to compensate for millions of dollars in lost profits.” The take-away message? “To enter into operating agreements with a private water corporation effectively amounts to signing away the public’s right to control its water.”
We’ve heard this alarmist rhetoric before. The organizations have simply resurrected old diatribes against free trade agreements, substituting one set of acronyms for another. They are as misguided now as they were the first time.
More than a decade ago, CoC and CUPE targeted the North American Free Trade Agreement and the World Trade Organization’ s General Agreement on Trade in Services, claiming that if water services were privatized, these agreements would compromise health and environmental regulation and make it almost impossible to return control of services to governments. Under these agreements, CoC and CUPE argued, regulatory changes or the termination of a contract would constitute expropriation, for which private firms could demand compensation.
These claims were debunked by Robert K. Paterson, one of Canada’s leading experts on international trade. According to Mr. Paterson – Associate Dean and Professor of Law at the University of British Columbia, co-author of International Trade and Investment Law in Canada, and a dispute-resolution panelist under NAFTA – the risks cited by trade agreements’ opponents were “minuscule” and easily addressed by well-drafted contracts.
In Public-Private Partnerships and Trade Agreements: Guidance for Municipalities, a 2003 report commissioned by the Canadian Council for Public-Private Partnerships, Mr. Paterson explained that NAFTA’s provisions regarding compensation for expropriation were very unlikely to encompass conventional regulatory measures imposed in good faith. Responsible contracts between municipalities and private service providers would identify changes in laws, regulations, and bylaws as foreseeable risks, and set out the financial consequences of such changes. In short, “A properly drafted contract can eliminate the possibility that specified regulatory and other measures could be challenged as expropriations.”
So, too, with termination. A good contract would give a municipality the right to terminate the contract before it expired, and would detail the consequences of such termination. “Those provisions will also have the effect of ensuring that termination, by itself, cannot be characterized as expropriation.”
Mr. Paterson’s conclusion rings as true today as it did in 2003: “The relationship of Canada’s international trade agreements to public-private partnerships involving municipalities should not be seen as the threatening spectre some claim. Most of those who perceive enhanced risks and limitations arising from the provisions of trade agreements in this context seem motivated by their opposition to public-private partnerships themselves. Their claims are mostly hypothetical and based on remote contingencies and overly expansive interpretations, rather than realistic assessments.”