904-251 Laurier Avenue West, Ottawa, Ontario, K1P 5J7
)
November 14, 1997
Privileged & Confidential
Peter Bleyer
Executive Director
The Council of Canadians
904-251 Laurier Avenue West
Ottawa, ON K1P 5J6
Dear Mr. Bleyer:
Re: Reservations to the proposed Multilateral Agreement on Investment
Our File No: A5196
You have requested our legal
opinion regarding the making of reservations by the Government
of Canada to the proposed Multilateral Agreement on Investment
currently being negotiated by the members of the Organization
for Economic Cooperation and Development (OECD). In particular,
you asked us to answer the following questions:
Based on the foregoing and having
regard to the legal assumptions and considerations that we deem
relevant, we are of the opinion that:
Reservations are unilateral statements
made by governments stating that they will not be bound to an
international treaty obligation. Reservations to multilateral
agreements like the MAI can only be made in the manner specified
by the terms of the particular treaty. It is important to note
that not all government activities are capable of reservation
under international treaties.
(a) Canada's proposed reservation
to protect social services such as health and public education
is inadequate to permit provincial governments to continue to
provide these services without compensating affected foreign
investors and governments. This reservation contains provisions
which may unduly limit the financial ability of governments to
provide services such as health, public education and childcare.
(b) Canada has not yet proposed
a reservation to protect culture or cultural industries. In light
of the decision of recent international trade tribunals, this
is an important area for reservation and leaves Canada exposed
to challenge from foreign governments and foreign investors.
(c) Canada has not proposed any
reservations to the MAI to permit it to take measures to protect
or conserve the Canadian environment. Thus, the MAI could reduce
the financial capacity of governments to freely engage in these
activities.
QUESTION ONE: WHAT ARE
RESERVATIONS TO INTERNATIONAL TREATIES, HOW ARE THEY MADE
AND INTERPRETED?
Reservations Defined
Reservations to international
treaties are a long-established diplomatic custom. Put simply,
the making of a reservation allows a country to be bound by an
international treaty while attempting to be excused from some
specific requirement. Thus, reservations allow a country to rewrite
certain treaty obligations as they will affect that country.
In essence, reservations are special forms of exceptions to international
agreements. A reservation differs from an exception in that an
exception applies to all signatories to a treaty and is contained
in the treaty's text. By comparison, reservations apply only
to the country making them and are generally only found with the
"instruments of ratification" of a particular treaty
or in an annex to the treaty.
The general rule of treaty law
is summarized by the Latin phrase "pacta sunt servanda,"
which means that treaties must be observed. Since a reservation
permits a country to not observe a specific treaty obligation,
it constitutes a violation of this rule. Traditionally, reservations
were therefore only permitted if each and every member of a treaty
agreed to the reservation. However, within the last forty years,
international practice has changed.
Reservations are now permitted
as unilateral statements made during the negotiation of a treaty.
The international treaty that governs the formation and interpretation
of treaties, the Vienna Convention on the Law of Treaties,
defines a reservation as:
a unilateral statement, however
phrased or named, made by a State, when signing, ratifying, accepting,
approving or acceding to a treaty, whereby it purports to exclude
or to modify the legal effect of certain provisions of the treaty
in their application to that State.
Because reservations contemplate
a violation of the pacta sunt servanda rule, international
law has placed certain limits upon reservations. Article 19 of
the Vienna Convention states that:
A State may, when signing,
ratifying, accepting, approving or acceding to a treaty, formulate
a reservation unless:
(a) the reservation is prohibited by the treaty;
(b) the treaty provides that only specified reservations, which do not include the reservations in questions, be made; or
(c) in cases not falling under
sub-paragraphs (a) and (b), the reservation is incompatible with
the object and purpose of the treaty.
The May 14, 1997 version of the
Multilateral Agreement on Investment ("MAI") is currently
under negotiation. While part IX of the MAI is entitled "RESERVATIONS,"
it currently does not contain a process that permits the making
of reservations by its signatory countries. All that is certain
is that the current draft contemplates the making of reservations--which
is an important factor based on the Vienna Convention.
The MAI does contemplate a process
known as standstill and rollback. Standstill refers to governments
agreeing not to ever take new measures that would impair the interests
of foreign investors and their investments. Rollback refers to
a mechanism where existing inconsistent measures, such as reservations,
will be reduced and eventually removed over time. Reservation
lists provide very convenient starting points for future rollback
negotiations and often reservations themselves provide for their
own rollback through "phase-out" provisions.
How Reservations Are Made
There are a number of important
considerations about the making of the reservations to the MAI
that have yet to be negotiated. The MAI lacks a list of obligations
that can be reserved against and a process for the making and
interpretation of the reservation. This lack of a process is
problematic for anyone attempting to understand the MAI as the
wording of what can be reserved can often be as important as the
wording of the reservations themselves.
In the GATT, 1947, there was no specific mention of reservations. As a result, the making of each reservation required the acceptance of every other GATT member. Nearly fifty years later in the NAFTA, there was a specific process that permitted the making of unilateral reservations.
In the NAFTA, countries were entitled to list reservations from a number of treaty obligations regarding investment, trade in services and financial services. The NAFTA reservation process required that there be a listing of measures within the NAFTA annexes at a specified time with all reservations proposed after that time being invalid.
Bound versus Unbound Reservations
In the NAFTA there were two different
types of reservations permitted against investment obligations:
bound and unbound. This terminology comes from the custom of
international trade negotiations where a country would be required
to reduce tariffs by a specific amount. In this context, each
tariff concession became known as a "binding." Thus
a bound reservation permits a government to maintain a specific
existing non-conforming measure which would otherwise violate
a treaty obligation. Governments are locked into a specific type
of conduct and while they are permitted to amend these measures
in future, they never can do so in a way that is less "trade-liberalizing."
Unbound reservations differ from bound ones as they permit governments
to not only maintain the existing non-conforming measures, but
they allow the making of new ones in the future. In other words,
unbound reservations permit governments the broadest ability to
act under an international agreement including introducing measures
which are more trade restrictive.
The commentary to part IX of
the MAI indicates that there is agreement for having bound reservations
to the MAI but there is some debate between counties as to whether
there should be unbound reservations permitted as "such a
provision might undermine the MAI disciplines to which it applied."
Under either bound or unbound
reservations, the type of government activity that can be reserved
under the NAFTA is exceedingly broad. The NAFTA defines the term
"measures" to include "laws, regulations, procedures,
requirements or practices." By comparison, there is no similar
definition of the term "measures" under the MAI.
Specific versus Sectoral Reservations
The reservation process within
a multilateral treaty will set out how specific a reservation
has to be. For example, in the NAFTA, the bound reservations
in Annex I were required to be very specific by listing the existing
non-conforming government measure. The unbound reservations in
Annex II were broader in nature as only sectors of the economy
(such as telecommunications) needed to be listed. By using sectoral
reservations, negotiators are easily able to preserve a much larger
area of government policy authority than if they are required
to list every specific government measure in the area.
In the NAFTA, Canada took unbound
sectoral reservations for :
Reservable Obligations
In the NAFTA, investment reservations
could only be taken against the following specific NAFTA investment
obligations:
Thus, under the NAFTA, a government
could not make any reservation to the Investment Chapter obligations
regarding the payment of compensation on expropriation, the regulation
of transfers, meeting international minimum standards of treatment
or lowering standards to attract investment. In the MAI, it will
be very important to understand against what obligations governments
will be entitled to reserve. If the MAI permits reservations
against expropriation, there will be a significant difference
in coverage between investment agreements like the NAFTA and the
MAI. The failure to permit the making of reservations to expropriation
obligations, on the other hand, may severely restrict government
policy making ability.
In addition, the definition of
the types of reservable government action is important. In the
NAFTA , governments were entitled to reserve against a broad variety
of governmental activity which included laws, regulations, decisions
of administrative bodies, policies of governments and even the
discretionary actions of officials. The MAI does not contain
any definition of what measures will be covered. The commentary
to part IX of the MAI indicates that there is disagreement regarding
which MAI obligations would be reservable. Without such a definition,
it is difficult for governments to be able to make effective reservations
or governments may believe that they have effectively reserved
policies but later find that such policies are not reservable.
Treaty Interpretation
The reservation process must
be assessed in the context of how reservations are interpreted.
Since the purpose of reservations are to enable a government
to maintain non-conforming actions in future, it is essential
that the reservation wording be carefully reviewed.
The International Law of Treaty
Interpretation.
The international rules of treaty
interpretation have been set out in articles 31 and 32 of the
Vienna Convention. Article 31 states:
General Rule of Interpretation
1. A treaty shall be interpreted
in good faith in accordance with the ordinary meaning to be given
to the terms of the treaty in their context and in the light of
its object and purpose.
2. The context for the purpose
of the interpretation of a treaty shall comprise in addition to
the text, including its preamble and annexes:
a) Any agreement relating
to the treaty which was made between all the parties in connection
with the conclusion of the treaty;
b) Any instrument which was
made by one of more parties in connection with the conclusion
of the treaty and accepted by the other parties as an instrument
related to the treaty.
3. There shall be taken into
account, together with the context:
a) Any subsequent agreement
between the parties regarding the interpretation of the treaty
or the application of its provisions;
b) Any subsequent practice
in the application of the treaty which establishes the agreement
of the parties regarding its interpretation;
c) Any relevant rules of international
law applicable in the relations between the parties.
4. A special meaning shall
be given to a term if it is established that the parties so intended.
The Ordinary Meaning
Article 31(1) requires a treaty
to be interpreted in its ordinary meaning and in light of its
object and purpose. The textual approach suggests that the words
of the text be given their ordinary meaning, which may be established
through the study and analysis of the text. This view was endorsed
by the International Court of Justice when it was considering
the Charter of the United Nations. The Court held:
The Court considers it necessary
to say that the first duty of a tribunal which is called upon
to interpret and apply the provisions of a treaty, is to endeavour
to give effect to them in their natural and ordinary meaning in
the context in which they occur. If the relevant words in their
natural and ordinary meaning make sense in their context, that
is an end of the matter.
Article 31(1) also calls for
a teleological interpretation--which means that a treaty must
be given a meaning consistent with the object and purposes as
a whole.
Interpreting the MAI
The MAI does not define its objects
and purposes. The MAI, unlike other international agreements
such as the NAFTA, does not contain a special section setting
out the objectives of the agreement. Thus, the preamble of the
MAI became the main vehicle relating the objects and purposes
of the MAI. The predominant purpose of the MAI is the fostering
of fair, transparent and predictable regulation of foreign investment.
While under the MAI, the preamble
language does not create any binding international obligations.
The preamble provides an interpretive context for the entire
agreement under the international rules of treaty interpretation.
Thus, even if the words of the preamble are not binding, they
will have an important interpretive effect on the entire agreement.
The preamble to the MAI establishes the framework through which
this agreement should be interpreted. It reads:
The Contracting Parties to
this AGREEMENT,
Desiring to strengthen their
ties of friendship and to promote greater economic co-operation
between them;
Considering that international
investment has assumed great importance in the world economy and
has considerably contributed to the development of their countries;
Recognizing that AGREEMENT
upon the treatment to be accorded to investors and their investments
will contribute to the efficient utilization of economic resources,
the creation of employment opportunities and the improvement of
living standards;
Emphasizing that fair, transparent
and predictable investment regimes complement and benefit the
world trading system;
[Wishing that this AGREEMENT
enhances international co-operation with respect to investment
and the development of world-wide rules on foreign direct investment
in the framework of the world trading system as embodied in the
World Trade Organization.]
Wishing to establish a broad
multilateral framework for international investment with high
standards for the liberalization of investment regimes and investment
protection and with effective dispute settlement procedures;
[Resolved to implement this
AGREEMENT in a manner consistent with environmental protection
and conservation;]
[Reaffirming their commitment
to the Rio Declaration on Environment and Development and Agenda
21, including to sustainable development as reflected therein,]
[and recognizing that investment,
as an engine of economic growth, can play a key role in ensuring
that growth is sustainable, when accompanied by appropriate environmental
policies to ensure it takes place in an environmentally sound
manner];
[Renewing their commitment
to the observance of internationally recognized core labour standards
[i.e. freedom of association, the right to organize and bargain
collectively, prohibition of forced labour, the elimination of
exploitative forms of child labour, and non-discrimination in
employment] [and noting that the International Labour Organization
is the competent body to set and promote core labour standards
world-wide.]]
Affirming their decision to
create a free-standing AGREEMENT open to accession by all countries;
[OECD Guidelines]
When looked at together, the
preamble creates an agreement that is predominantly concerned
with the predictable protection of foreign investment and investors.
This is the general objective and purpose that a tribunal interpreting
the MAI would keep in mind.
Preparatory Works
Article 31(2) of the Vienna
Convention provides that one can look to the "preparatory
work of the treaty and the circumstances of its conclusion"
in order to confirm the textual interpretation of the treaty.
It is unknown whether there is any travaux préparatoires
being maintained for the MAI, or if one is maintained whether
it will be made public. Should it become public, it may be instrumental
in interpreting any provision in question. At this point, the
commentary to the MAI may provide interpretive assistance as a
supplementary tool under Article 32 of the Vienna Convention
but it does not constitute a travaux préparatoires.
Subsequent Agreement of the
Parties
Article 31(3) allows interpreters
to take into account subsequent agreements or practice of the
parties after the conclusion of agreements. However, for such
practice to apply for a multilateral agreement, it would be necessary
to demonstrate that all parties to the MAI shared the practice
or assented to the document.
Particular Definitions
Article 31(4) allows the Parties
to ascribe a particular definition to a word or phrase used in
the treaty.
Supplementary Interpretation
Article 32 of the Vienna Convention
which may be employed should there still be any doubt as to the
meaning. Article 32 of the Vienna Convention allows for
a supplementary means of interpretation when the usual rules of
interpretation prove to be inconclusive. Article 32 reads:
Recourse may be had to supplementary
means of interpretation, including the preparatory work of the
treaty and the circumstances of its conclusion, in order to confirm
the meaning resulting from the application of article 31, or to
determine the meaning when the interpretation according to article
31:
a) leaves the meaning ambiguous
or obscure: or
b) leads to a result which
is manifestly absurd or unreasonable.
Reservations to the MAI will be interpreted in accordance with these complicated rules of international law. In order to reduce this complexity, the NAFTA contained specific rules for the interpretation of reservations. These rules generally provided for an interpretive hierarchy where the descriptive element of a reservation would be used to qualify the actual listing of the measure.
The absence of these rules from
the MAI will make it more difficult for governments to be able
to effectively use reservations to permit them to maintain otherwise
inconsistent measures.
Presumptions
International law has a special
interpretive principle for the interpretation of exceptions. This
rule is expressed in Latin as exceptio est strictissimae applicationis
which means exceptions to treaty obligations are construed restrictively.
Similarly, within the decisions of the GATT and the WTO, exceptions
to trade obligations have been narrowly interpreted. Reservations
operate as "mini-exceptions" to a treaty and their use
always creates tension between the liberalizing goals of the treaty
and the competing goal of maintaining effective government policy
tools. These competing goals are likely to lead to disputes as
the views of foreign investors may often be different than that
of the host government. Despite the protestations of governments
when making or when relying upon reservations that they are broad,
reservations will be strictly and narrowly interpreted by international
tribunals.
QUESTION TWO: HOW COULD
POTENTIAL CANADIAN PROPOSED RESERVATIONS FOR HEALTHCARE,
PUBLIC EDUCATION, CULTURE AND THE ENVIRONMENT BE INTERPRETED
BY AN INTERNATIONAL TRIBUNAL?
Canada's Reservations
In a document entitled "CANADA:
DRAFT RESERVATIONS," the Canadian federal government proposed
to make a number of reservations to the MAI. These reservations
appear to be identical to reservations made by Canada under the
NAFTA however there are significant differences in the effect
of the MAI reservations because of the difference in wording between
the wording of obligations in the MAI and the NAFTA.
Healthcare, Public Education
& Childcare
In this draft reservation document,
Canada has made the following sectoral reservation for social
services:
Canada reserves the right
to adopt or maintain any measure with respect to the provision
of public law enforcement and correctional services, and the following
services to the extent that they
are social services established or maintained for a public purpose:
income security or insurance, social security or insurance, social
welfare, public education, public training, health, and child
care.
Canada's MAI obligations will
affect all levels of government in Canada. However, this reservation
only permits the federal government to take actions that are otherwise
inconsistent with the MAI. Despite the fact that most social
services are provided by province and municipal governments, Canada
has not taken any measure to protect them against the obligations
of the MAI. This would result in making public education provided
by provincial and local governments subject to the MAI without
any relief. Similarly, provincially-provided health care, child
care and training programs would be covered by the obligations
of the MAI while federally delivered programs (such as those delivered
on military bases or for aboriginal persons) would be covered
by the reservation.
This wording of the description
part of Canada's MAI reservation is identical to the reservation
taken by Canada at II-C-9 in the NAFTA and substantially identical
to the Mexican and American reservation at II-U-5 and at II-M-11.
On careful review however, it is apparent that Canada's reservation
to the MAI for social services is significantly smaller than Canada's
reservation under the NAFTA since it only applies to the federal
level.
While the failure to exempt provincial
programs is an obvious flaw in Canada's reservation, even if the
MAI reservation were to be identical to the NAFTA one, there still
are significant issues relating to the actual protection provided
by this reservation. While the reservation purports in its title
to cover social services, it actually only totally covers the
provision of public law enforcement and correctional services.
All the other areas covered by this reservation are qualified
as they are only covered to the extent that they are "social
services established or maintained for a public purpose."
These terms are not defined by
the MAI. This leaves a significant interpretative question open
as to the scope of this reservation. This is particularly important
due to differences in approach among governments within the OECD.
For example, Canadian provinces have long maintained health care
as a public social service. In other OECD jurisdictions, such
as Mexico or the United States, these activities are delivered
almost exclusively by the private sector or are not accessible
to all. Similarly, public education is only delivered at the
primary level in Mexico as a public service and as a commercial
service after that point.
The concern over the meaning
of the term "social service" can be seen from the position
of the U.S. government. In a letter advising American state governments
on what to reserve as a social service under the NAFTA social
service reservation, the U.S. government suggested that social
services provided by for-profit providers were not social services.
According to the U.S. government, such for-profit providers can
transform the service from a "social service" to a commercial
service. These American guidelines state:
[NAFTA] Chapters 11 and 12
only apply to the provision of "government services"
(i.e. law enforcement, correctional services, social welfare etc.)
by NAFTA investors/service providers if the state allows private
providers to offer similar services on a commercial basis.
Since the proposed MAI reservation
deals with a sectoral reservation, the adoption of such a definition
could render Canada's reservation to be virtually meaningless
for health, public education and childcare as each has aspects
provided by commercial providers in Canada.
Without having any specified
meanings, it is necessary to rely upon the international rules
of treaty interpretation to give meaning to this MAI reservation.
Such a process would be unpredictable and any government relying
only on such a non-specific definition would do so at its peril.
For example, one can look to the general usage of the terms used
in the reservation. An examination of the definitions of social
service and public purpose is instructive of their
meaning.
Social Services
This term is capable of a number
of different definitions. The Oxford English Dictionary
defines the term "social service" as:
A service supplied for the
benefit of the community, especially any of those provided by
the central or local government, such as education, medical treatment,
social welfare, etc.
The Webster's American Encyclopaedic
Dictionary gives a much narrower definition:
organized welfare efforts
carried on under professional auspices by trained personnel.
There is no definition of the
term "social service" in the decisions on international
courts and tribunals. All that one can surmise from the term is
that it refers to services that provide public welfare benefits.
The indication from the U.S. Trade Representatives Office that
these same social services could change into commercial services
if provided by for-profit providers suggests that the term has
significant limits.
Public Purpose
The term public purpose
is not defined in the MAI but it appears in the expropriation
provision as an expropriation may only occur if it is taken for
a public purpose. In this context, the phrase public purpose
has been discussed extensively, as has the analogous terms
public use, public policy or its civil law equivalent, ordre
public. The term ordre public was examined by the
International Court of Justice in the Boll Case. In the
separate opinion of Judge Sir Hersch Lauterpacht, he stated:
[I]n the sphere of private
international law the exception of ordre public,
or public policy, as a reason for the exclusion of foreign law
in a particular case is generally-or, rather, universally-recognised.
It is recognised in various forms, with various degrees of emphasis,
and, occasionally, with substantive differences in the matter
of its application. ... On the whole, the result is the same in
most countries-so much so that the recognition of the part of
ordre public must be recognised as a general principle
in the field of private international law ...
A recent treatise done under
the auspices of the World Bank's International Centre for the
Settlement of Investment Disputes found that the term "public
purpose" is used in a number of international economic treaties.
The authors conclude that "public purpose will to a considerable
extent rest with the state concerned." One international
law expert (in a book edited by the former President of the International
Court of Justice) states:
Because determination of the
public or national interest in any specific situation can only
be effected by the State concerned, it is hardly conceivable that
it can be reviewed or contested by another organ.
Thus, one must conclude that
the term "public purpose" is very broad and will permit
Parliament to decide what is in Canada's national interest. This
determination would be very difficult for another country to challenge.
Conclusion
On the basis of the foregoing,
we are able to conclude that there is a considerable amount of
uncertainty in the meaning to be given to the words of the Social
Service Reservation, especially for the phrase social service.
Despite the use of the broad term "public purpose"
in the Social Service Reservation, this will not extend the scope
of coverage of this reservation. The term "social service"
is much more limited in scope and it will limit the usefulness
of the reservation. The definition of this term will need to reflect
the varied backgrounds of OECD members such as Turkey, Mexico,
the United States, Germany and Japan. The MAI does not set out
any meaning for this term and it has not been the basis of any
international court review. Accordingly, we can only be certain
of the simple fact that there is no clear definition for this
term. This is especially problematic because of the differences
in how OECD governments actually provide these social services
and the fact that there is a different definition in use by the
U.S. Government.
In our opinion the protection
for the provision of health, public education and other social
services under the MAI is inadequate.
All that we can conclude is that
there is significant uncertainty in this term and that governments
should take prudent measures to best protect themselves from any
future narrow reading of this term by a panel.
Culture
The Government of Canada did
not make any reservations in its proposed reservations for the
area of culture. Culture and cultural industries are an area
that would be significantly affected by the obligations of the
MAI. Government measures that attempted to maintain, develop
or foster made-in-Canada culture would be inconsistent with the
goals of the MAI. Any policy or program that advantaged Canadian
culture or content directly or indirectly, would run afoul of
the national treatment or performance requirements obligations.
Examples of the government policies that would conflict with
the MAI include:
. Policies taken to create a
Canadian film distribution policy that would link domestic sales
to domestic film production would contravene the performance requirement
provisions of the MAI.
. Policies that support Canadian
movie and television productions by requiring the involvement
of a Canadian broadcaster or distributer.
. Programs that look at the prior
use of Canadian programs as a criteria for accessing future benefits.
. Advantages to print publications
containing Canadian content such as the postal subsidy.
. Requirements compelling a specific
percentage of Canadian content in programming for television,
radio or cinema.
. Licensing decisions that favour
Canadians for telecommunications services, broadcasting access
or preferential channel line-ups.
Each of these specific examples
would require coverage by a specific reservation to the MAI or
by an exception. Otherwise, the Government of Canada would be
liable to compensate foreign investors who were denied access
to Canada or were otherwise harmed by these "MAI-illegal"
policies to promote and preserve Canadian culture.
The recognition that the principle
of free trade is inconsistent with the goal of cultural protection
has been recognized by the Government of France. Contained in
an Annex to the MAI is a proposal from the Government of France
entitled "INTRODUCTION OF AN EXCEPTION CLAUSE FOR CULTURAL
INDUSTRIES." This exception reads:
Nothing in this agreement
shall be construed to prevent any Contracting Party to take any
measure to regulate investment of foreign companies and the conditions
of activity of these companies, in the framework of policies designed
to preserve and promote cultural and linguistic diversity.
This proposed exception differs
from the "cultural exemption" contained in the Canada-U.S.
Free Trade Agreement which reads:
1. Cultural industries are
exempt from the provisions of this agreement, except as specifically
provided in Article 401 (Tariff Elimination), paragraph 4 of Article
1607 (divestiture of an indirect acquisition) and Articles 2006
and 2007 of this Chapter.
2. Notwithstanding any other
provision of this Agreement, a Party may take measures of equivalent
commercial effect in response to actions that would have been
inconsistent with this Agreement but for paragraph 1.
The NAFTA incorporated this earlier
bilateral exemption by incorporating it into NAFTA Annex 2106
and providing that the rights and obligations under the earlier
agreement were the same as the ones in the NAFTA. Thus, new NAFTA
obligations such as the protection of intellectual property rights
or investor-state dispute settlement cannot be invoked for cultural
industries.
The FTA cultural exemption is
different from most exemptions in international agreements as
it does not exempt the measures it contemplates. It merely states
that retaliation for the measures taken will be done under other
agreements. In fact, this is what occurred when the United States
government successfully challenged Canadian magazine publishing
rules before the WTO in 1997.
Investment issues abound in the
area of culture. Obligations within the MAI such as national
treatment, performance requirements and expropriation all can
be used to prevent governments from creating or maintaining culture
policies to enhance distinctive domestic cultures. Indeed, on
the basis of the WTO appellate decision on Canadian magazines,
Canadian cultural policies such as the postal subsidy would violate
the national treatment rules proposed in the MAI. Similar concerns
could also arise from policies over the creation of a national
film distribution scheme or by the widespread practice of basing
arts funding on previous local activity. Trade tribunals have
come to the conclusion that Canadian cultural products are fungible
and interchangeable with products from other countries. To an
international tribunal, Macleans magazine is considered
to be the same as American publications such as Newsweek.
Thus, international trade agreements have viewed domestic policies
which encourage domestic cultural products to be impediments to
global trade.
Conclusion
The exception proposed by the
Government of France seems to be broad enough to provide protection
for Canadian culture, however, any reduction in the scope of this
exception would leave Canadian culture at risk. Powerful lobbies
in OECD countries do not support this exception as it would mark
a retreat in the level of international protection for global
cultural industries from the NAFTA.
If Canada were to find a less
extensive cultural exception, it would need to make a number of
reservations to the MAI in an attempt to protect Canadian cultural
policies and programs. It has been the public position of the
Government of Canada that it will take actions to protect Canadian
culture from the effects of the MAI. Given this position, it
is surprising not to find a proposed listing of general unbound
reservations for culture in Canada's MAI reservations to provide
specific acknowledgment that culture is fully protected from the
effects of the MAI.
The Environment
The tension between free trade
and environmental protection has never been greater as governments
have been forced to deal with the seemingly conflicting goals
of accommodating environmental concerns while still expanding
trade liberalization. Attempts by states to address environmental
issues have often run into two problems: either the measure taken
by the government has been accused of constituting an arbitrary
means of discriminating against non-nationals; or in dealing with
a problem that extends beyond the geographic borders of the country,
the measure has attempted to impose burdens upon foreign entities
as well as on domestic ones.
The conflict between trade and the environment is complicated by a lack of international consensus on environmental measures. This lack of international consensus has often resulted in countries taking unilateral measures to deal with environmental issues that are critical to them. Against the backdrop of countries finding an increasing need for taking environmental measures, one finds an ever expanding framework of international trade agreements.
Except for a very specific exemption
from the performance requirements obligations, the MAI does not
contain any environmental exceptions. Further, Canada has not
included any reservations within the MAI that would permit governments
to take measures to conserve and protect the Canadian environment.
The environmental exemption in the MAI permits a government to
require domestic content or provide a preference to local goods
or services only if:
The MAI does not contain any
general exception clause that would clearly permit governments
to take environmental measures that could otherwise offend the
many other obligations in the MAI. Without the inclusion of broad
easily accessed exceptions or reservations, the MAI's broad investment
rules may result in new limits on the ability of governments to
freely meet environmental challenges. There are a number of types
of environmental measures that could trigger liability on the
part of governments under the MAI. Some of these measures might
include:
3. Changes to land use regulations
that would reduce the value of property for a foreign investor.
5. Requirements that only environmentally-acceptable
resource extraction techniques be used that would increase the
cost of extraction.
The Experience of Environmental
Exceptions in Trade Agreements
It has been suggested that there
will be no need to make reservations to the MAI for the environment
because the agreement may contain a number of environmental exceptions.
However the use of environmental exceptions in international
trade agreements has demonstrated that they are not an effective
means for governments to take measures to protect the environment.
GATT panels have interpreted these GATT exceptions narrowly. One of the key concerns over the use of GATT exceptions is their effect which can lead to the distortion of international trade. Thus, measures taken by a country which arguably overshoot their purpose have not been accepted to fit within the trade law exceptions.
For example, to justify an environmental
measure governments must prove the "necessity" of a
measure. This term was examined in some detail during the GATT
Panel on Section 337 of the U.S. Tariff Act. The panel
held that a party could not justify its measure as being "necessary"
if there could be an alternative measure which could reasonably
be expected to be used and which was not inconsistent with GATT
obligations. Furthermore, if no GATT-consistent measure was reasonably
available to the government, it would be necessary to choose a
measure that had the "least degree of inconsistency with
other GATT provisions." In essence, the GATT established
that in order to rely on a GATT exception, it is up to the justifying
party to establish that the measure was the least-trade burdensome
alternative available.
The necessary test was examined
when Thailand attempted to rely on GATT Article XX(b) to ban foreign
cigarettes. The Thai Government imposed an import ban, quantitative
import restrictions and discriminatory internal taxes on foreign
cigarettes. This issue was raised to a GATT panel which ruled
that these broad measures were not consistent with the GATT Article
XX(b) exception. The Panel accepted the fact that smoking constituted
a serious risk to human health, however the panel did not find
that the Thai actions were necessary.
A similar situation was considered
in the Canada-U.S. Free Trade Agreement panel on Herring and
Salmon, where Canada argued that its export prohibition was
made effective in conjunction with restrictions on domestic production,
namely, strict domestic production controls limiting the amount
of fish caught. The Panel agreed that Canada's fish harvest limitations
constituted a restriction on domestic production within the meaning
of the GATT Article XX(g). However, in this case, the Panel ruled
that the measure was not reasonable as it put too onerous a burden
on American fishery workers who had to land their entire catch
in Canada for inspection. The panel did suggest that a landing
requirement of 20-30% of the catch would have been reasonable
under the circumstances.
Finally, in the American Tuna-Dolphin
case, a GATT panel dealt with the issue of extra- territoriality.
In this case, the U.S. Government passed a law, the Marine
Mammal Protection Act, which imposed a ban on all tuna caught
by countries using nets that incidentally killed dolphins at a
rate 1.25 times higher than the rate of American boats operating
in the same waters at the same time. The Government of Mexico
challenged this measure as being an import ban that was contrary
to GATT Articles XI and XX. Mexico also protested the measure
as an extra-territorial regulation of its fishing industry.
The GATT panel hearing this case
agreed with Mexico in that the U.S. measure attempted to impose
American jurisdiction in areas outside of its jurisdiction. Based
on the drafting history of the GATT Article XX exceptions, the
Panel held that the GATT Article XX(b) exception could not be
used to protect the environment outside of U.S. territory.
Furthermore, the panel also ruled
on the "necessary" requirement of the GATT Article XX
exceptions. They held that the measure had to be necessary to
the product and not to its production process. In other words,
the United States could ban all tuna, but not tuna captured by
a certain method.
The second GATT Article XX exception
that could relate to the environment is Article XX(g). This exception
permits Parties to take measures "relating to the conservation
of exhaustible natural resources." The 1988 GATT panel on
Herring and Salmon held that the term "relating to"
meant that the measure had to be primarily aimed at conservation.
While this appears to be less strenuous than the "necessary"
test contained in Article XX(b), it still imposes a significant
burden.
Precautionary Principle
The MAI may include a reference
to the Rio Declaration on Environment and Development and
Agenda 21 in its preamble. Incorporated in the
Rio Declaration is the precautionary principle which states:
In order to protect the environment,
the precautionary approach shall be widely applied by States according
to their capabilities. Where there are threats of serious or
irreversible damage, lack of full scientific certainty shall
not be used as a reason for postponing cost-effective measures
to prevent environmental degradation.
In order to comply with the precautionary
principle, a government measure must:
(i) be in response to a threat of serious or irreversible damage to the environment;
(ii) be cost-effective;
(iii) be for the purpose of preventing environmental degradation;
(iv) involve some degree of scientific certainty; and
(v) be within the capabilities
of the government.
The Rio Declaration is
not legally binding. It is a statement of principles based on
Agenda 21 and according to which Agenda 21 is to
be carried out. As a mere declaration, it has not been signed
by any country. Agenda 21 is not legally binding as it
states its intention "[t]o promote, through the gradual development
of universally and multilaterally negotiated agreements or instruments,
international standards for the protection of the environment
. . . [and] . . . to ensure the effective, full and prompt implementation
of legally binding instruments."
The Permanent Court of International
Justice has held that a treaty provision must take precedence
over a general rule of international law. This principle was
reflected in the recent WTO Panel Report on EC Beef Hormones.
In this decision, the Panel held that the precautionary principle
could not be used to override the explicit wording of the treaty
obligations. Thus, without a clearly stated broad exception or
reservation, the investment obligations of the MAI will override
environmental measures taken by governments.
Conclusion
The goal of environmental protection
has suffered from every decision taken by international trade
tribunals. This history of loss, including cases involving Canada,
clearly indicates that the present wording of environmental exceptions
in the WTO Agreement is inadequate. The MAI fails to even
meet the same level of environmental exceptions as the WTO.
Canada has failed to propose
reservations to protect the ability of governments to take environmental
measures that would otherwise violate the MAI. As a result, Canada
has chosen to voluntarily bind itself, its provinces and its municipalities
to obligations which protect investments over the environment.
Assumptions
In coming to our opinion, we
have consulted the provisions of the North American Free Trade
Agreement ("NAFTA"), the May 14, 1997 English version
of the MAI and other relevant international and municipal legal
materials. This opinion relates only to the laws of Canada and
to international law applicable in Canada as such laws existed
at the time of the writing of this opinion. While we have tried
to be as accurate and comprehensive as possible, this opinion
is subject to the following qualifications:
Opinions on the appropriate interpretation
and application of international treaty obligations can never
be entirely free from doubt. Such treaties are not the subject
of binding judicial interpretation in domestic and international
courts. They are drafted in the broad and general language of
diplomacy, which is appropriate to treaties between sovereign
states, and lack the precision normally found in domestic statutes.
The MAI is an international document
that will be authenticated in a variety of official languages.
We have restricted our opinion exclusively to the May 14, 1997
English version of the MAI.
The proposed MAI creates "The
Parties Group" which may interpret the MAI on a consensus
basis. This opinion is made subject to the possible interpretation
by this MAI group as it could provide binding interpretations
on the MAI which need not be based on principles of international
law or the MAI itself.
Final Conclusions
Based on the foregoing and having
regard to the legal assumptions and considerations that we deem
relevant, we are of the opinion that:
(a) Canada's proposed reservation
to protect social services such as health and public education
is inadequate to permit provincial governments to continue to
provide these services without compensating affected foreign investors
and governments. This reservation contains provisions which may
unduly limit the financial ability of governments to provide services
such as health, public education and childcare.
(b) Canada has not yet proposed
a reservation to protect culture or cultural industries. In light
of the decision of recent international trade tribunals, this
is an important area for reservation and leaves Canada exposed
to challenge from foreign governments and foreign investors.
(c) Canada has not proposed any
reservations to the MAI to permit it to take measures to protect
or conserve the Canadian environment. Thus, the MAI could reduce
the financial capacity of governments to freely engage in these
activities.
Yours very truly,
Appleton & Associates
Barry Appleton LL.B., LL.M.
Managing Partner
904-251 Laurier Avenue West, Ottawa, Ontario, K1P 5J7