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P3s and trade agreements 
A show about nothing

by Paul M. Lalonde

In recent months, opponents of public-private partnerships (P3s) have sounded alarms about the allegedly dangerous legal risks created by international trade agreements, in particular NAFTA and the WTO. It is time to burst this growing bubble of hysteria.

The bleating about NAFTA and the WTO is mainly that the government's ability to regulate is hampered by these agreements once a P3 is put in place, and that once a facility is transferred to the private sector, it will be impossible under NAFTA and the WTO to return it to public hands, or public operation. According to vocal critics such as the Canadian Union of Public Employees (CUPE) and the Council for Canadians, the only safe haven from world trade thugs and dictatorial corporate rule is to keep facilities in public hands and nix any P3 or privatization initiatives.

First, let's get rid of a red herring. Provincial governments and their creations (school boards, municipalities, hospitals, universities, etc.) cannot themselves be sued under any international trade agreement to which Canada is a party. So, if you happen to work in the municipal sector - where many P3 projects are being considered - you can stop reading this and go about your business, secure in the knowledge that you will never be dragged before any NAFTA or WTO panels.

In fact, all complaint mechanisms under the NAFTA and the WTO about any Canadian measures are levelled at the federal government. That is to say, in the absolute worst situation imaginable under international trade agreements, the headache of dispute resolution and any damages to be paid -unlikely as these are - would be Ottawa's responsibility.

Second, a bit of perspective: under all the international trade agreements Canada has ever signed, the number of international trade cases dealing with a P3 is zero. Not one. Not exactly an avalanche of jurisprudence, and certainly not indicative of a material legal risk to P3 projects.

There are three main sets of international trade rules that some have tried to link to P3s. These are Canada's commitments in the areas of procurement, investment and services.

The procurement rules of NAFTA (Chapter 10) and the WTO Agreement on Government Procurement (AGP) apply to the federal government only. With respect to federal P3s, the process whereby a private sector partner is selected may be subject to the disciplines of NAFTA and the AGP, but that is not new. Federal government procurement has been subject to review by the Canadian International Trade Tribunal (CITT) for consistency with these agreements for many years and that has not stopped the completion of a number of successful federal P3s.

It is important to keep in mind that only a microscopic percentage of federal procurement ever winds up before the CITT. With respect to P3s, the risk seems even more remote. In fact, not a single one of the several dozen procurement decisions from the CITT has ever dealt with a P3.

With respect to investment rules: Canada is a signatory to 29 investment treaties that provide reciprocal protections for foreign investors and investments. The most highly publicized investment treaty is encompassed in NAFTA Chapter 11, which has become a lightning rod for the complaints of the anti-globalization crowd. In reality, it is not nearly as troublesome as it is made out to be.

Again, a bit of perspective. There are trillions of dollars invested annually by countless investors in the three NAFTA parties. Since 1994, when NAFTA was implemented, there have been around 15 cases initiated against the three NAFTA governments. Seven of these cases have been filed against Canada: one withdrawn (Ketchum); one settled (Ethyl); one where the investor prevailed (S.D. Meyers, but still under appeal); one split decision, largely favourable to the government (Pope & Talbott); one still in arbitration (UPS); one where the investor appears to have lost interest (Sun Belt, in which nothing much has happened since 1998); and, finally, one in the earliest stages (Trammel Crow).

This is not a frightening amount of litigation, especially when you consider the number of times the Canadian government gets sued under domestic law in an average year. In any event, Chapter 11 of NAFTA does not curtail the government's ability to adopt measures for legitimate public purposes, such as health and safety standards. As well, in P3 contracts, any risk associated with changes in government regulation can be anticipated and allocated in a manner that protects the public body.

As to services, the main bogeyman is the WTO General Agreement on Trade in Services (GATS). Some organizations, such as CUPE, have argued that the GATS erodes the powers of municipalities entering into P3s. In fact, the GATS establishes a set of rather mild obligations with respect to measures taken by WTO member states that affect trade in services. Many services that are relevant to P3s - for example, the delivery and treatment of water - are excluded from the agreement. In services that are subject to the disciplines of the agreement, P3 proponents should avoid egregious discrimination as between foreign companies and they should seek to treat foreign companies no less favourably than they treat potential Canadian P3 partners - not a difficult benchmark to reach. (In fact, shouldn't discrimination be avoided regardless of the trade agreements?)

In the European Union and the United States, P3s are being used to a far greater extent and in a broader variety of sectors than in Canada. Those countries are subject to roughly the same international trade disciplines as Canada (in some respects, European international obligations are more demanding). Yet no one seems to have encountered any particular difficulties under the trade agreements. Concerns about P3s and the trade agreements seem to be a uniquely Canadian disease.

The reality is that credible, independent international trade experts - who have examined the relationship between P3s and international trade agreements - reject the idea that the trade agreements significantly curtail the power of the public party or that they create any dangerous legal risks. By contrast, the most ferocious opponents of P3s, namely CUPE and its acolytes, have a vested interest in creating confusion and raising unfounded fears in order to defeat P3 initiatives, which they view as undermining the growth of their membership base.

In the final analysis, the polemic surrounding P3s and trade agreements is - in the inimitable words of Seinfeld's George Constanza - "a show about nothing." Sitcoms "about nothing" may be amusing, but given the role P3s can play in delivering sorely needed services and funding to overburdened governments, there is nothing funny about CUPE's fear mongering. It's time this particular show was cancelled.


Paul M. Lalonde practices international trade and procurement law with the firm Heenan Blaikie in Ottawa and Toronto.


 

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