The MAI and Canadian Forestry Products
Barry Appleton LL.B., LL.M.
Appleton & Associates International Lawyers
The Multilateral Agreement on Investment is an international investment
agreement currently under negotiation by the 29 member countries of the Organization for
Economic Cooperation and Development (OECD) in Paris. The goal of this agreement, known as
the MAI, is to impose limits on how governments treat foreign investors and their
investments. Indeed, so strong are these protections that the MAI can properly be called
the most far-reaching international investment agreement in the world.
What makes the MAI so remarkable is not just its very broad definition of investment
but also its unique process to protect the "rights" of investors. What's
different is that if these obligations are not met, the individual investors have direct
legal rights that can be brought to an international tribunal without the agreement of
their home government. The MAI's "investor-state" dispute settlement process
provides for a fast and effective means of settling disputes between investors and
governments by bypassing domestic courts completely. Designed to provide protection for
foreign investors in developing countries, the investor-state dispute process focuses
strictly on settling investment disputes between individuals and governments.
The use of arbitration is not new in international law. What is new is that the MAI
makes this formerly country-only process available to private citizens and their
businesses. What is surprising is that these governments have agreed to accept the
decisions of these international tribunals to discipline their conduct.
The MAI requires that there be some international element involved in an investment
dispute. Under the Agreement, any individual or business that is a resident of a MAI
country can launch a claim against the government of another MAI country. For example,
Canadian investors are not eligible to bring disputes against the Government of Canada;
however, American or Japanese investors can. A major exception to this rule is that
Canadian corporations "owned or controlled directly or indirectly" by a citizen
of another MAI country can bring a claim against Canada.
This situation results in the bizarre situation where foreign companies or investors
are able to access the investor-state process to protect their rights while Canadians are
not. In essence, foreigners are treated better than Canadians under these rules. This
basic fairness issue was raised by the Canadian Pulp and Paper Association at a recent
Parliamentary review of the MAI.
Foreign investors are entitled to dispute governmental acts that harm
their investments (see - What
Rights Does the MAI Protect?). While provinces and municipalities are not members
of the MAI, they often engage in practices to covertly help local business. Under the MAI,
their actions are covered and no doubt will be a fertile source for future investor-state
An Example: The Canada - U.S. Softwood Lumber Agreement
One example of how the MAI will impact the forestry business can be seen from how the
MAI's obligations would affect Canada- U.S. Softwood Lumber Agreement. This Agreement was
an attempt to bring about trade peace between the two countries by imposing a tax on
lumber exports above a certain level from particular provinces. The tax applies only to
lumber that is exported from the "listed" provinces of British Columbia,
Alberta, Ontario and Quebec. Lumber exported from other provinces is not subject to this
Companies which export lumber from the listed provinces have complained that exporters
cutting in non-listed provinces do not face such obstacles. The Softwood Lumber Agreement
puts companies operating in non-listed provinces at an advantage over those operating in
listed ones. The MAI national treatment obligations require countries to treat investments
equally, regardless of their location in the country. The Softwood Lumber Agreement gives
an advantage to companies which operate in non-listed provinces while discriminating
against those that operate in listed provinces. This difference in treatment may
constitute a breach of the national treatment provisions of the MAI.
The Softwood Lumber Agreement also could violate the performance requirement obligation
as it restricts the sales of softwood lumber from Canada and it relates sales to the
volume of exports, which is another MAI violation. MAI investor-state panels can award
compensation to investors that have been harmed by inappropriate governmental action. The
awards of these panels are not subject to any appeal.
There is little doubt that this MAI dispute system will play a major role in how business
will be done in North America over the next decade. In conferring rights and remedies, the
MAI investment provisions have quietly created an economic constitution that protects the
rights of foreign MAI investors investing in each MAI country. Faced with ever decreasing
amounts of discretionary spending, governments will begin to modify their policies so that
they can avoid the high damage awards that panels could assess. With an increased class of
people free to make challenges, MAI investor-state disputes are certain to become part of
Barry Appleton is the Managing Partner of Appleton & Associates in Toronto and
Washington DC. He is the author of Navigating NAFTA: A Concise User's Guide to the
North American Free Trade Agreement.
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