P3s and trade agreements
A show about nothing
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
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
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.