Who Bears the Risk: Investors or Citizens?

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The highly publicized death of the anti-globalization movement seems to be premature; at least judging by the opinion pages of the National Post. They reveal a dogfight over privatization between civil society groups — such as the Council of Canadians, the Canadian Union of Public Employees (CUPE) — and the Department of Foreign Affairs and International Trade and the Canadian Council for Public Private Partnerships (C2P3).

The first big contest was over a design/build/operate Public Private Partnership for the Seymour water filtration plant in greater Vancouver. It was cancelled due to uncertainties about the impact of the North American Free Trade Agreement (NAFTA) and the services agreement of the World Trade Organization (WTO). The current battle is over sewage treatment facilities for the Halifax region.

Much to the consternation of C2P3, civil society is winning the fight. You can tell that by personal nastiness directed at Ottawa trade lawyer Steven Shrybman, who has written legal opinions on the two projects for CUPE. Columnists in the Post newspaper are playing their part, having written over half a dozen articles attacking Shrybman.

Peter Foster uses words like “fevered imagination” and “priggish remarks” and compares Shrybman’s opinions to Stephen King novels. Lawyer Peter Kirby (point man for C2P3) employs “absurd” and “glaring errors.” Lawyer Fred Dickson says in a legal opinion done for Halifax, that Shrybman’s opinions are “groundless conjecture.”

If anyone is guilty of hyperbole it’s the privatization cheerleaders and not Shrybman. The debate itself boils down to two key questions. Can municipalities draw up contracts that are bullet proof in terms of the application of the investment chapter of NAFTA? And are public-private partnerships absolutely exempted under Article 1 of the WTO’s General Agreement on Trade in Services (GATS), that says “services delivered in the exercise of governmental authority” are not covered by the agreement?

These questions do not lend themselves to absolute answers because there is enormous ambiguity in these agreements. Those like Kirby, who offer absolute guarantees these agreements are no threat to government authority, are seriously misleading the public. There are many aspects of these agreements that even experts cannot give definitive answers to. Indeed, this is what Shrybman argues: that public control of public facilities could be compromised under public-private partnerships if interpretations of certain clauses go in a particular direction.

Dickson, on the other hand, in a legal opinion commissioned by the Halifax Regional Municipality, says the municipality can write a contract stipulating all disputes will be settled exclusively according to Nova Scotia law, and that they can oblige the private contractor to effectively waive the right to use NAFTA. Kirby makes similar claims. Sylvia Ostry is one of the most senior figures in Canadian free-trade circles and sits on an advisory board to WTO secretary general Michael Moore. I asked her to comment on Dickson’s recommended solution.

Ostry scoffed at the first recommendation: “That says we are simply exempting this contract from a legal trade treaty that the federal government has signed.” At the very least, says Ostry, this strategy is completely untested and fraught with uncertainty. Lydia Lazar, assistant dean of international law at Chicago Kent College of Law and an authority on NAFTA Chapter 11, expressed similar surprise: “You can’t contract around treaties. Treaties are law. You cannot succeed in writing a contract that would allow you to do something that a treaty would not allow you to do.”

She was also dismissive of Dickson’s recommendation that Halifax write into the contract an undertaking the contractor will not use NAFTA. “If there’s a dispute, they can just get a new lawyer and say ‘We signed that because it was the only way to get the contract but it’s not really legal.’”

Shrybman detractors like Kirby (whose firm represents companies with NAFTA claims) may be certain about the Halifax scheme being exempted under the GATS, but the WTO secretariat is not: “(I)t does not seem to be completely clear how much [of government service is exempted] and how much is subject to the main GATS disciplines.” What is certain is that WTO negotiators have decided that this exemption needs to be “interpreted narrowly.”

I also spoke to Rudolf Adlung, a senior WTO economist and authority on the GATS who is based in Geneva. He made the same point regarding uncertainty. None of these articles has been tested. This is particularly true with respect to whether or not the services are supplied on a non-commercial basis — a condition for the exemption. Says Adlung: “This is where there is a real element of uncertainty.”

The simple fact about trade deals is that they are, as the European Commission put it “first and foremost ... instrument(s) for the benefit of business.” They are intended to dramatically reduce the risk historically associated with investment, and provide a high level of certainty regarding returns on those investments. But that means, inevitably, shifting that uncertainty and risk onto governments and citizens. That is the message of the trade law experts I spoke to: Trade agreements are untested, full of enormous uncertainty and therefore a risk for governments. Any opinion to the contrary is not worth the paper it is written on.

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