Canada has seen its position with investment agreements shift dramatically, from being a late bloomer to becoming a forerunner in investor-state arbitration (ISA). All 22 arbitration claims against Canada were brought by US investors, making Canada the developed democracy most experienced with ISA. Overall, when examined carefully, this experience is not as negative as one might think. The aggregate value of the claims is US$8.1 billion, or 2.9 percent of all US investment in Canada, while total damages effectively awarded or agreed to in settlement so far is US$147.5 million, or a mere 0.05 percent of all US investment. Most claims concern federal measures as opposed to provincial ones and, unsurprisingly, the huge majority of them are targeted at environmental measures, with a smaller share involving state-owned enterprises and public services.
Canada keeps pace with the case law in its treaty practice, constantly innovating in order to maintain regulatory space for governments while protecting foreign investors. Some problems do arise, however, in connection with the use of the most favoured nation clause to circumvent treaty innovations, and with the fair and equitable treatment clause, which remains the main area of concern in terms of conflicting awards and split decisions of arbitral tribunals. Indirect expropriation has not been a concrete problem for Canada thus far, contrary to initial fears that environmental measures would become compensable with ISA.
The need for mechanisms to control ISA, however, is obvious. The power of contracting parties to adopt binding interpretation of investment agreements appears to be the most pragmatic means to address divergence in arbitral awards, while an appellate review mechanism seems more difficult to implement. Arbitral practice outside of Canada indicates that complex, massive or highly political disputes are probably not suitable for ISA, but more appropriate for state-to-state arbitration (SSA) or even diplomatic negotiation. A certain “re-politicization” of the settlement of some investment disputes might be needed for the system to keep its legitimacy and effectiveness. In the end, the looming question is that of the discriminatory nature of ISA. In the case of Canada, it seems clear that Canadian law sometimes offers no remedy equivalent to that provided to foreign investors under investment agreements. How long will the system tolerate less protection for national investors? This question will become more pressing with the rise of ISA between developed democracies