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A Canadian mining company is threatening to sue Mexico to avoid paying taxes… and is asking Canada to help

On July 1, 2020, something unprecedented happened. After decades of campaigning, the new NAFTA, or the Canada-United States-Mexico Agreement (CUSMA), came into effect without Chapter 11.

Chapter 11 contained the rules that gave corporations the right to sue governments through investor-state dispute settlement (ISDS) provisions over laws, even if they were put in place to protect the public interest and the environment. Under NAFTA, Canada became the most sued country in the developed world, with over $300 million in settlements and a legacy of broken public regulations and protections.

Council of Canadians supporters campaigned for more than 25 years to remove this threat to our democracy.

There’s a catch though… actually three… First, it will take three years for ISDS lawsuits under NAFTA to end in Canada and the U.S. Second, under CUSMA, Mexico is still subject to corporate lawsuits. Beyond that, Canada has quietly signed onto a host of other trade agreements with ISDS provisions, keeping this threat intact.

As COVID kicks in, corporations cash in

Globally, more than half a million people have died from COVID-19 and without serious and coordinated government action, there is no telling what the death toll will be. Bold, swift government action is crucial to save lives and to protect workers and their livelihoods.

Around the world, people have been making sacrifices to protect one another in an inspiring display of solidarity. But in March, as people were staying home and limiting their social contact, and the Italian government rationed respirators, making heartbreaking and crucial decisions as to who would receive care, corporations had more selfish concerns: how life-saving government actions could be subject to ISDS suits.

This Global Arbitration Review article discusses how Italy’s emergency measures could face corporate challenges under an ISDS agreement. That’s right. Corporations are exploring ways to sue governments for taking action to protect people. And we aren’t exempt from such possibilities in Canada. We could see such ISDS challenges through the so-called Comprehensive and Progressive Agreement on Trans-Pacific Partnership, many of our foreign investment partnership agreements, or even NAFTA during the next three years as it winds down.

They write, “Both sets of emergency measures are likely to affect investments made in Italy by foreign investors. Indeed, they may result in harsh limitations on investors’ property rights; fundamental and unpredictable changes to the ‘normative environment’ of the investment; potential discriminations between domestic and foreign companies; and, possibly, failures to provide investors and their managers or employees with the safeguards they need to carry out their activities…More generally, they may lead to a suspension of basic entrepreneurial freedoms and to distortion of competition.”

These kinds of comments show the perversity of the ISDS system which rewards corporate bad behaviour and penalizes necessary government actions.

And not everyone is suffering during this pandemic. An International Policy Studies report showed while unemployment has skyrocketed, U.S. billionaire’s wealth grew by $580 billion during the first months of the crisis, increasing by 20 per cent. In Canada, the top five billionaires saw their wealth grow nine per cent as they offered 0.09 per cent to charity.

Mexico will now be the most affected by ISDS challenges. Mexico is still subject to ISDS under CUSMA – as it is under the Trans-Pacific Partnership, which Canada and Mexico signed onto with nine other countries.

Mexican government attempts to check corporate power

Mexico celebrated a different milestone on July 1: two years of Andrés Manual López Obrador’s government. It is a complicated, but progressive government that has vowed to end corruption. The government has promised to get rid of privatization in favour of Mexico’s elite, redo dubious contracts with foreign companies, particularly in the energy sector, undo bureaucratic favouritism for the wealthy, and reinvest this money into Mexico’s underdeveloped social welfare system.

The new government has been going after big corporations, arguing they have been using their political influence to avoid paying taxes. President López Obrador argues that mining companies, manufacturing companies and other industries need to pay their fair share. Walmart and Coca Cola subsidiaries have been hit with criminal charges and settled their tax bills with the Mexican government. With this money, the Mexican government says it has recovered at least 25 billion pesos into state coffers.

Already, Mexico’s progressive reforms have made it an ISDS target. First Majestic, a Canadian silver mining company, has been threatening Mexico with an ISDS lawsuit for the last few years under NAFTA’s Chapter 11.

The Mexican government re-examined First Majestic’s records and ruled that it owed back-dated taxes related to a tax avoidance scheme. This scheme let the company pay taxes on less than the market value of its product by selling it cheaper to a Bahamas company. According to news reports, First Majestic is one of many mining companies to have their taxes reassessed by the Mexican tax authority. And instead of fighting for tax fairness, Canadian diplomats are arguing on behalf of the companies. First Majestic went so far as to ask the Canadian government to arrange a meeting with the Mexican President.

Canadian mining companies have been notorious in Mexico and Latin America for environmental disasters, human rights violations and questionable practices. These companies are also keen users of the ISDS system. The oil, gas and mining sectors represent 86 per cent of Canadian companies’ ISDS cases, which are filed disproportionately in Latin America. Mining Watch recently documented how with COVID-19, not only is it business as usual for mining, but companies are using the crisis as an opportunity to strike down environmental reviews. In Mexico, there has been significant pressure to reopen the mining industry despite the COVID-19 crisis.

In recent history, ISDS provisions have given international corporations a way to dispute regulations, and to make money from taxpayers. Now, with the global pandemic, the risks of limiting government action have never been higher and governments must be pushed to scale it back.

Internationally, more than 630 organizations representing labour, civil society, environmental and human rights groups are calling for a moratorium on ISDS provisions during COVID-19. They signed an open letter governments to:

  1. Permanently restrict the use of ISDS in all its forms in respect of claims that the state considers to concern COVID-19-related measures.
  2. Suspend all ISDS cases on any issue against any government while it is fighting COVID-19 crises and capacity needs to be focused on the pandemic response.
  3. Ensure that no public money is spent paying corporations for ISDS awards during the pandemic.
  4. Stop negotiating, signing and/or ratifying any new agreements that include ISDS.
  5. Terminate existing agreements with ISDS, ensuring that “survival clauses” do not allow cases to be brought forward later.
  6. In light of threats exposed by the pandemic, comprehensively review existing agreements that include ISDS.

Add your name. Sign onto this letter and tell Prime Minister Trudeau that ISDS hurts the global fight against COVID-19. It is urgent that we end all ISDS agreements now!