What is an Investor-State Agreement?

originally published Friday, May 17th, 2013 in Householders

While investor-state agreements are sometimes associated – or even confused – with free trade agreements, they are not the same. A trade agreement opens up areas, or sectors, of national economies to allow other countries access. An investor-state agreement is different. For example, the Canada-China Investment Treaty does not open any new sectors to trade. China still refuses foreign investment in its energy sector – while at the same time it makes major purchases of Canadian energy companies.

An investor-state agreement gives a foreign company (an “investor”) the right to seek damages from a country (a “state”) in private arbitrations. These are not court actions, although the word “sue” is often used. These are claims for damages arbitrated by a panel of three arbitration lawyers – usually in a posh hotel room somewhere. The first investor-state agreement in the world was Chapter 11 of NAFTA. In the late 1990s, an attempt was made through the Organisation for Economic Co-operation and Development (OECD) to extend Chapter 11 principles to all industrialized countries. The OECD proposal was called the Multilateral Agreement on Investment (the MAI). In what is viewed as the first global citizens’ campaign using the internet effectively, the MAI was defeated. The pro-MAI community then turned to advancing bi-lateral investment treaties. The Canada-China Investment Treaty is one such effort.