Trade problems with water P3s

Steven Shrybman, Sack Goldblatt Mitchell

Summary of Conclusions

1. A diverse array of municipal government initiatives and actions are now subject to a complex web of international obligations and constraints that arise from commitments made by the federal government under NAFTA and the WTO. These have dramatically expanded the application of international trade and investment law to the exercise of municipal government authority.


2. Several of these trade and investment disciplines are explicitly relevant to government measures which may affect the Seymour project, from planning and assessment through construction and operation. These include international rules concerning investment, services, procurement, subsidies, intellectual property, and technical regulations. Of these, arguably the two most important concern investment and services.


3. If concluded, the interest of a private partner to a contract to design, build and operate the Seymour project would be an investment according to the NAFTA definition. Conversely, a law, regulation, procedure, requirement or practice of the Greater Vancouver Regional District (GVRD) or another Canadian government that might affect that contract would be a measure under NAFTA and accordingly subject to the broad disciplines of that regime.


4. Similarly, the requirements of the GATS apply to GVRD and other government measures that may affect the Seymour project, unless the supply of water services by the GVRD is considered exempt from the application of this WTO Agreement. However, whatever claim to exempt status water services might now enjoy would be compromised by entering into a private sector partnership to deliver such services. In this regard, the risks are substantially greater for a contract that involves the operation, rather than simply the design and construction, of a water treatment plant.


5. Failure to comply with the obligations of these international agreements may provoke trade challenges or foreign investor claims. While these may be brought only against the federal government, British Columbia and its municipalities will nevertheless be under substantial pressure to comply with the requirements of NAFTA and the WTO.


6. Because they can be invoked unilaterally by foreign investors, NAFTA investment disciplines present a particular threat to government measures concerning the Seymour DBO undertaking. These extraordinary enforcement procedures may be invoked to challenge government measures simply because they diminish the profitability of a foreign investment in the Seymour undertaking.


7. When considered in light of these binding international obligations current proposals for the Seymour project present significant risks to public policy and law concerning the delivery of water services, including the risks of:
   
   
   • transforming what otherwise would have been a contractual dispute, such as a decision by the GVRD to terminate the DBO contract, into a claim for damages to be resolved by a commercial arbitration tribunal and in accordance with international, not Canadian, law and procedures;
   
   
   • eliminating the possibility of ensuring that local economic benefits result from the Seymour project by including purchasing and other local preferences as conditions to the DBO contract, and,
   
   
   • subjecting environmental and public health measures - from safe drinking water standards to the remedial orders of local health officials - to the rigours of international trade adjudication or commercial arbitration.


8. By entering into a partnership with a private sector proponent for the supply of municipal water services, the GVRD would also weaken the claim that such public services be regarded as exempt from the full application of NAFTA investment and WTO services rules. Depending upon the character and extent of federal government participation in the project, these repercussions may extend beyond the provincial borders.


9. Similarly, if the Seymour project represents a departure from past practice that is advantageous to certain investors and service suppliers - such as the right to bid on major infrastructure projects, or to have the bidding process subsidized by government - it will establish a new precedent (standard of National Treatment) that it and other BC municipalities would be obliged to follow in like circumstances.


10. Finally, with few exceptions, the risks that NAFTA and WTO requirements pose for the Seymour project can be obviated or entirely avoided by proceeding with this project as a public sector undertaking.