Trade Rules

Through multilateral, regional and bilateral trade agreements, the Government of Canada has created unprecedented rights for the private sector. These new rights were first established in the North American Free Trade Agreement (NAFTA).

The investor-state provisions found in Chapter 11 of NAFTA provide companies with the right to sue signatory governments if they take regulatory action that diminishes the company's expected earnings. Under this greatly expanded interpretation of expropriation, governments must compensate investors if they can demonstrate that their income will be adversely affected.

These provisions create stability for cross-border investors. They also create a regulatory chill, making governments reluctant to adopt legislation that provides greater environmental or social protections but that may require the private sector to incur additional costs. Governments fear that companies could challenge these regulatory provisions on the grounds that they diminish the profitability of their investments. If a corporation wins a Chapter 11 challenge, the taxpayers of the losing NAFTA nation must foot the bill. Chapter 11-style provisions have become standard in most bilateral and multilateral trade agreements, including the new Canada–Central American Free Trade Agreement.