Clashing Canadian and U.S. Indo-Pacific strategies

Last week, the Biden administration launched its long-awaited Indo-Pacific Economic Framework for Prosperity (IPEF).

Well, sort of. It’s more a commitment to begin talking with 13 Indo- and Asia-Pacific nations about possibly negotiating binding rules on regional trade, supply chain stability, clean energy and decarbonization, and tax and anti-corruption policy—the four “pillars” of the plan.

In that sense, we know as much about the framework now as we did when it was previewed by the White House earlier this year.

At heart, the IPEF is the Biden administration’s updated “pivot to Asia”, following the Trump administration’s abrupt withdrawal in 2017 from the now 11-country Trans-Pacific Partnership. Like then the target is China. U.S. Secretary of State Antony Blinken spoke in Washington on Thursday about the need to shape “the strategic environment around Beijing to advance our vision for an open, inclusive, international system.” Otherwise, “Beijing’s vision would move us away from the universal values that have sustained so much of the world’s progress over the past 75 years,” he said.

American exceptionalism dies hard.

However, unlike that trade pact, which Canada renamed CPTPP (adding “Comprehensive and Progressive”) and ratified in October 2018, the IPEF won’t involve tariff reduction offers from the U.S. But the framework’s pillars do aim to produce binding commitments covering cover cross-border data flows and other contested “digital trade” matters, market access for U.S. products of biotechnology (e.g., pesticide-treated GMOs), common (i.e., non-Chinese) standards for emerging technologies like 5/6G and artificial intelligence, and labour and environmental standards—all matters covered in one way or another by the CPTPP.

U.S. business lobbies hate the framework for not being a status-quo trade deal, while Canada’s corporate class is clamouring to get in. International civil society groups from several TPP countries are extremely guarded and calling for transparency. Arthur Stamoulis of the Citizens Trade Campaign points out that “ongoing rights abuses in the Philippines and some other IPEF members would undermine the Biden administration’s goal of establishing a new model for international trade that prioritizes working people over corporate interests.”

True. But as New Zealand trade justice activist and professor Jane Kelsey implies, in her contribution to the same CSO release, these are early days still.

“If President Biden, USTR Tai and Commerce Secretary Raimondo can produce a real alternative that puts people and the planet front and centre, and can convince our governments to genuinely support that new paradigm, we will work to make it succeed,” Kelsey says. “But if IPEF is just another way to promote the old corporate agenda, and a proxy for the U.S.’s geopolitical goals, we will campaign against it like we did with the TPP.”

There will be more to say about all this as the IPEF negotiations move forward over the next 18-24 months. For now, I’ll just point out two ways I think Biden’s Indo-Pacific strategy contrasts, possibly favourably, with that of the Trudeau government.

First, the U.S. plan wastes no time worrying about the treatment of U.S. investors and investment in the Indo-Pacific region, where Canada is currently negotiating NAFTA-like investment protections in status-quo trade deals with Indonesia, India, and the Association of Southeast Asian Nations (ASEAN).

Second, minimum core labour standards appear to be a first principle of the IPEF, where Canada has already signalled to the Indonesian government that worker rights are negotiable in its Indo-Pacific trade deals. This might change as the unique Canadian and U.S. talks progress, but, for now, the contrast on labour is a big letdown.

I problematized these differences between the U.S. and Canadian Indo-Pacific strategies in my May 4 presentation to the House of Commons Standing Committee on International Trade, which I summarize in what follows.

My basic point was that whatever business opportunities exist for Canada in the Indo-Pacific, we don’t need investor-state dispute settlement (ISDS) to achieve them. And under no circumstances, I emphasized, should Canada cave in on labour standards, as the Australian government did with its own recent Indonesian trade deal.

Canada’s ISDS hang-up

In mid-2018, the federal government celebrated the removal of NAFTA’s corporate court system—the ISDS process­—from the renegotiated CUSMA. Doing so “strengthened our government’s right to regulate in the public interest, to protect public health and the environment,” said then-Foreign Affairs Minister Chrystia Freeland.

What’s more, we learned this year that Canada and the U.K. will not include ISDS in the deal they’re negotiating to replace their 2021 Trade Continuity Agreement.

These were good moves that were in line with substantial international backlash to ISDS as an unnecessary, unpredictable, and costly handout to big business with dubious economic benefits to countries.

The climate-related case against ISDS is especially strong since the Intergovernmental Panel on Climate Change (IPCC) warned earlier this year that trade and investment treaties—and investor-state dispute settlement specifically—could delay or even stop countries from trying to lower emissions.

New research published in the journal Science this May finds that as much as US$340 billion in compensation could be claimed by fossil fuel companies in ISDS proceedings as countries begin to phase out oil, gas, and coal developments.

What countries can afford to pay this simply to live up to their climate obligations? What countries should have to pay when fossil fuel companies have known for decades there is no market for their products in a livable future?

The study’s authors proposed that all countries “should terminate their treaties—even unilaterally—to avoid ISDS cases,” noting that “South Africa and others have done so without substantial impact on foreign investment flows.”

Canada, on the other hand, is increasing its ISDS exposure and that of its new trading partners in the Indo-Pacific. The risk to this strategy goes two ways. For example, about 95% of Canadian investment in Indonesia is in the extractives sector, where ISDS cases are common. Likewise, there is significant Indonesian investment in Canadian liquefied natural gas, pulp and paper, and forestry—all sectors where future conservation efforts or just transition policies will be vulnerable to huge ISDS lawsuits under the planned Comprehensive Economic Partnership Agreement (CEPA) now being negotiated with Indonesia.

ISDS may also be politically destabilizing in Indonesia and other ASEAN countries where human rights are sometimes an afterthought and there is less public trust in government.

The recent loss by Pakistan in an ISDS claim brought by Tethyan Copper, a joint venture part-owned by Canada’s Barrick Gold, provides an example. Tethyan sued Pakistan when it was denied a permit to build a mine close to the border with Afghanistan. It did so after the Pakistani Supreme Court ruled the initial exploration agreement Tethyan had signed with the Baluchistan state government in Pakistan was invalid.

Though the company had invested no more than $200 million in exploration and administrative costs, and despite evidence of corruption on the part of the company, presented by Pakistan, the ISDS tribunal ordered Pakistan to pay the mining company nearly US$6 billion U.S. This staggering amount was justified by using the imagined scenario in which the mine had received a permit to extract and operate normally for its scheduled lifespan.

CCPA researcher Hadrian Mertins-Kirkwood examines this and other Canadian ISDS cases abroad in his May 2022 report, On the Offensive: How Canadian companies use trade and investment agreements to bully foreign governments for billions.

Pakistan could not have hoped to pay this award, which was equivalent to a structural adjustment loan the IMF had just approved for the financially struggling nation. No Pakistani court would ever have awarded Barrick Gold that much money, nor would any Canadian court, had the mine been cancelled here instead.

The award is so large and punitive that it will reasonably discourage other governments from saying no to environmentally or socially unsustainable mining and fossil fuel projects. In this case, Pakistan agreed to reverse its earlier decision and approve the mine with Barrick—a big win for corporate power at the expense of the public trust.

Negotiable labour standards

Where Canada insists on the highest investment protections in the CEPA with Indonesia, and in free trade talks with India and ASEAN, the federal government appears ready to water down its stated commitment to high labour standards and other “inclusive trade” elements in new trade deals.

According to a civil society briefing from Global Affairs Canada this April, the Indonesian government told Canadian negotiators that a labour chapter is a non-starter. Indonesia has not included labour provisions in any of its trade treaties, including a 2020 deal with Australia—a country with which Indonesia does four times as much trade as with Canada.

The obvious question, at least to me and many of the people I work with in the CCPA’s Trade and Investment Research Project, is why would Canada waste any more time negotiating a deal with Indonesia if the labour talks are likely to fail—or fail to produce satisfactory results?

The federal government seems to be sleepwalking into an outcome that will be negative for workers, women, Indigenous and rural communities, and the environment.

A sustainability impact assessment of the European Union’s planned CEPA with Indonesia states: “Trade liberalisation could have some potentially negative impacts on working conditions in Indonesia as the prospective FTA is expected to result in increased demand for employment in sectors historically less likely to meet decent working conditions including textile, wearing apparel and leather industry. Concerns also arise that vulnerable groups, including women and children, would bear the brunt of poor working conditions.”

That impact assessment also notes that “considering Indonesia’s rather weak implementation of laws on indigenous peoples’ land rights, increasing trade in sectors where concerns on land rights are relevant, such as forestry and wood products, could run the risk of increased human rights violations.”

Greenpeace Canada was clear on this point in its presentation to the same trade committee hearings on the Indo-Pacific. The CEPA would be a boon for chemical fertilizer monopolies in Canada and unsustainable palm conglomerates in Indonesia, but with hugely negative repercussions for biodiversity and human rights in both countries, said the organization.

“[A]ny deal should distinguish between goods based on how they are produced, and guarantee traceability of all products,” said Shane Moffatt, head of the food and nature campaign at Greenpeace Canada. “This requires enforceable guarantees that Canadian forest products are not originating without the free, prior and informed consent of Indigenous peoples, or originating in threatened species’ habitat. The same goes for Indonesian products like palm oil originating from deforestation or linked to human rights abuses.”

Canada’s status quo Indo-Pacific strategy

Without a strong floor for labour and environmental rights, it is unlikely that Indonesian workers and communities will see any benefits flowing from a trade deal with Canada. They very likely will be worse off.

The Biden administration’s Indo-Pacific Economic Framework is a work in progress. I agree with trade justice activists who fear the individual country pacts (IPEF pillars are voluntary and unique to each country) could end up looking like the Trump administration’s “mini” trade deal with Brazil, painted over by rhetoric about inclusive trade and shared democratic values. Like the IPEF, that deal also emphasized trade facilitation, supply chains, and “good regulatory practices”—all major priorities for the U.S. Chamber and other corporate lobbyists.

Ultimately, friend-shoring, or finding friendly, non-Chinese and non-Russian places to source cheap resources and labour for high-tech U.S. military and consumer products, may trump bottom-up benefits for workers in Asia as a top priority of the Biden administration.

However, it’s still too early to tell what the U.S. framework agreements will look like, and worker-centred talking points continue to permeate USTR and White House press statements. In contrast, Canada’s Indo-Pacific strategy is all but locked in, based on the briefings we’ve had so far on the Indonesian and Indian negotiations. It is both uninspiring and, in the case of workers’ rights and livelihoods, an extreme disappointment.

By staying at the negotiating table without a commitment from Indonesia to a high standards labour outcome, Canada is signalling to Indonesia as well as India and ASEAN nations that it is flexible on this point.

There was a period around 2016-17 when Canada appeared to be pioneering a somewhat more progressive and sustainable trade policy. The government has done some interesting things with gender chapters in new trade deals and is starting to take more seriously Canada’s obligation to include Indigenous Peoples and interests in treaty negotiations and outcomes.

However, Canada appeared to turn the page on ISDS when it agreed to remove it from NAFTA and avoid it in the U.K. bilateral.

It would be a shame to toss this progress aside, to continue signing lopsided trade and investment treaties just as our biggest trading partner starts underlining the importance of worker-focused partnerships in the Indo-Pacific.