Amidst all the chaos brought on by Trump’s tariff threats, Canada’s federal trade minister celebrated a minor win this month: the finalization of a trade agreement with Ecuador. 

At this point, you might think that any trade deal with the potential to lessen Canada’s dependence on our southern neighbour is a good thing. Unfortunately, this Ecuador deal does not have such powers. The estimated economic gains—an $80 million top-up to Canada’s gross domestic product—are a fraction of a drop in the bucket of Canadian trade flows. 

The real purpose of the agreement—for Canada as much as Ecuador—appears to be to protect mining projects against popular and Indigenous resistance in Ecuador. In that sense, it is as coercive and potentially harmful to democracy as Trump’s economic warfare on Canada and other countries. 

Buried in Canada’s announcement of the new trade deal was the fact that the agreement would allow foreign investors to sue both countries in international arbitration, even though this is unconstitutional in Ecuador. This was requested by the mining industry and vehemently opposed by human rights organizations during public consultations held in 2023.

Back in 2008, the Ecuadorian people voted to adopt a new constitution that included an article banning the controversial practice known as investor-state dispute settlement (ISDS). ISDS allows foreign investors to bypass local courts and sue a country in international arbitration when a policy, regulation or other government action interferes with their business plans. Investors routinely bring claims against government measures aimed at protecting public health and the environment. 

ISDS cases are heard by tribunals made up of handsomely paid lawyers, often from countries other than the one being sued. When a tribunal decides against the state, the punishment takes the form of an “award” of monetary compensation paid to the investor. The size of awards has trended sharply upward over time and the average payment over the last decade was a staggering US$256 million. Some states have even faced fiscally crippling awards of billions of dollars.

Given the high costs and lack of public benefits of ISDS, it was sensible for the Ecuadorian government under former president Rafael Correa to systematically remove the country from the international investment arbitration regime. During his administration, Ecuador cancelled all its existing investment treaties, including one with Canada, and withdrew from the World Bank’s arbitration centre.

Current President Daniel Noboa, who will face a runoff vote in elections this April, has been actively courting mining investors and has sought to bring back ISDS to appease them. But in a referendum held last April, the citizens of Ecuador voted overwhelmingly to preserve the constitutional prohibition. They resoundingly said no to ISDS.

The outcome of the referendum should have ruled out the inclusion of ISDS in the Canada-Ecuador deal. However, it would seem that protecting the interests of mining companies is more important to Canada than upholding democracy. 

Canadian mining companies have a “particularly bad reputation globally for causing serious human rights abuses.” They are also big users of ISDS, regularly suing countries—including Ecuador—for exorbitant sums when governments enact policies to protect local communities and the environment.

Canada has also been on the receiving end of egregious ISDS claims, most recently from the Australian mining firm pursuing the controversial Grassy Mountain coal project in Alberta. The U.S.-based investors in the failed Énergie Saguenay liquefied natural gas proposal are also suing Canada for more than a billion dollars, using the expiring ISDS process in the North American Free Trade Agreement (NAFTA).

Indeed, Chrystia Freeland celebrated the removal of ISDS from the renegotiated Canada-U.S.-Mexico Agreement (CUSMA) arguing that ISDS “elevates the rights of corporations over those of sovereign governments.” 

The Liberal government’s continued pursuit of ISDS in new deals contradicts this statement and stands in stark contrast to the decision of the EU to exit the Energy Charter Treaty on the basis that ISDS is incompatible with the Paris climate agreement.  

Canadians are experiencing a surge of national pride at the moment and an eagerness to differentiate ourselves from Americans in response to the threat of annexation. As part of this, we must reject an imperialist approach to trade and investment policy. 

There is no doubt that Trump is a bully. But so too are many Canadian companies that wage lawfare against countries that try to balance their interest in profits with public demands for sustainable development and the protection of life. 

With Canadian Parliament prorogued and upcoming elections in both Canada and Ecuador, it is unclear when or even if this trade deal will be signed. Ecuador’s top court must first determine whether the agreement’s investment rules and ISDS process abide by the country’s constitution. If the courts say no, or if Noboa loses his bid for re-election in April, Ecuador will likely seek to re-open trade negotiations with Canada to remove ISDS. 

This would provide an opportunity for both governments to correct an egregious error.