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Alberta’s NAFTA legal opinion

Alberta’s claim that NAFTA has no implications for Bill 11 is no more reliable than their claim that the Bill is really about protecting public health care or that private surgical hospitals are really not hospitals at all. In fact, a review of the government’s legal opinion reveals that it actually confirms several key concerns raised by CUPE’s critique of the Bill.

Moreover on several key issues the legal opinion is silent. These include:

  • The permanence of Alberta’s experiment should US or Mexican companies establish new investments in surgical care services which until now have been provided by the public system. Key here are NAFTA expropriation provisions, about which the opinion is simply silent. Given the fact that several US investors have already invoked these provisions to challenge Canadian measures, the omission should be seen as an admission of CUPE’s assessment.
  • Bill 11 will weaken arguments that Canada’s health care system is exempt from NAFTA rules, because of the US position that private sector participation removes a service from the protection afforded by Canada’s sectoral reservation for health care [Annex II C-9].
  • The failure of Alberta to indicate any intention to rely upon its procurement authority to restrict contracting out to US and Mexican providers, or the practical problems of doing so should it proclaim this position.
  • The impact of Bill 11 on federal health care policies and law including the Canada Health Act and its funding arrangements with all provincial governments.

One can only conclude that the province was unable to find a lawyer willing to refute the analysis CUPE has presented on these fundamental points.

Before responding to the particular conclusions presented by the province’s legal advisors, it is worth noting key points where the province’s legal advisors agree with CUPE’s legal assessment. These are:

  • Canada’s health care system depends upon preserving the integrity of NAFTA reservations. Otherwise US and Mexican providers would be guaranteed the same access to Canadian health services delivery as is available to Canadian providers, including those in the public sector.
  • The fate of these reservations is uncertain. Bill 11 would not be entitled to the protection of Annex I, and may not be entitled to the protection of Annex II. While the opinion expresses the view that private sector participation would not be fatal to Canada’s sectoral reservation for health care, it concedes on two separate occasions that this view may prove to be incorrect.
  • Only foreign investors have the right to invoke the extraordinary enforcement provisions of NAFTA investment rules to challenge Canadian health care policy and law.
  • That the ultimate judgment about NAFTA impacts on Bill 11 will rest with trade panels and investment tribunals. While the opinion notes the ability of the three governments to issue interpretive statements to resolve uncertainty about the meaning of NAFTA rules, it ignores the sharp differences of opinion that distinguish U.S. and Canadian views on public health care that have apparently precluded such an agreement to date.

In fact with the exception of two technical points, their opinion doesn’t directly challenge or contradict any of the concerns in CUPE’s legal opinion. These points are:

  1. Whether Annex II would apply to Performance Measures [Article 1106], such as local purchasing requirements. We believe their opinion is incorrect on this point because while Article 1108.3 contemplates such an exemption, Canada explicitly declined to take advantage of this opportunity by listing this particular Article along the others it did identify in Annex II C-9.

  2. Whether the province can restrict transfers of surgical care services contracts. While the opinion expresses an arguable position, the wording of Article 1109 clearly indicates that it applies to “all transfers relating to an investment” even though the examples cited are specific to monetary transfers.

While the presentation of the opinion, and certainly the spin the province has put on it, suggests strong disagreement with the concerns CUPE has raised, an assessment of the actual opinion reveals that there is very little of substance that either contradicts or even takes issue with the views expressed in the CUPE legal opinion.

Below is an analysis of several key arguments made in the government’s legal opinion. Quotations from the government’s opinion are in italics.

1. We interpret the reference in Annex 11-C-9 to health services for a “public purpose” as meaning services that are open to the public and are provided for the public good. The identity of whom or what owns, operates or funds health services is not a consideration in determining whether health services are provided for a public purpose.

This interpretation of Annex II C-9 is plausible, a point we conceded (p 26). The problem is that the US has expressed an entirely contrary view, and the judgment will ultimately be made by a trade panel or investment tribunal if the parties continue to disagree. Moreover, the opinion simply ignores the key concern about this reservation, which is that Bill 11 will undermine Canada’s ability to defend the public dimension of our system should the US view about private sector participation prevail.

2. Annex II-C-9 protects measures related to health services from the application of National Treatment and Most-Favoured-Nation obligations of the NAFTA. Therefore, health authorities do not have to apply the same standard of treatment to U.S. and Mexican investors, investments and service providers that they apply to domestic investors, investments and service providers. Further, health authorities do not have to treat Mexican investors, investments and service providers in the same manner as it treats U.S. investors, investments and services providers (and vice versa).

This point is correct only if Annex II C-9 applies, which simply brings us back to the preceding issue. What the province’s press release conveniently ignores is that their legal advisors candidly acknowledge that their view on the ambit of this Annex may be incorrect: “If our interpretation of Annex II C-9 is incorrect… ” (This point is repeated on pages 6 and 8).

3. Even in the absence of the reservation for measures related to health services as found in Annex II-C-9, the National Treatment and Most-Favoured-Nation obligations of the NAFTA do not have the consequence of requiring other provinces to offer the same treatment to U.S. and Mexican investors, investments and service providers that Alberta does.

In other words it will constrain Alberta’s options. Furthermore, in the narrow technical sense it is presented, we agree with this point and made it ourselves (p. 39). The more important issue however concerns the impact of Bill 11 on federal health care prerogatives which we argue could become the instrumentality of extra-provincial impact. Should the federal government support Alberta’s experiment, tacitly or otherwise, it would be clearly setting a National Treatment standard that would constrain its own options both with respect to the Canada Health Act and with respect to the CHST. Again Alberta’s opinion is silent on these points.

4. The prohibition against Performance Requirements in Article 1006 does not apply to measures related to health services as set out in Annex II-C-9.

This point does contradict CUPE’s position, however we believe it is incorrect. Article 1108.3 does explicitly contemplate the application of Annex II reservations to Article 1106 (performance requirements) a point our opinion noted. For whatever reasons however, the specific terms of Annex II C-9 explicitly fail to include Article 1106 in the list of those provisions from which the reservation is made. According to well-established tenets of interpretation, the specific provisions of the Annex are very likely to prevail over the general and empowering provisions of the text.

5. The restrictions on the kind of measures that a government can enact respecting transfers and investments relate solely to monetary transfers.

This point also contradicts CUPE’s view. The terms of Article 1109 explicitly apply to “all transfers” and while the examples offered by the article are all monetary, there is nothing that limits the application of this provision to monetary transfers. Their point is arguable, but ultimately a trade panel or investor tribunal will decide.

6. Investor-state dispute settlement procedures under Chapter 11 are only available to foreign investors if there has been a breach of Chapter 11 and the majority of the obligations in Chapter 11 do not apply to measures related to health services set out in Annex II-C-9. Further, in an investor-state dispute, the Free Trade Commission, consisting of cabinet-level representatives of the three Parties, have the authority to issue interpretations of any part of the NAFTA, including the interpretation of Annex II-C-9 and these interpretations are binding on an Chapter 11 arbitration tribunal.

This point is cleverly worded but is both misleading and incorrect. Even if Annex II C-9 applies, it would not shelter health services from “the majority of the obligations in Chapter 11.” There are 39 Articles in Chapter 11 and Annex II C-9 applies only to four of them. More to the point, while the Annex applies to some of the more important requirements of the chapter – national treatment for example – it does not apply to the expropriation and investor-state suit provisions, which are clearly as onerous.

In addition the opinion notes the authority of the NAFTA Commission to issue interpretations of NAFTA provisions under Article 1132 to resolve the ambiguity that obviously exists with respect to the meaning of Annex II C-9. The point however is that Canada has been either unwilling or unable to negotiate such a note with the US. Moreover given the sharp differences that distinguish US and Canadian views on what is, or is not, a “social service established or maintained for a public purpose,” agreement on this point would appear extremely unlikely.

7. The restrictions on the manner in which governments can procure goods and services do not apply to provincial governments.

We concur with this point. This means that the province could probably discriminate against US and Mexican companies when approving contracts for surgical health care services. But as we noted (pp. 35-37) that are several practical limitations that would come to bear. More to the point however, is that Alberta appears to have no inclination to limit participation of US and Mexican providers in its new scheme, and has written no such constraint into the Bill, so its option to do so hardly seems relevant.

It is also significant that the opinion concedes that Annex II C-9 may not in fact apply to Bill 11, but emphasizes that Alberta would still be able to establish criteria for the allocation of service contracts, as long as these did not discriminate against US or Mexican providers. We agree. Indeed this is precisely the point. If Annex II doesn’t apply, Alberta would have to allow US and Mexican companies the same access to such contracts as it provides Canadian providers including those in the public sector. But given the rights that foreign investors alone enjoy under NAFTA, the consequences of allowing foreign investor participation are far more permanent and constraining of public policy options than would be true in the domestic context, points CUPE’s legal opinion makes at some length.

In sum, it is telling that the province was unable to find an opinion more supportive of its position. In addition to being silent on several key issues, the opinion offers a somewhat muted admission that there is no certainty with respect to the outcome of a trade dispute or investor claim that might challenge Canada’s health care system. The views expressed should be seen as the most optimistic assessment the province could acquire – it should provide no comfort to anyone concerned about the integrity of public health care.

Steven Shrybman

April 5, 2000