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A frequent criticism of treaties that allow corporations to sue governments is that they may force countries to weaken health or environmental laws.

Those fears are now helping to fan European opposition to the investor-state dispute settlement (ISDS) provisions contained in the Canada-Europe free trade deal.

But the record from recent arbitration cases suggests those concerns may be overblown.

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Consider this week's ruling against Toronto-based generic drug maker Apotex Inc. in a North American free-trade agreement dispute.

Apotex had sued the U.S. government for $1.5-billion (U.S.) over a decision by the Food and Drug Administration (FDA) to ban imports from two of the company's Ontario plants for nearly two years over safety concerns.

But a three-member arbitration panel threw out Apotex's claim, ruling that the FDA move was a "lawful and appropriate" use of its authority. The panel also ordered the drug maker to repay all the U.S. government's legal costs.

In a statement, the U.S. State Department applauded the ruling, noting that the decision is an "important recognition of the NAFTA parties' authority to take non-discriminatory enforcement action to protect public health."

The FDA imposed the ban in 2008 after inspectors visited the plants following complaints about Apotex drugs. The U.S. said those inspections revealed "significant deviations from current good manufacturing practices."

The ban was lifted in 2011. Apotex filed its lawsuit a year later, alleging that the U.S. had violated its NAFTA right to be treated as U.S. companies would.

Tribunals have generally been very reluctant to undercut the right of countries to take actions for legitimate public policy purposes, pointed out Lawrence Herman, a Toronto trade lawyer.

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A 2011 NAFTA panel similarly upheld Quebec's right to restrict the use of certain pesticides.

"These decisions show that governments have a legitimate right to protect the health and safety of their citizens," he said. "And if it isn't a biased measure and has sound scientific underpinnings, they won't interfere. The sky-is-falling rhetoric that we've heard is highly exaggerated."

A win by Apotex in the case would not have affected the right of the FDA to act, but could have forced it to pay compensation.

Those cases are now part of the jurisprudence that panels would look to in the future, including any stemming from the Canada-Europe free-trade agreement, Mr. Herman argued.

"There is no doubt that panels established under [the Canada-Europe free trade agreement] would look to the jurisprudence worldwide," he said.

Mr. Herman also pointed out that more restrictive rules will make it much more difficult for companies to sue under the Canada-Europe deal than under NAFTA.

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Experts say European angst about investor-state disputes isn't really about Canada anyway. The fear is that the Canada-Europe deal will become a model for a U.S.-European agreement now being negotiated, giving litigious-minded U.S. companies a powerful new tool to attack European laws and regulations.

And on that score, European fears may be legitimate.

In 20 years of litigation, no Canadian company has been able to make a NAFTA claim stick against the U.S. government.

U.S. companies, on the other hand, have successfully won compensation from Ottawa on at least four occasions.

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More

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