US investor threatens arbitration over investments in Canadian health-care sector

By Damon Vis-Dunbar
24 September 2008

An American businessman has revived long-held suspicions that the North American Free Trade Agreement’s investment chapter may hinder Canada’s ability to regulate its public health-care system.

In a letter sent to the Canadian government in July 2008—a so-called Notice of Intent—Melvin J. Howard accuses provincial authorities of putting up “politically motivated” roadblocks to proposed investments in health-care facilities, in breach of the government’s commitments to American investors under NAFTA. The letter sets in motion a 90-day period which must elapse before formally serving a claim.

Mr. Howard alleges breaches of the national treatment and most-favoured-nation treatment provisions in NAFTA’s Chapter Eleven, and seeks nearly US$ 160 million in damages.

The letter refers to a lack of “uniformity” among provincial health-care agencies in Canada. “There are serious inconsistencies throughout Canada in terms of the Canada Health Act and Provincial health care programs,” writes Mr. Howard. “Centurion and its counter parties seek to be compensated for damages for barriers to entry and expropriation.” Mr. Howard also argues that efforts to set up private surgical facilities in the city of Vancouver were sabotaged by community activists, “in their belief that no American company should be providing surgical services.”

One of the investments proposed by Centurion Health Corporation, a company chaired by Mr. Howard, was a hospital on Vancouver Island. Centurion was advocating for a public-private partnership—an arrangement that the Provincial Government of British Columbia began experimenting with in 2002—in which responsibilities that had previously been performed solely by government agencies were contracted to the private sector. A 2006 preliminary five-year financial forecast for this particular hospital, sent to ITN by Mr. Howard, estimated that the total capital costs would amount to some $180 million, including construction costs.

While the Notice of Intent is dated 11 July 2008—with Canada acknowledging receipt of the notice that same month—news of the threatened arbitration broke in September  in an op/ed in Canada’s Embassy Magazine*. It soon roused the attention of defenders of Canada’s public health-care system who have warned in the past that NAFTA could restrict government policies in the sector.

The Canadian Union of Public Employees (CUPE) said: “… the federal government has been ignoring concerns that NAFTA investment rules put the Canadian health care system at risk. Now, these concerns are becoming substantiated …”

The degree to which government policies in the health-care sector are immune from NAFTA investment claims has been a matter of debate in Canada. An annex of the NAFTA carves out all health-care policies in place prior to January 1, 1994, but commentators have argued that changes to health-care policies made after 1994 could become to object of a NAFTA claim.

For example, two Canadian researchers wrote in 2003: “This situation could arise if public health care in Canada were to be expanded to new areas such as prescription drugs or dental care. US private health insurance companies and pharmaceutical companies with a presence in Canada would likely use Chapter 11 of NAFTA (the investor-state provisions of the Investment chapter) to sue for billions in compensation for lost business.”**

Mr. Howard’s claim relates to a different scenario. Having allowed private investors into the health-care market, Mr. Howard contends that the provincial government of British Columbia was bound to treat American and Canadian investors with the same standard of treatment. He argues that they were not.

For its part, the Canadian government has only provided a brief comment, saying that they are “currently assessing this claim and is consulting with the Government of British Columbia”. Canada is gearing up for an election on 14 October 2008, and a spokesperson for the Department of Foreign Affairs and International Trade said they would not issue any comments that could be used to stoke partisan debates.

*“US Investor Threatens First Ever Health Care Suit”, By Luke Eric Peterson, Embassy, 17 September  2008

** “Competition in the WTO and FTAA: A Trojan Horse for International Trade Negotiations”, By Marc Lee and Charles Morand, The Canadian Centre for Policy Alternatives, August 2003