Unpacking the ASEAN–Canada FTA Negotiation Investor Lawsuits Endanger Climate Justice

The rising geopolitical competition surrounding the green transition has intensified negotiations for trade and investment agreements aimed at securing market access for renewable energy projects and critical minerals essential to energy transition. These agreements have become protective instruments for multinational corporations, particularly through the investor-to-state dispute settlement (ISDS) mechanism. Currently, numerous free trade agreements (FTAs) are being negotiated across ASEAN, including bilateral agreements between ASEAN member states. 

The ISDS mechanism poses a significant threat to the rights and protections of citizens across these nations. By holding states hostage to the interests of foreign investors, ISDS undermines peoples’ struggles to hold corporations accountable for human rights violations, economic losses, and environmental damage or pollution. Consequently, examining the nexus between energy transition and trade agreements is crucial for advancing a fair and just transition agenda in the region.

The ASEAN-Canada FTA is one of these agreements currently under negotiation that includes an investment protection chapter with an ISDS mechanism.1 This briefing note summarizes the October 2025 webinar, “Unpacking the ASEAN-Canada Free Trade Agreement”, which examined the impact of ISDS and highlighted Canadian mining practices through emblematic ISDS cases.

Discussions on FTAs cannot be separated from ongoing geopolitical issues. Joseph Purugganan (Focus on the Global South) describes the great power rivalry between the United States and China as a sign of a “fragmented landscape”, where access and control over energy, critical minerals, and technology are the main objectives. The intensifying economic-security nexus poses new challenges for states to navigate. Within this complex landscape, ASEAN nations and Canada are trying to advance their respective strategic interests.

Power dynamics and asymmetries lie at the core of these challenges, especially for countries from the Global South. Canada and ASEAN nations come from markedly different bargaining positions when negotiating with the United States to lower or remove Trump’s unilateral tariffs. Similarly, these power imbalances and conflicts of interest also exist between corporations and communities within Global North and South - conflicts in which states play an active and often decisive role.

Critical minerals are becoming the primary pillars of the green and digital economy. Thus, ASEAN nations, such as Indonesia and the Philippines, have become focal points of interest for Global North countries. With the energy transition being a key part of their agenda, it raises the question: What is the role of Global South states in this context? Who will carry the greater burden? And whose interests will be prioritized, corporations or the people?

Unequal power relations and shifting geopolitical dynamics force smaller countries to consider regional and bilateral agreements over multilateral ones. However, significant concerns remain regarding how FTAs prioritize corporate interests at the expense of human and environmental rights and protections, as well as doubts about the neutrality of the international judicial system.

Before digging deeper into the potential impacts of ISDS on climate action within the ASEAN-Canada FTA negotiations, it is essential to understand the origins of the mechanism. During the 1990s and 2000s there was a surge in international investment treaties, many of which were bilateral investment treaties (BITs) between Global North and Global South countries, such as the Thailand-Canada Foreign Investment Promotion and Protection Agreement (FIPA). Alternatively, ISDS was integrated as investment chapters in comprehensive free trade agreements such as the Indonesia-Canada Comprehensive Economic Partnership Agreement (CEPA) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

For Global North countries, investment treaties with ISDS serve primarily to “protect” their corporations’ investments. Global South countries, on the other hand, are sold the idea by the World Bank that investment treaties will help attract foreign investment, despite there being no evidence to support this claim. In reality, there is no public benefit to these treaties.2

While public benefits remain unproven, the costs to Global South countries are stark. To date over 1,400 ISDS lawsuits have been initiated against countries under more than 2,600 active investment treaties. Global South countries are disproportionately impacted by investor-state disputes, facing most cases that are also mainly initiated by Global North corporations. This disparity manifests in two ways, firstly in the sheer volume of cases filed against them, and secondly in terms of the financial strain on national budgets caused by costly arbitration awards. ISDS is also used by investors to bypass local judicial systems in countries where their investment took place.

There are several problems with ISDS. First, the arbitrators hearing investor disputes are mostly male commercial lawyers from the Global North, creating a systemic bias toward outcomes favourable to investors. Moreover, there are cases where arbitrators do “double-hatting,” meaning they act as an investor’s lawyer in one case but as an arbitrator in another, which can cause conflicts of interest. Secondly, there is very little transparency over proceedings, severely limiting access to information for impacted communities and civil society organizations.

Arbitrators also often make decisions based on the vague provisions in the investment treaties instead of the local laws where the disputing investor operates. This results in the dismissal of community interests negatively affected by foreign investment. These proceedings usually take place under the auspices of the International Centre for Settlement of Investment Disputes (ICSID), United Nations Commission on International Trade Law (UNCITRAL)3, or Permanent Court of Arbitration (PCA). Finally, the financial burden is substantial, as countries often must pay high costs to settle cases or pay awards to successful investors. Consequently, the mere threat of ISDS may cause governments to scale back policies that are beneficial for the public, in fear of litigation.

How does ISDS work?

ISDS involves an Investor and Defendant State where both parties will appoint a non-permanent arbitrator. Both of them agree on a third one. The three arbitrators meet in an international arbitration tribunal to conduct hearings. Which tribunal is used is specified in the treaty. The hearings and their results are usually kept private. It is important to note that the process only enables investors to sue States, not the other way around.

ISDS cases are increasing as countries transition away from fossil fuels. Companies and investors whose profits are affected by fossil fuel phaseout are filing costly ISDS claims against governments in the Global North and South. Global South countries, many of which have only recently commissioned coal power plants via foreign investment, are extremely vulnerable to ISDS claims from investors demanding compensation for “lost future profits” if their plants are retired early. As a result, ISDS could require states, and ultimately taxpayers, to pay substantial compensation to fossil fuel corporations for implementing measures that support the energy transition.4

The energy transition requires critical minerals. Leveraging the momentum of global electrification, many Global South countries are pursuing policies to climb up the value chain looking towards processing minerals into higher-value products such as magnets, batteries, and other renewable technologies. However, this push has faced community resistance as communities are demanding meaningful consultation and benefits from critical minerals projects. If these conditions cannot be met, communities are calling for projects to be halted. In this turbulent policy environment, ISDS disputes become more likely. In recent years, cases involving critical minerals projects are increasing. 

Furthermore, ISDS poses a significant barrier to nations looking towards building renewable energy infrastructure and implementing policies to facilitate an energy transition. A prominent example is Spain, which faced 51 ISDS claims after changing the incentive scheme (feed-in tariff) for renewable energy in response to unsustainable costs. Most importantly, there is no empirical evidence showing that investment treaties can drive renewable energy investment. As highlighted by Kyla Tienhaara, ISDS can shift the costs of the energy transition from the private sector to the public sector and from the Global North to the Global South while also excluding local communities and consideration of their rights.

There has also been a dramatic increase in ISDS cases challenging state measures designed to protect the environment. Known cases targeting environmental actions rose from 12 prior to 2000 to 126 between 2011 and 2021. This trend highlights a severe power asymmetry where state efforts to regulate and set public standards are under constant legal attack. As of 2023, 11 ASEAN countries have faced a total of 38 ISDS cases. These disputes reveal a common thread of investors exercising disproportionate power over sovereign states.

The Kingsgate v. Thailand case exemplifies the leverage foreign investors can exert over state regulatory power. Following years of local complaints and evidence of toxic leakage and heavy metal contamination around the Chatree gold mine, the Thai government ordered a nationwide suspension of gold mining in 2016, citing environmental and public health concerns. The Australian mine owner subsequently invoked the Australia-Thailand FTA to sue for millions of dollars in compensation. Although the arbitration was eventually terminated in late 2025, the decade-long proceedings demonstrate how the system prioritizes corporate interests. Meanwhile, impacted local communities often remain without redress while the state is forced to defend its right to protect its citizens.

Similarly, the Churchill Mining v. Indonesia dispute highlights the potential for corporate foul play within the ISDS framework. In 2012, investors demanded $1.3 billion after Indonesia revoked mining licences due to evidence of forgery. Although the tribunal eventually ruled in favour of Indonesia, the state was forced to navigate a complex legal matrix and incur over $12 million in defence costs. Even when the state wins, the financial and administrative burden remains a significant penalty for enforcing domestic law. This case underscores a systemic bias that enables corporations to use fraudulent claims as a tool of intimidation.

The case of Newmont Nusa Tenggara v. Indonesia provides another example of corporations manipulating the system to bypass national laws. Newmont challenged copper export restrictions intended to encourage domestic processing and mineral value-addition. The company withdrew the case only after the Indonesian government granted it special exemptions from these national policies. This negotiation occurred without transparency, preventing local civil society from monitoring the deal. Furthermore, the "sunset clause" in the underlying treaty ensures that old investments remain protected until 2030 despite the treaty’s termination.

ASEAN Countries and Canada entered into negotiation of the ASEAN-Canada Free Trade Agreement (ACAFTA)5 in 2021. Canadian interest in such an agreement has been growing since the mid-2010s, likely because of Canada’s involvement in the Trans-Pacific Partnership negotiations beginning in 2012. The ASEAN-Canada FTA is currently framed as one pathway for Canada to diversify its trading relationships beyond the Group of Seven (G7) countries and the United States in particular. Canada also aims to collaborate with ASEAN in the areas of energy, food safety, digital economy, and artificial intelligence. 

Stuart Trew explains that Canadian businesses have identified significant opportunities in the ASEAN region across various sectors, including natural resources, manufacturing, and financial services. In the energy sector, Global North countries, including Canada, are actively seeking deals to access critical minerals (particularly copper, nickel and gold) and fossil fuels in the ASEAN region to support the energy transition and other "technologies of the future". Beyond direct mining, Canada is interested in providing services that support extractive projects, such as finance, engineering, and electricity. 

A 14th round of negotiations took place in July 2025, where both parties agreed to conclude the negotiations as soon as possible. Like many other FTAs, ACAFTA is being negotiated in secret. The text will only be published once it is signed, at which point it is too late to change the agreement and ratification is a foregone conclusion. Analysis and protests made prior to the conclusion rely on the limited information6 that the government provides.

Negotiations between ASEAN member states and Canada have taken place in an unequal manner. Least developed member countries of ASEAN are forced to join into the negotiation though a Canada-funded ASEAN-Canada Plan of Action Trust Fund. Many ASEAN countries are still grappling with inequalities, democratic decline, climate crisis, and environmental vulnerabilities.

Additionally, it is likely that ACAFTA will include ISDS provisions7 and  pose risks to a just transition, climate justice, the protection of marginalised communities and the rights of indigenous peoples.  Almost all of Canada’s international investment agreements allow foreign companies to sue governments if companies believe they have been treated unfairly.8 Since 1998, Canadian investors have brought 56 dispute settlements against countries outside North America.9 Therefore, the proposed ASEAN-Canada Free Trade Agreement, with investment protections like ISDS, is likely intended to "encourage more Canadian mining companies to seek out opportunities" in the region.

It is important to note that ACAFTA is only one of Canada's interests in the region. Besides CPTPP and ACAFTA, Canada has also concluded a bilateral Comprehensive Economic Partnership Agreement (CEPA) with Indonesia and it will launch bilateral agreement negotiations with the Philippines and Thailand in 2026. The Indonesia-Canada CEPA includes an investment protection chapter with ISDS, largely for the benefit of mining and energy corporations. According to a public consultation report by the Canadian Government, mining and energy corporations have directly requested the ISDS mechanism within the CEPA.10

Furthermore, corporations also demanded that Canada address Indonesia’s export bans and ownership policies, which will violate Indonesian rights to develop and create domestic industries. Although there are concerns about labour rights and human rights violations, nothing in the agreement provides these groups nearly as much enforceable protection as the gains that Canadian mining companies won with the provisions of the investment chapter. In fact, as Stuart Trew notes, the agreement significantly walks back advances on labour protections won by workers in more recent Canadian trade deals. 

Karina Yong of Third World Network explains that it is not only ISDS that is harmful towards the climate agenda and other environmental policies but also other chapters in ACAFTA.11 Among others, the goods market access chapter will undermine government control over genetically modified organisms (GMOs);  services, investment and ecommerce chapters negatively impact climate change and other environmental regulations; and the good regulatory practices chapter can make environmental (including climate) regulation slower, more difficult and more expensive, and increase pressure to repeal existing environmental/climate regulations. While there may be environmental exceptions to some of these disciplines in the FTA, they do not usually apply to the investment chapter, under which investors can dispute all non-discriminatory measures affecting their profits. Unfortunately, any environmental protections in any Trade and Sustainable Development chapter are unlikely to override other chapters that are problematic for domestic environment and climate measures.

Canada is home to almost half of the world’s publicly listed mining and mineral exploration companies. On top of that, Stuart Trew highlights that Canadian mining companies are significant users of ISDS and over 30% of global ISDS cases related to critical minerals involve Canadian firms. About 70% of Canada's ISDS cases originate from mining, quarrying, and oil and gas companies, primarily targeting Latin American countries.

The Canadian organization Mining Watch reports that Canadian mining operations abroad have been linked to frequent human rights abuses, including killings, injuries, sexual assaults, forced evictions (e.g., at the Barrick Gold mine in Tanzania), and environmental harms. Certainly, with ISDS’s regulatory chill effect, peoples’ struggle to protect their rights and environment is undermined as states fear the threat of ISDS lawsuits for implementing environmental policies that corporations view as a threat to their investments.

The Eco Oro v. Colombia case under the Colombia-Canada FTA demonstrates this risk, as the tribunal found Colombia in violation of the treaty despite the government’s legitimate environmental justifications. In this case, even if Colombia met the criteria to use the environmental exception in the treaty, it still had to pay compensation to the investor.12 Although exceptions exist in the agreement for health, environment, or public welfare, tribunals may still prioritize investor rights over domestic policy goals.13

Another emblematic case is that of the Canadian company Blackfire Exploration, which threatened Mexico with an ISDS lawsuit under NAFTA, with the support of the Canadian embassy, despite public concerns about bribery and the assassination of a community leader. The Copper Mesa case in Ecuador also demonstrated how an ISDS tribunal favoured investor rights over community opposition and environmental concerns, despite acknowledging the company's misconduct.

ISDS poses significant risks to climate and environmental regulations. By restricting states’ abilities to implement essential climate policies, the mechanism erodes democratic governance and narrows policy spaces, ultimately compromising the well-being of people and the planet. 

However, resistance to ISDS is growing, with several governments and civil society groups successfully excluding the mechanism from different agreements, as was the case with the Regional Comprehensive Economic Partnership (RCEP). Darell Leiking, then Malaysia's Trade Minister, stated that ISDS would allow foreign companies to sue the Malaysian government in private arbitration tribunals for unlimited compensation (up to billions of US dollars). He emphasised that ISDS is an unnecessary concession of sovereignty, given that companies can seek commercial justice through Malaysian courts. At that time, the Malaysian cabinet resolved on July 31, 2019, to reject ISDS in RCEP on principle.14

Even the former Canadian Foreign Minister Chrystia Freeland admitted that ISDS burdens state budgets and amplifies corporate power over sovereign states.15 Similarly, the EU, UK, Iceland, Norway and others have withdrawn from the Energy Charter Treaty because its ISDS provisions would restrict their climate measures.16  Its opponents argue that ISDS undermines public interest rule-making, hampers climate action, and drains national finances with costly claims. There is no compelling evidence that these provisions increase foreign direct investment. Instead, they consolidate corporate power and threaten urgent action in public health and environmental protection. 

Many ASEAN nations, including Indonesia and Vietnam, are currently reconsidering their existing investment agreements and terminating Bilateral Investment Treaties (BITs). These states are actively participating in UNCITRAL Working Group III to advocate for systemic ISDS reform. The current system often results in devastating consequences for the Global South, perpetuating patterns of extractivism and economic colonialism. Most fossil fuel and mining claims are initiated by investors from just five states: Australia, Canada, the Netherlands, the United Kingdom, and the United States.

Therefore, ASEAN nations must maintain their policy space and resist the inclusion of ISDS in the ACAFTA to protect their sovereignty. There should not be ISDS in the ASEAN-Canada FTA.