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CETA investment reforms come up short

March 2, 2016

3-minute read

On Monday, International Trade Minister Chrystia Freeland announced that Canada and the European Union had finished the "legal scrub" of the Comprehensive Economic and Trade Agreement (CETA). Now, she said, the path is clear for speedy ratification of the deal in the Canadian and European parliaments.

As Thomas Walkom points out in his Toronto Star column, this was more than just dotting i’s and crossing t’s, as the minister suggested. The CETA was caught up in a fairly significant disagreement with respect to investment protection and the deal’s investor–state dispute settlement (ISDS) process.

The ISDS system is a staple of Canadian free trade agreements, dating back to 1994 when the country joined NAFTA. Currently, it is under sustained attack in Europe from environmentalists, social justice groups, and human rights activists, as well as several European governments, for usurping the “right to regulate” from democratically elected governments. I’ve written extensively about the growing number of corporate lawsuits against Canadian public policy, including environmental protection and resource management measures, and the CCPA’s most recent list of NAFTA cases can be read here.

Learning from Canada’s experience with ISDS (we are the most-sued developed country in the world), and the growing list of corporate lawsuits against EU member state policy, Europeans have pushed back against including an investor-state dispute process in both the CETA and the EU-U.S. trade agreement called the TTIP. As a result, the European Commission released a reform proposal last summer, switching from an ad hoc investment tribunal model to a so-called investment court system (ICS), which was presented as a stepping stone to a permanent investment court.  (Gus van Harten ably critiques this proposal here.)

Much, but not all, of what the commission proposed has been integrated into the CETA in an effort to appease European critics of the deal’s investor rights chapter. “With these modifications, Canada and the EU will strengthen the provisions on governments’ right to regulate; move to a permanent, transparent and institutionalized dispute-settlement tribunal; revise the process for the selection of tribunal members, who will adjudicate investor claims; set out more detailed commitments on ethics for all tribunal members; and agree to an appeal system,” said a joint Canada-EU statement.

While the new text does include a stronger affirmation of the kinds of government measures that should not automatically trigger ISDS disputes (i.e., a firmer “right to regulate” than exists in NAFTA or the proposed TPP), it does not preclude such challenges. A useful yardstick would be to ask ourselves if the outcome in the Bilcon or Exxon Mobil NAFTA cases, for example, would be any different under these rules. I don’t think so.

Canada did insert a clarification to the investment chapter clause protecting an investor’s right to “fair and equitable treatment,” which was clearly related to concerns about the Bilcon ruling. And the Europeans have tried to protect their right to withdraw state aid (subsidies) from firms without triggering corporate claims of unfair treatment. But this is just tinkering.

On the procedural side, the reforms are more significant. But should citizens really have to cross our fingers and hope governments appoint the “right” sort of people to the fixed roster of potential arbitrators for the CETA tribunal? Currently, the complaining investor and respondent government each appoint one tribunal member and then agree on a third, an ad hoc system that is quite vulnerable to conflict of interest and corporate bias.

Canadian and European business lobbies are surely preparing their lists of favoured nominees to the CETA roster. Minister Freeland was lavish in her assurances Canadian investors will be strongly protected by the new CETA investment tribunal.  And they will be.

Unfortunately, the adjudicators will still be applying much the same flawed and biased investor protection rules that exist under the current ISDS regime. The new appeal mechanism in the CETA cuts both ways, since investors will get to use it too, which will drag out disputes and make them more costly, even when governments don’t lose.

The more I think about it, the more I’m disturbed by the new pseudo-court system that CETA will establish. By providing a patina of legitimacy and permanency to the investment arbitration regime, I’m concerned it will simply embolden adjudicators (and a growing army of corporate lawyers specializing in ISDS) into attacking progressive public policies.

Scott Sinclair is the director of the CCPA’s Trade and Investment Research Project.

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