Embassy | 30 September 2015
Canada misses the cut for EU’s proposed investor-state dispute court
Canada will likely be left out of a new system proposed by the European Union for settling disputes between countries and corporations—at least for now.
The European Commission, the EU’s executive body, proposed on Sept. 16 the creation of a two-tiered international investment court to handle lawsuits from foreign corporations that believe they have been illegally discriminated against by a government.
The commission proposed the court as a way to satisfy European opponents of the investor-state arbitration system enshrined in many of the EU’s existing trade and investment deals, including Canada’s trade deal with the EU, said EU Ambassador Marie-Anne Coninsx.
If the EU Parliament and member states approve the proposed investment court, the EU will push to include it in “ongoing and future investment negotiations” instead of the controversial investor-state arbitration process, according to a Sept. 16 EU press release.
But the court would not be included in Canada’s trade deal with the EU, the Comprehensive Economic and Trade Agreement—as negotiations have closed, said Ms. Coninsx during a Sept. 25 conference on investor state dispute settlement in Ottawa.
“There has been an explicit wish from both sides, Canada and the EU, not to reopen anything in the agreement,” she said.
However, that could change, said Julie Maupin, a researcher of international law at the Max Planck Institute in Leipzig, Germany.
The EU may seek to include Canada in the international investment court one way or another if it manages to get the court up and running, she said.
That’s far from a certainty; the European Commission’s proposal has already generated opposition from the business and progressive communities in Europe and Canada.
Investment court could delay CETA: Maupin
The European Commission aims to eventually have its proposed international investmentment court “replace all investment dispute resolution mechanisms provided in EU agreements, EU Member States’ agreements with third countries and in trade and investment treaties concluded between non-EU countries,” according to the Sept. 16 press release.
The EU may press Canada to take part in the international court if the proposal gains momentum, said Ms. Maupin.
“If the EU really pushes forward with this proposal….I think that you will also see a delay in the ratification of CETA,” she said.
If the United States agreed to include the investment court in its TTIP trade deal with the EU, Canada and the US would have different investor-state resolution systems in their free trade agreements with Europe.
Many US businesses that operate in Europe also have a subsidiary in Canada, and vice versa, so that could lead to “forum shopping,” in which investors could use whichever investment resolution system they deemed more favourable. The EU would likely want to avoid that, said Ms. Maupin.
However, there is no guarantee that legislators, businesses or progressive policy groups in Europe, Canada or the US will support the proposed system.
Canadian business, progressive groups give thumbs down to investment court
The proposed investment court is “unnecessary” and could make investor-state lawsuits more politicized, said Jason Langrish, executive director of the Canada Europe Roundtable for Business.
It could take a long time for the EU and other interested countries to agree on how the court should be established, he said.
Many of the criticisms of investor-state arbitration have been addressed in the ISDS clauses in the CETA and other modern trade and investment agreements, something critics haven’t recognized, he said.
One of Canada’s most prominent left-leaning social advocacy groups doesn’t like the investment court idea either.
“We believe that to come up with a flawed system (even if it is marginally better) with the consequences that it would have on the environment and on inequality is a ‘no go,’” wrote Sujata Dey, a trade campaigner for the Council of Canadians, in an emailed statement.
The Council of Canadians is set to propose its own version of an international investment court, which would give stronger legal protections for the environment and human rights, she wrote.
International investment court worth ‘serious consideration’: Davies
Ms. Coninsx said the leadership of the federal Liberal, NDP and Conservative parties have told her they don’t want to reopen the CETA negotiations.
Not so, said Don Davies, the NDP candidate for Vancouver Kingsway who has been the party’s trade critic.
“There’s nothing to reopen yet, because we don’t have an agreement that has been closed,” he said, adding the NDP “has always been extremely concerned about the [investor-state dispute settlement] provision and the investment chapter in CETA.”
While formal CETA talks have been wrapped up for the past year, the agreement is currently undergoing a “legal scrub” to ensure the language used means in law what negotiators intended.
There is no law that prevents negotiators from making changes to the text of a trade agreement during the legal scrub, said Mr. Davies and Ms. Maupin.
The NDP takes issue with the fact that arbitrators who hear investor-state dispute cases would still, under CETA, be able to represent corporations when not working as arbitrators, potentially opening them up to influence or repercussions from future corporate clients, said Mr. Davies.
The NDP is also worried about the fact that the arbitration system proposed in the CETA does not include an easy way to appeal rulings by arbitrators.
An international investment court is a “good idea that is worth serious consideration,” he said, and an NDP government would consider entering into such a system should the party win the Oct. 19 election.
The Conservative Party did not respond when asked to comment on the EU Commission’s proposal. The Liberal Party did not make a spokesperson available for an interview by deadline on Tuesday.
Should Canada’s government desire to join the international investment court in the future, Canadian and EU officials could make use of clause 10.42 in the CETA, which allows the parties to review and make changes to the investment chapter in the deal through a special committee, said Ms. Maupin.
The EU and Canadian business organizations have defended the current investor-state arbitration clause in the CETA, saying it includes language previous agreements did not that would ensure the countries involved have a clear right to regulate in the public interest without being subject to lawsuits.
Tough audiences await in US, EU
It’s not yet clear the European Commission will be able to raise the support it needs for its international court in Europe, let alone from other governments, say analysts of international law.
“My sense is that they will not be seen in Europe as responding adequately to public criticisms of ISDS,” said Scott Sinclair, a senior research fellow with the Canadian Centre for Policy Alternatives, a progressive think tank based in Ottawa.
“The Commission can try to put lipstick on a pig, but this new proposal doesn’t change the fundamental problem of giving corporations frightening new powers at the expense of our national democracies,” Nick Dearden, director of Global Justice Now, told Economic Voices, a news website based in the UK.
Global Justice Now is running an advocacy campaign against CETA, which it calls “TTIP’s ugly brother.”
However, politicians in the EU may be receptive to the investment court as a compromise between the concerns of business and social justice groups, said Ms. Maupin.
“I think it definitely has a chance for Europe,” she said.
Political opposition to ISDS is strong enough in Europe that the various EU politicians and bodies won’t likely be able to agree on a trade agreement with the United States if it includes a traditional investor-state arbitration system, or even an updated version like that in the CETA, said Ms. Maupin.
Getting the United States to buy into the system could be a challenge, said Ms. Maupin, Mr. Langrish and David Gantz, co-director of the international trade law program at the University of Arizona.
Republicans in Congress may not support the court if they see it as being weaker protection for businesses, said Mr. Gantz.
It is possible that the US government could accept some version of an international investment court or appellate panel, he said, but it will take time. The methodology for appointing judges to the court would likely be a big sticking point, he said.
US-EU free trade negotiations won’t likely get very far before the next US federal election in November 2016, said Ms. Maupin, leaving the EU’s supporters of the investment court plenty of time to try to sell the concept.