Ratifying CETA - Easier Said than Done

January 5, 2016

This commentary is available in French. 

The majority of Canadians never supported former Prime Minister Stephen Harper’s aggressive brand of neoconservativism. In the October election, they were determined to unite behind the opposition party with the best chance of defeating the Conservatives. This desire for change coalesced around Justin Trudeau’s Liberals, who surged from third-party status to form a majority government.

There are encouraging signs that the new government in Ottawa is ready to break from the worst excesses of the Harper government: austerity, climate obstructionism, secrecy, lack of consultation, and contempt for criticism. Trade and investment policy, however, is one area where continuity, rather than change, seems to be the order of the day.

The Liberals have consistently professed their support in principle for the trade treaties negotiated by the previous government, including the Trans-Pacific Partnership (TPP) and the Canada–EU Comprehensive Economic and Trade Agreement (CETA). While Prime Minister Trudeau has ordered a parliamentary review of the pros and cons of the controversial TPP, he has simply directed his new trade minister to “implement CETA.”

But this may be easier said than done. The major roadblock is that CETA, as negotiated, lacks sufficient political and public support to be assured of ratification in Europe. It’s fair to say the inclusion of an investor–state dispute settlement (ISDS) mechanism in the deal makes it toxic.

The longer this hot-button issue delays CETA ratification, the more the treaty gets caught up in the controversy surrounding the Transatlantic Trade and Investment Partnership (TTIP). The 250,000 people demonstrating on the streets of Berlin in October were protesting both TTIP and CETA, which is now recognized as a Trojan horse for the bigger, more menacing U.S. deal.

The snail’s pace of CETA legal scrubbing—over 14 months and counting—has raised suspicions that the European Commission was stalling to see if a new Canadian government might be more amenable to massaging the text. Sure enough, the commission has asked the new Trudeau government to reopen CETA’s investment chapter.

There is a strong risk these talks will result in only superficial changes, especially if they are allowed to take place behind closed doors. CETA proponents will then champion this “reformed ISDS” and try to ram the agreement through a wary but divided European Parliament. 

Shortly after the Canadian election, the commission revealed its proposal for an Investment Court System (ICS) to be included in the TTIP—a step toward establishing a true international investment court, which could redress the egregious procedural flaws with ISDS. There are some positive elements in the commission’s new proposal, such as the inclusion of the right to regulate in the operational text of the chapter, not the preamble. Yet the overriding fixation on investor rights and continued reliance on ISDS remain big problems. The proposed right to regulate, for example, is subject to a necessity test to be decided by arbitrators, not courts or legislatures.

At the same time, it is doubtful even these marginal improvements, which are not reflected in the current CETA investment text, will be fully acceptable to Canadian negotiators. The new Liberal government will likely be more open to renegotiating CETA’s investment rules than the Harper Conservatives. But the influential Canadian mining and energy industries will not meekly accept reforms that erode or dilute ISDS, one of their top priorities for Canadian trade policy.

The Canadian government is also leery of aligning CETA with the commission proposals for TTIP only to find, as now appears likely, that the U.S. will reject them. These misgivings on the Canadian side could dovetail with pressure from pro-ISDS factions in Brussels to limit agreed CETA reforms to the bare minimum.

The vigorous support of ISDS from successive Canadian governments is perplexing, given that Canada has been the target of so many investor–state claims. While the government has prevailed in eight decisions, it has lost or settled seven NAFTA investor–state cases and paid out damages of over C$190 million. In fact, thanks to NAFTA’s investment chapter, Canada has the dubious honour of being the most sued developed country in the world.

Earlier this year, a NAFTA tribunal determined that a Canadian environmental assessment process, which led to a U.S. firm being denied a permit to build a massive quarry in a sensitive coastal area in Eastern Canada, violated the U.S. investor’s NAFTA guarantees of fair and equitable treatment. This disturbing case highlights the problems with similar investor protections included in CETA and undermines assurances that ISDS does not compromise environmental protection. So do other ongoing NAFTA challenges, including to a ban on fracking in Quebec, which ominously resembles Vattenfall’s €4.7 billion investor–state case against Germany’s phase-out of nuclear power.

To a growing number of citizens, the obvious solution to such affronts is to dispense with ISDS altogether. As critics have repeatedly stressed, both Canada and Europe have highly regarded court systems that protect the rights of all investors, regardless of their nationality. There is no convincing reason to settle for anything less than the elimination of ISDS.

A CETA without ISDS would be a better agreement, but it would still not be worthy of support. Like TTIP, it contains other harmful provisions that would erode domestic regulation, lock in privatization of public services, and promote a “regulatory co-operation” agenda meant to give foreign businesses new tools to thwart public interest measures. At the same time, CETA’s protections for labour and the environment are weak and largely unenforceable.

If Europe’s controversial trade and investment talks with the U.S. had not galvanized public concern, the detrimental features of the lower-profile CETA might have gone unnoticed. But with the veil lifted, citizens and governments are taking a closer look. Both agreements are in the public eye and face growing opposition.

The European Commission and the new Canadian government will need to come to terms with CETA’s growing notoriety. At a minimum, ISDS must be discarded. Other areas of the CETA text will need to be reopened to address public concerns now highlighted by the TTIP. Cosmetic changes will simply not suffice.

Scott Sinclair is Senior Trade Researcher with the Canadian Centre for Policy Alternatives and the director of the CCPA’s Trade and Investment Research Project. He co-edited Making Sense of CETA.

This commentary was originally published in the German journal International Politics and Society / Internationale Politik und Gesellschaft.