Troubles in trade deals
Amid recent debate over whether or not the Conservative government will have to make tough choices to keep Canada engaged in the Trans Pacific Partnership (TPP) trade talks, another, arguably more important deal — the Canada EU Comprehensive Economic and Trade Agreement — has some teething pains of its own.
CETA negotiations concluded last autumn and the legal review and translation of the agreement is currently underway. While the final treaty must still be ratified, the CETA has been sold in Canada as a done deal.
The agreement has not proved to be controversial, although there is concern that the investment portion of the text may need to be altered or even re-written. The implications for the deal could be significant.
CETA has become caught up in the controversy surrounding the EU’s negotiations with the United States on the Transatlantic Trade and Investment Partnership Agreement (TTIP). The TTIP, if concluded, would be the world’s largest single trade agreement covering almost $35 trillion in GDP and close to one billion citizens.
In a Europe fatigued by years of austerity, low growth and high unemployment, the TTIP is being characterized in some quarters as a corporate giveaway. Coupled with recent revelations about NSA spying activities, notably in Germany, the public is suspicious of the American government and its corporations.
The lightning rod for this angst has come in the form of an arcane investment provision dubbed investor state dispute settlement (ISDS) that allows companies to seek compensation via independent tribunals embedded in trade agreements for unfair treatment leading to a demonstrable loss of money.
ISDS’s primary purpose is to ensure that governments do not renege on the legal guarantees that corporations use in making investment decisions. This can range from retroactive policy changes to the outright illegal expropriation of assets.
Domestic courts cannot always deal effectively with investment disputes involving foreign companies because judges are not trained in international public law and the cases can be subject to political interference. ISDS exists for the same reason there are trade tribunals in Geneva to govern our international trade commitments — to provide a neutral, expert vehicle for adjudicating decisions within an international legal framework.
The rhetoric around ISDS is out of step with reality. Anti-trade activists are peddling paranoid arguments such as accusing corporations of using ISDS as a strategic tool for the purpose of wining settlements to pad their bottom line.
According to UNCTAD, out of an overall number of concluded cases of 356 by the end of 2014, only 25 per cent were found in favour of the investor. When investors lose, they are on the hook for millions of dollars in legal costs for both themselves and the winner — the government. As a business proposition, it leaves much to be desired.
ISDS has been a feature of NAFTA for more than 20 years. Improvements have been made in CETA, including greater transparency on how arbitrators are chosen, broader scope to dismiss frivolous claims and a prohibition on treaty shopping through Most Favoured Nation (MFN) clauses that require the state party to one investment treaty to provide investors with treatment no less favourable than the treatment it provides to investors under other investment treaties.
A few refinements could still be made. Language in CETA can be made more explicit in terms of recommending the use of national courts in the first instance and in reinforcing governments’ right to regulate. An appeals mechanism could be considered, but only to ensure that the law has been properly applied and to not “re-hear” a case.
A permanent ISDS court has been proposed in Europe and should be dismissed for what it is — a complex and unnecessary proposition that would take years to design and implement. The concept is being floated in efforts to appease leftish politicians and antitrade activists, many of whom will never support CETA or ISDS regardless of what changes are made.
The noise around TTIP should soon die down, as the negotiations have become bogged down and will be further delayed by the presidential election cycle. The U.S. focus is on TPP, not TTIP, and even getting this deal across the finish line will consume any political capital that is currently available.
Canada and Europe should redouble their efforts to ensure the timely passage of CETA. Canada should be clear with the Europeans that, as a contracting party in the negotiations, Europe should not assume that what they decide on internally with regards to investment would be agreeable to Canada.
And Europe should be cognizant that if it can’t get a deal done with Canada, after having agreed on a comprehensive text developed over five years of tough negotiations, its credibility in negotiations with its other trading partners would be in question.
The moderate majority must stand up and push this treaty across the finish line. The benefits are significant and include an annual $30-billion increase in trade alone. The arguments for fundamentally altering CETA are alarmist, do not stand up to scrutiny and should not be used as a basis to delay implementation of an agreement that is long overdue.
The TTIP is being characterized in some quarters as a corporate giveaway