As early as September 21st, the Comprehensive Economic Trade Agreement (CETA) could come into provisional effect, linking international commerce between Canada and all of the nations in the European Union (EU).
Supporters claim CETA includes new mechanisms that make it a blueprint for future trade treaties, chief among them the replacement of the controversial Investor State Dispute System (ISDS), with the new investor court system (ICS).
Opponents argue CETA’s rules guarantee numerous benefits for foreign investors and transnational corporations, while the agreement includes no enforceable rules to guarantee labor rights, environmental protection or food safety. “Profit comes before people and the planet,” argues one expert.
Though it could come into provisional effect as early as this week, big roadblocks remain before CETA is fully approved, with resistance possible from the public, NGOs and government.
Amongst the buzz over Donald Trump’s scuttling of U.S. participation in TTP, and of NAFTA being renegotiated, another major trade pact linking the European Union and Canada, the Comprehensive Economic Trade Agreement or CETA, has reached maturation without much media fanfare.
Heralded as a blueprint for trade agreements of the future, CETA includes several novelties in response to past public concerns over corporate overreach, most notably a new investor court system.
But opponents claim provisions still exist in the agreement that threaten national sovereignty and the environment, allowing corporations greater privileges than citizens and locking in current minimum standards and regulations.
CETA has been called a trade treaty Trojan horse by its opponents; potentially easing the way for larger dealings between a far more divergent group of nations, like those proposed by the Transatlantic Trade and Investment Partnership (TTIP), a deal linking the U.S. with the European Union, the Transpacific Partnership (TPP), linking 12 nations bordering the Pacific Ocean, and the Trade in Services Agreement, (TISA), linking 23 nations (most included in either TTIP or TTP or both), and covering 70 percent of the world’s trade in services. In combination this new wave of trade deals would greatly expand the geographical reach for investors wishing to enter into both business and potentially, investment disputes.
If everything goes smoothly, CETA could enter into provisional effect, meaning about 98 percent of the deal will be implemented, as early as this week, on September 21st. But the agreement still faces a potentially challenging road ahead.
Before coming into full effect CETA must first be ratified by all EU member nations, several of which have already threatened to reject it. The European Court of Justice will also have to decide whether CETA’s arbitration process complies with EU law before the agreement can enter into full effect.
A tedious birth
After nine years of negotiations, two of the world’s largest trading partners have just about sealed the deal on the Comprehensive Economic Trade Agreement, CETA. The agreement, set to remove 99 percent of tariffs and most non-technical restrictions on bilateral trade, will also open new sectors of service and non-service markets ranging from energy to education.
The agreement is aimed at strengthening ties between the EU and Canada, an already friendly relationship made even more ameliorable by the current chilly political climate in the U.S. and Russia.
“From a geopolitical point of view [CETA] strengthens the North Atlantic Alliance,” explained Ojars Eriks Kalnins, Chair of the Saeima (the Parliament of Latvia) Foreign Affairs Committee. “In the past, many spoke about the U.S. as the major trading force, but in the last year or so, Canada has taken on a big role in Europe.”
On February 23, 2017, Latvia became the first country to ratify CETA. Kalnins said, “the act was a thank-you of sorts,” in recognition of Canada’s lead role in a recently created Latvian NATO battalion . At the time of publication, four other EU member nations had ratified CETA: Denmark, Spain, Croatia and the Czech Republic.
Aside from the claimed economic and geopolitical benefits, CETA will serve as important testing grounds for the new investor court system or ICS, a replacement for the controversial, secretive Investor State Dispute System better known as ISDS.
As good as it seems?
On paper, CETA seems to be the groundbreaking agreement European and Canadian officials have been bragging about. Canadian Prime Minister Justin Trudeau even went as far as to say that if CETA fails it could be one of the last free trade deals attempted. In other words, if the EU and Canada can’t make it work, maybe free trade agreements simply don’t work in modern society.
But by the numbers, CETA isn’t quite the economic boon being touted, say experts. In an email to Mongabay, Pierre Kohler, an economist with the United Nations Department of Economic and Social Affairs in New York, wrote that even in the utopian scenarios propagated by the Canadian government and the EU Commission, GDP gains are extremely small under the agreement — about 0.1 percent of GDP per year over a period of 7 years for Canada and 0.01 percent of GDP per year over a period of 7 years for the EU.
Kohler, who co-authored a study assessing CETA benefits, explained that all four government economic studies used the same optimistic model that relies on assumptions like full employment and neutral income distribution. Using a more variable model, Kohler’s study estimated that by 2023 CETA will have cut 200,000 European and 30,000 Canadian jobs and will lead to lost annual average earnings of C $2,460 for Canadian workers, and between C $440 and C $1,850 for European workers.
There’s also worry certain EU economic gains could come at a heavy cost for Canadians, especially when it comes to prescription drugs. According to a 2014 study Canada already has the world’s second-highest drug costs and under CETA, these costs would rise between 6.2 percent and 12.9 percent starting in 2023.
Even governmental impact assessments have struggled to pinpoint concrete CETA benefits for everyday citizens.
Last spring the Canadian Office of the Parliamentary Budget Officer released their own CETA impact assessment, concluding the agreement would have “a small, but positive, overall effect on Canada’s economy,” translating to around 0.4 percent of GDP in the long term or $220 per person. But these benefits carry the same positive presumptions like full and equal employment, so are far from guaranteed.
But the risks of CETA go far beyond lost GDP or rising drug costs.
Dramatically increasing foreign trade and access to natural resource markets will likely increase production, making Paris Climate Agreement greenhouse gas commitments more challenging to uphold. And though some EU nations like France have discussed ways of protecting against this scenario, suggesting for example that the European Fuel Quality Directive be amended to brace for the impact of trade with the Canadian oil sands (aka tar sands), these suggestions aren’t set to be discussed in full until after the agreement has come into effect.
Another warning note: experts on the treaty say that CETA will massively expand the possible scale and scope of investor disputes.
With such sparse gains and such substantial risks, who’s really backing the agreement?
Kohler said CETA was clearly pushed forward by transnational corporations, noting that “the Canada Europe Roundtable for Business (CERT) acknowledges this on its website.”
He explained this wasn’t necessarily an issue at the offset. “The problem appears when governments promote the exclusive interests of TNCs [transnational corporations], to the detriment of democracy, workers and the environment,” he wrote. “And when TNCs are basically the ones drafting the agreement, the risk is almost unavoidable.”
Laurens Ankersmit, a lawyer focused on the relationship between EU trade and the environment with the NGO ClientEarth, said that in order to comprehend the motivations behind CETA, it’s important to understand the agreement isn’t your average trade deal.
“CETA goes well beyond reducing tariffs and improving trade. The investment chapter is a big expansion on the investment protections included in previous European free trade deals,” he said. “And on top of that, the chapter concerning what is called regulatory cooperation is actually intended to allow both sides of the Atlantic to influence each other’s legislation to make them more similar, something negotiators call ‘reducing trade divergences’.”
Jean Blaylock, policy officer with Global Justice Now UK, viewed CETA similarly to Ankersmit. She said the levels of straightforward EU-Canada trade are already very high and tariffs generally very low. “What this agreement is actually about is the removal of so-called trade barriers that most of us consider basic civil rights,” Blaylock revealed.
Anne-Marie Mineur, a Dutch socialist and Member of the European Parliament, said CETA has always been a project for the benefit of multinationals and detriment of everyone else. “It was initiated at the request of multinationals, it was negotiated in close contact with multinationals, and it will continue to put the interests of multinationals first,” she said.
And while the rules being negotiated guarantee all kinds of tangible benefits to foreign investors, there are no enforceable rules to guarantee civil issues like labor rights, environmental protection, or public safety. “Profit comes before people and the planet, whereas it should be exactly the other way around,” Mineur concluded.
ICS — beautifying the beast?
At this stage, most people in the know about trade treaties are familiar with the infamous Investor State Dispute System or ISDS, the mechanism by which foreign investors can sue governments for compensation over failed investments, and through which companies can win huge settlements in secret court proceedings, often at the expense of the environment and national sovereignty, bypassing strict environmental regulations.
For decades, corporations have used ISDS mechanisms built into treaties to put developing and developed countries on the line for millions, occasionally billions, of dollars in damages. Recently, however, some experts say the tide has started to turn.
“There’s been a trend towards developed countries being sued,” said Scott Sinclair, a Senior Research Fellow with the Canadian Centre for Policy Alternatives. “Europeans have begun to see these investment provisions are actually powerful tools that can threaten their high [regulatory] standards.”
Sujata Dey, a trade campaigner for the Council of Canadians, said when TTIP drafts were leaked last spring that included ISDS provisions, many Europeans began to look into CETA, note its similarities to TTIP, and worry. “As TTIP talks broke down people became even more curious about CETA and public protests erupted,” said Dey.
Protests led several European leaders to publicly reject any agreement containing ISDS provisions, including CETA, forcing the EU Commission to create an alternative in early 2016: the Investment Court System ICS.
ISDS vs. ICS
Unlike its ISDS predecessor, ICS tribunals will be created from a permanent pool of judges selected by governments, not investors, who may not serve as lawyers or experts in other investment dispute facilities. Other ICS firsts include a way to fast track frivolous cases (like the type that have bogged down ISDS courts in the past), an appeals process, and a loser-pays-all costs structure.
The new system also reduces secrecy during litigation by including the UN Commission on International Trade Law (UNCITRAL) transparency rules regarding arbitration, ensuring that more details about the proceedings and final awards are made public. Canada and Europe have also agreed to work toward the establishment of “a permanent multilateral investment court” that will eventually replace ICS.
While ICS seems like a drastically different beast than the ISDS mechanism it is replacing, opponents note that at its core the same civil issues persist.
“The new [ICS] system seems more professional now, not quite NAFTA’s Wild-West. But none of these changes really take away from the power of the system at large,” said Dey. “CETA still systematically gives rights and powers to corporations that citizens and domestic companies don’t have.”
Many trade experts interviewed for this story also noted that in some ways ICS may actually be worse than ISDS, establishing a permanent institution to handle foreign investor disputes.
Amélie Noilhac, an expert on international law and dispute resolution, said that the creation of a permanent court makes sense for investors — given that domestic courts factor in EU laws making favorable rulings less likely for investors and corporations and limiting the extent of potential awards — but not really for anyone else.
“I really don’t believe that investors need, or should have, this kind of protection in a highly developed country like Canada,” said Noilhac. “We don’t need a separate court; cases should be brought openly in domestic court and arbitration only sought when all else fails.” The use of domestic courts for settling trade disputes also carries with it the added advantage of allowing a judge to call upon the full range of a country’s environmental protections, laws and precedents within any given case.
“Overall, ICS vastly expands the ISDS mechanism rather than reform the system, especially in Europe,” Ankersmit with ClientEarth reflected. “I still choose to refer to ICS as an ISDS mechanism and will continue to because with the exception of a few minor changes, that’s exactly what it is.”
An even more tipped playing field?
Aside from further institutionalizing investor protection mechanisms, CETA will bind Europe and Canada under investor protection provisions. And under CETA, American corporations could also use Canadian or European subsidiaries to file for ICS arbitration.
Laurens Ankersmit explained that aside from the Energy Charter Treaty, CETA is the first major European trade deal to include ICS (aside from the yet-to-be ratified EU-Vietnam FTA). Currently only a handful of EU nations have Bilateral Investments Treaties, or BITs, with Canada.
“TTIP and CETA would make the investor dispute picture far more complex with cases possible between big, developed capital blocks,” said Juergen Knirsch, Trade Policy Advisor for Greenpeace Germany. “Such disputes would carry weight enough to set global standards.”
This dramatic widening under CETA of the segment of investors eligible to invoke ICS is also potentially bad for the environment in that a wide range of suits could act as a sort of multi-headed missile attack on a country’s environmental regulations.
Whatever one makes of ICS, the impacts and implications of the new system will not be fully known for years after the treaty goes into effect. It will take time for lawyers and judges to interpret the document’s meaning. Still, many interviewed agreed that ultimately, without the outright exclusion of investor protection mechanisms like ICS and ISDS, true change is unlikely.
“I want to be on the record saying that trade deals as they stand are so bad for the environment, no matter the language, you can’t outweigh the problems without simply removing investor provisions like ISDS,” said William Waren, senior trade analyst with Friends of the Earth U.S.
Even if ICS manages to address major ISDS problems, there are still plenty of other CETA risks to consider. Under CETA, a range of new sectors will open to foreign business, many never before included in European or Canadian trade agreements like services, public contracts, and intellectual property.
“Concern over domestic regulation is huge,” explained Sinclair. “Goods may face tariffs or quotas, but with the approval of something like a pipeline, the main barriers are regulatory, a realm where public and private priorities usually don’t align and conflict of interests are almost inevitable.”
Unpacking CETA lingo
Like its modern trade agreement peers, CETA includes terms to describe how governments and corporations will work together to promote free trade.
According to Sinclair and others, one of the most seemingly innocuous but inherently dangerous of these terms is “regulatory cooperation,” a vague catchall phrase seemingly intended to describe varying agendas and tools aimed at increasing trade liberalization and privatization, while reducing national sovereignty concerning environmental regulations and other protective laws.
Sinclair said that at the offset, regulatory cooperation seems like a good idea, but when actually applied to marketplaces it has the potential to cause a regulatory backlog. For example, though Canada and Europe do share some cultural and ideological similarities, even subtle differences in regulations, policy or procedure implies compromise. And sectors involving or affecting the environment and public health tend to be wrapped in the most regulatory red tape.
Mineur further explained that the EU, unlike North American countries, practices a precautionary principle approach when it comes to civil issues like food, health, and the environment. This is a major difference and an important distinction between the two region’s economies and would logically be a major source of conflict when trying to establish trade between them.
But terms of regulatory cooperation could help even the playing field, or even lower it. “Any rule that is not shared by the other party can be considered an impediment to trade,” she explained, meaning it could be listed for elimination.
Mineur added that the dispute settlement mechanism is in itself devised to put pressure on democratically established rules. “A normal judge has to check a case against the laws of the land, but an arbitration panel only has to check the trade agreement.”
Under Chapter 12 of CETA, countries can choose to exclude certain sectors and subsectors of their economies from CETA, and they have during the negotiation phase. But there is worry elements of sectors will be missed, or become important later on.
Blaylock explained that while past European trade agreements have used a positive listing approach to distinguish included sectors, CETA uses a negative listing approach, meaning all sectors are included in the agreement unless exclusively listed. She said this list-it-or-lose-it method makes it harder to predict disputes and easier to overlook potential problems. This negative listing approach, like that included in NAFTA, also doesn’t allow governments to add sectors to the list going forward.
Another issue experts have with CETA’s regulatory cooperation agenda are standstill and ratchet clauses, which apply mostly to included, but technically, even to excluded sectors and services.
“Standstill” clauses lock in current regulations and levels of liberalization as minimum standards when the agreement takes effect. That means, going forward, if a country alters or creates new regulations, companies can challenge these changes on the grounds that they conflict with their investments, or in lawyer lingo, are discriminatory to foreign investments.
“Under the standstill clause, whatever minimum standards are set in the agreement become locked in for good,” Ankersmit said. “Governments simply can’t go above and beyond minimum standards after that, whether they like it or not.”
“Ratchet clauses” work to encourage the ratcheting-forward of minimum standards towards liberalization by only allowing changes to policy if those changes encourage the furthering of business interests. Notably, investors rarely view tougher environmental regulations as encouraging business interests.
“Big changes in public policy are frequent and often relatively unpredictable,” said Blaylock. “With such limiting clauses and wide-sweeping provisions in play, governments can’t be experimental with public policy.”
Sinclair noted that corporate lobbyists also have privileged, early access to negotiation points and texts, tipping agreement texts in their favor. He said corporate lobbyists have put pressure on CETA negotiators to restrict even non-discriminatory regulations concerning services and investments in the hopes of making later hurdles, like licensing procedures, easier to overcome.
The CETA Joint Committee, a group created by the agreement to supervise and facilitate the implementation of Chapter 21 (regulatory cooperation), also allows input from the private sector.
Sinclair explained all of this means trade negotiators essentially rely on industry lobby groups to select potentially profit-limiting barriers for elimination. Even when voluntary, he argued, this method gives corporate lobbyists an early foot in the door.
Ankersmit agreed: “Say a standard is being developed in Europe, regulatory cooperation would allow Canadian interests to have a say in the process, placing outside stakeholder interests on par or even above other important interests, like environmental concerns.”
Mineur put it more bluntly: “The joint committee is in effect a hotline for multinationals to the European Commission by which they can tell what they want to have on the table and what should come off.”
Waren concurred: “Regulatory cooperation [like that in CETA] allows a review process corporations can use to squash regulation proposals before they ever see the light of day.”
All of these criticisms aside, the CETA negotiating process did include some scrutiny over environmental and social concerns, but the experts argue in most instances, not nearly enough.
Kohler explained that all EU free trade agreements must undergo a Sustainability Impact Assessment, but that this analysis is conducted using the same positively presumptive model utilized to project CETA benefits. As a result, while some potential negative outcomes of the agreement are mentioned, they don’t make it to the executive summaries sent to policymakers. As a result, the final text of CETA’s Sustainability Impact Assessment, released in June of 2011, cites no anticipated negative social or environmental impacts at all from the proposed treaty — an assessment that many policy experts challenge.
Dey said free trade supporters and negotiators generally assume that everyone can, and will, work together for the good of all. While this would be a wonderful scenario, she noted, this optimism overshadows the actuality of what is being committed to in the agreement.
“Beyond all the language choices and distractions, when you actually look at texts and consider reality, the agreement is more about changing the rules and regulations for corporations, not everyday citizens,” said Dey.
And as it stands, Mineur explained, CETA really doesn’t include any new, or most importantly, legally binding environmental provisions. “There are some 38 interpretative declarations [in CETA],” Mineur said, “but as Greenpeace put it, they have the value of an advertising brochure.”
The road ahead: CETA not a done deal
According to all interviewed, just because CETA has gotten this far doesn’t mean it can’t be stopped. Blaylock noted that even after the agreement takes provisional effect, because ICS has been excluded from this preliminary round, there is still time to avoid some CETA risks.
In order to enter into full effect, and for investor protection measures to take force, the agreement must first be ratified by the remaining 34 European national and regional parliaments.
And along the way, CETA has faced several major setbacks due to European protest. In fact, the whole deal was nearly derailed when several Belgian regions, predominately the French-speaking region of Wallonia, refused to sign the agreement unless all ISDS provisions were removed, blocking the approval of the entire country.
And those conditions of distrust haven’t changed.
During a visit to Canada this March, European Union trade commissioner Cecilia Malmström said she anticipated problems ratifying CETA in one-quarter of EU member nations. This time around, Belgium is joined by several other nations like France, Germany, Italy, and Bulgaria, in threatening to reject CETA outright unless investor dispute provisions are sidelined. And in early September, Poland announced it would reject the agreement if the ICS panel did not include a judge from each EU member nation.
Mineur explained that in her own country of the Netherlands, a group of citizens has already begun to collect signatures for a petition to force a referendum should the Dutch parliament fail to reject CETA.
She added that Ireland and France might also force a referendum if their courts find CETA violates their constitutions. “Austria is also working on a petition. And a majority of Austrian, Greek, French, Irish and Italian MEPs voted against CETA in the European Parliament,” she said.
And there are positive signs that the EU is taking ISDS protests seriously.
The European Commission recently announced they intend to create two separate agreements on trade and investment, rather then combining them, in the hopes of easing the ratification process for the new EU-Singapore FTA. On September 14th Cecilia Malmström announced ISDS provisions wouldn’t be taking effect anytime soon. “In order not to waste time, we propose not to include the investment protection part” in the negotiating mandates that will be submitted to member states for ratification, Malmström said, adding “it will come later.”
And as part of a deal struck between Wallonia and the federal government last year, in September, Belgium formally asked The European Court of Justice to decide whether CETA’s arbitration system is valid in the context of EU law. Even if the ECJ sides with CETA, the agreement must still be approved by five of Wallonia’s regional and language-based parliaments and their accompanying Upper Houses.
France may also still reject the agreement on environmental grounds.
On September 8th the commission of experts created as part of a campaign promise by French Prime Minister Emmanuel Macron to review the environmental and health impacts of CETA released their report. The committee concluded that CETA’s environmental and health ambitions paled in comparison to its commercial aspirations. They also claimed negotiations still lack transparency, as well as legally binding environmental commitments.
On September 14th, French officials announced CETA would still enter into provisional effect, claiming recommended environmental changes would be negotiated later. French NGOs have put out the rallying call and protests to repeal CETA’s upcoming provisional application are scheduled.
Despite these potential obstacles, most opponents agree that now is not the time to let up on advocacy. Sinclair said that many European and Canadian organizations see CETA as a kind of Trojan horse for larger, even more contentious agreements, like TTIP and TTP. As a result, killing CETA will almost certainly remain a shared goal of European NGOs.
Dey contends that, though it’s easy to believe that individuals, and even countries, are powerless to influence complex international negotiations, like those for CETA, that’s simply not true.
“We need to keep in mind that it will only take one ‘no’ vote to cripple the entire agreement,” said Dey. “And that gives us reason for serious long-term hope.”
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