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Postmedia reported last week that the Conservative government may be "only weeks away" from completing a "comprehensive" economic and trade agreement (CETA) with the European Union. The article confirms what we knew already about negotiating sessions in Brussels this month (they will happen this week), and suggests that the toughest issues will be dealt with at the ministerial level, possibly in early February. A meeting in Ottawa between International Trade Minister Ed Fast and EU Trade Commissioner Karel De Gucht will likely coincide with a European delegation to Washington, D.C. for the delayed release of a "high level working group" report advocating for a "comprehensive" EU-U.S. free trade agreement.
The political trade-off in the CETA negotiations appears to hinge on lower tariffs and higher quota for Canadian meat entering the European market. In exchange, writes Postmedia, "trade specialists believe the federal government will agree to stronger intellectual-property protection -- which would likely drive up the costs on such things as pharmaceutical drugs due to longer patent protection -- and partially open up Canada's supply-managed dairy sector, which features tariffs of 200 to 300 per cent on imports."
On those issues alone this will be a hard sell for the Prime Minister. But there is a good chance CETA will disappoint Canadian municipalities that have asked for exemptions from the deal or at least some room to continue spending strategically on important infrastructure projects. The proposed investment chapter and investor-state dispute settlement process might also rile opponents of the Foreign Investment Protection and Promotion Agreement with China, in particular First Nations groups who plan to file an injunction against the FIPA until the impacts of these deals on treaty and Indigenous rights have been studied.
CETA: 'Single most investor-friendly treaty'
A leaked December version of the investment chapter is now floating around. If you thought the FIPA with China was bad, you'll want to take a close look at what Canada and the EU are concocting for CETA.
In some respects the two sides are still far apart, and there's a good chance this chapter could further delay things for the Harper government -- even outside of the hard political decisions to be made. For example:
- CETA's investment protections, if ever cancelled by either party (doubtful), would live on like a zombie for 20 years, five years longer than in the FIPA.
- There remain gaps on how to define indirect expropriation, with Canada trying to limit and the EU expand its scope, which would have the effect of increasing the opportunities for European firms to claim that some public policy, legislation or other measure "deprives the investor substantially of the possibility to own, use, or dispose of the property." It is one of the most used and abused of the substantive rights granted to corporations and investors in NAFTA's Chapter 11 and most other bilateral investment treaties. For example, Lone Pine Resources claims in its recently filed notice that it will be suing Canada under NAFTA's investment rules that Quebec's ban on fracking in the St. Lawrence Valley amounts to an expropriation of investments "without a public purpose, without due process, and without payment of compensation." Canada has proposed to include clarifying language in CETA that, "Except in rare circumstances, such as when a measure or series of measures is so severe in the light of its purpose that it cannot be reasonably viewed as having been adopted and applied in good faith, non-discriminatory measures by a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations." The EU, on the other hand, would apply both a necessity and an effectiveness test to the government measures in dispute. Going back to the Quebec example, it would be irrelevant for Canada go argue that nearby communities have asked for a ban on fracking for precautionary reasons to protect the environment and water quality in particular, since this would not satisfy the question of whether the ban is necessary to obtain these objectives, or if a more investment-friendly option were available.
- The definition of minimum standards of treatment is also contested in the December draft investment chapter. Canada continues to try to limit the meaning of fair treatment to that accorded in international law. So investors in the other party are protected from, "Denial of justice in criminal, civil or administrative proceedings," or "Disregard of the fundamental principles of due process," etc. To this list of heinous abuses the EU would add "a breach of legitimate expectations of investors arising from a government's specific representations or investment-inducing measures." A preliminary wink or nod from a provincial government, perhaps implying (mistakenly or prematurely) that permission is on the way to dig a quarry, could end up breaching this right to have your legitimate expectations met. The EU is also pushing for a so-called umbrella clause, which states that "Each Party shall observe any obligation it has entered into with regard to an investor of the other Party or an investment of such an investor." This elevates all contractual agreements between a government and a company to the treaty level, and gives arbitration panels far too much leeway to decide when the latter's rights have been violated. Canadian and European courts are the only acceptable place to handle such disputes. Like the expropriation clauses in these treaties, minimum standards of treatment violations are increasingly raised by investors to challenge public decisions that affect everyone equally. They are always cited where a controversial mining or energy project is altered or cancelled, or where a government changes direction (ex. the Quebec fracking ban, or Germany's decision to phase out nuclear power).
- There is no exclusion in the Most Favoured Nation section for treatment afforded in older investment treaties, except with respect to older investor-state dispute settlement procedures, which will be off limits in disputes brought under CETA. So all this negotiating around the specific language in the substantive rights mentioned above might be pointless if firms can simply claim treatment as good as that afforded in past Canadian or EU agreements. Howard Mann, an international law advisor with the International Institute for Sustainable Development, explained how this would work in the China FIPA in his Embassy Magazine post last week. Basically, looking at our side of things, if a European investor can find stronger rights in a Canadian investment treaty with Egypt, for example, than in CETA, that investor can demand a Most Favoured Nation right to apply those standards in a dispute brought under CETA. If the MFN section in CETA isn't fixed, it will only increase the likelihood of legitimate, non-discriminatory government measures facing expensive and time-consuming investor-state disputes.
- The EU is proposing that Canada's existing FIPAs with Eastern European countries shall become defunct as soon as CETA becomes provisionally operational, except in the event an investor wants to use those earlier treaties to dispute treatment accorded while those agreements were in place (provided no more than three years has elapsed since CETA came into force).
- Canada continues to seek a procurement exclusion from the investment chapter and the EU agrees (procurement disputes will be handled by the courts) but wants it to be qualified such that the exception would not apply to measures governing procurement under Article III:8(a) of the GATT. The WTO has just found that the Green Energy Act fits that category, arguing that its feed-in-tariff program (above-market prices paid to solar and wind power producers that meet high local content requirements) governs the procurement of energy for commercial resale, such that the policy cannot be excluded from non-discrimination rules in the GATT. This may be a bargaining trick on the part of the EU, since on top of the WTO case, the Green Energy Act is already under attack from one investor-state claim under NAFTA and another Agreement on Internal Trade dispute. Or EU negotiators might be thinking how the WTO decision could apply to other public services that could conceivably be defined as government procurement for commercial resale (ex. water delivery) and therefore free game for investor-state lawsuits.
One investment arbitration expert who has seen this draft chapter told me it would make CETA "the single most investor-friendly" treaty Canada has entered into. Neither Canada nor the EU seem at all interested in the Australian government's new policy of not including investor-state dispute settlement in its trade deals. This would undermine the "quality" of the agreement, they say. The EU Parliament and a Sustainability Impact Assessment of CETA for the European Commission recommend against including these extreme investor rights in the deal.
Canadian negotiators have told civil society briefings that they are trying create some space in CETA for public health, environmental and any manner of other policies that have, in existing investment treaties, been challenged. But European governments, Germany and the Netherlands especially, are pushing for the strongest possible investor rights chapter. What we see in the December draft is a sign of their success. But there are no guarantees this issue can be settled in a way that is agreeable to both sides, at least not in the near-term.
The First Nations injunction against the FIPA with China could not come at a better time. It has the potential to expose the corporate bias in investment treaties and open another front -- next to intellectual property and procurement -- in the fight against CETA.