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The European Parliament’s committee on the environment, public health and food safety debated the investment chapter and investor-state dispute settlement process in the Canada-EU free trade deal today at the request of Greek MEP Kriton Arsenis (pictured). You can watch the short discussion, which includes a rebuttal from the European Commission, by clicking here and scrolling to minute 12:24). Arsenis has been outspoken inside and outside parliament against investor-state arbitration and didn’t hold his punches in today’s debate.

The Greek socialist MEP told committee members that when the EU took over competence, or jurisdiction, for investment from European member states in the December 2009 Lisbon Treaty, there was hope that the democratic deficit in these bilateral investment treaties would be corrected. In reality, in the first application of the new competence in the Canada-EU Comprehensive Economic and Trade Agreement, “it has proven to be less protective of the environment and more harmful of democracy,” he said.

Arsenis asked the Commission how it will stop the practice of treaty shopping, where a company pretends to be from Canada using a subsidiary in order to sue the EU or a member state under CETA’s generous investment rules. He also asked how CETA will block financial speculators from funding frivolous investor-state cases for corporations who otherwise would not risk their own cash.

In a worrying sign, Socialist trade committee chair Bernd Lange followed his colleague’s presentation by saying his political group does not have a problem with the type of mechanism used to protect investment — state-to-state versus investor-to-state — but the types of policies that are covered.

“We need to make sure environment, health and social legislation are not seen as an object to investor-state disputes,” said Lange. “We have to be careful in the deal with Canada.”

The problem with this position is that it gives too much credit to the ability of governments (in this case Canada and the European Commission) to limit the definitions of what would amount to a breach of “fair and equitable treatment” under CETA, what kinds of policies would be found to indirectly expropriate an investor’s profits, and when a government would have to compensate an investor or corporation for environmental decisions that reduce or eliminate the ability to profit from whatever activity they were hoping to engage in (e.g. fracking for natural gas).

According to adjunct law professor Matthew Porterfield, writing for the International Institute for Sustainable Development in March, though the United States and Canada have tried to limit “fair and equitable treatment” to a customary international law standards — be fair and don’t abuse foreign investors — the paid arbitrators handling these cases tend to ignore this and refer to past investor-state disputes. What the EU wants in CETA is even worse: an open-ended definition of both fair and equitable treatment and expropriation, which will put many more policies at risk, and create a chill effect on governments looking to pass new environmental protection rules.

In response to the presentations by Arsenis and Lange, a European Commission official attempted to downplay any concerns with investor-state dispute settlement in CETA and elsewhere. This is the most natural thing for the EU to be doing in its trade deals, he said.

“What’s at stake is not legislation in itself but rather the way an investor is treated. Contrary to state-to-state (dispute settlement, as in at the WTO), the only remedy is a monetary one. There’s never a case of legislation being repealed or otherwise.”

Really? Because in the last version of CETA’s investor-state dispute settlement chapter we have seen, the EU is proposing that a tribunal should absolutely have the authority to order the repeal of the government measure that is found to violate the investment rules in the deal. Under Article x-20: Final Award, the text reads as follows. (Brackets around text mean it is not agreed yet, Canadian proposal and European proposals are in italics.)

1. Where a Tribunal makes a final award against the respondent finding a breach of the provisions of the Investment Protection Chapter CAN [or the Investment Protection and Establishment Chapters], the Tribunal may award, [in a manner sufficient to compensate the loss suffered by the claimant / investor], separately or in combination, only:

(c) EU [repeal of the measure concerned provided that the respondent may pay monetary damages and any applicable interest in lieu of repeal. Where repeal is not sufficient to compensate for the loss suffered by the claimant, the respondent shall also pay monetary damages.]

Canada does not seem to have agreed to the EU proposal yet, and Canadian negotiators are proposing their own aggressive language. For example, Canada wants to define an investor as someone that “seeks to make, is making or has made an investment in the territory of the other Party.” According to investment treaty experts, this could grant Canadian firms broad rights to challenge European policy even without already having any investment or presence in Europe.

The Commissioner told today’s meeting “we think we’re trying to improve the system, with the goal of reducing as much as possible the risk of litigation. This is not only an important question but a technical one.” But in several areas that we’ve seen in CETA, the European proposals will make it more likely that Canada or EU member states will face punishing, multi-million dollar lawsuits for many democratic decisions that impede an investor’s right to profit from their investment, even if there are obvious environmental or social implications of that investment.

The Commissioner told the environment committee there will be an in-camera technical meeting on investor-state dispute settlement at the European Parliament’s trade committee meeting on May 16. We’ll keep our ears open and report back if we hear anything. In the meantime, if you want to let Canadian politicians know you are opposed to reproducing NAFTA-like investor rights in the Canada-EU trade deal, click here to use a Registered Nurses’ Association of Ontario action alert.