IISD legal expert warns CETA could damage sovereignty

[Oscar]

IISD legal expert warns Canada-EU trade agreement could damage sovereignty

[ http://www.iisd.org/media/press.aspx?id=264 ]

Intl Institute for Sustainable Development, 23 December 2013

OTTAWA-The key issue of investor rights in the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) has been generating discussion across the political spectrum this month, and Howard Mann, IISD Associate - Senior International Law Advisor, has been at the forefront of the debate in Canada.

Mann [ http://www.iisd.org/about/staffbio.aspx?id=306 ] testified to the Canadian House of Commons Standing Committee on International Trade regarding CETA. His submission [ http://www.iisd.org/about/staffbio.aspx?id=306 ] details his expert analysis and conclusion that the draft agreement "will provide foreign investors into Canada with the most investor-friendly set of corporate rights ever drafted by the Canadian government into a treaty".

Audio of his December 5, 2013 testimony is available from the Parliament of Canada. Mann's presentation begins at approximately 1:14:00. [ http://parlvu.parl.gc.ca/parlvu/Content ... 05&lang=en ]

"If the text proceeds as currently drafted, the CETA agreement will inevitably lead to increases in the number of foreign investor
arbitrations against Canada, against both federal and provincial policies, with resulting pressures not to regulate in key areas such as the environment, human health and anti-tobacco practices," said Mann.

Mann also has written two op-eds on this issue, published by iPolitics.ca:

How money calls the shots in CETA:
[ http://www.ipolitics.ca/2013/12/13/how- ... s-in-ceta/ ]


The CETA text: Devil's still in the details:
[ http://www.ipolitics.ca/2013/12/19/the- ... e-details/ ]

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For more information please contact Joel Trenaman, Director,
Communications and Publishing, at jtrenaman@iisd.ca

IISD contributes to sustainable development by advancing policy recommendations on international trade and investment, economic policy, climate change and energy, natural and social capital, and the enabling role of communication technologies in these areas.

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How money calls the shots in CETA
[ http://www.ipolitics.ca/2013/12/13/how- ... s-in-ceta/ ]

By Howard Mann | Dec 13, 2013 8:58 pm |

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QUOTE: "We risk entrenching in CETA a set of corporate rights that will end up superseding the rights of other stakeholders, including federal and provincial legislatures."

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The business community is enthusiastic and the Harper government has been busy congratulating itself over the signing of a proposed trade agreement between Canada and the European Union. But there’s one key aspect of the deal which deserves closer scrutiny than it’s getting.

Unless there are major changes, the Canada-European Union Comprehensive Economic and Trade Agreement will give foreign investors in Canada the most investor-friendly set of corporate rights ever included by Canada in a treaty. These measures would weaken the ability of Canada’s elected lawmakers, both federal and provincial, to legislate in major areas of public policy, including environment and health.

Investor protection agreements had a modest beginning. The first, a treaty signed in 1959, was between West Germany and Pakistan. The goal was clear: to protect foreign investors, overwhelmingly from the developed world, from arbitrary nationalization in a world facing Communism and anti-colonialism.

But with the signing of the North American Trade Agreement (NAFTA) in the early 1990s, the use of these provisions changed radically. For the first time, an investor agreement (Chapter XI of NAFTA) was used by corporations to challenge laws enacted by Canada, the U.S. and Mexico, claiming these laws were tantamount to “expropriation” or breached state obligations to provide fair and equitable treatment.

In the first such case, Ethyl Corp. of the U.S. claimed that Canada’s decision to ban due to health concerns the import of MMT, a gasoline additive, amounted to nationalization of its Canadian business. Ethyl insisted that MMT was safe, even though it was already banned in half the U.S. states. Faced with a threatened $251-million lawsuit and fearful of losing before a NAFTA tribunal, Ottawa repealed the ban and paid Ethyl $19.3-million to settle the case. More recently, Canada faces a challenge under NAFTA [ http://www.cbc.ca/news/business/ottawa- ... -1.1140918 ] over Quebec’s moratorium on fracking in the province.

Investment agreements have spread throughout the world — and lawyers are celebrating. There have been over 600 arbitrations since the first in 1987, almost all in the past 15 years, and half originate with European companies. It is the most-used international dispute settlement process ever.

And lawyers are starting to innovate. Philip Morris, the tobacco giant, is suing Australia under an investment treaty with Hong Kong in an effort to undo Australia’s ban on displaying brands on cigarette packs, a health measure already approved by Australia’s High Court. At the same time, Philip Morris is also suing Uruguay for similar measures under a Swiss-Uruguay treaty.

The draft text of CETA’s Investment Chapter — we have to depend on leaks because our government will not issue an official draft — will broaden the already extensive rights of foreign investors in Canada. Of particular concern is CETA’s approach to Fair and Equitable Treatment (FET), which has become the provision most successfully used by investors in arbitrations. Using this provision, investors have won cases by arguing that host countries have failed to act transparently in administrative decisions, acted inconsistently in the treatment of an investor, or that a new law is inconsistent with investor expectations.

Under CETA, there is a defined list of factors that would constitute a breach by a government — which is reasonable, as is a second dimension which defines the legitimate expectations of the investor. But the agreement proposes an extra dimension referring to what customary international law says constitutes a breach of Fair and Equitable Treatment.

Most observers would have said that the full scope of FET is already found in the first two dimensions. The problem is that the scope of this added area is meant to go beyond this but remains undefined — and no thresholds setting the degree of government misconduct have been established. In the end, it’s an open invitation to arbitration lawyers, investors and tribunals to figure it out, with high risks for governments.

Another problem with CETA is its language in what is called a Most Favoured Nation provision. This provision ensures that an foreign investor into Canada must have the same level of rights as any other investor. The current draft allows the provisions of prior treaties concluded by Canada to be adopted by EU investors in the case of disputes. So even though CETA includes some language that may protect the regulatory ability of governments, investors will be able to use provisions from older treaties that were not as carefully drafted to simply get around this language.

If there is no substantial change in the proposed text, we risk entrenching in CETA a set of corporate rights that will end up superseding the rights of other stakeholders, including federal and provincial legislatures. Is this what the government means by its new focus on “economic diplomacy” announced two weeks ago: giving foreign investors greater rights to inhibit Canadian public policy making?

Howard Mann is senior international law advisor to the International Institute for Sustainable Development. Over the past 15 years, he has advised over 75 governments on investment law.

The views, opinions and positions expressed by all iPolitics columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of iPolitics.

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The CETA text: Devil’s still in the details

[ http://www.ipolitics.ca/2013/12/19/the- ... e-details/ ]

By Howard Mann | Dec 19, 2013 8:55 pm | 0Comments

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QUOTE: "The balance between investor rights and government rights is being left open now, instead of closed, and the risks of more expansive restraints on governments will significantly increase as a result."
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In her recent article for iPolitics, [ http://www.ipolitics.ca/2013/12/16/inve ... nst-panic/ ] Ailish Campbell, VP of the Canadian Council of Chief Executives, seems to suggest that recent articles on the possible abuse of investor-state dispute settlement in international treaties are verging on uninformed panic.

She suggests the NAFTA example shows everything’s fine, and government’s ability to regulate has been well preserved. As a result, she argues, there’s no risk in going ahead with more such agreements, such as the Canada-EU CETA.

Ms. Campbell quite rightly suggests that we should base our analysis of investor-state dispute settlement on actual arbitration outcomes. We agree — but such analysis should take us well outside the NAFTA bubble, into the wider world of agreements with China and EU. We also should take into account changes in the rights being given to investors in the new agreements.

Remember — investor-state arbitration is a special tool under international treaties that allows private investors to sue governments in international arbitrations to enforce special rights given to foreign investors in those treaties. Only foreign investors get these rights, which are generally unbounded by any related obligations. And only foreign investors are allowed to use the investor-state arbitration process.

This arbitration mechanism has become the most frequently-used international dispute settlement tool ever, in a short 15 year period of rapid growth since the late 1990s. UN numbers indicate there are now over 600 such arbitrations globally, with over 50 being added every year. European investors have initiated half of these cases. This is the world that the Canada-EU agreement (CETA) now takes us into. The Canada-China investment treaty will also expand this universe — and that’s where the proper comparisons lie.

In addition to the comparisons, participants in the discussion must be aware of the efforts to change the NAFTA language in ways that appear designed to create greater risks to government regulatory space by expanding the rights of investors. As I said in my recent testimony before the House of Commons Committee on International Trade, recently leaked Canada-EU investment chapter text shows how this is being done. This is analysis — not panic.

For example, in relation to the investor rights against expropriation common in these treaties, Ms. Campbell agrees that “tighter definitions of ‘indirect expropriation’ are critical here, and it seems they will be applied in CETA.” In this context, “tighter definitions” limit the ability of companies to claim that new regulations are an expropriation under the treaty. Ms. Campbell is correct in saying such limits are essential — but the provisions of the leaked text show they will not necessarily be applied in CETA.

Yes, the text itself will include such tighter language. At present, however, investors are given an express right to get around this language through what is called a ‘most-favoured nation clause’, which allows investors to apply the provisions of older treaties that do not contain the tighter language, instead of only those in CETA. The CETA will give those tighter definitions with one hand and take them away with the other, like magic. This is what the current draft text tells us.

Here’s another example. The language of the CETA text is very open as to what constitutes the legal standard of ‘fair and equitable treatment’. In social terms, everyone promises to treat investors fairly and equitably. But in a treaty it is a legal obligation, not a social one. And this legal obligation is the one on which investors in investor-state arbitrations win most frequently.

Unlike recent Canadian texts that have sought to limit the scope of the meaning of ‘fair and equitable treatment’, CETA appears set to expand it, leaving a wide swath of discretion to lawyers, and those lawyers who sit as arbitrators, to determine afresh how broadly it should be defined. The balance between investor rights and government rights is being left open now, instead of closed, and the risks of more expansive restraints on governments will significantly increase as a result.

These examples of the actual wording of the CETA draft show the importance of the details in the actual draft text. A broad debate is needed. But it must be open and informed, while there is still time to make changes. In short, we need to see the negotiating text.

We look forward to such an open and informed debate with the Council of Chief Executives and all stakeholders.

Howard Mann is the senior international law adviser for the International Institute for Sustainable Development, IISD. He has advised over 75 governments on international investment law issues.

The views, opinions and positions expressed by all iPolitics columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of iPolitics.