CETA Rescue is Possible – Don’t Despair

By | July 27, 2014

The German position rejecting investor-State dispute settlement (ISDS) in the CETA– while a last minute surprise and reprehensible for that reason – doesn’t spell the end of the Canada-EU deal by any means.

The Germans have simply come out with a position that has been bubbling for some time. More and more stakeholders, beyond the typical left-leaning organizations, have been expressing disquiet over the standard ISDS model.

The Australian government has abandoned ISDS as a standard feature in its trade agreements. Its new deal with Japan doesn’t have one.

While the Americans are pushing hard for binding investor-State arbitration in the Transpacific Trade talks, several TPP governments are increasingly skittish of including this.

The Germans are worried that if ISDS is included in the Canada-EU deal, it will be impossible to resist it in the current EU trade and investment negotiations with the Americans. That’s the real reason for this last-minute change of position on CETA.

So the German position in a way is just a statement on ISDS that at least lays things out clearly.

ISDS was conceived 20 years ago to ensure a level of comfort for investors from the wealthy, industrialized countries into developing economies where the rule of law was shaky.

A level of protection was there to prevent arbitrary and discriminatory seizures of assets by unreliable governments. It provided recourse where local measures were targeted against investments and failed to meet international standards of “fair and equitable treatment.”

But the process has morphed into something much more, with the aggressive use largely by well-funded American companies to challenge an array of government policies.

This is illustrated by the large number of American challenges brought against Canada under the NAFTA, the most recent one claiming that a judgement of the Supreme Court of Canada on patent rights has breached Canada’s treaty obligations. The owner of the Ambassador bridge at Windsor-Detroit is even claiming that Canada is in breach of the NAFTA by building a second crossing over the Detroit River.

There are now third-party financing mechanisms available to fund investor-State litigation by complainants.

So there is growing disquiet over the direction that investor-State arbitration is going and reasons justifying at least a re-thinking of the standard ISDS model.

Coming back to CETA, it certainly won’t be a fatal blow if ISDS isn’t included in the deal. While the Harper government has touted these investor rights as a cardinal feature of advantage to Canadian companies, do we really need one? Are Canadian investors at serious risk of European governments engaging in arbitrary seizure of their assets or unfair and discriminatory treatment?

The Germans clearly don’t feel their investors in Canada need that kind of protection. Other European governments may feel the same. Canada is a safe and reliable place to put your money. The Germans are actually giving Canada an endorsement in this regard.

In my view, the advantages of CETA in terms of opening up the EU market to Canadian companies on a preferential basis far outweigh the need for a system of binding arbitration in the deal.

There may be ways of modifying the arbitration provisions  to meet German concerns. But even if ISDS is dropped from the deal completely, the Canada-EU agreement remains very much worth doing.