Germany, Canada and Investment Protection – Another Look

By | July 28, 2014

The reported German rejection of Investor-State Dispute Settlement (ISDS) in the Canada-EU trade and investment agreement, while inexcusably late in the day, shouldn’t come as a total surprise.

The July 26 Sueddeutsche Zeitung report simply articulates Germany’s growing distrust over these binding investment arbitration provisions, of particular German concern in the context of the EU-US trade and investment negotiations.

Maybe the German government looked at the many investor claims under the NAFTA launched against Canada by US companies – many more than against Mexico – and saw the potential exposure of German laws and policies to these kinds of claims by American corporations.

If the Germans don’t agree with investor-State arbitration in the agreement with Canada, never mind what the EU Commission’s technical mandate might be, it just won’t happen. The German position can’t be ignored.

Politically, this means a setback for the Harper government. I said so in my comments in the Globe and Mail today. But that’s only the immediate, short-term response.

We need to take a closer look at this.

While investor arbitration has been touted as a major gain for Canada in the EU deal, its value may be overstated. It’s not clear that investment arbitration is a critical tool for Canadian companies doing business in Europe. None of the 200 pending arbitrations under the International Centre for the Settlement of Investment Disputes, for example, involve Canadian companies suing European governments.

We don’t really expect serious problems for Canadian companies investing in the UK, France, Germany, Spain, Italy, do we? Canada has never pursued bilateral investment protection agreements (FIPAs) with these countries for that reason.

Regarding the others, Canada already has standalone FIPAs with binding arbitration provisions with many of the smaller EU members – Poland, Romania, Hungary, Slovakia, Croatia and the Czech Republic.

Regarding the 15 or so others EU governments, if ISDS has to be removed from the Canada-EU agreement because of German opposition, there’s nothing to prevent Canada negotiating separate FIPAs where there’s a serious investment interest (probably not too much Canadian interest investing in Bulgaria, Latvia, Estonia, Macedonia, I’d venture to say).

So, standing back and taking another look, can the CETA exercise go forward with either an attenuated set of investor arbitration provisions or even a removal of ISDS from the agreement altogether? I would think so. It might take some effort to re-jig the treaty language (which we haven’t seen yet), but it would seem do-able.

For example, the Australia-Japan free trade agreement excludes investor arbitration but has provisions allowing both sides to review the possibility of including ISDS in the future.

Another view is that, while ISDS may give some comfort to investors, when it comes to investing in Europe, Canadian companies should do their own risk assessments and make their investment decisions accordingly.