Full text: Trading away democracy

How CETA’s investor protection rules could result in a boom of investor claims against Canada and the EU
Final award: A tribunal can award “only” mon-
etary damages or restitution of property (Chapter 
8, Article 39). According to the EU, this means 
that an order of a tribunal “cannot lead to the 
repeal of a measure adopted by Parliaments in 
the Union, a Member State or Canada.”75
This won’t stop government from “voluntarily” repealing 
measures when a major lawsuit has been filed or threatened 
by a deep-pocketed company. Examples of such regulatory 
chill include the watering down of environmental controls for 
a coal-fired power plant when Germany settled a claim by 
Swedish energy company Vattenfall (see page 6) and New 
Zealand’s announcement that it will delay its plain-tobacco-
packaging legislation until after Philip Morris’ claim against 
Australia’s anti-smoking rules has been resolved.76 This 
chilling effect on government regulation is arguably the main 
function of the global investment regime.
Appeal mechanism: An Appellate Tribunal 
is hereby established to review awards […] 
The Appellate Tribunal may uphold, modify or 
reverse a Tribunal’s award based on (a) errors 
in the application or interpretation of applicable 
law; (b) manifest errors in the appreciation of 
the facts […] (c) the grounds set out in Article 
52 (1) (a) through (e) of the ICSID Convention” 
(Chapter 8, Article 28)
This could potentially contribute to more coherent decisions 
but does not fix any of the fundamental problems mentioned 
above (privileging of foreign investors, not fully independent 
tribunals, one-sidedness of the system … etc). It should also 
be noted that the mandate of the Appellate Tribunal would be 
very limited, and would fall short of a juridical revision proce-
dure as known under national law. For example, collection of 
new evidence or hearing of additional experts and witnesses 
would be excluded.
Binding interpretations: “Where serious con-
cerns arise as regards matters of interpretation 
that may affect investment, the Committee on 
Services and Investment may […] recommend to 
the CETA Joint Committee the adoption of inter-
pretations of this Agreement. An interpretation 
adopted by the CETA Joint Committee shall be 
binding on a Tribunal.” (Chapter 8, Article 31)
In practice, it is very difficult to get consensus on binding 
interpretations. In the 20-year history of NAFTA, which has a 
similar clause, agreement has been reached for only two such 
interpretations, despite a wave of investor claims. Also, arbi-
trators have often been unwilling to accept the “binding” inter-
pretations and annexes intended to rein in their discretion.77
CETA contains a number of exceptions scat-
tered across the deal, such as for “reasonable 
measures for prudential reasons” in the financial 
sector, for example, to ensure “the integrity and 
stability of a Party’s financial system” (Chapter 
13, Article 16) or “to protect human, animal or 
plant life or health” (Chapter 28, Article 3.2)
The exceptions are usually limited to a few sectors and to 
only some investor rights. They are also formulated in nar-
row terms, putting the burden of proof on governments. For 
example, safeguard measures to ensure financial stability have 
to be “strictly necessary” and may only be taken “in exceptional 
circumstances” with “serious difficulties for the operation 
of the economic and monetary union”. For policies to tackle 
“serious balance-of-payments or external financial difficulties,” 
CETA even states that they should “avoid unnecessary damage 
to the commercial, economic and financial interests of any 
other Party” (Chapter 28, Articles 4 and 5). It will be up to 
arbitrators to decide whether a policy was “strictly necessary” 
or whether it caused “unnecessary” costs for the investor. This 
is an easy hurdle to clear for an arbitrator intent on getting 
public compensation for a bank or other investor.
Reservations: CETA’s investment rules are 
subject to state-specific reservations relating to 
specific economic sectors or types of measures 
listed in special annexes. Annex I lists “existing 
measures” that are not in conformity with CETA 
rules but can be maintained. Annex II lists “res-
ervations for future measures” that governments 
will be able to introduce in the future that would 
otherwise not be possible under CETA. All sectors 
and measures that governments have not explic-
itly excluded them by listing them in the annexes 
are automatically covered. (Annexes I and II)
The reservations have severe limitations: Annex I reservations 
are subject to a legal ratchet, meaning they can only be changed 
in the future if they are made more consistent with CETA. Also, 
neither the Annex I nor the Annex II reservations apply to the 
most dangerous investor standard, fair and equitable treatment. 
Moreover, European member states have little experience with 
CETA’s “negative listing” approach where the state has to list 
all of its exceptions up front rather than indicating the sectors 
it wants covered by CETA. The reservations scheduled by 
European governments vary widely and are often inconsistent. 
For example, Bulgaria has reserved its ban on fracking but 
France, which has a similar ban, has taken no such reservation.

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