Full text: Trading away democracy

Trading Away Democracy
Protection of investors’ legitimate expectations: 
“When applying the above fair and equitable treatment 
obligation, a tribunal may take into account whether a 
Party made a specific representation to an investor to 
induce a covered investment, that created a legitimate 
expectation, and upon which the investor relied in 
deciding to make or maintain the covered investment, 
but that the Party subsequently frustrated” (Chapter 8, 
Article 10) 
Tribunals have already interpreted the FET concept as 
protecting investors’ “legitimate expectations” - even if 
the term is not part of existing treaties such as NAFTA. 
They have also considered it as creating a right to a 
stable regulatory context – binding governments to not 
alter laws, regulations or other measures, even in light 
of new knowledge or democratic choices. In the Quebec 
case where community opposition led to a moratorium 
on fracking, Lone Pine argues that the “revocation” of its 
gas exploration permits violated its “legitimate expecta-
tion of a stable business and legal environment.”66 CETA 
goes into the direction of codifying such expansive 
interpretations of FET, widening the concept’s scope and 
giving investors a powerful weapon to fight tighter rules. 
It is especially troubling that CETA does not define what 
type of “specific representation” by a state would create 
a “legitimate expectation”.
Committee on Services and Investment: “The 
Committee Services and Investment may [...] recom-
mend to the CETA Joint Committee the adoption of any 
further elements of the fair and equitable treatment 
obligation” (Chapter 8, Article 44)
CETA creates various new institutions that can change 
the substance of the treaty in the future. This can cut 
both ways. There is growing concern that this might lead 
in the long run to an even wider codification of the scope 
of FET
Expropriation: “A Party shall not nationalise or 
expropriate a covered investment either directly, or 
indirectly through measures having an effect equivalent 
to nationalisation or expropriation (…), except: a) for 
a public purpose; b) under due process of law; c) in 
a non-discriminatory manner; and d) on payment of 
prompt, adequate and effective compensation” (Chapter 
8, Article 12)
“For greater certainty, except in rare circumstance 
when the impact of a measure or series of measures 
is so severe in light of its purpose that it appears 
manifestly excessive, non-discriminatory measures of a 
Party that are designed and applied to protect legitimate 
public welfare objectives, such as health, safety and the 
environment, do not constitute indirect expropriations.” 
(Chapter 8, Annex 8-A)
From a certain, investor-friendly view, almost any law 
or regulatory measure can be considered an indirect 
“expropriation” when it has the effect of lowering profits. 
Tribunals have interpreted legitimate health, environ-
mental and other public safeguards in this way, ordering 
states to pay compensation. Would CETA’s annex on 
public welfare measures prevent this? 
Not necessarily. A State would have to prove that a 
measure was “designed and applied to protect legitimate 
public welfare objectives” and it is not “manifestly exces-
sive”. Even in cases where the government’s measure 
that led to dispute was undeniably for a public purpose, 
investors have claimed the policies were illegitimate and 
excessive. For example, TransCanada argued that the 
US administration’s decision on the pipeline was not for 
a legitimate public policy objective67. It would be up to 
a tribunal of unaccountable for-profit arbitrators – not 
independent judges – to decide. 
Most-Favoured-Nation (MFN) Treatment: “Each party 
shall accord to an investor of the other Party and to a 
covered investment, treatment no less favourable than 
the treatment it accords in like situations, to investors 
of a third country and to their investments with respect 
to the establishment, acquisition, expansion, conduct, 
operation, management, maintenance, use, enjoyment 
and sale or disposal of their investments in its territory.” 
CETA clarifies that this “does not include” ISDS provi-
sions in other deals and that “substantive obligations in 
other international investment treaties and other trade 
agreements do not in themselves constitute “treatment” 
[…] absent measures adopted by a Party pursuant to 
such obligations.” (Chapter 8, Article 7) 
Arbitrators have used MFN provisions like a “magic 
wand”68 that allows investors in ISDS proceedings to 
“import” more favourable rights from other treaties 
signed by the host state. This multiplies the risks of 
successful attacks against public policy. CETA’s MFN 
wording somewhat addresses this cherry-picking, but 
remains open to interpretation by arbitrators and it is 
ambiguous. In particular, why does CETA not clearly bar 
the “import” of substantive obligations from other agree-
ments? It does so only in the absence of “measures […] 
pursuant to such obligations” in other treaties and the 
term “measure” is defined extremely broadly in CETA.

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