Full text: Trading away democracy

Trading Away Democracy
16
ANNEX 2 
A GUIDE TO CETA’S FALSE-COMFORT PARAGRAPHS
PR SPEAK: WHAT’S WRITTEN IN CETA72 REALITY CHECK: WHY IT PROVIDES ONLY FALSE COMFORT 
Investment and regulatory measures: “For 
greater certainty, the mere fact that a Party 
regulates, including through a modification to 
its laws, in a manner which negatively affects 
an investment or interferes with an investor’s 
expectations, including its expectations of profits, 
does not amount to a breach of an obligation 
under this Section.” (Chapter 8, Article 9)
A closer look at this paragraph shows that it provides 
false comfort. Unlike in article 9.4 which clearly 
prohibits any requirement for states to compensate 
investors when eliminating subsidies, article 8.9 does 
not exclude compensation orders when states change 
laws and regulations and such changes violate any 
other obligations of CETA such as FET.
Investment and regulatory measures II: “For the 
purpose of this Chapter, the Parties reaffirm their 
right to regulate within their territories to achieve 
legitimate policy objectives, such as the protec-
tion of public health, safety, the environment or 
public morals, social or consumer protection or 
the promotion and protection of cultural diver-
sity.” (Chapter 8, Article 9)
Reading it against article 9.4 makes clear that the EU 
does not want to shield public policy measures from 
compensation orders. So, states will be able to regulate, 
but can still be forced to pay billions in compensation. A 
high level European Commission representative, speaking 
at an event in the US, recently admitted that: “This is not 
an exception like the general exception... It is a guiding 
principle which informs” the tribunal’s deliberation73. 
In addition, the right to regulate is linked to legitimate poli-
cy objectives. For-profit arbitrators will decide whether an 
objective was “legitimate”. This is an easy hurdle to clear 
for arbitrators intent on getting public compensation for an 
investor. For instance, measures which are legitimate but 
which appear “manifestly excessive” (Chapter 8, Annex A, 
Point 3) could be considered indirect expropriation.
Ethics: “The Members of the Tribunal shall be 
independent.” They shall comply with guidelines 
on conflicts of interest or a code of conduct and 
“shall refrain from acting as counsel or as party-
appointed expert or witness in any pending or 
new investment dispute under this or any other 
international agreement.” (Chapter 8, Article 30)  
This falls short of real institutional safeguards to ensure 
arbitrator independence and impartiality, such as fixed 
salaries. It is particularly worrying that the so called 
“members” of the tribunals will neither be banned from 
acting as private lawyers (though not as counsel in other 
investment claims) and that there is no cooling-off period 
before or after their appointment. So, they could be part of 
the small club of investment arbitrators who have so far 
decided the majority of investment disputes, have encour-
aged claims and grown their business with expansive, 
investor-friendly interpretations of the law.
Frivolous and unfounded claims: The defendant 
state can “file an objection that a claim is mani-
festly without legal merit” or an “objection […] 
that, as a matter of law, a claim […] is not a claim 
for which an award in favour of the claimant may 
be made under this Section, even if the facts 
alleged were assumed to be true.” It is up to the 
tribunal to decide. (Chapter 8, articles 32 and 33) 
This is a clear case of letting the fox guard the hen house. 
The question of whether a claim proceeds will be decided 
by arbitrators, whose income depends on the case going 
ahead. This clear conflict of interest may help to explain 
why not a single dismissal of a frivolous claim is known74 
even though some existing treaties allow for it. Another 
problem is that many investor-state disputes can be fit 
easily within the wide ambit of the investor privileges 
granted in CETA. Egregious investor challenges of sound 
policies such as the Lone Pine and Vattenfall challenges, 
for example, are very unlikely to be dismissed under such 
mechanisms.
        

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