Full text: Trading away democracy

3Key findings
1. Canada’s experience with the North American 
Free Trade Agreement (NAFTA) illustrates the dan-
gers of investment arbitration. Under NAFTA, Canada 
has been sued 37 times, has lost or settled eight claims, 
and has paid damages to foreign investors totalling over 
US$171.3 million1. Ongoing investor claims challenge a 
wide range of government measures that allegedly dimin-
ish the value of foreign investments – from a moratorium 
on fracking and a related revocation of drilling permits to 
a decision by Canadian courts to invalidate pharmaceuti-
cal patents which were not sufficiently innovative or use-
ful. Foreign investors are currently seeking several billions 
of dollars in damages from the Canadian government.
2. CETA would increase the risk to the EU and its 
member states of challenges by Canadian investors in 
the mining and oil and gas extraction sectors. Canadian 
investment stocks in the EU are significant in these sec-
tors, and Canadian mining companies are already engaged 
in a number of controversial natural resource projects 
across the EU. Mining specialists are celebrating CETA as 
a “landmark” agreement, which could have “major implica-
tions for miners.” Oil, mining and gas corporations around 
the world are increasingly turning to investment arbitration. 
The claim of Canadian Gabriel Resources against the 
government of Romania, which  decided not to allow  
the Roºia Montanã gold mine as the project would result 
in environmental destruction and the displacement of  
villagers, gives a good impression of the type of claims  
EU member states can expect from Canadian companies.
3. Canadian subsidiaries of US-headquartered 
multinationals will also be able to use CETA to sue 
European governments, even if the EU eventually 
excludes or limits investor-state dispute settlement within 
the Transatlantic Trade and Investment Partnership (TTIP) 
currently under negotiation with the US. This is particu-
larly worrying for Europeans as US corporations dominate 
the Canadian economy. EU-based subsidiaries of foreign 
companies would also have the same power to challenge 
measures in Canada.
4. EU, Canadian and US companies are already 
among the most frequent users of investment 
arbitration, so there is every reason to expect that 
they will use CETA to rein in government measures in 
Canada and Europe. Sixty-one per cent (or 425 cases) 
of all known investor-state disputes globally were 
brought by investors from the EU. U.S. Investors have 
filled around a fifth (or 138)2 of all known investor-state 
cases. Canadian investors are the fifth most frequent 
users of investment arbitration (or 39 cases). Together, 
EU, US and Canadian investors have filled 602 cases 
against States, out of the 696 known cases.
5. Opposition to investor-state provisions in CETA is 
growing on both sides of the Atlantic amongst civil society 
organisations, trade unions, and even EU member states. 
In response, the European Commission and the Canadian 
government have diverted attention from the fundamental 
problems of the system by focusing on cosmetic reforms.
6. The “reforms” that the European Commission and the 
Canadian government have agreed to dispel concerns about 
ISDS will not prevent abuse by investors and arbitrators.  
On the contrary, CETA will significantly expand the scope of 
investment arbitration, exposing the EU, its member states  
and Canada to unpredictable and unprecedented liability risks.
7. CETA’s investor protections would arguably grant 
even greater rights to foreign investors than NAFTA, 
increasing the risk that foreign investors will use CETA 
to constrain future government policy: 
a) By protecting investors’ “legitimate expectations” under 
the so-called “fair and equitable treatment” clause, 
CETA risks codifying a very expansive interpretation of 
the clause that would give investors a powerful weapon 
to fight regulatory changes, even if implemented in light 
of new knowledge or democratic choice. 
b) CETA would give foreign investors more rights to 
challenge financial regulations than NAFTA, where they 
were mostly limited to a bank’s (still wide-ranging) rights 
to transfer funds freely and to be protected from expro-
priation. CETA expands their rights to include highly 
elastic concepts such as fair and equitable treatment, 
which threatens to hamstring regulators charged with 
protecting consumers and the stability of the financial 
system in an emergency.
8. The risk to Canada of being sued by banks, insurers 
and holding companies will increase significantly with 
CETA. These risks are evident as speculative investors, 
backed by investment lawyers, are increasingly using invest-
ment arbitration to scavenge for profits by suing govern-
ments experiencing financial crises. EU investment stocks in 
Canada are significant in the financial sector, which would 
gain far- reaching litigation rights under CETA.
There is no need for the creation of a special legal regime 
to protect foreign investors, especially in stable jurisdictions 
like the EU and Canada. Today’s multinationals are amongst 
the most successful and sophisticated in the world, capable 
of evaluating risk and the expected returns on that risk. 
Should the risk be too great, options such as regular  
courts, private insurance and public investment  
guarantee schemes are all readily available to them. 
Trading Away Democracy calls on the European Commission, 
the Canadian government, EU member states and parlia-
mentarians on both sides of the Atlantic to reject the current 
CETA text which includes investor-state arbitration.
        

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