Full text: Trading away democracy

4This doesn’t change anything because 
the standards on the basis of which 
judgements are rendered remain the same.
Nigel Blackaby, arbitration lawyer with Freshfields on 
the EU’s ICS proposal4
Chevron argues that the mere existence of 
ISDS is important as it acts as a deterrent.
EU Commission official about a meeting with  
Chevron on ISDS, 29th April 20145
It’s a lobbying tool in the sense that you 
can go in and say, ‘Ok, if you do this, we 
will be suing you for compensation.’ [...]  
It does change behaviour in certain cases.
Peter Kirby, law firm Fasken Martineau,  
on investor-state arbitration6
Trading Away Democracy 
How CETA’s investor protection rules could result in  
a boom of investor claims against Canada and the EU
On September 26, 2014, Canada and the European 
Union (EU) announced the conclusion of a far reaching 
economic integration agreement, the Comprehensive 
Economic and Trade Agreement (CETA). Following the 
Canadian general elections and faced with growing 
and widespread criticism, the agreement was tweaked 
and finally released on 29th February 20163. It has 
confirmed many of the concerns raised by independent 
analysts, which have not been appeased by the revised 
final version.
This analysis shows how CETA’s investor rights could 
unleash a corporate litigation boom against Canada, 
the EU and its member states – including through the 
Canadian subsidiaries of US multinational corporations. 
It argues that CETA could dangerously thwart govern-
ment efforts to protect citizens and the environment, 
and that states could be forced to pay billions of dollars 
in compensation to investors for profits “lost” due to 
regulation in the public interest.
CETA constrains governments in a broad range of ar-
eas, including intellectual property, public procurement, 
public and financial services, and food sovereignty. But 
for citizens in both the EU and Canada, ironclad “inves-
tor rights” protections are the most controversial way 
that CETA will limit the powers of elected governments. 
This brief argues that, contrary to public assurances, 
the EU and Canada have not tamed these dangerous 
corporate rights in CETA. It calls on legislators in 
Canada and the EU to reject the current CETA text 
which includes investor-state arbitration.
The investment chapter of CETA contains an investor-
state dispute settlement (ISDS) mechanism, re-branded 
as Investment Court System (ICS). ICS grants corpora-
tions the special privilege to bypass domestic courts 
and to instead directly sue states at, in reality, private 
international tribunals for compensation over health, 
environmental, financial and other domestic safeguards 
that they believe undermine their rights. This parallel 
justice system is available only to foreign, not domestic, 
investors, let alone ordinary people.
Investor-state lawsuits are decided by private com-
mercial arbitrators. The European Commission has re-
labelled them members of the different tribunals, but they 
still lack the independent and financially-disinterest that 
judges should adhere to. Investment lawyers deciding 
on CETA cases, will be paid for each case they hear, and 
so can still be characterised as “for-profit arbitrators”. 
Globally, investment arbitration is the purview of only a 
small number of individuals and firms with a revolving 
door to industry and a clear tendency to interpret the law 
in favour of the investor.7
The number of investor claims against states has explod-
ed in recent years, from a dozen in the mid-1990s to 696 
known cases by mid-2016.8 One policy area after another 
has come under attack as investors have challenged 
anti-smoking laws, tax measures, fiscal policies, bans of 
toxics and mining, requirements for environmental impact 
assessments and regulations relating to hazardous waste 
(see Boxes 1 and 2). The amount of taxpayer money that 
states have been ordered to pay in penalties has also 
sky-rocketed, often including compensation to investors 
for the loss of anticipated future profits.
Because the arbitrators can levy monetary penalties 
against governments, the fear or actual threat of a costly 
investor-state claim can create a “policy chill” which 
discourages new government initiatives9. Five years 
after the investor rights in the North American Free 
Trade Agreement (NAFTA) between the US, Canada and 
Mexico came into force, a former official of the Canadian 
government described the effect: “I’ve seen the letters 
from the New York and D.C. law firms coming up to the 
Canadian government on virtually every new environ-
mental regulation [...] Virtually all of the initiatives were 
targeted and most of them never saw the light of day.”10

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