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OPINION

10 June 2020

Trade Agreement CETA is bad for democracy and justice

comments 2

I recently joined a group of academic and practicing lawyers signing a letter to the Dutch Senate (Eerste Kamer) protesting the Canada-EU Comprehensive and Economic Trade Agreement – CETA - and advising them not to approve it in its current form (in Dutch, here: letter). We suggest that it is bad for democracy and for justice. Here I’ll explain why.

CETA is the most in depth and wide-ranging trade agreement of its kind, making EU-Canada trade easier and cheaper in numerous ways. After a similar agreement with the US failed – the Americans walked away before it was finalized – CETA is seen as a flagship, important to keeping international trade alive and well.

However, it contains some unacceptable provisions, to do with its ‘investment court system’ (ICS). This protects European companies investing in Canada, and Canadian ones investing in the EU, from government actions which undermine their investments. They can go to special ICS tribunals, and claim compensation for unfair or inequitable treatment.

The fear is that this will allow multinationals to block policy change by claiming it would hurt their investment. So Canadian companies investing in gas, or chemicals or healthcare in the Netherlands might see their profits wiped out by a new government that was green, or lefty, and which took measures against carbon fuels or chemical pollution, or wound back privatization. They would go to the ICS and claim billions in compensation. They might not always win, but even the risk of a huge  bill could be enough to deter governments from adopting the laws.

Very ambiguous rules

Supporters of ICS say these fears are overblown – there are special clauses allowing legitimate government actions. However, the rules are very ambiguous, and experience with other investment treaties shows that they can be, and are, used in the way described above.

ICS is also deeply unequal – it's only foreign investors who get the special rights. So a Dutch company that doesn’t like new Dutch laws has to accept them, whereas a Canadian one can go to the ICS. That creates all kinds of problems – for example, American or other companies setting up subsidiaries in Canada so that they can sue EU governments at the ICS.

Why create such a strange and unequal system? ICS is an example of what is called ‘investor state dispute resolution’ or ISDS. The original idea of that was to protect Western companies who were investing in developing countries. They didn’t trust the governments there, nor the local judges, and were worried that their investments would not be safe from greedy or corrupt authorities. ISDS meant that if a minister seized their factory and gave it to his cousin, they could go to a nice safe tribunal in Geneva or the Hague or London and get compensation. Without ISDS, they said, no investment: it’s just too risky.

Same laws, same judges for everyone

But as a German minister recently said, ISDS is out of date in a modern state with a functioning legal system – and Canada and the EU do have functioning legal systems. Multinationals here don’t need special rights or special courts – they can abide by the same laws as everyone else and go to the same judges. That’s what equality before the law means: the same laws and the same judges for everyone. If the legal system is imperfect, then the answer is to improve it. It’s not to allow wealthy investors to set up their own private system, with rules specially written to serve their interests.

Gareth Davies is professor of European Law, Vrije Universiteit

Gareth Davies /

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Door Harmen Verbruggen op 11 June 2020

This is not a very scholarly, but rather tendentious statement. All free trade agreements worldwide have conciliation and arbitration of foreign investment disputes such as the ICS in the CETA treaty. And this is not without reason. The WTO has an Appellate Body to settle international trade and investment conflicts, although recently killed by Donald Trump, who considers this body unfair, as you label the ICS as unequal. The ICS is based on national treatment (equal treatment of domestic and foreign investors) and non-discrimination. It has appointed judges, an open procedure , an appeals authority and is in line with the International Centre for Settlement of Investment Disputes (ICSID), ratified by the Netherlands. Mailbox companies are not admissible. It would be a significant step forward if the EU and the UK succeed in concluding a free trade agreement similar to the CETA treaty, inclusive of an ICS mechanism. The latter, because Boris Johnson, as is well-known, is not particularly satisfied with the EU Court in Luxembourg.

Harmen Verbruggen
Prof. em. of International Environment Economics

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