Trade Treaties are a formal expression of intergovernmental cooperation. Governments relinquish their sovereign rights to choose their own trade (and other) policies in exchange for similar concessions by others.
Why might a government be willing to compromise its sovereignty? In a word, the answer is interdependence.
The policies imposed by any government affect the well-being not only of its own citizens, but also of those in other countries. No matter what the objectives of the policy makers, each has an interest in the choices made by its trading partners.
The importance and proven benefits of trade
Some of the criticisms of CETA emanate from the general criticism of globalisation. Evidence has shown this to be sadly an unjustified criticism, though there is no doubt that the societal rewards of globalisation have not been shared fairly within developed countries. That, however, is a question of domestic taxation and policy, and not a reason to criticize globalisation, popular though that might be.
The 2015 World Bank and World Trade Organization report on The Role of Trade in Ending Poverty says that the “number of people living in extreme poverty around the world has fallen by about 1 billion since 1990. Without the growing participation of developing countries in international trade, and without efforts to lower barriers to the integration of markets it is hard to see how the reduction could have happened”.
The report explains that “the rules-based global trading system has been essential in reducing the risks faced by the poor from opaque and unpredictable trade policies — both in terms of access to markets for the products they produce and by creating a stable trading environment to support job-creating investment, both domestic and foreign, in trade related activities”.
Peter Collier, professor of economics and director of the Center for the study of African Economies at Oxford University, one of the world’s leading experts on African economies says “rich country protectionism masquerades in alliance with anti-globalization romantics and third world crooks. As we have seen the development lobbies themselves, notably the big western NGO charities, often just don’t understand trade. It is complicated and doesn’t appeal to their publics, so they take the populist line”.
Bilateral Trade agreements are about the rule of law.
There are almost 3,000 Bilateral Trade Agreements which contain provisions protecting investment. The most obvious reason for such provisions is to protect blatant abuse, under which a national government might nationalise an asset without paying compensation to the owner. Providing domestic legislation to protect the entitlement to compensation might not be considered adequate as not every country’s national courts are truly independent.
There are many countries, even within the EU, where there has been considerable disquiet expressed with regard to the independence of the judiciary. For this reason, it has been a long-established policy in International Investor Treaties to provide some form of independent dispute mechanism. Indeed, such mechanisms are the reason we find that there exists a body known as the ICC International Court of Arbitration and that this body is frequently chosen in large construction contracts to resolve disputes where one party is the government, and the other party is an international contractor.
However, the Investor Dispute Mechanism has come under sharp criticism. Critics have argued that the system is overly focused on safeguarding commercial concerns at the expense of the public interest. For example, the action taken by the tobacco firm Philip Morris against Australia in relation to the introduction of plain packaging laws has brought to the public’s attention the direct conflict between commercial and public interests posed by Investment Treaties.
This issue was brought into focus in 2015 by a report delivered to the United Nations Human Rights Council by its Independent Expert, Mr. de Zayas. The Human Rights Council established the mandate of the Independent Expert on the promotion of a democratic and equitable order in 2011. The mandate entails identifying possible obstacles to the promotion and protection of a democratic and equitable international order, and submitting proposals and recommendations in that regard in annual thematic reports to the General Assembly and Human Rights Council. The 2015 thematic report, “The adverse impact of free trade and investment agreements on a democratic and equitable international order”, explored the impact of international investment agreements and investor-State dispute settlements.
This report received widespread coverage in national and international newspapers. However what current critics of CETA fail to realise is that the report acknowledged that governments and parliamentarians had already begun to counter the inadequacies of these treaties. To address these concerns, the European Commission had previously published a “concept paper” referred to in de Zaya’s UN report. This paper outlines improvements that should be made in trade agreements to guarantee that countries retain a protected policy space. The Commission paper addresses each of the concerns prevalent in existing Bilateral Investor Protection Treaties. It should be comforting to see that in fact the CETA Agreement goes beyond the improvements identified in that paper. The Zaya’s UN Paper rightly points out that is not just a question of reforming the investor state dispute system for the future but that “it is imperative to review and revise existing Bilateral Investment Treaties and Free Trade Agreements which were never intended to become prisons for states”.
It is, to say the least, ironic that the Commission, by identifying and addressing these inadequacies, has in fact created for those who have not read the Treaty, a stick with which to beat the EU-Canada Treaty.
It is helpful to identify specifically why the criticisms of CETA are misplaced.
One of the criticisms is that investor protection provisions provide for (i) “behind closed doors” decisions (ii) by Arbitrators who are also sometimes private lawyers that act on behalf of multinationals. Whilst these might have been valid criticism of old Treaties it is not true of CETA.
The allegation that the hearings are behind closed doors is addressed by Article 8.36 of the Treaty which provides that the parties’ submissions in disputes must be made available to the public. It also has a requirement that the hearings are open to the public. This is also a new step.
In addition, under CETA, the tribunal established for investments disputes requires that the tribunal members comply with International Bar Association Guidelines on conflicts of interest and that they must have the qualifications required in their respective countries for appointment to judicial office or be jurists of recognised competence. There is also a specific provision dealing with the ethics of tribunal members.
Unlike previous dispute systems where the arbitrators were appointed ad hoc, under CETA tribunal members are appointed for a five-year period and are paid an annual retainer fee. This is to protect their judicial independence.
Another criticism was the lack of a right of appeal. This is also addressed. CETA establishes an Appellate Tribunal to review decisions under the investment section with the power to modify or reverse tribunals’ awards.
It has also been claimed that just by threatening, or by taking and delaying the processing of proceedings, multinationals can have a “freezing effect” on government decisions taken in the interest of its citizens.
This criticism understandably arises because of cases taken by the tobacco multinational Phillip Morris against both Australia and Uruguay claiming decisions regarding the content of cigarette packaging damaged their trademarks. It is claimed that even though these cases were lost, the threat restricted states’ abilities to make decisions in the interest of the health of their citizens.
The fear here is addressed by Articles 8.32 and 8.33 which allow the tribunal to issue a preliminary decision throwing out the case where it is without legal merit or where it is unfounded as a matter of law. These provisions will have the effect of eliminating the freezing effect of the highly questionable types of disputes initiated by international tobacco companies.
In terms of the substantive rights of investors and the possible conflicting duty of the State to make policy decisions, of particular importance is the fact that in every instance where there is a right given to an investor to seek protection, that protection is then made subject to the State’s right to make appropriate policy decisions even if they affect the investment. So, for instance, if there are restrictions on a State’s right to restrict market access, CETA removes this protection where the measure relates to, amongst other things, planning regulations, competition laws, measures to conserve and protect natural resources and the environment – including a moratorium or a ban.
The chapter on investment and regulatory measures emphasises the State’s right to regulate to achieve legitimate policy objectives such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity. CETA confirms that the mere fact that a policy regulates through law, in a manner which affects or interferes with investors’ expectations, including expectations of profits, does not constitute a breach of obligations under the Investor Protection Provisions.
Another criticism was that Investor Protection Treaties, protected investments against unfair and inequitable treatment, but that the definition of what constitutes unfair and inequitable treatment created ambiguity.
However, this is specifically addressed in article 8.10 of CETA which precisely defines the standard of a breach of fair and equitable treatment, thus eliminating unwelcome discretion to Tribunal Members. [Article 8.10 states that a breach of fair and equitable treatment must be either:
a) denial of justice in criminal or administrative proceedings;
b fundamental breach of due process, including a fundamental breach of transparency, in judicial and administrative proceedings;
c) manifest arbitrariness;
d) targeted discrimination on manifestly wrongful grounds, such as gender race or religion,
e) abuse by way of coercion duress or harassment; or
f) breach of any further elements of the fair and equitable treatment obligation adopted by the Parties in accordance with paragraph 3 of this Article.]
In respect of expropriation, CETA clarifies that nationalisation or expropriation is only allowed where it is done (i) for public purpose (ii) under due process of law (iii) in a nondiscriminatory manner and (iv) where adequate compensation is paid. These are all principles which any Irish company operating in Canada would expect to be protected by.
Finally, the benefit of such protection from investors as is given in CETA is denied if the actual investor is not from one of the parties to the agreement, namely Canada or an EU member state.
In addition to the considerable curtailment of investor protections and the imposition of full transparency, rights of appeal, and independence of the tribunal members, critics of CETA continually fail to refer to the significant commitments made by both parties in relation to the environmental and labour standards and the protection of natural resources.
For example, Article 24 recognises each party’s right to set its own environmental priorities and to establish its levels of environmental protection and to modify laws in a manner consistent with the multinational environmental agreements to which it is a party.
CETA confirms that it is inappropriate to encourage trade or investment by weakening or reducing levels of protection in their environmental laws and that neither party shall waive or offer to waive environmental laws to encourage investment.
It is also notable that several of the recent cases taken under historic Investment Protection Treaties have been taken to protect renewable energy investments where the tariff upon which the investment was made was changed. These cases concerned Poland and Spain. History will show that these were important in protecting and encouraging increased investments in renewable technologies.
What is of even greater importance is Canada and Europe’s commitment to cooperate on trade related environmental issues, including in particular, working together on domestic climate policies and trade related aspects of our future international climate change regimes.
Critics of the environmental aspects of CETA fail to recognise the enormous importance of this and that climate change is a multinational issue which requires like-minded parties such as Canada and the EU to drive forward international policies to reduce carbon emissions. One of the most pressing future issues will be the imposition of tariffs by the EU and hopefully Canada on products which are imported but are benefiting from lax environmental laws in the country of their production. For this reason alone, environmentalists should be fighting for additional treaties which encourage such joint action to address climate change.
CETA also specifically acknowledges that water in lakes, rivers and reservoirs, aquifers and water basins is neither a good nor a product. Accordingly, each party has the right to protect and preserve its natural water resources and that nothing in the agreement obliges the party to permit the commercial use of water for any purpose.
In relation to protection of workers, Article 23 of CETA requires each party to ensure that its domestic laws provide protection for the fundamental principles and rights at work such as the freedom of association, the elimination of forced labor, abolition of child labor, and the elimination of discrimination in respect of employment. Both parties commit to ensuring its laws promote the objectives of the ILO Decent Work Agenda and the ILO Declaration on Social Justice for Fair Globalization of 2008, as well as health and safety at work and minimum employment standards for wage earners.
When the labour provisions of CETA are examined in detail, it is clear that this is not a race to the bottom but an attempt to bring each party up to ensure nobody seeks to take commercial advantage by reducing their standards or ignoring international commitments in the protection of workers.
Critics of CETA would be well advised to focus on the damage that might arise from existing investor protection protocols in the hundreds of existing agreements rather than criticise this new wave of more enlightened Trade Protection Agreements.
For further information in relation to the above article, please contact Philip Lee.