Part of ongoing negotiations since 2009, an agreement in principle was finally reached on October 18, 2013 on the Canada-EU Comprehensive Economic and Trade Agreement (CETA). Described as Canada’s most ambitious trade agreement to date, the CETA will help solidify Canada’s important economic relationship to the EU. The Canada-EU relationship is currently a high priority for the Canadian government given the EU’s position as Canada’s second largest trading partner in goods and services.
Since the conclusion of negotiations, CETA, and specifically its Investor State Dispute Settlement (ISDS) provisions, have been the subject of much controversy. Fueling critics is the fear that foreign investors and foreign corporations will now be able to seek and collect billions of dollars in compensation from the Host State’s Government, when it creates or enforces rules, laws or policies that negatively impact their bottom line. In addition, there is a growing fear that the ISDS provisions will result in the Host State Government’s loss of capacity to protect important industries of national interest (i.e. natural resources) to the benefit of foreign investors.
In reality, the investment provisions of the CETA, including its ISDS provisions, are in line with best practices in EU member states’ existing Bilateral Investment Treaties (BITs). The provisions are also in line with Canada’s 2004 Model Foreign Investment Promotion and Protection Agreement (FIPA). The reason the inclusion of ISDS provisions is to provide foreign investors the right to seek compensation for damages arising out of breaches of investment related obligations (such as Expropriation, Most Favoured Nation, National Treatment and Fair and Equitable Treatment) by Host State Governments. In other words, the ISDS provisions allow a private investor of a Contracting Party to launch an action for compensation directly against a Contracting Party State where the State implements or enforces measures that damage the foreign investor’s investment. Investment protection measures, combined with ISDS, are meant to promote investment and enhance the overall predictability of the policy framework governing Foreign Direct Investment (FDI). In addition, the provisions maintain Host Countries’ rights to regulate public policy objectives.
Much like the case of the Canada-China FIPA, a deeper and more detailed analysis of the text of the CETA should be conducted before jumping to any conclusions either for or against the inclusion of ISDS in the CETA. Each provision and article should be be looked at in the context of both the EU’s other BITs and Free-Trade Agreement (FTAs) investment provisions and those of Canada. Concerns in Canada about potential claims should be balanced against consideration for the increased protection that will be offered to Canadian investors operating in the EU. In the coming weeks, we will endeavor to produce a detailed analysis of the text of the CETA and its ISDS provisions (under our publications section), to highlight the pros, as well as the potential problem areas for both Canadian and EU investors alike.
A copy of the complete text of the CETA can be found at http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/text-texte/toc-tdm.aspx?lang=eng .