Canada, the European Union and CETA: A Canadian Social Democratic Perspective

The Comprehensive Economic Trade Agreement (CETA) negotiations between Canada and the European Union are now concluded. After five years of discussions, September, 2014 saw the release of the official, complete text of the agreement. Although there remain a legal review, translations and possibly some minor adjustments, the text appears to represent the final outcome of these important talks.

From the outset, it must be stated that the concept of an agreement between the two jurisdictions is both sound and desirable. From a Canadian viewpoint, broadening and deepening economic relations with the EU has widespread support from all sides of the political spectrum.

The EU is a sophisticated market with a large GDP and some 500 million relatively high-income consumers.  It is comprised of democracies with many of the highest environmental, labour and human rights standards in the world. It has enviable consumer and safety standards and represents an opportunity for Canada to facilitate trade at world-class specifications.  CETA also would allow Canada to diversify its export markets and reduce our trade dependence upon the United States.  We believe that the EU would enjoy comparable opportunities and benefits from closer economic relations with Canada.

It must also be noted that, at least on the Canadian side, the negotiations have been conducted with very little transparency. Indeed, it is not an exaggeration to say the talks were shrouded in secrecy. 

There was no consultation by the Conservative Government with any other political party represented in the Canadian Parliament.  The Government restricted its discussions to a small number of hand-picked interest groups, all of whom were compelled to sign tight confidentiality agreements. The Canadian provinces (who were invited to participate as a result of their procurement practices being subject to negotiation) had very limited information and involvement. Many important Canadian stakeholders  -  including labour representatives, First Nations, environmentalists, academics, municipalities, non-profit organizations and indeed many business sectors  -  were completely frozen out of the consultation process. CETA is a “next-generation” trade agreement that deals with a number of areas that are not typically the subject of trade talks (for example, intellectual property and comprehensive government procurement).  It is a complex document with intertwined provisions that must be read in conjunction with a number of chapters. It contains many rules, many exceptions and reservations, and imprecise language that is capable of diverse interpretation. 

As the Official Opposition for Canada, it is our responsibility to review CETA and hold the Government to account for its actions. However, given the lack of openness during negotiations, coupled with CETA’s complexity, determining the benefits and costs of CETA necessarily will take care, and time. As such, we intend to study the agreement closely, consult widely with Canadian stakeholders and understand CETA’s provisions thoroughly before coming to a final assessment. We also recognize that this agreement contains both benefits and costs. Accordingly, we believe it must be evaluated on a comprehensive basis to determine its overall net impacts.

Nevertheless, at this juncture several major areas of concern are clear.

Investor-State Dispute Resolution

First, we are apprehensive about the Investor-State Dispute Resolution (ISDS) provisions of CETA. These clauses allow corporations to make claims against states for damages and other relief before international tribunals outside the domestic court systems of both Canada and the EU.

Valid concerns exist that corporations can challenge state laws or regulations that they believe offend their profit interests or expectations.  Even if unsuccessful, many worry that the mere threat of such actions can serve to "chill" a government who is considering a particular law, policy or regulation, and make it reluctant to proceed.

Experts in ISDS have pointed outthat the international tribunal system challenges a number of principles of the rule of law. Lack of security of tenure for the adjudicators, potential conflicts of interest, insufficient accessibility by the public and media to the proceedings and inadequate appeal processes have all been identified in this regard. While CETA appears to contain some positive measures in certain of these respects, certain flaws remain.

These concerns are not theoretical. Canada, like a number of states around the world, has experienced them in practice.

In 2012, an American firm, Lone Pine Resources Inc., sued the Government of Canada for the Province of Quebec’s decision to place a moratorium on the practice of fracturing geological formations (“fracking”) in the pursuit of gas exploration.  The claim is for $250 million and is filed under NAFTA Chapter 11, alleging that the Province’s decision amounts to an improper “expropriation” of the corporation’s commercial interests.

In 2013, US pharmaceutical giant Eli Lilly sued Canada for $500 million, also pursuant to the ISDS provisions of NAFTA.  Eli Lilly accuses Canada of violating obligations owed to investors (expropriation and minimum standard of treatment) following a Canadian court decision which invalidated the patents of two pharmaceutical drugs.

Australia has faced such suits under investor-state provisions.  In 2011, tobacco distributor Philip Morris, using its Asian subsidiary, claimed that Australia’s cigarette "plain packaging" laws constituted an “expropriation” of its Australian investments and was further a breach of the "fair and equitable treatment obligations pursuant to the 1993 Australia-Hong-Kong investment treaty. European nations have had similar experiences.

In 2012, Swedish energy company Vattenfall filed a request for arbitration against Germany under the International Centre for the Settlement of Investment Disputes (ICSID).  Vattenfall claims some $6 billion in damages for Germany’s decision to phase-out nuclear power by 2022.

While we are still in the early stages of studying the ISDS provisions, like many in Europe we remain unconvinced that these extraordinary procedures are necessary, particularly when both the EU and Canada have well-established judicial systems where investors are protected by the rule of law. 

We further believe that they are undesirable, as they present unacceptable risks to the sovereignty of the states involved. As can be seen by the Phillip Morris case, multi-national corporations can “forum-shop” and avail themselves of trade and investment treaties to assert their interests in ways that directly challenge the powers of the state to legislate in the public interest.

In our view, weakening the rights of states to take measures for their citizens’ benefit is not  necessary to achieve the universally-desired benefits of increased trade.  Although ISDS proponents point to the reservations and exceptions language in CETA and claim that these adequately protect the states’ ability to legislate and regulate in the public interest, we do not believe that it is clear or strong enough in this regard. We further note that the investment provisions of CETA continue to bind the parties for 20 years after the agreement is cancelled.

It is our view that CETA would be a better agreement without the ISDS provisions.

Government Procurement and Services

Second, we are concerned about CETA’s provisions concerning government procurement and service delivery.

We are not troubled with the principle that European firms ought to have fair access to government procurement contracts in Canada (and same for Canadian firms in the EU). However, we believe that CETA ought to preserve the ability of governments to use procurement policies to take bona fide measures to stimulate local economic development.

We further believe that CETA must clearly protect the right of governments to establish public programs and deliver services through the public service if they so wish.

There is a sound basis to worry that CETA’s provisions would unduly impair these abilities.  It contains “ratchet” effects which require once-liberalized services to stay liberalized, thus permanently hampering future government policy flexibility. There is language in CETA that suggests that certain government-delivered programs (like public automobile insurance) would forever be barred (at least to those provinces who did not explicitly reserve them). CETA is unclear that policies to support local economic development, encourage “buy-local” programs, or source local food products for environmental reasons, are permitted.

Again, trade agreements are intended to stimulate increased economic activity, not permanently affect the right of states to deliver services to their citizens, or build their local economies.  It is a legitimate question to ask whether sacrificing these objectives has anything to do with fostering increased economic activity.

Governmental Regulatory Powers

Third, we are concerned about CETA’s provisions that appear to place severe restrictions on governmental regulatory powers. Chapter 14 stipulates that parties ensure “ ... that licensing and qualification procedures are as simple as possible and do not complicate or delay the supply of a service or the pursuit of any other economic activity.”  It also states that all regulations that governments have not expressly excluded from CETA must be “objective” and “established in advance”.

There is growing concern that these provisions will be used by the corporate sector to challenge the ability of governments to properly regulate their activities.  Processes like environmental impact assessments, archeological studies, or aboriginal consultation regimes could be vulnerable to complaints that they could be “simpler”, or are not “objective”, and it is inarguable that CETA places new constraints on the power to regulate in the future.

Parenthetically, this general concern also highlights another flaw of CETA: its use of a “negative list” approach to the agreement’s structure.  This model presumes full market liberalization unless it is expressly excluded.  In our view, this is imprudent and dangerous. It is our belief that important agreements such as CETA ought to be structured in the more traditional “positive list” manner, where the parties explicitly set out those matters upon which there is agreement, and where anything not dealt with remains unresolved and open for future discussion.

Of course, CETA contains many positive attributes that must be commended. Tariff reductions that will stimulate trade, elevated standards in health and product safety, greater cooperation in regulatory matters that will facilitate economic exchange and many other achievements are all laudatory.

As stated, in the end we must come to an overall assessment of CETA to determine its comprehensive value. In every bargain, there are advantages and trade-offs. It will be a very interesting process to evaluate this important, unprecedented agreement to determine whether a healthy balance has been reached for both parties.