On 29 February 2016, a revised text of the Canada-EU Comprehensive Economic and Trade Agreement (“CETA”) was released. Importantly, Canada and the EU have agreed to a number of substantive changes to the CETA’s Investment Chapter, including:
- Stronger right to regulate: the EU and Canada fully preserve their right to regulate to achieve legitimate policy objectives, including protection of public health, safety, environment or public morals;
- Narrowly prescribed standards of investment protection: a closed list of measures that could give rise to a violation of the fair and equitable treatment standard; similarly, indirect expropriation is limited to defined situations;
- Canada accepted the EU proposal to replace the existing Investor-State Dispute Settlement (“ISDS”) system with an international investment court;
- The Tribunal: the Tribunal will be permanent, transparent, and institutionalised; each dispute will be heard by a three-member division of the Tribunal;
- The Appellate Tribunal: the Tribunal’s decisions may be upheld, modified or reversed by the Appellate Tribunal due to errors in the application or interpretation of applicable law or manifest errors in the appreciation of the facts, as well as on the basis of the grounds for annulment set out in the ICSID Convention;
- Investors have no right to appoint an arbitrator: the members of the Tribunal (15 in total) will be selected in advance by the EU and Canada rather than appointed by the investor and the State involved in the dispute;
- Transparency: all documents submitted will be publicly available, all hearings will be open to the public and all interested non-disputing parties will be able to make submissions;
- Limitation on the damages awarded: monetary damages shall not be greater than the loss suffered by an investor;
- Loser pays principle: the losing party will pay the costs of the proceedings; and
- Requirement to disclose third-party funding.
The EU and Canada intend to sign the CETA in 2016 in order for it to enter into force in 2016. If and when in force, the CETA will replace the eight existing bilateral investment agreements between certain EU Member States and Canada. The remaining EU Member States, including Germany, the UK and France, do not have bilateral investment agreements in force with Canada.
CETA’s revised Investment Chapter reflects the main elements of the EU proposal for the Investment Chapter of the Transatlantic Trade and Investment Partnership (“TTIP”), as tabled to the United States on 12 November 2015. The TTIP negotiations are unlikely to conclude in 2016, and U.S. trade negotiators have offered muted and skeptical reactions to date to the EU proposals for an international investment court and an appellate mechanism. The Trans-Pacific Partnership (“TPP”) signed by the United States and 11 other Pacific Rim countries on 4 February 2016, on the other hand, contains a traditional ISDS mechanism.
The EU appears determined to move ahead with its new approach to investment protection. The EU also managed to implement its new proposals in the EU-Vietnam Free Trade Agreement published on 1 February 2016. Conversely, the EU-Singapore Free Trade Agreement, as published on 29 June 2015, contains a traditional ISDS mechanism. Both agreements are yet to be finalised and will only enter into force after being agreed upon by the Council of the EU and ratified by the European Parliament, among other steps.
The long-term significance of the EU proposals remains unclear. The outcomes of the EU’s ongoing trade and investment negotiations with the United States and Japan will provide barometers of whether the EU proposals will achieve broad acceptance in the global investment community. It also is uncertain whether other EU stakeholders, including EU Member States, will be agreeable to the European Commission’s approach. In the interim, the traditional ISDS system contained in existing EU Member States investment agreements remains intact and continues to be invoked regularly by investors.