EU Re-Think Following Discovery Of Major Flaw In CETA Shows The Benefits Of Transparency
from the enough-eyeballs dept
The Canada-European Union trade agreement (CETA) finds itself in a strange situation. Although Canada and the EU announced that “a political agreement” on the key elements had been reached, there has still been no formal release of the text. Fortunately, we have had several leaks of CETA documents, handily gathered on a new site devoted to them (and to those of the TAFTA/TTIP talks). One of the most recent leaks is of the chapter dealing with corporate sovereignty. It’s dated February 14, and shows a large number of alternative versions, which indicates that despite the “political agreement”, CETA is far from done.
The availability of this very recent text has enabled experts in the field to examine the proposals in detail for the first time. For example, Nathalie Bernasconi-Osterwalder and Howard Mann from the International Institute for Sustainable Development have put together a fascinating analysis of the investor-state dispute settlement (ISDS) chapter, and of an earlier investment chapter leak from November 2013 (pdf). They’ve compared them with a document released by the European Commission in December last year, which gave some explanation of the claimed improvements to corporate sovereignty provisions (pdf). The availability of the draft texts allowed Bernasconi-Osterwalder and Mann to check the claims against the reality. Here’s their summary:
In the end, and whatever the reason for the disconnect, we conclude that the actual draft legal texts in the public domain show that the European Commission’s assertions are in most respects incorrect when compared to the draft legal text. The technical legal analysis is set out on each specific point below. In effect, the analysis indicates that the standards by which the European Commission itself seeks to demonstrate the success of the drafting actually show that the drafting has failed to meet its stated objectives, in fact, sometimes with the exact opposite result.
It’s a really thorough analysis, and well-worth reading. But here I want to pull out just one aspect of ISDS, hitherto rather neglected. It concerns what is known as “Most Favored Nation” status:
The European Commission statement simply does not refer to what is known as the most-favoured nation (MFN) treatment clause. Yet, this clause alone is sufficient to undermine all of the objectives the European Commission states it seeks in the drafting. The reason why is explained here.
Article X.8 of the November 2013 draft [of CETA’s investment chapter] contains the MFN provision. In essence, it requires, for present analytical purposes, a European state to treat a foreign investor from Canada no less favourably than it treats an investor from any third state. The problem arises from the legal reality that such treatment has been defined in investment arbitrations as including the rights of other investors under investment treaties with the host state. So, if an EU member state that has a Canadian investor also has a treaty with an African, Latin American or any other state, the investor from Canada can import the provisions of that treaty if they are more favourable than the provisions of the CETA.
The impact of this is straightforward. The European Commission statement [published in December] notes the need to “bring very significant clarifications” in order to give arbitrators “strict and detailed guidance when these provisions are invoked by an investor.” Now, we have already seen from the preceding analysis that this objective has not been met in the November 2013 draft text. But let us suppose, for the sake of understanding the current issue, that it had been met. The MFN provision would in any event undo this.
That’s because Canadian investors could simply invoke the MFN provision, and demand to be allowed to use earlier rights that ignore the claimed improvements to ISDS. And yet the European Commission was completely unaware of this fact until recently, as reported by the Council of Candians in a blog post:
According to Rupert Schlegelmilch, director of services, investment and procurement at DG Trade [in the European Commission], speaking on behalf of the Commission at a public debate yesterday on investor-state dispute settlement (ISDS) and the TTIP, the EU is rethinking a “Most Favoured Nation” (MFN) article in the CETA investment chapter that new analysis suggests undermines much of the more careful language in the treaty relating to a government’s ability to regulate. As written, the MFN article would let Canadian and EU investors ignore the definitions of “fair and equitable treatment” or “indirect expropriation” in CETA and take other more investor-friendly language from past agreements signed by either party.
It’s not clear whether the European Commission woke up to this huge loophole as a result of the International Institute for Sustainable Development analysis, although this seems likely given the timing. But the key point is that the incident raises the larger question:
“What other mistakes have the Commission and Canadian government made in CETA that compromise the ability of governments to make environmental, public health and consumer protection policies without worrying they will be sued in private arbitration, behind closed doors?” asks Stuart Trew, trade campaigner with the Council of Canadians
We don’t know, because we don’t have a full copy of the latest CETA draft. If we did, then independent experts could go through it and warn of other flawed passages, thus avoiding serious problems in years to come when it is too late to change anything.
This, then, is another key reason why negotiating texts must be made available as they are drafted, not after they have been signed: Linus’ Law, that “given enough eyeballs, all bugs are shallow,” applies to international agreements as well as to software code. But the big difference is that for programming, it’s a question of how well code runs; with things like CETA, TTIP and TPP, what’s at stake is the potentially huge economic and social damage that can be caused by loopholes and carelessly-worded clauses in these far-reaching international agreements.