If You Ratify The CETA Trade Deal, You'll Break The Law, Legal Expert Tells EU Member States

from the corporate-sovereignty-is-the-problem,-as-usual dept

We recently wrote about an important judgment from the EU’s top court, the Court of Justice of the European Union (CJEU). The ruling said that that corporate sovereignty provisions included in trade deals between the EU’s member states were illegal. Significantly, the logic behind that decision suggests that any form of investor-state dispute settlement (ISDS) — the official name for the corporate sovereignty framework — even in trade deals involving countries outside the EU, would be forbidden too. Christina Eckes, professor of European law at the University of Amsterdam and director of the Amsterdam Centre for European Law and Governance, believes that the implications of the CJEU ruling are even broader.

Eckes says that in the wake of the judgment, serious doubts hang over the investment chapter in the Canada-EU trade deal, CETA, which has still not been ratified by all EU member states yet — a process that is necessary before it comes into force definitively. In fact, Belgium has explicitly asked the CJEU to rule on the legality of the Investor Court System (ICS) in CETA, which is the modified version of corporate sovereignty that supposedly addresses its flaws. As a result, a ruling on whether CETA’s investment chapter is legal is definitely on its way, and could have major implications for CETA and its ratification. However, Ecke points out that there is something called “EU loyalty”, which:

requires that Member States amongst others ‘facilitate the achievement of the Union’s tasks and refrain from any measure which could jeopardise the attainment of the Union’s objectives.’ In external relations, they are obliged not to undermine the EU?s external actions and ensure unity in international representation. … Furthermore, EU loyalty covers not just the present state of EU law but also ?the foreseeable future development of EU law? and should hence be interpreted as requiring certain actions or omissions in the present in order to avoid a potential future conflict between international legal obligations and EU law.

What this means in practice, Eckes suggests, is that the EU’s member states should not go ahead and ratify CETA without knowing the outcome of the CJEU deliberation on the legality of the ICS. If they were to complete ratification, and the investment chapter were then found inadmissible by the court, this would undermine the authority of the CJEU, since its ruling would be null and void. As a consequence, she says:

In the light of the foreseeable risk that CJEU declares the CETA investment chapter to be capable of undermining the autonomy of the EU legal order, Member States are required by the principle of EU loyalty to halt ratification in order to demonstrate a uniform position as one Party, together with the EU and the other Member States, on the international plane in general and vis-à-vis Canada in particular.

It’s an interesting argument, which the European Commission will doubtless do its best to ignore in the hope that it can just steamroller CETA through the ratification process before the CJEU issues its ruling. However, if, as seems likely, CETA’s investment chapter is indeed ruled illegal by the top court, this will present a rather thorny problem for the EU. Given the other challenges it faces thanks to rising populism in many EU countries, the Commission could probably do without this kind of constitutional crisis that would undermine further people’s support for the European project. That might be a good reason for putting those ratifications on hold for a while.

Follow me @glynmoody on Twitter or identi.ca, and +glynmoody on Google+

Filed Under: , , , ,

Rate this comment as insightful
Rate this comment as funny
You have rated this comment as insightful
You have rated this comment as funny
Flag this comment as abusive/trolling/spam
You have flagged this comment
The first word has already been claimed
The last word has already been claimed
Insightful Lightbulb icon Funny Laughing icon Abusive/trolling/spam Flag icon Insightful badge Lightbulb icon Funny badge Laughing icon Comments icon

Comments on “If You Ratify The CETA Trade Deal, You'll Break The Law, Legal Expert Tells EU Member States”

Subscribe: RSS Leave a comment
Anonymous Coward says:

The problems with the ISDS system is almost endless:

– Some of the companies usually hired for this have had some “integrity problems”. Some of their judgements have been far off because of legal 101 errors.

– An arbitrated judgement is not public but binding. The lack of oversight is making the system very sensitive to interpretation of the texts. Like FISA courts, such arrangements can very easily drift from real world interpretation of the law to something else, making the process fall afoul to even basic legal pillars.

– The jurisdiction is unclear and often runs afoul to state courts. The combination of the legally dubious process and the lack of publicity of the conclusion makes the system prone to unreconcilable judgements covering a party.

– The process behind the selection of an arbitrator is arbitrary and capricious and lacks standards to ensure fairness.

– The use of a third party non-jurisdictional institution to resolve a percieved problematic action is by definition foreign interference. The system can be abused by a country wishing to meddle, by incentivizing companies to abuse it.

Those are just common knowledge problems with ISDS, that everybody – to a degree – agrees on. But since trade economists see “free trade”, the content of these agreements are left unchecked. Look at the change in demeanor from Krugman before and after he actually read these things.

Calvera says:

private arbitration

… bottom line here is that TechDirt doesn’t like private arbitration and wants government courts to decide everything.

Private Arbitration of civil contracts is perfectly acceptable, useful and ethical as a voluntary contractual option.

The notion that private-arbitration somehow grants sovereignty to corporations (or anybody else) is preposterous.

The Slovakian Government politicians and that Dutch Insurance Company had a fairly simple contract dispute… where those politicians reneged on the terms of their voluntary contract and refused to abide by the valid arbitration decision against them. The Dutch company rightly took this civil contract dispute to the European government courts which routinely handle contract law adjudication — and the courts correctly ruled against the guilty Slovakian politicians on this minor matter.

Government “Trade Deals” (coercive interventions in markets by politicians) are a related issue. Government politicians should completely stay out of free markets and free trade, except to enforce normal civil and criminal law. Yhe general public is ALWAYS harmed by political economic interventions.

Roger Strong (profile) says:

Re: private arbitration

And then there’s the real world.

Investor-state dispute settlement (ISDS) is all about government. If two corporations have a dispute, ISDS doesn’t enter into it.

But if a government passes new environmental regulations, passes workplace safety laws, stops someone from opening a strip mine alongside a residential area or changes their energy policy to prefer renewable energy, a foreign corporation can sue the government under ISDS. Those are real examples of how ISDS has been used.

It’s not about civil contracts.

BTW, CETA came into provisional application back in September. Countries are bound by it for three years even if they haven’t ratified it. (And for 20 years if they ratify it and then withdraw.)

Thankfully they made an exception for ISDS and the Investor Court System. It’s not included in provisional application, and countries are not bound by it until they ratify.

Calvera says:

Re: Re: private arbitration

“Investor-state dispute settlement (ISDS) is all about government.”

…well there is a lot of government bumbling in it, but it’s primarily a dispute resolution mechanism between “private” parties and a specific foreign government, in the real world.

In fact, specific governments win most of ISDS cases brought against them… and their sovereignty is hardly being trashed in reality or principle.

As merely a U.S. citizen, you can sue foreign governments in U.S. courts under a variety of circumstances unrelated to this issue.

Ideally, there should be no government to government “trade deals” ever. If private parties wish to contract with a foreign government — they can negotiate whatever details are agreeable to both sides. Ultimately both sides are vulnerable to moral hazard from the other party…. arbitration clauses are a reasonable mechanism to mitihate that risk.

Roger Strong (profile) says:

Re: Re: Re: private arbitration

but it’s primarily a dispute resolution mechanism between "private" parties and a specific foreign government, in the real world.

That’s what I’m saying. You had declared it to be about private arbitration of civil contracts.

In fact, specific governments win most of ISDS cases brought against them…

They also lose many. And they lose via "chilling effects", being afraid to enact needed legislation because they might be sued via ISDS.

and their sovereignty is hardly being trashed in reality or principle

It is when foreign investors can block new laws in a way that local investors and corporations can’t.

(As an aside, I’m waiting for Americans to freak out about Canada exporting toxic PCP waste to the US. Canada had banned the export, arguing that it was obliged to dispose of the waste within its own borders under another international treaty. But U.S.-based S.D. Myers successfully challenged the ban under NAFTA’s ISDS tribunal.)

As merely a U.S. citizen, you can sue foreign governments in U.S. courts under a variety of circumstances unrelated to this issue.

That might work if another country kidnaps and tortures a US citizen. (But of course not in the other direction.) It’s not likely to work if you sue them for harming your mining investment by raising environmental or safety regulations.

If private parties wish to contract with a foreign government…. arbitration clauses are a reasonable mechanism….

Again, there’s no contract with a foreign government, so no arbitration clauses are possible. You invest in a mine in another country, the country later enacts reasonable safety standards – the kind you have in your own country – and your investment is harmed.

A local company couldn’t stop it. But YOU, as foreign investor, can.

(The exception, as demonstrated by Canadian company Loan Pine Resources when Quebec banned natural gas fracking: Set up an American subsidiary, and use that to sue Canada. Much of the European opposition to CETA’s ISDS provisions was over American corporations being able to sue EU countries via Canadian subsidiaries.)

Add Your Comment

Your email address will not be published. Required fields are marked *

Have a Techdirt Account? Sign in now. Want one? Register here

Comment Options:

Make this the or (get credits or sign in to see balance) what's this?

What's this?

Techdirt community members with Techdirt Credits can spotlight a comment as either the "First Word" or "Last Word" on a particular comment thread. Credits can be purchased at the Techdirt Insider Shop »

Follow Techdirt

Techdirt Daily Newsletter

Techdirt Deals
Techdirt Insider Discord
The latest chatter on the Techdirt Insider Discord channel...