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.

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Reader Comments (rss)

(Flattened / Threaded)

  1. icon
    That One Guy (profile), Mar 18th, 2014 @ 10:39pm

    'Mistakes', right... /s

    You say 'bug', they say 'feature'.

    Those negotiating these trade agreements behind closed doors aren't stupid. Arrogant yes, but stupid, not so much, so the idea that they 'accidentally' threw in some wording that would completely bypass any future proposed fixes, clauses and whatnot designed to keep the agreements from being total corporate wishlists is something I find somewhat less than likely.

    reply to this | link to this | view in thread ]

  2. identicon
    Anonymous Coward, Mar 19th, 2014 @ 2:32am

    MFN: Money F***s Nations ?

    reply to this | link to this | view in thread ]

  3. identicon
    Learn2Economics, Mar 19th, 2014 @ 3:49am

    Not Just Government

    Academic transparency is what also helped to debunk the Reinhart-Rogoff study...too bad the damn austeritards still think we should base economic policy off of it

    reply to this | link to this | view in thread ]

  4. identicon
    Anonymous Coward, Mar 19th, 2014 @ 4:07am

    you can bet that if de Gucht of the European Commission is having anything to do with this, it is going to be a total balls up on the part of favoring the EU. he is the same guy that was so adamant that ACTA was needed in the EU and would be the best thing ever. thank our lucky stars that got kicked out. the same thing needs doing with CETA, TTIP and TAFTA. in fact, there should be no further 'Trade Deals' at all as they do/will, in the main, be disadvantageous to all involved other than the USA and certain of it's industries. the main point of all these deals is to stop the production and release of cheap alternative medicines after the time is up on USA produced ones and to screw everyone into the ground over copyright, particularly music, movies and games, just to keep the heads of these industries back in the 1960s, and any wavering from what they want means total bankruptcy and imprisonment for copying when unauthorised. the next step will be the needle, all over a friggin' movie!!

    reply to this | link to this | view in thread ]

  5. identicon
    pankocrums, Mar 19th, 2014 @ 4:43am

    birdy.... yet asio trying to stop...proves hostage.. ...---... ...---...---...---...

    reply to this | link to this | view in thread ]

  6. icon
    MikeC (profile), Mar 19th, 2014 @ 7:28am

    Hide it in the fine print....

    Anyone ever wonder if the scenario in the Devil's advocate (lawyers being the devils way to take over) might just be true.

    reply to this | link to this | view in thread ]

  7. icon
    Bergman (profile), Mar 19th, 2014 @ 7:47am

    And not just social or economic damage

    Suppose a law was passed prohibiting doing business with foreign companies that dump toxic or radioactive waste irresponsibly?

    CETA would seem to allow Canadian and EU companies to ignore the law.

    reply to this | link to this | view in thread ]

  8. identicon
    Rekrul, Mar 19th, 2014 @ 2:32pm

    Has any politician actually come forward and tried to give an explanation of why their government would want corporations to have the ability to sue them?

    I mean, I know it's in there because the corporations want such power and the politicians are happy to do whatever their corporate masters tell them to, but I'd love to hear some government official try to explain why giving corporations the power to punish the government for passing laws is a good idea.

    reply to this | link to this | view in thread ]

  9. icon
    KevinEHayden (profile), Mar 20th, 2014 @ 7:25am

    loopholes and carelessly-worded clauses

    I suspect that these are actually 'carefully-worded' clauses, not 'carelessly-worded' ones. If written and followed appropriately by the corporate interests, once the web of trade agreements (CETA, TAFTA, TPP, etc.) is in place, we can expect one world-wide set of 'corporate' laws to emerge.
    Hooks like these will enable corporations to subvert local laws in favor of some other more favorable 'law' exported from some other country where a more favorable trade agreement was negotiated. Governments that don't play along will see themselves and their taxpayers sued into compliance or face going broke paying the 'fines' demanded by the corporations.
    I suspect some dark forces at work here. It used to be that world domination was attempted via military means. It seems that now, the forces of evil are trying another tack instead. Enough said.

    reply to this | link to this | view in thread ]

  10. icon
    The Wanderer (profile), Mar 20th, 2014 @ 5:20pm


    Is that last sequence of punctuation an attempt to convey an expressive pause, or is it Morse code?

    Let's see; it translates to "SOS SOSOSOS". I'm not sure; that could go either way.

    reply to this | link to this | view in thread ]

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