The coming CETA litigation boom

There will be a significant increased risk of Canada being sued by banks, insurers and holding companies

By Scott Harris, Trade Campaigner, Council of Canadians

After five years of negotiations, Canada and the European Union announced on September 26, 2014 that the Comprehensive Economic and Trade Agreement (CETA) had been finalized. For the first time since negotiations began the official text was also released, finally giving citizens on both sides of the Atlantic a look at the complete agreement, which faces growing opposition – particularly in Europe – centered on concerns about CETA’s investment protection rules.

These protections, similar to the controversial Chapter 11 of the North American Free Trade Agreement (NAFTA), are given teeth by an investor-state dispute settlement (ISDS) mechanism which allows foreign investors to seek unlimited financial compensation before international tribunals for government measures that they believe interfere with their right to profit.

More than a dozen organizations in Europe and Canada this week jointly released the first comprehensive analysis of CETA’s investment protections in a new report, Trading Away Democracy: How CETA’s investment protection rules threaten the public good in Canada and the EU.

The report warns that CETA’s investment chapter – which in significant ways provides investors with even greater rights than exist under NAFTA – could “unleash a corporate litigation boom against Canada, the EU and individual EU member states, and could dangerously thwart government efforts to protect citizens and the environment.”

For Canada, which has already been sued 35 times under NAFTA and has paid damages to foreign investors totalling C$171.5 million dollars and is facing billions more in current challenges, the report points to CETA’s expansive new corporate rights in the financial sector. “The risks for Canada of being sued by banks, insurers and holding companies will increase significantly with CETA,” the report found, pointing to high levels of European investment in these sectors. “Also, most investment is coming to Canada from exactly those EU countries where investors are notorious claimants in investor-state disputes: the Netherlands and the UK.”

The report also cautions that European investors – which account for a quarter of all FDI into Canada – are the most frequent users of ISDS globally. Of the 568 known cases of investor-state challenges, European-based investors have launched 299 of them, or over half of all known suits. U.S. investors account for an additional 127 cases. In other words, if CETA is ratified Canada will have investor protection rights agreements with countries that account for three-quarters of all ISDS challenges.

Trading Away Democracy warns that Europe is also taking a major risk with CETA, finding that regulations in the mining and oil and gas sectors – where Canadian investment in Europe is significant – are at particular risk of challenge by Canadian-based mining corporations. More than one-third of ISDS cases worldwide are related to mining, oil and gas projects, and Canadian mining companies – which have a global reputation as “far and away the worst offenders in environmental, human rights and other abuses around the world” – are already engaged in a number of controversial projects in the EU that are facing stiff opposition from local residents and environmentalists.

Also of significance to Europeans concerned about the Transatlantic Trade and Investment Partnership (TTIP) currently being negotiated between the European Union and the United States is the finding that CETA will act as a Trojan horse in Europe for U.S. multinational corporations with subsidiaries in Canada. These corporations will be able to use their “substantial business interests” to launch challenges against EU regulations even if public pressure in Europe results in similar protections being excluded from TTIP. This is of particular concern for Europeans given the high level of foreign ownership in the Canadian economy, where almost 40 per cent of all large enterprises are foreign owned and almost 60 per cent of annual foreign investment in Canada from 1985 to 2014 was from the U.S.

CETA would also allow Canadian corporations with a presence in Europe, such as Bombardier, and European corporations with Canadian arms, including Shell and BP, to sue their own governments over measures that interfere with their profits.

Increasing opposition to ISDS has been met by the Canadian government and European Commission with a propaganda drive focused on the cosmetic reforms to the investment chapter in the proposed agreement, which the report argues will provide little meaningful protection from abuse by investors. With CETA being presented as a fait accompli, subject to minor adjustments during the legal review that is expected to take most of 2015 to complete, the report concludes by calling on legislators in Canada, the EU and European member states to reject any CETA text which includes investor-state arbitration.

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