Steve Peers

Recent news suggests the EU/Canada free-trade agreement (CETA) faces obstacles due to the German government’s opposition to rules concerning investor/state dispute settlement. This situation carries potential implications for various aspects, including the EU/Canada and EU/USA trade deals, the EU’s broader trade and investment policies, and even the UK’s potential departure from the EU (“Brexit”).

Background

After commencing negotiations in 2009, the EU and Canada reached a preliminary agreement in 2013, pending finalization of technical points. Although the agreement’s text remains unpublished, the EU indicated that it encompasses the liberalization of most goods trading (with some exceptions), services liberalization, intellectual property commitments, and investment liberalization.

What are the potential effects of this free trade agreement? Personally, while all aspects of the EU’s external policies are interesting, I hold a particular interest in EU/Canada relations as a dual citizen with long-standing ties to both places. Based on informal surveys, it appears that an EU/Canada trade deal could benefit both regions by boosting market access for various goods and services. On a broader level, some critics express concerns about potential downsides such as service liberalization and the impact of strengthened intellectual property protection. Conversely, exporters who stand to gain generally haven’t voiced their support as publicly.

It’s premature to definitively assess the agreement’s merits without access to the full text. However, the lack of transparency throughout the process is concerning. If an agreement was essentially reached the previous year, why not make the agreed-upon portions public? The lack of transparency surrounding these negotiations only breeds further suspicion among the public.

Investment issues

The German government, along with other governments, the public, and some Members of the European Parliament, have voiced concerns about the investor/state foreign investment rules within the proposed treaty. These concerns are amplified by the fact that the EU is concurrently negotiating a free trade agreement containing similar provisions with the United States. The primary worry is that these provisions could enable private arbitrators to issue binding decisions, compelling the EU and its member states to compensate foreign investors even for actions that merely affect the value of their investments without outright seizure.

This is widely perceived as democratically problematic. There are also legal concerns. The Court of Justice of the European Union (CJEU) is typically reluctant to cede power over EU law matters to international courts, let alone private arbitrators. It is highly probable that the CJEU would object to the investment provisions if given the opportunity.

The argument that such provisions are necessary to attract investment from both sides seems questionable. Studies conducted before the negotiations revealed that the EU and Canada were already major investors in each other’s economies, even without a dedicated investment agreement.

While the EU attempts to address these concerns by highlighting safeguards included in the agreement, examining the actual text is crucial for verification. Moreover, asserting that these safeguards are unprecedented in EU investment agreements rings hollow given that this is the EU’s first foray into signing such agreements since acquiring authority over foreign investment.

What next for the EU/Canada trade deal?

Assuming the accuracy of media reports, several scenarios could unfold. Modifications could be made to mitigate the impact of the investor/state dispute provisions. These provisions could be completely removed. Investment-related aspects could be entirely excluded from the treaty. Lastly, while unlikely, the entire treaty could be abandoned. In the absence of foreign investment provisions within CETA, existing bilateral treaties between EU member states and Canada would still be in effect.

What next for EU other trade and investment negotiations?

The outcome of the EU/Canada trade negotiations could set a precedent for other trade talks, particularly the EU/USA “TTIP” negotiations currently in progress. The decision regarding investment provisions in CETA will likely influence TTIP’s framework.

Furthermore, the EU is engaged in trade and investment treaty negotiations with numerous countries across South America, Southeast Asia, and others. Any decisions made concerning investment rules in relation to Canada could impact these negotiations, including standalone investment talks with countries like China and Myanmar/Burma.

The impact on the UK’s relations with the EU

Significant developments in the EU’s trade relations could impact the UK’s potential withdrawal from the Union. One argument against EU membership is that it restricts the UK’s ability to engage in international trade. While technically inaccurate, this argument stems from the fact that EU member states must adhere to the EU’s common trade policy.

This argument holds weight only if the EU’s common trade policy is significantly less liberal than the UK’s potential independent policy. The EU already has free trade agreements with numerous countries globally and is in the process of negotiating more. However, there have been instances where the EU has struggled to reach trade deals with certain nations. It remains to be seen whether modifying or removing the investment protection provisions will facilitate or hinder the successful conclusion of these negotiations. The result will either strengthen or weaken the case for Brexit.

Finally, it’s noteworthy that UK/Canada trade constitutes a significant portion of Canada’s total trade with the EU. Interestingly, Canada maintains a trade surplus with the UK but a deficit with the rest of the EU. Whether the prospective EU/Canada trade agreement would affect this dynamic is a subject worthy of analysis, as it could highlight how EU membership offers the UK distinct trade advantages.

Barnard & Peers: chapter 3; chapter 24