CETA's investor protections compatible with EU law, legal opinion finds

Canada's trade deal with the European Union dodged another bullet Tuesday when the advocate general for the EU's Court of Justice released legal advice that concluded the deal's investor-state dispute settlement mechanism is compatible with EU law.

In his opinion, Yves Bot said a tribunal created to arbitrate trade disputes under the agreement is not a threat to the autonomy of EU law or to the European Court of Justice's jurisdiction to interpret it.

The advocate general's legal opinion is not binding on the Court of Justice, which is expected to rule later this year.

Joris Larik, a professor of comparative, EU and international law at Leiden University College in The Hague, Netherlands, said he expects the court's final decision in four or five months.

"In many cases, the court follows the advocate general," he said. "In high-profile constitutional cases, it might not."

When the Belgian state of Wallonia raised 11th-hour objections to the signing of the Comprehensive Economic and Trade Agreement (CETA) in the fall of 2016, a compromise was reached that required Belgium's federal government to refer a jurisdictional controversy over some of the deal's investment and financial services clauses to the EU's top court.

The investor protections included in the agreement — including an investor-state dispute settlement system that would allow Canadian corporations to sue the European Union if their business interests were damaged by arbitrary government actions — upset civil society groups, who voiced the fear that those protections would undermine individual countries' ability to regulate in areas like environmental and labour standards without fear of legal challenges.

The AG's opinion is "certainly positive for CETA," Larik said. "It's good news ... because all the objections that were raised in this request, he rejects them."

Investor protections not in effect

Last-minute bargaining between Canada and the EU in 2016 resulted in additional language clarifying the right of EU member states to regulate in their own interests.

But in light of Belgium's court referral, a small number of significant measures from CETA's investment chapter were not applied provisionally when the rest of the deal took effect in the fall of 2017.

Much of Tuesday's legal opinion is "EU inside baseball," Larik said. Canadians may wonder why it's so hard to bring CETA fully into force, he said, but it's not Canada's fault that the EU's legal system is complex.

Europe believes in multilateralism and the rules-based international order, he said, but it's hesitant to delegate its authority and it can be hostile to international courts that might interfere in its sovereignty.

The "bone of contention" in this case, he said, is investment protection — but similar jurisdictional questions emerged over the European Court of Human Rights, he noted.

The advocate general described Tuesday how CETA offers reciprocity to investors on both sides of the deal: the agreement's negotiators wanted additional protections for foreign investors, so they created a system to offer it to both sides.

"Without preaching to or making groundless accusations about the commercial partners of the European Union, it cannot however be taken for granted that, in the third states with which the European Union wishes to develop relations in terms of investment, EU investors will enjoy an equivalent level of protection from a substantive and procedural point of view," the legal opinion states in a key paragraph.

"It is for this reason that the European Union must, in order to conduct its commercial policy, negotiate with such third states, on a reciprocal basis, substantive and procedural rules on the protection of the investments made between the two parties."

The tribunal's jurisdiction is narrow — applying only when the deal has been breached and an investor requires compensation — and Bot's opinion advised that the tribunal would not have the power to undo a law or regulation, nor would it impose a binding legal interpretation on the EU beyond the facts of the specific compensation case it considered.

The powers of local or national courts are not diminished, the opinion suggested. Nor would Canadian investors have more rights than European investors in comparable situations. Tribunal findings could also be appealed, Bot noted.

Deal still precarious

Larik said he thinks the advocate general's opinion is politically-aware: it takes the criticisms of CETA's dispute settlement provisions on board, explaining how they either don't apply or were addressed by changes made before CETA's signature.

Canada and other like-minded countries are working with the European Union on a new investor court model to address longstanding concerns with existing investor-state dispute settlement panels, such as those that arbitrate disputes under Chapter 11 of the original North American Free Trade Agreement.

The office of International Trade Diversification Minister Jim Carr said he continues to follow this case closely and welcomes this "positive opinion" from the advocate general.

"This agreement contains critical progressive investment provisions — including strengthening the right to regulate to achieve legitimate public policy objectives," the office said in a statement sent to CBC News on Wednesday. "CETA's dispute settlement system is more transparent, independent and impartial."

While 13 of the 28 member states — including the soon-to-be exiting United Kingdom — have formally approved CETA, the majority of the EU's members have not held ratification votes.

Uncertainty surrounding the jurisdictional questions at the heart of this case may have delayed CETA ratification votes in some member countries, although mounting populist opposition to trade deals like CETA may also be a factor in places like France and Germany.

When the EU finalized a trade agreement with Japan last year, it split investment protections from other parts of the deal to avoid another jurisdictional battle similar to what erupted over CETA.

Reopening CETA's text to split off its investment provisions could be a slippery slope: there may be pressure to renegotiate more chapters in light of the U.K.'s pending departure, for example. If provisional application of the current deal ends, its market access provisions and tariff cuts are at risk.

"I know for the Canadians it's annoying this is taking so long, but for the Europeans it's almost an existential question," Larik said, adding that it risks sending a terrible signal to the rest of the world that the EU can't successfully sign and implement treaties.

"There's so many things that could go wrong still," he said. "We're almost holding our breath every time. Is this the end of CETA? Might it all go down the drain because of this? At least it wasn't today."