March 14, 2016

CETA: Who pulled the plug on the right to regulate?

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The European Commission published the text of the draft EU-Canada trade agreement (CETA), which includes an investor-to state dispute settlement (ISDS) section.

According to an Inside U.S. Trade’s World Trade Online article Canada succeeded in “changing the language from the EU’s TTIP proposal in a way that sources on both sides of the debate agreed would provide less protection for governments against challenges by investors.”

The article reports that U.S. Chamber of Commerce’s Sean Heather argued that the CETA changes to the right to regulate show that the Canadian government rejected the EU’s previous approach.

However, an alternative explanation is possible. A few weeks earlier the commission published the text of the EU-Vietnam agreement. It contains the same formulation as found in CETA. So it may be the commission changed the text itself, after strong opposition from Heather and other U.S. business representatives.

The right to regulate formulation was already very weak. The TTIP proposal did not effectively protect against unlimited backward looking damages including expected profits and interests. [1] But even a broken right to regulate was unacceptable for U.S. companies. For the draft agreements with Vietnam and Canada the commission proposed or accepted vacating the clause.

Only reaffirm, not create

CETA draft article 8.9 (1), page 47: “For the purpose of this Chapter, the Parties reaffirm their right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity.” (emphasis added)

Similar: EU-Vietnam, Chapter 8, article 13 bis (1), page 12, published 1 February 2016. [2]

Compare with TTIP proposal, article 2 (1), page 3: “The provisions of this section shall not affect the right of the Parties to regulate within their territories through measures necessary to achieve legitimate policy objectives, such as the protection of public health, safety, environment or public morals, social or consumer protection or promotion and protection of cultural diversity.” (emphasis added)

Euthanasia during a legal scrub

Cato’s Simon Lester notes in the Inside U.S. Trade article that the new text does not create any new right to regulate because it is now just “reaffirming” a right that is assumed to already exist.

Someone pulled the plug on the right to regulate. Euthanasia during a legal scrub.

Back at square one

According to Germany’s largest association of judges and public prosecutors (original in German), and the European association of judges, the arbitrators would not be independent. And now the right to regulate is exit again. The commission wants to vastly expand [3] and lock in [4] this broken system. We are back at square one: ISDS is a threat to democracy and the rule of law.

Notes

[1] See Van Harten, page 4 ; S2B ; FFII (1)

[2] See, generally, FFII (2)

[3] The zombie ISDS – Rebranded as ICS, rights for corporations to sue states refuse to die, page 19

[4] We can not expect the EU to withdraw from trade agreements.