Multinationals will have wide-ranging powers to sue EU states that enact health or environmental laws breaching their "legitimate expectations" of profit, according to a leaked ‘investment chapter’ from the Canada-EU free trade agreement (CETA), which was signed last November. 

A separate ‘nature and scope’ document for EU-US free trade talks, which EurActiv has seen, makes clear that similar parameters are foreseen for a Transatlantic Trade and Investment Partnership (TTIP) agreement.

The CETA investment chapter proposes a definition of ‘fair and equitable treatment’ (FET) for investors which has sparked multi-million dollar lawsuits, such as one by Lone Pine challenging a shale drilling ban by the Canadian state of Quebec.

EU officials have reportedly not challenged the authenticity of the leaked document, which was published online by the Trade Justice Network, although they were unavailable for comment on the issue.

Pia Eberhardt, a spokeswoman for the Corporate Europe Observatory campaign group, told EurActiv that, as it stands, the text would “open the door to a flood of environmental and health lawsuits”.

“Canadian investors will be able to use the excessive corporate rights in CETA to sue European governments for millions of Euros in compensation for legislation to protect the public interest,” she said. “And US companies with a subsidiary in Canada will be able to do the same.”

Parallel provisions are flagged in the TTIP text, which is marked ‘EU Restricted’ and ‘Trade Sensitive’. It says that the trade deal will “aim at removing unnecessary obstacles to trade and investment, including existing NTBs (Non-Tariff Barriers).” Campaigners believe this to be code for environmental and health and safety regulations.

The text also cites “the right of investors to have recourse to the investor-state settlement mechanisms”. Under a ‘Scope’ sub-heading, it also calls for Most-Favoured Nation treatment and FET clauses to be enshrined in any agreement. 

CETA Alarm bells

This sets alarm bells ringing for the deal's opponents because the CETA text agreed by Canada’s prime minister, Stephen Harper, and the EU Commission president, José Manuel Barroso, allows FET violations to be triggered by changes to government policies or incentives enacted after the treaty’s signing.

Potentially, these could include events such as oil spills or environmental disasters caused by mining or drilling activities.   

Brussels had previously contended that the undisclosed CETA text contained a precise definition of ‘fair and equitable treatment’ that offered clear guidelines to tribunals and prevented broad interpretations of the law.

“The CETA reaffirms the right of the EU and Canada to regulate to pursue legitimate public policy objectives such as the protection of health, safety or the environment,” an EU note said.

But no such right is affirmed over the whole text, merely a sub-chapter of it that deals with expropriation. The treaty’s actual wording – after providing a detailed list of possible FET violations – says that a breach could also arise from any measure “contrary to the fair and equal treatment obligation recognized (sic) in the general practice of States accepted as law”.

The problem with this is that no one such obligation is accepted this way, according to Nathalie Bernasconi-Osterwalder, a senior international lawyer for the International Institute for Sustainable Development, a think-tank. As a result the EU’s note was “not accurate,” she told EurActiv.

“Lawyers have been expanding their practices in this area and an increasing number of investors will use this mechanism to challenge state measures and strengthen their bargaining power at the political level because that is what this is really all about,” she said.

Canada and the EU came to a good initial ‘closed list’ for defining FET violations, she continued, “but then they added a provision that says ‘by the way, everything beyond what is in the list and that amounts to violation under customary international law is also covered, so all the certainty provided at first was nullified.”

Discrepancies

When CETA was launched, John Clancy, the spokesman for the EU trade commissioner, Karel de Gucht, said that Ottawa and Brussels reaffirmed a strong commitment to environmental protection.

“Investment and trade should not develop at the expense of the environment, but rather foster mutual supportiveness between economic growth, social development, and environmental protection,” he averred.

But academic analysts cite several other discrepancies between the EU’s description of what the text was at that time, and the document that has emerged. These include:  

  • A ‘Most Favoured Nation’ clause that would allow foreign investors to invoke any rights given by any EU state under other investment treaties, so nullifying any new formulations, reforms or modernisations that may be proposed.
  • Provisions to allow the FET obligations to be reviewed and amended every year, and thus, in principle, preventing regulations from being ring-fenced indefinitely.
  • A “binding code of conduct for arbitrators” which the EU said had been included in the chapter will not be inserted for another two years, and may then be ignored in favour of International Bar Association guidelines not geared towards such disputes.  
  • The Commission’s note promises “full transparency” and “open meetings” by arbitrators but the text says these may be closed to protect the integrity of the arbitration process, confidential business information, or for “logistical reasons”.

Democratic decisions

Bernasconi-Osterwalder said that national regulators could claim that arbitration tribunals had greater competence over policy-making than national legislatures, raising wider philosophical questions.

“Environmental or health regulation should really be dealt with under the laws and constitutions of each of the democratic states,” she said. “It doesn’t make sense to outsource those decisions to three arbitrators that can take a wrong decision that cannot then be reviewed for legal correctness.”

In all, campaigners say that there have been 514 cases of corporations such as Philip Morris and Tecmed bringing cases against governments under investment treaties and investment chapters.

Canadian press reports suggest that a final treaty will be signed “in a question of weeks,” with only ‘technical negotiations’ still to be resolved. A text will then be produced by the summer’s end to be translated into the EU’s 23 languages.

Before becoming law, it will need to be approved by the European Parliament and the EU’s Council of Ministers.