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 concludedthe deal's investor-state dispute settlement mechanismis compatible with EU law.

Inhis opinion, Yves Bot saidatribunalcreated to arbitratetrade disputes under the agreement isnot 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 rulelater this year.

JorisLarik, 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-profileconstitutional 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 of2016, 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 systemthat would allow Canadian corporations to sue the European Union if their business interests were damaged by arbitrary government actions upsetcivil society groups, who voiced the fear that those protectionswould undermine individual countries' ability to regulate in areas like environmental and labour standards without fear of legal challenges.

The AG'sopinion is "certainly positive forCETA," Lariksaid. "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 clarifyingthe right of EUmember states to regulate in their own interests.

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

Much of Tuesday'slegal opinion is "EU inside baseball,"Lariksaid. 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 hesitantto 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 jurisdictionalquestionsemerged over the European Court of Human Rights, he noted.

The advocate general described TuesdayhowCETAoffers reciprocity to investors on both sides of the deal: the agreement's negotiators wanted additional protections for foreign investors, so theycreated a system to offer it toboth 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 investmentsmade between the two parties."

The tribunal's jurisdiction isnarrow applying onlywhen the deal has been breached and an investor requires compensation and Bot's opinion advised thatthe 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 wouldCanadian investorshave more rights than European investors in comparable situations. Tribunal findings could also beappealed, Bot noted.

Deal still precarious

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

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

The office of International Trade Diversification Minister Jim Carr said hecontinues 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, independentand 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 delayedCETA ratification votes in some member countries,although mounting populist opposition to trade deals like CETAmay also be afactor in placeslike France and Germany.

When the EU finalized a trade agreement with Japan last year, it split investment protectionsfrom other partsof the deal to avoid anotherjurisdictional battle similar to whaterupted over CETA.

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

"I know for the Canadians it's annoying this is taking so long, but for the Europeans it's almost an existential question," Lariksaid, adding thatit risks sending aterrible 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'ttoday."