During the last weeks, we are witnessing a kind of misrepresentation of some parts of the free trade and economic agreement between Canada and the European Union (CETA). It is important to have a clear understanding of what has been negotiated between both parties about the most controversial provisions, those related with investments and investment dispute settlement.
But first, let’s take an overview of the global process under which CETA is only another milestone.
The European Union is immersed in a long-time project of deepening economic and trade links with its main commercial partners, which encompass more than one hundred countries, including commercial blocs such as ASEAN. For example, and just to name a few, agreements exist with South Korea, Mexico and Singapore, and other agreements are under negotiation with Japan and the United States.
This process of globalization, in its current framework, started to take shape in 1944, with the creation of the International Monetary Fund, the World Bank, and the signing of the General Agreement on Tariffs and Trade, so it is not appropriate to blame the CETA for the effects of the globalization.
From the Canadian point of view, CETA seems to have sense only if the United Kingdom stays at the EU, since more than 40% of its exports to Europe are destined to that country. Moreover, many commentators in Canada opposed CETA arguing that it will keep Canadian economy based in commodities, while high technology will step away. They based their arguments in NAFTA, the trade agreement with the USA and Mexico, where a binding clause obliges Canada to preserve some of its oil production for the US market. Many also argue that trade deals are not effective, since exports do not significantly increase after its signing.
CETA is organized in thirty chapters. Each one covers a specific theme that, in some cases, is developed and detailed in the annexes. From chapter two to chapter six the agreement deals with the reduction of tariffs and trade facilitation. This topic, however, is already in the agenda of the World Trade Organization and is also pursued by most of the countries of the world, so CETA is an aligned effort by Canada and the European Union in deepening their commercial links.
Chapter eight has aroused large preoccupation among the general public both in Canada and in Europe. This chapter treats investments and the investment dispute settlement mechanism.
Investment provisions are subject to the right of the governments of Canada and European Union members States to regulate and to pursue legitimate policy objectives, such as public health, safety, environment, consumer protection and protection of cultural diversity. This stipulation acts as a guiding principle to the investment dispute settlement tribunal for the interpretation of the investment chapter, which means that, contrary to many opinions, CETA will not allow companies to bring governments to the tribunal when they lose profits or when parliaments pass regulations not directly beneficial for them.
On the other hand, CETA stablishes when a company can initiate a proceeding against a state, which again, contrary to some reasoning, it only can occur when the government breaches some of these principles: 1) non-discrimination, 2) expropriation only for a public purpose and against adequate compensation and 3) fair and equitable treatment that has caused damage to a specific investor. Only in these cases an investor can pursue protection of its investment, but never when an action taken by a government has an impact in an investor’s profits.
It is important to clarify here that a breach of fair and equitable treatment only occurs under the following situations:
The explicit specification of fair and equitable treatment with these five points is a headway regarding other agreements where fair and equitable treatment is not detailed, which is left therefore subject to court interpretation. Moreover, CETA does not allow to an investor to make an investment or to re-organize its business just to bring about a case against a state.
In addition, only investors with real business operations in their countries qualify as investor in order to be protected by CETA provisions, which avoid claims from the so called “shell” or “mailbox” companies.
Another advancement of CETA relates with transparency during proceedings. Documents submitted by the parties will be publicly available on an United Nations website which the EU will finance. All hearings will be open to the public, which permit interested parties, such as NGO’s and trade unions to make submissions in those processes.
In conclusion, CETA will make clearer and more predictable the decisions taken by investors of both sides of the Atlantic, which in turn will facilitate trade and investment relations that already exist. Public concerns are legitimate and Canadian and European standards must be maintained, but the best alternative for workers, consumers and general public is to grasp the significance of the deal and to tap into its opportunities, so all its benefits can be translated into more jobs and general wellbeing.
Emilio Laguillo, Business Partner, How2Go US
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