Free trade agreements increase opportunities in the global market for a number of countries. The Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union provides increased access for both parties in each other’s markets. Although the agreement was signed in 2013 and is expected to go into effect in 2018, one issue has made it more difficult for ratification in the EU–investor state dispute settlement (ISDS).
Two economically large EU members, France and Germany, are holding back approval for CETA unless the ISDS is altered. ISDS allows foreign investors to sue countries in which they conduct business if they can prove that free trade agreement (FTA) rules are not being adhered to. Foreign trade officials from France and Germany worry that ISDS gives large multinational corporations excessive power, which they may use to “attack states…over their public policy choices.” If the proposed changes are enacted, states will have an increased ability to handle ambiguous situations as they arise.
The creation of an international court expressly in place to handle matters pertaining to free trade deals has also been proposed. The primary argument used in favor of implementing an “International Investment Court,” as opposed to relying on the WTO dispute settlement mechanism, is that it would employ permanent judges instead of arbitrators. Proponents claim this to be “a recognised prerequisite for judicial independence.”
The final outcome of CETA and the proposed changes to ISDS will be monitored closely by U.S. foreign trade officials and multinational firms. What happens with CETA will influence the Transatlantic Trade and Investment Partnership (TTIP) agreement that is being negotiated between the United States and the European Union. In terms of TTIP, some EU members are concerned that powerful American corporations will have too much legal power under current ISDS provisions. Before TTIP is finalized, changes to ISDS embedded in the agreement are almost a given. Since CETA is ahead of TTIP, it will set a precedent which could very well provide a framework for TTIP.
The current plan is for the agreement to come into effect in 2018. So, there is time to sort out the ISDS issue. There is still optimism on both sides that CETA will be ratified this year. It is clear that both Canada and the EU stand to benefit from CETA. What happens with CETA will be a good proxy for TTIP. Many parties will be watching to see if Canada and the EU are able to find a mutually agreed upon solution to the question of ISDS.
Shaun Sarwar completed a Bachelor of Arts from the University of Alberta, majoring in economics and minoring in English. He is currently in the UCLA Extension International Trade and Commerce program and an intern with the Global Research Institute of International Trade (GRIIT).
For earlier posts on CETA, please click on the following links below:
Canada-EU Comprehensive Economic and Trade Agreement: A Summary – http://internationaltradeexaminer.com/2013/04/17/canada-european-union-comprehensive-economic-and-trade-agreement-a-summary/