CETA encourages health harmful companies to try to stop governments regulating to protect public health

Under CETA, foreign investors will be able to claim compensation if a government introduces public policy measures which frustrate their investment expectations. This includes health protection measures, as well as consumer rights, employee protections, safety standards and environmental rules.

Investment protection provisions have already been systematically exploited by companies acting against the public health interest
– for example, the numerous cases brought by tobacco companies with the intention of preventing, delaying or blocking public health legislation.

Lifesaving measures which can be affected by this clause include, among other initiatives, plain packaging of tobacco, minimum unit pricing of alcohol, food labelling, air pollution restrictions, legislation on chemical safety and rules on toxic materials in toys.

The agreement includes a proposal for an Investment Court System (ICS) intended to replace the old Investor-to-State Dispute Settlement (ISDS) system. The ICS proposal in CETA is insufficient to address public health concerns, as it represents only a partial reform and still contains fundamental flaws. A parallel investor court system is not necessary between the EU and Canada, as both are trading blocs with stable democracies, mature established Court systems and legislature.

There is no evidence that including investment protection measures in trade deals leads to increased foreign investment.

EU law and settled case-law of the Court of Justice of the European Union (CJEU) suggest that ICS in CETA may be incompatible with EU law because it would undermine the autonomy of the EU legal order and the powers of the EU courts in particular, and negatively affect the completion of the internal market. A legal briefing by ClientEarth sets out a short analysis of the legality under EU law of ICS in CETA and briefly outlines how the European Parliament should verify the legal concerns with the Court of Justice of the European Union.

Canada is the most sued nation in the North American Free Trade Agreement (NAFTA) which includes an Investor-to-State Dispute Settlement (ISDS) clause.

Canada has been sued 35 times in total (compared to Mexico with 22 and the U.S. with 20 cases), which accounts for 45% of investment arbitration. In those 35 cases, Canada has lost or settled 6 claims, and has paid over $170 million in damages. In addition, for the 29 cases that Canada won or did not settle, it is estimated that Canada has spent $65 million on legal defence.

Many of the legal challenges that Canada has faced under NAFTA have included investors’ objections to domestic legislation introduced by the Canadian government to enhance environmental protection. For example, in the Ethyl Corp (1997) case, the US challenged a Canadian ban on import and export of a gasoline additive and suspected neurotoxin. Canada chose to settle the case, offered $13 million in damages and consequently repealed the ban.

This shows how ISDS has weakened environmental and health protections and how it can dissuade governments from protecting the public interest and lead to ‘regulatory chill’.

The ICS mechanism proposed for CETA invites such cases and is expected to have a similarly chilling outcome..

“I am concerned that the ‘interpretative declaration’ attached to CETA has at best minimal legal force, quite similar to the confusing
value that preambles have previously been given in international treaties. I am afraid arbitrators would presumably view it not as  binding, but that it would only inform their interpretations. If the concerns in the declaration were shared by both the EU and Canada, I am wondering why they aren’t included in the main text.”
Nicolette Buttler
Lecturer of Law
University of Manchester