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Europe-Canada trade deal’s investment court faces tough road, but ‘the mood is shifting’

By Peter Mazereeuw      

Most of the CETA will likely come into force within a few months, but not the much-discussed investment dispute provisions.

Prime Minister Justin Trudeau addresses the European Parliament in Strasbourg, France, last month. Adam Scotti photograph courtesy of the Prime Minister's Office
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The heavy lifting is done for proponents of the Europe-Canada trade deal, but the future of the investment protection system that fuelled the toughest opposition to the agreement remains up in the air.

Business leaders are also concerned about how the government will fill in the details of the agreement with regulations, particularly when it comes to pharmaceutical protections, said Jason Langrish, executive director of the Canada Europe Roundtable for Business.

The European Parliament passed the Comprehensive Economic and Trade Agreement last month, pushing the deal over the last major political hurdle to its realization. Canada’s Parliament is in the process of passing implementing legislation, in the form of Bill C-30, that will allow it to ratify the agreement. As of March 6, it was at second reading in the Senate, having passed third reading in the House last month.

Assuming the bill is approved in Canada’s Parliament, the two sides will exchange letters and agree upon a date shortly thereafter when the deal will be provisionally applied, meaning the majority of its terms—90 per cent or more—will go into effect. The provinces will also have to pass implementing legislation.

Jason Langrish is executive director of the Canada Europe Roundtable for Business. The Hill Times photograph by Sam Garcia

The investor state dispute settlement provision in the deal, which was refashioned by the two sides into an investment court system after the Trudeau Liberal government took power in Ottawa, is perhaps the most substantive and certainly the most controversial part of the agreement that will not go into effect provisionally.

The investment court was designed as a more institutional approach to investor-versus-state arbitration, a practice whereby panels of lawyers adjudicate lawsuits launched through international treaties when a company from one country feels the government of another country has treated it unfairly.

The court has been touted by both sides as a “progressive” solution to concerns that old-fashioned investor-state arbitration was not transparent, and infringed on the right of state governments to act in the best interest of their populations ahead of foreign companies. The proposed court is supposed to include a permanent roster of arbitrators who must follow a binding code of conduct, as well as an appeal mechanism, and remove the right of either party in a dispute to handpick who rules on their case.

The investment court and a few other parts of the CETA related to transportation and investment won’t become a reality until every member state in the EU ratifies the deal, and that’s where things get tricky.

‘Mood is shifting’

Latvia became the first EU country to ratify the agreement on Feb. 23, a vote attended by Trade Minister François-Philippe Champagne (Saint Maurice-Champlain, Que.). The remaining 27 member states won’t all agree on the trade deal, and the investment court in particular, so easily.

“Ratification would be a happier and more legally secure state of affairs, but with 28 member states with sometimes very divergent interests, it is becoming less likely,” said Markus Gehring, the deputy director of international economic law with the International Law Research Program of the Waterloo, Ont.-based Centre for International Governance Innovation.

Markus Gehring is the deputy director of international economic law with the International Law Research Program of the Centre for International Governance Innovation. Photograph courtesy of CIGI

Governments in Belgium and Austria, and politicians to the far left and right across the continent have expressed concern over the investment court. Elections this year could bring isolationist, far-right parties to power in France and the Netherlands. Politicians who do back the CETA may be less willing to expend political capital pushing for ratification, now that the business community will have access to most of the benefits of the agreement through provisional application, said Mr. Gehring.

However, “the mood is shifting” in Europe, as United States President Donald Trump’s actions draw a starker contrast in the minds of Europeans between the leadership in Canada and the United States, said Mr. Gehring. The CETA has been opposed by many in Europe who see it as a precursor to a similar agreement being negotiated with the United States, though a U.S.-EU deal now seems very unlikely.

“The prime minister of Canada is so popular in most European countries that I could see some countries just ratifying CETA because they like the current Canadian administration,” he said.

The deal must be ratified by all EU members for the investment court and remaining clauses to come into effect. If CETA-backers in Europe can’t secure unanimous support, the deal could stay in effect indefinitely, or the EU could come back to Canada and ask it to scrap those provisions entirely, keeping the 90-plus per cent of the deal that is exclusive jurisdiction of the pro-CETA EU and not its member states, said Mr. Langrish.

Drug makers watching closely

Brand-name pharmaceutical companies on both sides of the Atlantic are also concerned that federal regulations to implement the CETA could end dual litigation, a technical practice in which brand-name drug companies can use two legal processes at the same time to stop generic drug makers from producing a drug they believe to be protected by their patents, said Mr. Langrish.

Canada has a relatively large generic pharmaceutical manufacturing sector, as well as brand-name drug makers. Europe has a strong brand-name pharmaceutical sector eyeing better terms in the Canadian market.

A technical summary of negotiated outcomes for the CETA noted that the agreement “gives scope for Canada to end the practice of dual litigation,” and noted that litigation over pharmaceutical patents is “one of the largest draws on the federal court system.”

If dual litigation is eliminated, it would offset some of the gains brand-name companies won in the deal, particularly patent term restoration, which essentially extends the length of time a patent on a drug applies, said Mr. Langrish.

There are also concerns over how quickly EU regulators will green-light the standard practices of Canadian slaughterhouses, thereby allowing for easy export of beef to Europe, and generally that politicians or regulators could be tempted to erect non-tariff barriers in the process of implementing the agreement to preserve market share for local companies, he said. Increasing duty-free beef export quotas was one of Canada’s key demands in the talks, and it received a boost of thousands of tonnes.

Quotas “are only meaningful if you can use them,” he said.



What the CETA does:

-gets rid of about 99 per cent of tariffs, in most cases as soon as the deal comes into effect.

-includes a framework to approve the recognition of qualifications in regulated professions such as architects, accountants, and engineers. The relevant professional organizations in the EU and Canada would jointly work out the technical details.

-will make it easier for professionals to work on the other side of the Atlantic, and for firms to move staff temporarily between the EU and Canada.

-allows EU firms to bid to provide goods and services not only at the federal level but also to Canadian provinces and municipalities—the first non-Canadian firms to be able to do so. Canadian companies would likewise be able to bid on opportunities at all levels of the EU government procurement market.

-protects dozens of products from specific geographical regions, such as Roquefort cheese and balsamic vinegar from Modena, so similar products from other places cannot be called the same thing.

—Adapted from European Commission and Canadian government documents; compiled by Kristen Shane

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