Comment: Why investment agreements like Ceta are worth pursuing for the EU
EU investors are at greater risk in third countries, so the rationale for making investment protection a pillar of our trade policy is clear
Dr Oisín Suttle’s comment of January 20 acknowledges that Ceta, the EU-Canada trade deal, contains exemplary investment protection provisions. Nonetheless he asserts that it provides no benefits “for us or anyone else” and should be rejected when it comes for ratification before Dáil Éireann.
This response focuses on the benefits of investment protection in agreements like Ceta and whether they are worth pursuing for the EU, before turning to general criticisms of Ceta’s investment provisions.
Who benefits from investment agreements?
While there are qualitative and quantitative studies showing that investment agreements attract investment, this is not the EU’s primary purpose. The EU concludes these agreements because it wants to protect EU investments in third countries. As acknowledged by the European Court of Human Rights, non-nationals are more vulnerable to legislation than their domestic counterparts. EU investments are at far greater risk of expropriation, discrimination and not receiving due process than third-country investors are of receiving such treatment in the EU.
This is reflected in the number of cases in which EU countries and their investors have been claimants and respondents. According to the United Nations Conference on Trade and Development (UNCTAD), by 2020, Germany, France and Italy, the EU’s three largest economies, had been sued 16 times while their investors had initiated 159 cases under investment agreements. Dutch investors have taken 111 cases, while no case has been taken against the Dutch government.
We live in times of rising protectionism and the rule of law is backsliding. A climate in which basic investment protections are observed would be advantageous both to the EU and to Ireland. If it is accepted that EU investors are at greater risk in third countries, then the rationale for making investment protection a pillar of the EU’s trade and investment policy is clear.
Investment agreements, including Ceta, provide very specific protections for investors against certain excesses of government; the type that occurs in times of economic hardship, such as may be anticipated as governments struggle in the face of a global pandemic entering its second year.
Since 2016 we have seen how ably EU negotiators pursue our economic interests. They believe investment agreements deliver concrete benefits to the EU, and I share this view where protections like those of Ceta can be agreed. If this agreement is not ratified, several EU member states already have bilateral investment agreements with Canada (albeit they lack the nuance of Ceta) and it is the investors of states like Ireland that will be at risk.
It appears that EU member states face a choice between pursuing a common investment policy or 27 different ones.
Dr Suttle acknowledges that Ceta provides clearly defined rights for investors that are balanced against an unambiguous recognition of the state’s right to regulate. Nevertheless, he sees Ceta as being only “marginally less harmful” than other investment agreements. The following section considers general criticisms of the investment protection provisions of Ceta that have been features of its coverage elsewhere in recent months.
Firstly, it has been reported that investors can sue states if they take decisions that have a detrimental effect on a company’s profits. It is not possible to sue merely for lost profits; tribunals only consider profits when calculating an investment’s value at the damages stage.
Secondly, it has been claimed that investors can sue where the minimum wage is raised. The origin of this is a case concerning a contractual dispute between a French investor and Egypt. The French investor sought compensation for its increased costs in executing a 15-year contract but lost. Such a dispute could not be brought under EU agreements as contracts entered into by investors are not brought under the protection of these agreements.
Other criticisms focus on the core protections provided by Ceta against expropriation, discrimination and not receiving fair treatment. Protecting investors against discrimination is as uncontroversial in investment law as it is in trade law. Some academics believe that agreements like Ceta should limit themselves to preventing discrimination but there are arguments that they should go further.
While expropriation and the obligation to provide fair and equitable treatment have proven controversial, it is worth recalling that these standards reflect customary international law to which states are subject in these areas, although Ceta extends the possibility to investors to enforce these obligations. Ceta clarifies what fair and equitable treatment means (Article 8.10): this standard is breached where a government acts in a way that is manifestly arbitrary, denies justice, breaches due process, coerces an investor, or discriminates against them on the basis of race, gender or religion.
Concerning expropriation, probably the most controversial investment cases involved such claims by cigarette manufacturer Philip Morris. It claimed that the plain packaging laws for Uruguayan cigarettes violated its intellectual property rights. The applicable treaty contained no express exceptions for public health measures or acknowledgement of the state’s right to regulate, but Philip Morris still lost (a similar Australian case was lost on jurisdictional grounds).
Ceta clarifies that measures designed and applied to protect legitimate public welfare objectives do not constitute indirect expropriations (the type claimed by Philip Morris) except where they discriminate or their impact is so severe as to appear manifestly excessive.
The risk that EU member states may be sued for expropriation has to be balanced against the risks faced by European investors operating outside the EU and the benefits of governments committing not to breach such standards.
Dr Niall Moran is a lecturer in Law at Middlesex University in London, where he specialises in international economic law. He has taught international investment law at Université Toulouse 1 Capitole since 2015. He has previously worked on trade negotiations at the European Commission