Comment: Domestic law makers far better placed than CETA’s investment courts to judge policy choices

Contracting states, not corporations, must decide whether a violation is sufficiently significant to merit a complaint

26th February, 2021
Comment: Domestic law makers far better placed than CETA’s investment courts to judge policy choices
The Comprehensive Economic and Trade Agreement (Ceta) is a free-trade agreement between Canada and the EU. Picture: Getty

Advocates of investor-state dispute settlement (ISDS), and the proposed Investment Court System (ICS) in particular, are eager to characterise it as simply a tool for interpreting and giving effect to the obligations in a treaty, in this case the EU Canada Comprehensive Economic and Trade Agreement (Ceta). In the Irish Times’s editorial view: “ICS critics must explain how they would instead structure what is indispensable to any treaty – a mechanism for its interpretation.”

Yet far from being an obvious or common-sense mechanism for doing this, ISDS/ICS is an outlier among international legal mechanisms, and in many ways the least attractive of the options available. (Putting the question in this way also assumes that the relevant substantive protections for investors are ones we should endorse. Many critics of ISDS/ICS would robustly dispute that.)

Far from being indispensable, many treaties – including many of the most important globally and for Ireland in particular – have no judicial mechanism for third-party dispute resolution or legal interpretation.

The Paris Agreement on Climate Change relies on an expert committee that is “facilitative . . . transparent, non-adversarial and non-punitive”. There is no international court overseeing the Good Friday Agreement. And while the United Nations has a court, its jurisdiction in disputes is limited to states that have voluntarily submitted to it (the majority have not done so).

Where treaties do provide for legal or quasi-legal dispute settlement, this is usually through inter-state mechanisms. One government complains to the other government that its rights, and the rights of its nationals, are not being respected. If they can’t settle the matter between them then an independent tribunal makes a determination.

This is the near-universal approach for trade agreements, whether multilateral (the World Trade Organisation) or bilateral. It is the approach adopted in the trade chapters of Ceta and in the investment chapters of other recent EU agreements, including those with China and Japan. It is for the contracting states, not corporations, to decide whether a treaty violation is sufficiently significant to merit a complaint, and to weigh the various other political, social and ethical concerns that might be relevant.

Inter-state mechanisms are also typically forward-looking in their remedies. Where compensation is provided for, it only arises where a state remains in violation following a decision in dispute settlement, and it takes the form of a prospective rebalancing of commitments rather than monetary payments.

The goal is to promote compliance with the agreement going forward, not to award damages for breaches in the past. This minimises concerns for regulatory chill, whereby governments are deterred from adopting policies because of the risk of future litigation and large pay-outs. If you are found to have breached a WTO obligation (or a trade obligation in Ceta), you have “a reasonable period of time” to fix this without suffering any penalty. Breach an obligation to an investor, by contrast, and you will be writing a (potentially very large) cheque.

A cursory review of the text of Ceta provides various other examples of mechanisms for interpretation and enforcement. Supporters of the agreement highlight the inclusion of specific labour and environmental provisions. These do not give workers, trade unions or environmental groups a right to sue for breach, however, in the way investors can. Nor are they even subject to the standard state-to-state compliance mechanism governing the trade provisions. At worst, a breach of the labour and environmental chapters will lead to a report by a Panel of Experts, which the parties should “take into account” in deciding what (if anything) to do about it.

These remedies for labour and environmental breaches are remarkably weak when contrasted with the judicial protections for investment. This highlights the need to look beyond whether particular concerns are acknowledged in the agreement, to ask how they are protected and balanced.

Ceta acknowledges states’ right to regulate, and to pursue diverse environmental, health and social goals, but those rights were never in dispute. What matters is how the pursuit of those goals is balanced against other concerns – in this case the rights of investors. The WTO Agreements recognise states’ right to regulate in pursuit of diverse public policies. Nonetheless, violations have been found in cases involving, among others, state action to: protect dolphins, seals and endangered sea-turtles; promote safe food and clean air; ensure access to cheap generic pharmaceuticals once patents expired; and promote renewable power generation. What matters is not whether states are entitled to pursue these goals. What matters is how far an agreement constrains their options in doing so.

Simply saying “this is an environmental or health or social policy” will never be a get-out-of-jail-free card. There is always a balance to be struck. We need a very good reason to accept that investment arbitrators, now elevated to the status of Investment Court adjudicators, are better placed than domestic courts or (better yet) democratically accountable parliaments to make these judgements. Ceta’s proponents have come nowhere close to providing that.

Dr Oisin Suttle is Assistant Professor of Law at Maynooth University and the author of Distributive Justice and World Trade Law (2018, Cambridge University Press)

Dr John Reynolds is Associate Professor of Law at Maynooth University and the author of Empire, Emergency and International Law (2017, Cambridge University Press)

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