On September 12, 2011, the Council of the European Union issued a 20-page press release that provided updates on the 3109th Council meeting. On page 13, there was single sentence on EU trade policy:

The Council authorised the Commission, on behalf of the EU, to open negotiations on investment with Canada, India, and Singapore within the framework of the ongoing bilateral negotiations with these countries on trade liberalisation.

The Canada – EU trade negotiations had started several years earlier and the late addition of investment did not attract significant attention at the time (the major focus was on the divide over intellectual property and procurement issues). Yet months after Canada and the EU announced that they had reached agreement on CETA, it is the investment provisions, particularly the investor-state dispute settlement (ISDS) rules, that could seemingly derail the entire agreement.

Reports out of Germany now indicate that it is not willing to sign CETA if it includes ISDS provisions. While both the Canadian government (which says negotiations continue) and the German government (which now says it will “meticulously” examine the agreement) have downplayed the report, the ISDS issue has clearly been brewing for months.

Canadian activists had flagged it weeks ago, noting the mounting opposition to ISDS rules in Germany arising as a result of 2012 claim by a Swedish company seeking billions in compensation for Germany’s decision to phase-out nuclear power. Moreover, the issue has taken hold throughout Europe with the growing realization that the CETA provisions are likely to be matched in the far larger U.S. – Europe Union agreement called the Transatlantic Trade and Investment Partnership (TTIP). The linkage of CETA and TTIP has been disastrous for Canadian officials who had hoped to conclude CETA before the U.S. deal captured the limelight.  Now that the two agreements are viewed as linked (the above photo is taken from German protests that explicitly combine CETA and TTIP), the Canadian deal may be held up by the controversy associated with TTIP alone.

While European opposition mounts, it is important to note that Canada was also delaying finalizing CETA due to ISDS concerns. In Canada’s case, the $500 million Eli Lilly lawsuit over Canadian patent law awoke the government to the enormous risk associated with ISDS provisions. Canada has a strong case in defending against the lawsuit, but the risk that one lawsuit could expand to others means that billions may be at stake.  That is why the Canadian government has been pushing for inclusion of the following clause in CETA to remove the risk of replicating the Eli Lilly lawsuit:

For greater certainty, this Article does not apply to a decision by a court, administrative tribunal, or other governmental intellectual property authority, limiting or creating an intellectual property right, except where the decision amounts to a denial of justice or an abuse of right.

The two sides of have yet to reach agreement on the issue, but given the opposition in Europe, the risk to Canada, and the mediocre Canadian track record on ISDS claims in NAFTA, it may be in everyone’s interest to go back to the drawing board on CETA by eliminating ISDS altogether.