Chrystia Freeland, Canada’s International Trade Minister, yesterday unveiled the final legal draft of the Canada – EU Trade Agreement. While CETA is still awaiting translation, Freeland indicated that she hopes the agreement will come into force in 2017.  The lengthy delay in arriving at a final legal draft arose from ongoing European opposition to investor-state dispute settlement provisions that many fear may limit governmental regulatory power and lead to expensive corporate lawsuits. The CETA text unveiled yesterday features some notable changes to the ISDS rules, with Canada largely acquiescing to European demands.

The ISDS changes raise in CETA at least two points that are relevant for TPP purposes. First, claims that completed trade agreements are non-negotiable and cannot be changed simply isn’t true. CETA was completed years ago, yet political demands for changes to the ISDS rules led all parties to go back to the bargaining table to work out a new system. While Freeland called the changes “modifications”, the reality is that a major aspect of the deal was re-worked in face of European protests. If elements of CETA can be reworked, there may be ways to re-do aspects of the TPP.

Second, CETA and the TPP are no longer consistent with respect to investor-state dispute settlement. The Trouble with the TPP series will spend the next several posts examining the ISDS issue, but for the moment it is notable that Freeland has characterized CETA as a “gold plated” trade deal, arguing that it best reflects Canadian interests. Moreover, TPP proponents have also welcomed the CETA changes, noting that the earlier version raised legitimacy concerns. For example, Lawrence Herman told the Globe and Mail:

I’ve thought for some time that it’s not acceptable for decisions on matters of national policy to be decided by ad hoc arbitrators, where there was no avenue of appeal.

There is room to debate whether the CETA model solves ISDS concerns (many groups argue it does not), but there is no doubt that the TPP ISDS rules fall well short of even the CETA standard. This raises an important question of how the Canadian government can support TPP ISDS rules when it is now on record as supporting significant changes to those rules in the CETA context.

For example, Article 8.9 of CETA now includes an explicit provision on government’s right to regulate that was not included in the initial consolidated text:

1.    For the purpose of this Chapter, the Parties reaffirm their right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity.
2.     For greater certainty, the mere fact that a Party regulates, including through a modification to its laws, in a manner which negatively affects an investment or interferes with an investor’s expectations, including its expectations of profits, does not amount to a breach of an obligation under this Section.

Freeland spoke in support of this provision, noting:

The core notion of having a dispute-resolution process is not to supersede that right to regulate – it is to ensure that governments don’t discriminate against foreign investors. That is the core idea behind trade deals.

Freeland added in another interview:

We strengthened the right of governments to regulate. This is something that I am very proud and pleased to do. The sovereignty of democratically-elected governments to regulate, including in essential areas like the environment and labour, is very important. And we know it’s something that Canadians believe, as they should, and something that Europeans believe in too.

The problem is that the TPP does not meet the standard Freeland has set in CETA. Article 9.15 of the TPP contains a much narrower provision:

Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health or other regulatory objectives.

The CETA provision identifies a far broader range of policy objectives than the TPP and clarifies that modification of laws is not a breach of an obligation. Conversely, the TPP is limited to measures “otherwise consistent with this Chapter” which, as one study notes:

That article provides no real protection. Rather, it simply notes that the government can regulate in the public interest as long as, when doing so, the government complies with the Investment Chapter’s requirements regarding treatment of foreign investors and investments. The words, “otherwise consistent with this Chapter,” thus negate any protections otherwise purported to be given under that article.

The TPP creates a real risk of limiting countries’ ability to regulate in their own national interest without facing the risk of multi-million or billion dollar lawsuits. The Canadian government has now endorsed an approach in CETA that tries to limit that risk, but faces the same problem in the TPP.

CETA also establishes an appeal system within the ISDS rules, something Herman points to with approval. The appellate tribunal starts with CETA but there is a provision (Article 8.29) that promises to pursue a multilateral appellate tribunal. By contrast, the TPP does not contain an appeal mechanism. At best, Article 9.22 (11) states that in the event that an appellate mechanism is developed in the future, Parties “shall consider” whether TPP awards will even be subject to that mechanism.

There are many other TPP ISDS shortcomings that will be examined over the next few days.  However, the new ISDS system in CETA along with the government’s clear endorsement of that approach sends an unmistakable signal about its views on the appropriate mechanism to resolving investor disputes and the need to preserve the right to regulate, to create appellate mechanisms, and to institute provisions that better guarantee fairness. The Trouble with the TPP is that it does not come close to meeting the standard that the Canadian government itself has now set for resolving investor disputes.

(prior posts in the series include Day 1: US Blocks Balancing Provisions, Day 2: Locking in Digital Locks, Day 3: Copyright Term Extension, Day 4: Copyright Notice and Takedown Rules, Day 5: Rights Holders “Shall” vs. Users “May”, Day 6: Price of Entry, Day 7: Patent Term Extensions, Day 8: Locking in Biologics Protection, Day 9: Limits on Medical Devices and Pharma Data Collection, Day 10: Criminalization of Trade Secret Law, Day 11: Weak Privacy Standards, Day 12: Restrictions on Data Localization Requirements, Day 13: Ban on Data Transfer Restrictions, Day 14: No U.S. Assurances for Canada on Privacy, Day 15: Weak Anti-Spam Law Standards, Day 16: Intervening in Internet Governance, Day 17: Weak E-commerce Rules, Day 18: Failure to Protect Canadian Cultural Policy, Day 19: No Canadian Side Agreement to Advance Tech Sector, Day 20: Unenforceable Net Neutrality Rules, Day 21: U.S. Requires Canadian Anti-Counterfeiting Report Card, Day 22: Expanding Border Measures Without Court Oversight, Day 23: On Signing Day, What Comes Next?, Day 24: Missing Balance on IP Border Measures, Day 25: The Treaties With the Treaty, Day 26: Why It Limits Canadian Cultural Policies, Day 27: Source Code Disclosure Confusion, Day 28: Privacy Risks from Source Code Rules, Day 29: Cultural Policy Innovation Uncertainty, Day 30: Losing Our Way on Geographical Indications, Day 31: Canadian Trademark Law Overhaul, Day 32: Illusory Safeguards Against Encryption Backdoors, Day 33: Setting the Rules for a Future Pharmacare Program, Day 34: PMO Was Advised Canada at a Negotiating Disadvantage, Day 35: Gambling With Provincial Regulation, Day 36: Why the TPP Could Restrict Uber Regulation, Day 37: Breaking Digital Locks for Personal Purposes, Day 38: Limits on Canadian Digital Lock Safeguards, Day 39: Quiet Expansion of Criminal Copyright Provisions, Day 40: Mobile Roaming Promises Unfulfilled)