Waving EU flags in front of European Commission in Brussels

The Comprehensive Economic and Trade Agreement (‘CETA’) between the European Union and Canada was signed October 30, 2016. The deepening of Canadian and European trade is likely to be significant in the wake of Brexit and the uncertain future of American trade policy.

The Investment Court System (‘ICS’) of CETA has been hotly debated, and in 2016 threatened to derail the entire agreement when the local Parliament of Wallonia, Belgium initially vetoed the agreement. The ICS will effectively replace the investor-state arbitration provisions in the 8 existing bilateral investment agreements between EU Member States and Canada. The ICS is described in the Joint Interpretive Instrument on CETA between Canada and the EU as “an important and radical change in investment rules and dispute resolution.”[1]

Highlights of the ICS include:

A permanent investment court

CETA creates an independent permanent tribunal that will conduct dispute settlement proceedings. Rather than ad hoc arbitrators, a pool of 15 arbitrators will be appointed by a joint committee with Canadian and EU representatives. Each arbitrator will serve five to ten year terms, and the pool will have five Canadian judges, five European judges and five judges from other countries. This joint committee may appoint former national judges or “jurists of recognised competence” provided that they have international investment and trade experience.

An appeal mechanism

The ICS will include an appeal mechanism, giving the tribunal appellate jurisdiction over (a) errors in the application or interpretation of applicable law; (b) manifest errors in the appreciation of the facts, including the appreciation of relevant domestic law; and (c) the grounds set out in Article 52(1) of the ICSID Convention, such as the presence of corruption or a serious departure from the fundamental rules of procedure.

The losing party pays costs

The ICS employs a loser pays’ costs regime whereby the successful party is entitled to recover its full costs, unless – in exceptional circumstances – the tribunal considers it appropriate to apportion costs between the parties.

Fast track rejection of unfounded claims

Under CETA a party may seek to preliminarily dismiss a claim on the grounds that it is unfounded or frivolous.

Transparency / No Confidentiality

CETA provides that submissions by the parties and decisions of the tribunal will be publicly available. All hearings will be open to the public, and all interested parties, including non-governmental organizations and trade unions, will be able to make submissions relating to disputes. However, information can potentially be withheld in cases of business secrets and information considered confidential under the national laws of the responding state.

Substantive Guarantees

CETA includes a specific right of the state to regulate and aims to incorporate precise language with respect to investment protection standards. For example, the standard of ‘fair and equitable treatment’ is limited to a list of the elements that could give rise to a violation of the standard. The concept of ‘legitimate expectations’ is limited to situations where a specific promise or representation is made by the state. The standard of ‘indirect expropriation’ incorporates detailed language setting out legitimate public policy measures, and requiring an investor to prove substantial deprivation of its investment.

What’s Next?

CETA must be approved by each of the members of the European Parliament and Council before it can fully come into effect. However, during the ratification process, the majority of CETA — although not the ICS — will come into provisional effect. It is likely that provisional implementation of CETA will start in spring 2017. In November 2016, a request to refer CETA to the European Court of Justice for an opinion on the investment protection provisions was defeated by 419 votes to 258 (with 22 abstentions) in the European Parliament. On January 24, 2017 the International Trade Committee of the European Parliament approved CETA. The European Parliament’s plenary vote is expected on February 15, and will then be voted on by the Council of Ministers before being applied provisionally. In Canada, CETA must be ratified by an Order in Council authorizing the Minister of Foreign Affairs to sign an instrument of ratification and then be implemented by domestic enabling legislation.

[1] Government of Canada, “Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada & the European Union and its Member States,” Section 6(i), accessed online: <http://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/jii-iic.aspx?lang=eng>.

Previous articleFirst Time PRC Court Recognizes a Foreign Judgment Based on Principle of Reciprocity
Next articleNAFTA in Play: Investors’ Arbitration Rights