Europaudvalget 2016-17
B 74 Bilag 14
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First published by the Centre for International Governance Innovation (CIGI) and available at:
https://www.cigionline.org/publications/isds-revised-ceta-positive-steps-it-gold-standard
ISDS in the Revised CETA:
Positive Steps, But Is It the “Gold Standard”?
Gus Van Harten
Professor of Law
Osgoode Hall Law School
York University
May 2016
Canada and the European Union released a revised Comprehensive Economic and
Trade Agreement (CETA) in February 2016.
1
The revisions focus on the controversial
and deeply flawed process of investor-state dispute settlement (ISDS). European and
Canadian officials now describe CETA as the “gold standard.”
2
What would be a gold standard approach to the final adjudication of disputes that affect
foreign investors, countries and their people? I suggest four internal criteria, each
addressing a distinct flaw in conventional ISDS. Two criteria are related to process:
ISDS should be
independent
and
fair,
in the manner of domestic and international
courts. Two are more substantive: ISDS should be
balanced
in its allocation rights and
responsibilities and
respectful
of the role of domestic institutions.
Independence
In the revised CETA, partial but significant steps have been taken to address the lack of
judicial independence in ISDS.
3
ISDS adjudicators will be part of a roster and have a
greater degree of security of tenure. There will be more public accountability in their
initial appointment and they will be assigned to cases in an objective way. Adjudicators
will not be able to work concurrently as counsel in other cases — although, remarkably,
CETA would permit ISDS adjudicators to work on the side as ISDS arbitrators.
4
This last
aspect of the revised text, along with CETA’s language on the expertise of ISDS
adjudicators,
5
suggests a way has been cleared for the same clubby crowd of investor-
friendly arbitrators to dominate ISDS under CETA.
More fundamentally, CETA continues to rely on the for-profit non-judicial model of
ISDS adjudication. This model is unsuited to the resolution of foreign investor
challenges to the laws, regulations and policies of countries and claims for potentially
vast amounts of public compensation. Where one side only (the foreign investors) can
bring the claims allowing for lucrative remuneration of the adjudicators, as under CETA,
Comprehensive Economic and Trade Agreement
text, released 29 February 2016, online:
<http://trade.ec.europa.eu/doclib/docs/2016/february/tradoc_154329.pdf> [CETA].
2
e.g. Global Affairs Canada, “Joint statement by European Commissioner for Trade and
Canada’s Minister of International Trade on Canada-EU trade agreement”, Press release (29
February 2016), online:
http://news.gc.ca/web/article-en.do?nid=1036759.
3
CETA,
supra
note 1, art 8.27.
4
Ibid, art 8.30(1).
5
Ibid, art 8.27(4).
1
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 B 74 - 2016-17 - Bilag 14: Henvendelse af 8/5-17 fra NOAH vedr. CETA
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First published by the Centre for International Governance Innovation (CIGI) and available at:
https://www.cigionline.org/publications/isds-revised-ceta-positive-steps-it-gold-standard
the process is open to reasonable perceptions of bias, which taint all ISDS decision-
making outcomes.
Fairness
Besides the unfairness of a process controlled by adjudicators who are financially
dependent on claimants, ISDS is also fundamentally unfair because it does not allow
standing for all parties whose rights or interests are affected by the adjudication. In
ISDS, only the claimant investor and respondent (usually national) government of the
country are allowed standing; CETA does not alter this exclusive arrangement. A clause
that went some way to addressing this flaw in the European Union’s ISDS proposals of
November 2015
6
was evidently dropped from CETA.
Thus, the revised CETA has improved but not repaired the lack of independence in ISDS
and has omitted a partial fix to the lack of procedural fairness. CETA does not satisfy
basic conditions for judicial proceedings and so does not represent a gold standard.
Balance in the Allocation of Rights and Responsibilities
Moving beyond the process of ISDS in CETA, the situation gets worse. ISDS has long
discriminated in favour of foreign investors and against anyone else who is affected by
an ISDS dispute involving a foreign investor and a country. To make it more balanced, if
only formally,
7
states would need to allow for the use of ISDS to hold foreign investors to
account if they flout labour, environmental, consumer or other standards in situations
where domestic institutions do not offer an effective remedy.
In CETA, Canada and the European Union have taken no steps toward this notion of
balance. Foreign investors will be afforded special access to an extraordinarily powerful
process of international adjudication — and potentially to billions of dollars in public
money — to enforce their rights, without corresponding responsibilities that can be
enforced in the same process.
On another, more limited point of balance, CETA incorporates a broadly worded clause
on the state’s right to regulate.
8
This provision gives ISDS adjudicators — if so inclined
— an interpretive source to weigh foreign investor rights against the good faith choices
of legislatures, governments and courts. It is clearly an improvement over the complete
omission of a clear affirmation of the right to regulate in ISDS, yet CETA still does not
Transatlantic Trade and Investment Partnership, Trade in Services, Investment and E-
Commerce, European Union Proposal, Chapter II — Investment,
released 12 November 2015,
online: <http://trade.ec.europa.eu/doclib/docs/2015/november/tradoc_153955.pdf> (“The
Tribunal shall permit any natural or legal person which can establish a direct and present
interest in the result of the dispute (the intervener) to intervene as a third party…” art 23).
7
I see this version of “balance” as a formal or thin version of the concept because, with the
exception of the clarity of any affirmation of the state’s right to regulate, it does not avert to the
content or extent of the respective substantive rights and responsibilities.
8
Supra
note 1, art 8.9(1).
6
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First published by the Centre for International Governance Innovation (CIGI) and available at:
https://www.cigionline.org/publications/isds-revised-ceta-positive-steps-it-gold-standard
deliver a balanced agreement in the allocation of rights and responsibilities due to its
inaction on foreign investor responsibilities.
Respect for Domestic Institutions
Like ISDS in general, CETA is disrespectful of domestic institutions, especially the
courts. Indeed, it is premised on the absurd assumption that Canadian and European
courts are so systemically flawed that foreign investors should have a special right to
bring ISDS claims against countries without having to show it would be unreasonable
for them to seek relief in the courts. This assumption is implicit in CETA’s omission of
the standard duty of a private party to go to a country’s courts first, where they offer
justice, before seeking an international remedy.
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As a result, domestic investors and citizens are disadvantaged. They must deal with the
risks of democracy and regulation in the usual ways: by taking part in the democratic
process, by lobbying quietly or protesting publicly, by buying insurance, by bargaining
for strong dispute settlement clauses in their contracts with governments, or by going to
court. Foreign investors can still do all these things, with the added weapon of a super-
charged power to sue countries in ISDS.
A Gold Standard?
Any proposal to give special privileges and access to public money to a group of
economic actors — here, the largest and wealthiest in the world — calls for a compelling
justification based on clear evidence of a public benefit. The absence of this justification
and evidence has been a glaring omission in the massive expansion of ISDS currently
being pursued in CETA and a few other agreements.
10
CETA’s revisions of ISDS are significant and positive, but they fall short of creating a
balanced and respectful means to resolve, fairly and independently, disputes about what
countries can lawfully do on behalf of their people. Instead, CETA will expand ISDS,
thus undermining the role of democracy and government for countries whose domestic
courts are more independent and fair, more balanced and more respectful of other
institutions than is ISDS itself.
The duty to resort to domestic courts before seeking an international remedy is important and
longstanding elsewhere in international law because, among other things, it creates an
intermediary between domestic institutions and international review; it allows an international
tribunal to see how domestic courts characterized and resolved a dispute in the context of
domestic law; it respects domestic institutions by giving them the primary opportunity to
resolve a dispute; it checks undesirable legal maneuvers; it supports the principles of sanctity of
contract and free markets by requiring foreign investors to resort to contractually agreed
remedies; and it creates an incentive for foreign investors to consider carefully the reliability of a
country’s institutions when deciding whether to enter the country.
10
The most important of these other agreements are the pending US-led Trans-Pacific
Partnership (TPP), the proposed European Union-US Transatlantic Trade and Investment
Partnership (TTIP), and, for Canada, the Foreign Investment Promotion and Protection
Agreement (FIPA) with China, which entered into force in 2014.
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