As rumours abound that the Irish Government will attempt to ratify CETA later this month, Tom O’Connor argues that like many trade deals, the agreement between the EU and Canada is both anti-democratic and gives undue powers to international corporations.
The Government has announced that in an upcoming vote in the Dáil, three special tribunals will be set up. One will be on homelessness. In that tribunal, homeless people will be able to sue the Government for failure to provide them with housing. It will be called the Homeless Court System, to give it a proper sounding name. Furthermore, the tribunal will be adjudicated by homeless people.
Similarly, the Tribunal for the unemployed will be able to force the Government to provide them with jobs. Again, these adjudicators will be drawn from long term unemployed people.
The third Tribunal will allow foreign corporations to sue the Government if it changes policy or laws and as a result a corporation stands to lose profits. It will be called the Investment Court System.
Further breaking news! The Government says that in fact they will only set up one of those tribunals. It is not hard to guess which one.
In a more serious manner, that is precisely what the forthcoming Dáil vote on CETA will do: set up the Investment Court System. I’ll return to this topic, but as an early spoiler, the vote has nothing to do with trade between Canada and the EU.
Investor-State Dispute Settlements
Back in the bad old days of colonialism if a capitalist firm from one country invested – say, set up a factory – in another ‘host’ country and the host government later took over the factory, the investor could probably call on its own government to send in the army.
Once the colonial system began to unravel, especially after World War II, it did not do to ‘send in the army’. So, in a trade deal between a global north state and a global south or ‘Third world’ state (as they used to be called), the latter would be forced to agree to an element in the trade deal generally called an Investor-State Dispute Settlement, ISDS.
Rather than trust the domestic law court, the investing companies insisted on setting up special tribunals. These would be staffed by business consultants, whose nature is to see profit as a good thing.
So, if a government changed a policy or law which would result in a company losing money, they could take a case. However, the adjudicators had to decide on one thing only: if indeed the company would be at a loss. If so, the government had to pay up.
Today, if the company has instead brought the case to a law court, with legally trained judges, the judge can consider the balance of the case, taking much more than profits into account.
Take an example. If a government, say, raised the minimum wage, a foreign company would have to pay more and thus lose profits. In a law court, the judge would balance this against the overall benefit to the country. On top of this, most states today claim to be democratic. Presumably, the government raised the minimum wage as a result of public demand, probably articulated through the trade union movement.
Almost certainly a judge would say ‘tough luck’, the balance favours the state as more people will benefit, and the company will not be recompensed. This wouldn’t be the case with the ISDS. There it is only one question considered, did the company lose and by how much?
There is another rub. The ISDS tribunals have a tendency to go on for years and they usually do not award costs to one side. So, when a state has to defend its decisions it has a lot of legal costs to pay.
The costs can be huge even when the ISDS doesn’t go badly. The amount Egypt had to spend just to defend their side against Veolia (owners of Transdev who run the Dublin Luas), who claimed $174 million because the state increased the minimum wage, is not officially known but estimates put it at $30m.
The tobacco giant Philip Morris moved operations to Hong Kong so it could use the ISDS in the trade treaty with Australia to challenge that state’s law about plain paper packaging of cigarettes. The case went on for several years and cost the Australian Government $39m to defend. In that case the state won costs, but it frightened other states off the idea of enforcing plain paper packaging of cigarettes in their country.
Does this give you a chill? Maybe that’s the ‘chilling effect’ in practice. That is actually the term given to the fear induced in governments when they see the cost of these cases. They tend to look over their shoulders at the foreign investors before changing policy. That is the undemocratic nature of the situation. States should be paying attention to what the citizens want. Instead, they are forced by this mechanism to pay more attention to the needs of the corporations.
This brings us to Ireland and CETA, or rather the EU and CETA.
The trade deal which came into operation in 2017 between Canada and the EU is called the Comprehensive Economic and Trade Agreement.
EU law says that the European Commission has sole right to decide on trade issues. However, when asked, the European Court of Justice (ECJ) decided that the Commission did not have competence with regard to the ISDS mechanism in the deal. ISDS has to do with the fact that the tribunals would not be part of the domestic or EU legal system; rather, they would effectively be a different legal system.
And that is the reason why the Dáil needs to vote, as do all the EU states. And half are yet to do so, including Germany, France and Italy, with the Germans seeing it as so complex that they have referred it to their Supreme Court. So just to be clear, the vote is not on trade.
As we know the Green Party leadership seem to be putting on a whip to force the vote. Their justifications include: the ECJ says CETA is compatible with EU law; the ISDS has been reformed and now the ICS – Investment Court System – and the Paris climate agreement is now inserted into CETA. It’s worth addressing each of these claims.
A Question of Profit
CETA is compatible with EU law – so what? The EU is clearly neoliberal in its policies. So, it favours a liberal market for everything, including public services. For example, EU law has long allowed, and even pushed for, water charges and privatisation.
When CETA was being negotiated between 2009 and 2014 the member states had to declare what parts of their public services could not be subjected to privatisation, called the ‘Negative Listing’. Unfortunately, the Irish state’s list was next to useless when the Fianna Fáil/Greens and Fine Gael/Labour coalitions were in power and does not protect education and health from privatisation.
While it appears as though that issue is now lost should CETA not be passed by all 27 states, this may well require Canada and the EU to re-negotiate the deal, perhaps giving us time to campaign against the Negative Listing.
The ISDS has now become the smart new ICS. So smart that the EU call it a ‘court’. As said, this does not mean judges trained in balancing the law, but ‘adjudicators’ with business law backgrounds who consider that the free market is the best way to go. The Green Party says the ICS will be more consistent, transparent and will have a permanent group of adjudicators (not ad hoc as in an ISDS). As for transparency, the corporations can request that the proceedings not be published, in the interest of ‘commercial sensitivity’.
And on the claim that “the reference to the Paris Agreement is now in CETA” – no it is not! It is referenced in the ‘Joint Interpretative Declaration’, and the Committee on Trade and Sustainable Development can be called to meet if concerned about the environmental effects of some investment but it does not have the authority to instruct the ICS adjudicators to take such concerns for the environment into account when hearing a case. As said, it is just a question of profit.
But most surprising, in the case of the Greens and the environmental movement, is that the majority of ISDS settlements, worldwide, have related to the environment. Of the top 10 settlements, 7 were to fossil fuel companies and 2 to mining companies, with 9 of the settlements amounting to more than $1 billion.
Indeed, Ecuador had to fork out $2.3 billion, equal to one third of the Government’s yearly budget, to a US oil company, Occidental. Part of the problem here is that corporations usually do investment deals with states which last many years into the future. CETA mentions 20 years.
A New Generation of Trade Deals
Why is both the EU and the Irish government pushing to ratify CETA in a hurry? A new generation of trade deals, and the Energy Charter, are being negotiated without an ISDS.
Ironically, the state of Canada has suffered heavily from ISDS cases. Little wonder that it has refused to be subject to an ISDS in the recently agreed replacement for the NAFTA deal, the US-Mexico-Canada deal concluded in December 2020. Only Mexico still has an ISDS obligation – a nice example of neo-colonialism.
Similarly, the Brexit trade deal between the UK and EU does not contain an ISDS. Nor does the EU-China Comprehensive Agreement on Investment (CAI) nor the EU-Singapore Free Trade & Investment Agreement which were negotiated in 2020. Maybe Investor-State Dispute Settlements are seen to be a dangerous option which gives corporations too much power over states.
It might be worth asking why states have thought to give the corporations these advantages? We could go back to Karl Marx who described the modern state as “but a committee for managing the common affairs of the whole bourgeoisie”. But Marxists also hold that that state has a degree of relative autonomy from the capitalist class, so maybe that is why they are turning away, for now, from Investor-State Dispute Settlements. It will be ironic if Ireland and the EU now agree this mechanism.
There is a lot more to discuss but in summary, this ISDS mechanism gives corporations – actually foreign corporations, (not domestic companies) – unfair advantage and in doing so, the mechanism is anti-democratic.
We should campaign against the CETA ISDS/ICS and force a NO vote in the Dáil after a prolonged detailed discussion, not the 50 minutes the Government tried to allocate in December.
Besides, the Dáil is only supposed to be discussing ‘essential business’. With half the EU states yet to decide, why the rush? Postpone this vote.
Very useful article on CETA