Inside CETA

Private arbitration courts became the main symbol of anti-trade protests. Usually, if a state enacts a law that reduces profitability of foreign companies in a discriminatory way, businesses can sue these states in a private tribunal if there is a trade agreement in place. This might have been useful in the past, when it came to investments in states with poor or unpredictable legal structures. The tribunals were ad-hoc, organized by private arbitrators – mostly lawyers – and secret. The new court system proposed by the European Commission, however, should overcome the flaws of the traditional arbitration courts.

The idea that these courts should be established parallel to the national courts of France, Germany or Canada was strongly criticized. The counter-argument suggested that courts favor the interests of the big corporate lobbies. Protests were successful and the European Commission changed the original plans introducing safeguards. Now the current system looks a bit more like a traditional court. But again, the text provides a lot of uncertainties.

For example, CETA generally excludes claims of financial firms in case of debt cuts in a financial crisis (e.g. Greece). This should be a safeguard for states who don’t have to fear claims by private funds for any restructuring. The language of the text leaves room for interpretation, say legal experts. Companies could use this to threaten or even actually to sue governments.

The European Commission did improve the old defective system and could be an important example for future trade deals. Some barriers were included to avoid claims meant to chill governments´ decisions – in case a state aims to raise health or environmental standards. The Wallonians now reached an important goal: the European Court of Justice will scrutinize whether or nor these courts are compatible with EU law.

The treaty, however, cannot fully prevent that companies from occurring legal loopholes. All in all, this court system is still close to a private arbitration with judges paid case by case than a permanent court even if its risks are lower than publicly stated. Several NGOs demanded to completely exclude these courts from CETA and TTIP. This would have dissolved remaining fears of companies using possible loopholes for legal remedies.

On the request of the European Commission experts clearly proved that oil obtained from tar sands is 23 per cent more carbon intensive than conventional oil. After these figures were out, the EU had to act. Oil from tar sands was attributed a higher value of CO2 emissions — thus „dirtier“ than other oils and creating more damage to the environment. In the so-called Clean Fuel Directive of 2011 the status of this unconventional oil was reviewed. For the EU this would have been a step towards its goals to reduce greenhouse gas emissions.

This regulation, however, thwarted Canadas plans of exporting tar sand oils to the EU. Lobbies rushed to hinder a stricter regulation on tar sands. Whether it was the result of skilled Canadian lobbies or the concerns related to Europe´s energy security, at the end of 2014 the European Parliament scrapped the labelling on tar sands. Canada started its exports to the EU in the same year.

Expert and environmental groups hope that the EU regulators will review their decision and will not give up on their environmental goals. A crucial question on CETA is related to the right to regulate: Will the EU or its member states be willing to improve their environmental standards while these might negatively affect Canadian corporations´exports? The treaty itself guarantees the „right to regulate“.

Meanwhile, CETA includes protection for investors also in the field of fossile energy and raw materials. The possibility of Canadian Natural Resources Ltd or other major companies claiming their losses because of stricter EU restrictions is a realistic scenario. Canadian mining companies, for instance, are already claiming the loss of their expected profits after their mining concessions were rejected. The European Commission, however, sticks to the argument, that neither CETA, nor any free trade agreement will stand in the way of future regulations.

CETA will enable Canadian and EU industries´regulators to work together in the future on harmonizing standards. The goal for the chemical, electric or pharmaceutical industries is to agree in the future on product standards that would apply in both economies. A hair dryer or a painkiller produced in Canada should be also easily marketed  in the EU and vice versa  – something that the industry has been aiming for for a long time. How exactly these joint regulatory bodies will work, is still largely unknown. Fears arose that corporations will have an easier access to regulators once they pursue their work without parliamentary control.

Concerns of CETA giving birth to undemocratic bodies reached recently the German Constitutional Court (Bundesverfassungsgericht). German petitioners supported by a significant number of citizens demanded that the Court verifies these claims. While the Court did not give its final verdict on CETA yet, a preliminary assessment was taken. According to this, it is the responsibility of the German Government to make sure that the joint regulators are not free to take legally binding decisions. This means, that the EU-Canada joint board should not be able to regulate without being backed by an unanimous vote of the EU governments.

This preliminary note of the Constitutional Court also guarantees, that the judges in Germany will be keeping an eye on the developments of this committee. Should the Court have any doubts that these conditions are not fulfilled after CETA is applied, they can urge the German Federal Government to opt out of the deal.

Whether certain services, like energy or water supplies, are public or run by private companies, is decided by states. Other than in the US and in Canada, in Europe public services have a strong tradition. CETA, the trade deal aiming to liberalize the economy, seems to threaten this public control. The treaty contains a so-called negative list: Both Canada and the EU had to exclude the specific branches they want to leave open to be privatized or later re-communalized in the future. Thus, all other services missing from this list, would be up for the market once they´re open to privatization.

Public water suppliers were shocked. Their fight to prevent the European Commission from privatizing water ended not just some years ago. Now it is in form of the Canada-EU trade deal that public utilities might be liberalized. A binding joint declaration of the European Commission and Canada promises that this will not happen. Even the German Public Companies´Association, earlier severely criticising this issue, now toned down its worries. It becomes increasingly clear, that public services will not be forced into private hands. Nevertheless, it´s the little uncertainties in the text of the treaty and  the longterm aim of more liberalization that creates unease.

Water, for example, is definitely excluded from CETA, but is waste disposal, too? It is not mentioned in the German translation of the text. Such details (or the lack of them) make the treaty unforeseeable for the future. If a city wants to re-communalize a service, this will be possible if the state put this service on the so-called negative list. The Commission is confident, however, that states made all important reservations.

In this sense CETA will not mean an immediate threat to public utilities. But municipalities have to be cautious when framing a privatization, so that they are able to draw back a concession in the future. Otherwise the liberalization might not be reversible.

The EU has a special tradition to protect produce with a geographical indication. Regional names like Champagne, Bavarian beer or Feta cheese are bound to the region where these products traditionally come from. The goal of this protection is to preserve the quality of certain products but also to indirectly promote regional economies. The EU aimed to preserve this protection in the EU-Canadian Free Trade zone. So far, Canada only applied some basic geographical indications. A Canadian company could thus register for a trade mark „Parma ham“ or „Prosciutto di Parma“ and prevent italian imports of Parma ham.

Especially these european particularity of protection for traditional produce, made the negotiations very complicated. Both sides agreed in the end on a list of 145 european products, from wine to cheesse, which will be protected in Canada as well. There were complaints on the European side that this list contains only a small part of all products protected in the EU. The EU has registered 1500 products which can only be marketed it they are produced in a certain region.

In CETA, the list contains the most imported produce to Canada: for example Feta cheese, Camembert, Champagne and parma ham. Those Companies don’t have to fear the competitors from Canada. It remains to be seen how this agreement will affect the products which didn’t make it on the list. In the end, it is the consumer who decides if she buys the Blackforest Ham or the canadian ham „blackforest style.“

A main goal of the CETA is to align standards in the EU and in Canada. Instead of harmonizing all standards, both parties should decide in every single case whether safety standards for electronic appliances, foodstuffs or drugs are equivalent. For instance technical safety standards will not be harmonized by CETA. Authorities will verify instead in special committees whether the Canadian safety standard for a certain appliance can be acknowledged as being equivalent to the EU norm. All this should facilitate exports. Critics, however, fear that this could lead to the acceptance of standards currently not in line with EU regulations. According to them the so-called precautionary priniciple related to foodstuffs is at stake in case Canadian standards will be tolerated.

The precautionary prinicple says, that a produce cannot be approved if there is a chance that it might imply health risks. Contrary to the EU, in Canada and in the US produce can be banned only if these health risks are scientifically accounted for. Critics of the EU-Canada trade deal are worried because the precautionary priniciple is not mentioned in the treaty. They want to make sure that it will not be possible for companies to challenge a regulation which prevents risks.

Experts, on the other hand, do not acknowledge these risks. They say that CETA does not force the EU or Canada to give up their own regulatory practices. “Europe and Canada are and will remain free to define their benchmarks on safety standards,” says Alberto Alemanno, professor of law in Paris. In case the precuationary principle will be violated, it´s up to European authorities to deal with it.

What does this mean for imports of hormone-treated meat? Even after CETA the EU bans hormone-treated meat and chlorinated chicken. Canadian meat producers may export a certain amount of meat in the EU, but they have to constrain to these rules. Meanwhile, Canadians are free to produce hormone-treated meat for their own markets.