CETA Under New Management: Why Is Trudeau Changing the Game?

Investor-State Arbitration Commentary Series No. 4

May 12, 2016

Negotiation of the Comprehensive Economic and Trade Agreement (CETA) was supposed to have concluded long ago. “It will not only change the game for Canadian businesses,” then Prime Minister Stephen Harper said, when the draft text of the treaty was unveiled in September 2014, “it will create an entirely new game.”[1] Well, the game has certainly changed — but not in ways imagined at the time.

All that was left to accomplish was the “scrub” of the deal — that is, the routine and traditionally straightforward legal vetting of an agreed text by the parties to the agreement. Prime Minister Justin Trudeau’s November 2015 mandate letter to newly installed International Trade Minister Chrystia Freeland listed ratification of CETA as the first of the minister’s “top priorities.”[2] In January 2016, Minister Freeland said that the period since the conclusion of negotiations had been taken up with “dotting the i’s and crossing the t’s” of the agreed CETA text.[3] Much more, it turns out, was going on.

The CBC reported that, soon after the prime minister and his Cabinet were sworn in last fall, EU officials “quietly” approached the government with a request to revisit CETA’s investment protection and dispute settlement provisions.[4] The result was a fairly comprehensive rewrite of certain terms of the agreement to accord with the European Commission’s proposal for a “new and transparent system for resolving disputes between investors and states,” the investment court system. It was announced with much fanfare on September 16, 2015, and then incorporated into Europe’s Transatlantic Trade and Investment Partnership (TTIP) proposal.

In their joint statement of February 29, 2016, announcing the “scrubbed” CETA, Minister Freeland and European Commissioner for Trade Cecilia Malmström described the changes to CETA’s investment chapter as follows: “With these modifications, Canada and the EU will … move to a permanent, transparent and institutionalized dispute-settlement tribunal; revise the process for the selection of tribunal members, who will adjudicate investor claims; set out more detailed commitments on ethics for all tribunal members; and agree to an appeal system.”[5]

The European Commission, in a separate press release on the same date, was more blunt. CETA, the release explained, provides for “a new approach on investment protection and investment dispute settlement,” one that represents “a clear break from the current ISDS system” and that incorporates “the EU’s new approach.” The release continued: “The negotiations on a free trade deal between the European Union and Canada were concluded in 2014 with a reformed investment dispute settlement system, notably with full transparency of proceedings and clear and unambiguous investment protection standards … [T]he agreement now reached goes even further. All the main elements of the EU’s new approach on investment, as outlined in the EU’s TTIP proposal of November 2015 and contained in the recently concluded EU-Vietnam free trade agreement, have been included in the finalised CETA text.”[6]

That CETA became a victim of the European Union’s negotiations with the United States on the TTIP, and more generally of the organized, sustained and widespread (although relatively uninformed and misguided) dissent in Europe regarding investor-state dispute settlement in the context of that truly massive deal, should come as no surprise. It was, of course, Trudeau père who famously likened Canada’s relationship with the United States to “sleeping with an elephant: no matter how friendly or even-tempered is the beast, one is affected by its every twitch and grunt.”[7] That simile, it should be remembered, was coined to explain why Canadian policy frequently resembles that of our American bedfellows. Here, arguably, the opposite has occurred. In order to secure a deal with the European Union to preserve the important substantive benefits of CETA — and make no mistake, that was the calculus, since Canada likely had as little choice in the matter as did Vietnam in its trade negotiations with the EU — Canada has agreed to adopt a model for the enforcement of investment protections that the European Commission apparently considers central to its mandate and essential as a precedent in its negotiations with the United States. Canada, however, had quite consciously never championed that model and the United States, for its part, is highly unlikely to welcome it.

The law of unintended consequences tells us that it is as likely as not that Canada will come to regret its decision to endorse the European Union’s investment court paradigm. Time will tell.

[1] Janyce McGregor, “Stephen Harper confident as final EU trade deal released”, CBC News (26 September 2014), online: <www.cbc.ca/news/politics/stephen-harper-confident-as-final-eu-trade-deal-released-1.2778715>.


[2] Canada, Office of the Prime Minister, Minister of International Trade Mandate Letter (Ottawa: OPM, 2015), online: <http://pm.gc.ca/eng/minister-international-trade-mandate-letter>.

[3] Thomas Walkom, “CETA critics force Europe, Canada to revise trade pact”, The Toronto Star (2 March 2016), online: <www.thestar.com/news/canada/2016/03/02/ceta-critics-force-europe-canada-to-revise-trade-pact-walkom.html>.

[4] Janyce McGregor, “EU quietly asks Canada to rework trade deal's thorny investment clause”, CBC News (21 January 2016), online: <www.cbc.ca/news/politics/canada-europe-trade-isds-ceta-1.3412943>.

[5] Canada, Global Affairs Canada, Joint statement by European Commissioner for Trade and Canada's Minister of International Trade on Canada-EU trade agreement (Ottawa: Government of Canada, 29 February 2016), online: <http://news.gc.ca/web/article-en.do?mthd=index&crtr.page=1&nid=1036759>.

[6] European Commission, News Release, “CETA: EU and Canada agree on new approach on investment in trade agreement” (29 February 2016), online: <http://trade.ec.europa.eu/doclib/press/index.cfm?id=1468>.

[7] Prime Minister Pierre Elliott Trudeau, Washington Press Club, 25 March 1969, online: <www.cbc.ca/player/play/1797537698>.

Part of Series

Cosmic or Cosmetic Reform: Commentaries on the Real and Imagined Potential of CETA’s Investment Tribunal

CIGI’s International Law Research Program invited commentary by noted experts in the field about the promise and peril of CETA’s new investment tribunal and whether this development will enhance or hinder global rule of law. In this series, these experts opine on the tribunal’s potential impact on the often criticized system of ISA: whether it is a significant reform, a superficial adjustment or a retrenchment. Readers will have to draw their own conclusions as to whether this is a cosmic or cosmetic reform of the system of ISA.

About the Author

Stephen L. Drymer is a partner and head of international arbitration at Woods Litigation Boutique in Montreal.