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

About the series

The investment tribunal included in the recently released, legally scrubbed text of the Canada and European Union (EU) Comprehensive Economic and Trade Agreement (CETA) is an intriguing development in the ongoing debate about investor-state arbitration (ISA). While the CETA text is being translated and thereafter subjected to completion of the internal approval processes in Canada and the European Union, it is worth considering whether the new investment tribunal offers an opportunity for Canadian and EU leadership on global ISA reform. Article 8.29 says “The Parties shall pursue with other trading partners the establishment of a multilateral investment tribunal and appellate mechanism for the resolution of investment disputes.” Could this be an opportunity for Canada and the European Union to lead the way on establishing a permanent global and transparent adjudicative system for investor-state disputes, or will adoption of this model only add confusion and prevent more fundamental reform?  

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.

In the Series

The European Commission is taking a new direction with regard to investor-state dispute settlement, with the proposed inclusion of a novel settlement mechanism in the Transatlantic Trade and Investment Partnership, the EU-Vietnam Free Trade Agreement and, most recently, in the Comprehensive Economic and Trade Agreement (CETA) between the European Union and Canada. With all the changes this new mechanism implies, will critics on either side of the Atlantic be satisfied?
Those promoting investor-state dispute settlement (ISDS) are running into a pretty serious public relations problem. Changes to the Comprehensive Economic and Trade Agreement (CETA) may go some distance to solving conflict-of-interest problems for arbitrators, but are unlikely to remedy the principal defects of ISDS. That is because CETA’s investment chapter continues to look like almost every other investment treaty, setting exceedingly high standards for the protection of foreign investors, while a clause reaffirming governments' “right to regulate” is unlikely to generate any meaningful constraint on the elite corps of investment lawyers and tribunals who administer this regime of investor rights.

Canada and the European Union released a revised Comprehensive Economic and Trade Agreement (CETA) in February 2016, with revisions focused on the controversial process of investor-state dispute settlement. European and Canadian officials now describe CETA as the “gold standard.” This commentary puts that standard to the test, looking at CETA's revised ISDS provisions through the lenses of independence, fairness, balance and respect.
In its 2015 trade policy, “Trade for All: Towards a more responsible trade and investment policy,” the European Commission promised that “EU bilateral agreements will begin the transformation of the old investor-state dispute settlement into a public Investment Court System composed of a Tribunal of first instance and an Appeal Tribunal operating like traditional courts.” But will the proposed investment court system for the Comprehensive Economic and Trade Agreement in fact operate “like traditional courts”?
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.” Well, the game has certainly changed — but not in ways imagined at the time.
This commentary looks at possible repercussions of recent changes to the agreed CETA text.
The speed and late stage at which the changes were made to the Comprehensive Economic and Trade Agreement did not offer much time for in-depth analysis. The lack of agreement on the precise design and functioning of the appellate tribunal, and the absence of a code of conduct for tribunal members, serve as evidence of this fact. Five improvements are identified here.
The new investment tribunal structure now found in the Comprehensive Economic and Trade Agreement is a poor solution, based on a faulty premise. It is the result of an ill-informed but obviously effective campaign by mainly European lobbies and some groups in the European Parliament, which have argued, without proper quantitative or qualitative support, that the present system is biased in favour of foreign investors.