Canadian Manufacturing

Dispute settlement provisions make CETA a tough sell in Germany

It's improbable that the EU will be able to ratify CETA without Germany's support, but acceding to Germany's demands will likely kill the deal



TORONTO—The Canada-EU free trade negotiations finally concluded successfully in late September, when Prime Minister Harper and EU President Barroso signed off on the negotiated text.

There have been a number of significant hurdles in the five-year effort to reach this agreement and even the signing ceremony was not without another one—the German government expressed concerns about the “investor-state dispute settlement” (ISDS) provisions of the agreement.

What should we make of Germany’s concern?

German Economy Minister Sigmar Gabriel signalled that Germany believes CETA needs more work. More specifically he said that “it is utterly clear that we reject these investment protection rules”.

That’s a notable criticism, not least because it comes from the EU’s economic powerhouse and it was delivered just two days before Prime Minister Harper and President Barroso signed the deal.

The ISDS provisions provide foreign investors with a pre-defined, independent dispute resolution process through international law. In this case, the ISDS provisions would grant a Canadian investor firm the ability to bring a complaint before an independent tribunal if it believes an EU member state has violated the rights granted to Canadian investors through the free trade agreement. The same would be true in reverse if an EU-based firm believed Canada had violated its trade obligations with the EU. Such provisions are common in trade agreements, including the North American Free Trade Agreement.

Critics, including the German government in this case, see ISDS provisions as an unnecessary duplication of existing legal remedies within a country and, more ominously, a fettering of the ability of democratically-elected sovereign governments to set domestic policy.

Canada’s position, and that of the European Commission, is that the CETA negotiations are over. There may yet be minor adjustments to the negotiated texts but, fundamental features, such as the rights of investors to seek independent recourse, are settled. However, and this is an important caveat, the agreement still needs to be officially ratified by lawmakers on both sides of the ocean.

The stakes are high on both sides of the Atlantic. Speaking to German media, EU Trade Commissioner Karel De Gucht said “If we reopen negotiations on CETA, the deal will be dead”. For the EU, securing a deal with Canada is an important pre-cursor to securing one with the United States (the Trans Atlantic Trade and Investment Partnership, which is already being negotiated).

A classic “rock and hard place” situation has emerged. It is highly improbable that the EU will be able to ratify the CETA deal without Germany’s support. But acceding to Germany’s demands will likely kill the deal, according to the EU’s trade commissioner.

If this deal is going to be done, a compromise will need to be struck. Right now, the ball is in the German government’s court as it wrestles with the question of whether it risks scuppering the Canada-EU deal and setting back the negotiations with the US on this issue. Negotiators are undoubtedly searching for a creative ways to address concerns on all sides.

It is an issue well worth continuing to watch over the next few weeks and months.

John Whitehead leads the trade policy group for the Earnscliffe Strategy Group after working more than 30 years in Ontario’s public service, a role that included representing Ontario’s trade policy interests. Email him at JWhitehead@earnscliffe.ca

Link back to the CETA Trade Resource Centre

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