Is the right to regulate protected under the investment provisions in CETA? Cecilia Olivet, Transnational Institute (TNI)

The EC proposal The Investment Court System (ICS) model is enshrined in the EU-Vietnam FTA and CETA and is being negotiated in the context of TTIP. The EC claims that these new proposal will: secure the governments’ right to regulate ICS is “a new system that sets down the right to regulate in black and white”, EU Commissioner for Trade, Cecilia Malmström solve the conflict of interests of ISDS system “With this new system, we ensure that investment disputes will be adjudicated in full accordance with the rule of law.”, First Vice-President of the European Commission Frans Timmermans

But, does the EU proposal bring radical change as the EC claims? Legal analysis of the ICS proposal included in CETA reveals that… …the EU got rid of the stigma that the words ISDS have generated, but the proposal only brings minor procedural changes that do not alter the problematic nature of the ISDS system and do not prevent investors from keep on attacking public interest regulation.

ICS put to the test Would the most controversial ISDS cases from recent years be able to prosper under ICS? Philip Morris vs Uruguay TransCanada vs the US Lone Pine vs Canada Vattenfall vs Germany Bilcon vs Canada YES!

Foreign investors will still enjoy ample and ill-define rights Broad definition of investment, “fair and equitable treatment” (FET), “indirect expropriation”, Free transfer of capital, Most- Favoured-Nation (MFN), survival clause States will have to prove that the measures they took: – were not “arbitrary”, – did not damage the “legitimate expectation” of the investor, – were not “manifestly excessive” and – were for a “legitimate” public policy objective

“Fair and Equitable Treatment” How can investors (ab)use this right?Example from PMI v Uruguay case The inclusion of “manifest arbitrariness” as one of the criteria that investors can invoke as a breach of this clause leaves the door wide open for investors to sue and for arbitrators to interpret it to their discretion. Philip Morris called Uruguay’s anti-smoking measures “excessive”, “unreasonable” and “arbitrary” and denied they are related to public health policy. The text in CETA (Chapter 8, Article 10): “A Party breaches the obligation of fair and equitable treatment if a measure or a series of measures constitutes: “denial of justice”, “fundamental breach of due process”, “manifest arbitrariness”, “targeted discrimination” and ““abusive treatment of investors, such as coercion, duress and harassment.”

Investors’ “legitimate” expectations How can investors (ab)use this right?Example from PMI v Uruguay case The European Commission has widened the fair and equitable treatment concept by explicitly allowing tribunals to take into account the notion of investors’ “legitimate expectations”. Philip Morris, in its case against Uruguay, claimed “the measures [taken by Uruguay] frustrate one of the most fundamental expectations that any investor may have, which is that a host State will comply with its own law and respect private property”. The text in CETA (Chapter 8, Article 10) “When applying the above fair and equitable treatment obligation, a tribunal may take into account whether a Party made a specific representation to an investor to induce a covered investment, that created a legitimate expectation, and upon which the investor relied in deciding to make or maintain the covered investment, but that the Party subsequently frustrated”.

Indirect expropriation How can investors (ab)use this right?Example from PMI v Uruguay case The EU proposal contains significant loopholes. The key ambiguities are found in the annex that is meant to clarify the article on indirect expropriation. Only “legitimate” public policy measures that are not “manifestly excessive” would be out of reach from indirect expropriation demands. Philip Morris International argued that the restrictions imposed did “not bear any rational relationship to a legitimate governmental policy” The text in CETA (Chapter 8, Annex 8-A): “For greater certainty, except in the rare circumstance when the impact of a measure or series of measures is so severe in light of its purpose that it appears manifestly excessive, non-discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriation.”

The “right to regulate” This article is is misleading and gives a false sense of security 1.investors can continue claiming compensation from the governments. This difference becomes especially evident when comparing it the much more specific language re. "state aid” 2.governments will have to prove that any regulations introduced were sought to achieve “legitimate” objectives. The text in CETA (Chapter 8, Article 8.9) 1. The parties reaffirm their right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, environment or public morals, social or consumer protection or promotion and protection of cultural diversity. ≠ 4. For greater certainty, nothing in this Section shall be construed as preventing a Party from discontinuing the granting of a subsidy or requesting its reimbursement […], or requiring that Party to compensate the investor therefor.

Has the European Commission really abandoned ISDS? Fundamental safeguards to ensure an independent legal system are still missing. “Judges” impartiality is not secured: There are strong financial incentives to interpret the law in favour of the investor “the ‘provisions for the election, time of office and remuneration for the judges of the ICS do not meet the minimum standards for judicial office as laid down in the European Magna Carta of Judges.”, The European Association of Judges (EAJ)

ISDS is not dead The investment protection chapter included in CETA will allow: investors to challenge public policy legislation. investors to bypass the domestic court system and gives them exclusive access to a parallel justice system. For profit lawyers to decide on matter of public policy.