The great CETA swindle

With a fast approaching European Parliament vote on the EU-Canada trade deal CETA and potential subsequent rows over its ratification in EU member states, CETA continues to draw heavy criticism. A close look at the text of the agreement – and recent declarations designed to reassure critics and gain support for its ratification – shows that concerns over CETA are well-founded. Behind the PR attempts by the Canadian Government and the European Commission to sell it as a progressive agreement, CETA remains what it always has been: an attack on democracy, workers, and the environment. It would be a major mistake to ratify it.

Corporate Europe Observatory

On both sides of the Atlantic, the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada is hugely controversial. A record 3.5 million people across Europe signed a petition against CETA and its twin agreement TTIP (Transatlantic Trade and Investment Partnership). European and Canadian trade unions, as well as consumer, environmental and public health groups and small and medium enterprises (SMEs) reject the agreement. Constitutional challenges against CETA have been filed in Germany and Canada and the compatibility of CETA’s controversial privileges for foreign investors with EU law is likely to be judged by the European Court of Justice.

Key points:

• Across Europe, more than 2,100 local and regional governments have declared themselves TTIP/CETA free zones, often in cross-party resolutions. National and regional parliaments, too, worry about CETA, for example in Belgium, France, Slovenia, Luxembourg, Ireland, and the Netherlands.

• Over the past months, to salvage CETA’s ratification process, European and Canadian trade officials have gone into a massive propaganda mode. They have framed CETA as “a very progressive trade agreement” [...] The deal’s critics have been stigmatised as “trade hooligans” who live in a “post-factual reality”, “fuelling concerns and fears, which have no bearing on the actual CETA text”. Large parts of the media have joined the CETA cheerleading, claiming that “much of the criticism, which might be justified for TTIP, does not apply to CETA”. When the Walloon government, after 70 hours of public consultations on CETA in its Parliament, held up the CETA ratification, media commentators slammed the act as “based on general opposition to globalization, which mainly plays on emotions, largely ignoring facts”.

• The latest PR move of the CETA supporters is a multitude of 39 (!) declarations and statements accompanying the text of the agreement. These texts are designed to alleviate concerns amongst Social Democrats, trade unions, and the wider public who fear that CETA threatens public services, labour and environmental standards and undermines governments’ right to regulate in the public interest. But in fact, the declarations do nothing to fix CETA’s flaws. [...] The declarations accompanying the CETA text are full of similarly misleading statements that avoid the key problems of the agreement. [...] [CETA] is actually a major assault on democracy, workers, and the environment.

CETA Swindles

Swindle #1 CETA protects workers’ rights

The European Commission praises CETA’s “strong rules on the protection of labour rights”. But the actual labour protections in CETA are poor. Chapter 23 on trade and labour is full of good intentions, such as that “a Party shall not... fail to effectively enforce its labour law and standards to encourage trade or investment” (article 23.4.3). But there is no penalty under CETA if EU countries, Canada, or companies operating there violate a provision like this.

European and Canadian trade unions have proposed a protocol – to make CETA’s labour rules effectively enforceable. The issue is important for them as they fear that CETA would put labour standards at risk (as employers can more easily shift capital to locations where standards are weak and laxly enforced). Previous experience with unenforceable labour chapters in existing EU trade deals (such as those with Columbia and Korea) shows the European Commission took no action, even in the case of egregious labour rights violations well documented by the labour movement.

The low status of labour rights in CETA could have serious implications. Many parts of the agreement could seriously challenge the hard earned rights of workers and trade unions: CETA’s public procurement rules could lead to legal challenges when public authorities link their buying practices to social criteria such as the minimum wage or compliance with collective agreements; CETA’s foreign investor privileges could lead to expensive lawsuits against states when they don’t interfere in long-lasting strikes or when regions establish mandatory minimum staffing levels in hospitals or nursing homes; and the weakening of domestic regulation could present new obstacles to efforts to ensure that services suppliers abide by labour rules.

CETA is likely to lead to significant job losses. According to a September 2016 study from Tufts University, 230,000 jobs could be lost in total. This would depress wage growth and by 2023 workers would have foregone average annual earnings of €1776 in Canada and between €316 and €1331 in the EU (depending on the country and compared to a scenario without CETA). The researchers also predict a politically dangerous rise in inequality as the gains from CETA would overwhelmingly go to owners of capital – not workers. These forecasts reflect the experience under previous trade deals such as the North American Free Trade Agreement NAFTA (see the assessment of the US trade union confederation AFL-CIO). So, rather than protecting workers as its cheerleaders claim, CETA promotes the wealth and power of a very few at the expense of workers. They get nothing but inconsequential feel-good rhetoric. The additional statements and instruments do nothing to change that.

Swindle #2 CETA is a good deal for the environment

According to the European Commission, CETA contains “strong rules on the protection of ... the environment”. But the actual protections in the CETA text are weak. Like the chapter on labour, chapter 22 on sustainable development and chapter 23 on trade and environment contain sweet-sounding language on “trade supporting sustainable development”, “trade favouring environmental protection” and so on. But like the labour chapter, CETA’s environmental provisions cannot be enforced through trade sanctions or financial penalties if they are violated.

CETA’s investor rights could trigger costly lawsuits from polluting companies when governments ban or regulate dirty mines or want to phase-out fossil fuels; CETA’s liberalisations in the agricultural sector and the thin protections for high food production standards would expand an industrial model of farming that is already destroying the planet; [...] as CETA encourages more trade, production and extraction, greenhouse gas emissions are likely to increase.

In short, the pro-environment rhetoric around CETA is pretty empty and meaningless. It is nothing but an attempt to greenwash a deal which poses real threats to the environment and strong action to save the planet from climate disaster.

Swindle #3 CETA’s investor rights safeguard the right to regulate to protect the environment, health and other public interests

According to the European Commission, “CETA ensures protection for investments while enshrining the right of governments to regulate in the public interest, including when such regulations affect a foreign investment.” The critical point missing in this statement is, again, that while parties have the right to regulate, their regulations must be in line with their CETA obligations and commitments. And CETA’s chapter eight on investment contains the same wide-ranging ‘substantive’ rights for foreign investors as existing international treaties, which have been the legal basis for hundreds of investor lawsuits against states – including against regulations to protect health, the environment, and other public interests. [...] With these extreme corporate rights, many egregious investor attacks could take place under CETA.

“CETA will not result in foreign investors being treated more favourably than domestic investors” (article 6a). But CETA allows only foreign investors to bypass domestic courts and sue states directly in parallel tribunals – domestic firms (and citizens) simply do not have this privilege.

“CETA clarifies that any compensation due to an investor will be based on an objective determination by the Tribunal and will not be greater than the loss suffered by the investor” (article 6b). This might be read as a guarantee that investors will only be compensated for money that they actually spent on a project. But under the extensive case law in the field, expected profits are generally considered to be part of the “loss suffered by the investor”. This means that CETA tribunals could order states to pay unlimited amounts in compensation – including for investors’ lost expected future profits (like in the case of Libya which was ordered to pay US$900 million for “lost profits” from a tourism project, even though the investor had only invested US$5 million and construction had never started). So, rather than safeguarding the right to regulate as its proponents claim, CETA will force governments to pay when they regulate – whether it is to protect the environment, health or other public interests.

Swindle #4 CETA protects public services like healthcare and water

Probably the biggest threat to public services comes from the far-reaching foreign investor rights in CETA’s chapter eight. While Canada, the EU and its member states have inserted a number of public service reservations and exemptions in the CETA, none of these do apply to the deal’s investor-state dispute settlement provisions (chapter 8, section F). And they don’t apply to the most dangerous investor protection standards, like expropriation (article 8.12) and fair and equitable treatment (article 8.10). This makes regulations in sensitive public service sectors such as education, water, health, social welfare, and pensions prone to all kinds of expensive investor claims.

Governments could end up paying billions in compensation to foreign investors in return. The decision would be taken by a panel of for profit arbitrators (rather than independent judges), would be based on CETA’s extreme investor privileges (rather than a country’s constitution, which balances the rights of property holders) and could include compensation for loss of expected future profits (which are rarely compensable under most constitutions). Facing such an incalculable risk, governments might not go ahead with their plans to take services back into public hands – even when past privatisations have been failures. This could threaten the growing trend of re-municipalisation of water services (in France, Germany, Italy, Spain, Sweden, and Hungary), energy grids (in Germany and Finland), and transport services (in the UK and France), as well as a potential roll-back of some of the failed privatisations of the UK’s National Health Service (NHS) to strengthen non-profit healthcare providers.

In short, CETA severely limits governments’ ability to create, expand, restore, and regulate public services. This threatens people’s rights to access services like water, health care, and energy, as well as labour conditions in these sectors. Claiming that CETA protects public services without changing the deal’s provisions that work to the contrary is wishful thinking, at best.

Swindle #5 CETA establishes an independent court to settle investor-state disputes

Under CETA, investor-state lawsuits would be decided by a tribunal of three for-profit arbitrators with vested interests. Unlike judges, they would not have a fixed salary, but be paid per case, with US$3,000 per day (article 8.27.14, referring to the standard payroll in investment arbitration). In a one-sided system where only the investors can sue, this creates a strong systemic incentive to side with them – because as long as the system pays out for investors, more claims and more money will be coming to the arbitrators.

There are other flaws which make CETA’s investment tribunal prone to bias. There is no cooling-off period before or after the appointment of its members and they will neither be banned from sitting as arbitrators in other cases nor from private lawyering (outside the narrow scope of investment disputes, see article 8.30.1). So, they could be part of the small club of investment lawyers who have until now driven the boom in investment arbitration and grown their own business – by encouraging investors to sue and by interpreting investment law expansively to encourage more claims. The selection criteria for the members of the tribunal also exclude expertise in legal areas outside of this club – areas which are less dominated by commercial interests, but might be relevant for rulings, such as national administrative, labour, or environmental law (article 28.27.4).

Citing the flaws in the proposed appointment procedure for the arbitrators and doubts about their financial independence, Germany’s largest association of judges and public prosecutors has questioned the investment court system (ICS) as it is included in CETA and also proposed for its twin deal TTIP: “Neither the proposed procedure for the appointment of judges of the ICS nor their position meet the international requirements for the independence of courts”, the judges wrote in a statement published in February 2016. The European Association of Judges has similar concerns.

No one in her right mind would sign a contract which states one thing on the basis of promises that something very different will happen in the future. But the Commission seems to try exactly this: make the European Parliament and EU member states ratify an international treaty which will forever bind our societies, on the basis of vague promises that it will be improved in the future.

Swindle #6 CETA will uphold standards to protect people and the environment

Chapter 12 on domestic regulation commits Canada, the EU, its member states, local and regional governments to adopt or maintain licensing and qualification procedures that are “as simple as possible” for corporations (article 12.3.7), unless they are listed in a complicated annex. The commitment to make the approval process for a nuclear reactor, a pipeline, a food processing plant, or a bank “as simple as possible” is likely to impact future standards. For instance, reforms to strengthen banking supervision and risk management as recommended by the Basel Committee on Banking Supervision could be considered a violation of chapter 12. Nothing in the CETA text balances the simplicity criterion with other values that a society may have – such as ensuring that a proposed pipeline does not destroy the environment or that local residents have a say.

Take electronic waste for instance. In 1998, a proposal from the European Commission backed by the European Parliament included plans to ban hazardous substances in electronic waste. Through a dialogue process bearing all the traits of regulatory cooperation under CETA, US officials and business lobbyists attacked the proposal, referring to its much vaunted negative impacts on transatlantic trade. In 2002, when the waste directive was adopted, the hazardous substances part had been significantly weakened. It took a court case by the Danish government and the European Parliament to finally take one substance which was to be banned in the original proposal (deca-BDE) off the EU market – ten years after it was first proposed. This is the power of regulatory cooperation.

So, rather than upholding social, environmental, or health standards, CETA poses a real risk of lowering them. It results in heavy additional burden on regulators and strengthens the role of business lobbyists in the development of regulations, potentially undermining not only the development of much needed regulations, but also our democracies.

Full report and references:

https://corporateeurope.org/sites/default/files/attachments/great-ceta-swindle.pdf