I am really delighted to share this timely and topical post from Dr John Reynolds, an Associate Professor of Law and Chair of the International Justice LLM programme at Maynooth University. You can follow John @SeanMac_R
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The Green Party signed up to a broadly conservative status quo economic agenda when it joined the coalition government in June 2020. But one battle where it did claim success was on excluding Irish ratification of the EU’s Comprehensive Economic and Trade Agreement (CETA) with Canada. Fine Gael has been a staunch proponent of CETA from the get-go and would have wanted a clear commitment to prompt ratification but, by their own account, Green representatives ‘negotiated very hard to keep CETA out of the programme for government’.
By the end of 2020, it emerged that the government was planning to plough ahead with ratifying CETA anyway. The Greens’ leadership had quietly abandoned the party’s official policy (‘The Green Party will work for the rejection of CETA by Ireland’). This prompted an internal row and a series of motions from members and representatives calling on the party to stick to its policy and not support CETA – or at least for a special convention to be held if the party policy is to be revisited. Those motions were jettisoned, and the party’s Policy Council instead just about committed to what party representatives have described as ‘an open debate’ and ‘a longer Dáil debate’. While the parliamentary vote was deferred from December into 2021, given the government’s seeming commitment to ratification, resistance from social movements and from within the Green Party effectively represents the last chance to block (or delay) Irish ratification.
CETA is a vanguard example of the new generation of “mega-regional” economic agreements designed to further advance trade liberalisation and investment capitalism. While it does reduce tariffs in trade on goods, many transatlantic tariff rates were already at a relatively low base. The lasting impact of the treaty will moreso be felt in the areas of regulatory “harmonisation” (often a euphemism for deregulation or lowering of standards), trade in services, finance, intellectual property and investor protection.
The push towards such mega-regional ‘strategic bilateralism’ has emerged in the context of global capitalism’s response to the 2008 financial crash, the West’s manoeuvring around China, and the impasse generated by global South resistance to the global North’s self-indulgence and obstructiveness at the World Trade Organisation. This mega-regional agenda is geared towards unlocking new sites of accumulation for capital, immunising it as much as possible from democratic interference, locking in pre-existing privatisations, and further embedding an international economic order that privileges the interests of capital over labour and environment. This comes into sharp focus when we see how soft CETA’s labour chapter is, how weak its enforcement mechanisms, and how little agency workers and unions are given in comparison to the rights, protections and legal agency bestowed on corporate investors.
CETA ‘is a corporate-driven, fundamentally flawed treaty’
According to the UN Independent Expert on the promotion of a democratic and equitable international order, CETA ‘is a corporate-driven, fundamentally flawed treaty’ which likely ‘will dilute environmental standards, food security, and health and labour protection’. It has been opposed in Ireland and across Europe over the past decade by an unusually broad coalition of environmentalists, socialists, trade unions, human rights and global justice organisations, public health foundations and charities, food cooperatives, farmers, small businesses and transparency campaigners.
Despite such opposition, the European Commission and the Canadian government eventually signed off on a final text of the agreement in October 2016. Under its terms, the trade-related chapters of CETA began to apply (“provisionally”, but indefinitely) in 2017. But the investor protection chapter and some of the more sweeping economic aspects of the agreement relating to financial services, tax and intellectual property go beyond the exclusive competence of the EU institutions. As such, the agreement requires ratification from each individual EU member state before those sections and the agreement as a whole can come fully into force. 15 of the 27 EU states have ratified it so far. Constitutional court reviews are ongoing in some states including Germany (while in Ireland the argument has been made previously by Sinn Féin and now also by the Greens’ Just Transition group that CETA’s transfer of jurisdiction to an international tribunal would in fact require a Constitutional amendment – as was the case when Ireland joined the International Criminal Court). Cyprus was the first member to reject CETA in a parliamentary vote, but will likely be given certain concessions to ratify it in future.
The reasons for opposing CETA are many and multi-layered. In the bigger scheme of things, it is part of the project of structuring a trade regime premised on a destructive eternal growth logic, which knowingly contributes to increased carbon emissions and climate breakdown. This is a regime that prioritises market competition over public provision of services and constitutionally locks in existing class and industrial relations to the benefit of transnational capital. At a more granular register, CETA’s labyrinthine structures for regulatory harmonisation are already at work and will slowly and quietly chip away at environmental, health and food standards. The headline issue in the contestations over CETA, however, is its inclusion of an Investor vs. State Dispute Settlement (ISDS) mechanism in the form of its Investment Court System, and everything which that represents.
International investment law: neocolonial origins and neoliberal mutations
International investment tribunals are a neocolonial creation. From the late 1950s onwards, as the Third World liberation movements continued to win independence from European imperial rule, the multinational corporations of the global North had to find new paths of access to the resources and labour of the South. Investment treaties became a vehicle for this, under which states across Asia, Africa and Latin America would grant access to corporate investors primarily based in Europe and North America. But those investors were worried about potential nationalisation or regulation policies that might affect their property and profits, and refused to trust the legal systems of the global South states to protect their interests. So at their behest the global North states insisted on bypassing the jurisdiction of host state domestic courts in favour of private international investment tribunals.
A fragmented system of thousands of bilateral investment treaties and ad hoc investment dispute panels grew out of this. Investors have been able to bring claims against states for policies that impact their expected profits. Many cases have ended with huge sums being awarded against states to compensate investors – often in the extractive industries – for loss of earnings. There are all too many stark examples: the multi-billion dollar award against Ecuador to Occidental Petroleum over legitimately-annulled oil concessions; multi-million euro awards to private European water and utility companies for indirect expropriation of profits via Argentina’s decision to cap the rates they could charge; awards in favour of a European landholder and colonial-legacy forestry company who challenged land reforms in Zimbabwe, resulting in the eviction of Indigenous communities ‘in the name of white European capital, again’. As of 2018, states had been required to pay $88 billion to corporate investors in disclosed ISDS rulings and settlements (with the figures in many more cases remaining undisclosed).
In Ireland in recent years we have increasingly seen the problem of opaque “Attorney-General says no” justifications functioning to thwart progressive legislation.
A Transnational Institute report revealed that a small coterie of corporate law firms, financiers and arbitrators actively fuelled an investment tribunal ‘boom’ which they themselves profited hugely from. Gus Van Harten’s research shows that ISDS tribunals have been overwhelmingly most beneficial to (and actively exploited by) the biggest multi-billion dollar companies. The mere risk of potential litigation also creates a regulatory chilling effect that has been widely acknowledged, most recently in the shadow of pending cases brought by extraction companies against state bans on fracking or the phasing out of coal power. In Ireland in recent years we have increasingly seen the problem of opaque “Attorney-General says no” justifications functioning to thwart progressive legislation.
This is the backdrop reality against which CETA incorporates its ISDS model. If it receives full ratification across the EU member states, it will serve as the template for the EU’s expanding portion of the global ‘spaghetti bowl’ of preferential trade and investment agreements. The EU has made clear that that ‘the Commission will continue to negotiate the Investment Court System in bilateral agreements with other partners’, and has done so already in its engagements with Singapore, Vietnam and Mexico. The Commission is now focused on finalising deals across south-east Asia, Australia and New Zealand. It also seems likely that the EU-US project formerly known as TTIP will be resuscitated in another guise sooner rather than later. All of this will aim to consolidate a dominant Western-led template for investor protection as movement towards comprehensive bilateral agreements with China continues. The EU and China have indeed recently reached an initial agreement in principle towards an investment treaty – to open up Chinese market access for European capital, but with the ISDS aspects to be negotiated at a later stage. As such, CETA and its ISDS mechanism represent the first major domino in the EU’s chain of mega-regional arrangements – if it falls, it will accelerate the ongoing race to the bottom.
The overwhelmingly disproportionate access that such corporate lobby groups have to European Commission negotiators has been well documented.
In 2014–15, when 97% of people in an EU-wide consultation on ISDS declared their opposition to any such system, and hundreds of thousands took to the streets in demonstrations across Europe, the European Trade Commissioner laid bare the reality of notional EU democracy: ‘I do not take my mandate from the European people’. The European Services Forum had been clear that strong investor-oriented ISDS was a red line: ‘Industry will oppose any deal in which investment protection is traded off against public policy objectives, including human and labour rights’. The overwhelmingly disproportionate access that such corporate lobby groups have to European Commission negotiators has been well documented.
In the 2016 repackaging of CETA’s ISDS under the banner of an Investment Court System, the EU tinkered around the edges to make some procedural improvements on transparency and appeals. A group of international legal specialists concluded that even from a purely procedural perspective, however, the idea that CETA solves the problems of ISDS is a ‘fallacy’, while Gus Van Harten found that these adjustments did ‘very little to alleviate key concerns arising from the CETA’s proposed special rights and privileges for foreign investors’. The fundamental premise and problem remains: it is a one-way parallel system which by passes the state legal system and which only foreign investors can access.
A green light from the European Court of Justice?
The final CETA text prompted the Green Party to adopt its current policy, which states that ‘the practice of granting investors exclusive rights outside of the normal courts system to sue countries for changes in legislation that impact profits is an affront to democracy’. Nothing substantive has changed since that policy was instituted, but party leader Eamon Ryan now claims that the April 2019 opinion of the European Court of Justice (ECJ) – finding CETA’s ISDS provisions to be compatible with EU law – changed his mind. He made no statement on this at the time. There were clear statements in response to the opinion from environmental organisations like Friends of the Earth, however: ‘Legal is not the same as fair. Corporate courts remain an unacceptable system that give VIP rights to big business and challenge our social, environmental and health standards. They are deeply unpopular with EU citizens, and we call on EU member states to reject the ratification of CETA’.
The concerns over CETA have always been far deeper than the narrow technical question of compatibility with EU primary law. The ECJ opinion found that granting jurisdiction over the disputes arising from CETA would not impinge upon ‘the autonomy of the EU legal order’ – that is, the requirement that the ECJ itself has exclusive jurisdiction to interpret EU law. But the CETA investment court was never intended to interpret or adjudicate directly over questions of EU law. And so the ECJ opinion found no reason to declare it incompatible, as long as it refrains from interpreting EU law.
The problems, however, are (i) that EU law and its ‘constitutional architecture’ are not inherently designed to prioritise the interests of workers, the environment, or progressive social policy over those of capital in the first place; and (ii) that the ISDS court will adjudicate its disputes based on the law of CETA and its investment chapter, whose very raison d’etre is to protect investors. A group of European and international lawyers reiterated the reality in simple terms recently: ‘there is no other system in the international legal landscape that affords private actors so much power’; it represents a ‘limit to the meaningful realisation of democracy’.
The ECJ did say that it was satisfied that CETA retains enough potential scope for states to regulate in the public interest, and that giving jurisdiction to the investment court will not inherently obstruct that. The experience of investment law over many decades, however, suggests otherwise. When investment tribunals are met with a “clash” between investor rights on one hand, and human or environmental rights on the other, even where they do acknowledge the latter (though in many cases they have instead ‘essentially ignored’ them altogether), the “balance” that they end up striking overwhelmingly tilts towards investment protection. This false balance simply reflects the underlying structural imbalances, while seeking to cover them over. Commentary sympathetic to investment tribunals, for example, has argued that privatisation and related investment protection for private water companies (in cases against Argentina, Bolivia and Tanzania) also helped to protect the human right to water. But the reality is that none of those cases came close to finding the right to water as justifiable grounds for human rights or the public interest to trump investor rights. It functions instead as a more limited mitigating factor which is in fact co-opted to legitimise investor protection. This is not surprising; these decisions are being made by investment tribunals, not human rights or environmental tribunals. And the problem, ultimately, is not the cases, it’s the system.
The particular additional risk when a system that promotes private power is faced with a crisis of perceived legitimacy (as ISDS has increasingly been) is that, as Sornarajah explains it, ‘a defence comes to be made through the use of lofty ideals’. He highlights the ‘mutations’ that occur in investment law to maintain the vitality of neoliberalism by co-opting elements of human rights and administrative law. By appealing to its improved procedural facets and its notional acknowledgement of the principles of the public interest, fundamental rights and equal treatment, the Investment Court System embodies such a mutation. It essentially draws on the abstract principles of liberal legalism to launder the material realities of neoliberalism.
We obviously cannot know in advance what specific claims will come before the investment court over the next 10, 20, 50 years, how they will be decided, or how they will affect socio-economic rights and climate action in Europe, Canada and the global South. But we do know that proponents of NAFTA in the 1990s, for example, would not have acknowledged that agreement could result in states being forced to repeal public health legislation banning fossil fuel additives and compensatecorporations in that sector for loss of profit, or agrochemical companies receiving compensation settlements because of state bans on pesticides. Canada found itself on the receiving end of many such cases brought by US companies. At the same time, under NAFTA and elsewhere, Canadian companies have proved themselves very willing to pursue the type of anti-environmental legal proceedings that even economists like Joseph Stiglitz have denounced as ‘litigation terrorism’. The prevailing evidence suggest that CETA’s ISDS is indeed ‘incompatible’ with the purported future direction of the EU towards a green new deal, it represents a ‘stumbling block for a green transition’ and will only raise the cost of climate action.
ISDS, by its nature, offers no potential benefits or recourse for workers, for the climate, for social rights.
We know, based on several decades of experience, of the structural biases that investment tribunals have tended to foster. And we know that CETA is at the head of a growing queue of trade and investment deals granting these rights to investors. So we know the risks are significant. We likewise know that ISDS, by its nature, offers no potential benefits or recourse for workers, for the climate, for social rights. Regardless of whatever spin is put on it, those Green Party leaders now advocating for Ireland to ratify CETA and become voluntarily ensnared in its litigation web have not been able to put forward any positive case for ISDS. Their argument is essentially: it hopefully won’t be as bad as we thought.
Ultimately, the overarching rationale for ISDS is that multinational investors have insisted on it. From the outset, post-colonial states in the global South were given the ultimatum that there was no alternative: they needed the foreign investment, and the investors needed internationalised legal protection. Having borne the brunt of this, global South states have begun to challenge and extract themselves from these arrangements. The logics of capitalist realism and “there is no alternative” continue to suffocate mainstream political thinking, however, particularly in the West. In The Nine Lives of Neoliberalism, Quinn Slobodian and Dieter Plehwe consider neoliberalism’s longevity in the face of persistent declarations of its demise, particularly after 2008. They reflect on how as both a body of thought and set of practices, neoliberalism has proven ‘agile and acrobatic’ enough to adapt and survive. International investment law is one vehicle that neoliberalism has harnessed to facilitate deregulation, privatisation and competition in ways that more democratic spaces would ostensibly not permit. It is naïve to think that mega-regional agreements like CETA and their investor protection mechanisms will prove substantively different. But there are alternatives, beginning with non-ratification as an essential and urgent turn towards a more progressive internationalism.