The EU-Canada Comprehensive Economic and Trade Agreement, commonly known as CETA, is one of the EU’s new generation of progressive free trade agreements. CETA is designed to benefit EU and Canadian companies through improved trade flows in support of increased employment for our citizens. The elimination of tariffs, reduced trade barriers and simplified customs procedures that flow from CETA all make it easier and cheaper for Irish companies of all sizes to export to Canada and vice versa. Outside of Europe, the US and China, Canada is our largest indigenous export market with more than 400 Enterprise Ireland clients doing business in the Canadian market employing over 6,000 people.
Diversifying trade is an important part of our Brexit response and it will be an important factor in our recovery post-pandemic. To this end, the best way to achieve export growth and market diversification is by improving market access and reducing costs of entering those markets which is what CETA is designed to achieve. Given our historic ties with Canada, Ireland’s enterprises are particularly well placed to benefit from CETA.
CETA has provisionally applied since 21st September 2017, meaning a great many of the benefits of this Agreement are already in place. Provisional application is a standard mechanism provided for in the EU’s Free Trade Agreements. This means that those areas where the EU has full competence may be applied immediately once the Agreement has been voted for by Council and the European Parliament. It is an important mechanism that allows consumers and companies to benefit from a trade agreement at an early stage, as the completion of national ratification procedures across all 27 Member States can take several years. The full coming into force of the Agreement once ratified across all Member States, will see the implementation of the Investment Chapter of the Agreement including the resolution of disputes between investors and states, should they arise.
All international trade agreements have dispute resolution arrangements. Where such agreements cover (i) trade in both goods and services and (ii) investment rules and protections, then there must be a dispute resolution mechanism that covers investments. The EU’s new approach to investment protection is the Investment Court System (ICS) which is contained in CETA and replaces the old Investor-State Dispute Settlement or ISDS mechanism.
ISDS, which has been in existence since the 1950s, enables overseas investors to resolve disputes with the government of the country where their investment is made through binding international arbitration. ISDS has been included in more than 2,000 investment treaties but has proved controversial in recent times and is now regarded as outdated by the European Commission. In this regard, the Irish Government considered the European Commission was right to seek to address the concerns raised by NGOs and others regarding ISDS in seeking to develop a new replacement mechanism – the Investment Court System (ICS) – to address concerns on transparency, legitimacy and public interest. ICS is the Investment Dispute Settlement system incorporated in CETA.
ICS addressees the concerns around the old ISDS system through:
- Greater transparency – hearings will be open and comments available on-line, and a right to intervene for parties with an interest in the dispute will be provided;
- Safeguards to prevent forum-shopping;
- Provisions for the swift dismissal of frivolous claims should they arise;
- The maintenance of a clear distinction between international law and domestic law;
- The avoidance of multiple and parallel proceedings in the ICS and national courts, and;
- The establishment of a permanent list of arbitrators.
The reforms to investment protection mean the ICS will involve:
- a public Investment Court System composed of a first instance Tribunal and an Appeal Tribunal;
- the establishment of a permanent list of arbitrators with qualifications – comparable to those required for the members of permanent international courts, from which members will be selected to hear individual cases; and
- precise limitations on the ability of investors to take a case before the Tribunal.
Irish companies investing in Canada have only one legal system and one constitutional framework to navigate should they believe they have been discriminated against. In contrast, Canadian companies investing in Europe are faced with 27 legal systems and constitutions. The Investment Court System provides a single, consistent mechanism where investors, be they Canadian or European, can seek redress.
It is also important to point out that CETA reaffirms the EU and Canada’s right to regulate to achieve legitimate policy objectives, such as the protection of public health, the environment or consumer protection, meaning measures relating to plain packaging on cigarettes, or minimum alcohol pricing can continue to be introduced. Further, an investor’s loss of profits will not be sufficient grounds for making a claim against a Government. Any claim must be based on discriminatory and unfair treatment.
On its own initiative, the European Commission referred to the Court of Justice of the European Union (CJEU) the question of competence as it applied to the EU and the Member States regarding the signing and ratifying of the EU-Singapore Free Trade Agreement (ref 02/15). The resulting Opinion of the Court, which came after the agreement with Canada had been reached, reinforced our understanding as to where Member State competence rests in relation to certain investment aspects and the attendant obligation on Member States to ratify agreements containing such commitments.
In a consequent move aimed at greater transparency, the European Commission adopted a new approach in the case of Agreements with Vietnam and Singapore, separating out the "EU-only" from the "shared competence" elements into two parallel agreements - an exclusively Free Trade Agreement (FTA) and an exclusively Investment Protection Agreement (IPA) respectively. The IPAs concluded with both countries contain ICS provisions and will each fall to be ratified by all EU Member States in accordance with their national requirements, in due course. So, ICS continues to be the EU's ambition for IPAs.
Regarding the EU-China Comprehensive Agreement on Investment (CAI) which was agreed in principle on 30 December 2020, initially, the CAI was intended to contain Investment Protection provisions, however, specific Investment Protection negotiations have not yet been concluded and will now continue on a separate track with the CAI focused on market access opportunities and related matters. However, the EU and China have committed to striving to conclude Investment Protection negotiations within the two years following the signature of the CAI and the EU ambition is for an ICS outcome.
The EU is not a party to a third country agreement, but in relation to Mexico I can assure the Deputy that in the modernising of the EU’s Association Agreement with Mexico, ICS provisions are included.
As far as the EU-UK deal - the TCA - is concerned, the Deputy will be aware that this was very much a “bare bones” agreement, negotiated in record time and, consequently, omitted many traditional elements of an FTA and left others for further negotiation and settlement. So I do not think that the TCA can be taken as any sort of exemplar of a model ambitious trade and investment agreement.
As a small, open economy, Ireland has benefitted immensely from our export orientated enterprises trading across the globe and, therefore, we fully support balanced international trade and the suite of EU Free Trade Agreements that seek to underpin this. Equally, Ireland has been an attractive destination for Foreign Direct Investment (FDI) for many decades and participating in EU-Third Country Agreements that address Investment Protection continue to assist marketing Ireland as a competitive FDI-friendly jurisdiction for multinational enterprise to make their investments with the attendant jobs and prosperity that that entails.
Finally, it should be recorded that investment disputes can continue to be litigated before national Courts and what ICS offers is an alternative approach for an aggrieved investor.
