Joint Committee on European Union Affairs díospóireacht -
Wednesday, 2 Jun 2021

Comprehensive Economic and Trade Agreement: Discussion (Resumed)

Chairman

Fuaireamar leithscéal ón Seanadóir Chambers. Ar son an choiste, ba mhaith liom fáilte a chuir roimh an Uasal Rupert Schlegelmilch agus an Uasal Colin Brown. They are very welcome. Mr. Brown is head of unit for legal aspects of trade and sustainable development and investment. I extend a warm welcome to Mr. Schlegelmilch who is acting deputy director-general at the Directorate-General for Trade in the European Commission. We look forward to today's engagement.

Before we begin, all witnesses are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction. Witnesses participating in this committee session from another jurisdiction are advised they should also be mindful of their domestic law and how it may apply to the evidence they give.

Members are reminded of long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. I remind members of the constitutional requirements that members must be physically present within the confines of the place in which Parliament has chosen to sit, namely, Leinster House or the Convention Centre Dublin, to participate in public meetings. I will not permit a member to participate where they are not adhering to this constitutional requirement. Therefore, any member who attempts to participate from outside the precincts will be asked to leave the meeting. In this regard, I ask any members who are participating via Teams to confirm, prior to making their contributions, that they are on the grounds of the Leinster House campus.

I ask Mr. Schlegelmilch to make his opening statement, and apologise if I am not pronouncing his surname in the proper way.

Mr. Rupert Schlegelmilch

I thank the Chairman. There is no problem with the name. My Gaeilge is non-existent so I think I would have similar issues.

I thank the committee for this opportunity to be here to discuss CETA. CETA is the result of many years of engagement between the European Union and Canada. I was part of the negotiating team for some years. It is a testimony to how close we are and the vigour of our bilateral trade relations. The project benefited from strong backing from the beginning. The Commission negotiated CETA on the basis of a mandate given unanimously by EU member states. Member states unanimously voted in favour of the agreement in the Council in 2018. It had strong support in the European Parliament. In the seven years of negotiations, the intense engagement between the Commission, member states, national parliaments and the European Parliament brought the agreement to life.

From day one, since the entry into force of the provisional application of CETA almost four years ago, its benefits have proven certain. Before I get into the subject matter of CETA, I will say a word on the context of this discussion. The current pandemic is one of the most significant crises facing our generation and it will have far-reaching impacts on public health, employment and the economy. The EU trade policy is an important part of the economic recovery. Like in 2009, after the financial crisis, trade usually comes back quickly and is part of the locomotive to take us out of the crisis.

The crisis has shown how pressing it is to create a stable, legal multilateral and bilateral environment based on bilateral free trade agreements and the updated World Trade Organization, WTO, rule book as an important condition for sustainable growth. The Minister, Deputy Varadkar, was here on 26 May and made a compelling case about how good Ireland is at using the rule book and exploiting the open markets for a small economy which is successful internationally. In this endeavour to leave the crisis and make the rule book work for us, Canada is one of our staunchest allies. Canada was the first country to join the EU to protect an independent two-step system to settle trade disputes through a specific rule when the WTO could not do it any longer. We also have the Ottawa Group where, together with Canada, we are trying to reform the World Trade Organization, which is the backbone of those international rules. We also work with Canada on cutting edge issues such as global trade and health initiatives. We share many values. We are both democracies based on the rule of law with a society that is inclusive and tolerant and a system of governance that protects and serves its citizens, offering public services and public safeguards from healthcare to consumer protection.

CETA has become the central pillar of our political and economic partnership with Canada. It is only four years old but the economics speak for themselves. EU-Canada trade continues to grow steadily. Before the crisis struck, our bilateral trade was 25% higher than before we concluded CETA. Trade in goods was worth almost €70 billion. Even last year, when we had a dent in the numbers worldwide, we were still 15% higher than before CETA. We can see a positive trend in trade between Canada and Ireland. In 2020, the total trade flow of goods between Ireland and Canada was €2.1 billion, which was 50% more compared with before CETA entered into force. Ireland's goods exports to Canada were worth about €1.7 billion in 2020, which means Ireland had a positive trade balance. I spoke about how good Ireland is at exploiting these opportunities. Last year, for example, Ireland exported beef worth €11 million and spirits worth €72 million to Canada.

Trade policy is not just about opening markets. Trade also enables other policies to be implemented. CETA is a progressive agreement that has provided a framework to help the green transition, to work on gender equality, and to improve the participation of small businesses in globalisation. In the framework of CETA, we are about to conclude the first ever mutual recognition agreement on professional qualifications of architects that will enable Irish architects to have their qualifications recognised to practise in Canada. These small examples can be quite important for small enterprises and independent professionals. It is worth mentioning that it is not only about tariffs.

I know the bone of contention in debates here has often been the investment court system. I know the concerns expressed have been debated here before. I would like to provide information and clarifications that might inform the debate and, it is hoped,address some concerns. The investor-state dispute settlement system is not something we invented. CETA is not the first agreement which has these mechanisms. EU member states have approximately 1,300 such agreements and there are 3,000 internationally recognised agreements. These agreements have frequently been criticised. The Commission recognises the validity of some of the criticism and so have others. That is why, under the previous trade Commissioner Malmström, we reformed the system with the support of member states. We made sure the reform served our interests and took away some of the things which were not clear. Our first partners in this were the Canadians in CETA. They are helping us to push multilateral reform of these issues, which is vital.

A perception we often hear is that that CETA's clauses on services and investment protection could put at risk the key role of public authorities to regulate in the public interest. CETA fully protects the right of state and local authorities to regulate. This applies to all fields where public policy objectives are at stake, including health, the environment and consumer protection. No other EU free trade agreement has undergone the extent of public and legal scrutiny, particularly regarding the question of the right to regulate. The committee might be aware that the Belgian Government had the same concerns about the right to regulate and asked the European Court of Justice in Luxembourg to look into the matter. The court confirmed there was no such risk in its opinion delivered in April 2019. National and local legislators can have confidence that CETA does not affect their ability to regulate in the public interest. At the EU level, with ambitious agendas such as with the green deal, in Brussels, nobody wants to take any risks that we may not have regulatory autonomy when we implement these policies. CETA does not require privatisation of water, public housing, healthcare or other public services. Nothing in it prevents governments from designing their policies, such as their energy policies, providing public services or bringing these services back to the public domain provided that no discrimination is involved. That is without question.

Investment protection standards that we talk about have been carefully defined in the agreement and establish clear and strict conditions for investors to bring a successful case. While establishing a certain level of investment protection, CETA confirms that the mere fact we regulate, including in a manner that reduces investors’ expectations and profits, does not in itself create a breach under CETA.

I will address the dispute settlement system that we established, which is different from what has often been criticised as private justice or an ad hoc system of private arbitration. The new system makes the procedures to resolve investment disputes fairer, more transparent, independent and impartial. We have introduced multiple procedural guarantees to guarantee the impartiality of the system and the highest quality of adjudicators. As mentioned earlier, in the court's opinion of April 2019, it confirmed that the investment court system does not undermine democracy or the right to regulate and that it is fully compatible with the principles of judicial independence and impartiality under the European Charter of Fundamental Rights. Further, CETA is an important stepping stone to a multilateral investment court, which colleagues are working on, which will replace the old investment agreements' investor-state dispute settlement arbitration model, which some of our member states still have and are keen to see reformed.

Some will ask why the agreement has been concluded with Canada. It is a question that has been asked. Both Ireland and Canada have well-functioning legal systems. It is not clear that the ICS will ever have to be used in their bilateral relations. I wish to stress that it functions as a safety net, in case administrative acts or regulations discriminate against foreigners. A European investor cannot directly invoke CETA before a Canadian court. There have been isolated cases, even in Canada, where provinces have discriminated against foreign companies by taking property without providing for adequate judicial redress before the Canadian courts.

In conclusion, there is a historic push to reform the system and CETA is a stepping stone on that path. If the Irish Parliament chooses to vote against CETA, we will lose that part of our agenda. That is a responsibility that the Irish Parliament bears. It is why I am putting the case to convince the members that the concerns that have been voiced can be addressed.

CETA is not only a modern and forward-looking trade agreement. It is also the cornerstone of a strong bilateral relationship between two like-minded countries. Canada is really an indispensable partner with whom the EU can seek to address jointly global challenges such as WTO reform, investment governance, climate change, ocean governance and many other challenges that we face. Finally and more importantly, as our European SMEs strive to survive after the present crisis and create opportunities and find the instruments like CETA, it will deliver growth and jobs in the EU and Canada and will be part of the efforts to reinvigorate our economies.

Chairman

I thank Mr. Schlegelmilch for his clear and concise introduction to what is a rather complex area, to say the least. I call Deputy Howlin, followed by Deputy Ó Murchú.

Deputy Brendan Howlin

I thank Mr. Schlegelmilch for his most comprehensive presentation and for forwarding an advance copy of it for members to read.

The general disposition of the great majority of the members of this committee is very pro-trade. We absolutely recognise the importance of trade to Ireland. We are an open trading economy. Mr. Schlegelmilch correctly stated that the issue of focus of contention has been the inclusion of the ICS. We are trying to get behind the rationale of it and to see if it is an absolutely necessary part of it.

Mr. Schlegelmilch has addressed many of the issues that have arisen. I wish to put them again to him. First, one of the points that has come up repeatedly in the submissions that we have received, both from the public and lobby organisations, is the chill factor. Even if there is no legal impediment, the mere fact that the State can be sued has in the past in other countries, and there are cases to be instanced, had a chilling effect on progressive policy formation. I ask Mr. Schlegelmilch to address that.

My second point relates to the clear assertion made in his presentation that the European Court of Justice, ECJ, judgment states that there is no risk of impacting on a state's ability to regulate. That is what he said. We have heard other presentations. I will quote one line from a submission made by Dr. Suttle, an assistant law professor in one of Ireland's universities. In his written submission to the committee, he states: "There is little in the ECJ’s opinion on CETA to allay concerns about the constraints this regime will impose on states’ regulatory autonomy." One would imagine that a court's decision is clear. It either demonstrably states that it does not impact on the freedom of a state to regulate or there is some ambiguity about it. I would like Mr. Schleglemilch to be very clear in underpinning his assertion that no such risk exists.

My third and final point relates to another matter that has been presented to us, namely, that an ICS decision-making process must take account of the profit expectation of companies in making its determinations. That might have an adverse impact on public policy decisions of Government if such a public policy decision impacted on the legitimate expectations of profit of companies operating in the EU.

Mr. Rupert Schlegelmilch

I will kick off with a few answers then I will invite my legal colleague, Mr. Brown, to complement my points.

The question of regulatory chill has been at the heart of the debate and we recognise that. The first part of the answer is clearly that, as the Deputy mentioned, in the past we have seen cases being taken. Indeed, the Energy Charter Treaty, in particular, and other treaties have been so vague that people have taken cases, which could be seen to make people more cautious. However, in my view this is certainly not the case with CETA. One of the reasons for the reform is that we need greater clarity. For example, a clause was put into CETA, which states that for greater certainty, the mere fact that a party regulates in a manner that negatively affects investments or interferes with investor expectations, including its expectation of profit, does not amount to a breach of the obligation. We looked at the cases and the issues that were out there. I must emphasise that we did this because it was in our own interest - not just that of the local regulator in Ireland. It is also in the interest of the European regulator, which produces lots of legislation, for example, on the environment, which might be costly; or in the area of agriculture, in which there is major debate on what can be imposed. That is where we have taken great care to avoid a situation and to make sure and reaffirm the right to regulate for legitimate policy objectives such as public health, safety, environment, public morals and social issues. All of that is in the treaty, including the protection of cultural diversity. We went some way to making sure that the right to regulate is spelled out and CETA cannot be used against it.

On the issue of regulatory autonomy, my only comment would be that to some extent, the question is whether any international treaty or legal act affects that autonomy. Again, we are not doing anything that is not contained in local constitutional laws and so on, which place certain limits on what the State can do to its citizens. Nothing is expanded in CETA or any other international agreement. I will stop here because Mr. Brown will want to comment on the more legal aspects of it. However, from a policy perspective, I wish to underline that we spotted all of these issues because there were a number of cases out there. We tried to address the concerns in the written part of the agreement

Mr. Colin Brown

On Dr. Suttle's comments, one has to keep in mind, as Mr. Schlegelmilch stated, the substantive rules. The substantive rules essentially provide protection against discrimination, which, of course, is something we find in the EU treaties, the European Convention on Human Rights and the Irish Constitution. They provide protection against expropriation. Expropriation is allowed, but if it takes place, there must be compensation. Again, that is something that is contained in the Irish Constitution and the European Convention of Human Rights. There is a third set of rules around the proper administration by Government to ensure that Government acts objectively, following procedures.

This reflects roles we find in domestic legal systems, the European system and internationally. The main point to keep in mind is that these substantive roles are found in many other circumstances and are not regarded as chilling the ability to adopt progressive policies in those other circumstances. The ICS is the disputes element mechanism to deal with disputes that may arise. Mr. Schlegelmilch mentioned that the CETA treaty, similar to other EU treaties, provides for a better system of disputes element that ensures greater stability in the system.

On Dr. Suttle's specific comments, we would respectfully disagree. The Court of Justice of the EU which, of course, sets the law of the land across the European Union as a whole considered this. It received observations from a large number of member states, the Commission and the Council, and examined in a great deal of detail all the provisions the committee is examining and looking at. It came to the conclusion there were sufficient protections in CETA to ensure the right to regulate was respected. The clarity CETA has brought compared to older types of treaties means governments in the EU and Ireland can be comfortable there will be no chilling effect through the system.

Chairman

Does Mr. Schlegelmilch want to come back in?

Mr. Rupert Schlegelmilch

No. That was a very comprehensive answer.

Deputy Ruairí Ó Murchú

I thank Rupert and Mr. Brown for attending. I apologise for using his first name but I certainly was not going to take on his second. I imagine he might say the same about me.

In fairness, the witnesses have given some comprehensive answers. My view on the legalities is that we could bring in a different set of lawyers every week and never have complete agreement. My fear is the chilling effect, which Deputy Howlin dealt with. There is a fear that companies would have a right to legitimate expectations and could use the ICS as a means of taking the State to court. I have said it before and will say it again, and my view has not greatly changed, that I do not see why we would hamstring ourselves on this.

A considerable number of people query why we should sign up to this. Why would we not just allow the provisional application to continue? Everybody has talked about the wins, from a trade point of view, already in operation that do not relate to the ICS. These are not going anywhere. We know that 15 EU states have ratified and 12 have not. Cyprus has opposed CETA but has not notified the Commission. We know there are difficulties, particularly in Germany, France and the Netherlands. There are also people moving away from ISDS and being sued at this point in time as regards the Energy Charter Treaty, as mentioned by the witnesses. I accept the ICS may be different.

The EU is looking at some form of ISDS or dispute resolution model that would exist outside of trade deals. Where is that at this point in time? The bigger question is whether we can continue with the provisional application. There is not exactly a stampede of other states to, basically, sign off on the ICS. I do not see why we should be in rush to sign up to something a considerable number of legal minds, in disagreement with the witnesses, state would leave us open to being sued.

Mr. Rupert Schlegelmilch

First, member states will obviously have to take responsibility to ratify this agreement. We cannot prejudge what Ireland will do, but under international rules we are expected to follow up if we sign a treaty and commit ourselves. The credibility of the EU is ultimately at stake if we do not actually go ahead and deal with the issue, let us put it like that.

On the question of whether we can have an outside ISDS, there are models where these things have been separated at a later stage, which also keeps clear how the competency was divided between member states and the EU. However, on this particular point, when we negotiated CETA that was not so clear. We followed an inclusive approach for a long time and kept these agreements in one legal Act. The answer is that while it is clear there is no time limit for ratification we should, as a credible international actor, ratify the agreement. In a way, the model we will probably apply in the future, which is to have these as separate legal instruments, is not an option in this particular case because the whole agreement would have to be renegotiated and the whole process started from the beginning. That would also be seen by our Canadian partner as going back on something we have studiously negotiated for a long number of years.

Deputy Ruairí Ó Murchú

I forgot to mention an issue regarding Canadian provinces and whiskey, which was sorted out. Was that on the basis of bilateral negotiations between this State, or other actors within the EU, and the Canadian Government? Can I get some clarity on how exactly it was sorted out?

Mr. Rupert Schlegelmilch

I will try. I am not 100% per cent sure what the Deputy referred to. Until last month, we were negotiating with the Canadians about some of the discriminatory rules under the provinces' schemes for managing their liquor. That was obviously something linked to CETA. We actually had commitments in the agreement to level the playing field between local producers and imported wines and spirits. We are making progress there and it is a benefit of CETA that we have a strong position on this issue.

Deputy Ruairí Ó Murchú

The Commission was successful in negotiating directly with the Canadian Government.

Mr. Rupert Schlegelmilch

The Canadian Government had to go back to the provinces, Quebec and Ontario, to force them to comply. It was not only us who were leaning on them. They also lost a case at the WTO on these issues.

Deputy Ruairí Ó Murchú

I accept that but there were other modalities outside of an ICS. I appreciate Mr. Schlegelmilch's answer. I apologise for leaving, but LMFM awaits.

Deputy Neale Richmond

I thank our guests. For their sake, we should explain that LMFM is easily the most important radio station to Deputy Ó Murchú and many others in Dundalk. The Deputy asked many of the questions I was going to ask but from a slightly different mindset, which is understandable. I want to push on with some of the points he made and some of the answers that have been given. I thank both our guests for a substantive opening address and, indeed, responses so far, which have addressed head-on many of the issues that have floated around these various engagements. It is refreshing and welcome. We are all very grateful for it.

The witnesses spoke about the experiences of reopening and where we are on the need to finish off CETA. I will move more generally to the issue of EU trade policy. We will question our Minister for Enterprise, Trade and Employment in the Dáil tomorrow morning and he will reflect on the most recent trade Council meeting held just a week ago.

From Mr. Schlegelmilch's professional perspective, how important is the Comprehensive Economic and Trade Agreement, CETA, the discussions taking place and the final ratification for the entirety of European trade policy in the coming decade, bearing in mind we are coming out of a pandemic and negotiations are ongoing with other jurisdictions, which are being closely watched as is the CETA process? They are many other jurisdictions where the European Union would be ambitious to conclude trade negotiations, jurisdictions that offer a major trade potential to Irish exporters and to all exporters.

Mr. Schlegelmilch mentioned the engagement and submissions made by all member state governments and the various European institutions. At what stage have either of our guests or their colleagues engaged with other member states' national or regional parliaments on CETA, to what extent has that level of engagement taken place, what issues have been raised and is there a common thread in that respect across the Union? Could they flesh out for our sake the extent of stakeholder engagement that has gone into this process with the European umbrella organisations or various others from the non-governmental organisation, trade, business and representative sectors? An argument has been put forward that this is somehow being rushed. I was a rapporteur on a trade file in the European Committee of the Regions nearly seven years ago and we were talking about CETA then. I fail to understand how this is being rushed. It would be important to underline this is not something that is being lumped on the Irish Parliament at the last minute. This agreement has had years and hundreds of thousands of man-hours invested in it on our behalf by the Commission and other institutions. I would appreciate if Mr. Schlegelmilch could provide clarity on those points.

Mr. Rupert Schlegelmilch

I am more than happy to provide some more information on how this agreement came about, how we deal with it and where it sits in overall trade policy. We usually refer to CETA as the cutting edge of our trade policy because it has not only classical issues like removing tariffs, which are still important because tariffs work like a tax, but it has a host of issues. I mentioned the arcane business of the qualifications of architects as an example of where we are trying are trying to make life easier for smaller businesses. Under CETA, we have a regulatory co-operation forum. It is a dedicated forum where we consider issues such as consumer product safety and what we can do to work better together on that. We worked on cosmetics testing requirements. For a small cosmetic producer the testing costs can be prohibitive in other markets. We consider drug products, including sunscreens and such products right down to toothpaste, to address the technical area of trade. We also work on small and medium enterprise sector issues. We have dedicated meetings on small and medium enterprises because we know smaller companies cannot invest like big companies to survey foreign markets. If they make an investment somewhere else they have to be sure it works. We work on issues such as clean tech climate change. We just had a workshop on clean tech opportunities in both Canada and the EU in order to get companies acquainted with a regulatory environment and to smooth the path for them. I have not mentioned the issues of gender, trade and sustainable development where we are trying to be as forward looking as we can to make sure trade works towards our overall policy goals, which are prosperity, the green transition and the digital transition.

For us, CETA is greatly important because it shows what two likeminded partners can do to make modern trade rules, which address many issues such as sustainability, gender and consumer protection to give globalisation a human face which is people-centred. This is why CETA is important. We have been trying, with some success, to showcase CETA in our other relations and many of the ideas we developed in CETA are now part of a negotiating agenda with other countries.

On the Deputy's question on how we dealt with state stakeholders, he already referred to it; we had a civil society process during the negotiations. We have weekly meetings with the member states on trade with the Council. We had a great number of civil society meetings and consultations. The whole reform of the investment court system was done in a consultation where we had 140,000 contributions from citizens across the board in order to get it right and to address the issues on investment on the investor to state dispute settlement. We continue to involve the stakeholders.

I mentioned the regulatory co-operation forum where business organisations from both sides can work on these issues. We have an advisory group on trade and sustainable development, which meets at the top end of the committee and it meets the domestic advisory group. They talk to each other directly. This is part of a trade and sustainable development chapter where unions, NGOs, and others have a seat at the table to discuss how CETA is implemented. We will continue that engagement. This agreement has to live not by the Commission bureaucrats doing their job but by citizens, businesses, NGOs and unions working together to see how we can make globalisation work for all of us. That is the intention of CETA, namely, to be modern and forward looking.

We have had discussions in other parliaments. I participated in meetings in Berlin. I have been to the Netherlands and to other parts of the Commission. Commissioners have been speaking in France and elsewhere. The debate is very alive. We do not shy away from this debate because we think we have a good agreement to defend. It is true we have to answer these questions. There are people who need to be convinced we are doing our best. In a number of member state parliaments we have had invitations to do exactly what we are doing here, namely, informing members what we think this agreement is.

Chairman

I thank Mr. Schlegelmilch for that comprehensive answer. I will move on to Deputy Harkin to be followed by Senator Martin.

Deputy Marian Harkin

I apologise for having to leave after I speak as I am due to speak in the Chamber. I thank both our guests. I read their presentations and they are very comprehensive. I was a Member of the European Parliament for quite a number of years and am fairly familiar with the background to all of this. I am certainly not an expert but I am familiar with it. I am pro-trade, I voted for many trade deals, and I agree this agreement is progressive, modern and forward-looking but there are issues. The main one we discussed was the investment court system, ICS, or the investor state dispute settlement, ISDS. I agree this is a much better form. It is reformed but it was put into this treaty because the Commission or the Canadians expect it will be used. Something was not put into it that would be a redundant measure. There is the expectation it will be used. As far as the ISDS or the ICS is concerned, many countries have them in trade treaties but Ireland was one of the few countries that was almost an ISDS free zone. There is the energy charter treaty etc. but we have been largely ISDS free, yet we have managed to trade. We say we are small open economy, and we are, but we have managed to trade without the need for an ISDS. That is an important point to make. When Irish citizens listen to this debate that will be one of their questions.

I would make a final point but I come to my questions. I agree the chilling effect on regulation will be much less in the ICS than in the ISDS. It was also stated that reducing investors’ expectation of profits does not create a breach under CETA. I agree that was said as if it was something positive but the truth is that is how it is for everybody. Our guests could ask any Irish farmer about their expectations under the Common Agricultural Policy, CAP, and they would see that as just being normal.

I will move on to my questions. Mr. Schlegelmilch said the ICS is a safety net to prevent discrimination against foreigners.

That is not correct. It prevents discrimination against foreign investors but there is no protection for workers outside what is in the treaty. I know the ILO conventions are there and I am not speaking about the treaty itself, as the treaty is quite positive. We are talking about protections outside the treaty. The only people who are protected outside the treaty in a separate court are investors, not workers, not the environment and so on. If I am speaking to Irish citizens, how do I say to them that this treaty protects foreign investors but not workers?

Second, the Commission document tells us there is a 50% increase in trade compared with the position before CETA. In other words, without ratification of this part of the treaty, the trade deal seems to be working quite well. In this Parliament, we have three choices. We can vote for it, and that is the end of it, we can vote against it, or we can defer it. I would like to hear the views of the witnesses specifically on the last one. I know Deputy Richmond asked the question and it is a bit of a repeat, but I would like to hear the witnesses’ views on the fact it might be decided here to defer a decision.

My third question refers to some other trade deals, for example, EU-Japan. The witnesses can correct me if I am wrong as I am not as up to date on this as I used to be. As far as I know, the new NAFTA does not include investor-state dispute settlement, ISDS. Canada saw the need to include it with the progressive EU but did not include it with the US and Mexico. If it is not in NAFTA and not in some other trade deals, why specifically is it needed in CETA?

My final question is separate to that and is around positive and negative listing. When there is positive listing, what is listed is in, it is done, it is dusted, and it is finished. However, negative listing does not list what is in; it lists what is out, and that means everything else is in. It is a dynamic agreement and there could be new services, new aspects of technology and so on, and they will all be included. I want to ask the witnesses’ view as to why that is the situation with this deal.

I apologise but when the responses of the witnesses are finished, I will have to leave.

Mr. Rupert Schlegelmilch

I thank the Deputy for her questions. Again, they are absolutely to the point of what we need to discuss here. On the question of how to deal with the rights and concerns of workers and people who are not investors, we are trying to address that in the sustainability chapter, where we make sure workers, unions and NGOs have a seat at the table. The investment protection part is specifically for companies because companies invest a lot of assets, to put it like that. That is not putting it above the dignity of workers or the asset of work, which is also human capital, but it is a different situation. We are trying to make sure the trade agreements can be scrutinised for these aspects through the dedicated mechanism of the domestic advisory group and the civil society forum, complemented, of course, by the legal implementation of the ILO conventions, which are expressly called upon to be implemented and which provide the basic rights, such as the ILO’s right of association and so on. We have found another mechanism to strengthen these rights. If I may say so, this is very important and we have used it in the free trade agreement, FTA, with Korea, whereby we have taken the Koreans to court under the dispute settlement system of the trade agreement for not fully implementing ILO conventions. Therefore, our agreements do provide protection in a different form for our workers and employees.

On the second question on the deferral of the decision, I have said what I have to say. It is not for me to say anything on the sovereignty of the Irish Parliament in this respect. All I can say is that the normal way of things under international law, if I am not mistaken, and Mr. Brown may want to come in on this, is that there is a legal expectation that you follow through on what you have signed up to in the Council on this particular point.

On the question of NAFTA and US-Mexico, this is slightly ironic because the US-Mexico deal, the USMCA, as it is called, does have investor-state dispute settlement but the Canadians wanted to reform the system and the Americans did not want to, so it is there for the Mexicans and not for the Canadians. It may be that the new US Government would have seen things quite differently but, in any case, it is clear this is more a question of the impossibility of doing away with the sort of thing we did away with in CETA. There have been a number of cases that American companies had taken under the old system, although the Canadians were keen to reform it as well. Since they did not get their way, the decision was taken to take it out. It is not that they do not want it, but just that the Americans were not flexible enough to deal with the issue.

Mr. Brown may wish to comment further.

Mr. Colin Brown

Yes, I wish to address several points. I will return to this question of the chilling effect and pick up on Deputy Ó Murchú’s points as well. The job of academics and professors is to have opinions on questions of interpretation but, in this particular case, the European Court of Justice, the highest court in the European Union, has expressly looked at this question of whether there is an inconsistency or a risk for regulatory autonomy. It has come to the view, in paragraph 160 of its opinion, that “the Parties have taken care to ensure that those tribunals [of the investor court system] have no jurisdiction to call into question the choices democratically made within a Party”. Therefore, the European Court of Justice is saying in black and white that these tribunals do not have the jurisdiction to call into question the democratic choices which are made by the Irish Government, the Irish Parliament or other parliaments or governments within the European Union.

I also want to pick up on the revision of NAFTA and to point out that Canada and Mexico are also party to the CPTPP, the comprehensive trade partnership for the Pacific region, and that has investor-state dispute settlement in the old style compared with what we are putting forward in CETA. It applies there, it applies to Canada-Japan, it applies to Canada-Korea and it applies within the countries that are party to that. One of the issues we have in our investment policy is making sure that when EU investors are abroad, they have comparable protections to their Canadian competitors or their Japanese competitors when they are also investing in third countries, which is why this is important.

I want to pick up on Deputy Harkin’s first point on the link between trade and investment. Something we now know about the modern global trading system is that a great deal of trade is between related companies, and many companies, rather than simply exporting from one country to another, invest in that other country to better exploit the market there. Trade is not only via exports from one country and it also has this element of investing to better service a market abroad. Canada, being fairly far away from the European Union, is a perfect example where that makes sense.

In that context, the safety net we are talking about in CETA supports trade. It is part of ensuring that EU companies from Ireland and other member states can trade effectively with Canada and other third countries. One can reimagine this in an EU context. If an Irish company has set up a base in France and has an issue with French authorities, we need to keep in mind it can go to the French courts and, ultimately, the court of justice to protect it. This is not exactly the same but, in a way, similar. We are trying to ensure that, if a European company thinks the best way to earn an income and guarantee jobs is to invest, it has a certain level of protection.

Deputy Marian Harkin

Do the witnesses have any thoughts on the question on positive and negative listing?

Mr. Rupert Schlegelmilch

I forgot to answer this question. We chose the negative list approach after long internal discussions because it is a better, more modern way to comprehensively work towards trade authorisation. The exclusions are so broad that ever since the General Agreement on Trade in Services, GATS, was created we have not seen a new service which was not covered in one way or the other. Even the new technology area has exclusions for audiovisual services, for good reasons of linguistic diversity and so on. All the new services which have come up, Netflix and so on, are covered by the exclusions. The original list of services including the exclusions is so broad that we have not yet come to the problem that we inadvertently covered or did not exclude to both sides a service category. I hope that gives some assurances that this model is not a danger for unexpected things.

Senator Vincent P. Martin

Ireland is a pro-trade country. It is an island and an independent republic. It is modern, forward-looking and open for business. We cherish trade. The party I am affiliated to, the Green Party or an Comhaontas Glas, has a very proud European track record organised throughout the EU.

I have one question and I would be grateful if the European Commission's acting deputy director-general at the Directorate-General for Trade would answer it. It has not been answered to my satisfaction to date but I hope he can allay my concerns or persuade me otherwise. Is it absolutely necessary to have the investment court system? If so, why? He has said the EU did not invent ISDS. I agree. That is not a reason which makes it a necessity. He said that CETA is not the first agreement with ISDS. I agree, but I do not see the compelling necessity. He also said there is a long history of investment courts in European countries. I agree but in this instance I want to know if that is the best he can do.

I am not in favour of blindly following the crowd or blindly following history unless there is a compelling reason to give up our tried and tested independent court system in the Republic of Ireland. I would understand, if this was a trade agreement between Belarus and Myanmar, why investors would be nervous. However, in our country everyone is equal before the law. That is a constitutionally enshrined guarantee which is also guaranteed under EU law. If it is not broken, why fix it? Why do something superfluous and unnecessary that will have a damaging effect on goodwill? I do not see the necessity for it. Is there a weak state in the EU we are not being told about that? Do we all have to go to same way because someone does not have confidence in a certain state? I have confidence in Ireland and in Canada. I am not tied by history and I would like Mr. Schlegelmilch to tell me why it is necessary to remove the Irish judicial system from the picture completely.

Mr. Rupert Schlegelmilch

From our point of view, it is absolutely necessary to change the existing system. In this European project, we have a number of member states who see CETA as the best way to reform the old system. The likes of Ireland do not have the old treaties out there which have caused some of the uncertainties we are discussing. When we started these negotiations, there was unanimity at the Council to make the negotiation part and try to use that. That has effects for Ireland, which is bound by the Energy Charter Treaty. That treaty has some of the same issues we are trying to rectify in the ICS. There will be a positive effect if we continue to show the world reform is possible and we will also do that elsewhere. In the fully functioning legal and judicial system, it is not certain we will ever use ICS in the bilateral relation.

There is also the consideration that we have to be consistent. The Senator mentioned Myanmar and other countries. It is difficult to explain to the world that we want others to sign up for protection for our investors in their circumstances and then say we do not need it elsewhere in the world. There is a question of consistency where we need to be true to our own principles that we believe this is perfectly okay and, in our context, not doing anything that is available under Irish or European law in any case. We have a treaty which, in Ireland's specific situation, bilaterally creates something which was not there before but the advantages for the overall development of this policy, including areas where Ireland is already part of the process, are worth the effort.

Deputy Dara Calleary

I thank our two speakers. This was a very useful meeting in terms of clarity. Mr. Schlegelmilch mentioned that nothing in the agreement would preclude services. He gave the example of water coming back into public usage. He mentioned that was provided there was no discrimination. How do we define discrimination? A private company or consortium's discrimination may not be my discrimination.

Mr. Brown mentioned questions of interpretation. It is not just academics because lawyers and politicians tend to do a lot of that questioning too. Fine aspirations were laid out this morning by Mr. Brown and Mr. Schlegelmilch but, when lawyers get their hands on things, they can be different. They can be framed differently. Today's view of the ECJ is strong and the clarification is welcome, but it can be changed tomorrow by a different ruling in a different context. What guarantees protect the current view and statements of the ECJ, which are important in protecting national democracies?

What may change in future depending on the make-up of a future ECJ and on legal texts changing throughout the Union? What exactly will be the relationship between the investment court and the ECJ? Will there ever be a consequence whereby the investment court could supersede the ECJ?

Mr. Rupert Schlegelmilch

This goes deep into some of the legal issues. I am happy to hand over to Mr. Brown, who has thought about this a little more than I have.

Mr. Colin Brown

The Deputy is correct that we are setting down general principles and they have to be applied in practice in concrete cases. The provisions we include in CETA regarding the investment court system have in place a number of protections and mechanisms to ensure the approach taken will be the correct one. If an investor were to bring a case, both Canada and the EU would be involved in the litigation. I have no reason to believe to expect that there would be but if there were a case concerning Ireland, we would also work closely with the Irish Government on that case. With a government involved, the parties would explain why a particular action was consistent with the treaty. There could be a question about what discrimination is, for example. As I said earlier, many international treaties have protections against discrimination and, as was noted, this is also protected against in the Irish Constitution. If there were such a case, there would be previous examples of how that is to be understood. The tribunal would rely on those principles and on what the two governments, or more as the case may be, that were involved would present to it. That is one form of protection.

The other form of protection relates to the mechanism that allows governments, if necessary, to provide guidance, in the same way that the Irish Government may legislate to guide the courts in Ireland on a particular issue. The parties under this agreement can agree on what is called a binding interpretation, which requires the tribunal or court to follow that interpretation. If there is any question or doubt, this is possible.

On the question about the ECJ, as I said the court in Opinion 1/17 examined all the questions being discussed by this committee and came to the conclusion that there was no risk to regulatory autonomy. It was examining that question in the context of one of the core fundamental principles of the EU, namely, that the European Parliament is elected by the peoples of the Union and, therefore, represents the democratic will of the Union. In its analysis, the court reasoned from how it could ensure, as a court of justice, that the ability of the European Parliament and the Council to develop law and progressive policy could be protected into the future. Because it was relying on these core issues and examining them, we can be confident that what the court held will not be changed in future. We can rely on it.

On the question about the relationship between the ECJ and the tribunal, this too relates to the ruling in Opinion 1/17 on CETA. This does not concern relations with regard to an Irish investor moving to, say, France. It applies only to an Irish investor going to Canada or a Canadian investor coming to Ireland. The ECJ does not have jurisdiction in respect of the question of the relationship of, say, an Irish investor going to Canada because it rules only on EU law and actions within the territory of the EU. In that respect, we are in the realm of international law and of what is provided for in Article 29.2 of the Constitution, which refers to the use of international arbitration for the settlement of international disputes. We are in that domain rather than in the domain of the ECJ, although the court was clear in the opinion I mentioned that it was satisfied with that structure.

Deputy Seán Haughey

I thank Mr. Schlegelmilch and Mr. Brown for their clear and precise presentations. In the context of what they said about where we are with regard to the pandemic and the role of trade in bringing about global economic recovery, I would not like the Irish Parliament to do anything to contribute to uncertainty at this time. In 2012, for example, during a referendum campaign on the thirtieth amendment to the Constitution to permit Ireland to ratify the fiscal compact, it was a time of great uncertainty following the financial crash and the Irish people voted in favour on the first attempt. It showed that economic uncertainty is a worry for everyone. I agree with what our guests said regarding the role of trade going forward. I take on board also the point they made about how the investment court system is a reform of the ad hoc system of private arbitration of the ISDS, and that is welcome.

Our guests may have answered one of the questions I had intended to ask, or at least made reference to it. How is CETA operating at the moment, with particular reference to the joint committee, sub-committees and various forums established under CETA? Could our guests expand on how they are functioning? Will there be a formal role for national parliaments in monitoring CETA and the implementation of all its elements?

It was stated that CETA is an important stepping stone to a multilateral investment court. What is the status of that proposal? Why is such a court important and how would it function?

Mr. Rupert Schlegelmilch

I thank the Deputy for these pertinent questions. I am more than happy to expand on the functioning of the agreement, not least because a meeting of the joint committee was held only a couple of months ago at which we undertook a comprehensive review of how it works. We were able to bring it to the level of the European Commission Executive Vice President Valdis Dombrovskis and the Canadian trade minister, Mary Ng. Some of the granular issues we discussed included quotas for cheese, which are important for us, and the protection of some geographical indications, GIs, including Irish ones we believe Canadians could do a better job of protecting.

More than a dozen committees meet regularly and look at all these granular aspects, giving us a platform to try to implement the letter and spirit of the agreement, and create new opportunities for our operators. This is a machine that functions. It talks about phytosanitary questions and about the administration of some of the quotas. We also have, as I mentioned, regulatory co-operation work, which is very granular. We had a number of meetings of the Regulatory Cooperation Forum, RCF. We had the domestic advisory group that I mentioned where our stakeholders discuss and push, for example, certain issues where they want to see more action. Animal welfare is a typical example. We had long discussions on whether we can improve and we had some successes in influencing Canadian practices in animal transport.

The agreement works. It looks at all aspects of trade and tries to be at the forefront of what modern trade agreements should look at. For example, animal welfare is an issue which we cannot discuss with many partners around the world, because they are just not interested. Here, however, we are setting a signal that we can look at trade issues and the question marks people have in the face of globalisation, to give answers to some of these questions. All of these committees are functioning. We will have a summit with Canada in two weeks where the president of the European Commission and the Canadian president will discuss some of the trade issues. We work bottom-up, from the 12 or 15 committees all the way up to the summit leaders, to make sure that this important part of our external economic policy is functioning well.

On the question of the national parliaments’ oversight, the European Council is involved. We have parliamentary contacts. The question of the multilateral investment court, where Mr. Brown has been negotiating to try to advance this project in the United Nations Commission on International Trade Law, UNCITRAL, format. I will leave that to him. The functioning of the agreement is examined in some of the national parliaments. Not only do we have the ratification debates, from time to time, we brief on the state of play on what implementation we are doing.

Mr. Colin Brown

I will respond as, Mr. Schlegelmilch said, to the question on the multilateral investment court. The ideas enveloping the court are threefold. First, the ICS provided for in CETA is also included within the EU’s agreements with Vietnam, Singapore and Mexico. We are negotiating it with Chile and Indonesia. Discussions with China are currently on hold. Because the system involves full-time judges, it makes more sense than having these bilaterally and at certain moment in time moving them to a multilateral body that can administer these disputes. The second reason, at EU level, is that there is strong interest from member states to upgrade their existing bilateral investment treaties. As Mr. Schlegelmich mentioned in his opening statement, there are 3,000 of them internationally. Member states, but not Ireland, are party to 1,400 of them. The multilateral investment court could apply to those 1,400 treaties. It would be important in modernising and reforming them, and in making sure that these concerns that we are discussing today are not held.

Related to that, there are a number of countries worldwide that are interested in the idea of this reform. They would apply it through their own treaties. This will not happen overnight. We are looking at a mechanism that could potentially reform all 3,000 of the existing ISDS agreements. CETA is important in this context because it was the first agreement that made reference to this idea. It has transitional clauses that would allow a move to the multilateral investment court. Eventually ratifying it, as the European Commission hopes Ireland will eventually do, is a positive signal that this is the direction of the reform. It will provide further support to the reform movement. The reform, as Mr. Schlegelmich mentioned, is taking place in UNCITRAL. Therefore, a UN body is working on that. More than 100 countries take part in it. Our hope is that over the next two or three years we get to the point where those negotiations are sufficiently completed to create the multilateral investment court. It would apply CETA, but ultimately these 3,000 agreements. It is important to keep in mind that in international negotiations one needs to keep up a certain level of momentum. Ratifying CETA in time is an important part of keeping that momentum going.

Chairman

I thank Mr. Brown and call Senator Alice-Mary Higgins.

Senator Alice-Mary Higgins

I thank the Chair for allowing me to join the meeting. When we speak of the years that have gone past in developing this, we know that our responsibility is to the years of the future. It was the European Commission's decision to try to incorporate these elements on a combined basis, which was then challenged and overturned in the ECJ in 2017. The combination of investor court systems and trade deals has delayed many of our trade deals. It is noticeable that further bilateral and other trade agreements are negotiated much more quickly when they do not contain an ICS or ISDS. There has been a blurring of the lines between bilateral and investor court. There is no argument about bilateral arbitration mechanisms, such as those we have seen between the parties who signed the agreement. However, the concern is that the investors do not sign up to the agreements. They did not sign up to the labour chapters, the environment chapters, or to anything else. The concern relates to why investors are being included in the arbitration mechanisms. Rather than being a stepping stone, CETA, as the first attempt to respond to the criticisms from unions, environmental groups, and citizens across Europe, has clearly failed to satisfy them. They are not happy with it because its changes have been criticised as being largely procedural. In fact, we are now a stepping stone beyond that, where new treaties that are being negotiated include arbitration between parties, but do not include investor arbitration.

In the United States-Mexico-Canada agreement, Mexico is also under ISDS, but only after domestic courts have been exhausted. We do not have a requirement that domestic courts would first be exhausted in CETA. Canada and the US both made a point of ensuring that investors would not be able to take them to court. An example of why that is important was the Keystone pipeline, which was subject to €9 billion potential case. It was one of the most crucial steps in environmental regulation. There is no doubt, I am sure that the witnesses will agree, that it would be much easier to proceed with banning that pipeline in a context where a €9 billion suit does not hang over the American Government for doing so. It was the first phone call, as I recall, in the positive relationship between the US and Canada.

In that context, it seems to me that this was the first attempt to respond to critics. It has not met the standards that are needed. Why not continue with professional application and let the new UN multilateral court system take its place? Those negotiations are continuing and do not need CETA or ISDS as a stepping stone. The conversation has moved past that.

On specific drafting aspects, again, nobody is questioning the right to regulate. Perhaps we might not need another response on the right to regulate. The concern is the consequence of regulation and, specifically, Article 8.9 under which it is clear that the mere fact of regulation and of expectations are not in themselves a breach.

However, regulation combined with expropriation, discrimination or unfair and inequitable treatment creates a liability for compensation. In Article 8.9.4, on the removal of subsidies, the choice to specifically protect parties from having to compensate investors is provided for. There is no such language protecting parties from having to compensate investors under article 8.9.2, which has regard to regulation. Is it not the case that the same grounds of expropriation, discrimination and unfair and inequitable treatment, which are still there, are, and have been, used in the majority of ISDS cases?

I am particularly looking at the energy charter. Vermilion Energy, a company based in Canada, threatened to sue France on the basis of indirect expropriation, which led to a dilution of France's climate law. Mr. Schlegelmilch will be aware of this. I could also list the Vattenfall case or any number of other cases taken under the Energy Charter Treaty. Mr. Schlegelmilch has mentioned the concerns of member states. Many member states urgently want certainty so that they will be able to regulate without potentially having to face compensation claims. That is the certainty that is needed for them to move past this. Commission Vice President Dombrovskis spoke about how withdrawal from the treaty would trigger the 20-year sunset clause.

Will the witnesses comment on the fact that compensation is still available and the fact that many of the grounds are the same? Will they comment on the fact of the 20-year sunset clause being cited as the main reason we cannot leave the treaty and the fact that a 20-year sunset clause would, if I am correct, be triggered were we to fully ratify CETA? Why not continue with provisional application until we have a better multilateral system that would have the imprimatur of the UN, which would give comfort to all of us, and which would involve ultimate accountability to the International Court of Justice, which would give people a lot more confidence?

The 2019 ruling has been mentioned frequently but this specifically required the Commission to make changes, not in terms of regulatory co-operation or support schemes, but with specific regard to the dispute settlement mechanisms to ensure equitable access for small and medium enterprises. According to the ruling, a great deal of detail on this was meant to be provided to all of us when making our decisions on ratification. I am sure Mr. Schlegelmilch and Mr. Brown will be aware that one of the big concerns is that, while we may have permanent arbitrators, they are to be paid on a per diem basis. This has been identified as a concern with regard to the ICS and arbitration mechanism. Perhaps the witnesses will comment on those key issues. That would be very useful. We are looking for certainty for the next ten years in terms of regulation.

With regard to privatisation and public services, non-discrimination was mentioned. Am I correct that if services currently provided by private actors, which may be Canadian companies, were to be returned to public delivery, cases in respect of discriminatory treatment may result? That is the ratchet clause. With regard to areas of exclusion, Ireland had a very short list of excluded areas in comparison to many of our European colleagues.

Mr. Rupert Schlegelmilch

That was a long list of pertinent issues. I will kick off on some of them and then rely on Mr. Brown to fill any gaps I leave. The main question relies on the hypothesis that we will get the international court system set up. We hope this will happen but we do not know. As the Senator will be aware, international rule-making takes time. Right now, we want to show the world we believe in that which we tell other countries they should buy into. If there is a lot of doubt in Europe, it does not exactly help our case in getting the international system, which will ultimately replace bilateral systems, up and running. That argument can be turned around and one can say that we must do as we preach and make this thing work as well as it can so that it can be a shining example of reform and can convince people that this is the right thing to do.

On the question of the Energy Charter Treaty and the sunset clause, I will not speak for my boss here but the fact of the matter is that these treaties have sunset clauses to increase certainty for investors. It is just a fact of life with which we have to live. I do not believe they in any way prejudge the solution to the question of what should ultimately done with the treaty, which we are trying very hard to reform. We have to be aware of consequences as we deal with the issue.

With regard to the other points the Senator raised, we are particularly aware of the challenge facing SMEs. The issue of access for SMEs was addressed very specifically in the court's opinion. In negotiating the treaty, we have done quite a lot to counter the criticism that the system is only for multinationals with large legal departments. We have tried to include a low-cost option to make it easier for smaller companies to exercise the rights available to them. This starts with very simple things such as videoconferencing, which means that one does not have to travel for in-person meetings or arbitration hearings. There are also deadlines to ensure that things are done quickly. Cases involving SMEs may be heard by a single judge so if one is confident that one's cases is good, one can rely on one voice rather than paying for three. If one wins a case, one does not have to pay anything. The principle that the loser pays, which was not there previously, is also a provision that is friendly to SMEs. There is also a commitment from the EU and Canada to adopt supplementary rules introducing cost ceilings for those who use the ICS unsuccessfully. We are working very hard on this. Of course, it is clear that we have a duty to fulfil. We are working with the Canadians to analyse further options to make this work better.

The Senator raised another question, which had regard to domestic courts. This is a recurring theme. We are very much aware of the model that exists in which one must exhaust one's options in the local courts before one can go to the ISDS process. There are other models. We have chosen one that has more or less the same effect but which is not as categorical. We have a no U-turn clause. If a company chooses to use the ICS, that company cannot go to the domestic courts. This means that any rational investor will go to the domestic courts first to see if he or she can get justice there before going to international arbitration. We have been trying to set this up in a way which has more or less the same effect. Of course, there may be cases in which one believes it is hopeless to go to the domestic courts or where one is concerned about time limits. The matter of time limits is a problem we have all identified. I will not name a specific country but if one is required to go a domestic court first, in some countries one may go bankrupt before getting any result. This may not be the result one wants. Even the timelines involved can make one dubious about cutting off the possibility of going to the ICS immediately. I will cede the floor to Mr. Brown, if that is okay with the Chairman, for some complementary explanations of the issues.

Mr. Colin Brown

I will try to reply to some of the points which Senator Higgins has raised. She is correct in that the remedy remains the possibility of compensation being paid. That applies to different actions taken by governments but, as we have explained and in the view to which the Court of Justice has definitively come, the system in place, which was designed by the EU and Canada, ensures the ability to regulate is respected so regulation expressing the democratic will of governments is not likely to be subject to a successful claim for compensation.

Senator Higgins has cited some examples of cases that have been brought, but if we look at the cases that have been decided, we get a very different story. I suggest that the committee would also look at these as well. I will give two examples. One is a case against California by a company called Methanex. It concerned a chemical that was regarded as potentially carcinogenic. The state of California decided to prohibit the production of the chemical. The company brought a claim and it was dismissed in its entirety on the grounds that a state, in this case California, should be free to regulate to protect its citizens as necessary.

The other example I want to give is even more telling. That is the case Philip Morris brought against Uruguay. We hear frequently about the case taken against Australia. The case against Australia was dismissed on a procedural premise but the case against Uruguay went all of the way. There is a decision made on the merits of the case. The tribunal dealing with the case dismissed the claim brought against Uruguay, which was introducing plain packaging of cigarettes. The important part is that among other things it relied on the text of CETA, and explicitly quoted it, to show that the international customary rule-of-law approach, which again is something that is referred to in the Irish Constitution in Article 29, is evolving and states clearly have regulatory space to act to protect the health of their citizens, the environment or whatever it might be. These cases, which are decided rather than expectant, speak importantly about the impact of the system. I emphasise that these cases take place in the old system not in the reformed system provided in CETA.

I will briefly touch on one or two other points. Mr. Schlegelmilch has already spoken about what is being done to help SMEs to have access. The committee may be aware that Canada and the EU reached an agreement last year. This is available and we can share it with the committee if it does not already have it. We completed the work on CETA, in the sense that we completed the work on the appeal mechanism, mediation and a code of conduct. All of these are further elements that go beyond what was agreed in the treaty to ensure that the system works properly and cannot be brought into question.

Senator Higgins mentioned the question of per diem payments. The problem in the current system is that the per diem payments are linked to persons who are appointed by one or other party in the dispute. If I appoint Senator Higgins as an arbitrator in my dispute, which I am free to do, and I am paying her the per diem, there is a perception at least that she is likely to rule in my favour. In the system that we have, we break that link so the disputing parties cannot choose their arbitrator. They have no ability to appoint their arbitrator so the perceived risk that arises from that link is gone. That is important.

On the USMCA, which is the new agreement between the United States, Canada and Mexico, it is important to keep in mind that the United States kept investor-state dispute settlement for the big oil energy projects its companies have in Mexico. These are subject to a possibility of a contractual dispute but also subject to investor-state dispute settlement. As I mentioned earlier, Canada and Mexico have investor-state dispute settlement via the other route of the CPTPP.

On taking contracts back into public operation, one thing that we need to be careful in distinguishing here is what exactly is being done. If the state, whether in Ireland or in any other EU country, is contracting and using public procurement procedures to have a private operator provide some type of service, and the contract that is awarded under the public procurement comes to an end, no compensation is available. The private entity that might have performed the contract has no right under the investment court system under CETA to claim a continuation of the contract. If a government breaches the contract or stops it halfway or three quarters of the way through, as one can imagine, that may lead to an issue, but that would lead to an issue under Irish law and European law so it should not be surprising. It becomes different if the ownership of some type of public entity is transferred to a private company and then if it is taken back, of course compensation would be payable, but that is the same as would happen under Irish law and under the Irish Constitution. If the Government decided to grant public property to a private operator and then decided later that it wanted to bring it back into public ownership, compensation would be required. With respect, we think that the rules which are here are rules that are found in many other systems and we think that with the reforms we have made we have ensured they will not be abused in a manner which would be unsatisfactory for governments regulating. I apologise for speaking for a little bit long, but I hope it was useful.

Chairman

I thank Mr. Brown and Mr. Schlegelmilch. I know Deputy Ó Murchú, who is a committee member, wants to come in. We are really tight for time at the moment. Senator Higgins has got a comprehensive reply. If she wishes to ask any additional questions, I ask her to do so succinctly and directly, because I do not have time for any more statements.

Senator Alice-Mary Higgins

Very succinctly, it is still the case that legitimate expectations, which are not just about contracts, but also about planning permission and exploration licences, remain the grounds. The grounds still are about fair and equitable treatment.

There was mention of the Philip Morris case. We know that very few cases are decided, but the fact of those cases seems to create the effect. The Philip Morris case was used by the same company in other countries to deter them from taking that policy direction. We saw last year in France that the prospect of a case led to a change in French climate law. That is the chilling effect that we are talking about.

On the per diem, the concern was not about individual cases, but because only corporations can take cases, in general, only they can initiate the process. A state cannot initiate the process. All the arbitrators as a group are incentivised to encourage companies potentially to take cases. We hope that would not be the case, but there is a potential for a perverse incentive for arbitrators to recognise that companies are the ones that can bring cases. I had loads more questions but I might perhaps submit them via one of the other committee members in writing.

I am conscious that Deputy Ó Murchú wants to come in.

Deputy Ruairí Ó Murchú

Go raibh maith agat. I would like Senator Alice-Mary Higgins’s comments to be put under my name in the record-----

Senator Alice-Mary Higgins

The last thing is that this sunset clause is not a fact of life. It is actually a decision, so we can choose to have one or not. There are lots of facts of life but that, maybe, is not one. Apologies.

Chairman

Deputy Ó Murchú we are under serious pressure here.

Deputy Ruairí Ó Murchú

In fairness, Senator Alice-Mary Higgins dealt with the whole idea in relation to the bilateral mechanisms. She spoke about the multilateral system that should replace all of this into the future. On the Philip Morris v. Uruguay case, I think that case went on for six years. If that is not going to have a chilling effect on a state, I do not know what is. Deputy Haughey dealt with some of this. What role do state parliaments have in relation to the seated joint committee and any of the sub-committees or sub-fora? What can state parliaments do to amend or input decisions at these committees? Are the decisions taken at the joint committees absolutely binding? What transparency will there be? I imagine that they are not exactly going to be carried out in public, like this particular meeting. Is the Commissioner obliged to take into account decisions that are taken by state parliaments, or even by the European Parliament? The European Court of Justice, ECJ, has put it that the European Parliament has an equal footing. However, national parliaments and the European Parliament, as far as I am concerned, are only going to be informed of decisions that are taken at the joint committee afterwards. It is about that whole question in relation to democratic oversight and how much input there is and whether we are talking about the European Parliament or state parliaments just being told what it is, that it is binding and sin sin?

Chairman

I thank the Deputy and call Mr. Schlegelmilch.

Mr. Rupert Schlegelmilch

Let me start by pointing out that all the committees are very transparent. We publish the agenda of all the subcommittees and the joint committee in advance. We publish the outcome. We make sure that the European Parliament has a monitoring group and that the European Council, where the member states are represented, is consulted before these meetings. The stakeholders know what is going on and they also have a choice to make themselves heard before the joint committee. There is a stakeholder meeting back-to-back with the joint committee, in order to ensure that the information is available. We are trying to live up to our self-imposed ambition to have a modern agreement which is not being negotiated or implemented - in this case implemented - behind closed doors.

We have good input from all of these actors in order to shape the agenda. This is why we are talking about some of the issues that I mentioned: small and medium-sized enterprises, SMEs, clean technologies, animal welfare, and all these issues that are often brought to us from the bottom-up, by the involvement of the stakeholders.

It is obviously a commercial policy issue and that is why the main role on the parliamentary side is for the European Parliament and Council to oversee the agreement. As I said, we are in constant dialogue because we know that trade policy is complex, and we have to be available. There are working methods between the European Parliament and the national parliaments where issues can be discussed. That is something we are now talking about in the way we are provisionally applying the agreement. We are trying to do what we can to make information available. I would be interested in hearing what ideas there are for us to do better. This is a living agreement. We are not saying that this is the final word on everything. We have gone quite far, if one compares this to what other actors, countries and trade agreements provide by way of transparency. We can claim with some justification that we have a model agreement here.

Deputy Ruairí Ó Murchú

I get that in relation to transparency. However, does anybody have to take into account decisions that are made by the European Parliament or by the individual state parliaments? My notion in relation to this is that there is no obligation to do so. I accept that if there is best practice, that may happen anyway. There is no obligation for this to occur, is there?

Mr. Colin Brown

One has to keep in mind that the abilities of the committees to adopt amendments are extremely limited. There are a limited number of circumstances in which that can happen. I do not think that any of them would be areas where governments would have concerns around a right to regulate, for example. On the Deputy’s question, if a decision has legally binding effects, then it requires a decision by the Council of Ministers. The Dáil would be a position to tell - I presume - the Government in Ireland to take a particular position in the Council of Ministers. Equally, if there is a decision which is legally binding, the European Parliament is notified of that. It has to be provided with information about it. It is perfectly free to express a view by adopting a resolution. This occasionally happens. If it expresses a view, the European Commission and member states representing the Council have to take part in that.

I can respond to Senator Higgins’s points, if there is time. If there is no time, I am happy to find another way to respond.

Chairman

Can I suggest that Mr. Brown corresponds with Senator Higgins, if there is any information following this meeting?

Mr. Colin Brown

It would be a pleasure.

Chairman

I thank Mr. Brown, the members, our visiting member, Senator Alice-Mary Higgins, and Mr. Schlegelmilch for their time today. This was an enlightening session, but it was also circumspect, in digging down into the detail. We are very grateful for that. Go raibh maith agaibh.

That brings us to the end of this public session. We will go directly into private session.

The joint committee went into private session at 11.27 a.m. and adjourned at 11.38 a.m. until 9.30 a.m. on Wednesday, 16 June 2021.