Published on EUCAnet, June 12, 2015
On June 9, the European Parliament (EP) decided to postpone a vote in support of the negotiations for a Transatlantic Trade and Investment Partnership (TTIP) between the European Union (EU) and the United States. This vote was set to endorse the TTIP negotiations as well as officially state the EP’s preferences on a potential free-trade agreement across the Pond. The reason why the plenary vote was postponed by the parliament’s president is because there was a significant risk that the vote would turn against the TTIP negotiations, potentially bringing the negotiations to a halt.
Maybe in the end CETA will prove an acceptable compromise to the EU-US negotiators.
Given that Canada is anxiously waiting for its own free-trade agreement with the EU, the Comprehensive Economic and Trade Agreement (CETA), to be ratified by EU authorities, including the EP, there are concerns that the EP’s decision with respect to TTIP could affect the CETA’s ratification. The issue at stake in the case of TTIP and possibly also in the case of CETA is what is known as investor-state dispute settlement (ISDS), which is a dispute settlement mechanism that aims to protect private investors (namely firms) from government decisions that cause them (economic) harm. The best example of such a situation is expropriation without adequate compensation.
The problem here is that foreign investors have used the ISDS mechanism to obtain financial compensation from governments for policy decisions to protect the environment or enhance public safety that end up causing firms foreign firms to incur additional costs for going about their business. In Canada, one such case was brought about when a pharmaceutical firm was denied a patent for one of its drugs. It is such abuse of the ISDS mechanism and the potential limits that governments could face in managing their economies, societies and ecologies that scare the EP and many other groups in Europe (and also in Canada and the US). Ideally, the ISDS mechanism should come into play when a government adopt a policy or makes a decision that is aimed directly at one or a few firms. The logic at hand is one of anti-discrimination, whereby a foreign firm is penalized while a domestic one is not.
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In the case of CETA, the parties seem to have agreed on a mechanism to prevent such abuse. In fact, Canada and the EU have put in place a review mechanism at the political level to prevent such apparently frivolous cases to come about and potentially force government to pay out compensation. Therefore, it is unlikely that the EP would refuse to ratify CETA because of the agreement’s ISDS provision. However, it is not impossible for the TTIP negotiations on ISDS to influence discussions between Canada and the EU while CETA is undergoing its so-called “legal scrub”. Minor modifications could possibly come about. But the issue between the EU and the US is more problematic since Europeans fear that US firms would bring their litigious ways to the EU via TTIP. Maybe in the end CETA will prove an acceptable compromise to the EU-US negotiators.