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With its preliminary application, the Free Trade Agreement between the EU and Canada enters the last round on 21 September. At the same time, discussions are going on in Brussels concerning the architecture of future agreements. This does not include a prioritisation of social and environmental standards or a major overhaul of the Investment Court Systems established in the agreements.

 

Next week, on 21 September, the controversial Free Trade Agreement CETA will preliminarily come into effect. However, the approval of all national parliaments of the EU Member States is required to enable its comprehensive implementation. Nonetheless, it is to be expected that this final phase will be anything but smooth. On the 6 September, the Belgian government filed a request for an opinion to the European Court of Justice on the compatibility of the Investment Court Systems (ICS) with European treaties. Due to the fact, that it is not fundamentally different from previous investment protection proceedings, the new Investment Court System had become an extremely disputatious issue during the CETA negotiations. The scepticism is justified: foreign investors receive preferential treatment because they are able - due to the ICS - to bypass court jurisdiction. Apart from that, ICS judges are remunerated according to the number resp. the duration of the proceedings, which creates a conflict of interest.

 

Last week also saw the publication of the Report by a group of experts - commissioned by the French government - on CETA. The findings of the study on possible effects of the Agreement underline the concerns of the critics. The experts come to the conclusion that it would not have been necessary to make Investment Court Systems an essential part of the Agreement, that regulatory cooperation definitely leads to the reduction of product quality, social and environmental standards and that the fixation of the precautionary principle cannot be guaranteed.

 

The preliminary application of CETA coincides with the general discussion on the future configuration of EU trade agreements. Since the ECJ ruling on the Free Trade Agreement with Singapore at the latest, it has become clear that agreements of this kind can only be finally ratified with the approval of the national parliaments. Hence, the ruling characterises those free trade agreements, which contain a chapter on investment protection, as so-called mixed agreements. Hence, ratification cannot be decided at EU level alone. However, this represents a stumbling block for the plans of the Commission to be able to conclude trade agreements at a faster rate in future. According to the Commission there are two options: on the one hand, agreements can be split into two parts (“Split Agreement”). In this case, the agreements initially only contain those chapters, which have to be ratified exclusively at EU level. Contents, which require the approval of the national parliaments of all Member States, can be negotiated and ratified at a later date. On the other hand, as a further option to accelerate the ratification process, transferring the decision-making power of national parliaments to EU level might be considered. The respective parliaments would have to decide at the start of the trade negotiations, whether they transfer their decision-making mandate on issues, such as the strongly criticised Investment Court Systems, to the Commission.

 

Especially in view of the discussion, how, as the European Union, one should successfully harness globalisation, finalising free trade agreements as soon as possible, represents a significant advantage for the Commission. However, from the point of view of employees and consumers this has to be critically reviewed. Hence, on the one hand the danger exists that far-reaching agreements are approved rapidly with insufficient democratic legitimisation, without having a sufficient dialogue on the negative effects of the agreements and without the ability to impact them. On the other hand, a debate on the “future architecture” of agreements, which, even though it aims at a quick implementation, which, however, does not include any improvement of social and labour standards and still provides for privileged rights of action for investors respectively, is strongly curtailed.

 

In his State of the Union Address, Commission President Juncker once again emphasised the importance of free trade in a globalised world. In his opinion, trade agreements would be able to export in particular European standards relating to social issues and the environment to the world. However, the current EU trade agreements that contain sustainability chapters – for example the one with South Korea – paint a completely different picture.

 

It also remains to be seen how the Member States will deal with the increased transparency announced by Juncker: for example, all Commission proposals shall be published by negotiation mandates – in the case of CETA this had been resisted for a long time. Time and again in the past, the AK has criticised the lack of transparency in the negotiations on free trade agreements.

 

In the meantime, Trade Commissioner Malmström presented a package of proposals for the future orientation of EU trade policy. Whilst current negotiations on trade agreements should be quickly finalised, negotiations are starting with Australia and New Zealand, whose negotiation mandates were published this week. In contrast to other free trade agreements of the new generation, the agreements with both states countries will initially not contain a chapter on investment protection; hence they are so-called “split agreements”. The EU therefore has the sole competence to ratify the agreements. Investor protection in both free trade agreements will probably be negotiated at a later date, taking into account the decision-making powers of the national parliaments of the Member States. Apart from that, the Commission under Malmström is still committed to establishing a so-called Multilateral Investment Court (MIC). This Court of Justice shall rule on investment disputes between states and investors, which have agreed the competence of the MICS in bilateral trade agreements.

 

Further information:

AK Study: Making Sense of CETA

AK Europa: The Commission's reflection paper: Harnessing globalisation

AK Europa: International trade agreements – no breather in sight

AK Position Paper: Multilateral reform of the investment dispute settlement system

AK Brochure: No special claim rights for corporations