Wallonia’s "non" to CETA seems inspired largely by the right CETA gives to Canadian investors in the EU to directly sue EU governments, so-called investor-state dispute settlement (ISDS).
CETA narrowly defines the scenarios where Canadian multinationals -- or, for that matter, individual investors or SMEs -- would have the right to sue Wallonia: denial of justice, blatant discrimination, expropriation without compensation and the like. All very serious and exceptional offences (market access, or rights to invest in, or trade with, the EU or Canada, are not subject to ISDS, only state-to-state procedures). Still, notwithstanding all guarantees provided, giving this private right to sue, including over public laws is, understandably, controversial. It is not included, for example, under the WTO treaty.
What if we take ISDS out of CETA and thereby get Wallonia on board?
Where It Is Least Needed, ISDS Now Creates Most Headwinds
Belgium already has 105 investment treaties most with ISDS in them (Canada has 43, Germany 156). World Bank statistics indicate that Belgian investors abroad used ISDS nine times. Just last year, Belgium successfully defended its first (and so far only known) ISDS case (filed by a Chinese insurance company that held a stake in Belgium’s largest bank, bailed out during the financial crisis).
But Belgium’s current ISDS treaties are all with developing (or Eastern European) countries largely on the assumption that ISDS was needed to compensate for “badly performing” domestic courts in these countries. CETA would be Belgium’s first ISDS treaty with a “developed” country. Ironically, where it is arguably least needed -- the Canadian legal system is pretty solid -- ISDS is now creating most headwinds.
EU investors in Canada, generally happy with Canadian law and courts, are not clamoring for ISDS protection. Canadian investors in the EU, in turn, already have ISDS protection in those EU countries where it may still be needed, if at all (Canada has ISDS treaties with 8 Eastern European countries that only recently acceded to the EU). If given the choice between no CETA, or CETA without ISDS, most businesses, on both sides of the Atlantic, would most probably choose the latter.
So why not take ISDS out of CETA, and get the Walloon veto against CETA lifted?
Now That ISDS Is Reformed, It Faces The Fiercest Critique
A second irony is that the ISDS system now in CETA is probably the most modernized, public law-oriented version out there. Unlike traditional ISDS of which Belgium already has more than 100 and which is often labeled as “private justice” (because investors can appoint and pay their own arbitrator, behind closed doors), CETA would create a more public investment court system, with government appointed- and paid judges, public hearings, an appellate tribunal and strict ethics rules. So Wallonia is blocking what is arguably the “best version” of ISDS on offer, a unique chance to get old-style ISDS substantively reformed.
That is arguably the core reason to have ISDS in CETA: Not to ensure protection of EU or Canadian investors, but to reform ISDS writ-large, make it more public law-oriented and set new rules for future treaties to come, including with the US and developing countries. The EU also wants to be consistent, and include this ISDS 2.0 in all of its trade and investment agreements moving forward (it is already included in a recent EU-Vietnam deal). The EU does not want to black-list certain countries by including ISDS in some treaties (those with weaker domestic legal systems) and not in others (e.g. with Canada, that already have robust domestic courts). The EU also wants to be consistent within the EU, and level the playing field for foreign investors where ever they invest in the EU. Otherwise, a relatively easy way to overcome Wallonia's veto would, indeed, be to include a two-way carve-out from ISDS for investors from, and authorities in, Wallonia (just add them to Annex 8-C of CETA).
So a choice may have to be made. Do we want the economic benefits of CETA without ISDS, or are we willing to sacrifice them for the sake of reforming ISDS and consistently including it with all trade partners and across the EU?
Given the current deadlock, I would be inclined to choose the former: CETA, without ISDS; if the serious offences listed do occur, state-to-state procedures remain available. Indeed, even if Canada and Wallonia were to accept ISDS 2.0 in CETA, the US is unlikely to do so in a future TTIP. In addition, one non-negligible risk with the new EU investment court system is that its judges may take a life of their own: by making them permanently appointed (5 years, once renewable), rather than case-by-case, and setting up an appellate tribunal (a first in ISDS history) judges get more (not less) power than the current ISDS arbitrators. As a clever counterweight, CETA does provide for treaty parties, that is, Canadian and EU governments, to overrule “bad” court decisions, a crucial, democratic safety valve. But with the Walloon experience in mind, such “legislative override” may be theoretical only: it would, once again, require the consent of both Canada and all EU member states and parliaments. This risks setting court decisions in stone, and a less, rather than more, controlled ISDS. Much like the creation of a European Parliament has not solved the EU's democratic deficit, setting up an EU investment court system is unlikely to silence ISDS critics.
So let’s settle on CETA without ISDS?
