International Economic Law and Policy Blog

The Latest Effort To Clarify FET and Indirect Expropriation

Over at Investment Arbitration Reporter, Damien Charlotin has a piece about a draft text developed by Germany and the European Commission to clarify the interpretation of the obligations on fair and equitable treatment and indirect expropriation in CETA.

The draft text document is characterized as a "Draft Decision of the CETA Joint Committee." For now, I don't see this draft decision anywhere other than behind IAReporter's paywall, so I don't feel like I should post the whole document here. But here's one example of language that would be added through the draft decision:

c) For greater certainty, a measure or series of measures constitute “manifest arbitrariness” in the meaning of the Article 8.10.2(c) if:

- it does not contain the reasons on which it is based;
- it is patently not founded on reason or fact;
- it is based on unreasonable discretion, prejudice or personal preference; or
- it is taken in wilful disregard of due process and proper procedure.

This latest effort to clarify these obligations gives me a feeling of déjà vu. Back in 2014, I did a post about a leaked CETA text in which I said: "With each attempt to clarify the 'minimum standard of treatment' in investment obligations, the scope becomes less clear to me." I have the same feeling this time. For instance, what exactly do they have in mind with "personal preference"? Doesn't personal preference play a pretty big role in the formulation of government measures, at least on the legislative side?

The primary response to complaints about the broad scope of FET and indirect expropriation has been to add words that are intended to clarify the scope. But as noted above, these added words often raise new questions about the scope. What I think might be more helpful is if drafters provided examples of government measures and actions that they believe should be covered by the provision. What's a real world example of the problem they are trying to address here? When I've raised this question in the past, investment law experts have pointed to specific ISDS cases, but my question is directed at the drafters. What specifically are they concerned about here?

Law prof Ben Heath has his usual good Twitter thread on these issues here.

ISDS Reform: From the Forest to the Trees of an Appellate Mechanism

Last week, the United Nations Commission on International Trade Law (UNCITRAL) Working Group III (WGIII) made substantial progress toward designing an appellate mechanism for investment disputes. As readers of this blog may be aware, WGIII is charged with developing multilateral reforms to the current ad hoc system of investor-state dispute resolution (ISDS). This government-led process involves delegations from scores of States, with active participation by dozens of observer delegations from international organizations, arbitral institutions, NGOs, business associations, and learned societies. Beginning in WGIII’s 34^th Session in 2017, this work has continued through biannual sessions in Vienna and New York. From 2017 to 2018, delegations registered substantial concerns with ISDS, relating to fragmented arbitral outcomes; arbitrator independence, impartiality, and diversity; duration and cost; multiple proceedings; and third-party funding (Phase 1). In the fall of 2018, WGIII decided to work multilaterally to reform such concerns within UNCITRAL (Phase 2). As of its 37^th Session in 2019, WGIII has moved firmly into working on concrete reform options (Phase 3).

The design phase is complex, because WGIII is actively considering at least twelve different reform projects (which may be ultimately integrated in a unified multilateral instrument). Juggling these projects involves an iterative winnowing process. The idea is that delegations initially consider each project at a high level. After each discussion, WGIII would request that the Secretariat work up more detailed, modular reform options. It would then rotate to the next topic. As the carousel cycles, the WGIII returns to each topic with increasing granularity. Eventually, the Secretariat would produce draft text on each project, to be considered in plenary over multiple rounds (first reading, second reading, and so on), prior to final decisions and possible adoption.

WGIII completed initial high concept debates on each reform option over three sessions from 2019-2020 (its bipartite 38^th Session and its 39^th Session).  In the first week of its 38^th Session, it had initial deliberations on (i) developing a multilateral advisory center; (ii) a code of conduct; (iii) reforms to third-party funding. (See further here). At its resumed 38^th Session, delegations considered (iv) a standing appellate mechanism; (v) a multilateral investment court (MIC); and reforms to (vi) selecting and appointing adjudicators. (See further here). In its 39^th Session, WGIII wrapped up first round discussions on: (vii) dispute prevention; (viii) multiple proceedings and shareholder claims for reflective loss; (ix) counter claims; (x) security for costs; (xi) frivolous claims; (xii) treaty interpretation; and began discussing (xiii) an omnibus multilateral instrument on ISDS reform that might house some or all of the above reform options. (See further here).

Where are we now? Last weeks’ 40^th Session marked a first real shift from the forest to the trees. The Working Group turned to far more specific reports by the Secretariat focused on designing an appellate mechanism or MIC (per a longstanding compromise dividing time equally between designing permanent institutions and other building blocks for reform, see here). The Working Group engaged with specific text-based reform options on (iv) the design of an appellate mechanism (here); and on (vi) selection and appointment in relation to the appellate mechanism or MIC (here). Delegations were also invited to submit written comments on these texts, which were published in advance of the session (here). These materials were complemented by three concept papers by the Academic Forum on ISDS Reform on selection and appointment (here).

Reform Options for an Appellate Mechanism

WGIII made substantial progress toward developing the musculature of an appellate mechanism for ISDS. The discussions focused on a Secretariat paper setting out twelve tentative “rules,” demarcating the core features of an appellate instance—each with a number of options responsive to delegations’ suggestions in the previous session. These covered the scope and standard of review (Rules 1-3); appealable decisions (Rules 4-5); effect of appeal / powers of appellate instance (Rules 6-10); timelines (Rule 11); and security for costs (Rule 12).  Options in the draft reflected different ways of balancing the tradeoffs. In most instances, the basic tradeoff involved weighing values like promoting consistency, coherence, correctness, and justice, against reducing costs and duration. The Working Group settled on preferred options on some of questions, and narrowed the range of options on others—providing the Secretariat with instructions for proceeding with drafting more concrete draft text for the next go around.

Scope and standard of review (Rules 1-3):

Rule 1(a) review of law: the Working Group found early consensus that, should an appellate mechanism be adopted, it would have to be competent to review for errors of law without deference to the lower instance. Delegations tentatively settled on a formulation authorizing review of “errors in the application or interpretation of applicable law.”

Rule 1(b) review of fact: delegations were more divided on errors of fact. In the Chair’s count, a large majority supported limited review for “manifest errors in the appreciation of facts.” But a substantial minority preferred prohibiting factual review, noting that it would drive up costs by encouraging dilatory tactics—even potentially leading to rehearing every case on appeal. WGIII instructed the Secretariat to tentatively proceed with a “manifest error of fact” standard, on the understanding that no decision had yet been made whether factual review was worth the cost

Rule 2 review for grounds of annulment and set aside. The Secretariat’s proposed text included an option to incorporate the ICSID Convention grounds for annulment and NY Convention grounds for set aside in the scope of appeal. The idea was to avoid a tripartite review process, by funneling all review and annulment processes into the appellate mechanism – potentially coupled with waivers requiring that appellants forgo other review mechanisms. While most shared a desire to avoid fragmented system of review, some expressed concerns about how these different treaty regimes might interact – not just here but even more importantly with respect to enforcement. Several delegations resisted simply incorporating the ICSID and NY Convention grounds by reference. WGIII instead requested that the Secretariat provide more specific information about why individual grounds in those conventions might or might not be appropriate for inclusion here.

Rule 3 exceptional grounds for appeal. The Working Group tentatively rejected including a catch-all provision allowing for review of errors of law or fact not covered by Rule 1 on an exceptional basis. The shared concern was that such a vague device would open the door to discretionary review on any issue, driving up both uncertainty and costs.

Appealable decisions (Rules 4-5)

Rule 4 basis of claim. There was some debate about whether to limit an appellate mechanism to treaty-based ISDS claims, or to extend to ISDS claims based on contracts or domestic investment laws. There was also debate as to whether to make appealable contract disputes between investors and state-owned entities (to which China notably objected). The Working Group decided to defer these questions now, but requested options that might afford States the flexibility to opt in to hearing different disputes with different bases through signing declarations or reservations.

Rule 5 appealable decisions. Delegations mostly agreed that only final decisions should be appealable. All accepted that final awards could be appealed, and most seemed to agree that decisions on jurisdiction could also be appealed. The main questions concerned timing and effect. The Working Group requested that the Secretariat explore options for when jurisdictional appeals must be made (immediately, or only after the final merits award), and whether or not any interlocutory appeal would stay first instance proceedings. 

Effect of appeal / powers of appellate instance

Rule 6 notice of appeal. Most delegations supported an automatic “right of appeal,” and WGIII instructed the Secretariat to proceed on this basis for now. Some were open to a more mediated model, requiring parties to request “leave to appeal.” This would allow screening for frivolity up front, allowing cost control at some potential expense to access to justice. The Chair suggested considering control mechanisms alongside other possible filtering devices in a future session.

Rule 7 confirmation, reversal, modification. Delegations generally accepted that an appellate mechanism should be able to confirm, reverse, or modify decisions of the first instance tribunal.

Rule 8 annulment. Delegations were open to endowing the appellate mechanism with the power to annul the underlying award, but this might depend on whether grounds for annulment fell within the scope of review (see above). Moreover, some expressed that the need for annulment might turn on whether the appellate instance had a power of remand (see below).

Rule 9 remand. Delegations were more split on the possibility of remand. All agreed that an appellate instance should decide the case where it can (“complete the analysis” in WTO parlance). Where this was not possible, several delegations supported endowing an appellate instance with an exceptional power to remand a case to the first instance tribunal. Others, however, continued to express reservations about remand driving up costs. The core question was what to do about situations where the first instance tribunal simply failed to develop sufficient facts to decide the case on appeal. Without a power of remand, an appellate instance would be forced to either resolve such cases on the basis of burden of proof (leading to potentially absurd and unjust results), or resort to annulling the entire annulment (potentially ballooning costs). Readers of this blog may recall that such problems are endemic in the WTO system, which does not provide for remand—but note that the sting would be worse here given ISDS’ compensation-based remedial structure.  The Working Group instructed the Secretariat proceed with a remand option for now, and work on ways to reduce costs, including clear language for providing instructions to first instance tribunals.

Rule 10 rectification. Delegations generally supported giving an appellate mechanism the capacity to correct errors in its own decisions within a short time frame (currently 30 days). 

Timelines

Rule 11. Many delegations preferred setting timelines in which parties might file for appeal, and in which appeals should be decided. Drawing on the experience of the WTO, delegations debated whether to make timelines hortatory or rigid, and how they might be enforced. WGIII requested options for giving timelines teeth without overly restricting the working of the adjudicative body. 

Security for costs

Rule 12. Some supported requiring appellants to post security as a way to deter frivolous claims. However others raised concerns of access to justice for impecunious appellants. Here, the Working Group requested that the Secretariat develop more information on options and tradeoffs.

Selection and Appointment of Adjudicators to Standing Bodies

WGIII also made progress on developing rules for selecting and appointing adjudicators to a standing body (appellate or MIC), working from a separate Secretariat paper (here) that posed discrete questions to delegations (rather than draft rules). Here the tradeoffs involved choices about how to prioritize representation, diversity, costs, and control.

Selective Representation. The Working Group instructed the Secretariat to focus on a selective representation model for appointments, rather than a perfect or “mirror” representation model. Delegations mostly accepted that it might be unwieldy to require representation of every member state in the adjudicator pool. The Working Group asked the Secretariat to produce options for a smaller, flexible number of (possibly full-time) adjudicators, tied to case load, or for a larger pool of (likely part time) adjudicators on a “roster” model.

Qualifications. Delegations tended to agree that expertise in public international law and international investment law were crucial to include. Others suggested further areas of expertise, including facility with basic economic issues, and competence in calculating damages. Some stressed competence in domestic law, but others questioned how far this should be emphasized. WGIII requested that the Secretariat draft options enumerating the required qualifications of adjudicators, balanced against the need to avoid formal qualifications becoming too numerous or onerous to allow a diverse pool of adjudicators from which to choose.

Nominations procedure. Delegations requested that the Secretariat prepare options for several possible procedures, including nominations by member states; by independent commission; through direct applications by interested individuals; or some combination thereof. The Working Group further requested options for including non-state actors in the process, including civil society and investor groups. WGIII stressed that these options should respond to the goals of transparency, openness to stakeholders, and ensuring diversity.

Term of office and removal. The Working Group requested draft treaty text reflecting different options, including non-renewable and renewable terms on various time frames. The Secretariat was further requested to draft options on rules and procedures for removing adjudicators.

Assignment to panels. The most controversial question related to the assignment of adjudicators to panels for hearing particular disputes. On the one hand, delegations like the EU and its Member States strongly preferred rotational assignments such that disputing parties could not affect or predict which adjudicators would decide their disputes. On the other hand, many delegations prioritized leaving disputing parties some immediate control over appointments. Several favored sticking with the party appointment model standard in current ISDS. Here the division lines were relatively deep, although some compromise options seemed open. At the Chair’s suggestion, WGIII requested options for hybrid models, including ad hoc judges (on the model of the ICJ); mixed panels with a limited degree of party appointment (including panels of either three or five members); and allowing party appointment within the bounds of larger roster appointed by the member states in advance.  As with initial nominations, the Working Group stressed that such rules should be drafted to ensure representativeness, diversity, and impartiality on any particular panel.

Conclusion

All in all, the structure of a possible appellate mechanism for ISDS is starting to take shape. As the project undergoes gradual refinement, the key tradeoffs are coming into focus. The main concerns with permanent institutions relate to cost and duration, and loss of control. The costs issue arises with almost all of the above design questions. But it is becoming increasingly clear that cost control cannot always be prioritized to the same degree across all issues. At the end of the day, if an appellate mechanism is established – a big if! – it must be possible to ensure that justice is done. Justice has to come first, even if costly. It may not always be possible to thread the needle between justice and cost, and/or other goals and values like ensuring consistency and coherence,  sovereign control, and party autonomy. Sometimes there are no silver bullets; as Puig and Shaffer put it, the task is often to identify the best institutional choices among imperfect alternatives. Here, the Working Group has been making steady process. At least with designing an appellate mechanism, WGIII and the Secretariat have already done remarkable work in identifying the tradeoffs across a range of approaches, winnowing the field of options, and identifying some initial sites of consensus.

The Working Group meets again in November, in Vienna (potentially again in hybrid format, with some digital participation). The next topic will likely be the code of conduct (currently being developed in coordination with ICSID), although the Working Group will likely also get to other topics in November. The draft work and resource plan is available here.

Does CETA Violate WTO Obligations? How About NAFTA Chapter 11?

This is from the U.S. dairy industry:

The text of the European Union-Canada Comprehensive Economic and Trade Agreement (CETA) released at the end of last week contains provisions on geographical indications (GIs) and reallocates a portion of the World Trade Organization tariff rate quota for cheese to the EU. The U.S. dairy industry expressed concern today that these provisions would raise artificial trade barriers restricting market access for American cheeses to the Canadian market. In addition, CETA provides very limited access to many EU dairy products as a result of the agreement's prioritization of the GI goals of a few "squeaky wheels," at the expense of broader gains across the full EU dairy industry, according to U.S. dairy industry trade groups.

The provisions on geographical indications are particularly alarming because they grant automatic protection to the EU for "asiago," "feta," "fontina," "gorgonzola" and "munster" in complete disregard of Canadian intellectual property laws. Cheese manufacturers that produced those cheeses prior to October 18, 2013, will be allowed to continue to use those names, but future producers of those cheeses will have to add qualifiers, such as "kind," "type," "style" and "imitation." These new limitations on the use of generic names clearly violate Canadian intellectual property procedures and existing international trade commitments.

"The automatic protection for five cheese names that are generic in Canada, the U.S. and globally is another example of the EU's overreach on geographical indications," said Clay Hough, senior group vice president of the International Dairy Foods Association (IDFA).  "The EU's GI strategy is incompatible with the fundamental goal of a trade negotiation, which is to remove trade barriers—not add them—and allow for greater competition."

Would the U.S. government challenge Canadian actions taken to implement the CETA on these issues in a WTO complaint?  If the U.S. industry has any investment in Canada, would it bring a NAFTA Chapter 11 complaint?

CETA and the Prudential Carve-Out

We talked about the "prudential exception" here, here, and here, and then just recently here.  In the last link, I mentioned that I had a short article coming out arguing for revised language for this exception.  But the CETA negotiators beat me to it.  Here's what they have come up with:

ARTICLE 15: PRUDENTIAL CARVE-OUT

1. Nothing in this Agreement shall prevent a Party from adopting or maintaining reasonable measures for prudential reasons, including:

(a) the protection of investors, depositors, policy-holders or persons to whom a fiduciary duty is owed by a Financial Institution, or cross-border financial service supplier or financial service supplier;

(b) the maintenance of the safety, soundness, integrity or financial responsibility of a financial Institution, cross-border financial service supplier or financial service supplier; or

(c) ensuring the integrity and stability of a Party's financial system.

2. Without prejudice to other means of prudential regulation of cross-border trade in financial services, a Party may require the registration of cross-border financial service suppliers of the other Party and of financial instruments.

3. Subject to Article X (National Treatment) and Article Y (Most Favoured Nation Treatment), a Party may, for prudential reasons, prohibit a particular financial service or activity. Such a prohibition may not apply to all financial services or to a complete financial services sub-sector, such as banking.

That's from page 264 of the text.  For those concerned with policy space, is it any better than the existing provision used in the GATS and elsewhere?  Note that the problematic second sentence is not in there.  The main constraint seems to be that measures must be "reasonable."  How constraining will that be in practice?

But there's more.  On page 277, there's an "Understanding between Canada and the EU Guidance on the application of Article 15.1 (Prudential Carve-out) and Article 20 (Investment Disputes in Financial Services)."  Among other things, it establishes certain "high level principles" to be applied in this context, such as:

4. (a) Except as provided in paragraph (b), a measure is deemed to meet the requirements of Article 15.1 where it:

(i) has a prudential objective; and

(ii) is not so severe in light of its purpose that it is manifestly disproportionate to the attainment of its objective.

(b) A measure that otherwise meets the requirements of paragraph (a) does not meet the
requirements of Article 15.1 where it is a disguised restriction on foreign investment or an
arbitrary or unjustifiable discrimination between investors in like situations.

5. Provided that a measure is not applied in a manner which would constitute a means of
arbitrary or unjustifiable discrimination between investors in like situations, or a disguised
restriction on foreign investment, that measure is deemed to meet the requirements of Article
15.1 where that measure is:

• In line with our common international prudential commitments; or
• In pursuance of the resolution of a financial institution that is no longer viable or likely to be no longer viable;
• In pursuance of the recovery of a financial institution or the management of a financial institution under stress; or
• In pursuance of the preservation or the restoration of financial stability, in response to a system-wide financial crisis.

How exactly, as an interpretive matter, do these "high level principles" interact with the general legal obligations?  In their efforts to clarify, the drafters have added some new layers of complexity.

Todd Tucker has additional thoughts here.

CETA: Limits on Domestic Wine Preferences

From a Canadian news report:

A trade deal between Canada and the European Union could restrict Canada’s wine sales by limiting the number of privately run outlets selling domestic products, if a leaked document turns out to be close to the finalized treaty.

A German website posted the 521-page document this week, and claims it’s a copy of the trade agreement between Canada and the EU. You can find the entire document below.

Last fall, Prime Minister Stephen Harper travelled to Brussels, where he reached a tentative agreement, the details of which have yet to be formally outlined by either Canada or the EU.

If the leaked document is accurate, the trade agreement will clamp down on the expansion of Canada’s wine sales by limiting the number of privately run wine outlets in Ontario and B.C. that only sell Canadian products.

The text of the leaked document states that there “shall not exceed 292 (private outlets) in Ontario and 60 in British Columbia.” Those limits have already been reached in those provinces, suggesting restrictions on opening any new stores that sell local wines.

Here's the full language, from pp. 15-16 of the leaked CETA text:

Article 2(2)(b) of the 1989 Agreement, as amended by Annex VIII to the 2003 Agreement, shall be replaced by the following:

(b) - requiring off site private wine store outlets in Ontario and British Columbia to sell only wines produced by Canadian wineries. The number of these off site private wine store outlets authorised to sell only wines produced by Canadian wineries in these provinces shall not exceed 292 in Ontario and 60 in British Columbia.

The 1989 Agreement is here; the 2003 Agreement is here.

So as I understand it, there are provincial laws that allow private liquor stores to operate, but only if they sell local wine exclusively.

But if that interpretation is right, here's my question: Doesn't this violate GATT Article III:4? Does Canada have some sort of waiver for this?

CETA, ISDS, and Religious Discrimination: The Burqa Ban

In the comments of this post, we talked about the scope of the "targeted discrimination" aspects of the fair and equitable treatment obligation in the leaked CETA investment chapter. The relevant language is as follows:

Article X.9: Treatment of Investors and of Covered Investments

...

2. A Party breaches the obligation of fair and equitable treatment referenced in paragraph 1 where a measure or series of measures constitutes:

...

(d) Targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief;

In the discussion there, I suggested that this obligation was vague and unclear.  Let me offer a possible real world example, to test the boundaries of how this provision might apply.

There has been controversy in recent years over the French ban on face covering, which has a particular impact on the wearing of burqas. A few weeks ago, the French law was found not to violate certain human rights obligations:

Judges at the European court of human rights (ECHR) have upheld France's burqa ban, accepting Paris's argument that it encouraged citizens to "live together".

The law, introduced in 2010, makes it illegal for anyone to cover their face in a public place. While it also covers balaclavas and hoods, the ban has been criticised as targeting Muslim women.

So let's say that after CETA comes into force, a Canadian muslim woman who wears a burqa invests in a business in France.  Does she have a good CETA investment claim against the French law, based on a view that she has been targeted under this law for her religious beliefs?

(There's also the exciting -- for international lawyers -- prospect of one international court having to take into account the decision of another international court).

Finally, in the comments on the earlier post, it was suggested that discrimination is covered even in the absence of this provision.  If the provision is deleted, can the same claim be brought on the more general basis that the law is not "fair and equitable"?

CETA, Investment Obligations, and Exceptions

With each attempt to clarify the "minimum standard of treatment" in investment obligations, the scope becomes less clear to me.  Here's what the leaked CETA text says (page 158):

Article X.9: Treatment of Investors and of Covered Investments

1. Each Party shall accord in its territory to covered investments of the other Party and to investors with respect to their covered investments fair and equitable treatment and full protection and security in accordance with paragraphs 2 to 6.

2. A Party breaches the obligation of fair and equitable treatment referenced in paragraph 1 where a measure or series of measures constitutes:

(a) Denial of justice in criminal, civil or administrative proceedings;

(b) Fundamental breach of due process, including a fundamental breach of transparency,
in judicial and administrative proceedings.

(c) Manifest arbitrariness;

(d) Targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief;

(e) Abusive treatment of investors, such as coercion, duress and harassment; or

(f) A breach of any further elements of the fair and equitable treatment obligation adopted by the Parties in accordance with paragraph 3 of this Article.

3. The Parties shall regularly, or upon request of a Party, review the content of the obligation to provide fair and equitable treatment. The Committee on Services and Investment may develop recommendations in this regard and submit them to the Trade Committee for decision.

4. When applying the above fair and equitable treatment obligation, a tribunal may take into account whether a Party made a specific representation to an investor to induce a covered investment, that created a legitimate expectation, and upon which the investor relied in deciding to make or maintain the covered investment, but that the Party subsequently frustrated. 

5. For greater certainty, ‘full protection and security’ refers to the Party’s obligations relating to physical security of investors and covered investments.

6. For greater certainty, a breach of another provision of this Agreement, or of a separate international Agreement, does not establish that there has been a breach of this Article.

It's interesting to note that there is a general exception in CETA that incorporates GATT Article XX (page 463):

Article X.02: General Exceptions

1. For the purposes of Chapters X through Y and Chapter Z (National Treatment and Market Access for Goods, Rules of Origin, Origin Procedures, Customs and Trade Facilitation, Wines and Spirits, Sanitary and Phytosanitary Measures, Investment Section 2 (Establishment of Investments) and Investment Section 3 (Non-discriminatory Treatment)), GATT 1994 Article XX is incorporated into and made part of this Agreement. The Parties understand that the measures referred to in GATT 1994 Article XX (b) include environmental measures necessary to protect human, animal or plant life or health. The Parties further understand that GATT 1994 Article XX (g) applies to measures for the conservation of living and non-living exhaustible natural resources.

However, only Section 3 of the investment section is covered, and Article X.9 (quoted above) is in Section 4.  In other trade agreements, by contrast, Canada has created an exception that applies to all investment obligations (see, e.g., Article 23.02, para. 3 of the Canada - Panama FTA).

There's also an explanatory note to Article X.02 which says:

Negotiators’ Note for legal scrubbing: The application of GATT Article XX to various CETA
chapters will need to be reviewed in light of the actual content of these chapters. ...

So it sounds like this may be an area where negotiating is still going on. 

CETA Dispute Settlement: Reference to WTO Jurisprudence

From Article 14.10 of the leaked CETA text (page 474):

5. The panel shall interpret the provisions referred to in Article 14.2 in accordance with customary rules of interpretation of public international law, including those set out in the Vienna Convention on the Law of Treaties. The panel shall also take into account relevant interpretations in reports of Panels and the Appellate Body adopted by the WTO DSB. ...

That second sentence is interesting.  How exactly should CETA panels "take into account" WTO panel and Appellate Body interpretations?  Cite to them, but feel free to go their own way?  Follow them as closely as possible?  What if the customary rules of interpretation lead the CETA panel to a different result than what the WTO panel/Appellate Body found?

And what happens when -- don't be shocked -- WTO panel and Appellate Body interpretations are a bit unclear?

CETA Text: The Treatment of Water

A fairly recent version of the CETA text has been leaked.  The document date is August 1, 2014.  No doubt there is some legal "scrubbing" still to do, and perhaps some actual negotiating as well, but this text seems pretty advanced, and thus ready for blogging.  I'm going to do a few posts in the coming days about specific provisions, not in any particular order, just flipping through and seeing what looks interesting.  I'll start with one on water rights.  Here's the CETA provision (from numbered page 14):

Article X.08: Rights and Obligations Relating to Water

1. The Parties recognize that water in its natural state, such as water in lakes, rivers, reservoirs, aquifers and water basins, is not a good or a product and therefore, except for Chapter XX – Trade and Environment and Chapter XX – Sustainable Development, is not subject to the terms of this Agreement.

2. Each Party has the right to protect and preserve its natural water resources and nothing in this Agreement obliges a Party to permit the commercial use of water for any purpose, including its withdrawal, extraction or diversion for export in bulk.

3. Where a Party permits the commercial use of a specific water source, it shall do so in a
manner consistent with the Agreement. 

Protection of water resources has been an issue raised by trade critics for a long time now.  But are there any actual threats to water resources from trade agreements?  What has people so worked up?  Is this one of those areas where some law firm wrote a memo once suggesting a possible challenge to a ban on development of water resources, and ever since there has been a perceived threat?

Generally speaking, I would think that, under all the existing trade rules I'm aware of, a government could declare a particular water resource off limits for commercial development, without violating its trade obligations.

On the other hand, if you are going to allow development, but not allow any exports, you need to have a better reason than simply favoring domestic producers by giving them cheaper inputs.  Export bans are probmematic, as several recent cases against China show.

So does the CETA language deal with what may or may not be an actual problem?  I'm not really sure that it does much of anything.  Paragraph 2 says governments are not "obliged" to permit "the commercial use of water."  But that doesn't change the current situation under trade agreements, does it?  What existing provisions would do this?

Paragraph 3 then says that if you do allow commercial use, you have to act consistently with the agreement, which again seems to reflect the current situation.

And then there's paragraph 1, which says that water in its "natural state" is not a "good or a product", and thus not subject to the agreement.  Does that really mean anything?  Once you start turning that "natural state" water into usable water, it is a good/product, and thus subject to the agreement.

Any further thoughts from people who have followed this issue more closely than I have?