In a disappointing judgment, the Court of Justice of the EU (CJEU) has ruled today that the investment court system in the Canadian EU trade agreement (CETA) is compatible with EU law.
The opinion is a surprising turn of events as only last year’s Achmea ruling wiped out investment arbitration between EU countries because it undermines the EU judicial system.
Investor-state dispute settlement (ISDS) mechanisms – like the investment court system in CETA – enable big corporations to sideline domestic and EU courts and directly sue governments whose environmental or social policies may affect their investment.
ClientEarth trade lawyer Amandine Van Den Berghe said:
“The European Court has missed the opportunity to protect the rule of law and the powers of domestic courts. Although the Court found investment court system (ICS) was “safe” under EU law, it does not make the system fair or democratic. It allows multinational corporations to put pressure on public decision-making.
“Even though the CJEU considered the CETA to have sufficient safeguards, arbitration mechanisms have a demonstrable regulatory chill effect on environmental laws. Because of an ISDS case, the city of Hamburg backed off from applying European and German regulations aimed at tackling climate change and water pollution caused by coal plants.
“ISDS mechanisms also afford unbalanced privileges to foreign investors, without imposing any responsibilities for their activities. This structural asymmetry was not addressed by the Court in today’s judgment.
“The ICS is an out-of-date, unbalanced system that favours businesses over the general public interest, like the protection of our environment. At a time where public authorities must act fast to tackle climate change and biodiversity loss, obstacles to political or regulatory action must be lifted.”
Following widespread criticism of ISDS in recent years, reforms of the controversial arbitration mechanism are under way at international level at the United Nations Commission on International Trade Law (UNCITRAL).
Van Den Berghe added: “The coming reforms are a chance for decision makers to sit up and make the only credible decision: get rid of ISDS and ICS mechanisms, once and for all. Real systemic reform is needed at international level. Such a disappointing judgment should not distract us from this objective.”
Note to editors
In October 2016, the region of Wallonia temporarily blocked the signing of CETA over concerns about investor-state dispute settlement, among other issues. In a compromise deal, the Belgian federal government committed to request an opinion from the CJEU on the legality of the controversial investment court set up in these agreements, under EU law.
The European Commission had attempted to overcome ISDS legitimacy crisis by replacing it with an institutionalized form of ISDS mechanism – the investment court system (ICS) – without addressing the deep flaws.
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