On the eve of a summit between Prime Minister Stephen Harper and European Union leaders, Germany has signalled it’s putting the Canada-EU trade deal on hold.
The Comprehensive Economic and Trade Agreement (CETA) was supposed to be symbolically concluded on Friday after five years of negotiations.
But German economic affairs minister Sigmar Gabriel said Thursday the country will not sign the deal unless a controversial clause allowing companies to sue governments is removed, Reuters reported.
According to sources cited by German news service Deutsche Welle, Gabriel “pulled the emergency brake in Brussels, and prevented the completion of the CETA deal.”
All EU member states and Canada have to sign the deal for it to become law.
Germany’s move sets up a showdown between Europe’s largest economy and the European Commission, which negotiated the deal.
European Commissioner for Trade Karel De Gucht warned Thursday that "if we re-open negotiations on CETA, the deal will be dead.”
"I'm certain the debate is not over by a long shot," Gabriel shot back in Germany's parliament, the Bundestag, on Thursday.
It’s widely believed that the real issue now holding up the Canada-EU trade deal is, in fact, the U.S.-EU trade deal currently under negotiation. The deal with Canada is seen as a test case for the success or failure of the U.S. trade deal, known as the TTIP.
Germany’s concerns centre around the investor-state dispute mechanism that is part of the deal. It would allow companies to sue governments, outside the regular court system, for losses caused by a government policy.
Many in Europe fear that an investor dispute clause would allow companies to essentially override national laws through lawsuits.
Gabriel told the German parliament his government clearly rejects the inclusion of the clause, and argued current Canadian and European laws are sufficient to protect investors.
Such investor dispute clauses are common in free trade agreements; NAFTA contains one, as does a recent investment-protection treaty Canada signed with China.
According to a new analysis from the Canadian Centre for Policy Alternatives (CCPA), Canada has already paid out $170 million as a result of lawsuits through NAFTA’s investor-dispute tribunals, and the country is facing billions more in lawsuits under way.
These dispute mechanisms typically contain a “prudential carve-out” to protect a country’s financial regulations, but the CCPA says this carve-out is “substantively weaker” in the EU trade deal than it is in NAFTA.
Germany’s government made it clear that while it supports CETA in principle, it will not sign the deal with an investor dispute mechanism in place.
Prime Minister Stephen Harper was scheduled to meet with European Commission President José Manuel Barroso and European Council President Herman Van Rompuy in Ottawa and Toronto on Friday, to mark the conclusion of the negotiations.
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The Canada-China FIPA isn’t a complete trade deal. It’s more like one chapter of a trade deal -- the chapter that deals with protecting investors’ rights. Under these agreements, foreign companies gain the right to sue the host country in an international tribunal that doesn’t answer to national courts. Critics say this essentially gives foreign companies the ability to trump Canadian laws. True, but under the Canada-China FIPA, a Chinese investor or business will have to prove they were subjected to different rules than would apply to a local investor or business. That strongly limits the extent to which Canadian laws can be challenged at the tribunals, and Canada’s ability to pass environmental and other laws likely won’t be as constrained as critics say. Canada will still be able to reject major investments from Chinese companies.Supporters of the Canada-China FIPA say Canada needs a deal like this with China because we are running a $30-billion-a year trade deficit with the country. To get our money back, we need Chinese investment, and the FIPA gives investors the confidence they need to put their money here.
In the treaty, the government retained the right to hide documents filed in a lawsuit against Canada under the Canada-China FIPA. This is despite (or perhaps because of) the fact that these rulings can go against Canadian government policy.
This trade treaty, meant to last a generation, got an hour of debate in front of the House of Commons’ trade committee, and that’s it.
NAFTA can be terminated in six months, but the Canada-China FIPA runs a minimum of 15 years, has a one-year notice of termination period, and extends rights to Chinese companies already operating in Canada by 15 years after the deal is cancelled.Supporters of the deal say the at minimum 31-year timeline makes sense for protecting long-term investments and projects.
So far, FIPAs have been advantageous to Canadian business because they have largely protected Canadian investments in other countries. (“Canadian mining companies are using FIPAs with developing countries to claim damages from community opposition to unwanted mega-projects,” the Council of Canadians reports.)But with China, Canada is on the other side of that equation — it’s largely the destination country for investment. “Canada will be much more exposed to claims and corresponding constraints” than China under the deal, Osgoode law prof Gus Van Harten writes.Though the deal sets up the same protections for Canadians investing in China as for Chinese investors in Canada, it creates “de facto non-reciprocity,” Van Harten argues, because of the imbalance in the trade relationship.
Even if a Chinese citizen owns a small portion of a Canadian company, they will be able to use the tribunals set up under the FIPA, Van Harten says.
British Columbia’s Hupacasath First Nation launched a court challenge on the constitutionality of the deal in January, 2013, arguing the government had violated its responsibility to consult with first nations on constitutional and treaty issues. The B.C. Supreme Court rejected that argument in October, 2013, but the first nation is now appealing that ruling before the Federal Court of Appeal.