Thank you, Mr. Chairman and members of the committee, for the invitation to speak today. CETA is a major trade and investment initiative, quite obviously, and will have major implications for all governments in Canada as well as the Canadian public.
I want to speak today only to the investment chapter. Not because the others aren't important, but simply because my expertise is on the investment issues and the investment chapter and not on the other issues. Unfortunately, official texts have not been released by the Canadian government and the EU Commission, just the summaries. However, as I indicated in my letter accepting the invitation to speak, I will do the best I can based on the summaries, but also on leaked text that has been circulating from time to time since last winter.
Of course, Mr. Chairman, it would be much better if we could all have a fully informed and transparent debate based on the full draft text, rather than relying on leaks and self-selected summaries by each government—and the summaries are in fact different, based on the interests of each government. The details matter, and they are largely absent from the summaries. We look forward to having a fully informed debate when the actual text is available. In the meantime, I should inform you, Mr. Chairman and members, that one such leaked text began circulating last week in Europe and fell into my inbox on Monday. It concerns the investment negotiations that took place in the middle of November and the text following that. I will speak to that text as well. I will make written submissions next week, Mr. Chairman, that will address six technical issues that support the conclusion I'm going to reach. I'll give that conclusion now because I'm sure I will run out of time at the end.
The conclusion is, very simply, in my opinion, the investment chapter, if it continues on what appears to be its present course, will provide foreign investors into Canada with the most investor-friendly set of corporate rights ever drafted by the Canadian government in an international treaty. The consequence of this increase in investor rights, coupled with a very robust investor-to-state dispute settlement mechanism under the treaty, will be a growing substantive scope for more investors—the European investors—to challenge more government measures based on higher levels of corporate rights, including future human health and environmental measures, at both the federal and provincial levels.
I say foreign investors here because this isn't just limited to European investors. All investors who are beneficiaries of an investment treaty will be able to take advantage of this package of rights because of the most favoured nation provision that's included in all the other treaties. It ratchets up the rights for everybody at the same time.
In terms of the technical points, my first one relates to the most favoured nation provision, which in this draft agreement is fully open and backward looking. I'll explain what I mean. Under investment law a most favoured nation provision allows an investor into Canada to have the same level of rights as the highest level of rights any investor in Canada has, including domestic or foreign. That's what most favoured nation means.
The current draft text is fully open so that the provisions of prior investment treaties concluded by Canada can be adopted by foreign investors under this treaty in the event of any disputes, if they're more favourable. The present draft CETA text provides carefully worded language on many provisions. In most cases, this is designed to limit the potential scope of interpretation of the rights of investors and thus to help protect government regulatory space, the right to regulate.
However, the MFN provision allows investors to reach back in time to those treaties that weren't drafted with the same level of care and the same purpose of balancing the right to regulate with investor rights.
It's worth noting, Mr. Chairman, that this ability to reach back into the older text was precluded by the language in the 2004 Canadian model FIPPA that allowed the MFN provision to apply only on a forward-looking basis, not backwards in time, precisely to prevent the undoing of the more modern language—the more up-to-date language—in the model FIPPA, in the substantive obligations of the government. The present draft text quite precisely reverses the 2004 model FIPPA in this very important way.
The second point, and on the substance, this is an area where the careful drafting doesn't reduce investor rights. It increases them and potentially quite dramatically.
The fair and equitable treatment provision, in my view, will become the most open ever concluded. The experience with the over 600 investor-state arbitrations under investment treaties to date globally shows that the fair and equitable treatment provision is the most frequently and the most successfully used by investors under the investor-to-state process. So it is a really important provision. It counts—it counts a lot.
The current text comes in what I will, for present purposes, call three boxes.
The first box has a defined list of factors that would constitute a breach of the fair and equitable treatment by a state, by the government. That's fine. The list generally reflects the issues most analysts would associate with the concept of FET under international law. The list is what most would have looked to, and it is defined and limited. That's good drafting in my view.
The second box is actually a couple of paragraphs later and addresses a very specific concept called the legitimate expectations of the investor. It too has been widely referred to in previous cases and analysis, and it is specifically defined and limited here. Again, it's careful drafting.
It's the third box, Mr. Chairman and members, that is of concern. The third box is defined to exist in addition to the first two. The language is very careful, “in addition to”. This third box refers to what customary law says constitutes a breach of FET, other than what is in the first two boxes. But it does not set any scope for this. It does not set any thresholds relating to the degree of government misconduct, whether it be significant, serious, or egregious, and international law has those three and other tests for the threshold of conduct, but it doesn't set out which one should apply here. It doesn't set out the test to apply in terms of how to determine whether what proposition, what alleged misconduct, is actually part of customary international law or not.
The problem is all of these things have been addressed in the existing cases and all of them have come to very different and, in many cases, opposite and irreconcilable conclusions. So there's a wide variety of very open and very closed interpretations, and this treaty does nothing to set any parameters or define any of those tests. It does so in a context where we have two boxes that would otherwise have been seen largely as the limits of what FET means, and here we have, in addition to that, this other box that is left completely undefined. That's where the serious potential mischief lies, Mr. Chairman.
The treaty essentially invites foreign investors to identify what they think should be in that new third box, that empty box, and for tribunals to decide what should be in it without any guidance from the drafters. It's open season for the lawyers in that case.
The third technical point relates to the possible inclusion of an umbrella clause, which is still on the table. I only note it; I won't get into it because of the time factors. It's a smaller technical issue.
I do want to quickly note the issue of exceptions to national treatment, which are a normal part of every agreement. This is nothing new or nothing exceptional—25% of the text of NAFTA is exceptions to national treatment in MFN—except that in this case, as it relates to the provinces, for any exceptions to apply, they have to specifically identify nonconforming provincial measures to include in a schedule. Previous agreements have grandfathered all non-existing, nonconforming measures. The change means that the provinces have to list all of their measures that they want to be excluded from full coverage of the agreement, as of when the agreement starts. That puts a heavy burden on the provinces to go through all their laws, to verify exactly which are nonconforming to the text, and schedule them.
The problem is if they make a mistake, they can't reverse it afterwards. It's finished. Once the schedule is accepted, that's it, the listing is closed. It's a very heavy burden on the provinces because of that particular change.
The fifth issue, just to note it for the record, concerns the use of a general exceptions clause like that found in article XX of GATT. I note it, but I won't speak to it here unless there are questions on it.
The final point, Mr. Chair, is the right to regulate clause, which is held up both here and in Europe as an example of the balancing that's included in the text. In this case, the right to regulate clause is intended to be in the preamble to the whole of the agreement, as I understand it, and it is not in the leaked text, but the technical summary produced by the Canadian government tells us that the agreed language is that it will indeed reaffirm the parties' right to regulate, but in a manner consistent with this agreement.
That language actually comes from article 1114(1) of NAFTA. That's where it was originally used, and it means, as a matter of law, that the agreement prevails over the right to regulate of governments, and all exercises of the right to regulate at both the federal and provincial levels must conform to the agreement. So contrary to what is often implied by referring to a right to regulate provision, it in fact prioritizes conformity with the treaty obligations over the right to regulate. This is absolutely beyond a legal doubt, as seen in the history of NAFTA itself.
Very briefly, here are my conclusions, Mr. Chairman, given all this. As a matter of law based on the summaries and the existing text, the current drafting of CETA will give foreign investors into Canada more international law rights than ever before; will do so quite knowingly and deliberately; and this will inevitably lead to increases in the number of arbitrations against Canada, for both federal and provincial measures, and resulting pressures not to regulate in key areas such as the environment, human health, anti-tobacco practices, and so on.
Thank you, Mr. Chairman.