Europe’s highest court to examine legality of CETA’s controversial investment court system

Published by Niall Sargent on

September 7th, 2017

The legality of the controversial Investment Court System (ICS) in the EU-Canada free trade deal is set to be scrutinized by Europe’s highest court following a request from the Belgian government.

Belgium’s Deputy Prime Minister, Didier Reynders, yesterday officially requested that the European Court of Justice (ECJ) provide an opinion on the compatibility of the dispute settlement mechanism with the European Treaties.

The ICS is special arbitration mechanism outside of the normal court system through which multinational companies can sue sovereign Governments where their actions impact on profitability or expectations of profit.

For example, the Australian government was sued by Philip Morris through this system after the tobacco company lost its court battle with the state on new laws to introduce plain cigarette packaging.

The Belgian request specifically asks the Luxembourg-based count to examine if the ICS provision is compatible with EU law, the right of access to the courts and the right to an independent and impartial judiciary.

The decision honors a commitment made by the Belgian government to five regional governments that had opposed the inclusion of the system in the EU-Canada Comprehensive Economic and Trade Agreement (CETA).

Investor Court System under Fire

The ICS system was brought forward by the European Commission in September 2015 after it came under fire to reform the investor-to-state dispute settlement (ISDS) system used in EU investment negotiations.

While the ICS system introduces small procedural improvements, it still does not address the “fundamental problems of the system”, according to Paul de Clerck, the Economic Justice programme coordinator of Friends of the Earth Europe. All trade agreements that allow investors to go to special tribunals and sideline ordinary courts are “not acceptable”, he added.

There has been strong opposition to the system from a broad range of civil society organisations across Europe. In July, a unique coalition of Irish farming, business, trade union, civil society and environmental groups voiced their collective concern with the provision during Canadian Prime Minister Justin Trudeau’s visit to Ireland.

A number of expert bodies such as the European Association of Judges have also highlighted concerns about the legality of ICS, which it says would fall outside of the European legal system.

Singapore Ruling

The Belgian request was driven by a recent ECJ opinion on the EU-Singapore free trade agreement which found that the investor-state dispute settlement provision in the agreement did not fall within the exclusive competence of the European Union. This would have given the EU the right to sign and conclude the Singapore agreement by itself.

This decision now means that any investor-state dispute settlement mechanism contained within free trade agreements must be ratified by all member states before the provision can come into effect. The court made it clear that such mechanisms affect the powers of domestic courts, however, the ECJ’s opinion did not address the legality of the ICS system.

Belgian Case to Bring Clarity

Belgium’s request is now set to clarify this issue, according to ClientEarth’s Laurens Ankersmit, who welcomed the news that the ICS is “finally on its way to Luxembourg”.

As EU rules are strict on protecting the powers of EU courts and tribunals over international investment rules, the trade expert does not expect the provision to “survive the scrutiny of the ECJ”. “If the ECJ proves us right, it would be a huge victory for the rule of law and for judges across Europe,” Mr Ankersmit added.

CETA is set to provisionally enter into force on the 21 September 2017, although, the ICS provision is excluded from this process and can only enter into force following ratification from the 40 national and regional parliaments across EU member states.

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Niall Sargent

Niall is the Editor of The Green News. He is a multimedia journalist, with an MA in Investigative Journalism from City University, London