Germany Changes Tack on ISDS in EU-Canada Trade Deal

4 December 2014

Just weeks after threatening to block the ratification of the EU’s planned free trade deal with Canada (CETA) over its investor-state dispute settlement (ISDS) provisions, German Economy Minister Sigmar Gabriel has now said he is ready to back the agreement. (See Bridges Weekly, 23 October 2014)    

Speaking before the Bundestag last Thursday, Gabriel told German parliamentarians that CETA is generally a “good agreement,” and that his country’s legislature should vote to approve it, despite its ISDS mechanism.

The move is expected to irk Gabriel’s own Social Democratic Party (SPD) and touch off further debate on ISDS in European free trade agreements. 

Some EU political parties, including the SPD, oppose ISDS in both CETA and the Transatlantic Trade and Investment Partnership (TTIP) which is currently being negotiated with the US. The EU and Canada signed CETA in late September, after five years of talks. (See Bridges Weekly, 2 October 2014)

Change in tone

Until last week, Gabriel had been one of the loudest voices against ISDS. “It is completely clear that [Germany] reject[s] these investment protection agreements,” the Economy Minister told a European Parliament debate this September.

But following a 10 November meeting with new EU Trade Commissioner Cecilia Malmström, Gabriel said that “it will not be possible to have the arbitration procedure taken out of CETA.”

Since then, the SPD party chief has tiptoed between downplaying his previous concerns while playing up CETA’s importance and the need for European cohesion.

Suggesting that hundreds of thousands of jobs are at risk and that “the rest of Europe wants [CETA],” Gabriel said last Thursday that cancelling the agreement over ISDS would be “a mid-sized catastrophe” for his country. “If we do this wrong, our children will curse us,” he added.

ISDS

The European Commission has noted in the past, as have others, that the EU’s 28 member states combined have over 1400 bilateral investment treaties and nearly all feature ISDS.

But while proponents of ISDS argue that arbitration ensures unbiased adjudication and increases investor confidence in the business environment, among other benefits, critics argue that it is opaque, inadequate to defend the public interest, and unnecessary in countries with strong rule of law.

In the context of CETA, some ISDS detractors are particularly concerned that US companies with “substantial business interests” in Canada could be allowed to bring suits against EU member states. 

“CETA will be a Trojan horse for US-based multinationals,” predicted Cecile Toubeau, a sustainable trade policy officer at NGO watchdog Transport & Environment.

Responding to these criticisms, Canada’s Ambassador to the EU, David Plunkett, emphasised that ISDS provisions are common in EU treaties and that “letter-box” companies would not qualify as investors under CETA.

TTIP

Despite Gabriel’s revised stance on CETA, ISDS will likely remain a contentious issue if and when the EU and US resume negotiations on the investor protection components of TTIP. That section of the talks was put on hold at the beginning of this year, in order for the European Commission to hold a public consultation on the subject. (See Bridges Weekly, 23 January 2014)

While the US is insistent on the inclusion of an ISDS provision, French officials have been among those indicating their opposition to ISDS in TTIP.  “France did not want the ISDS to be included in the negotiation mandate,” France’s Secretary of State for Foreign Trade Matthias Fekl told the French Senate last month.

However, Italian Vice-Minister for Economic Development Carlo Calenda recently warned that dropping ISDS from TTIP would involve changing the European Council’s mandate for the talks – and making any changes to the mandate “would be the end of the negotiation.” (See Bridges Weekly, 27 November 2014)

ICTSD reporting; “Germany wants investment clause scrapped in EU-Canada trade deal,” EURACTIV, 25 September 2014; Malmström: Only minor adjustments to ISDS in trade deal with Canada,” 10 November 2014; “Germany’s Gabriel says sees Berlin backing EU-Canada trade deal,” REUTERS, 29 November 2014; “Euro protests trip up TTIP trade pact with US,” REUTERS, 26 November 2014; “US multinationals could sue EU governments through CETA,” EURACTIV, 20 November 2014; “French government will not sign TTIP agreement in 2015,” EURACTIV, 17 November 2014.

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