CETA — The Half-Cocked Backdoor Trade Deal
This report considers the ramifications of ratifying Free Trade Deals such as CETA. Dubbed TTIP through the backdoor, The Comprehensive Economic & Trade Agreement between the EU and Canada could have led to the widespread abuse of corporate power on a massive scale. This article has been updated and published from an earlier version as it links into material already published and a forthcoming article on how the Ukraine/Russia conflict links in to the climate crisis.
The Comprehensive Economic & Trade Agreement (CETA) was a trade agreement that was signed between Canada and the EU.
It was signed by European Commission (EC) President Jean-Claude Juncker and Canadian Prime Minister Justin Trudeau in October 2016 and was approved by the European Parliament’s International Trade Committee. This cleared the way for ratification in the European parliament on 15th February 2017.
The deal initially saw the light of day back in May 2009, when negotiations began. Since then it had been overshadowed by TTIP. But in the background the process towards an agreement on CETA had continued.
With TTIP stalled, campaigners turned their attention on CETA, because many of the problems associated with TTIP were also inherent within CETA.
The report Trading Away Democracy: How CETA’s investor protection rules could result in a boom of investor claims against Canada and the EU, produced in collaboration by a group of NGO’s, explores the background of the trade agreement.
In short:
The agreement included an investor-state dispute settlement (ISDS) mechanism, later tweaked and re-branded as ICS (Investment Court System) in February 2016, which could unleash a corporate litigation boom against Canada, the EU and individual EU member states, and could dangerously thwart government efforts to protect citizens and the environment.
ICS, an ISDS mechanism, gives foreign corporations the ability to directly sue countries at international tribunals for compensation over health, environmental, financial and other domestic safeguards that they believe undermine their rights. These investor-state lawsuits are decided by private commercial arbitrators who are paid for each case they hear, with a clear tendency to interpret the law in favour of investors.
The main centre where ISDS cases are heard is at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). According to the ICSID blurb:
The ICSID Convention is a multilateral treaty formulated by the Executive Directors of the World Bank to further the Bank’s objective of promoting international investment. ICSID is an independent, depoliticized and effective dispute-settlement institution. Its availability to investors and States helps to promote international investment by providing confidence in the dispute resolution process. It is also available for state-state disputes under investment treaties and free trade agreements, and as an administrative registry.
It goes on to state that:
The ICSID process is designed to take account of the special characteristics of international investment disputes and the parties involved, maintaining a careful balance between the interests of investors and host States.
Given the World Bank’s rather chequered history it is not surprising it should be directly linked to international trade agreements.
Friends of the Earth International (FoEI) focused on the World Bank in the report World Bank: catalysing catastrophic climate change. The report examined the Banks investment in high carbon infrastructure and the knock-on effects of its policies in developing countries, locking these economies into fossil fuel dependence when they could be better served by renewables such as solar power.
The Bank tends to emphasise the social and economic benefits of large scale investment, but as several case studies within the FoEI report illustrate, this is generally not the case.
After the Kyoto Protocol came into force, the World Bank set up its Carbon Finance Unit to promote an expanding carbon market. Through this it has been funding carbon trading schemes. Carbon markets have been heavily criticized because they:
have failed to reduce emissions, are inefficient, volatile and susceptible to fraud. Indeed, factors such as these are fueling the rate of growth because of an increased volume of speculative trading, and take up by those intent on engaging in value-added tax (VAT) fraud in the EU Emissions Trading Scheme, as well as the sale of surplus pollution permits cashed in by EU companies during the economic recession (Reyes, 2010). Of the US$144 billion carbon market, only US$3,370 million goes to project developers (and only a fraction of that will go to communities who host projects).
The Bank also provides funding for projects that come under the Clean Development Mechanism (CDM). But this system has been abused and has been poorly regulated by the bank.
The World Bank has also got involved in the Reducing Emissions from Deforestation and Degradation (REDD) scheme. Again this has come under criticism as no formal structure has been agreed. However projects have been rolled out incorporating REDD, which have done more to exasperate the problem of deforestation. Discussions on REDD took place at the Durban climate talks, but still a formalized structure remains elusive.
This article from Al Jazeera, examines the Banks dubious economic strategy that has revolved around structural adjustment policies, with a distinct adherence to neoliberal policies. As the article points out, ‘It’s no accident that all of the Bank’s past presidents have been US military bosses and Wall Street executives’.
The Bretton Woods Project delves into the history of ICSID:
ICSID was created by the World Bank in a sea of controversy. At the 1964 Tokyo World Bank and IMF annual meetings, 21 developing-country governments voted “no” to the convention to set up this new part of the World Bank Group in which foreign corporations could sue governments and bypass domestic courts, thus dramatically eroding local democratic control over important political and economic decisions. The 21 included all of the 19 Latin American countries attending as well as the Philippines and Iraq. The historic vote was dubbed the “Tokyo No.” It could well be the largest collective vote against a World Bank initiative ever. And perhaps the one time that all Latin American representatives voted “no.”
The ICSID treaty went forward, despite the “no” votes. Initially it was small and largely irrelevant. Its first case was filed in 1972, with just over two dozen cases by 1988. However, by the mid-1990s, ICSID moved center-stage, thanks to the ISDS clauses inserted in bilateral and multilateral trade and investment agreements, starting in the 1980s and exploding in the 1990s. In 2012 alone, 48 new cases were added to ICSID’s docket. All of the 48 cases were filed against governments of developing countries, more than one-third (17 or over 35 per cent) relating to extractive industries.
The article notes that when ICSID was established there was very little in way of human rights or environmental safeguards, ‘But much has changed since ICSID’s birth, including widespread acceptance of the centrality of environmental issues.’ Clearly:
It is the duty of governments to prioritise their responsibility to protect people and their ecosystems.
In its current structure, ISDS clauses and rulings by ICSID do the exact opposite — discouraging national environmental and social regulations, for fear of being sued.
The first major trade deal to come into effect was the North American Free Trade Agreement (NAFTA). This has been running for nearly 30 years and is effectively the template that trade deals are compared with.
The CETA report highlights cases that have gone to arbitration. In particular it points out the involvement of oil and gas companies, noting that, ‘Oil, mining and gas corporations around the world are increasingly turning to investment arbitration.’
A case in point is tar sands. The Canadian Government has undermined EU legislation with respect to this:
The Canadian government has worked for years on behalf of oil and gas companies operating in Canada to weaken and subvert the proposed European Fuel Quality Directive, which requires EU fuel suppliers to decrease the carbon intensity of their fuels. This directive was meant to account for the higher greenhouse gas emissions from high carbon fuels such as oil derived from the Canadian tar sands, which requires more energy than conventional oil to be extracted and processed.
After many years of delay, the European Commission has released new measures which recognize that tar sands oil is more carbon intensive, but does not require EU companies to use a higher carbon intensity value if they import it. The result, after intensive lobbying by Canada, is a system that is not going to discourage oil companies from using and investing in the tar sands.
A similar process happened related to fracking. In 2012 The European Commission’s Environment Directorate-General issued a comprehensive report (August 2012), which goes into fracking issues in considerable depth.
It outlines the risks of fracking and proposes recommendations to deal with those risks, such as:
Ensuring the integrity of wells and other equipment throughout the development, operational and their post-abandonment lifetime so as to avoid the risk of surface and/or groundwater contamination
Ensuring that spillages of chemicals and waste waters with potential environmental consequences are avoided during the development and operational lifetime of wells
The potential toxicity of chemical additives and the challenge to develop greener alternatives
The unavoidable requirement for transportation of equipment, materials and wastes to and from the site, resulting in traffic impacts that can be mitigated but not entirely avoided
The report notes that:
Land use requirements are considerable, occupying about 3.6 hectares per well pad. With multiple installations, this could result in a significant loss or fragmentation of amenities or recreational facilities, valuable farmland or natural habitats
Emissions could affect air quality. Emissions include: Ozone; diesel fumes from pumps; hazardous pollutants from fracturing fluids; fugitive emissions
Noise pollution onsite and from traffic
High risk of surface and groundwater contamination leading to greater cumulative impacts
High water resource use
The report also identifies considerable gaps in EU legislation.
Following the release of the report a public consultation was launched, which ran to March 2013. The Commission then organised an open stakeholder meeting on 7 June 2013 in Brussels, inviting participants to contribute to the findings of the consultation.
The final report Analysis and presentation of the results of the public consultation “Unconventional fossil fuels (e.g. shale gas) in Europe” was published in October 2013.
Yet despite all this effort the whole affair seemed to disappear quietly into the background. Why?
This report from Friends of the Earth Europe (FoEE), Fracking Brussels: A who’s who of the EU Shale Gas Lobby reveals an extensive behind the scenes lobbying campaign that persuaded the EU to forget about any meaningful regulation of the industry.
The report finds that:
Analysis of contact with key Commission directorates involved in the Commission’s impact assessment (DG Environment, Climate Action, Energy, Enterprise and Industry, and Trade) reveals the intensity of the lobby campaign: industry lobby groups sent at least 79 correspondences to the key DGs dealing with shale gas within less than a year. Also the imbalance in the interests represented at the EU level becomes very obvious: based on information obtained by access to documents’ requests, the European Commission met at least 68 times with industry representatives while only six meetings with civil society groups were mentioned. While environmental NGOs have struggled to make their concerns heard within the Commission, industry representatives, including some who are not officially registered in the Commission and Parliament’s joint transparency register for interest representatives, have invited top level officials to dinners and seminars while distorting the evidence to warn of dire consequences for the European economy if shale gas extraction is regulated.
Key lobbyists identified in the report include:
BusinessEurope — the main organisation representing employers in Europe, with 20 million company members in 35 countries.
The International Oil & Gas Producers Association (OGP) — represents the interests of “oil & gas companies, industry associations and major upstream service companies”. According to OGP’s website, these members “produce more than half the world’s oil and about one third of its gas”.
Shale Gas Europe — an industry-funded lobby platform entirely focused on the promotion of the development of the shale gas industry in Europe. The platform is managed by a Brussels-based lobby and consulting firm, FTI Consulting.
European Energy Forum (EEF) — an MEP-industry forum which provides industry representatives, mainly from the big energy companies, with access to members of the European Parliament at organised dinners and networking events.
AmCham EU — The American Chamber of Commerce to the European Union (AmCham EU) lobbies on behalf of 140 US American companies doing business in Europe and has been described by the Economist as “the most effective lobbying force in town”.
Member Countries of course will have an important influence on the shale gas debate. The two countries most in favour are the UK and Poland.
The UK in particular has been:
lobbying for the shale gas industry, as revealed by a leaked exchange of letters between the UK government, the UK Permanent Representation to the EU (UKREP), and Commission President José Manuel Barroso.
David Cameron at the time wrote to Barroso stating:
‘“I believe that the development of unconventional gas in the EU has the potential to improve energy security, provide jobs and growth, cut greenhouse gas emissions and apply downward pressure on energy prices. Our main competitors are already ahead of us in exploiting these resources…
…As you know, the shale industry is at a critical and early stage of its development in Europe. There is clearly merit in providing additional clarity on how the existing comprehensive EU legislative framework applies to shale gas. However, I am not in favour of new legislation where the lengthy time frames and significant uncertainty involved are major causes for concern. The industry in the UK has told us that new EU legislation would immediately delay imminent investment.
I believe the existing EU legislative framework and robust guidance is sufficient to ensure that shale gas activities can be regulated in a safe and sustainable manner.”
The report goes on to highlight corporate connections between industry and the UK Government:
Lord John Browne, chairman of the shale gas company Cuadrilla and former Chief Executive of BP, works as a non-executive director of the Cabinet Office (the part of the UK government responsible for co-ordination across Government).
Lord David Howell is the father-in-law of the Chancellor George Osborne and was until last year a Foreign Office minister with responsibility for energy policy. He is also President of the British Institute for Energy Economics, an oil and gas lobbying organisation which is funded by Shell and BP.
Early 2014, Prime minister Cameron and his senior ministers had their cabinet meeting in Shell UK offices in Aberdeen, as he announced measures which aimed to make the most of remaining North Sea oil and gas reserves.
The following diagram shows the web of interconnections within the EU.
The report notes a particular tactic used by lobbyists, which can lead to the propagation of pseudo-science:
One of the tactics used by the shale gas lobby in the US, now being applied in Europe, is the use of “frackademia” — academic studies which were commissioned, paid for, or otherwise influenced by the shale gas industry. In many cases the institutions fail to declare this conflict of interests when they publish their findings.
This is a major problem and poses a real threat to genuine scientific research. The aim is of course to obfuscate and distort the realities of fracking and to mislead. Or as the report puts it:
The shale gas industry has established crucial allies among member state governments prepared to support the case for fracking, regardless of the environmental cost. It has distorted evidence and misrepresented scientific research to achieve its goals; manipulating members of the public and paying for science.
The report goes on to point out:
The ongoing Free Trade Agreement (FTA) negotiations for the Transatlantic Trade and Investment Partnership (TTIP), and for the Europe-Canada FTA (CETA) have been seized on by the US shale gas industry as a way to get around the EU’s stricter environmental regulations.
Fossil fuel, chemicals and industrial equipment companies which have profited enormously from the largely unregulated shale gas boom in the US are eager to use these free trade agreement negotiations to strike down “barriers to business” such as mandatory environmental impact assessments or requirements for community consent. They want to ensure that Europe’s environmental and social protection rules are not allowed to get in the way of their profits.
This would explain why the Directorate-General report and subsequent consultation has been buried. It also ties in with the observations made by the Bretton Woods article above.
One thing that seems to be clear from the evidence is the role of the EC in giving CETA a clear path. Should it not then be the role of MEP’s to reflect concerns about CETA? EurActiv reports that when the European Parliament’s International Trade Committee voted, 25 MEPs voted in favour of approving CETA, with 15 against and 1 abstention.
The UK Government has been dodging any meaningful debate on the issue, just like it did before when CETA was subject to UK approval before going to the EU Council.
So why are Governments so keen to sign up to these deals? After all who in their right mind would sign up to a deal that would enable companies to sue them? It essentially comes down to the domination of corporate power within the political sphere. But more succinctly, these trade deals are biased in favour of US corporations. This is highlighted within the CETA report:
US control of the Canadian economy is of particular concern in the context of CETA because US investors have been the most aggressive users of investment arbitration globally, having filed around a fifth (138 cases) of all known investor-state cases by mid-2016. Statistical evidence suggests that there is a particularly strong tendency among investment arbitrators to adopt investor-friendly interpretations of the law when the claimant is from the US. The legal industry that seeks out every opportunity to sue countries, too, is dominated by US lawyers. Of the top 20 law firms representing claimants and/or defendants in investor-state disputes, 15 are headquartered in the US.
There is one particular case study that demonstrates how CETA could be exploited. Touched upon in the CETA report but explored in more detail by Desmog Canada, its the story of how an ailing Canadian fracking company set up a subsidiary in the US in order to sue the Canadian Government under NAFTA.
The suit was brought against Canada by Lone Pine Resources in 2011. It is claiming damages:
for Quebec’s 2011 decision to revoke oil and gas exploration licenses located beneath the St. Lawrence River that were granted to its subsidiary, Lone Pine Resources Canada Ltd., via a “farmout agreement” with Junex Inc. The $118.9 figure represents Lone Pine’s estimated sunk costs and lost future profits.
Quebec’s decision was taken in order to protect the St Lawrence river system from pollution. Lone Pine set up a subsidiary in US tax haven Delware in order to activate the suit.
This article from Corporate Europe Observatory (CEO) elaborates on the risks. In particular it highlights the risks to countries implementing moritoria or bans on fracking. As the article points out:
In the general context of controversy over fracking at both EU and member state levels, investor–state dispute settlement is a real threat to governments’ sovereignty. In cases where member countries already have a ban or a moratorium, such a process would allow these to be challenged. For countries moving towards permitting projects related to shale gas, or without a strong protective legal framework, the mere threat of an investor–state dispute could freeze government action. Evidence under NAFTA suggests that the threat of a dispute has a chilling effect when policy-makers realise they have got to pay to regulate.
Clearly CETA, and in particular its planned investment chapters, will give corporations unreasonable and undemocratic rights to challenge fracking bans and to frustrate public interest regulation. CETA may also give EU-based energy companies with an interest in fracking the ability to skirt European laws by pretending to be Canadian to access the investor–state dispute settlement process.
Then there is the icing on the cake so to speak — the 20 year rule. As noted in the CETA article this means that:
Even if CETA is terminated, investors could still bring claims for 20 more years for investments made before the termination. This “zombie clause” allows the corporate super rights to live on after the rest of CETA is dead. And if CETA is ratified, TTIP could come in from the cold.
Final thoughts
Remove the official language and the jargon and what you have effectively is an elaborate corporate scam. Its difficult to come to any other conclusion over trade agreements such as TTIP and CETA.
Corporate Europe Observatory seems to agree with this sentiment. The report The great CETA swindle exposes the spin and misinformation surrounding the deal, especially from the European Commission.
At the end of the day, its the people who will pay the price not our corporate friendly Governments. Ordinary people will have to foot the bill for the billions that could be siphoned off to boost the corporate bottom line. The CETA report sums it up:
Our societies won’t be able to confront the challenges we are facing — from combating climate change and social inequality to preventing another financial crisis — when they are stuck in a legal straight-jacket, with the constant threat of multi-billion corporate disputes against policy changes. What we need instead are strong regulatory mechanisms to stop abuse by multinational corporations — not a carte blanche for them to trample over democracy, people’s rights and our planet.
However CEO offers a note of optimism. Ratification doesn’t set CETA in stone:
On a positive note, we can expect many more serious looks at what CETA really means for EU member states and citizens. Because CETA will require ratification in every EU member state. Even if it was rushed through the European Parliament by early 2017, as is currently foreseen, the deal will still require votes in the parliaments of 28 EU member states before it can come into full effect.
So there will be many opportunities to see through the big CETA swindle — and for the deal to be derailed.
CETA has only partially came into force as only 16 EU member States have ratified the agreement at the time of writing. As for TTIP, that was declared "obsolete and no longer relevant" by the Council of Europe on April 15, 2019.
But there is another agreement that is causing consternation. It has hovered in the background behind the impasse between Russia and Ukraine. That will be investigated in the next article.
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