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CETA and Wallonia’s Trojan Horse

It’s not often that Wallonia makes the news, but for a few days last month Belgium’s French-speaking region was at the heart of the latest in a long series of EU crises. The reason for this was the Wallonian government’s refusal to sign off on the EU-Canada Comprehensive Economic Trade Agreement (CETA) – an agreement which had been heralded by its proponents as setting the gold standard in a new generation of comprehensive free trade agreements.

The region’s stance has caused huge embarrassment within the European Commission, not least because much of the blame lies with the Commission itself. The Commission has always maintained that CETA is an agreement that falls within its exclusive competence – that is, an agreement which should be negotiated exclusively by the Commission on behalf of the Member States, and which only requires ratification from the European parliament. However, at the demand of a number of Member States keen to appease domestic opponents to free trade, the Commission reluctantly agreed to treat CETA as a mixed agreement. This effectively gave every single Member State the power to veto the deal. In the context of Belgium’s complex federal system, this meant that the agreement had to be given the green light by the federal government and the three regional governments. For Paul Magnette, the head of the Walloon government, the opportunity was just too good to pass up. His Socialist Party has never been the biggest advocate for free trade, and is currently losing ground to the far-left Worker’s party.

The region’s stance has caused huge embarrassment within the European Commission, not least because much of the blame lies with the Commission itself.

Wallonia’s objections, articulated by Magnette, were varied and ranged from concerns about agricultural sector liberalisation, the lack of adequate safeguards for public services and the potential of the agreement to undermine social and environmental standards. But by far the most important objection raised with respect to CETA is the inclusion of an investment court system (ICS) – a mechanism allowing foreign investors to take the EU before an investment court for the breach of investment protection obligations under the CETA. Investor-state dispute settlement (ISDS) mechanisms are hugely controversial. The potential for ISDS rulings to inhibit the ability of states to adopt measures that pursue legitimate public interests, as well as the perceived lack of procedural transparency and the lack of independence of appointed ad-hoc arbitrators are but a few in a long list of criticisms levelled at investment tribunals. But the biggest concern voiced by Wallonia and Magnette with respect to the CETA has been the possibility of the agreement being used as a Trojan horse allowing US companies established in Canada to sue the EU, setting a template for future free trade agreements such as the TTIP.

Wallonia’s refusal to sign off on the deal sparked panic, with a number high profile figures in Belgian and EU politics intervening to try and reach a compromise solution . In a desperate attempt to solve the crisis, Magnette was given the opportunity to negotiate directly with Chrystia Freeland, Canada’s Trade minister. However, whilst Magnette refused to budge, it was clear that a renegotiation of the text of the agreement itself was no longer a realistic proposition. This left Magnette in something of a bind. A refusal to sign would lead to the collapse of the EU’s most ambitious free trade agreement to date, and the domestic and international political fallout would be considerable. If he agreed to sign the CETA as it was, with some minor interpretive declarations, he would lose much of the political capital gained in Wallonia in the previous week.

Magnette opted for the latter, and on 27 October, the Belgian regions and the federal government announced that a deal on CETA had been struck. The ‘deal’ consists of an interpretive declaration clarifying the scope of the agreement. There are, for example, clarifications regarding geographical indications, the EU’s right to legislate on matters relating to GMO and Belgium’s right to trigger a safeguard clause where domestic production of agricultural products is adversely affected by the increase imports. In the days leading up to the agreement, there had been reports that Belgium would require substantive changes on the ISDS chapter; from requirements to ensure a substantial economic link to the development of a more detailed and binding ethics code for judges. But, here again, Wallonia had to satisfy itself with a number of broad declarations regarding the substance of the ICS provisions on the CETA.

The Belgian declaration states that ICS will not be provisionally applied and that the Belgian governments reserve the right not to ratify CETA if the text of the agreement remains unchanged.

Instead, Magnette opted for a different approach, which may prove far more effective. The Belgian declaration states that ICS will not be provisionally applied and that the Belgian governments reserve the right not to ratify CETA if the text of the agreement remains unchanged. The declaration also states that Belgium will ask an opinion from the European Court of Justice on the compatibility of the CETA’s ISDS provisions with EU law.

This could prove a significant stumbling block. The Court is not a big fan of other international adjudicatory bodies creeping onto its turf.  It was not too long ago that it scuppered the EU’s attempts to join the European Convention of Human Rights by issuing an opinion which considered that the European Court of Human Rights’ ability to examine EU law would undermine the autonomy of the EU legal order and the exclusive competence of the ECJ to interpret and apply EU law. Similar accusations could easily be levelled at CETA’s ICS. For example, the right of foreign investors to seek compensation for damages incurred directly before the ICS could easily be viewed as a violation of the Court’s exclusive jurisdiction to rule on non-contractual liability of the EU. Questions could also be raised about the extent to which the fact that the investment court only provides access to foreign investors is compatible with the fundamental right to equality under EU law.

In other words, it is by no means assured that the ECJ would give its blessing to the investor court system in the CETA. It is not beyond the realms of possibility that the Court would deliver an opinion requesting substantial changes to the investor court system in order to ensure compatibility with EU law.

Magnette could not secure the reforms he wanted on ICS during Wallonia’s stand-off. But by specifying that the ECJ will be asked to rule on the compatibility of the ICS, Magnette is hoping that the Court will finish the job he started. He may have just succeeded in sending his very own Trojan Horse back to the EU.

Featured image credit: “119 Namur” by jeffowenphotos. CC by 2.0 via Flickr.

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