International Trade Committee
Oral evidence: Comprehensive Economic and Trade Agreement, HC 934-i
Tuesday 17 January 2017
Ordered by the House of Commons to be published on 17 January 2017.
Members present: Mr Nigel Evans (Chair); Liam Byrne; James Cleverly; Marcus Fysh; Sir Edward Leigh; Chris Leslie; Shabana Mahmood; Toby Perkins; Sir Desmond Swayne
Questions 1 - 36
Witnesses
I. Nick Dearden, Director, Global Justice Now, Dr Lauge Poulsen, Senior Lecturer in International Political Economy, University College London, and Christos Sirros, Agent-General, Quebec Government in London.
Nick Dearden, Director, Global Justice Now, Dr Lauge Poulsen, Senior Lecturer in International Political Economy, University College London, and Christos Sirros, Agent-General, Quebec Government in London.
Q1 Chair: Good morning, gentlemen. We are moving to the next panel, which is on the implications for the United Kingdom of implementing the Comprehensive Economic and Trade Agreement. Perhaps we could start with you, Mr Dearden. Just introduce yourself before we go into the question session.
Nick Dearden: My name is Nick Dearden and I am from an organisation called Global Justice Now.
Dr Poulsen: My name is Lauge Poulsen. I am a senior lecturer at University College London. I work on investment protection and investment treaty arbitration.
Christos Sirros: My name is Christos Sirros. I am the Quebec Government’s Agent-General based here in London and I was involved in these negotiations when they began in Brussels, where I was the Agent-General at the time.
Q2 Chair: Okay. Like the first panel, we have about an hour, so perhaps short questions, short answers. We will start with a general one. What do you make of CETA?
Christos Sirros: We worked very hard to get it done so we obviously think it is a good deal. You were talking before about free trade agreements. This is not a total free trade agreement because, yes, there are some areas that are still under quota, but it goes beyond the notion of just the tariff barriers. It deals with regulatory harmonisation. It institutes a new kind of court system, if you like, for the resolution of disputes. It deals with a host of issues that will allow, I think, much increased trade between Canada and the European Union. Obviously, for the European Union the primary reason that they accepted to negotiate with us, because it took us some time to convince them, was that we put the whole question of access to public markets on the table and that allowed us to leverage that in terms of exchanges with tariff barrier reductions, harmonisation of regulations, environmental protection and the like.
Dr Poulsen: I have very little to add to what Christos pointed out. Overall, I think it is uncontroversial to expect that CETA is likely to have some tangible economic benefits for the British economy. In particular, access to procurement markets is an important achievement. What the likely costs are going to be, whether the constraints imposed by the agreement are sound and reasonable or whether they might be excessive in certain areas is very difficult to predict at this stage, but on balance, it seems likely that it would be in the UK’s national economic interest.
Nick Dearden: We take a more sceptical view of the agreement. We believe that because this is an agreement that goes well beyond the normal tariff deal, which is what most people assume trade deals are all about, and touches on a huge range of public policy areas, it has been drawn up from a much too narrow perspective. Essentially, the view of how we make goods, services and capital flow more easily around the world is too narrow a perspective to judge all manner of processes by which we come up with public policy decisions. For example, if you are talking about non-tariff barriers, that touches on us as farmers, as consumers, as workers, and we need to judge the processes by which we come up with those policies from a much broader perspective than simply does it make the flow of capital easier around the world.
I welcome the fact that you are looking at this in Committee today, but we are particularly dismayed that for such a broad treaty, there has not been a single parliamentary debate on CETA yet, and yet the Government have voted in favour of it already at the European Council. We think that if we are going to negotiate these much broader deals on public policy, they need to have far more public input. They need to be seen from a much broader perspective. Certainly, we question the figures around jobs and growth and we question the way that the European Commission and the Government have told us that it protects the Government’s right to regulate. We question that and, in particular, we believe that probably the most controversial aspect of CETA is the investor protection mechanism at the heart of it. The changes to that really do not address the fundamental problem that essentially laws that are promulgated in the Parliament here could by a panel of three unelected judges sitting virtually anywhere in the world claim massive compensation for corporations that felt that they have been hard done by by regulations that are passed here.
Q3 Chair: This is the toxic bit as you see it?
Nick Dearden: I would say it is broader than that. The whole way that it impacts on public policy making and processes I would regard as toxic, but the fact that there is this enforcement mechanism at the heart of it I would regard as particularly problematic, yes.
Q4 Chair: Would US firms be able to use their Canadian subsidiaries to be able to enact that?
Nick Dearden: They would, yes. I have a figure here, which is that around about 81% of US firms currently operating in the EU would be able to use that. That is about 42,000 businesses compared with about 5,000 businesses that have the ability to do that at the moment. It would massively increase the ability of companies to bring those kinds of lawsuits and I would be absolutely astounded if we did not see them, post-CETA, coming into effect.
Christos Sirros: Just to comment on that, I think that what also needs to be clarified is that it is possible that American subsidiaries that are really operating in Canada, that have real employees and that are actually doing business between Canada and the European Union, can use the dispute resolution mechanism, but this is clearly not the case for those that are post office box addresses or shell companies, if you like, that could be situated anywhere and have an address in Canada. They do not have access to this kind of dispute resolution mechanism. I think there are a certain number of things that need to be put on the table clearly because a lot has been said about CETA and I am very happy to have this opportunity to be here to exchange on this.
Q5 Chair: Good. Overall, best guess—because it is only a guesstimate—what is CETA worth to the European Union as far as their GDP?
Christos Sirros: As far as we know, the studies that have been done indicate that there should be over the next seven years something like an increase in $12 billion worth of trade for Canada and $8 billion worth of trade for the European Union. Clearly, the European Union, being about 10 or 15 times larger than Canada in terms of population, what I have in terms of GDP is that Canada’s GDP should be increased by something over 1%, 1.7%, whereas for the European Union it is under 1%.
Q6 Chair: Everybody happy with those figures?
Dr Poulsen: There have also been some estimates that the value to the British economy could be in the range of about £1.3 billion a year, but as with all other economic forecasts on the macroeconomic implications of free trade agreements, we have to take those numbers with more than just a pinch of salt. We know from a long literature on economic forecasting of the impact of free trade agreements that it is based on a very, very long list of assumptions. Some of those assumptions might be reasonable, but in other cases, they might be questionable. We know that when you make small but justified changes in those underlying assumptions, then the predictions suddenly vary very significantly in terms of what the macroeconomic impact is. Instead of focusing so much attention on a particular number that has been pulled out of an econometric crystal ball, it makes more sense to ask some basic principle questions about whether the agreement does, in fact, target the most binding constraints in the trade and investment relationship between the parties.
Q7 Sir Edward Leigh: Mr Sirros, a general question while we are on these general points. After Brexit could we just adopt CETA lock, stock and barrel between our two countries, do you think, or could we improve on it? What do you think might happen? Do you think the Canadians might cavil at this? What do you think might happen?
Christos Sirros: Clearly, there would be an interest on the part of Canada to renegotiate something with the UK. Whether it will be a copie conforme of exactly what is in CETA for that, I cannot answer that question at this point. The actual trade negotiators would have to sit down and look at all the implications. Clearly, one of the environmental factors that will have to be looked at is what else is going on worldwide. Who else is Canada negotiating with and what kind of timeframe would that involve? Yes, I think there is room, given that CETA is there, to use that as a basis in terms of negotiation.
Q8 Sir Edward Leigh: You are obviously very much working for the Quebec Government. You are very much in touch with opinion there.
Christos Sirros: It shows, does it?
Sir Edward Leigh: I was asking earlier about Trump. As far as you know from the Government of Quebec and the national Government of Canada, there is goodwill towards recreating a UK CETA, is there?
Christos Sirros: We are clearly an export-based economy so it is in our interest to want to have free trade deals or liberalise trade between countries. When the UK leaves the European Union, clearly that would be—
Q9 Sir Edward Leigh: You do not have any technical bar? Perhaps that is an obvious question, but you do not know of any technical bar at the moment? We do not necessarily read Canadian newspapers and are not in contact with Canadian public opinion on what the Government are saying all the time. You have not heard anybody saying in Canada that it would be very difficult?
Christos Sirros: No.
Q10 Sir Edward Leigh: Do you think we could improve on it, we could make it more of a more free trade agreement, a purer free trade agreement? Any ideas?
Christos Sirros: I would hesitate to venture on that terrain, honestly.
Q11 Chair: Very briefly, does this agreement just benefit the large corporations?
Christos Sirros: Absolutely not. Our basic economy is based largely on SMEs—small and medium enterprises. I will give you an example from the European perspective from the figures that I have. There are something like 10,000 French businesses exporting to Canada, 75% of which are small and medium industries. Yes, large businesses will benefit as well, probably more from some of the elements in the agreement that will allow for an eventual moving towards a harmonisation of regulations, but that will benefit everybody. They might benefit more from things like the mobility that is foreseen in the agreement for mutations of staff and personnel, but small and medium businesses will also greatly benefit. I will give you the example of the reduction of tariffs, for instance, on maple syrup. You will be able to get good access to maple syrup. There is no huge multinational corporation behind that industry.
Chair: No calories in that, then. Dr Poulsen?
Dr Poulsen: It will depend on what chapter of the agreement you are focused on. I agree with Mr Sirros on that point. There have been some concerns, as has already been highlighted, with the investment protection chapter, which is what I am mostly working on in my field. There I think it is quite clear that it is only firms or investors of a certain size and scope that would have the capital necessary to go through such a lengthy and quite costly dispute settlement mechanism. There, I think there are some concerns as to whether or not you might give access to particularly large and powerful firms that in practice small and medium enterprises do not have for the most part.
Nick Dearden: I would agree with that. In fact, we have some figures that virtually all—95%—cases that have gone through the investment tribunals that we know about have been awarded to companies with at least $1 billion in annual revenue or individuals with over $100 million in net worth.
I suppose one of the questions for me is this. We know there are winners and losers from trade agreements. If we want to reverse the serious and genuine concerns that many people across the west—in the United States and across Europe—have about trade agreements and their effects on living standards, working conditions and communities, we need to be put something into them that benefits the losers and compensates them for what they have lost. This is an assumption in many of the models we have talked about, but it never actually happens. The idea that we instead put in place a mechanism that gives new legal privileges to the winners of trade agreements makes no sense at all. I think it is going to mean that our populations are continually more and more sceptical about trade agendas.
Q12 James Cleverly: Could you expand on who you perceive to be the losers in general from trade agreements or from CETA in particular if you are more comfortable with that?
Nick Dearden: Yes, sure. In fact, this goes back to some of the figures we were talking about earlier and some of the assumptions. I really do not accept the GDP figures you have been given because this is all based on the idea that if a worker loses a job over here as a result of a trade agreement, the next day he or she will be able to get a job over here. It assumes full employment. It assumes that savings are invested domestically, which flies in the face of the whole point of the trade agreements and the freeing up of capital.
There are bound to be workers in certain sectors that lose out. It could be agriculture in the case of CETA, I do not know, but there is one study that I would really like to recommend to the Committee, which is called “CETA Without Blinders”. It was produced in September last year by Pierre Kohler. It uses a very different model and that model predicts that we could be looking at 10,000 job losses. We could be looking at a reduction of average earnings for UK workers of €316 a year, a slight reduction in public sector income, a reduction in demand. There are bound to be losers that come out of it and I am not exactly sure—
Q13 James Cleverly: I want to push you on that when you say that because the commercial history of the world has shown that trade liberalisation from the very short term, not necessarily absolutely immediately but from the relatively short through the medium and definitely in the long term, has mutual economic benefit. I am a free marketeer, I lay that on the table, so I am coming at this from a particular prejudice, I admit. The history of global development has shown that you can have winners and other winners rather than automatically having losers just because there are some winners.
Nick Dearden: Maybe you can, but I think it would depend on a proper regulatory framework being put in place and proper compensation mechanisms for some people who are simply bound to lose their jobs under trade agreements. Look at NAFTA, the North American Free Trade Agreement, which is why there is so much hostility to trade agreements now in the United States. That cost an enormous amount of jobs in certain sectors of the American economy as well as quite a few jobs in Mexican agriculture. Just because it may have benefited growth as a whole in that country, it is perfectly understandable that workers in industries that lost out as a result of that feel very aggrieved about the trade agreement. What are we going to do about that? What kind of mechanisms are there in a trade agreement to make that right for those people?
I just do not accept that absolutely everybody is going to benefit purely on the basis that prices are lower. Prices may well be lower and that is fine and that may be a good thing, but if you are a farmer who no longer has a livelihood or if you are a manufacturing worker who no longer has a job, the lower prices do not mean very much to you. You have actually reduced demand in the economy as a whole because people are no longer able to purchase as much.
One of the things that has been talked about a lot with both TTIP and CETA is the role of big agribusiness, non-tariff barriers and the way that things like bans on GM food or bans on hormone-treated beef in Europe are regarded as non-tariff barriers. I would dispute the fact that that is why those laws were put into place. I think they were put into place for different reasons. None the less, if you remove them, farmers that are used to using a different form of farming practice in Europe will find it very difficult to compete with products that have been made at a lower standard flowing in from Canada and the United States.
I would say there are bound to be losers in this process, so the question that I would be left with is how we are going to make it right for those people that have lost their incomes. I do not see it can be purely a win-win game for everybody on both sides of the Atlantic because by the nature of these agreements we are supposed to be making products in a more effective and more efficient manner, which is bound to mean that some things have to be lowered. Our concern is that we are lowering wages or we are lowering standards of production that make it very difficult to make a livelihood in the same way as if you were making products to a higher standard.
Q14 Chris Leslie: I do not think that is necessarily an argument against the removal of barriers internationally if we just simply stand in the way of all trade deals, trade liberalisation. What we need to do is offset some of those effects domestically and that is, I think, a wider discussion.
I want to get into the specifics of this enforcement mechanism. If you are going to have an agreement between countries, there is no point having it without some means of enforcing the agreement. Can we start off a little bit of a dialogue about the move from the investor-state dispute settlement process, which was the first iteration in CETA? We then had the concession or whatever you want to call it—you may not see it as a concession—to this investment court system. We are told that the ICS is an improvement because it perhaps reduces some of the power of investors to challenge in quite the same way as they could under the old system. Mr Dearden said that this was not significantly different. Mr Sirros, you said you wanted to get into it. Tell us why it is different.
Christos Sirros: I think you have a better expert than I am over here, but on the whole this establishes a real court system where attributed judges are named by each party and a third of them by a joint party. The parties in the dispute will no longer have the ability to appoint their people as arbitrators in this, so they will be independent people that will have a salary. That will have a transparency involved with access to everything that is non-confidential information to the public. This is quite a step forward and as well as that there has been an agreement, an engagement, between Canada and the European Union, that this would progress towards perhaps a multilateral court system that would apply for more multilateral trade deals, if you like.
Q15 Chris Leslie: That is more on the transparency and getting rid of bias.
Christos Sirros: Yes.
Chris Leslie: But in terms of the sorts of cases that could be heard, in terms of the—
Christos Sirros: Again, I will defer to the academic over here, but cases can be heard on the basis of one of the parties feeling that they have been treated in a discriminatory fashion with respect to a competitor from the other party. They can bring the cases forward. One thing that I think it is important to underline is that the court will not be able to grant penalties for anything that constitutes anticipated profits. They could penalise or compensate for losses that have been incurred because of a change in the context that they find justifiable.
Q16 Chris Leslie: Is that different? That is new from the ICS?
Christos Sirros: That is different. Presently, there is, for instance, a court case in Germany requiring future compensation for profits on the basis of a decision the German Government made to abolish nuclear power.
Q17 Chris Leslie: That is one change under the ICS. Mr Poulsen?
Dr Poulsen: Mr Leslie, I agree with you that it does make sense to enshrine a dispute settlement mechanism that is enforceable in any free trade agreement in order to make it work in practice whenever you have disputes. But I think what is important to keep in mind here is that this dispute settlement mechanism will only govern investment disputes. It is only one part of the agreement. All the other thousands of pages in the agreement are not subject to this dispute settlement mechanism. They are subject to a separate state-to-state dispute settlement mechanism. That is a very important point to keep in mind, I think, as a starting point.
Now, how is it going to work? I think the best way to illustrate it is with an example. A Canadian investor operates in the UK and runs into a problem with the British Government. On the basis of CETA, that investor will then be able to file a claim against the British Government on the international plain. The Canadian Government will not be able to block that claim and the Canadian firm will not have to first go through a British court. The Canadian company will never have to set foot in a British courtroom before it can file a claim on the basis of CETA. A tribunal will then be established, as was outlined by Mr Sirros, and they will then make a decision in terms of their own jurisdiction of the dispute whether there has been a breach on the merits of the case on the basis of the investment protection chapter and, if so, whether and to what extent compensation should be awarded. The award that is going to be made by this tribunal is going to be binding and it is going to be enforceable not just in principle but also in fact.
If that sounds familiar to you, that is because that is exactly how investor-state dispute settlement already works on the basis of hundreds if not thousands of investment treaties. There have been some additional improvements or changes to that model, but the model remains. The most important changes have already been outlined. It is now going to be a permanent tribunal. There is going to be a possibility for appeal. There are certain requirements in terms of transparency, the impartiality of the tribunal members and their expertise in terms of international public law and so forth, but the basic structure—
Q18 Chris Leslie: Wasn’t there also a change, because this is part of the reason why the Wallonian case came up and so forth, that it was an improvement, that now if there is any indirect expropriation issues, these have to be manifestly excessive issues. They have to be examples where it is not just small gains here or there. They have tightened up on that. Or do I have that wrong?
Dr Poulsen: No, that is right. There are some clarifications in the substantive standards governing foreign investment in the chapter, including on indirect expropriation, which are quite important, trying to get a better hold on what this otherwise slippery concept of indirect expropriation means in practice. There are also important clarifications on other substantive provisions; for instance, most favoured nation treatment.
In terms of the substantive protections that are being offered, first of all, as Mr Sirros highlighted, it is non-discrimination, both pre and post-establishment, but then also a series of additional protections for foreign investors, including what is called fair and equitable treatment, full protection security, the protections against transfer restrictions and so forth. On several of those issues you have important clarifications in the agreement, but on others the clarifications are slightly unclear. For instance, the clarifications made on the fair and equitable treatment standard. Again, as with the dispute resolution mechanism, I think the important point to take away when you look at the investment chapter is that the basic structure, the basic underlying principles, in the substantive protections afforded to Canadian and British investors under this agreement are the same as in traditional investment treaties with some clarifications and with some patches to the traditional model.
Nick Dearden: I would like to take issue with the idea that this is a real court system because I do not know of any court system where only a very small handful of people are able to access it and make use of it. I think that is the fundamental problem that can never be redressed by a system like this. That is not just me that thinks that; there is a very conservative association of German judges that said the creation of special courts for certain groups of litigants is the wrong way forward, specifically about the reform proposal. There is a former German Minister of Justice who says the substantive law continues to privilege foreign investors and establishes a parallel legal system undermining constitutional jurisdiction. For me, it flies in the face of natural justice that a small number of litigants are able to use a parallel legal process that is able to challenge anything emerging from Governments, Parliaments or courts in our countries. To me, that is a fundamental challenge to our democratic system.
Q19 Chris Leslie: Well, is it anything, because I thought it now had to be manifestly excessive prejudice against those investors? We have to be precise about the change between the first iteration of CETA and the second because it is a balance for those of us making a judgment about this whether the perhaps imperfect dispute recognition systems are so bad as to reject the whole treaty or whether the improvements are such that on balance it is worth retaining.
Nick Dearden: There are lots of treaties that do not have them: the US/Australia trade agreement, the Japan/Australia trade agreement; Brazil has never signed one. I do not believe there is a need for these things at all actually, and you can purchase private insurance on the market. Apart from anything else, the fundamental point of investment behaviour is about risk, so to me I do not think you need these things at all.
I would certainly argue, yes, there have been changes. The right to appeal is an important change. Of course, it is better to have it than not have it. There have been changes in the composition of the so-called judges that can sit on these panels, although I think it has not been as great as has been made out. Essentially, they are still going to have to be pulled from a very, very small group of people. They do not have permanent salaries. They are paid on a daily basis. There is no cooling-off period between acting as an arbitrator in one of these cases and then acting as a judge, so I think significant differences. Also, the clarifications that have been made, some arbitrators have said make the situation worse from our perspective in that they formalise ideas like legitimate expectations.
Q20 Chris Leslie: Mr Sirros, you had better defend this because he is making out as though we should throw the whole baby out with the bath water.
Christos Sirros: First of all, it was stated that so many agreements already do have this kind of dispute resolution mechanism and this is an improvement on that kind of dispute resolution mechanism. I think that it is very important to state that investors need to understand and have clarity and clear visibility, to be able to understand that there is a rule of law that applies. You have an agreement between two parties. Within the context of that agreement, someone decides to invest something. He should have some kind of recourse that allows him to feel that he can have redress if he is unjustly and discriminatorily treated. The key is discriminatorily. It is the kind of thing that will apply to everybody in Europe or in Canada.
There is a judgment call at some point to be made: you are either liberalising trade or you are not. If you are in favour of liberalising trade, then you have to put forward the kind of package that allows it to progress in a way that is mutually beneficial and you end up with win-win situations. Much has been said about CETA, in particular the whole question that was touched on earlier in terms of regulations, a lowering of regulations. There is nothing in CETA that leads to that. On the contrary, each country, each unit, Canada and the European Union, maintain their right to regulate as best as their public authorities see fit. The other has the right to certify its products on the basis of the other’s regulations. There is no equivalence of regulations that will allow us to decide that if in Canada it is good for us then it must be good for you. It is what is good for you that we have to live up to. OGMs, for instance, cannot be imported into the European Union because those European Union regulations, and I presume they will be the same post-Brexit, will apply. If we want to export, we have to respect that regulation. Public authorities have not given up their right to regulate and there is a specific agreement as well in CETA that says, for instance, that you cannot lower labour standards or environmental standards in order to give yourself a competitive advantage. Yes, they can move up but they cannot move down on the basis of CETA. If Government authorities decide to do things that move in another direction, that is the role of Government authorities. If investors feel that they are discriminated against because of that, they have a recourse.
Nick Dearden: But, Christos, they already have a recourse. Like the rest of us, they can go to the domestic court system.
Christos Sirros: They can still go to the domestic court system.
Nick Dearden: I am sure with the resources that they have they are more than capable of doing that, more capable than I am. I just do not understand why they need a parallel legal system to do that. We talk about non-discrimination, but non-discrimination has been brought up as part of the legal basis of many of the so-called flippant cases that we talk about. The Keystone XL pipeline that Obama has said will not go ahead, America is now being sued on the basis of that by TransCanada. TransCanada is claiming discrimination because other pipelines have been approved. This idea of non-discrimination can be stretched very, very far. However nice we think a lot of the wording is in CETA, however good it looks to us, we know and we have seen in the past how when it comes to these arbitration panels, they really are a law to themselves in terms of how they interpret what is written down on the page.
Q21 Marcus Fysh: Just to follow up on that, I wonder if the panel could tell us how often within investor dispute mechanisms within international agreements like this a judgment has been given against a Government making a legislative or regulatory decision rather than a pure administration-related decision.
Dr Poulsen: We have had more than 700 investment treaty claims to date that we know of—because some claims can be pursued without the public being made aware of them—on the basis of previous agreements. Of the decided cases, we have had about a 50/50 split. About 50% have either been won by investors or settled, typically on unknown terms, and the other half have either been discontinued or won by the Government.
You raise an interesting question: which sorts of measures are being targeted in investment treaty arbitration? As a starting point, I think it is important to highlight that a very, very wide range of regulatory measures have been targeted ranging from environmental regulation, public health regulation, taxation, court decisions and so forth. In some cases, legislative measures have been dealt with as well, but it can be quite difficult to say whether a particular decision made by a Government is an administrative measure or might flow indirectly from a legislative process that has happened before then. In practice, they can target decisions made by a legislature directly or indirectly.
Q22 Marcus Fysh: My understanding is that there have been relatively few decisions given by an arbitral process where there is a legislative right that Government have over that sort of matter. I think the example that is generally cited is the Philip Morris case against the Government of Australia. What I am trying to get at is whether you think in essence that that is a risk that we need to take account of when we try to consider whether an international court system like what is recommended in CETA at the moment is something that could be useful or necessary when we look at potential arbitration systems of one kind or another that might apply to, for example, a UK/EU preferential trade agreement. I just wondered if you could comment in that context and more generally on whether it might be useful or necessary to have something that is not the ECJ and that is not the UK courts but is able to act as an independent arbiter between the two.
Dr Poulsen: I think it would be an interesting but potentially revolutionary suggestion if you would allow all European investors in the UK to entirely avoid British courts and vice versa for British investors on the continent. There is a reason why these sorts of agreements have typically until recently not been negotiated among countries where there is trust in the property-right protections and the domestic legal system of the parties on both sides of the negotiating table. While it is, of course, up to the parties to decide, I think it would have potentially quite far-reaching ramifications if this Government should allow all German investors, all French investors, all Italian investors to bypass British courts.
A question was raised previously in terms of whether or not CETA might provide a blueprint for a bilateral agreement between the UK and Canada. That may be the case, but in this particular instance, of course, it is not really, as far as I understand it, British business that have asked to be able to side track Canadian courts and vice versa for Canadian companies operating in Britain. One of the primary justifications was that you had a large number of Eastern European states where there were greater concerns. This might be one area one may want to look at—whether or not one would really want to include these sorts of provisions in agreements with countries like Canada, the United States and Australia.
Q23 Toby Perkins: Concern has been raised by the trade union movement among others about the use of a negative list in CETA leading to the creeping liberalisation of public services. Can you reflect upon what is the impact potentially—and maybe in other trade deals—of using a negative list? Given that health, education and social services are specifically excluded, what would be the areas where there might be legitimate worries around that?
Christos Sirros: You mentioned health, education, public safety, public health and all that. Those are excluded and they are excluded in a way that allows Governments, even if at some point a Government decides to privatise part of that on their decision, to bring them back under the public domain in the future. There is no ratcheting effect for anything that is included in the second annex, if you like, of those items.
I know that from our perspective in Quebec we were very, very keenly aware of not giving up the possibility of determining on a public basis anything that has to do with the public domain—water, for instance, sewage treatment, and things like that. Yes, they can be privatised, but they can also be brought back if at some point at the end of that contract it is decided that it is no good anymore, this is not the way to do it. Right now, all the public domains that you have identified have been excluded from that perspective.
Dr Poulsen: They have been excluded from the services chapter. They have not been excluded from the investment protection chapter. That raises then a question as to whether or not a tribunal would, in fact, question some of those decisions that Mr Sirros is pointing out, but I do not think that was where your question was getting to. That was more in terms of the differences between negative and positive lists.
One of the implications of a negative list is that you suddenly have to then start actively making exceptions to those obligations, otherwise they will be covered. That means that now suddenly you have in CETA a very, very, very long list of exceptions in the liberalisation chapter. In principle, you could have exactly the same level of liberalisation whether you do it on a negative versus positive list. I am not an expert in this field, but I have not made an analysis as to whether or not it goes significantly beyond what is already the legal status quo in terms of the established relationship between the two parties.
Q24 Toby Perkins: In terms of public services, what might be areas that might be contentious? Perhaps they were not specifically listed and therefore they are legitimate, given that health, education and social services are specifically excluded?
Nick Dearden: There is one interesting one that may be relevant, which is elderly residential care, which the British Government specifically have not exempted. If you wanted to take measures against asset stripping in that sector—the kind of thing that led to the collapse of Southern Cross—that would be forbidden under the liberalisation measures.
I also think there is a whole range of services that we might not know about yet, that have not come into being, that would be automatically covered. Imagine signing this 20 years ago and now we have a huge amount of services, online, mobile telephones, that kind of stuff. They would not be covered—any new service would not be covered.
Finally, I do think this is a really important point that it is not covered under investor protection. While you might be able to do some of these things, it is going to have a cost for you. Estonia and Slovakia, for example, have both faced suits, and Slovakia was forced to pay out, for trying to renationalise or trying to bring in different regulations to public services.
There are exceptions you can make and it has been done, for example, for national security. As you would expect, there is a very, very strong exemption for national security decisions. That is a real exemption, which basically says the party decides what measures they want to take on national security and it cannot be challenged. That does not exist for anything else.
Q25 Toby Perkins: Given that, what might be a remedy to that definition of what a public service is remaining unclear? What do you see as remedies you would like to suggest in terms of that area, Mr Dearden?
Nick Dearden: First of all, without the investor protection mechanism it is going to be much easier because you do not have to pay any compensation if you do these things. That would be one thing. Secondly, the positive list is much more widely used than the negative list system, so that would be an improvement. Thirdly, I think when we are talking about proper exemptions—and I know you have been back and forth with the debates around how much the health service and education are exempt—again, all I can say on that is if we want to exempt it, it is possible to exempt it by using the national security exemption and those have not been used. So, for all of the nice words we have had about them, they still do not have the kind of clear language that you have around national security.
Q26 Toby Perkins: In terms of this point about the ratchet clause, can you detail your concerns? Mr Sirros was suggesting that we should be reassured that once Government have taken a decision they might want to privatise something that they will not, therefore, lose the right to renationalise it at some point in the future when a contract has come to an end.
Nick Dearden: If it is included under the ratchet clause, then they would not be able to do that, or it is open to dispute at the very least, because you cannot take any measure that can be seen to be discriminatory against a foreign investor. If you renationalise something, that can seem to be discriminatory against a foreign investor investing in your country. It would be very, very difficult to be able to do that if that was not exempted.
Q27 Toby Perkins: If you have given a foreign investor a five-year or 10-year contract, at the end of that 10 years presumably the contract is over. It is not discriminatory to then say, “We are going to take a different approach next time”.
Nick Dearden: There are cases where it has been judged to be discriminatory, yes, because it is changing the expectations of that company at the time that they invested. I completely understand that this seems like a big stretch of the language, but it is what has been used in reality. That is where our concern comes from.
Q28 James Cleverly: Nick, sticking with you initially and then I will open to some others, your organisation and others have described what you view as proposed changes to the regulatory standards as a race to the bottom. Could you expand upon that a little bit and give your thinking behind that? Then I will invite the others to comment on that.
Nick Dearden: Definitely. From the examples that we have seen of where these voluntary schemes of regulatory co-operation exist—they have existed between the EU and the US in the past—what we have seen is that it tends to be big business that gets access to those dialogues and discussions to get their interests put forward. They tend to want to reduce regulatory standards.
There is a nice example that was given to show this. Canada in 1997 tried to oppose a French ban on asbestos at the World Trade Organisation. They were not able to—the World Trade Organisation ruled against it. There is a really interesting bit of writing from somebody called Ellen Gould at the Canadian Centre for Policy Alternatives, who said if they had had the kind of regulatory system that exists in CETA, they would have found it much more difficult because the asbestos industry could have threatened CETA with an investor-state suit demanding billions in compensation. The ban could have been opposed by companies using asbestos arguing that this rule had not been established at the time they got their licences. Under regulatory co-operation, Canada would have been able to attack the ban in closed-door meetings, even before French citizens were aware that the ban was being proposed, because some of this stuff is supposed to go to regulatory co-operation dialogues before it is announced to Parliament and the general public. Of course, at the very least, Canada could have demanded delays in the implementation of the ban giving the asbestos lobby more time to fight it.
Our concern is that although theoretically it should be just about harmonising non-controversial laws to make standards the same, if you give certain interests in society specific access in closed rooms to a process like that, the likelihood is that those standards are going to be reduced because it is in their interest to reduce them.
Q29 James Cleverly: Are there not more examples of where standards are harmonised upwards? One of the big concerns that the UK has with the EU is what a lot of British businesses regard as excessive regulation. That is a harmonisation upwards and everyone around the table, irrespective of their position on the EU, would have been inundated with people saying there is this unnecessary regulation. While I am not decrying the example you just gave, would it not be fair to say that there are more examples where the regulatory pressure is in the other direction?
Nick Dearden: It is interesting. I think the single market of the EU is an exception to this. People often ask us, “You say you are not against trade but most trade agreements you seem to have problems with”. I do still have problems with the single market, but it is one example of where a trade agreement has been conducted in a way that takes other aspects of society into account and does increase standards over time. We have not seen that under, for example, the North American Free Trade Agreement, which is I guess a close example to what we are talking about here, or in most other bilateral or multilateral trade agreements that involve developed countries.
Christos Sirros: One comment I would like to make is that we have to take into account the context and who we are talking about here. We are talking about Canada and the European Union. We are talking about two societies that are basically more or less at the same level of development, if you like, and the same democratic transparency. The notion that all Governments are at the beck and call of large multinational enterprises that would like to see regulations diminished and—why not?—entirely abolished seems contrary to me to the kind of experience that I have had, and that you have probably had in terms of what we want to offer our citizens, which is a standard of safety and a standard of security, and to move forward. Over the last years, there has been a constant increase in terms of that kind of protection afforded to consumers.
Yes, there may be circumstances where people will try to lobby for their interests, that is for sure, but clearly it is the role of Governments to ensure the kind of regulatory standards that protect them. There is nothing in CETA that takes that away from either Canada or the European Union. Again, let’s contextualise this. Even in terms of the investor protection mechanism, the whole notion, and I think it was mentioned before, that you would have access to another court system—and perhaps there is not that much reason to have it eventually and it will not be used that much between Canada and the European Union—stems from the circumstances between trade partners that were of unequal, if you like, standards and one of whose court system may not have been as secure.
Dr Poulsen: Regulatory co-operation is not revolutionary in global economic governance. It happens already in a wide range of fields. You also heard this morning from the auto industry. They would probably argue that when you have trade agreements between parties where there are limited traditional barriers to trade in terms of tariffs, then of course it makes sense in principle to have a comprehensive regulatory dimension of such a trade agreement, because that is where the real constraints are to the trade and investment relationship.
In terms of CETA, there is a comprehensive chapter on regulatory co-operation. It is entirely voluntary. There is no power associated with any regulatory co-operation forum that can come and tell the British Government you have to regulate your light bulbs or your chemicals or your financial services in certain ways if the British Government do not want to. It is a trust-building, information-sharing exercise that potentially could down the line generate greater co-ordination and alignment on a regulator to regulator basis. Provided it can be done, as Nick mentioned, in an open, transparent, inclusive fashion that does not bias against other legitimate public regulatory concerns, other than trade and investment integration, it, of course, does make perfect sense to enshrine such a mechanism in an agreement like CETA, allowing it to become what some pundits call a living agreement where the real, tangible benefits are going to come down the line through regulatory alignment.
Q30 Shabana Mahmood: One of the concerns that have been raised is that even after we have left the European Union we could be bound by CETA for 20 years, although obviously for that to happen all member states would need to have ratified it before we leave. Given that hurdle to get over, how seriously should we be worried about that? How seriously should we take that concern?
Dr Poulsen: That again relates to the investment chapter where you have a so-called survival clause for 20 years. We expect that most of the agreement is going to be provisionally applied within the year. When it comes to the investment part of the agreement, that includes the non-discrimination provisions, but it excludes many of the other substantive investment protections. It also excludes the dispute settlement mechanism, the investment court system. That is not going to be provisionally applied.
Of course, it does raise an interesting, perhaps daunting, scenario if CETA was to come into full force and effect before Brexit. Would that then trigger the survival clause allowing, say, Canadian firms to take advantage of the investment protection chapter 20 years down the line to the extent they have established themselves in the UK before the UK left CETA? There are a couple of things.
First of all, it depends obviously on how long the ratification process is going to take. Given that this is a mixed agreement, it is likely to take a very long time. I believe with the Korea agreement it took about five years. Since every member state has a say in the process, that includes the United Kingdom. On the other hand, should Brexit take place, should it materialise before CETA, then that does become a relevant issue that would have to be taken very seriously as to whether or not that chapter would apply. One could expect that the Government will try to negotiate some sort of agreement depending on what its interests are in that field, but it is a legal possibility.
Nick Dearden: It is also interesting to think about whether there are going to be any negotiations to try to keep Britain in some way in CETA post-Brexit. Certainly, if I was in the shoes of the Canadian Trade Minister I would say, “Hang on, we negotiated a deal here on the basis of a certain size of market. We no longer have that certain size of market so we want to renegotiate the deal unless we find a way to keep Britain in”.
It is absolutely true that it has to come to the British Parliament. We are very happy about that, but I think it raises an interesting point about the amount of power that Parliament has over trade agreements, especially post-Brexit. We have made a lot of comments as part of our work on CETA saying there should be more democratic accountability for deals that cover such a wide range of parliamentary powers and society in general. Post-Brexit, Parliament also does not have very much power over trade agreements and something we might want to think about as part of the post-Brexit framework is how we can hold Government accountable for signing these kinds of deals in future.
Q31 Sir Edward Leigh: How do you know that?
Nick Dearden: Because of parliamentary process on trade agreements, which is essentially if it gets debated at all, if it gets picked up when it is on the table, it is a yes or no.
Sir Edward Leigh: We have not controlled our trade policy in the 41 years.
Nick Dearden: No, but there is still parliamentary procedure around it.
Q32 Sir Desmond Swayne: Presumably, the 20-year clock only starts for investments that are made subsequent to the treaty having been ratified, so it would be a relatively narrow window, if indeed any investment had taken place subsequent to the ratification of the treaty before the UK left.
Dr Poulsen: That is right. What is most likely is that there is going to be some sort of transition agreement on this particular issue because it is something that the Government are aware of. It might become more of a theoretical question than is really going to be a practical matter. I think it is unlikely that the British Government and the British Parliament would want Canadian investors to be able to use an agreement for 20 years that the UK has not been party to.
Q33 Sir Edward Leigh: What lessons can we learn, Mr Sirros? The CETA agreement took a year, but presumably if we were negotiating with you we could do it a lot quicker, couldn’t we?
Christos Sirros: I assume a lot of the groundwork has been done. It took us three years to convince the Europeans that they should take Canada into account and negotiate. It took us that amount of time to convince the Canadian Government that the provinces should also be at the table in terms of deciding what goes into the agreement or not. Then it took seven years of actual negotiations and it is going to take another two, three, four years to ratify it. So, draw your own conclusions.
Q34 Chair: There is lots that can be learned, then, from the dragging-out process in order for us to get a good deal with either the EU, Canada or, indeed, the United States of America?
Christos Sirros: Clearly.
Chair: There is no reason why it should be dragged out this long.
Christos Sirros: I do not think that if we are speaking realistically it will take another seven years to renegotiate something between Canada and the UK on the basis of what already exists in CETA. Clearly, a lot of the work has been done, a lot of the research has been done, and the implications of this or that concession have been done, probably on both sides. Certainly, in Canada they have been done. When negotiation would start, how long it would take, that I do not have a crystal ball for.
Q35 Chair: Is there goodwill within Canada to do a quick trade deal with the United Kingdom?
Christos Sirros: There is clearly goodwill within Canada, certainly from the Government of Quebec that I can speak for, to seek eventually an agreement with the United Kingdom, that post-Brexit there is no bad will, there is no ill will; on the contrary.
Q36 Chair: To the best of your knowledge, with the negotiations between the European Union and Canada when they were talking about trade, was the prospect of the free movement of labour between Canada and the European Union ever discussed?
Christos Sirros: Not as such. It was discussed in the sense of recognising professional qualifications. I think there is a chapter in CETA that deals with that. The idea was to create a platform on which mutual recognition of professional qualifications could be moved on, much based on an agreement that Quebec has signed with France, which mutually recognises various professions that are regulated by their order. If you are an optician in France, you can be recognised automatically in Quebec, et cetera. There was something like that that was discussed. It has not gotten that far, but there was nothing ever discussed in terms of the free mobility of people as you know it within the European Union.
Chair: Would anybody else like to finally come in? Thank you very much, gentlemen. The session has ended.