The Perils of CETA

Proposed Canada-EU trade deal a bad deal for most Canadians
December 1, 2011

As its name suggests, the Comprehensive Economic and Trade Agreement (or CETA) is intended to be an ambitious agreement that will affect matters beyond international trade.

In every bilateral trade negotiation since NAFTA, Canada has been the larger party, able to set the terms of the talks and work from its existing trade treaty template. But the CETA negotiations are different. 

The European Union is a superpower, accustomed to getting its way in talks with smaller partners such as Canada.  Consequently, the CETA could result in major changes in the trade and investment rules affecting a broad range of Canadian policies and regulations, at all levels of government.

Investment protection: Investor rights agreements such as NAFTA Chapter 11 go well beyond fair treatment, granting special rights to foreign investors that enable them to bypass domestic court systems. Unaccountable arbitral tribunals can order governments to compensate investors allegedly harmed by public policies or regulations.

There have been 30 investor-state claims against Canada, and the cases continue to mount. Canada has lost or settled five claims and paid damages totalling $157 million [1].

 Some of the most controversial features of the NAFTA investment chapter have not been included in previous EU-wide trade agreements [2]. The European Commission, however, recently gained the power to negotiate investment protection agreements on behalf of the entire EU. Early in the CETA negotiations, Canada put the NAFTA Chapter 11 template on the table. 

The EU has now responded by demanding an agreement with even stronger investment protections than the ones in NAFTA [3]. It is also insisting that provinces and municipalities fully comply.

Under NAFTA’s most-favoured nation rules, any concessions made to European investors in CETA are automatically extended to U.S. and Mexican investors. Canada’s experience under NAFTA is raising concerns in Europe. Both the European Parliament and an official EU sustainability impact assessment have recommended against including investor-state dispute settlement in CETA.

In addition, under the investor-state arbitration rules of the European energy charter treaty, a Swedish energy company, Vattenfall, recently launched contentious claims against Germany related to the regulation of a coal-fired plant in Hamburg and Germany’s decision to phase out nuclear power.

Public awareness, however, is still low, and CETA threatens to expand this controversial model of investor protection before citizens understand all the implications. Both Canada and Europe have mature, highly-regarded court systems that protect the rights of all investors, regardless of nationality. So there is little or no justification for including investor-state arbitration in CETA.

Public purchasing, services: Unconditional access to government procurement, particularly at the provincial and municipal government levels, is the EU’s top priority. The proposed restrictions would severely curtail governments’ ability to use their purchasing power to enhance local benefits. The rules prohibit local development conditions, even when contracts are competed for openly and do not discriminate against foreign suppliers [4] .

Canadian governments could lose a valuable policy tool for creating employment, protecting the environment, and assisting marginalized groups.

Furthermore, many Canadian public services are provided by provincial and municipal governments. European multinational companies want market access to the provision of these public utilities. CETA would be the first Canadian trade treaty to cover municipal-level procurement, including vital services such as waste management, public transit, and drinking water.

The exclusion of local government procurement from previous trade treaties has definitely reduced the risk of litigation and demands for compensation from multinational corporations when privatization schemes go off the rails [5]. Under CETA, however, once a local government decides to contract out a service, it would trigger powerful rights for foreign multinationals to challenge any perceived bias, any local development conditions, and any attempt to halt or reverse the contracting-out process [6] .

European multinationals have successfully pursued investor-state cases over failed privatization schemes in developing countries, winning damage awards of hundreds of millions of dollars [7]. While CETA may not force governments to privatize, giving new legal rights to multinational services corporations would facilitate commercialization and help lock in privatization. It would also interfere with the ability of future governments to expand or create new public services.

Higher drug costs: CETA would be the first Canadian bilateral FTA since NAFTA to have an intellectual property rights (IPR) chapter, and would go well beyond Canada’s existing obligations under NAFTA and the WTO. The leaked draft text contains some very aggressive EU demands, including:

  • Adding the extra time it takes for a drug to receive regulatory approval (up to five years) on to the regular 20-year term of monopoly patent protection;
  • longer terms of data exclusivity, up from eight to 10 years [8], including protection for non-innovative drugs; and
  • new rights of appeal that would enable the brand-name drug industry to delay the approval of generic drugs.

Any combination of these changes would reduce the availability of cheaper generic medicines and drive up costs to provincial governments and Canadian consumers. A study by two respected experts estimates these extra costs to reach $2.8 billion annually.

Brand-name drug companies claim that they need strong intellectual property protection to justify investing in Canada.  Yet these same companies have consistently failed to fulfill promises to invest 10% of their sales in R&D in Canada. 

Drug costs are the fastest-rising component of Canadian health care costs. Containing drug costs is essential, and CETA’s IPR provisions could deal a critical blow to the sustainability of Canada’s universal health care system.

Corporate deregulation: The CETA negotiations are more concerned with limiting the ability of governments to regulate the activities of multinational corporations and investors than with reducing genuine trade barriers. This fits well with an ideology of smaller government, deregulation, and maximum freedom for investors. 

But CETA puts the future of many important policy tools and public programs at serious risk. It could adversely affect a wide range of otherwise unrelated areas, including local government purchasing, public services, environmental protection, agricultural marketing, intellectual property, resource conservation, health care, and job creation.


(Scott Sinclair is Director of the CCPA’s Trade and Investment Research Project. This article is adapted from his presentation in November to the Commons Standing Committee on International Trade on the Canada-EU Comprehensive and Trade Agreement.)

 [1] Governments have spent tens of millions more in legal costs.

 [2] (Protection against regulatory expropriation, minimum standards of treatment, performance requirement prohibitions, and investor-state dispute settlement)

[3] For example, related to “fair and equitable treatment”, unconditional national treatment, and umbrella clauses.

[4] The EU requests, which have been leaked, seek universal coverage of purchasing by all public entities at all levels of government, including provinces, municipalities, universities, schools, hospitals, social service agencies and crown corporations. 

[5] Canadian government spokespersons insist that the CETA would not force governments to privatize services. While the initial decision on whether to deliver services through the public sector or to contract out would still be made by governments, it is what happens afterwards that is cause for great concern.

[6] Such legal challenges could occur under both the procurement rules of the agreement or under the investment protection rules.  

[7] for the breach of investor rights like those in the CETA.

[8] (plus six months for paediatric drugs)