• Canada and Europe announce legal scrubbing of CETA is complete
  • Dispute procedures becoming sticking point in EU-U.S. pact

Canada agreed to re-open its trade deal with the European Union to strengthen state rights to regulate without fear of legal challenge and to ensure the pact was approved by European lawmakers, Canadian Trade Minister Chrystia Freeland said.

Freeland and European Trade Commissioner Cecilia Malmström jointly announced Monday the conclusion of so-called legal scrubbing on the long-delayed Comprehensive Economic and Trade Agreement. The process saw changes made to boost government powers in trade disputes with companies.

The changes were spurred by opposition in Europe to investor-state dispute settlement, or ISDS, procedures that have become a sticking point in talks over the Transatlantic Trade and Investment Partnership, a pact between the EU and U.S.

Freeland praised the rewrite in the Canadian pact. “What we feel we’ve done together is create a really positive evolution of the dispute resolution system -- something fit for the 21st century,” she said in a telephone interview. “Dispute resolution was never meant to be about limiting government’s right to regulate. It was about being confident that foreign investors would not be discriminated against.”

Long Delays

The revisions also create a deal the trade minister is confident will be passed and implemented by “early” 2017 after having sat idle since an agreement was reached by Canada’s previous Conservative government. Freeland and her Liberal colleagues took power in November after Prime Minister Justin Trudeau’s majority election win.

The changes also create what Canada called a “permanent, transparent and institutionalized dispute-settlement tribunal,” with 15 appointed members to adjudicate claims: five Canadians, five EU nationals, and five from third-party countries.

“It’s important to reach an agreement which can actually fly, and Commissioner Malmström and I are confident that, with this now fully legally scrubbed version, we’ve achieved just that,” Freeland said. “It was a real problem that we weren’t able to get it across that finish line of the legal scrub.”

Trade-dispute resolution systems are familiar to Canada thanks to the North American Free Trade Agreement. One recent high-profile case is that of TransCanada Corp., which filed a legal claim earlier this year under NAFTA after U.S. President Barack Obama rejected the Keystone XL pipeline. Freeland declined to discuss it specifically.

Testy Disputes

“When it comes to a specific NAFTA suit, the ones that I closely follow are the ones where the government of Canada is implicated,” she said. “What I will say about dispute resolution and its intent is, a dispute resolution mechanism exists so that a foreign investor can defend against being discriminated because of being a foreign investor.”

Adam Taylor, who worked in the office of former Conservative Trade Minister Ed Fast, said European push-back over ISDS had long been brewing. “It’s now clear that Europe’s underestimation of the anti-ISDS forces in Europe forced them to back away from what they’d already negotiated, and therefore forced Canada into the position where it had to renegotiate these things,” Taylor, now a consultant at Ensight Canada, said in an interview.

The changes are designed to appease opponents of ISDS, whose fears were stoked more by the looming American trade pact than the Canadian one, Taylor said. “That’s what fueled a lot of it: ‘If this is what they agreed to with little Canada, imagine if this is what they agreed to with the big, mighty United States,’” he said. “That’s what ultimately forced the hand of both sides.”

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