In an opinion released today, the European Court of Justice concluded that: "The mechanism for the resolution of disputes between investors and States provided for by the free trade agreement between the EU and Canada (CETA) is compatible with EU law." This is from paras. 151-161 of the opinion:
3. No effect on the operation of the EU institutions in accordance with the EU constitutional framework
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151 It must be emphasised, in that regard, that EU legislation is adopted by the EU legislature following the democratic process defined in the EU and FEU Treaties, and that that legislation is deemed, by virtue of the principles of conferral of powers, subsidiarity and proportionality laid down in Article 5 TEU, to be both appropriate and necessary to achieve a legitimate objective of the Union. In accordance with Article 19 TEU, it is the task of the Courts of the European Union to ensure review of the compatibility of the level of protection of public interests established by such legislation with, inter alia, the EU and FEU Treaties, the Charter and the general principles of EU law.
152 With respect to the jurisdiction of the envisaged tribunals to declare infringements of the obligations contained in Section C of Chapter Eight of the CETA, Article 28.3.2 of that agreement states that the provisions of Section C cannot be interpreted in such a way as to prevent a Party from adopting and applying measures necessary to protect public security or public morals or to maintain public order or to protect human, animal or plant life or health, subject only to the requirement that such measures are not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between the Parties where like conditions prevail, or a disguised restriction on trade between the Parties.
153 It follows from the foregoing that, in those circumstances, the CETA Tribunal has no jurisdiction to declare incompatible with the CETA the level of protection of a public interest established by the EU measures specified in paragraph 152 of the present Opinion and, on that basis, to order the Union to pay damages.
154 In the same way, as regards the jurisdiction of the envisaged tribunals to declare infringements of obligations contained in Section D of Chapter Eight of the CETA, Article 8.9.1 of that agreement states explicitly that Parties have the right ‘to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity’. Further, Article 8.9.2 of that agreement provides that ‘for greater certainty, the mere fact that a Party regulates, including through a modification to its laws, in a manner which negatively affects an investment or interferes with an investor's expectations, including its expectations of profits, does not amount to a breach of an obligation under this Section’.
155 Moreover, Point 1(d) and Point 2 of the Joint Interpretative Instrument provide that the CETA ‘will … not lower [the standards and regulations of each Party] related to food safety, product safety, consumer protection, health, environment or labour protection’, that ‘imported goods, service suppliers and investors must continue to respect domestic requirements, including rules and regulations’, and that the CETA ‘preserves the ability of the European Union and its Member States and Canada to adopt and apply their own laws and regulations that regulate economic activity in the public interest’.
156 It is apparent from reading those provisions together that the discretionary powers of the CETA Tribunal and Appellate Tribunal do not extend to permitting them to call into question the level of protection of public interest determined by the Union following a democratic process.
157 That is also the purport of Point 3 of Annex 8-A to the CETA, which states that ‘for greater certainty, except in the rare circumstances when the impact of a measure or series of measures is so severe in light of its purpose that it appears manifestly excessive, non-discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations’.
158 It must be added that the jurisdiction of the CETA Tribunal to find infringements of the obligation, laid down in Article 8.10 of the CETA, to accord ‘fair and equitable treatment’ to covered investments is specifically circumscribed, since Article 8.10.2 lists exhaustively the situations in which such a finding can be made.
159 In that regard, the Parties have concentrated on, inter alia, situations where there is abusive treatment, manifest arbitrariness and targeted discrimination, which reveals, once again, that the required level of protection of a public interest, as established following a democratic process, is not subject to the jurisdiction conferred on the envisaged tribunals to determine whether treatment accorded by a Party to an investor or a covered investment is ‘fair and equitable’.
160 It is accordingly apparent from all those provisions, contained in the CETA, that, by expressly restricting the scope of Sections C and D of Chapter Eight of that agreement, which are the only sections that can be relied upon in claims before the envisaged tribunals by means of Section F of that Chapter, the Parties have taken care to ensure that those tribunals have no jurisdiction to call into question the choices democratically made within a Party relating to, inter alia, the level of protection of public order or public safety, the protection of public morals, the protection of health and life of humans and animals, the preservation of food safety, protection of plants and the environment, welfare at work, product safety, consumer protection or, equally, fundamental rights.
161 In the light of the foregoing, it must be concluded that Section F of Chapter Eight of the CETA does not adversely affect the autonomy of the EU legal order.
It's hard to know what to make of the Court's statement that "the Parties have taken care to ensure that those tribunals have no jurisdiction to call into question the choices democratically made within a Party relating to, inter alia, the level of protection of public order or public safety, the protection of public morals, the protection of health and life of humans and animals, the preservation of food safety, protection of plants and the environment, welfare at work, product safety, consumer protection or, equally, fundamental rights." I think it's pretty clear that tribunals can call into question democratically made choices. I'm not sure ISDS supporters would even disagree with that. There is, of course, a real question about the extent to which tribunals can call these choices into question. If the EU and Canada had taken out the FET and indirect expropriation provisions, there would be less scope to do so. And if there were full exception provisions (i.e., not just from the non-discrimination provisions), there would be less scope to do so. As CETA is drafted (e.g., with the vague and mostly useless Article 8.9.1, and the still very broad FET standard), however, there is a lot of scope for tribunals to do so. The Court may or may not have understood this, but everyone else does, and it will become clear if CETA goes into effect. Whether you think it's a good idea for ISDS tribunals to have this power is a separate matter. But they do have the power.
ADDED: Of course, any international agreement can affect a government's ability to act (and if a country is a democracy, the agreement affects democratically made choices). The degree to which the agreement has this effect depends on two factors: its substantive scope and its enforceability. With CETA ISDS (and most ISDS in general), you have a very broad substantive scope and a strong enforcement mechanism. On the former, FET with a standard such as "manifest arbitrariness" covers a lot of government actions in the real world, and there is no exception to FET in CETA (Article 8.9.1 is not an exception and is unlikely to have much impact). On the latter, allowing individual investors to bring claims and receive monetary damages is quite strong. Putting these two factors together, CETA ISDS has a high degree of impact on democratically made choices in the EU.
