Will Canadian investors still be able to sue us after we’ve left the EU?
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The EU recently negotiated a free trade agreement with Canada called the Comprehensive Economic and Trade Agreement (CETA). It has been signed, but not yet ratified by the EU. For it to be fully ratified, CETA will need to be passed by all member states in the Council of the EU; simple majority in the European Parliament; and then the parliaments of each of the 28 member states.
However, CETA can be provisionally implemented across the EU once the Council and European Parliament have voted on it. At the moment it is unclear whether the full agreement will be provisionally implemented, or just some of it.
CETA is not as controversial as its EU-US counterpart (TTIP). Yet, it still has its critics. Specifically, people are worried about an investment protection mechanism (ISDS) that allows investors to bring legal challenges against governments who are deemed to have directly, or indirectly, expropriated their property.
These cases can be very expensive (average costs for defending a case are around $8 million and awards have been as high as $50 billion) and many people fear they restrict the space available to governments to act in the interest of people and the environment. If you’re really interested, Buzzfeed just published an in depth investigation into ISDS, which can be read here.
Recently, I have been asked whether CETA’s ISDS provision would continue to apply in the UK even after we officially Brexit.
The answer: it depends on whether CETA has been fully ratified or not.
If CETA has been provisionally implemented
First, it is far from certain that ISDS will be included when CETA is provisionally implemented. A decision still needs to be made on this.
If ISDS is provisionally implemented (big if), but then we officially Brexit, it would cease to cover Canadian investments into the UK.
Yes, CETA does include a stabilisation/sunset clause designed to provide certainty for investors, but it doesn’t apply unless CETA is fully ratified:
However, investors would continue to be able to bring claims for up to three years after Brexit, but only for incidents occurring during the period CETA was provisionally implemented in the UK.
If CETA has been fully ratified before Brexit
If CETA had been fully ratified by the EU (passed by member state parliaments) before Brexit, the ISDS protections would continue to apply for 20 years, covering only investments that were made prior to the date of termination (Brexit).
(Yes, there are still discussions about whether the UK will be able to grandfather (inherit) existing EU trade agreements post-Brexit, but that’s for another day.)