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CETA’s Evolving Landscape: Investment Protection and Expedited Procedures
CETA’s Evolving Landscape: Investment Protection and Expedited Procedures
Since its provisional application began on September 21, 2017, the Comprehensive Economic and Trade Agreement (CETA) has been partially implemented, with some key provisions, including those in the investment chapter (Chapter Eight), pending ratification by ten EU Member States. As domestic ratification continues, significant developments in CETA’s framework for investment protection and dispute resolution are underway. This article explores recent key decisions and draft proposals that aim to clarify substantive protections and establish expedited procedures for resolving investment disputes.
Key Decisions Enhancing Investment Protection:
The CETA Joint Committee has made several pivotal decisions regarding investment protection. Notably, Decision No. 1/2021 on the functioning of the Appellate Tribunal, Decision No. 1/2021 by the Committee on Services and Investment adopting a Code of Conduct for Tribunal members, and Decision No. 2/2021 adopting mediation rules for investment disputes were all issued on January 29, 2021. These decisions have laid a robust foundation for the dispute resolution process under CETA.
Fair and Equitable Treatment and Indirect Expropriation:
A significant development is the draft interpretative statement on substantive protections, initially prepared by the German Government and the European Commission in August 2022 and subsequently revised by the European Council on February 1, 2024. The CETA Joint Committee released its draft on February 9, 2024, covering six main areas: fair and equitable treatment (FET), indirect expropriation, climate change, protection of essential security interests, protection of fundamental rights, and calculation of monetary damages.
Fair and Equitable Treatment (FET):
The draft statement proposes a closed list of FET elements, reflecting recent treaty-making trends. Key elements include denial of justice, arbitrariness, discrimination, abusive treatment, and legitimate expectations. For instance, a denial of justice claim requires prior exhaustion of local remedies unless no effective redress is reasonably available. Arbitrary measures must lack a rational connection to a legitimate policy objective, while discriminatory measures must provide differential treatment based on illegitimate grounds such as gender or race. Abusive treatment requires serious misconduct, and legitimate expectations depend on specific and unambiguous representations by the respondent.
Indirect Expropriation:
The draft statement sets a high threshold for indirect expropriation, requiring “radical deprivation” rather than the more common “substantial deprivation” standard. Temporary interferences are unlikely to amount to indirect expropriation, and reasonable investor expectations depend on binding written assurances and the nature of governmental regulation. Measures taken for legitimate public welfare objectives, such as combating climate change, are not considered expropriations unless their impact is manifestly excessive.
Expedited Procedures for Investment Disputes:
Another crucial development is the draft decision by the EU to adopt supplemental rules on expedited procedures for investment disputes, particularly benefiting natural persons and small and medium-sized enterprises (SMEs). CETA currently allows claims to be heard by a sole arbitrator, a provision aimed at enhancing procedural efficiency.
Procedural Framework:
The draft decision outlines the process for expedited procedures, contingent upon the respondent’s consent. Investors must provide detailed information, including financial statements and ownership structure, to support their request. The respondent must give “sympathetic consideration” to the request, especially for SMEs or claims involving relatively low compensation. The draft rules set a claim limit of SDR 40,000,000 (approximately EUR 50 million).
Implementation and Future Prospects:
Both the draft interpretative statement and the supplemental rules on expedited procedures await formal adoption by the CETA Joint Committee. These measures reflect a broader trend in investor-State arbitration towards clearer provisions and more efficient dispute resolution processes. However, their practical impact depends on the completion of domestic ratification procedures by the remaining EU Member States.
Conclusion:
CETA’s evolving framework for investment protection and dispute resolution marks significant progress towards clearer, more efficient arbitration processes. The draft interpretative statement provides detailed guidance on substantive protections, while the draft decision on expedited procedures aims to streamline dispute resolution for SMEs and natural persons. As these developments await final adoption, their potential to enhance the arbitration landscape under CETA is promising, contingent on the completion of outstanding ratifications.
- The draft statement proposes a closed list of FET elements, reflecting recent treaty-making trends.
- The draft statement sets a high threshold for indirect expropriation, requiring “radical deprivation” rather than the more common “substantial deprivation” standard.
- Another crucial development is the draft decision by the EU to adopt supplemental rules on expedited procedures for investment disputes, particularly benefiting natural persons.
