Oireachtas Joint and Select Committees
Tuesday, 30 March 2021
Joint Oireachtas Committee on European Union Affairs
Engagement on the Comprehensive and Economic Trade Agreement: Mr. David O'Sullivan
Tá quorum againn anois agus táimid i seisiún poiblí. Fuair mé leithscéal ón Teachta Marian Harkin. Ar son an choiste, ba mhaith liom fáilte a chur roimh an Uasal David O’Sullivan go dtí an cruinniú inniu. Táimid ag dúil leis an díospóireacht faoi Comprehensive Economic and Trade Agreement, CETA. Tá an tUasal O’Sullivan anseo inniu i gcumas pearsanta agus is léir go bhfuil taithí agus léargas aige ar an ábhar seo.
Before we begin, all witnesses are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him or her identifiable or otherwise engage in speech that might be regarded as damaging to the good name of any person or entity. Therefore, if their statements are potentially defamatory with regard to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with such direction.
For witnesses attending remotely, that is, outside the Leinster House campus, there are some limitations to parliamentary privilege, and as such they may not benefit from the same level of immunity for legal proceedings as witnesses who are physically present in the building. Witnesses participating in this committee session from a jurisdiction outside the State are advised they should also be mindful of their domestic law and how it may apply to the evidence they give.
Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. I remind members of the constitutional requirement that they must be physically present within the confines of the place where Parliament has chosen to sit, namely, Leinster House or the Convention Centre Dublin, in order to participate in public meetings. I will not permit members to participate where they are not adhering to this constitutional requirement. Therefore, any member who attempts to participate from outside the precincts will be asked to leave the meeting. In this regard, I ask members partaking via Microsoft Teams prior to making their contribution to the meeting to confirm they are on the grounds of the Leinster House campus.
I invite Mr. O'Sullivan, who is very welcome, to make his opening statement.
Mr. David O'Sullivan:
Is mór an onóir dom a bheith i láthair libh agus cuireadh a bheith agam chun labhairt leis an gcoiste seo fiú más trí nasc físe amháin é. I am afraid I had to look up the word for "video link"; it was not in the dictionary when I was studying Irish.
It is a great pleasure and honour for me to be able to contribute to the committee's work on reflecting on the trade agreement with Canada. I thought it might be helpful if I put the CETA debate in the broader context of EU trade policy. I was the director-general for trade in the European Commission from November 2005 until November 2010, and I have continued to follow trade matters closely in my subsequent roles, most recently as EU ambassador to Washington.
During my time as director-general, there was a considerable evolution in EU trade policy. Initially, all our energy was focused on trying to make a success of the World Trade Organization, WTO, negotiations launched in Doha in 2001. We even placed a moratorium on the negotiation of new bilateral trade deals in order to underline our commitment to the multilateral process. However, by 2006, it was becoming clear that the Doha round might not succeed and other trading partners such as the US were restarting bilateral deals. The EU decided to launch three sets of bilateral deals with South Korea, India and the Association of Southeast Asian Nations, ASEAN. The deal with South Korea was concluded in 2010 and I had the pleasure of presiding over it. The search for a region to region deal with ASEAN was abandoned in favour of a series of bilateral deals, leading to free trade agreements with Vietnam and Singapore. The negotiations with India, initially promising, were, unfortunately, never concluded.
In 2008, after the collapse of the Doha development agenda, even more bilateral negotiations began, and, today, the European Union is at the centre of the largest free trade network the world has ever seen, with 44 agreements covering 76 countries, representing 33% of total EU trade flows. Negotiations are currently in hand for free trade agreements with Australia, New Zealand, Indonesia and the Philippines. A deal has been reached with Mercosur, the South American customs union, which awaits a formal Commission proposal to the Council and Parliament for possible signature.
It is important to underline that these new trade deals were intended to be significantly more comprehensive than previous free trade agreements. They sought to cover nearly all goods, significant chunks of trade in services, regulatory matters and sustainable development issues, such as environmental and labour standards.
This was part of a broader trend of recognising, on the one hand, that non-tariff barriers can be as significant, if not even greater, barriers to trade than tariffs and, on the other, that trade agreements needed to address a wider set of level playing field issues, a term that has become well known in Ireland because of the negotiations on Brexit. This is both to ensure equity of trading terms and that FTAs would be a vehicle for mutually enhancing core regulatory standards to be agreed with our trading partners.
Canada was seen as an excellent test partner for this next-generation FTA because its own international trade policy had for some time sought to incorporate a broader range of issues, the case for mutual economic benefits from reduced barriers was a good one, and this has been borne out by the results of the provisional application, and because Canada was the type of like-minded partner with which the EU expected a productive dialogue. Following an exploratory period in 2007 to 2008, formal talks with Canada were officially launched in 2009. The negotiations were concluded in August 2014. After approval of the text by all member states, it was signed in 2016. The European Parliament gave its approval for the deal in February 2017. Canada ratified the Comprehensive and Economic Trade Agreement, CETA, in May 2017.
In parallel, a strategic partnership agreement, SPA, was negotiated and it was signed in October 2016. This reflects the fact that the EU conceives of a deepened FTA relationship not as purely economic, but as an opportunity to deepen relations with the partner across the board. The strategic partnership agreement upgrades the framework of co-operation between the EU and Canada and expands the basis of the relationship, in parallel with what we are doing to foster trade and investment through CETA. The agreement enshrines our shared democratic values and enhances political dialogue on a broad range of areas, including international peace and security, economic and sustainable development, justice, freedom and security.
Since both agreements contained elements considered of mixed competence, ratification by each member state individually is required, a process which can normally take several years to complete. The SPA entered into provisional application in April 2017. In order not to delay the benefits of the trade deal, it was agreed, provisionally, to apply matters of EU competence in CETA from September 2017. In practice, this is probably 90% of the deal with the exception of portfolio investment and the investor court system. This means that, in particular, most of the trade improvements have been in force since then, leading to a significant increase in trade in both goods and services. For Ireland, bilateral trade has increased considerably as a result of the virtual elimination of tariffs. Trade in goods alone between Canada and the EU was worth €59 billion in 2019. Ireland’s trade in goods with Canada reached €2 billion in 2019, an increase of 37% compared to pre-CETA trade. Ireland has a positive trade balance of nearly €1 billion with Canada, consisting mainly of chemicals, pharmaceuticals and agrifood products, particularly beverages. Services exports at nearly €2 billion have increased by 17%.
It is useful to reflect a little on what provisional application means. Until the European Court of Justice judgment on the Singapore FTA in 2017, it was always assumed that the presence in any trade deal of even minor issues relating to mixed competence or exclusive member state competence required ratification by each country individually. This process typically involves more than 40 parliaments, including those with bicameral systems as well as federal systems such as that of Belgium, which has seven parliaments that have to ratify. I will not hide the fact that this caused considerable bewilderment from our trade partners who had to negotiate with the Commission, backed by the member states, secure signature via unanimous approval of all countries, secure the approval of the European Parliament and then still await formal ratification by all national parliaments. The assumption had always been, and this has been the case until now, that given the rigorous scrutiny process needed for Council and European Parliament approval, ratification by national parliaments would be largely automatic. National parliaments cannot renegotiate the texts and, therefore, are faced with a relatively binary choice, to accept or to reject. They have that choice.
Provisional application was the technique developed to ensure that at least the trade benefits could be applied pending the final outcome of this sometimes lengthy approval process. It is decided by the Council upon a proposal from the Commission and can only cover those aspects of the agreement fully within EU competence. On this issue of exclusive versus mixed competence, a few years ago the Commission decided to test the assumption about exclusive versus mixed competence before the European Court of Justice. It submitted, as a test case, a draft FTA with Singapore and asked the court whether it could not be considered as a matter of exclusive competence, notwithstanding the presence in the deal of certain elements of mixed or national competence. The court found in a judgment in May 2017 that the Singapore deal as such needed national ratification, but laid down principles which opened the door to crafting trade deals in such a manner as only to need ratification at EU level, that is, a vote of the Council of Ministers and a vote in the European Parliament. Based on this judgment, it is my view, and I believe others would share it, that it is highly likely the Canada deal, with the exception of the investment chapter, if presented today would not need national ratification, as was the case for the recently concluded EU-UK Trade and Co-operation Agreement. However, the Canada deal, as concluded in 2017 and already ratified by Canada, does require full national ratification. This is why the matter is now before the Oireachtas.
Chairman, I will say a few words about the issue of investment because this is one of the elements of controversy in this agreement. The Lisbon treaty, which entered into force in December 2009, added investment to the coverage of the trade competence of the EU in Article 207.Since the emergence of bilateral investment treaties in the late 1950s, member states had concluded many such agreements. There were hundreds of bilateral investment treaties between member states and third countries. It was decided to grandfather all these agreements on the understanding that they would be progressively phased out as EU deals took their place. This required the Commission to negotiate investment chapters granting member states equivalent protection to that prevailing in the bilateral treaties. Notably, it included a system of investor-state dispute settlement, ISDS, which was designed to give European investors protection from arbitrary or discriminatory treatment by host governments of their investments outside of the EU via a system of independent arbitration.
The inclusion of such provisions became a major point of contention in the never completed Transatlantic Trade and Investment Partnership, TTIP, negotiations with the United States. As a result of that controversy, and following a wide public consultation which the Commission initiated on the subject, the EU has proposed to revamp investment protection rules, moving away from ad hocarbitration panels in favour of a more court-like process. The EU and its member states are actively supporting the establishment of a multilateral investment court, MIC, composed of a first instance and an appellate tribunal staffed by full-time adjudicators. Canada was the first country to accompany and support the EU in this direction and has joined forces with the EU and others to promote the idea of an international multilateral court to handle such cases in the future. We are not there yet because this will require an international agreement. In the meantime, CETA breaks completely new ground in this area. Not only does it contain strong language protecting the right of states to regulate but the investment court system established in CETA is composed of a first instance and an appellate tribunal, staffed by full-time adjudicators. This represents a clear break from the ad hocsystem of private arbitration of ISDS found in most bilateral treaties. I understand that Ireland does not have any bilateral investment treaties and this is, therefore, not a procedure with which we are familiar or had to work in the past.
That concludes my opening remarks. I hope I have been able to contribute to the committee's understanding of the origins and nature of the discussion on CETA.
I remain at the committee's disposal for any questions.
I thank Mr. O'Sullivan for his most helpful context-setting for the work we have to do. I will ask three questions. The first relates to the fact that Mr. O'Sullivan has said this is more than a trade deal and is the precursor to the new generation of trade deals, including services, regulatory matters, labour standards and the environment. Will Mr. O'Sullivan provide the committee with a brief understanding of why it was felt we would move away from trade deals to have a much broader set of arrangements to be negotiated between the European Union and other states or groups of states?
Second, the Singapore judgment from the European Court of Justice seems, according to the presentation Mr. O'Sullivan has given us, to have changed the ratification and probably the content of future trade deals that will be negotiated by the European Union. Is CETA the last of its kind? Will all future trade arrangements to be negotiated by the Commission be fundamentally different in character post the Singapore judgment?
My third question is the most important, from my perspective. It is the most contentious issue and the one that we as Deputies have received most correspondence on. Like everybody else on the committee, I have had enormous bilateral discussions with groups and individuals in my constituency and further afield on the investment protection mechanism, the so-called investment court system that Mr. O'Sullivan alluded to. I have two simple questions in relation to this most fundamental issue. Can we simply disconnect the investment court system from the CETA agreement? The likelihood is that Canada would trust European courts to be fair and give fair judgments and I presume European countries would trust the Canadian court system to be impartial and fair in judgments of any disputes that might arise. That would obviate the need for a parallel system that sits outside our court system and potentially outside our constitutional system. Why would we not proceed with the agreement as has been provisionally implemented to date, seek bilaterally to dislodge the investment court system from the agreement and seek Canada's acceptance of that? What would be the likelihood of that?
Mr. David O'Sullivan:
I thank the Deputy. I will take the three questions in order. Why did we move to a broader, more comprehensive approach on trade agreements? There were three main reasons. First, tariffs were important to reduce and, if possible, eliminate. CETA does more or less eliminate tariffs between us on, I think, 98% of goods. Second, there was a recognition that non-tariff barriers of various kinds were becoming the real issue and some degree of regulatory convergence and addressing of that issue in trade deals was important. This was a general trend pursued by Canada and other partners in trade deals in the last decade or so.
The third reason relates to sustainable development, environmental and labour standard issues. Increasingly, there was criticism saying trade deals did not take sufficient account of these issues so it was important to put these chapters into this generation of trade deals. That is why we have more comprehensive deals. The South Korea agreement of 2010 was a good example. Recently we have seen that the European Union has criticised South Korea for its failure to ratify international labour organisation conventions, has initiated the dispute settlement in the agreement to try to change that situation and has made some progress. This was also a response to wider societal and political concerns that trade deals needed to take into account these broader dimensions. That is why we have these more comprehensive agreements which reflect both new economic realities and new political realities.
On the court judgment, I do not think it has changed the content of future deals. The previous principle was known as the Pastis principle, an allusion to the French alcohol of which even a little drop put into a glass of water turns the water yellow. The idea was that even if there was a very small bit of national or mixed competence in an agreement, that meant the whole agreement became mixed and needed the full complicated system of ratification. The court basically said "No" and that as long as it is essentially about trade it can be considered a trade agreement, even if it touches on some other issues. To link this to the Deputy's third question, it identified two areas in particular. They were portfolio investment - or non-direct investment - and the investor court system or investor state provisions which it said would require full national ratification. The issue is now how to package the results of the negotiation in such a way as to have the trade-focused part being subject to the slightly less complicated route of ratification at the level of the EU, requiring a decision of the Council of Ministers and of the European Parliament but not ratification at national level, and those elements, in particular relating to investment, which would still require full national ratification.
To the third question on the investor court system and whether it can be disconnected, I hinted that if we were today starting from scratch with a blank sheet of paper or had just the raw material of the Canada agreement and the Commission was deciding how to present it, that is probably what it would do. I cannot speak for the Commission but the logic of what the court said would lead one in that direction. However, we are not in that position in relation to Canada and we need to be clear about this. The package of CETA, including the investment court system, has been ratified and is concluded. Trying to disconnect it would require a renegotiation and one cannot just renegotiate one thing. It does not work that way. Once one opens the Pandora's box by saying one would like to revisit this text, Canada might be well disposed but would be under pressure to open other things. The trade thing has not worked quite as well for them as it has for us, so they might look to reopen that. In relation to this deal and the package on the table, it is a take-it-or-leave-it option for the package as we find it.
Cuirim fáilte roimh an tUasal O'Sullivan. There are many concerns but the biggest is around the investment court system. Mr. O'Sullivan said in his article in The Irish Timesthat CETA "is an important stepping-stone to a multilateral investment court". Who pushed that? Is it an EU concept? In the context of CETA, was it being pushed by the EU, by Canada or was it an equal proposition?
Second, in the context of our court system, for which we as Members of the Oireachtas have a responsibility in terms of our day-to-day role and in terms of Bunreacht na hÉireann, where will that court sit and where will our current system sit with that court? Could a multilateral investment court undermine decisions taken by the courts here or vice versa?
Where in Mr. O'Sullivan's view does that sit?
Will setting up such a structure make it harder for Irish and EU citizens to access or to initiate actions than they currently can in the context of any agreement with Canada or any other agreement which will come under the remit of this new investment court system?
Mr. David O'Sullivan:
The two things are parallel. When the European Commission was faced with difficulties about the ISDS in the context of TTIP - the Deputy will remember that there was a huge amount of concern and anxiety about it - it launched a widespread consultation and reached the conclusion that the European Union should seek to replace the current system of ad hocarbitration with a multilateral investment court.
At the same time, we were negotiating with Canada. The Canadians were highly sympathetic to our concerns. In fact, Canada is our greatest ally in trying to reform the system of ISDS. As there was not yet a multilateral court, the best we could do with Canada was to agree a kind of bilateral version of a multilateral investment court. That is basically what CETA does. It is a kind of stepping stone.
My personal view, respectfully, is that it is important to demonstrate to the rest of the world, which we are trying to persuade to come on board for this multilateral investment court, that we can have a functioning model in CETA to show how such a system might work and be improved relative to ad hocarbitration.
The investor-state dispute settlement system does not replace the national legal system. It is always possible for companies, governments and civil society to go through the national system. The difference is that under the arbitration system, basically both sides voluntarily accept that they will go down the road of trying to resolve these issues by arbitration rather than through the national courts.
I want to give just another little bit of context, if I may, so the committee gets this. Why is this important to many member states which believe we need a system of investor protection? Companies frequently investing substantial sums of money in countries with unstable governments or legal systems can encounter real problems such as having their property expropriated or having changed terms of the investment in ways which can be very damaging. This is unfair and discriminatory. If they try to use the national courts in the country concerned, they may well lose because the government in question is able to change the law or manage the system. They wanted an independent system which could guarantee them certain rights to protect investments. That is the background. I fully agree with Deputy Howlin's suggestion that there is not much risk of that between Canada and the EU. Canada wanted very much to reform the system, as we did. We wanted to put into this agreement a working model of how one could have a better way of dealing with this issue than the traditional ad hoctribunal.
Citizens' rights under national law are unchanged. They would still be able to pursue their national rights. While I have not read the latest text, as I understand it, it is foreseen in the multilateral investment court that civil society and other actors can be party to the proceedings, make their views known and have their concerns taken into account. It is a fairly transparent and open process.
I thank Mr. O'Sullivan for his detailed paper and opening remarks.
As Deputy Howlin said, concerns are being raised in our offices. There seems to be a belief that we do not need to ratify this final part of the agreement and that we can somehow pause it indefinitely. What are Mr. O'Sullivan's thoughts on that and whether that is an accurate summation? Is it a bit misleading?
There is also a belief that somehow CETA can be amended. Is that feasible, realistic and practical? Mr. O'Sullivan in a way is doing down his own role and experience in this. Going back ten years when this was thrashed out, where were the notable wins within CETA for the European Union? One would not expect confrontations with Canada as it is a good country with which to have a trade agreement. Within that discussion, this is important for other trade deals currently being negotiated or in the process of being ratified. Where were the notable wins within the European Union for Ireland? How hard were they to come by and what was the impact?
If we pause this process, reject it or send it back to the courts, what does it say for future trade deals? What does it say to the Australian or the New Zealand Governments? What does it say to Vietnam, Malaysia and Indonesia, which seek trade deals and trade partnerships with the European Union, when a good and solid trade deal, which was hard fought, falls at the final hurdle? Is it possible to get good next-generation trade deals going forward?
If Ireland were to somehow put the kibosh on this deal, what does that say about Ireland within the EU, considering the difficult period we have had with Brexit and the absolute European solidarity shown on that, as well as the far more difficult conversations that will be needed on other trade deals? What about the strong concerns that the Irish Farmers Association and many others have about possible deals? Where does that leave us?
Mr. David O'Sullivan:
On the question about amending the text, in my reply to Deputy Howlin, I gave it as my view that this would be extremely difficult. The negotiations went on for a long time. They started in 2009 and finished in 2014, which was five years. By the way, there was a lot of backwards and forwards in the finalising of the text and many moments when it had to be revisited. Bologna and the Italians, along with various other member states, had issues about cheeses and so forth.
Getting to the final text in 2016 required two years of further high-level interventions. We may only want to look at one bit but others will want to look at other bits too. Once the Pandora's box is opened by those wanting to look again at the structure and the content of this agreement, unfortunately, everything then unravels with no guarantee that it can be put back together again anytime soon.
On the question of pausing it indefinitely, the way the provisional application works is that it continues to function until a member state definitively announces that it is not in a position to ratify for whatever reason. Within its own constitutional structures, a member state could say it is not going to do it because political circumstances have changed. At that point, the text foresees that the Council is seized of the issue and has to discuss what to do. We have never been in that situation and we do not know what would happen.
Can a decision be postponed forever?
It is true that at this point there are 12 member states, listed in my paper, which have not yet ratified but are in the process of ratifying. I suppose there is no immediate sense of urgency until the last one has ratified. However, that then raises the other point, which is on what basis would Ireland want to pause it. What is the difficulty? Why would Ireland not wish to go forward with this? That comes to a certain issue of credibility in negotiation on the part of the European Union.
I want to be very clear because I am conscious this is delicate. I am not suggesting that national ratification means that the national parliaments have no voice; of course, they do. Their assent is required, but it comes at the end of a very long and complicated process during which the content of the deal has been checked, double-checked, verified and agreed by member states, in the Council and by the Parliament. If our negotiating partners go through all of that and then have to negotiate with 40 national parliaments, where it may be found they can also raise new issues or take a different view, it becomes an issue of credibility for a bloc such as the European Union which thrives on trade. Trade is the lifeblood of our economy. Overall, these deals are very good for us.
The Deputy asked what the wins for Ireland and the EU were. We got considerable market opening in Canada in a couple of areas it was sensitive about. Apart from the market opening, the wins for Ireland were defensive. We very successfully managed to stave off some of the very powerful demands from Canada for very substantial opening of some of our sensitive agricultural markets. In fact, at the time of the conclusion of CETA, there was talk that this would be very damaging to Irish agriculture. If one looks at the agriculture side, the take-up of the tariff rate quotas has been relatively low. Ireland has benefited very well from this trade deal.
I hope that deals with the issues. On the other member states, which was a point mentioned by the Deputy and raised in my op-ed, I am certainly not saying that Ireland does not have the right to tell other member states that it is not happy and it is not going to agree. I question whether we have a credible case not to agree to this particular deal, which is generally very good for Ireland, since Ireland is a promoter of open global markets, free trade and encouraging foreign direct investment. This looks to everyone like a deal very much tailor-made for the kind of policies Ireland pursues. People will raise their eyebrows and ask why Ireland would have a problem with this deal. That is my personal view. This is, generally speaking, a rather positive package from an Irish perspective. Most people would expect and hope that Ireland would feel comfortable giving its agreement to it in the end.
I thank Mr. O'Sullivan for his statement and insight into CETA. In a very insightful webinar on the topic of CETA last week, organised by Dr. Oisín Suttle, it was raised that the basis for investment dispute settlement system came about after the Second World War. There was a collective desire to establish an international legal order to create peaceful relations on a rule-based system which was ultimately introduced to defer future wars.
However, we have come a long way since the Second World War. Our national laws are constantly changing and progressing to protect our citizens' fundamental rights, to reflect international human rights standards and bring about sound public policy. The Judiciary plays a central role in protecting, defending and interpreting these laws. Just last week the Climate Action and Low Carbon Development (Amendment) Bill 2021 was passed. This is a monumental Bill which will require the State to reduce emissions protecting our children's future for generations to come. However, without our courts system to ensure that legally binding emission reductions are met, this Bill is meaningless.
Some of this may have already been covered to an extent, but my first question relates to CETA and whether the investor-state dispute settlement, ISDS, will alienate the judicial power of our national courts. Does Mr. O'Sullivan believe there is a risk of undermining public policy? Furthermore, in the past, ratifying EU agreements was put to the people by means of a referendum, such as the Lisbon treaty. Does Mr. O'Sullivan think there should be limits on the Government's ability to ratify international agreements using legislative power?
The make up of this tribunal is another important question and concern. Ultimately, it is those who sit at the decision-making table who have the power to decide the most critical issues. If we have no control over the members of the tribunal, how do we ensure the decisions given are made in the best interests of public policy and our national laws?
Mr. David O'Sullivan:
The Deputy has raised many matters. I will try to do them justice. On the question of alienating the national legal system, I sincerely think this is not a risk. The national legal system remains and people's rights under it are unaffected. CETA simply creates a system whereby it is possible to arbitrate disagreements in a different way if people want to do that. It creates certain rights for investors and states. There is very strong language in CETA on the right of states to regulate. I cannot imagine, for one moment, that the legislation which the Government will bring forward on climate change, which is part of the wider European effort to reduce emissions by 55% by 2030 and be emission neutral by 2050, would in any way be affected by these provisions. Maybe a lawyer could imagine it. I am not a lawyer but I really do not see how that could be the case.
On the issue of referendums and trade deals, it is of course, in the end, for each of our member states to decide, in accordance with their constitutions, how they want to manage these kinds of situations. This includes decisions on when referendums are needed, when things are done at Government level, when are they done at the level of the houses of Parliament and so forth. As a practitioner, I can honestly say that if I sit down with any significant trading partners, such as the United States, Canada, Vietnam or Australia, and have to say to them that there will be a referendum at the end of this, I do not think they would even want to have the conversation. They would understand that it would be a very difficult, risky situation for them, because they have to deal with their domestic politics about these trade deals and what is in them.
We need a system which enables us, in a very transparent, public and open way, in the run-up to reaching the deal. Under Cecilia Malmström, the EU Commissioner for Trade who preceded Phil Hogan, transparency was brought to a new level in that all the documents in a trade negotiation are now made freely available on the web. There is wide opportunity for civil society and national parliaments to see what is going on and to be seized of the issue. When a deal is finally arrived at, needs to be concluded and is decided at the level of the Council of Ministers and the European Parliament, it has been thoroughly analysed and the result is a truly democratic and accountable one. That then should be the end of it. If one has to go back and have further discussions in all of our member states, it will become a system which is simply unmanageable, relative to our trading partners.
On the issue of the tribunal, I confess I do not know the precise way in which the tribunals will be appointed. The proposal is that they will be full-time, qualified, judicial appointees. They will not be, as is frequently the case currently, a group of lawyers or people just selected by the parties. There will be a system of transparent nomination.
Of course, this is in the investment court system, ICS, in CETA. Although I cannot give an informed answer, I imagine the multilateral court also envisages some form of transparent appointment process whereby it would be known who these people were and, more important, that they would be full time on this job rather than part time as is currently the case with the ad hocsystem. Many of those guarantees are built into these new proposals.
I thank Mr. O'Sullivan for presenting himself here today. I must agree with many of the previous speakers. This comes down to the qualms and legitimate worries relating to the investment court system in particular. I fear it is being left open for corporations to argue they have possible legitimate expectations of profits. Obviously, as legislators, we want to introduce public good legislation.
The climate action Bill was mentioned here. Had we already been signed up to the investment court system, ICS, would we have left ourselves exposed, leading to a chilling effect on us, as legislators?
Imagine we want to introduce a ban on the importation of fracked gas in the future. A corporation may argue that on the basis of what Canada and the EU signed up to in the Comprehensive Economic Trade Agreement, CETA, or another agreement, the laws changed in this State had impacted on it and its ability to make a profit, even though we change the legislation in the best interest of our people. I am worried about that.
The EU and other major countries and trading partners have recently come up with trade agreements in which they have disabled or decoupled the investor state dispute settlement, ISDS, part so as not to leave themselves exposed. Why we would leave ourselves in this situation and what can we do from this point?
I accept Mr. O'Sullivan has given certain answers but we could hold off on ratification which would not become an issue until everybody else has ratified. I assume there would be a huge issue in going against ratification. Mr. O'Sullivan has said opening a renegotiation would be difficult but anything would be feasible at the point in time in which Canada, or another country, became aware of major issues.
We signed up to this in 2016 but there has been movement away from the ICS part of the deal in particular in relation to other trade agreements. I do not see why we would sign up to something that could leave us exposed to corporations that could make a determination on the basis of their legitimate expectation of profit against our right to legislate for the betterment of our people.
Mr. David O'Sullivan:
This merits a deeper discussion because it takes us into some complicated legal territory.
Even with the previous system of ad hoctribunal arbitration, companies did not regularly overturn, challenge or seek compensation for legitimate public policy decisions of governments and parliaments. There were a few notorious cases such as the Philip Morris case in which it challenged Australia's packaging on tobacco. The case was thrown out.
If one considers the history of arbitration, governments have, by and large, defended their cases well provided they can show there is no discrimination or unfair treatment and, sometimes, there has been unfair treatment. Although it is not fashionable, corporations also have rights to defend their interests if they have been unfairly treated. The proposal of either the multilateral investment court or the investor court system which is in CETA does not pose a threat to the right of governments to regulate.
There is very strong language in the CETA agreement and the chapter on investment which repeats the right of governments to legislate as they see fit in the best interest of public policy. There are very strong statements to the effect that simply the fact that companies might make less money out of the revision of a system is not a sufficient basis for making claims.
Perhaps the Chair might want to come back to this with some legal experts. What it is important, and Ireland needs to reflect on this, is that Canada is one of the greatest allies we have in the fight to put in place a more effective and transparent system of dealing with the issue of investor state dispute settlement. What we have done with Canada in the CETA agreement is a working model of how one can make this better and address the concerns the Deputy just mentioned, namely, the right of governments to regulate and to pursue the public policies which they have been elected to do, without fear the companies will sue them left, right and centre because they may have lost money.
If one believes in a reform of the investor state dispute settlement system, including the multilateral investor court, one would want to see CETA approved and implemented because it takes one in that direction and in ways which enforce the right of governments to regulate in the best interests of their own people. Canada has been a great ally of the European Union in this and we should not lose sight of that.
I give heartfelt thanks to Mr. O'Sullivan, who is of such sterling service and expertise, for his generosity of time and expertise. I disagree with some of the thoughts Mr. O'Sullivan has articulated so well in his paper. I would love to hear his response. Does he accept that allowing a foreign corporation to sue a sovereign state in a dispute heard outside the state's legal system can be challenging at the best of times, albeit not insurmountable?
Mr. O'Sullivan has stated in his paper the main motivation for the arbitration, and I accept it replaces ad hocarbitration, is to prevent the risk of a hometown decision from a rogue state.
The main motivation, and it is in Mr. O'Sullivan's paper, is to prevent the risk of, for want of a better word, a home town decision from a rogue state and how damaging that would be. There are countries in such dire straits where I accept that could happen. Why have one size that fits all? To some, it looks like an insult to a tried and tested judicial system which is beyond reproach, beyond fear or failure, and which has come through testing times in this jurisdiction and has always risen impeccably. One might not like the decision but why must Ireland go into a one-size-fits-all approach when it is absolutely unnecessary because of the proven track record of the Judiciary in this country? It is something we should all be proud of. We will not go into the law and whether the Constitution can do it, but is Mr. O'Sullivan aware of the concerns of the association of European judges? Is he aware of the concerns of the association of German judges?
Is it not enshrined in the improved arbitration, which is no longer ad hoc, that it is still binding, although there is an appellate jurisdiction, and that it is still, in a form, confidential? Please correct me if not. They are two fundamental principles of arbitration. How does Ireland get its say if, for example, there was on the face of it an error in an arbitration, which occasionally happens? Will Mr. O'Sullivan take on board that countries with good systems of utter judicial independence find this as an outrageous overreach if not an insult to the system which is so impartial?
Mr. O'Sullivan said it was difficult but not impossible to change. Nothing is impossible and we could change that although it would be exceptionally challenging. Will Mr. O'Sullivan elaborate on how to go about changing that one aspect of it? Are we talking about months or years? What exactly must happen in terms of diplomacy and negotiations? I fully accept our Canadian trade is important and Mr. O'Sullivan has outlined that, but they are the angles I ask him kindly to respond to. I appreciate his time this evening.
Mr. David O'Sullivan:
I thank the Senator for those questions. I am well aware of the controversy over this whole issue. I lived through it during the Transatlantic Trade and Investment Partnership, TTIP, negotiations. I had many discussions with both sides of the argument. I understand there are those who find the very idea of a special track for commercial litigation or disputes unacceptable. I am afraid the practice of international investment has shown most people think it is necessary. I think most governments would agree it is useful. It is not a criticism and one should not take it as such. Germany is one of the leading exponents of bilateral investment treaties. It more or less invented the concept. It is very proud of its judicial system. It does not see any contradiction between the strength of its judicial system and the fact it accepts, in certain circumstances, this kind of arbitration is probably the best way to go because it gives that country's companies certain rights in jurisdictions where things may function less well.
I get the argument. I do not have sympathy for it but I do have a certain understanding of it. If one looks at the way the investor-state dispute settlement, ISDS, has worked and one looks at the cases, one will find very few cases where companies have succeeded in extracting compensation other than in situations where it is demonstrable they have not been fairly treated. Governments have probably even accepted that they were not perfectly treated and it is just a question of how much the compensation would be. I accept Ireland does not have any bilateral investment treaties so we have no tradition of this. I honestly believe, however, a well crafted system of investor-state dispute for international investment can be a useful complement to even the most effective national judicial systems. That is the question the Oireachtas is called upon to look at. Many member states attach importance to this. Many of our trading partners attach importance to this. If we want to be, like the EU, in the business of concluding trade and investment agreements, we must have an answer to the concerns of our trading partners and other member states.
I want to be very clear. I do not think I said "nothing was impossible" but maybe I did. It would be extremely difficult to reopen the CETA package now. At the end of the day, if a sovereign parliament or member state is forced to say it cannot conclude this package because of XYZ - in Ireland's case it may be because of the investment court system and somewhere else it may be because of trade concessions or whatever - of course that creates a problem and it has to be addressed. The point I want to make is that when one has a package deal on the table, it is very difficult to limit the renegotiation to just one thing and to say, "I don't want to touch all the rest; I just have one thing I need touched." I am sorry, but we have 26 other member states and Canada involved. Basically, there are 27 other people who will say, "Well, that's interesting that you want to do that, but if we're going to talk about that, I've got four or five other things I want to talk about." That is the way it happens. I think it would be extremely difficult at this stage to reopen this negotiation because of this and because considerable efforts have gone into crafting the investment chapter in a way that moves in the direction of the critics of the older system.
I thank Mr. O'Sullivan for being here. It is good to see him again slightly in the flesh or as near as circumstances permit him to be in the flesh with us this evening.
It seems to me that the investment court system, ICS, issue is one on which it is possible to take a number of different stances. I want to explore with Mr. O'Sullivan the following. As I understand it, going back to our Maastricht treaty in 1992, we specifically amended our Constitution to allow us to become part of a binding jurisdiction for a European patent court. At that time, it was thought we had to amend our Constitution to do that. As late as 2012, 2013 or 2014, the then Minister of State, Deputy Sherlock, told Dáil Éireann a referendum would be needed for a unified European patent on the same basis that here was something which was going to become binding on Ireland in these circumstances. Underlying that issue was the whole concept of a sovereign state agreeing to be bound by the decision of a tribunal other than the Court of Justice of the European Union etc. That is one issue. There is a constitutional dimension to this.
From an entirely practical point of view, the terms of the TTIP negotiations, in which Mr. O'Sullivan himself was involved, with the agreement's controversial arbitration provisions, which caused considerable controversy, were justified at the time to a large extent, to use a quotation, "because of its potential global reach in setting an example for future partners and [other] agreements". I see implicit in what Mr. O'Sullivan said earlier in reply to Deputy Howlin the same notion that this is a good example and something we want to have in all agreements. However, as against that, and this is my worry, it seems to me no Irish investor in Canada has in the back of its or his or her corporate mind the notion the Canadian courts will not uphold its or his or her rights as an investor in Canada, and I know of nobody in Ireland who would say, "I do not have faith in the Canadian courts to uphold my rights." Likewise, I have absolutely no reason to believe Canadian companies or corporations lack faith in the Irish courts to uphold their rights, such as they are.
One of the things that is strongest in mind is that we receive a huge amount of foreign direct investment, FDI, from the United States without such an arbitration system existing at present. People have confidence in the jurisdiction of the Irish courts and its integrity. Nobody in America says, "Sorry, I do not want to invest in Ireland because the sovereign government may confiscate my investment or act in a manner which is inimical to my investment and unlawful." Therefore, I think we have, Britain certainly has and most of the European countries have, a huge comparative advantage internationally in that we are countries where it is safe to invest. I do not see why we should cash in our chips, so to speak, to set an example in trade deals with the Third World countries or the developing world or the other blocs - South America, Mercosur or the like - and say, in effect, we have less confidence in our own courts or in the Canadian courts than we ought to have and the right way to deal with this is to superimpose either arbitration or an ICS as a confidence builder for investment. I do not see that any Canadian should have any reasonable worries about coming to Ireland as an investor or that any Irish investor corporation should have any problems with Canada.
What I am really asking, bearing in mind there is a constitutional dimension to this and we are being asked to confer additional rights over those available in our courts and under our Constitution on investors in Ireland, is this: is this in our interest? Is it in our interest, for instance, to be on a level playing pitch with Bulgaria as a place in which to invest? That is just a simple question. Is it in our national interest to say the jurisdiction to determine disputes in Ireland is the same as the jurisdiction to determine disputes with the Bulgarian Government? Are we throwing away a comparative advantage?
Having said all that, and at some length, for which I am sorry, it strikes me the ICS jewel on top of this trade agreement is a bit redundant between the European Union and Canada, that the arguments against its inclusion are very strong, that nobody in Canada has any well-grounded apprehension about investing in this jurisdiction, and that nobody in Ireland has a well-grounded apprehension about investing in Canada. What we are really doing with this agreement, therefore, is being driven by a WTO agenda to try to make this the international norm in order that it will be the way to determine disputes with other regions of the world where there would be an absence of such confidence. Those are the points I wish to put to Mr. O'Sullivan.
Mr. David O'Sullivan:
I will not get involved in a legal argument with a distinguished former Attorney General, certainly not on the constitutional issue. I really do not want to express a view; I am not qualified to do so. I will leave that to constitutional lawyers.
On the more general point, if it is true that one should just rely on national courts, why then do all our fellow members states have so many of these agreements? Why have countries such as Germany, France and others, including the United Kingdom, which are very proud of their systems, opted to allow the existence of this parallel system in certain well-circumscribed and limited circumstances? They have not seen any conflict between the older system of arbitration and their national judicial autonomy and sovereignty.
Senator McDowell says this is a WTO harmonisation agenda. On the contrary, many people - certainly the United States and the Chinese, among others - do not like the idea of a multilateral court. They want to keep the arbitration system because it is a more ad hoc, specific and limited system which they feel works quite well for them. It is certainly not a question of making a judgment on the value of a country's legal system, and this is an important point. It is to a certain extent exactly the opposite. It is the fact one chooses to have a model as to how to manage these kinds of disputes when they may arise that is one-size-fits-all because one does not then have to make a judgment on the legal system of the country with which one is negotiating. Imagine if, before we started a negotiation with a partner, we had to decide whether we trusted its judicial system sufficiently to have a parallel system of investor-state dispute settlement. That would be a very tendentious and difficult discussion. This is why even when a country such as Germany concludes bilateral investment treaties with countries with less robust legal systems, it is reciprocal. They give to the investors from that country the same rights they will claim for their investors in the country concerned because they think this is sufficiently constrained and sufficiently limited as not to contaminate or to cause a major conflict with their solid legal systems.
I hear what the Senator says. In Ireland's case, I admit that, not having any bilateral investment treaty or any experience of this, we are of course a good place in which to invest, and nobody has asked to have an investment agreement with us. We do not have an investment agreement with the United States. The fact is, however, most of our fellow member states do have bilateral investment agreements with nearly all the kinds of countries with which we have negotiated or will negotiate. Since investment is now a Union competence under the treaty, we have to address the issue in some way, recognising that the ad hoctribunal or arbitration system was perhaps less balanced and effective. This is why the European Union is pioneering the idea of a multilateral court to put it on a more solid and more transparent footing, including with rights of other interested parties such as civil society and so forth to make their views known. I perfectly accept the validity of the questions and the debate but I believe that if Ireland looks at this in the round as a member of the European Union that wants to engage with these kinds of trade and investment agreements with a multiplicity of partners across the world, we have every interest in rowing in behind a well-crafted and well-thought-out multilateral way of dealing with this rather than relying on the traditional arbitration.
CETA is a very important step in that direction. That is why it is a positive movement in this whole area of investor-state dispute settlement, ISDS, and not something which should be viewed with concern.
Not to piggyback on Senator McDowell's question but on the issue he raised about comparative and competitive advantage, the answer is a simple "Yes" or "No". Does Mr. O'Sullivan see CETA having any disadvantage for our country as it is now in terms of investment?
Mr. David O'Sullivan:
Not at all. I do not see how the conclusion would be drawn by any investors that because Ireland would ratify CETA somehow we had less confidence in our domestic legal order and our judicial system. I do not believe people would see it that way at all. As I say, the current system of bilateral ISDS co-exists with the judicial systems of many countries whose judicial systems we would admire. They do not see it as in any way conflictual or somehow undermining the credibility of their national judicial system.
I thank Mr. O'Sullivan for putting this trade agreement in context. We are starting our scrutiny of the trade agreement and he is our first speaker. We appreciate him giving his time to put the agreement in context. Following the conclusion of the EU-UK Trade and Cooperation Agreement we are all becoming a little bit expert at trade agreements generally so we have that background as we start this process.
I hear very clearly what Mr. O'Sullivan is saying with regard to the investor court system in that if we were to delete that in some way it would involve a renegotiation of the agreement. My view is that would signify the end of the agreement.
I also clearly hear what he is saying about the multilateral investor court, the bilateral investor court and the ad hocarbitration process systems, namely, that they are parallel and separate from national legal systems. This committee has to examine the constitutionality of the entire investor court system but, ultimately, that is probably a matter for the courts, not the Oireachtas.
My main question is coming at that from a different angle. It relates to environmental health and worker rights' regulations. There is no doubt that Ireland was dragged kicking and screaming into the 21st century with regard to these issues as a result of the EU. In Mr. O'Sullivan's experience and given his knowledge of these trade agreements, and I am not talking about Canada but other countries where these trade agreements have been concluded, have they improved standards in those countries where the standards needed to be improved? I refer to standards relating to the environment, health, worker rights, level playing field issues and so on. Is there any evidence to show that those standards have improved as a result of these trade deals where they needed to be improved?
Mr. David O'Sullivan:
I thank the Deputy. What the European Union has tried to do in respect of environmental issues, and labour issues in particular, is to encourage the ratification and implementation of agreed international standards. It has not sought to impose European standards on countries for whom state development deals might not be appropriate. However, where there are international environmental conventions or international fishing conventions on illegal and irregular fishing, in terms of the conventions of the International Labour Organization, ILO, we have always included in our trade deals a commitment from our trading partners to ratify and implement those agreements, and we have held them to that. I instanced in my first presentation or in answer to one of the questions where we recently initiated dispute settlement proceedings against South Korea for failure to ratify a number of ILO conventions to which it had committed. The Deputy will have seen the controversy with China over the EU-China Comprehensive Agreement on Investment which, by the way, does not include an ISDS because people did not want to go down that road with China. One of the controversial elements in that is a requirement on China to adopt or to make best efforts, according to the Chinese, ILO conventions, particularly on forced labour and prison labour. I believe that Europe's commitment to those principles and international standards in trade deals has helped to increase their spread and to increase the standards in a number of our trading partner countries.
Investor protections are a component of more than 3,000 international trade agreements, the vast majority of which have some form of neutral arbitration. The United States is party to at least 50 such trade agreements but has only faced 13 ISDS cases and never lost a case. Many of the criticisms levelled at these settlements are in the areas of maintaining states' regulatory capacity and ensuring transparency of the arbitration process. What improvements, if any, does the investor court system make in that regard?
What safeguards have been put in place for membership of the investment tribunals with regard to who sits on them?
Mr. David O'Sullivan:
I think the Senator will find in the investment chapter, and particularly the investment protection parts of the chapter, in CETA very strong language on the right of countries to regulate and set clear limits as to the things companies can lay claim to if they believe they have been unfairly treated or discriminated against and generally delineating very carefully the areas which can be the subject of the investor court system. The investor court system put in place a quasi-judicial system of a first instance and then an appellate body with permanent membership by qualified legal experts. In response to an earlier question I had to admit that I do not know the precise mechanism that is proposed for their appointment. It would be easy to check. I would not want to mislead the committee but I would be surprised if it is not a fairly transparent system of both the Canadians and the Europeans putting forward names and then agreeing a final list in a fairly transparent way. Honestly, I do not want to mislead the committee. Either I can check it or somebody else can check it for the Senator. It is an answerable question but I do not have the answer for her.
I thank the Chairman for accommodating me and I thank the presenter. I have two sets of questions. The first is on this question of renegotiation. Mr. O'Sullivan mentioned that CETA was a test, and things do seem to have moved in a different direction since then. When we talk about an example, he referred to the EU-China deal and the EU-UK deal. All of those have maintained dispute mechanisms but only between the parties who have signed up to the treaty. The South Korea example is dispute resolution between the actual signatories of the treaty but the EU-China deal and the EU-UK deal and, interestingly, to a large extent, the new US-Mexico-Canada deal have chosen not to give dispute resolution protections to investors.
They have reserved the dispute resolution mechanism solely for the parties that are actually signatories and signed up to all those other parts of the deal. It strikes me that the tide seems to have moved in a different direction, as Mr. O'Sullivan mentioned at the beginning, and it is the case that investor dispute mechanisms are no longer being added into trade deals.
The US-Mexico-Canada agreement, USMCA, is an interesting example in respect of renegotiation. The North American Free Trade Agreement, NAFTA, took 13 years to negotiate and the renegotiation took two and half years. It strikes me that as part of the changed landscape, the fact that the EU Council and the EU Commission have been empowered to negotiate since the Singapore agreement, means that renegotiation could proceed and could be explored during the period of ongoing provisional application that we have on the current deal. It would seem to be reasonable to look at whether a better deal could be constructed while continuing with this.
In that regard, another area that is not just a matter of renegotiation but ongoing negotiation concerns the investor courts system itself. The text and the operation of the investor court system is not finalised. As I understand it, under CETA the joint committee can continue to review the practices in relation that. In fact, in the European Court of Justice ruling from 2019, the European Court of Justice quoted that the Commission had stated that it was committed to "further review, without delay, of the dispute settlement mechanism (ICS), and allowing sufficient time so that member states can consider that in their ratification processes". That review has not been held yet, as I understand it. The review was specifically around small and medium businesses and their equitable access. It was specifically also around the costs associated with taking a case. Mr. O'Sullivan mentioned that they are permanent, but of course there is a very high per diemcost attached to each day of the case. We have details on that.
It strikes me that there is actually a negotiation ongoing in terms of how we improve the ICS structure as well as scope for renegotiation. The core issue, which is the key thing for me, concerns regulation. There is of course a right to regulate. It can sometimes be a bit of a red herring. However, looking at CETA itself, it is clear that states can regulate, but companies can also seek compensation. That is made explicitly clear. The section on regulation states that the mere fact of regulation does not amount to a breach, but in the section on the withdrawal of subsidies, it is explicitly stated that that party would not be required to compensate investors. Therefore, in one section there is a protection against compensation in respect of subsidies, but there is not a protection against compensation claims in respect of regulation. Mr. O'Sullivan mentioned that member states have taken cases, but the key point here is the chill effect. That is the core of what will happen in terms of regulation.
Mr. O'Sullivan stated that he is not a lawyer, but I know that works as a senior counsellor with Steptoe & Johnson, which says on its website that bilateral and multilateral treaty investment protections "may be a highly important tool for foreign investors and industry associations in advocating against legislative changes to renewable energy regulations." It continues:
It may well be possible to use such protections as a tool to assist lobbying efforts to prevent wrongful regulatory change.
I am speaking in the context of fair and equitable treatment, which Mr. O'Sullivan's own company describes as a "very wide protection". It explicitly states:
The fair and equitable treatment standard may be breached by a frequent occurrence of regulatory changes which undermine that stability and predictability of the business environment for investors.
I am interested in a number of areas, including labour rights and the environment. However, I am very concerned that companies may be seeking to determine what the fair and equitable treatment standard might be in the context of frequent regulation, which is certainly something we are going to see in certain areas. In that regard, is it not the case that the chill effect is there? Is there not a giving of an undue power in terms of a threat of potential litigation and compensation in respect of potential necessary citizen-demanded regulation?
Mr. David O'Sullivan:
The Senator has raised a number of points. On the chill effect, we are not operating in a vacuum. The bilateral investment treaties have been there for many years. The investor-state dispute settlement system has been in place for 30, 40 or 50 years. I have never heard the argument, certainly not from Governments I have been dealing with, that they feel this is a constraint on their right to regulate. I have never heard this-----
Mr. David O'Sullivan:
Sorry, but I thought the Senator was suggesting that Governments might feel that there are limits to how they can they regulate because they would be running certain risks because of the ISDS mechanism. I can only say to the Senator that I have honestly never heard that from countries which are running these systems. Senator Keogan asked about examples. Many cases have been decided. Governments have won many and lost some, and companies have lost many and won some. Looking at it, the general trend is rather about equity and fair treatment and a legitimate sense that companies may have lost money unfairly. However, these are judgments which are made, and companies do not win all the time at all. It is not as if we are operating in a vacuum. We have a history of a system which is there and which we would like to change in the way we have discussed. Therefore, I personally do not see that risk.
On the Senator's statement that people are now getting rid of these things, the cases she has described are all very different. To be very frank, nobody wanted to have an investor-state dispute settlement system with China, because everyone knows that if a company dared to go against the Chinese Government in any way, it would be punitively dealt with through other means. This was not a system that people wanted to have with China. The EU-UK Trade and Co-operation Agreement is not an investment agreement; it is only a trade and co-operation agreement and there is no investment chapter. When we crafted the Korea agreement, we did not have competence for investment so there was no need to address the issue. The issue of addressing this at European level has only arisen because investment was added as a competence in the Lisbon treaty and therefore certain aspects of bilateral investment treaties had to be taken over into EU level agreements. One element in that was the investor-state dispute settlement. That is how the EU found itself getting involved in this. Beforehand, we did not need to worry about it.
In relation to the USMCA, or the agreement previously known as NAFTA, in fact, what happened, as I understand it, is that a dispute settlement system is maintained with Mexico. There is still an ISDS system with Mexico. It is true that the US and Canada omitted it from their agreement for a particular set of circumstances, which we can discuss on another occasion. Therefore, the system is maintained. It is also to be found in the comprehensive and progressive trans-Pacific partnership, of which Canada is a member. Therefore, there are certain cases where people may decide to leave these things out.
The fact is, and now I come to the renegotiation point, that this is part of the CETA package. The Senator is right that there are elements in it which are open to adjustment and refinement. I do not think they change the fundamentals but they may provide additional answers. However, the fundamental structure is built into the treaty. If a state decides to change this, it is a renegotiation. If both sides really agree that renegotiation only happens on a very limited part, perhaps that can happen. However, a state runs the risk, in any situation where it reopens a package, that all sides involved can then come to the table with additional issues. The scope for containing a new negotiation only to this area is, in my view, probably very limited.
It is clear that the investment court system in CETA is a stepping stone towards the multilateral investment court. If the multilateral investment court ever sees the light of day and is established, there will probably be an exercise of retrofitting it to agreements which did not contain reference to it.
That would be a separate exercise, which would be the result of a new legal situation created by the establishment, finally, of this multilateral investment court on which, as I understand it and I am not an expert, the EU, Canada and other like-minded countries are making quite a bit of progress in the international negotiations but they are not there yet.
We do not have enough time for another round of substantive questions but we have enough time for quick-fire questions. I will try to set a precedent with a quick question and ask that Mr. O'Sullivan, with his agreement, to give quick-fire answers. His answers have been very comprehensive and the information is really important. Deputy Howlin will be followed by Deputy Ó Murchú and then I will take members in order.
Canada ratified CETA in May 2017 and six countries have yet to ratify the SPA, including Ireland. Why has Canada not ratified the SPA?
Mr. David O'Sullivan:
Canada has decided not to ratify the SPA until all EU member states have ratified it. I think it is a little bit along the lines of what I said earlier. They are in the unusual situation where having done all of the negotiation and got the agreements they still have to wait for member states. As I understand it, on the SPA, they have decided that they will wait until all member states have ratified before they will ratify themselves.
Mr. O'Sullivan has been most helpful. I will quote a line from a letter that was published in The Irish Times, which responded to his op-ed. It states:
ICS can take into account the investors' profit expectations arising from its interactions with a state or a statutory body. In short, [the writer asserts] the right to regulate does not protect a state from potentially very expensive claims that might arise from non-regulatory actions taken to promote a public interest.
How does Mr. O'Sullivan respond to that?
Mr. David O'Sullivan:
It has to be a case-by-case delineation. One has to show whether there was legitimate expectation on the part of a company which led them to make, maybe and for example, heavy investments, which then they discovered would not lead to any outcome. The mere loss of profit is not considered in and of itself a justification for triggering the mechanism but it is an element if a company feels that the way in which the regulation has worked, for example, if it is discriminatory or it was particularly targeted at the sector in a way that only one company would suffer from it then it might be a case of discrimination. Therefore, it is a case-by-case decision. I reiterate that in the history of these cases, governments have won the vast majority of cases. It is not as though the evenly existing system of ISDS allows companies to ride roughshod over the rights of government to regulate and adjust the rules of industry, government and so forth on their own territory.
There are obviously difficulties with the ISDS. The French are considering leaving the energy treaty charter because of being hampered in what they can do about climate change as regards ISDS. The Dutch Government is being sued in respect of climate action under this. Senator Higgins has mentioned the fact that the US and Canada have negotiated their way out of many elements of ISDS under North American Free Trade Agreement, NAFTA, so, therefore, we can see that there has been a move away.
Mr. O'Sullivan mentioned the Philip Morris case, which the company lost as it tried to delay plain packaging for tobacco but the case cost millions of Australian dollars and took approximately four years, which will have a chilling effect. Does Mr. O'Sullivan accept that there seems to be a move away from ISDS and, to a degree, there is an element of madness in us signing up to ICS? I do not see that there is going to be any major reputational damage to either the French or Dutch who are in no rush to ratify CETA.
Mr. David O'Sullivan:
There is a move away from ISDS as we have known it in the ad hoctribunals. There is a move towards a more structured and more judicial-like arrangement. I absolutely accept that this is a live debate and one which is taking place as we speak.
For the Oireachtas, it is in the end the decision of Members as to whether they take more time to see whether things will evolve or whether they vote against or in favour of the package. I would simply make the point that looking at this package in the round it has a huge amount to offer Ireland. I do not believe, sincerely, that the ISDS, or investor-state provisions, pose a serious problem from an Irish perspective at least.
Whether Governments regard it as a chill, we know that it is regarded as a chill by legal companies because they talk about it assisting lobbying efforts to prevent regulatory change. So there is a chill effect. We know that the Morris case did not just have an impact on the Australian Government as it eventually won. The case was used as an example of expensive litigation in a number of other countries to deter them from bringing in legislation in respect of smoking. So the chill effect went beyond one country and was much wider.
Renegotiation may be difficult but is renegotiation pre-ratification easier before we have a 20-year sunset clause? We know that if we fully ratify CETA there will be a 20-year exit clause in which it is set in stone. Does Mr. O'Sullivan regard renegotiation pre-ratification easier than post-ratification?
Mr. David O'Sullivan:
I do not think renegotiation is easy under any circumstances. It may be possible if down the road, when CETA has entered into force and ratified and there is a change in the international legal environment for how one deals with these issues, it may be perfectly possible to suggest that requires an adjustment of the current legal text.
The difficulty of addressing it now in the absence of clarity on that is that it becomes a rather open-ended renegotiation. It is not with a specific objective in mind of adjusting the text to take account of a changed environment. One is basically saying, We do not like this; we would like to replace it with something else." We would have to then describe what that would be and we would need the 27 member states all to agree as to what that would be. We would then have to talk to the Canadians. I reiterate that once one starts a renegotiation of a chapter in a treaty it is not self-evident that one can limit that renegotiation only to the chapter that one or other member states does not like or has some difficulties with. So that is the challenge I would see.
I have a slightly broader question because we have drilled into minutiae and all that. Mr. O'Sullivan mentioned earlier that, overall, he believes in the round that this is extremely positive for the EU, Ireland and Canada. Can he quantify? People often talk about the cost of Brexit per British citizen or the cost per Irish citizen. Is it feasible to quantify the potential gain in the back pocket of the average Irish or European worker of this fully working and implemented trade agreement?
Mr. David O'Sullivan:
There are economic models that will enable one to do that. Models were done before the agreement was finalised. The net result of the outcome has been hugely positive for the trade balance in both goods and services of the EU as a whole, and specifically for Ireland. It is undeniable that there have been many economic advantages. What that means on a macro level to all members of the population is obviously more limited.
It is clearly good for Irish companies, which are better able to export their goods and services to Canada and have been doing so on the back of this agreement. That is clearly a net economic gain for this country.
Given that the provisional acceptance effectively makes CETA operative in nearly every respect except the investor section and the ISDS bit, is there any urgency to this at all? Nobody is suggesting that there is a major investor confidence issue between Canada and the EU so is any real damage being done by a delay in its implementation?
Mr. David O'Sullivan:
People, including our Canadian colleagues, some of whom may speak to this committee later, accept that it takes time for 14 national parliaments to address something like this. Respectfully, there is a kind of general credibility issue here. If the European Union and our member states have signed up to this after a lot of debate and discussion, and that is the case, it is a bit disappointing for our trade partners to then be told that nobody feels in a hurry to formally ratify it. This is not something we want to see become a habit because it would become quite difficult to maintain credibility with our negotiating partners. That is not to say that national parliaments cannot take the time they need to give proper scrutiny and give themselves the time for debate and discussion, but the notion that the national ratification creates a third round of negotiations, for which our partners have to be prepared, would be a dangerous thing to take root and I hope we do not go down that road. Of course, at the end of the day all our national parliaments that are called upon to take this decision must do so while being fully responsible to their partners, their electorate and their national systems but we have to bear in mind that we do not operate in a vacuum and that we are dealing with trade partners who are looking at us very carefully to see how reliable a negotiating partner the European Union really is.
From his vantage point of distinguished experience I invite Mr. O'Sullivan to comment on his assessment of the House of Representatives in Cyprus voting down this agreement. What ramification, if any, does he think that has on it? Internal deliberations are happening in Cyprus between the Government and the Parliament. Does Mr. O'Sullivan think there will be any external deliberations? Will the EU reach out to Cyprus to get it back on board?
Mr. David O'Sullivan:
Cyprus is a country I know and love well. My father served there often with the Irish Army and the UN and I spent time there. It is a place for which I have enormous affection but I must admit I do not follow the internal politics in great detail. It is up to each country in its own constitutional setting to decide whether it has definitively reached the conclusion that it cannot ratify an agreement. A vote may be revisited or looked at again. Until such time as the Government of Cyprus formally notifies its EU colleagues that the Republic of Cyprus is unable or unwilling to ratify, the situation remains unchanged. The fact that there has been a vote does not necessarily constitute the final word of the country on that matter. It is for each country to decide at what moment it is in a position to deliver its final verdict, positively or negatively, to the Council of Ministers.
I am little rattled by Mr. O'Sullivan's comments about the ratification process. I had not intended to speak at this stage of the meeting. Could he repeat his comments again? He mentioned that the EU's trade partners might see us as unreliable if our ratification process went on. Presumably they too have a parliamentary ratification process. Surely a ratification process should be seen at the beginning of any trade negotiation as part of the scrutiny of that negotiation.
Mr. David O'Sullivan:
Absolutely, but I just wanted to explain that we are in a rather unique situation relative to others. Canada has had its scrutiny and its parliamentary vote and it ratified the agreement in May 2017. We are in the unusual situation that the trading partner must negotiate with the Commission, backed up by the member states, and there must then be a unanimous vote of the member states in the Council, where each government votes and presumably has also checked back with its parliament or parliamentary majority. There has to be a vote in the European Parliament but then we say to the trading partner that we also have to go through national ratification, which involves 40 parliaments. If that becomes a further round of negotiation it will, frankly, be very difficult to persuade people to engage with us because they may feel the process is just endless. That is why it is very important that the political discussion and the democratic transparency of the process of negotiating these agreements happen at the moment we decide to sign and when the European Parliament decides to approve it. If we then have to go back to all these parliaments at the national level and open the possibility that there might be a new negotiation or new issues raised, it becomes very difficult to manage. No other trading partner in the world has a similar system.
Of course, all our trading partners that are democratic have their governments, parliaments and accountability but they do not have a further layer of lower national-level ratification with the potential to reopen certain issues which have been decided with great difficulty. That is the issue. I have full respect for national parliaments and for the system as it is now but that was one of the things that may have led the European Court of Justice to suggest there may be ways of minimising the number of trade deals, or the matter within them, that need to go for full national ratification. That would be a better system, including for national parliaments because they could have their say at an earlier stage and would not find themselves constantly required to revisit the same territory in a further phase.
Gabhaim mo bhuíochas leis na Seanadóirí agus na Teachtaí fá choinne na gceisteanna suntasacha agus tábhachtacha a bhí acu inniu. Gabhaim buíochas arís le Mr. O'Sullivan as ucht a bheith páirteach sa díospóireacht inniu agus fá choinne na freagraí cuimsitheacha, an t-eolas agus an léargas a thug sé. I thank Mr. O'Sullivan. Members will concur with me in our total appreciation for his being part of this debate and also for his comprehensive answers and information today.
Exploratory talks for this agreement started over 14 years ago and there has been much information and toing and froing about it. We are doing our duty as a Parliament to complete this important phase and that is reflected in the number of committees within the Houses of the Oireachtas that want to participate in and contribute to this debate. Upwards of nine committees want to participate in this particular topic. That is an indication of how seriously we are taking our democratic duty. There is a lot of road to go yet as regards getting more information and bringing in legal experts. Some members are anxious for that to happen and we will have further presentations next week and the week after. We will work throughout Easter on this.
Arís, I thank Mr. O'Sullivan for his time, information and insights and for being part of this debate today. It is the first of our public sessions and our committee will focus on three areas. I acknowledge my colleagues and particularly the leadership of Deputy Howlin in conducting that scoping exercise over the last number of weeks to ensure we focus on our competencies and what role we have in holding this issue to account. Arís, go raibh maith agaibh uilig. Our committee is here for Mr. O'Sullivan if he is available at any other stage.
There was a question that Mr. O'Sullivan did not have an answer for, which was asked by Senator Keogan, and perhaps we might engage with him to get an answer on it.