Oireachtas Joint and Select Committees

Tuesday, 6 April 2021

Joint Oireachtas Committee on European Union Affairs

Comprehensive and Economic Trade Agreement: Discussion (Resumed)

Photo of Joe McHughJoe McHugh (Donegal, Fine Gael)
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We are joined today by Senators Lynn Boylan and Alice-Mary Higgins, both of whom are very welcome. This meeting is a continuation of the committee's engagement on the Comprehensive and Economic Trade Agreement, CETA. On behalf of the committee I welcome Dr. David Fennelly, Dr. Oisin Suttle and Dr. Laurens Ankersmit to the meeting.

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, her or it 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 against 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 and-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 now invite Dr. Ankersmit to make his opening statement. Tá fáilte romhat.

Dr. Laurens Ankersmit:

I thank the Chairman and members of the joint committee for inviting me to appear before them today and to provide them with evidence on the important matter of the ratification of the Comprehensive and Economic Trade Agreement between the EU and its member states and Canada. I sent the committee a short position paper, which I hope it has received.

I will briefly outline three key points on this position paper. CETA is currently in the process of ratification across member states and there are several member states still very critical of the agreement's ratification, including the country I am from, the Netherlands, whose senate still needs to approve CETA and where there is currently no majority for it.

CETA, particularly the changes made to the investment chapter in the agreement, is often presented as progressive and an agreement that has accommodated certain changes and criticisms that have been addressed. I have three points that criticise this description of CETA, and particularly the changes in the investment chapter, as a progressive agreement.

The investment court system, ICS, maintains this extraordinarily powerful judicial system that allows foreign investors to bring claims against governments directly without exhausting domestic remedies. Not only are foreign investors not required to go to domestic courts first, which is customary in international law, but they can go directly to the investment court system. They can also enforce awards from the investment courts system in front of any courts in the world through this convention or system set up through CETA. It is an extraordinarily powerful tool that foreign investors have and which is maintained in CETA. That foreign investors can sidestep domestic courts gives foreign investors an important tool to pressure governments because they are not required to go through domestic courts, which may be in a better position to value and appreciate the local context and constitutional matters, as well as issues of domestic law that may be present in a dispute between a foreign investor and government.

Related to this first point is the issue that national parliaments are not in the position to easily change the text on which the ICS tribunals would be ruling. Normally, for Irish courts, for example, they would rule on statutes or other provisions of law made by the Irish Parliament and parliaments can change those relatively quickly. With CETA, the text would not be so easily amended. If it is difficult to ratify the agreement, it is even more difficult to amend it, as we would have to go through the same process. The interpretation of the fair and equitable treatment standard can be done through the CETA joint committee, for example, but it is very difficult to achieve such a joint interpretation and there is still the question of whether the ICS tribunals would abide by the joint interpretation issued by the CETA joint committee.

A second indication that the agreement is not that progressive at all is that all investments are protected under the investment chapter. Despite the fact that 80% of coal reserves, half of gas reserves and a third of the oil reserves in the world need to stay in the ground - we need to stop investing in fossil fuels - CETA is encouraging foreign investors to invest in fossil fuels. This is important as the safeguards introduced in CETA will continue past practice under investor-state dispute settlement systems. All the safeguards introduced are there merely to continue the process. The language speaks of "greater certainty" and clarification but the past practices are continued through arbitration. A quarter of all disputes before the International Centre for Settlement of Investment Disputes, ICSID, World Bank investment system come from the oil, gas and mining industry.

The success rate in general of these investment disputes is 28.7%. That is a gigantic win percentage for investors. To compare that to the European Court of Justice, if one sues the EU institutions for damages, one's chances of success are 4.3%, so one's chance under the ICSID system is five times higher.

In terms of balance, the ICS is a step backwards compared to the modest steps that are being made in investment law to allow for counterclaims and for claims from third parties and to give affected communities an effective say in disputes that involve foreign investors, affected communities and states. The ICS is only an avenue for foreign investors. Only foreign investors can bring claims. Parties themselves cannot bring counterclaims and there is no possibility for local communities to bring claims against foreign investors under the ICS system.

The system is not as progressive as presented, for instance, by Vice-President Frans Timmermans or a previous trade Commissioner, Cecilia Malmström. In light of the relatively high standard of judicial protection we have in Europe and in Canada, there is no need to ratify CETA for that reason. If members have any questions, I am happy to answer them. I thank members for their time and consideration.

Photo of Joe McHughJoe McHugh (Donegal, Fine Gael)
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I thank Dr. Ankersmit for keeping his contribution brief. We have a lot of participants. I call Dr. Fennelly to make his contribution.

Dr. David Fennelly:

I thank the committee for the invitation to address members today. The committee has asked me to address two points in evidence. The first is the ratification of CETA and its compatibility with the Constitution, with particular regard to the well-known Crotty case. The second relates to the implications of ratification and non-ratification.

Before I address those issues, I should probably start with two caveats. The first is that my evidence is concerned solely with the legal dimension of these issues. As we have just heard, there are important political dimensions to those issues. In my evidence I am not concerned with the merits or demerits of CETA or its ratification by the State. Second, as proceedings have been issued in the High Court raising the issue of whether CETA can be ratified by Parliament or must be put to the people in a constitutional referendum, some caution is warranted in addressing these issues in this forum. It is of course ultimately a matter for the courts to determine whether ratification of CETA is compatible with the Constitution, so the purpose of my evidence and the briefing paper I furnished to the committee is to assist it by outlining the legal principles that are relevant to its consideration of these important issues.

It is probably appropriate to address the first issue, the compatibility of ratification of CETA with the Constitution, in three steps. First, it may be helpful to outline the framework within which Ireland's international relations are conducted under the Constitution. Second, I will look at the case law: the Crotty case and a later case known as Pringle, that address the principles of when we need a referendum in order to ratify a treaty. Finally, I will look to CETA briefly to assess how it fits within this scheme.

Let us look at the constitutional scheme first. The important point to note is that under Articles 28 and 29 of the Constitution, it is for the Government to conduct the foreign affairs of the State. In conducting the State's foreign affairs, the Government has a very wide discretion. Second, Parliament does have a very important oversight role when it comes to foreign affairs, particularly in the context of treaty making. We see this in Articles 29.5 and 29.6 of the Constitution. All international agreements to which the State is party must be laid before the Dáil. Any agreement involving a charge on public funds must be approved by the Dáil, and where there is a change of law necessitated by an international agreement, this must be conducted by the Oireachtas in accordance with its law-making power under Article 15.

In this way, the Parliament exercises an important role and today's meeting and the other meetings on CETA are important examples of this power being exercised in practice.

When it comes to the people, when is it necessary to consult the people on a particular international agreement? To date, it has only been in exceptional cases that international treaties have been put to the people. There have been eight international agreements put to the people by way of referendum. Some six of those international agreements concerned the European Union, our original accession to the European communities and the major revisions of the treaties that have followed in later decades. The other two are the Good Friday Agreement of 1998 and the Rome Statute of the International Criminal Court of 2001. It is pretty exceptional, therefore, for international treaties to be put to the people.

It is important to note that our international relations are increasingly being conducted within the framework of the European Union. More power has been transferred to the European Union in the field of foreign affairs and CETA is a good example of this. The recent EU-UK Trade and Co-operation Agreement is another vivid example. Unlike the EU-UK Trade and Co-operation Agreement, which has been concluded as an EU-only agreement, CETA is a mixed agreement and therefore member states and this Parliament have their say in determining whether or not they should ratify this particular agreement. That is important by way of context.

When is a referendum required before the State can ratify or conclude an international agreement? The starting point here is the Supreme Court's judgment in the Crotty case. Members may be familiar with this case, which was concerned with Ireland's ratification of the first major revision of the European treaties, the Single European Act. That was a treaty of two parts. Title 2 of the Single European Act concerned revisions of the existing treaties and title 3 concerned European political co-operation and putting structured co-operation among member states in the field of foreign policy on a formal treaty footing. Mr. Raymond Crotty challenged the Government's ratification of this agreement before the courts, ultimately ending up in the Supreme Court. The Supreme Court's judgment is also of two parts. In the first part the court upheld Ireland's ratification and implementation of title 2 of the Single European Act, that is, the amendments to the existing treaties. According to the Supreme Court, this did not go beyond the essential scope and objectives of the original amendment to the Constitution in 1972 and therefore was permissible without referendum. Second, when it came to title 3 of the Single European Act, that is, the part dealing with structured foreign policy co-operation, the Supreme Court held, by a majority of three to two, that this part of the Single European Act involved the alienation or fettering of powers conferred under the Constitution on the Government in the field of foreign affairs. Because it involved this alienation of sovereign powers of the Government under the Constitution, it had to be put to the people by way of referendum before the State could ratify this particular international agreement. Thereafter, a referendum was duly passed and Ireland ratified the Single European Act.

In two subsequent judgments, the Supreme Court has significantly qualified the scope of its Crotty ruling. First, in the McGimpsey case in 1990, the Supreme Court rejected a challenge to Ireland's ratification of the Anglo-Irish Agreement and the court ruled that there was vast difference between that agreement, which involved establishing a forum for co-operation between the two states, and title 3 of the Single European Act. Second and more significant for our purposes, in the Supreme Court's more recent judgment in the Pringle case, the Supreme Court rejected by a majority of six to one a challenge by a Member of Dáil Éireann to the State's ratification of the treaty establishing the European Stability Mechanism, ESM. Members may recall that this treaty established the mechanisms to provide financial assistance to eurozone member states during the economic crisis. Under that system, states had to contribute in a significant way and were exposed to significant liability once they signed up to this mechanism. Deputy Pringle challenged this before the Irish and European courts.

The Supreme Court, in considering this issue, had to determine whether the ESM treaty involves such a substantial transfer of power to this new institution that it required an amendment and, in fairly trenchant terms, the Supreme Court decided that no referendum was required. According to a number of members of the court, ratification of the ESM treaty involved the exercise of sovereignty, not its alienation or abdication. It is that language of alienation, abdication of sovereignty and subordination of sovereign powers that is the feature of the Pringle judgment and sets the test now for when an international agreement must be approved by the people by way of a referendum before it can be ratified. The Chief Justice, Mrs. Justice Denham, said that if a treaty involves a fundamental transformation - a ceding of sovereignty - then it would require the mandate of the people.

What do we take from these judgments, and in particular this most recent judgment in the Pringle case? Essentially, we see a narrowing of the court's earlier judgment in the Crotty case. The court maintains the principle that if there is an alienation or abdication of the State's sovereign powers, then there must be a referendum. However, it has set a very high threshold for when it will intervene and, by extension, for when treaties must be put to the people by way of referendum. One former member of the Supreme Court has described the Pringle judgment as putting the earlier Crotty judgment to sleep.

What the Pringle judgment certainly signals is that in the ordinary course treaties entered into by the State will be considered to be the exercise rather than the alienation of sovereignty. It is only when they involve a very significant and open-ended transfer of power to an international institution or a grouping of states that a referendum will be required. In doing so the Supreme Court affirms not only the role of governments in conducting foreign relations but also the pre-eminent role of the Parliament in the scrutiny of international agreements. The Pringle judgment reduces but does not eliminate the uncertainty around when an international agreement may require to be put to the people. Ultimately, that question has to be answered by reference to the terms of the particular agreement.

Third, what does this mean for CETA? We would need to carry out a very close and detailed examination of the agreement to assess that question but what we can say is that in its treaty-making practice to date the State has frequently signed up to international agreements that set up mechanisms of international dispute settlement. The European Court of Human Rights is one example. There are various mechanisms under the UN Convention on the Law of the Sea; the World Trade Organization Agreement, which is signed up to by the member states but also by the EU; the Aarhus convention and, in the context of investor protection, the Energy Charter Treaty. None of those have been put to the people by way of a referendum.

In two cases, the State has put or proposed to put international agreements involving such mechanisms to the people. The first is the International Criminal Court referendum, which I have referred to, and the second is the commitment given to put the Unified Patent Court to a referendum when Ireland proposes to accede to it. I can deal with the detail of those or any questions about those if members have questions.

Turning to CETA specifically, Dr. Ankersmit set out certain important features of the agreement's tribunal system. As I said, this matter is currently pending before the courts so I will be circumspect in my comments on it but a helpful reference point for the members in considering this is the assessment by the Court of Justice of the CETA tribunal system in its opinion 1/17. In that opinion, the court emphasises certain important features of the CETA tribunal system, which may be of relevance when the Irish courts come to consider this issue.

The reference point for the Irish courts will be the Constitution as opposed to the EU treaties but analogous issues are likely to arise insofar as the Constitution is concerned. First, the jurisdiction of the CETA tribunals is limited to claims for loss or damage or for breach of the obligations under chapter eight of the CETA agreement. Second, Article 8.9 of CETA expressly recognises the right of parties to regulate, including in pursuing legitimate policy objectives, for example, in the field of the environment. There is controversy about whether that goes far enough. I simply point to it as an example and a feature of the system. Third, and this is important when it comes to the assessment of our constitutional framework, the tribunals have no jurisdiction to determine the legality of measures of domestic or European law and any interpretation given by them of domestic law will not be binding on the courts of the EU, Canada or the EU's member states.

These are important features of the CETA system. There are others such as the enforcement of the awards, which is given effect under the New York convention and the ICSID convention regimes, which Ireland is party to.

Under Article 30.6 of CETA, the provisions of the agreement do not create rights or impose obligations that can be directly invoked in the domestic legal systems. A party cannot provide for a right of action in the domestic courts for breach of the provisions of the treaty. This goes back to a point made by Dr. Ankersmit. She mentioned that there is certainly no requirement to exhaust domestic remedies, but investors could nonetheless take action under domestic law, and particularly under domestic constitutional law in the Irish context, if they felt aggrieved, as an alternative to taking their dispute to the CETA tribunal. I emphasise I am not taking a view on whether the CETA tribunals involve such a significant or open-ended transfer of power to those bodies that they would require a constitutional referendum, an issue that is live before the Irish courts. Nevertheless, those elements of the regime would certainly be taken into account, alongside some of the elements I referred to earlier, in assessing whether the treaty must be put to the people by way of referendum or whether it is sufficient for the Oireachtas as Parliament, and Dáil Éireann in particular, to approve its terms.

The issue of the implications of ratification versus non-ratification is more straightforward. If CETA is ratified, whether by parliamentary approval or a vote of the people if that is deemed to be required, the Government will be in a position to proceed to ratify the agreement on behalf of the State. Assuming all the other member states had completed their domestic ratification processes, and we have heard that that process is ongoing, CETA could be concluded by the EU and its member states and come into force for them. At the moment, CETA is being only provisionally applied in certain areas within the exclusive competence of the Union.

The second, trickier issue relates to non-ratification. If the Dáil did not approve the terms of CETA or it was put to a referendum and the people rejected it, what would be the position then? Traditionally, the practice of the Union in agreements of this kind has been to await the outcome of the domestic ratification processes before concluding the agreement on behalf of the EU. If one or more of the member states were not in a position to ratify CETA, the agreement could not be concluded in accordance with Article 30.7 of CETA, at least in its current form. Obviously, Ireland could not be compelled to ratify an agreement contrary to its domestic constitutional procedures but the member states would be under a duty of sincere co-operation with the Union in the context of agreements of this kind and the untangling of those agreements. This arises under Article 4.3 of the Treaty on European Union, TEU, and under the case law of the European Courts of Justice. There may be an obligation on member states to engage at least with the Union institutions in teasing out the implications and outcomes arising from non-ratification. Ultimately, of course, these matters would have to be resolved at the political level, whether by amendment to the treaties or otherwise, which would not be a straightforward process, as we have heard.

I welcome any questions from members. I refer them to my briefing document for further detail on the various points.

Photo of Joe McHughJoe McHugh (Donegal, Fine Gael)
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I thank Dr. Fennelly for the comprehensive legal overview. I invite Dr. Suttle to make his presentation.

Dr. Oisin Suttle:

I thank the committee for the invitation. Members should have received a short written submission from me, so I will keep my remarks brief and provide an overview of it.

CETA's investor court system is an example of investor-state dispute settlement, ISDS, a mechanism allowing foreign investors to sue host governments in international tribunals outside of national court systems. By way of introduction, it might be useful to give some context about ISDS. It is a common remedy in bilateral investment treaties, of which almost 3,000 are in existence. It is, however, highly unusual in international law in general. Most international law rights, such as those of the World Trade Organization, are enforced between states. ISDS, on the other hand, gives investors themselves the right to sue under investment treaties without recourse to their home governments in the first instance.

The rights that investors can invoke vary, depending on the treaty, but generally include non-discrimination, compensation for direct or indirect expropriation and a guarantee of fair and equitable treatment. In the past 20 years in particular, investors have regularly invoked these rights to challenge measures by host states. We are not quite sure how often they have done so because many of these things are confidential but there are over 1,000 known claims and possibly many more that remained confidential. These frequently result in eye-watering damages awards. The average ISDS award over the past ten years is over $250 million and there have been 14 known awards where damages have exceeded $1 billion so potentially huge sums are at stake.

Ireland has largely avoided ISDS until now. With the exception of the energy charter treaty, Ireland has no bilateral investment treaties, BITs. This compares with a state like Germany, which has 127 in force while the UK has 102 and France has somewhere in the high nineties. BITs and ISDS are usually advocated as tools to help countries - especially developing countries - to attract foreign investment. That Ireland has been successful in recent decades in attracting investment without the use of these treaties raises questions about whether this is something for which Ireland has an economic need. More generally, the economic evidence suggests that BITs have relatively little effect on even developing states’ ability to attract investment. Quantitative studies are inconsistent on whether there is any positive connection between BITs and investment flows while qualitative studies and things like interviews and so on suggest that for most investors, the existence of a BIT is not something they give much weight to in deciding whether to invest so the economic case for this entire legal regime is still up in the air.

By contrast, BITs impose significant costs and risks. If Ireland ratifies CETA, its investment chapter will pose a significant constraint on the State’s ability to regulate to realise important public policies, including environmental protection, public health and housing and in any sector with significant foreign capital. As Dr. Ankersmit highlighted, the scope of investments covered under this agreement is broad. Nothing is carved out. The agreement might not stop Ireland acting to pursue a particular policy but it imposes limits on what we can do and how we can do it with the threat of multibillion euro lawsuits if we get it wrong. Prominent policies or proposals that could be challenged under similar rules include the 2008 bank guarantee, proposed reforms of the housing rental market and, more generally, efforts to decarbonise the economy and power generation. These are the sort of measures we see challenged in other countries. There is evidence of investment law having a chilling effect on public policies in other states and there is good reason to believe we would see a similar effect in this country. In fact, we may already have seen this effect if we look at the recent moratorium on oil and gas exploration and the carve-out in it for existing licence holders. I do not know the rationale for that but certainly a plausible rationale might be that similar moratoriums have been challenged under the energy charter treaty by existing licence holders so there is certainly reason to worry about the impact of CETA on this State's ability to regulate in pursuit of public policy. Uncertainty about the rights conferred on investors, some of which remains under CETA, forces states to err on the side of caution in the way they regulate in this area.

The European Court of Justice, ECJ, has said a few things that are relevant to this question. In its opinion on the EU-Singapore free trade agreement, the ECJ confirmed that including ISDS in a treaty is a significant matter that it is not merely ancillary to the EU’s powers in relation to trade and foreign investment and that only member states themselves have the power to agree such a system so creating a right like this is not something the Union itself has the power to do. The ECJ has also looked at CETA in particular. Members will find more on this in the written submission but I suggest that there is not a lot in the ECJ's opinion that would allay concerns about the constraints this regime will impose on states’ regulatory autonomy or the fundamentally unequal nature of the rights this regime establishes.

I am happy to go into more detail on that during the discussion if that would be useful. A further point is that, once ratified, there is nothing Ireland can do to pull back from the investor court system under CETA. Only Canada and the EU, rather than individual member states, can terminate this agreement. Termination is not a member state power. Even if the agreement is terminated, these rights for investors will continue for a further 20 years so this is not a decision that can be revised lightly once made, which is something on which Dr. Ankersmit has already touched.

I hope this has been helpful to the committee in getting some sense of the potential risks posed to Ireland by the investor court system and in determining whether there are any real benefits on offer. I thank the committee for its time. I am very happy to answer any questions members may have.

Photo of Joe McHughJoe McHugh (Donegal, Fine Gael)
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I thank Dr. Suttle. Deputy Richmond has indicated that he wishes to speak. I will take one member at a time. I ask members to specify if they are directing a question to one specific person or to all of the presenters generally. I call on Deputy Richmond. I will announce the next speaker when he has finished. Is Deputy Richmond there? He may be on mute. He does not seem to be there so I will take Deputy Brady.

Photo of John BradyJohn Brady (Wicklow, Sinn Fein)
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I wish all of our witnesses a good morning. This is a very important conversation. All of the speakers' presentations and opening statements have been very informative. I have a number of specific questions.

With regard to the opinion of the Court of Justice of the European Union, CJEU, on the right of states to regulate, which has obviously been a cause of concern, we now know that this is not in question. I have serious concerns. Dr. Suttle touched on the issue of the chilling effect. It is quite concerning that, even though we have not ratified this element of CETA, the doctor feels it is already having an impact. I wish to ask Dr. Suttle and Dr. Ankersmit about that. Dr. Ankersmit made reference to the climate and to oil and gas exploration, but there are also great concerns with regard to our health service, housing and education.

I also have a question about the right to access an independent tribunal. In the opinion of the CJEU, the court emphasised that CETA dispute resolution mechanisms should be "financially accessible to natural persons and small and medium-sized enterprises" and not only "to investors who have available to them significant financial resources." Will Dr. Ankersmit tell us about the concerns held with regard to that particular point? I have serious concerns about corporations with very deep pockets having access to this tribunal and about such corporations lodging cases with the tribunal and allowing them to linger indefinitely, perhaps for years, solely for their chilling effect. The CJEU identified this issue, that essentially only those with deep pockets will have access to this tribunal. Will Dr. Suttle and Dr. Ankersmit touch on those issues?

Dr. Oisin Suttle:

I thank the Deputy very much for the question.

I might deal with the view of the Court of Justice of the European Union, CJEU, and the chillingeffect questions separately. With regard to the CJEU's decision on this, as Dr. Fennelly said, the Court of Justice looked at this matter in the context of the EU legal framework and concluded that the treaty was compatible with a number of specific tests in EU law. That decision has been invoked a number of times since as political evidence that this treaty does not interfere with the right to regulate. There are a number of things to say about that. The first is that what the European Court of Justice did in that case was offer its own interpretation of the meaning and effect of the relevant provisions of the treaty. That is worthy of respect. This is the opinion of the Continent's leading jurists so it is certainly not to be set aside readily. However, it is not the opinion of the key decision makers for these purposes because as the Court of Justice recognises in that opinion, the ultimate question of how this treaty should be interpreted will be resolved by the CETA tribunals, that is, those who are appointed to the investor court system. They will not be bound, and the Court of Justice is comfortable with this, by the Court of Justice's interpretation of the treaty. The Court of Justice can give us an informed legal view of how the members of the court think it will be interpreted but they cannot give us confidence or security about how these rules will be applied.

There are reasons to be concerned about the depth to which the Court of Justice interrogated the treaty, particularly around the question of the right to regulate. I will give the members an example. The Court of Justice placed weight on the fact that the treaty includes exceptions by states to policies that are necessary for a number of specific goals, provided that those do not involve arbitrary or unjustifiable discrimination or a disguised restriction. That language is taken directly from the General Agreement on Tariffs and Trade, GATT, so it is World Trade Organization language. We are incorporating into CETA a number of exceptions that we find in WTO law.

If we then look at how those exceptions have been interpreted in the WTO law we find that in fact they are incredibly restrictive. For example, the European Union's regime prohibiting the importation of seal products, especially an animal welfare regime, was found not to fall within those exceptions in the WTO. That included an exception for seal products caught by Inuit communities in traditional ways. The WTO health body essentially said that that is an arbitrary discrimination because it seems as if the same animal welfare issues arise whether the seal is killed by a commercial hunter or by an indigenous hunter so the EU regime falls. The EU then had to try to revise its regime to be compatible with that. That is just one example.

The key point to take from that is that the fact that there is an exception and the fact that there is a reference to a right to regulate does not actually tell us very much. Ultimately, what matters is how these things will be interpreted by the CETA tribunal when the time comes. The Court of Justice cannot tell the members that. I cannot tell them that. Nobody on this court can tell them that because ultimately the proposal is that we establish a tribunal, give it a whole lot of language, much of which is quite evaluative. When exactly is something manifestly arbitrary? I am guessing the members and I would disagree on particular instances. We are then tying our hands and saying that we will comply with what that unknown group of adjudicators in the future will say. They might interpret it in ways that are entirely compatible with a state's right to regulate or they might not, but it is important to put a question mark next to that. I hope that is helpful on the CJEU point.

On the chilling effect point, I have to clarify my remark with regard to the existing chilling effect. The suggestion is not that CETA itself is already having this effect but rather the states already signed up to the energy charter treaty. The energy charter treaty includes analogous rights and remedies but specifically in the energy context.

For example, Italy is currently being sued under the Energy Charter Treaty because it brought in a moratorium on oil and gas exploration and did not include an exception for existing licence holders. Two years later, we brought in a moratorium on oil and gas exploration and we did include an exception. I have no insight into the drafting process or how the Department of the Environment, Climate and Communications does its business but from the outside one would look at that sort of thing and say it is eminently plausible that somebody in the Attorney General's office or the Department said that, given what happened with the Italians, they should probably be fairly cautious in relation to this matter.

The literature shows different ways of trying to map this chilling effect. Ultimately it is a hard thing to pin down because it is built around hypotheticals and trying to work out what governments would have done if it was not the case that this risk was there. Some papers have looked at the tobacco plain packaging issue, which has been very prominent over the past three years and one of them is referenced in the submission I have given the committee. The papers essentially say that we can look at these policies and track when they came in as proposals, whether they are open to be adopted or whether there is a delay in adoption. We can then cross-reference that to what is happening in these high-profile international cases. The suggestion is that there are at least two different ways that this happens. One is through express threats, wherein an investor writes a letter to the relevant regulator saying it does not think the regulator can do this and if it does it can expect the following sorts of consequences. We see international arbitration law firms put this forward in their marketing material as one of the services they can offer. They can help people use these remedies to block or slow down legislation they do not like the look of.

The other way this operates is through the mechanism of internalisation. Effectively, regulators come to think about these risks off their own bat. We see examples of this in Ireland, such as in the way the Constitution has been invoked over the past few years in discussions about housing reform. There is a sense that we cannot adopt long-term rent controls or more secure tenure because the Supreme Court told us 40 years ago that we could not. There has been a very limited willingness to try to push that envelope. CETA is just another set of constraints and, ultimately, threats that are available to investors to try to slow down that sort of regulation. I hope that is helpful.

Dr. Laurens Ankersmit:

I thank Deputy Brady for his question and Dr. Suttle for his answers. I fully agree with the very elaborate answer Dr. Suttle gave on opinion 1/17. It is very important to emphasise that, in the end, the Court of Justice will not interpret this investment chapter when it comes to the resolution of disputes between foreign investors and governments. What it has said on this issue, which is quite limited, will certainly not be binding for these tribunals. An example is the interpretation that the list of situations that form the fair and equitable treatments standard is exhaustive. Maybe the ICS tribunals will come to a different interpretation of that. This is something for which the ICS tribunals will be responsible in the end.

I would add that I find the test of the Court of Justice quite light. It is a legal test, not a political judgment. Of course, in the end Ireland has to decide whether it would like to delegate the responsibility of taking that decision, weighing the public interest against the interest of the foreign investors and protecting their assets, to these ICS tribunals and to decide whether it agrees with the text by which that is done. It is a political judgment. What the Court of Justice does is lay out the minimum constitutional requirements from the perspective of the EU treaties. Article 8.9 of CETA, which is the article on the right to regulate, is really just a continuation of what is already there.

It states the parties reaffirm their right to regulate. It is just a continuation of the existing balance. The use of the term "greater certainty" is all couched towards basically a continuation of already existing investment law practice. It is important for parliamentarians to ask if they agree with this language. Do they think this language will protect the public interest sufficiently? The language could be much stronger to carve out certain claims, such as, for instance, by carving out investment in fossil fuels. There are many more examples by which one can opt out on giving this additional layer of protection for foreign investors.

I do not know if I can submit more material but I wrote recently a specific article on this particular point of Opinion 1/17. I will forward it to the committee for it to examine.

On SMEs, it is a double-edged sword. One can say that it is important that SMEs have access to this tribunal. They should also have access to a tribunal to which they can bring claims against regulatory measures from governments. On the one hand, it might be good for SMEs. However, is it a good idea to expand the coverage of the investment court system, ICS, to even more investors that could make use of it?

In this particular context, few SMEs will make use of the ICS in the Comprehensive Economic and Trade Agreement, CETA. How many small businesses in Ireland have operations in Canada? I do not know if there are any statistics on this but a SME would have to operate across the Atlantic. This provision is generally for big companies.

Investment law is run by a few big law firms in Washington, London and Paris. They use this as an instrument to protect the interests of their client base which are multinational corporations. These commitments to offer ICS to SMEs should not be considered as being significant because, in practice, it will be used by these law firms for the interests of their clients. I do not expect much to come from it in helping SMEs in their fight against government regulation or intrusion.

Photo of Neale RichmondNeale Richmond (Dublin Rathdown, Fine Gael)
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I thank all three witnesses for their thoughtful and incredibly challenging presentations. They are excellent pieces and the entire committee is grateful for these presentations, as well as the supporting documentation.

Both Dr. Suttle and Dr. Ankersmit referred to the specifics of the chilling effect, a point into which my colleague Deputy Brady went also. Dr. Suttle pointed towards hypotheticals and potential arguments. Is it possible to lay out clear examples where national governments have stated this is the policy they would like to pursue but were too concerned about legislative actions, hence they watered it down? Dr. Suttle stated investor courts are uncommon. Is it possible to quantify how many are in existence?

Dr. Ankersmit has been working on CETA for quite some time as an academic but also as a campaigner. What sort of reaction did he get from Commission figures when he raised concerns in submissions to the European Parliament or during the pre-scrutiny phase going back a couple of years?

Perhaps the witnesses could work through the sorts of reactions they got.

In Dr. Fennelly's paper and in his comments he referred to a concern that it has been argued the decisions of the tribunal and the appellant tribunal established under chapter 8 of CETA could affect the exclusive lawmaking function of the Oireachtas under Article 15 of the Constitution, and that it has been argued that the tribunal system would involve a transfer of judicial power contrary to Article 34 of the Constitution. Will Dr. Fennelly lay out for the committee who is arguing this point and what is the context when they make these arguments? Is this before the courts of law? Is it based on academic submissions?

My final question is for all three witnesses, which is a similar question I put to David O'Sullivan at last week's hearing. Is it the witnesses' opinion that if CETA is not ratified it simply collapses?

Photo of Joe McHughJoe McHugh (Donegal, Fine Gael)
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We will offer this to all of our presenters.

Dr. Laurens Ankersmit:

Shall I start?

Photo of Joe McHughJoe McHugh (Donegal, Fine Gael)
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Yes, if that suits.

Dr. Laurens Ankersmit:

I thank Deputy Richmond for his questions. A few examples of regulatory chill that are well known include the case of New Zealand delaying for six and a half years its plain packaging legislation because of the investor-state dispute settlement, ISDS, case against Australia. New Zealand delayed the introduction of plain packaging for smoking products specifically because of the ISDS case, a delay which was quite beneficial to these tobacco companies and perhaps less so for public health in New Zealand. Another well-known example is Indonesia, which decided to continue to issue environmental permits for mining operations in Indonesia as a result of threats of ISDS litigation. I could give the specifics on how it worked but I do not have them off the top of my head. Another example is where Romania has decided to withdraw nomination of the Roia Montan area as a UNESCO world heritage site because if it was to become a UNESCO world heritage site the biggest gold mine in Europe in that area would not receive an environmental permit. This is also due the ISDS claim issued by a Canadian mining company against Romania. Romania has admitted that the ISDS case is the reason for the application withdrawal. There are a few other examples.

A broader point may be where the Netherlands is now being sued for €1.4 billion for its moratorium on the use of coal as of 2030 by a German electricity producer. If the claim is won, that €1.4 billion is a lot of money with which one could do a lot of other things such as insulation of housing and other climate change projects. So, it is not only a matter of direct prevention of regulation, it also makes it less possible for governments to do certain things. A figure of €1.4 billion is a lot of money that could be spent on other things.

I shall now turn to the reactions I received from Commission officials, members of the European Parliament and members of the Council when I was working as a legal adviser to ClientEarth, a public interest organisation which is also established in the UK and Belgium. The reactions were quite diverse, as one can imagine, so it is difficult to summarise exactly the reactions. I started my work there after completing my PhD in 2015. Then the Commission had already received a very strong mandate to negotiate agreement with Canada that concluded investor-state dispute settlement. They were not going to say "Oh well, because Mr. Ankersmit [for example] raises these concerns we are no longer going to do it."

That is not how it works. The staff of the Commission listened politely. Basically, there is a mandate given by the Council. The European Parliament is split. There are a diverse number of interests. Many people are in favour of CETA. The biggest group in the European Parliament is the European People's Party. That group supports CETA and the European Parliament has already consented to CETA. There have been many different reactions, some agreeing with what I had to say and others more keen on going ahead with CETA.

Dr. David Fennelly:

I thank Deputy Richmond for the question. On the reference to arguments around Articles 15 and 34 of the Constitution, that is a reference to the reports on the challenge that is pending before the High Court. There has not been any real academic engagement with the constitutionality of CETA. In the media reports in that regard it is fairly set out that there is an argument around this issue. To succeed before the courts one needs a fairly strong argument, particularly in the light of the Pringle judgment.

Touching upon something that arose earlier, I would make the point that in opinion 1/17 the ECJ took a formalistic, legalistic reading of the CETA agreement. It is fair to say that when this matter comes before the domestic courts so, too, the High Court or Supreme Court, on appeal, will be looking at it through that legal sense and in a fairly formalistic way. The courts have emphasised in their case law in this area that they do not look to the merits of particular international agreements - the pros and cons on a policy or political basis - because that is not a matter for the courts. Rather, it is a matter for members in the political organs.

On the potential implications if there is not ratification, one distinct possibility is collapse of the entire agreement, and in formal terms, because of the particular clause on entry into force of the CETA agreement, that may very well be the case but, of course, one can never discount the ingenuity of member states and the Union in dealing with these issues. One possibility, particularly if problems present around the investor court system, is the potential for severability of that from the rest of the regime, but neither the EU institutions nor the Canadians have broached that yet given the fact that this is very live before the various member states.

Dr. Oisin Suttle:

Dr. Ankersmit has given a lot of compelling examples of chilling effect. I refer the committee to the Moehlecke paper linked to my submission, which identifies 17 countries where the plain packaging litigation against Australia and Uruguay led to delays or non-introduction of that specific policy. I said earlier that these sort of studies are necessarily hypothetical. They are hypothetical in the sense that one is trying to work out whether the risk of litigation is the reason legislation was not adopted. As researchers and human beings, what we can do is look at countries and point to a proposal for legislation, a number of relevant interest groups and a number of relevant political groups expressing their preference as regards what to do, and to where legislation is being introduced or not being introduced. It is the nature of things that there is always a black box in the middle, which is where Government and Parliament decide whether to proceed with the legislation or not. It is always very difficult to say what exactly was the reason to proceed one way or the other.

I will give another powerful example. Dr. Ankersmit mentioned the claims against the Netherlands in regard to the winding down of coal. Ten years ago, Germany faced claims when it decided to phase out nuclear power after the Fukushima disaster. Vattenfall, the Swedish power generator, brought a claim against the German Government essential saying that its rights as the operator of nuclear power plants in Germany had been unfairly impacted by that decision.

That case is ongoing but it is probably significant that when Germany subsequently decided that it was going to start winding down its coal plants, it took a different route to that which the Netherlands took. It effectively decided to buy out and pay off the operators of coal plants rather than simply regulating them out of existence. Can I say that the reason for that is Germany's experience with the claims on nuclear energy? I cannot say so for certain but these moves are strongly suggestive of ISDS claims having an impact on the ways particular countries choose to regulate in subsequent cases.

There is an example of a French climate change law from three years ago where it is prominently put forward that the original law and the law that was ultimately adopted has significantly more leeway for existing fossil fuel extractors. Why is that so? Part of the story we see is that there were threats of ISDS claims if the law was implemented in its original form. Can I say the threat of the ISDS claims was definitely the reason the change happened? I cannot say so. A bunch of political processes happened in between but if one wants evidence, this evidence is about as compelling as one will find of why any factor, ISDS or otherwise, caused legislation to change. This is about as good evidence as one can expect to find.

Deputy Richmond asked how many of these things there are. There are going on for 3,000 of them and they are mostly bilateral treaties between pairs of countries. This is a regime that is different from, for example, the WTO regime, where we have a single set of treaties that everyone signs up to. In the investor regime, we generally have pairs of countries signing up to treaties which have broadly the same shape but which may vary in their particular details.

There are a little over 1,000 cases that we know about. Historically, ISDS claims do not need to be made public. One of the unique selling points of arbitration historically has been that arbitration can be confidential and secret. Not only do we not know the details of what is happening in these cases but in many cases we may not know that the cases are happening at all. I can give the committee a minimum number but this is the tip of iceberg and we are guessing at what is going below that. Even broader than the unknown claims, there is the question of how many ISDS claims never make it to being a formal dispute because they take the form of a sternly worded letter, a conversation, a revised policy or even the writing of a cheque. As with any litigation, the number of cases that end up in the Supreme Court represent a tiny subset of the number of disputes that are resolved on the basis of a particular legal machine.

The third question was around non-ratification and if this thing will go away if it is not ratified. There are a couple of answers to that. The first answer is that this is mostly a political question. The law puts some limited bars around that. With the exception of its investments chapters, CETA is being provisionally applied. That means the European Union and Canada are proceeding on the basis that the treaty is enforced and giving legal effect to it , pending ratification. There is no limit in international law on how long a treaty can provisionally be applied for. There is no hard constraint on that. The Vienna Convention on the Law of Treaties states that in the event that one of the parties communicates to the other party its intention not to ratify a treaty, provisional applications should cease. That would be a communication from the European Union to Canada saying that it is done with CETA. It is a formal step and there is no particular requirement to take that step.

The more realistic answer will come if this hits a hard roadblock in any particular jurisdiction, whether here or in the Netherlands for example, as Dr. Ankersmit was saying that the Netherlands is looking like a hard case. In Germany, this is still going to go back to the German constitutional court for its view on it. There may be many places where this boat might strike a hole, therefore. I am a lawyer offering a political opinion but the most likely outcome of that is a relatively minor renegotiation. The negotiation would be relatively minor in the sense that the rest of the treaty is already in place, working and having economic effects. What does that mean?

It means those who will suffer as a result of more imports in their area have already suffered that pain and those who will benefit are already getting the benefits. Once this happens and those facts are on the ground, it is very hard to turn around and simply shut the thing down. If this thing cannot be ratified at a national level, it will be in everybody's interests to say "okay, well then we can just excise this chapter" and try to keep all the good things we can get elsewhere in the agreement.

The other reason I think that is probably the most likely outcome politically is because trade agreements are tools that allow politicians to build political coalitions. There are some interest groups that are pro-trade and want to export while there are others that are anti-trade because they see risks of competition from foreign producers. The job of politicians is to try to put together good public policy and sometimes that involves telling some interest groups "sorry guys, it's not your day". Trade agreements are a way to bundle together all the benefits the exporters will get and all the costs the importers will suffer so that politicians are in a position to say there are some winners and some losers and some wins and some losses but overall this thing is worth doing and they can survive politically in doing that. All those sorts of trade-offs and log-rolling are happening elsewhere in the agreement. There is no reason to think that taking out investment protection would lead to any group benefiting from this agreement suddenly saying "we're no longer benefiting and we're out" or any group suffering from the agreement saying "well I was prepared to live with the agreement because it had investment protection but now that I'm not, suddenly you're..." so in terms of that sort of dynamic of political coalitions and facts that have already been created on the ground, it is highly unlikely that non-ratification at a national level will be the end of this deal. It is much more likely that it will be a case of what tweaks we can make to make this thing acceptable to the relevant groups.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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I thank the witnesses for their presentations. I have read their written submissions, which are extremely helpful. My first question is for Dr. Ankersmit. It follows on from the answer given by Dr. Suttle. In respect of all the presentations we have received so far, the focus of our attention has been on the investor court system. How likely is it that we can continue formalising the current CETA agreement without the investor court system being ratified? Dr. Ankersmit has talked to the European Commission and the European Parliament. Linking into Dr. Ankersmit's paper, the presentation we have been given is that this is the ideal opportunity for Canada and the EU, both of which have very developed legal systems, to refine and improve the existing arbitration systems and that this gives us an opportunity to model that. If we take that out, how likely is it that this agreement will be ratified?

My next question is for Dr. Suttle. I was taken with his paper and some political conclusions he drew as a lawyer. Of course we have plenty of lawyers drawing political conclusions. I would not always agree that politicians make decisions because of external pressures. Sometimes external excuses suit decisions. That is my experience having been involved in politics for over 30 years, including in government.

When we say one of the matters that may have been challenged was the 2008 bank guarantee, would that not have been a blessed and glorious thing had it happened? We cannot pick and choose the things we would like to challenge.

The argument is given to us constantly that significant constraint will be on states to regulate matters relating to environment, public health and housing and so on. The counterargument being given to us is that Article 8.9 of CETA expressly recognises the rights of parties to regulate. The witnesses clearly have an opinion but if there are two countervailing arguments put to us, how do we know where the element of right falls? I was going to ask a third question but in the interests of time I will leave it at that.

Ruairi Ó Murchú (Louth, Sinn Fein)
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I thank the three speakers and I will move this on as fast as I can.

Photo of Joe McHughJoe McHugh (Donegal, Fine Gael)
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The Deputy's microphone has been muted.

Ruairi Ó Murchú (Louth, Sinn Fein)
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Members may have missed the greatest speech ever given but I can start again. This comes down to the investor court system and the fact we do not want to leave ourselves exposed to be sued by large corporations. Dr. Ankersmit said earlier that it will not exactly be small or medium enterprises taking these sorts of action. I would like some sort of detail on corporations' success rates in suing. There was mention of a rate of 28.7%, which seems like a colossal success rate. We all have the fear of being taken over the coals about legitimate expectations of future profits. I suppose that is why it seems that in many trade agreements there is a move away from ISDS. I am thinking about the Americans with the North American Free Trade Agreement or the French looking at changes to the Energy Charter Treaty, etc.

We have already been given details of the chilling effects, such as New Zealand waiting six and a half years because of fears over the Philip Morris case. That is quite clear. Why would we hamstring ourselves by signing up to this? I imagine this could undermine our competitive advantage. We have done an amount of foreign direct investment successfully without signing up to a major amount of ISDS but this could leave us more exposed than others.

I add my thoughts, similar to Deputy Howlin, on non-ratification. It looks like France, the Netherlands, Germany, Cyprus and a number of other countries have serious difficulties with this, and particularly with the ICS element. I do not see it being ratified very quickly and on that basis, it probably leaves less pressure on us. There was mention of the ingenuity of the EU in being able to get through the gap with this, with the provisional application surviving for a considerable period. Could I get some detail on that?

Photo of Seán HaugheySeán Haughey (Dublin Bay North, Fianna Fail)
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I thank the three speakers for their presentations this morning. Dr. Fennelly spoke about the Pringle case and the alienation of sovereignty as opposed to the exercise of sovereignty. The International Criminal Court had to go to referendum. Without making any reference to the High Court case, what is the view of the witness on the unified patent court?

Does Dr. Fennelly think that needs to go to a referendum, constitutionally and legally? Second, could he give us other examples of where Ireland has signed up to similar systems? One case was mentioned in the briefing material concerning the World Trade Organization's energy charter treaty. Could he give some examples off the top of his head where we have signed up to something similar without the need for a referendum?

I have two quick questions for Dr. Ankersmit. There was some reference to side-stepping domestic courts. Is he categorically saying that is possible and that domestic courts have no role to play in disputes like this or is that open to question?

My second question is a technical one that came up at our meeting last week. It relates to the appointment of judges to the investor court system. Will the system be objective, in so far as it can be? Is the system of appointment open, transparent and accountable or is it political? Could Dr. Ankersmit give any insight into how trustworthy or objective the institution at the centre of the investor court system can be, given the appointment of judges and so forth?

Dr. David Fennelly:

I apologise as the sound broke up briefly. I thank Deputy Haughey for his interesting questions. There is a distinct change in tone between Crotty and Pringle in terms of how the judgments engage with sovereignty. The distinction between exercise and alienation is really at the centre of that judgment. I think it will be the central test whenever the courts come to this issue again.

First, regarding the ICC and the initial commitment to put the UPC to a referendum, it is important to understand that this took place before the Pringle judgment. Post Crotty, there was quite understandably a very cautious approach when it came to international agreements involving some form of transfer of sovereignty. The ICC on the one hand involves a certain transfer of executive and judicial power, but in a very limited area, which is the jurisdiction to try certain types of crime such as genocide, war crimes and crimes against humanity. There are obligations on the State under the Rome statute to co-operate with the ICC to arrest and surrender individuals suspected of crimes and also to give effect to decisions of the ICC. Because of those characteristics, there is a qualification of the judicial power and alienation of that judicial power in a very limited space, but in an important way nonetheless. It is against that backdrop that the ICC statute was put to a referendum. Whether one would do so today, in light of Pringle, is a more difficult question.

That brings us to the UPC. This has been rumbling on for some time. It has also found its way to the European Court of Justice. It is still on our agendas today. There has been a commitment by successive Governments to put this to a referendum. In understanding that issue, it is important to look at the specific characteristics of the unified patent court. In particular, that court has a lot of similarities with the traditional EU courts, the Court of Justice in particular, when it comes to the enforceability of its judgments directly within the member state. It is because of that particular quality of the court's structure under the UPC system and its decisions that Governments have taken the view, in light of Crotty and presumably still in light of Pringle, that it should be put to the people. That is why in looking at the CETA tribunal we must look at its specific qualities. I refer to particular elements of it which say that the CETA tribunal cannot express a view on domestic law or cannot make findings in respect of domestic laws and measures. We have heard different views about how far that may go. That is a feature that potentially distinguishes it from the UPC, but overall in light of Crotty and even now with Pringle there has been a cautious approach in this area because Governments are very concerned at the potential ramifications of ratifying, but with the risk of a challenge and the unravelling of the international commitment and all that that would entail.

I give some other examples of international agreements in the paper. Ireland has been an active supporter of international disputes settlement. It was the first state to sign up to the right of petition before the European Court of Human Rights way back in the 1950s and has been an active supporter of other forms of international dispute systems.

We have not participated as much in the investor protection sphere, as Dr. Suttle and others have outlined, even though foreign direct investment has been important to us. Our trade agreements with the US, which, again, date back to the 1950s, contain important investor protection elements but without the dispute settlement piece. However, there are many examples of international courts, tribunals and quasi-judicial bodies. The WTO was mentioned and it has a sophisticated dispute settlement mechanism, albeit one that has run into significant difficulty in recent years because of problems with the appointment of members to its appellate body. There are many examples of tribunals, not exactly like the CETA tribunal, but with some similar qualities which the State has signed up to without a referendum but each must be examined in its own terms.

I refer to the point on the domestic courts not directly raised with me but which is important. It is an important piece of the jigsaw that we should not neglect because even if the investor tribunal system were to fall away, investors from all jurisdictions, including Canada, have significant rights in this jurisdiction under domestic law, including under our Constitution, and the strong protection given to property rights over the years in the courts' jurisprudence in particular. We should not be too soft on the potential implications of this.

If one was advising one of these investors on whether to go for a CETA tribunal or before the domestic courts, in many instances, one might nudge them towards the domestic courts given the robust protections under our Constitution. It leads to similar issues we have talked about such as the balance between property rights and other important public interest policy objectives, which is the subject of an ongoing debate before our courts.

Dr. Oisin Suttle:

I thank Deputy Howlin for the question. Nobody has ever denied that states have the right to regulate. One or two investment arbitration decisions may have dropped the ball on that and expressly said the legal regime has to be strictly maintained. However, every investment tribunal and this treaty recognise states have the right to regulate subject to the international law rights guaranteed to investors. One can do whatever one wants subject to the rights which are being created.

I refer to the point made by Dr. Ankersmit made the point at the start on the weight we should give to the language and it is a question of framing to a great extent. Framing can be important for lawyers because it gives a steer to those who have to interpret the hard rules but it only gives a steer and, ultimately, the interpretation is for the tribunal. When one considers the concrete details of the rights as set out in CETA, they do not give the freedom one might like. For example, CETA includes an annex on what constitutes indirect expropriation. These are situations where the state takes a step, through regulation or otherwise, not to seize the title to an investment but does something to adversely affect the value of the investment or the investors' right to use or transfer their investment, in a way that is equivalent to having the property seized from their point of view.

Forgive me for reading some legal text but I am a lawyer. The final paragraph of the annex states:

For greater certainty, except in the rare circumstance when the impact of a measure or series of measures is so severe in light of its purpose that it appears manifestly excessive, non-discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations.

A quick read of that indicates it is a guarantee of the right to regulate.

In fact, it is not. The first half of that paragraph is an invitation to the Comprehensive Economic and Trade Agreement, CETA, tribunal to perform a proportionality analysis. It is an invitation to the CETA tribunal to ask, in light of the purpose of the measure and the goal one is pursuing, if the effect on the investor is manifestly excessive. It is weighing and balancing the public policy and the impact on the investor. This is the style of analysis that the European Court of Justice and the European Court of Human Rights do. It is a style of analysis, however, that directly engages with the trade-offs between the goals legislators pursue and their costs.

One can contrast that final paragraph of that annex to CETA with Article 5.5 of the Indian model for a bilateral investment treaty. This is essentially the text that Indian negotiators take into the room when they discuss a new investment treaty. The contrast is very easy. Article 5.5 simply is the second half of that paragraph of CETA. It states non-discriminatory regulatory measures will not constitute expropriations. CETA states if it is a non-discriminatory regulation, then a proportionality analysis should be performed. If it seems disproportionate, then it is expropriation. If it is not disproportionate, then it is fine.

That is a significant restriction on a state's power to regulate. It is explicitly mandated in the text. As was said, one is getting different people giving different views, however. How does one deal with that? As I said earlier, I cannot tell how this text will be interpreted. Ultimately, one is appointing, as yet, an unnamed group of jurists to decide for themselves what this text means and to do so largely in an unreviewable way. One is buying a pig in a poke. Sometimes one must do that. What one should ask, however, is does one really need a pig. If one needs a pig, then one has to take what is on offer. This is why my paper started where it does.

The key issue in coming at this is what exactly is the value for the State of adopting these rules. The economic evidence would state probably not very much. Many economists have tried to work out exactly what effect investment treaties have on investment flows. In fairness, more of them have said they probably have an effect than those who have said they do not. It is certainly not overwhelming. What we do not have is a clear sense of when they have a fan effect and in which sectors.

We think they are probably more likely to stimulate investment in mining and resource extraction. Those are not necessarily areas where we might want to stimulate investment. We are pretty sure they are more likely to stimulate investment in developing and developed countries. Again, Ireland may not be in line to get much of an economic benefit from this.

It has been suggested that most of the studies that show a big positive effect are driven by the fact that in the context of former Soviet states they had a positive effect. It might just be that bilateral investment treaties are a really good way to reassure investors in former Soviet countries that they are not going back to that system.

There is uncertainty. The key point is that one is trying to make a decision under conditions of uncertainty. No legal advice can resolve that. Ultimately, this will only be interpreted when the time comes. We need to consider what is the value of taking the risk. It is a big risk, a point no one can deny.

Dr. Laurens Ankersmit:

The question was asked what would happen if Ireland were not to ratify CETA or an EU member state rejected it. When it comes to provisional application, CETA is being provisionally applied right now.

It can be provisionally applied indefinitely if neither party indicates to the other that it has no intention of ratifying the agreement. For instance, the United States provisionally applied the general agreement on tariffs and trade for a few decades before the WTO agreements came into force. It could be done for a very long period. As Dr. Fennelly mentioned, in these situations, the EU can be quite ingenious and smart in trying to find a solution to matters. For instance, the Mercosur agreement is supposed to be a mixed agreement and also requires ratification by member states but there is now a push to split the agreement, as was done with the Singapore agreement. There is a push to split the Mercosur agreement into a trade part and another, more political, part while the idea with the Singapore agreement is to have a split between a trade part and an investment part. Such a thing could also be done with CETA. This agreement could be applied provisionally until there is a new text to ratify at EU level only. This would sideline the member states completely because one of the two reasons their involvement in the ratification of CETA is required is that the investment court system would remove disputes from the jurisdiction of the member states, as the ECJ has said. This means that members states must be involved in the ratification process.

All kinds of creative solutions are possible but, in the meantime, this agreement could be provisionally applied indefinitely. I do not see any objection to that unless, for some reason, Canada is notified that the EU and its member states will not ratify the agreement. It is a bilaterally structured agreement, which means that the members states ratify the agreement first, followed by the EU by way of a decision of the European Council. At this point, the EU and the member states will notify Canada that they have completed the steps necessary for ratification. This can all be found in CETA itself. The final provisions outline exactly how provisional application works, how it can be ended and how the agreement is to be ratified. To make a long story short, there are plenty of solutions if a member state, possibly the Netherlands or Ireland, opposed one part of the agreement. An additional protocol could also be agreed. All kinds of solutions are possible.

I have heard a few people say that CETA is completely dead, that this will be end of it and that it is the nuclear option but I do not find that very convincing when one considers the enormous interest in the rest of the agreement, particularly from an economic perspective. I hope I have answered the question.

Deputy Howlin asked about the issue of sidestepping domestic courts. Under the ICS outlined in CETA, it is entirely possible for foreign investors to sidestep Irish courts. The foreign investor has the choice to go to the Irish courts or to the ICS. If it decides to go to the ICS, it can obtain a ruling from an ICS tribunal, which can be enforced throughout the world. In American courts, economic detective firms are sometimes hired. These know where assets are and target the particular country where they are held to obtain those assets if, for example, the Irish Government is unwilling to abide by the award issued by the ICS tribunal. It is a bit of an unlikely situation, but it could happen.

If there are significant issues with a particular ruling of an investment court system, ICS, tribunal, the Irish Government could refuse to pay and go to a court somewhere else in another member state. That is entirely possible. That happened in the Achmea judgment, where enforcement of an award was sought in a German court against the Czech Republic. There are plenty of examples. The Micula cases are also examples where American courts are involved in the enforcement of an award. It is entirely up to the investor to choose where it wants to go. If it considers the Irish courts not to be a good option, it can do so. It gives foreign investors an additional option. Investors will choose the Irish courts when it is better for them, which makes sense, but when it is not better for them, they now have an additional avenue to pursue. I always compare it with playing an away game and a home game.

For a foreign investor, this is very much a home game, while for a government, this is an away game. It depends on where these tribunals are based but if one goes to the International Centre for Settlement of Investment Disputes, ICSID, for instance, one will go to litigate in Washington, D.C. That is where the Dutch Government is heading. It is playing an away game. Normally the Dutch district court of The Hague would be responsible for claims against the Government. This is the district court that handed down the Urgenda judgment. I do not know if members have ever heard of the Urgenda judgment. It is a climate case. That court has ruled that the Dutch Government has to take more serious steps to fight climate change. Now of course, the German investor is not going to go to that district court, because the ICS is probably much more favourable to it.

That brings me to the last point, on the appointment process of these tribunal members and whether they are objective. That is a difficult thing to achieve. In most domestic systems, there is a constitutional court, which generally has all kinds of cases come before it. It is not a court that only hears one side of the argument all the time. The investment court system generally has investment law experts. In the constitution of the tribunal article, which is Article 8.27, paragraph 4, of CETA, there is a lot of nice language, that they need to be jurists of recognised competence, but it is also desirable that they have expertise in international investment law. That means that one will source these arbitrators from a particular legal community, who look at disputes in a certain way and have been trained to look at disputes in a certain way. Will that affect the impartiality of these tribunals?

Photo of Joe McHughJoe McHugh (Donegal, Fine Gael)
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I will have to cut in there.

Dr. Laurens Ankersmit:

I will stop talking there. That article might help in answering the question.

Photo of Joe McHughJoe McHugh (Donegal, Fine Gael)
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Dr. Ankersmit was in mid-flow there. I apologise for that. I thank him for the football analogy too.

Vincent P Martin (Green Party)
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It has been a wonderful engagement and I thoroughly enjoyed reading the papers. Is it not a given to say that all or some of the hallmarks of arbitration are that it is done in private, it is confidential, binding and enforceable? Although it is not an ad hocarbitration, where does one get recourse to the courts, if at all, if there is an error on the face of the arbitration? It may have been in the award or the arbitrator may have misconducted the investor court state dispute arbitration. Where in this agreement is the recourse to the courts? If one opts for arbitration, does it stay in the domestic court, as often applies? One cannot be in two different places at the same time. How does one go back to the courts? I would like to know that. Removing an arbitrator is provided for under the Irish Constitution. I am not making political points today, but I would say that we have a fine judicial system in Ireland, as does Canada.

However, I accept that some jurisdictions do not. I can see a purpose for this but I am far from convinced that one size fits all when we have such a brilliantly fair system, which has been tried and tested and exercises and delivers judgments beyond fear or favour. That is my first question.

Second, we have adopted some agreements without recourse to a referendum, like the Aarhus Convention and the European Convention on Human Rights. Do the expert speakers think this agreement is different as regards sovereignty? Would it have more in common with the unified patent court, for instance? I am thinking of it from a sovereignty point of view and how it might engage the Irish Constitution.

I missed a few minutes of the meeting earlier so I ask the committee to forgive me if this question has been asked already. I can catch up with my party colleague, Deputy Duffy, later. Have any of the expert speakers commented on the view of the European Association of Judges in respect of CETA? If not, I would be grateful to hear their comments.

I have a final question for Dr. Fennelly and Dr. Suttle, if it does not put them on the spot. A former judge has expressed the view that Pringle has put Crotty to sleep. Do either of them have an opinion on that? It is perfectly legitimate and the intellectual discussions are invigorating but there seems to be an incremental move to undermine - for want of a better term because I do not mean it in a pejorative sense - or water down Crotty. Could it be that the correct case, which could be closer on all fours with Crotty, has not arrived yet? That might stroke the monster's back, to quote Kavanagh, a non-lawyer. It is the monster that I admire. It might not be the correct term but it is a creature of constitutional vigilance for the people of Ireland, which is being slightly eroded by jurisprudence and expert commentary. Maybe the commentary follows the jurisprudence. I accept that. Do the expert speakers concur with former Supreme Court Justice Mr. Hugh Geoghegan, who said Crotty is slowly being put to sleep? From a political perspective I certainly hope it is not.

Francis Noel Duffy (Dublin South West, Green Party)
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I confirm that I am on the campus grounds of the Oireachtas. I thank the speakers for their statements and insight into CETA. I have two short questions. The investment court system will alienate the judicial power of our national courts. Do the witnesses believe there is a risk of the ISDS undermining public policy? I am looking for a "Yes" or "No" answer to that. Second, with regard to membership of the tribunal, considering we have no involvement in the make-up of the tribunal and no real way of ensuring the members have no conflicts of interest, how do we ensure the decisions made by the ISDS will be independent, impartial and in the best interests of national policies?

Photo of Alice-Mary HigginsAlice-Mary Higgins (Independent)
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I have two questions. The first is for Dr. Ankersmit. There is a different treatment of regulation in Article 8.9.2 of CETA versus the treatment of removal of subsidy in Article 8.9.4. It is notable that Article 8.9.2 states that the "mere fact" of regulation is not a breach. That has been dealt with very well, whereas Article 8.9.4 states that the removal of a subsidy should not be seen as requiring a party to compensate the investor. There is a different protection there and it seems to make it explicitly clear that the parties have chosen not to take away the requirement for compensation in respect of regulation. Regarding the European Court of Justice ruling 1/17, Dr. Ankersmit has made it very clear that the arbitrators are not bound by that ruling. They may consider domestic law but are not required to do so. Their balancing, even in those proportionality tests, does not need to consider those things. I am interested in the payment structures.

We have talked about the appointment but the payment structures have been identified as an issue of concern . The ECJ 1/17 ruling, as I understand it, explicitly asked that the payment structure system of the ICS be fixed and addressed with sufficient time to allow member states to consider it in their ratification process. It has not really been changed, as I understand.

My next question is to Dr. Fennelly in respect of the open-ended aspect. The 20-year exit clause has been called a zombie clause or a sunset clause. The 20 years for which the ICS would apply, even if Ireland decided to leave, would exceed the terms of three or four parliaments. Could that create a tension?

My final question is for anyone who wishes to comment. Dispute mechanisms between states are continuing in agreements and investors are being removed. There is a difference between dispute mechanisms between states that are parties and are making agreements with each other, and giving powers to investors that are not parties to the agreement. That seems to have been the trend in the UK, China and elsewhere.

Lynn Boylan (Sinn Fein)
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I thank the witnesses. Deputy Duffy asked one of the questions I had intended to ask, on the establishment of a separate arbitration jurisdiction for an entire case of law and how that fits in with the Constitution. I would like to hear Dr. Fennelly's view on the right to compensation in certain circumstances as set out in Article 8.11 of CETA and whether that would require an Act of the Oireachtas to confer that property right.

My next question, which is for all the witnesses, concerns Article 8.10.2(f) of CETA and the ability of the members of the joint committee to amend what constitutes fair and equitable treatment. For Dr. Fennelly, it is the idea of giving a third party powers on principal and policy and whether that would be in breach of the findings of McGowan v. Labour Court and the Bederev ruling because they are able to be changed after the fact. Dr. Ankersmit or Dr. Suttle might like to comment on the idea that the provision is open ended and the joint committee can amend what constitutes fair and equitable treatment.

Photo of Joe McHughJoe McHugh (Donegal, Fine Gael)
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I ask the witnesses to offer brief responses in the time that remains.

Dr. Laurens Ankersmit:

I will respond to Senator Martin's question first, on whether an investor is required to go to a court or whether it can stay within the arbitration system. As an example, if an investor would like to get money from the Government, it can entirely avoid going to an Irish court. It can go to the ICS and if the Government refuses to pay an award, it can go to a court outside of Ireland to enforce that award. The investor can completely avoid Irish courts if it wants to, even though there might be all kinds of constitutional objections to the award ruling from the ICS tribunal.

To respond to how Irish courts compare with the ICS, the Irish compliance committee system is very different from the ICS. It cannot issue binding decisions to Ireland, whereas ICS tribunals can.

I might take the questions from Deputy Duffy and Senator Boylan together. Public policy can be affected by ICS.

I believe that the best system to have is what Ireland already has, and perhaps what South Africa has done in response to investor state dispute settlement, ICSID, claims it has faced due to anti-apartheid legislation it had introduced. That is just to have a national law that seeks to protect foreign investors, that gives them non-discrimination rights, and to allow for domestic courts to protect those rights. The primary responsibility when it comes to upholding rules and law generally should be under a constitutional democratic system. That is a normative point I wanted to make. I will defer to the other experts.

Dr. Oisin Suttle:

I will pick up a little bit more on Senator Martin's question about the role of the courts. I understood part of the question to be around the role of the courts in supervising the CETA tribunal. The short answer is that the courts have little or no role in supervising CETA.

Vincent P Martin (Green Party)
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Exactly. I was talking about supervision.

Dr. Oisin Suttle:

It depends on the rules of arbitration that are chosen and that choice is with the investor. One option an investor suing Ireland will always have is to go under the ICSID convention regime - the International Centre for Settlement of Investment Disputes - because we are parties to that convention. If the arbitration is under the ICSID convention then no court anywhere in the world has any oversight role in relation to the arbitration. The only remedy that the ICSID tribunal provides when something goes wrong in arbitration is an application to ICSID itself, which essentially is a World Bank sister organisation, to annul the award. To date there are 285 awards under the ICSID convention. Of those, 66 have been challenged with an application for annulment, five have been annulled in full and 12 have been annulled in part. What does this tell us? It tells us that at least under ICSID there is no role for the courts in supervising. The supervisory jurisdiction of ICSID itself is a very high bar to cross. Once the decision is rendered and is not annulled by ICSID, it is enforceable in the courts of any ICSID party and any European convention party. It is enforceable in Ireland. The Irish Arbitration Act provides that the result of an arbitration under the ICSID convention is not subject to any review by the Irish courts at the point of enforcement. There is scope for the Irish courts to examine any other arbitration from a public policy perspective. If it is an arbitration under the ICSID convention, which is what a CETA investment tribunal decision will be, then the Irish courts have no power to do anything except give effect to it. The Minister for Finance is empowered to do one thing and one thing only, which is to write a cheque.

On Deputy Duffy's question on the difference of this tribunal, I will stay away from judging it from an Irish constitutional point of view because there are things I know about and things I do not. The Irish Constitution is something I will definitely leave to Dr. Fennelly. Deputy Duffy asked what is different about this, and there are some key things to look at.

One aspect is revisability, which we have touched on a number of times. If Ireland wants to leave the European Convention on Human Rights it can do so. It takes six months. If Ireland wants to leave CETA then it needs to leave the European Union and Ireland would still be stuck with it for 20 years after that. From a non-technical and non-constitutional perspective that seems like an important question with regard to deciding what sort of constraint on sovereignty Ireland is accepting.

A second aspect is impact. Where are the really big powerful decisions happening, such as decisions that can really push states around? They are happening in investment arbitration. If one contrasts the sorts of implications for a state of an adverse decision in, for example, a World Trade Organization, WTO, health body versus an investment arbitration decision, it is much easier to find a workaround in the case of the WTO dispute settlement system than it is in the case of the investment system.

The third aspect is enforcement. Because decisions of the CETA tribunal are, at least formally, arbitration decisions they are enforceable under the ICSID convention and under the New York convention. This means they are much more legally powerful than the decisions made even at the European Court of Human Rights. Ultimately, enforcement of a decision of the European Court of Human Rights is a political matter. I see Dr. Fennelly knitting his brows and he may have a different view on that. Enforcement of one of these decisions is much more automatic, once one gets past that relatively low bar of ICSID annulment.

Those are the factors to consider, not as a constitutional lawyer but rather as somebody who thinks about international law and the way it constrains states in pursuing their policy goals. Deputy Duffy asked a yes or no question about whether this will constrain public policy, and the answer is "Yes". I do not think it is sensible to think that there will not be at least some constraint. The extent of that constraint will depend on how it is interpreted. Ultimately, this certainly puts some bars around what Irish Parliaments can and cannot do. Those are new bars additional to the ones already there in the Constitution from European law and so on.

Dr. David Fennelly:

I thank the Senators and Deputy Duffy for all those questions. They really get to the heart of the matter. Regarding the enforcement of an award, I refer Deputies and Senators to Article 8.41. I agree with Dr. Suttle that there is very limited scope for challenging an award. If it were made to be enforced under the New York Convention, there is some possibility of challenging it on public policy grounds, but even then it on a limited basis, and our Arbitration Act gives effect to those conventions as a matter of Irish law.

Senator Martin's question about whether Crotty lives on is the big question and it is a difficult one. I do not think that Pringle puts Crotty to sleep but it puts serious brakes on the implications of Crotty. It confirms that the courts will intervene only in limited cases. Crotty lives on. It will continue to be relevant when it comes to major revisions of the European treaties and possibly other treaties such as the one about which we are talking. Whether that is so is ultimately a matter the courts will have to pronounce upon. The statement of the European Association of Judges was given before the European Court of Justice pronounced on it and was primarily on EU law issues. It has to be understood in the light of the subsequent Opinion 1/17. It is important to emphasise, as I do in the paper, that the question of whether there should be a referendum is not just a matter for the courts. Members of the Dáil can table a Bill to amend the Constitution if they consider it is appropriate and given the implications of a particular international agreement and its legitimacy. It is important the political power in that regard is vested with the Oireachtas.

On Senator Higgins's question about the tribunal and the open-ended nature of the commitment under CETA, it is true that the EU and member states would have to give 180 days of notice to terminate the agreement. We are locked in because it is a mixed agreement with respect to the EU. There is a sunset clause for the investor protection elements. That is a reflection of the nature of investment protection. Investors come and they stay for a certain time, so it is part of the legal certainty this agreement purports to give. It is a limitation. Whether or not it is so open-ended that it would constitute a transfer of powers under the Constitution that would require a referendum is more difficult to determine. Many international agreements involve limitations of this kind. The court would have to assess that in the round.

Regarding whether the right to compensation would require legislation, it is a reason why the role of the Dáil is important in approving this, since it could impose a charge on public funds. It goes back to the point about political accountability resting in the Dáil. The standard of fair and equitable treatment is well-established in international law. It is organic and as Dr. Suttle and Dr. Ankersmit said, while one does not know what precise interpretation that CETA tribunal might give, because of the provisions I have referred to, it would constitute legislation within the meaning of the Constitution, with regard to bringing into play the principles and policies test. It may have an indirect effect, which is something we have heard about in the context of this chilling effect.

On international dispute mechanisms, Dr. Suttle is right that the decisions of the European Court of Human Rights are not directly and automatically binding within our legal system, but Ireland as a State is under international obligations to give effect to those decisions and to the decisions of bodies such as the Aarhus Convention Compliance Committee as well as more court-like bodies of the kind we are talking about here. Ireland has been actively involved in these different mechanisms. Whether this agreement is so exceptional as to require the vote of the people, it is before the courts and will require careful consideration by the courts. Whether Pringle sets a high threshold, going back to Senator Martin's question, Crotty lives on, so we will have to wait to see how the courts ultimately pronounce on that issue. I thank the committee.

Photo of Joe McHughJoe McHugh (Donegal, Fine Gael)
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I thank the witnesses for their presentations, the effort they put into their presentations and their engagement here today. It is a clear sign of how complex this piece of work is that there was little repetition today and many questions were asked across a wide range.

Gabhaim mo bhuíochas le mo chomhghleacaithe, na Teachtaí agus na Seanadóirí uile. Gabhaim buíochas freisin leis na cainteoirí, an Dr. Fennelly, an Dr. Suttle agus an Dr. Ankersmit, fá choinne na díospóireachta, a gcur i láthair agus a bhfreagraí cuimsitheacha. Is léir go bhfuil na himpleachtaí iontach tábhachtach ó thaobh an Bhunreachta, chúrsaí eacnamaíocha, chúrsaí dlí, chúrsaí trádbhaic agus na rialacha idir an Aontas Eorpach agus Ceanada de. Gabhaim mo bhuíochas arís le gach éinne fá choinne a bheith páirteach sa díospóireacht inniu. Tá an cruinniú thart anois. Beidh cruinniú againn trí Microsoft Teams amárach, an 7 Aibreán, ar 10 a.m.

The joint committee adjourned at 2.35 p.m. sine die.