A matter of trust – Ireland’s relationship with the Investor Court System
Ireland’s ratification of the EU-Canada Comprehensive Economic and Trade Agreement (CETA) has come under new scrutiny following a legal challenge in the Irish courts by Green Party TD Stephen Costello - questioning the compatibility of the deal with the Irish constitution. The Green Party is currently part of a three-way power sharing government with established Irish parties Fianna Fáil and Fine Gael.
At the heart of the challenge is the functioning of CETA’s Investment Court System (ICS) - a dispute settlement mechanism meant to provide both nations and foreign companies investing in those nations, protection against discrimination. The new investor court replaces the old Investor State Dispute Settlement and, following a long review process, was deemed by the European Court of Justice to be compatible with existing EU treaties. The replacement of the older ISDS system came as a result of serious concerns by stakeholders and interest groups surrounding the transparency of the decisions of the arbitration panel - however it is becoming clearer that this new ICS system has also left questions unanswered.
Costello - and many others - believe that such an investor court could undermine, and in some cases circumvent, the power of countries to adopt legislation which could be deemed as harming investor profits.
Regulatory Chilling Effect
While some questions were answered in the adoption of the new ICS in place of the older ISDS system, the principal concern amongst both civil society and members of the Oireachtas (Irish parliament) is the ‘regulatory chilling’ effect that adopting an ICS could have. In this ‘chilling’ scenario, governments could face barriers, or hesitate to pass legislation – such as changes to social costs or additional environmental levies - which may interfere with investor profits.
Arguments for vs against
The Irish government argues that the agreement’s ICS is tied to the other trade-in-goods elements of the agreement - and that there is a sizeable economic benefit in opening up trade to the Canadian investment market, as well as the trade-in-goods advantages that come with it.
The government has also argued that the likelihood of such a situation, where an Irish public agency would discriminate against a Canadian investor, and as a result need to be taken before the ICS, is ‘slim to zero’. Instead, such measures exist in order to protect EU investors against unfair practices by countries where the judicial system does not operate as a democracy. Under the ICS investors have the option to choose to seek arbitration through the national courts, as well as through this secondary arbitration panel, represented by legal appointees from both countries and a third judge from a third country.
As compelling as such assurances are, the concern that Deputy Costello and others have raised by taking this action to the Irish court, is the impact such an agreement could have for Ireland’s climate ambitions in the future. For example, decisions to impose higher taxes on carbon producing industries could be hampered by the threat of legal action under the ICS.
The current legal argument being brought against the CETA is that ratification without a referendum on the ICS is contrary to articles 15 and 34 of the Irish Constitution. The government instead claims that ratification is within the scope of Executive power of the State.
Future of EU Trade
While the legal linguistic debates will likely decide the fate of the agreement in the Irish courts, it will also have to be voted on through the Dáil (Irish parliament) and the longer it takes for CETA to be ratified, the pressure of public opinion increases. Ireland is also not an outlier in this regard, with Germany, France, and the Netherlands yet to ratify the agreement in full. Currently the EU has a series of trade agreements underway with Chile, Australia, New Zealand, Indonesia, and others. The complication arises as these agreements begin to adopt further regulation and investment protection - while deeper regulatory integration in these agreements can give leverage to the EU to push for stronger environmental controls, it also asks for more assurances.
The deciding factor will be trust - Ireland will have to trust in the EU’s assurances that Canadian investors will not take the Irish government to seek arbitration. Similarly, the EU will have to trust that the Irish courts agree with the ECJ’s decision. Should an Irish high court decide to put the agreement to referendum it will be difficult to know how far the trust of the Irish electorate will extend.