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Policy Analysis

IISD Speech: President and CEO Scott Vaughan at PAGE Ministerial Conference, Berlin

IISD President and CEO Scott Vaughan speaks at the PAGE Ministerial Conference in Berlin, Germany on March 27, 2017.

By Scott Vaughan on March 27, 2017

March 27, 2017 –  We meet at an historic, unstable and bleak moment. Long-held assumptions about a rules-based, multilateral trading system are under siege.

In early March, the G20 finance ministers failed in their communiqué to endorse the principles of an open, rules-based trading system. Language on climate change was also expunged. Unless the G20 can find common, clear and sensible language around such core issues, they should cease issuing communiqués.

This session is on trade and investment.

Recently, the European Commission Trade Commissioner and Canadian International Trade Minister have said that the new EU-Canada CETA agreement signals a generation of progressive trade policy that should be a model for future regional and bilateral trade accords.

Many in the public as well as in powerful circles of global influence don’t see it that way. Instead, they see CETA as the continuation of a liberal economic agenda that has negatively affected jobs; constrained the ability of governments to protect environmental, public health and other domestic priorities; and coincided with wage and income inequality.

Public anxiety around CETA, especially within European countries, has focused on investor-state dispute settlement (ISDS). So I wanted to concentrate on ISDS issues, and explore in the next few minutes if CETA is a solution going forward.

CETA has made some positive steps. First, it consolidates the nine separate bilateral investment treaties between EU member states and Canada under a new, single umbrella. Given that there are over 3,300 bilateral investment treaties and measures to amalgamate and narrow, this consolidation is welcome provided it coincides with substantive improvements.

IISD has been examining this labyrinth of some 3,000 different agreements. We are focusing on the best outcome in creating—as the European Commission, Canada and others are now advocating—a single multilateral investment court.

My colleague Nathalie Bernasconi recently posted an overview in her response to the European Commission proposal. She argues that the court should be inclusive, ensuring meaningful (not merely formal) access to justice for all stakeholders, including governments, communities and individuals, and investors. 

The court should address the variety of legal and actual relationships involved in transnational investments, including state–investor; investor–community/citizen; state–citizen/community.

It should also have a broad base of law beyond contract law to include different international legal obligations, for example Paris climate action, ILO Convention 169, human rights and other laws and norms, as well as different standards.

CETA doesn’t meet these thresholds. But it does make a number of important, substantive improvements from the investor-state arbitration model, notably by improving overall transparency as well as creating a roster of independent judges. In addition, it clarifies some key concepts, such as expropriation, which in the past have been interpreted expansively and wrongly by investment tribunals.

However, CETA begs a number of questions of principle: why is a dispute settlement mechanism needed in the first place between Canada and the European Union? Why do investment provisions need to be contained within a trade agreement? Why do investment provisions codify protection for investors without also setting out clear responsibilities for investors?

While there have been only a few cases where local remedies have been circumvented, they have been especially egregious settlements, and they raise basic questions about the democratic right of governments to regulate, and the rulings of domestic courts to uphold that legislative right.

IISD isn’t against rules and disciplines needed to support investment. Neither the Paris Agreement nor the Sustainable Development Goals (SDGs) will be realized without investment.

Rather than tweaking a flawed model that arose from NAFTA Chapter Eleven, it’s time to think creatively about a new conceptual framework for investment that goes beyond a simple paradigm of protecting the rights of investors. Alternative models are indeed emerging, such as the leadership of Brazil in launching a new model of investment agreements. Instead of focusing on investment protection and litigation, Brazil’s model proposes hands-on tools to promote and facilitate transborder investment.

An immediate question is whether investment issues beyond the current agreements (for example, in World Trade Organization [WTO] Trade-Related Aspects of intellectual Property Rights [TRIPS] and GATS-related rules) should be addressed at the multilateral level through the WTO. As a former member of the WTO Secretariat, I don’t think right now that the WTO is the obvious place to house a new multilateral investment agreement.

Let me briefly explain why. The WTO is primarily about disciplines. These are obviously at the heart of a rules-based trading order. Yet in our collective search for new and transformative models of investment that will decarbonize economies and make the SDGs real, we need to begin from a position of cooperation rather than arbitration. There has been thoughtful work on a new vision of investment that accelerates sustainability, as well as equity and jobs. See Columbia FDI Perspectives: Perspectives on topical foreign direct investment issues, Karl P. Sauvant, Columbia Center on Sustainable Investment.

To date, the WTO has tried but fallen short of integrating goals other than trade and economic liberalization. At the heart of the SDGs is this concept of integration. Perhaps more timely, given the backlash against the WTO, its best salvation may be to return to its core areas of competence rather than trying to expand its mandate.

Finally, when you compare the HLPF and Open Working Group that produced the SDGs with the WTO, we face important barriers in terms of multistakeholder approaches like the UN.

Perhaps the WTO can accommodate these challenges. India, for example, submitted a proposal on trade and investment in late 2016 that went beyond a traditional focus on GATS mode 4 coverage to reference mode 3 as well. 

IISD will look carefully at whether sustainable and equitable investment conditions fit inside, outside or alongside the WTO. IISD more broadly is working on different aspects and challenges to trade, and the need to find new, creative models that align trade to accelerate sustainable development. I’m pleased that my colleague Aaron Cosbey, together with colleagues at UNEP, are launching at PAGE an updated UNEP toolkit on trade and green economy.

The challenges facing multilateralism in general, and the trade and climate regimes in particular, are complex and mounting. We need to envision trade and investment regimes that go beyond repeating the models of more than six decades ago. The SDGs have been adopted by all countries. They challenge the trade and investment communities to discard those models that are closed to public scrutiny, that fail to give a voice to communities and that narrowly extend private contractual rights to international public law. We know we can do better.

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