With the seventh round of negotiations between Canada and the European Union over the Canada-EU Comprehensive Economic and Trade Agreement (CETA) completed this April, and the eighth round scheduled for July, the involved nations are closer than ever to being subject to the investment arbitration provisions of another free trade agreement. Canadian critics of CETA have taken aim at the draft CETA arbitration provisions, arguing that the investment chapter is poised to become the next NAFTA Chapter 11—more burdensome on the government than beneficial to investors. But is this criticism justified?
The short answer is yes. Canadians should be concerned about committing their federal government to another slough of investor-initiated arbitrations, especially with investors from the developed European member states. While Canada has no shortage of commitments to investment arbitration under the country’s network of bilateral investment treaties (BITs, known domestically as Foreign Investment Protection Agreements or FIPAs), the number of claims that Canada can expect to face under these FIPAs is negligible compared to what it should expect to face under CETA. One reason for this is that investors bringing arbitration claims tend to come from developed nations, and Canada’s FIPAs are primarily with the developing world. NAFTA Chapter 11 has generated more investor claims against Canada than all the FIPAs combined, and while empirical studies have shown that US investors are the most common claimants, investors from European member states combined have initiated almost as many claims as those from the US.
Canada must also recognize the growing international concern about investment arbitration, especially from economically similar nations like Australia. The recent Australian policy shift against pursuing arbitration clauses in future free trade agreements expressly recognizes the danger that arbitration imposes on a nation that wishes to regulate in areas of social or environmental policy. There is little indication that Canada’s desire to attract European investment is great enough to warrant the tighter regulatory space that these treaty provisions will imply.
But while the concerns are legitimate, governmental burdens must be weighed against the prospective gains for Canadian investors from the inclusion of these provisions. There are several reasons for investors to prefer arbitration; one of the strongest is that it saves them from the perils of domestic courts. While traditionally a justification for investment arbitration with developing nations, there are European nations whose court systems should be a cause for concern. Italian courts, for example, are so notoriously slow that litigants may purposely ‘torpedo’ actions they know they will lose, but want to delay, by commencing them in Italy. An arbitration system also saves investors who wish to work with a number of European governments from needing to familiarize themselves with the intricacies of what could be several very different legal systems. While provincial legal differences may pose something of a burden for prospective European investors in Canada, the lure of arbitration for Canadian investors, at least because it provides a more familiar system, may be greater.
In the end, however, it may not make a difference whether investment arbitration is shown to be more or less advantageous than its alternatives: arbitration provisions may be included in CETA because they are the accepted status quo and negotiators face a swarm of other issues. Already Canada has six FIPAs with members of the European Union, all of which contain provisions for investor-state arbitration, and these form just a small part of the hundreds of investment treaties concluded between European member states and third parties that include investor-state arbitration. This demonstrated acceptance of investment arbitration by both parties means that dispute resolution is not an issue that is likely to be hotly disputed. Add to this that CETA is poised to become the most ambitious trade agreement ever signed by Canada, with unprecedented offers in government procurement, enforcement of geographic indicators, and the elimination of huge numbers of tariff barriers, and it is easy to see why negotiators are not likely to make a fuss over investment arbitration. Indeed this is exactly what members of Canada’s negotiating team indicated in a forum on the status of CETA talks held in Toronto this May.
But despite the size of the task before negotiators, investment arbitration provisions should not be included simply because they are common. The claims that Canada could face from European investors need to be carefully weighed against the benefits for Canadian investors. At the very least, Canada and the EU should discuss domestic courts as an alternative to arbitration and seek input from prospective investors on the issue. With the exchange of offers between the two parties set to occur this summer, and the potentially final round of talks to occur in October, time is running out to examine this critical part of the agreement.
Author: Craig Garbe is former Editor-in-Chief of the Osgoode Hall Review of Law and Policy, and a graduate of Osgoode Hall Law School. He currently works with a multi-service private practice firm in Toronto, Canada.
 Data based on total number of EU member state investors involved in a sample of 82 arbitration cases compared to US investors, Susan D. Franck, “Empirically Evaluating Claims about Investment Treaty Arbitration” (2007) 86 N.C. L. Rev. 1 at 29. Note that while Franck’s classification of nations by OECD status and classification of arbitrators by nationality is criticized, this data is weak only in that the sample of cases used is relatively small.
 Government of Australia, Department of Foreign Affairs and Trade Policy Statement, “Trading our way to more jobs and prosperity”, available online at: <http://www.dfat.gov.au/publications/trade/trading-our-way-to-more-jobs-and-prosperity.pdf>.
 Comments delivered by Steve Verheul and members of Canada’s negotiating team at the Canada-EU Trade Negotiations Roundtable Discussion (26 May 2011, Toronto, Canada).