Trade, Investment, and Sustainable Development in CETA

By Emily Hush, J.D. Candidate 2018, Columbia Law School

It is no secret that the planet is warming and that humans had something to do with it. Over the last 150 years, the global average concentration of carbon dioxide in the Earth’s atmosphere has increased to unprecedented dangerous levels and it continues to rise. As the climate becomes warmer, the world faces ocean acidification, sea level rise, decreasing biodiversity, and more extreme weather events. Sustainable development that “meets the needs of the present without compromising the ability of future generations to meet their own needs,” is central to the international response to climate change.

Bilateral free trade agreements (“FTAs”) provide important opportunities for advancing sustainable development. First generation agreements emphasized investor rights and state obligations. The New Generation FTA developed in response to growing concerns that arbitral awards were encroaching on state sovereignty. New Generation FTAs stress the State’s right to regulate in the public interest, and sustainable development is the “presiding principle” upon which they are built.

The EU is a global leader in the pursuit of sustainable development, and safeguarding the right to regulate in its FTAs is one of its core strategies for promoting that principle. Sustainable development was first added to primary EU law with the Treaty of Amsterdam in 1997. It became a fundamental Union objective with the Treaty of Lisbon, through its explicit inclusion in the Treaty on the European Union and its incorporation by reference into the Treaty on the Functioning of the European Union. It is foundational to the EU’s philosophy.

In October 2016, the EU and Canada signed the Comprehensive Economic and Trade Agreement (CETA), the EU’s latest and most ambitious New Generation FTA. Canada and Europe have been stable trading partners for centuries. Their formal trade relationship began in 1976 with the Framework Agreement for Commercial and Economic Cooperation, the EU’s oldest such agreement with an industrialized country. They have collaborated on environmental protection since the 1970s. CETA evolved in the context of this well-established relationship, in which sustainable development and environmental protection were already familiar ideals.

CETA creates a new Investor Court System with a permanent tribunal and an appellate court, designed to resemble to some extent a domestic judicial system. It includes an expansive chapter on trade and sustainable development and aggressively asserts the right to regulate. CETA’s key contribution to sustainable development is its insistence that trade and investment serve sustainability, not the other way around. For example, in the preamble to the treaty, the Parties reaffirm “their commitment to promote … the development of international trade in such a way as to contribute to sustainable development in its economic, social and environmental dimensions.”

CETA’s Joint Interpretative Instrument affirms this position, explaining that under CETA, the principal purpose of trade is to create sustainable economic growth. While this idea may seem controversial, it is quite  logical: governments serve public interest. They do not (ideally) enter into trade agreements to get rich or to enrich investors, but to increase the wealth of their citizens. Unsustainable trade and investment, though perhaps profitable in the short-term, will eventually damage the economy and the people’s welfare through resource depletion and environmental degradation. Sustainability is therefore fundamental to the State’s duty to its citizens. Using sustainable development policy as a shaping force of trade and investment is appropriate and necessary.

In future New Generation FTAs, the EU should build on CETA’s principles and concepts to strengthen sustainable development even further. First, it should continue to emphasize the framing function of sustainable development in all its FTAs and encourage its partners to do the same. The widespread and continuous employment of sustainable development as a tool for shaping trade and investment will make it increasingly akin to a customary principle of international law. As a customary principle, it will be more easily invoked, and more readily considered binding, gaining influence over trade and investment practices.

The EU should also strengthen the language used to promote sustainable development by moving away from obligations of method (aiming, encouraging, and promoting), to obligations of achievement (committing and ensuring). It should also add sustainable development directly to each provision protecting the right to regulate. Currently, the right to regulate shields governmental measures that protect the environment, and sustainable development is included in this protection only implicitly. However, sustainable development should be explicitly enumerated as a protected, legitimate governmental pursuit.

Finally, while New Generation FTAs strengthen the State’s right to regulate, they do not impose actionable obligations on investors. In its future FTAs, the EU should make investors its partners in the pursuit of sustainability. Politically speaking, this will certainly prove challenging at the outset. However, to effectively foster responsible, sustainable investment, investors and States quite simply need to collaborate. Imposing actionable responsibilities on investors would reverse the incentive structure of FTAs, ensuring that sustainable development is the overarching objective of the agreements in fact, not only in law.

In the past, trade and investment agreements have exposed governments to troubling liability for actions taken in the public interest, and in particular those taken to advance environmental protection. New Generation FTAs attempt to rectify this power imbalance by emphasizing the State’s right to regulate, particularizing provisions on environmental protection and sustainable development, and curbing investors’ rights.

Reading binding sustainable development obligations into CETA is not just plausible: it is imperative. Humans have degraded the natural environment to a degree never before seen. The climate is changing, with grave consequences. International trade and investment have a crucial role to play in redressing the harm. The EU needs to wield its international influence and build on CETA’s example to create and strengthen coalitions of nations dedicated to sustainability. Together, these partnerships will foster global collaboration and fortify multilateral undertakings like the Paris Agreement. To pass the earth to the next generation unscathed, we must exceed all that we achieved before and recognize that complacency is no longer a viable option.

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