American multinationals could use investor-state dispute settlement (ISDS) provisions in the European Union-Canada trade deal to sue EU governments in costly legal battles that could stymie policymaking, campaigners have warned.

Corporations with Canadian subsidiaries and holdings could use the Comprehensive Economic and Trade Agreement (CETA) to take countries to international arbitration tribunals, even if the ISDS clause is dropped from the EU-US Transatlantic Trade and Investment Partnership (TTIP).

US companies with “substantial business interests” in Canada would be able to use the CETA ISDS mechanism, if it is ultimately cleared by European and national parliaments.

They include ExxonMobil Investments, which used ISDS in the North American Free Trade Agreement (NAFTA) between Canada, the US and Mexico, to successfully sue Canada in 2007. The energy giant’s investment arm with Murphy Oil claimed about €49 million, but their final award was never made public.

US food processing company Cargill would also qualify. In 2004, Cargill sued Mexico through NAFTA ISDS, winning €71.8 million. Mexico had tried to introduce a tax on drinks containing high fructose corn syrup. The syrup is linked to obesity.

Sustainable trade policy officer at Transport & Environment, Cecile Toubeau, said: “CETA will be a Trojan horse for US-based multinationals to sue the EU and its member states.”

Under NAFTA rules, Canada was sued 34 times, at least once a year since 1996, according to a report Trading Away Democracy, published yesterday (18 November).

Canada has paid €121 million to American investors. Not all the cases were successfu,l but that still exposed the Canadian government to exorbitant legal costs of about €223.4 million, Transport and Environment, an NGO, said. The figure is based on UN research that put the legal fees, (typically 82% of total costs) and tribunal expenses at more than €6.4 million on average.

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The US has had 22 cases brought against it under NAFTA. The cases have either been dismissed or arbitration never began, and three cases are pending.

Blair Redlin, researcher with Canada’s Trade Justice Network, said: “Canadians have learned painfully from NAFTA that investor-state dispute settlement is a dangerous system which transfers power away from elected governments, towards corporations and private lawyers.”

Supporters of trade deals would argue that the figures were relatively small in comparison to the economic benefits of free trade. The European Commission, for example, claims that TTIP will be €119 billion a year to the EU economy – or an extra €545 for a family of four.

Chilling effect

CETA would unleash a wave of corporate lawsuits against Canada, the EU, and its member states, particularly in the mining and financial sectors, campaigners said.

Analysis by 15 environmental NGOs, citizens’ groups and workers unions from both sides of the Atlantic found that that CETA grants even greater rights to foreign investors than NAFTA.

As well as the cost, the threat of litigation had a “chilling effect” on government regulation, which was needed to fight everything from climate change to preventing the next financial crisis, they said.

“If the European Commission, member states and the European Parliament are serious about protecting public policy, they have to scrap investor-state dispute settlement not only from TTIP, but also from CETA,” Toubeau said.

The report said that for Canada, the risks of being sued by EU banks, insurers and holding companies over financial regulations will increase significantly with CETA.

The EU and its member states are at particular risk of being sued by Canadian mining, oil and gas companies, which are already engaged in several natural resource projects across Europe.

Opposition

The CETA text has been finalised, and after up to two years of “legal scrubbing” will pass to European and national parliaments for ratification.

On 10 November, new EU Trade Commissioner Cecilia Malmström said only minor adjustments to ISDS in CETA could be made.

“It will not be possible to take the dispute settlement procedure out of CETA. We are acting in a European context and must listen to the views of other countries,” Germany’s Economic Affairs Minister Sigmar Gabriel said after meeting with Malmström in Berlin.

In September, Gabriel had said Berlin would not sign unless this clause were scrapped, refusing to accept investment protection agreements in CETA and TTIP.

Read>>Malmström: Only minor adjustments to ISDS in trade deal with Canada

TTIP, the trade pact between the EU and US, is currently under negotiation.

Matthias Fekl, France’s Secretary of State for Foreign Trade, said this week his country will not support ISDS in TTIP.

Read>>French government will not sign TTIP agreement in 2015

Opposition to ISDS in TTIP was so strong the European Commission took it off the negotiating table and held a public consultation. It attracted 150,000 replies.

Read>>Commission swamped by 150,000 replies to TTIP consultation

In his speech to the European Parliament on 22 October, Commission President Jean-Claude Juncker said he would not accept any external limitations being placed on the member states’ ability to settle their own industrial disputes.

But the US is still pushing for its inclusion.

During a visit to the European Parliament’s October plenary session in Strasbourg, Anthony Luzzatto Gardner, from the United States’ mission to the EU, insisted that the ISDS was an important clause.

“Our message to the people of Europe is not to remove it from the table, but to conclude the discussion process and to improve it,” he said.

EU trade ministers will meet tomorrow in Brussels to discuss trade priorities.