Why The Netherlands should ratify CETA

International law has been front-page news in The Netherlands for the past weeks as the Dutch Parliament is debating whether or not to ratify the Comprehensive Economic and Trade Agreement between the EU and Canada (CETA). The so-called Second Chamber (Chamber of Representatives) approved such ratification in February 2020 and the issue will be put to a vote shortly in the First Chamber (Senate). It is not unthinkable that the Senate will disagree with the Chamber of Representatives, withhold its approval and thereby scupper the full entry into force of CETA for the entire EU.

Exclusive vs. shared competence

A brief recap: EU Member States have transferred the exclusive competence to negotiate and conclude trade agreements to the EU. Since the entry into force of the Lisbon Treaty in 2009, this exclusive competence also encompasses foreign direct investment. CETA is one of the first examples of the EU’s exercise of this newly acquired competence: it is primarily a trade and investment agreement, but it is also one of the first major Free Trade Agreements (FTAs) to include chapters on sustainable development, labour and the environment. Signed by Canada, the EU and all EU Member States in 2016, CETA entered provisionally into force in September 2017, with the exception of the investment chapter. The protection offered to foreign investors in this chapter, as well as the dispute settlement mechanism to enforce such protection (the so-called Investment Court System or ICS), formed the subject of sustained controversy.

Two Opinions of the Court of Justice of the EU (CJEU) are relevant in this respect. In its Opinion 2/15, as discussed in this EJIL Talk post, the Court decided that foreign indirect investment (or portfolio investment) and investor-State dispute settlement fall under the ‘shared’ competences, meaning that the EU and all its Member States have to become members to any treaty that aims to regulate these matters. This Opinion was issued in response to a question relating to the EU-Singapore FTA but also considered applicable with regard to CETA.

Following this Opinion, the EU split its draft treaty with Singapore into an FTA and an investment protection agreement (IPA). The EU also removed investment from its recent comprehensive Economic Partnership Agreement with Japan. The trade agreements with Japan and Singapore, requiring no ratification from the Member States, have meanwhile entered into force. Yet the original architecture of CETA, including an investment part, was maintained. This led to a new Opinion of the European Court, in response to a question from Belgium as to whether ICS, being part of CETA, was in conformity with EU law.

In its Opinion 1/17, as analysed in this EJIL Talk post, the CJEU declared ICS compatible with EU law. As a result of these two CJEU Opinions as well as significant political pressure, CETA was concluded as a mixed agreement, requiring ratification of all Member States before it can fully enter into force. About half of the EU membership has ratified CETA at this point – but in The Netherlands, the Senate has not yet given its approval to do so.

Mixed agreements: no circumvention of exclusive competence

Through the ratification procedures, national parliaments are asked to approve the entire treaty (which does not distinguish between subjects that are part of the exclusive competence of the EU, as opposed to those that are shared). Withholding approval, however, on the basis of disagreements concerning subjects for which the EU is exclusively competent, would be in violation of the principle of conferral of competences. It would mean that the Union is no longer able to exercise the functions for which it has been authorised by those very same Member States.

It is interesting to note that a large part of the Parliamentary debate in The Netherlands concerns subjects that do not fall within the competences of the Member States. Such debate may help to offer the general public a better insight in the actual subject-matter of CETA, but should not result in a withholding of approval on improper grounds.

Controversial topics

Which topics are so controversial that some are arguing that trading nation The Netherlands should block a treaty with like-minded Canada? Even though there is no other trade treaty in existence that pays as much attention to the protection of public health, security, the environment, labour or consumers, some still allege that CETA does not go far enough. Such matters, however, do not fall within the competence of national parliaments; rather, they fall under the scope of competences of the (directly elected) European Parliament, that has decided to make this new step to better balance trade with other objectives, such as environmental protection.

In addition, critiques focus on the risk that investors would initiate legal procedures against The Netherlands and other EU Member States via the new ICS. This is indeed a possibility, as it is under the 90-odd bilateral investment treaties concluded by The Netherlands, which do not contain any attempt to protect public interest objectives.

Ratification requirements under the Dutch Constitution

Some have argued that the planned majority vote in Parliament in order to approve the Dutch ratification of CETA violates the Dutch Constitution. Under Article 91(3) of the Dutch Constitution, treaties which deviate from the Constitution (or could cause deviation) have to be approved by the Parliament with a two-thirds majority. Opponents of the treaty argue that CETA would be in conflict with Article 212 of the Dutch Constitution, which reserves judging disputes about civil claims and damages exclusively to the Dutch courts. CETA disputes, however, would not be based on civil rights and resulting claims under Dutch domestic law. CETA obligations have an international character and find their origin in customary international law, as incorporated in the investment protection provisions of the treaty. They can only be enforced via the dispute settlement mechanism stipulated in CETA.

Because claimants are investors, their claims resemble private claims against the State, but they are not: investors can only base their claims on the treaty, and only insofar as their home State has authorised them to do so. Also in this respect, CETA represents progress compared to existing investment treaties as it emphasises the inviolability of the host State’s domestic regulation. The Netherlands will not be forced to lower its standards or to modify or abolish its rules for the benefit of foreign investors. Moreover, in its Opinion 1/17, the CJEU confirmed, through extensive reasoning, why ICS does not create any problems from the perspective of EU law.

What if the Netherlands fails to ratify CETA?

Withholding parliamentary approval would imply that The Netherlands (which was one of the major forces in the design of ICS) will not be able to ratify CETA. This would have far-reaching consequences as CETA would not be able to enter into force for the entire EU. In today’s crumbling international legal order, this would be a very negative signal, particularly as the EU is trying right now to address problems in the World Trade Organisation and elsewhere together with like-minded countries such as Canada. CETA represents a step forward and a good basis to further improve a variety of matters at the international level.