The European Union won backing from the bloc’s top court on Tuesday for its system to protect foreign companies, which proponents say is essential for future trade agreements but critics say unfairly favours multinationals.
As the EU prepares to start negotiations with the United States, the European Court of Justice (ECJ) ruled as lawful the mechanism to settle disputes between investors and states in the Comprehensive Economic and Trade Agreement (CETA) with Canada.
Belgium had asked the court to give its view on that mechanism, under which tribunals with publicly appointed judges resolve disputes brought by foreign companies.
Critics had said the special courts undermined the supremacy of the ECJ and discriminated by only allowing foreign investors, not domestic investors, to bring cases.
The system of using tribunals to settle such disputes became a focal point of mass demonstrations against the “TTIP” EU-U.S. trade talks, which are now frozen, and CETA, when EU countries were deciding whether to back the latter in 2016.
The protests forced the European Commission, which negotiates trade deals for the 28-nation EU, to rethink its preference for the much-used investor-state dispute settlement (ISDS) system, with private arbitrators.
The EU has convinced Canada, as well as Singapore and Vietnam, to sign up to the new court system. It would also have to be part of a future comprehensive trade agreement with Britain after it leaves the EU.
But it has yet to persuade Japan after their trade deal provisionally went into force in February. The United States has also been critical, although investor protection does not feature in the slimmed-down industrial tariff agreement the EU has proposed.
Canada’s Trade Minister Jim Carr welcomed the ruling and said that CETA is generating more commerce.
“The numbers show that CETA is working on both sides of the Atlantic,” Carr said in a statement. “In the first year of provisional application, we have seen an increase in bilateral trade of 9.4 per cent.”
The ECJ case came after the Belgian region of Wallonia, then led by Socialists, threatened to block CETA in 2016. The federal government persuaded it not to do so in return for concessions. Those included a request for an ECJ opinion.
Belgian Foreign Minister Didier Reynders, whose liberal MR party will be fighting to stay in power in an election in May, said he was pleased with the ruling, adding in a statement that Belgian businesses had done well in the first year of CETA.
Environmental group Friends of the Earth said CETA was “legal but unfair.”
CETA took effect on a provisional basis in September 2017. Its full implementation, including the investor protection parts, requires approval by all 28 EU member countries and, for Belgium, also of its regional parliaments.
The court ruled that an international agreement, such as CETA, could lead to the creation of a tribunal to rule on matters related to it. The deal did contain provisions preventing investors from challenging public decisions on issues such as consumer or environmental safety, it said.
It also said CETA did not infringe the principle of equal treatment, since Canadian investors with interests in the EU were not comparable with EU investors with interests in the bloc.