Ariel Katz is associate professor and the innovation chair in electronic commerce in the University of Toronto law faculty.
While Wallonia's opposition to the Canada-EU Comprehensive Economic and Trade Agreement has received considerable attention, a recent decision of the German Federal Constitutional Court shows that CETA faces more fundamental hurdles than most Canadian and European leaders are willing to acknowledge.
On Oct. 13, the constitutional court declined to issue a preliminary injunction prohibiting the German government from signing CETA. While it allowed Germany to sign, a careful reading of the decision reveals that it gave CETA a very qualified green light and contains several important lessons for Canada.
First, it indicates that even if Wallonia relents and CETA is signed, political and legal blocks still lay on the road to its full implementation, including in Germany, the largest European Union economy.
Second, as a result of the ruling, Germany (and possibly other EU states) will only be bound by CETA provisions that fall under exclusive EU competence, while Canada might have to comply with the entire agreement.
Third, the court identified several potential constitutional deficiencies, some of which have Canadian parallels. Brushing aside these constitutional questions and rushing to sign and ratify CETA could eventually place Canada between more than one rock and several hard places: bound internationally to comply with treaty obligations with which it cannot comply constitutionally. This would force Canada to choose between the consequences, or undermining its own delicate constitution. The good news is that the German decision also shows that if Canada does not sidestep these questions today, it could avert these crises.
The court recognized that even the provisional application of CETA might, with respect to matters falling outside the core of exclusive EU competence, conflict with the German constitution. It ordered the German government to ensure that those matters would not even apply on a provisional basis until Germany's ratification. The court further identified five such specific areas, three of which – ISDS (investor-state dispute settlement), mutual recognition of professional qualifications and labour – should ring alarm bells in Canada.
The last two areas fall principally under provincial jurisdiction. It is generally assumed that Ottawa has the full power to negotiate, sign and ratify treaties including with respect to matters within exclusive provincial jurisdiction. But it is also accepted that the federal government does not have the power to implement those obligations, nor can it legally force the provinces to comply with them. At present, the provincial governments support CETA, but this is neither guaranteed politically nor binding constitutionally. Should a province decline to comply in future, the rest of Canada might bear the consequences.
The constitutional questions surrounding ISDS, the most controversial CETA chapter, go deeper and wider. ISDS may be challenged on various grounds, all of which relate to the fact that its very design grants foreign investors a privileged legal status. It purports to endow them with enforceable legal rights that are independent of, and indeed superior to, the rights and remedies available to everyone else under the current legal and constitutional order. ISDS effectively places foreign investors above the law.
When the government exercises its powers to negotiate, sign and ratify international treaties, it is bound by the constitution. Therefore, if ISDS is indeed unconstitutional (as a growing number of prominent jurists in Europe, the United States, Australia and Canada have grown to believe), then the federal government cannot agree, implement and comply with such a mechanism. The problem, however, is that ISDS is designed to be immune to the constraints of states' law and their constitutional dictates.
Moreover, under international law, treaty obligations remain binding even if they violate the state's own laws. This rule, however, has an important exception: Where an obligation manifestly violates an internal law of fundamental importance (such as a constitution) and where this violation would be objectively evident to the other contracting states, the obligation may not be binding. Which brings us back to CETA.
The German government undertook certain measures ensuring that provisional application of CETA would not conflict with the German constitution, but the court was not satisfied that those measures were sufficient or workable. Therefore, it ordered the government to notify all parties, in a manner that has bearing in international law, that Germany reserves the right to terminate provisional application of the agreement should it not be able to comply without violating its constitution.
The German court recognized that signing CETA could place Germany between the rock of treaty obligations and the hard place of compromising its own constitution. Canada's government would be well advised to pause and reflect on the implications of that. Since ISDS has become the major impediment for CETA, agreeing to remove this controversial and unnecessary chapter seems like a wise move. If the EU is unwilling to do that, then Canada should consider following the German example and signing CETA only if it can do so in a manner that preserves the supremacy of our constitution.
At a minimum, Canadians should question the wisdom of making risky commitments that will not even reciprocally bind its most economically important EU counterparts. While the political temptation of a swift conclusion is understandable, signing CETA in a way that risks the integrity of the constitution would be a lamentable mistake.