19 December 2017

By Professor Keith Ewing and John Hendy QC

I

David Davis has suggested that in place of the EU Treaties, the UK’s relations with the EU should be regulated by a deal which is ‘Canada, plus, plus, plus’. By this he means a Free Trade Agreement (FTA) based on the Comprehensive Economic Trade Agreement (CETA) agreed between the EU and Canada. The British people should treat the proposal with revulsion. It contains every one of the defects which led 3.5 million Europeans to sign a petition objecting to the now defunct TTIP (Transatlantic Trade and Investment Partnership between the EU and the USA), a sister agreement to CETA. 

The primary purpose of such ‘Free Trade Agreements’ of which there are many) is ‘deregulation’. This effectively means reducing regulations imposed by States to the lowest common denominator. Amongst these ‘regulations&rsquo are, of course, the laws passed by State Parliaments which protect food and environmental standards, workers’ rights and so on. Corporations do not like such standards because compliance with them costs money. The cost of low standards in terms of ill-health, injury, low wages and bad working conditions is, of course, borne by the citizens, not by the corporations.

II

One of the sought-after benefits of CETA from the Canadian viewpoint is that Canadian oil companies (mostly of US origin) want CETA to knock down the regulations (the EU Fuel Quality Directive, in particular) which currently prevent the export of tar sands oil to Europe.

Not only do FTAs seek ‘regulatory alignment&rsquo so that high standards are reduced to the lowest standard, but they also make provision for the corporations which are subject to such regulations to sit on the committees which set the standards. This is called ‘regulatory co-operation. &rsquo CETA has this.

CETA also includes the reviled ‘Investor-to-State Dispute Settlement&rsquo procedure (ISDS). Practically all such international FTAs do. ISDS is an arbitration procedure in which multinational corporations (referred to in CETA as ‘investors&rsquo) based in one signatory State can sue another signatory State for future loss of profits. The usual claim is on the ground that the laws of the State in which the multinational is seeking to operate have failed to provide ‘fair and equitable treatment&rsquo, or because national law has resulted in ‘expropriation&rsquo of the multinational’s assets. Such claims go to private international arbitration which the EU intends to rename f a Multinational Investment Court.

The claims that go to ISDS do not rest on an allegation that the State in question has broken national law (or in the case of the EU, EU laws). Indeed, the usual claim is that the host State passed a law which caused unfair and inequitable treatment! Had the host State broken its own law, the multinationals could sue in the State courts for compensation. No, CETA and the other FTAs instead guarantee corporations unique rights not available to the ordinary citizen: to sue a State because it has acted in accordance with its own laws! To do this CETA and the rest give corporations special laws and a special court in which to litigate.

The jaw-dropping arrogance of the corporations which claim for themselves the privilege of these special rights and a special arbitration court is matched only by the staggering obsequious forelock-tugging deference of the States which submissively agree to concede these extraordinary privileges. Bear in mind that ISDS procedures do not permit States to sue corporations; still less do they allow a citizen to sue either a corporation or a State. So, for example, workers (and their trade unions) will not be permitted to claim under CETA that a Canadian multinational has subjected them to a lack of “‘fair and equitable treatment&rsquo or expropriated their wages or other property.

III

It might have been thought that Canadian corporations in the UK would have been content with the benefits of limited liability, low corporation tax, cheap labour, minimal employment protection, sophisticated commercial laws, and access to reputable courts to enforce its rights. But this is plainly not enough, under CETA and its like corporations will have a privilege (denied to citizens and our government) to override our Acts of Parliament and our Supreme Court, the Court of Justice of the EU and the European Court of Human Rights. And in suing the UK government for rights outside UK law, Canadian corporations have an advantage denied to UK companies.

This is exactly what a large tobacco corporation did in claiming lost future profit because the Australian Parliament introduced legislation for the health of Australians which required plain paper packaging for cigarettes. The corporation failed in the Australian courts at every level. Then through a subsidiary it took its case to an ISDS tribunal in a bilateral FTA. There it only failed on a technicality (that the subsidiary was not set up until after the FTA was ratified). Had it succeeded it would have effectively overturned the Australian Parliament and its highest court.

The number of ISDS claims by multinationals against States under various FTAs, is small, though rising fast. But the size of the claims is eye-watering. The average amount claimed in 2016-7 was US$ 1.35billion and the median US$19 million. The average award was US$522 million and the median US$19 million. In 2014 an award was made of US$ 50bn Multinationals wind 59% of the claims made so that the chilling effect of ISDS on governments is easily appreciated

In the context of the tar sand issue it may not seem so strange that Canada has itself been on the receiving end of multiple ISDS claims resulting from other FTAs it has signed. The drug company Eli Lilly sought $500 million compensation (under the ISDS of the North America Free Trade Agreement) seeking to overturn Canadian Court decisions that patents on two drugs were invalid. Another company sued for $250m by for compensation for the loss of gas exploration permits when Quebec imposed a moratorium on fracking. Yet another claimed for loss of profit caused by Ontario’s moratorium (on health and environmental grounds) on offshore wind-farms. In yet another case Canada was ordered to pay $300m lost profits because permission was refused on environmental grounds for a quarry near the picturesque fishing village of Digby. And Canada also had to pay $17.3m compensation because Newfoundland and Labrador had an economic development plan which required oil companies to contribute to petroleum research, a contribution which was held to be a hindrance to profit making.

Without doubt Canada plus, plus, plus will result in a plethora of claims against any future Labour government which seeks to put its electoral mandate into effect. This no doubt is the reason that David Davis is so keen to surrender Parliamentary and judicial sovereignty and abandon the rule of law.

IV

It is true nevertheless that CETA does have (like other FTAs) an attractive statement on labour and trade union rights. The only problem is that it is worthless. CETA’s Trade and Labour Chapter includes in article 3 the requirements that:

1. Each Party shall ensure that its labour law and practices embody and provide protection for the fundamental principles and rights at work, and reaffirm its commitment to respecting, promoting and realising such principles and rights in accordance with its obligations as member of the ILO and its commitments under the ILO Declaration on Fundamental Rights at Work and its Follow-up, adopted by the International Labour Conference at its 86th Session in 1998.
   1. Freedom of association and the effective recognition of the right to collective bargaining;
   2. The elimination of all forms of forced or compulsory labour;
   3. The effective abolition of child labour; and
   4. The elimination of discrimination in respect of employment and occupation.
2. Each party shall ensure that its labour law and practices promote the following objectives included in the Decent Work Agenda, and in accordance with the 2008 ILO Declaration on Social Justice for a Fair Globalisation, and other international commitments:

[health and safety, minimum employment standards, non-discrimination]

It is immediately striking that these commitments bind only the States which are party to the Agreement, and that the commitment is for national laws and practices to conform to these minimum global standards. There are therefore two consequences. The first is that there is no obligation or even suggestion that corporations (which are the beneficiaries of these FTAs) should abide by these standards, or that there is a procedure whereby corporations could be held directly accountable for their failure to do so. Secondly, this commitment to labour standards is addressed only to national law and is not part of the higher law (the ‘fair and equitable treatment&rsquo requirement or any other of the FTA provisions) enforced by the ISDS process, nor is conformity with these ILO standards a condition which must be fulfilled before a corporation can bring an ISDS claim.

The foregoing procedural limitations conceal a darker substantive truth. One reason why there is no means for enforcing these obligations is simply that there is no intention to be bound by them, the agreements are made by countries which are in breach of the obligations contained therein at the time the agreements are concluded. In the case of the EU the absence of intent is compounded by an inability to comply because of legal constraints that already indulge corporate interests. The ILO Committee of Experts has made it clear that the restrictions on the right to strike introduced by the Viking and Laval cases in 2007 are not consistent with obligations under ILO Convention 87.

In these cases the Court held that (i) the right to strike of workers and trade unions was subordinate to (ii) the freedom of movement and freedom of establishment of businesses. The former could prevail over the latter only as a last resort and only if proportionate, the Committee of Experts making clear in the BALPA case from the United Kingdom that there is no principle of proportionality in ILO Convention 87 which has to be satisfied before industrial action is deemed to be lawful. There has been no acknowledgement of this ILO jurisprudence by the EU, which is powerless to give effect to it unless the European Court of Justice reverses or modifies its decisions in Viking and Laval, or unless the EU treaties are changed to reflect the obligations of member states under ILO Convention 87 – which it should not be forgotten is a binding treaty under international law.

V

But it is not only the EU which is in breach of its obligations. So too are the member states. In 2015 we completed a study of the compliance by EU member states with ILO Conventions 87 and 98 (which all have ratified), and the European Social Charters 1961 and 1996, arts 5 and 6, which overlap with the ILO treaties. The study covered the reports of the ILO supervisory bodies and the European Social Rights Committee for the years 2014 and 2015. We concluded:

• 15 member states in breach of ILO Conventions 87 and/or 98, and another three the subject of direct requests;

• 19 member states in breach of the ESC, Arts 5, 6(2) or 6(4), with another three protected from scrutiny by not accepting one or more of these provisions.

There is obviously overlap between these two categories. But adding these two categories together, we find that concerns have been raised by the supervisory bodies under one or both of the ESC and ILO obligations about 22 EU member states in the last few years alone. The only exceptions are Austria, Cyprus, Finland, Lithuania, Poland and Slovenia, and in two of these cases – Austria and Poland – there is no acceptance of ESC, Article 6(4) [on the right to strike]. In the case of Finland there is new legislation in the pipeline, which will change that country’s clean bill of health, interfering as it does with free collective bargaining on working time. And in the case of Lithuania the very low levels of collective bargaining coverage [the lowest in the EU] suggest that the absence of censure may be fortuitous

Yet rather than improve standards, we are aware only of further pressure to reduce them. So despite labour clauses free trade agreements between the EU and its member states with countries as diverse as Korea and Canada, we see steps being taken by the Macron government in France to pursue an EU Commission led agenda (under the Treaty on the Functioning of the EU, Title VIII) to decentralise collective bargaining procedures which Anglo – Saxon experience reveals conclusively will lead inexorably to a decline in the levels of coverage and a fall in standards. It is also the case that despite the United Kingdom being a party to the EU – Korea agreement, the then Tory government of David Cameron introduced the Trade Union Act 2016, at a time moreover while CETA was being negotiated.

Like CETA, the Korea agreement has a commitment to comply with ILO standards on freedom of association. Yet so compelling was the Cameron government’s commitment to this principle in the FTAs (which are signed off by the 28 EU heads of government as well as the EU itself), that it was willing to legislate in breach of these commitments in the Trade Union Act, wholly indifferent to the consequences of doing so. It has to be said that the ILO Committee of Experts has been bruised by a full frontal politically inspired attack by the employer representatives at the ILO unhappy with the Committee’s questioning of the Viking and Laval jurisprudence of the European Court of Justice. Although it is thought as a result that the Committee is much more restrained as a result, it did not hesitate to report the danger that the Trade Union Act (then at Bill stage) on thresholds for strike action and the powers of the State Certification Officer for Trade Unions and Employers’ Associations violated basic principles relating to freedom of association.

This hardly augurs well for the future of FTAs, and if the defects in CETA are, in Davis’ phrase, to be magnified threefold, the results will be calamitous, giving the government a free rein to deregulate and global corporations a free rein to exploit. But supporting the point that the labour clauses in FTAs are meaningless platitudes that no one intends to enforce is the fact that the other parties with whom these agreements are concluded are also in breach, and have no intention of complying, reinforcing the determination on the EU side not to do so, and relieving it of any embarrassment of being unable to do so for a combination of legal and political reasons.

So despite these solemn obligations to respect ILO standards,

• Korea (which was a party to a recent a EU agreement signed off by the UK) has not ratified either ILO Convention 87 or 98 (the freedom of association conventions), and continues to operate primitive labour laws that see trade unions stung for massive damages for taking industrial action, in a way forbidden in this country in 1906, following the infamous Taff Vale decision in 1900.
• Canada (with whom the EU - and by extension the UK - is said to have its most extensive and sophisticated FTA) has recently entrenched in its jurisprudence the least effective form of collective bargaining possible. It is also the developed country which has been the subject of one of the highest number of complaints to the ILO supervisory bodies, partly as a result of the unique Canadian solution to industrial action, which is to legislate strikers back to work.

The real prize for the free traders of course is the revival of a bilateral TTIP style agreement with the US. The prospects for such an agreement at the moment are unclear, and it is equally unclear whether it would contain a labour chapter. But the irony is that all recent US FTAs contain labour chapters not unlike CETA above, despite the fact that the US has not ratified either of the ILO freedom of association Conventions and has the lowest level of ratification of ILO Conventions in the developed world, having ratified only 14 (out of a possible 189) of which only 12 are in force. The 14 include only two of the eight fundamental conventions on which the ILO principles reproduced in FTAs such as CETA are based.

It is a shameful record made all the worse for the fact that the United States has been found to be in breach of ILO freedom of association principles by the ILO Committee on Freedom of Association (‘CFA&rsquo). Although it has not ratified the freedom of association Conventions, the principle of freedom of association is regarded as a constitutional principle of the ILO binding on all member states. As a result, if there is alleged to have been a breach of these principles, by a member state, a trade union may bring a complaint about it before the CFA, a tripartite body which may reach conclusions about the matter. In the case of the United States, a number of cases have been brought before the Committee, which have revealed US law to be in breach of ILO principles in relation to the exclusion of public sector workers, the obstacles facing trade unions trying to be certified as bargaining agents, and the power of employers to replace lawfully striking workers.

A FTA with the US will be free trade under US rules, with US investors dictating what kind of laws they are willing to comply with. A labour clause in such an agreement will not be worth the paper it is written on, raising more general questions about the purpose of labour clauses in such agreements. Given the foregoing, it may be that all that such agreements do is provide a defence to governments that do comply with ILO norms when presented by investors in ISDS proceedings complaining about over-regulation in host states. But even here, it is unclear whether the ILO standards could even be used by a State as a defence – there is certainly nothing to warrant such a suggestion in the text. Certainly, it is clear that no trade union or trade union federation has the right to argue that these ILO standards should be taken into account in any ISDS proceedings.

VII

So the labour chapters in FTAs contain fine words but do not mitigate to any extent whatsoever the unique and lopsided privilege that they confer on corporations to the exclusion of everyone else. What we need to hear from Mr Davis is what he means by Canada plus plus plus. Are we to take that to mean CETA plus an even greater threat to the sovereignty of Parliament, CETA plus an even greater threat to the rule of law, and CETA plus an even graver threat to workers’ rights?