FFII | 29 April 2016
CETA: ISDS and data protection
By Ante Wessels
This is the fourth in a series of blogs on the EU-Canada trade agreement (CETA) and data protection.
In earlier blogs we saw that under the CETA text Canada can give our personal data related to financial services, transfered to Canada, a lower protection than under the standard set by the Court of Justice of the EU in the Safe Harbour ruling. This is relevant as Canada is a member of the “Five Eyes”, a group of countries committed to (suspicionless) mass surveillance. We also saw that CETA does not allow data protection measures based on a higher data protection standard than agreed in CETA.
Textual shortcomings especially become clear in conflict situations. In case the EU would strongly act to protect our personal data and would consider to suspend data flows to Canada, Canadian financial institutions would be able to exploit the textual shortcomings using CETA’s investor-to-state dispute settlement (ISDS) mechanism. A conflict scenario may clarify this.
After ratification of CETA a European citizen collects evidence of disproportionate surveillance in Canada and files a complaint ; it ends up at the EU Court of Justice. Only the court can invalidate the legal basis for data transfers (compare paragraphs 52 and 62 Safe Harbour ruling). The Court invalidates (the adequacy decision and) CETA article 13.15.
There will be negotiations and face saving measures. But in the end, if suspicionless surveillance continues, EU data protection authorities can suspend data flows to Canada. In our scenario with boldly acting actors, they do.
Canada initiates arbitration under CETA chapter 29. This may result in retaliatory measures.
Canadian investors initiate an investor-to-state dispute settlement (ISDS) case. They argue that allowing cross border data flows in a trade agreement and then suspending the data flows based on a higher standard of data protection than agreed is manifestly arbitrary (CETA article 8.10). The EU created legitimate expectations (CETA article 8.10 (4)) by concluding CETA including a lower standard of privacy protection in article 13.15. ISDS tribunals have interpreted legitimate expectations in a broad way. 
Furthermore the investors argue that the EU expropriated in an arbitrary and discriminatory way (article 8.12) by suspending data flows to Canada but not to other countries with comparable surveillance. In the past ISDS tribunals have seen the exercise of discretionary power by enforcement agencies as discriminatory.  We already saw that the ISDS variant in CETA lacks independent adjudicators. This may enhance the risks for the EU. The tribunal decides to award damages including expected profits and interests looking back to the original decision. The Appellate Tribunal confirms the award.
This puts pressure on the authorities competent to suspend data transfers and compromises their independence. In the light of potentially high damages they may decide not to suspend data flows even if they should to protect our privacy.
In the past the EU Court of Justice has strictly protected the independence of data protection authorities. The Court invalidates ISDS in CETA. However, after termination of the agreement the investment chapter including ISDS shall continue to be effective for a further period of twenty years (CETA article 30.9(2)). This undermines the effectiveness of the Court. The pressure on our authorities continues for twenty more years.
To remove interferences with privacy, with the independence of authorities, and with the effectiveness of the Court takes a lot of work and 25 to 30 years – if successful. CETA is not compatible with the EU Treaties and Charter of fundamental rights.
CETA does not come alone
CETA does not come alone. We see the same construct in the draft EU-Singapore, draft EU-Vietnam, partly concluded EU-Ukraine and concluded EU-South Korea trade agreements. 
If we don’t act now the construct will spread out more and more.
 CETA article 28.6 National security, page 214, allows Canada to not provide information on surveillance.
 CETA article 8.10 (4) includes a specific representation which does not have to be in writing. This opens the possibility to start cases based on oral promises and leaves the door open for future application of the Bilcoin approach. Lise Johnson and Lisa Sachs, The TPP’s Investment Chapter: Entrenching, rather than reforming, a flawed system: “Under that approach, a tribunal identifies what it considers to be reasonable or legitimate expectations – which may have been generated by a wide range of even non-binding government conduct and need not rise to the level of actual ‘rights’ – and then strictly scrutinizes government actions or inactions to determine whether the investors’ expectations were wrongly frustrated.” In contrast, Netherlands’s highest general administrative court (Raad van State) is very restrictive regarding legitimate expectations; see for instance decision 201113437/1/R2, 20 juni 2012.
 Discrimination in trade and investment agreements usually revers to discrimination based on nationality (national treatment). However, ISDS tribunals have seen any disparate treatment as discriminatory. Enforcement agencies have limited resources. They have discretionary power: they are allowed to act in some cases and skip others. ISDS tribunals have seen the exercise of such discretionary power as discrimination. This undermines the effectiveness of enforcement agencies. See Lise Johnson and Lisa Sachs, page 9, The TPP’s Investment Chapter: Entrenching, rather than reforming, a flawed system.
 for EU-Singapore see here; EU-Vietnam Chapter 8 Chapter III data transfers article (…) page 84; Chapter 8 Chapter II investment including ISDS page 6; Chapter 8 Chapter VII article (…) page 89 general exception including “not inconsistent”; Chapter 13 dispute settlement; EU-Korea articles 7.43 and 7.50; no ISDS but there are many EU countries with investment treaties with South Korea; Chapter 14 dispute settlement; EU-Ukraine articles 141 and 129; no ISDS but there are many EU countries with investment treaties with Ukraine; dispute resolution title IV chapter 14