EUROPEAN COMMISSION

Brussels, 17.11.2023

COM(2023) 708 final

2023/0403(NLE)

Proposal for a

COUNCIL DECISION

on the position to be taken on behalf of the European Union in the CETA Joint Committee established under the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, as regards the adoption of a decision on the interpretation of Article 8.10, Annex 8-A, Article 8.9.1 and Article 8.39.3 of CETA in accordance with Article 26.1.5(e) of CETA

EXPLANATORY MEMORANDUM

1.Subject matter of the proposal

This proposal concerns the decision establishing the position to be taken on the Union's behalf in the Joint Committee established under the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, in connection with the envisaged adoption of a decision on the interpretation of Article 8.10, Annex 8-A, Article 8.9.1 and Article 8.39.3 of CETA in accordance with Article 26.1.5(e).

2.Context of the proposal

2.1.The Comprehensive Economic and Trade Agreement between Canada, of the one part, and the European Union and its Member States, of the other part

CETA aims to liberalise and facilitate trade and investment, as well as to promote a closer economic relationship between the European Union and Canada (‘the Parties’). The Agreement was signed on 30 October 2016 and has been provisionally applied since 21 September 2017.

2.2.The CETA Joint Committee

The CETA Joint Committee is established under Article 26.1 of the Agreement. The CETA Joint Committee is responsible for all questions concerning trade and investment between the Parties and the implementation and application of this Agreement. A Party may refer to the CETA Joint Committee any issue relating to the implementation and interpretation of this Agreement, or any other issue concerning trade and investment between the Parties.

In accordance with Article 26.1.5(e) of the Agreement, the CETA Joint Committee may adopt decisions on the interpretation of the provisions of this Agreement, which shall be binding on tribunals established under Section F of Chapter Eight (Resolution of investment disputes between investors and states) and Chapter Twenty-Nine (Dispute Settlement).

In accordance with Rule 10.2 of the Rules of Procedure of the CETA Joint Committee and of the Specialised Committees, 1  in the period between meetings, the CETA Joint Committee may adopt decisions or recommendations by written procedure if the Parties to the Agreement decide by mutual consent. For that purpose, the text of the proposal will be circulated in writing from the co-chairs to the members of the CETA Joint Committee pursuant to Rule 7, with a time limit within which members will make known any concerns or amendments they wish to make. Adopted proposals will be communicated pursuant to Rule 7 once the time limit has elapsed and recorded in the minutes of the next meeting.

2.3.The envisaged act of the CETA Joint Committee

The CETA Joint Committee is to adopt a decision on the interpretation of Article 8.10, Annex 8-A, Article 8.9.1 and Article 8.39.3 of CETA (‘the envisaged act’).

The purpose of the envisaged act is to provide certain further clarifications notably with regard to the standards of “fair and equitable treatment” and “indirect expropriation”, as well as Article 8.9.1 and Article 8.39.3 of CETA.

The envisaged act will become binding on the Parties pursuant to Article 26.3.2 of the Agreement.

3.Position to be taken on the Union's behalf

The envisaged act relates to the provisions on fair and equitable treatment and indirect expropriation which are already circumscribed in CETA and in Section 6 of the CETA Joint Interpretative Instrument. The envisaged act aims to further clarify how those standards should be understood, in light of the current situation and especially the climate emergency. The envisaged act also related to Article 8.9.1. and Article 8.39.3 of CETA. The envisaged act will clarify the provisions according to the Parties’ intention, without amending CETA.

The proposed position fits in with other policies, rules or initiatives of the Union.

It is therefore appropriate to establish the position to be taken on the Union's behalf in the CETA Joint Committee on the envisaged act in order to ensure the effective implementation of the Agreement.

4.Legal basis

4.1.Procedural legal basis

4.1.1.Principles

Article 218(9) of the Treaty on the Functioning of the European Union (TFEU) provides for decisions establishing ‘the positions to be adopted on the Union’s behalf in a body set up by an agreement, when that body is called upon to adopt acts having legal effects, with the exception of acts supplementing or amending the institutional framework of the agreement.’

The concept of ‘acts having legal effects’ includes acts that have legal effects by virtue of the rules of international law governing the body in question. It also includes instruments that do not have a binding effect under international law, but that are ‘capable of decisively influencing the content of the legislation adopted by the EU legislature’ 2 .

4.1.2.Application to the present case

The CETA Joint Committee is a body set up by an agreement, namely CETA.

The act which the CETA Joint Committee is called upon to adopt constitutes an act having legal effects. The envisaged act will be binding on the Parties under international law in accordance with Article 26.3.2 of the Agreement and upon the tribunals established under Section F of Chapter Eight (Resolution of investment disputes between investors and states) and Chapter Twenty-Nine (Dispute Settlement) under Article 26.1.5(e) of the Agreement.

The envisaged act does not supplement or amend the institutional framework of the Agreement.

Therefore, the procedural legal basis for the proposed decision is Article 218(9) TFEU.

4.2.Substantive legal basis

4.2.1.Principles

The substantive legal basis for a decision under Article 218(9) TFEU depends primarily on the objective and content of the envisaged act in respect of which a position is taken on the Union's behalf. If the envisaged act pursues two aims or has two components and if one of those aims or components is identifiable as the main one, whereas the other is merely incidental, the decision under Article 218(9) TFEU must be founded on a single substantive legal basis, namely that required by the main or predominant aim or component.

4.2.2.Application to the present case

The main objective and content of the envisaged act relate to the common commercial policy.

Therefore, the substantive legal basis of the proposed decision is Article 207 TFEU.

4.3.Conclusion

The legal bases of the proposed decision should be Article 207 TFEU in conjunction with Article 218(9) TFEU.

5.Publication of the envisaged act

As the act of the CETA Joint Committee will clarify certain provisions of the Agreement, it is appropriate to adopt it in all authentic languages of the Agreement 3 and publish it in the Official Journal of the European Union after its adoption.

2023/0403 (NLE)

Proposal for a

COUNCIL DECISION

on the position to be taken on behalf of the European Union in the CETA Joint Committee established under the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, as regards the adoption of a decision on the interpretation of Article 8.10, Annex 8-A, Article 8.9.1 and Article 8.39.3 of CETA in accordance with Article 26.1.5(e) of CETA

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 207(4), first subparagraph, in conjunction with Article 218(9) thereof,

Having regard to the proposal from the European Commission,

Whereas:

(1)Council Decision (EU) 2017/37 4 provides for the signing on behalf of the European Union of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part (‘the Agreement’). The Agreement was signed on 30 October 2016.

(2)Council Decision (EU) 2017/38 5 provides for the provisional application of parts of the Agreement. The Agreement has been provisionally applied since 21 September 2017.

(3)Pursuant to Article 26.1.5(e) of the Agreement, the CETA Joint Committee has the power to adopt decisions on the interpretation of the provisions of this Agreement, which shall be binding on tribunals established under Section F of Chapter Eight (Resolution of investment disputes between investors and states) and Chapter Twenty-Nine (Dispute Settlement).

(4)Pursuant to Article 26.3.2 of the Agreement, the decisions made by the CETA Joint Committee shall be binding on the Parties, subject to the completion of any necessary internal requirements and procedures, and the Parties shall implement them.

(5)The CETA Joint Committee is to adopt, by written procedure, a decision on the interpretation of Article 8.10, Annex 8-A, Article 8.9.1 and Article 8.39.3 of CETA.

(6)It is therefore appropriate to establish the position to be taken on the Union's behalf in the CETA Joint Committee on the basis of the attached draft decision of the CETA Joint Committee, as it clarifies the above-mentioned articles,

HAS ADOPTED THIS DECISION:

Article 1

The position to be taken on behalf of the European Union in the CETA Joint Committee as regards the adoption of a decision on the interpretation of Article 8.10, Annex 8-A, Article 8.9.1 and Article 8.39.3 of CETA, in accordance with Article 26.1.5(e) of CETA, shall be based on the draft decision of the CETA Joint Committee attached to this Council Decision.

Article 2

After its adoption, the Decision adopted by the CETA Joint Committee referred to in Article 1 shall be published in the Official Journal of the European Union.

Article 3

This Decision is addressed to the Commission.

Done at Brussels,

(1)    Rules of Procedure of the CETA Joint Committee, Annex to Decision 001/2018 of the CETA Joint Committee of 26 September 2018 adopting its Rules of Procedure and of the Specialised Committees (OJ L 190, 27.7.2018, p. 19), available eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2018:190:FULL

(2)    Judgment of the Court of Justice of 7 October 2014, Germany v Council, C-399/12, ECLI:EU:C:2014:2258, paragraphs 61 to 64.

(3)    Pursuant to Article 30.11 (Authentic texts) of the Agreement, the Agreement is drawn up in duplicate in the Bulgarian, Croatian, Czech, Danish, Dutch, English, Estonian, Finnish, French, German, Greek, Hungarian, Italian, Latvian, Lithuanian, Maltese, Polish, Portuguese, Romanian, Slovak, Slovenian, Spanish and Swedish languages, each version being equally authentic.

(4)    Council Decision (EU) 2017/37 of 28 October 2016 on the signing on behalf of the European Union of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part (OJ L 11, 14.1.2017, p. 1).

(5)    Council Decision (EU) 2017/38 of 28 October 2016 on the provisional application of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part (OJ L 11, 14.1.2017, p. 1080).

EUROPEAN COMMISSION

Brussels, 17.11.2023

COM(2023) 708 final

ANNEX

to the

Proposal for a Council Decision

on the position to be taken on behalf of the European Union in the CETA Joint Committee established under the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, as regards the adoption of a decision on the interpretation of Article 8.10, Annex 8-A, Article 8.9.1 and Article 8.39.3 of CETA in accordance with Article 26.1.5(e) of CETA

ATTACHMENT

Draft

DECISION No […/…] OF THE CETA JOINT COMMITTEE

of [date]

on the interpretation of Article 8.10, Annex 8-A, Article 8.9.1 and Article 8.39.3

THE CETA JOINT COMMITTEE,

Having regard to Article 26.1.5.(e) of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part,

Having regard to Decision No 2/2021 of the CETA Joint Committee of 29 January 2021,

Recalling the common understanding expressed in Section 6 of the Joint Interpretative Instrument,

Aiming to further clarify the intentions of the Parties under Chapter 8, with respect to Article 8.10 (Fair and equitable treatment) and Annex 8-A (Indirect expropriation), Article 8.9.1 (Investment and regulatory measures) and Article 8.39.3 (Final award)

HAS DECIDED AS FOLLOWS:

1.Fair and equitable treatment

For greater certainty, Article 8.10 shall be interpreted as follows:

(a)The list of elements in Article 8.10.2 is exhaustive;

(b)A claim of denial of justice under Article 8.10.2(a) requires prior exhaustion of local remedies except if there are no reasonably available local remedies to provide effective redress, or the local remedies provide no reasonable possibility of such redress.

In determining whether there is a denial of justice, the Tribunal should be mindful that it is not a court of appeal of domestic court decisions and it should not engage in reviewing the merits of domestic court decisions.

(c)For there to be breach of denial of justice and a fundamental breach of due process within the meaning of Article 8.10.2(a) and (b), there must be improper and egregious procedural conduct in judicial or administrative proceedings, which does not meet the basic internationally accepted standards of administration of justice and due process, and which shocks or surprises a sense of judicial propriety such as the unfounded refusal of access to courts or legal representation, failure to provide an opportunity to be heard, discriminatory treatment by the courts, clearly biased and corrupt adjudicators, complete or unjustifiable lack of transparency in the proceedings such as a failure to provide notice for the proceedings or reasons for the decision.

(d)A measure is manifestly arbitrary within the meaning of Article 8.10.2(c) when it is evident that the measure is not rationally connected to a legitimate policy objective, such as when a measure is based on prejudice or bias rather than on reason or fact.

(e)For greater certainty, a measure or series of measures constitute “targeted discrimination on manifestly wrongful grounds such as gender, race or religious belief” within the meaning of Article 8.10.2(d) if the measure or series of measures single out the investor in providing differential treatment based on illegitimate grounds such as gender, race or religious belief. Article 8.10.2(d) shall not be construed as preventing the Parties from granting preferential treatment to promote gender or racial equality or otherwise address under-representation of socio-economically disadvantaged groups.

(f)A determination that a measure or series of measures constitute “abusive treatment of investors, such as coercion, duress and harassment” within the meaning of Article 8.10.2(e), requires a finding of serious misconduct by a Party. In making this determination, relevant considerations may include the harm or threatened harm to the investor such as whether the episodes of alleged harassment or coercion were repeated and sustained; and the rationale for the Party’s actions, for example whether the authorities were acting within the scope of their authority or whether there was an abuse of power.

(g)Under Article 8.10.4, representations made to an investor may only be taken into account to the extent they are relevant as a factor in determining a breach of fair and equitable treatment as set out in Article 8.10.2. Legitimate expectations cannot arise from representations if a prudent and informed investor would not have reasonably relied upon the representations in making the investment, notably because the representations were not sufficiently specific and unambiguous and did not have the requisite degree of formality such as those made in writing by the competent authority of a Party.

2.Indirect expropriation

(a)For greater certainty, an indirect expropriation may only occur if the investor has been radically deprived of the use, enjoyment and disposal of its investment, as if the rights related thereto had ceased to exist.

(b)When assessing the “duration of the measure or series of measures” within the meaning of Paragraph 2 b) of Annex 8-A, consideration should be given to whether the interference with the property right is temporary, in which case it is unlikely to amount to an indirect expropriation, or permanent, although the sole fact that a measure is permanent does not establish that an indirect expropriation has occurred.

(c)The “distinct, reasonable investment-backed expectations” in paragraph 2 c) of Annex 8-A, refer to the expectations that a prudent and informed investor could have reasonably formed and that were relied upon in making the investment. For greater certainty, whether an investor’s investment-backed expectations are reasonable depends, to the extent relevant, on factors such as whether the government provided the investor with binding written assurances and the nature and extent of governmental regulation or the potential for government regulation in the relevant sector.

(d)The impact of a measure or series of measures appears “manifestly excessive” within the meaning of Paragraph 3 of Annex 8-A if it is clearly and obviously excessive in light of the intended policy objectives.

(e)For greater certainty, measures of a Party that are designed and applied to protect legitimate public welfare objectives in paragraph 3 of Annex 8-A include measures taken to combat climate change or addressing its present or future consequences. Such measures do not constitute indirect expropriation unless they are clearly and obviously excessive in light of the intended policy objectives.

3.Climate Change

(a)The Parties reaffirm their right to regulate in the public interest to achieve legitimate public policy objectives to protect the environment as set out in Article 8.9.1, including by taking measures to mitigate or combat climate change or to address its present or future consequences.

(b)When interpreting the provisions of the Investment chapter, the Tribunal shall give due consideration to the commitments of the Parties under multilateral environmental agreements, including the Paris Agreement. In particular, the Parties’ rights and obligations under Chapter 8 should be interpreted in a manner that supports the ability of the Parties to give effect to their respective commitments to reduce greenhouse gas emissions by adopting or maintaining measures designed and applied to mitigate climate change or address its present or future consequences.

4.Protection of essential security interests

The Parties reaffirm that, pursuant to Article 28.6 of CETA, nothing in this Agreement shall be construed to prevent Canada and the European Union and its Member States from taking an action that either Party considers necessary to protect its essential security interests in time of war or other emergency in international relations, including any measure affecting investors or their investments.

5.Protection of fundamental rights

For greater certainty, the Parties’ right to regulate to achieve legitimate public policy objectives, as referred to in Article 8.9.1 of CETA, includes measures taken for the protection of fundamental rights, as laid down in the Universal Declaration of Human Rights done at Paris on 10 December 1948.

6.Calculation of monetary damages resulting from investor claims

For greater certainty, monetary damages under Article 8.39.3,

(a)shall not be greater than the loss or damage incurred by the investor, or, as applicable, by the locally established enterprise, as valued on the date of the breach;

(b)shall only reflect loss or damage incurred by reason of, or arising out of, the breach; and

(c)shall be determined with reasonable certainty, and shall not be speculative or hypothetical.

The Tribunal shall calculate monetary damages based only on the submissions of the disputing parties, and shall consider, as applicable:

(a)contributory fault, whether deliberate or negligent;

(b)failure to mitigate or prevent damages;

(c)prior damages or compensation received for the same loss including compensation received under a domestic compensation scheme; or

(d)restitution of property, or repeal or modification of the measure.

Done at …, ….

For the CETA Joint Committee

The Co-Chairs