The Long Road to non-ratification of the EU-Canada Comprehensive Economic and Trade Agreement (CETA)

The EU-Canada Comprehensive Economic and Trade Agreement (“CETA”) was negotiated in 2014 and signed in 2016. Although it entered into force provisionally in September 2017, meaning that most of the agreement now applies, every national parliament (and in some cases regional parliaments) of each European Union (“EU”) Member State must approve CETA before it can take full effect.

CETA faced a major hurdle even before it was signed when the Walloon parliament (which represents the French-speaking region in Belgium) voted to reject the trade agreement in October 2016. This led to an internal compromise whereby the Belgian federal government requested the Court of Justice of the EU (“CJEU”) to render an opinion on CETA’s compatibility with EU law, and the Walloon regional government, in return, supported the ratification of the agreement. The CJEU gave its judgment in 2019 and concluded that CETA is in fact compatible with EU law.

As it stands, 16 out of the 27 Member States have ratified CETA. However, the agreement faces yet another major stumbling block—an Irish one this time. On 11 November 2022, the Supreme Court rendered its own judgment on CETA and concluded that the ratification of the agreement would be unconstitutional (Costello v Government of Ireland and Ors [2022] IESC 44). This case was initiated by Green Party TD Patrick Costello who challenged the constitutionality of CETA in respect of the investor tribunals that would be created under the agreement which would have the power to make enforceable decisions on disputes between Canadian investors and EU Member States.

Under this tribunal system, Canadian investors would be able to sue EU Member States for damages over any measures taken by those States which restrict the freedom of action of investors. Costello argued that the creation of such a system would involve a constitutionally impermissible transfer of state sovereignty, would negatively impact on the State’s ability to make policy, in particular environmental regulations, and could not be ratified unless it was first approved by the Irish people in a referendum.

Although his challenge failed in the High Court (Costello v Government of Ireland and Ors [2021] IEHC 600), which ruled, inter alia, that CETA did not entail an unconstitutional transfer of the State's sovereignty, Costello secured “leapfrog” leave to appeal to the Supreme Court where his constitutional challenge was upheld. A majority of 4:3 of the Supreme Court held that the ratification of CETA would breach Article 34 of the Constitution, which requires that justice shall be administered in courts established by law in the manner provided for by the Constitution. Dunne J. stated that the tribunal system under CETA breaches this provision because such a system would create a parallel jurisdiction to the Irish courts and would permit an international tribunal to make binding decisions which are automatically enforceable in Irish law (para. 280).

However, the majority qualified this finding by noting that it is only the element of “automatic enforcement” of a CETA tribunal award that makes the agreement incompatible with the Constitution. This element renders Irish courts virtually powerless to refuse the enforcement of a CETA Tribunal award, even if that award is contrary to Ireland’s constitutional identity and values, or EU law.

The “automatic enforcement” of CETA tribunal awards arises from the enforcement provisions of CETA itself in conjunction with the provisions of the Arbitration Act 2010, in particular s.25 thereof which gives effect to international arbitral awards generally. The majority of the Supreme Court proposed that this unconstitutionality might be cured if the Act were amended to remove this element of “automatic enforcement”, in particular by modifying s.25 to allow for further defences to enforcement of CETA Tribunal awards.

Although this judgment makes what had seemed to be a straightforward ratification by the Dáil much more complex, the potential to cure this unconstitutionality by way of legislative amendment offers the government a less cumbersome path to ratifying CETA than if it had to be ratified through a referendum.