CETA Update: German Constitutional Court allows provisional application of CETA

Written on 21 Oct 2016

On 13 October 2016, the Second Senate of the Federal Constitutional Court of Germany (Bundesverfassungsgericht) rendered a decision rejecting several applications for a preliminary injunction to prevent the German Economy Minister and Vice-Chancellor, Sigmar Gabriel, from voting on and provisionally approving CETA at the upcoming EU ministerial meeting. The anticipated vote, originally scheduled for 18 October 2016, has since been postponed due to stark opposition from the Belgian region of Wallonia. Nevertheless, Canadian and EU officials continue to strive to push the deal forward. Should their endeavour be successful, Canadian Prime Minister Justin Trudeau is due to sign the deal at a Canada-EU summit on 27 October 2016. CETA would thereafter come into effect on a provisional basis in Canada and all Member States, if the European Parliament accepts the agreement in January 2017. Observers of the European Parliament believe that this vote will easily be achieved.

The ruling of the Federal Constitutional Court is significant in that it allowed the German Federal Government to vote on the provisional application of CETA (albeit with certain caveats). This urgently-delivered judgment, however, has no bearing on the substance of CETA itself, namely whether the Canada-EU accord is in fact constitutional. The Court intends to answer this question definitively in 2018. Notwithstanding the continued uncertainty with respect to the validity of the pact, the Court’s decision marks an important step towards the liberalisation of trade barriers and the strengthening of economic ties between the Contracting Parties.

Background on CETA

The EU and Canada first engaged in talks concerning CETA at a summit in Berlin in 2007, whereby the prospective Contracting Parties considered the costs and advantages of a closer economic partnership between them. It was not until April 2009 that the European Commission obtained permission from the European Council to officially open negotiations with Canada on a potential economic and trade agreement. The discussions culminated in a Proposal to the Council by the Commission in July 2016 to authorise the signing of CETA, to declare it provisionally applicable under Art. 30.7 sec. 3 CETA (until the procedures required for its finalisation are completed), and to conclude the treaty.

Parties to the dispute

The opponents of CETA, who brought the application for a preliminary injunction before the Constitutional Court, include Germany’s left-wing party and various activist groups, i.e. Compact, Foodwatch and More Democracy. The Applicants also presented a petition consisting of approximately 125,000 supporters against the signing, provisional application and conclusion of the pact.

The Applicants argue that CETA violates the German Constitution as it unduly infringes on the powers of the German parliament. They contend that the treaty violates Art. 38 sec. 1 (elections), Art. 79 sec. 3 (amendment of the Basic Law), and Art. 20 sec. 1 and 2 (constitutional principles) of the Basic Law. The opponents also note that the EU is exceeding its primary competences with respect to numerous areas covered by CETA as well as the founding of an independent investment tribunal.

The potential establishment of a Joint Committee, which would resemble a law-making authority with the power to change national regulations, also lies at the centre of the Applicants’ reasons for a preliminary injunction. Pursuant to Art. 26 CETA, the Committee would hold the power to singlehandedly decide on the content of the treaty, on which Germany would be bound, without being required to consult with the German parliament. Therefore, they argue that CETA bypasses the national parliaments by entrusting rulemaking authority to a Joint Committee, in which German representatives may not even necessarily participate, and results in a derogation of the respective legislatures’ competence to enact laws.

The proponents of the treaty consist of the aforementioned German Economy Minister, who leads Germany’s Social Democrats Party (SPD), and Angela Merkel’s Christian Democrats (CDU). They petition the Court to reject the Applicant’s pleadings and allow the Federal Government to vote on and approve of the provisional application of CETA at the scheduled meeting.

Issue

The legal question before the Federal Constitutional Court centres on whether the German Federal Government should be permitted to vote on and approve CETA at the next EU ministerial meeting such that the treaty may come into provisional effect.

Decision

The judgment was delivered by Andreas Voßkuhle, the presiding Judge of the Constitutional Court. Justice Voßkuhle begins by evaluating the interests of the Parties and weighing the consequences of the issuance of the preliminary injunction with those of non-issuance. The Court ultimately determined that the deleterious effects of a non-issuance underlie those of its counterpart. If the preliminary injunction were issued yet Germany’s participation in passing the decision of the Council on the provisional application of CETA is later found to have been constitutionally permissible, the probability is high that the general public would suffer severe irreversible damages.

The Court notes that such an injunction would significantly hinder the – generally broad – legislative discretion of the Federal Government in the fields of European, foreign and foreign economic policy. Furthermore, the rejection of a provisional application by a Contracting Party could be interpreted as an indication of the eventual failure of the treaty as a whole, because the reasons for enjoining the provisional application can be equally applied to a rejection of the conclusion and ratification of the accord by the Member States.

After contemplating the significant and economic implications of an injunction, the Court found that the negative consequences of granting the injunction far outweigh that of non-issuance. Justice Voßkuhle highlights that failure of CETA – even if only preliminary – would not only impair the external trade relations between the EU and Canada, but also have far-reaching effects on the negotiation and conclusion of future external trade agreements for not only Germany, but also the EU in general. The envisioned function of the Canada-EU treaty as a token of future transnational trade relations between the EU and other contracting parties (e.g. Singapore) would also be significantly compromised.

Although the Judges refrained from granting the preliminary injunction, they nevertheless delineated several caveats that must be fulfilled by the Federal Government before it may assent to the provisional application of the pact. The Court’s judgment has thus been characterised as a “yes, but” decision as the provisional application of CETA, though permitted, is restricted by the conditions outlined below:

  1. The Federal Government may only lend approval in the Council to those parts of CETA that lie beyond doubt within the competences attributed to the EU under primary law. The officials are, therefore, not permitted to approve the provisional application for areas that remain subject to the competence of the Federal Republic of Germany, such as intellectual property, maritime transport (Chapter 14), investment protections (Chapters 8 and 13), including the proposed dispute settlement system, portfolio investments (Chapters 8 and 13), labour (Chapter 23), and recognition of professional qualifications (Chapter 11). These matters must await approval from the national parliament.
  2. Limitations on the scope and powers of a Joint Committee established under Article 26 CETA must be enacted as the competences awarded to the Committee may contravene the German Constitutional Identity safeguarded by Article 79 sec. 3 Basic Law. As such, the Federal Government may not approve of transferring its sovereignty to international tribunals, which would have jurisdiction over all questions concerning trade and investment activities between the Contracting Parties and the implementation and application of CETA.The Court was concerned that the decision of the Committee would have, in principle, binding effect on Germany, despite the Republic not having any influence or oversight on the activities of the Committee. As such, the interests and values of Germany may not be duly represented on such a Committee. Justice Voßkuhle also noted that the Committee would hold the power to singlehandedly make amendments to the treaty as well as its protocols and appendices, which form a large part of the accord as a whole. Therefore, until the Court renders a decision in the principal proceeding, the Committee – though empowered to supplement and amend CETA provisions – must be subject to some democratic control.
  3. Germany must be entitled to unilaterally terminate the provisional application of CETA under Art. 30.7 sec. 3 lit. c should the Federal Government not be able to avoid acts considered as ultra vires or an infringement on the Constitutional Identity, or if the treaty is ultimately ruled unconstitutional. As such, the Court demands that any implementation of the pact must be capable of being revoked should an adverse final ruling result.

Future Implications

The decision in favour of the provisional application of CETA points to the Court’s deference to the strengthening of economic and political ties between Canada and the EU. Nevertheless, the stipulated caveats send a clear signal that the Constitutional Court will continue to scrutinize CETA.

At the focal point of this scrutiny will be the establishment of the Investment Court, which would consist of judges pre-selected not only from Canada and the EU, but also from third-party countries that are not party to the accord (Article 8.27 sec. 2). The Contracting Parties are thus bestowing on ‘CETA-outsiders’ the power to decide the outcomes of investment disputes that would only involve Canada and the Member States. In this way, the Contracting Parties’ exclusive sovereignty to govern and resolve their own affairs would be undermined by the new Investment Court System. Furthermore, as each case would be heard in divisions of three randomly selected members, all arbitrators to a specific dispute may be third-party nationals and the defending state would be forced to plead its case before a foreign court.

Another notable concern will be the further development of CETA and in particular, the Joint Committee. The Contracting Parties have acknowledged that products and services are subject to constant changes, which necessitate the founding of a body that would be able to rapidly process and implement these advancements. The creation of a Joint Committee would be ideal for this task as it can quickly extend and expand the CETA provisions to capture new products and services. The letter of the agreement suggests that the Committee has the power to do so without recourse to the national legislators.

Discussion around CETA is expected to only intensify after the Constitutional Court’s latest ruling. The judgment paves the way for another hearing on the merits of the case, especially with respect to the actual substance and constitutionality of the contentious treaty.