CETA’s investment regime picks up steam

Investment treaties are important tools for diversifying trade and promoting foreign investment. The Canada-European Union Comprehensive Economic and Trade Agreement (CETA) is unique among these treaties as it relates to the process for resolving investor disputes. In lieu of traditional investor-state arbitration, it envisions the creation of a standing “Investment Court”.

The proposed establishment of a permanent Investment Court is part of a broader response by CETA’s drafters to perceived concerns about the impact of investment treaties on state sovereignty that are sometimes levied against traditional investor-state arbitration. Critics of the arbitration regime also take issue with the scope of investor protections and how they have been applied in some cases.

Though CETA has been provisionally applied since 2017, the investment disputes regime will not come into force until all 27 EU member states ratify the treaty. While this initiative has largely stalled over the last decade, recent developments suggest that this state of affairs may be changing. On March 5, 2026, Canada and the European Union announced a number of “enhancements” to the investor protection and dispute resolution regime aimed at clarifying the scope of protections for investors and the process for disputes. Consistent with Canada and the EU’s joint desire to diversify economic relationships, the announcement suggests a renewed will to bring the investment chapter of the agreement into reality¹.

Investor protection under CETA

Chapter Eight of CETA governs the treatment of investments between Canada and the EU. It applies broadly to investors who are nationals or enterprises of Canada or an EU member state and to “every kind of asset that an investor owns or controls”.

CETA provides standard investment protections such as non-discrimination, fair and equitable treatment, and protection against direct and indirect expropriation. However, the mechanism for resolving disputes when investors allege breaches of these protections is novel. Rather than using institutional or ad hoc arbitration, as is typical under most investment treaties, CETA will establish a permanent adjudicative mechanism through which parties can submit their claims to a tribunal and appeal the tribunal’s decisions to an appellate tribunal, each composed of a pre-appointed panel of adjudicators selected by Canada and the EU (i.e., an Investment Court). This concept seeks to address criticisms within investor-state dispute settlement about consistency given the lack of stare decisis (i.e., binding legal precedents) in these disputes and with respect to the composition of tribunals deciding treaty claims.

The investor protection and dispute resolution provisions of Chapter Eight were excluded from the provisional application of CETA in 2017, and will not come into effect unless and until it has been fully ratified by all EU member states. Progress has stalled for close to a decade, primarily due to political resistance within several EU member states over concerns about the impact of the investment protection regime on state sovereignty.

In 2019, the Court of Justice of the European Union ruled that CETA is compatible with EU law. Since then, the CETA Joint Committee and Committee on Services and Investment (a committee of ministers from Canada and the EU) have adopted a series of decisions to develop investment provisions regarding the function of the appellate tribunal, the adoption of interpretations, a code of conduct for CETA tribunals, and the rules of mediation². However, ten EU countries—Belgium, Bulgaria, Cyprus, France, Greece, Hungary, Ireland, Italy, Poland, and Slovenia—have yet to ratify the treaty.

New investment “enhancements”

This month, the CETA Joint Committee adopted an interpretation and a decision on investment, which will become binding on CETA tribunals and the parties when Chapter Eight enters into force³. The Joint Committee issued relatively narrow interpretations of CETA’s investor protections, and proposed additional expedited procedures for individuals and small businesses to promote their access to and usage of the regime.

Scope of investment protections

The CETA Interpretation on Investment (the Interpretation) clarifies the scope of investor protections under the treaty:

• Fair and equitable treatment. The fair and equitable treatment obligation protects investors against specific forms of serious state misconduct. While many, especially older, investment treaties leave this obligation open-ended, the Interpretation confirms that the list of measures breaching the obligation in CETA is exhaustive, and clearly defines the scope of the breaching measures:
  • Denial of justice claims require the exhaustion of local remedies and egregious procedural misconduct.
  • Manifest arbitrariness requires measures that are not rationally connected to a legitimate policy objective, such as where the measure is based on prejudice or bias rather than reason or fact.
  • Targeted discrimination must be based on illegitimate grounds; mere differential treatment is insufficient.
  • Abusive treatment requires a finding of serious misconduct by a party, based on relevant considerations such as harm or threatened harm to the investor and the rationale for the party’s actions.
• Indirect expropriation. The Interpretation defines a high threshold for indirect expropriation—namely, a radical deprivation of the use, enjoyment, and disposal of the investment. It confirms that measures designed and applied to protect legitimate public welfare objectives do not constitute indirect expropriation unless their impact is clearly and obviously excessive.

The Interpretation also covers investment and climate change, the protection of essential security interests, the protection of fundamental rights, and the calculation of monetary damages.

Promoting access to the Investment Court for individuals and SMEs

Investor-state arbitrations are frequently expensive, complicated, and protracted. A practical consequence of this is that it will often only be economical to pursue certain kinds of disputes, typically for hundreds of millions (or even billions) of dollars. Consequently, the investors who experience these kinds of disputes tend to be large enterprises.

The decision adopted on March 5 aims to address this and promote greater usage by other kinds of investors. It introduces supplemental procedural rules to the Investment Court regime that will apply where a claimant qualifies as a natural person or a small- or medium-sized enterprise (SME), and the damages claimed do not exceed SDR 40 million (approximately C$77 million). The size of an enterprise is assessed based on the number of employees, annual turnover, and ownership structure, among other factors. A claimant in these circumstances may access an expedited dispute resolution procedure, with the consent of the respondent state.

Under the expedited procedure, claims will be decided by a single adjudicator (rather than a panel) appointed from a third country. The procedure will operate on an accelerated timetable, with the first session held within 60 days of the respondent giving consent and features shortened filing deadlines, streamlined submissions and evidence, and optional oral hearings.

The future of CETA’s investment regime

Canada and the EU have both expressed a desire for greater cooperation to address geopolitical challenges, including a desire to deepen economic collaboration. As expressed at the June 2025 Canada-EU summit and reiterated in their March 2026 joint statement, “by enhancing the EU-Canada trade and investment relationship, both sides will advance trade diversification, create investment opportunities and ultimately, strengthen shared long-term prosperity, economic security and resilience”⁴.

CETA’s investment regime is an important part of that story, and these announcements reflect a renewed will to bring the investment chapter of CETA into reality as part of that broader initiative. It remains to be seen whether that broader desire will translate into the necessary political will domestically for those EU member states who have yet to fully ratify the treaty to do so.

Additionally, several questions remain even if the investment chapter of CETA comes into force, including with respect to the composition of an Investment Court, how the Joint Committee’s interpretations will be applied in practice by adjudicators, and whether EU states will actually consent to expedited procedures for disputes involving SMEs.

Ultimately, the adoption of the investment chapter of CETA would be a major boon to Canadian businesses and consistent with the Canadian government’s goal of diversifying Canada’s trade relationships. In tandem with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (commonly referred to as the CPTPP), CETA would give Canadian businesses investor protections (and tariff-free or tariff-reduced access) across two of the most significant trading blocs in the world, representing close to 30% of global GDP.