Tuesday, 18 October 2016

National Courts and EU Trade Policy Powers: the EU/Canada trade deal and the German Constitutional Court

Douwe Korff, Emeritus Professor of International Law, London Metropolitan University; Associate, Oxford Martin School, University of Oxford

One of the big issues on the EU’s agenda at present is whether to sign and provisionally apply the Canada/EU free trade agreement, known as ‘CETA’. The division of power between the EU and its Member States determines whether Member States can veto some or all of this deal, potentially complicating this process – frustrating supporters of the deal, but emboldening its critics.

Moreover, the dispute over CETA has broader implications, most notably for the controversial EU/US trade deal under negotiation (‘TTIP’) and any trade deal between the EU and UK after Brexit. While the EU’s Court of Justice will soon rule on the division of powers between the EU and its Member States as regards the EU/Singapore free trade agreement (for the background to that case, see here; for the CJEU hearing, see here), the immediate question is signing and provisionally applying CETA.

For the moment, the parliament in the Belgian region of Wallonia has held up the EU/Canada deal, but my focus here is the legal angle. While we await the CJEU’s ruling on the similar EU/Singapore deal, national courts have got involved in this issue. Last week, the German Constitutional Court refused to issue an interim order prohibiting the German Government from signing the CETA Agreement (BVerfGE of 13 October 2016; English summary here). The judgment sets a precedent for the legal issues that might arise with TTIP and Brexit, and so is worth further examination.

The decision

The decision was not about the issue of whether CETA (as initialled by Canada and the EU) was compatible with the German Constitution, but about whether the German Constitutional Court (“the Court”) should issue an interim order or injunction (einstweilige Anordnung) prohibiting the German Government (“the Government”) from even signing the Agreement. The Court emphasised that it was the Court’s standing practice to only issue such an injunction in relation to a proposed treaty if it was obvious that the treaty would irreversibly violate the Constitution (or constitutionally-protected rights of individuals) and if it was imperative that this be stopped immediately. On the other hand, possible but as-yet-not-materialised or reversible risks to such rights should be balanced against the importance of the matters to be covered by the treaty; and the Government in principle had a very wide margin of discretion in such matters. (Paras. 34 – 36)

The Court refused to issue the injunction for the following reasons in particular (my selection):

- The signing of CETA by Canada, the EU and the Member States would only result in the provisional application of the Agreement; it would only come into full force upon ratification by the parties – and crucially, the German Government (like any other Member State Government) could, until and unless the Agreement was ratified by all parties, terminate the application of the Agreement at any time, by means of a simple declaration to that effect to the other parties. The signing of CETA by the Government therefore did not irreparably risk any violation of constitutional rights. (Para. 38; cf. the last bullet-point under the last indent, below)

- The Court clearly has serious doubts as to whether the EU has competence in relation to investor protection in various areas, in particular also as concerns workers’ health and safety regulations. (Para. 54 – 57)

- The Court clearly also has serious doubts as to whether the EU can lawfully transfer “sovereign rights [Hoheitsrechte] in relation to judicial and quasi-judicial dispute resolution systems [Gerichts- und … Ausschusssystem]” to other systems (i.e., to the proposed investor-state dispute settlement (ISDS) “court” mechanism). (Para. 58) It was “not completely inconceivable” that the proposed (revised) ISDS mechanism could be held to violate the principle of democratic legitimacy (das Demokratieprinzip). (idem; see also para. 65)

- However, according to the Court, the above risks can be prevented in practice by various means (which, the Court implies, the German Government therefore must employ), i.e.:

· According to the Court, some of the risks can be prevented by means of the declarations already issued by the European Council, which (the Court tentatively accepts) ensure that with the signing of the Agreement only parts of that agreement will enter into (even provisional) force. The Court held that in many respects “reservations” (Vorbehalte) are already in place as concerns the application of certain parts of the Agreement. (Para. 69: see there for a list of these areas).

· The Court “assumes” (read: effectively demands) that the German Government will ensure, by these same means, that certain parts of CETA “in particular” “will not be included in the provisional application [of CETA, upon signature by the parties]”. In these not-to-be-applied matters, the Court expressly includes “the rules on investment protection, including the [investment dispute resolution] court system.” (Para. 70)

· The Court suggests that, at least while CETA would be only provisionally in force, Germany can demand that any decisions by the investment dispute resolution “court” will have to have the unanimous agreement of the EU Council – i.e., that Germany is given a right of veto over any such decisions. (Para. 71)

· If those measures were to not suffice, Germany can “as a last resort” use its right to terminate the Agreement (see the first indent, above). However, the Court feels that the interpretation of the Agreement to the effect that a State Party has this right (to terminate it in respect of that state while it is still only provisionally in force) “is not binding”, even though the Government has made a convincing case for it.

The Court therefore demands of the Government that it (the Government) “must clarify this interpretation of the Agreement in an international-legally appropriate way” and “inform its Treaty Partners of this [interpretation].” (Para. 73)


It would seem to me that the signing of CETA subject to the conditions imposed by the German Constitutional Court, would address many of the issues raised by activists:

- The contentious investment dispute resolution “court” would not become operational;

- If it ever were to become operational, Germany (and if other Member States were to adopt the same approach, those other Member States too) would have a veto over any decisions of that (quasi-) “court” that would impinge on rights and interests protected by its (their) constitution(s); and

– If in spite of these safeguards, those constitutionally-protected rights and interests were to still be unduly affected by the dispute resolution system (or any other aspect of the Agreement), Germany (and any such other Member State) could still exit the Agreement (even if that meant it would altogether have to end functioning).

Perhaps current opponents of CETA could live with it operating forever on such a “provisional” and conditional basis?

Barnard & Peers: chapter 24

Photo credit: misttoronto.com

Sunday, 16 October 2016

Establishing the European Border and Coast Guard: all-new or Frontex reloaded?

Herbert Rosenfeldt, Research Assistant and PhD candidate, University of Passau


Attending a birthday party at a remote checkpoint at the Bulgarian external border with Turkey does not sound like fun. Unless you are the adventurous type, you would probably hesitate to join in if it was not for someone special. Indeed, last Thursday high ranking EU and Member States’ officials visited Bulgaria’s Kapitan Andreevo Border Checkpoint to inaugurate the new European Border and Coast Guard Agency a.k.a. Frontex.

This is so far the most visible sign of the coming into force of the European Border and Coast Guard Regulation on the same day. Not lacking pathos or high expectations (Donald Tusk: “To save Schengen, we must regain control of our external borders. A new European Border and Coast Guard Agency is being created”), the new EBCG seeks to reinforce external border control against the background of last year’s migratory pressure put on the southern and south-eastern EU Member States with external Schengen borders. According to EU officials’ analyses, national border guards had been unable or unwilling to “protect” the Schengen area effectively by stopping the influx of irregular migrants. Frontex, on the other hand, was held to have been too ill-equipped in terms of powers, personnel and equipment to render sufficient support or remedy the situation. There is a simple, perhaps simplistic, rationale behind the new EBCG – one that gathered broad consensus among Member States and EU institutions resulting in a fast track legislative procedure of less than a year. The stronger EU external border control, the less permeable borders are for migrants; the smaller the number of migrants arriving, the smaller the problems within the Schengen area. Those problems comprise allocating asylum seekers and processing their claims, providing food and shelter, or safeguarding internal security and freedom of movement. The focus on external borders has been accurately criticised, inter alia, here and here.

Is the new EBCG truly a “milestone in the history of European border management”, as suggested by birthday guests but contested by others? Is the new agency something special at all? Hence is it worth joining the congratulants (if belatedly)? What birthday wishes should be made? Surely only time and further in-depth analysis can tell. Steve’s earlier post here gave the broader picture of last year’s legislative proposals on border control and migration. For now, and after two preliminary thoughts, I would like firstly to make some observations on the changing concept of EU external border management. Secondly, I highlight some institutional changes. Thirdly and fourthly, I will focus on two much debated novelties in external border control: emergency interventions and the complaints mechanism in the context of Fundamental Rights accountability.

Towards Securitisation

The drafters of the new regulation were discernibly concerned by the loss of control at Europe’s southern and south-eastern borders. Adapting to the ongoing political discourse, the wording of the Regulation (Article 1, see also Articles 4 and 15) gives top priority to regaining and keeping control of the migration situation and to efficient border management. Migration challenges and potential future threats are mentioned in succession, followed by serious cross-border crimes. The aim to be achieved is a high level of internal security within the Union while safeguarding the free movement of persons within it. In a subtle way, this almost equates migratory pressure through irregular migration with potential threats to internal security and cross-border crime. In further construing Article 1 of the Regulation, it appears that affording international protection and protecting human rights are clearly no objectives of European border management. Rather, they are perceived as restrictions to securing EU borders.

Another feature of this security-orientated approach is new migration management support teams to be deployed in hotspot areas (Article 18). Support in processing asylum claims and returning third country nationals does not help to protect the Schengen area from migrants at first sight. However, if it is done rapidly in hotspot areas, migrants are effectively not entering the Schengen area, hence apparently more security. Along the same line of reasoning, increased capacities to support return operations (Article 18, 28 et seq.) reflect political demand for enforcing third country nationals’ returns.

Legal instruments rearranged

The law of EU external border control is no role model for legal clarity and certainty. Legal acts such as the Frontex Regulation have frequently been amended, and they are intertwined with various other EU legal acts. The new Regulation at least partly smoothes this scattered landscape by merging the Frontex Regulation and the Regulation on Rapid Border Intervention Teams into one. Furthermore, the Schengen Borders Code has been amended (see below). Although based on the same EU competence (Article 77 (2) (d) TFEU), applied at the external Schengen borders and closely related to the work of Frontex and the national external border guards, Regulations on EUROSUR and surveillance of the external sea borders remained untouched. Hence the legislator missed the opportunity to create a single comprehensible piece of legislation apart from the SBC, the latter covering other subject matters such as entry conditions of third country nationals and internal border controls anyway.

New concept of external border controls

Before, States with external Schengen borders were exclusively tasked with policing those borders. Under the Frontex Regulation, border control fell into the sole competence of the Member States. Frontex’s main task then was to render border control more effective by coordinating Member States’ joint activities and providing surveillance data, technical support and expertise. The common conceptual framework informing border controls, called “integrated management system for external borders” (now Article 77 (1) (c) TFEU), only featured in strategy papers and policy recommendations of the Commission and the Council such as the non-binding Updated Schengen Catalogue 2009.

The new EBCG consists of the EBCG Agency and the national border and coast guards. Although Member States retain primary responsibility for border management, there is a clear shift towards responsibility shared with the Agency (Article 5 of the Regulation). On scrutiny, the new system arranges the Agency and the Member States in a hierarchical order. It is the Agency’s task to establish a technical and operational strategy for integrated border management. All national strategies will have to comply with it. Although co-operation outside the Agency’s remit remains possible, this is limited to action compatible with the Agency’s activities. Therefore, there is not just well-known supremacy of EU law at work in this area of shared competences, but supremacy of the Agency’s strategies, broadly phrased tasks and objectives. On paper (see the eighth and eleventh recitals), the political development of integrated border management is left to the EU organs, whereas technical and operational aspects will be clarified by the Agency. The dividing line is of course far from clear. As a result, the Agency will almost inevitably assume a more proactive role.

In my view, shared responsibility serves as a chiffre to justify taking away Member States’ discretionary powers in border control. In practice, the Agency gains greater impact and tools of supervision and coercion, as will be seen below. Still, the new Regulation has to be given credit for legally defining components of European integrated border management for the first time ever.

Institutional changes

In short, Frontex becomes … erm … Frontex! Despite last week’s “all-new” rhetoric, little will change in the constitutional setting of the Agency. As a decentralised (i.e. regulatory) agency it remains an independent EU body with legal personality. Its headquarters will remain in Warsaw. The Agency’s official name, which nobody used before, changes to a shorter name, which probably nobody will use going forwards – and that is alright because it reflects that the Agency is not founded anew but continues all its activities, albeit with expanded tasks and more resources.

To this end, the Agency’s staff grows from 309 in 2015 to 1,000 in 2020. The number of Member States’ border guards deployed in EBCG teams remain subject to annual bilateral negotiations. At the same time, a rapid reaction pool of 1,500 European border guards as a standing corps operational within 5 days has been inscribed in the Regulation. The Agency continues to maintain a technical equipment pool composed of equipment owned by either the Agency itself or by the Member States. With an increase in budget to more than twice the amount of 2015 (€143.3 to €322 million in 2020), the Agency might actually start acquiring equipment on its own in the future.

Of the Agency’s tasks (see the long list in Article 8 (1) of the Regulation), most have been assigned to Frontex before. Characteristic of the new supervisory role are vulnerability assessments carried out by the Agency to evaluate the capability and readiness of Member States’ border guard to act in emergencies. The assessment might lead to binding recommendations by the Executive Director. To disregard them can eventually result in a situation requiring urgent action as described further below. Moreover, Frontex shall deploy liaison officers in the Member States monitoring and reporting on national external border management. It is true that command and control in EBCG operations remains with the host Member State. However, from now on, the host Member State has not only to consider the Frontex coordinating officer’s views, but also to follow them as far as possible.

Another noteworthy development concerns the Agency’s support rendered to Member States coping with migratory pressure at so-called hotspots. The existing provisions on hotspots in EU Decisions on relocation of asylum-seekers have been codified in Article 18 of the Regulation, which now assigns a supportive role to Frontex in migration management. This includes screening, registering and providing information to third country nationals on their right to apply for international protection. It further includes facilitating their return right from the hotspot area.

One might argue that the European Asylum Support Office is better placed to do all that. However, in my opinion the crucial question is to what extent any EU agency involved influences or determines the Member States’ decisions on entry, to afford international protection or to return migrants. Such executive powers have not been granted to EU institutions and therefore – at least by law – they remain firmly within the Member States’ jurisdiction. The provisions provide for tailor-made support teams coordinated by all relevant Union agencies under the auspices of the Commission. Thus, the new Regulation acknowledges the role of agencies and the significance of hotspots without clarifying much. It remains to be seen how the agencies will delineate their respective contributions. If you have always been looking for a legal definition of hotspot area, at least you will find one in the new Regulation (Article 2 (10)).

Situations requiring urgent action – right to intervene?

How to deal with emergency situations at the external borders of Member States unwilling to act – that was the only matter of serious contention during the legislative process. In normal operation and as before, a Member State at first formally requests the Agency’s support and the launch of EBCG operations (Articles 14 (1), 15 (1) and (2), 18 (1) et al). At the second stage, the Member State and the Executive Director agree on the operational plan (Article 16 (2)). Lastly, the host Member State itself retains command for the whole operation (Article 21 (1)). The Commission proposal for the Regulation challenged those safeguards for the Member States’ sovereign right to border protection. The Commission envisaged itself initiating emergency interventions conducted by the Agency and supported by the Member State concerned. Boldly, this was labelled the Agency’s “right to intervene”. Understandably, it stirred criticism among Member States.

The subsequent trilogue put things in order again: Now it is an implementing act of the Council (proposed by the Commission) which substitutes the Member State’s request at the first stage if (a) the State did not follow the recommendations resulting from vulnerability assessments or (b) it faces specific and disproportionate challenges at his external borders without requesting or supporting joint EBCG operations (Article 19 (1)). The implementing act of the Council authorises the Agency to take various measures. It is binding upon the Member State. In turn, it becomes evident that the Member State’s formal request in accordance with the normal procedure might no longer be as voluntary as the wording suggests. Because if joint European action is deemed necessary, there is always the possibility that an emergency intervention will eventually be initiated.

Yet, at the second stage, the Member State still has to agree on the operational plan submitted by the Agency (Article 19 (5)). This might be interpreted as linking emergency interventions to the Member State’s consent after all. However, in the light of the purpose of emergency interventions, I submit that the duty to fully comply with the Council decision and to this end cooperate with the Agency entails the duty to consent to the operational plan. Otherwise, it would always be possible for reluctant Member States to impede the whole procedure depriving it of much of its force.

For the implementation of the measures prescribed by the Council, the Member State concerned still acts as host state. As a consequence, that State retains command and control of the operations and can be held liable as in normal operations. It can be questioned whether an unwilling State should be forced to lead a joint operation in times of emergency. At the same time, however, it is most likely that different entities will be engaged in the process. The decision not to conduct operations or to request assistance is often taken at a high political level, whereas operational command is exercised within the national border guard authorities.

Lastly, Article 19 (10) most remarkably links the Member State’s non-compliance with the Council decision and failure to cooperate with the Agency to prospective national measures taken within the Schengen area. According to newly amended Article 29 of the Schengen Borders Code, the Council upon proposal by the Commission may recommend to Member States the reintroduction of controls at their internal borders if the Member State’s behaviour (a) puts the functioning of the area without internal borders at risk, and (b) leads to a serious threat to public policy or internal security. This mechanism can be triggered only 30 days after the Council takes its (urgent?!) decision. As a result, Member States that do not – for whatever reason – cooperate at their external borders in emergencies can de facto be temporarily excluded from the area of free movement. The much-stressed concept of solidarity (Article 80 TFEU) hence turns into its evil twin: showing solidarity means complying with the EBCG activities à la EU. It becomes the prerogative of the EU institutions to determine who is in solidarity, and the lack thereof entails serious consequences.

In sum, the new Regulation establishes a legal obligation to cooperate in situations requiring urgent action of the Member State concerned. If the State does not comply, there is no way to enforce this duty or to deploy EBCG teams on his territory against his will. The only sanction seems to urge other Member States to close their internal borders instead.

Human Rights complaints mechanism and accountability

When Frontex was established in 2004, the Fundamental Rights (FR) implications of its work had been completely overlooked. The founding Regulation did not contain any specific references to FR. Over the following years through a piecemeal approach, largely affirmative and declaratory FR obligations found their way into the Regulation. More importantly, Frontex drew up an FR strategy (followed by an action plan) in 2011. At the same time, a consultative forum and an FR officer were established to give advice on FR matters and strengthen FR compliance. With the new Regulation, there are minor improvements on the human rights record. Article 1 now mentions FR, they form part of compulsory reporting and evaluation schemes as set out in the operational plan, and there is a single comprehensive provision spelling out FR obligations (Article 34).

The Regulation finally introduces a FR complaints mechanism (Article 72, discussed here) as demanded by European Parliament, EU Ombudsman and Council of Europe since 2013. Any person directly affected by actions of staff during EBCG operations can file a complaint about FR violations with the FR officer. The FR officer is responsible for setting up the complaints mechanism, administering complaints and deciding on their admissibility. He or she then directs them to either the Executive Director or the competent national authority for them to decide on the merits and an appropriate follow-up. The FR officer then again monitors this decision as well as the follow-up.

In my view, the effectiveness of the mechanism depends on two preconditions. Firstly, the FR officer’s resources should increase significantly to stem the Herculean tasks ahead of him. Secondly, his institutional independency within the Agency has to be reinforced, bearing in mind that he is a member of staff and dependent on good working relationships with other members of staff. Several open questions remain. For example, the provision leaves open how the FR officer will enforce the appropriate follow-up by the Agency or the Member States. It does not make clear that the complaints mechanism does not affect other remedies, nor does it foresee an appeals procedure with an independent body. The FR officer and ultimately the Executive Director or the Member States authorities will have to answer difficult legal questions on who is “directly affected” by an action and who is responsible for it (see below). For the development of the law, it would have been better if a court or tribunal had had subsequent jurisdiction. So far, actions for annulment or damages (Articles 263, 268 TFEU) have not generated any EU case law regarding Frontex, and except for its judgment in Hirsi Jamaa, the ECtHR was not able to fill the gap neither.

“The extended tasks and competence of the Agency”, the 14th recital of the Regulation reads, “should be balanced with strengthened fundamental rights safeguards and increased accountability”. But does the new Agency live up to the claim? Apart from the complaints mechanism, the FR framework largely stays the same, and so does the general liability framework: The home Member State takes disciplinary action whereas the domestic laws of the host Member State determine criminal liability. It is also the host Member State incurring civil liability for the EBCG teams. The Agency itself incurs non-contractual liability according to the general principles of EU law (Article 340 (2) TFEU). There are no provisions determining which acts or effects of external border control are attributed to the Agency or to the Member States involved (a problem of multi-actor scenarios, where the 2011 ILC Articles on the Responsibility of International Organizations might be of help). Following recent revelations on the frequent use of firearms in joint operations, MEPs wrote to Executive Director Fabrice Leggeri asking for more information and general guidance on responsibilities in certain operational scenarios. The ignorance displayed by Frontex’s designated watchdogs (see Article 7 of the Regulation) is further evidence for the need of more transparency and legal clarity in this regard.


On the 6th of October 2016 the landscape of EU external border control did not change dramatically, but it did change. To repeat: No new agency has been founded, no EBCG under EU command and control was established, no right to intervene at Member States’ external borders against their will has been introduced. In fact and most notably, the Member States’ external border guard is placed under increased scrutiny of the EBCG Agency. Failure to comply with integrated border management standards could eventually lead to reintroducing internal border controls to the detriment of the disobedient Member State. At the same time, the Agency’s enhanced tasks and powers will go hand in hand with more responsibility and accountability, but the latter has yet to be improved. Although the complaints mechanism is a step in the right direction, its design could have been more effective. This holds true especially for the follow-up mechanism. In practice, much will depend on the Fundamental Rights officer’s assertiveness on the one hand, and the Executive Director’s responsiveness on the other hand.

After all, the distinguished guests to the celebrations at Kapitan Andreevo Border Checkpoint last week did not witness birth or rebirth, but rather Frontex’s coming of age both in terms of leverage and responsibilities. Frontex, I wish you well indeed.

Barnard & Peers: chapter 26
JHA4: chapter II:3

Photo credit: http://euranetplus-inside.eu/citizens-corner-debate-migration-maze-policing-europes-borders-whose-job-is-it/

Thursday, 13 October 2016

Scotland and Brexit: Brave Heart or Timorous Beastie?

Steve Peers

At the Scottish National Party (SNP) party conference yesterday, Scotland’s First Minister (Nicola Sturgeon) announced that the Scottish Government would issue a draft of a second independence referendum bill next week. She also announced that the Scottish government would soon table an alternative plan “to protect Scotland’s interests in [the EU] and keep us in the single market – even if the rest of the UK decides to leave”. This would entail “substantial additional powers for the Scottish Parliament”, namely all the Scottish powers that “currently lie with the EU – and significant new powers”, namely the power to negotiate international treaties and “greater powers over immigration”. 

Implicitly the Scottish government is offering the UK government a choice: negotiate to ensure that Scotland stays in the single market as a distinct part of the UK, or face another independence referendum. I’ll examine the legal issues arising from these two options in turn, and conclude with some broader observations about the Brexit process compared to the prospect of Scottish independence.

Scotland in the UK – and the single market

Is EU single market participation possible if a) Scotland stays in the UK, and b) the UK as a whole is not in the single market anymore? Some people have called this prospect a ‘reverse Greenland’, referring to the deal whereby Greenland left the EU but Denmark stayed in. Given the huge differences between Greenland and Scotland, I suggest we call this idea by a different name: say the ‘Scottish Economic Area’. I have written about this prospect separately in iScot magazine, but I will summarise my points again here.

Only independent countries which are EU members can fully participate in EU membership. But in theory at least, a part of a non-EU country could participate in the internal market, even if the rest of that non-EU country did not. Of course, the EU and the UK’s Westminster government would have to consent to this in as part of their post-Brexit treaty, and it could only work if there was significant related devolution to Scotland, as the First Minister suggested.

What would it mean in practical terms? The ‘single market’ consists of the free movement of goods, services, persons and capital, which includes the freedom of establishment of companies and the self-employed. To facilitate all this, there’s extensive EU legislation setting common standards for many industries. The single market also includes common rules on competition law and state aid to industry. But a number of rules on other matters (such as trade with non-EU countries) are not necessarily part of it. Full participation in the single market goes further than a free trade agreement with the EU which the Westminster government currently seems likely to prefer, as it will abolish more non-tariff barriers to the trade of goods and services. For instance, most free trade agreements don’t give as much access to financial services markets as single market participation does. So if Scotland is in the single market and the rest of the UK is not, more financial services businesses may stay in Edinburgh, or move from London to Edinburgh rather than to the EU.

Is this feasible in practice though? The easy part would be applying EU laws in Scotland which only have domestic effect, like consumer, environmental and labour law.  When it comes to laws with a cross-border effect on trade between Scotland and the EU, such as financial services market access, it would be necessary to define exactly when a firm was based in Scotland (benefitting from single market participation in the Scottish Economic Area), and when it was based in the rest of the UK (subject to a less favourable trade agreement).

The most difficult issues relate to movement of goods and people. Would different rules on Scottish/EU relations compared to the relations between the EU and rest of the UK mean that there would need to be border controls between Scotland and the rest of the UK? On this point, the Westminster government has promised there will be no border controls between Northern Ireland and the Republic of Ireland, even though that border will become an EU/non-EU border.  Surely whatever deal is reached to this end could be adapted for use at the Scotland/England land border too.

The Scottish government would not have a direct role in EU decision-making. But it could be given the same role as Norway and Iceland have in their single market treaty with the EU (discussed further below): consultation on proposed EU laws, the power to reject them (although that’s subject to the risk of retaliation), and participation in the EFTA Court that decides on single market disputes as regards Norway and Iceland. 

The suggestion above is undeniably complex, although the whole Brexit process is complex anyway. However, the idea isn’t all or nothing: it would be possible in theory for Scotland to participate fully in parts of the single market, rather than all of it like Norway and Iceland.

Independent Scotland

There are two possibilities here: a) Scotland as a member of the EU, and b) Scotland as a non-member of the EU, but with a close relationship with it – possibly closer than the remaining UK (rUK). It is also possible that the latter option could be an interim step towards full EU membership. Obviously any new independence referendum raises issues besides Scotland’s relations with the EU, but I will focus on that point.

Scotland as an EU Member State

I blogged on this issue in 2014, during the Scottish referendum, but I’ll summarise and elaborate on those views again. The basic point is that the Treaties list the Member States by name, and since the ‘United Kingdom’ is unlikely to be interpreted as automatically referring to Scotland alone, either an accession Treaty or a Treaty amendment is necessary to include Scotland’s name as a member. In the past an accession treaty (as provided for in Article 49 TEU) has always been used to add a new name; this would entail a negotiation process, which could possibly be fast-tracked in light of Scotland’s existing de facto EU membership as part of the UK.

However, that would raise awkward questions, since the EU usually requires new Member States to apply Schengen and the single currency, and might be unlikely to extend a share of the UK’s budget rebate to Scotland. Having said that, a number of Member States have got away with not applying the single currency in practice.  It should be noted that the ‘deficit criteria’ which apply to joining the single currency are not applied as a condition of EU membership, but only when a Member State subsequently applies to join the single currency itself.

The alternative route to membership is by Treaty amendment (as provided for in Article 48 TEU), which could also entail an amendment to Article 49 TEU to refer to the special case of Scotland: “By way of derogation from the above paragraphs, Scotland shall accede to the European Union pursuant to the Treaty of Culloden”.  One possibility is a Treaty amendment which simply replacing the words “United Kingdom” wherever it appears in the Treaties with “Scotland”; this would mean that Scotland retained the UK’s opt-outs from the single currency, justice and home affairs and Schengen (the rebate is set out in secondary legislation).

When I suggested this possibility on Twitter a few months back, it was ridiculed by some as a “Tippex” approach to amending the Treaties. But as a matter of legal drafting, it is perfectly feasible, and there is a firm precedent in the Treaty of Lisbon, which in Article 2(2) to 2(8) provides for a whole host of amendments just like this: replacing “Community” with “Union” wherever it appears, for instance.   

Undeniably, however, either approach requires unanimity between Member States, and so there would be a political risk that accession or amendments are not easily agreed. In particular, some have argued that there is a risk of a Spanish veto, because of concerns that Scotland obtaining easy EU membership would inflame separatist tensions in Spain or other countries. On the other hand, some have argued that these concerns are misplaced. Either event also raises timing issues: what happens if Scotland is independent before or after Brexit, but is not yet immediately an EU Member State? The gap could be filled, at least in the interim, by some other arrangement between Scotland and the EU – an issue to which I now turn.

Scotland as a non-EU Member State

The most obvious route for Scotland to consider would be membership of the European Economic Area (EEA), along with Norway, Iceland and Liechtenstein. The EEA provides for participation of these non-EU countries in the EU’s single market freedoms and all the EU legislation related to them, as well as most EU employment and environmental law. But Scotland would not be covered by EU laws in other areas, notably agriculture, fisheries, tax and justice and home affairs – although, like Norway and Iceland, it could sign separate treaties with the EU on these issues. Although the current EEA countries have joined Schengen, this is a separate issue (agreed years after the EEA), and Scotland would have no legal obligation to do the same.

There would be no obligation to join the EU single currency, and most significantly Scotland would be free to sign separate trade agreements with non-EU countries, because the EEA does not cover the EU’s customs union. This is particularly important because it means Scotland could seek to retain a closer economic relationship with the rUK than the rUK might have with the EU. Scotland could also “go global”, as Brexiteers say, by signing up to the free trade treaties already signed by members of the European Free Trade Area (EFTA: the EEA states plus Switzerland) with non-EU countries. And it would retain power to sign its own treaties on top (or to seek to retain its own versions of the EU’s free trade deals with non-EU countries, as the rUK is likely to do). Scotland would have to become a separate WTO member, but could try to fast-track this by copying the rUK’s process of detaching from the EU’s WTO membership.

Is there a downside to EEA participation? Some have argued against the UK joining the EEA due to objections to single market participation, the need to accept ECJ jurisdiction, continued contributions, its undue size compared to other members, or its lack of influence over EU laws which would apply to it. Are these arguments transferable to Scotland? The first to third objections are not, since Scots voted to remain in the EU, entailing the single market, ECJ jurisdiction and budget contributions anyway. (In fact, the non-EU EEA countries are not subject to the jurisdiction of the ECJ, but a separate body called the EFTA Court: it usually follows ECJ case-law, but its decisions are not always binding. EEA financial contributions do not go straight to the EU budget, and would logically be recalculated in light of Scotland’s economic position anyway).

The fourth objection (size) is unconvincing: Scotland is broadly comparable with Norway, in particular in terms of population, location and economy. Finally, EEA states have a modest say on EU laws, being consulted on draft EU legislation and having the option to reject the application of new EU laws (although the EU might retaliate if they do that). Anyway, this is certainly more say over EU laws than Scotland would get after Brexit as part of the UK. In fact, it’s more say than Scotland gets over EU laws while the UK is an EU Member State – given the marginal influence that Scotland has over anything that the UK government does.

So the EEA option includes things that Scotland seeks (single market participation) while steering clear of things it may wish to avoid (the single currency and deficit criteria, Schengen, EU trade policy with non-EU countries, and EU fisheries policy).  It also has the advantage of being potentially speedier: the EU can decide to apply treaties with non-EU countries provisionally, pending national ratification.

What about the prospect of a ‘Spanish veto’ over Spain joining the EEA? Here we have actual evidence to suggest that it’s not very likely. For the EU has recently concluded an association agreement with Kosovo – despite Spain (and four other Member States) refusing to recognise the independence of that country after its unilateral declaration of independence. (Note: the EEA is also an association agreement, and Member States have a veto over the initial conclusion of such treaties).

Failing EEA membership, Scotland could still seek other forms of relations with the EU which may be closer than the rUK might enjoy, possibly as a non-EEA member of EFTA like Switzerland. Unless Scotland followed Turkey in joining the EU’s customs union, this would again leave it free to simultaneously retain a strong economic relationship with the rUK.

Scottish independence and Brexit

Could the Brexit process be relevant for the Scottish independence debate – by analogy, or a part of a broader political dynamic? Certainly many of the arguments of Brexiteers – now taken over by the whole Westminster government – could be easily adapted to the Scottish debate. For instance, independence would allow Scots to ‘take back control’ of far, far more of their laws and finances than leaving the EU will do for the UK.

We can also make direct comparisons with certain issues. Does Scotland have a veto on UK tax laws, like the UK does in the EU? No. Does Scotland agree to over 90% of laws passed in Westminster, like the UK does in the EU? No. Does Scotland have a veto on UK defence policy, like the UK does in the EU? Hell, no.

The impact of Brexit on the UK economy can be argued both ways. If Brexit seems to be benefiting the UK, then arguably this shows Scottish independence is unnecessary; but equally it arguably shows that it could also be painless. If Brexit seems to be hurting the UK, then arguably this shows Scottish independence is needed to escape; but equally it arguably shows that independence could be even more painful.

It’s certainly now ridiculous to argue (as it was in 2014) that Scotland should stay in the UK if it wants to stay in the EU. Leaving the UK won’t automatically mean joining the EU, as discussed above; but staying in the UK now certainly means leaving the EU. While independence will likely be disruptive, Brexit will entail disruption anyway, so it’s now arguable which is the ‘riskier’ and which the ‘more stable’ choice. The plummeting pound may no longer be quite so attractive a currency to retain.

Adapting the words of Brexiteers, the rUK would have an economic incentive to quickly reach new trading arrangements with Scotland. And if they refuse to, as an attempt to punish Scots, then, again in the Brexiteers’ own words, who would want to stay in a Union that treats you like that?

Given the changes in the UK since 2014, there is a strong case that another independence referendum is justified. How would Scots have voted then, if they knew that a “Yes” vote would lead to “hard Brexit” in a few years’ time?

As things stand, the current UK government has not suggested any new devolved powers for Scotland, and still less any fundamental change to the UK’s constitutional structure. It has promised to consult the Scottish government over Brexit, but not to provide for differential links with the EU. It has prioritised a very low net migration target over the country’s economic interests; it has refused to allow control by the Westminster parliament (never mind Holyrood) over the form that Brexit takes; it treats EU citizens in the UK as “bargaining chips”; and it aims to slash foreign students, expel foreign doctors and (at one point) to name and shame employers of foreign workers. It has made no attempt to reach out to the large minority of British voters – and the large majority of Scots – who voted “Remain”. Quite the reverse: its media allies refer to critics of Brexit as traitors who should be silenced and imprisoned.

If there is another referendum, Scots will have to decide if they would still be “better together” under these circumstances.  

Barnard & Peers: chapter 27
Photo credit: http://www.businessforscotland.co.uk/an-independent-scotland-would-get-a-better-deal-from-the-eu/

Saturday, 8 October 2016

The Closing of the British Mind? Brexit, EU academics, and government advice

Steve Peers

Rightly or wrongly, the Brexit vote is widely perceived as being (among other things) an attack upon academic expertise. This can be neatly demonstrated by this anecdote of one exchange I had on Twitter:

*Daily Express front page headline: NEW EU PLOT TO TAX BRITISH EVERYTHING*
Me (quoting Express headline): This is nonsense. *Again*, the UK has a veto over EU tax law.
Troll: No, the EU is plotting to take control of our taxes.
Me: The veto is set out in Articles 113 and 115 TFEU.
Troll: No, the EU is plotting to take control of our taxes.
Me: OK then. Have a nice day in your post-truth world.
Troll: Patronising c***.
Me: *blocks*.

That’s the gist of the conversation: I don’t recall the exact words, except that word in particular. I had many such conversations, but that one distils the essence of them all. (As always, I acknowledge an honourable exception for ‘liberal Leavers’, who mostly do understand the EU and had a detailed plan for Brexit. And now they are being ignored in turn).

Equally – again rightly or wrongly – the Brexit vote is being widely perceived as being as an attack upon EU citizens in the UK. These two issues merge together in a dispute which has attracted attention over the last two days. It concerns the alleged policy adopted by the Foreign and Commonwealth Office (FCO), as applied to the London School of Economics (LSE),* ‘banning’ citizens of other EU countries from giving the government policy advice about Brexit. We can’t be sure what actually happened, but what probably happened?  

We do know that in the course of a conversation between LSE staff members and FCO staff, the LSE staff got the impression that the FCO no longer wanted to hear Brexit advice from citizens of other Member States. LSE staff sent an e-mail to staff to that effect. One staff member objected on social media. This caused a storm on Twitter (which I played a part in), and the story was picked up by newspapers: The Guardian, among others. This came at the end of a week of government policy announcements perceived as xenophobic. The FCO denies it said such a thing. The LSE insists that it did.

I see two key questions: a) Who’s right? And b) Should the LSE have done what it did? (Whatever that actually was).

Who is right?

By one reading, it might be a mistake, or might possibly be a simple misunderstanding. I agree that it could just be a misunderstanding. But I think it’s more likely that it was an FCO policy, and the LSE, or at least parts of it, found a way to object and scupper the policy.

Why do I think that? Mainly because, as an academic for over twenty years, I have daily experience with university administration. (By ‘administration’, I’m referring both to full-time administrators, and also the administrative roles of those academics who have administrative tasks alongside their teaching and research, as most of us do). University administrators spend much of their time grappling with details of government policy – on research funding, student funding, admissions and immigration, for instance. It’s very important that they understand and apply relevant government policy correctly, since the large majority of university funding depends on it. They make enormous efforts to that end. (Of course, many academics study government policy in their field of expertise too, but that’s a different issue).

In light of that, I find it hard to believe that the LSE misunderstood what it was being told by the FCO. Anyone involved in university administration who was told that certain staff could no longer work on a government project would keep asking questions about what they were being told.

Having said that, I also find it hard to believe that the FCO would advise the LSE of a policy that would be challenged as being illegal, xenophobic and self-harming. Years ago, I sat the entrance exam to work in the UK civil service. I listed the FCO as one of the departments I wanted to work in. I passed the entrance exam and got to the interview stage. But at the interview, I was told that I was being considered for other departments, but not the FCO, since the FCO had a special, higher cut-off point for candidates who sat the exam. As they told me (and here I do recall all of these words exactly): “You’re the cream, but not the cream of the cream”. Perhaps that would make a good epitaph.

Indeed, I have met with FCO staff over the years, and have always been impressed by their aplomb, expertise, and professionalism. So I do find it remarkable that they would develop such a crass new policy, and not either set out formally or make that policy perfectly clear to the LSE.

So maybe something has changed in the FCO in the last few months? To ask that question is to answer it: a boorish new Foreign Secretary, whose appointment was met with ridicule worldwide. Or perhaps, less obviously, the new Prime Minister’s chief of staff, Nick Timothy, who has suggested a policy (now echoed in the Home Secretary’s speech to the Conservative party conference) that would eviscerate the majority of British universities, by banning them from enrolling foreign students, all in maniacal pursuit of a disastrous net migration target. To be fair, though, as a Russell Group university, the LSE would be one of the few left standing if that policy is carried out. It is quite striking that an FCO official involved with the alleged LSE policy retweeted my strong criticism of it. 

Should the LSE have done what it did?

If I’m right in thinking that there was a government policy, what could the LSE have done? First of all, it could simply have gone along with the government’s policy. Perhaps there are other universities which have gone along with it; obviously, we wouldn't know if there were. Secondly, it could have queried the policy tactfully, by asking the government to put it in writing, or quietly raising questions about its appropriateness. Thirdly, it could have publicly challenged it, by demanding a clarification. Fourthly, it could adopt a passive-aggressive policy, nominally not challenging it but informing its staff, with the large likelihood that the result would be public questioning and a backlash against the idea. This is, in effect, what has happened. Or possibly it couldn’t agree a policy, or a staff member decided to dissent against the policy, with the consequence that the previous option has only been triggered by default.

So which option should it have taken? An open challenge (option 3) would bring back the old days, when the LSE gained a reputation as a hotbed of radical protest. But those days are long gone; the LSE is now run with a managerial focus on surviving in a highly competitive environment. Certain other British universities have travelled the same route even faster. Option 1 would mean acceding to a policy which was legally and ethically highly dubious.

So the choice is between options 2 and 4. Option 2 would be the most diplomatic, and would be the usual means of querying a questionable government policy. Option 4 has the advantage of embarrassing the government into changing its policy, without the university having to make challenge directly.

In my view, the latter (or option 3) is clearly the right choice, for broader reasons. In a week where the government has talked about expelling foreign doctors, ‘naming and shaming’ companies with foreign employees, and banning most universities from admitting foreign students, it’s important to take a public stand. If the British mind is closing, academics must, first and foremost, make the case for keeping it open.  

Photo credit: lsesuwomeninbusiness.org.uk

See also: David Allen Green's blog post on this issue, 

*In the interests of transparency: I have a degree from the LSE, and have taught there part-time in the past, but have no current links – besides a commitment to speak at the launch of Professor Conor Gearty’s excellent new human rights book, On Fantasy Island, on December 8.

Tuesday, 4 October 2016

The Future of EU External Trade Policy - Opinion 2/15: Report from the Hearing

David Kleimann and Gesa Kübek*

On September 13 and 14, the Court of Justice of the European Union (CJEU) held its hearings for Opinion 2/15, which concerns the EU’s competence to conclude the recently negotiated EU-Singapore Free Trade Agreement (EUSFTA). The CJEU convened in a rare sitting of the Full Court of CJEU judges. It was presided by Judge Lenaerts and Vice-President Tizzano, with Judge Ilešič fulfilling the function of the Court’s Rapporteur. Mrs. Sharpston serves as Advocate General.

This note offers a first-hand report on the hearing and summarizes the exchange of arguments between the Commission, on the one side, and the Council and the member states, on the other side. The first section sets the stage by providing relevant contextual information to the proceeding and highlights the systemic importance of the coming judgment. Section II first outlines the main and general lines of reasoning that the parties presented during the hearing. Secondly, we highlight a selection of policy specific, novel, or even ‘curious’ legal arguments that were advanced by the representatives of the Council and the Commission on the one, and the members of the Court, on the other hand. Section III concludes this note with one of many still unanswered, yet systemically highly significant legal questions that surfaced in the course of the oral phase of the proceedings. There's some further background to the case in an earlier post on this blog.

I.                   The Crux of Opinion 2/15

“Does the European Union have the ‘requisite competence’ to conclude the EU – Singapore Free Trade Agreement [EUSFTA] alone?” More specifically, the Commission, in October 2014, had asked the Court to clarify whether and which areas of the EUSFTA fall under EU-exclusive, shared, or member states’ exclusive competences respectively.

The crux of the matter brought before the Court lies exactly in this precise delineation of EU external competences: If the content of the EUSFTA falls under EU exclusive powers in its entirety, its conclusion as ‘EU-only’ would be mandatory. If certain treaty provisions are regarded as exclusive national competences, the agreement ought to be concluded as a ‘mixed’ agreement, including all EU member states as independent contracting parties. If only EU exclusive as well as shared competences were touched upon by the FTA, the decision to propose the conclusion (on behalf of the Commission) and to conclude the agreement (on behalf of the Council) as either ‘EU only’ or ‘mixed’ is legally optional and referred to the political discretion of the EU institutions involved in the applicable procedures set out in Article 218 TFEU (the general rules on EU negotiation and conclusion of treaties) in conjunction with Article 207 TFEU (the provision on the EU’s Common Commercial Policy).

The importance of the Court’s judgment for the governance of EU commercial relations with third countries – in particular the controversial EU/US trade deal (‘TTIP’) and EU/UK trade relations after Brexit – can hardly be underestimated. Given the broad and deep material coverage of the EUSFTA, the judgment will serve as a precedent for the conclusion of the vast majority of future EU trade and investment agreements. As such, the Court judgment in Opinion 2/15 could possibly mark the beginning of the era of ‘EU-only’ trade and investment agreements and, conversely, the end of the EU member states lengthy parallel ratification procedures required by ‘mixity’. As mirrored by the inter-institutional political debate on the legal status of the EU Canada Comprehensive Economic Trade Agreement (CETA), the eventual outcome of Opinion 2/15 has important implications on both the efficiency, reliability and credibility of EU trade and investment policy formulation, on the one hand, and the de jure legitimacy of multi-level economic governance in the European Union, on the other.

II.                Commission vs. Council and the Member States: The Arguments

Throughout the course of the hearing, the arguments of the parties focused on four contentious policy areas covered by the EUSFTA, notably disciplines on transport, investment, intellectual property rights, as well as sustainable development (labor rights & environmental protection). In the following, we will first outline a number of general legal arguments advanced by the parties that recurred during the hearing in application to all or most issue areas and discernably built on established CJEU case law. Subsequently, we highlight a selection of specific legal constructions that the parties put forward in respect of EUSFTA transport and investment rules.

1.     General Arguments of the Parties

a.      The Commission

As a first and predominant line of defense, the Commission representatives articulated a number of general arguments that aim at fitting the content of the EUSFTA, in its entirety, within the scope of the EU’s exclusive Common Commercial Policy (CCP) competence – Article 207 TFEU – as well as within the ambit other exclusive EU competences that can be implied in accordance with Article 3 (2) TFEU.

As such, the Commission proposed the broadest possible conceptual interpretation of the ordinary terms of Article 207, seeking to attribute maximum meaning to the expansion of CCP powers by the Lisbon reform of 2009, which saw the addition of services, foreign direct investment, and trade related intellectual property rights to the scope of CCP exclusive external powers.

Secondly, the Commission relied on a broad application of the ‘centre of gravity’ theory, which the Court had developed in its case law. The theory’s ‘predominance-test’ requires the use of a single legal basis where one of the aims and components of a measure “is identifiable as the main [one], whereas the other is merely incidental” (COM representative in reference to Case C-377/12, concerning the legal base of the EU partnership agreement with the Philippines). In this way, the Commission defended EUSFTA rules as measures falling under Article 207 where they “specifically [relate] to international trade in that [they are] essentially intended to promote, facilitate or govern trade and [have] direct and immediate effects on trade” (COM representative in reference to Case C-414/11 - Daiichi Sankyo).

Third, the Commission representatives made frequent use of the provisions of Article 3 (2) to advocate for implied exclusivity of otherwise shared competences. In codification of settled ERTA case law, Article 3 (2) TFEU prescribes EU exclusivity in case “the scope of EU rules may be affected or altered by international [member state] commitments where such commitments are concerned with an area which is already covered to a large extent by such rules” (Opinion 1/13, on the Hague Convention on child abduction, in reference to Article 3 (2) TFEU, 3rd situation). Otherwise, EU exclusive competence may be implied where the “attainment of the Community objective [is] inextricably linked to the conclusion of the international agreement” (Opinion 1/03 on the Lugano Convention on civil jurisdiction, codified in Article 3 (2) TFEU, 2nd situation).

Building on these three main lines of argumentation, the Commission developed a number of specific arguments in support of EU exclusivity in regard of foreign direct investment (FDI) protection and intellectual property rights (first, second, and third argument), sustainable development disciplines (second argument), and areas otherwise covered by EU rules to a large extent, such as maritime transport (second and third argument).

Yet, the Commission found it necessary to draw a second line of defense: in the alternative to full EU exclusivity, it held that the EUSFTA concerned EU exclusive and shared competences only. As such, the conclusion of the EUSFTA as ‘EU-only’ or ‘mixed’ would remain optional – or facultative - in accordance with the procedural rules of Article 218 TFEU in conjunction with Article 207 TFEU.

b.     The Council and the Member States

Living up to observers’ expectations, the Council and the member states’ representatives attacked the Commission presumption of EU exclusivity on various general and issue specific grounds, with an ubiquitous reference to the principle of conferral, which is set out in Article 5 (2) TEU. The EUSFTA concerned, in addition to the EU exclusive competence under Article 207 TFEU, both shared as well as exclusive member states’ competences. In consequence, “mixity is a must” for both the Council and the member states.

In particular, the Council and the member states demanded a narrow text based interpretation of Article 207 TFEU. Secondly, both Council and member states advocated for a restrictive employment of the ‘center of gravity’ theory that, in its application, needed to rest upon “objective factors amenable to judicial review” (member states representatives in reference to Case C—411/06, Shipments of Waste). More than once, the representatives of various parties referred to Opinion 2/00, on the Cartagena Protocol, in which the Court decided that “[w]hatever their scale, the practical difficulties associated with the implementation of mixed agreements (..) cannot be accepted as relevant when selecting the legal basis for a [Union] measure”. Instead, the Council and the member states advocated on several occasions that the choice of the legal basis should take account of the Court’s reasoning in Case C-411/06, where it was held that “[e]xceptionally, if (…) it is established that the act simultaneously pursues a number of objectives or has several components that are indissociably linked, without one being secondary and indirect in relation to the other, such an act will have to be founded on the various corresponding legal bases”.

Third, the parties argued in favor of restrictive reading of implied exclusive competences under Article 3 (2), 3rd situation, in that respective conclusions required a “comprehensive and detailed analysis of the relationship between the envisaged international agreement and the EU law in force” (Council and member states representatives in reference to Opinion 1/13).

Following these more restrictive of the possible realm of interpretative approaches, the Council and the member states concluded that member states remained exclusively competent for maritime transport, FDI protection, portfolio liberalization and protection and (alleged) non-commercial aspects of intellectual property rights protection. Moreover, the parties held that the EUSFTA’s disciplines on labor rights and environmental protection established various independent and non-incidental aims and objectives that required reference to multiple legal bases in the TFEU.

2.     Policy-specific Arguments of the Parties

Up to until this point, arguably, the Commission, on the one side, and the Council and the member states, on the other, walked on trodden paths of EU primary law interpretation and established case law, in application to an economic treaty of unprecedented scope and depth and a constantly evolving EU internal legislative status quo. In the following few paragraphs, we highlight a selection of rather unconventional and even curious policy-specific arguments in the areas of transport and investment that may yet move the needle on the evolution of EU external exclusive competences.

a.      Transport

In the area of transport, the Commission notably questioned the scope of the carve-out Article 207(5), which exempts “the negotiation and conclusion of international agreements in the field of transport” from the TFEU provisions of the CCP. In a remarkable construction, the Commission argued that the addition of foreign direct investment to the terms of Article 207(1) via the Lisbon Treaty reform of 2009 had moved mode 3 of transport services provision as defined by WTO law, i.e. establishment and FDI, back into the scope of the CCP. Mode 1, 2, and 4 (movement of the service itself, movement of service recipients and providers) remained outside of the CCP’s legal basis as regards transport. The EU, however, was now exclusively competent for the negotiation and conclusion of agreements liberalizing and protecting foreign direct investment in all sectors, including transport. The Council and member states cried foul in reference to Opinion 1/08, in which the CJEU ruled that transport was fully exempted from the CCP, and which remained “good law” even after the Lisbon reforms and protected the full integrity of the 207(5) transport carve-out from the CCP. The Commission, in view of the parties, was victim of its own faulty logic reasoning. Any exemptions from Article 207 (5) would deprive the provision of its effectiveness.

In the area of maritime transport services, the Commission advocated for implied ERTA exclusivity (Article 3 (2), 3rd situation TFEU) based on Regulation 4055/86. The Regulation prescribes broad mode 1 liberalization between EU member state nationals established in EU member states and third countries but does evidently not afford any liberalization commitment to nationals of third countries. The Council and member states hence pointed at the missing pieces for a comprehensive EU internal legal framework for transport services that could otherwise confer implied Union exclusivity. The parties further argued that the wide-ranging EUSFTA disciplines and objectives in this field were not incidental or subordinate to the commercial treaty objectives. Maritime transport services, in the view of the parties, remained a shared competence in accordance with Article 4 (2) (g) TFEU. Moreover, member states remained exclusively competent in regard of the regulation of third country vessels operators.

Inspired by this exchange of arguments, Advocate General Sharpston addressed the Council with a question of systemic relevance: What is, at the end, the decisive criterion or the threshold for the conclusion of an EU agreement in a field that is internally only partly covered by common rules, such as maritime transport? How many “hoops”, Sharpston asked, does the Commission have to “jump through” to prove EU exclusivity to the Council? Mrs. Sharpston further questioned whether internal exclusivity was a necessary condition for external exclusivity of competences. The Council, in response, denied that internal exclusivity was a conditio sine qua non but insisted on “strict conditions” for the conferral of implied exclusivity that were set out in Article 3 (2) TFEU. Moreover, the Council advocated for an application of the gravity theory that advanced “clear dividing lines”.

b.     Portfolio Investment

In a genuinely novel line of reasoning, the Commission advanced a treaty interpretation that would justify the implied exclusivity of Union competence over portfolio investment (ie, the purchase of non-controlling shares in companies), which is not included in the ordinary meaning of the term ‘foreign direct investment’ in Article 207 (1) TFEU. In doing so, the Commission departed from the otherwise currently uncontested notion that existing secondary EU legislation is the only contingency that can trigger an ‘ERTA effect’. The ‘ERTA effect’ confers exclusive competence in areas where member states exercise of external competence would otherwise affect already existing or even prospective ‘common rules’ (Art. 3 (2) 3rd situation TFEU). Such ‘common rules’, according to the Commission, however, could also take the shape of EU primary law. With reference to Article 63 (1) TFEU, the Commission representatives voiced the opinion that the treaty-prescribed freedom of capital movement between member states (as well as member states and third countries) sufficed to constitute ‘common rules’ within the meaning of Article 3 (2) TFEU. The possibility of member states concluding international agreements that affected the prohibition of restrictions on capital movements as codified in Article 63 (1) implied EU exclusive external powers in this area. The Union was therefore exclusively competent for the negotiation and conclusion of agreements covering rules on portfolio investment liberalization and the protection of such investments.

In the alternative, according to the Commission, portfolio investment liberalization falls under the Union’s shared competences.

The Council and the member states took pains to counter the Commission’s line of reasoning with a larger number of sometimes diverging arguments. First and foremost, the parties noted the fact that that Article 63 (1), by itself, only codifies a prohibition of restrictions, but falls short of conferring legislative powers upon the Union. Using Article 63 (1) TFEU as a legal basis for external action was merely a “legal fix” that constituted an instance of “legal imagination” on behalf of the Commission. To the Council, it appeared inconceivable that a provision, which did not suffice as a basis for internal legislation could imply an (exclusive) external competence. Only the exercise of an internal competence may  pre-empt external member state action. Belgium and Germany, secondly, took the stance that such a wide interpretation of Article 3 (2) 3rd situation TFEU facilitated an undue circumvention of the deliberate choice of the treaty makers to exclude portfolio investment from the scope of Article 207 TFEU and Article 64 TFEU. The two parties insisted on exclusive member state competence for portfolio investment. The representatives of Finland and Slovenia, on the other hand, appeared to suggest that the member states may share external powers with the Union in this area.

Countering the Council’s attack, the Commission, in response to an oral question asked by the Court, held that there was a “simple but very good reason” for the fact that the treaties did not codify a legal basis for the internal liberalization of portfolio investment: Article 63 (1) TFEU itself prescribed a comprehensive prohibition of restrictions to that end.

In another unprecedented interpretation of the treaties, the Commission cited Article 216 (1) in conjunction with Article 63 (1) TFEU as the correct legal bases for external Union acts that covered portfolio investment liberalization. The Council and several member states, in contrast, insisted that Article 216 (1) TFEU only conferred general treaty-making powers upon the Union and was unsuitable to serve as a legal basis for the conclusion of international agreements by the EU.

Upon inquiry of Judge Rapporteur Ilešič, the Commission and Council representatives found themselves in a rare moment of agreement to the extent that Article 64 TFEU could not serve as a legal basis for the internal liberalization of portfolio investment. According to the Commission, the harmonization of EU internal rules on portfolio investment could, however,  “maybe” be based on Article 114 or 352 TFEU – a statement that inspired the Court’s President Lenaerts to remind the Commission of the fact that the choice of the correct legal basis for a Union act was not “à la carte”.

In light of the circumstance that the Commission partly relied on a legal basis for an external competence, which allegedly did not require its internal exercise ex ante, Advocate General Sharpston questioned the Commission on the precise difference between the third situation governed by Article 3 (2) TFEU (as referred to by the Commission) and the second situation provided for by the same rule. Mrs. Sharpston’s enquiry, however, remained unanswered.

Secondly, the Advocate General questioned the Commission’s perception of the risk that member state agreements could ‘alter the scope of common rules’, whereas the common rules that the Commission referred to were in fact EU treaty provisions. The only way to alter the scope of primary law, Sharpston stated, was a treaty reform via the applicable constitutional provisions. In response, the Commission, in reference to the terms of Article 3 (2) TFEU, clarified that its argument did not extend to the alteration of the scope of treaty rules, but to the probability that the primary legal norm of Article 63 (1) could be affected by independent international member state agreements.

c.      Termination of Member States’ Bilateral Investment Treaties

Another point of legal debate that prominently featured in the hearing concerned the supersession, suspension, and termination of existing member states’ bilateral investment treaties with Singapore once the investment protection provisions of the EUSFTA will be provisionally applied or enter into force when the treaty is concluded. Article 9.10 EUSFTA provides that member states bilateral investment treaties “shall cease to have effect and shall be replaced and superseded by this Agreement”. A footnote to this provision stipulates that “the agreements between Member States of the Union and Singapore […] shall be considered as terminated by this Agreement, within the meaning of subparagraph 1(a) of Article 59 of the Vienna Convention on the Law of Treaties.” Yet, article 59 (1) VCLT prescribes that “a treaty shall be considered as terminated if all the parties to it conclude a later treaty relating to the same subject matter and: (a) It appears from the later treaty or is otherwise established that the parties intended that the matter should be governed by that treaty”.

While the Commission argued that past EU practice entailed an array of precedents for the supersession of member state treaties by EU external agreements, Judge Rapporteur Ilešič and Advocate General Sharpston questioned the appropriateness of the chosen legal modality as well as the EU competence for the termination of member states’ bilateral investment treaties (BITs) with Singapore via Article 9.10 of the EUSFTA. Both the Judge Rapporteur and the Advocate General, advanced a, however, unanswered request for a clarification as to whether the Commission wanted to argue in favour of the termination of the BITs via the duty of sincere cooperation enshrined in Article 4 (3) of the TEU. Otherwise, how would the Commission argue that it can include a provision in an ‘EU-only’ agreement that effectuated not only the succession but also the termination of member state bilateral agreements with Singapore under international law, given that the EU is not a contracting party to these agreements?

III.             Concluding Remarks

Opinion 2/15 raises a vast amount of general as well as policy area specific legal issues that are – in aggregate and in some instances individually - of tremendous importance for the delineation of EU competences vis-à-vis the Union’s member states. The significance of the Court’s judgment very much transcends the question of whether the EUSFTA is characterized as an ‘EU-only’ or a ‘mixed’ agreement in its entirety. Rather, the Court’s much awaited clarifications will have both systemic horizontal as well as policy area specific vertical implications for the operation of the EU’s legal system and its external relations.  Moreover, the judgment will likely clarify and may redefine the role and reach of the member states’ presence in the Union’s external economic relations in adaptation to the primary law reforms of the Lisbon Treaty, constantly evolving EU internal secondary legislation, and the expanding scope and depth of 21st century trade and investment agreements.

We conclude this note with a question posed by the British Advocate General Mrs. Sharpston, at the very end of the hearing, to all parties. The question, however, remained unanswered.

If the Court, in Opinion 2/15, held that the EU-Singapore FTA is a mixed agreement, what would be the consequence for the conclusion of the treaty? Given the extensive scope of EU exclusive powers under the CCP, could a single member state veto the entire agreement?

David Kleimann and Gesa Kübek

Passau, October 4th, 2016

Barnard & Peers: chapter 24
Photo credit: www.cnaint.com

* David Kleimann is a Researcher at the Law Department of the European University Institute (EUI) in Florence (david.kleimann@eui.eu). Gesa Kübek is a Research Assistant at the Law Faculty of the University of Passau (gesa.kuebek@uni-passau.de). This report is based on hand-written notes that the authors prepared during the hearing. All potential errors are attributable to the authors alone.