Von Daniel Thym, Chair of Public, European and International Law, University of Konstanz*
*See the German language version of this post on Verfassungsblog
*See the German language version of this post on Verfassungsblog
Public debates are short-lived: the international media was thrilled by the regional parliament of Wallonia threatening to block the CETA Agreement with Canada. At the moment, free trade is more popular as a result of Donald Trump’s opposition, since few Europeans feel comfortable promoting a similar approach as the US president. We should be careful, however, not to be forget underlying structural issues besides the headline news about punitive tariffs on European steel or American orange juice. One such structural challenge is independent investment protection tribunals, which are a bone of contention during the CETA and TTIP debate. In that respect, the recent Achmea judgment by the ECJ may have more far-reaching repercussions as the public debate has recognised so far.
This judgment concerned a Slovak-Dutch Agreement on investment protection, invoked to request a tribunal to rule on compensation for a Slovakian government decision to change health insurance law. The ECJ found that the bilateral investment treaty was in violation of EU law because the tribunal could be called upon to interpet EU law in a dispute between investors and States, but its interpretation could not be effectively challenged via the court process, meaning that the ECJ’s role as the final arbiter of EU law was infringed.
While the (German) media initially focused on implications for intra-European investment protection, such as the Slovak-Dutch Agreement, it is too simple to assume, as the Frankfurter Allgemeine did, that agreements concluded by the EU with a third state follow a different script, since the EU institutions gave their consent to the investment protection regime. Such an interpretation ignores the level of abstraction of the ECJ’s argument, which appears to be a position of principle, thereby closing a gap in its argument on the EU-Singapore Free Trade Agreement when judges in Luxembourg deemed it ‘not (yet) appropriate to examine whether the dispute settlement regime … of the envisaged agreement fulfils the criteria set out (in previous case law), in particular the criterion relating to the autonomy of EU law” (para 301). They now provide an answer to the question and it is, not for the first time, a celebration of autonomy.
Luxembourg as a Serial Offender: Control of Third State Agreements
For the European Union, the law is more than an instrument to realise political objectives; it is the foundation of its existence and a precondition for its continued success. That is why deficits in the respect for the rule of law are so sensitive for the EU, with regard to monetary union and the asylum system not differently than regarding Poland. When integration through law stutters, European integration is in trouble – and it does not come as a surprise, therefore, that the ECJ defends the effective application of supranational rules vigorously. To do so may promote its institutional self-interest, if judicial ‘competitors’ are being constrained, but the defence of autonomy is more than judicial egotism: it protects the legal foundations of a supranational community based on the rule of law.
Indeed, the Achmea judgment is not the first occasion on which the ECJ cut down (quasi-)judicial competitors based on international treaties. In 2014, it infamously rejected the first attempt by the EU institutions to accede to the ECHR, although the EU Treaties sponsored that move explicitly (albeit with safeguards for autonomy). The opinion was all about the protection of the autonomy of EU law and there are plenty of references to opinion 2/13 in the general principles of the Achmea judgment (paras 32-37). Other international courts the ECJ prevented include the initial draft of the European Economic Area Agreement and the project of a pan-European patent court involving several third states.
From a doctrinal perspective, the judicial control of third country agreements is based on the assumption, confirmed by Article 218(11) TFEU, that primary EU law has a higher rank than international agreements from the perspective of the supranational EU legal order. That conclusion extends to the UN Security Council in relation to which the ECJ famously found that ‘international agreement cannot have the effect of prejudicing the constitutional principles of the (EU) Treaty’ (para 285). Ideally, such incompatibility is identified on the occasion of an opinion before an agreement is being ratified, but judges in Luxembourg do not hesitate to enforce the primacy of the EU Treaties after an agreement entered into force.
Protection of the Autonomy of Union Law
The concept of ‘autonomy’ is a catch-all phrase intended to summarise core features of the supranational EU legal order relating ‘to the constitutional structure of the EU and the very nature of that law’ and including basic features, such as direct effect, primacy and a judicial system intended to ensure consistency and uniformity in the interpretation of EU law via the ECJ and national courts (paras 33-37). That may sound abstract, but it should be read against the background of the cardinal significance of the law for the process of EU integration mentioned before. When speaking of ‘autonomy’, judges in Luxembourg are not concerned with the doctrinal small print: autonomy is a question of principle that leaves little room for compromise.
Closer inspection demonstrates that not only the general principles of the Achmea judgment are based on the rigorous defence of autonomy. The position of the ECJ on the bilateral Slovak-Dutch investment treaty (BIT) are similarly general in nature (paras 39-59), thereby indicating that the ruling is more than a decision on intra-European investment protection schemes. Its reasoning can be extended to agreements with third states as a matter of principle, also considering that the ECJ refers to several previous rulings that had considered such treaties to be in violation of the EU Treaties. Indeed, it seems to me that the arguments put forward in Achmea can be extended to extra-European investment protection regimes, such as the one foreseen in the CETA Agreement with Canada. We cannot exclude, of course, that the ECJ will distinguish the latter agreement from intra-European BITs, but the level of abstraction of the Grand Chamber’s position in Achmea indicates that we should expect the CETA rules to fall foul of the autonomy of EU law for at least four legal considerations.
Firstly, it won’t save the CETA Tribunal that its jurisdiction will be limited to the interpretation of the agreement and other international law and that it will have to interpret domestic law in line with domestic courts (Article 8.31, CETA treaty). The Achmea judgment maintained explicitly that a similar interpretation of the corresponding provision in Article 8 BIT would not remedy the Court’s concern about the indirect evaluation of domestic law (para 40-42). Indeed, it is in the nature of investment protection that a company complains with an international tribunal about domestic laws and practices, which are to be evaluated in light of international law.
Secondly, the recent ruling may have concerned a classic single market case about the access of a Dutch company to the privatised Slovak health insurance market, thereby affecting two core guarantees of Union law: the free movement of capital and the freedom of establishment. There is, however, nothing in the reasoning of the ECJ indicating that its reasoning is limited to the intra-European fundamental freedoms. The concern about the autonomy is universal (para 41, 33), covering all aspects of primary and secondary Union law as a matter of principle, including all those directives and regulations regulating economic activities which might possibly be judged in light of the investment protection provisions in CETA.
Thirdly, the CETA Tribunal won’t have the competence to send a preliminary reference to Luxembourg. Thus, it will be confronted with the same criticism the Achmea judgment put forward against the Slovak-Dutch Tribunal, which the ECJ could possibly have qualified as a court within the meaning of Article 267 TFEU (para 43-49). Yet, it did not follow down this road. Instead of integrating investment tribunals into the EU system of judicial protection, it excluded them from it, thereby laying the basis for their prohibition.
Fourthly, a final award of the CETA Tribunal (called ‘Urteilsspruch’ in the German translation) does not remain an inter-state affair, which – like in the case of the WTO – has to be settled by diplomatic means. Instead, final CETA awards are binding on all parties and can be enforced via domestic courts (Article 8.39, 8.41). The latter are not authorised to check the compatibility of the award with Union law, something the ECJ considered insufficient in its recent ruling (paras 50-53).
Consequences for Investment Tribunals
It is the primary motivation of the ECJ to ensure the continued jurisdiction of European courts over investment protection. It objects to a specialised court system based for companies at the international level, while highlighting, at the same time, that inter- and intra-state arbitration remains an option. It is permissible, within certain limits, for freely expressed wishes of individual companies to settle a dispute via private arbitration channels (para 54-55). The ECJ reaffirmed, moreover, that Union law does not generally prohibit international courts and tribunals under the condition that their structure respects the characteristics of the supranational legal order.
Dispute settlement within the WTO is such a mechanism that is unproblematic from the perspective of Union law, precisely because world trade law does not generally establish directly applicable rights and obligations for individual companies. If Donald Trump finally installs punitive tariffs against European aluminium and the EU counteracts, the dispute remains intergovernmental. Even if the WTO Appellate Body finds subsidies for Airbus to be incompatible with world trade law, Boeing will not be able to enforce the award via domestic courts. Dispute settlement within the WTO does not call into question the autonomy of Union law.
One option to save investment protection tribunals might be to allow domestic courts to control their findings in light of Union law, including the option of a reference to the ECJ – instead of limiting the judicial review at the enforcement stage on the internal coherence of the arbitral award and on compliance with the narrow public policy exception (see, for the domestic dispute which led to the Achmea case, Paragraph 1059(2) of the German Code of Civil Procedure). Such comprehensive control in light of primary and secondary Union law could possibly avoid the verdict of illegality on the part of the ECJ against investment tribunals such as the CETA model. It would, however, contravene the (controversial) raison d’être of international investment protection regimes, whose rationale is to provide independent oversight of domestic laws by an institution outside the national court structure in light of international law alone.
It is important to understand that the ECJ’s reasoning does not remain limited to agreements the Member States have concluded with third parties. A similar argument applies to treaties between the EU and third states, such as CETA or the Energy Charter Treaty, on the basis of which the Swedish company Vattenfall currently sues Germany for its decision to terminate nuclear power production. According to settled ECJ case law, the conflict between a directive and an international treaty need not be resolved to the benefit of investment protection rules. International treaties prevail over secondary legislation only if the treaty in question is capable of being directly applicable – a condition the ECJ rarely considers to be fulfilled with regard to international trade agreements.
Thus, secondary EU legislation has a higher rank than WTO law within the supranational legal order and in the case of CETA direct effect is being excluded explicitly in Article 30.6. That may sound abstract, but it has tangible consequences: primary and secondary Union law would prevail in cases of conflict between EU legislation and an arbitral award under the CETA agreement, which is based on international law alone. Within the EU legal order, democratic treaty override is a realistic option, at least for international treaties, such as the WTO or the CETA Agreements, which are not directly applicable within the supranational legal order.
My prediction for CETA and TTIP is that an opinion under Article 218(11) TFEU, which any EU institution or Member State can initiate, would be a death sentence for the investment protection provisions, since they are capable of being applied to various aspects of EU law. (Note that Opinion 1/17, quering whether the investment dispute provisions of CETA are compatible with EU law, is already pending before the CJEU). With regard to existing bilateral agreements of the Member States with third states, the finding may be more ambiguous. If, for instance, a German company complains against expropriation by Pakistan or Algeria, such a case would not usually have on EU law dimension, thus avoiding a direct conflict with the autonomy of EU law. The result may be neo-imperial: within the EU legal order, democratic legislation prevails in cases of conflict, while European companies could rely on pre-existing agreements abroad. It will be difficult, however, to convince third states to sign up to such one-sided agreements in the future. Thus, the end result of the Achmea judgment might be nothing less than a restart in international investment protection law.
Barnard & Peers: chapter 24
Photo credit: Pensionen Pro
Interesting implications on Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/36 and Cyprus Popular Bank Public Co. Ltd. v. Hellenic Republic, ICSID Case No. ARB/14/16ReplyDelete
Thank you for this. I was at a talk given on Achmea this week by Lorand Bartels, Alan Dashwood and Panos Koutrakos and exactly the samd issue were raised. The consensus was the case is crazy as it puts a block on tribunals hearing cases even when EU law is only concidered briefly or as an ancilliary matter.ReplyDelete
The problem is that an investment tribunal WOULD treat EU law "briefly or as an ancillary matter" even if it is absolutely central to the case. Arbitral tribunals often seem to view EU law as an unwelcome and unfamiliar distraction. Meanwhile, State aid law for example was key in several in intra-EU ISDS cases, and some tribunals simply chose to disregard it.Delete
This comment has been removed by a blog administrator.ReplyDelete