The Refugee Crisis: What should the EU do next?

Steve Peers

Last week’s pictures of the tragic death of a refugee toddler brought into focus the ongoing crisis facing Syria and other conflict zones, which have given rise to increased numbers fleeing persecution worldwide, and in the European Union. The events of recent weeks (increasing numbers landing in Greece, the journey of many via the Western Balkans, Hungary and Austria to Germany) demonstrate that the Schengen and Dublin systems are coming under strain as a result.

How should the EU address this issue next? Should it abolish or reform the Schengen and/or Dublin rules? Are Member States complying with EU and international law in their response?

To answer these questions, I will examine in turn (a) the international law framework; (b) the EU law framework; (c) whether Schengen is at ‘fault’; (d) whether Dublin is at ‘fault’; and (e) what the EU should do next.  My main purposes are to explain the legal background, to point out some legal errors, and to suggest the best way forward in light of the international refugee law framework.

International law framework 

While it is often strongly asserted that 'international law requires refugees to apply for asylum in the first safe country they enter', in fact the position is rather vaguer than that. The United Nations (Geneva) Convention on the status of refugees does not contain any express rule to that effect in the rules on the definition of refugee, or on the cessation (loss) or exclusion from being a refugee, as set out in Articles 1.A to 1.F of that Convention.

However, there are some indirect suggestions in the Convention that the number of countries which a refugee has crossed through might be relevant. Article 31 of the Convention bans States from imposing penalties upon refugees for entering a country illegally - a rule which contradicts some of the rhetoric about refugees being 'illegal immigrants'. The drafters of the Convention clearly recognised that it might be necessary and legitimate in practice for a refugee to breach another country's immigration laws to escape threats to his or her life or freedom. So it is not necessary to be on the territory legally in order to qualify as a refugee.

This rule is, however, subject to several conditions - including the requirement that the refugees were 'coming directly' from the country which they had to flee. If that rule is interpreted narrowly, then refugees can only benefit from the exemption from penalties for breaching immigration law in neighbouring states, not states further afield. But refugees’ failure to satisfy this condition only permits States to prosecute them for breach of immigration law; it does not allow those States to exclude the refugees from protection. As I pointed out already, the rules on definition and exclusion of refugees in the Convention are quite separate from the rule on non-prosecution for breach of immigration law. And it is also possible to interpret this condition more generously - in the sense that the 'coming directly' requirement does not exclude all refugees who have merely transited through other countries, but only those who have stopped and obtained protection in another State already. 

Another relevant provision is the 'non-refoulement' rule in Article 33 of the Convention, which prevents States removing refugees to an unsafe State. But it does not prevent refugees from being removed to a safe State. Furthermore, the restrictions in the Convention on expelling refugees to any State, and many of the substantive benefits which the Convention gives to refugees (such as welfare and access to employment) are reserved for those who are lawfully resident or present in the territory; and the Convention does not require States to give refugees a lawful status under national immigration law.

So overall, the Geneva Convention gives States a degree of flexibility to insist upon a 'safe third country' requirement, but there is no absolute rule that refugees must always apply in a safe third country. If the Convention had intended to impose a firm rule in that regard, it would surely have said so expressly and provided for obligations for the first safe country to readmit the refugee. Moreover, the preamble to the Convention refers to the heavy burden which the grant of asylum may place upon some countries, and the need for international cooperation to avoid refugees becoming a source of tension between States. Taken as a whole, then, the drafters of the Convention recognized that a strict safe third country rule could impose undue burdens on countries neighbouring a conflict in some cases, but left it to States to work out the details of how to address such burdens when they occur. 

EU law framework 

The EU law framework consists first and foremost of the Schengen rules - which set out conditions for crossing external borders, in conjunction with no controls on internal borders. While some appear to assume that the Schengen rules require EU States to refuse entry to refugees at the external borders, that is clearly not the case. The Schengen Borders Code contains general exceptions relating to refugees and human rights, as well as specific asylum exceptions from the normal rules on the grounds for admission, and from the requirement to penalizing those who cross the external border without authorization. The latter exception obviously reflects Article 31 of the Geneva Convention, discussed above.

While Member States are generally obliged to ensure control of the external borders (just like non-Schengen States aim to control their borders), there is no specific requirement to build fences, as several Member States have done. Building fences is not ruled out by the Schengen rules, but it is Member States which decide to build the fences as a means of controlling the border, not the EU. And anyone who makes it to those fences and applies for asylum is entitled to be admitted to have their asylum application considered.

This is confirmed by the EU’s asylum legislation, which says that it applies to all those who apply at the border or on the territory.  There are some optional special rules for asylum applications made at the border, but there is no rule saying that an application must be refused because it was made at the border, or because the applicant entered the territory without authorization. Reflecting the interpretation of the Geneva Convention discussed above, the EU’s asylum procedures Directive states that an application might be inadmissible if the asylum-seeker gained protection in a ‘first country of asylum’, or has links with a ‘safe third country’.  The application of these rules doesn’t mean that the asylum-seeker is not a refugee; rather it means that another State is deemed responsible for resuming protection, or for assessing the asylum application.

The problem for refugees is reaching the territory in the first place. EU law imposes carrier sanctions on transport companies if they transport persons without visas, which explains why refugees do not buy relatively cheap tickets to travel instead of paying smugglers for unsafe journeys. Arguably the EU’s visa rules require Member States to issue special visas for those in need of humanitarian protection (see discussion here), but they rarely do so. Taken as a whole, then, the Schengen borders rules have a rather uneasy co-existence with asylum law: but they clearly allow for the admission of asylum-seekers who do reach the external borders of the EU.

There’s another uneasy relationship between the Schengen rules and the Dublin rules, ie the rules which require an asylum-seeker to apply usually in the first EU country which he or she reaches. That’s because it’s obviously harder in practice to enforce those rules without border controls between countries.

Is Schengen at fault?

As noted already, the Schengen system does not ban people from seeking asylum at EU borders, although it makes it harder for them to reach the territory and more likely to risk their lives trying. But there is nothing in EU law to prevent Member States from resettling large numbers of refugees directly from conflict zones if they wish to. The decision of most Member States to resettle few Syrians or others in need of protection is up to them alone.

While the Schengen rules logically make the Dublin system harder to enforce, this difficulty is relative: after all, if an asylum-seeker moves on from Greece, he or she will have to cross further borders anyway before reaching the rest of the Schengen area (Romania, Bulgaria, and Croatia are not in Schengen yet; and most asylum-seekers prefer instead to travel via the non-EU countries in the Western Balkans anyway).

And it is naïve in the extreme to assume that reimposing border controls would stop all movement of asylum-seekers between Member States. As discussed in Agnes Hurwitz’ book, the Dublin rules have their origin in Council of Europe discussions in the 1980s, and were not initially connected to the Schengen project. There was already a ‘refugees in orbit’ problem of refusal to take responsibility at that point – when border controls were still fully in place. Otherwise States would not have opened discussions on the issue. So clearly borders are permeable even when border controls exist, particularly the long land borders on the continent. Indeed, Germany last received huge numbers of asylum-seekers during the Bosnian war of 1992, again when the border controls were fully in place, which was years before countries like Hungary joined the EU (Austria was not yet a member either).

Does Schengen encourage asylum flows, as some claim? Looking at the statistics, it clearly does not. The flows of asylum-seekers last reached 2014 levels back in 1992 and then dropped off. There have been increases and decreases over the years, which can clearly be linked back to events in countries of origin (Bosnia, Kosovo, Syria, et al). If Schengen caused asylum flows, one would expect the numbers to increase after the borders were abolished in 1995, and again when the system was extended to Central Europe in 2008. But they did not. Nor did the numbers of irregular migrants.

Think about it. The asylum-seekers who reach the EU have often crossed many Asian or African borders already, and those arriving in Greece plan to cross some European borders anyway after they arrive, unless (improbably) Greece is their intended destination. They have fled poverty or persecution, paid smugglers a small fortune, often been ill-treated on the way to the EU, and endured an appalling and dangerous sea crossing. The EU’s assumption that withdrawing rescue vessels in the Mediterranean would deter them from coming proved to be tragically wrong. Compared to all that, why would the reimposition of Schengen border controls deter anyone who would otherwise come?

Conversely, is Schengen at fault for the treatment of asylum-seekers by Hungary? In principle, if third-country nationals do not (yet) apply for asylum, they are irregular migrants, and so Hungary had an obligation to remove them under the EU’s Returns Directive. But that Directive does allow Member States to apply higher standards, and it would have been foolish not to do so (as Hungary eventually did) in circumstances where Germany had already signalled its willingness to consider their planned asylum applications.

Is Dublin at fault?

The Dublin system has undoubtedly shifted a significantly higher burden to certain Member States (Greece, Italy and Hungary at present), which is increasingly difficult to manage as migration flows have increased and the Greek economy in particular has suffered from austerity. It should be noted, however, that in principle the courts have ruled since 2011 that Greece is not responsible for all the asylum-seekers who come there. The normal assumption that each EU country is safe has had to be suspended, since the ECHR and the EU courts have ruled (in the cases of MSS and NS) that Greece is not safe, due to the collapse of the asylum system there.

So it’s clearly legally incorrect to claim that ‘Greece is safe’. Moreover, since the Dublin rules are effectively disapplied to Greece, asylum-seekers can’t be criticised for evading the Dublin system if they move on from that country. However, Greece still has the initial burden of dealing with the large number of asylum-seekers which reach its territory first; and it may be difficult in practice for those asylum-seekers to move on quickly to other Member States. It’s not clear if the first other Member State they reach after Greece then becomes responsible under the rules or not.

The large number of asylum-seekers moving in recent days has probably been partly affected by the German decision that it would not apply the Dublin rules to Syrians. Germany is legally entitled to do this: the Dublin Regulation has a sovereignty clause (allowing States to consider asylum claims that are not their responsibility) and the CJEU has ruled that there are no limits on how Member States may use that clause. This will undoubtedly exacerbate the burden on Germany in turn.

While it makes more sense from a burden-sharing perspective to allocate asylum-seekers between Member States more evenly, there are a number of political problems with that idea. Since Member States are not keen to have more asylum-seekers, the would-be net recipients always resist the suggestion. Various proposals for burden-sharing have repeatedly failed since the 1990s. The EU is on the brink of sharing burdens for the first time, by adopting a Decision on relocating some asylum-seekers from Greece and Italy to other Member States. But the number involved is modest (less than 40,000) and the offers to take asylum-seekers are voluntary. The Commission’s proposal was for 40,000 people distributed by a mandatory scheme, but Member States would not accept this.

This brings me to my next point: did ‘the EU stop the refugees coming’? Yes, to the extent that it did not give sufficient relief (in the form of relocation of refugees) to Greece and Italy; but the EU’s response on this was only insufficient because Member States, voting in the Council (made up of national ministers), blocked the EU from adopting even a modestly more ambitious relocation decision. As for refugees coming from outside the EU, as noted above the EU does make it hard for them to get here (because Member States want it to do so), but Member States are free to resettle people as much as they like. If the EU did not exist, would Member States really suddenly be willing to admit many more refugees?

The central issue then is the role of national politicians. While the European Parliament has a joint decision-making role on most asylum legislation (not a purely advisory role as some have claimed), it does not have that usual role when it comes to the relocation decision, since it is an emergency measure. And in turn, national politicians are not on an anti-refugee frolic of their own, but responding to the significant proportion of public opinion that still does not want to see significant numbers coming to stay in the EU (see this recent UK opinion poll, for instance). Those who want a more liberal approach to refugees and migration need to focus on convincing their fellow citizens, not blaming the EU.

What should the EU do next?

With all this in mind, what should the EU do next? As I upload this blog post, Commission President Juncker is about to make his ‘State of the European Union’ speech with new proposals. It seems likely that they will include some of the ideas already previewed in May, as part of the EU Migration Agenda (discussed here): a common list of ‘safe countries of origin’; the greater use of Frontex in returns procedure; and new rules on emergency exceptions from the Dublin rules. The latter will be much more ambitious than the first decision to this end (aiming for 120,000 more asylum-seekers relocated, according to reports), although whether Member States will accept this remains to be seen.

I will blog about the details of the new proposals when they emerge, but for now here’s an overview of what I think the priorities should be. (For other suggestions, which partly cross-over with mine, see the position of the UNHCR and Human Rights Watch. I agree with their suggestions to step up rescues and to ensure safe passage for more refugees, but I will elaborate here on some other ideas).

First of all, looking at the situation within the EU, it’s obvious that there needs to be some form of relief (far more than provided for in the relocation Decision about to be adopted) for the Member States bearing a very large share of the burden. As I pointed out at the outset, the concept of burden-sharing is intrinsic to international refugee law (see also the comments on this by my colleague Geoff Gilbert, and by Michael Ignatieff). It’s also recognized in EU law by Article 80 of the TFEU, which refers to the principle of solidarity between Member States.

On that point, it’s reported that a group of newer Member States is resisting not only the idea of relocating asylum-seekers, but even the compromise suggestion of making an extra financial contribution in lieu of this. This is a flagrant breach of the burden-sharing principles of international and EU asylum law. Moreover, since these countries have benefited enormously from their citizens’ refuge-seeking in and economic migration to other countries (both into and outside the EU) as well as a substantial inflow of EU funding, their position is morally untenable.

Secondly, it’s apparent that there needs to be more coordination of national policies within an overall EU framework. The overall impression given is shambolic, although this has not stopped some commentators from ascribing responsibility for every decision of the Hungarian government or even a non-EU state’s police (in the Former Yugoslav Republic of Macedonia) to the EU. Some new forum – perhaps a framework for ministers, civil servants and the heads of EU agencies to meet to discuss rapid reactions – needs to be established. Clearly the overall amount of humanitarian assistance for those reaching Member States’ shores also needs to be increased.

Thirdly, on a similar theme, the consistent interpretation of EU rules needs to be enhanced. There are too many examples of divergent approaches to EU law which should in principle be ‘uniform’ (although Member States have scope to apply higher standards). These sort of issues can partly be addressed through the coordination framework discussed above, but further measures are clearly necessary.

Let’s look at several examples. The Hungarian government has just passed a law to impose custodial criminal penalties upon those who cross its external borders fence. As we have seen already, refugees must be exempt from penalties for irregular border crossing, at least in some cases. Moreover, the CJEU has ruled that irregular migrants should not be subject to custodial penalties for unauthorised entry, since that delays their removal (for a summary of the case law to date, see the opinion in the pending case of Celaj).

Several Member States also have stated that they do not wish to take Islamic refugees. This is again a clear breach of international and EU law: the Geneva Convention specifically states that it applies without discrimination on ground of religion, while the EU Charter of Rights bans discrimination on grounds of religion when applying EU law (and the asylum process in all its aspects amounts to applying EU law). As for the bizarre argument that ‘our country doesn’t have a mosque’, it is in fact possible for Muslims to pray elsewhere. Refusing refuge to Muslims is not necessary to keep Europe Christian; rather It’s a Christian duty to offer refuge, as Pope Francis and the Archbishop of Canterbury have pointed out.

Also, there have been examples of individual mistreatment of groups of refugees and irregular migrants, in the form of police action or border guard pushbacks, or inadequate living conditions. While Member States’ border guards and military forces have surely rescued many more people than they have mistreated, there needs to be a commitment to ensure redress for the latter cases. Although the Schengen Borders Code generally requires border guards to behave courteously and fairly, it would be useful to agree common standards on prohibited behaviour.

On the living standards point, note that it is not accurate to say (on one journalist’s blog) that someone who applies for asylum in one Member State even though another Member State is responsible for their claim under the Dublin is a ‘migrant’. The CJEU expressly ruled in its judgment in CIMADE and Gisti that such a person is an asylum-seeker and is entitled to the relevant benefits until they are transferred to the responsible Member State under the Dublin rules, The same rule is now expressly set out in the preamble to the Dublin III Regulation.

More generally, the EU should reflect on whether more far-reaching moves to achieve more harmonisation in practice should be attempted: for instance, transforming the European Asylum Support Office into a body able to make decisions on asylum applications in ‘overflow’ cases (if need be, by seconding national officials for the duration), and/or creating a common European asylum appeal court. There are still wide differences in recognition rates of refugees between Member States, despite a common legal acquis: the low recognition rate of Eritreans in France as compared to other Member States may have contributed to the ‘Calais crisis’, for instance. In the meantime, the Commission needs to step up infringement actions for breaches of EU immigration and asylum law.

Fourthly, more generally, should Schengen survive? It follows from the analysis above that ending the Schengen system and reimposing internal border controls would likely have little impact on the overall flows of migrants and refugees coming to the EU. It might have a modest impact on restricting their movement between Member States, but the desirability of that outcome is tied up with the merits of the Dublin rules, to which I turn below.

But if Member States are serious about ensuring that irregular migrants and asylum-seekers do not cross borders to flout the Dublin rules, they would have to bring back internal border controls with a vengeance, building fences and installing border guards across many thousands of kilometres of common borders.  Except for Malta, the Schengen states do not have the built-in border control that the UK, Ireland and Cyprus (also not in Schengen) have, for obvious geographic reasons. The likely outcome would be dozens of ‘Calais’ situations at the various internal borders of the Union.

Furthermore, the basic obligation to drop internal border controls is set out in the Treaties, and so a permanent suspension of Schengen would require a Treaty amendment. A reasonable compromise might be to amend the Schengen rules to allow for more temporary internal border checks whenever intelligence shared between Member States suggests that a large number of irregular migrants or asylum-seekers is likely to cross an internal border.

Fifthly, should Dublin survive? I will forego answering this question until we see whether Member States are willing to back a much more ambitious relocation system. If they are, then a significant chunk of the excess burden being borne by some Member States would be redistributed. Asylum-seekers would also benefit from better conditions and a fairer chance of getting protection as a result – although it would be best to take account of their preference in any relocation system as far as possible, so as to reduce ‘secondary movements’.

Sixth, the individual enthusiasm of refugee advocates should be harnessed as far as possible. Why not try to find money from the EU budget to pay those who are willing and able to give humanitarian or other support to refugees and asylum-seekers in an over-burdened Member State, or even a third State? (This would supplement the EU’s existing programmes for volunteers). Why not address a recommendation to Member States, encouraging private sponsorship of refugees to reduce the burden on taxpayers? As well as family and friends, corporations and NGOs should also be allowed to sponsor, and (for instance) universities could ask if students, staff and alumni wanted to sponsor refugees who would meet the criteria to enrol in courses.

Critics of refugee advocates often argue that those advocates should put refugees up in their homes – but many thousands of those advocates have in fact offered to do so. (For my part, let me reassure those panicking about the admission of refugees that I was not beheaded by my Middle Eastern refugee roommate at university).  But let’s turn this argument around: why don’t critics of refugees spend a year in Syria, or in the refugee camps which many Syrians have fled to, before they criticise the refugees for leaving or others for wanting to welcome them?

This brings me neatly to the international framework. To repeat, burden-sharing in refugee matters is not just an EU principle, it’s a requirement of international law too. As regards Syrians, the neighbouring States (Turkey, Egypt, Jordan, and Lebanon) have borne a far heavier burden than the EU or any other countries have done. So it is entirely right for the EU to assist them more with this burden than it is doing already (the EU and Member States already give significant financial assistance).

While refugees in those countries may be safe from immediate persecution, they face difficult living conditions: see the further analyses here of the position in Turkey and the nearby Arab States. Moreover, food support from UN agencies has just been halved. The EU’s further support for these States does not have to be solely in the form of admission of refugees: it could make a further financial contribution to increase the refugees’ living standards. Nor does the EU alone have to offer this assistance: the international law rules apply across the globe, and the nearby Gulf states and other wealthy or middle-income countries could do more by way of taking refugees and offering financial assistance.

In the medium term, some more imaginative solutions are possible. One problem facing Syrian refugees in Turkey is that they are technically not refugees there, since Turkey applies the optional geographical limitation to the Geneva Convention, applying it to European refugees only. This means that many Syrians are not allowed to work. The EU could offer to waive visa requirements for Turkey in return for it lifting the geographical limitation (along with other conditions).

Another idea is the creation of a UN agency with the remit of the Syrian refugee crisis. This would mean that a special regime in the Geneva Convention and EU law would apply: if the agency could not take adequate care of Syrian refugees for any reason, they would be fully entitled to refugee status. Otherwise, their applications could be refused (see further the CJEU judgment in El-Kott, on the application of these rules to Palestinians). At the very least, the EU needs to take the initiative to hold a major international conference on the Syrian refugee situation, in order to encourage and coordinate many other countries’ efforts to take efforts to take a greater share of the burden of relieving this unfolding human tragedy.

Barnard & Peers: chapter 26

Schipani v Italy: When does the ECHR require national courts to refer questions to the CJEU?

Daniel Sarmiento, Professor of EU Law at the University Complutense of Madrid*

The ECHR’s judgment in Schipani vs. Italy, of 21 July 2015, has reopened a subject that is close to the heart of many EU lawyers: the breach of the ECHR by a national court for failing to make a preliminary reference. The ECHR made this judgment public shortly before the summer holidays, so it might have come a bit unnoticed.

In fact, Schipani vs. Italy is not revolutionary at all, because it confirms a line of reasoning that the ECHR started in In Dhahbi vs. Italy, not too long ago.

In Dhahbi vs Italy, the ECHR stated that a refusal by a national court of last instance to make a reference to the Court of Justice, providing no reasoning at all when justifying its decision, entails a breach of Article 6 ECHR (the right to a fair trial). So if a supreme court refuses to make use of Article 267 TFEU (the provision on references to the CJEU) for no reason whatsoever, despite the fact that the appellant has raised it in the appeal, such refusal will breach Article 6 ECHR.

Schipani vs. Italy follows the same track (regarding the same national court, by the way). In this case the Corte de Cassazione had considered the arguments of EU law, but it omitted all reference to whether the issue was an acte clair or an acte éclairé. According to the ECHR, and after considering the contents of the contested national judgment, “it is therefore not clear from the reasoning of the impugned judgment whether that question was considered not to be relevant or to relate to a provision which was clear or had already been interpreted by the CJEU, or whether it was simply ignored”. It therefore came to the conclusion that there had been a breach of Article 6 ECHR.

The interesting point in the case of Schipani is that, in contrast with Dhahbi, the judgment is not unanimous. The dissenting opinion of judge Wojtyczek is very thought-provoking and merits some attention.

According to Judge Wojtyczek, the decision on the breach of Article 6 ECHR for failure to make a reference should not rely on an objective and “automatic” criterion. On the contrary, the breach should be based on the gravity of the interference of the contested decision with the right of the applicant. In other words: not every unmotivated refusal to make a reference should automatically be considered to breach Article 6 ECHR, particularly when the lack of a reference might not necessarily entail a significant loss for the applicant.

The question of the gravity of the interference makes some sense, particularly for a court exclusively entrusted with the protection of human rights. Of course, the Court of Justice might have other policy considerations when interpreting the counterpart of article 6 ECHR under EU Law: Article 47 of the EU Charter of Fundamental Rights. After all, the Court of Justice must interpret Article 47 in the broader context of the EU legal order, which the Luxembourg court needs to ensure. The broader context of EU Law might demand the Court of Justice to pay due attention to its relation of cooperation with national courts, in light of the duty of sincere cooperation. However, it is clear that the duty of guaranteeing the uniform interpretation and application of EU Law rests on the authority of the Court of Justice.

Surprisingly, and when it comes to Article 267 TFEU, it seems as if things might be developing the other way around. The Strasbourg court is introducing a rather “objective” and strict system of review of national judgments from supreme courts subject to the duty to refer to the CJEU set out in Article 267.3 TFEU, whilst the Court of Justice seems quite happy to live with the Cilfit criteria, which in fact grant national supreme courts a very wide margin of action.

This leads us to a rather paradoxical situation, in which the Strasbourg court, entrusted with interpreting Article 6 ECHR, does so in a way that reinforces a strict interpretation of the duty enshrined in Article 267.3 TFEU, whilst the Court of Justice seems rather more deferent with its national counterparts when the time comes to make a reference, thus introducing in the said provision a peculiar variable of the “margin of appreciation” doctrine so close to Strasbourg’s heart.

The Court of Justice has been asked several times in the past by its Advocates General to interpret Article 267 TFEU in light of article 47 of the Charter. So far, to no avail. The developments in Strasbourg might prove that such way forward might not be a bad idea at all. Otherwise the Court of Justice might find itself having to reinterpret Article 267 in light of article 6 ECHR, pushed by the increasing pressure of the Strasbourg case-law in cases like Dhahbi, Schipani and others to come.

Seen in this light, I am not completely sure if judge Wojtyczek is correct in his interpretation of Article 6 ECHR, but I am quite certain that his argument deserves serious consideration.

Barnard & Peers: chapter 8, chapter 10

Photo credit: BBC News

*This post previously appeared on the 'Despite our Differences' blog

The EU’s Patients’ Rights Directive in practice

Tamara Hervey, Professor of Law and Head of Law School, University of Sheffield

In a week in which Europe’s media finally work up to a migration story where the scale of human tragedy is so painful as to be barely comprehensible, it seems almost crass to write about any other aspect of migration than those seeking refuge in Europe from devastating war and civil unrest.

 

But life goes on nonetheless, and this week also sees the European Commission’s publication of its Report on the so-called ‘Patients’ Rights Directive’.  The data in the Report – while incomplete (a fact noted repeatedly by the Report itself) – confirms that this is something of a misnomer.  The underlying aim of the Directive was always going to be obfuscated by political compromise.  Although it was styled the ‘Patients’ Rights Directive’ from its first proposal, to distinguish it from a politically unacceptable ‘Free movement of health services directive’, a more accurate title would probably be the ‘Securing National Health Systems in the Single Market Directive’.

Most Member States have now formally transposed the Directive.  Some 26 Member States failed to transpose the Directive on time, by 25 October 2013. By summer/autumn 2014, 15 Member States had yet to do so (see Commission press releases here and here). The Report notes that five still have not done so, though is coy as to which five.  Incidentally, the number of separate implementing instruments ranges from 116 (Germany) to 1 (Italy, Netherlands).  The pace of transposition and the number of instruments suggest that the ways in which this Directive interacts with laws concerned with national health systems are complex, and that there may well be political opposition remaining in many Member States.  Empirical implementation studies in several Member States confirm this suspicion (special issue of Contemporary European Studies, forthcoming, on file with the author).  Perhaps mindful of this, the Commission Report implies that while transposition may be complete, faithful implementation may not be.

The information in the Report on the use by the Member States of the exceptions to the prior authorisation ‘rule’ is one example of ‘Patients’ Rights’ being something of a misnomer for the Directive.  The Directive explicitly extended the evolving jurisprudence of the CJEU on what constitutes an ‘objective public interest’ justifying a Member State to require prior authorisation before it pays for cross-border health care, to several grounds that had yet to be covered by the CJEU.  These include, beyond hospital care, care involving expensive infrastructure or equipment, treatments that are deemed ‘risky’ for the patient or population, and the splendidly nebulous healthcare ‘ provided by a healthcare provider that, on a case-by-case basis, could give rise to serious and specific concerns relating to the quality or safety of the care, with the exception of healthcare which is subject to Union legislation ensuring a minimum level of safety and quality throughout the Union’ (Article 8 (2) (a)-(c).  The underlying effect of these provisions of the Directive is to provide protection for national health systems from unplanned patient mobility, which could disrupt national settlements in terms of financing and prioritizing health care.  Only seven Member States have not availed themselves of the prior authorisation opportunity.  The European Commission is critical of the basis on which 14 of the other Member States have done so, pointing out that ‘it is unclear for patients exactly which treatments are subject to prior authorisation’.  Perhaps the Commission is setting up the possibility of future infringement proceedings, or, more likely, is signalling that opportunities for further litigation brought by migrant patients could meet a sympathetic ear in at least one of the EU’s institutions.

A second example of the Directive being more about national governments’ entitlements, and the need to protect national health systems from patient migration, than about patients’ rights, is the reimbursement rules in the Directive.  Member States may impose the same formalities on patients seeking cross-border health care as the formalities imposed if a patient seeks health care within the Member State concerned (Article 7 (7)).  The Report confirms that 12 Member States rely on this provision to keep in place ‘gatekeeping’ functions of GP or family doctors.  The Commission flags an overtly discriminatory practice of five of these 12 Member States – insisting that the referral must be from a GP or family doctor in the home Member State. 

A significant proportion of the Report considers the ‘National Contact Points’ (NCPs) – the mechanism by which the Directive envisages that patients will learn of their ‘rights’ under the Directive.  The Commission notes several pieces of research (for instance here) suggesting that NCPs are failing to meet this objective in practice.

Overall, the Report shows that few of Europe’s patients have an appetite for cross-border health care.  In the 17 Member States that reported data on requests for authorisations, only 560 such applications were made.  The 20 Member States that reported data on reimbursements under the Directive reported fewer than 40 000 reimbursements (31 000 were made by Denmark, with a population of 5.6 million). Even taking into account patient movement under the well-established social security regulations (Regulation 883/2004/EC), rates of patient mobility for planned care remain low.  Although the Report nods to the obvious reasons why that might be so (costs, inconvenience, desire to be treated in a familiar place, linguistic barriers), the tone of the Report suggests that the Commission’s view is that patient mobility still remains a lost opportunity in the EU.  Citing a ‘patient organisation’, the Report notes ‘patients have high expectation … the prevailing sentiment is that the National Contact Point must be a gateway to healthcare, not a gatekeeper blocking access’ (p 8).

One instance where patients may well seek health care in another Member State is where the patient will not be able to access the treatment sought in the home Member State.  Aspects of the current legal arrangements suggest that the general principle that the health professional (gatekeeper) is subject to the law applicable in the Member State in which she is established is not always respected.  For instance, the implementing legislation on the mutual recognition of prescriptions (Directive 2012/52/EU) does not make explicit that general principle in the context of differences in regulatory arrangements (which medicines are prescription-only, which are banned altogether) between the Member State of establishment of a health professional issuing a prescription following a remote consultation with a patient in another Member State.  One practical example of this failure to embody general principles of EU law into the legislation is the position of Women on the Web, who lawfully issue prescriptions for Misoprostol, which pharmacists in Northern Ireland or the Republic of Ireland do not fill, even though Misoprostol is authorised for marketing in those countries.

The Report ends with some observations on the ‘governance’ aspects of the Directive – provisions on transparency, on sharing good practice, and on better use of resources through voluntary cross-border collaboration.  The broader context here is of course the significant disruption to national health care systems imposed by the EU’s austerity measures.  In terms of ‘patients’ rights’ in the EU, those measures are considerably more significant than the ‘Patients’ Rights Directive’.

Barnard & Peers: chapter 21
Photo credit: pickereurope.org

Minimum Alcohol Pricing: the AG balances public health, trade and competition

Angus MacCulloch, Lancaster University Law School

Background to the Opinion

Advocate-General (AG) Bot delivered his Opinion in Case C-333/14, ECLI:EU:C:2015:527, on 3 September regarding plans by the Scottish Government to introduce a Minimum Unit Pricing (MUP) for retail sales in Scotland set at £0.50 per unit. Before it could be introduced the measure was challenged by the Scotch Whisky Association. At first instance the Scottish Government successfully defended their proposal, in The Scotch Whisky Association & Ors, Re Judicial Review [2013] CSOH 70, but on appeal the Inner House referred several questions to the CJEU: Scotch Whisky Association & Ors v The Lord Advocate [2014] CSIH_38. The questions referred address the compatibility of MUP with both the single Common Market Organisation (CMO) and the free movement provisions in the TFEU. The AG’s Opinion has been hailed as a victory by both sides in the dispute, and on less partisan examination it does give insight into the importance of price competition to EU law.

The Compatibility of MUP with the single CMO

Article 167(1)(b) of the ‘single CMO’ Regulation, Reg 1308/2013, sets out that Member States must not allow price fixing for wine. But the AG notes that the provision is set out in the specific context of Art 167 which governs the laying down of ‘marketing rules’ to regulate supply [33], particularly where the rules are promulgated by stakeholder ‘interbranch organisations’. He therefore found there was no direct prohibition of retail price fixing in the CMO, and Member States retained their shared competence on this issue.

He then turned to the potential for indirect prohibition through the Member States’ obligation not to jeopardise the objectives of the CMO through Art 4(3) TFEU. The Commission argued that regulating retail prices would be contrary to the principle of the free setting of prices, by denying low cost producers the pricing advantages encouraged by the CMO. At [36] the AG set out that: ‘the free formation of prices is the expression … of the principle of free movement of goods in conditions of effective competition.’ Minimum retail pricing in a Member State would undermine low cost competitive advantage and distort competition, and is therefore incompatible with the single CMO [38 & 39]. Notwithstanding this, the existence of the CMO did not prevent Member States from adopting measures which pursue ‘legitimate objectives’ such as the protection of public health [40]. However, when pursuing such an objective, ‘the principle of proportionality requires that the national measure must actually meet the objective … and must not go beyond what is necessary in order to attain that objective’ [44]. The proportionality analysis should be the same as used under Art 36 TFEU, concerning possible Treaty-based limitations on the free movement of goods.

The Compatibility of MUP with Art 34 TFEU

The first notable aspect of the AG’s Opinion in relation to Art 34 (the ban on quantitative restrictions or measures of equivalent effect – or MEEQRs – on the free movement of goods) is that he undertakes an analysis of whether MUP is a MEEQR, even though both parties to the dispute had accepted it was. Reconciliation of the CJEU’s approaches in its previous judgments in van Tieggle, Keck, and Trailers is not easy. Can, after Keck, MUP be characterised as a ‘selling arrangement’ and fall outside Art 34 TFEU in principle, effectively rendering the finding in van Tieggle otiose? The AG avoids the problem by, at [58], adopting a hybrid approach which takes elements from all the judgments, including the ‘market access’ test in Trailers, thus: ‘a national measure may constitute an obstacle not only when, as a selling arrangement, it is discriminatory, in law or in fact, but also when, irrespective of its nature, it impedes access to the market of the Member State concerned’. If the measure hinders access there is therefore no need to consider if it is discriminatory, because it will fall within the scope of Article 34 in any event. He goes on to make clear that the loss of the ability to exploit low cost competitive advantage is in itself a hindrance to market access and brings MUP within the scope of Art 34 TFEU; effectively contemporising van Tieggle reasoning through the Trailers ‘market access’ test [60]. This is perhaps one of the most interesting suggestions in the Opinion. It gives price competition special protection as a driver of free movement within the internal market. The AG, for completeness, goes on to also discuss whether MUP might be a dynamic selling arrangement (like an advertising restriction), but his arguments [66-67], particularly those about domestic wine production, are not very convincing.

Moving on to consider the potential justification of a MEEQR under Art 36 TFEU, the AG first discusses the discretion available to Member States when deciding on the level of protection for a legitimate objective. He argues that the Member States must be allowed discretion as range of policy choices could be taken in these complex areas, but that Member States must adduce evidence to show that they have made a suitable and proportionate choice [87]. The explanation of how the analysis of proportionality should be undertaken, at [91]-[93], is, however, not particularly clear. Para [93] is the most troubling, suggesting that the national court should balance the ‘degree of impediment’ to trade against ‘the importance of the objectives pursued and the expected gains’. Should a domestic court be required to balance the benefits of trade against a public health benefit?

When the AG moves onto more direct consideration of MUP he examines a vital question in the first instance judgment, which I have previously addressed elsewhere: the identification of the particular aim of the measure. He suggests, at [116]-[117], that there is an ‘ambiguity’ whether MUP’s aim is to tackle, ‘harmful’ and/or ‘hazardous’ drinking, or protect the health of all drinkers; it is, however, acknowledged that the national court will have to take the final decision on this matter. The AG does accept that in relation to harmful and hazardous drinking, notwithstanding the complexities involved, it ‘does not seem unreasonable’ that a Member State might consider MUP an ‘appropriate means’ of attaining the objective [127]. He was also convinced by evidence presented by the Lord Advocate regarding the particular impact of MUP alongside other polices in relation to harmful and hazardous drinkers, particularly amongst the young [135]. At this point you might think that the Lord Advocate has won over AG Bot, but there is sting in the tail of the Opinion.

When it comes to the necessity of the measure the AG is less convinced, especially when MUP is compared with the alternate policy of a general increase in alcohol duty. At first instance the Outer House of the Court of Session rejected a general increase in duty because it did not effectively target the measure at harmful and hazardous drinkers, as it would also have an impact on moderate drinkers, and less problematic on-sales consumption. The AG is not convinced by the argument that the measure is more targeted [147]. The key passage comes in para [149]: ‘on the assumption that the objective of the rules … is genuinely confined to combating the hazardous and harmful consumption of alcoholic beverages … I consider that it is for the those responsible for the drafting of those rules to show that increased taxation is not capable of meeting that targeted objective.’ In itself that is not a controversial statement; the burden of proof in such an instance is well established. But he goes on to add another element: he argues the Lord Advocate would have to ‘adduce evidence’ that a general increase would have a ‘disproportionate impact’ on moderate drinkers, and that it could also have a benefit in addressing harmful or hazardous consumption in higher income groups who are less likely to be effected by MUP. He also adds that a general increase might also have another ‘additional advantage’: a contribution to general health objectives. This might ‘constitute a decisive factor that would justify the choice of that measure rather than the MUP measure’ [150].

To my mind this is a false step at the end of the Opinion. Increases in general excise duties have been the preferred measure in many of the Tobacco cases referred to in the Opinion, but the problems of tobacco and alcohol consumption are very different and suit different solutions. All tobacco consumption is bad, and all consumption is essentially the same. That is not true of alcohol, even in Scotland. Consumption in bars and restaurants poses very different problems when compared to alcohol purchased for consumption at the home or on the streets. Patterns of consumption of different types of product are also very different. I am far more convinced that the targeting of the measure serves a useful purpose. I am also still confused as to why a general increase in duty, which by definition will impact on all consumers and all trade in alcohol, as opposed to the limited impact of MUP, is seen as being less restrictive on trade. A general increase in duty must affect a higher volume of trade if nothing else. I suggest the push towards general duty increases is not really about trade at all. Again we see a policy choice designed to protect price competition in the market. The Tobacco Directives make their competition goal explicit, but it appears that the AG is using Art 34 & 36 TFEU to achieve the same result in the free movement sphere.

Barnard & Peers: chapter 12

Putting the cart before the horse: a doomed constitutional strategy for negotiating the T-TIP

Emanuela Matei*

* Associate Researcher at the Centre of European Legal Studies, Bucharest. Juris Master in European Business Law (Lund University, June 2012), Magister legum (Lund University, June 2010), BSc in Economics & Business Administration (Lund University, June 2009).

Introduction

On 18 June 2015 the European Commission requested the termination of the intra-EU bilateral investment treaties (BITs) concluded by Austria, Romania, Slovakia, Netherlands and Sweden. The Commission argued that due to their accession to the EU, Member States accepted that relations between them as to matters within the scope of conferred powers are, as the CJEU said in Opinion 2/13 (on EU accession to the ECHR) “governed by EU law to the exclusion, if EU law so requires, of any other law”.

A common feature of the European BITs and free trade agreements (FTAs) is the presence of a clause on investor-state dispute settlement (ISDS), which may involve concerns of inequality before the law in the context of a limited access of individuals to the judicial system of the EU. Moreover, issues of substantive discrimination are prompted by a frequently reaffirmed superior level of protection of investment under the BIT compared with EU law.

In 2003, the Commission, the U.S. government and the acceding states from Central and Eastern Europe – apart from Hungary and Slovenia – signed a memorandum of understanding, which aimed to eliminate the possibility that American investors would use the BITs in order to challenge regulatory or administrative measures adopted by the Member States with the aim of complying with EU law. By doing that the Commission has shown awareness concerning the imminent clash displayed by cases like Micula, Eureko or Eastern Sugar.

In Micula v Romania, ICSID Case No. ARB/05/20, the relevant law is the Romania-Sweden BIT ratified in 2003, four years before the accession of Romania to the EU. The award issued in this case ordered Romania to pay damages of approx. EUR 83 million (RON 367.4 million). The facts of the case depict the pre-accession situation and the promotion of investments in specific disfavoured regions. Together with several other cases – Electrabel, AES, and EDF – Micula reflects a specific type of incompatibility: the clash between the state aid prohibition in EU law and the maintenance of a preferential regime ordered by the international investment law regime instituted by the BIT network. (For more on Electrabel, see the analysis of Matei and Ciurtin here).

The incompatibility with EU law of the fiscal advantages offered to investors was established first by the Romanian Competition Council and later by the Commission and the fiscal regime was abolished before the accession. This act of abolition triggered the dispute before ICSID (the International Centre for the Settlement of Investment Disputes).

The European Commission participated as amicus curiae in the ICSID-proceedings, though the arguments brought by it were not admitted. A different conceptual understanding of the principle of legitimate expectations is the main source of conflict. In EU law, a state aid measure must be notified and approved and only afterwards the beneficiary may enjoy the protection derived from the principle of legitimate expectations.

In the interpretation of the arbitral tribunal, on the other hand, no matter that a state measure is implemented in breach of EU law, the investor is entitled to protection. In March 2015 a Commission Decision ordered the recovery of state aid. Romania had already paid a part of the damages awarded by the arbitral tribunal. The payment constitutes illegal state aid and it must be recovered. By complying with the ICSID-award, Romania would fail to defer to the Commission Decision.

In Eastern Sugar Netherlands v CzechRepublic, SCC Case No. 088/2004, the relevant law was the Agreement on encouragement and reciprocal protection of investments between Kingdom of the Netherlands and the Czech and Slovak Federal Republic, which was ratified in 1992. This case presents a typical example of incompatibility: the clash between quotas imposed by EU on agriculture products and the requirement to maintain a preferential regime for the foreign investor.

The arbitral tribunal interpreted the Vienna Convention on the Law of Treaties (VCLT) finding that the subject matters treated by the BIT and the EU law were dissimilar, the parties did not mean to terminate the BIT and the BIT and the EU Treaties were compatible. It awarded damages of EUR 25.4 million for loss of sugar quota attributable to the Czech Third Sugar Decree of March 19, 2003.

The defendant argued inter alia that post-accession damages should not be made subject to arbitration, since they fell within the exclusive jurisdiction of the CJEU according to Article 344 TFEU. The tribunal noticed that the European Commission did not start infringement proceedings against the Netherlands and the Czech Republic for failing to terminate their BITs as it would have been expected, if the BIT had been incompatible with Article 344 TFEU. The argument of the defendant that the BIT had been implicitly superseded by the acquis communautaire when the Czech Republic acceded to the European Union was rejected. It must be retained that the inaction of the Commission and the parties has been interpreted by the arbitral tribunals as a tacit endorsement of compatibility.

In Eureko Netherlands v Slovak Republic, UNCITRAL, PCA Case No. 2008-13, the applicable law is the same as in Eastern Sugar. Achmea, previously Eureko, is a Dutch insurer and the facts of the case refer to the liberalisation of the Health Insurance Sector in 2004. In late 2006, the newly elected Slovak government sought to reverse the liberalisation of 2004. Slovakia claimed that the arbitration clause was incompatible with EU law, while the arbitral tribunal reasoned that no provision of EU law actually prohibited investor-state arbitration. The arbitral tribunal awarded EUR 22.1 million damages.

The arbitral tribunal found in its decision of 7 December 2012 that the BIT was valid and compatible with EU law and the dispute was arbitrable despite the relevance of EU law. Investors were granted more extensive rights under the BIT compared with EU law and the arbitral tribunal found that this inequality stayed in line with law. Hence, the unequal treatment of EU investors seems to be contingent to the special character of protection, which a foreign investor is habitually entitled to claim in conformity with the BIT definitions.

As to the interpretative monopoly of the CJEU, the Frankfurt Court of Appeals (Oberlandesgericht) ruling on the matter of validity of the ISDS-clause in the Netherlands-Slovakia BIT found that the exclusivity enshrined by Article 344 TFEU did not cover investor-to-state disputes (see also my comments here). The German court did not refer the question for a preliminary ruling, even if the interpretation of Article 344 TFEU should reasonably have been submitted to an examination under Article 267 TFEU.

Intra-EU BITs

Firstly, the intra-EU BITs came into existence mostly as the result of the EU accessions of 2004, 2007 and 2013, only two intra-EU BITs being concluded between old (pre-2004) Member States. Even if the incompatibility manifests itself later – at the level of litigation – thus the conflict becomes more dramatic after the accession, in substance, the incompatibility between the EU conceptual framework and the BIT philosophy precedes these accessions. Hence, it would be reasonable to ask the question why the legal status of the intra-EU BITs has not been discussed during the pre-accession period in a more transparent and well-founded manner.

Moreover, most BITs contain sunset clauses that instruct an undisrupted protection in relation to investments already in effect. The termination would only have force for the future investments, since the investors may rely on the provisions of a BIT for periods of usually 15-20 years from the date of termination (see further my comments on Romania's termination of its BITs). The accession of the post-2004 Member States was not an unprepared sudden decision, but a process with a duration of 9-12 years. The incompatibility with EU law has been hanging over the heads of the new Member States as a veritable Sword of Damocles. Thus, the intra-EU BIT disputes should not be depicted as anomalies. They could have been prevented by a more pre-emptive approach.

External BITs

The Acts of Accession – for all thirteen newer Member States – provide that “with effect from the date of accession, [the state] shall withdraw from any free trade agreements with third countries”. According to Article 6(9) and Article 6(10) of the corresponding protocols, if an agreement signed previously cannot be brought in line with EU law, the Member State in question shall withdraw from it (see the Protocol on Romanian and Bulgarian accession). The Acts  concerning the conditions and arrangements for admission from 2003, 2005, and 2012 speak a clear language. The acceding states had to denounce any trade agreement they might have concluded and become part of the free trade agreements concluded by the EU. Would it not have been more appropriate to provide a similar obligation with regard to the extra-EU BITs?

Having in mind the sunset clause, mentioned above, the effect of termination cannot be direct and immediate, so an earlier handling of the incompatibility issue would have reduced the time horizon for potential disputes. It must be reminded that the previous wave of accession, when Sweden, Finland and Austria joined the EU, also generated an obligation to align the BITs signed by these countries with the obligations imposed by Article 351 TFEU and Article 4(3) TEU[11] (see the judgments in Commissionv Austria, Commission v Sweden and Commission v Finland). The potential conflict is no novelty.

The general incompatibility of the BITs with Union law – discussed below – poses moreover the question whether Regulation 1219/2012, which concerns the investment treaties between EU Member States and non-Member States, actually did clarify their legal status. My criticism refers to the fact that instead of giving highest priority to the problem of general incompatibility, the Commission dealt first with specific examples of incompatibility. Such concrete examples relate for instance to the exclusive prerogatives of the Council to regulate capital movements under Article 64(2) TFEU or Article 75 TFEU. The Commission’s diplomatic strategy has placed the cart before the horse i.e. the specific prerogatives of EU institutions before the protection of the foundation of the EU law.

Moreover, the incompatibility can damage the effort of establishing a level playing field for the outbound investments. The investors from the Member States having no BITs with countries like Chile, Japan, Korea, Canada or most recently, the U.S.A. will not enjoy the same level of protection not being able to escape certain restrictions imposed by the relevant FTA. The general incompatibility entails a high level of complexity, therefore it cannot be surprising that such intricate consequences have occurred.

The reversed logic of the relation between intra- and extra EU BITs

Investment protection was the main tool for economic reconstruction during the post-WWII era, which constituted the dominant function of the Friendship, Commerce and Navigation treaties (see the Vandevelde paper in the notes). The next big event was the signing of the GATT in 1947, which marked the shift from bilateral to multilateral negotiations and an expanded scope of talks beyond tariffs. The GATT and the EEC (now-a-days, the EU) – founded in 1957 – contributed to deeper economic integration among Western countries, thus substituting and surpassing the Friendship, Commerce and Navigation treaties subsequently seen as less than ideal vehicles for trade promotion. The network of BITs emerged as means to ensure investment protection outside the ambit of the GATT and the EU. The overlapping between BIT protection and EU law has not been intentional.

As mentioned above, the Commission took the initiative of signing a MoU with the U.S. government being aware of the existence of incompatibilities between the European BITs and EU law. Areas of law, which have been specifically named in the MoU are: the economic freedoms, state aid rules and the obligations imposed by the EU treaties in relation to third countries.

Article 351 TFEU, which governs the relationship between EU law and the pre-existing treaties between Member States and non-EU States, gives expression to the obligation of the Member States to eliminate all incompatibilities with EU law resulting from extra-EU BITs. Then again, the Treaty of Lisbon does not overtly consider the status of the intra-EU BITs. Article 4(3) TEU may be nonetheless useful for this purpose. Some arbitral tribunals interpreted Article 351 TFEU as inferring paradoxically a more lenient regime for the intra-EU BITs.

By not opening earlier infringement proceedings or not explicitly placing the intra-EU network of BITs outside the law, the EU institutions did – according to the arbitral tribunals – tacitly endorse the intact validity of these BITs and the jurisdiction of the arbitral tribunals for that matter. The contrast between alter- and outer legality is of the essence, since the ISDS exists as an alternative to, not a substitute for, the domestic judicial system.

General incompatibility with EU law

From a purely legal perspective the situation of double standards covering areas of law defining the very foundation of the Union – the economic freedoms and the transjudicial dialogue based on sincere cooperation and mutual trust – are direct threats to its political integrity and the autonomy of the EU legal order. The risk of jeopardising the autonomy of the Union legal order is the consequence of an extant parallel international order that does not have to bring its rulings in line with the interpretation of EU law adopted by the CJEU.

It must be mentioned as well that usually the conceptual conflict between international law and EU law relates to the contradiction between reciprocity and the EU federal principles of autonomy, conferral and subsidiarity. However, the legal regime represented by the European BITs has been characterised by asymmetry being designed to protect the interests of investors from the capital exporting countries against the whims of the unstable governments in the capital importing countries. This is why, there are not many BITs signed between pre-2004 member states and the focus of the Commission has been initially set on the BITs signed by an acceding state with third countries.

The transition from the pure intergovernmental set of rules to a more federal agenda engendered legal discrepancies, negative interlegality and significant costs for the parties directly involved in these disputes. However, on the state-to-state level, it is obvious that the EU accession of the capital importing countries to the CEE provided a more substantial and comprehensive safeguard for the capital exporting countries in the North-western Europe than a BIT would ever be prone to afford. It is difficult to support the argument of practical significance of BITs in the constitutional framework of the European Union by using legal terms.

The only persuasive argument is the protection of legal certainty of the investment regime within the EU, though the strength of it has only been tested by the arbitral tribunals against the VCLT (Articles 59 and 30 of that Convention). The conflict of laws assessment has constantly reached the conclusion that each BIT has not been displaced by the EU treaties. The Vienna Convention does neither bind the Union nor all its Member States. It has relevance only as a reflection of the rules of customary international law, which are binding upon the Union institutions and form part of the Union legal order (see CJEU judgments in Racke, El-Yassini and Jany). From this point forward the matter becomes one of harmonious interpretation, a method which requires a deferential attitude towards the legal identity of the challenger. The ECtHR for instance follows the jurisprudence of the CJEU and the opposite is true, even if no binding agreement has been signed and no hierarchic structure has been crystallised between them.

In its Opinion 2/13, the CJEU did not agree to assign the power to interpret EU law provisions to the final adjudicator in matters of human rights – the ECtHR – affirming once again that the interpretation of EU law must remain the exclusive prerogative of the Union supranational judicial authority (see the discussions on this blog by Peers and Barnard). So, how could someone expect the CJEU to agree with a transfer of powers to a non-judicial and temporarily constituted entity, which is ineligible to refer to the CJEU for a preliminary ruling under EU law? (see the judgments in Pretore di Salo, Pardini and Corbiau) How could it be possible to do that without contradicting itself in the assessment of a fundamental matter?

As van Harten says: “The powers shifted to arbitrators are among the highest that any adjudicator can exercise. They involve the final determination of the legal boundaries of sovereign authority, as exercised by any legislative, executive, or judicial body, based on broad standards of foreign investor protection. They can lead to the assignment of potentially vast amounts of public funds to private actors, usually large companies. They are backed by an international enforcement system that is more powerful than that of domestic or international courts. They are subject to very limited judicial review or no judicial review at all, depending on the arbitration rules under which the foreign investor chooses to bring its claim”.

The possibility to obtain damages for state or supra-state non-contractual liability within the EU is narrowly defined, thus in a similar situation of (for example) expropriation without compensation, an investor under a BIT agreement would enjoy a higher degree of protection being able to obtain substantial damages as underlined by van Harten above. So should the same enhanced level of protection be granted to all investors no matter if their situation is covered by a BIT or not? In Eureko the claimant declared explicitly that it preferred to use the arbitration solution offered by the BIT instead of the judicial path offered by the EU system and the arbitral tribunal recognised that a higher level of protection is guaranteed under BIT-regime.

T-TIP: Will the cart be placed on the spot?

While the Council believes that the new legal framework should contain the pre-existing investor guarantees in BITs, and the Commission also supports ISDS, the EP has moved towards opposing it in its present form, asserting in 2013 that future EU investment agreements should include an ISDS-clause, only if it were justifiable in the light of a case-by-case assessment. At the most recent EP consultations, Bernd Lange – rapporteur on TTIP for the EP’s international trade committee (INTA) – affirmed exultantly: “We have placed the extrajudicial arbitration in the dustbin of history. It is clear that private tribunals have no future in trade agreements. And we will work on a new system, which corresponds to a public court”.

Kleinheisterkamp and Poulsen proposed in their turn three distinct patterns for investor protection in the T-TIP. The first choice – no greater rights – corresponds to the American trade policy adopted by the 2012 US Model BIT.

The second pattern – the Australian ISDS model – matches the proposal of most Committees of the European Parliament being characterised by default reliance on domestic courts supplemented by state-to-state dispute settlement and institutionalised consultations concerning the domestic regimes of investor protection.

The third pattern would be in tune with the European Union constitutional structure as to the choice to allow primarily the domestic courts to decide on the legality of public acts, then it reflects the American philosophy with regard to binding state interpretations and filter of frivolous and obviously unmeritorious claims (see Tietje and Baetens, in the notes; compare to the Bipartisan Congressional Trade Priorities and Accountability Act 2015, p 14). The possibility to review the legality of state measures at the level of domestic courts would enable them to refer for preliminary ruling, which is key for the constitutional autonomy of the EU.

In this sphere, flexibility and consistency must go hand in hand and perhaps the Europeans could extract some relevant knowledge from the developments accumulated by the United States during the past three centuries. A comparative historical study could be a beneficial groundwork for achieving an improved insight into the matter of trade agreements authority. As the EU-BITs array of contradictions perfectly shows, despite its apparent political cleverness, the strategic move of putting the cart before the horse would be an unfortunate decision as regards the T-TIP negotiations.

Barnard & Peers: chapter 24

Art credit: www.euractiv.com

Notes 

Kenneth J. Vandevelde, ‘A Brief History of International Investment Agreements’ UC Davis Journal of International Law & Policy 12, no. 1 (2005): 157, 165-166.

Christian Tietje and Freya Baetens, ‘The Impact of Investor-State-Dispute Settlement (ISDS) in the Transatlantic Trade and Investment Partnership’, 26 June 2014, p. 127. Compare with the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (TPA-2015), p. 14.