By Daniel Thym, Chair of Public, European and International Law,
University of Konstanz
International treaties have rarely
received more attention than the proposed free trade deals between the EU and the
US and Canada. This entails that many law students and practitioners are
confronted with a theme that does not feature prominently in legal education.
In debates with students, I realise that preconceptions about the functioning
of domestic legal systems are regularly projected upon the international sphere.
One example is a demand that companies should challenge state action before
domestic courts instead of dispute settlement bodies under the planned EU/US agreement
(TTIP) and the proposed EU/Canada trade agreement (CETA). These claims often
assume that national courts hold the competence to enforce corresponding rules.
For lawyers working on domestic issues it seems self-evident that courts can
apply the law.
Against this background, this
blogpost focuses on a provision in the Draft CETA with Canada (Article 14.14:
see the text below), whose relevance has not been acknowledged so far,
including by the stimulating contributions to the Verfassungsblog Symposium on
Investment Protection. On page 470 of the roughly 1600 pages
of the consolidated CETA Draft Agreement, which the
Commission regards as a template for free trade negotiations with the United
States, we come across a final provision of seemingly minor relevance on
‘private rights’, which rejects the applicability of the agreement en passant.
This reaffirms that the implications of the free trade deals would be less
dramatic than some suggest.
Background: CETA and TTIP as International EU Agreements
In order to
understand the relevance of Article 14.14 on private rights, we should apprehend
that most segments of the free trade agreements would be binding upon Member
States as an integral part of EU law. Axel
Flessner may try to argue that the
arrangements would constitute an ultra-vires-act (thereby initiating more tweets
than any other contribution to the said symposium), but the plain Treaty text
demonstrates that the legal picture is fairly evident. Article 207
TFEU declares that the EU’s Common
Commercial Policy (CCP) allows for the conclusion of trade agreements on goods
and services and embraces, among others, ‘foreign direct investment’, while Article 3 TFEU maintains that the conclusion of agreements in this area shall be an
exclusive Union competence.
These
provisions were a deliberate policy choice after decades of wrangles about the
precise scope of the CCP. The Treaty of Lisbon was meant to replace earlier and
ambiguous formulations with an overarching competence for the European Union.
In its Lisbon Judgment, the German Federal Constitutional Court recognised the pertinence of this
change: ‘With the exclusive competence as set out above, the Union acquires the
sole power of disposition over international trade agreements which may result
in an essential reorganisation of the internal order of the Member States.’
Judges in Karlsruhe gave the green light to the changes nonetheless, albeit
with a minor caveat that ‘much argues in favour of assuming that the term
“foreign direct investment” only encompasses investment which serves to obtain
a controlling interest in an enterprise’ and excluded so-called portfolio
investments (ie, non-controlling interests in companies) as a result.
This
reference to the limits of the CCP is relevant, since it indicates, in general
terms, that there remain uncertainties about the precise delimitation of
competences for corollary aspects of international trade. For that reason, most
national governments maintain that CETA and TTIP should be concluded as
so-called ‘mixed agreements’, with the EU and all 28 EU Member States as
signatories. If that view prevailed, national parliaments would have to give
their consent as well. However, this would not modify the internal allocation
of powers; the EU institutions are in the driving seat in the vast field of
Union competence – both during the negotiations and with regard to legal
effects. It is established
case law that the legal effects of
mixed agreements follow the rules of Union law for all matters that are covered
by the Common Commercial Policy.
Domestic Application of Agreements concluded by the EU
The
predominance of Union law in legal practice can obscure our awareness of the
specificities of the international legal system. Law students across Europe
learn in their undergraduate courses about the direct and supreme effect of
supranational rules, but are not always familiar with public international law.
Domestic courts have to apply Union law in pretty much the same was as national
law, but this assumption cannot be extended to public international law without
modification, including in situations in which the EU concludes international
agreements with third states.
It is true
that the ECJ
maintains that international agreements
can have direct effect as an integral part of the Union legal order – and an
example demonstrates that this can have critical implications: for example, judges
in Luxembourg decided in
July that Member States cannot
automatically require the spouses of Turkish nationals to acquire basic
language skills of the host country. Legally, this conclusion rests upon an
interpretation of the so-called standstill provision for the self-employed in
the Additional
Protocol of 1970 to the Association
Agreement between Turkey and today’s European Union. In the terminology of
international trade law, the case concerned a so-called non-tariff barrier to
the freedom of establishment. It is these non-tariff barriers that take centre
stage in both CETA and TTIP negotiations (neither of the latter treaties will affect
migration, though).
If the
underlying legal arguments about direct effect and court jurisdiction extended
to free trade deals with Canada and the United States, the implications could
be dramatic indeed. Both the ECJ and domestic courts would hold the power to
correct domestic or supranational legislation, whenever it falls foul of CETA
or TTIP. Yet, this outcome is no foregone conclusion, since the ECJ opts for a
direct applicability of international agreements ‘only where
the nature and the broad logic of the latter do not preclude this.’ In deciding whether this is the case, the Court considers, among other things,
the purpose of the agreement, the will of the parties and the question of
reciprocity, i.e. whether the Union would be alone in recognising direct
effect. Luxembourg may have largely ignored the question of reciprocity with
regard to Turkey and other neighbours of the EU, but it traditionally takes
centre stage in the evaluation of trade liberalisation agreements.
Article 14.14 of the CETA Draft Treaty
Once we have
understood the far-reaching implications of direct applicability, we may
appreciate the bearing of the clause on private rights in the final provisions
of the consolidated Draft CETA
Agreement, which states: ‘Nothing in
this Agreement shall be construed as conferring rights or imposing obligations
on persons other than those created between the Parties under public
international law, nor as permitting this Agreement to be directly invoked in
the domestic legal systems of the Parties.’
That is
nothing less than the official denial of direct effect in the operative treaty
text; neither the ECJ nor domestic courts would hold the power to apply CETA
rules in domestic proceedings or to annul legislation which contradicts trade
law. CETA and TTIP would get the same treatment that the ECJ accords
to WTO law, which also does not have
direct effect in the EU legal order and the domestic legal systems of the
Member States – not even in situations, in which the appellate
body of the WTO Dispute Settlement
Mechanism confirmed that EU legislation falls foul of WTO standards.
Denial of
direct effect is an important stumbling block for the long-term success of any
free trade agreement, especially when it comes to the elimination of non-tariff
barriers to trade, since corresponding rules are often formulated in an open
manner. The real-life implications of such vaguely formulated provisions
depends decisively upon the continued will of the parties and the availability
of control and enforcement mechanisms – as the experience with non-tariff
barriers to trade in the EU single market and the example of language requirements for spouses of Turkish nationals
demonstrate. Without institutional control mechanism, vague treaty formulations
are often ineffective.
Implications for the Debate about Investor-State-Dispute Settlement
In the light
of Article 14.14 of the CETA Draft Agreement, we may have to re-consider our
perspective on the proposed investor-state-dispute settlement rules in both
CETA and TTIP. Critics will use the absence of direct application as an
argument to decry the special treatment for investors; supporters, by contrast,
will argue with the
Commission that the dispute settlement
bodies are a compensation for domestic legal remedies, which would not be
available for the substantive rules of CETA and TTIP. I personally share the
opinion of Christian
Tams that the debate should focus
on the desirability of special rules for investors (and not the question of
procedure). The latter may be superfluous in relations with the US and Canada, but
to abandon them would render it difficult to insist upon similar provisions in
negotiations with China, Russia or other states we trust less.
In any case,
the absence of direct effect in domestic proceedings shows that the legal
implications of CETA and TIIP would be less dramatic than some commentators in
the public debate suggest. Courts in Europe would not hold the power to annul
domestic or supranational legislation, which violates the agreements – a power
that also the dispute settlement bodies would be denied explicitly, together
with the option for the state parties to force their reading of the agreements
upon the arbiters by means of an authoritative
interpretation. This would orientate the
dispute settlement rules in CETA and TTIP towards inter-state bargaining,
pretty much like in the WTO context.
The denial of
direct application demonstrates that both the CETA Draft Agreement and the TTIP
negotiation position are far removed from resembling anything like EU-style
integration through law – and I consider this to be a good thing given that any
dynamic interpretation would lack much of
the democratic legitimacy and procedural constraints, which we have, notwithstanding all the deficits, in the European context.
It seems to me that it is the biggest benefit of the debate about CETA and TTIP
to this date that the broader public has started discussing the governance of
economic globalisation. That debate will stay with us, even if an seemingly
unimpressive provision on page 470 of the CETA Draft Agreement excludes the
domestic enforcement of the transatlantic trade rules.
This blogpost has been published previously on ‚Verfassungsblog – On Matters Constitutional‘
Barnard & Peers: chapter 25
Image credit: capreform.eu
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